Thursday, 2 January 2014

Eurokai

Organigram and areas of business

Eurokai has a complex structure of subsidiaries.
Organigramm Eurokai extract [Annual Report 2012]
To make the crossholdings with Eurokai clearer, here is a chart of the direct holdings:
Direct Holdings [company presentation]
Eurokai has two core business areas:
  • container handling
  • intermodal transport 
 Furthermore EUROGATE Container Terminal Bremerhaven is active in the wind power business (leasing of space as well as transhipment and handling of wind turbine components). EUROGATE may also erect a wind turbines at their sites in Hamburg, Bremerhaven and Wilhelmshaven. In Hamburg Eurokai started construction of a CHP (heat and power). A district heating line will feed surplus heat into the local district heating grid.

Equity structure

Eurokai has a uncommon structure of its issued capital. It consists of:
  • 6,759,480 ordinary voting shares
  • 6,708,494 non-voting preference shares
  • 1 preference voting share

The one preference voting share carries a preference dividend of 15 % of the residual profit for the year in accordance with the internal balance sheet pursuant to Section 16 of the Articles of Association, which ranks above dividends from other share classes.

In 2012 according to the cash-flow statement dividends paid to equity holders were 17,961 T€(10,331). One Euro were paid for each common and non-voting share =13,468T€, thus the rest 4,493 T€ were paid to the holder of the one preference voting share, which es equivalent to 15% of the 2011 profit (T€ 29,957) of EUROKAI KGaA according to HGB(German GAP). The profit for 2012 was T€ 45,026, which means a substantial amount of money will be funnelled away from the shareholders of the publicly traded shares:
The voting preference share has 520x the nominal of the other shares and received 4.5 Mio times the dividends in 2012. This means the book value of the voting preference share understates its economic which does not belong to the shareholders. One could argue the one voting preference share's economic value is equal to 15% of Eurokai, although retained earnings belong to the normal shareholders. The following table shows dividends per share:


numbernominal value201120122013
voting shares6,759,48010.5011
non-voting preference6,708,49410.5011
voting preference15203,597,3004,493,0266,753,900

Aditionally there is Equity attributable to hybrid capital holders, relating to the 50% interest apportionable to the EUROKAI Group of a subordinated, undated loan issued by EUROGATE in 2007 with a nominal amount of 150 million and interest of 6.75% p.a. EUROGATE can repay the loan in 2017 for the first time. Creditors have no right to terminate the loan but interest will be variable with a higher interest margin from 2017 on. In 2009 Eurokai purchased 2 Mio nominal of this hybrid loan, reducing the consolidated hybrid capital by 1 Mio to 74 Mio (excluding remaining entitlement to profits).

There is also equity attributable to the Personally Liable General Partner Kurt F. W. A. Eckelmann GmbH of 294,083.65 per 31.12.2012.
The participating share of the fixed deposit amounting to EUR 282,321.38 participates in the profit for the year proportional to the fixed contribution to the share capital of EUROKAI KGaA, which is calculated on the basis of an internal balance sheet prepared in accordance with Section 16 of the Articles of Association. In the case of future increases in share capital, under Section 5 of the Articles of Association the Personally Liable General Partner is authorised at any time to raise the fixed contribution by up to 20 % of the respective amount of the capital increase. The Personally Liable General Partner may instead of or in addition
to the fixed capital contribution also acquire preference shares of the Company or convert the already paid in contribution wholly or in part into preference shares of the Company.
The participating share of 282,321 is low compared to the issued capital of 13,468,494, but according to Section 5 of the Articles of Association the  Personally Liable General Partner, may increase his deposit up to the amount of 20% of the capital at any time. This would certainly dilute shareholders.
[...] leistet eine gebundene Kapitaleinlage, die jederzeit auf 20 % des jeweiligen Grundkapitals erhöht werden kann.
[1] 2012 annual report
[2] company presentation
[3] articles of association ("Satzung")

Conclusion
Eurokai may look cheap superficially, if compared to Hamburger Hafen for instance. The balance sheet in my opinion vastly undervalues the economic value, which does not belong to the holders of the publicly traded shares. The reporting is not transparent in this regard. The articles of association are available only on the German part of their Website in German. Due to the low liquidity and concentrated ownership structure with minimal freefloat a short does not look attractive either.

[The author is no financial expert and may have interpreted the reports wrongly. Please do your own research. No position.]

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