Yeah, ladies and gentlemen, I welcome you to our earnings call on the first quarter of 2025. Today, I will provide a detailed look into the results from the first quarter. With today's publication, we confirm the guidance for 2025 and the medium term, which we have published with the annual report in March. At the end of the presentation, as usual, you will have the opportunity to ask questions, and I'm pleased to answer them. The implementation of our transformation strategy SHAPE 30 is our focus. Since the start of the strategy last year, we have taken significant steps forward in transforming the ElringKlinger Group, and more is on the way. One of these steps is the divestment of the two group companies in order to focus our product portfolio. This year, we honor our esteemed founder, Paul Lechler, on the 100th anniversary of his passing in April.
Throughout the year, we will implement various initiatives within the company to commemorate his legacy and contribution. Indeed, Paul Lechler was a pioneer in entrepreneurship and social action. In our battery business, we are driving forward the series production of cell contacting systems, and that is visible in our first quarter e-mobility business unit revenue, which has more than doubled compared to the first three months of 2024. Coming now to the financial highlights. With an adjusted EBIT margin of 4.9% in the first three months of 2025, we are well on track to deliver on the margin guidance for 2025. Additionally, our organic sales revenues during this period have been good, surpassing both underlying market development in our core market, Europe, and the first quarter numbers from last year in organic terms.
Furthermore, the syndicated loan of EUR 450 million completed in March underlines our solid financial position and will support the continued progress of our SHAPE 30 strategy. Last but not least, our Management Board will be expanded, and I am pleased to welcome Isabelle Damen in her new function as our CFO from August 1 on this year. SHAPE 30 is our path to transforming the group and the industry. The strategy aims to increase the group's profitability, particularly in the OE segment, and generate sustainable cash flow. We have already made numerous decisions and implemented measures along this path. These include the sale of two companies in the US and Switzerland, as well as the decision to discontinue the system business for electric drive units and focus on the profitable components business. The closures of two plants in Fremont, California, and Thale, Germany, are also part of this strategy.
In the course of this, we have also taken measures to improve our balance sheet. This package of measures is now being supplemented by the Streamline program, which aims to reduce global personnel costs by EUR 30 million. Streamline includes selective measures for various groups of employees and is aimed at optimizing the group's capacity levels in its individual corporate and business units, as well as in the plants. The program will start in May and contribute to savings from 2026 onwards. The plan is to achieve the optimal level of staff cost in the second half of 2026. These measures, both implemented last year and also Streamline, aim to make the group resilient in the face of the challenging environment and position it effectively for the future. All in all, the effects add up to a structural improvement of EUR 50 million per year.
Let us now turn to the detailed financial figures for the past three months of 2025, starting with sales and its organic change on slide number four. Operating within a challenging environment, ElringKlinger recorded revenue of EUR 423.1 million in the first three months of 2025, and this corresponds to a year-year decline of 9.1%. We have faced challenges from currency and M&A effects this quarter. The two entities in Switzerland and also in the United States, whose sale was finalized at the end of 2024, had contributed revenue of EUR 44.7 million in the first quarter of 2024. This means the basis for a year-on-year comparison would be EUR 420.6 million. Additionally, revenue was diluted by currency effects equivalent to EUR 7.9 million, or 1.7%. In organic terms, in particular, excluding currency and M&A effects, revenue increased by EUR 10.4 million, or 2.2%.
This translates into a better performance than the market as a whole, which changed by 1.3% globally and -6.7% in Europe in the first quarter of 2025, according to S&P Global Mobility Data. Coming to the sales mix on slide number five, among the segmental revenues, the original equipment segment is the largest one, making up 67% of group total, or EUR 281 million of sales. In the first three months of the year, segmental revenue declined compared to the previous quarter, reflecting the divestment of the two entities, like I said, in the US and in Switzerland in Q4 2024, and the challenging market conditions. Within the OE segment, e-mobility revenue more than doubled due to the ramp-up of a large-scale series order of cell contacting systems.
E-mobility sales increased from around EUR 11.3 million to EUR 26.8 million in the first quarter of 2025, and now represents 6% of group sales. The aftermarket segment once again performed strongly and increased sales by almost 13% to EUR 102 million. In regional terms, Asia-Pacific, as well as South America and the rest of the world, recorded growth, while revenues in the Europe and the North America region contracted year on year. Apart from currency effects and the sluggish market environment, the primary driver of this development was the divestment of the two entities in the US and Switzerland, as said on different times here. Considering this, sales in Europe have even increased. Against the backdrop of the sale of the two subsidiaries last year, adjusted EBITDA declined to EUR 45 million compared to EUR 51 million in last year's first quarter.
Depreciation and amortization stood at EUR 21.9 million compared to EUR 27 million in Q1 2024. In the first quarter of 2025, the group had to recognize impairment losses of EUR 0.5 million in adjusted EBIT. As a result, adjusted EBIT reached EUR 20.5 million, which corresponds to an adjusted EBIT margin of 4.9% and is right at target level for the full year of approximately 5%. With regard to the factors on adjusted EBIT, we saw, on the one hand, a positive effect from the measures taken in 2024, for example, the divestment of the two plants in the US and Switzerland. On the other hand, there were an impact to book provisions and a special collective wage payment. Moreover, there is a generally challenging market environment, which also affects earnings. Effects like these are subsidized under the provision others.
ElringKlinger Group expanded its research and development expenses to a ratio of 5.9%, which is within the target corridor of around 5%-6% of group revenue. In absolute terms, R&D expenses slightly decreased from EUR 26.7 million to EUR 24.9 million. Cash flow from operating activities in the first quarter was dominated by the cash outflow in connection with changes in net working capital. This alone resulted in a cash outflow of EUR 131.4 million in the first three months, including other assets and liabilities not attributable to investing activities. This capital requirement led to a negative operating cash flow of EUR 72.5 million, despite solid operating profitability calculated on an EBITDA basis of EUR 41.9 million. ElringKlinger invested EUR 45 million in equipment, particularly in the first quarter of 2025.
Capex increase of around EUR 28 million compared to prior year figures reflects the upfront investment for specific customer projects, which relate primarily to major projects within multi-year terms and substantial volumes in the field of e-mobility. In particular, the ramp-up of high-volume series production order for cell contacting systems will require extensive preparations at Neuschwanstein in Germany and at the other group sites over the course of 2025. The Capex ratio for the first quarter of 2025 was 10.6%, which compares to 3.6% in the first quarter of 2024. ElringKlinger is focusing its activities in sharpening the group's profile in order to improve profitability. At the same time, as part of its transformation path, the group is preparing for further growth in new drive technologies, where it has already received large-scale production orders, for example, for cell contacting systems.
The target is to generate more than 50% of group sales beyond ICE applications by the year 2030. Preparations for this are in full swing. This is what Capex is used for. We are currently setting up our battery hub for the US market in East Lee, South Carolina. The measures are well advanced, and we expect to start operations in the third quarter of this year. In addition, we are expanding our battery competence center in Neuschwanstein near our corporate headquarters. The logistical additions are almost complete, which will give us additional production space. This is also scheduled for the third quarter of 2025. In addition, there is a production facility for the startup and further ramp-up of cell contacting systems orders. We're also preparing production in China.
These measures show that the investments are targeted and that the transformation is continuing with the startup of these orders. In the first quarter of 2025, operating free cash flow was in negative territory at minus EUR 120.3 million due to the substantial cash outflows for operating and investment activities, which reflects the strong investment activities as well as the preparation for further large-scale orders ramping up in the upcoming quarter. As a result, net financial debt increased to EUR 370.4 million, corresponding to a net debt-to-EBITDA ratio of 2.1. At EUR 687.6 million, equity of the group was virtually unchanged compared to the figure reported for the 2024 financial year. The equity ratio, therefore, stood at 38.3% compared to 39% at the end of 2024. Coming now to the segment performance on slide number 10. Overall, the OE segment generated sales of EUR 281.8 million in the first quarter of 2025.
When comparing to prior year's figure, we have to consider a sales contribution of the mentioned EUR 44.7 million of the divested entities. Adjusted for this, OE sales decreased by EUR 13 million, or 4.4%, which is slightly better than the market development in our core region in Europe. European light vehicle production contracted by 6.7%, according to S&P Global Mobility. The segment margin decreased, among others, due to a special collective wage agreement, as well as provision bookings. The aftermarket segment successfully continues its growth strategy and saw further increase in revenue. Sales amounted to EUR 102 million in the first three months of 2025. Adjusted EBIT margin increased to 23.7%. Again, the rate on a level considerably above 20%. Despite weaker macroeconomic momentum, particularly in Germany, the engineered plastic segment developed strongly in the reported quarter, partly due to its broad industry mix.
Sales in the segment amounted to EUR 39 million, which was an increase of about EUR 5 million compared to last year's third quarter. The segment returned to a double-digit margin in terms of adjusted EBIT. Let us now take a look at the market expectations and the outlook for the group's figures. Let me quickly remind you of the agenda for 2025, which we already presented in our conference call in March. First, we'll continue to shape ElringKlinger's business model. To align our product portfolio, we are continuously analyzing market developments and validating the individual product groups for future viability. On this basis, we will draw conclusions for our global network of locations and take, if necessary, further steps here. After all, our focus is on our goal to improve profitability. The new Streamline Program to globally reduce staff costs will contribute.
While costs and structures need to be optimized on the one hand, the growth cycle must start on the other. The start of our large-scale orders requires higher investments in the short term in the first half of the year, which will also affect cash flow. At the same time, e-mobility revenues will continue to increase. The mixed situation on the markets is set to continue. While China's light vehicle production is on the rise, the markets in Europe, in particular North America, are still lacking momentum. Overall, the automotive market is declining in 2025. With a large exposure to the European market, ElringKlinger is affected by the lack of market dynamics but sees compensating effects from the large-scale orders and the good aftermarket business.
As already mentioned earlier this year, the group expects organic sales at the previous year's level, in particular the sales revenue excluding the two sold companies form the starting point. In view of the complex situation with a wide range of influencing factors, we expect an adjusted EBIT margin of around 5% overall, the same as in the previous year. As a result of our measures and revenue contributions, we expect a range of around 7%-8% in the medium term. Operating free cash flow is projected to reach a level between 1%-3% of revenue. All in all, we confirm the outlook given in the annual report of fiscal year 2024 in March. With having said all this, I'm now ready to answer your questions. We will now begin the question and answer session.
Anyone who wishes to ask a question may press Star and one on their touch-tone telephone. You will hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue, you may press Star and two. Participants are requested to use only handsets while asking a question. Anyone who has a question may press Star and one at this time. The first question comes from Marc-René Tonn from Warburg Research. Please go ahead.
Yes, good afternoon, and thank you for taking my questions. It would be basically around three, if I may. The first one would probably be on the very sharp increase in working capital compared to the fourth quarter, where I think the development was very positive.
Was it just a coincidence this time that we see this, let's say, magnitude of change, let's say, end of December compared to end of September and now end of March compared to end of December? Has there been any special effects which, let's say, drove this massive swing in working capital in the first quarter this year? I appreciate that you provide guidance that you're expecting below 25% for the year as a whole. Perhaps you could give us some more detail with this, let's say, closer to 20 or closer to 25, if that would be the first question. I will follow up with the other ones later on, if I may.
Thank you for your question, Mark. In fact, we have a significant development here in the first quarter. I'll walk you through this.
We had in the increase of the accounts receivable overall EUR 42 million. There is one significant portion in there which is not yet covered by factoring. This is part of some of the new revenue streams, so to say, that we have here, in particular with the ramping up. This leads to this effect that we have a growth here in accounts receivable, and we are still in the process of putting that into those programs. Besides, there is the good development here. You saw also sales here, for example, in engineered plastics. There are some other factors here that led essentially to an increase of receivables. When we look at the increase in inventories in a very detailed way, there is a step up, which is significant, double-digit, that's roughly EUR 17 million. Tooling. It's a tooling in association with new projects.
I see this as something that will continue for the foreseeable future because we either manufacture toolings or we buy tools, and those are going to be sold on to the customer at a later point in time. Like I mentioned, there is a start of production in some locations here in September this year planned. I would expect that some of those positions are going to be sold off, but then, of course, go into receivables. If that is going to be paid, if those positions are going to be paid this year, it is difficult to say, but it is essentially positions that are going to be flowing through and are going to be flowing out. On the payable side, there are some seasonal items, I would say, but also there is one position here that has to do with a typical swing.
EUR 24 million, EUR 25 million, roughly, with a swing in terms of factoring coming from Q4 to Q1. There is another amount. This is roughly EUR 40 million, which is associated with the purchase of equipment because you see a period in Q3 and Q4 that, in terms of the payables here, that includes all the payables for equipment, that in Q4 and Q1 2025, there is a lot of equipment purchases going into our books. Those are specific items, I would say, that have something to do with the strong activity and with the changes of the activity that is going on right now. If I would have to give you a guidance for this year, I think we are going to be between 20%-25%. That would be my estimation as of now. Nevertheless, there may be delays.
There may be also a situation in Q4 eventually where we have cut-off situations here in regard to the payment or the sale of tools, for example. This is difficult to say from today on. Is that answering your question? Very comprehensively. Thank you very much. Perhaps staying with free cash flow, I think we have also seen, let's say, also, I think, in preparation for the ramp-ups, the pretty high number for CapEx spending in the first quarter. How should we look into CapEx going forward? Will this already, let's say, come down sequentially from the second quarter or, let's say, more in the second half year? Yeah, basically, that would be the question. Let's say the full-year CapEx spending around prior year level or what is it we should assume there? First half is going to be more intensive than the second.
I would expect it is continuing into Q2 with some significant amounts, but it's not backloaded. I see that the schedule is here that we are more like front-loaded for 2025.
All right. Next question would be regarding the Streamline Program. I appreciate that you mentioned the EUR 30 million in savings you're expecting from the second half of 2026 on a full-year basis. Are there any costs associated with the program we should, let's say, consider as being adjusted in the quarters ahead, or is it something which will come without incurrence of any extra cost?
No, I think there's going to be costs associated with it. It is a volunteering program that we will employ here, and therefore, it is really difficult to say in terms of what the impact may be. I think overall, it may be associated with restructuring charges up to EUR 30 million. Why?
It's not an exact figure. This is sort of a high estimation here. It is a EUR 30 million restructuring charge that at some point in time would be taken, and that is against the EUR 30 million annual savings starting in 2026.
Rather quick payoff of the program then that you are expecting.
Yeah, it depends, of course, on the success of the program here, but we're pretty confident that we'll have some good development here in this phase.
If you could remind us just as a last question on your expectation for full-year sales in e-mobility after, let's say, the strong increase, I think, year over year, which we've seen in the first quarter, although a bit down on the revenue numbers we've seen in Q3 and Q4 in the prior year, still, let's say, something like EUR 150 million-EUR 160 million is the figure we should look at for the full year in e-mobility?
Yeah, I think now January has been weak with two products that we have. This is also the reason that we have a slight dip here in Q1. February and March have already been better, and forward-looking is looking also pretty good. My expectation would be that we are, I'm pretty sure we're going to be in the three-digit million euro range, in the range that you mentioned.
Roughly speaking, there's a possibility up to EUR 150. I'd say there is also eventually some midpoint around maybe EUR 130, EUR 130-ish. Could be more. That depends, of course, also on some of the sales in regard to those large programs or projects that we have started, what is going to be invoiced this year and what's going to be invoiced eventually in 2026. Roughly speaking, I would agree.
Perfect. Thank you very much, everybody, from my side.
yeah. Thank you for your questions.
As a reminder, if you wish to register for a question, please press Star and one on your telephone. The next question comes from Michael Punset from DZ Bank. Please go ahead.
Yes, Michael from DZ Bank, good afternoon. I have two questions. First one is, you mentioned several times the special rates agreement. Maybe you can explain a bit what's behind that and will that lead to, let's say, ongoing higher personnel costs? The second one is with regard to your OE margin. This is down year over year. Was that mainly related to the increase in your e-mobility revenues, or maybe you could explain what was the key drivers for this development in Q1?
Yeah, thank you for your question. First one is a one-time payment. It's a scheduled payment according to the labor agreement here that we had. To your second question, yeah, there is not yet an OE turnaround. Right now, we have a combination of market weakness, mainly in our core market here in Europe, and there's a run-up of e-mobility.
The European market, of course, in particular, leads to the point that the classic business is having a weaker demand here, which is giving us some, let's say, decrease in margin. E-mobility is ramping up, but it's still not in that size that it would be overcompensating those effects. That is essentially, my expectation would be this, if you want to say so, balancing or going along that line is going to be remaining for the foreseeable future until two things happen. More savings come into realization, number one. Number two, e-mobility sales, sorry, contribute more to the bottom line, and we don't see more market deterioration. This is how I would interpret here on an earnings basis, Q1.
Okay, maybe follow up on your e-mobility revenues. Is it in line with your expectations, or have you seen any, let's say, shifts on the upper or on the lower side in certain market developments?
No, like I mentioned, January was a weak month. What I see here going forward, it is looking pretty confident.
Okay, so it's in line with your expectation for this year and maybe also oriented for the following years?
It is.
Okay, thank you.
Thank you.
Once again, to ask a question, please press Star and one on your telephone. Ladies and gentlemen, we have a question from Miro Zuzak from JMS Investage. Please go ahead.
Yes, hello. Mr. Jessulat, can you hear me?
Y es, I can hear you.
Just a follow-up question regarding what you just said. Because you expressed a lot of confidence now in the months to come going forward, what is this based upon, and how long is your visibility there? Do you already see into Q4, or is it mostly Q3 that you are basically Q2 and the beginning of Q3 that you are confident upon?
Yeah, when we talk about, thank you for your question first, yeah? When I think earnings, then what I just described in terms of the balancing of the weak market and also the run-up of e-mobility, this is in fact something that is unclear how that is balancing out. What we see already in Q1 is that we have some amounts that offset also specific items or market weakness coming from the decisions and the actions we have taken last year.
From today on, it's uncertain in terms of market environment, but we see, number one, some effect already coming from the actions from last year. Number two, we have a positive dynamic in regard to the battery business and the battery run-up. This is not, of course, including when I say this, this is not including the other risks that we have in the market when we talk about tariffs or when we talk about other market developments that may have, in fact, a very negative impact, maybe in particular on the US market or also maybe on other markets. I'm not talking about the impact of that, but if the environment stays unchanged, so to say, then I would expect that we have taken enough action last year that we prove to be, let's say, pretty resilient to achieve target for this year.
Cool. Thank you.
Thank you.
Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Thomas Jessulat for any closing remarks.
Yeah, ladies and gentlemen, thank you for your attendance today. I would like to conclude with referring to our AGM next week on Friday, the 16th of May. Our next quarterly release will be on August 6th when we are going to publish figures on the first half of 2025. Thank you again and all the best to you. Thank you.