Being recorded. The presentation will be followed by a Q&A session. You can register for questions at any time by pressing star and one on your telephone. For operator assistance, please press star and zero. At this time, it's my pleasure to hand over to Thomas Jessulat, CEO. Please go ahead.
Yeah, ladies and gentlemen, hello and a good afternoon. I welcome you to our earnings call today on the third quarter of 2024. As usual, I'll provide a detailed look into the results from the third quarter. First, I will briefly highlight some key developments from the first nine months of 2024, including the transaction to divest two group companies that was signed and announced one month ago. Then I'll present and discuss the financial figures of the third quarter and close with some comments on the remainder of fiscal year 2024. At the end, as usual, you have the opportunity to ask questions, and I am pleased to answer them. To start with, implementing our transformation strategy SHAPE30 is our focus. After publishing the strategy earlier this year, we have taken significant steps forward in transforming the EK Group further, and more is on the way.
One of these steps is the divestment of two group companies in order to focus our product portfolio. I will comment on the transaction and its financial implications in a moment. In fuel cell technology, our joint venture EKPO unveiled the new NM20 stack module at the IAA Transportation. The NM20 is EKPO's most powerful fuel cell module yet, delivering 400 kW with a high level of efficiency. The stack's power density has been significantly increased compared to the previous stack generations. This technology platform is being supported by the Federal Ministry for Digital and Transport, as well as the Ministry for the Environment, Climate, and Energy Sector of the State of Baden-Württemberg within the first wave of the IPCEI hydrogen program.
In our battery business, we are driving forward the series production of cell contacting systems, and that is visible in our nine-month e-mobility business unit revenue, which has more than doubled compared to the first nine months of 2023. We're also expanding the global footprint of the battery business by establishing a new battery center in the United States. Precisely, it is located in Easley, South Carolina. According to the plan, we'll begin to manufacture in mid-2025. 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're expanding the current production area and increasing capacity for production lines and logistics. At the same time, we have a strong footprint in the classical business.
It provides the relevant free cash flow and therefore works as our backbone of our transformation. Our strong market position in the ICE business helps us in case of smooth transition to new mobility. Last but not least, on the financials, with an Adjusted EBIT margin of 5.1% in the first nine months, we're well on track to deliver on the margin guidance for 2024. Besides very good order intake, sales revenues in organic terms were marginally up in Q3 despite weak global light vehicle production, which contracted by 4.6% in the third quarter. ElringKlinger's outperformance was mainly thanks to a strong aftermarket business and the ramp-up in series production and battery technology. Yeah, ladies and gentlemen, as part of SHAPE30, our mission is to shape and to focus the EK Group along five success factors. 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. It is part of this success factor to analyze the individual product groups not only from a technological but also from a market perspective and derive strategic conclusions for our localized network. The success factors have one common goal in mind: to enable the group for further growth, particularly in the new technologies, and to enhance the group's profitability structure. Coming now to slide number 4, which also refers to the divestment of the two group entities. While free cash flows from the ICE business are expected to decrease over time, we expect e-mobility cash flows to rise with the OE business ramping up.
Beyond this shift towards e-mobility, the ElringKlinger product portfolio is being assessed on the basis of a comprehensive market analysis. We constantly examine our current setup, how best to meet customer requirements. As we go deeper into transformation, we implement further steps. Where we see non-performing assets, however, measures are taken in non-core areas. As you know, several steps have already been realized, the latest being the divestment of the two group entities in Switzerland and the U.S. Let me briefly elaborate on this. On slide number 5, we have summarized the key facts regarding the transaction. As we have published on October 7th, we have signed an agreement on the divestment of two ElringKlinger subsidiaries to Certina Group, a German industrial holding company. Closing and respectively deconsolidation is expected for the fourth quarter of this year.
The two subsidiaries in Buford, Georgia, in the United States, and Sevelen, Switzerland, represented around 10% of group sales in fiscal year 2023. At year-end 2023, around 650 employees worked there. These two plants mainly produce shielding products for thermal and acoustic management in vehicles. There are several financial effects related to this transaction. First, given that the subsidiaries make up around 10% of total balance sheet assets, there's some streamlining to the group's balance sheet. Second, as a result of the divestment, impairments of EUR 58.1 million were booked in the third quarter of 2024, relating to reclassification on the balance sheet according to the IFRS 5 standard. Third, in the midterm, we expect an improvement of annual group earnings by a low double-digit EUR million figure. Yeah, coming now to the financial figures of the third quarter 2024, starting with orders and sales, now on slide number 7.
Order intake in the third quarter was strong, amounting to EUR 481 million . This represents a significant increase of 28% compared to the prior year Q3, or + 37% when assuming stable exchange rates. The positive development was primarily driven by projects in the e-mobility business unit. In the first nine months, order intake was up as well by EUR 110 million , or 9%. As a result, order backlog at September 30th, 2024, was sequentially up and also higher than one year ago. Compared to September 30th, 2023, order backlog was up 0.8% in nominal terms, or 3.9% adjusted for currency effects. Sales revenues in the third quarter of 2024 grew by 0.1% organically to a figure of EUR 441 million . The solid development could be achieved of challenging market conditions, especially in the e-mobility market overall, as well as the commercial vehicle sector.
According to S&P Global Mobility, the global light vehicle production in Q3 contracted by 4.6% compared to the previous year. Coming to the sales mix on slide number 8, ElringKlinger has a balanced distribution of sales among the business units, while the original equipment segment makes up 73% of group total sales of EUR 323 million . In the third quarter, OE revenue decreased year-over-year, reflecting the challenging market conditions mentioned before. Within the OE segment, the battery technology sales increased significantly due to contributions from a series production project ramped up at the Dettingen/Erms site. The sales of the e-mobility business unit increased from around EUR 14 million to around EUR 35 million in the third quarter. From January to September, e-mobility sales more than doubled on the prior year figure and amounted to EUR 64.3 million .
In addition, the aftermarket segment once again performed strongly and increased sales by around 14% to EUR 84.9 million between July and September. In regional terms, Germany and the rest of Europe recorded growth despite a soft market, while revenues in the Asia-Pacific and North America regions contracted year-over-year. Besides currency effects, changes in call-off volumes relating to individual series production projects for EVs and a sluggish commercial vehicle market were main drivers for this development. Coming to slide number 9, EBITDA improved by 7.3% in Q3 compared to the prior year figure and amounted to EUR 51.2 million. Adjusted EBIT stood at EUR 23 million in the third quarter, resulting in a margin of 5.2%, slightly better than in the previous year.
Compared to the prior year Q3, on the one hand, the lower contribution margins due to the revenue decrease contrasted with lower expenses for certain key raw materials, as well as for energy and logistics costs on the other hand. The first nine months, Adjusted EBIT stood at EUR 69.5 million with a margin of 5.1%. In terms of adjustments, differences between reported and Adjusted EBIT comprised the non- cash impairments related to the transaction, as well as minor restructuring expenses. Mainly because of these non- cash impairments, earnings attributable to ElringKlinger shareholders were significantly below the prior year figure. As a result, earnings per share in Q3 2024 were in the negative as well. The main focus of our CapEx continued to be on the e-mobility business unit in the third quarter of 2024.
Precisely, CapEx were directed at specific customer projects such as series production ramp-ups for battery technology at the Neuffen plant in Germany. year-over-year, CapEx were slightly up on the prior year figure and amounted to EUR 18.6 million in Q3. Therefore, the investment ratio, CapEx in relation to group sales, increased from 3.7% - 4.2%. Net working capital amounted to EUR 503 million, as presented on this slide. Net working capital, including the reclassified items, was slightly up on the prior year figure, and this is due to a number of different factors, like a high revenue in September, ramp-up in the prototype production in battery technology, and expansion in business unit business in aftermarket. Operating free cash flow in the third quarter fell short of the prior year figure, mainly due to higher funding requirements for net working capital, with the drivers for that as just mentioned.
Regarding financial leverage, the net financial debt level remains on a low level with a very solid net debt to EBITDA ratio of 1.7 as of September 30th, 2024. For comparability reasons, financial liabilities are presented, including the reclassified items here, and amounted to EUR 350 million by the end of Q3 2024. Coming to the segment performance on slide 11, overall, the OE segment generated sales of EUR 323 million in the third quarter of 2024. Within this segment, we had a strong sales development in the e-mobility business unit, while other business units saw less revenues than in the prior year Q3. This can be attributed to the mentioned impact of changes in customer call-offs related to electric vehicles and the soft commercial vehicle sector. The Adjusted EBIT margin of the OE segment continues to contribute roughly neutral to group earnings.
The aftermarket segment continues to successfully implement its growth strategy. Sales amounted to EUR 84.9 million in Q3. Adjusted EBIT amounted to EUR 19.1 million, corresponding to a margin of 22.5%. Revenue of the Engineered Plastics segment stood at EUR 32.8 million in the third quarter. Regarding segment earnings, higher staff costs associated with the transformation contrasted with an improved material cost ratio in Q3 due to a marginal year-on-year decline in prices for high-performance plastics. Adjusted segment EBIT was EUR 9.7 million, which corresponds to a margin of 11.3%. Let me now provide some remarks on markets and the short remainder of fiscal year 2024. Coming to slide number 13, there is a mixed picture for the projections of the main automotive markets. According to S&P Global Mobility, the final quarter of 2024 is expected to be globally weak, especially in Europe.
In the latest release from S&P from October 2024, global light vehicle production is expected to contract by 2.2% in 2024 and will grow eventually by 1.3% in 2025. Compared to the July release of S&P, the projections are now more cautious for 2025 and will have to keep both eyes on the market development over the next couple of months. Coming now to slide number 14, the outlook. Generally speaking, the economic and industry environment remain very challenging. In addition to increasing geopolitical tensions, including trade policies like customs measures, this is also attributable to macro developments such as sluggish economic growth, as well as the mentioned industry-specific factors such as soft demand for EVs and weak light vehicle production.
In the context of the transaction mentioned before, we have reassessed the outlook for 2024, and we anticipate revenue to be slightly below the previous year's figure in organic terms and expect operating free cash flow to be within positive territory. In the light of the known cash impairments, ROCE is now expected significantly below prior year's level, which stood at 5.6%. At the same time, we have maintained the projection of an Adjusted EBIT margin of around 5% of group revenue for 2024, and we are well on track to deliver on that guidance. Regarding the other indicators, the 2024 outlook is confirmed as well. That all said, I'm happy now to take your questions. Thank you much.
We'll now begin the question-and-answer session. Anyone who wishes to ask a question may press star and one on their telephone. You will hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the queue, you may press star and two. Participants are requested to only use headsets while asking a question. Anyone who has a question may press star and one at this time. The first question comes from the line of Marc-René Tonn from Warburg Research. Please go ahead.
Yes, good afternoon, and thank you for taking my question. First one would be on e-mobility and let's say the revenue run rate. We should expect there, I think, in the third quarter, quite a nice sequential increase to EUR 35 million from the two previous quarters. Is it, let's say, around EUR 35 million, let's say, also the level we should look forward to until the mid of next year before the contract in the U.S. is ramping up?
Perhaps you can give us some indication of what you would expect, let's say, perhaps for e-mobility revenues next year, if that's possible, or what we should expect, let's say, if all these contracts you have, let's say, in your books have ramped up, what this may mean in terms of revenue. Second question also within the OE segment, I think, I don't know whether I got it correctly, I think lightweighting in industrial technology, there's, let's say, a rather steep decrease in revenues. Whether this is, let's say, solely due to weaker demand from the commercial vehicle industry or whether there are any other contracts we should be aware of that may have been, let's say, run out, or whether this is just, let's say, more a cyclical issue of lower demand.
Second question, the other question would be when looking at the minorities, and I think it's always, let's say, a bit difficult, but let's say getting a feeling on, let's say, the ramp-up cost you may face still within EKPO. I think the second quarter and also the third quarter, there was, let's say, just limited elimination within the eliminations line. Does it imply, let's say, a more stable earnings situation, or is it, let's say, more, let's say, another kind of, let's say, accounting effect? And what would you expect for next year in terms of ramp-up charges, e-mobility in total, and then EKPO in specific when compared to this year, let's say, incremental headwind, incremental tailwind? That would be very helpful. Thank you.
Yeah, thank you for your question. What we see here in the e-mobility ramp-up is, in fact, a cell contacting system here in Neuffen that is ramping up right now. On an annualized basis, I would expect something in the order of a mid to high single-digit amount on a monthly basis, so that would be something that would be somewhere between, roughly speaking, EUR 60-80 million , again, on an annualized basis going into next year, so that gives us some more contribution in the same time as, of course, we are ramping up other battery projects as well, so there is a little bit of an overlap situation here, but generally speaking, of course, we have more contribution coming in now into the battery business.
That is, to some extent, compensated by efforts here to ramp up, not all, but also in particular our new location here in South Carolina. On the OE segment, lightweighting is a little bit of product and platform mix, let's say. What is in particular here playing a role? That is applications that we have lightweighting applications for e-mobility applications, yeah, because the way e-mobility we report as the business units here that are operating in e-mobility. But of course, we've got a lot of lightweighting applications here in there as well. And in the overall mix, the most dominant factor here is the lower development here in applications for electric vehicles, essentially. Yeah. Okay. Ramp-up cost at EKPO. This is something we are working hard here on improving our cost situation. There is ramp-up activity here, of course, but we try to minimize here the impact to the group.
From a sales perspective, I'd imagine that we have slight improvement going into next year with an improved exposure here to startup expenses. Yeah. I hope I answered your three questions all right. Is that okay?
Thank you very much. Yeah.
The next question is from Michael Punzet from DZ Bank. Please go ahead. Sorry. The next question is from Akshat Kacker from JP Morgan. Please go ahead.
Thank you, Akshat, from JP Morgan. Three questions from my side, please. The first one on your European footprint. You have mentioned that you have been looking at your operations and cost optimization, and we have now seen increased announcements from companies in Europe looking to take cost action. Could you just give us more details in terms of what we should be mindful of when thinking of ElringKlinger in the next 2-3 years? How should we be thinking about cost restructuring over and above what you have done with your shielding technology business? The second question is on the auto OE business.
When I combine your comments on higher organic growth going into next year, probably slowing input cost inflation, but on the other hand, still facing high labor inflation in many parts of the world, how are you thinking about the margin development for that segment going into 2025, please? And the last one is a modeling question. Could you just help me reconcile the working capital movement between the cash flow statement and the balance sheet, specifically when it comes to the change in inventories and accounts receivable? Because when I compare both those statements, it looks like there is a change in other assets that I cannot really explain. So some help there would be very helpful. Thank you.
Yeah. Thanks for your question. Number one, when we look at the footprint, this was your first question, we look at all different strategic factors here at ElringKlinger. We look at product portfolio. We look at the asset performance in the group, and we, of course, look at the footprint in terms of size and, let's say, fit of locations that we have. When we look forward, and this was your question, two to three years into where we will be arriving, I think we will, for one, we will arrive at a group with a simplified structure. Number two, we will have a group that will have a different margin profile relative to today because of the actions we are going to be taking, and three, we are going to be improving on the balance sheet structure in order to achieve a better return on capital.
Yeah, so those are the things that we do within our program, SHAPE30, and we'll focus on that very much.
And, like you say, it is not something that will end with the activity this year, but nevertheless, we'll be taking some more significant steps in the short term. But going into 2025, expectation is we'll work more in 2025 on the optimization, and that will bring us in a 2-3 years time frame, and this is our target, to what we give out today as our midterm target in terms of profitability, for one, and also return on capital. Yeah. In regard to your question to cost inflation, in particular labor inflation, this is, in fact, a matter. We have been, and we are still in a period where there is a low market growth or no market growth, and there is more like a flatter development of our top line. So in that regard, when we talk about repricing through new projects, this has been a matter.
Going forward, we see also a little bit more projects on ICE applications, which gives us a good opportunity here to also do some repricing on projects, and overall, further growth, in particular on e-mobility, should give us a better profile in terms of our cost base, which we do not want to expand very much with a higher top line level associated with the contribution margins. Yeah, so on the working capital, let me say, on a very general basis, we have, of course, some impact from the transaction here where we need to be detailing a little bit more with our Q4 figures on a like-for-like basis. Generally, I would expect a little bit more improvement in Q4 relating to working capital, and when you refer to individual positions, then we see in particular developments here.
When you look, for example, at inventory, we see increases in regard to positions in aftermarket based on the growth that we have here in this business unit. But on the other side, we have also much more activity now in regard to new equipment that comes in and tools in particular that go into inventory as part of working capital. Yeah. And what you refer to, I think, is some specific items that are growth-related that you find here in this position. Yeah. So that is basically my answering to your three questions. Yeah. Is that answered by that?
Yes. Perfect. Thank you so much.
Okay. Thank you.
The next question is from Michael Punzet from DZ Bank. Please go ahead. Michael Punzet, can you hear me?
Yes. Okay. I have three questions. First one is on e-mobility. Can you give us any indication what was the profitability level in Q3 and remind us when you do expect the break-even for the business? And the second one is on the deconsolidation of your two entities. Will that be relevant for the full fourth quarter or only for one or two months? Maybe you can give us an indication what kind of revenues are missing and what will be the impact on the profitability or EBIT margin. That's all right now.
Yeah. Thanks for your question here. When we look at e-mobility, then we, like I said, we see here a revenue cycle coming up, in particular in the battery business. If I look at e-mobility in the Q3 profitability, it is roughly in line with what we have seen before. Yeah. Why is that? On the one side, we've got some more contribution coming in.
On the other side, we have some more expenses here for our startup projects, and therefore, it's a comparable profitability. When we look at it at a full year, then we have in the mid double-digit startup losses here in e-mobility, essentially, and break-even. When we look at that, there is going to be a continued production here on what we have seen ramping up now going into 2025 and 2026. We'll see more ramp-up starting in 2026. So when we look forward, a real break-even situation in the battery, I would expect that we are going to be there in the 2027 roughly plus minus one year area in regard to that. Okay. In terms of the sale of two group entities here, we expect closing to the end of November, so that one month at the end would be missing.
It's a December, would be missing in terms of sales and results if this is following this plan that we have. So one month as expectation, but things also may take a little bit longer, possible.
Okay. Maybe I'll follow up on your aftermarket business. Can you give us any kind of guidance or any idea what will be a sustainable margin level in coming years? Because I would expect that the margin level we currently see is not really sustainable.
Yeah. From a margin level, I would expect an amount that would be beyond 20%, yeah, from a perspective of, on the one side, that we had, of course, a ramp-up that's been going on. And on the other side, we'll see a higher revenue level. And the higher revenue level we execute through roughly the same organization. So there may be some other developments here in the market on the one side, but on the other side, there is, of course, the certain operating leverage that I would expect. So I think it's going to be staying above 20% in a more or less robust way.
Yeah. Okay. Thank you.
As a reminder, if you wish to register for a question, please press star one on your telephone. The next question is from Tobias Willems from LBBW. Please go ahead. Your line is open. Please go ahead.
Hello. Can you hear me now?
Yes.
Okay. Yeah. Tobias Willems, LBBW. I have one question. In terms of the SHAPE30 strategy, you explained to us the reasons behind the divestment for the two U.S. plants. And are there any further investments or deinvestments planned in the future, especially in the e-mobility or battery sector? Thank you for taking my question.
Yeah. I would not exclude that there is going to be more divestments. Yeah. Like I said, we are looking at non-performing assets in the group. We are looking closely at the product portfolio. And I think we are taking some significant step now, but we'll continue in this work to shape the group. And I would not exclude that there's going to be more deconsolidations in the future. But nevertheless, there's not a decision taken relative to very big portions of the business. Yeah. We are looking currently more at some functional areas, some specific areas. But again, I would not exclude that we will see more divestments in the future eventually. But I cannot comment on anything that's not been decided yet. So please have that in mind. Yeah.
Okay. Thank you.
Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Mr. Jessulat for any closing remarks.
Yeah. Thank you all for attending today's call. I wish you a good rest of the year and, of course, happy holidays that are coming up, and I look forward to talk to you again in 2025. Best wishes for the best to you. Thank you very much.
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