Schaeffler Ag Ord

Dear Darwin, thank you very much. Dear analysts, dear investors, welcome to the Q1 2024 earnings release. And without further ado, I pass the floor to Mr. Klaus Rosenfeld, CEO of the Scheffler Group. Klaus, the floor is yours.

Thank you very much, Renata. Ladies and gentlemen, welcome to our Q1 earnings call. are ready to share that presentation with you that you should have on your screens or that you should have received this morning. As usual, the presentation is structured into two main parts. I will take the overview and the business highlights, and Klaus is going to go in detail through the numbers. Let me start on page four with the key messages. we can present today a strong Q1 in a continued difficult market environment. I think the numbers speak for themselves. If you look at the top line, Q1 sales are flat, but we have to look at that against the high comps of Q1 2023. Automotive tech with a positive development, also positive outperformance. Vehicle lifetime solutions with a strong top line, good growth, very positive for us. And then weaker sales and bearings in industrial solutions. As expected, a difficult market environment You already see from the terms that we're using here that this is now the new segment reporting where automotive bearings has been transferred into the bearings in industrial solution division. Second key message, order intake in Q1 strong. We are proud to say that we already booked in the first quarter 1.5 billion in e-mobility against our proven target 2 to 3 billion. That is half the way. And I will come back to that later where that is coming from. Order book situation industrial. One of the key questions from the conversations we had with you, how is that going to develop? And we see that Q1 indicates that we see the trough in Q2. The order book industrial is clearly gaining momentum margin. Q1 nearly at the same level as in Q1 2023, 7.9 versus 8.1. Strong in automotive tech, very strong in vehicle lifetime solutions above 17%, and solid in bearings in industrial solutions. You see already from this first page, and Klaus is going to explain that in detail, that there is a bigger delta in gross margin, 26.6 versus 23.1. That is a one-off impact that comes from a technical change in how we value inventories. That effect is not included in the EBIT margin. So we're talking here about the adjusted version. So 8.1 versus 7.9 compares and does not include this 3% delta in gross profit. Free cash flow minus 166. That is a number a little bit higher than expected. Working capital drove this. Ensure the higher sales in inventory-intensive areas have impacted this. We confirm the guidance for all metrics. You know the guidance this year is only a group guidance. And I can also report that our transaction is on track, not only from the deal execution, but also from the integration. We continue with a strong focus on business continuity and preparation for day one. And as I've said before, 2024 is an interim year where things are changing for us. We are preparing things where we're laying the ground for a successful combination that should then take off in 2025. The famous page five with a CEO judgment highlights and lowlights, I think I said it already, automotive tech, strong order intake, strong EBIT margin, certainly also driven by the mature business, Vehicle lifetime solutions with a record quarter. We also see that the trend that started end of last year continues. So strong growth momentum and continued strong EBIT margin. And in bearings, industrial solutions is a little bit mixed. We see, as I said before, the order book industrial bottoming signaling that the declining market pressure across multiple sectors is declining. On the other hand, we are digesting a challenging situation in the Vint market in China where there is increased price pressure and where we can, to some extent, compensate this with lower costs but not fully, and that clearly leaves impact on the margins. Let me go to page 7 for briefly on the numbers. You see here what I said before, sales flat, EBIT margin slightly lower. That also includes an impact that Klaus is going to explain from the equity consolidation of BTESCO that sits in this 322 with minus 8 million euro. If you go to page number 8, you see what I said before. top-line performance flat and a little bit mixed. You see here that America's was strong with 4.2%, Europe flat, and China below Q1 2023. And if you look into the columns, you see that that is more or less driven by the Bering's industrial solution division with minus 9.8%. What is also interesting to see is how in that first quarter, and that's just an indication for the rest of the year, the regional mix has rebalanced a little bit. 45% from Europe, 23% from America, and 19% from China, 13% from Asia Pacific. So typically we have America, greater China, more or less on the same level. And here you see that the impact, China also impacts the mix. That doesn't mean that we will reduce our Chinese business. The opposite is true. We are positive on China, and this is in particular true for the automotive business. Quickly on the divisions, I'm not going to say much here, but the key numbers, sales, automotive, more or less flat on a FX adjusted basis, slight growth, EBIT margin slightly up, 5.3, I think, is better than what people expected, and also above previous year. You see a little bit of detail on the order book on page 10. 2.1 billion is the overall order intake for automotive technologies without the bearings that are now part of industrial, and 1.5 of that is from e-mobility. In e-mobility, one of the interesting new orders that came in is an OEM nomination for an e-motor and inverter for heavy-duty business. That is an area that is quite attractive, and we are happy about this order intake. And certainly, as you would expect, it's not only e-mobility, but also in our mature business, we see order intake. This is for the medium-duty sector, and we are happy about this project because it shows, again, the strength of our mature business that will probably run longer than we expected some time before. before. Vehicle lifetime solutions, as I said, the shining star in this Q1 report, 17.4 margin speaks for itself. At the same time, 8.6% growth. That is all on the positive, and I can already say here, it looks like that this trend continues also in the second quarter. It is clearly driven by the fact that There are more repairs, but also we are gaining market share because people like to repair their cars with our repair solution. That is on page 12, the heavy investment in the last years into modern customer portals, into the right product mix, into logistics. All of this is now paying off, and we are optimistic that also the capital market will at some point recognize the strength of our vehicle lifetime solution business now let me come to the last division bearings and industrial solutions as i said challenging market environment minus four percent um and uh 8.5 is uh more or less the same margin like last year klaus is going to share with you the details i talked already about the wind business in china that is a challenging situation because of the significant price pressure, but we have decided to stay the course there and try to counter this price pressure with further cost improvement, and we see some good development here, but it's not possible to compensate the price reduction completely. In terms of order book and how we see the next quarter. You know this famous chart with order book industrial for three months. Here is now the situation where the order intake, order book development cuts from below into the sales curve. That's typically an indicator that the development bottoms out. And let's see how that develops. We are a little bit more cautious here, but in the second half, I think hopefully the situation stabilizes. There are some good indicators here, like the aerospace business that is already on a positive track, and also in some of the new businesses. We show you here a project for solar farms. We are seeing good growth, but the bulk of the business has clearly suffered from the difficult market environment. Last two pages, the famous one on capital allocation. Not much to say here. We continue to be disciplined in how we invest. 5.4 capex ratio reinvestment rate, slightly below one, very similar to Q1. No big changes here. Clearly important to follow up with the big automotive tech customers. We have enough maneuver room in our budgets to support customers and with the capacity we have overall also in bearings and industrial solutions, we feel quite good. That also leaves room for investments into sustainability. We are, as you know, a big believer in sustainability becoming a key quality indicator. And Klaus will continue to invest in that area and to achieve our decarbonization goals. Last page from my side before Klaus takes over is then on the transaction. I think you followed the annual general meetings. They have approved Scheffler with 100% and Vitesco also approved. with a very dominant majority above 90% the transaction. We will now focus clearly on getting our preparation for day one right. The disciplined execution clearly pays off. So far, everything perfectly on track. And on the integration, I can say here, without going into too much detail, So far, it is a constructive exercise. The teams are working very well together. The respect for each other grows, I would say, every day. And we will certainly meet the deadline for day one. That is probably even earlier than what we thought so far, maybe already beginning of the fourth quarter. But the most important thing is that the investments into cooperation, into understanding each other, to understand the strong focus on business continuity, all of that lays the ground for 2025. The same holds true for synergies, where we're working heavily on the right numbers, on getting accountability for synergies right. All of that certainly requires a little bit of extra time. But I'm optimistic that we will be able to present to you at the beginning of the year a good plan how this merger then starts to generate the synergies and also get to the value potential that we promised to you. With that, I hand over to Klaus for more details on the numbers. Thank you very much.

Thank you very much, Klaus, ladies and gentlemen. Good morning also from my side. Let's now have a more detailed look into the numbers. Thank you. Sales at prior year level, as Klaus already alluded to, is a strong result based on the strong comps and the difficult circumstances that we are facing currently. And it's also testimony to our diversification and resilience, as you see on the page. This time it's vehicle lifetime solutions in America that are really offsetting some of the weaker areas in the other regions. So a good result. And let's jump into gross profit. I think that's the exciting chart this time. And as Klaus already said, I will explain to you one special impact here. And you see it best in the waterfall chart on the left side. The inventory evaluation has a positive impact of $117 million, and that is still included in gross profit, but adjusted in EBIT. What is it? We started to use new capabilities of our ERP system landscape and harmonized now our inventory evaluation, especially finished goods and unfinished goods globally. And as shown here, that has a one-time impact of $117 million. Now going forward, obviously, that system is stable and will not cause any deterioration or distortion anymore. As you see then on the bottom right side, we showed to you the gross profit development in the three divisions, but also then the positive impact of the inventory evaluation. And as you easily can see based on the numbers shown, every single division also excluding this extraordinary impact. improved its margin above prior year. In total we see an improvement of 60 basis points excluding this special impact. Overhead cost on the next slide is a little bit higher than you used to see and as we have seen in the last year that has some obvious reasons and some reasons that I am happy to explain. In admin, you see obviously an increase in the level based on the M&A related services that we are absorbing currently due to the Vitesco transaction that is completely explaining the difference to the level that we have seen in the second half of last year. And in the selling expenses, Klaus already alluded a little bit to it, obviously with the strong sales development in areas where we have higher selling costs, especially vehicle lifetime solutions, you see then a little bit of a mixed impact also in the amount of selling expenses. Now, if you look at vehicle lifetime solutions in the table on the right bottom, You see also for vehicle lifetime solutions a little bit of an increase of the relative level of the overhead expenses. It has half of that in vehicle lifetime solutions is also the allocated M&A related cost increase in admin. But there's also some fixed step cost in selling M&A. And Klaus said it already, logistics, digitalization, everything that we are doing to exploit market opportunities and gain market share. And as you see in the top line, we are pretty successful in that with a significant sales increase in automotive aftermarket business, or how we call it now, vehicle lifetime solutions. If we then go to the next slide, as a reminder, in EBIT, you see it like for like. There's no inventory evaluation impact as in gross profit. And we think the maintaining the level is a very strong result. Klaus said it already. There is also a minor impact in there. of the equity evaluation of our shareholding in Vitesco. Now, please don't confuse that with a full consolidation that will start with the merger registration, so sometime in the fourth quarter. Here, it's only the equity inclusion. Equity means that proportional net income after taxes will be recognized Here in our P&L, you know that we hold around 39.9% of the shares in Vitesco. So what you see here is the impact of the proportional net income after taxes of Vitesco plus a purchase price allocation. You might remember that we said we will continue with the book values once we fully consolidate with Tesco, but in the equity space, we have to also include a purchase price allocation effect. With that effect, the amount that is now included in our EBIT is slightly negative with minus $8 million. You see that also in our new division, if you will, in our new column in our reporting in the so-called others category. There is the minus $8 million of net income, proportionate net income after PPA from Vitesco included, as I said, at amount of minus $8 million. Interestingly enough, if you now correct and adjust the EBIT by this equity impact, then you are exactly at the prior year margin with 8.1%. So again, I cannot emphasize enough in the environment, in the circumstances. And with the first quarter of last year being the strongest quarter of last year, a very strong result, especially As we go forward and have some optimism still of improvements in the second half of the year, I think that is a very good start into the year. Maybe on the table on the bottom right, you see it also, obviously, cloud-headed shining stars, shining star, big lifetime solutions with an EBIT improvement of 2%. but also automotive technologies on a relatively strong prior year quarter, even an improvement of 40 basis points, I think should be something that we should be proud of. Bearings and industrial solutions, considering the volume impact that you see in sales here with a loss of only 40 basis points, also a strong improvement. result and I think testimony of the countermeasures that we reported on the last few quarters now really taking effect also in that division. Now let's get into more detail regarding the divisions. First I'll start with automotive technologies. You see the new Businesses, e-mobility and chassis are the growing businesses, but engine and transmission, year over year, almost flat. So that is obviously driving the sales and marching mix also. Important is the information on the bottom left. I think that is what I indicated to you throughout the second half of last year when we had to report underperformance. in our automotive business globally. I said because it's mainly technically driven, especially in the Americas, you now see the technical impacts phasing out, and we are back into a solid outperformance with 160 basis points on a global level. And you see that this is happening in all regions except Greater China, but also Greater China is a significant improvement over the performance of last year. And please be also aware that the outperformance that we are showing here is now tailored to The division and the mix of the division, that means that automotive bearings, which are not reported in this division anymore, but in the bearings and industrial divisions, is not included in the outperformance calculation anymore. And you might remember that I reported in some of the prior calls that especially, for example, with BYD in China, we are very strong in the bearings business and are growing significantly with these players. And if we would include bearings in China, which had a significant outperformance, then it would look even better. So on the right side in the EBIT waterfall chart, it's displayed also the big adjustment for the inventory evaluation. You see it in the columns, others with minus 21. That is the portion of the 117 million that is allocated to this division automotive technologies and you will see similar numbers in the other two divisions. Let's then jump to vehicle lifetime solutions. I mean, not much to add to what Klaus already said, shining star sales up in all regions, strong EBIT margin driven by volume and also a positive pricing carryover from last year. And you see in the waterfall chart in others only a slight inventory evaluation effect here in this division. The reason is because there we are talking about repair kits and in the repair kits we already had our evaluation logic that we now extended to other areas predominantly included in the past. And last but not least, from a divisional side, bearings and industrial solutions. I think the sales development in all regions except America's reflect the difficult market circumstances. Klaus said it, especially China wind is also reflected here with minus 9.8 for all of China. And then on the bottom left with minus 29% for renewables. But the good news is and also a little piece of resilience through diversification is America's with a positive trend. Klaus said it already, that's mainly driven by the very strong aerospace sector that's mainly reflected in the region, America's. On the right side, same as in the other divisions, in the other column with minus 79 million, you see the correction, the adjustment of the positive impact of the one-time inventory evaluation change. Net income on the next slide, obviously, as you see, significantly increased over prior year. Rosey value added in a good range with 12% in the corridor of our midterm targets, standalone midterm targets that will be discussed on a later point. And that leads me into free cash flow. Free cash flow is negative as expected due to seasonal increase in the working capital. Also, strong sales development in vehicle lifetime solutions. Vehicle lifetime solutions always carries relatively more inventory than, for example, automotive OEM. I think that's natural. So, therefore, you would also have a little bit of a mixed impact in the level of working capital. And please also remember that we have, in the first quarter, refinanced all our bridge financing for the Vitesco transactions, and therefore there's a significant amount of one-off financing transaction payments in this cash flow number. It's around 30 million, you see it also in the waterfall chart on the top right. net interest compared to a prior year. That includes the one of financing transaction cost is for 84 million higher than last year. As I said, 30 million is about one of transaction costs and the other remainder is then increased financing cost due to the increase in the debt. That comes until we fully consolidate Vitesco obviously without the positive impact on a cash flow contribution by Vitesco. So it's now going against the standalone free cash flow of Scheffler and therefore a little bit of a distortion until we fully consolidate Vitesco. This brings me to my last page. I pretty much explained it already in explaining the interest development on the prior page. You see gross debt increased significantly. That's $1.4 billion for the acquisition of Vitesco shares. And also, if I look to prior year, There's also some of the VELIX financing that we started in Q1 of last year, but didn't quite draw in completeness until April of last year. So there's a little bit of an effect there too, but I think very well explainable. And as we explained, the leverage ratio of 2.1 Now you have a gross debt increase due to the acquisition of Vitesco, but you don't get the EBITDR benefit of the Vitesco consolidation. That will start with the full consolidation, and then this leverage ratio will technically correct itself, and it is our view that latest developments we will be significantly below the level that you see here before the effect of the acquisition of David Tesco shares.

With that, Klaus, back to you. Thank you, Klaus. Klaus is always a little bit humble when it comes to his own achievements. I would like to add that the finance team led by the CFO, has done a fantastic job here to refinance everything. We are done with that. From my point of view, really a great example of how you execute deals like this. So the whole thing is safe with a long-term refinancing of all the acquisition that we had to take out, and that comes at terms that are better than what we originally planned. That is something that I can say better than he himself. Now, let me continue with the last pages. Guidance is confirmed for metrics. You know that this year's guidance is a consolidated guidance because we need to follow here the guidelines the rules from the accounting side. Considerable sales growth includes the external growth through the acquisition of VTESCO, 6% to 9% margin is confirmed, and also the free cash flow number. There's a little bit of a way to go here to get this right, but we clearly are able to cope with that challenge if you look at the patterns, how free cash flow developed for Scheffler standalone. And we clearly need to include here then for the fourth quarter also the impact from Vitesco, so guidance is safe. You have a summary page on 30. I'm not going to repeat all of this. The only thing I want to say here is The idea and the strategic logic of the transaction clearly is intact. Yes, there may be a little bit of a different dynamic in terms of how fast e-mobility is going to come. That does not change our view that e-mobility is the future. We think long-term, as you all know, and we are, with the VITASCO acquisition, perfectly equipped to be one of the winners of that transformation. To say it a little bit differently, we will continue to realize our vision of building a leading motion technology company. The focus is on technology and we are thrilled by the opportunities here. The more we dig into the different areas and the more we understand what Vitesco brings to the table, we more feel that our idea of cross-selling potential, not only for cars but also for other application areas, will come true. So Motion Technology Company will drive us forward. On 31 you have the next dates. May 15th, a virtual auto trip with Citi. Then on May 22nd, the European Champions Conference in Frankfurt from Deutsche Bank. J.P. Morgan on the 4th, where Matthias is going. 6th is Klaus in Hamburg. And then on June 11th to 13th, I will participate in the Deutsche Bank Global Auto Industry Conference in Berlin. New York. Next date is then 6th of August before the summer break, so it will remain interesting. And with that, I close my part and hand back to Renata for one more important news and the Q&A session.

Thank you, Klaus. So just a quick word from myself, the Air Portfolio Managers, and the other analysts. I just would like to say goodbye. And thank you. This, the Q1 2024, is my last quarterly earnings. It's actually quarterly earnings number 101 in my 25 years of IR careers after banking. I would like to thank you for the always inspiring conversation we had over the years and the valuable exchange since 2017. I leave you in the very good hands of my colleague Heiko and the whole IR team. And they will take you through the exciting journey in the capital markets of the leading motion technology company. From my side, I will head the global risk and macroeconomic analysis team in Berlin here at Schaeffler, and I look forward, continue to contribute proudly to the success of Schaeffler. Thank you very much, and let's hand over to the Q&A session.

Thank you. We will now begin our question and answer session. If you have a question for our speakers, please dial star 1 on your telephone keypad now to enter the queue. 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 2 to cancel your question. If you are using a speaker equipment today, please lift the handset before making your selection. One moment, please, for the first question. The first question comes from the line of Akshat Kakkar with JP Morgan, please go ahead.

Good morning. Akshat from JP Morgan. Three from my side, please. The first one on industrial solutions. You mentioned that the order book is bottoming and that the market pressure is declining. Could you just talk about your expectations for organic growth in the coming quarters, please? And then specifically, other than wind in China, you have called out industrial automation in Europe. So could you just talk about sentiment or market signals in that specific sector? That'd be helpful. The second question is on automotive. When I look at the profit bridge on page 22, the cross margin tailwind is quite high for roughly a flat top line in the quarter. Could you just talk about the main drivers here, please? And the third one, again, on automotive, Is it possible to talk about your expectations around different cost elements on the P&L for the full year 2024, please? If you could just quantify cross headwinds across labor, logistics, freight on one side, but also tailwinds from raw materials and energy. Those are the three questions. And finally, Renata, thank you so much for all the interesting dialogue over the years. I really appreciate it. Thank you.

Okay, Akshat, let me start with the first one. And I think you asked about the sectors. You know, we are looking, when we divide our top line into gross drivers into 10 different sectors, starting with two-wheelers, cars, trucks, and buses, off-road, rail, and aerospace. These are the six, as we call them, internally mobility sectors. And I just give you year-to-date indication how these sectors develop. Two-wheelers is slightly in the positive. Cars and light commercial vehicles is positive. Trucks and buses is slightly below, and off-road is an area that has not grown in the first quarter. Rail is an area that is definitely in the green, and also aerospace is in the green. When you look at sales growth for the whole company. Raw materials, that is again very much linked to the economy and industrial automation is below as also power transmission and wind has the biggest setback in terms of growth as we explained by the China development. We could now go through the different areas, and I think Klaus said it. If you just look at the overall gross numbers, America has been supportive in this quarter. Europe is more or less flattish overall, and that means Europe in industrial is clearly also as a whole, when you look at the sectors, negative. China negative, Asia Pacific more or less stable. There, interestingly, we have significant growth in wind. So wind, let's say that again, is a China issue at the moment. It is not a global issue in the other markets. We're making good progress. And if you regard the wind 50% top line China, 50% the rest of the world, That is something that we will continue to drive forward with our competence in the other markets also outside China. Hopefully that explains it. There are no plans for external growth at the moment. That would be certainly too much. We need to keep our eyes on the integration of Vitesco and organically we'll see as soon as the economy turns as soon as all these sectors start to see more potential, I think we'll benefit from this. On the order book, yes, this sort of statistical thing indicates a bottoming out. We always said Q2 will be decisive, but in general, we hope that the development continues in a positive manner. And for the second and third question, I hand over to So Klaus, maybe you need to repeat the third question to us because we were a little bit distracted here and we were not 100% sure whether we understood everything right.

Let me start with the second question and then you can please repeat your third question. If we go to page 22, I think that is the bridge that you were referring to, then you see a As I said and explained in the other column, you see a negative amount of minus 21 million. Thereof, the inventory evaluation effect, the one-off effect that we adjusted for EBIT is minus 29 million. And as we, I think, also explained, we did not adjust because that's not the adjustment logic We did not adjust the gross profit. So what you have in gross profit, so in the plus 46 million, is still the positive inventory evaluation effect. So you really should, to see the real operational effect, net the two columns, gross profit and others, and then you see and come up with a net tailwind. It's still a significant tailwind of... in the range of 20 million out of gross profit, and that 20 million is a little bit of product mix. The product mix is leaning a little bit stronger towards engine and transmission in this quarter than a year ago. You might remember that changed throughout last year, and our product mix in this first quarter is about the same as in the second half of last year. and a little bit positive contribution, but the main contribution is really production cost improvements on the shop floor and that should obviously be ongoing.

Thank you. That's very clear. The third question was, again, on automotive. I just wanted some more details around the different cost elements on the P&L for 2024, if it's possible to quantify the gross headwinds across labor, logistics, freight, but also the tailwinds across raw materials and energy. That would be helpful, please. Thank you.

Okay. That is obviously included in what I just explained, the tailwind of plus 20 million. It's about efficiency, more calmness, stable call-offs by our customers on the shop floor. You mentioned other cost drivers like inflationary impacts on energy and raw material. That is I would say better than we expected when we planned for the year. But year over year, it's not a big tailwind. It's a rather smaller tailwind. And we have, of course, the labor cost inflation also pretty much in Germany and Europe that is a headwind. And I would say if you now take all input costs, that is not in any means as significant an impact on our cost structure as it was in the last three years. So I think I don't want to now say too simply it's offsetting each other, but it's not something that goes in one or the other direction in total as compared to prior year. I will say, though, that another accomplishment, and we said that a little bit already in our full year release and I think also the quarter before, I called it we are now playing defense instead of offense. We are trying to defend the price levels that we have achieved. I mean, input costs are not going down. They are not going up as much as in the past, but they are also not relaxing. So, therefore, we have to keep the pricing, and we did not see in the first quarter any the normal contractual price reductions that you normally see in automotive technology. So we are playing defense. We plan to keep playing defense. It's not a price increase, definitely, as in the last years, but we also have to be consequent and avoid price reductions as much as possible.

I can only echo what Klaus said. The focus is on... You know, on being defensive and straight with our customers and avoiding price reduction, for sure, there's a change in sentiment there. If you now want to increase prices, I think that is a significant uphill battle. But to keep them where they are is our intention. We are more or less close with every customer on price negotiations. And what Klaus said on the other factors is absolutely right. One thing just to mention that, you know, we are in a situation where there is still significant uncertainty. Just look into the Middle East and that can have impact on logistical cost. We know this. We plan for this. We have already changed direction for the incoming material in the auto side. It's inbound logistics that where it counts, typically the customer you know, takes care of the outbound logistics. But the whole environment is something where diversity, so diversification is important, where a management approach that is very down to earth is helpful. And I think we have so far coped with that environment quite well. But we also are cautious when it comes to how we need to move forward in certain things, in certain areas, and that It's, I think, also reflected in this result clause.

Very clear. Thank you.

Thank you. The next question comes from the line of Mark Rene Tan from Warburg Research. Please go ahead.

Yes, good morning. Thank you for taking my questions. First one would be on industrial and the price pressure you mentioned on the wind business. Is this something you expect to, let's say, vanish once demand is returning? Or do you expect, perhaps also on your side, some more structural measures, if any, to improve efficiency as needed to reach the profitability level in the term you are expecting from that business? That would be the first question. Second question, coming back on the pricing in automotive technology and with the ICE and PHEV platforms probably running for longer than perhaps this has been expected half a year ago or one year ago, is it something where you see opportunity for you to improve pricing when customers approach you that, let's say, some platforms may may run for longer in the second part. There's an additional positive to the mix improvement you are, let's say, expecting from that. That will be my two questions. And Renato, also from my side, thank you very much for the cooperation in the last year.

Well, you know, it would be a little bit unusual to increase prices on existing products simply because there's a little bit more demand. That's unusual. You cannot just go to a customer and say, because he is ordering more, you now ask for a different price. At least in the traditional OEM business, that is nothing that, you know, we have seen so far, and it's also not how we see long-term customer relationships. You develop the product. You agree on a price. You typically have some sort of price downs over time. So the impact here is a volume impact on existing capacity. And let's see how long that will be there. For us, it's certainly positive. And our strategic decision not to throw away the ICE business that was always scrutinized, I think, starts to pay off here. And don't get this wrong. That doesn't mean that we are turning around. We have always had, Renata, also, thanks to your guidance, this idea of the mature and the growing businesses and the strict logic and the capital discipline behind this now pays off. I say this with a smile. The father of Mr. Scheffler always said, you earn your money on the written-off machines. And that's what's happening now. Wind is, again, from our latest assessment, and Stefan, who left us end of April and handed over to Sasha, was in his last weeks, two weeks, two times in China. The wind situation in China is, as we see it today, again, being cautious, a structural issue and not a temporary issue. The pressure here comes from others entering that market with significant price discounts. We have decided to stay in that market. We know that we can compensate a part of this, but not all. We have a very strong market position as one of the international players there. With our large customers, and that's why Stefan was there, we know that they want to have at least one European or international player as an alternative. And I think that's the position that we want to take. So we are not going to leave it. Others have decided on our competitor's side to leave that market. We think that is wrong. And we know and trust our Chinese colleagues that are very good with cost reduction programs that they will keep this, but it's, I think, also fair to assume that the given profitability of the last years that was clearly outstanding will not easily be regained. But that doesn't mean we're leaving the market. Thank you. You're welcome.

Thank you. The next question comes from the line of Horst Schneider from Bank of America. Please go ahead.

Yeah, good morning, and thanks for taking my questions. I only have got a few left. Regarding your order intake in e-mobility, I know you do not split that up, the split between PHEV and BEV. What we see at the moment in the market is that PHEV is a clearly performed sales growth than the BEV sales. Is that going forward? Is it for you rather a benefit, or is it something that makes you nervous, basically, that the BEV sales they tend to underperform or respectively that the penetration rates are not as great as expected. That's question number one. Question number two relates, I could imagine that's difficult for you to answer and you don't have to answer if you don't want to, of course. But nevertheless, I give it a try. It's of this dreadful Audi margin in Q1, which is due to the start generator delivered by Vitesco. Are you also involved in these talks with Audi? Has the issue been resolved? Is there anything you can say about that, or that's more something for the Vitesco call tomorrow? Thank you.

Well, let me do the last one. For sure in a situation where, and you know that I'm a supervisable member, we are somewhat involved in this, but we are certainly not going to talk about this in this call here. So I think you should direct your question tomorrow and ask the colleagues from Vitesco. We're not only represented at their supervisory board, we're also now a direct investor from a Schaeffler AG point of view. So you can be rest assured that we are very interested that that situation is resolved and again, Ask the question tomorrow and you will hear probably more about this. In terms of order intake details, no, we are not splitting it up in Beth and plug-in hybrids. You know that we include the plug-in hybrids in our e-mobility side. If you go into detail, I said this before, Horst, there is a trend at the moment for more plug-in hybrids. It's particularly driven through the U.S. There we see significant requests from customers. Can you do this? Can you do that? How that materialized remains to be seen. The other market where that plays an important role is China. Also there, maybe a little bit as a surprise, but those that don't buy a full electric vehicle, think about the plug-in hybrids. That's also a positive for us at the moment. Does it mean that we are concerned about BEFs? No, we are not. We have together with Vitesco and it's only a matter of time until these order books come together. We have a significant order book. It's very well balanced. It makes a lot of sense from a synergistic point of view. So my concern is at the moment not growth in this area. The concern is that we can deliver all of that properly. That's what we said before, and that's why I also keep saying here internally the year is an interim year. We need to understand what we have in full detail and then see how we place our bets for the next year to come. So far, business continuity, also conversations with customers are all on the positive. That doesn't mean that there aren't issues. There are for sure issues. But so far, we can deal with them well, and the constructive cooperation with our Vitesco colleagues helps here a lot.

Just a small follow-up, since you rightly said nicely in your comment before, you make the money on written-off machines. But that means that e-mobility, of course, because it's a business that is ramping up, is still rather diluting the margin.

Well, Horst, one of the beauties of this merger, and we may scratch our heads in some quarters, but we will give you in future when the companies are fully merged, four divisions, e-mobility, powertrain and chassis, vehicle license. You will get not only top line, you will also get margins for this. Maybe we regret this move at some point in time. I don't know. But there will be more transparency on the drivers of that business. And then you can also see what is earned in the mature and what is earned in the growing business.

Yeah, that's, of course, appreciated. Thank you so much and good luck.

And don't get me wrong. We are long, Beth, we are positive on this. Klaus said something that is very important. Beth is not only powertrain. Beth is also bearings. There are chassis products. I've just spent time in Mexico and saw what is done there. So it's not only powertrain ICE versus electric. There are also other products that count, and the positive trend with the Chinese newcomers on bearings, even if these are components from their point of view, is something that we will continue to drive forward.

Okay. Thank you.

You're welcome.

Thank you. We now have a question from the line of Eduardo Spina from HSBC. Please go ahead.

Hi, good morning. Thank you for taking my three questions. I wanted to ask to clarify for the e-mobility orders if they include the mild and full hybrids, and if not, what is the trend in those orders compared to your previous expectations? And secondly, I wanted to ask, since the last CMPs for Scheffler and Viteasco, there have been several updates, I think, in the electrification path. Do you believe the current trends in power train mix and orders are in line with the EV mix forecast that you shared with investors lastly, or are you starting to operate on different assumptions and maybe start to review these assumptions? And finally, just to clarify the last point on the different powertrain profitability or profit, really, in terms of EBIT or gross profit, if you prefer, just to say a word on how different they are for you if we are talking about the BEV or plug-in hybrids or just mild or full hybrids. Is there something that we should note on the difference here?

Thank you very much. Well, let me start with the first one. I mean, the 1.5 billion order intake, you have it on 10, includes a nomination from a new OEM for an e-motor and an inverter. In our heavy-duty business, we have so far not differentiated this in BEV and plug-in hybrids. And if I may, Eduardo, I would also leave it there at the moment to avoid confusion. If you look at the assumption, and I can say in future we'll keep the plug-in half hybrid and the BEV together. And this leads to your second question. What we're doing at the moment, or what Matthias is doing with Mr. Stiele at the moment, they're doing a portfolio review. They're going through every little business line, trying to clarify what is in here, what is in there, how do we put that best together. And that also includes clearly a review of the assumptions in terms of powertrain mix. We have our strategic dialogue, as you know, in the summer, sometimes beginning of July. We'll discuss it there and then see how do we build the joint business plan on that basis. But it would be premature now to share directions here. It requires a very detailed analysis across the different regions. And how this then unfolds and how the dynamic is in the next years remains to be seen. In general, I can say we believe that the significant growth of BEF is going to continue. It's more the shape of the curve that needs to be discussed and what that means for the near term. But in the mid and long term, our assumption will probably not change dramatically. In terms of powertrain profitability, It's a very fair question that I understand, but there is not sort of the one profitability for BEF and the one profitability for plug-in and the one profitability for an ICE product. It depends by region. It depends by customer. It depends by how mature is the product. There is maybe a direction that you can say an established product where we have significant market share, take a dual mass flywheel for sure, has a different profitability level simply because of the negotiation power that that gives you compared to something new. I can also say when we put together and we have done first analysis on this AB Tesco product together with one of ours, that is typically earnings accretive in a positive sense. So also here, please take this as indications But we are not in the position today to give you more detail, and what we will disclose in the future is then part of a discussion for 2025.

Okay, thank you very much. Maybe a very, very quick follow-up. It seems that, of course, there is a lot of volatility in the forecast right here, just in the industry. The question is, are the OEMs starting to recognize this, acknowledge this volatility and risk for you when you sit down for negotiations? Is this being part of something that it's like we need to be more flexible, basically, to help us on this from their side?

You know, I think what I can say here, and you will interpret that answer right, I think the OEMs are looking for long-term reliable partners that, in particular in Europe, that that support them in their global competition. And that's exactly where we want to be. And that also means that you should be able to somehow share information, share assessment, share expectations, and also deal with volatility. I said last time, as you remember, and I also said it mildly in my annual general speech, At least the German, but I think also the global car industry has always succeeded if supplier relationships are fairly balanced against OEM expectations and also their own ambitions. As long as we turn back to a situation where burdens are sometimes shared, but also benefits are shared, then I think we are on the right spot. And we as Schaeffler definitely want to be part of a long-term relationship with all our customers. And I think with the size that we now get with Vitesco, it will be much easier also to negotiate with customers and make sure that we come to an equal sharing of benefits and to some extent also risks.

Many thanks and a big thank you and good luck to Renata and the IR team. Thanks.

Okay. Thank you. The next question comes from the line of Michael Punzett from DZ Bank. Please go ahead.

Yes, Michael Punzett. Good morning. I have one clarification question for e-mobilities. As you mentioned, that bearings might be also part of an e-mobility order. Is that included in the figures you posted for the order intake of mobility, or is that only included in the order intake for industrials?

Sorry, you said BYD?

No, I said the bearings.

No, so bearings are not included in the automotive technologies order intake anymore. because these are KPIs that are division-specific and with a redefinition of the composition of the division. So last year automotive bearings was in there, but from now on it's not in there, so automotive bearings would not be included in the order intake for automotive technologies.

Okay, thank you.

Thank you. Ladies and gentlemen, if there are no more questions, I want to finish this call with a big thank you very much to Renata from our side. We have worked not 100 quarterly results, earnings releases together, but many. We have gone through difficult times, as you all know, and I can say wholeheartedly not only for my side, but also for the whole executive board, and also speaking for Mr. Schaffler, you have done a superb job here. You have guided us through all the crises of the last years. Your intellectual support and your experience was outstanding, and therefore a big thank you very much, Renata, for all you've done for the Schaeffler AG, for our story. We are glad that you're not leaving Schaeffler. overlook some of the most important areas for the future and continue to give us guidance. Thank you very much. All the best to you. And with that, we close the call and hope to see you soon, either on conferences or in the next conference call.