Press Release for the Financial Year 2002 of the MAHLE Group
1. General Economic Scenario
2. Business Development in 2002
a) Sales
b) Financial and Profit Situation
c) Capital Expenditure on Fixed Assets
d) Headcount
3. Technology leader for new engine components and systems
a) MONOTHERM® steel pistons for maximum load diesel engines
b) MAHLE light-weight valve progressing towards series production launch
4. New major orders for the Group's long-term future development
a) Major order from DaimlerChrysler for the power cell in V6 engines with 3.3 and 3.8 l displacement
b) Supply of piston assemblies, camshafts and oil filter modules for the new generation of diesel engines from Peugeot S.A. (PSA)
c) New BMW/PSA four-cylinder SI engine project with MAHLE piston assemblies
5. Strategic Growth in Asia
6. Outlook
1. General Economic Scenario
The general economic outlook at the beginning of the year was very unclear and revealed some very divergent assumptions. Even so, our forecast at the time was that the world economy would grow at a slow pace in the course of the year.
Only the USA and China were able to increase their gross domestic product. Growth in the USA was up by 2.4 percent in the year under report, with China increasing its GDP by 7.5 percent. Thanks to the contributions made by these two countries, the global gross domestic product was up by 2.5 percent compared with 2.1 percent in the previous year.
However, other regions of the world failed to live up to the positive expectations:
- In Latin America, the gross domestic product was down by 1.1 percent.
- Japan remained sluggish in coping with its structural crisis, resulting in a decrease in its gross domestic product by 0.2 percent.
- In the European Union, too, growth slowed from 1.4 to 0.8 percent.
- Germany showed an increase in its gross domestic product of just 0.3 percent.
Nevertheless, the global automotive industry has remained stable when compared with the overall economy. With a total volume of 57.7 units, automobile production slightly exceeded the figures for the previous year.
However, the situation differed greatly from one part of the world to another: in the NAFTA region production figures grew by 5.7 percent, although this was achieved with the help of exceptional purchasing incentives. The Chinese automotive industry recorded a very significant growth rate of 39.2 percent. Despite weak demand from its domestic market the Japanese automotive industry was able to increase its production figures by 4.3 percent as a result of growth in exports. This trend was helped by the weak Yen favoring the climate for the export of Japanese products.
Recording a decrease of 1.8 percent, the level of automobile production in the European Union failed to reach the levels of previous years, despite innovative technology and the introduction of new models. Developments in the market for heavy-duty commercial vehicles proved particularly problematic. The German automotive industry showed a decrease in production by 3.9 percent, thus facing a downward trend for two years in succession. If export figures had not remained stable, weak domestic demand would have resulted in an even sharper decline.
Production figures also stagnated in Latin America, despite close ties with the US economy. Both the crisis in Argentina and the governmental elections in Brazil led to a general loss of confidence impairing economic development on a lasting basis.
2. Business Development in 2002
Despite sluggish developments in automotive markets, in Europe in particular, MAHLE was able to achieve a growth in sales of nine percent in the 2002 financial year.
Confidence in our innovative skills led to an expansion of our range of products, resulting in turn in healthy, organic growth. Strategic acquisitions in countries of major importance for the Group, such as Canada, Mexico, Korea and Australia, all helped to further strengthen our global market position.
Fortunately, the growth in sales is reflected in an increase in our operating result, achieved mainly by cost reduction measures. Once again, our large overseas locations with their highly motivated workforces have been particularly responsible for leveraging great potential. There was an over-proportional increase in net operating cashflow.
a) Sales
For the first time in the Group's history MAHLE achieved sales significantly in excess of three billion Euro in the financial year 2002, the equivalent of a growth rate of nine percent.
This increase in sales was driven in particular by the Group's strategic acquisitions in 2001 and 2002, the largest acquisition most significant to the position of the Group in the market being the takeover of the MAHLE Tennex Group operating in the filter business, with plants in Japan, USA, Great Britain and the Philippines. Integrated within MAHLE on April 1, the Tennex Group generated total sales of nearly half a billion Euro in the 2002 financial year.
Without the new companies and with exchange rates remaining the same as in the previous year, the Group's organic growth would have been 3.8 percent. This success is mainly attributable to the greater supply of systems in all business units and hence to MAHLE's high level of technical competence.
Pistons and Engine Components Business Unit
Including the newly consolidated companies, the Pistons and Engine Components Business Unit was able to increase its sales by 3.4 percent compared to the previous year. Despite the decline in production within the European automotive industry, sales in this segment in Europe were maintained at the same level even when not taking the newly consolidated companies into account.
Filter Systems Business Unit
Growing by 20.4 percent, sales in the Filter Systems Business Unit were characterized above all by full consolidation of the MAHLE Tennex Group acquired on April 1, 2001. Further acquisitions were the takeover of a majority share in former joint venture companies in Mexico, India and Korea, with organic growth being achieved on almost the same consistent level in all product groups.
Valve Train Systems Business Unit
The Valve Train Systems Business Unit concluded the 2002 financial year with almost the same level of sales as in the previous year. A slight decrease in sales in Europe was compensated for by growth in North America.
b) Financial and Profit Situation
At 175 million Euro compared with 155 million Euro for the previous year, the result from ordinary business activities increased beyond the growth of sales, albeit with very different trends in the various regions.
While results stagnated in Europe, we saw improvements in results in North and South America. The reason for this success in America was the rapid response to changes in the market and rigid cost management. Europe also presented a very mixed picture, the development of results at many of the Group's German and French locations being somewhat problematic. For this reason, we have launched specific restructuring programs aimed at re-establishing an adequate level of profitability.
The Group's profit and loss account shows a reduction in workforce expenditure of 32.0 percent, compared with 32.3 percent for the previous year. This results, first, from the actions initiated to re-establish an adequate level of profitability in Europe and, second, from the expansion of the Group in countries with lower labor costs. The increase in the cost of materials results from the greater supply of systems with a lower level of in-house production. The other operating expenses include considerable amounts for accrued restructuring costs. This item also includes debits resulting from currency conversion differences caused by the weak US Dollar, Brazilian Real and Japanese Yen against the Euro.
The annual surplus of 81 million Euro is characterized by a higher tax ratio compared with the previous year. The Group's balance sheet total remained almost unchanged at 2,221.5 million Euro compared with the previous year's figure of 2,222.8 million Euro. With by far the largest share in the annual surplus being carried forward to new account, the equity ratio remains stable at a high level of 39.9 percent. Accounts payable to banks were down significantly compared with the previous years to just 15.8 percent of the balance sheet total.
A payment of 3.0 million Euro has been made to MAHLE Stiftung GmbH.
c) Capital Expenditure on Fixed Assets
Without additions to assets resulting from the consolidation of new companies within the Group, capital expenditure on fixed assets amounted to 238.7 million Euro in the 2002 financial year. Although such capital expenditure was subject to particularly strict criteria for approval, the total amount exceeded the overall level of depreciations by 14.6 percent.
At 169 million Euro, capital expenditure by the Pistons and Engine Components Business Unit was significantly higher than in the previous year. Capital expenditure in Poland and Mexico on a new pistons foundry and a connecting rod machining plant was of particular significance for the ongoing development of the Group. Another significant investment was the expansion of the newly acquired company MAHLE-ACL Piston Products Pty Ltd. in Australia, with its new piston production facilities.
With 64 million Euro, capital expenditure of the Filter Systems Business Unit was also higher than the comparable amount for the previous year (56 million Euro). This capital expenditure reflected the strategic orientation of the Business Unit to new products as well as the consistent reorientation of the companies' production network.
Following above-average capital expenditure in recent years in the Valve Train Systems Business Unit, the volume of expenditure was reduced according to plan in the 2002 financial year. Even so, capital expenditure in this area still amounts to 38 million Euro, equaling 9 percent of total sales. Most of this capital expenditure was incurred through the establishment and expansion of MAHLE Motorteile GmbH, the Group's European center for the production of composite camshafts.
MAHLE'S new Group Headquarters was completed in Stuttgart during the financial year 2002. This new building complex provides the space required for strengthening the Group's research and development activities beyond the high level already reached today.
d) Headcount
At the end of 2002, the headcount of the MAHLE Group increased to 29,122 employees (previous year: 28,248).
This increase results exclusively from the newly consolidated companies. Without these employees from the new companies, the headcount would have dropped by 1.0 percent, with an organic increase in sales, adjusted for currency conversions, amounting to 3.8 percent. The number of personnel employed abroad increased to 20,343 (previous year: 19,189), accounting for almost 70 percent of the Group's entire workforce (previous year: 68 percent).
Headcount by Region
Europe - 53.1 percent
America - 37.6 percent
Asia/Pacific - 9.3 percent
3. Technology leader for new engine components and systems
a) MONOTHERM® steel pistons for maximum load diesel engines
During the last 24 months MAHLE has been working on its new concept for one-piece forged steel pistons. This concept is now ready for series production. Applied in diesel engines under maximum pressure and temperature conditions, these pistons offer significant improvements through increased efficiency and further reduction of fuel consumption. Compared with conventional aluminum pistons and two-piece steel-aluminum articulated piston (FERROTHERM®) the new MAHLE MONOTHERM® steel pistons offer major benefits in terms of weight with increased load resistance under high pressures and at high temperatures, and at higher specific engine outputs.
Following the successful introduction of large-scale production in 2002 by two American diesel engine manufacturers, the first European applications are about to be implemented by leading engine manufacturers for the heavy-duty commercial vehicle industry. With their worldwide patent, the new MAHLE MONOTHERM® steel pistons are currently undergoing tests with passenger vehicle customers in order to seriously examine the obvious potential for the further reduction of fuel consumption offered by this new piston technology, with a view to large-scale production.
MAHLE is convinced this innovative technology is yet another important step towards diesel engine optimization. We are sure that in less than five years several million units of this new type of piston will be applied in new diesel engines.
b) MAHLE light-weight valve progressing towards series production launch
During the last 24 months intensive development work has taken place, aiming at creating a mature product ready for series production. The progress made is impressive.
The dream long-cherished by all engineers, of manufacturing light-weight valves at an affordable price, is finally being fulfilled. Light-weight valves mean greater engine speeds, less friction loss in the engine, improved acoustics and fuel consumption figures - and hence lower emissions. Earlier experiments using exotic ceramic materials failed because of the extremely high costs involved.
The light-weight valve produced by MAHLE, made of welded, high alloy steel plate, is comparable in price to conventional engine valves, yet offers a saving in weight of more than 30 percent. Following many thousand hours of successful tests in fired engines and in on-road test vehicles MAHLE is planning the launch of series production next year. Here, too, the production of millions of units is planned for the years ahead.
4. New major orders for the Group's long-term future development
a) Major order from DaimlerChrysler for connecting rods in V6 engines with 3.3 and 3.8 l displacement
Following the supply of MAHLE pistons for these engine families made by the Chrysler Corporation, negotiations have been ongoing between MAHLE and Chrysler resulting in the decision to purchase also the completed connecting rods from MAHLE.
Starting in 2004, this major order will contribute tens of millions of Euro annually to the growth of the MAHLE Group. In addition to large capital expenditure in new automated production facilities, the order will result in a large number of new staff being employed, especially in MAHLE's Mexico facilities. The connecting rod blanks for this new order will be forged by MAHLE in Canada. In our MAHLE production plant in Ramos Arizpe, Mexico finally, high-precision finishing of the connecting rods will take place. The pistons for these engines will be manufactured in our american MAHLE plant in Morristown/Tennessee.
The project is scheduled to run for a period of five years in the first instance, producing total power cell module sales amounting to approx. 200 million Euro.
b) Supply of piston assemblies, camshafts and oil filter modules for the new generation of diesel engines from Peugeot S.A. (PSA)
The new family of diesel engines with 1.4 l and 1.6 l displacement, intended for application in vehicles manufactured by PSA as well as Ford, contains major components from the MAHLE scope of supply. In addition to the salt core cooling channel pistons fitted with chrome-ceramic piston rings manufactured in-house, valve timing in these new engines will rely on the composite camshaft with engineered powder metal nobs developed and patented by MAHLE. For the oil circulation system incorporated in the engines, MAHLE is supplying the entire oil filter module with integrated oil-water heat exchanger.
Production of the displacement variants for the engines - which began in 2002 - will be continued until the end of the decade. Total sales for the period concerned will amount to more one billion Euro. MAHLE is supplying the pistons from its plants in France and Poland, the piston rings from Portugal, the camshafts from its new facility in Leibertingen and the oil filter modules from Europe's biggest filter manufacturing plant in St. Michael, Austria. This major order from PSA is making a large contribution to securing the futures of the various production locations as well as protecting the jobs of those who work there.
c) New BMW/PSA four-cylinder SI engine project with MAHLE piston assemblies
MAHLE has also been named as sole supplier of pistons/piston pin assemblies for the joint project agreed between BMW AG and PSA for the development and production of a new four-cylinder SI engine family. This is a clear sign of the trust our two customers are placing in MAHLE's vast experience and its state-of-the-art technology in light-weight pistons for the reduction of friction and fuel consumption. The new engine generation will be applied in a number of BMW and PSA vehicle series to be introduced in the future, and in the second half of the decade millions of units will be produced at various locations in Europe. Precisely where production for this additional major order will take place has yet to be decided, with the final decision being based on a comparison of general costs at MAHLE locations throughout Europe.
5. Strategic Growth in Asia
The Asian share in MAHLE sales has increased from a level of under three percent a few years ago to more than 15 percent of planned annual sales in 2003, at approximately. 3.3 billion Euro.
This growth has been achieved as a result of the two major acquisitions of the Japanese companies MAHLE Tennex Corp. and MAHLE Izumi Corp., the biggest manufacturer of diesel pistons in Japan, as well as a large number of corporate startups in China, Korea and Australia.
MAHLE thus today occupies a leading position among all the suppliers to the automotive industry in the western world, and is hence living proof of the successful implementation of its group-wide globalization strategy. An increase in Asia's contribution to Group sales to approximately 25 percent is planned for the years to come, to be achieved by above-average growth rates and the foundation of new plants and facilities.
6. Outlook
MAHLE does not expect the global economy to recover in 2003, with only North America and China possibly generating a positive impact. The program approved by the US government early in 2003 to boost the economy will have a positive effect on the economy, but it is hardly possible to forecast economic development in view of hostilities in the Middle East. Concerning the process of development in Brazil and the country's close ties with the US economy, prospects of the economy in South America leveling out with no further decline are relatively positive. China is expected to continue its process of above-average development, while Japan will still not be able to overcome its structural crisis during 2003. The economy in the European Union is expected to remain sluggish, with Germany showing the weakest performance and the lowest growth rate within the EU.
The improvement of economic development on one or two continents might allow partial growth in the automotive industry. But the problem facing Europe is that is that, faced with weak domestic demand, it is obliged to rely on exports. In consideration of negative economic development in Germany and the stronger Euro, a positive trend in European car production would appear relatively unlikely, and we must expect a further decrease in production.
Despite the current sluggishness in the automotive market, in its long-term strategy MAHLE is looking at further growth based on the Group's abilities as development partner and system supplier to the automotive industry. For this purpose, the Group acquired a majority share in BMW AG camshaft production in Berlin at the end of 2002. In January 2003, Izumi Industries Ltd., the largest independent piston manufacturer in Japan, became a member of the MAHLE Group under its new name 'MAHLE Izumi Corp.' and is wholly owned by MAHLE. During the 12 months of the year 2002 the Izumi Group reported sales of 171 million Euro. The objective being consistently pursued at MAHLE's European plants and locations and at its German sites in particular, is the harmonization of cost and price levels, thus assuring adequate profitability.
MAHLE has managed to buck the market trend during the first quarter of 2003, increasing sales by 4.5 percent compared with the same period last year and despite the negative effects of differing exchange rates. Allowing for exchange rate adjustments, this would result in a 12 percent sales increase.
The newly consolidated MAHLE Izumi Corp. in Japan and the new MAHLE majority joint venture with BMW for camshaft product in Berlin-Spandau are major contributory factors to this growth rate.
MAHLE GmbH
Corporate Communications / Public Relations
Stuttgart, April 16, 2002