Press conference—February 13, 2002
Press release concerning fiscal year 2001 of the MAHLE Group
The increasing globalization is one of the central developments of the past years. The automotive industry has played a major role in this context from the beginning. Technological new inventions and innovative product procedures are substantial drivers of globalization—and are core competencies of the automotive industry. In addition, the search for future growth markets as a counter weight for demand-stagnation in the traditional markets of the world market-triade (Europa, America, and Asia) has led to substantial changes. In the wake of the great consolidation wave by the OEMs and suppliers not only new strategic partnerships develop but also traditional tasks of the OEMs are more frequently given to competent suppliers.
The worldwide division of labor on all steps of the value chain, as well as fast communications channels via Internet and Extranet between the different locations are daily praxis in the MAHLE Group for years. They guarantee the respective cheapest production- and procurement sources during simultaneous quality demands of the highest degree—for the benefit of the MAHLE customer in all parts of the world.
Internationalization in production as well as Research and Development
MAHLE has supported this development from the beginning. The first steps to internationalization and positioning on the world market through production locations in Western Europe as well as North and South America have already happened decades ago. In the past years substantial engagements followed in Asia/Pacific and Eastern Europe.
The essential basis for the development to one of the worldwide most important system supplier of the automotive industry was the set-up of research and development centers, owned by MAHLE, in the important automotive metropoles of Europe, North-and South America as well as in Asia. These centers act increasingly as competence pools and intensively work on global tasks.
Highest system competence through superior Know-How
The continuing pressures of competition in the automotive industry also brings along strategic new orientation. A trend which is connected to this is the growing concentration on the specific core competencies of the company and the crystallization of globally acting specialists for system deliveries. The advantage of this competent system delivery lies in the superior technical know-how during simultaneous high productivity and product quality. MAHLE has opened itself to this challenge in the world market already years ago and has profiled itself successfully as a systems delivery company and as a development partner of all recognized vehicle producers.
Worldwide MAHLE Quality Management
Precondition for the friction-free production process and the flexible use of worldwide capacities is the standardized MAHLE project and quality management. In the past years MAHLE has consequently supported the standardization of its production procedures. The individual business units of MAHLE—the business unit piston and engine components, the business unit filter systems and the business unit valve train systems work in international cooperation with strategic allowance for their product segments.
Like the individual MAHLE production locations also all MAHLE suppliers are bound to these strict quality standards. Today, MAHLE is in the position to determine the location selection of a product not primarily according to local criteria, but according to company-wide priorities. "Made by MAHLE", representatively, stands for the continuity of product quality and development-know-how on the highest niveau.
Broad positioning creates success
It is not enough anymore to process locations all over the world. Our international management connects the insight of the local markets and cultures with the common company guiding values. To this belong dependency and quality consciousness as well as the consequent striving for technology advancement.
In the meantime, MAHLE is the leading supplier in the world market in all product segments around the engine. All important automotive- and engine producers recognize MAHLE as the substantial systems delivery company. A clear indication for this is the broad sales distribution in the MAHLE company to the different world regions and a sales mix with all producers on the world market-triade. Consequently, MAHLE belongs to the substantial exception suppliers, who, today, earn already more than 10 percent of the company sales in Asia—with an increasing tendency!
2. MAHLE capital expenditures worldwide
a) Mexico: Expansion of the market position for Middle- and Northamerica
With the effective date of 1st of October, 2001 the MAHLE company has taken over all shares of the Mexican Joint Venture company MAHLE Duroplast Systemas De Filtración S.A. In the year 1996 the 50:50 Joint Venture between MAHLE and the Duroplast Holding de Mexico was founded.
The majority on the Japanese filter company Tennex, which was taken over in August 2001, with a large plant in Tennessee/USA and the acquisition of all shares on the Mexican Joint Venture makes it possible for MAHLE to develop an independent strategy for the product focusing of its four Northamerican filterplants. After the shares were taken over in October 2001, the new company is now known as MAHLE de Mexico Systemas De Filtración S.A. de C.V.
In this company, which lies in the vicinity of Puebla/Mexico, mostly air filters and active coal filters are being produced for the American automotive industry. In the year 2001, sales of approx. 30 million US $ were earned. In total, the filter area in the NAFTA-region sees a sales potential of 250 million US $.
b) Australia: new location for Asia/Pacific
On the 1st of January, 2002, MAHLE founds a majority-Joint Venture with the Australian company ACL (Automotive Components Limited) for the production of pistons and piston rings. Through the shares take-over of 51 percent on this Joint Venture ACL will now be known as MAHLE-ACL Piston Products Pty. Ltd.
The company is the single automotive producer of Australia and supplies the customers General Motors, Ford, Toyota and Mitsubishi. MAHLE-ACL fits excellently into the production network of MAHLE and complements therefore the MAHLE engagement in the region Asia/Pacific. For this economic region clear growth rates are being expected in the future.
MAHLE expects for the new Joint Venture a yearly sales of approx. 65 million A $. It is planned to build a new plant in the vicinity of Melbourne/Australia, which should take up its production already in the year 2003.
c) Germany: new MAHLE Engineering and Sales office in Wolfsburg
MAHLE intensifies its relations to the Volkswagen-Group as a German main customer with a new development- and operations office in Fallersleben/Wolfsburg.
There, MAHLE has opened the new office in November 2001, in order to centrally coordinate, in the future, all activities of its business units pistons and engine components, filter systems and valve train systems with the VW-Group. The new work places are, therefore, bound into the VW logistic technologically, amongst other things with modern CAD-work places for development projects.
3. Course of business
The MAHLE Group was able to extend its sales during the fiscal year of 2001 in spite of rather negative market trends. Significant growth contribution came from acquisitions of new companies abroad, the exchange rate, the start-up of new production as well as an ever growing participation of MAHLE in system supplies to the worldwide automotive and Diesel industry.
The MAHLE Group achieved a total of more than EUR 2.8 billion in 2001. This represents an increase of more than 18 percent when compared to the year before. A significant contribution to this development comes from the Tennex Group, consolidated for the first time as of April 1, 2001.
Solid growth also without consolidations
Even without first-time consolidations of the Tennex Group as well as other acquisitions completed in 2001, such as MAHLE Parr Filter Systems, Inc. USA, MAHLE de Mexico Systemas de Filtración S.A. de C.V./Mexico, the two Chinese piston companies in Liaoning and Nanjing, the MAHLE Group was still able to report growth of 3.2 percent. Contrary to the common trend of the automotive industry, our growth was mainly supported by an increased amount of system supply throughout all MAHLE business units.
MAHLE Piston and Engine Components
Due to the recession in the United States of America and its immediate impact on Latin America, the MAHLE business unit, piston and engine components, experienced sales reductions in its North and South American companies when compared to 2000. A favorable contributor to the sales development in the MAHLE Group, however, was the ever increasing supply of piston assemblies (piston, piston rings, piston pins). Furthermore, MAHLE SP.z o.o./Poland was able to become an important contributor to the MAHLE Group after a successful completion of its start-up in the fiscal year 2000. Altogether, MAHLE's biggest business unit, piston and engine components, was able to retain its sales at the level of the year before.
MAHLE Filter Systems
MAHLE Filter Systems continues to grow over proportionally. The activities of the MAHLE business unit, Filter Systems, was dominated throughout 2001 by the acquisition of the Tennex Group. The Tennex Group with production locations in Japan, the Philippines, the United States and UK provided expansion and international presence to the business unit, filter systems, as well as to new local OE markets in both Asia and North America. With this acquisition, the MAHLE Filter Systems unit was able to increase its revenue by 80 percent. However, even without considering the acquisition of the Tennex Group, MAHLE's business unit, filter systems, was able to achieve a substantial increase in revenue in 2001. The major contributor to this favorable development was continued development of existing filtration solutions for both, fuel and oil filtration as well as an increased supply of air intake and manifold modules.
MAHLE Valve Train Systems
MAHLE valve train systems report slight growth in sales. In spite of the negative trend of the automobile industry, MAHLE's third business unit, valve train systems, was also able to increase its sales, which is also supported mainly due to increased system supply.
b) Financial and profit position
The results of the MAHLE Group's operational activities suffered in 2001 when compared with the growth in sales in 2000. One reason is the ever increasing over capacities of OEM costs by a flat total market and the resulting increased price pressure. Consequently, the total result of the MAHLE group was below the result of the previous year.
The American market
The recession in the NAFTA region has led to visible reductions in all operating units within the NAFTA regions. Contrary to this development, MAHLE's companies in South America were able to almost compensate for the negative trend of the NAFTA region due to continued consolidation, cost reduction efforts and a favorable exchange rate situation.
The European market
Also the result of the European companies in 2001 could not quite meet the result of the previous fiscal year. Increasing costs in personnel exceeded results stemming from significant cost reduction efforts.
The Asian market
For the first time due to the acquisition of Tennex, MAHLE's group sales shows a share of more than 10 percent stemming from the Asian market. The market situation in Japan, however, does not show any positive trend; other local markets in Asia, such as China and Korea on the other hand contribute with over proportional growth. The MAHLE Group's engagement in Asia is part of our long-term strategy.
Favorable balance sheet trend in spite of global economic weakness
The balance sheet of the MAHLE Group increased due to the consolidation of Tennex/Japan. The relatively high investments—significantly above depreciation lines—in 2002 document MAHLE's consequent continuation of global expansion in spite of protracted economic weakness of our industry. This policy is consistent with the one pursued in the fiscal year 2000.
Current assets according to plan
The share of current assets of the MAHLE Group displays a favorable trend when compared to the year before due to strong efforts towards reduction of inventories of all types.
The debt to equity ratio supports a solid balance sheet structure. In spite of the significant growth, the MAHLE Group was able to retain its sound debt to equity ration also in 2001 at approx. 40 percent, which continues to be the basis for a sound balance sheet structure. In spite of the acquisition of the Tennex Group and other companies, liabilities against credit facilities have been reduced, thus allowing MAHLE to create possibilities for further expansion.
c) Research and Development activities
Innovation has always been the core competency of the MAHLE Group. Very intensive research and development activities provide the basis to continue to represent technology leadership in a global competition.
In spite of reduced results in 2001 compared to 2000, the MAHLE Group has invested more than in previous years in research and development to assure a secure future of the corporation. The existing four research and development centers in Stuttgart, Detroit, São Paulo and Tokyo were able to increase their competency due to the consolidation of the Tennex centers again significantly. Furthermore, MAHLE enhanced its integrated development activities for its major customers throughout 2001 and achieved capacity increases for prototyping throughout the organization.
d) Capital expenditure
In 2001 the MAHLE Group again increased its capital expenditures for all of its business units compared to the previous year.
The piston and engine component unit has not only invested in new manufacturing locations but also in new products as well as in investments contributing to increased quality and productivity. As for the business unit filter systems, the majority of the capital expenditure throughout the European activities again went to the introduction of new products. The business unit valve train systems optimized its existing manufacturing processes, established state of the art powder metal processes as significant capital expenditures went to state of the art manufacturing systems for composite camshaft production and assembly.
Outside of Germany, most of the European investments are concentrated on the start-up of new products as well as for MAHLE's new piston manufacturing company in Poland. Still in 2002 a new light alloy foundry for piston and engine blocks is scheduled to be built with production startup in 2003.
Capital expenditures in the NAFTA region focused predominantly on continued automation of MAHLE, Inc., USA, the construction of a new factory to produce connecting rods in Mexico and to the restructuring efforts of several factories producing filtration systems.The largest investment volume in South America was allocated to the expansion of the current product portfolio, continued improvement in the structure of South America's operating units and technical upgrading.
Tennex now reached world market standards. The predominant part of the capital expenditures in Asia were afforded to Tennex Corporation, Japan. They supported the necessary optimization of their internal structure as well as the integration of such facilities into the MAHLE production network.
2001 denominates the start of the construction for a new headquarters building in Stuttgart. The building will primarily house research and development activities in extension to existing facilities as well as the usual headquarters functions.
The number of employees in the MAHLE Group has risen from 25,854 in 2000 to 28,244 employees in 2001. The main contributors to the growth in personnel were the integration of MAHLE Izumi (Liaoning) Piston Company, Ltd./China, the MAHLE Tennex Group and the MAHLE de Mexico Systemas the Filtración S.A. de C.V./Mexico. Without the integration of such companies the organic personnel growth accounts for an increase of 2.2 percent.
Starting with the second half of 2002, MAHLE expects a modest growth of the worldwide economic situation.
Economic recovery, depending upon the U.S. market
Current forecasts suggest the start of a slow recovery in the second half of 2002. Such positive trends, however, will most likely by dampened by negative South American trends initiated by the economic and financial crisis in Argentina. As in years past, Japan continues also in 2002 to face a recession, which can only be countered by dramatic changes relative to its economic and political structure.
Also Euroland will not be able to distance itself from a relatively slow economic development. Already in years past private consumption has been stagnant; entrepreneurial investments were reduced significantly over time. In the absence of inner economic impulses a sustainable recovery of the Euroland economy will be difficult to anticipate. As a consequence, Euroland will continue its reliance on external growth factors, allocating an important role to the already weak Euro. Before this backdrop of very little growth, MAHLE assumes a reduction in automotive production for the European countries in 2002 compared to 2001.
At the earliest in 2003, a trend change is expected due to anticipated pent up demand.
Increased sales expectation at MAHLE due to continued enhanced competency in technology
Strategic planning of the MAHLE Group focuses long-term in spite of current global economic conditions. Our top priority for the current business year is therefore the alignment of the MAHLE Group with its OEM customers as a competent developer and supplier of system solutions offered at competitive pricing. The results are planned to allow also for future expansions financed from within. MAHLE will further secure a worldwide presence as it realizes synergy effects throughout the group and continues to foster its international technology leadership.
Starting with the development potential of market places relevant to us, we will continue to further increase our capacities in the NAFTA region according to market conditions; we will particularly increase our productivity in several European location in order to compensate for anticipated cost increases. Furthermore, program relocations to more cost-effective locations are part of our total cost reduction activities.
As an example of our technology leadership as a system developer, MAHLE also was awarded in Europe with the first high volume contracts for power cell modules (piston, piston rings, piston pins, connecting rod and bearings).
Stuttgart, February 13, 2002