Hella Gmbh Kgaa Unsp/Adr

Yes, good morning to all of you and very warm welcome to our call related to our preliminary results of the fiscal year 2024. Today's agenda on page two is on the results and also on the outlook for 2025. Please let me start on page four to give you an overall view on our key results. So overall, we surpassed first time 8 billion euros in 2024. If we look at the sales development, especially in Q4, we have seen a decent development for our business in the electronics. We have grown in electronics by around 3%. So a good acceleration, especially for our radar business, but as well for energy management and our body electronics business. Also, our business in aftermarket has grown in the fourth quarter quite decently. We had overall in the aftermarket a good year with an outperformance against the market, overall a growth of 4.4%. Negatively, within the lifecycle business, our business in SOE but as well workshop products declined so that overall lifecycle was shrinking. Negatively, we have seen in lighting that the fourth quarter was lower because of changes within bigger programs where we have seen ramp downs and we are actually in preparation for ramp ups. This is something which we will also continue to see now starting into the year for lighting overall, but more to that also when I come to the guidance overall. So the full year in total, it has been a year where we have been much impacted by delays on several programs. So overall, this has had an impact of around 2% on our growth. And as well, we have been impacted by slower volumes and much lower volumes in terms of electric cars, which also had an impact which was quite significant against our original planning, around 1.5% overall. If we look at our operating income, we are at 5.6% to the end of the year. The biggest impact on our profitability also against prior year was the underutilization of our production sites overall and the high volatility in the market we have seen. We have accelerated our cost reduction measures and our structural measures overall. We will later see that we have overall reduced globally by 2,100 headcounts to the end of the year, and we have accelerated on structural reduction measures overall in different countries. Specifically on Germany, we have achieved an agreement now with the Workers Council and the unions on the reduction of our lighting plant in Lippstadt, which is now in execution and where we are very close now to reach the last signatures we want to reach to come to the reduction of around 400 headcounts within our lighting plant in Lippstadt. On top of that, we have announced early this year the closure of our engineering hub in Berlin and as well as reduction of our engineering in Berlin. What also we will announce today is an additional voluntary program for Liebstadt where we will have a reduction of around 200 head counts which were Whereas this will be split between the electronics and also positions in lifecycle and as well in the holding. So overall, the message is we accelerate in terms of reduction on our fixed costs. And in terms of the structural measures, also Philippe will will highlight we continue on reducing the fixed cost base continuously. We aim to be below the level of last year's fixed cost by around 3%. And overall, against the original plan, what we have of more than 400 million euros of reduction, we are actually at a level which is around 15% higher in comparison to what we communicated last time. If we look at the net cash flow performance, we closed the year at 189 million. If we compare the numbers to prior year excluding the factoring, we are at a similar level to the previous year, this is a ratio to sales of 2.4%. And lastly, in terms of order intake, we again reached an order intake of around 10 billion. We are very pleased about this result, not only because of the significant amount. It's three years in a row that we reached 10 billion or more. It's also about the regional mix, the diversification in terms of customers and also important new product generations and innovations we have been able to position in the market. And this for us assures for the upcoming years that we will be able to grow and be much better balanced in the future. Now I would ask Philippe to comment also on more details in terms of our results.

Thank you, Bernard. Good morning to all of you. So looking at the results per business group, So we have a sales growth in lighting where, as it was said, electronic and lifecycle are showing more slight decrease versus 23. So if we start with lighting, lighting posted 4 billion of sales, operating income of 126 million and 3.2% of operating margin versus 3.4 last year. So in terms of growth for lighting, we have a growth in Americas. thanks to the new headlamp and new businesses also, which have been started mostly with, I would say, GM on the Chevrolet and Cadillac. But we have less sales in Europe with a ramp-down project in Europe. I would probably quote here the Tesla Model Y and the Mercedes V-Class also, which are ramping down. And in China, we have booked the full consolidation of HBBL, which is representing 271 million, but we also have a negative impact on the rest of the products or the sales, again, mostly on the Tesla, which is ramping down in China. So operating margin for lighting has been impacted by a positive mix, and the gross profit is doing pretty well. And we, again, have also the consolidation of HPBL. But on the other side, in Europe, we have underutilization of capacities, as it was said. And some measures are underway to continue to cut the cost in the structures. For electronics, 3.3 billion of sales. So it's around 2.3% sales decrease versus 23, with an operating margin at 226, which is in line with 23 level. So here we also have a strong growth in North America, in Americas, mostly on the radar business and mostly with GM. But on the other side, in Europe, as it was said, we are facing the electric market which is going down and some postponement of the programs. So we are declining a little bit in Europe, although we still have good sales on the radar business in Europe. And in China, we are also impacted by a negative mix on our electronic products with the good margin that we had on these products. So overall, the margin for electronic was stable versus 23. And the denative volume that we are facing compensated by lower R&D costs where we have been able to cut and save costs versus 23. On the life cycle, so here we have 1 billion of sales, which is minus 3.6% versus 23 with an operating margin of 99 million at 9.6 versus 11.9. So here we have two effects. We have on aftermarket, relatively good sales and solid sales versus 23. But on the special application, we are down versus 23, especially due to the commercial vehicle segment where we have faced lower volumes. So here it was also more difficult to flex on this part, on the industrial part. So the profit margin was a little bit showing a decline versus 23. And on your side, we are also having a good level of awards, and we are spending R&D costs to be able to develop this product for the future years. Now, if we go to the order intake with some example, So first, the good news, I think, is what was highlighted by Bernard. We are aligned with our strategy, which is basically rebalancing our portfolio ourselves a little bit more equally around the world. So the order intake is distributed equally between Europe, APAC and NSA. which is a good news again versus our strategy so if we look at some example in lighting so we are progressing in lighting with some nomination with the very high technologies content so for example on the carbody lighting we had some good award with illuminated grills and logos and panels for Chinese and European OEMs we also had a very good order intake with the SSLI technology for the lighting, again here with Chinese OEMs in the US and Europe. If we look at electronics here, we have major awards on the radar, Generation 5, again for Europe, also in the US. And we have also a very good momentum on the energy management and sensor from the Japanese OEM. And we can also quote here a very good award as well on the digital smart car access in North America, mostly in 2024. Lifecycle, we are also increasing our momentum, and we are doing a pretty good level of award in order intake in 2024, which is for German manufacturers on the agricultural side. We have also headlamps. We have intelligent battery sensors. So the order intake for lifecycle was pretty good for 24, and we sustained the sales level that we are having in our coming years. We continue and we accelerate our measure to cut the cost and improve our business performance. We have increased our target for 25 to 200 million versus the 150 million which was communicated earlier. We are targeting both 400 million by the end of 28. Here we are accelerating and increasing also the restructuring actions. Some of them have been done already in 24 and some others are already announced, as already mentioned. So in terms of headcount, we have been able to reduce by 1,100 headcount in Europe in 24 and 2,700 in the world, globally excluding HPVL. We have closed some locations in Germany, in Romania with R&D centers, and in Slovenia as well. And we have also downsized some locations, like Austria for lifecycle, Czech Republic, and France, Germany, and Romania, and Slovenia. In parallel, we are continuing to work on the digitalization, artificial intelligence to continue to reduce bureaucracy, increase efficiency, and be able to cope with the new measures which are also coming and which will be implemented in 2025. So again, we are accelerating and increasing our target to face the new reality and to be more competitive in the future.

Thank you, Philippe. So coming to the outlook for 2025 on page 10. So we expect our sales to be in the range of 7.6 to 8 billion. So this would be at the midpoint, it would be 7.8 billion of sales. The range reflects still the high uncertainty about volumes and the high volatility we continue to see. We also see a risk in terms of delays and how quick and fast and successful will be several ramp-ups which are planned in this year and where a part of our products are integrated and somehow there is also some uncertainty about volumes on electrified cars and we reflect basically the experience we had last year and what I commented within our range. The order book is giving us the opportunity also to be on the upper level but it's very difficult to predict. Within the different business groups we see quite a a good opportunity in terms of electronics and and also a life cycle overall so we we we have seen now in electronics a good momentum especially in the in the fourth quarter and we continue to see a good trend also towards some of our products like radar what i mentioned where we have quite a decent growth. We would also expect to continue now into 2025. In terms of lifecycle, we continue to see a good momentum in our aftermarket business. We think that we are at the low point in terms of our business and special application and where we expect in the following quarters that we should see some improvements, especially into the second half of the year. Lighting is in the process of significant program changes actually, so we have a slower start in lighting in the first quarter and we expect to pick up then in the second quarter and into the second half of the year overall. we think that we will have a decline in sales in lighting against prior years. So overall, again, we see 7.8 billion at the midpoint. And again, with the opportunity, depending on the ramp-ups and the further volume developments an opportunity to grow. In terms of operating income margin, we see us in the range of 5.3 to 6%. At the midpoint, it would be 5.65, which would be the same level in comparison to 2024. As mentioned, Our major activities are related to a reduction within our fixed cost. We target to be within the overall fixed cost ratio to be at least minus 3% in comparison to prior year. We accelerate different structural measures. We have mentioned We work on improvement in terms of our quality costs and expenses, which we see a positive trend, but we see also a good improvement potential in that area. And we are working on several initiatives in terms of higher operations efficiency, where the high volatility comes and came with extra cost, where we are working on higher flexibilization rates going forward. On top of that, we are working on improvements on our material cost base. We have a much higher ambition in terms of material cost savings in comparison to the prior year, and all that should support the quality of our operating income in this year. On the net cash flow, we expect to be at least at a level of 200 million. This 200 million reflects as well restructuring cost of around 120 million, which are in that number. It means 100 million higher restructuring cost in comparison to 2024. That means a significant improvement in terms of our operational cash flow, which we are targeting. This comes on one hand side with the quality of our earnings and the reduction on the fixed cost side and overall on the cost side, but as well on further improvements, especially on the capex side where we will invest a significant lower amount in capex in comparison to prior year. We estimate to be below 100% in comparison to depreciation for this year and we also anticipate further improvements in working capital where we are working continuously on a reduction, especially in the area of our inventories. And this should lead to this improvement overall. So summing it up on page 12, overall 24, a solid performance. a sales level of above 8% with the comments I made, especially the reduction of the fixed cost, the acceleration of our structural measures and the increase of additional measures makes us more robust and competitive also going forward and especially also on the order intake and important acquisitions we could we could win. This makes me very positive in terms of our midterm outlook. The year 2025 remains for us challenging in a way that we continue to see a high volatility, but we prepare on the structural and we execute the structural measures we need to do to reduce our break-even point, to reduce significantly our cost base and improve the quality of our earnings and also of our cash flow asset. Overall, we continue to see that there is a significant demand on our products. We are very optimistic that this trend on new orders we are able to win especially on our full product scope that this will continue also in 2025. We have significant acquisitions we are actually working on globally with many different OEMs in all relevant countries, which makes us very positive or let us be very positive in terms of our positioning in the market. We continue on working on the diversification. So to get stronger position within the Americas, but as well, in the Asian markets overall, not only China, but as well Japan and India especially. And last but not least, we remain committed in terms of all our sustainability targets. We have set ourselves, we have made very good progress, scope one and two. We expect to be emission free until end of 2025, and we are intensively working on our scope-free roadmap to work towards our targets. We have set ourselves for 2030 and 2045. Having said that, we are happy to take your questions.

And the first question is from Akshat Kakkar. The floor is yours.

Good morning. Thank you for taking my question, Akshat from JP Morgan. I have three, please. The first one on cost inflation and what you're factoring in for the P&L in 2025, please. Could you just run us through some elements like wage inflation, freight, energy costs, and specifically raw materials, and what are your assumptions on semiconductor costs for 2025, please? The second question is on the profit bridge and the benefits from all the cost actions and the competitiveness measures that you have talked about. Could you help us with the net savings that you expect in 2025 and 26 across all of these cost measures and the synergy targets that you have previously announced, please? And the last one is a modeling question, please. In terms of total R&D expenditures, what is your current expectation for 2025 And finally, on working capital, how much room do you see to improve the inventory levels in the business, please? Thank you so much.

Yes, hello, Akshat. Thank you for these questions. First of all, on the inflation, so we... So overall, we expect that in comparison to 2024, we see a reduction in terms of more or less all commodities. So on the active electronic components, so especially also on the semis, we see a reduction of around 5%. overall, very different related to the different technologies and suppliers, but in average. And we see some areas, so if it's plastic materials, but also mechanical parts, it's a little lower. So in general, what we are assuming is that we can reach around 4% of reductions within the overall material bandwidth, no? But it's important to mention that, especially on the still, the inflation related to the programs, so the reduction we are able to get, is still not covering the price increases we have seen since the crisis. But we see now that we are basically coming down in terms of costs. And for sure, we continue to negotiate also towards our customers to claim this overall inflation on the different programs which we still have since the nomination. But which comes now down, so the compensation payments we are now discussing is coming significantly down in comparison to what we have seen 22 and 23 and 4. On the energy costs, we also see that energy costs are lower than in comparison to 24. So we have hatched also over the last year most of the positions related to our volumes we need. But it is around 10% of reduction we have overall in energy costs, which for us is around 10 million in absolute number, just to give you a sense. And freight costs overall, in average, not a significant difference now to previous years. So these are the assumptions we have more or less considered. And if we look at our profit bridge, so overall, we expect, as I said, that within our overall fixed cost, we would be able to be 3% below There are all structural measures included, which are in that number. We assume to have out of all structural measures, we have started in 24 to have around 180 million of gross savings we are able to reach out of thereof around Half of it are really structural measures which are related then to all what is related to fixed cost. The net is around 60 to 70 million we expect for the group. In terms of R&D expenses, we target to be around 10%, slightly below 10% for the year 2025. And working capital, so in terms of inventories, we see around 50 million we can reduce in comparison now to the end of the year. But we still also see further potential in terms of the payment terms. We can extend also on the supplier side, especially with the increase of Asian suppliers, but also suppliers in Mexico, where we are increasing basically the share and their normally better payment terms are possible in comparison to European supplies. Thank you, Mr. Schäfer-Beifel.

That's super helpful.

Thank you. And the next question comes from Christoph Lascavi. The floor is yours.

Good morning. Thank you for taking my questions. The first one, again, on the guidance, the measures that you've highlighted mitigate the negative impact of potentially falling revenues or cost cutting rated or to a large degree. Previously, the synergies with fovea had been highlighted a bit more and actually for this year, I think also fovea highlighted still a quite decent portion of synergies coming through. Could you elaborate on that, where it's coming through for you in the P&L in 25, how much you expect from that and would that be on top or is it part of the improvements that you've highlighted. And then just on the semi comment where you see costs coming down 5%, is the OEM actively asking for that reduction to be passed through to them? Or as you said, basically the negotiation that you are having with the OEMs is just on a price which is then 5% lower. So you still try to cover just the cost that you are facing and the net impact will be a zero for you. And then just on the divisions, starting with electronics, what did you assume for the BEV penetration in Europe in the guide of flood revenues? I mean, obviously next week there's an expectation that the European Union might ease the CO2 rules. Is this sort of reflected already or do you think that the penetration of BEV in the current state probably doesn't matter too much for the 25 guide in electronics? And when do you expect that division to structurally outperform quite strong again? Is it more towards 26, end of 26. And then lastly, just on lighting, is there something structurally deteriorating in the business in the sense that the order intake that you have booked turns out to be actually far smaller in volumes than you initially anticipated and the customer mix is dragging you down for probably another couple of years, or is it really just the changeover of programs that you're currently facing before you see some growth again towards the latter half of 25? Thank you.

Hello, Mr. Loscavi. So to start, you had a question. One question was related to the inflation on the CMEs. So what I said is that still in terms of the negotiations with the customers, we have still an inflation impact on the programs in comparison to the original nomination. So what the OEMs are now expecting that this is somehow now reflected also in our in our discussions we have to get to an agreement which is in terms of the compensation law. So somehow for us it is important because the willingness on the OEM side to pay for inflation is much lower. The pressure on the OEM side is quite high. So it is for us very important that we are able to reduce now the cost side on our supplier side. But so overall, yes, a big part of it or this reduction we have to basically embed in our discussions. But anyway, even last year, we were not able to claim everything against the OEMs. So in 24, the OEMs were already there not willing to compensate oil so that net there will be a positive impact because anyway some of the agreements which we also made with a already with an assumption that these compensations will be reduced in the coming years so it was already discussed with the different OEMs so that it is now very important that we are able to reach these reductions. But net-net, I think it is positive for us and will improve overall our result. On our assumption in terms of electric cars in Europe, We are very cautious, so we have even reduced our assumption against last year what we have seen in the actuals due to the experience we have made. Our base assumption is that we will not see any improvement against 2024 and that it could even be worse. And this is planned program by program with the experience we have done in the different programs and also the success the different programs had in the market. But overall, you can say that we have not assumed any improvement there. On the overall outperformance of electronics, what we basically see is that we will have an outperformance, especially in radar. We will have an outperformance in what is electric power steering. We also are positive in terms of all what is related to our body electronics business. So lighting electronics is within that business. We also have quite a positive outlook in terms of all what is within our control modules. and we also see some positive elements in our sensors and actuators business not a significant growth but we have seen a decline last year so it should stabilize and and go up again so overall we are optimistic to come back to an out performance uh, let's see if it's already significant this year, but, uh, I'm, uh, I think, uh, 2026, we should see again, a better old performance. We are used to, um, used to see, um, in lighting. We have been, um, we have been impacted by, um, by some, uh, reductions or significant reductions on volumes on some programs and also programs which have been canceled in the last two years. So this, you can say, has impacted us in lighting quite significantly and is something which we will see this year, but as well also next year in lighting. I don't see that there is a real structural element if I look more midterm, but you're right. For this year and next year, we will have no growth in lighting, which makes it more difficult in terms of the overall performance. So we are fully focusing now on the restructuring of our lighting business. We had a very good order intake in lighting in China last year. We had also a very good order intake in the Americas for lighting last year. Europe is more challenging. And we have also the overcapacity situation in Europe. So this is why there is a full focus for lighting and restructuring the business in Europe.

Thank you very much for the detail. Just one follow-up again on the synergies with... Sorry, I forgot this one.

So the most synergies we expect this year are on the material cost side. So we have structured the organization in a way that we are leveraging basically the teams in the different commodities and the competency we have so the highest synergy part we also and the increase in synergy we expect on the on the material cost side so if also we look at the additional synergies we are we are making this is this is basically the biggest part despite that for sure we are working on on different other measures, but related to the cost savings I mentioned, this is a minor part. Thank you very much.

And we have one more question from Sanjay Bhagwani. The floor is yours.

Hello. Thank you very much for taking my question. Also, three questions as well. The first one is just on if you have to think of the latest trading update, we have already been like roughly two months into this year. So how is your overall feeling on the ground? Have things been better or worse than what you had anticipated two months ago when going into the year? So that's my first question and I'll just follow up with the next one if that is okay.

So in terms of volumes, it was a little lower what we expected, mostly out of China where there was, from our point of view, if you said what was I seeing two months ago. So we were seeing somehow a pre-pone effect from China into the month of December and this had a slight effect into January and with the Chinese New Year into the month of February. But overall, not really major what I expected. So we already anticipated that a slower start into the year, also in comparison to last year. So if I look at our original budget and what was now the result in the month of January, but also what we anticipate now in February, there is basically no real deviation in terms of what we expected. But in general, I can say for us and at least for our business, we are expecting somehow a little lower sales volume in the first half overall in comparison to the second half. But again, no deviation to what we expected in the months of November and December when we did the budget in comparison to now.

Thank you. That's very helpful. And my second question is coming back onto the semiconductor prices and the material cost tailwinds. Maybe if you can take a step back just to understand the mechanics of this. So, I mean, if you just have a quick recap, the inflation on the semiconductor started rising in H221, if my memory serves. And since then, let's say if... semiconductor prices are maybe up 20% or something. Now, during the course, you are able to pass through some part of that inflation increase, and some of that you could not. So when you have to think of the net-net 25, is it that the margins as of 24, they already include or they have already repriced whatever the historical inflation was, and hence the The 25 if the semiconductor costs go down that net net benefits you and on that. Are you also able to remind us what the percentage of sales is the semiconductor costs.

So, the price increase on the different semis was very different so i think you you can say it was between 10 and 40 percent in in depending on the different technologies so that in average i would say we we have seen around between 15 and 20 percent of increase in general on the semiconductor side. The decrease in price in 24 was very little, so probably 2 to 3% overall in average. The decrease I was commenting now, so an average 5, so brings us only to, if you take it and you just add it, a maximum 8. So we remain with an increase of around 10% overall on the semi-inflation we have since COVID crisis started. And this is about if I now speak about what is then the impact. So overall, we continue to have for several programs which were nominated before the crisis, to have additional costs, which, partially, we have already agreements with our customers, because there are agreements on pricings which are set. And partially, the agreements we had were only on annual basis, so that they are renegotiated every year, so that some of it we are now benefiting from, some of it what I mentioned also before, it will again be reflected in our negotiations with the customers. But overall, as I said, in net against 24, I see that there will be a positive effect out of the overall reduction we do on the material cost side. The semi overall, it really depends on the product. For radar, for example, it is a significant element within our bill of material. So within the bill of material, it has around one quarter is the semi part. For other products, it's much lower than. It's only 5% or 6%. So it's very different. related to the different products we have. But overall, for the electronics business, you can say that in average, it is then around, I would say, between 15% and 20% in the importance of a bill of material.

Thank you. That is very helpful. And the final one, sorry.

Sorry, please go ahead.

And the final one on the cost saving, and then it's again a follow-up to Akshat and Christophe's question. So if I understood it correctly, sorry, did you just say 60 to 70 million of net cost savings? Are you expecting the P&L for 2025? Is that correct?

Yes. In comparison to 2024, yes.

Yeah, so I think putting this all together, when we look at the material cost savings, maybe because largely if overall material cost is down 4% and material cost still maybe 60% of your sales or something like that, and then if we add the 60 to 70 million of savings, And then when I look at the midpoint of the new guidance, which kind of implying more or less flattish operating profit. So are you basically expecting most of these tailwinds, say 60 to 70 million from cost savings and similar maybe from the material cost, they all get eroded because of the lower sales? Is that the overall thinking behind the guidance?

Yes, so we have two effects. One is the lower sales and the other one is that we have a slightly negative mix overall on the product mix. We have several new products launching where at least with new product launches or new products in general, the margin is slightly lower than with other products so that there is also a slight negative product mix in 25 against 24.

Thank you. That is very, very helpful.

Thank you. So at the moment, there are no further questions.

Good.

If there are no further questions, then I would like to thank you all for the interest in joining our preliminary result call on the 24 fiscal year. Thanks a lot for the interest in Hella and I wish you all a very pleasant remaining day and hear you, see you soon. Thank you. Bye-bye.