12. Report on expected developments

The Schaeffler Group expects solid growth in the coming years, despite the existing economic uncertainties. This growth will be based on our technological leadership, excellent quality of [--break--]  our products, innovative products offered, and our strong regional presence in the growth markets.

12.1 Expected economic environment

Leading economic research institutions expect the global economy to cool off in 2012. While supportive momentum will still be provided by emerging markets, economic expansion in [--break--]  the industrialized economies will be weak. The turbulence in the financial markets caused by the debt problem in many industrialized economies will likely put a damper on consumption and capital expenditures. However, the measures taken to control the European debt crisis are showing first signs of success. We expect consumer and producer confidence in the industrialized economies to recover slightly during the second half of 2012.

Based on the forecast by the International Monetary Fund, we believe that the global economy will grow by 3.3 % in 2012.

Economic growth forecast

No. 016
Economic growth trend
(in % compared with the prior year, in real terms)
2011 2012 2013
Germany 3.0 0.3 1.5
EU 1.6 -0.5 0.8
U.S.A. 1.8 1.8 2.2
Japan -0.9 1.7 1.6
China 9.2 8.2 8.8
World 3.8 3.3 3.9
Source: IMF, WEO Update January 2012.

We anticipate an increase of approximately 4 % in the worldwide production of passenger vehicles and commercial vehicles in 2012, with development varying widely between regions. The Asian developing countries, China in particular, but also North America will continue to play a key role in global automobile production. We are anticipating production of passenger cars and light commercial vehicles to increase by approximately 8 % in Asia and approximately 6 % in North America. We expect growth in South America to come in at approximately 4 %, while automobile production in Europe will likely decline by 5 % compared to the prior year.

Based on the VDMA forecast, we expect sales for the global engineering industry to grow by approximately 7 % in real terms in 2012. Significant momentum will again be provided by China, where the engineering sector is expected to expand by approximately 15 % in real terms despite growth slowing down compared to 2011. We believe the engineering sector in the industrialized countries will grow by 3 %.

12.2 Schaeffler Group outlook

Provided conditions develop as expected, we anticipate growth in Schaeffler Group sales of more than 5 % in 2012. Due to our excellent positioning in the various business areas on the one hand and in regional growth markets on the other hand, we again expect a single-digit percentage growth rate for 2013.

Based on a slightly weaker economic development of the markets, the Automotive division anticipates moderate revenue growth in 2012. This forecast is based on the start-up or ramp-up of various projects, including projects in the engine- and transmission systems sectors. The Schaeffler Group also profits from its strong position with respect to the overall trend towards resource efficiency and environmental technologies.

We are planning for moderate growth in sales in the Industrial division in 2012. The main drivers [--break--]  of this growth are the above-average growth in demand for our products in the Asian markets together with continuing good prospects in the key sectors of power transmission and production machinery as well as in our aftermarket business.

The Schaeffler Group again anticipates making capital expenditures of 6 % to 8 % of revenue in both 2012 and 2013, mainly for new products and capacity expansion. These capital expenditures are the foundation of our organic growth. In addition to Germany, the regional focus will be concentrated on the growth region Asia.

We will maintain our development activities at the prior years’ level. We plan to invest approximately 5 % of our consolidated revenue in researching and developing new products and processes in 2012 and 2013.

Net income for 2012 will continue to be held back by interest expense. As Continental AG is accounted for indirectly at equity in the consolidated financial statements of the Schaeffler Group, the financial result is affected by the economic performance of Continental AG.

We are expecting positive free cash flow in 2012 and 2013.

The forecast is based on the assumptions described under “Economic environment” ( see 1. Economic environment .). We perceive opportunities in a stronger recovery of the world economy if investors and consumers regain confidence in the stability of the European monetary union sooner than expected, and consumer demand in the U.S. increases markedly. Such a scenario would provide potential for a more favorable development of business for Schaeffler in 2012 and 2013.

In addition, the fundamental changes in vehicle technology, which we are helping to shape together with our customers in the automotive sector, offer considerable opportunities in the medium term. Our innovations for optimizing the classic internal combustion engine drive train as well as our hybrid solutions and products for electric mobility are leading the way for these developments. This position may lead to additional growth potential both for revenue and earnings in the medium term.

Herzogenaurach, March 13, 2012

The Executive Board