Earnings Call: Q1 2021

May 12, 2021

Ladies and gentlemen, thank you for standing by. I'm Stuart, your Chorus Call operator. Welcome and thank you for joining Schaeffler Group Q1 2021 Earnings I I would now like to turn the conference over to Renata Casaro, Head of IR. Please go ahead. Thank you, Stuart. Dear investors, dear analysts, good morning. Welcome to the Q1 2021 earnings call of the Schaeffler Group. Mr. Rutherford, Group CEO And Doctor. Patzak, Group CFO, will take you through the presentation slides prepared by the IR team. May I remind you to limit the number of your follow-up questions to 1, So that everyone has the chance to participate in the call. Without further ado, I leave the floor to Mr. Rosenfeld. Krausz, the floor is yours. Thank you very much, Renata. Good morning, ladies and gentlemen. Welcome to our Q1 results conference call. You received the perm this morning. I think it's fair to summarize this is another strong quarter In an ongoing market recovery, the key figures were pre released on April 19. And the real news from this morning is that we decided after finalizing our forecasting work to raise our Guidance and that is from my point of view a sign of confidence despite the volatile and still uncertain environment that we are facing for the rest of this year. Before I come to my first page, page with the key message, let me say One sentence on the latest market rumors. You all saw that Bloomberg had a quick note yesterday on the ABB Dodge situation. I want to tackle this upfront. You will understand that as a matter of principle, we do not comment on such Market rumors. Now let me come to the key messages. Q1 sales strong, 11.2% up, driven by China, in particular in automotive, very strong 74%. Shouldn't come as a big surprise, the Q1 gross margin that Claus will explain in more detail later on showed a positive year on year development also here Clearly driven by Autotech. We can say this is a broader recovery. All the 3 divisions showed 2 double digit EBIT margins. What is also a reflection of the continuous Overhead cost control, free cash flow, €130,000,000 in the Q1 is positive, driven in particular by the higher EBITDA And lower CapEx, so the weaker quarters are behind us and below previous year, clearly due to the Restructuring cash outs that will also continue throughout the year and net working capital outflows, in particular driven by higher receivables and also higher inventory need. Return on capital is back In the range that we articulated as part of our midterm targets. And here, you also see the capital discipline that we initiated some time ago, clearly pays off. The other news that I have for you today is that our restructuring program, and I'll give you more detail in a moment, that we initiated in September 2020 is progressing well. We are in the final stage Of the negotiations and I can say that we think that they will be finalized and closed in the next couple of days. And the restructuring program will lead to the financial impact that we indicated when we announced it And also the overall net headcount reduction will come in as planned, and that's from my point of view something that will help us going forward to further improve our results and our value creation guidance upgraded. I think you saw the news, Higher sales growth, EBIT margin and in particular free cash flow raised up to more than 300 1,000,000. Now let me go through the slide with the highlights and the lowlights. You have probably read this. I will do this rather short. What is positive for us, the recovery is driven not only by one region, but by a broader Development, all regions growing in Q1. Europe still lagging a little bit, but China clearly outstanding and region Americas Also with a clear indication of a continued and strong recovery. What is interesting as an industry trend, We observe an increased need for individual mobility solutions, and that leads to a stronger demand across The divisions and we can also say as a third point that the recovery, the more cyclical recoveries beginning in infrastructure and equipment That goes hand in hand with a sustained high demand for renewable energy products, and that's good for our And then last but not least, I said it before, cost and capital discipline is not a quarterly topic. It's something that we initiated quite some time ago, And we now see the positive effects, and we will stay very focused on making sure that that also continues. The restructuring program will help us at that front. On the more negative side, I think we all agree that the COVID situation is not Finally solved. There are positive signs, in particular also here in Germany, but other countries around the globe are suffering. And we are still very much focused on our employees' health and safety and want to make sure that in any case, no one gets In fact, the market headwinds and the uncertainties have increased. You also see this in a more softer order Demand behavior from our big automotive OEM customers, the semiconductor shortage is difficult to assess. We think that Schaeffler is not as much affected as others. There is a bullwhip effect at the moment visible. How it normalizes remains to be seen, but it's clearly creating uncertainty also for the second half of the year. You see the stress in the supply chain very well with the special freights that are on a high level compared to the previous year, And that's clearly an indicator for the challenging situation that we're dealing with and also cost inflation, Raw materials, Claus will comment on this later on, remains an issue that we are monitoring very proactively And where we also have the experience to deal with that. Let me come to the divisions and I will rather keep that short on the numbers because I'm conscious of your time. You see that automotive here printed some strong numbers, 24.5 percent gross margin, 15.8 percent sales and EBIT margin in the Q1, 10.8%. That's clearly exceptional And helps us also for the rest of the year. In terms of the business, outperformance was at the low end of the range, 2% to 5%. There is a significant base effect in China. If China grows more than 70%, then you can imagine that it's very difficult To outgrow this meaning in a meaningful manner, but we are confident that for the rest of the year, we will stay within the 2% to 5 Percentage range, good order intake in e mobility, also a good growth rate. And clearly, That goes hand in hand with the strong mature business. The logic that we separated As outlined in our Capital Markets Day, new business and mature business more distinctively is really paying off. And the strengths of our mature business is a very supporting very much supporting factor also going forward. Semiconductor shortage, I mentioned, and the supply chain situation remains an issue. Let me go from there to Page number 8. Once again, we want to give you some of the key themes why we think that we are on the winning track, And that is clearly linked to this idea of mature and new business. We see a substantial increase in e mobility projects and acquisitions if we compare Q1 'twenty one to Q1 'twenty 2020, we can say and I will show this in the next slide, we 1, a strong and big order in the interesting heavy duty hybrid module market. We are seeing That in particular our e motor and wayfinding technology in the Chinese market allows us to generate bigger orders. And also last but not least, a smaller step, but long term, very important, the strategic cooperation with refire for hydrogen technology and fuel cells It's a step in the right direction. Next Page number 9 has then the example from the eMobility heavy duty order intake, a large order for a New customer, we are providing here a hybrid module. This is our First nomination in that area, and we are very proud that we can deliver a 3 in-one system with integrated power electronics That also helps us to leverage our recuperation technology. So a groundbreaking order That is immediately linked to the U. S. Market that we see as one of the key growth markets. Let me go to aftermarket. Aftermarket also had a strong quarter with certainly lower growth, 12.9% margin At the level, it's clearly below Q1 2020, but that was an exceptional quarter. Yes, we are still seeing some headwinds from the double cost structure. You have heard this numerous times before. And there's also clearly challenges here on the sourcing side. On the other hand, the strategy in terms of digitalization pays off. The new e commerce platform in China is a good basis for a strong sales performance going forward. So all in all, While the development is less spectacular than Automotive Technology, things on track, clearly lower margin because of higher product Cost. You see on the next page then a little bit insight from the business, also here how do we win and the LCV Business growth opportunity is for us, also here an interesting area to grow. We definitely observe an acceleration of e commerce and last mile delivery services, Also together with the urbanization trends, I don't want to go too far here, but this is clearly an area That provides growth potential going forward. So you see that a more distinctive sectorial view Helps also to discover new areas of growth. Going into one more page here, On Page 12, the U. S. Angle, you know that the U. S. Is the 2nd biggest market for our aftermarket division. And here, we have been able to expand by our product portfolio And secure business growth based on our technological leadership. Several examples, one good example Is the torque converter a specific product for the S market, where our innovative designs helps to penetrate the channels in a much better way. Also here, longer life superior performance are the key USPs for us going forward together with the idea that we offer also remanufacturing opportunities. Let me come to Industrial. Let me say upfront, the quarter clearly showed how important it is that we have this industrial business Going forward, while the Auto Tech business sees a little bit of softening at the moment and some headwinds, Industrial is Rather the opposite, we see a continued positive trend. This is the first positive growth after 5 quarters of decline. It's driven by China and Asia Pacific. Americas, rather flat. Europe was still with positive momentum, But also in recovery mode, this going forward changes a little bit. You can always see this that more sectors are in green And that we are growing in a broader manner across the board. The increased volume goes hand in hand with good cost control, And that has also led to the highest margin in Industrial since 10 quarters, 11.9% is Significantly better than in the Q1 2020. We can't extrapolate on that margin because the quarter was so strong, But we are confident and you saw it from the guidance for industrial that we raised above 9% It's a clear commitment that we will that we are on track to achieve our midterm targets. Now let me also here give 2 more slides with a little bit of color. I just spoke about the sectors. The recovery is normally a strong recovery if it's broader, if it spans across products and sectors. Here are three examples off road, where we are introducing at the moment New agricultural bearing solutions to the market. The industrial automation is a key area. This small linear motor drive Allows us to gain orders and traction in the semiconductor industry in Asia Pacific and then power Transmission, another classical sector for Schaeffler, another area where we focus on our standard ball bearings It's also adding to the positive momentum. Here we are in the market with a new ball bearing design With a highly competitive performance to cost ratio, all of that supports the confidence and the Optimism in Americas, next page, Page 15, just a little bit deep dive, from our point of view, is On its way for more sustainable growth, we have the large programs initiated by the U. S. Government. We see it across the sectors, Aerospace, that was really down where we see increased order interest for the overall business, Renewable Energy's large orders coming in for wind bearings, very interesting. And also in the Americas, We are not standing still to further optimize our footprint. We have consolidated a smaller facility and also invested around €70,000,000 over the last years in our main facility in Fort Mill, Made in the U. S. Will enhance flexibility and availability. With this, let me come to Page number 16, the famous page on cost discipline, you would normally expect this Chart with the bars that tell you where are we with our headcount reduction. You remember, last time we showed you 9,200 people less since end of the year 2018. And I decided here to give you Some insight on this restructuring program announced in 2020. We see over the quarter A slight increase in headcount, 6 30 people, more or less volume driven By Automotive, Tech and Industrial, so the bottom may have been reached. But take into account, there is a new Program coming that is not in the numbers yet. As I said before, the negotiations are largely completed. Most of the social plans are assigned. Yesterday, we got very positive feedback from the final negotiations for another location. So the program will be started in terms of execution in the next days. Negotiations are done. For a German situation like this with significant number of locations, 9 months negotiations is nothing unusual. And we are proud that we have been able to do this on the one hand in a very constructive manner and on the other hand without giving in on Neither the headcount reduction or the overall net headcount reduction, the 4,400 that you may remember, But also the business case that we announced at the time is confirmed. The financial impact is unchanged. And these savings that you see here on the page will come in over time. That will be helpful Also meeting our targets going forward. Next page is then on the capital side. Here, I can say we We are very much focused on capital discipline, as you know. On the other hand, we saw In the Q1, a low CapEx number, 132,000,000, clearly also driven by the crisis. The CapEx ratio is Definitely below the lower end that we normally expect, reinvestment rate at 0.5. That It's not a situation that will continue. You may recall we said around €800,000,000 CapEx for this year. How this will come in remains to be seen, but it's vital for us that we continue to invest in the new areas. The A deep dive into the reinvestment rate clearly shows that this idea of mature with little investment and new with high investment Pays off and over time, we should get back to the around 6% range CapEx ratio. You know the eModa plant, just as one of the examples, there's more to come in terms of footprint going forward when the crisis comes to an end. Let me come to my last page before I hand over to Claus. Just one word on sustainability. I'm not going to spend much time here, but just want to leave you with the key message we are progressing on our road map. It's a long race, and it's not going to be won on the first part of the race, but rather at the end. So we remain very focused here and very committed. We have our 2030 target out for production CO2 neutral, and we are actively working on our Scope 3 targets. There are many, many different initiatives. The sustainable side initiative is on track. Compensation is linked to sustainability, Not only for Board members and also more training, more awareness here helps a lot. It's a key challenge, but also for us a key opportunity given our product offering. And with this, I would close my first part and hand over to you, Claus, for the financial results. Yes. Thanks, Claus. On the top line, the revenue was up On a nominal basis, 8.5%, including a negative FX impact of 2.7 Percent, so without FX, growth was 11.2%. You also can see on the slide that we Sequentially down a bit as expected, but both Q4 and Q1 Have been exceptionally good quarters. If you look at the lower right hand side, you see the sales by region with a China share of 22%, which was brought up due to a growth in China of 57%. And also lead to an increase of the share, which was a year ago, at around 16%, and that came together with also a significant margin improvement. Next page on gross Profit, so the first of all, to the gross margin, you can see on the lower left hand side that the gross margin increased by 290 Basis points, the gross profit actually increased by 21%, and that was Driven by a couple of factors, I'll just quickly go through the bridge. Price was kind of normal in Automotive Technology Actually less than in the prior year. And on the other hand, in automotive aftermarket in Industrial, there was A bit a negative change, specifically in Industrial. However, there have been There are price increases announced, which will then come into effect later in the year. Volume What's the big driver? The volume column also includes a material part of the regional mix impact. Then the product mix was actually only negative, it's minus 2, and that is due to the fact that we had a very strong growth in our Traditional automotive tech products, which fully compensated fast growth in e mobility. And on the production cost, the €130,000,000 that comes mainly from Automotive Technology and shows the degression impact or the Scaling impact from the higher volume. FX impact on gross margin was negative, but this negative Impact was in this quarter more than offset by hedging activities booked in other operating income. Next one on the EBIT on the sorry, on the functional cost. Feng Shui cost increased only slightly in the Q1, clearly less than the sales increase. R and D costs also have been year over year with a slight sequential increase, mainly due to increased project activity. Selling costs increased year over year due to higher volumes and the Akero ramp up, which Claus already mentioned, and I will come back So that then also when we talk aftermarket, also higher logistic cost, outbound logistic cost That led to that increase, which we see here and also sequentially. Admin are Down year over year as a result of continued cost discipline. The sequential expense increase is coming from a lower impact of short term work compared to the Q4 and higher spend, for example, in IT and Digitalization. Then on the EBIT, the margin came up 480 basis points, Which is quite strong increase. And on the other hand, on lower automotive Tech volume and higher functional costs, we see a slight sequential decrease compared to the very Strong Q4. Next one on the Automotive Technology Business. The growth was strong with FX adjusted 15.8%, highest Percentage wise increase from e mobility, which is now presented in a new structure. But This even in the old structure, you would have seen actually a bit higher growth. So this is both good. But on the absolute numbers, you see also that The traditional business, specifically the transmission business, was very strong and from in an absolute term, the Biggest mover here. Then on the outperformance, It was mentioned already that the 1.8% outperformance, which we had in the Q1, was held back by a negative outperformance in China, which was only due to a base effect in China, where In last year's quarter, the production dropped faster than our sales. And therefore, in a year ago, we had a Positive outperformance of more than 20% in China, and that was, if you want, a tough comp. So if you look at the bridge, Gross profit was the main lever for the improved EBIT, and that is driven from strong Regional mix and a higher contribution from China, combined with cost discipline and Excellent drop through. On the next page, you see the automotive aftermarket, where we Had 4% FX adjusted growth, double digit growth in all regions, Europe, There's a decline, but we had a heterogeneous picture in Europe with also several Countries also growing. If you look at the channel, you see that the growth was specifically strong in the independent aftermarket channel, and this growth was still limited by product availability. On the profit bridge, you see a negative impact in gross profit Of €17,000,000 of 3.50 basis points, that was driven by higher internal supply Cost negative pricing, as I mentioned earlier, and also a provision for a customer bonus program in relation to RepExpert. The selling expenses, which you see here year over year This an increase of €8,000,000 was materially coming from the AKO topic. So that was close to €7,000,000 From the €8,000,000 Next one on Industrial. You see that Industrial showed growth, FX adjusted of 3.9%. And on the lower left hand side, you see that now With Industrial Automation joining the club, now 5 sectors showed growth. Regionally, Greater China was growing strongest with 27%, and that growth was driven from wind and power transmission. And with regard to the profit bridge, gross profit Impact was slightly negative despite of a positive volume impact that was due to FX In gross profit and also pricing, but functional costs have Then being positive. And in the other column, you see then a significant impact from the FX hedging impacts. And therefore, overall, FX was not the driver for that profit improvement. It was more The increase in volume and lower functional costs. Next on EBIT. Here, You see, 1st of all, that in the Q1, we had only €50,000,000 in so called special items. They have been related to A leading topic and only to a minor part, restructuring expenses. The restructuring expenses, however, for the full year will be in a range of €50,000,000 to 70 €1,000,000 Financial result was minus €34,000,000 which was better than prior year. The improvement and the impact in the last year came from the redemption The option of the former high yield bond and income taxes were increased year over year on positive Earnings before tax for the full year, we expect tax rate of 28% to 32%. Now on Page 28. Net income was positive, €235,000,000 Also EPS was positive. Schaeffler value added decreased on a last 12 months basis. And Claus hinted already that, again, on a last 12 months basis adjusted. The ROCE was 12.5%. If you look just on the quarter, we had a very Strong ROCE, also on a reported basis and our midterm target of 12% to 15% reported pretax stays Intact. Now on the free cash flow. The free cash flow Before EBITA was €130,000,000 That €130,000,000 includes Cash out for restructuring of around €150,000,000 which was around about €100,000,000 higher than a year ago. The €150,000,000 mainly was due to the voluntary severance scheme in Germany, which was launched in 20 'nineteen. And for the fiscal year 'twenty one, we expect cash out of below €350,000,000 And The from that scheme launched in 2019, this will be around €130,000,000 and the remainder was is coming materially from the program which we announced in September 2020. Net working capital outflow amounted to 160 €4,000,000 that was driven by higher inventories and receivables. CapEx decreased to €130,000,000 But we have confirmed our guidance of roughly CHF 800,000,000 which means that in the starting in the second quarter and then More pronounced in the second half year, we will see higher numbers. And finally, on the FTF Conversion free cash flow conversion ratio was 0.3%, but that was obviously impacted by the restructuring expenses. So if you strip that out, You have a number which is clearly above 0.5. And finally, On the net debt, the net debt is now €2,200,000,000 came down quite a bit. Leverage ratio It's at €1,100,000,000 And the cash and cash equivalents are €1,800,000,000 with restricted cash of CHF 222,000,000 significantly lower than a year ago. And with that, back to you, Claus. Thank you, Claus. I will finish the presentation with the outlook and some awards On the market assumptions, please go to 32. Here you have our Triptychon with the 3 different divisions. Clearly, automotive technology being the most important number. And here, we have adjusted our Market assumption for going forward slightly upwards. Just to recall, For the full year release, we said we are building our outlook on 80,000,000 cars being produced. And that was at the time a $5,000,000 discount to the IHS forecast of as of February 2021. So €80,000,000 was the starting point. When you look today at the latest IHS estimates, you see a certain development that were Higher and then adjusted also in the April release. And we have said we will remain cautious here and We're not going to simply assume the number that IHS gives us. That was 83.5, but we still work with a 1,500,000 Cars and light vehicles produce discount versus the estimate to be on the safe side. If you translate this in year over year growth Compared to 2020, then this is 10% growth. It was 7% before. So you see from this assumption that the forecast, in particular, in Automotive Technologies is built on a cautious, still cautious outlook that we will continue to review and very carefully observe. And with that approach, we are factoring in the uncertainties due to the COVID situation that is clearly easing, at least here in Germany and in Europe, But also with the potential supply chain disruptions that are still possible, I do think that will hopefully be temporary, But it's better to be on the safe side in these days than to be overly optimistic. In automotive aftermarket, again, there is not this IHS forecast that we could use. We're using world GDP, and here we just Remained at the same level as end of the year and in industrial production, there is, as I said before, there is a positive development. The global industrial production is expected to recover and grow by 9%, previously 7%, So that's also factored into our new guidance. And on the next page, you have that comparison. You saw this also in the release. The above 17% above 7% becomes above 10%, we lifted the margin range by 1 percentage point up from 6% to 8% to 7% to 9% And the free cash flow from around €100,000,000 to more than €300,000,000 as already indicated before. And on the divisional guidance, we made the following adjustments. The general logic for Sales growth in automotive technology stays, outperformance 200 basis points to 500 basis points, But with an improved market assumption for the LVP volumes, 10% margin from more than 4.5% to more than 6%. Automotive aftermarket 5% to 7% becomes 6% to 8%. The margin stays above 11.5%. And for Industrial, Both in adjustment on the growth side from 4% to 6% to 7.9%, that's a certainly a meaningful step. And then on the margin side, we improved From above 8.5 percent to above 9.5 percent. Again, we think that's a Courses outlook, the cautious approach, but it shows confidence that we will come out of the year 2021 In much better shape than in 2020. Let me finalize very quickly on 34. The top line development was described. It will, from my point of view, further recover. Despite the headwinds, the earnings quality was exceptionally strong, and we'll see that this will soften over the year. But again, The guidance range is a solid range and free cash flow generation, always the most important figure for us, is robust Despite the cash outflows, and I think you see here that we are very much Focus on this figure because it drives value creation and also our own compensation. The restructuring program is additional support. It's Progressing according to plan. I can say I'm very happy about what the teams here have achieved. It's a Joint exercise by the whole Executive Board, clearly driven also by Mr. Schittenhelm and Mr. Ziegler, And they have done an exceptional job to get this lined up and also now negotiated, a very strong achievement from my point of view. And I can also say, as soon as that is executed, we will revisit our footprints, our Capacity allocation, our structures and see what else needs to be done is a continuous exercise in these days and as part of our Transformation. I already commented on the guidance, not more to say I want to finish again by reiterating our Relentless focus on execution. This is what is necessary. The team is fully committed to Master, the challenge is ahead of us, and we are committed to deliver a continuously solid operating performance and strong cash flow. Last page, we have decided to be a little bit more active in terms of roadshows and conferences. After these Q1, you see 4 different days, followed then in June by 2 more events. We've also agreed that we will involve the colleagues here a little bit. Matthias will be there, Jochen will be there, Jochen Schroder, Mark McGrath is going to help us. So we think it's time for a little bit broader communication and the colleagues deserve it. They are the ones That are driving the operational successes, in particular, Matthias, has contributed greatly in the eMobility strategy and also in generating growth opportunities, but also harvesting Our highly valuable mature business. That's it from my side. And with that, I hand back to you, Renata, and To the operator for your questions. Thank you very much. Thank you very much, Mr. Roseford. Thank you very much, Doctor. Thank you, Renata. Ladies and gentlemen, at this time, we will begin the question and answer time. One moment for the first question please. First question is from the line of Idorado Spina from HSBC. Please go ahead. Thank you very much. I have just a couple of questions. The first on the impact of the Price increases on your cost for 2021 and then for the next few years. If you could clarify How company in Russia is impacted by the semiconductor shortage if you buy directly March or if it's just a second derivative type of impact? And also how you think this tight supply chain situation would develop for the future because the second question is more about the midterm guidance. I guess that today maybe was is not the best time to develop that too much, but I was wondering if this supply chain situation is a In refraining from having higher guidance or for the future or there are other elements that you would like to share at this time? Thank you very much. Maybe, Eduardo, I just start and then I hand over to Claus for the more factual things. If I understand you correctly, you asked about midterm targets. Let me say this is not the time to talk about midterm targets. We have Announced them end of last year as part of our Capital Markets Day. We are now through the Q1. And again, We have not taken any steps here to discuss this. The midterm targets are midterm. And at the moment, it's all about getting the Year 2021, right. The guidance shows that. And with this, I hand over to Claus for the second first question on the supply chain situation and the impact on the P and L. Yes. First of all, I think on the supply chain side, I would differentiate between the semi side and other raw material pieces specifically on the steel side. On the semi side, this is more an indirect impact because it's an impact on our customer mainly for us, which we Observing and obviously, we expect also that this has an impact on our top line in the second quarter, but You're also then in the second half, which is built already into our guidance. On the raw prices indeed in the Q1, we had no significant negative impact. It was I I think it was below it was just a high single digit figure year over year. In the last year, we had, in general, a positive impact. For the full fiscal year 2021, we expect a negative impact. And probably we have to differentiate also between gross and net impact. Gross impact, I would I'd say it could be between 50 basis points 100 basis points of In margin, but obviously, we are trying to also pass a portion of that to our customers. Therefore, the net impact might be a bit smaller. Again, also this headwind is Included in our fiscal year 2021 guidance. Thank you very much. If I may have a very quick third question about the Q2. Comparing to one of the German competitor, very large, They mentioned maybe the Q2 could be as low as 10% less than the Q1, so sequential decline of maybe up to 10%. I was checking if you could share your thoughts on that. And congratulations for operating the GALAS this year. Eduardo, it's a good question, And it's always good to look to our sister company, but we have decided not to comment on the quarterly Development, we have given you a new guidance for the full year. And let's see what the quarter is. Maybe Claus can say some words on the current trading. And that's what we can say, but a number in terms of how much it looks like versus previous year or this quarter would be not in line with what we agreed here. If you want to say something on the current trading Maybe that helps you a little bit. First of all, I think we can say that April was a pretty strong Months, but in the latest days, I think it was getting a little bit weaker and that is also What we see here for May, in general, my expectation very broadly would be that I do not expect Personally, the Q2 will be higher than the Q1, right? So it will be so there will be a bit of an impact here. But again, Has been built into our yearly guidance, as Claus mentioned. And we have these easy comps, don't forget that. There will be record Growth rates, but that doesn't count. I mean, what counts is how the how it progresses and Claus has given you the indications. The next question is from the line of Sasha Gemal from Jefferies. Please go ahead. Yes, good morning. Thanks for taking my questions as well. The first one would actually be on your guidance. And I just want to understand a little bit the moving parts, what happened? Because you gave a guidance early March for the full year. Now you upgraded on the back of a very strong Q1. When I look though at the remainder of the year, the new guidance implies more or less on the margin side that you end up With what you've guided in March, so is it fair to assume it's basically you just upgrade on the back of Q1 Or is there anything else that I'm missing? It's a fair question. And This is very much a balancing act. If this would be a V shaped recovery where you just now Say it's all over and we go full speed ahead, then the guidance may have looked differently. But Here, yes, we had a strong Q1. That helps for this step. Others have not upgraded their guidance. But we also are very conscious Of the potential headwinds that are there. And as this is not symmetric, we said that's rather be also Of course, it's here with going into this upgrade and not overpromise something. And I think Claus has given the reasons. It's a variety of things that come together, but you can't look at this like a mathematical exercise where someone said, Okay. Q1 was better than expected, and we continue with for the rest of this year what we had before. It's a very thorough forecasting process that was behind this that was finished at the beginning of this week. And this also takes into account the different situations in the 3 different businesses. Don't forget, Compared to others, this is not only Automotive Technologies. There is a slightly different situation there than in Industrial. And this is the end result of a, I think very professional discussion that Claus guided over the last days that led to this result. Clearly, with a cautious approach, but with some sign of My second question would be on Electronics. And I know you cannot comment on competitors, but a lot of competitors are talking about adding electronics content to their mechanical product. And I think you've been talking about that in the past as well. So I was just wondering if there's any update you can share with us today, if the change if the thinking has changed Or if you would accelerate any expansion into electronics. Yes, maybe I think we have been careful what are we talking about. I mean, if we are talking about power electronics as part of the e mobility offerings, Then that will clearly increase, because the need for e mobility solutions Will increase over time. What that means for us in terms of our own production or sourcing is a different question. If you then again use the mature and new business analogy, This is very much on the new side, also on the chassis side, while the classical products of Schaeffler, the components Are not so much affected by any semiconductors. And semiconductors is also not electronics. So we need to be a little bit careful That this doesn't become too much a black and white aspect. We are not going to change our strategy in terms of what we want to do Because of this headwind, as Claus said, we are not so much affected like others as we don't Typically, use so many parts, our sort of the share of our purchasing volume is more in the low Single percentage numbers when you come to this. So the direct impact is definitely manageable. The indirect impact is the challenging one. And that's more a question of how the supply chain normalizes. As I indicated, I think there is at the moment a bullwhip effect That will balance out over time. But at the moment, there's definitely this is a big challenge and everyone is talking about it, whether it's In our direct conversations with customers or whether it's in the German car association, but it will normalize. That's also for sure. This question is from the line of Horst Schneider from Bank of America. Please go ahead. Yes. Thank you for taking also my questions. Good morning. So the first question that I have that relates again to special items and Restructuring. So, I mean, you had very little additional charges in Q1. Is it fair to assume that this is going to remain Case also in the next 3 quarters. So that all the restructuring charges by now have been booked and now you are really just more switching into execution mode? Or is there more coming up on the back of the negotiations that you are doing at the moment? Then you talk on Slide 16, I think you talk about the restructuring savings, the €250,000,000 to €300,000,000 Of which 90% will be realized already in 2023. I'm not sure if you have ever commented how much of the savings They'll materialize already in 2022. So I think there'll be savings already this year. So it would be great if you could quantify them. Then the other question that I had that was referring to M and A. I understand that you cannot comment on these market rumors on Bloomberg. But nevertheless, I mean, we see now that your leverage ratio has declined below 1.2x. And I think your target was in the midterm plan something like 1.2 to 1.5 times leverage ratio. So therefore, the flexibility on M and A is clearly increasing For you as a group, so I don't know. I want to understand how should we think about this leverage ratio. You really want to Stay tied into that or temporarily, you can also go above that level given that the business situation is improving. Or put it in other words, what is the maximum level of net debt that you want to have on your balance sheet? Thank you. Well, Horst, I understand your questions. Let me comment and start with the first one and then with the last one and then Claus can add to this. I can again confirm that our M and A strategy is a strategy that is clearly focused on bolt on acquisitions, Small acquisitions that adds both strategically but also technologically. And when we Outlined the midterm targets, we said 1.2 to 1.7, including such a strategy without knowing What the actual target would look like. And let me also say this with a little smile, there are situations in life where we all have learned never say never. And that's what I'm going I can't say more on this. But generally, we can say that the situation on the right hand of the balance sheet has Dramatically improved over the years. We have a very solid liquidity position. We have a good net debt leverage ratio that is now at The moment slightly below the target, and that gives us ample room to do the right things. But please understand, we're not going to discuss at this call Our firepower going forward. In terms of the restructuring numbers, what you have on this On Page 16 is just a copy of what we shared with you on the 10th September. So that was the estimated savings and we promised there €250,000,000 to €300,000,000 for the year For the full run rate effect and said 90% of that should be in 2023. Again, negotiations are not completely finished. And therefore, for this Q1, we can't at the moment say more than we are well on track Finalize and also confirm the business case behind it, but how it will then unfold in the year 2020, 23 Remains to be seen, maybe something Renata for a subsequent call if we have all the details together. Restructuring charge, Claus, you want to add there? Maybe you want to add color for my second question? Yes, I'm happy to. So again, 1st quarter restructuring And have been low single digit amount. I mentioned already that restructuring expenses for the year 2021 will be Between €50,000,000 €70,000,000 And that comes to what we have already accrued in fiscal year 2020, which was €580,000,000 And I would say for 2022, I would say there's another 2022, 2023, there would be another €50,000,000 And that gives you then the around €700,000,000 what we mentioned already in September. So that is Fully as planned and again on the savings. So we said this for 2023, 90% of €250,000,000 to €300,000,000 So for 2022, it will be a Significantly lower amount. So I would rather guesstimate guess right now a number of roundabout 100, And then maybe just to add one more sentence on the net debt situation. If you look at this page that Claus explained 30, you see that the last 12 months EBITDA before special items is around €2,000,000,000 But that includes still a weak Q2 2020. If you just go forward, look forward for 1 quarter, if that falls off, I think you cannot assume that our Q2 'twenty one will be equally bad. So the underlying LTM number will go up. And that gives again further cushion in terms of the net debt leverage ratio going forward. On the other hand, we paid dividend in the second quarter. That That typically doesn't help the liquidity position, but I think we are in a fortunate position here when you think about our net debt situation. Just small follow-up on this Q2 issue. When you said on Eduardo's Question that Q2 going to be below Q1 in terms of sales. You meant the total group, not just Auto Tech, right? I think that was the that's what was indicated. I mean, we said Q1 was an exceptionally strong quarter And we now need to see how this unfolds, but I think what Faust said was for the full group. All right. Okay. The next question is from the line of Akshat Cocker from JPM. Please go ahead. Thank you. Akshat from JPMorgan. 3 from my side, please. The first one on the industrial business. Can you just take a step back and please talk about your growth relations in industrial in Americas in general. And how does your market positioning look right now versus competitors there? And how does the business overall And versus your positioning in other markets like Europe and Asia. The second one is on auto margins. I understand the cautiousness in terms of Full year outlook. Maybe to just get some confidence and visibility into the Q2, can you help us if And thinking if you can maintain a more than 6% margin target in a challenging Q2 otherwise. And the third one on order intake For eMobility, can you just remind us where do we stand in the Q1 and how do you expect this to evolve for the remaining 2021. Thank you. Okay. Let me start with the last one. We have decided To publish order intake with the necessary details on a half year basis. So I can only tentatively say The order intake in the Automotive Tech division was strong in the Q1, Again, eMobility, I just mentioned one of the projects that was this truck project that was a The larger 3 digit million order intake, but please understand I can't give you more than that at the moment. We feel good about the development there. And again, the number of requests, the number of acquisition projects is rising. What is the sign that our Again, I mean, we have said we don't give any quarterly guidance now, and I would refrain from any more here than We are very much focused on, on the one hand, manage the potential growth, maintaining the good Momentum in terms of profitability on the mature side, but I can't give you any more Information on what the Q2 will look like. Claus gave the flavor in terms of current trading. Therefore, the 6% remains an annual floor. Here, we are clearly fully committed to make that. And don't forget, this restructuring program will help both bigger divisions, Auto Tech and Industrial, Going forward, probably fifty-fifty, that was the indication from September. In terms of Industrial, I didn't really understood Whether you that was a question of the or regarding the overall business or whether you related it to a sector or to a region? Yes. It was the sectorial question? I think it was U. S. Yes. U. S? Okay, sorry, then I didn't got that. My apologies. On the U. S. Side, I do believe that the U. S. Is at the beginning of a stronger recovery in Industrial. On the one hand, driven by the governmental support. We don't have a made in the USA Logic at the moment, but it's obvious to me that the U. S. Will recover in that area stronger than we think. And that's what we are saying, as I indicated also on the page, there is definitely potential for us to grow On the industrial side, so far, we have been rather, in certain areas, a niche player, but distribution, for example, in the U. S. Is strong, Wind opportunities, our classical business in bearings is clearly competitive. So We think that will be a support going forward in the year 2021, but also in the following years. Thank you. You're welcome. Next question is from the line of Christophe Laskowiak from Deutsche Bank. Please go ahead. Hi, good morning. Thank you for taking my questions. A lot of them have been answered already, so thank you for that. But Just to follow-up on the current trading. I know you don't want to comment too much in detail, but could you comment on the Product mix that you are seeing into Q2, is it essentially unchanged from Q1? Or are specific product groups accelerating more than others? And then also on the regional mix and the potential margin impact into the quarter, would you say that could be weakening Or also essentially unchanged. And then just as a reminder, in terms of the cost ramp up when hopefully soon operations will normalize from the volatility of the semi shortage. Do you expect A lot of costs to pick up again when you revamp the activities? Or are you essentially now coming close to normalized cost going rate after the restructuring? Jean, maybe I start with the cost side. I mean, don't forget, if you look at the year 2020, there was a Meaningful impact from Coeur d'Orbiet in Germany in that. That is in the area of that's more than 100 With phasing where the biggest impact was in Q2, that would more or less go away in 2020 That's one of the elements. We said there are several elements. On the other hand, we have continued savings. We still think that We will not fly as much as we have ever flown before. Claus said we will invest in digitalization. That's not only CapEx, this is also OpEx. We will stay very focused on buildup of unnecessary jobs. On the other hand, there will be volume increases because some of the factories are working at Capacity level. So it's not an easy answer here. There are several drivers that need to be managed carefully. What I can again Say again and confirm, this is all part of the guidance and included in this, I think very professional forecasting exercise that Claus organized. And on the product mix, Claus, would you help me there? Yes. First, I think first of all, as I think also highlighted already, we expect in the Industrial Business Good momentum, continued good momentum. We also would expect that automotive aftermarket from the top line has Good momentum. So that's clearly, I think, positive. I would not see here any negative impact. Obviously, we aftermarket is still kind of inventory held back by the inventory situation. So we We'll also utilize if in Automotive Technology, there would be a temporary weakness. We can utilize that in order to build inventories, which we then immediately can use in the aftermarket or later than Also in Automotive Technology, when the semi topic will clear. On the current trading, what I mentioned already that April was strong, specifically in Europe, Basically, on the level of January February, But was not on the level of March, right? So that's what I can say here. We also see in the March months sorry, in the April months that there was Quite a visible impact in the United States. So that has on the return mix side, and we expect that to Continue also into May and also potentially into June. Greater China, the impact was Rather limited, I would say, there was a first negative influence from the semi topic in April, right? And Asia, that's Specifically, India remains to be seen. Obviously, we are very cautious on that situation there. Thank you. Just one follow-up, if I may. Leaving beside semis because you don't source them too much, are there any either raw mats All parts where you would fear a shortage or a very tight supply in the coming months, leaving aside The price increases that we've seen anyways, some companies will be a bit worried about steel, for example. Well, again, you all know that steel is our main material that we use. Or to be more precise, it's not only raw material, it's also Everything that is steel related, take turned rings. I would answer the question in our business Over the cycle, we always have situations where there is tension in the supply chain. At the moment, it's, I would say, rather At the high end, but we're used to manage this. There's always a question of do we get the volume, what is important for us. We don't want to create a situation where a customer can't be delivered. And on the other hand, there's a price element. We are Well experienced how to manage this, in particular on the steel side. It's not easy these days, but I don't I'm optimistic. I think we'll Get out of this soon. There's nothing that I can say that is going to be now the next one after the chips have rebalanced. But there are clearly, I mean, the world has changed. The supply chain challenges are high. It's all the question of how you deal with that. And maybe to finish off the whole conference, I think this quarter shows that we are in good shape. The hard training of the last This quarter has clearly helped us, and we are confident that we will cope with the challenges ahead of us and bring this company forward. Great. Thank you. You're welcome. There are no further questions at this time. And I would like to hand back to Mr. Rosenfeld for closing comments. Please go ahead. Well, ladies and gentlemen, I just made my closing comments. Thank you very much for listening. You see the table with the Events that are ahead of us, we thank you for listening and following the Schaeffler Group. Again, I don't want to repeat myself. We are optimistic, but also cautious at the same time and we are clearly committed to further create value and execute as we promised. With that, thank you very much, and We'll see you soon at the latest in our Q2 earnings call. Thank you. Ladies and gentlemen, the conference is now concluded and you may disconnect your telephone. Thank you for joining and have a pleasant day.