Good morning. This is the Carel conference operator. Welcome, thank you for joining the Carel First Quarter 2019 Results Conference Call. As a reminder, all participants are on listen only mode. After the presentation, there will be an opportunity to ask questions. Should anyone need assistance during the conference call, they may signal the operator by pressing Star and Zero on their telephone. At this time, I would like to turn the conference over to Mr. Francesco Nalini, CEO of Carel. Please go ahead, sir.
Thank you very much. Good morning, everybody. Welcome to the presentation of our Q1 results. As usual, I will start with some highlights. I'm on page two. During this quarter, we continued consistently with the execution of our strategic growth guidelines according to plan, this led to a top-line growth of 19.5% with an organic component of EUR 3.7 million, where all geographic areas reported a growth both in current exchange rates and fixed exchange rates, as well as a component coming from the consolidation of HygroMatik and Recuperator, the two companies that we acquired at the end of last year, that contributed for EUR 8.7 million. Q1 results for the two companies were fully in line with the respective business plans. We already saw an acceleration of their top-line growth compared to their historical track record, the post-merger integration roadmap is proceeding according to our expectations.
We're very satisfied so far about the integration. EBITDA margin at 19.6% was in line with the full year 2018, we continued to benefit from a positive tax rate of approximately 19%, down from approximately 24% in Q1 '18. Net financial position grew by EUR 18.4 million, mainly due to the adoption of the IFRS 16, accounting for EUR 14.7 million, also to an increase in networking capital, which is not related to inventory, where we confirm the stabilization that already happened in Q4, but is due to some seasonal effects on receivables and payables that we will comment in a few minutes. The production footprint expansion plan is proceeding on track with our expectations. Both the Chinese and the U.S. plants will become operational within first half, as expected.
We continued also our sales footprint expansion strategy with the opening in January of a subsidiary in Ukraine, managed as a branch of Carel Polska, which is the distributor we acquired in 2017 to increase our control over the Eastern European territory. By the way, Carel Polska is reporting a very healthy growth, confirming the validity of our strategy. In terms of services, we are continuing according to expectations, the implementation of the go-to-market phase for digital services, aimed especially at food retail. I'm now moving to page three with some more details. Revenues grew by 19.5% or 18.4% net of foreign exchange. The organic growth net of the HygroMatik and Recuperator consolidation was 6.4%. This was slightly limited by a number of contingent factors that happened in Q1. Over such a short time frame in a business model like ours, some contingent elements can become evident.
For example, in Q1, we reached the saturation of the North American plant, accumulating some order backlog. The situation is being resolved as we speak with the opening of the plant expansion that will happen within this month. In general, we are seeing a growing order intake portfolio, so we are confident that top-line growth will accelerate in the coming quarters. If we look at the revenues bridge on the top right, we can see that we started from EUR 67 million in Q1 2018. Then we have EUR 3.7 million of organic growth, EUR 8.7 million coming from the consolidation of the M&As, and EUR 700,000 of positive effect from the foreign exchange, arriving at EUR 80.1 million of revenues in Q1 2019. EBITDA grew by 18.9% with a profitability of 19.6%, in line with the profitability of the same period of last year, which was 19.7%.
This includes EUR 1.8 million coming from HygroMatik and Recuperator, as well as EUR 1.1 million coming from the adoption of the IFRS 16. It also discounts EUR 500,000 of additional recurring costs related to the IPO that were not present in Q1. Net profits grew by 8.4%, discounting higher interest expenses for the increased net financial position, but also benefiting from a significant improvement in the tax rate, as I mentioned. CapEx in the period were EUR 4.9 million, so the manufacturing footprint expansion project is proceeding according to expectations. There is a significant improvement over the same period in Q1, when CapEx were EUR 1.7 million. This is when, of course, the manufacturing footprint expansion project had not started yet. Moving to page four, with the revenue breakdowns. On the left, we can see the geographical breakdown.
Here, we simplified, slightly, the geographical breakdown to make it more consistent with our logistic platforms, which are EMEA, APAC, North America, and South America. We saw, in the period, a growth in all geographic areas, both in current exchange rates and fixed exchange rates. EMEA grew by 22.3%, or 22.6% net of FX. This benefited significantly from the acquisition of HygroMatik and Recuperator, that mainly insist on this region. Organically, the region grew approximately 5%. APAC grew by 15.8%, or 13.7% net of FX. North America grew by 12.6%, or 4.2% net of FX. As I was mentioning, this was limited by the saturation of the U.S. plant, because we had an order backlog at the end of the period. But again, the situation is resolved in this moment.
Latin America, we saw a growth of 1.9%, or 4.7% net of FX, which represents an acceleration compared to 2018, despite an economic situation in the region that remains pretty challenging. To the right, we can see the breakdown by sector. HVAC grew by 26.8%, or 25.3% net of FX, again, benefiting from the consolidation that insist on this market. Refrigeration grew by 9.6%, or 9.1% net of FX. Refrigeration, taking out the consolidation effect, remains the fastest growing market. Then we have a 25% decrease in the [Note 4], which is continuing its expected decline. Now moving to page five, where I leave it to Mr. Giuseppe Biscovich for the comments on the items below the EBITDA.
Thank you, Francesco. Some comment on the lines between the EBITDA and the net profit. Regarding the depreciation and amortization, we have an increase from EUR 1.9 million to EUR 4 million. This is due to the change in the scope of the consolidation. Recuperator and HygroMatik contributed to increase the figure, and also, is due to the adoption of the IFRS 16 of almost EUR 0.9 million in additional depreciation. Below the EBIT, the financial charges and income, we move from a EUR 97,000 financial income to EUR 266,000 of financial charges. This is mainly due to the increase of the debt. We moved our debt at EUR 117 million, compared with EUR 70 million at the end of last year. That is the reason why we increased the financial charges.
Concerning the taxes, we decreased the absolute value of the taxes from EUR 2.6 million of last year to EUR 2.1 million of this year, with an average tax rate of approximately 19%, compared with 24% of last year. This is mainly due to the introduction of the patent box that we couldn't account for in Q1 2018, because as you will remember, we obtained the ruling at the end of the year of 2018. I'm moving to page six now, where we show the bridge of our net financial position. We closed the year at EUR 77.5 million, compared with EUR 59.1 million of 2018. There is an increase of EUR 14.7 million, again, from the adoption of the IFRS 16. We introduced the retrospective method in the IFRS 16.
Despite this, the organic net financial position is EUR 62.7 million, and in the period, we have generated free cash flow of almost EUR 13.3 million, that was absorbed mainly by the CapEx, almost EUR 4.9 million, and also by the increase in the net working capital of EUR 11.1 million. Some comments on this. Regarding the detail of the net working capital, we incur an increase in the receivable. This is a seasonal effect. In fact, the last quarter of the year is always lower in terms of sales compared with the first quarter of the year. Concerning the payables, the trade payables, we had an increase. This is due to a non-reoccurring situation of last quarter or last year, where we had a significant level of OpEx, with very short-term payment terms.
In addition to that, in the first quarter of 2019, we decreased the level of purchases in electronic components in line with the reduction of our inventory level. In fact, concerning the inventory, the level of inventory remained quite flat. I give back the stage to Francesco.
Thank you, Giuseppe. Yes, an additional comment on the working capital. On the receivables is an effect that we see every first quarter of the year, and the effect is absolutely in line with what happened in first quarter 2018. Concerning the payables, these additional OpEx were related to consulting also for the M&As that we performed that typically have shorter payment terms. On page seven, for the final remarks, we are happy to report that the implementation of all our strategic growth guidelines is proceeding according to plan, and this is providing a solid growth in all geographic areas, despite the microeconomic scenario that remains pretty uncertain under several dimensions. The HygroMatik and Recuperator integration process is proceeding very well. The results of the two companies at the end of the quarter were in line with the respective business plans.
We are already seeing an acceleration in the top-line growth compared to the historical track records of the two companies, and the post-merger integration roadmap is proceeding according to expectation. The development CapEx plan for the footprint expansion is proceeding in line. We will have the two Chinese and U.S. plants operational within first half, as expected, and we confirm the stabilization of the inventory that was already happening during Q4. After we overcome the seasonal effect in receivables and payables, we expect an improvement in working capital in the coming quarters. To conclude, the cost and deployment of these strategic guidelines, together with a growing order intake portfolio that we are already seeing, make us confident for a further improvement in performance in the coming quarters. Thank you very much for your attention. We are now more than happy to answer to your questions.
Excuse me. This is the Chorus Call conference operator. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their telephone. To remove yourself from the question queue, please press star and two. Please pick up the receiver when asking questions. Anyone who has a question may press star and one at this time. The first question is from William Turner of Goldman Sachs. Please go ahead.
Good morning. I just have one question at the moment, and it's on the organic underlying business. In the first quarter, you've grown around 5%, and that is obviously still fast growth, but down quite a bit from the almost 11% or 10% that you had in 2018. I was wondering if you could just give a little bit more color on the kind of underlying Carel business on what's changed between, or what's decelerated the most between now and then.
Okay. Thank you for the question. Yes, net of foreign exchange, growth was slightly more than 5%, or 6.4% with current exchange rates, organically. We saw a number of contingent elements limiting the growth during the first quarter. For example, as I was mentioning, the saturation of the U.S. plant that limited the growth, even compared to the order portfolio that we already had during the first quarter. That was basically an effect related to the situation of the capacity, not to the order intake. In Europe, we saw a deceleration, basically related to the fact that we had a few exceptional quarters of growth, in the region last year, which was, as I commented several times, above what we expect for the medium term.
We consider pretty normal a quarter or two of consolidation after several quarters of strong growth in the region. In China, we had another contingent effect. That was the fact that the VAT was lowered by the government on April 1st. Some customers moved orders from March to April to benefit from the VAT reduction, since sales there include the VAT. Basically, there were a number of contingent elements, but as I was mentioning, our order intake portfolio is already improving compared to the first quarter results. In general, one individual quarter is a pretty short timeframe for our kind of business model. Even some contingent elements like this can become visible.
Great. Thank you.
The next question is from Alessandro Tortora, Mediobanca. Please go ahead.
Yes. Good evening, everybody. I have, let's say, three questions, if I may. The first one, if you can come back on the trend you, let's say, discussed before on the order intake. I know that your order intake, your, let's say, backlog is, let's say, really short term, covering some months of business. If you can, let's say, give us some ideas of how is evolving this item for you. The second question is on the margin trend and profitability trend, excluding clearly the IFRS 16 impact, and considering also all the investments you are doing on adding capacity. Is, let's say, still reasonable to assume a profitability for you, in terms of EBITDA margin, similar to the level achieved last year? Let's say close to 20%, of around 20%. The last question is on the last acquisition you made. I'm referring to Recuperator.
We saw high single-digit growth. Can you, let's say, share with us also any plan to realign the margin of this company to your level? Thanks.
Excuse me, this is the operator. I don't know if your line is on mute.
Yes. Thank you. Sorry. Yes. Sorry, I was muted. Thanks for the questions. First point, order intake. Yes, our order intake gives us a visibility of a few weeks. However, from the order intake, we can, in any case, spot several trends. We also saw already the results of April, we can confidently say that the top line is accelerating compared to Q1. This is a trend that we can easily identify, even if the order intake portfolio tends to be pretty short. Because of the fact that some elements limiting the growth in Q1, as I was mentioning, were pretty contingent.
Concerning the second question on margin and profitability, the purely organic EBITDA margin, excluding HygroMatik and Recuperator and excluding the IFRS 16, was around 18.5%. There were, again, a number of factors that on such a short time frame can become visible. The first one is the EUR 500,000 more for recurring IPO costs that were not present in Q1. This is compounded with the fact that since growth, for the reasons I described, was lower than expected during Q1, did not provide us the operating leverage that we expect on SG&A. As the top line improves, we expect to recover the operating leverage effect. Other two factors limiting the profitability in Q1 were a contingent effect on the product mix. That again, was visible over a short time frame.
In particular, we had a significant, a very strong growth in CO2 compressors that was driven by the CO2 market, especially refrigeration. Since compressors are not items that we make, but are bought and sold, they have a lower marginality. This created a visible effect during Q1 that was a purely mix effect and that was visible in this time frame. Finally, concerning the contribution margin, the price effect is totally aligned with our historical trend, we didn't have any price decreases above what is our historical trend. However, the material cost did not go down. They did not increase either, but they did not go down because we saw in this quarter, basically the retrospective effect of the shortages that happened during 2018, that created some tensions on the cost. The cost did not increase. We managed to contain them.
However, not having the decrease in cost, but having the decrease in price, which is typical for us, also negatively contributed to the margin reduction during Q1. Again, these effects are mainly contingent, on all these dimensions, we expect an improvement in the coming quarters. Concerning the third question, to realign the margin of Recuperator, we are taking a number of actions. Okay. First of all, there is a positive effect coming from the aluminum. The price of aluminum has decreased compared to the very high levels it had reached recently. We also have, of course, operating leverage coming from the fact that we are accelerating the top-line growth, using especially, let's say, a stronger focus on growth compared to the previous management, but also leveraging very much on the cross-selling using our sales network. This is and will provide operating leverage.
On top of that, we are also having saving on the SG&A compared to the previous management of the company. There are other actions, slightly more medium term, like for example, possible interventions on the design of the product to reduce the cost and on the manufacturing lines to reduce the cost. There are really many dimensions for this. In particular, we are investing in manufacturing to reduce the cost, making the production more efficient. Again, along a number of dimensions, we are increasing the profitability of the company.
Okay. let's say, to sum up, considering all the facts that you mentioned before, you still consider, let's say, feasible to have, let's say, a sequential acceleration in the coming quarters looking at, let's say, all the factors you mentioned. Therefore, we may, let's say, still consider achievable, let's say, organic sales growth, as also you did in the past years, close to the high single-digit area.
Yes. Let's say, it's still a little bit early to provide the precise guidance on the full year. However, yes, we surely expect an acceleration of the top line, we expect to come to high single-digit for the top line, we foresee an improvement over all the performance indicators of the group.
Okay. Thanks. Very clear.
As a reminder, if you wish to register for a question, please press star and one on your telephone. Once again, if you wish to ask a question, please press star and one on your telephone. The next question is from Emmanuel de Figueiredo of LBV Asset Management. Please go ahead.
Good morning. Thanks for taking my questions. I have three, please. The first one is, can you just clarify a little bit these IPO costs? Your IPO was in the summer. Are these additional IPO costs for Q1 2019, or is it something from 2018? If you just give some color on what's happening there. The second thing is, on the EBITDA margin. Given the previous question on the margins, when we're talking about close to 20% EBITDA margin, I presume this is pre IFRS 16, and if you can confirm that. Thirdly, on the acquisition front, do you think it's reasonable to believe that this is more a year of consolidation of the past two, or is it likely we will see more M&A activity this year? Thank you.
Okay. Thank you for the questions. Concerning the 500, if you're mentioning the EUR 500,000 recurring IPO costs, these are basically additional SG&A related to higher auditing costs, higher board of director costs, and higher compliance costs, which are fairly structural for the fact that we are listed. These costs were not present in Q1 2018 because we went public in June. Concerning the second question, the 19.6% EBITDA margin that we reported is including the EUR 1.1 million from the IFRS 16 effect. Again, for the coming quarters, we expect an improvement in the profitability. On point three, talking the M&As, we are, yes, focused on consolidating the two, HygroMatik and Recuperator. By the way, we are very satisfied about how the consolidation is going. However, our pipeline is still active.
It's, as you know, very difficult to say when we will have new deals. We are continuing to scout for new possible deals.
Thanks. Very clear.
Gentlemen, there are no more questions registered at this time. I'll turn the floor back to you for your closing remarks.
Okay. Thank you very much for your attention and for staying with us during this presentation of Q1 results. We'll hear you again on our next call for the presentation of first half results. Thank you very much. Have a good day.