Vitesse Energy, Inc. Price & Performance (VTS)

Ladies and gentlemen, I'm very happy to welcome you to our today's call on financial As usual, the press release, the presentation and our half year report have been published today at 7 am CET. On our Investor Relations homepage. And for sure, we will afterwards provide a recording and a transcript of this webcast. [indiscernible] before we look at our today's agenda, as usual, I'm sure you have all taken notice of our well known disclaimer. Looking at the agenda, Andreas Wolf, our CEO and Sabina Niedz, our CFO, have joined the webcast to guide you through the key information in our press on group and divisional level. In addition, we will talk about our cash flow and balance sheet as well as our updated guidance. And afterwards, those will be available for our Q and A session.

And now, without further ado, let me hand over to our CEO, Andreas Stie. Yes. Thank you, Heiko, and thank you very much, ladies and gentlemen, for joining us today. The first half year twenty twenty four is in the books. Unfortunately, the market continued to be challenging. Global light vehicle production saw more or less a flattish development. However, in a volatile market environment, we increased profitability to 4%, thanks to less dilutive business positive mix effects and [indiscernible] our resilient product portfolio. We Consequently, we will see further improvement throughout the next two quarters thus ensuring that we meet our full year targets. Our sales came in slightly above €2,000,000,000 With regards to our free cash flow, this figure ends up quite negative. This has mainly two reasons. First, change in our former favorable payment terms with contract manufacturing and second, the return of spin off related advance payments to Continental. After all, it aligns with our plans as already mentioned several times before. Speaking of our electrification sales, we see the first indications of recovery as some delayed project ramp ups materialized in quarter 2 2024. We assume this trend will continue during the next quarters and will lead to further improvements.

Another proof point for market recovery is our order intake level. Which came in at over €3,000,000,000 for our complete product portfolio. Here, electrification alone accounted for roughly €1,300,000,000 I know this is still below previous year's numbers, but it shows the electrification market is trending into the right direction again. After a short breather towards the end of last year, until the beginning of this year. Even though we still see some shift in the markets to a later date, with regards to electrification order intake, the overall market dynamic stays intact. Latest innovations in battery technology and increasingly efficient newer car models will support this trend in the longer run. And one last highlight from China. We further expanded our electrification product portfolio in China with our battery management electronics. This demonstrates that our strategic decision to strengthen our electrification footprint in China especially with local players is continuing to bear fruit. [indiscernible] this is only the beginning as we will roll out this product on a global scale for major global OEMs. And since this question will not [indiscernible] I would like to make my statement here. We will be profitable with an electrification in quarter 3 with another substantial profitability step up in quarter 4 this year.

Nevertheless, this will not totally compensate for the losses we had to bear in the first half year 2024. Let me now come back to the numbers. The €2,000,000,000 sales are corresponding to a decrease of about 17% compared to quarter 2, 2023. However, the sales development is in line with our expectations considering the lack of sales from divested business and the expected decline in contract manufacturing. As mentioned before, supported by our positive pricemix, we managed to increase our adjusted EBIT margin to 4%. Our CapEx of 5.9 percent of sales increased over last year's levels. Still have many electrification product launches in 2024, which need respect investments to support our growth in electrification. Our free cash flow was burdened by different special effects which again explained on the right hand side. However, we will return to our normalized seasonal pattern the second half of twenty twenty four. And around 39%, the equity ratio remains at a very solid level. Let's move on to the market development. The worldwide light vehicle production saw a slightly negative development in quarter 2 [indiscernible] Similar to quarter 1, 2024, China and North America saw an increase in volumes. However, those could not compensate for the decline in Europe and the rest of the world.

As you can see from the bar chart on the right hand side, our report group level sales decreased by over 17%. Organically, our electrification and core ICE sales underperformed the global light vehicle product by about 3.4 percentage points. Reason being that almost all major markets underperformed. On group level. The first half year was a tough ride. However, we have shown once again we are able to perform well even in challenging situations. And with that, you will now receive more insights into our financials from our CFO, [indiscernible] Thank you, Andreas, and it was a warm welcome from my side. So let us now focus on our top and bottom line development at group level. Since Andreas already explained our core KPIs, I will only focus on the most relevant aspects. Our organic sales decreased by 11 point 5%. That excludes currency related headwinds of 1 point 4 percentage points and consolidation effects. However, even though we saw declining sales, we managed to thanks to positive mix effects and our continuous cost containment efforts. Also, I would like to highlight our core [indiscernible] Including both electrification and core ice. Sales came in at 1.6 [indiscernible] and we further improved our adjusted EBIT margin for 4.5%.

Also, please keep in mind that we are managing in parallel our ramp down in non core business which reduced by about 40% To sum it up, our Q2 was challenging [indiscernible] in line with our expectations. Let us now have a look at each division And as always, we will start with our Powertrain Solutions The main reason for declining sales was, as mentioned, the planned ramp down of our core activities, non core activities which decreased almost by €270,000,000 Please remember that the previous year's figures does not include higher sales in contract manufacturing, but also for meanwhile divested businesses. Overall, sales came in slightly lower than 1 point €3,000,000,000 with a further improved adjusted EBIT margin of 9.4%. And I have to say as always demonstrated as already demonstrated in Q1, This is very impressive to see an increase in profitability of our core ice business again even though our sales declined to €806,000,000 we managed to further improve adjusted EBIT margin to 13.7% However, this was not only driven by the resilience and strength of core S portfolio, but also due to extraordinary items. Now let's move to our We saw a volatile market environment in almost all major markets, which translated into slightly declining sales of €787,000,000 With regards to profitability, we managed to keep adjusted EBIT margin rather flat.

At about minus 4% This number reflects besides other factors, the increased cost for our project ramp ups in electrification. And one note on our core ice business. We further improved adjusted EBIT margin to 6.3% making another step into the right direction. Now I would like to provide more transparency on our categories electrification, core ICE and non core. Given the still challenging market environment, sales and profitability in electrification remained at the previous year's level. However, We made a significant improvement compared to the beginning of the year and saw an increase in sales by about 30% quarter on quarter. With regards to profitability, We are, of course, seeing a higher ramp up cost for new products in near future. In addition, some of our customers are switching towards the next Generation Products such as EMR4, Earlier than planned, This means we are pushing down projects which we were up and running and at the same time need to ramp up the newest product generation into In addition, this process is taking more time than initially planned Given the challenging market environment, With adjusting our cost base and due to upcoming volumes, from new projects, we are confident to become profitable in electrification in Q3 with substantial profitability step ups in Q4. [indiscernible] sales came in at about €1,300,000,000 and we managed to further increase our adjusted EBIT margin to over 10%.

From previous years 8.6%. [indiscernible] Next to the already mentioned one time effects, this again demonstrates the resilience of our core ice business which continues to the funding of our electrification growth. And last but not least, we are taking a huge step in phasing out our non core business as we have always promised, I just want to pause here for a brief moment Within the electrification area, we saw the slow start in Q1. We can track Zoom in Q2 And we will be profitable from key Q3 onwards. Our very resilient core ice business has seen gradual [indiscernible] providing attractive EBIT margins. However, we are missing sales and therefore contribution margin for the full year basis we will be on a similar profitable level as last year. And the ramp down of non core, especially in Contract Manufacturing, continues to progress according to plan with the profitability margin around 0 on a full year basis. On Slide 11, I want to provide some insights on our cash development. Our operating cash flow came in lower compared to last year's As explained several times before, this was driven by lower accounts payable associated with the change of payment terms within contract manufacturing.

Furthermore, the number also includes the repayment of spin off related funding from Continental which led to an additional cash outflow Our investments increased resulting in an investing cash flow of minus SEK 100 76,000,000 This was mainly due to higher spending for project ramp up in the area of electrification. As a result, our free cash flow for period came in at minus €388,000,000 And I know this figure seems quite high, but please remember, we have communicated that a large part of this, let me say, Talking about our financing cash flow. This was characterized by utilization of loan increments. Hence, it came in positive at €97,000,000 This all resulted in a significantly lower but still solid cash flow. Now let's move on to our balance sheet Our net working capital intensity increased to 9.2 percent of sales and reflects our significant decrease in accounts payable related to planned pace out of contract manufacturing. Therefore, the working capital intensity is distorted as our payment terms within contract manufacturing came down from 9 months to 30 days. The net debt to adjusted EBITDA ratio in came in positive at 0.2 percent. Given the significant cash outflow in Q2, we are reporting for this first time a net debt position of 100 €89,000,000 at the end of June.

However, the finance situation remains very comfortable. And to finalize our exit ratio, it remains at a very solid level of about 39%. As you can see, we continue to have a very robust balance sheet structure [indiscernible] I assume you also our talk release roughly 2 weeks ago. Based on the development in first half twenty twenty four, And the staggering recovery within the automotive industry we downgraded our guidance for the fiscal year 2024. This applies not only to our globalized vehicle production for on the right hand side but in particular to our guidance on group level on the left hand side of that page. When talking about our group sales, we now forecast sales of €8,100,000,000 plusminus €150,000,000 Considering the very volatile call offs from major OEMs, across all regions. The adjusted EBIT margin will presumably come in at [indiscernible] plusminus20 basis points. The main reason to tight to lower sales which result in lower contribution margin. Due to the high number of product launches this year, especially in the second half of twenty twenty four, We expect our CapEx ratio to come in at about 7% of sales for the entire year. Fully focused to invest into electrification.

Coming over to our free cash flow. This is now expected to be around minus €400,000,000 resulting from lower profitability. Since the main burden related to contract manufacturing was tied in half year 1, 2024, see a positive figure for the remainder of the year. And please remember the outlook for the fiscal year 2024 does not consider any effects related With that, I have reached the end of my presentation. Thank you very much for listening and back to you, Heiko.

Thank you, Sabine, and thank you very much Andreas. Ladies and gentlemen, before we enter the Q and A session for today's webcast, I would like to hand over to Andreas for some final words. Yes. Thank you, Heiko. As you all know, this is my last earnings call. My contract as CEO of Fitas Technologies will end and that's what's the planning is always end of September means end next month. So over the last 3 years, I enjoyed being very close to the capital market and getting direct feedback about Vitesco's performance. Personally, from you and also indirectly via the share price performance. Those years were the best of my professional life transforming a non performing powertrain division to a new standalone company with a decent performance level. It is a great pleasure for me to check the last proof point showing that we can earn money with electrical components. All this was only possible with a great team. In the 2 divisions, the group functions, up to the executive board members. My big thank you goes to all of them. Special thanks also to the Investor Relations team, which intensively accompanied me during the last years. With that, I give back to Eyego.

Thank you very much Andreas. Operator, we would now be ready to take the first question.

Thank you very much. So the first question comes from Marc Renetton, Wabock Research. The line is open. Yes, good morning and thank you for taking my question. It will be basically 2. The first one would be on order intake, and it's good to see that we see some let's say, better momentum in the Q2 than compared to the start of the year. Nevertheless, it would be great to get some more insight on, let's say, how much postponements you are expecting with regard to the order side. So let's say, how much better would you expect the second half year to be? And going into 2025, the general run rate, let's say, look at these around €10,000,000,000 run rate, I think we, let's say, kind of, let's say, expected, but let's say, a year ago or half a year ago. Is there any opportunity that let's say, perhaps a slightly lower number for this year, maybe then, let's say, catch up or caught up by a higher number in 2025. So just the orders also being, let's say, put in the market a bit later, but overall volumes same magnitude as we would have expected before. That would be the first question.

Second question is a bit about, let's say, underperformance compared to global light vehicle production in the core ICE [indiscernible] powertrain. When do you expect this to end? Is it that they related to the major rundown of [indiscernible] With one customer? Or is it something we should, let's say, expect also for the quarters ahead. And that's as I said third question, let's say, added to that one. When we, let's say, into consideration that you're expecting electrification earnings to substantially improve in the second half after say around €60,000,000 negative adjusted EBIT in Q2. That probably now that they're also taking into consideration your revised guidance would mean that the core ICE [indiscernible] must be, let's say, weaker in the second half. Perhaps some more additional insight on that one? Be great as well. Thank you. Okay. So let's start a little bit the questions. I would start with the first one. Marc Renee, in relation to the order intake. There will be More speed, higher order intake, in the second half of twenty twenty four. One thing which I covered somehow with a side note is often especially on the electrification side, the orders, the momentum, the speed goes into Asia, specifically into China.

A year ago, we decided that we have to focus more on China. We kicked off a special program to focus on the business there and to basically cope with the momentum being at speed wise or on the innovation side in China. And we are ready now. And that's somehow hidden in all the documentation but we are strong In China, we will gain even more momentum and the side note was that we start this battery business. In China. So we expect significantly higher order intake in electrification in the second half [indiscernible] large parts coming from this dynamic part of the world means Asia, which [indiscernible] I don't know. I can take the second question. So the question here is Based on my understanding, our core ICE business came in at €806,000,000 versus previous year, €9 26,000,000 and in Powertrain Solutions Core Ice Business and Powertrain Solutions, And the question is why is that? This clearly goes into the category where we said we consolidated our businesses. So this means focus on our core business and here it you see that we ramped down or we we sold a few parts of our businesses like in Italy and Emitec.

And this result, you see here in our sales, On the other side, what you see is that we improved significantly on our EBIT margin from previous year, and this is exactly the strategy and the focus with Tesco has that we ramp down non core and increase our core business improve profitability and this is the result from that. [indiscernible] As we mentioned, this is clearly expected starting from Q3 onwards. So we will see in Q3 that we reach breakeven situation and then improve further in Q4 and onwards.

And maybe I can add to that. Give this information because we also wanted to make clear that we don't have a quarter with a breakeven and then we are basically moving sideways. That's not the case. So we will see profitability in Q4. Now there was the question of is then powertrain solutions going down because if I assume you're sitting in front of your Excel sheet, you might come to different numbers. We are a little bit conservative in the sense of what will happen in in the second half of the year because we don't know exactly the volume development. There's too many many negative political, economical points we have to take into account. And therefore, we we don't follow a exactly what Exel says, but our gut feeling that the second half of the year might be difficult. Maybe that explains the guidance we have given and shown around 4% a little bit lower than what we expected at the beginning of the year. Perfect. Thank you very much. And also let's say thank you very much for all the support and insight you provided to us as analysts in all the earnings calls. Conferences, which we put and draw together in the past.

Quarters. And yes, thank you very much.

You're welcome, Martin [indiscernible] short reminder, please press 9 and Okay. There are no further questions I give the floor back to Heiko Iber.

Thank you. So as the number of questions does not really come at surprise given our, let's say, special situation, I guess we can close today's call. Nevertheless, if there are more questions coming up afterwards, feel free to reach out to our IR team. Depending on the merger progress, this might be as Andreas already said, the last Vitessco Technologies conference call. Thank you for following our story and being part of our journey. We are very much looking forward to continuing our intense and fruitful discussions on our story going forward within the new Shepler AG. Have a good day and talk to you soon. Bye bye.