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Business Report Sharp Sales Decline and Strict Cost Management at Rheinmetall Automotive

Editor: Nicole Kareta

The Rheinmetall Automotive AG was not spared the impact of the corona pandemic and the global crisis in the automotive industry. A report for the first half of 2020 indicates a triple-digit million sales decline for the company.

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The negative development in operating earnings was chiefly due to the crisis-induced lack of sales in the second quarter of 2020.
The negative development in operating earnings was chiefly due to the crisis-induced lack of sales in the second quarter of 2020.
(Source: gemeinfrei / Pixabay )

Rheinmetall Automotive AG posted a 34 % reduction in sales to EUR956 million (previous year: EUR1,440 million). Sales were down by 33 % after adjustment for currency effects. The global production of light vehicles according to IHS Markit Vehicle Production Forecast (update of August 4, 2020, vehicles under 6 t) declined by 33 % year-on-year in the first half of 2020. Armin Papperger, CEO of Rheinmetall AG said: “In the Automotive sector, we, like the rest of the global automotive industry, were affected by the massive production declines and general market weakness in the second quarter in particular. With strict cost management, however, we were able to significantly limit the effects of the crisis. We will continue doing this. The situation in Automotive remains very challenging. However, in the coming months we will do our utmost to get as close as possible to breaking even in terms of operating result and to develop the business positively again in subsequent years.”

As a result of the crisis-induced sales decline, Automotive closed the first six months of 2020 with operating earnings of EUR-41 million, compared with EUR102 million in the first half of 2019. The operating margin was -4.3 % (previous year: 7.1 %). The reported earnings before interest and taxes (EBIT) of EUR-341 million in the first half of 2020 were likewise significantly lower than the previous year’s figure of EUR104 million, which largely resulted from the impairment of EUR300 million recognized in the second quarter of 2020.

The negative development in operating earnings was chiefly due to the crisis-induced lack of sales in the second quarter of 2020, which – because automotive production in Europe and North America temporarily came almost to a complete standstill – decreased by more than half (53 %) compared with the previous year’s figure. The management countered this development with strict cost management. Extensive and fast-acting measures significantly reduced the size of the earnings decline in the Automotive sector. In addition, net investments in the first half of the year were reduced by 40 % compared with the previous year in order to secure liquidity.

In the first half of 2020, the Mechatronics division generated sales of EUR520 million, down EUR288 million or 36 % on the previous year’s figure. As a result of the sales decline, the division’s operating earnings fell to EUR-15 million after EUR66 million in the previous year.

At EUR332 million, the Hardparts division’s sales were down in the first half of 2020, falling by EUR172 million or 34 % year-on-year. Despite the above-mentioned measures to reduce costs, the Hardparts division’s operating earnings amounted to EUR-29 million, down EUR 51 million year-on-year.

In the Aftermarket division, sales decreased by EUR26 million or 15 % year-on-year to EUR150 million in the first half of 2020. The division’s operating earnings amounted to EUR6 million. This decline of EUR11 million compared with the previous year’s figure of EUR17 million was due both to lower sales and to the first-time allocation of micromobility activities to the Aftermarket division.

After the early coronavirus-induced sales slump in the first quarter of 2020, the joint ventures in China, which are not included in the Automotive sector’s sales figures, increased their sales again in the second quarter thanks to a recovery of the Chinese automotive industry. In the first half of 2020, the companies achieved sales of EUR393 million, down 14 % on the previous year’s figure. By comparison, the production of light vehicles in China declined by 22 % in the same period.

Outlook

In the Automotive sector, the effects of the coronavirus crisis on end-customer demand, automotive manufacturers’ production figures and global supply chains still cannot be reliably forecast. An adjusted sales and earnings outlook for 2020 as a whole that reflects the changed market situation is still not possible given the existing uncertainties. Provided there is no new lockdown, operating net income of between EUR-30 million and break-even is currently targeted for the Automotive sector.

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