Revenue EUR 3,385 m
EBIT margin before special items 11.0 %
Growth more dynamic than prior year: revenue up 10.1 % at constant currency // Revenue growth in all regions – Greater China maintains highly dynamic growth // Considerably higher volumes with Industrial Distributon – double-digit-growth rates in the raw materials, railway, power transmission, and offroad sector clusters // EBIT margin increased over prior year due to favorable impact of pricing and economies of scale as well as program "CORE" cost reduction measures // Raised guidance for revenue exceeded, earnings at the upper end of adjusted guidance
in € millions.
Prior year information presented based on 2018 segment structure.
1) Based on market (customer location).
2) Please refer to chapter "Performance indicators and special items" for the definition of special items.
With global industrial production increasing, the Industrial division expanded its revenue by 7.5% to EUR 3,385 m (prior year: EUR 3,150 m), continuing its upward prior year trend with added momentum. Excluding the impact of currency translation, revenue for the reporting period was up 10.1%, following 5.7% in 2017. The increase was primarily driven by Industrial Distribution. The raw materials, railway, power transmission, and offroad sector clusters generated double-digit revenue growth and also contributed to the considerable increase in revenue.
The Industrial business is managed based on regions. On this basis, the Europe, Americas, Greater China, and Asia/Pacific regions operate as profit centers responsible for the Industrial business in their respective markets. All regions grew their revenue in 2018, with the Greater China region once again reporting the highest growth rate.
Revenue in the Europe region expanded by 5.7% (+7.3% at constant currency) during the reporting period. This growth was primarily due to higher sales in Industrial Distribution. Railway sector cluster revenue grew at double-digit rates. Revenue also rose, excluding the impact of currency translation, in the power transmission, offroad, industrial automation, two-wheelers, and raw materials sector clusters, while the aerospace sector cluster reported revenue flat with prior year. Wind sector cluster revenue dropped.
Americas region revenue rose by 3.7% during the reporting period. Excluding the impact of currency translation, the region’s revenue grew by 9.7%. This growth was largely driven by Industrial Distribution as well as the power transmission, raw materials, and aerospace sector clusters. The offroad, industrial automation, two-wheelers, and railway sector clusters generated revenue growth as well, excluding the impact of currency translation, while the wind sector cluster experienced a considerable decline in demand.
In the Greater China region, revenue rose by 21.8% (+25.4% at constant currency). Except for two-wheelers, all sector clusters as well as Industrial Distribution generated double-digit revenue growth, excluding the impact of currency translation. Especially the considerable increase in volumes in the wind, raw materials, railway, and power transmission sector clusters contributed to this region’s growth.
In the Asia/Pacific region, revenue increased by 3.0%. Excluding the impact of currency translation, the region generated 5.6% in additional revenue due to higher volumes. Industrial Distribution as well as all sector clusters except for aerospace and raw materials grew their revenue, with Industrial Distribution and the offroad sector cluster acting as the main drivers of the region’s revenue growth.
Industrial division cost of sales rose by EUR 108 m or 4.8% to EUR 2,366 m (prior year: EUR 2,258 m) driven by volume. Gross profit increased by EUR 127 m or 14.2% to EUR 1,019 m (prior year: EUR 892 m). The division’s gross margin improved by 1.8 percentage points to 30.1% (prior year: 28.3%), primarily since the favorable impact of pricing, revenue mix, and economies of scale outweighed the adverse impact of currency translation, higher raw materials prices, and inflation-related cost increases.
Functional costs for the reporting period of EUR 655 m were EUR 17 m or 2.7% above the prior year level (prior year: EUR 638 m). The cost reduction measures under the program “CORE” almost fully offset cost increases, particularly in personnel expenses, which, among other things, had a favorable effect on the relative functional cost structure. As a result, functional costs as a percentage of revenue fell to 19.4% (prior year: 20.3%). Research and development expenses amounted to EUR 140 m (prior year: EUR 133 m), and selling and administrative expenses were EUR 515 m (prior year: EUR 505 m).
EBIT improved to EUR 353 m in 2018 (prior year: EUR 244 m) and the EBIT margin to 10.4% (prior year: 7.7%). EBIT for the reporting period was affected by special items totaling EUR 19 m. This included EUR 24 m representing the share of restructuring expenses related to the integration of the internal supplier, “Bearing & Components Technologies”, and the reorganization of the company’s UK business activities that was recognized by the Industrial division. Income from the reversal of the Industrial division’s share of a provision following the completion of an investigation of a compliance case by the relevant authorities had an offsetting effect on EBIT of EUR 5 m. In the prior year, the Industrial division recognized its share of restructuring expenses incurred to set up a shared service center in Europe amounting to EUR 9 m. Based on that, EBIT before special items increased by EUR 119 m or 47.0% to EUR 372 m (prior year: EUR 253 m). The division’s EBIT margin before special items improved by 3.0 percentage points to 11.0% (prior year: 8.0%). Along with the higher gross profit, the improved margin was mainly attributable to the improvements in the functional cost structure as a result of the program “CORE”. Progress in implementing the measures of the second wave and the – now full – potential of the measures of the first wave of the program “CORE” made an impact in 2018. In addition, gains on transactions denominated in foreign currency had a compensating effect on the adverse impact of currency translation on gross profit.