Schaeffler with robust earnings and strong free cash flow in the first quarter of 2020

Currency-neutral sales decline 9.2 percent as a result of the corona virus crisis - EBIT margin before special items 6.5 percent (previous year 7.5 percent)
Automotive Aftermarket and Industry divisions improve EBIT margins, significant decline in Automotive OEM
Strong free cash flow before deposits and withdrawals for M&A activities
Good liquidity position, countermeasures and balance sheet quality strengthen crisis prevention
A concrete forecast for 2020 is still not possible

Global automotive and industrial supplier Schaeffler presented its interim report for the first three months of 2020 today. In the reporting period, the Schaeffler Group's sales were € 3,282 million (previous year: € 3,622 million). Adjusted for currency effects, sales declined by 9.2 percent in this period, primarily due to volume effects. Sales declined in all four regions in the first quarter. Adjusted for currency effects, the decrease was 11.2 percent in the Greater China region, 10.4 percent in Europe, 9.3 percent in Asia / Pacific and 6 percent in the Americas region.

The Schaeffler Group generated EBIT before special items of EUR 215 million in the first three months (previous year: EUR 272 million). This corresponds to an EBIT margin before special items of 6.5 percent (previous year: 7.5 percent). The deterioration compared to the previous year resulted in particular from the decline in the gross margin. The decline in the margin is largely due to volume-related negative fixed cost effects.

Earnings in the reporting period were impacted by special effects of EUR 302 million (previous year: EUR 42 million). This included an impairment of the goodwill allocated to the Automotive OEM division by EUR 249 million, since the coronavirus pandemic leads to increased uncertainty regarding future business developments. The special effects also include expenses of EUR 53 million for the expansion of the RACE and FIT programs, in particular in connection with job cuts. The EBIT was thus minus 88 million euros (previous year: 230 million euros).

Automotive OEM sales minus 12 percent, Q1 outperformance 11 percentage points
The Automotive OEM division generated sales of EUR 2,008 million in the first three months (previous year: EUR 2,285 million). Adjusted for currency effects, sales declined by 12 percent year-on-year, primarily due to volume effects. The main reason for the decline in sales was the impact of the coronavirus pandemic, which led to a significant weakening of demand in the automotive industry and thus to a decline in demand in the Automotive OEM division. Temporary shutdowns had a significant impact on global automotive production in the first quarter, which decreased 23 percent in the first three months of 2020. On this basis, the outperformance of the Automotive OEM division was a clear 11 percentage points.

As a result of the corona virus crisis, sales declined in all four regions. Currency-neutral sales in the Europe region decreased by 13.5 percent. The Americas region posted a currency-neutral sales decrease of 5.2 percent. In the Greater China region, sales declined 22.8 percent on a currency-neutral basis. In the Asia / Pacific region, sales decreased 7.3 percent on a currency-neutral basis.

In the first three months, EBIT before special items was EUR 50 million (previous year: EUR 113 million). The EBIT margin before special items was 2.5 percent in the same period, significantly below the previous year's figure of 4.9 percent. The main reason for the decline was the decline in the gross margin due to volume-related negative fixed cost effects.

Automotive aftermarket sales up 1.5 percent, EBIT margin 17.1 percent (adjusted)
In the reporting period, the Automotive Aftermarket division posted sales of EUR 446 million (previous year: EUR 443 million), a currency-adjusted increase of 1.5 percent, which was due to the significant increase in sales in the by far strongest region Europe. The positive sales trend in Europe was stronger than the decline in sales in the other three regions. The sales increase in Europe, which was mainly due to the good development of the independent aftermarket business (IAM) in the Central and Eastern European sub-region, was 5.6 percent on a currency-neutral basis. In the Western Europe sub-region, IAM business was significantly weakened by measures to curb the coronavirus. The sales increase in Europe was offset by a sales decline in the Americas region of 4.7 percent, largely due to the negative sales development of the IAM business in the South America sub-region. In contrast, the OES business (Original Equipment Service) in the USA developed positively in the reporting period, which achieved a significant increase in sales due to increased demand. Currency-neutral sales in the Greater China region decreased significantly by 24.9 percent, while sales in the Asia / Pacific region decreased by 9.9 percent.

On this basis, EBIT before special items was EUR 76 million (previous year: EUR 69 million). This corresponds to an EBIT margin before special items of 17.1 percent (previous year: 15.5 percent). The improvement compared to the previous year is essentially due to the increase in the gross margin and the improved cost structure of the functional areas. The gross margin increased due to the increased sales volume and benefited from a changed product mix.

Industry division sales minus 7.5 percent, EBIT margin 10.7 percent (adjusted)
The Industry division generated sales of EUR 828 million in a challenging market environment (previous year: EUR 893 million). Adjusted for currency effects, the decline in sales was 7.5 percent. During the first three months of 2020, the regions of Europe, Americas and Asia / Pacific in particular recorded a clearly negative business development due to the crisis. The Greater China region, on the other hand, posted double-digit growth, with the wind sector cluster in particular showing significant growth. The Power Transmission and Raw Materials sector clusters also contributed to growth. Sales growth in the region on a currency-neutral basis was 21.4 percent, while sales development in the regions of Europe declined by minus 15 percent, Asia / Pacific by minus 14.1 percent and Americas by minus 9.5 percent.

The Industry division generated EBIT before special items of around 88 million euros (previous year: 90 million euros) in the first three months, which corresponds to an EBIT margin before special items of 10.7 percent (previous year: 10.1 percent). The positive margin development benefited, among other things, from the stable gross margin. Here, volume-related negative fixed cost effects could be compensated for, among other things, by positive sales price effects.

Strong free cash flow before deposits and withdrawals for M&A activities
Consolidated earnings before special items attributable to shareholders fell significantly in the first three months of 2020 compared to the same period in the previous year to EUR 103 million (previous year: EUR 169 million). The consolidated result was minus 184 million euros (previous year: 137 million euros). The earnings per preferred share were thus minus EUR 0.27 (previous year: EUR 0.21).

Free cash flow before deposits and withdrawals for M&A activities amounted to 137 million in the first quarter and was thus significantly above the comparable period of the previous year (minus 235 million euros). In the first three months, the investment payments (capex) for property, plant and equipment and intangible assets were EUR 164 million, well below the previous year's level (EUR 373 million), which corresponds to an investment ratio based on sales of 5.0 percent (previous year: 10 , 3 percent).

As of March 31, 2020, net financial debt decreased to EUR 2,414 million. The gearing ratio, i.e. the ratio of net financial debt to equity, rose slightly to 93.8 percent (December 31, 2019: 86.6 percent). Gearing remained unchanged at 1.2x at the end of March (end of December 2019: 1.2x).

As of the reporting date, the group employed 86,548 people (December 31, 2019: 87,748), which corresponds to a decrease of 1.4 percent.

Good liquidity position, countermeasures and balance sheet quality strengthen crisis prevention
The impairment of goodwill in the Automotive OEM division leads to a reduction in further impairment risks on the balance sheet. With a conservative assessment, the Schaeffler Group is reacting to the increased uncertainty in the future business development of the division as a result of the coronavirus pandemic, thereby increasing the balance sheet quality.

In addition, measures were continued or initiated in the reporting period that further reduced the Schaeffler Group's costs in response to the coronavirus crisis, such as the introduction of short-time work, the reduction of vacation days and time accounts, hiring freezes, the restriction of trade fair appearances, the reduction of the marketing budget and temporary closings. In addition, the board decided to increase the number of jobs to be cut as part of the volunteer program in Europe from 1,300 to 1,900.

The Schaeffler Group also further strengthened its liquidity position with the issue of a green promissory note with a volume of around EUR 350 million, which was announced on April 9, 2020. “The Schaeffler Group is very comfortably equipped on the liquidity side. In mid-December 2019, we increased the existing revolving credit facility from EUR 1.5 billion to EUR 1.8 billion and agreed additional new bilateral credit lines totaling EUR 200 million. We won't have the next major due dates until 2022, ”said Dietmar Heinrich, CFO of Schaeffler AG.

A concrete forecast for 2020 is still not possible
On March 24, 2020, the Management Board of Schaeffler AG suspended the forecast for fiscal year 2020 for the Schaeffler Group and its divisions published on March 10, 2020 due to the worldwide spread of the coronavirus pandemic and the resulting effects on business development. From today's perspective, neither the further course of the pandemic nor the economic impact can be reliably estimated. The Schaeffler Group currently expects to achieve currency-adjusted sales growth, an EBIT margin before special items and a free cash flow before deposits and withdrawals for M&A activities below the previous year's figures in the 2020 financial year.

“The corona virus pandemic presents us with unprecedented challenges. The result for the first quarter of 2020 is robust. The positive development in free cash flow is particularly encouraging. It pays off here that we started proactively managing our investments and working capital last year. In connection with the comfortable liquidity position and the good quality of our balance sheet, we are confident that we will successfully master the current crisis. The second quarter will be difficult. The countermeasures we implement will continue to be implemented consistently, ”said Klaus Rosenfeld, Chairman of the Board of Management of Schaeffler AG.

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 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.