Good afternoon, ladies and gentlemen, welcome to the Jenoptik Conference Call regarding the Q1 results 2018. At this time, all participants have been placed in a listen-only mode. The floor will be open for questions following the presentation. Let me now turn the floor over to your host, Dr. Stefan Traeger.
A very good afternoon from our end here in Jena as well, and welcome to our earnings call, presenting the result of what we believe has been a pretty strong first quarter of 2018. With me today is Hans-Dieter Schumacher, our CFO, and I suggest we get straight to the presentation. As I already said, the first quarter 2018 has been pretty strong for our company. We've managed to grow revenues by a remarkable 16% in the first quarter. Drivers for that growth has been, for a start, our Toll Collect project. We've already communicated in the past that we will see a good step up in our sales driven by that project, in particular in Q1 and in Q2. Another driver for the growth has been the continued strong demand in the semiconductor manufacturing equipment segment.
To anticipate questions here already, at this very moment, that market seems to be very strong, and we don't see any near-term sort of slowdown effects here. The continued strong demand in the semiconductor manufacturing equipment has been the second important driver for our growth of 16% in sales in Q1 this year. As a result of our growth, we've seen a significant margin step up from 10.9% EBITDA of sales in Q1 2017 to now 14.6% EBITDA in relation to sales in Q1 this year. Again, driver has been volume, of course, mix. We have sold very profitable product lines in particular. Also, and I would like to point this out in particular, a significant reduction or remarkable reduction in our G&A spend.
Our general admin expense in the first quarter of this year have been EUR 3 million lower than in the first quarter of last year. There were some one-time effects, which we'll discuss in the call, but overall, I think we've managed to reduce our admin expenses quite a bit. As I said, we're very pleased with our Q1. With that said, I'll hand over to Dieter, who is going to detail the numbers for us here.
Yeah. Thank you, Stefan. A warm welcome from my side as well, ladies and gentlemen. Next slide, please. Here you see our revenue development over the quarters, and you see the 16% revenue grew. This is, with EUR 189.9 million, the strongest Q1 figure ever, which is above Q1, Q2, and Q3 last year. It's really a strong quarter. To answer a maybe question of you in advance, it could have been EUR 6 million more, which equals to 19% growth rate if you took into account that we have negative impact on the exchange rate side. Just to answer this question, if you might have asked this question. The growth is, as Stefan already said, mainly driven by Optics & Life Science. The semiconductor business is going on very strong, as well as our Mobility segment concerning especially, meaning the Toll Collect project.
Having said this, I'd like to come to the next slide. Here you see the growth in the regions. We are around about at 67% foreign revenue, which is a significant part. You see the growth is splitted all over the continents. It's in Americas as well as in Europe and in Germany. Double-digit growth rate in Germany, it's positively influenced by Toll Collect. All regions are supporting our growth. You then follow me, please, to the next slide. Here you see our earnings figures. You see the EBITDA and the EBIT. Stefan already explained to you our EBITDA development in terms of absolute figures and margins, a strong increase, much stronger than revenue. All three segments, including DCS, which has shown a stable development concerning sales, but a better profitability, is contributing here.
I'd like to highlight, in addition to EBITDA, our EBIT figure, which is even higher. Above prior year, it's 88.7% plus, and now we have realized already an EBIT margin in Q1 of 11%, compared to 6.7% in the prior year. This is coming from the sales, from the revenue mix, and from the lower functional costs, as already explained. You then follow me a little bit in the details of our P&L of the Jenoptik Group, you see that the gross margin is more or less in the region as it has been in the prior year. We have also some impacts here in the gross margin coming from a project business in the automotive area, but this should improve in the months to come. Our functional costs, as already mentioned, are roughly around about EUR 1 million below prior year Q1.
Keep in mind that our R&D spendings and selling spendings rose slightly, where administrative expenses were sharply reduced. These are the positive impacts you see then in the earning figures. The financial result is influenced by a negatively affected currency loss. The other financial impacts are equal, no matter here, our earnings before taxes is nearly doubled. It's EUR 19.3 million compared to EUR 10 million, which is a significant rise. The earnings after tax is also nearly doubled, meaning we have reached an earnings per share of EUR 0.27 per share compared to EUR 0.15, which is a really strong increase here. We have, by the way, benefited in the tax line from the U.S. tax reforms. Yeah.
You see on the next slide our figures, which we, of course, have in the focus, which are the KPIs looking in the future of the rest of the year, the order intake and the order backlog. The order intake is coming down a little bit, 10% as assumed by our side as planned because in the prior year, and it's mainly driven from the DCS business because if you look, and Stefan will show you later on the segments in more details, you will see a positive, a strong development in the order intake in the Optics & Life Science segment. It's mainly driven by the DCS segment, where we had several major orders realized at the prior year, but Stefan will explain it to you a little bit more in detail later on.
For us, in the focus is the book-to-bill ratio, which is clearly above 1.05, meaning we have still EUR 9 million more order intake than sales. This is in line with our expectations. If you look to the order backlog, it's the same level like at the year-end. Stable order backlog, good basis for the coming months. Almost 75% of the order backlog will be converted to revenue this year. We are quite sure that we will have a good year with the rest of the months. If you follow me to the last slide before Stefan will show you the segments in detail to the free cash flow, you see that we had a very strong operating profit before the adjusted working capital. Obviously, with 16% growth rate, you have credit receivables, you have inventories.
We have an increase in the working capital, which cost a little bit cash flow, free cash flow, but which will be raised in the months to come. Our cash flow from operating activities is equal to the last quarter one year ago. On the investing sides, we are still below prior year, but in the prior year, we had the big investment in U.S. and our Rochester Hills in the campus building. Our investments will be high and strong throughout the year, the higher investments are coming. For the time being, our free cash flow in Q1 is still 30%, EUR 13.3 million compared to EUR 10.2 million above prior year Q1. Having said this, I'd like to hand over to Stefan again. He will explain to you the performance of our segments.
Thanks, Hans-Dieter, let's get right into here starting with the Optics & Life Science segment. In the Optics & Life Science segment, quite frankly, the demand is still very high on all sides of the house here, in all our businesses in our Optics & Life Science segment. It has to be said that the Optics & Life Science segment in Q1 has seen a remarkable performance. We've grown orders by almost 13% in the first three months of this year. At the same time, revenue has been increased by 16.6%, almost 17% over and above what has been already a very strong Q1 last year.
Nevertheless, despite that strong growth in sales, the book-to-bill is still above one, actually quite a bit above one, which speaks to demands that we see in this segment, the ongoing strong demand in the semiconductor manufacturing industry, the ongoing strong demand in our healthcare life science businesses, and really across that whole industry at the moment. As I already pointed out, we are monitoring very closely the development, in particular, of course, in the semicon arena. We are discussing with our customers. At this very moment, all the questions we get is, "Can you deliver more, please?" We don't see any slowdown in that segment at this very moment, of course. As a result of the growing revenue and profitability continue to increase in that segment. EBITDA margin in the segment is now at a very strong 23.2%.
Obviously, there is a volume, but also a mix effect. Overall, the only thing I can say to Optics & Life Science has been an extremely strong Q1, and we continue to be very bullish about this business going forward. Let's go to the Mobility segment on page 12 of our presentation. Starting with revenues. Revenues are up sharply by 31.9, almost 32% here. Obviously, that has been driven by the contribution from our Toll Collect project. We've anticipated that. We've communicated that. I think there's no surprise here. We are now in the phase of delivering and obviously invoicing the hardware, the equipment to our partners, Toll Collect. That's an effect that's particularly strong in Q1 and Q2. I think we've detailed that a number of times now. It's a particular H1 effect. We are in discussion about ongoing business in terms of service contracts and the like.
That's positive. The growth in this quarter is very strong, and I continue to point out that's an H1 effect. Nevertheless, we're very bullish about this business as well. The order intake in the business is slightly lower, actually down minus 8%, versus a very strong prior year, and we have discussed the reasons for that. There are certain frame contracts that we have booked in the past. Overall, though, we are actually positive concerning that business going forward as well. Clearly, the profitability of this segment has been improved, well, significantly, very significantly. Again, not a surprise to us, and I think we've communicated that in the past. We had in prior year, one-time expenses in this business, development expenses, R&D expenses, in particular, expenses in non-costs related to the Toll Collect project, and we're now harvesting essentially from what we've sold last year.
The EBITDA margin is now at 11.5%, which is obviously very strong for a first quarter in this year. Again, driven by, in particular, Toll Collect. With that said, let's go to the DCS segment on page 13. As I already pointed out, we do have seen a sharp decline in orders in this segment. However, let me again point out that we had a unusually strong comparator here. The Q1 2017 has been unusually strong. We've booked a number of large orders in Q1 last year. I'll point you to a tank order for Poland, to a U.S. Army order that we have communicated, I think, last year, and to an order to do with our NYXUS BIRD product. Big orders has been booked in Q1 2017. That makes the comparator difficult.
Nevertheless, it has to be said that in the Defense & Civil Systems segment, the order intake in Q1 went down pretty significantly. The sales are flat in this segment or almost flat in the segment as expected, versus prior year. Nevertheless, the EBITDA number, profitability is actually up, and that is due to a positive sales mix. The mix has been favorable for us, which resulted in an increase of 13.7% of the EBITDA margin, which is now at close to 10%, which again, for Q1, is actually pretty strong. With that said, I would like to take you somewhat into the future and look somewhat into the future with you again. If you follow me to page 15 of our presentation. We have discussed with you and with all shareholders and stakeholders our ideas around strategy going forward.
We've discussed that we see our strategy going forward really to be around three building blocks for growth and margin expansion. We've discussed the ideas around more focus. We've discussed our thoughts around more innovation and around more international. We've discussed that essentially we aim to transform the Jenoptik Group from a relatively diversified industrial conglomerate to a more focused technology group. Let me just point out, shall I say, what happened thus far, and the progress we've made thus far. Of course, it's very, very early. Just a few weeks into that period. Nevertheless, we obviously have started on working on implementing and deploying these strategies. So in terms of quote, unquote, "more focus," we've started two projects. One project to consolidate legal entities and to set up our business more focused, shall I say, going forward.
We have started the project to consolidate our OS and our HCI divisions into one. We're very optimistic that in the beginning of the new year, 2019, we will be able to start with our new business setup. Again, in discussion also with representations from the unions and other stakeholders, we have started to merge legal entities or projects to merge legal entities here in Germany in particular. We have a second project that we've started, we call it Join. It's a project that's meant to leveraging efficiencies in our admin functions, and you do see at least some of the effects here. Basically, the idea is to consolidate and make more efficient our corporate functions and our shared service functions. We're going to consolidate those functions into one entity, in order to leverage synergies and become more efficient in our admin work.
In terms of more innovation, in terms of our R&D work, I think I pointed to that already. We have stepped up our R&D expenses by about 5%. Obviously, that's just the first step. We wanted to be clear to the organization that we actually do mean it. We do want to spend more on innovation. We do want to become more innovative. I think combined with the fact that we've also increased our sales and marketing expense somewhat, and in the same time, reduced our general and admin expense in a way that overall we've actually saved on functional cost, shows that we're committed to what we've said and promised to the shareholders and to the capital markets. We want to make our business more agile, faster, and more nimble in a way. I think we're off to a good start here.
In terms of taking the business more international, again, I have said a number of times, we have said a number of times, the goal here is not to install a lot of additional infrastructure. We have infrastructure around the globe. The goal really is to make our company think and tick more globally, to address, shall we say, issues more from an international perspective and then regional perspective in the various regions. To also do that, we have hired a new president for Jenoptik Asia, a colleague who's Chinese actually, somebody that I worked together for the last 10 years with. I trust him a lot, actually. He came to us from my previous employer, Tecan. Before that, he had been with Danaher, with GE and Mettler Toledo. So he is used to work in an international environment.
On the other hand, also obviously being Chinese and living in Shanghai, somebody that understands in particular the name of the game and the roles of engagement in China. Somebody, by the way, that's the absolute evangelist when it comes to compliance. That's his first. He wakes up thinking about compliance and goes to bed thinking about compliance, and he learned that very much over the years. We also have communicated that we have a new head of our Traffic Solutions business, somebody that's actually living in England, representing the English part of that business. Kevin Chevis came to us from an acquisition that Jenoptik has made some time ago into that business, and we're pretty confident that it will enable us to actually integrate the various parts of our Traffic Solutions business a bit better.
To come up with combined and integrated analytic product roadmaps, not driven from a particular site or country view, but from a global view. In addition to that, we have communicated that we have to change the composition of our executive management team. So if you want the extended management board, if you want the real operatively responsible body of our company, we have now included, obviously, the new president of Asia, but also our American president is represented. In other words, we have our regions represented on the highest level of the organization, which I think is a very good thing. So off to a good start on all three of those building blocks. We are very confident that we can deliver a good result here. We have communicated the priorities for 2018.
I think I did say a number of times, we have to walk the talk here as management, and we want our company to be a bit more focused and as sort of the board here, our part is that we've given and set three pretty clear priorities for the whole of the organization for this year. We've talked about that the establishment of the new business structure is on the way, making good progress there. In terms of launching the new brand for our mechatronic businesses, for our defense activities, I can report that we have started a project here together with a professional agency. Again, we're confident that this new business or this business with a new brand identity will be starting into the new year as planned with the new brand, with the new name, and with the new identity, if you want.
In terms of reorganizational businesses in Asia, as discussed, hired a new president there, and he's currently traveling around in Asia quite a bit. He just started and he's trying to get an overview of the business there, coming up obviously and thinking about possibilities and options, and we're going to report on that once we know a bit more about it. Finally, let me just give a few color or comments and put a bit more color, shall we say, around our guidance 2018. We did say that we confirm our guidance today. Obviously, in the light of the very strong Q1, in the light of a still ongoing strong demand in the semiconductor arena, and in the light of a somewhat reduced FX risk, dollar came back a bit in the last few weeks, which is good for us.
In light of those very positive factors, we are confirming our guidance. There are still some concerns. We have, and we've discussed it a number of times, shall we say, increasing strain in our supply chain and in the labor market. It's getting increasingly difficult to hire skilled personnel on all our sites. Unfortunately, in particular here in the areas where we have our factories for the Optics & Life Science segment. We are, like many other companies in Germany at the moment, trying to hire skilled personnel, but it's getting increasingly difficult. We come up with all sorts of incentives now already for employees that can defer possible candidates to us, which does show that the labor market in Germany is pretty tight at the moment. That's a risk that we see for the remainder of the year.
There's also a risk of certain, shall we say, politically induced shocks to the global economic system. I'm not in the business on commenting on political moves of certain players, but we of course, have the obligation to look into that. It's not as if we're one to one linked to moves, in particular, moves that have been communicated in the last few almost hours by the U.S. administration. We do see overall uncertainty in the political climate, and there could be risks and shocks to the global economic system. Therefore, we think we monitor that very closely, and that could be a risk for the remainder of the year. Taking it all sort of on balance and weighing all these factors, as I said, we are confirming our guidance at this point in the year.
Three months into the year, we continue to expect revenues to be in a range between EUR 790 million and EUR 810 million, and anticipate an EBITDA margin between 14.5% and 15%, and an EBIT margin between 10.5% and 11%. With that said, let me pause here and love to get lots of questions from you guys.
Ladies and gentlemen, if you would like to ask a question, please press star nine followed by the star key on your telephone keypad. If you wish to cancel your question, please press star nine followed by the star key again. Please press star nine to state your question. Now we have a first question from Craig Abbott. Craig Abbott, your line is open.
Yes, good afternoon. I have three, if I may, sorry. First of all, in your Optics & Life Science division, obviously the operational leverage very high given the strong volume growth and the mix effects you mentioned. From this level, assuming revenues were to continue to grow, which your order book obviously indicates, A, would you have the capacity to meet that demand? Or at what point would you have to start increasing capacity? B, should we expect a similar drop-through margin on those incremental sales? The second question was if you could just give us a feel maybe for how the order pipeline is looking in the Mobility and DCS divisions. The third one was on Mobility, obviously strong top-line growth in the quarter, strong year-on-year increase in earnings.
The margin was not back up to double-digit level, which obviously implies you're earning a single-digit margin on this Toll Collect project. Should we expect kind of a similar mix in Q2 and then in the back half of the year in Mobility, lower sales as the Toll Collect installations roll out, but a higher margin again? Thank you.
Hey, Craig, Thanks for your questions. Good questions, good afternoon to you in particular. On the first one, Optics & Life Science. Capacity, we try to enhance already. It's not as if we're holding back on any investment here. On the contrary, we do need to expand capacity. We're trying to expand capacity, the limiting factor is labor.
With that said, yes, we could do with more capacity in that arena. If we would have that, and hopefully we get that, obviously, you are right, it has a pretty high operational leverage effect or lever effect. Nevertheless, we do run fairly high margins in this segment already.
It would be almost reckless, just want to say that there's even room for more, but hey, it does depend really on how fast we can manage to ramp up our capacity here. Again, limiting factor on our end really is labor. That's the issue. On the order pipeline for Mobility and DCS, on the Mobility side, two areas here. There's the automotive business and there is the Traffic Solutions business. On the Mobility side, we're actually pretty positive, shall we say, for both areas. I think on the automotive side, we have a good pipeline. Obviously, it's always a question of conversion rates and how high our conversion rate really is, and can you convert at all or not? On the automotive industry or automotive business, we're confident. On the Traffic Solutions side, the problem with the Traffic Solutions business is always, it comes in chunks.
There are a bunch of relatively large quotes and tenders, and businesses out there at the moment. Obviously, we're competing. It's a question of pulling them in or how it falls to us or to the competition. We're working hard on making sure it comes to us. It's chunky. I think that's what I can say. It could go our way. If all goes our way, hey, fantastic. Rarely happens. That none of it goes our way is unlikely, so we'll have to see how the dice roll here. On the DCS, that's a bit harder for us to predict at the moment. What we see out there are, on one hand, very positive signals from our customers and our partners.
If you follow what other participants, German participants, for example, in the industry are reporting on the order side, that would think, "Wow, that's fantastic." If only part of it comes to us.
Of course, these political signals that we all get are positive. At the very moment, we don't see it as an order in our book. I'm a bit more cautious here. Really, because we need to find out how come that we have these mixed signals. On the one hand, very positive signals from important customers of ours, which should actually transpire in increased sales on our end. On the other hand, yeah, they haven't booked it. We're a bit more cautious on that end. In terms of the margin figure in the Mobility segment, first of all, the EBITDA margin is at 11.5% already.
No, I was referring to EBIT. Sorry.
Yeah. I figured. The EBIT is at 8.4%, and you are right, it had been higher in the past. However, please do keep in mind that's the Q1 here.
I would think that over the remainder of the year, it will rise to more sort of the normal levels that I think you refer to, sort of the double-digit range. I don't want to give too much of a guidance here. You never know. One never knows, but for a Q1, that's a pretty strong margin already. Okay.
Okay. Thank you very much.
Welcome.
We have a question from Sven Bressa. Your line is open. Sven Bressa?
Hello, good afternoon. I have a question also on the life science segment. I guess here it looks like it's also very strong demand in general. Is it fair to assume that here maybe also it's a little bit not linked strongly to the semiconductor space, therefore it's the beginning of a cycle that may continue to be strong going forward for a while now? My second question would be also looking at the labor shortage, I would say, in Germany, is there a possibility for you maybe to do some bolt-on acquisitions, maybe outside of Germany, to have a second foot somewhere with strong labor force where you can outsource a little bit of those pressure that you have in Germany?
Thank you very much for your questions, good afternoon. To the first one, life science is actually not very cyclical, typically. It's a fairly non-volatile marketplace. I wouldn't say that's the beginning of a cycle. It's probably more that we're overall successful in that marketplace. I would also like to point out that in this HCI segment, we have life science, healthcare, and industry. There's also an industry-related part. I would not read into that, or let me put it that way. I would not want to leave you with the impression that this is a result of a strong surge in demand on the life science market. I think the life science market had been pretty strong in the last few years. It's typically a less volatile segment, and we're making good inroads there, shall we say.
I think that's the better way of putting that. In terms of the bolt-on acquisitions, obviously, you know that I can't disclose what we're working on exactly. We are constantly in discussion and processes for potential acquisitions. In your specific case, though, trying to acquire capacity, in particular for our optic segment, that's a bit more challenging. Because what we are doing in this segment is really pretty specific and special. There aren't that many places out there that are sort of a good fit for us in this particular optics segment where we're seeing the strong demand at the moment and the shortage in labor. It's a bit harder to see. Yes, there are some competitors out there, but they're all working on their own stuff at the moment. It's a bit harder to see, shall we say.
Overall, of course, we are constantly working on potential M&A opportunities.
Okay. Thank you very much.
The next question comes from Malte Schaumann. Malte Schaumann, your line is open.
Yep. Good afternoon. The first question is on Optics & Life Science. What drove the demand in Healthcare & Industry applications? Was that existing applications with existing customers, or the new applications, new customers? I want to get a better feeling of the structure of the current strong order momentum.
Existing, predominantly.
Okay.
I assume you refer to some sort of new products that we have.
Okay
Yeah, no, from existing.
Again, on the capacity issue. I don't want to get a guidance, but what is the ability you think that the order momentum looks like you could do double-digit growth maybe in 2018 and 2019? Would you say that might be possible if order momentum keeps up to meet that with the capacities you can add, or do you think that is too high and that maybe mid to high single digits would be a more reasonable number, just in regards to the available capacities you see in the market?
Oof. That's a good question.
A dangerous one.
That's a very good question. How do I answer that? Look, first of all, I think the anticipation that the demand remains at that very high level throughout 2019 as well is very optimistic. If we would take that optimistic scenario, and it does remain on this high level, then we would do our very best to fulfill the demand. I think at some point the industry is struggling already. Let's put it on the table. The whole industry is struggling already. We're already at a point where it's getting hard even to get material. I keep pointing to the labor, but at some point, specific glasses that we all need, we're just running out. The world is running out of calcium fluoride glasses at the moment. Thank God, at this very moment, we haven't seen sharp rise in prices, by the way.
That's another factor to sort of think and keep in mind. We don't see that at the very moment, but we have long-term contracts, so that could change at some point. I think the feeling I would like you to leave that with is if it continues to be as strong as it is in the moment and throughout the next 18 months, shall we say, at some point it will struggle as a total industry to fulfill that. We will definitely be able to continue to grow very much in this segment if the demand stays at this high level.
Okay. That's fair enough. With respect to the automotive pipeline you mentioned, was that relating to the metrology business or the laser systems business, or both?
Both. Both. Yeah, I see there's a nodding here saying both, in term of capacity, I see. The metrology business, we're positive about the metrology business. The metrology business is seeing good demand at the moment. I think overall, I seem to detect that the discussion in the industry has changed a bit in the last few months, from the original, "Oh my God, what's going on, and what does this whole e-mobility mean to us?" To a, "Hmm, that's actually not a bad thing." Lots of people are talking about hybrid engines and hybrid models at the moment, and if you want to have a hybrid, you need a combustion smaller, but more effective and efficient combustion engine as well. That drives demand for ever more optical and other industrial metrology for our business, actually.
At this very moment, we seem to detect at least, a bit of a change in the tone in the discussion here. It does show in our order book. On the laser processing side, we had a bit of a slow start into the year The pipeline is strong, so that should come in the next That should even increase going forward. Yeah.
Okay. Is the laser pipeline , the existing larger projects with existing customers or new customers, new projects filling the pipeline?
Both.
You have mainly existing customers, but some new as well.
Yeah.
Okay. My last question is regarding the Mobility, the Toll Collect, the things that go on around the consortium. Do you think that a new ownership there has an impact on your position in gaining the upcoming service contract?
I don't think so. I don't think that has an impact. Of course, one never knows, but what we can tell from our end, what we detect at least in the discussions, is that seems to be a well-managed and professional process. At this very moment, we have our partner Toll Collect. We have a good and professional relationship with our partner there. Obviously, I can't comment on the project and the process there, but I would assume that everybody in the game acts professionally and so therefore It's neither a plus nor a negative for us. It's neither here nor there.
Okay. Many thanks.
You're welcome. Thanks for your questions.
We have no further questions at the moment. Ladies and gentlemen, if you have any additional questions, please press nine star. Mr. Bressa has another question. Your line is open.
Yes, I have one follow-up. On page five in the presentation, you see if you look at the APAC growth, which is 4.9%, at least it looks a little bit low, at least in comparison to the other growth rates, which are quite high. Any comment on here why it's, let's say, only growing slightly? Or is there any specific customer reason that should also be better than in the future?
That's a good catch. I don't have a particular reason here, but we have communicated, I think a number of times already, that we are not, shall we say, satisfied with the growth that we do see in Asia, which is why we actually do address that. We see that as an important potential going forward. You are right. It's overall somewhat disappointing and good opportunity for further growth going forward.
Thank you.
Craig Abbott has another question. Your line is open.
Yes, just a really quick follow-up again on the current semi situation in, well, in your optics business, I should say, overall. With demand so high and discussions, you say from customers particularly being about speed of delivery, I would assume therefore, your margins suggest that it's also a price effect, i.e., the price sensitivity, I guess, is not a particular issue anymore. Are you able to actually take advantage of and push through some price increases, or is it really just more a volume and a mix in terms of product mix that is driving that margin? Thank you.
Greg, typically these are long-term contracts-
in that OEM business, often prices have been discussed way in advance, actually.
Okay.
It's more of a volume and mix effect. Of course. Look, I mean, you'd be foolish not to try and use it.
Sure.
I have to be more to be frank, shall we say, it's more of a long-term contract business and therefore prices have been discussed way in advance.
Okay. Very helpful. Thank you.
We have a question from Peter Rothenaicher. Your line is open. Peter Rothenaicher?
Hello, Peter Rothenaicher. One question regarding your P&L. I was a little bit positively surprised about a strong decline in administrative expenses. I know Q1 last year was a very high figure, also with comparison to the recent quarter, we have seen already an improvement. I know, Dr. Traeger, this is particularly one of your targets to bring down administrative costs. Has there already been some special positive impact from your measures, or what is the reason and what can you expect here, going forward for the upcoming quarters?
Good afternoon. I assume you're in Munich. Look, you pointed to it. Q1 2017 had seen particular one-time effects in connection with the change in the board, and that had been booked, the expenses there had been booked last year. That obviously helped us in this quarter, the comparison, this year to prior year. Nevertheless, we also have taken measures to reduce our admin expenses, which predominantly are our labor cost. We've taken and booked those expenses last year, and to see the windfall this year.
Yes. The savings.
The savings, yeah.
Okay. What we have seen now in the first quarter can be perhaps a run rate also for the upcoming quarters?
The direction. The direction.
Not the savings. Not the savings every quarter.
The direction.
The direction, yeah.
Okay. On the operating side, with regard to Mobility, would you say in terms of the Toll Collect project, there would be a similar stake in terms of sales, like in the second quarter, like in the first quarter?
Similar.
Yeah. The equipment delivery is gone, in the third quarter, no further sales coming here.
More than enough. If it's running like then, yeah.
Yeah.
Depending on how it goes, but that's the plan. Yeah.
Yeah. In terms of traffic safety, you mentioned in general, the pipeline is not too bad and there is competition out. What is your personal view? Can we see here in the current year some major projects coming up, or what is your picture?
Look, we hope is never a good indicator, shall we say. We're competing obviously, as always, if we do win real major orders, we will communicate that. We're working hard on a few we'll hope that the dice will fall, as I say, roll into our direction. I think we have a good offering there. I think trust in our ability to deliver we'll see how it goes.
Okay. Thank you very much.
Ladies and gentlemen, if you have any last question, please press nine, followed by the star key. We have a question from Oliver Kuhl. Your line is open.
Hi. Thank you for taking my question. Just one, if I may. Should we expect some cost already this year as part of the execution of your Strategy 2022, more specifically in your representation of business coming up in the division? Thank you.
I'm not quite sure if I got your question correctly. Did you ask if we expect costs-
Yes
in relation to the reorganization?
Yes. Already this year.
Oh, okay. I think we don't plan with a lot of big sort of cost impacts from a restructuring perspective here. We will see some expenses, of course, but I wouldn't plan with a lot of large restructuring expenses at this very moment in connection with the reorganization.
Okay. Maybe then another one for the Toll Project. Should you win another order in Toll Project, should we assume that there is a bit of a learning curve effect, or you will still need to go through the same paperwork effort that you had to do last year?
I would work hard with my organization to make sure that we do get a learning curve effect here. Otherwise, we wouldn't do the right thing. Obviously, if there would be another project falling into our laps, often they are somewhat different, so there will be adaptation costs in this case, or there should be adaptation costs in this case. It's a bit speculative, to be honest. I hesitate somewhat speculate, because as I say, the specific cars and specs are typically different in different regions, and at the very moment we don't have a model. It's a bit hard to speculate, but some leverage effect should be there. We wouldn't have to, I think, reinvent the whole thing entirely.
Thank you.
You're welcome.
Yes. We have no further questions anymore.
Well, thank you very much again for participating and for your interesting questions. Again, in summary, I think we're coming off a strong start into the year as expected. We have some tailwinds. We do see some risks. Overall, we're confident with respect to the rest of the year. I think that's the most important one, making good progress in deploying our strategies. I think that's even more important than an isolated quarter. We're making good progress in deploying our new strategies, and we fully intend to do so going forward. Thanks for your questions and have a good rest of the week, or for those of you in Germany, a nice holiday tomorrow. Thank you.