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.