Elringklinger Ag

Ladies and gentlemen, I welcome you to our earnings call on the first quarter of 2024. Today, I will provide a detailed look into the results from the first quarter. With today's publication, we confirm the guidance for 2024 in the mid-term. that we have published together with the annual report. First of all, I already presented important elements of our strategy on the analyst conference in March. So you already know key ingredients. We have now unveiled the name, SHAPE30. We recently held an internal kickoff for the strategy and event for management within the Erlenklinger Group. In starting today's presentation, I will summarize the cornerstones of Shape 30. Then I will discuss the financial figures in the first quarter and close with a few forward-looking comments on the remainder of fiscal year 2024. And at the end, as usual, you will have the opportunity to ask questions and I am pleased to answer them. To begin with, we are focused on two growth markets, which are the source for further successful development of our inclination. Electrification of mobility and the hydrogen economy are significant drivers within the new strategy. Nevertheless, we have a strong footprint on the ICE business. Our established position there is the backbone for our further transformation. In a nutshell, ICE business is our basis and e-mobility is our chance and our future. Our purpose is geared towards innovation. we will see ourselves in the center of innovation. And our vision is to be the preferred partner on the market in new innovative technologies. The five success factors are the driving forces to shape the future of the group. These five success factors are the most important factors on the basis of which Erring Klinger will be successful in the future. As such, we have identified sustainability, performance and process excellence, digital transformation and a modern corporate culture. The most important factor is the one listed here first, product transformation. It is the basis for the group's transformation. Let me elaborate on it briefly. With a clear focus on innovative value creating products and a coherent strategic approach regarding markets, product groups, and production allocation, we have the target of more than 50% of sales revenues in known ICE applications by 2030. So the direction is clear. According to projections, battery and fuel cell electric vehicles will be the dominant drivetrain type by the end of the decade. However, the speed of transformation is expected to be different as shown on the charts. In addition, the value chains are already different and they're changing. And this implies different opportunities for automotive suppliers. The Erwin Klinger Group is transforming successfully. Over the past three years, we have received nominations for non-ICE applications of more than 4 billion Euro. Not all of this is published. but over the last few years we have won contracts for a broad range of e-mobility products across the group. Most noteworthy are high volume contracts like cell contacting systems as well as bipolar plates. However, it is the variety of products in which we received nominations that identify our product portfolio. Product diversification as well as customer diversification will contribute to successful transformation And as we will execute on nominations, the share of known ICE revenues will increase. And at the same time, the ICE revenue share are set to decline according to market estimations relative to known ICE or e-mobility. We understand the ICE business is our strong backbone to financially support the scaling of the known ICE business. And as I said before, our target for 2030 is to generate more than 50% in non-IS revenue on group level. I come now to the financial figures of Q1 2024. And here, let me start with orders and sales. Order intake picked up again significantly in Q1, recording a volume of 489.4 million euro. And therefore, we exceeded the success substantial order intake of last year's Q1 by €14.5 million or 3.1%. Order backlog was up again quarter on quarter, coinciding with a strong order intake. It amounted to €1.33 billion in Q1 2024. And due to the return to more normal order intake levels over the course of 2023, the figure was down on the Q1 2023 level. And adjusted for currency effects, both order intake and order backlog would have been slightly higher. Coming to sales revenues, after a record sales level in Q1 2023, Erling Klinger generated revenues of €465.3 million in the first quarter. This revenue development is to be seen against the backdrop of challenging conditions for the market as a whole. And according to industry service providers and global mobility, global automotive production declined by 0.8% in the first three months of 2024, and by as much as minus 2.5% in Europe, the strongest market in terms of our revenue basis. Without currency effect, Group revenue in the first quarter was behind the prior year figure by 3.8%. Now we come to the sales mix. The Erwin Klinger Group has a quite balanced sales distribution among business units, while the OE segment makes up the largest fraction of group sales revenues, accounting in total for 73% of the group's sales. In the first quarter, revenue changes and call-off volumes from customers had an effect. The challenging market conditions as outlined before were evident in the OE segment business units. On the other hand, the revenue of the e-mobility business unit showed growth year over year with revenue from new series production orders in the area of battery technology also contributing to this. For the aftermarket segment, the growth strategy is taking effect. The segment saw a further increase in revenue compared to Q1 2023 and now makes up 19% of group sales. On a regional basis, revenues in Q1 were generated mainly in Europe, accounting for 53% in sales in Germany and the rest of Europe together, followed by North America with a 26% share, Asia-Pacific with 15%. In South America and the rest of the world, we're presenting 6%. The regional revenue dynamics roughly reflected the market developments. Light vehicle production in the first quarter 2024 was globally down minus 0.8%. In Europe, minus 2.5%. As mentioned before, in Asia-Pacific, minus 1%. While North America showed an increase by 1.4%. EBITDA remained comparatively robust at €50.8 million against the backdrop of the lower revenue level. Here, both sales mix and a better but still high level of commodity and material costs were supportive. In terms of adjusted EBIT, the first quarter included minor restructuring related and other known operating effects. 0.1 million euro each. Therefore, the group posted an adjusted EBIT of 24 million euro, which corresponds to an adjusted EBIT margin of 5.2%, which is close to the prior year level of 5.4%. And as I have mentioned, better material cost development counteracted the lower sales. Energy and logistics were slightly better compared to Q1 2023 on a group level, Year over year, ramp-ups had a slightly better contribution from major contracts, among others, in the e-mobility business unit. And because of a noticeably better financial result and lower income tax expenses compared to the prior year Q1, the earnings attributable to Erwin Klinger shareholders increased to €13.3 million after €6.7 million one year earlier. and earnings per share amounted to 21 euro cent. CapEx in Q1 reflects investments related to specific customer projects, including e-mobility, for example. In the area of fuel cell technology, which means our JV subsidiary KPO, investments were made in connection with a large-scale production order for bipolar blades, which is scheduled to ramp up from 2026. in addition to various development projects. Within net working capital, inventories increased due to both work in progress and finished goods with the aim to meet all upcoming call of volumes requested by customers as part of their ongoing schedule arrangements. And trade receivables decreased year on year, while trade payables increased, leading to a decrease of net working capital by around 6% compared to March 31st, 2020, In relative to sales, the net working capital ratio improved by 1.2 percentage points to 26.8% compared to 28% one year earlier, operating free cash flow amount to minus €5.8 million in the first quarter. And this represents a significant improvement on the same quarter of the previous year, despite a slight increase in capital expenditure. And regarding financial leverage, the low level of net financial debt is on a stable footing. Net debt amounted to 329 million euro at the end of the first quarter, significantly lower than the previous years. The net debt to EBITDA ratio stood at 1.7, a visible improvement compared to 2.0 at the end of the first quarter of 2023. As I mentioned before, some changes in call-off volumes from the customers had an effect on Q1 revenue. Overall, the OE segment generated sales of €340 million in the first quarter of 2024. And within this segment, we see overall strong ICE business as well as the ongoing ramp-ups in e-mobility business. And if we all take together, the earnings contribution on the OE segment has been roughly neutral in the last quarters. With its growth strategy taking effect in several regions, the aftermarket segment saw further increase in revenue compared to the same quarter of the previous year. Revenue amounted to €90.4 million in the first quarter of 2024, a year-on-year increase of €8.7 million. An adjusted EBIT amounted to around €23 million, corresponding to a margin of 25.1%. Revenue of the engineered plastic segment stood at 34.8 million euro in the first quarter and regarding segment earnings a further increase in prices for high performance plastics and higher expenses for R&D as part of the segment's transformation efforts weighed on the margin. Adjusted EBIT was 3.3 million euro after 5.1 million euro one year earlier. Having said this Let me provide some remarks on the market in the current financial year. In the main automotive markets, the projections according to S&P Global Mobility imply flat developments in 2024 with growth of some 2% in China and North America, but decline of 2.2% in Europe. Global light vehicle production is expected in 90.3 million vehicles, a slightly better projection from S&P than we looked at two months ago. Yeah, and in this framework, we confirm the outlook for slight organic revenue growth in the fiscal year 2024. For the midterm, we expect that the transition to e-mobility will contribute to further organic revenue growth through ramp-ups, and that growth will be but positive for the margin. Regarding the other indicators, the 2024 midterm outlook is confirmed as well. This year, we expect an adjusted EBIT margin of around 5%. Operating free cash flow for this year is expected at around 2% of group revenue and ROSI return on capital employed at a value of around 6%. Having said this, I'm very happy to answer your questions. Thank you.

We now begin the question and answer session. Anyone who wishes to ask a question may press Start at 1 on their touch-tone telephone. You will hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue, you may press Start at 2. Participants are requested to use only handsets while asking a question. Anyone who has a question may press Start at 1 at this time. The first question is from Christoph Lascavi with Deutsche Bank. Please go ahead.

Good afternoon. Thank you for taking my questions. The first one will be on organic growth and the phasing of it. Obviously, you started slow versus the guide of slight organic growth, partially explained because of high comps, which are easing only in the second half. Could you comment, please, on how we should think about the phasing of organic growth into the second quarter and the second half of the year? Is it primarily H2 weighted or should we expect an improvement already with Q2? And then in the same context with regards to the outlook, you already started well in margin regards. Then OE currently loss making, obviously with organic growth picking up, that should be improving as well. So should we think about the rest of the year as OE is improving and aftermarket sliding slightly down from the currently very high levels? Or is there essentially nothing that should drive down aftermarket in the coming quarters? Thank you.