HELLA GmbH & Co. KGaA ($HLE)

Good morning, ladies and gentlemen, and welcome to the HELLA Investor Call on the Results for the First Quarter of Fiscal Year 2026. This call will be hosted by Professor Peter Laier, the CEO; and Philippe Vienney, the CFO of HELLA. [Operator Instructions] Let me now turn the floor over to your host, Peter Laier.

Thank you very much, and good morning to everybody and a warm welcome to our Q1 Investor Call. And we have prepared as usual short agenda for today's call. I would like to talk at first about our achievements in Q1 followed by the financial results. Then we will talk about the financial outlook of 2026 again. And at the end, we will summarize with key takeaways. And after that, we are for sure open and happy to take your questions. Next slide. Let me talk about achievements at first. You see here, sales in first quarter is somehow flat. We have increase of cost measures to safeguard our profitability. If you look a little bit to the sales at first more in detail. As I mentioned, at constant FX sales is year-over-year, nearly flat with a slight increase by 0.2%. We achieved an absolute figure of EUR 2.001 million (sic) [ EUR 2.001 billion ] sales. If you look a little bit more to the details of sales, you see that Electronics sales year-over-year increased by 6.8% to EUR 832 million, mainly driven by radar and energy management business. In the Lighting business group, we have the opposite development year-over-year. We have a decrease of sales of 7.7%, and we achieved there EUR 834 million, mainly affected by a phaseout of programs and as well lower call-offs. In our third business group, Lifecycle Solutions sales was up by 5.6% in first quarter. We achieved EUR 260 million sales driven by strong Special OE business, specifically where the market is continued to recover. Overall, if we look to reported sales, we are year-over-year down by 2.9% and achieved here an absolute figure of EUR 1.939 million. (sic) [ EUR 1.939 billion. ] If you look then to OI margin, we closed the first quarter on a level of 5%, mainly due to influences -- negative influences of Lighting. We will talk about that in a second more in detail in Philippe's presentation. We continue with persistent savings in R&D expenses, and that has been the result that the ratio is down by around 130 bps to 9.2%. And we see positive effects of cost reduction measures further, and those are offsetting the negative volume and mix effects. If you look to net cash flow. Net cash flow is better than the comparable Q1 in financial year 2025. We achieved a net cash flow of minus EUR 49 million in Q1 '26 versus minus EUR 61 million in Q1 '25. Net cash flow sales ratio is at minus 2.5% as well better than prior year where we were at minus 3%. And for sure, we have to consider here the usual seasonality. Net cash flow is continuously impacted by restructuring cash out, and we have a strong governance for CapEx implemented, which we have as well continued in Q1 and which we will continue. If we look a little bit more to the business details, you see here that the order intake in Q1 is well on track. We work on our, several times mentioned, further diversification of our business with respect to regions and segments. If you look a little bit to our business groups, you see in Electronics that we had in Q1, a strong order intake in our core growth products. You see here 3 examples: Battery Management System and car access order from a European OEM for the Chinese and European market with start-up production in '27. You see here DC/DC converter roll-out business for premium OEM for the Chinese market with SOP already in '26. And you see here large-scale High-Voltage Battery Management System order from a U.S. OEM for an SOP in 2028. If you look to Lighting business group, we have here a focus on international order intake with premium OEMs as well as volume models, so as well following our strategy. As well here 3 examples: Headlamp package for midsize and premium models for U.S. OEM with SOP in '28 and '29. We have headlamp package for a European OEM for the U.S. market with the SOP in '28, and we have headlamp and car body light order for a European customer for the Asian market with an SOP in 2026. Last but not least, to talk about Lifecycle Solutions as well here, the customer and regional diversification continued, which is, I think, as well as execution of our announced strategy. So here 2 examples to be talked about: first, a customized LED lamps and intelligent battery sensors for an international manufacturer of agriculture machinery for the India market, SOP 2027 or significant step for us, an accelerator pedal sensor for an international truck joint venture for the Asian market with SOP in 2029. Yes. With this overview of the order intake, I will hand over to Philippe Vienney to talk about financial results. Please, Philippe.

Thank you, Peter. So, good morning. So in terms of sales, yes, the reported sales, as said, were at EUR 1.939 billion. So it's a decrease of 2.9% on reported sales. But the sales are impacted by FX by EUR 62 million negative impact. And then the growth is -- organic growth is at plus EUR 4 million, so it's plus 0.2% versus the market, which is down by 3.4%. So we are overperforming the market in terms of sales, basically due to the good momentum on Electronics as it was said, and Life Solutions business as well, while Lighting is showing some decreased sales with phase-out program which is impacting Europe mainly and North America. Now looking at the performance at constant rate versus the market. So Europe is above plus 0.9%. Here, we have some successful launches of radar and as well the effect of special operation in Europe. North America is down by 1.3% here. So we have the Lighting business, which is impacted by program going down, but not fully offset by new ramp-ups. And we have Asia Pacific, where we are at plus 8.4% versus a market at minus 4.9% -- or plus 3.5%, sorry, versus the market of 4.9%, so outperform the market of 8.4%. And here, it's mainly coming from Electronic as well, but mostly Lighting where we have the full effect of the new program and the ramp up versus last year Q1. Now looking at the segments. So if we start with Electronics. So here, we continue, as we said, with the sales momentum, which is pretty good and growth. So year-on-year sales at 6.8% increase at constant exchange rates, so at EUR 832 million. Operating margin at EUR 59 million. So it's 6.6% versus 6% last year. So operating margin is basically driven by a bit of volume, but also much lower R&D expenses, which is positive for the operating income and saving as well on the administration and distribution expenses, which is leading to this improvement in operating margin. Lighting. So in terms of sales is down minus 7.7%, again at constant exchange rate, which is mainly, as I said, due to North America, which is down and also impacted by FX impact. Whereas in Asia and China, we are performing relatively well in terms of sales versus the market. But all-in-all, it's a decrease. So it's close to EUR 100 million of sales decrease, which has obviously a drastic volume impact on the bottom line. So we are having an operating margin of EUR 1 million for Lighting versus EUR 31 million last year. So mostly impacted again by the volume. And despite reduction in R&D and SG&A, that was obviously directly impacted by volumes, so not enough to be at the year of last year -- at the level of last year. Going to Lifecycle, Lifecycle is also showing a growth in terms of sales, 5.6% at EUR 260 million, with an operating margin at EUR 35 million, 13.4% versus 10.8% last year. So here, we continue to benefit in terms of volume of the rebound on the Agriculture segment and Construction Machinery, which was foreseen at the end of last year. The momentum is continuing. That's pretty good for the volume. And the profit margin -- operating margin, so at 13.4%, basically benefiting from this volume impact and also savings on the SG&A with the cost measures, which have been implemented already last year. Looking at the full P&L and the net results. So here, we have an increase of the earning before tax and interest, and we have an increase of the net income. So here, we have -- we are reaching EUR 32 million of net income versus EUR 24 million more or less last year, so 1.7%. So here, we have the benefit of having less or lower restructuring costs than last year due to seasonality and program announcement according to the booking rules. So this is favorable for Q1 '26, leading to this plus the savings we are generating on the R&D going from 10.4% to 9.2% and also saving on SG&A going from 7.4% to 7.2%. So all this is contributing to this positive EBIT versus last year. In terms of cash flow, so we are at minus EUR 49 million of net cash flow versus minus EUR 61 million last year. So slightly better than last year. And this is also basically achieved, thanks to this strong governance we have on the CapEx. You can see on the right, where we have spent EUR 82 million of CapEx versus EUR 135 million last year. On the other side, we have more restructuring costs in our cash in Q1 by more or less EUR 30 million versus what we had in our Q1 '25 as a cash out. So this is in a nutshell, the financials. So now we can look at the, what is coming in front of us and the outlook for '26 with Peter.

Yes. Thank you very much, Philippe. Yes, let's talk briefly about the outlook for 2026. You see here, as usually, we base our forecast for light vehicle production based on S&P Global Mobility. And you see here that we are expecting now based on the April figures of S&P, a reduction of the global light vehicle production market by 1.8% down to 91.4 million vehicles expected right now. That is for sure, mainly impacted by the actual Iran war and related influence on the markets. If you look to the distribution of the markets, you see that half year 1, we are expecting at 44 million, while half year 2, we are expecting at 47.4 million, so a little bit better than first half year expectation for half year 2. This actual declining of the light vehicle production in comparison to last year is basically valid for all major regions. So you see the Americas down by 1.3%, Europe down by 1.8% and Asia Pacific by 2% down. So all major markets are negatively influenced by the actual situation. Next slide. Yes. Despite that, we are confirming our outlook for 2026. You see that here on this chart, we are confirming our sales will be between around EUR 7.4 billion to EUR 7.9 billion this year; the OI margin, which been around 5.4% to 6% of sales; and the net cash flow at, at least, 1.8% of sales. For sure, this is based on the actual S&P forecast of light vehicle production if we would experience a further political or economic significant deviations that is then subject to further investigation of our outlook, but based on the actual boundary conditions, we confirm the figures as you see them over here. Next chart? Yes. That brings me then to the last part of our presentation, the summary with the key takeaways. So, as mentioned, it was a solid start for us into the financial year 2026 with a stable sales at around EUR 2 billion, supported by the growth, which we have in Electronics and Lifecycle Solutions. We have a decrease in profitability in first quarter 2026 with mentioned negative volume and mix effects. Net cash flow improved year-over-year by EUR 12 million. Based on our acceleration of cost reduction, the net cash flow on the other side is impacted by our continuous restructuring and the related cash out. And we have a clear CapEx governance in place to monitor our CapEx expenses. And based on that, we are on track to achieve our 2026 outlook. In regard of outlook, as you have seen on the chart before, there is no market tailwind to be expected. The opposite is the case. But despite that, we are confirming our 2026 outlook with the sales between around EUR 7.4 billion to EUR 7.9 billion; OI between around 5.4% to 6%; and net cash flow at least 1.8%. With the related basis, I mentioned the S&P of 91.4 million light vehicle production forecast. The impact of the conflicts around the world need to be further monitored and are currently not foreseeable have our actions in place and monitor it carefully. We have a strong focus on our Lighting Transformation program which we are executing right now with a consequent realization and transformation of the program to reduce costs and restore our competitiveness sustainably where we have a strong focus on disciplined investment. And on the other side, we are focusing on profitable acquisitions to support then growth again in Lighting in 2027 and beyond. Yes. With that, we are at the end of our presentation. Thanks for listening. And now we are open and happy to take your questions.

[Operator Instructions] And we have the first question from Thomas Besson from Kepler Cheuvreux.

Thank you very much. I have 2 questions. I'll ask them one-by-one, if that's okay? I'd like to start with the cost increase that you've mentioned. Could you remind us your main exposure in terms of raw materials, including electronic components, and both your ability to access them and your ability to pass the higher cost through to your customers, please? That is my first question.

Philippe, do you want to start answering that?

I'll let you do the full answer.

No, okay. So yes, for sure, we have, based on the actual geopolitical conflicts, we have first impact as well on our material costs which we are working on, on the one side. And on the other side, what will then come to us, we will consequently as well address to our customer base. This is a procedure which we are used to since many years. And we have here close and trustful relationships with our customers, and there is a mechanics installed in the meanwhile, how to handle that.

Okay. So you assume you're going to pass through 100% of the higher cost and you have no issue accessing any raw materials or memory chips or anything, everything is fine?

I will not talk about 100%. I'll just tell you the usual procedure is we are handing over our cost increases, be it based on raw material or be it based on price effects of components, which we are using to our customers. And we are here in close and intensive discussions with them. In some cases, we have even standard mechanics installed in the contracts in the meanwhile. In other cases, we are negotiating that case-by-case in a trustful manner.

Okay. My second question is on the R&D, which has impressively declined. Could you confirm if there has been any change in the proportion of your R&D spend that has eventually been capitalized or whether you haven't changed anything and it's a real and absolute decline that we can assume continues for the rest of the year?

Yes. This is a decline, and we have basically reduced our heads in terms of R&D by more or less 600 people since Q1 last year. So the biggest effect is really coming from savings and restoring effect on the R&D side.

Yes. And for sure, we continuously work on our high-cost best cost share and we'll continue working on that, and we work on R&D efficiency in different ways, working on improvement on processes and procedures and we start as well using AI in R&D to improve the processes further with that reduced cost.

Just to make sure I understood correctly, there is no increase in the capitalization ratio?

No.

Great. Next question, your Lighting business had a tough quarter despite the spike in Asian business. Could you help us just understanding when the trough is going to be in terms of revenues and profitability? Was it in Q1? Or is it still to come?

The whole year 2026 will be a difficult year for Lighting. And as I mentioned in my presentation, Lighting has 2 topics to be solved and where we are working on. The first is we have, based on the situation out of the past, we have reduced volumes, because of bigger programs run out on the one side. And we have, on the other side, programs, which are showing lower volume than expected because of the different take rates of e-mobility. Therefore, we are working consequently on acquisition of new programs, where, as I have shown to you, we have successes in acquiring new programs. And with the new programs going then in SOP, we will go through the dip of sales. On the other side, we have our bottom line performance program as a part of Lighting Transformation program where we consequently work on improving the cost situation and with that working on bottom line performance that has already first effects. And with every quarter, we are working now further on this program, the effects will increase. On the other side, we have the the unfavorable market conditions, which is influencing bottom line negative. So -- but you will see step-by-step that we will improve there.

I have one last question, which is more general. We have seen the European Commission coming out with its automotive package in December and drafting the IAA in March. Your understanding of this, could you please help us understanding whether you think it means that your clients are going to continue to push you to cut capacities in Western Europe to source in other countries that may have ties with Europe and that are deemed to be part of this cooperation under IAA? Or do you think that once your large restructuring efforts are still ongoing are done, you won't need to go further?

We have to say in this way. Our customers are expecting us to be competitive. And competitiveness has to do with many different boundary conditions that has to do with the competitive production, but as well competitive logistics and this is overall then providing the competitive package to our customers. So I cannot answer that in a black or white way. We have customers who are happy to work with us in the setup as we have it and other customers are asking for further competitiveness improvement in regard of the manufacturing setup. But one thing is clear. If you look to European vehicle production volumes, they went down in the last few years, and there is no sign that, that will recover. So therefore, for sure, there is a reduced manufacturing of light vehicles in European area. And based on that, there is as well related adoption of the production capacity necessarily.

The next question from Sanjay Bhagwani from Citi.

My first one is just a follow-up to Thomas' question on Lighting. So we do understand that the whole of the '26 can also be challenging for Lighting for the factors you mentioned. But I guess the question is like, is there the improvement measures that you mentioned, both around the top line and the bottom line? Do they start to flow in from Q2 and/or Q3? That is basically, can the Q2 for Lighting on the sales and EBIT side can be better than Q1 and Q3 and Q4? If you can provide some color there? Or for the full year, probably it's likely to be same trend?

Let me start with top line. In regard of top line, you know automotive business, Sanjay. I mean, what we are acquiring right now, depending on the region is kicking in as sales in most cases, earliest next year and next, next year. For sure, this Chinese speed, which we are now capable to do, we have as well development phases of 9 months and have then sales kicking in. That's why you have seen on one of my charts that we have as well business acquired with an SOP in 2026, which shows you that this is possible short term, but with a limited influence. So that means there should be no significant change in -- or improvement in top line to be expected for Lighting this year. Then next year, step-by-step, the new acquisitions will kick in. In regard of bottom line, yes, for sure, we are having positive effects with our bottom line improvement program. They will kick in step-by-step. But on the other side, we have to consider as well negative effects, which we are still maybe getting out of mix. Therefore, don't expect significant improvement for the remainder of the year on the bottom line, maybe a slight improvement could be possible.

That is very, very helpful and clear. So my second question is now just on the group level, on the trading update for Q2, would you expect the Q2 margins to be already within the guidance range and then same for the cash flow? And yes, any color on the latest trading will be very helpful.

That is something, Philippe, you want to answer, maybe.

Yes. So we don't really comment on the expectation of our Q2 or in terms of margin and cash flow. But overall, we should be in the range of what has been published for Q1.

We have confirmed our guidance, and therefore, it's to be expected that we will be in that ballpark.

And the final one is on the guidance range. I think you did mention that it's based on the actual S&P numbers. But does the lower end of the guidance range, does it have some more cushion? So for example, if you see, let's say, maybe 1 or 2 percentage point production downward revisions across the regions? Does the -- can the lower end of the guidance range absorb this? Or this is at this point too early to comment?

That's too early to comment. We keep the guidance confirmed as we said, and we, by purpose, have a range in there. If you remember our call when we announced year-end results 2025, we have shown to you at that point of time, the light vehicle production volume of February, and that was slightly higher in comparison to what we have shown you now in April. Despite the reduction of light vehicle production volume, we confirmed our guidance that gives you an indication that we have, by purpose, brought to you a range, and we still feel comfortable with the guidance given the slight reduction of light vehicle production. More, I cannot comment on that, but we confirm the guidance as well with the actual LVP numbers.

[Operator Instructions] At the moment, we have no further questions.

Okay. Good. Then thank you very much for joining. Thank you very much for your questions. And thanks to the operator for moderating and facilitating.