博格華納 (BWA) 2005 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Six Months Results 2005 BERU AG Conference Call on 17th of November, 2005.

[OPERATOR INSTRUCTIONS.]

I would now like to turn the conference over to Mr. Marco von Maltzan. Please go ahead.

Thank you very much. Ladies and gentlemen, good morning or good afternoon, wherever you are in the world. Thank you very much for joining into our conference call today.

Let me outline the highlights of six months 2005. BERU increased its total sales revenues in the first six months of the 2005 short financial year by 9.6% to €197 million, fully achieving its growth targets despite difficult market environment.

In the six month period on the revenue, EBIT increased by 26.1% to €28 million, as opposed to €22.2 million in the prior year period, due to the fact that there were no exceptional expenses in the second quarter, unlike the prior year.

Net income for the period increased by 30.5% to €80.4 million. EPS amounted to €1.84 compared with €1.41 in the prior year period.

Now, I would like to give you an overview of the most important financial figures for the six months 2005 and future targets.

[Inaudible] increased its total sales revenue in the first six months of the short financial year 2005 to €197 million. Positive course of business in our main division of Diesel Cold-Start Technology, high growth in our youngest division of the Electronics and Sensor Technology contributed decisively to the 9.6% organic growth in earnings achieved by the Group.

At the beginning of the financial year, the Executive Board set the goal of increasing sales revenues and operating profit by a high single digit rate over the next 12 months. Despite difficult market environment, which is affected by increasing pressure on prices and margins, we fully achieved our growth targets.

BERU succeeded in expanding its presence in international markets. The share of sales revenues generated outside Germany rose to 70.5%, as opposed to 68.3% in the prior year.

The Group increased its sales revenues in Europe, excluding Germany now, by 60.5% to €97.4 million. Revenues in the domestic German market rose slightly from €57 million to €58 million. This was primarily because of lower unit sales of diesel vehicles in the second quarter connected with the inevitability of diesel particular filters and the debate about possible tax incentives.

Sales revenues in North America were also close to the prior year level at €20.3 million.

Asia recorded a 17.3% increase in sales revenues to €16.3 million, as opposed to €13.9 million last year, due to the growing popularity of diesel vehicles, whereas sales revenues in the other overseas markets were slightly below the prior year level at €5 million due to exchange rate effects.

BERU increased its sales revenues from the OEM business by 12.8% to €130.1 million during the period on the revenue. OEM sales contributed 66% to total sales revenues.

In the aftermarket sales segment, BERU recorded an increase in sales revenues of 2.6% to €55 million, as opposed €53.6 million in the prior year period. Aftermarket revenues from sales of Diesel Cold-Start products increased in Germany and the rest of Europe as a result of gaining new customers and the wider product range.

BERU has succeeded further in proving its already strong position in the aftermarket business. In addition to German, the other key markets among the 25 EU countries are France, Italy, Spain, [inaudible] and the United Kingdom. BERU’s aftermarket activity in the United States also expanded significantly. Due to the continuation of the strong Euro, aftermarket revenues in the other overseas markets decreased slightly. Aftermarket sales contributed 27.9% of total sales revenues.

Revenues in [inaudible] industry segment posted solid growth of 9.2% to €11.9 million, €1 million more than last year. General industry sales contributed again 6.1% of total sales revenues, the same ratio as last year.

BERU’s core division of Diesel Cold-Start Technology posted growth in sales revenues of 14.3% to €91.8 million, compared with €80.3 million in the prior year period, contributing 46.6% to total sales revenues.

Glow plug sales and the specialty sales of the ISS diesel instant-start system increased by an above average rate in superior other revenue. BERU has succeeded in maintaining its leading role in this technologically demanding segment.

The Group profited from the introduction of the diesel instant-start system at the [Volkswagen] DaimlerChrysler. The strong growth was also partially due to start-up with the instant-start system at DEMAX, the joint venture between General Motors and Isuzu North America, and start-ups at a South Korean manufacturer.

In 2005, new registration for petrol engines in Western Europe decreased by 2.2%, i.e, totaling now 5.8 million units.

BERU’s ignition technology division, which supplies spark plug and ignition products for gasoline engines generated sales revenues of €55.5 million in the six months under revenue, which was 3.3% lower than the level of €57.4 million recorded in the prior year period. The ignition technology division contributed 28.2% to total sales. Whereas, revenues from ignition coils developed according to plan, the revenues generated by sales of spark plugs were lower than expected due to the weak demand for gasoline engines and increased pressure on prices.

Decreased revenue is contributed by the BERU Eyquem subgroup was lower than originally planned. Contribution to operating profit was also not yet satisfactory. Management is therefore currently assessing whether the already initiated measures for sustained improvement in profitability within the next two or three years actually has the potential to achieve this goal.

Delivery of the new compact 12 millimeter spark plug I expect to lead to higher unit sales in 2006. BERU also sees growth opportunities for the ignition technology division, with sales of ignition cores and the expansion of the international aftermarket program under the [inaudible].

The BERU Group’s youngest division of Electronic and Sensor Technology achieved an 18.1% increase in sales revenues to €49.7 million, compared with €42.1 million the year before. The division contributed 25.2% to total sales. Last year this was 23.4%.

Growth was particularly strong for PTC auxiliary heating systems for vehicle interiors, which are mainly used in vehicles with diesel engines. The Group anticipates further increases in sales revenues from this product next year.

As expected, sales revenues from tire pressure monitoring systems was slightly below the prior year level at €10.4 million, as opposed to €11.5 million the prior year. [Low rate dipping rates] in vehicles [inaudible] for export to the United States and all the postponements due to the changed scenario for the mandatory introduction of this equipment in the United States were the main reasons for the decrease.

New legislation stipulates that, as of September 1st, 2005, 20% of all [live] vehicles newly registered in the U.S. will have to be fitted with direct tire pressure monitoring systems in the first year, 70% in the following year, and 100% thereafter. The Group therefore anticipates significantly higher revenues in the next two years. At present, BERU’s TSF, a tire safety system, is offered by the Volkswagen Group, Audi, and other major OEMs as an up-source feature for the European market.

Materials expenses for the period increased to €74.6 million as opposed to €64.9 million in the prior year. This increase was primarily due to the general expansion of sales revenues and the change in product mix, containing a higher proportion of electronic components.

The rise of the raw material prices, natural ratio of material expenses to save revenues of 37.9%, as opposed to 36.1% last year. However, compared with the first quarter of the current financial year, this ratio decreased from 38.4% to 37.9%. For the full year, BERU anticipates a material expenses ratio of approximately 30%.

BERU had personnel expenses will under control. While the headcount increased by 3.6%, personnel expenses quickly reduced to €57.3 million. The ratio of personnel expenses to save revenues of 29.1% was lower than a year early, where we recorded 32.3%.

Operating expenses amounted to €30.3 million in the six months of 2005, compared wit €29.8 million in the prior year six months, a development that is in line with the systematic expanse of business models.

EBITDA amounted to €44.1 million, and the Group’s EBITDA margin reached 22.4% versus 19.5% in the prior year period.

EBIT rose by 26.1% to €28 million. This figure last year amounted to €22 million. The higher rate of increase was due to the fact that earnings were impacted by one-time exceptional expenses in the second quarter of the prior year. Another reason is that BERU once again demonstrated its operating efficiency and strong profitability, with an EBIT margin of 14.2%. Last year, this margin was, due to the exceptional expenses, at 12.3%.

Earnings before taxes amounts to €29.4 million, coming up from €23.8 million. Financial income of €1.4 million was slightly lower than the prior year quarter, where it was €1.6 million.

Net income-- our financial income decreased moderately from-- as I said, from €1.6 million to €1.4 million. Before taxes, BERU earned €5.6 million more than in the prior year period. Earnings before taxes increased by 23.5% from €23.8 million to €29.4 million.

Effective income tax rate of 35.1% was lower than the prior year level, where it was at 37.7%. The overall effective tax rate fell to 37.1% coming from 40.3%.

First quarter net income increased by-- third-- yeah, half-year net income increased by 30.5% to €18.4 million. EPS increased to €1.84 compared with €1.41 in the prior year.

BERU continues to invest substantially in the future of the Group. Investments in property, plant and equipment and intangible assets amounted to €17.3 million, slightly below the prior year level where it was at €18.5 million. Once again, [inaudible] fully covered from our cash flow.

R&D expenditure amounts to €15.6 million. Technologic development expenses, solely comprised of projects within the framework of a customer order and with the goal of achieving a concrete financial benefit for the Group amounted to €4.3 million. By a write-down of capitalized development expenses amounted to €1.4 million as opposed to €0.5 million in the prior year period.

The operating free cash flow rose to €17.5 million as opposed to €8.8 million, which represents almost 9% of sales.

Cash and cash equivalents at the end of the half year amounted to €86.3 million compared with €100.6 million at the end of the first quarter. The net financial position decreased by €30.4 million compared with the end of the first quarter to €66.1 million, primarily due to the dividend distribution of €11.8 million, and additional one-time tax expenses of €7.6 million.

Payroll cash position provides also a solid foundation to finance external growth. BERU intends to expand its present [inaudible] market while optimizing our international production and sales structure in terms of their efficiency and economy.

For a short glance at our balance sheet. I think you will agree that we have a solid balance sheet structure. Current assets were at €242.9 million. Total assets increased by €5.5 million, and amounted to €442.1 million.

On the side of liabilities and shareholder equity, equity capital increased to €307.1 million compared to €299.4 million at the end of March, 2005.

Let’s now briefly take a look at the market trends, our product pipeline that is essential for generating future business [inaudible]. The popularity of vehicles with diesel engines continues to grow. The proposal of new car registers with diesel engines in Western Europe, the most important sales region for BERU, increased in the period of January through September, 2005 to 48.5% from 47.1% in the comparative period of 2004. In the first nine months of the year 2005, unit sales of diesel cars amounted to 5.4 million vehicles. This represents an increase of 3.4% over the prior year period. Our unit sales of gasoline cars increased by 2.2%.

Meanwhile, seven countries in Western Europe have passed the 50% margin. In Italy, diesel’s share of new registration increased to 58.6%. In Spain, it was up to 67.3%, and in France it reached 69.3%. But two out of three customers decided in favor of diesel in these major European markets. Great Britain, one of the last European markets, showed also a remarkable growth as far as diesel penetration is concerned. It accounted for 35% of new car registrations, after 31.5% for the same period previous year. Just remember that the comparable figure in 2003 was 27.3%.

Germany’s diesel share of 41.4% in the first nine months of 2005 was still well below the average for Western Europe. Lower unit sales of diesel vehicles in the second quarter [recollect it] was the availability of diesel [inaudible] and the ongoing debate about possible tax incentives.

The long-term trend towards diesel in Western Europe is continuing. The proportion of new car registers with diesel engines in Western Europe in the period of January through September increased 48.5% from 47.1% in the comparable period of 2004. Market analysts anticipate a share of more than 57% for diesel in Western Europe as early as 2009.

[Inaudible] in the United States are in view of the high price of crude oil, diesel’s low fuel consumption and low emissions, as well as additional tax incentives as provided for in the new energy bill recently signed by President Bush. A number of European automobile producers have already announced diesel [inaudible] for launch in the U.S. market. The market analysts now expect [inaudible] diesel penetration of 15% to 20% by the year 2015. By the way, the interview with the CEO of [inaudible] was quoted quite recently that she expects diesel penetration in the United States to be around 20% also by the year 2015.

Market experts anticipate significant growth in the Asian market for diesel. In South Korean, Asia’s fourth largest automobile market, sales of [918,000] passenger cars are foreseen in 2005, 12% higher than in the prior year.

New engines have been [inaudible] for passenger cars since the beginning of 2005. Previously, diesel was only permitted for commercial transport vehicles. The new possibility is particularly attractive for private units as tax differentials make diesel up to 40% cheaper than gasoline.

Market experts, therefore, expect diesel share of new registration in the segment of passenger cars and light trucks to rise from 20% in 2005 to 35% in 2009.

This capital investing of new products and new technology, how have they been developing? OES sales of the ISS Instant-Start System increased by above-average rate in the period under revenue. BERU has succeeded in maintaining its leading role in this technologically demanding sector. The Group profited from the introduction of the Diesel Instant-Start System by the Volkswagen group and DaimlerChrysler. This strong growth was also partially due to start-up with the Instant-Start Systems, with [inaudible], this joint venture between General Motors and Isuzu North American, and with South Korean manufacturers. Growth was particularly strong for PTC auxiliary heating systems, which are mainly due to vehicles with diesel engines. The Group anticipates further increases in sales revenues from this product next year.

BERU [inaudible] as well as platforms from foreign Korean vendors.

BERU is one of the world’s leading suppliers of such equipment. The Group therefore anticipates significantly higher revenue over the next two years. At present, BERU’s TSF tire safety systems offered by the [inaudible] group, Audi and BMW as an option for European platforms. The roll-off for U.S. export of the major OEM would start in 2006.

Ladies and gentlemen, to conclude today’s conference call, let me give you a brief outlook on our plans for the short financial year.

BERU anticipates only a relatively moderate revival of growth and demand for automobiles in the coming months due to higher energy prices and the resulting consumer uncertainty. The operating term as a Group believes it is well positioned, particularly in the growing business [inaudible], technology and with its youngest division, Electronics and Sensor Technology. Due to the ongoing diesel [inaudible] in Europe and other important sales markets, BERU anticipates sustained growth for its core division of Diesel Cold-Start Technology. In addition, the Group expects a significant increase in sales of the tire pressure monitoring system, due in particular to the mandatory introduction of direct measuring systems [inaudible] the United States.

For the short financial year, the Group expects approximately 5% growth in sales revenues, and intends to increase its core heating profit proportionally.

The operating profit margin of between 13% and 14% is targeted for the nine month period.

Ladies and gentlemen, BERU is well positioned for further profitable growth.

Finished from my side so, our operator to ask questions now.

[OPERATOR INSTRUCTIONS.}

And ladies and gentlemen, if there are no questions from your side, please feel free if you have any later on to call up investor relations, Gala Conrad. She will be available for answering further questions, and myself as well. So, if there are no questions from your side, I thank you very much for listening to today’s conference call and I wish you a good day. Thank you.

Mr. Von Maltzan, there are no further questions at this time. Please continue if you wish to.

Yes. Once again, ladies and gentlemen, I think since there are no questions, we should stop today’s conference call. As I said before, don’t hesitate to contact Gala Conrad, our head of investor relations. And I thank you very much for calling in and wish you a good day. Bye-bye.

Ladies and gentlemen, this concludes the half-year [inaudible] 2005 of BERU AG. Thank you for participating. You may now disconnect.