Elringklinger Ag

Ladies and gentlemen, thank you for standing by. Welcome and thank you for joining the Erling Klinger Group Q3 2023 earnings call. At our customer's request, this conference will be recorded. All participants will be in a listen-only mode. After a short presentation by the CEO, Mr. Thomas Chesulat, there will be a question-and-answer session. If you would like to ask a question, you may press the star followed by one on your touch-tone telephone. Please press star key followed by zero for operator assistance. I would now like to turn the conference over to Thomas Jesulat. Please go ahead.

Ladies and gentlemen, I welcome you to our earnings call here on the third quarter of 2023. We have already published preliminary quarterly figures in the revised sales guidance on October 25th. via an ad hoc announcement. With today's publication, we confirm the preliminary figures. Over this earnings call, I'll provide a more detailed look into the results from the third quarter and comment on the guidance for 2023 and the midterm. First, I will start with a short introduction of Group's new management board and provide some headlines on the third quarter. Then, I will discuss the financial figures and close with a few forward-looking remarks on the remainder of fiscal year 2023. At the end, as usual, you will have the opportunity to ask questions, and I am pleased to answer them. Before going over the Q3 figures, let me introduce the new composition of the Management Board at Elring Klinger. Since October 1st, 2023, we have a new board member for sales, our CSO, Mr. Dirk Willers, as chief sales officer. He is responsible for aftermarket segment, which he has already headed since 2015, as well as the engineer plastic segment and group sales and group marketing. In addition to his prior duties, chief operating officer, Reiner Dreves, is responsible in addition to purchasing and supply chain management function. As CEO since October 1st, I am responsible for all central functions as well as battery technology, electric drive units, and fuel cell technology. My colleagues are sitting right next to me here, and they are joining the call as well. Erwin Klinger is in the midst of the transformation towards emission-free mobility. And I'm very much looking forward to drive the transformation together with my colleagues Rainer, Draves, and Gerd Willers. Coming to the headlines on Q3 on slide number three. In the third quarter, we saw the macro environment sequentially improving. Concerning supply chains, the environment was mostly stable, and compared to the third quarter of last year, prices for several raw materials came down, which also affected our margins in a positive way. However, inflation was still well above the levels intended by central banks across the globe. The production of light vehicles developed quite dynamic over the course of the year so far. The projections by S&P were recently revised upwards again, now at a projected growth of 7.5% for 2023. As a reminder, the expectation at the beginning of the year was 3.3%. I will address the production forecast more detail towards the end of my presentation. Our figures for Q3 show improved earnings and cash flow metrics as highlights, Firstly, sales revenues amounted to €452 million, facing headwind from exchange rates. And organically, sales were slightly up by 0.7% in Q3. In the first nine months, sales revenues grew by 5.9%, organically by 7.7%. Adjusted EBIT. was improved visibly to 22.7 million euro. Adjusted EBIT margin for the group was 5%. Over the first nine months of 2023, the adjusted EBIT margin is 5.2%, which puts us in a good position to deliver on the margin guidance for the full year. Along with the top-line development, working capital level was nearly flat on the previous year, while the net working capital to sales ratio could be reduced by two percentage points on Q3 2022. Thanks to improvements in working capital, operating free cash flow was positive territory at €11.7 million, significantly improved on the prior year figure. And with a net financial debt now at €366 million, the ratio of net financial debt to EBITDA improved further compared to the end of September 2022, as well as three months ago. And with today's publication, the group continues to expect an adjusted EBIT margin of around 5% for the 2023 financial year. We also confirmed the expectations relating to the other key financials for 2023. With regard to group revenue, the revenue guidance for the 2023 financial year followed an updated internal revenue forecast based on higher S&P market projections. Against this backdrop, the group expects to report organic revenue growth of around 3% to 5% in the 2023 financial year. Coming to the financial figures of the third quarter now, starting with orders and sales on slide number five. Order intake was on par with the prior year Q3. And it should be noted, considering the recent large-scale nominations in battery and fuel cell technology, that Erwin Klinger recognizes all call-offs entered by customers in the respective systems as orders received and included in the backlog. As a result, order intake and order backlog do not generally comprise the nominated volume over the entire term of the contract. Looking at the recent development of order intake and backlog, the order situation returns to more normal levels after a strong fiscal year 2022. Overall, new orders in the first nine months totaled 1.23 billion euros. Accordingly, order backlog was down as of September 30th, 2023, in line with the order intake in the current year and the high level of revenue in the first half of the year in particular. In this context, currency effects had a dilutive effect on the order book. Adjusted for currency effects, order backlog would have been 35.5 million euro higher. sales performance was slightly positive on an organic basis. However, with organic revenue totaling €464 million, Erring-Klinger saw groups reported revenue decline by 2.7% to €452 million in the quarter under review. Alongside visible currency effect, revenue was impacted by a challenging macro environment and volatility in customer call orders in the second half of the year. On slide number six, we see the sales performance of the different segments and business units. The picture with the original equipment segment was mixed. While the classical business units were faced with headwinds concerning revenue as a result of the challenging factors as described above, The e-mobility business unit recorded revenue growth despite a delay in the ramp-up of new projects. E-mobility generated revenue of €14.4 million in Q3, which represents year-on-year growth of 32%. Also in the first nine months, e-mobility recorded revenue growth of 4% to €31.5 million. Coming now to slide number seven, in the third quarter of 2023, the group showed growth momentum in Europe. The region accounting for the group's highest fraction of revenue, rest of Europe, recorded the most dynamic growth in Q3, with revenue increasing by 7.3 million euro. Revenue from sales in Germany also increased slightly by 1.8%. to 88.5 million euro. And taken together with the rest of Europe, Ringlinger showed organic growth of 5.9% in Europe, and therefore outperforming the market by 1.5 percentage points. Sales in the Asia Pacific region amounted to 79.8 million euro, and that equals around 18% of group sales. Vehicle production in the Asia-Pacific expanded only slightly from the high levels recorded in the previous year. And currency effects also created significant headwinds for revenues in the Asia-Pacific region. In North America, revenue decreased by 2.3% year on year based on a strong comparative base in the same quarter last year. Alongside delays in the new project ramp up, this was also due to the direction taken by the exchange rates. Adjusted for foreign exchange effects, growth in North America was in fact positive at 0.8%. Let us now have a look on the earnings on slide number eight. EBITDA came in at a robust 47.7 million euro. Adjusted EBIT in Q3 amounted to 22.7 million euro with an adjusted EBIT margin of 5.0%. visibly better than last year's Q3 with €18.5 million and a margin of 4%. This significant year-on-year improvement in adjusted EBIT is due to a number of factors. Most importantly, compared to one year ago, there was an easing of raw material prices and energy costs, translating into earnings improvements. The prices for several key raw materials and energy trended lower again in some cases over the course of 2023. In a year-on-year comparison, lower prices for aluminum, steel, and some plastics trended lower. Ramp-up costs were incurred in the strategic future areas, among others in the fuel cell and light-weighting business. Special effects, in particular known recurring items, resulting in the differences between reported EBIT and adjusted EBIT were relatively minor, so that EBIT is close to adjusted EBIT in both Q3 2023 and Q3 of last year. And now to slide number nine. The net financial result was mainly a continuation of the first half of 2023 with a hike in market interest rates as the primary factor. Net finance costs in the third quarter was at minus €4.5 million after minus €0.4 million in Q3 2022. Interest expenses mainly contributed to this decrease. Exchange rate developments had only a small influence on net finance costs. Taking net finance costs into account, earnings before taxes in Q3 amounted to €16.9 million. Net income attributable to non-controlling interests amounted to minus 3.1 million Euro in Q3 after deducting tax expenses and taking into account non-controlling interests, the share of net income attributable to our shareholders amounted to 7.8 million Euro. Earnings per share amounted to 12 euro cent in Q3 and 27 euro cent in the first nine months. On slide 10, we take a look at CapEx networking cabinet and operating free cash flow. At 16.7 million euro, capital expenditure in property, plant and equipment was slightly down from the prior year Q3 and was similar to investment volumes in the previous quarters. Among others, CapEx flows were directed at manufacturing facilities for new SOP, that means start of production ramp-ups, planned with a global production network. In addition, investments were aimed for further aligning the product portfolio with e-mobility trends. The investment ratio stood at 3.7% in the third quarter of 2023. Networking capital was reduced in Q3 compared to the previous quarter. It was down by 19.5 million euro, which mainly was due to the lower level of trade receivables as these are correlated to revenues. In a year-on-year comparison, networking capital remained largely unchanged. Operating free cash flow was up markedly at around 12 million euro. It improved significantly compared to the two previous quarters as well. is on a year-on-year basis. This was attributable in particular to the lower inventories and receivables levels. Slide number 11 shows the net debt of the group and Elring-Klinger further reduced net debt level as well as the debt ratio. The ratio improved further to 1.8 compared to 2.1 again in 2022 and 2.7 a year earlier. Let me now turn to slide number 12. showing the performance of all segments in terms of sales and adjusted EBIT margin. Despite the challenging business environment, Aaron Klinger was able to improve adjusted EBIT in the OE segment to €2.1 million in the third quarter. It benefited primarily from a year-on-year reduction in raw material and energy costs. As already shown over the course of the year, the outcome of negotiations and the renegotiations of prices also meant that Erwin Klinger was able to pass on commodity prices in the form of price escalation clauses to a large extent. The aftermarket segment successfully continued to execute its growth strategy in a strong business cycle and delivered, again, an outstanding EBIT result. Already from a high revenue base, the segment managed to improve both revenues and earnings compared to the same quarter of the previous year, now amounting to 74.4 million euro. The aftermarket business generated an adjusted EBIT of 16.1 million euro and an adjusted EBIT margin of 21.6% in the second quarter. The engineered plastic segment showed robust development of financial performance with sales revenues at €33.8 million and an adjusted EBIT margin of 13%. In the year-on-year sales comparison, slight headwind from currency effects in the third quarter as well as a strong comparative base should be noted. At €102 million in the first nine months, segment revenue was almost on par with the figure posted in the previous year. Having said this, let me provide some remarks on the market in the current financial year. I have already outlined at the beginning, the car market and therefore light vehicle production is influenced by several geopolitical and macroeconomic factors. The global economy is expected to see growth of 3% in the current year, according to the latest estimates of the IMF. According to the IMF, Global inflation is expected to fall gradually from 8.7% in 2022 to 6.9% in 2023 and 5.8% correspondingly in 2024. The global economic environment continues to be shaped by lack of momentum and persistent uncertainty. While inflationary pressures do signs to show signs of easing geopolitical conflicts remain or have erupted in a new way. These underlying conditions are having a tangible impact on the automotive industry as a cyclical sector and are weighing in heavily on expectations as the comparison of the latest versus the initial forecast at the beginning of 2023 are showing. In 2024, the expected light vehicle production amounts to just 0.6% globally. According to the current forecast, car production is expected to grow at a weaker rate of 3.5% in the fourth quarter of 2023. Now coming to slide number 15, as I have outlined in the very beginning, the group has revised its revenue guidance for the 2023 financial year after an updated internal revenue forecast prompted by higher S&P market projections. We now expect to report organic revenue growth of around 3% to 5% in 2023. Concerning earnings, the group continues to expect an adjusted EBIT margin of around 5% for the 2023 financial year as a whole and leaves the expectations for other key financial indicators for 2023 and the midterm unchanged. Against the background of the results for Q3 and the first nine months of 2023, we see ourselves well on track to deliver on this. We embrace the transition towards e-mobility with components engineered specifically for battery and fuel cell systems. This is also underpinned by the lightweighting elastomer technology, metal forming and assembly technology, and metal sealing systems and drivetrain components, business units, which at the same time have a strong market position in the field of our classical technologies. In the first nine months of 2023, Erring Klinger received significant orders for the mobility business unit. These included a large-scale series production order for EKPO's bipolar plates with a volume in the mid-triple-digit million-euro range. And in addition, EKPO is entering the market of stationary applications with an order for stack components to be used in electrolyzers. And we have also announced that a high-volume order for the supply of cell contacting systems for BMW's Neue Klasse. We have also received a serious production order for battery housing components from a major global battery manufacturer. And this contract is attributable to the metal forming and assembly technology business unit and is worth several million euros. So despite all the challenging factors currently driving the business environment, we consider the group to be well positioned in particular in e-mobility for the future. Having all said this, I'm happy to take your questions. Thank you.

Ladies and gentlemen, at this time we will begin the question and answer session. Anyone who wishes to ask a question may press star followed by one on their touch-tone telephone. If you wish to remove yourself from the question queue, you may press star followed by two. If you are using speaker equipment today, please lift the handset before making your selection. Anyone who has a question may press star followed by one at this time. One moment for the first question, please.

and the first question comes from christoph lascavi from deutsche bank please go ahead good afternoon thank you for taking my question um the first one on the top line please you've cut the 23 targets also because of ramp ups and lower call-offs when do you expect that to normalize again and improve i mean the implied organic growth for q4 is negative Obviously, there's a tough phase from Q4 last year, but are you expecting this to normalize basically only in Q3 when you saw the first impacts of those lower call-offs and ramp-up delays? Or should we expect Q1, Q2 already in 24 to show an improvement? And then, I mean, I know it's early, but still trying at least. Could we then still see an outperformance over production next year? in the usual range that you have printed over the last couple of years, or should that be smaller because of those impacts? And then the second block, just on inflation assumptions, you are seeing net positive from raw materials currently, which are coming down. It should be the same for 24 as well. labor costs are still moving higher. Could you see a net negative still in 24 when it comes to overall inflation? We just had another supplier this morning saying inflation should be around 5% for 24. Any comment would be appreciated. Thank you.

yeah thank you for your questions you know i would start with to answer question number one here on top line um the way i i look forward here on on the top line is essentially if i look into 2024 we have here you know in northern close to our central facility here run up for the cell contacting system with a you know i would expect a higher double-digit sales contribution. On the other side, in the aftermarket, we see further growth in particular, not only, but in particular in North America. And I would see the remainder of the business relatively flat from a SOP or from a startup situation. We see some regions, and I would mention China in regard to that, where we have some sort of transitionary period where we have weaker growth right now and growth kicking in again at a later point in time, late 24 or 25. When I look at SOPs, we have, for example, here battery housing system SOPs in 2024, cell contacting system, what I just mentioned is SOP 2024. The BMW, Neue Klasse, what we have acquired here and announced is SOP 2025. And if we look at the bipolar plates, then it's more like 2026. What does it mean? It means that 2025 onwards, we see incremental growth in our strategic areas with those different SOP dates. And the strategic areas, they are lightweight and immobility. There is There is more, if I can add to that, there is more in terms of SOPs that I can talk about now because we have not or we were not able to publish everything as of yet. But it's clear there is some growth expected 2024 again and 2025 there is a more dynamic environment in terms of top line development picking it. So the next year, the outperformance next year, I would not over promise on that. Yeah, we have some uncertainty when we talk about some mobility platforms that we have seen across the board. And therefore, there may be delays, there may be technical issues, anything that affect that. So there is growth expected. If that is going to be outperforming, I think it's early to say that. In terms of inflation assumptions, I would agree that the material side of things, also energy, it has come to a point where most of it has been covered and we have here labor cost inflation kicking in. We have seen here in North America in particular closings and agreements in the double-digit range. We have here in Europe still more inflation to come in the next year So I would agree with that assessment. But the target, of course, that we have set ourselves here is that it's not going to be ending up in a net negative, but it's ending up in a net neutral. But again, this started last year with a material cycle. It continued this year. Also, in regard to the uncertainty now for Q4, because there is also some uncertainty in regard to customer compensations that we expect, but we are not sure 100% if we can realize those in Q4. And then the same is going to be happening in particular labor inflation, I think, in the next year.

I hope that answers your question. Thank you. Just a follow-up question on the labor cost. When you talk to the OEMs, are they generally willing to discuss that as a potential pass-through, or is there, I mean, obviously there will be a pushback, but is that completely off the table with the OEMs with regards to labor cost only?

No, there is big differences, we have to say. There is differences from a regional perspective. There is differences In regard to individual OEM behavior, I would not be able to say it's all like this. It's very differentiated, and therefore it's also so difficult as a result of that to estimate the outcome, in particular Q4, but also for next year. Very helpful. Thank you. Thank you.

And the next question comes from Akshat Kekar from JP Morgan. Please go ahead.

Thank you for the questions. A few from my side as well, please. So first, going back to the auto OE margins, when we think about the key drivers going into 2024, and you touched on a few of them, you have talked about slightly slower growth or outperformance in 2024. You have talked about inflation being neutral as we think about 2024. Can we talk about losses on e-mobility? So where were your losses in 2023 or ramp-up costs? How do you expect that to evolve in 2024? And all of that together, how does that drive your understanding for margins going into next year, please? That's the first question. Second one is more specific on eKPO. So based on your non-controlling interest disclosure, EKPO losses have been higher than what I had expected this year. So how should we expect the P&L on the balance sheet for EKPO to evolve within 2024? And finally, on aftermarket, I know you mentioned again some more growth opportunities in North America. I'm cognizant of the fact that you've already seen very strong growth in aftermarket. So how should we think about overall growth going into 2024? Is there a possibility of quantifying the opportunity in aftermarket, please? Thank you.

Yeah, Akshat, thank you for your questions. The losses on e-mobility overall, we have discussed that over the past couple of quarters. It is, you know, a figure... that is somewhere in the area of a low to mid double digit amount. There is some tax, deferred tax implication in regard to that, that we have year to show as a consequence of that. And this is twofold, let's say, for the main driver of that. There is the one that is the next question, the KPO. It's the one side. And then the other side is the startup loss situation in the battery side. The battery side is going to be rotating out of this More like your startup loss-making situation next year when we see the run-up of the cell contacting system in Neuven that I have mentioned before. So there is not going to be a break-even next year, but I would expect a break-even there somewhere in 2025 or 2026 along with some further projects. That will run up. On the EKPO side, there is one item that we have planned for this year that has not materialized as of yet. And this is the reason why also I would agree with you. The estimation would have been lower. At that end is a little bit higher. Question is if we can recover from that or not. But there's some uncertainty in regard to that. But overall, let me say that I would not see an increased loss making amount going forward. for the foreseeable future in regard to eKPO, okay? Just for your calculation purposes. Now, on your last question here, aftermarket, North America, yeah, we see certainly a double-digit million-euro amount coming in addition to our top line here out of North America. But again, there is also an aftermarket. There is some uncertainty there because there is some geopolitical issues, as we all know, where we do not know how they are folding. So So expectation is double-digit amount in the million-euro area being added here. But again, there is some risks in that regard because we have deliveries in all sorts of regions in the world. I hope that answers your question.

Yeah, thank you so much. And the next question comes from Michael Punzett from DZ Bank. Please go ahead.

Yes, Michael, good afternoon. I have one question on your OE margin. You highlighted that you benefited from lower raw materials and lower logistic costs as well as from finished negotiations with your customers. But nevertheless, you posted an EBIT margin, adjusted EBIT margins only 0.6%. Going forward, what is your assumption when we will see higher margins and what will be the key drivers?

I think when we go forward, there is on the one side the effect that I have described before. There's incremental contribution margin in particular in the battery business. This is short term. EKPO is a little bit longer term in terms of sales growth that we expect here. And this is the one point. We have also, besides e-mobility and lightweight, in 2024, 2025 projects coming online. Therefore, from an organic growth perspective, that is the one mechanics at work. On the other side, We will do some homework here in regard to the structure in terms of setting up a structure of the Edelwein-Klinger Group that suits future needs. There is some improvements, not necessarily the very short term, but in the longer term that I would expect. And then I would see 2025 and beyond an increasing dynamic from the variety of e-mobility products that will give us very strong incremental contribution margins going forward. Because a lot of the portfolio that we have is sort of contracted business with SOP dates, like I mentioned, between 24 and 26. And the incremental case is really building starting from those dates. And those are the main factors where I see, you know, earnings quality in particular in the OE segment getting better.

Okay, thank you. Maybe two additional questions on some booking figures like the restructuring charges or the adjustments. Can you give us any guidance for Q4 or the 23 as a whole? And on the tax rates, it's still on a very high level when we could expect a normalization of your tax rates.

Yeah, tax rate, I start with that. You know, I am working on a normalization of the tax rate. But this is more like not for Q4. And the tax rate that we see is, you know, differences in the earning situation here in the group. And based on the accounting policy that we have employed, we do not build active deferred tax positions that would counter that. So therefore, we see a very negative tax rate here as a result of that. And again, from a structural perspective, this is something that we work on, but this is based on that. Restructuring in Q4, I would see a low single-digit million-euro amount. hitting us in Q4 based on finalization of the restructurings that we have done this year. We have looked at three locations this year. Langensen is one of them that we have closed and relocated to other plants as part of optimization of our footprint. And here, I would again expect a low single digit million euro amount out of remaining activity here from the closure of some activities in the group but this will also be booked in 2023 not in not in 2024 no i would expect some of it again what i said is q4 figure okay okay thank you thank you

And the next question comes from Pals Geirte from Bankhaus Mietzer. Please go ahead.

Thank you for taking my question. I have a question regarding your business with Chinese OEMs in Europe. I mean, we have heard from some Chinese OEMs that they are willing to penetrate European market in the next couple of years. And Mr. Izulat, you have already shed some light on your expectations regarding 2024. 2025 and 2026 top-line growth, mentioning BMW, Neue Klasse and bipolar plates. But I was wondering if you believe that business with Chinese customers here in Europe could become an appealing business opportunity for you in the short and in the long run.

Thank you. Yeah, thank you for your question. In the long run, I would expect uh more business with chinese oems as part of their globalization in the shorter run i would expect more business on the tier one side that the tier one is so to say our customer and we are in a tier two position and this is uh happening already in regards to the battery business. Now, if we look at the project here that starts soon in Northern Cell Contacting System, this is really, for us, this puts us in a tier two position with a tier one customer in a Chinese value chain, if you want to say so, or in a Chinese European value chain. And this sort of combination This is what I would expect more to come also in the shorter term. But with the OEMs really, in terms of their globalization needs, I think that's still, you know, might be right or wrong to say that couple of years down the road. Yeah. Thank you.

Thank you. And the next question comes from Mark Renaton from Warburg Research. Please go ahead.

Good afternoon. Thank you for taking my questions. Just clarification questions. That's most things you've already touched upon. But just to be safe here, and thank you for being so detailed on the drivers next year. But when we look at the business from e-mobility, the ramp-ups you have for the batteries as well as the preparation work for 2025 for the orders at e-KPO. So when you talk about an earnings improvement, is this also, let's say, potential extra ramp-up costs, or should we consider ramp-up costs next year to be more of a headwind again as it was in the current year? And the second question would be regarding the profitability at aftermarket. I think very promising outlook you provided for the top-line development, particularly when considering how strong the business already developed at the current year. Some at least qualitative statements regarding be helpful going forward from the very strong level where it is already at.

Thank you. Yeah, Mr. Tom, thank you. On the earnings improvement, we have a lot of built-in costs in terms of installed capacity now. One example is the self-contacting system. We have expected that in principle to be SOP'd with a ramp-up last year. So we are a year late. This equipment is installed here and we have installed other equipment as well. So there is always sort of a startup curve. But on the battery business in the short term, there is installed capacity and I would not expect a deeper dive here in terms of the loss making situation. In the longer run, when we talk really about the large-scale projects beyond 2025, then we will see such periods where we may see some deeper loss-making curves, if I can say so. But in the short term, I would not expect that. I would expect more improvement at that end. In regard to aftermarket, The expectation is here to be in a comparable way, you know, that we have a good margin situation comparable to the average of the past couple of quarters. But I would not, you know, want to commit to something that is exactly like Q3 2023. But it's going to be in a comparable margin environment what we expect.

Thank you very much. Thank you. Thank you. And the next question comes from the line of Christian Glover from Hockenhofer Investment Banking. Please go ahead.

Yeah, hi, good afternoon. Two questions left for me. The first one, again, on the top line expectations for next year, I really do struggle to see that you're expecting actually growth, given that you have a book to build of less than one and your backlog actually declined 13%. So can you again argue about why is that the case? Are there any new projects to win that you expect? Because I think you said the majority of e-mobility webhubs have SOP in 2025, 2026 and beyond. So again, can you please elaborate a bit on your top line expectations for next year?

Yeah, top line, when we look at the markets, the market expectation according to S&P, when we go from 23 to 24, Europe minus 1.9%, North America plus 7.2%, greater China, 0.6% is more like horizontal. So, you know, I would expect overall is sort of maybe slight improvement situation going into 2024 and the main part of the business will be tagging along with that. Yeah. What are the areas where I expect some growth? Like I said, aftermarket and in the battery business. There is certainly a higher double-digit figure in terms of new sales coming to the group, yeah? And in this area, I would expect growth really to happen, yeah? And this is also the reason why we expect growth still for 2024. Okay, that's clear.

And then my second question again is related to all the e-mobility projects you mentioned with SOP and 25 and beyond. How do you think about CapEx? Does that require a step up in CapEx looking forward over the next two years?

um there is a higher expectation that i have for capex going forward but it's more like a midterm in midterm thinking yeah but along with that there is and this is the reason why i keep the expectation where it is here in terms of CapEx, because soon we are stepping up a little bit in terms of CapEx spending. But the overall CapEx expenditure will not be beyond what we have given here as a guidance, the 5% to 7%. There is not much more that we would want to enter into. So we have seen in the past, you know, rates 10%, 11% and more of sales. This is not what we intend this time because we have a clear target here on free cash flow. And all our considerations going forward will take into account a strong view on free cash flow generation, even though we are in this reindustrialization cycle. Yeah. That is a very, I would say, tough target that we have here, but that limits us to go overboard in terms of capex spending for projects. And this is something that we monitor very, very tight in terms of our acquisition process here. And I have no information as of today where we would exceed that bandwidth. That's very clear. Thank you. Thank you.

And the next question comes from Frank Biller from LBBW. Please go ahead.

Yes, hello. Thanks for taking my question. It's a question about the financial result here. So what would you assume for the next quarters to come? So better debt position here, but increased interest rates here. And then what we can see in the course of the quarters, better earnings from the financial income. and also higher spendings here with 16 million only in the third quarter. So is this more a top line, or are you still thinking about increased expenses here?

No, I would not see, you know, based on what I can see today, and there seems to be a limited run-up now that is left for interest rates, in the short term at least, And therefore, I would see more like a horizontal approach. If we take a look, for example, at interest expense, mine is 7.6 here. There is the realized external factor for external debt. That's 6 million, 1.6 million. There's all sorts of other. There's IFRS 16 in there. There's pensions in there. So I would expect the interest rate environment to be more or less stable and more horizontal from now on. Thank you.

Ladies and gentlemen, as a reminder, anyone who wishes to ask a question may press star followed by one at this time. It seems there are no further questions at this time. And I hand back to Thomas Jesulat for closing comments.

Yeah, I would like to thank you all for your participation in the call. I hope that all the information that we have given to you was helpful in terms of our understanding here in terms of the mission of Erwin Klinger. And yeah, my colleagues and I, we are looking forward to our next

call and so far all the best wishes to you and talk to you soon thank you much ladies and gentlemen the conference is now concluded and you may disconnect your telephone thank you for joining and have a pleasant day goodbye