EBIT margin before special items 12.2%
Revenue up 5.9% at constant currency – strong Q3 and Q4 2017 // Growth driven by Automotive OEM as well as by Aftermarket business // Growth once again exceeds global automobile production // Revenue growth in all regions – China business maintains highly dynamic growth // Earnings quality below prior year // Higher expenses for R&D: activities for E-Mobility and for improving drives reducing fuel consumption and emissions expanded // Independent business division for E-Mobility starting January 01, 2018
in € millions
Prior year information presented based on 2017 segment structure.
1) Based on market (customer location).
2) Please refer to chapter Performance indicators and special items for the definition of special items.
Automotive division revenue increased by 5.1% to EUR 10,869 m (prior year: EUR 10,338 m) in 2017. Excluding the impact of currency translation, the growth rate was 5.9%. Thus, in 2017, the division once again expanded faster than the market, i.e. global production volumes for passenger cars and light commercial vehicles, which grew by 2.1% in 2017. This expansion was largely attributable to encouragingly dynamic growth in the second half of 2017, driven by both the Automotive OEM and the Aftermarket business.
Overall, revenue trends varied widely across market regions in 2017. The Europe region reported slight revenue growth of 1.4% (+1.3% at constant currency), less than average regional growth in production volumes (+3.9%). The Americas region reported 4.1% (+4.9% at constant currency) in additional revenue, growing faster than regional vehicle production, which declined by 0.9%. The Automotive division once again significantly expanded its revenue in the Greater China region, especially due to product ramp-ups in the Automotive OEM business. The Automotive division generated a total of 18.4% (+22.9% at constant currency) in additional revenue in Greater China while regional vehicle production increased by 2.6%. Reasons for the increase in Asia/ Pacific region revenue by 4.8% (+5.8% at constant currency) included product ramp-ups, with vehicle production there rising by 2.1%.
The Automotive division business is organized in the Engine Systems, Transmission Systems, Chassis Systems, and Automotive Aftermarket business divisions (BD), all of which reported revenue growth in 2017.
The Engine Systems BD generated revenue growth of 5.3% (+6.7% at constant currency) in 2017, largely driven by the valve train product groups, mainly fully variable valve train systems (primarily Multiair). The camshaft phasing units product group also saw significant increases, especially for electric phasing systems. In addition, the innovative thermal management module, which is required in both internal combustion engines and future mobility concepts, also performed very well.
Transmission Systems BD revenue rose by 6.3% (+7.4% at constant currency), with revenue from components for automated transmissions, such as torque converters and dual clutches, generating double-digit growth rates. Revenue in the dual-mass flywheel product group was up significantly as well. The business division’s growth was primarily driven by product ramp-ups in the Greater China region.
The Chassis Systems BD generated revenue growth of 3.6% (+4.2% at constant currency) mainly based on the solid growth in revenue from the newest generation of wheel bearings in the Greater China region.
The Automotive Aftermarket BD increased revenue by 3.4% (+3.2% at constant currency) in 2017, mainly due to increased requirements in the independent aftermarket in the Americas region.
Cost of sales rose by 7.1% to EUR 7,915 m (prior year: EUR 7,389 m) in 2017, growing faster than revenue. Gross profit amounted to EUR 2,954 m (prior year: EUR 2,949 m). The gross margin declined by 1.3 percentage points to 27.2% (prior year: 28.5%), mainly due to adverse pricing effects, which could not be compensated by corresponding production cost optimization.
Functional costs increased by 11.7% to EUR 1,621 m (prior year: EUR 1,451 m), rising to 14.9% of revenue (prior year: 14.0%). The main driver of this increase was the rise in research and development expenses by 15.4% to EUR 713 m (prior year: EUR 618 m) or 6.6% (prior year: 6.0%) of revenue. Apart from the increased activities in the field of E-Mobility, which has already won several volume production orders, the higher research and development expenses also reflect projects aimed at further optimizing the drive train based on an internal combustion engine. Selling and administrative expenses of EUR 908 m were 9.0% ahead of prior year (prior year: EUR 833 m). The increase is primarily the result of higher logistics expenses driven by higher volumes that were mainly attributable to significantly expanded business in the Greater China region.
EBIT for the reporting period amounted to EUR 1,283 m (prior year: EUR 1,373 m), and the division’s EBIT margin was 11.8% (prior year: 13.3%). In 2017, the division’s EBIT was adversely affected by EUR 47 m in special items (prior year: EUR 108 m), including EUR 17 m in special items for legal cases resulting from provisions for claims for damages. In addition, the division recognized its share of restructuring expenses incurred to set up a shared service center in Europe amounting to EUR 30 m in 2017. The prior year included EUR 82 m in special items for legal cases resulting from provisions for claims for damages in antitrust cases and for other compliance cases. Furthermore, EUR 13 m in expenses relating to the Automotive division in connection with the second wave of the “CORE” program (consolidation of shared functions and plant structures) were recognized in the prior year. Additionally, the prior year was adversely affected by other special items of EUR 13 m resulting from streamlining the production portfolio. Based on these items, EBIT before special items declined to EUR 1,330 m (prior year: EUR 1,481 m) in 2017, and the EBIT margin before special items fell to 12.2% (prior year: 14.3%). Apart from the lower gross margin, reasons for the decline include rising R&D costs and other expenses. E-Mobility R&D activities were expanded considerably in order to lay the foundation for future growth. The EBIT margin was also affected by an adverse impact of currency translation.