Stabilus SE (STM) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and welcome to the Stabilus S.A. Web Conference regarding the Stabilus preliminary financial results in fiscal year 2023. [Operator Instructions] Let me now turn the floor over to your host, Dr. Michael Büchsner.

Thank you very much. Yes. Hello, and good morning, everybody. Welcome to our quarter 4 and full year results call today. With here, Stefan Bauerreis, our CFO; and myself, Michael Büchsner, being the CEO of the Stabilus Group. And we have a shared presentation. As always, we split it between business highlights and also the financial section. I will give it a start with business highlights. Bottom line is very good performance. We had a good performance in the past year. And we also follow our long-term strategy with our M&A path, as you can see and as has been seen on the 11th of October when we announced DESTACO. And with just some key points. Again, it was upfront very well received by the investors' community. And in general terms, also by not only our customers but also employees around the globe. As we did the signing on the 11th of October, the closing is planned for end of February, and it's a groundbreaking investment for us. Why is that the case? We invest in automation technology, and automation and technology, as we've been highlighting in this call on the 11th of October is definitely the megatrend. It underlines and helps to fight against increase in labor rates, it helps in terms of getting processes more stable, focuses on high quality and reinsuring activities in this political unsure situation we're seeing around the globe is just one driver for our growth path in the future. So we fulfill absolutely the megatrends with it. We paid a purchase price of $680 million, cash and debt free, for 100% of the shares, as I said, the closing is planned for end of February. We'll talk about that later. With that, we have equity on hand with a 12x EV/EBIT multiplier, which is a good number, a very good number. If you consider that to average industrial purchasing, which would be purchases, which would be in the range of [ $50 million to $80 million ] with 12x multiple. That's an absolute good investment we're doing here. And at the end of the day, we financed that very solid. There is a real solid financing structure behind that EUR 150 million will be cash, EUR 250 million revolving credit facility and another EUR 250 million new bridge facility. Important is, and we always gave that commitment that our net leverage ratio will stay below 2.5. So we're right there, 2.5 in the first year, and we plan to come below [ 2 point ] in terms of net leverage ratios in the year 2026. As for sure, a very positive impact on the Stabilus strategy. Above and beyond that, it's for sure accretive in terms of the revenues and also the EBIT margin to the company. So we are absolutely on track and fulfill our commitments, not only in terms of the current performance, but also walking on the path of success in terms of our strategic doings. And for sure, that was recognized, as I said, not only by our customers and our employees, but also by the analysts, investors around the globe, as you can see on the left-hand side, in terms of our share price development. So actually, we've been increasing the share price by almost EUR 5 with this acquisition. It was perceived in an excellent way and just underlines how strong our road map in terms of acquisitions around the globe is. Here on the next page, we jump directly into the overview of the financial results for the past year. And as I said, the performance was on a very good level. We had EUR 1.2 billion sales, 8.9% growth, which was -- to vast majority, which is 7.9%, purely driven by organic growth. So also here, we fulfill our commitments. As you know, that we have in our guidelines that we outpaced the market by 2% to 3%, and we have thereby a growth rate of average 6% per year. We did outperform last year, and this is a very good situation, a very good performance of the Stabilus Group. In terms of adjusted EBIT, we ended up with EUR 158.4 million, 1.4% plus year-over-year, which leads us to an EBIT margin of 13%. Profit is at EUR 103.3 million. The free cash flow on hand is EUR 107.3 million, which is also beyond 30% better than any year before, and it will be well spent also as a part of the investment into DESTACO Group. We see, for sure, a positive development in the net working capital, as we've been outlining in several discussions, all of us had in several meetings. And as again, significant highlighted, we will talk in the outlook for the year to come about how we embed DESTACO purchase and also how to reflect the first consolidation of Cultraro. Net leverage ratio at this point in time is at 0.3x, which is an excellent result and leaves us with net financing debt of EUR 64.9 million. So this is a rough outlook and the rough good view of our position in the market. And with that, I would hand over to Stefan for some more details on the financial side.

Thank you very much, Michael. And I will jump on this page now where you directly can see the development of the Q4, first of all, of the financial year 2023. So first of all, having [ poor ] numbers and having a look at what is really happening, we can say -- the fourth quarter was a very good, solid and high operating performance based quarter that we had because even it was the best quarter we had over the year of 2023, not only absolute numbers in terms of EBIT, but also in terms of EBIT in percent of sales. What you can see on the right side with 14% what we achieved in a year, which is and which was obviously due to geopolitical situation, due to supply chain challenges, due to energy prices and material cost inflation. From our perspective, a really good development and a very great achievement. Compared to the Q4 of last year, we have to say, and please allow me to elaborate that a little bit, we are lower in terms of sales. So -- but that will not mean that we are losing track, that we are losing growth. But we have to know that the last year, mainly in the Q4, was significantly driven by specific onetime impacts. And I just want to highlight 2 of them. One is -- and obviously, all of you, you will remember our discussion that we had last year that the year 2022 was significantly impacted by onetimers, we also were able to negotiate with our customers. And we always said those will come late in the year, and the main area was done in the fourth quarter. And therefore, we had a significantly higher positive impact on those onetimers in the last fiscal year in terms of revenues and also then obviously in a direct relation in terms of absolute numbers in EBIT because that has been retroactive one time as we got that, which is at least more than 0.5 percentage point of the EBIT. In addition to that -- and we, as [ world ] turns around [indiscernible], we still have to go back in the year 2022 and having a look mainly what happened in China, there was still in the third quarter, beginning of third quarter, the lockdowns, where nobody were able to even sell for several weeks, any parts. And what we then saw and that is different to what we see now in this year. In the last year, we saw an exploding recovery in the course of end of Q3 and Q4, which is also impacting our Q4 numbers of the last fiscal year. This year, after all the corona impacts, and I will come back to that later once again, when I'm explaining a little bit more about APAC. We see a continuous smooth and permanent optimization and coming back to growth expectation, but not this exploding thing anymore. But I think that is not a Stabilus specific point. This is to be seen in all the industries. When we have a look on the revenue side, still once again. So at the end, in Q4, we had quite stable development in EMEA, in Americas because they recovered already quite good in the earlier stage of this -- of the year. The main issue when it comes to the revenue reduction despite of this operating onetimers that I already mentioned, is APAC, where we had, in the last year, a significant high recovery after the lockdowns that happened here in Q3. So that's why, from our perspective, it's not that we are losing 4%, it's more in terms of sales. It's more that we had a quite good and a solid Q4, which also fulfills all our expectation and not only in terms of revenues, but also in terms of the adjusted EBIT number. With a number of 14% in the Q4, I think we were quite on a very solid and robust line, taking into account that we still have some challenges on labor cost inflation activities in a lot of countries in terms of material and energy costs, which still are higher than pre Ukraine war and therefore, are still impacting our profitability. We manage that by also having a very good cost efficiency also in terms of our overhead cost to make that happen. On the profit side, also here, we can see a quite significant drop down in the total number of the profit. Now the point is and the question is where does that come from? Here, the situation and the explanation is quite easy. As a multinational company, we also have a significant amount of cash balances not only in euro. And as we were during the last fiscal year, mainly in the fourth quarter, very positively impacted by a mark-to-market valuation where we had an impact of plus EUR 11 million positive valuation revenues. This goes in this year in the other direction. So having in mind all this kind of stuff and eliminating this pool on a fixed date remaining valuation thing, we would also be very much in line with the profit of the company overall. Last but not least, adjusted free cash flow. Here, we have to say that we are, on the one side, obviously, in the Q4, let's say, depending on what was the comparison with the prior year. But also we have to have clearly in mind that we are taking really much our activities and grow our activities in doing CapEx in those areas where it really makes sense to do that. And after a reduced CapEx activities, obviously, in the first quarter, now we restarted then second and third quarter and now also in the fourth quarter, a significant portion of those investment and CapEx came across. And therefore, we were able to prepare us more and more for the future also in the fourth quarter. When we have a look then at the next page, then we can see that the picture on the full year side, which is now this Page 9 of the presentation. Here, the situation mainly and here I will directly start with the adjusted free cash flow is a significantly different picture. So here, we have to -- and we want to say and we are also a little proud about that, that Stabilus in all these really challenging environment that we are in is able not only to maintain, but even to increase its capability to provide and to generate free cash flow. And that is obviously very important. We know that from the tax side, we were supported in the last quarters by a certain tax ruling, which was favorable for us. But also, we have to have in mind that all this increase was possible in terms of the free cash flow despite the fact, as I mentioned already, in the previous slide by having a significant higher level of CapEx and investments to make us ready for the future. Also when we're talking about R&D capitalization, which is really much with a clear focus to invest in those new products and I'm just talking about radar, I'm just talking about DA.90, which are our future products to come, and we are now preparing ourselves to be ready for the future and not jeopardizing anything, any challenges and opportunities for the future. Going back to the revenues. So overall, and Michael said that already, a significant good increase of revenue, 7.9% on an organic level and 8.9%, if we just compare the numbers itself for the group in that environment, I think that is really a positive development. And when we have a look at the regions where this is coming from, we can see that more or less, all regions are growing even Asia Pacific with this issue last year of a tremendous high fourth quarter, even on a full year perspective, we were able to grow here in the region, APAC. And -- but here, we have to see our major growth. Obviously, we were able to get that Americas because we come back on the one side with Powerise. And we had a very strong development also on the industrial side, also getting new customers and all those kind of stuff. Adjusted EBIT. Here, overall, we managed the 13%. So as we made this comparization of our guidance end of Q3, so you see, we really managed that to meet exactly the expectation that we were coming from. So obviously, it's 1 percentage point lower than last year. But having in mind, the still higher level of material costs, energy costs and all these kind of activities not forgetting the labor cost inflation, which was mainly when we're talking about Romania, but also mainly talking about Mexico, a significant issue for us that we are still on the way continuously to compensate. And therefore, based on a quite good cost discipline, I believe, the 13% EBIT margin is compared also to our peer group, a very exciting number that we were able to achieve overall. So this having said and explained about an overview about the total group, please allow me now in the next pages to go a little bit more insight in the different operating segments, which for Stabilus, obviously, are the different regions. And also here, I just would like to give some flavor about the different development that we had over there. EMEA. EMEA was really much struggling in the first quarter in the month of November, December of 2022, which is part of our first quarter of this fiscal year with high material and energy costs with a very uncertainty -- higher uncertainty in terms of revenues and economic development, in terms of also shutdowns of different plants of our customers in December. So obviously, there was a quiet dip in our profitability in the first quarter, mainly in Europe, we have to say that. And I would say no -- none of the industries were able really much to verbalize and to react on those cost structures to not have any issues on profitability. This having in mind, we now are able and really are proud about that, that we even are -- we're able not only to compensate this negative impact on the first quarter, what you can see here on the adjusted EBIT line, we even were able to increase from 11.7% to 12.2% EBIT adjusted of the sales in Europe, which increased also in a quite different difficult market environment, about EUR 27 million, which is about 5.8%, increase. So the light vehicle production increased by about 10%. Obviously, that is something that we do not know too much from Europe, this high increase in percentage. So that is really much supporting us. Our overall revenue increased by about 5.8%, as I said, about the EUR 27 million and mainly driven by a significant overachievement in the growth rate of Powerise, where we had here an 18% year-over-year organic growth. Industrial revenues just increased by about EUR 5 million, which was at the end of 1.9% year-over-year. It was also one of the major activities also to increase and to bring all those cost increases to the market and to the customers. And therefore, here mainly in Europe also we see the different sector positioning that we have as a very important one. So we had a very good growth in mobility. But obviously, this was offset partially by a softer business in hall of recreation and furniture, which is also accepted and foreseen from our side that we will grow in the other areas more and with the acquisition that Michael explained even there, the industrial automation will increase in their share significant before Stabilus Group. So the adjusted EBIT margin to make the long story short, improved 50 basis points to 12.2%, very strong growth in our revenues, mainly when we're talking about the Powerise, overachieving the market expectations by far, very good and strict cost management as well as efficiency gains in all of our plants. When we then have a look at Americas, here, we have a slightly different situation here on the Page 12 that this is -- the Americas was in 2023, our major growth areas and major growth segment, if you want to say it like that, in the year 2023 with an increase of revenues of about 16.3% going from up to EUR 450.5 million, which is even on an operating level without a fixed impact and 8.8% increase on an organic level. So also here, the major growth is coming from the industrial side, so slightly different to what we've seen on the European segment. On the -- in Americas, it's mainly the industrial area where we were able to achieve the biggest growth also by getting new customers on the aftermarket areas, growing really significantly in energy, construction, industrial machinery and automation. So already here, as we always explaining the megatrends that we see for more automation is paying back, and we can see that already now with our existing Stabilus business even not having included the DESTACO business in that perspective as closing did not took place until now. But on the other side, we have also to see that the EBIT margin reduced from 13.4% to 10.8%. Here, we have different impacts. On the one side, everybody knows just by having a look at the newspapers that Mexico is a really challenging market. It's an overheating market in terms of labor cost inflation or it was an overheating market, we have to say, labor cost inflation in the year 2023, where our cost base has also increased quite a bit on that perspective, and we are working on to get, like others, more automation and more activities in there. On the other side, also, due to those very overheated situation in Mexico, some of supply chain issues came across that has to be managed. And that all to fulfill not only to maintain the business, but really much to grow 16.3% was a significant challenge, and we were also supported from other regions. The region Americas in that perspective, but some deliveries. So all of that, at the end of the day is the reason for being in that perspective on the region America is a little bit softer in the adjusted EBIT, but all whatever in terms of measures to be taken are already started and will increase. Last but not least, and I think that is something we also never should forget, what was somehow a little bit in 2022, favorable for us in this year was negative for us, and this is mainly the exchange rate between Mexican pesos and U.S. dollars. And so already there, we had a hit of about EUR 4 million negative impact on our results compared to last year, which is already explained just by the FX impact, 1 percentage point of EBIT. If we then go to the region, APAC. Here on the region APAC, we can see the growth mainly comes out of Powerise growth and additional sales. So the organic growth was -- or the growth overall was about 15.8%. And therefore, we were significantly able to overachieve the light vehicle production with 5.8%. On the other side, as you know, that Automotive Gas Spring already also well a little bit, let's say, "jeopardized" when we have more Powerise sales, then probably we get a little bit less in Gas Spring on the same application. So there, still we had a growth of 3.5%, but obviously lower -- significantly lower than in the Powerise business. We won a lot of different customer application or we're able to grow with the success of the OEMs in the region. And what you also can see here in the text slide on the -- in the third bullet on the right side, is that is not just the European customers who are growing because everybody knows that here, the situation is changing slightly. But we are really much in line with also the Asian customers and delivering and growing also with those in a significant way. So there, we have to say, our strategic fit over there is really good. In terms of margin, we were able to achieve the 18.4%, which is in the first step, a reduction compared to last year. But when you have a deeper look in the different development of -- during the now last fiscal year 2023, we are absolutely happy with that development, and this is the big effort and the big work of our colleagues in APAC and in China really took significant fruits on that because after the release of all the corona measures after Chinese New Year at the beginning of the calendar year 2023, everybody from us knows that there was some months of really much low performance of low economic drive of lower sales and also by doing that, also lower profitability. There, we were able -- and that's why you can see on the right side below also the development of the different quarters in terms of our quarter-by-quarter EBIT margin, we were able to recover significantly. And we have to say that in the fourth quarter, we were already back on track and on the same level than in the prior year, even knowing and taking into account that we have not as much of positive volume impact, which normally helps significantly to increase EBIT margin. But therefore, the colleagues made a tremendous good job. So that will mean different development in the 3 different segments on the regions, very good recovery in APAC, as I already said, after a critical start in the calendar year 2023. Europe, also very good recovery after a very difficult first quarter, meaning in the month of November, December 2022. And Americas, all the different topics clarified, identified. And we also have to say that FX was not our friend in the last year, but also that's to be approved and we will look out -- look in future on a very positive way on that perspective. What does that mean that finally in the next page, 14, when we have a look, not anymore on the region, but having a look at the development of the different business units. So first of all, the good story is all 3 business units on a global perspective, we're able to grow. We had globally, a significant growth in industrial, knowing that this was mainly the main focus on Americas and U.S., but also recovering step-by-step also the other 2 regions. Powerise remains absolutely on a very solid profitability and growth perspective. We have a good perspective, good growth in APAC and in Europe. Those who listened also the last quarterly presentation from us know that we had some changes in some programs in Americas where we have currently a slightly lower growth here, but also here with 11.4%, we can say the growth story of Powerise is absolutely in line with our expectation. And therefore, a very good development. Industrial Automotive share is -- and once again, these are numbers excluding DESTACO, obviously, this is a 37% on Industrial, 63% on Automotive. And I think with that perspective, and some more details about the different market segment of industry, Michael, back to you and to provide you some more insights.

Thank you very much, Stefan, and we jump directly to Page #15. Talking a bit about the Industrial business. As Stefan already mentioned, we've been successfully growing in all 3 areas of our business. This leaves us, by the way, with a split between Automotive and Industrial business of 63% Automotive and still the 37% on the Industrial business. This will change dramatically and just here as a heads up for you in the meetings to come, we'll also then focus a lot on the Industrial side, and this is definitely the path of growth for us. And with the acquisition of not only Cultraro, but also mainly DESTACO, we will show here a different movement from an Automotive perspective, more to the Industrial side, which was and is and obviously will be our desire because it balances our business and really grasps our opportunities in the right way. So let's talk about the Industrial business for EBIT. I start with distribution, independent aftermarket and e-commerce. 37% of our business around about on the Industrial side. It's a very healthy business, driven by definitely the trend of e-commerce on one hand side, but also in general difficult situations, we pretty much tend to refurbish cars a little longer. We have refurbished machines instead of buying new ones. That definitely leads to a growth and to a very stable performance on our side of car distribution and independent aftermarket in our business. Followed by the mobility sector, the mobility sector is absolutely strong. This is forefront trucks, trailers, construction equipment. Yes, the industry is suffering a bit. However, we've been showing a very strong performance due to the fact that we are, on one hand side, balanced very well in what we do on this sector. But on the other side, the areas where we are present with our products is still growing. So we are not in -- also in terms of lawn care, for example, or in terms of smaller shop equipment for the construction site. And this is also growing still to a good share, and that's why we've been overachieving our targets here growing to 29%. On purpose, we've been reducing and we've been playing that out in the past as well, our efforts in terms of the furniture. And that's what you see here with a slightly reduced share of only being 13% of the pie. Why is that? As outlined also in the past meetings, particularly on the furniture side, we're talking about the nonregulated markets. So not too many rules in there, essentially been not so sophisticated, so it's rather that we are here working with opportunistic high-profit contracts we do with our suppliers and on purpose, we put our power to the biggest growth area we see in our business, which is, without a doubt, the area of industrial machinery and automation because there is a reason why we have been reaching out to DESTACO because there are these megatrends in the market of labor scarcity, safe workplace, automation, political unrest and reassuring activities. This is why we rather put our efforts on to that segment. And this is why we are growing there already with our base business a lot. And this is the growth from this 19% to 21% in the past year from our overall Industrial business because we put a focus already now with our products, just take, for example, the ACE products. With ACE, we have a lot of dampening systems in place. We have opening actuation with our Powerise for the Industrial side. We have dampening systems out of our community of the Stabilus original product. However, this whole portfolio contributes already a lot to the Industrial and Automation sector. And this will definitely grow. And that's why it's also important in the meetings to come to really focus on that sector. So again, as a heads-up, we will show more slides. We will give more information for sure, with the acquisition of DESTACO on our Industrial footprint and on our general story on the Industrial side. In overall perspective, our Industrial business did grow substantially, again by 6.9%. And with all the reasons Stefan just mentioned, that we had at the beginning of the year is lower economy in all regions, predominantly for sure, in Europe, but also then driven by the lockdown situation in China in the second business quarter of the Stabilus Group. And then these effects did lead to some headwinds. But predominantly with the good performance also, not only in North America, but with our widespread of products around the globe, we could overcome the situation really fast, have been reaching out to the business opportunities on hand and could grow our business 6.9% year-over-year. So that leads us to an overall sales of EUR 444 million for the past business year. I would jump directly to the outlook, Page #17, please. Yes, in terms of the outlook, as we said at the beginning of the call already, we ended up with EUR 1.2 billion sales, great achievement, another EUR 100 million or most growth compared to the prior year and with an EBIT margin of 13%. The guidance for the year to come is EUR 1.4 billion to EUR 1.5 billion with an EBIT margin of 13% to 14%. The underlying growth assumptions for us are here, the light vehicle production to be grown on 1%. Currently, that's what IHS suggests number of light vehicle products in the year to come, financial year 2024 will be 88.7 million produced cars versus 87.8 million produced in '23. So a growth of 1%, we harvest the fruits. And also, as you know, we grew this proportionally high on our Powerise side compared to this market growth. There's also this year, our expectation. And this is why we show an increase in our base business for sure as well as an effect of DESTACO. We closed the deal at this point of time that's in the planning with February 29, 2024. And thereby in these consolidated numbers of sales and profit, you'll find 7 months of DESTACO. So at this point in time, if things go well in the way we plant them and we are perfectly on track, then we will consolidate on the 29th of February 2024, and that's why these numbers. [ You ], as I said, find a little more than after a year, about 7 months of business consolidated view. So there is a continuous uncertainty, right? Nobody knows how really the political unrest shakes out. There are a lot of critical zones on this plant, as you know, which pretty much in a very straight way, impact businesses sometimes, this is the uncertainty, which we reflected in these numbers. That's why it's also this year, not a concrete number in terms of revenue and EBIT margin, but rather a horizon of, yes, let's say, a range of EUR 1.4 billion to EUR 1.5 billion in terms of revenue and 13% to 14% as a range for the profitability in terms of EBIT margin. However, our general strategy and the 11th of October with our announcement of DESTACO acquisition should underline that our general strategy is on we pursue our strategic pyramid with being the leader in intelligent motion control technologies, and DESTACO is just a further step and there is more to come. That's for sure. Yes, this is the deck we prepared for you. We guess you have a lot of questions to that. And with that, we will open up for your questions, please.

[Operator Instructions] The first question comes from Mr. Akshat Kacker.

Akshat from JPMorgan. I have 4 questions, please. The first on the DESTACO financials. Can you just talk about the expected revenues and margins for DESTACO that is embedded into the guidance for the 7 months of consolidation? If not bad, if you could talk about what are your expectations for 2023 calendar year for DESTACO? I think it is important for us to understand the different moving parts in the business and within the guidance as well. The second question is on Industrial. As you mentioned in your presentation, you've seen very strong growth rates in Americas this year. How do you see the demand environment overall and order intake going forward, both in North America and Europe? Because we've heard a lot of your industrial peers talking about destocking. The third one is on Powerise. The Powerise business slowed down more than expected in Q4 and specifically in your APAC region. Can you share more details around this development? And what kind of revenue growth are you expecting in APAC Powerise going into FY '24, please? And the last question is on inflation. What kind of gross inflation are you budgeting for in fiscal year 2024? And how do you plan to offset this as labor inflation becomes more structural, specifically in a region like Americas?

Yes. Thank you very much, Akshat, for your questions. As always, we will share our answers. I'll give you a starting point for the points you mentioned. And then after each and every point, I just hand over also to Stefan to talk a little bit more about some [ profit ] numbers and technical terms. So in terms of DESTACO, it's for sure, too early to talk about the concrete numbers, which are embedded in the plan. Why is that? Because we have some planning assumptions only, but the DESTACO has -- as part of the Dover Group and a planning, which ends 31st of December. So that means they're in the midst of their planning assumptions, and they will not disclose details on their sales revenue and EBIT margin expectation for the DESTACO area, let's say, until the middle of December, late December. That's a given because of the difference in the 2 companies in terms of guidance horizons and colocation dates for the numbers. However, in terms of our business assumption, we for sure had an underlying revenue and EBIT expectation, which we also disclosed in the call on the 11th of October, which basically in the outlook is the numbers, which we've been working with. And they are in U.S. dollars in a range of USD 200 million to USD 220 million for next year, eventually in terms of sales this year, they are on good track to reach the USD 200 million and the EBIT margin in the range of 20% plus/minus. This is kind of the rough numbers, which we have had in the analysis with them. This is the underlying assumptions for next year with the business plan and this is something which we also highlighted in the results or in the call on the 11th of October when we announced the signing. So that's in terms of DESTACO. Anything to add from your side, Stefan?

No, I think that's, as you said, really correct described. At the end, we can -- we have to talk once we have the closing here more clearer when we are in the driver's seat of managing the business. Currently, we just have signing. We do not have closing. We are in a situation that based on legal requirements, the clear guidance that we bring out has to include based on certain assumptions, which are obviously not as secure as a business that you're managing over the last 10 years and I have acknowledged already there. So therefore, that will be -- that is at the end, what you said, the major point and nothing to add really much on that perspective. We stay and this is important, we stand, we stick with what we've learned our -- and what we said in our business case. And what we believe and we do not only believe, we are convinced that DESTACO will be, for us, a very good driving structure in a very, very high efficient way to grow and to support our motion control strategy in that area of growing also Industrial business.

In terms of the Industrial business, talking about the industry, again, you mentioned how's the outlook for Europe and North America. The outlook for Europe and North America is at this point in time, a little cautious to about the end of the year, so a little softer, following the general trend of the industry. Our business in the past year, up to end of September was actually very strong. Why is that? Because there is a lot of, yes, still order backlog like typically in the Industrial side, you work on these order backlogs. But we see here right at the end of the panel, which means that there is some softening coming up in the next 3 months. The good advantage we have with our Industrial portfolio is, however, that we are not stuck with one commodity, but can pretty much work with the different commodities and balance our business very well and can thereby influence a little bit and soften the effects of market uncertainties. However, the overall situation on particularly the Industrial side for the time frame October, November, December, you're absolutely right. In Europe and in North America, is softer, I would say, 5% roundabout in general market terms. So the market seems to be a little softer than before. I will talk a bit about Powerise, APAC as a starting point. And then we'll jump into inflation. For the inflation numbers, I would hand over to Stefan again because he has some numbers to mention here, which gives some more flavor also to the general overview. In terms of Powerise, Asia Pacific, I know it's far out there. It was back then in January, February and March, but the whole industry in Asia, particularly Automotive industry, did suffer a lot, if you remember back, driven by the issue of automotive industry kind of lagging behind, driven by this corona policy in China. This is something which we've been feeling overall in the Asia Pacific region. We did a wonderful job to recover that, as Stefan did line out in his discussions when he talked about the Asia Pacific region. So in Asia Pacific, particularly the contracts and the orders for Powerise were softer in January, February up to May. However, there was a big recovery towards the end of the year, which is very promising, by the way. And we see good outlook for Asia Pacific, Automotive industry, particularly Powerise for the rest of the calendar year. And you see in our numbers towards the end of the year. Overall, our Powerise sales were increased, yes, EUR 132 million in the prior year, and EUR 144 million this year. So in general term increase, but this was driven by the last 3 months of the year, predominantly, which leads us to the assumption that it's not a general scheme in Asia, but rather a short-term effect that the numbers were down early the year, early the calendar year in China. And just to add some flavor, we are tracking and you know that on a quarterly basis, our order intake for all of our businesses in terms of order intake, particularly talking about Powerise. You know that we have a market share of 33%, 34%. We've been this year in terms of acquisition of new business for Powerise rather beyond 40% of order intake for the years to come because whatever we get a [ word ] now, we will get into the pipeline and execute it 2, 3 years, right? This typical development tine in the Automotive industry. So we've been winning now 40% of all contracts out there, including very strong performance in China and Asia Pacific, predominantly, but also in the rest of the regions, which is by far more than our where current market share is. So we are very confident in terms of how the business will develop also in terms of Powerise in China. For sure, there will be price pressure, and we outlined it several times, for sure, that's something to work on. We've been setting actions with long-term actions to further improve our USP with the customers. And the proof comes with more than 40% order intake of all given orders in Powerise global scale in the past year for us. In terms of inflation, I'll soon hand over to also Stefan here. Inflation was indeed a big driver for us in the past year. We are talking about almost double the inflation rates we've been seeing before, a major hit in Europe and North America, where we had in the range of 6% to 8% and in Mexico, even beyond. But also in Asia Pacific here, quite a different picture. There is almost no inflation evident due to the fact that there is kind of after the COVID lockdowns, kind of a different policy out there in terms of recovering the business. But for some more flavor on the inflation side and how we tackle that inflation in the different regions, I would hand over to Stefan again.

Thank you very much. And to give you a direct here some indication about what is the basis assumption for inflation. So the overall inflation was about depending on the market, 3% to 5% that we assume. And on the labor cost side, we have in, I would call it, on the established or subtle business areas like in Western Europe, we have obviously some lower labor cost inflation assumption. But when we're talking about Romania, talking about Mexico, there we are more on the upper side. And the range of those increases is between 4% and 7% that we are -- that we included in our budget for the year to come. So you can see inflation, at least based on the assumption that we had and based on the discussion that we get for every day in the newspaper, inflation is not yet over. Even when it gets reduced, labor cost inflation in addition to that, it's not over because you see not only the trend of the labor cost inflation per se, but you also can see the trend of labor shortages, which even includes or even drives a part of this labor cost inflation in addition to the inflation to the general inflation that we have. And this is obviously -- as I said during my presentation, for Americas, overheating market in U.S. or in Americas, that still remains for a certain period of time. What we're doing against that? We are investing and we already started, obviously, in the last fiscal year, and we continuously will do that also in the course of the new fiscal year in going for optimization of our processes, in going and investing. Also, we do that, not only having a lower the megatrends, we also will invest significantly more in efficiency measures in automation. And by doing that, we want to fight against this cost increase to maintain a good level of profitability also for the future. And this is value for all the plants all over the world.

Absolutely fully agree. And just to add there, as Stefan said, automation is key. And this is why DESTACO is important for us because we are strong in industrialization and automation of our business, automation is a key element. And I'm coming back to the point, reshoring labor scarcity and shortage in the market and then safe workplace. These 3 megatrends, they stay around for the decades to come by nature. And this is why not only we do automation, everybody else does it as well in the industry. I'll tell you, we have these discussions on a daily basis. That means with DESTACO, we are spot on.

So the next question is coming from Marc-René Tonn from Warburg Research.

Two [ basically]. The first one I think maybe coming a bit back to the outlook for the current year and I think -- thank you for providing with some insight on what you're expecting from this cycle. Perhaps you could confirm that I'm thinking in the right direction that we are talking about, let's say, EUR 50 million to EUR 150 million versus the ballpark as organic growth for the current year. So from the, let's say, kind of existing industrial Powerise and Automotive Gas Spring business because that would be, let's say, kind of a right number to think about? Second question would be looking at the NAFTA business, I think you -- let's say, alluded a bit on the burdens you suffered last year. I would be interested in your expectations for the current year, what you would expect, let's say, in terms of margin development in the current year and particularly as the building blocks about, let's say, the expected development you would foresee in this market also perhaps excluding DESTACO in this case, just talking about, say, the underlying business which you have on hand.

Thank you very much for your question, Marc. And I will answer the first question, and then Stefan will talk about the second question. We jump in as needed. In terms of outlook and sales outlook for the year to come. One, I mean, the underlying assumptions we have in our forecast, as we've been outlining that the vehicle build is growing by 1%, so to EUR 88 million. As we typically grow a little beyond the market growth with our Gas Springs, at least with a growth of, yes, 1-plus percent on the Gas Spring side. Typically, we outperform, and you can just take the numbers of the past, we outperformed the market growth by 3% to 4% with our Powerise unit. And typically, the GDP outperforms -- we outperformed the GDP also by 2% to 3%, means that we, overall, are calculating with a growth of 6% in average for our business to come on the base business side. And then I've been outlining also following the question of Akshat earlier, in which range the planning at this point in time. Absolutely, there is some uncertainty out there because we did not -- for good reasons, did not get so far the concrete numbers of the Dover Group for the DESTACO planning for next year because they are not there yet. But if you take my numbers and also put into the equation that we consolidate 7 months, that should give you a pretty clear picture in which frame we are calculating in terms of overall growth of our business, but not only overall of our business but in the different segments, particularly also then when it comes to the DESTACO business. And in terms of the second question, margin development and wider scale, I would also hand over now to Stefan.

Okay. Thank you very much. So I try to focus a little bit on the major influencing factors on the overall margin development. So first of all, I think after these years of a significant increase of material costs, exploding energy prices, transportation issues, supply chain topics, it was indeed possible to get a certain, we call that inflation recovery also from the customer side as well as on the Automotive as well as on the Industry side. So we -- that this will continue on a continuous basis that we can increase year-over-year pricing. So that development that we had over the last years that was able on the OEM side, will come back probably back to normal and back to normal is that increases of whatever sales prices for whatever reason, we'll get more and more complicated. So the -- on the one side, expect that situation was, okay, all cost increases have to be compensated by increase of sales price, that will get more and more difficult. Also there on the Industrial side, we were very successful in doing price increases over the course of the last fiscal year. Also there, we would not see too much headroom for further increasing of pricing. So therefore, to really maintain and to improve margin, this has to come mainly by own efficiency programs by optimization of our processes of automation that we will do. And that is what we already significantly started in the full year 2023, but you have to know we had to compensate labor cost increases in countries like Romania or Mexico of between -- around 13% to 18%. So there, it's not a rocket science that this is not an easy game to compensate such a tremendous increase of labor cost within one year by on productivity measures. That is simply said, not possible. So we are following here at least 2-year plan that we want first to recover, first of all, all what we still have did not yet recover completely from last year, but also this year, labor cost inflation will be significantly higher than in years that we know before all these Ukraine war started and all prices exploded on material and energy side. So this will be the major concern to make sure that we were able to maintain that. Obviously, also having a look at what all the material price impact. So that's the point where we believe to maintain profitability, we have to have to make all our homeworks and activities. We have to make those investments what we already started to do, to compensate those negative impacts on that side. On the other side, we believe that we are still able to grow the volume. We believe that we still have those capacities also with the Automation. I just want to remember the new fully automated lines that we now established in the first Powerise plant where we -- what we did not have until the certain point in the last fiscal year. So all those major activities will help us to compensate step by step all those activities and come back in the profitability, where you also can see what we said, the 13% to 14%, that was our expectation for last year, but also will be the expectation for this year. So I think we are quite good positioned to compensate all the risks that we have. We are in a way to looking for all the opportunities we have also perhaps with continuously some reducing -- some optimization on material, freight and supply chain topic. That is what we will work on that to keep the margin on a very solid and good level.

Just one follow-up, if I may. You talked about, I think, earlier about the door actuator business. Is there any kind of contract? Or could you give us some indication when you expect larger contracts to be placed in the market overall and also with the view?

Absolutely. It's a good point because we invested already also in the system, in the sensor system a lot. We won a very big contract a couple of months ago. You know that this started to take off in Asia. And if you go and check out the cars and car population in Asia, particularly the bigger SUVs, they have now all door actuation in the portfolio. And thereby, this whole thing started for us with Hyundai and Kia and also with Geely in Asia. Now there was one of the big 3 OEMs in Germany, towards the Southern side of Germany. And this OEM awarded a groundbreaking big portfolio of door actuation to us. We've been winning this game. It's about EUR 30 million sales per year in its peak over lifetime, the SOP is in 2026, and it frames all the SUVs and larger scale vehicles. So it's happening now. And the start will be in the year '26 with this SOP. And the other bigger OEMs out there, there right now as we speak in the sourcing process. So it's happening now.

Perhaps if I may add to that point, that is also the reason why when you have a look at our balance sheet and our capitalization of R&D projects. As we are now in that cycle where those new contracts will happening, we decided proactively also to increase in that perspective, all our development activities for those products significantly, also above budget. We have to say -- and these are also some points which you then can see in that level on the last fiscal year of increasing capitalization of R&D costs. So that is the reason, and this goes hand in hand because there are concrete customer contracts that we have in hand. That's why we -- it's not that we say we can, we want or whatever. We have to then capitalize those project costs because they are really much customer focused. There, we are exactly now in that area of additional contracts to be get and to win. And that is also the reason for the increased level of R&D capitalization because we also increased significantly our spending on the R&D side.

Thank you very much. I guess we've time for another question, if there is a last one.

Yes. The next question is from Yasmin Steilen from Berenberg.

Okay. So first of all, it was very helpful to look at the comments on your sales guidance and the assumption on DESTACO. Is there a seasonality for DESTACO business we should bear in mind for the consolidation starting in March next year? This would be my first question. Then the second one on your adjusted EBIT margin guidance. So this reflects one-off integration costs for the DESTACO deal. So first of all, how should we think about the allocation over the year? And just to clarify, stripping out the one-off integration cost. So basically, we are looking more at an underlying adjusted EBIT margin in the ballpark of 14%, 14.5% your guidance, correct? And then the last question on Powerise Americas. Sales was up only 3%, so underperforming the underlying light vehicle production volume in these regions. And you mentioned already in the Q3 update call that based on the order situation, this should revert in the coming quarters. So maybe you could share some color on the reasons for the underperformance in the current call of rates. It would be very helpful.

Absolutely. Let this time around switch the questions a bit. I will start with Powerise question probably, and then Stefan will give you some more insights on the DESTACO numbers. In terms of the Powerise in North America, we had the discussion, and you're absolutely right, last quarter in terms of why is the Powerise in North America growing disproportionately to the vehicle growth at this point in time. I mentioned at that time, a reason which is still to a certain share, a reason in the game. The reason at that time mentioned was that customers typically fit their vehicles with upper-scale electronic-related parts and they produce them to basically to push them and there's a difference to Europe to push them on to the yards at the dealerships. So they have the freedom also to bucket and bundle certain production lots at the OEMs and kind of bundle them in a way that as soon as they have all the relevant components and the complex, the more difficult, they kind of bundle them together and produce them then. This is, by the way, not possible in Europe because you can customize pretty much your car. But in North America, that's different. The OEMs, they bundle the cars to the fitment rates and then they in sequence, for example, produce lower-scale cars for a certain period in time, with just standard gas springs, but no Powerise, if electronic components or labor, for example, is missing. They have more freedom, so to speak, because whatever they produce them, they push into the yards at the dealerships. And here comes a tricky thing, we talked about electronic components, and this was one of the reasons. But you, for sure, know the impact onto the automotive industry also of the recent strike situation. And this recent strike situation of the UAW, this did for sure, impact also the complete production schedule at the OEMs. Because it only that they've been striking from one to the other day, they had less labor available at the OEMs for a certain period in time. So what happens if the OEMs in North America have less labor on hand, they decontent the cars to make sure that with the less labor on hand, they still at least can achieve some output. And this is, for sure, on the burden of fitment rate of all kinds of extra features in the car and one of them is Powerise. So the pure reason in the past quarter was that also here, we were pretty much impacted by the UAW strike, which caused that lower fitted rate cars were pushed through production into the market. That was the reason. And with that, I would hand over to the DESTACO related questions to Stefan.

Okay. Thank you. So talking about DESTACO seasonality. So here, we are in 100% industrial environment that we are working even knowing that also some automotive production line are fitted obviously with the DESTACO product. But here, we have to say the seasonality of the business, and that is the way that I understand your question, the seasonality is a little bit different. So these significant higher level of seasonalities when you say, okay, you have closing, you have potential shutdowns of some plants on the automotive side in the summer month in July, in August, that is something that we are not expecting and we're not seeing there on the Industrial side. So there also, as the business is a global business, but also with a strong business in Americas and Europe for sure. December, obviously, always is not the strongest month due to Christmas and year-end activities. But overall, there is not a very strong expected seasonality of that response. So when we're talking about then your margin assumptions and margin assumption based on the discussion about the integration cost. So there for sure, we are -- we said that there is a set of integration costs included. It's from the current situation quite difficult already to have a detailed month-by-month exact planning about the different costs. But obviously, as all the company integration costs are not continuously happening, but a onetime cost, we believe that those will be focused on the fiscal year 2024 and 2025 because in 7 months, if that date will be realized, what we believe, we will not obviously be able to make all the integration because to refresh their all minds is that is a combined asset and share deal that we have. And it's always more difficult for integration to provide infrastructure to provide IT systems when you're talking about an asset deal. But on the other side, we don't want to complain because only when we're doing the asset deal, then we are also able to get the EUR 50 million net [ present ] value of the taxes over the next years to come. And so therefore, efforts obviously will be -- will pay back on an overall perspective. And you're right, these are onetime costs for the fiscal year 2024, but also there will be someone in the fiscal year 2025 as we are not in the situation. And I know that for everybody would be nice having a first consolidation at the beginning of a fiscal year to not have any breaks within the year. This is not realized, we believe, at the end of February, and therefore, we will just have a portion, but only a portion of the integration done at the end of our fiscal year end of September.

At the moment, there seems to be no further questions. [Operator Instructions]

So we are really happy about your interest into the Stabilus group that did lead to a little more time needed as planned this time around in our call. So we're really happy that you've been joining today. And if there are no further questions, we would close the call and wish you a great day.

Thank you very much.

Thank you very much. Bye-bye. Everybody.