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Schaeffler am Kapitalmarkt

In its second year since the listing in October 2015, Schaeffler AG’s communication with the capital markets focused especially on further expanding investor relations, increasing transparency toward capital market participants, and communicating its strategy.

Events 2017

Second investment grade rating from Fitch

On April 25, 2017, rating agency Fitch Ratings published its first rating of Schaeffler AG. Fitch assigned a rating of BBB- (investment grade) to Schaeffler AG with a stable outlook. The bonds were also rated BBB-. Thus, Schaeffler AG is now rated by three rating agencies – Fitch, Moody’s, and Standard & Poor’s.

Dividend increased to 50 cents per common non-voting share

On April 26, 2017, Schaeffler AG’s annual general meeting passed a resolution to pay a dividend of EUR 0.49 per common share (prior year: EUR 0.34; special dividend EUR 0.15) and EUR 0.50 per common non-voting share (prior year: EUR 0.35; special dividend EUR 0.15) to Schaeffler AG’s shareholders for 2016. This represents a dividend of 34.1% of net income attributable to shareholders before special items, falling within the dividend payout ratio of 30 to 40% planned by the company.

Earnings guidance for 2017 reduced

On June 26, 2017, the Board of Managing Directors of Schaeffler AG decided to reduce its guidance for the EBIT margin before special items from previously 12 to 13% to 11 to 12% for the business year 2017. This was due to a substantially lower earnings development in the Automotive division in the second quarter of 2017 compared to the prior year. At the same time, the guidance for free cash flow for 2017 as a whole was reduced from approx. EUR 600 m to approx. EUR 500 m. The company confirmed its revenue guidance for the full year 2017. Schaeffler AG continued to expect its revenue to grow by 4 to 5% excluding the impact of currency translation.

“Agenda 4 plus One” with three key opportunities for the future

The Schaeffler Group’s Strategy Dialog held on July 10 to 13, 2017, was devoted to the “Agenda 4 plus One” transformation program and the related strategic decisions. One of these was the decision to create an independent E-Mobility business division bringing together all products and system solutions for hybrid and pure battery-electric vehicles as of January 01, 2018. Further, the company is setting up an additional competence center for E-Mobility in China, alongside the existing German E-Mobility competence center in Buehl, to accommodate the increasing importance of the Chinese market in the field of E-Mobility. In the Industrial division, the entire industry-specific business with mechatronic systems and digital services as well as the required related components have been combined in an independent organizational unit Industry 4.0 since January 01, 2018. The strategic decisions were made based on the model of an integrated automotive and industrial supplier and the company’s strategy “Mobility for tomorrow” with its three key opportunities for the future – E-Mobility, Industry 4.0, and Digitalization.

Dietmar Heinrich new CFO

At its meeting on July 17, 2017, the Supervisory Board of Schaeffler AG appointed Dietmar Heinrich (previously Regional CEO Europe) to the Board of Managing Directors. On August 01, 2017, Dietmar Heinrich took up his role as Chief Financial Officer of Schaeffler AG, replacing Dr. Ulrich Hauck. The Supervisory Board also decided to extend the contract of Dr. Stefan Spindler, CEO Industrial, for a term of five years ending on April 30, 2023. Jürgen Ziegler was appointed to the Schaeffler Group's Executive Board effective August 01, 2017, succeeding Dietmar Heinrich as Regional CEO Europe.

Schaeffler AG’s second capital markets day

On July 20, 2017, Schaeffler AG held its second Capital Markets Day at the Buehl location. The company explained its strategic direction as well as its long-term growth perspectives to 40 investors and analysts. Schaeffler emphasized the key points of its equity story for 2017 which is based on three essential drivers: (1) above-market revenue growth in the Automotive division, (2) continuous profitability improvement in the Industrial division, and (3) strong free cash flow generation to finance further organic growth. Schaeffler AG also reinforced its targets for 2017 and confirmed its Financial Ambitions 2020. The Schaeffler Group intends to grow its revenue – excluding the impact of currency translation – by an average of 4 to 6% per year over the coming years. Further, it plans to generate an EBIT margin before special items of 12 to 13% and free cash flow before cash in- and outflows for M&A activities of approx. EUR 900 m in 2020. On this basis, the company is aiming for earnings per share of approx. EUR 2.00 in 2020. In addition, the group intends to continue to improve the quality of its balance sheet by 2020 and to pay dividends amounting to 30 to 40% of net income before special items to its shareholders.

One Schaeffler India

On August 30, 2017, the Schaeffler Group announced its intention to merge its three subsidiaries in India – Schaeffler India Ltd. (previously FAG Bearings India Ltd.), INA Bearings India Private Ltd., and LuK India Private Ltd. The merger is subject to the required local regulatory approvals and the consent of the minority shareholders. The transaction is expected to close in the third quarter of 2018. The objective of the transaction is to simplify the existing structure, reduce complexity, and create a strong Schaeffler entity in India in order to better realize the potential for future growth in India. The company will be known as “Schaeffler India Limited” and remain listed. The transaction increases Schaeffler AG’s indirect interest in Schaeffler India Ltd. from currently approx. 51% to approx. 74%.

IR team strengthened

Renata Casaro assumed the position of Head of Investor Relations of the Schaeffler Group on October 01, 2017. Renata Casaro has over 25 years’ experience in equity, currency and interest rate markets and joins the Schaeffler Group from her previous position as Head of Investor Relations of a consumer products manufacturer.

Automotive Aftermarket becomes third division

At its meeting on October 05, 2017, the Executive Committee of the Supervisory Board of Schaeffler AG accepted the proposal of the Board of Managing Directors to separate the Automotive Aftermarket from the Automotive division of Schaeffler AG and to set it up as a third stand-alone division as of January 01, 2018. As a consequence, the Schaeffler Group will divide its business into three divisions – Automotive OEM, Automotive Aftermarket, and Industrial.

On that basis, the Supervisory Board of Schaeffler AG decided to appoint Michael Söding to become member of the Board of Managing Directors of Schaeffler AG effective January 01, 2018. He has assumed responsibility for the Automotive Aftermarket business at board level. Previously, Michael Söding had been Head of Automotive Aftermarket within the Automotive division since 2009.

The three divisions of the Schaeffler Group will in future be managed from decentralized divisional headquarters located in Buehl, Langen, and Schweinfurt. The Automotive OEM division will be headquartered in Buehl. The new Automotive Aftermarket division will be managed from Langen. The Industrial division continues to be located in Schweinfurt. The corporate head office of the Schaeffler Group is in Herzogenaurach.

Execution of M&A strategy continued

On October 04, 2017, the Schaeffler Group concluded a purchase agreement for 100% of the shares in autinity systems GmbH. The Chemnitz-based IT company specializes in digital machine data recording and evaluation. The acquisition represents another important step in implementing the Schaeffler Group’s Digital Agenda and is part of the M&A strategy adopted by the company. The M&A strategy supports the strategy “Mobility for tomorrow” by targeting additional technological capabilities for Industrial and Automotive in seven strategic focus areas.

One year after acquiring a majority interest in Compact Dynamics GmbH, the Schaeffler Group acquired the remaining 49% interest in this company from SEMIKRON International GmbH on December 12, 2017. Compact Dynamics GmbH based in Starnberg is a development specialist in the field of innovative electric drive concepts with a focus on high-performance drives and integrated lightweight construction in small volume production and motor sport applications. The acquisition expands Schaeffler’s expertise in the field of electric motors and power electronics for developing and manufacturing electric drives.


Capital market trends

2017 was characterized by significant gains in the global capital markets, with both the Dow Jones Industrial Average (DJIA) and the Deutsche Aktienindex (DAX) rising to new all-time highs. The main drivers of these increases were the continued expansive policy of the central banks, a recovery of the oil price, and a robust global economy. Exchange rates remained highly volatile, with the Euro rising by nearly 15 cents against the U.S. dollar (December 31, 2017: USD 1.20).

The DAX rose by a total of 12.5% in 2017 and closed the year at 12,918 points. This index reached its annual and all-time high of 13,479 points on November 03, 2017. The MDAX was up 18.1% in 2017, rising significantly more than the DAX. While the Euro STOXX 50 increased by 6.5% over the course of the year, it was outperformed by the European sector index, the STOXX Europe 600 Automobiles & Parts, which rose by 13.3%. The DJIA increased significantly in 2017, rising by 25.1% on the back of, among other things, the solid performance of technology equities. The Japanese Nikkei 225 index was up 19.1% by the end of the year.

In early 2017, the global capital markets were still characterized by uncertainties driven by the U.S. elections, the elections in the Netherlands, and the debate surrounding the withdrawal of the United Kingdom from the EU. However, these uncertainties dissipated over the course of the quarter. While the DAX closed the first quarter of 2017 up 7.2% (compared to December 31, 2016), the Nikkei 226 dropped slightly. The DJIY rose by 4.6%, temporarily reaching an all-time high.

Political uncertainty gradually declined in the European Union during the second quarter of 2017, resulting in an overall positive mood in the markets. As a result, the DAX continued its upward trend and temporarily reached its all-time high of 12,889 points on June 19, 2017. However, it lost most of these gains toward the end of the quarter.

Rising geopolitical tension was among the factors keeping global equities markets flat initially in the third quarter of 2017. Positive macroeconomic data and robust company results, however, helped drive share prices up considerably toward the end of the quarter. The DJIA temporarily rose to a new all-time high of 22,413 points on September 20, 2017.

Buoyed by a robust economy, the major global indexes made further gains in the fourth quarter of 2017. The increasing likelihood of comprehensive tax reform in the U.S. also proved a positive influence on the global capital markets. In contrast, the rising euro exchange rate and the persisting political tension were largely disregarded, especially in Europe. While the DAX and the Euro STOXX 50 maintained their high third-quarter closing level and reached new all-time highs of 13,479 and 3,697, respectively, in early November 2017, the DJIA and the Nikkei 225 continued to rally, reaching new all-time highs of 24,838 and 22,939, respectively shortly before the end of the period.

The corporate bond market experienced a positive overall trend in 2017. The iTraxx CrossOver (5 year maturity), an indicator of credit risk in the European high yield market, closed at 233 points on December 31, 2017 compared to 288 basis points on December 31, 2016. The iTraxx Europe (5 year maturity), an indicator of risk in the European investment grade market, also did well. On December 31, 2017, it had dropped to only 45 basis points from 72 basis points on December 31, 2016. Thus, the trend in the bond markets was similarly as strong as that in the equities markets.


Schaeffler shares

Schaeffler AG’s common non-voting shares have been listed on the stock exchange since October 09, 2015. A total of 166 million common non-voting 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, 2017
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 have been widely held since April 05, 2016. Thus, the free float amounts to approx. 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.

The Board of Managing Directors and the Supervisory Board will propose a dividend for 2017 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 of 35.4% of net income attributable to shareholders before special items.

Performance of Schaeffler shares

Schaeffler shares gained 5.2% in 2017, a weaker performance than that of the benchmark indexes, the MDAX (+18.1%) and the STOXX Europe 600 Automobiles & Parts (+13.3%). This was primarily due to the reduced earnings guidance in the second quarter of 2017, which was only partially recovered in the third quarter. On December 31, 2017, the common non-voting shares of Schaeffler AG were quoted at EUR 14.79. The share price reached its high of EUR 16.52 on March 30, 2017 and its low of EUR 11.36 on August 21, 2017.

Schaeffler share performance

2017
2016
Share price at year-end (in €) 1)
14.79
14.06
Share price (high; in €) 1)
16.52
16.25
Share price (low; in €) 1)
11.36
11.62
Average trading volume (number of shares)
882,843
675,132
DAX December 31, 1)
12,918
11,481
MDAX December 31, 1)
26,201
22,189
STOXX Europe 600 Automobiles & Parts December 31, 1)
615
543
Average number of shares (in millions)
-
-
Common shares
500
500
Common non-voting shares
166
166
Earnings per share (in €)
-
-
Common shares
1.47
1.29
Common non-voting shares
1.48
1.30
Dividend per share(in €) 2)
-
-
Common shares
0.54
0.49
Common non-voting shares
0.55
0.50

1) Source: Bloomberg (closing prices).

2) For the relevant year, proposed dividend for 2017.

The daily trading volume averaged 882,843 shares in 2017 (prior year: 675,132). The significant increase in trading volume compared to the prior year period is largely due to the placement of a further 94.4 million common non-voting shares of Schaeffler AG in 2016.

On March 31, 2017, the common non-voting shares of Schaeffler AG were quoted at EUR 16.48, approximately 17.3% higher than on December 31, 2016. This performance considerably exceeded that of the benchmark indexes DAX (+7.2% compared to December 31, 2016) and MDAX (+7.7%) as well as that of the STOXX Europe 600 Automobiles & Parts sector index (+4.5%).

Toward the end of the second quarter of 2017, the share price dropped considerably in response to the reduced earnings guidance for the full year 2017. The common non-voting shares of Schaeffler AG were quoted at EUR 12.54 on June 30, 2017, 23.9% less than on March 31, 2017.

This performance lagged behind that of the benchmark indexes DAX (+0.1% compared to March 31, 2017) and MDAX (+2.3%) as well as that of the STOXX Europe 600 Automobiles & Parts sector index (-5.3%) during the second quarter of 2017.

The share price initially continued to drop in the third quarter, reaching its annual low of EUR 11.36 on August 21, 2017. After that date, however, the shares rallied somewhat and recovered part of these losses, as did many similarly cyclical companies in the capital markets. On September 30, 2017, the common non-voting shares of Schaeffler AG were quoted at EUR 13.65, up 8.9% from the end of the second quarter. Thus, the shares outperformed the DAX (+4.1%) and the MDAX (+6.3%) in the third quarter of 2017, but rose slightly less than the STOXX Europe 600 Automobiles & Parts (+10.6%).

The shares continued their recovery in the final quarter. Gaining 8.3% compared to September 30, 2017, Schaeffler shares fared better than the benchmark indexes, the MDAX (+0.8%) and the STOXX Europe 600 Automobiles & Parts (+3.5%).

Schaeffler bonds and ratings

The Schaeffler Group had four series of bonds outstanding as at December 31, 2017, three of them denominated in EUR and one in USD. All of the bonds were issued by Schaeffler Finance B.V. in Barneveld, Netherlands.

A further bond series with a maturity of May 2021, a principal of USD 700 m, and a coupon of 4.25% was redeemed in full on May 24, 2017. The redemption was funded using available liquidity and a portion of the Revolving Credit Facility (RCF).

The Schaeffler Group had the following bonds outstanding at December 31, 2017:

Schaeffler Group bonds

ISIN
Currency
Face value in millions
Coupon
Maturity
Price in % 1)12/31/2017
Price in % 1)12/31/2016
XS1212469966
EUR
400
2.50 %
05/15/2020
101.40
102.30
XS1067864022
EUR
500
3.50 %
05/15/2022
102.00
102.96
US806261AM57
USD
600
4.75 %
05/15/2023
102.99
101.75
XS1212470972
EUR
600
3.25%
05/15/2025
107.78
106.72

1) Source: Bloomberg (closing prices).

Performance of Schaeffler bonds

Bond prices remained stable in 2017. The two bond series maturing in 2023 and 2025 rose slightly, which lowered their effective yield. The other two bond series, which mature in 2020 and 2022, declined slightly, approaching the contractual redemption price at which these bond series have been callable since May 15, 2017.

The premiums for Schaeffler AG 5-year credit default swaps decreased from 117 basis points at December 31, 2016 to 76 basis points as at December 31, 2017. Thus, the CDS performed slightly weaker than the iTraxx CrossOver benchmark index, but considerably better than the iTraxx Europe.

Schaeffler ratings

On April 25, 2017, rating agency Fitch Ratings published its first rating of Schaeffler AG. Fitch assigned a rating of BBB- (investment grade) to Schaeffler AG with a stable outlook. The bonds were also rated BBB-.

Standard & Poor’s raised the outlook for the company’s rating from stable to positive on September 26, 2017. The following summary shows the ratings assigned to the Schaeffler Group by the three rating agencies Fitch, Moody’s, and Standard & Poor’s as at December 31:

  • Schaeffler Group ratings

    Rating agency
    Rating
    Outlook
    Fitch
    BBB-
    stable
    Moody´s
    Baa3
    stable
    Standard & Poor´s
    BB+
    positiv

    as at December 31

  • Schaeffler Group ratings

    Rating agency
    Rating
    Fitch
    BBB-
    Moody´s
    Baa3
    Standard & Poor´s
    BB+

    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 its 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 2017, the Board of Managing Directors and the Investor Relations team participated in a total of 10 investor conferences and seven roadshows in New York, London, Paris, Amsterdam, Frankfurt, and other places.

The activities of Schaeffler’s Investor Relations department also include maintaining regular contact with analysts covering the company and with investors.

Moreover, Schaeffler offers guided plant tours and management discussions at the various Schaeffler locations to interested investors and analysts. In 2017, five such tours and discussions were requested.

The company was covered by analysts representing a total of 19 banks (prior year: 13) as at February 19, 2018. 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 15.30.

Analyst opinions for Schaeffler AG shares

Banks
Recommendation 1)
Price target in €
Bankhaus Lampe
Buy
18.00
Bankhaus Metzler
Buy
17.00
Berenberg Bank
Hold
12.00
BoA Merrill Lynch
Neutral
15.00
Citigroup
Neutral
14.70
Deutsche Bank
Hold
16.00
DZ Bank
Hold
15.00
Exane BNP Paribas
Outperform
16.50
Goldmann Sachs
Neutral
16.50
HSBC
Buy
16.00
J.P. Morgan Cazenove
Underweight
13.00
Jefferies
Hold
15.50
Kepler Cheuvreux
Buy
16.50
MainFirst Bank
Neutral
14.50
Morgan Stanley
Equal-Weight
15.00
NordLB
Hold
13.50
Oddo BHF
Buy
15.50
UBS
Sell
12.00
Warburg Research
Buy
18.50

1) Recommendations up to February 19, 2018.

Geographic distribution of free float

The distribution of the institutional free float of Schaeffler’s common non-voting shares as at December 31, 2017 was determined using a shareholder identification survey (Share ID). The identification rate was 69.2%, i.e. out of the 166 million common non-voting shares that are widely held, the survey was able to attribute 114.9 million shares to 334 institutional investors in 27 countries. 30.8 million shares were included in trading portfolios, mainly of U.S. banks, as at the reporting date. At year-end, 15.5% or 25.7 million shares were held by institutional shareholders in Germany. The unidentified free float of 30.8% included private investors and others.

For further detail please contact:

Investor Relations
Tel.: +49 (0) 9132 82-4440
Fax: +49 (0) 9132 82-4444
E-Mail: ir@schaeffler.com
www.schaeffler.com/ir

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