Foreword 2021

Dear Shareholders,
Ladies and Gentlemen,

My introductory words at this stage last year were that we had been thoroughly engulfed by the coronavirus pandemic. Twelve months on, not much has changed. Despite effective vaccines and widespread inoculation campaigns, the pandemic continues to shape our everyday lives. The rate of vaccination is still too low in many countries to completely combat the virus and its variants. Despite these circumstances, however, we are confident that the pandemic can be largely overcome this year.

At ElringKlinger, we have implemented the full range of measures necessary to protect the health of our employees. We have kept the number of contacts within the Group as low as possible by working on a mobile basis, while avoiding business travel and visits to our premises. We are committed to engaging with others in a virtual format wherever feasible, both within the company and beyond. These measures were taken at a central level and continue to apply. Despite the necessity of this action plan, we must also concede that the consequences of these measures have become increasingly tangible – particularly when it comes to staff interaction. We miss those moments of face-to-face contact in our jobs. Many of us yearn for a return to normality in our day-to-day lives. This makes the performance of our team members all the more impressive. Displaying tremendous dedication, they make a committed contribution to the Group on a daily basis. Allow me to express my sincere thanks to all our employees, also on behalf of my fellow Board members.

We are all concerned about events that were producing new headlines on a daily or an almost hourly basis when these lines were written. In February 2022, the conflict between Russia and Ukraine escalated into a full-blown war in Eastern Europe. War knows no victors. First and foremost, we see human suffering – loss of life, separation of families, flight, displacement, and fear. The thoughts of all of us at ElringKlinger are with those affected by this conflict; we honor its victims.

The economic repercussions will be significant for all, simply because globalization will no longer function as it did in the past. Some borders will turn into barriers, and the distribution of energy and commodities will become a central issue within the new economic and political order. Even before these events unfolded, supply chains had been disrupted by lockdowns as a result of the pandemic, while shipping containers were no longer available at their destinations. As the economy recovered, demand for commodities picked up again, which drove the price of raw materials – already at an elevated level – even higher. The price of raw materials used by ElringKlinger, such as aluminum, for example, increased by around 40% in 2021 alone. These adverse effects were intensified by extreme events such as torrential rain in Germany during the summer months, the winter storm in Texas, or the Suez Canal disaster in March, which threw both regional and global markets into disarray. Last but not least, our industry is having to contend with bottlenecks in the supply of semiconductors: these factors as a whole explain why car production grew by a mere 3.4%, instead of around 13% as originally expected.

Against this backdrop in particular, ElringKlinger's financial results for 2021 can be considered more than satisfactory. Despite the adversities outlined above, we were able to expand our revenue by 9.7% – organically by as much as 10.1% – to EUR 1,624 million, thus again outperforming market growth of 3.4%. We also saw a significant increase in earnings: the Group recorded earnings before interest and taxes EBIT) of EUR 102.0 million, which corresponds to a margin of 6.3%. The Group thus generated growth of EUR 74.3 million compared to the previous year. You, as shareholders, shall also benefit from these accomplishments. Therefore, the Management Board and the Supervisory Board propose to the Annual General Meeting that a dividend of EUR 0.15 will be paid for the 2021 financial year.

We also recorded a noticeable improvement in our other key financials in 2021. By maintaining a disciplined approach to capital expenditure and further optimizing net working capital, we were again able to push operating free cash flow well into positive territory (EUR 72.0 million).

The improvement in our key financial indicators illustrates the success of the efficiency stimulus program when it comes to fine-tuning specific elements. We launched this program in 2019 with the aim of cementing profitability, consistently improving cash flow, and significantly reducing net financial liabilities – goals that we achieved in full and even exceeded in many areas. In total, the Group has generated operating free cash flow of EUR 412.5 million over the last three years and more than halved net financial debt from EUR 795.5 million at the end of March 2019 to EUR 369.2 million at the end of 2021. Thus, ElringKlinger is strongly positioned for the next stage of transformation that is now coming up.

The additional room for maneuver gained in this way is also considered important for the years ahead. After all, the process of transformation in the automotive sector is entering the next phase. Having been quick off the mark to establish a favorable technological position within fields considered promising for the future, we now boast a product portfolio that is already marketable in many cases. In addition, we have repositioned ourselves structurally in the last two years. As you know, we have entered into a partnership with Airbus in the area of fuel cells, the aim being to make this technology usable for the aviation sector as well. At the same time, we concluded a strategic alliance with our French partner Plastic Omnium. The subsidiary EKPO Fuel Cell Technologies commenced operations on March 1, 2021, and has already secured a number of contracts since then. Together with our partner, we will continue to pursue and exploit the tremendous potential offered by the market for fuel cell components and stacks.

We have also achieved milestones in the field of battery technology over the past twelve months. Not only have we established a new center of excellence in Neuffen, not far from our Group headquarters in Dettingen/Erms, we have also been successful with regard to our sales activities in this area. In March, we were able to announce a high-volume order for cell contact systems destined for the series platform developed by one of Germany's premium carmakers. We also managed to expand the client base for our products by attracting a global battery manufacturer as a direct customer. Here, production will commence in 2022, as is also the case with regard to an order placed for the prototype of a battery system to be installed in a high-end sports car.

For all our focus on new technologies, however, we must also be prepared for a decline in demand for conventional components in some product groups, a development also accelerated by the pandemic.

We have been tracking these trends closely and analyzing them as thoroughly as possible. As a result, we have drawn up plans to pool our capabilities in the Shielding Technology business unit. These plans are aimed at ensuring that the business unit remains competitive in the future.

In taking all these steps, we have prepared for the next phase of transformation. ElringKlinger has established a strong technological, structural, and financial position, allowing it to exploit the opportunities presented by change in the automotive sector. Demand for vehicles with alternative drive technologies is growing inexorably. Compared to 2020, almost twice as many vehicles produced globally in 2021 were already equipped only with a battery or fuel cell drive system. This strong trajectory of growth is set to continue and ElringKlinger will benefit from the preparations it made well in advance.

For us on the Management Board, it is important to take advantage of the opportunities presented by the continued upturn after the pandemic and the transformation of mobility. This also includes efforts in the area of digitalization, which we will step up further in production and administration. After all, work within this area can also make a lasting contribution to enterprise value for the Group as a whole.

Please explore for yourself the tremendous potential of the ElringKlinger Group. With this in mind, I hope you enjoy reading our annual report. At the same time, I would like to thank you, our shareholders, for the trust you have placed in ElringKlinger.

Dettingen/Erms, March 2022

Yours sincerely,

Dr. Stefan Wolf
Chairman of the Management Board