Schaeffler Ag Ord

Welcome to the Group Q2 and H1 2024 Earnings Conference Call of Schaeffler AG. As a reminder, all participants will be in the listen-only mode. After the presentation, there will be the opportunity to ask questions. If any participant has difficulties hearing the conference, please press the star key followed by zero on your telephone for operator assistance. At our reserved customer's request, this conference will be recorded and the replay will be available after the call on the website. May I now hand you over to CEO Klaus Rosenfeld, CFO Klaus Bauer, and Head of IR Heiko Eber, who will lead you through the conference. Please go ahead.

Thank you, Operator. Ladies and gentlemen, I'm very happy to welcome you to our today's call on the financial results of the second quarter 2024. The press release, the following presentation, and our half-year report have been published today at 8 a.m. CET on our homepage. And since I'm sure that you have all taken notice of our well-known disclaimer, I would directly go ahead and welcome our CEO, Klaus Rosenfeld, our CFO, Klaus Bauer, and both will guide you through today's presentation. And for sure, afterwards, you will have the opportunity to ask questions. And now, without further ado, let me hand over to our CEO.

Michael, thank you very much for kind words of introduction. It's a pleasure to do this earnings call together with you for the first time. And welcome to all of you. Exciting times, as you all noticed. We will guide you today through the Scheffler AG results. I say this up front, there was an announcement of our sister company yesterday, but this is an earnings call of Scheffler AG, so I will say this up front, we're not going to comment on that situation. Let me go to page four, where you have the key messages in the bullet points. Q2 sales up 4.2%. We're proud to say that Artec is back on outperformance, also due to the growth in e-mobility. The shining star of the year is certainly Vehicle Lifetime Solutions' continued strong growth, two-digit, now a third quarter of significant margin improvement. We are really excited. happy about this, and you saw we have an issue in Barrings and Industrial Solutions due to the market environment on the sales side, on the profitability side also due to some one-offs that Klaus Bauer well explained. EBIT margin due to the situation in Barrings and Industrial Solutions 4.9%, certainly not what we would like to see, but something that now needs to be addressed, and free cash flow with $75 million in Q2 positive. If you compare that to the previous year quarter, Q2 2023, where we were at $103 million, the $75 million includes the one-off cash integration costs and also financing costs. If you add that back and normalize it for these two impacts, free cash flow increases. was even better than previous year. You all remember what we did some days ago. We updated our combined guidance, A, due to the slightly weaker expected intake from VTESCO, but also due to the bearings in industrial solutions situation, sales growth unchanged, EBIT margin, and free cash flow increased. slightly adjusted downwards. This also takes care of our expectation that the second quarter, the second half of the year, will be rather a challenging environment. Transaction updates, we are on track to achieve day one. As we announced, October 1st, all the preparations are on track. And I've said this before, integration is not final on day one. It starts on day one. The preparation is in very good hands, and we look forward to the opportunity here to build an even stronger company. I think I can say here, Heiko, up front, the current environment, in particular in automotive, is, from my point of view, exactly a proof point why this acquisition, why this strategic transaction makes a lot of sense with our diversified approach. Highlights and lowlights on page five. I already mentioned that. Auto tech, solid outperformance, driven by growth and immobility. The earnings are resilient due to our stable and highly profitable mature business. That will also drive us going forward. Vehicle lifetime solutions, the shining star. Market environment is challenging. Weaker than expected end market growth also in the industrial sectors. And for sure, bearings and industrial solutions need some treatment. You remember the issues in China. But on top of this, there's now operational one-offs that need to be dealt with. And for sure, we'll put over time the right measures in place to bring this back where it should be. Business highlights, sales, the usual table on page 7. Overall, Q2, 4.2% plus. You see here the stellar growth in vehicle lifetime solutions, 27% overall in that quarter. That brings vehicle lifetime solution up to 16%. Bearings in industrial solutions below previous year quarter, minus 3.6%. Weakness in particular in Europe, but also in greater China, you know, the wind issue. And then automotive technologies, 2% with Europe growing, America's growing, and the Asian markets rather growing. You also see, quite interestingly, in the second quarter, a little bit of a regional shift. Europe, more or less stable. America is now at 23% of the overall sales number, and greater China, 19%. So we feel good with that overall mix. And for sure, it's now up to us to make sure that we continue our profitable growth path in the next quarters. Automotive on page eight, I think the numbers speak for themselves. You see here 4.6% margin in the first half compared to 5% I think is more or less at the same level. In this environment, I think a good achievement. and slight growth also when you compare the two half-year quarters. We are pleased to say that e-mobility grew double-digit with Europe and America driving it, and certainly engine and transmission systems is benefiting from the continuing and resilient ICE business. For sure, our margin has impact from the higher cost for our customer projects and all the work that is at the moment done to bring the order books together. That is a slight negative. Order book, page nine, proud to say that we generated 3.6 billion new order intake, of which 2.1 comes from e-mobility. If you compare that to the previous years, We are absolutely on track. We have shown you two interesting cases that are not from e-mobility but from the chassis area where we see that this is clearly getting more attention. The first one is a Chinese project, first nomination for a variable damping system received from a new mobility player. and then you also have an innovative park lock actuator for a next generation e-mobility platform by a European OEM. Let me say this loud and clear, while there is certainly on the consumer side a little bit more softer demand for e-cars, we continue to believe that mid-term and long-term electrified powertrain solutions will be the future. Vehicle lifetime solutions, next page, page 10. Not much to say here in sort of record results. 17.4% margin in the first half, three percentage points more than in the previous year, and 17.6% growth in between the half years. Gross margin at 33.6%. This is clearly now showing that all our investments in that business paid off. The market is behind us, but it's not only market, it's also all the positive things that Jens and his team have put in place. We're really proud of what we have here, and it looks like that this continued growth will also be part of the half-year the second half of 2024. Now, in terms of the vehicle lifetime solution, a little bit on the business. I think we can say we are leading the transformation here with a continuous preparation and development of the products for the future. You see here just examples also in terms of size. That's quite impressive. And for sure all our immobility efforts will also pay off. So that's clearly something that will continue to create value in the future. And then bearings in industrial solutions, page 12. I already said it. It's a disappointing second half. Margin in the first quarter, excuse me, margin in the first half, 5.5%. That's definitely... below expectations. It's impacted by operational one-offs, but also by the market. Sascha has the task now to come up with a set of measures to bring this back where it should be, and we will inform you as soon as we are ready to implement these structural measures. In terms of order book You all remember the discussion in Q4, Q1, is it turning now? And it looks like that there is no immediate near-term recovery. What is also not a surprise given the macroeconomic and geopolitical situation. However, there are areas where we grow and where we also are successful in beating our competitors. two examples here, but clearly the focus must now be on fixing the problems, and we are on top of that. Capital allocation, nothing to say here other than we are continuing our disciplined way to allocate capital in the group. You see here CapEx in the first half, 383 million. This is still Schaeffler stand-alone for 2025. The numbers will definitely change, but our methodology will not. We will continue to manage this by reinvestment rates, and you see it's somewhere cruising around one as a mix of the high-growth businesses and the ones where we are harvesting. With that, I hand over to Klaus for more details and certainly all the interesting explanations that you have on your Q&A list.