Elringklinger Ag

Ladies and gentlemen, welcome to the Edwin Kringer AG Q3 2025 earnings conference call. I am Moira, the chorus call operator. I would like to remind you that all participants will be in listen-only mode and the conference has been recorded. The presentation will be followed by a Q&A session. You can register for questions at any time by pressing star and one on your telephone. For operator assistance, please press star and zero. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Thomas Yesulat, CEO. Please go ahead.

Ladies and gentlemen, welcome to our earnings call for the third quarter of 2025. Also, on behalf of my colleague on the board here, our CFO, Ms. Isabel Daun. Today, I will start with some highlights also from a strategic perspective, and my colleague Isabelle will walk you through the key results for Q3. With this publication, we reaffirm our guidance for 2025 as well as our medium-term outlook originally communicated in the annual report in March. As always, We will conclude the presentation under the Q&A session, and we look forward to addressing your questions. We advance the implementation of our Shape 30 transformation strategy as a top priority. Since its launch last year, we have made significant process in reshaping the Erlen-Klinger group and further measures on process. Another measure is the streamline program, which aims to reduce personnel costs. Initial savings are expected to take effect in 2026, with full savings realized by 2027. In addition, our organic sales performance during the first nine months of 2025 grew by 2.2% compared to the previous year, outperforming the European market, which recorded a decline of 1.7% over the same period. We're making significant process in the field of e-mobility. Operations have started at our e-mobility hub Americas in Easley, South Carolina, which is in preparation for production ramp up. At the same time, we're gearing up for production chart also in China. After a phase of substantial investments, our capex level is expected to normalize to a more moderate level going forward. Shape 30 represents our roadmap for transforming the group, given the profound changes in our industry. Our transformation strategy is designed to improve profitability and cash flow. We have already taken significant steps along this path, including the sale of two companies in the US and Switzerland, the discontinuation of the electric drive systems, and with a reinforced focus on profitable components. In this context, measures to strengthen the balance sheet have also been implemented. These actions are now complemented by a strict cost reduction plan. One of its elements is the streamline program, which targets at least 30 million euro in global staff cost savings. Shaping the profile of the group summarizes one dimension of the Shape 30 activities. The other dimension encompasses the preparation for future growth based on the received nominations of the past quarters. And in this context, we have successfully initiated the ramp up of major e-mobility projects. Currently, we're completing the final steps for the start of production, focusing on cell contacting systems and battery components. As part of the product transformation at Erwin Klinger, we have made initial investments in production and space and equipment. At present, we're getting closer to the end of the investment cycle. Along this, we'll return to a more disciplined CAPEX level according to our midterm target of 2% to 4% of group sales. With having said this, now I hand over to my CFO colleague on the board, Ms. Isabel Daun.

Thank you, Thomas. I will now provide you with some more details on our financial performance in the third quarter of 25. At the first glance, the order intake appears to have declined by around 3%. However, we reported slight growth in operating terms compared to the prior year period. This is primarily due to the fact that last year's figures still included contributions amounting to €21.1 million from the divested entities, which have not been part of the group since December 31, 2024. Despite the challenging market environment, we see a positive development in the underlying business. Organically, which means adjusted for the M&A effects and exchange rates development, order intake increased by 16.6 million euro, or 3.6% to 477 million euro. The order backlog, representing customers' cumulative short-term co-ops not yet realized, stood at 1.1 billion euro at the end of the third quarter of 2025. For comparison, the previous year's reporting period showed 1.3 billion euro, a figure that still included the backdrop from the two growth entities divested, which amounts to 136 million euro. Starting with the sales and its organic change on slide number five. In a challenging market environment, Elden Klinger generated revenue of 396 million euro in the third quarter of 2025. representing a year-on-year decline of 10% according to reported figures. But figures have been affected by M&A as well as FX for this quarter. The two entities in Switzerland and the United States had contributed revenue of €34.1 million in the third quarter of 2024. This means the relevant basis for a year-on-year comparison will be €407 million. Additionally, revenue was diluted by currency effects equivalent to 8.1 million euro. All in all, when excluding currency and M&A effects, revenue declined organically by 0.6% in the third quarter of 2025, remaining at a relative stable level compared to the previous year. While global automotive production in the third quarter was 4.4% higher than the prior year level, Europe , posted only a modest increase of 1.2% in the third quarter, and Germany declined by 3.6%. When considering year-to-date sales figures, prior year's numbers included €123 million from the divested entities. With this in mind, sales in the first three quarters amounted to 1.2 to 8 billion euros in line with the first nine months of this year. When taking into account ethics effects, organic sales even increased by 2.2% year-to-date. The global production market grew by 3.8% over the first nine months, mainly driven by China. Elden Klinger's poor market, Europe, even contracted by 1.7% the first nine months. This disparity underscores the challenging conditions in Elding Klinger's primary market, where limited momentum contrasts with stronger global trends. The sales mix presented on slide 7 provides a more detailed breakdown of the factors behind organic sales. Within the segment breakdown, the original equipment segment remains the largest contributor, accounting for 66% of total group revenue, which corresponds to €262 million in sales. Compared to the same quarter last year, revenue in this segment declined, mainly due to the assessment of the two entities in the USA and Switzerland, as well as ongoing challenging market conditions. Within the OE segment, e-mobility generated sales of €26.3 million in the third quarter of 2025. This business unit is currently in a ramp-up phase for upcoming large-scale series orders, underlying its strategic importance for the group's transformation. The divestment of the two entities has also been reflected in a decline in the metal-forming and assembly technology business units. The aftermarket segment continues its strong performance, increasing sales from €32.8 million in Q3 2024 to 37.4 million euro in the third quarter of 25. Growth was achieved in the Asia-Pacific region, South America, and the rest of the world, while revenues in Europe and North America declined year on year. In addition to currency headwinds and a general weak market environment, the primary factor behind this trend was the divestment of the two entities in the US and Switzerland. Adjusted EBITDA of the group declined to 41.1 million euros compared to 51.4 million in the last year's third quarter. In Q3, adjusted EBIT reached 21.2 million euro, corresponding to a margin of 5.4%, which is even above the full-year target of around 5%. Adjustments totaling 16.7 million euro almost exclusively relate to exceptional items from the streamlined program to structurally reduce personal costs in the context of Shape 30 transformation strategy. Reported EBIT amounted to 4.5 million euro corresponding to a margin of 1.1%. This is a noticeable improvement to the same quarter last year when EBIT reported stood at minus 35.2 million euro. Thanks to the strategic measures implemented as part of the company's transformation strategy, the group is well positioned to maintain a solid adjusted EBIT margin at a comparable high level. These actions refer to an EBIT improvement of €4 million and created a more resilient foundation for sustainable performance. All that has been more than compensated in the third quarter by FX.carats, totaling €2 million, or others amounting to €2.7 million, such as ramp-up costs for the large-scale orders in South Carolina and China. In addition, the release of provisions of €1.1 million in Q3 2024 has to be considered. In the third quarter, the R&D ratio rose to 5.9%, while absolute R&D spending edged down year on year slightly from 24 million to 23.5 million euro this keeps the company comfortable within its target range of five to six percent of group revenue in the third quarter of 25 ellen klinger reported net working capital of 389 million euro the corresponding ratios to 23.2 percent bringing the group to its short and medium-term goal of maintaining the figure below 25%. This development highlights ongoing initiatives to improve capital efficiency and enhance operational flexibility in parallel to sales activities relating to November. Following elevated expenditures around the turn of the year in Q4-24 and Q1-25, CAPEC has been lowered in the second quarter. As anticipated, this figure was quite stable in absolute numbers in Q3, with capex at 27.8 million euro and a capex ratio of 7%. It is expected to lower this level starting next year and realize a capex ratio level of around 2% to 4% in the midterm at last. Regarding the cash flow in the third quarter in 2025, the group maintained a positive level of performance as in Q2, and achieves an operating free cash flow of €18 million. This underscores the continued benefits of disciplined financial management and the sustained impact of working capital measures, even in a challenging market environment. And it is the basis for reaching our target range of 1% to 2% of sales with a strong fourth quarter, as we had last year. This is what we are currently working hard on. Net financial debt slightly increased to 389 million euro corresponding to a net debt added by ratio of 2.2. And last but not least, group equity totaled 653 million euro by the end of the third quarter of 25. Slightly below the 659 million recorded at the close of Q2 25. Coming to the segment performance on slide 11. In the third quarter of 2025, the OE segment generated sales of €262 million. When comparing this to the prior year figure, it's important to account for a sales contribution of €34.1 million from divested entities. The adjusted segment EBIT margins stood at minus 0.8%. The aftermarket segment is successfully advancing its growth strategy, delivering yet again a quarterly increase in revenue. In the third quarter of 2025, sales reached 96.1 million euro, which implies a growth of 13.2% compared to a previous year's quarter. With an adjusted EBIT margin of 18%, the segment once again delivered a strong level of profitability. The engineered plastic segment delivered a strong performance in its third quarter of 2025, supported by its broad and diversified industry mix. The segment recorded sales of 37.4 million euro, marking an increase of 4.6 million euro compared to the same quarter last year. With an improved adjusted EBIT margin of 13.4%, the segment demonstrated its resilience in a challenging market environment. Now I'll hand back to Thomas Jessela from concluding works on the market and the outlook.

Thank you, Isabel. Let us now turn our attention to the market expectations and the group's outlook. Let me quickly show you our agenda for Q4 in the upcoming quarters. We anticipate a weaker fourth quarter with regard to the markets, while the outlook for fiscal year 2026 suggests largely sideways movement on a global scale. Against this backdrop, We'll continue to prepare for entering the sales cycle, strengthen profitable business areas, and continue to refine the group's profile to ensure sustainable performance. Our focus remains on our Shape 30 targets, which is increasing the group's profitability, particularly, of course, in the OE segment and sustainably generating cash flow. This is crucial to enhance the group's resilience and competitiveness. We are continuing the ramp-up of additional large-scale e-mobility projects, building on the progress achieved in previous quarters. Following a CapEx intensive phase, capital expenditure will normalize from next year onwards and reach a disciplined level of 2% to 4% in the medium term. At the same time, we maintain an elevated level of e-mobility sales, supported by strong demand. Cash flow is projected to improve significantly in the fourth quarter, recovering from the weaker start in Q1. Market dynamics remain uneven and are expected to persist into 2025. While global light vehicle production shows a positive trajectory overall, the regional picture is mixed. China continues to gain momentum with strong growth for the full year, whereas Europe and especially North America Erling Klinger's main markets are still struggling to recover. This contrast reflects the year-on-year development from 2024 to the forecast for 2025. Robust expansion in China is helping to cushion the impact of weaker demand in Europe and North America, and therefore ensuring that global production maintains a stable growth path. We now turn our attention to the forecast for the fourth quarter of 2025. Current projections indicate a decline in light vehicle production across all regions during Q4, including Asia Pacific, which has been the strongest region so far with China as the main growth driver. This anticipated slowdown highlights the high volatility that characterizes the automotive industry. Overall, The automotive market is showing a growth of 2% in 2025, while Europe is expected to face a decline of 1.8% over the same period. I will close my comments with a remark on the outlook. Despite this short-term moderation of markets, we remain committed to our strategic targets and are preparing for the next growth cycles driven by serious production orders, particularly in the e-mobility segment. Against the volatile backdrop, we confirmed the outlook published in the fiscal year 2024 annual report, including organic sales at prior year levels and adjusted even margin of around 5% and operating free cash flow between approximately 1% and 3% of revenue. Based on our strategic measures, we aim for a mid-term adjusted even margin range of approximately seven to eight percent. With having said this, Isabel Dahm and I are now ready to answer your questions.

We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one 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 star and two. Participants are requested to use only handsets while asking a question. Anyone who has a question may press star and 1 at this time. The first question comes from the line of Mark Renetton from Warburg Research. Please go ahead.

Good afternoon. Thank you for taking my questions. Basically three, if I may. The first one would be on the e-mobility issue. sales outlook for the fourth quarter as you are now ramping up for the new orders which are coming into production at your customer. Can you give us some indication when we should expect the top line contribution to be more pronounced on your side? Was it already BQ4 or is it more beginning of next year. That would be the first question. The second one would be on special items, whether we should expect any additional restructuring expenses for the fourth quarter between adjusted EBIT and the EBIT line. And lastly, on EKPO, when I look at your, let's say on the minorities line, I think it's minus 2.5 million, if I'm not mistaken, for the third quarter, minus 5.5 for the first nine months, basically representing about 40% of the net profit or net loss in this case of that business. So obviously a large drain on your operating performance when we were looking at EBIT. Do you expect any improvement on that side going forward or what could be potential measures to, let's say, stabilize or improve the situation on that side?

Thank you. Thank you for your question, Mark.

Sorry, I lost my voice a bit. I'll answer the second question for you. If we expect some special items in Q4, as we are still in transition, we might still expect some, and we're not completely through with our plans yet, so we might still expect some impact in the first quarter of our restructuring measures.

Okay. You know, on the e-mobility sales for the fourth quarter, we'll, step by step, we'll be ramping up. On the same time, it's not so sure, you know, if it is showing significantly. It'll show, I'm sure, but it will not, in Q4, it will not be showing significantly as a contribution and certainly starting from next year on, expectation is that we'll see top line growing in regard to e-mobility sales. Okay, third question from your side on eKPO. There is a lot of activity that we have right now in regard to cost reduction as part of our global, of course, cost reduction measures. And we would expect that we have some good progress here between Q4 and Q1 next year. So in fact, it is still in a startup loss-making situation here, EKPO. But also here, we are working on reductions in order to minimize the impact here to the EK group. Is that answering your question?

It does. Just one quick follow-up, if I may. Not related to that, could you remind us on the incremental increase of net indebtedness from the IFRS 16 accounting for what we have to expect for the fourth quarter from the US facility?

Yes. When we look at IFRS 16 specifically, then we are at roughly 90 million right now, which compares to 47 million to previous year's quarter. And expectation for Q4 this year will be roughly 30 million addition. This is estimation, so it's a mid you know, double-digit million euro figure, maybe a little bit less than 40 million. Yeah, this is the expectation that we have right now.

Perfect. Thank you very much.

The next question is from Michael Ponset from DZ Bank.

Please go ahead. Yes, Michael, good afternoon. Thank you for taking my question. I have only one left with regard to your OE business. You're still in the red figures for Q3 on an adjusted basis. Can you have any kind of when we could expect a positive run rate on a quarterly base? Is that a thing we could expect for 2026? Or have we wait until 2027 when all the positive impacts from your cost reduction program came in?

Yeah. When we look at the year right now, we are in an expected frame in regard to the current results. We are on the way with the streamline program. We are making progress here. So that is having already some positive impact here, but not yet a full impact in terms of our activities here in 2025. Expectation is that we'll see if there's no negative impact from the market of some significant sort, that we'll see some impact here first half

of next year also on the OE segment. Okay, thank you.

As a reminder, if you wish to register for a question, please press star and 1 on your telephone. The next question comes from Tobias Willens from LBBW. Please go ahead.

Yes, hello. Good afternoon. I have one question left regarding on your company strategy and your reshaping programs. Will we see further investments in the years ahead, let's say in 2026 and 2027, especially in the automotive segment? Thank you.

Yeah, thank you for your question. What do I expect going forward? It is a continuation of the transformation path into 2026. We'll have also, like Isabel has said, we'll have the expectation of some more adjustments, but adjustments are going to be getting smaller going forward compared to what we have seen in the past. We'll see in 2026, we'll see the following. We'll see a reduction of the balance sheet size because we have quite a figure, it's a high double digit figure right now on our balance sheet of items, tooling, equipment that will be sold off to customers. So we'll see a reduction of balance sheet size in 2026, going into 2026. And we'll also see an improvement of financial KPIs based on the impact of all the activities done in 2025. So that I would say is a very general comment that we have laid a lot of groundwork here for improvements that we expect to kick in in 2026. And we also have to say that some items are still in process where it is to some extent uncertain. if they have an impact in 2025 or beginning of 2026.

Okay, thank you.

Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Thomas Jesulat for any closing remarks.

Thank you very much for joining our Q3 conference call today. We truly appreciate your continued interest and support, and we look forward to meeting you either next week at our capital markets day or during our next update when we present the full year figures. Until then, we wish you all the best for the weeks ahead and a successful start into the new year. Stay safe, and we look forward to connecting with you again. Thank you very much.