Stabilus SE (STM) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and welcome to the Stabilus S.A. Conference Call regarding the Stabilus Preliminary Financial Results in 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, Mark Wilhelms.

Yes. Hello. Good morning from the Stabilus team, and we proudly present you now the 2021 preliminary financials. From the Stabilus side, we've got here Michael Buchsner, our CEO; Andreas Schroder from Investor Relations; and myself, Mark Wilhelms, CFO to the Stabilus Group. We will use the presentation that you find or have found on our website. And Michael Buchsner will take you through the first agenda point, which is operational update.

Thank you very much, Mark. Hello, and welcome also from my side. And I would start with the operational update with our vision statement. Our vision statement is to be the leader in motion control systems, automotive and industrial space. A key for that is certainly innovations and software. And this is why we also highlight here once more, as you for sure also read in the press, our partnership with Synapticon, which you find into more details on Page #5 of the presentation. Synapticon is actually a technology-focused company founded in 2012 with 57 employees. They have some EUR 1.3 million in revenue. And we bought about 12% of their shares as an entry point. And that's a very, very important step for us. Why is that? We are focused in a strong way on innovation at Stabilus. And during numerous calls and discussions, I already highlighted how important it is to us to develop new products, which are more and more sophisticated. They are more and more software driven. We talked about ECUs. We build our own ECUs. And also in the automotive and industrial floor space, we are a system provider, including intelligence in our systems. We also very well know that we need some help to do so. So that's why we built up a complete software team in-house. And on top of that, going into the partnership with Synapticon is kind of a knowledge transfer for the automotive and industrial side to do the next steps in development of products. What does this mean? For example, if you take the door actuation systems on our automotive space, we get the request from the customers for sure that we put intelligence in the systems. We want to be the front-runner in terms of sensoric, sensor integration for the door actuation systems, and we want to make sure that the systems support the customer needs as they are really interacting with passengers of cars, for example. On the other hand, if you talk about the industrial space and our lighthouse project centered around, for example, yes, the solar business. We developed solar dampening systems, which adjust themselves to the angle the sun is actually shining on panels. And to support that functionality, you need also the software intelligence. And this is certainly what we've been working on over the past months. In order to further strengthen our approach here, we are in this strong partnership with Synapticon. If you look on the left-hand side of this page, they do actually servo drive and integrate their software into motor systems and actuation systems and linear movement system. They have integrated motion devices, and their core competency is indeed working with software solutions to improve the performance of motion systems. And this is what we've been searching for, for a while. The company is located in Germany, but also in low-cost country in terms of programming work, which was important to us as well. And they're also looking for further expansions into the North American and Asian region, the same way than we do. This motion software is their core product and competent. They actually increase efficiencies with their systems. So for example, you need them in robot systems, but you also need them in motor drives, decentralized motor drives. And this is the perfect playground for us in order to gain from the synergies of having them on board. First-time consolidation will be October '21. We're looking forward to the success along with Synapticon because Synapticon used to be mainly working on industrial applications, and their big benefit is that they're eager to expand also in the automotive space, which we certainly can help them with. And together, as a rationale, we will develop the motion control innovation and move towards digital transformation as a part, as you know, of our long-term strategies, focusing on the software competence around motion control solutions. These are very, very important milestones for us. And actually, if you look into the industry, they're certainly key for success because you need to be in the software space. You need to have the software on board in order to be successful, and that's what we certainly do with this first step. Yes, this is new on the automotive and industrial operations side. We are in both terms starting integrating and doing some integration work into our capabilities. Other than that, I would jump on to the next page, Page #7, talking about the financial results, which are actual results, excellent results, as we speak. The revenue for the full year was basically EUR 937.7 million versus EUR 822 million last year, which is more than EUR 100 million above and beyond last year and 14.1% year-over-year growth. The organic growth was massive, with 16.4%, predominantly also in the region China, where you also know as second big cornerstone of our strategy that we want to expand. So our strategy is, coming back to the first point, innovation and software, motion control systems but, on the other hand, expansion in Asia. And actually our Asian business, and Mark will talk about that later, is growing very well. In terms of EBIT margin for the past year, we ended up with an EBIT margin of EUR 135 million, which actually was 39.6% year-over-year improvement, which basically led us to 14.4% EBIT margin compared to 11.8% in the year 2020, which is a very, very good result considering the current market circumstances. The profitability was at EUR 73.8 million versus EUR 30 million in 2020, also an excellent result here. The profit margin concluded with 7.9% and was only 3.6% in 2020, where we, by the way, also outpaced many of our competitors. And now we even are on top of this and almost doubled this percentage with 7.9% profit margin as we speak for the full year 2021. Our free cash flow also very positive, with EUR 88.6 million compared to EUR 62.3 million in prior year, here a substantial growth as well, which ended up in a net leverage ratio of 0.6x, and we're coming from 1.2x 2020, which was, as you know, impacted the vast majority by the Corona crisis. Net financial debt is at EUR 107 million, also here, we could improve versus the prior year. Now let's look a little bit into the future. Here, we see uncertainty in the market for the coming months. So this topic, and you read that in the press, of ship -- chip shortages, material price increases and thereby impact on to our OEMs, they actually guide us to a guidance range again. Like we did last year with an uncertainty at the beginning of the year, where we eventually would end up, we decided this year for a range of the guidance for the full year 2022 of EUR 940 million to EUR 990 million, with an adjusted EBIT margin of 14% to 15%. To consider this volatility, we currently still see predominantly on the automotive market, which accounts for 60% of our business. I'll talk also a little bit more about these outlook data. But before I do so, Mark will take and lead you through the quarter results and then give you some more information on the numbers. Mark?

Yes. Thank you. So the following slide, which is Slide #8 shows the Q4 numbers, the time July, August, September. The time, we all recall last year, automotive industry overall was coming back out of the Corona hiccups, so it was in the last year one of the strongest quarters. In comparison to that one year-over-year, we've grown the revenue by 3.1%; the EBIT, nevertheless, by 13%, 14.7% EBIT margin. In this time of moderate growth, strong material price inflation, increased freight cost, et cetera, clearly underlines our ability to manage the cost to keep it in control because this is not far away from our long time -- long-term guidance of 15-ish percent EBIT margin. In terms of cash flow, bottom right-hand side, looks at the first glance, of course, negative EUR 47.5 million down to below EUR 10 million. In this quarter, we've really substantially reduced our factoring in Europe. And we've built up a lot of safety stock to deal with supply side issues that we envisage to get plus COVID-related plant closures that may happen in the time to come. So we are adequately stocked now to ship to customers even through very, very troubled times. Let's go forward one slide, Slide #9, to look at the full year figures. Michael Buchsner already mentioned year-over-year growth 14.1%, 16.4% in terms of EBIT margin. And an EBIT of EUR 135 million, which is well above last year's number of EUR 96.7 million. Nevertheless, I think, we all should look at the fact that our 11.8% last year was a very reasonable result given the challenges. And 14.4% in this difficult Corona year, where the first 2 quarters were strong, the second half of the business year was kind of weak, was still close to our long-term guidance of 15-ish percent in spite of, again, material price inflation. Reported profit, at EUR 73.8 million, compares very favorably to last year. But last year, we had a noncash impairment write-down on our Aviation business, which gave us a negative hit of EUR 18 million. Let's take a look at the cash flow. EUR 88.6 million is what you see in the numbers. But in fact, in there, we have EUR 11 million factoring reduction over the full year, which one needs to add. So in essence, we are at our long-term, often announced EUR 100 million, 3-digit million free cash flow number for this business year. Going forward, we are at the interim slide, results by operating segment. We come to Slide #11, which shows us the EMEA results. Within EMEA, we've seen an organic growth of 13.9% in euros. The difference between the 12.9% and 13.9% comes from our business in Romania, which is, to a large extent, built in the Romanian currency. So within this, let's take a look at vehicle production within Europe, 5.1% growth. Our growth, 13.9%. So quite clearly, we beat there the underlying vehicle production. EMEA revenue, second bullet point, as I said, 13.9%. Organic growth within the Automotive Gas Spring business, 10-ish points, 10.1%; and Powerise 12.6%, clearly showing there's a lot of interest for our product. There's a lot of interest for convenience products within the car owners, within the car buyers. Powerise year-over-year had enjoyed a couple of interesting customer wins, whether it's Aston Martin, BMW, Mercedes, the EQS series, within the VW Group, we are very strong. Specifically, the Porsche Macan, for example, is doing very well in terms of production. And last but not least, the more affordable cars, like the Volkswagen T-Roc, or the Skoda models, help us to conquer market share and show quite clearly that the Powerise product are not only in the top range vehicles, but also in the mid-vehicles, in the affordable cars. In terms of EBIT margin for the full year, well ahead of last year's 10.3%, now at 14.4%, clear strong number. That is helped by good growth in the industrial area. On the right-hand side, that is our fourth bullet point. The Industrial business generally is margin stronger than the Automotive business. Here in this Industrial business, we've seen a growth of 16.3%. And that has helped us to increase the margins. And of course, it's a plant that's better loaded. Fixed cost absorption is easier when you are in the year-over-year decently loaded. Moving forward to Slide #12, we take a look at the Americas region, which is primarily the U.S. and Mexico, but, of course, some business of ours in Brazil and Argentina. Revenue growth organically at 13%, 13.1%, leading to EUR 323.5 million. And now speaking to the comments on the right-hand side, light vehicle production in Americas in that year, 16.3 million units, that is 7% over the prior year. Our revenue, as mentioned, is up more. So that shows we are doing better than the vehicle market. And taking a look at the third bullet point on the right-hand side, organic growth for Automotive Gas Spring, 10%, ahead of the 7% vehicle growth; Powerise, almost 17% growth year-over-year, clearly ahead of the vehicle production increase of 7%. Now again, we are getting a lot of support from new models, from strong models we are shipping to. Worthwhile to note, we are in the Tesla Model 3. We are in modern things, like the Rivian, that is gradually starting to pick up, not only for the pickup truck, but also for the SUV. We are in -- we are producing parts for the Model Y at Tesla. And of course, very fashionable products, like the Audi Q5 or Q5 Sportback. This again underlines the end market wants those convenience products. That is what gives us almost 17% year-over-year growth with the Powerise. Industrial revenue in Americas up by 4.6%; or organically, 12-ish percent, also showing a nice growth. Just remember, we've been spending a lot of work to get going with our own Independent Aftermarket distribution. That is clearly helping us here. Margins about at prior year level, clearly, negative from material price increases hit us, and also the kind of difficult U.S. labor market with increased wages give us a negative hit. Now turning to Slide #13. We take a look at APAC, which is a very nice finish for this regional view. It's the strongest growth area for us. 34% -- 34.3% growth in terms of revenue. Light vehicle production up to 43.9 million units, kind of 9-ish percent plus versus 2020. And our revenue grew, as mentioned, by 34%. And we've seen that the normal Gas Springs, 21% growth, clearly outpacing what you see as vehicle production. And Powerise at 80%, over 80%. This underlines that it was good for us to move Powerise production into a dedicated plant in the Pinghu area, where we get the right focus from a dedicated team that is producing Powerise for a number of top-notch vehicle manufacturers, local Chinese, Asian brands, American and European ones that are all active in the Chinese, in the Asian market. And we also are a strong partner to Hyundai. They are beefing up their presence in the SUV market with nice features that often come from Stabilus. In the Industrial area, that is the fourth bullet point, our revenue is up 13% compared to the rest of Asia, a little bit soft. But nevertheless, it's a strong year-over-year growth. And with this nice revenue growth, we've managed to get the margin in Asia up to 16.3%, well above group average. Moving forward, Slide #14 gives us a look at the revenue by business unit. Here, worthwhile to note is at the bottom the crack diagram. Also in this year, Industrial business, 40%. Last year, it was 41%. Here, you clearly see that our efforts to increase the Industrial share are working out. This helps us with the profitability. This helps us with the crisis resistance of the Stabilus business model. By being active in Industry and Automotive, we stand on 2 legs that typically help us to do better in the up and down of the market. It helps us to keep the plants running at a decent loading level, et cetra. And to finish off with the comments on the right-hand side, global vehicle production up by 7.6%. Our Gas Spring division organic growth revenue on a global scale at 12.9%, so a nice 5-ish percent improvement there. And the Powerise business up by 23%, which clearly outpaces the vehicle market. And the game underlines that those products are what the end customer wants to have in this vehicle. Industrial revenue, up by almost EUR 40 million, that in organic growth is a 15% growth rate. Here, keep in mind, Industry did not fall as deep into the trough as Automotive business in 2020; therefore, they are starting off from a somewhat year-over-year higher base than the Auto business. Therefore, their growth is not as strong as we see in the Automotive business. Slide #15 gives you some additional insight to where do we get our Industrial business from. And here, we see that the distributors, Independent Aftermarket, I had mentioned, where we are increasing our share of business 33% out of EUR 337 million, now to 36% out of EUR 377 million. That is where we are growing nicely, increasing share of business in the overall growing market. With this, I pass over to Michael Buchsner again, who will give you some more insights to the outlook that you find on Slide #17.

Thank you very much, Mark. Yes, as you said during your presentation, Mark, the revenue and EBIT margin was on a very good level, hitting, meeting or being in the middle of the guidance with a revenue of EUR 937.7 million and an EBIT margin of 14.4%, so an excellent result for the past year. Talking a bit about the guidance in detail. As I said at the beginning, we considered in this guidance also the volatility we still see in the market. So the guidance in terms of revenue is EUR 940 million to EUR 990 million and an EBIT margin in percent of between 14% and 15%. The underlying assumptions are that the light vehicle production will, at the end of the day, following the suggestion of IHS, be in 2022 on the same level than in 2021. Means for 2022, 79.3 million vehicles produced versus 79.5 million in the full year 2021 for us. So the market will not return before 2023 onto a level of 90 million vehicles, and this is based on the source of IHS Markit update for October '21. So therefore, this forecast takes into account the volatility will see still on the automotive market, centered around the semiconductor supply shortage. What does this mean? Actually, we are not impacted in a direct way by the electronic component shortage, means our products are sufficiently covered with electronic components. However, the IHS numbers indicate and we confirm that we see the semiconductor shortage reaching into the year 2022. And this is what we consider into our guidance as well as price increases for raw materials and components along the line. So those 2 impacting factors actually drive the vehicle production in the coming year, which is also seen as an effect by IHS. So the underlying assumption is that the produced numbers of light vehicles on the globe is in a similar level next year than it was or is in 2021. For sure, and we talked about that, at the beginning of the presentation, we stick to our long-term guidance. Just a couple of weeks ago, a complete management team of Stabilus set together in terms of working not only on the Strategy 2025, but also 2030, reconfirming that mid- and long-term, our strategy of having a CAGR of 6% growth year-over-year and an EBIT margin target of 15% is still on. So we commit to our One Stabilus strategy with the vision of leadership in motion control, innovation and solutions. So with that, we are moving towards the end of our presentation, and I would hand over to our host to lead us through the Q&A session, which is yet to follow.

[Operator Instructions]. Our first question is from Marc-René Tonn from Warburg Research.

The first question would be a bit related to the outlook, which you provide for the current year, giving this range at, let's say, an unchanged projection for global light vehicle production. Could you give us some kind of flavor whether -- when, let's say, the car production is flat year-over-year, whether you would, let's say, be more to the upper end of your guidance or more to the lower end or whether you are back in some caution here at the beginning of the year? Or what other kind of factors we should have an eye on when it comes to, let's say, which part of the range you may reach? I think last year, you said you did already started cautiously when assessing the overall environment. I think, presumably, it was a bit the same this year as well. Second question would be around Gas Spring, where you, let's say, also outperformed car production quite decently in the past year. Perhaps you could give us here and that is also possible by region, what was behind it? Was it more, let's say, market share gains, which were driving this year was a price effect, which is [indiscernible]? Or is it, let's say, a growth in content? So let's say, more Gas Springs per vehicle are the key driver here. These were my 2 first questions, please.

Yes. Thank you very much for your questions. I will start with answering the first question, and then Mark actually will add some flavor in terms of numbers. If you look on to the IHS numbers, yes, the IHS numbers consider that the market is flat year-over-year, '21 to '22. And if you read through the IHS numbers by quarter, in conjunction with the media presence out there, this opinion also suggest that the electronic shortage will lead into 2022. That means, yes, we took this cautiousness following the IHS numbers per quarter into the quarter 1 and quarter 2 predominantly of our financial results in terms of the sales revenues. So that means we expect that the shortage -- chip shortage will actually be evident minimum into the second quarter of our business year. That means the first and the second quarter, we considered a little lower sales than for the rest of the year, basically, yes, assuming and confirming what IHS said. So it's loaded for the first 2 quarters in the year more than for the remainder of the year. As we all, yes, think and hope to a certain share that the chip crisis will actually come to an end of our second quarter -- financial quarter, which is end of the first calendar quarter, even if some of the OEMs and supply us to think it could reach way further. And this is the uncertainty I've been talking about before. But maybe, Mark, you also have some insight in that numbers.

Yes. Yes, thank you. Well, in terms of outlook, I guess, as we've seen in the past, it is then difficult this early in the year to give a good outlook for the year to come. I think we work together, as Michael said, with the right forecast institute. So if you see softer lending, you, of course, need to work with our lower guidance. It is primarily the Automotive business that will be impacted and not the Industrial business. With the Industrial business independent of whether the automotive industry sells 3 or 4 million vehicles more or less, I do not think that, that will impact our Industrial business. Therefore, change for the high, low end take a position towards Automotive business. And your second question to me partly addresses that one as well. Gas Spring business, we've seen nice year-over-year increase. In spite of the typical vehicle that gets gas spring being the lower, the mid-segment cars often not being produced. So there, we've seen a change in the mix of vehicles of production at a number of vehicle manufacturer. Overall market share of ours is kind of the same. We've seen strong increase, higher fitment rates coming from China specifically. Within Europe, as mentioned, and U.S., a lot of mix changes and partly changes from normal gas springs to the higher end, higher priced Federbein, et cetera, because they go nicely hand-in-hand with a single-sided Powerise.

If I may add to this point, this is generally what we also saw last year. And this is the trend, which we see continuing because what is the OEM trying to do, right? The OEM earns his money with the upper segment cars. So in the same way last year, then this year, we saw an appreciation of that effect in terms of the volumes behind because when the car manufacturers, they also tend to produce their upper level and upper segment cars, which then is taking more Powerise, more Federbeins and also more gas springs because these are typically the bigger cars, where you have bigger tailgate, bigger hoods. And this is actually a good effect for us for now and for the future. Thank you for your question.

So perhaps one follow-up, if I may, about the Americas, where you mentioned you have the negative mix effects, negative impact from material prices, labor market. Is it something where you expect that, let's say, maybe a bit lump, but is it just to say time will solve those issues? Or are you planning any measures, which you may have to take there, or any countermeasures, which you have in mind?

Actually, the main measures we are taking are internal measures, right? So it's -- and you would actually call it like it's kind of a labor market war, right, because you're trying to get people on board, whom you actually train, and then you leave -- lose some of them. And you actually are fighting over employees with many other companies. The -- actually, the subsidies, which the government did, in terms of the Corona pandemic, didn't really help because that caused that many employees, who would typically be up for work, then still stood at home. So all you can do here is work with your internal HR departments to make sure that people return back to work, that to make the workplace attractive, that you are on a pay level and a total compensation level, which is adequate in the given market circumstances, and that you add some soft facts and motivational skills to the different areas of responsibilities to make sure that the employees stay within the company. And these are actually operational targets and operational activities we are doing in all of our different plants in America, and they cause that we could stabilize the situation going forward. Yes, there was a struggle, like for any other company, in the past 6 months. But our assumption is that with the activities we're doing, we're ahead of the crowd and can kind of offset this effect in the coming weeks so that we, overall, in the first quarter of our business year, later the second quarter of our business year are on a stable level here.

And I guess we've seen that, just to not forget, Americas margin is 13.5%. This is still a decent level. It's not a bad result, 13.5%, but I leave that judgment to you.

Our next question is from Akshat Kacker from JPMorgan.

Akshat from JPMorgan. Three from my side, please. The first one, coming back to your revenue growth assumptions in FY '22, but probably touching the Industrial side of the business. Can you give us some more flavor in terms of end market demand of how you see things evolving as we go into 2022? And if you could also provide some color for the EMEA region as well as Americas. That's the first one. The second one is on cost inflation. If you could please touch on a few elements, like raw materials, freight, labor or energy costs. Is the pressure on the P&L picking up significantly in the first half of FY '22? And if you could also talk about pricing power or your ability to pass on these incremental costs to automotive and industrial customers. Those are the first 2 questions, please.

Yes, Akshat, thank you very much for your questions. Again, I'll start talking a little bit about the market in general term, and then I'll hand over to Mark again. Yes, your first question was in terms of revenue growth on the Industrial side and underlying assumptions for the guidance we are giving. In terms of GDP, our underlying growth assumption is GDP growth of 3.7% for -- global term for the business, right? We took the GDP assumptions and kind of baked them into our numbers. Considering that Europe and North America would anywhere grow in the range of 3.2%, 3.4% and bigger growth in Asia Pacific is 5.5%, on average, the 3.7%. So where do we see this growth coming from? Actually, if you look into the pie chart of the growth split for this year, and if you remember what we said during the prior calls we had, we are coming out of the crisis. And the Industrial, Automation segment was coming back later than, for example, segments of Independent Aftermarket or businesses in the light -- in the vehicle production, in general vehicle production. And this trend will certainly continue from our perspective. So in the Independent Aftermarket side, we see still good business out there because as people are waiting a long time for new cars, the old cars they still own are up for maintenance, which drives some of these numbers. Then we see still a good tenancy in terms of harvesting machines, heavy machines, construction machines, where we see good growth in the coming future as well. And you see if you look into the regions, in Europe and in North America, which is 3.2%, 3.4%, there is a little less growth in Asia, which is also driven by this effect, that once the business comes back on the construction side, for example, it picks up in China first or in Asia in general term. But we see this growth also coming in Europe and North America with Independent Aftermarket. So these are a couple of main drivers. We expect the business to pick up more even in the Industrial, Automation sector because this segment came back out of the crisis a little later. So we see a good impact in the months to come. So I hope that answers your first question. I will get into the second question after I just ask for Mark's flavor here.

What we see in the Industrial business, as mentioned before, is a very broad, yes, real base of our business in various segments giving us different stability anchors, but also different anchors to growth. And with the GDP growth rate, as Michael mentioned, and our vision to clearly grow ahead of that in the Industrial segment, kind of doing twice the rate and more of GDP growth. It's logical that our convenience, safety-related products also in the industrial area will help to ensure that people can work longer and longer, simply because our products make lifting and lowering easier or provide features to allow a single person handling certain tasks. And that is what is clearly giving us a good base besides the already mentioned Independent Aftermarket business, which is really nicely picking up also in terms of margins.

Yes, thank you very much, Mark. Just, Akshat, to give you some more flavor on the second question in terms of raw material and freight. Yes, we've been impacted a lot already in this year with increased material prices and freight. Talking about material and freight in terms of what we pay to our suppliers. These suppliers, they came up with requests of 15% to 20% upside for some of the components and steel, in general term, which we predominantly use for our gas springs. On the resin and plastics side, it is up of 10%. And freight, it's in the range of 20% as well for some routes, right, which impact us a bit. But for sure, the biggest impact we see is still steel price. So as it's the biggest impact, it's for sure hitting the gas springs the most because the gas spring is to a big majority means in the range of 60% is the bill of material. And out of the 60%, a good chunk is actually the price increases. However, what is the strategy in terms of going to the customer? If you see the Industrial business, in 2 ways, we went to our customers and increased the prices. We increased them in the range of other suppliers or what other suppliers would do in order not to only offset the material price deteriorations, the material price increases and, thereby, eventual margin situations, we did offset that and actually are confident that we are on a very good path to offset all these effects for the coming years. In terms of the Automotive business, particularly on the Gas Spring side, we went back to the customer. As you all know, in the Automotive side, difficult to discuss with customers price increases. However, we opened these discussions with each and everybody. And we could reduce the pricings we give to our customers substantially. In a normal year, as we discussed, prior the crisis, we would give for a gas spring in the range of 1% to 1.5% price reductions, and we are far below that. We could manage with our customers to be even only on 10% of this range. So in the range of 0.15% to 0.2% price reductions for many of these customers. Some of them, for sure, where we had to win business awards, we negotiated in a different way. In general term, in average, we could avoid this year, and this is the plan also for next year. Price give-back to our customers as a general standard, I would say. I hope that answers your question.

That is very clear. Just one follow-up. Is it possible for you to quantify as of today, the net headwind that you expect, at least in the first half? Because it is clear that, as of today, the inflation element should be peaking in the first half of your new fiscal. How should we think about the net impact on margins? Or are you very confident that the net impact will be very limited? And the second question that I have is on admin expenses. I was looking through your P&L. Admin expenses were down substantially in the fourth quarter. Can you please explain the drivers behind that?

I'll probably start with the last one. As we used the last quarter to adjust our bonus spot, et cetera, that is what you see there as a reduction. During the first quarters of the year, we were very active in terms of target achievement. In the last 2 quarters, we were kind of softer. And certain costs for advisers that we had envisaged didn't come, so that's why we booked a relief there.

And your other question in terms of absolute impact of this raw material and freight increases, that's really a tricky question because there are many impacting factors. On one hand side, the different products and product segments are impacted differently. Like the main impact we see on the Gas Spring side, medium impact on the Industrial side and a smaller impact on the Powerise side due to the fact that on the Powerise, less raw material is used, but there is more processes involved on the supplier side, where they have kind of their room to maneuver. And the tricky thing is that, pending on this mix between the 3, in conjunction with the time aspect, it's very difficult to distinguish between the different businesses what the individual effect would be because if you kind of mirror back 6 months' time, at that time was completely different. We didn't see in clear the numbers in terms of inflation for the last -- or 6 months ago. This all developed in the past 6 months, and we reached a peak a month ago, and our assumption is rather that we see this returning to a new normal of plus 10% throughout the next 6 months. So this is kind of the general underlying assumption. So I mentioned that the steel went up 15% to 20% for steel-focused product, then the resin in the range of 15% -- 10%, and for some freight, we line up for 20% increases. At the end of the day, this is -- and it's yet to be seen, but our assumption is that this normalizes on a new level anywhere in the range of 10% above normal levels and that this would happen in the next 6 months. That's the underlying assumptions we have for the business. I hope that answers your question.

Our next question is from Alexander Wahl from Stifel.

The first one is a follow-up to Akshat's question on the margins. To be honest, I'm positively surprised that you actually decided to guide for 15% of the upper end of that range. Could you just elaborate a little bit if the 15% is attainable if you achieve the higher end of your revenues or if the 15% also depends on favorable outcome in terms of price negotiations and the likes? So what are just the moving parts in order to really run towards the higher end of the margin guidance? And the second question is on Powerise phasing and growth assumptions across the region. So maybe you could just shed a little bit more light on what your assumptions are in terms of outperformance specifically over the next 1 to 2 quarters and ideally also by region.

I'd start with the margin guidance. I mean, of course, we all know the higher the revenue, the higher the loading of the plant, the easier it is to hit the higher end of the margin. So there's a logical tie point. However, a key point, as discussed a year, 2 years ago, is what will happen with the pricing discussions with the customers. And currently, pushing the price increases of raw material and other inefficiencies induced by the current customer behavior through will be more important than the pure revenue number to actually give us the higher end of the guidance. So 2 factors, loading of the plant revenue in general and our ability to push through the price raw material inflation we have suffered over through pass it on to the customer.

Thank you, Mark. And I will talk a bit about the Powerise growth per region. The underlying assumption is that the number of vehicles is in the same range than before. If you now consider our overall growth, and I would say, on average, it's in the range of 3%. However, the biggest growth we see in Asia, where the market is picking up faster because this whole equation pretty much depends on the situation around about the chip shortage because, for the time being, we are not limited by capacity, we are not limited by fitment rates, we are purely limited by the ability of the OEMs to produce cars. And this is what the guidance shows in terms of having a range of a guidance because we do not have more information than the IHS numbers, which are actually confirmed by the OEMs. And it pretty much depends on how fast the business goes back up in terms of chip availability. One thing is for sure, if the business comes back, the customers will also look into producing the higher segment cars first, which is actually supportive to our business model. For the here and now, Europe and North America, they are, in terms of the growth rate, behind Asia. And in Asia, we see currently first signs of relief with higher volumes as they are very closer to the chip locations and thereby could stabilize on the OEM side in a better way than some other OEMs. But also, Mark, if you have some flavor here?

Yes. I think we've discussed it all what's happening there. In terms of Powerise products, just keep in mind, it's a saturated market that we benefit a lot, from what Michael Buchsner described. And also our strong, call it, share with the modern car manufacturers, with the electric vehicles, they are upgrading their products more and more, and that will quite clearly help us. Probably interesting things, some of you may not have on the radar, car manufacturers, like Ford for the F-150 Lightning, Rivian for their trucks, they are all working on automating the trunk, loading the luggage space in the front of the car, and as with electric cars, there's no more motor, so it can be used. And that is very interesting because the bonnet, the hood here are, in terms of sheet metal construction, very, call it, flexible. They need, therefore, 2 powered units, left and the right, to do the opening mechanism. And take a look on YouTube on the videos for the F-150 Lightning. It's very obvious that the end customers will order this feature. And that is extremely beneficial to our current market presence. Therefore, in the U.S., we will get an extra boost from that. China, of course, as Michael mentioned, strong pickup of Powerise market share that will drive us forward.

Can I just clarify that I understood you correctly, Mr. Wilhelms, because I think you said you expect average Powerise growth for this year of about 3%, right? And I guess, Gas Spring is certainly not growing at a higher rate than gas -- than Powerise. So am I right to assume that you basically assume that the Industrial business is driving your growth for this year 2022?

So just to clarify, the underlying vehicles for the Powerise assume this growth rate. Our business in terms of revenue is growing in the 10-ish percent. So that's outpacing this development. I was talking about the vehicle production in that segment.

Our next question is from Philippe Lorrain from Berenberg.

Just to clarify something, I understand correctly that the offset of the pricing effect in Automotive was already effective in 2021. So that means that the lead time to minimize the effect from the cost increase via mitigation from the price increase was very short.

No, I think that not correctly picked up. It takes a couple of months in the auto industry to push this through in our business for us. Certain other suppliers are faster due to their recognized pass-through agreements for steel products. We have, as a company, never really put a lot of effort on fixed pass-through agreement because when you have a pass-up, if steel prices go up, the customer also comes and wants a reduction when the steel price goes down. And our sales team feels more comfortable by having the opportunity to discuss those movements as they hit us because it gives us a little bit of lag as steel prices come down again. Where we are able to pass it through faster is in the industrial area. And there, especially with price list-based businesses, which is pretty easy one, like Independent Aftermarket, it's much easier to push that through than with a big volume customer in the automotive side.

Yes, I got that. I was just wondering if that's actually correct that you were already increasing your prices or offsetting the price declines that you have contractually agreed on with customers...

In the industrial area, it is a good chunk implemented. And there's still some room to go in the next couple of months. For the Automotive business, the discussions are there, small share of factual price increases and a good share of not given price reductions, which in the end have a similar impact, technically something different.

That was the comment before, right, that we go for the customers and discuss with them that we cannot give the yearly price reductions in the first place. And even above and beyond that, we asked them for sure for compensation. But these discussions are certainly ongoing.

Okay. But the fair share is already done in Automotive. So for next year, you just continue to offset whatever the pricing trend is going to be from the development of the material prices?

See, this is the uncertainty, and this is why we gave a range for the guidance. This pretty much depends on if all the material prices would go back to where they were before the crisis, then it moves in the direction how you stated, right? But if it stays on a new normal, 10% above and beyond what it was, then certainly, there is a lot more work to do with the customer to get it compensated.

Okay. I understand. Then a second question and last question from my side. Norma was, for instance, mentioning that the volatility of cutoff in automotive was hitting them badly because that results in a significant increase in temporary costs and also much increased downtime as the retooling takes time because you actually reduce the volume on each series that you produce. Is it something that you've also been observing? Or because you're producing gas spring on pretty standardized equipment, that's something that is easier to mitigate from your point of view?

It's a tricky question, where I need to be very careful in the answer. So I just respond to the Stabilus fact, like every automotive supplier, we are all hit by the short time order cancellations. Depending on the business model of the supplier, there are different reactions. We've, to a large degree, continue to produce the part even if the car manufacturer cancels the order and just put the stuff on stock. That is why you see that our inventory year-over-year has grown massively, like EUR 40 million up. They are not parts we need to have on inventory. They've eaten up a good chunk of our cash flow. That is why we are only EUR 100 million cash flow and not EUR 120 million. But we've pumped it all into inventory. Why have we done so? Under working capital management, clearly not smart, but the money we have, when we give it to Berenberg or any other bank, we only pay negative interest rates, so we might as well produce the part and put them in storage. We have the space, we have the packaging, et cetera, and it helps us in case Corona hits us the second time, all we need is a guy with a forklift to get the parts out to the customer to ensure we have stable supply to our customers. So that's a specific Stabilus reaction. And of course, we've only produced parts for automotive customers, where we are sure that vehicle will remain in production. The very [indiscernibles] cars are clearly not a good one. But products like Volkswagen Golf, Ford Explorer, you know they will be produced, maybe not in November, but for sure in January. Those vehicles will not be stopped.

I understand. It's an interesting point you make on -- basically on the restocking because that's been very probably leading you to -- been leading you to having better fixed cost absorption and, hence, margins as well this year at the detriment of the cash flow. So for next year, of course, the margin increase from that point of view is a bit more difficult to achieve. But at the same time, you should then basically print a very, very nice cash flow just from digesting the inventories.

That's correct because that's the plan, use up the inventory, because we all hope that this messy situation doesn't continue for ages now. And as you correctly state, there's a bit of fixed cost in the inventory, which will be breathed out as we consume the inventory. That makes the margin a little bit more challenging, but that -- that's an enemy we've seen, that's an enemy my controlling department knows that is around, and we know how to react with the plan to avoid the negative hit there.

As of the moment, there are no questions. [Operator Instructions]. There are no further questions from the audience.

Okay. Thanks a lot. So thank you for joining us. Keep in mind, we will soon be issuing mid of December the final results. We do not expect a change from this one. And in February, we've got our AGM meeting. Hope to see you there, and goodbye.

Thank you very much also from my side. It was great to have you on the phone and looking forward to seeing you. Thank you. Have a good week.