Good morning, ladies and gentlemen, and welcome to the HELLA Investor Call on the results for the first quarter of fiscal year 2026. This call will be hosted by Professor Peter Laier, the CEO, and Philippe Vienney, the CFO of HELLA. At this time, all participants have been placed in a listen-only mode. The floor will be open for questions furthering the presentation, by the telephone. Turn floor over to your host, Peter Laier.
Thank you very much and good morning to everybody and a warm welcome to our Q1 Investor Call. We have prepared as usual a short agenda for today's call. Would like to talk at first about our achievements in Q1, followed by the financial results. We will talk about the financial outlook of 2026 again. At the end, we will summarize with key takeaways. After that, we are for sure open and happy to take your questions.
Next slide. Let me talk about achievements at first. You see here sales in 1st quarter is somehow flat. We have increase of cost measures to safeguard our profitability. If you look a little bit to the sales at first more in detail, as I mentioned, at constant FX sales is year-over-year nearly flat with a slight increase by 0.2%. We achieved an absolute figure of EUR 2.001 million sales. If you look a little bit more to the details of sales, you see that Electronics sales year-over-year increased by 6.8% to EUR 832 million, mainly driven by radar and Energy Management business.
In the Lighting business group, we have the opposite development year-over-year. We have a decrease of sales of 7.7%, and we achieved there EUR 834 million, mainly affected by phase out of programs and as well lower call-ups. In our third business group, Lifecycle Solutions, sales was up by 5.6% in first quarter. We achieved EUR 260 million sales, driven by strong Special Original Equipment business, specifically where the market is continued to recover. Overall, if we look to reported sales, we are year-over-year down by 2.9% and achieved here an absolute figure of EUR 1.939 million.
If you look to OI margin, we closed the first quarter on a level of 5%, mainly due to influences- negative influences of Lighting. We will talk about that in a second more in detail in Philippe's presentation. We continue with persistent savings in R&D expenses, that had then the result that the ratio is down by around 130 basis points 9.2%. We see positive effects of cost reduction measures further, and those are offsetting the negative volume and mix effects.
If you look to net cash flow, net cash flow is better than the comparable Q1 in financial year 2025. We achieved a net cash flow of -E UR 49 million in Q1 2026 versus -EUR 61 million in Q1 2025. Net cash flow sales ratio is at - 2.5%, as well better than prior year, where we were at - 3%. For sure, we have to consider here the usual seasonality. Net cash flow is continuously impacted by restructuring cash out, and we have a strong governance for CapEx implemented, which we have as well continued in Q1 and which we will continue.
If we look a little bit more to the business details, you see here that the order intake in Q1 is well on track. We work on our several times mentioned further diversification of our business with respect to regions and segments. If you look a little bit to our business groups, you see in Electronics that we had in Q1 a strong order intake in our core growth products. You see here three examples: Battery Management System and Car Access order from a European OEM for the Chinese and European market with start of production in 2027.
You see here DC/DC converter rollout business for premium OEM for the Chinese market with a SOP already in 2026. You see here large-scale high voltage Battery Management System order from a U.S. OEM for an SOP in 2028. If you look to Lighting business group, we have here a focus on international order intake with premium OEMs as well as volume models, so as well following our strategy.
As well here, three examples- headlamp package for mid-size and premium models for a U.S. OEM with a SOP in 2028 and 2029. We have a headlamp package for a European OEM for the U.S. market with a SOP in 2028. We have a headlamp and car body lights order for a European customer for the Asian market with an SOP in 2026. Last but not least, to talk about Lifecycle Solutions. As well here, the customer and regional diversification continued, which is, I think as well, an execution of our announced strategy.
Here two examples to be talked about- f irst, a customized LED lamps and an Intelligent Battery Sensors for an international manufacturer of agriculture machinery for the India market, SOP 2027. Significant step for us, a accelerator pedal sensor for an international truck joint venture for the Asian market with a SOP in 2029. Yeah. With this overview of the order intake, I will hand over to Philippe Vienney to talk about financial results. Please, Philippe.
Thank you, Peter. Good morning. In terms of sales, yes, the reported sales, as said, were at EUR 1.939 billion. It's a decrease of 2.9% on reported sales. The sales are impacted by FX by EUR 62 million negative impact. The growth is, organic growth is at + EUR 4 million, so it's +0.2% versus the market, which is down by 3.4%. We are here over-performing the market in terms of sales, basically due to the good momentum on Electronics, as it was said, and Lifecycle Solutions business as well, when Lighting is showing some decreased sales with fade out program, which is impacting Europe mainly and North America.
Now looking at the performance, at constant rate versus the market. Europe is above +0.9%. Here we have some successful launches of radar, and as well the effect of special operation in Europe. North America is down by -1.3% here. We have the Lighting business, which is impacted by program going down, but not fully offset by new ramp-ups. We have Asia Pacific, where we are at +8.4 versus a market at -4.9, or +3.5, sorry, versus a market of 4.9- outperform the market of 8.4.
Here, mainly coming from Electronics as well, but mostly Lighting, where we have the full effect of the new program and the ramp-up versus last year, Q1. Looking at the segments. If we start with Electronics. Here we continue, as we said, with a sales momentum, which is pretty good and growth. Year -on -year sales at 6.8% increase at constant exchange rate, at EUR 832 million. Operating margin at EUR 59 million, it's 6.6% versus 6% last year. Operating margin is basically driven by a bit of volume, but also much lower R&D expenses, which is positive for the operating income, and saving as well on the administration and distribution expenses, which is leading to this improvement in operating margin.
Lighting. In terms of sales is down - 7.7% again at constant exchange rate. W hich is mainly, as I said, due to North America, which is down and also impacted by FX impact. Whereas in Asia and China, we are performing relatively well in terms of sales versus the market. All in all, it's a decrease, it's close to EUR 100 million of sales decrease, which has obviously a drastic volume impact on the bottom line. We are having an operating margin of EUR 1 million for Lighting versus EUR 31 million last year. Mostly impacted again by the volume.
Despite reduction in R&D and SG&A, that was obviously drastically impacted by volume, so not enough to be at the year of last year- at the level of last year. Going to Lifecycle. Lifecycle is also showing a growth in terms of sales, 5.6% at EUR 260 million, with an operating margin at EUR 35 million, 13.4% versus 10.8% last year. Here we continue to benefit in terms of volume of the rebound on the agriculture segment and construction machinery, which was foreseen end of last year. The momentum is continuing.
That's pretty good for the volume and the profit margin, operating margin, so at 13.4%, basically, benefiting from this volume impact and also saving on SG&A with the cost measure which have been implemented already last year. Looking at the full P&L and the net results. Here we have an increase of the earning before tax and interest, and we have an increase of the net income. Here we have, we are reaching EUR 32 million of net income versus EUR 24 million more or less last year, so 1.7%.
Here we have the benefit of having less or lower restructuring cost than last year due to seasonality and program announcement, according to the booking rules. This is favorable for Q1 2026, leading to this plus the savings we are generating on the R&D, going from 10.4% to 9.2%, and also saving on SG&A going from 7.4% to 7.2%. All this is contributing to this positive EBIT versus last year.
In terms of cash flow, we are at - EUR 49 million of net cash flow versus - EUR 61 last year- slightly better than last year. This is also basically achieved thanks to this strong governance we have on the CapEx. You can see on the right where we have spent EUR 82 million of CapEx versus EUR 135 last year. On the other side, we have more restructuring cost in our cash in Q1 by more or less EUR 30 million versus what we had in our Q1 2026 as a cash out. This is in a nutshell, the financials. Now we can look at the, what is coming in front of us and the outlook for 2026 with Peter.
Thank you very much, Philippe. Let's talk briefly about the outlook for 2026. You see here, as usual, we base our forecast for light vehicle production based on S&P Global Mobility. You see here that we are expecting now, based on the April figures of S&P, a reduction of the global light vehicle production market by 1.8%, down to 91.4 million vehicles expected right now. That is for sure mainly impacted by the actual Iran war and the related influence on the markets.
If you look to the distribution of the markets, you see that half year one we are expecting at 44, while half year two we are expecting at 47.4, so a little bit better than first half-year expectation for half year two. This actual declining of the light vehicle production in comparison to last year is basically valid for all major regions. You see the Americas down by 1.33%, Europe down by 1.8% and Asia Pacific by 2% down. All major markets are negatively influenced by the actual situation.
Next slide. Despite that, we are confirming our outlook for 2026. You see that here on this chart, we are confirming our sales will be between around EUR 7.4 billion-EUR 7.9 billion this year. The OI margin between around 5.4%-6% of sales, and the net cash flow at least 1.8% of sales. For sure, this is based on the actual S&P forecast of light vehicle production. If we would experience further political or economic significant deviations, that is subject to further investigation of our outlook, but b ased on the actual boundary conditions, we confirm the figures as you see them over here.
Next chart. That brings me to the last part of our presentation, the summary with the key takeaways. As mentioned, it was a solid start for us into the financial year 2026 with stable sales at around EUR 2 billion, supported by the growth which we have in Electronics and Lifecycle Solutions. We have a decrease in profitability in first quarter 2026 with the mentioned negative volume and mix effects. Net cash flow improved year-over-year by EUR 12 million, based on our acceleration of cost reduction. The net cash flow on the other side is impacted by our continuous restructuring and the related cash out. We have a clear CapEx governance in place to monitor our CapEx expenses.
Based on that, we are on track to achieve our 2026 outlook. In regard of outlook, as you have seen on the chart before, there is no market tailwind to be expected. The opposite is the case. Despite that, we are confirming our 2026 outlook with the sales between around EUR 7.4 billion-EUR 7.9 billion, OI between around 5.4%-6%, and net cash flow at least 1.8%. With the related basis, I mentioned the S&P on, of 91.4 light vehicle production forecast. The impact of the conflicts around the world need to be further monitored and currently not foreseeable- o ur actions in place and monitor that carefully.
We have a strong focus on our lighting transformation program, which we are executing right now, with a consequent realization and transformation of the program to reduce costs and restore our competitiveness sustainably. On the other side, we are focusing on profitable acquisitions to support then growth again in Lighting in 2027 and beyond. With that, we are at the end of our presentation. Thanks for listening, and now we are open and happy to take your questions.
Thank you. Ladies and gentlemen, if you would like to ask a question, please press star nine and the pound key on your telephone keypad. If you would like to revoke your question, press star three and the pound key. You can also use the dial-in function if you would like to ask a question by phone, if you're here with the browser. Please press star nine and pound key if you would like to ask a question by the telephone. We kindly ask you to limit yourself to three questions. We have the first question from Thomas Besson from Kepler Cheuvreux. The floor is yours.
Thank you very much. Good morning. I have a few questions. I'll ask them one by one. Is that okay? I'd like to start with the cost increase that you've mentioned. Could you remind us your main exposure in terms of raw materials, including electronic components, and both your ability to access them, and your ability to pass the higher cost through to your customers? Please, that is my first question.
Do you want to start answering that?
I'll let you do the full answer, no?
No. Okay. Yeah, for sure, w e have- based on the actual geopolitical conflicts- we have first impacts as well on our material costs, which we are working on the one side, and on the other side, what will then come to us, we will consequently as well address to our customer base. This is a procedure which we are used to since many years, and we have here close and trustful relationships with our customers, and there is a mechanics installed in the meanwhile , on how to handle that.
Okay. You assume you're gonna pass through 100% of the higher cost, and you have no issue accessing any raw materials or memory chips or anything. Everything is fine.
I will not talk about 100%. I just tell you the usual procedure is we are handing over our cost increases, be it based on raw material or be it based on price effects of components which we are using to our customers, and we are here in close and intensive discussions with them. In some cases, we have even standard mechanics installed in the contracts in the meanwhile. In other cases, we are negotiating that case by case in a trustful manner.
Yeah. Thank you. My second question is on the R&D, which has impressively declined. Could you confirm is, if there has been any change in the proportion of your R&D spend that has eventually been capitalized or whether you're, you haven't changed anything and it's a real and absolute decline that we can assume continues for the rest of the year?
Yeah. This is a decline, we have basically reduced our heads in terms of R&D by more or less 600 people since Q1 last year. The biggest effect is really coming from savings and a restricting effect on the R&D side.
Yeah. For sure, we continuously work on our high-cost, best cost share, and we'll continue working on that. We work on R&D efficiency in different ways, working on improvement on processes and procedures. We start as well using AI in R&D to improve the processes further and with that, reduce cost.
Thank you. Just to make sure I understood correctly, there is no increase in capitalization ratio?
No.
Great. Thank you very much. Next question. Your Lighting business had a tough quarter despite the spike in Asian business. Could you help us just understanding when the turn is going to be in terms of revenues and profitability? Was it in Q1 or is it still to come?
The whole year 2026 will be a difficult year for Lighting. As I mentioned in my presentation, Lighting has two topics to be solved and where we are working on. The first is we have, based on the situation out of the past, we have reduced volumes 'cause of bigger programs run out on the one side, and we have on the other side programs which are showing lower volume than expected 'cause of the different take rates of e-mobility. Therefore, we are working consequently on acquisition of new programs where, as I have shown to you, we have successes in acquiring new programs.
With the new programs going then in SOP, we will go through the dip of sales. On the other side, we have our bottom line performance program as a part of lighting transformation program, where we consequently work on improving the cost situation and with that working on bottom line performance. That has already first effects, and with every quarter we are working now further on this program, the effects will increase. On the other side, we have the unfavorable market conditions, which is influencing bottom line negative. You will see step by step that we will improve that.
Thank you very much. I have one last question, which is more general. We have seen the European Commission coming out with its automotive package in December and drafting the IAA in March. Your understanding of this- could you please help us understanding whether you think it means that your clients are going to continue to push you to cut capacities in Western Europe to source in other countries that may have ties with Europe and that are deemed to be part of this cooperation under IAA? Or do you think that once your large restructuring efforts, still ongoing, are done, you won't need to go further?
I have to say in this way, our customers are expecting us to be competitive. Competitiveness has to do with many different boundary conditions. That has to do with competitive production, but as well competitive logistics. This is overall then providing the competitive package to our customers, so I cannot answer that in a black or white way. We have customers who are happy to work with us in the setup as we have it, other customers are asking for further competitiveness improvement in regard of the manufacturing setup.
One thing is clear. If you look to European vehicle production volumes, they went down in the last few years, there is no sign that that will recover. Therefore, for sure, there is a reduced manufacturing of light vehicles in European area, and based on that, there is as well related adaptation of the production capacity necessary.
Thank you. Thank you very much, Peter.
You're welcome.
The next question from Sanjay Bhagwani from Citi. The floor is yours.
Hi. Thank you very much for taking my question and for the very comprehensive presentation. My first one is just a follow-up to Thomas' question on Lighting. We do understand that the whole of 2026 can also be challenging for Lighting for the factors you mentioned. I guess the question is, like, are there the improvement measures that you mentioned, both around the top line and the bottom line? Do they start to flow in from Q2 or, and/or Q3? That is basically can the Q2 for Lighting on the sales and EBIT side can be better than Q1 and Q3 and Q4? If you can provide some color there. For the full year, probably it's likely to be same trend.
Let me start with top line. In regard of top line, you know automotive business, Sanjay. I mean, what we are acquiring right now, depending on the region, is kicking in as sales in most cases, earliest, next year and next next year. For sure with Chinese speed, which we are now capable to do, we have as well development phases of nine months and have then sales kicking in. That's why you have seen on one of my charts that you have as well a business acquired with an SOP in 2026, which shows you that this is possible short term, but with a limited influence.
That means there should be no significant change in or improvement in top line to be expected for lighting this year. Next year, step by step, the new acquisitions will kick in. In regard of bottom line, yes, for sure, we are having positive effects with our bottom line improvement program. They will kick in step by step, on the other side, we have to consider as well negative effects, which we are still maybe getting out of mix. Don't expect significant improvement for the remainder of the year on the bottom line- m aybe a slight improvement could be possible.
Thank you. That is very, very helpful and clear. My second question is now just on the group level. On the trading update for Q2, would you expect the Q2 margins to be already within the guidance range, and same for the cash flow? Yeah, any color on the latest trading will be very helpful.
That is something could be you want to answer maybe.
We don't really comment on the expectation of our Q2 or in terms of margin and cash flows. Overall, we should be in the range of what has been published for Q1.
We have confirmed our guidance, and therefore it's to be expected that we will be in that ballpark.
Yeah.
Thank you. The final one is on the guidance range. I think you did mention that it's based on the actual S&P numbers. Does the lower end of the guidance range, does it have some more cushion? For example, if you see, let's say, maybe 1 or 2 percentage point production downward revisions across the regions, can the lower end of the guidance range absorb this, or is this at this point too early to comment?
That's too early to comment- w e keep the guidance confirmed, as we said, and we by purpose have a range in there. If you remember our call when we announced year-end results 2025, we have shown to you at that point of time the light vehicle production volume of February, and that was slightly higher in comparison to what we have shown you now in April. Despite the reduction of light vehicle production volume, we confirmed our guidance. That gives you an indication that we have by purpose brought to you a range, and we still feel comfortable with the guidance given the slight reduction of light vehicle production. More I cannot comment on that, but we confirm the guidance as well with the actual LVP numbers.
Thank you. Very helpful.
Appreciate. Thank you.
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