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Edited Transcript of SIS.DE earnings conference call or presentation 14-Aug-19 8:00am GMT

Half Year 2019 First Sensor AG Earnings Call

Berlin Aug 16, 2019 (Thomson StreetEvents) -- Edited Transcript of First Sensor AG earnings conference call or presentation Wednesday, August 14, 2019 at 8:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Dirk Michael Rothweiler

First Sensor AG - CEO & Member of Executive Board

* Mathias Gollwitzer

First Sensor AG - CFO & Member of Executive Board

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Presentation

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Operator [1]

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Dear ladies and gentlemen, welcome to the conference call of First Sensor AG. At our customer's request, this conference will be recorded. (Operator Instructions) May I now hand you over to Dr. Dirk Rothweiler, who will lead you through the conference. Please go ahead, sir.

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Dirk Michael Rothweiler, First Sensor AG - CEO & Member of Executive Board [2]

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Thank you, Mrs. Ant. Good morning, ladies and gentlemen. This is Dirk Rothweiler speaking. This morning, we've published our report for the second quarter and the first half of 2019. So I'm very happy to welcome you to this analyst conference. Thank you for joining. We certainly appreciate your interest in our company.

Mathias Gollwitzer, our CFO, will run you through our figures in the next couple of minutes. And after that, I'll take over again to conclude our statement with more aspects regarding outlook and guidance for the year as well as on the voluntary public takeover offer by TE Connectivity.

Finally, we will open the lines for your questions. So Mathias, please go ahead.

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Mathias Gollwitzer, First Sensor AG - CFO & Member of Executive Board [3]

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So thank you, Dirk. Good morning, ladies and gentlemen. It's my pleasure to explain the key figures of our current report. Should there be any questions left, I would be happy to answer them after our statements.

So let us first take a look at the development of the sales figures on Slide 2. With EUR 39.9 million, the sales volume in the second quarter was at the same high level as the second quarter of last year. However, the sales figures did not reach the level of this year's very strong first quarter. One reason that we observe are changes in order placements due to high levels on stock on our customers' side. A few projects in our photonics business are delayed also by customers. This development corresponds to the situation in the electronic industry report by the Chairman organization called [SetVEA] the electric or the electronic industry in Deutschland, published on Monday this week. Whether this indication in our business seems to be affected by an economic slowdown remains to be seen.

We remember similar situations in the last year, where we faced such fluctuations in the order behavior from time to time. Despite these messages, we are happy to report a strong growth in the first half year of 2019 compared with 2018. Sales were up to EUR 81.3 million and this represents an increase of 9.3%. This growth is mainly related to our growth driver, our pressure products portfolio. By expanding our capacities in Berlin and a collaboration with a contract manufacturer in Eastern Europe, we increased our pressure sales by EUR 4.5 million or 11%.

Let us move to Slide #3, where we like to give comments with regards to our 3 target markets. The first 6 months of 2019, our business in the industrial target market shows a strong increase of 16.6% compared to 2018. This growth is mainly related to a higher demand for pressure sensors and for the photodiodes in Asia. With an increase of 13.8%, the medical market did well too. Compared to the first 6 months in 2018, we see an increased sales for imaging solutions, especially in North America.

Compared to the first 6 months of 2018, the Mobility business decreased by 7.5%. This reduction is related to our product growth called our advanced electronics. The growth drivers in the photonic product portfolio sales, for example, on our photodiodes business and the camera as well, and our pressure product development is going well, and we recognize first signs of recovery at our Mobility business in the second quarter of 2019 went slightly up compared to the first quarter of 2019.

On the next slide, you can see the distribution of sales over our sales regions. The DACH region remains the biggest market for First Sensor. Here as well as in the rest of Europe, we still have a slightly growing business. We report a strong growth by EUR 2.4 million in North America. This is related to a higher demand of our imaging solutions. And in Asia, we grew compared to the last year by EUR 3.5 million, mainly based on our pressure sensors and our photodiodes.

Our figures concerning the operating profit is shown on the next slide, #5. In the second quarter 2019, the operating or adjusted EBIT, which means the EBIT before any transaction cost, amount to EUR 2.3 million. The EBIT margin reached 6.5%. Together with the strong performance of the first quarter, this leads to an operating EBIT of EUR 6.8 million or an EBIT margin of 8.3% in the first half of 2019. This is a clear improvement compared to the 5.5% EBIT margin for the first 6 months of 2018. This underlines the evidence of the success of our strategy for profitable growth and the measures we have taken and still take to improve our operational excellence. The lower EBIT margin in the second quarter 2019 compared to the first quarter of 2019 is related to the lower sales volume on the one hand and also on higher costs for recruiting, maintenance and marketing. We have reported in the last few press releases that we hire development experts, we expanded our production capacities and we invested in new equipment and launched new products combined with certain marketing campaigns. With regards to our targets for the full year, which means an EBIT margin of 8.5% to 9.5%, we can say that we are on track after 6 months.

In connection with the intended takeover by TE, we faced several extraordinary expenses, like personnel accruals as well as further other accruals or expenses for [Contagic]. According to IFRS, these exceptional expenses led in the first 6-month period 2019 to an EBIT of EUR 2.3 million or an EBIT margin of 2.9%. For the second half of the year, we expect further expenses and accruals. In our next report, we will publish both types of EBIT figures, the earnings before interest and tax according to IFRS and also an EBIT adjusted by the expected takeover transaction costs. In doing so, you get a clear view of the underlying profitability that is related to our operational and operating business.

Let us turn to our balance sheet on Slide 6. In the first half of 2019, the balance sheet increased by EUR 5.4 million up to EUR 173.8 million mainly due to the first-time application of IFRS 16.

Noncurrent assets totaled at EUR 95.5 million at the end of the first half of 2019. This increase is related to an increase in intangible assets by EUR 9.7 million to EUR 11.5 million in connection with IFRS 16.

Due to contractually agreed safety stocks and the change of order management by some customers, our inventories rose to EUR 37.8 million. By contrast to that, trade receivables decreased by EUR 7.5 million to EUR 10.2 million as a result of our accounts receivable management and the use of factoring.

Likewise, cash and cash equivalents were down by EUR 3 million to EUR 25.5 million. This was also because of the dividend payments of almost EUR 2 million.

So let us move to the next slide and some information about our cash flow statement. Operating cash flow improved and reached EUR 6.8 million. Cash flow from investing activities amounts to EUR 5.3 million. We expect to reach approximately EUR 8 million in terms of cash out for investments this year. Our free cash flow for the first 6 months improved in comparison to the same period of last year and amounts to EUR 1.5 million at the reporting date.

I would now like to hand over to Dirk, who will conclude our call with a shared outlook of 2019 and an update concerning the voluntary public takeover offer by TE Connectivity Sensors Germany Holding AG to the shareholders of First Sensor AG. So, Dirk?

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Dirk Michael Rothweiler, First Sensor AG - CEO & Member of Executive Board [4]

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Thank you, Mathias. Ladies and gentlemen, Slide 8 shows the order situation. And order intake in Q2 was EUR 35.6 million, which translates to EUR 77.9 million for the first half of the year. In the first half of the previous year, we had EUR 83.7 million for comparison. As mentioned by Mathias, we see a somewhat more cautious order behavior: a, from customers with still sufficient product on stock; and b, from customers which are delaying order entry along with the economic situation. So it remains to be seen if this order behavior is to continue in the second half and in light of the economic situation.

Book-to-bill is at 0.96, and it's somewhat in line with the past 3 quarters. The total of the backlog is about EUR 94 million and about 50% of that are expected to shift in 2019. So with this order situation in terms of guidance, we are confident that we will reach our sales and profitability targets for this year. But there are economic uncertainties, which have increased. And we see it in terms of order postponement. So we, therefore, expect our sales volume to rather reach the lower end of the guided range of EUR 160 million to EUR 170 million. So in line with this somewhat lower sales expectations and due to economies of scale, we also expect the EBIT margin to come out at the lower end of the guidance too. And this is in terms of our operating business. Mathias has already explained that the planned combination with TE Connectivity will result in additional costs. And to this date, we are not able to fully anticipate the full volume.

In terms of opportunities and risk for the final year, we see the same profile as we have explained to you in previous calls. However, there is a slowing economic growth as we see it and a somewhat changed and more cautious behavior of customers placing orders. In the medium and long term, we expect to continue benefiting from the mega trends driving our target markets, industry, medical and mobility, and we have a well-filled product pipeline and obviously, we are highly motivated to continue implementing our strategy for profitable growth. Sensor technology was and in the future continues to be a technology with potential that we are tapping into in a very targeted manner.

The planned combination with TE Connectivity will give us extra momentum as TE, with its size and expertise, will give us the opportunity to bring in our application know-how and services and products into a wide range of existing products. At the same time, TE's global presence makes it possible for us to accelerate our internationalization strategy and gain more customers more timely, both for our solution and our standard business. The Executive Board and the Supervisory Board, therefore, see TE as a well-suited strategic investor and also partner that will support and advance our strategy in the associated objective.

Coming to Slide 11, you can see that by Monday all merger control clearances were given as well as the first foreign investment clearance by France. Open after the investment -- the foreign investment clearances by Germany and the United States, and furthermore, the takeover offer has been accepted and supported by our shareholders with approximately 64% of the share capital.

Yes, ladies and gentlemen, and now it's time for your questions.

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Operator [5]

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(Operator Instructions) There are no questions. I hand back to the speakers.

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Dirk Michael Rothweiler, First Sensor AG - CEO & Member of Executive Board [6]

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Yes, ladies and gentlemen, as there are no questions, I'd like, together with Matthias, to thank you a lot for participating in this conference call. Our Q3 results are due for publication on November 14, and we would be happy to be speaking with you again. For now, we wish you all the best and say good bye.

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Operator [7]

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Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect now.