Q2 22: Hella’s lights unable to see through fog

Hella posted Q2 22 figures that were broadly expected after its usual preliminary release. Sales were down 11% yoy due to the Automotive division, while the Aftermarket and SA demonstrated more resilience. FCF took a hit on every front with lower profitability, soaring inventories and growing capex. FY22 guidance (cut two months ago) was reiterated with management hoping to reach the upper end, despite a seasonally weak Q3 ahead. Cost inflation should continue with energy and wages being the mai

Does Hella’s FY21 ambition have any basis?

Hella posted Q1 21 revenue down 10.6% yoy, driven by its OEM front (-12.6% yoy). Coupled with negative growth, a lower utilisation rate and restructuring costs (€171.7m) led to net income of €-87.3m (vs. €77.1m in Q1 20). Consequently, FCF fell to €-244.3m (vs. vs. €66.8m in Q1 19), exacerbated by a 2% yoy capex increase and unfavourable working capital. Lastly, the company confirmed its outlook with revenue of €5.6-6.1bn and an EBIT margin of 4-6%.

Are government subsidies enough to spark a recovery?

Hella posted FY19/20 revenue down 14.3% yoy, driven by its automotive segment (-14.3% yoy, and 84.4% of total sales). This translated into net income of €-431m (-168.4% yoy) and a -0.7% yoy FCF (favourable working capital and -21.7% yoy capex). As for the outlook, revenue is expected to be €5.6-6.1bn, and the adjusted EBIT 4-6%. We expect both metrics to land near the lower end of their respective ranges.

The last quarter before the COVID-19 outbreak outside China

Hella’s 9M revenue and profit numbers (29 February) were just below our projections and below last year’s numbers, whereas cash from operations was up. Management has reacted accordingly and reduced the headcount by 6% since February last year (APAC -11%; Europe -4.5%; Americas -7.1%). It is not giving any guidance for the current quarter as visibility has disappeared.

We had expected higher profit numbers

Hella sold a sizeable share of its Aftermarket division during the course of the last fiscal year. Based on adjusted 2018/19 numbers (i.e. excluding this de-consolidation), the company’s turnover was about unchanged in the last quarter after a slight fall in Q1. Simultaneously, most profit numbers were down slightly.

Q1 earnings about in line with our expectations

Falling car production in both Germany and China have taken their toll on Hella’s Q1 revenue which fell by 12% to €1.57bn. The company’s profit numbers were also down, but both EBITDA and EBIT numbers were higher than we had anticipated.

Good 2018/19 numbers plus special dividend but cautious outlook

Like other car component producers, Hella also experienced a profit margin decline but, excluding the gain from the disposal of a sizeable share in its Aftermarket business, the consolidated margin decline of 0.2pp to 7.9% was very modest. Automotive, the group’s bread-and-butter business, suffered a margin decline of 0.6pp to 7.9%.

Hella reduces workforce at a German plant

Price pressure seems to be intensifying for car component producers and Hella is reacting accordingly. It has relocated the production of lighting components in recent years and continues doing so.

Hella produces electric and electronic auto components

The company produces all kinds of lights for vehicles, whether for the exterior or interior. It delivers these components either directly to the production lines of car producers or to manufacturers of front-end or rear-end modules which then go into the cars. In addition to these electric components, sensors and radar equipment are produced.

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Solid State - Anticipating record adjusted PBT in FY24

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Zeus: Video Games Sector Quarterly review - January 2024

Subsector price performance: In the fourth quarter to 29 December 2023 all but the AAA publishers and platform subsector saw share price declines. The UK PC and Console focused subsector was again the worst performing subsector (-26.2%) over the quarter and LTM (-70.1%).

Time to focus on growth ambitions

Hybridan Small Cap Feast - 14 Mar 2024

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Morning Note – 4 April 2024