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Vitesco Applied sciences Group AG (OTCPK:VTSCY) Q2 2024 Outcomes Convention Name August 8, 2024 4:00 AM ET
Firm Contributors
Heiko Eber – Investor Relations HeadAndreas Wolf – Chief Government OfficerSabine Nitzsche – Chief Monetary Officer
Convention Name Contributors
Marc-Rene Tonn – Warburg Analysis
Heiko Eber
Thanks, operator. Girls and gents, I am very completely satisfied to welcome you to our as we speak’s name on monetary outcomes of the second quarter 2024. As regular, the press launch, the presentation and our half 12 months reviews have been revealed as we speak at 7:00 a.m. CET on our Investor Relations house web page. And for certain, we’ll afterwards present a recording and a transcript of this webcast.
Now earlier than we take a look at our as we speak’s agenda, as regular, I am certain you’ve got all taken discover of our well-known disclaimer. Trying on the agenda, Andreas Wolf, our CEO; and Sabine Nitzsche, our CFO, have joined the webcast to information you thru the important thing data in our presentation on group and divisional stage.
As well as, we’ll discuss our money circulate and stability sheet in addition to our up to date steering. And afterwards, these will likely be out there for our Q&A session. And now with out additional ado, let me hand over to our CEO, Andreas, please.
Andreas Wolf
Yeah. Thanks, Heiko, and thanks very a lot, girls and gents, for becoming a member of us as we speak. The primary half 12 months 2024 is within the books. Sadly, the market continued to be difficult. International mild car manufacturing noticed roughly a flattish improvement. Nonetheless, in a risky market setting, we elevated profitability to 4%, because of much less dilutive enterprise, optimistic combine results, therefore usually our resilient portfolio.
Consequently, we’ll see additional enchancment all through the following 2 quarters, thus making certain that we meet our full 12 months targets. Our gross sales got here in barely above EUR2 billion. With regards to our free money circulate, this determine finally ends up fairly unfavorable. That is primarily two causes: first, change in our type of favorable fee phrases with Contract Manufacturing; and second, the return of spinoff-related advance funds to Continental.
In spite of everything, it aligns with our plans, as already talked about a number of occasions earlier than. Talking of our Electrification gross sales, we see the primary indications of restoration as some delayed undertaking ramp-ups materialized in quarter 2 2024. We assume this pattern will proceed through the subsequent quarters and can result in additional enhancements.
One other proof level for market restoration is our order consumption stage, which got here in at over EUR3 billion for our full product portfolio. Right here, Electrification alone accounted for roughly EUR1.3 billion. I do know that is nonetheless beneath earlier 12 months’s numbers, nevertheless it exhibits the Electrification market is trending into the appropriate route once more after a brief breather in direction of the top of final 12 months till the start of this 12 months.
Though we nonetheless see some shift out there to a later date with reference to Electrification order consumption, the general market dynamic stays intact. Newest improvements in battery expertise and more and more environment friendly newer automotive fashions will help the pattern within the longer run.
And one final spotlight from China. We additional expanded our Electrification product portfolio in China with our battery administration electronics. This demonstrates that our strategic resolution to strengthen our Electrification footprint in China, particularly with native gamers is constant to bear fruit.
And that is solely the start as we’ll roll out this product on a worldwide scale for main world OEMs. And since this query will naturally are available in our Q&A session, I want to make my assertion right here. We will likely be worthwhile with an Electrification in quarter 3 with one other substantial profitability step-up in quarter 4 this 12 months. However, this won’t completely compensate for the losses we needed to bear within the first half 12 months 2024.
Let me now come again to the numbers. The EUR2 billion gross sales are equivalent to a lower of about 17% in comparison with quarter 2 2023. Nonetheless, the gross sales improvement is in step with our expectations, contemplating the shortage of gross sales from divested enterprise and the anticipated decline in Contract Manufacturing. As talked about earlier than, supported by our optimistic value combine, we managed to extend our adjusted EBIT margin to 4%.
Our CapEx of 5.9% of gross sales elevated over final 12 months’s ranges. We nonetheless have many Electrification product launches in 2024, which want the respective investments to help our development in Electrification. Our free money circulate was burdened by completely different particular results, which once more defined on the right-hand aspect. Nonetheless, we’ll return to our normalized seasonal sample within the second half of 2024. And round 39%, the fairness ratio stays at a really stable stage.
Let’s transfer on to the market improvement. The worldwide mild car manufacturing noticed a barely unfavorable improvement in quarter 2 of 2024. Much like quarter 1, 2024, China and North America noticed a rise in volumes. Nonetheless, these couldn’t compensate for the decline in Europe and the remainder of the world.
As you may see from the bar chart on the right-hand aspect, our reported group stage gross sales decreased by over 17%. Organically, our Electrification and core ICE gross sales underperformed the worldwide mild car manufacturing by about 3.4 share factors. Cause being that the majority main markets underperformed on group stage.
The primary half 12 months was a troublesome proper. Nonetheless, we now have proven, as soon as once more, we’re capable of carry out nicely even in difficult conditions. And with that, you’ll now obtain extra insights into our financials from our CFO, Sabine Nitzsche.
Sabine Nitzsche
Thanks, Andreas, and a heat welcome from my aspect. So allow us to now concentrate on our prime and backside line improvement at group stage. Since Andreas already defined our core KPIs, I’ll solely concentrate on probably the most related elements.
Our natural gross sales decreased by 11.5%. That excludes currency-related headwinds of 1.4 share factors and consolidation results. Nonetheless, regardless that we noticed a decline in gross sales, we managed to attain greater profitability, because of optimistic combine results and our steady price containment efforts.
Additionally, I want to spotlight our core applied sciences, together with each Electrification and core ICE. Gross sales got here in at EUR1.6 billion and we additional improved our adjusted EBIT margin to 4.5%. Additionally, please take into account that we’re managing in parallel, our ramp-down in non-core enterprise, which lowered by about 40%. To sum it up, our Q2 was difficult, however in step with our expectations.
Allow us to now take a look at every division. And as all the time, we’ll begin with our Powertrain Options division. The primary cause for declining gross sales was, as talked about, the deliberate ramp-down of our core actions, non-core actions, which decreased virtually by EUR270 million. Please keep in mind that the earlier 12 months’s figures doesn’t embrace greater gross sales and Contract Manufacturing, but additionally for in the meantime, divested companies. Total, gross sales got here in barely decrease than EUR1.3 billion with an extra improved adjusted EBIT margin of 9.4%. And I’ve to say, as all the time demonstrated — as already demonstrated in Q1, that is very spectacular to see a rise in profitability of our core ICE enterprise once more.
Though our gross sales declined to EUR806 million, we managed to additional enhance adjusted EBIT margin to 13.7%. Nonetheless, this was not solely pushed by the resilience and power of Core ICE portfolio, but additionally as a consequence of extraordinary objects.
Now let’s transfer to our Electrification Options division. We noticed a risky market setting in virtually all main markets, which translated right into a barely declining gross sales of EUR787 million. As regards to profitability, we managed to maintain adjusted EBIT margin somewhat flat at about minus 4%. This quantity displays the opposite elements, the elevated price for our undertaking ramp-ups in Electrification.
And one be aware on our core ICE enterprise. We additional improved adjusted EBIT margin to six.3%, making one other step into the appropriate route. Now I want to present extra transparency on our classes: Electrification, core ICE and noncore. Given the nonetheless difficult market setting, gross sales and profitability in Electrification remained on the earlier 12 months’s stage.
Nonetheless, we made a big enchancment in comparison with the start of the 12 months and noticed a rise in gross sales by about 30% quarter-on-quarter. As regards to profitability, we’re, in fact, seeing a better ramp-up price for brand new merchandise in close to future. As well as, a few of our prospects are switching in direction of the next-generation merchandise resembling EMR4 sooner than deliberate.
This implies we’re pushing our tasks, which we had been up and operating and, on the identical time, must ramp up the latest product technology into scale. As well as, this course of is taking extra time than initially deliberate, given the difficult market setting.
With adjusting our price base and as a consequence of upcoming volumes from new tasks, we’re assured to change into worthwhile in Electrification in Q3 with substantial profitability step-ups in This fall. Core ICE gross sales got here in at about EUR1.3 billion and we managed to additional improve our adjusted EBIT margin to over 10% from earlier 12 months’s 8.6%.
Subsequent to the already talked about onetime impact, this once more demonstrates the resilience of our core ICE enterprise, which continues to the funding of our Electrification development. And final however not least, we’re taking an enormous step in phasing out our noncore enterprise, as we now have all the time promised.
I simply wish to pause right here for a short second. Throughout the Electrification space, we noticed the gradual begin in Q1. We gained traction in Q2, and we will likely be worthwhile from Q3 onwards. Our very resilient core ICE enterprise has seen gradual step-ups, offering engaging EBIT margins. Nonetheless, we’re lacking gross sales and subsequently contribute to margin for the complete 12 months foundation, we will likely be on the same worthwhile stage as final 12 months. And the ramp down of non-core, particularly in Contract Manufacturing continues to progress in line with plan with a profitability margin round [Indiscernible] zero on a full 12 months foundation.
On Slide 11, I wish to present some insights on our money improvement. Our working money circulate got here in decrease in comparison with final 12 months’s quarter. As defined a number of occasions earlier than, this was pushed by decrease accounts payable related to the change of fee phrases inside Contract Manufacturing. Moreover, the quantity additionally consists of the reimbursement of spin-off-related funding from Continental, which led to a further money outflow.
Our investments elevated, leading to investing money circulate of minus EUR176 million. This was primarily as a consequence of greater spending for undertaking ramp-ups within the space of Electrification. Because of this, our free money circulate for the interval got here in at minus EUR388 million. And I do know this determine appears fairly excessive. However please keep in mind, we now have communicated that a big a part of this, let me say, particular results will come due in Q2.
Speaking about our financing money circulate. This was characterised by utilization of mortgage agreements. Therefore, it got here in optimistic at EUR97 million. This all resulted in a considerably decrease however nonetheless stable money circulate.
Now let’s transfer on to our stability sheet construction. Our internet working capital depth elevated to 9.2% of gross sales and displays our vital lower in accounts payable associated to deliberate part out of Contract Manufacturing. Subsequently, the working capital depth is distorted as our fee phrases inside Contract Manufacturing got here down from 9 months to 30 days.
The web debt to adjusted EBITDA ratio in — got here in optimistic at 0.2%. Given the numerous money outflow in Q2, we’re reporting for this primary time a internet debt place of EUR189 million on the finish of June. Nonetheless, the financing scenario stays very snug.
And to finalize our fairness ratio, it stays at a really stable stage of about 39%. As you may see, we proceed to have a really strong stability sheet construction and money place. I assume you are additionally our advert hoc launch roughly 2 weeks in the past. Primarily based on the event in first half ’24 and [Indiscernible] restoration throughout the automotive business, we downgraded our steering for the fiscal 12 months 2024.
This is applicable not solely to our world mild car manufacturing forecast on the right-hand aspect, however specifically to our steering on group stage on the left-hand aspect of that web page. When speaking about our group gross sales, we now forecast gross sales of EUR8.1 billion, plus/minus EUR150 million. Contemplating the very risky call-offs from main OEMs throughout all areas. The adjusted EBIT margin will presumably are available in at 4% plus/minus 20 foundation factors.
The primary cause to tight to decrease gross sales, which resulted in decrease contribution margin. Because of the excessive variety of product launches this 12 months, particularly within the second half of 2024, we count on our CapEx ratio to return in at about 7% of gross sales for your entire 12 months absolutely centered to take a position into Electrification.
Turning over to our free money circulate. That is now anticipated to be round minus EUR400 million ensuing from decrease profitability. For the reason that essential burden associated to Contract Manufacturing was tied in half 12 months 1, 2024, we’ll see a optimistic determine for the rest of the 12 months. And please keep in mind, the outlook for the fiscal 12 months 2024 doesn’t take into account any impact associated to the mixing into Schaeffler.
With that, I’ve reached the top of my presentation. Thanks very a lot for listening, and again to you, Heiko.
Heiko Eber
Thanks, Sabine, and thanks very a lot, Andreas. Girls and gents, earlier than we enter the Q&A session for our as we speak’s webcast, I want to hand over to Andreas for some remaining phrases.
Andreas Wolf
Sure. Thanks, Heiko. As you all know, that is my final earnings name. My contract as CEO of Vitesco Applied sciences will finish, and that was the planning as all the time finish of September, means finish of subsequent month. So over the past 3 years, I get pleasure from being very near the capital market and getting direct suggestions about Vitesco’s efficiency.
Personally, from you and in addition not directly through the share value efficiency. These years had been the very best of my skilled life, reworking a nonperforming Powertrain division to a brand new stand-alone firm with a good efficiency stage.
It’s a nice pleasure for me to examine the final proof level displaying that we are able to earn cash with electrical parts. All this was solely doable with an excellent workforce within the 2 divisions, the group features as much as the Government Board members. My large thanks goes to all of them. Particular thanks additionally to the Investor Relations workforce, which intensively accompanied me over the last years. With that, I give again to Heiko.
Heiko Eber
Thanks very a lot, Andreas. Operator, we might now be able to take the primary query.
Query-and-Reply Session
Operator
Thanks very a lot. [Operator Instructions] So the primary query comes from Marc-Rene Tonn, Warburg Analysis. Your line is open.
Marc-Rene Tonn
Sure, good morning. And thanks for taking my query. Will probably be mainly two. The primary one can be on order consumption. And it is good to see that we see some higher momentum within the second quarter when in comparison with the beginning of the 12 months. However, it might be nice to get some extra perception on how a lot postponements you expect with regard to the order aspect? So to illustrate, how significantly better would you count on the second half 12 months to be and going into 2025?
So usually, once we take a look at the — round EUR10 billion run charge, I believe we simply sort of anticipated a 12 months in the past or half a 12 months in the past. Is there any alternative that maybe a barely decrease quantity for this 12 months, possibly then catched up with the quarter by a better quantity in 2025. So simply the orders additionally being put out there a bit later, however in general volumes, the identical magnitude as we might have anticipated earlier than.
That will be the primary query. Second query is a bit concerning the underperformance in comparison with world mild car manufacturing within the core ICE inside Powertrain. When do you count on this to finish? Is it associated to the key rundown of 1 particular contract with one buyer? Or is it one thing we must always count on additionally for the quarters forward? And as I stated, third query added to that one.
After we take into accounts that you simply’re anticipating Electrification earnings to considerably enhance within the second half, after round EUR60 million unfavorable adjusted EBIT in Q2 that most likely now additionally bearing in mind your revised steering would imply that the core ICE, whether or not it is the [Indiscernible] the ICE enterprise or Powertrain enterprise have to be, to illustrate, weaker within the second half. However some extra extra perception on that one can be nice as nicely. Thanks.
Andreas Wolf
Okay. So let’s type slightly bit the questions. I’ll begin with the primary one. Marc-Rene in relation to the order consumption. There will likely be extra pace, greater order consumption within the second half of 2024. One factor which I coated by some means with a sidenote is of significance. We see particularly on the Electrification aspect that the orders, the momentum, the pace goes into Asia, particularly into China.
A 12 months in the past, we determined that we now have to focus extra on China. We kicked off a particular program to concentrate on the enterprise there and to mainly deal with the momentum being it speed-wise or on the innovation aspect in China. And we’re prepared now.
And that is by some means hidden in all of the documentation, however we’re sturdy in China. We’ll acquire much more momentum and exact be aware was that we begin this battery enterprise in China. So we count on considerably greater order consumption in Electrification within the second half of 2024 and a big half coming from this dynamic a part of the world means Asia, China. I do not know —
Sabine Nitzsche
I can take the second query. So the query right here is predicated on my understanding, our core ICE enterprise got here in at EUR806 million versus earlier 12 months EUR926 million in Powertrain Options — Core ICE enterprise and Powertrain Options.
And the query is why is that? This clearly goes into the class the place we stated we consolidated our companies. So this implies concentrate on our core enterprise. And right here, you see that we ramped down or we offered just a few elements of our companies like in Italy and Emitec. And this end result, you see right here in our gross sales.
On the opposite aspect, what you see is that we improved considerably on our EBIT margin from earlier 12 months, and that is precisely the technique and the main focus which Vitesco has that we ramped our non-core and improve our core enterprise to enhance profitability, and that is the end result from that.
And Electrification earnings improvement is the third query, enchancment. As we talked about, that is clearly anticipated ranging from Q3 onwards. So we’ll see in Q3 that we reached breakeven scenario after which enhance additional in This fall and onwards.
Andreas Wolf
And possibly I can add to that. We give this data as a result of we additionally wished to clarify that we do not have 1 / 4 with a breakeven, after which we’re mainly shifting sidewards that is not the case. So we’ll see profitability in This fall.
Now there was the query of is the Powertrain Options happening as a result of if I assume you are sitting in entrance of your Excel sheet, you may come to completely different numbers. We’re slightly bit conservative within the sense of what is going to occur within the second half of the 12 months as a result of we do not know precisely the amount improvement. There’s too many unfavorable political, economical factors we now have to take note of.
And subsequently, we do not observe precisely what axle says, however our intestine feeling that the second half of the 12 months is likely to be troublesome. Perhaps that explains the steering we now have given and proven round 4%, slightly bit decrease than what we anticipated firstly of the 12 months.
Marc-Rene Tonn
Thanks very a lot for all of the help and perception you supplied to us as analysts in all of the earnings calls, conferences, highway exhibits. We may get pleasure from collectively previously quarters and years. Thanks very a lot.
Andreas Wolf
Yeah, you are welcome, Marc-Rene.
Operator
Okay. There aren’t any additional questions. I give the ground again to Heiko Eber.
Heiko Eber
Thanks. In order the variety of questions does not likely come as a shock given our, to illustrate, particular scenario, I suppose we are able to shut as we speak’s name. However, if there are extra questions arising afterwards, be at liberty to achieve out to our IR workforce.
Relying on the merger progress, this is likely to be, as Andreas already stated, the final Vitesco Applied sciences convention name. Thanks for following our story and being a part of our journey. We’re very a lot trying ahead to persevering with our intent and fruitful dialogue on our story going ahead throughout the new Schaeffler AG. Have a superb day, and speak to you quickly. Bye-bye.
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