HELLA GmbH & Co. KGaA

Good morning, afternoon, ladies and gentlemen, and welcome to the HeLa GmbH and Co. KGaA conference call regarding HeLa results first quarter financial year 2024. The call will be hosted by Bernhard Schäfer-Barthold and Philippe Viennet. At this time, all participants have been placed on a listen-only mode. The floor will be open for questions following the presentations. Let me now turn the floor over to Mr. Bernhard Schäfer-Barthold.

Everyone, welcome to our results call on the first quarter for the fiscal year 2024. I'm very happy together with Philippe to present you our results and to take your questions afterwards. I would like to start with the highlights of the first quarter. So first of all, again, we would like to highlight the refinancing of our bonds, which matures in May 2024. We successfully placed the promissory note, which was significantly oversubscribed, so that we increased the total amount to 200 million euros with very attractive terms. Secondly, we completed the sales on our 50% share in BHTC, which we already commented also before the closing happened on the 2nd of April. Therefore, the effects within our results would only be seen within our half-year results Overall, a very successful transaction. The proceeds were in total 205 million euros. The capital gain which we have with that transaction is around 100 million. On the order intake, we had quite a good start into the year. Specifically in electronics, we were able to book some very decent projects. One highlight is a significant project on lighting electronics for North and South America. But also in energy management, we booked several different businesses. We expect overall a good continuity and a good momentum on order intake in the following quarters to come. Again, to mention the last years were record order intake years. We expect overall that we can maintain this momentum and be around the number we had last year. Lastly, I would like to highlight on our sustainability report, which we also published. We have reached, again, an effort in our CO2 reduction, more than 50% of reduction on CO2 in comparison to the 2019 basis. It's a good step forward. to our target we have in 2025 to be scope one and two emission-free. And we continue to work on our scope three targets in being scope CO2 emission-free until 2045. We put a lot of effort to that topic as well. If we look at the numbers, our sales growth is organically at 2.2%. As mentioned also before, this includes the full consolidation of HVBL. We agreed last year with our joint venture partner in the continuity of our partnership, which lasts already for more than 10 years. So we are fully consolidating now that activities which before was also consolidated, but only at equity. This effect was contributing 77 million two-hour sales in the first quarter. We had a negative FX effect. So overall, I can state that The year was as expected, the start into the year was as expected. We have seen some delays in SOPs on customer side where actually we would now see that the ramp-ups are starting as of now and should contribute to a further growth in the upcoming quarters. We had a slight effect due to a lower number of electrified cars in the produced volumes, but which was not very significant in comparison also to our expectations in the first quarter. So overall, we would see that this quarter should be the lowest one in 2024 overall, so that we are quite confident in terms of our outlook overall on the full year with the expectation of better sales development in the upcoming quarters. So overall, if you look at the different business groups, so electronics with a slightly slower start, the highest impact in terms of delayed SOPs. As I said, a slight impact on lower volumes with electrified cars in Europe. But we see as of now that sales in electronics should be better over the year. Lighting, the growth comes specifically with the fully consolidated activity in China, as I mentioned. And lifecycle solutions, we had a good development again in our independent aftermarket with the growth in comparison to last year. On the other hand side, our special application business was slightly lower in terms of sales in comparison to last year because of weak market environment specifically for trailers, but also less sales for agriculture and construction in comparison to the year before but overall for life cycle a decent development. If we look at the operating income, we are at 5.6%. We expect that the margin should improve and this is again in comparison also to last year where the 5.6 was the lowest margin we had. We have a similar expectation also for this year, so we expect an improvement in the quarters to come, driven by, on one hand side, a better sales development, but also we had, in terms of a path through to the of inflation to our customers. We are still in percentage and in relative terms very comparable to last year where only around 40% of the inflation and price increases were agreed with the customers so far. We expect that we will improve this figure as we have done it also in the last years in the quarters to come and this should specifically improve also our margin in the upcoming quarters. In addition, we increase our cost reduction efforts. A part of it we already mentioned with our European Structural and Improvement Programme that we are enforcing our efforts to reduce the cost as well in the upcoming quarters so that overall We feel confident in regard to our outlook to be between 6% and 7% in terms of operating income margin to the end of the year. On the net cash flow, we are at minus 51 million. We had quite a high level of capex in the first quarter. expect this run rate in the upcoming quarters. So we would see for the full year capex to be around the number we had last year on the working capital. we had an increase in comparison to the end of the year 2023. We are at a level where partially the overdue specifically on the receivables were higher, so we have not been paid to the end of March. This is something where we are working on and we overall expect if we look at our measures we have to further reduce working capital in terms of inventories as well but also on the receivable side to improve there. We see that we should come back in working capital and even improve in comparison to 2023 so that taking that into account, an improvement in profitability, a lower capex run rate in the following quarters, and a working capital coming back to an even better level in comparison to last year, we feel comfortable to reach our guided net cash flow target of around 3%. Having said that, I would like to hand to Philippe for more details on the financials.

Thank you Bernard. Good morning to all. So looking at the sales into more detail, so we posted sales at 2 billion, which is, as I said, representing an organic growth of 2.2%, or 43 million, and we have been impacted by 30 million of negative FX impact. which means that the reported sales are by 0.6%. So I said also the growth is coming mainly from lighting with the integration of the full consideration of HVBL. We continue to have some good positive momentum on the radar business with electronics and on the independent aftermarket with life cycles. So if we go to the profitability per segment, so lighting, we show some sales growth, organic sales at 5.8%. And operating margin going from 2.4% last year to 3% this year. So again, here we have in the cells the consolidation of HBBL. We have the highest demand on Asia and China on some electric vehicles, but slightly negatively impacted in China with some car models which are changing right now. On the operating margin side, so we have the full effect of the consolidation. And we have also seen some SG&A reduction and lower personal cost in lighting. If we go to electronic, so here the organic evolution of the cell is a minus 2.2%. And despite the reduction, we are showing an operating margin going from 5.7% to 6.3% in 2019. So again, on the sales, we still see some good momentum on the radar demand and growth, but we are impacted by lower electrification in Europe and some delay in some ramp-up, which is impacting negatively our sales. On the operating margin side, the profit is improving with a reduction of the material cost and we have also less SG&A cost and less R&D cost in electronics. If we go to life cycle, life cycle is showing an organic growth of 1.4% and operating margin going from 37 to 34, so 13.1 to 12.1%. So here on the sales side, we have growth on the spare part business, especially in Europe, but we have a negative impact coming from the agriculture and in the commercial business, which is impacting negatively the sales trend. And we also enjoyed last year in Q1 the increase of the counter demand, the particle counter demand increase, which is affecting a little bit the comparison with 24. on the operating income side here also we have an increase of the gross margin due to the product mix and material ratio but we have a higher rnd and hdna cost mostly with the distribution cost mostly due to the full integration of the budget business into the lifecycle segment So looking at the sales per geography. So in America, we are showing sales which are down by 1.2% versus market growth of 0.3. In Europe, we are showing a minus 1.5 sales versus a market which is down by 2.5%. And in Asia-Pacific, 8.2% sales increase for EVA versus a market which is down by 70 basis points. Looking at the operating income and comparing it with 23, so again sales up by 0.6%. The gross profit is increasing at 25.3% versus 24.6% last year. This is coming mostly from a material ratio which is improving. Then if we look at the R&D cost, we are slightly above last year with some investments due to the upcoming launches and linked to the ordering tech, so we are continuing to invest on the R&D side. On the SG&A, we are showing some increase, but mostly linked again here to the distribution cost, linked to the lifecycle segment, as I was mentioning before. And we are ending with an operating income at 111 in line with what was posted last year at 5.6%. And leading to an EBIT of 99 million at 5% versus 5.3 last year. Now if we look at the cash flow, so the cash flow was at minus 51 million in Q1 compared to 38 million last year. So as I mentioned by Bernard here, we have some increase in our working capital on the receivable side because of some customer overviews, so as already mentioned, so we have not been able to be fully paid in end of March by some customers. And some decrease in the trade payables. One point to mention also is we have reduced our factoring versus Q123 and we were at 48 million of factoring versus 19 million last year. And we have a high level of capex in Q1 at 9.7% of sales. So this increase was mainly seen in Q1. But also, as mentioned, we are not anticipating to continue on this trend for the rest of the year. So this should be much more normalized for the coming months.