Leoni sets the stage for profitable growth

A severe slump in early 2009 was followed by steady business recovery / Costs reduced by more than EUR 200 million / Forecast for 2010: a 10 percent sales increase and EBIT at least EUR 50 million

Nuremberg, 24 March 2010 – During the 2009 financial year, Leoni fully adjusted its cost structures and staff capacity to the weaker macroeconomic situation and set the stage for a return to earnings-oriented growth. The leading provider of cables and cable systems to the automotive sector and other industries generated consolidated sales of EUR 2.160 billion. The year-on-year decline (2008: EUR 2.912 billion) comes to about one quarter, although there was a steady rise in the course of the year. Earnings before interest and taxes (EBIT) amounted to a loss of EUR 116.3 million (2008: profit of EUR 55.7 million); on an adjusted basis* there was a loss of EUR 35.6 million (2008: profit of EUR 79.3 million). On the bottom line Leoni recorded a net loss of EUR 138.1 million (2008: net income of EUR 5.2 million). The Company intends not to pay out any dividend (previous year: EUR 0.20).

The persisting, worldwide economic and financial crisis impacted so heavily on Leoni in 2009 that the past financial year ranks as the most difficult and, in terms of the results, the poorest in the Company’s history. Virtually all business areas faced significantly reduced and in some cases sharply fluctuating demand. The Company therefore set itself the target of adjusting its structures and capacities quickly and resolutely to the changed conditions. The course of austerity already embarked upon at the end of 2008 and followed across the Group resulted in Leoni reducing its material and personnel costs, curtailing capital expenditure and shelving larger-scale acquisitions. In total, these measures lowered costs by more than EUR 200 million in the past financial year.

Personnel: adjustment in the workforce structure

The adjustment to workforce capacity to the lower level of demand affected virtually all areas of business, but had a particularly strong impact on the labour-intensive production of wiring systems. In Germany, Leoni made extensive use of short-time working, with the duration and scope differing depending on the facility and area. By means of short-time working alone Leoni managed to save a net amount of about EUR 10 million. In other countries that do not have a comparable instrument efforts focused on making working hours more flexible and reducing them to be able to limit the job shedding here as well. A significant number of redundancies were nevertheless unavoidable.

The number of employees in the Group hit its low of 44,753 in April 2009, which was nearly 9,000 less than when the crisis began at the end of September 2008. Thanks to a slight recovery on some markets and in particular to starting up new projects for the automotive industry, Leoni was in a position to enlarge its worldwide workforce again to 49,822 employees at the end of 2009. The Company thus employed about 1,000 fewer people than at the end of 2008 (50,821).

The staffing adjustments affected both productive and administrative areas. Yet the job shedding in the high-wage countries of Western Europe occurred significantly later due, in particular, to regulatory circumstances. Overall, therefore, this resulted in a shift by the end of 2009 in the staffing structure in favour of lower cost locations, above all in North Africa.

WCS: positive operating result in the 2nd half of the year

There was a decline in demand in virtually all of the Wire & Cable Solutions (WCS) division’s business areas. This was reflected at different times in the individual markets during the period under report, which is why the stepped-up diversification – a strategic objective in this division – offset the impact to some extent. In some areas, such as solar energy, rolling stock engineering and glass fiber technology, there was an unabated uptrend in business. Furthermore, the division obtained several larger-scale and forward-looking contracts particularly in this area.

WCS’ fiscal-2009 external sales amounted to EUR 935.5 million and were thus down by about one third from the previous year (2008: EUR 1,401.5 million). The EBIT-level result came to a loss of EUR 34.2 million (2008: profit of EUR 29.6 million), on which non-recurring restructuring costs and asset impairment weighed heavily. Thanks to the greater effect of the cost cutting on earnings, the division generated a positive result on an adjusted basis* in the second half of 2009. For the year as a whole the division’s adjusted EBIT*-level result was a loss of EUR 5.1 million (2008: profit of EUR 33.9 million).

WSD: heavy impact of restructuring

The economic downturn weighed very heavily on the Wiring Systems division (WSD) at the beginning of 2009. Business steadily recovered as the year progressed; to the extent that the division was able to generate sales in the fourth quarter that were well above the comparable figure of the previous year again for the first time. The reason for this revival was above all a general recovery in demand as well as the start-up of new projects with customers in the multinational automotive industry. Government scrappage schemes provided Leoni with minor benefit.

WSD’s external sales amounted to EUR 1,224.6 million in fiscal 2009, which equated to a drop by about 19 percent from the previous year’s figure of EUR 1,510.5 million. China was the only area to show an increase in revenues. The carmakers PSA, Mercedes-Benz and BMW accounted for the largest proportion of the division’s sales. Production of mechatronic components generated its first noteworthy sales, resulting in extension of the value chain. The EBIT-level result came to a loss of EUR 78.5 million (2008: profit of EUR 23.4 million), a figure that includes exceptional items amounting to more than EUR 50 million. On an adjusted basis*, WSD also generated a positive result in the second half of the year; the full-year figure was a loss of EUR 26.8 million (2008: profit of EUR 42.7 million).

Financial situation: positive cash flow and reduced net debt

In the 2009 financial year, Leoni pursued its objective especially of assuring the liquidity of its group of companies worldwide as well as optimising finance costs and income. This succeeded in avoiding a net cash outflow during the period under report despite the difficult underlying conditions: the Company matched its demanding planning to generate neutral free cash flow before dividends, acquisitions and the sale of shares with an amount of EUR 2.1 million (2008: a negative amount of EUR 13.9 million).

The Company also succeeded in reducing its net debt by EUR 37.9 million to EUR 495.4 million by yearend. A factor also contributing to this was the sale of treasury shares, which Leoni placed in October 2009 by means of an accelerated bookbuilding method among international investors at a price of EUR 14.50 per share. The proceeds from the nearly 2.9 million shares also exerted a positive effect on equity, the ratio of which stood at 21 percent on 31 December.

Forecast: steady sales rise accompanied by growing earnings

Leoni will revert to its strategy of earnings-oriented growth in 2010, expanding its market position as a leading provider of cables and cable systems. Underpinned by the generally anticipated economic recovery as well as start-up of additional projects, especially in the automotive sector, the Company plans to increase its sales by approx. 10 percent to about EUR 2.4 billion and thereby to outpace the market average. Leoni projects EBIT of at least EUR 50 million and a moderately positive net result. If the markets continue to recover, a sales increase of likewise around 10 percent as well as a substantial improvement in earnings should be possible in 2011.

 

Leoni performance overview

Group key figures

2009

2008

Change

Group external sales [€ mil.]

2,160.1

2,912.0

(25.8) %

Earnings before interest and taxes (EBIT) [€ mil.]

(116.3)

55.7

Adjusted EBIT * [€ mil.]

(35.6)

79.3

(144.9) %

EBIT/external sales [in %]

(5.4)

1.9

Net income / Net loss [€ mil.]

(138.1)

5.2

Free cash flow before dividends, acquisitions and share buy-back or sale [€ mil.]

2.1

(13.9)

115.1 %

Return on capital employed [in %]

(12.0)

5.4

Capital expenditure [€ mil.]

81.8

158.4

(48.4) %

Acquisitions and investments [€ mil.]

1.4

178.1

(99.2) %

Employees (as at 31 Dec.)

49,822

50,821

(2.0) %

* Earnings excluding the effect of revaluation according to the purchase price of major acquisitions, restructuring expenses and impairment of non-current assets

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