No improvement has been experienced in the economic environment during the second quarter of 2002. Although a continued upturn in economic activity was seen in the USA � albeit with weaker growth rates � this was contrasted by the situation in Europe, where it was still not possible to report any upturn in economic activity. Restrained consumer buying as a result of conversion to the Euro, persisted in all consumer sectors, not only in Germany, but in all Euro�currency countries. Neither was any change seen in the stagnated level of economic activity experienced in the building sector throughout the entire “Euro” region. In Germany in particular, this industrial sector continues to be characterised by a decline in new building activity and a restricted willingness to carry out renovation work.
A considerable influence was exerted on Villeroy & Boch's sales trend by the weak economic environment, with the effect that the company was no longer able to achieve the growth rates reported in recent years. The company did, however, continue to successfully develop its good brand image, thus reducing its dependence on economic conditions, in particular those in the construction sector. Sales rose by a total of 1.1 % in the first half of 2002, as compared with the corresponding period of the pervious financial year. When structurally adjusted to exclude the acquisitions Acomo in Belgium and Villeroy & Boch Wellness Italia, a 3.1 % decline resulted.
Foreign business, on the other hand, experienced a positive trend, reporting an increase of 5.2 %. As a result, foreign sales now account for 69.2 % of total sales, having risen from 65.8 % in the comparable period of the previous year.
The volume of orders on 30 June 2002 totals Euro 42.6 million as compared to Euro 44.9 million at the start of the financial year.
An improvement has been seen in the Villeroy & Boch Group earnings situation during the second quarter of 2002. Although the operating result in the first quarter was below that reported in the corresponding period of the previous year, after the first six months of 2002 it has risen from Euro 10.0 million to Euro 10.7 million. This increase in earnings has resulted mainly from the rise in Tableware Division sales, in conjunction with cost-cutting.
Weak economic activity in the construction sector continued to characterise the first half of 2002 and there is still no sign of any recovery in building investments. Given the decline in demand and surplus production, there continues to be extremely high competitive pressure with price wars.
Consequently, Tile Division sales totalling Euro 142.0 million in the first six months of the year 2002, are roughly 11.3 % below those reported in the previous year. In view of this trend, there will be a continuation of the rationalisation scheme which includes necessary personnel adjustments. The previous year's operating-result figures saw an improvement of Euro 0.9 million, thus reaching break-even point. At the start of July 2002 steps were initiated to combine the Bathroom and Kitchen Division with the Tile Division. This reorganisation is to ensure faster implementation of the “House of Villeroy & Boch” concept, a standardised brand appearance on the market, an improved competitive situation, better use of synergies, the reduction of structural costs and sustained profitability of the operating area “Tiles”.
Owing to the weak market situation in Germany, the Tile Division anticipates a sales decline for the year 2002 as a whole. Expenditure for rationalisation measures and the aforementioned reorganisation make a balanced result in 2002 appear unattainable.
Despite the already-mentioned weak level of economic activity in the construction sector in the first half of 2002, the Wellness Division was nevertheless able to achieve sales growth of 64.0 % bringing the total to Euro 56.9 million. When structurally-adjusted to exclude sales made by Acomo and Villeroy & Boch Wellness Italia, sales rose by 4.0 %.
The reason for this positive trend is to be found in the sound market strategy, successful policy of innovation and use of synergies created with the acquired companies.
An appropriately good development was also experienced by the operating result, which the Division was able to increase by 12.5 % to a total of Euro 0.9 million.
Despite the uncertain market situation in our major markets, we therefore anticipate a continued rise in sales and operating result in the second half of the year, improving on the figures reported in the previous financial year.
Tableware: sales growth and improved performance, despite weak level of consumption
A pleasing sales trend can also be reported for the first half of 2002 in the Tableware Division. Despite the difficult second quarter, the Division was able to conclude the first half year with a 2.4 % sales increase, bringing the total to Euro 138.3 million. In so doing, the Tableware Division was able to assert itself on the market clearly better than the German porcelain industry ( 6,8 %).
Owing to the increase in sales volume and also to cost-cutting measures, the operating result rose distinctly from Euro 0.5 million to Euro 5.6 million.
Sustained sluggishness in consumption on the domestic market, increasingly restrained buying in other Euro countries and the uncertain economic development in the USA all dampen the Division's expectations for the second half year. As a result of extremely successful new product introductions, particularly in the “Metropolitan” segment and also owing to a hotel business segment which � in contrast to all market trends � is growing, it should, nevertheless, be possible to maintain last year's level of sales and increase market share in major markets.
An average of 10,973 persons were employed in the Villeroy & Boch Group during the period from January to June 2002, as compared with 10,781 persons in the same period of the previous year. This rise is to be attributed to the initial inclusion of the newly-acquired companies Acomo and Villeroy & Boch Wellness Italia. Disregarding these companies, the average number of employees remains on the same level as in the previous year.
The Villeroy & Boch preference share reported an extremely positive trend during the first half year. Being listed at Euro 9.80 at the start of 2002, it peaked several times at Euro 11.50 and on 30 June, had a value of Euro 10.45. During the first half year, therefore, our shareholders have attained a 6.6 % increase in market price, which actually totals more than 12 % when the dividends of Euro 0.55 distributed on 3 June, are included. In the same period, reference indices such as the DAX slipped clearly by 15 % and also the SDAX closed the first half year in June after an extremely negative trend, with a loss of 0.4 %. It is also pleasing to report a considerably increased volume of trading in our share in the second quarter.