Behr returns to profitability

http://behrgroup.com/Internet/behrcms_eng.nsf/$all/05EA965FE072D...

B EH R R ET U R N S T O PR OFITA B ILIT Y
Stuttgart, April 15, 2011 Considerable additional market potential through MAHLEs participation/trendsetting thermal management solutions in product portfolio For the global auto industry, 2010 was a year characterized by exceptionally positive trends. Although initially overshadowed by the dramatic slumps in the previous year and considerable insecurity about the future, a strong recovery soon set in which continues until this day. This is reflected in a 24% plus in global car production for the entire year compared to 2009, and a 44% increase in truck production (source: JD Power). The Behr Group, specialist in auto air conditioning and engine cooling, also profited from this dynamic upward trend, reporting a growth in sales in 2010 of just under 36% to around 3.3 billion EUR and hence a return to pre-crisis levels. Group earnings also testify to the fact that Behr has overcome the crisis: Earnings before interest and taxes (EBIT) came to 98 million EUR, after -191 million EUR in the previous year. Earnings before taxes (EBT) stood at 53 million EUR (2009: -235 million EUR); this figure includes restructuring expenses amounting to approx. 24.3 million EUR, which had a negative impact on earnings. This means that the Stuttgart auto supplier has generated a net income of almost 60 million EUR. In the words of Peter Grunow, Behr CEO: Since mid-2010 we have been on a stable course of growth in all areasin the light vehicle and truck sectors as well as in the aftermarket business. Our strategy of investing in the emerging markets in China, India and Brazil has paid off, as have our comprehensive restructuring and cost-saving measures. We also owe this success, of course, to the tremendous effort of all our Behr employees worldwide. To sum up the 2010 business year as a whole, we can say that the market growth coupled with our rigorous savings initiative have enabled us to achieve a turnaround and overcome the crisis. Outlook for 2011 The positive trend in the global car market looks set to continue in 2011, although growth will not be quite as dynamic (+5%). This will be supported, as before, by the Asian growth markets (China: +9.7%, India: +7.5%), as well as the NAFTA region (+7.2%) and South America (+11.2 %). In Western Europe, on the other hand, production volumes will more likely fall (-3.5%). The global truck market, too, will continue to grow (+10%), with the development mainly being driven by Western and Eastern Europe, at +26% and +52%, respectively, and the NAFTA countries at +30% (source: J.D. Power). Overall, we expect 2011 to be another strong year for Behr, says Behr Group CEO Grunow. Our sales have been above plan since the beginning of the year, and are also higher than what we achieved in 2010. Grunow is optimistic about the future: In the first quarter of the current business year, we were able to increase our sales compared to the same period in the previous year by 25% to 939 million EUR. During this time we also achieved a sustainable improvement in our operating results. Based on the market forecasts we expect to see further, albeit slightly less dynamic growth in sales for 2011 as a whole, especially due to our strong position in the growth markets and our compelling technological concepts. Although some risks still exist, such as the impact of the natural disaster in Japan on our customers and suppliers, we are generally confident that we will be able to further improve our profits in 2011. Participation of MAHLE A decisive step toward ensuring our long-term financial stability and securing substantial additional market opportunities was MAHLEs admission in October 2010 as a new Behr shareholder. As planned, the Stuttgart supplier, whose headquarters are only a few kilometers away from Behrs head office, increased its participation in January 2011 from initially 19.9 % to 36.85 %. MAHLEs participation set a new course for the company in two respects: On the one hand it enabled us along with other measures - to return to a financially stable position. On the other, and this applies both to Behr and MAHLE, it opens up totally new opportunities and was thus a clear strategic decision on the part of MAHLE, explains Behr CEO Peter Grunow. On January 1, 2013, MAHLE intends to raise its stake in the Behr Group to 51%, thus enabling the integration of the thermal management specialist Behr into the MAHLE Group, although Behr will remain a legally independent company. This is why, back in November 2010, the globally targeted and jointly manned integration project, in which both companies are equally represented, was launched which aims to bring together both organizations by the time the majority takeover is scheduled to take place. The aim of the project is to strengthen the market and innovative strength of both companies and to further reduce costs by tapping synergies. Future

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Behr returns to profitability

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opportunities in terms of technology exist, for instance, in potential module and system packages for modern internal combustion engines. And there are also plans in the pipeline for joint innovations in the area of alternative drive technologies. Behr and MAHLE aim to save costs by making optimum use of the companies existing test facilities, bundling purchasing volumes, benchmarking processes and structures, and by establishing new, joint production sites. Financial situation stabilized, employee numbers down In the past business year, Behr was able to redress its financially unstable situation. In September 2010, following more than a years negotiations, a syndicated loan agreement was concluded that secures the auto suppliers financial future until the end of 2013. In MAHLE, Behr has found a strong partner who will contribute to further stabilizing the financial situation on a long-term basis. As a result of MAHLEs participation in Behr and the sale of 60% of Behr Industry shares to MAHLE, and also due to the improving economic trend, the Groups net debt dropped during the course of 2010 from 524 million EUR to 378 million EUR. At the end of the first quarter of 2011, following a second infusion of capital by MAHLE, it now amounts to under 10% of the annual sales figure. That is a respectable figure in the supplier industry says Peter Grunow, and goes on to emphasize that strict cost discipline exercised by the employees also played a role in this result. The equity ratio, which rose in the same period from 12.8% (2009) to 20.2% (2010), now stands, at the end of the first quarter of 2011, at 24%. In 2010, the investments made by Behr were at a very low level and were chiefly undertaken to support new production launches, transactions relating to the restructuring program, and for replacement investments. Capital expenditure in fixed assets totaled 84 million EUR compared to 97 million EUR in fiscal 2009. Due to the strong growth in sales, inventory also rose from 247 million EUR to 290 million EUR, although this figure represents a slight drop as a percentage of sales. The number of employees worldwide dropped in the year under review from 17,071 to 16,522. In North America, the number of staff employed by Behr came to 2,334 (2009: 2,447) and in Asia, to 2,068 (2009: 1,887). The number of Behr employees in Germany as at December 31, 2010, came to 5,910 (2009: 6,516) and 4,400 in the rest of Europe (2009: 4,253). This reduction is primarily due to the sale of the majority share in Behr Industry to MAHLE. One reason for the crisis that hit the auto industry in 2008/2009 was excess capacities. In order to remain competitive over the long term, Behr, too, had to implement structural adjustments which were largely completed in 2010. These included consolidating the production network by closing down the plants in Stuttgart and Barcelona, as well as reducing development capacities by offshoring engineering assignments to the companys Indian subsidiary, Behr Engineering Services. Behr also cut back structural costs in the areas of development, administration and production in the US in order to ensure a permanent return to profitability. Profiting from the dynamic trend in the growth markets Europe and North America initially remain Behrs most important car and truck markets. At the same time, the company aims to expand its presence in the global growth markets in order to profit from their dynamic growth. Below are some current examples: Last year, 18 million vehicles were produced in China - more than in all the European countries combined. Behr was quick to recognize the strategic importance of this market and, since 2003, has founded a number of joint ventures with Chinese partners. At the turn of the year 2009/2010, Behr Jinan commenced production as the first wholly owned Chinese Behr subsidiary. The new plant, in which components for heavy trucks are built, got off to a good start and has already received a top supplier award for excellence in product quality from its main customer CNHTC. In 2010, Behr Jinan and the three Chinese joint ventures generated sales of 269 million EUR. In order to further improve service to local car and truck customers, plans exist to establish further production locations in China. Behr is also involved in the government-funded development of alternative drive systems. In February 2011, for example, an engineering order for the battery cooling system of an electric vehicle was signed at Behrs joint venture SBTS. The work has been commissioned by a subsidiary of SAIC, one of the biggest Chinese manufacturers. Further projects for hybrid vehicles are to follow during the course of the year. In India the new car business is still thriving and, in 2010, recorded a production plus of 34%. Behr India in Pune, a joint venture founded with Anand Automotive Systems in 1997, has kept pace with this trend. The company now locally produces almost the entire range of Behr air conditioning and engine cooling products. India is increasingly becoming a global production site for compact and low-cost small cars. A prime example of this trend is the Tata Nano, for which Behr India supplies the HVAC system as well as other components. In the truck business EGR coolers offer substantial potential due to the increasingly stringent emissions standards that are now also being implemented in India. In the year under review, Behr India generated just under 74 million EUR in sales and intends to further expand its footprint during the coming years. At present, for example, a first joint plant is being built with MAHLE in Chennai in the eastern

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Behr returns to profitability

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part of the country. Behr engine cooling modules are expected to start coming off the assembly line in May. Behr is also developing initial activities in Russia. In February 2011, a company was founded in St. Petersburg, and there are also plans for establishing production locations for light vehicles and trucks on Russian soil. Thermal management as a technical growth driver For the coming years Behr has numerous trendsetting products in its portfolio which will make a major contribution to promoting eco-friendly mobility. In the words of Klemens Schmiederer, Board Member responsible for the Engine Cooling and Air Conditioning Product Divisions: Our systems competence in thermal management is key to ensuring our future through new products and successful project acquisitions. Behr supports vehicle manufacturers in their endeavors to comply with the increasingly stringent emissions standards, use energy more efficiently and thus reduce fuel consumption and CO2 emissions. Below are just a few examples: Light vehicles: Charge air cooling and cooled exhaust gas recirculation One of the main instruments used to reduce consumption and exhaust emissions is engine downsizing (i.e. reducing engine displacement while maintaining engine power). This is achieved by using turbocharging with subsequent cooling of the charge air. This will lead to a higher proportion of indirect (i.e. coolantcooled) charge air cooling systems because, as opposed to direct, i.e. air-cooled charge air cooling, the package size of the former system is smaller and the pressure drop lower. Also, the charge air cooler can be mounted onto the engine which saves space and facilitates the use of modular engine concepts. By integrating Behr charge air coolers in the air intake manifold, as supplied by MAHLE, even greater benefits can be achieved. Downsized engines also profit from cooled exhaust gas recirculation. This technology has already helped diesel engines to comply with the Euro 5 emission standard. In the meantime, Behr has also developed corresponding EGR concepts for gasoline engines. Trucks: Focus on emissions and fuel savings Emission directives for trucks are being further tightened: From 2013, the Euro VI standard targeted at further reducing pollutants is binding. In order to meet these standards economically, in the truck sector cooled exhaust gas recirculation coupled with catalytic exhaust gas aftertreatment is expected to gain widespread acceptance. The second driving force in the truck business is reducing fuel consumption. Behr is continuously working to improve the efficiency of existing components to meet this need. Further fuel savings can be achieved using innovations such as demand-based control of new water pumps designed according to the E-Visco-principle or energy recovery from exhaust gas heat using a heat to power process (Rankine cycle). Thermal management for electrified powertrains More and more new cars with internal combustion engines and mild hybrids are being equipped with start/stop systems which shut off the engine, for example, when waiting at traffic lights. However, this also means that the A/C compressor is deactivated. To ensure adequate climate comfort in this phase, a storage evaporator can be used which permits fuel savings of around 2.5% in city traffic. For hybrid vehicles and purely electrically powered vehicles, the Li-ion battery has now become the electrical storage medium of choice. To ensure a long service life, the battery has to be operated within a limited temperature range of up to around 45C. Behrs development engineering approach to this problem is to integrate the battery into the vehicles air conditioning system. During the cold season, when - in purely electrically powered vehicles no waste heat from the engine is available to heat the vehicle cabin, a heat pump integrated in the refrigerant circuit will in future provide for comfortable temperatures. With this solution the range of the battery can be increased by about 40-50% since the electric auxiliary heating system normally remains limited to low temperatures. Clear targets for 2011 In 2011, Behr will see further, albeit less dynamic growth in volumes and sales although this is not yet being sufficiently reflected on the earnings side. Factors that are negatively impacting earnings are the higher prices of raw materials, exchange rate fluctuations and also the increasing pressure on prices due to the bundling of volumes on the part of manufacturers. In order to effectively return to sustainable profitability, we need to secure a long-term ROS of 5%, says Behr CEO, Peter Grunow. Only then will we be strong enough to absorb the effects of future market fluctuations and invest in new technologies. In addition to improving earnings in all regions, Behr is also setting its sights in 2011 on further optimizing all locations and processes, intensifying its customer focus, and - last but not least - expanding its collaboration with its new strategic partner and shareholder, MAHLE. About the company: Behr GmbH & Co. KG, Stuttgart, is a systems partner of the international automotive industry. A specialist for automotive air conditioning and engine cooling systems, the Behr Group is one of the worlds leading manufacturers and suppliers of original equipment for light vehicles and trucks. Group sales in the 2010

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Behr returns to profitability

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business year came to around 3.3 billion EUR. Currently, Behr employs some 16,500 staff at 9 development locations, 22 production sites and 10 joint ventures worldwide.

For further information, please contact: Behr GmbH & Co. KG Wiebke Wllner Group Communications Mauserstrasse 3 70469 Stuttgart Germany Tel.: +49 (0) 711/896-2057 Fax: +49 (0) 711/8902-2057 icon for mailto function wiebke.woellner@behrgroup.com

2011 Behr GmbH & Co. KG 07/05/2011 http://behrgroup.com/Internet/behrcms_eng.nsf/$all/05EA965FE072DFAFC125787300360546

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