Wonderful, good afternoon, ladies and gentlemen. Welcome to the Q2 2024 Earnings Call. My name is Francie, the call's call operator. I would like to remind you that all participants are in listen-only mode, and the conference is being recorded. The presentation will be followed by a question-and-answer session. You can register for question at any time by pressing star and one. For operator assistance, please press star and zero. At this time, it is my pleasure to hand over to Thomas Jessulat, CEO. Please go ahead, sir.
Yeah, ladies and gentlemen, I welcome you to our earnings call on the Second Quarter of 2024. Today, I will provide a detailed look into the results from the second quarter. First, I will briefly highlight some key developments from the first six months of 2024, also relating to SHAPE30, our transformation strategy. Then, I will present and discuss the financial figures of the second quarter and close with some comments on the remainder of the fiscal year 2024. At the end, as usual, you will have the opportunity to ask questions, and I'm pleased to answer them. To begin with, one highlight is definitely our new transformation strategy, SHAPE30. We published this strategy in the first half of 2024, and its implementation is currently in full swing. I'll get to that in a moment.
In the fuel cell business, our technology once more proved high performance and wide application scope. EKPO will supply fuel cell stacks for the first non-stop hydrogen flight around the world, also in aviation, but on the ground, EKPO supplies a stack for power supply unit at the Amsterdam Airport. In addition, EKPO and the Chinese FAW Group have signed a contract on the development and delivery of fuel cell stack model prototypes for being used in the next generation fuel cell vehicle of FAW's premium brand, Hongqi. We also achieved significant progress in battery technology over the past couple of months. In April, we performed a symbolic groundbreaking ceremony for the construction of the new logistics center at the Neuffen site, together with Minister-President Kretschmann, the Prime Minister of the State of Baden-Württemberg.
We are expanding the current production area by around 4,500 sq m, and we are increasing capacity in Neuffen for battery production line and logistics. As a result, Neuffen will be prepared for a large-scale production of battery components, modules, as well as systems. We further expand the battery business by establishing our new battery center in the United States. Located in Easley, South Carolina, the new facility will manufacture battery products. We plan to develop the site into a battery hub for the activities on the American market. Operations in South Carolina are scheduled to start in mid-2025. The 2024 AGM approved the dividend of EUR 0.15 with a large majority, and since May 16, Helmut Merch is the new Chairman of the Supervisory Board of ElringKlinger AG.
Last but not least, on the financials, in the first six months of 2024, the automotive market environment has not been very supportive on growth. Sales revenues in the first half came in at EUR 910 million, which is below prior level. Adjusted EBIT margin was 5% in Q2 and 5.1% in the first six months, and therefore, on track for the full year guidance. I will elaborate on the group financials just in a moment. Yeah, ladies and gentlemen, as you can see, the transformation of ElringKlinger Group is progressing well on the back of our strategy, SHAPE30. Let me briefly comment on the success factors of SHAPE30. As presented in March, the five success factors are key for our transformation and are the basis for being successful in the future. The first one is product transformation.
ElringKlinger is in the midst of transformation, and transformation is in full swing. Already today, ElringKlinger has received a significant nomination volume for known ICE applications, including nominations for products across the transformation portfolio. On the basis of a comprehensive market analysis, the ElringKlinger product portfolio is being assessed, and dependent on this and on our nominations, we constantly examine our current setup, how best to meet customer requirements. As we go deeper into transformation, we will implement further steps and measures on the way to meet our midterm targets. As you all know, steps like the termination of production at one of the German sites, as well as the discontinuation of business activities in the area of engine testing services, have already been realized. All other success factors are the management focus in terms of increasing competitiveness of the ElringKlinger Group in the future.
I come now to the financial figures of Q2 2024, starting with orders and sales on slide 5. Order intake in the second quarter of 2024 amounted to EUR 364.9 million. We see a mixed picture across the group. In summary, Europe is somewhat weaker compared to last year's period. Currency headwinds influenced the 2024 figure as well. Assuming stable exchange rates, order intake increased by 1.4%. Order backlog at June 30, 2024, which comprises customers aggregated and, as yet, unrealized short-term call-offs, stood at EUR 1.25 billion. Like I have stated this year, the figure was down on the prior year due to product mix and project call-offs for electric vehicles, and also in the commercial vehicle sector.
Sales revenues saw a year-on-year decline by 5.1% amid challenging market conditions. After a record Q2 performance in 2023, the group generated revenues of EUR 445 million in the second quarter of 2024. In addition to currency effects, changes in customer call-off volumes related to individual series production projects for electric vehicles and in the commercial vehicle sector impacted Q2 sales. Without currency effects, revenue was behind the prior year figure by 3.8%. Coming now to the sales mix on slide number six. The group has a balanced distribution of sales among the business units, while the Original Equipment segment makes up 74% of group sales total. In the second quarter, revenue of the originally classical business units decreased year-on-year, reflecting the challenging market conditions.
In contrast, sales of the E-Mobility business unit developed well, with project ramp-ups contributing to revenue, which stood at EUR 17.7 million in Q2, after EUR 10.9 million one year ago. Also, the Aftermarket segment developed favorably. Its growth strategy is taking further effect. Aftermarket revenue was up 12% to EUR 84.8 million, and by this, the sales mix supports group earnings. I already mentioned a challenging market environment in the key automotive regions. According to the latest data of S&P Global Mobility, light vehicle production in Europe contracted by 6.1% in the second quarter of 2024. Taking Germany and the rest of Europe together, sales were at EUR 240.1 million, almost reaching the prior year Q2 figure of EUR 240.7 million.
Adjusted for currency effects, revenue in ElringKlinger's largest geographical region were even up 1.3%. In North America, the group generated sales of EUR 113.8 million , after EUR 119.9 million one year earlier, a trend already seen in Q1, while in the Asia-Pacific region, revenue stood at EUR 65.5 million . I come now to slide number 7. Despite the decrease in revenue in Q2, EBITDA was robust and increased to EUR 49.7 million . In terms of adjusted EBIT, adjustments were minor in Q2 2024, while the previous year's Q2 included non-recurring effects totaling EUR 8.1 million , related to, among other things, the discontinuation of engine testing services and as well, the termination of the CEO's contract.
Adjusted EBIT stood at EUR 22.5 million in the second quarter, resulting in a margin of 5%. Compared to the prior year Q2, the lower contribution margins due to the decline in revenue, on the one hand, contrasted with lower expenses for certain key raw materials, as well as for energy and logistics, on the other hand. In the first half, adjusted EBIT stood at EUR 46.5 million, with a margin of 5.1%, which is well on track for achieving full-year guidance. Due to lower income tax expenses compared to 2023, the earnings attributable to ElringKlinger's shareholders increased to EUR 23.2 million in the first half.
As a result, earnings per share amounted to EUR 0.37 in the first six months of 2024, well in excess of the prior year figure of EUR 0.14. CapEx in the second quarter related to expansion and alignment of production activities to support our strategic goal of transforming ElringKlinger Group's portfolio, including investments in battery and fuel cell technology. Within net working capital, inventories slightly increased in Q2 because of ramp-ups and tooling, while receivables decreased and payables expanded. In relation to group sales, the net working capital ratio improved by 1.2 percentage points to 26.8%, which compares to 28% in Q2 2023. Operating free cash flow generally follows the same patterns as in the prior years.
In the first half of 2024 was better than the prior year figure of EUR -16.5 million and now amounted to EUR -10.3 million. This is mainly due to cash positive influence of working capital. In Q2 2024, it amounted to EUR -4.5 million, after EUR 3.7 million in the same period one year ago. Regarding the financial leverage, the net financial debt level remains on a stable footing, with less financial liabilities, net debt amounted to EUR 350.4 million as of June 30, 2024, visibly lower than the Q2 2023 figure. The net debt to EBITDA ratio was 1.7, also an improvement to the 1.9 one year earlier. Coming to segment performance on slide nine.
Overall, the OE segment generated sales of EUR 328.3 million in the second quarter of 2024. Within this segment, we continue to see overall the basis of ICE business, as well as the ongoing ramp-ups in the E-Mobility business unit, as well as the mentioned impact of changes in customer call-offs related to electric vehicles and the commercial vehicle sector. The adjusted EBIT margin of the OE segment continues to contribute roughly neutral to group earnings. The aftermarket segment successfully implemented its growth strategy and saw a further increase in revenue. Sales amounted to EUR 84.8 million in the second quarter, and adjusted EBIT amounted to EUR 20.5 million, corresponding to a margin of 24.2%.
Revenue of the Engineered Plastics segment stood at EUR 31.5 million due to, with regard to segment earnings, slightly higher personnel costs as part of the segment's transformation, contrasted with an improved material expense ratio due to a slight year-on-year decline in prices for high-performance plastics. Adjusted segment EBIT improved from EUR 2.5 million to EUR 2.7 million in Q2, which corresponds to a margin of 8.6%. Yeah, let me now provide some remarks on markets in the remainder of fiscal year 2024. There's a mixed picture for the projections of the main automotive markets. According to S&P Global Mobility, the third quarter of 2024 is expected to be globally weak, while the fourth quarter will see a sequential improvement, at least in North America and in China.
And let me add, regarding the different powertrains, the production of electric and fuel cell vehicles is expected to increase by double-digit growth rates in all three main regions in the second half of 2024, compared to the same period last year. Coming now to slide number 12, the outlook. Generally speaking, business conditions in the industry remain challenging. In addition to geopolitical tensions, including trade policies like customs barriers, this is also attributable to macro developments such as inflation and economic growth, as well as the mentioned industry-specific factors such as declining demand for EVs and the debate in Europe about lifting the bans imposed on combustion engines. We have a strong footprint in the ICE business, and our established position in ICE serves as the backbone for our ElringKlinger transformation.
On the basis of half-year figures and the expectations for the second half of 2024, we confirm the outlook for slight organic revenue growth in fiscal year 2024. Against the background of the challenging market environment, the group assumes that the new series orders for electric vehicles will ramp up and that the general forecast for LV production and commercial vehicles will not be revised significantly further. Actually, according to S&P, battery, electric, and fuel cell vehicles are expected to grow significantly at double-digit rates in H2 2024. And at the same time, positive impetus is expected from commercial vehicles, which should have a stronger year-on-year development in the second half of 2024, compared to the first six months, compared to first half of 2023.
In summary, there are risks and chances that we see for the second half of the year. This year, we expect an Adjusted EBIT margin of around 5%. Operating free cash flow for this year is expected at around 2% of group revenue, and ROACE at a value of around 6%. Regarding the other indicators, the 2024 and midterm outlook is confirmed as well. Having said this, I'm very happy to answer your questions. Thank you.
Ladies and gentlemen, at this time, we will begin the question-and-answer session. Anyone who wishes to ask a question may press star and one. If you wish to remove yourself from the question queue, you may press star and two. Anyone who has a question may press star and one at this time. One moment for the first question, please.... Our first question today is from Michael Punzet. Please go ahead with your question.
Yes, Michael Punzet. Good afternoon. I have two, or let's say three questions. The first two are on the aftermarket business. What are your expectations? How long will the outstanding margin of more than 20% last? And what is a sustainable level we should expect for the coming years? And the last one is on your mid-term guidance. Can you please quantify your mid-term target? Is that 3 years- 5 years, or that we should think about 2029, 2030, with 7%, or maybe you can elaborate a bit on that.
Yeah. Thank you for your question. The midterm is three to five years, and this is the area in which we wanna achieve here the KPIs that we have put into this forecast, yeah. From an aftermarket perspective, on the one side, there's certainly some momentum in terms of a good development here margin-wise. It's a very good situation here. We expect, going forward, higher levels of sales still. But we will also have to add capacity into, for example, logistics and in some of the overhead.
So therefore, you know, we expect a high margin in the area of what you have seen, but we will also see some fluctuation there, but on a high level basis in terms of what we expect here.
Maybe a follow-up on that. I think in one of the last calls, you said that you expect margin to go, yeah, to stabilize at this level. So do you still expect that you will achieve margins of more than 20% in coming years, or will we see a normalization, let's say, in a range of 15%-20%, which I think it's more realistic, compared with the figures some years ago?
Yeah. The expectation here, now based on operating leverage, based on further growth here, is that we are somewhere around 20%. Now, this is the expectation, but there might be step-up costs along the way, which could have an impact, you know, from a, from a, you know, short-term impact. But as we grow further, we'll see some effects here also coming from operating leverage. Yeah.
Okay, thank you.
Thank you.
Our next question is from Akshat Kacker from J.P. Morgan. Please go ahead with your question.
Good afternoon, Mr. Jessulat. Two questions, please. The first one on the E- Mobility business: Could you just remind us of your expectations on E-Mobility revenue going into the second half versus the first half of this year? And when you look at your order backlog and what Europe needs to achieve to meet its CO2 targets going into next year, how would that help your E-Mobility business going into 2025, please? The second question is kind of linked to that. How should we think about the auto OE profitability based on all the ramp-ups that you're seeing in E-Mobility, and how should that progress going into the second half as well as 2025? And sorry, I will sneak in another one. The third one is on CapEx. It did pick up sequentially in Q2 versus Q1.
Have your expectations for the full year CapEx changed in any way? Thank you so much.
Yeah, Akshat, thank you for your questions. On the first one, the expectation that we had for one particular project that we have now in the run-up here was a very low three-digit million EUR amount for the year. But we have seen delays here. We are now ramping up, but we won't see that amount. We will be a little bit lower, I guess, a little bit lower than half of that amount, yeah? But that means that going forward, for next year, expectation is that at least, you know, from that ramp up, we'll see, you know, something like a high double-digit sales figure in million EUR. That is gonna be helping us to work through the ramp-up curve.
And on the other side, of course, we are working on additional battery projects that give us also some, let's say, additional expenses along, you know, this production start. Now, so what does it mean? Now, we will see, I think, to some extent, a continuation in the battery business here, that it is negative for the foreseeable future, yeah? And for battery, you know, I said 2026 ±1. You know, this is expectation here, that we are getting closer to a break-even situation. Now, the CapEx pickup in Q2, what you have said, is related to that. That step by step, we are adding capacity here to the group, in particular on battery, but not only.
We are also, as you know, we are having an order here for bipolar plate. There is also some capacity that we are building up in the fuel cell area, huh? Those are the two key points, and we'll see more investment here directed to those projects. But I won't see any change in terms of the full year guidance that I have given, and we are gonna be the 4%-6% is something that we have said, and along the line in somewhere in that area, we'll find ourselves as well for 2024. Yeah. To your second question, now, auto OE profitability, we are working hard on an improvement here in this area, right?
This is the largest segment that we have, and in this segment, we see our fuel cell business, we see the battery business, and we see, of course, the established business. And what we do here, we work on optimization and improvements here in our existing footprint, which is an important part in terms of what we do and what we will do going forward to reach improvements here. Then we'll see some operating leverage along the line from coming out of battery, and fuel cell will continue for the foreseeable future. That means, to sum things up, my expectation is that step by step, we'll reach a better situation in terms of OE margin. But we'll have to continue to work through our plan here in order to reach that target.
Yeah, for 2025, there is, there is a detailed plan that we are following up with, yeah, and towards 2026 expectation would be that we will have a lot of our plan, finalized and completed, and, to be in a different situation compared to what you have seen in the OE segment in the past.
Thank you so much for the details. One quick follow-up. As you mentioned, as you take multiple steps to work on the auto OE profitability, as well as you have defined the SHAPE30 program, in terms of all the cost actions or cost restructuring that would imply, have you laid out any guidance in terms of the cash restructure needs in the business, please? Thank you.
No, at this point, I haven't. There is nothing that I have given in regard to that.
All right. Thank you.
Okay, thank you for your questions.
Ladies and gentlemen, for any further questions, please press star and one. It seems to be no further questions at the moment, and I will hand back to Mr. Jessulat for any closing comments.
Yeah, I would like to thank you all for listening up in our call here, and wish you all the best for the holiday season, which is upcoming. Don't forget, Q3 release will be taking place here on November 12th. Thank you very much. Best wishes to all of you. Bye-bye.
Ladies and gentlemen, the conference is now concluded, and you may disconnect. Thank you very much for participating, and have a pleasant day. Goodbye.