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BERU reports on successful short financial year 2005; sales revenues and earnings to continue rising in 2006»The short financial year 2005 was yet another strong and successful year for BERU. With sales revenues of EUR 305.8 million, we surpassed the mark of EUR 300 million in a nine-month period for the first time in the Company’s history,« commented Marco von Maltzan, Chairman of the Executive Board of BERU AG, on the positive revenue trend, which was achieved despite the increasingly difficult environment of international automobile markets. Key growth drivers in the reporting period included the original equipment business for Diesel Cold-Start Technology as well as Electronics and Sensor Technology in the important sales market of Europe. With growth of 8.5%, BERU significantly exceeded its targeted growth in sales revenues of 5% during the nine-month period. The Group consistently pursued its strategy of profitable growth during the short financial year. Operating profit adjusted for special items (adjusted EBIT) amounted to EUR 41.3 million, equivalent to an operating margin of 13.5%. BERU thus once again demonstrated its strong profitability, which also compares well by international standards. Original Equipment as a growth driver Sales revenues in the Original Equipment segment increased by 11.0% to EUR 199.3 million (EUR 179.5 million), while the General Industry segment’s sales revenues rose by 11.7% to EUR 19.0 million (EUR 17.0 million). The Aftermarket segment expanded by a moderate 2.6% to EUR 87.5 million (EUR 85.2 million), because the strongest quarter of January to March, when the winter weather generally leads to higher demand for spare parts, was not included in the reporting period. However, BERU systematically expanded its position in the international aftermarket business in major volume markets and reinforced its strong position in the domestic market of Germany. Due to the aging stock of vehicles in Germany – the average car on the road is now 95 months old – demand for spare parts is increasing. In Western Europe, the most important volume markets are France, Italy, Spain, Great Britain, Benelux and Scandinavia. Business is also developing positively in the new EU member state, Poland, and in the whole of Eastern Europe. BERU profits from the sales structures already developed in recent years and the increasing preference for used cars from Western European manufacturers. BERU utilizes growth opportunities for diesel cold-start technology With a global market share of more than 40%, BERU is the world’s Number 1 for glow plugs for diesel engines. The Group extended this leading position during the reporting period. The core division’s sales revenues increased by 9.3% to EUR 142.9 million in the short financial year (EUR 130.7 million). BERU supplies leading German, US and Asian engine and automobile manufacturers with glow plugs and technically advanced instant start systems (ISS), enabling cold diesel engines to start within two seconds even at temperatures of well below freezing point. With the marketing of its diesel cold-start products, BERU consistently pursues the goal of maintaining this top position in the coming years and improving it in certain regions. Strategic alignment of Ignition Technology The Ignition Technology division generated sales revenues of EUR 83.9 million (EUR 85.2 million), which was a slight 1.5% below the prior-year figure as a result of weaker unit sales of vehicles with gasoline engines and intensifying price competition. The French subgroup, BERU Eyquem, is responsible for the Group’s entire European spark-plug production at the modernized production plant in Chazelles sur Lyon; both its sales revenues and earnings were lower than projected during the period under review. In view of these business developments, the management initiated comprehensive restructuring measures that should lead to a sustained improvement in profitability. This will result in a reduction of about 80 jobs at this location in the first half of 2006, for which provisions have been formed in a total amount of EUR 2.7 million. BERU is a major supplier of ignition products to Western European manufacturers. The Group anticipates revenue growth due to the launch of the new compact 12-millimeter spark plug in the middle of 2006 and an additional order for ignition coils from a leading European manufacturer due to start at the end of 2006. Growth potential for Electronics and Sensor Technology BERU’s youngest division of Electronics and Sensor Technology achieved 20.0% growth in sales revenues to EUR 79.0 million (EUR 65.9 million). BERU sees great potential in the proliferation of electronics components and the increasing use of intelligent sensor applications in engines and vehicles. With PTC auxiliary heating systems for vehicle interiors, which are mainly used in vehicles with diesel engines, the Company recorded particularly strong growth of 62.5% in sales revenues to EUR 22.7 million (EUR 14.0 million). As expected, the sales revenues generated by tire-pressure monitoring systems (TSS) of EUR 16.8 million (EUR 17.0 million) were lower than in the prior-year period due to the altered scenario for the mandatory introduction of this equipment in the United States. A significant boost is expected in the years 2006 and 2007, since from September 2006 onwards 70% of all newly registered passenger cars and light trucks have to be fitted with tire-pressure monitoring systems in the United States, increasing to 100% in the following year. BERU has already received a major order from a German automobile manufacturer that will start equipping all of its vehicles destined for export to the US with BERU TSS as of 2006. Additional German carmakers intend to fit their vehicles sold in the US with BERU TSS as standard equipment, also starting this year. Strong international revenue growth BERU consistently pursues a strategy of internationalization. During the short financial year, the Group’s sales revenues in its most important market of Europe outside Germany increased by 9.3% to EUR 147.5 million (EUR 134.9 million). In the domestic market of Germany, sales revenues of EUR 87.9 million were identical to the figure for the prior-year period. This was primarily due to a slight drop in unit sales of diesel vehicles in the second quarter related to the debate about particulate-matter pollution and tax concessions for diesel vehicles. However, BERU achieved growth in sales revenues of 22.7% to EUR 35.8 million (EUR 29.2 million) in North America. Sales in Asia also increased by the strong rate of 19.2% to EUR 26.3 million (EUR 22.0 million), due to the growing popularity of diesel products. In the other international markets, sales revenues rose by the rather lower rate of 8.1% as a result of currency translation, and amounted to EUR 8.3 million (EUR 7.7 million). The Group systematically implemented its growth strategy in Europe and further expanded its presence in the international markets. The Sales outside Germany climbed to 71.3% (68.8%). Strategic realignment During the period under review, BERU realigned its production activities in the NAFTA region (North American Free Trade Agreement). Effective December 30, 2005, the cable production activities of the Mexican subsidiary BERU S.A. de C.V. were sold to General Cable, a specialist in the production of cable harnesses. At the same time, BERU established a new subsidiary under the name of BERU Mexico S.A. de C.V., which cooperates with General Cable and is now responsible for spark-plug production and the distribution of BERU products in the Original Equipment and Aftermarket segments for the NAFTA region. Double-digit operating margin despite exceptional charges »The increased pressure on sale prices and margins accompanied by high raw-material and energy prices mean that automotive suppliers like BERU need high levels of operating efficiency in the entire value chain and the continuous improvement of production costs. BERU once again achieved a double-digit operating margin in short financial year 2005, which is a top result also by international standards,« commented Marco von Maltzan on BERU’s earnings. Operating profit (EBIT) for the period amounted to EUR 32.0 million. One-time charges totaling EUR 9.3 million had an impact on earnings, and led to an EBIT margin of 10.5%. As a result of the growth strategy introduced three years ago, the Group continued the strategic realignment of its international production network to reflect core competencies. Measures taken are designed to achieve a sustained improvement in the cost position, particularly in the division of Ignition Technology. BERU pursues a long-term strategy with a focus on continuous expansion and growing enterprise value. The realignment of our activities in Mexico and the measures taken to restructure the French subgroup in Chazelles sur Lyon gave rise to expenses of EUR 5.5 million. At the same time, the annual impairment tests led to the impairment of tangible and intangible assets of EUR 3.8 million. Adjusted for these special items, operating profit (EBIT) amounted to EUR 41.3 million, which is equivalent to an EBIT margin of 13.5% and continues the high profitability of prior years. The adjusted margin in the 2004/05 financial year was 13.9%. Earnings before taxes in the short financial year amounted to EUR 33.5 million, representing a return on sales before income taxes of 11.0% (12.2%). However, adjusted for one-time special items, a return on sales before income taxes of 14.0% was achieved (13.5%). As a result of ongoing efficiency-improvement actions, BERU succeeded in compensating for most of the additional expenses from high raw-material prices. Investment in future growth With investments of EUR 24.8 million (12-month period of 2004/05: EUR 34.9 million) on property, plant and equipment, BERU continued modernizing its production facilities during the short financial year and further improved its competitiveness in terms of production costs. EUR 20.6 million or 83.1% of these investments were made at locations in Germany. At the same time, we succeeded in utilizing synergy potential in our international production network and in reducing quality costs. BERU continues to make substantial investment in new products and technologies. Research and development expenditure in the short financial year amounted to EUR 24.8 million (12-month period of 2004/05: EUR 30.1 million), equivalent to 8.1% (7.8%) of total sales revenues. In Germany, 220 persons are employed in the area of research and development, which is about 8% of the entire workforce. Altogether, the BERU Group employed 2,702 (2,664) persons at the end of the reporting period, which was 1.4% more than at March 31, 2005. 1,444 (1,413) people were employed in Germany and 1,258 (1,251) at the Group’s international locations. With 53.4% (53.0%) of the workforce employed in Germany and 46.6% (47.0%) abroad, BERU has a balanced and stable workforce structure. Sound balance-sheet structure and financial position BERU was able to finance all of its investments from the cash flow in the short financial year. The operating free cash flow (net profit plus depreciation and impairments plus changes in long-term provisions minus investments) increased by 43.8% to EUR 19.7 million, from EUR 13.7 million in the twelve-month period of the prior year. BERU further improved its strong balance-sheet structure during the reporting period. Shareholders’ equity before minority interest increased by EUR 10.9 million (3.7%) from EUR 296.8 million to EUR 307.7 million. At the same time, the equity ratio before minority interest rose from 68.0% to 70.0%. Due to the repayment of loans, BERU is meanwhile virtually debt-free. Liabilities to banks fell to EUR 11.1 million (EUR 22.5 million). The balance-sheet total increased by EUR 3.0 million (0.7%) from EUR 436.6 million at March 31, 2005 to EUR 439.6 million on the balance-sheet date. Strong revenue growth anticipated for 2006 The Executive Board of BERU AG anticipates only a moderate revival of worldwide demand for automobiles in the 2006 financial year (January 1 – December 31, 2006), with ongoing high pressure on sale prices and margins accompanied by high raw-material and energy prices. Due to the continued rise in demand for diesel vehicles and the anticipated increase in sales revenues from electronic products, the Executive Board looks forward to the BERU Group’s continued profitable growth. In addition to the expansion of the product portfolio, the Group will push forward with its continuous growth also by expanding its international presence. The Company sees further growth potential in the current year: »We assume that BERU will continue its profitable growth in 2006 and will achieve a return above the average for the industry,« stated Marco von Maltzan, Executive Board Chairman of BERU AG. Assuming that no further negative effects arise from general economic developments and that the automotive industry develops in line with market projections, the Executive Board anticipates sales revenues in 2006 of EUR 425-435 million. During the same period, the Executive Board aims to increase operating profit (EBIT) to more than EUR 50 million, thus continuing the strong earnings trend of recent years. Dividend proposal The Executive Board and the Supervisory Board intend to propose to the Annual Shareholders’ Meeting of BERU Aktiengesellschaft to be held on June 21, 2006 that in view of the Company’s strong profitability, sound financial position and positive prospects for the current financial year, a dividend of 83 cents per share be distributed. This is equivalent to a distribution ratio of 42.6% (full-year 2004/05: 46.6%). Annual Report BERU AG has published the annual report for the short financial year 2005 (April 1 – December 31, 2005) on March 30, 2006. The annual report is accessible on the company's website at www.beru.com. Consolidated income statement
Consolidated balance sheet
Additional key figures
* Including the minority interest in equity ** Management’s proposal on the appropriation of profits for the Annual Shareholders’ Meeting on June 21, 2006
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