Schaeffler Ag Ord

Ladies and gentlemen, I'm very happy to welcome you to our today's call on Scheffler's financial results Q4 and fiscal year 2025. 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 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 Christoph Haneke, our CFO, have joined the conference to guide you through the key information in our presentation. And afterwards, old gentlemen will be available for our Q&A session. And now, let me hand over to our CEO, Klaus Witt.

Thank you very much, Heiko. Ladies and gentlemen, welcome to our full year 2025 call. You all received the numbers and the presentation this morning, and I would immediately jump on page four, the overview with the key messages on the numbers. We titled it with resiliency. in an increasingly volatile and challenging environment. And when this title was chosen, ladies and gentlemen, we were not aware of the attack of the US and Israel in Iran. So let me, before I come to the numbers quickly, preempt some of your questions in terms of what's going on there, what does it mean for Schaeffler, and how do we think about this? Three points there. The first one is our presence in the region is very limited. We have no production there. We have no bigger operations there. We have a small warehouse and some people in Dubai, but as such, there is very limited risk to our assets and operations. Second point is clearly the key thing to watch out for is supply chain. You all know that a significant part of the trade that comes from Asia Pacific and China to Europe is channeled through the Suez Canal, not through the street of Hormuz, but the Suez Canal. If that would be closed, if that would be impacted, that can have an impact. We see that freight rates are increasing. That's certainly not a surprise. We also have immediately activated our risk management systems and think we are, at the moment, unaffected. I shouldn't say on the safe side. But what can happen if this extends, if this takes longer than expected, then for sure there could be a supply chain situation where containers need longer, ships would go around the Horn of Africa. We have seen that before. This is a situation that we can manage and that, as we see it today, will not have any significant impact on our business as we assess it so far. The third thing is that energy prices. We are a company that produces, so energy is important. Our main source of energy is electricity and gas, two-thirds, one-third. We buy energy in a three-digit million euro amount per annum. Today, around 75% of that is hedged for at least 12 months. So the exposure there is small. We are rolling on a regular basis. So if we would see increases there, the impact on our business should be manageable as well. And that's also my overall message here to you. The situation is clearly unfortunate. No one expected something like this. We have seen geopolitical risk on and off. We can only hope that this comes to a quick and hopefully less damaging situation, but we think the immediate impact that we can see from this on Scheffler is rather small and in any case manageable. Back to the numbers, 2025 sales slightly below previous year on a performer basis, 23.5 billion. The interesting number on this page is gross margin. What you see here is not the reported gross margin, but a gross margin that we adjusted. The reported number is 18.4, but it includes, compared to last year, one of losses from the depreciation of SAP licenses. You know that from the previous quarter reporting impairment losses on some intangible assets. that relate to a previous acquisition that we wrote off, and also market-driven capacity adjustments in e-mobility in America is going to adjust for this. I think that's the important message here. You can see that the main health indicator of our business has improved from 19.1 to 19.9%. And that's definitely on the positive side. I watch in particular the gross margin development because I see it as the base for improving our profitability. And Chris is going to explain to you in more detail where this is coming from. But improvement in the production cost is here the main driver. And that shows that our restructuring measures of the past clearly pay off. 4% margin overall is an improvement of nearly 100 million compared to previous year. Again, on a performer basis, free cash flow better than expected, and that's driven by the profitability, but also by the very disciplined capital allocation that we are known for. 266 is also the main driver why we said let's more or less leave the dividend where it is with 25 cents to 30 cents. That is what we are proposing to the annual general meeting. Judge the year. You have highlights and lowlights. I'm not going to read that all to you in the interest of more time for question and answers. But you know our hedge model. It certainly becomes even more relevant in such an environment. You know that we are diversification positive. You also know that we are a company that has always said we need to do We need to act ambidextrous with self-help measures on the one hand, but also growth opportunities on the other hand. This table shows that we are on both sides making progress. The integration is on track and we will continue, as we promised to you, to optimize our business portfolio. The state of the turbocharger business in China and also the closure of Scheffler ultra-precision drives in Germany are just testimony of that geopolitical risk. I don't need to comment on this. The macroeconomic environment is also not the easiest one. And for sure, we have had wins in e-mobility that we need to tackle. We have been brave enough to show you two divisions here and to expose ourselves also to this. 2028 breakeven challenge. I still think that that's the right way to go. We are confident that we can make that. And the trajectory to get there is certainly something that is not just linear. If you go to the next page, 2026, I don't need to read that to you. I just said this, but we are in line with the guidance for 2025. That was, as you remember, increased for free cash flow. That's the area where we also are better than expected. And for sure, free cash flow depends on lots of various factors in the fourth quarter that have resulted in this high achievement. I can already say here this is not the result of pulling free cash flow forward into the year 2025. The opposite is true. We managed it towards the end of the year very carefully going forward. Page eight is the sales growth also here. I don't want to go into too much detail. What you see in detail, what you see here is the flat-ish growth comes from a variety of different movements, vehicle, lifetime solutions up. bearing an industrial solution slightly up, powertrain and chassis down, you would be surprised if that would not be the case. Also, with the things that we have sold and then immobility plus 7%. One thing here is standing out, that's the negative performance in China and the positive performance in Asia Pacific. That's not just market. That also has to do with the fact that one of our largest platforms, the EMR-3 and EMR-4 platform for a customer called Hyundai. The customer has moved this from a Greater China operation to a Korea operation. That explains why Greater China is two digits down and Asia Pacific is two digits up. The old program runs off, and the new program is gross in Asia Pacific. Page number nine, outperforms by powertrain type. Nothing that you should be surprised about. This is just a continuation. of what you saw in previous quarters. We are outgrowing the market in terms of e-mobility, or let's call it battery electric vehicles, plus 13%, while the other two powertrain types are lower than the market. You also see order intake, promising battery electric vehicle for the full year, 2 billion additional order intake over sales times book-to-bill, F also going well, and ICE certainly as expected with a book-to-bill ratio below one. That is a picture that from our point of view shows again why it is important to have the hedges in place and why we think and why we are confident to make our targets in both divisions. Goes to the next pages, Heiko, very briefly, because most of them are there for you reading it. I've already mentioned the key messages. Page 10 shows you e-mobility, good sales growth, strong order intake, and further gross margin improvement. That's the key message here, and you see it in the numbers. And for sure, that's a good starting point for the 2026 rate. Powertrain and chassis. The key number here is we are able, although sales were not growing, and that has to some extent to do with the phase-out of certain portfolio elements, cross-margin kept at a high level, even improved by nearly a percentage point, order intake, particularly driven by hybrid, that I think is also a quite remarkable result for the year 2025. And our shining star vehicle, Lifetime Solution, continued growth, strong profit margin, good force quarter, nearly everything in the same ballpark like 2024. So that business sits really very well and also projects positive development going forward. And then on bearings and industrial solutions, you remember a year ago we had to look at this very differently, had to push several ropes to bring this forward, and now we see the first results from this. Sales growth positive. Outperformance certainly not yet there. Booked a bill 1 to 1, 1.1 times, and the gross margin that is slightly below. We are fully aware that there is further room for improvement, and when Chris is going to show you free cash flow, you will see that Zascha has done a lot here. to bring the free cash flow generation of his business back on track. Now, 14, you've heard so much about new growth and what we're doing there that I will really cut this short. You saw the latest news yesterday on this partnership with the Chinese company. That's number three. Leiju Robotics is a bigger player in the OEM humanoid space in China, probably number three, very experienced. It's interesting for us because they are asking for the full suite of products, not only just some ball screws or bearings, but also sophisticated actuators that really points in the right direction. And we are proud now that we can complement our European activities with Neura and humanoid with a premier player in China. If you go to this page and look at the last bullet point on the left-hand side, this is something that we have not marketed today with a press release, but that has happened this morning. We have opened an innovative humanoid lighthouse factory. It's an innovation factory. It's not just production. It is a one-on-one or end-to-end structure where you can innovate not only products but also production processes. very much integrated, you know, high-sophistication, data-driven, super partners with NVIDIA and Siemens, everyone excited there, and clearly another sign that this humanoid ecosystem will take off, and Schaeffler will play an important part in that, both in the various markets where we are active. So I think the key message is the activities are gaining traction. There's still a way to go, for sure. You don't see this in the results at the moment, but we are absolutely positive on that development. What we have seen in the last months is much better than what we expected in September 2025 when we started these, to market these activities. Same old truth for defense. Yes, this is a much shorter period since we started this. We are in the second phase of our program here that ends on the end of March. And again, I would have not expected when we started this, Chris, that we would see first orders coming in. Some of you heard that Helsing got the approval for the drone contracts from the German government. So we are only waiting for the next days to come to sign our first supply contract with a player here achieved in record time. And there's definitely more to come. We are very well positioned to grow in the defense sectors Yesterday, just one example, we had Lake Star with a two hands full of defense players with us here to see what we can do, and the interest is overwhelming. I would also like to add, I've done this in the press, one more area that is interesting, certainly something that is more sophisticated and a new area, but very much linked to defense, and that's the space area. Again, not just announcement, but something where we look very carefully into product opportunities. What you see here on this little page, and I'm not going to go into more detail, is a reaction wheel. Every satellite, whether it's for civil or military purposes, needs these reaction wheels. It's exactly something we can do. It consists of motors. It consists of batteries. It needs a system. It needs power electronics. And we are already starting conversations with major players here to see whether that growth potential opens up new growth opportunities for us. This is the growth side. I already said this. We look at this from an ambidextrous mindset. You cannot only do offensive. You need to do defensive as well. And I'm proud to say on page 15 that our performance program is not only on track, but is in implementation faster than expected. Just to put some numbers behind this, EBIT promised as an improvement for 2029 on a percent achievement rate was 815, most of that from synergies, the other part from additional structures measures. And I can say with the number in 2024 and what we achieved in 2025, we are nearly 40% there in terms of impact already in the numbers. And if you sort of do that math in a similar way for the headcount reduction, we promised 4,700 of which 2,206 or 47% have already left the company and another nearly 30% are contracted. So it's fair to say that As of today, we are 76 percent there. While some people still have to leave the P&L and the company, the remaining 24 percent should be doable. And I dare to say that we are able to deliver that program at least a year earlier than expected. What gives us confidence here is that all the negotiations with workers' council have been successfully completed. The number of plans that we are closing has even increased with two more general plans. And that gives a lot of positive hope that we are able not only to deliver on the growth side, but also in further improving our off-site. Capital allocation, page 16, nothing really surprising. We invested nearly a million, 0.6 times depreciation. Capital employed came down by, 500 million in the fourth quarter, and you see that that is allocated, as you would expect, one-time depreciation in e-mobility, certainly lower in PTC, and DLS small at 4.5 times. That has to do also with investments into logistic operations and DIS also a very capital-conscious type of investment. I leave that for your questions and hand over to Chris for the further explanations on the financial performance. Thank you.

Thank you very much, Klaus. I'll thank you for the sales, EBIT, free cash flow. We'll talk briefly about dividend. But before we jump into it, maybe one comment on quarter four, which is not in the slide deck here, but is noticeably better than quarter four from the prior year, which was a complicated one, as you all know, with positive growth of 1.6% during Q4. A gross profit margin, once you adjust it for the one-off effects related to the impairments of some immobility topics in North America, once you correct it for the other impacts that we had in gross profit, is essentially 2 points of gross margin above the prior year at 19.6%. overhead under control, an EBIT which is almost twice as much as the one from 2024 to 4. Keep in mind, when you look at our numbers, Scheffler and Vitesco combined is not a group where you have a steady EBIT generation throughout the year. Our quarters, because of the activities behind them, because of the industrial setup in some of our divisions, as different physiognomy quarter over quarter over quarter. So what I take away from quarter four 2025 was a solid one given the physiognomy of our D&L and for sure significantly better than the prior year. Carpex was also held in check at $275 million. during the last quarter, and cash flow was substantially positive, as you can see in the folio numbers. If I go back to the flow of our presentation, and again, not reading for every number on the slide, but if you look at sales and gross profit adjusted to FX, we are more or less stable year over year, even more so when you correct for the fact that we have divested some businesses towards the end of the year. EBITDA's profit adjusted goes up by almost one full point. You can see that on the top right. If I give a little bit of flavor on the biggest contributor, which is the production cost, bar that you see there, essentially our performance improvement and where we visualize most of our structural improvements as well. So 281 million additional If I bring it back to divisions, the two biggest contributors would be immobility by $117 million, which is, again, the proof point that scaling up and being efficient in launches and immobility works. And then BNIS, $185 million additional contribution for performance and restructuring. A little bit of noise around it. Obviously, some costs related to our restructuring programs. You see in the 153 on the right side, we program forward for 78 million. And the other point of note is our sensitivity to foreign exchange, where at gross profit level, you see that the evolution last year cost us 168 to 68 million. Maybe one last comment on our price policy or our price achievements. The 33 million that you see at the beginning is positively impacted by immobility, which makes sense when you think about the messages around improving program quality and business quality and VLS, which is an even bigger achievement given the context that they were operated in. PTC and BINS are almost neutral to slightly negative, mostly due to the mix between our products. If I move on to the EBIT slide, we continue with, again, the same logic, so the significantly improved gross profit contribution. Some, again, I apologize about that, but some noise still in our numbers in R&D and SG&A as we book restructuring costs and integration expenses, especially in SG&A. On the R&D side, the only point of note about what I've just said is a slightly lower amount of R&D capitalization year over year, so It shows as a negative, but it's not per se a negative message. On the blue, 101 million, you see the cancellation. Since we're talking about EBITPSI, you see the cancellation of the items that are located on the left and that have not been adjusted yet to gross profit. So all in all, a solid 0.54 gross profit. additional EBIT year over year, even though the readability again of our financial is still impacted by the many transformations that we have going on in the company. Going quickly through e-mobility in class, I already spoke to some of it, so I will be very quick with 7% growth on the sales side coupled with a very nice 6.1%. Yes, we're still in the negative zone, but moving from minus 20 to minus 16, mainly pulled by business units around the e-drives and controls. And if I was to take a regional angle in all regions as they go through the different launches of different different programs. The business is growing and it's growing in a more profitable way. What is still missing again is the scale. That's part of the roadmap as discussed many times. On PTC, slight decline in sales as expected, also impacted by some of the sales of businesses towards the end of the year. Almost stable at EBIT level, EBIT BSI. Again, I'll qualify that as a fairly strong sense of resilience in the business where they are absolutely focusing on operating cost and operational performance. If you think back about the EBIT, which we find some of it VLS, It never gets boring to say this, but continues to be the success story that it's been so far with another 5% growth year over year at the very high level of 14.8%, almost 15% EBIT level. It's even more of an achievement when you look at the growth of the platform business. which, although it's not the biggest part of the business, it is one of the strongest growth, with plus-plus 32% almost, and it carries slightly less gross profit margins than the rest of the business. So for them to hold stable means that they counteracted that mixed effect elsewhere through performance, growth, and pricing. So another solid year for EOS. Bearings and industrial, if we move to the slide. Slide growth, what is more notable, again, is this combination of restructuring benefits and operational performance, combining to deliver almost one point worth of additional contribution to the EBITBS and BSI line. Some units within the bearings and industrial, by the way, growing at double-digit rates, aerospace bearings in Europe and North America being one of them. If we look at net income, still negative on a non-adjusted basis. If you adjust it for the special items, Net income is positive at plus 148, which is an important number for us. We are doing what's needed to structure the business and drive performance. It has an impact on reported net income, but adjusted net income, again, is above the zero line at 148. No specific points to note on financial results. On the taxes side, we are impacted by write-downs of our deferred tax assets, and that takes us to the minus 424 that you have here. We move on to free cash flow. Massive would be the objective that comes to mind regarding the improvement year over year. A little bit careful with the reference for 2024 because we all know that there are some integration effects cash flow year over year. As mentioned, we did take some steps during the year in order to safeguard our e-mobility launches on one end and our own business on the other end, and are carrying slightly elevated inventory levels in some businesses, and I say some businesses because on the one hand, BNIS did a tremendous job in working on inventory levels. But we chose, again, to invest a little bit in inventory in order to ensure that the mobility scales up properly and that we protect our customers against supply chain disruptions and experience to my conductors, rare earth tariffs. I mean, you all know the story for 2025. This is not a permanent state of things and will get worked on in 2026. for sure, the following year. Contained spending on CapEx at $9.74, so below the billion mark. None of the savings or none of the CapEx steering that was done has any impact on the future of our business. To say differently, we did not sacrifice future growth or we did not sacrifice opportunities. We just manage APEX extremely closely compared to the need, and especially when it comes to the mobility ramp-up, so trying to avoid as much as possible to have capacity installed before it's truly needed, which again potentially protected us also a little bit against some of the swings in demand on the mobility side in North America. We did have to take during the year, but compared to some of our competitors or some of our customers, amounts are, I'm not going to say minimal, but they are fairly consistent. If we move on to our debt profile, you see the result of the two actions done during the year, so the two issuance of bonds, once during H1, the second one during Q4. Both of them successful, oversubscribed at very tight and favorable market conditions, which again puts us in the right position as we enter into 2026, where we have maturities that are completely manageable. Net leverage ratio ends the year at 2.1, slightly better than what we had planned. and approaching the top range of our corridor that we set up in our midterm targets from 1.5 to 0, not to say that we're satisfied about it. We, of course, will continue to aggressively work to bring that down, but progress is not visible there. Evident proposal made through the supervisory board and accepted last week at 0.3%. underpinned by a healthy underlying free cash flow of slightly more than half a billion. It allows for us to do what needs to be done in order to be consistent with our dividend policy and our dividend story over the years and share some of it with our shareholders. It's a five-cent increase, as you see, over the previous year. And again, it's an integral part of our equity story as mentioned there. And that being said, I will hand back to Klaus, who will cover the guidance for 2026, which was published this morning. Yeah.