Stork: announces strategic actions

Today Stork announces a number of strategic actions for the next period. The strategy will build on the strong and solid foundation that has been laid in the past three years. Stork will be focusing on the three pillars: Aerospace, Food Systems and Technical Services. Prints and WorkSphere will be divested in 2006, as new ownership will be better positioned to unlock their potential. Part of today’s announcements involves the adjustment of the capital structure through a programme to return 300-350 mln to shareholders over a three year period, starting with up to 200 mln this year. In the past three years Stork has achieved significant operational and financial progress. As evidenced by today’s released 2005 full year results, net profits have reached a record 93 mln, vs a loss of 42 mln when the recovery plan started. The balance sheet has improved from a net debt of 53 mln in 2002 to a net cash position of 182 mln at the end of 2005. 

CEO Sjoerd Vollebregt:

“Having created significant value in the past three years and built a strong and solid foundation, Stork is now entering its next phase. We will streamline our portfolio and focus on building on the three pillars with the best potential for further expansion: Aerospace, Food Systems and Technical Services. All three divisions have a triple A customer base and a unique product and service offering, based on proven technology. Stork’s long-standing 179 year history as a leading industrial company, makes us extremely well positioned to meet the challenges of operating in mature markets. Within these three pillars, we will capitalise on our technology drive and innovations to create further value for our customers, shareholders and all other stakeholders. Prints and WorkSphere have made significant contributions to Stork as it stands today and both have great potential, which we believe can best be unlocked by new owners. The dynamics for Prints are changing rapidly and significant steps are required to expand on its key technologies. The focus of Stork Technical Services is on Industrial processes. WorkSphere operates in the service and maintenance market for technical installations in buildings. Growth opportunities for Worksphere are linked to activities that are non core for Stork such as facility management or the construction industry. A third step we are taking is the return of funds to shareholders. With a strong balance sheet and the scheduled divestments, we will adjust our capital structure and return 300-350 million to shareholders over a three-year period. Dividend policy remains unchanged. This is our strategy for the next phase. In the past three years we have clearly shown our ability to create value and will continue to do so with the blue-print announced today.”

Building on Three Pillars

Stork will build on the three remaining pillars through autonomous growth and through selective acquisitions. The focus will be on productivity improvements by using lean manufacturing. The market and technology leadership positions Stork holds will be further built upon, aimed at gaining market share through the introduction of innovative solutions that create value for the blue-chip customer base.

Aerospace

World air travel is expected to grow by 4.8% in passenger and 6.2% in cargo (CAGR). The outsourcing of maintenance, repair and overhaul services is growing at a rate of 5.6%. Stork expects the overall market to grow 3-5% on average (CAGR). We have the ambition to belong to the top performers in the relevant benchmark which translates into a return on sales from 10-12%.

Aerospace Industries has a large customer base with a well-balanced portfolio of commercial and defence programmes. This division is the partner of choice of almost all leading aircraft manufacturers, such as Airbus, Boeing, Bombardier, Cessna, Dassault, Gulfstream, Lockhead Martin, Northrop Grumman and Pratt & Whitney. Aerospace Industries is a technology leader in structural parts made of innovative materials with a top 2 position in wiring harnesses (20% market share). Aerospace Industries operates in a favourable market environment. The outsourcing of design and build by aircraft manufacturers to first tier suppliers is growing, and increasingly the focus is on the efficiency of aircraft. Given these conditions the expectations for Aerospace Industries are for solid and stable growth. We will focus on optimizing the supply chain further and will introduce new technologies, utilizing unique design software.

Through its long standing Fokker history, Aerospace Services has in-depth knowledge of aircraft, aircraft design and aircraft operations. This division is market leader for long-term maintenance support of Fokker aircraft. Maintenance support for other aircraft types is expanding. Third parties (like Stork) are gaining ground on Original Equipment Manufacturers. Within these favourable market circumstances, Aerospace Services has a strong cash flow.

Food Systems

Stork expects the market for primary and secondary poultry processing equipment to grow 2-4% and 5-7% on average (CAGR) for the convenience food market. We have the ambition to belong to the top performers in the relevant benchmark which translates into a return on sales-range from 10-12%.

Food Systems is world market leader in primary and secondary poultry processing equipment and holds a top three position in the related convenience food market. This division has an in-depth knowledge of the market. Introducing innovative products leads to further value creations for its customers. Some 30% of revenue is derived from innovative solutions introduced in the past 3 years. Building on its long history, Food Systems has expertise in a wide range of food processing areas, such as hygiene, food safety and automation. Market circumstances are favourable and allow for further growth. Convenience food grows at 5-7% annually, the poultry market by 2-4%. This demand comes from both emerging markets as well as from mature markets, the latter seeking convenience food of a good quality. Moreover, Stork’s customers in the primary and secondary processing market are looking for growth in convenience food, which allows for cross selling and the further introduction of innovative products. The recent acquisition of Townsend is a major step in that direction, as Townsend’s strong position in convenience food complements Stork Food Systems’ current products, services and client base.

Technical Services

The general maintenance market grows at an average of 1-2% annually, the market for maintenance management in excess of 10%. Stork expects the market overall to grow 2-4% on average (CAGR). We have the ambition to belong to the top performers in the relevant benchmark which translates into a return on sales-range from 5.5-7.5%.

Due to its in-depth knowledge of integrated maintenance concepts for industrial customers, Industry Services has a number of long term maintenance contracts with first class customers. Moreover, this division has a unique knowledge of process management. Industry Services is also well positioned to profit from the growth in the oil and gas sector, in which it already has strong positions. Oil and gas production facilities in the North Sea are aging while new investments in the Middle East and Central America are being made. Also, outsourcing is growing - a result of the changing role of the major oil companies and the entrance of independent oil companies.

Industry Specialists offers highly specialised technological skills on specific markets. Industry Specialists operates in the field of services, manufacturing of parts and components for the energy market and the lease of equipment to the industrial market. The activity further offers a worldwide chain of specialised test laboratories and inspection services, which particularly focus on highly specialised markets such as space and aerospace, the chemical and petrochemical industries, medical applications and the defence sector.

Divestments Prints and WorkSphere

Prints

Prints has always contributed significantly to Stork, based on unique process technology. Although long-term prospects remain promising, market circumstances are challenging and rapidly changing. For enhancing the graphics printing business significant steps are required. The shift of the textile printing business to Asia requires a strong local presence. Plans have been made to improve local presence but further significant steps have to be made. We believe the further potential of Prints will be better unlocked under a new ownership. We have already started the process of reorganizing the business and expect to conclude the divestment of this division in the second half of 2006.

WorkSphere

WorkSphere operates in the service and maintenance market for technical installations in buildings. Growth opportunities for WorkSphere are linked to activities which are non core for Stork such as facility management or the construction industry. The focus of Stork Technical Services is on Industrial processes. Potential buyers have already expressed an interest in WorkSphere and the divestment is expected to be completed in the first half of 2006.

Return of funds to shareholders

In the past years the company’s balance sheet has been strengthened considerably. The cash position has achieved a level at which the company currently has more than sufficient resources to realise its growth targets. This has given rise to the intention to start a programme under which part of the surplus financial resources will be returned to shareholders. This programme is structured in such a way that there will always remain sufficient financial room to finance