Schaeffler AG (SHA0) Q4 FY2025 Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the Annual Analyst and Investor Conference 2025. I'm Moritz, the Chorus Call operator. [Operator Instructions] and the conference is being recorded. [Operator Instructions] 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, sir.

Thank you very much. Ladies and gentlemen, I'm very happy to welcome you to our today's call on Schaeffler's financial results Q4 and fiscal year 2025. Press release, following presentation and our annual report have been published today at 8 a.m. CET on our Investor Relations home page. 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 Christophe Hannequin, our CFO, have joined the conference to guide you through the key information in our presentation. And afterwards both gentlemen will be available for our Q&A session. And now let me hand over to our CEO, Klaus, please.

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 4, the overview with the key messages on the numbers. We titled it with resilient performance 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 U.S., Israel and 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? 3 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 Strait 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, 2/3, 1/3. We buy energy in a middle 3-digit million euro amount per annum. To date, around 75% of that is hedged for at least 12 months. So the exposure there is small. We are rolling out 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 -- 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 Schaeffler is rather small and in any case, manageable. Back to the numbers, 2025. Sales slightly below previous year on a pro forma basis, EUR 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-off 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 Americas. When I 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 a 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, it's an improvement of nearly EUR 100 million compared to previous year, again, on a pro forma 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, EUR 266 million is also the main driver why we said let's more or less leave the dividend where it is with EUR 0.25 to EUR 0.30. That is what we are proposing to the Annual General Meeting. When you judge the year, you have highlights and low lights. I'm not going to read that all to you to 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 sale of the Turbocharger business in China and also the closure of Schaeffler 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 headwinds in E-Mobility that we need to tackle. We have been brave enough to show you 2 divisions here and to expose ourselves also to this 2028 breakeven challenge, I think -- 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, increase 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 higher 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 8 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 flattish growth comes from a variety of different movements, Vehicle Lifetime Solutions up; Bearings & Industrial Solutions, slightly up; Powertrain & Chassis down. You would not be -- you would be surprised if that would not be the case also with the things that we have sold and then E-Mobility 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 EMR3 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 2 digit down and Asia Pacific is 2 digit up. The old program runs off and the new program is growth in Asia Pacific. Page #9, outperformance 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 2 powertrain types are lower than the market. You also see order intake promising battery electric vehicle for the full year, EUR 2 billion additional order intake over sales of EUR 1.6 billion gives you a 1.3x book-to-bill also going well. And ICE, certainly as expected with a book-to-bill ratio below 1. 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. Now I will go 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 your 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 & Chassis, the key number here is we are able, although sales were not growing, and that has to some extent to do with the phaseout of certain portfolio elements. Gross margin kept at a high level, even improved by nearly 1 percentage points. Order intake, particularly driven by hybrid, that I think is also a quite remarkable result for the year 2025. Then our shining star Vehicle Lifetime Solutions, continued growth, strong profit margin, good fourth quarter, nearly everything in the same ballpark like 2024. So that business sits really very well and also projects positive development going forward. And on Bearings & Industrial Solutions, you remember a year ago, we had to look at this very differently, had to push several [ roles ] to bring this forward. And now we see the first results from this. Sales growth positive outperformance, certainly not yet there, book-to-bill 1:1 -- 1x 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 Sascha has done a lot here to bring the free cash flow generation of this 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 the short. You saw the latest news yesterday on this partnership with the Chinese company. That's #3. Leju Robotics is a bigger player in the OEM humanoid space in China, probably #3, very experienced. It's interesting for us because they are asking for the full suite of products, not only just some ball screws, ball 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, 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 holds true 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 their 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 Lakestar with 2 handful of defense players with us here in Herzogenaurach 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, consists of motors, consists of bearings, 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 -- with 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, 100% achievement rate was EUR 815 million, most of that from synergies, the other part is from additional structure 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% there, while some people still have to leave the P&L and the company, the remaining 24% should be doable. And I'm -- 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 plants that we are closing has even increased with 2 more German plants 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 cost side. Capital allocation, Page 16, nothing really surprising. We invested nearly EUR 1 million, 0.6x depreciation. Capital employed came down by EUR 500 million in the fourth quarter. And you see that, that is allocated, as you would expect, onetime depreciation in E-Mobility, certainly lower in PTC and B&IS, small at 0.5x. That has to do also with investments into logistics operations and B&IS also a very capital-conscious type of investment. I'll leave that for your questions and hand over to Chris for the further explanations on the financial performance.

Thank you very much, Klaus. I'll take you through the full year sales, EBIT, free cash flow. We'll talk briefly about the dividend. But before we jump into it, maybe one comment on quarter 4, which is not in the slide deck here, but it's noticeably better than quarter 4 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 E-Mobility topics in North America, once you correct it for the other impacts that we had in gross profit is essentially 2% -- 2 points of gross margin above the prior year at 19.6% overhead under control. And EBIT, which is almost twice as much as the one from 2024 Q4. Keep in mind, when you look at all numbers, Schaeffler, and Schaeffler 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 has different physionomy quarter-over-quarter-over-quarter. So what I take away from quarter 4 2025 was a solid one given the physionomy of our P&L and for sure, significantly better than the prior year. CapEx was also held in check at EUR 275 million during the last quarter and cash flow was substantially positive, as you can see in the full year numbers. Now if I go back to the flow of our presentation, and again, not reading for every number on the slides, but if you look at the sales and gross profit, adjusted for FX, we are more or less stable year-over-year, even more so when you correct for the fact that we have divested some buildings -- businesses towards the end of the year. EBIT profit adjusted goes up by almost 1 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 EUR 281 million additional. If I bring it back to divisions, the 2 biggest contributors would be E-Mobility by EUR 117 million, which is, again, the proof point that scaling up and being efficient and being efficient in launches in E-Mobility works. And then B&IS, EUR 185 million additional contribution from performance and restructuring. A little bit of noise around it. Obviously, some costs related to our restructuring program as you see in the EUR 153 million on the right side with program forward for EUR 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 EUR 168 million to EUR 68 million. Maybe one last comment on our price policy or our price achievements. The EUR 33 million that you see at the beginning is positively impacted by E-Mobility, which makes sense when you think about the messages around improving program quality and business quality in VLS, which is an even bigger achievement given the context that they operated in. PTC and B&IS 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 above 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, EUR 101 million, you see the cancellation since we're talking about EBIT BSI (sic) [ B&IS ] 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 0.5x worth of additional EBIT year-over-year, even though the readability again of our financials is still impacted by the many transformations that we have going on in the company. Going quickly through E-Mobility and Klaus 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 still in the negative zone, but moving from minus 22% to minus 16%, mainly pulled by our business units around 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 programs, the business is growing and is growing in a more profitable way. What is still missing again is the scale. That's part of the road map as discussed many times. On PTC, slightly -- 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 qualify that as a fairly strong sense of resilience in that business where they are absolutely focusing on operating cost and operational performance. If you think back about the EBIT bridge, we find some of it. VLS, it's boring to say this, but continues to be the success story that has 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 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 mix effect elsewhere performance growth and pricing. So another solid year for VLS. Bearings and Industrial, if we move to the slide, slight growth. What is more notable, again, is this combination of restructuring benefits and operational performance combining to deliver almost 1 point worth of additional contribution to the EBIT [ B&IS ] line. Some units within 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 EUR 148 million, which is an important number for us. We are doing what's needed to restructure the business and drive performance. It has an impact on reported net income, but adjusted net income, again, is above the 0 line at EUR 148 million. 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 EUR 424 million that you have there. We move on to free cash flow. Massive would be the objectives that comes to mind regarding the improvement year-over-year. We're a little bit careful with the reference for 2024 because we all know that there are some integration effects in there, but fundamentally almost EUR 1 billion additional 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 hand and our own business on the other hand and are carrying slightly elevated inventory levels in some businesses. And I say some businesses because on B&IS did a tremendous job in working down inventory levels. But we chose, again, to invest a little bit in inventory in order to ensure that E-Mobility scales up properly and that we protect our customers against supply chain disruptions and next few years to semiconductors and rare earths tariffs. I mean you all know the story for 2025. This is not a permanent state of things and we get worked on in 2026 for sure, the following year. Contained spending on CapEx at EUR 974 million, so below the EUR 1 billion mark. None of the savings or none of the CapEx steering that was done has any impact on the future of our business. Said differently, we did not sacrifice future growth. We did not sacrifice opportunities. We just manage CapEx extremely closely compared to the need and especially when it comes to E-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 E-Mobility side in North America. We did have to take an impairment during the year, but compared to some of our competitors or some of our customers, the 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 2 actions done during the year, the 2 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 -- sorry, leverage ratio ended the year at 2.1x, slightly better than what we had planned and approaching the top range of our corridor that we set up in our midterm targets from 1.5x to 2.0x 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. Dividend proposal made to the Supervisory Board and accepted last week at 0.3%, underpinned by a healthy underlying free cash flow of slightly more than EUR 0.5 billion. It allows for us to do what needs to be done in order to be consistent our dividend policy and our dividend story over the years and share some of it with our shareholders. It's a EUR 0.05 increase, as you see over the previous year. And again, it's an integral part of our equity story as written there. And that being said, I will hand back to Klaus, who will cover the guidance for 2026, which was published this morning.

Yes. Thank you, Chris. To finish this up, Page 29, full year '26 guidance. We titled it here on our way to achieving midterm targets 2028. That's our commitment. And there is, as of today, no reason to deviate from these targets. 2026 is a rather conservative guidance, but I think is absolutely prudent in the environment we are in. As I indicated before, the latest development starting over the weekend is certainly not included here. But in terms of market assumptions, you see what we base this guidance off. If you read through this guidance, you see and take the midpoint of what this indicates here that we are rather flattish in terms of our sales activities. This includes what we always said, none of the new growth activities will have a meaningful impact on top line in 2026. And the rest, you can easily derive this from the 4 divisional guidances that we gave you is a question of mix, E-Mobility growing, Powertrain & Chassis, reducing vehicle lifetimes with some growth and also Bearings and Industrial Solutions that makes up the overall group situation. EBIT margin, also here, when you see we take the midpoint, 4.5%, a slight improvement. And you see also the divisional ranges as well. For sure, yes, one of the key things that you may be concerned about is E-Mobility. We have said several times, this is not a linear curve. This is something that needs to build over time. And for sure, the year 2026 will be decisive. If you take the low end of this, yes, this could mean that in a worse situation, there is an EBIT that comes under pressure. But again, a range of the range. And what I just said, our ambition is to improve even in a situation where the markets don't allow for significant top line growth. Free cash flow EUR 100 million to EUR 300 million is our commitment after EUR 266 million. That also indicates to you that we are committed here to strengthen our free cash flow generation that has historically been high and will continue to be our key focus going forward. So I think once again, this guidance is certainly rather conservative but prudent. I don't know what KI does with this, but I know that this is something we can deliver, and I can promise that we will do the utmost possible to deliver it for you. Let me finish with my last page and share with you the top CEO priorities for Schaeffler. Certainly, the top #1 priority for us is further closing the gap to EBIT breakeven in E-Mobility while delivering the order book. The changes in the U.S. have an impact on the order book that has been, to some extent, delivered, to some extent adjusted, but it's in an overall number, still something that will allow us to grow that business going forward on secured business. The second one, as I said before, is to secure our operating performance by continuous self-help measures and portfolio optimization as promised in the Capital Markets Day. And I can tell you, we know how to do that. We have shown this over the years, and we'll continue here to be focused on how can we help ourselves to drive performance forward. And then last but not least, we'll continue to invest and go forward in our main growth areas, humanoids, defense and space as a new one. You should all remember that we said several times, we are doing this by leveraging existing capabilities and competencies. These are not adventures. This is just an extension of our core business beyond the core, and I'm very optimistic that, that will pay off in the next years without impacting the P&L, both from the top line, but also from the cost side too much in 2026. Let me finish with 31. After today, we will be available tomorrow for an analyst breakfast in a city roadshow. Heiko and myself will then go to the U.S., speak to investors there that have been very interested in our development, and we'll then continue with several roadshows in Europe until we all probably meet again at the Hannover Fair at our Hannover Fair Investor booth. AGM is on the 23rd of April here in Herzogenaurach. You are fully invited to participate if you are interested, and I close here and leave enough time for your Q&A. Thank you very much. Back to Heiko.

Thank you very much, Klaus. Thank you very much, Christophe. So since we have a number of colleagues already waiting in line, not to waste any time, let's directly hand over to the operator and take the first question.

[Operator Instructions] And the first question comes from Christoph Laskawi from Deutsche Bank.

A couple, if I may. The first to start with on PTC. So at midpoint, I think you guide down top line roughly by 7%. Could you just give an indication what part of that is just the phaseout business on noncore ramping down also that we saw within Vitesco? And how much do you see outside of that being a drag in '26? And then also on PTC in Q4, the gross margin actually dropped, I think, by around 6 points quarter-over-quarter and 5 points year-over-year. Could you just highlight a bit why that happened? What was the main driver? And how we should think about that earlier in the year at the start of '26? And then on E-Mobility, also on the gross margin, it's actually negative again in Q4, quite a drop versus Q3 and the performance we saw there. On an EBIT basis, obviously, you had a EUR 50 million positive in other probably offsetting part of that. Could you explain what drove the gross margin down? Was it impairments on customer programs or a bit more detail would be helpful there. And also how to think about compensation payments in '26 driving that margin? And then just last point that I would have, you talked about order wins in defense and potentially in other like humanoids fields. Should we think about the order to sales time difference roughly being the same as for autos, meaning 2, 3 years? Or is it very different from that?

Okay, let me -- Christoph, let me start with the last one. Humanoid is different than defense and defense is different than space. I cannot, at the moment, confirm that the order to sales time is 2 to 3 years. Defense is a new ecosystem for us. If I take the Helsing contract as the first contract that we are close to sign, and that's a question of days, I think it's probably faster than 2 to 3 years. On humanoids, we have gathering interest into prototypes. Prototypes are naturally different than large-sized orders. There are from the large players more and more requests. How that unfolds is a function of how fast the application of humanoids is going to build up. So everything I would say here is a speculation. So let's leave it here. The proven sort of situation also has to do with how that offer to order process works. And I would assume that in the 2 new growth areas, it's different. We need to come back to you with something that is reliable, but 2 to 3 years as a sort of rule of thumb needs to be further analyzed and then we come back. In E-Mob, yes, you observed correctly that Q4 had a drop in gross profit margin. And that's basically what I explained at the very beginning. You have 3 main items in gross profit margin that also go across the businesses. The most important one for E-Mobility is the market-driven capacity adjustment, E-Mobility in Americas. As Chris explained, we took a one-off impact here that did not just went through the overhead, but through gross profit because we basically wrote off certain contracts and that is the main explanation on E-Mobility. And that -- you say it again.

EUR 126 million.

EUR 126 million. You add that back and see that adjusted figure. It explains more than the reduction. And you also have, to some extent, a proportionate impact from the other one-off losses that went through gross profit. And again, that's a little bit unusual, but it has to do with the way how you depreciate SAP licenses and also impair intangible assets. So that's the main explanation on the E-Mobility side. The health indicator here also after these adjustments points into the right direction. For PTC, I hand over to Chris.

For PTC, the main impact, it's actually the impairment that we look on part of our Chassis business. There's an EUR 100 million impairment that was put to the books during Q4, impacting the gross profit on PTC in Q4 2025. If you correct it for it, it's -- you are at a gross profit of 21%, which is slightly below the Q3 number of EUR 23.6%, but nothing of concern, again, when you take into account the annual profile of our results. So yes, there is a one-off in Q4, which I think is what you're seeing, but nothing structural as to the profitability of PTC.

Then the next question comes from José Asumendi from JPMorgan.

Just a few questions, please. Klaus, can you talk a little bit about the -- how the company reacts to the current volatile environment? Which levers are you pulling to monitor risk, demand, volatility in raw materials and a little bit from the lessons learned over the last cycles? Second, on PTC, again, I would love to hear a bit more the confidence you have to deliver above 10% margins. I think part of that was already explained through the Q4 one-offs that you mentioned. Maybe you could just speak a bit more about PTC and how you sustain that 10% to 12% margin range in '26? And then finally, whether we should we thinking about any exceptional price recoveries in 2026, which could help the business overall in any of the given 4 divisions?

Okay. Let me start with the last one, exceptional price compensation. I think we have done quite well in 2025. When you think about tariffs, the tariff regime is under scrutiny, as everyone knows. What this means for us remains to be seen. We are observing very carefully what's happening there, whether you can recuperate anything there, but that's a wait-and-see position. It's premature to talk about numbers here. As you all know, we have, I think, achieved and also been recognized for this from our customers as a very balanced approach. And I can say there is still a little bit of overhang from 2025 that will impact 2026. We have also agreed internally that we will continue with that program and see that we move forward when it comes to claims, but also certainly defending claims in our direction. It's an extra effort that is needed here, but it's, I think, time and energy well invested. The first one, José, I didn't really understood, but I think you referred to the current situation and how we are reacting to this.

Yes, please. Exactly. Yes.

I can say the company has a proven risk management approach when we saw what happened Saturday morning, and there were already indications on Friday evening. We activated our risk management systems. The process has worked there. They started more or less immediately and came up with a first analysis on Sunday. How does it work? You basically involve in this situation, people from purchasing, from supply chain, from customer side, people from the region, people from outside the region, the sector intelligence and the outcome was what I just said. For the time being, without knowing how this escalates further and hopefully, it does not, the situation for us based on the semantic risk analysis is manageable. I explained it upfront, both from the exposure we have in the region, from our supply chain risk, but also from the immediate cost risk. Our raw material is not depending on oil prices. We buy a variety of things. For sure, it's important that supply chains stay in place. And as it looks like, that's the case. So that's what I can say. We have seen geopolitical risk going off and on. And hopefully, this is also the case this time. Certainly not the best day to present numbers in such an environment, but we look across this. And for us, once again, it's most important that we deliver on our promises. Chris, do you want to take the ones on PTC?

On PTC, I mean, I would point to 2 things. A, the -- once you remove the noise in the background on 2025 performance, they are essentially able to match dollar for dollar, euro for euro, the decrease in the top line -- on the bottom line. And we have some one-offs impact here and there. But part of the reason to believe for 2026 and the years after is, as E-Mobility takes a slightly longer course to deploy in some countries, it actually does pull a greater demand on our PTC production capabilities. So we are facing contract extensions. We are facing quotes on new businesses or extended businesses. So the ramp down on PTC is not necessarily as brutal in some regions as it was thought out to be, and the North America being the obvious example. This gives us -- I guess, what I'm trying to say is this gives us the even more room to transition our organization from one side to the other from PTC to E-Mobility and manage the cost and the restructuring that comes with it. So as we said in our 2028 targets, we know how to deliver a 2028 vision based on performance improvement and restructuring that holds PTC stable. The recent evolution in the context gives a few more reasons to believe. I'm cautious when I say this because the offset of this, obviously, is on the E-Mobility side.

And the next question comes from Horst Schneider from Bank of America.

I want to dig deeper again into E-Mobility and Powertrain & Chassis, especially with regard to the midterm guidance. What I got from your presentation was that you said, especially for E-Mobility, the results are scale-related. So when I look at the midterm targets, it requires from here basically kind of 50% revenue increase, assuming that you meet the midpoint of your revenue guidance range in E-Mobility. So I just want to understand because we have seen that in '25, and we also -- I think we're going to see that in '26 that the top line growth is somewhat limited. You say it's not linear, but therefore, what is -- my question is, what is the trigger that it starts growing a lot more in '27, '28? And if it doesn't, if there is no risk to the growth guidance, what actions do you take actually that you can make sure that the breakeven can be achieved? So does that mean now that we need to take into account maybe capacity adjustments, CapEx cuts also in E-Mobility? In a way, that question also holds true for Powertrain & Chassis where you think that -- or where you guide for midterm that from here, the revenue stays stable, but they are de facto declining. So how you stopped the revenue decline? I think if I remember back to the CMD, you said that the Chassis business is going to grow, but maybe you can give an update how here the revenue growth is developing and why the revenue should stop declining if the ICE penetration rates decline de facto in Europe. Then on guidance 2026. Because in automotive, you guide for kind of flat automotive production, but you do not rule out that the revenues decline in automotive and you take E-Mobility and Powertrain & Chassis together. I just want to understand basically what the -- how -- what the lower end of the range would imply? And if we should read the earnings guidance in the way that this is strongly linked to the revenue guidance? So if you achieve the lower end of the revenue guidance, you're also going to achieve the lower end of the EBIT margin guidance or you have got self-help potential, how you can avoid that?

Horst, thank you very much for the questions. The key to growth is the order book. And we have shared with you for December 2024, an order book in E-Mobility of EUR 14.7 billion. Now some of that has materialized in the year 2025 with sales. New order intake in 2025 for E-Mobility was EUR 9.3 billion, with a book-to-bill ratio of 1.9. And for sure, yes, we have adjusted orders during the year, to some extent due to the situation in the U.S. And for sure, to some extent, because there are no volume guarantees and some orders have volume assumptions that we don't think are possible. So what you have is you have an order book of EUR 40 billion that sits in front of us where we have an increasing BEV and HEV share where region China is growing. We said this morning in the press conference that the growth in China in the order book is predominantly with Chinese customers. All of that gives me enough hope that it's possible for the next years. Certainly, an environment -- provided that the environment does not completely derail and destabilize that it's possible to grow this business. It's up to us to deliver that. It's certainly up to the customers to make sure that their cars sell. There is no guarantee for this, but there's a very good opportunity to make that happen at least from today's perspective. And that's certainly also a function of the fact that we are well diversified and not only diversified across regions, but also with customers and with products. And the fact that this is probably the most complete offering that we have and we don't need too much extra new orders to get there, gives additional comfort. And in PTC, you can also do the same math here. The order book has reduced a bit because we delivered all these sales and the order intake is not just compensating for this. There's also slight adjustment, but it's still an order book of EUR 30 billion that needs to be materialized. And that, from my point of view, is again explaining why it is possible, in particular, in a world where F becomes more important. And you see this in the U.S. where our PTC colleagues are benefiting. PTC is also on other fields like sensors, like trucks, like 2-wheelers. So I think that guidance for 2026, also complementing on what Chris said is possible and doable. Yes, your guidance math, if you just take the lower end, then you get the pictures that we don't foresee. We typically look at this as a sort of one-by-one logic and say, it needs to match for sure. It needs to match vertically and needs to match horizontally, but to put likelihood now against the situation where you would say low end always means low end and margin is, from my point of view, something that we have not done so far. What do we have in our toolbox if we see that the first quarter or the second quarter doesn't work out as well? Well, the key thing we are focusing on is cash flow, and we know how to manage this. We have clearly a list of priorities on what to do and where to invest or postpone investment if necessary. That's not the case. Let's be very clear here. We started well into the year with a solid January and also with a promising February. There's New Year's -- China's New Year in between. But I can say both on the overhead cost side and also on all the other free cash flow elements and certainly with planned performance, we're able to compensate at least partially if there would be a situation where our key businesses don't grow. That's something that we have shown before. It's certainly not what we think is realistic. But if that would come, we are prepared for this. I can say, Chris, when all of this came, we have also in our latest Board meeting said, if this becomes a little bit more difficult with the environment, what then happens? We will be more careful with spend, put in extra spend control. And I can only say that the organization is capable of playing the operating leverage game, if necessary.

That's great. Good answer. Just if I may sneak in a follow-up for Christophe, maybe. I've seen in your backups that your target is more than 100% tax rate in 2026. I wonder when that is normalizing. I think that's still related to this Vitesco consolidation and suboptimal tax structure. So I thought it was cleaned up already in '25, seems to take longer. When we -- can you maybe give an outlook on the tax rate beyond 2026 as well?

That's a complex topic to tackle. Happy to take that one off-line at some point. What I would say today is we are suboptimal in the way we are organized today. The work is ongoing. You will see moves in 2026 to address this. It will not be a silver bullet, magic wand type of thing. There will be actions that we should be able to communicate on if I had to guess during Q3. That will tackle a part of it. The rest also has to come from an improvement in our cost competitiveness and the health center of our business in Europe, which tends to focalize on the German tax pool. So when will it normalize? Not in a few months, but work ongoing. And again, happy to give you more flavor and actual numbers over the next few calls or during one of our meetings.

Is there, Christophe, kind of a target tax rate with regard midterm 2028?

Horst, maybe I can explain it slightly with an additional thought. In the last years, we have always been conservative with balance sheet risk. And you see that we have more or less no deferred tax assets anymore on the balance sheet. That's a good thing in an environment that is risky. That does not mean that the losses that sit in the system somewhere are lost. So you can think about this like being conservative on the balance sheet, therefore, a high tax ratio. But in terms of cash that you can save because you can utilize still existing losses, that potential has not been given away.

Then the next question comes from Ross MacDonald from Citi.

It's Ross MacDonald at Citi. I had 4 quick questions. I'll keep them brief. The first one is on the seasonality in the business. If I look back over the last 2 years, the first quarter of the year has typically been the highest from a margin perspective. Obviously, the exit margin in Q4 is on the low side. Can you maybe talk around the seasonality that you should expect in 2026? Would it be fair to assume another strong performance on the margin side in Q1? And maybe some of the building blocks behind that. I'm conscious that China is rather weak. So your first one on seasonality on the margin for the 2026 guidance. Second one, just on Slide 15, looking at the performance improvement programs at Schaeffler. Can you maybe talk around why, given there's 1,800 headcount reductions potentially in 2026, why we shouldn't expect to see larger P&L savings this year? It looks like the year-over-year delta in the EBIT benefit from those restructurings is somewhat slowing '26 versus '27. So just good to understand the dynamics at play there. Maybe everyone leaves towards the end of the year, for example. Third one on VLS. You're guiding again to 5% top line growth at the midpoint, which is obviously very solid. Can you talk around why you expect margins in VLS to be down slightly in 2026 and, therefore, no operating leverage in VLS this year? And then final one, and apologies, that's been a lot. Just on free cash flow, can you give us the key moving parts for the free cash flow bridge? Should we expect working capital tailwinds in '26? You've talked around taxes already, but just interesting in how we should expect CapEx to develop '26 versus '25 and the working capital trend?

Okay. Let me maybe take the months in the middle, Chris, and if you take free cash flow. And the -- I can also do the margin seasonality. Let me start with obviously your interpretation on Page 15. You're going beyond what we have been thinking about. We gave you the actual figure. That is certainly not a booked figure in a sense, but the figure derived from the implementation of measures of EUR 285 million. And by no means, I want to indicate that as the column -- the dark green column is a little lower in 2026. That just is now already the profile for what's coming next year. That would be wrong. So please forgive us there the shape of these bars is not proportionate to what you saw in 2026. I have not even thought about this, but I will do this next time as you're obviously interpreting something into this. The way from EUR 285 million to EUR 815 million, there's nothing that is projected in this chart. Otherwise, I would have put the EUR 815 million somewhere else. Forgive for that negligence, but we will take this away for next time. And in terms of the margin and the growth, yes, that's a legitimate question, why is the margin not improving? I would give you as an answer that this is, to some extent, a mixed question. You know that we have a Chinese activity in the VLS activity. There's more platform business. As that grows, it is slightly dilutive to the margin. So you can basically say the classical business generates more margin. The growth to some extent comes from these Chinese activities and the blended mix is still at the 15% -- around 15% mark from our point of view. It's certainly something that is healthy. In VLS, yes, I would love to see all quarters boringly the same, but that's not the case. There were some issues here that impacted the margin that have to do with logistic investments and other things. So take it over the year and don't interpret too much in a quarter. The fact that Q4 was down a bit also has to do with here and there changes in the programs. In general, we are optimistic that we can stay over the year at that level. Chris, if you want to add something on VLS, please. Otherwise, I'll leave you with the free cash flow question.

I'll take the free cash flow. So CapEx, you should expect something more or less in line what we had in 2025 and a little bit more. We will work to phase down some of the working capital that was added in 2025 as we have a little bit more visibility. Again, I put this between brackets, given what happens in the world these days. But as soon as we have a normalized situation, obviously, we work on normalizing the inventory levels. We are also getting better at E-Mobility launches, which is a significant driver of the buffer stocks that we implemented on upstream components in order to protect safe launches in 2025. So as we get better and better at it, we can target more tailored inventories than not necessarily have as much, let's call it, excess inventory. Coming back on the quarterly topic. Again, when you look at our business, you really need to take it piece by piece because the dynamics of our profits and the way gross profit and EBIT is generating during the year really, really varies. If I oversimplify things, PTC is automotive-driven. So expect 3 quarters of solid performance and a typical fourth quarter where the OEMs will manage their year-end inventories and tailor down the demand. Obviously, this has an impact on efficiency of our plants. VLS, it's more or less the same thing. Normally the bottom line, if I look at myself at the EBIT level and I take away the one-offs that we book here and there, it's normally a healthy, stable contribution throughout the year. The fourth quarter tends to be a bit weaker simply because what you're seeing flowing through is the increased cost per unit coming from the plants of the group that make the VLS parts running at slightly suboptimal parts. E-Mobility is that it's actually the flip side. In 2025, if you look at the quarter-by-quarter, you have many things that's happening. You have the relative scale up during the year, but you also have the fact that a lot of the negotiations with our customers are only concluded in Q3 and Q4, which tends to lead to stronger invoicing on R&D, on cost recoveries during the second half of the year and especially the Q4, which tends to drive a better contribution, even though it's still negative during the second half of the year. B&IS, exact opposite. Normally runs full with efficient plants for the first 2 or 3 quarters of the year and is impacting during the fourth quarter by the sheer size of its industrial assets running at a slightly slower pace. Again, in line with market demand. We are reacting to what our customers want us to do, whether they are automotive, just-in-time type customers or distribution type businesses. But for sure, very few businesses call for excess inventory in Q4 of any year. So again, the readability of our numbers really to be done at division level. And understanding the seasonality of it to really wrap up on this. On some of our divisions, we have been working in 2025 in trying to balance the use of our assets during the year to try to avoid some of those ups and downs. The successful Q4 results in 2025 versus what happened in 2024 is one example of that. But we cannot shy away from the physiognomy of our businesses and the assets that are there.

Got it. Maybe just to close that point out. The Q1 trading then, should we expect a sequential improvement in Q1 versus Q4 '25? Just be helpful given the U.S. weather patterns in the China demand, how you think about Q1 margins specifically for Schaeffler at the group level.

That was very quick, Ross. Can you quickly say it again?

Yes. So really helpful color on the seasonality. It was just really just on the Q1 trading in 2026, how we should think about the performance of Schaeffler in the context of the full year guidance given that you've had typically quite strong Q1s in '24 and '25? Or should we be expecting Q1 to be comfortably in the guidance range?

This was not -- this was obviously not only VLS, but the whole group. Again, the pattern of the last years is nothing that is going to change over 1 year. So typically, yes, we have been strong in the first quarter. Let's see what this quarter brings. I can only say what we saw in January so far is an -was an encouraging start in the year. In terms of profitability, how that continues now in February with China New Year and what's happening now in elsewhere around the globe remains to be seen. It's really difficult to project. We're not forecasting and guiding on quarters, guiding on a full year. So forgive us if we are not giving you more color than what we just gave.

And the next question comes from Vanessa Jeffriess from Jefferies.

Just if we can go back to your midterm targets. Now in E-Mobility, you have the order book. But I guess where I question most is B&IS, where you expect sales to be kind of 10% higher in 2028 at the midpoint even though industrial production is basically growing 1% to 2%, if we're lucky and aerospace is still such a small part. So wondering if there's something we should think about in terms of growth dynamics there. And then just another one on E-Mobility and the slower margin development in 2026. Maybe I was under the impression that kind of 1/3 of that business, which is ICE, is already making good margins. The improvement potential is in the rest. So there actually should be some offset within that division from slower EV adoption and mixed benefit. So maybe you could comment on that. And then lastly, congratulations on your announcement yesterday. I was wondering if you could talk about your actuation capabilities in humanoids versus some of the Chinese competitors.

Okay. Thanks for the nice words on humanoids. Again, on the midterm targets, we gave you the numbers for the group. We have not given any divisional numbers, if I'm not mistaken for midterm targets. It's only group level -- sorry, the division level, but not -- it's not in this book here. Then I need to see the numbers again. It's in the CMB. I don't have the CMB page in front of me. So my mistake. I remember that we said we want to go to 10% to 12% for Bearings & Industrial. And when I see where we are, that basically means in 6, in 7 and in 8, an improvement that is -- I would say 9% to 11%, sorry, my mistake. Forgive me, it was a hectic day. So I don't have this on the top of my head. So 9% to 11% was the number and not 10% to 12%. If you take that and say 3 years to get there, then I need to deliver something around 10%. That basically means that you have to further improve margin from 7.5% to 10%. That's 2.5 percentage points in 3 years. Is that doable? Yes, for sure, that's doable. Knowing that we have some of the impact from our improvement programs not already in there rolling in. Yes, you also need a little bit of growth if the market becomes completely sour and only moves sideways, that would be, from our point of view, at least not the base scenario, then it becomes more difficult. But I don't see any reason why with this base now in 2025, with the assumption that the whole industrial production market will grow over the next years in a 2% to 3% range, it is possible to bring that into the 9% to 11%. We need growth. We also need to push growth there. And you will see from announcements in the next months that this is clearly a question also of fight for market share. But it's on the other hand, also cost improvement. When I see what happened from 2024 to 2025, when I see what we are projecting for next year, then that is certainly something that I see as a very realistic path in Bearings & Industrial Solutions.

Then the next question comes from Tobias Willems from LBBW.

The first question would be about the business with humanoid robots in Defense. Schaeffler stated that numerous partnerships have been concluded in the last couple of months. What further turnover are we talking about here when it comes to order intake or revenue? And also can statements be made about future margin targets in the business fields of Robotics and Defense? And the second question is about the business with E-Mobility. I'm wondering here a little bit what makes you exactly so serious to achieve profitability in 2028 because the whole market, especially in China, is quite under pressure when it comes to volume and margin? Or do you see in other markets significant opportunities when it comes to margin improvements to come to your targets? And my last question would be about the restructuring costs. Are there any restructuring programs or costs ahead for the years 2026 and 2027? Would be very helpful if you could provide us with a little bit more color here because, obviously, you said that the big part of the restructuring costs and also programs are also gone in the last couple of years. So I'm quite wondering what is the target here for the 2026 or 2027 costs here?

Let me start with the last one. What I said is that we've always done it this way. We'll finish the existing restructuring program first before we think about new restructuring programs. This is a way to do it. This is, I think, restructuring program #5 that I'm responsible for, and we've always been doing good in doing this sequentially, when needed. For the time being, at the moment, there is no new restructuring program necessary and also no new restructuring program planned. If that changes, we will certainly think about what we can do next. And we have that experience, and we know how to do that. The second answer to your restructuring cost question is what I said is that we have booked all the provisions on the balance sheet to be able to now pay the necessary restructuring outflows. That means from a balance sheet point of view, yes, we have enough provided for, for the existing programs. For new programs, that would be a next decision we need to take. I can also say that for the time being, also with the speed in terms of realization, what we see in terms of the average cost we need per headcount, it looks like that our restructuring costs are rather conservative. That having said, meaning that they are rather rich than too small. E-Mobility, again, you asked an interesting question. For sure, E-Mobility is not only in China. There are also other markets that start to embrace and discover E-Mobility. One of the markets that is quite interesting to observe is India. We have, by the way, from China now being localized to India, a program with a major OEM in India, a name that you all know called Tata. And what we see there in terms of interest and volume is certainly not being a surprise growth driver that takes over the Chinese development, but it's something very interesting that also in other markets, the application of E-Mobility starts and plays a role. And if India continues to grow as also -- as an alternative to the Chinese market, and for sure, India is important to us, that could be an interesting midterm opportunity. On humanoids, as we said, we are in a starting situation here. We don't book at the moment any bigger revenues, except for revenues for prototype orders. But we see that our -- the interest is increasing and increasing. I'm 100% sure that we will, during the next years, build a proper order book there. And therefore, we remain on track to deliver on that opportunity. As we always said, it's nothing for 2026, only minimal impact in 2027, but the long-term opportunity from this business is huge.

Ladies and gentlemen, this 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. So being respectful of your time and hours, let us close today's call. Thank you for your continued interest in our company. Thanks for the questions. Thanks a lot to the speakers. And of course, thank you very much to the team for the preparation. And as always, if there are questions afterwards, feel free to reach out to us. Happy to see you tomorrow during our roadshow in London. And with this, thank you very much. Have a nice rest of the day.

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