The conference is now being recorded. Ladies and gentlemen, a warm welcome to the HELLA Investor Update Call. 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 is hosted by Mr. Favre, CEO, and Mr. Schäferbarthold, CFO. Let me now turn the floor over to Mr. Favre.
Thank you very much. Good morning. Guten morgen, ladies and gentlemen. I am very happy to be with you, sorry, today. I am with Bernard Schäferbarthold, our CFO, and Kerstin Dodel, our IR. One preliminary comment, you have everywhere FY. FY means fiscal year, seven months, not full year. Please take into account that we are speaking of seven months. Of course, you can make an extrapolation with, I will say 12 on seven to have a full year figure. I will comment the presentation on the Internet, starting with the page four. Page four, we were recording again good figures on sales, whatever the low volumes of the market, EUR 4.4 billion, which means that we are today over EUR 7 billion sales on a 12-months basis. Of course, we see that we are targeting better figures.
We have a very good support for our, from our sales in North America and China, gaining market share in these two zones, and we say significant market share. EBIT, we confirm the same EBIT as end of November, 5%, which is a relative, I will say, performance, because of course we target much more. In the time of low volumes and inflation, I think that we can say that our teams, well, and we have made our homework. I can tell you that we have been, I would say, very active to protect our P&L and to pass through inflation. We have something like 85% of the inflation pass-through, which is as well a relative figures, but I will say probably compared to some peers, which will be a good performance.
As you know, we are more and more focused on cash. We need to generate cash in HELLA, and we have been able in these seven months to generate EUR 83 million after a period where we consume cash. We have to accelerate on this figure, which will not be so easy in the current time. Order intake, EUR 7 billion. If you prefer, EUR 1 billion per month. I can confirm that because on the 12-month calendar year full year 2022, we achieve EUR 12 billions of order intake. We are very successful on this side. Very successful, thanks to the, I will say, flagship technologies in HELLA, and the fact that we are really driving very good innovations, and we can manage differentiation as well for our customers.
The last point, we continue, of course, to accelerate integration on the right field with the Faurecia. We have achieved, I will say, more than our figures target of EUR 20 million. I can tell you EUR 27 for HELLA, which is better than Faurecia. We'll of course, continue to accelerate. On top of that, we continue to feed ideas. We are above, and I will say much above, the EUR 100 million figures for, I will say, the synergies to be captured and achieved by the end of 2025. As you know, we speak of preliminary figures, so we will give you only the key figures. Page five, for the first time, you have the figures for the different activities. One comment, because Faurecia will publish the figures next Monday.
You will see some small difference, I will say, higher figures for Faurecia for our business. This is due to the fact that some costs were already provided in the opening balance sheet of Faurecia because of, I will say, the process. The main, I will say difference is some warranty cost. Faurecia is working on a statistical basis, so they were able to provide a cost that, of course, we have in our P&L. We are adjusting with Bernard our process, and we will be fully, of course, in line with the Faurecia process at the end of December 2022. Saying that, you see good sales for both lighting and electronics. Very, very good, I would say, growth, both volumes but outperformance, as well feeded by the inflation.
If I zoom on the lighting, which is very good, because if you remember how the first half 2022 was complicated. It was our second semester fiscal year, so we show a clear improvement. The team is making as a turnaround, the team is improving, I would say, the operations, mainly in North America. We can say that today we are firstly above budget, which is good, and we are on the right track. I am very confident on our capacity to continue to give much better figures on lighting in the next months and next years. You know that we have given the target of minimum 6% for 2025. We are really on the good track. Electronics, 6.5%. I have seen some publications.
I think this figure is good. This figure shows that we have been able to protectOur profitability in a time where inflation of semiconductors is unbelievable. We have as well very good operation performance. I think we can be satisfied in the current situation of this figure. Life cycles, whatever the mix, whatever the fact that we are feeding, I will say the global expansion, we were able to achieve a double digit, which is as well a good performance. I would like to take advantage of this presentation to say and to thank all the team of HELLA for this, I will say, good results. Going to page seven. It is still uneasy to make guidance in the time of inflation. We have the impression that inflation has somewhere reached a cap, but to be confirmed.
We are still on a political uncertain world. On the volumes, we are facing a small slowdown, mainly in China. Currently, it was due to the COVID. We have some question mark about the final demand in China, but potentially as well in Europe. The main driver for that is price. Price of cars are very high. It is why, and I apologize for that, we will be conservative with the figure, which is not the 85 million cars production of IHS, but we are taking a conservative figure of 82, saying that it will be a flat evolution. Anyway, it is our budget, and for the moment, the first quarter is giving, I will say, right to us, we will see afterwards. We would like that volumes anyway will be an upside and not a downside. Of course, Europe is affected by that.
On this basis, page eight, we can, I will say, commit to figures between EUR 8 billion-EUR 8.5 billion of sales, which will be a new, I will say, breakthrough for HELLA. Operating income, we confirm as a margin of 5.5%-7%. We were saying for the first five months on the low range, we confirm that on the first five months it will be a low, I would say, close to the low range. Of course, we target to be in the middle of the range at least for the full year. We are as well on the, I will say, on the track for the roadmap, and we have the very good opportunities of the synergies to continue to improve month by month, the margin. Net cash flow.
It is the first time that we are disclosing a figure on net cash flow. It is clearly the tradition that the work made by Bernard, the financial team, is giving the fruits. We clearly want in any way to, I will say, provide a very good growth, but as well to generate cash. We are improving. We target 2%. I don't say that it is the easy target, but of course, it is one of our major targets for this year. Summarizing the presentation, page 10. We have a strong sales momentum, and we are very confident, of course, to achieve more than EUR 8 billion of sales this year. We have a fantastic order intake. I repeat, EUR 7 billion in seven months.
We speak of EUR 12 billion, EUR 12 billion for the 12-month calendar year, which is clearly feeding our target for 2025 of EUR 10 billion. We are really on a good track on that. We have, I think, the right target for 2023 in line with what we have promised, committed in the Investor Day. Cash flow, an improvement of cash flow conversion is a key target. We continue to drive the cooperation with Faurecia, and I think synergies are speaking by themselves. Saying that, now with Bernard, we are ready to answer to your questions. Operator, can you, I will say, start the Q&A session?
Yes. Ladies and gentlemen, if you'd like to raise a question, please press nine and star on your telephone keypad. In case that you'd like to withdraw your question, please press nine and star again. Please note that we only take three questions per person at first. The first question comes from Michael Jacks. Your line is open now.
Hi. Good morning, Michel. Thanks for taking my questions.
Good morning.
My first question is. Good morning. My first question is in relation to the comment that you made in the release that profits will be more skewed towards the second half of the year. Can you just please give us a sense for the main moving parts here? Is this just driven more by delayed compensation or is there something else there? My second question is on the synergies. Can you please just give us a sense for how much of this was realized already in 2022 and what the expectations are then for the remaining EUR 300 million or EUR 150 million, which is HELLA's share over the next three years? Finally, on the sales guidance, can you provide a little bit more color on the moving parts here? What is the contribution that you expect from pricing and from outperformance? Thank you.
Okay. Thank you. Thank you, Michael. The last question will be for Bernard Schäferbarthold. For the progressive improvement, of course, we have some, I will say, negotiation. We have to continue to pass through inflation. We are slightly late on some activities, and some activities are clearly on the good track. It is a normal, I will say, process. We have volumes, and you know that China is a big contributor of, I will say, our P&L. Due to the Chinese New Year, which is every year, the first quarter is traditionally lower, it is why there will be this ramp up and improvement in the next quarters. Those are the main drivers. We have some, we say, progressive new products, which will feed sales and normally operating margin.
Synergies, I have given you the figures, I think, EUR 27 million, synergies cost, synergies achieved in 2022, and we target more or less as a double as P&L impact in 2023. Bernard?
On the on the growth, we expect close to 3% in terms of price increases in the top line in comparison now to 2022. It's in comparison now to our reference point 2021, it's even around 5%. The difference to 2022 is around 3%. The difference, let's say, is organic growth we expect. It's more about in a basically volume flattish market. It's more about a higher outperformance. You know, what we actually see is that in the growth areas, specifically of electrified cars, hybrids, but also in terms of our lighting products, where we also have a big share actually in electrified cars. They are showing a bit a bigger growth path now.
That's why we expect, with higher take rates, also an increasing outperformance in 2023.
Bernard, what we can say that for inflation, a part is a full year impact of what we have captured, achieved.
Yes.
Yeah. of,
Understood. Thank you.
The next question comes from Christoph Laskawi. Your line is open now.
Good morning. Thank you for taking my questions.
Morning.
The first one would be on the net cash flow guidance that you have initiated. The adjusted free cash flow that you've shown before has not included factoring, if I recall that correctly. Is factoring now included in the net cash flow guidance that you provide? Could factoring alone already make $100 million in 2023 to drive the number even above 2%? If you could share your thoughts on that. The second question would be on the assumptions for the cost headwinds that you factored. If you could just walk us through the cost buckets of inflation in 2023 and a rough pass-through share that you target. Then just lastly, the outperformance pretty much driven by Asia and North America.
Is there something else that you would want to highlight on the outperformance? Thank you.
In general, the 2% is without a significant change in factoring. Could be that there is a slight increase in factoring. We actually had $190 million to the end of 2022. This could be a little higher, but not a significant difference. There is one factoring program we have now additionally signed now in January. It's a $100 million factoring program in Mexico. With that, we have an overall line of $300 million, but we are not assuming the full line of or the full $300 million, you know, in getting to the net cash flow target we had.
Perhaps as an additional comment, we will have some volatility also in the cash flow, because we see the 2% we will reach to the end of the year. We actually also see that, with a slow start and significant higher volumes now in the months to come. To starting from March, April, May, we will have higher also inventories now in the first quarter at least also to the, let's say, end of the first half. We expect a negative cash flow in the first quarter and then, positive second quarter and then, a strong second half. That's actually how our cash planning is looking like. To your specific question, no significant change of factoring, to our 2% target.
On the growth, we would expect basically outperformance in all three regions. Again, it was very strong in China and U.S. We would assume a continuous good development in these both regions. We see a similar growth pattern also in terms of lighting electronics. Actually, somehow electronics with a stronger growth path in that in this year. We will benefit, especially in lighting also from, as we said also in 2022, we had some bigger volume projects, which are in continuing to increase in volumes. This will help in electronics specifically.
We have also a lot of ramp ups now, especially in radar, but also in Energy Management. We will benefit also from a higher growth also in electrified cars with our product spectrum, in terms of battery management systems specifically, but also DC-DC, will increase more significantly also in the in 2023.
Thank you. On the cost assumptions factored in the guidance, any comment there or too early?
On the cost assumptions, basically we continue to see that specifically on some technologies on semis, no? This is the biggest increase we expect here. The second is on energy. We have now seen energy prices coming down, but in comparison to 2022, no, it's quite a big increase. A little less than what we expected some months ago, but still, a big increase in comparison to 2022. And we see on the wages also, and on the salary levels, quite a higher increase, no? But not more than we expected, no. But the biggest part comes from, comes from the electronic parts.
In terms of our pass-through assumptions, no, we want to be higher than 80%, no, to protect our margin, similar to last year.
Thank you. Very helpful, and thanks for hosting the call today.
The next question comes from Sanjay Bhagwani. Your line is open now.
Hi. Thank you very much for taking my question. Also, I've just got two more left. The first one is a bit more structural. When I talk about the pricing pass-throughs, so what has fundamentally changed on the ground? Because let's say like in 2021, we were talking about literally no pass-throughs, then you got some around 30%, and now it is 80%, and now you are even guiding for more than 80%. Have you structurally changed some KPIs of your sales force? Yes, any more color on that will be super helpful because. Is there also an element where you share the best practices with Faurecia sales force who seem to have a good track record in passing through?
Yeah, that is my first question, and I'll follow up with the next one.
Okay. Good morning. You're very right, so 2021, it was complex to pass through because we were starting to see some price increase and some cost increase, but things were not completely clear. Of course, we say the processes was not always defined, so we have to define the processes with our customers. We were clearly accelerating. We were, and we are, very professional the way to show and to demonstrate the effective cost increase. Our teams have accelerated, I will say, since the second quarter of 2022. It was not only the fiscal year, it was really started by my predecessor in the second quarter of 2022. We are making the things on the right way.
Of course, no violence and no way. We are partnering with our customers, but we have the right to be compensated because they have the pricing power. I will not comment on the price increase they have made on the cars. It is their duties, but anyway, they have the capacity to compensate us, and it is the normal way in this industry. It is why it has been a progressive, I will say, process. Processes have been defined by customers, of what they accept, what they want to be a demonstration. Results are there, more than 80%. Probably we speak of 85% for the second half 2022.
As Bernard was saying, we have the processes now, so we stick on the 85% as a normal target and normal compensation. We have the chance is in that in our businesses, we are strategic for our customers, so it is a win-win story that we want to continue to deploy with our customers.
Thank you. That is very encouraging. If I can follow up on this one. Now, I mean, I can imagine that the processes are set, so first thing, the pass-throughs can come through much more faster. In terms of negotiations, are you basically going like if you can provide some color on the nuances here that, are you basically doing the bundle negotiations and then breaking down different components? What sort of benchmarks are you using, particularly for, let's say, not very quantifiable inflationary components like wages? Any color on that will be very helpful as well.
What we do is, we are taking the reference of May 2021 in terms of pricing. We take the bill of material and really the individual parts, and we compare the increases within these parts, for example, on the single semi. And this is then, let's say the increase, which we are valuing, no? In general, you can say that most customers have now. They also professionalize or operationalize the proof so that they are also doing audits then on these analysis we are doing in terms of the increases, and this is then the basis for discussion. In general, we talk about the raw material increases, so most relevant is certainly the material.
All material increases, but also energy is important, logistics, and also what we call over or the additional inflation on salaries, no. Which we are also taking into account. Not let's say the normal level, no, but what comes on top. This is then the basis for the start of the discussions. Let's say the outcome is very different in how agreements then are taken with customers, no. It's very, very different. At the end, some, let's say some take increases on part levels, some connected with some volumes. Some are doing one-time payments at a certain point in time. That's very, very different.
When they make one-time payments, the reference is there. It will be the base with the one-time payment for the next period.
Thank you. That is super helpful. The last one from me, more on the near term. Like, I think January has not been very, very exciting because of China. How do you see the visibility on, let's say, March, April? Do you have strong visibility there in terms of volumes and the profits? Yeah.
For China, you know that the Chinese New Year was the 23rd, huh? It was only a three week period affected by the COVID because some plants were half closed. We have seen a big improvement in China during the month of January. I will not say that the COVID is over. I don't know, moreover. Somewhere it is a big improvement, and I hope that March will show a recovery. March is showing in our program recovery, but not as much as we were initially expecting. It is why I keep, we say, a small point of, for you, a point of attention. We are not totally sure of the final market demand in China. Of course, we speak probably of two million cars per month, something like that on the horizon, but probably not more than that.
Thank you.
Are you with us?
That is very, very helpful. Yes, yes. Absolutely. That is very helpful.
The problem, it is always complicated to understand that because on one way, you have some waiting time, mainly in Europe, to get some cars. On the other way, the price level is clearly preventing from, for some people, preventing them from buying cars. This is, I will say, globally a point that could, I will say, slow down the recovery of volumes of this activity, of the sector.
Thank you. That is very helpful.
The next and last question for now comes from Giulio Pescatore. Your line is open now.
Hi. Good morning. Thanks for taking my question. The first one on the guidance. You access the guidance as a range, but you actually give a point assumption for the GLBP for 2023, which is flat. Am I right in assuming that flat is true for both the higher end and the lower end of the range, and that anything that comes above flat will potentially give you upside? You're assuming for the higher end of the range that production will be better than expected? Just a clarification there. The second one on the order book, it's, I have to say it's very impressive. Just curious to know what is making the difference here and why customers prefer to work with HELLA and not with somebody with a broader portfolio and potentially ability to system integrate.
Is it having kind of key capabilities in one product making a difference here? The last one, just curious to hear your thoughts on the semiconductor shortages. I know we discussed it for two years now, but just structurally, do you think there's going to be enough capacity for the market to recover beyond 2023? It's one of our long-term questions. Do you think your partners on the semi side are investing capacity enough? Thank you.
Some tricky questions. Good morning to you. For the volumes, 82. With 82, we are in the middle of the guidance. Usually when you take HELLA, we are more or less than 25% margin on the additional volumes, or on the lower volumes, unfortunately. It is clearly the sensitivity you can take. 82 million cars, is, we say, our assumption. As we have more than 8 billion, 82 is not very complicated if you want to add 1 billion, what it means. More or less EUR 100 million of sales. It depends on the mix, of course, but it is quite easy now to do. Your second question was about? Sorry.
Sorry, it was on the order book.
Yeah, order book. It's, it's complicated somewhere. It's a good question, huh? We have some very good innovations. You have seen on the front end, radome, et cetera. We are taking some sizable business, radars as well. We have the DCDC, Bernard was mentioning that. Probably, we have some very good innovations. We have products where today, we are discriminant, it will be the main assumption. In some area, some competitors could face some difficulties and probably are more effective. I don't know how to comment that. The only thing I can tell you is that we continue to take this kind of level. I speak of EUR 1 billion per month, sorry. Second, the profitability of the order book is good. The profitability of the order intake is good.
For semiconductors, the question is tricky because we have always a mix which is playing negatively. EV is much more consuming semiconductors than a traditional car, the mix is playing actively on that. More EVs means more pressure, and we see some pressures currently anyway. The second thing, the automotive is on the traditional standards on which investments are very limited because as the semiconductors players are investing in the new standards, mainly for the consumer electronics and the phone industry. We are depending on the speed from these two other industries from moving to the traditional standards to the new one. It is an indirect impact, it is why the vision on semiconductors remain limited. We see improvement, we see more volumes, on the other hand, we see more consumption due to the mix.
Not easy to have a clear view today. We are still some small shortages. Early January, there was a warning, "HELLA, Michel, week five, we'll have a problem with for customer." It is Q2, which is a much better improvement, my life is easier, but it's not finished. We are still some, I will say, pressure on that.
Thank you very much. Currently, we do not have any further questions. Also, I may repeat the ones. Please press nine and Star if you'd like to ask another question. It seems that there are no further questions from the audience.
Okay, thank you. Thank you very much. Thank you for your attendance. Please notice our next rendezvous, March 21st, and we will have the detailed, full release of our figures, and Bernard will be much more talkative than today. April 27th, the current figures. April 28th, we have the shareholder meeting. I will be happy with Bernard to see you soon. I wish you a very good day. See you soon.
The conference is no longer being recorded.