Nuremberg – Leoni generated sales of EUR 2.9 billion in the 2008 financial year, a period marked by an unprecedented reversal in the economy. Compared with the previous year (2007: EUR 2.4 billion), the Company recorded a 23 percent increase that is attributable to the acquisition of Valeo’s former wiring systems division (now LWSF) on 2 January 2008. Year on year, the specialist for wire, cable and wiring systems posted significantly lower earnings before interest and taxes (EBIT) amounting to around EUR 55.7 million (2007: EUR 138.1 million) and likewise sharply reduced net income of EUR 5.2 million (2007: EUR 86.2 million). The severe economic slump that started in October prevented Leoni from continuing its business performance in line with planning of the first three quarters into the final quarter. As announced in conjunction with the provisional figures, the Company intends to reduce its dividend to EUR 0.20 (2007: EUR 0.90).

Up to and including September 2008, Leoni’s sales and earnings were on target in all the key markets of both divisions. Most production facilities ran at virtually full capacity. In the subsequent weeks the group of companies was faced – first in the automotive industry, later also in other sectors – with drastic decreases in demand unprecedented in terms of both their extent and pace. A slump in sales of about 25 percent in the final quarter compared with the average of the previous three quarters and simultaneously a need for large write-downs on copper inventory exerted a substantial squeeze on earnings. The sharp 4th-quarter decline in the copper price from EUR 4.57 per kilogramme to EUR 2.16 alone trimmed EBIT of that quarter by about EUR 21 million. Although the countermeasures applied immediately did limit the reduction in earnings, they could not prevent it.

Costs reduced by adjusting capacity

To compensate for the decline in demand, Leoni launched a comprehensive programme to reduce costs in the 4th quarter of 2008 that is being continued in the 2009 financial year. Along with restricting spending on investment and assets, the focus is on adjusting production capacity. Initially this comprised cutting back overtime and leave accounts; later on reducing temporary staff and employees on fixed-period contracts as well as scaling back working hours and, to a minor extent, also eliminating jobs for operational reasons.

The number of Group employees grew to 50,821 as at 31 December 2008, up from 36,855 on previous year’s closing date; this strong increase was the result of having integrated the LWSF workforce. The Group reached its highest number of about 53,500 employees in September. In the final three months of 2008, however, the economic downturn compelled the Company to shed about 3,000 jobs – mostly outside Germany.

Sharp decline in copper price weighs on earnings

In the Wire & Cable Solutions (WCS) division, demand declined significantly in the final months of the year under report, especially so for automotive cables, power cords for electrical and household appliances, cable systems for the mechanical engineering sector as well as wire and strands. External sales were nevertheless up by a modest 1.5 percent to EUR 1,401.5 million. EBIT was down from EUR 80.8 million in the previous year to EUR 29.6 million due mainly, along with the weaker capacity utilisation, to the extremely sharp decline in the price of copper.

Business in the medical equipment, petrochemicals, solar technology and fiber optics sectors as well as in the specialist field of irradiation crosslinking remained good up to the end of 2008. Furthermore, the division secured three strategically important contracts in markets outside the automotive industry with wiring for the Gotthard Base Tunnel, the Airbus families A320 to A340 and for ship cabins.

Abrupt collapse in demand from the automotive industry

The Wiring Systems division (WSD) performed in line with planning in the first nine months of the 2008 financial year, but in the fourth quarter had to cope with a huge drop in the volume of product called forward by the automotive industry involving virtually all manufacturers and models. External sales rose by 53 percent from EUR 986.0 million in the previous year to EUR 1,510.5 million, of which the LWSF Group provided EUR 573.6 million. EBIT was down from EUR 57.8 million to EUR 23.4 million. This figure includes restructuring charges amounting to EUR 5.2 million, which pertain to facilities in Poland, Hungary and Italy.

The main sales drivers included cable systems and complete wiring systems for carmakers Daimler und PSA with their Mercedes A and B-Class, Smart, Citroën C5 and Peugeot 308 models. With the takeover of the international wiring systems business of the Russian company Itelma, Leoni succeeded in gaining a foothold in this important market. The purchase of a 50 percent stake in the South Korean wiring systems manufacturer and previous joint venture partner Daekyeung formed the basis for future expansion in another growth region. There was furthermore positive impetus from China, where Leoni also supplied the Chinese manufacturer SAIC for the first time. Regardless of the economic crisis, various new and follow-on projects again started during the year under report and involved such customers as BMW, Dacia, Mercedes, Opel, Porsche and Seat.

Liquidity assured thanks to solid long-term finance

Leoni can, in adjusting its business, concentrate on mastering the crisis without having to fear a liquidity bottleneck that would restrict its scope for action. Solid financial management controlled at head office, which uses a wide variety of instruments and is based on long-term loans and credit lines at interest rates of 5 percent at the most, guarantees the Company full scope for action at the operating level.

Forecasting made more difficult by the uncertain economy

Group-wide, Leoni’s forecast for 2009 involves significantly reduced demand compared with the average for the previous year. Exactly how severe the decline in the markets affected by the global recession will be over the year as a whole is something that cannot, from today’s perspective, be reliably projected. In the first two months of the new financial year sales registered a 40 percent drop compared with the same period in the previous year. As a result, the Company has been forced since 1 January 2009 to shed a further 4,000 jobs, meaning that the group of companies currently employs about 46,000 people. In the months ahead Leoni expects the demand situation to gradually and partially recover.

The Company will pay its greatest attention to safeguarding ample cash flow to ensure that the hitherto stable financial situation is maintained. The cost reduction programme launched for this purpose combined with significantly curtailed capital expenditure and a further reduction in working capital are measures intended to ensure that Leoni achieves neutral free cash flow (before dividend) in fiscal 2009. It is currently impossible to provide any reliable guidance involving specific sales and earnings performance. This also applies to the subsequent years.

Leoni performance overview

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