Foreword 2022

Dear Shareholders,
Ladies and Gentlemen

The 2022 financial year just ended, much like the years that preceded it, was not an easy one. Despite adverse conditions, however, we at ElringKlinger managed to bring the annual period to a satisfactory conclusion.

Our initial assumption had been that this would be a year of recovery. Having experienced the disruptions to the global economy and the many challenges afflicting the world as a whole in the wake of the coronavirus pandemic, we all longed for the transition toward normality and endemic containment. These hopes were dashed by the advent of war in Europe, which further exacerbated an already dire situation: commodity prices and energy costs spiraled, the availability of materials was again restricted, and supply chains were anything but stable. It gradually became evident that neither the war nor its repercussions would be short-lived. Today, the outcome remains shrouded in uncertainty.

What is certain, however, is that those affected have endured immeasurable suffering. Tens of thousands of people have lost their lives, thousands upon thousands their homes. Families have been separated, fears have been stoked. We shall remember the victims, while hoping that this terrible conflict will soon come to an end.

Looking toward the longer term, it is difficult to discern the possible consequences of the war, especially at a political level. Geopolitical tensions are becoming increasingly evident around the globe. The situation in the Middle East and further afield may deteriorate rapidly, as is the case in the Western Pacific. At the same time, it seems that the era of globalization and a common economic world order is being called into question. Resources, and limited accessibility to them in some cases, will be a key factor when to comes to future growth and innovation. The prospect of crises and recession looms large.

In a world awash with uncertainty, the manner in which one positions oneself as a company will become all the more important. For us in the automotive sector, a factor specific to our industry now also plays a pivotal role: the far-reaching process of transformation is progressing at pace. The figures speak for themselves: last year, around 21.8 million hybrid and all-electric vehicles rolled off the production lines. Compared to the precovid year of 2019, this represents a significant increase in both absolute and relative terms: while 7.4 million vehicles with new drive technologies were produced in 2019, accounting for 8.4% of total light-vehicle production, the 21.8 million vehicles manufactured in the financial year just ended represent 26.4% of total output in this market segment.

We at ElringKlinger have benefited from this trend, precisely because we positioned ourselves accordingly at a very early stage. The subsidiary EKPO Fuel Cell Technologies (EKPO), for example, has already been supplying stacks for logistics vehicles and for fuel cell applications in the aviation sector. Committed to further market cultivation, EKPO opened a facility in China in 2022. In Suzhou near Shanghai, the first locally produced stack has already left the factory premises. We also secured further contracts in the field of Battery Technology, including, for example, battery systems for fast-charging stations. In addition, the Group is making preparations for a large-scale production order that is scheduled to ramp up in 2023: a global battery manufacturer will be supplied with cell contact systems destined for the series platform of a European carmaker. And last but not least, our business centered around electric drive units continues to generate revenue from the series production order placed by a high-end sports car manufacturer. As you can see, business in the area of new technologies is brisk.

At ElringKlinger, however, the process of transformation toward next-generation mobility is by no means limited to the E-Mobility business unit. Our long-standing areas of business – still strongly focused on the combustion engine ten years ago – have also evolved. The Metal Sealing Systems & Drivetrain Components business unit, whose focus formerly was on gaskets, for example, has now turned to mass-manufacturing products such as disk carriers for all-electric vehicles. In parallel, the unit is pressing ahead with R&D in an effort to apply the company’s far-reaching expertise in metal processing to other fields of innovation, especially in the area of rotor/stator technology. Similarly, the Lightweighting/Elastomer Technology business unit is already generating substantial revenue from innovative solutions for all-electric vehicles. The new plant for lightweight components in Texas provides a springboard for sustained growth in the future. As you can see, our business centered around new technologies is also progressing well in an area formerly dedicated to conventional forms of transport. ElringKlinger lives and breathes transformation. However, this also means that we have to adapt to declining demand in certain product groups focused on the combustion engine.

Given the influencing factors outlined above, the 2022 financial year can indeed be considered encouraging. We recorded organic revenue growth of 7.4%, thus outpacing the global market, which expanded by just 6.7%. As a result, revenue surged to an all-time high of EUR 1,798 million. Earnings performance, by contrast, was severely impacted by a key external factor: spiraling interest rates in the second quarter as a result of inflationary pressures prompted impairments of goodwill of EUR 86 million at the end of the first half. Overall, exceptional items totaling EUR 103 million had an adverse effect on our earnings performance in 2022, resulting in a loss before interest and taxes of EUR - 42.2 million. From an operational perspective, i. e., adjusted for these exceptional items, we recorded positive EBIT of EUR 61.0 million, which corresponds to a margin of 3.4%. On this basis, we slightly exceeded the updated guidance presented in our report on the first half of the year – an encouraging achievement when viewed against the backdrop of surging commodity, energy, and transport prices. Against this background, the Management Board and the Supervisory Board have jointly decided to propose to the Annual General Meeting a dividend payment of EUR 0.15 per share. In this context, both Boards take the view that the Group has an earnings structure that is fundamentally positive; performance has merely been obscured by non-recurring exceptional items.

We also met our guidance presented in the first-half report when it came to the other key financial indicators. Despite a prudent approach to inventory management that saw us focus on safeguarding production in response to the limited availability of raw materials and issues within the supply chain, we managed to restore our net working capital ratio to 25.1% in the course of the year – very close to the initial level. What is more, positive operating free cash flow of EUR 14.8 million provided a basis for reducing net financial liabilities again slightly year on year to EUR 364 million despite difficult underlying conditions.

Building on these fundamentals, we are powerfully positioned to embark on the next stage of transformation. Indeed, our strategy is geared toward taking this step forward. The financial year ahead will see the ramp-up of series production for incoming orders in the strategic fields of the future centered around e-mobility and lightweighting. We will continue to grow. Our plan is to generate revenue of more than EUR 3 billion in 2030. The innovative alignment of our product portfolio provides a suitable platform for growth. In supplying components such as cell contact systems or bipolar plates, we are able to address the needs of manufacturers who are keen to retain system expertise in the field of new drive technology within their own companies. At the same time, our product range includes battery modules and fuel cell stacks. And last but not least, we are also in a position to supply entire battery systems or electric drive units if a customer is in search of end-to-end concepts. We offer solutions tailored to any requirement – not just in terms of technology but also when it comes to the degree of vertical integration.

Having said that, innovative products are by no means our only key to success as we move forward. We will continue to establish optimal vantage points in other areas, too, with a view to propelling ElringKlinger to the next level. First and foremost, I would like to mention our employees, whose ideas and dedication help to underpin the success of our company on a daily basis. I would like to thank them for their contribution, also on behalf of my colleagues on the Management Board. A healthy corporate culture is integral to a Group striving for success, and we are keen to refine this culture continuously. Quite simply because ElringKlinger wants to remain a modern, attractive employer well into the future. At the same time, we have geared ourselves up structurally as a Group for further growth by standardizing and – where necessary – honing certain processes. It is not only in this context that we intend to unleash the tremendous potential of digitalization in an effort to operate more effectively and efficiently as a Group.

As a player within the economic and social arena, however, ElringKlinger also accepts its corporate responsibility. For us, sustainability is a priority. Our products have always reflected our focus on sustainable mobility. We are now determined to reach the next milestone and reduce our environmental footprint. The Group has already achieved net carbon neutrality for its German manufacturing operations, and this will also be implemented worldwide by 2030. The wind turbine operated at the UK site in Redcar has been complemented by photovoltaic systems in Germany, India, and China. We also cover part of our electricity requirements by operating our own combined heat and power units. We are fully committed to continuing on this path.

But sustainability goes far beyond environmental awareness. For us, sustainability also means clearly defined governance structures and a commitment to engaging with the community as a whole, especially at the various sites operated by the Group. At the heart of this awareness, of course, also lies a commitment to the socially disadvantaged – in keeping with the values embraced by our company founder Paul Lechler.

Dear Shareholders, ElringKlinger’s route has been charted. We have mapped out a clear path to help shape the mobility of tomorrow. ElringKlinger will use this transformation to its advantage. 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 for the trust you have placed in ElringKlinger.

Dettingen/Erms, March 2023

Yours sincerely,