Automotive and industrial supplier Schaeffler reports revenue of EUR 3.396 billion for the third quarter (Q3/2019: EUR 3.613 billion). Adjusted for currency effects, this corresponds to a decrease of 2.6%. The Industrial division recorded a decline of 8% at constant currency from 877 million euros to 776 million euros.

January to September 2020 at a glance

The Schaeffler Group generated revenue of EUR 8.971 bn in the last nine months (prior year: EUR 10.839 bn). Excluding the impact of currency translation, revenue declined by 15.4% during this period, mainly due to the decline in demand in connection with the coronavirus pandemic. Demand only improved in the third quarter and the decline was only 2.6% compared to the third quarter of the previous year.

The reason for the decline in sales was the volume-related downturn in sales in all three divisions. The four regions were affected differently by the pandemic, with the Greater China region reporting sales growth of 8.1% (adjusted for currency effects) due to the recovery that began in the region in the second quarter, and 16.5% year-on-year growth in the third quarter. The other three regions each recorded a significant decline in sales in the first nine months after adjusting for currency effects: Europe fell by 22.6%, Americas by 18.4% and in Asia/Pacific by 19.3%.

From January to September 2020, the Schaeffler Group generated EBIT before special items of EUR 385 m (prior year period: EUR 883 m). This corresponds to an EBIT margin before special items of 4.3% (prior year: 8.1%).

EBIT in the reporting period was negatively impacted by special items amounting to EUR 798 million (previous year: EUR 88 million). This included an impairment of goodwill allocated to the Automotive Technologies division of EUR 249 million in the first quarter. The special effects also include expenses of EUR 549 million for the expansion of the savings and efficiency programs RACE (Automotive Technologies division), GRIP (Automotive Aftermarket division) and FIT (Industrial division). With these special effects, particularly in connection with the job cuts announced in September, EBIT amounted to minus EUR 413 million (previous year: plus EUR 795 million).

Industry' division in detail

Schaeffler figures at a glance: Industrial division

© Schaeffler

The Industrial division generated sales of € 2.338 billion in the first nine months of 2020 (same period of the previous year: € 2.681 billion). Adjusted for currency effects, the decline in sales was 11.3% due to volumes, particularly as a result of the coronavirus pandemic. According to the company, demand in the third quarter was somewhat more robust than in the first half of the year. In the reporting period (Q3/2020), the regions Europe with -23.4%, Americas with -12.9% and Asia/Pacific with -5.7% (currency-adjusted) recorded a significantly negative business development due to the crisis. By contrast, the Greater China region recorded a double-digit growth rate (+24.6%, adjusted for currency effects), with the 'Wind' and 'Power Transmission' sector clusters in particular recording significant growth.

Sales growth in the Greater China region amounted to 20.2% on a currency-adjusted basis in the first nine months, while sales growth in the Europe (21.5%), Americas (15.5%) and Asia/Pacific (17.5%) regions declined significantly.

The Industrial division generated EBIT before special items of EUR 195 million in the first nine months (prior-year period: EUR 277 million), which corresponds to an EBIT margin before special items of 8.4% (prior-year period: 10.3%).

Free cash flow above previous year

In the first nine months of 2020, the Group result attributable to shareholders before special items fell to EUR 139 million compared to the same period of the previous year (same period of the previous year: EUR 547 million). Consolidated net income amounted to minus EUR 525 million (same period of the previous year: EUR 485 million). Earnings per preference share therefore amounted to minus EUR 0.78 (same period in the previous year: EUR 0.73).

Free cash flow before cash inflows and outflows for M&A activities amounted to EUR 185 million in the first nine months and was therefore higher than in the same period of the previous year (EUR 133 million). At EUR 481 million, capital expenditure (capex) on property, plant and equipment and intangible assets in the reporting period was significantly below the previous year's level (EUR 823 million), which corresponds to an investment ratio of 5.4% of sales (previous year: 7.6%).

Dr. Klaus Patzak, CFO of Schaeffler AG, said: "The Schaeffler Group generated a strong free cash flow of 333 million euros in the third quarter. Based on the reporting period, the figure of 185 million euros is higher than in the prior year. In addition to the upturn in business activity, the management measures initiated in the prior year to improve free cash flow, in particular the focusing of investments and the optimization of working capital, are having a positive impact."

Net financial debt increased to EUR 2.688 billion as at September 30, 2020 (December 31, 2019: EUR 2.526 billion). The gearing ratio, i.e. the ratio of net financial debt to equity, increased significantly to 169.9% (December 31, 2019: 86.6%). The gearing ratio before special items was 1.6x as at the end of September 2020 (December 31, 2019: 1.2x).

The Schaeffler Group reported an available liquidity position of EUR 2.771 million as at September 30, 2020, representing approximately 22% of revenue for the last twelve months.

The group employed 83,711 people as at September 30, 2020 (December 31, 2019: 87,748), representing a decrease in the number of employees of 4.6% or 4,037 positions during the reporting period.

New forecast for the 2020 financial year

On November 9, 2020, the Schaeffler Board of Managing Directors agreed on a new forecast for the 2020 financial year based on the latest information on business performance in the fourth quarter. On March 24, 2020, the Board of Managing Directors had suspended the guidance published on March 10, 2020, and had recently assumed that business figures would be below the prior year figures due to the extraordinary uncertainty in connection with the coronavirus pandemic.

The new forecast is based on the assumption that the recovery of the sales markets relevant to the Schaeffler Group will continue in the fourth quarter of 2020 and that the coronavirus pandemic in particular will not again have a material adverse impact on business performance. Nevertheless, the environment continues to be characterized by volatility and uncertainty.

Schaeffler figures at a glance: The forecast for 2020 by division

© Schaeffler

Under these conditions, the Group anticipates a currency-adjusted decline in sales of 13 to 11.5 percentage points for 2020 as a whole. At the same time, the company expects to achieve an EBIT margin before special items of 4.5% to 5.5% for 2020 as a whole. For 2020, the Herzogenaurach-based company also expects a free cash flow before cash inflows and outflows for M&A activities of between EUR 500 million and EUR 600 million.

The following key figures apply to the three divisions as shown in the image.

Klaus Rosenfeld, CEO of Schaeffler AG, said: "The third quarter shows a significant recovery compared to the first half of the year, which is particularly evident in the improvement of the earnings margin, but also in the strong free cash flow. The two Automotive divisions in particular were able to benefit from the recovery in demand, thus helping to stabilize the Schaeffler Group's earnings. Nevertheless, it would be premature to assume that the crisis is over given the continuing high level of uncertainty regarding the further course of the coronavirus pandemic and also in view of the renewed lockdown measures in some markets. It is therefore important to remain vigilant and to consistently implement the measures adopted to strengthen the Schaeffler Group's future viability and competitiveness."