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Edited Transcript of STM.DE earnings conference call or presentation 4-May-20 8:30am GMT

Q2 2020 Stabilus SA Earnings Call

LUXEMBOURG May 18, 2020 (Thomson StreetEvents) -- Edited Transcript of Stabilus SA earnings conference call or presentation Monday, May 4, 2020 at 8:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Mark Wilhelms

Stabilus S.A. - CFO & Member of Management Board

* Michael Büchsner

Stabilus S.A. - CEO & Member of Management Board

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Conference Call Participants

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* Akshat Kacker

JP Morgan Chase & Co, Research Division - Analyst

* Marc-René Tonn

Warburg Research GmbH - Senior Analyst

* Philippe Lorrain

Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst

* Sabrina Reeh

UBS Investment Bank, Research Division - Analyst

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Presentation

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Operator [1]

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Good morning, ladies and gentlemen, and welcome to the Stabilus S.A. conference call regarding Stabilus financial results in second quarter of fiscal year 2020. (Operator Instructions)

Let me now turn the floor over to your host, Dr. Michael Büchsner.

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Michael Büchsner, Stabilus S.A. - CEO & Member of Management Board [2]

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So hello, and welcome, everybody, to our quarter 2 call with the actual results of the second quarter and year-to-date numbers for our company. I will start with some general market updates, and then I'll hand over to Mark talking about the financials in detail. And towards the end of the call, I'll again talk about the outlook for the rest of the year.

Overall, as you all know, we are in a very uncertain market position. Market overall, we saw second quarter of the financial year, down 24.4%. That's what you see on Page #4 of our presentation. And we expect, as everybody else does in the automotive industry, especially that year-over-year, there is a 20% reduction of the numbers. So that's something we also deal with in the business, and we'll talk about the actions in a minute.

So there are extended shutdowns of several OEMs or all OEMs in the market in all regions. And since mid-March, plenty of them, almost all of the OEMs have been shutting their doors short or longer, up to early April, some extend even throughout May their shutdowns. Some are coming back step-by-step, starting with 1, extending to 2 or 3 shifts throughout May.

Overall, our plants at Stabilus were up and running for several reasons. Biggest reasons were, for sure, that we are not only in the Automotive space but also in the Industrial space, which, for sure, also helps a lot due to the fact that kind of we did not see a one to the other day shutdown. There was kind of a staggered ramp down, and now we see a staggered ramp up again. But as a matter of fact, we haven't had a single day without call-offs from the customers. However, we've been managing our costs, which I'll talk about in a minute, properly, and are also on short-term work and taking other efficient measures to reduce our costs on a daily basis.

Chinese plants, they're up and running as well. That's what we also hear from the leader or you here heard from the media that the OEMs are coming back step by step. That at the end of the day, we are up and running 90% plus, which for sure also gives great benefits to our operations in China, which are kind of 80% to 90% or 100% depending on the workload these days.

For sure, we cannot give a detailed quantified outlook for the rest of the year, which is kind of similar to what the other companies in the industry see. The times are very uncertain. But however, that's what we'll talk anyways towards the end of this presentation. I would like to talk about the corporate actions which we are taking in order to manage our costs. You'll see them also on Page #4 on the right-hand side. Top priorities, for sure, is safety of our employees. So as soon as this crisis hit the floor, we initiated a daily call with our leadership around the globe in order to protect our people in order to make sure that we do not, like other companies in the industry, have corona cases or too many corona cases around the globe, especially in the management. So we had daily calls along with the management, our doctor in the different -- or doctors in the different companies and we had stringent measures in case of a corona infection. We reacted very fast in terms of testing these people, putting our employees in quarantine in case of infection and also cross-checking people who've been in contact -- employees who have been in contact with corona cases throughout these difficult weeks. With the good result that, as we speak, there is not a single case of corona in the company. We had 5 to 6 cases along the line in the last week, but all of them are healthy, back on the job. So with the stringent measures, we've had not a single case of corona in the management around the globe. And all the facilities are up and running to the extent they can be run according to the needs of the market and of our customers. That's, I think, a very positive sign and proof of how well we did manage this crisis in terms of the health aspect. And for sure, also in terms of profitability, we've been managing this critical situation very well. So the margin is kind of on a solid stage. We also are in decent cash position. We are taking weekly calls in order to track the options to further mitigate the impact of this crisis. We are on the positive time in terms of talking to the customers on almost a daily basis to get a good insight how the situation develops in the next couple of days and weeks and months.

As a matter of fact, we are kind of still in a stable net leverage ratio of 1.1x EBITDA. We have EUR 120 million cash on hand as of March 2020 and still a decent revolving credit line which we did not utilize referring to the EUR 70 million are only to share. And for sure, we drive our CapEx in a way that we manage wherever we can in order to limit our exposure when it comes to cash for the rest of the year.

This leads me to the next page. On Page #6, I'll just talk about the financials on a high level before I hand over to Mark to talk about the details. In terms of revenue, yes, for sure, we are behind prior year by 7.6% with EUR 221 million in quarter 2, which kind of reflects the current situation in the market. There is still an acquisition effect, for sure, of 1.9%, but please consider there that throughout last year we kind of consolidated our companies in the middle of the year or after the first and the last quarter of the year, which kind of has an impact there. The organic growth is, for sure, a reduction by 9.9 -- 9.5%, sorry, year-over-year for this quarter.

On the EBIT margin side, EUR 31.1 million versus EUR 35.7 million, which leads to an EBIT margin of 14.1% versus 14.9% year '19 same period. Profitability, EUR 18.1 million quarter 2. Profit margin, 8.2% versus 8.5% Q2. So as I said, considering the overall economic situation, the growth is suffering from, we are kind of in decent shape. And in terms of the free cash flow, also very important to know, we are EUR 13 million, EUR 6.6 million quarter 2 financial year '19.

Net leverage ratio, I already mentioned, 1.1x which is kind of just staying a similar level than last year. Net financial debt at EUR 205 million. And we still paid the dividends of EUR 27.2 million in February this year. However, also in terms of net leverage ratio, same way than cash flow and profit is in decent shape.

In terms of the outlook, important to know is, it's really uncertain situation. You've heard that from other calls, other companies that at this point in time, we had to take back our sales line or our sales target of EUR 970 million to EUR 990 million and 15% margin. Not any more realistic with the given circumstances and a more reliable number only can be given at a later point in time this year.

So that's it on a top level in terms of the numbers and the outlook, I'll talk about later on anyway. And with that, I hand over to Mark.

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Mark Wilhelms, Stabilus S.A. - CFO & Member of Management Board [3]

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Yes. Thank you, Michael. So Slide 7 shows graphically what Michael just talked about. There's no additional information. So I'll flip over. Turning to Slide #8. We see the first 6 months, albeit that is like 5.5 months pre-corona in Europe, in the U.S. and only 2 week-ish with corona. First half revenue down 2.5%. The margin -- EBIT margin is down 0.8% (sic) [8.0%] from 14.3% to 13.5%. You see there that we keep the overall cost in check and balance. Cash flow as a key criteria are shown on the top (sic) [bottom] right-hand side, EUR 19 million last year, this year EUR 20.8 million, although that includes almost EUR 5 million good news from IFRS 16 impact. So adjusted for that one, it's EUR 16 million.

Turning the slides, we go forward to Slide #10 and talk about the details of EMEA. EMEA revenue, overall down by 6% to EUR 118.4 million in the second quarter. Industrial business within that one, flattish, that is due to the acquisition, General Aerospace and Piston we made last year. Automotive Powerise as well as Gas Spring are down, not a surprise. And in terms of EBIT margin, the European margin came down from 14.8% to 13.1%, clearly reflecting the revenue shrinkage and us not getting the cost fully down here.

On the right-hand side, you see a couple of comments. Vehicle production in Europe down by 19.2%, substantially more than our revenue came down. However, we need to see that vehicle production and supplier revenue due to the vehicle reductions happening in the back end of the first quarter are a little bit out of sync.

Going down the right-hand side, in terms of the comments, and important is to focus on the Industrial revenue that, as I mentioned, is flattish grew by 0.2% mathematically and it's now at 53% share of the European business versus 50% last year. This clearly shows that Industrial revenue is helping us to stay better during these stormy times than purely automotive focused companies.

Nevertheless, in spite of the higher share of the Industrial business, our margin, as mentioned, in Europe, came down to 13.1%.

Now going forward to the slide that talks about Americas, that is Slide #11. U.S. vehicle production overall came down by 11.3%. You see that one on the comments box on the right-hand side. Our revenue in Americas in euro terms came down by 8.6%. So again, we see a kind of better picture for us than the vehicle production. Organically, nevertheless, it came down by 15.6% in the Gas Spring sector, in the Automotive Gas Spring sector and Powerise at 7.8%, doing a little bit better than the overall vehicle production market.

Industrial revenue down by 1.1% or EUR 0.3 million. Organically, i.e., adjusting for the slightly stronger dollar, is down by 4.2%. The independent aftermarket helped us quite clearly to offset lower revenues in the areas of bus, truck, rail and aerospace in the NAFTA in the Americas region. The margin in Americas developed very positively to 19% due to strong cost management as well as sourcing benefits by playing with our cost structure in U.S. dollar and in Mexican peso. Peso versus the dollar is very weak -- has been very weak at the end of the second quarter and that clearly made our Mexican production side substantially more competitive.

Going forward, we come to the APAC region, which is shown on Slide #12. Vehicle production in Asia in the second quarter for us of first calendar year quarter is down year-over-year by 21%. Our revenue is down by 11.5%, quite clearly suffering from Chinese customer shutdowns during the first calendar month of the year when China was hit really hard by the corona disturbance. Organically, our Automotive Gas Spring revenue is down by 17.2%, still doing better than the Automotive production in overall APAC. Powerise as well as Industrial revenue are about on prior year levels. So they are holding up. You see increased market share in Powerise of the overall business helping us and the albeit small Industrial business fighting strong to keep the position. Overall margin pressure due to substantially reduced revenue as well as our intention to keep the fixed cost structure intact to capture further business cost as to post a very small EUR 100,000 EBIT loss in that region.

Slide #13 talks about revenue by business unit, i.e., our now 3 business units: Industrial, Automotive Powerise and Automotive Gas Spring. Important on the left-hand side with the graph, you see the cake diagram. Industrial is now 43% of the global revenue versus 57% automotive. And in Europe, it's even 53%, as mentioned earlier on. Talking to the comments on the right-hand side, important to note here is the third bullet point, global light vehicle production in Q2 is at 17.6 million units. So that is down 23%. Our various automotive units are going down less than this 23%. It's Automotive Gas Spring down 15% and Powerise at 7.8%, clearly benefiting from increased penetration of our production vehicle lines.

Going forward, we are Slide 14 with again, I come to the outlook on Slide 15 and hand over to Michael Büchsner again.

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Michael Büchsner, Stabilus S.A. - CEO & Member of Management Board [4]

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Thank you very much, Mark. Yes, talking about the outlook. Last year in November, we gave an outlook of EUR 970 million to EUR 990 million, as I said, and EBIT margin of 15%. For sure, in the given circumstances with all the impact of COVID-19, this outlook is not realistic anymore, and it will be below. However, in April 16, you already saw and got by IHS concrete numbers that the automotive market will be 20% below the prior year's plan and it will take even until 2024 to get back on the level of about 90 million vehicles following these later statements. And for sure, we adjust our plan according to that. At this point in time, it's very, very difficult to give a concrete outlook, as I said before. We'll do that at a later stage. However, on the long run, for sure, we stick to our strategic measures, according to our STAR 2025 initiative, and continuously work on innovation and our team spirit.

So at a later stage this year, we will come across with a new guidance for the rest of the year as soon as we get the concrete numbers out of the market.

With that, thank you very much, and we would be open for your questions, please.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And the first question comes from Akshat Kacker from JPMorgan.

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Akshat Kacker, JP Morgan Chase & Co, Research Division - Analyst [2]

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Akshat Kacker from JPMorgan. The first one on personnel cost, please. With all the different social schemes and arrangements that you have in place in different countries, can you share with us a number on how much can you cut personnel cost going into Q3? And with the short-time work benefits falling away in Q4, how much can we expect that number to be in the fourth quarter? The second one as in line with your closing remarks, can you discuss a few elements or numbers around the structural cost actions that you're willing to take? We can debate the shape of the recovery here and the health of the economy, but what is the cost base that you're trying to tackle in a more structural way. The third one is on APAC profitability. If you could give us a few pointers on the nonrecurring elements there. I saw that revenues were down EUR 2.5 million and EBIT was down EUR 2 million. That would be all.

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Michael Büchsner, Stabilus S.A. - CEO & Member of Management Board [3]

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Just give us 2 seconds, yes?

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Akshat Kacker, JP Morgan Chase & Co, Research Division - Analyst [4]

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Sure.

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Michael Büchsner, Stabilus S.A. - CEO & Member of Management Board [5]

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Thank you very much for your questions. I will start answering the first 2 questions and then nonrecurring events and the EBIT numbers, Mark will talk about that point. In terms of our personnel costs, as you see also in these numbers, we've been able to flex our costs very well. So that means we are able to flex our costs by 80% when it comes to the labor cost in our business. And with stringent countermeasures in terms of reducing our spendings, we also achieved to cut down on our costs we have in the indirect areas for general as well as, as I stated, we manage our CapEx very well in accordance with the reduced growth. So 80% would be, answering your question, the percentage we achieved to flex our costs for the time being when it comes to structural overhead costs. This is an important number to know because it's kind of in line and something we work on, on a constant basis because it's difficult to hold in uncertain times when the market generally is fluctuating by minus 20% to minus 80% depending on the week. So that's kind of what we deal with and work on, on a day-to-day basis, which is a very difficult task because, and that leads me to my next point when it comes to short-term work and the other measures and how they are seen in the future due to the fact that it's a very volatile situation. I just can tell you sometimes we get orders from the customers for next week, and that's happened in the last 4 weeks, for next week of minus 50%, then they reduced throughout the week to minus 80%, then they get back to minus 50% from Thursday to Friday and that's actually what we try to work with and take as a planning basis. So in average, we've been reducing our workforce in the range of 40% to 60% depending on the plant in the next -- in the last 4 weeks to accommodate the call-offs. And this, from our perspective, will not end when it comes to short-term work. So our short-term work model will remain for the rest of the year. And we therewith continue to flex our capacity. Answering your question in terms of concrete amounts in euro is not possible because the customers are so volatile with the call-offs and nobody really knows how the automotive industry and the industry in general will ramp up with and after the corona crisis. That we still see call-off fluctuations from minus -- from a reduction of 25% down to minus 75% depending on the week. Overall, I think a good number to calculate with is that we can flex our costs 80%. So this is answering the first couple of questions you had. And then in terms of the EBIT impact, the nonrecurring events, I would hand over to Mark.

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Mark Wilhelms, Stabilus S.A. - CFO & Member of Management Board [6]

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Yes. Thank you. We've not shown for this quarter any nonrecurring events in the EBITDA. But of course, you need to keep in mind that as the European auto industry kind of came to a standstill in the second half of March, there are certain specific one-off costs due to that sudden slowdown that are in the nature at the moment repetitive. But I do not think that it is helpful at this point in time to list those up. That is why we've abandoned doing it for this quarter.

And going forward -- pardon?

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Akshat Kacker, JP Morgan Chase & Co, Research Division - Analyst [7]

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No. Sorry, go ahead.

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Mark Wilhelms, Stabilus S.A. - CFO & Member of Management Board [8]

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And your last question was APAC profitability. Clearly, APAC was hit by the revenue reduction we've seen, as mentioned in the past, we keep the overhead structure there intact to foster the future growth to see the benefit of the Powerise where we are a little bit decoupling us from the market. And also keep in mind, we are opening and we are still sticking to that plan. The new plant in the Pinghu area for Powerise to separate Gas Spring and Powerise production in the same way we've done it in Europe and Americas. That will help us to be ready to go for better new business as the situation in Asia returns casually to normal as well. And as mentioned by Michael Büchsner earlier on, the Chinese plant has recently seen a much better loading than eventually during the middle of the crisis, the corona crisis during the middle of the quarter. Does this take care of your questions?

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Akshat Kacker, JP Morgan Chase & Co, Research Division - Analyst [9]

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That's helpful. Yes.

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Operator [10]

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

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Marc-René Tonn, Warburg Research GmbH - Senior Analyst [11]

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Yes. I hope you can hear me. The first question would be on the other operating income. I think it was up quite a bit in the second quarter from EUR 0.9 million last year to EUR 4.8 million this year. Whether this had something to do with, let's say, the very good development you enjoyed from the Mexican peso in the North American operations?

Second question would be just coming a bit back to the first question with, that there's a negative result in APAC now in the second quarter, what you would expect here in Q3 given that we see China that they're gradually returning to prior levels after the COVID-19 hit? And the third question would be on Industrial, which was kind of stabilizing in the second quarter, whether you would also expect that to remain comparatively stable in the quarters ahead, whether you could give us some indication here?

And lastly, on M&A, I think the current situation may also open up some opportunities. Perhaps you could give us some update on your thoughts about anything you could have on the agenda here.

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Michael Büchsner, Stabilus S.A. - CEO & Member of Management Board [12]

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Yes, thanks for your question. Other operating income, yes, you're right, there are some good news from the peso. When you flip to the very back-end of our presentation, you see the FX rates we have been using and it's apparent that the peso got pretty weak towards the back end of the month, as I have already mentioned, and that is helping us in the local peso valuation. Either you put the good news there or you put them into revenue, we typically show them here under other operating expense or income.

Then your second question related to China. As the volumes pick up there, we should gradually find our way back to the historically strong local EBIT margins we have enjoyed in China. And when you go back a couple of quarters a year or so, China used to be, in fact, at slightly above group average. That for sure is still our aim to set up the location, the region to deliver at least good average results in terms of EBIT margin.

Yes. Your third question actually was on the Industrial side and how you -- how we would see the outlook after second quarter, will it stabilize? In terms of the Industrial applications, we see less volatility than on the automotive industry. That means the Industrial side is also kind of in the same way reduced then for the other suppliers out there. Actually, we would see it rather in alignment with the GDP growth, which also is negative for the year. That means, along with the rest of the market, our expectation is that we will, for sure, be below prior year's plan and also that the growth rates are negative 5% to 6% like everybody else in the industry suffers from the general development. However, we see that it's kind of stabilizing for now. And for the next 2 quarters staying on a stable but lower level than the years before. That's on the Industrial side, answering your question. And as you've heard, we've -- we are actually on 43% Industrial share in our business, which leads me to our M&A activities. We're in a good position.

Following the numbers, you've seen that there's decent cash on hand and that we also have certain credit lines we can pull in terms of financing possible acquisitions. We are working with a, for sure, based on a long list and a short list, focusing on targets out there to further expand and strengthen our portfolio. We continue to focus on the Industrial side because our long-term target is to be balanced between the Industrial and the Automotive side. So there are some percentages to go still.

So we are at 43% Industrial. And as I said, we want to get closer to being balanced on the Industrial side versus the automotive side because in uncertain times, as we experience them now, we see that the Industrial applications don't suffer from these extreme volatility that you see nowadays on the automotive industry. And this is still on our focus for the time being. For sure, we have now a short list, which we dig through every other week because also here, the situation, especially when it comes in terms of costs of such companies, which could be target of our M&A activities is also very volatile nowadays. And which, at the end of the day, leads to the general focus, as I said, Industrial, first-hand because we want to be balanced there.

Second thing is we want, for sure, also to strengthen our Asia footprint furthermore because we are not where we want to be in terms of our shares in Asia, also something we shared in these calls in the past months. And then for sure, we would not deny harvesting any low-hanging fruits. So as I said, first priority is to further strengthen the Industrial side, also we want to be stronger in the Asian side and low-hanging fruits are more than welcome. That's the overall strategy will still pursue on the M&A side. I hope that answers your 4 questions.

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Marc-René Tonn, Warburg Research GmbH - Senior Analyst [13]

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Yes. Just as a short follow-up on the FX issue. Can you give us then an absolute euro number, which -- that worked as a tailwind in the second quarter?

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Mark Wilhelms, Stabilus S.A. - CFO & Member of Management Board [14]

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Yes. It's like EUR 2 million for that purpose. But again, it normally sits in revenue. It's the way we do the accounting for the receivables hanging out there. The functional currency for our Mexican plant is peso and their revenues are typically denominated in U.S. dollar. So any FX movement between the 2 currencies fluctuates via the receivables, the payables as well as inventory in the overall asset valuation and causes some ups and downs here.

Going forward, the peso will remain relatively compared to the dollar. And as such, it will allow us to generate more profit due to a cost structure that is a lot peso-denominated and a revenue structure that due to the NAFTA setup or Americas setup is primarily dollar-denominated. In essence, it's smart sourcing as we call it, smart sourcing in countries that structurally have lower cost development measured in U.S. dollars are peso than local U.S. manufacturing would have.

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Operator [15]

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The next question comes from Sabrina Reeh from UBS.

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Sabrina Reeh, UBS Investment Bank, Research Division - Analyst [16]

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This is Sabrina Reeh from UBS. I have 3 questions, please. So just to get a sense of your outperformance, especially in the automotive division. Can you kind of give us some more color how much was driven by launches and how much was maybe driven by some inventory buildup from OEMs because what we've been hearing from some suppliers and OEMs is that just shortly before shutdowns, they've been equipping themselves for a restart in production already so in the last weeks of March.

And then the second question is a follow-up on CapEx, how much CapEx is basically tied to OEM production and how much can you still flexibly reduce? And the third question is, to kind of get a sense about the growth profile beyond 2020, and I know it's very hard to say, but can you give us an indication how much growth you need underlying from light vehicle production to grow in the mid-single digits?

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Michael Büchsner, Stabilus S.A. - CEO & Member of Management Board [17]

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Yes. Just a second, please. Okay. Thank you very much for your questions. I'll just start with the question in terms of automotive performance because it's kind of a tricky one due to the fact that we're talking about the second quarter, which actually means for the Stabilus world that half the year has already passed by of the financial year '19 and '20. However, we only saw in the automotive side, and that's why also there is kind of a positive impact on our end, which, for sure, recognize in the number. We only see 1 month, which is the March in these numbers, right? Because if you remember back until end of February, the automotive world in -- especially in Europe and North America was still up and running on a decent level. This whole misery started in March. So you would only see a 1-month effect on top in the last kind of billed weeks of the OEMs out there in the industry.

Our call-offs were still on a good level due to the fact also that nobody really knew how long the OEMs would go on corona shutdown. So that means you see only a limited impact of these call-off reductions in the second quarter of this year in our financial numbers. For sure, that's not kind of the end of this misery in terms of the automotive industry in general, which also will have an impact on us in April, May, that's for sure. And hopefully, things get back to better level starting in June, which nobody on this planet probably knows at this point in time. But the effect, first half and especially on the second quarter that we show decent sales here is that only 1 month, which was March, was impacted by the OEM shutdowns and then with a decent delay because, as I said, a lot of OEMs didn't know how long the shutdown would go, and they still try to get material on hand just to secure their ramp-up after the shutdown.

So for the second question, in terms of CapEx tied to launches, there are some important topics to know, and I would hand over to Mark for answering the question.

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Mark Wilhelms, Stabilus S.A. - CFO & Member of Management Board [18]

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Yes. Thank you. For CapEx, what we've always said is kind of 2% of our CapEx is tied to overall maintenance to keep the plant up and running. Then we've got R&D capitalization and the remainder being for growth related things, either capacity expansion or product-specific tools, et cetera. Now what we will continue to see is CapEx for R&D, R&D capitalization that will continue as we get more and more -- continue to get more additional business for either Powerise or door actuators. On the Gas Spring side, we have very limited additional CapEx spending for new tools for new launches. Typically, the Gas Spring product with our huge array and big portfolio of products, we can do with very limited product-specific new investments.

Additional CapEx spending, we do not envisage to lead over the next couple of quarters. So as such, I say, the EUR 11 million, EUR 12 million we've seen in the past quarter can be pushed down to like EUR 10 million per quarter. But further down, I do not suggest we should go with CapEx spending in order to keep the plant in a technically state-of-the-art stage and therefore, being able to benefit from the upswing that, for sure, will come sooner or later.

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Michael Büchsner, Stabilus S.A. - CEO & Member of Management Board [19]

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And then your third question was on growth in percentages and how we see the next months and years. This is the difficult part of this whole story because we had to pull back our guidance for the rest of the year and we get some indicators from IHS and also from the general industry for the coming years. On the IHS side, as you know, the IHS says that we'll get back to 90 million vehicles probably in the year 2024, which is a very wide and unprecise range, right? Because coming back to 90 million vehicles on year 2024, nobody knows, on the IHS side, at least in terms of the guidance on their side what happens next year and the year after.

In the same way, economists kind of take battles and debate back and forth if the reduction we see in this year, which is in the range of 6% to 7% globally, will get back and recover by 5% to 6% next year or not. This gives a real big level of uncertainty and a wide, wide range in terms of planning the future. And that's why we are not able to give the guidance for the rest of the year, and we are in the planning phase to establish a budget within the next couple of months to look into the next year. We plan to be, for sure, ahead on the conservative side to make sure that we don't overstretch the numbers and details in terms of this planning, we only can give in the following months. But we're not in a position to give a concrete percentage statement at this point in time for the growth rates we see in the Automotive and the Industrial side for the coming years. I hope that answers your question.

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Operator [20]

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Next question comes from Philippe Lorrain from Berenberg.

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Philippe Lorrain, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [21]

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So the first one is really just to confirm I got that right. So you were speaking about flexing the cost by up to 80%. Do you mean only the personnel cost or the whole overhead cost, i.e., SG&A and R&D as well?

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Michael Büchsner, Stabilus S.A. - CEO & Member of Management Board [22]

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It is on the people cost side.

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Mark Wilhelms, Stabilus S.A. - CFO & Member of Management Board [23]

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The SAP and those things will not get cheaper just because we need some machines left, all fixed cost items, depreciation rent also links fixed.

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Philippe Lorrain, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [24]

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Okay. I get that it's personnel.

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Michael Büchsner, Stabilus S.A. - CEO & Member of Management Board [25]

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Yes, yes. It's personnel cost, 80%. However, we're taking also good measures to flex as far as we can our other costs by weekly recovery calls when it comes to kind of keeping as much money as we can in our pockets because really nobody knows how the next months will develop.

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Philippe Lorrain, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [26]

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Okay. And then I wanted to ask you on the industrial side versus automotive side. How should we think about the margin difference between industrial sales and automotive sales in the current environment? And also it seems to me like the automotive margins have been slightly down over the past few years. So perhaps you can confirm whether that feeling was correct or not?

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Mark Wilhelms, Stabilus S.A. - CFO & Member of Management Board [27]

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Yes, Philippe, the mix between Industrial and Automotive was already talked about by Michael. Yes, we want to pump upset business to make it a stronger share of the overall revenue portfolio. Generically, as in the past, the Industrial margins are better than in Automotive due to the overall business setup. Auto margins, well, are under pressure since 30, 40 years. They still are able to withstand this pressure. I would not like to think that our margins came down in the automotive business. Having said that, due to the recent strong revenue slam down and the ability to only get like 80% of the people cost out, there is a generic margin pressure on the overall business. But it's not specific to Auto or Industrial. It is primarily driven by having unutilized capacity left and right in the business structure.

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Philippe Lorrain, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [28]

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Okay. I understand. Perhaps just like on the Industrial business, do you observe any, let's say, kind of change in the pricing environment or in automotive as well?

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Mark Wilhelms, Stabilus S.A. - CFO & Member of Management Board [29]

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Being a setup is always difficult. Everybody wants to talk about lower prices. But due to the different setup in the industrial business, it typically makes less sense for a business partner to change suppliers. Therefore, it's an overall difficult business environment. It's wrong to say those industrial customers are not cost-minded, but their cost view is based on a more holistic view of overall business relationship costs and the piece price -- individual piece price plays a lower role than in the high-volume automotive business. Therefore, we end up with different margins, just like every other industrial supplier is seeing it.

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Philippe Lorrain, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [30]

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Yes, sure, I understand, but has it changed recently because of the -- of what we see in the markets?

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Michael Büchsner, Stabilus S.A. - CEO & Member of Management Board [31]

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I would say, if I add onto that, if you take the automotive industry, what we see is that many of the automotive or the OEMs also when it comes to the supporting functions and departments, they also went on corona shutdown. So they're working from home. And some of the initiatives, which in any case, is long-term initiatives, they are not so forceful these days, but they will, for sure, return, right? They have this cost-savings program where they ask you to give 1%, 2%, 3% or whatever reduction per year. And they have their different cost-cut initiatives with the suppliers, which are known in the market. And I would say, they have been holding off for the last 3 weeks because they were also in this corona shock and had to go on short-term work as well, but they will for sure come back. Because, as Mark said, for the last 30, 40 years, plus, these people are kind of after your pricing and they will not give you a relief, probably only for a couple of weeks in this first corona topic.

However, on the industrial side, it's rather that the customers -- and this is, for sure, a change to before the crisis. They come and say, well, you are a reliable partner, can you give us x percentage discount for the rest of the year or the year after, which we are typically, and everybody probably would do that in the industry, are very reluctant to do because everybody is in the same situation, right?

Where would this start and where would this end? So we don't grant this special price reduction to anybody for the time being, and we are very stringent because, as I said, we are in the same position than everybody else in this industry and need to try to maintain the margins we have, which we and you see that the numbers are successfully working on. However, purely coming back to the change we see in the market, maybe on the automotive industry, they give you a relief for 3 weeks because they have been also on corona shutdown, but for sure, they will come back to negotiate the price reductions you anyway have to give for next year on the industrial side, they rather come back, the customers and say, "can you give us a discount retrospective for something or whatsoever," which we, as I said, in both cases, are reluctant to do.

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Operator [32]

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There are no further questions.

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Michael Büchsner, Stabilus S.A. - CEO & Member of Management Board [33]

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Okay. So thanks a lot for participating in our call on the Q2 numbers. The next call will be on August 3 when we present our Q3 numbers. Thank you. Stay healthy. Talk to you soon. Thank you very much.

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Mark Wilhelms, Stabilus S.A. - CFO & Member of Management Board [34]

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Thank you very much. Stay healthy. Goodbye. Bye, everybody.