Shareholders ask questions and Sjoerd Vollebregt answers

Reorganisation
Why is the transformation of Stork taking so long? 
We said in February 2003 that we expected the transformation to take three years. That was two years ago. One of the five groups (Industrial Components) was sold last summer. In the same period the profitability has recovered and the balance sheet significantly strengthened. The final objective is still to have a maximum of three groups by early 2006. The priority in this process is placed on quality rather than speed. If it turns out that the process takes a few months longer then that should not be a problem – certainly if we are able to create value as a result.  

From the reports in the ‘Financieele Dagblad’ newspaper it was not clear whether you intend to divest 1, 2 or 3 divisions. Do you know this yourself? It looks almost as if you are holding a kind of ‘beauty contest’ for the managers, with the winners being allowed to stay (or are they the ones who are allowed to go?). What are your views on this?   
See also my answer to the last question.
As far as the ‘beauty contest’ is concerned, it’s always in the interest of the divisions not just to look good, but really to be good. Regardless of whether they will remain at Stork or be sold.

Divisions
SISe Farma; Margins in the pharmaceuticals industry are under severe pressure.
Outsourcing of production to low-labour-cost countries (India, Former Soviet Union, Puerto Rico etc.). TDs are being downsized or even closed. What is the future for these activities at Stork?
It looks as though this question comes from someone inside Stork, because we use the term ‘SISe’ instead of ‘Stork Industry Services’… But that doesn’t make any difference. We see significant potential in the pharmaceuticals industry, and there’s no doubt that we have a lot to offer in that field. Our services and recommendations enable this specific industry to maximise the competitive strength of its manufacturing operations. And that also applies in the Netherlands.   

Both Prints and Food Processing are activities with modest growth and reasonable margins. What opportunities do you see in these areas?
Both activities have very strong positions in global markets. Prints has good opportunities to compensate the declining activities in textile printing with applications in the graphics market, which have shown good growth rates in recent years. Poultry & Food Processing has strong growth opportunities (and is already taking advantage of these!) in the processing of food into finished products (Convenience Food). 

Is the margin of 5.4% at Technical Services sustainable, or is it the result of the reorganisation that was initiated at the end of 2003? What are the trends in this market?
If you can achieve margins of between 5 and 6% in this market you’re among the top performers. We will do our best to maintain the level that has been achieved. By delivering excellent performance for a number of specific customers we will be able to earn incentive bonus payments each year. These payments make a significant contribution to the result. The cost savings that have been made in recent years have helped us to address the very weak market conditions. However you will always reach a point at which no further savings can be made. We are now very ‘lean’. What we are now waiting for is an upturn in the economy, which has a major influence on the activities of this group. In addition, we are trying to reduce our dependence on the economic cycle by gaining long-term maintenance contracts.   

How long do you intend to continue with Food en Dairy Systems, with its very poor performance level? Is there any prospect of divestment? If so, how much longer will that take? Are there any candidates (financial or strategic)?
We have made substantial investments in the past year in the future of this activity. On the one hand by reorganisations, and on the other hand by investments in product development. The prospects for these activities are now much better. We are not actively looking for possible buyers.

The textile printing business is increasingly dependent on China, which is expected to become the biggest textile producer by far. You share in this market is low, and there are many competitors and severe pressure on margins. How do you intend to deal with this situation? Does it mean that the margins will be lower in the future? Or is there a possibility of compensation from the graphics activities? What are the margins in that area? Are they more or less than 10%?  
We have strengthened our marketing efforts in China and will continue to do so. The increasing importance of China on the world market is expected to lead to higher quality demands. This offers good opportunities for Stork. 

Share price/valuation
Is a further increase in the share price one of your most important objectives in 2005?  
Increasing the share price is not an objective in itself but is one of the results of our efforts. We have achieved a structural profit recovery and are now concentrating on growth of the activities and a further strengthening of the focus. Those are the priorities.

How do you regard the valuation of Stork as reflected in the share price? Do you think the valuation is now about right, or is Stork still undervalued?  
I have no view about the share price or the valuation. I refer you to the estimates of the various analysts who follow our shares. In their view Stork is still undervalued. You can read their estimates on our website.

Aerospace
To what extent will Stork participate in the new Rekkof venture (proposed restart of the building of Fokker aircraft by a third party)?   
We do not intend to participate in this venture, but will provide support on an incidental basis where required and where this is desirable. Stork does not in any case intend to restart the building of Fokker aircraft itself.

You have a good position in the maintenance of Fokker aircraft. But in the long term this is a declining business. Starting-up maintenance activities for other aircraft types (which in my opinion would require branches at most major airports) would cost billions. What is your view on this situation?  
It is certainly not a question of billions. We at present already hold licences for the maintenance of Boeing 737 and Embraer aircraft. We are working to offer our logistics skills, in the same way as we already do for Boeing, and we are continuing with the conversion of aircraft for special missions such as the Gulfstreams for the Japanese Coastguard and the Fokker 60s for the Royal Netherlands Air Force.

What would the EBIT and ROIC margins for Aerospace have to be to compensate for the risk?
In the past these have varied between 3 and 12%, with an average of 7-8%.
Our aim for Aerospace Industries (components for aircraft manufacturers) is to achieve EBIT margins of over ten per cent, and we are well on the way to achieving that.

Is growth essential for the Aerospace division? The base of activities in terms of numbers of projects appears to be relatively small (which increases the business risk). Are you considering acquisitions in this area? If so, in which segments? Is it correct in view of the business model that more assembly activities are being transferred to dollar-based or low-labour-cost countries?
What our customers in the aircraft manufacturing world particularly appreciate is our technological knowledge and expertise, although in terms of size we are among the smaller players. To become a really serious partner we have to grow. On the basis of the portfolio we have built up already, and starting from 2002, we should be able to double our size within a number of years. Further growth would have to come from acquisitions. We already have activities in Romania (structural components) and China (wiring systems). We are certainly considering facilities in dollar-based countries.
 
I read in an old report that the participation of the Dutch government in the JSF project could be worth 5 billion euro to Stork. Can you give us some more information about the current situation in relation to your order book for the JSF?  
We currently have two hundred people working on the SDD phase, the development phase that is intended to lead to twenty flight-capable prototypes. For this phase we have contracts for a total of € 125 million. The SDD phase is followed by small-scale series production, which will then gradually be ramped-up to full large-scale series production. Our participation depends on the one hand on our performance, and on the other hand on the decision of the Dutch government about whether to purchase the aircraft. As far as our performance is concerned we regularly receive very positive feedback from the USA, where our customers are enthusiastic about the quality of our engineers and their contribution to the project.     

Expectations
Your order book is declining, the major part of the cost savings have already been achieved in 2004 and the tax rates are rising significantly. Does this mean a lower profit in 2005?   
At present we are not making any quantitative predictions for 2005. There is certainly no strong economic upturn yet, although a few positive signals are emerging. Whether that will remain so for the rest of the year is impossible to say, because of the uncertain economic situation. The new orders received again increased slightly in 2004 (4%).

Merger/acquisitions
Imtech was formerly very interested in your Technical Services. Do you not see any possibilities for a merger in one form or another, or has this now definitely been taken off the agenda?
We normally do not make any comments about our policy in relation to acquisitions and divestments.

Dividend
What is your formal dividend policy? Do you follow specific guidelines, and will you continue to do so for the coming years?
We aim for a flow of dividend which is on average increasing. A dividend of 90 euro cent is being proposed for this year. That is a distribution percentage of 37%. Last year that was 65 cent and 29%.  

Various
An interesting article in ‘FEM Business’ magazine! High-tech in the polder. But isn’t that somewhat exaggerated, looking at all the activities?
No it is not an exaggeration. We are proud of our company and consider it a compliment that an independent journalist reaches the same conclusion.

Personal
What is the biggest mistake that ‘top managers’ (in the Netherlands) make, and what do you think of the high severance payments to failed managers. Which company and which CEO do you think are good examples?
I would rather talk about mistakes that managers might make. One of the many mistakes, although a very important one, is that you start to believe your own story and then you think that it will come true automatically. Another mistake that can have far reaching effects is the failure to drill right down to the root cause of a problem when you notice the first alarm signals, and then the failure to take adequate action, or any action at all.
In situations where there are exorbitant (potential) severance payments to failed management, which has occasionally happened mainly in the Anglo-Saxon world, I would seriously question the performance of the supervisory directors or other responsible non-executive directors.
CEOs in the Netherlands are achieving good performance on many different fronts. Some of them have successfully and profitably managed the growth of their companies through good times and bad over periods of many years. In other cases, the battle in truly global businesses has been handled with much more success than in the past. If you look carefully at what I have said you will find the answer to your question.