Foreword 2020

Dear Shareholders,
Ladies and Gentlemen,

The financial year just ended was both extraordinary and challenging. With the world in the grip of the coronavirus pandemic for almost the entire year, everyday life and economic activity went into hibernation. What is more, the pandemic is still far from over.

At ElringKlinger, we felt the effects too. Indeed, we were forced to adapt production in line with demand in the spring of 2020. And yet, we also knew that the downturn would be temporary. With this in mind, we decided to process incoming and outgoing goods simultaneously. On the one hand, we closely monitored the demand levels of our customers in order to control production and delivery in line with the market; on the other, we clearly communicated the purchase situation to our suppliers with a view to preventing supply chain interruptions and sidestepping exposure to shortages in preparation for the expected post-­lockdown recovery. Our central areas – the emphasis being on Purchasing, IT, Production, Supply Chain Management, and Sales – have been doing sterling work in this area along with our business units.

When demand began to rise again as the lockdown was eased, we were ready. In China, thanks in part to the commitment of our employees on site, things soon went back to normal. As I mentioned at the last Annual General Meeting, when employees found themselves unable to return to their workplaces on time after the New Year celebrations because of national travel restrictions, administrative staff volunteered to take on production tasks after a brief induction phase – just to get things moving again as fast as possible and assist the return to normal levels. This illustrates the deep and worldwide sense of community we have fostered at ElringKlinger. In fact, mutual support was in evidence throughout our global regions as we tailored our operations to market recovery in line with demand.

With this example in mind, I would like to extend my heartfelt thanks to our employees on behalf of all my colleagues on the Management Board. Their day-to-day dedication, their expertise, their flexibility, and their dependability were critical in enabling ElringKlinger to meet the challenges of a year overshadowed by Covid-19 with relative success.

In overall terms, despite the impact of the pandemic, ElringKlinger can point to a satisfactory financial year in 2020. While Group revenue fell by 14% to EUR 1,480 million – or by 12% where adjusted to take ­account of currency and M&A effects –, global automobile production contracted by fully 16% over the year as a whole; we therefore managed to outperform the market.

Both earnings and operating free cash flow, once again in three figures at EUR 165 million, reflect the success of our Group-wide program aimed at raising efficiency levels. Committed to improving key Group performance indicators for the long term, we have been implementing this program since 2019 – revamping numerous processes, ironing out inefficiencies, and cutting costs. In the process, we succeeded in improving our earnings structure (as measured by gross profit margin, for example), even if the pandemic obscured the true extent of our success. Group earnings before interest, taxes, depreciation, and amortization (EBITDA) were sustained at the previous year’s level despite the fall in revenue, while the EBIT margin stood at 1.9%.

The efficiency program also focused on other key indicators: inventory levels were optimized, trade ­receivables were actively controlled, and payment terms in relation to trade payables were extended. These measures resulted in improved net working capital, which in turn contributed to strong operating free cash flow. This enabled us to reduce net financial liabilities, while significantly expanding the Group’s financial scope with an enhanced balance sheet structure.

Over the past financial year, we also established some major strategic pointers to the future. As is clear from our partnership with Airbus, fuel cells represent a highly promising technology: if the aviation industry, with its stringent requirements, can envisage using fuel cells to support low-emission mobility, the tech­nology will surely meet the demands of road, rail, and water applications. The basis for the Airbus partnership is the high power density that characterizes the ElringKlinger fuel cell stack. Having thoroughly ­analyzed the market, Airbus finally chose ElringKlinger as a partner based on the persuasive properties of our stack – and being selected has motivated us to develop the technology for the long term.

Late in October 2020, we also concluded a strategic alliance with the French automotive supplier Plastic Omnium. Working in partnership through our subsidiary EKPO Fuel Cell Technologies, we will aim to open up the market for fuel cell stacks and components. To this end, we have contributed our technology and assets to the company, while Plastic Omnium will finance development, market exploitation, and capacity expansion over the next four years to the tune of EUR 100 million. The joint venture company is based at our headquarters in Dettingen/Erms.

Fuel cell technology is not the only area of transformation at ElringKlinger. At our Thale site, we have installed an assembly line for battery technology which in future will enable the Group to manufacture battery systems to meet existing series production orders. In the area of electric drive units, we have made every preparation necessary to ensure series production can commence at our British site during this financial year. In the E-Mobility business unit, therefore, we expect to see rapid growth in sales figures, plus contributions to earnings over time. In lightweight construction, meanwhile, we can point to expanding demand for our innovative product solutions.

Although we are focusing on new technologies and lightweighting in the development of new products and the exploitation of growth potential, our traditional areas of business continue to be highly important. We have created a new business unit: Metal Sealing Systems & Drivetrain Components brings together the former Cylinder-head Gaskets and Specialty Gaskets units but, as part of the new structure, also focuses heavily on alternative drive technologies. Clearly, we have no intention of relinquishing our strong market position for the classic products, which represent both the roots and the basis of ElringKlinger’s success. Having built up substantial expertise and technological know-how in these areas over the decades, we possess the knowledge of materials, products, and processes needed to develop innovative products for alternative technologies. To some extent, then, the transformation at ElringKlinger is being shaped by our traditional fields of business.

Thanks to the success of our efficiency enhancement program and the key milestones in fuel cell technology, the capital market has come to rate our Group higher: over the course of 2020, the price of ElringKlinger shares rose by more than 350% on the low point for the year seen in the spring. This encouraging development is a vindication of our strategy and shows that ElringKlinger is extremely well placed to face the future. On that note, I would like to thank you, our shareholders, for the trust you have shown in the Group.

The post-pandemic recovery and the transformation of mobility is presenting significant opportunities from which ElringKlinger will seek to benefit across all areas. I invite you to explore the growth potential of the Group – and hope you will enjoy browsing through this annual report.

Dettingen/Erms, March 2021