Schaeffler Ag · XETR:SHA0
Schaeffler — Q3 2021 Earnings Presentation
63 slides from Schaeffler's earnings presentation, November 2021
Slide 1: Commented Slides / Conference Call Q3 and 9M 2021 Earnings
COMMENTED SLIDES / CONFERENCE CALL Q3 AND 9M 2021 EARNINGS 1 PUBLIC
Slide 2: Company Representatives and Call Participants
Company Representatives Klaus Rosenfeld, CEO Claus Bauer, CFO Renata Casaro, Head of Investor Relations Conference Call (Active) Participants Gabriel Adler, Citi Christoph Laskawi, Deutsche Bank Antoine Brégeaut, Exane BNP Paribas Akshat Kacker, JP Morgan Chase Horst Schneider, BofA Merrill Lynch St
Slide 3: Renata Casaro and Klaus Rosenfeld introduction
Renata Casaro Thank you very much, operator. Dear investors, dear analysts, good morning from Berlin. Today, for the Q3 release of Schaeffler Group here in Berlin are present Mr Klaus Rosenfeld, the CEO of Schaeffler Group and Mr Claus Bauer, CFO of Schaeffler Group, together with the IR-Team. But,
Slide 4: Claus Bauer introduces himself as new CFO
Claus Bauer Thank you, Klaus. Also, welcome from my side. You already stole my entrance here. The most important message on the first slide is that I’m written with a C. I guess in the 60s there were a lot of Klauses in Germany but, again, my distinction is with a C. I’m very happy to be sitting her
Slide 5: Agenda Overview
SCHAEFFLER Agenda 1 Overview 2 Business Highlights Q3 and 9M 2021 3 Financial Results Q3 and 9M 2021 4 Outlook Nov9, 202 G3 and 9M 2021 Seraettor AG osenings 4 psu 5 PUBLIC
Slide 6: Key messages Q3 2021
Klaus Rosenfeld Thank you, Claus, and I think you will have, over the years, enough time to also meet investors personally and show your face and your strengths. Let me take over now in the usual sequence. I’ll start with the overview. I will then talk about the business development and then hand ov
Slide 7: Key messages: margins, free cash flow, ROCE
have done since quarters, I can say since years that I’ve seen to bring this division back on track, 12.4% margin in Q3, I think speaks for itself. We are already at the low end of our mid-term guidance here and that’s clearly a success story. Free cash flow in Q3, €225 million. If you go through th
Slide 8: Highlights and lowlights
Page six, highlights and lowlights. I will do that quickly. I mentioned the outperformance in the nine months, 660 basis points and in Q3, 750 bps. Again, a quarter is a quarter but the trend is in our favour and we can show that all the regions we have in Automotive Technologies have been outperfor
Slide 9: Lowlights and time lag impact
that this comes with a time lag. So, H2 sees already some impact. Claus will explain that in detail and this will also, that’s our expectation at the moment, impact 2022. 9 PUBLIC
Slide 10: Agenda: Business Highlights
SCHAEFFLER Agenda 1 Overview 2 Business Highlights Q3 and 9M 2021 3 Financial Results Q3 and 9M 2021 4 Outlook Nov, 2028 QS and 9M 2021 SehaettlerAG oaenings 7 pave 10 PUBLIC
Slide 11: Automotive Technologies
Now, let me go to page eight. Here, you have a little bit more on Automotive and again I said most of the things, so I’m really keeping that slide short in the interest of time. Just to mention the highlights, in the nine months 16% growth, very much a function of the first half of the year. In the
Slide 12: Automotive Technologies achievements
On page nine you see some of the achievements and why we are confident that we are well positioned to win. Some of you were participating at the IAA, a very successful event. We have opened meanwhile our new state-of-the-art sustainable E-Mobility plant, won the PACE Award for our E-Mobility offerin
Slide 13: Automotive Aftermarket
To come to Aftermarket very quickly on page ten. Not so much to report. We saw also here in the third quarter, good growth with 8.7%, margins slightly down. Don't forget, in Q3 2020 there were extraordinary items, so the high comps here should not deviate from the fact that 14.3% or 14.6% is well wi
Slide 14: REPXPERT Remote Support
Also, here, good progress in terms of our offerings. We are showing you, on page 11, the REPXPERT Remote Support offering. Our continuous efforts to make our services more digital pays off and that is clearly an area where we also think that there is significant growth potential. 14 PUBLIC
Slide 15: Industrial
Industrial, page number 12. You also here saw the numbers already nine months, 12.1%, 12.4% margin EBIT margin in Q3. From my point of view, it really speaks for itself. Stefan and his team are doing a great job in harvesting all the efforts from the past. There's clearly more to come here because t
Slide 16: Railway Supplier Award
Here I would like to mention, on page 13, a business success that we're really proud of because it, on the one hand, shows our strength in Rail and, on the other hand, is a proof point for our commitment to become a player in particular when it comes to key sustainability aspects. Here we have won a
Slide 17: Capital allocation and capex
Now, if you go to page 14, back to capital allocation, you see the key numbers here. One of the concerns in the first half was why is Capex so low? You see that the Capex ratio has increased to 6.4%, as we indicated. For 9M, it's still subdued with 4.7%. We think it will continue to increase but aga
Slide 18: Portfolio management: Powertrain-agnostic and specific
Now, let me quickly go three strategic issues that I want to mention before I hand over to Claus. The first one is little bit more insight on this portfolio management aspect. The new logic with the second view, Powertrain-agnostic and Powertrain- specific, that Matthias has designed with us. You re
Slide 19: Portfolio management continued
will be a very new business. It's more mechatronic than a mechanical business, something where we clearly need to grow and also need to invest further to build a proper book of business. We are making good steps here and I think those of you that participated in the IAA saw that. If I then look at t
Slide 20: Synergies between divisions
Second point is synergies. Here I want to mention one example. The E-Motor is clearly something that has a broader application than just cars. Offroad is very important. We have large Offroad customers and the idea of cross-fertilization between Automotive and Industrial clearly comes from combining
Slide 21: Sustainability targets
Turning, then, to page number 17, what combines all divisions, and all functions and regions is our efforts to become a sustainable company. You saw this end of October. We have, for the first time, outlined and published our long-term sustainability targets. The headline here is we want to be a cli
Slide 22: Agenda: Financial Results
SCHAEFFLER Agenda Overview Business Highlights Q3 and 9M 2021 Financial Results Q3 and 9M 2021 mh WN Outlook Nov, 2021 G3.and 9M 2021 Schaattlor AG earnings puauc 22 PUBLIC
Slide 23: Sales development Q3
Thank you, Klaus. Let's jump into some detail of what we already heard in the highlights section. As you heard, Q3 sales decreased, FX-adjusted, by 3%. That has two main drivers. We had obviously a very strong prior year quarter that was in V- shaped catch-up mode after the COVID shutdown in the sec
Slide 24: Gross profit
Jump to the next slide and look at gross profit. Solid gross profit margin as you see on the lower right side due to the fact that the Industrial division balanced the relative weakness in Automotive. If we now go back to the left side and look at the waterfall chart a little bit more in detail, the
Slide 25: Gross profit drivers
purchasing standpoint as we speak. From a cost standpoint we’re facing some time lag between procurement and consumption of steel, but you see the first impact here in the column of production cost and the other item and driver here obviously is the volume impact in our automotive plants due to lowe
Slide 26: Material price environment
Let me talk a little bit more in detail about the material price environment and when I say material, I mean mainly steel. As you see here, steel accounts for about 65% of our production material. Production material is about two thirds of our overall purchasing volume. The rest almost completely is
Slide 27: Price increases by division
adjusting the price list and we might see some effectivity in that regard a little bit earlier than in Automotive where it's really a one-on-one negotiation with each customer. 27 PUBLIC
Slide 28: Functional costs
If we go to the next slide and look at functional cost, then you see an increase of 12% a quarter year-on-year. However, that is really driven by the low prior year comp, as you might remember at that time we still were, especially in Germany, in Europe, in a short-time work environment and that obv
Slide 29: EBIT
Jumping to EBIT. Klaus already mentioned it with 8.2%. Considering the challenging environment, a very solid performance for the quarter. We have obviously Automotive Technologies, if you look at the table on the lower right, with a significant margin impact, mainly driven by the impacts that are al
Slide 30: Automotive Technologies results
Looking on the next page a little bit more into the divisions, the next three pages here starting with Automotive Technologies. I already have mentioned it. Klaus has mentioned it in the highlights. A very solid outperformance but we cannot avoid being impacted by the global issue with reduced car p
Slide 31: Automotive Aftermarket results
Jumping to Automotive Aftermarket, you see solid growth here with almost 9% and you see it on the left side in the lower area, it's mainly due to the OES business that recovered here. There's also some special impacts in OES of prior years and, since I'm coming from the Americas, I know very well wh
Slide 32: Industrial results
Last but not least, in Industrial, next slide, you see 15.8% sales growth quarter-over- quarter and you also see on the lower right, actually what Klaus already mentioned, Wind and Rail a little bit are the sectors, that are not performing to the other sectors. Every other sector is close to or sign
Slide 33: Reported EBIT and net income
I'll come back a little bit more to the legal side and you're now looking at nine months reported EBIT and net income. Then you see, first of all, that our EBIT reported is higher by 27 million than our EBIT before special items. That is a positive impact from a reversal of accruals in relationship
Slide 34: Earnings per share and ROCE
Next slide, please. The net income of €149 million translates into earnings per share of €0.22. It follows exactly what was explained in the prior slides, so nothing really to explain on top of that. Klaus already mentioned the strong ROCE of 18%. That is mathematically obviously driven by four very
Slide 35: Free cash flow
Maybe now coming to Free cash flow. This is something that I think we should go into a little bit more detail. Very strong cashflow in the third quarter, actually our best quarter this year. You see cash flow conversion ratio was close to one, also good, and that is despite the fact that we, as Klau
Slide 36: Free cash flow before special items
That is also the main reconciling item between our Free cash flow before M&A and our Free cash flow before M&A and special items. You see here, that is even better in the range of €300 million for the quarter. And if you look a little bit right of that, if you look at the nine months, then you see a
Slide 37: Net debt and leverage
If we then go to the next page, you see our net debt and our leverage ratio. Our leverage ratio is now better than what our normal guiding corridor would be in the range of 1 to 1.2. That is obviously also a mathematical function of our very strong EBITDA that is based on very strong four quarters i
Slide 38: Agenda: Outlook
SCHAEFFLER Agenda 1 Overview 2 Business Highlights Q3 and 9M 2021 3 Financial Results Q3 and 9M 2021 4 Outlook Nov9, 202 G3 and 9M 2021 Seraettor AG osenings a psu 38 PUBLIC
Slide 39: Market assumptions
Thank you very much. Let’s focus on Page 32, ladies and gentlemen. That’s our outlook going forward. As we go into the market assumptions, clearly changes here on the Auto side. You all remember the sharp cut that IHS took. IHS is now expecting 74.8 million cars being built, what means 18.9 in Q4. W
Slide 40: Guidance 2021
On the guidance, page 33, again, as we said, we have confirmed EBIT margin of 8% to 9.5%. We have confirmed our above €400 million Free cash flow guidance. And let me emphasise here, the word is above 400. No one said that it’s 400 as a point guidance. That also may tackle one of your questions, whe
Slide 41: Final remarks
Let me finish the presentation, and before we go into Q&A, with the final page, 34, and I'm not going to read that page to you. Let me quickly again say there is a lot of operational challenges, I think for all companies, not only for ours. And the focus must be on tactical mitigation actions, all h
Slide 42: Closing remarks
challenge going forward. But those that are able to manage that will also be successful going forward. With that, thank you very much. I hand back to Renata for your Q&A. 42 PUBLIC
Slide 43: Handover to Q&A, financial calendar
Renata Casaro Thank you very much, Klaus. I will just remind that we have some roadshows coming up, and you have the financial calendar, that’s all on page 35. And now, for sure, let’s hand over to the operator for the Q&A. 43 PUBLIC
Slide 44: Q&A session
Q&A SESSION Gabriel Adler, Citi Thank you for taking my questions. It's Gabriel from Citi. My first question is on semiconductors. Can you comment, please, on what you're seeing that gives you confidence, auto production could be a half million units higher than IHS expectation in Q4? Do you have an
Slide 45: Q&A: steel price recovery
And maybe Claus can say something on the one example where, not in Europe, but outside Europe, we have contractual relationships where that works quite different than you would assume here in Europe. Again, we cannot mention the name, but maybe you want to say something as a positive how that could
Slide 46: Q&A: Industrial pricing and segments
Gabriel Adler, Citi That’s great. Thank you, and congratulations on the strong set of results. Klaus Rosenfeld Thank you. Claus Bauer Thank you. Christoph Laskawi, Deutsche Bank Good morning. Christoph Laskawi from Deutsche. Thank you for taking my question. The first one will be a bit of a follow u
Slide 47: Q&A: price lists
add a little bit of flavour to the Industrial side in terms of what we do in terms of price increases, but it’s a more regular thing than a one-to-one customer-based price increase. Claus Bauer It’s maybe worth to mention that one third of our Industrial business is Industrial distribution. So, thro
Slide 48: Q&A: segment disclosure and operating leverage
We don’t have the numbers right yet. We will come up in the new year and give you information about how these four buckets look like. We have done this in the past for the top line. And I think that’s also expected going forward. So, please understand, I cannot disclose something now. It will be pre
Slide 49: Q&A: e-powertrains and consolidation
Christoph Laskawi, Deutsche Bank Thank you for the detail. Very clear. Antoine Brégeaut, Exane BNP Paribas Thank you very much for taking my questions. I had a couple. The first one would be on e-powertrains and what has been the recent performance. We've seen some of your peers downgrade their expe
Slide 50: Q&A: 2022 outlook and working capital
Antoine Brégeaut, Exane BNP Paribas Thank you very much. Thank you. Klaus Rosenfeld You're welcome. Akshat Kacker, JP Morgan Chase Thank you for taking my question. This is Akshat from JP Morgan. The first one on Automotive Technology in 2022. I know it might be too early, and there are a lot of unc
Slide 51: Q&A: working capital ratio
Claus Bauer A working capital ratio is interesting in a stable environment. And then you can actually steer towards that, if you do exactly what Klaus described. And want to strategically position yourself with working capital, especially inventory, then, obviously, it's getting a little bit meaning
Slide 52: Q&A: outperformance
Klaus Rosenfeld Horst, thanks for the question. You have a little bit more insight on page 24. And we all know outperformance is a measure that we have to look at on average. 7.5% for the world in Q3. In full year 2020, 4.5%. And then you see something that is a little bit an indicator why Q3 here w
Slide 53: Q&A: China and rolling chassis
already a quarter after the very bad quarter, Q2, that was up, and in particular China was up. Now, the situation in China is slightly different. That explains this delta. But, again, we don’t see this as a trend. We see this as an outlier in a difficult Q3 2021 with all the hickups in supply chains
Slide 54: Q&A: EV start-ups
for the small start-ups. There's so much request from these areas where people want to test certain things or ask for new things. So, this whole world, with the new EV players, is interesting, not only from powertrain, but also from chassis mechatronics. Just think about weight and how important wei
Slide 55: Q&A: green bonds and taxonomy
suppliers excluded from this? Are they not excluded? Do they come in through a specific rule? What are critical components? There's a lot of uncertainty here. From our side, we have done our internal homework. We have tried to apply the standards to our business when it comes to green top line, gree
Slide 56: Closing statement
that I think are important for Auto and Industrial as a competitive advantage for us. Cash generation remains key. We want to pay a decent dividend, and we will continue to put all our focus on proper Free cash flow. And it goes hand in hand. You all know this better than I do with a focused and dif
Slide 57: Backup: IR Contact and additional KPIs
Backup | IR Contact Investor Relations Phone: + 499132 82-4440 Email: ir@schaeffler.com Web: — www.schaeffler.com/ir SCHAEFFLER We pioneer motion Backup SCHAEFFLER Ancillary comments to support the Equity Story Additional KPIs FY 2021 Comments EMody peieter evita’ Syjunelon ak isang hewstesnioenesno
Slide 58: Key figures Q3 and 9M 2021
Backup SCHAEFFLER Key figures Q3 and 9M 2021 03 2021 9m 2021 in EUR mn Q3 2020 Q3 2021 vs. Q3 2020 9m 2020 9M 2021 vs. 9M 2020 Sales 3,391 3332 8,964 19346 Gross Profit 796 793 3mn 1,907 2,593 4686 mn Gross margin 23.5% 23.8% +0.3pp 21.3% 25.1% +3.8pp BIT? 322 272 -50 mn 376 994 +618 mn EBIT margin®
Slide 59: Equity Story
Backup SCHAEFFLER Equity Story — Positioning Schaeffler for long-term value creation oo 8 8 8 8 Roadmap 2025 in execution — Focus on capital allocation, portfolio management and FCF generation Automotive Technologies — Conquer leadership positions in New Business for electrified Powertrains and Chas
Slide 60: Free Cash Flow details 9M 2021
Backup SCHAEFFLER Free Cash Flow details 9M 2021 — FCF supported by good operational performance FCF* 9M 2020 vs. 9M 2021 | in EUR mn ‘A Net Working Capital EU! ————_ | be TT 549 +115 Others FCF ‘9M 2021" FCF EBITDA Inventories ReceivablesPayables Capex ‘9M 2020! 2 Before cash in- and outflows for M
Slide 61: Automotive Aftermarket and Industrial details
Backup Automotive Aftermarket — Positive sales development, stable EBIT margi Sales by region | yoy growth SCHAEFFLER EBIT? 9M 2020 vs. 9M 2021 | in EUR mn 9M 2020 9M 2021 o Europe 875 985 +13.2% Americas 216 2m +34.0% | a 2 Zz 7 +308 ” Automotive Aftermarket sales growth by channel? lave | OES? | E
Slide 62: Working Capital ratio and Capex ratio
Backup SCHAEFFLER Working Capital ratio 19.7% — Capex ratio 6.4% in Q3 Working capital’ | in EUR mn Capex? | in EUR mn Gm Q120 Q220 Q320 Q420 Ql21 Q221 Q321 Q120 Q220 Q320 Q420 Ql21 Q221 Q321 in % of sales (TM) in % of sales 17.2% 20.0% 204% 18.6% 19.8% 194% 19.7% 5.0% 59% 53% 4.2% 37% 3.9% 6.4% 20.
Slide 63: Key figures by Group and division
Backup SCHAEFFLER Key figures by Group and division Group | in EUR mn Automotive Aftermarket | in EUR mn Q120 220 Q320 as20 ai2t Q220 a220 320 as20 aiat Sales 3281 2,291 3,391 3,626 3,560 ‘Sales 446 CORSA Sales Growth’ “93% 345% 28% 4.5% HLH SalesGrowth’ —§+1.6% -20.5% 0.2% +198 44.08% EBIT Reported