Release Date: August 06, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Q2 sales increased by 4.2%, driven by strong performance in E-Mobility and Vehicle Lifetime Solutions.
- Vehicle Lifetime Solutions achieved a significant margin improvement for the third consecutive quarter.
- Free cash flow was positive at EUR75 million, despite one-off integration and financing costs.
- E-Mobility segment saw double-digit growth, particularly in Europe and America.
- New order intake of EUR3.6 billion, with EUR2.1 billion from E-Mobility, indicating strong future growth potential.
Negative Points
- EBIT margin decreased to 4.9%, impacted by issues in Bearings & Industrial Solutions.
- Free cash flow decreased from EUR103 million in Q2 2023 to EUR75 million in Q2 2024.
- Bearings & Industrial Solutions experienced a 3.6% decline in sales, particularly in Europe and China.
- Operational one-offs, including inventory valuation and warranty claims, negatively impacted gross profit by EUR55 million.
- Higher R&D costs for E-Mobility and Chassis projects affected margins, with ongoing cost pressures expected.
Q & A Highlights
Q: Could you elaborate on the higher costs for customer projects in the automotive sector? Are these costs expected to continue in the next few quarters?
A: The higher costs are primarily due to start-up investments in E-Mobility projects. These costs are slightly higher than expected but are not out of the ordinary. As E-Mobility volumes ramp up, these R&D expenses will be covered by increased sales, normalizing the impact on margins. β Claus Bauer, CFO
Q: What are your growth assumptions for the aftermarket in 2024?
A: While we don't expect 27% growth every quarter, we anticipate maintaining the absolute sales levels seen in Q2. Growth rates will normalize as we compare against stronger prior-year quarters. We expect continued strong growth due to market share gains and our comprehensive global footprint. β Claus Bauer, CFO
Q: Can you provide insights into the margin profile for the Industrial business division going into Q3?
A: We don't foresee another quarter with a 2.5% margin. While the market remains challenging, especially in key sectors, we are defining measures to return to previous profitability levels. We expect a similar performance in the second half of the year as in the first half. β Claus Bauer, CFO
Q: How did the Vitesco transaction impact your financial results?
A: The Vitesco transaction costs are included in our overhead expenses, impacting our EBIT. The harmonization of accounting policies resulted in a significant negative equity impact of EUR18 million in Q2. This conservative accounting approach will continue to affect results but does not change cash flow. β Claus Bauer, CFO
Q: What measures are being taken to address the issues in Bearings & Industrial Solutions?
A: We are focusing on performance management and defining appropriate measures to address the challenges. While the market remains tough, especially in Europe and China, we are working on structural measures to improve profitability. β Claus Bauer, CFO
Q: Can you explain the impact of foreign exchange on your gross profit?
A: The FX impact, mainly from the Mexican peso to the US dollar, resulted in a negative EUR19 million impact on gross profit. Without this, our gross profit margin would have been the same as last year. β Claus Bauer, CFO
Q: How is the Vehicle Lifetime Solutions segment performing?
A: Vehicle Lifetime Solutions achieved a record result with a 17.4% margin in the first half, driven by strong growth and market share gains. We expect this positive trend to continue in the second half of 2024. β Klaus Rosenfeld, CEO
Q: What are the key drivers behind the strong performance in E-Mobility?
A: E-Mobility saw double-digit growth, driven by strong performance in Europe and America. This growth is supported by significant new project ramp-ups and resilient ICE business. β Klaus Rosenfeld, CEO
Q: How do you plan to manage capital allocation going forward?
A: We will continue our disciplined approach to capital allocation, focusing on reinvestment rates. CapEx in the first half was EUR383 million, and we expect this methodology to remain consistent in 2025. β Klaus Rosenfeld, CEO
Q: What is the outlook for the second half of 2024?
A: We expect a challenging environment in the second half of the year. Our updated guidance reflects this, with slight adjustments to EBIT margin and free cash flow. We remain focused on achieving our strategic goals and improving profitability. β Klaus Rosenfeld, CEO
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
