Schaeffler AG ($SHA0)

Ladies and gentlemen, welcome to the Schaeffler AG Pre-Close Call Q1 2026. I'm Sargen, the Chorus Call operator. [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. Good morning, ladies and gentlemen. I'm very happy to welcome you to our today's pre-close call on the quarter 1 2026. Now before we move to the content of today's call, I'm sure that, as usual, you have all taken notice of the well-known disclaimer. Please note that this release and all the information herein is still unaudited and that our next quiet period will start today after this call. We are holding this call to remind you of relevant public information previously provided by Schaeffler or otherwise available in the market, which may be helpful in assessing the company's financial performance ahead of the Q1 2026 results on May 5. Looking at the agenda, as usual, I will guide you through the key messages and give some more clarity on our divisions. And as usual, you will have the opportunity to ask questions after our short presentation. So Slide #3. Before we actually jump into the key aspects of Q1 2026, please let me upfront share some key messages around the Middle East conflict since I am very sure that you will ask anyhow. So we installed a task force evaluating this very dynamic situation on a day-by-day basis. Our footprint, nevertheless, in the Middle East is very limited to an office and a very small warehouse for our Vehicle Lifetime Solutions division. As of now, energy supply for our operations is secured and short-term price fluctuations are largely mitigated throughout 2026 by price hedging. Our supply chains remain stable and no disruptions have been reported at any of our plants so far. Nevertheless, due to the elevated volatility, we are closely monitoring the situation. Q1 was not materially impacted by the conflict and the call-offs from our customers overall have been stable. Any inflationary effects on energy, freight and material costs are monitored and as in the past, will be addressed accordingly. So now let's talk about Q1 2026. We expect sales in Q1 to be slightly lower year-over-year with a slight positive FX adjusted growth. On the EBIT side, Q1 adjusted EBIT should come in slightly higher than Q1 2025, and with this well within our full year guidance range of 3.5% to 5.5%, driven by a steadily improving operational performance. Regarding our free cash flow, we anticipate a negative figure in Q1, lower than prior year and following the usual seasonality. However, also here, we are well on track to reach our full year free cash flow guidance of EUR 100 million to EUR 300 million positive. Now on Slide 4, you find the Q1 2025 sales and EBIT margin figures by divisions, including some comments to the respective market, sales and EBIT margin development in Q1 '26. Let's start with E-Mobility. The market environment in Q1 was rather soft in the U.S. I would describe it as moderate in China after the tax credits and the subsidies have been cut, whereas we could see an improving trend in Europe. All in all, higher sales year-on-year, leading to a mid-single-digit FX adjusted growth versus prior year, mainly driven, as already indicated, by higher sales in Europe and Asia Pacific. When talking about profitability, we were able to further improve our EBIT year-over-year. Hence, the margin will be below our full year guidance range, but also this following the usual seasonality that you know from the previous years. Looking at Powertrain & Chassis, we are still facing a soft market environment, in particular, in Europe and China. So this you have heard over the previous quarters again and again. It leads to a moderate sales decline in Q1 year-over-year with slightly negative FX-adjusted sales growth. But please keep in mind, this development is still linked to our strategic decision to phase out certain businesses. On the profitability side, we expect a strong Q1 with margin levels at the upper half of our full year guidance range of 10% to 12%. Still, the margin will be below the very strong Q1 2025 of 12.4%, but this still is clearly a proof point of the successful execution of the structural measures in the last quarters and years. Taking a look at Vehicle Lifetime Solutions, we saw a stable demand in all regions as the car parc is further growing and aging. Q1 sales are higher than prior year with slight FX adjusted growth year-over-year on very tough comps. The Q1 EBIT margin is expected to be again very strong on prior year level. So really another stellar quarter for our strong Vehicle Lifetime Solutions business. Last but not least, on Bearings & Industrial Solutions. The market environment continues to be difficult, still lacking a material recovery of industrial production. So I'm not going to tell you anymore that we are waiting for a market recovery. For now, we accept the market the way it is. Nevertheless, in China, we saw some strong positive momentum in several industrial sectors, including raw materials, railway, power transmission or industrial automation. In addition, the already addressed positive development in aerospace also continued. So sales are expected to be slightly lower year-over-year, but with positive FX-adjusted growth supported, as already mentioned, by Greater China. The margin should be slightly lower than prior year due to the very high comps from last year. However, at the upper end of our full year guidance range of 7% to 9%. So strong operational steering and successful execution of our structural measures continue to pay off in Bearings. On Slide #5, you see our well-known full year guidance, which we anticipate meeting across all key metrics. For sure, always with hindsight to the geopolitical tensions, in particular, the already mentioned situation in the Middle East. So before we jump into the Q&A session, just one short notice. After the call, as usual, we will distribute our consensus sheet and would be very grateful for your contribution and your estimates and even more grateful for your estimates until Thursday end of business. But now let me hand over back to the operator for our first question.

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

Just 2 quick ones from me. The first one would be, again, it looks to be a decent start for you guys in Q1. Should we expect the usual seasonality with a strong Q1 and then the margin to fade a bit in the coming quarters? And then did management in recent meetings or conferences comment in any way on changes of call-off patterns towards the end of the quarter in terms of volumes or programs? Any changes there that have been highlighted?

Thanks, Christoph. So I guess we have learned our lessons, and we don't want to continue the usual pattern of having this very cyclic profitability development over the quarters. There will be slight deviations quarter-over-quarter. We will see, of course, potentially impacts from whatever is happening around the world at the moment. But we are confident that these extreme peaks will not reiterate. On the call-off patterns, I mean, for now, the call-offs from our customers remained on a comparable level as we have seen in the last 2 or 3 quarters. The general direction of our customers, unfortunately, also remains the same. So the visibility that we get from our customers is reduced. You have a very good and reasonable visibility on the next 4 to 6 weeks, which is important for the short-term steering of your plant loading. The mid- and longer-term visibility is -- remains reduced. So customers reserve the right to also react quickly on what is happening. And we need to deal with it. But honestly speaking, I think the organization is getting better and better to deal with this uncertainty.

The next question comes from Horst Schneider from Bank of America.

Just quickly, some questions. Number one, do you expect or should we assume any larger one-off items again for Q1? It's always a little bit of surprise box, either write-down, but also on the cash side. Was there any cash out included in the Q1 already for restructuring? Number two, it's a follow-up basically on this call-off question from Christoph as well. What we see now, for example, in VLS what is the region for the strong margin? Is it more seasonal? Or is it now really a situation that basically people repair their car and they don't buy any more cars. So that is a trend that I could expect happens in the next few quarters when the unit sales come down, then usually VLS is doing strong. And again, on the call of maybe more by segment and how we should think about that. So when we are running now into an environment where maybe the EVs get a boost because of the high oil price and the total cost of ownership of EV is a lot better. So that could mean that maybe EV has got a stronger performance versus the ICE business maybe suffers. I always ask myself, then for Schaeffler, what does that mean? What is the better effect? I mean in E-Mobility, maybe you have got lower losses. But of course, PTC has got the strongest margin. So what should we think about this trade-off between potentially better E-Mobility versus lower PTC? What is better for you? Or it doesn't matter because you are kind of powertrain agnostic by now?

Thank you very much. No, very good questions. Let's start with the first one on the one-off items. You will rarely find any quarter with basically no one-offs. But in Q1, we didn't have similar significant one-offs as we have experienced over the last 1 or 2 years. So there has been on the EBIT side, no significant one-off in Q1. On the cash flow side, of course, our restructuring activities, they continue. So we have a constant cash outflow for restructuring. We have a constant cash outflow for the integration of Vitesco and basically making the synergies available. So that continues, and you will have a, let's say, normalized level of cash outflows for those 2 effects. On VLS, honestly speaking, we don't yet see a significant pickup on the total number of repair kits that have been ordered. So maybe too early to say that people are tending to repair the car instead of buying new cars. What we see is that the regional and the mix effect was favorable in Q1. What we have seen is that we have a seasonalized, let's say, adjustment of our price lines, which has led in the first quarter maybe to the one or the other customer that did hold back some of the orders until these negotiations are finalized. But overall, as we see the margin at the moment, it's just a very stable and at the end of the day, very profitable business for us. The third question, I like a lot because it's, of course, a little bit looking into the crystal ball. To be honest, we should not get distracted from news that we see in German newspapers. In Germany, the discussion around groups, I been to the gas station and I was shocked about the high gas prices, and that's why I'm now going to buy an EV. This is a very, very local phenomenon.

It shocks me too.

Yes. I tell you since years to have an EV.

I have an EV.

So of course, it helps. It is a kind of eye-opening moment for the one or the other car buyer. Will it structurally change the volume expectation for this year globally? Honestly, I would be careful to already anticipate something like this. In general, you already described the situation for us very well. We are fairly agnostic. You will never have a one-to-one replacement. This is better than the other. At the end, what we need -- the best for us is if we have a decent development on E-Mobility, not much skyrocketing because that also creates then again, friction in ramping up projects. So a moderate growth in E-Mobility, a steady improvement of the margin and still enjoying a reasonable high ICE business, that would be the ideal world for us.

Okay. And on E-Mobility, last one, you are still in negotiations with your OEM customers on reimbursements. I think there was -- was there anything major in Q1 that was already booked? Or what is potential that this could basically beef up the margin then in the rest of the year?

So in Q1, there was no big onetime compensation from the customer. I mean negotiations are, of course, ongoing, especially and that's not a surprise with customers from North America. At the end, it's always a question, do you want to have a short-term compensation? Or do you want to have a long-term business? And to be honest, the truth will be somewhere in the middle. For some of the projects, you will get reimbursed. For some of the projects, we will be glad to accept, for example, hybrid business, securing our long-term supply relationship with these customers.

The next question comes from Vanessa Jeffriess from Jefferies.

I was just wondering if you could go into E-Mobility growth in a little bit more detail by region. I just mid-single-digit FX-adjusted growth is actually a pretty good outcome given the environment. So maybe you could talk about exactly -- I mean, if you could put numbers to the U.S. and China, that would be helpful.

Yes. Vanessa, for a breakdown by region, I need to ask you for your patience until we finally release the Q1 numbers. I mean the overall trend, what we have seen is that the ramp-ups that we addressed over the last quarterly calls on a regular basis, they are starting to materialize. That's what we especially see in Europe. That's why we said in China, let's say, the market is moderate for us that the growth is doing okay because despite the fact that the market is somehow muted due to the runout of some of the subsidies. We get our new projects into series production. And Americas, we are in a situation where we are basically shifting from an originally estimated ramp-up of battery electric vehicles towards now an accelerated ramp-up of plug-in hybrid and range extender models.

Okay. And then maybe if you could give us any update on your other activities in the first quarter?

Yes. I mean the -- let's call it, new growth activities, we are not standing still. A there. Next week, there is the Hannover fair, one of the biggest trade fairs in Europe. And please accept that we will save the one or the other announcement for the trade fair next week. So bear with us, come and see us in Hannover, and I promise we will have the one or the other good news to share on new growth. But what I can say is that the business is doing what they are supposed to do. We are increasingly increasing our engagement with more and more customers. We are very successful in acquiring new partners. And we have to be, to a certain extent, selective on how many supply relationships you really want to have at that point in time because it's not just counting the numbers of customers that you are serving, but it's about serving the customer right and building this long-term relationship.

[Operator Instructions] Now I have a question from Ross MacDonald from Citi.

I think most of my questions have been answered, but I still have 2 left. First one on the E-Mob business. Obviously, your slides are very helpful. But just as we think about where the margin may settle in Q1 and then how to model this sequentially through the rest of the year, is there any steer you can give us? Obviously, you're outside the guidance corridor in Q1, but would you envisage the E-Mob margins in the guidance corridor in Q2 and then sequentially improving through to the back half? The next question, just to follow up on the other divisions. Obviously, that was a slight drag, I think, EUR 28 million loss in Q1 last year. Could you maybe help us size the losses in that other division? I assume losses in that other division in Q1 '26. And then maybe a final one, just on restructuring on Horst's question. How should we think within this margin because obviously, the margin guide here is strong versus the consensus in Q1. How should we think about the P&L benefit that carries over this year from the restructuring you've done already? Is there a base level of P&L or margin uplift as it relates to the headcount reductions that we should think about as a base level year-over-year sort of improvement?

Yes. Thank you, Ross. So on E-Mob, I would say that the margin development last year was already a good indication on how the seasonality could look like. We have typically a very strong Q4. That's what you know from the last years, very much linked to the reimbursements that we received in the fourth quarter. On the overall full year guidance, so we are still confident that with everything we see that the full year guidance is realistic. And again, if you just take 2025 as a kind of blueprint on how the improvement should show up over the year, I think that's a good indication. On the others, yes, of course, you will see a small loss on the others division also in Q1. It is on a lower base than what we have seen last year. Still, we are talking about either business that is in a start-up phase or business that is in a phaseout phase. So let's say, mitigated losses, but this is not meant to be the big profit contributor for now. And last but not least, on the restructuring effects. I mean, at the end of it, what I mentioned at the beginning, this improvement year-over-year on the margin side, the stabilization that we especially see on our B&IS business over the last 12, 15 months. This is, of course, heavily supported by the restructuring. It's always difficult in a bridge to say, okay, which amount or which part of the improvement is coming from restructuring. But what we see is we have a headcount that is steadily decreasing in line with our original projections. On some of the divisions, we see that -- and I guess Klaus Rosenfeld mentioned this in our last quarterly call, in our full year call, we are seeing that we are ahead of our original schedule. So I guess, restructuring, well on track, integration well on track and the positive effects from both will continue to contribute on our steady margin increase.

The next question comes from Sanjay Bhagwani from Citi.

I've just got one question left. Maybe, Heiko, just a bigger picture on Q2. If my memory serves, last year, Q2 was impacted by tariffs and some of the pass-through nuances and the timing, and that is why the margins have declined sequentially. So if this year, the call-off volatility, let's say, remains where it is now, then would you expect the Q2 margins to be higher versus Q2 last year?

Thanks, Sanjay. So in the pre-close call for Q1 to already make an indication on Q2 is, of course, not an easy one. But let's put it like this. Last year, you're right. We had a little bit of hiccup due to the tariff situation and all the implications on the supply chain. If this is not the case, then we expect a more stable Q2, and that would mean that we should see a continuous positive development on the margin side year-over-year also in the second quarter.

We have a follow-up question coming from Horst Schneider from Bank of America.

Just quickly, I was searching that yesterday on Helsing, you signed the MOU in December, but there has not yet been a final contract, right? Or was there something in March, maybe of the full year numbers? No, not yet?

This is correct, Horst. But I mean, keep in mind, this is not so much depending on Helsing or us. This is very much depending on the governmental side of things. So they need to get their act together and then the operational can continue to do the work.

So first, Helsing needs to get the official contract and then you can sign the contracts with Helsing, right?

That would be the logical sequence.

The next question comes from Tobias Willems from LBBW.

A quick question from my side. The market for e-cars remains tight this year. And the margin in the e-business is expected to improve in regard to the full year guidance given from your management. Is an improvement in production capacity utilization to be expected here, irrespectively to the restructuring measures you take -- you did already take in place?

Thanks, Tobias. No, I mean, at the end, it's -- number one, we see continuous growth in E-Mobility, which is good and which is needed. It helps us to better utilize our line capacity. We have many of these growth opportunities in our own hands. We talked about the number of launches we have in front of us this year. And of course, the smoother the launches will go, the better for the top line, but also the better for our bottom line since in a complex launch, if you can mitigate your ramp-up costs, that is helpful for the margin. There, we are confident that we are steadily improving. So the focus of the team of Thomas Stierle is very much on having these launches as smooth as possible. And the indications we get at the moment are positive. And you also addressed already another important topic. I think we made it quite clear. A significant part of the synergies from the merger between Schaeffler and Vitesco is also contributed -- or is contributing to E-Mobility. And there, we are progressing according to plan. So at the end, it's a mix. It will be better loading of the plants. It's smoother launches for the new projects and it's efficiency gains on R&D, on overhead structures. So that's why, all in all, on track for the improvement for this year.

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. So as usual, thanks for your interest. Thanks for your time. A big thank you already now for helping us with the consensus. And as usual, a big thank you to my team for the excellent preparation. So have a nice rest of the day. Talk to you soon. Take good care. Bye-bye.

Ladies and gentlemen, the conference is now over, and you may now disconnect your lines. Goodbye.