ElringKlinger records positive free cash flow in the 2nd quarter of 2019

DGAP-News: ElringKlinger AG / Key word(s): Half Year Results

07.08.2019 / 07:30
The issuer is solely responsible for the content of this announcement.

ElringKlinger records positive free cash flow in the 2nd quarter of 2019

- Revenue up by 0.8% to EUR 434.1 million in second quarter of 2019 and by 1.6% to EUR 875.2 million in first half of 2019

- EBIT before purchase price allocation at EUR 10.7 million in period from April to June and EUR 17.6 million after six months

- Group-wide program aimed at optimizing cash flow takes effect: operating free cash flow totals EUR 79.3 million in first six months of 2019

- No tangible market recovery expected in second half: ElringKlinger anticipates decline in global automobile production of 2 to 4% year on year in 2019

- Outlook for fiscal 2019 confirmed

Dettingen/Erms (Germany), August 7, 2019 +++ ElringKlinger AG saw another slight increase in revenue over the course of the first half of 2019. Operating within a contracting market, the Group recorded revenue growth of 0.8% in the second quarter of 2019, taking the figure to EUR 434.1 million. Adjusted for currency effects and M&A activities, organic revenue growth stood at -0.3% in the period from April to June. During the same period, ElringKlinger thus managed to outperform - by five percentage points - the global vehicle industry as a whole, which saw aggregate automobile production fall by -5.3%.

More pronounced downturn in market activity
Contrary to market performance in general, ElringKlinger recorded further growth in Group revenues during the second quarter of 2019 in North America, which saw an expansion of 31.1%. The other key sales regions, by contrast, felt the impact of market slowdown. The Rest of Europe, which is ElringKlinger's largest sales market, saw revenue decline by 5.9% year on year in the second quarter. In the region encompassing Asia-Pacific, meanwhile, revenue was down by 7.4%. ElringKlinger also recorded a decline in its home market of Germany, which saw revenues fall by 9.6%.

Earnings affected by high cost base
At EUR 39.0 million, earnings before interest, taxes, depreciation, and amortization (EBITDA) in the second quarter fell short of the figure posted for the same period a year ago (Q2 2018: EUR 49.3 million). This was attributable to the comparatively high cost base, driven primarily by the market downturn in Europe and China, the persistently strong demand in North America as well as commodity prices. Earnings before interest and taxes (EBIT), before write-downs relating to purchase price allocation, amounted to EUR 10.7 million in the second quarter of 2019 (Q2 2018: EUR 26.3 million). Therefore, the EBIT margin before purchase price allocation was 2.5% (Q2 2018: 6.1%). As a result of tax-related effects, the Group recorded earnings per share of EUR -0.14 in the second quarter.

Group-wide program to optimize cash flow takes effect
The program implemented by the ElringKlinger Group with a view to optimizing its cash flow situation resulted in a visible improvement in liquidity levels during the first six months of 2019. Thanks to a number of different measures - above all the continuous optimization of net working capital and a disciplined approach to investing activities - operating free cash flow increased to EUR 98.6 million in the second quarter of 2019 alone (Q2 2018: EUR -19.0 million). At the end of the first half of 2019, therefore, the figure was up at EUR 79.3 million in total (H1 2018: EUR -42.2 million).

"As figures for the first half indicate, we are on track with measures initiated for the purpose of improving our cash flow," says Dr. Stefan Wolf, CEO of ElringKlinger AG. "We have moved forward considerably with regard to investments and working capital - and we intend to pursue this action plan in a determined manner. Having said that, we are currently operating within a market environment that is proving difficult as a whole."

No palpable recovery of global automobile production in second half
Based on the most recent market projections, the recovery of global vehicle production is likely to be less dynamic in the second half of 2019 than originally expected at the beginning of the year. ElringKlinger now anticipates a global market downturn of between 2% and 4% year on year for 2019 as a whole, rather than the modest growth rate of between 0% and 1% predicted at the beginning of the financial year. Nevertheless, the ElringKlinger Group continues to maintain its fiscal 2019 revenue target of growing organically by 2 to 4 percentage points above the rate of growth in the global market.

Current order backlog remains solid but outlook for new orders less promising
The Group's order book has proven resilient despite the challenging economic situation. With a volume of EUR 1,063.0 million at the end of the second quarter of 2019, its order backlog was up 2.4% year on year (Q2 2018: EUR 1,038.2 million); adjusted for currency effects, it expanded by 1.5%. The downturn in markets, however, was reflected in order intake. Totaling EUR 419.8 million, it was down by 8.5% year on year in the second quarter (Q2 2018: EUR 458.6 million). After adjusting for currency effects, the decrease was 7.8%.

Outlook for fiscal 2019 confirmed
Conditions are likely to remain challenging for the automotive industry, with key markets in China, North America, and Europe set to contract over the full year. Therefore, it would appear likely that market downturn will impact on ElringKlinger's earnings performance. At the same time, the Group is looking to counteract these developments with the help of several measures. In the first half of the year, for example, ElringKlinger launched an extensive internal cost-cutting program that will continue to deliver benefits as the Group moves forward. Additionally, the first exemption refunds are expected with regard to US tariffs. ElringKlinger also anticipates that it will generate income in the high single-digit million-euro range from a real estate sale to be executed by the end of the financial year. Furthermore, cost structures are to be further optimized at the Swiss plant and the North American sites. Overall, as a result of these various factors, the Group will still be looking to achieve an EBIT margin of around 4% to 5% before purchase price allocation despite the more difficult conditions it currently faces. This assumes that no further significant externalities emerge as a drag on earnings and that markets do not weaken any further than already anticipated.

Key Financials for Q2 and H1 of 2019

EUR millionH1
∆ abs.∆ rel.Q2
∆ abs.∆ rel.
Order intake918.1932.8-14.7-1.6%419.8458.6-38.8-8.5%
Order backlog1,063.01,038.2+24.8+2.4%1,063.01,038.2+24.8+2.4%
of which FX effects  +9.9+1.1%  +4.4+1.0%
of which M&A  -6.2-0.7%  +0.0-
of which organic  +10.0+1.2%  -1.1-0.3%
EBIT before purchase price allocation17.664.6*-47.0-72.8%10.726.3-15.6-59.3%
EBIT margin before purchase price allocation (in %)2.07.5*-5.5PP-2.56.1-3.6PP-
Purchase price allocation1.01.9-0.9-47.4%0.51.0- 0.5-50.0%
Net finance cost-9.7-10.3+0.6+5.8%-8.7 -5.0 -3.7-74.0%
Taxes on income16.716.7+0.0-10.210.9-0.7-6.4%
Net income (after non-controlling interests)-10.134.2*-44.3>-100%-8.68.5-17.1>-100%
Earnings per share (in EUR)-0.160.54-0.70>-100%-0.140.13-0.27>-100%
Investments (in property, plant, and equipment and investment property)49.567.7-18.2-26.9%20.738.4-17.7-46.1%
Operating free cash flow79.3-42.2+121.5>+100%98.6-19.0+117.6>+100%
Net working capital498.9604.1-105.2-17.4%    
Equity ratio (in %)40.742.8-2.1PP-    
Net financial liabilities699.9682.6+17.3+2.5%    
Employees (as of June 30)10,4119,954+457+4.6%    

* Incl. gain from sale of Hug subgroup (EUR 21.1 million before taxes)

For further information, please contact:
ElringKlinger AG
Dr. Jens Winter
Strategic Communications
Max-Eyth-Straße 2
72581 Dettingen/Erms (Germany)
Phone: +49 7123 724-88335
Fax: +49 7123 724-85 8335
E-mail: jens.winter[at]elringklinger.com

About ElringKlinger AG
As an independent and globally positioned supplier, ElringKlinger is a powerful and reliable partner to the automotive industry. Be it passenger car or commercial vehicle, equipped with an optimized combustion engine, with hybrid technology, or with an all-electric motor - we offer innovative solutions for all types of drive system. In doing so, we are making a committed contribution to sustainable mobility. Our lightweighting concepts help to reduce the overall weight of vehicles. As a result, vehicles powered by combustion engines consume less fuel and emit less CO2, while those equipped with alternative propulsion systems benefit from an extended range. Developing cutting-edge battery and fuel cell technology as well as electric drive units, we were among the frontrunners when it came to positioning ourselves as a specialist in the field of e-mobility. At the same time, we are committed to evolving our sealing technology for a wide range of applications. Our shielding systems are designed to ensure high-end temperature and acoustics management throughout the vehicle. Dynamic precision parts developed by ElringKlinger can be used in all types of drive system. Additionally, the Group's portfolio includes engineering services, tooling technology, and products made of high-performance plastics, which are also marketed to industries beyond the automotive sector. These efforts are supported by a dedicated workforce of more than 10,000 people at 44 ElringKlinger Group locations around the globe.

This release contains forward-looking statements. These statements are based on expectations, market evaluations and forecasts by the Management Board and on information currently available to them. In particular, the forward-looking statements shall not be interpreted as a guarantee that the future events and results to which they refer will actually materialize. Whilst the Management Board is confident that the statements as well as the opinions and expectations on which they are based are realistic, the aforementioned statements rely on assumptions that may conceivably prove to be incorrect. Future results and circumstances depend on a multitude of factors, risks and imponderables that can alter the expectations and judgments that have been expressed. These factors include, for example, changes to the general economic and business situation, variations of exchange rates and interest rates, poor acceptance of new products and services, and changes to business strategy.

07.08.2019 Dissemination of a Corporate News, transmitted by DGAP - a service of EQS Group AG.
The issuer is solely responsible for the content of this announcement.

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