Stabilus SE (SIUAF) Earnings Call Transcript & Summary

Thank you very much, and good morning also from my side. The reason for the call today is we'll talk about our transformation program in more detail. You all know that we've been starting the discussions already not only in the regular meetings we had during our conferences, but also in our Capital Markets Day. That for sure, in terms of Stabilus, we want and need to maintain our efficiency, profitability in the market. And that's why we started, basically, second boost of our transformation program. This is what we'll talk about today. So in the light of the presentation, I would like to talk a bit about the economic environment we are in. I'd also like to talk about what the main content of the transformation program's second step is. You already know that we've been working on individual measures on the operations side over the course of the last 12 to 24 months, and we'll now give it another boost and get it into the overhead related portion of our business, as a second step. And this is something we need to talk about today. I would like to give you more information about that. Also, last but not least, we'll talk about our guidance for the rest of the year because you remember that our guidance is EUR 1.3 billion and around about 11% EBIT margin in conjunction with EUR 105 million free cash flow. And just to tell you upfront, this guidance is for sure on. We are on track with our measures in that term. We will stick to the guidance we published lately about EUR 1.3 billion, 11% EBIT margin and also the free cash flow of EUR 105 million because this program is something where we want to secure the competitiveness of the company in the future. So let's dig into these things. So we see an ongoing softness in the market, right? This is something which we all see. That is something we've seen predominantly in the automotive side, but also on the industrial side. And that is something which we need to consider, work on and basically also drive in terms of our actions on the business to maintain the profitability, to expand the profitability and to reach our long-term goals. And that's why we are here. I want to give you some details on that. So this is predominantly in the automotive side, as I said, but also on the industrial side. And you all know that it's a global topic. It's not affecting the region. It's not affecting the Stabilus at all alone. You see the sentiment in the market. You see the consumer sentiment, which is softer. You see all the impacts of the tariff situation around the globe. And this is something which for sure also impacts our business. We have 11% EBIT margin. This is, I tell you, by far, better than our peers. However, we, as a company, we, as a leadership team, are utmost, highest target to maintain that, to stay competitive, to expand our business and to prepare for growth, which will definitely come. Also here, I'd like to point out that in terms of our business wins, we are on track. So we will also talk about that in our year-end results presentation. We are winning business beyond our current market share. We are winning business in all regions. We are winning business in Europe, North America, predominantly also in China, where we for sure see the most competitive environment. So we are winning business. The pipelines are filled with business, and we have a solid and good forecast for the years to come. However, today, only 8% of 10 parts [ are worth], so it's not a loss of any contract. It's not a loss of any business we have. It's just the consumer sentiment, which is low, and we will take the opportunity for sure to roll out our transformation program to ensure our profitability and also to ensure that we reach our global STAR targets, which we published with an EBIT margin of 15%. And just getting a little bit in detail in terms of what that means for our company. This is organizational transformation, right? There are structures in place, which are -- structures, which are made for more business, for higher sales these times. And this is what we want to tailor down. So it's a reduction in terms of hierarchical level at the end of the day. We also have -- and still have a very strong customer focus. We want to have to maintain this customer-focused, fast decision making. That's where we take out certain positions in that terms. It's a true reorganization. So that means, also bringing both companies together, Stabilus and DESTACO. This opens opportunities for us to kind of use capabilities from both sides to streamline the organization, which is our highest target. We always mention that, right? We also have impacts in terms of locations and locations measures. And here, interesting point, [indiscernible] for sure. We acquired DESTACO. It's a wonderful business. It's strategically absolutely the right decision at the end of the day, absolutely the vital case, and we'll pursue also the integration. In terms of the locations, this opens opportunities for us, right? Just to mention one opportunity, the DESTACO organization has a plant in Thailand. We had actually a plant in Singapore. There is good benefits to integrate the sharpest location of Singapore into Thailand. So we are using our footprint. We got along with DESTACO. And this is also something, which we have numerous times talked about, use the footprint of DESTACO to have [ its ] strength and [ its ] global reach, however, also to strive and execute economies of scale and gain synergies. And that's what we do, for example, with this Singapore and Thailand organization, using the facilities of DESTACO in order to strengthen our business, but also there are opportunities in Germany and in the U.S., which we don't want to leave aside, right? And that's something we constantly are developing. We are constantly monitoring. And there's the volume on the global scale shifting. As the tariffs kick in, in all regions, there's also shift in terms of volumes, and this is another opportunity where we, on a constant basis, revisit our production capacities, our overhead capacity and try to optimize those points into our layout, those points into our hierarchical layers and also overhead structure to constantly streamline. And, as I said, one example is the Thailand facility of DESTACO, it captures good space for us. That means the Stabilus Group could close the Singapore office we put it into there. Then there are other synergies which you see on the IT side, for example, you see them on the HR side. You see them in all different functions. You see them in all different businesses. We are just -- and this is what we also said at the beginning of this whole journey, that we will combine the two organizations, and this is delivering us cost savings. If you remember, our cost savings we are striving for. This year, we're in the range of EUR 1 million. These were the low-hanging fruits of integrating DESTACO further of bringing both organizations together. And predominantly in this EUR 1 million, not only that we've been saving on side of insurances, but also other costs, we also have been able to combine some headcount functions to combine some overhead functions. And this is truly also something which is extremely relevant in our business case of the DESTACO-related business case to make it a viable case, the whole M&A and the whole acquisition we have on hand. And as we said, since the beginning, there are targets out there for sure, which harvest the fruits of the synergies amounting up to EUR 10 million over the course of the next year, purely on the cost side of the joint activities with DESTACO. So that's nothing new, right? We always talked about that we streamline the organization. We always talked about that we integrate or bring both companies closer together and that there are synergies in terms of all overhead functions, all business-related functions, all sales-related functions to bring the two companies closer together. And that's why we said in the first place, there will be not only sales synergies, there will be also cost synergies. And this is another driving factor aside of currently lower volumes out there, which, at the end of the day, give the requirement to reorganize us another boost. So as I said, and I'll just repeat myself, the guidance for the year is still on with the EUR 1.3 billion. The EBIT margin is also in terms of the guidance at 11%, yes? And also the free cash flow is in the range of EUR 105 million. So no change there. The current business environment is basically giving us a boost. And on the other side, this opportunity to streamline down our organization. And this is what we definitely take as an opportunity to further improve our cost structure to stick with our STAR 2030 targets of an EBIT margin of 15%. So yes, the organization is impacted. The locations are impacted, and there will be personnel-related measures out there. Because whenever you bring two organizations closer and on the [ side ], the consumer sentiment and thereby the orders are getting softer, then, for sure, we can combine workforces. And this will, at the end of the day, affect 450 people out of our 8,200 people around the globe, which is, in a nutshell, 6% of our global workforce. This will affect predominantly EMEA and Americas. Why is that? Yes, EMEA and America are both the hubs of Stabilus and DESTACO. In Asia, the growth trajectory is still different, right? We know there are the Asian countries. There is also the opportunities we still see in China. Over the course of the last years, we've been growing as a company from a single-digit percentage sales in that region, Asia, up to 25% of our business in Asia. For us, there's good growth opportunities out there. And this is why at the end of the day, despite of currently also Asia being impacted by the global tariff battle, we concentrated our activities on EMEA and Americas because this is where the predominant portion of our headcount, of our overhead structure lies. This is where originally the Stabilus and DESTACO organization have the main headcount. And this is where we see the biggest opportunity to work on, the efficiency of our organization. So on the next page, we also go a little more in detail in terms of the costs. There will be a one-off expense of EUR 18 million. This is predominantly severance costs, as you can imagine, because we are bringing a different turn and spin into this whole discussion with, at the end of the day, our efficiency program, the restructuring costs on the other hand. And this will basically hit us in 2025. So we'll accrue for this money, which, yes, has an impact on our net profit for this year, and the cash flow will be out in -- flowing in terms of cash out in 2026. This amount of money of EUR 18 million is basically tailored to the needs we have in terms of streamlining our organization. All measures are actually done very duly over the course of the last weeks. You can imagine there is a lot of brain power, which we put into that because we are, as I said, reaching out to all regions, all functions, predominantly Europe and North America to make sure that we tailor our organization to a point where we are most effective on the way forward. Cost savings on the other hand, and this is the nice thing about it here, you see only '27 and '28 in terms of the years when it's mentioned, which cost savings will be attached to it. But if you look on to the headline, this is probably the predominant and most striking information. The payback is less than a year. So that means we are targeting a reorganization of our business, which is really highly effective. Many organizations do reorganizations and then at the end of the day, it takes longer than a year to get the money back. Here, we are targeting low-hanging fruit predominantly, but also the difficult cases to organize -- reorganize ourselves in the departments, business units and regions, predominantly Europe and North America, as I said, investing EUR 18 million, and the payback is less than a year. So very well, you also can imagine that these two numbers already lay out, which margin improving, that means. And we always talked about it also very openly in our Capital Markets Day because if you take this 1-year payback on the EUR 17 million, you will increase the margin about 1% by this factor. So let's see how the economy next year goes, but the effect of this is easy to calculate, right, with EUR 18 million as an one-off, which we invest. If the investment is in a year around about, then we improve our margin also in line with what we said in our Capital Markets Day, which is around about 1 percentage point. It's an important information to know. Then the EUR 19 million cost savings will be indeed in the year 2027 and then the full-blown impacts we see by EUR 32 million recurring annual cost savings from year '28 onwards, right? Why is that steep increase? Also because then the economy will basically support us in the outer years as businesses are developing in a different way, in a better way, then we see this EUR 32 million of annual recurring cost savings in the year 2028. So that's about the cost side, yes? I don't want to miss out on talking a little bit on the next page about our guidance. And as I said at the beginning of this whole kind of presentation, our forecast for the year is still on in terms of the EBIT margin, 11%, the sales of EUR 1.3 billion around about and also the free cash flow of EUR 105 million because this program is -- and this is just in the nature of such a reorganization program, something we prepared for a number of weeks and months now, and it's something which is rolled out over the course of the year. So it's not something which you just like put it on, turn the lever, and it's up and running. So it's not affecting us in this year in terms of these KPIs where we give a guidance. It's basically impacting us next year in terms of margin improvement on our guidance, however. And you see that on the bottom of the chart, one thing which I very clearly like to point out, for sure, the profits are impacted, the net profit is impacted by that, and it will be in the range of EUR 25 million plus or minus. You all know that EUR 25 million plus or minus -- it's a plus or minus number because there is a lot of tax-related points which we typically kick in. Because if you just calculate it very sharp, you could also come up with EUR 27 million even, right, as a basic number then finally. However, we started in a consensus of EUR 47 million. If you take out the EUR 18 million, basically, you will be ending up slightly below the EUR 30 million. So it's in the range of EUR 25 million to EUR 27 million. There are some tax impacts which are always difficult to calculate. So here, you see the EUR 25 million could be also in the range of EUR 26 million, EUR 27 million whatsoever. But it will be definitely impacted because we are accruing then this EUR 18 million, and this goes directly on to the net profit line. With that, again, I would like to put it in a nutshell. The reason for this reorganization and the organizational tailoring is that we want to maintain the strength of the Stabilus Group in the future. We want to have a company on hand, which is not gradually jammed in by side effects, and we don't want to massage from here and there. We want to tailor our organization to the needs of the outside world. We are at 11% EBIT margin. If you consider that this is one of the most difficult economic years ever, it's an outstanding result because it's probably twice as much than our peers do. However, we want to secure that we are on a profitable level in that range and beyond, also hitting our 2030 number. And this is extremely important for us to invest this in a long run because from the actual environment, we see us very well impacted than everybody else in the same way by the softness in the automotive industry in all regions and the increasing pressure from the tariff situation. And this is something which we -- in the same way than the whole industry just -- like, we cannot ignore that, we take it as an opportunity to, at the end of the day, tailor our organization, tailor our cost structure to be successful in the future. [ Everyone ] can imagine that this is a big step for the company. It's vital. It's extremely important, and we'll execute that in the weeks to come to have this full benefit with 1-year payback in next year. Yes, with that, I would open for questions, please.

[Operator Instructions] And there's a first question coming from Yasmin Steilen, Berenberg. Please go ahead.

I have three questions, if I may, and I'll take them one by one. So the first one, just to clarify, not quite sure that I got it right. For the full cost saving effects of EUR 32 million quite tailwind from economic recovery. So if my understanding is correct, what level of economic recovery is reflected in your cost savings outlined?

Yes. So we'll answer them, as you said, step by step, right? We kick in with the first question. Thank you very much. And Yasmin, the first question is, our guidance, also the long-term guidance is basically in alignment with S&P in terms of light vehicle production and GDP. And those two criteria are basically what we see as an underlying assumption for the years, '27 and beyond. So if you take these numbers, which is in the automotive industry, nowadays, less than 2% growth and on the side of GDP, in the range of 3%. Now this is basically what we, for sure, calculate with to achieve this number. So I think I mentioned that. For sure, nobody wants to hear that and nobody hopes for it. But in case, for sure, numbers go down, and there will be negative GDP or volumes of car production will be going very south, then it will be a different number. So the underlying assumption for us is that if you take the S&P numbers for GDP and light vehicle growth, then this comes. That's the underlying assumption.

Perfect. It's all clear. And then you already indicated, as you said during the Markets Day in June that you target leaner SG&A structures as well to improve profitability. Could you please clarify what proportion of the headcount reduction is SG&A related? And what is related to production footprint optimization?

If I talk about it in terms of the impact on the organization, the footprint related portion is probably 1/4, yes, so 25%. And the vast majority, which is 3/4 is then the overhead related points. And when we look back on the Capital Markets Day, I said we started the activities, and we talk about it whenever we meet, also in our individual discussions, we started the activities predominantly in our bigger areas like the Koblenz plant, but also in North America, with automation projects over the course of the last few years already. And this actually is in progress, yes? So we -- this is something which we continue to strive for. It touches, in terms of the desired savings, about 1/4, but 3/4 of this whole thing is then SG&A or overhead related cost assumptions, so SG&A, marketing, sales and whatever is on the overhead side, 3/4. 1/4 operations.

And has your incoming CFO being involved in the cost measure exercise?

Absolutely. And this is something which we are extremely proud of. Our CFO, who will come on board, is already in contact with us. Why is that? We know that basically our business world is turning very fast, right? We didn't want to wait also with the activities until Andreas Jaeger is on board. And that's why we involved him upfront. So we had several sessions on a good level of granularity. You know that we are in the midst of the budget planning, which will reach out beyond November. But also in an early stage, we always involved him, and he's spot on. So when we meet him first, after the 1st of November, and we have our first discussions, he will confirm to you, he was 100% on board, it is an agreement, and supports all these activities and also has been ensure that the individual portions which are impacted and the patterns which are impacted are evaluated thoroughly.

Okay. Perfect. Maybe a final question. Could you provide us an update on the pricing in Automotive Powerise? And then what are your expectations for the next year?

Yes, for sure. As you have seen already, when we talk about next year, for sure, we're touching, at the end of the day, an area when -- towards the end of the year, we will, at the 8th of December, publish our guidance for next year. But this is a very specific question maybe to answer. In this year, we saw a price deterioration in the range of, globally, 5% to 6% driven predominantly by the impact of price deterioration in China, which was in some customers [indiscernible], particularly with the Chinese local ones. And then there was a price reduction in North America of about 3% to 4% and a little lower than 3% in Europe. So all this together mixes to 5%, 6% price deterioration in the Powerise sector. And we only can deal with half of it, right? So that means some of this is leftover, which is a burden on our P&L, as you know. And this is something which we already -- also talked about, and it was predominantly in China. So what does this mean for next year? We see that this is basically fading out. Why is that? Because purely we are a company in the same way our competition is selling innovation. We are selling technical products. And whenever you talk about such products, price deteriorations typically come to an end over the course of the years because something kind of beating each other on the pricing is never the right way to go forward. So we see next year's budget for the time being, a price deterioration in the range of 3.5%, 4% for Powerise and a little bit less than 1%, only 0.5% on the Gas Spring side. And this is something which hits us. It's besides -- this, I would like to mention, I appreciate the question [indiscernible]. This one is actually important, yes? This was just an information where we are currently when it comes to pricing for our products. I would consider this question is not related to the topic today, but I'm happy to, for sure, answer you that question.

The next question comes from Marc-René Tonn, Warburg Research.

I presumably say it's probably not the call for the 2025 to sort of '26 guidance, but I think there's a bit of concern that the additional restructuring needs may indicate that overall profitability, let's say, may deteriorate further before it gets better again. [indiscernible]. And I appreciate that you mentioned already depriving and their first positive sets from the restructuring program hardly already in next year after this year's decision. But if you could give us some more flavor on how we should think about the next business year in terms of, let's say, generally talking about challenges and opportunities just to get better visibility, more confident in how the company should proceed in terms of [indiscernible]?

Absolutely. If you see our business, right, as I said at the beginning, it's basically also impacted by the outside world for sure, like other business. And if you see over the course of the years, how the business was developing, and this is the same for everybody who's in the industry, automotive and industrial applications, the first half year of our business, so that means October till March, went okay, and it went according to our assumptions basically. In the second half of the year, with the change in the U.S. government and administration, in conjunction with tariffs situations, there were direct impacts on our business. But direct impacts were in terms of tariffs, we could basically get almost a waiver for it because we are local for local, we ensure that we [ crawl ] money back from our customers and the impact for this year's deal. The secondary impact was big, and it started, as I said, with March, April when -- first, tariffs kicked in, and the consumer sentiment went down. So now we're in a quarterly saved area, also subsequently for the year to come, but we say this year, absolutely, this whole thing bottoming out. And that means we see -- and this basically in line also with GDP and S&P, light vehicle production, then we see that kind of flat progressing into next year. And for sure, you mentioned also basically the impacting factors to the EBIT margin, right? So first thing is on the sales side, we see it basically bottoming out, and we see it flat year-over-year. [indiscernible] in alignment with what all other companies see out there. It's too early to talk about the guidance for sure for next year because we are still in the midst of the budgeting planning process, and we don't have a firm number, but this is basically in an overall sentiment. So we'll talk about EBIT a bit. We are in 11% EBIT margin. That is our guidance for the year. As I said, we stick to it and EUR 1.3 billion. If you assume that sales basically will go plus/minus in the similar range, our assumption is that at the end of the day -- and this is something which we laid out on the [indiscernible] page before. If you talk about the 11% EBIT margin, and we see a payback of the investment of EUR 18 million in a year, that there is big deterioration on the profitability for the year to come on the base business. Why is that? Also, if you remember what just Yasmin said, Yasmin Steilen also said, "How is the price deterioration developing year-over-year for next year," right? Typically, automotive industry, that's what I said, you have 3% to 4% price reductions, and you always can deal with it because on top of this organizational and structural change we do, we have our base here, and we also set the price reduction by taking into changes. Last year, it was difficult because we had this impact by China because there were disproportionately higher price reductions driven by the developed competition. Next year, we see that coming back to normal, 3% to 4%, global scale. This is something we can deal with, in a nutshell, with our business on hand [ taking into ] changes. So at the end of the day [indiscernible], in terms of the base business and base profitability, there is no impact from our side seen that this would go -- would lose. It's, as I said, on the long run with the guidance of 11% EBIT margin, it is not my personal. It is not the company's vision. Despite of having a margin, with 11% EBIT margin, this is twice as high than our competition. We are not happy with it; we want to achieve more. And this is why we take the opportunity to improve it further. This is why we take the opportunity over the course of the next months to streamline down organization. And this is the case why we are confident that there is a payback of 1 year, which then, if you put it in your calculation, results in a healthy EBIT margin, which we are striving for. And that's the reason why we do this activities. Are there further questions?

So at the moment, there are no further. [Operator Instructions].

If there are no further questions, then just again, the Stabilus Group with 11% EBIT margin is in an extremely healthy path. And this is what we want to maintain whatever it takes. So this time around, we wanted to talk to you about this impact on, yes, the net profit because we need to accrue this EUR 18 million, but with a period of less than a year and with a very vital impact in the year, not only '26, but also '27, moreover, '28. So we want to prepare as a company for the next step. We want to streamline down organization, and it is the right time to do so. And that's why we will execute over the course of the next weeks and months, this plan, to basically secure our stability in the market. And with that, if there are no further questions, I would wish you a good rest of the week. Thank you very much.