Release Date: July 23, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Sales in the first half reached EUR4.1 billion, marking a growth of 1.6%.
- Lighting segment grew by 3.3%, with a positive effect of EUR114 million from the full consolidation of the HBBL joint venture in China.
- Operating income improved by 1.4% to EUR248 million, with an operating margin increase of 0.1% to 6.2%.
- Net cash flow improved significantly in the second quarter, reaching EUR86 million in the first half.
- Strong order intake momentum in both lighting and electronics, with significant project wins in Asia and the Americas.
Negative Points
- Electronics segment saw a slight decline of 1%, impacted by delays in radar and electric power steering SOPs.
- Lifecycle segment was down 2.7%, affected by lower demand in agriculture and construction sectors.
- Negative FX effects impacted overall sales growth, with reported sales growing only 0.9%.
- Restructuring at the Lippstadt site will result in the reduction of around 420 permanent jobs and over 200 temporary workers.
- Inflation recovery in H1 was only around 80%, with full recovery still targeted for H2.
Q & A Highlights
Q: The first one would be on the volatility of production, the call-offs, we just had a warning supply chain related warning of an OEM overnight. Do you actually see the call of ratios improving in the third quarter to date versus the second one? And then could you comment on current trading in the regions, how the exit run rate in June was and how you expect it to shape up early Q3? And also a comment on this health of your supply chain would be appreciated. Then sort of the second question, just what was the inflation recovery rate in Q2? And then lastly, the HBBL consolidation is down a lot sequentially. Should we take that as a run rate within China basically with the international customers? Or could you elaborate on that a bit?
A: Thank you for your question, Mr. Laskawi. So, first of all, on the call of so basically what we see is that the volatility remains specifically now to the start of Q3. This is from our side now already, let's say, taken into account, not in our expectation to the lower end. So what we basically see is that on some of our customers, they were expecting higher volumes and a faster ramp-up now starting, let's say, from the summer season and now in H2. So we are not seeing that to that degree, no, this is that why at least I can say that the negative volatility remains still at a very high level and we are slightly behind in terms of our original plan, what we expected two months ago. But again, as I said, it is already reflected in our sales outlook as of today, what I see. Regionally, Europe is mostly impacted and as well China, Americas is more robust and more at what we expected. On the supply chain, so we continue to see some, let's say, difficulties in terms of some of the semi products, not to this high extent what we had in the past, but I can say that from at least from our side we remain, let's say, very cautious in terms of some bottleneck situations we could have specifically on active electronic parts. And we are working intensively on that, beside that, I think we have some critical situations on let's say financial distressed situations on some suppliers. But as of today, I would say we are able to manage it now, but it is for us a very important, a topic and remain for risks, what -- how we are assessing it actually. Then on the -- you had a question on our joint venture HBBL. So I would assume that you could take the overall H1 sales volume. So the EUR114 million we had basically as a run rate also on H2. So they are slightly better in terms of their plan overall, so it's related to their customer mix. So it was clear that Q1 would be stronger than Q2. But overall, as I said, for H2, we expect more or less the same level as H1 overall.
Q: Excluding the impact or effects that you're expecting from restructuring, where are we now in terms of your R&D and CapEx cycle, and there is a wave of new model and platform launches coming to most European OEMs in the next 6 to 12 months. So I would expect that at some point in the near future, we should be close to a peak here in spending or are there more products and launches in the pipeline that you expect to keep this elevated and is that the reason why you're trying to target some restructuring savings within the R&D organization? And then my second question, I would expect European customers to ramp PED sales to meet their CO2 targets next year. Do you expect the related production ramp in EVs to happen late in 2024 or just in 2025? And linked to that, would this be enough to get you back towards the historical levels of outperformance that we've become accustomed to for? Thank you.
A: Good morning, Michael, thank you for your questions. So first of all, I would agree that we are on the peak in terms of CapEx and also R&D. So basically we have already seen specifically in electronics is that the increase has been stopped and we are now able with the measures we have taken to reduce R&D in terms of we have especially reduced external services significantly, but we will also with the measures we have taken. We will reduce a number of people, and also with the relocations, we will reduce further the cost. So in terms of CapEx with the standardization we have done with the investments, we have made to get more flexible, so some is still needed. But overall, we have reached a status where I would not expect the further increase of CapEx. So CapEx should step-by-step stabilize, and we are working also for the upcoming years on reducing CapEx. And this should be an important lever to improve further our net cash flow ratio in the upcoming years. In terms of [BVs]. So we -- and our view is that we think 2024 is a temporary situation. We should see 2025, an acceleration of the growth. As of today, we are not expecting really that Q4 should show a significant increase. So perhaps probably a little but not significant from our side. So we would expect 2025 that there the momentum should start again. And in relation to the outperformance. So with the -- so the overall the order book we have it gives us a good sentiment, let's say or assessment that we should come back to this outperformance. What we actually now see is that, as of today, if I look at our regional sales distribution, still our volumes, especially in Europe, are too high. This is why it is so important for us to grow and to get more balanced within the regions. That's why I highlighted also that we are continuously winning a lot of business in Asia and Americas. And this should bring us or should make us more robust and resilient also in the future and the order book is more and more getting into that more balanced and more robust situation. As of today, difficulties we have in Europe, especially on some of our important customers in Europe are impacting us very much, and this step-by-step should ease and so that we are pretty confident in terms of now, let's say, next years that we should come back to the outperformance we had in the past. And it's a little too early, really to say how does it look now, let's say, in next quarters and 2025 and specifically, so how fast will it be? But in terms of, if I have a more, let's say, view into the three years' period, I am very confident with the programs we have booked.
Q: On organic growth outperformance, I understood you provided several key moving variables and if I understood it correctly, that it is likely to trend in the right direction (inaudible) from three years point of view. But let's say if I just focus on the organic growth publicly (inaudible) near term and if the exclude the geographical headwind, like over (inaudible) to the [Europe], what we see is Q2 has improved
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
