Earnings Call: Q4 2020

Mar 4, 2021

Dear ladies and gentlemen, welcome to the Shepherd Group Conference Call. At our reserved customers' request, this 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 Casaro, who will lead you through this conference. Please go ahead. Thank you, operator. Dear investors, dear analysts, good afternoon. Welcome to the Schappel Group fiscal year twenty twenty earnings release. Without further ado, I leave the floor to Mr. Roosevelt, CEO of Schaffner Group. Claus, the floor is yours. Thank you, Renata. Ladies and gentlemen, welcome to our Annual Analyst and Investor Conference that we do as in the previous calls in a digital format. You all have the presentation in front of you that we shared with you this morning. I would immediately go to Page number four where you have the overview with my six key messages and the key numbers that you have certainly already digested. The year to start 2020 was a challenging year. It was a test for the organization to show its intrinsic strengths that we can also operate under adverse conditions and do the right things. And I think we have passed that test quite well. Sales are down minus 10.4% with a strong fourth quarter recovery 4.6% driven by all regions. China, again an outlier with 10.3% in Q4. It's certainly something that helped us not only on the automotive side, but also on the industrial side. Gross margin, and Claus will give you all the detail, 23% and an EBIT margin on an adjusted basis 6.4%, I think tells you that this is not a normal automotive supplier, but that the fact that we are more diversified helped us here to print these numbers. The sequential development in Q4 points to even higher margin, But we all know that the swings in this during this crisis times are to some extent exceptional and should not be extrapolated. Automotive Technology was the key driver for the strong margin print in Q4. And we can say also here that this first quarter looks like that we started into the year well. On a more strategic point, the order intake in Automotive Technologies was clearly below the year before with €10,200,000,000 But we saw strong EDA e Mobility order intake of €2,700,000,000 exceeding our target of 1,500,000,000.0 to €2,000,000,000 I think that's a positive message that shows that we are on track to gaining our fair share in this business. I can already say here the quality of the order intake is as strong as the momentum going forward. And we clearly see that the move into e motors brings us a lot of positive recognition. It's not only growth that clearly played a role in what we did 2020 and future growth, but the continued discipline, functional costs, so what we are now using as a term for overhead minus 12% year on year. Headcount reduced by 5%, now 83.3 end of compared to end of the year 2019. If you see the numbers later on, that's nearly 9,200 jobs in two years and that does not include the restructuring program we announced in September 2020 with another 4,400 jobs. Capital allocation and CapEx discipline was strong. You saw that we reduced the reinvestment rate significantly below one. As we promised, all the measures that we started to implement in 2018 and 2019 start to pay off. And we will share with you later on how we see the year 2021 in that respect. Free cash flow was €539,000,000 in the middle of the range that we shared with you when we updated the guidance in November. So that's a good outcome and clearly a point to be explained later by Claus how that compares to the €100,000,000 guidance. I also want to emphasis here already at the beginning, we will propose to our Annual General Meeting a dividend for the non common for the common non voting shares of €0.25 That is a number that is in line with our overall payout strategy. You remember 30% to 50% of net income adjusted for one offs. And if you calculate that through, you end up exactly at this €0.25 for the non voting. Common last but not least, I don't have to mention how important sustainability gets, not only from a business opportunity point of view, but also from fulfilling the commitments and following the rules. We are quite proud to say that in two years, we improved our CDP rating from a D to an A-. That clearly shows progression. And we also know at the same time how important it is to deliver when it comes to a huge taxonomy or when it comes to Scope three. There is still a lot of work to be done, but the organization is 100% determined to make sustainability a top key topic going forward. It is part of what we call the Roadmap 25. That's our plan for the next five years. That has been agreed and initiated end of last year, was the basis for our Capital Markets Day and that is now in execution. So a remarkable challenging year, but also a year where we showed that we can cope with such an environment. Next page, please, you see the guidance here. I basically already mentioned the important points and Claus will talk later on about the details of outperformance. Automotive Technology down LVP by 16%, while we made only 11.3%, means there is good and solid outperformance in the Automotive Technology area. All the other points I leave for you. Then the next page, number six, is just a reflection of what we shared with you during the Capital Markets Day on the November 18. The strategy stands and the equity story has been updated. We are clearly committed to accelerate the portfolio shift in e Mobility. In Aftermarket, we want to maintain a high margin and open up the business for more third party repair solutions. And as Stefan explained, further enhanced profitability in our Industrial business with profitable growth in the core business and entering attractive new growth fields in the Industrial business. Well, you see three examples here. The three examples don't mean that there are others as well. They are just here to illustrate what I just said. I said it several times now also in the press, we believe that Schaffler is more than its three divisions. We have no plans to split up the company. We rather believe in the synergistic benefits across the divisions and we want to continue with operational discipline and relentlessly focus on free cash flow and execution. Number seven is the famous page with the plus and minus with the highlights and lowlights. I also think in the interest of time, I can cut this rather short. I've already mentioned the main important points. But let me stress again, we are pleased about the substantial performance improvement in H2, mainly in our Automotive Technology division and about the strong discipline. Clearly, see that there is a way to go to until the crisis clears up. There are headwinds that has also then led to this more cautious guidance. As you saw, high volatility of the end markets and the supply situation speak for themselves. Let me go to Page number nine and also here to leave enough time for the detailed numbers. I would do this rather quickly. On Page nine, you have the highlights and lowlights from the Automotive divisions. You see the numbers here. I think what stands out is apart from the e mobility order intake, the four ninety basis points outperformance in the fourth quarter across all regions. You see in the back up page where you see all the details, that is then giving you per region the respective number. It's on Page 51 of the book that you have in front of you. And Greater China and Americas have been the main drivers here as in the past. Let me go to e Mobility because that's for all of you clearly an important topic. And you see on Page number 10, what I just said, 2,700,000,000 order intake is above our target of 1,500,000,000.0 to €2,000,000,000 You know that we have raised the target going forward to 2,000,000,000 to €3,000,000,000 What drives this is a good understanding that we are well into a sustained market position in three in-one systems with major order intakes last year and good new orders being expected. The number of e mobility projects is rising 30% more in 2020 over 2019 and an increasing number in 2021. The product portfolio has been expanded. And when I talk about new market segments, I'm referring to the heavy duty area where electrification and also hybridization will come faster than expected in the last years. We see lots of requirements from that areas and have already won an important order in that respect. And what drives all of this is the e motor competence where we are very shortly before starting mass production, also now a new plant in Hungary. Page 11 has a chronology here. I'm going to go through all the details, but you see what I just outlined that there are some good order wins towards the end of the year in half a new three in-one hybrid module with an integrated torque converter. It's a premier European customer in the high class segment. And then the heavy duty nomination for an e motor is also a top win. But as you see from this timeline, there were also good wins on the battery electric part with the three in-one EXO and also nominations for other e motor and key elements of electrified powertrains. Let me stress here the importance of thermal management. We have not made that a big point in the past, but we see that switching from ICE to e mobility and HEFs that this product becomes more and more important. One last page on e mobility number 12, that's the latest win in the e mobility area where we're very proud of. It's a three in one integrated system with a micro torque converter, improved power density, where we are building on what we've invented in the past. And this is probably the most sophisticated model that we have done before. It will be used also to demonstrate our modular strategy, not to reinvent at all the time new things, but building on what we have done in the past and that's more efficient and also more interesting from a capital deployment point of view. 13 is Aftermarket, stable sales development in Q4. As you saw from the margin from the numbers here, the gross margin is more or less the same. EBIT slightly down, but with 15.8%, clearly a strong margin. The volatility during the year is well known to you. What I can say is we are quite proud that the initiatives that Michael put in place have paid off and helped us to also bring the business back in the second half. One of the key initiatives is on Page 14. The aftermarket is a special business. It's not only an aftermarket business with replacement products, but it becomes more and more a digital business. Digital competence is the key going forward if we want to win in this. During the pandemic, all digitalization aspects got a boost and in the aftermarket, it is clearly a driver as well. We have started to implement a state of the art integrated ecosystem here centered around a separate Schaffler aftermarket cloud that serves as a one platform for online activities and customer services. Mobile apps play a role. What is key to us is this virtual online training. Those of you that have been in Berlin some years ago and saw how RepExpert works can imagine that this can make a good difference and a big difference compared to our competitors. Let me go to Page 15, that's Industrial. You all know the wind story, double digit growth in the sector cluster was clearly a main driver. China at the forefront here, more than 30% growth in this area is difficult to repeat. However, we are optimistic on the wind sector. It continues to grow and will drive our business forward. At the same time, there are first signs of recovery after a negative growth environment in 2020 in two wheelers, in Off Road and in particular in Industrial Automation, that is an area where we see apart from wind great opportunities going forward also when it comes to synergistic potential with auto. OpTime, our little condition monitoring service is very well accepted by the market and we also launched it now in China. Still, year 2020 was a year where the utilization of the plant was, let's call it heterogeneous with negative production cost impact. And going forward, we all know that there is work to be done to catch up with our main competitors in the bearing space, Timken and SKF. So what is very important in for automotive for Industrial, excuse me, is that we get our restructuring and improvement program in execution. I can say already at this juncture, we are in good conversations with our workers' councils. We have announced, as you know, in September. It's now February, beginning of March. So more or less six months behind us after the announcement. That's not unusual for German conditions. And I do believe that in the next weeks, will close these negotiations and can start with the restructuring implementation. Order book, Page 16, recovers. It clearly points to some secular growth in wind, but also as the diversified portfolio provides for balanced growth opportunities. I already mentioned the areas and I want to stress again the importance of Industrial Automation, in particular, when we want to make use of the more digitalization environment going forward. You see this on Page 17, a little deep dive here, signs of recovery and robotics with this specific speed reducer transmission for cobot joints. That is a great opportunity for us. It's interesting to see if you see the order book for Industrial Automation with a three months perspective, minus 30% in January 2020 and now back to plus 3%. One where it doesn't make the summer, but we clearly see that this is going to develop positively in the future. And I already said, this is an area where we can demonstrate technological synergies that makes sense to have both Automotive and Industrial under one roof. Page 18 is the one on the cost management. As I said before, 9,200 people down nearly 10%. You see here the year ends and also June, so a good progression. And you all should recognize that this is a function of the restructuring programs of the past. The ones that we announced in September are not part of this. It goes across the organization, but you also see from these numbers that the predominant part is outside Germany. So tackling that area now with the additional program is important. And I feel strongly that we are on a very good track to harvest what we planted. Transformation costs, Claus will give you more detail on this, was €700,000,000 announced. Clearly, during a half year negotiation, certain things changed, but the overall direction is clear. Now let me use this page also to put the restructuring a little bit into context. I mean, you all know that we booked the provisions more or less in 2020 and that the payout is now expected for 2021 of the years to come. You see this in the backup when we come to what's expected for 2021. That's the number somewhere between 300,000,000 and €350,000,000 That also may help you and Claus will give more details to position the free cash flow guidance in the right manner. Just add this back and you see that that is a very simple calculation, 100,000,000 plus, let's say, $350,000,000 is $450,000,000 And that's a number when you go back the years that we always had in terms of a historical free cash flow performance. So while the 100,000,000 as a figure may sound low, it is definitely not comparable with the $5.39 In any case, you need to include and add back the restructuring payout for 2021. Now let me go further to Page number 19, capital allocation. I think I already mentioned the most important points. $632,000,000 CapEx leads to a CapEx ratio of 5%. Four point two % in the fourth quarter is clearly at the low end. But the reinvestment rate of 0.7% is what we indicated. And we see as you also see in the backup that the number will rise, but we will manage this very carefully. The CapEx allocation also between the regions is important And Automotive Technologies will have to demonstrate that we are investing in the right areas. The mature business is well invested. And the investment intensity in e mobility is, as you all know, lower than in the traditional business. What is key is the footprint going forward and footprint is a continuous task for optimization. So I do believe that we can also in next year very well operate with the €800,000,000 that is indicated. Euros 20,000,000 is then my last page before I hand over to Claus. On sustainability, I already said it. There's much more detail in our sustainability report. We are proud about the progress we made, but we equally accept that this is a big obligation for us and that we need to deliver on the top goal carbon neutral production in 02/1930. We have added a new goal also to demonstrate that it's not only CO2, but also other areas. 20% reduction of fresh water supply is also key. And I can once again assure you that we want to be a good example for a company with a long term view that takes this very serious and delivers on what it's promised. With this, I hand over to Claus for the financial results. Yes. Thank you, Claus. And we go directly to Page 22. On revenue, I think basically, main things have been already explained. Fourth quarter was a quarter where we have seen growth again, both nominal and also FX adjusted nominal was 1.2%, FX adjusted 4.6%. Tauss already mentioned the strong contribution of China. Actually, what you can see on the lower right hand side is that there was growth in China, FX adjusted of 10.3%. Also for the full year, it was 8.7%. And that had to stabilize margins also in Q4, but also in the full year. Next page on gross profit. You see that we have delivered EUR $961,000,000 in gross profit, which translates into a gross margin of 26.5%, three hundred basis points up compared to the prior year quarter. You can see in the bridge that obviously volume helped, but helped the mix the negative mix was quite low. That includes what I mentioned on the region. Production cost was the significant positive here, this EUR 150,000,000 benefit, and that is due to specifically the Automotive Technology division, where we have a combination of a high operating leverage, that means cost digression. We have, in addition, effective cost savings in the plants. Still a bit of short term work, while that has come down compared to the third quarter and more significant to the second quarter. And also what contributed to the margin is a significant inventory decline. That means sale from inventories and also still low material prices. Next page on the functional cost, that means R and D and SG and A for the year down 11.9%. That means basically in line with the nominal sales decrease of roughly 12%, also fourth quarter down 7.4%. If you look at the different functions, you see that there has been now an increase in the selling area both year over year, but also specifically compared to the third quarter. That is a reflection of the increase in revenue. And in addition, kind of over proportionally, we also have some kind of special freights in order to get the products out in time to our customers, a topic which we also will see in 2021. The administration expenses decreased. Obviously, that has something to do with lower personnel costs, but also a lower consulting or other kind of purchase costs for 2021. As mentioned also in the CMD, we will have the first impact from the preparation of the S4HANA switchover, and that will then impact specifically here the admin line. Next page on EBIT. You see on the left side, the EBIT in the fourth quarter on an adjusted basis was EUR $418,000,000 with an exceptional 11.5%. On the lower right hand side, you see that this increase basically exclusively comes from Automotive Technologies. Automotive aftermarket was down a bit. I'll come to that later. And Industrial was also down a bit, but sequentially up because third quarter margin was at 7%. Now if we go to the next page on Automotive Technologies, you see that e Mobility top line wise did quite good with 12.2% FX adjusted growth. Also, the transmission business, which is very also a good margin business for us, increased by 10.3%. Klaus Rosenberg also mentioned the outperformance, which was for the quarter 4.9%, but also and you have seen it on the lower left hand slide, outperformance for the full year was 4.5 percentage points and for 2019 in a similar range. And in both years, it's driven from Americas and Greater China. On the right hand side, on the EBIT bridge, you see gross profit was the main driver of the EBIT improvement due to the tailwinds, as mentioned before, in Automotive Technologies. There were savings in R and D and in administrative expenses and on the other hand, somewhat higher selling expenses, mainly driven from the higher logistic costs, which I mentioned earlier. On Automotive Aftermarket on the next page, you see the split of the 1.3% FX adjusted growth, mainly driven from The Americas was close to 10% growth. Channel wise, the main contributor was the from an absolute number point of view was the independent aftermarket, which is, of course, much larger than the OS channel. On the right hand side, on the EBIT bridge, you see that the gross profit was down 2,000,000. That includes a negative FX effect of EUR 14,000,000. Then the R and D expenses and administrative expenses, they were also down, including some FX effects. And then you see the selling expenses, which has increased by EUR 7,000,000 and that is exclusively due to the higher to the Akao spending, the logistic costs from our warehouse consolidation program, which had an expense in the fourth quarter of roughly EUR 8,000,000. The minus EUR 4,000,000 on others is just a consequence of higher special items in the last fiscal year, in the fourth quarter. Next page on Industry, a decline of minus 2.7%. FX adjusted, again, this despite a strong growth in Greater China with 12% and most of the sectors in the meantime in China are have been positive or have shown positive growth in China in the fiscal year. If you look at the overall worldwide numbers, as explained earlier, winter was growing for all the quarters, then Power Transmission for in the second half and now in the fourth quarter that has been joined by off road and two wheelers. On the EBIT side, you see that the gross profit declined somewhat and that is driven by volume and also from FX. And on the other hand, there has been also volume related, but also structural savings in the selling area and also savings in the administrative area. And again, the minus 12% you see in others that is the consequence of higher special items in the fourth quarter twenty nineteen, which are reversed in that column. Next page on the net income and on the special items. If you look at the left hand side, EBIT, as seen on one of the prior pages, was EUR $418,000,000 before special items. In the fourth quarter, we had special items of EUR 148,000,000. And that is a combination of roundabout EUR 95,000,000 for the from the measures which we have communicated in September. Then an additional close to €40,000,000 for another restructuring, which we initiated in South Korea, which is also high cost for us. And also another roundabout EUR 20,000,000 for legal matter. If we look at the if we stay on the special items for the full year, you see that on the lower right hand side, $946,000,000, obviously, that includes also the goodwill impairment of the first quarter. And the yearly restructuring expenses have been EUR680 million roughly. And then out of that, the big pieces have been EUR580 million for the program, which has communicated in September and roughly EUR40 million for South Korea, I mentioned earlier. On the financial result, on the left side, on the in the bridge, the EUR 72,000,000 includes roughly EUR 40,000,000 for the refinancing refinancing exercise and thereof the big portion is the realization of the early redemption option of the high yield bond. And the income taxes basically are driven from current income taxes, negative ones mainly from U. S. And China compensated by some by deferred taxes to in an area of in a smaller double digit number. Next page on again, on the profitability here. It's not a lot to add. The adjusted net income was €325,000,000 for the full year. That has been the basis for the proposal on dividend and that the respective fourth quarter number is $2.00 €9,000,000 also up from the prior year quarter. Cash flow on Page 31 was strong with €355,000,000 for the quarter and even up compared to the prior year quarter. And that is basically also driven the EUR $355,000,000 from a release of working capital or a reduction of net working capital, specifically on the inventory side, to a level which is also now too low in order to secure our delivery capabilities that will now reverse going forward. For the full year, free cash flow was €539,000,000 up €66,000,000 compared to the prior year. Now on my last slide, on net debt, there has been an improvement in the second quarter. Over the other word, there has been a peak in net debt and leverage in the second quarter and then an improvement in the third quarter. And also in the fourth quarter, we now are with a leverage ratio of 1.3 already in the range of our midterm kind of not target, but in the range of our corridor, which we have explained. And you see also that we are on the right hand side that we have no major kind of maturities, which are not prefunded until March 2024. And the liquidity situation is strong. This EUR 1,758,000,000.000 in cash and cash equivalents and an available liquidity of 28% of sales. And with that, Claus, I will hand it back to you. Thank you very much, Lars. Let me finish our presentation with the last three pages. And we have, given the environment that we are experiencing, extended a little bit on our outlook going forward. That's on Page 34. I think the most important part of this trip, Dijon, is on the left hand side, you see what we assume for Light Vehicle production growth in 2021. We all know that the February IHS figures give us an estimate of €84,600,000 And we have discounted this number to come to a solid base by 5,000,000 cars. That equals then 7% year on year market growth. That's at the moment our baseline. And clearly, is a cautious estimate due to the remaining corona crisis uncertainties, the risk of supply chain disruptions, but also the global volatility that we all experience. So that's our baseline. Then in automotive aftermarket and industrial, you can't use such a figure. We have, as you saw from the midterm targets, used proxies here. One is the GDP number and one is the Industrial production number by way of a basket that is relevant for us. And that has given us then the basis for Automotive, Aftermarket and Industrial. Also here, I think we are well advised to be rather on the cautious side and we have used a midpoint as you see on the next page, 35 for the two divisions. The key numbers have been absorbed above 7% growth. Sales growth is a function of the number for Auto Technologies with an outperformance assumption of 200 to 500 basis points in sync with the midterm targets, 5% to 7% for Automotive Aftermarket and 4% to 6% for Industrial gives you the above 7%. On the margin side, we have decided to give you floors. These floors are absolutely there to be defended whatever it takes, 4.5%, eleven point five percent and €8.5 We all know that we can do more and we will do our best to overachieve that. That at the moment then altogether leads to a margin range for the year of 6,000,000,000 to €8 And free cash flow is has already been mentioned is around 100%. So that's the guidance. Let me stress again, it's based on cautious market assumptions, but we are confident that we can overachieve these floors. Last page with a summary, I'm not going to repeat everything that we said before, but let me stress again our performance orientation is clearly 100% committed. We saw that the organization is able to absorb environments like the one we saw in 2020. The intrinsic strengths of the company is its management team and the ability to manage through something like this with a clear contingency sorry, with a clear ability to manage contingency on the one hand and on the other hand setting the course for the future. We will remain focused on execution. We know that a reliable track record counts in particular in these days and there is clearly value to be unlocked if we stay the course and if we focus on solid operating performance and cash generation, the Roadmap 25 is the framework for this. And we will demonstrate to you that we will be able to leverage synergies between the Automotive and Industrial divisions going forward in all these areas like clean mobility or clean energy, this is the way to go. And we now come to an end and look forward to your questions. Thank you. We will begin now our question and answer session. If you find your questions answered before I assist you trying to speak, you can dial 02 to answer your question. If you're using speaker equipment today, please mute your handset before making the selection. One moment please for the first question. And we already got a lot of questions coming in. The first coming from Akshat Kapka from JPMorgan. Please go ahead, sir. Thank you. Akshat from JPMorgan. Two from my side, please. The first one on your free cash flow guidance and the low conversion ratio on EBIT of close to 10%. So when I look at the details on your slide, you have a lower reinvestment rate of around $200,000,000 the delta between CapEx and D and A. And I understand that there are restructuring cash outflows of $315,000,000 but that still leaves me close to $500,000,000 in free cash flow without any working capital outflows. So I'm just trying to understand how you're thinking about the $100,000,000 guidance in some more detail. That's the first one. And the second one is on e mobility and automotive gross margin. E mobility sales were somewhat lower year on year in FY twenty twenty despite close to 45% growth in electrified sales or volumes across your key markets. Can you just shed some more light on that division? And if you have any sales target for us for the e mobility division in 2021 and 2022 like you used to give in 2019? And the last linked question to that is gross margin. And as you start delivering these higher e mobility orders into 2021 and 2022, should we expect any significant start up costs or margin dilution? You. So you do the first one? Yes, of course, yes. On the free cash flow side, but how I would look at that is and you also started, I think, the the $539,000,000 free cash flow, which we have delivered in the last fiscal year, right? So obviously, we expect that we have an increase in top line. And you saw the guidance of above 7%. But please consider that there is a negative impact from FX. That means the overall top line will be growth will be somewhat slower. But whatever it is, in the end, it will be a significant figure. And then if you basically want to come from this additional top line, then you we I would then start to use a drop through rate of around about 30% to 35%, which brings you to the EBIT. And then in the C and D, we guided for a free cash flow conversion of 0.3% to 0.5%. And please keep in mind that free cash flow for us is an after tax amount, right? So that gives you obviously as a starting point an additional free cash flow. But I hinted on the topic of working capital. And we have a specifically on the inventory side, we have a very low starting point, and there needs to be some kind of refilling there, which I would say should be roundabout €100,000,000 on top of what is already kind of calculated within this free cash flow conversion ratio. And then there is then I would assume, and you have also the numbers in the deck, that there is higher restructuring cash out, higher restructuring cash out than what we had in 2020. That will be a number of EUR 150,000,000 to EUR 200,000,000. And then there is a CapEx increase of, I would say, 170,000,000 to 200,000,000. So and if you calculate that, then you come close to the roundabout 100,000,000 So to sum that up, on the one hand, obviously, there is a drop through on the after tax reported free cash flow. But on the other hand, there are negative impacts from an inventory normalization, higher CapEx still below the previous numbers from 2018 and 2019. And then there is this higher restructuring cash out. And with that, I would give it to you, Klas, on the e Mobility top line or should I say something about on the Automotive Tech gross margin? If want to expand on the gross margin. On the gross margin, well, indeed, in the Automotive Technologies side, there is an ongoing dilution from on the growth in profitability from the e Mobility business, right? That is there. We have basically included that in our midterm targets already. And also that obviously, what that is included also in our guidance for this year. So it's nothing special to be expected there. There will be sequential progress on the on e mobility and the traditional business, specifically with the increasing volume, will be able to kind of compensate for that. And therefore, we said that the EBIT margin of overall Automotive Technology will increase compared to what we have in 2020. And I think on your first question on the second part of your question, I'm not 100% sure whether I understood correctly what you are referring to. I think the gross margin was answered, but can you repeat the second part of your question in terms of I think it was gross, but I didn't get it 100% here. Sure. Yeah. I was talking about the e mobility revenues growth in 2020. So overall, sales were flattish despite market volumes in your key markets being up 45%. I was just asking if you have, going forward, if you have a sales target for us for the division in 2021 or 2022? Thank you. Again, we have not given any targets for e mobility growth as part of the midterm targets. You always have to understand this e mobility composition is not only e access and hybrid, there are some also existing products in that. I think the latest what I can refer to is we said sometime in the past that the CAGR in this business can be somewhere around 15%. That was a UBS event, if I'm not mistaken, sometime September. But again, there's no gross target as an absolute number for the e mobility thing. What we're giving you is the target for order intake, and that has been increased. So that's what I can say at the moment here. Thank you. If I can follow-up on gross margin question, just one follow-up. Claus, you mentioned that traditional business with increasing volumes will be able to compensate the margin dilution from the e mobility business. How confident are you on that front that we won't see more margin pressure on the traditional business lines in general transmission? Maybe I can say one sentence and then Claus can add from the numbers side. I mean, are seeing at the moment an interesting situation. All the OEMs are articulating their electrification strategies going forward. And more or less everyone says he wants to redo the product portfolio and everything becomes electric, whether it's full electric or hybrids included. At the same time, we're seeing a situation short term where people are buying cars and there are not enough battery electric cars available. So that gives us an interesting situation because they come to us and also ordering in some areas even more than we expected for traditional cars. And that gives us to some extent also an edge because I'm not saying that our pricing power will completely reverse, but there is a situation where we can also argue with customers and say, on the one hand, you want us to transform to e mobility. On the other hand, you want us to keep the capacity open for all the traditional stuff and that comes at a price. So the situation slightly changes with OEMs becoming so articulated on their electrification strategies. And we have always said last in the Capital Markets Day that our mature business or we call it our foundation business is not just a runoff business. It has a lot of technological things that we can use for e mobility as well. And it's definitely something that we will harvest. So we are and Matthias and his team is focused on the one hand growing the e mobility at good gross margins, on the other hand to harvest and use the cash that sits in the existing business as wisely as possible. The next question is coming from Gabriel Adler from Citigroup. Gabriel from Citi. Two questions from me, please. The first is on the market outlook and your assumption of plus 7%, which I understand the rationale for being cautious here. But my question is more whether there's anything that you're seeing maybe in the current trading in February or with regards to conversations you're having with customers around perhaps shutdowns related to chip shortages that's informing your view here? Or is it just a prudent and cautious take on an outlook that is clearly volatile and uncertain looking the shortages and the strength of recovery? And then my second question is on the industrial margin. Can you just help us understand what really is holding back a recovery in the industrial margin in 2021? Because revenues are growing, the order book is recovering, headcount is falling, that you're guiding to a margin floor of 8.5%, which is only modestly better than what you achieved this year. And it's also some way off the 12% to 14% target you set out at the CMD. So any color you can provide around why you're not expecting a stronger margin recovery in Industrial in 2021 would also be helpful. Thank you. Now let me start with the first one. And I think you all will agree that we are at the hopefully at the end of an unexpected and unprecedented crisis where no one of us has the crystal ball and can say how this unfolds. We think it's starting to clear up, but we're now seeing this chip shortage that has only indirectly to do with the crisis. That is something where Schaffler as such is not that impacted compared to others, but it will impact demand going forward. We don't know how much and how strong that will be. We also see the uncertainties from other elements in the supply chain. And therefore, I think it's more than prudent not to go with an overly optimistic perspective now into the new year. Yes, we see that at the moment, there is a positive development in January and February, but the year is not over. Growth rates as such have to be looked against the deep dive in the second quarter twenty twenty for sure. But again, I can only say at the moment from our point of view, it's prudent to be rather on the cautious side. We have explained to you the logic versus discount. Others have done something similar. And I think that's the right way to start and to see how we move forward. As I said, this is about agility. It's about having the right information available and draw the right conclusions where necessary. I can say for us as a management team, optimistic for the year. We are not saying that this will be another chaotic year like 2020, but it's better to be careful than overly optimistic. Yes. On the on your question on Industrial and the margin, so first of all, I think that we have to just be clear that we do not expect the same overall top line compared to like in 2019. So there was a decline in 2020 of minus 9%. But remember, that's FX adjusted. And we also guided for growth in line with the industrial market. But also here, we expect a negative FX impact. That means there will be there might be a difference of whatever EUR300 million, EUR400 million in top line versus 2019. So first topic. Second topic, I think also we made it always clear that in the end, there needs to be structural improvement, specifically also in Germany on the production side because there's a very large production base in Germany. We have addressed that with the measures which have been communicated in September. And at that point in time, you already said that the payback from these measures will not be effective in 2021. They will start to be effective in 2022. And then basically in 2023, we said we will have around about 90% of the savings, which we have which we expect from the whole program. And therefore, it's basically a combination of working on the structures and improvements will come there. And then it will also take time in the industrial space until the pre crisis level will be reached. Okay. Thank you very much. Maybe I add one sentence. You see the gap from today to the 12% to 14% in 2025. That's the journey that we have in front of us. And when you think about the measures that we implemented, then they will significantly contribute to that journey, but not in 2021, as Claus said. It's a progression. And therefore, it's for us of utmost importance that we get these negotiations with our Workers Council settled. They are on a good way. We have, as you know, good and cordial relationships with them. And I think that this will pave the way for this execution path. The next question is coming in from Sasakumar from Jefferies. Please go ahead. Good afternoon, everyone. Thanks for taking my question. Unfortunately, I have to follow-up on the guidance as well, just that I understand it correctly. If we assume kind of the low end of your top line guidance for each of the divisions, that's when you think you will reach the stated margins, kind of the bottom end. Is that the correct reading of the guidance? Is no. Say it again, please, Sascha. I don't want to say something Yes. No, so for Industrial and Aftermarket, you gave a range. And then similarly for Automotive in a sense, if you assume 7% market and 200 basis points of outperformance, that's when we should assume kind of 4.5%, one point five % and eight point five Correct. Okay. Perfect. And then my question, a bit of a follow-up as well. I mean, I assume aftermarket or industrial at the low end, it would basically imply that EBIT is unchanged for Industrial despite higher top line even at the lower end. And for Aftermarket, it's down €40,000,000 or so, which basically also means the AECO headwind falls completely through and there's no offset from your incremental top line. Just trying to understand why this is the case given you have so much restructuring in place. Yes. Let me first come back to your starting question. I think principally that's true. Our guidance of above 7% top line that is based on the conservative market view in Automotive Technology, some outperformance in the range we gave, which is then but also not a more on the lower side and then also considering a conservative market view on industrial and automotive aftermarket. So that is that I can confirm. So then as the other topic I understood as a question, but is on the automotive aftermarket specifically, why we are improving not why are we declining in margin so strongly. And indeed, there are positive volume effects on the gross margin, but they are more than compensated by mainly three factors. First topic is higher production costs, including higher production costs mainly from our internal supply from automotive technology. And the second one is that we will have as communicated earlier in for the AkaO, we will have an impact, which is in the range of €32,000,000 in 2021. That is significantly more than what we have in the year 2020. Here, there is I can give you a number of roughly EUR 12,000,000. The majority of that was in the fourth quarter. So if you take this logistic topic together with further investments in digitalization, as mentioned and explained from Klaus, that is good for roughly two percentage points. So roughly two percentage points for higher production costs or costs for goods, two percentage points for AKO and digitalization. And then we also plan with another negative FX effect, which might be in the range of 1.5% for Automotive Aftermarket. And yes, well, together this if you take it together, that explains you the drop in profitability. Keep also in mind, the 11.5%, which we put as a guidance, that is a floor again, right? For example, that also considers that there is potentially a faster increase in revenue on the Automotive Technology side, which would in the end potentially limit the growth in the Automotive Aftermarket business because they would then not have enough goods to ship. So it's really something which, again, as Klaus Orenfell said, this is what we think would even be defendable in such a scenario. Okay, perfect. That's very clear. Thank you. My second question would be on the EV order intake, which obviously gained quite a bit of momentum. I was just wondering if you can just qualitatively speak about this. Do you think kind of that pace of order intake is enough midterm to offset kind of some ramp down in your legacy portfolio? Or do you think kind of mid decade you really need to step up and kind of go above the €3,000,000,000 level in order to offset your some of your legacy products that might phase down a bit faster than initially expected? Well, that's just a good question. But for the time being, range has been increased to 2% to three not because of any offset ideas, but simply because the number of requests is increasing, the number of projects we are running is increasing. And we need to just be clear that we want to be selective in our approach and we want to be modular in leveraging what we have done in the past. So this is not just getting on board whatever we want and whatever may look interesting. It's a selective approach to build a portfolio in those areas where we can make a difference. And it's not only quantity, it's quality of the order intake and it's the ability to leverage the core competencies across the spectrum. Understood. And my last one, kind of a related question. If we listen to the OEM presentations over the last six months or so, everyone is talking about insourcing more of the EV powertrain, different areas, but overall the tone is more towards insourcing. How are your discussions in that sense? Do you feel the OEMs go more to like a component relationship, that they want more components and less systems? Or is that a misperception and you still kind of have a lot of systems that go into the OEMs on the EV side? No, that's a fair question. And I would be foolish to say that this is not a critical issue. We have seen large projects that we wanted to win that went away and were done in house. It's relevant point that we need to deal with. The answer to this is, from our point of view, that you need to be good with the three in-1s and we'll see more system like offering, but also be able to offer the components because certain components are difficult to do in house. And if you then think about the margin profile, if there are parts and it could even be an e motor. There are companies that said we want to do with Schaffler the e motor because they can do it better than we can. And don't forget, an e motor, a rotor and a stator is nothing else than high precision metal sheet forming and packaging. Investment if someone wants to do this in a high efficient manner. So the answer is not black and white. There is this extra competition from the OEMs themselves. It doesn't sort of allow us to do anything, but it's something that we need to take serious. And our answer is, a modular approach, but also approach that does not neglect a component into something bigger. And so far that has gone well. I think the best proof is here this e motor strategy, where a very prominent OEM, where I can't mention the name already a year ago gave us this large order and said we want you to build that for us. And when I look in the number of projects that we are dealing with at the moment, then this becomes a theme going forward. I also mentioned that this morning in the press, there are products that we have built a certain competence for in the ICE space that will be used much more in the battery electric area. Thermal management is a good example. I think some of the analyst studies already talked about this. But there's spillover effect that you can also use. And so it's still a race for sure, but we are in a much better position than we have been two years ago. Perfect. That's very clear. Thanks for all the color. Thanks. You're welcome. The next question is coming from Victoria Greer from Morgan Stanley. Please go ahead. Good afternoon. Thanks for taking my question. The first thing I want to ask was around, your relationships with all of the various startups that we're seeing in the in the EV space. Could you talk about, you know, what is your conversation like with them both in terms of e mobility products, but also elsewhere in in auto OEM? And then just a couple of housekeeping ones, please, on your expectations for the net interest cost and the tax rate for 2021. Thanks. Okay. The startup question is an interesting one. There are all sorts of startup experience from the past. And we have I think the if I may call this a startup, at least some years ago, it was a startup. The only one that has really made it so far is Tesla. And Tesla has a very specific approach to things. You know this better than I do. All the other ones from the past have not really succeeded. I'm not saying that this is will be the case going forward. That would be wrong. We are approached by always by these companies. And in particular, when it comes to the luxury space where the profit pool is larger than in the low end of the spectrum. And we always sort of like to talk to new companies, understand what they want. But for us, we build our business around the idea that scale matters. So it becomes then a discussion about where can we add value and where does it make sense to design something that is completely new, in particular if you want to leverage that experience. There is a whole range of newcomers in China. Our Chinese organization is engaged with most of them. But again, you have to be selective in saying where do you really want to talk and where do you really want to put money at work. So again, it's a selective approach. By looking carefully, there are no miracles. What we are seeing at the moment from Tesla in China is an aggressive approach, quite impressive. But they are obviously putting their price strategy at work with their great reputation to build inroads into the e mobility space there with raising the bars also for service. So that's quite interesting to follow. But again, on the more unknown companies, we talk, but we are selective in terms of putting real money at work. Yeah. That's that's really interesting. Thank you. And actually, I wanted to also pick up on before the the the more boring questions boring, but important questions. To your point about scale, in e mobility, are there a lot more components in your e mobility product portfolio where they're much more standardized, basically than you would have for ICE? Is that something also that you think about in product development and in how you sign contracts? Well, I think, Victoria, if you break down best car, the composition of the bill of material is definitely different than in ICE car. Does it mean that there's a different degree of standardization when it comes to our components? Not necessarily. You can say a complex transmission with a ten year transmission needs probably more bearings in the transmission. But if you have a complex E axle with an inverter, with a reducer, some of the complexity is replaced by something else. So I'm not saying you can just extrapolate the whole complexity of the, let's say engine valve train components into an e car, but there is definitely not a notion that says everything is easier in an e car. That's not the case. In particular, if you go to the high end, high voltage segment, where we think there is all the transmission know how that we have, all the system understanding that is needed is very relevant and also extending them into power electronics and e motors. So I think the simple notion of e cars are more standardized and that's why you're losing value is at least not right for the high end sophisticated e mobility product. And I do believe that that's the area where most of the companies will make money and the smaller cars, ones that you drive with low voltage, they have probably a different situation. Yeah. Thank you. And I actually wasn't so much the sort of that that that EVs are much simpler than than ICEs that that I was thinking about. It was more that, you know, to your example of the, you know, the the the 10 speed transition, you know, a 10 speed transition for one OEM customer, I assume it's probably quite different to, you know, the similar product but for a different customer or even maybe on a different model for the same customer, you know, but in, you know, in the hybrid modules or in in e axles, in e motors, the difference between one e motor for one OEM is is less, right, than to to to the the same product for different for different OEM. Do you see where I'm going from? Basically, just to you how scale can be different for you for e mobility? No. Sorry then. Victoria, I misunderstood the question. That's what I wanted to say when I talked about the modular strategy. For us, it's vital in terms of intelligent use of our capital that we don't reinvent for every project a complete new setup. We have certain competence, as you know, in hybrid systems in terms of how to make them and how to make things smaller. The old Ford MHT example is a great example that we extended into other things. We have just won another hybrid system for a Japanese customer in The U. S, where we're basically using that concept and extending that concept. If that's what you mean, then I think we are on the same page. That is from my point of view of vital importance in terms of making money with the stuff. If you try to reinvent the wheel for every customer, you will not be able to make money on this. Yes, great. No, thank you. Okay. And then on your question on tax rate for next year, we expect 30% to roughly 34%. And if your question was more on the cash side, we I would expect a similar amount of tax out from cash out from tax as in 2020. So we talk here three €10,000,000 or something like that, this in the range. Obviously, that's depending on where the profitability comes from and includes also the assumption that in the next year, is high profitability in our companies abroad. And on the interest cash out, that would be somewhat higher than what we had in 2020, including somewhat higher interest on the bonds. Great. Thank you very much. The next question is coming from Horst Schneider from Bank of America. Please go ahead. Yes, good afternoon and thanks for taking most of my questions. The first one that I have that relates to the top line guidance in Automotive Technologies, I mean, you gave a wide range, which is 2% to 5% outperformance. I want to understand what does it depend on, whether it's 2% and in which case is it 5%? We have seen towards end of last year rather at the upper end of this range. So maybe could you explain that a little bit what it depends on? Let me try to give you some color. I mean, if you look at the page in the book with the historic outperformance, you see numbers that are inside the 2% to 5%. And I think what we can say then from a regional perspective, you see that there is some volatility. The more stable number is Americas. If you go back four quarters, Americas was always positive in terms of outperformance, sometimes two digits, sometimes only high single digit. But all the other numbers can fluctuate over the quarters. And we think the 2% to five is a solid range that we can deliver. The outperformance depends on are you on the right platform with the right product. I can tell you if we sell this MHT module that is a high content per vehicle continuously well with our major U. S. Customer because people buy large SUVs and pickup cars that will drive outperformance. If you are in something that is not really performing well because the customer can't sell the product, then that can be negative. So it's a function of what type of platform, what type of car and what is your content per vehicle in the ones that are running or in the ones that are not running. Mhmm. Okay. The other question Does that make sense? Yeah. I have got to think about it in more detail, to be honest. I'll maybe get back to you on that when I'm finalizing my estimates. But on the I mean, the system But can I say there, Horst? The question is, from my point of view, not so much the outperformance. The question is what's the underlying market and production number? And here we said, we have taken a discount 5,000,000 cars that incorporates all the headwinds that are there, whether it's the demand curve because of the shortage of chips that is not that relevant for us from a supply side, but that it can be relevant from a demand side. So if you think about growth in Automotive Technologies, it's very much this combination of a decent outperformance number and the volatile production volumes. Then let me just ask a follow-up on that. Whereas again your content per vehicle, in which region is that the highest? That's a number that I don't we need to go back to the files and look at this, but that's not a number that we have. Content per vehicle is the highest in Europe. Yes, I would And I think that's also a reflection of the outperformance. If you look at the 2019 and 2020 numbers, you see that in Europe, the outperformance was smaller, but that's also a reflection of the high content per week there, right? So I think that as Klaus already mentioned, there is also a kind of regional kind of momentum there. And we had strong outperformance because there was strong growth there in China and then also then lately in The United States. Okay. But then on the longer term, because I know you also guide midterm for this 2% to 5%, I think I asked this question also in November at the CMD. What is again the path of this outperformance? Is it right to assume that it should be rather higher in a year like maybe 2021? We have got special circumstances. And then maybe it levels off in 2022, '20 '20 '3 and then it accelerates maybe or maybe even declines in 2024, '20 '5 when we move much more towards the EV? Again, we can take that question with us and see whether there is a pattern. But what we gave you is an on average indication. And I think I've not seen anyone who gives the walk in terms of outperformance through the years. Again, it's very much dependent. Don't forget, this business is a consumer business. It depends what are the consumer buying. And even if there's a big talk about electrification these days, and we think that's right that there's this conversation about electrification and the OEMs are going in this direction. What the consumer does in 2021 remains to be seen. Yes, sure. Then the other question that I had that relates more to the seasonality. So how to truly think about the way through 2021? It's fair to say that H1 is going to be weaker than H2? Or there is no special seasonality that you would expect? Weaker in terms of what? In terms of growth or in terms of profitability? If can comment then certainly on both. I see the likely the production numbers, of course. So I think for January, February, we have got a trend. But then, I don't know, for EBIT margin? I mean, what I can say at the moment is we started well into the first quarter. And that to be a little bit more explicit, that means a positive growth rate. And you all know that in the first quarter, there was already a decline in China starting earlier than in the rest of the world. In the second quarter, you will definitely see significant growth rates because of the low comps. And how this then progresses into the second half of the year is a function of what happens with this crisis. I mean, if the crisis is over, don't underestimate there is I mean, all these support programs that now come through in The United States, we already see inflation expectations rising. We don't know how people will behave in the second quarter. So it's crystal ball, Horst. Not I can't give you something that now says I'm confident that the second half is more growing faster than the first. I think in terms of growth rates, you need to factor in that the comps of the previous year of 2020 will play an important role when you determine growth rates. Sure. Sure. I mean, anyhow, year on year growth rate, I don't know if that perspective is useful. Maybe we should more talk about sequential growth, right? And in that aspect as well, I mean, forgive me this question. I really like Oh. In conference call, the statements that you make on aftermarket where you clearly explained how how you get to the cautious margin. When I look at automotive technologies, I have not yet fully understood why it's just more than four and a half percent. I understand you want to be cautious, but then, when I look at the margin, of course, that you did in q three and q four, and then I look at the total level of production volumes globally in q one, q '2, q '3, q '4, I cannot really see why the margin is coming down that much. If I look at the average of 2020, it's easier to understand. But when I just look at the run rate that you hit in H2, I do not really understand why it's getting down that much. So maybe if you could clarify that. Horace, I think we tried to explain this at the beginning. This is a floor. It's not a point guidance and not a range guidance, it's a floor. And it's there to be also defended in the more adverse developments. I think maybe you should take that away. Yes. And to add on that, I think what I tried to make clear is general remarks that the fourth quarter is a special quarter, an exceptional quarter. But if we run through a couple of topics again or in more clearness hopefully, on obviously with regard to Automotive Technology, I think the first topic is the fourth quarter was volume wise a very, very strong quarter. It is it would not fit to our guidance, which is kind of based on a more conservative market outlook. Look, if you just take the fourth quarter volume times four, that would be that's the first topic. So consider a lower absolute top line. Second one is there have been raw material savings in 2020 compared to 2019, and that will reverse. So that is definitely a headwind. And while we obviously, we can compensate or pass through a bit, not fully and not necessarily in the same year. The third one was, and I mentioned that on a group level, that there has been significant inventory sale from inventory. And that means and that gives you a really strong gross margin, which you have seen in the fourth quarter, and that is nothing to repeat. So that again is a if you want on the margin, that's a headwind. Then we had during we had this short term work benefit, which we also, I think, mentioned at some point in time mentioned in earlier quarters, it was still visible in the fourth quarter, a smaller number compared to the third. But again, this is this benefit still in the fourth quarter will not be there in the full fiscal year. And then finally, there have been savings in the R and D side, for example, which are the consequence of some customer projects which have been delayed, and they are ramping up now. So I think there are a couple of reasons which contribute to the fact that the margin will definitely be low will be lower. But again, as Klaus said, the 4.5%, that is what we believe is a defendable floor. And we purposely said it will be larger than 4.5%. Okay. But then forgive me again this question. Maybe can you quantify the effect that you mentioned raw mat impact, R and D increase and the reversal of these short time short time work savings? Well, I would say that the volume impact, I will you have to that's a bit difficult because we have not given a volume top line forecast for Automotive Technologies, right? So you basically if you but you can do that yourself. Basically, we said for the full year, percent market growth as an assumption, then we have used this Probably, have not been at 5%, but a bit lower. Then consider this negative FX impact of which might be between might be roughly 2.5%, and then you are on an absolute kind of volume. And then and so that has an impact. Raw material is Automotive Technology analyzed, I would say, a mid double digit number. And then the inventory topic is also probably a high double digit number. And then you go to the functional cost and it also includes a bit higher special rates. I mentioned it earlier in the call. And I think that gives you enough flavor. Thanks a lot. Thank you. The next question is coming from Stephanie Winston from JPMorgan. Please go ahead. Hi. Thank you so much for all the transparency and for taking my questions. Just really housekeeping questions actually. So I believe that the factoring balance is zero, but just for housekeeping, if there's any reverse factoring balances in there, that would be useful to know. Also, on the Schaeffler Finance BV entity, obviously, you called the 2025 bond. Just had a question as to whether there are any further public filings regarding that entity or if you've made a decision about what to do with that entity, keep it outstanding or otherwise. And then finally, on M and A, you've given a lot of transparency about free cash flow. But just wondering if you had any updated comments on bolt ons or even some potential, small or medium sized divestments that we could think about in 2021? Stephanie, let me take the last one and then Claus continues with the two other questions. And the last one is pretty easy to answer. There is nothing new that we can share with you. The M and A strategy is in place. And I can only confirm we are looking to smaller acquisitions that fit technologically. That's the answer to your last question. Okay. Thank you. So on the BV side, indeed, we have fully redeemed the last bond of Schaffler Finance BV on November 4. But we have no just made no decision so far on the future of Schaffler Finance BV. So that's something which is open. On the factoring with regard to the ABCP program, that has a volume of roughly 150,000,000 unchanged. So and also no change which is included in our guidance. Okay, thank you. Regarding the time, we're coming to an end to Q and A session. I could pass back to the speakers for closing remarks. Well, ladies and gentlemen, thanks for joining this call. We look forward to the next events that are coming up. There's a roadshow planned virtually in the next couple of days starting next week. We have our Annual General Meeting in April and then the first release on the first quarter that will certainly be very interesting then in May. Once again, thank you very much for staying with us today. And we look forward to all your questions, your interaction and everything you need to know from us. Thanks a lot and bye bye. Dear ladies and gentlemen, thank you for your attendance. This call has concluded. You may disconnect.