Schaeffler Ag Ord

Ladies and gentlemen, welcome to the shift for Group Q4 and Full Year 2024 Earnings Conference Call and Live Webcast. I am Yusuf, the Chorus Call Operator. I would like to remind you that all participants will be in listen-only mode and that the conference is being recorded. The presentation will be followed by a Q&A session. You can register for questions at any time by pressing star and 1 on your telephone. For operator assistance, please press star and 0. The conference must not be recorded for publication or broadcasting. At this time, it's my pleasure to hand over to Heiko Eber, Head of Investor Relations. Please go ahead.

Thank you very much, Operator. Ladies and gentlemen, I'm very happy to welcome you to our today's call on the Financial Results 2024. The press release, the following presentation, and our annual report have been published today at 8 a.m. CET on our Investor Relations homepage. And for sure, we will provide a recording and a transcript of this webcast after the call. Now, before we take a look at today's agenda, I'm sure that you have all taken notice of our well-known disclaimer. Looking at the agenda, Klaus Rosenfeld, our CEO, and Klaus Bauer, our CFO, have joined the conference call to guide you through the key information in our presentation. And of course, we will also discuss our guidance for 2025. Afterwards, both gentlemen will be available for our Q&A session. And now, without further ado, let me hand over to our CEO, Klaus Rosenberg. Thank you, Heiko.

Ladies and gentlemen, welcome to our earnings call. I start on page four of the presentation that you received, and would like to quickly summarize the key messages for the past full year. You see here on this page, mixed performance in 2024, sales up by nearly 13%, but more or less driven by the full consolidation of the test in the fourth quarter. From an organic point of view, certainly worth to mention that BLS continued to grow also in the fourth quarter, very nicely with double-digit growth for the full year. Margin at 4.5, certainly a blended margin of the Schaeffler standalone businesses plus Vitesco for the specific consolidation logic in the year 2024. Schaeffler standalone margin would have been somewhere at around 6%. And that then explains, the delta is then explained by the consolidation of Vitesco at Scheffler IFRS. Free cash flow, I think a positive development, strong, better than expected, 363. And that is true despite a lower EBIT as well as the integration and financing costs that Klaus would explain. You see our guidance. Guidance not for the three segments that we reported in 2024 plus other, but a guidance for the four new segments with the structure that we already indicated, EMOP, PTC, BLS, and the bearing and industrial solution part, plus an other column that I will explain in more detail. For sure, that guidance becomes even more readable if you get the performers. They are not ready yet today, but they will be provided in due course, and Klaus will explain that in more detail. Our guidance is cautiously optimistic. That's how I would describe it. We are certainly moving into another challenging year. Uncertainties remain high. Just think about the whole question of tariffs. that we will certainly discuss then also in the Q&A session. Despite all of this and despite a negative net income driven by one of restructuring provisions and also the right of the deferred tax assets, we are paying a dividend of 25 cents above our target range of 40 to 60%. Let me go to the highlights and lowlights on page number five. I think what is fair to say on the positive resilient performance in Artec, the numbers that you see are Scheffler standalone numbers, 4.2% in a challenging environment, top-line stable, very strong earnings in VLS driven by the outstanding growth and the high profitability of this business, You see here the hedge between the OEM business in automotive and the aftermarket business in automotive works well. I think we can say that Itesco was successfully executed as a transaction in record time, exactly according to plan. And for sure, we are proud to say we have done our strategic homework. It's now all about synergies and profit improvement. That is conceptually laid out and fully integrated into our plans, so it becomes an execution play for the next years to come. Free cash flow was strong in the year, also because Klaus managed our divisions in a tight manner so that they also delivered on working capital promises. On the negative side, market environment challenging. You all know this. EV market soft, in particular here in Europe, and also in the industrial sector, we had to cope with weaknesses. The VTesco contribution is weaker than what we would have liked, but it is now, from a technical and also operational perspective, fully aligned with what we want to do going forward, and that also applies to the application of consistent accounting standards. We are applying the more conservative Scheffler accounting standards, in particular when it comes to capitalization of R&D expenses. On the negative side also, you remember the painful profit warning in December is the subdued performance of BIS. We explained that, I think, in all detail, and it's now up to us to bring that back on track. I'm quite optimistic that that is possible. For sure, the structural measures that we introduced in November will help to achieve that goal. So, all in all, a year of transition, a year where we laid the ground for the year 2025 that will be the year of the motion technology company, the year of execution, and certainly a year where you get through the guidance the promised transparency. Let me move through the next pages rather quickly because this type of segment reporting is to some extent historic. You will see a different reporting going forward. Automotive technologies, as I said, year-on-year flat top line and resilient EBIT margin, 4.2, is okay. If you see on age, the order intake with 4.7, more or less in line with 2023 for Schaeffler standalone. If I add, you see it up on the right-hand side in the bubble, 4.8 for division electrification from Vitesco, It's around 9.5 billion additional orders in this EMOP space. That is clearly showing that we are well underway to generate even more order intake. I have to say the plan for the year 2025 and beyond is to execute now and deliver on this order book. And therefore, let's not just look at how much orders we are taking in, but also how we execute on what we have on our books already. When you see on the right-hand side here, it's a broad order book that includes also across the different regions very interesting projects. There's one in China with a coaxial e-axle gearbox. and another one in engine transmission, so our classical PTC business, where we are also securing orders in the continuation of our foundation business. So you can see here already on this page that the inbuilt hedge in our automotive technology business is working, and in future that will span around two divisions. Vehicle lifetime solutions, I think the number is, Do the talking here, not much more to say, an outstanding result. And once again, testimony why it makes a lot of sense to separate this business into a separate division. Also, again, to show you the inbuilt hatch between OEM businesses and aftermarket businesses. Page 10 is an interesting little example. It's the first successful launch of a VTesco product for the Schaeffler independent aftermarket. a pump, a coolant pump with a smart actuator in it. Certainly something that we'll continue to do and that will enrich our BLS product portfolios, also helping to drive synergies. BIS, a story for 2024 that is to some extent disappointing. Sales declined minus 4.5% and also an unacceptable margin of 4.2%. We are on it. We are about to announce here the internal changes that are necessary, and we'll drive that forward. As you saw from the guidance, we are expecting some recovery, but for sure also the guidance is not the level that I would like to see from that business going forward. If you see 12, the order book industrial level, different type of order book than for automotive. But it's fair to say, Klaus, we have here the third inbuilt hedge. Automotive OEM versus aftermarket is one of them. The automotive EMOP versus PTC is the other one. And now you have the cross-sector hedge with automotive on the one hand and industrial on the other. As I've always said, Scheffler is more than auto, and we will In particular, go for further sales opportunities, further growth opportunities in the sectors that are not cars and light commercial vehicles. Today in the press conference, people asked about what are we going to do in defense. We talked about humanoid robots. So there are corners where exactly our positioning across this broad spectrum is right and will give us additional opportunities. On 12, you see that the order book industrial shows the stabilizing trend. This is also supported by our assumption that in 2025, we're expecting some increased industrial production. And if the 500 million program here in Germany becomes true, I think that should also increase a little bit more confidence into the German economy. I stop here and hand over to Klaus for the detailed financial analysis.

Yeah, thank you very much, Klaus. Let's look at the numbers. I think I prepared you already in our last quarterly call that the fourth quarter might get a little bit difficult to interpret. Klaus already alluded to it. It's mainly due to the fact that we started fully consolidating the Videsco legal entities at the beginning of the quarter. So the quarterly numbers for 24 are not comparable to the prior year quarter. I tried to shed as much light as possible already with standalone versus including the Tesco numbers so that you get a feeling how the fourth quarter went. But the Klaus also said we don't have a fully performer adjusted number that is comparable for prior year. We will definitely start with the first quarter actual reporting in 2025 now with giving you the full transparency in the new structure with the four divisions. and the numbers will be available to you for further analysis already by the end of March, and then with the next call, full comparable transparency in that regard. For this quarter and also in our annual report, as you read, we are still structured in our three Scheffler divisions, plus then one other division that was – not very prominent in the past, but now for the fourth quarter, 2024 has the fully consolidated Vitesco numbers in it. So it's mainly the Vitesco numbers for the fourth quarter that you see in the other division, if you will. So when we now start out with sales, then you see the first distortion, almost 50% of sales increase over prior year. That's obviously the case only because of the Full consolidation of Vitesco shouldn't be a surprise. Vitesco is around half of the size of Scheffler, so a 50% increase is expected. You see at the very bottom on the left side in parentheses, A number will show if it's adjusted for chapter standalone, that sales growth of 49.2% would be 0.0. That means exactly flat. The explanation is in the key aspects automotive technology was indeed almost flat, a little decrease of one percentage point versus the prior year. However, double-digit growth in e-mobility, legal lifetime solutions, Klaus already said it, tremendous growth. Also not growth that is so far impacted by Vitesco. That's organic growth of Scheffler VAS and varying in industrial solutions. Klaus said it also already. Maybe interesting is the pie chart about the regional split. The numbers that are not in parentheses are the numbers for the combined group, and you see tremendous numbers due to the first consolidation of Vitesco. But the interesting in that regard is that the highest increases are in Americas and Asia-Pacific with around 60% in both regions. That means that the Bitesco edition strengthens the footprint in these two regions. And with Asia-Pacific, it's mainly Korea that is strengthened. So that is the... maybe the observation out of these numbers. And if you look to the numbers in parentheses, that is now the Scheffler standalone number, then Greater China shows flattish versus prior year, whereas Europe is significantly down. Also, that shouldn't surprise us too much. But on the light side, on the sunny side of things, America is up almost 10% apples to apples. If we go to the next slide, and again trying to be as transparent as possible, it's the cross-profit reconciliation. And on the left side of the waterfall chart, it's the development of Scheffler Stand Alone. And then in the column Division Others, you see the impact of retest codes. The gross margin for Schaeffler Standalone improved year over year by over a percentage point from 19.7% to 20.8%. And it's obvious in the waterfall chart that one of the big drivers for that is the improvement in production costs. That also is the basis of the improvement cautious optimism going forward that we will continue to optimize our production cost. And Klaus alluded already to the biggest improvement potential that we have in our bearings in industrial solutions divisions. And then with the Vitesco impact on an absolute term, obviously a significant addition with $177 million. But it's also obvious here already on a cross-profit line that the full consolidation of ITESCO is margin dilutive and cross-profit goes down to 16.9%. That's what I will actually say on this slide. I'm not touching on the table for the divisions. I will do that on the next slide when we talk about EBIT. Left side, same logic as in the slide before. First, a waterfall chart for Sheffield Standalone. There the news is despite the very weak quarter of bearings in industrial solutions, we are as a group almost on the same EBIT level EBIT margin level as we have been a year ago, which is testimony to the resilience and the risk diversion that we have with our regional but also business sector footprint globally. And then the Vitesco impact with a quarter with minus 108 million for the quarter EBIT contribution That is now, remember, what I also explained already at the equity consolidation phase in the first three quarters of 2024, that has an operational component and also an IFRS conversion component. We completely converted the equity. entire data landscape of the test code to the Scheffler accounting policies. The Scheffler accounting policies are significantly different in the space of IAS 38 and IFS 15 as it relates to mainly R&D efforts and R&D reimbursements of customers. And that is about 40% of the 108 million negative is purely IFS conversion to the Scheffler accounting standards. Let's look a little bit deeper into the table on the right bottom side, and there you see Actually, what I think is a good trend and the highlight of the fourth quarter, the automotive technology division of Schaeffler now that is in the old structure. increased its quarterly EBIT from 3.1% to 5.4%. That is obviously significant automotive technologies, and that is also e-mobility, just the Scheffler part of e-mobility, as you know, has had its strongest quarter of 2024 in the fourth quarter. So Good news, you see also from a total year, full year standpoint, the margin of automotive technology is almost on the prior year level. And if you still remember the midterm targets in this division, 4.6%, even in a year with extremely difficult and challenging markets, market and economic circumstances in the target corridor is not bad. And to be lifetime solutions, Klaus had let the numbers talk. You saw that on his slide. I'm not commenting further, but with a total year, full year EBIT of 16.6%. definitely the shining star. Bearings and industrial solutions, everything was said already. You see with 1%, 1.0% EBIT in the fourth quarter, definitely a disappointment. I also can add that most of that really happened also in December. December was extraordinary week from a demand standpoint. I think we have seen many customers who delayed demands, maybe because of the inventory reduction programs into January. January was a strong sales month for Bering's and Industrial Solutions, which is not necessarily driven by improving market demand, but really what we think was a of orders from customers from December into January. Let's come to the next slide and go further down the P&L structure to net income. Net income is significantly negative for the quarter that is, of course, partly driven by the EBIT that I just explained and then two other significant book entries, if you will. One is a significant provision for the structural measures, which we announced in November of 2024 in the amount of almost $500 million Of course, that takes care from a P&L standpoint of most of the program, but cash outflow will then come over the next two to three years. And secondly, we have impaired all our deferred tax assets in Germany due to the situation of the profitability in our German tax group, and that amounted in the P&L to another 352 million. Let's now go into the frequent flow. Metrics, free cash flow, as Klaus said, and I think also we already announced in our ad hoc message mid of January, was strong. And Klaus already said it was also strong because we were very disciplined with our working capital. You'll see that in the reconciliation on the upper right. Networking capital improved by 365 million. About two-thirds of that is actually inventory reduction. And then you have air sales went down, especially in industrial. Of course, also a more seasonal impact on accounts receivable. But what I also want to point out in this waterfall chart is indeed the next column, CapEx, minus 311. So it is not the case that we saved free cash flow with a reduction of capex that is necessary in our future fields to safeguard our future. So capex still strong and focused, of course, from an allocation, capital allocation on the topics that will safeguard our future, e-mobility for sure, and savings. Again, we are still investing there, and that is not the reason for the strong cash flow. If you wonder what the other impact is with plus 460 million, then you actually have to add that back to the starting point, EBITDA, because as I just explained, EBITDA was impacted by an accrual of 488 million for the structural measures. And of course, I also explained that's not cash outflow yet, it's an accrual. And therefore, that is obviously added back here. In the table below, that is always our way to explain what is the underlying cash generating power of this company, so really trying to neutralize with any significant extraordinary impacts, like you see legal cases restructuring and everything, not going into the depth of each line, but just to the bottom line of it. In the full year of 2023, we had a cash generation power, underlying cash flow, or whatever you call it, of $601 billion. And this year, despite the fact that we had significant one-time financing charges, especially with the bridge financing for the transaction, but also integration efforts that led to cash outflow in the year, we are still close to that number with 569 million. So also something that is the foundation creates and provides for the basis of successfully investing into our future. And last but not least, to the leverage ratio, you understand, I think, based on the explanations of the past quarters, that the leverage ratio is one of the main metrics that we are focused at, is distorted as long as we don't fully consolidate 12 months of VITASCO because We divide the net financial debt by the last 12 months of the ABDA. As long as you don't fully consolidate something, it's not in your ABDA. It's just one entry at equity. So, therefore, it is technically distorted and with 2.5 significantly above our target range of 1.25 to 1.75. This target range is not changing. and we definitely thrive to achieve that in the midterm. It will be slowly worked on now over the next few quarters to bring that down, but I think it will take longer than a few quarters to be back into the target range of under 1.75%. Lastly, just let me remind you, or maybe that's new because it's now also a combined number between the available liquidity between Scheffler and Vitesco. That stands now at 4 billion. All that is combined, all the RCFs that we have and committed lines that we have in Vitesco, on hand are now combined credit lines and the combined available liquidity is 4 billion, still almost 20% of the combined sales. So I think also a solid number. With that, Klaus, I would hand back over to you.

Thank you. Ladies and gentlemen, before I come to the guidance, probably the page that is most interesting to you, Let me quickly lay out how we have developed our reporting structure going forward. You see on page 21 our four product-oriented divisions, e-mobility, powertrain and chassis, vehicle lifetime solutions, and bearing and industrial solutions. With their respective business divisions, three in e-mob and three in powertrain and chassis, vehicle lifetime will be – composed of four business divisions, certainly all smaller than the first six ones. And then in bearings and industrial, we have four business divisions, the automotive bearings that we see as a core part of our bearing industrial solutions division, other than our main competitor, SKF. Industrial bearings, and we will separate the aerospace bearings, Let me say this here, aerospace is the area where we also do some defense business. And then linear motion is a separate, smaller business division that also includes the Avalix activities. Then, as already outlined in previous conversations, we have decided to establish an other column. In the past, that other column or the corporate column was always zero. In the future, that will not be the case. There are three activities in there that we will not allocate to the four divisions. That's the selected startup activities. Let me give you the three main examples here. One is a small but very interesting battery cell business that we're looking into. It's our hydrogen activities for the electrolyzer part. The fuel selectivity stay with EMOP, and then also what I indicated, humanoids. Why do we start to separate this into this area? Because we think that these are high-growth areas where a separate mindset is needed. The typical business division has several business units and product units, and here you need rather a mentality of, that is driven by cash, that is driven by fast execution and growth opportunities. So also from a management point of view, we want to separate this, also separate that in legal entities that allow us to partner if possible. Second category, functional entities with external revenues, what is that? We have, as you know, our own in-house special machinery building, and that group is not only doing business for Schaeffler, but also for other external companies, and we will show the revenues and also the EBIT from these activities that are small but not without any impact. We'll show that also in others. And then you remember when we acquired Itesco, we acquired not only electrification and powertrain, but also some Contract manufacturing, that is a run-off business, and that will also be shown in this area. So that is important to understand. We'll show you, and certainly then also together with the performers when they're ready, from 1st of January 2025, these activities. We'll not give you all detail on business divisions, but on the four divisions you get the full P&L and also the related cash flow figures. the Tesco activities are fully allocated to the new divisions, electric drives in particular, controls, to some extent, mechatronic modules, and then in powertrain a bit, and also in vehicle lifetime solutions. On that basis, to the guidance on page 22, I think you have already seen that from the deck that was distributed to you for the annual report. We have, following the accounting requirements, concentrated on the three group main KPIs, sales, gross, EBIT margin, free cash flow. And for you, we have extended this into a divisional guidance for the four business divisions with sales in absolute terms and an EBIT margin as a percentage on an adjusted basis. each with ranges a little bit wider in e-mobility because that's where the biggest uncertainty is, and for the others with a 2% range. Now let me quickly explain this again. You may ask yourself why is e-mobility negative, and Klaus already explained that. A significant part here comes from the more conservative accounting standards that we're using now also for the Vitesco business, You all know that this is a ramp-up business and has not reached a situation where the order book is really delivered. It's still in growth mode, and we will see over the next quarters whether we can deliver on our promises. I would also like to extend, before I come to the performance improvement potential, the logic of the structure again. This is product-oriented. It doesn't mean that EMOP is only battery electric. The hybrid part is in there. It also doesn't mean that PTC is a pure sunset business. Some of the components that we use also in electrified vehicles are produced in that area, and we believe that, in particular, this full-fledged approach that Schaeffler is offering from battery electric vehicles and powertrain solutions to ICE gives us a perfect answer to this uncertain development in the powertrain space. I would also like to highlight, you saw it on the previous page, Schaeffler is not only automotive and powertrains. There's an interesting chassis business that we will continue to grow going forward, in particular in markets like China. And let me say that type of business has an interesting angle also to software-defined vehicles and opportunities in the future. So that's the hedge number one. Schaeffler is a powertrain play with the full-fledged approach. The second hedge is OEM, auto versus VLS. That is, I think, well understood. And then there's a cross-sectorial hedge because in the sectors that we have, and this is not only bearings and industrial. We do more than auto, and I, in particular, believe that this new concept of the motion technology company gives us an excellent framework to pursue opportunities outside the car and light commercial vehicle space. Now, let's go to page number 23 and put that all a little bit in perspective. this guidance should not be looked at as a one year and then it's over. We certainly owe you, and that will happen in the capital markets day in September, midterm targets. But let's also be very clear, the year 2025 will still be a year where this new structure needs to be fully implemented. implemented, fully understood, fully embedded. The teams need to concentrate on their numbers and execution. So it's another year of transition where also the synergistic potential, also the additional potential from our improvement program will not be fully visible in the P&L. The contrary is true. We will see some cash-outs in 2025. for the investments into restructuring and synergies, and that's also the reason why our free cash flow guidance is on the negative side, zero to minus 200. If you add back the restructuring payout for synergies and the performance improvement program of around 350 million clouds and add that back to the midpoint of the guidance, you'll see that after these one-off cash-outs, the free cash flow will be positive and will also allow, again, for a decent payment of a dividend. The key message here is not so much the year 25, but the year thereafter. This $850 million stemming from both Synergy's Vitesco and Performance Improvement Program is what we're shooting for. And the more we are able to realize this also in the timeframe that we are giving you here, the more we will be on the right side. You will ask the question, how much of that is EMOP? And I'm happy to say that nearly half of that 815 is related to EMOP, and that will certainly help to bring the break-even point closer. We have decided to also preempt the question not to give you the break-even ambition already now. We will do that in the capital markets there when we have a little bit of a closer grip on how all of that comes together. But what I can say here and what I would like to stress, we are optimistic that this $850 million can be achieved and will be achieved according to the schedule that you see on this page. We'll update you on where we are with that in our next quarterly result and are optimistic that that will help us to achieve our long-term performance target. Let me finish with the final page and the financial calendar. 7th of May is our Q1 earnings release. You're all quarterly invited to participate in our AGM on the 24th of April. that will be done here in Herzogenaurach. Heiko and his team will be in Hanover for a investor boost tour. We will, after this call, come to London and be available tomorrow. And for sure, after May 7th, there are lots of different activities. also to prepare you well for the Capital Markets Day. We're excited about that opportunity and are excited to explain more about our long-term vision that is called the Leading Motion Technology Company. I stop here, and thank you for your attention. I'm handing back to Heiko for Q&A. Thank you very much.

Thank you very much, Klaus. Thank you very much, Klaus. And with this, I would hand back to the operator to take our first questions.

Ladies and gentlemen, we'll now begin the question and answer session. Anyone who wishes to ask a question may press star and 1 on their telephone. You will hear a tone to confirm that you have entered the question queue. If you wish to remove yourself from the question queue, you may press star and 2. Questioners on the phone are requested to disable the loudspeaker mode and eventually turn off the volume from the webcast while asking a question. Anyone who has a question may press star and 1 at this time. The first question comes from Christoph Laskawi from Deutsche Bank. Please go ahead.

Good afternoon. Thank you for taking my questions. The first one will be on the e-mobility indication that you gave. Obviously, you are not providing the performance today, but could you just comment a bit more on at midpoint, do you actually factor in growth for the business and what sort of growth like double digit or any comment there would be appreciated? And is there any indication you could give for just roughly for 24 margins in that division? The second question also on the divisional guides for the bearings and industrial, how much of the improvement versus 24 is just regrouping certain activities into the other line and how much is the organic or restructuring driven improvement? And then lastly on free cash flow, when we look at the slide on the cash out for restructuring and integration, it looks like another step up in 26 for cash out. At the same time, you have first earnings effects Should we prepare ourselves for another stated break-even or negative for cash flow in 26, or would you envision that to be positive already? Thank you.

Thank you very much, Christoph. All three are very good questions, and I like that it all leans towards the CFO, so I'm getting some time here. In immobility, there is growth factored in. which will be clearer when we have our solid performer base numbers. So I'm a little bit hard-pressed to give you now an exact number here, but there is growth. But it will also consider and take into consideration, obviously, the market sentiment that is around us. It will be very differentiated between the different regional areas. And as you can imagine, the most prominent growth in that sector will be in China, and it will be a little bit subdued in America and Europe. But even there, we will be growing, as I mentioned, also on the Shetland side during the the financial piece here. We also grew in the environment in 24 significantly on the Schaeffler side, but also the Tesco side. It's not just the increase in volume of existing programs, of course, but also the ramp-up of new platforms. You didn't ask it specifically, but I will nevertheless maybe add a little bit more light or shed light on what Klaus said regarding the accounting impact if we would. And we never did that exercise because that would have distracted us from more important things to do. But if I now see the IFS conversion impacts, On 24, on the Vitesco side, and that obviously was done very seriously because that was necessary for our financial statements. and now would extrapolate that on the Schaeffler e-mobility side where we, of course, never had the conversion because we applied our policy from the beginning. But if I would extrapolate that impact, then we would come in a more aggressive R&D accounting logic in a single-digit negative EBIT. So that's just the extent in this really tremendous ramp-up phase with tremendous R&D efforts. That's really the impact or the scope of the impact of our R&D accounting policy. P&IS, there is also organic improvement with the formation of the other division, where we, for example, now are having the startup ideas or, yeah, framework for, for example, hydrogen and, for example, for robotics and humanoids. That is around and that's obviously still a more cost-driven and not revenue-driven field of future growth potential. that would improve bearing and industrial solutions in the range of one percentage point. So one percentage point of the margin that you see in our guidance for bearings and industrial solutions is due to the effect of the other division. And, of course, there's more to come at the end of this month also, but just to give you an idea what the goal is. So... And in the meantime, I also got the exact growth number that is in our e-mobility based on, yeah, yeah, yeah, based on, of course, preliminary prior year performer numbers, but it's in the range of 15%. So just thank you. And last but not least, I mean, you interpreted the slide very well, I would say. You now, of course, have to add the EBIT and the one-time cash out here together, which, as you stated, there's already positive synergies and impacts of the performance improvement program. And I am not in a position to give you an exact 2026 forecast for free cash flow, but it will also be far away from the cash generating power that I'm always prominently displaying here in the range of $600 to $700 million. then you would see in a normal year that's already completely balanced. Of course, with 2027, then that should definitely be behind us because the positive effects of the programs are then higher than the cash outflow. So 2026 will have a negative impact of these programs on our free cash flow, But we definitely would thrive for a significant improvement into the future state, which then obviously with 850 million of tailwind from synergies and restructuring then is the midterm target. So there will be a significant step in the right direction in 2026.

Maybe to add, Christoph, to make sure that you understand, we have on the one hand restructuring provisions from the program we announced in November, what is more like the previous programs where we release headcount, and that requires then payout for that restructuring. The integration costs are not all provisions. they are also going through cash and EBIT at the same time. I think that's something you should have in mind because for integration, some of the things cannot be booked as provisions, and they will flow through EBIT and P&L and to some extent then reduce the synergy impact in the year 2025 and 6. Again, give us time until the capital markets day to give you a little bit more guidance on how that midterm framework will look like.

Thank you.

Very helpful.

You're welcome.

The next question comes from the line of Ashgab, Taker, and JP Morgan. Please go ahead.

Thank you for taking my question, Rakshat, from JP Morgan. I have three, please. The first one on powertrain and chassis. Again, I understand that you don't have the exact figures, but generally when you're thinking about the 2025 guide, can you just give us a broad sense of the top-line guidance when you're thinking about $9 to $9.5 billion at both those ends? What does that mean in terms of organic growth assumptions? And even when we are thinking about the 10% to 12% range, is it fair to say that in 2024 you were at the midpoint of that range? Some more details there would be helpful. And it could also remind us on Powhatan and Chassi, what is the exposure to China as of today, please? That's the first question. The second question is on VLS. Again, when I look at the guidance, at the top end of the revenue guide, you're almost looking for a 10% organic growth in the business, which is completely understandable given the opportunity with Bitesco as well. But again, you have a cautious guide on margins. So could you just give us more flavor there, please? And the last question that I have is for Klaus on humanoid robots and defense. So yes, clearly from a political perspective, there is a focus to better align industrial assets and footprint towards growth areas in Europe. But when you think about this space, do you expect economic activity and momentum to improve in the coming quarters, or do you already have sizable orders in these segments? And also, when you generally think about precision motion control or actuators, are you happy with your capabilities and know-how in this area, or would you be actively considering M&A to have a broader reach other than obviously which you did in this space. Thank you so much.

Maybe actually, but may I start with the last one? And that gives Klaus also the opportunity to focus his answers. When I mentioned humanoid and defense, I was talking about these two areas more in a strategic point of view. We have today a small defense business that sits in our aerospace area, and I can, indicate that we separated this as a business division and could imagine that we call that in future aerospace and defense. You don't go lightheartedly in these kinds of sectors because they have completely different rules. This is more a business-to-government activity than a business-to-business. We have also at the Tesco side some experience with products that were used in military equipment. But again, that's more a topic where we will decide in the summer whether from a strategic point we want to build that going forward. In the defense area, it's more about the classical product that we know. You can think about bearings in all different shapes or forms for this. So there we definitely feel that we could do that. But again, there are specific requirements for military equipment In particular, if you broaden this away from planes or helicopters into tanks or other things, then that needs to be very carefully looked at. Vitesco had also in their power electronic business certain things also there. You have to have enough time to think that through whether that makes sense. In general, we can say that business is an above-average margin business if you get it right. And if you qualify for that area. Humanoids is different. Humanoids is a new business. Also for the market, there is tremendous activity in that field, both in the U.S. but also in China. Those of you that followed us in the Consumer Electronics Show in Las Vegas saw that we displayed a humanoid there. We have started to invest in that space also with a little bit of financial investment because the logic here is this is an innovative area, but it is an area where we can exactly show the cross-selling potential of Scheffler. If you would be here in half an hour, we could show you that if you can do certain actuator things that we're used to from the automotive space, you can use that technology also to do robot joints, to think about combining sensors, e-motors, and bearings for certain areas. So we are quite advanced in terms of what we could do in terms of prototyping. Do we already have a large order there? The answer is no. Are we seen as someone who can provide the necessary components and little systems in that space? Absolutely. And we will show more if you are interested in Hanover. But don't expect record growth already from this in 2025. It's more midterm activity. Was there enough space to answer the other one? No.

Yeah, especially because the first question I will make it easy for me. I mean, let's wait until we have robust numbers that are really comparable and performant. I mean, it's another three weeks, and then we should be able to provide you the answers to the question. Directionally, I can say that our assumptions for the production volume are flat for 2025 versus 2024 with an increasing portion of EMOP and battery electric vehicles that should also mean lower volumes for PTC. So I think there, I know our assumption is not growth in that area. It will also not be, as Klaus said, a completely ramped-down business because there's portions in there that are actually also growth areas like chassis. But it will be flattish to maybe a slight decrease. Regarding the EBIT margin, I really would ask for your understanding to wait until we have the robust numbers. Exposure to China in PTC is around the same as our regional sales bid for the entire company. It is actually, you might have seen in my regional pie chart, that the Chinese footprint of VTESCO is a little bit underproportional, and our relative sales portion in China will decrease a little bit with now the combined entity, but that is not true for PTC. VTESCO is there also very strong in the area of NOx sensors, for example, so that might help you in that regard. And to your second question, VLS, strong growth, for sure strong growth, but not, again, 17%. So definitely above the GDP growth that is assumed or even the vehicle park globally that we assume. So we want to grow above market. And one of the components you already mentioned, that is the integration in our systems and service business of the Vitesco product. But another growth driver is our platform business, and we touched on that in the last session, so I'm sure we have an e-platform business and sales channel business. that is very developed already since a few years by ourselves in China. And we also acquired a basis for doing a similar thing in India. It's not as advanced yet as in China, but both of these platforms will significantly contribute to the budgeted growth for 2025. And as I explained in the past, these are platform e-commerce business platforms that are open to other suppliers of aftermarket solutions. And there will be a margin dilution impact by these sales and the growth of these sales. I would therefore say the margin guidance there is also from a midpoint standpoint, pretty realistic under these circumstances.

And actually, if I may, let me quickly add one more thought or two more thoughts on China. I've just been there a week. The China situation is very much a function of how much business you have with the Chinese OEMs. And before the merger, You know that from what we explained. Schaeffler standalone, the share was more than 50%. Itesco's share with Chinese OEM is lower. So the combination is at the moment below 50%. But we will bring it up. And it's important that you also understand that Chinese OEM business is not only battery electric. If you look at BYD, they certainly do also combustion engines. And while their sort of insourcing is higher in terms of their share, there is interesting business with these OEMs, both locally, if you are able to, you know, follow the speed that they have there. It's certainly bloody competition, but certain, in particular, the component side, we can do a lot, and also Vitesco helps us. And now if they all come to Europe, you saw the big sort of equity raise of BYD in Hong Kong, that is an additional opportunity for us, just to keep that in mind and to add that to your questions.

Thank you so much.

The next question comes from Horst Schneider, Bank of America. Please go ahead.

Yeah, can you hear me? It's Horst here from Bank of America.

We can hear you well.

All right, great. And hello again. I tried again to get more details on this e-mob business, but then also on the powertrain business. On the email business, maybe can you share now what are your thoughts on market growth? I know that the market in general, I think, is growing with something like 20%. This, of course, huge regional differences. This year, maybe Europe is growing more, maybe not. But is it fair to assume also in your view that the general underlying market growth is something like 20%? Or would you say it's lower than that? Then within EMOP, what is now the share between PHEV and BEV business? On powertrain, the question would be, when you say that the powertrain revenue should decline from here, how should we forecast that? I can imagine that will be debated also at the Capital Markets Day in more detail, but if you now make a forecast for powertrain and chassis, specifically for 25, that your revenue guidance implies basically what level of underperformance, I guess it's an underperformance versus LVP, or is it this year still an outperformance? And is a new assumption as well for EMAP and for powertrain already this change in CO2 rules? Is that already included? Thank you.

All these questions are absolutely relevant, but we are at the moment not in a position where we can give you answers to this. The Capital Markets Day in September will hopefully give you more, so kindly ask for a little bit of patience before we put these numbers. But let's respond somehow more strategically to this. We need to be careful and you need to be careful to associate EMOP with everything that is electrified and PTC only ICE. That's not the case. And don't forget there is also the automotive bearing business in the bearing side. So what we are preparing at the moment is that you get for our sector cars and light commercial vehicles that is spreading, if I take BLS out, across three different divisions. You get a matrix where you can see how much of that is best, in a sense, pure battery electric. How much of that is half, and how much of that is ICE? That's similar to what we tested in the past, so that you can separate the way how we put something in our segment reporting that is product-oriented, and certainly the hybrid is more in EMOP than in PTC, but it doesn't mean that PTC does not produce certain parts that end up in an electric or in a hybrid car. Same is true for the bearings. In the bearings, you have wheel bearings that are sort of power train agnostic, but you have also bearings that go into an e-motor solution or an e-solution and that go in an ICE solution. So we need to give you more insight there, and that's also then the basis for saying where are we outperforming. Are we outperforming on the pure battery electric side or on the hybrid side? I can tell you today that we have adjusted our scenario. You remember the famous 40-30-30, 40-BEF, 30-EF, 30-ICE, 40-2030, for our strategic discussions in a way that it's now 35-35-30. That means the electrified share of our business will remain at 70%. And we believe that, in particular on the hybrid side, we'll see more growth at the moment and a little bit lower growth on the EMOP side. You can now split this out by regions. That's probably the appropriate way to look at that because China will be different than the U.S., in particular now with President Trump and his team in place. But that's how we look at this at the moment. So give us a little bit more time to prepare this. I fully understand what you need, but it is not sort of the right way to say, EMOP equals BF and F, and PTC is ICE. You need to somehow look at this in a matrix and say this is the segment reporting, including the automotive bearings, and then take it over the different powertrain solutions, knowing that also PTC has all the chassis business. And the chassis business is separate, is powertrain agnostic, but in particular in China, a significant growth opportunity. Does that make sense?

Makes a lot of sense. A lot of questions, of course, remain. But let me ask maybe one follow-up, and that's more related basically to net debt EBTA leverage. If you were meeting the midpoint of your guidance, what would be the net debt EBTA ratio be at the end of 2025?

Paul, do you want to say that? Yeah. would not see a huge relaxation versus the current levels.

What is your, as a follow-up?

We would move towards the 2.0, but not very significantly.

Okay. As a follow-up to that, do you have any sort of minimum gross liquidity target for the group? You say it's at the moment 4 billion. Do you have the minimum number you want to be at or you need to be at?

So there's no minimum number that we have to be at, but you would feel comfortable if that liquidity is in the range of 15 plus percent of sales. Okay. All right. Excellent.

Thank you. Let me add this. If you compare us to companies like the French, We have financed all of this in a much more cash-conscious and liquidity-conscious manner. We have not acquired the test score sort of with full, and we have used, as you know, a specific transaction structure to do it as consciously as possible. I'm not concerned about our liquidity at all. We are not ZF. We are no one of the others who have just large acquisitions with high debt mountains. We can carry the 2.5 times. and we will reduce it over time back to the level. That's not going to happen in 2025, for sure not, but that doesn't mean that we are constrained in sort of following our plan. Is there ample room for further M&A? Certainly the answer is no. We're not going to at the moment focus on external growth. We need to focus on execution. That is in particular executing this large and huge order book. That's also where the risk is because we need to get that really understood Project by project, development by development, customer by customer, that's the focus. But I don't foresee any M&A transaction, except for maybe some smaller things that could come along the way. So the focus clearly in 2025 is getting the operational stuff under control, making sure that we deliver on guidance, getting all the things that we need to deliver on the order books on the customer side right. But liquidity and leverage is not a concern to me.

Okay. All right. Thank you. You're welcome.

The next question comes from Sanjay Bhagani from Citi. Please go ahead.

Hello, thank you very much for taking my questions also. I've got three. My first one is a follow-up on e-mobility. Sorry, I didn't catch. I understand you are not providing the pro forma for e-mobility, but as a general, on the margin side, are you expecting this to be improving in 2025 versus 2024? And on that, I understand electronic costs inflation was one of the biggest challenges that at least with Tesco had seen for like 22 and 23. So are you starting to see some of these already relaxing and do you already model that in your guidance? Or this is something that could be an upside optionality should the semiconductor electronic costs go down then there is some leeway to go towards the upper end of the guidance range. That is my first question, and I'll just follow up with the next one after this, if that is okay.

Yeah, so let's start with the attempt to now provide pro forma numbers already today. I can only repeat myself. Let's wait another three weeks, and then we have solid, robust numbers, and then we can see that progress. What I can say in regard to improvement of margin, and that's not necessarily true for 2025, let's wait and see for the numbers, but directionally for the next few years is that with the accounting policy of Scheffler that recognizes a bigger portion of the R&D expenses already in the year of cash outflow and does not have a negative impact on the future P&L. The margin improvement curve, once we are beyond the significant ramp-up phase and go into a more stable phase, sales volume where new acquisition of orders is more equal, the delivered sales of a year is much steeper than with the Tesco's accounting policy in the past where you would protect the the present time, but then impact negatively with amortization than the future. So I would expect, especially in the mid-term, and that is then I'm pretty sure part of our capital markets day discussion, a much steeper margin improvement curve with the accounting policy of Scheffler. Electronic cost inflation, I mean, that is really a very difficult one to answer. We did not budget for a big improvement in the cost structure there. And actually, right now, you see already... After some relaxation, a little bit more of dark clouds on the sky going forward again. So I think if it's coming better, then that might be upside potential. But the logic has to be we have to go to the customer and push whatever the price levels are onto the customer.

Thank you. That is very, very helpful. So the second one is on the industries and bearings division. Are you able to share anything? Because Q4 was unusually below expectations. I think you already alluded that January was better sequentially. Are you able to provide any color on how the Q1 trend has been and if this has already sequentially been better than Q4 last year?

Yeah. I cannot, and I think what I can say is that January is much better than December, but I also try to be a little careful in assessing the January, and if you remember I said we don't see that yet based on market conditions improving. It's more a shift of short-term customer demands and orders from December into January. And you also understand that our fixed cost sensitivity and elasticity of volume is enormous also in industrial. So therefore, this volume impact that we saw a negative, very negative in December was somewhat calibrated, recalibrated than in January. I don't I don't want to now look in my glass ball already to tell you what Q1 looks like. All I can tell you is that we are in a very disciplined way executing our performance improvement program that is heavily also focused on Europe. As you know, structural adjustments in the European workforce, especially in Germany, are not from one day to the next, but we will continue and grind away in a very disciplined way.

Thank you. That's very helpful as well. And the final one is on the dividend. I think you already alluded that because the underlying free cash flow for 2025 still will be positive, the negative is because of the one-off restructuring. I think you alluded to the dividend payment likely in 20 in 26 are you able to provide some color that if you see let's say the dividends of 25 cents more or less a low point and then you gradually start to start to increase it or you would rather see this more steady going into 26 or maybe just too early to comment now no it's only early to comment we don't we don't give dividend guidance what we have

always said is that the payout ratio for Schaeffler as a group, and that also applies after acquisition of the Tesco, should be 40% to 60% of adjusted net income. That's the guidance that we give here. And if you just take what we said before, the minus 200 to 100, take the midpoint minus 100, add back the one-off cash out for restructuring and integration, and but what is also in the back up, then you end up with 250 as an underlying free cash flow without M&A. So if you just think about what we're paying today, that would be inside that number. But again, it's premature to talk about this. We'll come back to you when we are closer to the year end, 2025, and see what's coming in 2026.

Thank you. Very helpful.

You're welcome.

Ladies and gentlemen, that was the last question for today's call. I would now like to turn the conference back over to Heiko Eber, Head of Investor Relations. Please go ahead.

Thank you very much. So all I want to do is thank you all for your interest and the valuable questions. Of course, if there are more questions coming up afterwards, feel free to reach out to our IR team anytime. Having said that, I would like to thank our CEO and our CFO for being here with us today. And, of course, I would like to thank the entire team for making this event happen. Have a good day and talk to you soon. Goodbye.

Ladies and gentlemen, the conference is now over. Thank you for choosing Coruscant and thank you for participating in the conference. You may now disconnect your lines. Goodbye.