HELLA GmbH & Co. KGaA

Good morning, ladies and gentlemen, and welcome to the Hella Investor Call on the Preliminary Results for the Fiscal Year 2025. The call will be hosted by Dr. Peter Leier, the CEO, and Philip Winnie, the CFO. At this time, all participants have been placed on a listen-only mode. The floor will be open for questions following the presentation. Let me now turn the floor over to your host, Dr. Peter Leier, CEO.

Yeah, thank you very much. Good morning. A warm welcome to everybody for our call in regard of ELA's 2025 preliminary results. We have structured the presentation today in four parts. If you could go to the next slide, please. The first is an introduction of myself because I'm newly assigned as a CEO of the company. The second will then be focused preliminary results 2025, followed by a company outlook and the strategic priorities at the end. Then we will summarize the key takeaways for all of you and then open the call for questions. Yeah, let me start at first with a brief introduction of myself. I'm now since somehow three decades You could go on slide four, please. Thank you. I'm now since around about three decades in automotive industry. Started my career at Continental Automotive, where I used to work 13 years in electronics and sensorics. Used to work in Asia leading the Continental Automotive business in Japan and Korea. responsible for chassis and for brake systems. After that, I joined Osram in 2013 as a CTO, did the spin-off with the board of Osram at that point of time. And after that, joined Bentley as the COO of the company. And the next stage was Knob Remse as being board member responsible for the commercial vehicle business. and then joined ZF Friedrichshafen where I was responsible for commercial vehicles and industry business and for operations and purchasing for ZF globally and now being assigned as a new CEO at Hella since 16th of February. So pretty new in this role and in that role I'm pretty happy to welcome you here in this first preliminary result call for the HeLa results of 2025. Okay, then let's look to the preliminary results. If we could go then further in the presentation on chart six. Thank you. Yeah, to summarize, the organic sales of Hella in 2025 were somehow stable with 8 billion euro. 2025 was characterized by strong net cash flow performance and an increase of profitability. How does it look a little bit more in detail? As I mentioned, the Hella Group organic sales were at prior year level of around about 8 billion euro. including a negative FX down by 2.1%. So, we had a strong sales development in electronics across all regions. For example, notably driven by our radar sensor business, our battery management systems, and our car access to just give some examples of growth. On the other side, our lighting business was affected by the phase out of some programs. which we partially could compensate by a ramp up of new headlight and rear combination lamp business in this business group. In lifecycle solutions, we had a positive organic sales development in second half year 2025. That resulted in an operating income for Hella in 2025 of 474 million in comparison to 446 million in 2024. And this resulted again in an operating income margin increased by 48 basis points to 6%. What we see is that The acceleration of our cost reduction measures with savings, particularly in R&D, both efficiency and with that structural adjustments. On the other side, the positive effects out of those measures were partly influenced by negative volume and mixed effects And that resulted in the mentioned operating income and margin. If you look shortly to net cash flow, we increased the net cash flow in comparison to 2024 by 129 million to a remarkable level of 318 million in 2025. So that led to a ratio to sales of 4%. in regard of net cash flow, and that in comparison to prior years, 2.4% significant increase. So, we had a higher cash flow on the one side from operating activities, 58 million improvement, and the other improvement came out of CAPEX savings as part of our improvement program, 105 million savings here. In regard of order intake, we had, again, 10 billion Euro, which is showing a strong demand for our core products as well as for our innovations. If you look a little bit deeper to order intake, what we see is an intensified business which we could achieve in North and South America with, on the other side, with local OEMs in China, some gains in Japan and in India. that leads to overall more than 50% share of order intake outside of Europe. This shows that we have a strong demand for our HeLa core products and our new technologies, for example, like intelligent power distribution modules or solar modules, some of our core innovations and new technologies. If you look now a little bit deeper in the business group, I hand over for that to Philippe Lignier, our CFO. Philippe, please.

Thank you, Peter. So, good morning to all of you. So, looking at some more details per business group, let's start with lighting. So, lighting, we had total sales in 25 of 3.7 billion Euro versus 4 billion in 24. with an operating income of 106 million, which represents 2.9% of sales versus 3.24%. So in lighting, we are suffering from discontinuation and very large volume service projects, especially in America and in China, which are going down, which is impacting the top line of lighting. We have also to face some weakness in the European market on some specific products impacting the lighting business group as well. On the other side, we have some ramp-ups and increase of volumes for U.S. OEMs, but which is not enough to compensate the sales drop that we are facing in China and in Europe. So at the end, the operating margin of lighting is at 2.9% against $106 million. So we are mostly impacted by the volume and the loss of revenues, so which is impacting the gross profit, which have been partially offset by some structural measures on SG&A and R&D, but not enough to sustain the margin that we have posted in 24th. When you look at electronic segments, here we are reaching sales of 3.4 billion versus 3.3 in 24. Operating margin at 269, which is representing 7.8% of sales versus 6.9 in the year 24. So here the sales are still highly driven by radar and electronic power system, mostly in America and in Europe. so which is benefiting to the top line we have also a good startup with the smart access system in europe and in asia and we have also in china the low voltage battery which is also ramping up and adding ourselves so here we have an operating margin of 7.8 percent so um so the volume is helping us a bit we have also had the sek cells or tooling cells which are help us in Q4 to increase the margin. And we are also spending much less in R&D, and we are doing some saving administration as well, which is helping the operating margin versus what we have been doing in 24. Looking at lifecycle solution, here we have sales which are nearly stable at 1 billion like in 24. with an operating margin at 109, which is 11.1%. So here we have basically a stable market or stable sales on the spare part business. So reported sales is slightly negative due to FX rate, but the activity is mostly stable on the spare part. On the other hand, we have lower demand on the commercial and agricultural businesses. And we have, but we have some, or some slight increase in H2 25 on this market, which has a little bit of . Operating margin at 11.1%. So here we have an increase on the gross profit due to the savings and the restructuring plan which has been undertaken in . And we have also some savings on the R&D side and distribution costs which have also helped the operating margin. Now, if we look at demand and the order intake, I am over again.

Thanks. Yeah. If you could go to the next slide, you see there are some order intake highlights for 2025. As I already mentioned, 50, more than 50% of our order intake share came from regions outside of Europe. that you will see as well in the different business groups so let me start with this lighting where we had some further acquisition successes in the americas as well as in in asia you see here on the chart some examples uh like for example car body lighting and headlamp business for different mass market models for european oems and i think that's an important message that we are penetrating further the mass market now as well with the lighting business. We want some headlamp packages for different models of European OEMs for the U.S. market with SOPs in 28 and 29 and some headlight packages including adaptive lighting technology for three different series of an U.S. OEM for SOP in 28. I think remarkable in lighting is as well that we want different headlamp and car body lighting packages for Chinese OEMs for several car models, SOPs in 26 and beyond. And this is executing of our strategy that we want to go with Chinese OEMs and confirms that we are here on the right path. If you look to electronics, we are further winning business to reinforce our position as a market and technology leader in the selected areas where we are going to play and win and you know that we have a long tradition in selecting those areas carefully and play to our strengths so you see here is the first example we have one billion orders for intelligent power distribution management and zonal modules from an international premium OEM with SOPs staggered from 25 and 28, which is remarkable. That's confirming our strategy in regard of going in the direction of zonal modules or ECUs. Then we continue with our success story on radars with a three-million-digit order for our Gen 5 and Gen 7 radar technology from a European OEM. and Gen 7 radar solution for Japanese OEM for the Indian market with the SOP in 27. In addition, 3 million digit order intake for smart car access from a U.S. OEM confirms here that we are here on the right path. If you look to lifecycle solutions, we have new order wins which increases our customer outreach and which clearly indicates that there is a strong demand for our customized technologies. So, for example, we have one fully customized flat light technology for a Dutch bus maker or a customized lighting for an off-road vehicle of a premium manufacturer with SOP in 26. We have different LED front lighting systems which we want for the European OEM for the Indian market. or LED rear lamp for international trailer manufacturer for the Indian market, which confirms as well here the internationalization of our business. And last but not least, we want an LED headlamp from international manufacturer for agriculture technology in 2017. Yeah, so far to our 2025 preliminary results and the related information for order intake. With that, I would now go into 2026 and would start to talk about our outlook for 2026, followed then by some strategic priorities. We could switch to page 10, please. We are seeing somehow sluggish, stable development of our vehicle production globally, and the details will be presented by Philipp. Philipp, handing over to you.

Thank you. So, yes, we see a stagnating market in 26 based on the latest figures published by the S&P in February 26. Minus 0.2% in 26 versus 25. After 25, it was relatively good in terms of worldwide pollution. So, per region, we see America, Europe, and even Asia Pacific going slightly down versus 25. So, with this outlook in terms of market, we go to the prognosis or the outlook for 26 for Hella. So we see we would like to guide the sales between 7.4 billion and 7.9 billion. So here, again, taking into account a stable market and still facing some top-line revenues issues on lighting. We have detailed in former calls that we are expecting a rebound for lighting in 27, so we are still facing this drop in revenues in 26 for lighting. So leading us to this guidance in terms of sales, 7.4 to 7.9 billion. Operating margin between 5.4 and 6% of sales. Also taking into account these revenues, which would be slightly difficult for lighting. And also having in mind that the full benefit of the turnaround plan of lighting with the adjustment measures and restructuring measures will take full impact in 27, and 26 will be still the turnaround year. In terms of net cash flow, we say at least 1.8% of sales. So here, versus 25 achievement, basically this 1.8% is built on slightly lower funds from operations, but we also do expect more cash out linked to the restructuring program, with let's say people living in 26, then the cash will be out as well in 26, so higher post-doctoring spend in 26. And we also do plan some higher capex in 26. We have said that we have been able to reduce the capex in 25 by 100 million. We do not expect to do exactly the same in 26, and we are planning to add 50 million more in 26 in terms of capex to prepare the future, the launches, and the rebound, which is expected in 27. So that's all in all what is behind this outlook for 26. And maybe then we can go to the strategic priorities to get figures.

Yeah, thank you, Philipp. Then I'm taking over for that again. In regard of our strategic priorities, if you go to chart 12, please, you see three strategic priorities which determines HALA. The first is depth and class performance. The second is business transformation. And the third is invigorating culture and organization. If you look a little bit more in detail to best-in-class performance, that means for us we need to secure best-in-class execution across all business groups and functions and improve cash flow because this brings us in a position to further invest in the future-proof position of the company and in our growth areas. That means we have started a program in the company to simplify all functions level of functional excellence on the one side, and as you have seen in the figure presentation of Philipp, we have to transform our lighting business, and here we have a strong focus on. In addition, we will continue our competitiveness program where we see already first improvements out of that in the results of 2025, and we will continue in 2026 and do some further In regard of business transformation, we will diversify further our regions and our customer base, so we want to become more international, and the acquisition of more than 50% of non-European businesses showing that we are already on a good path. And with that, we want to strengthen our resilience and that we want to focus on further growth and a future-proof portfolio. That means we will do rigorous portfolio management with focus on growth and affordability and with clear priority setting. We will then achieve a lower dependency on the European market and strengthen the relationship specifically with Asian and American OEMs. And we will further de-risk our global supply chains. In regard of invigorating culture and organization, we will develop our culture further with a clear focus on the pair of empowerment and accountability. and further simplify our structures. That means we want to reduce our complexities in our organization and streamline the processes, and we want to further establish and strengthen regional teams to access local customers, which supports then the mentioned internationalization that we are focusing on. And we will reshape our engineering organization towards the digital age, including using of If you go to the next chart, let's look a little bit deeper what that means as focus for our business groups. For lighting, in regard of best-in-class performance, we will definitely focus on affordability of innovations, on simplified functions, and reduced development lead times, specifically with a focus on Chinese OEMs, and we will work further on competitiveness in regard of lighting, and that has a strong focus specifically on the transformation of our plans in Europe and in the Americas. In regard of electronics, we will do a best-in-class performance and enhance regional footprints and focus on R&D efficiency Then we will work on CapEx and resources. We will allocate our invest in CapEx to the strategically identified selected growth segments. I will talk a little bit more about that as well on the capital market day tomorrow. And on lifecycle solutions, we will consequently use digitalization and leverage AI, and we will further work on our functional excellence. and adjust further our footprints in operations. If we look then to business transformation, diving deeper in the business groups, that means for lighting, very clear highest focus is that we have to transform lighting and achieve a turnaround over there to improve margins again sustainably. future-proof product portfolio, and that means specifically that we want to address much more the volume segments of the lighting markets. And we will work further on balancing our customer mix, and that means specifically working with Asian customers and penetrate more the market in the Americas. In electronics, I think we have unique capabilities and know-how in the company. And we will leverage them specifically in regard of battery and power modules for all different electric powertrain vehicles. That means from mild hybrids, plug-in hybrids, range extenders, to full battery electric vehicles where in all areas these battery and power modules are needed for efficiency. We will use our scale as a first mover to roll out some modules where, as I mentioned before, where we have already remarkable business wins. And we will focus as well here on business wins in the Americas and in Asia. In regard of lifecycle solutions, business transformation, focus for us is On the one side, we will start further product initiatives in the independent aftermarket. We will extend our focus to the mid-price segment and leverage our channel here. And as well here, we focus on international growth in North America and India specifically. If you look to invigorating culture and organization in lighting, we will implement a new leadership model in all areas, not only in lighting, and we will implement organizational responsibilities for our people in an enhanced manner that is the part of empowerment I talked about before. We will work in all business groups on digital AI tools, which we will implement, and we will streamline the decision-making and increase internationalization. Based on that, if you look to the next chart, in regard of our midterm targets, in regard of lighting, if you can go to the next chart, please. I think you see the presentation. Anyhow, I will continue. In regard of lighting, we will transform the business to a sustainably improved profitability situation, and we will broaden. the customer base. Based on that, we will further act as a top player in the markets, but serving both in the future, premium and volume segments. In regard of electronics, I already talked about our unique skill and know-how asset, and that we will further expand the business systematically and increase profitability. We will here clearly select our business arenas carefully and with that to further realize the profitable growth. And that means we will use our technology leadership and with that to grow disproportionately in those areas which are characterized by innovation. And last but not least, the lifecycle solutions. We will leverage our market position, our channels to the market and our brand to sustain double-digit margin, and that will play here in the top 10 independent aftermarket player league, and in addition working on further commercial vehicle business and work as a workshop product supplier here further. With that, I would like to come to the key takeaways. As a summary, if you look to 2025, I think we can summarize that that was overall a solid performance of HeLa in financial year 2025. Page 16, please. With, can you go on 16, please? Overall, a solid performance in financial year 2025 with stable sales at $8 billion supported by growth in electronics. We have an increase in profitability driven by acceleration of cost reduction. In addition, we had R&D savings and increased efficiency. This led to a significant improvement of net cash flow. driven by the mentioned operational performance measures and capex savings. And with that, we met the financial outlook for 2020 fully. If we are now looking to outlook for the financial year 2026, as I mentioned, we are not expecting tailwinds from the market, and based on that, Our outlook for 2026 financial year is a sales between 7.4 and 7.9 billion, an OI margin between 4.5 and 6%, and a net cash flow to sales ratio at least at 1.8%. To remind you, our outlook is based on around 92.8 million light vehicles produced. And as mentioned, we are still expecting a volatile and challenging industry market situation for 2026. The three strategic priorities going forward are best-in-class performance across all business groups and functions. the business transformation to strengthen the resilience of our business model and the immigrating culture of empowerment and accountability. Yeah, with that, I would like to close our presentation part of preliminary results of HeLa in 2025 and the outlook. that we are opening the floor for questions, handing back to the operator at first.

Thank you. Ladies and gentlemen, please only use the telephone for questions, and we would like to ask you to limit the number of questions to three. If you would like to ask a question, please press nine and the star key on your telephone keypad. If you would like to cancel your question, please press 3 and the star key again. Please press 9 and the star key on your telephone if you would like to ask a question. So we have the first question from Sanjay Bhagwani from Citi. The floor is yours.

Hi. Thank you for taking my question also. Maybe the first one, just zooming into a little bit on the guidance. So is the guidance, I mean, generally what we have seen over the past few years is Hela generally tends to be a bit conservative on guiding, but manages to get to more or less to the upper end of the guidance range for most of the years, except for what we have seen in 21, 22, which was semiconductor crisis. So is there some element of conservatism baked here? Or is the lighting, I understand you mentioned as a key driver here. So just trying to understand how much of that is conservatism and what do you think for the lighting, how bad it can be for 26 before it gets better in 27? That's my first question. I'll just follow up with the next one.

Yeah. First, thank you, Sanjay, for the question. Maybe I'm starting and then hand over to Philip. 2026. It will be again a year with challenges for our lighting business. As we mentioned, we have a discontinuation of some big business, which is further influencing sales in 2026. For electronics, as well as for lifecycle solutions, we will be at least stable in this year. And then we have to consider the challenging market conditions we mentioned in the presentation that brought us basically to the top-line guidance on the level as you have seen. But furthermore, Philipp, handing over to you.

Yes, it's true that the is coming from lighting where we see the drop, which is more or less representing the drop. for next year in 26, so lighting is really the driver of this guidance which could be seen as a low guidance, but the main impact is basically lighting.

Thank you. That's very helpful. So if you think like the, if electronics and the other division is stable, Then if we just back calculate, so what we get for lighting is roughly nine to 10% decline in top line. Is there a specific program which is driving this? Or it's best brought there some specific, so maybe if you can just recap us what is driving lighting down for 25 and if this continues at a 10% rate in 26, is that your assumption?

I think we continue to see the same trend as we had in 25 and started to see in 24. We continue to have some reduction in China with some, again, large programs which are still going down, not fully replaced. And we also have some weaknesses in Europe, which is also the case in 25. So we continue to see the same trend. And again, some additional sales coming from North America, but adding 25 is not enough to fully compensate the drop that we will face in the other two regions. So, yeah, the new programs that we have been able to get will really give us the impact in 2027. That's why the 2060 is still continuing on the same path as in the past for lighting.

Thank you. That's very helpful. Lighting is very clear. And for the other divisions in terms of margin expansion, are you expecting any other like the cost saving programs may feed into some sort of margin this year for electronics and LCA?

I think as you have heard, we have started our improvement program and this improvement program will have as well some related costs which we will see in 2026. We have in 2026 some influences out of that, which is as well then seen in the bottom line performance, but that will then be the basis for further improvement for the years after that.

Thank you. That's very helpful.

Thank you. So if you would like to ask a question, please press 9 on your telephone. And we have one more question from Thomas from Capital Chevrolet. The floor is yours.

Thank you for taking my questions. Good morning. First, I'd like you to help us bridging the performance in Q4 versus the message you had given in Q3. Clearly, vehicle production was stronger. But there seems to be more than that. I mean, at Q3 stage, you had said that lighting would be probably as bad as in Q3, and it proves to be a lot better. You mentioned some tooling support in electronics. Could you give us a magnitude of that figure and explain if there's any one-off related to R&D reimbursement or something helping lighting in Q4 versus expectations? That's the first question.

Yeah, so it's true that basically we had the Q4 SDK set and tooling were more or less 50% of what we have been booked. So, cumulatively until end of September. So, strong activity on the tooling and DND sets, which are also happening in Q4. And then we have some And finally, some adjustment on claims and pricing also, which have been materialized in Q4 for lighting, which has also helped a little bit the Q4 results.

Okay. Thank you very much. So coming back to the previous questions, I mean, you're suggesting that lighting is entirely responsible for the guidance for lower revenues and profitability. Do you expect these adjustments you've mentioned for lighting not to be sustained in 26 and therefore margins in lighting to decline? I'm not sure I understand. And can you confirm that you are making no assumption in terms of perimeter on the guidance?

So, yeah, I think we... So the tooling cells and SEL cells are more or less, are not, let's say... are more one-off cells or are not part of the, it could be fluctuating from one year to the other. And the second point is all the benefit from the turnaround plan that we are implementing in lighting and the restructuring and structural adjustment will have a benefit. But it's, as I said, it's also part of the restructuring is still going on. We're going to have some headcount reduction really implemented in 26. So the full effect is already more coming in 27 and in 26 or 26 we will have a partial effect of the restructuring plan and the turnaround plan.

Thank you very much. Another question on input cost. Can you say a few words about what you're assuming in terms of headwind? I mean, we've seen steel, copper prices, memory, prices, even their access becoming more complicated. Can you share with us what you've assumed in the guidance and whether this may eventually complicate the task of improving electronics margins as well in 2026?

So I think you are referring to the inflation, the material price inflation, which we see more or less now at a not new level or not new specific increase. So we think that we are more or less at a more behind us than in front of us. So we don't assume a huge inflation in terms of material price. Obviously we can have crisis like we had in next, with NextGaia in 25, but we have been able to basically have new sources for products that were delivered by NextGaia. We have alternative sources, so we are not expecting to be so much impacted by this type of crisis, especially with Nexperia products in 26, thanks to this double sourcing. And we think the situation is stabilizing a little bit with Nexperia. So this is what we are assuming. So no major impact is expected on the inflation in 26, to summarize here.

Thank you very much. I have the last one, if I can squeeze it in. Is there already a comment on the dividend you may propose for 2025, or do we have to wait a bit for that?

I think that is too early. You have to wait for the final call when we announce, and that's too early today.

Thank you, Peter.

You're welcome. Thank you. So if you would like to ask a question, please press 9 and the star key on your telephone keypad. So there are no further questions at the moment.

Okay. Then I would like to thank everybody for participating in the call. Thank you for the questions and wishing you all the best. Talk to you soon, ladies, with announcement of the final results. Thank you very much. All the best. Bye-bye. Thank you.