Schaeffler: A good start to 2012, despite lower profits
Major Continental shareholder Schaeffler AG has reported a “good start” to 2012. On announcing the company’s January to March results on 29 May, CEO Dr. Juergen M. Geissinger said “we have successfully continued our growth strategy during the first quarter of 2012 despite an increasingly challenging environment. With sales increasing by six per cent, our growth has again outpaced the market. We have managed to stabilise our profitability at a high level.”
Sales for the first three months of 2012 grew approximately six per cent to 2.9 billion euros, with revenue of both Schaeffler’s Automotive and Industrial divisions again expanding faster than their respective markets. Automotive division sales increased by around six per cent to approximately 1.9 billion euros. The Industrial division also grew by a corresponding amount to over 900 million euros. The fastest growing region, North America, generated revenue growth of 17 per cent, followed by Asia/Pacific with 14 per cent and Germany with nine per cent. Sales in the Europe (excluding Germany) and South America declined by three and seven per cent respectively.
As expected, the first quarter’s EBIT of 401 million euros fell short of the higher-than-average 472 million euros recorded in the first quarter of last year; Schaeffler says this is due to ongoing capacity expansion programmes in the first quarter and growth-related pre-production costs. Schaeffler generated an EBIT margin of 14.0 per cent, down from 17.5 per cent during the first quarter of 2011. Net income for the period, excluding non-controlling interests, was 236 million euros, substantially lower than the 438 million euros earned in a year earlier. Schaeffer, however, explains that the prior year period included non-cash changes in the fair value of interest rate derivatives of 156 million euros.
Schaeffler states that it was able to slightly increase operating cash flows year-on-year, and capital expenditures more than doubled. During the first three months of 2012, 244 million euros in cash was used in investing activities, compared with 114 million euros a year earlier. The regional focus of Schaeffler’s investing activities was again on Asia, where the projects that started in China and India in 2011 continued. These are aimed at increasing the proportion of value added locally. Free cash flow for the first quarter was an outflow of 107 million euros, up from 11 million a year earlier, due to the significant increase in capital expenditures and one-time transaction costs related to the comprehensive refinancing arrangement in the first quarter.
The company’s net financial debt was approximately 7.2 billion euros at the end of the first quarter (year-end 2011: 7.1 billion euros). The company’s debt refinancing announced in late January was largely completed during the first quarter of 2012. “Refinancing our senior financial debt has significantly improved the maturity profile of our loans. We were able to place approximately 3.5 billion euros in high yield bonds and loans in the capital markets, effectively broadening our funding sources,” said Schaeffler CFO Klaus Rosenfeld. “Significantly higher capital expenditures and one-time effects of these transactions led to negative free cash flow for the first quarter. We are expecting free cash flow to become positive during the course of the year.”
Outlook for 2012
Looking ahead to the rest of this year, Schaeffler says trends in its markets are increasingly differing by region. While automotive production and industrial sectors in North America and Asia continue to grow, the situation in Europe is said to remain a challenging one. In light of its stated good start to 2012, however, Schaeffler states that is maintaining its targets for the full year. “We continue to see solid growth opportunities for our business worldwide despite the current clear regional differences in market trends,” said Geissinger. “Therefore, we are still expecting to generate sales growth of more than five per cent and an EBIT margin of more than 13 per cent in 2012.”
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