VAT Group AG

Ladies and gentlemen, welcome to the VATQ1-2026 Trading Update Conference Call. I am Valentina, the conference call operator. I would like to remind you that all participants will be in this and 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 Urs Gardner, CEO. Please go ahead.

Thank you. Ladies and gentlemen, good afternoon and welcome to VFB's Q1 2026 Trading Update conference call. With me this morning are Fabian Dioza, CFO, and Christopher Whitley from our IR team. After my introductory remarks, we will start a moderated Q&A session. We are pleased to connect with you again after our full year results in March and the following roadshow. A lot has happened around the world since then, but the one thing that has not changed, and I can reconfirm today, the rank is here. We are seeing very strong demand for our products from our customers across the semiconductor industry. Q1 orders of 356 million Swiss francs represent a 17% increase on the previous quarter and a full 47% increase on the same quarter last year. This is the second highest order intake that VAT has ever recorded. At constant currencies, orders would have been up 19% sequentially and up 67% year on year. The conflict in the Middle East has been a big topic in the past weeks, and we have not been completely immune to it. While we do not source components or commodities from the region, its important position in global shipping, including air freight, temporarily challenged our activities. We share these challenges and their impact already in our short press release on March 31st. Overall, we achieved Q1 sales of 221 million sweet frames. This means sales were down about 14% quarter-on-quarter and down about 20% year-on-year. On a constant currency basis, sales would have been down 13% sequentially and 9% year-on-year. The resulting book-to-bill ratio amounted to around 1.6 times and our order book increased by 42% to 431 CHF compared to the end of 2025. The Q1 sales impact due to the disruption in the supply chain amounted to roughly 20 million CHF. Let me provide you with some additional color on it. We had both our own components and components from our suppliers blocked in transit in the region for a limited period at the beginning of the conflict. As mentioned before, we do not source materials or components directly from the region. So the main challenge was to figure out where exactly our goods are located and then to find ways to get these components to our factories. As the globalized supply chain in semi-model actors works with tight schedules and just-in-time deliveries, already small and unforeseen disruptions can have a meaningful negative impact in the short term. This Q1 situation was a logistics challenge, but marked in any form a sign that the ramp is in danger. All orders placed for shipping in Q1, that got delayed, will be manufactured and delivered in Q2. As a result, we do, at this stage, not expect any negative impact on our full-year results from these disruptions, bearing any further escalation of the conflict, which we hope will not be the case. Within our business units, advanced industrials continue to see good demand for city-related end markets, such as metrology or inspection tools, but other project-related businesses remain subdued. Global service saw a slowdown quarter on quarter, following some restocking in June 4, but overall orders are higher on a year-on-year basis. The high utilization rate in the past was first viewed in the global service business in 2026. Over the past weeks, we have been very closely engaged with all our major semi-customers, and everyone agreed on the strengths of the current brand. WFAP equipment spending is estimated to amount to approximately 130-135 billion USD in 2026, and in 2027 this is expected to increase even beyond 150 billion USD. This WFAP equipment spending is a result of the build-out for the AI infrastructure, especially driven by the hyperscalers. The overall value of the semiconductor sales might even exceed the US$1 trillion mark in 2026, which is certainly driven by higher average sales prices, but also reflects the increase of units produced. So, thinking about the next quarters, we expect that the market is continuing its strong structural growth phase, this demand for advanced logic and not provide supply. One of the ten semiconductor banks are currently But the very steep rent environment is also tricky, as challenges can emerge from unexpected geopolitical events and their impact on the supply chain. Our globally diversified manufacturing footprint and its flexible operating model provides a good level of resilience. The rent environment we are in requires acute adjustment of the staffing levels, and we are in the process to hire over 450 colleagues globally to support this rent. We have discussed this with you in the past. Our FLEX model is capable to increase our factory output by 20 to 30 percent quarter over quarter. Our operation at full capacity in the second half of 2096. On this basis, we confirm the guidance provided at the full year results presentation in March, and we expect full year 2026 orders, sales, EBITDA, and EBITDA margin to be higher than in 2025. Net income and free cash flow are also expected to be higher in 2026. The corporate orders will continue to be in rainbowed. For the second quarter of this year, we expect sales between 265 and 295 million Swiss francs. This concludes my prepared remarks, and we are now turning the call back to the operator for the Q&A session. Operator, please.

Thank you. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and 1 on the telephone. You will hear a tone to confirm that you have answered the queue. If you wish to remove yourself from the question queue, you may press star and two. Questioners on the phone are requested to disable the loudspeaker mode while asking the question. Anyone who has a question may press star and one at this time. The first question comes from Yang Meiyan from God Knows Facts. Please go ahead.

Hi, good morning. Thank you for taking my question. I'm just having a question on the capacity ramp-up in the second half. So previously you have mentioned that you could ramp up this percent quote-on-quarter, but if we look at the sort of historical pattern, the second half versus first half sales delivery has sort of been maximum 20%, whereas now consensus is implying you could ramp up about 50% in second half versus first half on the sales, if we take midpoint of your 2P guidance. Do you think this is achievable according to your current ramping up plan? And I'll ask her to follow up.

Thank you. Yeah, thanks for that question. Yeah, we are very confident that we can ramp up to 30% in factory output. And then, of course, there is the lagging in sales. So we have done all measures, already started in Q1 and continue to do that now in Q2.

Got it. And my second question was, do you see any signs of double ordering from your discussion with your major customers? And on the second quarter, do you expect it to slightly normalize versus the first half as the sales ramp up? If you could give us a bit more color, it would be helpful. Thank you.

Yeah. Well, of course, it amounts to the whole industry. There is no way that the Everybody has his own capacity, right? And you have to fill the pipeline that you can deliver what your customer is needed. So it's not about, of course, you are securing your supply chain. That's also normal behavior. But everybody has also its own capacity and has to build up a capacity as well. So it's very important that the whole supply chain stays very close, each other discussing In the end, this is a B2B business, and you have to be very close, and they don't want to overstock as well.

Got it. And the book-to-bill in second quarter comment?

Book-to-bill? I think you have seen we have a wonderful book-to-bill in Q1, and in Q2, we expect that it also will remain well above 1.

Okay, got it. Thank you. The next question comes from Daniel Chasse from CT. Please go ahead.

Hi, good morning. Thank you for taking my question.

So the first one, my side would be basically just would be great if you could bridge the sales number that you've guided now for TQ from your current backlog. Obviously, we have this deferred component of, let's say, 40 million. But what are some other effects that hinder this translation from the 360 to 80? Because, for example, you've mentioned before that lead times are 8 to 12 weeks. I'm just wondering, is that now longer? Because given demand is ramping up and people are trying to kind of order more and that's why you have to extend your lead times? Or are there some other factors? Thank you. Again, it's thanks for that question about our and then kind of then you deliver that and then this kind of of the new generation. So that's why capacity increase is certainly the main focus now for us. Yeah, and we have about 10% is always kind of in transit. Okay, thank you. And then also, would you be able to split the semi-order that you have now into maybe something like leading-edge HPM from China?

Or I know it's difficult for you to differentiate between the technologies, but at least could you give us maybe some color where you feel the split is, specifically China?

Because is it still accelerating, or do you see some customers being now more worried around the potential match-up enforcements? In the last year, China was roughly 30 to 35% of our sales, right, and China is still half. We just had selling from China in March, and so we could meet all of our main customers there. Q1 was a little bit lower, roughly 25, maybe 25 to 30%, but it's also due over the holidays as well, so in China, but overall, the number will be around the 30% overall. This is what we expect. Of course, it always depends on the Western world. If they are rising faster, then it can be a little bit lower. But overall, the Chinese market is still growing for us. Because even though the base reserve agreement will not grow a lot in China, the local market and give us that reference from that situation. Perfect. Thank you very much.

The next question comes from Martin Jungfleisch from VNP Paribas. Please go ahead.

Yeah. Hi. Good morning. Thanks for having me on. I have two questions, please. The first one is really just a follow-up on the first question. You have a total capacity of around 2.3 billion cells across the Swiss and the Malaysian fabs. Can you just disclose your current utilization rates or production capability of that and your maximum quarterly sales output based on that? So, for example, could you potentially reach a quarterly sales output volume of around maybe 400 million by year end? Going back to the question, the consensus is looking at 1.3 billion in sales this year, so this would be around 380 million on average in sales in the second half per quarter.

Is that kind of achievable with your views? Thank you. Thanks for that question. So our current duplication rate in Switzerland is up to 65% and in Malaysia we're at 18% level, so showing that, of course, semiconductor business is accelerating more also in Malaysia. This is based on all our relocation and efforts we have done in the past years as well. And yes, our clear target now is the 20% to 30% quarter over quarter increase that we come to a run rate of at least $400 million in the second half. Great, thank you. And a second question is also maybe a bit of a follow-up on the auto momentum. I mean, in the media release just now, you said that you expect the book to go well above one. I know it's early in the quarter, but... would you expect orders to increase consecutively in Q2 versus the Q1 and maybe also a bit more further out in Q3 versus Q2 and so on? So it's like a consecutive increase that you're seeing from here? Yes, of course. I also expect that the order is slightly higher, but it's not a big chance anymore. I think now the whole supply chain has to digest as well. So we have to, we are now in the ramp and at a certain point it's more a constant. sales and deliveries are more in balance. And now we have a typical trend that's why we have this 1.6x in EQ1 and certainly well beyond the 1 in EQ2 and then it will level out once the capacity in the whole supply chain is kind of in balance. But we also expect that the service can go up as well and it's going to have a positive impact and also in the second half of the year. Cool, that sounds good. Thank you very much.

The next question comes from Craig Abbott from . Please go ahead.

Yes, hi, good morning. Also from my side. The first question, please, I know obviously, you know, in this Q1 call, you don't report, you know, EPA for the quarter, but I just wondered as we're heading toward the mid-year point, if there's anything you could flag that we should be thinking about on the margin, like the margin progression in the first half I'm thinking about things like potential feed-through of the higher oil prices on the material cost side, aluminum, things like that, plus maybe things like the ramp-up you were talking about in terms of the 450 new hours or so. So any indication you give here on the margin regression would be very helpful, and then I have a follow-up. Thank you. This is Fabian speaking. Let me give you some additional color on the expectations regarding the Indian margin. Look, we do not expect any material adverse effects out of the situation in the Middle East and its consequences. main commodities are hatched well through the first half, and as such, I do not see that as a negative on margin. What we certainly do have is a bit of freight cost increases here and there, but overall, the freight costs are not material to VAT, so I would also not expect this to have a material effect on H1. On the other hand, with the grant now happening in our factories, we will see kind of a reversal of the inventory effect in the first half, so there I would expect that we can have positive contribution to the bottom line margin from additional inventories. And overall, we are on a trajectory towards the midpoint of our communicated margin band for the full year. I would say a first step will be accomplished in the first half. Okay. That's very helpful. Thank you. My second question is basically, for the most part, already been answered in talking about the ramp of the capacity on the quarterly rate going forward. Again, just kind of like to follow up on that, I mean, like the order conversion rate into sales. I mean, do we expect that to like be speeding up in the next couple of quarters? Yeah, definitely. So that's, well, we are now increasing capacity and speeding up and also this conversion. So the last year, the lead time for our customers and our products has been reduced. And now, of course, it's the rank. We have to catch up. Okay, thank you. Okay, and any other, this is my last question. Any other views at this stage already heading into the first half of 27? 2027, you know, our expectation still is that the movie will have a fantastic year. We can just also confirm what our customers see and what is published everywhere that 2027, again, will be a growth year. and certainly a record year, 2027. This is how we see it, how we prepare our capacity at the moment also in the interim horizon. Okay, so no risk of like an overhang of capacity heading into the report next year. Okay, thank you very much. Thank you.

The next question comes from from UDS. Please go ahead.

Good morning and thanks for taking my questions. The first one is please to double click on the capacity. I think you mentioned you should have a quarterly sales capacity for at least 400 million coming through in the second half. But may I also double check, I mean, as you have outsourced around 70% of your component production, I mean, are your sub-suppliers also ready? Do we have some good visibility here that this will not be a bottleneck? This would be the first question, please. And the second question on China. You said, I think, the China share of local OEMs was going down to 20, 25% in the order intake in Q1. On average, this would expect to 30%. It's not so easy to get the data, but did you get insight that their 12-month inventory was coming down, that they're normalizing it somewhat? So any color would be appreciated. Thanks a lot.

Let's start with China again. Overall, of course, if you go to China, you release a few heat in China. They are building up their own ecosystem. At the moment, they are less interested in any stocking inventories. They want technology. They want to bring up and be capable to produce leading-edge chips on the 700-meter, 500-meter China at the moment. Your question is more commercial optimization. That will follow afterwards. At the moment, it's really a battle and race who will win the different process steps in China. And that's certainly still ongoing. And just as we have now a little bit lower sales in China in percentage in It's a Chinese New Year and everything got ongoing. But overall, the OEMs in China, they will win shares. So their share was pretty low. Their self-sufficiency rate is in the range of 20% only, and they want to increase it to 70%. And this is what I always say. This is the opportunity we have to grow in China, just to grow with them, and I think they will increase their self-sufficiency rate. Second question is about capacity. Yes, of course, we have maybe three main areas we are following. That's our workforce in assembly, grinding up there. Our own workforce in machining as well, so producing our own parts. But as you know, there's only 25%. And we have the 75% in supply chains. And, of course, since the last ramp, we did a lot of, we did our homework, and for most of the components, we had a lot of second sources as well, so we cannot only rely on one source, and this gives us much more flexibility. Everybody has to ramp up, that's certainly true. Everybody needs some time to ramp up. I think I mentioned even during the roadshow sometimes, It's like a diesel engine that was idle for a year and then you start the button and there is some smoke and noise at the beginning until it's on smoothly. And this is now the phase, this is the blacktop phase. But I think it would be very comfortable for many of the critical suppliers, like in electronics, like in elastomers, we have such sources.

Thank you.

The next question comes from from JP Morgan. Please go ahead.

Hi, thanks for letting me on. My first question is regarding your ramp-up of your sales. I mean, this is a follow-up to one of the earlier questions as well. I mean, historically, you know, your lead times from the orders to the sales are much shorter. You've seen very strong orders, but the sales is somewhat lagging. Is this because of where we are in the cycle that things are just recovering? or it is because associated with customers that things are much more second-half loaded, or is it something to do with VAT zones, supply chains, which are taking time to ramp up?

Yeah, I think you get the answer already. I think it's a ramp up. needs some time and even if you would deliver everything that was booked our customers could also not digest it so that's why it's also good in Iran that the forecasting becomes better than in European times as well to set up Q3 some of our order intake. So again, a very good order book and visibility now for Q2. I'm going to execute that and still the order inflow is very, very healthy. That's why we are very comfortable and planning to ramp up also in Q3 and Q4, to ramp up in Q3 and Q4.

I mean, in following up to that, I mean, your orders are very strong. Would we expect to see maybe your orders translate directly to whatever your bookings are into sales in Q3 or Q4? Because that would substantially lift your sales number in the second half of the year. That's correct.

So we expect that now with our forecast in the first half year, we will end up with about 500 million, right? And we still are very comfortable with the overall content close to the 1.3. So this will be likely an increase in the second half of 50 to 60%, we say.

Understood.

Thank you so much.

The next question comes from Michael Ford from . Please go ahead.

Yes. Hi. Good morning, gentlemen. Two questions from my side. The first one is in your Q1 sales impact that you mentioned, the 20 to 25 million, you initially said there were some, one of the reasons was also changes in customer specifications. Could you be a bit more specific what that refers to? That would be the first question. And the second question is you said order intake was up 67% in constant currencies and 47 reported terms. That's a 20% differential due to ethics, whereas in sales you only have 10% differential. Can you explain, you know, what the ethics mix in there or what is what's going on in that differential there? Please, thank you. Thank you Michael. Let me take the first part of your question. The impact of the 20 million on that configuration. And that was in such a way for those our customers had to optimize which configuration, which tool they can deliver. And then certainly there is a higher activity And then, you know, in a second, at the end of the quarter, of course, this can have a And these also led partially to these 20 million delayed sales recognition. And on the second question, Michael, this is purely a mixed topic. So whenever these orders and sales have been received and then translated at the respective ethics, and also remember that in Q1 2025, quite a huge volatility, which was not the case this year.

Okay. Thank you.

The next question comes from Martin Marandon-Karian from AutoDHF. Please go ahead.

Hi. Thanks for taking my question. My first question is on WHC. I mean, I think you kept your assumption of WHC at $130 billion this year. which would imply growth of around 13%. And I think most of your customers are talking about 20% now growth. So is there a reason why you kept the same forecast? And also is your expectation to continue to beat WFC growth by five to seven points of growth through 26, 27? As you highlighted at the last end, another quick follow-up.

Yeah, I mean, the growth in currency is always also... I think we've been comfortable at the moment with 130, 135. If it's more, certainly we are happy to do that. I think the growth we calculate at the moment is 30 to 50 percent. everybody has to run buffers and you see that the zero rate demand might be even higher, but there might also be delay because of the constraint in the whole supply chain.

Okay, thank you. And about the expectation to beat WFE growth by five to seven points, So 26, 27, do you think that's still a valid scenario?

Yeah, that's still a valid scenario. Our ambition is always that we want to grow by 2x, and I think what is now up to 2x. So at the moment, you'll see a lot of orders going in the E&H as well, E&H fax, and we have our high end and share of audit on the input.

Okay, thank you very much. And the last question for me is on EUV. You know, EUV lithography is going quite fast, especially versus DUV. So my question is how material is it in the order intake momentum? And do you see actually lithography-related orders are going faster than other DPNH orders?

You know historically it was not a big business really because legacy machines they brought new vacuum and now with the UV that is a very interesting business for VAT as well but also here there is just a limited amount of machines going into the market and this compared to HM and position machines and here you see probably also the and the relation, what it means for VAT. So it is very interesting, important pillar for us, but of course the debt and hedge are still dominant.

Okay, very clear. Thank you.

The next question comes from Nabil Aziz from Rothschild & Co. Redbird. Please go ahead.

Hey, thanks for taking my question. It was just a follow-up on the disclosure of the 31st of March prelim announcement on reconfigured orders. I was just wondering, is there any colour that you can provide in terms of whether it's related to certain deposition technologies or extra technologies that have been reconfigured or whether there's a difference in the impacts between memory and between logic? And I've got a quick follow-up. I think you've got to trust sort of the that edge lithography and all the other process steps as well. It's more kind of which customers win which part of a path and then this reconfiguration and optimization takes place. Or if you talk about push-outs, then maybe they are delayed and don't want to take on a customer level and dynamic to increase the base. Okay, sure. Very clear. And then I guess in terms of your order intake, I know you mentioned growth through the year or modest growth from the 350 that you disclosed at 1Q. Is there anything through this year that would point to, that you would point to in terms of customer build plans, fab build plans that would mean that order intake may not grow through the year and whether there's anything seasonally that you would expect or call out from a demand perspective. Thank you. Well, we just see what we hear, what we hear from our customers and what also what you read out there that hyperscalers are investing, SAMs, the 125s that get online. Wafer Fab equipment will be needed to enter $20 billion for each fab. Wafer Fab equipment total is going up. We say beyond $150 billion, some say $170 billion. So this kind of indicates that you will see continuous growth as well, no drainage. If you don't see that, then maybe also something in the fab, you can use the old fab, of vision is delayed. There is a question, are there enough clean rooms out there? It has nothing to do with us, but that's kind of just the infrastructure. It's the infrastructure ready to digest all the vapor fabric. At the moment, it's heavily driven by DRAM and LARCHIC, and then in the coming 2027 and last, we can also expect that even NAND will also and have investment cycles again. So a very positive environment, very volatile as well. As you know, the situation out there in the world, but in semiconductor certainly the long-term trend is just going in one direction, and that is growth.

Great. Thank you.

The next question comes from Oliver Wong from Bank of America. Please go ahead.

I wanted to go back to the capacity, you know, would you say that you were kind of, you know, surprised by the order intake, by the demand, you know, hence you're not able to shift to the full demand in these first few quarters of the year? And then also, you mentioned 25% on your end, 75% supply chain.

On your end, assembly and sheeting workforce, where do you expect that to show up the most on the income statement?

And then also, is there potential risk in the supply chain ramping to Let me address the second part of the question. So according to our operating model, we are able to source staff when we need them and then also have them productive within a couple of weeks. That said, the additional cost follows quite well, also the increase in volume and as such does not have a material lag effect on the P&L. In terms of the input factors, I just talked about workforce. We talked earlier on about the scaling of our supply chain, which is now in full swing. Fortunately, we do not see major constraints on important commodities such as electronics or aluminum for the time being, right? And last but not least, the assets that we need in order to convert all these components into end products are also in place. So we do have sufficient machining capacity. We do have sufficient assembly capacity. It's just basically a matter of bringing the parts from the supply chain together with the increased workforce and then convert this into product. And as you can imagine, this is not an overnight exercise. It needs a couple of weeks and we are now seeing that at the end of Q1, which was a But nevertheless, now we are getting daily increases of our output capacity, and this is set to continue. Thank you. That's helpful. But would you say that we were, you know, kind of somewhat surprised by the order intake, and otherwise we would have, you know, sort of abandoned capacity already, let's say, at the end of last year? Yeah, well, you know, we are, you know, hearing about the RAM from our customer engagements since almost about two years, right? We have been talking about it. It has always been pushed out. And obviously, we didn't start to bring neither material nor manpower into the system as the orders didn't materialize. What we did to wherever we have on the machines, et cetera. We have invested ahead of the curve, and this is now enabling us within a couple of weeks really to open the tap and now also increase our capacity according to the model and also the promises that we have made.

Thank you very much.

The next question comes from Timothy Lee from . Please go ahead.

My question, so my first question is, again, on the test run-up and the specific ideas. So in your specific ideas, do you kind of have any data processing impact from the supply chain or the specific customer classification?

Tim, Tim, Tim, sorry. Tim, sorry, it's Chris. You're very difficult to understand. Can you find a different way to speak to the microphone? You're almost a different level there.

I'm close to mine.

Now it'll be much better.

Sorry, you're inaudible. Let's take this up bilaterally.

I'm sorry about that. It's very difficult to understand you. I appreciate you as the last person asking a question. I'm going to speak after this call directly, and I'll hand back over here to the operator, please, to conclude this call, please. Ina, over to you.

Thank you, ladies and gentlemen. This concludes today's call. Thank you for choosing to call this call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.