Ladies and gentlemen, thank you for standing by, and welcome to the Melexis Full Year 2019 Results Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star and one on your telephone. I must advise you that this conference is recorded today. I would now like to hand the conference over to your speaker today, Françoise Chombar. Please go ahead.
Thank you, Maria. Good morning, dear audience. Karen van Griensven, our CFO, and myself are pleased to host the Melexis earnings conference call for the fourth quarter of 2019, and thus also the full year. We will take you through the highlights of the year, and we will be happy to answer your questions afterwards. Fourth quarter sales came out at EUR 127 million, a decrease of 10% compared to the same quarter of the previous year, and an increase of 3% compared to the previous quarter. Full-year sales rounded up to EUR 487 million, a decrease of 14% compared to the previous year. Geographically, Europe's share in 2019 turned out at the same level as 2018. The U.S. was a bit stronger in 2019, while Asia-Pacific was a bit weaker. This being said, the Q4 percentage for Asia-Pacific picked up quite nicely, mainly thanks to distribution.
Based on the latest data points, worldwide car sales dropped around 5% in 2019, while Melexis sales were impacted almost threefold. This is fully attributable to inventory corrections triggered by an uncertain economic and geopolitical situation caused by global trade tensions. This being said, Q4 marked the end of downward inventory corrections at our customers and distributors. Based on what we observe today and barring any unexpected geopolitical or other adversities, we're confident that 2020 will be a return to growth. Even though we expect another year of lukewarm end market demand with potential worldwide sales below 2019 levels, Melexis is guiding for around 10% plus sales in this year on the back of normalized order behaviour and automotive semiconductor content growth.
I already mentioned in the past that next to the economic uncertainty, people postpone their decision to buy a car because they are uncertain about which type is best for them. Climate protests, new city regulations, new stringent norms, and volatile tax rules make buying a car into a conundrum. In this perspective, I believe it is interesting to highlight the following. On the eve of the Brussels Motor Show on January 10th and 11th, the Flemish TV news desk, together with three academics, carried out research into the impact of different car engine types on our planet. The research rightly considered the full life cycle from the making of the car, the use of raw materials to the combustion itself, the manufacturing of the fuel, and the recycling. The focus was both on air quality and on climate impact. This research yielded some surprising results.
Though some results were not that surprising to us at Melexis. The overall conclusion was twofold. One, modern technology, and may I add here that a lot of it is proudly powered by Melexis, so modern technology makes all types of cars increasingly cleaner, whether for particulate matter or for nitrogen oxides. Secondly, modern fossil-fueled cars almost close the gap with battery electric vehicles and fuel cells as far as air quality are concerned. The real fight, as they say, concerns now the climate. Indeed, some of the more counterintuitive conclusions were the following. Electric cars lead the pack only if they run on green electricity, so powered by solar panels or wind turbines, which is not surprising. However, an electric car that runs on electricity from coal-fired power stations is the worst enemy of the climate.
As far as particulate matter is concerned, it turns out that the modern Euro 6 diesel cars perform 10x better than gasoline cars. Diesel bashing is clearly no longer in its place. A third surprising fact is that due to leakages during extraction and transport, CNG has the largest impact on our climate, larger than gasoline or diesel. Natural gas consists of 80% to 90% methane, and that is a greenhouse gas that is 28 times more aggressive than CO2. I believe such research is relevant context, and I'd like to point out here that Melexis innovation and Melexis products serve all types of powertrain. In the press release, we elaborated already on the product lines that outperformed last year. I'd like, nevertheless, to add a spotlight here on our temperature sensors.
You may remember that in June 2019, our medical grade temperature sensor, the MLX90632, was recognized as a winner of the Excellence in Sensors Innovation at the Sensors Expo Show in the U.S. On December 4th, our world's smallest medical grade sensor received attention again by winning the Elektra Excellence in Product Design for Medical in the U.K. As one of our customers stated, miniaturized far-infrared sensors are typically sensitive to thermal interference. Our sensor mitigates this effect with smart compensation algorithms. Because it is so tiny in size, the smallest in the world, it is extremely well-suited for applications such as contactless ear thermometers to fit into children's ears. In addition, it measures infrared radiation at a wider angle than other types of such sensors, allowing more accurate measurement of body temperature.
Many of the Melexis sensors and drivers are indeed increasingly finding their way to interesting other markets. Therefore, it remains crucial that Melexis continues investing into R&D and innovation. I now hand the stage to Karen for the financials.
Thank you, Françoise. Good morning, ladies and gentlemen. For the full year 2019, sales were around EUR 487 million, a decrease of 14% compared to the previous year. The gross result was EUR 196.2 million or 14.3% of sales, a decrease of 25% compared to 2018. R&D expenses were 16.3% of sales. G&A was at 6.3% of sales, and selling was at 3.2% of sales. The operating result was EUR 70.6 million or 14.5% of sales, a decrease of 49% compared to EUR 128.5 million last year. The net result was EUR 60.3 million or EUR 1.49 per share, a decrease of 48% compared to EUR 115.5 million or EUR 2.86 per share in 2018. Sales for the fourth quarter of 2019 were EUR 127.1 million, a decrease of 10% compared to the same quarter of the previous year, and an increase of 3% compared to the previous quarter.
The gross result was EUR 50.4 million or 39.7% of sales, a decrease of 21% compared to the same quarter of last year, and an increase of 2% compared to the previous quarter. R&D expenses were 16.1% of sales. G&A was at 6% of sales, and selling was at 3.2% of sales. The operating result was EUR 18.3 million or 14.4% of sales, a decrease of 43% compared to the same quarter of last year, and an increase of 1% compared to the previous quarter. The net result was EUR 15.4 million or EUR 0.38 per share, a decrease of 46% compared to EUR 28.5 million or EUR 0.7 per share in the fourth quarter of 2018, and the status quo compared to the previous quarter.
The board of directors approved also on January 31, 2020, to propose to the annual shareholders meeting to pay out over the results of 2019 a total dividend of EUR 2.20 gross per share. This amount contains an interim dividend of EUR 1.3 per share, which was paid in October 2019, and a final dividend of EUR 0.9 per share, which will be payable after approval of the annual shareholders meeting. The Melexis shares will start trading ex-coupon on May 13, 2020. The record date is May 14, 2020. I guess we have ended the first session. We are now ready to receive your questions. Please operate as per usual.
Thank you. If you wish to ask a question, please press star and one on the telephone and wait for your name to be announced. If you wish to cancel your request, please press the hash key. Once again, please press star one if you wish to ask a question. The first one is coming from the line of Matthias Maenhaut. Please go ahead. The line is open.
Yes. Good morning. Matthias Maenhaut, Kepler Cheuvreux. Three questions actually from my end, two on guidance and one product-based question, and maybe going to ask them one by one. First question is actually on the guidance. I see no mentioning of the coronavirus. Is there any negative impact of that implied in guidance? Could you maybe give us a little bit of an idea? I know it's been a while, but was there any disruption when there was SARS virus in 2002? That would be my first question.
Okay, Matthias, thank you. We see no impact today on order behaviour. I think it's also much too soon to see that. Last week was the usual Chinese Lunar New Year holiday anyway, so I think it's really too soon. As such, we did not factor in any impact of the coronavirus in our guidance. As you will have noticed, we guide sequential flat sales over the years. That means we do factor in some uncertainty. We are cautious in general, and that is because the markets are still volatile and the visibility remains low.
All right. Second question, maybe as you already kind of answered my second question I had on the guidance, is on the gross margin. I see it's still down quarter-over-quarter. What are the main drivers? Sales are up 3%, but the gross margin down, so that was, for me, a bit surprising.
Yes, indeed, it's slightly down. Gross margin is impacted by many factors. Capacity utilization today is the main contributor to the lower margin than we've seen in the past. There are also some other elements like US dollar, like product mix, but also some inventory effects. What we saw in Q4 is related more to one-off events. We do expect as we grow, actually the gross margin will further increase over the next quarter or so. Also for 2020, we guide somewhat higher gross margin, mainly because of better use of capacity. This should further evolve in that direction as we grow.
All right, thank you. For the very last question, I appreciate your comments on the Belgian research, but still it seems that electrical vehicles, the adoption of it is going quicker than anticipated. If you look at the midterm guidance that you gave at the Capital Markets Day last year, I think it was 10%-15% sales growth over the midterm. Do you think that this faster than anticipated adoption in any way could limit your ability to grow? Or you think it's just going to be vice versa?
I think we are well-positioned both for the powertrain side as for the non-powertrain, so body, chassis, and safety side of the car. No matter which car or which powertrain is in a car, I think there are always Melexis products inside. If you remember, on the Analyst Day, we even gave two examples. That was, I think, a 530 BMW 530e and a Tesla. You could see that while the overall, our presence in cars is about 11 chips, that has not changed last year, it was flat last year. We have over 30 and sometimes over 40 chips in such electric vehicles. In that sense, it will never be exactly the same, of course.
I would say for us, because of the fact that we deliver to all powertrains, but also because of the fact that we have many applications in body chassis and safety systems, and that's then powertrain neutral, let's say. We still believe that the midterm or long-term growth opportunities are there.
All right. Very clear. Thank you very much.
You're welcome. You had a third question? That was the third question, yes. Sorry. Go ahead.
The next question is coming from the line of Francois Bouvignies. Please go ahead.
Good morning, everyone. I have a couple, if I may. The first one is on your Q1 guidance. If we look at your Q1, it's a 15% year-over-year growth at constant currency. Now, if we compare to your peers and other productions as well, it's much higher than the others. I just wanted to understand if there is any inventory buildup specifically to magnetic sensor or anything to explain such outperformance. That's my first question, and I have others.
Okay, François, thank you. Well, you will remember that more than one year ago, we were also the first to say that things would drop and the others then followed suit afterwards, maybe with a quarter or two of delay. Our Q1 guidance, as usual, we guide to what we see. This does not involve any inventory buildup at our customers or distributors at all because the inventory levels there are very healthy. I don't see.
Any particular thing. It's of course, let's say the comparison base, if you take Q1 last year, that was our lowest quarter as well. The outcome is behind in Q1 as such.
Okay. There is no specific product like the ramp.
No, not really, no.
Okay.
I think it's across the board. Of course, there are always some products that do better than others. Yeah, nothing special really.
Okay. If we take Q1, of course you said that you want to have a cautious view. If we take the Q1 and your full year guide, it means that like you said, the quarter-over-quarter development for the rest of the year is flattish. The year-over-year will slow down in terms of growth. I just wanted to understand why you have this as such trajectory. Infineon just before you said that they will expect a very strong H2 in terms of production. I'm just trying to understand, are you conservative basically, or is there any specific reason why the growth should slow down for the rest of the year?
Yeah. Well, as I said before, we are always saying what we see. We don't have necessarily a full view on half year 2. We try to be as close to reality as we possibly can. There are no elements today that lead for us to be either negative or optimistic at this stage. I think it's a good guidance that we're giving. It's a return to growth. We see the opportunities that we've been going after that they are good for us. We have, on the one hand, the better, the regulations that are coming up, and on the other hand, many of our products, many of our product lines have different applications in non-powertrain. It's just a continuation of good opportunities that we have been working on in the past.
Okay. Sorry, just to understand why you would go from plus 15% growth to, let's say, low single-digit growth in the second half of the year. Just trying to explain, maybe given the visibility you have now, why it would slow down.
Well, as I said before already, the comparison base Q1 2019 is, of course, that was the lowest quarter.
The comparison base over the next quarters will be different.
Okay. That's very clear. Thank you. In production for 2020, you talked about sales to be flat to even negative maybe. For the production, you expect the same for 2020?
Well, it's very hard to tell at this point in time. I think the markets are still extremely volatile. That's also a reason for us to be just saying what we see for the time being. Our guidance is the best we can do from today's point of view. The base assumption that we have today doesn't differ as much versus the sales in cars. We do see a little low. We don't feel that sales will be increasing. That means that also production of cars will follow the sales trend. It will be rather flattish to maybe a little down. Again, for us, it's normalized order behaviour. Inventories of our customers and distributors are healthy at this time. We do not see any inventories or special inventory buildup at all.
It's mainly semiconductor content growth and new applications and new markets that we see giving us growth in 2020.
Okay. That's very clear. Maybe last one from me. In terms of R&D and CapEx for 2020, what kind of level should we expect?
For our operational expenses, we continue to invest in the future. We will see a slight increase, but the increase will be definitely lower than sales growth. As a percentage of sales, our operating expenses will go down in 2020.
Okay.
Also R&D.
Okay. CapEx?
In CapEx, we expect around EUR 40 million investments in 2020.
Okay. That's it for me. Thank you very much.
You're welcome.
Next question is coming from the line of Varun Rawal. Please go ahead.
Hi, thanks for letting me on, and I apologize because I joined the call slightly late. I have a couple of questions. The first one is for Karen. Is there any way to quantify the impact from underutilization on your gross margin? You're guiding for a 70 bits improvement year-over-year in 2020, despite a 10 percentage points growth in your sales. I'm just trying to understand how much negative impact are you suffering because of underutilization at the moment. I have a follow-up.
Yeah. Underutilization is accounting for more than 2% at the moment. Yeah. If that answers your question.
No, that's clear. The second question is on the sales growth itself. Clearly, inventory restocking and content growth are the key sales drivers for Melexis in 2020. Based on your commentary, it sounds that content growth is a big part of your 10% top-line growth. I'm just trying to understand. You mentioned normalized order behaviour in the supply chain. Does that mean that there is much better inventory restocking at the moment? If this continues, then inventory restocking will become a bigger portion of your sales driver, which means that this 10% can easily be 14%-15% if order momentum continues to improve from here. I just want to understand from your perspective, how do you see the end demand play out and how should we think about supply chain dynamics?
Yes. Well, when I talk about normalized order behaviour, that's what it means. It's normal. That doesn't imply at all that there is restocking or excessive restocking as such, rather that there is no destocking anymore because it's not necessary. The inventories are healthy today, and we see the order behaviour coming back to normal. That means that our customers and our distributors order what they see as a need in their markets. It's, yeah, normalized. What the word means.
Sorry, is there any way to quantify out of this 10% sales growth, how much is driven by content growth, or would you say that majority of that is essentially content growth?
I think the majority of that is content growth as such because if you look at the sales of cars by itself, yeah, then we see no increase there. Of course, there are always changes in types of cars, types of vehicles that are sold. Overall, we don't expect 2020 even to have a higher number of car sales than 2019. We rather expect it to be a minus one or minus 2%, particularly also in China. Markets are pretty mature. As I said already in the introduction, there is also still quite some volatility as far as tax legislation is concerned. We have automakers that need to comply to new stringent rules, which is in the end good for us, those stringent rules, because Melexis technology powers a lot of those applications that automakers need in order to comply to the new stringent rules.
For us, it's good, in fact.
That's very clear. Basically, you haven't really factored in any inventory restocking in your guidance at this moment.
At this moment, no.
Okay. Thank you.
Next question is coming from the line of Janardan Menon. Please go ahead.
Hi, good morning. It's Janardan Menon from Liberum. I joined the call late as well, I might have missed some of your opening comments. I'm still extremely confused by your full-year guidance and the seasonality that you seem to be expecting through the course of this year. When I look at all your previous years, you've always had Q1 as the lowest quarter of revenue growth. Sorry, Q1 are the lowest quarter for absolute revenues, and the typical seasonal pattern has always been flat to up through the course of the year. There was one exception in 2018 where Q4 fell by about 3%, but that was when you went through the whole market correction that you're now coming out of. Otherwise, almost every year, Q1 are the lowest and things have sort of been upward from there onwards.
Your current guidance is for something completely the opposite because if I multiply EUR 136 million times 4, I get to EUR 544 million, which will be 12% growth. You're guiding to EUR 535 million, which means that you actually expect future quarters to be down from Q1 levels, which is going to be completely the reverse of previous seasonality. Welcome to the recovery year where typically this sort of seasonality will be amplified rather than going the other way, which is normally when you're going into a down cycle. I'm very confused by this guidance. If you could just explain a little bit more what your thinking is and why you do not expect any normal seasonality through the course of this year, it would be very helpful.
Well, the past is never a good guide for the future. If you take into account all the still many uncertainties around geopolitics, even if there is now a sort of agreement between China and the U.S., it's rather a truce. The volatility there in international trade is still there. Now, our guidance mainly comes from that, the uncertainty and the volatility we see in the markets today and the difficult visibility that we have. That's why we are careful for the time being. That's it. I don't think you need to be confused. I think Melexis has a tradition of saying what we see and not trying to speculate on the future, speculating on the future has become exponentially more difficult than it was a couple of years back.
Okay. If you do get your normal seasonal pattern, you would admit that this forecast guidance could prove conservative through the course of the year.
Again, we guide to what we see and to what we feel is correct for the markets. Of course, I hope together with everyone that maybe the economic situation will improve. As long as we don't really have that visibility, we prefer to stick to what we can see.
Understood. Just the same question sort of on the gross margin side. You're sort of guiding at 41% for Q1, and you're guiding at 41% for the full year. Even if your revenue is sort of flattish through the course of the year, would there be any improvement in testing utilization just because you may be working through some internal inventory and you can go back to normal or a higher level of utilization, which should prop up your gross margin through the course of the year, even at flattish revenues? Or are you already at pretty optimal internal levels of inventory?
With simpler sales, we will not improve really our gross margin a lot throughout the year. It's mainly growth that will be the driver of gross margin. Of course, there are always one-off effects that's extremely difficult. It could be that in one quarter it could be a bit better, that's extremely difficult to guide on. We stick to what we know. Yeah, obviously there is also, throughout the year, the inflation that we will also see in our cost base. All in all, we guide for a flat gross margin with the sales guidance that we've given.
Understood. Françoise, you talked, there were some comments on the non-automotive wins that you're getting and success you're getting in adjacent markets, especially in temperature sensors. Do you think you could be seeing a bit of inflection there in terms of non-automotive growth because you're sort of expanding into new markets? If so, would the wins that you've talked about, would they come through in the current fiscal year, or would it take some more time to start ramping into volume?
Well, if the auto market has become a much more volatile market than in the past, the adjacent markets that we're pursuing are even a bit worse in that perspective, so even more difficult to foresee. I think that it depends. The design end time takes maybe a little less, but the volatility is a little bit higher than in auto. I think indeed, we, for example, have good success in motorbikes. We have good success for smart buildings, for the temperature thermometers, for example. We're pretty much still at the beginning of what we can target in those adjacent markets. It could be that we see a little bit higher sales from non-auto versus auto this year. Then again, if you look at the comparison base last year, certainly in the first half, we lost more in adjacent markets than in auto.
Also there, the comparison base will be more benign going forward.
Understood. Thank you very much.
Okay. You're welcome.
Next question is coming from the line of Marc Hesselink. Please go ahead.
Yes, thanks for taking the questions. My first question is on the differences between the regions. AP was clearly very strong in the fourth quarter. You talked about it a little bit in the introduction. Could you say a bit more, like what is behind that and also what you're seeing going into the beginning of this year?
Yeah. Well, Europe over the year, let's say, is the same, and also in the quarter it's the same. In Europe, it's definitely also legislation that plays a role, which is right in the sweet spot of the Melexis technologies. I think APAC, Asia Pacific, was a bit more volatile, and I think it's rather the weakness of Asia Pacific that drove the U.S. percentage a bit up. It still remains volatile overall. I hope that answers your question. Not sure what you were looking for.
No. Maybe as a bit of a follow-up, where APAC is volatile and was very strong in the fourth quarter, is that also what you are expecting at the beginning of it? Pretty strong guidance for the first quarter, is that then also driven by a strong APAC market?
The Q1 guidance is in fact an overall effect, a worldwide effect. As we said in the comment of the press release, that has to do with the fact that there is normalized order behaviour, and we see content growth, semiconductor content growth. As the inventories have now reached a healthy level, that is the reason why it's a bit up already in the first quarter.
Okay. Maybe a follow-up on the gross margin. I want to be sure that I completely understand it. There's some underutilization, a 2 percentage point impact. Is that the part that's going to be solved in 2020? Do you also then have additional underutilization to solve in the coming years? If you look in the back, your gross margin in the past was much higher than even adding 2 percentage points to the 41%.
The 2% that I'm referring to is underutilization in 2020. Indeed, it does not bring us back to the gross margin that we saw pre-crisis, because there are also other elements at play, as I mentioned before, amongst which is also our product mix. We grow today with new products, pressure sensors, for instance, these products are not optimized today. We are obviously working on that, but it's extremely difficult to know the timing of how fast we will improve margin on the new products that we bring to the market.
Okay. You have to optimize your own design to improve the margin up to the level that you saw in the past. Is that how it should be read?
We indeed need to work on when we launch new products, they are typically not optimized in margin. So that has always been the case, but today we have quite some new products ramping up. It takes time to bring them at higher margins. Where we will end and how fast, that is extremely difficult to predict today. What we know for sure is that the utilization will definitely improve if we grow. The gross margin on the launch of new products, how fast that will improve, that is much more difficult.
If I may just add one thing. We keep, of course, investing for new products. We also need to invest, which is, of course, not necessary today. If you talk about the capacity utilization, that is for existing products. If we have new products that require new tooling's or new equipment, yeah, we have to invest, otherwise we don't have the sales. On a one to one, it's not completely standardized overall. Some new products require also new investments.
Okay. Final question is on working capital. That's something you've been talking about in the previous calls as well, and if you want to have it at a slightly higher level to be able to actually deliver when real demand is coming up. Are you happy with the level where it is today? Does that imply that if there will be restocking, that you're fully geared to deliver?
Indeed, we are happy with, as mentioned before, that was a strategic decision to keep inventories at sufficiently high levels. The current levels are where we expect them to remain more or less also going forward in 2020. That should give us sufficient buffer in case of restocking as well.
Clear. Thank you.
Next question is coming from the line of Jeff Osborne. Please go ahead.
Yeah, good morning. I just had two questions. I was wondering if you could touch on, as the market's recovering, what you're seeing in terms of the competitive dynamics, in particular around pricing.
We have always suffered from price pressure. I don't really see a big change in price pressure due to different competition. It's always been there, and I think there is no significant difference there, I would say. Remains a challenge, as always.
I completely understand. The last question I had for Karen was on the visibility that you touched on. Can you just remind us as inventory in the channels returns to normal, and you highlighted improved visibility in one comment, but then also I think touched on it being somewhat limited. Can you just give us a sense of how much weeks or months of visibility you have into the channel, just in particular as we consider what's going on in China around global production and potential startup issues of some automotive manufacturing plants around the world because of some supply chain bottlenecks.
Yeah. Usually our lead times, let's say, that we ask our customers to take into account are around 16 weeks. Some are lower, 12, some are higher, 20. I mean, 16 is a good average for that. I would say four or five months is the visibility we have. We do see that customers really order just in time. They don't over-order as such, because I think also they see somehow the reality of not a great visibility these days and a lot of volatility in what their customers want. In that sense, yeah, our visibility is around, I would say four, five months.
That's very helpful. Thank you. That's all I have.
You're welcome, Jeff. Thank you.
Next question is coming from the line of Michael Roeg. Please go ahead.
Good morning, ladies. I have a follow-up question on the gross margin question that was asked by Marc Hesselink. If I compare your guidance for Q1 on sales, 136 and a gross margin of 41%, that sales level is almost identical to Q1 of 2018 when you had a gross margin that was 430 basis points higher than what you're now guiding. I get that about 200% is underutilization, but what is the other 200 basis points that we're missing this quarter?
It's more than 2% underutilization.
Okay.
There is, like I mentioned before, also the product mix.
Yeah
playing here. New products with not optimized margins as of today, that we will definitely work on to bring them at higher levels, but that will take time and it's difficult to predict how fast that will be. That's why we guide for 41% in 2020.
Okay. Is there some rule of thumb from the past that gives you an indication, say, after 12 or 24 months, a product has become mature and generates the average margins, or can it be very diverse from product to product?
I think it can be very diverse from product to product.
Yeah.
Let's complement also that our company has been built on growth or is building on growth all the time. We now have indeed still higher costs on all levels, because 2019 did not bring what we had expected before. We need to absorb, but I think we have a good cost control. At the same time, we don't want to sacrifice our future. It's really important that we continue to invest into innovation, into R&D. The requirements of the market continue to get more challenging as such. We have to continue investing.
Okay. That's clear.
We have a good cost control.
Okay. On your testing facilities, they're suffering from some underutilization. If you have to compare them to, say, two years ago, how much bigger is the capacity that you have that you need to fill to get that gross margin?
Capacity We are building in Sofia, the full capacity is not yet available. In equipment, if you remember, in 2017 and 2018, we invested quite heavily. It's difficult to say how much capacity we have because we have a very mixed equipment stock. For the new products, it could be that they are used at 10%, where products that are more mature, we have much higher levels. It doesn't make sense to really give a figure there at how much capacity utilization. An average number doesn't mean anything in our business. It's clear that we can still grow quite a bit without investing a lot. Also, 2019, we had I think in the range of EUR 25 million equipment. In 2020, we are around EUR 14 million equipment. We are definitely at levels that are much lower than in the past.
We are still investing also in the, like Françoise was mentioning, in the new capacity.
At definitely much lower levels than before 2019. Of the EUR 40 million that we invest this year, a big portion, actually around not half, but close to half, is into infrastructure in Sofia.
Okay. The remainder is equipment or something else?
Yes.
Okay.
Equipment and tooling.
Yeah, some tooling for R&D.
Automation investments, et cetera. Yes.
Okay. Is it fair to assume that based on your capacity that will be expanded a bit further, that the recovery in the gross margin may go a bit slower than, say, your sales growth also in 2021, perhaps?
What do you mean by the question?
Well, basically, you're ramping up your sales. You're growing sales again year-on-year. Ideally, you'd assume that the gross margin would benefit strongly, but there's clearly impact from skills underutilization. There's a product mix. Then looking at 2021, which is still far away, but you would assume further growth based on content penetration in cars. Your gross margin will probably not yet hit the 46% because there's still some more underutilization to work away.
Indeed. It will be a slow process to go back to gross margin levels that we saw in 2018.
Okay. Good. That's clear. Thank you. Those were my questions.
Thank you, Michael.
There are no further questions at this time. Please continue.
Okay. Well, thank you very much for your attendance and your good questions. They keep us always sharp. It will be our pleasure to host you at our next earnings conference call on April 29th. I wish you a great 2020. Thank you. Bye-bye.