Stabilus SE (STM) Earnings Call Transcript

Hello, ladies and gentlemen, and welcome to the Stabilus Financial Results and Second Quarter of Fiscal Year 2023. [Operator Instructions] Let me now turn the floor over to your host, Dr. Michael Buchsner.

Thank you very much. Ladies and gentlemen, hello, and welcome also from side of the Stabilus management to our Q2 call today. Here you have the Vice President for Investor Relations, Andreas Schroder, on the call. Also here on the call is Stefan Bauerreis, our CFO; and for sure myself, Michael Buchsner, being the CEO of the Stabilus group. Here, we have some exciting numbers to discuss today. So we are happy that you are all on the call. We had a successful quarter in still challenging environment, and that's what we're going to go through with you today. [ To share ] presentation, as always, I'll start with an overview, and then Stefan will jump in for some details, and to wrap the session up, I'll talk a bit about industry challenges and topics and success in, as I said, challenged environment, and then we talk about the guidance for sure towards the end of the presentation. So we're jumping on Page #5, which gives you the operational update. We had a very good mix between automotive and industry again, and our organic growth this time around is 8% year-over-year comparing the 2 quarters financial year '22 and '23. So very good growth despite the challenging environment. Particularly the Powerise growth was good in the European region, which led to good organic growth. So good economic rebound of the European business in general terms. We also had a very strong business in the Americas region. Our business did grew 19% year-over-year. We enjoy good automation effects. And normalization is something we'll talk about later when we talk about the industrial business shares. So you'll see on the pie chart towards the end of the presentation, what are our priorities and in which areas of our business we are particularly strong. Yet despite of some still in place pandemic-related effects in Asia Pacific, particularly China, for sure, we could increase our EBIT margin 4% and our profit even 63%, and we'll go for sure in details of this [ percentage ]. Something I would also like to highlight, this time around is our Innovation Race initiative. What is Innovation Race. So every other year, we gather all the ideas of our colleagues in the company in terms of innovation. As you all know, in our strategic pyramid, innovation plays a major role. For each and every successful company, innovation is the fuel for success, and this is kind of paving the road for future products, paving the road for good and profitable ideas. And this is what we do every other year along with our colleagues from the complete and global Stabilus team. So we ask them for their best ideas with the given portfolio of products and also to expand the product into other business areas, and we thereby get in the range of hundreds of ideas, which result in good business opportunity to us. And this is really the fuel for our business channel and product channel. It's a part of our long-term strategy. And actually, this guarantees the continuous above-market growth and good profits in the company. It's a process which we have in place for some years now, and it has been proven to be the #1 area for creating ideas with the focus of business growth and good profits. It will last until the end of this financial year. And typically, it's kind of a sprint, which is towards the end of the innovation race resulting into a celebration in September, where the best ideas are celebrated and get an award. And then in the coming 12 to 18 months, we execute upon these ideas to generate further business for us, particularly successful for both, automotive and the industrial side. We would flip over to the financial results, and I'll start on Page 7 with some basic numbers. Key numbers to describe our business quarter 2 financial year 2023. Our revenue was up versus the quarter of the comparing quarter 2022 by 10.5% and amounted up to EUR 310.6 million this time around. And actually, almost all was organic growth, 7.7% indeed organic growth, some translation effects of 2.8%, but in general terms, successful growth, particularly on the industrial side and some growth also for sure in the other region of automotive. In terms of adjusted EBIT margin, EUR 40.8 million in quarter 2, which is an up of 3.8% versus the prior quarter, means the quarter 2, 2022 as a comparison quarter, the adjusted EBIT margin is at 10.1%. In terms of profitability, exciting results as well, EUR 42.6 million, which is a growth of 62% year-over-year and ends in a profit margin of 13.7%. We're still in the phase of recovering some inflation costs of our customers. In parallel we also started intensive discussions with our supply base for inflation reduction. And this is something which will, for sure, drive us through the rest of the year, and this is also what we'll talk about later on. In terms of adjusted cash flow, free cash flow is basically on a level of EUR 12.1 million, so also 18.6% up year-over-year. Net leverage ratio remains in the area of 0.5x with a financial debt of EUR 100.2 million. Yes, the outlook remains unchanged. The full year forecast is still at EUR 1.1 billion to EUR 1.2 billion in terms of sales and the EBIT margin is expected to be in the range of 13% to 14%. And with that general overview, I hand over to our CFO, Stefan Bauerreis.

Thank you very much, Michael. And I directly would like to continue on Page 8, going a little bit more in detail about the key financial figures and the development of the second quarter of this fiscal year for Stabilus. And going and be -- coming back for a second once again to the revenue development. So we can say with an increase of 10.5% in such a volatile environment, I think, is a very good story. And we have to say that our good mix between automotive industry with a strong Powerise business in Europe, mainly also with a very good development of our industry business, which helps us in Americas and in EMEA, mainly we were able also to compensate in that perspective the current weaker situation that we see due to all the Corona pandemic-based effects in APAC. So the region EMEA is so with EUR 137.2 million sales, clearly the biggest region where we get our revenues, which corresponds to 44% of the total revenues of Stabilus Group, directly followed by Americas with EUR 113.9 million. And currently, it's still the -- in brackets, the smallest region with EUR 59.5 million in the region. APAC first time that we saw a slight reduction in terms of our sales, but that is all Corona pandemic impacted. So at that all our world global footprint and the diversification [ which we know ] the industry really contributes to a good second quarter results. Having a look on the right side regarding the EBIT -- the adjusted EBIT development. So we increased about 3.8% compared to last year. There we have to know that obviously still a significant material price increases compared to the second quarter last year is still to be discussed about. And the recovery is ongoing that we're trying getting from our customer, including all the further optimization project in production to recover at least a good portion of our increasing personnel expenses, which obviously also is that -- in this year are really much higher due to inflation that we have to suffer all over the world. So the good -- I think a very positive development is the region EMEA -- I will come back to that also later on -- where we had to once again last year second quarter to this second quarter a very good development and even a better development with an 11.5% EBIT margin, which is a great opportunity and a great achievement. APAC, a little bit lower than last year. As I told already on the revenue side, this is also valid for those than missing volume and fixed cost absorption impacts that we get with a slight reduction in the profitability that we see over there in that region. But once again, all in all, we have to say -- I want to say that Q2 is back on track. So after, let's say, a seasonality-based lower first quarter, I would say, with a 13.1% margin in the second quarter, we are back on track. In terms of profitability, here you can see the biggest jump with 62.6%. And obviously, everybody would like -- will ask the question how this is possible. When we just have an EBIT increase of 3.8%, what happened then on the profit line. So the major topic here is, and that is something really positive, with almost a slight increase on the EBIT number we were able to achieve a significant positive tax impact, which is a tax refund we got from a tax holding because there was in past -- You know that in the past in the year 2009, 2010, there were change in the ownership of Stabilus Group which was dominated and done to restructure the whole company and to bring them to the future. Normally, with such a change in ownership of a company, all losses that are suffered until that moment, including the loss carryforward, normally disappear. They cannot be used, but German law -- German tax law defines one concrete example, it's called in German [Foreign Language], and that indicates that whenever such a change in the ownership is only done to restructure a company and to avoid a negative impact on the company, then those losses going forward will not disappear. German tax authority and Stabilus over a long period of time were different opinion, because we were the opinion that with this option and -- this specific exception can be applied. But during all the years, it was not accepted by the German tax authorities. But now also repeatingly discussing that with them and also having their new developments from the European side. Now we got the message and a clear ruling from the tax authorities that now, despite all the discussions that we had in the past, German tax authorities will accept this ruling and will agree the opinion that we had. That's why, as -- we did not make a deferred tax asset until now in our balance sheet to maintain a conservative approach and also to reflect that the German tax authorities until now did not have the willingness to accept that. Now the situation changed. And therefore, we have as a one-time here a specific positive impact. That corresponds to EUR 18.9 million tax income, if you want to say it like that, which is more or less 50% directly reduction of taxes of prior year. So it's a direct tax income that -- we will get also the money during the next couple of weeks and months. And the other portion are regarding interest tax loss carryforward that we now can use once again and this are now deferred tax assets, which are absolutely valid based on that ruling. And therefore, we were able to put an asset position of EUR 18.9 million, which at the end, goes directly via the P&L. In addition to that, you know that in German tax authorities, whenever you get a tax refund, then also interest have to be calculated on. And until 2018 at least the tax relevant interest rate was about 6%, which sounds very -- it is quite positive in that perspective. And therefore, we got, in addition to that, a EUR 3.3 million tax interest income from our tax authorities. But overall, all in all, the total amount is about EUR 21 million, EUR 22 million positive results that we were able, after long discussions with tax authorities, to really bring that home and to increase our asset side for the company, where we are absolutely happy on that. Talking about the free cash flow. There we have to say that the free cash flow increased by 18.6% from EUR 10.2 million to 12.1% -- EUR 12.1 million. There, obviously, you have to know that all these positive impacts on the tax ruling did not have any influence, or because first money inflow will happen after the end of the quarter. So therefore, the only impact of that tax ruling is when we're talking about the profit, but not about -- when we're talking about the free cash flow. So in that quarter, it still did not have any positive impact, but obviously, over the next weeks to come at EUR 10 million positive direct free cash flow impact is to be expected to come in the next quarter or in the next 2 quarters until the end of the fiscal year. So that is a little bit the situation about the second quarter. So we have to say after the first quarter, we are quite back on track regarding our margin development. Obviously, there is still some way to go to really get in our -- to reach for the full year our guidance. But you know already from past years that the seasonality in that perspective also allowed us to make that up and that we are convinced where we can maintain our existing guidance. If we then jump to the Page 9, then I would like to give you also some insights about the first half year, so not only the second quarter, but first and second quarter. So here, the situation on the revenue side is slightly different. So we have a 14.6% increase of our revenue from EUR 524.9 million to EUR 601.3 million. And still in the first half of the year, despite the negative effect on -- due to Corona pandemic in the second quarter still in the first half of the year, also the APAC region had a positive growth with an 8.6% growth compared to last year. And that is still remarkable and, I think, a very good sign going forward that with -- once we overcome all those specific individual China related risk, that we will come back on track also on that -- in that region. Americas with a very high growth. So that is in this year after last year's where APAC was #1 growing. This year is the region of Americas, both on industry side as well as an automotive side with a 29.3%. So therefore, really a big and a very positive achievement in the region of Americas in all the different business units that we have. Finally, EMEA, you still remember that, that was quite a little bit our most critical situation in the past quarters, we have to say, even in the prior year, due to all these energy crisis, Ukraine war, et cetera. So still here, we are able to announce that we're still growing at 6.9% first half of last year to first half of this year. Also that -- taking into consideration that in the -- in our first quarter last year, that was still the last one before the Ukraine war. And therefore, a lot of things geopolitical perspective changed. So therefore, we have to say -- and there we are quite proud that EMEA also is back on track with that activity. EBIT, 7.0% increase from last year to this year. Obviously, it's a 13.1% to the 12.2%. So we are expecting the same seasonality of last year where we also were below the total year-end result that we achieved, the 14% last year. It was in the half year on the 13.1%, and there is no reason not to think about that this will be the same development also in this year. So also here, we are quite fine with the development that we see after those specific actions in the first quarter that we have an improved second quarter available now that I just presented to you 5 minutes ago. In terms of the regions, APAC is with the EUR 23.8 million last year, now increasing to EUR 24.3 million result. Major impact, obviously, following the development in the -- on the sales side with the region Americas, where we had the biggest increase from EUR 19.2 million to EUR 27 million adjusted EBIT for the region Americas. And last but not least, EMEA with now a EUR 22.1 million -- with the EUR 25.7 million and therefore having a good development also in that perspective. Once again, the profit of the year increasing there significantly due to that specific impact, but I already explained with the Q2 numbers mainly related to the tax, we found that regard to -- therefore, not necessary to repeat all those activities once again. On the adjusted cash flow side, also we see a very, very positive development. And therefore, despite the good operational development of our EBIT margin and EBIT numbers in absolute numbers, we have to say that now we are not anymore in the time in this year of increasing our net working capital due to supply chain issue. But -- so therefore, the top business already what we have seen in the past. And now it's up to us coming in the next quarters, not only one but [ we have ] several quarters also to continue this path of reducing the working capital for the group and generating the cash flow and all of that. If we then go a little bit even more in detail and continue on the Page 11, then we come to the region EMEA. So here, you can see also the share of our 3 business units: Industrial, Powerise and Automotive Gas Spring. So once again, we saw a significant good development in the Industrial area jumping from EUR 70 million to EUR 75.1 million. But obviously, the biggest development is the development in the revenues of the Automotive Powerise coming up from the EUR 23.9 million to EUR 29.8 million. This having said -- having a look at the light vehicle production in Europe, Middle East and Africa, which was at about 5.1 million units, an increase of 13.6%. So having a clear understanding that our Powerise business increased significantly higher than this light vehicle production. Therefore, we still can say Powerise is really much on track and the success story with that production area with an increase of 24% is really ongoing, which was supported by higher production of Powerise units for BMW 1 Series, 4 Series and 5 series. So all the different areas, including also the electric vehicles, the iX series, the Mini, but also Ford Focus, Geely, Hyundai Kia, Tesla Model, Volkswagen. So you can see that it's not just one customer that we increased, and therefore, it's a one-time. So it's really on all those platforms that we are in that the success of the Powerise continues here in Europe, which is a very, very positive side. Also Industrial revenue grew up with EUR 5 million or 7.1%. So taking in mind the development of the GDP in Europe, so also there, this is a significant outperformance that we can see here with major growth on our areas of mobility and energy, construction, industrial machinery and automation. All over that, the adjusted EBIT margin improved by 50 basis points from -- to 12.3% in the second quarter of the financial year 2023. Q2, as I already said, a strong growth in the Automotive, Powerise and the Industrial business units and therefore, contributing with a better fixed cost absorption and also slightly reduced purchase price for some of our raw materials and components. Going down to the next slide on Page 12, we continue with the region Americas in the second quarter. Also here with 19.7% increase of our revenues start coming from EUR 95.2 million up to 114.0% -- EUR 114.0 million, sorry. So also here, we have to say, a very strong development in all the 3 business units, but obviously, the biggest one is the Industrial jumping from 31.7% to 39.3%, which is nothing else, an increase of 23.9%. But also the automotive business units increased 60.2% with Powerise or Gas Spring at 19% in a nutshell. So having this said, we compare that also once again with the light wave in production in Americas, which increased by 10.5% in the second quarter. And therefore, also here, we have to say that -- or we can say we are proud of that, but also here our outperformance, because it's in the market, for the market, on that perspective is significantly higher, and therefore, also here a very good development. Automotive Gas Spring revenue increased 9.3% organic and 1.3% organically. But I think if you compare them with the light vehicle production, we have to take the numbers based on the real values, not only the organic topics, because it's in the region, for the region. Main customers with [ increase ] was Ford, Expedition, Rivian, Tesla Model 3, Model X, Model Y, also Volkswagen Group with also their new models that we are now in and having a good development. Nevertheless, the shooting star of that region was the Industrial revenue increase with 24.0%, which still is an organic growth by 18.5%, and also here, the major segments, which is also valid for the group and also here for Americas, is energy, construction, industrial machinery and automation. These are the major ones that we are increasing significantly. Last but not least, to go to the -- toward region APAC that you can see on the Page 13. So here, I would like to start, first of all, with the light vehicle production, what is -- and we have to say, just a 0.8% increase in the second quarter. Taking in mind the growth rate that we learned and that we experienced over the last years, this is significantly reduced. And there, with an overall revenue of minus 2.5%. Obviously, we were not exactly in line with the light vehicle production, but this is also due to some mix impact on the current sales area. The organic change in Automotive Gas Spring minus 5.3% year-over-year and Powerise plus 4.8%, was driven here also by higher production, mainly ahead with Hyundai, Ioniq, Kia, Niro, Tesla Model Y and some of these other Chinese car manufacturers. At the end, the EBIT margin is at 15% in Q2 after 17.7% in the Q2 of last year, which is obviously a reduction of our profitability. On the other side, we have to say that in some weeks, not only at Stabilus, but in all the different industries in Asia and in China, we had fitment rates of about 40% to 50% after the release of the Corona pandemic related activities in China, and coming out of that with still a good margin is already a good sign. Finally, before I go -- hand over back to Michael, I would jump shortly to the Slide 14, which shows us the revenue on -- for the whole Stabilus Group for the second quarter. Not here in that case divided by region, but shown by the business units, Industrial, Automotive Powerise and Automotive Gas Springs. So still here, we have growth rates in all the different areas. Obviously, historically, the growth rate is due to the high market share that we already have with Automotive Gas Springs lower than with Powerise. Powerise, we have to say that the growth story and the good development is on track, industry on a very good development. And therefore, as we already said at the beginning, the good mix between how the industry is really much paying back and helps us overall to -- also in these difficult times to maintain a very good performance in the second quarter. This having said, I hand over back to Michael for more insights about the Industrial sectors.

Yes. Thank you very much, Stefan. Industrial revenue by market segments is our topic in the next couple of minutes. And again, here also on the Industrial revenue side, we had a good growth year-over-year, 11.9% comparing quarter 2 '23 to quarter 2 '22. And overall, we are at a sales point of EUR 120.2 million for the past quarter. Where it is coming from, so particularly on the energy, construction and industrial machinery area as well as on the automation side and mobility side, we've been growing very strong. A part is reshoring activity. So we'll get to that later. Let's talk about the Mobility sector first. So the truck business is recovering in certain areas. This is contributing to this growth of having a share of 27% up to 30% for the Automation -- for auto sector here, or for the Mobility sector in general terms. And then the aerospace business is also enjoying good growth because now after the pandemics, the producers of airplanes, they continue to produce planes. The maintenance activity need to kick in, and this is supporting us big time on the Mobility sector. And I'd like to talk about the Automation sector, means reshoring a bit in particular. As I said earlier, the reshoring support Stabilus a lot also in the coming years. That's our assessment considering the geopolitical risks of certain countries, and certain countries decided then to kind of reshore production back home. And this actually leaves them with an increased labor impact on their products. Means for example, if products are reshored back to the U.S. or to Europe because the belief is that in China there might be some unrest and some critical situation in the future, and many companies do so, they can ensure therefore production back to the home countries like U.S. and Europe. This leads them with higher costs, right, because the labor costs in the U.S., typically also in Europe, are higher than in other countries like China. And they need to compensate or make up for this disadvantage, and they do that with automation. Our products are top-notch in terms of automation. And I've been also stating earlier today in the call that we are working on our Innovation Race. So our method out of the strategic pyramid to deliver top-notch products in the area of industrialization and automation. So this helps a lot in this particular segment because whenever people are -- companies are bringing back the home business, they need automated equipment. And in many, many cases, you find the Gas Springs, Powerise systems, electromechanical devices and planning systems in these assembly lines. And this is what particularly these days and also in the future is generating good growth opportunities for us. And I tell you, it's really profitable growth we are talking about here. With that, I would jump over to the final page of our presentation, which is Page 17. Talking a bit about the guidance. I also said early in the call that our guidance is unchanged. Bottom line is we had a strong quarter, did improve our profitability. Over the course of the year we'll continue to do so because there are certain activities in terms of repricing, inflation recovery and also managing our supply base to further continue that path of success along with productivity increase in all of our plants. And that's why you'll see some margin increase towards the end of the year, as stated before. Basis of our guidance is still light vehicle production growth of 4%, so 84.8 million produced vehicles in the year '23 versus 81.6 million produced in '22. So we follow IHS as a market tool. And then for sure, we also still consider some post-COVID effects out of China in our doings in our guidance. And then our guidance at the end of the day amounts to EUR 1.1 billion, up to EUR 1.2 billion in terms of sales and the EBIT margin to be expected in the range of 13% to 14%. In the long run, and also here again, we are committed to our strategic pyramid. As I said, we are fueling our company in terms of innovation. Also extremely important to us is focusing on profitability and sustainable growth, customer and employee satisfaction. And with that strategy in the pocket basically and the strong backwind of automation in the industrial areas, we are progressing in the year. So with that, I will open the session for questions, if there are any.

[Operator Instructions] Meanwhile we have already received a few questions, and the first one comes from Mr. Akshat Kacker of JPMorgan.

Three questions from my side, please. The first one on the margin recovery in the second half of the year. Obviously, this is the key question with these set of results, and we're getting a lot of incoming on this. So if I summarize my question, you're basically guiding for a 150 to 350 basis point improvement in margins in the second half versus the first half of the year on a similar top line, and this is mainly based on inflation recoveries from your customers and inflation reduction from your suppliers as well. So in terms of your discussions currently, how many of these negotiations have you already completed or signed [ rightedly ]? Or probably in other words, what is the risk of customers or suppliers pushing back on inflation compensation, especially across the labor and energy? That's the first question, please. The second one on China and Asia Pacific. Obviously, a weaker quarter in terms of seasonality and it was hit by pandemic-related shutdowns this time around. How do you think about the recovery in margins going into Q3, please? Do you think we go back to the 19% to 20% levels as the market stabilizes? Or is -- are there more cost or pricing pressures in the region going ahead? And the last question on the Americas region, and again on the margin development in that region specifically. As you mentioned, revenues are up 15% organically in the first half and margins are still at 12%, which is relatively low versus your own track record in the region. And you have mentioned inflation and product mix effects. So could you please elaborate on both these impacts? And if it is possible to quantify the impact on the bottom line from both these effects, please?

We split the following way. I'll talk a bit about the margins for the rest of the year and then Stefan will talk about China and the Americas, so the regions. In general terms, if you talk about the margins, yes, you're absolutely right. In mathematic terms, this need 150 to 350 basis points for the rest of the year in terms of margin improvement coming out of the activities we've been stating. And actually, there are 3 main areas of activities: One is we mentioned [ improvement ] -- inflation recovery from the customer side; managing inflation with the suppliers; and then also the third one, which is extremely important to us, is the improvement in our operations. The improvement of our operations that will start with that because it's the point which is actually also developing over a year. So we have an increase in terms of labor around the globe. So the labor inflation was significant this year. You also know that. And this hit particularly North America and Europe, not so much in the Chinese regions, but in the Asian regions. But in North America and Europe, it was anywhere in the range between 5% to 8%, depending on the plants, whether it be Mexico, U.S. or in Romania or in Germany for us. And this area we typically start early the year to kick in with improvement actions on our shop floor. That means we typically do [ cyclic ] timing and improve the cycle times of our machines. And then we have initiatives for automation in our production shop floor, which gradually improves the efficiency of our line. This is something which, for sure, cannot be turned and switched on by the 1st of October. That's why we kicked in October, November, December with the first actions, execute it January, February, March, the first effect you see in our business. And then this kind of rolls up to an improvement of our actions to set up or compensate 2% to 3% of labor increases over the year. Typically, this time around, we're faced with an average of 4.5% to 5%, and this is also something which we negotiate with the customers along the line. But let's say, this improvement, they are also linearly growing from October towards the third quarter of the year, which is one element of making up this margin improvement. And then the other point is inflation on the customers and on the supply side. I would say in terms of negotiations with the customers, we were at 75%. And on the supply side, I would say we are in the range of 50%. Why is that? See, on the customer side, we did kick in very early for sure with kind of clawing back money and increasing our prices to the customers already in October because we knew that we are in a difficult situation in terms of getting back customers' money in terms of inflation recovery. So we started very, very early in the game in October. And also here, it's kind of a linear way of getting the money back. Why is that the case? We started the negotiation October. Till December, January, February and March, we closed majority of the contracts. And then the money kicks in either retrospective, but in general term, growing over the course of the year. And this is kind of where we are in, in the middle of the game. Getting this money back from the customer is, I would say, 75% closed. And just a point to remember, our inflation in that range was kind of a 3.5% to 4.5% of inflation of the material side. So the other point is on the supplier side. On the supplier side, for sure, we are only at 50% negotiation. Even a bit less, I would say. Why is that? Because we typically start to push out the negotiations with the suppliers as long as we can, right? Because you want to make deals with the customer in an early stage because the longer you wait, the more people and suppliers knock on the door at the customers. But unlike the suppliers, you want to push that out in order to gain from the momentum because we knew already in the early days of the winter that eventually the energy costs will be not quite as high as we all thought. And then we saw already the material costs coming down. So that's when we started negotiation with the suppliers, making sure that we reach them in the perfect point in time also to confront our supply base with, yes, reduced prices on materials and reduced prices on energy. And this is -- I would say, 50% of the supplier negotiations are closed, 75% of the customer negotiations are closed.But please keep in mind that they are going up in a linear way towards the end of the year as they are kind of negotiated now, but they're kicking up in over the course of this year. I hope that answers your question. I would hand over to Stefan for the regional topics.

Okay. Thank you very much, Michael. So the second question was about why we believe that we'll come back for the margin in China and in region APAC. So as you correctly said, so APAC is really much influenced by China. And there we had to say that we really much suffered on the Chinese New Year a significant sickness rate. But this was not a Stabilus specific issue. That was in all the different industry up to 50% of sickness rate, which really makes it very difficult to maintain not only the production, but to maintain it also on an efficiency level, which is quite good. So therefore, one is what we are expecting going forward. So first of all, we are on that perspective, not, let's say, as enthusiastic as what we've seen in the last year after the lockdowns happened in China. Then there was a tremendous increase in our sales. So at this time we do not believe -- because now it's -- the market needs a little bit more time to recover and to feel that new normal that they get in China. Nevertheless, we also see there a slight recovery over the next months to come. And therefore, also, by doing that, we should get additional positive impact by a slight increase in volumes on the one side. But second also -- but the continuous optimization of our operational level, including purchasing, as Michael said, but not only purchasing, also our production activities to recover and to get all the productivity wins. The good thing is there -- and that is a little bit different to other regions where China was not too much impacted by very, let's call it, extraordinary high increases of personnel expenses that we've seen in other regions, like in part of Europe, with Romania or with Mexico. So that is a good sign. So therefore, the key objective has to be, yes, of course, coming back to the 19% in terms of profitability. The timing exactly, that will also -- the volume will show us when this will be doable. But that is clearly the clear target to come back to the margins that we already had in past. Talking about the region Americas. There you're also right that from a margin perspective, we are a little bit lower than what we already achieved, also went past. So there, we have different impacts. First, we suffer there -- not too much in U.S., but mainly in Mexico, which is also for the region our biggest production [ entity ], a significant increase of our personnel expenses, which was an increase -- labor cost increase of 7% to 8%. So I think that is normal to understand that the normal procedure is that you had compensated those personnel expenses by productivity earnings in operation. But with the 7% to 8%, this is not doable on short term. So that needs a little bit more time, and we are working on that. Second point, we suffered quite a bit about the higher freight costs compared to -- mainly to last year. Now the good thing is that we already see a tendency that at least in some areas the freight tariffs go down a little bit. And therefore, also that is helping us. And the third point also which [ allowed ] us, despite all the productivity earnings that also Michael explained, is that we've seen until now still quite high accruals for health care costs because they were significantly still impacted by the Corona of last year. But also here, the clear expectation is -- and also we start seeing that over the last weeks already, that those costs should reduce now step by step also for the second half of the year. So therefore, overall, there are very good arguments to believe that based on a continuous work that we're doing in productivity, we will compensate more and more of those [ personnel ] cost inflation increases that we had. We will be supported by reduced challenges of -- on the freight cost side. We will also see some cost improvement on the material side. And once again, also a little bit the health care topics will help us to get back to those margins that we know from past. So I hope this explains a little bit the question you had.

Just one quick follow-up in terms of the Americas region. Can you please elaborate the product mix effect that you have spoken about in the presentation? Apologies if I missed the explanation there.

Yes, the product mix impact, that is not that we see that -- it's significantly one business unit good, other units bad. So it's always also a little bit within the different business units and it discloses via all the different aspects that we had compared to the last quarter some topics where we also had customer-specific inquiries where the margin is a little bit lower than what is the normal mix that we get. So this was in that last quarter a little bit coming in, but that is not that I can say this is 1 or 2 customers and these are 1 or 2 product lines that we have. So that is the total mix of a lot of different issues. Also within the industry, there are some activities where we started. We're still margin to come up. So some costs are increasing. So this is impacting all the different business units coming there across. Not 1 or 2 specific topics that we say we can take out of that specific trend. We do not believe that this is a trend. This is just, let's say, coming up this quarter.

[Operator Instructions] The next one is Yasmin Steilen of Berenberg Bank.

Actually, only one left. So with regards to Powerise, we have seen underperformance of the light vehicle production in the second quarter. So obviously, it's a very volatile development. But maybe can you shed some more light on the reasons for the underperformance in the second quarter? And what we should expect for the -- for H2? Is there anything which you can share already in terms of the development there? And in this context, should we also expect an improvement of the product mix from automotive in the second half? That would be very helpful.

Sure. The Powerise performance is kind of different per region this time around if you go through that. So in terms of Powerise in the year, as stated before, we've been certainly going up. It was kind of a good Powerise quarter for EMEA. And the reason being that -- against the general belief in the industry that the automotive industry would be going -- kind of undergoing very soft times. This did not happen to the extent originally thought. That means we had good launches and good performance, 24% Powerise growth year-over-year and actually good growth with kind of being double use for [ Front ] but also with Ford and also with local productions of Tesla, VW Group. So in general terms, on the European region, the -- originally why the economist expected slowdown in Europe did not happen to the extent forecasted. That's one element. In Americas, to a certain share, it's still -- and they are -- also had a good performance. It's still kind of filling the pipeline after the electronic shortages, because particularly in America, the yards of dealerships are still on lower levels than average. So here, we also saw good growth by Powerise in that term -- in absolute terms. So we have here good launches. Also we have combustion engine, but also electric engines like Rivian, Tesla, ID.4 with VW, which indicates that we are kind of with our product -- on the right products of our OEMs. So also the electromobility continues to be extremely important for our growth, and we've been growing, I would say, yes, a majority also with the electric vehicles lately. So Europe and North America on a very good level as well as in Asia Pacific, by the way. Asia Pacific shows that we've been on the same level than before, EUR 30.7 million versus EUR 30.2 million. But if you compare that in general terms with the economy and with the cautiousness of people, then we did also in the Powerise side well, particularly also here with electric vehicles. If you look on to the list, majority of the vehicle system launching like Hyundai and Kia and Tesla, there are -- with the auto [ several ] platforms which we launched, they've been also doing particularly well. So the performance of Powerise in Europe and Americas bottom line is very good. So it did grow substantially. On the Asia Pacific area, it's flat, and this is pretty much driven by the consumer behavior and kind of thereby a softer car manufacturing in China. I hope that answer your question.

Not really. I mean, just looking at the numbers, the -- in particular in Americas, the Powerise development is disproportionately lower than the global production volumes. So is it a mix effect of the cars produced given the still some bottlenecks on the electronics side -- the electronic charges you just mentioned? And is it something we should see to reverse in the second half of the year?

Your question was particularly on the North American side there. Yes, we still get orders pushed out, particularly from the [ Detroit ] 3 based on shortages of electronic components, talking about North America region particularly. So as I said, the Powerise in general terms also in Americas enjoyed good growth from EUR 37 million up to EUR 43 million for the quarter, comparing '22 to '23. But yes, you're absolutely right that this is something which can be always underlined by the media around the globe. Still in America, particularly the Detroit 3, the electronic shortage is hindering and limiting once in a while the production at the OEM. It happens in a way that we get orders from the customers throughout the month, they get pushed out into the next months with the explanation that some electronic components and related electric components are missing at the OEMs. You're absolutely right.

The next questioner is Mr. Michael Schulz of JMS Invest.

I have actually 2 kind of counter questions. One is the cost of sales and R&D expenses. As I read in the report, they have kind of restated -- just in order to confirm the effect going forward in the second quarter, the restatement effect on R&D costs was around EUR 6 million. Is that now the effect for 2 quarters? Am I right? Because Q1 was not restated. So going forward, we'll have R&D costs of around -- in between the new level of EUR 6 million -- or the Q2 level of EUR 6 million and EUR 12 million, as we had previously for around EUR 9 million. Can you confirm that?