Elringklinger Ag

Ladies and gentlemen, welcome to our conference call today with regard to the results of the third quarter of the INCLIMA Group worldwide. Well, after two quarters of pandemic consequences, the first quarter especially in China and the second in Europe and North America, the third quarter was really characterized by a robust global recovery and kind of a steady return to normality. even though we have to see that the global production is still on the prior year's level after the first nine months of 2020. Ellen Klinger can present today a solid set of results, especially with regards to the general economic framework that we have right now. We benefit from our efficiency enhancement program, which has been implemented in early 2019 already. Therefore, despite a decrease of revenues of 7.5% in organic terms compared to the third quarter 2019, we have been able to improve the group's profitability. We achieved an EBIT of 18.9 million euros, which takes the group earnings back into the positive territory after the first nine months. It corresponds to an EBIT margin of 5% in the third quarter, which is, from our point of view, quite good. In addition, we generated an operating free cash flow of 78.6 million euros in the third quarter, and thus we have reduced the net financial debt by further 68 million euros. If you look at that overall, we have now decreased net financial debts by more than 280 million euros over the past 18 months. Moreover, Alan Klinger has recently concluded groundbreaking agreements in the field of our fuel cell technology. Remember, we do that since 20 years. We have entered into a strategic partnership with Airbus for the purpose of evolving fuel cell technology in the field of aviation. And at the same time, we have agreed in alliance with the French supplier company Plastic Omnium in order to co-shape the future of hydrogen-based mobility and the focus being here on the vehicle sector. And last but not least, we have announced, you probably read that, all of you, a noteworthy contract with ZEPP Solutions, which includes fuel cell stacks for logistics centers and for ports. Let me outline the two milestone contracts for Ehrenklinger signed in October, that is Airbus and Plastic Omnium. In mid-October, we have entered into an agreement with Airbus for a long-term partnership within the area of fuel cell technology. Following the delivery of stacks and customized test rigs this summer, the agreement will see Ehrenklinger and Airbus work together to initially develop and validate aviation-compatible fuel cell stacks in the coming years. And CLINGO will hold a non-controlling interest in a newly established company, while the majority stake will be held by Airbus. And CLINGO will provide the newly established company with access to technology relevant to hydrogen-powered fuel cells, while in return receiving compensation in the low to mid double-digit million euro range. Additionally, Alan Klinger will supply the newly established joint venture company with the certain components needed for development activities. Both parties have agreed not to disclose further details on this partnership agreement. This agreement includes two key messages from my point of view. First, if aviation is interested in fuel cells, The technology should be even more attractive for other applications as the aeronautic sector places the highest performance requirements that you can think of. Second, Airbus conducted an extensive international analysis of the fuel cell stack market prior to the agreement and as a result has been convinced of Ellen Klinger's best-in-class performance. The decision in favor of Ellen Klinger is a quality seal for us for our company. The high power density of our stacks and our extensive expertise with regards to industrialization processes proved key differentiators. Also in October, as you probably know, Ellen Klinger and Plastic Omnium, the French supplier, agreed to take hydrogen-based fuel cell technology to the next level. Together, we will create EKPO Fuel Cell Technologies, a joint venture dedicated to fuel cell stack development, production, and commercialization. EKPO Fuel Cell Technologies will offer its product portfolio to a broad range of customers, including hydrogen systems integrators. At Klinger, we will hold a 60% stake in EKPO fuel cell technologies, while the remaining 40% will be owned by Plastic Omnium. Ehrenklinger will bring all of its assets related to fuel cell stacks and components. The joint venture will be headquartered here in Dettingen, where Ehrenklinger, the mountain company, is based, and will be fully consolidated in Ehrenklinger's figures. The annual production capacity of initially up to 10,000 units in the joint venture will be progressively extended according to the order book and we are confident that this number will raise quite a bit. Plastic Omnium will invest 100 million euros in the new company to support the acceleration of innovation, strongly develop the commercial pipeline and increase production capacities. We also agreed on the divestment of our Austrian subsidiary specialized in the integration of hydrogen systems for an enterprise value of 15 million euros. As from our point of view, it does not make sense to be partners in a joint venture on the one hand and competitors in fuel cell systems on the other hand. You have to know that Plastic Omnium is also invested in companies that are dealing with complete fuel cell So, fuel cell systems are now in the hands of Classic OMNIO. What was the reason for this step from an Erling Klingon perspective? Well, we have gained strong expertise in fuel cell technology over the past 20 years. Our stacks offer a high power density and have proven their capabilities even under adverse conditions. We knew the next step is to unlock the market potential with a strong partner. Together, we will industrialize the fuel cell technology by extending the manufacturing to a large scale production in order to realize economies of scale. Both partners share the same values and complement each other perfectly with regard to competencies and the view on the mobility of the future. As a result, the new joint venture EKPO Fuel Cell Technologies will accelerate the ecological transition and establish a dedicated industrial and globally competitive sector. With Plastic Omnium as a partner, it will be able to offer integrated solutions covering the entire spectrum of fuel cell propulsion technology. Well, I come now to slide number six. The partnership with Plastic Omnium will allow EKPO fuel-set technologies to develop further and faster with very high ambition. The 2030 market, backed by increasing government support, is currently estimated at an annual production of between at least 2 and 3 million on-road vehicles with fuel cell systems. First, it will start to address the commercial vehicle market, where it is especially reasonable to integrate fuel cell solutions from a range and cost perspective. Afterwards, it will be covered the passenger car market, which will represent the main market share by 2030. If you look at it by region, the activities will address the Asian fuel cell market in particular, which is most promising, and then will be followed by the European market. By 2030, EKPO Fuel Cell Technologies aims to reach a market share of 10 to 15% in the fuel cell technology business, representing revenues between 700 million euros and 1 billion euros. This target includes a global industrial footprint, and is based on the ability to already today serially produce fuel cell stacks complying with the automotive standards of today. It is the strong objective of eKPO fuel cell technologies to foster mass market adaptions by reducing the price per kilowatt by 80%, which would be competitive to internal combustion engine prices today. So that is the general remarks from my point of view and let me hand over now to my colleague on the board, our CFO, Mr. Thomas Jeselnath, for the explanation of the figures of the third quarter 2020. Mr. Jeselnath, please go ahead.

Thank you, Dr. Wolf. Ladies and gentlemen, a warm welcome also from my side I would like to comment the financial results for the third quarter 2020, starting on slide number eight. The general recovery seen during the past months also had a positive impact on Erwin Klinger's orders book. While order intake had slumped by 54% year-on-year in the second quarter of 2020, it exceeded the prior year figure of €438 million, in the period from July to September 2020, which is adjusted for currencies, standing at 459 million euros. This corresponds to growth of 4.8%, excluding the comparatively strong effects of currency translation, however, this period saw a decline of 3.2%, pushing the figure down to 424 million euros. Based on the assumption of stable exchange rates, the order backlog decreased by 4.5% to €1.2 billion as of September 30, 2020. Factoring in currency movements, order backlog amounted to €972 million, which represents a decline of 9.1%. Group revenues rose substantially during the third quarter on the back of recovering markets, taking the figure to €381 million. Despite this upturn, revenue for the period was still down 11.8% on the prior year figure. In organic terms, group revenue fell by 7.5% in the third quarter. Revenues have been diluted by currency effects quite strongly. However, at minus 4%, the impact of currency translation was even pronounced in the quarter under revenue. M&A activities are to be seen in the context of the Hungarian business park sold in 2019. On slide number nine, group revenue rose substantially compared to the preceding three months in all sales regions, but overall not compared to their prior year figures. Europe is the region generating the highest revenue with a share of 51% of total sales. Although vehicle production gradually resumed as early as April after some restrictions had been lifted, it took until the third quarter for demand within the European market to pick up again. However, revenue generated from sales in Germany in Q3 2020 was still down 14.4% on the prior year figure. down by just 5.8%, revenue in the rest of Europe was more in line with that recorded in the same period a year ago. Business in North America was severely impacted in Q2 2020 by lockdown measures. The third quarter saw a strong upturn in demand, as a result of which Erring Klinger managed to generate sales revenue of 102 million euros. However, this was still 11.9% less than achieved in the same quarter one year ago. In Asia Pacific, from where the global market downturn spread during the first quarter of 2020, following the outbreak of COVID-19, group revenue began to trend higher again as early as the second quarter of 2020. Although revenues from the activities of the group's plans in China grew, the Asia-Pacific region as a whole still recorded a decline of 12.4% in the third quarter. In the third quarter of 2020, the original equipment segment generated revenues of €306 million, which was €47 million or 13.2% less than in the same period a year ago. The various divisions performed along slightly different lines over the course of the third quarter of 2020. While cylinder head gaskets and specialty gaskets as well as structural lightweighting benefited from a speedier recovery, revenue flows attributable to the shielding technology division proved more sluggish compared to the prior figures. In this context, however, revenues attributed to structural lightweighting proved exceptionally robust. The e-mobility division, which encompasses the areas of battery and fuel cell technology, as well as drivetrain, recorded 19.7% increase in revenue, taking the figure to 5.5 million euros. On slide number 11, we see the earnings figures for the third quarter. In the third quarter of 2020, earnings performance was improved by the upturn in markets and the overall package of measures discussed above. Tangible savings were achieved as a result of which Oren Klinger achieved an EBIT of €18.9 million despite the decline in revenues. The EBIT margin was lifted from 4.7%, in the same quarter a year ago to 5% in the period under revenue. At €2.5 million and 0.2% respectively EBIT and the EBIT margin for the first nine months were also in the positive territory. As part of the official COVID-19 aid measures, the group took advantage of tax relief in Germany, including tax rate deferrals. This and the fact that, as in previous periods, no deferred tax assets can be recognized on the losses incurred by some of the foreign companies meant that the tax rate fluctuated sharply over the individual quarters. As a result, net income for the Erwin Klinger Group stood at €2.9 million in the third quarter of 2020. In the first nine months, the net loss was minus €31 million, and after known controlling interest, net income attributable to the shareholders of Erving Klinger AG was €3.4 million in the third quarter of 2020. Calculated on this basis, earnings per share attributable to the shareholders of Erving Klinger AG amounted to 5 cents in the third quarter. We now come to slide number 12. As a result of the program introduced throughout the group in 2019 for the purpose of raising efficiency levels, optimization measures implemented at the North American plants in order to improve productivity and cost structures had a positive impact. Furthermore, the group took advantage of adjustment options with regard to HR capacity and cost for the purpose of streamlining its operations in response to waning demand. The lower sales volume compared to prior year's third quarter affected earnings. Parallel to Q2 2020, instruments like the German Kurzarbeit or similar ones in other countries helped to compensate the earnings impact on a lower level. All in all, the coronavirus impact still amounts to roughly 17 million euros. External factors like tailwind on the raw material side or reimbursement of duties accounted for 3 million euro. This successfully implemented efficiency program helped to offset the negative effects of the crisis by around 12 million euro. Let me now turn to slide number 13, showing the performance of our segments. Despite the shortfall in revenues, Erwin Klinger managed to improve profitability in the first original equipment segment. The EBIT margin recovered from minus 0.1% in the first quarter and minus 21.5% in the second quarter to 1.4% in the third quarter. The aftermarket segment increased its revenues and earnings despite the difficult economic framework. The third quarter saw revenues increase by 4.5% year-on-year to 47 million euro And in regional terms, the gains were attributable mainly to Eastern Europe, the Middle East, and the Indian subcontinent. In the third quarter, the aftermarket segment generated an EBIT margin of 20.2%. The engineered plastic segment was also affected by the economic repercussions of the coronavirus pandemic. In the third quarter, demand picked up substantially, driven to some extent by catch-up effects within the automotive sector and regionally in China. This segment generated revenues of €26.8 million in the third quarter of 2020, and despite lower business volumes, The segment succeeded in improving its EBIT margin slightly from 16.4% in the same period a year ago to 17% in the period under revenue. This was attributable to various measures, including strict cost discipline. Revenue and earnings contributions of the segment other are of subordinate importance, accounting for less than 1% of consolidated revenue. In the third quarter of 2020, the segment result included income of €0.3 million from a sale and leaseback transaction. Now we come to slide number 14, networking capital, which is calculated on the basis of inventories and trade receivables less trade payables. fell yet again from 487 million euros 12 months ago to now 407 million euros. Following extensive investments in recent years, Erding Klinger has been able to scale back investment activities significantly since 2019 without foregoing key projects. Therefore, measures that are essential for the group's strategic orientation will continue to be implemented in a targeted manner. At 15.1 million Euro in the third quarter of 2020, outflows for investments in property, land and equipment and on investment property were much lower than in the same period a year ago. Among other things, These investments were attributable to the installation of a production line for battery systems at the site in Thale. And in addition, expenses were incurred for the final completion of work on the technology center for e-mobility, which commenced operations in 2020. The capex ratio was lower, amounting to 4% in the third quarter of 2020 compared to 5.9%. in the third quarter of 2019. In the third quarter, operating free cash flow resulted in a cash inflow of 79 million euros. Compared with the prior year quarter, this corresponds to an increase of 48 million euros, and from January to September, Erling Klinger therefore generated substantial operating free cash flow of more than 100 million euros. Despite the downturn in business, the Erling Klinger Group further improved its solid financial situation over the course of the year, while net financial debt was again scaled back. Compared to the figure of €682 million 12 months ago, it was down by €170 million to €512 million as of September 30, 2020. In the same period under review, there were no significant changes in credit terms, not even as a result of influences from the coronavirus pandemic. As of September 30th, Elving Klinger complied with all covenants, agreed with financial institutions. The group had €153 million in cash and cash equivalents, including short-term time deposits, securities, and €177 million in open unused credit lines. Therefore, Elring Klinger continues to enjoy a substantial liquidity cushion as a result of which no shortages are currently expected in the foreseeable future if the consequences of the pandemic turn out to be still manageable. With regard to the current liabilities, out of the €160 million, there are 10 million euro to be paid back in q4 2020 and out of the remaining 150 million euro around 100 million euro will be redeemed in 2021 and the remaining sum will be refinanced next year having said this i now turn back to dr walker

Thank you very much for your remarks. Let's turn now to slide number 17 of our presentation that you have in front of you with a look on the markets for the rest of the current year. Of course, the coronavirus pandemic has maintained its grip on the world. The first two quarters were marked by the spread of the virus first in Asia, especially in China. and then in Europe as well as North and South America. While an improvement in the pandemic's trajectory during the summer may have pointed to a clear and steady trend for the rest of the year, fall has seen now higher rates of infection and the second wave of the pandemic in Europe and North America in particular as a result of which the fourth quarter of 2020 is likely to be influenced by significant uncertainties. Currently, many states have again stepped up their protective measures and in some cases restricted economic activities while making every effort to avoid complete lockdowns similar to those seen during the spring. Regionally stricter measures including temporary closures cannot be ruled out currently the repercussion of such measures will also be felt throughout the car market. Against this backdrop, it is indeed possible that recovery may be interrupted in the months to come. Therefore, it is hard to predict how the year 2010-20 will close with regards to the activities on global auto markets. It depends on whether the recovery will continue during the fourth quarter 2020. And overall, we currently expect a decline of 18% for the full year, building on the projections of the industry institute IHS. Given the uncertainties I have just outlined, it is still not possible to make a sufficiently reliable estimate of developments in the fourth quarter and thus the remainder of the year. As regards financial year 2020 as a whole, we still anticipate that the change in revenue in organic terms will be slightly better than the figure relating to global automobile production, which is expected to change by around minus 18%, as I mentioned before. In terms of earnings, we are still anticipating an EBIT margin that is lower than in the previous year. This does not include potential compensation in the low to mid-double-digit million euro range from the strategic partnership with Airbus. This agreement is scheduled to be closed in the course of this year. We also continue to assume that in 2020 the return on total capital employed will be lower than in the previous Last but not least, and now I'm referring to slide number 19, you see that our expectations regarding the further indicators have not changed since our last reporting in August 2020. Despite the challenging factors currently driving the business environment in which Eric Klinger operates, we consider ourselves to be well positioned in the medium to long term. Klinger was quick off the market in its efforts to embrace the transition towards e-mobility with components engineered specifically for battery and fuel cell systems. Overall, therefore, we can confirm the medium-term outlook. However, the exceptional consequences of the coronavirus pandemic still have to be taken into account if they intensify, especially in the reporting periods that are approaching. Ladies and gentlemen, these were the remarks and explanations to our results of the third quarter, also for the first nine months of the fiscal year 2020, and, of course, an outlook for the full year. We now highly appreciate your questions. Please go ahead, Mr. Ezelat and myself are going to answer your questions and we hope for an interesting discussion. So go ahead.