Good morning, ladies and gentlemen, and welcome to the HELLA Results First half of the fiscal year 2024. This call will be hosted by Bernard Schäferbarthold, the CEO, and Philippe Vienney, the CFO. At this time, all participants have been placed on a listen-only mode, and this call is being recorded. The floor will be open for questions following the presentation. So, a warm welcome again, and let me turn the floor over to your host, Bernard Schäferbarthold.
Yes, good morning. This is Bernard Schäferbarthold speaking. A very warm welcome from Philippe and myself. A warm welcome to our results call for the first half of our fiscal year 2024. We have the following agenda today. Firstly, I will talk about the achievements in the first half. Then Philippe will take over to go through the financial results, and then I will detail out the further progress of our competitiveness program and will finish with the outlook and the key takeaways. Coming to the achievements, our sales in the first half were EUR 4.1 billion. This is a growth of 1.6%. Our reported sales were growing 0.9%. We had a negative FX effect. If we look at the different segments, Lighting was growing at 3.3%, taking into account the full consolidation of our joint venture, HBBL, in China.
This had a positive effect of EUR 114 million on our sales in China. Electronics were slightly down 1%, considering a negative FX effect. Without that FX effect, a slight decline of 0.3%. Overall, Electronics was mostly impacted. We have suffered some delayed SOPs, specifically radar, but also our electric power steering was affected by that. Both products were growing, but not as strongly as expected. Additionally, we had an impact out of the slower electrification growth, specifically in Germany, and we had also a negative regional effect overall, and specifically Electronics was impacted by that. Lifecycle was down 2.7%. We had an effect out of workshop products where, with the so-called particle filter last year, we had a significant volume in the last year. But besides that, independent aftermarket was strong and growing in the first half.
Within our SOE business, specifically agriculture and construction, in this negative industrial segment, sentiments were down in comparison to last year. Overall, if we look at operating income and cash, we had solid results. Overall, a slight improvement in operating income in comparison to last year. So 1.4% of improvement in absolute numbers to EUR 248 million, an improvement in operating margin of 0.1% to 6.2% in H1. We managed to pass through at a higher percentage the inflation to our customers in the second quarter, and that improved significantly our margin in H1 overall. Net cash flow was much better in the second quarter. We are at EUR 86 million in the first half, 2.1%, at a very similar level in comparison to last year. If we look at the order intake situation, overall, the momentum is continuously good.
What is very promising is that we had a good regional mix within our order intakes in the first half. Within Lighting, but also in Electronics, we won a lot of projects in Asia and also in the Americas. Lighting was very solid in terms of business. We won with Chinese OEMs as well as U.S. OEMs, and Electronics also had a strong order intake momentum, specifically within the USA. So overall, we are very satisfied with the improvements we have done. Life cycle, also a solid new business won. So we won additional packages on small cars, e-cars, OEMs, which are highlighted here. And we won additional business for truck for the SOE business with SOP in 2027. Further highlights on the first half.
First of all, on the left-hand side, you see the announcement in terms of our restructuring we are now doing at the Lippstadt site, which we published and communicated late in June. This restructuring program relates to a reduction and a right-sizing of our Lighting plants in Lippstadt. We will reduce around 420 permanent jobs and additionally more than 200 temporary workers overall. In focusing this plant on innovative headlamp solutions in the future, we strongly believe that this plant, after the restructuring, will be much more competitive in comparison to today's situation. On that measure, we have accrued overall EUR 62 million in our half-year results, which are adjusted. On the portfolio management, we closed successfully BHTC and also our People Sensing business. The proceeds out of BHTC were EUR 202 million. The proceeds on People Sensing are at EUR 17 million overall.
So this, and considering the net cash flow we achieved, are bringing us to a net cash position overall end of June of EUR 156 million. So a solid amount overall. And on the right side, we are highlighting an innovation we have won in the U.S. This is a product which is called Intelligent Power Distribution Module. Basically, an eFuse technology which we will bring into serial production in 2025 with a large OEM supplier. From our perspective, a very strong technology which should support our growth path in Electronics, and we are proud to get this award. Having said that, I hand to Philippe, who will go through some more details on the financial results.
Thank you, Bernard. Good morning to all. Looking at the financials, again, the sales were reported at EUR 4.03 billion. This includes a negative FX impact of EUR 30 million. The growth was EUR 65 million, which means more or less 1.6% organic growth versus a market which was reported at -0.2% over the first half. Now looking at the performance by business group, if we start with Lighting. Lighting reached a stable operating margin with some growing sales. The sales are growing by 4% organically. This includes, as it was said, full consolidation of our HBBL Chinese business. But the sales were impacted by lower call-offs for certain projects in Europe and also a negative mix coming from China, where we had a very strong call-off last year in H1 2023 with a ramp-up of a strong program last year.
So the operating margin stands at EUR 66 million, which is an improvement of EUR 2 million versus last year, still at the same percentage of 3.3%. So this is thanks to a gross profit margin improvement, better pass-through also, especially in Q2, as it was said. And we have increased R&D expenses in Lighting to finance or to prepare the new program and the new launches for the coming years. And also, we have started to ramp up our R&D forces in Mexico and in India. Looking at Electronics, so here we have a margin improvement despite sales which were relatively flat. So sales at -0.3% in H1. So here we have good momentum on the 77 GHz radar in the U.S. But we have some delays and temporary slowdown in electrification in Europe, which is impacting negatively the sales. And the customer mix was unfavorable also in China.
For Electronics, the operating income stood at EUR 127 million, which is an improvement by 120 basis points versus last year and reaching 7.6% of sales. Here again, thanks to an improved gross margin profit and some lower R&D expenses where we have been able to reduce our use of external providers in H1 2024. Looking now at Lifecycle , Lifecycle operating income is down with also lower sales versus last year. The sales are negatively impacted by the low demand on the segment of agriculture, tractor, and construction, but partially offset by growth on the spare parts business in Europe. Operating income reached EUR 63 million versus EUR 74 million last year, which means a down 170 points and reaching 11.7%.
So here, again, we have an increase of the gross profits, but we are also facing some increased R&D expenses to also develop the program which has been acquired recently. And we have also an increase on our SG&A and logistics costs, which is also linked to the integration of the Pagid business. So globally, as it was said, the group is outgrowing the market globally. So I remind that the market is at -0.2% for H1, and the sales are +1.6% organic, which means an outperformance of 180 basis points. And this is visible in each, basically, continent. So America is at 0.8% versus a growth of 0.3%. Europe, 0.4% versus negative growth of -3.5%. And Asia-Pacific +2.2% versus a growth of 0.9%. So now looking at the profit and loss. So again, sales up by 0.9%, reported at 0.9%.
Gross profit is up by 4%, which means 86 basis points versus last year. This is, again, visible in all business groups. The R&D ratio is increasing a little bit in terms of spends over sales, and this is to prepare the new launches and the new program which has been acquired, and that will be in production next year in a couple of two years. SG&A are increasing by +7.9%. So here we continue to strictly monitor our SG&A, but we also have the impact, as I said, of the full consolidation of HBBL and Hella Pagid , which is impacting also this specific line of the P&L. On the non-recurring operating income and expenses, so here we have the two effects. The positive capital gain of the sale of BHTC, and we have also booked a negative restructuring cost for EUR 69 million in this line.
The net cash flow, so it stands at EUR 86 million, which is stable versus last year at EUR 89 million, around 2.1% versus 2.2%. The net cash flow was constantly improving, and especially in Q2, with a strong performance in Q2. The cash flow was also impacted by higher CapEx than last year. We are at +23% in terms of CapEx. Here we have to invest for the new program and the order intake that was booked in the past years. And we are continuing to invest also on the standardization of our processes. But this has been offset by lower working capital. We did also some good progress on the overdue at the end of Q2 versus what was booked or reported at the end of Q1. And we have a reduction of our factoring increase also versus H1 2023.
That was an increase of EUR 40 million versus EUR 60 million last year.
Thank you, Philippe. Then I would like to continue on our competitiveness program, just to remind you, this program we initiated early this year has the target specifically on Europe to improve our competitiveness. Our target is to reach a gross saving of EUR 400 million in terms of cost in comparison to the end of 2023 at the end of 2028. And we want to reach at least 40% of these savings at the end of 2025. So we have further substantiated and detailed out the measures we are working on. I already mentioned one of these measures was the restructuring of our plants in Lighting in Lippstadt, which is certainly a significant measure we announced now at the end of June.
The measures overall are structured on one hand side, performance improvements, and on the other hand side, structural improvements we are doing, and they should contribute to improvements within our full value chain. So overall, the operations, our development costs, and also SG&A. In terms of structural measures, they will contribute around one-third of the gross improvements we are working on. And basically, we are looking at measures in terms of relocation of our people and positions, staff, which we will further move into high cost, best cost. This specifically goes through the full organization that is mostly related to R&D. We will reorganize and right-size specifically within our operations. So we are facing actually a situation where, especially for Lighting, we have overcapacities where we are actually reducing these capacities, especially in Germany, but also in our Eastern European plants.
The reorganization is specifically also related to our Lighting business where we are working on further standardizations and are focusing the plants so that we are much more efficient and flexible also within our plants in terms of volatilities in the demand. On top of that, we are continuously working on portfolio management, and we are revisiting also the expectations and also our investments into further new generations platforms and also products we are working on, especially within our Electronics business. In terms of performance measures, we are here highlighting a lot of measures. Actually, we are working on overall. They should contribute to around two-thirds of the overall improvements we are working on within the operations. We already highlighted in one of our last calls the implementation of our FES, which is our FORVIA Excellence System in terms of shop floor management.
We expect significant cost improvements, for example, within our logistics and flows, but also an improvement in terms of quality and reduction in terms of quality costs. We are working on several measures in terms of improving our R&D efficiency with the clear aspiration to reduce development times and cycles to a high extent. Already, we have very good pilots and examples where we already have been able to reduce these times significantly and even half it. Now we are working on more and more to roll that out to all programs we are working on. Last I want to mention is overall simplification efforts.
We are trying to bring completely into the organization to reducing complexity, reducing bureaucracy within our processes should also support overall, first of all, being faster, but on the other hand side, also the complexity overall of our organization and reduce our costs. If we look overall on the bridge, so we have, with the further substantiation, already reached the gross savings or have a plan to reach the gross savings. We are working on many of these measures already in implementation. So we are confident to reach the targeted level end of 2025 of EUR 150 million of gross savings we have targeted and also our target in 2028.
A significant contributor to these R&D or to these savings is, on one hand side, the R&D where we see a significant potential in terms of reduction of our gross R&D, where out of the overall savings, we are working on. One-third is related to improvements we believe we are able to do in R&D, and especially reducing R&D development times. We will invest overall into that program around EUR 200 million. These EUR 200 million are, on one hand side, restructuring costs. So on the reduction of people, but it is to a high degree also investments we will do in terms of automation, standardization, but also the implementation of new tools and also AI-related measures we are working on. Then I want to go to the outlook. So on the market outlook, we have now seen in the last month some revised downward numbers.
What S&P is actually assuming is a 2% decline in terms of volumes to 88.7 million and a further acceleration of decline, especially in Europe. Considering that, we are confirming our outlook. We are specifying it in a way that we see us in terms of our sales and also in terms of our operating income margin in the lower half of the given range. Specifically in terms of sales, we expect actually EUR 8.1 billion-EUR 8.35 billion of sales. In terms of operating income margin, we believe to be between 6% and 6.5%. We assume that overall, with the revision of the volumes, but also for this year, we do not expect a much higher growth in terms of electrified cars.
We see on the ramp-ups that somehow the programs we are in are getting some momentum, but we will not catch up all what we originally had in our plan. This is why we believe H2 would and should be a little better than H1. But overall, we will not, let's say, be in the upper half with that of our range we have given. On the net cash flow, our outlook remains as it was. So we are still confident to reach approximately 3% of net cash flow in relation to sales. So finally, key takeaways, H1 with a slight improvement overall in sales and earnings. Our perspective is that this is a solid result overall in a challenging market environment. We are continuously adapting our business, and we believe that we have again proven that we are able to adapt and are very resilient.
Overall, Q2 was we reached what we wanted to reach. On the outlook, so we confirm the outlook as I said and specified within the expected ranges. Overall, the competitive program is on track. We have detailed and worked on the measures we are now implementing. Having said that, that's all on the presentation, and we're happy to take your questions.
Thank you. Dear ladies and gentlemen, we are starting our Q&A session. If you are dialed in the conference call and have a question for our speakers, please press 9 followed by the star key on your telephone keypad now to enter the queue. At this time, questions can only be stated via the telephone connection. We would kindly ask you to limit your questions to three per person. So please press 9 star now to state your question. And the first question comes from Christoph Laskawi of Deutsche Bank. Please go ahead.
Good morning. Thank you for taking my question. The first one would be on the volatility of production and the call-offs. We just had a warning, supply chain-related warning of an OEM overnight. Do we actually see the call-off 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 comment on the 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 in China basically with the international customers, or could you elaborate on that a bit? Thank you.
Yeah, thank you for your question, Mr. Laskawi. So first of all, on the call-offs, 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 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. This is why I'm 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, 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 at least from our side, we remain, let's say, very cautious in terms of bottleneck situations we could have specifically on active electronic parts. And we are working intensively on that. Besides 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. But it is for us a very important topic and remains a risk, 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 EUR 114 million we had, basically as a run rate also on H2. So they are slightly better in terms of their plan overall. 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.
Thank you. And just on the.
I've answered all the questions. I'm now not sure if I forgot one.
Just one open. And that would be the inflation recovery share in Q2.
So we caught up somehow in Q2, some of what we were not able to realize in Q1. Overall, we still have not the full recovery in H1 of inflation. We are around 80% in H1. Still, the target is to close that gap now in H2. Additionally, what we are now also discussing to a large extent is in terms of the volume reductions. So the compensation levels on these programs where we have significant lower volumes. There still, we are as of today at a low level. So we would still expect some agreements this year, but mostly we believe that this will be compensations we believe we can reach next year. But still, some is expected still from H2.
Mr. Laskawi, if your questions are being answered, we would move on to the next question.
All answered. Thanks a lot.
Thank you. The next question comes from Michael Jacks, Bank of America. Please go ahead.
Thank you for taking my questions as well. Excluding the impacts or effects that you're expecting from restructuring, where are we now in terms of your R&D and CapEx cycle? There is a wave of new model and platform launches coming from most European OEMs in the next 6-12 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 BEV 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?
Linked to that, would this be enough to get you back towards the historical levels of our performance that we've become accustomed to for HELLA? Thank you.
So 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 the number of people. And also with the relocations, we will reduce further the cost. And 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 a 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 BEVs, so 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 the momentum should start again. And in relation to the outperformance, so overall, the order book we have 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, the difficulties we have in Europe, especially on some of our important customers in Europe, are impacting us very much.
This step by step should ease so that we are pretty confident in terms of now, let's say, next year's that we should come back to the outperformance we had in the past. It's a little too early really to say how does it look now, let's say, in the next quarters and 2025 specifically. So how fast will it be? But in terms of if I have a more, let's say, view into the three-year period, I am very confident with the programs we have put.
That's very helpful. Thank you.
Thank you very much, Mr. Jacks. Dear ladies and gentlemen, if you are dialed into the conference call and want to state a question, please press 9 and the star key now. The next question comes from Sanjay Bhagwani of Citi. Please go ahead.
Hello. Thank you very much for taking my question also. I have just two questions left, more of a follow-up to what has already been asked. So the first one is on organic growth outperformance. I understand you provided several key moving variables, and if I understood it correctly, that it is likely to trend in the right direction, maybe more from a 3-year point of view. But let's say if you just focus on the organic growth performance in the near term, and if we exclude the geographical headwinds like over-indexation to the euro, what we see is Q2 has improved versus Q1. And then I think you're also mentioning there are some delays in individual series ramp-ups. So keeping these in mind, would you still expect that Q3 and Q4 continue to improve in terms of the organic growth outperformance? That is my first question.
Second one is on the margin guidance. I understand now the range is 6%-6.5%. But maybe if you have to look at the sequential margins in H2 versus H1, can you please provide some key pillars here? At a first glance, it probably looks like the H2 margins should improve versus H1. Is that a fair assumption given better pricing, slightly more sales, or there are also some other nuances we should keep in mind? Thank you.
So overall, on the sales performance, we see that on the ramp-up, so one effect I mentioned three effects. So one is the delayed SOPs. So we have seen an improvement in Q2, and we would assume that it should improve further in Q3, Q4 in terms of the ramp-ups. So this should help on the electrified cars and the gap we have there. I do not expect really a change to the situation we had in H1. And on overall, the volumes, what I said is that already Mr. Laskawi asked that question. So early Q3, we have seen that the volumes, and especially for Europe, that the volatility is high. So the volume decline because of the overall demand. So this remains challenging. So there also, I do not see any big improvement.
So overall, what I'm mentioning, if you summarize that, so volumes remain challenging, and we do not see any big pickups or any big improvements. Also because electrified cars are not sold much, it is specifically related to Europe. And on the ramp-ups, we expect an improvement. So that overall, I see that we should be a little better in H2 than in H1, but not significantly. And on the margin, so we would assume that on the pass-through of the inflation, we should be a little better. And we expect and we have some, let's say, volume compensations we are negotiating. So we should be at least around the level we had in H1, perhaps a little better. So this is our expectation as of today overall for H2 margin. So that should with that.
We think that 6% or at least if you take the midpoint, which would be then between 6.2%, 6.3%, and 6.5% is what we are looking at.
Thank you. That is very helpful.
Thank you. If there are no further questions in the Q&A session, I am turning the floor back over to the host.
Thank you very much for joining our call and showing the interest on HELLA. I wish you a very nice and good day. Here and see you.
The conference is no longer being recorded.