Schaeffler AG
XETRA:SHA
Earnings Call Analysis
Q3-2023 Analysis
Schaeffler AG
The company's earnings call highlighted a narrative of resilience and strategic maneuvering in a challenging economic landscape. With foreign-exchange adjusted sales remaining relatively flat compared to last year, the company faced headwinds such as a significant negative foreign exchange impact and the absence of a prior year one-time price adjustment. Nonetheless, maintained pricing levels and productivity gains demonstrated robust gross profit management. The company's E-Mobility segment encountered a 9.4% sales decrease, reflecting stagnant market volumes, while other divisions achieved solid growth.
The Automotive Technologies segment reported a strong EBIT margin of 5.8%, indicating effective cost management. Notably, the company achieved market-level performances in Europe and Asia Pacific, with Americas lagging due to unfavorable exchange rates. The Industrial division experienced a 22% sales decrease in China, pronounced in the wind sector. Nevertheless, the company anticipates this downturn to be temporary, with policy support potentially bolstering the Chinese wind market going forward.
Strong free cash flow generation and effective working capital management underscored the company's financial health, with a 9-month underlying free cash flow of EUR 362 million, nearly EUR 100 million stronger than the previous year. The company's leverage ratio, influenced by the acquisition of Ewellix, increased slightly but remains well managed through robust cash flow generation.
The executives revised their market assumptions, raising expectations for Automotive Technologies, while adjusting Automotive Aftermarket and Industrial production assumptions based on recent market developments. They confirmed their guidance on a group level. With particular regard to the industrial segment, the company foresees a challenging first half of the next year, yet remains optimistic about the latter half, confident in its ability to navigate headwinds, especially within the wind sector in China.
The company emphasized the strategic logic behind its proposed transaction with Vitesco, aiming to build a leading motion technology company. Despite speculation, they see no current need to alter their proposed offer price. Additionally, Schaeffler AG maintains a robust balance sheet and strong liquidity, preserving its credit ratings even in the face of this major transaction. The executives also postponed their CMD in light of the ongoing deal, focusing on the transaction's execution as a priority over unveiling a new strategic vision, which is expected to follow in 2024.
Questions from analysts addressed the company’s performance relative to the global light vehicle production, challenges in the E-Mobility segment, and the potential impact of revenue decline on industrial margins. The CEO, Klaus Rosenfeld, addressed strategic decisions and his own future with the company, signaling a commitment to steering the Vitesco transaction toward a successful outcome. Analysts sought clarity on the company's execution strategy amidst a competitive E-Mobility landscape and were reassured of comprehensive plans for adapting to market fluctuations.
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Ladies and gentlemen, thank you for standing by. Welcome and thank you for joining the Group Q3 and 9M 2023. earnings call of Schaeffler AG. Throughout today's recorded presentation [Operator Instructions]. I would now like to turn the conference over to Head of IR Renata Casaro; CEO Klaus Rosenfeld; and CFO Claus Bauer. Please go ahead.
Thank you, Caio. Dear investors, dear analysts, good morning. Today for the third quarter release of the Schaeffler Group Mr. Klaus Rosenfeld, CEO of Schaeffler Group; Mr. Claus Bauer, CFO and [indiscernible] are here to take you through the results. This conversation will be conducted under the disclaimers you find on the deck. And without further ado, let's start the call. Klaus, the floor is yours.
Thank you, Renata. Ladies and gentlemen, welcome to our Q3 earnings call. You have in front of you our presentation that was published this morning. And I would like to go immediately to Page 5, where you have the key messages for Q3. I think you will agree these are strong Q3 results that are driven by the success of our Automotive divisions. Q3 sales against high comps rather flat for the whole group, good growth in Europe and Asia Pacific, but clearly, headwinds in China. If you think about the first 9 months, then you see that there is growth in line with our overall guidance. You see a Q3 gross margin that is slightly below Q3 2022 when you compare the quarters. And clearly, in that quarter, 2023, driven by the very strong contribution from our Automotive Aftermarket business.EBIT margin, 8.4%, that is a margin even better than our margin guidance range of 6% to 8%. Also here, the 2 Automotive divisions are the ones that contributed, while Industrial was below what we wanted to achieve due to the economic environment. But 8.4%, ladies and gentlemen, is compared to what we have seen in the past, a good and significant step forward.That comes together with continued strong cash flow generation. As you are used to, EUR 182 million positive free cash flow in the quarter speaks for itself. And that is also the result of an effective working capital management, in particular, in Automotive technologies. On that basis, we confirm the group guidance. We have slightly reduced the top line in Industrial but confirm the targets for our 2 Automotive divisions and are on track to deliver what we promised.If you go to Page 6, you see why we are saying in the press release that this is a strong quarter in a challenging environment. You clearly see that in the third quarter, in particular, China, our region was not growing, minus 9.6%, across the 3 divisions, with a minus 22% in Industrial. That clearly shows that there is headwind. All the other divisions were positive or slightly positive in that quarter. The outlier here is clearly Aftermarket with 8.8% growth in that quarter, significant margin contribution that once again shows how important that business is.Automotive, as I said, is flat. And if you go through the regions, you see Europe, positive Americas, more flattish in Asia Pacific, also with a positive contribution. If you go to the backup, you see the same numbers for 9 months, and you see that we are on track.Page 7 gives you my typical highlights and low lights, and I already alluded to this, Automotive Technologies, strong margin driven by the mature business. We think that this quarter once again shows that our approach to manage the transformation is exactly right. We're earning the money and the cash flow in the traditional business, and we're investing, going forward, into the new business. The margin is at the high end of the guidance. And if you see what happened with order intake and E-Mobility, we are now, for the first 9 months at EUR 2.9 billion order intake, and that is, again, the high end of the range that we promised EUR 2 billion to EUR 3 billion. We are confident that we can also generate more order intake in the fourth quarter.Automotive Aftermarket, I said it, both strong growth certainly also supported by our improved logistical performance. We have spoken about this many times. And that, together with favorable pricing delivered a high quality of earnings. That is clearly a record result in Automotive Aftermarket. And I'm proud to say this is now the third quarter where that dynamic continues. That is clearly positive.Free cash flow generation, good profitability and effective working capital management led to strong free cash flow better than in the previous year quarter. So we are very happy with this, and that will also pave the way for a very decent dividend.On the negative side, to be straight here, yes, Automotive Technologies' overall sales growth was below market in Americas and in China. E-Mobility sales were softer in Q3, also not a surprise market driven and clearly also a function of the fact that we explained in the second quarter already that some of the expected ramp-ups come later than expected. So a temporary issue from our point of view, we clearly see upside potential from what is coming.And then Industrial, I said it before, significant headwind from China year-over-year sales and EBIT in Q3 with a negative development, not Schaeffler specific, but due to the weakening economic environment. If I put that together, once again, it's a strong quarter that also makes us very confident that we will achieve our guidance on the group level towards the end of the year.Page 9, I will do this quickly. Claus will anyhow explain more details here. You see Q3 with continued strong EBIT momentum. As I said, also driven by our traditional business, good cost management from Matthias' side, good management of working capital, bearings continue to grow in the right direction and also perform better. And I think an EBIT margin of 5.8% in Q3 speaks for itself.If you go to the Automotive Technologies order intake page. Next page, you see that we have, as I said, already delivered our target in the first 9 months. You see that the order intake resulted in a strong book-to-bill ratio of 1.6x in Q3. So that clearly indicates future growth. I can once again say we are always careful with some profitability of orders and see the long-term strategic growth trend in E-Mobility intact. Two business highlights here. The U.S. pickup market is interesting and also more innovation in commercial puts in high-performance deep powertrains drives the order intake.Aftermarket, clearly, the shining star in our portfolio, strong sales growth, very strong EBIT margin. You see 16.7% margin in Q3. You see 16.9% in the first 9 months, significant improvement of EBIT; at the same time, significant growth, 2 digit in the first 9 months. This is clearly a very convincing result and the function of all the good things that the team in Aftermarket has put in place. We are very proud of what we have here. And it looks like that despite certain issues, we are performing very well also towards the end of the year.Next page then gives you a little bit of a deep dive. You remember that we announced the acquisition of a B2B e-commerce platform in India called Koovers. The trade and the transaction is going well. It's a scalable platform that we acquired with some high customer focus, a strong digital interface. And we are very confident that with the significant number of workshops with the significant number of contacts we can generate through this platform that will give us an edge in the growing Indian market that clearly is attractive for aftermarket sales.Industrial, next page, Page 13. I already mentioned the difficult issues here. We all know that Q3 2022 was a very strong quarter. So volumes in more or less all regions are below previous year quarter due to the weakening economic environment and also, to some extent, destocking. That also has impacted the EBIT margin. And for us, clearly, China has been an issue, minus 22%. In particular, the high-performing wind business is something that you cannot just compensate from other growing areas. That, together with continued investment in growth areas like industrial automation, like rail, has then resulted in a certain reduction of profitability. We have put in place tactical cost-saving measures; so nothing structural. We are confident that at some point in time, the cycle will turn and the tactical cost-saving measures are, in particular, addressing SG&A and overhead cost to smoothen the path. As we said, we are confident that we will make our guidance going forward.Order book clearly indicates that the bottom has not reached so far. So let's see how that fourth quarter goes. And clearly, China with wind down has an impact on profitability. But there's also positive things to mention, in particular, in aerospace, we see that we are winning market share by long-term agreements from key OEMs. And also in the rail business, there is significant upside potential and good order intake. So both these sectors are growing and will also continue to grow going forward.Capital allocation, the last page from my side before I hand over to Claus, all on track. Investments for the first 9 months, EUR 641 million. We continue to prioritize CapEx for growth businesses. We are absolutely in line with what we suggested here, CapEx ratio of 5.4% or more importantly, reinvestment rates slightly below 1. That makes a lot of sense. And the company is, as we said, cash generative. So we will continue to invest going forward in the areas where we see future growth.With that, I hand over to Claus, and will come back for the last chapter.
Yes. Thank you very much, Klaus. Ladies and gentlemen, let's look at the numbers. a little bit more detail. First slide is sales. Klaus already mentioned the flattish sales development of foreign adjusted 0.5%. Let me put that a little bit more in perspective. If you look at the prior year, you see strong sales of EUR 4.2 billion. There's 2 impacts that I would like to stress. First of all, you see also on the bottom, when you compare reported to foreign exchange adjusted sales, a very significant negative foreign exchange impact of almost 5 percentage points. And secondly, as you remember, in Q3 of 2022 we had this retroactive price recovery for automotive OEM. We explained in past calls that we don't have a renegotiation of most of our sales price adjustments and therefore, sales price impacts are much more equally distributed in 2023 versus 2022.So I will mention that impact a couple more times as we go through the numbers. Klaus already mentioned the quarterly distribution. Here, you see it also depicted with the very significant sales decrease in Greater China.When we come to the next slide, gross profit. The headlines are on the right side under, key aspects. You see on the waterfall chart that we maintained our pricing levels actually slightly positive versus Q3 of 2022. That is especially remarkable because, as I said, there was this retroactive onetime year-to-date price adjustments very significantly in the prior year. You see the volume impact that is mainly driven by Industrial, as Klaus already described. And then you see the positive impact of production cost. That is the productivity that we are driving, not just in Automotive, but also in Industrial, as I will mention later on the divisional slide.The foreign exchange impact that I also already mentioned that is also impacting our gross profit, and therefore, also having an impact on the gross margin, which Klaus already said, is slightly below last year, but the 2 impacts, foreign exchange and the retroactive onetime price recovery impact of the prior year quarter would explain all of that. And actually, without these impacts, we would have been gross profit improving also from a margin standpoint.Regarding the divisions, I will talk in more detail on the coming slides, so I will skip that and right go into the next slide, which then shows you the overcost -- overhead cost development, we stay below 16%. That is definitely our threshold that we are monitoring very closely. You see a little bit of an uptick in admin for this quarter. The main driver behind that is that we had to adjust our year-to-date variable compensation accrual for the expected higher target achievements for this year. So from a cost standpoint, a slightly negative impact for the quarter, but in general, obviously, a positive background for this development in the single quarter.When we come to the next slide of the EBIT margin, then as Klaus already said, 8.4% EBIT, very strong quarterly result. You see it if you compare it to the first half of the year, it's the strongest EBIT margin for the year. It's actually at the same level as last year's Q3 EBIT. And again, I cannot repeat it often enough, last year's quarter 3 was impacted by a year-to-date onetime price recovery for the automotive OEM customers that would be equally distributed this year. So definitely on the right trajectory.And again, I will talk about the single divisions on the upcoming slides starting with Automotive Technologies.At the next slide, you see what Klaus already mentioned, E-Mobility, we had a sales decrease of 9.4%. That is in line with the currently stagnating E-Mobility and market volumes, but you also see that in all other business divisions, we had solid growth. If you go to the bottom of the left side, you see our relative performance. And Klaus already mentioned that as well. We are at the market levels in Europe and Asia Pacific, but especially in Americas, the relative underperformance continues. I explained that in past calls that is heavily driven also by the Mexican peso, U.S. dollar exchange ratio that continues to be in that metric, unfavorable for us, if you would correct it that then our volumes would be also in Americas at the market growth levels.On the right side, you see then reflected everything that I already mentioned also from an EBIT perspective, you see the gross profit contribution, the positive one. That is now excluding the foreign exchange impact. That's in the last column here of the waterfall. So therefore, that is clearly driven by our maintained pricing levels and therefore, positively then net positive our productivity gains in our production facilities.Maybe a short comment to others, I made the same comment in past calls. Remember, last year, we reported a shareholding in Schaeffler Paravan, which is today Schaeffler ByWire in -- we accounted for that at equity and therefore, put the result in others. It's now reported mainly under the R&D column. Therefore, there's a reclassification impact between R&D expenses and others that explain the favorable other portion and also some of the higher R&D expenses that you see. In total, the -- and Klaus already mentioned that all of that is leading to a strong EBIT margin for the quarter in Automotive Technologies of 5.8%.Next slide, then Automotive Aftermarket, not much to add to what Klaus already said, that is and continues to be the shining star. Everything really going in the right direction at the moment. You see the significant sales growth really supported by all regions and also supported, as you then see in the waterfall chart on the right side by strong gross profit contribution. That is due to still solid pricing and also then obviously the volume increase that you see in sales. Outstanding EBIT margin of 16.7% for the quarter, you see over 3 percentage points better than last year and in line with what we have shown every quarter so far this year.And last but not least, regarding -- next slide, please, regarding the Industrial division. Everything that is significant was already touched upon by Klaus. You see on the left upper side, the 22% sales decrease in China. You also see that reflected on the bottom part of the left side, especially in renewals. Klaus already mentioned that the Chinese market in general, but in particular, also in wind is declining at this rate, and therefore, no surprise that renewables here is at almost the same declining ratio. There's, I think, no question that renewables also in China, wind also in China will have to play a significant role going forward. So we expect that being a temporary situation, although maybe still ongoing into the fourth quarter and maybe even the first quarter of next year.On the right side, you see then the EBIT development. A lot of that is driven by volumes, especially out of China. There is a fixed cost absorption impact but also a margin mix impact. Therefore, a significant margin decline over -- as compared to last year. But the 9.7% is almost 1 percentage point better than as you remember, our Q2 result was, which is testimony to the effective tactical cost savings measures that we are undertaking in that area.That leads me into the next slide to net income. You see, first of all, over the quarters and this year, a very good trajectory of net income. We increased it quarter-over-quarter throughout the year. And secondly, you also see technically the relatively big decline versus the prior year quarter. And again, by now, I mean, you know it by heart. That is, again, the distortion of the prior year quarter by the onetime retroactive price recovery that we realized last year and is reflected on an ongoing basis this year.You see on the right side, ROCE and Schaeffler value added significantly improved over last year. Based on the mathematical formula, that shouldn't be a surprise based on what I reported so far.Coming to free cash flow on the next slide. It is a strong free cash flow. Also the trajectory similar to net income, very positive. It is pretty much in line what I think we also predicted for this quarter, maybe a touch stronger than that. You see, again, as compared to the prior year quarter, the impact of the retroactive price recovery, not going now for the next time in more detail, but EUR 182 million, definitely a strong cash flow generation here. As always, we show you a little bit the detail on the bottom right side, where you see also, especially the restructuring cash outflows for the first 9 months of 2023. These were EUR 181 million. You know that these cash outflows will significantly normalize starting next year. And therefore, there should be cash generating power from that line alone. If we hadn't had these restructuring expenses and cash outflows and the other line items, you see that our underlying free cash flow generation power has been EUR 362 million for the first 9 months of 2023, which is almost EUR 100 million stronger than last year.On the waterfall chart on the top right, you see everything that Klaus already touched in his highlights. We had -- we have the effective working capital management in place, a working capital change of EUR 108 million for the 9 months is a good result considering the sales development. You see also that with a cash flow of EUR 182 million with a free cash flow of EUR 182 million, we financed almost EUR 250 million in more CapEx than in the last Q3 that makes this cash flow number even stronger.That brings me to my last page. You see -- on the left side, the leverage ratio from end of last year of 1.1%, increasing since the beginning of the year to 1.4x. You know that from prior calls that, that is due to the financing of the Ewellix acquisition. We have drawn a term loan of EUR 500 million to finance that acquisition that brings us to 1.4 that we are now with our cash flow generation managed down.And clearly, the bottom of the left side, including the leverage ratio indicates our continuing strong liquidity situation and strong balance sheet. And therefore, it was also no surprise that even in the light of the announcement of the Vitesco transactions, all 3 rating agencies confirmed our current credit rating.And with that strong message back to you, Klaus.
Thank you, Claus. I will finish the rest of the presentation quickly. You have probably already seen Page 28 with the market assumptions that we updated. Automotive Technologies slightly raised, EUR 88.1 million for the full year. That points to EUR 22.7 billion production volumes in the fourth quarter. Automotive Aftermarket more or less unchanged. You see here the significant outperformance of our business. And for Industrial production, we have due to the development in the last weeks and months, lowered our assumptions guidance. As I said, confirmed on group level, everything on track with Industrial slightly reduced to 4.5% to 5.5%. Page 30 then gives you the conclusion. I'm not going to repeat everything, what we said so far. But I'm proud to say that Q3 was strong. Guidance is confirmed. We are cruising very well in terms of free cash flow generation. Also the month of October points in the same direction. Balance sheet is robust. Liquidity is strong. And we think that, that is a key asset, in particular, in this current uncertain macroeconomic environment and certainly also a good basis for further building our strategic logic with the Motion Technology Company and paving the way for a successful transaction together with Vitesco.Last page is then financial calendar. We'll go on the road tomorrow in London, Claus and myself, with the help of BNP. We'll, then in January, be there for the German Corporate Conference at Kepler, and there are certainly many more incidences to meet with you whenever you want to. Earnings release is then planned for 6th of March. And before that, we will certainly have the next milestones when it comes to the transactions. The offer is to be published on the 15th of November. And we'll share with you shortly the date for the EGM and also for the AGM.With that, I hand back to Renata to organize the questions and answers. Thank you very much.
[Operator Instructions] Our first question comes from Horst Schneider with Bank of America.
I've got a few this time. I'm not sure if I can ask all of them. So maybe I'll step back and stepping in later in the space. I want to start with the first 3 ones, please. And that is in Automotive because you continue to guide for outperformance in the Automotive segment. But I think Q3 was again an underperformance versus global light vehicle production. So when you expect this underperformance situation to turn into an outperformance situation. I mean looking at the order intake, clearly, it should at some point of time. But is it already happening in Q4? Or that's more a matter for 2024? The other question on Industrial. I see that the EBIT margin, that's right, was not too bad, but the gross margin was down in Q3 versus Q2. So therefore, of course, the question is what happens if then revenue growth is negative in 2024? Would that also imply that the EBIT margin should further decline? I don't expect you to give me a guidance for 2024, but at least a kind of statement how you aim to prevent a margin decline if revenues continue to develop negatively.And then a follow-up on Vitesco, if I may. So we have seen that the press is already speculating that maybe the offer price needs to be increased. So therefore, just a question from my side on that. So what would trigger that from your perspective? Do you think there is a need to increase the offer price? And maybe you can update us how many shares you have bought by now?
Well, let me take the last one and then Claus can answer the first 2 ones. Again, this is an earnings call. We are not in a position to comment on what we're going to do on the 15th of November. That's where we're going to launch the offer as promised. You've clearly seen the letter that was published yesterday. But today, I cannot comment on this. We're certainly listening to every voice that is there to understand where we are with our transaction, but I don't see at the moment based on the information I have and no reason to change course.As you know, also, that is public. We have a stake in the Vitesco through IHO Holding of 49.9%. Schaeffler AG has no Vitesco shares, but has entered into a total return swap as described also publicly. So we think that the transaction makes strategically absolute sense. It is based on a transaction structure with a significant transaction security, and it's very financeable because of the fact that we need a little debt that we can easily put on our balance sheet. So all in all, I can only confirm what we said before, a strategically convincing transaction that makes in the mid- and long-term absolute sense to combine forces here and build the leading motion technology company.
Yes, Horst, let me take the other 2 questions. Your first question was related to the outperformance in Automotive. We have adjusted our guidance here to 0 to 3%. Let me start with the easiest component that is the technical impact in the Americas, where you have this very strong Mexican pesos versus the U.S. dollar impact was as compared to prior year. And therefore, we have a significant negative impact as soon as that's in the base for this year, then next year that automatically corrects itself. So as I mentioned, priorly, the volumes in Americas are at the market growth level. And as this technical translationary impact phases out, as I said, it would normalize itself. Europe and Asia Pacific, we -- I think we showed it in this quarter, we are at the level that we target for. And China, once you have the base impact and the new platforms will gain in momentum next year that should also be correct. That's not a technical impact. That's for sure, market impact. You know how important it is, especially in the in the battery electric vehicle platforms to be at the right platform that then also is performing in the marketplace, but we are confident that, that will be the case.In -- we also mentioned that in the last call that we have significant ramp-ups in that regard in China, in Europe and also Americas for E-Mobility projects and also chassis -- electrified chassis projects. These -- we are dependent on the phasing in and the timing right now, as I said, we are definitely confident that we will return to normal levels that we also delivered in the past for market and for technical reasons next year.The -- and then if I'm not correct -- I'm not wrong, then your margin question was regarding Industrial, correct?
Correct.
Yes. Okay. So the Industrial margin, I mean you -- you asked whether there is further deterioration risk. I think as we have proven this quarter. And as we have proven in many situations, challenging situations, not just for Industrial, but the entire company in the past. We know how to react also difficult to circumstances. And I think that the margin improvement this quarter versus last quarter is proving that point. We don't see the volume situation especially in our case, deteriorating further throughout next year. We, for sure, as most everybody else is expecting a difficult first half of next year, but then a better second half. But as you know and as we have described, we are heavier impacted by a single market segment in China, and that's wind in China. And we definitely think -- and I alluded to that a little bit. There's no question that China needs wind installation. There was also some policies that have been put into effect just recently to support especially offshore wind installations in China. And that single impact for us had the significant downward pressure that we are facing right now, but also has the upside opportunity for next year.
[Operator Instructions] Our next question comes from Horst Schneider, Bank of America.
I have got a few more questions and that is then, again, on E-Mobility. I understand you cannot talk a lot at this stage about Vitesco. But we have seen basically this morning from BorgWarner last week, and they have downgraded a little bit growth expectations. I mean I don't know what the assumptions are, but you continue to gain orders. Would you also expect basically that growth turns down a little bit in 2024? You don't need to comment on Vitesco maybe E-Mobility in general, that would be great.
Well, again, we see E-Mobility as a midterm and long-term strategic growth opportunity. I mean everyone is aware that at the moment, the environment points to a little softer demand for e-cars, also points to more competition when we look at Chinese cars. That's a general trend. So as you rightfully said, we're not here to give you any indication or guidance for 2024. I think companies like ours are well advised to be rather on the conservative and cautious side with this environment. And that, again, points to the diversification we have. For me, it's most important that we continue to build a solid order book with a good diversification across the different markets. That's what's happening. It doesn't happen quarter-by-quarter. It happens, as we said, EUR 2 billion to EUR 3 billion per year and where we are very happy with that, what we have in there. And again, we need to accept that the transformation is in full swing, but that there are also changes in the macroeconomic environment that has an impact here. And that is why it is so important to have a diversified offering here with the different powertrains. That is our way to deal with that. That may be different than others. But in particular, in these times, Horst, you see that different approaches also have different results. And we like the diversity of powertrains, and we like what our customers want from us. And we are very well positioned here to deliver both on the bat side and also on the more conventional powertrain.
Another question that I have, I see that the CMD is not anymore on your slide. So I think that has been canceled due to Vitesco. Should we assume that this CMD, this new strategic target just happens then when everything is executed?
Well, we thought that a CMD now in November in the light of the transaction doesn't really make sense. Our first priority now is to get the transactions executed step by step. Next one is 15th of November, closing the offer is planned, as you know, for the 15th of December, then the other steps follow through to the Annual General Meetings. And when that -- all of that has happened, what is significant work in front of us, we'll see when we can share with you the new equity story of the combined company. So yes, you can expect something then in 2024. When? Remains to be seen.
Last question then that I have, if you may, if I may. I apologize a little bit in advance. It's a little bit personal question to you, Klaus. So I was surprised that with the Vitesco takeover [ but with ] the announcement that the contract extension for you has not been announced. I think your contract expires end of June 2024. Should we consider that just as a formality that this extension really happens? Or I don't know. Any comment you can give on that?
Well, I can say with a smile, you need to talk to the Supervisory Board Chairman of Schaeffler AG.
I expected this answer. Yes.
And I'm not going to say more. But I can maybe give you with another smile say that I see this transaction as a -- also for me personally as a big task, as a big challenge. And I'm certainly committed to do what I can to bring this important transaction to a successful conclusion.
Our next question comes from [ Omar Omar ] with Barclays.
If I understand correctly, just on the Industrial side, on the Industrial segment, you must mentioned that your other -- sorry, other players in the market expect to have a tough H1 in 2024 and then a rebound in H2 2024, but that does not necessarily apply to you because you've got heavier what -- exposure to wind. So how do you see -- if you're able to provide more color on how do you see wind developing between Q4 and into 2024 as well. So you mentioned new policies coming in, et cetera, it will be very useful if you could provide more color on that.
Yes. Thank you for the question. The -- so as far as we have visibility, the recovery is not taking place in Q4 of this year. So the installed capacity in India, in China will be significantly down versus their plan, and that will not turn around in Q4. But as we also have known China, they are not eager to miss their own targets, and they will increase the installation capacity next year. And again, I think supporting that goal and that target is the policies that have been put in place, but also consider, I mean, offshore wind parks are not a matter of 2 weeks of planning, there's a pretty significant lead time. With that now being in place, again, we would also think that the wind market in China has a recovery trajectory that is similar that I mentioned to the other sectors. So maybe a quarter earlier, maybe second quarter of next year already, but definitely not Q4 this year and maybe also not the first quarter of next year.
Okay. Ladies and gentlemen, if there are no further questions, thanks for joining the call, and we'll be available tomorrow with a long list of investors for a one-on-one. Thanks for your interest, and we'll continue to update you on when we have something new. Thanks a lot, and bye-bye.
Ladies and gentlemen, the conference has now concluded, and you may disconnect your telephone. Thank you for joining, and have a pleasant day.