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Schaeffler Group 2019 in a difficult environment with strong cash flow

Resource from:  https://www.schaeffler.de Likes:172
Mar 27,2020


Revenue 2019 at the level of the previous year despite the challenging environment, EBIT margin before special items 8.1 percent below the previous year (9.7 percent)
Adjusted forecast of the Schaeffler Group and the divisions achieved
Free cash flow before deposits and withdrawals for M&A activities increased significantly to EUR 473 million (previous year EUR 384 million)
Proposed dividend of 45 cents per preferred share


2020 forecast reflects cautious market assessment
Global automotive and industrial supplier Schaeffler published its results for the 2019 financial year today. The Schaeffler Group's sales in the reporting period were around 14.4 billion euros (previous year: around 14.2 billion euros). Adjusted for currency effects, sales rose by 0.1 percent in this period. On a currency-neutral basis, sales growth in the two automotive divisions declined slightly, but showed a positive trend in the second half of the year, while sales growth in the industrial division increased over the entire reporting year, but leveled off in the second half. Of the four regions, the Greater China and Americas regions contributed to currency-neutral sales growth, while sales in the Europe and Asia / Pacific regions declined.


The Schaeffler Group generated earnings before financial result and equity investments and income taxes (EBIT) valued at equity in the amount of 790 million euros (previous year: 1,354 million euros), which was burdened with special effects of 372 million euros in the reporting period. The special effects resulted mainly from the expenses in connection with the transformation and efficiency programs RACE (Automotive OEM), GRIP (Automotive Aftermarket) and FIT (Industry) established in 2019 in the amount of 356 million euros. EBIT before special items was thus 1,161 million euros (previous year: 1,381 million euros). This corresponds to an EBIT margin before special items of 8.1 percent (previous year: 9.7 percent). In addition to the persistently difficult environment, the main reason for the decline in the EBIT margin before special items was negative sales price effects and a changed product mix in the Automotive OEM division. In addition, expenses for IT and digitization projects burdened margin development.


The group result attributable to the shareholders of the parent company amounted to 428 million euros in the reporting period and was thus significantly below the previous year's level (881 million euros). Earnings per preferred share were EUR 0.65 (previous year: EUR 1.33). On this basis, the Management Board of Schaeffler AG will propose to the Annual General Meeting to pay a dividend of 45 cents per preferred share. This corresponds to a payout ratio of around 43 percent (previous year: around 40 percent) based on the consolidated earnings attributable to shareholders before special items.


Klaus Rosenfeld, Chairman of the Board of Management of Schaeffler AG, said about the course of business in 2019: “In a difficult environment, we were able to meet our forecast for sales growth in July and slightly exceed the target for the EBIT margin. The strong free cash flow is even more gratifying, with EUR 473 million clearly exceeding expectations. The result of 2019 shows that our position as a global automotive and industrial supplier has proven itself. On the other hand, we see that the measures we have taken to strengthen capital and cost efficiency as well as the three divisional programs RACE, GRIP and FIT are paying off. ”


Automotive OEM with strong outperformance in a weak market environment
The Automotive OEM division generated sales of EUR 9,038 million in the reporting year (previous year: EUR 8,996 million). Adjusted for currency effects, sales decreased by 0.8 percent compared to the previous year. Negative price effects could not be fully offset by positive volume effects. The main reason for this was the weak market environment in the global automotive business. Overall, however, growth in the reporting year was 4.8 percentage points significantly higher than the average growth in global production of cars and light commercial vehicles, which declined by 5.6 percent in the reporting period. The orders acquired in the 2019 reporting period amounted to EUR 15.0 billion, which is a record figure that is largely driven by incoming orders in the area of e-mobility. This corresponds to a book-to-bill ratio, i.e. the order intake in relation to sales in the past financial year, of 1.7 (previous year: 1.4).


The strongest sales growth on a currency-adjusted basis was seen by the Automotive OEM division in the Americas region with 7.4 percent, followed by Greater China with 1.8 percent, while sales in the Europe region declined sharply with minus 6.0 percent and also in Asia / Pacific declined by minus 0.7 percent. Of the four divisions of the Automotive OEM division, only the e-mobility division was able to significantly increase its sales after currency adjustments by 36.7 percent.


In the year under review, the division achieved EBIT before special items of EUR 491 million (previous year: EUR 673 million). The EBIT margin before special items was 5.4 percent in the same period, significantly below the previous year's 7.5 percent. The RACE program accounted for 204 million euros of the special effects totaling 209 million euros. The main reason for the decline in the EBIT margin before special items was the decrease in the gross margin to 20.6 percent (previous year: 22.3 percent), which was mainly due to the price-related decline in sales and a changed product mix. The gross margin was also negatively impacted by increased fixed costs.


The revised forecast for 2019 as a whole of July 29, 2019 was met, targeting currency-adjusted sales growth of minus 2 to 0 percent and an EBIT margin before special items of 5 to 6 percent.


Automotive aftermarket with sales decline, earnings above forecast
In the reporting period, the Automotive Aftermarket division posted sales of EUR 1,848 million (previous year: EUR 1,862 million), a currency-adjusted decline of 1.1 percent, which was due to the region with the highest sales in Europe. The decline in sales in Europe, which was partly due to inventory adjustments of individual major customers in Germany and Western Europe in both the Independent Aftermarket (IAM) and the OES business (OES - Original Equipment Service), was 3.1 percent on a currency-adjusted basis. The decline in sales in Europe was offset by an increase in sales in the Americas region of 6.6 percent. This was primarily due to increased demand and new customer business in the IAM. The Greater China region increased currency-neutral sales by 5.7 percent, while sales in the Asia / Pacific region decreased currency-adjusted 5.4 percent.


On this basis, EBIT before special items was 298 million euros (previous year: 339 million euros). This corresponds to an EBIT margin before special items of 16.1 percent (previous year: 18.2 percent). The special effects of EUR 15 million were related to the GRIP program. The decline in the EBIT margin compared to the previous year is mainly due to the lower gross margin and higher administrative costs. The gross margin declined due to the lower sales volume combined with increased product costs.


The adjusted forecast for the 2019 fiscal year of July 29, 2019, according to which the Automotive Aftermarket division should achieve sales growth before currency effects of minus 2 to 0 percent, was achieved. The goal of achieving an EBIT margin before special items of 15 to 16 percent was slightly exceeded.


Industrial business with good growth, weakened momentum in the second half of the year
The Industrial division increased its sales revenues to EUR 3,541 million in the reporting period despite slower momentum in global industrial production (previous year: EUR 3,383 million). Adjusted for currency effects, sales growth was 3.1 percent, with sales in the second half of the year at the level of the previous year. Revenue growth was primarily driven by the Wind sector cluster in the Greater China region and Railway in the Europe region. The raw materials and aerospace and industrial distribution sector clusters also made a positive contribution to growth. The economically sensitive sector clusters Industrial Automation, Offroad and Power Transmission recorded a decline in demand. Two out of four regions of the Schaeffler Group contributed to currency-adjusted sales growth in the reporting period. The Greater China region again posted the greatest growth with 23.4 percent, ahead of Americas with 2.9 percent, while sales in Europe fell by 2.4 percent and declined slightly in Asia / Pacific with minus 0.1 percent.


The Industry division achieved EBIT before special items of EUR 373 million (previous year: EUR 370 million), which corresponds to an EBIT margin before special items of 10.5 percent (previous year: 10.9 percent). The FIT program accounted for 137 million of the special effects totaling EUR 147 million.


The targets set in the forecast adjusted on July 29, 2019 to achieve sales growth of between 2 and 4 percent and an EBIT margin before special items of 10 to 11 percent were achieved.


Free cash flow well above expectations
Free cash flow before deposits and withdrawals for M&A activities of the Schaeffler Group was positive at EUR 473 million (previous year: EUR 384 million). As a result, the adjusted forecast of July 29, 2019 of free cash flow before deposits and withdrawals for M&A activities of around EUR 350 to 400 million was significantly exceeded. Investment payments (capex) for property, plant and equipment and intangible assets in the reporting period were EUR 1,045 million, slightly below the previous year's level (EUR 1,232 million). This corresponds to an investment rate of 7.2 percent (previous year: 8.7 percent).


As of December 31, 2019, net financial debt amounted to EUR 2,526 million (December 31, 2018: EUR 2,547 million). The gearing ratio, i.e. the ratio of net financial debt to equity, rose to 86.6 percent (December 31, 2018: 83.2 percent). The Schaeffler Group, which had total assets as of December 31, 2019 of around EUR 12.9 billion (previous year: around EUR 12.4 billion), had 87,748 employees (previous year: 92,478) on the same reporting date, a decrease of around Corresponds to 5.1 percent.


Dietmar Heinrich, CFO of Schaeffler AG, said: “As announced when the results for the third quarter of 2019 were presented, the generation of free cash flow was the focus of our efforts by the end of the 2019 financial year. We succeeded very well in further reducing the Capex quota and efficient inventory management in the final quarter. ”


Forecast for 2020
The Schaeffler Group expects currency-adjusted sales growth of minus 2 to 0 percent for the 2020 financial year. At the same time, the company expects to achieve an EBIT margin before special items of 6.5 to 7.5 percent for the 2020 financial year. For 2020, the Schaeffler Group also expects free cash flow before deposits and withdrawals for M&A activities of between 300 and 400 million euros.


The following goals apply to the three divisions:

Sectors table

“Our forecast for 2020 is deliberately cautious. It takes into account what we know at the beginning of March about the current environment and market development. At the present time, no one can say exactly how the Corona crisis will develop. We will nevertheless do everything we can to achieve our goals, ”said Klaus Rosenfeld.

On March 24, 2020 the Schaeffler Group will communicate its updated strategy for the years 2020-2024, a new transformation program to implement the strategy and the medium-term goals for this period as part of a press conference and a capital market day in Herzogenaurach as part of the Roadmap 2024.


Forward-looking statements and forecasts
Certain statements in this press release are forward-looking statements. Forward-looking statements are inherently associated with a number of risks, uncertainties and assumptions that may cause actual results or developments to differ materially from those expressed or implied in the forward-looking statements. These risks, uncertainties and assumptions can adversely affect the results and the financial consequences of the projects and developments described in this document. There is no obligation to update or change any forward-looking statements based on new information, future developments or other reasons by public announcement. The recipients of this press release should not disproportionately rely on forward-looking statements that only reflect the status at the date of this press release. Statements made in this press release about trends or developments in the past should not be viewed as statements that these trends and developments will continue in the future. The warnings listed above should be viewed in connection with future oral or written forward-looking statements made by Schaeffler or by persons acting on their behalf.

(https://www.schaeffler.de)
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