First quarter results for the business year 2003/04

BERU increases sales by over 5% in the first quarter

Ludwigsburg, August 14, 2003 ¬ó In the first three months of the 2003/04 business year (1 April ¬ó 30 June 2003), BERU Aktiengesellschaft, Ludwigsburg increased Group sales by 5.2% from EUR 66.0 million to EUR 69.4 million. At EUR 7.0 (8.2) million, after-tax profits were down 14.6% on the previous year, principally due to a significant increase in taxation. The company was able to increase sales generated with electronic tire safety systems (TSS) by 61.5% to EUR 6.3 (3.9) million. TSS is part of the Group´s newest business unit, Electronics and Sensor Technology, for which the company recorded the highest sales growth of 22.9% to EUR 16.1 (13.1) million. At EUR 0.65 (0.70), the DVFA/SG earnings per share were 7.1% below the previous year.

Diesel still on course for growth

In the company´s core business unit of Diesel cold-start Technology, which generates the highest sales, BERU recorded a slight increase in sales of 1.2% with EUR 33.6 (33.2) million. However, sales developments are differing for the various products. OEM supplies of glow plugs for engine applications rose by 4.2% in the first quarter, exceeding the 3% increase in sales of diesel passenger cars. By contrast, the sales volume suffered again from the complete phasing out of water heater plugs for car interior heating, which resulted in a EUR 0.6 million loss of sales revenue. Business with commercial vehicles remains unsatisfactory. Sales of coil glow plugs for preheating intake air in commercial vehicles decreased in the first quarter. Major clients in the US market are currently converting to new model platforms, meaning sales here were well below the previous year´s level. New DMAX projects and the ramp-up of new engine platforms lead us to expect the trend to reverse. The ramp-up of the ISS from the third quarter on for the new VW Golf platform, at DMAX, USA, and its fitting into the 6-cylinder Mercedes engines as of the fourth quarter will increase sales in the course of the year as planned. BERU´s increased share in glow plug supplies to the major French diesel client PSA secured in the middle of the first quarter will also contribute towards higher sales. Relations with French manufacturers will also be expanded via the newly acquired BERU Eyquem. Further progress has been made in discussions with Renault- Nissan about developing diesel cold-start technology for a new high-volume engine. BERU is also currently holding talks with a German manufacturer concerning the installation of the diesel instant-start system.

Stability in Ignition Technology

Despite the difficult economic environment, at EUR 19.7 (19.7) million the company achieved the sales level recorded in the same period of the previous year in the field of Ignition Technology for petrol engines. The West European market alone recorded a 6% decrease in new registrations of passenger cars with petrol engines. The decrease in sales of ignition coils, partly due to repeatedly postponing the mass production of flush-fitted pencil coils for a French manufacturer, slowed business development in Ignition Technology. Mass production is now set to start at the end of September. The Group achieved double-figure growth in spark plug sales. Despite unexpected setbacks such as the current weakness of the Mexican market and decreasing sales by a client with production facilities there for whom BERU supplies cable sets, the company expects double-figure increases in sales overall in this business unit by the end of the year. The successful acquisition of the Eyquem spark plug division of JCAE (Johnson Controls Automotive Electronics), 90% of whose sales are generated by the aftermarket, will play a decisive role here.

Electronics and Sensor Technology business unit expands

With a 22.9% increase, the Group again recorded the highest sales growth in the newest business unit, Electronics and Sensor Technology, recording EUR 16.1 (13.1) million. Amongst other factors, the tire pressure monitoring system TSS and increased sales in sensors contributed to this rise. The new PTC car interior heaters are also gradually contributing towards sales. Ramp-ups of the PTC heater for VW and Ford will accelerate growth in Electronics and Sensor Technology in the second half of the business year. BERU succeeded in increasing sales by 61.5% in the Tire Pressure Monitoring Systems unit in the first quarter of 2003/04, recording EUR 6.3 (3.9) million.

Positive trend in incoming and existing orders

In the first quarter of 2003/04, BERU AG recorded an 8.2% increase in incoming orders, which rose to EUR 75.0 (69.3) million. Orders on hand totalled EUR 151.7 (136.5) million, 11.1% above the previous year.

Group staff numbers remain constant

With 2,212 (2,213) members of staff, the number of people employed in the Group was slightly below the previous year´s figure. Further expansion of the development and application teams at the electronics facility in Bretten meant a disproportionately high increase in personnel costs, and this was compounded by redundancy payments as part of the restructuring measures implemented in the subsidiaries BERU F1 and REMIX. The wage settlements concluded in spring led to a 3.1% increase in wages and salaries. In addition, BERU AG upped pension provisions. At 32.4% (32.7%), personnel expenses as a percentage of sales were down slightly compared to the same quarter in the previous year.

Electronics expansion causes increased material expenses

Material expenses as a percentage of sales increased from 35.3% to 36.3% as planned. This increase was partly due to a higher electronics share which automatically means higher material expenses, and partly to a targeted increase in stock on hand. BERU usually increases stock in the first two quarters in order to be well prepared for higher sales in the winter months, when cold weather prompts a significantly greater need for retrofit spark plugs and glow plugs. If the percentage is viewed in relation to performance, the increase amounts to 0.7 percentage points. The management does not expect to be able to significantly reduce material expenses as a percentage of sales in the coming quarters due to high electronics growth. At 16.7% (15.8%), other operating expenses as a share of Group sales exceeded the previous year. Despite extensive preinvestments in the past business year and persistently high investments of EUR 6.0 (3.2) million in the first quarter, depreciation only increased slightly from EUR 4.9 million to EUR 5.2 million.

EBIT margin at 15% again

Earnings before interest and taxes (EBIT) increased by 4.0% to EUR 10.4 (10.0) million in the first quarter. The EBIT margin came to 15.0% (15.2%). The operating margin came in at 15.3% (17.0%) including tax-free capital gain from the sales of shares in the US companies Impco Technologies and Stoneridge totalling EUR 0.2 million following EUR 1.2 million in the previous year.

Higher taxation and lack of tax-free income cause increase in tax rate

Tax-free income from the sale of shares in the US companies Impco Technologies and Stoneridge was insignificant in comparison with the same period in the previous year, contributing EUR 0.2 (1.2) million towards the pre-tax profit. Investment earnings and financial result increased by 14.3% from EUR 0.7 million to EUR 0.8 million. The Group earned 4.2% less before tax, recording a pre-tax profit of EUR 11.4 (11.9) million. As the sales of shares were not subject to taxes, the taxation as a percentage of sales was unusually low at 31.1% in the first quarter of the previous year. In addition, taxation increased considerably in Germany due to changes to fiscal law concerning the previously admissible allocation of corporate income tax credit to dividends. For BERU AG, this means additional tax payments of EUR 1.6 million this year. In total, taxes as a percentage of sales rose from 31.1% to 38.6 %. BERU will work on making greater use of the options offered by the international interrelated production scheme on this score. Net income in the first quarter therefore decreased by 14.6% to EUR 7.0 (8.2) million. The DVFA/SG result per share adjusted for one-off and exceptional factors was down by 7.1% to EUR 0.65 (0.70).

Cash position improves by 9%

The Group´s cash flow reflects the high profitability of BERU´s business, amounting to almost 18% of sales at EUR 12.3 (13.2) million. At EUR 6.1 (8.8) million, the operating free cash flow in the first quarter remained below the previous year´s figure as planned due to significantly greater preinvestments. That corresponds to an OFCF return of 8.8%. Our goal for the 2003/04 business year is to generate an operating free cash flow of EUR 25 to 30 million again. Liquid assets and marketable securities increased by 8.9% to EUR 128.1 (117.7) million, representing 37.2% of the balance sheet total. Net cash improved by 7.4%, from EUR 97.6 million to EUR 104.8 million, while the balance sheet total grew by 4.7% to EUR 344.4 (329.0) million.

Outlook

Based on the newly launched Golf platform, whose diesel models are all to be fitted with both the ISS and BERU PTC ceramic heaters, BERU expects increasing sales dynamism in the second half-year, which should carry on into the following business year. The ramp-up of the ISS at DMAX in the USA in the third quarter will also contribute towards this boost. The GM/Isuzu joint venture produces the diesel engines for Isuzu and GM light trucks. Depending on the speed of the ramp-up and the diesel penetration of these significant launches, the new ISS and PTC products should reach the breakeven point as soon as possible. Preparations are already being made for the ramp-up of the ignition coil order for Renault, which should also kick off at the end of the third quarter.

The BERU management plans to generate an EBIT margin of at least 15% despite dilution of the EBIT margin by almost one percentage point due to the Eyquem takeover and the growing material share resulting from the expansion of the electronics business. Including the newly acquired BERU Eyquem, BERU plans to increase sales by up to 15% over and above the previous year.

Consolidated Profit and Loss Account BERU Aktiengesellschaft, Ludwigsburg
First quarter 2003/2004 (1 April to 30 June, 2003)

	2003/2004 in EUR mn	2002/2003 in EUR mn	Change in %
Sales	69.4	66.0	5.2
Change in inventory of finished products and work in process	2.9	2.3	26.1
Other own work capitalized	0.1	0.1	0.0
Other operating income	2.7	3.0	-10.0
Material costs	-25.2	-23.3	8.2
Personnel expenses	-22.5	-21.6	4.2
Depreciation of intangible assets, plant and equipment	-5.2	-4.9	6.1
Other operating expenses	-11.6	-10.4	11.5
Profit before investment and financial result and taxes	10.6	11.2	-5.4
Investment earnings and financial result	0.8	0.7	14.3
Income from ordinary activities	11.4	11.9	-4.2
Taxes on income and earnings and other taxes	-4.4	-3.7	18.9
Net income	7.0	8.2	-14,6
Third parties´ share in profits	-0.1	-0.0	-100.0
Consolidated earnings	6.9	8.2	-15.9
DVFA-earnings per share (in EUR)	0.65	0.70	-7.1

Consolidated Balance Sheet as at 30 June 2003

Assets	30.06.2003 EUR mn	31.03.2003 EUR mn
Fixed assets
Intangible assets	12.3	13.2
Property, plant and equipment	84.6	83.0
Financial assets	4.5	4.5
	101.4	100.7
Current assets
Inventories	56.2	43.7
Accounts receivable and other assets
Trading accounts receivable	50.0	58.9
Accounts receivable from affiliated companies	3.3	3.5
Other assets	4.6	3.4
	57.9	65.8
Marketable securities	65.1	65.5
Liquid assets	63.0	52.2
	242.2	227.2
Deferred charges and prepaid expenses	0.8	1.1
	344.4	329.0
Equity and liabilities	30.06.2003 EUR mn	31.03.2003 EUR mn
Shareholders´ equity
Subscribed capital	26.0	26.0
Capital surplus	73.1	73.1
Earnings reserves	121.2	121.3
Retained earnings	28.2	21.0
Other shareholders´ equity	1.3	1.2
	249.8	242.6
Special items from investment subsidies	2.1	2.1
Provisions
Provisions for pensions and similar obligations	12.3	12.2
Other provisions	30.5	29.3
	42.8	41.5
Liabilities
Liabilities due to banks	23.3	20.1
Trade accounts payable	17.4	14.1
Notes	1.8	1.4
Accounts due to affiliated companies	0.1	0.7
Other liabilities	7.1	6.5
	49.7	42.8
Deferred expenses and accruals	0.0	0.0
	344.4	329.0

Cash Flow Statement of the Group
First quarter 2003/04 (1 April to 30 June, 2003)

	2003/2004 EUR mn	2002/2003 EUR mn
Net income (incl. shares in results by minority shareholders)	7.0	8.2
Depreciation on intangible fixed assets and tangible assets	5.2	4.9
Increase (prev. year decrease) in accruals	1.3	-0.5
Other income/expenses not affecting cash flow	0.0	0.0
Profits from the disposal of intangible fixed assets and tangible assets	0.0	0.0
Profits from the disposal of securities in current assets	-0.4	-1.9
Increase (prev. year Decrease) in inventories, trade receivables as well as other assets not allocated to investment or financing activities	-4.3	9.0
Increase (prev. year decrease) in liabilities arising from trade receivables and other liabilities not allocated to investment or financing activities	3.7	-4.6
Cash flow from current operating activities	12.5	15.1
Deposits arising from the disposal of fixed assets	0.0	0.6
Payments for investments in fixed assets	-6.0	-3.0
Deposits arising from the disposal of intangibel assets	0.0	0.0
Payments for investments in intangible assets	0.0	-0.2
Deposits arising from the disposal of financial assets	0.1	0.0
Payments for investments in financial assets	0.0	0.0
Payments for acquisitions of consolidated companies	0.0	0.0
Deposits arising from financial assets as part of temporary financial management	2.5	8.8
Payments arising from financial assets as part of temporary financial management	0.0	0.0
Cash flow from investment activities	-3.4	6.2
Payments for dividends	0.0	0.0
Deposits arising from taking-up finance credit	3.6	0.4
Payments arising from finance credit amortization payments	-0.4	-1.5
Cash flow arising from financing activities	3.2	-1.1
Changes in funds affecting cash flow	12.3	20.2
Changes in funds not affecting cash flow	0.1	0.2
Changes in funds resulting from consolidated companies	0.0	0.0
Total funds at the beginning of the period	111.8	93.4
Total funds at the end of the period	124.2	113.8

Consolidated Cash flow
First quarter 2003/04 (1 April to 30 June 2003)

	2003/2004 EUR mn	2002/2003 EUR mn
Net income	7.0	8.2
Depreciation	5.2	4.9
Change in long-term accruals	0.1	0.1
	12.3	13.2

Group sales by segments (distribution channels)
First quarter 2003/04 (1 April to 30 June 2003)

	2003/2004 EUR mn	2002/2003 EUR mn
OEM	46.8	43.8
After-market	17.0	17.2
General industry	5.6	5.0
	69.4	66.0