Ladies and gentlemen, hello, and a good afternoon, and thanks for being available on such a short notice today. I would now like to give you a summary of today's ad hoc release, also explaining the rationale behind the announced transaction and its financial implications. I will comment on the revised outlook for fiscal year 2024 as well. It was published today along with the release. As you have already seen, we published an ad hoc this morning, and let me briefly summarize the release. Today, we have signed an agreement on the divestment of two ElringKlinger subsidiaries in Buford, Georgia, the United States, and Sevelen in Switzerland. Closing is expected for Q4 of this year. The acquirer is Certina Group, a German industrial holding company.
As a result of this transaction, impairments in the mid- to high double-digit EUR million range will be booked in the third quarter of 2024 , relating to reclassification on the balance sheet, according to IFRS 5. Additionally, with today's release, the fiscal year 2024 guidance was revised. I'll comment on the new guidance at the end of this presentation as well. Let me elaborate on the strategic rationale behind the transaction. On Slide 3, you see the light vehicle production forecast by S&P Global Mobility until the year 2030 . While the demand for all-electric vehicles was subdued over the last months, and expected global light vehicle production showed itself sluggish in 2024 so far, the overall trend to electrification is intact.
S&P Global Mobility expects the share of all electric and fuel cell vehicles to rise from around 15% this year to 42% by 2030. At the same time, the share of hybrid and pure ICE vehicles taken together will decrease from 85% to around 58%. This ongoing industry transformation requires significant investments to remain competitive, especially in the heat shield business and particularly in Europe and North America. However, these CapEx would be lacking in other business areas of the ElringKlinger Group. Therefore, we assess the ElringKlinger product portfolio thoroughly. Based on market expectations, we continue to conduct thorough reviews of all our product groups to determine their potential for the future. That includes a comprehensive and integrated strategy for our sites worldwide.
As part of SHAPE30 , our mission is to shape and to focus the ElringKlinger Group along the five success vectors. The transaction announced today is ultimately part of our SHAPE30 strategy, and to be more precise, part of our success factor number one, product transformation. And with our transformation strategy, we aim to achieve a better profitability level in the group, particularly in the OE segment. This will contribute to meeting our mid-term targets that we have lined up. You may remember this slide from previous presentations. In the OE business, we expect cash flow from the ICE business to decrease over time, while e-mobility cash flows are expected to rise with the e-mobility business ramping up. As a reminder, over the past three years, we have received nominations for known ICE applications of more than EUR 4 billion.
We see limitations to an increase of enterprise value, however, measures are taken in such non-core areas. As you all know, several steps have already been realized, like the termination of production at one of the German sites and the discontinuation of business activities in the area of engine testing services. Now, the divestment of two group entities, which was signed today, continued this way of group transformation. These two plants mainly produce shielding products for thermal and acoustic management in vehicles. The revenues generated by the two plants amounted to around EUR 175 million in the fiscal year 2023. At year-end 2023, around 650 employees worked there, and this will be deconsolidated by the day of closing, which is expected to take place even in 2024.
As a result of this transaction, a reclassification according to IFRS 5 leads to known cash impairment in the mid- to high double-digit million EUR range, and it is recognized in the third quarter of 2024 . As usual, at this time of the year, any interim figures are preliminary and unaudited. Finally, I will briefly elaborate on the revised guidance for fiscal year 2024 . The management board has conducted a review of the fiscal year 2024 guidance. The group is now expecting, in organic terms, the revenue level slightly below prior year when the group generated 1.85 million EUR. Previously, the group expected a slight organic growth. In the light of the known cash impairments, ROCE is now expected significantly below prior year's level, which stood at 5.6%.
Previously, the group expected around 6%. With regard to operating free cash flow, the group forecasts a slightly positive figure, previously expected approximately 2% of group revenue. That said, I'm happy to take your questions.
Our first question comes from Christoph Laskawi with Deutsche Bank. Please go ahead.
... Good afternoon. Thank you for taking my questions and hosting the call. I have a couple of questions, please. The first one would be on the transaction itself. So you highlight it will be margin accretive in the midterm. Could you comment on the current earnings of the factories on the EUR 175 million of revenues in 2023? And then is there any indication on the potential cash in for the disposal to come in, in Q4 and the size of that? And just on the review of assets overall, should we expect more to come in the near term? So is this just one of a couple of transactions to follow, or is this basically it for the year? And then lastly, just on the market environment, you took down the organic growth guidance.
Could you just comment on which regions or which product groups are negatively impacted currently? And, do you expect that to persist into next year, or is it more Q3, Q4 issue for now? Thank you.
Yeah. Thank you for your questions. If I answer your question number one, transaction earnings. If we look at, you know, the financial parameters of those two group companies, it's approximately 10% of group sales, is approximately 10% of group balance sheet, and it is, no, 20%, excuse me, 20% of group's balance sheet. And it is in a negative way, it is 20% of what we had in EBIT in 2023. Yeah. So it's with a negative on the 20% figure on the EBIT 2023. In terms of the potential cash in, you know, I would expect in a positive case that it could reach a low double-digit figure in terms of cash in.
The next question you asked was, is there more to come in the near- term? Well, we have initiated some time ago already, you know, Langenzenn as well, in an engineering services company, and will continue by looking, of course, in particular, to reach our framework financial targets, mainly ROCE, but also EBIT margin. Yeah. And the way we look here is we look at the markets, we look at the product groups, and we look at the footprint of the ElringKlinger group. Yeah. And there, I can say 2025 will be a very active transformation year for ElringKlinger. Yeah. And I think that answers your question here.
In terms of market environment, I have to say, in a general sense, of course, we are heading into a weaker market, into a weaker second half of 2024. That's the case. On the other side, we in the group here, we have some good growth in the aftermarket, and we have also incurred in the battery business, you know, where volumes start picking up in terms of projects that were delayed in the past. And then also what we expect, we expect deconsolidation of the sales group earlier than December this year. No? So that has, and this really the key for our assessment here. If there is a sales and EBIT portion missing for one or two months, then that has an impact on the group performance here.
Thank you. Very clear.
Thank you.
Our next question comes from Marc-René Tonn in Warburg Research. Please go ahead.
Yes, good afternoon, and thank you for also, let's say, taking my questions. First one would be, you said you expect mid-term a positive effect from the deconsolidation, while already said, saying that last year, if I got you correctly, you had, let's say, 20% negative impact on the EBIT figure, which you stated from that business. Is it due to, let's say, some indirect costs which you, let's say, have to carry with you now in 2025 going forward, so from sales costs and admin costs, which will still play a role here? Is that a fair assessment, or could we even see an, let's say, a positive impact already in next year?
Yeah. My expectation would be that there is a positive impact for 2025 coming out of that transaction. But, in terms of, when you say offloading of, overhead into, into the group, it is, it is part of that, but I think, you know, it is overcompensating, you know, the positive in terms of there's losses going out of the group that is outweighing the other factor, in my opinion. Yeah.
Is there any tax effect we should be aware of from the let's say deconsolidation burden you will have? So is there anything which will be capitalized, or will it be, let's say, gross, like the net figure being pretty much the same on the disposal of?
The thing is, when you take a look at the deferred tax positions and the tax rates that we had in the past quarters. Yeah, going back a couple of years, then part of those high tax rates in the group were stemming from loss-making companies in the group. Yeah? That has a tax impact, and in my opinion, the impact would be that the tax rate of the group is heading more to a normalized tax rate than you would expect.
Okay, thank you very much.
In terms of it, maybe as an addition to that, you know, as a special tax impact, you know, I do not see a big one based on this.
Perfect. And from, let's say, the free cash flow guidance, the, let's say, the adjustment, any potential cash inflow from the disposal would be, let's say, on top of operating free cash flow. Do I understand that right?
To that, you know, if there is a positive inflow, that is something. That's a very technical question, to be honest. I cannot answer that as of yet.
Thank you.
Our next question comes from Michael Raab in Kepler. Please go ahead.
Yeah. Hi, everyone, Michael Raab, Kepler Cheuvreux here. Can I perhaps get back to the revised guidance of this year as a starting point, just to make sure I really get this right? The revision of the guidance was exclusively owed to the transaction, correct?
Yes.
Okay, so there is no change in the prospect of the underlying operations. Okay, now I'm-
What I'm saying is that we have a mix. Now, we have, in fact, a weak market overall, but we have some positive development as well in the aftermarket segment and also in the e-mobility area. Yeah? So there is a general and a specific point here.
Okay, so let's say, on balance, and please correct me if that take of mine is wrong. On balance, the underlying operational situations in the industries you cover does not trigger a change in the outlook, correct?
Well, in the mix, it doesn't.
Okay, good. Thank you. Now, that brings me to the next question. If you now lower your target for organic top-line growth and you have entities leaving the scope of consolidation that, as you claim, have been loss-making, how then can you reconfirm the roundabout 5% adjusted EBIT margin? I'm just trying to reconcile. Or does it mean that approximately 5% is, of revenue, is now a bit more above the 5% line than before? Or is it just that the closing is gonna happen so late this year that ultimately, loss-making entities leaving the scope of consolidation don't have a major influence on this margin roundabout?
Yeah, well, you know, the accounting for the specific impact is based on a change of consolidation. So it's not part of EBIT adjusted. When we see a negative impact overall in terms of some areas in the OE segment, and we have a stronger development here, in particular in the aftermarket, and we have also some more contribution coming in in e-mobility, then it's right. My expectation is that we keep the earnings quality despite some weaknesses also in the OE segment.
Okay. And the, say, additional contributions in electromobility, they're happening unexpectedly to you?
No. They, you know, we have awaited those for, I'd say, almost two years. Yeah, it's a delayed project of an OEM, and now sales are picking up. Yeah.
Originally, my estimation would have been that we would have been at roughly EUR 100 million here for 2024. And I see now not the full amount going into next year, but I see something between certainly EUR 60 million and EUR 80 million new sales based on that product coming in next year, and I see already part of that level on a monthly basis on order stock for Q4.
Okay. And then as a final point, I promise you I'm done with it, but just checking the individual lines and metrics here. The revision regarding the operating free cash flow, if you move from what used to be previously 2% of revenue, say, I don't know, that would have been perhaps EUR 40 million or whatever, to slightly positive. Does that imply that the to-be-sold entities were cash positive?
Oh, this is something technical in association with a closing procedure, where I have, let's say, limited visibility now in-
terms of at what point in time cash flows hit in 2024
Okay.
or next year.
Got it. Yeah.
Therefore, I'm getting a little bit more conservative, but it's not based on this big cash flows positive going out of the group for two months.
Okay. Awesome. Thank you.
Thank you.
Our next question comes from Akshat Kacker with JPM. Please go ahead.
Thank you for taking my questions. Akshat from J.P. Morgan. Just two left, please. The first one on the shielding technology business in general. Now, you have done some restructuring in the past. You have closed down two subsidiaries. Can you just generally talk about the health of this business as it stands today? Is it still profitable? Does it generate cash? Do you foresee more restructuring actions in this business division globally? The second question is just zooming in on aftermarket. Could you just give us more details or just more information on what are you exactly seeing in aftermarket and what's triggering the lower growth expectations there? Thank you.
Yeah, thank you for your question. In terms of the shielding business, we have, you know, a very diverse picture globally because we have some companies, like the two that we are in the process of selling, that had a negative contribution in the group. We also have areas here in this business area that have a positive contribution to the group. So there is no, you know, decision per se here. No? But we are working along our strategy here in terms of identifying non-performing assets in the group and either restructuring them or moving them out in order to shorten the balance sheet and strengthen EBIT.
Now, this is essentially what we do here, and we have started with a very, you know, significant factors here in the group, and we continue to do that until along, of course, with the revenue cycle in battery and e-mobility, that we will see our targets met in terms of the mid-term guidance. In terms of aftermarket, what is it, is your question. Here, it is certainly to a very large extent a good development in the U.S. market. Market share increase that is taking place and, of course, then an overall strong aftermarket also in other regions.
Thank you.
Thank you.
Our next question comes from Michael Punzet in DZ Bank. Please go ahead.
Yes, Michael Punzet. Good afternoon. I have only one question left. As you mentioned that the divisions you sold roughly represented 20% of your balance sheet, is there any positive impact on your CapEx guidance for the coming years? I think past guidance was 4%-6%. And you mentioned-
Yes
Also that there were a lot of necessary investments to be done, and that is one of the reasons why you sold these divisions, so I think there might be some room for some lower CapEx ratio going forward.
Yeah. From a technical perspective, you know, when you look, for example, at maintenance CapEx, that's certainly the case. In terms of, you know, more activity and growth as a sort of last-man-standing strategy, that would have been, in fact, the case. But let me make it clear, because I think I was not very clear at the beginning, so thank you for picking that up. The sales is EUR 175 million , is roughly 10% of group sales. The asset base that would go out is also 10% of group balance sheet, with 650 employees. Yeah? Let me, for your calculations, point that out very clearly, because I was not very clear here at the beginning. I'm sorry for that. The CapEx requirement, there is here the clear focus on e-mobility.
As we have pointed out, we have received last year and also this year significant orders for e-mobility contracts in general, and our focus will be on that. So, you know, streamlining the overall classic business is, in the first sense, of course, avoidance of maintenance CapEx, but also replacement CapEx. So it has an impact in the long run if we streamline the group here, but there is significant CapEx down the road for the new e-mobility contracts that we have gotten. Now, we have already invested in the figures that you have seen here up to Q2. We have also already some down payments there, and that will continue into 2025 and also 2026 , which will have some impact to the size of the balance sheet going forward.
Okay. Thank you.
Thank you.
We have one follow-up from Marc-René Tonn in Warburg Research. Please go ahead.
Yes, thank you for taking me again. And just to be clear and not to get, let's say, overexcited here, but if I get you correctly, you said 20%. You elaborated now the 10% of group sales, 10% of group balance sheet, but I think you mentioned 20%- on group EBIT. That would mean around EUR 16 million- from the business, which you are now selling, which would be, let's say, close to one percentage point of, let's say, 1% of revenues overall. Is that what we could take as, let's say, just from that deal as an incremental, let's say, margin development for next year, and then, let's say, all the other things then coming on top, like market, raw materials, in inflation?
Or do I miss anything here, or do I make a mistake here in
No, inflation is always the point, but what we also see here, we see some ramp-up, like I explained before, for cell contacting system in the battery area, and we also have a ramp-up starting slowly in 2025 , but mainly in 2026 , for the larger and the significant contracts that we have advertised. Yeah? So that means that 2025 really is gonna be a sort of transition period, where we have, on the one side, preparation of new plant, for example, South Carolina, for the production cycle, huh? And on the other side, we'll see improvements coming out of the activity that we are discussing today. No? And I think, again, 2025 is gonna be a transformation year.
When revenue cycle hits us in 2026, I would expect a significant uptick in financial KPIs.
But on the isolated EUR 16 million loss leaving the company is the correct number in terms of EBIT. Just talking about the two plants you're now selling. Am I right there?
Yeah. Yeah, roughly. That's roughly the figure.
Thank you.
Thank you. Yeah, you see, ElringKlinger here is on the transformation way in our transformation program, SHAPE30 . Q3 figures will be presented November 12th, and I look forward to discussing those figures with you, and all the best, and talk to you soon. Thank you much.