Earnings Call: Q3 2020

Nov 10, 2020

Dear ladies and gentlemen, welcome to the Schefler Group Conference Call. As a reminder, all participants will be in a listen only mode. After the presentation, there will be an opportunity to ask questions. Our reserve customers' request, this conference will be recorded, and the 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, madam. Thank you very much, operator. Dear investors, dear analysts, welcome to the Q3 twenty twenty results of the Schaffer Group. Thank you for your time today. Although we have already published abiding with Buffin regulations, our Q3 preliminary results and our full year 2020 guidance. Leading the call will be Mr. Klaus Rosenfeld, Group CEO and Doctor. Klaus Patzak, Group CFO. Without further ado, I leave the floor to Mr. Rosenfeld. Claus, the floor is yours. Ladies and gentlemen, Renata, thank you very much for your introduction. Welcome to our Q3 results call. As Renata mentioned, this the numbers have been pre released some days ago. And you saw yesterday evening that we also send out an ad hoc regarding the guidance. Let me quickly put that in perspective. We simply followed here the BAFN regulation that is relevant for us. The tipping point for this guidance was the positive indications we have for October and that led us to specify the so far qualitative guidance into something more quantitative that we want to explain to you during this call. Let me quickly go through my part in the overview. And if you please follow me to page four, there you have the key messages and most of these numbers are known to you. Group sales clearly show a sequential recovery in Q3 driven by the two automotive divisions, both automotive OEM now renamed into automotive technologies and aftermarket, while industrial was minus 8% in the quarter was lagging behind. I think a positive development on the margin was 9.4%, also here automotive divisions with the stronger improvements in terms of earnings quality, automotive technologies 8.3%, clearly a margin that is also benefiting from some of the tactical measures we have put in place. And then number three, Q3 free cash flow strong with $333,000,000 very close to previous year. Here you see the impact from proactive working capital management, discipline on CapEx, but also clearly the improved business. This number does not include for sure any part of the new restructuring program that is not cash relevant in Q3. And as I said, CapEx very conservatively managed with €181,000,000 below the 6% benchmark in Q3. In terms of our measures, I think we can report that the cost discipline at group, but also at the division levels is high and that the short time work has in particular brought a positive EBIT impact in Q3 that will over time then reduce. We see on the headcount number that the previous programs are still showing impact. Headcount further reduced to 83,700. What is if you compare this over the last quarters more than 9% down and shows that we are continuously improving in terms of cost management, the full effect related to Europe. I just mentioned the guidance and we'll give you more color in the later part. Let me quickly mention here, as all of you know, our next event is the Capital Market Day, the Virtual Capital Market Day next week, November 19, where we will also explain midterm targets. If you want to have an assessment a high level assessment over for the quarter, Page five gives you the highlights and the lowlights. As I mentioned, business improved in Q3. We see a continuous recovery led by Greater China. Greater China sixteen point five percent FX adjusted growth year over year, What is clearly positive in Americas also with a slight growth compared to previous year shows that these are the two engines that are driving the recovery. Let me add here both in the automotive, but also in the industrial world where China is still in terms of growth rate for us above the auto growth rate. Capacity utilization further normalized through all the regions and also in all our activities, in particular industrial, we see over utilization in Greater China, so capacity utilization more than 100. This shows that again, the China business is really performing well. We have always said that coping with this crisis needs continuous cost and capital discipline and that is clearly implemented and follow through. And that has also led then to this strong free cash flow with a conversion rate of 32%. The negative part Europe is clearly lagging behind. Also here the impact on industrial was bigger than all the other regions. And we have, as explained later in the deck also had to take some profit impact on the gross profit side on the Industrial side that was driven by fixed asset write downs and non personnel related provisions that Claus will explain later on. Q3 remains the quarter with high volatility and low visibility. And Q4, we expect not to be as strong as Q3. While there is clearly positive signs in October, the uncertainty remains high. And that's also why our guidance for the year 2020 is rather cautious and conservative. Click quickly through the divisions, Page seven. I'm not going to explain this all line by line. But as I said, Automotive saw a strong sequential recovery and Q3 EBIT margin is even above the previous year. Gross margin was an improvement also from all the efficiency measures, good cost containment, COVID related and clearly also the right direction in terms of flexibilizing our labor costs. The plants are doing a very good job at the moment to avoid any deviations and we are quite proud also how the working capital management is steered in particular by the automotive plants. Overall, had cost reduction 12% also speaks for itself. And the two other negatives, I already mentioned before Europe sees the slowest market recovery also we have also outperformance in that region. Some color in terms of the business exemplified here on Page eight, executing race, good on track. In powertrain, we see high activity. You remember from our structural measures, the new competence center for e mobility in BUIL is progressing well. We are proud that we have just been honored by Ford with a prestigious brand pillar global awards for our MHT module. You all know this. It's another proof that that is a big achievement. And obviously that car takes off quite well. So we are benefiting from this. We have seen from a Japanese OEM, a new nomination for a CVT project, is pointing in the right direction and also a first nomination for a heavy duty e motor that again shows that our technology in terms of e motor and the wave winding capabilities we have really pays off. Not to forget the chassis, there's a new partnership with Bosch Automotive Steering to expand the development of our intelligent rear wheel steering portfolio, what also tells you that we are still focusing very much on new technology. Automotive aftermarket also very short here, sequential improvement. Growth in independent aftermarket 5.5% compared to the previous year, what is clearly showing that that business is also taking off robust profitability. And we're starting to see first customer shipments from the Aka O investment, a long term investment that you have all followed for quite some time. The Aka O has ramped up successfully and we will begin with the relocation of all our central German warehouses. Just to mention it here already, there is for some time some duplication in this, but I think the tipping point has been reached where we will now successfully execute the relocation and then also harvest the improvement potential. Sales in the OAS business is has been rather weak with some improvement. That's also nothing unexpected. And the higher than expected increase has also challenged our supply chain. Page 10 gives you again a little bit of color on the Akao benefits. It's a major project, 60 of worldwide inventory is expected in Akao Europe by 2023. We're consolidating seven locations and there is a significant challenge in improving the efficiency with a targeted 30% reduction in run through times in Kipping Times Industrial. Page number 11, Also here, as you saw in the second quarter already, China driving the business with strong continued strong business in wind and also some improvements in the power transmission area. We think that the election in The US could further support everything that has to do with regenerative energy and that would be good for us. Good work on the overhead cost reduction, but also the impacts that will be explained later and also here, Europe rather contracting. In terms of the sectors, maybe just to give you some color, some of the more pre cyclical sectors off roads show some improvement, power transmission, also the same railway rather moving sidewards with a good midterm expectation, but critical sectors like the industrial automation rather still be weak. You all know that tool machinery, for example, is a good indicator for industrial production, textile machines, printing machines, and that is still rather weak aerospace in a interesting situation with the civil aircraft weak, but with cargo and also with military going well. This is also then on Page 12 further exemplified with Off Road. We have done a lot in the last months to get our distribution business up to where it was and have used the digital format here with some very good feedback from our sales partners off road I mentioned. Let me go to Page 13. I think that's a continued success story, reducing our headcount and delivering on the different schemes we have announced. The voluntary severance scheme from end of last year is up and running well and we are definitely in time and then also in budget. The new restructuring program announced is also achieving what we wanted to achieve. There's clearly no impact yet, but what it's important for you to note that the plan is confirmed. We are now in the second month after or the third month after announcement and have yesterday already started the implementation of one critical part. The next voluntary severance scheme has been announced here for Germany yesterday, and we have reached agreement with Workers Council how to best do this. There's still a lot of work to be done, but we are really pleased that after two months, our HR colleagues in particular have paced the way here for a successful implementation of this program. Capital allocation, I think I already mentioned the key aspects. The CapEx ratio at the moment is running below our famous 6% threshold, 5.4% in the first nine months shows that we are disciplined. You also see this shift in terms of where we invest when you look at the €459,000,000 1 hundred and 90 9 million come from Industrial. That's clearly demonstrating that the new capital allocation logic with the reinvestment rate logic that we introduced last year, beginning of last year, it's starting to pay off with much more focus on making sure invest only in the growth areas and be very conservative in the areas where we don't want to grow anymore. And that is clearly something that we'll also further explain during our Capital Markets Day. You still see a lot of investment in Europe, but also that will be more explained in the next week when we convene for the Capital Markets Day. With this, I hand over to Claus for more detail on the numbers. Yes. Thanks, Claus, and good morning also from my side. Page 16 shows the key figures, but I will not spend time on that because the following slides lead you through the all relevant key figures. So on Page 17, on sales growth, sales is down around about EUR 200,000,000, a nominal decline of 6%, FX adjusted 2.6%. We had, as already mentioned, strong growth in China. Aftermarket was benefiting from a strong Americas business and Industrial on the one hand with a decline in Europe, on the other hand a growth in China, and I will come back to that in a minute. Also as already hinted from Claus, we had quite a good dynamic during the third quarter. So sales in September was already positive. That means this FX adjusted growth and also in October, we had continued kind of positive dynamic and again growth in all regions except for Europe, but Europe was also declining more in low single digit range. You can also see from the difference between nominal and FX adjusted growth that have been quite strong currency impacts, mainly coming from the renminbi, the peso, the real and the U. S. Dollar. On the next page, Page 18, on the gross profit, you see that gross profit came down around about EUR 100,000,000. The gross margin is 23.8%. This is 160 basis points lower than a year ago. And if you go if you look at the bridge, you can see that price was around EUR 50,000,000 negative, basically stemming totally from Automotive Technology. Automotive aftermarket was actually positive and Industrial was more or less flat. Then you see in the middle of the bridge, the production cost, it's only minus 12%. But within that kind of piece, there are two different pockets. The one is that we had a strong improvement in production cost, specifically also in Automotive Technology. And then on the other hand, it was this positive improvement was more than compensated by write downs of fixed assets and higher warranty accruals in both Automotive Technology and Industry. I will come to that back later. You can also see on the FX effect that this was a EUR 33,000,000 negative. Obviously, that has something to do also with the FX impact on sales, which was EUR 122,000,000. So on the next slide, Page 19, you will see the EBIT adjusted development. So EBIT adjusted was more or less flat with EUR $320,000,000 in the third quarter. Actually, the adjusted EBITA margin increased by 30 basis points. And this strong Q3 margin development was a result of the market recovery, at least this kind of short term catch up as well as temporary measures. And these temporary measures include, on the one hand, some postponements of project, but on the other hand, the short term work, as mentioned by Klaus Rosenfeld. And we already saw in the third quarter that the impact of short term work was significantly lower, basically only half of what we had in the second quarter. And again, I would expect that number to go down again 50% in the fourth quarter. So having said that, also what is clear to you, guess, that the fourth quarter margin will be lower, that it has also something to do with seasonality, specifically in the automotive area. And with that, on Page 20, you'll see further information on Automotive Technologies. Nominal decline of 4%, FX adjusted 1.1%. October, actually again quite good and showing also some growth. Outperformance for the overall business was 2.4% year to date 5.5 percentage points, which is clearly above the historical average. So that is something which I would not expect for all years to come. Then on the right hand side, profitability was up €22,000,000 to €180,000,000 in the quarter and the margin was at 8.3% the adjusted margin at 8.3%, one hundred and thirty basis points above prior year. And again, here you see on the gross profit side, minus 9,000,000 reported. And here, again, you see this combination of a significant reduced production cost, which is more than compensated by, on the one hand, the price decline mentioned earlier, but on the other hand also write downs of fixed assets and higher warranty accruals. But you also can see then in the following parts of the bridge that our savings in R and D, selling and administrative expenses helped us to improve earnings by EUR 39,000,000 and therefore a significant impact on the margin. Again, Q4 will be seasonally lower like in prior years. Page 21 on automotive aftermarket, nominal down 5.5%, FX adjusted 0.2%. And also here, October was good with growth. And on the bridge, you see that EBIT adjusted was stable with EUR 86,000,000. The margin was up 80 basis points. Keep in mind, in Q4, margin will be lower because there will be additional costs for AKO mentioned earlier from Klaus Ozenfeld, which could be in the range of around two percentage points compared to the third quarter. And also seasonally, typically the aftermarket business has some higher Marcom costs to digest. On Industrial, Page 22, nominal decline, double digit, minus 11.5% FX adjusted 8%. If you look on the lower left hand side, you see that the growth, as mentioned earlier, from Klaus was driven by wind and power transmission. In October, there was still a negative year over year development, but only a low single digit. So we see also here at least in that month that the business stabilized somewhat. On the margin and the profitability, EBIT adjusted was EUR29 million lower, coming in with EUR54 million and the margin was 7%, two forty basis points lower. And here you see on the if you look at the column gross profit that the gross profit was burdened by, on the one hand, volume lower volume secondly, uneven capacity utilization with idle capacity in Europe and you remember that Claus hinted also to the decline of the European business. And on the other hand, also overcapacity in China and overcapacity also is meaning that you have higher cost than in a perfect capacity utilization. And then in addition, there have been write downs of assets and these write downs of assets, they are adjusted in the column others August €20,000,000 But what's not as adjusted is this higher warranty accruals. And in the end, this higher warranty accruals, they also led, if you want to kind of sum it up, to this decline in in margin year over year. On the next Slide 23, EBIT before special items, the reconciliation, you see that we had special items of EUR $511,000,000, EUR 4 80 5 million out of that are part of the structural measures we communicated September 9. They split more or less similar to what you can see on the right hand side into the divisions. For the fourth quarter, I would expect further charges charges in the area of EUR 50,000,000 to EUR 100,000,000, that's still depending on further negotiation and communication also outside of Germany. And this EUR $511,000,000 in addition to this EUR $485,000,000 also includes this EUR 20,000,000 fixed asset write down, which I mentioned earlier. Then on the financial result, 24,000,000, this benefited from an appreciation of the embedded option of the former high yield bond. Keep in mind that for the fourth quarter, I would expect here a negative impact in this line item from the refinancing exercise, specifically that includes then the full write down of the embedded option of this former high yield bond, which has been repaid in the meantime. Meantime. Income taxes is positive. That basically is a reflection of the restructuring accruals and the deferred tax accounting, which has been considered here. On the next page, net income. Net income is down EUR $384,000,000. That is obviously due to the restructuring provisions and Schaffler value added decreased to minus EUR 75,000,000 due to the lower EBIT. On the other hand, average capital employed declined only in part due to the write downs of down of goodwill in of the Automotive Technology division in the first quarter. On free cash flow, Page 25. Free cash flow reported actually is up EUR 11,000,000. If we strip out the impact from acquisitions in the prior year, we are down by EUR 29,000,000. But still, I think EUR $333,000,000 in the quarter is a good result and is benefiting from Klaus Rosenfeld mentioned earlier that we had good management on the inventory side and on the other hand, followed through with the CapEx discipline of the earlier quarters. Within this EUR $333,000,000, there is a cash outflow restructuring expenses, roughly EUR 35,000,000, but clearly more than offset by the benefits of the German short term work. And again, here that positive impact will be lower in the fourth quarter. In addition, in the fourth quarter, there will be a free cash flow impact from the cost from the cash out from the refinancing exercises exercise, including transaction cost and so forth. On the next page, you can see the year over year bridge for the free cash flow. In the end, what you can see, it's EUR 29,000,000 difference coming from net working capital, which is also a reflection of the high dynamics within the third quarter. On the you see on the EBITA, the second column to the left that this is obviously including the restructuring and other special items in the third quarter of €511,000,000 expense. And on the other hand, in others, that has been reversed because this is an accounting entry, but not a cash out at the moment. We also had in October a continuation of the positive trend in free cash flow. Next page on working capital. Working capital came down EUR 168,000,000. If you look at the balance sheet, but obviously, that includes a negative FX impact. CapEx was €181,000,000 down €48,000,000 year over year. And I guess we can say that for the fourth quarter, we will continue with the CapEx discipline. Reinvestment rate in the third quarter was clearly below one. And on Page 28, on net debt or net debt over EBITDA, you see that there is an increase from 1.4 a year ago to 1.6. That's driven by lower EBITDA last twelve months. That is what we show here. We expect for the fourth quarter a slight improvement there. The liquidity situation is strong. We have now a cash balance of €1,200,000,000 and the available is at 22% of last twelve months sales. And on the upper right hand side, you see also again the refinancing topic. So there was a in the fourth quarter, you will then finally see in the numbers a cash on the one hand of EUR 1,500,000,000.0. But also what we have done in October and November is to repay debt of more than €1,000,000,000 And with that, I would give it back to you, Claus. Thank you very much, Claus. I've finished the presentation with Page thirty and thirty one. 30 just shows again the new guidance for 2020 with the quantitate numbers that you according to the template that we used at the beginning of the year before we suspended the guidance. I think I don't have to go through here in detail. The only thing I want to say is that this is based on market assumptions. Automotive Technologies, we expect here a decrease of global passenger car production for the full year of minus 18% to minus 20% to previous year and also a decline of the industrial production of around 5%. And we have clearly based this guidance on the assumption that the coronavirus pandemic will not result in any significant new adverse implications in terms of a second full lockdown or anything that could even be more serious. So you should regard this as a conservative guidance against a development that we see rather cautiously optimistic. Let me conclude on '31, sequential top line recovery. As I mentioned, Industrial lagging a little bit behind with gradual improvements, but an environment that is still muted, strong earnings quality improvements in both Automotive divisions and Industrial with the higher provisions in Q3 that Claus explained. We are clearly focused on cost reduction as you know and the structural measures that are announced at the September are in implementation and will clearly be executed as promised. The guidance is specified and we all know that the uncertainty will not go away tomorrow. So it's still something that we are very focused on to make sure that we improve our competitiveness and also the resilience of the company. I think the organization has shown that it can cope with the crisis. We are quite proud what in particular our colleagues on the plants and the shop floors are delivering every day. And that makes us also optimistic that with our diversified portfolio, with the strong balance sheet, Klaus mentioned the strong liquidity, but also our ability, the proven ability to manage free cash flow. We are on the right track to position us well for the year 2021 and thereafter. '32 has the main dates. We will do after the Capital Markets Day a little road show in selected countries with the help of JPMorgan, Berenberg and Jefferies. But more importantly, next week, 01:00, our virtual Capital Markets Day, where we will also share with you our midterm targets. Thank you very much and back to you, Renata, for the Q and A section. Thank you very much, Claus. Claus, dear operator, thank you for leading us through the queue of you. And the first question we received is from Akshat Gakkar of JPMorgan. Your line is now open sir. Please go ahead. Thank you. Akshat from JPMorgan. Good morning. The first one is on M and A and inorganic growth opportunities. Is there any update that you would like to share with us on the M and A optionalities or any targets that you're looking at? Also, in your presentation, I don't see a mention of hydrogen. Any initiatives there that you would like to highlight? And finally, in this context and this topic of other growth opportunities, when you look at your balance sheet with an expected unrestricted cash of around $1,100,000,000 by year end, do you agree that bolt on acquisitions can be financed by cash? That's the first one broadly around M and A. The second one is on the first nomination for heavy duty eMotors. Is it possible to share more details around the size of this order and the timeline of delivery? Also, Klaus, if you could share the rationale for OEMs to outsource this to suppliers in an industry that is much more concentrated and vertically integrated? That will be helpful, please. And the last one is on your full year 2020 guidance released yesterday. What are you seeing from your OEM customers in Q4? And some color around Europe, especially into the fourth quarter will be helpful. Thank you. Okay. Let's these were basically six questions. Let's share them. As we have the Capital Markets Day in front of us, we refrain to this presentation from talking about M and A. You know the radar and you know the strategy. We'll share more with you also in terms of criteria in the Capital Markets Day. Same was true for the hydrogen. I think we indicated that that's one of the growth initiatives. It's also a very interesting proof point to show why automotive and industrial in our Scheffler case makes a lot of sense to do it together. We are fully determined here and I will also give you a little bit of insight on what that means. There's a hype on hydrogen for sure, But our ability to industrialize a certain technology here is clearly something that is seen as a positive from the many inquiries we get. And we feel that we are well positioned on that front. On the unrestricted cash, I hand that over to Claus. The e motor order, please understand that we cannot give more detail here at this moment. I think this is in the truck area, so quite interesting to see that also the business here is not only passenger cars, but covers more sectors. Also here we will give you a little bit insight next week. OEM behavior in terms of what's coming indicates that the recovery stabilizes. I can say that in across the board in our automotive plants, we see good demand also for the next two or three months to come. The outsourcing question is a more strategic question. The key focus is going forward for us on e mobility. And we know that we compete in certain areas with our OEMs themselves. But in our core technology, I think we have a competitive edge in USPs that they cannot really do themselves. On the question for the unrestricted cash and the guidance, would hand over to Claus. Yes. I think there was a question also on cash and M and A. I think first of all, if we talk unrestricted cash, I rather want to first talk about restricted cash because I want to bring that number down. And this number will come down in this year and probably also in the next year. We are working on that with in part with our banks in order to come here to good solutions. So that will then also help the unrestricted cash. At the moment, we are running at 22% of the last twelve months sales. I think that makes a lot of sense in the current environment. But if you would see that the pandemic is out and the market is getting more stable, then also we can bring that down to a figure which is more in comparison to the historic numbers. Having that means also that if there is a stabilization, there could be we could free up cash and then bring it into growth initiatives. That's the first point I want to make. Obviously, we want to keep net debt over EBITDA in a reasonable range. You saw the numbers, it was is it 1,600,000,000.0 So I said also that will come down a bit in Q4 and that might then be also kind of a level where we feel comfortable with. Then the other thing I mentioned is want to mention is on the M and A side that our radar is obviously on. In the Capital Market Day, we also might give indication what kind of financial criteria we have discussed in the Board. So therefore, please bear with us until next week. Thank you so much. Looking forward to the CMD. And the next question we received is from Henning Cosman of HSBC. Your line is now open, sir. Please go ahead. Hi, thank you. Good morning. I have three questions, please. The first one is, if I understood right from Klaus Patzak, I think you said you're anticipating a two percentage point margin dilution in aftermarket in Q4 as compared to Q3 from the AKO. If you could please confirm that and also talk about how you see that developing going forward because I think Klaus Rosenfeld said in his opening remarks that there's a tipping point coming. And at some point, of course, the efficiencies will start offsetting the cost redundancy. So if you could just remind us of the trajectory of the benefits and the double cost structure. The second question is on the price component in automotive. It does seem a little bit elevated as compared to normal levels. So if you could just talk about that a little bit again. Is it related to certain regions, to certain customers? Do you regard this as rather exceptional? Or should we sort of brace ourselves for something more similar going forward? And then the third question, going a little bit into the CMD direction again, clearly, a super strong quarter again as were Q1, as were Q2, quite exciting CMD coming up. All the investors agree basically, but at the same time, they're all a bit anxious to put fresh money behind the story ahead of a looming potentially quite large capital increase. So can you just maybe say again if you think this is something that you expect will go away by something you'll be able to say next week and give people more confidence to start getting involved with the case more again? Or do you envisage this to last beyond the CMD having the risk of jeopardizing the strong message of the CMD a little bit? Thank you, Henning. Maybe I take the last one first and explain again that what we asked for in the summer was an authorization and not a capital increase. That's a big difference. We explained that there's no need for a capital increase, in particular, not from an operating point of view. And I think you see now in the third quarter that that was completely right. And the third answer to that point is, we explained that and said we want to have something in our toolbox and have that completed going forward. And that was also the question from the colleague from JPMorgan. There are opportunities that we may want to look at, but there's nothing in the making, nothing concrete that would hint to a capital increase. It's all about flexibility and all about optionality. And I can only repeat what we said before. This is totally consistent what we always said. There is please no intention at all to finance restructuring costs or anything like this with a capital increase that would be completely wrong. This is again, it's about flexibility and making sure that we have the right tools available in an efficient manner at the right moment in time. And don't forget, others have also authorized capitals and this is something very normal in a German environment. So there's nothing else than this behind that. So on the other, I think two questions. First on the automotive aftermarket business, yes, I can confirm that sequentially fourth quarter compared to third quarter, I expect increase in expenses for AKO and that would be around 2% margin impact. And also in 2021, there will be a negative impact investments in AKO, which will be followed then in 2022 with a positive impact coming from the topics which Claus Roosevelt mentioned, the better productivity and lower also material costs coming out of that consolidation. And on the price decline, I would regard that as a normal price decline. So there is nothing which I would see as a big change here. What is good and important is that we are able with productivity measures to counter that price With that, back to the next question. Yes. Thank you. Sorry, just to clarify then. In 2021, the net effect of the AKO is still a negative effect, right? But in 2022, it turns into a positive effect, correct? Correct. That's correct, Henning. The next question we received is from Sascha Gommel of Jefferies. It's Sascha from Jefferies. My first question would actually be on the organic growth in e Mobility. Compared to the last quarter's, that was a bit soft against the market recovery. Maybe you can give us some more details what was behind that. That would be my first question. Well, let's go to the page again. Because e mobility was down 5% organically in Q3. And in the last quarters, e mobility was outperforming quite drastically versus all the other divisions. So I was just wondering why it's not changed think as we always said, I mean, you see this also from the sales number. This is EUR 190,000,000 in Q3 twenty nineteen and EUR 180,000,000 in Q3 twenty twenty. And there are some structural effects here that explain these numbers that have to do with also the inclusion of Compact Dynamics and Elmo Tech, the recovery of the China Americas market. Don't take this as a trend. This is still the smallest part of our automotive business. What we need here is the midterm focus and the long term focus. And as we're not sharing order book details in the quarter, I can say that there is a positive development there. The price the book to bill ratio is definitely significantly above the ordinary or let's say traditional core business and that's the number to look to. We are quite we feel quite good about our e mobility position. And I think the two trades that are just the two projects that I just mentioned show that even in such a crisis, there is positive momentum to be expected in the future. I see. So it's not we shouldn't consider kind of 180, one hundred and 90 as a plateau. It's rather we kind of accelerate again from No, definitely not. Okay. Okay, good. My second question coming back to the guidance with a bit of focus on automotive since you clarified aftermarket. Why is automotive seasonally weaker from a profitability perspective in Q4? Because my understanding is in most years, you should get your R and D reimbursement in Q4. Can you explain that again to me, please? Well, it's typically demand driven. And I would say Q4 this time is a very unusual situation. But in Europe, where we have still the bulk of our business, typically the December month is not a full month that normally explains the weakness in China that may be different. So I think the answer there was more a historically related question. You saw from our guidance that and that's the general logic there that we are conservative on purpose. The environment is still challenging. There's a lot of uncertainty and whatever this semi lockdown means now is difficult to project. Therefore, again, take this as a conservative guidance for both Automotive Technologies and aftermarket. Okay. Perfect. Understood. And then my last question would be on the restructuring charges. You booked, let's say, call it, about 500,000,000 after nine months. I think you said you want to book 700,000,000 but mister Patzak said you only expect another 50 to a hundred in q four. Does that mean there will be another in in 2021, or do you think you need less than the 700,000,000 initially expected? No. The €700,000,000 still stands. When we can I recall correctly, we said of that 7,000,000 we expect 80% to 90% to be booked in the current fiscal year depending on the progress? And it was clear from the beginning that a part of that can be booked only in 2021, a smaller part, because that has something to do with moving production from one location to the other location, right? This is something which you cannot just book by announcing your plan. These are costs which then need to be carried when they arise. So no change in plan. Have a good day. And the next one is from Christophe Boulanger of Barclays. So I will have three questions. The first one is on your financial results. Can you please quantify what will be the Q4 impact of the refinancing on the bond on the financial results? Which is the first question. Second one is on your liquidity position. So as I can see on your Slide 40, your liquidity position stands at €2,800,000,000 excluding restructuring cash at the end of Q3. It looks to me that, historically, it stands below EUR 2,000,000,000, implying over EUR 800,000,000 of excess liquidity. Once the market is normalizing, can you please help us to understand what will be, first, a fair level of liquidity? And then secondly, would you potentially consider outside acquisition to potentially repay some debt? And if so, what type of debt would you repay? And the last question is on net leverage. Your net leverage ratio is at 1.6x. What will be the acceptable range for this ratio? Is it between one and two times? Or are you willing to go over two times on a potential acquisition? That's it. So then I give it a shot. First one was on the financial result and the refinancing impact. And what this refinancing impact, as I mentioned earlier, includes the non cash impact, which is that we kind of write down the value of the embedded derivative of the high yield bond. The overall impact could be close to €40,000,000 The cash impact obviously will be lower than because the write down is not cash effective. That's on the first question. Second one, on liquidity. So please keep in mind two things. The overall refinancing exercise was EUR 1,500,000,000.0 in new bonds in order to repay EUR 1,600,000,000.0 in existing bonds, right? So that was not a kind of increase in our in the interim, there is an increase, but that will go away when we have fully paid out paid back the bonds due in 2022. Also, you have to keep in mind that what your colleague said earlier, the €700,000,000 charge out of the communicated restructuring measures of September, they will be and that's what I said in the call, roundabout at 90% cash effective. So that basically flows into cash flow in the years 2021 and 2022 mainly. In addition, there is restructuring cash out from the former programs. And I mentioned in the call in September that this is around EUR 100,000,000, so a bit more. So I would say, rather EUR 120,000,000. And that needs to be kept in mind. Obviously, on the other hand, we expect and we work on having operational free cash flow. And therefore, we try to work against that. You will also, on the CMD, see that free cash flow will play a significant role also going forward in our target system. On the net debt over EBITDA, I think that the €1.6 that will actually come down a bit. That's what I said already. I think if you talk M and A, then you have to talk not a quarter, but also long term, right? Because in the end, I would not be worried if that is a higher number for a couple of quarters, right? But then there needs to be a plan to bring it back, including with the profitability and cash performance of that entity. So maybe just to follow-up, what will be your long term target of net leverage ratio then? That will be communicated in the CMD. Okay. Thank you very much. You're welcome. The next question received is from Sattri Nouri of UBS. Your line is now open, madam. Please go ahead. Hi, good morning, gentlemen. I have three questions. So the first one would be on the free cash flow. Since it was strong versus the prior year, looking forward into 2021, can we expect to see a continuation of the improvement in free cash flow as well similarly? Like how much of the lower CapEx spend is would you consider sustainable? And, how does that tie in with the investment requirements that you might need for the e mobility division? The second question would be on, the cost reductions. Could you maybe shed some light on how much of the cost reductions are sustainable into the next years? Some of your competitors have given a split on how much they think is temporary and how much they think is sustainable for the next two years. And the last question is on the Q4 quarter. Some suppliers have been speaking of OEMs potentially prolonging Christmas vacations and therefore having less production days in December. You kind of insinuated on generally that there is a seasonality aspect in Europe anyways, but have you heard similar comments on this? And is this baked into your more conservative guidance expectations as well? Thank you. Okay. Let me take the last one and the first one. I think we will as Klaus mentioned several times, we will in the Capital Markets Day give you also our midterm targets. The guidance for 2021 will come with the annual report sometime at the beginning of next year. In terms of free cash flow, I think you know that this is our major KPI to look at. We have always been good at managing free cash flow. Certainly, there are as also already mentioned, there are some impact in there, example, from short time work that is not sustainable. And clearly in terms of CapEx, we follow a strict capital allocation and use of cash policy that is driven by the portfolio and the growth prospects. I would like to leave it like this and more to come then in the Capital Markets Day. Last point, what are we seeing for Q1 call offs are definitely showing a positive momentum. I can say that I've not heard anyone who says they're going to extend a Christmas vacation. I would at the moment rather think that the opposite is going to be the case. At least in some areas, we're seeing that capacity utilization is rising. But I cannot say that there is a company that has told us that they want to extend Christmas vacation. And then on the cost reduction, Klaus, I'm not sure whether you want to add something there. Well, there is an impact obviously from kind of postponements of projects, right? And therefore, I would expect that the run rate of the overhead costs will be higher in next year than in the third quarter. That's quite normal. In addition, we mentioned that the impact of short term work, which has helped us in the second in the third and also still in the fourth quarter that will probably be not material anymore. But on the other hand, I think also cost discipline will stay in our focus. And while we still are investing in improving the company, including in IT and digitalization, structurally, we will improve also the cost situation by means of shared services and things like that. So we will again, here we will tell you more about kind of the midterm targets in the CMD. Okay. Thank you both. And the next one is Ross Schneider of Bank of America. I have got basically just two questions left. They both relate a little bit to outperformance and production outlook. For the fourth quarter, I just want to understand basically how the outperformance is going to develop in the fourth quarter. I understand on market volumes, there's always some uncertainty. But on outperformance, you should have better visibility. So what is driving that outperformance in the fourth quarter? Can it accelerate further? And in that context, also, can you explain again what has driven the great outperformance in transmission systems in Q3? But coming back to this comment that you made on Christmas vacations, what is your visibility on that? I mean, if the OEMs now run into too high stock levels, they can still change their mind and they can nevertheless leave mid December already into plant today's, right? Or you know already today that this is not going to happen? Thank you. Okay. Let me try to take the one on outperformance. As Claus said, the year to date number was the above 5% should not simply extrapolate it. In Q3, it was more in the 2% to 3% range. And again, we're going through an unusual situation in terms of developments. The transmission situation clearly tells you that when people buy cars, there are not enough e cars available. So the transmission area is benefiting from traditional demand. It's one of our areas where we have the highest profitability as well. So at the end of the day, it all depends on which projects are ramping up. To just give you an example, the outperformance in The Americas was strong in Q3 because of the MHT module, that's an e mobility part. And transmission systems was strong because there was new projects from torque converters and one way clutches. There's also in the terminal management module, it's going well. Also in wheel bearings, it's going well. So it's across the board, where at the moment we see this regional outperformance Q3. And again, when demand continues as it is continuing, I think we should expect something in the normal range that we always have that is somewhere between 2% to 4%. But it remains to be seen. This is demand driven and visibility is still is getting better. We talked to you about October being with a positive development, but the year is not over and there is still a lot of risk. So I would like to remain cautious here with any detailed number on Q4 outperformance. But the trend from my point of view is solidifying. It's driven then really by the regional mix and the different content by vehicle by region? Yes. just think about one of the dual mast flywheel that you know is one of the key contributors. If that is demand is high in China, it makes a difference. Yes. Okay. All right. And Christmas Vacation, the last question I had? Again, I said that we don't have any information that people will go into an extended Christmas Vacation. What I see from production production levels and again, we saw this at the beginning of this year when we shared that with you during the crisis, I mean, numbers all point into a different direction that the week by week plant utilization is rather going up than down. What is the notification period for that for the Christmas for the December production then when you have full visibility on that? You know, that's different plant by plant and region by region. I can't give you that number. We can come back to you, and I will talk to them. I can say again is that the plants have done an excellent job at the moment, and you see this from working capital. What we had always in the past, where there was some sort of consumption deviations and so on, That's all handled in a very, very proactive manner. We're really proud of what the plants are contributing at the moment in terms of cost management and working capital management. Excellent. Thank you. You're welcome. And the last question for today is from Gemma Tanalu of JPMorgan. Your line is now open, madam. Please go ahead. Hi, thank you very much. I'm not sure whether you are in a position to answer this question. Sorry, we couldn't hear what you said. Can you please repeat that? Hello? So Mrs. Tenaro hang up at the moment. As there are no further questions, I hand back to Mr. Rosenfeld. Well then, thank you very much for coming together. Ladies and gentlemen, we appreciate the interest in the Schaffler story and there's more to come next week on the eighteenth. You're cordially invited and we look forward to a next session on the story. Thank you very much. Bye bye. Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect.