VAT Group AG

Ladies and gentlemen, welcome to the VIT Q3 2025 Trading Update conference call. I am Sandra, the course call operator. I would like to remind you that all participants have been listened only mode and the conference has been 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 Urs Gamsner, CEO. Please go ahead, sir.

Thank you. Ladies and gentlemen, good morning and welcome to VATQ3 2025 Trading Update conference call. With me this morning are CFO Fabian Fiocza and Michel Gerber from Investor Relations. After my introductory remarks, We will have our regular Q&A session, and the call operator will take your questions in the order you enter them. Another quarter has passed, and I can say that it developed quite in line with the expectations we shared with you during our Q2 webcast on July 29. For me, the following six topics, on which I will elaborate in more detail during today's call, are important when analyzing VAT's performance over the last three months. Our Q3 orders showed the flattest development we anticipated, while sales in the quarter were supported by the execution of our still sizable backlog. Adverse FX impacts did not have the same negative impact in Q3 as in Q2. However, on a nine-month basis, the headwind is still strong. Among our business units, Advanced Industrial and Global Service had a pleasing development confirming our expectations for these two areas, while order activity in the semiconductor business remained muted. The market conditions and our expectations have not changed fundamentally over the last three months. The rest of 2025 and at least the first over the later course of 2026, stronger growth is anticipated. It is worth noting that our operational performance in 2025 is outstanding. It will be a record year in terms of factory output and adjusted for ethics in sales. And we are achieving this without critical disruptions and in short lead times. It proves that we are ready for the expected growth ahead. Lastly, you have seen in the media release this morning that while we confirmed the majority of our results outlook for 2025, we had to abandon our previously given guidance for higher orders and a higher APDR margin as the softer than anticipated semi-business and the persisting ethics challenges became too big a hurdle to cross. For the FPGA margin, we now expect it to be at the lower end of the margin corridor band of 30 to 37%. So let's quickly go through some Q3 and 9-month numbers before we share with you our expectation going forward. Let's start with the orders. Our third quarter orders amount to 238 million Swiss francs. 4% lower sequentially and 8% down year-on-year. Ethics suggested that declines would have been substantially less with minus 1% quarter-on-quarter and minus 2% year-on-year. For the nine months ended in September 2025, we generated over 727 million Swiss francs of orders, down 5% reported, but only down 1% on a constant ethics comparison. Ongoing uncertainties surrounding global trade tariffs, geopolitics, as well as some semi-industry-related issues prevented certain investment decisions and therefore negatively impacted VAT's semiconductor business. And looking at these numbers, one must bear in mind that positive developments in the leading-edge space like Kate AllAround or HPM Memory were masked by lower-based self-equipment investments in the more mature or lagging technologies. It is estimated that fast capacity utilization in leading edge applications has recovered to over 90% already, with new capacity additions becoming necessary. In the lagging edge areas, however, current utilization rates are estimated to still be only between 50% to 70%, requiring not only smaller service and maintenance efforts, but also a little addition of new capacities. After this overview in order, let's now move to the sales numbers. The third quarter group net sales were reported at 258 million Swiss francs, down 9% sequentially as reported, and down 6% on a constant ethics basis. Year on year, however, reported sales increased by 23% and 32% at constant ethics. For the first nine months of 2025, group sales amounted to 815 million Swiss francs, a plus of 24% compared to 2024 and the result of our strong order backlog execution in 2025. On a constant ethics basis, the growth would have even been around 30%. However, when adjusting for the negative ERP implementation impact during Q3 2024 of approximately 22 million Swiss francs, the year-on-year increase in sales would have been 12% for the third quarter and 20% for the nine-month period. Let me give you now a brief deep dive into our different businesses. When looking at how our group order and sales numbers are composed, we see both a positive development in our smaller business units, advanced industrials and global service, and at the same time as luggage performance in our semiconductor business. In advanced industrials, the third quarter saw orders and sales increase by 29% and 11% sequentially, and by 20% and 80% year-on-year. These good results were driven to a large degree by government-funded research projects, but also by coding applications and general industrial markets, mainly in China. scientific instrument markets continue to consume their inventories. While some of the orders, especially in research, are project related, this never-the-less shows the strong market position of this business unit and its ability to win business also in competitive areas. The semiconductors business unit posted Q3 orders of than in the same period a year ago. Sales, however, increased by 16% year-on-year, driven by strong backlog execution despite the increased market uncertainty. This uncertainty is also reflected by our customers' demands for shorter lead times for VAT products to manage the expected future ramp in FAB investments on short notice. Sequentially, orders and sales in the semiconductor business unit were down 13% and 17% respectively. In the global service segment, Q3 orders were up 33% year-on-year and 90% sequentially, as FAB utilization rates continued to improve and initiatives by FAB to increase ramp readiness continued. Q3 sales were up 13% sequentially and 57% year-on-year. As mentioned earlier, the improvements were driven by leading-edge FAFs where capacity utilization rates were above 90% and increasing. When it came to lagging-edge FAFs, however, business remained subdued as low utilization rates of between 50% investment requirements in consumables and spare parts. Upgrades and retrofits also saw improved results with accelerating momentum towards the end of the three months, with several projects in both the leading and lagging edge areas. Let me now give you our view into the future. When looking at the remainder of 2025, we expect investment in semiconductor equipment to continue at this constant level in the absence of a semi-ramp. The installation and upgrading of new manufacturing tools related to leading-edge logic chips and high-performance memory chips require significant capex. This trend is unchallenged and 2025 will be another record year in wafer fabric and spend. Some of the earlier anticipated even higher growth in investment has been offset by a decline in the amount of capex. particularly in China. Looking ahead, leading logic chip manufacturers have committed to or confirmed extensive CapEx plans. The timing, however, indicates that this will be a 2026 story. In memory, apps are moving rapidly to build high bandwidth memory capacity. announcing the partial conversion of existing ERAM capacity, but with limited greenfielding at this stage. EIT will only see a larger contribution from HPM once greenfield investments are also being executed, something that is now expected to happen over the course of 2026. Mixed signals prevail for NAND capacity expansion investments that has been further postponed by major players. The recent memory rally is triggered by higher average sales prices and less by heavy investments in additional production capacity. Market research indicates that memory fabs are still running at only around 70-75% utilization rates. Overall, the local wafer fab equipment overall in 2025, putting it within a range of between $105 and $110 billion U.S. dollars. And wafer-tapped equipment is forecast to achieve record levels in 2026 and 2027. As the undisputed market and technology leader in Mecklenburg, VAT is uniquely positioned to outpace the anticipated market growth in 2025 and beyond. With its high market share in leading edge applications, P&P expects to benefit extraordinarily from the upcoming more than 100 new fast greenfield investments, accompanying the ongoing technology shift. In addition, P&P expects the healthy demand in its direct business with Chinese OEMs to continue. China is still working to become self-sufficient in chip manufacturing. However, contrary to the Western landscape, the market dynamics there are more volatile and the competitive situation among OEMs is in constant flux, requiring VAT to closely monitor such changes and adapt at fast pace. In addition, the speed of qualification of new OEM tools at the Chinese IDM and the digestion over the last couple of quarters may lead to increased swings in the China business. Overall, while Chinese WFAP equipment is expected to go down slightly in 2026, the domestic portion is still growing in 2026 and with that our direct business in China. On this basis, and despite persisting FX headwinds, VAT expects higher results for sales, EBITDA, net income, and free cash flow in 2025. CapEx is now forecast at 70 to 18 million Swiss francs. As you have noticed, we no longer expect orders in 2025 to exceed the 1.033 billion Swiss francs achieved in 2024. This is mainly due to the substantial ethics headwind, but also related to the lower than expected order activity coming from our semiconductor customers and changed order patterns compared to previous years. For the final quarter of 2025, we expect sales of 225 to 245 million Swiss francs. Now, before turning the call Over to the operator for their Q&A. Let me share the impressions I got when attending Semiconvest in Phoenix last week. B&G remains the global market and technology leader for vacuum valves and solutions, a position that will grow even stronger in the years to come. This assessment of our position has been confirmed during all the customer meetings The market conviction of the $1 trillion semiconductor market by 2030 has not been questioned by any of my contacts. But the opposite was the case, and some now expect these numbers to be even higher on the back of AI-related semiconductor needs. A key driver for reaching the $1 trillion is the ongoing technological development, which not only is driven by the semiconductors, but equally by the need to further and massively review the energy efficiency performance, or EEP, in future chip generations. Over the next 15 years, about 10,000 times EEP improvement is necessary to power the estimated semiconductor system use. This is about the same efficiency improvement as the one we have seen over the last 15 years. Another aspect for the confidence in an increasing wafer fab equipment spend is the fact that even with the more than one of the fabs coming online until 2028, they will most likely not be sufficient in capacity to fully satisfy the one trading goal. Additional new fabs are therefore expected to be announced in the future. When discussing these trends with our customers, I have also got very strong confirmation for two of our wafer fab equipment outcrow drivers. Leading-edge technology will continue to see faster growth than the overall wafer fab efficiency spend, and the overall percentage of vacuum-related investment is set to increase. While the current market conditions remain mixed, I sensed great confidence during my stay at Semiconvest in accelerating market growth over the course of 2026 with a more favorable impact for VAT than in 2025. With that, I'd like to hand over to Michel and the operator for the Q&A.

Thank you, Urs. We now start the operator-assisted Q&A session. As a reminder, like every quarter, please limit your initial questions to two to allow the other callers who wish to ask questions to do so as well. Follow-up questions may be possible later in the Q&A should time allow it. With that, I will hand over to the operator, Soro, for the first question.