Schaeffler, a global supplier to the Automotive and Industrial sectors, today unveiled its Roadmap 2025 during its Capital Market Day 2020 (CMD). The Roadmap 2025 updates Schaeffler's business strategy to 2025, sets a schedule for its implementation and includes a number of medium-term goals. The medium-term goals for 2025 were published on November 17 after the close of the markets and were then further explained to today's CMD. The main part of the event included presentations made by the CEOs of the three Divisions, who discussed the growth opportunities and value creation potential of their respective Divisions.
Strategic priorities in the 2025 Roadmap
At the start of the event, Klaus Rosenfeld, CEO of Schaeffler AG, stressed that the Roadmap 2025 does not mark any radical change in strategic direction. The approach is rather to maintain the current course in areas where continuity has proven successful, to focus even more clearly on the strengths of the company and to improve in areas where there is ground to catch up. The new company claim, “We pioneer motion,” expresses Schaeffler's commitment to continue to shape movement and progress by being a diversified supplier in the automotive and industrial sectors with a global reach, he said. This will require even more effective use of the synergies available within the Schaeffler Group, he added. The company's success will continue to rely on its four proven key differentiators of innovation, manufacturing excellence, highest quality and system understanding. At the same time, he said, Schaeffler must also continue its transformation and focus on core competence and its consistent implementation.
In the Automotive Technologies Division, this essentially means accelerating the portfolio's transition to electric mobility and chassis applications. The priority in the Automotive Aftermarket Division will be to maintain the existing high margin, while at the same time focusing on utilizing growth opportunities in the independent aftermarket segment. The Industrial Division will seek to enter new growth sectors and will continue to steadily increase its profitability, he said.
All of these measures will continue to be implemented consistently and with strict operational discipline. In this context, attention will continue to focus on the creation of free cash flow and on a convincing allocation of capital within the Group. The goal is to create long-term added value in a sustainable way.
Rosenfeld has identified five key trends for the future that open special opportunities for the Schaeffler Group: (1) sustainability and climate change, (2) new mobility and electrification of the powertrain, (3) autonomous production, (4) data economics and digitization, and (5) demographic change. Based on these trends, Schaeffler has formulated five areas in which the company intends to further strengthen its position. These areas include the products and services of all three Divisions as well as the ten customer sectors and cross sector clusters.
The Schaeffler Group sees strong growth potential in sectors such as hydrogen technology, for example, both in the form of fuel cells for mobile applications and electrolyser equipment for green hydrogen production: "The Schaeffler Group sees significant growth opportunities in the hydrogen sector. With our manufacturing excellence and our expertise in industrialization, we are in an excellent position to offer our customers high quality solutions and to benefit from the expansion of renewable energy, ”said Rosenfeld.
For the Schaeffler Group, the issue of sustainability is of high importance. To this end, the company pursues an integrated approach in all Divisions, Functions and Regions. The goal is to achieve zero CO emissions production2 starting from 2030.
Automotive Technologies: aim for innovation leadership in the i segment powertrain electrical
Matthias Zink, CEO Automotive Technologies, began his presentation with some remarks on the persistent high level of uncertainty in the automotive sector, on which he said the COVID-19 pandemic had a particularly severe effect, adding to the fundamental structural transformation that it was already in place. A conservative approach to planning is therefore needed, combining strict cost discipline with some flexibility, he said.
Focusing on the segment powertrain, Zink has extended Schaeffler's “Vision Powertrain 2035”, based on global production of passenger cars and light commercial vehicles, to 2030. The pace of electrification is set to increase dramatically, with battery-powered and fuel cell (xEV) vehicles climbing to 50% of the fleet, and hybrid engines (HEV) and internal combustion engines (ICE) falling respectively to 35% and 15%.
Schaeffler will need to take this change into account in its portfolio management and capital allocation decisions, he said. Mature business areas with lower growth potential will need to focus more on profitability and efficiency, with more investment in future technologies and new businesses. For the foreseeable future, however, optimized HEVs and ICE drives will remain important in stabilizing margins and generating free cash flow, in part as a means of financing growth in new business areas. The implementation of measures to increase efficiency and reduce complexity within the Automotive Technologies Division will continue, he said.
Dr. Jochen Schröder, Head of the E-Mobility Business Division, highlighted the high volumes of incoming orders in the electric mobility sector, which amounted to 4 billion euros in 2019 and over 1 billion euros in the first half of the year. 2020. The annual order entry target for electric mobility for the period up to and including 2021 is € 1,5-2 billion, he noted, while the target for the subsequent period is an average of around 2-3 billion. billions of euros per year. He highlighted the construction of an electric motor manufacturing plant in Hungary, the siting of a state-of-the-art e-mobility Competence Center in Bühl, the success in gaining an established position as a supplier of "3in1" electric axles and the production of components for electric motors for trucks in the USA. There is also very promising potential for fuel cell technology for trucks in particular, he said. This is one area where the Schaeffler Group is building a cross-divisional position as part of its hydrogen technology initiatives.
There are also some success stories in the field of chassis applications as self-driving vehicle enablers. Schröder cited a partnership with Bosch for steering systems for the rear wheels and the joint venture Schaeffler Paravan, which is currently developing solutions steer-by-wire.
As medium-term objectives for 2025, the Automotive Technologies Division aims for growth in turnover after exchange rate effects of 200-500 basis points on average above the growth in global production of passenger cars and light commercial vehicles. The EBIT margin target before extraordinary activities is 4-6 percent, with the lower level of that range being reached by 2023 at the latest.
Automotive Aftermarket: changes in the business model necessary for the realization of market opportunities
Michael Söding, CEO Automotive Aftermarket, summarized current and future market trends for his Division. Based on current forecasts, it noted that the global vehicle fleet, which currently has 1,40 billion cars, is set to grow to 1,55 billion in 2025, mainly due to trends in China. Along with this increase in the vehicle fleet, opportunities will open up in the aftermarket due to the increase in the average age of vehicles and the trend towards greater vehicle complexity. These trends will translate into increased demand for vehicle repairs.
At the same time, however, aftermarket profit pools are under pressure, mainly due to consolidation and the entry of new players into the market. Furthermore, digital platforms and e-commerce are changing consumer behavior.
Schaeffler will have to respond to this complex mix of challenges on multiple levels and make changes to its business model, he said. As an example, he cited an expansion of the company's range of solutions and services. As part of its ongoing transition from component supplier to integrated systems and solutions provider, for example, Schaeffler is adding data-driven services and innovative repair solutions to its product range. plug-and-play. Another avenue is the formation of industrial partnerships, he said, as a basis for offering holistic solutions, including access to vehicle data.
Söding also highlighted the creation of digital sales channels, citing the ETC (engine, transmission and chassis) product portfolio in China, which offers a "one-stop shop" for highly complex products on a fragmented market with high growth potential. . The REPXPERT workshop portal also uses digital channels, he noted.
As a further measure to increase efficiency, he referred to the creation of "Aftermarket Kitting Operation Europe" (AKO Europe), an assembly and packaging center which went into operation on 12 August 2020. By 2023, AKO will cover at least 60% of global inventories. By incorporating both digital and non-digital solutions, it will provide a sustainable boost to efficiency and agility in supplying automotive aftermarket parts. A 20% reduction in CO emissions will also be achieved2 thanks to shorter transport distances, he said.
The mid-term objectives for 2025 for the Automotive Aftermarket Division are to generate revenue growth net of foreign exchange effects that is on average above global GDP growth, and an EBIT margin before extraordinary activities of 13-15 per one hundred, with the achievement of the lower level of this range by 2023 at the latest.
Industrial: higher margin thanks to new business areas and operational measures
Dr. Stefan Spindler, CEO Industrial, noted that global industrial production in 2020 is expected to decrease by at least 8% from the previous year. Growth is negative in all regions except China, he said. A return to pre-pandemic growth levels is not expected until 2022. Long-term growth prospects across the eight sector clusters are mainly positive, he continued, with Wind Power and Rail seen as the strongest market sectors. growth potential.
The Division can generate growth in its core business by leveraging key future trends, such as sustainability and demographic change, he said. But growth can also be driven by the sale of innovative systems and services, he added. Schaeffler has a strong position in the components industry, with growth based on manufacturing technology and innovative product development built over several decades. Investments in both high-performance products and low-cost high-volume products are carefully targeted according to customer needs. Based on these requirements, the Division increasingly brings systems, mechatronic products and service solutions to the market.
Spindler cited the following six examples of growth initiatives in the components and systems business: components for wind turbines and railway applications, rolling bearings and sensor technology for agricultural equipment, new robotics systems, the OPTIME solution for condition monitoring and first steps in the development of components for the generation of hydrogen.
Overall, the Industrial Division plans to extend its technological leadership, to further improve customer service through e-commerce solutions, to obtain continuous efficiency gains with the FIT program and to proceed with the gradual implementation of the structural realignments adopted to September.
As medium-term objectives for 2025, the Industrial Division aims for growth in sales revenues net of foreign exchange effects that on average exceeds the growth of global industrial production, and an EBIT margin before extraordinary activities of 12-14 per cent, with the lower level of this range being reached by 2023 at the latest.
Business management based on the value of the Schaeffler Group and focus on free cash flow
As the latest speaker at the CMD, Dr. Klaus Patzak, CFO of Schaeffler AG, provided an overview of the Schaeffler Group's medium-term objectives, which are part of a revised financial framework. He explained that the deciding factor in determining the medium-term objectives was the multi-year plan for the Divisions. The budget year represents the first year of the medium-term plan.
The purpose of multi-year planning is to enable Schaeffler to invest in new growth areas, gain market leadership positions, focus mature parts of the business on profitability and free cash flow, proactively adjust footprint and reduce general expenses.
The main indicators of value creation at Group level are the return on invested capital (based on reported EBIT), which is expected to reach the target range of 12-15 per cent by 2023 at the latest, and the conversion of free cash flow (free cash flow before inflows and outflows for M&A activities divided by reported EBIT), which is expected to reach the target range of 0,3-0,5 by 2023 at the latest .
These two indicators highlight the central importance of profitable growth, targeted capital allocation and capital efficiency for value-based business management and free cash flow generation from EBIT.
The Board of Directors of Schaeffler AG has also formulated the following parameters for the capital structure and dividend policy: the debt to EBITDA ratio of the Schaeffler Group, defined as net financial debt divided by EBITDA before extraordinary activities, should be between 2021 and 2025 between 1,2x and 1,7x. The dividend policy remains unchanged. As before, the goal is to distribute 30-50 percent of the adjusted net profit for extraordinary activities to shareholders.
The Roadmap 2025 prepares the Schaeffler Group for a successful future
With the Roadmap 2025, the Schaeffler Group is successfully orienting its activities towards the future. Concluding the event, Klaus Rosenfeld commented: “Our Roadmap 2025 is a forward-looking strategy with which we want to make the Schaeffler Group even more competitive and prepared for the future. We want to exploit our growth opportunities even better, achieve more synergies in the Schaeffler Group and create sustainable value. Our new claim 'We pioneer motion' unites all our activities. In this way, we will also live up to our claim to be our customers' preferred technology partner in the future ”.
Forward-looking statements and forecasts
Certain statements contained in this press release relate to the future. By their nature, such statements involve a number of risks, uncertainties and assumptions that could cause actual results or events to differ materially from those expressed or implied by the aforementioned forward-looking statements. These risks, uncertainties and assumptions could adversely affect the outcomes and financial consequences of the plans and events described here. There is no obligation to publicly update or revise forward-looking statements, whether as a result of new information, future events or other reasons. Recipients of this press release should not place undue reliance on forward-looking statements, which only reflect the situation as of the date of this press release. The statements contained in this press release regarding past trends or developments should not be construed as proof that the same trends and developments will continue into the future. The warnings described above are to be considered in connection with subsequent verbal or written forward-looking statements by Schaeffler or persons acting on its behalf.