Elringklinger Ag

Dear ladies and gentlemen, welcome to the conference call of Elring Klinger Group. At our customer's request, this conference will be recorded. As a reminder, all participants will be in a listen-only mode, and after the presentation, there will be an opportunity to ask questions. If any participant has difficulties hearing the conference, please press Starkey followed by zero on your telephone for operator assistance. May I now hand you over to Dr. Stefan Wolf, CEO, who will lead you through this conference. Please go ahead.

Thank you very much, ladies and gentlemen. A warm welcome to all of you to our conference call regarding our figures for the second quarter 2020. Quite a difficult quarter, as you can imagine. Our agenda today is as follows. I will start with a short introduction on markets and, of course, on the key issues of the second quarter 2020, which could be labeled as the coronavirus quarter here in Europe. Afterwards, our CFO, my colleague, Thomas Jesulat, will present the financial figures of the second quarter, and I will then close with the outlook on the fiscal year 2020. And, of course, at the end, as usual, you have the possibility to ask questions, and we are more than happy to take your questions and answer your questions. Companies with relevant activities in Europe and North America have been particularly hit in the second quarter of 2020, while the first quarter was more the Asian or Chinese quarter with regards to the coronavirus pandemic and its consequences. This applies above all to the automotive industry, to our industry, the supply industry, of course, as well. From March on, production in many European and North American countries has been scaled down or even closed for a couple of weeks. As a result, we noticed a harsh impact on our industry. On a micro basis, the collapse of international auto markets was reflected in a sales decline of 41.9% to 252 million euros. Adjusted for effects from foreign exchange, translation and M&A activities, the revenues fell by 40.5%. Compared to the contraction of global auto production that was at 44.5%, we could manage to outperform the market once again by 4 percentage points. The substantial slump in revenue in the second quarter of 2020 as a result of the coronavirus pandemic led to an EBIT of minus 32.4 million euros, including the solid first quarter. You remember, we had 16 million in the first quarter. EBIT stood at minus 16.4 million euros for the first half of the year. Even against the backdrop of the corona crisis, we were able to continue on our chosen path. You remember that from the last calls and from last year. We achieved, in this very difficult situation, a positive operating free cash flow of 25.8 million euros, and we were able to further reduce our net debt by 23 million euros. Over the past 12 months, just to remember you, over the past 12 months, we have improved our net debt even by 120 million in total. At RENCLINO, we luckily have noticed a relatively low number of coronavirus infections so far, and we are really happy about that. Among others, it can be attributed to the fact that we have implemented preventive measures as early as the end of February, but we also see a high group-wide discipline in implementing and living our protective measures like comprehensive hygiene rules, special office guidelines, or, of course, global travel restrictions that we implemented already end of February. When we look at the year to date, 2020 has been impressed by the coronavirus pandemic, of course, which led to extensive measures being taken by states around the world from February or even the end of January 2020 on for the purpose of protecting the citizens of those countries. As a result, economic activities came to a standstill in most countries. If we look to Asia, especially China, that was already in February. And if we look on the European and the American continents, that started end of March. From the end of April on, a number of European and American countries gradually relaxed their protective measures again, first in Europe and later also in North and South America. Accordingly, automobile production resumed little by little. However, demand within the automotive market remained very sluggish, especially in Europe. In North America, it developed somewhat more dynamically, and China, the world's largest automobile market, has largely returned to its normal level since early April. The rest of the year mainly depends on the sustainability of the demand situation in our industry. If there is a very slow or even no recovery, the cut in our industry will be quite deep. More about that in our outlook that I will do later. So now let me hand over to Thomas Jeselat, my colleague on the management board, our CFO responsible for financing, and he will explain the quarterly figures.

Yes, thank you, Dr. Wolf. Ladies and gentlemen, a warm welcome also from my side. I would like to comment the financial results for the second quarter, starting on slide number five. The economic consequences of the coronavirus pandemic are reflected in the group's order books. Order intakes slumped to 193 million Euro in the second quarter of 2020, and this represents a decline of 227 million Euro or 54.1%. Adjusted for currency effects, Order intake decreased by not more than 51.5%. The same pattern can be seen in the order backlog. After €1.63 billion as of June 30, 2019, the group recorded orders worth €929 million at this year's half-year reporting date. Therefore, order backlog is down by 12.6% compared to the prior year figure. Due to the collapse of international vehicle markets, group revenues fell by 41.9% to €252 million, while it amounted to €434 million in the same quarter in 2019. In organic terms, which means adjusted for the effects of currency translation, and M&A activities, group revenue fell by 40.5% in Q2 and by 25% in the first half. Revenues in the second quarter 2019 were diluted by currency effects of 4.9 million Euro in the second quarter and by the divestment of the Hungarian industrial park with an effect of 1.1 million Euro. Compared with the global vehicle production, which contracted sharply by 44.5% in the second quarter and by 33.2% in the first half of the year, Erwin Klinger once again managed to outperform the market as a whole by 4 percentage points in Q2 2020 and by a good 8 percentage points in the first half. The revenue shortfalls recorded in the second quarter 2020 affected all regions. Let me focus on the main three. In Europe, including Germany, group revenue from sales fell in Q2 by 42.9% to 128.5 million euro. At 34.8%, Germany saw a less pronounced decline. Group revenue in Europe therefore proved significantly more robust than the European vehicle market, which suffered a 63% decline in production output in the second quarter of 2020. In the region of North America, sales revenues slumped by 54.3% to €53.4 million. Here too, however, the impact on Erling Klinger was less severe than that felt by the market as a whole. With a downturn in production output of 69% in Q2 2020, the North American market was hit particularly hard. In Asia Pacific, Erick Linger recorded the smallest regional downturn in sales revenue with a decline of 13.3% in the second quarter of 2020, Although China was affected by extended New Year's holidays in February and subsequent planned closures due to the COVID-19 pandemic, the situation returned to normal in the second quarter. By contrast, the situation in other Asian countries, including India, did not improve in the quarter under review. With regards to our segments and business divisions on slide number seven, we see some revenue shortfalls. VOE business remains the largest segment representing three quarters of sales. Revenue fell by 173 million euro or 48% to 188 million euro in the second quarter of 2020. Within the long-standing divisions of shielding technology as well as cylinder head gaskets and specialty gaskets, revenue in the second quarter of 2020 fell by more than half in each case compared to the same period in the previous year. The lightweighting elastomer technology division, which develops and manufactures innovative lightweight structural components in addition to engine-related parts, was relatively less affected, and therefore enlarged its share of group sales. The e-mobility division, which comprises the areas of fuel cell and battery technology, as well as electric drive systems, also recorded a below-average decline in revenues, generating 5.8 million euro in the second quarter of 2020, compared to 8.4 million euro in the second quarter of 2010. Slide number eight presents the earnings figures for the second quarter, which are linked to the volume impact of the pandemic. The group's EBITDA was pushed down into slightly negative territory at minus €0.9 million in the second quarter of 2020, after €39 million in the second quarter of 2019. The Erling Klinger Group EBIT fell to minus 32.4 million euro in the second quarter after 10.2 million euro in the quarter in the previous year. Therefore, the EBIT margin was at minus 12.8%. Compared to the same period a year ago, net finance costs fell to minus 6.3 million Euro. In the second quarter of 2020, the group recorded an improved net result from currency translation, a better net interest result, but a lower share of bottom line result of associates in Q2 2020 compared to prior year figures. 3.1 million Euro. The group's income taxes were in positive territory in the quarter under review. As part of the government's COVID-19 aid measures, the group took advantage of tax relief in Germany, including tax deferrals. As a result, net income for the Erwin Klinger Group stood at minus 35.5 million Euro in Q2 2020, also of the known controlling interest calculated on an unchanged basis of 63,359,990 shares, earnings per share attributable to the shareholders of Elvenklinger AG amounted to minus 56 Eurocent in the second quarter. We now come to slide number nine, the substantial slump in revenue in Q2 2020 as a result of the coronavirus pandemic was cushioned slightly in terms of earnings performance, but not compensated for in full by the existing efficiency program and measures initiated by the group at an early stage to adjust capacity levels and intensify cost savings. There are the following drivers to be identified. The impact on sales volume by the pandemic also affected earnings. And instruments like the German Kurzarbeit or similar ones in other countries help to compensate the decline of EBIT. All in all, the coronavirus impact amounts to roughly 67 million euro. External factors like tailwind on the raw material side or reimbursement of duties improved earnings by 3 million euro. And the efficiency program includes several dimensions. Savings have been realized by reducing personnel costs, selling expenses, as well as general administrative costs, and help to offset the negative effects of the crisis to some extent. Let me now turn to slide number 10, showing the performance of our segments. The adverse effects of the coronavirus pandemic on the automobile industry had the most significant impact on the original equipment segment as it is directly affected by changes in the volumes requested by manufacturers. As mentioned, segment revenues fell by 47.9% year-on-year to €188 million in Q2 2020. With regard to earnings, the long-standing divisions had improved their earnings performance in Q1 despite declining revenues due in part to the efficiency program but we're still well below the break even point due to the significant sales decline in the second quarter. Even though conditions were difficult, the aftermarket segment recorded an encouraging increase in revenue, which grew by 6.7% to 91.3 million Euro in the first half of 2020. In the second quarter, the segment succeeded in maintaining the supply of spare parts to the market in all major regions, despite far-reaching logistical and trade-related restrictions. And as a result, revenues generated in the second quarter remained high at 39 million euro, and the high level of efficiency related to materials planning, warehouse logistics, and trade channels as well as forward-looking inventory optimization are reflected in the segment's solid earnings performance underpinned by group-wide cost discipline. The engineered plastic segment has been faced with declines in orders and revenues, which were recorded, for example, in the mechanical engineering and automotive sectors and regionally in Germany, Europe, and the U.S. Segment revenue in Q2 fell by 17.1% to 23.8 million euro, and with continued strict cost discipline, segment EBIT amounted to 1.3 million euro in the second quarter. Revenue and earnings contributions of the segment other are of subordinate importance, accounting for less than 1% of consolidated revenue. Now we come to slide number 11. Networking capital has been managed down to 417 million euro over the past quarters. Compared to the end of March 2020, it decreased by 36 million euro. While we have already focused on reducing and optimizing these items in previous periods, developments in Q2 2020 were influenced in addition by the decline in orders and revenue in the wake of the COVID-19 crisis. Purchasing volumes and inventories were proactively adjusted downwards. The decline in revenue, which had reached dramatic proportions in February, first in China, then also in Europe, led to a reduction in trade receivables. As part of the efficiency program, we followed a disciplined approach in our CapEx activities, In response to the COVID-19 crisis, measures were stepped up even further. Key investment projects, however, were not halted. Projects associated in particular with new business areas, which are of significant importance to the group's strategic positioning, will continue to be implemented. CapEx in property plans and equipment and investment property amounted to €10.4 million in the second quarter after €20.7 million in prior year's quarter. The CapEx ratio was down at 4.1% in the second quarter. Net cash from operating activities was used to fully finance payments for investments and also to build up additional liquidity reserves. Therefore, the Elvenklinger Group generated operating free cash flow of €25.8 million in the second quarter. Due to the solid financial situation, the Group was able to further reduce net debt in the first half of 2020. As of June 30th, net debt amounted to €580 million compared to €595 million at the end of 2019. In the period under review, there were no significant changes in credit terms, not even as a result of influences from the coronavirus pandemic. As of June 30th, Elring Klinger complied with all covenants, agreed with financial institutions, and as of June 30th, the debt ratio, which is a net debt to EBITDA was 3.8 compared with 3.3 at the end of 2019 and 4.4 at the end of the first half of 2019. Regarding our maturity structure, you can clearly see a positive effect of our syndicated loan with a volume of €350 million. And with regard to the current liabilities, we will not have to refinance the full €149 million in 2020, but only €3 million. The rest is either short-term revolving or due in 2021. Last but not least, I would like to focus on the liquidity position of 295 million Euro, including unused credit lines, which still is quite comfortable. Having said this, I now turn back to Dr. Wolf.