Elringklinger Ag

Ladies and gentlemen, welcome to the Erling Klinger AG Q1 2026 earnings conference call. I'm Vicky, the call school operator. I would like to remind you that all participants will be in listen-only mode and the conference is being 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 then 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, I welcome you to our earnings call in the first quarter of 2026. Today, Isabel and I will provide a detailed look into the results from the first quarter. With today's publication, we confirm the guidance for 2026 in the medium term, which we have published with the annual report end of March. At the end of the presentation, as usual, you will have the opportunity to ask questions, and we're pleased to answer them. At the outset, I would like to present a brief overview of the key developments from the past three months. Let me start with a brief overview of the external environment, which remains challenging for the global automotive industry. Rising global tensions, including the military escalation in Iran, are increasing regional spillover risks and posing threats to energy security and global stability. Imperial sanctions, trade restrictions, and regulatory fragmentation continue to weigh on cross-border business. These risk factors, combined with volatile energy prices and ongoing logistics disruptions are increasing and certainty for investment and production planning. At the same time, the industry remains in a profound transformation. In Q1, 2026, global light vehicle production declined by 3.4%. Despite the cyclical pressure, electrification momentum remains intact. E-mobility continues to be the dominant long-term trend, even as regulatory requirements are being eased in Europe partially rolled back in the U.S. China continues to act as the global pace setter, driven by strong local ecosystems, technology leadership, and customer proximity. Against this backdrop, Aaron Klinger is well positioned. Our global footprint enables localized production close to customers and supports further optimization of supply contracts. At the same time, we continue to strengthen our profile and supported by a solid position in established markets and growing auto intake in new drive technologies. The next slide summarizes the company's overarching strategic framework, outlining its purpose, vision, and mission. Our purpose underscores our commitment to innovative technologies that contribute to a sustainable future. Our vision is to remain the preferred partner in advancing technological innovation To translate this vision into reality, we have defined five key success factors that will enable the organization to fully realize its potential. Let me briefly walk you through the progress of Shape 30. Starting with growth, our e-mobility business shows strong momentum. Sales increased by 42% year-on-year from €27 million in Q1 2025 to €38 million Euro in Q1, 2026, underlining the commercial traction of our strategic focus area, e-mobility. At the same time, we have made visible progress on profitability, particularly in the OE segment. The adjusted EBIT margin excluding e-mobility improved by 3.1 percentage points, reaching 5.5% in Q1, 2026, driven by operational improvements and disciplined cost management. E-mobility remains a ramp-up phase. Adjusted EBIT in this business stood at minus 16 million euro compared with minus 15 million euro in the prior year quarter. Importantly, this development is fully aligned with our roadmap and we expect improvements will be realized in the course of the year. The classical business excluding e-mobility continues to be profitable and serves as the financial backbone of the transformation. At the same time, we are systematically reducing the cost base in e-mobility step by step with a clear objective of bringing this business into a profitable range by 2028 on a full year basis. We expect 50 million Euro in cost savings and ramp up contributions. Improving efficiency and contributions to margin by ramping up the major orders are crucial levers for reaching our midterm profitability targets. Overall, these figures clearly demonstrate that Shape 30 is progressing as planned. Turning to the next slide, we illustrate how Erring Klinger is well positioned for changing market landscape. At group level, we're actively shaping our portfolio and shortening our strategic profile. Through continuous and systematic market analysis, we are deliberately discontinuing low margin activities and focusing our resources on value creating businesses. At the same time, our powered by people approach underlines our strong corporate culture, creating the conditions for employees to perform at their best. The key element of this context is our new organizational structure, shape to empower. This structure is fully aligned with our strategy and is designed to strengthen accountability, accelerate decision-making, and enhance customer proximity across the group. Shape to Empower builds on clear and consistent principles for action. Roles and responsibilities are clearly defined, interfaces in the organization simplified, and management structures standardized globally. The organization is fully aligned with shape 30 with a stronger focus on speed, market, and customer proximity and efficiency. As part of this transformation, existing business units will evolve into business areas, strengthening entrepreneurial accountability. In addition, we are establishing a new business area, sealing solutions and engineered metal components, by merging two business units into one. And as a result, we create a new business area with focus on metal and pure metal applications in a market that largely consolidates. The objective is to further accelerate decision-making, enhance customer focus, and improve efficiency across the group. Overall, everything is actively shaping the group, and reorganizing its structure to sustainably strengthen competitiveness in a rapidly changing environment. With having said all this, I now hand over to my financial colleague on the board, Isabel. Thank you, Thomas.

Hello, and good afternoon from me as well. Starting with sales and the organic revenue on slide number eight, In a challenging market environment, Elden Klinger generated revenue of €430 million in the first quarter of 2026, representing a year-on-year increase of 1.6% according to reported figures. But figures have been affected by M&A as well as FX this quarter. In the prior year quarter, the UK subsidiary that has been divested effective November 30, 2025, had contributed €3.1 million. with the corresponding reference value for the previous amounting to €420 million. Additionally, revenue was diluted by currency effects equivalent to €9.7 million. All in all, when excluding currency and M&A effects, revenue increased organically by 4.7% in the first quarter of 2026, and the companies remained fully on track to meet its fully-year guidance as communicated in March, Notably, this growth represents a clear outperformance of the underlying automotive market. While global automotive production declined by 3.4% year-on-year in the first quarter, Europe, Erling Klinger's core market, recorded only a modest decrease of 1%, excluding Russia, and Germany declined by 1.6%. Against this backdrop, Erling Klinger achieved solid organic growth, clearly demonstrating its resilience and competitive positioning in a contracting market environment. The sales mix presented on slide 9 provides a more detailed breakdown. Within the segment breakdown, the original equipment segment remains the largest contributor, accounting for 65% of total group's revenue, which corresponds to €280 million in sales. Compared to the same quarter last year, revenue in this segment was only slightly below the prior year level. Within the early segment, immobility generated sales of €38 million in the first quarter of 2026. The ramp-up phase of large-scale serial orders for self-contacting systems is further progressing. Compared to the previous year's first quarter, revenues increased by 42%. highlighting the business unit's strategic importance for the group's transformation. The aftermarket segment continued its strong performance, increasing sales from €102 million in Q1 2025 to €110 million in the first quarter of 2026. In addition, the NGS plastic business was able to slightly increase revenue in the first quarter of 2026, rising from €39 million to €40 million, driven primarily by an improved product mix. Growth was achieved in the European region, North America and South America and the rest of the world, while revenues in Asia-Pacific declined year on year. Adjusted EBITDA of the group rose to €59 million, compared to €42 million in the last year's first quarter. Including one-off items, reported EBITDA stood at €58 million. The increase in adjusted EBITDA was driven by a compensation received for an asset that was depreciated at the same time. In Q1, adjusted EBIT reached €29 million, corresponding to a margin of 6.8%, which is in line with our full-year target guidance of 6-7% of sales. Adjustments totaling an amount of less than €1 million were related to exceptional items from the streamlined program. reported EBIT amounted to €28 million, corresponding to a margin of 6.6%. This is a noticeable increase to last year's figure, which stood at €20 million. Both the streamlined program and the Shape 30 measures aimed at annual savings of €50 million in total. Around €10 million of these savings are realized in Q1. The full impact of these measures are expected for 2027. The adjusted group EBIT of €29 million already includes the adjusted EBIT of the immobility business unit, which came in at €-60 million, compared to €-50 million in the prior year's quarter. The planned improvements here will be realized in the upcoming quarters, according to the REMBO. Thanks to the strategic measures implemented under our transformation strategy, we are strongly positioned and operate from a more profitable base. enabling the group to sustain a solid adjusted EBIT margin at this level. These actions referred to an EBIT improvement of €10.5 million compared to the prior year's first quarter and created a more resilient foundation for sustainable performance. In addition, product mix effects contributed to better earnings. These improvements have been partly compensated by tariffs, totaling €2 million, and ramp-up costs for the large skills orders of almost €2 million. In the first quarter, the R&D ratio decreased to 5%, while absolute R&D spending edged down year-on-year slightly from €25 million to €22 million. Ellington as net working capital stood at €383 million in the first quarter of 2026. The ratio amounted to 23%, thereby achieving the group's short- and medium-term target of keeping the figure below 25%. The development illustrates the group's continuous focus and optimization of capital efficiency and expanding operational flexibility in line with ramp-up related sales activities. Following a capex intense fourth quarter in 2025, capital expenditure declined significantly and returned to a markedly lower level in the first quarter. As anticipated, this figure was quite stable in absolute numbers in Q3, with CapEx at 21 million euro and a CapEx ratio of 5%. This figure is purely in line with the full year guidance which calls for a ratio of four to 6% of sales. In the first quarter of 2026, operating free cash flow was in a negative territory at minus 109 million euro. This development was driven by a higher networking capital requirements due to the ramp up of the large scale orders and in addition, cash-effective restructuring expenses of around €20 million related to the Streamline program. Overall, the cash flow development followed largely the same seasonal pattern as last year, while still showing a slightly year-on-year improvement. Net debt stood at €430 million, corresponding to an adjusted net debt-to-event ratio of 2.1, which is stable compared to prior year's quarter. And last but not least, Group equity totaled 686 million euro by the end of the first quarter, slightly above the 666 million euro recorded at the close of Q4 2025 and on the same level of prior year's figure. Coming to the segment performance on slide 13. In the first quarter of 2026, the OE segment generated sales of 280 million euro. When comparing this to the prior year's figure, we have to consider the sales contribution of €3 million from the divested entity in the UK. The adjustment segment EBIT margins to 0.9% and improvement to prior year's figure. The aftermarket segment continues to successfully execute its growth strategy, once again posting a quarter-on-quarter increase in revenue. In the first quarter of 2026, sales reached €110 million, which implies a growth of roughly 8% compared to previous year's quarter. With an adjusted EBIT margin of 24.3%, the segment once again delivered a strong level of profitability. The Engine and Plastic segment demonstrated a robust performance in the first quarter of 2026, reported by a wide and diversified industry footprint. The segment recorded sales of €40 million, compared to €39 million in the first quarter of last year. With an adjusted EBIT margin of 10.6%, the segment demonstrates its resilience under challenging market conditions. We remain firmly committed to our Shape 30 group strategy, which continues to serve as the overarching strategic framework guiding our decision-making and positioning Erling Klinger for the long-term success. We are confident that Shape 30 defines the right strategic priorities to effectively navigate market dynamics while further strengthening the group's long-term competitiveness. We remain focused on driving profitable growth for further strengthening the group's competitiveness. Our priorities include realizing growth on the basis of large-scale contracts in e-mobility, further improving the profitability, particularly in the OE segment, generating sustaining operating free cash flow, and further reducing net debt to enhance the group's financial resilience and damage heat strength. I will now turn the floor over to Thomas to provide concluding remarks on the market environment and the outlook.

Thank you Isabel. We will now review the market expectations and come to the outlook for the full fiscal year. Let us now take a closer look at the market environment. As you can see on this slide, the global automotive market is expected to face a slowdown in 2026. Across all major regions, light vehicle production is projected to decline year over year, although to different degrees. In North America, volumes are expected to decrease by around 2%, reflecting a moderation of demand following the post-pandemic recovery phase. In Europe, production is also expected to decline by approximately 1.8% in 2026, driven by ongoing economic uncertainty and continued pressure on customer sentiment. Greater China is facing a somewhat more pronounced slowdown with volumes forecast to decline by about 2.3%, reflecting market saturation and intensified competition. On a global level, this results in a modest contraction of light vehicle production in 2026. Importantly, however, the medium-term outlook remains constructive. By 2030, global volumes are expected to return to growth, understanding that the current slowdown should be viewed as cyclical rather than structural. Coming to the next slide, we confirm our outlook for the full year 2026 as published in March, reflecting our expectations regarding the challenging market environment and our operational performance for the year. Our performance and our short- and mid-term ambitions demonstrate that we're on the right path with our Shape 30 strategy. Aaron Taylor's strong financial and strategic positioning provides a solid basis for further improving the group's profitability and delivering sustainable cash flow. Finally, I would like to mention a few points from our corporate calendar. On Tuesday, May 12th, we'll hold our annual general meeting in a virtual format. This will be followed by the publication of our Q2 results in August and our Q3 results in November. With having said all this, we're now ready to answer your questions. Thank you.

We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their 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 one at this time. The first question is from Michael Punset, DZ Bank. Please go ahead.

I have two questions. The first one is on your e-mobility business. When we listen to BMW, they make very positive statements on the demand for the iX3, the first car of the new class. My question is now, do you see any rise in call-offs compared with the original e-plans? And the second one is on your aftermarket business. We saw very strong margin development in Q1 after, I would say, a slowdown in former quarters. So what are your expectations on margin levels for the aftermarket? Is it fair to assume that this will stay above the 20% level also in coming quarters?

Yeah, thank you for your questions. To your first question, you referred to one of our customers. You know, we have different sizable contracts starting right now. And we can say that with all of the projects that we are working on, that is, you know, we see across the board pretty ambitious run-ups. Yeah. Yeah. So in that sense, without talking about one customer alone, we can confirm that there is a strong development for the first run-up phase here with different customers that we have in particular with e-mobility. And we're really busy in order to manage those run-ups in a good way. So overall, we can say yes, but it's not only one customer, but we see it with several customers. in particular e-mobility.

Yes, Mr. Prinset, I'll take your second question on aftermarket. So, yes, we expect growth to continue during the year, having said, with also strong margins. Having said that, we do see some impact from the war in Asia, so we have to see how it will develop over the coming month, the coming period. But in principle, yes, strong growth still expected, also maintaining profitability.

Okay, thank you. Maybe a follow-up to the first answer. Do you see any risk that you might be not able to fulfill all the demand from the mobility side at this point in time with a strong ramp-up?

No. I mean, we are, you know, we have, you know, our commitments in regard to the quantities. You know, from a risk perspective, but now very generally speaking, there's always operational risks involved, in particular during the run-up phases. So there are risks. Are we seeing something specifically that hints to the point that we are not going to be able to fulfill those requirements? No.

No, I mean on the quantity side. So, for example, when the customer decided to call off 100,000 pieces a year, and now they came up with 150,000, are you able to fulfill all the additional order? Would you be able to fulfill also the additional demand? That is the reason for my question.

Yeah, and what I answered was that right now we don't see anything where we cannot fulfill demand in those run-ups. And we agree that there is some flexibility involved in a lot of cases, and yes, we're going to be able to fulfill.

Okay, thank you.

Thanks. As a reminder, if you wish to register for questions, please press star and one on your telephone. The next question is from Tobias Willems, LBBW. Please go ahead.

Yes, hello. Can you hear me? Yes. Yes, hello. First of all, congrats on the strong corridor and I have three questions. My first question would be about Elvin Klinger confirms the full year guidance despite the current difficult market situation consisting out of tariffs, war and a general disbinding in the production rate of light vehicles. From my understanding, what are the core criteria for the strong performance at Erwin Klinger when it comes to the resistance of the general market downturn and also a little follow-up here there and is one more a one-off effect or can the strong margin consist of 6.8% also be assumed for the rest of the year because it's quite an impressive margin achieved in Q1 and my next question would be about The Q1 2026 tax rate was around 61% compared to 21% in Q1 2025. What are the reasons here for the sharp increase and can a guidance be given for the full year ahead? Same question also applies to the financial income of around 9 million compared to 3 million from the previous quarter. Just for my understanding here, because I didn't find... an explanation in your concern presentations here. And my last question would be about the CapEx guidance for 2026. It is given as 4 to 6%. In the medium term, less is to be invested here at around about 2 to 4%. How is that strategic planning to be understood here as the immobility production rate should be increased in the future, right? Or is the production already unauthorized in the current stage of the production capacity at Erlend Klinger? Thank you for having my question.

Yes, thank you for your questions, first of all. First question in regard to the confirmation of the guidance, no? There is a lot of activity. We have the target to improve the cost base by $50 million. Part of that is personnel costs, which we have done through streamline last year, and that has given us some, you know, lower cost base for this year in regard to personnel costs. So what you see here in terms of the improvement, you know, from last year to this year, it's really mostly around 10 million. This is the expected run rate for this year. There is some, let's say, some items that spilled over into 2026 from a cost perspective, and this is what we mentioned earlier also, that we do not expect to arrive at the 50 million in 2026, but But to a large extent, we should be able to. And with the 10 million that we have here for Q1, expectation is that we are going to be having this as a runway basis for a lower cost base for this year. How robust are we in this regard? For example, the Iran war or other global impact items, that is to some extent, and I mentioned in the last call, I mentioned a low to mid single digit amount, a million euro, that is accounted for. That means that we should be able to absorb if there is more to come. If the impact would be higher, then we would have to assess specifically, but part of the difficulties here in our global environment is already accounted for. Okay. On the taxes, the Q1 tax rate here, you know, from a tax rate perspective, there is an expectation that step by step we move to the nominal tax rate, which should be around 30%. But since we divested loss-making entities in the group and we implemented a new transfer pricing model, there is all the steps or almost all of the steps done that we should arrive at a nominal We are not there yet. Why is that? Because there is still some loss-making activities here in the group that we, you know, as part of the Shape 30 activity, we need to address, of course. But step by step, we should be able to arrive at the nominal 30% tax rate that we would expect, approximately 30%, right? Mm-hmm.

Okay, and then thank you. I reply your question on CapEx. So for the, this year we started with a constraint on our CapEx, so we tried and we will respect our guidance on CapEx. We had a huge span in the last two years to be able to ramp up in our immobility business. That's now done and we are confident that in the coming two years we will be able to All our CAPEX targets are set in our guidance, and we don't need additional CAPEX to fulfill our ambitions.

Okay, understood. And when I'm allowed to ask a follow-up question, is the mobility production underutilized? for now, or what is the kind of state when it comes to the productions?

Yeah, right now, we are not at full utilization. This is going to be in 2027 and 2008, and therefore for 2008, we expect really you know, a break-even situation here for the full year for e-mobility. But right now, there's different projects in the run-up phase. And, you know, there's different phases that we have right now in the group. And typically, of course, there's a low utilization involved. Step by step, the run-up in terms of sales volume and also in terms of contribution margin, of course, helps to improve the e-bid situation. that we want to step-by-step, you know, improve along with the run-up of those projects.

Okay, I understood. Thank you very much for having my questions.

I also had a question on the one-offs. Was it for one-offs we still expect? Do we still expect some one-offs during the year related to what we do with our strategy? not in the amount of the past two years, but there's still something expected, probably in the second half of the year.

Okay.

The next question, a follow-up from Mr. Michael Punset, DZ Bank. Please go ahead.

Yes, I think you have two follow-up questions. The first one is, you mentioned a negative effect from tariffs. Maybe you can explain where this came from and how you will compensate for that. And the second one is on e-mobility again. The 60 million loss, is that only coming from the operational performance or are there any kind of onus included in that figure?

Yeah, thanks for your question. No, this is, you know, from an operational perspective, this is sort of the current

run rate approximately in terms of the loss making here in mobility and then first question I didn't get the negative effect from tariffs US tariffs I think you mentioned something in the presentation that you have a negative effect from the US tariffs so I would like to have an indication which business unit is related to that negative effect and how you will compensate for that

Yes, thank you. So this is mainly our aftermarket business, which is impacted by debt. And as a compensation measure, we did increase prices last year. So that's not shown in the bridge, but there is some compensation on the price side to compensate for tariffs, not for the full 100% though. Okay.

Maybe last question on e-mobility. You mentioned that you expect break-even on the full year basis in 2028. Is it fair to assume that we also might see already a break-even level on the quarterly base in 2027, or is that too optimistic?

No, that could be, but we want to be really clear, you know, when we talk about the overall business, that 2028 for the full year should be what we will achieve It could be from an earlier perspective that we see the one or other quarter where we may break even as well as not, but we want to be very clear on 2028 as the target for the full year.

Okay. Okay, thank you.

Thank you.

As a reminder for questions, please press star and 1 on your telephone. At the moment, there are no more questions. I would like to turn the conference back over to Mr. Yehalud for any closing remarks. Thank you.

Yeah, finally, I would like to thank you for your interest and your participation in our call on the figures of the first three months in 2026. On next Tuesday, we hold our annual general meeting in a virtual format and would appreciate your attendance. The next quarterly figures will be released on August 5th. We're looking forward to talk to you then again on a personal level. Thank you, and you have a good rest of the week. Thank you much.

Ladies and gentlemen, the conference call is now over. Thank you for choosing Coloscall, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.