ElringKlinger AG (ZIL2) Earnings Call Transcript & Summary

Dear ladies and gentlemen, welcome to the conference call of ElringKlinger Group. At our customers' request, this conference will be recorded. [Operator Instructions] May I now hand you over to Dr. Stefan Wolf, who will lead you through this conference. Please go ahead.

Yes. Thank you very much. Ladies and gentlemen, I warmly welcome you to our analyst conference on the fiscal year 2021. Unfortunately, we are still in a situation where we are not able to have this event in a personal format. Although we have initially planned to hold this event in person in Frankfurt, we had to decide for a virtual form in view of the current infection situation COVID-19 here in Germany. As always, I will start with some headlines of the fiscal year 2021, and we'll briefly give you some information on the market and ElringKlinger strategy in some details. After that, my colleague, Thomas Jessulat, our CFO, will present the fiscal figures on fiscal year 2021. I will then close with some remarks on the current year. At the end, of course, you will have the opportunity to ask questions, and we are more than happy to answer your questions. Let me start with some headlines. The fiscal year 2021 has still been affected by the COVID-19 pandemic. It has been another challenging year, but we managed to perform quite well in this very difficult framework. First of all, I want to point out some of the highlights of 2021 in brief. We've generated revenues of EUR 1.62 billion, which implies an increase of 9.7% compared to the previous year. Compared to the global light vehicle production, which increased by 3.4% within the same period, it is fair to say that we have outperformed the market once again as in the past. EBIT stood at EUR 102 million, corresponding to a EBIT margin of 6.3%. We generated a strong operating free cash flow for the third year in a row. In 2021, it amounted to EUR 72 million. As a result, the level of net financial debt has been further reduced to EUR 369 million, which implies a net debt to EBITDA ratio of 1.7. So that means, again, investment grade. On the basis of the presented strong 2001 figures, we in the Management Board proposed a dividend of EUR 0.15 per share to the Supervisory Board, and they agreed last week. So it is a joint proposal to the Annual General Meeting, General -- Annual General Meeting, EUR 0.15 per share. The group's global efficiency program has been successfully completed by the end of 2021. But of course, we will continue the implemented measures, and we are really looking on cost reduction. Due to a very high level of uncertainty in global markets, also driven of course by the Russian-Ukrainian conflict, we decided to suspend our guidance. We will closely monitor the further development, and we will provide an outlook as soon as the general political and economic situation allows that. And with this procedure, we are in line with most of the publicly traded stock companies here in Germany and around the world. Looking back, fiscal year 2021 was an eventful but also challenging and overall successful year. We have had a very strong start into the year and not only in terms of quality figures. In addition to the start of business activities of EKPO fuel cell technologies and the launch of the new battery competence center in Neuffen here close to our headquarter in Dettingen, we won a high-volume order for cell contacting systems from a global battery manufacturer. The total volume is in the mid-3-digit million euro range over 9 years. In addition, we received the funding decision for the IPCEI, IPCEI Battery 2. This is a program on European level. Here, the development and the commercialization of an innovative cell cover design is being funded with a total of EUR 33.8 million. The so-called important projects of common European interest, that means IPCEI, are intend to establish a European value chain. ElringKlinger is part of this in the area of batteries and has also been preselected by the German government for the IPCEI hydrogen. Here, the approval from the European Commission is still pending, but we are -- yes, we are looking forward to the decision that we think that we going to get that also for our area fuel cell technology. In the field of fuel cell technologies, EKPO Fuel Cell Technologies, the joint venture with Plastic Omnium has achieved further contract successes. For example, it received a major order from [ IADS. ] In addition, cooperation agreement was signed with the Chinese group DR Powertrain. These are important steps of EKPO's way to open up the fuel cell market with its high-performance stacks and components. Well, before we come to the presentation of the figures of the financial year 2021, I would like to spend some remarks on the strategic approach of ElringKlinger. There are 3 main fields of activity that I would like to present below. First, with our already transformed product portfolio, we are covering a growth market. This offers us great opportunities to help shape the mobility of the future with our innovative and technologically sophisticated solutions. We want to take advantage of these opportunities. Second, to ensure that we remain efficiently positioned in the future, we are once again driving digitalization forward and fundamentally optimizing our processes in the group. Both will interact to help us achieve the group's goal. Third and last but not least, sustainability has always been an issue for ElringKlinger. Our products help reduce or even avoid greenhouse gas emissions that are harmful to the climate. At the same time, we strive for being carbon neutral in net terms by 2030, and we will do so worldwide. ElringKlinger is committed to the environment. And all this is based on healthy financials. The successful completion of our global efficiency program was essential for these next steps. We now see on Slide #6 the estimated development of global automotive markets over the current decade. The general trend has not changed over the past 12 months, and we still see that automotive remains to be a growing market. It will increase by 1.3% per year until 2020. What has changed is the short-term growth structure. Overall, the recovery will need more time than previously expected. According to IHS, we will see a prepandemic level of global light vehicle production not before 2024. While 1 year ago, it was expected to reach 2019 numbers already by 2022, so this current year. If we are looking at the split of production numbers by powertrain, you see that on Slide #7, we see that all the growth in the automotive industry is coming from the new powertrain technologies. While the hybrid cars will strongly contribute to the growth in the upcoming years, the increase will slow down in the second half of the decade. The closer we come to the year 2030, the more relevant pure new energy vehicles, be it all electric or fuel cell, will be. Vehicles with pure internal combustion engines will increasingly be limited to certain regions and certain applications, so their number will decline over the years. However, with a slight annual decrease, the market will still be quite consistently large, which is important for our classical product. Well, this is, ladies and gentlemen, why we follow a multidirectional strategic approach. Of course, we use our strong market position in products for the classic technologies and serve the demand in these markets. However, the focus is on the new technologies. There is great market potential to be tapped here. This is where we are concentrating our efforts. On the one hand, we are using our material product and process know-how from the classic area to develop innovative solutions for the new technologies. On the other hand, we have added new technology areas to the group over the past decades. Battery and fuel cell technology are the 2 most important of them. Let me brief first discuss the classic products around the internal combustion engine technology in very brief. We have products that have been matured for decades, improved again and again, new elements or refinements added so that our solutions now principally contribute stably to sales in long-term contracts. In view of market developments, it is more common for existing contracts that they are renewed. As a result, there is an opportunity and the need here as well to adjust prices to existing -- the existing price level. In this context, our global network of locations is an advantage, enabling us to offer the same products globally in Mexico, Europe, China or wherever you think wherever we have our production location. Second, these business units, which were established in the classical sector, have developed and still developed solutions also for the new drivetrains. For example, the lightweighting elastomer technology business unit has developed the media module for fuel cell stacks based on the knowledge of the plastic housing product, or the metal ceiling systems and drivetrain components business unit uses its knowledge to develop advantages product in the new technologies, such as the cover with integrated gaskets. Third, we have designed new technologies from the drawing board to serious production. For example, based on a customer request, the group developed cell contacting systems, which is essential for a battery system. If it did not work reliably, the vehicle comes to a standstill because the energy stored in the battery could not be tapped and brought to the engine. The first serious production started in 2012 at a time when e-mobility was still in its infancy. In the meantime, we have expanded our knowledge to a broad variety and offer besides components, of course, battery modules as well as complete battery systems. The know-how of coating, stamping and embossing in cylinder gaskets was also used to develop bipolar plates. Ultimately, with their high preciseness, they enable the high-power density of EKPO fuel cell stacks of more than 6.0 kilowatt per liter in -- which is leading in the market worldwide. In this context, let me add one remark, the debate of the mobility of the future is frequently presented as a straight choice, batteries or fuel cells. Often statements are put forward in support of only 1 of the 2 technologies. However, this approach is shortsighted. Backing both batteries and fuel cell market is logical and makes logical and economically sense. It has recently been studied that battery and fuel cell vehicles represent the cheapest propulsion systems in heavy-duty transport when the total cost approach in terms of in terms of their total cost of ownership principle is considered. Diesel, while more cost effective, is a fossil fuel. Synthetic fuels and catenary vehicles are more expensive. The result supports ElringKlinger's view that fuel cell drive systems will initially become established primarily in heavy-duty transport and buses. Another study produced contra-indicative result, battery and fuel cell complement each other. Diversification for example, with 10% fuel cell vehicles reduces the total cost noticeably. That means that this means that both technology [ G's ] side-by-side are a sensible solution, and that's what we work for since about 20 years. Based on the previous slides, you have seen that ElringKlinger is already well-advanced in the transformation of mobility and can already offer a transformed product portfolio. This setup is also reflected in the sales and order figures that you see on Slide #13 right now. In 2021, 20% of group sales were not dependent on the internal combustion engine. The trend is intact. In 2020, it had been 19%. At the same time, the group received new orders in 2020 and '21, and the first 2 months of 2022 that are mainly less dependent on the internal combustion engine in terms of annual volumes. This consolidation is bringing about the future transformation of the group, particularly in the strategic areas of the future, structural lightweighting, fuel cell technologies, battery technology and electric drivetrain unit, the group will achieve strong growth in sales so that the share of sales not dependent on the internal combustion engine will steadily expand. Following on from the product portfolio, I would now like to focus a little more on digitalization and process optimization at ErlingKlinger. Ultimately, this strategic initiative is the result of experience of the past. It is aimed at, first, making production more robust; second, harmonizing a standardizing process worldwide; and third, driving forward automation. In the end, it will contribute to achieve company's targets. The optimization of processes is closely linked to advancing digitalization. The aim of this cross-sectional approach is to implement measures for first being more efficient within the group; second, increasing the value of products; and third, breaking new ground and exploiting its potential. At the end of this road, the ultimate goal is the digital factory with networked production facilities and fast, flexible processes based on a flexible IT infrastructure. On Slide #16, I will provide some more details on our third field of activity. Sustainability has always been a core issue for ElringKlinger. In this context, we see sustainability as a holistic approach from climate protection to employee responsibility and, of course, social interaction. In terms of climate protection, greenhouse gas emissions are crucial. For CO2 alone, emissions have increased by 50% over the last 30 years. 1/5 of CO2 emissions are caused by the transport sector. In order to significantly reduce these emissions, initiatives have been set up by countries around the world with the aim of achieving significant reductions. ErlingKlinger addressed this need in 2 respects. Firstly, the portfolio is strictly geared towards sustainable mobility. The combustion engine part supports OEMs, our customers, in downsizing engines. ErlingKlinger components enable high pressure and higher temperatures in the engine. Downsized engine means low fuel consumption and lower fuel -- and lower fuel consumption means, of course, lower CO2 emissions. Lightweight components either reduce weight and, in the case of combustion engine vehicles, lower fuel consumption, and thus, CO2 emissions, or they increase the range of hybrid as new -- or new energy vehicle. New technologies, such as the battery of the fuel cell even enable carbon-neutral mobility, provided that the energy required for this obtained by -- from renewable sources. Secondly, ElringKlinger has set itself an ambitious program to become carbon neutral in net terms even in its own operations. This encompasses direct and indirect emissions from the company's own activities. This means Scope 1 and Scope 2. In the first step, carbon neutrality is, in net terms, has already been achieved for the German sites in 2021. In the next step, the European plants are to become carbon neutral by 2025. And in the third step, carbon neutrality in net terms will be implemented worldwide by 2030. Our engagement is underlined by the EU taxonomy figures, which show that 48% of the CapEx spend in 2021 is EU-taxonomy eligible. The group is thus making a proactive contribution to reducing greenhouse gas emissions in its own activities. Well, ladies and gentlemen, so far for me, the highlight's in the core strategic activities. I will now hand over to my colleague, our CFO, Thomas Jessulat. He's going to present the financial figures, and then I'm going to give you an outlook at the end of this presentation.

Thank you much. Ladies and gentlemen, a warm welcome also from my side. Let me start on Slide #20 with our strong order book situation. After a decline in order intake in the first COVID-19 year 2020, we managed to increase the order intake in 2021 to a record level of almost EUR 2 billion, which corresponds to an increase of 33% from the previous year's level. Our order backlog increased in the same direction to a level of EUR 1.4 billion. The factors continuing to limit the automotive industry were the reason that global automotive production increased by not more than 3.4%. The group performed better than the market and increased revenues by 9.7% to EUR 1.624 billion. Considering a slight negative influence from foreign exchange, sales increased by EUR 150 million in organic terms, which implies a sales growth rate of 10.1%. We see our business divisions on Slide #21. Lightweighting elastomer technology once again takes the leading position as largest business unit with a share of total sales of 31%. Metal Sealing Systems & Drivetrain Components generated 28% of group sales, and shielding technology now represents around 16% of total sales coming from a level of 20% in the previous year. E-mobility sales share grew by EUR 4 million to EUR 59 million in total, but one has to keep in mind that previous-year figures included a payment of EUR 25 million, resulting from a fuel cell partnership. Both Aftermarket and Engineered Plastics segment increased the revenue share by 1 percentage point in the business year. Coming now to Slide #22, ElringKlinger outperformed automotive production in all major markets. While the market grew only by 0.2% in North America, the group achieved a sales increase of 7.1% or EUR 26 million. In Europe, the market decreased by 5.5%, while group increased revenues by 7.2% or EUR 56.5 million. The regions Rest of Europe and Germany together represent roughly half of group sales for your information. China has proven to be quite robust with regard to pandemic impacts on the economy, and this is why the Asia-Pacific region showed quite a good market growth of 6.4%. ElringKlinger managed to outperform this significantly and increased sales by 18.4% or EUR 50.6 million. Over the past decade, ElringKlinger has significantly internationalized its business. I will now turn to Slide #23. Due to the investments in the global footprint, ElringKlinger has strengthened its position as a global player. Today, we operate in all major automotive markets around the world. And therefore, our customer base includes all major manufacturers. Furthermore, there is no concentrated risk exposure to just one or only a few customers as the largest customer represents not more than around 9% of total group sales. On Slide 24, you see the earnings development in terms of EBITDA and EBIT. The global efficiency program is the basis for the improvement of earnings figures in 2021. The group achieved an EBITDA of EUR 216 million, which means an increase of previous year's EUR 182 million by 19%. And in this context, previous year's figures included instruments such as short-term work in Germany as well as proceeds from a fuel cell partnership. After deducting depreciation and amortization, EBIT amount -- amounted to EUR 102 million, the group's EBIT margin of 6.3%, therefore, exceeded the original guidance figure published in March 2021 and was at the upper end of expectations outlined in October 2021 when the projected margin for the financial year had been around 6%. Comparing to EBIT last year where we have noticed proceeds from a fuel cell partnership, EBIT improved primarily due to sales increases, which also benefited from an improved cost structure and detailed measures of the efficiency program of EUR 14 million. On the other hand, group EBIT has been impacted by raw material price increases, particularly in the second half of 2021 in provisions. In addition, there has been a positive effect due to lower depreciation on machine spare parts and lower duty fee payments. Let me continue now on Slide #25, where you can see a few financial developments from the last 4 years. First, on earnings before taxes. At EUR 100.8 million, the result was up by EUR 114.3 million compared to the previous year. After deducting income tax expenses and taking into account the share of noncontrolling interest, net income attributable to shareholders of ElringKlinger amounted to EUR 55.7 million. This results in earnings per share of EUR 0.88, which is significantly above the level recorded in the previous year. In view of the unappropriated surplus generated in the period under review, we're again in a position to pay a dividend for 2021. Taking into consideration the process of far-reaching transformation and the opportunities resulting there from, Management Board and Supervisory Board have jointly decided to take a balanced approach. While shareholders should benefit from the company's profitability, there is also a commitment to strengthening the company in support of the further transformation process. Both Boards, therefore, proposed to the Annual General Meeting to pay a dividend of EUR 0.15 for the 2021 financial year. On Slide 26, we take a look at CapEx, net working capital and operating free cash flow. In the financial year 2021 CapEx spending increased by 22% or EUR 13 million to a level of EUR 70 million. In line with the efficiency program, it has been focused on the strategic areas of new technologies. In absolute terms, net working capital remained at previous year's levels despite ongoing supply chain issues, which tend to result in a higher inventory level. Against the backdrop of more expensive business, the ratio of net working capital as a share of group revenue decreased from 27.2% in 2020 to 24.8% at the end of the reporting period. Operating free cash flows once again very well within the positive territory in fiscal year 2021 and can be considered an encouraging result with regard to business activity. Due to these efforts in operating free cash flow, net financial liabilities were reduced by a further EUR 90 million to EUR 369 million at the end of 2021. This translates into a net debt ratio, which is net debt in relation to EBITDA of 1.7. Twelve months earlier, the figure stood at 2.5. Let me now turn to Slide #28, showing the performance of our segments. Accounting 78.8% of total revenue, the Original Equipment segment constitutes the largest segment of ElringKlinger. In 2021, the segment generated revenue of EUR 1.28 billion, representing an increase of EUR 94.3 million, 7.9%. The segmental EBIT increased by EUR 60.6 million to a level of EUR 36.9 million, which in turn corresponds to an EBIT margin of 2.9%. The Aftermarket segment succeeded in further expanding its revenue in the period under review and on the back of a strong performance in the previous year. At EUR 214.7 million, revenue generated in 2021 was up by EUR 32.2 million or 17.6%. The segment managed to drive revenue forward in main sales regions, and segmental EBIT was up slightly at EUR 42.2 million, which corresponds to an EBIT margin of 19.7%. At EUR 125.4 million, revenue generated in the Engineered Plastics segment in 2021 was up markedly from the prior year figure. Revenues increased by EUR 17.8 million or 16.5% in 2021, driven in particular by sales in Europe and Asia. At EUR 23.7 million, this segment recorded a significant increase in EBIT. This was also attributable to savings in nonpersonal travel and staff costs. The segment's EBIT margin was 18.9%. On Slide #29, you see now a summary of all the KPIs, which have been in the focus of the global efficiency program. This program was set to prepare us for the future, and in fact, it did. We have managed to increase profitability by a high cost discipline. CapEx has been managed in a disciplined way. Spending has been focused on the new technologies. Net working capital decreased by 26% within 3 years despite a time of highly unstable supply chains. Operating free cash flow improved remarkably. We have achieved 3 years of operating free cash flow, well within the positive area amounting to EUR 312.5 million in total. And as a result, net financial debt has been substantially decreased by 50% over the term of the program helping us to prepare for the next step of industry's transformation towards future mobility. In last but not least, we have already started to work this way into the future, increasing our share of E-Mobility sales by 150%, not including parts of the new technologies, which have been developed by the classical business units. Having summarized this, I now hand back over to my colleague, Dr. Wolf, who will tell you more about where we currently stand and where we're headed.

Well, thank you, Mr. Jessulat, for this really good explanation of the figures of fiscal year 2021. Ladies and gentlemen, after 2 difficult years, COVID-19, we all know that, and we all had to struggle with that. The automotive sector continues to face significant challenges in 2022. Various factors could again hold back growth. Since February 2022, concerns about the economic impact of the escalating geopolitical conflict between Russia and the Ukraine have also created a high level of uncertainty. Taking the unpredictable consequences of these developments out of the equation, the industry institute IHS had initially assumed an increase in global light vehicle production of around 9% for 2022 but had supplemented this estimate with revised figures, which is clear in this situation. The IHS now expects a growth of slightly less than 6%. In all this, it must always be considered that the estimates are subject to a high degree of uncertainty. The degree of uncertainty remains high as there are various factors influencing general environment. The first factor to be mentioned here, as I did before, is geopolitical conflicts. The Russian-Ukraine conflict has escalated in recent weeks, leading to war on European soil. We all know and have seen those terrible pictures. The outcome is uncertain, but the world after will be different than before. The conflict is already changing the situation. Supply chains no longer function as before. We already experienced this in the automotive industry with great suffering. Even though ElringKlinger has no companies in Russia, Belarus or Ukraine and is, therefore, only indirectly affected, production at some manufacturers have been interrupted. Of course, this affects the entire sector and also ElringKlinger if cutoffs of our customers the automotive manufacturers will be reduced. In addition, inflation pressure take place in the same way. Commodity prices have already reacted in the short term. We do not know exactly how they will develop over the course of the year depending what is happening in Ukraine. At the same time, energy is becoming more and more expensive, and logistic costs in transportation are increasing remarkably. In addition, wage costs will also absorb general inflation. In all of this, we must not forget that the semiconductor shortage are not yet resolved, and the pandemic is not yet over. Those 2 issues sometimes are not really in our mind anymore based on this really terrible Ukraine conflict. All of these factors are having an impact on the current fiscal year and are increasing the uncertainty. It's an increasingly challenging environment. 2022 is going to be a difficult year. Before that escalation of conflict and its potential consequences, the group had anticipated an EBIT margin for the current fiscal year 2022 that was projected to be slightly below prior year's level. Due to the outbreak of the Russian-Ukrainian conflict, its intensity and the uncertainties associated with both its future course and possible global repercussion uncertainty is extremely high. If the Russian-Ukrainian country continues to have lasting impact on value chains within the automotive sector and if the disputes were to result in a significant loss in revenue contributions, it would be impossible to rule out further additional effects on earnings. Overall, the Management Board has come to the conclusion that its original expectations, which are also presented in the annual report, can no longer be maintained. Therefore, at this point in time, the group is not in a position to provide a well-founded, reliable forecast for the 2022 fiscal year. The Management Board will, of course, closely monitor further developments and provide an outlook as soon as the general political and the economic situation allows that. Finally, I will come to events that are important for you. Well, today, we are -- at March 29, we have this call. We are going to have our Q1 figures on May 5, 2022. I invite all of you to join us at our virtual Annual General Meeting on May 19. And then, of course, we will hear it other in conference calls in August 4, Q2 figures and in November 3, Q3 figures, so that is our schedule for this year, and I hope that we will be able maybe at the Annual General Meeting or the latest at the Q2 figures in August to give you an outlook because things then have straightened out, and we see things are clearer. Well, having said this, ladies and gentlemen, thank you for your attention. This is the end of our presentation. And as always, Mr. Jessulat and myself are more than happy to answer your questions.

[Operator Instructions] And the first question is from Akshat Kacker, JPMorgan.

Akshat from JPMorgan. I have 3 questions, please. The first one on raw materials. As you clearly highlighted, we are seeing broad-based and high inflation across steel, aluminum and plastics. On current spot rates, can you tell us what kind of gross impact do you expect on the automotive business in 2022? And how much of this can be passed on to OEM fees? Can you just elaborate how are your discussions going on with OEMs and the price recovery? The second question is on the ramp-up of CATL cell contacting systems? Can you please tell us if the ramp-up is on track for the second half of the year? And if there is any progress that you have made in winning orders globally or with more OEMs and cell suppliers. The third one is on price-downs on shielding technology. Any update on this, please? Is the discussion with OEMs getting better? Or are the price-down demands getting more aggressive for the division? I'll follow up with the others later?

Yes. Thank you for your question. On the raw material side, is that limiting growth, per se, in line with availability of supplies? Generally speaking, the expectation is that we will revise what's been put out for 2022 downwards. Is this going to be so significant that it's going to be below previous years? We don't think so at this point, but it all will have a limiting factor. Of course, we have to pass on these higher prices, inflationary topics to our customers, and we are prepared to do so, and we are in the middle of that. Expectation is that, from an industry perspective, that this has to be done as the repricing cycle sets in also for vehicles in the market, which you can clearly see. Okay, on the second point on the cell contacting system, we are on track for ramp-up. In the second half of the year, there is small changes, not significant changes, and it's still a challenge to manage the ramp-up here, and we need to report in the coming quarters as to if there is changes or not. But so far, I can confirm that on the cell contacting system.

Yes. Let me say something to our business unit shielding technology. Whenever a contract expires, of course, we increase prices. We have, of course, also ongoing contracts where it's pretty hard to increase the prices. We are in discussions with the customer, but we are also in the process of restructuring this business. You probably might have read from a press release from us or also in newspapers that we are closing down the production site, Langenzenn, which is close to Nürnberg, which is only shielding technology. So that, of course, will give us quite a better structure in this business. That does not mean that all the problems are resolved with this action, but we are strongly working on that, and we see an improvement in the years to come here with regard to prices and also with regard to the setup of the business unit with this action in Langenzenn.

If I could just follow up on the first question to Mr. Jessulat, please. I know it is very tricky at this at this stage and the prices are very volatile, but do you have some kind of sensitivity in terms of the growth impact that you could see from raw material inflation in 2022, please?

No, no. Because when you look at some of the materials, when you look at, for example, nickel, the LME has suspended trading on nickel based on some disruptions there. If we look at aluminum and also on other items, it is not clear where we are headed. And in particular, there is little knowledge in regard to how sanctions towards Russia really work in terms of global supplies when the war is going to be ending and so forth. So it's really not a forecast that I can put out now, and I think very few, if anybody can do that. But no, I cannot based on that uncertain it is to higher would not want to pull out the number.

If you can give us an estimation how alloy surcharges that are traded on the London Metal Exchange are going to develop until the end of the year, then we probably could make a calculation. But I'm pretty sure that you cannot do that.

The next question is from Christoph Laskawi, Deutsche Bank.

Well, it's a bit of a follow-up, more or less, on supply chain. Did you have as the result of the war to change your sourcing strategy for certain input factors? Or are your supply chains essentially unchanged, just a bit more volatile? And if you would have to change the strategy and sourcing, is there a risk that you could run into a shortage of one or the other material as the first block? And then the second point will be on outperformance. Typically not a problem that Elring had. It's also more a hypothetical question, to be fair, because, in the guidance, which you have suspended you pointed towards growing in line with the market. Is that just -- was it just a conservative approach in the end because you have a high base last year and outperformed quite strongly, or is there in the medium to longer term a new assessment of what you can see as growth simply because you will see some fading ice business, and you're in the ramp-up of the new technologies, which could level out more in line -- or less in line with production?

Well, let me start with the first question. We -- as I said in the presentation, we are only affected indirectly. We have basically no suppliers, or we have no suppliers in Ukraine that supply it to us. But we have customers in Ukraine. That is aftermarket customers. And it's roundabout EUR 8 million per year that in sales, what we do with the Ukrainian customers. I'm sure that this part of that will probably be transferred to a big customer in Poland or in other Eastern European countries. They always find those people that are working in the spare parts business. They are special people, and they are pretty, pretty intelligent, and they always find a way to get their parts then through other countries. But right now, we do not deliver to Ukraine to our customers there. So that is EUR 8 million but no supplier from Ukraine.

On your second question, Mr. Laskawi, if I look at the order stock, I would be optimistic, but taking into account the experience that we had in 2021 order stock relative to really the amounts of materials that were picked up in terms of finished product, I think what we have experienced in 2021 is going to be worse in 2022. Therefore, it's a pretty -- I would call it a careful approach to 2022.

The next question is from Marc Tonn, Warburg Research.

Yes, first question would be perhaps a bit on -- a bit shorter. I think the first quarter is almost behind us if you could give us some indication on how this quarter has developed from your side given the volatility we've seen with production stoppages at some of your customers, whether you may give us any kind of indication here? Second question would be on the additions to provisions you had mentioned in the EBIT bridge of EUR 30 million for the current year? I understand that a certain part of it has to do with the restructuring you have to do in Langenzenn. But perhaps there is some other additional factors in there which you could potentially highlight? And third question would be around the E-Mobility business within the Original Equipment segment. I think Q4 revenues were a bit lower than they had been in the previous 2 quarters, presumably with, let's say, project timing, which was in there. But with the cell connector contract now running into the business in the second half of this year, how should we think about, let's say, the share of revenue or, let's say, the revenues in absolute terms developing in this segment compared to the previous year? Any kind of help would be helpful there.

Yes, let me go over last question to first. E-Mobility, in fact, we had in Q4 reduced sales based on some customer impact from the problems that we have discussed, yes. That is a little bit lower. I would expect that to continue a little bit into Q1. And then that we pick up from there. In terms of the additional provisions, yes, you're right. We have a low double-digit amount for the provision for restructuring. As we have said, we have put a very low double-digit figure, additional provision for warranties based on the different accounting approach to warranties that we have done for 2021 and also will employ in 2022. And then we have also impairments on some machine spare parts, which is a mid-single-digit amount also that goes into this. If I calculate roughly those amounts, I would have ended up at a gross margin roughly 22%, I'd say. And we have to keep in mind that we had, in particular, in the second half, we had also increased burdens on material prices, yes. On your first question, the order stock is very good. This is what I mentioned before. And therefore, based on that, it's a good outlook. So far, we have not seen any big surprises to us and in regard to all the activities related to inflationary pressures and so forth, activities underway. This is as far as I would go for today, and I hope that answers your questions.

The next question is from Jürgen Pieper, Metzler Capital Markets.

Two quick questions. So the first one is, if you look at the growth last year, I mean, rest of Europe, I think is outstanding with flat car production your sales went up by 15%. So the outperformance is almost extreme. Which are the drivers here? And do they still have their effects in 2022? And secondly, it's a similar question to one of my colleagues that if you look at your margin development, you said even ex the Ukraine-Russia war, you would have a slight decline of your EBIT margin. Is it, by far, the most -- by far the strongest factor here, raw material? And maybe secondly, wage increase, thirdly, slight -- slightly lower utilization. Is that a correct picture, I mean, in quality terms? Or do you see it differently here?

Yes. On your second question, clearly, raw materials going forward. That is the single-biggest topic that we have to deal with along with some other inflationary topics. I don't know how the labor negotiation is going to be resulting with what figures this year. Anyhow, for 2022, that would be a half year maximum impact. But then, of course, we talk about gas and energy prices. This is after raw material with some distance along also with logistics costs that already have increased in 2021 significantly, yes. And we see that all of those increases that we have seen already in 2021 on the input material and input side that we could absorb a lot of it based on the achievements that we have done within the efficiency program. But this is, of course, not an endless topic. If we talk about utilization, then it's compared to all the other items that I mentioned is low.

Let me say something to the wage increase. If that happens, then it happens in September. The negotiations with IG Metall, they start in September. The current contract can be terminated September 1. I think we are right now in -- also with regard to that in a very, very uncertain situation. And I think that, as of today, if things do not change, not really change quite a lot, I don't think that we're going to have normal negotiation round with IG Metall as the employer association because the situation is really so volatile, and it's really so uncertain that it probably would be really, really difficult for a lot of companies, smaller and medium-sized companies to take with the material price increase, with the energy price increase with all kind of other things that are happening in addition, an increase in wages, and this especially on this very high level that we have already in our industry. If you tell a sales clerk or a nurse in a hospital or a lot of other people in Germany, what, let's say, the average wage in the metal industry in Germany is, yes, they probably wouldn't believe it.

Yes. On the European outperformance, of course, there is aftermarket had a insignificant increase, Engineered Plastics as well but also the other business units. So it was, I think, a combination of a strong demand for particular products on the one side and then, of course, the general recovery on the other side. Therefore 2022, I can only repeat what I said when we look at the order stock situation, it's good, and it suggests that, from a top line perspective, we could have a good year. But still, the behavior of our customers here and the overall environment, it's just too hard to say.

And the next question is from Frank Biller, LBBW.

Thank you for taking my question. Actually, it's 2. The one is on working capital. With this a lot of uncertainties right now, are you expecting a higher working capital increase here? And this leads to a debt position, of course. This 1.7 is a quite good position here in the year 2021. Are you expecting here an increase of the net debt to EBITDA position. And following on that, given a good debt position in your country right now, what is your dividend policy now EUR 0.15 for the last fiscal year? Do you have a ratio target? Or what is your dividend policy here for the next years?

Working capital we are dealing, in fact, with some momentum here in terms of an increase in inventory. I would expect that to persist at least into the first half of 2022. We are fighting it. Yes, we are trying to counter it with all the tools and with the knowledge that we have applied also during the efficiency program. Yes, I would expect a little bit of higher working capital and a higher debt level to some extent, nothing critical, I would say, because we have taken some actions, of course, in regard to the material prices, we increased intentionally material in some areas in order to stay within 2021 pricing and those things. And we'll work this off again going forward, but it will have -- I would use a word limited impact on those financial figures.

With regard to dividend policy, we don't really have one right now, to be honest. I explained all the uncertainties that we have in 2022. So let's wait and see what will be the result at the end of the year. And then we think about what we do with regard to a dividend for 2022. For 2021, we thought that the result is rather good. So that's why we thought that we have to -- that the shareholders should participate on that result. And this is always dependent on the earnings per share that we achieved, and that is quite uncertain today what is going to happen in 2022. That's why we cannot make any comments on that.

And we have a follow-up question from Akshat Kacker, JPMorgan.

Three follow-ups, please. The first one on employee profit sharing. With the suspension of the dividend back in 2019, you had also canceled the employee profit sharing program. Should we expect this to resume in 2022 along with the dividend? That's the first one. The second one is I want to clarify what I heard from you on the first quarter. I think what you said was despite the high impact from cost inflation and an overall difficult operating environment, we are pretty optimistic of how the first quarter has panned out, both in terms of top line as well as margin. Is that a correct summary? And the third one is on CapEx for 2022. If you could just give us some broad indication of how do you see CapEx developing for the full year?

Let me start with the first question. Yes, we are going to pay a premium for our employees because we have to stay in the logic that we had in the past. We always -- when we paid a dividend, we said the people that invest their capital in the company, they get a dividend. And people that invest their human capital in the company, they also get then a premium. And this always follows the dividend. So that, of course, it's also much lower than it was in 2019 -- on 2018, but we will pay a premium to the -- to our employees.

On your second question. No, I would not comment more on that. What I said was the order stock situation is very solid. But I also said that we have seen some customer behavior that is giving us some uncertainty as to how much is really being shipped at the end of the day, and let's don't forget that we see still some momentum here in terms of pricing from the input side. So no, I wouldn't be too optimistic, but I cannot comment anymore on that. On the CapEx, yes, we will have continued focus on CapEx here for 2022. There is, of course, the focus right now on E-Mobility investments, and we have to think going forward how we go into this E-Mobility cycle in terms of our investment strategy. That is very clear, yes? But I would hold back this year on the material assets here in terms of CapEx, and it's going to be staying well within the double-digit demand, I think.

And there are currently no further questions. [Operator Instructions] And we haven't received any further questions at this point. I'll hand back to the speakers for closing remarks.

Okay. Thank you very much. Thank you for your questions. Thank you for your attention. And we are looking forward talking to you in May with our Q1 figures, yes. So thank you very much. This concludes this call. And all the best. Stay healthy. Stay safe. We wish you all the best, and looking forward talking to you in May. Thank you very much. Bye-bye.

Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect now.