Schaeffler AG (SHA1.VI) Q3 FY2025 Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the Schaeffler Group Q3 2025 Earnings Conference Call. I'm Sergen, 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.

Thank you, operator. Ladies and gentlemen, I'm very happy to welcome you to today's call on the financial results Q3 2025. The press release, the following presentation and our interim statement has been published today at 8 a.m. CET on our Investor Relations web page. And for sure, after the meeting, we will provide the recording and the transcript of this webcast. 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 call to guide you through the key information in our presentation. And of course, afterwards, both gentlemen will be available for our Q&A. Now without further ado, let me hand over to our CEO.

Thank you, Heiko. Ladies and gentlemen, welcome to our Q3 call. You all have the presentation in front of you that we distributed this morning. You also saw the three press releases we published. I will start immediately on Page #4 with the summary. Good performance in a soft market environment is the headline. You see sales growth of plus 1.3% in Q3. I will go into a little bit more detail there. Gross margin at 20.3%. Please read the footnote. This is the gross margin excluding an extraordinary one-off loss of EUR 100 million due to the depreciation of SAP licenses. It's a comparable number to the 19.1% in Q3 previous year. So you see a quarter-over-quarter improvement there. EBIT margin at 4.5%, nearly a percentage point better than Q3 2024, also sequentially, clearly pointing in the right direction. Positive development and free cash flow, EUR 175 million in Q3, really points also in the right direction, also led us to upgrade our free cash flow guidance, as you saw in the last days. And then EPS is negative, in particular due to the one-off restructuring but also due to the depreciation of SAP licenses. On an adjusted basis, it is positive. Now with this, let me quickly go through the business performance. You see on Page 6 the usual breakdown of where is the growth coming from. And we can basically say that except for the flattish development in Powertrain & Chassis overall, all divisions and regions contributed here. Europe is a little weaker than we would like to see it with minus 1.6%, also driven by Powertrain & Chassis. You see some of the unusual developments. Strong growth in Asia/Pacific is the same trend that we explained last time. It is has to do with the shift of an important project from China to South Korea. And Americas with 18.4% in E-Mobility is new contracts that are now starting to perform. Vehicle Lifetime Solutions was 2.3%, weaker than in the previous quarters. But we always said this growth is not going to continue. So with strong growth in Americas, also in the two other regions again is the reason why this was not as strong as before. And Bearings & Industrial Solutions with 2.2%, I think, is in line with market. So a trend from our point of view that should not surprise anyone with 1.3%. At least the Q3 was a growth quarter despite all this turbulent environment. Page 7 then gives you more detail in our OEM business, Auto Powertrain, that's what we promised to give you the breakdown by powertrain type both for the outperformance number and also for order intake and book-to-bill. And what you see is a continuation of the trend that we showed you for the first 6 months. 9 months, plus 13% outperformance in BEV shows that we are well on track there. And HEV is for these 9 months still below market. The same with ICE. The number has come down a little bit. Key for going forward is not what we are pointing today, but the order intake and the book-to-bill, and there you see that BEVs are more or less on the same level with 1.8x. Let me say here, as we outlined also during our Capital Markets Day, we have a significant order book. Our key priority is to deliver that order book. We appreciate new projects but only if they make sense and also drive our profitability. E-Mobility, next page, Page 8. As you probably expected, sales growth on the positive side, 4.7%, clearly driven by Americas and Asia/Pacific. Order intake in that quarter was EUR 1.2 billion, slightly below the second quarter but still on track. That also leads to a book-to-bill in Q3 of 0.9. What really counts here is, from my point of view, the full 9 months. What is on the positive side here is the continuous improvement of the gross profit margin, plus 3 percentage points in Q3. And this also excludes the impact from the SAP licenses that for E-Mobility would have been EUR 24 million. You see two examples for new products, for new projects. And with the development that we see here, we feel good that we are on track to deliver what we promised for the midterm. Powertrain & Chassis, slight sales decline. Gross margin continues to be strong and further improvement, 1.2 percentage points. Good order intake but getting with a book-to-bill that is below 1. As we always said, you need to, at the end of the day look at these two divisions somehow together, in particular when you think about the Powertrain business. And our idea that these hedges each other is clearly paying off. Vehicle Lifetime Solutions, I already said it, lower growth compared to previous quarters, in line with market and gross profit margin further improving. We always said it's not going to grow every quarter by 10%. But I'm really proud to say that our gross profit margin stays at a very high and satisfactory level. Bearings & Industrial Solutions. Also here, we decided to improve our guidance a bit. The 5% to 7% was after a further improved third quarter. It's little bit outdated. So we moved it up to 6% to 8%. And we feel good that the business is further improving due to the various help measures, but also due to growth, in particular and aerospace, but also in construction, agriculture machinery, two-wheelers and the new emerging area of medical equipment. Let's wait for the fourth quarter and see where we end up there. Capital allocation, Page #12. We continue our course here. Capital allocation schemes are known to you. We are very disciplined here. You see the reinvestment rate at 0.5x for the whole year -- for the whole business, excuse me. And that clearly means we are releasing capital at the moment. That is important to bring the SBA number back on track. We are now slightly below previous quarter, EUR 12.3 billion. And we will manage capital tightly. Let me also say this does not mean that we have restricted any type of growth because there's enough cash flow available to fund the projects that we're seeing. But as you know, we are restricted and want to bring SBA back to where it should be. Last page from my side before I hand over to Christophe, a short follow-up on the top three priorities that I explained during the Capital Markets Day. First is delivery of our order book. Again, we have seen a prominent SOP of electric drive products for a Chinese OEM. Again, an interesting player who is a pure play on the new energy vehicles. Several other SOPs, one in Europe for a premium European OEM and another one again for a European OEM and a Chinese OEM in Chassis, rear wheel steering. So happy to say that the delivery of the order book is on track. The size is big and challenging but we are learning. We are moving forward. And we are seeing good results from these three. Synergies is also on track. You remember what we said in the Capital Markets Day. We have more or less finalized our program that we call our [ Program Onwards ]. Here is more detail on the plant in Steinhagen that was already in the numbers that we showed you. We will finish production in the year 2026. The portfolio, we consolidated another plant, production is outlined and, at the moment, negotiated with Workers' Council. And I can tell you that this cooperation with employee representatives has always been an asset. It's painful for everybody, but it's the right track to -- it's the right step to streamline in particular our German operations. And last but not least, you saw the press release. We promised to streamline the business portfolio and reallocate capital. We said during the Capital Markets Day, there are 10 portfolio elements in the pipeline. This is now a first example. We have yesterday or this morning closed the contract with Chinese specialist in turbocharger technology that requires our turbocharger business in China. It's a business that we inherited through Vitesco. It made EUR 100 million and is at the moment in a structural decline. So it makes a lot of sense to get rid of this. The agreement is signed. Please understand we're not disclosing more details, but it's a proof point of our promise to streamline. With that, I hand over to Christophe for the financial performance.

Thank you, Klaus. Good morning, everyone. After looking at the division look, let's take a step back and look at a single group level. Starting with sales. We delivered a strong quarter of growth once you adjust for foreign exchange. The growth, I'm happy to report, is profitable, as you can see on the gross profit evolution on the right side. EUR 119 million worth of volume effect. That's further proof point to the road map that we do during the CMD. If you look at that EUR 119 million, close to half of it is driven by E-Mob. So we are growing and we are growing profitably. The rest comes from the other divisions. We are also improving our cost structure or operational performance. That's the EUR 111 million that you see here. E-Mobility again displayed some improvements, about EUR 20 million worth of improvement linked with E-Mob. The bulk of the improvement actually comes from Bearings & Industrial, close to EUR 90 million quarter-over-quarter, demonstrating the measures both for structural and in terms of operational performance are paying off and are improving our gross profit and thereby our bottom line. A little bit of what I will call background noise on the next part was a mix of inventory valuation, customer claims and a little bit of a restatement issued to be 100% transparent in the EUR 109 million. Foreign exchange, EUR 45 million, reflects the evolution year-over-year and our exposure to the different markets. All in all, from EUR 19.1 million to EUR 20.3 million. Again, this is corrected to neutralize the SAP license and not put in the rating. If I go to the bottom line and have a look at EBIT. It's even clearer. One full point of improvement of 3.5% to 4.5% of EBITDA, so year-over-year-over-year. You find again on the right side the strong gross profit improved, excluding foreign exchange, the very controlled approach to R&D, some negative impact on SG&A, which is mostly driven by integration impacts. And foreign exchange, you can actually see here that the foreign exchange impact is lower at EBIT level than it is at gross profit level, thereby showing that the group is a little bit of an internal hedge, although the impact is still negative. And again, this drives a strong quarter at 4.5%. If we spend a little bit of time on each division. E-Mobility, as I mentioned, growing by almost 5%, improving its profitability by over 2 points. Growing across divisions and doing so in many regions, double digit in North America and some strong growth as well in China. So again, the road map that we have announced, quarter after quarter, we are delivering on it. On the PTC side is one that you will hear, I guess, quite often from me in the next few quarters. It's all about balancing some slightly negative impact on the top line that we see a slight decline. It was expected, linked to the phaseout business. But it is being balanced by an absolute laser-like focus on cost structure and restructuring to ensure that we protect margin and that we deliver the bottom line. In this quarter, the unit actually does more than that. See the improvement is over 1 point of EBIT year-over-year. Also interesting to see that some business divisions are still in positive territories. So Engine & Transmission Systems at 3 plus 4%. And when you look at the repair business, actually also driven by China, which is encouraging in terms of balancing exposure. Vehicle Lifetime Solutions on the next slide. Growing, still growing slightly less than what you had seen in the past, but the environment is a little bit different. Nevertheless, delivering solid 2.3% worth of growth 1.3 points worth of improvement in terms EBIT. Again, the interesting part there is where is the growth happening. It's happening outside of the traditional geographies for VLS. Some strong growth in the Americas, which is still very much in conquest territory for us. And it's also happening -- if I look at it in terms of business division, outside of the core Repair & Maintenance Solutions business division, but in the Specialty Business, in the Platform Business. So resistant in, I guess, the one turf for VLS while the unit growth in terms of geography or in terms of product offering to the customer. Pricing also on the favorable side driving some of the EBIT improvement quarter-over-quarter or year-over-year. Bearings & Industrial, you go back to my initial comment, some growth. Very double-digit growth in our Aerospace Bearings, plus 20%. Even more interesting, in my mind, positive growth in Automotive Bearings in a complicated automotive context. The division is still growing in that sector by 2%. Combining this growth with the very, very strong work done in terms of restructuring and the focus of operational performance, delivers an improvement of 1.4 points in terms of EBIT almost at 8%. You can see the 7.9% for Q3 2025. This all translates into positive evolution of our free cash flow generation year-over-year. So we see almost a little bit more than EUR 0.5 billion worth of improvement from Q3 '24 to Q3 '25. I draw your attention on the bridge on the right side in echo to what Klaus said before to the EUR 243 million CapEx, which is essentially us managing our CapEx spending to match it as close as possible, the need and the actual ramp-up of the different programs that are going through to SOP, trying not to be too far ahead of the curve, not behind either in order not to put our customers at risk. So some really, really fine steering there in terms of pacing the spending and then also some steering in terms of focusing the spending where we create value. On what would be the last slide for me, our usual slide on debt profile. You can see the leverage ratio peaking in 2025 during Q2 at 2.4, now slightly improving in 2025. On the right side, our usual maturity profile. You can see that the 2025 topic is taken care of at this point through the bond issue earlier this year. Also happy to report that the RCF facilities have been all extended as our contracts all the way to the end of 2030, which is an interesting check in the box to have. When you look at 2026 and 2027, you can see that this is all quite manageable given the current conditions of the bond markets either this year or early next year. At this point, I will hand back over to Klaus and conclude on the guidance.

So thank you very much. I will be brief. We've seen that page. Just to repeat the basic logic. We increased guidance on free cash flow and also the Bearings & Industrial Solutions in those numbers. Let me finish with one more page on the other announcement we made today next to our numbers and also the little transaction in China selling turbocharger business. We announced this morning an operation agreement with NEURA. NEURA, is, as most of you probably have heard, a leading German high-tech company active in the humanoid space. They don't not only do humanoids but other things as well. And we have agreed a partnership with them that will allow us to supply innovative actuation technology to them, which are, as you all know, key components for humanoid robots. NEURA and their founder, David Reger, are well known to the capital markets. It's the European player from our point of view. We're very proud for this agreement. Second, that's already digested, I think. Last week, October 29, you heard about the U.K.-based robotics innovation company called Humanoid, also something where we are active. We completed a proof-of-concept phase with them with what is called the pre-alpha robots, also a specific design. And we are now moving into a second phase. This is just to show you two examples that will help us to grow into that new ecosystem. We will continue to report on this. It's clearly an attractive growth opportunity where Schaeffler is very well positioned to conquer a significant space as a technology provider and a supplier of choice. I'll leave it here. The last page is then the financial calendar. We are going on road show, separating West Coast and East Coast next week. And then there are the usual conference for year-end. We also look forward to seeing some of you them in the new year in Frankfurt, New York and elsewhere. March 3 is our earnings release, and I am confident that we will bring the year successful close despite all the challenges that we have around us. With that, back to you, Heiko.

Thank you. So operator, we would be ready for the first question, please.

[Operator Instructions] And we have the first question coming from Horst Schneider from Bank of America.

My questions, I would ask them one by one, please. The first one relates to this ongoing underperformance in automotive, which is driven by the phaseout of some of the Vitesco business. Can you maybe say how would the business have grown without the phaseout effect and how long this phaseout still continue? So just try to get a feeling how long this drags down basically the outperformance.

Thank you for the question. I'm not 100% sure what you're referring to when you say outperformance. I mean, E-Mobility grew by 4.7%. Powertrain & Chassis is, as I showed on Page 6, more flattish. Yes, we were selling business, as I said, but that's a new thing. Maybe you can repeat or give a little bit more color on that.

Sorry, Klaus, I'm referring to Slide 7, which is a year-to-date perspective, to be honest. Maybe the effect is already over.

You're saying the -- okay, now I understand it. It's 7, where you're saying ICE is below where market growth is. Well, this is, from my point of view, the situation that clearly comes from phaseout of certain things. I mean this is a market growth for the whole ICE powertrain portfolio and it's a function of how present are you with what kind of customer. As you know, we are strong in dampener technology. We are strong in the sort of old classical Schaeffler technologies, but there's also business here from Vitesco that drives us to some extent. But I don't have more detail at the moment.

Yes. Okay. No worries. The next question refers more short term. Maybe if you can shed some light on the outlook for the fourth quarter. I know you have got your full year guidance in place, and that looks also fine. I just remember Q4 can be sometimes a tricky quarter, right, because unforeseen things can happen, as we experienced last year in industrial. So maybe it's also difficult for you to answer this question. But what trends do you see now in the fourth quarter? So I would assume that E-Mobility gross margin because the reimbursements come in and the higher share of that happens in Q4. And then Powertrain & Chassis, I was surprised about the good margin in third quarter. Is that something that continues also in the fourth quarter in that trend? And then am I right to assume that industrial usually is a weak quarter in quarter 4?

Well, I would phrase it like this. Q4 is typically a weaker quarter than the previous quarters because December also is not as vibrant than before. Your description for E-Mobility, I think, is pretty spot on. I think that they will further grow and further improve because that's the trend. PTC, I just spoke with Matthias this morning in our preparation, and he said the callouts are stable. That's a positive sign. He also clearly said that China is developing better than expected, what is also something on the positive. And when you look at tariffs, I think it's also fair to assume -- you're mentioning reimbursements on the E-Mobility side, classical situation, more Vitesco driven. But there is a synchronization benefit on the tariff side. We always said this, that will also support a little bit. So I think PTC, E-Mob will also benefit a little bit from this. Yes, Industrial is clearly a little bit of a question mark. If we wouldn't be confident that this quarter continues in the right direction, we wouldn't have raised guidance. The 6% to 8% is not a big move upwards, but what we see so far is with all the headwinds that are existing in that business, looking like a solid fourth quarter, let's put it this way. And in aftermarket, aftermarket is clearly something where I would expect that we don't get back to two-digit growth numbers. But also there, the underlying fundamentals are continuing strong. So let's see what October brings and then we know more, but I would be cautiously optimistic that the fourth quarter is okay.

Okay. That's great. The last one that I have is typically...

For next year and all of that, that's clearly something that there are some unknowns and there are some uncertainties.

That's great. The last question that I would have refers to E-Mobility because Valeo talked about negotiations with OEMs to get reimbursement on some contracts where the volume expectations have not been met. Do you see the same? Could that be a driver going forward that we have not yet in our forecast?

Well, for sure. I mean, if you ask contracts where volume assumptions are unnecessarily undercut, then you seek compensation. That's mobile part of our business. But yes, that's -- there's nothing that we do not factor in. That's normal course of business from my point of view. But you all know that there is -- in the U.S., things have changed more dramatically because of also the regulatory environment and the decisions that President Trump has taken. But in the other countries, that's not the case. But for the U.S., you clearly have a little bit of a shift in terms of how important is e-mobility going forward.

The next question comes from Vanessa Jeffriess from Jefferies.

Just wondering if you could please speak a bit more about the E-Mobility book-to-bill. I know you said you look on a 9-month basis. But with those customer postponements, are you seeing any exacerbation in those over the last few weeks?

This was very difficult to hear. Can you -- madam, can you please repeat this? I don't know why this is coming from, if you could speak a little slower, that would be good for us, excuse me.

Sorry. Just with the E-Mobility book-to-bill and the customer postponements, I was wondering if you're seeing more postponements over the last couple of weeks, if that's exacerbating throughout the quarter.

No. I think we have seen what, in particular, the big U.S. customers did, but there is no increasing trend of people giving back business. That's not the case. But any adjustments are part of our normal course of business. But I wouldn't -- Christophe, maybe you have more insight. I don't know anything that points a bigger trend towards the year-end where we lose contracts or where volume goes back.

Usually, our business tells us that the customer decisions are not always synced up with our communication deadline. So to have some volatility quarter-over-quarter during the year, it's not unusual. But as Klaus said, no underlying strong trend that we can detect on this.

Okay. And then just on B&IS, just to be a bit more specific on what you said before. I know you said make some headwinds in the fourth quarter, but it seems in your new 6% to 8% range, it would be pretty difficult you to get down to 6%. So I was just wondering your thinking around that and if there's anything specific in terms of headwinds.

I would call it a cautious approach. You have seen that the last 2 quarters we were all pointing in the right direction and above 7%. You saw what happened in Q4 2024. So we are certainly positive. But to increase it even further would have not been, from my point of view, responsible.

The next question comes from Ross MacDonald from Citi.

Klaus and Christophe, it's Ross from Citi. My first question, Klaus, mentioned Nexperia briefly in answering Horst's question. Can you maybe summarize where we stand on that issue as of today. I'm aware there's been some news flow over the weekend around potential exceptions. How do you see that situation playing out from here? Is it effectively resolved from your vantage point?

It's definitely not resolved yet. But I can say for Schaeffler, so far, we have been not really been forced to stop any customer. I can praise the agility of our teams here, the risk management work when this came in. And we're clearly benefiting here from the strong experience in the insight that the Vitesco colleagues brought to the table. Again, we have so far managed through this, knock on wood. It's different than the crisis that we saw some years ago because it is driven by this specific and certainly unusual Nexperia situation. It's like before, a little bit of a race for where do you get a second source, how much do you have as inventory, which customers asking for what. You need clear goals internally how you allocate what you have and you need to be very quick to open up new purchasing channels. So far, that has worked well. But again, we are managing through that shortage like any other supplier as well. And I do hope that we get out of this with okay with not too much trouble. So far, that's okay. But we manage it on a day-by-day, week-by-week basis. But you need to look at that a little bit in a broader context. They agreed that certain export control restrictions will be relaxed. But the next period situation is a little bit unusual. So you can't just simply apply this on Nexperia because you have the solvency situation in the Netherlands, you have the Chinese action to this. That's a specific situation that we need to handle separately. The agreement between the two presidents is clearly pointing in the right direction. Our hope is that this relates other situations as well.

Very clear. My next question is two questions really. But first one on the humanoid and, obviously, very nice to see continued momentum for that business. A lot of investors are asking around the volume implications, let's say, for '26, '27 on the back of these partnerships. I'm not sure if you can give any soft guidance on what we should expect in terms of growth for that start-up from here.

Ross, that's one of the most relevant questions in that ecosystem, how many humanoids will be produced in 2030 or 2035. You have different projections. And again, we are a supplier in this situation. We think about this as a business where we can show our industrialization strengths. So the number of the volume per robot -- sorry, the volume of robots is critical here, as critical as our content per robot. Don't forget there are different types of robots. This is not only one design but there are several designs. When you talk to different players, and take David Reger, for example, who is clearly one of the most prominent ones, he normally says 5 million. That's a larger number than what we are expecting at the moment. But it's good to be cautious here. But it's also good to know what you do when this will take quicker. But we are at the beginning. It's not that we can show you already numerous volume contracts. But the interest in this and also the interest in Schaeffler as one prominent player who is able to scale is definitely increasing, and that's shown by this contract. But I'm not in a position to give you an accurate prediction of what will come. That's the nature of the game. But what I can say is we will and want to be prepared for the next year and the year thereafter. I think we'll see more clearly in the next 12 to 24 months. I can also say we are looking at this from the three main regions, both U.S., China. And NEURA is main -- the top European player. Christophe or myself will be in China end of November also to look at our humanoid factory that we're building there, not to produce humanoids, but to deploy humanoids to see how they can help us in production. So this whole ecosystem is emerging. It's a very interesting play for us, and we will stay on top of the development. But I'm not in the position to give you now an accurate number, how much robots you will see in 2030. We are cautious but are prepared for a steeper ramp up.

I actually have two more questions, but I promise to keep this very brief. The first one, actually from an investor, just thinking about the U.S. business for Vehicle Lifetime Solutions. We've seen a bankruptcy in that space with First Brands recently. Do you see that as an opportunity for Schaeffler to potentially gain some market share in the aftermarket tactically? And then my second question for Christophe on the free cash flow, just a housekeeping question. There is a significant benefit in the third quarter from the Other bucket, a positive EUR 91 million contribution. Could you maybe just give us some breakdown of what's driving that? How much is one-off in nature versus potentially carrying forward into the coming quarters?

I will be brief on the first one. I mean, First Brand is an unfortunate situation but doesn't really affect us. I mean, your question was more on M&A type of growth, I would assume. The focus here is clearly on organic growth. Jens is at the moment in Las Vegas for the [ AFX ] show, a significant potential, and as we said, broadening our spectrum. You saw, I didn't comment on this, in the deck also the NOx sensor. That's a great example for portfolio extension and tackling the truck and bus parc. So I would not think about our growth predominantly being external growth but internal growth. That doesn't mean that we are not looking at opportunities if they are there, but we will be very careful.

On the cash side, I wish there was an easy answer to this one. It is a very long list of plus and minuses centering around restructuring from one end, incentive payments, payroll and taxes. It's leasing liabilities. Again, I struggle to give you a summary and happy to get into details off-line after if you wish to, but there's no real one topic that we would point to. If we had to pick one, it maybe around the pension side. But even that, it's only tackling one part of your answer -- or your question.

I mean maybe it would be interesting just to understand if potentially on the restructuring costs you've sort of guided us to whether those are coming in below expectations and therefore you're able to write back some of that free cash flow, if that's an element of this or whether it's really just a big co-mingled list of pluses and minuses, as you said.

No, we're not signaling restructuring costs lower than expected. What you do have is some timing issues are quarter-over-quarter. I mean restructuring cash flow, it's as much of an art as it is a science. So we do have some movements quarter-over-quarter and for one year into other potentially, but no signal so far that there would be less cash outflows related to restructuring.

The next question comes from Michael Punzet from DZ Bank.

I have one question on your special items. Maybe you can explain in a bit more detail what you have booked in Q3, especially with regard to the impairments. And maybe you can give us any kind of guidance what we should expect for the full year.

I think it's on the SAP.

The main one in Q3, again, it's the fact that we are moving from an on-premise solution to SAP to a cloud-based solution. So were not able to apply the same accounting treatment that we would have in the past. So we have EUR 204 million being written off for that topic alone. That's flowing through the adjustment. The other ones are the usual ones that we have had from the previous quarters related to the merger of the two companies and the restructuring that come with it. The big ticket item this month or this quarter is SAP.

And it's driven by the fact that we're moving into the cloud and that we have to give up the utilization rates that we were assuming so far. That triggers this. It's a little bit of an awkward situation that was heavily discussed with auditors. But it's not a classical impairment in the sense that you have an asset that doesn't function anymore, that doesn't produce value. We are changing here the way we are treating it because we are moving from on-premise what we had so far into the cloud.

This was heavily discussed with our auditors. We are not the only one out there that's facing the situation. I'll just say that the accounting standard there is a very conservative approach to the topic.

Okay. And what should we expect for Q4 or the full year in the overall figure for special items or one-offs?

For the SAP, there will be a little bit of it, just to close that topic impacting October. But we are talking single or single-digit or low single-digit amount that's done for the rest of the year. For the other topics, again, the usual suspects that you find in every quarter since the merger and the announcement of restructuring programs.

[Operator Instructions] We have a follow-up coming from Horst Schneider from Bank of America.

I have got follow-up questions. The first one is related to defense business. We saw this week that the first German auto supplier says he wants to get into drone production. I just want to get an update where you stand on that, if that could be something for you as well. And maybe you can talk about the outlook of your defense business maybe in that context. The second one is a follow-up on the humanoid business. I know you cannot share a lot of details. But could you maybe say, given the order intake that you got so far, where you see the main business potential for you? Is it more in the U.S.? Or is it more in China? Or it's all over the world and you cannot say?

Let me tackle the second or the last one. As I said, we want to play in all the three regions that you mentioned. There is a -- the jury is out there who comes with the first volume contract, and you clearly defined what that is. It's, at the moment, not clear what's happening there. We see the U.S. there with the prominent names probably as the leaders because there is more concentrated on one prominent company. While in China, there are many, many players at the moment, where it's a little bit more difficult to distinguish who are the ones that we need to -- should bank on. NEURA is, I think, the most prominent player here. At the end of the day, of course, this is all depending on the end customer demand. And I can only say this Amazon announcement that was also well received. We need more of these kinds of players to articulate their needs. And that will then flow through the humanoid OEM and also through the supply chain. I personally think that the U.S. will drive that first phase, and we'll then see significant competition between U.S. and China. When you go to the 5-year plan, it's obvious that the industrial automation in China is key to the next 5 years in China. There is massive support there. But on the short term, my view is that we need to watch out for what's happening in the U.S. They will drive it. Yesterday, when David was here with us, also in the Board meeting, he gave us a little bit more insight. And it looks at the next 1 or 2 years will be decisive on who is going to be ahead. Maybe a little bit a statement that is more diplomatic, but we need to see how it unfolds. In terms of defense, let me quickly put that in perspective. We have said at the Capital Markets Day, Phase 1, that the basic decision that we want to play in defense or play more in defense is taken, also with our shareholders from the family side. We are now in Phase 2. Phase 2 has three main deliverables. The one is a more articulated product, sales and also industrialization strategy. Without saying too much detail, we are today in a situation where we are looking at the key opportunities for us, for sure. Flying objects, let me call it like this, are super interesting because there is scale in that area and there is a product that is needed in particular when you think about high-performing electric motors, That's also where the fact that we are automotive and aerospace helps us. There is opportunity in everything that are vehicles for us. There is opportunity also in some of the high energy weapons. There's also opportunity when you think about spare parts and repair solutions. So we're looking at focused areas with dedicated customers. We have a lot of calls, a lot of demand, a lot of people that are coming. Can you help us with your supply chain experience also from the start-up side. But we are, at the moment still in that selection phase. The second phase will last probably until Q1 2026. What is key then if you want to really turn this into a solid business, you need a structure. You need a legal entity. You need to have the right certification, qualification, in particular if you want to play at scale. And that's a second key element that we are working on. So all good in that second phase. More to come when we are finished with this phase and have decided where we really want to play in terms of products and applications.

There are no more questions at this time. I would now like to turn the conference back over to Heiko Eber for any closing remarks.

Thank you very much. So with this, we would like to close today's call. Thanks to our speakers. Thanks to everyone dialing in for your questions, your interest. And of course, thanks to the team for the preparation. As always, if there are additional questions, please reach out to our IR team. And I would already like to draw your attention and block your calendars for January for the CES. The formal invitation to visit us at our booths in Las Vegas will be sent out shortly. I guess you have it on the radar anyhow. Thank you very much. Have a good rest of the day, and talk to you soon.

Bye-bye. Thanks, everyone.

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