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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Ladies and gentlemen, thank you for standing by. I'm Stuart, your Chorus Call operator. Welcome and thank you for joining the Group Q4 and Full Year 2021 Earnings Conference Call of Schaeffler AG. [Operator Instructions] I would now like to turn the conference over to Renata Casaro, Head of IR. Please go ahead.
Thank you very much, Stuart. Dear investors, dear analysts, thank you for joining the Schaeffler Group 2021 earnings call. As usual, our call will be conducted under this disclaimer. Without further ado, I will pass the floor onto Mr. Klaus Rosenfeld, CEO of the Schaeffler Group; and Mr. Claus Bauer, CFO. Klaus, the floor is yours.
Many thanks, Renata. Ladies and gentlemen, at the beginning of our analyst conference today, please allow me to make the following statement on the situation in Ukraine. The situation in Ukraine is terrible. We are shocked by the destruction, the suffering, and the humanitarian catastrophe we are all witnessing. In particular today, our thoughts are with all the people who are affected by this war. And I should say, in particular, with all the women, the mothers, and the children that are fleeing their country. Also, in the name of all our employees, our 83,000 employees across the world, we can only hope that this war is stopped immediately. For us at Schaeffler, the safety and the wellbeing of all our employees has always had highest variety, and to date, I can say that our 6 employees in the Ukraine and our 174 in Russia are all well and safe. And let me continue by saying, even though it is very demanding in these difficult times to focus on a normal agenda, we would like to present to you now, Claus Bauer and myself, some insights on the business development, the results for 2021 and also talk about our outlook for the year 2022. No one can predict today how the situation in the Ukraine will further develop, and I believe no one today can reliably assess the consequences of this war on the world economy, the growth perspectives for Europe, our supply chains or raw material prices. That is why the Executive Board of Schaeffler AG has decided this morning to suspend the guidance for 2022, as outlined in the ad hoc message this morning. I believe in and we believe together, Claus and myself, that this is the only responsible way for a company like ours to deal with the current situation. So much upfront, ladies and gentlemen, let me now start our presentation in the usual format. I will do a quick overview and then talk a little bit about the business highlights in 2021 before I hand over to Claus for the financial results of the full year and also the fourth quarter. If you follow me on Page 4, that's the usual summary page. And while it may not be appropriate in this environment to talk too much about successes, I think I can say the full year 2021 for Schaeffler was a successful year with strong performance, 10% growth, above 9% EBIT margin, and a free cash flow above EUR 500 million. I think that is clearly remarkable in an environment that was also in 2021 quite challenging. This has all led to the decision and the proposal that we made to the Annual General Meeting that we propose a dividend of EUR 0.50, what means a payout ratio of 44%, in line with our payout range 30% to 50% of net income. What I also would like to say, we have been successful in driving our transformation. The Roadmap 2025 is intact, and we have successfully closed our second phase of the restructuring program with the financial benefits to be expected in '23 and '24. That gives us some sort of a buffer for the 2 years to come. I'm also happy to say that in particular in Automotive Technologies we have made good progress on the E-Mobility side. We already reported about this in the last quarterly call. We have worked continuously to sharpen our operating model and optimize the portfolio management, and you will see later on that we are now in a position to give you also for the year 2021 indicative sales split for this new [ 4-box model ]. We will also see that the powertrain scenario before the war and before the crisis has been revisited, and that we have decided to further accelerate our assumptions with an earlier and faster adoption of BEV vehicles. I made my comments on the guidance and that leads me to conclude our first page. Before I go further, let me add that in this environment, diversification is key. Schaeffler is, as all of you know, not only an automotive supplier, we are an automotive and Industrial supplier. We have an aftermarket division. All of that has helped us to master challenging situations in the past. And I think it's a good base also going forward to be more diversified than simply being a European automotive supplier. Page #5 has the guidance of the last year. I think I can skip that. The Page #6 has highlights and lowlights. Also here, some already mentioned, good outperformance in Automotive Technologies, 400 basis points for the full year 2021. You all know that you can't judge outperformance by quarter. But if you look at the trend and the informations in the backup, you see that we are continuously making up our promise of delivering continuous outperformance. E-Mobility order intake strong for the year, significantly and clearly ahead of our target. Aftermarket, strong sales performance, and you will see later, increasing demand also supported by new digital offerings in Industrial. We're really proud to say that the recovery, the optimization of our profitability reached new heights in the year 2021. You all know about the Melior Motion acquisition. And I already mentioned resilience and diversification why this is so important. On the lowlight, clearly, the issues of the past have not been sorted out completely. This sector, in particular, automotive is still suffering from hiccups in the supply chain, semiconductor is one example. And we clearly saw a second half that was less positive in growth than the first one. Market headwinds, COVID is not completely over, although it looks like that this situation is reducing. And a key concern that is now clearly amplified to what we are seeing in Ukraine is the increasing cost for raw material, energy, and also transportation that has already increased throughout the year 2021. And with what we have today, I think it's fair to assume that this will continue. Once again, the macroeconomic, but also the environment in the different sectors is very difficult to predict. So we cannot really tell you at the moment what we are expecting for the rest of the year. Page #8, I think I can take the liberty here to do this very quickly. You can read all the numbers. Sales growth for the year 7.4%. EBIT margin after the difficult year 2020 back to 6.9%. I think that is a good achievement. Keep in mind that certainly, the first quarter was important for this 6.9%. Page #9 gives you a little bit more insight on the business highlights. Order intake for the full year for the full scope of the Automotive Technology division in line with the previous year of EUR 10.2 billion, EUR 5.4 billion in the first half, EUR 4.8 billion in the second half. The real interesting number is EUR 3.2 billion order intake in E-Mobility. And the right-hand side of the chart displays a little bit our latest product developments, whether this is the already mentioned 800-volt power electronics or the thermal management opportunities, the market positioned for 3-in-1 systems, also our further optimized technology for e-motors, all of this sits right where customers need our support, and we feel very good about the advances and the developments in the E-Mobility division. Page #10, Aftermarket, after the year 2020, growth of 13%, what is clearly strong, also supported by the Asian region and Americas, positive price development already in 2021 to offset some of the increasing input costs. However, margin down to nearly 14%, 13.8%. And despite the improvement measures focusing on material flow and production and warehousing, we have to say that the sales development in Europe, in particular, was impaired by some ongoing logistical performance issues. Here the AKO one of the big investments of the past is still creating some concern, and we're dealing with this as we speak, in optimizing also here our partner setup. The input costs, in particular, product and freight, will persist also in '22, and that clearly makes aftermarket an area to watch out for. In terms of product development and offering, I don't want to spend too much time, but the whole idea of further digitalizing the division, creating more digital positive [ customer ] experience is vital to the success of the future. Let me come to Page #12. Our Industrial division, a good and positive development in the year 2021. You see it from growth, 13.6%, broad economic recovery continued also in Q4. Most sectors growing double digit. Some of the sectors that were lagging like railway are returning to positive growth. And that also led them to a strong finish with a overall margin of 12% for the full year. If you remember our midterm targets, then this is clearly an achievement that comes earlier than what we expected. The Melior Motion acquisition is a small acquisition. We closed it in February. You all know this. And it's a proof point again that we are serious in not only growing our business internally but also adding where possible technological competence here, in particular, in the robotic business, an area where we think we can do much more and can also generate more profits. There are some headwinds. Wind was strong. There's a little bit of a smoother development in China, demand normalized, Aerospace and 2-wheelers, all before the war. We now need to see how this unfolds. And clearly, also this division is impacted by higher raw material, energy, and transportation cost, while our measures to pass this on to customers are more effective than in other divisions. Last point here on Page 13, the order book, you see once again a development for the 3 months order book in the year 2021, order book increasing, sales coming down a little bit in the fourth quarter. So that means continuous growth in the future. Whatever this crisis now will mean for this chart, we'll see when we present the first quarter results. Business highlights I already mentioned. The fact that we have here a core business with standardized and specialized bearing offerings across a variety of market classes is clearly a big asset, and we are strengthening it as we speak with some bolt-on acquisitions. Page #14 is the usual slide on capital allocation. Let me say here, you can read all these numbers, we are clearly at the moment doing what we can to analyze and monitor the situation to also revisit our plans. I can say that our strategy going forward remains for the time being in place. We're not going to change direction. But clearly, we need to see in the next weeks and months to come how we prioritize on the CapEx side, what our CapEx plans for the next 5 years, how they will be adjusted in general, the direction to drive this by reinvestment rate, and clearly invest more into the Industrial division and E-Mobility remains in place, while we will be maybe even more cautious than we have been before on the mature businesses. Let's wait and see what this means. The chart also tells you that this is a global company, where more and more of the investment also happens outside Europe. Now let me come to 3 topics that I would like to mention before I hand over to Claus for the details on the numbers. The first one is on portfolio management Automotive Technologies. You see here this new chart. You all know the idea of these metrics with mature versus new and powertrain specific versus powertrain agnostic. What we have added on this page is the most prominent product areas that belong into these 4 boxes from cam phasers, mature powertrain specific to steer-by-wire, a new business in Chassis Systems. You see how this is allocated, and you also see as a second part of the new chart how then these 4 businesses relate back to sales and sales growth. You see the biggest part is still engine and transmission. That is also heavily dependent on ICE. Bearings is something that is rather powertrain agnostic. That's the second biggest part, makes nearly 30% and has grown by 6%. And then clearly, E-Mobility, EUR 1 billion for 2021 with the order intake and with the steep growth that will continue to become bigger and bigger. And Chassis Systems, where we have taken out in particular compared to the past, the whole bearings business, the chassis bearings business is now nearly EUR 300 million, or 3% of the pie. That has also grown quite a bit. So I hope that gives you a much better understanding of how we are set up. And it also helps us to drive then capital allocation and also future profitability and future activities. That new setup that we will from now on report on a quarterly basis with these numbers goes hand-in-hand with a revision of our powertrain scenarios for the next years. On this Page #16, you have the old powertrain scenario, the one that was in place until year-end. And you all remember the famous 30%-40%-30%, 30% ICE, 30% BEV including fuel cell, and then 40% HEV. What we're seeing from customers, what we're seeing globally is that electrification will further accelerate. The question what this crisis, what the war in Ukraine will mean for this is still open. So we decided to accelerate also our scenario. And here you see that for 2025 and also for 2030, we have increased the share of pure BEV from 12% to 20% in 2025 and from 30% to 40% in 2030. That is more or less in line with what market expects. It is, from my point of view, a prudent way to look at this. And you see that 2035, the scenario has more or less remained unchanged. So it's a question of how the new technology will unfold, and we think it will accelerate and it will further be driven by the raised EV targets of our main customers. Now second point that I would like to share is our -- the new setup for Industrial. You have this on Page #17. You all look at us as an automotive supplier. You all rightfully so are very interested in the transformation there. In Industrial, it's not so much a transformation. From my point of view, we need to -- we thought about ways how to present our Industrial business in a more comprehensive manner. And you all know in the past, we shared with you 8 sectors plus distribution. And we never got the credit for what we're doing because this was too detailed maybe, too granular, and that's why we decided in our disclosure to change course and give you in future these 4 market clusters. First market cluster is renewables, wind and also hydrogen, in particular, on the electrolyzer side will go into this market cluster. Transportation, mobility covers everything from aerospace, rail, off-road, and 2-wheelers. This is also the market cluster that then synchronizes well with the passenger cars and the light vehicle trucks and trucks on the auto side. Then you have Industrial automation. Clearly, in terms of growth dynamic, the most interesting sector. And then machinery and materials. Also here, we will give you the numbers in terms of sales and also sales growth going forward on a quarterly basis. And you have here the setup for 2021. Let me add the distribution business that is something different than simply an aftermarket or replacement part business that made 28% of Industrial sales in '21 is allocated into the 4 market clusters, so that you have a more consistent picture. And you see it's for 2021, consistently so that all the areas have grown quite significantly. Third point I would like to make, and there's a lot more to say. You saw the sustainability report we published. You all know that we take this very serious, and we are strongly committed to turn Schaeffler into a climate-neutral company. We have our targets out. We are working on our Climate Action Plan. We all know ESG is not only E. There's also S and G that is very important. The targets are included into our compensation. That was also the case in the years before. Going forward, it has even been further intensified. My long-term bonus is in future dependent on achieving our Climate Action Plan with all the different milestones that you know. So this topic is critical. It includes employee safety, and it clearly also includes the procurement of our main materials. So let's stop here and leave you with the message, whatever happens next, despite this terrible war, we will continue to pursue our sustainability strategy. I personally think that this is very important not only for our future energy transition plans but also for living up to our commitment as a socially responsible institution. With that, I hand over to you, Claus, for the financial results.
Yes. Thank you very much, Klaus. If we go to the next slide, you see, as Klaus already alluded to, the sales in Q4 developed solidly. Remember, Q4 2020 was the peak of the V-shaped recovery of the pandemic shutdowns in Q2. So, therefore, the 5.6% [ FX ] adjusted sales decrease is to see in relation to that peak. And we can say, especially after the weak quarter, maybe third quarter in 2021 that Q4 2021 was clearly an encouraging sales quarter. If you look on the left side in the first line below the chart, you see the 9.7% for adjusted sales increase for the total year that Klaus already mentioned. Sales, Automotive Technology was still weaker in Q4 than prior year. But that, as we already have seen also in Klaus's part was partly offset with strong development, in particular, in our Industrial division. If you look down at the bottom, you see the split by regions and clearly see the indication that the automotive chip crisis and supply chain issues and limitation of growth in that sector was impacting Europe and Americas the most as you would have expected. Go to the next slide, you see the gross profit development. And I think based on our Q3 call and then our follow-up call in January with most of you, it shouldn't be a surprise that you see the cost inflation for input cost phasing in. You see that in the waterfall chart on the left side, in the middle production cost was a negative impact of minus EUR 141 million. A significant portion of that, obviously, is that cost inflation that was phasing in. We said in our Q3 call that we expect around 200 basis points of impact due to the inflation and that was what really happened. But what you also see and now I'm going to the left side of the waterfall chart, you see that recovery impacts pricing actions on the customer side, also slowly phasing in. And as we also indicated in earlier calls, that is mainly due to active pricing actions mainly in automotive aftermarket and Industrial distribution, but also some impact continuing as already seen in Q3 of material price [ clauses ] that we have in place with automotive customers in North America. We go to the next slide. Over, then you see most important message on that slide is that overhead costs are increasing, but that is also now due to the fact that prior year is impacted by the management of the Corona crisis. You know that we used extensive short-term work capabilities in Europe and had other costs -- effective cost management in place in all other regions as well. So it's not so much about the Q4 to prior year comparison than really an increase of cost and really a normalization of overhead cost to a pre-pandemic level. If you look at the very bottom of the left chart, then you see the overhead ratio in Q4 was 16.6%, which is actually not a bad level. You also see that one of the main drivers is R&D expenses, which is also due to the effect that we were and have been successful in acquiring E-Mobility projects that now the R&D is kicking in for these projects. We also see somewhat an increase in selling expenses. That is partly to a normalization of overhead expenses. We are kicking off marketing initiatives that we have stopped last year because of the pandemic. But you also see, to some extent, pricing impacts mainly in the area of logistics reflected in the number here. EBIT, no surprise, is following pretty closely the gross profit trend, 7.8% for the last quarter and 2021 is clearly a strong sign. It's still lower than the 11.6% of prior year. 11.6%, I would say, is an anomaly based on Q4 unprecedented volume in Q4 of last year. I said why that was. We were in the middle of the V-shaped recovery in that regard. So 7.8%, especially under the circumstances with the material price inflation is a result that we are satisfied with. You also see for the total year, and Klaus already mentioned that, we ended up with an EBIT of 9.1%. But maybe a little bit more flavor and detail on the bottom right side. You see here clearly the impact in Automotive Technologies. First of all, the extraordinary volume of the prior year quarter impact, but also the in-phasing material price impacts with a margin development that is significant. You see Q4 ended up at 5.5% EBIT margin for Automotive Technologies. And you also might remember that number was 4.6% in Q3. So clearly, a recovery from our Q3 performance, mainly due to volume impact and scaling effects that offset some, if not most, of the phasing in material price impact. So clearly, if we wouldn't now face completely different and most likely more severe issues with the war in Ukraine, you would have seen something reflected in that performance that is in line with our prognosis that we suspended for obvious reasons. Let's go to the next slide to dive a little bit deeper now into the divisions. First, Automotive Technologies. I start on the right side this time. You see how -- in the waterfall chart, you see how the margin developed from prior year. And as I always said, some of that is due to the fact that we had an extraordinary volume situation, especially for Q4 with normally December shutdowns of our automotive customers that didn't happen last year. So you see here a gross profit deterioration of 3.9 percentage points. About half of that I would attribute to the material price effect and the other half is really a lower fixed cost absorption due to the volume impact that I described. Still, it's a lower volume -- lower fixed cost absorption than prior year quarter. But as I also said already, it's a much better volume situation as we have seen in Q3 of 2021. You see then also the effect of the increased R&D expenses that I already described. And therefore, I think the 5.5% as our EBIT in Q4 2021 is explainable. Automotive Aftermarket, I'll start also with a waterfall chart. You see also a significant margin decrease that has similar reasons than in automotive. There's still a little gap between our cost impact and price recovery that we obviously try to close as we go deeper into year 2022. And the other significant impact we reflected here in the gross profit column is a volume and mix impact of around 200 basis points. If you look on the left side, you see that our sales growth mainly happened in the OES sector and not in the independent aftermarket, and that normally comes with lower margins and that would be reflected in that gross profit deviation. And last but not least, Industrial. Industrial, you see that, first of all, all regions have grown, most of them significantly, China a little bit lower in the growth rate. You already heard in the summary slides that -- and you also see it on the left bottom that wind is one of the drivers for that -- wind in Greater China. As you all know, and we already reported in Q3, the wind demand in China is normalizing after subsidies for offshore windmills is phasing out. However, clearly, a growth driver for the way forward. You also see the aerospace as the only other sector that is significantly decreasing and not growing, and that is still due to the impact in that sector due to the lower travel volumes due to COVID. And you see all other sectors are significantly growing and contributing to a strong sales growth of that division. That also then translate on the right side in a very significant profitability improvement. You see here in gross profit, the positive impact that some of that is pricing recovery action in distribution, but most of that is the increased -- significantly increased volumes and fixed cost absorption in our production plants. Coming to net income. First message here, you see there's not a very significant impact on a group level between the reported EBIT and the EBIT before special items. And then you see in the waterfall chart the further development, financial result, not [ explaining ] too much detail here, but that's much improved over prior year, mainly due to a high yield bond that we paid back and had to settle derivatives based on that last year. So that we now have -- we now see a more normalized level for financial expenses going forward. Income tax is completely in the range of what we expected based on our regional split and nothing to report there. And in others, the biggest single item is Schaeffler Paravan Technologies. That is a shareholding of ours that is consolidated at equity. And I'm only mentioning it so explicitly here because I will come back to that point. But hold your thoughts on that one because we have decided going forward to change our accounting in regard to equity shareholdings. On the bottom right side, you see the detail of the special items. Obviously, there's set it on a group level for the quarter, not significant, but there is some -- actually not for the quarter, for the full year, sorry. But you see on the right side then that there are some impacts that are minuses and some pluses on a divisional level. And I would leave it at that. Maybe just the biggest impact against full year 2020, I think I mentioned that already in the Q3 call. We built our restructuring accrual in 2020, and that was here for adjusted EBIT neutralized. Therefore, all the pluses and the other big topic in 2020 was an impairment that we booked in the Automotive Technologies division. Net income on the next slide follows completely what I have presented so far. You see on the bottom on the left side that we have achieved EUR 0.22 per share in result for the quarter and for the total year EUR 1.14. The net income for the total year of EUR 756 million, or EUR 748 million after special effects, is obviously enabling us to pay a -- or to propose the payment of an attractive dividend of EUR 0.50 per common nonvoting share. That we determined the proposal for the dividend based on a public framework. We want to pay out a dividend in the range of 30% to 50% of our group result. And the EUR 0.50 would represent 44% of the group result. Therefore, be solidly in the framework range. ROCE is with 16% higher than pre-pandemic levels. That is obviously a very good result. It's also clear that, that is somewhat -- and you might also remember still the ROCE for the last 12 months in Q3. I said at that time because of mathematical reason, the nominator and denominator very favorably in the last 12 months for the Q3 results, and I said it -- I expect it to be a relative peak and you see some of the that normalization in our ROCE here. I think it was 16.7%, as I reported it in Q3 last time, so normalizing back to 16%. But I don't want to take away anything of the accomplishment. Pretty solid ROCE. And if you remember our midterm ambitions, that is clearly above what our midterm ambitions have been with 12% to 15%. I would have expected without the war, a further normalization within that range. But now, obviously, we have to monitor the situation closely what this war will bring in economic consequences for all of us, including Schaeffler. Free cash flow on the next slide is for the quarter characterized by seasonal-related personnel cash outflows, most prominently the Christmas bonus in the -- mainly in the European and Latin American localities. We have reported already in Q3 an continued tactical increase of inventory, offsetting partly the positive normal seasonal impact on accounts receivables that normally reduce, and they also reduced, but we increased inventories. And then also, which is clear in the KPIs on the left bottom side, clearly had a higher investment activity in the second half of the year, including Q4. the investment rate, as you see on the left side, is now for the quarter at 1.0, clearly higher than in the other quarters of the year. On the right side bottom table, as always, you see our free cash flow before M&A and special items. And one of the special items that I know you're always interested in and which are also the biggest numbers there is restructuring. You see in Q4, we had payouts of EUR 32 million for restructuring. For the full year, it was EUR 308 million, which then would bring the free cash flow for the quarter to EUR 82 million, and for the full year to EUR 830 million. So the underlying cash generation capability of Schaeffler is intact, and I think is quite impressive. That leads, obviously, then as a consequence, as you see here, to a very comfortable situation in regard to leverage ratio. Leverage ratio is below 1. And there's no maturities in our financing until March 2024. After we paid back Schuldschein in November of last year and then also a bond this year on March 1. Actually, a very strong liquidity situation. And you see it written down here in the box on the bottom right with 25% of the last 12 months sales number. I think we are in a comfortable situation, a strong balance sheet, strong cash generation that I think we accomplished in a somewhat challenging environment and should make us very optimistic -- not very optimistic, but hopeful that we can weather also some storm going forward. Now I'm closing with the last slide. It's a little bit technical, but I think it's needed. We adjust our reporting going forward a little bit. So that is now the reconciliation for this reporting going forward of the last year. There's 2 significant changes. One I already hinted on with the equity. but let's start first with the #1 here on that slide. All the sales growth numbers for all divisions in the group are slightly changed as you see in our adjusted numbers. That is due to the fact that we now changed our calculation of the foreign exchange adjustments for technical reasons, for system reasons. We had to go through a budget rate in the past and recalculate everything in a budget rate and then compare the numbers of prior year and current year based on this calculation. Now our system allows us to do it what I think correctly. We use now the actual rates of the prior year to recalculate the actual year and then calculate based on that actual rate calculation, the sales growth. And secondly, we decided to account for at equity shareholdings differently than in the past. You saw in one of the waterfall charts that we reported [ that ] so far below EBIT. And going forward, we will report that as part of the EBIT. The reason is indeed our shareholding in Schaeffler Paravan Technologies. As you might know, this is an operation that's heavily R&D driven and is completely related to our Chassis business and with our reconfiguration and reclassification of our automotive business and making the chassis business really some important cluster that we want to report in the future and that we also want to drive significant growth in. [indiscernible] that we now also report especially Schaeffler Paravan Technologies, which is an R&D powerhouse, if you will, for our chassis sector within EBIT. That really means and you see that in our Auto Technologies division, a deduction of the EBIT margin of around 0.5 percentage points. And I think the best way to look at that is that we increase R&D efforts for -- especially for chassis by this 0.5 percentage points. So please keep that in mind. And with that, unfortunately, a little bit technical at the end, I will hand over back to Klaus.
Thank you, Claus. And I will finish now the presentation with the outlook. On Page 33, there's nothing that I have not said before. We suspended guidance. I can only stress again that's the only responsible way to deal with this. And you know from the rules when suspension is possible that we have to come back with a new revision of our decision at the latest by Q1 2021 results that we published on the 10th of May. My conclusion, the outlook is on Page 34. We can cut that short. I think you heard all the news. We are facing another war-driven crisis. We need to understand that we will navigate in the next weeks and months to a very dynamic, very unpredictable environment. Our main task is to ensure operating performance and cash generation in this environment. The Schaeffler team is a strong team. In this situation, I think you all should take note that also our main customers, be it on the Automotive and on the Industrial side, appreciate strong suppliers, people that have their act together and know how to react in this, who have also a view on different sectors. So we know what we have to do. We would have loved that the year continues in a different manner, but we will do what we can to keep Schaeffler on track and also make sure that we get back on track with our own plans and with generating value. Last page is then on the capital market activities. There are 2 small roadshows tomorrow, and on Thursday we will then progress with our Annual General Meeting. You have the financial calendar on the right-hand side. And I'm sure that you can have that in your calendars already. With that, I would close from my side and give back to Renata for Q&A. Thank you very much.
Thank you very much, Mr. Rosenfeld and Mr. Bauer. And dear operator, we can open now the Q&A session.
[Operator Instructions] First question is from the line of Akshat Kacker from JPM.
Akshat from JPM. Thank you for the presentation and all the new details in there. I have 3 questions, please. The first one on Automotive Technology margins. I know it is a difficult environment, very volatile, and we have possibility of binary outcome in many scenarios, and it probably makes sense not to have a guidance. But can I ask if we can test the resiliency of the business division per se or if you could do a stress test, what kind of minimum volumes do you need on a global LVP basis to hit your 4% to 6% midterm margin target for Automotive Technology, please? That's the first one. The second one is on the CapEx guidance of up to EUR 900 million. Looking at the current situation, do you have flexibility in CapEx spend in the near term, i.e., are you well invested in your Industrial and Automotive businesses for the next few years? Or do you have some catch-up on investments from the last 2 years probably? The last one is on the reinvestment rate in Automotive Technology. We know you have a more than 1% reinvestment ratio in E-Mobility and less than one in mature businesses. But for the division as a whole, how should we think about reinvestment rates over the next 2 to 3 years, please?
Well, Akshat, these are all very relevant questions. And again, we -- I have to say, as a reminder upfront, we have not finished our stress testing work. We are in a situation that is unprecedented when it comes to information and expectations. For sure, we are doing several scenarios. But when you ask me what's the minimum volume where we would still make 4% to 6%, that is a question that I cannot answer with a simple number and say X million is it and below X million it's not like this. It depends very much on how this volume unfolds. I do believe that the composition of that volume plays an important role. I can give you as one indication the fact that we have strong regions and dedicated regional board members in the region is now a big asset. Our Chinese colleagues start to alert us that they say they are more and more big Chinese customers -- I'm not going to mention names -- that have come to them and say, we need more investment in the region, we want more volume for our local production, and that could be something that helps. We also see something like this in the Americas. My general view is that we will probably see more deglobalization, whether we like it or not. And that could also, to some extent, compensate for the setbacks we will have to digest from this overall situation. So let's leave it here. We are doing our work at the moment. Your question is spot on. But again, I cannot give you a simple volume number that as from this onwards, it's 4 and from this onwards it's 5. there's a drop-through rate that needs to be calculated to the different divisions, and we are on it at the moment. CapEx, I would say, Claus, there is virtually no catch-up from the past. You can be rest assured we have towards the end of the year, on the one hand, made sure that with all the strong cash flow that we made throughout the year 2021 that we're not sitting on CapEx that then moves into the next year. I think that's the one explanation. On the other hand, the EUR 900 million is an up to number. It's a [ rich ] number for an environment where we thought it would go in the right direction. So there is some significant buffer in that number. And we have already started to ask people for reprioritization. Don't forget, CapEx needs lead time. Most of the bigger projects cannot be invested within 6 to 12 months. There are some big projects running. But as it looks like, the ramp-up curve is something that gives us significant flexibility on the EUR 900 million. On the reinvestment rate, also here if I would now give you a number and say this is what I'm expecting for the 2 or 3 years, I would contradict my statement that at the moment it is not really predictable. What I can say is that this new format, the new operating model gives us a much better handle to see that the business where we want to grow in the future. And I dare to say that I think that E-Mobility will rather continue and maybe even further accelerate due to the situation, given oil price and energy transition than in the past. I think this model gives us a much better way to do this systematically. And maybe that leads to, given the size of the business, to even higher reinvestment rates in E-Mobility and even lower in engine and transmissions. So much for the color, but please understand, I cannot lead through scenarios in this call.
Next question is from the line of Christoph Laskawi from Deutsche Bank.
It's Christoph Laskawi, Deutsche. The first one will be on the supply chains currently for Auto and Industrial. Could you comment if you right now are still able to source everything you need? And is that more or less running smoothly, and the impact will be more on, say, secondary effects, which causes production stops at OEMs? The second question then on your open exposure currently to prices of raw mats, which are increasing. Could you just give us a reminder on how long you are currently locked in on steel, energy, and other costs? And last question will be in the discussions that you currently have with the OEMs, which I believe must be extremely intense, are they giving you any indication on changes in underlying demand that they see? Or is it just that they are focused on working through the order backlog, which should be 3 to 6 months at least for most of the European ones?
Next question is from the line of Christoph Laskawi from Deutsche Bank.
It's Christoph Laskawi, Deutsche. The first one will be on the supply chains currently for Auto and Industrial. Could you comment if you right now are still able to source everything you need? And is that more or less running smoothly, and the impact will be more on, say, secondary effects, which causes production stops at OEMs? The second question then on your open exposure currently to prices of raw mats, which are increasing. Could you just give us a reminder on how long you are currently locked in on steel, energy, and other costs? And last question will be in the discussions that you currently have with the OEMs, which I believe must be extremely intense, are they giving you any indication on changes in underlying demand that they see? Or is it just that they are focused on working through the order backlog, which should be 3 to 6 months at least for most of the European ones?
Okay. So range of questions, and Claus, you will help me if I forget one. And you said this last, Chris, we are in intensive conversations with our big customers. They call us, we call them, and I think the whole industry, at least here in Germany, if not in Europe, has learned from COVID how to work together when something happens that creates a risk for the supply chain. That's -- if there's one positive from COVID, then this is one of the things to mention. I can say for sure, we are seeing -- and you know this from the newspapers that some of our big customers are stopping production in certain areas. We -- at the moment, at Schaeffler, plants are running. We have seen in the first 8, 9 weeks continuous call-offs in some areas even above budget. That is now starting to reduce. How this will unfold is something that we need to see. I don't see a radical stop somewhere where someone says we're not going to do anything anymore. That's not the case. Most of the companies that we are talking to have some sort of plans in place how to reroute activities, how to find other sources, and let the things go forward. You had this famous issue with kabelbaum. Help me with the translation of this.
Wire harness.
Wire harnesses, one of our neighbors here in the region. If you dig into more detail there, you see that this doesn't stop the whole global automotive production. It may have an impact that is in the EUR 80 million range that we have for this year, some sort of a digestible impact. But we don't know what's coming. And that's, I think, where the key question mark is. No one can tell you at the moment how long this will last. So we -- the best you can do is to stay agile, to stay tuned, to understand what's going on and to react. There's a backlog to be dealt with. The end customer demand is also open. On the one hand, we see inflation, cars get more expensive. You see this in used cars. On the other hand, customers may shy away from doing something. It remains to be seen. In any case, there is a backlog from the last years where I think cars are ordered and that could smoothen it a little bit. In terms of material, gas supply, and all these kinds of things, I can say we started our task force already before the invasion on the 24th. So for the Russian exposure, but also for the steel, we buy from Russia. We've already found ways to reroute this through other suppliers, mainly Chinese suppliers. We have already taken all necessary actions even again before the 24th to secure transportation, mostly through ship instead of road and rail, to some extent, higher rates for sure. In terms of energy and gas, gas supply for Schaeffler is until the rest of this year, Claus, secured in terms of volume and price by 90%. So also here we acted quite quickly already in the middle of February to somehow close that. Let's say, if tomorrow, we -- this crisis further escalates what that means, I can't tell you. But what I said before, we'll do the best possible to secure that the company can run. And what gives me some hope and confidence is that this management team is a proven team that has its act together when it comes into these situations. That may be different if you have completely new people, but Claus, for example, is a longstanding colleague that I trust 100%. And with him, it works very well to get this done even over weekends.
Next question is from the line of Edoardo Spina from HSBC.
First, I would like to ask about the midterm view on the restructuring perhaps as a part of the investment required to move forward. In 2022, I see you mentioned extraordinary expenses. And with the digitalization focus for the midterm, is this an item that we remain significant for the free cash flow? And the second question on the cash [ received ] on the leverage ratio, you provide a range that includes a higher leverage as well. Which half of this ratio you think is more at risk to drive such a potential increase? Do you see opportunities perhaps in the market, which are low for the equity market, but is that also an opportunity? And finally, on the currency, if you can give us a guidance for the -- maybe the beginning part of the year, how do you see that impact on your accounts?
Edoardo, your questions were a little bit difficult to understand. If we have not understood them correctly, please jump in and ask them again. Let me start with the last one, and Claus, you can take over. I think your last question was on currency exposure, if I understood this correctly, and how you see that unfolding. You saw on one of the pages in the backup that we have only given directional guidance. It's obvious that the U.S. dollar gets stronger, the euro gets weaker, and also the Chinese renminbi gets stronger. That in itself tentatively is positive for us. We were positioned for rather USD 1.20 then for parity. There is a Mexican peso that plays an important role and other currencies may go in a different direction. But if this environment continues, at least I can say, and Claus, I'll hand over to you to explain in a little bit more detail before I take the next question, I think that shouldn't create, at the moment, extra stress, rather a little bit of relief to what happens on the FX side. Maybe, Claus, you want to answer that.
Yes, I absolutely agree with that. And the obvious question also could be what is about the ruble. We obviously have some ruble cash flows. We are ruble long in a normal environment. And all ruble exposure is hedged by 85% over the next 12 months, obviously, with exchange rates before the invasion. And in regard to the dollar and all other currencies, we normally base our planning on what the forward contracts would be if we would completely hedge our cash flows when we start budgeting, let's say, in the middle of the year, and then hedge it on a rolling 12-month basis. So we always have somewhat of an average hedging rate over the 12-month period. There's a little bit of layering in there with different volumes of the layer sizes. But we clearly are also hedged for the U.S. dollar. We are not hedged at USD1.08 or whatever it is today, but we are also not hedged at USD1.23 or USD1.25. So it's somewhere in the middle. But I also would completely agree with Klaus that there's no stress or no significant unmanageable stress on that front.
Okay. Let me go to the first question that was, if I understood it correctly, Edoardo, the midterm view, what are we going to do. What I can say today, and don't forget this is all days old, we have decided also in our board meeting this morning that we will continue with our strategy. There's no need to turn in circles now or to change direction. We'll stay the course. What is necessary is, and that's what's happening at the moment, all major strategic initiatives, all major strategic projects, all major CapEx projects, all major overhead spend will be revisited, will be reprioritized.
What I can say, and I said it also in the press, this could lead to the fact that initiatives like on the digitalization side will even be speeded up and executed and implemented more forcefully. I think the digitalization is an area where efficiency gains are possible also short term, and maybe that's exactly the right thing now to do. In any case, I can say, sustainability, and when I talk about sustainability, this is very much the climate side of it, the whole energy transition, the whole question of what can we offer in alternative energy sources, hydrogen, all of that will clearly, from my point of view, get more emphasis in the future. So we'll stay the course on digitalization, we'll stay the course on sustainability, and see what that means. In these days, it's not the time to talk about opportunities. But I think when the world changes, there are always also situations where you can do and can achieve things that were not possible in the past. Leverage, as far as I understood it correctly, you were asking about how this ratio is going to develop. I think you know this. This is a company that has always proven its free cash flow conversion power. And also 2021 is a good proof for it. We'll continue with our restructuring. Maybe also here, we can speed up certain implementation areas. In the -- we are in the third phase where for all locations the contracts have been signed, and we've already looked at some of the transfers here in Germany, whether we can possibly accelerate this and speed up. But in terms of the leverage ratio, the key aspect here is EBITDA that drives the ratio. And we will benefit as it's the last 12-month rolling figure a little bit from the good quarters of the last year. But we'll also see what kind of countermeasures we need, and we'll put them in place with adequate priority and vigor.
Maybe just a follow-up on the leverage ratio. Do you see a potential increase in focus for investment given the price of assets maybe are lower now for everybody? So is that an opportunity for you?
Can you say again? You see an increase of what?
Investments, acquisitions.
Acquisitions. So maybe on the acquisition strategy, sorry, I didn't hear that well. We have been, if I may say so, looking backwards quite lucky that we have not engaged in any significant high-volume acquisition that we would now need to refinance or deal with. I think we are also lucky that we have always said we are not going to do anything with carve-outs or splits or putting the whole company at risk because of some undue operations or larger transformational moves. That at the moment is good for us. And our M&A strategy with a more risk-averse approach on smaller bolt-on acquisitions is something that I would not stop. I would continue to watch and look for clever technological additions if they are available. But you can be rest assured, we will be very conscious of our firepower. We'll be very conscious of the risk profile that we have. We're not going to put the company now at risk in such an environment. The nature of the game is risk-off, risk-down, and making sure that all of this settles somehow and then we can then see that we get back on track with our overall strategy.
[Operator Instructions] Next question is from the line of Sanjay Bhagwani from Citi.
My colleagues have already asked the questions on the macro. So I'll have a few on E-Mobility and one on commodity prices. So my first one is on E-Mobility. If you could please provide some split or guidance on the order book, like what portion is from the hybrids versus BEVs? And my second question is on thermal management. I understand that you've been -- you have reinstated the thermal management now into E-Mobility. And there's somewhere around a EUR 400 million effect from that in the E-Mobility sales. So just wanted to have some more color on are these components actually going into the BEVs or there is some portion which is for the ICE as well? And my final one is on the commodity prices. So if my memory serves well, I think earlier this year, you were mentioning that you may actually move to more towards the spot purchasing of the commodities versus hedging and contracts as you are expecting these steel prices to normalize. So if you could provide us some update on that as well, that will be very helpful.
Okay. Let me start with the last one and, Claus, you support me if I -- if you want to add something. The main commodity that we need to do our business is steel. I think you all know this. We have outlined it and Claus has been very outspoken in the last call also at the beginning of the year to explain that situation. At the moment, just assume we would have no war in the Ukraine. I think we are in a good track with a dedicated end-to-end steering by watching what's happening in the market for material prices and how to pass this on to customers. That project is up and running. We are monitoring this on a weekly basis. And we see that our assumptions for the material price are more or less, again, pre-war in the Ukraine confirmed. We also see that there's good progress week by week and passing on certain price increases to customers, certainly easier in Industrial and Automotive Aftermarket than in Auto, but also in Auto, it is going according to plan. We never said that it's possible to hedge everything 100%. We also never said that it's possible to pass on every price increase to a customer. But as it looks, we are on track. Now on top of this, we have the new development, and we need to see what that means in terms of extra stress. That is, as I said before, very difficult to say. I just -- while we're all focused, and rightfully so, on the terrible development in Ukraine, talking to our Chinese colleagues, we have already seen some signs that Chinese steel price has come down, or a little bit come down. That could be a good positive thing for us as well. Don't forget, there's a war Ukraine, but there will still be global division of labor, and there will still be global trade. And we should not get completely off track that a significant part of our business is in China and the U.S. and that also in these regions, we are -- we have our sourcing partners. E-Mobility, sorry, I can't say more than tentatively the share of BEV business also BEV project is increasing as we speak. Maybe, again, this is only January and February, we had good success in January with some major projects coming in. We'll report about this then in the next quarters to come. But there the 2 big projects that were coming were both BEV-only projects. So the trend is clearly intact. And you will understand that I'm not giving more than that directional statement.
In terms of thermal management, you are right, this is a technology and an area of competence that we already developed for ICEs. What the colleagues have done now, they have asked themselves, is it possible to integrate a thermal management module into a 3-in-1 e-axle. That's the latest innovation we also presented in the end of the year at the [ fairs ]. And that would mean that you basically have to split this business. I don't know where the EUR 400 million are coming from. That's something that I cannot confirm at this call without going back to Matthias and his team. But in future, we will see this thermal management -- the more E-Mobility accelerated as a really interesting feature to generate a Schaeffler competitive advantage through the integration of 3-in-1 e-axle because it helps us to make the e-axle even more efficient for customers via clever way to manage heat or manage cooling. And that's, I think, where it really makes a difference. There is some business from the past. But as we are more and more investing into BEV, that business will also start to run off then together with the ICE business.
That's very helpful. Regarding the EUR 400 million, basically, I just took out the restated numbers. So in 2020, you had reported E-Mobility of EUR 651 million and then this year, the reinstated number is EUR 1.047 billion, so that [indiscernible].
Look, this is something that -- I understand what you did. Thanks for the hint. That's what I assumed. But there is -- there are more movements in between than this single one. It's not only thermal management that moved from left to right. There are other changes in the setup.
The last question for today's call is from the line of Stephanie Vincent from JPMorgan.
Appreciate all the color during this difficult time. The one question I had was just on behavior because, I guess, us analysts will probably sharpen our pencils and go back to the 2020 production shutdown during times of stress to sort of stress test all our companies. But I guess from your standpoint, what are some of the key differences now between that time and, for example, you did draw down to a small amount under your revolver, ended up recovering very quickly. Would you -- after paying down debt over 2021 consider going back to the debt market, either through the revolver route or adding additional cash over this timeframe, given the uncertainty?
Well, I think Claus said it, we have a very comfortable liquidity position with 25% of our sales being available in liquidity, be it cash on the balance sheet or undrawn facilities. I don't see any need to change anything there. In the past, we always thought maybe we need to put money differently at work, but I have no concerns at the moment on the financing side. So we will stay the course with that. If I remember the days in 2009, when I joined here as the CFO, we were always looking at 10% of sales as a decent number. And now we have 25%. Even if this situation may not be comparable to the crisis, the Lehman crisis and whatever we had there, I don't think there's any need to do anything at that front. The balance sheet is robust. The company knows what to do. And we'll monitor it, but I don't see any negotiations or discussions with banks necessary to optimize what we have. Good. Then, ladies and gentlemen, let me close the call. It was a pleasure that you joined us. Very unfortunate and tragic times, you all shared that. We appreciate that you are interested in our situation, and we are there for all your calls and questions. Go talk to Renata and the team and Klaus and myself will make ourselves available. For us, the most important thing is that this war stops and that we somehow get back to normal times.
With that, thank you very much for listening and all the best to you personally and your families. Bye-bye.
Ladies and gentlemen, the conference has now concluded, and you may disconnect your telephone. Thank you for joining and have a pleasant day. Goodbye.