Schaeffler Ag Ord

Ladies and gentlemen, welcome to the Sheffler AG Q2 2026 earnings call and live webcast. I am Matilde, the course call operator. I would like to remind you that all participants will be in listen-only mode and 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 zero. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Heiko Eber, Head of Investor Relations. Please go ahead.

Thank you very much. Ladies and gentlemen, I'm very happy to welcome you to our today's call on Scheffler's Financial Results Q2 2026. Press release. The following presentation and our interim statement have been published today at 7.30 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 usual, I'm sure that you have all taken notice of our well-known disclaimer. And also, as always, Klaus Rosenfeld, our CEO, and Christophe Hannequin, our CFO, have joined the conference call to guide you through the key information in our presentation. Afterwards, both gentlemen will be available for our Q&A session. And now, without further ado, let me hand over to our CEO, Klaus.

Thank you very much, Heiko. Ladies and gentlemen, welcome to our Q2 Q&A. Conference call. Let me start with page number three, the key messages for today. I would like to start with message number one that you already know from the ad hoc statement we had to give according to the German rules last week. We decided to update our midterm targets driven by the market environment, in particular in the US. After a solid review of a first top-down plan, you all know that we do a strategy dialogue in the summer, and as a result, we challenge clearly, intensively our outlook for the next years. and decided that on a more realistic and credible basis, the old ranges for immobility were too aggressive and that triggered this change. We have now internally given the directions for the detailed planning and that under German law constitutes an event where we decided to share that with the public. I hope you appreciate this. It created a little bit of turbulence. I understand this. But we had to follow the rules also in the best interest of our reputation with authorities and also wanted to trigger what was necessary internally to move forward with the planning cycle. So midterm targets adjusted. The key message here is we adjusted the top line, but decided based on the preliminary planning work that we would stay on group level with EBIT margin and also with our free cash flow target for 2028. That's, from my point of view, a sign of strength. and it clearly shows that the hedging logic the famous hedging logic that we explained to you several times is paying off you can also say diversification is on our side second key message results for Q2 are good results in a very challenging environment a bit margin improved while top line was more or less flat and you see in particular that two of our divisions have outperformed well VLS and BIS at the upper end of the four-year guidance. PTC comfortably within and also immobility trending towards guidance range. On immobility, all of you know that this is not a flat line across the four quarters, but the first two quarters are the ones where margin is more negative and that then changes in the second half of the year. So, I think the results show that despite no real growth in the top line, the company is improving its earnings quality. On that basis, we are also proud to say that our guidance for 2026 is confirmed. We are on track to deliver on all the metrics that are there, despite this challenging heterogeneous and fast-changing Jens Willem Schuler, Thank you very much. Thank you very much. Extended as relates to early retirement options. Most of you know that in Germany we have a specific instrument to manage restructuring and transformation that is offered with the support of the necessary agencies and governments in Germany. There's at the moment discussion that that instrument could fall away. and we have decided after considerable requests and interest inside the company from employees whether that instrument would still be available to offer that instrument again. This is already agreed with workers council and the necessary colleagues there. and that gives us another opportunity to optimize our headcount FTE across the German base. That is not only specific for one or two plants, this goes across the whole board. and we think that that will help us again to continue with our performance optimization. We'll come back to this later. At the same time I can say that the promised structural measures as of November 2024 are all in execution and we are ahead of This is also one of the drivers for the performance in BIS. Last but not least, our new growth strategy also starts to pay off. We have promising new growth opportunities. The new number that we are publishing for the first time is the order book for the humanoid business. I think we are the first ones to do that. This is, ladies and gentlemen, a conservative number. Conservative in particular because we have applied significant haircuts on the numbers that are given to us. Also with the experience that in such an environment things will need a little bit of time to Jens Willem Schuler, I cannot mention these are US names. Also the products behind this is well balanced and I can say that all of them have SOP in 2026 or at the latest in Q1 2027. So we felt that this gives you another good data point to measure success and how we are progressing and we have decided to publish changes in these order books on an ongoing basis going forward. That is my fifth key message. Let me now go quickly through the other slides so that you have time enough for questions. This is the old midterm targets that were communicated in 2025 September, as you know, just as a point of reference. And on the next page, you see what we have done. We lowered the top line from 27.29 to 24.26. That's quite significant. And the major contribution here comes from e-mobility and bearings and industrial. On the margin, we have stayed where we were, 6 to 8 on free cash flow as well. And you saw that Subsequent to the top line change in e-mobility, we lowered the EBIT margin range from above zero to minus four to zero. That's clearly for you probably a disappointment, but don't get this wrong. This doesn't mean that we give up on profitability in e-mobility. We left the zero because you can imagine that if you are in my position, while I'm rather With my 60 years now approaching the end of my career and this promise was an important one. I was not really happy about this, but I can assure you that we will do the utmost possible to bring this across the breakeven line. But we also needed to be realistic and I hope that you appreciate that. You see on the top line also a little softer bearings and industrial solutions are also a result of the environment, not so much of the Scheffler performance as such. and then you see that we have increased the guidance of the midterm target sorry for powertrain and chassis by half a percentage point and also for vehicle lifetime solutions this is exactly what I said before here you see the power of our diversified model and due to that change six to eight should be our midterm target or is our midterm target The rest is unchanged. And with that, I would go into the results. Q2, as I said, a good result. Why do I say it's a good result? Flat growth and still gross profit margin improved by a percentage point. Mid-term EBIT margin also improved by a percentage point of 4.5%. Free cash flow in the quarter still negative. Christophe will comment on this and EPS This is clearly not the end of our efforts. We want to do more. We want to continuously improve. But this sits, from my point of view, very well in our trajectory towards the year end and what we promised also for guidance. You can all read the details here and Christoph will explain them in the second part of the presentation. Let me go forward. And on the next page, you see the sales growth. I don't go into all detail, but the minus 0.3% clearly summarize a heterogeneous development across regions and divisions. You see in a region, America's 2.9% growth. You see that China was rather weak. You see Asia Pacific positive. and you see immobility plus 9.4% in such an environment that's not a bad result while the others except for Bering and industrial were slightly below the previous year quarter so all in all that is acceptable to us in particular in this environment. On the next page you see the famous one on the powertrain and I'm happy to say here in the first half of 2026, we outperformed in Beth. with 9.4% more growth than the market growth, 20.7% to 11.3%. You also have in the back of the details for the quarters, HEF was nearly there, slightly less than the market. That's clearly also a function of what's happening in the regions and ICE more or less online. So in total, in line with the market, but a positive development in BEF. and this is also exemplified by the order intake where book to bill in the best product was 1.6 times while the others were below one time. This is again pointing into the direction of why immobility is important to us and why we are confident that we can also outperform in the future. Let me go to the next page. And to all of them quickly, e-mobility here, I mentioned the key numbers and I said the ramp ups in Europe are successfully happening, also in Asia Pacific. There are here and there, and Christophe will answer these questions, the one or other one of positive effect. The order intake at the moment is a little lower than in previous years due to continued market uncertainty. But I can say with an order book that is still safely above 30 billion, I can say we have enough to do that we are not dependent on any new orders at the moment. And what I really would like to point out here is the improvement in gross profit margin. Yes, 6.9% for a second quarter is not enough to make it a true success story, but the direction is clear and this comes in particular from increased productivity. Let me go to the next one, PTC. Thank you very much. The order intake goes along, has to be understood along the same lines. There is, from my point of view, with 0.8 times, we are clearly going the right direction. Gross margin is impacted by the volume decline, also by the one or other one-off effect that comes from settlement with customers. So this is something Still to be seen against a gross profit margin of 22.4%. That's a strong margin and we are more or less able to keep that together. The highlight upstairs shows that powertrain and chassis is not only about cars, but also about trucks. And we're making good inroads in that sector at the moment when it comes to heavy duty applications. Let me go to the next page. Excuse me, that's ELS. Very strong results as you saw from the EBIT margins already. Grossmargin further improved against a top line that was not growing. Yes, we measured ourselves against car park growth slightly lower, but all in all, this business is definitely on track, and we are very happy about the underlying profitability and the earnings power that this business division has. Next page is then BIS. I also mentioned the key numbers there. Strong improvement in gross profit margin, 3.4%. Growth rather flat against the blended markets. We were not outperforming. Good order intake. We have also here an interesting mix in the regions. Positive development in the Americas. Europe is a bit softer. We see a continuously strong aerospace business. Wind is Thank you very much. and here you see the effects of our footprint activities. In particular, Sascha's business has done very well in terms of the consolidation of sites, Schweinfurt, Omburg, Bandhof, all of that is happening. And we mentioned here as well, headcount reduction of 1,650 people clearly points to the fact that our restructuring activities are starting to pay off. Next page is then On the three CEO priorities that we shared with you in the Capital Markets Day, EBIT break even, our self-help measures and the portfolio optimization, and also new growth, let me quickly go through them. On EBIT break even, I've already said on the next page, the real issue is the top line, you see it on the left. Where we are on track is our operational excellence part with a more dedicated platform approach. The idea to optimize the design to cost activities, footprint optimization and that is what you see in the R&D efficiency is addressed. We have for this program and let me stress this for this program, the completion rate of R&D right sizing is nearly 100%. and we see also a very encouraging impact that is still small but that could be increased from AI implementation in the R&D area that will improve also our time to market and then overhead costs, yes, we further need to improve on that area but we can definitely see that we are leveraging merger synergies, the targets for the overhead ratio are coming in and also here the measures are completed for this program and we have initiated on top of this a significant initiative to optimize span of control and reduce layers. All of that is certainly not fully visible in the numbers yet but it gives me confidence that Starting with a strong order book and continuing on our performance measures, we should be able to achieve our mid-term targets. Maybe slightly delayed, but with a continuous focus on sustainable, positive profit contribution. Let me go to the next page, and that's the structural measures. First half of this page says we are We are very well on track with the program that we announced in November 24. At the moment we have You can say that we have already overachieved the 4,700, so we have anticipated more interest than that number. The planned reduction in Europe is almost completed. Completed means contracts signed and then the dark green bars mean people have left the company and we expect to realize that full program with even an increased number by June, 2027, the head of plan that shows that Scheffler has with all the experience from the last years to manage these programs very effectively. And the second half of the page talks about what we put into the press. I already mentioned this. You all know that or you've heard about that the German government is discussing at the moment that this early retirement option that was seen as a very attractive instrument for managing transformation will fall away. That has triggered a range of questions in Germany. What happens to this program? Is that still something that you would offer to us? You all know that this is a program that is dedicated for people at a certain age, and it's certainly something that only works if the company and the employee gives their consent. We have decided with already approval of the Workers' Council that we would offer this again, same terms as in the existing structural measures announced in November 24. and we think that through that we can probably reduce our headcount number by 1,300 people in the next years. You clearly want to know how that impacts the P&L and the cash flow statement. The problem here is this very much depends on how people go into this program. There are various ways to structure this. You can do it with an active and passive phase where One year and one year or four year and four year. So we offer different options. And as this is very early days, we have decided not to give you a full business case here. But what we can say is that there is an immediate positive midterm or mid double digit effect in 2027. There are one of expenses and also some expenses that we can adjust in our earnings before special items. So the program as such is an intelligent, flexible instrument to drive our transformation forward that we will now use and offer according to this timeline. By end of September, we should know how many people would like to participate and we intend to finalize the implementation. That means signing all the contracts, agreeing on everything by end of November. So when we do the next budget, we should know what that means. It is, as I said, a very helpful instrument that we are now using because we were fast with approval and start the communication to employees today to manage the transition and also the transformation going forward. This is only a German program. It applies to plants and all the admin areas. So it's blue color and white color. And we have ample experience how to make that successful. Then page number three on my key CEO priorities is the new growth. I have two pages here, one on humanoids. That's clearly gaining traction. Let me show that with the three different areas here, customers. We are actively working with 45 humanoid OEMs globally. and we are increasing our strategic investments into that ecosystem on a selective basis. New York robotics was mentioned lately and also humanoid AI. We are very happy with this approach that clearly gives us a competitive edge also to others. You all know this. The product development is also something where we can report positively The number of sample orders has now increased the 50 mark for this year 2026 and we with that number we are significantly above for year 2025 and the key focus at the moment is on production ready scalability. Our foaming technology as you know is one of our key competitive advantages because it reduces production time from minutes to seconds and we can see at the moment no one really in play who can offer that ability. Delivery is certainly the most important thing and here I can say as I said before Happy to share with you for the first time an order book of 350 million by end of June. It comes from three major global humanoid OEMs in three different regions, seven different products. and the launches with the announced partnerships Neura, Humanoid and also Hexagon are not included here. The most prominent one that we are allowed to mention, you know that some customers are not allowing us to mention their names, is Xiaopeng for the RN Humanoid that is famous, as you all know, where the SOP is planned for Q4 this year. Let me mention again, there was maybe a little bit of surprise because When we were asked what's the order book, we gave you a ballpark number. That is not fully comparable here because we decided to put in significant haircuts that are done on a customer-by-customer basis because we want to be on the safe side. And as I said, as an indication here, the haircuts on the customer level are at least 50% in certain customers, even more. So we want to be safe and we will update that number on a quarterly basis. Now, next page is quickly on defense. On defense, we cannot give you an order book at the moment, but what I can say, the team that we have is completed. In startups, it is always markets, technology, and team. And here we are super happy with what's coming together. Celia is a very experienced lady from the defense industry with 25 years. Manfred is a 30-year guy for Scheffler. At the end of his career, one of our most experienced technology persons that joined here, who's already making a big difference in representing also the interfaces to Scheffler. And we have hired a top CFO externally with startup experience who starts January 1st. Very happy about this team and looking forward to what they bring to the table. You saw some of the latest smaller things, Dell Air, you saw Spire, and I can say there are numerous players and conversations that we're having at the moment, building also an order book here that we will publish when we are ready. Excuse me, let me go to the next page. And... Then I hand over to Christophe to sum it all up. You know this page. We have been disciplined in our capital allocation. Investment in Q2 was nearly 200 million, more or less on track with Q2. Reinvestment rate below one, so we are reducing capital employed at the moment. That stands at 12.1 billion. And that is, from my point of view, also necessary to bring the SVA and also our return on capital bank on track. You see where it was spent and that is very logical compared to what I said before. With that, my first part is finished and I would hand over to Christophe for the numbers. Thank you very much.

Thank you very much, Klaus. Hello, everyone. I will go very quickly. A couple of slides to give you a flavor for Q2. As Klaus mentioned, after a very solid Q1, Q2 is also a solid one, even though we see a few headwinds here and there, and we do have some one-offs here and there, some favorable, some unfavorable, but overall a very good quarter for us. We mentioned it before, the sales are more or less stable year over year, currency adjusted. But if you look at the gross profit on the right side of the slide and the bridge on the top, you see a full point of extra gross profit compared to last year, same quarter. If I look first of all at the negative items on the bridge, so volume would be the most prominent one, the bulk of it driven by PTC, I have to add as expected and actually better than what we had envisioned in our budget for this year. The other point is that we are not playing at exactly the same parameters because of the sales of some of the businesses towards the end of 2025 that are still in 2025 but are no longer there in 2026. and I will get into the division-specific volumes after. Mixed slightly negative for us, that's more of a play between different programs and different levels of contribution should not be seen as a trend. Pricing very favorable for us, a little bit helped by a one-off item linked with the settling of a customer, a long-running customer negotiation, let's describe it this way, but also coming from An improvement in the portfolio itself in e-mobility as well as very strong contribution from VLS and then to a lesser extent but still strong from the BNIS side. So pricing policy that is playing in our favor. Production cost, almost 40 million improvement year over year. If I want to simplify it, I would say that half of it comes from the material side. So the performance of our purchasing teams is what's paying off here. The rest of it is coming again from the structural improvements that we are bringing to the business quarter after quarter after quarter. So improvement in the cost structure as well as operational efficiency. On a cost of sale, to touch on it briefly, it's two things. A little bit of an impact linked with U.S. tariff. The main contributor there is I think what I touched on last quarter, which is the change that we have made to our inventory revaluation methods. which was creating issues in 2024 and 2025. We have it now under control and this no longer impacts our numbers or not to material level. As it was quite negative in Q2 last year, and skewing the readability of our numbers, it shows up here as a positive contribution year over year. And the last point is foreign exchange, which on the top line is quite strong, but then seems to phase out, thus phase out, sorry, at the different level, gross profit, and we see that it turns significantly positive on the EBIT side due to the natural hedge that we have within the group. If I go to the next slide, we see that EBIT improves by a full point as well, so from 3.5 to 4.5 year over year, most of that being carried through gross profit, as I explained on the previous slide. R&D expenses that you're showing is a little bit misleading. In terms of readability, there was a significant reimbursement from one of our key customers in Germany in 2025 Q2, skewing the basis. Of course, it does not really reoccur this year, and it creates this minus 29 that actually hides The improvement made on R&D expenses and R&D efficiency, up to 650 engineers actually being phased out compared to last year, and an overall improvement of R&D costs and R&D development expenditures. So again, the minus 29, not to be misunderstood, it's actually a positive impact that's hiding behind. Minus 12 on SG&A. Again, if I want to reduce it to one key, one core topic, that would be the ramp-up or the increase in speed of our S4ANA deployment programs with more and more plants going live in 2026 and the associated expenses coming with it. 25 million on others, mainly driven by An insurance topic in the reimbursement that we were able to book in quarter two on that category. FX, as I mentioned before, plus 23 million, even though, as usual, it hides lots of plots and minuses. If we go to the next slide and we then take a quick look at the different division, Klaus already covered quite a bit, so I will be quick. Ramp up on immobility, yes, a little bit of a one-off in there, but still almost 10 points or 10% increase year over year, two points on the EBIT side. The negative evolution that you may wonder about on the mechatronics and modules is mainly due in Q2 to the weakness in China on some specific projects. that we have over there. It is not something that's widespread in Q2. And again, EBIT structurally improves as we ramp up year over year, even though it's, again, a little bit amplified by one after this year. eDrive, as you can see on the right side, doing most of the heavy lifting during Q2 in terms of scaling up and ramping. If we go to the next slide and cover PTC, so minus 5.1 decrease year over year, if I was to break it down for you between what's coming from the market, slowing down or the market phasing out, it would be almost 3 out of the 5.1. Thank you very much. The contribution to the bottom line in that context needs to be acknowledged. The bulk of the decrease hits powertrain solution. That's the minus 10.9 that you see here. And that's quite logic when you think about the way the market is evolving. If we go to the next slide, The customer demand for our products and offers is strong, but we struggle a little bit to deliver, which you find then in the sales there. Again, we are putting everything needed in order to compensate for that and are pretty convinced that it will be fixed over the next few weeks or months and that we will deliver on the full year commitment. That being said, EBIT itself is also very good news with one point of additional margin compared to last year or additional EBIT mainly driven by somewhat of a favorable product mix but also very very very strong pricing policy with the benefit of which you see on the EBIT side on the bearings and industrial side which is the next slide again 0.4 increase in turnover and sales which If we move on to The next slide to free cash flow generation. A little bit off compared to the same quarter last year. Key drivers being highlighted on the right side. Networking capital a little bit negative to be honest. It's a little bit of a frustration of mine. We're actively working on this one, but we did make the decision to take a cautious approach to inventory levels. given the Middle East crisis and some other supply chain topics in order to protect our customers. CapEx, as mentioned by Klaus before, a cautious approach, especially when it comes to the mobility side, to make sure that we actually match in time the ramp-up of our CapEx with the ramp-up of the markets. The other big item there, besides the traditional ones, would be the other category with a significant impact there on restructuring cash-out, restructuring programming cash-out as well as integration-related cash-out. There's also a little bit in there related to timing effect on payroll and payroll taxes, which, again, should not be read as a trend. It's more of a timing topic between Q1 and Q2. Also comparable with last year. If we move on to the next one, you see our usual slide on leverage and the maturity profile. As you know, we tapped the bond market in May quite successfully. I must say for a total of 1 billion at very favorable terms, given the context and the bonds that have performed quite well since then. You see an uptake in the leverage ratio at 2.4. That is seasonal, if I may say, and will correct itself between now and the year end, where we expect to land at something very comparable to the end of last year.

And it's more linked with the seasonality of our cash flow, dividend payment, and bond issuance.

If we move on, Thank you, Christoph.

And again, I mentioned this at the beginning, we will not spend much time here, but we are confident that with the numbers that Christoph just mentioned, we will. Achieve our 2026 targets. You can see it there. And once again, when you take the first half and immobility 2.6 times 2, you're at the lower end of the range. That shows again why this is necessary to adjust also the midterm targets. The rest is comfortably in the midpoint of the range. And on profitability, we have said what we need to say. So guidance confirmed. Next page then has the outlook with dates. And I think that's self-understood. We will have an event tomorrow, a virtual roadshow with Citi and then continuous events during the rest of the quarter. With this, I hand back to Heiko and thank you for your attention.

Thank you very much, Klaus, and thank you very much, Christoph. As Klaus already said, as a friendly reminder, tomorrow we will host our virtual roadshow of the friendly health of Citi. So if there is additional interest, please reach out to the board. And in order to not lose any time, I would propose that we directly jump into our Q&A session. And therefore, I would give back to the operator.

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. 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 one at this time. The first question comes from the line of Christophe Loscavi from Deutsche Bank. Please go ahead.

CHRISTOPHE LOSCAVI Good morning. Thank you for taking my questions. I'd like to start with e-mobility, please. A more longer-term question. Outside of volume, what really needs to change in the business to make this a sustainable, long-term, profitable margin division? I mean, it's 67 billion in 28. It's clearly not small. So does the structure of the business need to change more commonality or less investments? If you could comment on that, what could be key levers to bring this then even above the zero? and then the second question will be how do you make sure that the humanoid business is not the next e-mobility in the sense that obviously there's more and more competition arising there's regulatory changes there's uncertainty on growth obviously you have less investment requirements but I'll be keen to hear just how you prepare the humanoid business for potential volatility in and Carlos or volumes and how you make sure that this is not again just hovering around the break even for longer and then just a clarification question on the humanoid backlog just to be just to be sure right the 350 only includes three customers and there's more on top of that so that you are still in line with the triple digit number you gave before or is there any change to that thank you

Okay, let me start with the last question, Christoph. Thank you very much. I confirm the three names. We have applied more or less the same logic that we apply in order book calculation for automotive, also for humanoids. So it needs a signed order for Thank you very much. For the reason to be conservative, we have taken haircuts on the numbers. to make sure that in this early stage of the development of the market, we are not sitting on volume sets or expectations that do not come through. That's what I said. There is a 50%, if not more, headcount per customer that is decided in our internal committees where we say that's the probable amount to be on the safe side. That explains the 350%. Why are we confident that Humanoid will be a business that will make money? For sure, no one can at the moment really say how this unfolds. But as long as you count on your key strengths, and this is why I mentioned the forming technology we have, as long as you are not reinventing the wheel and utilize existing processes, existing technology, if possible, even existing capacity for something like this, Thank you very much. from the experience with other situations like this, a key driver for success. and then for sure it's pricing and if competition becomes so tough that it doesn't pay off, I think the experience from other businesses is that you better don't buy business but rather refrain from the beginning. So with that discipline and the things that I mentioned and also the position that we have in a market that will further develop, I'm confident that this will make money. It's certainly nothing that you will see in the next two or three years in the P&L. It will rather need ramp up and critical mass. That's what we're building at the moment. But on a long-term perspective, this should be a key game changer also for Scheffler in its business mix. E-mobility. Why do we think that this has clearly the potential to make money on a consistent basis and in particular on a sustainable basis? A, there is a now really conservatively valued... The other key levers, in particular on the cost side, and this is not just admin, it's in particular R&D. all of that there are multiple levers that we are pulling at the moment and I do believe with that together with and Christoph mentioned that CapEx being conservatively used here also here standardization plays a key role customer interfacing plays a key role speed plays in the key role and Thomas is on top of all these aspects and if we get that right and do not just look at single contracts but the overall portfolio that we have and continue to develop for customers well, I think this can definitely make enough profit margin that it can contribute positively to the success of Scheffler.

Very clear. Thank you.

You're welcome.

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

Thank you. Good morning. Thanks for taking my questions. Horst from Bank of America. I start with the least important question maybe. For Christophe on taxes, I remember at the beginning of the year you were saying that tax rate could be around 100%. It's now 60%. That is a number that we also work with in H2. And when is this tax number coming down?

A couple of points beyond this one.

The first one would be the situation in the German tax pool. If you look at what drives our tax rate today, it's the imbalance between what we pay in the different regions. Today, in the setup that we have, we have a A lot of situations on the European side, on the German tax pool, and we pay in other jurisdictions, China, U.S., are the first that come to mind, but they're not the only ones. So we are working at fixing that. Part of it comes from improving the quality of the business that's there. That goes back to our restructuring programs and the improvement of our profitability quarter after quarter. There is a second topic on the way around R&D and cost-sharing agreements in between our different regions. All of these things take time, so I would not model an improvement too fast on that topic. It's something that will evolve over the lifetime of, let's say, our mid-term targets for 2020-21. Thank you very much.

The second question that I have is related to the midterm guidance. When I sum up the various segments, I get to a revenue range of 24.5 billion to 27.25 billion, but your guide for 25 to 26 billion, and that is even the summation of the segments is even not including the other line, which Potentially it's still low in 28, but I wonder why the sum of the segments is lower than the top guidance that you provide. So maybe you can provide some color on that.

I can do this. I can take that up front. We have included what we have never done before, a little buffer on the other side on the negative that is there simply because of this environment. So far we have never done this, but that explains the difference.

Okay, interesting. Need to see how I cope with that from a forecasting perspective. But anyhow, the other question that I have is then related to free cash flow. So as you rightly point out, H1, your free cash flow, X EMA, MNA is minus 300 million. You guide for the full year for plus 100 to plus 300. Is it now, I think your Q4 cash flow is always strong. There's some seasonality as well. But is it now fair to assume rather lower end of the range? And what is driving them free cash flow in H2? Maybe you can comment on that as well.

Christophe, do you want to take that?

Sure. Again, Sheffler traditionally has a very seasonal cash flow generation. Quarter one and quarter two are typically negative. and most of the cash flow for the year comes in in Q3 and Q4. You saw it last year. What distorts this a little bit are some of the cash flow linked to the restructuring, which are not completely linear during the year. We stand by the guidance that we communicated for the year, 100 to 300, And as I mentioned before, the working capital piece plays a significant portion in that seasonality. So you should, between the contribution from EBITDA and the improvement of the contribution from working capital, again, we stand by the guidance that we committed to for 2026. Okay, that's great.

Thank you. And my last one is more strategic one. When I look at the debate that we are currently having, and every day the perception is that companies announce that they move production away from Germany, and Klaus, I think you at Scheffler, you still have got something like 30% of workforce in Germany. Bosch also said yesterday they move more employees to Hungary. Mercedes was saying more or less the same. We know the story from Volkswagen. To what extent? Thank you very much. The payout ratio comes a little bit down in order to allow Scheffler to deliver a little bit more.

It's a complex question.

Complex question, I know. Sorry for that.

But it's a very fair question. And let me try to answer this. I'm not so sure whether we are well advised to just apply general trends from others on our situation. Why do I say this? We have now finalized restructuring or let's call it performance improvement program number five over the last years. The continuous execution of these programs is key and that is from my point of view more or less company specific. Whether it makes sense to bring everything abroad and leave Germany completely, and I'm exaggerating on purpose, is something that each management team has to consider. And I think there are very strong arguments not to go to the extreme. but rather to see how can we balance in particular our footprint against the new reality. Let me give you one example. You see what happened with electricity in the last days because of the heat. All of a sudden, Romania at risk, Hungary at risk, the famous nuclear plants all needing water. And again, I'm just using this as an example There are always multiple arguments if you make footprint decisions and therefore I would respectfully say we're not going to simply apply because major customers or competitors are saying they move everything to Hungary. We would not just follow that trend because it's a trend. What is really necessary is that you consider what you have from a long-term point of view. And that goes back to what can you afford. And for sure, you're absolutely right. We are used to present numbers on an earnings before special items figure and say all the rest is then somewhere in the below the line stuff. But the below the line stuff ends up somewhere in the unadjusted earnings number and in the unadjusted net income number. So every restructuring that you do has to be a business case in itself. And that certainly includes the cash out for restructuring. We have now done something that was more, let's call it, opportunistic because we were just We've finished with the negotiations, but also with the collection of most of the people we need to fulfill the 4,700 that now become a higher number. And we have used the opportunity to say, let's offer again this instrument that has been proven to be one of the most successful instruments in the last years. In particular, with a view that this could fall away when the German government decides so. That is more opportunistic. It's not a new program. It's an extension of the existing program. The 4,700 could become 6,000. And that, from my point of view, gives us The flexibility, this is only Germany. It is not something that has to do with we're moving clients somewhere else. It doesn't need big restructuring costs, but it's a very intelligent instrument also in the interest of the employee, in the interest of Fachkräftemangel and managing the organization through these volatile environments. So we're using that instrument. Do I exclude with that a next program for more structural things? No, definitely not. I think the only way to go is with continuous assessment. What can you do next? And I think it's fair to say with what we're seeing here, there are always ideas to do things in a better way and that will, to some extent, need some restructuring investment. Is there at the moment thoughts given to the fact would we change our capital allocation externally in a sense that we're saying we want to pay a dividend and further deliver? That is clearly something that we are looking at. The framework we have is flexible enough. but we are confirming as you saw on the midterm targets of 40 to 60 percent as a general guidance but that's something that also clearly needs to be discussed towards the year end at the moment I have no reason to believe why we should give up on the 40 to 60 percent why I'm saying this because the net income number even if you adjust it for restructuring provisions is still a Jens Willem Schuler But let's tackle that question when we get there. There's definitely no decision made here. And as long as we end up in a sort of good number within the range of 100 and 300, then we should be fine. I'm optimistic that the free cash flow number for this year will be a solid one.

Okay, great. Thank you, Claude.

You're welcome.

We now have a question from the line of Jose Asumendi from JP Morgan. Please go ahead.

Good morning, Klaus. A couple of questions. Yes. The first question relates to the 28 targets. And some of the questions I've been receiving is, again, to revisit maybe the... The reasons for upgrading the guidance, specifically within powertrain and chassis. When you sat down, and I think, by the way, it's a very forthcoming approach to revisit the 28 targets, so thank you for that, in terms of that transparency. But when you think about that level of confidence to increase the guidance on powertrain and chassis, what led to that thought process? And second, on the human front, Can you comment a little bit on the European landscape and the partnerships you have? As much as you can share, I know it may not be easy to talk about all the players, but can you talk about the partnerships and collaborations you have with Exxon, with Noria, with Humanoid? I think it's three very interesting clients. Thank you.

Okay, let me first respond on the first question. Christophe, if you want to add, please feel free to do so. In this... You know, updated multi-year mid-term targets are not just something that we did over a weekend and saying, how can we do this best to, you know, make sure that the capital market understands. This is the result of a detailed strategic planning. Jose, as you know, we We start the year with a technology dialogue. We then in the summer finish our, what we call the top-down plan. That's a five-year rolling plan where all the divisions, all the business divisions, the business units present their ideas and their cases. And from that, we then, when we are finished with our discussion, we set the targets for the next years as sort of the top-down targets. And we put that in target letters that the people get. These targets that were sent out yesterday, and when what we saw again was changes in top lines but we also saw that performance in PTC with also the changes that are happening there you saw that the minus five percent is to some extent also getting rid of certain or phasing out certain businesses that the underlying performance here is considerably keeping up quite well and when we saw the number we said there is a good reason to say in the midterm This is going to be even better than what we expected before. That led to the half percentage point. The same is true with VLS. VLS is performing now several quarters above or at the 15% mark. and that's what we said that's also something that we can can upgrade so this is not just wishful thinking this is based on a discussion uh that we had within the board over several rounds what's what's the near term and midterm here is more near term because 27 28 is around the corner um but also part of a five-year longer term plan that we have Hopefully that gives you enough insight and maybe I can say for PTC for sure the composition of that business, the strengths of the business that we have in the classical powertrain world, in the hybrid powertrain world, but also with the sensors and the new things that Matthias is doing is clearly driving this. and with VLS, the main business driver is the strength of that business proven over years, very good with logistics, very flexible when it comes to the product offering, also new things coming in. So that's the main business reason for this. In the European landscape of humanoids, Yes, we have decided to support NURA. NURA is, from my point of view, one of the stars with German origin, very active in particular on the KI side, very interesting what they do with their humanoid gyms, how they want to cooperate with us. So that's... Thank you very much. production they have more experience in production they are as you know a company that is very strong with automation um they clearly sort of um match with us because we have our own large production sites we we know how important automation in the on the shop floor is all that all fits together so there the the fit comes in particular from that From that shared experience, they do different types of things. As you know, their robots are more seen as integral parts of an overall automation solution. Some of them don't have legs, some of them have wheels, some of them roll. So that is, I think, the strengths we see there, and that's very interesting for us for these overall solutions. And then humanoid AI is the British one. What is really impressive there, that's more the startup approach. They started with more or less nothing. We know them. Some of you remember we had them on the SES show in 2026. What is, from my point of view, most impressive there, how focused they are and how fast they are in moving forward. So also there, the idea of investing in them, supporting them, also giving them a little bit of this, let's not call it name lending, but you know what I mean, the fact that Sheffler stands behind it, gives all of the young ones something of a edge. so that's maybe the three descriptions of how I see these relationships I'm not in all the details but I can tell you these three ones are from our point of view on the one hand complementary on the other hand also on a successful path to conquer the European if not global space of the humanoid robots and that is important let me finish there you saw legislation from the US where they say China is It's unwanted. So they will regulate much more what's been applied in the US. And there, our strategy being present in the US, in China, and also in Europe, it's crucial and starts to pay off.

That's very interesting. As a quick follow-up, I'm sure you saw the partnership between SKS and LeaderDrive. Would this be something you will also be open to? or in terms of creating a partnership with another supplier or you think that due to your technology expertise and portfolio you would not require such a venture?

Well, I'll give you a little bit of a diplomatic answer. We are open to every partnership as long as it pays off and as long as it's win-win. There's a certain limit at some point in time to the number of partnerships you can really pursue and also support. But I've spoken enough about Single names, so let me please stop here. Thank you very much. You're welcome.

The next question comes from the line of Ross McDonald from City. Please go ahead.

Yes, thank you. It's Ross at City. You've certainly given us lots to discuss this quarter, so thanks for that. I have three questions. One is long-term focus, one is mid-term, and then the final one just on the Q3s. So on the long-term, specifically on humanoids, Could you maybe just give a little bit more color for people that are frankly owning Schaeffler specifically on this theme? You know, could you talk about the share of the bill of materials within the orders you have? Are you still tracking towards that 50% share of the materials within humanoids? And then specifically, there's a lot of interest around the CMD, potential mini CMD related to humanoids. Should we still expect that this year? and then on XPeng specifically, was there anything that Schaeffler brings to the table that the Chinese players don't be very interested to understand how you're able to win business with those local Chinese players? So that's the long-term focus. The mid-term one, I appreciate that you have this powertrain hedge, but obviously, you know, the fact is that the EBIT is coming down, you know, on a change in powertrain trends. So there is a little bit of pressure there. I think that's related to the content, specifically power vehicle in EMOB. But could you just give us some comfort, you know, that the PTC here should have the right to win maybe higher peace prices on some of that U.S. content that has gone away in EMOB but could come back in PTC? Kind of linked to Jose's question, shouldn't we see a top line boost in PTC given that hedge that you have in place? And then the final one just on Q3. Obviously, we're in the upper half of the margin range in the first half. How should we think about Q3? Is it progressing in line with plan? Are there any evidence of call-off volatility or any headwinds emerging in Q3? Thank you.

Christophe, could you take number two and number three? I would start with the long term. Let me, if that's okay, long-term, again, the general parameters of our go-to-market strategy for humanoids are intact. And just to repeat them, we have always said we believe and know that that is rather a conservative number, a million robots or humanoid robots in 2035. We have always said we want at least a 10% market share and our bill of material calculation that the addressable market per humanoid, and yes, humanoids are changing their shape, are, you know, the different types of humanoids. It's not just only the fancy one that runs the half marathon or that can dance or play tennis. That's Bill of Material, a number of 50% is approachable for us or addressable for us is still intact moss. And it's simply explained by the fact that if you compare it to a car, the battery has a lower content per humanoid but what has high content are all the joints, the ball screws, the fingers, all of that and that number has not changed dramatically in a sense that we would change our calculation here. So 50% is addressable for sure. There is competition on the parts but as I said before, as long as you can provide the right quality, as long as you can provide Thank you very much. Xiaoping, again, they were kind enough to allow us to talk about them. They are also a key partner for us in other products. but I cannot go into more detail. The product we are offering here is a key product of our offering and that gives me confidence that they have made their calculation why it makes sense to go for us and not a Chinese player. And I can tell you in all of what we have here, and the ability to ramp up all of this and to deliver in time the right scale, the right number of products when it comes will be a decisive factor. And there may be people that will be able to produce things cheaper, but don't attack companies like us with low prices. but here, functionality, reliability, scale plays an important role. That's why we think we are well positioned and as I said before, we're not going to buy business just for the fun of it. We want to make this something that is high volume and solid profitability. Christophe, I will hand over to you for the power train and Q2. I mean, it

You can make a really solid argument that at least in the U.S., what goes away on the mobility side comes back on at least partially, if not completely, on the PTC side. Vehicles need propulsion regardless of the technical solution. So that's what you're seeing a little bit this year for our numbers. And when you look at Q1, Q2, the What is pulling in terms of sales and also if you were to dig into the order book, you would see that the hedge logic actually works and that the US to the North American market is proving to be a very good, almost business school study case for it, if I may see it like this. The margins that are being pulled also are strong and This despite the top-line decrease coming from some of the overall markets. So for me, it makes complete sense to do the adjustment that we did to our mid-term targets. We call them mid-term targets, but as Klaus pointed out, mid-term and short-term, when you're only a year or two out, it starts to be debatable what our targets are. For 2028, it's the right thing to do, and we have every reason to believe that what's being put out there is the right one. On Q3, what to expect? Nothing significant or nothing special that we know of. We do have this uncertainty. on what is going on in China when we see kind of the mixed feeling from the Chinese market. on PTC and EMOB. Is this temporary? Is this something a little bit more structural? But from where I stand today and looking at our data for the short term, this time for Q3 and part of Q4, nothing significant to report at this point. And again, we stand by the four-year targets for the company and for the group. That's only two more quarters to go, so nothing specific there. Thank you very much. You're welcome.

We now have a question from the line of Vanessa Jeffries from Jefferies. Please go ahead.

Hello. Just another one on the humanoid order book. You said your partnership with humanoid AI is not included, which I think was a seven-digit amount, so a big order. Just wondering why that isn't included, because it seems that the release would imply it meets the criteria you mentioned. And then just wondering if you could explain what order book means in terms of length of projects. Because I'm just wondering, given the momentum that you're seeing, when you refreshed your 2028 targets, why you didn't add another line for other? Because I know it's still small, but when we look at your 28 guidance changes, that order book is already enough to offset the cut in B&AS sales guidance. And you've just said a few times how conservative it is. So I feel like it should be there.

Well, it's a good point. When we decided on the midterm target update, we decided to stay in the format that you had for 2028. Certainly, you could argue and say, why didn't you put a fifth column here? That would have made it all more complex. But we decided, because 2028 is so close, we stay with that format. And when then time comes and we give a next year Outlook for a different period, happy to discuss, but it has to do with the fact that the whole others and humanoids and defense and the other startup businesses, don't forget that the fifth division is not only Humanoids and Defense is still early, so I think that was the right decision. Now, when we decided what to put in the order book, we have agreed that we are very firm in terms of standards. and don't put just numbers in to make the number as big as possible. The humanoid AI contract is a contract that at least at the moment doesn't meet all these standards, at least not for the 30th of June. It is something where we see a good order intake coming. But it's not included for the 30th of June. As I said before, we want to be strict and very conservative what goes in and what goes not in.

Okay. And then just on the cut to 2028 e-mobility guidance, just wondering how much is attributable to the U.S. and how much to China? Because you've talked about the U.S. as the main point. But I guess in the first half, we can see that your e-mobility decline was larger in China than it was in the U.S. So it looks like you're getting some good offset there from that one third of the business. It's not easy.

Well, when you talk about order book, the main reduction that when we reassessed the order book as part of the planning exercise that we explained, the main part came from the US. As you all know, all the large customers there either pulled their orders or Thank you very much. I can only say that I don't have a split by percentage point, but on the order book, the main assumption is clearly, the main reassessment is driven by the weakness of e-mobility, BEF, and to some extent also some of the hybrid programs in the U.S. China is something that we monitor more carefully on the running top line, and then we need to see how the market develops there. But there, the real issue is price and competitiveness. The fact that we are gaining orders in China from Chinese customers is a good one. But at the end of the day, I cannot just say X percent versus Y percent.

Thank you. And just a quick third one on the 26 guidance and why you chose not to change B&IS margin. I guess because we know the market is tough in the second half, but it seems it has to go pretty wrong for margin to be 7 percent. And I guess the same question on VLS, really.

Yeah, you're right. That would have been something to consider. We have talked about this, but again, we have said we need to see a little bit more now what happens after the summer. The trends need to be stable, and that's why we decided let's stay where we are at the moment.

Thank you.

Thank you for your observations. Very helpful.

Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Heiko Eber for any closing remarks.

Thank you very much. I know there has been the one or the other question left, so we want to be respectful of the time of everybody. So again, if we were not able to answer your question right now, please come back and we will do our best Thank you for your time and your interest in our company. I would like to say a big thank you to our speakers. And of course, I would like to say thank you to our team for the preparation. Again, if there are more questions, feel free to reach out to us. And with this, I wish you a good rest of the day. Thank you very much. Talk to you soon.

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