Results for the 9 months 2002/03

Diesel cold-start and growth in electronics keep BERU sales up

Ludwigsburg, February 13, 2003 ¬ó BERU Aktiengesellschaft, Ludwigsburg, increased its Group sales by 0.2% during the first nine months (1 April to 31 December 2002), from EUR 213.8 to EUR 214.8 million despite a persistently difficult economic setting. Also because of a higher overall tax ratio, after-tax profits were 8.8% lower than last year at EUR 26.9 (29.5) million. The Electronics and Sensors business area, on the other hand, developed encouragingly: the company saw sales in this division grow by 26.5% to EUR 43.4 (34.3) million. BERU´s sales of the TSS electronic tyre pressure monitoring system rose by 81.1% to EUR 13.4 (7.4) million. The DVFA/SG earnings per share, adjusted for one-offs, were EUR 2.21 (2.44), which was lower than last year´s level.

Diesel sells despite vehicle crisis

In its core business area of Diesel Cold-Start Technology, in which it generates most sales, BERU achieved a slight growth of 0.1% from EUR 108.4 million to EUR 108.5 million. In the OEM (original equipment manufacturer) area BERU has virtually grown together with the production of diesel passenger cars worldwide. Adjusted for the sales drop in water heater plugs, BERU showed a rise of 4.4% in its core business area. This growth was proportionally somewhat less than the development of diesel car production worldwide, the reasons being the phasing-out of water heater plugs for car interior heating, below-average demand in aftermarket sales in December, and continued hesitancy among manufacturers to stock OES (Original Equipment Supplier) parts. The commercial vehicle market remained weak throughout the world, which also prevented further growth. From the fourth quarter onwards, BERU is expecting a rise in sales on account of the arrival of new orders for the ISS quick-start system for the Golf platform.

Decline in Ignition Technology sales

Ignition technology for petrol engines did not escape the weak economic situation and extremely reserved buying among consumers. BERU´s OEM business was especially affected in this respect. During 2002, 9% less petrol-powered cars were delivered in Western Europe than the year before, and in the home market of Germany petrol car sales fell by 8%. In the Ignition Technology business area, sales declined by 12.2% from EUR 71.1 million to EUR 62.4 million. Ignition coil shipments to VW wound up quickly, shares in Hyundai´s supplies in Korea were lost, and the rump-up of Renault orders was late coming, all of which prevented better performance. On top of that, the South American market effectively disappeared. BERU will begin supplying Renault with the new pencil coils in April.

Electronics and Sensors grows according to plan

BERU AG´s newest business area, Electronics and Sensors, increased its sales over the first nine months as planned. With a rise in turnover of 26.5% from EUR 34.3 million to EUR 43.4 million, this area grew faster than any other in the Group and has now attained a 20.3% (16.0%) share in the Group´s total sales. Sales in the electronic tyre pressure monitoring division (TSS) increased by 81.1% during the first nine months to EUR 13.4 (7.4) million. Rising equipment levels at DaimlerChrysler and the launch of the VW Touareg and Porsche Cayenne ensured that growth rates have remained high. BERU is currently tendering several supply bids for German manufacturers, and in the USA BERU is intensifying its work with the LEAR Corporation, Southfield, USA, in the development, production and sale of integrated tyre monitoring systems.

Orders received rise by 3.3%

Despite the current weakness in the car industry, BERU´s orders received rose by 3.3% over the first nine months, to EUR 226.4 (219.1) million. Orders on hand declined slightly by 1.0% from EUR 146.8 million to EUR 145.3 million.

Number of employees in Group slightly less

The number of employees in the Group has fallen to 2,180 (2,256) since the start of the business year. This was largely a result of the restructuring of subsidiaries F1 Harness Systems Ltd., Diss, United Kingdom, and REMIX Group Electronics Rt., Tiszakécske, Hungary. However, because F1 and REMIX were incorporated into the scope of consolidation, the number of employees was 7.3% higher than at this time last year: 2,180 instead of 2,032. Personnel expenses as a percentage of scales rose from 29.2% to 31.9%, due to wage and salary tariff rises in Germany as well as the inclusion of subsidiaries F1 Systems, REMIX and BERU S.A.S., Saint Germain, France, into the Group´s consolidated companies.

Material expenses as a percentage of sales reduced significantly

Despite increased sales in the Electronics and Sensors division, in which materials expenditure is in fact high, the material expenses as a percentage of sales fell considerably from 38.6% to 34.3%. This was influenced positively by the end of business with VW coils and the loss of shares in ignition coil business at Hyundai. At the same time, the PAP (Productivity Action Plan) achieved savings in purchasing. The gross yield margin improved, rising to 65.7% (61.4%). Other operating expenses rose from EUR 32.3 million to EUR 35.7 million.

EBIT margin back above 15%

The earnings before interest and tax (EBIT) were at EUR 34.1 (37.5) million, and BERU achieved an EBIT margin of 15.9% (17.5%). Despite the fact that the aftermarket business was below expectations during the third quarter, the company increased its EBIT margin from the previous quarter´s 14.0% to 18.5%.

Materials and services purchased for the Electronics and Sensors division remained at a high level: development and application projects for the product groups ISS diesel Instant Start Systems, PTC auxiliary heating systems and tyre pressure monitoring systems, in which numerous new projects were launched, required expenditure of EUR 7.6 million during the first nine months of the business year. The bad stock exchange situation and a weak dollar caused investments to depreciate by EUR 1.6 million. The operating margin, including the EUR 3.8 million tax-free income from the sale of shares in other companies, was 17.7% (19.0%), meaning that the company obtained an operating result of EUR 37.9 (40.6) million, 6.7% less than the previous year.

Things have remained difficult in the Formula 1 industry, which meant BERU had to cope with excess restructuring costs at its English subsidiary F1 Systems and an operating loss of EUR 0.6 million during the third quarter, as well as EUR 0.1 million at Hungarian production company REMIX. During the first nine months, BERU spent EUR 2.6 million on restructuring the two subsidiaries.

Pre-tax profits down by 7%

By the end of the first six months, the company had already generated a tax-free income of EUR 3.8 (3.1) million through the sale of shares in the US companies Impco Technologies, Inc. and Stoneridge Inc. Because of the negative stock exchange situation, BERU did not sell any further investments during the third quarter. With interest rates continuing to slide, the financial and investment result fell from EUR 2.6 to EUR 2.3 million. Pre-tax profits were reduced by 6.9% from EUR 43.2 million to EUR 40.2 million.

At 33.1% (31.7%), the overall tax ratio was 1.4 percentage points higher than in the previous year, while net income for the first nine months fell by 8.8% to EUR 26.9 (29.5) million. The DVFA/SG earnings per share, adjusted for one-offs and extraordinary factors, were EUR 2.21 compared with EUR 2.44 the previous year.

Liquid assets continue to increase

Cash flow fell by 4.4% from EUR 45.0 million to EUR 43.0 million. Liquid assets and marketable securities rose slightly from the end of the first six months to EUR 117.1 (116.1) million. The Group´s net cash position by the end of the third quarter was EUR 93.1 million compared with EUR 91.4 million at the end of the second quarter. BERU generated an operating free cash flow of EUR 8.3 million during the third quarter, while over the first nine months as a whole the operating free cash flow amounted to EUR 20.7 million.

Outlook for the last quarter

BERU is expecting the general economic situation and the car industry to remain weak.
»The industry is not yet showing any significant sign of recovery anywhere in the world,« explains Ulrich Ruetz, Chairman of BERU AG´s Managing Board. »At the same time, the trend in favour of diesel is continuing unabated into 2003, and from this quarter we will see the ramp-up of the diesel ISS (Instant Start System) and the PTC interior heater. These products will only contribute marginally to turnover during the current financial year, but together with new projects and increasing equipment levels in tyre pressure monitoring they will cause growth rates to rise again during 2003. Despite stiff competition, especially in Germany´s aftermarket, and an increasing proportion of electronics in use, we aim once again to achieve an EBIT margin of above 15% during the fourth quarter. In sales we will continue to aim to equal the record level of the previous year while developing the pretax profits adjusted for one-offs simultaneously.«

Consolidated profit and loss account
9 months (1 April to 31 December 2002)

	2002/2003 EUR million	2001/2002 EUR million	Change in %
Sales	214.3	213.8	0.2
Change in inventory of finished products and work in process	2.3	9.2	-75.0
Other own work capitalized	0.4	0.2	100.0
Other operating income	14.2	10.1	40.6
Material costs	-73.4	-82.6	-11.1
Personnel expenses	-68.3	-62.5	9.3
Depreciation of intangible assets, plant and equipment	-15.9	-15.3	3.9
Other operating expenses	-35.7	-32.3	10.5
Profit before investment and financial result and taxes	37.9	40.6	-6.7
Investment earnings and financial result	2.3	2.6	-11.5
Income from ordinary activities	40.2	43.2	-6.9
Taxes on income and earnings	-13.3	-13.7	-2.9
Minority interests	0.0	0.0	0.0
Consolidated earnings	26.9	29.5	-8.8
DVFA earnings per share (in EUR)	2.21	2.44	-9.4

Cash flow statement of the Group
9 months (1 April to 31 December 2002)

	2002/2003 EUR million	2001/2002 EUR million
Net income	26.9	29.5
Depreciation on intangible fixed assets and tangible assets	15.9	15.3
Increase (prev. year decrease) in accruals	3.7	-2.7
Other income/expenses not affecting cash flow	-0.4	-0.9
Profits from the disposal of intangible fixed assets and tangible assets	-0.1	-2.5
Profits from the disposal of securities in current assets	-3.8	0.0
Increase in inventories, trade receivables as well as other assets not allocated to investment or financing activities	-8.1	-13.1
Increase (prev. year decrease) in liabilities arising from trade receivables as well as other liabilities not allocated to investment financing activities	0.7	-2.9
Cash flow from current operating activities	34.8	22.7
Deposits arising from the disposal of fixed assets	1.2	0.1
Payments for investments in fixed assets	-17.4	-9.5
Deposits arising from the disposal of intangibel assets	0.0	0.0
Payments for investments in intangible assets	-0.5	-0.2
Deposits arising from the disposal of financial assets	0.0	3.8
Payments for investments in financial assets	-0.6	-2.0
Payments for acquisitions of consolidated companies	-0.5	0.0
Deposits arising from financial assets as part of temporary financial management	10.8	0.0
Payments arising from financial assets as part of temporary financial management	0.0	0.0
Cash flow from investment activities	-7.0	-7.8
Payments for dividends	-11.0	-9.2
Deposits arising from taking-up finance credit	4.2	3.4
Payments arising from finance credit amortization payments	-3.0	-2.1
Cash flow arising from financing activities	-9.8	-7.9
Changes in funds affecting cash flow	18.0	7.0
Changes in funds not affecting cash flow	-1.7	0.0
Changes in funds resulting from consolidated companies	0.0	0.0
Total funds at the beginning of the period	93.4	67.1
Total funds at the end of the period	109.7	74.1

Group sales by division (distribution channels)
9 months (1 April to 31 December 2002)

	2002/2003 EUR million	2001/2002 EUR million
OEM	135.2	137.6
Aftermarket	63.7	63.8
General industry	15.4	12.4
	214.3	213.8

Group Cash flow
9 months (1 April to 31 December 2002)

	2002/2003 EUR million	2001/2002 EUR million
Net income	26.9	29.5
Depreciation	15.9	15.3
Change in long-term accruals	0.2	0.2
	43.0	45.0

Consolidated Balance Sheet
9 months (as at 31 December 2002)

Assets	31.12.2002 EUR million	31.03.2002 EUR million
Fixed assets
Intangible assets	14.2	16.4
Property, plant and equipment	75.6	72.5
Financial assets	4.5	3.9
	94.3	92.8
Current assets
Inventories	57.0	44.8
Accounts receivable and other assets
Trading accounts receivable	50.6	55.5
Accounts receivable from affiliated companies	4.6	3.7
Other assets	7.2	7.9
	62.4	67.1
Marketable securities	76.5	80.2
Liquid assets	40.6	27.0
	236.5	219.1
Deferred charges and prepaid expenses	1.0	0.9
	331.8	312.8
Equity and liabilities	31.12.2002 EUR million	31.03.2002 EUR million
Shareholders´ equity
Subscribed capital	26.0	26.0
Capital surplus	73.1	73.1
Earnings reserves	103.2	94.7
Retained earnings	27.1	21.3
Other shareholders´ equity	1.9	2.2
	231.3	217.3
Special items from investment subsidies	4.7	2.3
Provisions
Provisions for pensions and similar obligations	11.4	11.2
Other provisions	37.4	33.9
	48.8	45.1
Liabilities
Liabilities due to banks	24.0	22.8
Trade accounts payable	15.4	16.1
Notes	1.6	1.5
Accounts due to affiliated companies	0.3	0.3
Other liabilities	5.3	7.3
	46.6	48.0
Deferred expenses and accruals	0.4	0.1
	331.8	312.8

BERU Group is a listed public company since October 1997. The company is the leading manufacturer of diesel cold-start systems with an estimated world-wide market share of 40% for glow plugs. In the field of ignition technology for gasoline engines BERU is one of the four major manufacturers in Europe. The company also produces suppresor devices, sensors, ignition systems for the oil and gas burner industry as well as electronic controlling units. Almost all OE-manufacturers of automobiles, commercial vehicles and engines are BERU´s customers. The company´s headquarters are located in Ludwigsburg.