Stabilus SE (STM) Earnings Call Transcript

Good morning, ladies and gentlemen, and welcome to the Stabilus S.A. conference call regarding the Stabilus financial results in first quarter of fiscal year 2021. [Operator Instructions] Let's now turn the floor over to your host, Mr. Mark Wilhelms.

Yes. Hello, and good morning from the Stabilus team. You've got here at the Stabilus desk, Michael Büchsner, our CEO; Andreas Schröder, Investor Relations; and myself, Mark Wilhelms, CFO to the company. We will now take you through the results of Q1, as already mentioned. For this, I'll hand over to Michael Büchsner, who will take you through the operational highlights.

Yes. Thank you very much, Mark. Hello, and welcome, everybody, also from my side. We did start the year very well 2021, first quarter is over for us. And we have good news to report today. On the operational highlights, we still, for sure, strictly follow our pandemic plan and our rules because our main priority is, for sure, to ensure the safety of our employees. And thereby in hand goes the good development of our company in terms of protecting the company and its employees, for sure. The global light vehicle production ended up being 23.4 million vehicles, which is a plus of 2.5% year-over-year, however, for sure, driven still by the crisis minus 2.7% year-over-year according to IHS from the October 16, 2020 numbers. In terms of our business, we had several good launches of power in our Powerise division, which you'll see also in the numbers, the light vehicle production of first quarter 2021 was on expected level on our side, and we could materialize very well. In terms of cost flexibilization, as a result of the good pandemic situation and pandemic situation management in our company, we could have a -- or could show a pull-through effect on the EBIT recovery program and the cost flexibilization program is still on from our side, for sure. However, for the coming months as the pandemic situation is not over, as you all know, we have kind of a limited visibility for the second quarter, financial year '21 for us. However, we are, as I said, working in a good environment in terms of our EBIT recovery steps we did, which will, for sure, proceed upon in the next coming months. So we have, therefore, a very flexible production setup, which is crucial and important for the coming months as the economy recovers step-by-step. We kind of tailor our production capacities to the demands of the customers. However, we also invested in very, very difficult times, and you see that on the next page and next pages, a lot in our new plant in Pinghu. Especially, as we've been announcing in the past meetings, we expect growth in Asia, forefront on the Powerise side because of increased fitment rate in the area of Asia, particularly in China but also in Korea. And that's why we invested in our new facility in Pinghu, which is close to Shanghai. And on the next page, you will just see some impressions of this new plant. It's a state-of-the-art plant in or close to Shanghai, we invested or will invest in total EUR 10 million, and it's also heavily sponsored by the government by 80% grants we get or we will get finally. And on the first page, you'll see some impressions from the outside. As I said, it's brand new. We just completed the building. Page #7 shows some entrance area and Page #8 shows the inner side of the building, which is kind of step-by-step now filled with new equipment. You see that on Page #8, on the left-hand side, we roll out also here our standardized equipment, which is kind of standardized around the globe to be, on 1 hand side, most effective in what we do. On the other side, also to recognize our latest innovations in terms of the assembly processes. And for sure, on the product size to continue our path of being a supplier for highest quality standards out there for tailgate opening and closing systems. And that's actually what we pursue upon step-by-step, filling this building with business. And in 3 years from now, it will be 100% filled with new business from today's planning perspective. And the customer businesses on hand, which are all confirmed businesses, by the way, are materializing now step by step. As you see also in the numbers when we get to the financial section. But before we go there, I'll just talk briefly about the financial results in an overview level before I hand over back to Mark. In terms of the revenue in the first quarter 2021 October, November and December calendar year '20, we achieved a revenue of EUR 235 million, which is on a higher level than even the first quarter 2020 and to be remember, this was a quarter before the pandemic situation, before the crisis still. So we've been even better in the first quarter this year compared to the prior year, better by EUR 4 million, which is a plus of 1.7% year-over-year. And this kind of shows an organic growth of more than 7% year-over-year, which we're really proud on. In terms of the EBIT margin, we've been good off as well, EUR 32.3 million versus EUR 30 million in the quarter of last year and the comparable quarter of last year, plus 7.7%, thereby. And actually, the EBIT margin percent is 13.7%, which is equal even to the first quarter we had in the financial year '19. So our saving measures materialize. We have sustainable measures been introducing in the crisis time last year, which shows basically that we operate on a very efficient way and could even in crisis times, further improve our cost structure. In terms of profit, we ended up having EUR 13.3 million (sic) [ EUR 14.3 million. ] Free cash flow also expected on a very positive level, EUR 21.9 million versus EUR 7.8 million in the year before. Net leverage ratio as a result is back to 1.0, and financial debt is decreasing as expected. We're now at EUR 152.2 million. Now in terms of the outlook, we still continue to have a revenue forecast of EUR 850 million to EUR 900 million and an adjusted margin forecast of 12% to 13%, but we'll talk about that outlook a little later. Before we do so, I would hand over back to Mark for some details on the financial numbers.

Yes. Thank you. We are now one page further with the boxes at Slide #11. Michael has taken you through that one. Nevertheless, let's just spend 2 seconds looking at the bottom right-hand side, with the free cash flow EUR 21.9 million, in spite of still having decently filled inventory, not having squeezed our suppliers something we are quite clearly proud of that we've managed to get through that very first quarter of our business here with such a good cash flow that clearly shows our aspirations for the time to come. But now going forward to my, call it, standard slide, that is Slide #13, we take a look at the European numbers. Europe is up organically by 4.4% in absolute terms, EUR 3.4 million. Now looking at the right-hand side to the comments, that's European light vehicle production up by 0.2%. So our organic growth is 4.4%, quite clearly doing much better, as you see with the second bullet point. Within that, organic growth of the Automotive Gas Spring division with plus 3.7%, looks good. And Powerise even exceeding 15.2%. Michael has mentioned that beforehand, we are ramping up production for a number of pretty well selling models whether it is BMW 5, Porsche Macan, Taycan, Audi models, et cetera, all those things look good and specifically take a look at the Volkswagen T-Roc, which is kind of one of those affordable models. Besides, in the past, mentioned as well Ford Puma, all those more affordable models show that the overall trends at convenience comfort is important to the end customer of the vehicle manufacturers is clearly helping us to sell Powerise products well. Within this overall positive picture, a slight downside soft 1 is the industrial revenue. It is a bit below last year's numbers at only EUR 53.4 million, EUR 800,000 below, with a very mixed picture within the various subsegments of industry and will, later on, come to a separate slide. It looks -- it's overall industrial business. Margin within Europe at 13% EBIT compared to 12.3% we had before or as we look back to the 2019 Q1, which is, in fact, October, November, December 2018, there we had 13.9%. Going forward, Slide #14 shows Americas. Americas, that is the U.S., Mexico as well as Brazil and the business we have in Argentina. Here in that section of the world, vehicle production improved year-over-year by 0.4%. Our revenue is down in euros by about 6.6% or EUR 6 million, but you know that the dollar is softer a year ago, we had like 1.11. And this year, we have 1.19-ish as an average FX for the U.S. dollar. So adjust our results by the FX effect, and you see that our revenue grew, in fact, by 5.1%. Within the overall U.S. business, the Automotive Gas Spring division is up at 9.2% and Powerise at a stunning 22.4%. Very good installation rates across a number of vehicles. And important to note here, Tesla Model 3, the trunk lid is now fitted or installed with a Stabilus Powerise system, a uniquely developed system to actually open and close this trunk lid with the system of ours. We used to be very strong in the area of normal tailgates, steep tailgates, boxy cars. And now for the model 3 of Tesla, we've developed something special, which fits into normal trunk lids and opens a huge market for us going forward. Now looking at the margins, U.S. margins at 13.2%, which is a bit softer than last year's 13.9%. Going forward with Slide #15, we take a look at the Asia Pacific region. There, the vehicle production increased by 4.3%. Our revenue grew by 21.4% or adjusting it for FX by a stunning 23.2%. Within this overall very positive environment, the Automotive Gas Spring division is up by 16.4% and Powerise at 58%. Obviously, benefiting tremendously by the convenience comfort interest of the Asian, the Chinese end consumer and our very well appreciated range of tailgate automation systems that help our customers to deliver what the end consumer wants. Industrial revenue, no growth, it's EUR 100,000 lower than last year from a small base. And you see that Automotive Gas Spring with EUR 22.7 million is still the lion's share of our revenue in Asia/Pacific. In terms of EBIT margins, Asia/Pacific now at 17.4%, up from 13% last year or 11.9% 2 years ago. In terms of drop-through, interesting to note, we have EUR 6.8 million more revenue in that area and EUR 2.5 million more EBIT. So that is -- it's the high end of the 30 years with a drop-through margin. Going forward to Slide #16, we take a look at the revenue by business unit. Industrial, last year was 39%; this year, down to 35%. The mix effect now is that coming from industry doing a bit softer, as you can see with revenue down at EUR 81.4 million and Automotive Powerise growing nicely strongly with plus 23.6% and also the Automotive Gas Spring business, up 8.9%. Slide #17 gives you a bit detail on the industrial revenue. Overall, as I already mentioned, it came out at EUR 81.4 million, that is down by EUR 8.5 million year-over-year. Within this, the segments all developed differently as the chart shows. Let's just take a quick look at the second last, mobility segment. DIAMEC, Mobility, HRS revenue has increased in terms of share in the overall picture of our industrial revenue. And you see with this quite clearly, we have different industrial segments. The benefit suffer from the crisis differently. They are late and early followers of the economic cycle. We are active in all of them. We participate in all of them, and we do our bit to ensure that we get an improved share in an overall depending on what's going on the softer or increasing business. Now I turn over back to Michael again with Slide #19, and he'll talk to you about the outlook.

Yes. Thank you very much, Mark. So this financial numbers actually underline that we, as the management team of Stabilus, did the right steps to further improve our business even in the difficult year 2020. So with stringent cost measures in all areas, we could underline our position, could improve our position and also this materializes in the first quarter 2021 for us. And nevertheless, as we already said, we invested a lot in our future, not only that we've been investing in engineering and thereby front-loading our pipeline of new ideas on the technical side, we also invested in the plant in Pinghu, which at the end of the day, we guarantee that our business is on the right position also when it comes to Asia and particularly in China. Talking about the outlook for the coming months. So for the complete year, financial year 2021, our guidance is still on with revenue of EUR 850 million to EUR 900 million and the adjusted EBIT margin of 12% to 13%. So the basis for these numbers is a full year 2021, expected growth of 16% year-over-year. So 85.7 million vehicles in 2021 versus 73.9 million in the year, full year 2020. So actually, the expectation is that the automotive business comes back. As Mark mentioned, a short delay in terms of the industrial business, but the industrial business is expected to come back in the coming months as well. We, for sure, see a limited visibility for the second quarter in the year 2021. Because on one hand side, as you all know, the pandemic situation of COVID-19 is not over yet. And especially in the cold months in the winter, it's not expected that this will get on global scale any better in the next coming months. So the pandemic situation will be, for sure, predominantly around in the next coming months. That's what we've been putting in our assumptions as well as the limited visibility we see due to the semiconductor shortage at the OEMs. You all read in the press and media that hundreds of thousands of cars had to be delayed in terms of production or canceled by various customers around the globe. And here, we are certainly affected as well. So we are affected by, in some plants, reduced call-offs in terms of the customers, however, internally, in Stabilus, we are not impacted because our supply chains are secured whenever it comes to the components we are talking here about. So in terms of the general strategy long term -- mid and long term, our strategy 2025. so the growth path of '20 to '25 is still on with an average of 6% in terms of growth year-over-year and an EBIT margin target of finally 15%. So that concludes the presentation for today, with good numbers and a good outlook, and we will open for questions.

[Operator Instructions] First question comes from Mr. Marc Tonn of Warburg Research.

First question would be regarding the, as I expected, shortfall compared to production. You may have been expecting for this quarter and the reduced color. Could you give us some kind of magnitude, what you actually see? Or is it really something which is already visible, which is still more or less, say, a fear going forward in the weeks ahead? And second, and related to that, of course, I mean, we've seen this very strong start to the year with revenues of more than EUR 230 million and they usually a bit more seasonally softer first quarter for you. And if we would, say, take the Q1 number times 4, we would end up ahead of the upper end of your revenue target. Perhaps you could give us here some indication how cautious you are for the second half? And what your expectations are for, let's say, underlying expectations for the global car industry in -- behind this number? And remind us what you have put in there? And the third question would be on the drop-through rate in the Asia/Pacific region, which is at above 30%. If this is number we should also, let's say, assume for the quarters ahead, whether this is -- is this something you expect sustainable with the ramp-up now of the new plant in China?

Yes. Thank you very much for your questions. I will start answering them, and then I will hand over to Mark also for some details. So you were mentioning the shortfall in production in all areas of the automotive industry. Actually, the numbers we've been collecting are in the range of a miss of production in the coming months of about 150-plus thousand vehicles, which, from today's perspective, are delayed to a later time in the year. Actually, the impact for the time being on our end is limited. So there is a reason for that. In normal cars where we have the gas springs, right, 150,000 cars with cancellations and no gas springs in there is harming us less than if it would be cars, where you see the Powerise. Typically, the OEMs try to sell the cars with higher fitment rates of luxury equipment and fitments in the cars, right? Because that's where the OEMs make their money on. And this is also the Powerise. So as a basic underlying message, the OEMs tend to produce and keep on producing the cars with higher content and thereby, it should be in favor for our Powerise, and that's what we see. So we only see limited impact on our Powerise business. And the gas springs we are missing as a gas spring is in average EUR 3, in the Powerise beyond EUR 30. The impact of the Powerise would be higher, but the OEMs, as I said, are in favor of producing the high-level cars nowadays. And the impact for us is thereby, as we speak, limited. Then this leads to your second question, EUR 230 million and more for the current quarter. If we would multiply that by 4, then we would end up on the higher range of our guidance for the year. This is mathematically correct, yes. However, we do not know how, first of all, the semiconductor issue develops in the coming months because for the time being, we see limited impact for the reasons I've been mentioning that we are on high level fitment cars predominantly. And on the other side, nobody really knows how the rollout of the vaccines and the pandemic situation in general will be in the coming months. Vaccines are available now as we've all well aware of. But nobody really knows how long it's taking until mankind gets back to kind of normal stage. And this is what we've been putting in the numbers. So our assumptions are lower than the vehicle growth, which is forecasted by the IHS because we are on the cautious side. And actually, the same thing applies on the Asia Pacific side. Yes, for the time being, and the quarter 1 shows that we are very strong and that the quarters to come could be very strong as well. However, for the given circumstances of microcontroller shortages around the globe and the pandemic situation, which also kind of led to some drawbacks in China as we've heard lately in the media, with increasing infection rate here and there, add up or opened up some kind of point in terms of interest when it comes to our prognosis for the coming months. And this is what we've been baking into our numbers, but also I would hand over to Mark for some additional information.

Yes. Thank you. Yes, Mr. Tonn, you also asked about the drop rate -- drop-through rate in Asia/Pacific, very strong, high end of the 40%. It's a unique situation in that plant as we ramp up. Overall, when you take a look at Slide 23 in the appendix, you see that our gross margin is with 28 -- 29.8%, a good percentage, higher than last year. That quite clearly tells you that the group average drop-through rate is clearly in that area of the 30%, but not at the high end of 30%. From a controlling perspective, I'd always suggest people to work with an average of like 25% as a ballpark assumption to get going. In China, due to the government support for the plant, the situation is a bit better. Since at the end of the day, once we have all the government subsidy in, you may recall, it's 80% of the overall building costs are supported by subsidy. It actually allows us to lower the depreciation there, which speaks for a slightly better than group average gross profit drop-through effect. Hope this answers your question.

We have next question that is coming from Akshat Kacker of JPMorgan.

A couple of questions, please. The first one is a follow-up on your comment on the 150,000 vehicles that you expect to be delayed as a part of the semi shortages. Just to confirm, is that a global number? Or is that a number for Europe? That's the first one. The second one is on industrial. There is some sequential improvement that we're seeing in this quarter. And you did mention that there will be some more improvement in the months that lie ahead. Can you just shed some more color in terms of what subsectors are driving this improvement? And the third one is on CapEx. What should we expect for the full year in terms of total CapEx, please?

Thank you very much for your questions. I will start with the first 2 questions as a follow-up. And then in terms of the CapEx, I will hand over to Mark. The 150,000 vehicles, which we currently see as reduced numbers are global number. However, we see that the impact of the reduction is, at this point in time, maturely in Europe. And we all don't know how this shortage develops in the coming weeks and months. We -- the situation of this whole thing is not over yet. That's what we get. So it's kind of a unstable situation with the call-offs around the globe. So it could very well be that others are impacted as well. As I said, the impact on Stabilus is kind of in a okay-ish area due to the fact that the cars, where Powerise are sold, typically are the cars which are not canceled or delayed by the OEMs because they are the high and premium cars. It's the low-end cars where we typically sell a gas spring, so the sales impact is less from our side. In terms of the industrial sectors and the subsectors in our business, and whether the development or in which way the development goes in the coming months. As you see in the Chart 17, the area where we grow and where we show good signs in percentage of sales is the independent aftermarket. And actually, our distribution channels with increasing from 30% to 34%. Also, we see a slight relief when it comes to construction and agricultural equipment. These sectors seem to be improving step-by-step as well. The topics which are, at this point in time, not according to what our expectations and plans for the year are, are the areas of machinery and kind of the automation and industrial machinery sector, which you see on the top left side on Page #17, where we have a decreasing number from the prior year from 25% share, down to 16% share. And there is a good reason for that. When we've been entering the economic crisis, people and companies took the time for the early weeks of the crisis to do intensive maintenance areas. And this maintenance actually did lead to the fact that in the early days of the crisis, our sales were still up because OEMs and generally, the industry did a lot of maintenance actions because nobody at that time knew how long the pandemic situation would go. And now as the economy comes back, we see that the people are still benefiting from this maintenance they did a year ago. So the effect is to us that, yes, for the time being, the order books are less filled than in last year this time due to the fact that it will, for sure, take some weeks and months until the business comes back. So the answer to your question is, it's good in terms of distribution channels, independent aftermarket and also the solar business, which is still up these businesses. And the area where we expect the business to return in the coming months is rather the area of industrial machinery and automation. So that's concerning the first 2 follow-ups you've been turning in. And then I would hand over to Mark for probably some more details, but in any case, talking about the CapEx status.

Yes. Thanks. Total CapEx for the year, we currently see EUR 40 million as an appropriate number. Keep in mind, the China plant will be subsidized by the government, and therefore, kind of come into CapEx. And as subsidies roll in, we will book those as a credit to the CapEx, and with that it reduces again. And the EUR 40 million is net after that effect, i.e., after considering that we get government subsidies. And on top comes the R&D capitalization, which is a separate story eventually. Hope this helps.

[Operator Instructions] And we have 1 more question. It comes from Mr. Michael Schulz of JMS Invest.

I have actually 2 questions. And this is related to the model launches in Q1. Could you maybe say what the most significant launches were for you in the first quarter and also for the future, particularly in Asia? I'm not familiar with all the names you listed there. And then also, the second question would be regarding to the trunk lid Powerise for -- that you developed for Tesla Model 3. It sounded that you were quite bullish on that solution. You mentioned it's going to be a huge market for you. Could you elaborate on that? Why is it a huge market? Is it also usable for other brands than for Tesla for other models? And maybe regarding the pricing, is it comparable with the normal Powerise solution? Is it a 1- or a 2-sided solution? Just some more details there, please?