Stabilus SE
XETRA:STM
Earnings Call Analysis
Q1-2024 Analysis
Stabilus SE
Stabilus, a leader in motion control technologies, has entered the new fiscal year with positive news and an unwavering strategy despite a challenging industrial environment. The company celebrates a successful closure of the DESTACO acquisition, setting the foundation for expanded capabilities and a more balanced portfolio between automotive and industrial sectors. Growth remains robust, with a 5% year-over-year increase, led by significant expansion in Asia-Pacific and EMEA regions. This performance reflects Stabilus's resilience and commitment to innovation, notably in automotive comfort technologies like door actuation systems.
The financial metrics tell a promising tale of operational efficiency. Free cash flow has seen a significant boost from EUR 32.7 million to EUR 36.2 million, signifying capable management of net working capital. Revenue growth continues to shine, especially in Asia Pacific with an impressive 22% year-over-year growth and a remarkable 8% plus in EMEA, albeit the Americas saw a 9.2% decline. These numbers exemplify Stabilus's strategic prowess in the global market and their ability to manage costs effectively.
Stabilus’s regional performance not only highlights successes but also its agility in managing diverse market dynamics. Asia Pacific stands out as a powerhouse, boasting high sales and a robust EBIT margin of 20.4%. The EMEA region's story speaks volumes about overcoming challenges with an 8.2% increase in revenue and a significant adjusted EBIT growth, thriving amidst geopolitical tensions. Meanwhile, the Americas encountered lower industrial business activity but possess a clear roadmap to compensate for the downturn with strict cost control measures and customer negotiations.
Looking ahead, Stabilus stands firm with an unchanged guidance for the year, predicting revenues between EUR 1.4 billion to EUR 1.5 billion, alongside a healthy EBIT margin of 13% to 14%. This projection rides on the tailwinds of expected GDP growth of 2.7% to 2.9% and a modest 1% rise in light vehicle production. Inflation, a global economic specter, has been considered at 5.2% in their planning, demonstrating Stabilus's preparedness for the economic variables ahead. Their strategic investments in automation and technology position them well to seize future opportunities, maintaining a consistent trajectory of growth and value for investors.
You don't have any saved screeners yet
Good morning, ladies and gentlemen, and welcome to the Stabilus SE Web Conference regarding the results in First Quarter of Fiscal 2024. [Operator Instructions] The floor will be open for questions following the presentation.
Let me now turn the floor over to your host, Dr. Michael Büchsner.
Ladies and gentlemen, a warm welcome to the Stabilus Quarter 1 Earnings Call. We have Stefan Bauerreis, our CFO; and myself, Michael Büchsner, CEO of the Stabilus Group in the call.
Also in the light of our acquisition of DESTACO, we've been working on our presentation for today. So you will actually see a new format. Target is to become clear in our communication and also give some more details about our industrial business.
And with that, I will jump directly into the key messages of today. So the closing of our DESTACO acquisition is on track, and we expect it to be on track until end of February. So February -- end of February is then basically our closing date.
And I can tell you something, early the year, we had a lot of investor relations calls already, roadshows, and also conferences. Our membership, that means our investors and also the analysts are articularly impressed about the DESTACO acquisition. The closer they have a look into, not only the portfolio, but also the financial position of this company and the financing we have on hand. All that is very robust. So some of our investors have been talking to former employees of DESTACO and had a deeper look into the technology and also for sure, we're changing comments in terms of financial performance and the financing. Comes down to the point that the product portfolio is very good, profound, and also a perfect addition to our business, to Stabilus Group.
On the other hand, also, the financial performance is very, very healthy. It continues to be healthy with a good forecast on hand for the coming year. And last not least, also in terms of the financing, the financing is secured, things are stable. And you will see that later also on our free cash flow generation and our net working capital development that we have the right foundation for this acquisition for sure.
As you all know, we are in a challenging industrial environment. And despite of this challenging industrial development and environment, we've been growing again 5% year-over-year, which is outstanding. Especially in the area of Asia Pacific and EMEA, we've been growing a lot. So in Asia Pacific, almost 22% year-over-year, and 8% plus in EMEA. Particularly strong, we're not only Automotive, but also the Commercial Vehicle sector, Health & Recreation, Aerospace, Marine & Rail business. And these are all businesses where we have our focus on, and we want to become the leader in the industry, and we are on a very good path towards that.
We also have a very strong free cash flow position and generation. Net working capital is reduced. So we are absolutely delivering on what we said. The new net leverage ratio, thereby is 0.2. So also here, very strong performance.
We invest where it really matters, not only in terms of our M&A activities, but also for internal growth. We've been developing over the course of the past months and bringing it to serial production of the industrial power, right, as you know. And now we develop a step further of our radar technology, which is extremely important for the door actuation business.
And here also, again, the point, the door actuation business is the next generation of comfort in cars. It started off in Asia Pacific, with us being the leader in the market for door actuations there. And also, there have been very good business wins of door actuation in the Western world, particularly in Germany in the last months, which actually indicate also that we have a very solid growth performance for the years to come.
Talking a bit about the guidance for the year. We expect again in 2024 to be back-end loaded with our results, particularly in the light of ongoing discussions with our supply base. Our supply base actually benefits now from reduced material rates. And this is particularly what we want to harvest the fruits of in the year to come. And these discussions are ongoing. It just started. We see first good developments there. And this actually, we pave the success throughout the year, and we are enthusiastic about our guidance, which we for sure will deliver upon.
And with that, I will hand over now to Stefan for some key message in financial terms and some details by region.
Thank you very much, Michael, for this key statements and the key takeaways. I now would like to guide you through a little bit the different KPIs and the development of Stabilus Group.
Starting on the left side with revenues. As Michael already said, we were able to increase our revenues by 4.1% (sic) [ 5.1% ] compared the first quarter of last fiscal year and the first quarter of this fiscal year, which what is, from our perspective, a significant contribution, because we have to have in mind all the challenges around us.
But if we go a little bit deeper in this development of sales, I would like to share with you 2, 3 additional information. First, exchange rate effects were not supporting our growth. So even with a negative impact on EUR 8.1 million growth rate, the operating growth rate even is exceeding the 5.1% that we were able to show you here as a nominal growth rate.
On the other side, we also are happy that now in the first quarter, we also have here our new company is Cultraro, where we made the acquisition of additional shares and started with full consolidation in August last year. So therefore, it's our first real quarter that we have -- that we are in. So EUR 4.3 million effect on the acquisition is supporting us. On the other side, EUR 8.1 million negative on FX effect. So the organic revenue, if we're eliminating as well, the acquisition effect as well as the exchange rate would even be higher with about 6.4%. And therefore, we have to say that mainly the Stabilus product portfolio was the main contributor to this increase of our revenue line.
And as you can see here, and Michael already mentioned that, the strongest region in that perspective in the first quarter have been once again APAC and China, where we were able to achieve a significant growth rate within China or in APAC, I have to say, more than 20%, 21.9%. And on the other side, also EMEA, with a growth rate all overall of 8.2%.
We can rely once again on our good performance on the automotive sector, but also our good diversification in different areas in market segment in industry contributes to that good development of revenue where Health, Recreation, Furnitures, Aerospace, and Commercial Vehicle, were together the major basis for getting this growth in the revenue. Talking now a little bit more on the adjusted EBIT, where you can see, overall, we were able -- in total amounts, we were able to increase the EBIT numbers from 32.6% to 33.3%. (sic) [ EUR 32.6 million to EUR 33.3 million. ] But on the other hand, we have to say that the adjusted EBIT margin went down from 11.2% to 10.9%. This is really much driven on the one side by the product mix that we realized in the first quarter. So there is no -- it is obvious that we had significant challenges, especially in Americas.
I just want to remember and refresh our minds that we had significant impacts on the strike were also large volume models, car models, are impacting us in the first quarter. And therefore, Americas was, for us, a very challenging regions.
And if we take out the mix impact of those areas where we grew more or less compared to last year. If we take out this mix impact, we would be significantly higher, but at least 11.6% margin year-over-year. So that shows us that overall, we are able and we made our homeworks, we were able to optimize our profitability and we are continuously on the way to do that.
And as Michael said, the main issues also will be the discussion with our suppliers, which then will be a longer period to come during the year. So therefore, also the adjusted EBIT will be back-end loaded, obviously, once again, as you know that from the last fiscal year.
Going to the profit of the company, so the profit of the year, that perspective, and there, you might ask the question, why we have so big reduction in the profit of the year. So the answer here is quite simple. As we were adjusting -- showing the EBIT adjusted, which shows really much the operational profitability of the Stabilus Group. And there, we adjusted the -- mainly the consultant fees related to the acquisition of the cycle. This was not done on the profit line because profit that shows really much, the profit that comes out at the end of the day in the P&L. So if you say we have around EUR 8 million -- EUR 8.8 million costs in relation to the -- for consultants in relation to get the deal closed. And therefore, if you would add that, even on the profit side, we would get a very positive development and not -- would not show then a negative development, as you can see here.
So once again, profit is mainly driven by the specific additional costs for consultancy to close the DESTACO deal of about EUR 8.8 million.
This having said, if we then have a look at the adjusted free cash flow of the company, here once again, we are back on track. And not only back on track, we were really much able to increase significantly our free cash flow generation from EUR 32.7 million up to EUR 36.2 million, which is a significant increase, and which shows exactly the good result that we are able to bring out of our net working capital development. And also here, we have to say that acquisition-related payments have been adjusted in a magnitude of around EUR 3.7 million.
So finally, to summarize the overall picture, very strong development of revenues despite challenging environment, good generation of EBIT, knowing that there is still a way to go, and we are working on that based on all our defined projects that we have on hand. Profit mainly impacted by consultant costs due to the deal of DESTACO, and very strong cash flow generation, although in to this -- in the first quarter of this fiscal year 2024.
If we then go on the next slide, please. Having a look on the business development by region in the first quarter. So as I already said, and here I would like to start on the right side with Asia Pacific. Asia Pacific once again is, let's call it, our rising star in the development of sales. We had a very, very strong sales development in terms of revenues. And that shows us the very good footprint that we have in Asia and a very good relation, not only with European or Western customers, but also with all Chinese and Asian customers on the automotive, but also more and more on the industrial side to achieve this increase in revenue.
And that not only with a significant increase in sales numbers, also on the EBIT adjusted margin with 20.4%, we were able to realize a very, very good and solid and robust result.
Now coming to EMEA. In EMEA, also here, the numbers are not as spectacular as in Asia Pacific, obviously, but I think also for a region like Europe, an increase of our revenue year-over-year, where we also have to know that also last year was a very good and strong industrial business, a development and an increase by 8.2% is really much outstanding and shows us all the efforts with our customers, the efforts in maintaining in a very good market position leads to those positive results at the end of the day. Last but not least, and that is what we already mentioned at the beginning, Americas, here, we have a reduction in revenues by 9.2%. So that is obviously not that what we would expect going forward. But also here, we have to know that those -- this region is mainly driven also by individual topics due to industrial business, where we had a significant downward on industrial business, but have also to know that last year, the industrial business in Americas was the rising star and Michael, obviously, then later on when we go into the different market segments, can show you a little bit more details on that, how the different market segments develop.
Also here, the adjusted EBIT margin, 5.3%. So still a way to go all those profitability improvement programs established, which is valid for all the different regions, what we would like to achieve. EMEA, very good on track, significantly improved compared to last year. That is a very good dynamic and a very strong development.
And once again, coming back to Asia-Pacific, an adjusted EBIT margin of 20.4% is, from our perspective, really much outstanding, because we have to know and to refresh our minds, last in -- we were suffering also in the -- in all the development of last year, the corona pandemic topics, which we now overcome significantly, and we continue our very good and solid performance on a continuous way, not only in the sales development, but also on the development of our adjusted EBIT margin.
So if you then go further on, having a look in the different regions. So starting first of all, Americas, as I already said, revenues declining from EUR 109.2 million to EUR 99.1 million. So this is mainly driven by a softer development of our business on the industrial side, mainly driven by energy issues that we have in automation topics, also reflecting a lower light vehicle production that we were faced in the first quarter.
Just giving you an example here. So based on the U.S. strike of the big U.S. OEMs one of our very, very big model, the Ford Explorer. Therefore, will last, if you want to say it like that, in the first quarter, about 75,000 parts due to the strike. And our hope here clearly is to recover that step-by-step over the course of the year. So that shows us not only impact on the market, but also strike-related impact were the basis and the basis for suffering here on the revenue side. Because overall, and you saw that in the other regions, our dynamic and the customer demand still is very good in the areas where we're continuing to grow. Adjusted EBIT margin obviously also reduced significantly in Americas. So that is not the numbers that we want to continue to have. We have here a negative impact due to sales mix. We have to say that clearly, by lower industry sales we established a significant sales program to regain a good portion of that. But also, we are doing our homeworks here to optimize productivity, reduce material cost with very strict and continuous measures with our suppliers.
And last but not least, also trying to get compensation from our customers for those increasing costs which is mainly impacting us due to the overall and last year, a little bit overheating situation in Mexico with significant labor cost increases last year, also this year with new labor laws in Mexico, allowing and providing more holiday days for the people. So all this is impacting us currently, and we are on the way and we define all our projects to compensate that over the year.
If we then go to the next slide, please, and there we can see EMEA. EMEA is despite all with still very much challenging environment that we see with the Ukraine war and all these, let's call it, geopolitical unrest that we see, we were able to increase our sales significantly.
What was the basis for that? The basis for that was obviously the automotive business. But in clear context, the Automotive Powerise, but also the Automotive Gas Spring business contributed to that good development.
And if we have a look on the industry side, also here, the market segment, Health, Recreation & Furniture, Aerospace, Marine & Rail, and Commercial Vehicles were very strong compared to the first quarter last year, and helped us to overachieve the expectation in that case.
On the other side, we also have, in some other areas, some softer businesses that we will see mainly on the electricity -- on electric part, energy part. And also, this is based on some seasonalities. But here, we also will come back on track.
The adjusted EBIT in Europe increased significantly. If we have a look at the total numbers, we increased from EUR 5.2 million to about EUR 9.9 million, which is in total numbers, an increase of 90%. So that is the basis of a very stringent cost management and clear efficiency plans, including all our activities in regarding energy consumption and reducing energy costs. And all these activities we already started, which are longer periods. You remember that we want to -- we started our program to make our location, our plant here in Koblenz hit for the future. All these initiatives are contributing to the very good development of the operative result and the adjusted EBIT here in our region, EMEA, which is a very good sign this first quarter.
If we then last but not least, go on to the next slide, and come to the Asia Pacific. So here, we have a very strong and also profitable growth of that region. So we were able, as I already said, to increase by 21.9% revenues, which is mainly obviously driven by the development, the very strong development of our automotive business and here focused on the Automotive Powerise systems, but also here, not only Powerise only, but also Gas Spring contributed to the good development overall.
The EBIT margin went down by 0.9 percentage points. That is mainly driven due to the fact that, that we had a very, very strong first quarter in the last year. And also here, we are still suffering and are on the way of negotiating our material cost reduction on the one side, that we are negotiating and trying to implement our optimization in terms of new processes, different materials without any implication for the product we sell to our customers. So all these activities are already started. There is a clear action plan to come back to that. And therefore, we see quite optimistic also the future for the region, APAC.
If we then go to the next slide, please. Then I want to hand over directly to Michael, once again, to show you a little bit more about the different market segments. Michael, the floor is yours.
Thank you, Stefan. Yes, another new chart in our deck. As you know, we wanted to bring mostly into our presentation. This is a chart which now shows the split between the different business units we have when it comes to our, particularly, industrial business.
As you know, target of the Stabilus Group is to get equal shares between the Automotive business and the Industrial business. I just want to -- would like to reiterate why that's so important.
The Stabilus Group came from the automotive space. So we know how to -- we're cost-effective, we know how to deliver best quality with our automated processes along the line for all of our products. We are the right company and the company of choice of our suppliers and customers to bring this a step forward, investing in the technology of innovations on the industrial frame, because we are the company who can bring the low-cost position along with the highest quality position into the product of industrial applications.
And this is very wide to particularly in difficult times in the industry. Because we can shift capacities between automotive and industry, because we have the economies of scale to do so and to go the extra mile on the supply side with that, and we are a preferred supply on the industrial side, because driven by automotive, we are truly a global business partner.
So what you see here on this chart is basically on the diagram to the left, how we are split between the businesses. Nowadays, our share of automotive is still beyond 50%. This will have a change with the next presentation when DESTACO kicks in. And throughout the quarters of the year, this will migrate to more equal share between automotive and business for the Stabilus Group.
We have particularly growth on the Automotive side. That's what Stefan already discussed about. And I'd like to talk a bit about where we invested recently. For example, on the distributor and independent aftermarket area, we invested recently also in the development of our Industrial Powerise and also the Industrial Powerise in particularly when it comes to the aftermarket. So aftermarket of Industrial Powerise, Industrial Powerise itself and the service parts for the automotive sector, the service parts are actually on the run and increasing in the business of Stabilus. Commercial vehicle. At the end of the day, whatever has to do with transportation of people enjoy some growth these days. Corona times are over. Aerospace business is growing, Marine & Rail business is growing. People enjoy transportation. Also, this has a positive impact on our Commercial Vehicle growth. Whenever it comes to buses and truck business aside of Aerospace, Marine & Rail, this enjoys good growth opportunities for us. And as I said, target is that we have equal shares between Automotive and the Industrial business.
On the next slide, I would like to jump a little bit deeper into the net working capital because also here, we did some relevant and very positive improvements. Do you see absolutely here, right trend? Particularly accounts receivable and accounts payable were driving these trends, which we've been managing very well. And at the end of the day, by this good management of these accounts, we came down to 17.6%, which is absolutely the right trend.
Also when it comes to our plans with DESTACO, because here, for sure, net working capital, particularly on the industrial side, is extremely important to be managed. And all this despite of the investments we do. And that's what you see on the next page, because also new in this deck is how we develop in terms of CapEx.
Do you see a trend of increased CapEx versus the prior year? This is the trend which we've been highlighting all of our discussions because we invest where it really matters. Not only that we invest in the inorganic side, means DESTACO acquisition, but also we invest in equipment on a constant basis and in the development of new technologies.
If you remember on the first page, we've been talking a bit about how we want to shape the future with door actuation systems, in particular, also when it comes to radar technology, sensorics, and software.
A side of that, we've been investing in the Industrial Powerise, which opens up a new dimension for us when it comes to growth opportunities with something we are perfecting. Powerise Systems, highly automated highest quality points. And this is something we do along the line. And there, we also invested in the engineering side and in the first line to produce the Industrial Powerise.
Moreover, and Stefan has been talking about that, we fight inflation. Labor inflation is a burning topic around the globe. Not only now, but it was in the past 2 years, and it will be in the future. And this is why not only we did acquire DESTACO to serve the world with this automation technology, we also have been investing on our end in automated processes.
So starting this year, at the end of the day, a lot of our different products are produced on automated lines, including cobot systems, robot systems, and also systems which purely transfer materials throughout our factory. And all these are absolutely the right steps to prepare for the future to prepare for another step in our success story.
On the next page, you see our net leverage ratio of 0.2, absolutely healthy, benchmark in the industry, so to say, right? Came down to 0.2. 0.2 in our first quarter is absolutely the best number we ever had. And it paves the road for success and prepares us for the DESTACO acquisition. As I said, end of February, there will be the closing. And then for sure, our net leverage ratio will change. But however, it's absolutely the right step. It will go into the direction of 2.5. If you remember, this was also our leading principle that we don't pass the 2.5, because we want to have some stability on the upper end, some room to breathe, and 2.5 in terms of net leverage ratio after the acquisition of DESTACO is absolutely the right value and the value to go.
So this concludes the deck of information. I would like to spend some minutes on the guideline, and the guidance for the year. The guidance for the year remains unchanged. It's EUR 1.4 billion to EUR 1.5 billion in terms of revenues, and 13% to 14% EBIT margin. The exemptions are in the range of 2.7% to 2.9% growth on the GDP side, and also light vehicle production growth of around about 1%. Important in terms of inflation, we considered 5.2% in our complete during the year on the guidance side.
So as I said, this concludes a new deck of information for you. We will continue in that frame, giving you the information in a more transparent and a more detailed way, particularly having a focus on the industrial business, which will grow in the quarters to come substantially for us because it's the right way following our strategy of being the leader in intelligent motion control technologies on the globe.
And with that, we will open the floor for questions.
[Operator Instructions] So the first question comes from Mr. Akshat Kacker, JPM.
I'm Akshat from JPM. I have 3 questions, please. The first one on the Powerise business and specifically in APAC. It obviously continues to grow very strongly. And as you mentioned last quarter was a record quarter in terms of revenues. Could you just share more details on what is driving this growth? Maybe specific products or specific customers that is driving this growth in the region? And what are your expectations for fiscal year '24 and '25 in terms of top line development for that business, please?
The second one is on Americas. I just want to take a step back and look at the profitability in this region, because despite the strong growth that you have shown in Americas over the last 2 years across both Automotive and Industrial business segments, I think the margin profile has continued to suffer and it has now hit mid-single-digit profitability. For me, it is difficult to argue that all of this is down to inflation. So could you please share more details on your pricing power in the region? And if you've seen any meaningful changes in product mix, generally, not just in this quarter, specifically.
The third one is on the Industrial business. If you could just talk about the overall demand environment across different business segments? And what does the overall order intake look like? And how does that indicate for organic growth as we think about the next quarter ahead Q2?
Thank you very much, Akshat, for your questions. I will give it a style point, particularly talking about the Powerise business in Asia-Pacific. And then for sure, we'll talk a bit about the Americas and the industrial sector before I hand over also to Stefan then.
Yes, the Powerise sector in APAC is, for sure, a success story. If you look back when we launched our plant in 2020, in the midst of corona crisis, we knew that this would be coming that the growth is extraordinary high also for the years to come in Asia-Pacific. So answering your question, there is not a particular platform where we see this growth. It's moreover a very strong fundament of growth story with all the different vehicles in that market. So we are particularly strong not only for the Western world OEMs, but also for the Chinese locals.
We measure on a quarterly basis, our win rates. And these win rates also suggest for the year to come -- for the years to come, we have a visibility of 5 to 6 years, we will have a very solid performance in that market. We are growing in the traditional sector of businesses related to combustion engines, but we are also growing a lot because the content is even higher on the electric sector all over the world, but particularly also in Asia Pacific.
And this basically drives the growth across our platforms, and it has a very good growth also on the door actuation system because when nowadays, you go into a dealership and ask for a new XUV vehicle in China, almost 100% of the showcase vehicles in the dealerships are equipped with door actuations. So it's a very strong business ahead of us, which we also see nowadays, particularly in Asia, it already growing a lot. So that's something or some detail about the Asia-Pacific side.
Your second question was in terms of Americas profit. Absolutely. It's not all about the inflation. Inflation has the main portion of it, right? There is some headwind we see on the exchange rates, so the FX impact. But also on the material side, we see some headwind, because not only that inflation in terms of particularly Mexico labor inflation, it hit our way. But on the other hand, also the material inflation does it to kind of impact our profitability.
On the other hand, this massive growth has to do with investments. And these investments are investments in all areas. So it's investment in people, it is investment in training phases. So this massive growth has led over the course of the last month, also in extraordinary training efforts, which per definition is somewhat you could call it inefficiency because you train the people, you make them to prepare them for the growth you have in the entity.
And then in a cycle like we see it now in the coming months, you harvest the fruits of it, because you are on a higher sales level and you can streamline your operation again. And this is what we expect for the months to come. It's absolutely the right development. It puts you in a solid and profound basis, however, upfront investment, which we saw over the course of the last quarters, but this is where we harvest the fruits of in the quarters to come and prepare for good growth and a good growth position along the line. In terms of the Industrial business, you've been talking about a very valid point for sure in the industry. Now there are clouds on the sky, everybody knows that. Despite of this clouds on the sky of actually, the machine builders index going down a bit and also stagnation of some of businesses. You see that in our numbers. In our case, we've been nevertheless, despite of this difficult environment growing by 5% year-over-year for the first quarter. However, this is something which actually we need to closely watch in the same way than everybody else does, because for sure, I would say also when it comes to order outlook, the months to come, they are softer than everybody basically expected.
And our machine builders indicator actually suggests, however, that after the spring time dip, business could eventually go up again. So we see this softer development in some sectors. As I said, in this breakdown, it's particularly on the automotive-related parts like commercial vehicles, transportation, like truck trailer, buses, airplane business, where we are still strong. However, if it comes to the industrialization aspects, we see some soft months to come, at least for the next 2, 3 months.
But Stefan, maybe you have also additional information to that aspect in question.
Yes, sure. I still -- actually I want to give you a little bit additional comments, at least regarding the development of the region Americas, which is obvious that we will work on that -- on the development of our margins. But the main aspect, as Michael said, is on the one side, inflation based, where we suffered significantly. But also what you have to have in mind, when we see our production footprint, we have a strong production area in Mexico. So in that perspective, I think, on a long-term perspective, we are very, very good positioned. But in Mexico last year, we really saw, due to more and more companies coming to Mexico getting a labor shortage is even in Mexico there, because significant new companies came across that led to significant increases of salaries and wages.
And when we're talking there about increase, that is not like in U.S., 5%, 6% or in Europe, it was about 13%, 15%, 16% within a year. And that obviously, is not doable to compensate these high rates in 1 year of the labor cost inflation. You need a little bit more time, what do we take, what we are working on to achieve that to compensate that. In addition with that, high labor cost inflation went hand-in-hand also, and that is nothing which is particular for Stabilus. This is the whole country have suffered from our perspective in Mexico that we saw significant fluctuation of people changing from one company to the other company, which was obviously everywhere there. But this high fluctuation always is a very bad starting point to get more profitability in the company. As Michael said, we had to invest significant amount of money and time in training activities to bring back.
The good message is, a significant portion of that overheating situation now seems to be on a continuous basis, it seems to be solved in a very good way. Now still we solved a little bit with these new laws in Mexico getting more holidays without impact on the remuneration. So also that shows that we still have to recover additional costs. And then going back to our customer side. On the customer, we were quite successful from our perspective in asking for compensation in terms of this high material cost inflation, all of some logistical costs or energy. But the more you get back from the individual, let's call it, ingredients of the product and going into the personnel expenses, the more difficult it is to really get here a clear compensation. So that is what we have to work and what we're doing and what we defined to compensate this high labor cost inflation and this higher fluctuation, a lot of measures already have been in placed, and this will now continue going forward.
So hopefully, that brings a little bit more clarity about the development in Americas. And I do not think that this is Stabilus specific. This is in the market, but we have to work and we work together with our local and regional management team on those topics to bring there more efficiency, to bring there more productivity, to automate more processes. This is the way to go.
The next question comes from Yasmin Steilen by Berenberg.
So basically, I have 3, if I may. So first one, again, coming back to your adjusted EBIT margin target. So just to get some clarity on this one. So again, we have a soft start into the year. And you already mentioned about the topics that is the first quarter. So basically labor cost inflation. And I mean, this is very difficult to pass on to your OEM. So I assume the discussions will be a little bit more difficult. So just to confirm your comments earlier in the call. So you also expect some tailwinds from improved supply chain conditions, but also cost improvement, and also harvesting the fruits of the growth investments, i.e., the training costs you have in the first quarter. So how should we think about the development where we see rather a gradual improvement? Or should we expect the effects basically to kick in the second quarter with a high focus on the last quarter?
Then the second question on the Industrial segment. It's highly appreciated that you have provided more details on the end market split. Can you share some thoughts on the profitability levels in the subsegment? So looking at some 15% adjusted margin for the Industrial as a whole, how should we think about the different subsegments? Is it fair to assume that your own Industrial Automation segment despite a much smaller size is also comparable to the levels of DESTACO? And are there any plans to phase out end markets in case there are a segment with disproportionately lower profitability?
And the last one on Automotive Powerise in the U.S. So I mean, first of all, I completely understand your focus on Industrials now. But in terms of transparency, I think the information you had in the last -- you had so far in your presentation are very helpful with regards to the production volumes by regions as a side comment. So looking at the Powerise development in the U.S. with a decline of 11%, the segment seems to underperform the light vehicle production significantly. Could you quantify the impact from the short-term call-off changes you have mentioned? So you mentioned for Explorer in particular? And are there any indications of the trend to reverse?
I will give it again a start. Thank you very much, Yasmin, for your questions. There are a lot of questions in that statement. So I tried to make some notes in between, but please help us towards the end of our information session now in case we did not give you all the information you were looking for.
So I will give you a starting point. EBIT margin. Soft start in the year, yes, driven by some labor cost effects. And how would that progress over the course of the year? And also here in conjunction, not only that it's labor-related, but also that it's related to material, and we claw something back now from the suppliers in order to increase our profitability along the line. You will see a similar trend than last year.
Why is that? In the year before -- the last 2 years, they were basically shaped by negotiations with customers. You need to discuss with customers about costs in terms of materials and energy, now it's certainly different. However, it has the same phasing because we are in discussion with our suppliers, and we bring automation equipment on board. For sure, we're taking a hard stand with our customers still.
But let's talk about the inflation on the labor side and on the material sectors. So on the labor side and on the material side, we've been working a plan in terms of labor, means bringing on automation equipment. We have been launching automated assembly equipment for some of our products across the board, all regions. We've been introducing cobot systems and material handling systems. As you know, they are lead times to get these systems and to get them up and running. This is the upfront investment we are doing now, and this is also particularly what you've been seeing over the course of the last quarter. This is something which shows its success over the months to come and thereby, over quarter 2, 3 and 4.
Similarly, on the supplier side. There's 2 categories of suppliers. They are the ones who are through global suppliers, but you also have niche suppliers. That's for sure. The global suppliers, you basically have a strong and professional discussion point in terms of givebacks from the supplier when the material prices go down. On the ones which are more lease suppliers, you need to support them, also go into the plants, work with them on efficiency measures to do the same thing to bring the impact of labor costs down and to work with them on OEE plans, improvement plans, and this takes some time.
And this time will lead to the point that we see gradually over the year, an improvement in the margin profile, which then at the end of the day, leads us to fulfilling our guidance. And we've been improving over the course of the past years that this actually front-loaded performance of inflation. And thereby, the loading of inflation recovery did work out in the past. And in the same way we'll see that it works out this year when it comes to inflation, clawback from the supply base, and also automation processes. So that's about your first question.
As I said, I will then also lead in a second and hand over to Stefan to give some more insights because I'm not sure if I just touch all the points you have here. You were talking about the industrial sector and profitability. Actually, we cannot share a profitability per sector. Why is that? Because many of these industrial sectors use similar lines like we produce on the automotive side, industrial products and do the same thing also in various of our plants. So in order to allocate all these different points having an impact on the margin, means the overheads, the costs, the cost allocation is not possible in an easy way. So that's why we have a tracking by region in terms of profitability, which we outlined rather than showing that on each individual sector.
And again, it's not that we would not be willing to do so. It's in terms of the data cut, clearly not possible to allocate the costs in a way that you would also be able to work with these numbers. And as we always state the profitability is on a healthy level across our board. And for sure, you know the margin position out of our communications, which we did after DESTACO site. So there, you should also have some underlying ability to basically also simulate some margin positions, particularly when it comes to the automation of our processes.
Last not least, in terms of our industrial business in general terms, when it comes to the different regions. Actually, we see a good growth on the industrial side in all areas, particularly on the area of Europe, but also in Asia-Pacific, we've been seeing good growth. And yes, also here, particularly in the sector of industry, there was some headwind in the region of North America, which at the end of the day, we assume will go on for the next months to come. And I think that's a general industrial trend. Everybody sees that nowadays, and this is something we need to fight with some sales initiatives kicked off over the course of the past months. And we are, as I said, confident that we fulfill the guidance for the year.
However, Stefan, maybe you want to add, I'm sure there you may also some notes in terms of this comprehensive set of questions and maybe you catch the one or other.
Thank you very much. So Yasmin, thank you for the question. I just can, on the development of the EBIT margin, just confirm what Michael said. So that will be a gradually improvement towards end of the year. So there will be continuous improvements to come, but it's not that we say, okay, first quarter was not so, not in line with the average of our guidance and all the other ones will be exactly in that way, it will be a gradual improvement that we can see there. Also, we have to have in mind a certain despite all different cost development, we also have to see a certain seasonality in our business, meaning that first quarter for us is always impacted by Christmas. Second quarter, there is Chinese New Year. So there are also bigger events where you have less working days, and therefore, a little bit softening business and also not for all the availability of all the people you need to get mainly on the supplier side currently to get all your improvements to be done.
And also on the customer side, it takes some time. So the clear answer is, this year will be on a linear basis continuing, but not in one step, now improving in the second quarter.
In terms of the Industrial segments, here, I would like to add because your question, understood a little bit in a way saying, okay, you are now -- have a bigger industrial business. Are there any field of activities you want to reduce sort of the invest or do things like that? The answer on that perspective from my view is yet obvious and clear.
First of all, we always will have a look on our portfolio that we are managing on the automotive, but as well as on the Industrial side. And therefore, that is something we do on a continuous basis. So we now made in one very big step that we now are close to get the closing done with DESTACO. Where we said we want to invest exactly there where it matters for us in the industrial automation area. So that is, for us, a very strong business to continue.
Also, when you still have in mind the margin expectation that we announced there is obviously also a very good growing business with good margins, no question at all about that. But we will continuously have a look on all our portfolio. And -- but that is nothing which will happen that in one day, that is a continuous process. Also, we are focusing with clear targets, our CapEx where to go. And there you know and we said that already, having a look at specific application in Furniture, for example, we said this is not the market we want to be, because that is dominated by low-quality impacts, low-quality products coming from other regions, from other suppliers, which is not fulfilling and is not matching to the perception of our brands. Therefore, we are going there, reducing a part of those segments. But finally, and that is important to know, when we have a reminder our Stabilus strategy 2030. So the very, very top line what we say is, we want to be the leading partner of all industry in everything, in every question, what is motion control. So therefore, yes, we are active and we are providing our knowledge in a lot of different industrial sectors, but that is also part of our DNA to provide those specific solution to our customer bases there. That's why we will obviously continue with that broad range of different markets. And also, that is the reason why we are focusing on those different markets with clearly defining our market segments, but still using our competence for providing this specific solution for control of everything what is in motion. So therefore, it will remain also a lot of application also in future in the industrial business because that is the basis of the business we want to drive going forward.
So last but not least, the third question you had is regarding the Automotive Powerise business where we had -- where you said it's an underperformance. Here, you have to see in Americas that there are 2 major impacts which are currently impacting us.
First of all, the strike in U.S. was not driving the full range of all products and not all car manufacture in the same way. So there are ones you were more lucky than others. So we can -- we have to say that as then starting a certain point, the production of the Ford Explorer bodies for us, obviously, a very important car and a very important platform. So there, we lost, but we think the customer still wants the product, that is important. And therefore, we believe that there will be a recovery of those parts, which are several million dollars if you want to say it, or euro in terms of sales missing in the first quarter when you just know that about 75,000 parts were then delayed and postponed to the next quarters to come. So that is impacting us directly in the first quarter.
Then the second point is, and also that was impacting us significantly on the Powerise side. Our OEMs made also and some years, they're doing that a little bit more, some years they're doing that a little bit less. This year, unfortunately, they made it more, this kind of also window dressing with their own inventories they have on hand. So when they closed their plant, the last days in December, we had clear information to video information that they will take so many parts over that we are able then to ship them still in the -- in before December 31 and invoice before December 31, and that was also several million dollars of products. They then come in the last days and saying, no, we will not take, we just will come in January.
And this altogether, if you take that together, that is the major part while we currently where we're suffering here. But in the next quarters to come, we have also very good and nice new product launches to come in Mexico, just talking about now the change Tesla from one side to the double-sized Powerise where we get a significant increase in volume to be expected. So I would not say and I'm absolutely convinced that we with our good Powerise team in America, we will be able to recover that because that has been a specific situation in that quarter and also perhaps end of last year, where we were a little bit lower than in other regions, but that is now to recover in the next months to come.
Thank you very much for your question. Are there further questions.
We will continue. So the next question comes from Stephen Reitman of Societe Generale.
Yes. Going back to your comments to the last answer, would you like to quantify the impact of the UAW Unifor strike in terms of lost revenue and maybe drop through, the impacts on that in the -- in your first quarter, please. If you could comment about your CapEx outlook for 2024, and also I was intrigued by the increasing automation of your production process. And could you comment on how the DESTACO acquisition will also help maybe accelerate that process as well?
For sure. Thank you very much, Stephen, for your questions. Again, 3 questions to be answered. I will give you a starting point and then particularly on the CapEx question for 2024, I'll hand over to Stefan.
Quantifying the impact for the North American strike activities. That's indeed something which the industry is basically having discussions about a lot. Why is that? Because the strike impact, as a matter of fact, is really driven by so many different customers and plants after the fact nobody can really give you precise details on what really happened as in reduction, just because of the strike or eventually that electro mobiles or electromobility had some impacts for the last quarter in the year.
But in the range of our business, the impact was around about 100,000 vehicles impacted by the strike, which were either not built or built with a lower content per vehicle than we used to.
Why I'm saying the lower content per vehicle than we used to? Because whenever there is a strike, they have less people available on their shop floors on the OEMs. So in many cases, they decontent the vehicles so that they still can produce them. So that's why they take out the Powerise and they rather have low fitment parts in there, like the Gas Spring. They generally decontent also a lot of the electronics in that time period because they just want to make sure that they're on the belt, on the belt at the OEMs, some of the base worsen cars instead of the fully blown high-end vehicles.
So as a matter of fact, 100,000 cars were impacted. However, some of them has been canceled. Some of them has been just fitted with the Gas Spring instead of the Powerise. And this is basically an aspect which was hitting us, particularly the short notice order cancellations.
In terms of CapEx, and I think the second and third question is somewhat linked. CapEx, we had a fantastic first quarter in terms of we've been really investing what we wanted to in terms of automation. And also, Stefan will give you some outlook for the running year 2024. However, our CapEx investment rate is in the range of 5%. And this is pretty stable over the course of the past years.
Past years, we've been investing more on the Gas Spring side. Now we invested last year, and you see that in the performance more on the automation of our Powerise equipment. And now we are in a phase where we take a complete automation wave along the line in our plants to make us more competitive for the future. And this is something which, at the end of the day, for sure, has an impact on the CapEx. However, the overall CapEx we are investing in our business is quite stable with the 5%, because we shift the buckets.
And before we invested a lot in the Gas Spring side, now we are basically prepared for producing 100 million vehicle in the industry on Gas Spring side. And as the industry will most likely not reach this EUR 100 million for the years to come, we actually fill this sector with basically investing into our machine technologies.
And this brings us to the last point, one last question you had, how will the area of DESTACO impact that automation technology. See, automation technology is serving the mega trends. And this is why the DESTACO also helping our automation attempts around the globe, because it follows the mega trend of reassuring with bringing back workload from Asia or low-cost Cultraro general trends to the Western world in this political unrest situation is also counterbalances a lot the labor inflation you see around the globe. And this is indeed the base of our doings.
So if you see, however, the integration road map we are having, we, at this point in time, work a lot on automation already, and we will assess how DESTACO basically fits into this whole concept. And this is what we started already. However, the biggest point, and you see that also with our presentation we had in -- on the signing day, the biggest portion we will take care of in the months to come is grasping the synergies. So that's where the real focus for us is for the months to come rather than picking some of the elements and putting it into our own equipment, because we want to invest the money where it really matters and generating sales to the outside growth, at the end of the day is more or brings more value to us when assessing all the different integrating details and bring it from the DESTACO with their equipment into our automation processes. So the main priority in the integration phase is to focus on the synergies we see when it comes to the cost side, but also on the sales side.
Stefan, I will hand over to you if you have some more details in terms of the investment we're having above and beyond the 5%, which I've been just mentioning.
Thank you very much. So regarding the CapEx, I think we have to distinguish between our 2 major part of the CapEx. When you have a look at the balance sheet at the end of the day, there is, on the one side, all what is machinery, tooling, all this kind of stuff. That is what Michael said around this 5%, sometimes a little bit higher, but in that range. And that also will continue in that way. Why that? Because we are really much focused on our strategic development of our company. And therefore, following long-term ways and path and projects in optimizing our production cost development in automizing things as we made it with the production of the Gas Spring. We're doing the same in the production of Powerise with full automated lines that we sent him, that we built up with our own machine construction area. And this is a way that continuously go on.
But there is why, if there's no reason to really say there is a big jump up or going down. That will continue in that -- in the phases around this 5% and that is what we will continue and also what you will see then around for the full year 2024.
Once again, always because that is the only values we can provide you currently or we are allowed to provide you, also these are Stabilus value. So this forecast is not an integrated one with DESTACO. This is following the numbers that you can currently see. They are Stabilus. There, we believe, continue with the 5%.
The other point is in terms of intellectual property that we're building up in terms of R&D projects that we are doing. Also here, we are following a continuous path in long term, developing our IP. And also here, we are about EUR 20 million more or less in that range of capitalizing those internal development costs.
So last but not least, overall, you can count on about EUR 90 million overall that we probably would have on a year-over-year perspective in total CapEx that you can then see in the balance sheet. Once again, the increase in automation, as Michael said, the key focus now is after closing on the integration, on the synergies to get them. But obviously, for sure, we also will be happy than one day to host the first part of DESTACO or more parts because we're already using DESTACO. Don't -- no question at all, but to host more parts also in our machines and that happy to do that.
But as you know, the clear focus is not providing us with automation but providing the full market with automation and bringing all those synergies. Down the road, we also will increase also the usage of those DESTACO products, and we will be -- we are happy having them in short-term basis in our group.
Could I suggest that once your process, once you've had the closing, and once you've gone through all the process of the full assessment of all the synergies and all the opportunities you find with this acquisition, you consider maybe then doing a kind of deep dive for investors and analysts on the company, on the structure and the opportunities that you see while establishing DESTACO. I think there'll be quite a lot of interest in them.
We also talk about back and forth for the Analyst Day, for example, where we could give different data that's what Stefan said, whatsoever. That's what we've been discussing also in the past. At this point in time, the feedback we had rather got from the investors community, that we have individual roadshows and individual discussions, I think also Andreas Schröder does a perfect job in order to provide the right necessity of detailed information. However, we will take your point and actually discuss it and make a suggestion in that term.
So the next question comes from Marc-René Tonn of Warburg Research.
Basically 2 left and I'll try to keep them short. First one would be on profitability in the EMEA region. And as you said rightly, compared to the previous year Q1, the profitability has improved quite a bit. However, compared to the fourth quarter, and that actually understand seasonality is down rather significantly. So my question is just, is there any, let's say, special impact from this inflation compensation payment, I think you were able to pay, particularly in Germany to the labor side? Also just purely, let's say, the sequential decrease due to seasonality and, let's say, the cost inflation you have now again on that side?
And the second question would be again on the door actuator business, whether you could give us some indication on, let's say, your revenue expectation when do you expect, let's, say significant volumes and contribution from that and perhaps also that there's some indication by region, let's say, patent split between APAC and then Europe would be helpful here.
Absolutely. Again, I'll give you the starting point. The line was sometimes a little soft. I'm not sure if I got the rest of the question right. But I think the first question was in terms of very -- repeated profitability, particularly in EMEA that it was increasing quarter-over-quarter and which impacts we saw there. So in terms of the EMEA, it's not too far away, but nevertheless, we sense to not think about it anymore.
But if you compare quarter-by-quarter, also an impact in the first quarter the past year, what is massive energy inflation, right? And this massive energy inflation had at that time, October, November, December in '22, which is our first quarter '23 had an impact on our P&L. Some of the effects are coming from now being in a better position in terms of buying energy on a different price point. However, a different and other aspect is the big improvements we did, particularly with the investments we're actually rolling out in the German plants, particularly in Koblenz, right? Because here, we announced a year ago that we would further work on -- with the investments, work on the efficiency of the plant. And this is showing first fruits. And this is the path we will actually proceed upon.
If I take your second question, it's in terms of the door actuation business. This is, at the end of the day, a progression like we saw a year back with Powerise or electromechanical devices on Frank applications. Nowadays, when we talk about door actuation systems, it started off in Asia, unlike the truck applications. So this time around, it seems that Asia is front-runner in technology. And here, we see a path of anywhere between a fitment rate of 10% to 20%, 30% on the vehicles.
We selected customers, like Hyundai or Gilly. In Europe, particularly with the OEMs in the German area, we see here growth rates and growth curves, including fitment rates in the same magnitude in the range of 5%, 10%, 15%, 20%, the SOPs of these technologies are anywhere between the year '26 and '27 based on the platforms.
So the main message is that, yes, all the big OEMs in the Western world in Europe, particularly jump on this new technology. The SOPs are in the range of 26% to 27%. So in 2, 3 years from now. First, impressions are given in terms of how the curves would develop, and they are pretty similar to the growth rates we've been seeing on the Powerise side years back in the early 2000s. So this should give you -- if you look back into the growth numbers of the Powerise of the past 2 decades, a good impression how eventually the curve of the door actuation systems can develop in the industry. Maybe you have some additions, Stefan, also when it comes to profitability in EMEA.
Yes. Thank you very much. And I just want to emphasize 1 or 2 sentences in terms of the change between Q4 and the first quarter of this new fiscal year, where, obviously, we have -- we're not able to achieve exactly the same profitability margin in Europe than we were able to achieve in the last quarter of last fiscal year.
The main reason is, and you gave that answer yourself during the question already. The main reason, obviously, is the seasonality impact because December with all Christmas holidays impacting significantly and therefore, I believe that in terms of profit-wise, December always is the lowest profitability in a month of the whole year in Europe. So that is also valid for Stabilus like, I would say, for almost all other industrial companies in Europe. So that is the major part of the answer.
But obviously, if you have a look at the development of the quarters during the last fiscal year of the Stabilus Group, where we were quite back-end loaded and also getting in the third and in the fourth quarter, additional one-offs as compensation. So also this was impacting Europe in the fourth quarter of the last fiscal year. So therefore, it's a little bit mixed of both, but the major impact is seasonality.
As there are no further questions in the Q&A session of now, I would hand over back to the host.
Yes. Thank you very much also from our side for today's session. It was quite intensive this time around, which we perceive is very good because it shows the strong interest in the Stabilus Group. 5% growth year-over-year in challenging times is really good achievement. We pay the future for success, and we really invest where it matters, not only on the organic, but also on the inorganic side, and we're looking forward to our next conversations we will have.
Thank you very much, everybody, and enjoy the day. Have a good week.