Jenoptik AG

XETRA:JEN

Earnings Call Transcript 2018-Q1

[Operator]

Good afternoon ladies and gentlemen, and welcome to the Jenoptik conference call regarding the Q1 results 2018. [Operator Instructions] Let me now turn the floor over to your host, Dr. Stefan Traeger.

[Stefan Traeger, Chairman of the Executive Board, President & CEO]

Yes. 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 2018. With me today is Hans-Dieter Schumacher, our CFO. And just let me get straight to the presentation.As already said, the first quarter 2018 has been pretty strong for our company. We've managed to grow revenues by 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 of the semiconductor manufacturing equipment segment and to anticipate questions we are ready at this very moment. That market seemed to be very, very strong and we don't see any near-term sort of slowdown effects here. So 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 had been volume. Of course mix, we have sold very profitable product lines in particular. But also -- and I would like to point this out in particular, a significant reduction or remarkable reduction in our G&A spend, our general and 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 onetime effects which we'll discuss in the call, but, yes, overall I think we've managed to reduce our admin expenses quite a bit.So overall, as I said, we are very pleased with our Q1. And with that said I'll hand over to Hans-Dieter who is going to detail the numbers for us here.

[Hans-Dieter Schumacher]

Yes. 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. So it's really a strong quarter. And to answer maybe question or few 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 special, meaning the Toll Collect project.Yes, having said this, I'd like to come to the next slide. Here you see the growth in the regions. We are round about 67% foreign revenue which is a significant part and 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 is positively influenced by Toll Collect here. So all regions are supporting our growth.When you then follow me please to the next slide here, you'll 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 3 segments including DCS which is -- has shown a stable development concerning sales, but better profitability is contributing here.And 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 sales, from the revenue mix and from the lower functional cost as already explained.If you then follow me a little bit in the details to -- of our P&L of the group then you see that the gross margin is more or less in the region as it has been in the prior year, but we have also some impacts here in the gross margin coming from project business in the automotive area, but this should improve in the months to come.Our functional cost, as already mentioned, are roughly round about EUR 1 million below prior year Q1, but keep in mind that our de-spendings and selling spendings rose slightly whereas administrative expenses were sharply reduced. So this is positive concerning -- these are positive impacts you see then in the earning figures.The financial result is influenced by a negatively affected currency loss. Our financial impact equals, so no matter here. Our earnings before taxes is nearly doubled, it's EUR 19.3 million compared to EUR 10 million which is a significantly rise. The earnings after tax has 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. And we have by the way benefited in the tax line from the tax -- U.S. tax reforms, yes.Then 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 -- has coming down a little bit, 10% as assumed by ourselves, 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, but you will see a positive strong development in the order intake in the Optics & Life Science segment. So it's mainly driven by the DCS segment where we had some major orders, 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, it's 1.05 meaning we have still 9 million more order intake when sales. So this is in line with our expectations. And if you look to the order backlog, it's the same level like at the yearend. Stable order backlog, good places for the coming months. Almost 75% of the order backlog will be converted to revenue this year, so we are quite sure that we will have a good year with the rest of the months.And then -- if you then follow me to the last slide before Stefan will show you the segments in detail for the free cash flow, then you will see that we had very strong operating profit before the adjusted working capital. We have obviously the 16% growth rate. You have trade receivables. You have inventories. So we have an increase in the working capital which costs a little bit cash flow, free cash flow, but which will be rised in the months to come.So our cash flow from operating activities is equal to the last quarter 1 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, but our investments will be high and strong throughout the year. So the higher investments are coming, but 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.So having said this, I'd like to hand over to Stefan again. He will explain to you the performance of our segments.

[Stefan Traeger, Chairman of the Executive Board, President & CEO]

Thanks, Hans-Dieter. And let's get right into tier starting with the Optics & Life Science segment. In the Optics & Life Science segment, quite frankly the demand is still very, very high on all sides of the house here, in all our businesses in our Optics & Life Science segment. And it has to be said that the Optics & Life Science segment in Q1 has seen a remarkable, yes, performance. We've grown orders by almost 13% in the first 3 months of this year. And 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 1 -- actually quite a bit above 1, which speaks to demand that we see in this segment, the ongoing strong demand in the semiconductor manufacturing industry, the ongoing strong demand on our Healthcare and Life Science businesses, and really across that all industry at the moment. And as I already pointed out, we are monitoring very, very closely the development in particular of course in the semicon arena. We're discussing with our customers. And at this very moment, all of the questions we get is can you deliver more please. So we don't see any slowdown in that segment at this very moment of course.As a result of the growing revenue, profitability continued 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. And overall, I -- the only thing I can say to Optics & Life Science is -- 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 -- particularly strong in Q1 and Q2. And we've detailed that a number of times, now it's a particular H1 effect. We are discussing about ongoing business in terms of service contracts and the like, so that's positive. The growth in this quarter is very strong and I continue to point out that's a H1 effect.Nevertheless, we're very bullish about this business as well. The order intake in the business is slightly slower, 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. And overall though, we are actually positive concerning that business going forward as well.Clearly, the profitability -- the segment has been improved, well, significantly, very significantly. Again, not a surprise to us, as we've communicated that in the past, we had prior year one-time expenses in this business, development expenses, R&D expenses, in particular expenses in -- on the cost related to the Toll Collect project. And we're now harvesting essentially from what we sowed last year.The EBITDA margin is now at 11.5%, which is obviously very strong for first quarter in this year, but again driven by in particular the Toll Collect project.With that said, let's go to the DCS segment on Page 13. Hans-Dieter 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 [indiscernible] products. So big orders have been booked in Q1 2017 that makes the comparator difficult. Nevertheless, it is -- it has to be said that in the Defense & Civil Systems segment, the order intake in Q1 went on pretty significantly.The sales are flat in this segment, or almost flat in this segment as expected versus prior year. Nevertheless, the EBITDA numbered, 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%. But 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 on page -- to Page 15 of our presentation, we have discussed with you and then with all the shareholders and stakeholders, our ideas around strategy going forward and we have discussed that we see our strategy going forward really to be around 3 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 international. And we've discussed that essentially we aim to take the -- and transform the Jenoptik from a relatively diversified industrial conglomerate to a more focused technology group.Let me just point out the -- shall we say the -- 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 or implementing and deploying these strategies, so in terms of "more focus." We've started 2 projects, one project to consolidate legal entities and to set up our business, more focused, so to say, going forward. So we have started the project to consolidate our [ OS ] and our HCI divisions into one. And we are very optimistic that in the beginning of the New Year 2019, we will be able to start with our new business setup.And again, in discussion also with representations from the unions and other stakeholders, we have started to merge legal entities -- our project 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 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, Hans-Dieter pointed to that already, we have stepped up our R&D expenses by about 5%. Obviously, that's just the first step, but 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 expenses somewhat and in the same time reduced our general and admins expense in a way that overall we've actually saved on functional cost. Shows that we're, yes, 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 and 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 that the goal here is not to install additional infrastructure, we have infrastructure around the globe. The goal really is to make our company think and take more globally and to, yes, address shows that issues more from an international perspective and then regional perspective in the various regions.In order to do that we have hired a new president for Jenoptik Asia, a colleague who is 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, at Mettler Toledo, so he is used to work in international environments, but on the other hand also obviously being Chinese and living in Shanghai somebody that understands in particular the name of the game and the rules of engagement in China.And somebody by the way that's the absolute evangelist if 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 actually living in England, representing the English part of that business. Kevin Chevis came to us from an exhibition 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 did better and to come up this combined and integrated analytic product roadmaps not driven from a particular site or country view, but from a global view.And in addition to that we have communicated that we have to change the composition of our executive management team, so if you want the extent of 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 is -- which I think is a very good thing.So off to a good start in all 3 of those building blocks. We're very confident that we can deliver good results here. We have communicated priorities for 2018. I think -- I think I did say a number of times we have to walk the talk here as management, we want our company to be a bit more focused and as sort of the board here all part is that we've given and set 3 pretty clear priorities for the whole of the organization for this year.Obviously, we've talked about that, the establishment of the new business structure is underway, making good progress there. In terms of launching the new brand for our mechatronic businesses for defense activities, I can report that we have started a project here together with a professional agency. And 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 a new identity if you want.And in terms of reorganization, our 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 just 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 comment 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. So in the light of those very positive factors, we're confirming our guidance. There are still some concerns we have and we've discussed that a number of times, yes, 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 of 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 and that's a risk that we see for the remainder of the year.There is 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, but we do see overall uncertainty in the political climate and there could be risks -- that could be risks and shocks to the global economic system. And therefore we think we monitor that very closely and that could be a risk for the remainder of the year.So 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 expect revenues -- 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%, net EBIT margin between 10.5% and 11%.With that said, let me pause here and love to get lots of question from you guys.

[Operator]

[Operator Instructions] And now we have a first question from Mr. Abbott.

[Craig Abbott, Head of Mid and Small Cap Research, Germany]

Three if I may, sorry. First of all, in your Optics & Life Science division, obviously the operational numbers are very high given the strong volume growth and the mix effects you mentioned, but from these levels, assuming revenues were to continue to grow what your order-book obviously indicates, a) would you have the capacity to meet that demand? At what point would you start increasing capacity? And b), should we expect a similar drop-through in 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? And the third one was on Mobility, obviously strong top line growth in the quarter, strong year-on-year increase in earnings, yet the margin was not back up double-digit level which obviously implies your earning in 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 Toll Collect installations roll out, but a higher margin again?

[Stefan Traeger, Chairman of the Executive Board, President & CEO]

Good questions. And 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, no, on the contrary, we do need to expand capacity, we're trying to expand capacity, and the limiting factor is labor. And with that said, yes, we could do with more capacity in that arena. If we would have that and hopefully we get that, obviously there 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 that would be a bit almost reckless if I say that there's even room for more, but, hey, I mean it does depend really on how fast we can manage to ramp up our capacity here. And again, the limiting factor on our end really is labor, that's the issue. On the order pipeline for Mobility and DCS, on the Mobility side, 2 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, both -- in for both -- for both areas. I think on the automotive side we have a good order -- pipeline, a good pipeline. And obviously along with the question of conversion rates and how high our conversation rate really is and can you convert it all or not, but on the automotive industry or automotive business we're confident. On the Traffic Solutions side, the problem within Traffic Solution 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 and it's a question of pulling them in or how it falls to us or to competition we're working hard on making sure it comes to us, but it's always -- it's chunky. I think that's what I can say. It could go all the way, if all goes all the way, hey, fantastic, but rarely happens. None of us goes -- none of it goes always, unlikely, so we'll have to see how the -- how the dice roll here. On the DCS, that's a bit harder for us to predict at the moment because what we see out there are on the 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 auto side, that would think, wow, that's fantastic and if what we borrowed, then comes to us [indiscernible]. And of course, these political signals that we all get are positive. But at the very moment we don't see it as a confirmed order in our book. So I'm a bit more cautious here. Really in case you need to find out how come that we have these -- it shows a mixed signals, on the one hand very positive signals from important customers of ours which should actually transpire in increased sales on our end, but on the other hand, yes, we haven't booked it, so we're bit more cautious on that end. In terms of the margin figure in the Mobility segment, I mean, first off the EBITDA margin is at 11.5% already.

[Craig Abbott, Head of Mid and Small Cap Research, Germany]

No, I meant for EBIT, sorry. Sorry.

[Stefan Traeger, Chairman of the Executive Board, President & CEO]

Yes, yes, I figured, which is the EBIT is at 8.4% and you are right, it had been higher in the past. However, please do keep in mind that that's in Q1 here. So I would think that the order -- remainder of the year it will rise to sort of the normal levels that I think you referred to sort of the double-digit range. Of course I don't want to give sort of too much of a guidance here. You never know -- one never knows, but for a Q1 that's a pretty strong margin already.

[Operator]

And then we have a question from Mr. Brass.

[Robin Brass, Equity Analyst]

I have a question also on the Life Science segment. I guess here it looks like it's also very strong demand in general. I was just -- had to assume that here maybe also the -- it's little bit naturally linked strongly to the semiconductor space, therefore at the beginning of a cycle it may be continue to be strong going forward for a while now? And my second question would be also looking at the labor shortage I would say in Germany, is there 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 little bit of those pressure that you have for Germany?

[Stefan Traeger, Chairman of the Executive Board, President & CEO]

To the first one, Life Science is actually not very cyclical typically. It's a fairly nonvolatile marketplace. So I wouldn't say that's the beginning of a cycle, it's probably more that we are overall successful in that marketplace. And I would also like to point out that in this HCI segment we have Life Science, Healthcare and industry. So there's also an industry-related part. So I would not read into that or let me put it that way, I would not want you -- want to leave you with the impression that this is result of a strong surge in demand on the Life Science market and 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 it. On terms of the bolt-on acquisitions, obviously you know that I can't sort of 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're doing in this segment is really pretty specific and special. There is not that -- 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. So 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. So, yes, it's a bit harder to see, shall we say, but overall of course we're constantly working on potential M&A opportunities.

[Operator]

The next question comes from Mr. Schaumann.

[Malte Schaumann, Equity Analyst]

The first question is on Optics and Life Science. What grows the demand in Healthcare and industry applications? Would that existing applications with existing customers for the new applications, new customers so to get a better feeling of structure the current strong order momentum?

[Stefan Traeger, Chairman of the Executive Board, President & CEO]

Existing predominantly. I assume I referred to the sort of new products that we have --

[Malte Schaumann, Equity Analyst]

Exactly.

[Stefan Traeger, Chairman of the Executive Board, President & CEO]

-- yes -- no, from existing.

[Malte Schaumann, Equity Analyst]

And then again on the capacity issue. I mean, how -- what is the -- I don't want to get a guidance, but what is the ability you think that -- I mean, the order momentum looks like you could do double-digit growth maybe in '18 and '19, what you said 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 high -- bit too high single-digits should be a more reasonable number just in regards the available capacities you see in the market?

[Stefan Traeger, Chairman of the Executive Board, President & CEO]

That's a good question.

[Hans-Dieter Schumacher]

And a dangerous one.

[Stefan Traeger, Chairman of the Executive Board, President & CEO]

That's a very good question. Anyway answer that. Look, I think -- first of all I think the anticipation that the demand remained at that very high level throughout '19 as well is very optimistic. But 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 will -- the industry is struggling already, let's put it -- take the whole industry is struggling already that we're at a point where it's getting hard even to get material. Like pinpointing to the labor, but at some point specific glasses that we all need, just running out, the world is running out of [ calcium fluoride gausses ] at the moment. Thank God at this very moment we haven't see 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 that could change at some point. So I think the feeling I would like you to leave that with is if it continues to be a strong asset in the moment in -- throughout the next 18 months, shall we say, it's [indiscernible] struggle as a total industry to fulfill that, but we will definitely be able to continue to grow very much in this segment if the demand stays at this high level.

[Malte Schaumann, Equity Analyst]

With respect to the automotive pipeline you mentioned, was that relating to the metrology business or the laser systems business or both?

[Stefan Traeger, Chairman of the Executive Board, President & CEO]

Both, I see it's not in here saying both, it is internal capacity as you -- but the metrology business is actually seeing -- 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 actually not a bad thing because 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 particular -- or very -- you need a combustion smaller, but more effective and efficient combustion engine as well and that drives demand for evermore optical and other industrial metrology for our business actually. So at this very moment we have -- we seem to detect at least a bit of a change in the tone in the discussion here. And it does show in our order-book. And on the laser processing side, we had a bit of a slow start into the year, but the pipeline is strong, so that should come in the next -- or that should even increase going forward, yes.

[Malte Schaumann, Equity Analyst]

The laser pipeline is both existing larger project with existing customers or new customers, new projects filling the pipeline?

[Hans-Dieter Schumacher]

Both. Mainly existing customers, but some new as well.

[Malte Schaumann, Equity Analyst]

And my last question is regarding Mobility, the Toll Collect, the things that go on the consortium, do you think that a new ownership -- a new owner there has an impact on your position and gaining the upcoming service contract?

[Stefan Traeger, Chairman of the Executive Board, President & CEO]

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 it seems to be a well-managed and professional process. So at this very moment we have all partner Toll Collect, we have a good and professional relationship with our partner there and obviously I can't comment on the process -- on the project and the process there, but I would assume that everybody in the game act professionally and therefore I think we have -- it's neither a plus nor a negative for us, it's not -- neither here nor there.

[Operator]

Then we have no further questions at the moment. [Operator Instructions] And Mr. Brass has another question.

[Robin Brass, Equity Analyst]

Yes, I have one follow-up. On Page 5 in the presentation, 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 then in the future?

[Stefan Traeger, Chairman of the Executive Board, President & CEO]

That's a good catch. I don't have a particular reason here, but it -- we have communicated I think a number of times already that we are not, so to say, satisfied with the growth that we do see in Asia, which is why we actually do address that and we see that as an important potential going forward. So you are right, it's overall somewhat disappointing and a good opportunity for further growth going forward.

[Operator]

And Mr. Abbott has another question.

[Craig Abbott, Head of Mid and Small Cap Research, Germany]

Yes, just really quick follow-up again on the current [indiscernible] situation in -- more in your optics business there overall. With demand so high and discussions you say from the customers typically being about speed of delivery, I would assume therefore your margins adjust that, it's not -- that it's also a price effect, i.e. the pricings still I guess a particular issue, are you able to actually take advantage of pushing through some price increases or is it really just more of volume and mix in terms of product mix that is driving that margin?

[Stefan Traeger, Chairman of the Executive Board, President & CEO]

Craig, in -- typically these are long-term contracts in that OEM business, so often prices have been discussed way in advance actually, but more of a volume and mix effect. Of course, look, I mean everybody is -- you'd be foolish not to try it or use it, but I would be not -- I have to be more sort of, yes, to be frank to say it's more of a long-term contract business and therefore prices have been discussed way in advance.

[Operator]

And then we have a question from Mr. Rothenaicher.

[Peter Rothenaicher, Analyst]

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, but 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 cost, but 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?

[Stefan Traeger, Chairman of the Executive Board, President & CEO]

I assume you are in Munich. Look, you pointed to it, the Q1 2017 has seen particular onetime 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 have already -- we also have taken measures to reduce our, yes, admin expenses which pretty dominantly are labor cost and we've taken and booked those expenses last year and we do see the windfall this year.

[Hans-Dieter Schumacher]

The savings.

[Stefan Traeger, Chairman of the Executive Board, President & CEO]

The savings, yes.

[Peter Rothenaicher, Analyst]

So what we have seen now in the first quarter can be perhaps a run-rate also for the upcoming quarters?

[Hans-Dieter Schumacher]

The direction, the direction. So direction of --

[Stefan Traeger, Chairman of the Executive Board, President & CEO]

Not the savings. Not the savings.

[Hans-Dieter Schumacher]

[Indiscernible] direction.

[Stefan Traeger, Chairman of the Executive Board, President & CEO]

Direction, yes.

[Hans-Dieter Schumacher]

Yes.

[Peter Rothenaicher, Analyst]

Then 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?

[Stefan Traeger, Chairman of the Executive Board, President & CEO]

Similar.

[Peter Rothenaicher, Analyst]

And then the equipment delivery is gone, so in the third quarter, no further sales coming for you?

[Hans-Dieter Schumacher]

Normally not. If it's one in Life --

[Stefan Traeger, Chairman of the Executive Board, President & CEO]

So depending on the -- on how it goes, but that's the plan.

[Peter Rothenaicher, Analyst]

In terms of traffic safety, you mentioned in general the pipeline is not too bad and there is competition out, but what is your personal view, can we see here in the current year some sense of major projects coming up or what is the picture?

[Stefan Traeger, Chairman of the Executive Board, President & CEO]

Look, we hope, but hope is never a good indicator, shall we say. We're competing and obviously as always if we do win real major orders we will communicate that. We're working hard on a few and we'll hope that the dice will fall and as you say and roll into our direction. We have -- yes, I think we have good offer there. And we trust in our ability to deliver. And we'll see how it goes.

[Operator]

[Operator Instructions] And then we have question from Mr. [ Oliver ].

[Unknown Analyst]

Just one if I may. Should we compare some cost already this year as part of the diffusion of your strategy 2022, more specifically in your recognition of business coming up on divisions?

[Stefan Traeger, Chairman of the Executive Board, President & CEO]

So I'm not quite sure if I got your -- if I got your question correctly. Has it -- did you ask if we expect costs in relation to the reorganization?

[Unknown Analyst]

Yes. Already this year.

[Stefan Traeger, Chairman of the Executive Board, President & CEO]

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.

[Unknown Analyst]

And maybe another one for the Toll Project. Should you win another order in Toll Project or should we assume that there is a bit of a learning curve effect or you would still need to go through same perhaps workforce that you had to do last year?

[Stefan Traeger, Chairman of the Executive Board, President & CEO]

I mean I wouldn't -- 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 on -- 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 and I hesitate somewhat to speculate because as I say the specific specs are typically different at different regions and at the very moment we don't have a model. So 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.

[Operator]

And we have no further questions anymore.

[Stefan Traeger, Chairman of the Executive Board, President & CEO]

Well, then thank you very much again for participating and for your interesting questions. Again in summary I think we are, yes, coming up a strong start into the year as expected. We have some tailwinds. We do see some risks. Overall very confident. We suspect that the rest of the year and yes, well, I think that's the most important point, making good process -- and progress rather in deploying our strategies. And I think that's the most -- 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.