Kendrion N.V.

Good morning everybody here in the Novotel and on the webcast and welcome to Kendrion's Q4 and full year 2024 results presentation. My name is Joep van Beurden, Kendrion's CEO and with me here is Jeroen Hemmen, our CFO. This morning's agenda. I will start highlighting the strategic repositioning of Kendrion that we've implemented in 2024 by selling almost our entire automotive franchise to Soliro Jeroen will then review Q4 and the full year 2024 results, after which I will give you an update of the progress we have made operationally over the past year, including ESG. Next, I will discuss the outlook for the remainder of the year and go to Q&A. Before discussing the strategic repositioning, I would like to draw your attention to the following. Certain statements contained in this presentation constitute forward-looking statements And these forward-looking statements rely on several assumptions concerning future events and are subject to uncertainties and other factors, many of which are outside the company's control that could cause actual results to differ materially from such statements. Today we are here to discuss our Q4 and full year 2024 results and to present a new Candrion. A Kendrion that is no longer active in both the automotive and the industrial markets. And a Kendrion that will continue its business as a pure play industrial company. A Kendrion that will focus exclusively on opportunities within our industrial breaks and industrial actuators and controls business groups in Europe, China and the US. And a Kendrion that's a global niche leader in selected industrial market segments. that we expect will sustainably grow its revenue through the economic cycle with a goal of achieving a profitability of at least 15% EBITDA. A Kendrion that has and will select promising industrial market segments against three criteria. We're looking for business opportunities with a clear product differentiator based on our deep expertise in valves, actuators, brakes, or control technology. The product market combination needs to offer superior profitability of at least 15% EBITDA and preferably more, and it needs to offer healthy growth potential of at least 5% and preferably more. As a reminder, why did we sell automotive? Over the past years, we have seen significant and relatively fast changes in the automotive market. These have led to strategic changes at Candrion, such as putting more emphasis on industrial through the acquisitions of Intalk and 3T. The automotive industry is in a major transition, which also means opportunity. But to make full use of the opportunity required substantial and ever more investments in R&D and in production equipment. We found ourselves more and more in a position that we had to choose. Do we invest in a specific automotive opportunity, or do we instead allocate the funds and the resources to industrial? So we arrived at the conclusion we could not support both investment in industrial and automotive, and that we had to make a choice, which led to the strategic decision to put our focus exclusively on opportunities within our industrial breaks and actuators and controls business groups in Europe, China, and the US, where we believe we can make better use of the growth and profit potential. We also believe we can substantially improve the group's EBDA margin profile. As you can see from our 2024 results release, the transaction has a significant impact on our revenue mix. As of October 2024, we are a pure play industrial group with around 39% of revenue in industrial breaks, 40% in industrial actuators and controls, and 21% in mobility, consisting of our electronics production in CBU and smart damping in China. The mobility business that we used to refer to as retained automotive has been fully integrated into IAC. It's managed separately. We will also report the numbers of the mobility segments separately, as we did before with automotive. The divestment of automotive in Europe and the US is now effective, has driven a fundamental change in our strategy. We are now a global niche leader in selected industrial market segments, and we aspire to a profitability of at least 15% EBITDA with strict criteria for the market segments that we invest in. It needs to be a product opportunity with a clear USP based on our deep expertise involves actuators breaks or controls technology, Second and related, the product market combination offers superior profitability of at least 15% EBITDA and we're looking for healthy growth potential, typically 5%, preferably more. In other words, no USP, we will not engage. Not enough profitability, we will not engage. No visibility to at least 5% revenue growth per year, we will not engage. And we see plenty of opportunity in the sweet spot in the middle. At our Capital Markets Day of September the 5th, 2024, Olaf Detlef for IB, Robert Lewin for IAC, and Teleco for China have presented around 15 concrete examples of these opportunities, all of which are in the middle of this diagram. Each opportunity is different. Each has its own dynamic, its own competitors, its own leading customers, its own USP, and in some cases, its own roadmap. However, each niche, each opportunity shares the characteristics just mentioned. Some may be relatively small, but added together, they represent this substantial and tangible opportunity for at least 5% growth at an EBITDA of 15% or more. And we've said internally, clear financial criteria before we invest in a market opportunity. New business investment decisions are made per project and based on a strict set of criteria. An added value margin of at least 50%, steady-state fully-costed EBITDA margin of more than 15%, a lifetime ROI that is larger than 25%, we have minimum lifetime in EBITDA requirements that vary a bit per business group, even per segment, And furthermore, we will mandate volume-based pricing for all customers, meaning that lower than expected volumes will be priced higher and better volumes may attract a discount. If we're talking about investment in R&D, tooling or production equipment, we will implement co-investment and risk-sharing requirements by the target customer of at least 50%. And of course, as mentioned earlier, we are looking for clear differentiators through intellectual property, specific know-how, product USP to be able to protect our added value margin and pricing. Related to the strict financial business investment criteria, M&A is back as a strategic tool. We have done two significant M&A deals over the past four and a half years. We acquired Intorq in January 2020 and 3T in September 21. In our view, these transactions have strengthened Candrion and have broadened our strategic options. With the divestment of automotive, we've also created the financial room to consider M&A. We have clear acquisition criteria and we combine that with a disciplined approach to potential transactions. First and foremost, when offered an opportunity, we look at the strategic fit. The transaction must be in direct support of our strategic objectives, so targeting industrial companies closely aligned with either IB or IAC areas of focus. It must support a strategic objective of profitability-led growth. We're looking for tangible, identifiable synergies to justify the acquisition premium, and we access management, and importantly, we look for a good cultural fit with Kendrion. Post-close of the transaction with Soliro, our M&A efforts are supported by a stronger and healthy balance sheet, and we will continue to use M&A using this criteria in a straightforward and a disciplined manner. Which leads me to the final slide of my presentation before I hand over to Jeroen. Kendrion is now a simpler, more focused organization, and this is the way we are organized with three business leaders responsible for IB, IAC, and China, with the head of IT and the general counsel, all part of the management team of in total seven people. Simple and effective. Now let's go to Jeroen for the financial review and the dividend proposal.

Thank you Joep.

so yeah good morning i will present the business review for the fourth quarter and the full year of 2024. despite continuing market weakness especially in the industrial market we have reported good growth in our activities revenue in q4 increased eight percent and was also notably higher than it was in q3 the revenue increase was driven by ramping up new projects in the mobility segment that includes the retained automotive activities after the divestment of most automotive activities to Solero. Mobility increased 39% while the combined industrial groups reported stable revenues. In IB, where we had seen significant revenue decreases since the midst of 2023, we continue to see some early signs of recovery, albeit still on a low comparable basis. Our EBITDA decreased with 5% and was affected by 1 million euros in inventory reductions and some temporary dis-synergies after the automotive divestment. While automotive still contributed for services provided by the central organization such as IT and headquarter cost in the previous year, this was much less the case in Q4 2024. But as announced earlier, we have addressed these dis-synergies and have implemented substantial cost savings starting in Q1 2025 that will offset these dis-synergies and more. Normalized net profit improved substantially in Q4, and it was driven by lower interest rates and tax charges. For the full year, we realized a revenue decrease of 2% as weak industrial production globally and in particular in Germany affected our end markets. EBITDA from continued operations decreased by 11%. EBITDA was affected by an unfavorable sales mix, with growth in mobility offset by revenue decreases in the industrial groups. In addition, we were faced with the temporary dissynergies after the sale of automotive, as mentioned earlier. With the announced net cost savings of 9 million euros, of which 2 million euros related directly to the continued operations, plus our strong focus on improving our added value margin, we believe that 2024 has been a pivotal year in fundamentally improving our profitability for the future. And then some words about our business groups. The industrial business groups reported 15% lower EBITDA on 7% lower revenues. EBITDA was affected by the lower revenue and absorbing a higher share of the central cost. Again, the temporary dis-synergies. The retained automotive business, the mobility segment, which is integrated into IAC but reported on separately, realized 21% revenue growth and 19% growth in EBITDA. We expect the profitability of mobility to be significantly enhanced by sales price increases and the integration of our retained European activities in the Romanian plant in Sibiu that was finalized in December 2024. Then to cash flow and our financial position. Free cash flow from the continued operations was healthy with 12.1 million euros, a cash conversion of 105% over normalized profit. The normalized free cash flow from the discontinued operations was negative and affected by the discontinuation of a receivable factoring program and the timing of the divestment. The sale per the 30th of September precluded the seasonal uplift to free cash flow in December caused by extremely low working capital requirements in December. Our leverage ratio based on the definitions in our lender agreement was 2.7 at year end And when pro forma including or excluding actually the divestment proceeds that we are still to receive, it would have been 2.4. We expect to receive the final 8 million euros purchase price later in Q1. Capital investments of the continued operations amounted to 13.6 million euros, significantly below the depreciation level of 15.9. Investments mainly related to new production lines in IB and IAC. And then finally, to our dividend proposal. As you know, as part of the long-term targets of the new Kendrian, we have changed our policy to distributing at least 50% of our normalized net profit before amortization. Despite the reduction in profit before amortization, we propose to maintain the dividend at 45 cents per share. This is a payout of 59% of the total net profit before amortization and shows our confidence in the strong business fundamentals of the new Candlion. The total dividend amounts to 7 million euros. And as usual, the dividend is payable in newly issued shares or in cash at the option of the shareholder. And with that, that closes my part of the presentation and I hand back to Joep.