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Schaeffler on the capital markets

Schaeffler AG has aligned its communications with the capital markets with the company’s new three-divisional structure. A presentation of the three divisions was also the focus of the Capital Market Day 2018 in Berlin. Roadshows and investor conferences were held to further expand investor relations.

Events 2018

Schaeffler successfully completes merger of Indian entities

On March 20, 2018, the shareholders and creditors of Schaeffler India Limited consented to the merger of the two unlisted entities, INA Bearings India Private Limited and LuK India Private Limited, with listed company Schaeffler India Limited. The merger was effective October 22, 2018. The completion of the merger has resulted in the Schaeffler Group having only one subsidiary in India, the listed company Schaeffler India Limited. The transaction increased Schaeffler AG’s indirect interest in Schaeffler India Limited from approximately 51% to approximately 74%. This transaction has simplified the previous structure, reduced complexity, and created a strong Schaeffler entity in India in order to better realize the potential for growth in India.

Schaeffler AG and IG Metall sign future accord

On April 16, 2018, the company’s Board of Managing Directors, Works Council, and the IG Metall trade union signed a Future Accord. The parties’ intention in signing the Accord was to jointly and collaboratively manage and drive the ongoing development and transformation of the Schaeffler Group – with particular regard to the three key future trends of E Mobility, Industry 4.0, and Digitalization – in the interests of the company and of its employees. Under the Future Accord, the Schaeffler Group will make available a EUR 50 m innovation fund over a period of five years. The purpose of the fund is to foster innovations and thereby to actively harness the great innovative capacity of Schaeffler’s employees and to achieve sustainable value creation.

Schaeffler streamlines its structures and strengthens its plants

On May 7, 2018, the company announced that the Board of Managing Directors of Schaeffler AG has decided, with the approval of the Supervisory Board’s executive committee, to integrate the company’s “Bearing & Components Technologies” (BCT) unit, which had previously acted as an internal supplier, into the divisions. Under this reorganization, the plants previously assigned to BCT were transferred to the Automotive OEM and Industrial divisions. The reorganization has eliminated duplicate structures, established clear responsibilities, and brought Schaeffler closer to the customer. As a first step toward implementing the change, the BCT organization was transferred to a starting organization effective July 1, 2018, that has been replaced by the target organization implemented effective January 1, 2019.

Schaeffler invests in modern logistics

The Schaeffler Group celebrated the opening of its new European Distribution Center (EDC) in Kitzingen on June 4, 2018. The Schaeffler Group invested approximately EUR 110 m in the construction of this new location, which will distribute the Industrial division’s products to the European market.

On June 15, 2018, the Automotive Aftermarket division started construction of its Aftermarket Kitting Operation (AKO) in Halle (Saale), another milestone of the implementation of the “Agenda 4 plus One”. With capital expenditures totaling approximately EUR 180 m, the construction of this state-of-the-art assembly and packaging center represents the Schaeffler Group’s Automotive Aftermarket division’s largest single capital investment project to date. The AKO will commence operations in the first half of 2020.

Both of these initiatives will directly help improve the Schaeffler Group’s delivery performance and secure its competitiveness.

Schaeffler acquires “Drive-by-Wire”-Technology

On August 6, 2018, the Schaeffler Group signed a master agreement with Roland Arnold, Arnold Verwaltungs GmbH, and Paravan GmbH for the formation of a joint venture. The objective of the joint venture, which is named Schaeffler Paravan Technologie GmbH & Co. KG and has commenced operations on October 1, 2018, is the further development of the Space Drive “Drive-by-Wire”-Technology and the development and sale of mobility systems. As part of the transaction, the joint venture has acquired Paravan GmbH’s Space Drive-Technology. Schaeffler Technologies AG &Co. KG has a 90% stake in the new company.

S&P assigns investment grade

On August 30, 2018, rating agency Standard & Poor’s upgraded its rating for Schaeffler AG to BBB- (investment grade) with a stable outlook. The upgrade positions Schaeffler AG as investment grade at all three rating agencies – Fitch, Moody’s, and Standard & Poor’s.

Third Capital Markets Day in Berlin

Schaeffler AG’s third Capital Markets Day was held in Berlin on September 20, 2018. Its main focus was on the presentations by the divisions’ CEOs, with the Automotive Aftermarket division, newly independent since the beginning of the year, presenting itself for the first time. The presentations focused on issues such as E-Mobility, chassis systems, and Industry 4.0. A total of 38 analysts and investors attended the Capital Markets Day.

Debt issuance program established

The Schaeffler Group established a EUR debt issuance program on September 28, 2018. The debt issuance program provides Schaeffler with a flexible platform for obtaining funding from the debt capital markets in the future and has a volume of up to EUR 5 bn.

Schaeffler reorganizes UK business

On October 29, 2018, Schaeffler AG’s Board of Managing Directors decided to reorganize its UK business activities as part of the “Global Footprint” initiative of the company’s program for the future, the “Agenda 4 plus One”. The reorganization calls for the consolidation of the logistics centers in Sutton Coldfield and Hereford and the closure of the production locations in Plymouth and Llanelli. These locations’ production will be moved to existing locations in other countries. The Sheffield location – the Schaeffler Group’s largest location in the United Kingdom in terms of revenue and number of employees – will be retained. The proposals are designed to generate synergies and increase efficiency. Appropriate restructuring provisions for the reorganization of the company’s UK business activities have been recognized.

Schaeffler adjusts 2018 full-year outlook

On October 30, 2018, the Schaeffler Group adjusted its 2018 full-year guidance. According to the adjusted outlook, Schaeffler was forecasting revenue growth of 4 to 5% excluding the impact of currency translation, an EBIT margin before special items of 9.5 to 10.5%, and free cash flow before inflows and outflows for M&A activities of approximately EUR 300 m for the full year 2018. With markets in the global automotive business highly volatile (attributable, for instance, to trade conflicts and the introduction of the new emissions testing methodology WLTP), the adjustment of the full year 2018 group outlook was mainly triggered by a further deterioration of market conditions in the company’s Automotive OEM business in China. The weaker-than-expected third-quarter revenue trend in the Automotive Aftermarket division contributed to the guidance adjustment as well. For the Automotive OEM division, based on market conditions, Schaeffler was forecasting revenue growth of 3.5 to 4.5%, excluding the impact of currency translation, and an EBIT margin before special items of 8 to 8.5%. The group’s Automotive Aftermarket division was expected to generate revenue growth – excluding the impact of currency translation – of 1.5 to 2.5% and an EBIT margin before special items of 17 to 17.5%. The Industrial division was forecasting its revenue to grow by 8 to 9%, excluding the impact of currency translation, on the back of positive performance. Based on these projections, the Industrial division’s EBIT margin before special items was expected to be in the 10.5 to 11% range.

Schaeffler acquires Elmotec Statomat

On November 28, 2018, the Schaeffler Group entered into a contract to acquire Elmotec Statomat Holding GmbH (referred to as “Elmotec Statomat” below) based in Karben near Frankfurt/ Main, Germany. Elmotec Statomat is one of the world’s leading manufacturers of production machinery for the high-volume construction of electric motors and possesses unique expertise in the field of winding technology. With this acquisition, Schaeffler is expanding its expertise in the construction of electric motors and thereby driving forward the implementation of its electric mobility strategy. The acquisition of Elmotec Statomat, which closed on January 31, 2019, has expanded this expertise by adding further know-how regarding high-volume production of stators for electric motors.

Contract with Klaus Rosenfeld extended for a further five years

At its meeting on October 5, 2018, the Supervisory Board of Schaeffler AG decided to extend the contract with Klaus Rosenfeld, the Chief Executive Officer of Schaeffler AG, for a further five years to June 30, 2024. The company continues to consistently implement the transformation program initiated under his leadership, including the “Agenda 4 plus One” and the related initiatives.


Capital market trends

In 2018, trends varied in the global interest rate markets. While the U.S. Federal Reserve Bank (Fed) raised its benchmark interest rate an additional four times in light of the buoyant economic trend, the European Central Bank (ECB) kept its benchmark interest rate at 0%, albeit terminating its bond buying program in December.

In early 2018, the global capital markets were strongly marked by speculation regarding future interest rate policy, especially that of the U.S. Federal Reserve Bank and the European Central Bank, rising geopolitical tensions, increasing trade protectionism, and emerging concerns about inflation.

Political uncertainty continued to rise during the second quarter due to the international trade conflict, resulting in highly volatile financial markets.

This volatility persisted into the third quarter, fueled by a slowdown in the Chinese economy. While solid economic data and high rates of growth in corporate profits resulted in an upward trend in the North American equities markets during the third quarter, Europe experienced a declining trend due to the international trade conflict and uncertainty around Brexit as well as the direction of fiscal policy in Italy.

Slowing economic growth in China, especially the considerable decline in automobile production there in the fourth quarter, contributed to the persistent weakness in the capital markets. The public debate regarding stricter exhaust and emissions laws and profit warnings issued by several automobile manufacturers and automotive suppliers left investors uneasy.

In this context, global equities markets declined in 2018. While the Euro STOXX 50 dropped by 14.3%, the Dow Jones Industrial fell by 5.6%. The Nikkei 225 index lost value as well, declining by 12.1%. The Deutsche Aktienindex (DAX) declined by 18.3% in 2018, falling to a level of 10,559 points as at December 31, 2018.


Schaeffler shares

Schaeffler AG’s common non-voting shares have been listed on the stock exchange since October 9, 2015. A total of 166 million common non-voting bearer shares are listed for trading.

Schaeffler shares-base data

ISIN
DE000SHA0159
German securities identification number (WKN)
SHA015
Stock symbol
SHA
German stock exchange
Frankfurt Stock Exchange (Prime Standard)
Index
MDAX
Share type
Common non-voting
Number of common non-voting shares as at December 31, 2018
166.000.000
Free Float
100%1)

1) Approximately 24.9% of total share capital of 666 million common and common non-voting shares (consisting of 500 million common shares and 166 million common non-voting shares).

Schaeffler shares - overview

Schaeffler AG’s share capital consists of a total of 666 million shares, including 500 million common shares held by IHO Verwaltungs GmbH that are not listed on the stock exchange. 166 million common non-voting bearer shares are widely held. Thus, the free float amounts to approximately 24.9% of Schaeffler AG’s total common and common non-voting share capital.

Schaeffler AG intends to continue to pay a dividend of 30 to 40% of consolidated net income before special items to its shareholders. Both common and common non-voting shares carry dividend rights. Common non-voting shares carry a preferential right to profits consisting of a preferred dividend of EUR 0.01 per share.

For the year 2018, the Board of Managing Directors and the Supervisory Board will propose a dividend of EUR 0.54 per common share and EUR 0.55 per common non-voting share to the annual general meeting. This represents a dividend payout ratio of 40.1% of net income attributable to shareholders before special items.

Performance of Schaeffler shares

Schaeffler shares lost 49.6% of its value in 2018, a significantly weaker performance than that of the benchmark indexes, the MDAX (-17.6%) and the STOXX Europe 600 Automobiles & Parts ( 28.1%). Reasons for the drop in share price included the key figures for 2017 and of the outlook for 2018 published on February 1, 2018: Both net income for 2017 and the earnings guidance for 2018 fell short of market expectations. The reduction in the 2018 full-year guidance in the fourth quarter of 2018 contributed to the decline in share price as well. On December 31, 2018, the common non-voting shares of Schaeffler AG were quoted at EUR 7.46. Schaeffler AG’s share price reached its high for the year on January 22, 2018 (EUR 16.58, closing price), and its low on December 17, 2018 (EUR 7.05, closing price).

Schaeffler share performance

2018
2017
Share price at year-end 12/31 (in €) 1)
7.46
14.79
Share price (high; in €) 1)
16.58
16.52
Share price (low; in €) 1)
7.05
11.36
Average trading volume (number of shares)
1,261,196
873,279
DAX 12/31 1)
10,559
12,918
MDAX 12/31 1)
21,588
26,201
STOXX Europe 600 Automobiles & Parts 12/31 1)
442
615
Average number of shares (in millions)
Common shares
500
500
Common non-voting shares
166
166
Earnings per share (in €)
Common shares
1.32
1.47
Common non-voting shares
1.33
1.48
Dividend per share (in €) 2)
Common shares
0.54
0.54
Common non-voting shares
0.55
0.55

1) Source: Bloomberg (closing prices).
2) For the relevant year, proposed dividend for 2018.

The daily trading volume averaged 1,261,196 shares in 2018 (prior year: 873,279). The significant increase in trading volume compared to the prior year period is largely due to the fact that Schaeffler’s shares were eliminated from the MSCI index at the end of November 2018 and many institutional investors have adjusted their portfolio to the revised index structure.

On March 31, 2018, the common non-voting shares of Schaeffler AG were quoted at EUR 12.54, 15.2% less than on December 31, 2017. This performance fell short of that of the benchmark indexes DAX (-6.4% compared to December 31, 2017), MDAX (-2.3%) and STOXX Europe 600 Automobiles & Parts (+2.0%) during the first quarter of 2018. This underperformance was largely related to the key figures for 2017 and the outlook for 2018 published on February 1, 2018. The outlook was affected, among other things, by additional investments made to accelerate the implementation of the company’s program for the future, the “Agenda 4 plus One”, which is designed to help strengthen the profitability of the Schaeffler Group’s operations for the long term.

The public debate regarding stricter exhaust and emissions laws and the persistent international trade conflict put additional pressure on shares during the second quarter, particularly those of the automotive sector.

On June 30, 2018, the common non-voting shares of Schaeffler AG were quoted at EUR 11.15, 24.6% less than on December 31, 2017. This performance fell short of that of the benchmark indexes DAX (-4.7% compared to December 31, 2017), MDAX (-1.3%) and STOXX Europe 600 Automobiles & Parts (-10.9%) during the second quarter.

Since September 24, 2018, Schaeffler’s shares are no longer listed in the STOXX Europe 600 cross-sector index or the corresponding STOXX Europe 600 Automobiles & Parts sector index. On September 30, 2018, the common non-voting shares of Schaeffler AG were quoted at EUR 11.01, 25.5% less than on December 31, 2017. This performance fell short of that of the benchmark indexes DAX (-5.2% compared to December 31, 2017), MDAX (-0.8%) and STOXX Europe 600 Automobiles & Parts (-13.0%) during the third quarter of 2018.

The adjustment to the 2018 full-year guidance in October 2018 resulted in the share price continuing to drop. On December 31, 2018, the common non-voting shares of Schaeffler AG were quoted at EUR 7.46, 49.6% less than on December 31, 2017. This performance fell short of that of the benchmark indexes DAX (-18.3% compared to December 31, 2017), MDAX (-17.6%) and STOXX Europe 600 Automobiles & Parts (-28.1%) during the reporting period.

Schaeffler bonds and ratings

The Schaeffler Group had four series of bonds outstanding as at December 31, 2018, three of them denominated in EUR and one in USD. All of the bonds were issued by Schaeffler Finance B.V. in Barneveld, Netherlands.

The Schaeffler Group’s bonds consisted of the following at December 31, 2018:

Schaeffler Group bonds

ISIN
Currency
Principal in millions
Coupon
Maturity
Price in % 1)
12/31/2018
Price in % 1)
12/31/2017
XS1212469966
EUR
400
2.50 %
05/15/2020
100.46
101.40
XS1067864022
EUR
500
3.50 %
05/15/2022
100.63
102.00
US806261AM57
USD
600
4.75 %
05/15/2023
96.98
103.35
XS1212470972
EUR
600
3.25 %
05/15/2025
102.26
107.78

1) Source: Bloomberg (closing prices).

Performance of Schaeffler bonds

Prices of the two callable EUR bond series maturing in 2020 and 2022 mainly trended laterally close to their contractual redemption price in 2018. The USD bond series maturing in 2023 that has been callable since May 15, 2018, lost significant ground since the beginning of the year due to rising interest rates in the U.S. and declined to below its contractual redemption price by year-end. The EUR bond series maturing in 2025, which has not yet reached its first call date, also lost significant ground, primarily during the latter half of the year.

Schaeffler ratings

On August 30, 2018, rating agency Standard & Poor’s upgraded its rating for Schaeffler AG to BBB- (investment grade) with a stable outlook. The upgrade positions Schaeffler AG as investment grade at all three rating agencies – Fitch, Moody’s, and Standard & Poor’s. The following summary shows the three rating agencies’ ratings as at December 31:

  • Schaeffler Group ratings

    Rating agency
    Rating
    Outlook
    Fitch
    BBB-
    stable
    Moody's
    Baa3
    stable
    Standard & Poor's
    BBB-
    stable

    as at December 31

  • Schaeffler Group ratings

    Rating agency
    Rating
    Fitch
    BBB-
    Moody's
    Baa3
    Standard & Poor's
    BBB-

    as at December 31


Investor relations

Schaeffler AG maintains open lines of communication on a continuous basis with share- and bond holders as well as with all other capital market participants. In addition to participating in ongoing roadshow activities in the major European financial centers as well as in the U.S., the company regularly presents and discusses quarterly and annual results via conference calls.

In 2018, the Board of Managing Directors and the Investor Relations team participated in a total of ten investor conferences and 17 roadshows, including in Chicago, New York, London, Paris, Copenhagen, Helsinki, Milan, and Frankfurt. More than 300 investors took advantage of the opportunity to learn more about the Schaeffler Group at these events in 2018.

The company was covered by analysts representing a total of 21 banks (prior year: 19) as at February 12, 2019. Seven of these banks issued a recommendation of either buy or outperform on Schaeffler AG’s common non-voting shares. Their average upside target was EUR 9.51.

Analyst opinions for Schaeffler AG shares

Bank
Recommendation (1)
Price target in €
Bankhaus Lampe
Buy
10.00
Bankhaus Metzler
Hold
8.50
Berenberg Bank
Hold
12.00
BoA Merrill Lynch
Underperform
6.90
Citigroup
Neutral
9.00
Credit Suisse
Outperform
12.00
Deutsche Bank
Hold
11.00
DZ Bank
Buy
9.00
Exane BNP Paribas
Neutral
9.30
HSBC
Buy
9.00
J.P. Morgan Cazenove
Underweight
7.50
Jefferies
Hold
8.00
Kepler Cheuvreux
Buy
11.50
MainFirst Bank
Neutral
10.50
Morgan Stanley
Equalweight
10.50
NordLB
Hold
8.50
Oddo BHF
Buy
12.00
Pareto Securities
Buy
10.60
Sandford C. Bernstein
Market-perform
9.00
UBS
Sell
6.00
Warburg Research
Hold
9.00

1) Recommendations up to February 12, 2019.

Geographic distribution of free float

The distribution of the institutional free float of Schaeffler’s common non-voting shares as at December 31, 2018 was determined using a shareholder identification survey (Share ID). The identification rate was 66.3%. This means that, out of the 166 million common non-voting shares that are widely held, the survey was able to attribute 110.1 million shares to 332 institutional or private investors in 30 countries. As at the reporting date, 39.5 million shares, the largest number, were included in trading portfolios of institutional investors domiciled in the U.S. At year-end, 10.2% or 16.9 million shares were held by institutional shareholders in Germany. The unidentified free float of 33.7% represented private investors and others.

For further detail please contact:

Investor Relations
Phone: +49 (0) 9132-4440
Fax: +49 (0) 9132-4444
E-Mail: ir@schaeffler.com
www.schaeffler.com/ir

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