Automotive Aftermarket division
Revenue EUR 1,859 m
EBIT margin before special items 17.0 %
Growth less dynamic than prior year: revenue up 2.2 % at constant currency // Slower growth in the Europe region; declining revenue in the Americas region // Earnings quality below prior year: adverse impact of pricing and currency translation as well as increased selling expenses, partly due to expansion of business outside Europe // Adjusted revenue and earnings guidance met
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.
Effective January 1, 2018, the former Automotive Aftermarket business division was set up as a third stand-alone division of the Schaeffler Group with its own CEO. This step reflects the increased significance of the Automotive Aftermarket business to the Schaeffler Group. The management model of the new division follows a regional approach. On this basis, the Europe, Americas, Greater China, and Asia/Pacific regions operate as profit centers responsible for the Automotive Aftermarket business in their respective markets. Within each region and the related subregions, the division uses two distribution channels to sell its products and services: the Original Equipment Service (OES) and the open (independent) market, known as the Independent Aftermarket (IAM). The OES comprises the automobile manufacturers’ spare parts business, that is, supplying original spare parts and services to branded repair shops, i.e. those that are authorized by automobile manufacturers. IAM, on the other hand, supplies independent repair shops that are not tied to any one vehicle brand with spare parts and services via the various distribution levels.
Automotive Aftermarket division revenue fell by 1.1% to EUR 1,859 m during the reporting period (prior year: EUR 1,880 m). Revenue growth excluding the impact of currency translation amounted to 2.2%, less than originally anticipated. Following a solid first six months overall, the third quarter saw an unexpectedly weak revenue trend, mainly as a result of lower demand from a few major customers in the Europe and Americas regions compared to the prior year.
Revenue in the Europe region expanded by 1.3% (2.5% at constant currency) during the reporting period. Following the encouraging revenue trend in the first half of 2018, revenue declined in the second half of 2018, excluding the impact of currency translation. The decline was primarily due to the unexpectedly weak revenue trend in the third quarter of 2018 resulting from lower revenue from a few major customers, partly driven by increasing consolidation in the European vehicle aftermarket.
The Americas region reported considerably lower revenue for the reporting period, 15.6% less than the high prior year level – a revenue trend that was affected by a substantial adverse impact of currency translation. Excluding the impact of currency translation, revenue fell by 5.2%, due especially to the high prior year level resulting from non-recurring additional requirements of an OES customer.
The division continued to make good headway in developing its Chinese market. The Greater China region generated revenue growth of 33.3% (36.5% at constant currency), partly as a result of higher OES customers’ requirements.
Revenue in the Asia/Pacific region rose by 11.1%. Excluding the impact of currency translation, the region reported 12.5% in additional revenue, with a positive impact coming from growth in Independent Aftermarket revenue in the Southeast Asia subregion as well as from increased requirements of OES customers.
Automotive Aftermarket division cost of sales increased by EUR 11 m or 0.9% to EUR 1,217 m (prior year: EUR 1,206 m) driven by volume. Gross profit of EUR 642 m fell short of the prior year level (prior year: EUR 674 m). The gross margin declined by 1.4 percentage points to 34.5% (prior year: 35.9%). The favorable impact of economies of scale and the revenue mix did not fully offset the adverse impact of pricing and currency translation.
Functional costs increased by EUR 25 m or 8.0% to EUR 338 m (prior year: EUR 313 m), rising considerably to 18.2% of revenue (prior year: 16.6%). Along with the unexpectedly weak revenue trend in 2018, the relative functional cost structure was adversely affected by the increase in selling expenses, which rose faster than revenue, partly due to the commissioning of several distribution centers.
EBIT amounted to EUR 319 m in 2018 (prior year: EUR 333 m), and the EBIT margin was 17.2% (prior year: 17.7%). EBIT for the reporting period was increased by EUR 3 m in special items. These included income from the reversal of the division’s share of a provision following the completion of an investigation of a compliance case by the relevant authorities. This income was partially offset by the Automotive Aftermarket division’s share of restructuring expenses recognized for the reorganization of the company’s UK business activities. In the prior year, the division recognized EUR 5 m in restructuring expenses incurred to set up a shared service center in Europe. The prior year also included EUR 20 m in special items for legal cases resulting from provisions for claims for damages. Based on that, EBIT before special items decreased to EUR 316 m (prior year: EUR 358 m), and the EBIT margin before special items fell to 17.0% (prior year: 19.0%). The decrease in margin is attributable to the decline in gross profit as well as to increased functional costs. The adverse impact of currency translation on gross profit was partially offset by gains on transactions denominated in foreign currency and non-operating one-time items.