The acquisition of Valeo ’s former wiring systems division (now LWSF) on 2 January 2008 helped Leoni boosted sales 23% to EUR2.9bn in the 2008 financial year, which it described as “a period marked by an unprecedented reversal in the economy”, but the Nuremburg-based auto wiring harness specialist posted significantly lower earnings before interest and taxes (EBIT) of EUR55.7m (2007: EUR138.1m) and sharply reduced net income of EUR5.2m (EUR86.2m).


“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 EUR0.20 (2007: EUR0.90),” the supplier said in a statement.


Leoni said sales and earnings were on target in all the key markets of both divisions until September 2008 with most production facilities running 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% 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.”


Leoni said the sharp fourth quarter decline in the copper price from EUR4.57 a kg to EUR2.16 alone trimmed EBIT that quarter by about EUR21m.


“Although the countermeasures applied immediately did limit the reduction in earnings, they could not prevent it.”


The supplier responded with a cost reduction programme in the final quarter of 2008 that it has continued into the 2009 financial year. Along with restricting spending on investment and assets, the focus was on adjusting production capacity.


After initially cutting back overtime and leave accounts and later reducing temporary staff and employees on fixed-period contracts as well as scaling back working hours and some minor job cuts, it was forced, it said, to shed about 3,000 jobs – mostly outside Germany – in the third quarter and has since axed another 4,000 so far in 2009.


Group employees at 31 December numbered 50,821, up from 36,855 the previous year due to absorbing the LWSF workforce. Employment peaked at 53,500 last September.


“Demand declined significantly in the final months of the year,” Leoni said, “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 for the final quarter nonetheless rose 1.5% to EUR1,401.5m but EBIT was down from EUR80.8m in the previous year to EUR29.6m due mainly to the extremely sharp decline in the price of copper, along with weaker capacity utilisation.


The wiring systems division (WSD) performed well in the first nine months but in the fourth quarter had to cope with a huge drop in the volume of product ordered by auto customers.


External sales rose 53% to EUR1,510.5m, of which the LWSF Group provided EUR573.6m. EBIT was down from EUR57.8m to EUR23.4m and includes restructuring charges of EUR5.2m related to facilities in Poland, Hungary and Italy.


Leoni said its main sales drivers included cable systems and complete wiring systems for Daimler and PSA . After acquiring the international wiring systems business of Itelma, it gained a foothold in Russia. The purchase of a 50% stake in the South Korean wiring systems manufacturer and previous joint venture partner helped boost future expansion in another growth region. Leoni also supplied China’s SAIC for the first time.


“Regardless of the economic crisis, various new and follow-on projects again started during the year and involved such customers as BMW , Dacia , Mercedes, Opel, Porsche and Seat,” the supplier said.


It added it could “concentrate on mastering the crisis without having to fear a liquidity bottleneck that would restrict its scope for action”.


“Long-term loans and credit lines at interest rates of 5% at the most, guarantees the company full scope for action at the operating level.”


It is forecasting “significantly reduced demand compared with the average for the previous year” for 2009.


“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% drop compared with the same period in the previous year.


“In the months ahead Leoni expects the demand situation to gradually and partially recover.”