First quarter results for the business year 2004/05

Ludwigsburg, August 19, 2004 — BERU Aktiengesellschaft, Ludwigsburg, increased its total revenues in the first quarter of the 2004/05 financial year (April 1 — June 30, 2004) by 23.2% to €85.5 million (April 1 — June 30, 2003: €69.4 million). The high growth in the youngest division of Electronics and Sensor Technology and the positive course of business in the main division of Diesel Cold-Start Technology contributed decisively to the 12.5% organic growth in earnings achieved by the Group. In addition, the French subgroup acquired in August 2003, BERU Eyquem, made a sales contribution of €7.4 million. Net income rose by 20.3% to €7.7 million after €6.4 million in the same period of last year. Earnings per share reached €0.77 after €0.64 in the prior-year quarter.

Still on course for growth with the core division

BERU has succeeded in further increasing its sales revenues in the core division of Diesel Cold Start Technology: the figure of ¬Ä36.3 million for the first quarter represented an increase of 8% (¬Ä33.6 million), whereby the sales trend differed for original equipment and the aftermarket. With glow plugs for engines fitted as original equipment, a 7% increase in revenues was achieved in the first quarter of the 2004/05 financial year. On the other hand, the volume of OES business with spare parts for the manufacturers´ aftermarket business was significantly lower than expected. This weakness in the first three months was partially because of the level of existing inventories in the automobile manufacturers´ spare-parts centers. Due to the rather mild winter weather, these inventories were not completely depleted by the beginning of the quarter.

Sales of ISS diesel instant-start systems developed positively. Technologically, BERU is still ahead of the competition with these products. The growth rates are partially a result of new product startups by GM/Isuzu in the United States as well as by DaimlerChrysler. In line with our planning, deliveries increased for the diesel models of the Golf 5 platform. A few weeks ago, BERU also started to supply ISS steel glow-plug technology for the new Audi A6 3.0 liter diesel engine. Due to rising diesel penetration, the potential of major markets Germany and the United Kingdom to catch up with other countries, and the good medium to long-term growth prospects in North America and Asia, we still anticipate solid expansion for this division.

Ignition Technology reports slight organic growth and contribution from acquisition

BERU´s division of Ignition Technology for gasoline engines posted sales revenues of ¬Ä28.2 million after ¬Ä19.7 million in the prior-year period, despite the fact that new registrations of passenger cars with gasoline engines decreased by nearly 2.5% in the first half of 2004. As a result of its strong brand and product quality, BERU achieved moderate organic growth in a currently declining market for ignition technology products (excluding the contribution to revenues from the newly acquired BERU Eyquem). Unit sales of spark plugs increased significantly as a result of the Eyquem acquisition. Another positive factor for the sales of the Ignition Technology division was a new order to supply modern flush-fitting pencil ignition coils to a French automobile manufacturer. In total, the Group achieved growth of 43.1% in this division. In the period under review, we also received an order to supply ignition coils to MG Rover. BERU thus assumes that it will continue raising its market share with ignition coils until the end of the year.

BERU sees further growth opportunities for Ignition Technology in the expansion of its international aftermarket program and the penetration of new markets with the Eyquem brand. At the same time, the Group is already making use of the considerable cross-selling potential of the Eyquem sales channels also for diesel products, and is strengthening supplier relations with French OEM customers. BERU is currently working intensively on the conversion of Eyquem´s production processes to state-of-the-art manufacturing technology, such as the new 12 mm technology for spark plugs, and is reorganizing Eyquem´s production routines. The restructuring measures taken in Chazelles sur Lyon and the transfer of spark-plug production for automobiles from the smaller facility in Neuhaus, Germany, give rise to disproportionately high expenditure in the build-up phase, so Eyquem is currently making a negligible contribution to Group earnings, and is actually reducing the Group´s EBIT margin by more than one percentage point. In the next two financial years, the target of an operative margin of 10% should be achieved, however. The decisive factors are higher production volumes and capacity utilization as a result of the transfer from Neuhaus, as well as new orders, a highly automated production line and technological leadership. The goal is to move into the top three manufacturers in terms of manufacturing as well as technology, and thus to lay the foundations for the future spare-parts business in France and the international aftermarkets. At present, an initial OEM order from the VW Group is just starting up.

Youngest division of Electronics and Sensor Technology grows, stagnation for tire-pressure monitoring

Our youngest division of Electronics and Sensor Technology achieved the Group´s highest organic growth of 30.4% with sales revenues of ¬Ä21.0 million (¬Ä16.1 million). This growth was driven by, among other things, PTC auxiliary heating systems and our business with sensors (excluding tire-pressure monitoring). Production of the electronically controlled auxiliary heating systems for car interiors is currently being ramped up for the diesel models of the Golf 5 platform and the Ford C platform. BERU´s auxiliary heating systems are also being used in some Korean models. In the U.S. market, an initial reference project has been acquired with Ford, but will not start until 2006.

Sales revenues with electronic tire-pressure monitoring systems stagnated at the prior-year level, however. One of the main reasons for this is the current lack of clarity regarding the amendment to the Tire Safety Rule recently passed into law in the United States. This will stipulate that every car newly registered in the U.S must be equipped with a tire-pressure monitoring system. Some manufacturers have not yet increased the percentage of cars for export to the U.S. fitted with such equipment, while one German premium manufacturer has decided to postpone the fitting of these systems for another nine months.

The final decision on the newly formulated system specifications and the resulting announcement of the launch scenario in the United States should trigger a substantial expansion of the market for our tire-pressure monitoring systems. At the same time, European vehicle customers are increasingly demanding this safety feature.

The acquisition of new projects is developing positively. For example, BERU has received an order starting in the 2005/06 financial year to equip an additional Audi model with the tire-pressure monitoring system. BERU is already supplying the system as an options for the A8 and the new A6, and will also supply it for the new facelift of the A4. VW has awarded BERU a follow-up order extending to the year 2010. Starting in the next financial year, an additional Bentley model will be equipped with TSS as standard equipment. BERU is currently holding discussions with other European manufacturers on the use of the system in several model series. The aftermarket business with tire-pressure monitoring systems also contributes a small volume of sales revenues.

However, with sensors of all kinds, BERU achieved growth in sales revenues of some 7%. We recently received an order for our new biodiesel sensor, so this product will begin contributing to sales revenues at the end of this year. In addition, from the end of 2005, BERU will start to supply high-temperature sensors to an Asian automobile manufacturer. We see opportunities for this product group with the commencement of state aid for soot-particulate filters. For example, it has been proposed that every diesel car sold in Germany with particulate emissions below 2.4mg/km should be subsidized to the value of ¬Ä600. For such applications, BERU manufactures sophisticated high-temperature sensors which are installed in a vehicle´s exhaust system ¬ó usually before, and in some models also after ¬ó the particulate filter. The VW Group is already being supplied, and BERU is holding talks with two other manufacturers.

Orders received up by nearly 20%

BERU AG recorded an increase in orders received during the period under review of 19.6% to €89.7 million (€75.0 million). The order backlog also rose, reaching €170.4 million after €151.7 million a year earlier.

Constant workforce figures

The size of the workforce at June 30, 2004 was nearly constant compared with March 31, 2004 at 2,672 employees (2,694). However, compared with June 30, 2003, the workforce expanded by 20% due to the acquisition of Eyquem. The ratio of personnel expenses to sales revenues rose slightly, from 31.3% for the prior-year period to 32.3% in the first quarter of 2004/05.

Lower ratio of material expenses to sales revenues

Despite strong expansion by Electronics and Sensor Technology, which tends to cause higher material expenses due to the greater purchasing volumes, the cost of materials increased at a lower rate than sales revenues. The ratio of material expenses to sales revenues for the first quarter was 37.7% compared with 39.3% in the same period of last year. Related to output volume (revenues plus changes in inventories), the ratio was 35.9% (36.8%). As a result of the altered product mix and economies of scale, the gross margin for the first quarter of the financial year improved to 62.3% (60.1%). For the full year, the Group forecasts a ratio of between 36.5% and 37.5% due to ongoing increases in purchasing prices and the planned expansion in the field of electronics.

Other operating expenses for the first quarter of 2004/05 amounted to ¬Ä13.6 million compared with ¬Ä11.8 million in the same period of last year. As a proportion of the Group´s sales revenues, they decreased by 1.1 percentage points to 15.9% (17.0%).

EBIT rises by 22%

For seasonal reasons, the first quarter of the financial year always features relatively weak margins. In the first quarter of 2004/05, BERU achieved an EBIT margin of 13.8%, almost identical to the 14.0% of the prior-year period. It is necessary to consider the fact that the EBIT margin decreased by more than 1 percentage point due to restructuring and process modernization at Eyquem, whose first-quarter contribution to sales revenues was included for the first time. EBIT grew by nearly 22% to €11.8 million compared with €9.7 million in the prior-year quarter.

Net income up by 20%

Financial income of €1.0 million (€0.9 million) remained at the level of the prior-year quarter. Before taxes, BERU earned 20.8% more with EBT of €12.8 million compared with €10.6 million in the prior-year quarter. The total effective tax rate of 39.1% was a little higher (38.7%). The effective income-tax rate fell by 2.0 percentage points, however, to 36.1% (38.1%). Net income increased by 20.3% to €7.7 million (€6.4 million). Earnings per share rose by more than 20% to €0.77 compared with €0.64 in the prior-year quarter.

Above-average levels of investment ¬ó strong financial position

Capital expenditure on tangible and intangible assets was above average in the first quarter compared with the year as a whole, taking place primarily at BERU Eyquem and for the expansion of our production capacity for modern slim-line and ISS glow plugs. At €9.3 million, capital expenditure was 55% above the prior-year quarter. The operative free cash flow thus fell to €4.4 million (€6.1 million). The Group demonstrated its financial strength with a 13.2% increase in cash flow to €13.7 million (€12.1 million). Its net financial position increased again to €79.7 million compared with €78.2 million on March 31, 2004.

Outlook

Business prospects are still affected by high pressure on prices from the vehicle manufacturers and high prices for semi-finished materials and components. There will be numerous product startups during the rest of this financial year. At the same time, it is necessary to further improve the profitability of the new products: ISS, PTC and tire-pressure monitoring systems, in order to achieve breakeven also with ISS and PTC. While the high oil price makes the mainly positive forecasts for higher unit sales of passenger cars in Europe seem questionable, diesel engines are profiting from the high fuel prices and initial upturns in the United States and Asia.

Against this backdrop, Marco von Maltzan, Chairman of the Executive Board of BERU AG, has stated: »We still intend to increase our revenues from our own resources by at least 10%, with an additional contribution of about 3 percentage points from the inclusion of BERU Eyquem in the consolidated group for the full financial year. And we intend to raise our operating profit accordingly. We have achieved the turnaround at REMIX and BERU F1; we will now continue at full speed with restructuring and technological renewal at BERU Eyquem, so that we are able to fully exploit the considerable market potential in the international aftermarket business in the coming years. We will further improve our cost structures with the aid of our Productivity Action Plan (PAP). With the increasing spread of our instant-start system and the development to product maturity of the smart glow plug, we see ourselves as very well positioned in one of the industrial segments with long-term structural and regional growth: diesel technology.«

Consolidated statement of income based on IFRS
First quarter 2004/2005 (April 1 to June 30, 2004)

	2004/05 EUR million	2003/04 EUR million	Change in %
Sales revenues	85.5	69.4	23.3
Change in inventories of finished goods and work in progress and own work capitalized	4.3	4.8	-10.4
Other operating income	1.2	1.8	-33.3
Cost of materials	-32.2	-27.3	17.9
Personnel expenses	-27.6	-21.7	27.2
Depreciation and amortization	-5.8	-5.5	5.5
Other operating expenses	-13.6	-11.8	15.3
Earnings before interest and taxes	11.8	9.7	21.6
Financial income, net	1.0	0.9	11.1
Earnings before taxes	12.8	10.6	20.8
Taxes on income and earnings	-4.4	-4.0	10.0
Other taxes	-0.6	-0.1	500.0
Earnings after taxes	7.8	6.5	20.0
Shares in profits/Losses by other shareholders	-0.1	-0.1	0.0
Net income	7.7	6.4	20.3
Earnings per share (in EUR)	0.77	0.64	20.3

Consolidated Balance Sheet as at June 30, 2004 based on IFRS

Assets	30.06.2004 EUR million	31.03.2004 EUR million
Fixed assets
Intangible assets	30.6	27.4
Property, plant and equipment	133.1	128.3
Financial assets	5.9	6.5
	169.6	162.2
Current assets
Inventories	66.0	55.6
Trade receivables	65.1	73.7
Other receivables and other assets	9.4	8.5
Marketable securities	64.9	65.2
Cash and cash equivalents	39.7	39.8
	245.1	242.8
Deferred tax assets	6.4	6.0
	421.1	411.0
Shareholders´ equity and liabilities	30.06.2004 EUR million	31.03.2004 EUR million
Shareholders´ equity
Subscribed capital	26.0	26.0
Additional paid-in capital	73.1	73.1
Earnings reserves	192.0	182.5
	291.1	281.6
Minority interests	1.6	1.5
Provisions
Provisions for pensions	16.1	15.9
Provisions for taxes and other provisions	35.2	33.2
	51.3	49.1
Liabilities
Liabilities to banks	24.9	26.8
Trade liabilities	24.2	23.1
Other liabilities	12.5	13.8
	61.6	63.7
Deferred tax liabilities	15.5	15.1
	421.1	411.0

Consolidated Statement of cash flow based on IFRS
First quarter 2004/05 (April 1 to June 30, 2004)

	2004/05 EUR million	2003/04 EUR million
Net income for the period	7.7	6.4
Depreciation and amortization	5.8	5.5
Changes in provisions	2.2	1.1
Changes in deferred taxes	0.0	-0.1
Other income/expenses not affecting cash flow	-0.2	0.0
Proceeds from the disposal of fixed assets	0.0	0.1
Proceeds from the disposal of securities held as current assets	0.0	0.2
Changes in inventories	-10.4	-11.2
Changes in receivables and other assets	7.7	7.8
Changes in minority interests	0.1	0.1
Changes in liabilities	-0.2	3.7
Cash flow provided by operating activities	12.7	13.6
Proceeds from the disposal of property, plant and equipment	0.0	0.0
Payments for investments in property, plant and equipment	-9.1	-6.0
Payments for investments in intangible assets	-1.9	-1.6
Payments or proceeds from government subsidies	0.0	0.0
Proceeds from the disposal of financial assets	1.0	0.1
Payments of investments in financial assets	-0.5	-0.2
Payments for the acquisition of consolidated companies	0.0	0.0
Proceeds from financial assets as part of temporary financial management	0.0	1.2
Payments for financial assets as part of temporary financial management	-0.2	0.0
Cash flow used for investing activities	-10.7	-6.5
Payment of dividend	0.0	0.0
Payments to proprietors for the purchase of treasury stock	0.0	0.0
Proceeds from the sale of treasury stock	0.0	1.9
Additions to financial liabilities	0.0	3.6
Repayments of financial liabilities	-1.9	-0.4
Cash flow used for financing activities	-1.9	5.1
Changes in cash and cash equivalents affecting cash flow	0.1	12.2
Changes in funds not affecting cash flow	-0.7	-0.1
Changes in cash and cash equivalents due to consolidated group	0.0	0.0
Cash and cash equivalents at beginning of period	102.0	112.5
Cash and cash equivalents at the end of period	101.4	124.6

Group cash flow based on IFRS
First quarter 2004/05 (April 1 to June 30, 2004)

	2004/05 EUR million	2003/04 EUR million
Net income	7.7	6.4
Depreciation and amortization	5.8	5.5
Change in long-term provisions	0.2	0.2
	13.7	12.1

Sales revenues and EBIT by segment (distribution channels) based on IFRS
First quarter 2004/05 (April 1 to June 30, 2004)

	2004/05 EUR million	2003/04 EUR million
OEM
Sales	56.7	46.8
EBIT	7.2	6.2
Aftermarket
Sales	23.1	17.0
EBIT	4.4	3.6
General industry
Sales	5.7	5.6
EBIT	0.2	-0.1
Total
Sales	85.5	69.4
EBIT	11.8	9.7