Kendrion N.V.

Good morning, everyone. Welcome to Kendrion's Q3 2025 results conference call. My name is Joep van Beurden, CEO of Kendrion, and I'm joined today by our CFO, Jeroen Hemmen. We appreciate your time and interest in our company. Today, we will review our performance in the third quarter of 2025, discuss the financial results for the group and our key business segments, and share our outlook for the remainder of the year and beyond. We will post a recording of this call and of the Q&A on Candrion's corporate website as soon as it's practicable. I would like to draw your attention to the fact that certain statements contained in my remarks and in the answers to your questions 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. which could cause actual results to differ materially from such statements. Before we begin, I would like to highlight that Q3 2025 marks a significant milestone for Kendrion. With the completion of our China business sale, we have finalized our transformation into a pure play industrial company. This strategic shift allows us to focus exclusively on industrial activities positioning us for sustainable and profitable growth. Our results this quarter reflect strong operational discipline, margin enhancement, and a robust balance sheet. We are pleased to announce a special dividend and a share buyback program, both made possible by our strengthened financial position. Let us begin with a review of our financial performance. In Q3 2025, Candrion delivered solid results. Revenue from continuing operations reached €60.6 million, representing a 2% increase compared to €59.7 million in Q3 2024. Normalized EBITDA grew by 24% to €9.4 million, up from €7.6 million last year. The EBITDA margin improved significantly to 15.5% compared to 12.7% in the same period last year, reflecting our ongoing focus on operational efficiency and margin improvement. For the first nine months of 2025, group revenue from continuing operations was 184 million euro, down 3% from 190.5 million euro in the prior year. Despite this slight decline, profitability improved. Normalized EBITDA from continued operations increased by 3% to 28.4 million euro, and the EBITDA margin rose to 15.4% up from 14.5% last year. Moving down to P&L, depreciation charges for Q3 decreased slightly to 3.2 million euro, resulting in a normalized EBIT R of 6.2 million euro and a margin of 10.2% compared to 7.2% a year earlier. And this is an increase in EBIT R of 44%. For the year to date, normalized EBIT R from continued operations was 18.8 million euro with a margin of 10.2%, 4% higher than the same period in 2024. Year-to-date finance charges were 2.8 million euro, slightly higher than last year due to unfavorable currency results. And looking at net profit before amortization from continued operations, this was 3.9 million euro, or 44% higher than last year. On the back of these solid results, our financial position has further strengthened. Free cash flow in Q3 was €10.1 million, supported by our healthy profitability, disciplined working capital management, and lower capital expenditure. As a result, net debt decreased to €88.4 million, down from €104.5 million at the end of Q3 2024. The leverage ratio improved to 2.1 compared to 2.5 last year, and additionally in October, so after the quarter ended, we received approximately 70 million euro in proceeds from the divested China business, further reinforcing our balance sheet. Turning to our industrial brakes business, IB reported revenue of 23.5 million euro in Q3, a 4% decrease from 24.4 million euro in the same quarter last year. And this reflects continued weakness in European manufacturing activity. Our focus remains on enhancing added value margins and maintaining strict cost control. Longer term, IB is well positioned to capitalize on the growing demand for electromotors and electrified applications in industries such as inter-logistics, robotics, and wind energy. The industrial actuators and controls business group recorded revenue of €26.7 million in Q3, slightly below last year's €27.2 million. IAC offers a broad portfolio of products, and we continue to invest in innovative products, including inductive heating systems, industrial locking mechanisms, and beverage dispensing valves. Mobility revenue came in at 10.4 million euro, a strong increase from 8.1 million in the previous year, driven by price adjustments, robust demand, and a favorable comparison base. The long-term cooperation with Knorr Bremse announced on the 29th of September 2025 strengthens cash generation at CBU's mobility facility through optimized capacity utilization. It also proactively manages the anticipated phase out of mobility programs over the coming years, and importantly, provides employment stability for the CBU workforce. Reflecting our significantly improved financial position, the supervisory board has approved the distribution of a special dividend of one Euro per share. The 18th of November, 2025 is the ex-dividend date and the 19th of November, the dividend record date. The dividend payout date will be on the 25th of November 2025, and in addition, a share buyback program of up to 10 million euro will commence one day after the dividend has been paid out, so on the 26th of November 2025. More information about this buyback program is available in a separate press release issued earlier today and on our website. Let us go to outlook. Looking ahead, global economic conditions remain uncertain, with higher US tariffs, persistent policy uncertainty, and shifting supply chain dynamics impacting economic activity. In the near term, recognizing the reality of the current economic landscape we will continue to prioritize added value margin improvement, strict cost control, and operational efficiency. Following the sale of our Chinese activities and the cooperation with Knorr Bremsen, our attention is fully on our industrial business group. And while a portion of the proceeds from the China divestment will be returned to shareholders, the remainder will be used to strengthen our balance sheet and reinvest in new product opportunities. So how do we decide where to invest? Chemrion is a global niche leader with deep expertise and intellectual property, involves actuators, breaks, and control technology. Before we invest in new opportunities, we are asking ourselves three important questions. Firstly, do we have a clear and unique differentiator to be able to protect our business and our margin based on our expertise and our intellectual property? Secondly, does this product-market combination offer superior profitability with an EBITDA margin of at least 15% and preferably more? And finally, does the opportunity support healthy revenue growth of 5% or more through the cycle? If we cannot answer positively to any of these three questions, we will not invest. For the longer term, based on this disciplined approach to investment, our clear focus on selected industrial markets, strong niche leadership and alignment with long-term trends such as electrification, automation and clean energy, we are confident that we will drive sustainable and profitable growth. We reaffirm our commitment to achieving our strategic financial objectives, including an EBITDA margin of between 15 and 18% from 2025 onward, a return on investment of 23 to 27% by 2027, and annual dividend payouts of at least 50% of a normalized net profit, also starting in 2025. In summary, Candrion's transformation into a pure play industrial company is now complete. I point to our solid Q3 performance, improving profitability and strong balance sheet, which in my view provides a robust foundation for future profitable growth. Thank you for your attention and we are now happy to take your questions. Mel?

Thank you. As a reminder, to ask a question you will need to press star 1 and 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 and 1 again. Our first question comes from the line of Frank Clarson from DeGroof Petercam. Please go ahead. Your line is open. Frank Clarson, your line is open. Please go ahead with your question. Once again, the line of Frank.

Oh, sorry. Yes, here I am. I had a mute button. Good morning. Hi, Frank.

Hi, Frank. Can you hear me? Yes, yes, loud and clear.

Frank? Operator, Mel, can you hear me?

Yes, I can hear you. Frank, please unmute your line if it's muted at this time. Would you like to go to the next question in the meantime?

Yeah, Frank, if you can hear us, please, please, I don't know, if you can unmute, we'll be happy to take your question.

Hello, can you hear me? Yes, we can hear you.

Finally, sorry. I had some troubles with the mute button indeed. Sorry for that. Good morning, gentlemen. Frank Klaassen, the Growth PDCAM. Two questions. I'll ask them one by one. First of all, on the Conor Bremse, your deal with the Romanian plant. You talk about strengthened cash generation, ownership transfer. But could you elaborate, how should we model this? How does this work? Why is there strengthened gas generation? Could you elaborate on that?

Please. Yeah. So, well, at this point in time, as you saw just from the results, Frank, that facility is full. And actually, we have a number of projects with long-term commitments to our customers in Europe. And obviously, we are going to honor those commitments that we made many years ago when we were still active in automotive. We are no longer investing in this for obvious reasons, which means that over time, these projects will sunset and the volumes will drift down. This will take quite a few years, but it of course will happen. Now, the dynamics of that is that in that facility dedicated to that mobility business, as the volumes come down, you will have to shrink your direct workforce. but you cannot, I mean, you get this synergy. So that means that over time, as the volumes go down, the profitability profile of that facility is declining. So the deal we've struck with Knorr Bremse is that in a flexible manner, because we do not control entirely, of course, how that ramp down is going to happen, because we are, we're talking with, we are fulfilling the demands of our customers, as the capacity becomes available, Knorr Bremse in a measured way and we've struck that deal in quite a flexible and I would say clever way they will take over that capacity and the people and that means that virtually our facility will remain fully loaded it's of course also very good for the employees who do not have to worry about whether in two three or four years their job is still going to be around so that is effectively I mean it's a bit of a long story I'm afraid but that's how we structured this partnership and then the final thing to note is that at some point in time and we've agreed on certain trigger points our volumes will become smaller than what Knorr Bremse is producing there and that will trigger the transfer of the facility to Knorr Bremse and the remainder of that business will then be produced by them in an OEM relationship with us so that we can continue to service the customers as we should. Now that trigger point, we don't know when it is, but it's expected to be at the end of 2028. So that's quite a couple of years away from us.

And will you by then also still receive a sort of payment for the plant or how does that work?

Yeah. So, so, so first of all, so, so the transaction ensures that, that, uh, we will continue to receive the, the, the contribution margin on, on the products because the customers will not, uh, will not transfer. Um, uh, and in addition, we will receive payments and those payments, uh, will re we will receive that annually between now and 2020, uh, 29. Uh, and that's a combination of lump sum payments for, let's say goodwill, the fact that they can make use of the knowledge that we have, and the contribution to the indirect cost, so the indirect staff and other operating expenses, and that is like a couple of million per year.

Interesting. Thanks. And second question on the, yeah, the net debt was nicely down. So strong free cash flow in Q3. How much more room is there for working capital release in Q4? Was there a sort of, yeah, was it more in Q3 than Q4 or can we still expect more in Q4 of working capital release?

We had, so on the working capital, you can expect something, but not, like it was historically. So with automotive still part of Cambodian, it was like a 15 million reduction in Q4 often due to the lower activity level in December. We still expect lower working capital in December, but that will then be closer to like 5 million euros. that will be partially offset by the fact that we have a large tax payment still coming up, which was expected for Q3. That's roughly 2.5 million. So, yeah, a further reduction, but not as you have been used to in the past, because that was mainly driven by the volatility in automotive.

I see. Okay, that's very helpful. Thank you very much. Thank you. Thank you.

Once again, as a reminder, to ask a question, you will need to press star 1 and 1 on your telephone and wait for your name to be announced.

To withdraw your question, please press star 1 and 1 again. We'll now go to our next question.

Our next question comes from the line of Martin Dendrogfa from ABN AMRO-Odo BHF. Please go ahead with your question.

Yes, thank you, operator. Good morning, gentlemen. I will do the questions one by one. With regards to industrial breaks, the minus four in Q3, you did plus one in Q2, but that was including China. Can you walk us through the developments in the quarter? I know that you said the expectation is that markets will remain subdued, but can you talk a little bit about what you saw in industrial breaks? That would be question one.

Yeah, first of all, I would say the plus 1% and then the minus 3%, minus 4% is mostly a function of comparables. What we see in the market generically is that it's, I mean, as it's subdued, so there's not a lot of tailwind, if you like. It's also no longer shrinking, as you know, and now it's talking 21 and 22. We had huge growth on the back of basically a lot of industrial activity and people building up infantry, we then had a sharp slowdown when these infantries were again released, and now we are sort of in a more steady state phase. Now, that's been going on for a while, as you know. We expect this more of the same basically for Q4, but at the same time, if you look at the underlying trends in robotics, in intro logistics, generically in electrification, This will not hold. There will be a point in time, now don't ask me, Martijn, exactly when, when you will see reinvestment again in these types of infrastructural payments, capital goods, and that will help us to sort of the normal, if you like, growth base for this type of business is around GDP, so 3%, 4%, 5%. Now, on top of that, we're working on a number of projects that's always longer term. For instance, I can name one which is in medical robots, a very interesting field where there's a lot of activity, a lot of innovation, and medical robots become better and better at helping surgeons be better surgeons, if you like. But you need extremely specialized and capable breaks, and we have those. Now, this will take a while. You know these programs need to be approved by the FDA, et cetera, et cetera. But there's quite a few of these types of projects ongoing that if you take a medium-term perspective, even if I'm wrong and that economy remains subdued for another couple of years, we are confident we'll return to growth.

Got it. A similar question for IHC. It was minus 1.8, and it was including China again, and minus 3.2. in Q2. Can you do the same thing? Just talk a little bit about the trend through the quarter and what to do for what to expect from Q4.

It's a similar story with I would say a couple of maybe different accents here. First of all is in IAC we are in, we always say roughly 30 different niches. So it's actuators and controls. Actually it's also valves. So there are always a couple of these niches that perform well and there's always a few that are under pressure. So in a way, it is more stable. Having said that, the innovation that we've been working now, you've heard us talking about a number of products for quite a few years now, like industrial locking, you know, parcel locking, in the medical field, flow control, beverage dispensing, induction heating. That pipeline is beginning to look quite chunky, quite meaty, quite good. So it's a bit of the same. You know, there is also a reactive, for instance, in the textile industry. The textile industry doesn't do very well. We see that. You know, at the same time, it's being offset by trends in other niches that are doing much better. But it's the same end result that if you prepare to look beyond whatever the economy is throwing at us, for the medium term, and it will be already in 26 slash 27. We are confident we're going to go to around 5% growth also in IAC.

Got it. And then my next question is about the remaining mobility. That 28% growth was obviously exceptional, especially since you qualified it as a sunset business. What should we expect? Is this the new level going forward, given that these projects have just started? So I would assume continuity. And related to that, I think you previously mentioned that this activity had an EBITDA margin at the group level or slightly higher. Is that still applicable given these growth rates?

Maybe start there. Ilan, you want to talk a bit about that?

Yeah, so the 28% is definitely not something to model forward, but the level I think is, let's say for the coming quarters, is a good proxy. Of course, highly dependent on call-offs, but yeah, so we have some ramps, we have some ramp-downs that's more or less offsetting in the coming 12 months So I think the number is a good proxy, but again, depending on call loss, the profitability of mobility was slightly below the group. So industrial was slightly better.

Which of course for an automotive product is heroic, but it has everything to do with the fact that we're no longer investing in it and therefore have much more to say about added value margin and price levels. But I think in that context that we just talked a bit about responding to Frank's question on the Knorr-Bremse partnership, that also protects that profitability level. Of course, at the end of the day, it's still automotive. It is cyclical, if you like. We have good call-offs in Q3. We're also held by the comparables. Q3 2024 happened to be a bit weaker. But we expect for the coming years to be at sort of roughly, not entirely this level, but just slightly below it, but always at good profitability, even if for some reason the volumes will decline sooner, because then that partnership with Knorr Bremse kicks in, and that helps us, of course, with our cost base.

Understood. Now, I may be asking a question that sounds strange, but I understood that that support that you mentioned from the buyer of automotive was actually Solero. Am I wrong or am I right? Is it the Solero that has provided that tailwind, that 70 basis points that you mentioned?

That was Solero. So the Knorr Bremse deal will be, let's say, 26. So it was signed in the end of September. So materially that will be from next year. The 70 basis points is basically rental income that Solero pays to us for the use of some of the buildings that they still occupy.

Okay, so that's the real question that I had. That support that you now receive in Q3, that's sustainable going forward?

As long as they produce in our building, yes.

Got it. And then Frank already asked a question about the working capital, but you also mentioned that in the press release that CapEx was slightly lower. Was it slightly lower than expected? Is there an updated guidance on CapEx for the full year?

No, I said 10 million for the year, and that still stands by that. Of course, CAPEX is always a bit lumpy, but this is the estimate that I currently have. And in Q3, it was three compared to a depreciation of, was it close to four? So, yeah, below depreciation and in line with the guidance.

Okay, clear. Those were my questions. Thank you, gentlemen. Thank you, Martijn.

Thank you. We'll now move on to our next question. Our next question comes from the line of Tijs Holstel from ING. Please go ahead. Your line is open.

Thank you, operator. Good morning, Joep and Jeroen. Nice to see the 15.5% FDA margin on the screens while the revenues remain under pressure. Would you also agree that the third quarter print on the cost base is a good proxy for the new cost structure going into the fourth quarter?

Yeah, that's a good proxy. So China has been taken out. We will have a bit of headwind from the synergies. So most have been addressed, but the synergies will be fully addressed in S1Q1 next year. But then you talk about a couple of hundred thousand euros, mainly in OPEX.

That's great, because in the past I always complained about the volatility of those cost items per quarter, but I feel that it is reduced also going forward.

Volatility, yeah. Yeah, so as I also said, the industrial business is in itself more predictable than automotive in revenue, also in cost. But yeah, particularly in other operating expenses, there simply can be some lumpiness in there. third-party services, things like that. But it has become more stable, I agree.

Okay, that's good. And then, yeah, you already basically gave a lot of information about the free cash flow to Martijn and Frank in previous questions. But were there any other cash flow components in the third quarter that we should take into account? And in addition to that, also for the fourth quarter, you mentioned somewhat more tax payments a small seasonal trade working effect, but all the other items just in line with normal expectations?

Yeah, so the big drop in working capital, as I explained, will be much less than it was when we still had automotive investments, I expect, below depreciation. That will take us to the roundabout 10. So yeah, besides the tax issue of the tax payment of 2.5 is not an issue. The 2.5 million is there. There's nothing special, I would say.

Okay, that's also helpful. Yeah, and then also a remark. Part of me thinks it's too early, but another part of me tells me that with the balance sheet now shaping up quite nicely in the fourth quarter, should already actively go look for opportunities in M&A. I was wondering what is your stance towards this, and if it's a positive reaction, are you already talking to potential targets at this moment?

Just a few words on that, Thijs. The first statement is that we're basically always looking around for potential strengthening of our business. That was already the case when we were still very active in automotive, point to Intorq and 3T as examples. Now, the good news, of course, is now that when our balance sheet was much more stretched than this, it was certainly less high on the agenda. That has changed. But I would also like to emphasize the discipline that we have. So I outlined in my prepared remarks the clear criteria that we have before we start developing new products, which is also an investment for organic growth. These exact same criteria are present for potential M&A. So it will need to fit with the technology base that we have, actuators, valves, brakes, and or control technology, and it will have to fulfill the financial criteria that we set for the group. If that's the case, but that's of course already, you read out a lot of companies that don't fit that bill, we will definitely look at it. But history and over the past 10 years, we've done two of those. So it's not as if there are hundreds of targets that we can go and chase. That's simply not the case. But it is definitely on the agenda. The criteria are clear. And if we see an opportunity like that, we will not hesitate.

Okay, that's clear. I agree, by the way. And then the other way around, organically developing new products or potential new clients or end markets, there are a lot of things going on. I think I also asked that in previous meetings. For instance, the defense industry, because you have a lot of German clients, you know the market quite well. Is there anything to say in this respect?

Yeah, definitely. And that's certainly also, so when you look at the investment profile and what we do in sort of product development, filing patents, stuff like that, that is, you know, with the increased focus also means increased focus for management. So that is, it has been stepped up and I expect that we continue to do that. There also you have a lot more control over, you know, what you do. You know, you have your technology and you're looking around for specific niches. Actually, today there is an announcement of a couple of very high-performing slimline brakes suitable for all sorts of different applications. So I may point you guys to the website, which I think has been launched earlier today. When you look at IAC, I was at two trade shows last week. If you look at beverage dispensing in the U.S., extremely interesting opportunity with good growth. You look at induction heating, and this is heating for industrial ovens. So for instance, for the baking of waffles and all sorts of other products, instead of gas, you can use this, which means it's much cleaner. And it also means you lose far less energy, so very good differentiators there. Parcel locking, so industrial locks, and this is traditionally, we're doing that for things like washing machines, industrial washing machines, but now the parcel locks are coming and appearing everywhere on every corner of the street to collect your parcels rather than have them delivered to your doorstep. Very interesting opportunity for IAC with a very interesting solution that we have with the specific metal that essentially if you heat it up, the metal shrinks. So it's a very innovative and new way of providing a very strong locking force without a motor and without actually a solenoid. So there's lots of stuff going on, which is also why, you know, none of this is next quarter, by the way, but when you're prepared to look a little bit into the medium term, We're really confident that that growth on the back of these organic investments, that will come.

That's great. Thank you very much.

Thank you. Once again, to ask a question, you will need to press star 1 and 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 and 1 again. We'll now move on to our next question. Our next question comes from the line of Martin Dendrijva from ABN AMRO Auto BHF. Please go ahead with your follow-up question.

Yes, thank you, operator. I have one question for Jeroen, please. Would you be so kind as to provide the comparable numbers for Q4 2024 so that we at least have that information to work with with regards to Q4 and possibly by email to the analyst also the comparables for Q2, Q1, given the Chinese that would be very helpful.

Yeah, I certainly can. So for Q4, without China, the revenue was 57 million, 57.0, of which industrial was 47.2, so automotive mobility a bit less than 10. and EBITDA was 5.6.

Great. If the Q1, Q2 could follow by email, that would be much appreciated. Thank you.

We'll try to accommodate.

Thank you. There are no further questions at this time, so I'll hand the call back to Joep for closing remarks.

Right. Well, thank you all for your attention and for your questions. If you have any follow-on, you know where to find us. Thank you very much.