Elringklinger Ag

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

Thank you very much. Ladies and gentlemen, a warm welcome to our conference call on the third quarter and the first nine months of 2021. All in all, it's again the same procedure as every quarter. I will start with some headlines on the third quarter. After that, my colleague Thomas Jesulat, our CFO, will present the financial figures on the third quarter. And then I will close with some final remarks and the outlook of the rest of the year 2021. And of course, after that, as usual, you have the opportunity to ask questions and we are more than pleased to answer your questions. Well, despite the significant market downturn and the increasing strains with the procurement markets, Ellen Klinger maintained its strong business performance in the third quarter of 2021. The group expanded both revenues and earnings compared to the previous quarter and even more significantly compared to the same quarter last year, that means the third quarter in 2020. Group sales went up by 5% year-on-year to €401 million in the third quarter of 2021. and by 18% to more than 1.2 billion euros in the nine-month period of 2021. Our group EBIT stood at 27 million euros in the third quarter and at 98 million euros after nine months in 2021. This corresponds to an EBIT margin of 6.7% in the third quarter and 8% in the first nine months. Higher commodity prices were counteracted by successful measures implemented as part of the efficiency enhancement program of the Erling Klinger Group. We also further improved in financial strength. Operating free cash flow was again well within positive territory at €8 million in the third quarter of 2021. and amounts to 74 million euros in the period from January to September 2021. And you have to take into consideration that, based on the shortage of material, we have increased the working capital, so that, of course, burdens the free cash flow. That has to be taken into consideration here, but Mr. Jezulat will talk about that later. The net debt ratio, which is net debt in relation to EBITDA, fell further to 1.3 down from 4.3 a year earlier. In the year to date, Ellen Klinger has reduced its net financial liabilities by around 100 million to now 361 million euro and 1.3 as a factor is, I think, a pretty good figure. So here we have a pretty good development over the last couple of years. Let's turn to slide number three. When looking at the markets, we saw a consolidation in the first half of the current business year. In the third quarter, we experienced a decline in global auto production output. The impact of ongoing problems with supply chains and especially the shortage of semiconductors became increasingly noticeable. While 20.5 million vehicles were produced in the third quarter 2020, only 16.5 million passenger cars and light commercial vehicles rolled off the production lines in the quarter under review, a decline of around 20% from 2020 to 2021. For instance, the Chinese market has become more sluggish since the second quarter. In fact, the third quarter saw a double-digit decline in this market. In Europe and North America too, production figures slipped into negative territory after the encouraging upturn records in the first two quarters. Production declined by around 30% in Europe and roughly 25% in North America in the third quarter compared to last year's quarter, that means the third quarter in 2020. Well, ladies and gentlemen, on the next slide, we showed the increasing price level of key raw materials for alloying Klingon over the last couple of quarters. For example, the price for aluminum has almost doubled since spring 2020. And a rather similar message applies to alloy surcharge, which is relevant for the manufacturing process of sealing products. that is basically based on steel, on our high-quality spring steel with alloy surcharges. At roughly 70% price increase, however, the increase is relatively modest compared to aluminum. For plastic materials like PA66, the price development is also quite steep with an increase of almost 50%. But a higher price level is one side, The other side is also the availability of raw materials. The markets are highly sensitive and events that used to be minor once in the past, as they have been compensated by the global network, can trigger today major disturbances. We have seen such adverse effects after the heavy flood in Germany in July or the winter storm in Texas this February. All in all, let me summarize that raw material markets are really tight, availability is sometimes limited, and price levels are really high, so we have an issue at the material front. Before we come to the financials of the third quarter, let me just explain an announcement of October. So actually no part of Q3 of the Q3 report. But it's important that we want to say something about that. The profound transformation process in the automotive sector has been even accelerated as a result of the coronavirus pandemic. This trend affects Ellingklinger in the area of near-engine shielding parts and heat shields fitted around the exhaust track. It too explains the more pronounced levels of competition in the field of shielding technology. Against this background, forces within the shielding technology unit are planned to be pooled and capacities to be consolidated. This includes optimizing the site structure of this business unit and implementing continuous improvement measures in order to avoid inefficiencies associated with changing conditions and to utilize capacities more effectively. The group's goal is to further improve the competitiveness of its shielding technology unit and to be in a position in which it can offer its customers high-end solutions tailored to their needs well into the future. In this context, Erling Klinger intends to gradually discontinue operations at the Langensen site here in Germany. The plans also include to continue research and development activities in close proximity to this site. Based on current considerations, the measures planned for this site can commence in the third quarter of 2022. Well, ladies and gentlemen, so far from my side. And let me now hand over to our CFO, Thomas Jesulat. He's going to explain the figures. Mr. Jesulat, go ahead.

Thank you, Dr. Wolf. A warm welcome from my side as well. I would like to comment the financial results for the third quarter starting on slide number seven. Despite many factors of uncertainty within the global automotive industry, we have seen an increase in order intake by 14.8% compared to previous year's quarter. Order intake for the third quarter of 2021 therefore stood at 486 million euro. On the back of this solid figure, the group's order backlog further expanded in the period under review. At the end of the first nine months, the figure has been lifted to a billion three euro and foreign exchange movements have been favorable in the third quarter. In the third quarter of 2021, the Elden Klinger Group generated revenues of €400.6 million, an increase on the same quarter last year, which has already been in the light of an economical recovery. Revenue was €19.5 million, or 5.1% higher than in the third quarter of 2020. In the third quarter, revenue raised by 6.8 million or 1.8% as a result of currency effects. Excluding these foreign exchange movements, organic revenue growth was 12.6 million or 3.3%. There was no impact from M&A activities in 2021. On slide number eight, you see the sales split by region in more detail. As previously mentioned by my colleague Dr. Wolf, the market environment in the third quarter of 2021 has been very challenging. We have seen a significant market drawdown in the main automotive regions of the world. The fact that we have achieved a market growth well into the positive area in both Europe and Asia confirms our strategy and the quality of our products even more. In Europe, revenues surged by 7.2% to €209.5 million. In North America, where the group's revenue decreased by 12.1% to €89.3 million in the period under review, the market declined by 25% compared to the previous year. The Asia-Pacific region recorded strong revenue growth in the third quarter of 2021, up €6.1 million or 8.7% to €76.5 million. At 78.2% in the next slide, the original equipment segment continued to represent the largest share of group revenue in the third quarter. In the e-mobility unit, revenue increased by almost factor five compared to the same period of the previous year. Sales amounted to 23.6 million euro in the third quarter of 2021 at 47.4 million euro. Revenue for the first nine months of 2021 almost tripled compared to the previous year's figure of 17.6 million euro. Among the classical business units, lightweight elastomer also achieved growth. Under these difficult framework conditions in the third quarter, it grew by a remarkable 7.3%. The business units' metal sealing systems and drivetrain components, as well as the shielding technology, recorded a slight decrease of 3.6% and 18.3% respectively. Slide number 10 presents the earnings figures for the third quarter of 2021. And despite a challenging market environment, the group was able to improve its earnings performance on a year-on-year basis. It recorded earnings before interest and taxes of €27 million. The headwind from raw materials of almost €10 million has been compensated by sales growth and gains from the efficiency program. Moreover, detracting factors like impairments in the Corona year 2020 have not had an effect in the third quarter of 2021. At 6.7%, the EBIT margin in the third quarter amounted to 6.7%, including the strong first quarter of 2020. The EBIT margin for the first nine months of 2021 was at 8.1%. Net finance costs were lowered significantly in the period under review, down by €6.6 million to minus €3.2 million. This was attributable to lower interest expenses on the back of lower net debt. as well as due to lower unrealized foreign exchange losses. As a result, net income increased from €3.4 million in Q3 2020 to €9 million in the quarter under review. As of September 30th, 2021, earnings per share attributable to the shareholders of Erwin Klinger AG amounted to 14 euro cents in the third quarter and 86 euro cents in the first nine months. Let me now turn to slide number 11, showing the performance of our segments. The original equipment segment as a whole further improved earnings to an EBIT of €9.6 million after €4.3 million in the third quarter of the previous year. The slight recovery in revenues also prompted a further expansion of earnings performance of the metal ceiling systems and drivetrain components and elastomer lightweight units operating within the classical areas of the business. On the back of higher revenues, the future-oriented e-mobility unit, which in addition to the fuel cell business also includes battery, technology, and electric drive units, posted negative EBIT in the quarter under review, as well as in the first nine months of 2021. This was mainly due to new serious ramp-ups and pre-series production. The aftermarket segment contributed €55.5 million to group revenue in the third quarter 2021. At 18%, year-on-year growth was significant. The business upturn due to high demand on the used car market coincided with higher costs for freight and logistics within the segment as well. Nevertheless, the bottom line result remained at a high level, which was due in part to sustained cost discipline. Therefore, the segments or earnings grew by €1.5 million in the third quarter, taking EBIT to €11.1 million. This corresponds to an EBIT margin of 19.9%. With revenues totaling €30.7 million in the third quarter 2021, the engineered plastic segment was again able to show pre-pandemic performance. Revenues proved particularly strong in the mechanical engineering sector, in the chemical industry and also in the automotive sector. Overall, segment revenue on the quarter on the revenue was 14.7% higher than that posted for the same period last year. The segment achieved earnings before interest and taxes of 6.1 million euro in the third quarter of 2021, which corresponds to an average margin of 20%. On slide number 12, you see that group's networking capital slightly increased in absolute numbers as a response to the unstable global supply chain. The ratio in percent of group revenue improved from 28.1% one year ago to 25.4% at the end of the reporting period and is therefore within the targeted area. Ering Klinger is pursuing a disciplined investment policy also in 2021. New equipment acquisitions are targeted particularly at the strategic fields of the future. Group's capital expenditure amounted to 15.2 million Euro in Q3 2021 related to production activities worldwide and also included expansion investments for new ramp-ups. As of September 30th, 2021, Erling Klinger generated operating free cash flow of 73.7 million Euro in the first nine months. And this figure does not include exceptional items such as the initial installment paid by Plastic Omnium for its interest in EKPO or proceeds from the sale of the Austrian subsidiary. Operating free cash flow in the third quarter reached €8.1 million in the midst of challenging framework conditions. Due to the considerable operating free cash flow in the year to date, Eringklinger was able to further reduce its financial liabilities in the period under review. Having already scaled net financial debt back until year end 2020 by 337 million euros since the start of the efficiency program in 2019, the figure was reduced by further almost 100 million in the course of 2021. From a 12-month perspective, net debt fell by €151 million to €361 million as of September 30th, 2021. Against the backdrop of a solid earnings performance and the reduction in debt, the group saw a significant improvement in its debt ratio at the end of the first nine months. Net debt to EBITDA stood at 1.3 at the end of the reporting period compared to 3.4 a year earlier and 4.7 in March 2019. In total, the group managed to pay back debt despite highly challenging framework conditions within the global automotive industry, while working capital is one instrument to cope with supply chain issues and where high material prices are permanently burdening the earning situation. Having said this, I now turn back to Dr. Wolff.

Well, thank you very much, Mr. Islatt, for your explanations. Let's go on to slide 15. I will now get back to the global situation in the automotive market. Shortages like those of semiconductors, we talked about that already, or limited availability of some raw materials, like recently especially magnesium, have an immediate impact on global production figures. Based on these interdependencies, there is a decline of production expected for the remaining quarter of the current year. Even taking into account the fact that Q4 2020 was a quarter with high output, the expected decline for the current quarter is significant at just under 20%. And this drop is expected to affect all the three major automotive markets. That means Europe, China, and North America. On slide number 16, you see that the market sentiment has become more and more skeptical in the course of the year. While in February, industry experts from IHS expected an annual production volume of around 85 million units worldwide for 2021. They reduced this volume gradually in spring and summer. In the light of continuing semiconductor shortages and bottlenecks for raw materials, They made a deep cut in early fall by shortening estimates for 2021 and 2022 by around 10%. This resulted in a substantial decrease of Q4 estimates of around 17%. What can we take from this? First, the markets are continuing to suffer from a high degree of uncertainty. Second, shortages in raw material and semiconductor and chips will continue. Third, we will see a poor fourth quarter 2021 regarding global light vehicle production as well as lowered volumes for 2022. And last but not least, the fourth point, the cut for 2021 and 2022 does not have to be interpreted as a cancellation of demand volumes, but rather a shift from production volumes from 2021 and 2022 to the years 2023 and 2024, which is at least partially good news if it really materializes like that. On the back of a strong quarterly performance, Ellen Klinger adjusted its guidance for 2021 with the publication of its preliminary quarterly figures on October 12th, 2021. In this context, it should be noted that the general market outlook deteriorated considerably in the final weeks of the quarter under review, with bottlenecks in the semiconductor industry, strains in the supply of raw material and elevated commodity prices taking their toll. Uncertainty relating to the stability of sales volumes as well as demand for raw materials and their availability continues. Against this backdrop, Erling Klinger now expects sales to be several percentage points higher than the anticipated change in global light vehicle production. Just before, the industry service provider IHS estimated global production growth of a global production growth of 1.6% for 2021 compared to the previous year and has since revised this slightly downwards to 0.3%. As regards earnings, the group expects an EBIT margin of around 6%, having taken into account the site optimization planned within the Shielding Technology Unit. I talked about that before. The group's projections for its other key performance indicators remain unchanged for 2021. The group has also confirmed its medium-term targets. Well, so far from my side, ladies and gentlemen, thank you very much for your attention. And Mr. Yazulat, my colleague, CFO of the Alan Tlinger Group, and myself, we are more than happy to take your questions. Thank you.

We will now begin our question and answer session. If you have a question for our speakers, please dial 0 and 1 on the telephone keypad now to enter the queue. Once your name has been announced, you can ask a question. If you find your question is answered before it's your turn to speak, you can dial 0 and 2 to cancel your question. If you're using speaker equipment today, please lift the answer before making your selection. One moment, please, for the first question. We have the first question. It's from Christoph. Lascavi, Deutsche Bank, the line is now open for you.

Hi, good afternoon, and thank you for taking my question. The first one will be on the shielding business and where you essentially plan consolidation of the industrial footprint that you have, which I think makes sense to take out a high-cost footprint in Germany, but it will likely also cost a slight amount for closing that plant or running it down. Is it fair to assume that you take a charge in high single digits to low double digits in Q4 on that. And if you think about the other business lines that you have, could you see the same measures for other plans that you potentially have in Germany or in Europe just to realign the footprint as the first question? And then the second part will be on raw mets into Q4 and 22. In Q3, you saw a negative of 10 million in the EBIT bridge. Could you give us an indication if it will be around the same size in Q4 and how you would see that trending into 22, considering that you might have yearly contracts for several of the input raw meds and they might be rolling into 22, thank you.

Yeah, let me answer your first question. We'll take a charge in Q4 on the consolidation, and my expectation is that we are going to be at the low double-digit amount for this activity. When we look at the situation here that we see in shielding technology, then in regard to the other business units, we do not see this particular development. in the other business units at this point in time. So this is really a specific point and we have different capabilities at different sites. when it comes to the manufacturing processes and therefore the tooling and projects are going to be distributed across different sites in regard to the different capabilities that we have in those locations. For your question on the raw materials, question number two, My expectation would be that we would see, based on some latency between three and six months on the automatic compensation for higher raw materials that we have in some of the contracts, that we will see some of the compensation coming in in Q4, so that the net effect, I think, would be around the same order of magnitude in Q4. For 2022, I see a lot of uncertainty in regard to the customer side, customer demand on the one side and also the highest risk is here the raw material side. We see a lot of movements in regard to the raw material markets and also in regard to those it's hard to estimate where are we going to be. But given our contractual situation, I would expect this to continue in a not so good way going into 2022.

Very clear. Thank you. The next question is by Akshat Kaka, JP Morgan. The line is now open for you.

Thank you, Akshat from JP Morgan. A few from my side, please. Let me start with the first one. Obviously, a very good quarter for you in terms of top line with increasing growth and outperformance. Can you highlight the key drivers here in terms of product launches or a good product mix? Because obviously, what we have seen in the auto industry is almost a 20% decline in auto production in Q3 versus Q1. but your revenues seem to be almost flat. So that is an amazing third quarter, if you could share some drivers there.

Yeah, a little bit, you know, on the detail, where we see declines, we have been seeing declines in the deliveries to assembly plants. We have not seen so much of a decline in the powertrain applications. If this is a good explanation or not, I don't know. But overall, we have this sort of differentiation between the different delivery situations that we have or the different delivery sites. And also, we have, of course, a plant in the UK that's currently ramping up. production for a powertrain system. And we have also several other projects currently going up. It's a mix, but the base business is fairly stable, as you said, given the circumstances and given the reporting that we also have been seeing.

Maybe I can add two things or three things. We had, again, a very strong aftermarket business, which contributes quite a bit to group sales and, of course, to the margin. Also, our engineered plastics, as Mr. Ezelat explained when he gave his explanation, our engineered plastics business was really strong, was really good. So that, of course, are two effects that are not influenced by, let's say, slow down of the global automotive production, because those are businesses that are independent from that. And as Mr. Eslatt said, a lot of our products are related to engines, to the powertrain, and not to car models. So if you supply right now seeds into a specific car model and the car manufacturers decide not to build this model for three months, then you really suffer. But you have to see that every car manufacturer has a lot less engine models than car models. So a lot of those engines go in different car models. And we don't really care, just to give you an example, if you take Daimler, they have this real, they have this since a long time, It's the 220 CDI, the diesel engine, and they produce a lot of those engines. So this engine goes into the A-class, it goes into the B-class, it goes into C-class, into the E-class. So we don't really care in which car this engine is implemented as long as they built the engine. And they shift right now from A-classes to E-classes, of course, because the margins are much higher in the E-class than in the A-class, yeah? But we don't care because we sell the parts into the engine and the engine plants are still running on a pretty good level because they need the engines for the cars they built.

Very clear. Thank you. The second question is kind of coming back to Christoph's question on cost inflation. Obviously, we are seeing different elements going up here in terms of raw materials and labor costs. freight and energy. And this has historically been a problem for Elden Klinger in terms of either offsetting these costs or passing it on to end customers. And I think this is what the share price reaction shows today as well. Your implied margin guidance for the fourth quarter is not too optimistic. What we are trying to understand, Mr. Yessir, that probably some early signals into 2022, I know it's very early and there are a lot of uncertainties But given the volume ramp that we will see into 2022 and everything that you're seeing in terms of cost inflation, what are you currently thinking in terms of positives and negatives when it comes to the EBITDA development year over year?

Yeah, thank you for your question. You know, like I said, on the risk side, customers and raw materials, we have to say in general that our global efficiency program has not only significantly reduced the the net debt but also improved the cost position of the group and in the areas where we have been focusing very much on this structural cost such as personnel cost, and we grew the personnel cost much lower relative to the development in sales. On the other side, the general cost, I can say that we were able to compensate, for example, with our cost reduction efforts for the higher cost for transportation and logistics. Yeah, and also what is something that we've been working now, you know in the third year That is, you know pricing structures with our customers Well, we had realized, you know significant improvements over the three years And when you for example, if you just look at the gross margin for q3 now with 23.5 percent And we achieve that despite, you know, 10 million higher material costs. It shows that we have within this program, we were able to significantly bring down the process cost of Elvin Klinger. And also, let me say that as we will grow further in e-mobility, and this can be seen also in Q3, that we are making some good steps forward here, we will depart step by step from the start-up loss situation. Right now, if I look at the year 2021, we are still in the low double-digit, you know, negative in regard to the startup losses for the new business years. But step by step, we will get out of that and move into the revenue cycle. We started with a new plant here in the UK in 2021. We'll continue on different projects throughout 2022. And this, you know, will bring us out, you know, from, you know, the situation that we have absorbed you know, negative results in the group and we'll have more revenues that give us good contribution margins. So my general assessment would be that we have, you know, we have approached the point where we will come from the development to the revenue cycle and we see this. from a top-line perspective as well as also based on the efforts that we have done on the bottom line. And therefore, I see, of course, the material portion as probably the highest outstanding risk item really going into 2022. But on the other side, we have to say that we have seen throughout, for example, 2019, our ability to recover you know, some of the costs, the most of the costs through, you know, agreements with our customers. Now we have demonstrated that and therefore overall, my assessment would be that we are exposed to some risk, but we have also upside against that. Now, how this is going to be playing out at the end of the day, this is a little bit too early to say that, but this would be my, you know, overall answer to your question.

Very comprehensive. Thank you so much. One question on the cash flow statement. If you could comment on your CapEx expectations for the full year 2021, that would be really helpful. I think we're at $38 million for the first nine months. And if you could also share some details around the high dividend payout to minorities. What exactly was paid out there, please?

Let me say something to the minorities at first. We have minority shareholders in China and we have also minority shareholders here in Germany in the plastics business. They both are parts of the business that very much generated strong cash flows. throughout 2021 so that we had significant payouts in the form of dividends, you know, to us here in Klinger AG. And what you see there is essentially their share of the payouts. Yeah, it's, you know, stemming from a very cash flow, strong businesses that we have in the group with, you know, minorities in there. Sorry, your first question, can you repeat your first question?

First one was on CapEx and also a follow-up on the minority, as you just mentioned. Was this a special dividend or should we just expect a similar payout going forward?

No, this is something that has been going on as an ordinary course of business because over the last years we had a good development and you saw those payouts also in the last couple of years. This year in particular we have higher amounts because we had such a good development in those businesses. This is also the reason when you look at the tax rate for Q3, the tax rate is fairly high, so where we had really strong results in the group. Those are areas where we have also tax rates that led to this relative high rate. Let me go back to your CapEx question. CapEx, I would expect a little bit of pickup in Q4, but overall, same ballpark in terms of percentage on total sales, what we have seen so far in the year. A little bit of pickup in Q4 would be my expectation.

Understood. Thank you so much. I'll call back in the queue.

Thank you. The next question is by Markton Warburg Research. The line is now open for you.

Yes, thank you for taking my questions. First one would be on, and I think you basically covered part of it already when we think about the outperformance which you have shown. Let's try and try once again. So from what you see, let's say from your order book and the strong order intake you had, Perhaps you could give us some indication whether you would expect these out-performers to also be maintained in the quarters ahead or whether you see any risk from potential fallbacks. Perhaps the customers may have pre-produced some engines which are now implemented into cars once they are produced. That would be the first question. The second question, coming back to tax rate, and you touched on that with the last answer, So perhaps you could give a bit more detail there, whether there had been, let's say, any specific shift in regional profit distribution, which we should consider here. And the third question would be with regard to the guidance you provided for the fourth quarter. You mentioned the low double-digit million charge you will take, presumably, for the restructuring as a shielding business. To my understanding, this is fully included in the revised guidance for the four years. So you're expecting approximately 6% EBIT margin, including this low double-digit median charge, which you are expected to take in Q4.

To your first question, when we look forward a little bit, then we see a good and solid order situation for Q4 and also when we look into the beginning of the next year. There is uncertainty, what we have seen also, not overall, but in regard to parts of the business where we say some of that may not be realized at the end of the day. So far we've been doing good, but for me there is still towards the end of the year in particular uncertainty in regard to the demand from customers. On the tax rate, I can say within the program that we have executed, we have reduced the companies in our group that have recorded significant losses. If we look at the past, We look into the United States and we look into Switzerland in terms of, you know, businesses that gave us significant losses. And we have reduced the losses through, you know, specific efforts and also the efficiency program. But, you know, the program made also the already very good companies better. So when we look at, you know, specific, very positive developments in terms of entities that contributed to higher tax rates than in the first. And foremost, I have to say the Elvenklinger AG has been performing very good. And most of the increase in taxes comes from the Elvenklinger AG. Second, Kunststofftechnik. like we said before, and then, you know, on place three and four, it's already China. And again, those are, you know, some of those companies, they are the companies with the minorities. So we have an improved situation and that effectively led to the point. If we look at the guidance and how we look at that, let me say that we have maintained in 2021 a very cautious approach and this was confirmed at the end in the second half where the markets turned more difficult. When we adjusted our outlook in October, we have considered all external and also, like your question, internal factors into that. And we have, in my opinion right now, some room in the guidance for all of those internal and external factors. This is also the reason why, if you look at that, My expectation would be a flat contribution in Q4 from an earnings perspective, which is part of the guidance that we have been given. And like I said before, there is still material cost burdens. It's going to be the case in Q4 that we will have that. My expectation is also that we have some compensation from the customers from the contracts that we have. So, again, this is from a net perspective, not 100% sure, but this is, you know, the way I think about that. And all communicated and to us known factors are incorporated in part of the guidance for 21.

Thank you.

The next question is by . The line is now open for you.

Hello. Yes, two questions please. First one relates to page 16 of your presentation. We are seeing IHS data heading for close to 100 million production volumes by 2024 again. And I think we all know the uncertain situation also with climate change and also rising costs in other areas for the end consumer. A broad question, do you basically see a normalized long-term production volume? Would you see it at rather 100 million vehicles per year, 90, or rather probably only 80 million? This would be question one. Question two is relating to wage inflation. I mean, we might be seeing some wage inflation tendencies for the time being in the U.S., at other companies of the automotive sector. Can you confirm this also for Elring Klinger? And what is your plan should wage inflation turn around to turn out to be a structural issue? Is there any further restructuring measures which you could think of which inflation should be structured?

Thank you. Well, let me answer that question. Of course, those numbers, they come from IHS, and it's always a question, are things happening like that or not? And this is a global view. Things might be different in Europe, because you mentioned the climate change and all those measures that are taken against that. But that is something that we see mainly in Europe. And Europe has about 15 million cars worldwide. So I think that the markets in the US, also in China and in other parts of the world are going to develop quite nicely. Of course, we're going to see a change from the pure internal combustion engine to hybrids. The number of hybrids will increase quite remarkably in the years to come. And we will also see battery electric and fuel cell electric cars. So the mix will change. But the one thing that is good for us is that we are prepared for all of that. We are strong in the combustion engine, which goes into a hybrid car. We are strong in battery technology. We are strong in fuel cell technology. So that was our strategy for many, many years. to be prepared for whatever happens in this world. And one thing you have to see, if we reach in 2024, now I refer to page 16, if we reach 98 million in 2024, we are only 4 million above the level in 2018. I always refer not to 19 but to 18 because we had a recession already in our industry from 18 to 19. So the one thing that is important, we have to get back to the strength that we had in 18. I think that those figures are not unrealistic. It's still interesting, the mix, as I mentioned before. And so I think this is not unrealistic. There's always uncertainties, but it's 2024, that is another three years. But I think it's pretty much what we expect in our industry, and that's also what our plan and our budget for the next years is based on those figures. There is a little bit wage inflation in the US. The biggest problem in the US is to get people. The market is empty. When you drive through industrial regions in the US, you have almost at every company, you have big signs for hire. We have a pretty reliable team there and a pretty stable team. Still, from time to time, we suffer, especially in production, where people are just running away and go to the next company. So that is something that we see, but we still can deal with it quite good and quite nicely. In other areas, of course, we have to really fight against wage inflation. For example, here in Germany, we have the next... the next negotiations with IG Metall next year in September. And for me it's pretty clear, as we have not reached the level of 2018 in production, in sales and so on, there is nothing that we can give them. So I think here we should pretty clear that if, especially also in other European countries, we see more and more wage inflations, we have to think about restructuring not only we, but also other companies in the automotive sector. They have to think about restructuring their setup, and that means that we think about transferring production from high-wage intensive countries to countries where we have a different structure. That's pretty clear. So we have to go against that, especially also considering the fact that in our industry, we have the highest wages compared to all other industries.

Yeah, okay, thank you. I think a very helpful comment. And then in getting you right, then you are really also heading for attractive growth rates of light vehicle production in the next three years, right?

Yeah, of course. And you have to see, we have, let's say, the interest, I would say, the interest in such situation that our product mix changes and we have more and more lightweight parts. We have battery electric parts. We have fuel cell electrical parts. On the other hand, we still have our reliable classical business that also increases because we see here a consolidation. There are more and more, let's say, competitors that are getting out of business. They're not doing their business anymore. So the overall structure for Ellen Gringo is pretty good. We are one of the very few companies automotive suppliers that are basically through this transformation already because we do fuel cell technology since 20 years and battery technology since 15 years. So the structure of the company and especially also the product mix and the product structure is pretty good here in England.

Okay, thank you. Very helpful.

The next question is by Jürgen Pieper, Metzler Capital Markets. The line is now open for you.

Yes, hi, gentlemen. Good afternoon. I have two questions. First, on the current quarter, just recently, we talked about last week or the last few days, some OEMs stated that the production seems to turn to the positive compared to the third quarter. For example, Volkswagen, I think, will take up the production by 15 or 20%. in the first quarter compared to the third quarter, obviously from a very depressed level. Nevertheless, some statements that could indicate that we have seen the worst in terms of the mainly, especially the chip problem. Do you see indications, if you look at your October, with all cautiousness, we of course share and know. And secondly, after this extreme year 2021, after these two extreme years, do you make any structural changes on your procurement side in terms of duration of contracts, in terms of sourcing? Maybe you go for a higher number of sources for some raw materials, or is there even some substitution possible for aluminum, for example, to a certain extent? So Do we see in the end, in 2021-23, some fundamental changes after these years of very, very extreme experience?

Let me answer your first question again. The fourth quarter, I'm more... optimistic and pessimistic in regard to how we see us going into Q4. I indicated that earlier we are watching this really closely and I think the outlook that we have given reflects that view that we think we are having a development above market you know this is what we said and this is you know i i say that still you know um that that i see that as our firm view on things now number two of course when we look at the working capital We have seen, based on some reconfigurations that we are doing in the supply chain and also some inefficiencies here that leads to build up in inventories, we see that we maintain a current working capital ratio of 25% to sales. And this is thanks to an increased amount on the passive side here in accounts payable. If you compare us to the past, we were always somewhere between 120 140 million in terms of our payables. And if we look at the end of September here, we are at 170 million. So what have we done here? We have of course executed also in procurement. you know, a stringent program as part of our efficiency program. But we also focus, of course, very much on the increase of payment periods to suppliers. And we look at, you know, optimization here on the supply side. Generally, of course, is our business. We are experts, so to say, in terms of substitute metal through plastic, but it's not always possible. So there is some components that we source of some metal sort that would need to be compensated from a pricing perspective from the customers. We cannot just substitute that. But overall, we have improved a lot and my expectation is we will continue to improve a lot on the sourcing side when we look in particular on the payment period, days payable outstanding as our KPI here. And this is gonna be continuing to be the case and therefore I'm positive that we'll also on the working capital side make some steps forward once we have a more reliable supply situation on the one side. And once we have concluded our reconfigurations, yeah.

Okay, that's clear. Thanks.

The next question is by Michael Punzert, DeceptBank. The line is now open for you.

Yes, Michael Punzert, good afternoon. I have two questions on your e-mobility business. First one, we saw that the immobility account for roughly 60% of group sales in Q3. Is that a level you also expect for the coming quarter or a rise in this share? Or is there the possibility that we came down again in the case that supply chain normalized and the companies or the production of cars are normalized in coming quarters? And maybe you can give us an indication when you think you could reach break-even in this segment.

Yeah, you know, the major part of this is, of course, the ramp up of a new factory with with the drive train system in the UK. and along with other e-mobility components that are in the ramp-up phase. And in particular, those new programs stipulate tooling sales. And we had, for example, 8 million tooling sales for this plant in the UK alone in Q3. So it's both. We will see some higher amounts based on tooling sales, but that is going to be supported through a higher base, let's say, production rate of e-mobility components going forward. So my expectation is this will be continued, and in 2022, it will be further improved by the start of a cell contacting business that we have announced and acquired. There's gonna be a start here in 2022 and we'll see some significant sales figures coming in. My expectation is 23 because we've got a fairly steep ramp up. So this is gonna be supported at the beginning. We may see some variability here, but my expectation is that you see here what we have said before this, that we are in the startup phase, and this is the beginning of the startup phase, and you'll see further revenue growth in mobility.

Okay. And for Eden, when do you expect to reach for Eden in the mobility segment?

Immobility break even, you know, generally I think 24, 25 is what I have said. There's some developments, you know, that I'm not 100% certain on that as of yet, but my expectation is 24, 25 approximately will have a significant sales level going on, not only you know for battery components but also you know in the fuel cell business of ours and also in some other areas where we'll see some pickup now so current estimation is 24 25. okay thank you then i have two smaller questions on your ebit bridge on page 10 of your presentation first one is maybe you can remind me what was the impairment in last year and also maybe

could comment a bit on the other figure of positive 5 million.

We have two types of impairments that we have had in Q3 last year. The one was pretty much an ordinary impairment and this is the three here in terms of receivable impairment. We had a US customer going into chapter 11. It's a pretty known name, so you may be able to know it. And also in China, we had a little bit of the same on one customer in China. So this is a receivable impairment that we have seen here with a 3 million and most of the others is impairment as well on, you know, some assets that we had last year. Okay, thank you.

The next question is by Akshat Gekar, JP Morgan.

The line is now open for you. Thank you for taking my questions again. Just two quick questions. The first one, again, on electrification, and as you mentioned, you have a very strong position in fuel cell stacks as well as battery electric vehicles. So I'm just asking myself if you will be willing to disclose a BEV only order backlog or order intake going forward. And the second question is on the cell contacting order that you have with the battery supplier in Germany. Can you talk about any other RFQs or discussions with other battery cell manufacturers or the one that you're starting the order with in Germany? Anything else that is developing on this front? Thank you.

Well, the order in Germany, we have disclosed that in a press release when we got the order. It's the company by the name of CATL. It's CATL in China and they built a factory here in Europe, in Germany. So that is the order that we have published and we are working on other projects. But the one thing you have to see, we discussed that in calls before, the trend of be it automotive manufacturers or be it battery manufacturers or other companies that are in the field of e-mobility, normally we have pretty rough contracts with them where we are not allowed to disclose that. Everybody is really tense in that business and they want to keep all those things confidential. The one thing that I can say, we are happy with both areas, with the fuel cell business, also with the battery business, where we have projects for complete modules and also for parts. Our strategy is we supply parts for battery systems, also for fuel cell systems, but also complete systems and modules. So we have three different things that we offer in the market. And we see good demand for systems in niche markets with smaller numbers, but also good demand for parts from customers that produce their own systems in larger numbers. So sorry about that, but we cannot really disclose all those things that we have on hand here.

Understood. Thank you.

As a reminder, if you want to ask a question, please press 0 and 1 on the telephone to enter the queue. As there are no further questions, I will hand back to Dr. Stefan Wolf for closing remarks.

Thank you very much. Thank you for your questions. Thank you for your attention. Thank you for attending this call. Thank you for your interest in Ellen Klinger. We are looking confident in the future. Things are difficult, as we described it in this call, but still we see that things are developing fine and that we will further develop the company in a good way. And so, once again, thank you for your attention, and I'm looking forward to talking to you in our next conference call, which will be in spring next year. And then we will see we have the full results of 2021. And, of course, then the next call will be on Q1 2022. And then, as I said, looking forward to hearing you and talking to you in these calls. So all the best to you. Good health. You know, stay healthy. And then bye-bye also on behalf of Monsieur Leclerc. Thank you. Bye-bye.

Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect.