VAT Group AG

Ladies and gentlemen, welcome to the VAT Q1 2024 Trignate Conference Call. I am Alice, the chorus call operator. I would like to remind you that all participants will be in listen-only mode and the conference is being recorded. The presentation will be followed by a Q&A session. You can register for questions at any time by pressing star and 1 on your telephone. For operator assistance, please press star and 0. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Mr. Urs Gantner, CEO. Please go ahead, sir.

Thank you. Ladies and gentlemen, good morning and grüezi miteinander. Welcome to EAD's Q1 2024 Trading Update Conference Call. With me this morning are CFO Fabian Chiozza and our investor relations team with Michel Gerber and Christopher Bickley. After my introductory remarks, we will start the Q&A session. The call-up moderator will take your questions in order you enter them. Good to see and hear you so soon after the full year results event on March 5th. It was enlightening to meet some of you on our roadshow and it is good to see you engaged with VAT. As you can also see from our press release this morning, we are also happy to share good news on VAT's business development. Compared to 12 months ago, where we were in the middle of the semi-market downturn. We have seen consistently strong order flow in Q1, which continued from Q4 last year as we see demand return for wafer fab equipment and therefore increased demand for VAT products. Our customers have reached more balanced inventory levels, which drive renewed orders. The increasing demand for leading-edge chips and the accompanying technology inflection is driving a requirement to invest in new manufacturing technologies. And finally, we see no slowdown in investments in China, where the drive to establish a global mature node leadership is relentless. We remain positive for this year and next year and expect the trends we saw in Q1 to intensify in the course of this year. while at the risk of sounding like a broken record. As we told you at our full year result, there are three key messages and drivers for VATS business. First, we have spent 2023 preparing for the upturn and we are ready to benefit from the expected order flow. Second, we are on track to deliver on our ambitious midterm targets by 2027. which means we have significant organic growth ahead. And third, we strongly believe in the $1 trillion semiconductor industry ahead, which will require considerable investment in leading-edge equipment. Let's talk some numbers now. Our first quarter 2024 orders amounted to 236 million Swiss francs, of the market. Group net sales have decreased from Q1 slightly to 199 million Swiss francs, which is above the midpoint of the sales guidance we communicated at full-year results back in March. We noted a number of questions on our investor marketing on why our guidance might not line up with the orders, so just a reminder here. Orders do not all get executed during the immediate next quarter. Some orders are distributed over multiple quarters, especially in ADV-related project business. FX remains a key topic for us. We are selling valves to our customers in US dollars, euro, and other currencies, while our costs are largely in Swiss francs. On a constant currency base, our sales were negatively impacted by 7%. We maintain a healthy order backlog of approximately 324 million Swiss francs, which equates to a book-to-bill of approximately 1.2. This is slightly higher versus our relation of 1.1 reported at full-year results. However, we are still in rebuild mode for our order book, which was 22% higher in the same quarter in 2023. Across the three businesses, we saw the following performance. In semiconductor, orders were up 162% versus last year, demonstrating the acceleration of demand we have been seeing over the past quarters. I want to remind you that we are talking about a gradual sequential growth. And note that orders grew in comparison by 7% over Q4. So we are only at the beginning of this bracket. We continue working closely with our semi-customers to prepare for the anticipated ramp phase, ensuring that we are ready. We are in the process of developing new products, both in our valves and adjacency business, and receiving promising feedback. Our spec wins rate continues at a high rate. The advanced industrial business unit showed a declining order intake of manufacturing down 29% versus Q4 2023. Please remember here we told you about some significant project wins. Solar business and coating bookings decreased due to the market down cycle and customer overcapacity. At the same time, our R&D business saw double-digit growth. Our global service segment continued to see improving demand in the first quarter. With capacity utilization in semiconductor fabs slowly improving, service orders have been ticking up 11% versus Q4. This increase is driving demand from spares and repairs, with refurbishments still lagging somewhat. Looking forward to the second semester, 2024 and 2025, we maintain our outlook that market conditions will We continue to expect better sales, EBITDA, EBITDA margin, net income, and free cash flow in 2024. I can only repeat my statement from a month ago. 2024, and especially 2025, will be years where VAT will show our key qualities. We are seeing the first signs of the recovery in semiconductor coming through and With the strong demand for leading-edge technologies, we will benefit from the recovery. We are seeing value utilization rates rising and order flow increasing. Our customers right-size their inventories and are starting to pass orders through. Our ADV business continues to be selective on their business and show consistent wins in energy transition topics and in research vacuum applications, where we are truly delivering value-add to our customers with highly customized valves. Our global service business is benefiting from the 1.6 million installed base of valves as we deliver consumables and replacement parts in the first step, and in the second step, anticipate to help our customers with refurbishment and repairs. Our Malaysia Factory 1B will help us both deliver for our customers and manage our exit soldiers. Sourcing from best-cost countries is ongoing as planned to provide expected productivities and economies of scale in global supply chains. We are selectively hiring again after terminating short-time work in Switzerland and preparing for the ERP implementations. We are optimistic about the coming quarters and for the second quarter of this year. We are guiding to sales 235 to 255 million Swiss francs. This concludes my prepared introductory remarks and we are now turning the call back to the operators for the Q&A session.

We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on the touch-tone telephone. You will give a turn to confirm that you have answered the queue. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to choose only answers while asking a question. Anyone who answers the question may press star and one at this time. Our first question comes from the line of Olivia Honeychurch with Jefferies. Please go ahead.