Good morning, ladies and gentlemen, and welcome to the Elmos Semiconductor AG conference call regarding the first quarter 2019 results. At this time, all participants have been placed on listen-only mode. The floor will be open for questions following the presentation. Let me now turn the floor over to your host, Dr. Anton Mindl, CEO.
Ladies and gentlemen, also warm welcome from my side. We are talking about the first quarter results of 2019, obviously. Dr. Arne Schneider and myself, we will host the call together as usual. The start into the year 2019 was very much in line with our expectations. Elmos is developing reasonably well in the currently quite challenging market environment. Our products are very well received in the markets, and more and more customers are convinced that it is a good idea to use Elmos chips in applications like smart motor drivers, many sensing technologies, and also light, just to pick a few. Also, it's clear that Elmos could not do anything about the real downturn in the business cycle. We expect to grow this year and confirm our guidance from February once more. Despite the somewhat volatile market sentiment, we see a positive development, I guess, for Elmos.
Having said this, let me provide you with a short overview of the current figures. Sales increased by 8.8% year-over-year, coming to EUR 69.1 million. We benefited not only from a solid demand in running and ramping products, but also had a few positive cut-off effects. We experienced some carryover topics from 2018, but also some orders were collected earlier than originally thought. A little bit of support came also from the U.S. dollar to euro exchange rate, if we compare the years, around 2%. Of course, also the weaker Chinese markets made its mark on the figures. The regional sales development reflects general market trends and economic environment in individual markets. Europe has a more or less stable situation, with EUR 33.1 million still accounting for roughly 50% of our total sales volume.
The U.S. stood at EUR 2.1 million, other countries at EUR 7.6 million, and Asia at EUR 26.2 million or 38% of sales. Asian growth took a breather during the economic downturn of the last months, especially in China. We see already slight signs of recovery even in China. Last but not least, the government has taken tax measures to support market sentiment. In general, we have no doubts that individual mobility is their marketplace to be, not only in Asia but around the world. Our products and the developments we are working on will not only serve these market trends, but with our continuous stream of innovations, we will have structural influence on how applications in the world of individual mobility develop. Coming now to our segments, Semiconductor and Micro Mechanics. They both show us positive momentum.
The Semiconductor segment came to sales of EUR 62.2 million or a plus of 5.6%, and an EBIT margin of 14.3%. The MEMS segment developed disproportionally strong in the first quarter, accounting to sales of EUR 6.9 million, a plus of almost 50%, and an EBIT margin of 19.9%. We observe a continuously positive development of our MEMS segment in the last quarters. Its volatility will remain due to its smaller absolute size. Coming now to profitability. Gross profit was quite strong in the first quarter 2019, amounting to EUR 31.4 million or a gross margin of 45.5%, reflecting a good operating performance. Operating expenses are slightly higher in absolute terms than percentage of sales amounting to EUR 22 million or 31.8% of sales. This is driven by rising R&D expenses as we strengthened our R&D capabilities at the beginning of the year as planned.
Part of this is also a new R&D location in Düsseldorf. Thus, EBIT came to EUR 10.2 million, corresponding to an EBIT margin of 14.8%. After taxes and minorities, the consolidated net income amounted to EUR 7 million or 10.1% of sales, compared to EUR 5.4 million or 8.6% in the first quarter of 2018. This equals basic earnings per share of EUR 0.36 in the quarter of reports today versus the EUR 0.28 in the respective prior year period. The operating cash flow for the first quarter of 2019 reached EUR 7.9 million compared to EUR 4.5 million last year. Capital expenditures, excluding capitalized development expenses, amounted to EUR 16.1 million or 23.3% of sales, reflecting the execution of our test capacity and higher spending in Q1. These are, of course, also cut-off effects as full-year guidance remains unchanged.
Test expanding and increase in working capitals are reflected in the adjusted free cash flow as well, which came to minus EUR 10.4 million for the first three months in 2019. At the end of the quarter, we had a net debt position of EUR 11.7 million versus a EUR 16.9 million net cash position on the 31st of December last year. A main driver for this broad flip swing from a net cash to a net debt position is the first-time application of the IFRS 16 standard on leases, which led to an increase in PPE, property, plant, and equipment, by roughly EUR 17 million and is reflected in the calculation of the net cash by higher financial liabilities. Pieces are now more or less in that respect treated like real debt. Last but not least, let me come to our guidance, which we confirm for 2019.
We expect sales to grow by 6%-10% compared to 2018. EBIT margin is expected to be between 13% and 17% of sales. Capital expenditures, excluding capitalized development costs, are expected to be below 15% of sales. The adjusted free cash flow will be positive. The guidance is based on an average exchange rate of $1.15 US to the euro, and of course, the assumption that we have no major changes in the economic environment. Further informations and figures for the first quarter 2019 can be found in our quarterly statement available at our homepage. Now, I would like to open the floor for questions.
Ladies and gentlemen, if you would like to ask a question, please press nine and star on your telephone keypad. In case you wish to cancel a question, press nine and star again. Please press nine and star to state your questions. The first question comes from Malte Schaumann Warburg Research . Please go ahead with your question.
Yeah. Good morning. The first one is regarding any specific trends you see materializing, manifesting in your order situation. Maybe you can elaborate a bit on what you see within your order books from different customer, different regions. Any specific things that give you confidence, give you less confidence? What are you seeing?
I think I tried to express it a little bit that we think that we have quite good business sentiments in the areas we are operating. We see growth trends in sensors. We have quite a few ramping products. We always ask ourselves, why are we, let's say, so special at the moment as compared to the other semiconductor companies? If you look through their quarterly performances, most of them really report a negative Q1. On Q1 comparison, there are only very few that grow like we grow. I would say the major reason for us to grow is our part of ramping projects is maybe higher than with other competitors. As we also expressed during other opportunities and calls, I think we didn't load our customer pipelines as much as other customers did. These stocking effects are less severe for Elmos.
Those two factors, I think, were true for the Q1, and they are still true for the quarters to come. In general, like also expressed in my presentation, we see also signs of slight recovery. Again, the question would then be, is it due to the attractiveness of the products that we are selling, or is it a market sentiment? That's not easy to answer. In some areas, we see more demand for products which we think are very attractive to the market because they have a nice functionality and a very competitive price. In other areas, it's just a demand because a car model is better sold than another. I think it's hard to say. In general, we are still in a somewhat corrected situation, I would say.
We see slight trends of improvements, but also maybe a few of the signs might be attributed to the attractive products we have in our portfolio.
With tech to be product ramps, is that more or less evenly distributed over the year, or is that kind of front-end or back-end loaded?
That's again hard to say because we have a lot of ramps all over the year. What you never can predict precisely is how steep they'll be, because that depends very much not only on the ability of the tier 1 to ramp, but also is even more so on the ability of the end customer of the car company to sell its cars to the market. Many of the reasons why these same sales channels have been somewhat blocked in the last months was not only a lack of attractiveness of these cars, but it was interestingly the effect of these exhaust procedures that just caused the car producers to remove cars from their internet pages to be configured, because they had to make sure that WLTP is finalized before they offer it again on the market.
I would like to talk about examples, but if you, even as car companies, if you went to their internet pages and looked for a car that you thought you were familiar with half a year ago, you experienced you couldn't configure it because it was just not WLTP approved.
Okay. With respect to your MEMS business, this certainly has a huge volatility from quarter to quarter. Is the growth seen in Q1 some kind of indication for growth you expect for that business in 2019, or is that kind of pure volatility that's kind of usual?
The problem is, so Schaumann, and you know this, that I've never been neutral with my guys in California. I have been always fond of them. I think we see structural signs in that. I always am talking about these medical devices that we support by our pressure sensors. I think we created a unique product where we, first of all, made a world record, tiny little small pressure sensor that is capable of doing an in vivo measurement, so being exposed to blood, which is a quite difficult chemical stuff if you look just from the chemical purpose, from the chemical properties of this fluid. Not only have we been successful in that, but we have now also been successful to contact this in a very specific technique that we IP protected and patented.
It's not easy to contact a semiconductor that's in the size of a hair or even smaller and then attach three wires to that and make reliable with zero failure tolerance, which you can assume if this is involved in a medical treatment. We're about to roll this out. We have many interesting customers and interesting projects to follow on. In two countries. Of course, we are talking about still 10% of the business. Don't forget this.
Yeah. Right. Sure. With respect to your gross margin, I think if you go back to 2006 or something to see kind of a 45% gross margin in the first quarter. Usually, Q1 is the weakest quarter of the year. What are the drivers? Were there any specific kind of one-off effects included in there? Do you expect only a slower increase during the coming quarters in comparison to the normal trends? How should we?
I won't give you a guidance for the quarters to come, but I can comment what happened in Q1. That's quite simple. Compared to the rather, I would say, to be very polite, difficult situations we had in production in the last quarters last year, we had a very controlled situation now in Q1, which was, of course, due to the many investments that we undertook and also we released resources and made all the additional measures necessary to cope with the higher volume. So we have been quite efficient in production. That's maybe a fair answer, I guess.
Is there any reason why we should expect that you won't be as efficient in the next quarters or?
Not to my knowledge for the moment.
Okay.
As you know, production is a creative animal. We try to tame it the best we can, but of course, we are always working on efficiency. Never forget, please, we are growing by 8.8%. Under that lies again, like every year, production variations. In the end, you produce again much more products than you produced in Q1 last year. Maybe I sound relaxed and maybe it's a little bit relaxed if you look at our figures, but still, quarter by quarter, we increase production capacity rather significantly.
Okay. With respect to pricing, would you consider profit pricing to be between, what, pretty much in line with what you see every year, or was it kind of Yeah.
We went one level, but we went also this level. It was the same thing.
Okay. Cool. On design wins, maybe a quick comment on, just one quarter, but maybe your view on current design wins since the start of the year.
feel very much in line with our initial targets for this year.
Okay. Good. My last question would be.
Sorry.
Yep. Last question would be on CapEx. You have strong growth. Top line seems to be okay or good for the rest of the year, I don't assume that you kind of consider an investment of your CapEx plans, especially in the test area and adding capacity.
Yeah. No plans, CapEx, for this year. No.
Yeah. Okay, thanks.
Thank you.
The next question comes from Robin Brass, Hauck & Aufhäuser. Please go ahead with your question.
Yes, good morning. Just also one question on the joint venture with Fraunhofer. You didn't change your guidance, obviously, after the announcement, is there any detail you can give us, like if there, for example, was there maybe some improvement in pricing you negotiated or something like that? How do you see the joint venture here going forward to work?
We never disclose any things as details of contracts that anyhow are under NDA. In general, if we sign a contract, we sign it because we think there are good reasons to do so. To sign this contract, there was quite a few good reasons to do so. First of all, it was the continuation of this successful cooperation with the Fraunhofer Institute. All the other aspects you can assume have had sensible compromises as well, not only from the side of the Fraunhofer, but from our side as well. We intentionally said that this contract signing does not have any influence on the guidance. This is the way I would like to answer the question.
Okay. Thank you very much.
Thank you.
At the moment, there seem to be no further questions. If you would like to ask a question, please press nine and star on your telephone keypad. Are there any further questions? Please press nine and star now. Thalea, there are no further questions from the audience.
Okay. Thank you very much for giving the floor back to me. Thanks to you all for your interest and participation on the call. As a closing remark, like always, I would like to remind you on the upcoming events. Our annual general meeting takes place next week on May the 15th in Dortmund, and parts will be broadcasted via the internet. Our half year results will be published on August 1st, 2019. We would like to invite you already today to join us for the conference call and of course, for the general shareowner meeting on this occasion. For the moment, goodbye from our sides. Have a nice day. Thanks.