Good day, and welcome to the HELLA Investor Update for the fiscal year 2021, 2022. Today's conference is being recorded. At this time, I would like to turn the conference over to CEO Michel Favre. Please go ahead, sir.
Thank you. Thank you very much. Thank you for your attendance and to this press conference. As you know, I am with Bernard, the CFO of HELLA for a long time now. What I would like to say as an introduction is that I am very pleased, very honored, to have joined HELLA, it is for me a fantastic new experience. I would like to take the advantage as well, to congratulate and to thank Dr. Breidenbach. He has made a tremendous job, during I think 18 years, and I think the price of HELLA was demonstrating that, only, but there are also of course, a lot of new things and a lot of, I will say, electronics and development success.
Okay, I would like to thank him as well for the smooth transition we managed together over this summer. Starting with the highlights first, what I can tell you is that we will comment on the results of a very tough period, but we come back on that and because we faced all the difficult events that this group was facing, this world really was facing. In this environment, a fantastic achievement, and I think we see the repetition of what HELLA did last year; it is the order intake.
We have these figures of EUR 10 billion, which was the target of HELLA achieved, demonstrating of course the technology of HELLA, and which is the flagship and the unique technology of HELLA, mainly in electronics, but not only. Second, the capacity of HELLA to globalize its business. We'll come back on that. Of course we have, I will say some very good, I will say move towards electrification, which is of course one of the macro trends in this sector. The second thing, we have started to work with Faurecia, inside this new umbrella for the year. We have, I will say, disclosed ambitious, but we say cautious, synergies. We are running now this, I can tell you that this are starting on a very good base.
We are very optimistic to take advantage of some figures as is possible, some significant figures in this H2. Last but not least, we continue to develop the portfolio business. We have announced our ambition to sell our stake in HBPO. I think it's a logical evolution after the fact that Plastic Omnium bought the Mahle-Behr four years ago, and for HELLA to keep a share and a minority stake in this JV was really not a priority. On top of that, of course, we continue to develop partnership. I will come back on that. Last but not least, we are, and this is an ambition of HELLA, but we have as well, we are facilitated by FORVIA, for the Faurecia of course, we are accelerating all our initiatives on ESG.
We are now disclosing our targets, which are of course in line with the Faurecia ones, and I can tell you that we are committed to achieve targets. Order intake, you have this page 5. What is important, it is a fantastic positioning of HELLA in the macro trends. Autonomous driving, and we have very good positions on radars and the new radar 77 GHz will be probably a flagship offer of HELLA. Anyway, we are very successful to take order intake on this. On the EV hydrogen, et cetera, we have the DC-DC converter, which is key strategic for the car makers.
As examples, we have some new technologies able to boost one key thing, which is a brand differentiation, and you know, like me, that for the case of the car makers is key. Probably, I explained that in the past, in Valeo, lighting is one of the best way to differentiate a car and to give, I will say an image, to the car. Last but not least, we have what you call individualization. We will tomorrow more and more use our phones, for instance, to enter the cars. We have what is Front Phygital Shield, etc. A lot of initiatives which really can allow, sorry, to tailor the car to the customers. On page six, two big example, one is the Front Phygital Shield.
The Front Phygital Shield is some specific material. It is integrating radars, it is integrating lighting, and we can make some lighting simulation, whatever, to give these differentiations that the customer wants. It is not inexpensive, of course, but the value is clearly the differentiation for the car maker. The second example is this high-voltage converter. You know that we give this example because it is really strategic for the car maker. Page seven, the synergies. We have more than 200 synergy opportunities. We have some big fields where we are pushing the synergies.
I can tell you that purchasing for me is not a daily, but almost a weekly concern in order to boost it, to increase the synergies we have to leverage as this new group. Global Business Service is already implemented in Mexico and in China. We are now accelerating on IT because we have the same dispositive and now we have to focus on the same, I will say background in Electronics, you know the story between a powerful HELLA and a growing Faurecia. A lot of opportunities, minimum EUR 250 million, minimum 40% for HELLA. On top of that, we have the same synergy with our dispositive respect to different customers.
HELLA is growing, for instance, which is good, and HELLA will grow and will continue to grow or to accelerate to grow with the Chinese, I will say, OEM. A page on the joint ventures on page 8. We are selling HBPO. It was old, I will say, JV specialized on the front-end. We had only 33%. It was more and more managed by Plastic Omnium. I think it is a logical issue by end of this story. We have stopped a loss-making activity, which is basic, and we have developed some new alliances, some new agreements to boost our technology. One in battery, a second one in radar, and we will continue to use this partnership to accelerate our development.
What we have, I will say, specified, we are of course, I will say looking at opportunities, strategic options, for Special Applications. It's a little early today to give you an update on that. I will say the responsibility, you have ESG, sorry. You have page nine, the new target, the or I will say the complementary target, set up by HELLA. We want on the Scope one, Scope two to be, we say net zero in the in 2025. We have the same for the Scope three for 2050.
We are of course compliant with the taxonomy, EU taxonomy, whatever the fact that it is very effective, and probably this could be, I will say revised, and we need to revise that at the EU level, because I think this taxonomy should be much more insensitive as it is today. If of course, we want to reduce, and we will reduce anyway our energy consumption. We have a specific gas program to reduce by the end of the year. I will tell you a very, I will say consistent percentage, mainly, to face the risk that you know. Now, Bernard will detail the financial result.
Yeah, thank you, Michel. Also good morning from my side to all of you. First of all, one comment to the preliminary numbers. We confirm these, so there is no difference to what we already communicate. If we start with the market and the last 12 months, just a general comment. In the last year, we had very high volatility. All four quarters were negative, and we were hit by several very significant impacts besides, let's say, COVID. You see in our Q2, so in autumn last year, the very negative market development had also a significantly severe impact on our business.
Especially also looking at our Q4, we were hit also by the lockdowns we have seen in China, especially in Shanghai and Shenzhen, also with a ramp down of our facilities and by far less sales what we expected. Overall, if you compare to what was our expectation at the beginning of our fiscal year and what was how were the volumes at the end, it was a swing of around 13%, which was compared to our original budget, a deviation in sales of EUR 600 million. If we go to the next page, on page 12, we see here the outperformance we had. There we are quite satisfied.
Overall, we outperformed the market by 6.5% in the last 12 months. We outperformed in all three regions and especially Asia-Pacific, and here specifically China was very strong, which we also anticipated at the beginning with a lot of business. We have won in China and several ramp ups which supported that development. Also going forward, we are quite confident that we would be able to continue a strong outperformance also in the future.
Looking at the sales on page seven. We, as already commented, you know, volumes in our Q1 were down, especially our plant, our electronic plant in Shanghai was down in the month of April, nearly fully and partially also in May. With that, reported sales at the end is around EUR 6.3 billion, which is slightly lower to prior year. Currency adjusted sales is 2.3% lower compared to the last year at EUR 6.2 billion last fiscal year. There are no portfolio adjustments we had to consider. Automotive is slightly negative in terms of growth despite this commented outperformance.
China for sure, and as I said, with a very decent growth development. China only was growing at 28%. Aftermarket and Special Applications have grown again, but also in the Q4. A very solid development in the last year for both of this segment. Going to the next page, the gross profit development. We have seen a reduction in our gross profit with the inefficiencies in production, the higher cost on materials, also taking into account the broker costs, higher cost on energy supply and also the volumes effects and with the constant stop and go in most of our plants globally.
We already commented that and also the additional cost impact on these effects, you know, which are around EUR 20 million per month, and where we also have seen an increasing trend. Overall, this has reduced our gross profit margin by 1.2% to 23.3% overall on the full fiscal year. We expect going forward that the cost increase will continue. On the other side, we have now finalized first agreements also with customers on compensations on these additional costs and also on repricing mechanism going forward. This should help to recover step by step on our gross margin.
If we look at the R&D development on page 15, the R&D expenses have increased also with the high level of acquisitions we reached in the last periods. We commented on the order intake of now the EUR 10 billion of the last fiscal year, but also the two years before were at a very high levels, where now a lot of projects are within now the development. The R&D ratio is at 11%. Also with the low sales level, the ratio has increased.
We continue with the ambition to bring that level down to a level which is around 10% and below. This we assume will come if we would see a more normalized level on volumes and a certain group. If we look at the next page, the development on SG&A, we remain very cost sensitive. Even if we look at an increase of the SG&A expenses and the ratio which increased by 0.8 percentage points, here you have to consider that we had some positive elements also in the year before with COVID-related subsidies, payments on short time work and also release of impairments.
If we would take that out, there is only a very little increase in SG&A. Nevertheless, we will continue to work on our cost base. Our project Phoenix and the further implementation will also support that. We will also work continuously on synergy also in combination with Faurecia also to reduce that level and come back to ratios we had in the previous periods. Summing up on page 11, the EBIT is at EUR 279 million in total. As mentioned, the high inefficiencies in addition to the cost increases led to this result with that our EBIT margin is at 4.4%.
If we look then at the different elements, I already commented to give a sense on the development of our EBIT margin to this level of 4.4%. The main impact of the deviation is on one hand side, the inflation. We have a net effect of the inflation of 1.4 percentage points. The gross inflation was around 2%. We only compensated by around 0.6 percentage points with first results we could achieve also with our customers.
As I said now with some additional agreements we have now reached, we believe that we can improve here step by step now in this new fiscal year. The volume and also mix effect had also an impact which was around 0.7 percentage points of our EBIT. This effect, we assume should also even with the recovering of the volumes and a certain normalization, and Michel will also comment on that when we come to the outlook. R&D and SG&A has also increased and with an impact on our profitability of 0.5 percentage points on R&D and 0.8 percentage points on SG&A.
I mentioned we will continuously work on that also going forward with Phoenix synergies. Certainly, the scale if volumes normalize and come back that would also support. If we look at what is our expectations also going forward, we would as of today say that 4.4% should mark the low point of a margin, and we should see now step by step a recovery of our margin going forward in the next period. We remain let's say also with our long-term ambition also in coming back also to levels which can reach 8% on the midterm.
If we go to the next page, looking at Q4, only the automotive is at a negative growth. Looking at the Aftermarket and Special Applications, these are both continuously growing as commented. Profitability in auto unfortunately is down to only 0.8%, a strong deviation also to prior years with reason I already commented and especially also the lockdown situation we had in China with a big cost impact. Aftermarket and Special Applications were both again at decent levels, whereas Aftermarket was below prior year with product mix effects, but also higher cost especially also in the Q4.
If you look at the next page, the cash flow situation, this is certainly a very disappointing result for us. In total, a negative free cash flow. We have to show positively the Q4 was at a positive level, but we were not able to recover significantly. The most relevant besides the lower profitability was the huge increase in inventories, and we have prepared one slide to that if we go to the next page.
On the development of our working capital, you see here the very significant increase we had on a year-on-year comparison, where the overall increase in working capital is only related to the increase in inventories. We are increasing the inventories by around EUR 200 million. This is especially related to the electronic parts where we have an increase of more than double of especially all active electronic parts within our stocks. This is related to commitments we had to give to the supply chain already one year ago based on demands on our customers and the very high volatility of our customers in changing demands and reducing the demand.
With that, the high increase within our inventory level we had to take end of this year. This negative trend now is still continuing also now in the last months. The deviation and volatility remains very high. We are actually also in discussions with our customers and suppliers here to find solutions and also to come back to more normalized levels. This is not something which we would come back immediately in the next months to the two levels we had also in the previous periods. As I said, we are working intensively on that also with all stakeholders.
Looking at the segments, we had a slight reduction in sales in Lighting, even in the very difficult market environment. It's a lot of start of productions for new projects supported. Here, Electronics has been impacted more largely with the bottleneck situation on semi. Due to that, we had a negative growth within our Electronics portfolio, minus 4.1%. The reduction in EBIT, again, was mainly due to the mentioned higher material prices, as well as special freight costs, production inefficiencies in course of COVID and the bottlenecks in the supply chain.
Looking at the aftermarket and Special Applications, as mentioned, a very decent performance in our fiscal year 2021-2022 aftermarket is growing strongly in the independent aftermarket part of our business. Also, in our Workshop Solutions segment, profitability is at EUR 60 million. The EBIT margin is lower. This is certainly not satisfying, but we had higher costs, especially also in the last month. We invested also a lot in our new Workshop Solutions generations. We will continue also to work against the inflation. We have also price increases now we passed through, so this should support our aftermarket margin also now in the upcoming periods.
Special Applications is continuously growing, as we have also seen in last quarters, and the profitability has developed very strongly. We are very satisfied here with that, with us. With these comments, I'm happy to take your questions later. I hand back first to Michel with the outlook on the 12 months perspective.
Outlook page 25, starting with the volumes. I will say I have no concern about the demand. Demand will be affected by the pricing, and you know that, car makers have increased their price quite violently. On the other hand, there is a need to rebuild inventories. There is a big need, mainly in Europe, to reduce the waiting time, and probably we are speaking between 3-6 months. If it is 6 months, you can imagine what it means as volumes. It is unbelievable. Clearly the demand for production is high. Car makers will try to make as much as possible, to, I will say, clear the situation. The restriction is still mainly the semiconductors. I don't speak about the risk or the risks mentioned.
We don't, it is difficult to mitigate this kind of risk. Semiconductors, we see a better situation improving, and you know that, the sector is more or less consuming 10%. We are only the first sector as a consumer, but we see higher capacities. This will benefit mainly for the other industries, but it will free some capacities for automotive. To kind of the only thing I can say is that things are easing, things are improving, volatility is a little decreasing. It is why we clearly think that this 12 months starting first of June 2022 will be much more favorable than the period of reference, very much impacted. It was mainly last year by the other three sectors.
85 million cars, including the famous 3.5 tons, are, I will say, still low with respect to the history, but it's clearly a recovery. The main zone benefiting from that will be Europe, because of course, Europe was the main zone impacted last year. Saying that, in our assumption, budget, et cetera, we can give you the range of a figure of EUR 7.1 billion-EUR 7.6 billion of sales. Which means if you take the middle plus EUR 1 billion of sales, a big growth boosted by volumes, by big growth boosted by the outperformance. I insist with the other intake we have this year, but we had mainly in the last two years, this is mechanical. Electronics will of course be one of the flagship activity growing.
We will increase the margin. Now we have given a large range for the moment from 5.5% to 7%. Of course, the short term will be more on the low range, but things will continue to improve. We have a very good start anyway, and since June building on both top line and profitability. Profitability will be boosted by volumes, will be boosted by synergies, will be boosted by the pass-through of the inflation. Some are retroactive, but last but not least, as Bernard was mentioning the famous Phoenix program. We have all, I will say, the drivers to improve this profitability and to go onto a level, I will say, to 7% to even 8%, I will say, in the short, medium term. It is clearly our ambition.
Saying that, now with Bernard, I propose to go to your questions. We need somebody to start. Operator, can you launch the Q&A session?
Thank you everyone. Ladies and gentlemen, if you would like to ask a question, please signal by pressing star one on your phone keypad. If you're using a speaker phone, please do make sure your mute function is turned off. Once again, please press star one to ask a question. We will start off with Mr. Christoph Laskawy of Deutsche Bank. Please go ahead. Your line is open.
Good morning, and thank you for taking my questions. Michel, welcome on the HELLA side.
Thank you.
I have a couple please. The first one will be on current trading in light of active comments that especially in Europe, they see lower OEM schedules and current reductions of the OEMs. Could you comment on that? Do you see the same, or are you still seeing actually, as other European suppliers have said it in a slightly improving sequential environment? Then on the guidance, you've presented a 12-month guidance. Obviously a lot of people are looking for the outlook for the remaining 2022. If I'm understanding correctly, as you mentioned at the near term, more on the low end of the margin range, would that be a comment to us for the seven months remaining in 2022?
Coming on to inflation, did you hedge energy in 2022? How does it look for 2023? What other inflation buckets would you expect trending into the next calendar year, especially? Those would be my questions. Thank you.
Okay. Thank you, Christoph Laskawy. Three questions. I think Bernard Schäferbarthold will probably take the one on energy. I will take the first two. Well, first the current trading, I insist. Of course, look, I will not say that things are fantastic. We are still very high call-offs. Customers insist they want to recover, so they continue to oversize call-offs to reduce the call-offs in the months. When we see the absolute figures for June, July, and probably August, we are above budget. I will not give you more. I will stay silent. Today we think we see things easing on the semiconductors.
It's not the fantastic picture we would like, but it is improving with higher volumes, month after month. We are first to give a 12-month guidance by law in Germany so. What I can tell you is that, if you want to make a kind of assumption, of course with the outperformance with some seasonality, the five months, 2023 will be slightly better than the, seven months, of 2022. More or less two-thirds of the figure is in the seven months. For the profitability, it's exactly what you say, low range, low part of the range in the seven months. With the synergies, the pass-through of the inflation, the Phoenix program, clearly we continue to improve.
We are clearly targeting to be in the high range for the last five months.
Yes, Mr. Laskawi. On energy, you know, we are hedged where it's possible to hedge, and especially in Europe, in all countries nearly, the 2023 levels are fully hedged. Partially in Eastern Europe where it's not all possible, you know. For example, in Romania, you have a fixing on gas prices as of today, you know. There for sure, not all is hedged, but overall, we are hedged. On the other hand side, we are hedged certainly with a higher level in comparison to last year. That, looking at the inflation effects, no, we will have an increase of energy cost in comparison to last year.
Looking at the overall inflation assumptions we are doing, we think that the inflation this year will be roughly around the level we have also seen last year with a higher proportion, especially for energy in comparison to material. We also assume in terms of increase on wages, also a higher effect also on the next 12 months in comparison to last year, and little less on materials. Overall, our assumption is around the same cost increase level compared to last year. On the other hand side, what we have seen is that the achievements and at least results we could achieve also in participation of our customers and partially also the suppliers that were at a quite low level last year.
This we assume now also with the, as I said, with the recent achievements we reach will be by far higher. We will, we think we are able to overcompensate that, so the overall inflation impact. That's why we said now that we think it should support us in improving our gross margin, together with the volume effects.
Thank you. Just one last question, if I may, sneak it in on free cash flow. On the slides, you said the 40% cash conversion target remain clearly in focus. I guess that would point to between EUR 150 million and EUR 200 million roughly for the next fiscal. Is that a fair assumption that you will get there also with the working capital swing back or too aggressive initially?
We are working towards, let's say, the lower level of your range on a 12-month perspective. Definitely, it will be a stronger free cash flow development later, let's say, from the beginning of 2023. Because as I said, we still have inventory increases where actually the measures we have now worked on and will only have larger impacts in some months from now. That it will be more difficult with the start of the year, no, what we have now seen, and until, let's say, December, and then we think about somehow recovering.
Especially, there are also some, let's say, I would not say one-offs, but due to the China situation, we were not able for the lockdowns, we were not able formally to invoice with the ramp up. There is also now with the invoicing we now have done, there is a time gap now to the collection of the money, and on the other hand side, also the re-VAT payments we had to do. China were also very negative in cash flow now at the beginning of the year. With these details, a weaker start into the year on the free cash flow and then step-by-step recoveries with much stronger free cash flow in the H2.
Thank you very much for the detail. Thanks.
Thank you, sir. We move on to our next question from Mr. Akshat Kacker of JPMorgan. Please go ahead, sir.
Morning, Michel. Morning, Mr. Schäferbarthold. Akshat JPMorgan. three questions from my side as well, please. Morning. The first one on R&D expenditure. Obviously, the overall levels for the business has been supported by the strong order intake that you have reported. Can you just talk about your expectations for the current fiscal year, probably in terms of absolute R&D spend? Going forward, how do you expect to find more synergies in R&D investments between your current business and the incoming orders, please? That's the first one. Second one, coming back on cost recoveries. You showed that you could recover 30% of the inflation impact in fiscal year 2022. Can you just share what kind of recoveries are you expecting going into FY 2023?
Is there any difference in your discussions with OEMs when you're trying to negotiate for raw materials versus other inflation topics? The last question is on cash restructuring. Can you just tell us what restructuring charges do you expect for the coming two years, please? Thank you.
Okay. Thank you.
You take R&D and cash flow structuring, yeah. I will take the pass through. Pass through, we will have as a principle 100%. I cannot say anything else, as you know. From a purely financial point of view, probably between 70%-80%, in spite of all the inflation. We will have some difficulties with some customers, some regions probably to pass through everything. Anyway, the message inside is 100%. We cannot be weak, and you know my conviction on that. We have to defend our position. We are giving productivities to customers. Somewhere what will really happen is that we will not give the productivities to compensate the inflation. Anyway, we must defend our position.
This pass through is key, huh, for a supplier today, in this sector. Bernard Schäferbarthold?
Yeah. Hello, Akshat. On R&D, the increase on the upcoming 12 months will be in absolute numbers less than last year. We assume a range of 5%-7% in absolute increase. On possibilities to reduce, no? We also have to see that the big increase is also related to some significant pre-invest into new technologies and new, let's say, platform software concepts and standardizations. With some new products, we will benefit from these, let's say, platform investments, also in the future. They are with some new technologies.
If I take 77 GHz, for example, or also our Electronic Power Steering, these were very big projects now in the last two years where we had high pre-investments already now considered in, let's say, in our results, no? This, I think, and I see, no, will not be exactly at the same level also going forward. We should see some evening there. In addition, we are still, let's say, in the implementation also of Phoenix. The shift also to our best cost development centers is ongoing.
We see also that the capabilities are increasing what we are able also to perform in our technology centers globally in partially Eastern Europe, China, Mexico, India. We will reduce, let's say, also cost levels on having more capabilities also not only in Germany, where we were very dependent on or more dependent on in the last years. For sure we are continuously working on and are using also best practices also with Faurecia on standardizations working on tools and methodologies. There's a lot also here to improve from our point of view, efficiencies and to bring with that the cost level down. On cash restructuring.
Our assumptions on the 12 months perspective is that also with the implementation of Phoenix, we see a cash out of around EUR 70 million on the next 12 months, and this should then go down in the years after.
Thank you so much for the details. Just one follow-up on the cash restructuring. Is there any cash expenses left from the previous restructuring program in Germany?
Yeah, this is mostly related to that because it's accrued, but a lot, especially on the agreements we had with them in Germany, so-called early retirement program. Most of the cash out is related now to these agreements we had where the cash out is coming in the next 2-3 years. The main amount of the number I gave you is related to that, to this program in Germany.
Great. Thank you.
Thank you very much. We move on to our next question from Mr. Giulio Pescatore. Please go ahead. Your line is open.
Hi. Thanks for taking my question. Hi, Michel. Good, great to reconnect, actually. So Michel, first question for you. Can you maybe share with us your first impressions on HELLA business? What do you think are the largest areas of improvement based on what you've seen so far? What are the low-hanging fruits, not only financially, but maybe also operationally? Perhaps also what surprised you positively, and maybe that can be taken over to Faurecia and improve the business there. Second question. Going back to the point on production, given what you said before on demand for production remaining solid and semiconductor gradually improving, why are you taking a cut to the IHS forecast? I mean, is it conservatism or are you actually seeing something that keeps you more cautious than IHS?
A third point on the electrification business on the converter. Well, first of all, congratulations for the business win. I think some of your competitors are trying to integrate the converter with inverter and onboard charger and offer one solution which appears to be very competitive. Do you see that this is a risk because you only specialize in one component, or you could become a Tier 2 supplier to those suppliers? What is the situation there? Thank you.
Okay, thank you, Giulio. Have a good morning. Now, my first impressions, very solid, very robust company. A company of engineering technician. Technology, I will say, are focused on technology. And very well managed on that. They know what they want. They have clearly make the selection in electronics of what they want to develop and what they don't want to develop. Clearly very robust. Customer wise, very well integrated with customers. Probably, the balance of power has to be a little rebalanced, because we were not completely passing through everything we should have done. Clearly the perception of customers is very solid and very robust, which is as well very good. Operationally, some contrast.
Clearly, we have to improve Lighting and we will probably be more talkative in the future on that. I will say it is the priority to probably come back and we say the definitive leader that probably HELLA was twenty years ago and is less today. It is one of the key priority and on Electronics to continue to develop, to manage this growth, which is huge. I can tell you that to double the figure is a challenge. It is a risk, but of course a fantastic opportunity. For the outlook, it is a key question because as you see, as you say, as you know, there are a lot of uncertainties.
We don't have the commitment of the supplier of the semiconductors we would like. As they are committed at 2 months, 3 months, as I will say, even until the end of the year. Some could be opportunistic, some are not totally reliable. We have as well the choice of our customers, so it's not easy today to have a clear view. IHS, S&P Global is the basis. We have to match as well what Faurecia is thinking. It is why this figure, I think, is a good consensus. It is probably conservative. Probably. It is our view today. When we say that, we could be surprised in the future.
Today we say, "Yes, we think that it is conservative." On the converter, you want to say something, Bernard Schäferbarthold?
Yeah. As you know now in Electronics, we are following a strategy where we don't see for us the need to be really a system provider in all areas. We are very focused, let's say, on component supply. Basically we are looking at, let's say, differentiation on technology, but also then competitiveness in a way, you know, that we can reach there also a certain market position to realize the margins we are targeting for. As you know, on the DC-DC 48-volt, you know, we are by far market leader overall.
It's now on the high voltage solution, it was now for us evident to step into that market segment, also, you know, and to come to that position also. We would not see, as of today, that it is necessary to come to such integrated solutions? Even we are also looking at onboard charger inverters also. As of now, it's not on our focus. We would not see that absolutely also as necessary, at least on this technology. It's different. Another solution where we think it can make sense also for us as a system provider. We also mentioned, for example, the new front panel solution also in Lighting, where we also will have Electronics content in.
There we are really able to differentiate ourselves. If we enter into such system solutions, you know, then it's because it has also a high benefit. Perhaps last comment. Today we clearly have more opportunities than we can work on, from our capabilities. We also have to choose where we think these are the most interesting for us. We have to be very clear in our portfolio strategy also to choose the right technologies. And for us, on the converter, we think it's the right technology for us to leverage also our market positioning, especially on the DC-DC 48 volts.
Thank you. Very clear.
Thank you, sir. We go on to our following question from Mr. Philipp König of Goldman Sachs. Please go ahead, sir. Your line is open.
Yeah. Good morning, guys. Thank you also for taking my questions. First question is on the working capital on the inventories. I was just wondering how quick do you see the pace of the inventories normalizing and also, do you actually ever expect inventories to go back to the same level where they were before the supply chain disruptions, given sort of that the average semis content per car is increasing, do you just expect to generally hold a large amount of semiconductors within your inventory? My second question is on R&D. You mentioned that you sort of see the level improving. What about R&D capitalization? It's been relatively stable recently. Do you expect it to remain at the same level? The last question is on the portfolio.
You say you're exploring options for the Special Applications business. Can you maybe provide a bit more color on what are those options? How far are you ahead with pursuing any of the options? Is there any timeline that you've set yourself? When can we potentially expect more details on that? Thank you.
Okay. I will take the first and the third. Bernard will take the second. First, good morning and thank you for your question. Inventories is always a measure of the viability of our customers on one side and of our plant and our suppliers. Today, the viability has been exacerbated by the fact that customers have oversized and still oversized their call-offs and the fact that, of course, semiconductors were erratic. We are today in the situation which is improving but slightly improving. What I can tell you is that we have put some specific resources. We have put a task force to work on the different families and to clearly with the goal to go back with the lead time we had, as you said, before the crisis.
In value terms, it is not possible because the raw material, the semiconductors have increased prices. A part of the increase of the inventory is structural. When prices are up by 15% semiconductors, which we want, we can say what you want, it has an impact. On the Special Applications, as I said, it's too early to give you, I will say, better understanding. What I can tell you is that very probably by the end of September, we will be able to give more of it. Bernard?
No change on the capitalization of R&D plan. We continue, let's say, to account in the way how we have done it in the past. With an increase in absolute terms, we should see also an increase in capitalization. In relative terms, it should stay in the range, you know, we have as of now.
Okay. Thank you very much, guys.
Thank you.
As a final reminder, to ask a question, please press star one.
No other question?
We have a follow-up question, sir, from Mr. Giulio Pescatore. Please go ahead, sir. Your line is open.
I'll ask one if nobody else wants to. On mix, I feel that investors are very concerned about the normalization of mix for car makers but also what that could mean for suppliers, because you clearly benefit. I mean, your outperformance clearly benefits from that. Can you maybe quantify the potential headwind of mix normalizing in sales? Are you worried about that at all?
No.
That was easy.
As you understand, volumes are coming back. We can always say it should be fantastic to have both, of course, but volumes will have a definitive positive impact. We are not worried by the mix. The second thing, Europe is, for us, a key lever. Europe, European volumes coming back is a good news.
Thank you.
Thank you, sir. We have a last question come in from Mr. Jose Asumendi JPMorgan. please go ahead.
Michel Favre, good morning. It's Jose Asumendi. I wanted to come back again to the comments you're providing on Europe. We've been waiting I don't know how many quarters or years now for an improvement of production in the European market. You are making these comments that the situation is improving. Can you provide a bit more color in terms of the level of activity at the European plants? Is it going to be significantly higher in the upcoming quarter versus the previous quarter? Will it be seen meaningfully in the upcoming quarter, or do you think this is gonna be more clear or evident in our you know in the Q4 fiscal year 2022?
(Foreign language)José.
(Foreign language ).
As usual, you are asking very precise questions. The difficulty to answer to you is that, as you know, HELLA in Europe is very much focused on the German car makers. It's difficult to answer for all Europe. Probably German car makers as well have the strategy to get the semiconductors. I have seen one, not German, a little, I will say struggling, but probably the relationship with suppliers could explain as well that. It's not easy to answer to you. What I can tell you is that our European figures are good, improving. The call-offs are there, and with the picture we have for August and September currency is good.
I will not say anything more because things are still uncertain and variable, but I will say for the moment, as is for HELLA, it's a good news and a good achievement. You want to add something, Bernard?
No, Jose. As Michel is mentioning, we see at least if we look at the demand in the upcoming 3-4 months, an increase of demand for Europe. Let's say, the uncertainty for us is at the end, having seen, let's say, also the high variability or volatility also then and really the takes and at the end, it's difficult to predict exact numbers. If even we would stay in the average variability, we should see an increasing volumes now in Europe.
Thank you very much. Looking forward to it. Thank you very much, Bernard and Michel.
Thank you.
Thank you.
Thank you, sir. We have no further questions.
Okay. It is time to close this conference. Firstly, with Bernard, I would like to thank you for your attendance, after your questions. We will give you a rendezvous for the Q1 results, which will happen, Bernard, when?
End of September.
End of September?
Mm-hmm.
Okay.
The 29th.
The twenty-ninth. We have in the meantime a shareholder meeting. Have a very good day and see you soon. Bye bye.