Schaeffler Ag Ord

Good morning, ladies and gentlemen, and welcome to Scheffler Group Q2 2025 Earning Conference Call and Live Webcast. My name is Yousef, the course call operator. I would like to remind you that all participants will be in listen-only mode and that this 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 followed by 1 on your telephone. For operator assistance, please press star and then 0. The conference will not be recorded for publication or for broadcast. At this time, it's my pleasure to hand over to Heiko Eber, Head of Investor Relations. Please go ahead, sir.

Thank you very much. Ladies and gentlemen, I'm very happy to welcome you to our today's call on the financial results Q2 2025. The press release, the following presentation and our interim statement have been published today at 8 a.m. Central European Time on our Investor Relations homepage. And for sure, we will provide the recording and the transcript of this webcast after the call. As a quick reminder, Please note that all figures for 2024 are pro forma figures, unless they are marked separately as reported figures, and the mentioned pro forma figures 2024 and related information are unaudited. As always, Klaus Rosenfeld, our CEO, and for the last time today, Klaus Bauer, our CFO, have joined the conference call to guide you through the key information in our presentation. Afterwards, those gentlemen will be available for our Q&A session. And now, without further ado, let me hand over to our CEO.

Michael, thank you very much. Ladies and gentlemen, welcome to our Q2 call, you have the presentation in front of you and I would, as usual, start with section one and two and then hand over to Klaus for the financial performance. If you follow me on page four, you have the summary for Q2. It's a solid quarter in a challenging environment for sure. Sales were slightly down compared to Q2 2024, minus 2.2%. Gross margin more or less on the same level like performer Q2. Avid margin slightly below 3.9 of the previous year quarter with 3.5. Clearly impacted by FX impacts and also by impact from tariffs that were both not part of our guidance. And then on the positive, free cash flow in the quarter, plus 27 million, slightly better than expected, for sure better than Q2 2024. That also had this well-known one-off BTESCO payment effect that was related to contract manufacturing business. And then for the first half EPS, slightly positive. Now let me go into detail with the top line. As you all know, we publish in the business performance those parts that I look at from a CEO perspective to follow the business. And what you see on page number six is the breakdown in terms of sales. I think it's fair to say that this is a heterogeneous development across the various divisions and regions. with some peculiar things to mention. You see that immobility was up nearly 10%. We are really happy with that. That's the right direction. And I will come back to order intake and other achievements there. You also see when you go into the immobility column that Europe was 9.5% up, America's 31% up. And then you see a drop in China and a significant growth in Asia Pacific. To some extent, you need to see that together because we have a significant ramp up in a platform that is located in Asia Pacific that was located in China before, and that clearly impacts the minus 21%. Powertrain and chassis down, in particular down in Europe, nothing that should be completely surprising. as the market is developing lifetime solutions, not a two-digit growth quarter this time. You know that the business is predominantly in Europe and in the Americas, so there we didn't see the growth rate from the past, but still it's our business with the highest margin and profit contribution. And then bearings industrial, also a pretty mixed picture. You see the 10% up in China. This is predominantly driven by wind business that was booming there. Therefore, our decision to stay the course despite the competition there was exactly right. Minus 0.5% is certainly not what we would like to see over time, but it's, in this environment, from our point of view, an acceptable result. What you also see is, again, the logic of the three hedges and that helps us to build resilience and also the right basis for future growth in selected areas. Let me go to page number seven. That's the page that we introduced in Q1. That's, for me, one of the most important ones where we basically map together the auto powertrain businesses. across the two EMOP and PTC divisions. This is here without chassis, and it's comparing our sales growth in the specific powertrain types, BEV, HEV, ICE against market growth coming from the S&P data. And what you see here on the left-hand side is that we are able to outgrow the BEV market, market growth in that first half. was 37.7% and our sales growth in the first half compared to 24. The first half was 50.6%, so nearly 13% outperformance on the positive. You see in half, there's an underperformance and also an ICE. We did not achieve the market growth. You need to put that together with the right-hand side of the page, order intake and book-to-bill by powertrain type. There you see order intake now in the first half, 8.4 billion, of which more than half comes from e-mobility. Division, 3 billion in the first quarter, 1.6 in the second quarter. If you break it down by powertrain type, you see that the predominant order intake is with half, 2.6 times book to bill. clearly points to future growth in that powertrain area. I hope that is useful to you. We use it to manage the transformation here, and we think that this clearly is a proof that the Vitesco acquisition was exactly the right thing to do. Page number eight, eMobility, strong sales growth and further gross margin improvement. With the margin that you will see later on, We are definitely on track to achieve what we want to achieve, and I already mentioned order intake and also book-to-bill. On the little picture on the right-hand side, you see one order intake that we're really proud of, and that's a new contract. We can't mention the name, but it's one of the Chinese new energy vehicle players that we signed in July, so it's not already in the order intake. but it's for us a significant step forward to improve our competitiveness and presence with Chinese NEV players. So e-mobility, definitely on the positive side, strong sales growth, gross margin improvement, and really very solid order intake. On the BTC side, sales growth minus 7.3, order intake 1.9, book to bill, certainly below one. That should not be a surprise. And gross margin more or less stable. Yes, we are certainly also impacted by certain phase-outs and the negative impacts that we have there. Don't forget, powertrain and chassis includes also some of the businesses that we are running down and that has impact on the results. Here to mention from the business side, we are proud for a significant order in the passenger car sector for a diesel ECU, so also that part of the business is alive, and we secured a long-term contract here in the U.S. for that transaction. Let's go to VLS. As I said, slightly less positive than in the past two quarters, but certainly future growth against a very strong Q2 24. the high gross margin level maintained with more than 30%. And for sure, not every quarter is a record quarter. We're investing now in a new logistics center and are positive that that will help us to facilitate further growth and logistic efficiency in Europe. Then bearing in industrial solutions, you all remember that Q1 was a record quarter also with some Operational one-off effects from inventory valuation that can clearly not be topped in a second quarter. Sales more or less flattish. Outperformance a little bit below where it should be. Book-to-bill here is different than in the more passenger car-related businesses. But what I can say on the positive is that gross margin improved by 1.2 percentage points. In a situation where sales do not grow, that tells you that the health indicator of the business is pointing in the right direction. And that includes a negative also from effect that is overcompensated by other positive impacts, in particular on production cost. So let me lead over to the page number 12 and start with cost. For sure, cost management will continue to be very important and I can say here, although this is not on the page that our program to achieve synergies but also to bring forward our transformation program is very well on track and we will hopefully in the rest of this year conclude all the negotiations with workers council in a very efficient manner and then continue to execute but we are ahead of target here and see that we can manage this further restructuring without too much noise also compared to others. What is even more important to me is capital allocation, as you all know. Most of you remember our capital allocation scheme. After the acquisition of BTESCO, we have certainly two aspects here. We have complexity that we need to bring down, but we also have a significant portion of capital employed that we don't really utilize as much as we should be. And that means we need to very much be disciplined on how we put capital at work and reduce our capital employed. And that's what you see on this slide. 205 million CapEx in a quarter is low. It's a reinvestment rate of 0.6 times. And if all of you understand that concept, it means nothing else that we are reducing our capital employed. That's what you see on the lower part of the chart. The $13 billion that we had end of the year, end of the first quarter, 25, has been reduced to 12.5. And you see it on the right-hand side. This is working for more or less all the divisions. PTC contributed with 200. Barings contributed with 150. BLS is flat. And also, e-mobility has a slight reduction there. You may ask, why is that happening? Are you not investing in e-mob? For sure we are investing. You see CapEx reinvestment rate above 1, 87 million investment. But for capital employed, also working capital management is key. And that's the reason why e-mobility is down significantly. because there the change in working capital, together with the depreciation, overcompensated the $87 million investment into that business. So please take with you optimizing our capital employees, being very disciplined with capital allocation, managing the portfolio in a very disciplined manner, straightforward. It's absolutely key for our execution programs. Let me finish my part with one slide that you have not seen so far, and I don't want to go in too much detail, but I want to share with you how we monitor integration. We're doing it with the three lenses that you see on this page. We are monitoring progress. That's basically completing tasks by milestone, and we can say we are definitely on track with 60%. achieved by end of July. We are also managing a specific program to reduce complexity. Six key indicators, legal entity integration, IT system integration, processes, brand, footprint, and reporting. You see here that we have set up a three-year program with 27 targets, targets for 2027. The progress is tracked on a regular basis. And this part here, number two, is not just for the fun of it. It's ultimately linked to our board compensation. So if we achieve the targets here, it's 100. If we overachieve, it's 120%. And if we underachieve, it's a penalty of minus 20%. I can tell you, I've not seen something similar so far, but this complexity reduction program is really getting a lot of traction, and people are working very hard to get that achieved or overachieved in synergies. You see here it's also a long-term program. We promised 600 million fully realized in 2029, and here we are around 12%, so that is also absolutely on track. Synergies are not tracked in a way that you can sort of detail by category where this goes into the P&L. We're basically tracking it by looking at all the measures that are in place because the P&L tracking for synergies is normally not really possible. One of the things that make a difference is rebranding. I'm not going to speak too long about this. But I wanted to leave you with a little bit of insight that our integration execution is on good progress and that synergy realization is on track. I now hand over, unfortunately for the last time, to my dear friend Klaus with D for the financial performance. Thank you very much.

Thank you very much, Klaus. And let's dive a little bit deeper into the numbers on the first page of my section. You see what Klaus already mentioned, slide sales decrease, much more important and informative is on the right side, the waterfall chart, how cross-profit developed in the second quarter versus prior year. I think it is a good result that the cross-profit margin is on the same level despite the reduced sales. I think it's even more impressive if you look at the waterfall chart and see the foreign exchange impact. We had negative foreign exchange impact in cross-profit of 63 million versus prior year. That is mainly driven by the relative weakness of the U.S. dollar and the Chinese renminbi versus the euro. As you are aware, these two rounds are profit strong. Therefore, the relative weight is reduced, leading to this effect of 63 million. If you put that in relation to sales, then that's around one percentage point. that then operationally is offset with the other elements that you're seeing in the waterfall chart. Maybe worth to be mentioned is the also negative mix impact. That shouldn't be a surprise based on what Klaus said and what we informed you about our plans also in past calls. E-mobility is strongly growing and PTC on the other side is reducing in sales. That has a negative mixed impact for the time being until we reach the balancing point where the volumes in e-mobility are strong enough to cover the fixed cost, but that clearly was also a headwind that is then offset with especially the production cost improvement of 44 million. Let me say one last comment towards the foreign exchange impact. You see the development of the U.S. dollar and Chinese renminbi also versus the first quarter. So both currencies weakened against the euro close to 10 percent in the second quarter versus the first quarter. So there's also a little bit of actually quite significant headwind from a foreign exchange impact even on a sequential comparison quarter over quarter. Now let's go to the EBIT, which is also reflective a little bit of what I just said in regard to foreign exchange impact. There it's melted down, of course, because of the also translation cost benefits that we are getting, but it's still minus 19 percent. If you put that in relation to sales, it's 30 basis points. that we are losing year over year based on unfavorable foreign exchange development. And you see it in the key aspects. First comment here, we also told you in the past that once the U.S. tariffs are kicking in, our objective is to 100% recover with our customers, but that will happen with a time lag because We first have to pay it before we then go into the negotiation with the customers. This time led to another 30 basis points, so around the net impact of paid duties not recovered yet of around 20 million, so another 30 basis points for the quarter. And again, that's a temporary impact. That will be recovered in later quarters, but it's also around 30 basis points, which then obviously if you would just for the sake of comparison at the back would bring us actually even from an operational performance level at above last year's quarter and even slightly above our midterm. midpoint of our guidance for this year. So operationally, if we exclude these two aspects, definitely on our planned path going forward. In e-mobility, on the next slide, I think Klaus said everything already. Everything that has been set for cross-profit is now falling also to the bottom line, minus 15.5%. Of course, still significantly negative, but we are encouraged by the improvement gradient here. I think I said it last time already. that based on our accounting policies that the improvement gradient is steep with volume. It's volume dependent, no question, but definitely going in the right direction. I'm not here to promise every quarter six percentage point improvement, but it should support the math that I explained in the last call. Powertrain and chassis, Klaus already indicated that there's more to be explained than on the e-mobility side with 9.9% at the lower end of our guidance for this year. And it has to do mainly or first of all with the volume. The volume drop is more significant than we would have expected in our planning for this year, and that is mainly due, and the headline says it, to the relative weakness of the European OEMs in an overall stable market, but our exposure to the likes of Volkswagen, Mercedes, Stellantis, and so on is heavier than others. So therefore, we participate in their sales reductions over proportionately. There's also, and I hope I'm credible in saying I'm not normally hiding behind foreign exchange impacts, but I think it needs to be mentioned, there is a negative foreign exchange impact for the total group was minus 19 million and it's hitting particularly hard here in this division with minus 16 million which is a significant impact for this quarter. There is a one-time effect that we had positively in the last year's quarter of around 30 million So operationally we have a gap, if I deduct that from the EBIT gap that you're seeing here, around 50 million with a sales drop versus prior year of 200 million. That is a drop-through rate or leverage of 25%, which actually is indicating that we are managing the downturn, even if that was for the European weakness a little bit faster in this quarter than we expected. But again, a normal drop-through rate in this division would be around 40%. and that we have limited it here to 25% is indicating in the right direction. I mean, it's very clear, and we said it and promised it in the past. It's a game of capital allocation and capital reallocation, and we are taking that very seriously. And although, again, 9.9% is not our ambition level, it's at the lower end of the guidance, as I said, together with the first quarter. We are still strong and we are managing the sales reduction in this division very carefully. I have to say there's one other element in the sales drop and it's also marked down here as a key aspect. And we talked about that before already at actually the Tesco times. There is a planned phase-out for hydraulics and turbocharger, which contributed around $50 million of the sales drop versus prior year. So also that phase-out is going according to plan. That brings me to the lifetime solutions division with the sales, and remember, the The second quarter, 2024, was by far the strongest quarter of legal Alpan solutions last year, especially as the sales volume is concerned. And to be at the same sales volume for this quarter in an environment that still indicates a strong market demand, but definitely not as dynamically as one year ago, is a strong result. The EBIT is here safely within the guidance, especially if I look at that for the first half of the year. But as Klaus said, a little bit lower than we got to use to. I see that as a temporary impact there is. I'm pretty sure you're getting tired of hearing me say that, but there's a foreign exchange impact also in that division. It's only 4 million, but in a relatively small division, even 4 million is a significant impact on the margin. There's also a little bit of a tariff gap. The recovery mechanism in in big lifetime solutions is different than in automotive OEM. It's more a general price increase in the market. The price increases that are now in the market are projected to fully cover the impact on the cost side, but also with the phasing in of the pricing, there's a little bit of a gap for this first quarter of minus 2 million that, as I said, in a relatively small division, even 2 million makes a difference. I explained it, I think, multiple times in the past that with our platform business that is growing very significantly, you see it, 37 percent versus prior year. Still only a 5% weight, but by far the fastest growing segment here. And with that comes a margin delusion impact It's obviously accretive on an absolute amount, but more to unbreak even than really 16% or 15% even margin. So it comes with a margin delusion impact, but is absolutely, on an absolute level, accretive. And that brings me to bearings and industrial solutions. The depiction on the left side indicates a significant EBIT improvement. I think you are also aware that the second quarter of last year was one of the weaker quarters for bearings and inductive solutions. So therefore we shouldn't celebrate too much here. Especially if you see the 5.8% versus the results in the first quarter. I think I made very clear in our first quarter call that it's impacted by positive carryover impacts from last year that will phase out in the second quarter. So I think it's fair to say that Bearings and Industrial Solutions with its special carryover effect is to be looked better at a half year basis, the half year basis. We are with 7.8% EBIT above our guidance for this year. I think that's reflective of the current performance level, operational performance level, much more so than the 5.8%, which has the offsetting impact of the first quarter in it, as I explained. I think when you look at it on this chart, it looks positive. If you look at it versus first quarter, it looks negative. The truth is in the middle we have, I think, a solid – again, a solid performing bank and then that's a solutions division, which there's no question we will show further improvement and half improvement potential for the next few years, but I think we are solidly at the upper end of our guidance, if not slightly above it, in this division, and therefore, good news. Maybe interesting is, and we mentioned that a couple of times in the past, that aerospace bearings is strong. If you look at the pie chart, And the comment beside the pie chart aerospace bearings grew by 21 percent. It's the first time that we are showing this business division which we created to focus on that. It's only a relatively small segment with 6 percent of total sales, but here you see it now explicitly very strong business growth. at, as you can imagine, also decent profitability levels. Let me now come back to the group as a total with the free cash flow slide. Klaus said I think everything that is explaining the development here. The development with 350 million better free cash flow than last year is a little bit misleading, as Klaus already indicated, because in the last year's pro forma cash flow, there's this financing impact with payment terms with the contract manufacturing between Continental and Vitesco. in it so it is not as much more positive than last year but nevertheless I think it was our goal, it was our promise that we are very cash flow focused and after a first quarter that was much less negative than a normal first quarter and now already swing to positive cash flow in the second quarter. I think is a strong message. Klaus said it's mainly driven by besides the operational performance by very disciplined capital management and a working capital discipline that in the past I already mentioned but is extraordinary good this year and this quarter. That's reflected in the waterfall chart on the right side. We see that the net working capital only changed by 11 million. And CapEx for sure is, and you see it in the key aspects as well, is below depreciation. So therefore also a good contributor to a strong free cash flow performance. Last but not least, cash debt profile. It's pro forma leverage ratio. Why pro forma? Because it's always last 12 months. We still don't have 12 months as a fully consolidated group in our formal reporting. So therefore, it's here pro forma added the last year's third quarter of VTESCO, which is not in our formal books yet. But 2.4, although that isn't based on what I described so far, not a surprise. It's with everything being in line with prior year from an EBDA standpoint. mainly driven by the cash outflow in the second quarter of the dividend and will be carefully managed back towards closer to 2.0 towards the end of the year as cash flow should strengthen throughout the year. Let me mention quickly the second bullet point here. The liquidity position is strong with $4.8 billion. Please remember we are also already holding the cash for the repayment of the bond that's also shown in the maturity profile. of 750 million in October. So the liquidity position will be reduced by that amount once we pay back, but obviously without impact on the net cash position or net debt position. So therefore refinancing for 2025, including that bond is completely finalized. I think that's also an accomplishment. The next maturity that you see here that is also a relatively small amount with half a billion in 2026 is only in August. So also on the financing front, very stable and lots of room to fish for opportunities as they might come up. That brings me to my last slide, which is only an introductionary slide. As Bob mentioned now a couple of times, and I'm pretty sure you are aware, this is my last results call. And at the end of this month, my successor, Christophe Anquin, will take over. And before Klaus now closes with the outlook, Christoph is with us in this conference, and it's with great pleasure that I now hand over to him to introduce himself. Christoph.

Thank you very much, Klaus. Good morning, everyone. Good afternoon, depending on where you might be. As Klaus explained, my name is Christophe Henquin, starting in September. I will have the privilege to be the successor. to Klaus Bauer as a group CFO for the Schaeffler Group, responsible for finance as well as IT. I have to say I'm both thrilled and honored to be joining the group at such a unique time in its history. If you look at the current transformation of our market, our customers, as well as the recent merger with Vitesco, I'm truly convinced it's the perfect opportunity to come on board at a unique moment in time. I was lucky enough, as Klaus mentioned, to join the group a few months ahead of the transition, besides allowing me to hit the ground running in September. This also gave me the opportunity to spend some time with our teams in our plants, in our R&D centers, in our regions, and I'm also happy to say or report that it confirmed everything that I felt from outside the group, being able to see it and spending time with our teams confirmed that, as far as I'm concerned, I made the right choice. It's truly a fascinating company with a substantial potential that I look forward to help develop. I look forward to making a material contribution to the group to do this, Of course, I know I can rely on the very talented teams that I've met so far. I will also bring my past experiences and try to leverage them. As you can see from the slide, I'm originally from France, but my professional background is a mix of experience in the U.S., Canada, France, the U.K., most of my roles with global responsibility, and most of them business-focused. If you look at the types of companies that are listed there, you see one theme, which is mobility, which I define as mobility in general. It's the obvious automotive experience, but aeronautics, trucks, off-the-road, construction equipment, defense, and some experience as well in telematics and data-driven solutions. all of which I find a very interesting fit in the group today and potentially the group tomorrow as well. The positions that I've had or the situations that I've been in also gave me exposure to different types of situations, from growth situations to turnaround to hypergrowth. to restructuring, to driving innovation. It's really been a very interesting mixed bag, which again, I find a very good fit and which I look forward to bringing to the table for the group. Once again, I'd like to sincerely thank Klaus Bauer for his contribution to the group and on a more personal basis for the spirit of our transition over the last few weeks and months. I look forward to building on the solid foundation and the team that is now entrusting to me, as well as building a relationship with the investors, community to community as well, who are regular interactions over the next few months and quarters. The most obvious one most likely will be the CMD in September, where we will share our roadmap and meet some targets. That being said, I now run back over to Charles Rosenfeld, who will wrap up the presentation.

Well, thanks, Christoph, for your kind words of introduction. We really welcome you on board. I can assure everybody on this call, the transition has been very well prepared. It's running very smoothly. And I can say I look very much forward to work with you as the co-pilot of the transformation that we have in front of us. I've seen a lot of strengths and I think you will certainly fit very well also to the investor community. And Klaus, on the left-hand side, the Klaus with the C, once again, a big thank you very much. I normally say in these instances with Schaeffler, it's like with Hotel California from the Eagles. You can check out anytime you like, but you can never leave. You're leaving, unfortunately, and we will definitely stay in touch and we admire your support your contribution, all the work that you've done for Shepard to bring us where we are today. The proof that we will at some point generate here are also your success, and we know that you will follow in particular Shepard very carefully. Let me finish my part with 25. Not much to say here. We confirm our guidance for all metrics. despite dealing with tariffs, trade conflicts, ethics impacts whatsoever, and we'll do the utmost possible to deliver on that promise. Outlook 26 is just the dates. Christoph mentioned it. The next big one is Capital Markets Day. We all look forward to welcoming you in Frankfurt for an interesting presentation. I stop here and hand back to Mr. Eber. Thank you very much.

Thank you very much, Klaus. Thank you very much, Klaus. And thank you very much, Christoph. So, with this, I would say let's start the Q&A session, and I give back to the operators for the first question.

We will 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 queue. If you wish to remove yourself from the question queue, you may press star and 2. Questionnaires 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 1 at this time. Our first question comes from Christoph Laskawi, Deutsche Bank. Bitteschön.

Good morning. Thank you for taking my questions. The first one would be on power train chassis. You already elaborated on that quite a bit. Just a couple of more detailed questions there. If we look at the R&D expenses, which is close to 6% of sales, obviously on a ratio and then absolute terms higher than last year. Could you provide a bit more detail on why the R&D expenses need to be that high in a business like that? Is it just the chassis business that requires it because you want to grow it or how it could phase into H2 and potentially develop in the future? And then on the admin expenses, which have been down in Q1 year over year and now they see a sequential quite decent step up. Is this just the tariff delay that we are seeing or is there anything other than that in that line? Is it just a phasing thing? A comment on that would be great. And then the second block of questions or question would be on e-mobility. the margin improvement that you've shown, is this largely just operating leverage on scale or have you introduced other measures already first benefits of the synergies, other things that you could highlight that drove the improvement we've seen? Thank you.

Thank you for your questions in regard to PTC. And we discussed it and I think it will also be subject of the capital market today, there's this C, and that's the chassis business, as you already said correctly. And with that component we have in the division that's normally really managing stagnant sales growth or even sales reductions, we have an element that is similar than our e-mobility business, on a much smaller weight in that. but that is really driving the R&D expenses in the division. So nothing else. I would like to say so that most OEMs also adjusted their own power train strategies significantly, and there is room for further combustion engine platforms, which then will obviously support the sales levels and to reduce the dynamic of sales reductions there, but also will then require some R&D expenses more in the application, not in the general research field. And your second question in regard to e-mobility. mainly a scale and operating leverage immobility. And you might remember that from Vitesco calls in the past. It's also very, I'm searching for the right word, maybe volatile in regard to cost and price recoveries from the customers. which are not as linear as in the more commodity-bearing business on the shuffler side. I'm making extreme comments here just to explain what the reason is. So there is also an effect that sometimes we have one-time payments that are larger than others, so it will not be a linear movement As I said, every quarter six percentage points better, but it's clear. Coming back to also maybe assess the scale and operating leverage, that is also in connection to be seen with our synergies. that Klaus talked about and the synergies that are ramping up in 2029, as we promised, we are on the right track here, will hit and are hitting immobility to in the range of around 50 percent. So that's adding to, of course, the scale, if you will, but it's a little different element.

Thank you, and obviously all the best for your next chapter. Thanks a lot.

Yes, thank you, Christoph.

Our next question comes from Ross McDonald, City. Please go ahead.

Hi there, thanks. It's Ross at City, and firstly all the best to both Christoph and Christoph in their new roles. Three questions from me. The first one on e-mobility, obviously in the course it grew top line 6%. On my math, you need to grow in the second half versus the first half 17% to be in the middle of the revenue guidance range, so an acceleration sequentially potentially in e-mobility. Are you able to confirm such an acceleration? And then maybe you can talk a little bit about what you're seeing in the Americas given the tax credits. phase out at the end of this quarter. Do you see any pre-buying happening on the e-mobility side ahead of that hard stop? Second question on powertrain, obviously the only division in the quarter below your full year guidance corridor is for margin. Obviously you mentioned in the first half the margins right in the middle of that corridor, so no concerns as such. But could you maybe talk around the expectations from here in terms of top line and margins? Would it be fair to assume The Q2 margin of 9.9% is likely to be the low point for the year in that division. And then just a final question on wind. I think, Klaus, you mentioned wind in your opening remarks. There's a lot of discussion in the market around supply-safe reforms in China under this new tagline, anti-involution. Just be curious if you see any evidence in wind of deflation coming to an end. I know you mentioned the volumes have been very strong, but just curious how you should think about wind pricing going forward. Thank you.

Thanks for the two questions. Maybe I start with the first one, and I don't want to do now a calculation exercise here, but maybe you want to revisit the 17%. If I do my math and make the first quarter, first half 2.4 billion, a guidance of 5 to 5.5 for e-mobility means 2.8 something in the second half, and that would be over 2%. first half 2024 in the midpoint in 11% growth and not 17% growth. Maybe you want to revisit this, whether my calculation or your calculation is correct, but if you go to the lower end of the guidance, it would only be 1.3%. So I think that tells you if we continue to grow with something around 10% plus, the guidance in the midpoint is achievable. And if I see what's happening with ramp-ups at the moment that are certainly not fully there in the first – again, with book business, I'm confident that we will definitely make the midpoint. On the third one, in terms of wind, yes, we have seen, you know, nearly an order rush in the wind business in Greater China. Prices were super competitive for quite some time, but it's also obvious to us that if you are local, if you stay the course, if you compete with that, with the Chinese players, there is a decent chance for German quality. And I think that's what we are benefiting from at the moment. For sure, not at the same margin levels some years ago, but still at decent levels that help us to compensate other negative impacts. And for the second question, I would hand over to Klaus again.

The second part of the question was whether the 9.9% is the low point of the year. I will not say anything like that. Again, I said that once last year I think for industrial and then I was proved wrong. But what I will say is that PTC under the current volumes and also customer mix situations will fight in the second half of the year on the lower end of the guidance range with a strong first quarter. We then still are not in danger of the range, but it's a fight of nurturing the chassis business that as we discussed in the prior questions with a challenging volume situation on the mature business, and therefore I would leave the expectation here more towards the lower half of the guidance than really the upper half of the guidance. On the other side, and that's not – you didn't ask that, but I will repeat that on the other side, I am pretty confident that our bearings and interface solutions is and will be at the upper end of the guidance range, if not slightly above. But both in a – that we don't think would require or need a adjustment of the guidance ranges.

Understood. And I'm sorry, Klaus, I was talking sequential two-half, second-half versus first-half, so apologies. Yeah, on year-on-year, which is probably a better basis for this kind of calculation. I agree with your numbers. Thank you.

Thank you.

And maybe to add one thing, Ross, on the PTC side. If you look at the half here, the margin is 11.2%. It's exactly sitting in the midpoint of the range, 10 to 12. You can now do again your own calculation. If we stay at 10%, we will definitely make the guidance and, you know, If you consider, again, FX impact and tariff impact that was playing a role here, and also include the idea that at some point in time the compensation will kick in, then there is certainly a good sort of level of confidence that will make the guidance somewhere between 10 and 12%. Makes sense. Thanks. Thank you.

The next question comes from Vanessa Jeffries, calling from Jeffries. Please go ahead.

Good morning. Thank you for taking my questions. Just wondering if you could first speak about the drop in order intake in the second quarter and PTC and immobility, and whether that's normal order seasonality and lumpiness, or if you think that's driven by more customer uncertainty?

Well, again, let me talk about the immobility first. You had $3 billion in quarter one, and you had $1.6 billion in quarter two. When you don't manage auto intake by quarters, what we look at is more or less the annual progression and $4.6 billion for e-mobility as a division is a strong number. If you then see what happened with the new order that is not even in there, the special Chinese order with NEV, that points in the right direction. It's not only the size in the order book, it's quality of the order book. And that's not just the question how much money you make, but also who's the customer. We are proven to be competitive with Chinese customers. And I think that's the positive story on e-mobility. In fact, if you ask my view, I don't look so much for order intake by division. I look by order intake by powertrain type. And if you just jump back, Vanessa, to page seven, you see in the powertrain arena, without chassis, 8.4 billion order intake first half. That is nicely spread across the different categories. And that's what we are looking at. Overall, a 1.4 times order intake in a broad powertrain business that covers the full spectrum, you know, certainly geared towards half. That's where we see at the moment the growth. That's also where we see at the moment good profitability. Therefore, with order intake, we are pleased that the first half was a very solid, if not positive, development here.

Thank you, Javi. I was more so trying to ask, are you seeing any slowing in order intake because of customer uncertainty? And if so, are you seeing more extensions of programs?

We're seeing no slowing in interest, but we also very well know that we have a sizable order book that we can also be a little bit more selective here. So don't look at this only by size of the order intake. Look at this by the quality of the order book and how we deliver that order book.

Thank you. And then secondly, could you just talk about the demand dynamics and the rest of B&S X wind in the second half, and if you expect these to be stable or perhaps worse, and then give some detail on what's supporting the margin improvement from the 5.8%?

Well, you know, you saw what Klaus said on aerospace. That is now broken out as a division. There you see significant demand. So sector by sector, it's different. I think it's fair to say that we have a macroeconomic situation in the markets where we do our business that is not really rocketing. So we are more or less moving sidewards and there are sectors that are on the positive side and there are other sectors on the negative side. If I made something that is a little bit more forward-looking, For sure, the whole question of industrial automation, everything that is linked to humanoid, everything that is linked to AI-driven solutions, all of that is something that will drive growth. But on the more classical things, there is certainly not an economic backdrop that supports the growth in the classical businesses.

Thank you.

You're welcome.

Our next question comes from Michael Punzett, DZ Bank. Please go ahead.

Yes, Michael Punzett, good morning. I have two questions. The first one is once again on the order intake. You mentioned a very high order intake in this regard to the HEV business. Can you give us a split up of the customers and the regions? And the second one is on the tariffs. Can you maybe explain a bit more detail how you will be hit by the tariffs and how you will be compensated on a divisional level?

Let me start with the first one. You will understand, Michael, we're typically not sharing customer names. But what I can tell you, if I look at the Ramp-ups at the moment, it's a good mix between German, European, U.S., and also Asia, China names that we have seen. But I can't give you, if please understand this, specific names.

That's okay.

But it's a balanced mix from the different areas. And for sure, you see a hybrid trend not only in the U.S., you also see the hybrid trend in China. And that's where it is interesting for us. And I can also say what I said in the press this morning, the fact that we have Vitesco with us, helps us to improve our content to vehicle. The Vitesco products are in certain areas at higher price levels than we were used to. So the integration here and the cooperation across the teams really pays off. The last one was on tariffs. Will you do that?

Yeah. So there's three main areas where tariffs hit us in the U.S. The one is steel, and we are depending on steel imports in the U.S. because within the U.S. not every steel is produced in the quality that we need. Secondly, within the USMCA space, we have our biggest movement of goods into the US out of Mexico. We said that in the last call. It's a significant number. And not everything is USMCA compliant. And even with USMCA compliance, it remains to be seen how that develops. So we are around 80 percent USMCA compliant, but 20 percent would then be subject to the increased duties. And the third big element is stream of finished goods and components from Europe into the U.S., and therefore subject to the negotiation between the U.S. and the European Union. That now you asked how that hits the various divisions. Steel would hit every division that produces in the US and there is European steel, Chinese steel. So we are here talking about the 50% duty rates. Mexico is mainly producing steel. actually our legal lifetime solutions business because most of the production of our rep kits for the clutch business are produced in Mexico. And not all of them are because of a country of origin topics USMCA compliant. And from the third element, European components and finished goods here, The automotive divisions, especially PTC, because of our intercompany transfer of components and the solutions for the import of finished goods that are produced in Europe are the ones that are the most impacted. So the recovery mechanism, as I explained for legal lifetime solutions, is more a general price increase of everything in the U.S. That is the same for bearings and industrial solutions, especially in the distribution channels for the bearings and industrial solutions OEM customers. It's more a negotiation, a one-on-one sometimes part number by part number with your customers similar than in the automotive OEM divisions. I hope that explained it.

Okay, thank you.

The next question comes from Stephanie Vincent, Bank of America. Please go ahead.

Hi, thank you so much for taking my questions. The first one is just on capital allocation and a bit of an understanding about how you're thinking about things. Because gross debt, even if I take out the 750 million, obviously going to seem mature later on this year, has been creeping up. Your expectation for free cash flow is pretty benign. So how comfortable are you with the gross debt position And as we move into 2026, if cash flow continues to be benign, I know you've kept the ultimate dividend target, but do you think that you're okay with perhaps growing that gross debt position in the short run as you continue to improve some of the segment's profitability? Or could we also see a consideration of things like small divestments perhaps to keep it within a range. That's my first question. And then also, if we could just get an indication perhaps on the segments that are quite profitable. I don't know if you've disclosed this before, but powertrain and chassis, lifetime solutions, bearings, an indication of your cash conversion ratios, and even if you don't want to go into numbers, just some general guidance about what's generating the highest cash flow and where you see that evolving in 2026 would be helpful as well.

Okay, Stephanie, two very important questions. Let me start with the last one. We don't give free cash flow conversion per segment. That's also a function of our segment reporting logic. For sure, our overall free cash flow situation is burdened by the fact that we have restructuring payouts for our restructuring program, the known 4,700 headcounts that we want to reduce, plus also cash outflow for integration costs. While you can adjust for restructuring provisions, you need to incorporate in your free cash flow planning the one-offs that come from restructuring and that come from integration. And that is going to continue in 2026. We are not here to talk about guidance 2026, but we can maybe during the Capital Markets Day or later explain a little bit how we see these specific flows from the restructuring and the integration program. They will come to an end for sure when all of this is finished, but at the moment that's something we need to finance. And if you would deduct this and go to something that I call internally the underlying free cash flow, you see a number that is in the range of what we have done so far. So when you talk about capital allocation or free cash flow sources and uses, the sources of free cash flow are intact. our free cash flow conversion when I deduct at the moment the one-offs for restructuring and integration cash out is on the same level as it was before. So you can basically say we are financing this at the moment from a free cash flow and that does not leave us at the moment with a significant potential to repay that, however, gross debt, as you said, is definitely at a level where it should not further increase. We're managing not by absolute gross debt, but by leverage ratio, and the 2.4 times that you see at the moment is above our midterm target range of 1.25 to 1.75. This having said, it is very important to manage cash flow properly, and I think one of the proof points in Q2 is we have some ample capacity available, so we can be very focused with CapEx. $200 million is certainly not the normal average range for a quarter, but it's doable if you really consider how can I utilize my capital as efficiently as possible. Would a capital allocation logic also include small divestments for sure? The small investments also have the side effect of reducing complexity. I can maybe finish my answer to your two questions with a statement about our strategy dialogue. In those strategy dialogues that we had so far, the focus was so much on who contributes what type of cash, how do we bring the Vitesco business units that we have acquired to the same level as we have done before. So capital allocation, managing cash flow going forward, tackling those areas that are loss making or that are not contributing to Shuffler Value Added. That's the nature of the game. That's what I'm looking at. And that's what also Christoph is a super companion in driving that forward. Execution counts and capital allocation is key.

That's very clear. Thank you.

You're welcome.

The next question comes from Sanjay Bhagwani from Citi. Please go ahead. Hi.

Thank you for taking my question also. And thank you, Klaus, for such insightful and detailed conversations over the years. Wish you all the best. And welcome, Christophe. Looking forward to work with you. So, yeah, first question is just a follow-up to Stephanie's question. Maybe I'll just rephrase it a little bit different. On the debt debt, I see you are targeting at somewhere around 2.0x by the year end. Are you able to provide some color on how much of that is basically driven by the reduction in net debt itself? That is, if you have something in the internal budget. And so, yeah, some of the key driver where the net debt for the full year may end up. I understand the fee cash flow is going to be positive, but I do understand that there are some other variables like restructuring costs and stuff like that. So that's my first question and I'll just follow up with the next one after this. Thank you.

Well, again, Sanjay, the 2.0 times is at least not an official target from somewhere, but let's take it as an ambition. I'm definitely not confirming that at the moment, but that can only be achieved if you achieve two things. You need to generate a cash flow, and I've not done the calculation here. Positive free cash flow, that would reduce net debt, and that needs to come together with margin improvement. And, you know, my target that I mentioned is more the Usual, for those of you that follow Scheffler for long, 1.25 to 1.75 is a 1.5 times target with a 0.25 range. Again, we're not in a danger zone here. There's nothing wrong with the 2.4. We can definitely carry this. But for moving forward for the next years, that's too high. So let's not get... Too excited about 2.0, that's not what I can confirm at the moment, but the drivers are clear. And I can only say, you saw it in the second quarter, we have become much stricter on CapEx, and that's one of the key drivers, together with very proper and disciplined management on the working capital side. If that continues, I think we'll further reduce the 2.4. Don't forget, in a quarter two, you always have payout for dividends. And that is not happening in Q3 and Q4. You also know that our typical sort of progression is negative in the first quarter, second quarter positive, and then the big cash flow comes in. That's also a function of what Klaus said. When compensation and reimbursement comes, that comes typically also at the test score in the later quarters. Is that okay?

Yes, yes, that's very, very clear. So what I understood is CapEx working capital, and another interesting point is the compensations, which I think for Vitesco's part. And the second one is now going back to the electronic costs and semiconductors, because this was one of the big issues for Vitesco's margins, I think, in 21-22. Some of your peers have been alluding to slight relief in these electronic costs, and they are guiding to some sort of material cost tailwinds. Are you also seeing some signs of relief there? And I'll just add one more question to that. There are some talks around semiconductor tariffs. I know it's too early for this, but if you have done research, any early assistance or put thought into it what can be any qualitative assistance if this is relevant for you or not. Thank you.

Again, let me start with the tariffs. I certainly heard what President Trump said yesterday evening or I think it was yesterday. We heard so much about tariffs that we get used to this, but for sure we'll dive deeper into this, what that means for us. I cannot give you an answer. I can say we have a very frequent exchange with semiconductor players. We just had the CEO of Infineon with us, and I would not say that there is significant tailwind at the moment that we benefit from. That would be much too early, but I can assure you we are looking at that, also those that are new to this like myself, much more carefully. But this is not included in any type of forecast or any type of guidance going forward.

Thank you. Very helpful.

You're welcome. Ladies and gentlemen, that was the last question and this concludes today's Q&A session. I would now like to turn the conference back over to Heiko Eber for closing remarks. Thank you very much.

All I want to say, I want to thank you for your time, for your interest in our company. As always, feel free to reach out to our IR team in case there are further questions. We already mentioned this various times, but it's good to remind you once again, we are happy to host our Capital Markets Day on September 16th in Frankfurt. Very much looking forward to seeing you there. Thanks to the team for the preparation as always. And also, this was mentioned several times today, But allow me on a personal note, I would also like to thank Klaus for the last one and a half years, for all the support we got and for everything I was allowed to learn. Thank you very much. I wish you a pleasant rest of the day and hopefully some relaxing summer break. Thank you very much and goodbye.

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