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Schaeffler AG has announced its program RACE, which is designed to sustainably increase the Automotive OEM division’s efficiency and optimise its portfolio. The abbreviation RACE stands for “Regroup Automotive for higher Margin and Capital Efficiency”. Within Schaeffler AG’s Board of Managing Directors, responsibility for the program rests with Matthias Zink, CEO of the Automotive OEM division. Like the approach taken in the Industrial division’s program CORE, RACE consists of three stages. The initial stage of the program, which started on 1 January 2019, covers the next 18 to 24 months.

The program was made necessary by a number of external and internal factors that had significantly weakened the division’s EBIT margin before special items for 2018.

To address these, the overriding goal of RACE is to sustainably improve the margin over the next three to four years and to generate an EBIT margin percentage in the high single digits going forward.

The division plans to achieve this margin improvement by a collection of measures focused on six earnings levers: (1) optimising the footprint in Europe, (2) optimising the business portfolio, (3) consistently reducing overhead costs, increasing (4) R&D efficiency and (5) capital efficiency, and (6) sustainably improving order intake. The measures affect all four business divisions (Engine Systems, Transmission Systems, E-Mobility, and Chassis Systems) as well as the corporate functions internal and external to the division and will primarily impact Europe.

“Our RACE measures and decisions address the pressure on margins in certain product areas as well as the decline in gross margins,” Matthias Zink said. “At the same time, we want to further reduce the large extent to which we rely on the internal combustion engine while – being an innovative technology partner to our customers – utilising the opportunities offered by the fields of hybridisation and electrification much more extensively. Our discipline regarding cost and capital in that process will be much more rigorous. Additionally, we will reduce the number of products that generate low margins and expand the proportion of higher-margin products. Products that are being phased out or that do not generate sufficient returns will be reviewed closely. We will also allocate our R&D expenditures and our capital in a manner ensuring that high-return products and system solutions as well as strategic future-oriented areas such as E-Mobility and autonomous driving will benefit the most.”

As part of the first stage of program RACE, the division plans to further consolidate its European plant network. This will likely affect five European locations where the Automotive OEM division maintains production sites. All of the planned measures will be discussed with employee representatives in advance as agreed in last year’s Future Accord. Both sides are striving for socially responsible solutions without layoffs or site closures. In light of this, the consolidation will primarily involve disposing of or combining activities. At the present time it is anticipated that these changes will result in a reduction by about 900 positions, including about 700 positions in Germany. These numbers include the disposal of non-core activities in the Engine and Transmission Systems business divisions. The R&D ratio (R&D expenditures as a percentage of sales) of the Automotive OEM division will be restricted to eight to 8.5 percent in 2019 and 2020 taking into account IFRS 15. Furthermore, capex for the same period will be limited to no more than 900 million euros p.a. Finally, the division will increase its order intake in the E-Mobility and chassis mechatronics units to 1.5 to two billion euros p.a. over the next three years.

Klaus Rosenfeld, CEO of Schaeffler AG, stated: “Having successfully completed the first two stages of the efficiency program CORE in the Industrial division two years earlier than originally anticipated, we are launching a third stage – called Fit – and have now turned our main focus to increasing the efficiency of our Automotive OEM division. I am confident that we will be able to transfer our experience with CORE to the conceptual design and implementation of RACE. The program RACE represents another important building block in the transformation of the Schaeffler Group. The focus is on increasing efficiency and optimising the portfolio. We are fully determined to consistently execute the program which allows us to access new opportunities for growth. In that process, we will mainly rely on our technological expertise and our innovative strength.”

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