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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Dear ladies and gentlemen, welcome to the press presentation of the Q1 2019's result of First Sensor AG. At our customers' request, this conference will be recorded. [Operator Instructions] May I now hand you over to Dr. Dirk Rothweiler, CEO, who will lead you through this conference. Please go ahead, sir.
Thanks, Mr. Kroniger. Ladies and gentlemen, a warm welcome to our Q1 2019 interim report. The report itself was published this morning, so you had a good opportunity to have a thorough look at it. Also, previously, on our shareholders annual conference, we have released preliminary Q1 figures already, so there was quite some material, which was published today. So Mathias Gollwitzer and I myself will focus on the key results today, and then after that, open up the Q&A session.Mathias will start with the revenues and EBIT.
Thank you, Dirk. And also on my side, welcome to our press conference and Q1 presentation.On this Page 2, you can recognize a certain success story of First Sensor. Overall, we have achieved revenues of EUR 41.4 million, and this is exactly in line what we have already reported the quarters before the Q1 2019. So overall, around EUR 40 million, and this is reported over the last 3 quarters already.We have also achieved a certain EBIT margin, accelerating from the Q1 2018 to the last quarter in 2018. And we can confirm the same level of EBIT margin also for the first quarter of 2019, a written achievement of 9.9%. This EBIT margin is an outcome of our top and bottom line work, and without any one-timer, so to say, so we do not have any positive or negative deviation based on events, which don't have any relation to our ordinary work. And the achievement in terms of revenues is based on an increase in our product family, which is called photonics, comprising the optical sensor business, and also relates to an increase in revenues in the second very important product family, which is called pressure.In the photonics, we can remark a certain increase in our imaging solution business and also an increase in our standard products, which is called H series. So these 2 are main drivers based on products in our revenue stream for the first quarter 2019.For further explanations, I would like to hand over to Dirk now.
Yes. Thanks, Mathias. If you have a good look at Slide #3, you will find a breakdown by the markets we are serving.Starting with the left-hand side, you see Industrial, which presents slightly more than half of our revenues. You see a plus of almost EUR 6 million, a nice increase with respect to Q1 2018, which amounts to like 25% growth. This growth was achieved by both the photonics and also the pressure group. And also, we had good support from Asia and North America, as I will explain on the next slide.Second, in the middle, you'll see Medical. We have a plus of almost EUR 2.5 million versus Q1 2018. Also, in this case, the growth rate is about 25%. This is mainly driven by digital imaging solutions for medical diagnostics applications, so this comes from our photonics group. And in the area of respiration that means pressure that is also a positive versus Q1 2018.Mobility is slightly less than last year, about EUR 1.3 million, which is a decline of like 14%. This is in a way mirroring the trend we've seen in the last year 2018, which was impacted by volatile political environment and also in a shift of order behavior of the customer. This is not a trend that we see long term. So going forward, we are expecting that we can recover in this area, also supported by new products, particularly in the area of camera systems. So midterm, we see also Mobility as a strong growth contributor.If we go to Slide #4, you find the breakdown of -- I mean, by the regions. As you know, we are pretty strong historically in the Germany, Austria and Switzerland region. From Q1 2018 towards Q1 2019, we are recording a plus of EUR 1.9 million, which corresponds to a growth rate between 10% and 11%. The drivers have both been photonics and pressure. And the important results that the slide is showing is the growth in North America and also in Asia. Also here, we see EUR 2 million for North America and EUR 1.9 million for Asia, which is, in terms of absolute numbers, equaling and slightly exceeding what we've done in Germany, Austria and Switzerland. Obviously, both of the North American and also the Asia-Pacific regions are still smaller on an absolute base in terms of revenue contribution, so the growth rates in both cases are above 50%. And this is a result of the investments we've done in the years before, building up with a few people, particularly in China for Asia Pacific, and strengthening also our team in North America with a better orchestrated cooperation with the German for [ Simmons ] sites we have in past years achieved to penetrate new customers win new orders. These orders are now coming to volume, so that we have this nice results visible in the first quarter of 2019.I give it back to Mathias.
Yes. Thanks, Dirk. Now besides the profit and loss statement, a discussion about our revenue stream. I would like to focus now on the balance sheet. For the Q1 2019 in comparison to year-end 2018, there is not a big, I would say, deviation. However, I would like to explain to you the current situation.On the left-hand side of these 4 bars, you see the year-end 2018 and the first quarter, it means the 31 March, 2019. And in terms of the repartition of our balance sheet positions, you see that the noncurrent assets are almost on the same level as year-end 2018. The inventories have been increased from EUR 24.6 million to EUR 32.2 million. And we have also a slight decrease in terms of inventories in comparison to what we had end of last year. The main reason for this increase in terms of inventories is that we do foresee a certain demand in the second quarter of this year, and we have prepared some of our finished goods already in the first quarter. However, this increase is now in our focus and we have started some projects in order to optimize our volume that we have in our inventories.On the right side, you see the structure of our financials in our balance sheet. So we do have certain equity level of EUR 88.8 million, also a slight increase in comparison to the year-end 2018. And we are on the same level in terms of our financial liabilities, which amounts to EUR 48 million. In comparison between our investments and what we have financed, you see that we have a good level in terms of the long-term financial stability of First Sensor, namely, the equity and the financial liabilities cover almost the complete balance sheet on the active side of the balance, meaning the noncurrent assets, the inventories and even the accounts receivables.In terms of cash, we report EUR 30.8 million. This is slightly higher in comparison to what we had in the year-end 2018. Net working capital is almost stable. Just a slight remark that we focus now on the optimization of our inventories. The equity quota is little bit higher that -- in comparison to last year. And net debt decreased slightly from EUR 19.5 million to EUR 16.7 million. So overall, I would say that our balance sheet structure is strong. On the next page, we discuss our cash flow statement. In my point of view, good news. The operating cash flow has been improved in comparison to the first quarter 2018 amounting to EUR 5.5 million, due to mainly the improvement in our bottom line management. The good EBIT development helps us also to improve our operating cash flow. And the free cash flow is also due to that positive development. A good news, we report now EUR 3 million for the first quarter of 2019, which means an increase by almost EUR 5 million in comparison to what we have reported in the first quarter of 2018.Our investments that we undertook are mainly focused on our camera business, which is one of our most important cornerstones for future growth in terms of putting the camera business into our target markets, Industrial and also Mobility. And we will furthermore invest in new technologies and also in new business opportunities for the future. And we are, in my point of view, well prepared for doing so based on the cash statement that we have. Therefore, I would like to hand over again to Dirk now.
Yes. We then would like to confirm our guidance based on the revenues accumulated in Q1 and also the order backlog with a book-to-bill slightly above 1. And we are expecting revenues for the entire fiscal year of EUR 160 million to EUR 170 million. And also, with the good start into 2019, we are confirming our EBIT guidance and expect between 8.5% and 9.5% EBIT rate.There is opportunities and risks, of course, which are shown on the next slide. So regarding sales, they're still the strong market for our sensor technology. This is true both for our optical photonics and also the pressure products. There is growth expected by external experts between 7% and 8%, compound annual growth rate from here to 2022. Again, the order backlog of EUR 98.4 million is slightly higher than last year and 70% of these orders are expected to ship in this fiscal year. So this means that we can expect further progress along our strategy to build economies of scale, which will in a natural way help us to increase our profitability. On top of that, we continue to work on operational excellence. And this year, we have a good position to build on what we have achieved in the previous year.And last but not least, value-added products along our forward integration strategy become mature and the first of them have been launched to the market as we have announced in the last year. And also, here, we expect for us, revenue contributions impacting our product mix in a favorable manner. So on the risk side, obviously, there may be a slowing economic growth. The indicators predicted by external authorities have been reduced in the last year. And we are staying focused and we are keeping attention on what lies ahead of us. Obviously, there is still a lot of discussion, particularly between the U.S. and China right now, and this may impact other markets as well. We have reported to you that in the last year, there have been allocation issues for some of our suppliers, so that managing our supply base became more of a priority, and this is still a topic that is on our radar and that we pay special attention to. And then, obviously, as we focus on building revenue blocks with large scale customers, these may change order behavior, which means, on the profitability side, there may be changes in product mix that may impact EBIT rate, if economies of scale go down for certain customers, this may impact the EBIT rate. We have -- one of our operative excellence measures started to convert the [ Frankfurt ] and Berlin from 4 to 6-inch. Should there be delays, then this would push out the benefits of this transition. And obviously, wages and salaries may increase as well as material prices going forward. All in all, we feel confident with our guidance to come out between EUR 160 million and EUR 170 million and show an EBIT rate of between 8.5% and 9.5%.So ladies and gentlemen, this will now bring us to our Q&A session, and we will be happy to answer your questions.
[Operator Instructions] The first question received is from Winfried Becker from Pareto Securities.
Two questions from my side. First of all, looking to the sales performance in the first quarter. Could you comment a little bit how the selling prices and the volumes have developed in the first quarter? And the second question I have is about the Medical segment. Few days ago, you released a press release that one of your customers, endoscopy company, has significantly increased or announced to increase significantly the volumes in the upcoming quarters and a wonderful news so far. And my question is, if you could handle this with the existing capacities you have? Or is it necessary that you look for some increases there? That would be helpful if you could clarify that.
Yes. Thanks, Winfried. So your first question was relating to the development of sales prices. I think this has been a very important topic for us, that on one hand, we are able to position ourselves competitively in the markets and comply with market expectations, but on the other hand, also reach agreement with our customers, which acknowledge and honor the value-adds that we are bringing to the table. And as a result, we have already 2, 3 years back started initiatives on our sites that takes us away from cost-plus calculations towards value-added pricing. And this also has been supported by a process that is of a certain amount of order [ really ] volume that is an approval process that either [ Marc ] , Mathias or myself. So after this has been standing practice for at least the last 2 years, we see a positive impact in our average net price development, and respectively the margin development and we can confirm so for Q1 2019. Again, I wish to point out that our interest is to engage in fair pricing that reflects the value that we bring to the table but that also keeps First Sensor as a competitive player in the market. Your second -- third question was referring to volume development. If I got your question right, this further refers to our strategy to continue building economies of scale. And that is -- initiative was started at the end of the first half of 2017. And you are right that you cannot expect immediate impacts. But we are 2 years behind that milestone now, and you can obviously expect that there was an impact. We have seen this impact in the last year already. Many of our customers have increased the purchasing volume with us, and we do benefit in terms of increasing the scales with many of them. And this also shows in the EBIT rate that Mathias has explained. And last but not least, you were referring to a specific release that we were informed by one of our leading digital imaging customers in the area of endoscopy that they are increasing their demand for this year. And obviously, we have capacity for that. We're prepared to build excess capacity. If you have followed other of our press releases earlier on, then also in the field of digital imaging applications, in the area of medical diagnostics, other customers are also increasing their forecasts with us. And I can confirm that, in that area, it means that we bring more hands to the third floor in order to grow as the demand goes up. So it's a couple of 3 to 4 of these customers engaged in digital imaging for medical applications. And the demand is rising in similar ways for all these customers, which is a very positive trend in our mind.
[Operator Instructions] You will receive the follow-up question of Winfried Becker again.
Yes. Here I am again. One question to the P&L I have. Looking to the financial result in the first quarter, with a minus of EUR 0.2 million, which is significantly lower compared to the first quarter in '18, but also significantly lower than in the last quarter of fiscal year '18, which was EUR 0.6 million. And so for my question is that looking forward, more or less a sustainable level that you could lower the negative financial result. Or are there any kind of one-time effects included? That will be helpful.
Yes. Mr. Becker, that's my turn now to answer your question. First of all, in this comparison between first quarter '18 and '19, we have to take into account that, in '18, we did have a certain challenge in order to optimize our structure in our hedging policy. So we have stopped the complete hedging instrument and focus now on the day-to-day transfer of currencies. So this is one explanation for this tremendous deviation between the 2 quarters. And for the year 2019, the level will be at this amount between EUR 200,000 and I would say EUR 400,000. We do have a certain change in our financial structure because we have stopped one debt that we had with an extremely high interest rate, which was planned. So this is no sudden information. But it's part of our ongoing strategy to optimize financial structure. So this is one explanation for the change in, I would say, the financial results between these 2 quarters, and further remark what I would expect for the next 3 quarters in 2019.
Okay. If I may continue one last thing. I continue to this. Question on Mobility. During the presentation, you referred to the sales decline in Mobility but Mr. Rothweiler, you mentioned that you are -- midterm, you'll see growth, I understand. Let's say, for the upcoming quarters, if I reflect what so many other companies relating to automotives end markets say, is it fair to say that, let's say, in short term, the next quarters -- a strong recovery of demand is not very likely? But midterm, we discussed that at the annual press conference, with the options for your LiDAR product, the outlook is much more better. Is that the correct view or do you have a different view on that?
Yes. I think, long-term, this is a very attractive market because the number of cars per year will continue to increase. But then if you look how many sensors will be put on a car, this number will also increase, which make this market extremely effective for companies like First Sensor. In our particular case, you are right. We have the capability to design and produce class A Avalanche photodiodes, which present a key technology for LiDAR, which is the light radar, and which is generally thought to be a key amongst other sensors for making autonomous driving a reality. We've been engaging with customers for years already. And we have a third product on the streets with a very first car that's -- it's compliant with level 3 advanced drivers assistance. So all in all, we think and we are confident we have an excellent position in this field. So overall, our expectation to grow and to benefit from the increasing number of cars and the increasing numbers of sensors on the car is particularly true for us at First Sensor. So the long-term expectations are very much intact. They are very positive and favorable for the company.The discussion short-term started last year with indications we gave during the half year results announcement in about August time frame, where we were particularly discussing the new emission standards, WLTP, which was causing the car makers to get jammed a little bit in the process of bringing new cars to the streets and in terms of getting them certified so they can hit the road. Obviously, this has also impacted our revenues last year. They came out below plan as a result. So all in all, this is a one-time effect because the demand for new cars is still there in the market and all carmakers have demonstrated progress in this process. But then also, there is a debate about trades, China-U.S. is one thing. E-mobility is a big trend, particularly in China. There is incentives by the States for people to go away from combustion engine towards e-engines. We have the diesel affair. And all these things make it a little bit tricky on the level of the car buyer. Should I buy now or should I buy a little later? And this may result in an overall uncertainty, even though the market is excellent. E-mobility also requires a lot of sensors. Most of the e-cars have combustion engines as an auxiliary last mile kind of add-on to the e-motor. There is tank pressure sensors that we also benefit from. We have to see quarter-to-quarter now where this will hedge. We are not as optimistic as to say, hey, next quarter, second quarter of 2019, the picture will change to a very positive one. But also, we are not saying that we, right now, see big risks that will kick in, in this second quarter of 2019. So we see kind of a sidewards trend for us from quarter-to-quarter. But the confidence that we will see a positive change here this year already is definitely there. We have indicated that we are very active in the field of camera systems, with the option for customers to also buy an electronic embedded control unit from us, which allows the customer to fuse many of these cameras into one very advanced camera system, but also to fuse other sensors than cameras, which gives the possibility to our customers to engage in sensor fusion on their side. And it's a real focus, as we have indicated, it's the buses, it's trucks, specialty utility vehicles like mining vehicles, airborne solutions. In the different space, we see possibilities. And the examples I gave now are examples for which we have won very first orders in the last 18 months and particularly, one such order was taken into a first volume as of November last year with the volume revenues in 2019 already. And this is, for us, a positive development all in all.
[Operator Instructions] As there are no further questions, I hand back to the speakers.
Yes. Ladies and gentlemen, Mathias and I, myself thank you very much for dialing in, for showing interest in First Sensor and our way forward. Thanks also [ Kyle ] for moderating and facilitating this webcast. You have a good day. Take care.
Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect.