Edited Transcript of SIS.DE earnings conference call or presentation 25-Mar-20 9:00am GMT

Q4 2019 First Sensor AG Earnings Call

Berlin Apr 2, 2020 (Thomson StreetEvents) — Edited Transcript of First Sensor AG earnings conference call or presentation Wednesday, March 25, 2020 at 9:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Dirk Michael Rothweiler

First Sensor AG – CEO & Member of Executive Board

* Marcus Resch

First Sensor AG – CFO & Member of Executive Board

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Presentation

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Operator [1]

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Dear ladies and gentlemen, welcome to the conference call of First Sensor AG. At our customers’ request, this conference will be recorded. (Operator Instructions)

May I now hand you over to Dr. Dirk Rothweiler, CEO, who will lead you through this conference. Please go ahead, sir.

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Dirk Michael Rothweiler, First Sensor AG – CEO & Member of Executive Board [2]

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Thank you, Kai. Good morning, ladies and gentlemen. Thanks for your participation in this financial statement press conference. We are happy to fill you in into our fiscal year 2019 results. Besides me, we have also Marcus Resch in the call who is sitting next to me as our new CFO.

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Marcus Resch, First Sensor AG – CFO & Member of Executive Board [3]

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Thanks, Dirk, for the introduction. Thanks to all of you for having joined our today’s presentation, for your interest in First Sensor.

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Dirk Michael Rothweiler, First Sensor AG – CEO & Member of Executive Board [4]

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Okay. Then I would briefly summarize our financial year 2019 in a nutshell before I go ahead with the key figures and the outlook. And at the end of the presentation, a more elaborate introduction of Marcus as our new CFO.

2019 in a nutshell, we had a great start to 2019. Order books were full. And as a result of our customers pushing us for fast deliveries, our focus was on faster turnaround, which resulted in a record Q1, both in terms of sales and also EBIT.

As of Q2, we saw indications for changes in the markets. These indications came across quite strong, customers started pushing our deliveries. And they also started adjusting inventory levels on their side. So this had 2 consequences on our side.

First, we immediately changed our inventory management from securing outputs to reducing inventory levels. That means that as a result of the full order books and customers pushing for fast deliveries, we had a safe level of inventory early in the year to allow us meeting customer expectations regarding on-time deliveries. However, when deliveries were being pushed out and on the customer sites, inventory

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we needed to also have our cash in mind. So we were hitting the brake. We did this by reducing safety inventory levels, but also by deaccelerating the flow of incoming materials.

Second, we also put in place a cost cutting initiative. This, as of July last year, this means first thing in Q3.

Q3, however, also turned out to be a record Q3. And this was true for revenues because the shippable order backlog was still very desirable. And along with the sales, it was also the record quarter so far in the history of the company regarding EBIT. Yes, however, with the changes in markets very visible, we expanded our cost-cutting measures in Q3 — in Q4. And as a result, we closed our fiscal year 2019 with a record sales and EBIT. And we have, as I will show you, also slightly improved our cash position.

I move on to key figures. First of all, there’s a history of sales from 2015, all the way through to 2019. We came out with EUR 161.3 million of sales. This is the record so far for First Sensor, the first time that we exceeded EUR 160 million. Most desirable, also, our EBIT rates continued to move up by 0.5% from 7.9% to 8.4% as a result of the activities in 2019.

Next is sales growth. Obviously, in a difficult market environment, we came from EUR 155 million in 2018 and saw a good growth of EUR 6.2 million or almost 8% in industrial applications. And this resulted in the sales contribution to overall revenues by industry to be almost 55%, so the good half of our revenues.

Also, in the Medical sector, we continued to grow. That’s only EUR 1 million, but resulted in 2.5% growth. And sales contribution to overall revenues of a little over 20%.

The Medical markets, in our mind, continued to perform last year. But from an overheated 2018 with generally long lead times in the industry and allocation topics because of the change in the market in 2019, lead times became lower and also customers corrected their inventory levels. So the real performance of the Medical segment is not fully visible in our results as a result of these inventory corrections.

Mobility was a shaken industry in the last year. We realized that because of the international trend, priority were changed in automotive and also the cost drag became visible in many places among our customers. So there, we had a slight decline, but the overall contribution was about 25%, like in the year before.

The next slide shows the breakdown of revenues by region. The pie chart on the left-hand side shows fiscal year 2018 with half of our revenues coming from Germany, Austria and Switzerland. And if you see the other pie chart for 2019, this came down to like 46%, 47%. And the driver behind that is that our growth in Asia Pacific, but also North America, continued to be outstanding with like 12% to 13%, while Europe was rather flat. And this is a result of our strategy where we focus on generating economies of scale, where we intend to penetrate more large volume customers and the penetration rate and the rate of new projects hitting volume in Asia and in North America is more than compensating the changes that we’ve seen in the market. While in Europe, we have a very mature customer base. And relative to the overall revenues, the volume increases with new projects had a relatively smaller impact.

Slide 7 shows the order situation, which despite small decreases, is fair to say is a relatively stable one in view of the changes that we’ve seen in the market.

Order entry fell slightly by about 2% from EUR 160 million to EUR 157 million. Again, as a result of the economically more challenging environment. If you look to order backlog, this went down from ’18 to ’19 by about 5% from EUR 98 million to EUR 93 million. And regarding book-to-bill, you’ll see that in fiscal year 2018, we were slightly above 1, while in ’19, we fell slightly below 1.

I move on to FTEs, we have increased our headcount, mainly in the production area. And this was necessary to support the top line growth. And this resulted in an increase of like EUR 3.5 million of the salary and wages in 2019 versus 2018, along with salary adjustments in a competitive employment market.

Yes, initially, I mentioned that in the second half in July last year, we hit the cost break. And obviously, the main cuts were done in hiring and marketing activities and in traveling. But obviously, we also streamlined other areas. We were looking to improve our fleet management and car policies. So vehicle costs went down by almost EUR 0.5 million. The recruiting processes were streamlined and resulted in a saving of EUR 300,000. Preventative maintenance helped us to decrease maintenance and repair costs. And along with our continued efforts in improved quality and quality management, we were saving on warranty expenses. All in all, if you look at the top left chart, other expenses were reduced by about EUR 2.2 million. A good contribution to our EBIT result for fiscal year 2019.

If we look at the balance sheet, then on the active side, we see that noncurrent assets have increased about EUR 10 million as we have executed investments as planned in support of growth.

If you look at inventories, there was an increase of EUR 3.5 million. As I’ve mentioned initially, we started with a good level of safety levels in inventories in order to secure on-time deliveries. And in the second half of the year, we hit the brake. We reduced these safety inventory levels by 50%. We also slowed down the rate of incoming materials, but the net effect was this increased by EUR 3.5 million.

Yes, if we look at trade accounts receivables, we’ve managed them very actively and reduced them by EUR 5 million. So that all in all, we saw a positive impact on cash and cash equivalents, where we have an increase of about EUR 3 million.

On the passive side, under liabilities, our employees have stock options, which were granted back in 2013, mainly so there is a slight rise in equity.

If we look at financial liabilities, the leading impact was the introduction of IFRS 16 accounting principles. So we have a 2-digit rise.

And last but not least, noncurrent and current liabilities show changes due to maturities.

Yes, this brings me to the outlook for 2020. Usually, I’m running you through a slide showing opportunities and risks regarding top line, but also bottom line development. The slides that I’ve prepared for you today shows, yes, coronavirus, COVID-19 news

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shutting down kindergarten schools, universities

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business going on because parents need to take good care of their children.

Also, German carmakers, and this has spread around Europe and even to North America, has announced a couple of week of plant closures. And you are very aware that at that time already, Italy, Spain, France, the U.S. were increasing and stepping up measures to address the spread of COVID-19. So in that context, we have reviewed opportunities and stress to our top line and concluded that there would be a likely decrease of sales compared to last year’s results of like 10% to — 5% to 10%. So our guidance for sales in 2020 is EUR 145 million to EUR 155 million as a result of likely impact of COVID-19. Yes, obviously, this has an impact also on the bottom line. We will be stepping up cost-cutting measures even further. But the guidance that we can give today is 3% to 6%. So this is somewhat a drop from the previous year.

Finally, I would like to comment on the transaction. You know that TE Connectivity in June last year has announced their intention to make a public offer to all outstanding shares to all outstanding shareholders for First Sensor. This public offer was published in early July. And on March 19 — sorry, March 12 this year, this public offer has closed. TE Connectivity Sensors Germany Holding AG, [the big co], is now holding almost 72% of our shares. The next step along this path is the implementation of a domination and profit loss transfer agreement with TE, but also First Sensor have announced mid of December in the previous year.

So having said so, I would like to hand it over to Marcus to give him a good opportunity and introduce himself to you.

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Marcus Resch, First Sensor AG – CFO & Member of Executive Board [5]

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Thanks, Dirk. It’s a pleasure being here. As indicated earlier on, I just joined First Sensor approximately a week ago, succeeding in the role of CFO to Mathias Gollwitzer, who I would like to take the opportunity to thank for all his contributions over the past 5 years.

I’m pretty confident that my prior experiences will help in continuing the growth path of First Sensor. I have spent almost all my professional life in finance roles, ranging from the field of audit with PricewaterhouseCoopers, over more accounting kind of roles with General Electric, to FP&A and controlling roles with KCI and with TE Connectivity and gain some further insights into M&A and the integration in my present role.

As I indicated, a very intense moment in time to join the team. It’s a great team, very well equipped and positioned to lead through the upcoming challenges, and I’m very much looking forward to it.

With that, I’m handing it back to Kai.

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Operator [6]

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(Operator Instructions) We received no questions via the telephone, so I hand back to Dr. Rothweiler.

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Dirk Michael Rothweiler, First Sensor AG – CEO & Member of Executive Board [7]

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Thank you, Kai. Thank you, ladies and gentlemen, for dialing in and following our financial statement press conference. Going forward will be an interesting time for us. So I’m thankful that Marcus Resch has joined. But also, I would like to thank Mathias Gollwitzer, who has been my immediate colleague for the last 3 years. We’ve been a great team. We’ve been working very proactively together. So I would like to express my appreciation for that. And again, thanks to all of you, stay healthy and stay safe. You have a good day. Thank you.

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Marcus Resch, First Sensor AG – CFO & Member of Executive Board [8]

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Thank you.

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Operator [9]

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Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect.

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