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Schaeffler starts roadmap 2025


Roadmap 2025 presented via webcast on Schaeffler AG's 5th Capital Markets Day
Strategy, implementation program and medium-term goals form the three pillars of the Roadmap 2025
CEO of the group and CEOs of the three divisions outline growth prospects and value creation potential
Medium-term goals for 2025 set at group and division level

Klaus Rosenfeld: "We want to be our customers' preferred technology partner in the future too."
The global automotive and industrial supplier Schaeffler today presented its Roadmap 2025 as part of its Capital Markets Day 2020 (CMD), which includes an updated corporate strategy, a program for its implementation and medium-term goals up to 2025. The medium-term targets for 2025 were published the day before after the market closed and explained on today's CMD. The core of the CMD was the presentations by the divisional CEOs, who showed the growth prospects and value creation potential of their respective divisions.

Strategic prioritization as part of the Roadmap 2025

At the beginning of the event, Klaus Rosenfeld, CEO of Schaeffler AG, emphasized that the Roadmap 2025 would not initiate a radical change in strategy. Rather, it is important to stay on course where continuity has proven itself, to focus even more clearly on the company's strengths and to improve where there is a need to catch up. At the same time, the new company slogan "We pioneer motion" expresses the claim to continue to shape movement and progress in the future as a diversified automotive and industrial supplier with global reach. In the future, even more synergy potentials within the Schaeffler Group are to be used. The success is still based on the four proven unique selling points of innovation, manufacturing excellence, the highest quality and a pronounced understanding of the system. At the same time, it is important to continue the transformation of the company, to focus on core competencies and to implement them consistently.

In essence, this means that in the Automotive Technologies division, the change in the portfolio towards e-mobility and chassis applications will be accelerated. The high margin is to be maintained in the Automotive Aftermarket division. At the same time, growth opportunities in the independent aftermarket in particular should be used. The Industrial division will occupy new growth areas and further strengthen its profitability.

The implementation of all measures continues to be consistent with operational discipline. The focus remains on the generation of free cash flow and on a convincing capital allocation within the group. The aim is to create long-term and sustainable value.

Klaus Rosenfeld highlighted five future trends that are associated with special opportunities for the Schaeffler Group: (1) sustainability and climate change, (2) new mobility & electrification of the powertrain, (3) autonomous production, (4) data management & digitization and (5 ) Demographic change. From this, five focus areas could be derived in which Schaeffler wants to position itself even more strongly. These are designed in such a way that they cover both the range of products and services in the three divisions and the ten customer sectors and sector clusters defined across divisions.

The Schaeffler Group sees particular growth potential in hydrogen technology, for example, in the form of fuel cells for mobile applications and for equipping electrolysers for the production of green hydrogen: “The Schaeffler Group sees significant growth opportunities in the hydrogen sector. With our manufacturing excellence and industrialization expertise, we are excellently positioned to offer our customers high-quality solutions and benefit from the expansion of renewable energies, ”said Klaus Rosenfeld.

The topic of sustainability is of paramount importance to the Schaeffler Group. To this end, the company pursues an integrated approach across all divisions, functions and regions. The aim is to make production CO2 neutral from 2030.

Automotive Technologies: Striving for innovation leadership in the electric drive train

At the beginning of his remarks, Matthias Zink, CEO Automotive Technologies, referred to the persistently high level of uncertainty in the automotive industry, which was particularly affected by the consequences of the coronavirus pandemic, but which had already been in a profound structural change. The planning must therefore be conservative while maintaining strict cost discipline, but flexibility is also required at the same time.

With a view to the powertrain, Matthias Zink extended the previous “Vision Powertrain 2030”, which was related to the global production of passenger cars and light commercial vehicles, to the year 2035. It was about a strong acceleration of electrification and a significant increase in vehicles powered by battery or fuel cells (xEV) to 50 percent, while hybrid drives (HEV) to 35 percent and combustion engines (ICE) to 15 percent.

Schaeffler has to take this change into account with its portfolio management and capital allocation. It is important to focus more strongly on profitability and efficiency in the mature business fields with lower growth potential, while consciously more investments are made in future technologies and new business. Nevertheless, HEV and optimized ICE drives will also remain important for the foreseeable future with regard to stabilizing margins and generating free cash flow, also to finance growth in new business areas. The measures within the Automotive Technologies division to increase efficiency and reduce complexity will continue to be implemented.

Dr. Jochen Schr?der, Head of the E-Mobility division, highlighted the strong order intake in e-mobility, which was 4 billion euros in 2019 and over 1 billion euros in the first half of 2020. Up to and including 2021, the goal is to achieve an annual order intake in e-mobility amounting to 1.5-2 billion euros, after which this should be on average at 2-3 billion euros per year. Particularly noteworthy are the establishment of a factory for electric motor production in Hungary in the coming year, the establishment of a state-of-the-art competence center for e-mobility in Bühl, the establishment as a supplier for "3in1" e-axles and the production of electric motor components for trucks in the UNITED STATES. In addition, the potential for fuel cells is particularly promising for trucks, an area in which the Schaeffler Group is positioning itself as part of its initiatives in the field of hydrogen technology across all sectors.

And finally, there are also successes in chassis applications in connection with the creation of the prerequisites for autonomous driving, for example within the framework of a cooperation with Bosch in the area of rear axle steering and the Schaeffler Paravan joint venture, which is currently developing solutions in the area of steer-by-wire.

As part of the medium-term goals for 2025, the Automotive Technologies division is aiming for currency-adjusted sales growth that is on average 200-500 basis points above the growth in global production of passenger cars and light commercial vehicles. The EBIT margin before special items should be 4-6 percent, with the lower end of the range being reached by 2023 at the latest.

Automotive Aftermarket: Realizing market opportunities requires adaptation of the business model

Michael S?ding, CEO Automotive Aftermarket, summarized the current and future market trends for his business area as follows: According to current forecasts, the global fleet of vehicles will increase from the current 1.40 billion cars to 1.55 billion cars in 2025, with this development being decisive which is driven by developments in China. In addition to the increase in vehicle stocks, there are also opportunities in the spare parts business due to the increase in the average age of vehicles and the increasing complexity of vehicles. As a result, the need for repairs increases. At the same time, the entire aftermarket sector is under pressure to achieve results, particularly due to consolidations and new market participants. Digital platforms and e-commerce are also changing consumer behavior.

Schaeffler has to respond to this demanding mix of challenges at various levels and by adapting the business model. For example, by expanding solutions and services. With the addition of data-based services and innovative plug-and-play repair solutions, Schaeffler is continuing its development from a component supplier to a provider of systems and integrated solutions. In addition, the formation of industrial partnerships is also conceivable in order to offer holistic solutions including access to vehicle data.

Michael S?ding also highlighted the establishment of digital sales opportunities and named, for example, the ETC product portfolio (engine, transmission, chassis) in China, which offers a "one-stop-shop" for highly complex products in a fragmented market that has high growth potential. The REPXPERT workshop portal also uses digital channels.

Another measure to increase efficiency is the construction of the assembly and packaging center Europe ("Aftermarket Kitting Operation Europe", or AKO Europe for short), which began operations on August 12, 2020. The AKO will take up at least 60 percent of global stocks by 2023 and sustainably strengthen the efficiency and agility in the delivery of spare parts for the automotive aftermarket, also using digital solutions. In addition, the CO2 emissions are reduced by 20 percent as a result of the shorter transport routes.

As part of the medium-term targets for 2025, the Automotive Aftermarket division is aiming for currency-adjusted sales growth that is above global GDP growth on average and an EBIT margin before special items of 13-15 percent, with the lower end of the range being achieved by 2023 at the latest .

Industrial: Strengthening the margin through new business areas and operational measures

Dr. Stefan Spindler, CEO Industrial, referred to the expected decline in global industrial production of at least eight percent in 2020. Except for China, growth is declining in all regions. Only in 2022 is a return to growth rates expected at a level like before the coronavirus pandemic. In the long term, the growth outlook in the eight sector clusters is largely positive, with the wind and rail sectors showing the strongest expected growth potential on the market side.

On the one hand, growth can be generated in the core business, supported by future trends such as increasing sustainability or the demographic development of the population, and on the other hand, through the marketing of innovative systems and services. Schaeffler is characterized by a strong position in the components business, which has grown on the basis of manufacturing technology and innovative product development that has been developed over decades. Targeted investments in high-performance products as well as in low-cost series products are controlled depending on customer requirements. Systems and mechatronic products as well as service solutions are also increasingly being brought onto the market depending on customer requirements.

He named the following six areas as examples of growth initiatives in the components and systems business: Components for wind turbines and for railway applications, rolling bearings and sensors for agricultural technology, new systems in the robotics area, the OPTIME service solution and the beginning development of components for the manufacture of Hydrogen.

All in all, the Industrial division will expand its technological leadership, further improve customer service also by means of e-commerce solutions, continuously increase efficiency via the FIT program and implement the structural adjustments decided in September step by step.

As part of the medium-term targets for 2025, the Industrial division is aiming for currency-adjusted sales growth that is on average above growth in global industrial production, as well as an EBIT margin before special items of 12-14 percent, with the lower end of the range being achieved by 2023 at the latest .

Value-oriented management of the group and focus on free cash flow

Dr. At the end of the CMD, Klaus Patzak, CFO of Schaeffler AG, gave an overview of the medium-term goals of the Schaeffler Group, which are part of a revised financial framework. The multi-year planning of the divisions is decisive for setting medium-term goals. The budget year represents the first year of medium-term planning.

The multi-year plan aims to invest in new growth areas, create leading market positions, focus mature business units on profitability and free cash flow, actively adjust the footprint and reduce overhead.

The key indicators for value creation at group level are the return on capital employed (ROCE, based on the reported EBIT), which should reach the target range of 12-15 percent by 2023 at the latest, and the free cash flow conversion ratio (free cash flow before incoming and outgoing payments for M&A activities divided by the reported EBIT), which should enter the target range of 0.3-0.5 by 2023 at the latest.

The two target figures underline the central importance of profitable growth, focused capital allocation and capital efficiency for value-oriented corporate management and the generation of free cash flow from EBIT.

The Schaeffler AG Executive Board has also set the following parameters for the Schaeffler Group's capital structure and dividend policy: The Schaeffler Group's leverage, defined as net financial debt divided by EBITDA before special items, should be 1.2x to 1 in the years 2021-2025 , 7x. The dividend policy remains unchanged. Basically, as before, the aim is to distribute 30-50 percent of the consolidated net income adjusted for special effects to the shareholders.

Schaeffler Group is aligning Roadmap 2025 for a successful future

With the Roadmap 2025, the Schaeffler Group is successfully aligning its activities to the future. Klaus Rosenfeld said in conclusion: “The Roadmap 2025 is a forward strategy with which we can make the Schaeffler Group even more competitive and future-proof. We want to make better use of the growth opportunities that arise, realize more synergies in the Schaeffler Group and create sustainable value. Our new claim 'We pioneer motion' connects all activities. This is how we live up to our claim to be the preferred technology partner of our customers in the future too. "

Forward-looking statements and forecasts

Certain statements in this press release and IR release are forward-looking statements. By their very nature, forward-looking statements involve a number of risks, uncertainties and assumptions that could lead to material differences between the actual results and developments and those expressed or implied in the forward-looking statements. These risks, uncertainties and assumptions can have a negative impact on the results and the financial consequences of the projects and developments described in this document. There is no obligation to update or change forward-looking statements based on new information, future developments or for other reasons by public announcement. The recipients of this press and IR release should not place undue reliance on forward-looking statements, which only reflect the state of the art as of the date of this press and IR release. Statements made in this press and IR release about past trends or developments should not be viewed as statements that such trends and developments will continue in the future. The warning notices listed above must be viewed in connection with later oral or written future-oriented statements by Schaeffler or persons acting on their behalf.