VAT Group AG

Ladies and gentlemen, welcome to VAT Half Year 2025 Results Conference Call and Live Webcast. I am Valentina, 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. Webcast viewers may submit their questions in writing via their relative field. 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 Urs Gantner, CEO. Please go ahead.

Good morning, ladies and gentlemen, and thank you for joining this webcast on our Q2 and half-year 2025 results. Today, I'm joined on this call by our CFO, Fabian Piozza. Also here with me is Michelle Gerber from our IR and sustainability team. For today's agenda, we have scheduled the following three parts before opening for a Q&A session. I will start with the highlights of the second quarter and half-year results 2025, and then Fabian will go through the financials in some more detail. I will then conclude with a look ahead and share our expectations for the remainder of the year. Here on slide three, you see the usual forward-looking statement reminding you of the many inherent unknown risks that exist. still faces many geopolitical uncertainties affecting many areas of our daily life and making the business environment challenging to say the least. Our main business, the semiconductor industry, is no exception in this environment or even one of the major industries in focus. Despite all that, I'm proud to say that VAT has again delivered a very solid set of results given the circumstances like the unresolved situation around global tariffs or the substantial strengths of the Swiss franc against all our major trading currencies. And I'd like to express my sincere thanks to our colleagues, our customers, and suppliers who have made this possible. One major factor I would like to highlight up front and that we have now mentioned prominently also in our media release is the sizeable negative FX development and we have experienced in the first six months over the year and in particular during the second quarter. The Swiss franc as our functional and reporting currency has strengthened against all our trading currencies. Over the last three months, the US dollar to Swiss franc rate has dropped 10%. Since the start of the year, the drop is even 13%. While our financial hedging activities absorb the balance sheet revaluation losses, we ultimately report in Swiss francs and therefore we decided to highlight also the business development at constant currency rates to highlight the company performance. Fabian will go into more details on this in his part of today's presentation. What were the highlights of the first six months of 2025? Order-wise, the market remains in a healthy condition, and we are about to see another record year regarding wafer fab equipment. Besides ethics, one important observation why our orders in semiconductor did not grow year on year is the fact that our customers are not ordering long ahead, as the years where different shortages dominated the global supply chains. Meanwhile, global supply chains have become again more reliable, so we see fewer advanced orders just to secure delivery. In sales, however, we saw a year-on-year increase of 24% in reported numbers, driven by semiconductors, followed by global services, and a flat development in advanced industrials. In half year one, 2025, we achieved a new record in total factory output with 60% year-over-year growth in our Malaysian site. I want to thank our global operations team for this fantastic result. The same applies for our EBITDA number, which is up 22%. And had it not been for ethics adversity, the EBITDA margin would also have increased nicely compared to the reported decline year on year. So these are the external factors that have impacted our performance. With our internal efforts, we continue to fuel our innovation pipeline and again, increase the number of specification wins substantially over half year one, 2024. I am proud to see that 20% of these wins have been achieved in our adjacent businesses a testament that the strategic direction is alive and our share of wallet is increasing. Ultimately, what do we anticipate for wave repair equipment, our major sales forecast indicator? Here, nothing has changed in the underlying growth drivers, except for some question marks around the timing of the anticipated next investment ramp. Wafer Fab equipment has plateaued at a record level just north of 100 billion US dollars per year. Technologies are progressing and additional capacity will need it on the roadmap towards the 1 trillion US dollar industry. The construction of more than 100 new fabs around the world is laying the foundation for future growth in wafer fab equipment. VAT is ready to master the next trend and to serve its customers adequately. So let's turn to slide six of the presentation that's available on our website and look at an overview of the half-year key figures and the segment breakdown. BALPS, our largest segment, accounted for about 84% of our sales, which is up from 81% a year ago. Global services consequently declined to 16% as the retrofit business showed weak development year on year half year one. Our highlights in the first six months of 2025, besides the record number in spec wins, was a 24% growth in sales on strong backlog execution, an educated is up 22% year on year, and last but not least, a very solid free cash flow development. Here on slide seven, I would like to briefly remind you of the directly linked to the semiconductor industry, with the remainder catering to many advanced industrial applications, a business that saw flat sales development in half year one 2025 versus half year one 2024. Geographically, we now have 74% of our products and services being delivered to Asia compared to a year ago and this number amounted to 63% as a percentage of group sales. Our direct China business accounted for about 35% up from 30% a year earlier. As elaborated on numerous occasions and the last time during our Capital Markets Day in May, innovation is a key success factor and differentiator for VAT. In the first six months, we spent around 31 million Swiss frames on R&D, representing about 7% of group sales and 9% of our semiconductor sales. The success and effectiveness of our accelerated R&D spend is demonstrated by the increasing number of specification wins, growing by 27% year on year. Another area where we measure our success is in the market are our adjacencies. Not only do they represent 20% of all spec wins, but they also continue to grow fast in sales volume. At 45 million Swiss francs in the first six months of 2025, they are 45% higher than a year ago. Adjacencies represent just over 8% of group sales, and still are at some distance compared to the 15% we expect by 2027, but the trajectory is pointing in the right direction. So, to wrap up my initial comments before handing over to the financial deep dive. Overall, the semiconductor industry is firmly on track towards the US$1 trillion-plus market by 2030, as the adoption of artificial intelligence continues, requiring more advanced and energy-efficient chips. The technological advancements to achieve this goal continue, and investment conditions for additional leading-edge manufacturing capacity remain strong, driven by the hyperscaler. Consequently, wafer fab equipment spend is at record levels, despite geopolitical and macroeconomic uncertainties, just north of the 100 billion US dollar mark. Apart from the leading foundries and ITMs, China contributes the most to this record wafer fab equipment spending. China continues to invest heavily in its self-sufficiency in ship manufacturing and the domestic OEMs gain more share. Finally, our large customers sentiment remain positive and a more pronounced ramp is generally expected. This is witnessed by the demand from customers for ever shorter lead times compared to the last couple of years. This concludes my initial remarks for the half year one 2025 review. And I would now like to hand over to Fabian for a more detailed look at our financials.

Thanks, Urs, and also from my side, a warm welcome to all of you who are joining us on this webcast today. As Urs has already mentioned some of the financial highlights in his introductory remarks, let me directly start with the order intake. Now when you see the order development of the second quarter and half year in 2025, the order patterns describe, on one hand, the continued good market demand However, geopolitical uncertainties made the timing of certain investment decisions more difficult. Larger investments, especially in the most advanced technologies, have not been fully triggered yet. We expect an acceleration of these investments now rather towards the end of 2025 and into 26. The recent CapEx confirmation for 2025 by a large chip manufacturer supports this view, And we expect other players to follow with similar statements. In addition, and as Urs has already mentioned, the fast devaluation of most of our trading currencies against the Swiss franc had a substantial negative impact on our report's numbers, masking to a large degree the still very healthy market environment. Reported Q2 orders, for example, were up only 3% sequentially. However, on a constant currency basis, the growth would have been 10%. Year-on-year, the order intake was down 9%, a constant currency. It would have been virtually flat. The negative impact, especially of the US dollar devaluation against the Swiss franc, was less pronounced when we a constant currency stay again would be flat. When we look at the order book, we see a 15% lower level compared to June 24 and 13% lower versus the end of Q1. As described already shortly by Urs, this is testimony of our strong production and therefore order book execution capabilities. On slide 12, we want to put the current result in historical context. Here we see the development of orders and sales since the first quarter of 2021. At the peak in Q4, the book-to-bill ratio stood at a staggering 1.7 times. In Q1 2023, it was 0.6 times, however, impacted by several special effects. Nevertheless, with our book-to-bill of 0.88 times in Q2 of this year, we are at about the midpoint of the peak to trough range or the next up cycle if you want. However, and again reflecting the uncertainties in the market, the book to bill ratio remained for the third quarter in a row below one. Moving to slide 13. On this and the next slide, I would like to show you the order and sales pattern of our three businesses, semiconductors and advanced industrials that together formed the reporting segment valves, and our service business representing its own reporting segment, Global Service. As you have heard, the valve segment accounts for about 84% of group sales and Global Service represents the rest. Together with the semiconductor business unit embedded in the valve segment, VAT's business related to semiconductors accounts for about 80% of group sales. In valves, Borders were down both in semiconductors and advanced industries in the first half of the year compared to the same period in 24 by 3% each. In semiconductors, it was primarily because of the global uncertainties resulting in slower investments in the next technologies. In addition, we see customers demanding shorter lead times as the supply chain has substantially stabilized over the last two years. Nevertheless, they expect their suppliers to be ready whenever a faster ramp materializes. However, comparing the order intake in the second half of 24 with the first semester of 25, as shown here on this slide, the decline was more pronounced, mainly the impact of the FX movements. Advanced industrials had lower orders largely due to the often project-related nature of their business. Sales in the first half of 2025 were up 35% for semiconductors as the order box execution was strong and flat for advanced industrials. Compared to the second half of 2024, however, sales were up nicely in both businesses. As shown on slide 14, segment global service observed a very strong second quarter with orders up 23% sequentially and sales up 12% quarter-on-quarter, whereas all subsegments contributed to this quarterly improvement. For the first six months, orders were still down 5% year-on-year. Sales, however, increased by the same percentage amount. This development in sales reflects higher semiconductor fab utilization rates, which have benefited our consumables and repair business. Subfab activity also increased while the upgrade and retrofit business was significantly down year on year, with some acceleration observed in the second quarter. Turning now to our profitability, starting with gross profit and the gross profit margin. Overall, our gross profit for the first six months grew 22% year on year, which is slightly less than the reported 24%. Nevertheless, the gross profit margin remained at the high level, 65% compared to 66% a year earlier, despite adverse FX movements and increased sales from inventory. This solid gross profit margin is the result of our relentless focus on operational excellence, coupled with the disciplined execution of our operating flex model, allowing us to adjust our cost base quickly to changing market environments, both in up and down cycles. Moving down the P&L to the EBITDA line, we achieved EBITDA growth of 22% to 165 million Swiss francs. At constant FX rates, our EBITDA would even have gone up 33%. Again, a display of how challenging the FX situation was during those past months, and in particular, the last quarter. The reported EBITDA reflects, on the one hand, our top line growth in combination with operational measures, focused on productivity and cost improvements, as well as continued investment in capacity and capabilities ahead of the anticipated technology transition. The net foreign exchange impact, including hedging and balance sheet revaluations on EBITDA margin was negative by 1.6 percentage points for the first semester of this year. resulting in an EBITDA margin of 29.6% or 31.2% at constant FX. EBIT for the first six months of 2025 increased 25% to 142 million Swiss francs. The EBIT margin remained largely flat at 25.4% versus 25.3% a year earlier. Let's now get to the bottom line with some of the other financials on chart 17. Depreciation and amortization increased slightly the result of our growth investments in the previous years, mainly in Malaysia and the new innovation center here in Hague. As a percentage of net sales, depreciation stands at 4.1% compared to 4.8% a year ago. The sharp swing in our finance net results from a positive 1 million Swiss franc Tax rate for 2025 increased slightly to 18.5% based on additional tax expenses related to the global minimum top-up tax in Switzerland and profit shifts between Switzerland and other group countries with a higher tax rate. Based on the global comprehensive tax calculation at year-end 2025, full year rate expected closer to the full year 2024 level. As a consequence of the above, net income grew less than EBITDA or EBIT, still showing an increase of 12%. Our free cash flow generation is shown on chart 18 and is one of the highlights of the first six months of the year. At 51 million Swiss francs, it is 93% up year on year, and the free cash flow conversion rate as a percentage of EBITDA has gone up from 20% after six months in 24 to now 31%. This is the result of the substantially higher EBITDA, our appropriate capex, and the very modest growth in our trade working capital. Actually, when you measure trade working capital percentage of sales, it declined by nearly five percentage points from 36% of sales to 31%. When it comes to leverage toward 19, we continue to demonstrate our conservative views on leverage and capital structure, despite our significant investment appetite. Net debt amounted to 262 million Swiss francs compared This translates to a net debt to EBITDA leverage ratio of 0.8 times and is in line with the normal seasonal pattern that includes the dividend payment in early May. As a reminder, we distributed 105% of the free cash flow 2024 in form of a dividend of 6.25 Swiss francs per share to our shareholders. we retain a very healthy balance sheet to allow us to self-fund our R&D and growth initiatives in the years to come. Summarizing the half-year 2025 financial performance, we can say that these results were strong given circumstances confirming VAT's leading market position and execution strength. Unfortunately, the harsh FX environment has also masked our performance. Overall, During the first six months of the year, we achieved a strong backlog execution coupled with continued readiness preparations for the expected market growth. VAT battled the adverse FX developments and mitigated those to a certain extent through financial hedging activities. However, it is clear that any further strength of the Swiss rank requires close monitoring and the acceleration of our natural hedging efforts and other initiatives. We have so far well monitored and actively managed the tariff uncertainties and can state that we had no material financial impact in the first half of 2025. We continue to invest in R&D and production capacity, two key elements for ongoing business success. Our factory 1B in Penang was completed The same happened at the Innovation Center in Hague and the new factory in Romania, our internal supplier, started operations late in the second quarter. Last but not least, the ERP transformation was fully and successfully concluded in all our production hubs. Service and sales organizations will be migrated on the new ERP over the course of this and next year. Looking ahead for the rest of 2025 and into 2026, the following finance priorities apply. We continue our discipline cost and capacity management, closely monitoring customer requirements, especially on lead time development to assure brand readiness. We further drive the flexible operating model in light of the persistent uncertain geopolitical and macro developments. As demand accelerates, we will increase factory output in Malaysia, introduce additional automation and capacity increase in HART, and harness full benefits of new Romanian factory, a key internal supplier for many VAT components. And lastly, we will monitor and align topics requirements with fitness This concludes my financial remarks, and I now hand back to Urs from some insights into how we see the market developing and why you're strongly going to participate in the expected growth.