Good morning, ladies and gentlemen, and welcome to the Thermo Semiconductor AT Conference Call regarding the First Quarter twenty nineteen Results. At this time, all participants have been placed on a listen only mode. The floor will be opened for questions following the presentation. Let me now turn the floor over to your host, Doctor. Anfel Minthe, CEO.
Ladies and gentlemen, also a warm welcome from my side. We are talking about the first quarter results of 2019. Obviously, Doctor. Anis Nager 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 and 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, and expect to grow this year and confirm our guidance from February once more. So despite the somewhat volatile market sentiment, we see a positive development ahead 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 €69,100,000 We benefited not only from a solid demand in running and ramping products but also had a few positive cutoff 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 10%.
Of course, also the weak 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 €33,100,000 still accounting for roughly 50% of our total sales volume. The U. S.
Stood at €2,100,000 other countries at €7,600,000 and Asia at €26,200,000 or 38% of sales. Asian growth took a breather during the economic downturn of the last month, especially in China. But we see already slight signs of recovery even in China. Last but least, the government is taking 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 our applications in the world of individual mobility development. Turning now to our segments, Semiconductor and MicroMechanics. Both had choice positive momentum. The Semiconductor segment came to sales of €62,200,000 or plus 5.6% and an EBIT margin of 14.3%. The MEMS segment developed disproportionately strong in the first quarter, accounting to sales of €6,900,000 a plus of almost 50% and an EBIT margin of 19.9%.
We observed a continuously positive development of our MEMS segment in the last quarters, its volatility will remain due to its smaller absolute size. Turning now to profitability. Gross profit was quite strong in the first quarter twenty nineteen, amounting to €31,400,000 or a gross margin of 45.5%, reflecting a good operating performance. Operating expenses are slightly higher in absolute terms as a percentage of sales amounting to €22,000,000 or 31.8 percent of sales. This is driven by rising R and D expenses as we strengthened our R and D capabilities at the beginning of the year as planned.
Part of this is also a new R and D location in Biselberg. Thus, EBIT came to 10,200,000 corresponding to an EBIT margin of 14.8%. After taxes and minorities, the consolidated net income amounted to €7,000,000 or 10.1% of sales compared to €5,400,000 or 8.6% in the 2018. This equals basic earnings per share of €0.36 in the quarter of reports today versus the €0.28 in the respective prior year period. The operating cash flow for the first quarter of 'nineteen reached €11,900,000 compared to €4,500,000 last year.
Capital expenditures, excluding capitalized development expenses, amounted to €16,100,000 or 23.3% of sales, reflecting the expansion of our tank capacity and higher spending in Q1. These are, of course, also cutoff date checks if full year guidance remains unchanged. The expanding and increase in working capital is all reflected in the adjusted free cash flow as well, which came to minus €10,400,000 for the first three months in 2019. At the end of the quarter, we had a net debt position of €11,700,000 versus a €16,900,000 net cash position on the December 31. The main driver for this growth swing from a net cash to net debt position is the first time application of the IFRS 16 standard on leases.
This led to an increase in PPV, property, plant and equipment by roughly EUR17 million and is reflected in the calculation of the net cash by higher financial liabilities. Pises are now more or less in that respect treated like real debt. Last but not least, let me come to our guidance, which we confirmed for 'nineteen. We expect sales to grow by 610% compared to 2018. EBIT margin is expected to be between 1317% 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 USD 1.15 to the euro. And, of course, the assumption that we have no major changes in the economic environment. Further information and figures for the first quarter twenty nineteen can be found in our quarterly statement available at our homepage.
Now I would like to open the floor for questions.
And the first question comes from Michael Schulman of Research. The
first one is regarding any specific trends you see materializing and investing in your order situation? Maybe you can elaborate a bit on what you see within your order books from different customers, different regions, any specific things that give you confidence give you less confidence of what what are you seeing? I
I tried to express this a little bit that we think that we have quite good business segments in the areas we are operating. So we see growth trends in sensors. I mean we have quite a few ramping products. I mean we always ask ourselves why are we, let's say, so special in the moment as compared to the other semiconductor companies. If you look to their quarterly performances, most of them really report a negative Q1 on Q1 comparison.
They're only really 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. And as we also expressed during other opportunities and calls, I think we didn't load our customer pipelines as much as other customers still did. So these destocking effects are less severe for Elmos. And 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 a slight recovery. I mean, again, the question would then be, is it due to the effectiveness 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 nice functionality and a very competitive price. In other areas, it's just a demand because a car model is better sold than another.
So I think it's hard to say. In general, we are still in a somewhat corrected situation, I would say, but 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.
Okay. With respect to the project plans, is that more or less evenly distributed over the year? Or is that kind of front end or back end loaded?
It's, again, hard to say because we have a lot of ramps all over the year. But what you never can predict precisely is how steep will they be because that depends very much not only on the ability of the Tier one 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. And I mean many of the reasons why these, let's say, sales channels have been somewhat blocked in the last months was not only a lack of attractiveness of these cars, but this was jumped just simply the effect of these 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 VLTP is finalized before they offer it again on the market. So I mean, I would like to talk about examples to issue even if the car companies issue into their Internet pages and look for a car that you thought you were familiar with over a year ago, you eventually couldn't configure it because it was just not real to be approved.
No. No. Okay. Then with respect to your Men's business, I mean, it certainly has a huge volatility from quarter to quarter. But 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, as you know, is I've never been neutral with my guys in California. I have been always fond of them. So I think we see structural signs in that. I always am talking about this medical devices that we support 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 in vivo measurements.
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. And not only have you been successful in that, but we have now also been successful to contact this in a very specific technique that we pre protected and patented. It's not easy to contact the semiconductor that's in the size of a hair or even smaller and then attach three wires to that and make it reliable with zero hair tolerance, which you can assume if this is involved in a medical shipment. And we're about to roll this out. So we have many interesting customers and interesting projects to follow on.
And of course, I mean, we are talking about still 10% of the business. Don't forget this.
Yes. Yes. All right. Sure. And with respect to your gross margin, I think you have to go back to 1.6% or something to sweep kind of a 45% gross margin in the first quarter.
Mean, you said you wanted to leave it part of the year. So what does it tell us? I mean, just 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 guidance for the quarters to come, but I can't comment what happened in Q1. That's quite simple. I mean, compared to the rather, I would say, very polite difficult situations we had in production in the last quarter of last year, we had a very controlled situation now in Q1, which was, of course, due to the many investments we undertook and also we've reduced resources and made all the additional measures necessary to cope with the higher volume. And so we have been quite efficient in production. That's maybe a fair answer to give.
And is there any reason why we should expect that you won't be as efficient in the next quarters?
Not to my knowledge for the long term.
As you may have
told you, Production is a creative animal. Try to tame it the best we can, but I mean, of course, we are always working on efficiency. Never forget, please. I mean, we are growing by 8.8. Under that lies, again, like every year, price negotiations.
So in the end, you produce again much more products than you produced in Q1 last year. So it looks maybe I sound relaxed and maybe it's a little bit relaxed when you look at our figures. But I mean, still, quarter by quarter, we increased production capacity rather significantly.
Yes. Okay. And then with respect to pricing, would you consider project pricing to be pretty much in line with what you see every year? Or was this kind of
I mean, we've got one hour, but we've also missed another. So it was the same thing.
Yes. Okay. And then on diamonds, maybe comment on, I mean, just one quarter with maybe your view on current design wins since the start of the year?
We feel very much in line with our initial targets for this year.
Good. Last question would be then on CapEx. Mean you have strong growth. Turbine seems to be okay or good for the rest of the year. So I don't assume that you kind of consider an investment of your CapEx time, especially in the test area and adding capacity.
We don't trust CapEx for this year.
The next question comes from RobbenWass, Haucken, Alphoiser. Just
also one question on the transaction with Hraunhofer. I mean you didn't change your guidance obviously after the announcement. But 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? Or how do you see the joint venture here going forward to work?
I mean, we never disclosed any things or details of contracts that anyhow are on the NDA. In general, I mean, we sign a contract, we sign it because we think there are good reasons to do so. And to sign this contract, there was quite a few good reasons to do so. First of all, was the continuation of this successful cooperation with the Fraudhofe Institute. And I mean, 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.
I mean we intentionally said that this contract signing does not have any influence on the guidance. So this is the way I would like to answer the question.
At the moment, there seems to be no further questions. There are no further questions from the audience.
Okay. Thank you very much. You can give a word back to me. So 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 15 in Rotman, and parts will be broadcasted via the Internet. Our half year results will be published in 08/01/2019. We would like to invite you already today to join us for the conference call and, of course, for the general feel and be so patient. So for the moment, goodbye from our side. Have a nice day.
Thanks.