ElringKlinger AG ($ZIL2)

Ladies and gentlemen, welcome to the ElringKlinger AG Q1 2026 Earnings Conference Call. I'm Vicki, the Chorus Call operator. [Operator Instructions] At this time, it's my pleasure to hand over to Thomas Jessulat, CEO. Please go ahead.

Yes, ladies and gentlemen, I welcome you to our earnings call on the first quarter of 2026. Today, Isabelle 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. In parallel, 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 uncertainty 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 or partially rolled back in the U.S. China continues to act as the global pacesetter, driven by strong local ecosystems, technology leadership and customer proximity. Against this backdrop, ElringKlinger is well positioned. Our global footprint enables localized production close to customers and supports further optimization of supply contract. At the same time, we continue to strengthen our profile supported by a solid position in established markets and growing order 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 SHAPE30. Starting with growth. Our E-Mobility business shows strong momentum. Sales increased by 42% year-on-year from EUR 27 million in Q1 2025 to EUR 38 million 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 EUR 16 million compared with minus EUR 15 million in the prior year quarter. Importantly, this development is fully aligned with our road map, 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 EUR 50 million in cost savings and ramp-up contributions, improving efficiency and contribution to margin by ramping up the major orders are crucial levers for reaching our midterm profitability targets. Overall, these figures clearly demonstrate that SHAPE30 is progressing as planned. Turning to the next slide. We illustrate how ElringKlinger is well positioned for changing market landscape. At group level, we're actively shaping our portfolio and sharpening 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 our employees to perform at their best. The key element in this context is our new organizational structure, SHAPE2EMPOWER. This structure is fully aligned with our strategy and is designed to strengthen accountability, accelerate decision-making and enhance customer proximity across the group. SHAPE2EMPOWER builds on clear and consistent principles for action. Roles and responsibilities are clearly defined, interfaces in the organization simplified and management structure standardized globally. The organization is fully aligned with SHAPE30 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, ElringKlinger 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, Isabelle.

Thank you, Thomas. Hello, and good afternoon from me as well. Starting with sales and the organic revenue on Slide number 8. In a challenging market environment, ElringKlinger generated revenue of EUR 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 effects this quarter. In the prior year quarter, the U.K. subsidiary that has been divested effective November 30, 2025, had contributed EUR 3.1 million, with the corresponding reference value for the previous amounting to EUR 420 million. Additionally, revenue was diluted by currency effects equivalent to EUR 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 company remains fully on track to meet its full 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, ElringKlinger's core market recorded only a modest decrease of 1%, excluding Russia, and Germany declined by 1.6%. Against this backdrop, ElringKlinger 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 EUR 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 OE segment, E-Mobility generated sales of EUR 38 million in the first quarter of 2026. The ramp-up phase of large-scale series orders for cell contacting systems is further progressing. Compared to the previous year's first quarter, revenues increased by 42%, highlighting the business unit strategic importance for the group's transformation. The aftermarket segment continued its strong performance, increasing sales from EUR 102 million in Q1 2025 to EUR 110 million in the first quarter of 2026. In addition, the Engineered Plastics business was able to slightly increase revenue in the first quarter of 2026, rising from EUR 39 million to EUR 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 EUR 59 million compared to EUR 42 million in the last year's first quarter. Including one-off items, reported EBITDA stood at EUR 58 million. The increase in adjusted EBITDA was driven by compensation received for an asset that was depreciated at the same time. In Q1, adjusted EBIT reached EUR 29 million, corresponding to a margin of 6.8%, which is in line with our full year target guidance of 6% to 7% of sales. Adjustments totaling an amount of less than EUR 1 million were related to exceptional items from the STREAMLINE program. Reported EBIT amounted to EUR 28 million, corresponding to a margin of 6.6%. This is a noticeable increase to last year's figure, which stood at EUR 20 million. Both the STREAMLINE program and the SHAPE30 measures aimed at annual savings of EUR 50 million in total. Around EUR 10 million of these savings are realized in Q1. The full impact of these measures are expected for 2027. The adjusted group EBIT of EUR 29 million already includes the adjusted EBIT of the E-Mobility business unit, which came in at minus EUR 60 million compared to minus EUR 50 million in prior year's quarter. The planned improvement here will be realized in the upcoming quarters according to the ramp-up. 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 refer to an EBIT improvement of EUR 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 a better earnings. These improvements have been partly compensated by tariffs totaling EUR 2 million and ramp-up costs for the large skills orders of almost EUR 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 EUR 25 million to EUR 22 million. ElringKlinger's net working capital stood at EUR 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 EUR 21 million and a CapEx ratio of 5%. This figure is fully in line with the full year guidance, which calls for a ratio of 4% to 6% of sales. In the first quarter of 2026, operating free cash flow was in a negative territory at minus EUR 109 million. This development was driven by a higher net working capital requirement due to the ramp-up of the large-scale orders and in addition, cash effective restructuring expenses of around EUR 20 million related to the STREAMLINE program. Overall, the cash flow development followed largely the same seasonal pattern as last year, but still showing a slightly year-on-year improvement. Net debt stood at EUR 430 million, corresponding to an adjusted net debt-to-EBITDA ratio of 2.1, which is stable compared to prior year's quarter. And last but not least, group equity totaled EUR 686 million by the end of the first quarter, slightly above the EUR 666 million 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 EUR 280 million. When comparing this to the prior year's figure, we have to consider the sales contribution of EUR 3 million from the divested entity in the U.K. The adjusted segment EBIT margin stood at 0.9%, an 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 EUR 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 Engineered Plastics segment demonstrated a robust performance in the first quarter of 2026, reported by a wide and diversified industry footprint. The segment recorded sales of EUR 40 million compared to EUR 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 SHAPE30 group strategy, which continues to serve as the overarching strategic framework guiding our decision-making and positioning ElringKlinger for the long-term success. We are confident that SHAPE30 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 balance sheet strength. I will now turn the floor over to Thomas to provide concluding remarks on the market environment and the outlook.

Yes. Thank you, Isabelle. I 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 in demand following the post-pandemic recovery phase. In the 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 situation 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, underscoring 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. Taken as a whole, our performance and our short and midterm ambitions demonstrate that we're on the right path with our SHAPE30 strategy. ElringKlinger'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 12, 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. But having said all this, we're now ready to answer your questions. Thank you.

[Operator Instructions] The first question is from Michael Punzet, DZ Bank.

I have two question. The first one is on your E-Mobility business. When we listen to BMW, they are very positive – they make very positive statements on the demand for the iX3, the first car of the Neue Klasse. My question is now, do you see any rise in call-offs compared with the originally planned? And the second one is on your Aftermarket business. We saw a very strong margin development in Q1 after, I would say, a slowdown in former quarters. So is that -- 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?

Yes. Thank you for your question. To your first question, you referred to one of our customers. 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 -- we see across the board pretty ambitious run-ups. 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 are 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. Punzet, I'll take your second question on the Aftermarket. So yes, we expect growth to continue during the year, having said -- with also a strong margins. Having said that, we do see some impact from the war in Asia. So we have to see how this will develop over the coming months and coming period. But in principle, yes, strong growth still expected also maintaining profitability.

Okay. 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 E-Mobility side at this point in time with a strong ramp-up?

No. I mean we have our commitments in regard to the quantities. You know that from a 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 at 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 was the reason for my question.

Yes. 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.

[Operator Instructions] The next question is from Tobias Willelms, LBBW.

First of all, congrats on the strong quarter. And I have three questions. My first question would be about ElringKlinger confirms the full year guidance despite the current difficult market situation consisting out of tariffs, war, and a general decline in the production rate of light vehicles. From my understanding, what are the core criteria for the strong performance at ElringKlinger when it comes to the resistance of the general market downturn? And also a little follow-up here and there. And is Q1 more of 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 you 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 EUR 9 million compared to EUR 3 million from the previous quarter. Just for my understanding here, because I didn't find an explanation in your concerned 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 E-Mobility production rate should be increased in the future, right? Or is the production already unauthorized in the current stage of the production capacity at ElringKlinger?

Yes. Thank you for your questions, first of all. First question, in regard to the confirmation of the guidance, there is a lot of activity. We have the target to improve the cost base by EUR 50 million. Part of that is personnel costs, which we have done through STREAMLINE last year, and that has given us a lower cost base for this year in regard to personnel cost. So what you see here in terms of the improvement from last year to this year, it's really mostly, it's around EUR 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 EUR 50 million in 2026. But to a large extent, we should be able to. And with the EUR 10 million that we have here for Q1, the expectation is that we are going to be having this as a run rate 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, there is to some extent, and I mentioned in the last call, I mentioned a low to mid-single-digit amount in million euros 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. On the taxes. The Q1 tax rate here 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% for the group. 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 tax level. We are not there yet. Why is that? Because there are still some loss-making activities here in the group that we -- as part of the SHAPE30 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?

Okay. And then thank you for your question on CapEx. So for this year, we started with a constraint on our CapEx. So we try, and we will respect our guidance on CapEx. We have a huge spend in the last two years to be able to ramp up in our E-Mobility business. That's now done, and we are confident that in the coming two years, we will be able to hold our CapEx targets as set in our guidance, and we don't need additional CapEx to fulfill our ambitions.

And if the -- when I'm allowed to ask a follow-up question. And is the E-Mobility production underutilized for now? Or what is still the kind of state when it comes to productions?

Yes. Right now, we are not at full utilization. This is going to be expected in 2027 and 2008. And therefore, for 2008, we expect a really breakeven situation here for the full year for E-Mobility. But right now, there's different projects in the run-up phase, and there's different phases that we have right now in the group. And typically, of course, there's a low utilization in both step-by-step, the run-up in terms of sales volume, and also in terms of contribution margin, of course helps to improve the EBIT situation that we want to step-by-step improve along with the run-up of those projects.

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

The next question a follow-up from Mr. Michael Punzet, DZ Bank.

I 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 EUR 60 million loss is it only coming from the operational performance? Or are there any kind of one-offs included in that figure?

Yes. Thanks for your question. No, this is -- from an operational perspective this is sort of the current run rate, approximately in terms of the loss-making here of E-Mobility. And then first question, I didn't get. You meant the negative effect -- sorry...

From tariffs, the U.S. tariffs. I think you mentioned something in the presentation that you have a negative effect from the U.S. 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 that. And as a compensation measure, we did increase prices last year. So that's not shown in the break-even, 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 a full-year basis in 2028. Is it fair to assume that we also might see already a break-even level on a quarterly base in 2027? Or is that too optimistic?

No, that could be. But we want to be really clear 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, then we see the one other quarter where we may break even as well. But we want to be very clear on 2028 is the target for the full year.

[Operator Instructions] At the moment, there are no more questions. I would like to turn the conference back over to Mr. Jessulat for any closing remarks. Thank you.

Yes. Finally, I would like to thank you for your interest in ElringKlinger and your participation on our call on the figures of the first three month of 2026. Next Tuesday, we will hold our Annual General Meeting in a virtual format and would appreciate your attendance. The next quarterly figures will be released on August 5. We're looking forward to talk to you then again on a personal level. Thank you, and have a good rest of the week. Thank you very much.

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