Good morning, ladies and gentlemen, and welcome to the Stabilus S.A. Conference Call regarding Stabilus Preliminary Financial Results in Fiscal Year 2022. [Operator Instructions]

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

Michael Buchsner - Chief Executive Officer

Hello, and welcome, everybody, to our Q4 and full year earnings call. You have on the call, our Vice President for Innovator Relations, Andreas Schroder; then our CFO, Stefan Bauerreis; myself, Michael Buchsner, the CEO of the Stabilus Group.

As always, we'll start with some operational updates, which I will dive into. Then we'll go on to the financial results for the year. Stefan will present that in the same way Stefan will present the results by operating sector. After an outlook, which I will do for you, we'll for sure also have a Q&A session in place today in our call.

We start on Page 5 with our operational update. And yes, we had a very, very good year last year, despite of headwinds. You remember the calls we had talking about inflation. You remember the calls we had about the Ukraine war and the uncertainties out there. Sure, this will also continue in being uncertain. But for the year and now we could complete a record revenue of EUR320 million in the fourth quarter of this year for us. So we ended the year extremely good with EUR1.1 billion, which is 20% or 19% year-over-year growth.

The EUR1 billion revenue threshold we surpassed in this year, first time in the history of Stabilus. So it was a very profound and robust way up to passing now the EUR1 billion in our business and we had good growth in all the different segments. Particularly strong business, when do we had a strong business? We had in Asia-Pacific and the Americas.

Organically, to some extent, supported by FX, but mainly driven by operational belongings, the APAC revenue was 73% year-over-year growth and basically triple-digit revenue growth of 168% year-over-year in APAC with the Automotive Powerise.

So you remember back in 2020, when we invested despite of the corona crisis, heavily in our new plant in Pinghu, a completely new setup plant in Pinghu in China, which will be fully loaded by the year '24. And we indeed are actually outpacing that path towards the success of the Powerise in Asia-Pacific and are reaching extremely good numbers as we speak and this drove, particularly in Asia, a very good growth on the Powerise and automotive sector for us.

Americas revenue was also up 20%, 9% year-over-year organically, to some extent, also by FX, but also here, very good growth in Americas and driven by automotive and industrial sectors. So the organic growth rate of 34% in Automotive Powerise reflects the good position we have with our products in the automotive market at Stabilus.

Sure, as I said at the beginning of the call, the uncertainty is still there. We managed it up to here and now very good. We, as a Stabilus team always had in the main point, the customer, making sure that despite of all uncertainties of inflation, shipment-related topics, supply chain-related topics, the war in the Ukraine, the customer in the focus, delivering parts to the customer in time and managing this situation good and always with having our customers in the focus. However, as I said, the uncertainty goes on for the next financial year as well, Q2 as in the past year as well. Cost inflation on material energy side, still the Ukraine war and supply issues and not to forget the corona crisis, particularly China is still on. But that's all topics we'll talk later on in the outlook that we'll get there.

I would end over for the here and now to Stefan talking a bit about the financial results.

Stefan Bauerreis - Chief Financial Officer

Thank you very much, Michael. So first of all, welcome also from my side to the call. I would like to guide you through when we go into Page 7, the financial results and the key financial indicators that we have there.

On the revenue side, so Michael already explained it after a very tremendous good fourth quarter for the Stabilus Group, we were able to overachieve even the EUR1 billion sales, which is a very important one. And we finally reached the EUR1.116 billion in sales over the full year 2022, which leads us to an adjusted EBIT of EUR156.2 million in, and this is, we always have to say that in our preliminary risk financial results that we are explaining now. But this is a really big achievement and a big step forward with that EBIT number growth in the total number of EBIT of 15.7% compared to last years, which brings us to an EBIT margin of 14.0%.

You remember, obviously, what we made as clarification of our guidance in our last call on the third quarter, where we said we will come out with the 14.0% of our guidance. And at the end of the day, we really can say, despite all this uncertainty, we made it, we delivered what we promised. And I think that is a very good sign and a very good situation and something we have to be proud and we can be proud of. All these despite of high energy costs, which we're increasing in the summer months significantly, as you know, in Europe, but also this based on a very good operating performance that we have seen in the different business units, but also mainly in the different region.

Going now then to the profit overall. So the profit is at EUR104.3 million. So this is even a bigger jump and bigger step forward after EUR73.8 million in the fiscal year 2021. We achieved the 41.3% growth to come to the year-end values of EUR104.3 million, which is, at the end, a profit margin of 9.3% compared to the 7.9% we achieved in 2021. And this is obviously the major point to pay in on that significant increase in profit, that is for the operational performance. But also, as you probably already have seen in our preliminary numbers that we forwarded, also, there are some valuation topics in terms of mark-to-market valuation and the FX rates were very much in favor for us to even get there a significant higher profit on that level.

Free cash flow, so also that a very important number, obviously. Here, we managed to get a free cash flow after tax of 81.7% [Phonetic] compared to the last year, a little bit lower with EUR88.6 million in the financial year 2021. So this is, I would say, 100% due to the fact that we, from an operating perspective, decided over the years to invest and to use our working capital also to avoid, to reduce the threats on the supply chain issue, which at the end of the day, was exactly the right decision.

When you still remember about what Michael said about the revenues in the last quarter, so we were able really much to achieve. We were able to deliver the products to the customers. And even that, we were able to improve slightly the DIOs in that perspective. So this is one major takeaway.

The other one, as you already know, one of our important growth area and region is Asia. And in Asia, it's - I think that is commonsense that also the receivables, the day sales outstanding are a little bit longer than what we have in Europe and that is mainly the result out of that. So therefore, EUR81.7 million operating free cash flow after tax, which brings us to a net leverage ratio of 0.4 compared to the 0.6 that we got last year and comes us to a net financial debt of EUR88.4 million compared to the EUR107 million we had last year. And therefore, always this capability to reduce on a year-over-year basis this debt that we have there.

So I think overall, very good numbers to be achieved or what we achieved in the last fiscal year for us, ending 30 of September 2022. And going to the outlook there, there we have to say that still all this uncertainty that we already discussed will continue to be valid also for this year. And therefore, we believe that we be probably, with all this uncertainty in mind, we have - we will get this year in the range between EUR1.1 billion, EUR1.2 billion in sales with an adjusted EBIT margin of 13% to 14% and therefore, also a good step in the new fiscal year.

Going in the next Slide Number 8, going a little bit more in detail about the main KPIs that we have. And I start once again on the top left side with the revenues, the external sales that we made as a group. You can see there the split between our different regions with APAC, with Americas and with EMEA. Obviously, and I think that is double also we expected that the growth development of the different regions is significantly different.

So we are in the situation of being - and that is the good message in all the three ones, positive in growth. But also, I think that is nothing which is really extraordinary, EMEA region with the lower growth rates than Americas and especially APAC, which is - which contributed most for the growth in the year 2022 for Stabilus in the different business units activities and mainly in the Powerise area.

In the adjusted EBIT, as I already said, we were in the fourth quarter. That is the numbers we're talking here about. We were able to achieve the 15.5% on the fourth quarter isolated, accumulated, you remember, it's the 14.0%, which is also was really much expected that we have there in this. That we get there a better performance in the fourth quarter is also mainly due to the different setting of price increases on the one side and of price increases with our suppliers that we had to serve on the other side, which were more negative on that side in the first quarters of this year.

Profit-wise, 7.7% in the fourth quarter of last year, now 11.2%. So as a year, you can see a significant improvement, which is mainly driven by the positive development of the EBIT numbers. And therefore, I think, is showing us the very good achievements. Here also, in the fourth quarter, traditionally always is a very good quarter in terms of free cash flow. Also here, we will make a significant jump from EUR7.6 million in the last quarter of 2021 compared to the last quarter now in 2022. So jumping from EUR7.6 million to EUR37.3 million is, I think, a very good achievement and is also due to the normal deviation from quarter-to-quarter.

If we then go to the full year on Page 9. Once again, the same structure of the slide. Here, we can see the 19% growth in revenue, mainly also driven by the region APAC and Americas. And also there, we have to say that step-by-step, Americas will have the same portion of the full sales than EMEA. So the growth rates there, but also especially in APAC, are significantly higher tools get there more normal split between the region and not having any more of this very dominant numbers coming out of the region of Europe.

The adjusted EBIT figures on the top right side, 14%, I already talked about that. So we really are proud that we can here clearly explain that we met the margin and the guidance that we promised last time in the end of three quarters. And despite of - despite these uncertainties that we have on material and energy side, with a good performance, mainly in the last quarter, as I already explained.

Profit-wise, also here, you can see the full year this significant improvement. I already explained that in detail when I made the summary page with the significant portion here also is coming out of the EBIT development and the adjusted free cash flow. Here, we have a slight reduction. And here, the slight reduction is mainly due to the increase in working capital. But this is, from our perspective, also was very important to maintain also a very good delivery to our customers and not risking here anything which was one key success factor also for the year that we just finished.

Going now to the Page 11 and going a little bit more in the different regions. What I would like to explain you on that side, here, once again, starting with the revenues. So you can see, as I said, even in EMEA, in a very difficult environment with all the Ukraine wars, with the energy discussions with material, discussions with losing confidence of our - of the end customers, of the end consumer that we can see all the day when we open the television and see the news.

So in that perspective, even getting the growth rate here was, from our perspective, a good development. This good development mainly is driven by a very good performance of our strong industry business, which was increasing by EUR10 million from last year to this year and also is the main driver of our sales in the region EMEA, growing significantly also in different areas like construction machines, like also using the recovery of all the bus market, trucks and also even when the numbers are smaller on the aerospace business, which is really much helping us.

Powerise and Automotive Gas Springs is really much, I would say, quite stable in that perspective. Also here, we can see that we have a good development in the full range of - in the light of the light vehicle production, which was at the end of the day with a minus 7% in the full year compared to the financial year 2021. So with that, let's say, headwind even to achieve these numbers, I think that was a good development overall.

Powerise, you can see on the right side, significant main customer projects that we - that supported our growth there with BMW, also with other ones like Tesla, like Mercedes. I don't want to get all in that at the end of the day, but I think a very good development also in automotive side. Having in mind that the light vehicle production was reducing by 7%, industry, obviously, with a growth rate of 6.9% significantly improved. I already explained the different areas where we are, here in that situation.

Going to the EBIT numbers. The EBIT numbers here, we have to see that they are mainly impacted by increasing material and energy costs, also freight costs are increasing there. And on the one side, what helped us in the light of FX rates with the U.S. dollars of having for the full group, a higher level of sales when we're converting them in euro. Here also, as we have some purchases in U.S. dollar, there we have a slight negative impact out of this currency impact. So that is what is coming down to that development of the EBIT. And nevertheless, I think, a good development.

Continuing with the region Americas on the Slide 12. Also here, you can see a slight different picture in terms of importance of the different business units. So here, this is more one-third, one-third, one-third more or less now in the year 2021 with a good development of industry sectors and a significant growth also in Powerise. But also, we have to say that the Gas Spring market was good developing overall. This always having in mind that the light vehicle production increased by 3.8% compared to the prior year and therefore, a significant different situation compared to EMEA.

Once again, and you know that, obviously, that this growth that we are showing here in euro currency is also impacted by currency translation impact, which is - explains a good portion of that positive development. But nevertheless, with an organic growth of 9.3%, I think we are really much overachieving the light vehicle production that we've seen in Americas in the last 12 months.

Once again, on the right side, some major customer activities where which are driving the higher production also on Powerise area with BMW, with FCA, with Chrysler, with Ford and in all our major customers. So the good thing also there is it's not one single customer, one single project, which brings us the additional growth. It's really much overall the full variety of our customers.

Not forgetting the good development of the industrial revenues increasing by 21.2%, which on an organic level after taking out all the FX effect is still a growth rate of 10.7%. So also there, with heavy trucks, with agriculture, with customized vehicles, these are the major areas where we were able to achieve a significant growth on that side.

So with that positive volume impact, so it's obvious that we also, despite of also additional material costs that we suffered in Americas, we were able to overachieve that and are increasing not only in total numbers the EBIT compared to last year, but also at least being on the same structural level with 3.5% or 3.4%, keeping that area on the same level, which I think is also very important and very good for us.

Finally, the region APAC. APAC, there, you can see tremendous growth rates overall. And when you have a look on the revenue side, the biggest growth area that we can see here is the Automotive Powerise business that we can see here. So the light vehicle production is, we can say it's just increasing by 5.7%. Our overall revenue side is increasing significantly higher than the light vehicle production increase promising to us. And this is due to the fact that we're really achieving of getting more and more customers and more and more activities with the Powerise business where we have a significant growth rate jumping there for EUR49.2 million sales last year up to EUR132 million in the fiscal year ending September 30 of this year 2022. So therefore, a tremendous growth and that we have to say even despite the fact that we also had in our plants during the fiscal year, a certain period of shutdown, which we were able really much to organize and to manage in the best possible way. But nevertheless, also that is to be mentioned that despite these critical factors, this high growth rate was, we were able to achieve.

Not forgetting with all that, that we also have on the industrial side and a significant growth rate of 25.4%, knowing that in APAC, still the business unit industry is not on the same level in terms of total sales that we have on the automotive side. But nevertheless, I think also here, the growth rates are showing exactly the right direction. And so here with construction machines, with customized vehicles, I think we are on the right track, here also getting the improvements.

Not necessarily to say that with those growth rates in terms of sales, we also were able to achieve a significant improvement of our EBIT situation. And this is also despite the fact that we have some material increases that we serve all over the world, but mainly the volume impact and the - as Michael already explained at the beginning, the good decision we took some years ago in corona to be there and to have their own production in China for Powerise. I think this is absolutely now paying back and helping us in that situation.

That brings me to the point on the Page 14 to summarize the - a little bit overall, global light vehicle production. We see of 2.3% in the financial year 2021. We have a significant overachievement on the Powerise area, obviously, also a good development in the Automotive Gas Spring. And industry revenue is increasing about 10.3% year-over-year and therefore, also providing us a significant good development in that area. So all three business units, all three main activities in the market on track, I would say, with a good growth and a good development.

This having said, I give back to Michael for more details regarding the industrial market.

Michael Buchsner - Chief Executive Officer

Yes. Thank you very much, Stefan. Talking a bit about the industrial revenues by market segment. We are actually on Page Number 15. We have a very solid performance overall, right? The industrial revenues were at EUR415 million sales, which is an up of 10.3% year-over-year or EUR38 million - almost EUR39 million year-over-year.

We have a certain concentration on our business, yes, here on the four different segments. And we've been developing particularly good in the areas where we want to develop and which are actually driven by the most content in terms of technology because we are a technology and the technologically driven company.

So first of all, our distribution independent aftermarket and e-commerce sector did enjoy good growth from a share of 36% to 38% by stat. A lot of distributors are actually along with the independent aftermarket still taking care of used cars, pre-owned cars in the market out there and guarantee that we sell our product in the aftermarket as well, which leads to superior sales. This is driven because on one hand side, still some of the electronic components are missing, which causes that they are not cars - not produced to the level one would wish. However, on the other side with higher inflation, people try to push out investments. And they, in many cases, also then invest in the existing vehicle fleet by just exchanging part, which actually along with e-commerce, which is also on an increasing path for us, selling by web shops leads to an increase of our sector distribution independent aftermarket and e-commerce as you see it here in the page.

Then we have the mobility sector. The mobility sector is actually unchanged, 28%, which is remarkable because you know all these difficulties in terms of the Ukraine war in conjunction with harvesting equipment, which was not - which plays into that category, drives a lot of headwind. And despite of that, we also saw that the aerospace business actually came back after the corona crisis now in a better way than before. And this did help us in the sector. So this is, and stays at 28% in terms of revenue share.

We see a softer market in the health care, recreation and furniture market, plus driven also by the pull ahead effect of COVID we saw in the years '20 and '21, when everybody tried to get this new home office equipment, health care and recreation area in general did appreciated boost. So this is kind of a rebound effect, which we, in a very good way, balance, counterbalanced by the other segments, which drive and require a higher level of sophistication and technology because as we Stabilus are a technology-driven company, we anyway concentrate on these new technologies.

Talking about it, let's go to energy construction in industrial machinery and automation. This also appreciated good growth because that's really our home terms as well, talking about machinery equipment, talking about how we can dampen movement in the industry, how we can accelerate things with our products and how we can move masses from one point to the other industrial shop floor. And in conjunction with actually a very good order book, we achieved to grow that segment this year from 17% in '21 to 19% in the year '22.

So overall, a very balanced and good revenue split between the market segments for us with a strong focus on the high technology parts, which we, by the way, always promise to do and also will continue in the future in terms of our main turf of investigation and investment, right? “Your motion. Our solution” is our slogan. And with that, we continue to invest in technology, in comfort and that's why we are particularly strong in this technology marketing segment here and then in the future.

This brings me to the Page 17, the outlook. In the year 2022, we achieved EUR1,116 million, so EUR1.116 billion in sales with an EBIT margin of 14%. For sure, we had headwind, as I said at the beginning and also Stefan outlined at several times, despite of this headwind, we had very good results this year. And for next year, we expect a growth range in terms of sales of EUR1.1 billion to EUR1.2 billion sales with an EBIT margin between 13% and 14%.

Yes, the underlying numbers, the global light vehicle production is soon to grow 4% year-over-year, 23% versus 22%. That is 84.6 million vehicles in the year 2023 versus 81.4 million produced in 2022. According to IHS, the wider range of revenue, which we've given in the same way than the wider range of margin is basically driven by the results or in our result out of the current macroeconomic and geopolitical situation like the COVID shutdown risk, which we still see in China, material and personnel cost inflation, the risk of political unrest, which is without a doubt in the air. And this drives us at the end of the day to this wider range of guidance for the coming year.

And however, based on our strategic pyramid, as you all know and we've been sharing it several times, we continue our path to a long-term strategy, focusing on the profitability and sustainability of our business. Employee satisfaction for sure, having the customer in the center of our deal along with innovation and sustainability.

So innovation, as I said at the beginning also in our market segment, this really our key focus because only those companies who are innovative and bring new products on the market can on the long run outpace market growth. And this is certainly our aim. And you see that also in our strategic pyramid as we stand. That's about our guidance.

With that, I will hand over back to our operator to lead the Q&A session for us.

Question & Answers

Questions and Answers:

[

Operator

Yes. [Operator Instructions] And the first question comes from Akshat Kacker. Your line is open.

Akshat Kacker - JPMorgan - Analyst

Good morning. Akshat Kacker from JPMorgan. Three questions from my side, please. The first one on cost inflation. Is it possible for you to give us a final update on the gross and net impact of raw material and energy inflation on your P&L for the full year fiscal year 2022, please?

The second question is on the industrial business. Can you please talk about the inventory levels at your distributors? And if you could also comment on the order intake in the last few months, are you seeing any signs of a slowdown or generally happy with the forward-looking order book at this point?

And the last question on the APAC region. You've obviously had a very strong year in Asia, delivering more than 19% margins. Can you just talk about the sustainability of these levels going forward? Any key risk factors we should consider when thinking about this region? Thank you so much.

Michael Buchsner - Chief Executive Officer

Thank you very much, Akshat, for your questions. I'll give it a start and then for sure, also Stefan will kick in to give some more details.

The first question was on cost inflation. Just in the rough numbers, we saw a cost inflation on the material side of anywhere in the range of 3.5% to 4% this year. 3.5% to 4% of this year actually was mainly driven by the category steel where some in some months, we've been even up by 8% to 10%. And on the other side, was driven to certain share also by the plastic resin area. And here on the plastic resin component side, overall, I would say, it was also in the range of 4% to 5% inflation. So those were the two main categories for materials, which did lead us into a 3.5% to 4% increase on the material side.

On the energy side and its impact on the P&L, one thing is the energy point concerns mainly Europe, for sure, not the other regions. As you very well know, 50% of our revenues is done in Europe. But only I would say 25%, so half of this 50% are really impacted by energy price increases because when we talk about energy price increases, it's mainly the plant in co-plant where we produce steel products and to hardening and other energy-intensive processes would be consider as an impacting factor here.

And here, for this particular sale, the impact of the energy inflation would be in the range of 1%. So that means doing the rough mathematics, it is then pretty easy, it's on the material side, global scale, 3.5% to 4%. You had 1% for the 25% of the business on the energy side, then you're in the ballpark of the P&L impact for the year '22. And this is actually, for sure, something which made our life extremely difficult towards this year. There was the headwind we've been talking about every quarter. And this headwind, we had to fight by increasing prices to our customers. And this is and we talked also about that in the past quarters was our main doing for the complete year.

So we met as a management team every week to go through customer by customer and business unit by business unit, segment by segment, the increases in order to fight ways to pass on this effect of inflation to our customers. That's something which we did for the past year and we'll continue to do that. Why is that? Yes, as we already stated in the chorus before, there are effects which you now need to monitor with your customers, how they find its way into our book still because you typically negotiate with the customer after the fact, so some of this still has carryover effects, which are also for sure, considered in our doing.

On the other hand side, we all know how volatile the energy market is. So this has, by far, not reached an end. Yes, nowadays, energy costs are coming down a bit. But who knows if the winter becomes stronger as it's currently, and if geopolitical unrest continues, who really knows how the energy costs will develop in the coming future? And just remember, energy means, in our case, gas and electricity mainly concentrating on the 25% of sales we have in Europe. So that's the first point.

And then on industrial area, I know, Akshat, where your question is coming from, and the question is a very valid one. So because if you look into the industrial side, a good indicator how the business will eventually go is for sure how are your order books filled and how much inventory would you have on hand? In our case, actually, the inventory - inventories are on a decent level. They are higher than in the years before because we did succeed very good sales. And year-over-year, we did grow more than 10% on our industrial business because when our customers with other suppliers had no product on hand because components are missing, material was not to get anywhere anymore, supply chains were empty, logistics change were impacted, we were there with products.

And this is why we took the conscious decision to put some more product on the industrial side on the shelf, which is still there, by the way, because the situation somewhat continues. And this actually made part of these good numbers we now today talked about. And this is something which we see.

So however, talking about the outlook a bit, we, for sure, like everybody else in the industry see clouds on this time. Why is that? You see a certain softening in some areas of the business. Like if you take on the automotive side, the standard Gas Spring is a good indicator on how the business would develop in the coming months. Here we see some softer call-offs driven by just inflation, right? The question is how does the inflation continue? And can people afford in this inflation situation buying new cars? We are kind of buffered to a certain share, as you know. We have also the independent aftermarket. So those who decide not to buy a new car also buy some of these products out of the independent aftermarket, which has us with good margin.

However, the overall point on the automotive side is, yes, we see a softer on standard products, not on the Powerise side. On the Powerise side, we still see good order intake, mainly driven because this is the luxury segment, the upper segment of the cars. And we are written in all kinds of prices and I think you do the same that luxurious vehicles and luxurious products are generally growing still. And this also the assumption to happen in the next year, who know - nobody knows really, if that happens, but this is for here and now the picture.

On the industrial side, we see in - we have a different visibility, right? On the automotive side, we have a visibility of six months. On the industrial side, it's in the range of one to three months only. And here, we still see good call-offs. So we are in a good position also to kind of supply with our inventories and with our general doing. However, the situation is not as bad as before means we see also in the call-offs of our industrial applications that there is towards the end of the year, some softening. And pretty much, it will be depend on how early next year goes, how the inflation continues, if this trend to softening also carries on in next year. Or if early next year, things get better, right? Because if the inflation rate return to different levels again and this situation is somewhat under control, then it could very well be that things kind of return back to more stable and stronger position.

Now your last question, and then I will for sure hand over also to Stefan if there are additions to that, was in terms of APAC. 90% margin, outstanding result, it is sustainable. And we see very good growth rates in Asia still outpacing the market growth also in the next year. And if you look into the latest IHS GDP numbers from October this year, it says that China even will grow better than the prognosis was a couple of months ago. It will be growing 3.3% next - 3.3% it did grow this year and 4.5% it will grow next year.

So we see this growth trend to continue and particularly on the Powerise side, we see and we see that also on our presentation, a very good order intake on a long run. Because if you look basically on the page where we talk about, the business details of Asia Pacific, you see this organic growth impacting us, right? The Powerise growth was a high production of whatever as Geely, Zeekr, GHC models, various Hyundai platforms, and at the end of the day, Tesla Model 3, Toyota, Highlander, Sienna, Corolla. So name it, also in the same of traditional customers like VW, very strong growth on the Gas Spring side, but also very strong growth particularly on the Powerise side, as I mentioned, with all these different launches in this year.

So what does this mean? We follow and out pass the pace the path we've been defining a couple of years ago. And you remember back when we opened the Pinghu plant, I always mentioned in the quarterly review, it will be fully booked by the year 2024, which is still the plan and the case. So the growth is there. The growth is there on the Gas Spring side, the growth is there on the automotive side, in general terms with the Powerise and on the industrial side. And growth is certainly the driving factor for margin and margin sustainability. So from our perspective with the numbers we have on hand - with the numbers we have in hand and the growth perspective, we see this margin of 19% being sustainable. But also here, I hand over to Stefan for also your insight, Stefan.

Stefan Bauerreis - Chief Financial Officer

Okay. Thank you. I think I mainly would like to focus in my addition on the question about the inventories in APAC. I think regarding cost inflation that is already very good - very in detail explained. And I just would like to add on the inventory side, one or two comments.

As Michael said, it was a clear decision from us to say we would like to run with a higher level of inventories despite the fact that this, first of all, cost some money in the free cash flow, but we need a high delivery reliability, which, in fact, was also an important factor for our growth and will remain being one important factor in the growth. The good thing is there and I think that is important because when you - normally when you get the information, inventories are increasing. So the inventories of today are the write-downs of tomorrow. So that could be a first interpretation from an outside in perspective.

In this case, I really - I'm very much enthusiastic that this will not be the case. Why? The reason is quite simple. We do not have so many finished goods that we believe we can sell one day to the market in our warehouses. But we have the major increase of our inventories is raw material. And this is exactly to follow our strategy to reduce the supply chain issue. And with the raw material, we have a very high security that also those materials we will be able or we will be able to use for our future growth and for our future production and future sales. So therefore, the risk, the potential risk in our inventories quite frankly, I do not see them at all. That's a very important message we have to know when we're talking about inventories. We have the right inventories on hand. We have the raw materials on hand. We do not have too many finished goods on hand.

Second point impact sustainability of the development. Yes, indeed, we have a significant growth rate in Powerise and this obviously will continue with the additional wish to get more comfort in the cars. We also see the tendency that those people who are buying electric vehicle and this is in the - based on the idea that this is all the new technologies, quite frankly, they do not want to buy a car with immobility in there on the engine side and then open and close the kit manually. They want to do that with the help of our products. And therefore, these tendency, these major trends will continue also in that perspective.

And that's why I have to say, yes, it was absolutely the right decision from a strategic perspective, being there with the local presence and having that in place, which allows us really much to react in a fast way in order to increase the volume and to follow that growth rate. You have to see 100% growth rate. That is really a big number that we achieved this year. Don't believe that 100% will be done now every year. This is not doable just from a mathematics point of view. But at the end, the sustainability of all those topics is very much in line and we see that with a good level of comfort.

Akshat Kacker - JPMorgan - Analyst

That's very comprehensive. Just two quick, maybe two follow-ups, very quick ones. The first one on inflation. Have you already finalized the wage increases in Germany? Are the negotiations done when it comes to wage increases? And the second one, a follow-up on Michael's comment on Gas Spring, you're starting to see some call-offs. Is there any specific region where you're seeing these call-offs? Or is it a general comment globally?

Michael Buchsner - Chief Executive Officer

Thank you very much for your follow-up questions, Akshat. So first of all, no, the inflation wage increase they are not done yet. The negotiations of the [Indecipherable] particularly in Germany, are still ongoing and also typically wage increase rounds in Asia and in North America happening towards the end of the year or early next year. So that's not done. But however, we have our budget to make up for that and they are considering higher inflation than in normal years. That's the first point.

And the second point, in terms of Gas Spring, the comment was a comment in terms of mainly Europe. However, there is also some impact in Asia and North America, but limited to way less than in Europe. So in Europe, we see a softening on the automotive side in standard vehicle towards the end of the year.

Akshat Kacker - JPMorgan - Analyst

Great. Thank you so much.

Michael Buchsner - Chief Executive Officer

Thank you, Akshat.

Operator

Okay. There are no more questions. [Operator Instructions] There's a question from Marc-Rene Tonn. Your line is open.

Marc-Rene Tonn - Warburg Research - Analyst

Yes. Good morning. I hope you can hear me, there seems to be some transmission problems that the question could not be registered at the very beginning. So firstly, coming back perhaps to what you are expecting for the current year, particularly when it comes to profitability. I think there's very strong finish to the year and giving that you are expecting, let's say, some positive spillover effects probably from the price increases, which, let's say, increasingly helped you to improve profitability in the second half of this year. I would expect the year to at least start on a bit stronger note when compared to the previous year although you're expecting, at the midpoint, the profit margin to be a bit down compared to last year. Perhaps you could give some more detail on what you would expect in terms of phasing or whether you have, let's say, included in your estimates a rather cautious approach when it comes to, let's say, passing on for the price increases to customers, that would clearly be helpful.

Secondly, we are seeing the strong appreciation of the dollar compared to the euro in the last fiscal year, perhaps you could give us some indication on, let's say, the exchange rate you are basing your expectations with regard to top line development in the current fiscal year when it comes to the euro-U.S. dollar exchange rate, what your expectations are which are in there?

And then thirdly, particularly looking at this big outperformance, the outperformance you overall showed last year. And you said you had organic growth of, let's say, 14 points - let me, sorry, 1% to 2% in the full year. Could you give us, let's say an indication how much of that was price and how much of that was basically volume?

And looking at the strong Powerise business overall, could you also let's say, give us some indication there? Is this purely volume more or say a big price component in the - when we look at these strong organic growth rates, particularly in APAC and North America? Thank you.

Stefan Bauerreis - Chief Financial Officer

Okay. Thank you for the set of questions. So I will try to start step-by-step with the different questions you had.

First of all, starting with the profitability. Yes, indeed we had a very good fourth quarter, which also was expected due to the fact that - and there, you are right, we first suffered the material cost inflation on the cost side and price increases, whatever we were able to manage with the customers are always coming later on because then you need to show also some proof whatever is your own cost base. You won't get the price increase with the customers just by telling that the world is difficult. So that is indeed something what is helping us or what helped us during the last half of the fiscal year.

In terms of do we have there a significant carryover, so we have to say that all we were able to manage with our customers where it's not only continuous price increases, but also for some instances, onetime issue. So at the end of the day, the positive carryover for this new fiscal year is, in our view, quite limited. And that - and also, in fact, that we have to see in part, what we were talking mainly about was material price inflation.

And only, I would say, during the last month, we were able to start also the discussion with our customers about more and more getting in line with the energy price increases. So there, there is still a significant way to go. So therefore, currently, I would be not in the situation saying, yes, there is an absolute positive carryover for the full year in terms of overall compensating what we get on cost. So this is unfortunately not the case. And we have to be careful also on that perspective with that very volatile energy prices, which with such a high volatility, you know that this makes it even impossible to, let's say, to secure prices for a longer period of time because they would be tremendously more expensive of what we see now when you're looking at what are to be paid on spot market, what have we paid on, if you pay energy for several months or for a year to get there more clarity and more comfort in there. So the prices are significantly higher. So therefore, it's - I think it's currently not recommended to do that due to this significant high volatility and higher volatility that we know from last year.

U.S. dollar, you know that this obviously helped us in the last year when we're talking about the top line on the revenue side. When we have a look at the overall perspective, we have to say that the increase in dollar is not only a chance, it is also on the expense side as certain threat, because there you're buying in U.S. dollar more expensive than you bought in prior month when you're converting that in euro. So that is something we have to see how this will continue.

We are now calculating with the U.S. dollar to euro with more or less 1:1, so with an exchange of $1, EUR1 more or less. So that is the assumption, which is really much in line with what we see currently. So therefore, no real deviation to what at least we can see actually end of October or beginning now in November. So that is a little bit the point what we are calculating. So therefore, the positive support on our - just having a look at the revenue side, which was really much in the last fiscal year, supported by a significant positive FX effect on just the translation of sales in U.S. dollar into euro, we would not see them anymore. So therefore, a portion of that growth is not included anymore in our sales forecast because we do not believe that the U.S. dollar or at least - it's not a question of what we believe. It's a question of what is the assumption. The assumption is that we keep at the 1:1 and therefore, additional support by FX effects, at least probably will not come this year, and this is also reflected in our forecast for the next years - over the next year, sorry.

Marc-Rene Tonn - Warburg Research - Analyst

Coming back to APAC and the big outperformance, was it, let's say, more a reflection of, let's say, growth in addressable market? Or did you, let's say, gain market share significantly when it comes to Powerise when we see, let's say, the three-digit growth numbers which we have posted and compare it to the overall market growth in that region? That would be helpful to get some more color there.

Michael Buchsner - Chief Executive Officer

This is basically driven by local and global car manufacturers, who are increasing fitment rates and recognize now very well that particularly the Asian customers and Chinese customers are seeking for more comfort. And this is why the take rates are increasing on the existing cars, but also models are newly equipped with Powerise for platforms to start. And this is where we have a very solid plan also for the coming years, that this trend will continue because if we, for example, the development times of such products is in the range of three to four years. And that means we are now awarded and our board books are very solid. We now awarded with the products, which make it in the market in three, four years from now. And this is why we see this tremendous growth, and that's why we also built the plant in Pinghu to keep and cope and deal with this solid market growth.

Marc-Rene Tonn - Warburg Research - Analyst

Okay. Thank you.

Michael Buchsner - Chief Executive Officer

Thank you.

Operator

There are no more questions.

Michael Buchsner - Chief Executive Officer

Okay. Good. Thank you very much. Thank you very much to everybody for the participation today and I wish you a good rest of the week. Thank you very much.

Stefan Bauerreis - Chief Financial Officer

Thank you also, bye-bye. Good weekend.

Michael Buchsner - Chief Executive Officer

Goodbye. Bye everybody.

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STMICROELECTRONICS NV

Q4 2022

Earnings Transcript

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