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Good morning, ladies and gentlemen, and welcome to the Stabilus S.A. Conference Call regarding Stabilus Financial Results in First Quarter of Fiscal Year 2018. [Operator Instructions] Let me now turn the floor over to your host, Mr. Wilhelms.
Good morning from my side here. From Stabilus, you've got Dietmar Siemssen, the CEO; Andreas Schroder, our Investor Relations Manager; and myself, Mark Wilhelms, on the phone. I'm sure you've all noticed that we've pulled this call a week ahead versus our original timings we had used the last couple of years. We now feel reasonably comfortable that we can provide the result a bit faster, sooner to the market, which would really help everybody. If we get started with conference results here for the Q1, I'll turn over to Dietmar Siemssen, who will take you through Slide #4 on the package provided on our web page.
Hello also from my side. It's good that we are earlier. We are anyhow quite early in Stabilus because our first quarter 2018 covers October till December 2017. Let me come to the first quarter. Our first quarter again started strong, we really had a positive and good first quarter. You can clearly see we have had and enjoyed good sales in principally all regions, all business segments. Auto was good even though U.S. is a bit shorter, but the SUVs are still running. But also the industrial business showed very positive signs. Various business segments, they are really running well. We of course are benefiting from automation, strong trend toward automation. Our independent aftermarket was good. Construction machinery is coming back, agriculture.I don't want to bore you with all the details of each and every segment, but there are positive impacts on various sides. Solar is also doing well, which is very good, especially also for our new businesses that are benefiting from various areas if even compensating some FX translation effects that we receive out of the dollar, we will come to this in the next minutes. If you go into the details of the first chart or the chart #4 here, the revenue for total Stabilus went up 9.4% to EUR 230.6 million. As mentioned, strong growth in all regions; Europe a plus of 13.5%, NAFTA 2.5% as well as Asia/Pacific, Rest of the World with a plus of 15.7%. Growth also in various business segments. Powerise again strong with more than 20% of growth.Very -- we see with a lot of pleasure the Vibration & Velocity Control, which is built by 3 of our new business units; it's ACE, Fabreeka and Tech Products; that really grew very nicely with almost 16%. But also Capital Goods, 10.9% strong as you see in the -- all the non-automotive sectors. And Commercial Furniture grew nicely with 7.4%. Well, the auto gas spring was flat. The EBIT also developed nicely from -- to a EBIT margin to 14.7%. Last quarter '17 was 14% so that's very positive. The profit after tax at EUR 21.7 million. It looks a little bit this would be a drop from last quarter, but actually we have some special impacts, almost EUR 14 million special FX impacts in 2017 first quarter. So the profit after tax was EUR 21.7 million. We will see this later is still a slight increase from our point of view.Net leverage ratio now very nicely 1.4 multiple, looks good and the outlook -- we will also talk about this later. We confirm the outlook of what we expect, a 7% growth rate. With this, we turn over to Page #5 where you see some more details to what I just mentioned. You see on the upper left side, the revenue 9.4%. You see on the right side of this upper left side here is without FX so cleared out the FX impact of translation from the U.S., that would have been 13.1% organic growth quarter-to-quarter. Adjusted EBITDA -- EBIT, I mentioned already up to 14.7%. Profit here we mentioned 14.1%. Net FX gains that we had in the 2017 first quarter so profit EUR 21.7 million this quarter. And the free cash flow, also very positive development, up to EUR 14.7 million. Mr. Wilhelms will later say something to that.With this, I also hand over to Mr. Wilhelms, who will lead us through some of the regions.
Thank you. Let's turn to Slide #7 where we show on the left hand side, the revenue by region and on the right hand side, the EBIT by region. Just to reiterate, region sales increases that Dietmar Siemssen had mentioned, we see it here. And for the NAFTA region, we need to make an adjustment later on at least mentally for the FX effect. In terms of profitability shown on the right hand side, I will speak to that on every slide of the regions that are following now. So Page #8 shows us Europe. European revenue up by 13.5% to EUR 116 million and that compares to the European car production in Q1 at 5.8 million units i.e. up by almost 8% versus Q1 '17. And our revenue growth as those numbers show us is stronger, is clearly reflecting that our products, specifically the Powerise, are finding a nice market. That one picking up with the third comment where we say the increase was primarily driven by our automotive business.Powerise revenue grew by 22.7% to EUR 26.5 million and Gas Spring revenue grew by 11%. Specifically, the 11% growth for the base Gas Spring revenue compares nicely to the 7.9% European car production growth. Of course as we speak about revenue increases in the business units, I shouldn't forget to point out that industrial in Europe is up by 12.4%. In terms of profitability, left hand side the bottom corner, last year's margin is 11.8% in EBIT terms, now at 14.1% showing an overall YoY increase of 34.7%. Quite clearly, the drop-through rate of that increased revenue of EUR 13.8 million is pretty strong at about 30%, clearly showing that we are able to translate additional revenue into a better bottom line. Turning over to Slide #9, we come to NAFTA. NAFTA may look a bit soft-ish with 2.5% growth rate. But turning out, calculating out, eliminating the U.S. dollar effect; we in fact have a 11.8% growth rate in the NAFTA region on a constant currency basis.This one compares to a NAFTA car production in Q1 at 4.2 million units, which in fact is even 4.1% down versus Q1 '17 and with this, we are confirming similar as in Europe that we can grow nicely. Increase again driven by Powerise, but also Vibration and Velocity. Powerise revenue is up by 8.1% or almost 18% excluding the currency effect and Vibration and Velocity 14.9% or 25.3% excluding the currency effect. Important is to point on the left hand side bottom corner here of the slide where we talk about the EBIT. That's a EBIT in terms of margin at 15%. If -- while it is weaker than last year, it still is stronger than the group average. A task we had been wrestling with over the last years to bring the U.S. -- the NAFTA region profitability closer to the group average. We've shown with the last year full-year results that it worked and also this quarter confirms that this is working out to keep the U.S. region at a healthy margin of 15%.Turning over to Asia-Pacific on Slide #10. We see a 15.7% revenue growth rate, which compares nicely to car production growth in Asia/Pacific, Rest of World, which were kind of flat with 15.4 million units while in specific markets we had seen big changes like China down by almost 1%, Korea/Japan down by 2.7% and South America up by 15.6%. In terms of margin here, last year we had delivered 18.7% EBIT margin in the region.Visually we are now down to 16.5%, but in fact those 2% margin we are lacking, they are in euro million terms not that big, it's EUR 600,000. And we had suffered as a company from the hiccup between Korea and China taking out some volume in the Korean plant and with the Korean customers.Now this finishes the view by region.Let me now take you to Slide #12 where Dietmar Siemssen will give you an overview of how the different business segments worked out here.
Coming back to this Chart 12 confirms the growth we had in total split up by non-automotive sectors with a plus of 12% and the auto sectors with a plus of 8.1%. That leads us to a now nice split of industry/automotive of 36% and 64%, which is a very healthy one as we see it and we feel very comfortable with this split. Going into details of the business, I would ask you to turn over to Page #13 where we start with more detailed view of the automotive business. As mentioned, 8.1% growth in the auto that is split by 20% -- 20.8% of Powerise again very strong quarter here and relatively -- or it is flat in the Automotive Gas Spring. If we take the FX impact of the dollar out here, which you see on the right side of this smaller chart which is EUR 2.3 million, the growth without FX is still 2.6% clearly showing that in spite of the lower growth rate, we are able to outperform the market also in the Automotive Gas Spring business.Going to the right side of this chart, you see global car production went up by 1.1%; U.S. with minus 4.6%, a little bit negative; relatively flat in Asia; strong interesting wise in Europe as mentioned by Mr. Wilhelms before where we clearly see certain recoveries of certain segments and markets. The auto revenue in total 8.1% plus and 12% plus without the currency translation effect. We mention this in principle in every of our calls. The consumer trend towards SUV is still ongoing. It's not always these big SUVs, it's a lot of these very small SUVs that are used in the cities and we clearly see step-by-step that, for example, elderly people are going towards SUVs now. They're benefiting from this because they are sitting more upright, little bit higher and that leads to the trend towards this body styles of the vehicles. The Powerise as mentioned 20% plus or 26% without currency translation effect. So very nicely developing in automotive.Turning over to Page #14, we see the industrial business. You see here growth in all of the segments, 12% in total; 7.4% in the Commercial Furniture, 15.9% in the Vibration and Velocity. Something I'm personally really extremely happy and very proud because these are the classic new segments that we acquired in 2016. They were never really strong in growing and you see here the first impacts of I always call it the Stabilus growth drivers that we hand over to these businesses and they're doing very well. Of course they're also benefiting from recovery of certain business segment like construction machinery and especially also automation. Also the classic industry gas spring including the new business arm did very well with 10.9% growth. There's a couple of segments as mentioned before that are really coming back. We are doing a lot in the independent aftermarket where we gained sales, but also the whole transportation segment was good. I mentioned agriculture, solar and automation.With this, I would like to hand back to Mr. Wilhelms, who briefly talks about the outlook.
Thank you. Page #16 shows the outlook. The growth rate at constant FX rates, 7.1% we had mentioned when we presented the full-year number. We remain confident to achieve those. The tricky bit nowadays is picking the right FX rate for the incurred euro/dollar translation effect. I mean we are giving here 2 options, 3 options for people: A, at constant FX rate, but also with $1.15 and $1.20. So anybody on the call should really take their own pick what rates will come. You clearly see what this would do to our revenue increase at incurred rates. But underlying, 7.1% growth rate at constant FX remains intact as a forecast. And we are also sticking to our guidance that has been communicated before of 15.5% adjusted EBIT margin.That now concludes the call in terms of presentation and we are opening the floor to any questions you may have.
[Operator instructions] And our first question comes from Florian Treisch calling from MainFirst.
Congratulation to a very solid start and particularly I would say when it comes to industrial and is also the first area of my question. If you look at your kind of growth acceleration we have seen over recent quarters, how much of it is kind of really driven by underlying improvements? You mentioned some segments like construction coming back to the market. And the second part is how much of that maybe also coming from revenue synergies if you look at say SKF Entities now being fully integrated? The second part of the question would then be how sustainable is the growth acceleration in industrial, i.e., can we expect a double-digit growth rate also in the coming quarter or would you say that this is too optimistic here?
Usually I say all the difficult questions go to Mr. Wilhelms, but I will take this one. It's actually not so easy to answer. We are benefiting -- definitely benefiting from some of the businesses coming back, but you also very clearly see that the way the new businesses are approaching the business is significantly more active and dynamic and we clearly see benefits from this. On top of this, we also have certain advantages because we clearly see synergies now. Some of the customers from old Stabilus and the new businesses' distribution channels, even synergies that we did not expect during the due diligence phase. So it's a very tricky question to answer. I would call it 50-50 because we clearly see certain impacts coming from -- of the markets coming back. How sustainable is the growth in the industry? I'm pretty optimistic. I would be careful with double digit, but I would clearly see that the trend is going on and the dynamic is definitely not out of the new Stabilus members and they are driving the business very actively. And I'm not only talking the next months, I actually expect them to do this the next years.
Perfect. And if I may now maybe a second one, it's on the Powerise growth recovery in NAFTA. I think your Powerise growth was the weak spot here. Now I would say back with a very, very solid number here for the NAFTA region. Is there a particular reason for that recovery, for example, is the SUV push from the German OEM driving that or is it really on the broad-based underlying demand trend here?
I think the -- there is not a recovery of the trend. There is not a significant change. In the figures there was a slight dip I think in the last quarter of the last year, which we always also in the calls explained that it's not what we less -- what we sold less, it was some shift of overall production into China. So in principle, the trend is not a big change, it was just running very nicely.
And our next question comes from Philippe Lorrain calling from Berenberg.
Philippe Lorrain from Berenberg. I mean you mentioned some very strong end markets in the industrial segment. Would you provide a rough breakdown of the different end market exposures that you have in that segment? That would be the first question.
We've always refrained from giving too much detail here because a lot of those [ beginnings ] are kind of arbitragely in terms of people. Nevertheless, for us the strong segment was about 10% each; it's like buses, trucks, construction machinery, aftermarket overall for the automotive aftermarket, but also solar where we see good increase in the past month.
Okay. Now another quick question actually on the European margin. I mean you were mentioning that actually you had a very strong drop-through of about 30%, which was showing that -- and your additional revenue is transformed into bottom line. Fine, I understand the math here. Now what's driving that drop-through to be so strong actually now this specific quarter? If I remember vaguely, last year you were mentioning that you had stepped up R&D investments. Was it really in the European region, which would explain why you're benefiting from a low base effect or is there anything that I've missed?
Well, a, the plants are really full right now, that clearly helps us to generate good [indiscernible]. And on the other hand that R&D increase, we have -- we still invested more in R&D globally and a major chunk of that is Europe in order to be ready for the future. But as I said, key advantage with having plants fully loaded is let's say generate far better profitability than plants that still have some open spots, open hours and as said clearly helps us. Underlying that Vibration and Velocity business brings very strong margins. Industrial business in Europe that has shown nice growth rates comes along with nice healthy margins, a bit better than the automotive business. So therefore, as we have a bit of a mix change from auto to industrial in Europe, we also benefit in the average margin from that effect.
Okay. So perhaps just to bounce back on that one. I mean what's the end game then for the market -- for the margin in the European region? Could we plug-in that actually also the European regions should head towards, let's say, normal group margins of 15% to 15.5% something like that going forward or is it something that's a bit stretched?
For sure, we are trying to get everybody close to the average to take out any mix effects from the regions. On the other hand, we also want to ensure that we harvest where there is something to be harvested. Therefore, it's not that straightforward. You need to keep in mind that in the European region we've got R&D, we've got various central functions, which generically will always pull down the European numbers a bit versus the group average. And a key point that we've seen over the past years is the increase of the U.S. margin that has helped the group on average to do better. And overall margin end game, I mean one needs to be careful how to extrapolate that one going forward. For sure it's not good enough to punch the last 3 years into X and then assume it continues like this going forward. We see that EBITDA margin -- not EBIT, but EBITDA margin, over 20%, 21% is clearly far too much and as said, nobody should have said in his model. And in terms of EBIT margins, there will be certain increases in the years to come, but I wouldn't estimate with more than 16%.
The key focus of Stabilus is on profitable growth, which means we have to make sure that we really grow. Sustainable growth over long term and I think that's where we have to focus.
Okay. It provides a very good overview actually on what we have to think about going forward. I've got a last question actually on your free cash flow. I mean this one looks quite strong or very strong actually compared to the previous year. If I remember correctly, I mean, I'm wondering just if we had like any kind of special calendar effect that would have helped for instance, let's say, on the receivable side or something like that or is it just, let's say, that the free cash flow in this specific quarter was just that strong?
Normally our Q1, which includes December, is always a bit overpaid because you never know whether the customers are all paying in line with the contracts by year-end, et cetera. So there are couple of movements. When you go on the slide presentation in the backup Page 20 where you see the balance sheet, people will quickly realize that on the receivable side we see the small increase versus September, which in fact less than the revenue would anyhow justify. So there is no quicker intake of funds from customers in that regard. In fact the cash out we have over and above what you see in the numbers is in the trade accounts payable. In September they were at EUR 79.1 million and this in fact reduced then to EUR 71.3 million to take more advantage of early settlement discounts, et cetera, to help us with the margin. This negative bounce down is included in our cash numbers, which are anyhow good numbers. So one could argue that under underlying, the result is even stronger.
[Operator Instructions] And we have one question from Robin Maxwell calling from Baader and he's just withdrawn his question. But we have a follow-up question from Mr. Lorrain from Berenberg.
Actually, I've got one regarding your margin guidance. I mean you continue to guide for 15.5% or about 15.5% adjusted EBIT margin for the full year, which is basically 40 bps uplift year-on-year. However, if we strip out the impairments that you've booked last year, the right bases to look at seems to be something like 14.4% -- 15.4% instead of 15.1%. So the uplift in margin would not be that strong in this case. So is there any reason to assume that there would be further significant impairments in 2018 or any further negative effect besides potentially the mix that would explain why the underlying margin would not be massively increasing this year?
The last year's margin, this year's guidance; they are both without the PPA effect. So the 15.1% for the time till September '17 that is excluding any PPA effect. So I'm not sure how you meant your question. And going forward, 15.5% is also after eliminating PPA effect.
Yes, I get that one. But I was actually looking at the roughly EUR 3 million of impairments that you had in 2017. So perhaps you can just precise if these impairments were actually part of the PPA?
No, you're talking to the R&D impairments of specific R&D projects. That is something as we do good R&D capitalization in line with the IFRS requirement, we will continue to see in the years to come. There will always be projects that are not working out where the customer pulls out halfway through the game, et cetera. So they are kind of assumed going forward to be around at about constant level. I wouldn't think those costs should be eliminated or assume that they never ever come again.
I would like to answer this a little bit more generally. How do we improve from 15% to 15.5%? We have to see that even though I made the remark that the key focus is on growth, that does not mean that we are not permanently working on what I call our homework; permanently working on efficiency improvements, cost improvements; and that leads of course also to certain improvement of the EBIT rate which is good.
And our next question does come from Robin Maxwell calling from Baader.
There's just one other thing, which is still bothering me and it's probably very simple to explain. But on the NAFTA revenue performance, which is up EUR 2 million incrementally in absolute terms and then you've got this Powerise growth and the very strong growth from the VVC revenue, which is up EUR 3.8 million incrementally. Something seems to have stepped back year-on-year in the NAFTA region. So that's the one that needs clearing up. And the other thing is am I wrong to have anticipated some operational leverage from that growth in the VVC business or is -- are the EBIT margins you're achieving there simply just never going to get any better than that? Hello?
Yes, we are still here. We are discussing what you really asked.
So you've got a EUR 2 million increment in revenue in the NAFTA region from EUR 81.6 million to EUR 83.6 million. If I add up the increment from Powerise plus the increment from VVC, that's EUR 3.8 million. So I just -- it feels like something has taken a bit of a negative step back.
The negative one in there, you see there on Page 18 where we are showing the revenue by region, but also by business unit. We see in NAFTA the Automotive Gas Spring is down by EUR 2.7 million partly due to the FX effect of about 10%-ish which leaves kind of zilch or nothing for the true operational one. And we've shown on the slides before when I've been speaking to the regions for the NAFTA region, what's the revenue increase at incurred rates versus at constant FX rates. And here the table 18 is at incurred rates and one may want to simply with a pencil write on the other constant FX rate numbers of the U.S. dollar. Then you will see that Automotive Gas Spring is flattish, in the car market it has actually come down. So that is in terms of relative to market growth, still a good result. And Powerise is increasing, so in Cap Goods and our friends in Vibration & Velocity Control.
Okay. And then just on the leverage potential in the VVC business because obviously that's imported a significant margin into the group so mid-20%. It looks like that that's not going to get any higher, is that a fair assumption?
Yes, I would think so. The margins of the new companies have been strong when we bought them. They are keeping the strong margins. And as part of the growth emphasis that Dietmar Siemssen has been speaking to, we need to clearly assess where those currently very strong margins may not actually inhibit the growth and it's always a fine line to walk between maximizing the profitability versus ensuring a good revenue going forward. We need to keep in mind those plants in the new companies are like 1.5 to 2 ships loaded. So they still have room for future loading, which makes it easy to go for that extra business without incurring a lot of incremental cost.
Okay. And just my last question. I mean in the Automotive Gas Spring production, I mean a single-sided or [ feeder bearing ] Gas Springs making any real difference in the product mix at the moment or we still hold that out ahead of us?
There's no doubt that single-sided system includes of course a [ feeder bearing ] where the sales is much higher than a normal gas spring. As such, this is kind of compensating the cannibalization effect, but that's it.
What percentage of production are we talking about? It must be still be very, very smaller?
When compared to the total number of gas springs, that's small, yes. But if you look into the sales, still it's relevant meanwhile.
And our next question comes from Sascha Gommel calling from Credit Suisse.
My first question would actually be on the cash flow statement. You're showing a EUR 3.4 million change in provisions. I was wondering if there is any specific transaction behind that or it's just a general increase due to your topline growth. My second question would actually be more on your long-term sales growth potential. How should we think about it in terms of the growth rate? Is it more driven by you gaining more share in Asia or you're also targeting to raise the content per car in your existing markets or even find new applications for your products in different industries? Maybe you can give some general remarks around that. And then last but not least, maybe you can also update us on the current state of potential M&A activity.
I take over the first one, the 2 others will be covered by Dietmar. In terms of cash flow, yes, you're right, there's some change in provisions. That is just the normal course of business by looking at what is needed from the overall risk scenario. I do not see any specific reason of pumping up a provision there for whatever. If we just do what comes out of the normal reserve calculations we've been following for a while for -- whether it is for [indiscernible], people cost, et cetera. That's what you see.
The next one is a more general question. It's about growth, which of course is one of my favorite questions because it's one of my favorite topics. How do you really grow long term a sustainable company? And with the annual results that we gave out, we for the first time disclosed our long-term strategy or more details of the long-term strategy Star 2025 where we are aiming for an average annual growth that is bigger than 6%. That's of course something that we expressed also to the market and this is what we go for. We are looking for growth that is more than 6% organic for the company. We will grow in all regions, in all business segments. We are clearly looking into areas where we can grow stronger. Asia for sure will be a region where we will grow in percent strongly, probably significantly above the value I just mentioned. But we are also looking into different new applications, new product segments, new markets not only in Asia, but also worldwide. Especially we are also looking into new markets of -- market segments where we see the chance not only to grow in percent, but also the opportunity to achieve profitable business which helps. But I already spoke in some of the investor meetings about new product segments, we are going to more electrification besides the pure tailgate. Also we clearly see the chance of electrifying the doors, the front doors or rear doors, of a car and there are new applications, new markets where we see strong growth in the years to come.
There seem to be no further questions at the moment. [Operator Instructions] There are no further questions at this time.
Thank you for participating in our call and speak to you in about 3 months' time when we present our Q2 numbers. Goodbye.
Thank you. Bye-bye.