Schaeffler Ag · XETR:SHA0
Schaeffler — Q3 2020 Earnings Presentation
53 slides from Schaeffler's earnings presentation, Nov 10, 2020
Slide 1: Commented Slides / Conference Call Results Q3 and 9M 2020
COMMENTED SLIDES / CONFERENCE CALL RESULTS Q3 AND 9M 2020 1
Slide 2: Company Representatives and Participants
Company Representatives Klaus Rosenfeld, CEO Dr. Klaus Patzak, CFO Renata Casaro, Head of Investor Relations Conference Call (Active) Participants Akshat Kacker, JP Morgan Chase Henning Cosman, HSBC Sascha Gommel, Jefferies Christophe Boulanger, Barclays Sabrina Reeh, UBS Horst Schneider, BofA Merri
Slide 3: Operator and Introduction
Operator Dear ladies and gentlemen, welcome to the Schaeffler Group conference call. As a reminder, all participants will be in a listen-only mode. After the presentation, there will be an opportunity to ask questions. If any participant has difficulties hearing the conference, please press the star
Slide 4: Agenda Overview
SCHAEFFLER Agenda 1 Overview 2 Business Highlights Q3 and 9M 2020 3 Financial Results Q3 and 9M 2020 4 Outlook Nov 10, 2000 Results ane Sut 2000 Schacter AG a
Slide 5: Key messages
Klaus Rosenfeld Let me quickly go through my part in the overview, and if you please follow me to page four, there you have the key messages and most of these numbers are known to you. Group sales clearly show a sequential recovery in Q3 driven by the two automotive divisions, both automotive OEM no
Slide 6: Guidance and Capital Market Day
than 9% down and shows that we are continuously improving in terms of cost management, the full effect related to Europe. I just mentioned the guidance and will give you more color in the later part. Let me quickly mention here, as all of you know, our next event is the Capital Market Day, the virtu
Slide 7: Highlights and lowlights of the quarter
If you want to have a high-level assessment over for the quarter, page five gives you the highlights and the lowlights. As I mentioned, business improved in Q3. We see a continuous recovery led by Greater China. Greater China, 16.5% FX adjusted growth year over year. What is clearly positive in Amer
Slide 8: Cautious guidance
October, the uncertainty remains high, and that is also why our guidance for the year 2020 is rather cautious and conservative. 8
Slide 9: Agenda Business Highlights
SCHAEFFLER Agenda Overview Business Highlights Q3 and 9M 2020 Financial Results Q3 and 9M 2020 mh WN Outlook Nov 10, 2029 Results and Si 2020 Schastfior AG
Slide 10: Divisions overview
Click quickly through the divisions page seven, I am not going to explain this all line by line, but as I said, Automotive saw a strong sequential recovery and Q3 EBIT margin is even above the previous year. Gross margin with an improvement also from all the efficiency measures, good cost containmen
Slide 11: Automotive Technologies
Some color in terms of the business exemplified here on page eight, executing race, good on track. In powertrain we see high activity. You remember from our structural measures, the new competence center for E-Mobility in Bühl is progressing well. We are proud that we have just been honored by Ford
Slide 12: Automotive Aftermarket
Automotive Aftermarket, also very short here, sequential improvement, growth in independent Aftermarket 5.5% compared to the previous year. What is clearly showing that that business is also taking off, robust profitability, and we are starting to see first customer shipments from the AKO investment
Slide 13: AKO benefits
Page 10 gives you, again, a little bit of color on the AKO benefits. It is a major project, 60% of worldwide inventory is expected in AKO Europe by 2023. We are consolidating seven locations. And there is a significant challenge in improving the efficiency with a targeted 30% reduction in run throug
Slide 14: Industrial
Industrial, page 11. Also here, as you saw in the second quarter already, China driving the business with continued strong business in wind and also some improvements in the power transmission area. We think that the election in the US could further support everything that has to do with regenerativ
Slide 15: Industrial Offroad
This is also then on page 12, further exemplified with Offroad. We have done a lot in the last months to get our distribution business up to where it was and have used the digital format here with some very good feedback from our sales partners. Offroad, I mentioned. 15
Slide 16: Headcount reduction and restructuring
Let me go to page 13. I think that is a continued success story, reducing our headcount and delivering on the different schemes we have announced. The voluntary severance scheme from end of last year is up and running well and we are definitely in time and also in budget. The new restructuring progr
Slide 17: Capital allocation
Capital allocation, I think I already mentioned the key aspects. The Capex ratio at the moment is running below our famous 6% threshold, 5.4% in the first nine months shows that we are disciplined. You also see this shift in terms of where we invest. When you look at the EUR 459 million, EUR 199 mil
Slide 18: Agenda Financial Results
SCHAEFFLER Agenda Overview Business Highlights Q3 and 9M 2020 Financial Results Q3 and 9M 2020 mh WN Outlook Nov 10, 2029 Results and Si 2020 Schastfior AG 18
Slide 19: Key figures
Dr. Klaus Patzak Yes, thanks, Klaus. And good morning also from my side. Page 16 shows to key figures. But I will not spend time on that because the following slides lead you through all relevant key figures. 19
Slide 20: Sales growth
So, on page 17 on sales growth, sales are down around about EUR 200 million, a nominal decline of 6%, FX adjusted 2.6%. We had, as already mentioned, strong growth in China. Aftermarket benefited from a strong Americas business and Industrial, on the one hand, with a decline in Europe, on the other
Slide 21: Gross profit
On the next page, page 18, on the gross profit, you see that gross profit came down around about EUR 100 million and the gross margin is 23.8. This is 160 basis points lower than a year ago. And if you look at the bridge, you can see that price was around 50 million negative, basically stemming tota
Slide 22: EBIT adjusted
So, on the next slide, page 19, you see the EBIT adjusted development, so EBIT adjusted was more or less flat with 320 million in the third quarter. Actually, the adjusted EBITDA margin increased by 30 basis points. This strong Q3 margin development was a result of the market recovery, at least this
Slide 23: Automotive Technologies results
And with that, on page 20, you see further information on Automotive Technologies, nominal decline of 4%, FX adjusted 1.1. October, again, quite good and showing also some growth. Outperformance for the overall business was 2.4 and year-to-date 5.5 percentage points, which is clearly above the histo
Slide 24: Automotive Aftermarket results
Page 21, on Automotive Aftermarket, nominally down 5.5%, FX adjusted 0.2. Also, here, October was good with growth. And on the bridge, you see that EBIT adjusted was stable, with 86 million and the margin was up 80 basis points. Keep in mind, in Q4, a margin will be lower because there will be addit
Slide 25: Industrial results
On Industrial page 22, nominal decline. Double digit, minus 11.5%, FX adjusted 8%. If you look on the lower left-hand side, you see that growth, as mentioned earlier by Klaus, was driven by Wind and Power Transmission. In October, there was still a negative year over year development, but only low s
Slide 26: EBIT before special items reconciliation
On the next slide, 23, EBIT before special items to reconciliation. You see that we had special items of EUR 511 million. EUR 485 million out of that are part of the structural measures we communicated September 9th. They split more or less similar to what you can see on the right-hand side into the
Slide 27: Net income and Schaeffler Value Added
On the next page: net income is down EUR 384 million. That is obviously due to the restructuring provisions and Schaeffler Value Added decreased to minus EUR 75 million due to the lower EBIT. On the other hand, average capital employed declined only in part due to the write down of goodwill of the A
Slide 28: Free cash flow
On the Free cash flow, page 25. Free cash flow reported is actually up EUR 11 million if we strip out the impact from acquisitions in the prior year, we are down by EUR 29 million. But still, I think the EUR 333 million in the quarter is a good result and benefits from what Klaus Rosenfeld mentioned
Slide 29: Free cash flow bridge
On the next page, you can see the year over year bridge for the Free cash flow. In the end, you can see it is EUR 29 million difference coming from Net Working Capital, which is also a reflection of the high dynamics within the third quarter. You see on the EBITDA, the second column to the left, tha
Slide 30: Working capital and capex
Next page on Working Capital. Working Capital came down EUR 168 million, if you look at the balance sheet, but obviously that includes a negative FX impact. Capex was EUR 181 million down for the EUR 48 million year over year. And I guess we can say that for the fourth quarter, we will continue with
Slide 31: Net debt and liquidity
And on page 28 on net debt, or net debt over EBITA, you see that there is an increase from 1.4 a year ago to 1.6. That is driven by lower EBITDA last 12 months. That is what we show here. We expect for the fourth quarter a slight improvement there. The liquidity situation is strong. We now have a ca
Slide 32: Agenda Outlook
SCHAEFFLER Agenda 1 Overview 2 Business Highlights Q3 and 9M 2020 3 Financial Results Q3 and 9M 2020 4 Outlook Nov 10, 2000 Results ane Sut 2000 Schacter AG s 32
Slide 33: Guidance 2020
Thank you very much, Klaus. I will finish the presentation with page 30 and 31. 30 just shows again the new guidance for 2020, with the quantitative numbers according to the template that we used at the beginning of the year before we suspended the guidance. I think I do not have to go through in de
Slide 34: Conclusion
Let me conclude on 31, sequential top line recovery. As I mentioned, Industrial lagging a little bit behind with gradual improvements, but in an environment that is still muted. Strong earnings, quality improvement in both Automotive divisions and Industrial, with the higher provisions in Q3 that Kl
Slide 35: Financial calendar
32 has the main dates. We will do, after the Capital Markets Day, a little roadshow in selected countries with the help of J.P. Morgan, Berenberg and Jefferies. But more importantly, next week, one o'clock, our virtual Capital Markets Day, where we will also share with you our Mid-Term Targets. Than
Slide 36: Q&A Session
Q&A SESSION Akshat Kacker, JP Morgan Thank you. Akshat from JP Morgan, good morning. The first one is on M&A and inorganic growth opportunities. Is there any update that you would like to share with us on the M&A optionalities or any targets that you are looking at? Also in your presentation, I don'
Slide 37: Q&A answers
On the unrestricted cash, I hand that over to Klaus. The E-Motor order, please understand that we cannot give more detail here at this moment. I think this is in the truck area, so quite interesting to see that also the business here is not only passenger cars but covers more sectors. Also here, we
Slide 38: Q&A Henning Cosman, HSBC
Henning Cosman, HSBC Good morning. I have three questions, please. The first one is, if I understood right from Klaus Patzak, I think you said you are anticipating a two-percentage point margin dilution in Aftermarket in Q4 as compared to Q3 from the AKO? If you could please confirm that and also ta
Slide 39: Q&A answers
is, please, no intention at all to finance restructuring costs or anything like this with a capital increase. That would be completely wrong. This is again, it is about flexibility and making sure that we have the right tools available in an efficient manner at the right moment in time. And don't fo
Slide 40: Q&A Sascha Gommel, Jefferies
Klaus Rosenfeld Well, let's go to the page, again… Sascha Gommel, Jefferies The E-Mobility was down 5% organically in Q3 and in the last quarters, E-Mobility was outperforming quite drastically versus all the other divisions, so I was just wondering why it’s not anymore. Klaus Rosenfeld I think, as
Slide 41: Q&A guidance and restructuring
question. You saw from our guidance that, and that is the general logic there, that we are conservative on purpose. The environment is still challenging. There is a lot of uncertainty. And whatever this semi-lockdown means now, is difficult to project. Therefore, again, take this as a conservative g
Slide 42: Q&A financial result and liquidity
times. What will be the acceptable range for this ratio? Is it between 1 and 2 times or are you willing to go over 2 times on a potential acquisition? That’s it. Dr. Klaus Patzak So then I give it a shot. The first one was on the financial result and the refinancing impact. This refinancing impact,
Slide 43: Q&A Sabrina Reeh, UBS
Christophe Boulanger, Barclays Okay, thank you very much. Dr. Klaus Patzak You are welcome Sabrina Reeh, UBS Hi, good morning, gentlemen. I have three questions. So the first one would be on the Free cash flow. Since it was a strong versus the prior year, looking forward into 2021, can we expect to
Slide 44: Q&A Q1 outlook and costs
Last point, what are we seeing for our Q1. Call offs are definitely showing a positive momentum. I can say that I have not heard anyone who says they are going to extend Christmas vacation. I would at the moment rather think that the opposite is going to be the case, at least in some areas. We are s
Slide 45: Q&A outperformance
Klaus Rosenfeld Okay, let me try to take the one on outperformance. As Klaus said, the year to date number with the above 5% should not simply be extrapolated, in Q3 it was more in the 2 to 3% range. And again, we are going through an unusual situation in terms of developments. The transmission situ
Slide 46: Q&A Horst Schneider, BofA
Again, I said that we don't have any information that people will go into an extended Christmas vacation. What I see from production levels, and again, we saw that at the beginning of this year when we shared that with you and during the crisis, I mean, these numbers all point into a different direc
Slide 47: Closing remarks
Well, then, thank you very much for coming together, ladies and gentlemen. We appreciate the interest in the Schaeffler story, and there is more to come next week on the 18th. You are cordially invited, and we look forward to a next session on the story. Thank you very much. Bye-bye. 47
Slide 48: Backup: Gross profit 9M
Backup SCHAEFFLER What has made us strong in the analog world, has made us even stronger in the digital world. We pioneer motion IR Contact Investor Relations Phone: + 499132 82-4440 Email: ir@schaeffler.com Web: wvew.schaeffler.com/ir Backup SCHAEFFLER Gross Profit 9M — Severe volume losses could n
Slide 49: Backup: Sales by business division
Backup Sales by business division | yoy growth 9M 2019 9M 2020 ao E-Mobility, 496 451 B.O% Engine Systems 2,088 1,638 20.6% Transmission Systems 3,021 2438 17.8% Chassis Systems 1,167 902 21.0% Outperformance: Sales* vs. market development in 9M ow> Gases 41% an | a | a 23,24 18.2% -20,7% 20, 23,26
Slide 50: Backup: Industrial 9M
Backup SCHAEFFLER Industrial 9M — Sales decline in all sector clusters except Wind, earnings quality robust Sales by region | yoy growth EBIT? 9M 2019 vs. 9M 2020 | in EUR mn 9M 2019 ‘9M 2020 a Europe 1,248 976 21.5% Americas 481 396 “15.5% Greater China 539 638 +20.2% Asia/Pacific 414 328 17.5% ||
Slide 51: Backup: Free cash flow details 9M 2020
Backup SCHAEFFLER Free Cash Flow details 9M 2020 — Net Working Capital and Capex prioritization FCF* 9M 2019 vs. 9M 2020 | in EUR mn ‘A Net Working Capital EUR +255 mn FCF ‘9M 2019" FCF ‘9M 2020* EBITDA Inventories Receivables Payables Capex Others 2 Before cash in- and outflows for M&A activities N
Slide 52: Backup: Automotive Technologies outperformance by quarters
Backup SCHAEFFLER Automotive Technologies (AT) outperformance by quarters Outper- Outper- Outper- ius AT! formance Hs AT! formance ‘World 2% 20% +10.2pp “445% 20% «Sp +2tpp New regional Europe 16.2% 13.5% *2.69p 11% 595% +. pp 33% “L.Bep structure for 2019 and Americas “116% 52% +p FORK 62.5% +8.39p
Slide 53: Backup: Corporate and financing structure
Backup Overview Corporate and Financing Structure Corporate structure (simplified) | as of September 30, 2020 Financing structure | as of September 30, 2020 SCHAEFFLER QW Verwaltungs GmbH abt stroman Nominee nce saatsity (uso mh (GR feet Toast em an comes Tarte aera EF Gm coo Mera trod “Bondy S eae