Schaeffler Ag Ord

Dear investors, dear analysts, a good morning. Today, for the full year 2033, we meet with the Shepard Grouper, Mr. Klaus Rosenfeld, CEO of Shepard Grouper, Mr. Klaus Bauer Group, and us from the IARC are here to take you through the results and guidance for 2024. This conversation will be conducted as usual under the disclaimer you find on the deck. And without further ado, let's start the call. Start the floor, please.

Thank you, Renata. Ladies and gentlemen, welcome to our annual results call today on March 5th. We will share the call as usual between Klaus Bauer and myself. I will start with the overview and some information on the business development. Let's go to page number four first. I think you saw the The key figures, sales up 5.8%, what we think is a good result in a challenging environment, particularly driven by positive volume and pricing, margin 7.3%. The main drivers here were the two automotive divisions, in particular automotive aftermarket, with a stellar margin of more than 16%. Free cash flow, 421 million for the full year. And I think we are proud to say that we've overachieved our guidance and could even demonstrate strong cash flow generation despite a capex number that is 19%. above previous year dividend. We already announced 45 cents, the same number as last year. And you know that we increased the dividend payout ratio going forward from 30 to 50, from 240 to 60%. Guidance achieved. Yes, and you saw this industrial at the lower end. We'll come back to this. And for sure, as we indicated to you, the year 2024 is a year of transition. We will only provide you with guidance on group level. Klaus is going to explain that. That's a little bit of a complicated guidance as required by the rules. And for sure, the divisional part that we are not guiding for will be part of the explanations during the year, who is achieving what. But with all the structural changes that are in front of us as a result of the Vitesco merger, we think it's prudent not to go too much into detail, but rather focus on the year 2025 and beyond. Last point, the deal execution is on track. We are five months, more or less five months down the road with a rapid recovery. execution pass more or less every two weeks something new. The latest information was the exchange ratio with 1 to 11.4 or to say it in numbers of shares that you can count 5 to 57 shares for Vitesco and Scheffler. The AGM is in April as you know and we are still expect closing in the fourth quarter. Let me go to page five, this famous CEO page with the highlights and the lowlights. And let me start with the lowlight, and that's clearly the top line in automotive. We have not achieved our outperformance target. The reasons are not new. They were explained during the last quarterly calls. We see this as a temporarily situation where we are lagging global vehicle production. And second point also to mention here, industrial, also something that we debated in all the quarterly calls of the past. The industrial top line is and has been under pressure due to the overall weaker economic environment. You all know industrial is a cyclical business And as the chart later shows, it looks like that we have reached the trough and that the situation will hopefully turn soon. Today is the Congress in China. Let's see what that brings. And we'll see that also here in Europe and in the other markets, things develop to the better. On the positive side, I think group performance, It's on the positive. Strong portfolio management paid off. 7.2% margin speaks for itself. Strong balance sheet. The transformation... is ongoing even without the Bitesco merger, and we have shown that we can more or less self-finance our way forward. Cash generation is strong, good profitability, but in particular, effective working capital management led to the strong free cash flow, and that's the basis, as you know, for attractive dividend payouts. And for sure, on the strategic side, the merger with Bitesco Looks very promising. You all know the good reasons behind this. A strong strategic logic. Very well financed. Clearly something that has significant synergy potential. and then the one share, one vote simplification of the shareholder structure should all make it an attractive proposition going forward. Numbers on page 7. I'm not going to go into detail here. You see for the group 5.8% and a margin of 7.3%. If you see the growth of the EBIT before... special items, you see that EBIT grew by 13%. That indicates that we are finally in the year 2023 improving our operating performance stronger than the top line. The top line growth is shown on page number eight with all the different buckets. You see clearly here that while We can say all regions grew and all divisions contributed to the overall growth. Aftermarket, strong with 11.8%. Look at these numbers. China and Asia Pacific, the base is small, but in Europe, 10%, in America, 12%. That speaks for itself and demonstrates how important that automotive aftermarket business is going forward. When you think about the margin of more than 16%, then that in itself should be one of the value drivers going forward. From a regional point of view, yes, China is more or less flat. Here you see also one of the weaknesses this year, industrial with minus 6%. You know our exposure in wind, that has hit us harder than we expected. expected, and that is more or less shown by this number here. Klaus will give more details. All in all, I think the 5.8% is a solid and promising number also going forward. Quickly on the divisions, you see automotive technologies on page number nine. I think it's fair to say that with 5.4% gross and with a margin improvement to 4.5%, gross margin more or less stable. This is a successful year for Matthias and his business. The performance has been driven, as you already know, by the mature businesses in full year 2023. We can show you very promising order intake, both in mature and in the new business, $5 billion in EMOP and $8 billion in the other businesses. The positive effects from increased pricing have come through. Negotiations with OEMs are closed for sure, and that is also what is behind the gross margin. Matthias has done very well in running his plans in an effective manner. I already mentioned the fact that we are not happy with the outperformance Number 10 gives you then a little bit more detail of the order intake. I already mentioned that 5 billion order intake with a strong finish in Q4 2023 has been more than what we promised, 2.3 billion, the same target as in 2022. So I think strong sign that we are in the business. You see some or two examples here. that also points to an important development that may be a surprise to the capital market, but HEF technology becomes more and more relevant both in China but also in the U.S. So it's not only pure battery electric that counts, but also the combination. Aftermarket, again, a strong gross business, a strong margin business. I don't have to say much here. Nearly 12% gross, what is predominantly organic gross, plus 16.3% margin, I think speaks for itself. We can only thank here Jens for the strong delivery. The market was certainly also helpful here because, as you all know, in a situation where there is rather an economic downturn expected, people rather repair cars than buying new cars. That's good for us. But let me also say this is not just the extension of combustion engines. We are getting stronger and stronger when it comes to repair solutions for hybrid and for e-mobility. That's on the next page. experience we have in engine and transmission systems is definitely something where we see a strong competitive advantage. Just to mention one number, by 25, 35% of new car registrations are expected to be halves and for sure at some point in time these cars need repair solution and that's exactly where we see our strengths and where we want to play. Industrial, as I said, a little bit of a disappointing result. Fourth quarter was difficult. We ended up with the lower end of the guidance, 9%. Just for the record, if you compare that to previous year, there is an effect of 50 basis points that come from the Evelix PPA impact, but still a margin drop of 2% while sales are more or less flat. If Alex here was the main driver for the 3.9%, without that, sales would have been slightly behind the previous year. We know that that is not really satisfactory. What I can say is this is the result of cyclical headwinds. We think that our position is okay and good, and as soon as the cycle turns, we'll benefit from that as well. That's on page number 14. You see in Q4 and also what we are experiencing in January that it starts to turn. Still a long way to go to bring it back to growth, but we've really... suffered from this two or three quarters downturn and for sure the diversification we have in our sectors with aerospace and rail continuing to see strong order intake is not strong enough to really compensate for the downturn in the most important sectors. My last page is then on the guidance for 23. Sorry, there's a page more on on the transaction later on. But on 23, I can say we have achieved what we promised on group level. We have achieved what we promised on margin level. And I already mentioned the outperformance that is not in line with the annual guidance. Don't forget, when we set outperformance 0% to 3%, that this was an average number over the years. However, it doesn't change the fact that minus 400 is not where we want to be. Capital allocation, I think I can cut that short, page 16. I already said it, 932 million was the group investment. That is 19% more than previous year. Shows that we are on the right track. The bulk of this investment was, as you see on the right-hand side, in Europe. If you go through the different businesses, for sure, immobility contributed to this, industrial contributed to this, with the localization becoming more important, in particular in China. But also in the other areas of business, we have continued to invest. You heard about the big plan for the U.S., That is clearly another proof point for our more diversified also footprint strategy. Let me continue with the pages on the transaction update. I think you all saw the exchange ratio. I leave that to your questions. With that 1 to 11.4 or 5 to 57, I think all the data points should be there to calculate the shareholding structure post-transaction, provided everything goes through as we think. There's no indication that that is not the case, and with that, we will probably end up with a free flow that is below the 30% rather than the area of 22%. Transaction update, I think I can cut this really short. After the 26th ad hoc statement, The next bigger one is March 14th, where you will see the published merger documents, also the valuation documents with the standalone plans of Scheffler and Vitesco. A new situation for us. We have never published plans for five years, at least on group level. So important information, interesting document that will come out. And then on the 25th, our AGM, 24th, the AGM of Vitesco. Let me also add the integration is on track. We are in good shape with 23, 24 integration teams, weekly meetings, high intensity, positive spirit, and clearly with the understanding that the year 2024 will be a very important year to lay the grounds for what will come out then out of a joint business plan for 25 and the years thereafter. So don't judge the merger on the year 2024. It's a lengthy transaction and deal execution process. And it's now up to us, together with our colleagues at Vitesco, to lay the grounds for successful delivery of synergies going forward. Last page before I hand over to Klaus for the more detailed explanation of the numbers. Sustainability. Sustainability is very important to us. As you all know, we have published today also our sustainability report. The sustainability report has a significant number of KPIs that we have also listed here on page number 12. From the report, you know that we have agreed to work towards 10 different action fields that are structured into ESG according to the customary structure, and you see of these ten action fields, we have at the moment seven major KPIs that we want to share with you. The first two ones are on climate neutrality. I'm happy to share with you that in terms of scope one and two, we have made significant further progress, reduced the greenhouse gas emissions from 2022 to 2023 by nearly 24%. At the same time, on the scope three upstream, there is a slight increase that is more or less activity driven. You see it later on when you come to the growth. So more to come here. Scope three upstream is critical because we need green steel and we need to make sure that that then finds its way into the most important products. Energy efficiency, we're already in the year 2023 more or less on target for what we want to achieve in 2024, 100 gigawatt annual efficiency gains, very good progress in terms of energy efficiency. also helps to save some cost. Renewable energy also here, positive delivery, close to the 100% target for 24 globally, and that is also promising. Then on other targets, fresh water, very important. We have promised... Until 2030, base year 2019, 20% reduction. We are at 12.9%. So also here we are optimistic to overachieve our targets. Employee safety at 10% improvement. We achieved a 2.7 LTIR rate, and there's still some way to go. But it's an important indicator and also diversity in top management on track by 25. We want to have 20% of our top management led by women. That's a sign for diversity and diversity is important not only for innovation but also for performance and future success. With that, I hand over to Klaus for the detailed numbers.

Thank you very much, Klaus. Klaus, you already showed a few numbers focusing on the full year results. I will, in my portion now, mainly stay with the fourth quarter. Let's go to the first slide here. You see the sales development, remarkable sixth quarter in a row, above $4 billion of sales, despite... Foreign exchange translationary headwind. But anyways, for the fourth quarter, you see excluding foreign exchange by 3.3%. On the right side, you clearly see what Klaus already indicated. mainly driven by our automotive divisions and mainly automotive aftermarket here. And from a regional split on the bottom, you see that Europe, as Klaus already mentioned, grew strongly and contributed the most. On the next slide, it's cross-profit. The two remarks that I want to make here is you see in the waterfall chart that we maintained our pricing levels, which is good news. But you see a little bit of an impact in the fourth quarter in production cost. That's a normal seasonal pattern because of lower volumes in the fourth quarter. It has to do with the shutdown in the... in the Christmas period that was longer this year than it was last year, and the absorption that's coming with it On the next slide, I'm coming to the overhead. Overhead is a good news state flat. You see year over year it's an increase of 0.3%. You also see throughout the year in all four quarters a pretty stable overhead situation. And that is despite the fact you see that reflected a little bit in the In the bars at admin, these are a little bit increased for the third and fourth quarter. These are the transactionary expense impacts from our Vitesco transaction, mainly M&A consulting services here. Maybe as Klaus touched already a little bit on that for the full year, but talking a little bit about the table on the right bottom, you see here the industrial situation where we have for sure an impact in EBIT and some of that is driven not just by the volume fixed cost under absorption in gross profit, but also in the overhead ratio, see that increased 3% in the quarter year and 2% for the full year. At a first glance, that sounds like bad news. However, I would really focus on that. and turn it around and tell you that, and Klaus mentioned that in the highlights already a little bit, that despite the very difficult market environment that we are facing right now in industrial, we are not foregoing any investments in our future and continuing our R&D work, for example, in the area of robotics and in the area of hydrogen. with a lower volume that naturally mathematically then increases the overhead ratio, but see that as a sign that we are investing into our future and are not carried away too much by the cyclical top line of industrial. And therefore, as Klaus said, once the volume comes back, the industrial division should be in good shape. By the way, with automotive aftermarket and automotive technologies offsetting that trend for the year and also for this quarter, as you see in the numbers here, that is the beauty of diversification, and therefore we can afford to invest also in a division in times where there is cyclical headwinds. Coming to the next slide, the EBIT levels, 5.5% for the quarter. You see that's in line with what happened last year with 5.8%. So it's a normal seasonal pattern here. And when we go to the table on the lower right side, you see pretty much reflected everything that I already said now in gross profit and overhead. Strong performance, as Klaus said, for the quarter as well as the full year for automotive aftermarket with over 3 percentage points of margin improvement. Also strong performance for automotive technologies, still 0.3 percentage points better in Q4. And despite the volume impacts that I explained that were a little heavier in the Christmas shutdown this year than last year, and strong 1.4 percentage point improvement year over year. On the next slide, we are starting to now look into the divisions, starting with automotive technologies. Let me just... make two observations on this slide. You see one is all reflected by the headline. You see it in the table below. Engine and transmission and bearings had solid growth and continued the growth in the fourth quarter. Chassis, obviously from a percentage standpoint, the highest number in the table, but as you see on a low starting point with 101 million, So therefore, really engine transmission and bearings driving the growth in the fourth quarter. And below that you see, and that's now also a full year picture, not just the fourth quarter, but you see the outperformance explanation that Klaus already indicated. We explained it, I think, throughout the last two quarterly updates. And you might remember that. It's driven mainly by China. China is the participation in the immobility sales right now that will improve, as we said, over time. However, the BYD, the famous BYD effect in China is also not lost on us. BYD is really important. having a high vertical integration in-house. We participate in their growth. We are a significant supplier to BYD, but from a content per vehicle underproportional as every other supplier as well. And then, secondly, you might remember the situation in America that's mainly technically driven by the strong Mexican pesos versus the U.S. dollar. We have a lot of Value added in Mexican pesos and selling in U.S. dollars into the U.S. market, therefore, are impacted by the strengthening of the Mexican peso. That should, as I said in the last call, should now phase out and go away as we go into 2024 because it's now in the baseline phase. And if the Mexican peso doesn't strengthen further, which is not expected, then that should also phase out and turn around and normalize. Let's then go to automotive aftermarket on the next slide. Automotive aftermarket, I think, not... Much to say, it continues to be the shining star, also in that quarter. And you see maybe on the left top side that Greater China grew by almost 44% on a low level, though. That is the increase mainly due to our platform business that you know we have set up and are ramping up in China for China. On the next slide, we are talking about industrial. Surely, the division currently with the most difficult market conditions I think for the circumstances we are weathering the storm pretty okay. But nevertheless, as Klaus said, 5.8% EBIT margin cannot be and is not the long-term ambition there. You see clearly, if you look at the numbers on the left side, clearly the The drivers, and Klaus mentioned both of them, and they're connected also. It's in the region Greater China with sales quarter over quarter with minus 20.1%. And in the graph below that, you see renewables with minus 32.7% year over year. And if you now combine it both together, it's really China wind. And as we said in the past, China wind is the driver of the current performance in our industrial division that is more prominent and emphasized as with our peers. And we also were transparent about that. The wind sector in China is much more important for us in our portfolio than for our peers. We are by far number one bearing supplier into that segment. Good story or good news with that is once that turns around and there's, I think, no doubt in the market that it will turn around. The timing, we can have all different opinions, but China is dependent on further installments of wind energy So it will turn around, and if it turns around, we will be the one who is participating the most in that. Ending up on a positive note on that slide, you see on the left button also the industrial automation sales development. We told you industrial automation with its focus fields including robotics, automation and so on, linear automation in industrial applications is a focus field besides renewable. For us, you know that we invested also with Evelix in that area heavily, and that is really also the sector that is growing already in the fourth quarter of last year. And we have great hope that we will execute our strategy in that sector. That leads me now to the rest of the P&L and the balance sheet net income, 47 euro cents earnings per share. That needs explanation. It's heavily impacted by pure bookkeeping, accounting technicalities. We have, as you know, offered the Vitesco shareholders to tender their shares, and that tender offer started on the 15th of November of last year. The offer period ended on the 15th of December. You know that we got... offered around 30% of Vitesco shares at that point. That was then settled in the new year, 5th of January, and that was the reason why at the end of the calendar year, at the 31st of December, we had to value the tender shares that we had a binding offer out there for the 30% of the shares for a price of 94 euros per share. We had to value these shares at the fair value at the balance sheet or the reporting period end 31st of December. You might remember that the share price after the tender offer period ended returned to a lower level. and therefore the fair value had to be reflected with the share price at the end of the reporting period. And we had to realize a negative valuation impact of minus $188 million. That was the 30% of the shares multiplied by the difference between 94 euros and the share price at the stock exchange at the end of the year. Again, pure technicalities will never lead to cash outflow and will not impact our P&L going forward. It's just the technicality of IFRS 9. this point and the same is true then for the second impact related to the transaction as you are aware we entered into a total return swap agreement with a bank and were economically responsible for the share price development in that swap. The swap was filled right at the beginning of the offer period with 9% of the shares The 9% of the shares were acquired at around the offer price at that point, which was 91 euros, as you might remember. And same logic at the end of the year. The stock exchange value or price was share price was lower than the 91. And therefore, we had to realize evaluation impact of minus 47 billion. two pure technical impacts. And without these two impacts, the earnings per share would have ended up in the range of the prior year. So no concern here, although it looks admittedly strange at first glance. On the next slide, you see a free cash flow. I think that is a number that we are very proud of. We beat our guidance with water 21 million euros. Klaus mentioned it already, and you see it in the waterfall chart on the bottom right. The increased capex also in the fourth quarter could be almost completely financed with effective working capital management as you see a positive contribution in the fourth quarter of over $200 million. So good result there. Normally what I do on this slide also comment a little bit on the underlying cash flow generation power, and that corrects especially, of course, the restructuring expense and cash, not expenses, cash outflow that we experienced. was still 208 million. You are also aware that that will significantly drop now in 2024, but in 2023, full year was still 208 million for the total year. And if you add that back and deduct a few positive cash inflows from legal cases, then you come up with a cash flow generating power of 600 million right in the range of what we are always saying, that we have around 600 to 700 million of cash flow generating power per year. That then allows us also on the next slide to continue paying attractive dividends. It stays at 45 euro cents this year. This is a payout ratio of, again, close to 50%. That was also a reason, if you now look over the last five years here, we always were rather at the top of our target range of 30% to 50%. So therefore, we said, let's now just adjust that range so that we are more in the middle of this range going forward. So that will be increased to 60%. For sure, a good... Good news for our shareholders. On the next slide, we are talking about now a little bit balance sheet items. In that regard, it's the leverage ratio known chart. It increased this year to 1.5. Clearly, the main driver is the Avelix acquisition at the beginning of the year. And we would have then reduced that throughout the year to a level of around 1.3 due to the cash flow that we generated. However, as you are aware, we are also securitizing the total return swap and therefore had to finance another 261 million. As you see on the right side, therefore, it stayed at the 1.5 times level. but that doesn't change the situation that we continue to have a strong liquidity situation around 3 billion of liquidity, strong balance sheet, which is also reflected in the confirmation of our ratings in the light of the Vitesco transaction. So towards the end, that's a new slide, and it will be only the exception, and that's explaining you a little bit how we plan to report the year 2024 to also get maybe your feedback on that. Klaus mentioned it and it's clear 2024 will be a year of transition. It will be the year where we are executing in steps as described the merger with Vitesco and therefore we have to account for that also in the communication to the markets. The one guiding principle is DRS-20, the standard that's governing our outlook for our reporting. This is a complicated standard and the standard says that we have to guide and put an outlook out based on the entity as it will exist at the end of the reporting period. And we know almost with certainty today that at the end of the period, Scheffler AG will be a different company as it is today. Today, it's still standalone. Today, we have a shareholding in Vitesco AG of around 40%. But we also know almost certainly that at the end of the year, there will be a Scheffler AG that is merged with Vitesco. Therefore, we had to... put our outlook based on that timing. The timing is very important, and you see it a little bit here in the explanations. We think that for the first three quarters of 2024, we will report an entity that is still Scheffler AG standalone, as you know it today. including the 40% shareholding in Vitesco. And that means from a consolidation standpoint, we have to consolidate the Vitesco shareholding at equity. At equity means that we will recognize the quarterly results of Vitesco, but only on a net income level. on that 40% shareholding level. And then our assumption is that for the fourth quarter, we then will have a situation where the merger is registered and we will fully consolidate the VITESCO and therefore then you have the full balance sheet and P&L structure included. So why do I explain that? Because obviously now we have a few moving parts in 2024 in regard to the reporting. You see it described here under the bullet one. We will already transition the Scheffler operating model towards the target model that we explained to you throughout the transaction. That means our automotive aftermarket business will be renamed Vehicle Lifetime Solutions, not more changes there. But then the automotive bearings business division will be already reported together with our industrial division. and will be renamed as Bearings and Industrial Solutions. And the third adjustment is that we will allocate corporate center overhead expenses not by sales, but by number of divisions. So every division will get the same portion of these overhead expenses. Of course, that means that there will be not any impact on a group level, but there will be a different segment reporting. Therefore, we will be very clear with the first quarter actual reporting of 2024 what these changes will be. We will restate 2023 quarterly actuals accordingly so that you clearly can see how these divisions develop. But there is no question that there will be adjustments needed in your modeling and in our modeling as well due to these transitionary actions already on a Scheffler standalone basis. So we also decided therefore that on a group level with these complicated technical impacts we will guide for this transitionary period only on group level, so the 2024 guidance is on group level, but actually we will report in a segment way and also give you the restated adjusted prior year numbers as a comparison. That leads me now to the next slide, already in Klaus's section again, but since I started it here. That is the guidance based on these technicalities that I just explained for 2024. As I said, you see it on the right side, mentioned again, for three quarters, the Tesco shareholding of Scheffler AG, 40% at equity consolidated, and recognized in the Scheffler AG financials. And then from the fourth quarter on, full consolidation of the merged entity after the merger is registered. That leads us to the guidance as written here. We think in total year over year. although now it's not necessarily comparable, but on these assumptions with the consolidation, there will be a strong growth of the top line. We will achieve an EBIT margin between 6% and 9% and have a free cash flow outlook and guidance of $300 million to $400 million. In other words, despite the efforts and also the expenses that come with the transaction and the integration, we think that we will have a year 2024 that in the full year will be comparable to our standalone performance for 2023. And with that, Klaus, sorry for the technicalities, but back to you.

Ladies and gentlemen, let me conclude the session and open the floor for your questions with the summary statements on 35. I think it's fair to say that this was a good performance in a challenging year. Don't forget, fourth quarter was also clearly impacted by all the activities around the envisaged transaction with Vitesco. We are proud of the strong cash generation, the robust balance sheet. That's the basis going forward. And I think the divisions have shown, and also the regions, resilience. Let me add here, in terms of the outlook, there is a challenging year ahead of us, both from a macroeconomic perspective, but also from the market, in particular in the main sectors where we are in. And I would like to stress one more time for you that that situation supports our view that it is good to be not only in BEF, but it's good to be in ICE, HEF, and BEF all together. This three-pronged approach with a more universal approach to powertrain solutions is, from our point of view, the right strategy going forward in a dynamic environment. It is win-win because we can leverage technology and also customer relationships. And I think the changes that you have seen in customer behavior in large OEMs changing the direction is exactly going into that direction for sure due to the transaction. As Klaus described, 2024 will be a year of transition. As I said, we are Looking ahead of 2024, it's now the time to lay the grounds for a solid multi-year plan that will then also give us the basis for proper mid-term targets. And let me add, once again, we will, in all of this, not overlook our duty in terms of sustainability. We will not overlook the future in terms of digitalization and K.I., It's a fascinating world with all sorts of opportunities, and I want to close with an optimistic statement that all of that is the basis for further building something that is unique. We call it the leading motion technology company, more cross-selling, more product orientation, more customer orientation. We shared that with you in numerous calls. And I'm very confident that in some years ahead, we'll sit here and say, what a great year 2023 and 2024 for building that new company. Thank you very much. And I hand back to Renata and the operator for questions.

Ladies and gentlemen, we will now begin the question and answer session. Anyone who has a question may press star followed by one on your touch-tone telephone. Once your name has been announced, you can ask a question. If you find your question is answered before it is your turn to speak, you can dial star and two to cancel your question. If you are using speaker equipment today, please lift the handset before making your selections. One moment for the first question, please. And the first question comes from Akshat Kekar from JP Morgan. Please go ahead.

Thank you for taking my question, Akshat JP Morgan. Three from my side, please. The first one on the strong order intake in 2023, especially on the mature combustion engine technologies. If you could just highlight where have you been successful in terms of regions or customers And do you think we are entering a phase where you could see further consolidation and Schaeffler could win more market share in combustion engine technologies? The second one is on the industrial business. I know there is no divisional guidance for 2024 as of now, but in terms of the underlying trends that you're seeing, what are your current expectations for organic growth and margin development in this division, please? And the last one on standalone auto tech, How do you think about outperformance on the underlying business? As we know, there were quite a few e-mobility ramp-ups that you had initially expected in China coming through in 2024 and 2025. So we'd be interested to hear your thoughts on outperformance improving and also how we should think about the big puts and takes when we consider margins for 2024. Thank you.

Okay, Klaus. Let me start with the first one with the strong order intake. And I think you're referring to the 13 billion for the full year. Let me break this down a little bit. Five billion is from e-mobility. Then 4.3 is from engine and transmission. And then 2.5 is from bearings. And another billion from chassis systems. If I look at the regional split, I can basically say it is very balanced with 35% coming from China and the other 65% more or less equal in Europe, America, and Asia-Pacific. When I look at the powertrain split, then you can also say here it is more or less balanced. I can say that a third is ICE. Another third is hybrid, including mild hybrid. And the other third is EV. So you can basically say with a little bit more from China, very balanced across the four regions and also across the powertrain split. And I think I gave you the right numbers. If you think about size of things, I can also say here, and we've never given these numbers, that this is not two or three big ones. The big ones are in the billion area, and there are numerous smaller ones that are somewhere between 300 and 600. So you can see, again, we are not going after the big ones only. We are going after the ones that are interesting also either from a customer point of view or from a profitability point of view maybe that gives you enough color here but it's wrong to believe that mature is only ICE there's a significant half portion in this this is why I said gentlemen and ladies and gentlemen our view going forward is it's great to have activities and competence in all three main In terms of industrial, as I said, the situation 2023 is a function of the cycle. We are convinced that the cycle turns. There's the extra impact from wind in China that makes it a little bit more difficult for us because we have that large market share there. But I would say, Klaus, it's fair to assume that we will see some growth in 2024. and I also believe that the 9% is the absolute minimum that we should achieve. We achieved it in 2023, so I do hope that we will also see some, with the turning of the cycle, also improvement in margin back to the two-digit numbers. On outperformance, maybe Klaus, you help me here on that one.

Yeah, I think the outperformance question was mainly related to China, or at least that was the second part. But let me first start and reiterate also the mathematical impact of the region Americas due to the Mexican peso US dollar exchange rate. As I said, that is now rebased, if you will, with all of 2023 markets. Having that included and therefore I think that the playing field for 2024 is level and therefore should show a much more volume-oriented performance versus the market than was, if you will, distorted by foreign exchange impacts in 2023. So I have... I would see and forecast a solid performance versus market volumes in the America's market as it relates to China. And there was, as I said, I think in the center of your question, it's, of course, And it's almost strange to say it's a function of BYD, but BYD, as you know, in the last two years, every year doubled its market share, which is a tectonical market share shift that was never seen in the past. The content per vehicle for us is underproportionate with BYD. We are growing with them, as I said, but underproportionately. But if BYD should double their market share again, which gets more difficult as they are doing it, but then obviously we have a mathematical issue there as well. But it is indeed, as you said, we are participating definitely more and more in the new e-mobility and also electrified chassis applications in China. We are perceived as an engineering powerhouse in China for China. We are not importing engineering services from Germany or the U.S. into China. We have all the capabilities in China. We are in... contracts with all significant Chinese domestics. And therefore, it's also only a matter of time until that performance also in that market will normalize. The big unknown is, of course, as you know, there's a lot of Chinese OEMs which are Most of the times we here in the Western world don't even know the names, but it's now important to really filter the few OEMs that will also have the staying power and therefore will provide a sustainable business and corporation model for us. I think we are doing a very good job in selecting OEMs the OEMs in China where we see a high likelihood of sustained growth. and therefore I'm optimistic for our performance also in the Chinese market. I think I said it before, you sounded a little different, but I think I said it before, it's not a matter of quarters, it's not a matter of weeks. It will be a turnaround as the new models will phase in. And again, the special impact BYD has, just because it's so significant for this market needs to be observed as well. But I'm optimistic that 2024 we will see or starting to see also in China normalization.

Understood.

And the next question comes from Horst Schneider from Bank of America. Please go ahead.

Yeah, good morning, good afternoon. Thanks for taking my questions, too. I have got also a few questions relating to the outlook, as you can imagine. So, when we look at the group guidance, this 6% to 9% margin, I mean, it's a range. So, therefore, the base case is, I assume, that you assume midpoint of the range, which means for all Scheffler... that the situation is not getting worse, it's rather getting better, means slight revenue growth, and also given that maybe items such as overhead costs come down, that the margin can be slightly up and there should be also some leverage, if you could confirm that. You made already a statement on industrials, maybe you can give more comments on aftermarket, which is also less affected by the merger with Vitesco. Here the margins, I assume, can stay high. I mean, they are already, we come from a very strong 23, but I assume they can stay that high. And also here, the revenues will slightly increase, if you could confirm that. And then last one, follow up on automotive itself. You alluded to the performance in the various regions, but what is your underlying assumption on light vehicle production for 2024?

Oh, thanks for the questions. I could give easy answers and just say, Confirm your assumption on one, confirm your assumption on two, and let's look to the appendix because there you have the underlying assumptions for light vehicle growth. But let me give you a little bit more color. First, on the margin outlook, yes, it's a 300 basis points range. six to nine percent uh the midpoint of the range is never a bad um guide um but let's also not forget forget this is also on a consolidated basis um you know when and how uh vitesco will come in remains to be seen uh so we put a little bit of of cautionness around this um leading to your second point yes we believe the aftermarket um was not um exceptionally strong only in 2023 all the um The trend indicates also the first information for 2024 indicate that this is continuing to go well, and that clearly helps also the margin. If you then think that through what we said about industrial, I think that gives you a little bit more color. In terms of the automotive technology number, In the page number 39, we said around 90. That means that we at the moment assume that the market is not going to grow. We had 90.1 million cars in 23, and that's also at the moment what we more or less assume for Scheffler going forward. So no growth. That means it needs to come from market share gains.

Okay, that's great. Just a quick follow-up. In this guidance also, in this group guidance then for 2024, there is no purchase price allocation that becomes relevant.

No, that's confirmed. We are doing it with what is called a Buchwertverknüpfung and therefore no PPA in that number. There is a little bit of an PPA impact in the equity, but that's not relevant for the margin.

Okay, that's great.

Thank you so much.

You're welcome.

And the next question comes from Mark Renaton from Warburg Research. Please go ahead.

Yes, hello, and thank you for taking my questions as well. The first one would be on the development of profitability and also, let's say, still talking in the old scope of the business, which you see in the current year when it comes to growth at automotive and efficiency gains versus inflationary cost developments, what your expectations would be for this division. uh would would be would be interesting um to to to learn about um and secondly when when looking at also this uh you know you're very strong um free cash regeneration i think also that they're very stringent and and and great success you show in working capital when i look back a bit in in the historical figures i think the only let's say item you had been better in the past um was was uh let's say inventory turnover Is there, let's say, still potential to improve that in the future, and also here, admittedly, of course, in the old Scheffler world, or is it something which is, let's say, now a bit structurally lower, perhaps with, let's say, reshoring and nearshoring when compared to previous times? Thank you.

Yeah, thank you very much for your questions. I start with the second one, and... I mean, inventory and inventory optimization is close to my heart as the CFO, although I have to say that I don't think that reducing inventory and inventory turns for the total operation is sufficient enough to really optimize it. and not just minimize it, you see that the relative weight of our automotive aftermarket business is increasing. You see also the profit contribution that this division is providing, and therefore that division comes then with a higher inventory need to fulfill the service levels that our customers require, and that's really necessary to have the success in the marketplace. So I think it's also a little bit relative to the weight of the different divisions, for sure. Industry has been a mixed bag between a little bit more like the automotive turns on the OEM side, and then a little bit more like automotive aftermarket in the distribution business, so also heavy on inventory. So we are really trying to optimize the inventory by business model, and I wouldn't be the CFO if I wouldn't say there's always improvement possible, but I think the improvements that we have made, especially in inventory, and also the reduction of slow-moving inventory in the kind is satisfactory. To your first question, that was, I think, in regard of how we view the margin development in our automotive business. I think we were transparent and clear about that. that any volume increases in the engine and transmission and bearings-related businesses would use existing capital. We are not at full capacity. Therefore, the relative weight of the sales mix is going toward the mature business, we will immediately from a margin impact also profit from and benefit from an increased fixed cost absorption of that capital. And therefore, I think we will see similar patterns in that regard in 2024 as we have seen in 2023. So, therefore, with also the ongoing and continued effort to improve efficiency on the shop floor, I think I would see definitely a tailwind in the margin for that business. But remember, also one part of the business, the bearings business, will now be reported 2024 in the bearings and industrial solutions area. So you will see it maybe then also in the restated numbers that might shift a little bit. But on a relative basis, there's clear tailwind from fixed cost absorption and... efficiencies on the shop floor. You also mentioned inflation. Inflation is not the topic that it was two years ago based on material, but we definitely have to experience and address wage inflation, and that's what we are doing. But from a pure pricing pattern with automotive volume customers, I think we will be going more in the direction of a normal contractual price reduction, then further price increases as we have seen the last two years. And I think I called in the last call, we are now playing defense, not offense. So we are not going for price recovery of inflation. We are just defending the prices that we have achieved in the past. You might remember that we said we did not negotiate recoveries of inflation on an annual basis in the past. We increased prices, and these price increases are increasing. obviously carrying over in the new year. And that's the same situation now. And we just have to defend these prices to protect our margin and to cover wage inflation.

Thank you very much. Just one short follow-up, if I may. You talked about the automotive bearings business, and if I remember correctly, for the, let's say, industrial business old, you had this 2025 margin target of 12% to 14%. Can you give us some indication on how this business compares to that number?

Yeah, so I think we will guide then once we have a fully developed business plan. Klaus indicated a little bit the timing of that in other calls already. So we try to do early second half of this year. We try to have a combined business plan and then also prepare for, orderly guidance. Then again, on a divisional level for 2025, I have to ask for your patience in this transitionary period. But it's clear that the automotive bearings margin is not at the midterm targets of industrial. So there will be a dilution effect, margin dilution effect.

Perfect. Thank you very much.

And the next question comes from Michael Raab from Kepler. Please go ahead.

Yeah, hi, thanks, Mike, Rob, Kepler Shriver. I'm afraid I've got to get back to your full year guidance, six, eight percentages, the EBIT margin. Just a very simple technical question. Does the EBIT number embrace the equity income contribution from Fidesco for the first nine months?

No. Yes. It does not? It does. It does. It does.

Okay.

That triggers a follow-up question. My mistake. It increases the cost.

So it does include it, you know, because I realized you also included in the past and you adjusted even number of the income from associates.

Yeah.

Okay. So you confirm it's also going to be the case with the first nine months contributions of Fitesco.

You might remember, Michael, we changed that accounting policy for equity a few years back when it was actually a negative impact. We obviously hope it will be a positive impact this year.

Yeah, okay. Yeah, you're right. I do remember, although I'm growing older, yes. But then on to the other question, and I guess you can already guess what the follow-on question is. Out of the 6% to 9% EBIT margin that you're guiding for, how much would the first nine months net income contributions from Vitesco account for, please?

Yeah, I... I think I would, I mean, we simulated that also in different scenarios. And now, if we would be too clear in that, obviously, we would also release information about Vitesco planning, which I think I'm not authorized to do. Okay. Sounds plausible. You can be assured that we... simulated it on a quarterly contribution level, not just on the total year. You also, if you look at the test code, the normal seasonal pattern is not linear throughout the quarters. So all that is included in our thinking about the guidance, about our guidance.

Okay. I accept this is as far as you can go telling us details about this. Thank you.

Very kind, Michael.

And the next question comes from Stephanie Vincent from Bank of America. Please go ahead.

Hi. Thank you so much for taking my questions. You have had some commentary about content per vehicle for Chinese OEMs. Just wanting to know, post the content per vehicle question, if you can give any qualitative or quantitative comments about content just not only the changes in content per vehicle, but also the changes in EVIT margin and potentially cash flow and working capital that maybe we would underappreciate as that transition continues?

I understand the question. Did you?

Well, you were just talking about as Chinese OEMs are gaining market share. So as they gain market share, you've already talked about the changes in content per vehicle with those new customers, but also any indication of how that would impact profitability as well as cash flow generation versus your legacy business.

Oh, yeah. I mean... I cannot specifically answer that now to that market segment. What I can tell you is that our capital employed in total in China is similar than in others, also related to the customers. And I think that is a very important comment that I also made during the presentation. I think our approach to China is not different than in any other region. There's obviously central support, but the real customer relationship and the customer experience developments and for new products and new applications is in the region for the region. So the cattle deployed, cattle employed and the resources deployed, also human resources are similar in China than you would see in Europe and the Americas. So therefore, Obviously, we are all hearing about the price competition in China, but again, we are conquering and addressing the price competition also with our own cost structure in China for China. We don't have now to mitigate expensive German resources in a price competitive market. So I think everything being... I understand it's a very, very high-level generalization, but I would not see a big difference between the financial KPIs in China with Chinese OEMs than anywhere else.

That's helpful. And then just a follow-up question about your comments in the annual report about The U.S. strike, did you have a sales and EBIT impact for that for 2023 that won't be repeated in 2024? Was that all made up in Q4 2023?

It's all made up in Q4.

Perfect.

It's a small impact.

Okay, perfect. Thank you.

You're welcome.

So there are no further questions at this time. And now I would like to turn the conference back over to Klaus Rosenfeld for any closing remarks.

Well, ladies and gentlemen, thanks for all the interest. Thanks for the questions. As we said, it's a year 2023 is over. 24 is a transition year. We have a big project in front of us. We're addressing this with all our responsibilities. And we are convinced that This will be a very interesting journey from here to the leading motion technology company. Thanks for staying with us. Thanks for the interest, and we'll keep you updated on whatever is happening in the next weeks and months to come. Thanks a lot. All the best, and bye-bye.