Good morning, ladies and gentlemen, and welcome to the HELLA Results 9-month FY 2024. At this time, all participants have been placed on a listen-only mode. The floor will be open for questions following the presentation. This call will be hosted by Bernard Schäferbarthold, the CEO, and Philippe Vienney, the CFO. L et me now turn the floor over to Bernard Schäferbarthold.
Yeah, very warm welcome and good morning from my side. I'm here with Philippe, our CFO, and very warm welcome joining that call on our 9-month result. First of all, I would like to highlight three things. One is, in terms of our new outlook, we confirm our outlook to the end of the year. Secondly, and we will present on the 9-month result as expected, the third quarter, and also we expect a continuous volatile environment, and the fourth quarter was a challenging one, and despite that, we maneuvered with a quite solid profitability, and the third is that I will highlight that in our view, we are well on track in terms of the implementation of our strategy and the structural changes we already have commented to increase our competitiveness, but let's start into the results, so overall, sales grew at 0.8%.
We are at EUR 6 billion after the nine months. This is an outperformance of 240 basis points. The group reported sales are at EUR 5.9 billion. If we look at the different segments, lighting showed a growth of 4.3% at EUR 2.95 billion. As mentioned before, this year we are fully consolidating our activity in China of HBBL. Within electronics, we had a negative growth of 3.2% after nine months. So we are actually at EUR 2.22 billion.
The reason for this negative development is, on one hand side, the customer mix, and this impacts us especially in China, as well as late SOP or delayed SOP, which with a significant impact on our sales this year, beside the fact that numbers of electrified cars are also much down in comparison to our original plan. But the most relevant in terms of the deviation in electronics is related to the delayed SOPs.
We expected around EUR 300 million more sales for electronics in our original plan, and around 40% of that deviation is related to these late start of projects. Life cycle is also down, and here specifically the third quarter was very weak and was impacting our sales development quite much, and with that also, within our nine months, within life cycle, our three businesses have developed quite differently. On one hand side, the independent aftermarket is still showing a growth trend, so we are growing there still in nine months with 2.9%, but we see that especially in our workshop products as well as in the SOE business, the sales development was weaker, so we see hesitation specifically in workshop products in terms of investments.
Even the more, let's say, impact was in our SOE business, where especially the third quarter was significantly down by -20% because of the low demand on important customer segments like agriculture, but also construction, which have a high importance. Overall, if we look at income margin, we are at 5.8% in comparison to 6.1% in the prior year. The reason is a slightly lower gross profit margin with the lower volumes and also the negative mix effects, especially on the R&D. We improve, so we are working on a higher effectiveness on our R&D ratio, especially on the external services.
We have been able to reduce significantly, and we are working on continuous improvement in that area. Net cash flow is still at a slight negative, but we expect to catch up, especially now in the fourth quarter, the same pattern as we had last year.
S ignificant cash inflows we expect also from the agreements we had also on the customer side, which are not cashed in in a significant magnitude. This is a relevant factor and as well a reduction in working capital, especially on the inventory side, but also on the receivable side we expect to the end of the year. If we look at the order intake side, so we are quite satisfied with the development here and especially on the mix. W e are working on getting more resilience and robustness in terms of the diversification of our order intakes going forward. I t's from utmost importance to have a global and more balanced portfolio in terms of our order book. A gain, we are able with around two-thirds of our order intakes outside of Europe to work towards that direction.
Around 45% of this business outside of Europe is related to APEC. T he rest, around 55%, is for the Americas. If we look at the different segments, so especially within Lighting, so we are able to increase our footprint towards South America. A lso for China, we are quite successful in terms of our lighting business, where we are able to position now our new technologies within China specifically. In Electronics, we won a significant business for the U.S. here.
We mentioned one big radar business. On the other hand side, we also have been quite successful within that year now for APEC, Japan, India, and as well for sure China. And Life Cycle, so we continue on our activities in growing with our electronic portfolio within Life Cycle. i n addition, we also continue in terms of our headlamp or lighting business to grow within our customer segments.
Here at two-wheeler, three-wheeler, which is a very interesting market for us as well in India, where we have quite a decent growth perspective also in the future in that segment. If we look at further aspects, so one here on the left-hand side is an example of newest technology we are selling to and implementing to China, where first of its kind more and more is already sold to China.
Here one example on the lighting side with our newest RGB LED rear light, which is now introduced into midsize sedan car within the Geely group. So this is one example to show you how we are also adapting our product portfolio to the global market immediately and selling it basically as first of its kind. t here are more of these projects to come in the future.
The second one we want to highlight is again a recognition on the workshop product on our workshop product brand, where we have been awarded best brand. It shows that here within life cycle, within our product scope, we are recognized here with HELLA Guttmann as one of the best commercial vehicle workshops here in growing that business and leveraging our competency also with our independent aftermarket offering we have. Another aspect is on the commercial vehicle part within life cycle.
We have a clear focus within that business to grow in the commercial vehicle business, especially on the truck segment, where we have been quite successful in the recent times. During the IAA, this has clearly been recognized also by a lot of different customers. We believe having quite a decent position also going forward in that segment.
Lastly, on the right-hand side, again, we want to point out that the topic of sustainability remains a clear priority and focus topic. We are, or have been, recognized by FORVIA overall with an A score for transparency on climate change. We are working intensively now on Scope 3 reduction measures. That is a clear focus and also being recognized on customer side and certainly something which will continuously gain on importance in the time to come. Lastly, I want to highlight now on what are the key points and initiatives for us going forward. As I mentioned at the beginning, we have four areas of priorities for us. One in terms of the market, as I said, we want to get much more balanced globally. We are well on track, as I said, with two-thirds of the order intake outside of Europe.
We have as a focus our business opportunities in the Americas, but as well in Asia with India, Japan, and China. W e are seeing that step by step we are growing our business portfolio in these countries and these two regions. Secondly is in terms of our competitiveness and our profitability. W e are intensively working on measures to improve our net cash flow and improving our operational excellence. W ith the measures we have implemented, we see a strong or we are well on track to reduce our CAPEX ratio already next year and to improve also working capital next year to a significant level.
We are working on the operational excellence, especially with the different initiatives, a new excellence system we are implementing in all our plants as well as the automation efforts we are doing and the flexibilizing of our plants we are working on despite the fact and this relates then to the competitiveness program where we are adapting capacity and reducing our structure, especially within Europe.
Lastly, in terms of our cost on our cost side, so we see that we are able to even increase on the synergy side, especially towards next year, so that we see EUR 400 million of cost synergies we will be able to reach to the end of next year. In terms of our competitiveness program for Europe, we are well on track.
I can here say that especially on our target to the end of 2025, we see that we are able to accelerate even the realization of these measures to a level of above 40% of realization of our EUR 400 million target until 2028. So a clear focus on further cost reductions and even being faster. One element is also, which is here also underway, the clear ambition as well and focus to reduce R&D cost and to improve here our effectiveness in that we see that in adapting our way of work in using state-of-the-art tools, implementing AI use cases, many different measures we are doing, but also shifting resources towards best cost countries, we are able step by step to improve on our R&D cost base.
We see ourselves in the position to come to this target level we had of below 10% already in next year. Overall, this should give us the ability to step by step continue on improving our profit and cash position in the years to come. Having said that, I hand over to Philippe.
Thank you, Bernard. Good morning to all. Looking at the sales, we have sales at EUR 5.9 billion reported sales. This is composed of EUR 45 million gross, which is corresponding to 0.8% increase. We have a negative impact of the FX of EUR 42 million leading to reported sales, which are similar to the level of last year. Looking at the BG now, lighting, I said the gross is 4.9% excluding the exchange rate with an operating profit at operating income at 3.5% versus 2.8% last year.
The sales are contemplating the full integration or consolidation of the HBBL. W e have also the sales are explained by, let's say, good ramp-up of new programs in Americas with headlamps for Ford, for example. O n the other hand, we are penalized by the end of high volumes program, especially in China with Tesla also, for example. Operating income is so growing versus last year. H ere we have an increase of the gross profit, which is linked to the mix and the integration of HBBL, which is according to the results. w e have improved SG&A ratio in lighting. Looking at electronics, so electronic is at minus 2.7% gross with an operating income of 6.8% versus 7.1%. H ere we have on the sales on the good part some good launch with the radar business mainly in the U.S. and Europe.
We have a lot of delayed SOPs, as mentioned already by Bernard. w e have the slowdown of the electrification in Europe, which is impacting us largely. w e have also product mix, which is not favorable, especially in China. O perating margin at EUR 165 million is slightly down versus last year. M ainly linked to the volume and the mixed effect. And we are also improving on the other side, the R&D expenses with a reduction of the external services provider mainly and some constraint on the R&D side. Looking at Life Cycle, so Life Cycle is minus 4.3% on sales, 10.2% of operating margin versus 13.1% last year. H ere we have also, I said, the aftermarket, which is still growing versus last year after nine months.
We have the special application and special product sold to the agriculture or industrial business, which is going down and impacting our operating margins. w e have in life cycles the integration of Pagid for the full year now, which is also increasing our SG&A ratio and in absolute value as well. Now looking at the sales per continent, so we are still growing everywhere in every continent. W e are basically in every continent above the market. t hen you have the split of the sales per continent. Europe is still at 57% and Americas and Asia Pacific more or less at 21-22%. Y ou can see down that we are growing in every part of the world versus the market. Operating income details. T he gross profit is at 25% versus 25.3% last year.
Here we are impacted by the mix and especially the mix between the BG with Electronics going down versus last year. On the other hand, we have R&D ratios, as mentioned, which is improving at 10.7% versus 11.1% overall for HELLA. Again, thanks to some less use of external resources. SG&A is increasing in values and in percentage. W ith the full consolidation again of HBBL, which is impacting the values of SG&A and Pagid as well, which is also the BREG business, which is impacting our expenses and the logistic cost. On the EBIT side, we are ending at 6.9% versus 6.1% last year. So this includes capital gain from the sale of BHTC, which was recorded in H1, and also the restructuring cost for the plan to restructuring in H1.
In terms of cash flow, we are ending after nine months at -EUR 8 million versus EUR 40 million last year. Here we have basically two impacts. We have a lower increase of the factoring versus last year, which is increasing by EUR 53 million versus EUR 91 million last year. w e have a slight increase of the CapEx at 4.7%, mainly linked to the new project which have to be launched. w e are investing for the launch of these programs.
Thank you, Philippe. Lastly, I want to comment on the outlook. On the market side, we see the market for the full year on 88.5 million as S&P is also showing the prediction in October. This is a further deterioration in comparison to the nine months. B asically, all regions are negative in terms of volume development and Europe specifically.
This brings me to our new outlook as we changed it in September, which we confirm also today. W e see our sales currently and portfolio adjusted between around EUR 7.9 billion and EUR 8.1 billion. The operating income margin between around 5.5% to 6% of sales and the net cash flow to sales between around 2.2% and 2.7%. T o sum it up, overall, a solid performance in a challenging market, as mentioned, still an outperformance in all regions. A net cash flow where we still expect, especially to the end of the year, a significant improvement. We confirm the new outlook. A s I said, we see as good actually in the implementation of our strategy. Also, the customer response still we are getting on our products and technologies well on track also to balance more out our business globally.
Especially on the acceleration of our initiatives, we are and confirm that we will be faster in terms of the implementation of our cost measures we are working on. We already have now reduced end of September 1,300 positions in comparison to last year. We will continuously reduce now month by month. That's all from our side for the presentation part. We're happy to answer your questions you would have.
Ladies and gentlemen, if you would like to ask a question now, please press 9 followed by the star key on your telephone keypad. If you wish to cancel your question, press 9 followed by the star key again. p lease limit your questions to three per participant. F irst one comes from Christoph Laskawi from Deutsche Bank.
Good morning. Thank you for taking my question. The first one will be on LCS, which was quite weak in Q3, as you've highlighted. Do you see a change in trend ahead, or is the level of activity that you see for Ag, for example, that you highlighted basically the same in Q4? t hen peers have highlighted for production volumes deterioration into Q4 from Q3 with schedules that have been reduced, especially into December. Do you see the same? H ow do you see current trading in the various regions? Thank you.
Hello, Mr. Laskawi. U nfortunately, the trend in SOE is the same actually in Q4 as it was in Q3. So this is the biggest impact on life cycle. S till, independent aftermarket is stable. Workshop products is slightly negative, but in comparison to last year, so year on year, a big or a strong difference, as I mentioned, in SOE. So no major further deterioration in comparison to Q3, but very comparable. On the production volumes, October was slightly lower than what we were originally expecting. November as well. December, we still also see a risk that it could be lower than expected. Still, it's not absolutely visible. W e are in discussions also on the OEM side where it could be that some of the OEMs have a few closing days more.
That if we look at the range on sales, the impact or the uncertainty is around EUR 100 million. I would, as of today, I still see us in the range, but more, let's say, towards 7.9-8. So with the lower volumes, which I can confirm we as well see, I don't think that we will be in the upper half as of today. I would also not see us below the range. T o give you somehow an indication. Regionally, still the bigger impact is or biggest impact we now see is Europe.
China is not, let's say, worse for us as it was now in the nine months. S till for China, we see that especially on the customer mix. T he Western OEMs are still at the lower levels, but continuously in comparison to the nine months. N o further deterioration. Americas for us is quite stable in terms of what was expected.
Thank you. One follow-up then, if I may. If you sort of get closer to the lower end of the top line guide, it's probably fair to assume that it will be the same on the margin. Or do cost-cutting measures and cost flex already help you to be closer to the midpoint?
We are also better on the cost side. T here as well, we are accelerating in terms of cost savings. We are still working on getting to the midpoint, but it somehow now really depends on the landing point on the sales. W e will also be. I do not see that we will be below the range. i t's fair to say that the midpoint would probably be the best case.
Understood. Thank you.
Next question comes from Akshat Kakkar from JPM.
Thank you, Akshat from J.P. Morgan. I have three questions, please. The first one on all the self-help actions and cost measures that you have highlighted, so if we sum up all of these initiatives across the organization and also the synergy element with FORVIA, what should we expect as the net positive impact on the business, please, as we think about 2025 versus 2024 as a year-on-year impact, please? The second question is on total investments and expenditure, so you have clearly mentioned that the R&D ratio will probably fall below 10% for 2025. How should we think about the net CAPEX number, please? T he last one is on electronics. Now, you have frequently highlighted that this business division has been impacted by delayed SOPs and a downturn in electrification.
As all of these OEMs prepare to meet their CO2 targets next year, how should we think about this business or these delayed SOPs picking up in the first half of next year, please? Thank you.
We see that all the measures, so first question on the cost side. W e see that on the cost reduction side, with the measures we have implemented, we will be able to reduce the fixed cost base even in absolute terms next year in comparison to this year. T his year, we will be in comparison to 2023, even, let's say, more or less stable, even a little higher. N ext year, we will in absolute terms be lower. T his is something where with the measures we have worked on, we clearly see that even we still consider inflation, salary increases with the decline. T here will be 2%-3% of fixed cost decrease in absolute numbers.
In terms of synergies, besides, let's say, on the admin side, what we are doing together, but what is the lower part, the biggest part is in terms of material cost reductions where we are working together on the supply side. W e assume that we will benefit much more also out of the collaboration also next year towards savings in terms of our material ratio. So we expect on the material ratio or on the material expenses quite a significant reduction. We somehow have to watch a little bit the mix development, but in terms of material ratio, we see here an improvement. This is much related also to the synergy efforts we are doing. On CapEx, so if we look at tangible CapEx, we will be in terms of level new investments related to depreciation, we will be below 100%.
Actually, we even see we will be below 90%. This is quite a significant reduction also in comparison to this year. A lot of additional investments we were already planning in terms of automation, in terms of extra CAPEX we have done is already made now so that we are now also able to reduce the CAPEX levels in percentage. It will be somewhere slightly above 5% in terms of tangible CAPEX to sales what we expect for next year. In terms of electrification, yes, it's still, let's say, our base assumption is, as you said, so the number of electrified cars should increase and we should benefit out of it for electronics. This is what we also would expect. i t somehow certainly also depends on decisions on regulations.
If there would be no significant change, we would also expect that this number should go up in terms of volumes for these battery electric cars. W e should benefit from it.
Next up is Thomas Besson from Kepler Cheuvreux.
Thank you very much, Heidt. I have three questions, please. Could you talk about the discussions you have with your clients currently on what I would expect is about the sharing of the savings you are discussing thanks to the restructuring actions you've taken? I mean, their average margins is crushing. t ypically in this situation, they aim at sharing the burden with suppliers. a re we already advanced in the move from compensating you for inflation to asking you for compensation, well, sharing your benefits? That's the first question. The second question is, could you discuss where you stand on potential Volkswagen strike risk and discussions on salary increase in Germany? T hird question, could you talk about potential disposals of any kind to contribute to limiting the FORVIA debt burden? Thank you.
On the client side, so for sure, I can confirm that the discussions with our clients in terms of compensation, we are asking for on one hand side, we are asking for inflation compensation, but we are also asking for volume compensation. A s you said, it's clear customers are asking us for our contribution in terms of competitiveness. I think this is something, yes, the discussions are very intense. We continue to get to agreements. I think for us, it's important to at least get a certain alignment also with our customers that it's a win-win situation. T here are still, let's say, big issues in terms of programs we have invested in where the volumes are not or the volume commitments on the customer side are not fulfilled, where because of the inflation, we have new situations.
This for sure is something where we need agreements with our customers and we are still getting to such agreements. On the other hand side, it's clear that in terms also of new business, in terms of competitiveness on our side, the structural changes we are doing are very relevant for us also to be competitive, but also to bring the customers into a competitive situation on their business. I t is, I think, for sure, sometimes it's a little mixed up, but we try really to separate the discussion in these terms. As of today, I would say we are coming along with the customers to find there the right agreements, and it is appreciated that we are on the customer side that we are intensively working on our competitiveness and reducing the cost base.
You're right, it is getting more intense, but it is key for us to work on our competitiveness and to find the right balance. On VW, we see that strike risk. On the other hand side, and you're also asking on the negotiation side, I see also that on the union side, there is an understanding on the difficulty of the market. I think and I hope that as I feel negotiations are ongoing, intense, and the willingness, let's say, to find a solution. Now, VW is a special case, but in general, with IG Metall in Germany is there. L et's see if there will really be a massive strike that could have an impact. A s of now, as I said in our outlook, I think we already price in somehow lower volumes of VW.
In terms of the expectation on salary increase, it's difficult to judge. I think it's clear that it will not be 7%. At least this is for me clear. So what the negotiations are, as I said, ongoing. I hope that we will find a quick solution which is reasonable and which is more on a lower end. The offer, which is on the table company-wise, so 1.8 plus 1.6 in more or less for 24 months probably will also not be enough. I t will be, I think, a little more, but by far not this level they are asking for, but difficult to predict for me now as of today. On the disposal side, so no major business I can comment on is now, let's say, from our side, from the portfolio, we are looking for a disposal.
For sure, let's say I can say that overall, we are looking at our portfolio continuously in terms of competitiveness, but there is nothing I would like to comment further at this point in time.
Thank you very much.
Thank you. There are no further questions now. We'll wait a few more seconds if another one comes in. T hat's not the case. I will hand back to your host, Bernard Schäferbarthold, for the conclusion of the conference.
Again, thank you very much for joining our call on the nine-month result. T hank you for the interest in HELLA. I wish you all a pleasant remaining day. Thank you very much, and see you soon.
The conference is no longer being recorded.