Progress Werk Oberkirch : Quarterly Statement 1st Quarter of 2021

QUARTERLY STATEMENT 1ST QUARTER OF 2021

QUARTERLY STATEMENT | 1ST QUARTER OF 2021

LETTER FROM THE EXECUTIVE BOARD

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LETTER FROM THE EXECUTIVE BOARD

DEAR SHAREHOLDERS AND BUSINESS ASSOCIATES,

We are pleased today to report to you a satisfactory first quarter of the 2021 fiscal year. The figures are better than expected. We therefore raised our forecast for the 2021 fiscal year on April 23.

Our locations in Mexico and China, in particular, achieved a significant increase in revenue and EBIT before currency effects. The Czech location also contributed stronger revenue to the Group's positive performance. EBIT before currency effect remained at a high level despite expenses to expand this location.

The German and Canadian locations generated revenue and EBIT before currency effects in the first quarter that were lower compared to the previous year. In Germany, we are vigorously continuing our measures to adapt this production location. In Canada, customers have slightly postponed the planned production startups of some follow-up and new projects. An improvement in the current situation is already foreseeable.

We were also successful in generating new business in the first quarter - once again underscoring our outstanding solution expertise in the trends of electrification, safety and comfort for the mobility of the future. Our strategy of expanding our product portfolio for existing customers is proving very successful. We will now start supplying another one of our existing customers for the first time with instrument panel carriers. In addition, we are strategically expanding our contacts with new customers in a targeted manner.

When it comes to finding solutions for new requirements and pushing the limits of what is technologically feasible in metal forming and joining technology, our customers see us as their preferred partner. We bring the most sophisticated design into large-scale production for them and are often involved in accomplishing this at a very early stage of the project. To this end, we rely through and through on digitalization. In this way, we increase the quality and efficiency of our processes and still keep a close eye on their sustainability to make our contribution to improving the living conditions of current and future generations.

Far-reaching changes have been initiated within the Group. We are rapidly working to implement these in the best possible way. Extensive open credit lines give us the flexibility and scope to position the Group to best seize the market's opportunities.

Oberkirch, May 2021

The Executive Board

QUARTERLY STATEMENT | 1ST QUARTER OF 2021

BUSINESS DEVELOPMENT

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SELECTED INFORMATION ON THE SEGMENTS AND THE GROUP

EURK

First Three Months of 2021		Germany		Czechia		Canada		Mexico		China		Consoli-		Group
												dation
												effects
Total revenue	58,618	20,609	7,378	16,378	12,230	0	115,213
External revenue	55,676	19,856	7,273	16,358	11,019	0	110,182
Total output	58,804	20,609	7,378	16,378	12,230	-5,032	110,367
EBIT before currency effects	850	1,676	-281	1,953	1,465	24	5,687
EBIT including currency
effects	882	1,666	-332	1,953	1,690	66	5,925
Capital expenditures	1,044	550	264	97	96	0	2,051
First 3 months of 2020
Total revenue1	60,181	19,587	9,715	14,875	8,772	0	113,130
External revenue	56,828	19,269	9,692	14,875	8,184	0	108,848
Total output	60,417	19,587	9,715	14,875	8,772	-4,281	109,085
EBIT before currency effects	2,482	2,029	179	1,021	1,133	0	6,844
EBIT including currency
effects	1,482	2,087	356	1,031	1,126	58	6,140
Capital expenditures	811	314	432	1,122	339	0	3,018

1 Prior year adjusted due to change in accounting (see 2020 Annual Report, Note 5, chapter "Contract assets")

RESULTS OF OPERATIONS

Revenue in the first quarter of 2021 improved slightly to EUR 110.2 million (p/y: EUR 108.8 million). This was a pleasing development, considering not only that we are still in the middle of a corona-induced recession in many countries but also the fact that the first quarter of 2020 was hardly affected by the corona crisis.

While business is picking up again in some parts of the world, the economic development of our industry is still modest, particularly in Germany. We will explain the development of our locations in more detail in the Segments chapter that follows.

EBIT before currency effects did not quite match the level of the first quarter of the previous year. Earnings were particularly adversely affected by an increase in the cost of materials ratio to 53.1 percent (p/y: 51.2 percent). This increase was a result of both a slight change in the product mix as well as rising material prices, the passing on of which we are still negotiating with some of our customers.

The staff costs ratio, in contrast, had a positive effect in the first quarter declining to 27.9 percent (p/y: 29.1 percent). The decline mainly originated from our international locations, which had adjusted their personnel capacities last year and are now only gradually recruiting new staff as business picks up again. The depreciation ratio also decreased to 5.3 percent (p/y: 5.9 percent) due to the tight control of capital expenditures over the past year.

The ratio of other operating expenses to revenue added some pressure, increasing to 12.6 percent (p/y: 12.0 percent). While expenses for temporary employees declined, there was an increase particularly in expenses for external repairs and maintenance work, as well as for the expansion of our international locations and securing the future viability of our German production site.

Including currency effects, EBIT in the reporting period amounted to EUR 5.9 million (p/y: EUR 6.1 million).

At EUR 1.5 million (p/y: EUR 1.6 million), financial expenses remained essentially at the prior year's level. Income taxes decreased, primarily due to the utilization of loss carryforwards at the international locations in Mexico and China. Overall, net income for the period improved to EUR 4.1 million (p/y: EUR 3.5 million) and earnings per share to EUR 1.32 (p/y: EUR 1.11).

SEGMENTS

The PWO Group is represented worldwide by five production locations and three assembly locations. Since the latter are separate operating facilities of the production sites, the following explanations are based on the five production locations and subsidiaries. In addition, when discussing the results of the segments, we refer to EBIT before currency effects, as this figure reflects the operating performance.

At our German location, total revenue remained below the prior-year level due to market conditions. We are currently implementing a comprehensive package of measures at this production location to increase competitiveness and resume growth. Measures include adjusting our staff resources, following the visible reduction in our staff numbers during the 2020 fiscal year.

QUARTERLY STATEMENT | 1ST QUARTER OF 2021

BUSINESS DEVELOPMENT

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On January 1, 2021, a further 74 employees were carried over into a transfer company. At the end of the first quarter of 2021, 217 fewer people were employed at the location than at the same reporting date of the prior year. This decline contributed to a slight year-on-year reduction in the staff costs ratio in the reporting quarter despite the decline in total revenue. Nevertheless, at 35.1 percent, this ratio is still too high. We will therefore continue our efforts, which focus on process improvements in production and administration as well as the development of more specialized, data-driven manufacturing with corresponding digitalization in all areas of the site, at a rapid pace.

In the Czechia segment, there was an encouraging increase in total revenue in the first quarter of 2021. Despite the expenditures incurred to expand this location, EBIT before currency effects remained at a high level. Czechia is already home to the PWO Group's "Seat" competence center, where solutions for global applications are regularly developed. In the future, the production of instrument panel carriers for European customers will be expanded to become this location's second major focus. An order in this area from a new customer, which is explained in the "New Business" chapter, represents a significant milestone on this journey.

The Canada segment is set to see an increase in total revenue as soon as customers call up the substantial volumes required for the planned new ramp-ups. One customer slightly postponed a new start-up scheduled for the first quarter. Despite a visible decline in total revenue in the reporting period, strict cost management enabled this site to achieve EBIT at just below break-even. The start of series production is already leading to a foreseeable improvement in the current situation.

The Mexico segment in the reporting period had total revenue benefiting from both the solid market development and new ramp-ups. This location was therefore able to grow significantly and almost double its EBIT. For some time now we have been seeing ever-better performance and more stable profitability at this location. With increasing revenue, it will make an ever greater contribution to Group EBIT and become a growth driver for the Group.

The China segment in the first three months of the current fiscal year increased its total revenue significantly more than we expected. This growth was largely driven by the sharp increase in demand now that China appears to have largely overcome the pandemic. EBIT at the Chinese location recorded a corresponding improvement. We have been able to significantly improve this location's performance over the past few years and will continue to expand our activities in China in a targeted manner.

NET ASSETS AND FINANCIAL POSITION

EQUITY RATIO

IN PERCENT

40.0
						30.3
	30.6
						28.7		29.1
30.0				28.2

20.0

10.0

0.0

Q1	Q2	Q3	Q4	Q1
2020	2020	2020	2020	2021

The development of the balance sheet reflects the pick-up in business after the corona-ridden 2020 fiscal year and, at the same time, the continued low volume of capital expenditures in the reporting period. At EUR 224.4 million, non-current assets remained at the level of December 31, 2020, while receivables and other assets increased to EUR 113.1 million, compared with EUR 106.2 million at the end of the past fiscal year. Cash and cash equivalents increased from EUR 6.2 million to EUR 23.6 million as of the reporting date.

On the liabilities side of the balance sheet, equity increased to EUR 113.1 million, compared with EUR 104.5 million as of the reporting date of December 31, 2020. This resulted from the net income for the period and a lower valuation of pension provisions due to changes in capital market interest rates.

In addition, in line with the increase in current assets, we expanded current liabilities to EUR 142.9 million from EUR 119.2 million and, particularly, trade payables and current financial liabilities.

QUARTERLY STATEMENT | 1ST QUARTER OF 2021

BUSINESS DEVELOPMENT

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Overall, the equity ratio improved to 29.1 percent as of March 31, 2021, compared to 28.7 percent at the beginning of the fiscal year. Net debt remained virtually unchanged at EUR 102.7 million after EUR 102.5 million.

We have extensive free credit lines, which give us the scope to continue our corporate strategy even in the event of a possible deterioration in the pandemic's situation. In the first three months of 2021, we additionally raised KfW financing in the amount of EUR 30.0 million, which is due in December 2023 but can be repaid at any time.

Cash flow from operating activities decreased to EUR 4.0 million in the first three months of the current fiscal year, compared with EUR 13.8 million in the previous year. A higher level of working capital contributed to this. The change in current assets resulted in a negative cash flow effect of EUR 9.1 million, compared with a positive effect of EUR 6.3 million in the first quarter of the previous year. In addition, payments were made as part of the personnel adjustment measures. The balance of other non-cash expenses/income amounted to EUR 4.1 million after EUR -0.1 million. The increase mainly reflects effects from the change in pension provisions.

The cash outflow from investing activities remained low at EUR 1.8 million (p/y: EUR 2.9 million). Capital expenditures in the reporting period are explained below. Free cash flow after interest paid thus amounted to EUR 0.7 million (p/y: EUR 9.2 million).

Including the net assumption of borrowings and lease liabilities of EUR 14.1 million, cash and cash equivalents increased by EUR 14.8 million in the reporting quarter. In the previous year, borrowings and lease liabilities had increased by a net amount of EUR 4.9 million, resulting in a change in cash and cash equivalents of EUR 14.1 million.

CAPITAL EXPENDITURES

In the quarter under review, capital expenditure, as reported in the segment report, was still clearly influenced by our liquidity-focused management of the past fiscal year. At EUR 2.1 million (p/y: EUR 3.0 million), they were below the low figure of the previous year. At EUR 1.0 million (p/y: EUR 0.8 million), only the Germany segment accounted for a significant volume. This related in particular to a setting automation system to increase the process efficiency of a press and a down payment for a fully automated milling center in the tool development area within the scope of our digitalization project. In the Czechia and Canada segments, project-related capital expenditure of EUR 0.6 million (p/y: EUR 0.3 million) and EUR 0.3 million (p/y: EUR 0.4 million) were made. Capital expenditures in Mexico and China were low.

In the further course of the fiscal year, capital expenditure will increase again as planned and, at more than EUR 20 million for the year as a whole, is expected to significantly exceed the volume of the past fiscal year of EUR 13.8 million. We will be making targeted investments in productivity measures and process improvements as well as in new series projects.

NEW BUSINESS

NEW BUSINESS (LIFETIME VOLUME OF SERIES AND TOOLS)

IN EUR MILLION

250
200								190
150														135
	120
100
												50
50						40
0
		Q1		Q2		Q3		Q4		Q1
2020	2020	2020	2020	2021

Our range of solutions focuses on the trends of electrification, safety and comfort for the mobility of the future. The high level of new business in the first quarter underscores our outstanding solution expertise in these areas. In total, we generated new business of around EUR 135 million in the first three months, including associated tool volumes of a solid EUR 17 million. Larger volumes relate to components for the air suspension of various premium class vehicles of a renowned international manufacturer, which we will manufacture at the Oberkirch location.

In addition, we will be manufacturing instrument panel carriers going forward at our Czechia location for the all-electric touring sedan of one of our key customers.