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Conference Call Presentation Financial Year 2013
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1
Analysts’ and Investors’ Conference
Results Financial Year 2013 – Outlook and Strategy
March 28, 2014
2
Financial Year 2013: Highlights
Organic sales growth (ex scope changes and at constant exchange rates) of
6.0% within the target range of 5-7%, clearly exceeding market growth of
3.1%; OE business remains growth driver
Adjusted EBIT increased to EUR 144.7 (135.8) mn – Adjusted EBIT margin
improved to 12.3% from 12.0%;
EBIT burdened by minus EUR 4.6 mn in FX effects
Earnings improvement driven by underlying sales growth and advanced
turnaround of acquisitions, particularly Hug
Adverse earnings effects from start-up losses in E-mobility, losses at
Freudenberg France, and as yet weak capacity utilization of new truck facility
at Dettingen, Germany
Reported EBIT boosted by significant one-off gain in Q4 arising from
assumption of control at ElringKlinger Marusan Corporation (EUR 17.6 mn)
Financial year 2013: Uneasy Markets – Western Europe at
25-year low, BRI markets shrink
3
23,1%
7,5%
-0.2%
-1.5%
-1.9%
-5.5%
-7.5%
-10,0% -5,0% 0,0% 5,0% 10,0% 15,0% 20,0% 25,0%
India
Russia
Western Europe
Brazil
Japan
USA
China
New car registrations 2013 (yoy change)
4
2013: Effects from assumption of control of ElringKlinger
Marusan Corporation – strategic reasoning
in € mn
FY 2013
(at 50%)
FY 2014
(forecast at 100%)
Sales 23.4 ~50.0
2
EBIT 0.6 3.0
One-off gain 17.6 --
PPA -- -2.2
Control of ElringKlinger Marusan Corporation was assumed with effect from
December 31, 2013
Fully included in statement of financial position in FY 2013, in P&L as of 2014;
Remaining 50% recognized as "other current liabilities" (not non-controlling
interests) at fair value (EUR 37.1 mn)
5
Sales revenues driven by sustainable long-term organic growth
€ mn
459 475528
6086581
579
796
1,033²
1,1271,175
0
200
400
600
800
1000
1200
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
1 Incl. acquisitions of SEVEX (~ EUR 46mn sales) and Marusan (~EUR 14 mn sales)
² Incl. acquisitions of Flat gaskets business of Freudenberg (~ EUR 53 mn sales) and Hug Group (~ EUR 29 mn sales)
6
Earnings before taxes
65.2 70.9
87.6
114.9
60.0
49.4
94.0
113.91
123.6
131.62
0
30
60
90
120
150
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
€ mn
1 Excl. one-time gain of EUR 22.7 mn from sale of industrial park 2 Excl. one-time gain of EUR 17.6 mn resulting from the assumption of control of ElringKlinger Marusan Corporation
7
Group sales by segment 2013 (py)
OE share higher due to new product ramp-ups (incl. Hug CARB)
and structural growth
Engineered Plastics
7.8% (8.1%)
OEM
80.9% (80.4%)
Services
0.7% (0.6%)
Aftermarket
10.2% (10.5%)
Industrial Parks
0.4% (0.4%)
8
Group sales by region 2013 (py)
Asia and exports drive growth
Germany
30.7% (30.1%)
NAFTA 17.1% (17.5%)
incl. exports: ~25% of OE sales
South America and Rest of World 5.6% (6.1%)
Rest of Europe 30.5% (30.4%)
Asia-Pacific 16.1% (15.9%)
incl. exports: ~25% of OE sales
9
Employees of ElringKlinger Group worldwide –
strong increase in Asia due to consolidation effects
AG
2,301 (2,059)
Domestic
subsidiaries
754 (859)
International
subsidiaries
3,661 (3,345)
as of December 31, 2013 (py)
Group
6,716 (6,263)
+7.2%
Germany
3,055 (2,918)
10
FY 2013: Sales and operating result
1 Incl. amortization of capitalized development cost of EUR 6.3 mn previously reported under R&D cost
² Incl. currency effects 3 Excl. EUR 17.6 mn one-time gain from assumption of control of ElringKlinger Marusan Corporation, EUR 1.4 mn one-
time gain from step acq. of ElringKlinger Korea Co., Ltd., EUR 1.8 mn restruct. charge Nantiat, EUR 1.5 mn except.
expense Aftermarket
in € mn
FY
2013
(reported)
FY
2013
(adjusted3)
FY
2012
Change in
%
(adjusted)
Sales 1,175.2 1,175.2 1,127.2 +4.3%
2
Cost of sales 846.21 846.21 815.0 +3.8%
EBITDA2 236.3 220.6 215.2 +2.5%
EBIT2
160.4 144.7 135.8 +6.6%
Operating result 164.9 149.2 138.6 +7.6%
11
FY 2013: Financial result and net income
in € mn
FY
2013
(reported)
FY
2013
(adjusted1)
FY
2012
Change in
%
(adjusted)
Net finance cost 15.7 15.7 15.0 +4.7%
EBT 149.2 131.6 123.6 +6.5%
Taxes 38.0 33.1 34.4 -3.8%
Net income 111.2 98.5 89.2 +10.4%
Profit attributable to
EK shareholders 105.4 92.7 85.7 +8.2%
EPS (in €) 1.66 1.46 1.35 +8.1%
1 Excl. one-time gain of EUR 17.6 mn before taxes and EUR 12.7 mn after taxes resulting from the
assumption of control of ElringKlinger Marusan Corporation
Sales by quarter
283.8 286.0 279.8 277.6286.8
303.3294.0 291.1
100
150
200
250
300
350
Q1 Q2 Q3 Q4
2012 2013
€ mn
37.5
41.2
0
10
20
30
40
50
60
Q1 Q2 Q3 Q4
2012 2013 13
Adjusted operating result by quarter
€ mn
36.5
1 Excl. one-time effects: Charges of EUR 1.8 mn in Q1 and EUR 1.5
mn in Q3, gains of EUR 1.4 mn in Q1 and 17.6 mn in Q4
34.21
39.0
33.71
25.6
40.11
0
10
20
30
40
50
60
Q1 Q2 Q3 Q4
2012 2013 14
Adjusted EBIT by quarter
€ mn
36.0
1 Excl. one-time effects: Charges of EUR 1.8 mn in Q1 and EUR 1.5
mn in Q3, gains of EUR 1.4 mn in Q1 and 17.6 mn in Q4
32.61
37.3 36.21
24.2
36.61
38.3 39.3
15
Sales of OE business up 5.4% yoy in Q4
€ mn
906.6951.0
227.3 239.6
0
200
400
600
800
1000
1200
FY 2012 FY 2013 Q4 2012 Q4 2013
Adjusted EBIT +10.0%
2012: 93.1
2013: 102.4 +4.9%
+5.4%
16
Aftermarket sales down slightly yoy in Q4
€ mn
117.8 119.3
26.6 26.4
0
30
60
90
120
150
FY 2012 FY 2013 Q4 2012 Q4 2013
Adjusted EBIT -2.5%
2012: 24.4
2013: 23.8 +1.3%
-0.8%
17
Sales of Engineered Plastics up 8.3% yoy in Q4
€ mn
91.3 92.6
20.5 22.2
0
20
40
60
80
100
120
FY 2012 FY 2013 Q4 2012 Q4 2013
Adjusted EBIT +1.9%
2012: 15.7
2013: 16.0 +1.4%
+8.3%
18
Consistent cash flow generation
148.8
126.2
74.5
112.3120.0
0
40
80
120
160
200
2009 2010 2011 2012 2013
Net cash from operating activities
€ mn
19
Development cash flows 2014
€ mn
-4.7
20
Balance sheet structure as of December 31, 2013
Equity ratio stable at above 50%
40.8 41.425.8 22.3
59.2 58.6
23.6 27.2
50.6 50.5
December 31,
2012
December 31,
2013
December 31,
2012
December 31,
2013
Assets in %
Non-current liabilities
Current liabilities
Equity Non-current assets
Current assets
Liabilities and Equity in %
21
Consistent dividend policy: 5th consecutive increase of regular
dividend
0.150.20
0.35
0.4010.45
0.50
2008 2009 2010 2011 2012 2013
€
1 Regular dividend
1.00
0.80
0.60
0.40
0.20
0
22
2013: Effects of Freudenberg acquisition
in € mn Freudenberg in € mn Freudenberg
Q1 Q2 Q3 Q4 FY Q1 Q2 Q3 Q4 FY
Sales 13.4 12.9 11.5 12.6 50.4 EBIT -1.3 0.5 1.1 2.7 3.0
PPA - - - - - EBT -1.5 0.3 0.9 2.4 2.1
German and Italian Freudenberg sites have reached Group margin
French site: Loss-making in FY 2013 due to weak French car production (-13.6%)
and restructuring costs of EUR 1.8 mn booked in Q1
Overall dilutive effect of 0.3% on Group EBIT margin in 2013 from former
Freudenberg locations
23
2013: Turnaround at Hug – mission accomplished
Strong y-o-y growth of 57.4%
Drivers: CARB retrofit, inland waterway vessels and exhaust gas purification
systems for large natural gas engines
Successful turnaround and earnings swing
in € mn Hug in € mn Hug
Q1 Q2 Q3 Q4 FY Q1 Q2 Q3 Q4 FY
Sales 11.0 18.2 13.1 15.3 57.6 EBIT 1.1 3.9 2.3 6.0 13.3
PPA -0.5 -0.2 -0.3 -0.3 -1.3 EBT 1.0 3.8 2.2 5.9 12.9
24
Every engine needs a Hug: boosted by US retrofit
Buoyant demand from US retrofit business
for Hug diesel particulate filter systems
CARB legislation requires retrofit of on-
road vehicles above 6.34 tons operating in
California
Hug market share tops 30%
USP: Hug ceramic substrate & EK
precious-metal free catalytic coating
Expansion of production capacity in
progress
Hug 2014: single-digit growth in revenues,
EBIT margin above Group average
25
Every engine needs a Hug: off-road, on rails and
on the high seas
Large-scale non-automotive markets
Diesel locomotive retrofit in the US
Strong increase in demand for nauticlean
exhaust abatement systems (DPF/DeNOx/
HC) for inland water vessels
Public awareness and expected emission
legislation open up opportunities in ocean
ships – new filter system for bunker oil
Shale gas North America:
Exhaust abatement systems for natural gas
engine-based power plants
Product pipeline: recuperation catalyst to
avoid methane slippage
Hybrids: Combination of combustion engine & electric
drivetrain boosts value sold in
Optimized Combustion Engine
Core business:
Turbocharger sealing
Advanced HT gaskets
Thermal shielding parts
Plastic housing modules
Electric Drivetrain
Lithium-ion battery components
> Cell contact systems
> Pressure exchange systems
> EMR shielding
Fuel-cell components,
APUs/ complete stacks
Hybrid
Value sold in
max. Euro 40 to 60 Value sold in
Euro 100 to 150
26
E-Mobility: Fit for Future - Battery Components and Fuel Cell
Technology
Sales up 27.3% in 2013 at EUR 8.4 mn
Start of in-series production of cell contact
systems for first fully battery electric vehicle
from German premium OE
Over 100 engineers and specialists in R&D
and production, plus prototyping and SGA
High pre-expenses and ramp-up cost
Break-even possible already in 2015
Fuel-cell: auxiliary power units for trucks in
development (SOFC)
First small in-series contract for PEM fuel
cell stacks for material handling equipment
with large German logistics Group
27
28
Growing Asia strategy: Opportunities from stricter CAFE/
Euro-like emissions standards
Growing demand for EK product portfolio
focusing on downsizing and hybridization
Global LV sales growth in future will be
driven primarily by Asia
Capacity expansion in China: New plant
for PHM at Suzhou, extension in
Changchun (invest ~ EUR 25 mn)
ASEAN: At 3.5 million car production in
2013, ASEAN clearly outflanks e.g. India
Stepping stones in Indonesia and Thailand:
First production plant operating in Greater
Jakarta area
Foundation of sales company in Bangkok
New plant built in Gumi, Korea (invest ~
EUR 10 mn) following full takeover of JV
29
ElringKlinger enabling efficiency: Downsizing and lightweight
design key to CO2 reduction
27 mpg
Downsizing/
Powertrain
improvement
Body and
accessories
advancements
47 mpg
2011 2020 2030 2040
Lightweight
construction
Hybridization
Source: www.plugincars.com
30
Entry in new market lightweight body components
Combining metal&plastic: Hydro-Formed Hybrid technology
Largest contract in company history from
German premium OE for innovative body
parts in hydro-formed hybrid technology
SOP at EK in 2015 in PHM division
Projected lifetime sales volume (6y) to reach
EUR 120-130 mn + tooling
Substantial follow-up market potential
Market entry in high-growth market for
lightweight body and chassis components
EK Hummel features unique tooling expertise
and know-how in lightweight plastic designs
and composite laminates
Additional capex of up to EUR 20 mn in
2014/15; some pre-investments 2013
31
Capex going forward back within 8 to 10% of sales range
134.3121.6 114.3
82.296.8
79.4
0
40
80
120
160
200
2010 2011 2012 2013 2014e
127.2
76.0
Investments in property, plant and equipment and intangible assets
Depreciation and amortization
€ mn
Incl. new lightweight components project
~120-130
incl. PMH
~100-110
32
Outlook 2014: Markets show a mixed picture
EK expects overall worldwide car production to increase by 2-3% in 2014
Demand once again driven by China, ASEAN and to a lesser extent North
America; yet lower growth in percentage terms when compared to 2013
Europe to grow moderately in 2014, possibly a further pick-up in momentum
in 2015
Mixed picture in emerging markets: Mid single-digit decline percentagewise
in Brazil, Russia; India to recover from 2013 double-digit dip
Truck segment in Europe likely to be volatile in H1 due to pre-buying ahead
of Euro VI in Q4 2013; yet sales – better than feared – up 4% in Jan. 2014
Full year 2014: moderate decline
North American truck market continues to show solid growth, expected to
achieve an increase of almost 10% driven by economic recovery
33
Outlook 2014: Financial performance
in € mn FY 2013
Guidance
FY 2014
Sales 1,175.2 5-7% organic growth
(plus 25 mn scope change) 2
Adjusted EBIT 144.7 160 - 165
Investments 127.2 100 - 110
(+ up to 20 mn HFT)
Net debt 295.3 reduction
Full consolidation of EKMA to contribute additional EUR 25 mn in sales, but
Group EBIT margin dilution of 0.3 percentage points due to PPA
As of 2014, EBIT will no longer include currency effects and will – as is standard –
correspond to the operating result shown in the income statement
Order intake up 15.4% taking the figure to EUR 1,309.8 mn with order backlog 30.6%
higher at EUR 595.4 mn
34
35
Disclaimer – Forward-looking Statements and Predictions
This presentation contains statements about the future. These statements are based
on current expectations, market evaluations and predictions by the Management Board,
and on information that is currently available to them. The statements about the future
should not be interpreted as guarantees of the future developments and results that they
refer to. Whilst the Management Board are convinced that the statements that have
been made, and the convictions and expectations on which they are based, are realistic,
they rely on suppositions that may conceivably prove to be incorrect; future results and
developments are dependent on a multitude of factors, they involve various risks and
imponderabilities that can affect whether the ongoing development deviates from the
expectations 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.