Schaeffler Ag · XETR:SHA0
Schaeffler — Q1 2020 Earnings Presentation
52 slides from Schaeffler's earnings presentation, May 6, 2020
Slide 1: Commented Slides / Conference Call Results Q1 2020
COMMENTED SLIDES / CONFERENCE CALL RESULTS Q1 2020 1
Slide 2: Company Representatives and Call Participants
Company Representatives Klaus Rosenfeld, CEO Dietmar Heinrich, CFO Renata Casaro, Head of Investor Relations Conference Call (Active) Participants Gabriel M. Adler, Citigroup Christoph Laskawi, Deutsche Bank Henning Cosman, HSBC Sascha Gommel, Jefferies Victoria Greer, Morgan Stanley Kai Mueller, Bo
Slide 3: Operator and Introduction
Operator Dear Ladies and Gentlemen, welcome to the Q1 2020 Results Conference Call of Schaeffler AG. (Operator instructions) At research our customer's request the conference will be recorded and a replay will be available shortly after the call on the website. May I now hand you over to Renata Casa
Slide 4: Agenda
Agenda May 6, 2020 mh WN Results Qt 2020 Schaottior AG Overview Business Highlights Q1 2020 Financial Results Q1 2020 Outlook SCHAEFFLER
Slide 5: Key messages Q1 2020
Page #4 has the key messages. I think it's fair to say that the results of Schaeffler AG in the first quarter are robust despite the Coronavirus pandemic outbreak. And what is clearly outstanding here is the strong Free cash flow of EUR 137 million that we will explain in more detail. Very quickly t
Slide 6: Unusual items: severance scheme and special effects
There are 3 a little bit unusual things that I would like to mention that also explain the special effects in this quarter. First, you all know that we have continuously improved our headcount and further reduced it. This has also continued in the first quarter. And I'm happy to say that we were luc
Slide 7: Pros and cons by business
I think I can do page #5 rather quickly, it's the usual page that explains the pros and cons, only highlighting 2 or 3 issues here. Our E-Mobility business is continuing well. We see a lot of demand coming in for new projects. The guys have worked even with helm cameras to go through testing during
Slide 8: Global footprint and plant reopening
Maybe more interestingly is page #6 to give you some color. That's a new page out of our standard – outside of our standard reporting. What we want to bring across here, and some of you remember that from the last quick capital market update, this is a page for our global footprint. I'm proud to say
Slide 9: Ramp-up of plants
the Auto side, in Americas, you see that they are lagging behind, and that we need to see how that builds up, while the Industrial, that is a smaller business there, is running somewhere between 80% and 90%. Hopefully, that gives you an idea of how this is going forward. We are monitoring this on a
Slide 10: Automotive OEM
Now on the Automotive OEM part, I think I will do this rather short to allow more time for your questions. You can read the messages here. The outperformance was strong, and Dietmar will talk about this later on. The focus here is clearly on flexing the cost base in the right manner. 10
Slide 11: Automotive Aftermarket
Automotive Aftermarket, next page. I think what we can say is that the first quarter clearly benefited from strong sales growth in the region Europe. The margin was 17.1%, definitely points in the right direction. And here also, our efficiency programs, the program GRIP, started to pay off with the
Slide 12: Industrial
Industrial, also here the key messages have been shared, and Dietmar will show this later on. We clearly benefited from the very strong growth in the Wind sector. The impact from the crisis is limited in the other sectors so far. And the big question is how it will build up going forward. Again, if
Slide 13: Market indicators
#10 is also a new page, just to share with you some insight on how we look at market indicators at the moment. I think you all follow as we do IHS figures. Global LVP numbers are somewhere around 70 million cars, a drop of 22% for the full year with a dramatic drop in the second quarter. We need to
Slide 14: CEO dashboard: countermeasures
In this environment, and this is also a page outside the normal reporting package, what counts is the disciplined execution of countermeasures. This, on page #11, is like a CEO dashboard that I wanted to share with you. First priority clearly is to make sure that people stay safe and healthy. We are
Slide 15: Cost control and spending measures
system that helps us here to react in a very flexible manner – to also the potential ramp-up. Talked about the structural improvement, that's a good thing. It will help us on a mid- to long-term to further optimize the cost base, what is definitely necessary and possible. And then on top of this, we
Slide 16: Headcount development
In the interest of time, let me do the next pages rather quickly. They just give you further information about what I said before. This is the headcount figure, another drop here in the first quarter, and this will continue to go down. 16
Slide 17: Capex
Page #13 gives you the usual table with some additions to intangible assets, property, plant and equipment. You see the EUR 164 million, the 5%. And you also see in Q1 that there is a more balanced allocation of Capex between Automotive OEM and Industrial. Industrial is building up, in particular, a
Slide 18: Liquidity and debt maturity profile
Next one is then on liquidity. I think everything is already said. The 16% available liquidity of last 12 months net sales, Dietmar, is a good and solid figure. It has improved. You see it here compared to the previous quarters. And we have a robust debt maturity profile going forward. With this, I
Slide 19: CFO introduction
Dietmar Heinrich Klaus, thank you very much. Good morning, and welcome also from my side. I'm glad to have the opportunity to provide you insight into the details of our financial development one more – but also the last – time today. 19
Slide 20: Sales development
And let me jump directly to page #16, where you can actually - some more information on the sales development. We ended up in first quarter with EUR 3.3 billion, which is a decline of minus 9%, and Klaus already indicated, major impact coming from the Automotive OEM side with the plant closings of o
Slide 21: Gross profit development
Let's move on to page #17. And then there you can see the Gross profit development. And for sure, it's no surprise that the volume decline on the top line on the sales side is also having an impact on the gross profit development. We see a drop in the Gross profit to EUR 799 million, which is equal
Slide 22: EBIT margin development
And then let's move on to page #18, where you see the EBIT margin development. EBIT in the first quarter of EUR 215 million, being equal to 6.5%, major impact coming from the already explained decline in the gross margin development, especially in the Automotive OEM area. On the Automotive Aftermark
Slide 23: Automotive OEM results
When we go then into the details of the Divisions, and we look to page #19. On Automotive OEM, we see the sales that was achieved amounting to EUR 2 billion, which is a drop of minus 12%, but we can also see that our business division E-Mobility could well perform in that market, just realizing a dr
Slide 24: Automotive Aftermarket results
Then let's move to Automotive Aftermarket, page #20. Sales development, as said, plus 1.5%. So sales amounting to close to EUR 450 million especially driven by Europe with a plus of 5.6% and having had to face the declines in the other 3 regions. You can see that on one side, the Independent Afterma
Slide 25: Industrial results
On the Industrial side, page #21, we achieved sales of EUR 828 million, which is a decline of 7.5% compared to previous year. We can see that with the exception of China, all regions have been hit, and China was especially strong, growing by 21%. And you can see on the lower left side, what we alrea
Slide 26: Special items
Then when moving on to page #22 and now picking up what Klaus already explained, Two special impacts that we recorded in the first quarter. It's on one side, additional restructuring expenses for the voluntary severance scheme in Europe, especially we increased the provision here in conjunction with
Slide 27: Net income development
And yes, with this, I would move on then to the Net income development on page #23. And first of all, our Net income before special items amounted to EUR 103 million, plus EUR 103 million. Yes, it's a decline compared to previous year, where we recorded EUR 169 million. And of course, then as alread
Slide 28: Free cash flow
Then moving on to the next page, Klaus, yes, already talked about the Free cash flow as well, and we are really – yes, I would say, proud, maybe, is wrong, but we are really satisfied with the development that could be realized a positive cash flow of EUR 137 million, even being equal to a Free cash
Slide 29: Free cash flow details
On page #25, you can see more details, but we already explained this, so I would move on directly to page #26. 29
Slide 30: Net debt development
You can see there the Net debt development. Net debt as per end of first quarter, EUR 2.4 billion, being reduced compared to end of the year due to the positive Free cash flow development. In addition, we could complete our Green Schuldschein transaction with a volume of around EUR 350 million. Then
Slide 31: Summary
Klaus Rosenfeld Dietmar, thank you very much. #27 it's now. Ladies and Gentlemen, just a quick summary. Q1 result is robust. You heard it several times, we see our current setup as a clear competitive advantages in this environment. We use the opportunity to further lever our efficiency programs and
Slide 32: Remuneration scheme and guidance
scheme. We have incorporated a share ownership guideline that forces the management team to invest onetime fixed annual salary. In my case, 2 times my fixed annual salary directly into shares, with a payout prerequisite for the LTV, so a pretty strict scheme. We have also improved the long-term bonu
Slide 33: Outlook and financial calendar
4 Outlook SCHAEFFLER Financial calendar 2020 — Virtual AGM on May 8, new CMD date to come Roadshows / Conferences Regular capital market communication May 11 Frankfurt, Virtual Roadshow Q1 2020 Earnings Release v v May 12 London, Virtual Roadshow Virtual AGM v v May 13 Paris, Virtual Roadshow H1 202
Slide 34: Q&A session: operating leverage
Q&A SESSION Gabriel M. Adler, Citigroup My first question is around the operating leverage. Clearly, the restructuring programs that you put in place and the cost reduction has really helped reduce the drop-through and the operating leverage in the business. And we can see that in the margin resilie
Slide 35: Q&A: OEM outperformance
you were seeing OEMs building inventory ahead of shutdowns that perhaps could reverse in Q2, meaning that upfront weakness in the second quarter? Klaus Rosenfeld Maybe I start and then Dietmar adds a little bit of color. Also, to be honest, also the outperformance, it's something that we need to put
Slide 36: Q&A: working capital
Klaus Rosenfeld Thank you very much. It's a very good question. Let me give you some color. As you all know, working capital is basically 2 things. It's the financial supply chain, that is receivables and payables, and it's the inventory side. Then we all know working capital is basically driven by
Slide 37: Q&A: Capex
receivable program, it should be possible to control working capital below previous year level. Christoph Laskawi, Deutsche Bank It's well understood. The second one would be on Capex. You point towards the cut of around 30%. Now that there is a couple of ramp-ups coming in the second half and Capex
Slide 38: Q&A: ramp-up costs and R&D
Dietmar Heinrich Well, I think -- I can step in. So first of all, the ramp-up costs then will ease. That will be a potential for improvement. On the other side, we need to see the volume developments and how this unfolds in regard to the demands of the OEM. So it's difficult to predict right now. Ch
Slide 39: Q&A: restructuring
Henning Cosman, HSBC No, that's great. One small housekeeping one. Maybe it is great that you're breaking out now the adjustments with respect to the restructuring programs. Could you just share if there's anything more budgeted for the remaining quarters of the year? Or should we not expect any adj
Slide 40: Q&A: cost cutting
What I can say is what the VDA officially says, it was a good meeting. It was very constructive. There is a sense that the German government should support the German Automotive industry. There was no conclusion and no final agreement on the best instrument, but I think the overall mood there and th
Slide 41: Q&A: impairment
Have you kind of decided to stop certain products or exit certain markets, and that's where you can save Capex and be more prudent, but that's now what we've seen in the impairment? Or is it just related to you took down volume, and that's why you have to write it off, so no kind of exit decisions?
Slide 42: Q&A: customer risk and Aftermarket
Klaus Rosenfeld It's a good point. Dietmar, maybe you need to help me. We have in our risk analysis not seen any insolvency risk from customers in China. We're doing some things with the bigger players, we've always been careful there. But I would assume that you would not put Geely in that bucket.
Slide 43: Q&A: Kurzarbeit
Klaus Rosenfeld Okay. Let me start with this. I mean in Kurzarbeit, the March impact was I wouldn't say minimal but not really big. We had some Kurzarbeit that we already used at the beginning of the year, but it's a small number. It all started -- it will start -- it will impact stronger in April a
Slide 44: Q&A: impairment and pricing
No. In our case, it's pretty easy because our cash-generating units are structured in a way that we can look at the overall Automotive division. That's what we did. So this is not that Engine is impaired and Transmission is not. This is the whole mix that we looked at. And it was, from my point of v
Slide 45: Q&A: raw materials and RFQs
Yes. I think on raw materials, maybe, Dietmar, you can add. But what I would say as a more general direction, there is a little bit of support from the material cost side at the moment, in particular on the steel side. How this will unfold during the rest of the year, we need to see. And pricing on
Slide 46: Q&A: bonds and covenants
Klaus Rosenfeld I have to say the line was somehow interrupted. Would you please repeat your question? I didn't get the first part. I understood liquidity event, but to be answered precisely, can you please repeat? Jemma Permalloo, JP Morgan Sure. I hope the line is better now. I was wondering if yo
Slide 47: Q&A: wind and closing remarks
moment. And there's obviously enormous growth potential in this area. There are not many other companies that can provide bearings and solutions for these onshore/offshore turbines. And I think this is one of the positive opportunities for us. Klaus Rosenfeld Okay. Then let me finish this call with
Slide 48: Backup: IR Contact
Backup IR Contact Investor Relations Phone: + 499132824440 Email: [email protected] Web: www.schaeffler.com/ir SCHAEFFLER Backup 1 Backup 1 Usual information top-up ‘May 6, 2020 Rosults Qi 2020 Schactfier AG 48
Slide 49: Backup: Automotive OEM outperformance by quarters
Backup 1 — Usual informationtop-up Automotive OEM outperformance by quarters SCHAEFFLER Qi20 Outper- IMSt_AutoOEM® formance ‘World 23.0% “20% +12.0pp New regional mre 18.6% "23.5% +5.1pP structure for 2019 and cL — i 2020 figures applied Greater China 46.3% 22.8% +28.3pp Asia/Pactic 43.7% 7.3% +6.49
Slide 50: Backup: Corporate and financing structure
Backup 1 — Usual informationtop-up SCHAEFFLER Overview Corporate and Financing Structure Corporate structure (simplified) | as of March 31, 2020 Financing structure | as of March 31, 2020 QO Verwaltungs GmbH nthe vote edt strument {USD m)_G2")_Wevest_Matuty (Fh Moo0y/S8P) Taos Tern en Wo ELEN ware T
Slide 51: Backup: AGM proposal, new remuneration scheme
Backup 2— Additionalinformation SCHAEFFLER AGM proposal — New remuneration scheme, fostering sustainable value creation Total Target Remuneration —— 406 60% ——— Fixed components Variable components Share ownership Short-term bonus (STB) Long-term bonus (LTB) guidelines Retirement benefits — — Fe q a
Slide 52: Backup: Goodwill impairment in Automotive OEM
Backup 2 — Additionalinformation SCHAEFFLER Goodwill impairment in Automotive OEM — Conservative valuation approach applied The Schaeffler Group goodwill impairment test is conducted on a divisional level — the goodwill is impaired when the carrying amount exceeds the recoverable amount of a divisio