Stabilus SE

XETRA:STM

Q2-2025 Earnings Call

[Operator]

Good morning, ladies and gentlemen, and welcome to the analyst and investor web conference regarding the Stabilus results in the second quarter of fiscal year 2025.

[Operator Instructions]

Let me now turn the floor over to your host, Dr. Michael Buchsner.

[Michael Büchsner, executive]

Yes. Good morning, and welcome. Hello, everybody, to our quarter 2 call today. You have our Interim CFO, Mr. Von Wietersheim, in the call, and also Andreas Schroder, Investor Relations. And as stated before, I, Michael Buchsner, am the CEO of the Stabilus Group.

We're happy to lead you through a presentation at the beginning, and then we'll open the floor for a Q&A session, as always. Also, we are happy to announce that in a very rough quarter, we are delivering constant results.

And with a revenue increase of 7.8% year-over-year, we delivered a very solid performance. For sure, as you all know, the economic environment is somewhat challenging. And overall, the market is in decline compared to last year.

So we are also affected by that. So, overall, we see an organic decline of the market and our business of about 5%. That's something we'll talk about later, also region by region.

Our initiatives are on to further improve our profitability in the second half of the year. We are mainly centered around efficiency increases, but also in terms of negotiations with our suppliers and customers, we are making good progress in difficult times, also with tariffs in place and whatnot.

However, for the second quarter this year, we achieved an EBIT margin of 11.2% and first half of the year, 11.4%. That's a very profound and good result for the time being, considering the bumpy road we are all on in these economically difficult times.

So, the market environment continues to be somewhat challenging for the rest of the year. That's our expectation. But we are fighting all these effects. You can be sure about that. And for sure, we confirm our guidance again this time around.

You all know on the December 9th of last year, 2024, we published our guidance and our guidance for the year remains EUR 1.3 billion to EUR 1.45 billion in terms of sales and an adjusted EBIT margin of 11% to 13% with a free cash flow of EUR 90 million to EUR 140 million.

So on the next page, we jump directly into one of our highlights of today's presentation. We are now having our stakeholder group with us for the full 12 months.

So in this full 12 months, very nice sales of EUR 187 million, which is around about EUR 200 million in terms of dollars, with a nice EBIT margin of, as we said at the beginning, it would be in the range of 20%, so 19.6% in very difficult times.

You know that the automation and industrialization market went down by about 5% to 6%. And with these solid numbers, we are actually outperforming the market in the industrial automation sector by about 6% with our business on hand.

The free cash flow generation of the DESTACO business is very solid, at 19%. That means the free cash flow generation of the past 12 months was EUR 36 million. And also, you see this constant performance in all the different quarters, if you look back since the first day of integration.

Some more details on the next page. Actually, as I said, for the last 12 months, we've been consolidating to put a stake on numbers. And it was really a success from the beginning. Our customers enjoyed this whole journey.

Just to give an example, our colleagues from China were particularly happy, as well as the other regions, and they approached the customers. And actually, we were happy in the same way as our customers.

So some of the sales teams even said, "Hey, come on, our peers of the other customers on the Stabilus side versus DESTACO. They asked us from the early days, now it's great to have the DESTACO guys on board. We can buy all kinds of products via the sales channels of the Stabilus Group and vice versa.

This is also why we always highlight our cross-sales activities, because indeed, our sales teams of Stabilus are basically walking out to the customer and selling DESTACO parts.

On the other hand, the parts of the DESTACO Group are sold by Stabilus and vice versa. This is something which is particularly important to us.

Yes. It was a big success, as I said, and this leads to solid numbers over the course of the second quarter. As you can see on this chart, we've been increasing our sales by 7.8% in rough waters.

Yes, particularly if you look at the base business we have on hand, we all know it's impacted by the economic downturn or softness we see currently in the market, which means the organic growth was basically negative with 5% over the course of comparing quarter 2 to quarter 2 last year.

However, sales after all increased from EUR 313 million to EUR 338 million over the course of the quarters, quarter 2, '24 to quarter 2, '25.

So, the adjusted EBIT margin is a similar thing that remains constant in the range of EUR 37 million to EUR 38 million. The M&A effect is a big one. It's EUR 8.8 million on the EBIT margin contribution.

The business of DESTACO is very healthy. And we also see only a small portion of incurred integration costs in there are EUR 0.6 million over the course of the second half of the year.

As stated on the previous slide, our performance is very solid. The integration is concluded, and we see a solid performance of the DESTACO Group going forward. And the integration is done.

So, the last portion of integration was indeed the integration on the IT side, which we performed. The integration on the IT side was extremely important because we needed to harmonize our system landscape.

Some of the systems that we found that DESTACO had were basically outdated, which actually is beneficial for us because we could switch them right away to our systems, which are, at the end of the day, modernized systems.

This, for example, goes into the customer relationship management. We've been booking our colleagues from DESTACO onto the latest and greatest technology we have at the Stabilus to make the cross-selling activities a big success.

So, in terms of profitability, we ended up with EUR 11.2 million, which is less than in the prior quarter, but you know this is a switch driven by tax payments between the quarters.

Overall, over the course of the year, you will see a different number even in the first half of the year, which you'll see on the next slide, you see a more constant number.

Adjusted free cash flow. Also, here, we are fighting the current market circumstances, as you all know, with softer sales, also the cash flow generation is somewhat impacted.

However, with managing our net working capital in a good way, we are on good track here also to achieve our free cash flow guidance, which we, as I said, are coming slowly.

On the next page. You actually see the first half of the year. I mentioned already that the profit is somewhat on similar levels, but start with the revenue. Let's start with the revenues.

It's basically a similar picture to what you see in quarter 2. That means over the course of the past 2 quarters, we are actually moving sideways. We are delivering a constant performance.

Our sales are pretty much impacted by the DESTACO acquisition. As I said, that's a very positive sign that the DESTACO acquisition lifts and improves our sales line. Independent aftermarket is a very good driver.

We'll talk about that later because you know in difficult times when people wait to buy new cars, they typically maintain the current car fleet, and that's something which you see in the area of independent aftermarket, and that's something which, at the end of the day, drives not only our revenues, but also the EBIT performance.

EBIT performance half year versus half year is 11.4%. If you compare the half-year 1 result of '25 to the half-year 1 '24, it's on similar levels. Actually, in absolute terms, we did increase the EBIT margin driven by our DESTACO integration, which contributed in the first half, EUR 17 million to this healthy EBIT margin.

As I said, overall, over the past 12 months, the EBIT percentage was in the range of 20% of DESTACO, which is extremely helpful. It's exactly what we've been planning on in terms of DESTACO.

So the integration costs were EUR 1.5 million for the complete half of the year, which underlines that the integration costs are somewhat fading out because for the first half year, it's EUR 1.5 million.

For the second quarter, it was only EUR 600,000. So that means we had EUR 900,000 in the first quarter, EUR 600,000 in the second quarter, and this is just fading out now, the integration, as I stated at the beginning of the presentation, is somewhat fading out and coming to an end; it is a great success.

In terms of profit, as I said before, we are actually at a similar level to last year, 3.8% versus 4.9%. So in absolute terms, versus now, EUR 25 million.

There are some shifts in terms of financing costs, some FX impacts along the line. But at the end of the day, a healthy and stable performance here as well. And you see, the free cash flow is basically impacted by one effect. I'll talk about that later on.

There is a higher CapEx, which you will see only in the first half of the year. Why is that? Because we all expect to see the effect of our operational improvements over the course of the year.

So for all these automation investments, we actually had to put these investments have done investments in the first half of the year to gain from these benefits in the second half of the year, as our year is back-end loaded in terms of performance.

I said at the beginning that customer and supply negotiation, and also the important factor of operational improvement is rather kicking in in the second half of the year.

So we need to pave the road for that. That's why we took a big chunk of our investments into the first half of the year, which you see in the CapEx numbers. But this actually will normalize towards the end of the year because this is just a pull-ahead effect, our overall target of 5% to 6% CapEx for the whole year is still on.

But I said, throughout the year, we took the decision to pull it ahead in the first quarter to have all this nice automation effect on our performance of operating performance in the second half of the year.

So that leads us to the next page. I'll talk to you a bit about the different regions. And one effect sticks out, there is America's, pretty much up, because of the DESTACO consolidation. It's 16.8% year-over-year.

You know that DESTACO's home turf is North America. That's where DESTACO is coming from. The second largest area is EMEA. Here is also driving 4.8%. And you see an effect in Asia Pacific, which is flat, neutral, and almost year-over-year. This is something which is pretty much driven by the automotive industry there.

As you all know, there the Western world customers who are actually suffering from the local production of EVs. We are withstanding those forces. That's why we are, at the end of the day, in solid and stable performance year-over-year.

We also contribute a lot via this to, which is double-digit growth in Asia Pacific.

However, in a nutshell, bottom line, you see this effect of the automotive industry suffering to a certain extent also in the Asia Pacific region for us. Bottom line is a mixed picture between the regions, America actually is leading the crowd, and then EMEA and Asia Pacific.

You, at the end of the day, see a somewhat similar picture in terms of the EBIT margin. You know all the businesses we have on hand, a business that is pretty much driven by volumes and growth. And that's why you see that also hitting the bottom line.

Our EBIT margin is 11.5% in the Americas, also impacted by the DESTACO. And in EMEA, it's on 10.3% and 12.2% in Asia Pacific. As I said, there, we see currently the market being somewhat soft on, particularly the upper segment, Western world car manufacturers. This is something that you see on this chart.

So, talking a bit more in detail about the different regions. You see here the North American region, or Americas in total, a nice growth year-over-year, from EUR 109 million to EUR 127 million. We see some impact here for sure on the automotive industry. The automotive industry is impacted. You see in all the different regions.

However, here, organic growth in particularly independent aftermarket areas and for sure, automation sector for our business the absolute EBIT number is 11.6% in last year, and now this even increased to 14.7% EBIT margin, which leaves us with 11.5% EBIT margin, which is above and beyond last year's performance.

As I said, the vast majority are also driven by this take. So after all, EMEA Americas is delivering a very solid performance these days. We all know how bumpy the road could eventually be going forward with this uncertainty of additional tariffs kicking in, but we'll see how things are coming.

I'll talk about the tariff situation in a later stage on one page, which at the end of the day also indicates that we take the right measures with our business to make sure that we are not suffering from these tariff increases.

But it's a bumpy road due to the fact that also driven by the tariffs, not only the first level or direct impact or could hit everybody, but also the secondary impact, as you all know, of a decline of the general economics in Americas could eventually cause some bumpy road in the future. I'll talk about that in a bit.

Before we go there, we also spend some time on the EMEA section. In EMEA, you see that we increased our revenue from EUR 137 million to EUR 144 million. We see some lower revenues also here in the automotive sector.

Also, some of the areas, like the independent aftermarket, are rather strong, and for sure, industrialization is going upwards. But after all, you see here an impact on our business of the automotive side.

We know that, particularly when it comes to EMEA, the automotive business impacts the whole business equation for everybody these days. And we are nevertheless having a solid performance.

We have a 10.3% EBIT margin, a little softer than last year for the vast majority, also driven by the lower sales of Powerise, driven by the automotive environment in EMEA.

So, last but not least, let's spend a bit of time on the Asia Pacific region. Asia Pacific, in terms of sales, is stable, driven by this stronger performance because you see here that with the performance of this stake, we achieved to be somewhat flat year-over-year.

However, the organic growth is minus 9%, and this is pretty much driven by automotive. You know that BYD is very strong. BYD is producing the Powerise systems in-house. That's one effect. But also, after all, Tesla is feeling some pressure there.

We trust that over the course of the years, with different priorities in the Tesla leadership also this number will go up again as Tesla is getting back to the market.

However, you know that Tesla is one of our biggest customers. You see something happening there. We defend our sales line. That's very good news.

However, we also see here on the adjusted EBIT side some impact in conjunction with the price pressure we see currently in China. We talked about that several times, that over the course of the year, particularly in China, in a market which is under pressure, we feel some pricing pressure.

And this is also why our business here is loaded towards the end of the year, because as I said at the beginning, all these improvements we are doing in terms of negotiating with the suppliers, technical changes, but also efficiency increases.

We do over the course of the year, investing a bit more in the first half of the year to gain from these efficiencies in the second half of the year. And this is something you will see down the line also on the EBIT side of the revenues, you will see on the EBIT side an improvement driven by that.

So we switch gears here and talk a bit about the business development by market segment.

One very clear thing is what we wanted to achieve, and we have multiple times told everybody, we want to move towards 50% automotive and 50% industry.

Now with the full consolidation of the DESTACO, you see that here in a very nice way, because the automotive portion is at the end of the day at 54%, so moving to 50%.

Then there is this big growth area of industrial business, which we are really proud of. Because that's our strategy. That's a strategy in motion, that's the strategic portion we wanted to work on, we wanted to materialize upon. And this is actually happening.

You see that here on this pie chart that the automotive portion versus the industrial portion is almost equal. And there are, however, also some things we'd like to highlight here because on the industrial machinery and automation, it's 4x more sales now than in the past quarters and past year at all, driven by the DESTACO integration.

But also very important, it's exactly the right strategy to put the money on industrial automation, and I tell you, even without the DESTACO, this segment is growing for us 5% year-over-year. So that means the automation sector and the industrialization sector a sectors you want to be in.

I just gave a reminder that whenever we talked about the DESTACO integration and the business rationale in the first place, it's the megatrend that the Stabilus Group is following. The megatrends are labor shortage out there, labor cost increases, and reshoring activities when it comes to industrial production.

So that means the automation sector and the industrialization sectors you want to be in. I just give a reminder whenever we talked about the Teco integration and the business rationale in the first place, it's the megatrend that the Stabilus Group is following.

The megatrends are labor shortage out there, labor cost increases, and reshoring activities when it comes to industrial production. So that means the kind of governments or government support the economic reshoring activities leads to the point that you put production from a low-cost country back to a high-cost country.

Everybody would wait and say, how is this working out? You definitely need automation to do so because without this automation, you just lost because you can never deal with the efficiencies you need, you can never deal with the cost point you need, and you don't even have the people who should do the work wherever you put then and reshore the activities of operations.

There, you definitely need automation equipment. We see that in our shop, and I said before, that we've been pushing our investment into the first half of the year because we want to gain from the efficiencies in the second half of the year.

Everybody is doing that. And this is also why this sector of automation is particularly strong, not only for us, but overall in the world. And this is even independent from DESTACO because, as I said at the beginning, even without the DESTACO growth, we saw that our automation sector was growing 5% in the second quarter of this year.

So it's the strategy we developed is spot on with what we want to achieve. So the industrial machinery sector and automation sector, thereby it's 4x bigger than last year.

Also very important distribution independent aftermarket and eCommerce, not only is eCommerce double-digit percent growing these days because people tend to buy more, as you all know, web-based.

We are following the trend and selling more and more in an electronic way. We have even tailoring programs where you can design your own gas springs and Powerise systems, and all of them which is highly profitable for us.

On top of that, you also get to the point that independent aftermarket, we sell many, many different components also now on the Powerise side to all the OEMs and not only to the OEMs, but also to the different sales channels to gain from this opportunity that people maintain their car rather than buy new cars along the line.

Then something which is for us an area where we do not want to grow too much, and that's why we've been pulling out, was basically the furniture area. You see a decline here of 14% because there the market prices are not to our expectations.

The profit expectation from our business is higher than the average you could gain in furniture. That's why we rather concentrate on the industrial machine and automation sector.

Energy is somewhat of a mixed bag because this pretty much depends on how the governmental regulations in North America rule out. We are in a good position here, concentrating also on South America. We'll see some upside here for the rest of the year.

Then Aerospace was impacted by the Boeing strike, but also here, we see for the second half of the year, and good improvement in our top line. So on the next page, we talk about a leverage ratio.

You know that our target is to stay below 3 for the year with lower sales. We've been seeing that going up a bit, but we are confident that we will stay below 3.

You know that with the banks, we have agreed to our covenant of 3.5. So that means we have enough headroom here. We are on the same side. Nevertheless, in conjunction with net working capital, this is a very high focus for us for the rest of the year.

We manage our net working capital and all levers we have to stay below 3. On the midterm, we want to stay below 2. Then out there in 3 years, we want to be below 1 again. And we will, that's why I'm convinced about achieving this number.

For the time being, we will we are staying below the 3. That's what was important to us. So one particular driver is the net working capital. If you remember back when we talked over the course of the last quarter, I always said that a 20% net working capital ratio is important to us.

So the net working capital to revenue ratio, 20%, is something which is in our ballpark, and this is something which we, at the end of the day, see our targets on a midterm for the complete financial year will be somewhere between 70% to 20%.

Net working capital ratio, it's very healthy that we are driving our inventories these days, because with all this volatility in the market and soft market, that's something which is definitely important to look at, and we are actually driving this point.

That leads us to the next section, which is investments and focuses on our CapEx rates. As I said at the beginning, we've been pulling ahead the CapEx to the first half of the year because important this year to gain again from economies of scale in terms of efficiency increases in the plant.

We've been investing a lot in robotic systems, cobot systems. Also in the first half year, we still invested in door actuation, some programming stuff, some software stuff, which we have actually been paving the road to success.

You read the news in the press that we won another big contract with Niauto in China. This is extremely important for us because we are not only winning with our new technologies, we are winning with our new technology, even in Asia Pacific, in China, where you see this competition being so strong.

All this is possible with our latest developments of technologies, where we invest some money still in, but also in terms of equipment. We've been pulling ahead with some of the equipment in the first half of the year. So that means our full year guidance, also in terms of CapEx, in the range of 6%, is still on.

However, we've been pulling this ahead in the first half year. It was quite some work to install all the automation equipment in all the different areas of our business to make sure that we harvest the fruits of this in the second half of the year.

This is also why you see that our business is somewhat back-end loaded, because many of these effects will kick in in the second half of the year. Yes, this leaves us with the guidance page, only 2 small slides to come before we go into our Q&A session this time around.

You know that last year's benchmark was EUR 1.3 billion, EBIT margin of 2 million in terms of free cash flow. We are on a solid track towards that.

Our guidance for the year is confirmed with EUR 1.3 billion up to EUR 1.45 billion, 11% to 13% EBIT margin, and EUR 90 million to EUR 140 million in terms of free cash flow. So the market environment continues with this guidance, somewhat volatile.

Nobody really knows at this point in time what the next 12 or 6 months even will bring us in terms of market environment, which is pretty much driven by the U.S. tariffs, and Andreas already was jumping on to that desperately because this is for sure something which and you know that all from and press reports could move the needle significantly in the second half of the year for the time being. Very solid.

We have actually tailored our business always to the point of being in the region for the region, as you know. Whenever we've been talking, we talked a lot about how our suppliers are following us that we deliver or produce in the region for the region to have a smaller possible impact on our business with the tariffs, and this is something which helps us now, particularly.

We see a low visibility of the customer demand because there is a secondary impact on the tariffs. because you never know how the overall economy and you all know that, is developing in the second half of the year, based on the tariff impact or tariff discussions out there.

Sometimes things change over the weekend. But for the time being, with the current tariffs in place, we see an overall all-in effect of EUR 5 million to EUR 10 million.

So what means all impact, and we're having these discussions now several times in all of the investor meetings we're having currently, and many of you also call Andreas once in a while to talk about that.

So that means with the current scheme in place, we are exposed to tariffs for steel and aluminum from Europe, but also to a certain share for imports from China to the U.S. and China to the different regions, which also underlie tariffs.

So the overall effect is EUR 5 million to EUR 10 million. This is not the net impact. The net impact is about 1/3 of that, currently, which we have in our forecast, it's only EUR 2.5 million, around about. Why is that? Because these tariffs get passed on from us to our customers.

Like with all other price increases, this basically goes along with some messy discussions you're having. So we walk into the door of our OEMs, and we walk into the door of our industrial customers. Then we talk to them about the tariffs. They are open to a discussion because they know there's nothing we can influence.

They are open for discussion because they know that eventually they will get a tax deduction whenever they do their company taxes. And this is why we typically invoice the tariffs in a separate line item. And we overall basically for the year, see EUR 5 million to EUR 10 million impact.

And everything else, but EUR 2.5 million is passed on this year to our customers, driven by this delay in terms of negotiation, because at the end of the day, we placed all the increases at the customer, but we see a negotiation delay of 3 to 6 months.

So that means whatever you see now on your bottom line in terms of tariffs, you walk into the door with the customer, then you start this negotiation, which typically takes you 3 to 6 months.

So the net impact for this year, because we cannot cover and basically close everything with the customer and get everything paid, the net effect we see for the year is EUR 2.5 million around about, which is in our P&L as we speak for the forecast.

Despite of that, we're still within the guidance, but we see some uncertainty out there because nobody knows which tariffs kick in along the line in the months and quarters to come.

But for the year and now, as I said, the important thing is we are overall exposed with EUR 5 million to EUR 10 million. We expect that 2/3 of that to 3/4 of that gets passed on to the customer. That means we get impacted only by EUR 2.5 million.

Also very important to know is the USMCA; we are still compliant with it. So we fall under the USMCA regulation. That means the products we have on hand do not underlie the tariffs from Mexico to the U.S.

So there are no tariffs for the time being for our Mexican production to the U.S. This is something where we fall under the U.S. MCA. And this is our assumption also for the rest of the year. This is when we talk about the guidance and also the next steps. We see that there is some volatility in there. You don't know how this develops.

There was a 90-day exam which sooner end. And then the question is how these tariffs continue to be shaped by the U.S. government. In parallel, we are basically have as mitigation actions, the negotiations with the customers for sure and also sourcing optimization because as you know, in the region for the region is rolled out to a vast majority, but there's still a couple of suppliers out there who can be further localized in the U.S. side or even in the all over America side.

This is in the meanwhile, what we are working on. So overall, the risk for the time being is limited for us. However, also in terms of precaution, nobody knows how the next 6 months will go with the direct effect, which tariffs to kick in, and the indirect effect, what this does to the overall economy. As we all know, the overall economy could also be impacted by that.

So with that, we switch gears again and talk about the summary. So we are in a challenging market environment. You all know that. We are basically fighting our way through that. We have several things we do currently by the side of localization stuff to avoid tariffs and taxes. We work on our net working capital to keep our CapEx under control.

All these nice measures you will do whenever the sales line is flat, in conjunction with and above and beyond that, we invest still in automation to bring our labor rates down. And this is something which we particularly do in our high-cost areas.

So we continue to do that in [indiscernible], but also even in the plant in Mexico and China, we're driving now automation equipment. We are doing cobot systems, robot systems, and whatnot in order to further optimize our operations.

As I said at the beginning, the year will be somewhat back-end loaded because we invested in this automation in the first half of the year, and we'll see the benefits throughout the rest of the year kicking in. So we confirm our guidance and our long-term strategy. Not only that, we confirm our long-term strategy, as you saw with the DESTACO acquisition, it was spot on.

The DESTACO acquisition allows us, unlike the majority of our other companies, we still growing. We are holding the line. We are holding our profitability, and we're actually on a growth path with our strategy in the industrial automation sector, even without DESTACO. So this segment is growing, and we are spot on with our technology to feed into the market.

So with that, I would like to draw your attention to the Capital Markets Day we're planning to do, and this is basically my last slide for the presentation today. On the 4th of June, we will be gathering in Koblenz. We have an exciting program for you.

There will be a lot of things about theoretical stuff at the beginning, in the welcome section. We will have right away a standard factory tour. Then we see some presentations, and the presentations will be interesting because we'll talk about the year 2030, how we continue to deliver upon our strategic goals.

You know that our strategic goals are EUR 2 billion in terms of revenue and 15% EBIT margin. We'll show some detail how we think about that and how we confirm that and which actions we're taking to pave the road for this success.

It will happen in Koblenz on the 4th of June will lead us through the complete day. So we'll start at 9:00 and probably end at 4:00 in the afternoon based on the questions you all have.

I just can reiterate that please register if you haven't done so at this point in time. There is this registration link, which you see on this page, and you find it also on our home page. We'd be happy to see you all there.

It's a lot of efforts we did, and there will be not only a theoretical tour through our numbers, but also we'll talk about the concrete product development we do. So we have an experienced walk in the plant for you prepared.

So you will see the latest and greatest technology. The technology is not only on the automotive side but predominantly on the industrial side, the technologies, the products, the applications.

So it will be a nice event to understand our detailed on our strategic path, walking to this EUR 2 billion sales, 15% EBIT margin, the underlying products like door actuation for the automotive, but also industrial Powerise, and a lot of this [indiscernible] information you will get along the line.

To be sure that you are geared up with all the necessary information you need in order to not only know what the Stabilus Group is about but also to feed your models for years to come with the necessary information to forecast our business.

So we will be disclosing somewhat more information about our business along the line, and we are happy to do so on the 4th of June. So please, if you haven't done so far, make sure that you hook up, get into our online portal to register. And with that, I would open the floor for questions.

[Operator]

[Operator Instructions] And the first question comes from Akshat Kacker, JPMorgan.

[Akshat Kacker, analyst]

I have 3 questions, please. And if I may, can I just take them one by one? The first one is on tariffs. In terms of trade flows, can you just give us more details on the main components, parts, and materials that drive this gross tariff impact of $5 million to $10 million, which I believe is on a 6- to 7-month basis in this fiscal year?

And importantly, how much of this gross impact can you offset by your own procurement actions in terms of looking for alternative sources of supply, please? That's the first question.

[Michael Büchsner, executive]

Yes, for sure, plenty of questions. The 3, as you stated, they are quite complex. So let's kick in with the first answer. They underlie tariffs of up to 25%.

Currently, they are 10%. So, it depends on which kind of regulation you fall under. For the time being, they are 10%. And this is basically tariffs on steel for steel tubes from Europe to the U.S. You can localize them in the U.S. There are some suppliers in the U.S., and we have them approved as well.

Unfortunately, these suppliers are more than 20% more expensive than the European source. Just to give you an example what we're working on because we always see that under the best economic position for us.

So, the tariffs are 10%, but the price difference to the U.S. suppliers is 20% plus. That means it's still less expensive for us, bottom line to bring parts from Europe to bring these raw tubes from Europe to the U.S. and sourcing them locally in the United States with the current suppliers.

So, we have a backup for that because for sure, if the tariffs go up, nobody knows how that goes over the course of the next month, then eventually, it will get less expensive to really locally produce these tubes. This is basically nothing new. We are used to that. It was also under the administration of Joe Biden, the same thing, where with this Inflation Reduction Act, the U.S. steel and tube producers got promoted.

However, the capacity of the U.S. producers is limited. This is why they drive the price high. That means 20% is the impact of local sourcing and only 10% of steel importing.

And this is something in a perfect example of what we constantly are watching, right? We always check how much the tariff is versus what the latest offer of the local produced parts is to make sourcing decisions was better for us.

So we are, at the end of the day, having a full back up in place in that concrete example, but it's too early to this full back up because still importing tubes from the European region to the U.S. is the better deal for us.

And by the way, this has also a lot of things to do with other impacting factors like the transportation in between the ecological factors of that. Now for the time being, we are importing also some stuff from the U.S. So, we have kind of -- from the U.S. to Europe.

So that means it's a milk run from one to the other region. And then there is also the implication of local sourcing in Mexico. But I think this example of tube sourcing illustrates this very well. So that means for the time being, tubes in the U.S. are 20% more expensive than the 10% additional tariffs out of Europe. And this is why we took a decision to still source from Europe. That's one example from Europe to North America or to the U.S.

The other example to mention would be for the Powerise systems, the electrical motor because, as you all know, over the course of the last decade, the whole world was relying on electric motors from China. That means you will not be able to find anywhere in any region outside of Asia, motor suppliers for electrical motors being competitive.

So, and this is something which is currently also from our perspective, still worthwhile sourcing from China because also here, the impact of the tariffs on to China exports to Europe or North America is still less than a fully blown localization, for example, in a plant in Mexico.

And this is the point which I said at the beginning for the here and now, that's the overall impact we see. And this is something which we closely monitor to be sure that we are tracking that continuously. And this is here to a vast majority that gets basically managed internally.

Coming back to your question, how much do we do internally versus externally? That's something we do manage internally. However, the effect of this 10% add-on cost for the imported component, we pass on to our customers. And that's what we're, at the end of the day, talking about. I hope that answers your first question.

[Akshat Kacker, analyst]

Yes, it does. The second question is on North America. Just broadly, could you please talk about the call-offs in the market that you've seen in the month of April and May and if they are coming in very different from your previous expectations, as we think about your third quarter?

And also, what I'm interested in is, like we've heard from U.S. OEMs this reporting season that in the medium term, they will be eventually asking suppliers to move to higher local production.

Can you elaborate your discussions that you're having with your customers and if moving Powerise production to the U.S. is one of the many scenarios that you're working with?

[Michael Büchsner, executive]

Absolutely. So, if I talk about the North American call for April and May, we did not close the books for April finally, but we see them being on similar levels than the second quarter.

So what we currently see is a sideways movement in North America, particularly. So that means we don't see a big ups and downs. For sure, there is this volatility in the market.

Nobody can give a prognosis on because we see from one to the other week, for sure, fluctuations or number coming in, going out, coming in, going out, which we typically did not see to that extent in the quarters before.

So, I would say, comparing to the last quarter, it's moving sidewards, but with a certain volatility that people are kind of checking for what's coming next in terms of tariffs.

Depending on whether we see good news or bad news out of the tariff corner, this could give an upswing or a downswing. Nobody really knows. So, it's really volatile from one to the other week at this point in time.

And if it comes to the U.S. OEMs, nobody did talk to us about local production in terms of car producers. Why is that? Everybody knows out there that if USMCA is not counting anymore in the long run, that the whole industry is under big pressure.

The whole automotive industry is under big pressure. Why is that? Because the majority of components of the OEMs production in the U.S. comes from Mexico.

Because the majority of components of the OEMs production in the U.S. comes from Mexico. And in the U.S., there's simply no opportunity for the vast majority of suppliers to localize back the production from Mexico.

In our case, we would have the opportunity. We would have the opportunity to relocate parts to the U.S. because we still have, as you know, six plants in the U.S. and big automotive plant, which helps a lot in terms of our production there. So we nevertheless don't do that. Why? Because in case we need to transfer it, it's easier to take probably three to six months.

However, you need to take this decision in a very careful way because you, first of all, need to have contracts with all OEMs in place to, at the end of the day, fund the transfer of the lines and also to guarantee you that they stick with you and the orders they give to you for at least 12 months because otherwise, you've done the exercise for all kinds of risks exposed transfer, ramp up offline, ramp down offline, and you don't gain anything.

So that means customers, if they come along, they'll be confronted with a contract saying this is what it costs to move a line. This is a binding contract for the next 12 months. And then it's up to the customer to decide if he really wants to execute that.

And our competition, I can tell you, they are sitting in the same boat, even they are in a somewhat more unfavorable position because some of our competitors, they even source the vast majority of their components from China and bring them directly to Mexico and the U.S., which in case of a different tariff scheme actually hits them even more than it hits us.

So at this point in time, we are in a wait and see in a very careful position of reacting very fast. This is for the automotive sector. On the industrial sector, it's somewhat different.

There was particularly already in the Biden administration, a couple of customers on the industrial side to ask us, hey, can you be more local in the U.S. at that time, it was a tax refund they got for renewable energy for in concrete cases, the solar field dampening system.

And with this contract I was just mentioning, they paid the transfer cost and they paid on price to make up for the labor difference of producing in the U.S. and they gave us a contract for 12 months. In that case, we've been switching a line even to the U.S. because we can do so, as I said, we have the right suppliers on board and also have the capabilities to move the line. And however, for the automotive side, we don't see signs at this point in time in that.

[Akshat Kacker, analyst]

The third question is on China, please. How has the market evolved since your full year outlook back in December? Could you give us an update on the pricing pressure from the OEMs? Has it been in line with your expectations?

Or has it been higher than what your previous assumptions were? And now given that we are -- we have done the first half of the year, are you leaning towards a certain end of the 15.5% to 17.5% margin range that you had given for the region, please?

[Michael Büchsner, executive]

Thank you much for this question. For sure, this is a question which is kind of somewhat challenging, right? Because for the time being, it's spot on with what we've been planning.

We've been planning for the year about a 5% price pressure on the majority of our Powerise systems. It's only about Powerise systems for sure, which is a big part of our business.

So the customers come along and they approach you, hey, guys, reduce the prices by 5% to be eligible to have a new business in place or to get a follow-up business or they actively desource you within the year.

We, on the other hand side, have a good opportunity and a lot of activities to counterbalance this price deterioration with our technical changes, the VAVE changes, the technical changes in our product.

So this is always coming with a time delay. This is why you see now the 12.5% EBIT margin and not the 14% to 15%, which we saw last year, for example, where it was kind of 14% to 15%. So that means to vast majority, we've been able to offset the pricing, and we will continue to fight for offsetting this price decrease for the rest of the year.

We see this price fights going on for the next 12 months. For next year, we're planning less of a price fight because there is only the two players now, the big players in the market, which drive the latest business win, which is the local Chinese supplier engine versus the Stabilus Group.

So the latest businesses were only shared between the two of us because we are considered as the one and only Western world supplier still being competitive in the region with our very profound and good market position with our product and a good pricing power.

So we saw a price situation over the course of the year, about 5%. Half of it, we've been able to counterbalance. This is why you see versus last year's 15% EBIT margin, now 12.5% EBIT margin. And our expectation is that this pricing erosion phase out next year because we are somewhat reaching a bottom in terms of prices. That's what we see with the latest quotes.

[Operator]

Yes. The next question comes from Yasmin Steilen of Berenberg.

[Yasmin Steilen, analyst]

I have actually three left. So I will also take them one by one. Just a clarification on your guidance. Could you walk us please through your end market and regional assumptions in H2? As you already mentioned that U.S. call-offs are rather flattish and also that you see further deterioration of price erosion at least in the current year. So what's reflected there around, 3.5% top line growth, so what's reflected there around, 3.5% top line growth, which is basically implied by the midpoint of the guidance? And how should we expect a sequential EBIT margin improvement in this setup? This is my first question.

[Michael Büchsner, executive]

So that's a very heavy loaded question for sure, Yasmin, thank you for that. At the end of the day, if I talk about the different regions, we see the North American market at the end of the day, somewhat flat in the second half of the year versus the first half of the year. We see some positive developments actually in Asia Pacific, particularly in China because here, not only that the automotive market, we see some positive signs for the second half of the year, but also the take volumes and thereby the complete industrial portions kicking in a bit more. And then in North in European market, somewhat flat in terms of automotive, but a little better also on the industrial side, which gives us a first glimpse of that eventually the industrial business on a global scale could be stable for the next 6 months and eventually also improve a bit. After all, if you now factor into the numbers of the sales, then currently, we are, as I said at the beginning, half year through the financial numbers. And in terms of sales for the rest of the year, we see basically that we will be flat. If you take the current sales, right, the current sales for the first half of the year were EUR 663.9 million. If you take as an assumption that this is something flat, somewhat flat for the rest of the year, then you end up at EUR 1.34 billion, which is within our guidance. And if you put some wins in the tailwinds in there, then we would basically come up in the second half of the year, slightly better than the first half of the year, considering that in the first half of the year, you have 2 effects. You have the winter season and the Chinese New Year. Yes, in the second half of the year, you still have the summer season in place, but we also see somewhat solid numbers for the second half of the year. That means if you take the current sales numbers and put them by 2, if it's a flat development of sales and put some tailwind in there for the rest of the year, then we are basically on safe terms to confirm the guidance. But you know this for sure, coming back to what I stated during the presentation, pretty much also depends on how the tariff situation goes and how stable thereby the economy is for the second half of the year. This is something which we, at this point in time, for sure, see as the uncertainty in our business. I hope that helps for the first.

[Yasmin Steilen, analyst]

Then just on the cost synergies. So you said you have the finalization of the integration and should not expect any further integration costs. Could you please update on the expected cost synergies and also the timeline?

[Michael Büchsner, executive]

There are 2 buckets, as you know, in terms of the take of synergies. One is the sales synergy, the other one is the cost synergy. When it comes to the cost synergies, we are currently at the range of EUR 0.67 million. The target for the year is EUR 1 million, which was driven by combining insurances, by joint sourcing activities on services. And it also was pretty much driven by purchasing savings along the line. This is something which we're tracking on a quarterly and monthly basis to make it a success of achieving this EUR 1 million.

And then on the other side, our complete year's guidance for sales synergies is in the range of EUR 10 million. And currently, we are at EUR 6.4 million for the first half of the year. So also here, we are good on track, which is Stabilus selling the [indiscernible] staff and vice versa around the globe. And this works out pretty well for the time being.

[Yasmin Steilen, analyst]

And then with regards to your covenants, I mean, you're already close to 3x. Are you in discussion with your financing banks about the covenants to get more leeway to your EBITDA covenant level...

The discussion about covenants is kind of not a solely discussion, right? First thing is for sure, we have a lot of touch points to the banks these days because also, as you know, there will be a refinancing coming up for next year.

The banks which we've been talking to our syndicated banks and all of them basically are very open for discussions in a general term. Most of them see the Stabilus Group as a very stable performing business because if you compare us with our peers, we have basically 3x more EBIT margin.

We have a very healthy cash flow. We are paying back debt. We've been paying back debt for even in the last 12 months, we're paying back almost EUR 70 million to EUR 80 million in terms of debt.

So we are considered as a very solid performing company. And this is why the banks are open to discuss kind of refinancing activities, but also the covenant is not necessarily a topic to them. They have been approaching us to increase the covenant. So we are having this discussion for the time being, it's not needed, but that wouldn't be a topic necessarily.

But if you increase the covenant with the bank, then this costs you kind of a certain share in terms of interest rate, which for the time being, we don't see a need. that the banks they approach us, and we see that rather as a complete financing package, which we are working on currently.

There is this EUR 83 million refinancing coming up next year. We are currently looking to this option, combined with some other financing options in conjunction with also discussing covenant-related points.

Our plan is over the course of the next 3 to 6 months to close these discussions because we think that's still early enough, right, because this leads us into the next year when the EUR 83 million become evident.

And for the time being, it's rather a discussion on syndicated loan versus a revolving credit facility, plus also this covenant-related point, but it's too early to state. We're in the midst of this discussion.

In the next 3 to 6 months, we will have that finalized. And for sure, now the first half year, which is for us more cash intensive is over, right? Because you see now that we've only generated a EUR 30 million free cash flow over the first half year.

The real 2 cash flow generating quarters are yet to come. So that means also this KPI towards the end of the year will further improve in terms of net leverage.

[Yasmin Steilen, analyst]

Just a follow-up. Is there any update on the CFO search you're able to share at this point in time?

[Michael Büchsner, executive]

Yes, absolutely. You see here in the call with me, Mr. Von Wietersheim. Mr. Von Wietersheim is our interim CFO for the function.



We have had some intense discussions with plenty of candidates. We narrowed that down to 2 possible candidates. And within the next 4 to 8 months, the Supervisory Board actually will conclude this discussion.

So the expectation of the Supervisory Board is that towards the end of the year, we will have another permanent CFO in the Stabilus Group. So December latest for the time being.

[Operator]

And we have at the moment, one more question coming from Marie-Thérèse Grübner, Hauck Investment Banking.

[Marie-Thérèse Grübner, analyst]

I have 1 or 2 left. I think most were answered. I was wondering if you could give us some perspective regarding the - first of all, the DESTACO synergies.

I was reading the updates that were written when the business was bought. And the mention was there of EUR 50 million in revenue synergies by '26 and I think EUR 10 million on the cost side.

So are those goals now still in place? And do you have new targets for the medium term, let's put it this way, on the synergies you can generate? That would be my first question.

[Michael Büchsner, executive]

The synergies will generate are still on the same level than we've been communicated along the line. If you remember back, the integration at that time was underlying the approval of certain regulations of governments, particularly in the U.S., because as a German company, it was not too easy to acquire a U.S. company.

But it was absolutely the right step as we prove now because not only that we invest in automation technology, but we're also exactly in the country where the localization of components and operational equipment is right upfront in the discussion.

So these approvals, however, at that time almost took 12 months longer. The EUR 12 million in terms of synergy, we always said will be within 3 years.

So that means 3 years out there. So it will be now towards the year '27, '28 when the EUR 50 million kick in. The plan is EUR 10 million this year, EUR 25 million next year, and then the full EUR 50 million kick in, in the year '27 to '28. And the similar thing is with the savings synergies where we did great steps for the time being.

However, they start for sure late because of the late approvals of getting this deal done of acquiring the company with TECO. So that means from now on, the targets are still on. They are just delayed by this time it took to integrate or to get these approvals for integration by the U.S. government predominantly.

[Marie-Thérèse Grübner, analyst]

My second question relates to your market share in Powerise. I think in Q1, you were mentioning that the currently won tenders, you were more in the region of 35%, 36%. I somehow did not see an update in the latest release. Could you give us maybe a flavor of where it is right now?

[Michael Büchsner, executive]

Absolutely. So in terms of business acquisition, you're absolutely right. I forgot to mention that. I was mentioning that every time during the presentation.

We have also very positive news because as we published lately that we won this big contract with a Chinese company, which is Mi Auto, we actually did outpass our current win rates even because we've been above 40% in the past quarter of acquiring business for the Powerise side.

So we are doing very well in difficult times with business acquisition on the Powerise side. And also on the Gas Spring side, we won around about 80% of the business out there with our customers.

So we have a very profound basis of continuing that path of success. And as I mentioned throughout the presentation, we are a side of engine, probably the only 2 suppliers at this point in time in China, winning new business, which also underlines the competitiveness of our products. So we are doing well in terms of business wins.

[Marie-Thérèse Grübner, analyst]

So the market shares, 35%, 36% in terms of if you include the tenders won, it's still on track, right?

[Michael Büchsner, executive]

Absolutely, still on track. As I said, in the current quarter, in the quarter 2, we won even 45% of the businesses out there, even more.

[Marie-Thérèse Grübner, analyst]

And my last question has to do with the - again, going back to the margin - the adjusted EBIT margin in APAC. We saw basically a bit of a deterioration in terms of the year-on-year decline compared to Q1.

You rightly mentioned the 5% price decline. So my question is like looking at H2, how much of that price decline will you be able to claw back? Is it 2%? Or is it more?

[Michael Büchsner, executive]

Actually, I think that for the time being, it's out of the 5%, we're actually closing 2% to 2.5%. We will be able to close this gap this year driven with the investments we did in automation. That's why we invested or invested a lot in this automation equipment.

That's why the CapEx rate already was pulled ahead for the first half of the year. And then we have a very stringent set of measures in terms of technical changes on the product to take cost out and also in terms of supply negotiations.

And these 3 effects will lead to the point that within this year, we can close 2.5% out of the 5%. And then many of these questions also will have its effect next year. So half of this effect will be closed this year.

[Marie-Thérèse Grübner, analyst]

And sorry, I have one more question regarding your Powerise business and Gas Spring business in Asia. Could you specify how much of the business is exposed to Western OEMs and how much is exposed to local OEMs?

[Michael Büchsner, executive]

It's 50-50. We are very strong with the local OEMs. That's extremely important to us. So it's Auto, it's Geely, it's Great Wall and Li Auto. So the local Chinese and Asian OEMs is about 50% of our wallet.

[Operator]

And at the moment, there are no further questions.

[Operator Instructions]

[Michael Büchsner, executive]

Yes, we are anyway already 12 minutes above and beyond our schedule. I think if there is one further question, we can for sure take it.

But also important to know is, as I said at the beginning, Andreas is actually also always there, Investor Relations, Andreas Schröder, so you can contact them at any time for one-on-one even with Mr. Von Wietersheim or myself, we would stand for sure join if needed.

On the other hand, also the 4th of June is an important date, as I said before, for our Capital Markets Day. Are there further questions or any last questions?

[Operator]

There are no further questions from the audience.

[Michael Büchsner, executive]

Then important to know is, again, we had a very strong performance, solid - there is uncertainty out there.

This is something which affects everybody. So the next 6 months will not be an easy journey for sure because we don't know how things develop, particularly when it comes to tariffs. But as the Stabilus Group, particularly when it comes to the strategic point of our business, we are spot on with the acquisition of the stake.

It was the right investment at the right time, and we are fighting our way through difficult times with good success. So thank you very much to everybody. With that, we would close the call. Have a good week.