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Results for the first half year 2004/05BERU increases sales by 17% in the first half yearThe Group achieved organic revenue growth of more than 10% due to high growth rates in the core division of Diesel Cold-Start Technology and the positive business developments with PTC auxiliary heating systems and high-temperature sensors in the youngest division of Electronics and Sensor Technology. Additional revenues of EUR 13.4 million were contributed by our French subgroup, BERU Eyquem, which we acquired in August 2003. Sales of electronic tire-pressure monitoring systems were lower than projected. Sales growth of nearly 15% in the core division In the core division of Diesel Cold-Start Technology, BERU achieved revenue growth of 14.6% to EUR 80.3 million in the first six months of the financial year, compared with EUR 70.1 million in the same period of last year. The sales trends for the individual product groups and sales channels differed, however. With sales of glow plugs as original equipment for new engines, BERU recorded first-half growth of more than 10%. But the OES business with spare parts for the aftermarket (vehicle manufacturers and independent vendors) was lower than expected, although there was a slight revival compared with the first quarter. It seems that existing stocks at spare-part distribution centers have not been adequately depleted due to the mild weather. However, the company is very satisfied with sales of the ISS diesel instant-start system in the OEM business: unit sales were significantly higher than projected. BERU has a clear lead in this technologically sophisticated segment. The strong demand for diesel engines due to the high price of fuel is an advantage for sales of ISS. Due to increasingly strict emission regulations in Europe and the United States, can be assumed that demand for BERU´s expertise in diesel cold-start technology will increase in the coming years. In North America, demand for modern diesel technology is beginning to rise. BERU succeeded in boosting its first-half sales revenues by two thirds from EUR 12.2 million to more than EUR 20 million. Demand was particularly high for ISS for use in large diesel engines for sport utility vehicles and pick-up trucks, and unit sales were higher than projected in this segment. Ignition Technology still impacted by acquisition of Eyquem BERU´s division of Ignition Technology for gasoline engines increased its first-half sales revenues by 18.6% to EUR 57.4 million (Apr.-Sep. 2003: EUR 48.4 million). The increased revenues were primarily due to the acquisition of BERU Eyquem in France which contributed revenues over the full six months, unlike in the prior-year period. Unit sales of ignition coils were higher than forecast, due to increased market share and product-startup effects with a French customer. BERU currently assumes that sales revenues generated by ignition coils will increase further in the coming year. The earnings situation at our French subsidiary Eyquem in Chazelles sur Lyon is still dissatisfactory. At present, the focus is on modernizing the production facilities and adapting the logistics and production processes to the new compact 12 millimeter spark-plug technology, with which BERU intends to position itself as a premium supplier among the top three manufacturers. However, cross-selling effects are already apparent in the cooperation with French vehicle manufacturers and in the international spare-parts markets. In the OEM business, BERU has made further progress following a first order from the VW Group, and has obtained two more European automobile manufacturers as customers. In this context, BERU succeeded against international competition for the first time with its new compact M 12 technology, and will supply newly developed compact premium spark plugs with a double platinum coating for a joint 4-cylinder gasoline-engine platform of the two OEMs (original equipment manufacturers). Initial deliveries are to begin in the 2005/06 financial year. After the successful startup of production, BERU plans to increase its annual delivery volumes in the following years to a volume of between 2.5 and 3.5 million spark plugs, depending on actual demand. Varied developments at Electronics and Sensor Technology In its youngest division of Electronics and Sensor Technology, the Group achieved a sales revenues increase of 17.3%, reaching EUR 42.1 million compared with EUR 35.9 million in the prior-year period. The company posted significant growth for PTC auxiliary heating systems for car interiors, which are mainly used for diesel-powered vehicles, as well as for high-temperature sensors. For high-temperature sensors, BERU benefits from the trend becoming apparent in many European countries such as France, Germany and Austria to make diesel particulate filters mandatory or to grant tax concessions for vehicles with diesel engines. The development of the electronic tire-pressure monitoring systems unit was below expectations; it did not reach the figures of the previous-year period in the first half and thus had a negative effect on earnings. This development can be ascribed to the uncertainty in advance of U.S. legislation which was finally passed in mid September 2004, and the resulting postponed start-up for one customer. Increase in orders received and order backlog During the first half of the financial year, orders received and the order backlog continued to expand against higher comparative figures. Orders received rose by 14.6% and increased from EUR 163.3 million to EUR 187.2 million. The orders backlog increased by over 11% to EUR 173.6 million (Sep. 30, 2003: EUR 155.6 million). Lower workforce figures The size of workforce at September 30, 2004 was 2,621 employees for the Group, and was around 2% below the figure of the previous quarter, ending June 30, 2004. The ratio of personnel expenses to sales revenues increased to 32.3% (30.5%). However, this also includes the now fixed, one-offs for the departure of one member of the Executive Board. Lower ratio of material expenses to sales revenues Material expenses increased by 10.8% to EUR 64.9 million (Apr.-Sep. 2003: EUR 58.6 million) in the first half. This increase is mainly attributable to the general expansion of unit sales. With rising raw-material prices, we succeeded in reducing material expenses as a percentage of sales revenues to 36.1%, compared with 38.0% in the prior-year period. The product mix had a positive impact in this regard. For the full year, we still forecast a ratio of material expenses to sales revenues of 36.5% to 37.5%. Related to output volume (revenues plus changes in inventories and manufacturing costs capitalized), the ratio was 34.9% (35.6%). The gross margin increased to 63.9% (62.0%). Other operating expenses amounted to EUR 29.8 million in the first half 2004/05 compared with EUR 25.5 million in the previous year. As a proportion of the Group´s sales revenues, they were almost flat at 16.6% (16.5%). EBIT margin before one-offs stable The profit in the second quarter was burdened by one off expenses in a total amount of EUR 4.2 million relating to the departure of one member of the Executive Board and consulting services due to the announced takeover of BERU Group by BorgWarner. EBIT (earnings before interest and taxes) adjusted for exceptional expenses in the operating business increased by 10% to EUR 26.4 million (Apr.-Sep. 2003: EUR 24.0 million). Including the exceptional expenses, EBIT amounted to EUR 22.2 million. The solid profitability of the company with an adjusted EBIT margin of 14.7% remained at a high level; however, it was below the level of the prior-year period (15.5%). Due to the dissatisfactory earnings situation at the French subsidiary, Eyquem, the operating margin was about one percentage point lower. Measures to increase profitability are currently being actively implemented. The significantly lower than expected sales revenues in the field of tire-pressure monitoring, which were below the level of the prior-year period, falling short of the breakeven, also distinctly burdened the Group´s margin. Adjusted pre-tax income up by 11% Financial income increased moderately from EUR 1.3 million to EUR 1.6 million. Before taxes, BERU earned EUR 2.7 million more when considering adjusted pre-tax profit, which increased by 10.7% from EUR 25.3 million to EUR 28.0 million. Including the exceptional expenses of the second quarter, pre-tax profits amounted to EUR 23.8 million. Adjusted earnings per share of EUR 1.67 The effective income-tax rate of 37.7% (Apr.-Sep.: 2003: 35.9%) was considerably higher, partially due to the tax on assets at BERU Eyquem, which is independent of earnings. The total effective tax rate increased to 40.3% (37.2%). Before one-offs, the Group´s net income increased by 6% to EUR 16.7 million (EUR 15.8 million) despite the significantly higher tax rate. Including exceptional items, the Group´s net income amounted to EUR 14.1 million. Earnings per share adjusted for exceptional effects expanded to EUR 1.67 (EUR 1.58). Ratio of investments to sales revenues of more than 10% assures future growth BERU continues to invest substantial amounts in the future of the company. Capital expenditure on tangible and intangible assets increased by almost 16% to EUR 18.5 million (Apr.-Sep.: 2003: EUR 16.0 million) and was fully financed out of the cash flow. Investment was in line with the planning for the full year, for which an investment volume of EUR 35 million to EUR 37 million is scheduled. The major part of this volume will be used for the expansion of production capacities. Research and development expenses amounted to EUR 14.3 million. The capitalized development expenditures - covering only those projects with a precisely measurable financial benefit for the company and which are processed within the framework of a documented customer order - accounted for EUR 5.2 million with amortization of capitalized development expenditures of EUR 0.5 million. Due to the expanded investments, the free cash flow from operating activities of EUR 8.8 million (Apr.-Sep.: 2003: EUR 11.9 million) was lower than in the previous year. The Group´s total cash flow of EUR 27.3 million (EUR 27.9 million) represents a cash flow yield of more than 15%. Cash and cash equivalents at the end of the second quarter amounted to EUR 91.5 million compared with EUR 104.6 million at the end of the first quarter. The net cash position declined by EUR 12.4 million to EUR 67.3 million (EUR 79.7 million) compared with the end of the first quarter of 2004/05. Outlook As stated by Marco von Maltzan, Chairman of the Executive Board of BERU, the company is on the right track in structurally growing markets - diesel technology and electronics. «Our efficiency-enhancing program PAP (productivity action plan) and the technological improvements in processes at BERU Eyquem are also contributing to this. We expect to achieve our latest full-year target of increasing operating profit before exceptional items by at least 13%, similar to the planned growth in sales revenues. Including these exceptional expenses, we aim to achieve an operating profit of at least EUR 59 million,« stated Mr. von Maltzan with a view to the full year. With regard to the ISS diesel instant-start systems, BERU intends to continue increasing our unit sales. We are supported in this field by the continuously rising share of diesel vehicles. Concerning tire-pressure monitoring, the decision of the U.S. transportation authority, NHTSA, in the middle of September was the decisive trigger: Customers´ interest has increased noticeably, a pleasing order trend is already apparent. BERU will increasingly benefit from the technological expertise and long-term practical experience. For sales revenues, after the disappointing trend and stagnation with TSS in the current financial year, next year the company expects to continue the positive development of recent years, reaching sales revenues of over EUR 45 million. At present, however, BERU does not see any improvement in the generally difficult market conditions in the automotive industry, in particular for the German market.
Consolidated profit and loss Account BERU Aktiengesellschaft, Ludwigsburg
Consolidated Balance Sheet as at September 30, 2004 based on IFRS
Consolidated Statement of cash flow based on IFRS
Group cash flow based on IFRS
Sales revenues and EBIT by segment (distribution channels) based on IFRS
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