Statement by Walter G. Borst,
Financial Director, Adam Opel AG
at the Annual Accounts Press Conference
on January 16, 2002 in Frankfurt am Main
The spoken word is binding
Good afternoon, ladies and gentlemen,
A cordial welcome from me as well. Just as we did last year, I will be presenting our consolidated business results to you based on the US GAAP accounting principles. This means that the numbers – presented in Euro for the first time - include the results of Adam Opel AG and all the domestic Opel subsidiaries, which mainly means Opel Eisenach GmbH, Opel Diesel und Komponenten GmbH and Opel Motoren Kaiserslautern GmbH. The results from the Opel Bank GmbH are also being included for the first time.
Please remember that a genuine Group-level comparison with our German competitors is only possible when referring to the annual accounts of the GM Corporation, which include all the international companies.
Let me first of all give you an overview of last year's results, discuss Opel's earnings situation and look ahead into the new fiscal year that has just begun.
In 2001 there was a significant change in general economic conditions. Whereas real economic growth in Western and Central Europe was still 3.5 percent in 2000, it fell to 1.5 percent in 2001. In Germany growth in 2001 will probably prove to have been only a disappointing 0.6 percent.
Total new registrations (passenger cars and light commercial vehicles) in Europe, at more than 18.2 million units, were down 3 percent on the previous year. However, there were considerably more significant changes in the individual national markets: in Spain, for instance, special measures such as bonuses for the purchase of vehicles running on unleaded gasoline had the effect of stimulating automobile sales. In Ireland, the economic situation caused the automobile market to shrink considerably. In Turkey, vehicles sales collapsed as a result of the financial crisis in that country and the drastic imposition of a 70-percent import tax on vehicles with engines larger than 1.6 liters.
In Germany, 3.3 million passenger cars were registered in 2001, one percent fewer than in the previous year. Compared with 1999 with 3.8 million new car registrations for the first time, this represents a drop of 460,000 vehicles, or 12 percent. Specific factors leading to this drop in new passenger-car registrations were the sluggish economic trend, high fuel prices and the high level of sales at the end of the 1990s. On the other hand, campaigns introduced by automobile manufacturers, for example favorable credit purchase and leasing offers and bonuses for trade-ins, did help to stimulate the demand for automobiles, particularly in the final months of 2001. The German market for light commercial vehicles dropped in volume by almost 6 percent – total new registrations in this market were around 297,000 vehicles.
At 1.7 million new registrations, the Opel/Vauxhall market share in Western and Central Europe, including light commercial vehicles, rose to 9.3 percent last year (2000: 9.2%). This figure includes the sales of the other European Opel companies, such as Opel Espana S.A. and Vauxhall Ltd.
Thus the Opel/Vauxhall brand has held its own in the difficult European market. New registrations of the Opel/Vauxhall brand rose in the key markets of Great Britain, Italy, Spain and France. A counter-effect was seen in Turkey in view of the economic crisis I just mentioned.
The export offensive in markets outside Western and Central Europe continued in 2001. The key markets were Australia and Mexico. In total, nearly 117,000 vehicles - 26,000 more than in the previous year - were exported to countries outside Europe. This represents an increase of 29 percent.
Now let us move on, Ladies and Gentlemen, to developments at Opel in 2001.
Let me say at the outset, that these figures are in no way satisfactory for us.
Opel's total sales at home and abroad during the 2001 calendar year were 1.21 million vehicles. This is 5.6 percent below the total sales figure for 2000, which was 1.28 million vehicles.
Opel's vehicle sales in Germany were approximately 389,000 vehicles, or about 5 percent below the previous year's figure of 409,000 vehicles. With 396,000 new passenger-car registrations, Opel's market share was 11.9 percent (2000: 12.2 %). One of the factors that led to this modest decline of Opel's market share was the Vectra approaching the end of its life-cycle; another was that in the course of the year Opel reduced its activities in the rental car area, which does not yield a very satisfactory profit margin, to a more healthy level. At 2.7 percent, Opel's share of the light commercial-vehicle market was slightly higher than in the previous year (2.6 %), despite the fact that the new Combo and the Vivaro only became available in the course of 2001 and were therefore unable to make a full year's contribution to the results.
Within the European production network, Opel sold fewer vehicles outside of Germany, due to the end of the cycle life of the Vectra. At nearly 822,000 vehicles, sales were 6 percent lower than in the previous year (874,000 vehicles).
Ladies and Gentlemen,
I would now like to supply you with details of Opel's financial results for the past fiscal year.
On the basis of the US GAAP accounting principles, the domestic Opel companies recorded an operating deficit of 674 million Euro. The previous year's figure was 502 million Euro.
The following factors contributed in particular to this worsening of the operating result:
- Due to the decline in sales volumes, sales proceeds fell by 1.1 billion Euro to 16 billion Euro.
- Along with this there was more car for the money: vehicle equipment and trim specifications were improved without any corresponding increase in the selling prices. The Corsa model is an example of this.
- The model mix was displaced farther in the direction of smaller models – the Corsa and Agila – with a corresponding reduction in profit margins. In addition, sales of the Vectra fell in the second half of the year as this model neared the end of its life-cycle. Astra sales also dropped as this model was in the advanced stage of its life-cycle and because of a general loss of volume in the compact-class market segment.
- In contrast to this, sales of the Zafira compact van continued to develop successfully. The Bochum plant set up a new production record for the Zafira last year, by building approximately 230,000 units. Furthermore, the Corsa and Agila models 2001, which we launched during the 2000 fiscal year, were fully available.
- In recent years the quality of our vehicles has improved considerably. This is confirmed by a drop in warranty costs for 2001 compared with the previous year. To some extent, however, the improvements were offset by the need to allocate a higher level of reserves to compensate for the extension of new-car warranties to two years, a measure which Opel introduced in November 2001.
- We also achieved further cost savings in the area of productive materials purchasing. The target of 3 percent for 2001 was easily surpassed, with a total saving of 5 percent. A portion of this considerable improvement was due to the merger of purchasing activities into the GM-Fiat-Worldwide-Purchasing-Joint-Venture.
When taken together, these factors led to a fall in the company's profit contribution by about 600 million Euro.
On the other hand, it was not possible to reduce costs in parallel with the drop in turnover. Since production volume fell last year, capacity utilization also worsened to approximately 71 percent of installed technical capacity.
Nonetheless, improved productivity was achieved in all corporate areas. The resulting cost reductions totaled more than 400 million Euro, and represented a distinct improvement of more than 10 percent as compared to the prior year.
I would also like to point out here that expenditure for research and development, in accordance with the Olympia project, was maintained at the high level of 1.19 billion Euro (2000: 1.29 billion).
So much for the operating result.
Our net result for the year was 87 million Euro (compared with a deficit of 427 million Euro in 2000). The following factors contributed to this result:
We acquired Opel Bank GmbH in December 2000 and concluded a profit and loss transfer agreement with it that came into force on January 1, 2001. Thus Opel Bank's pre-tax surplus of 260 million Euro in 2001 is included in our own result, in accordance with the usual practice in this sector. Full consolidation of the financial services division with the automobile business area only takes place at the GM Corporation accounting level. The companies' operating results continue to be published separately. This situation must be borne in mind when making comparisons with our European competitors.
We consider the Opel Bank to be our exclusive financing house. Nearly every second Opel in the end-user sector is financed or leased through the Opel Bank. In the future, putting the added value chain to work serving our customers with special financing and leasing products will be our mutual focus.
In the account year we received - as a once-only transaction - gross dividends from Opel Bank GmbH for the 1998 – 2000 fiscal years totaling 449 million Euro. Payment of these dividends was already taken into account in the price we paid for Opel Bank GmbH in the 2000 fiscal year.
These dividends for the prior year, along with the profit from Opel Bank GmbH, more than compensated for Opel's operating deficit for fiscal 2001. Accordingly, the profit for the fiscal year, as already stated, was is 87 million Euro.
Ladies and Gentlemen,
Despite the difficult business situation that I have described, our investments were at a record level: during 2001 we devoted almost 900 million Euro to investments and project-related expenditure. The most important of these projects was the new plant in Rüsselsheim, in which production began a few days ago, as well as the investment in the new Vectra.
In the 2001 fiscal year, as in previous years, our investments exceeded depreciation. In order to compensate for this cash flow deficit, measures to reduce liquid assets were taken and active cash management principles introduced with regard to receivables and liabilities. Accordingly, means of payment remained nearly constant as compared to the prior year. It is clear that our solvency is secure at any point in time.
In addition, Opel shareholder equity as of December 31, 2001 increased to 2.34 billion Euro (December 31, 2000: 1.89 billion Euro) and thus is at a safe level. As you can see, in contrast to press reports stating the contrary, Opel is entirely capable of acting. Opel has the necessary substance and solidity to once again become a profitable company.
Ladies and Gentlemen, the following changes occurred within our subsidiaries and participations during the 2001 fiscal year, which, however, should not have an impact on our results.
As part of the structuring process of the GM-Fiat Powertrain joint venture, Powertrain activities (transmissions and motors) in Rüsselsheim and Bochum and at Opel Hungary Manufacturing Ltd. were included. In the course of this transaction, GM assigned joint-venture share in the amount of 322 Euro, to Adam Opel AG, so that the latter company now has a 20-percent holding in the joint venture. Early in 2002, as the final restructuring phase, Opel Motoren Kaiserslautern GmbH and Opel Diesel und Komponenten GmbH will be sold to the joint venture.
In addition, Opel Eisenach GmbH has transferred its 64-percent holding in Saab Automobile AB to General Motors.
This transaction represented a continuation of the process of streamlining our participation portfolio, which began in the previous year.
Ladies and Gentlemen,
2002 will be another difficult year for the automobile industry in Europe and in Germany: we expect total new registrations in Europe of 17.2 million units. Compared with 2001 this represents a massive drop in new registrations of about one million, or 6 percent. In view of the current economic trend and the fact that the industry's orders in hand are lower than at any time in the past five years, new passenger-car registrations in Germany will also drop by 6 percent to 3.15 million units
Further burdens on the European automobile industry may result from implementation of the end-of-life automobile disposal order as national law, the harmonization of prices resulting from the introduction of the Euro, the extension of new-car warranties to two years and the likelihood that the automobile trade's group exemption order may be revised at European Union level. The latest increase in the German ecological tax will also play a role. However, Opel has endeavored to make allowances for these factors in its forward planning.
Ladies and Gentlemen,
in view of the factors just mentioned and the continued pressure on price levels, we must assume that we will have another operating deficit in 2002.
Our result for the year will also be burdened by the restructuring costs called for in the Olympia Program and by the need to create financial reserves for the disposal of end-of-life vehicles when European legislation is adopted at national level.
At the same time, the measures envisaged in the Olympia initiative will take effect in 2002. This should enable us to reduce the operating deficit compared with 2001.
The measures in this program and the decisions already taken include in 2002:
- a reduction in European production capacities by more than 200,000 units as well as the elimination of production volume amounting to 100,000 units in Bochum and Antwerp.
- cooperation with specialist partners in the production of components in order to make cost-effective use of available capacities
- 20 percent improved productivity in product development
- specific economies in administration amounting to more than 10 percent.
There will also be an improvement to the profit contribution as a result of:
- the improved model mix when the new Vectra becomes available, and
- further savings in materials purchasing of more than 5 percent.
Ladies and gentlemen,
This package of measures has the full support of GM Corporation and I am certain that with the Olympia program we will achieve our turnaround.
Carl Peter Forster will now discuss these points in more detail.
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