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00:39 Thank you very much, operator. Dear investors, dear analysts, good morning.

Today for the Q3 release of Schaeffler Group of Chairman and our president Mr. Klaus Rosenfeld CEO Schaeffler Group; Mr.

Clause Bauer, CFO Schaeffler Group together with IR key, but without ado, let’s start with Klaus, the floor is yours.

01:01 Thank you Renata. Ladies and gentlemen, welcome to our Q3 conference call, that I will do for the first time together with our new CFO, Claus Bauer, as you just heard, there are many Claus’, there will be CEO as CFO is pretty close as it should be, so the real distinction is my name starts with K and his name starts with C, so Claus with C, would you like to quickly introduce yourself to this round?

01:36 Yes. Thank you, Klaus.

Also when coming from my side, you already stole my entrance here, the most important message on the first slide is that I'm written with the C, I guess in the 60s, there was a lot of Claus’ in Germany and, but my distinction is with this and I'm very happy to be sitting here with you Klaus at my first call. Let me introduce myself a little bit, I think you are already committed in press release it before or on this slide, but I started my professional life in Tech’s consulting and public accounting before I came to Schaeffler in nineteen ninety eight.

I started there to create a new text department and Techs function and afterwards headed the corporate accounting function, which was also implemented newly at that time especially a tool implement, the first international accounting for the consolidated group financials. At that time, IFRS was not as developed so at that time it was to U.

S. again.

Since two thousand two then I took over as regional CFO, first for North America and then later for North and South America when the two regions were merged. 03:07 After nineteen years of doing that, I – now, I finally return home as you here with my accent, I'm on and raised in the area where our headquarters is, so there is still after nineteen years I was told some Franconian accent, but I hope you still understand my English as I said, I'm very happy to be sitting here and I'm excited to participate in this first call.

03:40 Okay. Thank you, Claus.

I think you will have over the years enough time to also meet investors personally and show your face and your strengths. Let me take over now in the usual sequence, I start with the overview, I will then talk about the business development and then over back to you on the financials.

04:03 On page five, you have the key messages for today. I think we can't say as Schaeffler Group, a solid Q3 twenty twenty one in a challenging environment and particularly in the automotive technology business here, we clearly were impacted also by the market disruptions, on the other hand, you can clearly see from the numbers, strong growth in automotive aftermarket and double digit growth in industrial as a general statement also here upfront.

I think there's no better quarter than this one to demonstrate to the market and to the investors and analysts, how much sense it makes to help Automotive Technologies and industrial together as they were both complement each other, and as diversification in such an environment really can payoff as you also in the margin in Q3 EBIT margin eight point two percent. We did quite a bit to protect our margin effectively in automotive technology despite the lower volumes and had good margin progression in automotive aftermarket and industrial and here again, I would like to price the performance of the industrial division.

Japanese team have done since quarter – since, I can say since years the right things to bring this division back on track twelve point four percent margin in Q3, I think speaks for itself. We are already at the lower end of our mid-term guidance here and that's clearly a success story.

05:53 Free cash flow Q3 two twenty five million if you goes through the details, we are still seeing that CapEx on average is lower than in previous years, but it has increased in Q3 and we have and I would like to put emphasis on the word technically built some inventories because we are convinced that at some point of time, the disruption particularly on the automotive technology side will go away and then it's good to have invested a little bit into capital for inventories and for delivery performance. 06:35 The nine months return on capital employed peak clearly at strong eighteen percent.

We are benefiting here from the strong first half and we know that this well all the time then normalized, but I can assure you again that capital management is, I don’t know what is and we want to be very proactive here and manage all our capital, but also our calls widely and pay attention to the high need for flexibility. 07:06 Number five and number six are more of forward-looking and let me first comment on five.

You all remember that our colleagues with you think introduce some quarters to go the concept of Mature and New to demonstrate our approach towards E-mobility and how we cope with that transformation and I'm now happy to share with you the next step in further sharpening that model and boosting our execution and that is the second view where we differentiate our automotive technology business into powertrain-specific and powertrain-agnostic business, nothing for today, but an important step forward to give you also more inside how our transformation is going and how we are coping with the challenges in these different areas. 8:01 Last but not least, we have already shared with you this morning so our press and IR release that we confirmed our guidance for margin and FCS.

The Automotive Technologies outperformance guidance is also unchanged, a good third quarter was about six percent, and we raised the top line for industrial however, the market assumptions for Automotive Technologies have changed. And that clearly actually means that we will not make the above eleven percent that is also shown then later in the charts.

All in all, as I said, the solid Q3 demonstrating our strengths, in particular when it comes to execution. 08:48 Page six highlights and lowlights, I will do that quickly I mentioned the outperformance in the nine months, six sixty basis points in Q3 seven hundred fifty.

Again, it's a quarter is a quarter, but the trend is in our favor, and we can show that all the regions we have in Automotive Technologies, we have been outperforming on the top line this five weaker markets. In Automotive Aftermarket also good sales development, increasing demand from individual mobility solutions.

Industrial, I already said the most important things we are in our growth is in particularly driven by these risk economic recovery. We see a broader growth across the sectors and interestingly enough when at the moment is not growing in that quarter and where still has to catch up.

The Automotive and Industrial ecosystem and equation I mentioned before, and you all know strong free cash flow is what we stand for. On the lowlights, from my CEO perspective, yes, we are still suffering from the semiconductor shortage in Q3, more than in the previous quarters and that is also phenomenon that comes across all regions.

There's semiconductor is just one element of general market headwinds that we're dealing with. It’s clearly the uncertainty around COVID, the supply chain situation also in other components and semiconductors and the low visibility that situation is persisting, and it requires clearly our full attention.

10:37 And on top of this, a topic that we will clearly discuss also in your Q&A session. We see increasing cost of raw materials, energy and transportation as all our competitors do.

The question is how does impact our P&L and here we've always indicated that comes with a time lag. So H2 sees already some impact.

Claus will explain that in detail and this will also that's our expectation at the moment, also impacts twenty twenty two. 11:09 Now let me go to page eight here, you have a little bit more on automotive and again, I said most of the things, so I'm really keep that slide four in the interest of time just to mention the highlights in the nine months sixteen percent growth very much a function of the first half of the year.

In the third quarter, minus twelve percent the margin stands at seven point four for the nine months period and four point six for this quarter, that is a good result compared to the strong with headwinds we had experienced. 11:53 On page nine you see some of the achievements and why we are confident that we are well positioned to win.

Some of you were participating at the IAA, a very successful event. We have opened meanwhile our new state-of-the-art sustainable E-Mobility plant, won the PACE Award for our E-Mobility offering and are also pursuing on the Chassis Mechatronics side a partnership with Mobileye, clearly a long shot but autonomous driving and everything that comes with that will be an important topic for the next years.

12:33 To come to Aftermarket very quickly on page ten. Not so much to report.

We saw also here in the third quarter, good growth with 8.7%, margins slightly down. Don't forget, in Q3 twenty twenty.

There were extraordinary items, so the high comps here should not deviate from the fact that fourteen point three percent or fourteen point six percent is well within the range that we think is a sustainable number for this year. 13:11 Also, here, good progress in terms of our offerings.

We are showing you, on page eleven, the REPXPERT Remote Support offering. Our continuous efforts to make our services more digital pays off and that is clearly an area where we also think that there is significant growth potential.

13:38 Industrial page number twelve, Industrial, page number 12. You also here saw the numbers already nine months, twelve point one percent twelve point four margin EBIT margin in Q3.

From my point of view, it really speaks for itself. Stefan and his team are doing a great job in harvesting all the efforts from the past.

There's clearly more to come here because the SPACE program that is now – except for one location in Automotive – ready to go, will also roll in. On the other hand, clearly the headwinds are going forward on the steel side and Claus will also explain what that means in terms of pricing.

14:25 Here I would like to mention, on page thirteen, a business success that we're really proud of because it, on the one hand, shows our strength in Rail and, on the other hand, is a proof point for our commitment to become a player in particular when it comes to key sustainability aspects. Here we have won an award in the category Climate Change and Circular Economy, the prestigious Railway Supplier Award and we have used in particular the circular economy aspects here to present an offering, a product that is not only reducing CO2 but also allows for a hundred percent return service, something that we think it's not only attractive to customers but clearly a step ahead compared to our competitors.

15:25 Now, if you go to page 14, back to capital allocation, you see the key numbers here. One of the concerns in the first half was why is Capex so low?

You see that the CapEx ratio has increased to 6.4%, as we indicated. For 9M, it's still subdued with four point seven percent.

We think it will continue to increase but again, as six percent this year is probably not achievable, what we are clearly committed to is to steer our Capex in a differentiated manner by looking at the reinvestment rate by the different categories. As Industrial has earned its right to grow, it will clearly benefit from a higher reinvestment rate.

In Auto, we will look at the growth areas and clearly spend what needs to be spent on E-Mobility, but in the other areas we will consistently steer the reinvestment rate below one and make sure that the capital is invested wisely. You also see that by regions and it's one of my key topics to make sure that capital allocation works.

Let me say one word on the dividend. We are not here today to comment on the final dividend.

That's a decision that others have to take but I think it's fair to emphasise that we are clearly following our dividend pay-out policy with the thirty percent to fifty percent. Net income is back on track and we all appreciate and know how important dividend for some of you is.

It's also something that we will then consider in our decision-making towards the end of the year, and I can say here that we will definitely come with a higher dividend per share than the last year. Certainly, an element that we will consider also when it comes to dividend continuity.

17:46 Now, let me quickly go three strategic issues that I want to mention before I hand over to Claus. The first one is little bit more insight on this portfolio management aspect.

The new logic with the second view, Powertrain-agnostic and Powertrain specific, that Matthias has designed with us. You remember Mature, New where we said Engine Transmission, on the one hand, and E-Mobility on the other hand.

Now we have taken it one step further and said one of the core elements in our mature business that is Powertrain-agnostic is our Bearings business and the Bearings business is clearly a core business. You see it on the left-hand side.

That is mature because we're doing it for many, many years but it's also Powertrain-agnostic because you need bearings in cars that are driven by combustion engines and unique bearings in cars or engines that are electrified. Therefore, this business is something that we want to separate in a sense that we put more focus on how can we combine all our know-how, our technologies in the bearings side and, from there, consider how to best improve our products, be it for this type of powertrain solution or the other type of powertrain solution.

There is clearly growth potential in this. These may not be the most expensive products, but these are the ones where we have expertise that others don't have and that's why we think that should be a separate business.

It should be driven and managed by a person who is very experienced and should not be commingled with the other areas. 19:44 This having said, we will then do a similar thing on the Chassis Systems side.

So far, our Chassis business was Chassis Bearings and Systems and now the bearings will move into the mature Powertrain-agnostic box while the Chassis Systems business. will be a very new business.

It's more mechatronic than a mechanical business, something where we clearly need to grow and also need to invest further to build a proper book of business. We are making good steps here and I think those of you that participated in the IAA saw that.

If I then look at the Powertrain-specific parts, this separation gives us an even better view on how to dovetail our offering towards the mature businesses, in particular ICE versus the new business where we would have BEV and HEV. That’s the logic and it clearly helps us if we implement this.

This will happen effective 1st of January twenty twenty two onwards to differentiate our steering of resources, of allocating capital wisely, and also going for the different growth buckets in these areas. I hope that you will support this.

It is a next step to manage the transformation and further gain traction. 21:13 Second point is synergies.

Here I want to mention one example. The E-Motor is clearly something that has a broader application than just cars.

Offroad is very important. We have large Offroad customers and the idea of cross-fertilization between Automotive and Industrial clearly comes from combining our product know-how with the customer access.

In Offroad, we have a sector that is an Industrial sector. Stefan has the customer interface and Matthias has the product know-how and if you combine this wisely, if we make sure that the product know-how we have can be leveraged also towards the Industrial customers, then that can make a big difference and this example from a customer, that I cannot mention here, is one of the encouraging examples that there are more synergies to be harvested if the divisions work closely together.

22:16 Turning, then, to page number seventeen, what combines all divisions, and all functions and regions is our efforts to become a sustainable company. You saw this end of October.

We have, for the first time, outlined and published our long-term sustainability targets. The headline here is we want to be a climate neutral company by twenty forty and, as this is clearly something that requires a plan, we have articulated this against four major milestones looking at the different scopes.

The key logic here is by twenty thirty we want to be basically in Scope one and two so on our own production climate neutral. You see minus ninety percent with an asterisk and that means we are realistic here and say some of this needs to come from compensation, the bulk needs to come from actual measures to avoid CO2.

Then, the second element of the chart means by twenty forty we want to be climate neutral when it comes to our own supply chain in here, the same logic applies, minus ninety percent and some compensation. The Scope 3 upstream, ladies and gentlemen, for us is a challenge because you all know steel is important for our business.

It’s the main that we source and here I can say we announced this morning a significant offtake agreement with the well-known Swedish start-up H2greensteel and from twenty twenty five onwards Schaeffler will have the ability to source one hundred thousand tons of green steel, what is a significant part of our overall sourcing volume from that H2greensteel start-up. That is one of the proof points that sustainability, for us, is clearly a top priority and with this, I would like to hand over to you Claus for the financial results in more detail.

Thank you.

24:28 Yes. Thank you, Klaus.

Let's jump into some detail of what we already heard in the highlights section. As you heard, Q3 sales decreased, FX-adjusted, by three percent.

That has two main drivers. We had obviously a very strong prior year quarter that was in Vshaped catch-up mode after the COVID shutdown in the second quarter of last year.

Secondly, obviously, as you heard from many others but also Claus already alluded to it, the semiconductor shortage which limited worldwide car production. Car production, as you know, was down almost twenty percent YOY and our Automotive division was down only by twelve percent, which obviously computes to the outperformance of almost eight percent here.

25:29 You see also here a little bit what Klaus already mentioned. Automotive Aftermarket and Industrial compensated for the relative weakness in Automotive, with a very solid growth in almost all regions.

From a regional split, you’ll see on the lower right that impact, mainly in Automotive, was felt in all our regions except Asia/Pacific. 26:03 Jump to the next slide and look at gross profit.

Solid gross profit margin as you see on the lower right side due to the fact that the Industrial division balanced the relative weakness in Automotive. If we now go back to the left side and look at the waterfall chart a little bit more in detail, there's some really interesting aspect that I want to touch on.

First, reconciliation items, here price with minus eight percent. Price is a relatively low negative impact.

We would normally see a much bigger year-over-year impact, mainly due to contractual pricing and price reductions in Automotive. However, we have some material price clauses in North American Automotive contracts which, with the escalating steel indices, obviously offset some of the normal contractual price reductions.

Here, also, Automotive Aftermarket has phased in already some of the recovery actions regarding this steel price inflation and could already provide some positive pricing impacts here. 27:26 Next item with volume, plus thirty eight million euros.

That’s a little bit counterintuitive now that we explained to you that volume was down but on a gross profit level, due to our divisional mix, actually we see a positive impact, with Industrial and also Automotive Aftermarket with relatively stronger sales performances and much higher margins than our Automotive business, providing here a healthy positive volume impact to our gross profit line. 28:06 Lastly, production costs with minus twenty six million.

I will talk on the next slide in a little bit more detail but let me already say here that, as you are aware, we are in an almost dislocated steel price environment right now. That impact is hitting us from a purchasing standpoint as we speak.

From a cost standpoint we’re facing some time lag between procurement and consumption of steel, but you see the first impact here in the column of production cost and the other item and driver here obviously is the volume impact in our automotive plants due to lower production volumes. 29:01 Let me talk a little bit more in detail about the material price environment and when I say material, I mean mainly steel.

As you see here, steel accounts for about sixty five percent of our production material. Production material is about two thirds of our overall purchasing volume.

The rest almost completely is logistics and energy, as you see below, which also make up for thirty percent of non-production material. All three categories, and that's not a surprise to you are very significant cost drivers right now.

We have steel areas in cold-rolled steel and the flat product for example, where we are now facing price increases of over hundred percent. Logistics and energy, you have heard from others.

I'm pretty sure that container costs have doubled from what we have seen in the first half of this year. These impacts, as I said, are now rolling and facing in.

We already impacted in Q3 by these effects by around hundred basis points. If I take the baseline of the first half of this year, we expect that to double in Q4.

Q4 then would, based on our prediction of the steel pricing, be close to the peak. We will see some more escalation in Q1 of twenty twenty two and then, hopefully, throughout the rest of next year, see some relaxation of mainly the steel price environment.

But, as of now, we are also expecting around two hundred basis points of headwind due to material pricing all of next year. As I explained, a little bit more front-loaded, so more challenging in the first half, definitely in the first quarter of next year.

We mitigate the situation as you can imagine, first of all with some material price clauses in contracts, as I already mentioned, in North America but then really with the pricing actions on the sales side in all divisions, as you can imagine. In Industrial with a little bit more catalogue sales, catalogue product-related sales, it’s a matter of adjusting the price list and we might see some effectivity in that regard a little bit earlier than in Automotive where it's really a one-on-one negotiation with each customer.

32:15 If we go to the next slide and look at functional cost, then you see an increase of twelve percent a quarter year-on-year. However, that is really driven by the low prior year comp, as you might remember at that time we still were, especially in Germany, in Europe, in a short-time work environment and that obviously is normalising now.

You see the different categories, R&D obviously is back to pre-pandemic levels. Selling costs increased a little bit also with the pricing impact based on the Logistics side, and Admin, and that's really also important for me as the CFO coming in here.

Somebody said never waste a good crisis, so I'm really also trying to steer the entire company here to be conscious of increasing overhead expenses and you see in Admin, although we are now in a normalised environment, we are still significantly below the prepandemic levels if you look at Q1 twenty twenty. 33:50 Jumping to EBIT.

Klaus already mentioned it with 8.2%. Considering the challenging environment, a very solid performance for the quarter.

We have obviously Automotive Technologies, if you look at the table on the lower right, with a significant margin impact, mainly driven by the impacts that are already explained which are the production volumes and fixed cost, the under-absorption in that regard, and then, secondly, the material price say inflation that is facing in. Automotive Aftermarket, don’t get too set up with the margin development quarter compared to prior year quarter.

There were some extraordinary impacts last year. If you look more at the nine-month average in Automotive Aftermarket, you see we are in the range of -one percent to one point five percentage points of profitability here and that is clearly the facing-in, a material cost impact in that division.

And our shining star, Industrial, with really a strong margin, broad cyclical recovery and offsetting most of the negative impacts that I have explained. 35:31 Looking on the next page a little bit more into the divisions, the next three pages here starting with Automotive Technologies.

I already have mentioned it. Klaus has mentioned it in the highlights.

A very solid outperformance but we cannot avoid being impacted by the global issue with reduced car production worldwide. You see on the bottom left, we have around twenty percent.

Nineteen point seven percent reduced volumes versus prior year quarter. In our sales performance in that area is twelve point two percent.

You see also the regional split, which is pretty close. China with a smaller outperformance than the other regions for this quarter but if you look at last year, which are the numbers in the bottom line here, then China clearly outperformed everybody else.

Now, we have a little bit the reverse impact and you also might have read and seen that few of our top customers, global customers, mainly Volkswagen, also experienced relative weakness this quarter from production and sales volume in China and that is impacting us as well. The waterfall chart on the right side shows the EBIT bridge of last year's quarter to this year.

In Automotive, you obviously see the significant margin drop that we already talked about. Most of that you see is included in the first reconciliation item.

It's coming from gross profit, which I already explained. It's really two impacts, production cost due to a lower fixed cost absorption, as well as material price that is starting to impact us.

Maybe you see a relatively significant item on the right side here with Others. This is the recovery of some indirect taxes in Europe which we could successfully complete at a positive impact in that range.

38:32 Jumping to Automotive Aftermarket, you see solid growth here with almost nine percent and you see it on the left side in the lower area, it's mainly due to the OES business that recovered here. There's also some special impacts in OES of prior years and, since I'm coming from the Americas, I know very well what it is.

It's one specific product that had a repair bulletin in the Americas and that was driving this very significant change and fluctuation in that specific segment. If we look at the reconciliation item or waterfall chart here, then I already said don't get too much distracted by the significant margin change year-on-year, look more on the average nine months margin, which is in the Guidance range.

It reduces from this four percent here to around one percent and you see it clearly on the waterfall. It's also due to higher input costs.

But then, in the selling expense category, you see also not an insignificant cost increase, which is mainly due to our kitting operation that is now ramping up in Halle, in Germany. That still requires some parallel operation in the old warehouses while we are ramping up and also the investments and costs coming with it that we put into our digital sales platform in China.

40:56 Last but not least, in Industrial, next slide, you see fifteen point eight percent sales growth quarter-over-quarter and you also see on the lower right, actually what Klaus already mentioned, Wind and Rail a little bit are the sectors, that are not performing to the other sectors. Every other sector is close to or significantly over twenty percent.

Wind we see obviously with normalising demand level, mainly in China, in relation to the subsidies policies there. And then we reconcile the EBIT year-over-year.

You see a very significant gross profit impact that we already explained and then some of the cost areas in the Selling expenses, the minus ten is mainly driven by our project Mountain that I think you're aware. There was the attempt to acquire Dodge in the US and the costs are now flowing or have been flowing in, in this last quarter.

On the Others line, with minus ten million here, we have almost completely a negative foreign exchange impact from China between the Euro and Renminbi. 42:54 In total, just to conclude, you see the twelve point four percent marked and, as Klaus said, we are very well in the direction of our mid-term ambitions there already.

I'll come back a little bit more to the legal side and you're now looking at nine months reported EBIT and net income. Then you see, first of all, that our EBIT reported is higher by twenty seven million than our EBIT before special items.

That is a positive impact from a reversal of accruals in relationship to our Roadmap twenty twenty five. You might remember last year, obviously that was a special item when we built the accruals, now the reversal is a special item as well.

So, that is explaining the EBIT reported. Then, if you follow the waterfall to net income, there's really nothing that is concerning here.

The income tax rate is in the range of our average tax rate and the financial result actually is a little bit better than what you would have expected based on our interest-bearing debt, due to the fact that we had some interest income from an indirect tax case in Brazil that we won and the interest portion of that, because it was a very long running case, this also worked into the financial result. 45:06 Next slide, please.

The net income of hundred forty nine million euros translates to earnings per share of zero point twenty two euros, it follows exactly what was explained in the prior slides. So, nothing really to play on top of that, Klaus already mentioned the strong ROCE of eighteen percent.

That is mathematically obviously driven by very good quarters of the last twelve months, especially in last quarter of last year in the first two quarters of this year, with still not very, but that's relatively low capital employed due to our investment activity in the first half so we would expect that royalty the peaks for the next few quarters at that level. But I don't want to take anything away from the very good result for this nine month period.

46:34 Maybe now coming to Free cash flow. This is something that I think we should go into a little bit more detail.

Very strong cashflow in the third quarter, actually our best quarter this year. You see cash flow conversion ratio was close to one, also good, and that is despite the fact that we, as Klaus already alluded to, increased Capex this quarter significantly.

If you look at the top right, you see there's a little bit of working capital increase and Klaus already mentioned that as well. We are intentionally managing our inventory to not get caught in supply chain disruptions once our customers can build cars again in the Automotive area and, as well, as you can imagine, we don’t want to jeopardise any sales on the Industrial and Automotive Aftermarket side with shorting inventory there.

So, we are very conscious in maintaining and improving our delivery capabilities in these two areas. Capex we mentioned, with two hundred and fifteen million euros, a high spending quarter with six point four percent for the single quarter, a little bit above our normal guiding level.

Offsetting some of this lower Capex of the prior quarters where you see we have been below four percent. From an outlook standpoint I would expect Q4 Capex a little bit lower but directionally in the same area.

And then taxes, as I already mentioned, in all the levels, and the other impacts actually relatively are smaller here as a net number. But that other column already includes, as you see in the bottom table, seventy five million euros of cash outflow for our various restructuring programs that you are very well aware of.

That is also the main reconciling item between our Free cash flow before M&A and our Free cash flow before M&A and special items. You see here, that is even better in the range of three hundred million euros for the quarter.

And if you look a little bit right of that, if you look at the nine months, then you see a total restructuring pay-out year-to-date of two hundred seventy six million euros, which would bring our adjusted Free cash flow to almost seven fifty million euros, which I think is an exceptional result. 50:14 If we then to go to the next page, you see our net debt.

And our leverage ratio and leverage ratio is now better what our normal guiding corridor would be in the range of one to one point two. That is obviously also a function of our very strong EBITDA that is based very strong four quarters in the last twelve months, obviously see that will normalize a little bit going forward.

And the other factor in that calculation as you all know is the increasing cash reserves due to our strong cash flow profile. 51:11 Well to mention that as you aware we cancelled some of our [Indiscernible] that we issued last year, that will be able to paid back in the range of two sixty million euros actually EBITDA after tomorrow.

And with that, we then have no further maturities until March of twenty twenty four. The available liquidity as you can read is also a very healthy twenty seven percent of last twelve months segments.

51:53 And with that, I would then transfer that to Klaus for the conclusion.

52:04 Thank you very much. Let's focus on page thirty three.

Ladies and gentlemen, that’s our outlook going forward as regards to market assumptions clearly changes here on the Auto side. You all remember the sharp cut that IHS took, IHS is now expecting forty seven point eight million cars being built what means eighteen point nine billion in Q4.

That is slightly higher than the IHS forecast. We are up to seventy five point three and we'll see all the years is going to end.

Clearly when you think about what we started and we were cautious when we started you remember, we talked about around eighty million cars was of five million euros discount in February twenty one. It clearly shows our challenging this voice let's wait for next year.

There is different views on what could happen next year and how this dislocation well will this appear aftermarket, you know the GDP growth and also the investor production growth, not much more to say here. 53:13 On the guidance thirty four, again, as we said, we have confirmed the EBIT margin was eight percent to nine and half percent we have confirmed our above four hundred million dollars free cash flow guidance and then the emphasis here word is above four hundred, no one said that is four hundred at a point guidance.

That also may tackle one of your questions, whether we assume a negative free cash flow, for the fourth quarter, then we also confirmed the divisional guidance, the above six percent in auto clearly one of the most important cornerstone of our guidance and the market and industrial. And in industrial, we didn't move the top line guidance up.

54:01 While at the same time confirming the outperformance guidance, you all know what that is, but the market development and if we added it all up in auto tank, does not confirm be above eleven percent, so we have brought it down here to above seven percent and I think that is fair and consequential as our guidance was always market plus outperformance. 54:28 Let me finish the presentation and before we go Q&A was the final page thirty five and I'm not going to read that page to you.

Let me quickly again, let's say there's a lot of operational challenges. I think for all companies not only for us and the focus must be on technical mitigation actions all hands on that with cloud declining up someone who knows – who know other how to – how both the plans and the management of the appliances is to manage our performance.

I think we have shown to you over the last quarter that we are clearly dedicated to relentless execution and to delivering a solid operating result and strong free cash flow. We also shared with you of the more strategic aspects sustainability, the whole question of further sharpening our model in other Automotive Technologies to manage the transformation and you know that we want to pay a decent dividend, but also stay a strong free cash flow company.

What the third quarter team demonstrated how positive it is that we have automotive tech and industrial it starts to really pay off the big investment into the industrial restructuring and the twelve percent margin for my point of view at that stage here in this environment is a very solid success at the end of the day and I will extend that to everybody involved in our side is always a function of teamwork and in this environment, it is privilege to have a team that works. So seamlessly together interventions regions and functions also to the board colleagues.

I want to really say thank you here to all of you in this environment. That's not easy in World day challenging.

We are sure that the environment will not clear up on first of January. So the dynamic environment that requires all these flexibility will be a challenge going forward.

But those are able to manage that will also be successful going forward. Thank you very much, I hand back to Renata for the Q&A.

56:57 Thank you very much Klaus, I would just remind that we have some roadshows coming up and you have the financial calendar by following page 36 and now for sure like I said hold on to the – hand over to the operator for the Q&A.

57:50 Thank you for taking my questions. It's Gabriel from Citi.

My first question is on semiconductors. Can you comment, please, on what you're seeing that gives you confidence, auto production could be a half million units higher than IHS expectation in Q4?

Do you have any view at this point on how you expect Auto production to develop into twenty twenty two and if you think IHS estimates also look a little cautious for next year? And then my second question is on the Automotive price recovery.

Can you update us on any progress that’s been already with the one-to-one customer negotiations that you referenced in the presentation around price recovery for the Auto business? And are there any examples you can provide where you’ve successfully achieved meaningful price recovery from your Auto customers in the past?

Because generally, investors we speak to are quite sceptical how successful Auto suppliers can be in these discussions. So, any update on this topic as well would be really helpful.

Thank you.

58:49 Let me take the first one, and then I will share the second one with Claus. The five hundred thousand more cars is at the moment our best estimate is slightly more qualitive than IHS, but that should not say that we think the crisis on the semiconductor side is over we are rather conservative when we look into the next year.

We have to privilege to assemble all sorts of data points from various customers and what we are seeing at the moment of October, sounds a bit like we are through the worst, but it doesn't mean that the picture turns up dramatically and very quickly but don't put too much wait on this five hundred thousand more cars, the seventy five million euros is more or less also what IHS, so that's the answer here. On Auto Tech price recovery, clearly one of the most difficult topics.

You will understand we cannot share with you our customer names. What I can share and what I can stress is that our sales teams on Auto Tech are clearly not only asked but also driven and moved forward into going into these hard negotiations.

That is customer name by customer name, a discussion. It depends on the contractual relationship.

It depends on the negotiation power we have in certain areas. That is different by nature.

If you have a broad customer portfolio, like we have, to some extent it’s easier. You can imagine that a very large customer, where you're competing with on new business, behaves differently than in another situation.

The fact that we have New and Mature may help us here in that respect. And maybe Claus can say something on the one example where in northern in Europe, but also Europe, we have contractual relationships where that works quite different than you would assume here in Europe.

Again, we cannot mentioned the name, but maybe you want to say something the positive how that could be structured about how it handled in the U. S.

61:14 Yes, before I come to that maybe because also have from past experience and obviously my prior function at that time as the regional CFO from North America. I still remember last year price inflation, that by the way it was nothing as we assume right now.

Nothing more seems like that dislocation of steel prices that we are seeing currently. But nevertheless in two thousand six, two thousand seven, we had the last steel price inflation and was effectively as Charles described I mean it was customer by customers sometimes customer across product or product line depending on where the negotiation leverage in power late and then it was an assessment what can be achieved and not the most important point in that is I think that I, in my function as the CFO will provide the transparency of what the impacts are on the cost side and then also provide the transparency and reasonable targets for their recovery.

62:28 And so, now, coming to what Klaus indicated in North America, and I said it in my part of the presentation. We were successful, and that’s actually also going back to two thousand six and seven, that we have been successful in implementing and sustaining some material price clauses in our contracts with our customers.

So, that pricing is automatically bound by indices. And there's also a significant portion of our business that we entered into a so-called “Steel Buy Program” where actually the risk of the steel price is transferred to the OEM.

And we are actually freed of any impact and fluctuation. Obviously, you are also giving up opportunities in that regard, but it's a risk mitigation and that is not insignificant.

I mean, it’s a model that may be the current situation - let Auto OEMs think about it. We see Auto OEMs increasing their prices, or at least not offering price reductions to the end-consumer.

That’s, obviously, not just owed to the material price environment, but also to the dislocation of the demand versus the supply due to the chip shortage in car production. But, anyways, we see pricing action in the market along the supply chain, and we will and have to try to recover as much as possible.

64:26 That's great. Thank you and congratulations on the strong set of results.

64:31 Thank you.

64:32 Thank you.

64:39 Good morning. Christoph Laskawi from Deutsche.

Thank you for taking my question. The first one will be a bit of a follow up to Gabriel, just on the Industrial business.

Can you remind us of the structure there and how easy you can do price measures? It feels like it might be better situated than for the Auto Technologies business which seems to be managed fairly robust in that sense, as you just elaborated on.

And then, the second question will be - even might be a bit too early to ask - on the split that you’ve shown for the Auto Technologies business. If you could comment just roughly on the size of the bearings and chassis systems in revenue share or absolute revenues?

And the last one, also on Auto Technologies. You highlighted tactical cost savings that helped you showing the solid margins in Q3.

Should we expect part of those costs that you took out in Q3 to come back in Q4 and early twenty twenty two. Or would those measures be sticky for longer term?

Thank you.

65:50 Well, let’s maybe start with the Industrial question first, and Claus, if you want to add to this. I have more a strategic point again.

The customer negotiation power in Automotive Tech is a function of the nature of the business, where you have more or less global customers with the top ten customers accounting for around sixty percent of revenues. It’s quite different than if you operate in an environment with eight different sector, with different dynamics.

So, here, also, the product is quite different. It’s less development driven.

And some of our product just comes through a catalogue. So, by the nature of that business, we have a completely different ability to recover higher cost or increased prices.

We're doing that on a regular basis. Certainly, you also have, here and there, development businesses.

But I would say, in that respect, the Industrial part, and I would also include the Automotive Aftermarket part, helps us to get through this challenging situation. Again, here, diversification counts.

Claus, I'm not sure whether you want to add a little bit of flavour to the Industrial side in terms of what we do in terms of price increases, but it’s a more regular thing than a one-to-one customer-based price increase.

67:17 It’s maybe worth to mention that one third of our Industrial business is Industrial distribution. So, through the distribution channels, and that’s a pricelist catalogue program-based activity - and I don’t want to say it’s easy - but you adjust your price list, and then the typical question is how effective is your price increase in the price list.

Because normally you're not impacting existing orders and give the customer price protection in that regard. So, it takes some time until price increases phase in.

But I think in these, and I would also include Automotive Aftermarket in all price list-oriented business models, there's no question that this is a normal exercise. The extent to which it might be necessary now, with 100% more expensive steel, might be a little bit extraordinary.

But it’s actually a pretty normal activity per se.

68:32 And then, Chris, help me... I think you had put three questions.

What was the other question? One was on the measures, whether they are sticky or not.

Let me answer a little bit broader. On the one hand, we have done our strategic homework with the large restructuring programs.

And you see from the restructuring pay-out that this is going well. But it will roll in over the year twenty twenty two, twenty three and we have always said, we want to finish one program before we started the new one and was – is the existing problem we feel quite good about this.

69:14 In terms of the tactical measures, the tactical measures have to do with how to react on lower volume in particular in the plants. And if volume increases again, if we see significant capacity needs, then we will react accordingly.

So, that flexibility, again, has to be valued. And I feel strongly that we have shown in the past that we can operate in this environment.

In terms of restating numbers, and I think that was, if I remember correctly, the third question, on Chassis Mechatronics and Chassis and how much bearings is in there. Please, again, understand, we have highlighted today the logic of this, highlighted why we want these four buckets.

And I want to stress again, the reception in the market sometimes that Schaeffler is only a combustion engine-driven company that has no future, is, from my point of view, and not only conceptually wrong, but it's also not a differentiated enough view on our portfolio. Because the bearings business is powertrain agnostic, and that’s what we wanted to bring across.

70:28 We don't have the numbers right yet. We will come up in the new year and give you information about how these four buckets look like.

We've done this in the past for the top line and I think that's also expected going forward. So, please understand, I cannot disclose something now, it will be premature, but in March, We'll come back to you on that.

70:52 Thank you understood. On the comments that you made on the technical cost savings and the volumes.

So in Q4 one volumes pick up again, we should just see the regular operating leverage on that and the cost coming back that you took up because of the low volumes, but nothing extraordinary on top one volumes would be more flattish or so rather the usual in the near term.

71:25 I would not expect. I mean, there is the steel price impact.

That’s what Claus described. That clearly has an impact.

But I can't see anything that would dramatically change the picture if now there's a big volume increase. Let me say one more word here.

You heard this loud and clear. We have invested in working capital.

And we feel that our Free cash flow allows for this. So, that can make a difference.

Because delivery reliability, in particular in Industrial and in Automotive Aftermarket, but also, to some extent, in the Auto Tech business, is critical.

72:02 I mean, let me also add that was actually what I wanted to add before. Our profitability is not just a function of effective cost management.

I think we are doing that, there's no question about it. But, as I tried to explain, it's really also a function of what Klaus just explained, the positive margin mix in our volume.

The volume in total is reduced, but the margin mix is better because the relative weight of Industrial and Automotive Aftermarket is higher. And therefore, obviously, mathematically, you also come to a higher profitability number.

So, it’s really both. And that actually is, I think, another demonstration of our resilience due to our multidivisional setup.

73:00 Thank you for the detail very clear.

73:12 Yes. Thank you very much for taking my questions.

I had a couple. The first one would be on e-powertrains and what has been the recent performance.

We've seen some of your peers downgrade their expectations or guidance for the full year. And I see that you still had a year-on-year decline despite the very fast acceleration of the sector.

And then, the second question would be on the consolidation of the market. In Europe, particularly, there are a lot of powertrain players.

It’s a difficult environment. Any view that you would have on the short to mid-term consolidation of the market?

Thank you.

74:00 Antoine, thank you very much for the more strategic question. Let me tackle the second one first.

Yes, you see a lot of movement at the moment. We have, as Schaeffler, always said for us it’s important that we focus on our core business, on our operational challenges.

And we have our strategy. We have, to some extent, this peculiar situation with Automotive and Industrial.

And for us, also making all the strong inroads on the E-Mobility side with a really strong E-Motor business with good Order Intake. You remember the first half.

I don’t see, at the moment, any need to do something on the consolidation side. We are rather focused on getting our businesses further improved.

So, the market may see further moves in other areas, but we think we are well-positioned for future organic growth in that area and delivering on our promises. As you all know, the Dodge transaction was clearly something where we said, maybe there is M&A growth, excellent growth opportunities for Industrial that would further balance our portfolio.

In terms of the powertrain business, again, not have to sure what really on to your question. We confirmed our guidance here.

We confirmed the above six percent. We have been cautious as you know and there's also very clear and this is above six percent as the four point something in the third quarter shows function of the very strong first quarter.

And that's not coming back. 75:57 The order intake as the other indicator is continuing well.

Two point one in the first half speaks for itself. And also, the fact that we established this new plan with the more efficient footprint gives me some optimism there.

But, again, this whole transformation is still ongoing, and it will last for quite some time. And the best companies will win.

That’s for sure.

76:27 Thank you very much.

76:29 You are welcome.

76:39 Thank you for taking my question. Akshat from JPMorgan.

The first one on Automotive Technologies in twenty twenty two. I know it might be too early and there are a lot of uncertainties in the market today.

But it'd be really helpful if you could lay out the big moving parts for earnings into twenty twenty two. Obviously, volumes will be a positive mix and cost inflation will be negative, but how should we put all of these elements together?

You think you can still do the more than six percent margin debit or even more than six point five percent margin that you will deliver this year. That's the first question.

77:14 The second question is on working capital management and is especially the inventory situation. You mentioned you have practically built inventories.

Can you help us with what kind of levels do you want to normalize inventories or total networking capital probably as a percentage of sales by the end of this year or if you have a target for twenty twenty two? Thank you.

77:36 You will not be surprised that I'm not going to give more insight on twenty twenty two. We first have to finish the year twenty twenty one in this environment.

To come out too early with an estimate is, I think, not right. And I fully understand what you're saying.

We have these different levers and drivers. And we will come back to you at the March conference, and volume, mix and price will clearly play an important role.

But please, also take with you, we guide on the divisions. We’ll stay with our guidance logic.

The idea that we started with this year was, I think, the right thing. And it’s clearly a function that the divisions have to be looked at differently on.

On working capital, yes, I think it’s the right thing to do, when you have a supply shock, to be on the safe side when demand could come back. No one knows how the situation unfolds.

Therefore, the tactical inventory building, from my point of view, should be a good investment. We don’t guide for working capital ratios, but, Claus, if you want to give some flavour on how you see it, with your long-term experience, then that’s fine.

Please go ahead.

78:59 A working capital ratio is interesting in a stable environment. And then you can actually steer towards that, if you do exactly what Klaus described.

And want to strategically position yourself with working capital, especially inventory, then, obviously, it's getting a little bit meaningless. Because in an area where you have maybe a lower sales level you want to have a little bit higher inventory to be ready for the recovery boom.

So, I would question a little bit the working capital ratio as a steering KPI, especially in a volatile environment. From an absolute level, I think we are at the absolute level that we would wish and desire.

There is still optimisation potential that we will exploit. There are opportunities, maybe, that we still want to take advantage of.

For example, if we are still locked into steel price contracts with relatively attractive prices, then we would like to, maybe, procure as much steel from that source as possible, still before year end, until new prices kick in. So, there's still some tactical fine tuning, but I would say from a big picture, from an absolute standpoint and not as a percent of sale, I think I would feel comfortable where we are at the end of Q3.

80:45 Understood. Thank you so much.

80:47 You're welcome.

81:01 Hey, good morning. Thanks for taking my questions.

It’s Horst here from Bank of America. I want to ask them, if possible, one by one.

The first one relates to your great outperformance figure that you achieved in Q3. I mean, already Q2 was excellent.

I'm just wondering if you can maybe provide some more details what has triggered this outperformance? As far as I can see it, it was more driven by a higher premium business probably.

And while that is good at the moment, maybe, I'm getting a little bit concerned, then, about twenty twenty two, because maybe a higher outperformance this year means a lower outperformance next year just because the comp base is getting so high. Would you agree to that or not?

81:48 Horst, thanks for your questions. You have a little bit more more inside of twenty five and we all know outperformance is a measure that we have to look at on average.

Seven point five for the world in the quarter. In full year twenty twenty, four point five and then you see something that is a little bit indicator by Q3 year was also special.

To see strong outperformance in Europe, while you have little outperformance in China and Europe was twelve point one percent in the last year and clearly twenty twenty was a crisis year. It was zero point nine and the opposite in China.

Asia-Pacific is our smallest region. Clearly here that can be an effect from one or the other large customers.

But what drove the outperformance in Q3 is the stronger situation in Europe. And now there are a variety of reasons for this.

Some of them are customer related. Some of them are product related.

Some of them are timing related. I think again, let's not look at this one quarter and build this trend.

We have always said three percent to five percent is global, we have shown this over the various quarters more or less seamless that within or slightly above this range we will perform, but there's no reason now to say the outperformance potential is exhausted and next year, that's not possible anymore. 83:22 Clearly that is a more strategic issue.

Wherever you have very strong market positions, outperformance is easier to achieve than where you have very limited market positions. But without saying too much for the new year, this outperformance that we shared with you is part of our mid-term target thinking, and it’s a more long-term band, three percent to five percent where we are confident that we can achieve this also over the next years.

83:50 Excellent. And before I ask the next question, I just want to say I also like the numbers.

Great result. So, therefore, don’t get me wrong now.

But when I look at the sales by business division, it strikes me that E-Mobility year-on-year is down, less down than engine systems, transmission systems, chassis systems. But nevertheless, when I look at the big EV sales globally in total, and EV sales have more doubled globally in Q3, if I'm right.

And also, the PHEVs are up by, I don’t know, thirty percent, forty percent globally. I'm surprised that your E-mobility sales are down, but the overall market seems to be up double digit or am I reading something wrong in this observation?

84:31 Well, I think here you need to make sure that we understand the difference between sales levels where customers buying cars and our production level, the production levels that are key to us. Again, it's in a market where the whole division Q3 over Q3 is down twelve percent.

It's still the one that has, the lowest downward trend. Q3 twenty twenty was already a quarter after the very bad quarter.

Q1 – Q2 that was up, and in particular China was up. Now the situation in China is slightly different.

That's explains this delta, but again, we don't see this as a trend. We see this as an outlier in a difficult Q3 twenty twenty one with all the hickups and supply chains.

And we are confident that our E-mobility will grow and outgrow the other divisions overtime.

85:29 Okay, Great. And the last question, if I have the opportunity, I still like your rolling chassis concept that you presented at the IAA in Munich.

Have you got already any first feedback from customers? In your speech, Klaus, you mentioned that it’s more a long-term story, nothing with immediate impact.

But any feedback so far from the industry?

85:49 Well, definitely, as I said at the IAA, Horst, and I think you were there as well, was well received. And our corporation with Mobileye is also well taken.

For someone like us, who is normally associated with bearings and clutches and combustion engines, this is a step forward. You all remember that we acquired in twenty eighteen the steer-by-wire or drive-by-wire technology that plays an important role here.

We're not a software company, but we see that there's ample opportunity in this area. So, yes, there are conversations.

It's premature to talk about an order book in that rolling chassis area. But I can tell you that our chief engineers, the R&D colleagues are looking at this.

And, as usual, the fact that we have a large presence in China, where people sometimes move faster than elsewhere around the globe, helps us here. And we will pursue this.

This is a strategic topic and nothing for a quarter. And we’ll see how we can differentiate ourselves.

You all know this Corner Modules, the hub wheel motors, things that we have shown for several years now on fairs. And that’s the basis for also building this full rolling chassis and hopefully make a difference in five to ten years.

87:20 But if you talk to customers, you maybe talk to the EV start-ups, right, it's typically start-up product?

87:28 Well, Horst, now, we're getting into something that really becomes very interesting because there’s a whole new world of new players. I can tell you, we have just established a separate GCAM, GCAM means a global customer and account manager, for the small start-ups.

There's so much request from these areas where people want to test certain things or ask for new things. So, this whole world, with the new EV players, is interesting, not only from powertrain, but also from chassis mechatronics.

Just think about weight and how important weight reduction and light materials are if we want to make EV cars more successful. And from this very much narrow focus on – oh, this is a combustion engine versus an electricity-driven car – now, the more holistic view on who can contribute what to the car of the future is much broader.

And that’s, I think, a positive for us.

88:25 Excellent. Thanks very much.

88:26 You are welcome.

88:37 Hi. Thank you so much for taking my questions.

Just a couple from me. You guys have been very active in the high-yield market with green bonds.

Thank you so much for the disclosures today. But just wondering what disclosures you're planning on doing next year in terms of this new EU taxonomy.

And if there's any additional disclosures we can expect for investors next year. Then, just very quickly, on Schaeffler Finance B.V..

We know that you don’t really plan on doing any issuance. Just wondering if there's anything new happening with that entity.

If that’s still a subsidiary of Schaeffler AG. And then, finally, if you can allow me one more question, just any differences in contracts with this new transitory for longer inflation or energy pricing picking up.

That would be super useful. Thank you so much.

89:42 Let me take the first one, and then Claus can talk about any plans on the issuance side. And I think you saw from the balance sheet information, we are in a situation where we are sitting on significant cash and need to think how we further optimise without any immediate maturities becoming due.

So, Claus is going to talk about this. In terms of EU taxonomy, that is clearly an interesting debate.

And you will understand, I cannot tell you at the moment what we want to do, simply because the regulations are so unclear at the moment. In particular, for suppliers like ours, I think you know this, there is still a debate with the accountants, the Big Four.

Are Auto suppliers excluded from this? Are they not excluded?

Do they come in through a specific rule? What are critical components?

There's a lot of uncertainty here. From our side, we have done our internal homework.

We have tried to apply the standards to our business when it comes to green top line, green Capex, green OpEx. And we have also set our own ideas and said, how much of our, let’s say, five-year Capex plans should be devoted to improving on the sustainability side.

91:15 You saw the targets. I can only stress again, we are hundred percent committed to make these targets step by step.

It’s a long-term exercise. And I do believe the regulations will develop, hopefully with more insight than a first shot.

The fact that the new board will be established in Europe and in Frankfurt, where all the big regulators are teaming up, is a good sign from the COP. We were part of the discussions at the COP on this.

And, again, for our business, that is more than just an auto business, it is even more challenging to make sure that we get our information right. In general, Stephanie, I can say the whole question of nonfinancial reporting will become much more important in the future.

It will be merged with the financial reporting. And again, I see this as a, at least, three to five-year task until all of this is properly settled.

Like we have with IFRS and US GAAP conversions, there's a lot to do here. And I can assure you we will do our best here to be at the forefront of proper reporting, on the one hand, but also, at explaining how different business models can be.

What counts is really the ambition to deliver step by step. And here again, I can say we are hundred percent determined to pay what we need to pay on the compliance side.

On the other hand, to go for the opportunities for all businesses that come from there. Claus, would you take the other question on the financial side?

92:52 Yes. So, as I presented, we have an available liquidity of twenty seven percent of last twelve months' sales right now.

Klaus and I also presented our very comfortable cash position. I presented that we are now more in the mode of cancelling Schuldscheine whenever we can and paying back.

So, an issuance under normal circumstances, right now, also with no further maturities until twenty twenty four is not very likely. When I say under normal circumstances, of course, if you remember back the Dodge discussion, if something like that would happen, that, obviously, is also going along with a significant financing exercise.

But under normal circumstances, as I said, nothing is planned in the near future.

93:57 Ok, I think that’s it. If there are no further questions, I would just like to conclude.

Thanks for the interest and all the support. Let me just outline at the end three things that I think are important for Auto and Industrial as a competitive advantage for us.

Cash generation remains key. We want to pay a decent dividend, and we will continue to put all our focus on proper Free cash flow.

And it goes hand in hand. You all know this better than I do with a focused and differentiated capital allocation across the portfolio, going in the right directions in Auto.

And on the other hand, realising synergies and growing where possible in the Industrial side. With that, thanks for your interest, and bear with us.

It will be an interesting end of the year and great opportunities to meet with us during the next conferences. Thanks a lot, and bye-bye.