Mahle's growing strength outside Europe helped it overcome the effect of the strong euro in 2003.

The world's largest piston and filter manufacturer saw sales increase over 5% to €3.25 billion in 2003 despite "unfavourable" general market conditions, and "a tremendous adverse affect" from exchange rate movements during the year.

The main drivers for growth at the privately owned, Stuttgart-based supplier were increasing demand for systems and modules in engine applications, particularly in North America.

The first time consolidation of two new subsidiaries also helped. One is Mahle Izumi Corp., the Japanese market leader in diesel engine pistons, with sales of about €150 million.

The other is a Spandau, Berlin-based joint venture with BMW to manufacture camshafts. The joint venture had sales of just under €75 million.

Mahle said that it would have achieved double-digit growth and achieved sales over €3.4 billion had exchange rates remained constant during 2003.

Under Heinz Junker the company has shown remarkably strong growth through the downturn in Europe. Sales are up from just over €2 billion in 1999 to an expected €3.5 billion in 2004.

Asia was the star performer for Mahle. Mahle Izumi, which has 70-80% of the Japanese diesel piston market, benefited from a restructuring over the last two or three years. The German supplier has taken effective managerial control without being the majority shareholder.

An uptick in the Japanese commercial vehicle market has dramatically raised utilisation levels at Izumi's operations in Japan.

Mahle also did well in China, where it is number two in the market with the capacity to produce more than 12 million pistons a year.

"In China you have to differentiate between the old engines which are still supplied mainly by local piston makers and new engines which have been developed in the last two or three years, or which are currently under development," says Junker.

He says Mahle has a significant share of the new engine business.

As of Jan. 1, Mahle has consolidated the Chong Qing Changjaing Izumi Piston Industries Co. Ltd. operation that it acquired in November.

Mahle also raised its share in the Mahle Tennex filter business in Japan to 73%.

Sales grew in North and South America, and the regions have made "above average profit contributions," though revenue was down in euro terms

Iraq war affects performance in Europe

European business suffered from the impact of the Iraq war on aftermarket sales. Difficulties with implementing new production technologies and poor productivity improvements were also a factor.

But Mahle last month reached an agreement with its works council to reduce its 9,000 strong German workforce by 650 employees during 2004. The deal is expected to restore the competitiveness of its German operations.

Mahle is rapidly expanding its capacity as a systems and modules supplier to engine manufacturers.

"We see lots of opportunities for going into the module business", says Junker.

Junker expects growth in demand for power cylinder modules in North America in particular - "both for new programmes and also for engines which are already in place".

Carmakers are reviewing whether to invest in new equipment for piston or cylinder lining machining, he says.

Shift to variable valvetrains

Junker says that the outlook for Mahle's other major product area, valvetrains, is also good. He says the focus of OEMs has shifted "somewhat from petrol direct injection engines to engines with fully variable valvetrains".

He sees opportunities for both gdi and combinations of gdi and fully variable valvetrains in the medium term.

Money to grow

Junker says that the company has room for further growth.

Mahle's balance sheet is stronger than ever, and financing is "definitely not an issue right now".

"It would be an issue if we were to talk about an acquisition of, let's say, 1 billion or something like that", says Junker, "but I am convinced that any other company of our size, even if publicly quoted, would be stretched making an acquisition of this size."

Analyst Frank Biller of BW-Bank in Stuttgart says: "The modules and systems strategy is promising. There are good opportunities for Mahle to be successful with the continuing desire of OEMs for the delivery of complete modules and systems. The scale of Mahle is a good basis for large contracts with good economies of scale."

Junker says there are synergies between Mahle's different engine component areas on the sales side.

"Basically all of our products are handled by the same engineering and purchasing group", he says, "so we are not diversified like Delphi or Bosch".

On January 1, Mahle raised its minority stake in Mahle Brockhaus GmbH, based in Plettenberg, Germany, to a majority share. That has added another €120 million in sales, and is "a substantial step to enhance [Mahle's] systems capability as developer and producer of complete piston-connecting rod assemblies", a company spokesperson said.

Demand for the assemblies is growing, says Mahle, and Brockhaus is the leading European supplier of connecting rod blanks.