HELLA GmbH & Co KGaA

XETRA:HLE

Earnings Call Transcript 2023-Q2

[Operator]

Hello, ladies and gentlemen, and welcome to the HELLA conference call for the results of the first half of 2023. This call will be hosted by the CEO, Michel Favre, and the CFO, Bernard Schaferbarthold. [Operator Instructions]

Let me now turn the floor over to your host, Michel Favre. Please go ahead.

[Michel Favre, executive]

Thank you very much. Good morning to everybody. Thank you for your attendance. So I am with Bernard and we'll be very happy to answer your questions afterwards.

So starting with Slide 3. It is only to remind you that we have change of -- fiscal calendar year, so that means that now we are fully calendar. And of course, for the comparison, we have, I will say, the 6 months pro forma last year.

Going now to Slide 5. I hope that on Internet -- we can go to Slide 5. So it is -- I will say the performance for the group. Firstly, we had very good sales, specially, I said that already slightly below budget, but anyway, very good growth, plus 19.2% organic. Group reported with the ForEx plus 17%, a strong out performance, 610 basis points, we'll detail it afterwards. We have a very good order intake. We continue to be close to EUR 1 billion per month. And all I will say, our activities are growing as we undertake sales. You will see that afterwards.

And on the operating margin, EUR 245 million, up 76.2% respect to last year, plus 200 bps with respect to last year. I think, I don't want to be arrogant, but I think that with the team, and I would like to thank the team for their job. And net cash flow if I deflate from the factoring, it is a low net cash flow positive, but it is positive in not easy year and we confirm, and you will see that, that we can achieve a 2% net cash flow.

Going to Slide 6. Slide 6, what we can say is that we are on the order intake, fully in line with our targets. You can see that Lighting was very successful to get some very large order intakes with some -- with, of course, some EVs because as you know, we are very much exposed to EVs. We are very truthful for SSL HD for the new familiar norms on the physical front, so very good half year for Lighting. Electronics, we continue to be a strategic partner for the battery management for the radar and as well for multi-functional activity, which is a Smart Car access. And even Life Cycle Solutions, very good, I will say, order intake, including Electronics, we are developing -- as you know, it is 80% activity in Lighting and we are accelerating the development of Electronics.

Now going to Page 7, some highlights. Firstly, we have accelerated on the cooperation with Forvia with one goal, we want to communalize the key, I would say, back office departments. And here, we speak of IT in the repurchasing, but not only, like audit. Second, we want, of course, to achieve the very big synergies that we have planned. So we have, of course, this back office cooperation, we have as well -- we are cooperating as well on all what is safety. We will not make twice work for cybersecurity, for instance.

And last but not least, we have some good initiatives, The Initiative, I will say, all the boost, all the technology, I will say, communication. For the figures, more than EUR 300 million of cost synergies, EUR 400 million of revenue synergy. This is for all Forvia Group, but what is clear is that our target official is 50%. Sorry to say that I will be arrogant. We are making more than 50%, and I am convinced that we'll continue to make more than 50% because our team realized focus and again, are very performing. We continue to focus on profitability and cash flow, investing in the future. Investing in the future, that means we have the famous testing plant in Lippstadt. We have started all the projects for the new SAP, so we continue to invest in the future. We continue to have a big order intake. But of course, a big focus to improve the margins, and you know that the rally is to go to 8% in 2025. And to start rally of the cash, we were not very cash generative in the recent past, this year 2% and more than 4% in 2025.

Saying that now, I give the floor to Bernard.

[Ulric Schäferbarthold, executive]

Thank you, Michel. So also from my side, good morning to all of you. I would continue in our presentation on Page 9. So as mentioned, a very solid organic sales growth, 19.2% in comparison to LVP growth of 11.2%. The currency effect is negative in the first 6 months, specifically on U.S. dollar and the Chinese renminbi, so overall, EUR 65 million. With that, we have a record sales level on H1 of around EUR 4 billion with 3 segments which were performing at double digit and still a very robust demand on all our products.

If we look specifically on the segments, Electronics is growing organically at 14.7% in comparison to LVP growth of 11.2%, so we are posting a result of 6.5 percentage points of operating income margin. So still, we see in terms of sales that we are impacted by material shortages. So it's not as severe as 1, 1.5 years ago, but still we are trying to manage it best way possible, but demand continues to be volatile despite the continuous high demand on our products especially on automated driving and energy management.

In terms of our results, we are able to increase overall the compensation for inflation by our customers. So overall, in the first 6 months, at HELLA, we are at around 85% for the first half of the year. In terms of R&D, we are impacted by an overspending in -- within our Electronics in the first 6 months. So proportionally, it is roughly 2 percentage points of operating income margin only on overspending in the first 6 months, which was quite a big burden. As we said, it should now in the second half, continuously slow down this overspending so that we come back to a more normalized level in the upcoming quarters.

If we look at Lighting, quite a strong sales development, 25.6% of growth. We had a very strong demand of -- on some of our larger products also -- specifically also on electrified cars, and this supported the growth globally, but also specifically in China for our Lighting business overall. We improved in terms of operational efficiency and also our R&D efficiency. So overall, quite a good development and the first good step into the direction of our much more profitable Lighting business in the midterm, what we also communicated within our Capital Market Day.

If you would look then also at full consolidated numbers at Forvia, this result is even better considering the purchase price allocation, the opening balance sheet. So we are around 1.5 percentage points even better in consolidated Forvia numbers within Lighting.

The Life Cycle Solutions, again, with a very decent result. So quite a strong organic growth despite a stronger currency effect also coming out of Turkey where the inflation is extremely high. We had a very strong demand in all segments of our Life Cycle business. So the independent aftermarket was developing quite decently -- specifically in many of our sales companies here. We are mentioning Mexico, Poland, Brazil, as examples, but globally, a very good demand on our products. Nicely also within our Special Application business, we continue to have a good development here on agriculture on our customer segment, agriculture, but also construction and truck and bus with quite decent growth rates.

Within our workshop products, we had also in the first 6 months, quite a good development in terms of sales, also with our new product particular counter, which is in Germany necessary because of the regulation. Overall, 13.5% of operating income margin, even an increase in comparison to last year with higher volumes and here also the pass-through of inflation and the continuous SG&A cautiousness.

Continuing on Page 13. The development within the regions, quite a decent growth globally in all 3 regions. Overall, an outperformance in comparison to group sales of around 6% with strong overperformance to LVP growth in Europe and Asia and NSA being impacted by a negative currency development, but it should also improve going forward.

If we look at full P&L on Page 14. So what is very promising is that we are, again, at a gross profit ratio of around 25%, which is very solid number and the number we only had also before the crisis. So on one hand side, the growth, our efforts we have done in passing through the inflation, but also continuous improvements on operational efficiency supported that strong development. R&D is up because of our overspending in Electronics, so this we should get better under control in the upcoming quarters and get to the reduction we are targeting. SG&A, overall, in absolute terms, an increase in relative terms, a slight reduction overall of 10 basis points. And with that, we are posting EUR 245 million and an improvement in operating income margin of 200 basis points to 6.1%.

Coming to the cash flow on Page 15, a strong second quarter. We have EUR 89 million of net cash flow. There is an increase in factoring in that number of EUR 60 million included with the new program we have initiated in Mexico. But despite that, we turned the very negative number in Q1, which we explained to good positive development despite quite a significant organic growth. The working capital overall is slightly negative, so still inventories are too high, but first, improvements were realized now in the last months. Additionally, CapEx was down. So we are actively managing CapEx numbers best possible. So this supported also the solid development on net cash flow in the first half.

Having said that, I hand back to Michel with the outlook and happy to take your questions later.

[Michel Favre, executive]

Thank you, Bernard. So Slide 17, we have tried to give a highlight on the volumes. Now what is important to notice this year is that EV mainly in Europe and China is evolving at a quick pace, and this drastically changed the customer mix. And in China, it is quite visible because the Chinese OEMs were, I would say, 18 months ago at something like 40%, 4-0, market share, and now they are overtaking 50% market share. And of course, the international carmakers are losing. Of course, the champion of the EV are the winners in both markets.

In U.S., as you have seen probably, the American players altogether even with Tesla, because Tesla is a big winner, are only maintaining now market share of 50%. So we have a strong geographic mix because Japan first and then China. And we have, of course, a strong change of customer mix. Saying that, with the figures of S&P, we have, as a Forvia group restated our guidance to something like 86.7 million cars, before it was 85 million. But with this basis, we only, sorry to use this word, only confirm our guidance because, as I said, we are below budget. This mix is less favorable than the mix we have in our assumption. So today, in our forecast, we are just, I would say, in the middle of the range. Of course, first half will help a lot to achieve the full year. So we have more safety and more confidence, and you have understood that in our tone, but we can only today confirm that we will be in the range of EUR 8 billion to EUR 8.5 billion of sales, 5.5% to 7% margin as a net cash flow of 2%. Of course, with Bernard, we tried to be more in the top than in the middle of the range.

Page 20. The key takeaways. I think we are in line -- business stays slightly below budget this year again. We are totally in line on the performance, that means profitability and cash. And what is very good is the fact that our 3 business group are progressing and which is good as well. It is our strong contribution to Forvia Group. As Bernard was explaining, we have a 6.2% margin. Our contribution to Forvia will be more close to 7%.

Second thing, we can confirm the outlook which is normal, and it is our duty. But anyway, we are, I will say, very confident in this outlook. And what is not, I will say, small message as well, we are on track to achieve the 2025 targets, which are not easy, sales are something like close to EUR 9.5 billion. I will say, more than 8% margin, 4%, I will say, in the cash flow.

So again, I would like to thank the team because I think it was a good half year and we are on a good track for the second half. And now with Bernard, we are ready to answer the questions.

[Operator]

[Operator Instructions] And the first question comes from José Asumendi.

[Jose Asumendi, analyst]

Just a couple of questions, please. I think the first one, can you comment a little bit where we stand in terms of the renewal of the contracts with regards to yourself and Mr. Schaferbarthold. And also whether have stakeholders indicated anything so far with regards to the renewal? That would be the first question.

And then second question, if you could elaborate a little bit more with regards to the margin potential in the Lighting division as well as your exposure to Chinese OEMs in APAC or in the Chinese region.

[Michel Favre, executive]

Thank you, José. I will start with the second question. I will not escape first one. For Lighting, my conviction is that Lighting is a very technological activity. It is a big differentiation for the carmakers. You can see that when a carmaker is starting to present a new model, there is immediately a flash on the front because the 2 headlamps are something like the eyes of the car. And through the headlamps, through the physical front, the carmaker can give a personality to his brands, his signature. And so we are participating to that.

It is why in Lighting, I will use -- will be a little arrogant, I will use the word partnership. So saying that you know that technology is a key driver for profitability, so for me, Lighting should be, must be something like 7% to 8% margin. You say HELLA is a little far away. We are coming from another reality for some different reasons. Europe industrial plan, we are making our home work on that to, I will say, specialize as a plant to improve the systems, all our efficiency. We have as well as some commercial, I would say, points, and we are clearly more disciplined on the commercial side. And what I can tell you is that the order intake is at a good value. And Yves Andres and his team are making a very good job on this side.

So 7% to 8% for me should be the right level of margin. We will continue to improve. As you know, we have -- we are committed to 6% in 2025. It will be probably more Forvia as a contribution. And probably we go to 7% in 2026, latest 2027.

Renewal of contracts, a little -- how to say that. And balance on this question, the normally in Germany, we should 1 year before indicate when the contract or how the contract will be renewed or not. As you know, and you were speaking mainly from Bernard and for myself, we have contract until end of June 2024. Today, the situation is for me. Bernard will comment for him. I was -- there was a start of discussion end of May. Based on the time I was at the end opened to renew for the next 2 years. Since early June, no news, no clear decision, no clear, I would say, communication. So what I will say today, and I can only say that there is a low probability that my contract will be renewed or put hold. Bernard, do you want to add something?

[Ulric Schäferbarthold, executive]

Yes. What I can comment is that we have started discussions on the renewal of my contract some time ago. So the discussions are still ongoing, but no decision taking yet on both sides. So I would -- but I would assume that in the next month, we will be clear on a renewal or not.

[Michel Favre, executive]

As you know, José, I'm 64, so I don't think that my case is important. But I will insist on the fact that in HELLA, we have a very good and smart CFO. So I have already made some, I will say, put incentives in order that the contact of Bernard will be renewed. I think it's very important for the company and for Forvia.

[Operator]

And the next question comes from Michael Jacks.

[Michael Jacks, analyst]

First one, just on the guidance. Where specifically are you seeing underperformance in relation to budgets? And I think maybe that's linked to my second question here, which is just on the outperformance metric or development in Q2. It seems to have slowed down quite significantly versus the 8.7% report in Q1. So just wondering, is it more regional specific? Is there perhaps something in EVs we're seeing order intake in EV slowing down in Europe at the moment? So if you could just comment on that.

And then secondly, just on the R&D overspend. To what extent do you expect this to be offset by reimbursements in the fourth quarter? And finally, just on working capital, perhaps a little color on what your expectations are for the second half of the year. Thank you.

[Ulric Schäferbarthold, executive]

So to start, to start with the underperformance. So it's specifically mostly related to our Electronics business, partially also Lighting. But in Lighting, we have more a mixed picture. We have on some programs, a much better or a very strong performance. And on some programs, we have a lower performance. The lower performance in programs, specifically in Electronics, but also Lighting, it's more, let's say, a customer mix. And Electronics is even more impacted because of, as I said, still a shortage situation on the supply side, in terms of chips. And with that, still a high volatility. And on top of that, there is also a point of regional mix.

So we think overall, and that was my comment also to specifically in Electronics, the order book is very strong. So there should be -- I would not now look at 3 or 6 months to have now a kind of a general trend. Overall, as a general trend, we would continue to see a strong growth perspective on Electronics also be above the market expectations. So from our side, no critical situation. So into -- to the order intake, so I think or I see a continuous strong demand in both segments, Electronics as well as in Lighting. So the very strong order intake trend is continuing as we had it last year.

In terms of overspend, so it's specifically related to some programs within radar and electronic power steering. So these are -- and in radar, it's the 77 gigahertz generation. So these are the ones where they are quite high safety functional requirements in terms of also testing, but also documentation on testing and so on. So it's -- there's no issue on the product design overall, but it takes us much more efforts than we originally thought. Some is related also to late customer changes. So to your specific questions of reimbursements, so some will be reimbursed, but it's a lower proportion in comparison to the overall part. So you could also say it's a kind also of learning curve in terms of new technologies with very high requirements on software and testing and so on. So -- and I think we are through this very difficult period. That's why we are quite confident that we should now bring the cost down again. But as I said, only a part of it will be reimbursed.

[Michael Jacks, analyst]

That's all very clear. And thanks for the additional detail there. And then just on my last question, I just asked on working capital expectations for the second half.

[Ulric Schäferbarthold, executive]

On the -- so we should see that -- or we are targeting a further reduction. So we estimate as of now that we should improve in our inventories and still also on the receivables side, the level is still too high, so the overdue level is still too high. And the most important is on the, let's say, receivables side also towards our customers is that a bigger part of the pass-through of the inflation to our customers is still not collected within our cash. So I mentioned that the 85% we have now within our P&L. And this is an absolute amount, which is around or much above EUR 100 million, so around EUR 140 million. This we have not collected yet to a large extent, cash-wise. So this is then the biggest improvement, we will realize in second half and will support us to get to the targets we have set.

[Michel Favre, executive]

But don't worry, it is secured.

[Operator]

And the next question comes from Sanjay Bhagwani.

[Sanjay Bhagwani, analyst]

First of all, congratulations for the strong results. And I have 3 questions. My first one is on -- if you look at the FY margin guidance, the full year guidance, is it fair to say that this is based on quite conservative assumptions? Like if you just look at, for example, the sales in H2 could be better. Then also, I think you mentioned that R&D overspend could normalize in H2. And then at the same time, synergies could be a bit higher in H2 and at the same time, the pricing and the cost dynamics could be better. So just trying to get my head around, let's say, what could lead this margin to the upper end versus midpoint? That is my first question, and then I'll follow up with the next one, if that's okay.

[Michel Favre, executive]

Your first question, sorry with regards to margin guidance was...

[Sanjay Bhagwani, analyst]

Is it fair to say...

[Michel Favre, executive]

Should be better, yes. And I fully agree with you, we should be better. Unfortunately, we have always, I will say, some adverse impacts. Main one is still some inflation, but normally with a further compensation, we should, I will say, reach our targets that we will be close to 100% of the raw material price increase. So here, I will say my concern is very limited.

We have some small adverse mix, which could cost a little some points of margin, but as well budgeted and we have no reason not to offset that. So if we continue on the current basis, yes, it is what I said before, we should be more in the upper end than in the middle as our forecast. So it is our ambition with HELLA, I repeat. But of course, we can commit only on what is our forecast with the right opportunities that we have.

[Sanjay Bhagwani, analyst]

Yes. That's very helpful. And my second question is on I think you, Bernard, you mentioned that in Lighting, because of the consolidation effect, we may see somewhere around 1.5% more for Forvia than for HELLA. So my question is, is there some other differences for the other divisions in Electronics and Life Cycle Solutions same for the consolidation? So I totally get it for Lighting, it's going to be 1.5% higher. So similar, any more color on Electronics and Life Cycle Solutions?

[Ulric Schäferbarthold, executive]

On the other 2 segments, the differences are quite small. There are some, but they are, let's say, very little in comparison to Lighting. This is why I highlighted mostly Lighting, so the others are more neglectable. So the around 1.5% in Lighting as, let's say, in comparison now to the roughly 7% overall -- roughly 7% -- close to 7%, which Michel mentioned on overall Forvia. This translated to that. The other 2 are very, very small, as I said.

[Sanjay Bhagwani, analyst]

Very helpful. And my last question is just could you please provide some color on for what's the H2, for example, your estimate for cost versus inflation? I mean it's going to be lower -- I mean, more favorable in H2 or not? And then finally, on the synergies, how should we think of the split of synergies between H1 and H2?

[Michel Favre, executive]

For inflation if I take what is happening today and because we need otherwise, you know that, there is a very big slowdown of inflation. It's because of raw material, energy, energy prices, et cetera. So I would not say that the second half is flattish, but is almost flattish on this side with respect to the first half. So inflation is not over, but at least with respect to the very high inflation of semiconductors energy, we have a stop, which is good and will facilitate our operations and, of course, our discussions with customers.

The second one was...

[Sanjay Bhagwani, analyst]

On the synergy.

[Michel Favre, executive]

Synergies. Yes, of course, we have an acceleration. We have an acceleration because we continue to feed the reservoir. We have an acceleration. I don't remember, you don't remember the numbers?

[Ulric Schäferbarthold, executive]

I think it's more 60% in the second half when compared to around 40% in the first half. And it's around, let's say, from the shares, it's unchanged what we said, around 50% of the overall synergies are related to contributing to HELLA profitability.

[Operator]

And the next question comes from Akshat Kacker.

[Akshat Kacker, analyst]

Just one left for me, please. If you could just comment on your total R&D expenditure and net CapEx numbers for the full year, that would be really helpful.

[Michel Favre, executive]

R&D expenditure. As Bernard was highlighting, we have some important projects, which will start this second half. So we have some other costs, and we continue to have some other costs in Q3. This reflects some difficulties on some really new standards, but I am confident that Electronics are busy, now putting everything under control. So we -- normally, we should go back to a more normal, I will say, trend in the last quarter.

The only big indicator is order intake. We have an acceleration of the order intake last year. We have a new acceleration this year. So this will, of course, have an impact on the R&D. So on Electronics, if you take the gross R&D, we still are close to 15%. And in Lighting, we are in the high single digits. I speak of growth. Of course, there are some reimbursement, et cetera, but we are still an activity where we have some very important R&D, but it reflects as well the strong technology of HELLA.

On the CapEx side, we are deploying our, I would say, industrial plan. We have some opportunities with standardization, et cetera, to reduce not in value, but in percentage, the level of CapEx and to be more efficient, more flexible, so we'll continue to do this work. But anyway, you will see at the end of the year that the CapEx figure will still be very high. Bernand, do you want to add?

[Ulric Schäferbarthold, executive]

No, in terms of numbers, so we should assume in absolute terms, slightly higher CapEx in comparison to H1. In terms of H2 R&D, it should be -- we had an overspend on the month EUR 4 million to EUR 5 million too much. So as Michel was saying, so this should month-by-month slow down now. So overall, we should see a lower R&D expense in comparison to H1.

[Operator]

And the next question comes from Giulio Pescatore.

[Giulio Pescatore, analyst]

On the order intake in your midterm targets, what percentage of the target top line for 2025 would you say is already secured by the strong order intake that you have reduced so far? And what does that order intake tells us about the implied level of profitability?

And then second question still on the order intake. Can you maybe explain the volume assumption and also the kind of the way you're booking this order intake? Because I think in the past, one of the issues that we had not only with you, but generally for the industry has been a disappointing transformation of all this into revenue and profitability. And then sorry, last one, you said that Chinese OEMs went from 40% to 50% market share in China. Can you maybe tell us -- give us an indication of what percentage of your order intake in the market is made up of Chinese carmakers?

[Michel Favre, executive]

Thank you, Giulio. So it is a very important question. Additionally, some people will say differently, but my experience, you know that we have now some experience, it is minimum 2 years between the moment you are awarded and the start-up of production. You can have some difference according to customers and famous EV -- American EV is 2 years maximum, some luxury are more furious. So there is no competitively, I will say tools and low behind that. And sometimes, the start-up is delayed.

So saying that, we are mid-2023. I will say that we have almost secured everything for 2025. The topics are always to have, I would say, the confirmation of some I would say, restyling, reuse of existing, I would say, base whatever, which are not completely taken in the order intake, but which will happen because, of course, we know if there will be a reuse or not.

On the margin side, what we have today in order intake is close to our target, more than 8%. I will not say it's completely in line. That means that we have some additional efforts to make, but we are totally consistent, and which is very important.

On the Chinese OEMs. Unfortunately, today, we are at something like 13% of our Chinese sales with the Chinese OEM, but we have some EVs which are very specialized. So in fact, when I make the full consideration of China, we are more at 20%. We are increasing our order intake this percentage. Our target for 2025 will be probably to be as close as possible to 30%. Chinese OEMs for me will continue to gain market share in China, but as well worldwide. So it's very important to team with the right ones.

[Giulio Pescatore, analyst]

And our volume intake...

[Ulric Schäferbarthold, executive]

I'm sorry, to followup -- sorry Giulio.

[Giulio Pescatore, analyst]

No, I just want to follow up on this last point, which I think is key, right? As you see Chinese carmakers wanting to open plants in Europe. Do you expect to be a good partner or be in a good position to service them and to increase the market share with them in the local market?

[Michel Favre, executive]

Normally, yes, because we have the size, we have the volumes, we have the technology. It will depend as well on the model that we put, I would say, in Europe. But as key supplier, we have the vocation to go with them. And when we were -- we have -- probably you know that we have a bus in Shanghai. We received, I don't remember, the number of CEOs of Chinese OEMs, but it was a very, very large number. So they're interested in Forvia HELLA. They know that they need, I will say, probably to upgrade some supply. So we have the vocation to team with them. And for some, we are already teaming, of course.

[Operator]

And the next question comes from Stephanie Vincent.

[Unknown Analyst]

I'll start with the first couple and then end with the margin question. My first one comes on the strategic -- I guess, overview of special applications, is that still ongoing? And then my next question is just on the HELLA 2024 notes. Just curious about whether or not you think that, that will be replaced with similar type of issuance at the HELLA level? Or is that something that's going to go up to the Forvia level?

[Michel Favre, executive]

Sorry, I have not understood the second part of the question, Stephanie. Can you repeat?

[Unknown Analyst]

The second part, you've got a EUR 300 million bond due, I believe, in May next year. Just wanting to know the intentions for that. Would you refinance it down the HELLA level, pay it down in cash? Or is that something that would go up to the Forvia level?

[Michel Favre, executive]

Yes. Sorry, we didn't capture the word bond, excuse me. So Bernard, I think you would answer. The first question was, sorry?

[Ulric Schäferbarthold, executive]

On special application.

[Michel Favre, executive]

Special application, yes. Special applications, there is no more strategic overview of the special applications. Short, clear, finished.

[Ulric Schäferbarthold, executive]

On the bonds, we plan to refinance it.

[Unknown Analyst]

And that would be at the HELLA level?

[Ulric Schäferbarthold, executive]

Yes.

[Unknown Analyst]

Okay. And then my last question is just on your outlook for margins this year, you did discuss several things, and there have been a lot of questions about raw materials versus inefficiencies versus I guess, the improvement in light vehicle production and your gains in share. Can you just sort of strip out actually how much raw materials have had a positive impact year-over-year so we can sort of look at a plain vanilla operating leverage?

[Michel Favre, executive]

When you say positive impact, that means in inflation or deflation?

[Unknown Analyst]

Basically your ability to get pricing through to your customers, and that's been an improvement year-over-year. It seems like through each division versus 2022.

[Michel Favre, executive]

So when you take HELLA, the impact of, I will say, the raw material price increase was something like that of 4% of sales. I repeat 4% of sales. Variable, as Bernard was saying, to compensate 85%. And when we say 85% of this amount, it is mainly recurrent. I insist on this because on a good management and as it is for the structural and it should be anyway a win-win story with the customers. We need the recurrence, which means that when the -- if the price were down, and I think some prices were down, of course, we will give back this to customers.

And my bet is that, at one moment, semiconductors will go back because price increase were too much, and it was low moreover on Electronics. So 85%, we have the vocation because we have still some discussions open to go to 100% because there is no reason why on this raw material, it was a low in this sector that will not be compensated. And I repeat, it is a win-win story with the customers because my bet is that price will fall back -- come back.

[Operator]

We didn't receive any further questions. Let me hand back over to your host for some closing remarks.

[Michel Favre, executive]

Okay, I totally thank you again for your attendance. So our next rendezvous will be the November 7th for our third quarter results and, of course, the 9 months cumulated. And we will have a specific event -- short event, the 28th of November with HELLA analyst meeting in Frankfurt. So we will be very happy to see you again and to see you physically.

In the meantime, I wish you, of course, a very good day and for summer very good vacation. Thank you.