Stabilus SE (STM) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and welcome to the Stabilus S.A. Conference Call regarding the Stabilus Financial Results and Second Quarter of Fiscal Year 2021. [Operator Instructions] The floor will be open for questions following the presentation. Let me now turn the floor over to your host, Mr. Mark Wilhelms.

Yes. Hello, and good morning from the Stabilus management team to our Q2 results call. From the Stabilus side, we've got Dr. Michael Büchsner here, our CEO; as well as Andreas Schroder, Investor Relations Manager; and myself, Mark Wilhelms, CFO of the Stabilus Group. We will now take you through the presentation that you find or you have found on our web page. With this, I hand over to Michael Büchsner. Thank you.

Thank you, Mark. Good morning, and good day, ladies and gentlemen, also from my side. Let's go through the pages we've been providing with a starting point of very good news. We start today with the good news that we could adjust and improve our guidance for the year, which we, by the way, also already announced on the 2nd of April this year. So we had previously a guidance out there for EUR 850 million to EUR 900 million with an EBIT margin of 12% to 13%. So as you see in the numbers, the year went very well for us for the time being. And that's why we adjusted our prognosis to EUR 900 million to EUR 950 million and to 13% to 15% EBIT margin. This is what you see on Page #5 of document on hand. And also here shown in a nice graph how our performance did develop over the years, and this is actually underlined by a very strong first half financial year '21. We had in the first half, and Mark will talk about that later, sales of EUR 479.4 million revenues and 14.7% adjusted EBIT margin. There is a little lower expectation for the rest of the year mainly driven by some still market uncertainties centered around 2 topics. It's on, one hand side, the semiconductor shortage issues, which apparently hit the OEMs, and nobody really knows how that plays out at the end of the day. And then the COVID-19 crisis, there is some risk in materials as well, which then count up for a topic which we probably will see in the second half of this year, which could show some moderate growth for the coming months. However, a good -- very good starting point for us for the second half of this year, and thereby, we could adjust and improve our guidance for the rest of the year. So let's move on Page #6 of the presentation on hand with some operational highlights. Sure as every time, let's talk a bit about COVID-19. COVID-19 pandemic situation, now we are more than a year in this pandemic situation, still have a few COVID-19 cases in our company. However, we have them very good under control. And also in that term, we started testing in our facilities. And we also support with a vaccination strategy in our different companies in the coming weeks and months. And thereby, we have the situation well under control for the time being, and it remains our top priority for sure to protect our employees, to have the effect that we're also, for sure, at the end of the day, protect the complete company. Global light vehicle production was on 20.3 million, quarter 2 financial year 2021, which is 15% -- 14% up year-over-year. And we had a very strong recovery of light vehicle production in Asia with more than 30% plus. So also, we see particularly for our business good growth in Asia on the Automotive Powerise, which has a very positive effect on us. But also in the other areas, we did perform very well, as you will see later on in the financial numbers provided by Mark. However, still very high on our agenda is the cost flexibilization and aligning and adjusting our capacities to where it really matters because that was key for success for us in the past months and in the complete year of the crisis and actually key for success in the past means to us. We put -- we kind of continue that path, on keeping our flexibility on a high level in order to harvest the fruits of the adjustments on capacities, adjustments on costs we did in the crisis time, to harvest on that in the second half of this year as well. There are some clouds on the sky, which I already did lay out on the previous page, which is the semiconductor availability, which might impact the OEMs. That’s kind of not completely resolved in the industry, as you've heard from various news. And then there is also clouds on the sky in terms of material price inflation. So these uncertainties kind of are leading us into the second half of this year, but we are kind of optimistic for our business that this path of success continues also in the second half. Then also, we did some steps on promissory notes, Schuldschein, which Mark will talk about on the next page.

Yes. Thank you. So let's now turn to the next page. As Michael said, issue of first Schuldschein in the amount of EUR 95 million. We've issued end of the quarter we talk about, i.e., end March, a Schuldschein with EUR 95 million volume heavily oversubscribed as one sees is actually with a number of Schuldscheins in the German market. Half of that extra amount that we took on board we have used to amortize the term-loan facility. Nevertheless, at the end of the quarter, we had a cash position of EUR 215 million and EUR 117 million of undrawn committed facilities, giving us a total liquidity headroom, maneuver room of EUR 332 million. That compares to EUR 209 million we had at the back end of September 2019. Why are we so keen on having here a lot of headroom? A, as part of our M&A strategy, we want to be ready to react for at least smaller acquisitions quickly; and B, which you can see in -- from -- in regards to our guidance forecast revenue as margin-wise, we remain cautious towards the second half of the year. How all the reasons that Michael has given, yes, COVID as well as electronic shortages will impact the production schedules in the next 6 -- or rather, now 5 months of the year. That is a good reason to enter into those next months, quarters with a decent headroom of cash and available additional facilities. With this, I hand over to Michael, who will now talk about the legal form change.

Thank you very much, Mark. Thanks, Mark. So let's go on the next page. We're talking about Page #8 now. So we will kind of change the legal form and the registered office of the Stabilus S.A. We'll change into an SE. This was also communicated already by -- on March 8. The Management Board and Supervisory Board actually resolved to prepare this change of this legal form for the rest of the year. On the left-hand side of this page, you see actually how that plays out in terms of timing and impact onto the organization. One thing is for sure, the shareholders' legal status will be unaffected by this change. At the end of the day, why are we doing this change, in terms of our operational business, it will be simplifying for the group structure. And it also will have some positive cost effect on our structure of Stabilus. We will, at the end of the day, in the first step change our company's legal structure from an SA into an SE. And then at the end of the day, move the Stabilus SE to Germany closer to our operational areas. And this, at the end of the day, will have positive impact onto our structure. There are 2 important things to know. There will be 2 EGMs. The first EGM is planned for the fourth quarter this year, where we will ask the shareholders in a resolution to support this initiative. And then there will be also a second EGM quarter 1 next year to kind of proceed with that move. Also, very important move for us, we want to further simplify our structure. So I ask you, as you're also shareholders, for your support to turn that into life. With that, we are leaving the operational side and the highlight side. Again said, first half of this year was very good and successful time period for us. The numbers are on a very good level. And despite of the clouds we see on the sky, we are optimistic for the second half of this year. So we turn to Page #10 with the key financials. Revenues were in the range of EUR 244 million versus EUR 221 million quarter 2 last year, so up by 10.4%. 0 acquisition effect at this point in time. Currency effects mainly driven by U.S. effects on dollar. And we show a very good organic growth of 15% year-over-year. EBIT margin-wise, here, you see what we've been talking about in several discussions with shareholders on conference and so on. We saw a very good pull-through of the COVID-19 actions we did last year when we were talking about improving our cost structure. This is what now materializes, and we see an EBIT margin of 15.6% versus 14% Q2 financial year 2020. Also in terms of profit, profit margin at 10.6%, a good development and the free cash flow of EUR 28.8 million underlines this success. The net leverage ratio is below 1 now with 0.8 -- 0.9 versus 1.2 as of the end of financial year 2020. So with the net financial debt of EUR 138.9 million, we are on very good track here. I already highlighted on the first page, the outlook is also positive for the rest of the year from our perspective. We could raise our forecast to EUR 900 million, EUR 950 million. And we will end up in the range of 13% to 15% EBIT margin. So with these positive numbers, I hand over back to Mark for some details.

Yes. Thank you. Now turning to Slide #11, you basically see in a graphical form what Michael talked about. Left-hand side, top left-hand side, the revenue development up by EUR 23 million quarter this year versus quarter last year. Organically, the 15.2%. Interesting is what happened on the EBIT side, which you see on the top left-hand side. EBIT profitability in euro millions improved from EUR 31.1 million last year Q2 to EUR 38 million, which is EUR 6.9 million improvement relative to the EUR 23 million extra revenue that gives a drop-through rate of 30%, which really is our gross margin that we have been delivering in this quarter as well as about in the quarter a year ago. Details on that you find on Page 25, 26 of this presentation. Interesting is also or worthwhile to see is relative to Page 22, which shows our revenue by quarter and the margins by quarter, we have seen a couple of quarters in the past where the revenue was over EUR 240 million and every time we delivered an EBIT margin of 15% plus. So this quarter is nicely in line with historical practice which should give some comfort in terms of next quarters, either this year or the year to come. Interesting is also the cash flow, adjusted cash flow, bottom right-hand side, from EUR 13 million a year ago to EUR 28.8 million, which is EUR 15.8 million more cash flow from EUR 23 million more revenue or almost EUR 7 million EBIT. Well, part of that is eventually paying less taxes that has helped us here as well in the free cash flow. Moving forward to Slide #12. We see the first half data set, i.e., quarter 1 and 2 this year compared to last year in the year-over-year. We are 11.1% higher in terms of organic revenue growth. In euro terms, that is EUR 27 million better. This is shown on the top left-hand side. Top right-hand side shows us the EBIT development last year. We had for the first 6 months of the business year EUR 61.1 million EBIT, and we are now at EUR 70.3 million. That is a EUR 9-ish million improvement. Relative to the revenue development, this is a 33% drop, so high. In terms of cash flow, bottom right-hand side, we are seeing a EUR 30 million improvement, well, as before its tax as well as reduced supplier payments because we've been paying a good chunk of suppliers back end last year. And also this year, we keep a good control on the overall cash flow, which results in the EUR 50.7 million adjusted free cash flow. With this, I hand over to Michael again?

Yes. Thank you very much. And I'd like to talk a little bit about the industrial revenue by market, which you find on Page #18. The industrial revenue market here also are on good levels. We ended up with EUR 101 million, which is EUR 6.5 million better than last year. We saw good trends on the distribution effect of Aftermarket and E-commerce. Health and Recreation is also positive for us. But however, in total terms, the point of construction, industrial machinery and automation still lagging a little bit behind. And we see that in typical economical cycles. The typical economical cycles show that those areas in the industrial kind of lag behind and a rebound phase is about 3 to 6 months, which then at the end of the day, and we are seeing first orders coming in, will help us in the second half of this year. Then Mobility segment is improving as well. We are on 37% on the mobility sector, which is improving versus prior year, 34% and, at the end of the day, showing also a positive a trend for the coming weeks and months. And last not least, we also, in terms of the Commercial Vehicle segment of plus EUR 5 million year-over-year, received particularly also some improvement here in the coming months. However, Aerospace, Marine and Rail subsegments are still on lower levels than before. You've probably heard that from all the present media that the recovery path of that segment, particularly on the Aerospace, lagging behind. And it still will take a couple of months until this business comes back. So that means I turn it back with some more information about the regions to Mark.

Yes. Thank you. Now I go back to Page 14. After we've heard the news about our very important margin, strong industrial business, and I'll be talking a bit about the automotive business, which we all know margin-wise is a bit duller than the industrial business. So please go to Page 14. This one deals with the European region. Revenue wise, we've seen a 7.5% increase in euro million i.e., EUR 9 million more, which in terms of organic growth is 8.3%. On the right-hand side, a few comments, light vehicle production in Europe, Middle East, Africa in the year-over-year view is down by 0.9%. Third bullet point shows organic growth of Stabilus in the Gas Spring division 2.4%. So there, we are beating the vehicle market. And with Automotive Powerise growing at 14.1%, we are clearly significantly beating the overall market. The fourth bullet point deals with the industrial business. Michael has already talked about that one. In the region Europe, we've seen an 8.4% increase. EBIT margin, important to note as well and to eventually talk with a bit of proud about that one. European EBIT margin improved from 13.1% to 15.3%. That is a nice drop-through rate relative to the incremental revenue of about EUR 9 million that we’ve generated here, in fact, 45%. This goes back to what Michael Büchsner talked about with our COVID actions we've taken to flexibilize the cost structure, to keep an eye on the cost structure, keep the cost low to ensure we go with as little as possible baggage, burden into the second half of the business year. Slide 15 takes us to Americas. Americas is, yes, in this quarter, not as strong as other regions of our company. Light vehicle production in Americas in the year-over-year view is down by 3.2%. Our own revenue has improved year-over-year 13.2% organically. Clearly, in euro terms, the softer U.S. dollar creates a bit of a burden. In terms of subsegments of our business, third bullet point on the right-hand side. Our Automotive Gas Spring division in Americas delivered a 2.3% revenue organically and increase in the Powerise division at 25% organic revenue increase. So in those segments, we are clearly beating the underlying vehicle market. Industrial business in America is going through a bit of a tough time with almost flat, year-over-year revenue development was 0.4% increase only. Now turning to the EBIT stuff. Yes, we come to what I would call the set side on the U.S. business. A year ago, we had 19% EBIT margin. This year, it is 16.1% in Americas. Well, what has changed? Clearly, the softer U.S. dollar and the peso development mess up a little bit our financial results in that area. We have a few negatives on the FX side. From dollar, peso, euro translation, most of you will know that we've got a quite sizable factory in Mexico where we produce Powerise as well as Gas Springs for many industrial applications and also some automotive applications. With this, I hand over to Michael, who will take you through the results for the region APAC on Slide #16.

Yes. Thank you very much, Mark. So why did I jump to the industrial business split a couple of minutes ago? I did that on purpose because I wanted to draw your attention on our very strong industrial business. And a big portion of that was kind of created in APAC, and that's what I will talk now. Because in APAC, we kind of recover and harvest the fruits of our efforts of the past years, in a very specific way, we could increase our revenues from EUR 20 million to EUR 32.3 million comparing quarter 2 last year to this year, which is a growth of 64%. On one hand side, for sure, the light vehicle production in Asia improved a lot, 32%. And this actually caused revenue growth by, yes, EUR 12.3 million, 61.5% comparing the quarter. So there is a very strong Stabilus Automotive business driven by Gas Springs and Automotive Powerise, Gas Springs plus 60% year-over-year; and on the Powerise side, twice as much, 120% on the Automotive Powerise side, resulting in good growth on all APAC segments, be it combustion engines, electro vehicle, smaller or bigger locals or westernized customers across the board. We've been successful here and show a lot of organic growth as well on the industrial revenue side. 28.4% year-over-year growth underlines that we are on a good and successful path here in Asia. Also on the industrial side, particularly strong growth on the segments of, yes, Vehicle Distribution, E-commerce and also in terms of Rails and Mobility. Thereby, we could also increase dramatically our EBIT. The adjusted EBIT went from slightly negative last year to 14.9% in the quarter 2 financial year 2021. So with this highlight also from the regions, I will turn it back to Mark to talk a little bit about the revenue split by business.

Yes. Thanks. I'm now talking to Slide #17. As said by Michael, it's revenue by business unit. Let's first turn to the cake diagram at the bottom of the left-hand side. Industrial business in this quarter was 41% out of our total business. Last year, we had 43%. Hey, we are talking about strong industrial business, how come that the share actually goes down? Well, the Automotive business, the Powerise business is growing very strongly. You see that here on the graph from -- for example, the Powerise business, from EUR 54.7 million to EUR 65.2 million, showing an organic growth of over 25%, precisely, 26.8%. With that growth, it's hard for our industrial team to keep up with the pace, to keep up with the revenue growth. Right-hand side, a few worthwhile comments. Quarter -- or year-over-year in the quarters, global light vehicle production increased by 14%. Our own revenue in the various segments of Automotive increased by 12.7% for the Gas Spring business. And by the Powerise, we see the Powerise business of 26.8%. So here, we see clearly The Stabilus Powerise product find a lot of interest in the market. Consumers order that vehicle. Production companies order the tailgate automation from Stabilus with a couple of names of key customers that we have given in the last calls. For example, you can see we are actually placed with top car manufacturers. It should allow us to continue to show a good development of the Powerise business. Industrial revenue year-over-year, an increase organically of 10.6%. Details have been given before. With this, we can move on to Slide 18, which we've already talked about. And then we come to the outlook, which is shown on Page 20 and Michael will talk about.

Thank you very much, Mark. So that's here and now, as we already outlined a couple of times, very positive for us, good first half of the year, which at the end of the day materializes also in the second half of the year in our prognosis. So you see here outlined on the left-hand side of this page that we have now a prognosis on hand between EUR 900 million and EUR 950 million in revenue and an EBIT margin range of 13% to 15%. So some comments on the right-hand side. Light vehicle production assumption is growth of 14% from 84.3 million vehicles to -- versus prior year's vehicle production of 73.9 million, so good strong growth here for this year. And also, we expect and kind of calculate based on 90 million vehicles expected to be produced in the year 2023. However, and you for sure have recognized that we provide a still decent range of our forecast, 13% to 15%. So why is that? You see that on the second bullet here on the right-hand side, we still expect some impact of COVID-19, especially as the economy rebounds from semiconductor shortages, increasing raw material costs. And that's why we show a wider range this time for our guidance. And the further we progress throughout this year, we'll see at the end of the day how that works out. And nevertheless, our long-term strategy remains unchanged. We are working and in parallel to all this COVID-19 pandemic situation effects have been working with the complete Stabilus team on our One Stabilus initiative along with a strategic plan, which guides us to '25 and even '30, where we plan based on CAGR 6% for our business and have our margin target at an EBIT margin of 15% as long-term goals. So this boundary remain unchanged. With that, we will open for questions. Thank you very much for listening.

[Operator Instructions] And the first question comes from Marc-René Tonn.

First question would be on the outlook for the industrial business specifically, I think we have seen, let's say, 2 percentage points lower share in revenues now in the second quarter. Perhaps you could give us some indication whether, particularly for this, let's say, high-margin business, whether you expect to see growth being more similar to what we've seen in the auto business in the second half or even perhaps better than that, what would be your expectations there. Second question, also with regard to growth. You have, as I mentioned, a very successful development we have seen in the APAC region. Perhaps you could give us, say, some indication how we should think about the further development of revenues in this market, perhaps some indication when we should, let's say, see, let's say, quarterly revenues at, say, being more towards EUR 40 million or something at some indication what we could expect as a CAGR there. And the third question would be on the cost savings and the flexibility measures on, let's say, whether you could give some comments about, let's say, how sustainable you think these cost savings to be, whether you expect any kind of cost like travel expenses or something like that to return and to what degree that may, let's say, be a burden in the future or whether as an investor we should think about, let's say, lower cost level which you now enjoy to stay for longer.

Yes. Thank you very much for your question. We'll kind of split the questions in answering them. I will start with your first question in terms of the industrial outlook, then Mark will jump in for Asia. And at the end of the day, the last question in terms of our cost structural savings and the flexibility and what we can expect is carryforward expect, we'll actually talk both about those points. On the industrial outlook, yes, from our perspective, there will be a further recovery of the industrial areas. As you see on Page #18, we are equally split in terms of the different segments we have on hand. And they are actually improving well in all terms. We see, at the end of the day, a good recovery in terms of Distribution, Independent Aftermarket and E-commerce, which is for us kind of an early indicator for rebounding of the economy, which, for sure, from our perspective, will also materialize in terms of energy construction, industrial machinery and automation. So why is that? Typically, when the economy recovers, you see that, first, in the Independent Aftermarket, E-commerce and Distribution channels, before, at the end of the day, companies get back and continue investing on the industrial machinery and automation side. In terms of details on the revenue, it's difficult to say because, typically, we get this forecast particularly on Energy Construction, Industrial Machinery and Automation segment only, yes, 3 to 4 weeks in advance. So that means in terms of the current order intake, we see good recovery in that segment, but it's too early to say what the full half or second half of the year impact currently will be. Another good indicator is, however, that we could increase our share in mobility services particularly when it comes to the bus sector or also when it comes to the heavy machinery and also construction equipment. We see here some positive signs at -- and light at the end of the tunnel. And that kind of drives the positive outlook on the industrial side. However, in terms of really millions, it's probably difficult to say as the forecast is only shown for weeks and not months on the industrial sector. So with that, I hand over to Mark in terms of APAC.

Yes. Thank you, Mr. Tonn. You asked about our view for our products on Asia Pacific growth side, what's happening there. Now we need to see that last year's Q2 was the dullest sales quarter we had in Asia Pacific with only EUR 20 million. So of course, the stronger growth rate we are seeing this year are partly a result from the comparison in the quarter-over-quarter view. Going forward, our current sales of EUR 32-ish million, EUR 33-ish million is something that should remain with us in the quarters to come on what basis. The Powerise products are now finding a good strong setting, footing in the Asian Pacific in the Chinese market. We are with the right car manufacturers. So that should basically stay with us. The year-over-year quarter improvements, however, will not be the 64-ish percent we've seen here simply due to the comparison. Just remember, last year's Q3 sales in Asia Pacific were EUR 26.7 million, to put that into perspective. With this, I hand over to Michael for the cost savings questions you had.

Yes. Thank you very much. In terms of, yes, cost savings and the flexibilization in our business, we, at the end of the day, started very early when the COVID-19 pandemic hit the ground last year with working on 3 main pillars of cost flexibilization. First of all, we had a profit recovery scheme in place. So we immediately hit the brake in terms of indirect spend. So we've been tracking all indirect spending. For sure, this is something which, at the end of the day, is only partially sustainable because as the business recovers, you need to invest in terms of indirect spending. But if you then count travel costs for this year, if you then account spending in terms of increased capacities and maintenance, it's, however, less compared to last year, which is one portion of this positive trends we are seeing. Then purely in terms of investments, investments related. And here, I would divide it into the automotive and to the industrial business. Yes, we're further growing in a tremendous way particularly in Asia. However, the effect is that following IHS will not be back to what it was in 2019 in terms of vehicle production until the year 2023. That means to beef up our capacities in the Powerise side, we need some money. However, we've been working on this very high level of output already in the year '18 and '19 in the Gas Spring side. So no further investment in new capacities is needed unless – or yes, with the exception of maintenance activities. And this is the second part of savings we do in terms of our structure. And then, sure, also in terms of flexibilization of manpower, flexibilization of manpower was an extremely important point to us already last year. And we could tailor our capacity is pretty much to the demand we had also in terms of our overhead costs. And this is kind of what drives, these main 3 pillars, our success in terms of cost savings and flexibilization. But for some more insights, I also turn it over to Mark again.

Yes. On the presentation, the Slides 25, 26 give you some more detail on the P&L. Now what do we see there? The gross profit margin for the Stabilus Group improved year-over-year in the quarter from 29.2% to 30.6%, so that's 140 bips extra. The reasons are, as Michael said, cost management has had helps with clearly going forward also. The lower headcount structure will remain going forward. What will, however, be a concern going forward is the already mentioned material price development as well as hiccups caused by the customers by them changing their production schedules and the knock-on effects to us that will make it more difficult in the quarter to come to maintain that level. That is also an explanation why we are keeping a fairly wide margin, yes, forecast in the outlook for an EBIT margin of 13% to 15%. And there's a level of uncertainty one needs to keep in mind. In terms of fixed cost structure, R&D, selling expense, admin expense, we already talked about that on the selling expense side, travel cost, but also fair set are clearly cost-wise lower this year. R&D expense, about at higher year level for that quarter. In admin expense, where we have the whole overhead management cost of the company that we've taken now a higher bonus reserve in the year-over-year comparison, that should give us room going forward depending on how the business develops. The cost line other income expense, that is where we see the FX movement on the Mexican, U.S. business in terms of changes in the valuation of receivables, et cetera, which is partly explaining what I already mentioned before the hit on the Americas EBIT margin. Hope this takes care of all the questions you had, Mr. Tonn.

And the next questioner is Akshat Kacker.

Akshat from JPMorgan. Three from my side. The first one, again, coming back to the Industrial division, it was clearly a very good surprise in the second quarter, as you laid out, from Commercial Vehicles, Distributors, and Independent Aftermarket mainly. And that was on the back of a Q1 call, where you said order books were not very filled. So I just want to understand how sustainable is this going forward and if there is an element of restocking, especially in Europe. It's just that I'm trying to figure out whether those kind of revenue levels are sustainable as we move ahead per quarter. The second question is on the semi disruption and the shortages that we are seeing in the automotive world especially. Currently, IHS is factoring in what we have seen basically for April around 1.5 million units, which is very similar to the first quarter. I just want to understand if you have an estimate of how many units you think will be impacted on a global basis in the second quarter. The third question is on the material cost and raw materials. Can you please remind us the key materials that are affecting your purchasing bill and what is the net headwind we should think about going into the second half or FY '22?

Thank you very much for your question. Yes, in terms of industrial, in terms of the industrial business and the question how sustainable is this growth, we are working with the industrial market indicators, which are kind of public information. And they kind of show that especially in the coming months, there will be an improvement in terms of take rates on the industrial business as well as on everything which is kind of in close touch with traveling, in terms of bus sector, for example, or also trucks and trailers, which will further improve. And these 2 -- mainly 2 segment indicators show us that kind of this growth will be a side of restocking which takes place in an early phase, for sure, will be sustainable and lead to a positive view on the future in terms of our sales in the coming months. Then also your second question can be answered in close -- kind of close-linked numbers towards the automotive industry's numbers. You've been mentioning losing a certain volume of vehicles in the first quarter, which was lost generally speaking in the automotive industry. We kind of confirmed the numbers you've been mentioning. We also see the same prognosis for the coming future. So we are in line with the information you're having. We have one positive aspect to us which already did cause positive sales development in the first quarter to us. Typically, the OEMs in difficult times try to sell the premium segment car. So what does this mean? In premium segment cars, that's where the OEMs make their money. And typically, those cars also include a Powerise system. So these good, equipped cars are typically those cars which the OEM continues to produce. And if there is a shortage on the semiconductor market, and that's what the first quarter and actually the first half of the year did show us, the produced numbers on smaller vehicles rather went down in the segment with good fitment rates of more fancy stuff like Powerise, like upper-class segment cars, we're still on the production schedules of the OEMs. This makes us believe that we can be more successful than other companies focusing on average segment cars because these high premium segment cars are typically equipped with more fancy products like a Powerise system or other comfort features than the other mass market cars. So with that, I would hand over again to Mark talking about material impact onto our business.

Yes. Thank you. Well, like many other companies, we see on a number of purchase components significant price increases like plastic resin that we have for the end caps of our gas tanks, increases of 10-ish percent and more. Steel costs go up throughout a lot of business segments that impacts the Gas Spring business primarily. On the Powerise side, we have, in fact, a low share of 2 electronics components that are part of today's often discussed shortages. So there, we are not seeing that much of a price change. Overall, Stabilus has spent in the last 6 months like EUR 225 million on material cost. We see going forward a risk of up to EUR 8 million material cost increase happening in those components in the view versus the current 6 months that have just lapsed. That creates a pressure of like 2% on the margin side, which therefore relates nicely to the overall guidance from 15%, 13%, somewhere in that area. So just last second quarter was 15.6% has been the strongest second quarter in terms of margins we've seen over the last couple of years. Normally, the last 2 quarters of the year are margin-wise stronger. So into that typically strong margin profile, we get the hit of the higher material cost that will -- that could somehow mess up the good results.

So also here are some topics in addition. We -- because next question is how would we handle that material price increases. On one hand side, we try to kind of push that out as long as possible because the longer this rebound phase of the economy takes, the more likely is that also those steel mills and resin producers increase their capacity which, at the end of the day, then will cause that the prices are coming down. So the later you're kind of giving in, the less impact on the businesses, that's one side we try to handle the circumstances. And the other side is that currently we are as the second quarter -- calendar quarter of the year starts in price negotiations for yearly price reductions with our customers. And for sure, we put that aspect of material inflation also onto the table to, yes, on one hand side, get some recovery from the OEM side and some share activities; on the other hand side, also to kind of in a positive way, have an impact on the yearly price reduction, which is, without a doubt, difficult work and intensive work we do with our customers and suppliers. So that's how we handle that circle.

And of course customers know that the raw material prices increase. And we all know that the number of suppliers have very fixed agreements of pass-through of raw material price development. We at Stabilus has typically not liked those, but of course, in the price discussions, as Michael said, those arguments are used in order to avoid Stabilus sales price reduction, to ensure a Stabilus sales price increase with various customers, depending on the specific contractual agreements and specifications for that individual part that is being discussed in that part of the negotiation.

Yes, that was very, very helpful. I just have one very quick follow-up on coming back to auto production and automotive revenue. From what you can see today, is it possible that in the third quarter, we can maintain revenue on the automotive division versus the second quarter? Can you maintain those high levels? Or will Q3 be lower than Q2?

From today's perspective, with the numbers we have on hand, we are positive. However, there are the clouds on the sky we've been mentioning like the semiconductor topic and also the material price inflation. So bottom line is it's kind of too early to say because we are now in our third business quarter and only 1 month being in this business quarter without even having financial numbers of this first month in this quarter, we don't know the details for the time being.

So there are no further questions from the audience.

Very good. Thank you very much. Anyway, for your question once more, quarter -- first half of the year was very successful for us. We've been showing good numbers, good recovery out of the crisis. And our numbers indicate also that we'll have a good pull-through for the rest of the year. And those results of our Q3, i.e., the time of the second calendar year quarter, will be presented to this audience on August 2, same time. Thank you for participating in our call. Goodbye.

Thank you very much. Goodbye. Have a good week.