Schaeffler says profit margin may slip on oil, metal costs

FRANKFURT -- Schaeffler Group, the world's second-biggest maker of roller bearings, said its profit margin may shrink this year as higher prices for energy, steel and aluminum drive up costs.

Earnings before interest and tax will be "above 13 percent" of revenue after reaching 16 percent in 2010, Herzogenaurach, Germany,-based Schaeffler said in a statement today.

Oil prices have jumped 23 percent since Feb. 15, when anti-government protests began in Libya, Africa's third-biggest crude producer. Steel costs will also be a "headwind" for carmakers, Daimler AG CEO Dieter Zetsche said March 1.

"We need about 1 million tons of steel every year, so it's an important budget item," Schaeffler CEO Juergen Geissinger told reporters in Frankfurt, adding that the company is using forward contracts to limit the effect of price swings.

Schaeffler had net income of 63 million euros in 2010 compared with a 1.2 billion euro loss a year earlier. Sales will probably increase by 8 percent to 10 percent in 2011 from 9.5 billion euros ($13.4 billion) as demand for cars and light vehicles surges in the Asia-Pacific and North America, the company said.

"This is no one-off success as we've been growing more than the market for years now," Geissinger said. "Expansion in growth markets is bound to strengthen our potential."

Less reliance on Europe

Schaeffler's market share in Asia will increase to about 33 percent in coming years from 22 percent in 2010, it said, with reliance on Europe declining as it builds new plants or expands output at five sites in China and three in India through 2013.

Full-year earnings at the privately held company were trimmed by 396 million euros after it didn't participate in a January 2010 share sale at Continental AG, of which it's the controlling shareholder.

Schaeffler, which also makes engine parts, clutches and transmission systems, plans to add about 8,000 employees this year to satisfy demand as car sales pick up and machine manufacturers increase orders.

There is "no schedule" for a merger with the much larger Continental, Geissinger said today. The long-term aim remains a "strategic partnership" with Continental, and what shape that will take is a "secondary" concern, according to Schaeffler's annual report, published today. Current cooperation includes the development and manufacturing of turbochargers which are scheduled for production later this year.

Stake sale

Schaeffler yesterday sold 1.8 billion euros of Continental shares held for the company by two German banks, reducing the holding it controls to 60.3 percent from 75.1 percent. That helped cut debt at Schaeffler's holding company, owned by Maria-Elisabeth Schaeffler and her son Georg, by 38 percent to 4.6 billion euros.

The figure was also reduced as cash was transferred from the operating business, pushing up debt there to about 7 billion euros at the end of March, giving total liabilities of 11.6 billion euros.

The share sale will reduce the interest rate payable by the holding company from as much as 17 percent to under 10 percent. Schaeffler, which was founded in 1946, also said yesterday that it plans to convert to a joint-stock company this year.

The company is opening to capital markets to facilitate refinancing. It also strengthened worker representation with the creation of a supervisory board in 2010. An initial public offering isn't planned, Chief Financial Officer Klaus Rosenfeld said today.

Continental ranks No. 4 on the Automotive News Europe list of the top 100 global suppliers with worldwide sales to automakers of $18.7 billion in 2009. Schaeffler ranked No. 38 with sales of $3.8 billion.