Elringklinger Ag

Ladies and gentlemen, hello and good afternoon, and thank you for attending our analyst conference here, which takes place as a virtual event this year. But for those who, like us, also consider personal contact to be important, I would like to make an announcement at this point. Since Erwin Klinger has met essential requirements for its further development that are worth to present and discuss, we are planning a capital market stay in the second half of the year, probably in November. I welcome you to our conference call on the final and audited figures of the fiscal year 2024. I'll start with some highlights of the 2024 fiscal year, present the full set of figures, and we'll provide you with the outlook for the current year. Afterwards, you will have the opportunity to ask questions as usual. Let me start with some highlights on 2024. and their strategic background. The market environment is challenging. Geopolitical tensions are increasing worldwide and trade policy conflicts are having a particular impact on global industries such as the automotive sector. At the same time, the macroeconomic situation, particularly in Europe and Germany, is not very dynamic. Alongside the general influencing factors, we are part of an industry that is undergoing a far-reaching transformation. In particular, increasingly stringent emissions regulations are driving forward alternative drive technologies. We at Erwin Klinger have to find our way through this complex situation. Our transformation strategy, Shape 30, has laid out the way forward. My colleagues on the board of management and I have agreed on a strategic package of measures that will have an impact along the strategy. We'll focus on profitable business. We'll terminate unprofitable activities. These include product groups that have been shown to be unsustainable, as well as business area that could only be operated competitively with large investments. And last but not least, we'll reduce our global presence when necessary. At the same time, the growth cycle is part of our strategic reorientation for which we are preparing. We need to invest, but we are doing so extremely cautiously in order to prepare for our high volume orders. We are also currently building our battery hub for the American market, a pioneering project for us. And last but not least, we have achieved our annual targets with our adjusted EBIT margin and our operating free cash flow. The key financial figures are developing according to plan. In addition, we have a solid financing structure. Let me start by explaining our strategic package of measures in more detail. The aim of this package is to contribute to the Shape 30 targets in terms of improving the group's profitability and to generate sustainable cash flow. We have decided to discontinue the system business for electric drive units. In future, our focus with regard to electric drive units will be on the profitable components business. Therefore, we have resolved to examine strategic options for a stake in Hofer. And in total, we recognize impairments amounting to 85 million Euro in this regard. Moreover, We are reviewing our other shareholdings as well and will take further steps if necessary. In addition, we have closed the divestment of two entities in Switzerland and the United States. Substantial investments would have been required to competitively continue the business within our group. This would have restricted us in pursuing our path of transformation. In total, We recognize impairments and charges for the net effect of €103 million, of which €58 million have already been recognized in the third quarter statements in 2024. Moreover, we will consolidate our global footprint if needed. We have already discontinued operations in Langensen, and we have done so a few weeks ago in Thale, Germany, and in Fremont in California. In total, we recognize impairments of €50 million relating to assets and restructuring expenses for these and individual further sites. It will continue to rev your global footprint and will take further steps if necessary. The known cash impairments and restructuring charges of €238 million will recognize as part of the package of strategic measures. We expect to unlock earnings potential of €10 million per year from 2026 onwards. The key element of our strategy is also the growth cycle driven by our high volume orders. These will gradually ramp up and make a significant contribution to revenue growth. The first effects of this ramp up can already be seen this year. Revenue in the e-mobility division more than doubled compared to the previous year. the share of total revenue is expected to continue to rise. However, the preparation for further large-scale serial orders will also require investments. And therefore, capex will initially remain at about the same level as in 2024 before the rate is reduced again as the ramp-up increases. In the medium term, We expect the capex ratio to be between 2% and 4% of total sales. That means we would take it down compared to our policy in the past. In addition, we are currently setting up our battery hub for the American market. We have found excellent conditions for this in Eastly, South Carolina, and we'll use this location strategically according to the order situation and expand it as needed. The fact that such a hub makes sense is regularly shown when we just look at the news, trade conflicts on the rise. With this hub, we are flexibly positioned to support manufacturers as they adjust their production strategy for the American market. On any case, we're close to our customers. With the elements of our Shape 30 strategy, the measures on the one hand, on the growth cycle on the other, we're pursuing our goal to increase the group's profitability and achieving sustainable cash flow. The results of the past fiscal year show that we're on track. We met our target for the adjusted even margin of 4.9%. The operating free cash flow of 58 million is well above the expected slightly positive figure. And this was one of the reasons why we're able to reduce our net debt to a long-term low of 246 million euro. The adjusted net debt to EBITDA ratio is at a low 1.2. We see this as a stable and robust starting point for further transformation. Furthermore, even though this news from this year and not from 2024, we have refinanced at an early stage. The new syndicated loan of €450 million, with an option to increase by €100 million over a five-year term, ensures that we have the necessary flexibility in these uncertain times worldwide. Let us now turn to the detailed figures for the past financial year, starting with sales and its organic change on slide number seven, operating Within a challenging environment, Erwin Klinger recorded revenue of €1.803 billion in the financial year of 2024. This corresponds to a slight year-on-year decline of 2.4%. We have faced challenges from currency exchange effects this year, which reduced our revenue by €28.1 million. And without those currency effects, revenue was behind the prior year figure by just 0.9%, which is slightly below markets. The markets have principally developed in a heterogeneous way in 2024. According to S&P global mobility data, global light vehicle production fell by 1.1% in 2024. Coming now to the sales mix on slide number eight, among the segments, the original equipment segment. is the largest one, making up 74% of group total of €1.335 billion of external sales. In the financial year, segmental revenue declined compared to the previous year, reflecting the challenging market conditions that I mentioned earlier. Within the OE segment, e-mobility revenue doubled due to the ramp-up of large-scale, serious order of cell contacting systems. E-mobility sales increased from around €48 million to €102.5 million in the financial year 2024. Additionally, the aftermarket segment once again performed strongly and increased sales by around 12% to €336 million. This makes up 19% of group total of external sales. In regional terms, Germany, as well as South America and the rest of the world recorded growth, while revenues in the Asia-Pacific and the North America region contracted year-on-year. Apart from currency effects, the primary driver of this development was the sluggish commercial vehicle market. Coming now to the customer structure on slide number nine. Erinklinger has a broad base and is not dependent on individual customers. The largest customer represents a revenue share of 7%, And it's also evident that sales in the aftermarket segment are increasing and play an important role for the group. With regard to the customer structure, we must also consider that new customer groups are being developed. For example, the large-scale order from a global battery manufacturer shows that new customers can be acquired in the mobility sector outside of the established manufacturers. Due to these strategic measures, EBITDA fell by 28% compared to prior year figure. In total, Erringklinger recorded an EBITDA of €144 million in 2024. And after accounting for one-offs in EBITDA, the adjusted figure was €197.1 million. The group recorded adjusted EBITDA of €87.6 million in the financial year And accordingly, the adjusted EBIT margin also changed by 50 basis points of 4.9%, which was right at the target level of approximately 5%. At minus 2.18 euro, reported earnings per share are negative territory due to the impairment losses associated with the package of measures that are outlined above. However, Excluding these exceptional factors, adjusted earnings per share amounted to 70 euro cents. And this illustrates that the group is well positioned from an operational perspective and essentially remains successful. In the interests of dividend continuity, we in the management board in consultation with the supervisory board will propose to the annual general meeting to pay out a dividend of 15 euro cents per share unchanged year-on-year to our shareholders. Ehrenklinger Group expanded its research and development expenses to a ratio of 5.3 percent, which is within the 2024 target corridor of around 5 to 6 percent of group revenue. In absolute terms, R&D expenses slightly decreased from 96 to 95.3 million euro. A net working capital stood at €347 million at the end of 2024 compared to €466 million a year earlier. Also, the share of net working capital in group revenue was significantly lower at 19.2%. The guidance of a net working capital ratio of below 25% of group revenue stated in the combined management report for the 2023 financial year will therefore be clearly met. CapEx in the 2024 financial year mainly related to property, plant, and equipment. It amounted to 108.3 million euros. The increase reflects the preparation for ramp-up of several large-scale orders. After a transitional period, CapEx in the future will be reduced to a range of 2% to 4% of total sales again, which is a figure that is below the historic target levels of Irving Klinger Group. The financial year 2024 operating free cash flow saw a significant year-on-year increase to €58.4 million. It also includes a low double-digit impact from the divestment of the two group entities, which was attributable to operations. Regarding financial leverage and based on the free cash flow improvement, net financial debt has been significantly reduced and the level was at its lowest in 13 years. The net debt to EBITDA ratio was 1.7 at the end of 2024 financial year, which is slightly above the figure one year earlier. If EBITDA adjusted for known recurring items is used for the calculation, the adjusted net debt to EBITDA ratio stands at 1.2. Additionally, the equity ratio decreased to 39 percent as part of our strategic measures. The goal is to promptly restore it to the medium-term target range of 40 to 50 percent. Coming to the segment performance on slide number 13. Overall, the OE segment generated sales of 1.335 billion euro in the financial year 2024. Within this segment, we continue to see solid ice business as well as the ongoing ramp-ups in the e-mobility business units where sales more than doubled. The aftermarket segment successfully continues its growth strategy and saw further increase in revenue. Sales amounted to €336 million in the financial year 2024. Adjusted EBIT margin amounted to 22.9%, again, a rate on a level considerably above 20%. Despite weaker economic momentum, the engineered plastic segment remained robust in the reporting year, partly due to its broad industry mix. Overall, slightly higher staff costs contrasted with marginally lower fluoropolymer prices during the period. And with revenue totaling €130 million, the segment was roughly on par with the previous year. Let us now take a look at market expectations and our next steps at Erwin Klinger. If we look at our agenda for 2025, there are five items on the agenda alongside the usual operations. If we follow the wording of the highlights, we'll continue to shape Erwin Klinger's business model. In order to align our product portfolio correctly, we are continuing to analyze market developments and validate the individual product groups for future viability. On this basis, we will draw conclusions for our global network of locations. If necessary, we will take further steps here. And after all, our goal of improving profitability is at the forefront, and complex structures result in higher costs. And therefore, we will simplify the organization as a whole. At the same time, will optimize our costs. And this includes analyzing our capacity worldwide in order to position ourselves correctly. After all, the challenges posed by tariffs or increases on labor costs, for example, must be smoothed out. These optimizations will contribute to a stable adjusted EBIT margin in the current year. While costs and structures need to be optimized on the one hand, the growth cycle must start on the other. The start of our large-scale orders will require higher investments in the short term and the first half of the year, which will also affect cash flow. And at the same time, e-mobility revenues will increase, which will also cushion the lack of market momentum, particularly in Europe and North America. And last but not least, the new battery hub in South Carolina will not only process orders for battery components, but also offers strategic opportunities in the age of increasing trade conflicts. This new location is also one of the reasons why we'll see some higher net debt in the current financial year due to the application of the provision of IFRS 16 for leases. The mixed situation on the market is set to continue. While China's light vehicle production is on the rise, the markets in North America and Europe are still lacking momentum. Overall, the automotive market is stagnating in 2025. With a large exposure to the European market, Aaron Klinger is affected by the lack of market dynamics, but sees compensating effects from the large scale orders and the good aftermarket business. Overall, The group expects organic sales at the previous year levels, sales revenue excluding the two sole companies from the starting point. In the medium term, we expect moderate further growth from an organic perspective. In view of the complex situation with a wide range of influencing factors, we expect an adjusted EBIT margin of around 5% overall, the same as in the previous year. And as a result of our measures and revenue contributions, we expect a range of about 7 to 8% in the medium term. Operating free cash flow will reach a level in the range of 1 to 3% of revenue. In the medium term, we expect to increase the target range to around 2 to 4%, also, of course, in the light of revenue growth. On this basis, after net debt initially increases due to the technical effects of IFRS 16 leases. As I mentioned before, the net debt ratio will be returned to a range of one to two in the medium term. All in all, these results and midterm targets show the path that we have laid out in pursuing our Shape 30 strategy. Erring Klinger is well positioned both financially, but also strategically. And this is the basis for achieving our goal to improve the group's profitability and to sustainably generate cash loss. Finally, I would like to mention a few points from our corporate calendar. 2025 marks the 100th anniversary of the death of our company founder, Paul Lechler. With his tireless social work, he laid out the foundation for our group's commitment as early as the 19th century. And thanks to him, Sustainability is part of Erring Klinger's DNA, and this is not the only reason why we will commemorate with his various activities. On April 24, 100 years ago, Paul Lechler passed away. On May 16, our annual general meeting will take place in a virtual format. And last but not least, as I mentioned at the very beginning, we are planning a capital markets day for the second half of the year to provide an update on our transformation journey. We look forward to welcoming you there. Ladies and gentlemen, I'm pleased to have presented here our 2024 business figures to you today and in particular to place them in our strategic context. I thank you for attending and look forward to speaking to you again soon or at the latest when we release the figures for the first quarter on May 8 at the Annual General Meeting on May 16 or at one of the upcoming Capital Market Conference. All the best and thanks. All the best to you. Thank you.