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 A Kendrion that is no longer active in both the automotive and the industrial markets.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.

Thank you, Jeroen.

I will now proceed with an update of the operational progress that we have made in 2024. 2024 has been a pivotal year for Kendrion. Under difficult economic and geopolitical circumstances, we successfully executed the strategic decision to divest our automotive franchise in Europe and the US, a cornerstone of our business for many years. We simplified our organization and we sharpened our focus. As of January the 1st, 2025, we are fully dedicated to selected higher growth, high margin industrial markets. I'm proud of our employees worldwide for successfully achieving our strategic positioning as a pure play industrial company against the backdrop of ongoing economic challenges for our business groups. We have made good operational progress in 2024, let's look at this in a little bit more detail starting with iac starting with the markets 2024 we said it before not easy especially in germany and iac revenue declined with five percent due to that persistent market weakness specifically in the machine building market and while other segments such as medical and aircraft showed strength they were unable to fully offset the decrease fortunately profitability stayed at a high level. Revenue in China was stable with a further improvement of profitability. And in the US, IAC grew with double digits on the back of strong demand for drinks dispensing valve and high voltage circuit breakers. On the actuator side, we started to develop new medical products based on biocompatible material. For example, the pressure regulator, for oxygen gases used in anesthesia equipment is ready for customer testing. And we expanded our product portfolio and our customers in the warehouse automation market. We also finalized a larger washing machine lock project, which will start ramping this year. On the control side, the cooperation between 3T and our engineering team in Malente is deepening, which has resulted in the first 3T customer in Germany And we keep on investing in induction heating, replacing gas and oil-based heating systems, for instance, industrial baking machines. We have now a standardized inductor heating product portfolio for heated rolls between 50 and 400 millimeters in diameter. Next, let us look into 3T. 3T offers a significant enhancement of IAC's controlled technology portfolio with substantial cross-selling opportunities. And these cross-selling opportunities are beginning to yield results. As I mentioned, the first 3T project in Germany is a fact. 3T's revenue in 2024 was stable after growth of 23% in 2023. And we have many projects in our pipeline which we expect to drive further growth. The main constraint to growth is our ability to recruit enough hardware and software engineers and to that end, our new location in Drachten is successful. We started with three engineers about a half a year ago and we now employ six. Next, mobility. In Q4, we completed the setup of our mobility business in CBU. All EU-based mobility products are now produced there, so in CBU, with some engineering support based in Malente. Finance and HR support is supplied by Kendry on industrial CBU to avoid duplication and to keep the cost down. This was quite a bit of work. First of all, we needed to implement a significant restructuring of R&D sound engineering resources in Germany, which we finalized in December 2024. We moved the sound actuator production from Malente to CBU early in the first quarter in January of 2025, and we finalized the engineering work on a sound project for SEAD and started the production. And finally, we have implemented the first price increases to ensure better profitability. So in summary, Mobility CBU is ready and open for business. Next, IB. As you may recall, IB saw a sudden and severe slowdown in the second half of 2023 after two years of around 20% organic growth. The good news is that the IB market has stabilized following that slowdown. So over the full year, revenue declined to a 10% compared to 2023, but in the second half of 2024, IB's revenue was 7% higher than in the second half of 2023. The measures taken immediately following the slowdown have resulted in a significant better profitability for IB in the second half of 2024 than compared to a year earlier, and we continue to work on our operational cost level. Short-term work remains in place in Villingen and Artsen. However, it will most likely be phased out if the current revenue trend continues. We're also implementing a detailed plan to improve our added value margin, which we expect to result in both sales price increases and raw material cost price reductions. So IB is in much better shape than a year ago, and we're also working to improve our long-term prospects. We are looking for structural improvements at IB in two key areas, sales and R&D. In sales, we aspire to be more proactive with a focus on developing profitable niche markets, such as lightweight robotics in Europe, an automated guided vehicle wheel drive market in the USA, and the medical market in India. And we've expanded our sales method and are including web-based selling, telephone acquisition, and social media engagement. We're strengthening the sales cooperation between the EU, the USA, and India. In R&D, we've started a project to optimize the size and improve the effectiveness of the organization. As part of that effort, we've decided to start the development of a new permanent magnet slimline brake for mid-torque servo motors. Let's go to China. China had a good year. Our revenues there were up 25%. mostly driven by growth in mobility. In industrial, we prioritize existing large markets like wind power and energy distributions, and we are active in new markets like medical dialysis, ventilation machines, robotics, and motion controls. Many of these segments are stimulated by the government's 14th five-year plan. We continue to anticipate fast growth in China's EV market, For a few years now, China has become the largest EV market in the world, and it keeps on growing. In 24, we ran several projects on the back of nominations, one in 2022 and 23, and the result was growth of our mobility business in China with around 150%. We're nominated by leading tier one players in active suspension systems for the EV market, including air spring and active damping modules. This is a healthy market growing fast with a potential total revenue value for Candrion of 80 to 100 euros per vehicle. And our nominations with China-based Tier 1 companies include deliveries into EV brands including BYD, Chery, Geely, GWM, Leap Motor, Lyoto, NIO and others. Which brings me to ESG. Let me first talk a bit about the state of affairs when it comes to CSRD compliance and the disclosure requirements related to that. CSRD stands for Corporate Sustainability Reporting Directive. A directive is a legislative act by the EU that sets out a goal that EU member countries must achieve. A directive as such is not the same as a legal binding requirement, it requires the individual EU member states to implement that directive into law. And as of today, several member states have not yet implemented the CSRD into law, including the Netherlands. This is a source of confusion for all companies that need to comply and for the auditors who need to provide limited assurance on CSRD disclosures. As an aside, Companies need to comply if they have a net turnover exceeding 40 million, or with assets exceeding 20 million, or with a workforce comprising more than 250 employees. So this applies to a lot of companies, clearly including Kendrion. And it has resulted in 65 pages of disclosures in our 2024 annual report. To add to the uncertainty, there is currently initiative ongoing in Brussels to significantly simplify the CSRD, and this has the potential to change everything. However, this may or may not happen. The timing is unclear. It may or may not change what will ultimately be required from companies under the law once it is passed. As they say, clear as mud. So, so much for the disclosure. let's talk about what this is ultimately about making progress on esg as we at kendrion have done over the past 10 years so here's our plan for the next five years first on natural capital we aspire to achieve a further 70 reduction in co2 emissions on top of the reductions achieved already when it comes to social and human capital we have set ourselves the goal to improve gender diversity by at least 25%, with a minimum threshold of 33% at business group level for indirect staff. And as the responsible business conduct, we are working to integrate our ESG metrics into our sourcing process and to sustain our ESG ratings from ECOVADIS and CDP. We also aim to comply with the disclosure requirements related to the EU taxonomy, the Carbon Border Adjustment Mechanism or CBAM, CSRD, and Corporate Sustainability Due Diligence Directive or CSDDD. I must say I'm concerned about the complexity of the various disclosure demands as laid out in the various EU directives. Fortunately, it seems as if the European Commission is starting to realize this All this disclosure puts European companies like Kendrion at a disadvantage internationally. Our own Wopke Hoekstra on Wednesday in the FD lamented all the rules and pleaded for drastic simplification and I passionately agree with him. I'm excited to try to be progressively cleaner as a company and I think this is where we have made excellent progress with the ambition to do much more. For instance, when it comes to CO2 emission reduction, as we implemented the first two ESG plans starting in 2015, we've realized a CO2 emission reduction of almost 50%. And in the next five years, we aspire to achieve a further 70% reduction. And for me, this is what our ESG program is about. Let's go to the outlook. We expect the economic conditions in the first half of 2025 to largely mirror those of 2024. At the same time, analysts view the recent election of a more business-friendly government in Germany along with China's measures to stimulate its economy as positive developments, though the full effects of both remain uncertain. We are also noticing the first signs of restocking in some industrial segments especially in Europe. The potential impact of anticipated trade tariffs on the global economy is yet to be determined. I do want to emphasize that Candrion's strict operational local for local approach, where regional factories rely exclusively on regional suppliers and regional customers, this longstanding approach limits the direct impact of those potential US tariffs on our business. But of course, the broader economic effects may still influence the company. With our repositioning as a pure play industrial company focused on selected high growth, high margin industrial markets, we are well positioned to capitalize on an economic rebound when it occurs. And even if the challenging economic environment persists for a while longer, we remain confident in our financial targets, which are achieving an EBITDA margin of 15% to 18% from 2025 onwards, an ROI of 23% to 27% by 2027, and delivering annual dividend payments of at least 50% of normalized profit, as evidenced by a proposal to distribute 59% of normalized profit over 2024. And with that, I would like to open the floor for Q&A.

Morning. Firstly, you expect to deliver a BDA margin of at least, let's keep it simple, to 15% this year, which is quite an increase compared to what has been generated in the past. in 2024 um could you maybe provide some information about how you will achieve that how to bridge that by organic growth cross-margin improvement and opec savings yeah just just and you may want to add to this a little bit later but but first of all um the 2024 results are are

Complicated to interpret because there's a lot of effects related to the deal itself and then to the subsequent reorganization so the first effect is that from January 1 the full 9 million euros that we have taken out as a As a result of the transaction is effective and in q4 for instance that was not yet the case. So that is point 1 The second point is that we are we have a concerted effort specifically in IB in China and in mobility to increase our added value margin. And this is not just some wish, this is a concrete plan that we are implementing, and some of it has already materialized by raising prices and by working with our suppliers to make sure we don't pay too much. That has a large effect as well. And the final point is, as we always do, and that depends a little bit on how the economy is behaving, we aim to continue to look at costs. I talked about the IB R&D effectiveness, and making sure that we get a bang for our buck there as well. So we're not dependent on an economic rebound. Clearly, if and when that happens, and it will happen at some point, this will help enormously because the operational leverage, as you know, helps us. But even if we are in the same economic mode, mood, as we were in 2024 and in 2023, Towards the end of the year, we're going to need a bit of time for the initiatives that I just mentioned. We are going to be at or very close to that 15% EBITDA. If that small restocking trend that we seem to be looking into persists, then that will make our life obviously a bit easier.

But then if I interpret your words, then more or less organic growth will be modest because what we see in Europe, you mentioned it yourself, although some green shots, it's going to be modest. China, okay, that looks solid with strong growth. So most of that achievement will be achieved through cross-margin improvement and OPEX cost reduction.

Yeah, we will. have plenty of course you make a plan we we do not count that's how i would phrase it on substantial economic tailwind there's quite a few programs in in the hopper that will ramp anyway that will help us but as long as the machine building industry is in in in bad shape that's clearly going to to to dampen any organic growth so we're not dependent that's the statement on an economic rebound to get to that target

okay thanks and then concerning your development in AIC down 7% however that also includes 3T which had a stable performance and if I correct for that then the operations of AIC excluding 3T must have declined by some 12.5% in that range happened over there because you also talk about some green shoots and and from minus 12 and a half to some green shoots that's also quite a gap so i you said 12 and a half percent i don't recognize that no but if i exclude the revenue of aic excluding 3t uh which was flat i know you want to comment on that yeah well do i need to press this or yeah yeah the question is what i mean you mean why is it

Let's assume it's about 10%. I'm not sure that's the case. You mentioned it was 5%, but anyway. IAC has been a lot more stable. Now it takes you back to 21, 22, 23. IB was growing with 20% per year, and IAC was growing with less, 5 to 10. On the way down, that was the same effect. So on the way down, IB really dropped by 30% in the second half, of 2023 and IEC dropped, but far less. They are, of course, still subject to the same machine building industry slowdown that we're seeing everywhere, just not to the same extent as IB because they're active in some segments and I mentioned some of them. I mean, airplane building is doing pretty well. There's some new products in induction heating that are ramping up. We make actuators for the safety valves for nuclear power. industry that's actually doing pretty well it's just not quite enough to completely compensate for the downturn in the machine building but it's so so it's the same trend but it's a bit more muted both up and down compared to ib okay lastly for the moment um

Your performance of mobility, particularly in China, was very strong in the fourth quarter. You mentioned due to ramping up all kinds of projects. The level we have seen in Q4 on a quarterly basis, will it also be an indication for the revenue going forward for these next four quarters of the year?

For China?

Yeah.

Roughly, I'd say a bit of growth again.

I would say the same level plus

Yeah, thanks.

Good morning. I was wondering on these, you've mentioned pricing, R&D effectiveness, procurement, helping you in the course of 2025. Would you be able to give us a bit more granularity, maybe a target in terms of savings or an uptick that you're targeting for your gross profit of your value. I just get a real sense of what it does.

Yeah, I mean, to be specific on the target is tricky. I mean, you understand that increasing prices doesn't make you very popular at customers. At the same time, we do believe, and we've come from an inflationary environment, we believe we have some making up to do there. So we're working with our customers in a very collaborative manner So the point more is that it's not just that we say, oh, I need you to go from X to X plus 2%. We have concrete plans to have quantified the target into specific actions in time that we are now rolling out. As you can also imagine that if you expand your added value margin, every percentage points, of course, drop straight down. So it's quite a lever. But the reason we mention it is because, one, it also relates to the fact that in an industrial franchise, we have more USPs, unique selling points. We have more IP. We are dealing in principle, I mean, in automotive, you're always dealing with customers that are 25 or more times larger than you. So the whole pricing power discussion is different. And all we're doing is we're telling our businesses make use of that.

So it's, some companies are, for example, willing to say pricing 2025, we expect between one and 3% and procurement savings, you know, between 20 and 40 basements of gross profit. That would be impossible for Kendall to do.

So we're saying we're going to hit that 15%. And that has to do with a number of things. As I mentioned, one, the cost that we took out that weren't allowed yet in Q4, two, added value margin expansion. And three, continued emphasis and efforts to make sure that we're as effective as we can with our cost. And that will result to an expansion of the EBITDA from where we are today to 15%. But to split that out, I understand why you would like to do that, is a bit tricky and sensitive in the public domain.

And just to follow up on that one, you're working on those programs right now. Yes, I am. Towards the end, we should see the first effect. So the full effect will be visible in 2026. Or do you think that such a program will take longer to implement?

No, no, it should be. It should be. I mean, hopefully, you know, there's, of course, a lot of the economy in the end of the day. You have to deal with it. There's quite quite a bit of stuff happening in the world, as you know. But hopefully you will see progressive progression per quarter. I will try to we'll try to break that out to some extent if we can.

OK. Now, you started your presentation with the selection criteria of projects, and it seems as though there was much more data, much more stricter conditions than you, for example, outlined during the Capital Markets Day. Is that just my impression, or have things changed?

No, no. Maybe I used a bit more words, but this has always been. Even the slide was the same as during the Capital Markets Day. Maybe in my script I elaborated a bit more. But the slide is the same. But the reason we thought it was useful to repeat it is because we're very serious about it. And that is not something, because now we're talking about projects that we're working on that will ramp in 26 and 27, but it's the best leading indicator to make sure that we sustain the profitability. And that's also the heart of the big strategic transition in one sentence is we're going from profitability driven by growth We turn that around. Profitability comes first. We will grow, but only at that profitability level. And that's linked to that slide. It's an important slide with those discipline internally and say we will only invest if we see this. If not, we don't.

Clear. So selectivity has remained the same, not strict. Got it. Then a question for Jeroen on the implementation of the software. What's the phasing of that and what kind of savings should we expect in 2025 slash 2026 from that?

So the software specifically phasing we started, the major companies will have been implemented towards the end of the year. So we're doing it with significant speed and the advantages are both ways. So the direct savings is part of the net savings. uh nine million that we have uh mentioned earlier so that will commence in 2025 and that's mainly lower license cost and and stuff like that uh the indirect savings from becoming more uh yeah let's say simpler a simpler organization with a standardized tool used by all the canyon companies that that will kick in let's say gradually towards the end of the year and then mostly from 2026

and so just to clarify also for for people on the webcast the software you mean the erp system right absolutely yeah okay and then um a question on the free cash flow in fourth quarter i was not aware of this factoring unwinding element uh what was the effect in q4 just to get a good sense of the um yeah actually it was only in effect for for the automotive part

And it was a factoring program set up some years ago with one of our banks that did not continue with the purchase of the automotive business. So we had to unwind it prior to the close. The amount was on average 5.5 million euros. But we got it back via the working capital adjustment. So we got it back via the purchase price. But it did impact your free cash flow from your operations. I will have to think about that one.

Because I also had a question about that. You mentioned in the initial press release on the transaction with Solero, 65 million enterprise value. Now, if I add up what you've received so far in the cash flow statement, which is 52.5, you're now saying that you're going to receive 7.9 again. I get to 60.4. So the difference between the two is exactly this amount that we're now talking about.

Yeah, that's a coincidence. So what you typically, of course, it highly depends on when you do the deal. So 65 million is based on a certain price for your equity. It's a certain price for your debt. But it has to be a normalized debt because your working capital goes up and down. In December, it's extremely low. During the quarter, it's a little bit low. During the other months, it's essentially higher. So in September, it's a quarter end. So typically the working capital is a bit lower than the annual average if you calculate it on a monthly basis. So that means that you have to compensate the buyer.

So this is just nothing more than a working capital normalization on your cash and debt-free basis.

Exactly.

So to get, let's say, to a normalized working capital level.

But there we are. So also the working capital, the final settlement. So everything that has been done so far is based on preliminary numbers. We are currently in discussion with the purchaser on that. So the total expectation is actually that we will receive a bit more than the 8 million euros.

Got it. And any change in terms of your working capital guidance for 2025, given the different growth paths of the three divisions?

No. So we have, if you look at the industrial business of the New Canary Islands, So the working capital intensity is a bit higher, especially because of many different stock items. So it's roughly 17%. I expect that to be stable, so that means that the working capital will go up and down with revenue. So the advantage of industrial is not a lower working capital percentage. The advantage is generally a higher cash flow from year to year, and secondly, also much more predictable and stable.

Got it. And then my final question is for Joep. Can you talk a little bit about the plant utilization in CVU in China? Where do we stand today?

Yeah. So, yeah, plant utilization is quite fungible. I mean, you can always, and once you have the production lines, of course, you start having shifts and you can start working through the night. I would say for China, we are at about, when you look at the floor space and all the production lines that are currently, of course, some of them are ramping, we're getting to 80% of that that line utilized, but revenue-wise, there's still a lot more upside. CBU, you know, there over the past years, we have added floor space twice, I believe. So we're still in good shape there, but, you know, the growth there is, we're doing well. It's also, it's a great location, also from a cost perspective. So it could well be that... Over time, we have the opportunity with a landlord to add another hall. You could well see us do that. But that's not an investment. We're releasing that facility.

Okay. And coming back to China, you said revenue-wise, we still have quite a bit of leeway. Yeah. So what are we talking about? Is that one shift... per day, two shifts per day?

It varies, but if you say, so last year, the round numbers, we did about 50 million in revenue in China. You could easily, we easily have the capacity, floor space slash machines to double that.

And then we would have to think about further expansion.

Yeah, well, there is, you know, there is the possibility to build a phase two. I mean, that's first. We'll worry about it when we get there.

Sure. Thank you very much for now.

Any more questions on the webcast?

Yes, we have received questions from two people from the webcast. I'm reading them one by one. The first one is from Tim Ehlers. Could you elaborate a bit more on the negative mix effects that led to lower margins?

Sorry, elaborate a bit more on the?

Negative mix effects that led to the lower margins.

Okay, for Q4-24, or it doesn't specify?

It doesn't specify.

Okay.

Jeroen? Yeah, so basically, I think we communicated in the past, and that's still the case. So the growth margin, the added value margin, is substantially higher in the industrial business than it is in automotive business, but also the retained automotive business. And even though it's a much smaller part of Panneon now than it was, But when you see, for example, in Q4, mobility increasing 39% and industrials staying flat, then obviously that has an impact on the added value margin. So even if the individual units are able to protect their added value margin, then because of the mix, the consolidated one goes down as we have seen in Q4.

Thank you. Next question by Team Ehlers. You might have already touched upon, but I read it nonetheless. How shall we look at the situation in China? Are you currently facing undercapacity in the newly opened facilities?

Yeah, so actually we just talked a bit about that. Well, we opened that factory in the middle of 23. So we are now, I mean, from a 50% full, we have quite some opportunity there to grow further. Last year, we grew the revenue with 25%. We expect further growth this year. So I think we're well on our way of filling that factory over the next couple of years.

Last question by Tim Ehlers. You mentioned restocking and EB showed another quarter of revenue growth. How does the sales funnel look like and which end markets are currently recovering and which are still weak?

Yeah, so the sales funnel and restocking, let me separate the two. First of all, let me qualify the restocking. It is beginning to show it is in selected segments in specific industries. However, we haven't seen that for a while. So there are definitely segments and companies that are looking at their inventory levels and say, I'm uncomfortable with that. I need to restock that a bit. And they will not do that if they don't see in their supply chain, if they don't see demand for that. So it's a first. careful or you know good sign that and this is also has also to do with the psychology in the market if people get more confident then this becomes if you like self-fulfilling so I don't want to overplay it but it is it's been a while since we saw it we've seen in 23 and 24 mostly destocking so in itself I thought it's visible enough for us to mention it here Of course, there's lots of other uncertainties that could still change everything. So that's one. The sales funnel, and now if I look at IAC, for instance, it's looking particularly good. I talked about a larger industrial locking project. We've worked on that for many years. That's slated to start ramping in the course of this year. That's quite substantial. There's various other initiatives with, you know, I talked about induction heating. These industrial locks, we're also looking now to implement them with companies that put these parcel boxes down. So there's lots of opportunities for these types of products. Talked about medical. I mean, there's a long design cycle, but we've been active in there for years. So some of that stuff is beginning to start ramping as well. We're in good shape there. Of course, most of this stuff gets trumped by the overall economy. If that goes better, then of course that affects the total revenue base, but the funnel is looking healthy.

Then we have two questions from Frank Klaassen. First one, what kind of CapEx level can roughly be expected for 2025?

I would say because of the ERP implementation around the depreciation level. So this year we were a bit below. So the regular capex will also definitely be low, as we also have stated during the capital market day, but because of the ERP around depreciation.

Yeah. Second question by Frank Klaassen. Have we now seen most of the restructuring costs in 2024? or can we still expect one-offs in 2025? And what about the cash outs on these restructuring? Is there still much to come in 2025?

Yeah, so the main portion is done. So you can never exclude, but surely not in the same magnitude as this year. That's not the expectation. So basically everything is done related to the cost savings that we have announced. So nothing to be expected there. And on the cash out, The main thing still to be paid out is a severance pay for the terminated contracts, which is about 4.5 million, mostly in Q1, partially in Q2 of 2025. Thank you.

We have received no further questions from the online participants.

Martin Baker, the idea again.

Firstly, talking about gross margin and what you mentioned about the fact that automotive has a lower one than industrial. Is there a chance that gross margin could remain the same this year because of this mixed difference, that we should not be worried when we do see that it remains stable, but due to a mixed change that... Very good point.

Yes, it could. I mean, it depends, of course, on how fast the automotive mobility, specifically in China, will grow, but if that happens, we'll break that up. As we told you, we are reporting the mobility segment separately. It's reasonably small, but we will do that also for that reason, to make sure that we can indicate what is mixed and what is actually happening underlying on the industrial side, because ultimately that's where we're focused. So we view that mobility business, specifically the one in CBU, we're running it for cash. We want as much cash flow and profitability out as possible. We're not investing in it.

To give us a little bit of a better feeling, could you more or less indicate the growth of industrial and the growth of mobility business, just as an indication?

Of the margins? Yes, of course margins. You can look back, you can look at the value margins that we had in automotive and in industrial in the past. That's a good indication. I don't know, Jeroen, where you want to go. We will make it clear as we go along, rather than punting it now. Just to help you with understanding, if you say, well, the overall group grows marginally at the same level, what's happening underlying, we will try to be helpful there.

Yeah. It is quite substantial, but it's not that the difference drops down to the bottom. because you have compensating effects in staff, for example. Especially in the automotive business that we have retained, electronics for example, they're basically the whole cost price or substantially the cost price is material, while in industrial you buy some material, but the substantial part of the cost price is also labor. So on the added value margin specifically, it's roughly 20% on added value margin. So it does have an impact. So to answer your question earlier, yes, it can definitely be that we have been successful in all the areas and all the targets in the added value margin, but then on the consolidation that you think, hey, where does it end? But then you will see it back on other line items. And then if, for example, mobility continues to grow like this and industrial would continue to decrease as it has done, uh which we do not expect but but just as to illustrate but then you would see indeed also lower cost to to to compensate for the lower added value margin okay then secondly you propose a dividend of uh 45 cents still for the shareholder to opt for i bring cash over shares why still this optionality because

When I understand you well, you're focusing much more on profitability than on growth. Nevertheless, you still project 5% to 8% growth. So why still that option? And talk about growth in the presentation. You mentioned that you target a growth of between 5% to 8% to the 27th period. I missed the word organic. I do believe it was organic growth. Yes.

Well, you can add that for sure. And why do we offer that choice? Because our shareholders like that.

That's the short answer. are they considering to buy back those shares issued?

Maybe you want to talk about it. It's capital markets day. Yes, as part of the capital allocation, certainly if the financial position allows it, then we will definitely consider also share buybacks, which can also be a buyback of the optional dividend. uh but but yeah we are targeting for that let's say a leverage ratio of a maximum two before that that really becomes applicable i think we have time for one more question if there is one online no same yeah just a final one that i still see some real estate on the balance sheet

When is that going to be sold? I've been hearing about that for quite a bit of time.

You read in the annual report that's in Austria, where some years ago we closed it, but there's also a remark somewhere in the annual report. They found some pollution in the ground. It's nothing serious, but obviously it doesn't help to sell it. We are getting closer to that that is getting solved. A lot of investigations. What is it exactly? It's not as bad as originally worried, but so yeah. The hope is that we can sell this in 2025, but nothing is guaranteed.

And the value on the balance sheet has taken into the additional costs that you know. Yeah, yeah, for sure. It's not material.

But at one point, yeah, it's nice to exchange that value for cash, obviously. That's it.

Okay, then I think that concludes the presentation. Thank you all on the webcast and here in the hotel. If you have any follow-on questions, then you know where to find us. And for those here, you're invited for a light lunch. Thank you.