Elringklinger Ag

Good day and welcome to the Irving Klingler Group Analyst Conference Q1 2020. Today's conference is being recorded. And at this time, I would like to turn the conference over to Dr. Steven Wolf, CEO. Please go ahead, sir.

Well, thank you very much. Ladies and gentlemen, welcome to our conference call on the Q1 figures 2020. Let me just go shortly through the agenda as follows. I will start with the most important headlines of the first quarter. Then Thomas Esselat, our CFO, will present the financial figures of Q1. Afterwards, I will close with the outlook of fiscal year 2020. And at the end, you will, of course, have, as usual, the opportunity to ask questions. Well, let me start, first of all, with the highlights, Q1 2020. I want to point out some of those highlights for the first quarter 2020, which have already been published in part along with the ATOC announcement in April this year. In Q1 2020, sales declined by 10.2% to 396 million euros due to the general market downturn and of course the coronavirus pandemic. Without the effects of currencies and M&A activities, revenue was down by 9.8%. In 2019, we implemented a program which aims at delivering efficiency gains. The positive impact on earnings can be clearly seen in the Q1 2020. As the EBIT improved by almost 10 million euros to 16 million euros, the margin stood at 4%. Networking capital increased to 453 million euros compared to the end of 2019 due to lower trade payables. But comparing with the level in Q1 2019, we have been able to lower it by more than 150 million euros. The operating free cash flow stood at minus 2.2 million euros after minus 19.3 million euros in the prior year period. Net debt EBITDA decreased to a factor of 3.1 in the reporting period after 4.7 in Q1 2019. In the coming months, we will set a clear focus on three points that I will tell you now, three following points. First, we will manage the impact that the coronavirus pandemic will have on our company. Second, we will continue to optimize cost levels through our program, which enhances efficiency. And third, we will start pre-series production of our first production line for battery systems here in Germany, in Thale. That is going to happen in the second half of the year 2020. Well, so far from my side, and now let me hand over to Mr. Jesulat, our CFO, for the explanation of the quarterly figures.

Yeah, Dr. Wolf, thank you very much. Ladies and gentlemen, a warm welcome also from my side. I would like to comment the financial result for the first quarter starting on slide number four. Order intake decreased by 28.8% to 355 million euro in the first quarter and by 24.7% adjusted for currency effects. It was affected quite significantly by the extended new year vacations and the mandatory suspension of plant operations in China as well as the production hold in Europe and the Americas. And the slowdown of the European economy had an impact as well. The situation was similar with regard to the order backlog, but not as severe. The order backlog declined to 989 million euro, a minus of 8.2%, respectively 6.3% when adjusted for foreign exchange effects. The decline in revenue to 396 million euro has mainly two reasons. First, it is the continued economic slowdown that already has become apparent in the fourth quarter of 2019. And second, the initial economic repercussions of the coronavirus pandemic in China were seen in February as a result of which global vehicle production fell markedly by 23% in the first quarter 2020. So foreign exchange effects reduced sales by 0.1%. The divestment of Hungarian industrial park impacted sales by minus 0.3%. And all in all, we saw an organic sales decrease of 9.8%. While on slide five, Sales in both Europe and Asia declined in the period under review. Sales in North America rose again by 3.3%, and the increase in revenue is particularly significant when considering the decline of 10% in vehicle production within the North American region. As a result of last year's substantial growth, North America, now our second strongest sales region, increased its share of group revenue from 23% to 27% in the 12-month period and even more from 16% to 27% when compared to the first quarter 2019. In Europe, as in Germany, the slowdown in the economy was also reflected in sales performance. And in total, the group saw revenues drop by €30.4 million year on year. About half of this was attributable to the rest of Europe, where revenues declined from €137.8 million in the first quarter 2019 to €122.8 million in the first quarter 2020. And in Germany, revenues fell by €15.4 million or 14.4%. to 91.2 million euro. The economic impact of the coronavirus pandemic was reflected in the performance in the first quarter of 2020 in Asia Pacific. The effects are associated with extended new year vacations, planned closures, and related temporary production cutbacks at automobile manufacturers and suppliers that were implemented in mid February 2020. first in China and then in other parts of Asia. Mainly for this reason, sales in Asia Pacific fell by 16.6 million euro in total to 58.6 million euro. With regard to our segments and business divisions on slide number six, we see some revenue shortfalls. At a divisional level, revenue attributable to the lightweighting elastomer technology division was substantially lower. We have seen this downturn mainly within the area of engine-related components, whereas the demand for innovative lightweight structural modules was only slightly lower year on year. The other classical divisions, shielding technology, cylinder head gaskets, and specialty gaskets, also recorded a downturn in revenue due to current weaknesses of the global vehicle market. The e-mobility division, however, managed to reach its prior year performance with revenues of €6.4 million. In contrast to the OE segment, the aftermarket segment remarkably increased its sales from 44.7 million Euro in Q1 2019 to 52.3 million Euro in the reporting period. There are mainly two reasons that are to be identified. First, the aftermarket segment made an impressive start to the 2020 financial year with this substantial revenue growth as early as January. And second, With the first production restrictions in place in February 2020, the aftermarket segment noticed an increase in volumes requested by customers as part of their production scheduling. Following the global spread of the virus, this trend intensified with the result that revenues also rose significantly in March 2020. Slide number seven now. presents the earnings figures for the first quarter. EBIT reached 16 million euros and the EBIT margin was at 4.0%. Let me outline the main positive drivers for this development. Prior year's quarter has been adversely affected by US anti-dumping and countervailing duties of 5 million euros. By purchasing materials from other suppliers, we are now able to avoid these tariffs and do these to a very large extent. We have noticed tailwind from lower raw material prices, and especially the prices of polyamides, but also the price of steel and aluminum, which Erwin Klinger uses in the manufacture of gaskets and shielding products, trended lower in the period under review. only high-grade steel prices rose slightly in the first quarter of 2020. Our extensive program to improve the efficiency levels also had an impact on the group, resulting in lower personnel costs, and at the same time reduced special freight movements for raw materials, which had been necessary in the previous year to ensure the ability to deliver products to our customers. And to sum up the earnings situation, the net finance result fell by 8.8 million Euro to minus 9.8 million Euro. It was mainly impacted by the Mexican PESEL, which depreciated significantly against both the US dollar and the Euro. The income tax expenses decreased by 2 million Euro to 4.5 million Euro in the first quarter of 2020, and therefore the net income Attributable to shareholders of Erwin Klinger increased to €2 million, coming from minus €1.5 million in the first quarter of 2019. Accordingly, the earnings per share was in the positive territory, amounting €0.03 after minus €0.02 in Q1 2019. Let me now turn to slide number eight, showing the performance of our segments. OE business, despite a significant reduction in revenue, were able to improve the segment result in the OE business by 5 million Euro to minus 0.3 million Euro after minus 5.3 million Euro in the first quarter of 2019. And this development was driven by the explained progress in North America and the declined tariffs and duties. Related to the aftermarket, aftermarket sales in Q1 was clear above the prior year figure, especially driven by Eastern Europe and the Middle Eastern markets. This substantial sales growth also had a positive impact on segmental EBIT, which rose by 75% to 12.8 million euro, where we had in the first quarter of 2019 7.3 million euro. The disproportionately large increase in relation to revenue growth is attributable not only to forward momentum in sales, but also to a disciplined approach to cost within the entire group, including aftermarket, as well as a favorable product-country mix in the period under review. And therefore, EBIT margin increased to 24.5% after 16.3%, in the first quarter of 2019. Regarding engineered plastics, the engineered plastic segment also felt the persistent market downturn in Europe, as well as the first effects of the coronavirus pandemic in Asia. And as a result, segment revenue fell by 10.2% to 28.9 million Euro. Due to the sales decrease, EBIT declined by 14.6%, to 3.5 million euro, and the EBIT margin stood at 12.1% in the first quarter of 2020. Now we come to slide number nine. net working capital went down to 453 million euro over the last quarters in 2019. Compared to the end of December 2019, it slightly increased by 20 million euro, mainly due to lower trade payables. Our disciplined CapEx approach continued in the first quarter, where CapEx was 12 million euro, and the CapEx ratio stood at 3.1%. Investment projects are focused on measures in connection with upcoming product launches. Cash flow from operating activities in the first quarter of 2020 was sufficiently high to finance a large part of the investment outflows in the same period. Operating free cash flow improved. compared to prior year's quarter, and was only just within negative territory at minus 2.2 million euro, after minus 19.3 million euro in the first quarter 2019. Net financial debt decreased to 603 million euro. We'll have a closer look at this figure on the coming slide, number 10. Here, thanks to the positive cash flow trend seen in the recent quarters, the group was able to reduce bank borrowings by 192.3 million euro or 24.2% compared to the first quarter of 2019. Current time deposits and securities of 10.2 million euro are included in net debt as from 2020 on. Regarding our maturity structure, you can clearly see the positive effect of our syndicated loan with a volume of 350 million euro over a minimum term of five years. And this loan clearly improved our maturity structure. While the share of long-term debt was at 60% by the end of 2018, the date before conclusion of the syndicated loan agreement, it increased now to 80%. And last but not least, I would like to focus on the liquidity position of 284 million Euro, including unused credit lines, which is right now quite comfortable. Having said this, I now turn back to Dr. Wolf.