Stabilus SE

XMUN:STM

Q3-2025 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 2025. [Operator Instructions]

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

[Michael Büchsner, executive]

Yes, hello, and welcome to our quarter 3 call today. You have Andreas Schröder, our Investor Relations Vice President online. And for sure also myself, Michael Buchsner the CEO of the Stabilus Group.

To summarize the presentation, we are holding course in a soft market environment. I would say that summarizes the current situation. We are stabilizing our profits. We are at 11.1% EBIT margin year-to-date, and this is basically in the same ballpark than last year in terms of the 9 months view. For sure, there are some impacting factors we will talk about today, current market environment, that's not a secret, is rather soft in all industries. We see a secondary impact by the global tariff conflict which at the end of the day, materialize in terms of software sales around the globe, but predominantly in North America and also Asia Pacific. On top of that, for sure, driven by the strong euro, there is some negative FX impact around the globe, particularly in North America and also in China.

So revenues in the third quarter are softer by 10%, almost with EUR 316 million sales, basically driven by a soft FX rate of, as I said, down of almost 5%. So half of that is driven by FX this time around full year view. And also a big share is driven by the secondary impact of the tariff conflict. If you would add that back in terms of sales on the North American side and China side, then we would be in the range and ballpark also in the third quarter of last year. However, this tariff conflict for sure, leaves its marks along the line, and that's something in terms of our cost measures, we are constantly working on. So to maintain this EBIT margin of 11.1% for the full year, we actually intensified our cost-cutting measures, and we've been taking all areas cost measures. We are on the PPV side, so purchasing savings, VAVE side, on the overhead side, also in our plants, we are tailoring our operations to this new normal in the industry, which we also see for the next quarter to come.

Very positive news is, and we'll talk about that in a bit covenant headroom, which was increased we are -- or did close our financing or refinancing for the term loan, which is due next year, already very much ahead of time. And with that, we also increased our covenant to 4.0 until September 2026. And that's something we'll talk about. However, also remarkable is that for the rest of the year, we basically are stabilizing and continue to stabilize things. So we are narrowing down our guidance within the original guidance corridor, we expect to be had on the lower end with EUR 1.3 billion sales, 11% EBIT margin and then a free cash flow of EUR 105 million, which, by the way, leaves us with a very good ratio.

So free cash flow ratio, the cash flow ratio is in the range of 50% and beyond. And I think that's a very good sign for stability in the company in these basically soft days in the industry. And with that, we would right away jump on to the next page, where we see our refinancing activities. So as you all know, there is a term loan due next year of EUR 83 million. And we basically took on a new long-term loan facility, which basically leads us to June 2029 with a majority, it's up to EUR 150 million. At the end of the day, a big success story due to the fact that our banks came back to us and even granted us in the range of EUR 200 million, which we did cut back to EUR 150 million. So there was substantial performance and big trust amongst the investors community on the bank side given over the course of the last weeks also because we did do that in a record time within the last 2 months, basically, we said well let's take the chance and go for in earlier days already in to securing our payback for the term loan of EUR 83 million, which reaches its maturity already next year in March, and very much ahead of time, we could close this deal with our banks.

It's a syndicated banks we have in the portfolio anyways, and we took on a EUR 150 million term loan, which matures in June 2029. And along with that, we, at the end of the day, increased our covenant from 3.5 up to 4.0, which also is a good sign of stability in the company. The banks did grant that to us without any obstacle hurdle or whatnot. At the end of the day, the covenant has increased to 4.0 and will go back and return to 3.5 by September 2026. And this is a good sign of stability in this basically bumpy road times we see in terms of softer sales. So all good. We already achieved closing with all bank signatures were done last year -- last week, sorry, for that last week, and we actually will pay back now this loan of EUR 83 million, and we will also pay back a bigger amount of our revolving credit we have out there, a big success story on the bank side in uncertain times.

So on the next page, we are at the end of the day, talk a bit about the tariff situation. I've been talking about that on the first page already. There are 2 impacts. There is the primary impact for sure. That means what does this cost us in terms of EBIT margin. And the secondary impact is rather what we actually see currently coming up primary impact is not that big for Stabilus Group. We live up for local for local, right? Yes, the current situation impacts and disrupts the global supply chains, that's clear, the visibility out there in the business is very volatile because you, at the end of the day, don't know which tariffs come up over the course of the week and some time.

However, we have the right mitigation actions in place. We are local for local, which guarantees at the end of the day that we are strong in terms of minimizing the impact on our business firsthand. And whatever is left over then as a real impact at the end of the day, reaches out and gets compensated by our customers because we are along the line in all these discussions with our customers. In many cases, we already closed these discussions. So we're good off. We could basically settle with the customers. And in a nutshell, that means for our business that over the course of the year -- this year, we will have an impact on our P&L of way less than EUR 2 million. It's rather in the range of below EUR 1 million on a short term. You remember back when we talked about that in the last quarter that we still said and you see that also on this page that will be in the low single-digit million amount. However, we could narrow that down and could tailor that down. And at the end of the day, we achieved that the impact on our business is rather minimal from the direct impact. And with USMCA still being in place, our stringent measures local for local and also charging back to the customer the final amount on our P&L will be less than EUR 1 million. And this is also what we see for the current year, but also for the next year to come in case the actual tariffs stay like they are.

The secondary impact is rather something which is impacting our business. We see that there is in terms of consumer sentiment, the ambition to spend money is going down on the automotive side and also on the industrial side in all sectors, people are hesitant to spend money. We see that predominantly in North America, but also in China. In North America, it affects majority the automotive industry, but also the industry itself. In China, it's both auto and industrial sectors. Why is that? Because in good times with lower impact of tariffs, the U.S. industry orders more equipment in China, so some of them built the airlines in China and important to, yes. With tariffs increasing, basically the consumer sentiment or the buyer's sentiment of companies to invest in machine and equipment coming from China is reduced.

And this is something which we actually see in all of our industrial sectors that in China, the China equipment asked for from side of the U.S. is reduced, and that's something which we see as a secondary impact. So first impact is the direct stuff, which impacts on our P&L, minimal, not a big deal, less than EUR 1 million for the year and also for next year, well under control. The secondary impact is something which at the end of the day, leads to softer sales, and you'll see it in the presentation, predominantly in North America, but also in China.

And here, you see that on the quarter 3 for the year 2025 in terms of revenues and earnings, we, at the end of the day, are on a revenue of EUR 316 million. I did point that out already, there is an organic impact by 5%, but also very strong FX impact because the euro is very strong compared to renminbi and also compared to at the end of the day, aside of the renminbi to the U.S. dollar. So these 2 are basically impacted by our -- impacting our business currently.

So -- and then in terms of EBIT margin, EUR 33 million EBIT margin is on our books in quarter 3, the profitability is on EUR 10.1 million, 3.2% and the free cash flow is on EUR 33 million at all.

The next page, you see the 9 months, a few of the numbers, also here in revenue, a little impact because the first 2 quarters were stronger than the third one for sure. So we're in the ballpark with all these numbers in the range of last year. So EUR 980 million in terms of sales is somewhat in line with last year. And year-to-date, the EBIT margin is in the range of 11.1%. And this is pretty much the same ballpark than last year. So you see we are basically fighting all these effects on our business in terms of offsetting some of the volume losses, but also in terms of margin, we are holding the cost. And here, the FX for the year again, it's minus 3%, predominantly driven by the third quarter. And after all, the EBIT margin is in the range of 11.1%, and this is something which is pretty much on a similar level than last year.

Profitability is on 35.6%. And also the free cash flow is in the range of EUR 60 million. So yes, a little lower than last year, but they are quarter-to-quarter variances in our business. So we are confident that towards the end of the year will be in the range of EUR 105 million with our free cash flow, which is an outstanding result. And it's a -- yes, cash ratio of 50% and beyond, so a very healthy business proposition.

On the next page, we talk a little bit about the regions. I did talk about the beforehand already that Americas, but also Asia, are not keeping up with the last year in the third quarter, America basically is down 12%. Asia Pacific is 21% down. Europe is holding course, and as I said, these 2 factors are basically we are driving our complete set of numbers because Americas, we see the automotive sector being softer, in Asia Pacific, we see the industry and automotive sector being softer than in the years before, driven by the tariff impact which, at the end of the day, goes throughout the numbers down to the bottom in our case because the Americas and Asia Pacific numbers, we were pretty much impacted by the secondary impact of the tariff situation with lower consumer sentiment in Americas and also in Asia Pacific, less sales when it comes to automotive industry.

We're focusing a bit on the details. Americas, as I said, minus 3.9%, by EUR 116.7 million. So the organic area was minus 3.9%. But FX is the big driver here. It's 9% -- in the range of 9%, driven by the strong euro. So that means this FX impact comes from the U.S. dollar and the Mexican peso this time around. And this impacts our business for sure, and predominantly the U.S. dollar is way softer than the euro, these days, driven by also to certain share the tariffs. And that's something which impacts us on the revenue side as well as on the adjusted EBIT side.

So on the next page, we see EMEA. EMEA is, as I said, holding the course in difficult times. And we see here similar sales than last year in the same level. And basically, also the adjusted EBIT margin is holding of course, there is some slight FX impact, yes. But the big majority of the overarching picture is that we hold course in difficult times in the EMEA area.

The last not least, Asia Pacific, for sure, Asia Pacific, for us, means it's China. In China, the revenues is down 21%. 17% is driven by consumer sentiment and thereby organic-driven sales deterioration, which we saw quarter-over-quarter and a 5% FX impact there. So -- and it's both here in this region and the Asia Pacific side or China side, it's automotive, and also the industrial business, which is rather soft for the last quarter. And for sure, you see the similar impact on the EBIT margin.

We are talking about the different markets segments we have. The good thing is, with our strategy, which is still on in terms of our strategic direction, we're moving towards 50-50 automotive to the industrial business. So the automotive sector is now holding up for 54%, and you see this growing sectors on the sideline. The biggest one with 16% is, for sure, our automation equipment, which we it enforced with DESTACO acquisition. Then for sure, there is the area of distribution, independent aftermarket and e-commerce, where we see still good business in the -- particularly on the service side of our business because whenever the economy is rather on the low end. For sure, we see that the independent aftermarket is holding cost due to the fact that when people do not interested new cars, you actually see that on top of that, we, at the end of the day, see more impacts or better volumes in terms of the aftermarket in e-commerce.

So on the next page, we see our net leverage ratio. I said at the beginning that there is a good level of covenant increase. That's something which came as a sideline and the surplus to our refinancing activities, which we did in the range of EUR 150 million, also the banks offered us to increase the covenant because we very well know that the covenant in the discussions we had with our valued analysts and shareholders over the course of the last weeks were concerned, and that's something which, at the end of the day was granted without any issue by the banks to go for a covenant of 4 until September next year.

Now currently, we are at 3, as promised, we stay in the range of 3, and that's something which is important to us, and we have enough headroom to our covenant. We had already enough headroom to our covenant before when we were at 3.5. However, with the new loans in place, the covenant is now for a year on 4.0, which gives additional headroom and allows us also to pay back with this loan, the EUR 83 million in March. And on top of that, we paid back some of the revolving credits, which are outstanding. And at the end of the day, our goal remains unchanged, and we for sure reach this goal in the next 2 to 3 years, we will be below 2, and our long-term goal is again to be in the range of 1.

Yes, we can switch to the next page, exactly. That's where we are. You see that not only on the margin and not only on the side of our complete business, we are carefully watching where we stand and constantly striving and further improving our business. We are also in terms of net working capital coming along very well. Our latest value is 19.3%, net working capital which is absolutely in the ballpark where we wanted to be, reflecting the current market situation. We're coming from beyond 20% now with 19.3% we are in a very nice and good poll pack with our business and also driving and continue to drive predominantly the influencing factors of net working capital for us along the line, particularly towards the end of the year, there will be of extreme importance also reflecting our cash position. That's for sure.

Yes, in terms of the investment, our investment, as you know, is in the range of 6% to 7% this year. Typically, it's between 5% and 6%. As I said in prior meetings, we at the end of the day, are keeping our promise that we stay in this range of 6% to 7% this year with our investments in automation. We did do investments before and already in the first couple of quarters here in 2025. And this is something which basically flattens out over the year. You see here that we are rather on the upper end of the 6% to 7% with 6.8%, this is, for sure, driven by the impact of slightly lower sales this time around but we are holding the costs with -- in a range of EUR 80 million.

And then in terms of investments and will for sure over the course of the next years, then slightly reduce that back as we've been impacted or kind of turning into life our automation equipment activities. And that's something which, at the end of the day, is very healthy for us because in these days, for sure, we are preparing the company for lower sales. We are taking out costs, not only on the supply side, VAVE activities, but also in our structure side and also in the different plants, and continue to put a certain level on the automation degree we invest in cobalt and robot systems and in new technologies because one thing is extremely important these days is that we continue to hold course when it comes to these investments, making sure that as volume comes back, we harvest fruits of economies of scale and that we tailor our cost structure in the operations side wherever we can. And this is why we invested over the course of the last 2 quarters in Industrial Automation, and this will gradually come down now and our long-term KPI here is also between 5% and 6% in terms of EBITDA -- in terms of investments.

Yes, I did talk a bit about this page already. Towards the end of the year, we are narrowing down our guidance will be in the range of EUR 1.3 billion sales, 11% EBIT margin, and wonderful 105% free cash flow in terms of million. The cash flow ratio is thereby beyond 50%. That's extremely healthy and also extremely healthy again in 9 months view, we take course in terms of the EBIT margin development even if the volumes are down 5% to 10%.

Now this brings me to the summary and outlook page before we go into the Q&A session. Yes, we are impacted by the current market environment, but we are holding course. So we are actually holding course in terms of EBIT margin year-to-date, we are holding course in terms of cash generation, and that's extremely important to us. We -- our impact or our impact to the tariffs is minimal in a direct way. So we've been straightening that out. And over the course of the year, will be less than EUR 1 million. And on a long run the point, which is relevant for us a secondary impact forefront China, but also the area of Americas. And for sure, the refinancing activities with our syndicated loan banks was a big success. We've been generating EUR 150 million in terms of loan which matures in June 2029 and thereby, we can offset and pay back our short-term loan, which is, at the end of the day, due in March next year, we'll do that right now to pay this money back and also some of the revolving credits will pay back in order to have some headroom. We increased our covenant to 4. I mentioned that already. And this is where we currently stand with our business in the summary and outlook.

And at the end of the day, with our new guidance in place, we expect to be at EUR 1.3 billion, around about and an 11% EBIT margin and EUR 105 million free cash flow. That would summarize the current situation. As I said at the beginning, we are holding course in difficult times. And we, at the end of the day, take the right measures to control costs in the operations, but also in the overhead side, and this is something which we will continue to do over the course of the next quarters. We'll take the opportunity now to, at the end of the day, slim down our cost position on material side, on the technical side, on the overhead side, in order to basically be prepared for the next cycle, which we see in the industry where the volumes will for sure creep up over the course of next year.

So with that, we will open for Q&As.

[Operator]

[Operator Instructions] And the first question goes to Akshat Kacker of JPM.

[Akshat Kacker, analyst]

Akshat from JPMorgan. I have 3 questions, please. The first one on the demand environment. Could you just give us more details on OEM call-offs within the automotive sector and also some order intake trends across your different industrial businesses. Are you seeing any signs of stabilization? Or are there areas within the business that are starting to do better because when I think about your Q4 guide, the implied Q4 guide, you're basically guiding for a sequentially flattish quarter in terms of revenues and adjusted EBIT? So any more color there would be helpful. That's the first question.

The second question is on APAC Powerise and China pricing. This is the third quarter where we have seen organic revenues down 15% within APAC Powerise. We have discussed customer mix before, could you just give us some details and your sense on when can we expect this to stabilize? And when can we expect Stabilus to return to growth in that specific business segment? And also, obviously, a linked question what does that mean for your pricing discussions with OEMs in that region?

And the last one, I did hear you talking a lot about cost actions, variable and structural in the near and long term. Are you in a position today to give us some numbers or quantify the total amount of cost actions that you're taking going into next year, please?

[Michael Büchsner, executive]

Absolutely. So thank you, Akshat, for these questions. First of all, the demand on the OEM side and on the industrial industries, actually, you were mentioning China. I had a ticket on a global view, including the different regions. At the end of the day, I think in terms of what we see currently as a call offs from the customers is that we have been reaching the bottom, I think that now with the tariff situations around the globe, which impacts driven by the U.S. all the different regions. The consumer sentiment is now on a bottom. Everybody knows that the situation is kind of volatile. Everybody knows that a lot of these different negotiations, which are to happen over the course of the last week have been done also the negotiations with the European Union.

And that's why I think this uncertainty is actually not in the market anymore. That means things are stabilizing. So from our economic indicators around the globe, we see that on the automotive side, we are basically reaching a bottom. There is some carryover effects to next year, I believe we see some positive signs on the industrial areas for next year. On the industrial areas, we see that in the automation sector, which is also for us a frontrunner when it comes later to the automotive industry because typically what happens is you see that people invest a bit more in equipment and this is an indicator that volumes will go up also on the automotive side because the investment in equipment is an indicator that people are planning to produce more cars. And this is something which we see.

So currently, we see the economy being on this low point in terms of demand, both automotive and industry. We see the industry sector coming up next year a couple of percentage points. Automotive still being in a difficult spot. But from the automotive or from the industrial side, we see some positive signs in all the different regions next year. And I think that due to the fact that all these discussions around tariffs did lead to plenty of agreements around the globe. Yes, some of them are not hammered in stone. As we know, they are kind of volatile, but I think people are adjusting to this volatility currently. And some of these deals have been made already in terms of tariffs. And this at least that's what we see in our next year's numbers will basically lead to a more stable environment that we see it currently.

On the industrial side, automotive side is still a little shaky. However, the industrial business from our side indicates that there is a light at the end of the tunnel and people are investing in more equipment, which at the end of the day will have also a effect on the automotive industry down the road. So that's your first question.

The second question was Asia Pacific Powerise in China, down double digit. Yes, that's right. We saw an organic software business for us over the course of this complete year. You were mentioning and that's absolutely right. The pricing topic, we saw some big competition with one of our main competitors' engine in China. We did announce that from the very beginning of the year that the prices will come down probably in the magnitude of 7% to 8% in China, which indeed happened, so this was one driver. So price was basically half of the percentage value you've been mentioning with 8% price down over the course of the year.

The other 5% to 8% were volume-driven. We see -- and this reaches also out to the other regions that currently in terms of vehicle build, we're producing -- or the world producing a range of 85 million to 88 million cars for the year. And this is a little lower than the years before. On top, we see that rather the smaller segment cars are produced on the burden of the higher segment cars. So there is kind of a mix shift between highly equipped cars where we for sure benefit with Powerise to the lower equipped cars, and this is something which we see in our numbers.

For next year, what does this mean? This was part of your question, too. We see that the prices are going down another 3% to 4%, which is a bit higher than the average. Typically, we calculate with 2% to 3%. We expect 3% to 4% next year. So it means also in China, price levels basically reach more stability over the course of the next year due to the -- at the end of the day, also our competition now is reaching a level with pricing where they don't want to go further down, particularly engine. We see that there is some stability. As I said, this will lead along with the volume distress also the Chinese OEMs have. Currently, this will lead to the point that the prices will probably go down another 3% to 4% next year, but by far, not to the magnitude that we've seen it. So it will be rather on the stable side.

Yes, in terms of cost measures, typically -- in terms of cost measures, we are reducing our bill of material costs by 2% to 3% every year with VAVE actions and also with actions on not only a technical side, but also in terms of discussions with our suppliers.

If you remember back last year, we've been talking about that we've had supplier conference. We did basically talk with all suppliers, and we had stringent measures to reduce supplier activities and to reduce supplier costs by 2% to 3%. And this is something which we currently see in our bill of material. So we've been able to reduce our costs on the material side 3% to 4%, which offsets a lot of this impact we see, particularly on China when it comes to the price reductions in the market so the sales price reductions in the market. So half of that is set off. There is some impact on the margin as you see, predominantly because of the lower volumes, and that's what we've been striving for.

Also, we started our cost-cutting initiatives in the indirect areas. As you know, we talked about that on the Capital Markets Day. And at the end of the day, all these activities together for next year get us about a percentage point in terms of margin. I hope that answers your question, Akshat.

[Akshat Kacker, analyst]

Yes, it does.

[Operator]

And the next question goes to Marc-René Tonn of Warburg Research.

[Marc-Rene Tonn, analyst]

First one, basically coming back to Akshat's question regarding the visibility of improvement in industry and I think particularly the the stack weakness is probably something which was, let's say, also weighing on the share price development today. But you could also, let's say, sure here that you are let's say, still sticking to your, let's say, strategic growth targets for the business and that we may already see some of the recovery of postponed orders perhaps already in the fourth quarter this year or going into next year. That will be the first question.

Second question is a bit -- maybe that I missed that, but with regards to the covenants, so there's basically no change to the terms and conditions. Now, let's say, between 3.5% leverage ratio and 4.0, if I understood that, is that correctly? Or is there any change to your refinancing conditions?

And the third question would be going a bit into next year. And I appreciate that you already said you gave some details on that, what you are expecting in terms of growth. But talking now about, let's say, the bottoming of let's say, the over situation now and the cost measures you are taking in a bit better industry business next year, would you also, let's say, see perhaps the current margin level at some kind of off the bottom now with some improvement potential going forward into next year?

[Michael Büchsner, executive]

Yes. Thank you very much for your question, Marc-René. The -- you were talking about visibility a bit in terms of the business as you were pointing out DESTACO that's very valid point. On the DESTACO side, we saw in the last quarter, software sales by around about EUR 5 million, which has to do to the biggest majority with China. I've been pointing out that was not sold to the U.S. by equipment producers in China. And there nowadays is a lot of equipment which is produced in China and then sent over to the U.S. This was an effect, which we saw in the third quarter that this cost us EUR 5 million in terms of sales, EUR 5 million to EUR 6 million. There were some bigger contracts involved, which were pushed out by quarter. So we will see that coming back.

Overall, in terms of DESTACO, they are holding the cost as expected, the margin is like in the past quarters between 18% and 20%, as always stated. But yes, in the third quarter, there was the secondary impact also visible in the DESTACO area. However, if you see the business at all in terms of winning business out there, we recently won a big contract on DESTACO with a magnitude of EUR 100 million even with very attractive margins. We are reviewing our Gas Spring business, Powerise business and the industrial business in terms of business wins, and we are still winning business in the magnitude of our current market share or slightly beyond. It's just a point that instead of 10 parts, 9 parts are sold currently due to this softer economy out there.

So in terms of the business model, all intact, DESTACO is performing to what we've expected them to perform. Currently, as I said, this is the softness we see in the market. And this is, as I said, something which should be -- or we see some light at the end of the tunnel in next year.

Covenant, the current covenant which we have with our complete loans is 3.5. We very well recognize that there was a concern in the market in terms of the 3.5 as we are approaching or did approach the 3, we are stable at 3 now and will further go down from the 3, but -- and there is headroom already. However, we took the opportunity with this refinancing activities to also approach our banks with this concern and the banks well, Michael, if that's a topic, we as banks and the big basic syndicated banks involved, stick to Stabilus like we did in the past. This business model is an extremely good one.

The cash generation is excellent. We actually grant you 4.0 for the next quarters. And anyways, with our kind of deleveraging, which is the main priority we have. So deleveraging is the main priority in paying back whatever cash we generate is the main priority as well. So deleveraging is the main priority. But nevertheless, our banks granted us in conjunction with this new loan to get on a complete loan to a covenant of 4.0 which gives more headroom, which gives more stability or the impression of more stability. However, we will not go beyond the 3.0 in terms of our net leverage ratio anyways. However, it should give also the strong signal to the market that we, as Stabilus Group are perceived by our syndicated loan banks as a very strong investment grade company. And this was assigned by our syndicated banks that we are in a strong position, which we for sure then took on and said, well, that's a good deal. We have now a refinancing done of EUR 150 million, as I said, we very well could have gotten up to EUR 200 million in terms of loan. We did cut that back to EUR 150 million because we said we don't need more than that to pay back our loan for next year of the EUR 83 million, which is due in March. And on top paying back some of the revolving credits, this gives us some additional freedom and it gives to our investors and stakeholders, also a good sign for stability because the banks -- they trust in us, the banks believe into the business model and they see which numbers we generate, and this grant stability. 5 banks are involved. So that means that gives you also a certain spectrum which is very valuable and guarantees the stability.

Your third question, however, was in terms of 2026, do we see it popping out, bottoming out? Yes, definitely. In our industrial business, we see things coming back next year. In the automotive sector, as I said, it's still a little soft, the industrial business typically is a front runner, people invest in machinery to build cars and other consumer goods if people invest in industrial machinery, if companies invest in industrial machinery, that's a good sign that also the industry comes up with basically -- typically a delay of 3 to 6 months, and this is what we expect for next year. You were talking about margin and our expectations with these activities, which we've been driving in all areas, be it overhead, cost structure, bill of material and whatnot, the margin expectation for this year is the bottom and next year, we'll see 1% to the upside. I hope that answers your questions, Marc-René. Further questions.

[Operator]

Yes, we have another question, and it goes to Yasmin Steilen of Berenberg.

[Yasmin Steilen, analyst]

I have 4, if I may, and I will take them one by one. So the first question coming back to DESTACO in Q3, we have seen a 15% organic sales decline. Does this number already reflect any sales synergies with Stabilus? And what was the underlying profitability of DESTACO in Q3? That's my first question.

[Michael Büchsner, executive]

So the sales synergies for the year are in the range of EUR 10 million, as we always said, the synergies at this point in time are on EUR 6.5 million. So yes, the sales synergies they are coming in very well. Sales synergies are always divided into 2. This is something which the biggest share goes on to the original Stabilus industrial business, and only 1/3 goes to this take due to the fact that with the sales synergies also it 2 ways, right? We sell stuff to the customers of DESTACO. And we sell stuff to the customers of Stabilus vice versa. So the overall number is EUR 6.6 million for the year.

The biggest share was in the first half year. So this is the 9 months view. In the last quarter, we saw around about EUR 2 million. However, we are confident that the gap -- the remaining gap of EUR 3.5 million for the rest of the year, we closed in the fourth quarter. So we are sales synergies well on track. You're absolutely right. The last quarter in terms of DESTACO was rather soft. We're talking about the margin, which is in the range of 17% to 18% under DESTACO side, which is equivalent to the sales impact of EUR 5 million to EUR 6 million under DESTACO side, which at the end of the day, the vast majority was driven by China, where we typically would sell a couple of million more than we really did this year. This quarter, that was driven to the fact that at the end of the day, for the complete industry of building machines in China, the machine builders indices was coming down significantly, unfortunately, in the China for the last quarter, we see and DESTACO good sales and on par in Europe, some decline also in North America, basically driven by the reduced consumer sentiment. And as I said, the biggest point was China in terms of slightly softer sales under DESTACO side. Also here, it's not that we would have lost any business. It's just that instead of 10 parts, currently 9 parts are sold.

[Yasmin Steilen, analyst]

Okay. Then on Industrial Automation, you mentioned some positive signs with on the other hand, recently reducing its order intake forecast in the midpoint by around 12% implying a book-to-bill below 1 at 0.9. So given DESTACO generates around 40% still in the automotive business or basically related to the automotive CapEx. How should we think about the sales and profitability evolution of DESTACO in the coming, say, 12 to 18 months or next year? Should we see further declines in the first half and then a recovery in the second half? Or how should we think about it?

[Michael Büchsner, executive]

From our perspective, yes, there is a very valid point that over the course of the first quarter towards the end of the year. So for us, the next 2 quarters, 2 quarters where we see a little softer sales in terms of DESTACO. You mentioned -- do with minus 12%. I know that is predominantly in the automotive space. Nowadays, DESTACO is in the range of 45%, automotive sales and 55% industrial sales in general terms, the industrial sales in general terms are doing still better, and they will continue to do better. As I said before, we also won a very promising contract over the course of the next 4 years with sales of EUR 100 million for this kind of next 4 years. So it means a surplus of another EUR 20 million.

So from our perspective, when we took DESTACO, it was in the range of EUR 190 million, EUR 195 million. We are at EUR 200 million, have been on EUR 200 million full year sales. Now the last quarter was below that. Our kind of -- our business forecast for the next year is that DESTACO is staying flat to last year. So that means in the range of EUR 195 million to EUR 200 million with margins in the range of 19% to 20% in the first 12 months consolidation. If you remember back the first 12 months consolidation of DESTACO was in the range of 19%, 19.5% EBIT margin and in the range of EUR 190 million sales to EUR 200 million sales. And this is what we see also for next year. So they are rather stable in a difficult environment.

[Yasmin Steilen, analyst]

Okay. Perfect. And then a question on the CapEx increase. So could you elaborate in a little bit more detail the reason for the CapEx increase ahead of your initial guidance? Does this also reflect CapEx requirements for DESTACO or is it only related to leaner production in the automotive business?

[Michael Büchsner, executive]

There is -- in terms of DESTACO, there is no significant CapEx in DESTACO. I know that where this question is coming from whenever we've been talking about this DESTACO and also that they've been owned by a U.S. company, one would think that they were not -- they were underinvested. That's not the case with DESTACO, DESTACO is holding the course cost in terms of CapEx. Their CapEx request is in the range of 5%, so slightly lower than the average of the Stabilus group.

With the pricing pressure we see on the Powerise predominantly, we took the decision to invest in fully automated lines for the Powerise assembly that's one thing of the automation, right? Because dealing with this price deterioration is predominantly in China, the only way to deal with it is to automize things. And this is why we did automize our production of Powerise systems in all regions now.

Needless to say that a fully automated line is more expensive than a manual line. And then we, at the end of the day, drove particularly in core plans, an efficiency initiative. And with this efficiency initiative, we did invest in a new fully automated loading and unloading of a gas spring line, which is another lever.

And then the third anchor point is investment in new technology where we did invest over the course of the beginning of the year, particularly a lot in the door actuation. So the door actuation is now invested in. So there is no additional big investment coming into the door actuation areas. And this at the end of the day led to the currently EUR 60 million investments we did now lower by yes, we mentioned it in absolute numbers, including the FX effect, 10% round about 9.9%, half is volumes, half is FX. But nevertheless, the baseline of our sales line is lower. And due to that fact, the percentage is just 1% higher. But we stick to the original 5% to 6%. And as I said, due to the fact that the sales are softer this quarter and subsequently over the first 9 months, we see the percentage being higher, but the absolute investment is still in the range of EUR 60 million. Hope that answers your third question.

[Yasmin Steilen, analyst]

Perfect. And the last one, just again, coming back to DESTACO, you stressed several times DESTACO was developed in line with expectations, despite the macroeconomic headwinds. So just to clarify, you see no risk of any kitchen thinking exercise with the new CFO coming in November given...

[Michael Büchsner, executive]

Oh, definitely not, that's a very good point. Our new CFO, as you know, Mr. Jaeger is coming on board 1st of November. We are already now in good context. It was very important to me that Mr. Jaeger, at the end of the day is already onboarded in terms of knowing what's going on in our budgeting process for next year, and there will be no kitchen thinking, definitely not. .

[Operator]

Ladies and gentlemen, since we didn't receive any further questions, we will leave the line open a brief moment phone. [Operator Instructions]

[Michael Büchsner, executive]

Yes, if there are no further questions, thank you again, and thank you for participating in today's call. Important to know is we're holding the course in soft quarters. We are holding the course with soft sales. We are taking the right initiatives in terms of cost cutting, in terms of overhead reductions. And this is something which we'll continue to do. The most relevant thing for us is deleveraging. So we'll pay back with whatever we generate in terms of cash flow. And then for sure, down the line, important for us is to prepare for the future with these efficiency measures, we are spot on with what our business requires. So thank you very much for your participation today, and I wish you all the best and a good week. Thank you. Bye, everybody.