Aixtron Se Unsp/Adr

Good afternoon, ladies and gentlemen, and welcome to the conference call of Extron SE regarding the full year and Q4 2021 results. At this time, all participants have been placed on a listen-only mode. The floor will be open for questions following the presentation. Let me now turn the floor over to your host, Guido Pickert.

Thank you very much, operator. Welcome to Extron's presentation of our Q4 and full year 2021 results. I'd like to welcome our CEO, Dr. Felix Grauert, as well as our CFO, Dr. Christian Danninger. As the operator indicated, this call is being recorded by Extron and is considered copyright material. As such, it cannot be recorded or rebroadcast without explicit permission. Your participation in this call implies your consent to this recording. Please take note of our safe harbor statement, which can be found on page two of our results presentation slide deck, as it applies throughout the conference call. This call is not being immediately presented via webcast or any other medium. However, we will place an audio file of the recording or transcript on our website at some point after the call under the events section. I would now like to hand you over to our CEO, Dr. Felix Graver, for opening remarks. Felix? Thank you, Guido.

Let me also welcome you all to our full year 2021 results presentation. I will start with an overview of the highlights in the year and then hand over to Christian for more details on our financial figures and our ESG-related initiatives. Finally, I will give you an update on the development of our business, and I will present our new 2022 full-year guidance to you. Let me start by giving you an overview of the key developments in Q4 and the year on slide two. Here, let me start with a very good news about our business development in 2021. This was a very exciting and successful year for us. We were able to increase our orders by 65% and our revenues by 59%. Our operating income and net profit almost tripled. We have achieved our guidance in all metrics with total orders close to 500 million euros, revenues of 429 million euros, a gross margin of 42% and an EBIT margin of 23%. Given the constrained global supply chains and logistics, our team did a fantastic job in achieving such an output and results. But behind all this is the strong demand growth from our customers, particularly driven by the volume ramp of gallium nitrate-based power electronics. The demand growth is fueled by a broad base of application segments coming from the global megatrends of sustainability, electrification, and digitization. We observed that in some areas, such as power electronics, compound semiconductors are moving from their role of being specialty and niche materials to become the workhorse in some of these segments of the semiconductor volume market. Compound semiconductors are a key technology for numerous areas, and they are superior to the incumbent silicon-based semiconductors in many aspects. This will drive our growth on a sustainable basis. By 2022, we see a continuation of the strong order momentum throughout all our key markets. The demand remains balanced across the different applications. Overall, we expect a double-digit growth here again. Let me have a quick look at our Q4 performance starting with our order intake. As in previous quarter, GaN power was again the strongest contributor to our order. Wireless and optical data communication LEDs and lasers also had sizable contributions. In total, Q4 orders came in at 120 million euros. Revenues in Q4 were at 181 million, which is the highest level of the last 10 years, and we were able to meet customer demand. It is important to note that this shows that our manufacturing and supply chain are well equipped for further growth in the years to come. Growth margin in Q4 was 44% and EBIT margin 32%, both being an expression of our profitable business model. So overall, we saw strong profitable growth in 2021, and we will continue to grow also during 2022 and beyond. I will explain the details of our new 2022 guidance to you later in this course. Before I hand over to Christian, I'm happy to announce that we will propose to our shareholders to pay out a dividend of 30 euro cents per share following this successful year. This proposal is subject to shareholder approval on our virtual annual general meeting on May 25. This would represent a payout ratio of 35% of our group net results. Now, I will be handing over to our CFO, Christian Dallinger. He will take you through the Q4 and full year 2021 financial. Christian. Thanks, Felix, and hello to everyone. Before I start the review of financials, I'd like to take the opportunity to give you an update on our ESG performance and related activities. We regularly receive ESG ratings from rating agencies like ISS, MSCI, CDP, or Sustainalytics. While all of our ratings are quite positive already, CDP has further raised our rating significantly by four levels from E to B, and MSCI went up from triple B to A in 2021. You're also aware that we are a climate neutral company already since 2019. To further push and accelerate our ESG agenda, we have recently upgraded our organizational setup in this area. We have established a new position of ESG and sustainability management reporting directly to me. To further document that we are committed to play a leading role in the field of ESG, we have today already reported EU taxonomy aligned figures on a voluntary basis for 2021, which goes beyond the legal requirement to report EU taxonomy eligible figures only for 21. After detailed analysis and assessment process, We assessed 57% of our revenue, so more than half, 39% of CAPEX and 76% of OPEX to be EU taxonomy aligned and thus considered environmentally sustainable in the sense of the EU taxonomy regulation. At Extron, OPEX as defined in the EU taxonomy regulation corresponds to the company's R&D expenses. Therefore, we are particularly proud on the high results for the two key figures, OPEX and CAPEX, specifically document the sustainability of Extron's investment strategy, especially in research and development. Consequently, a further increase in environmentally sustainable, meaning green, revenues in the next years is likely when the newly developed technologies move into broad adaptation. These taxonomy-aligned technologies are wideband gap, power semiconductors based on gallium nitride and silicon carbide as the key to energy-efficient power electronics, micro LEDs for the next generation of displays, lasers for data communication as a key technology for the digitalization of our world, and some more. All these technologies have one thing in common. They are much more energy-efficient compared to the current technologies available on the market and thus contribute significantly to the reduction of greenhouse gas emissions. Among many other benefits of these technologies, they significantly support the global efforts to mitigate climate change. For further details, I refer to slide nine of our investor presentation and to our sustainability report 2021. Let me now continue with our income statement on slide three. As Felix mentioned, total revenue for the year was 429 million euros compared with 269 million euros in 2020. This reflects almost 60% growth over the previous year. Revenues in quarter four 2021 even grew by 67% year-on-year. The 2021 gross margin of 42% was two percentage points higher compared to the same period last year. In Q4 2021, gross margin was 44% compared to 42% a year ago. The difference is mainly due to a higher share of products shipped with better margins in Q4 2021 versus Q4 of 2020. Operating expenses for the year increased from 73 million euros in 2020 to 83 million in 2021. The increase in annual operating expenses was mainly due to the following factors. Firstly, we incurred higher variable compensation components, and we incurred one-time expenses for the restructuring and the wind down of APVA totaling to approximately 3.9 million euros. With that, all costs of liquidation are provided for and no further costs are expected. Secondly, in the prior year, we had a positive one-time effect in our operating income of 3 million euros. In Q4 2021, operating expenses increased slightly to 22 million euros compared to 21 million euros in Q4 2020. SG&A expenses of 35 million euros in 21 were 8 million euros higher year on year, mainly due to the factors I just mentioned. R&D expenses in 2021 remained roughly stable at 57 million versus 58 million euros in the same period last year. This reflects lower running costs for upheaver during the year, largely offset by increased expenses for the development and completion of our next-generation MOCVD equipment. In 2021, we recorded net operating income of €10 million, which was below the €13 million recorded the year before. This difference was mainly due to the other operating income of almost €3 million in 2020, as mentioned before. Our 2021 EBIT was 99 million euros at a margin of 23% versus an EBIT of 35 million euros at a 13% margin in the prior year. This was mainly due to the year-on-year increase in revenues and with that, the corresponding increase in cross-profit. The 184% higher EBIT at 59% higher revenues in 2021 proves the strong operating leverage effect we have on higher revenues translating over proportionately into bottom line earnings. In Q4 2021, we realized an EBIT of 58 million euros at an EBIT margin of 32% for the quarter compared to 25 million euros and 23% in Q4 2020, demonstrating the same effect. For the full year, we incurred total expenses of €4 million at a tax rate of 4% compared to €1 million tax expense at a tax rate of 2% in the prior year. In both years, we were able to utilize historical tax loss carry-forwards and capitalize some additional deferred tax assets based on expected future profits. We generated a net profit of €95 million in 2021, compared to 35 million euros in the same period of 2020, primarily due to the discussed volume and margin effects. Per share, this means 85 euro cents in 21 versus 31 euro cents in 2020. Turning to the balance sheet on the next slide. Inventories have risen to 121 million euros from 79 million euros at the end of 2020, in preparation for the further increase in boss business volume in 2022. Advanced payments received from customers increased to 77 million euros from 51 million euros at the end of 2020, which represents about 35% of order backlog. Trade receivables increased to 81 million euros, mainly due to the very reason for strong deliveries made in Q4, for which we expect to collect payments primarily in Q1 of this year. year. Our cash balance, including other financial assets and post our €12 million dividend payment in May, increased to €352 million at the end of the year, from €310 million at the end of 2020. Moving to our cash flow statement on slide five. Maybe due to the increase in net income for the year and the increased trade receivable at the balance sheet date, Free cash flow for 2021 was 49 million euros. In Q4 of 2021, it was 21 million euros. With that, let me hand you back over to Phil. Thank you, Christian. Before concluding with the outlook for the rest of the year, I would now like to give you a quick update on the key developments in our address markets. In all our address end markets, we continue to see strong momentum. In 2021, our revenues in power electronics, which includes the material systems GAN and silicon carbide SICK doubled year on year. Also revenues in optoelectronics, which included wireless and optical data comm, 3D sensing, and compound solar almost doubled year on year. Our LED-related revenues went up by 39% compared to 2020. We see further growth potential in 22 and beyond as the demand for our technology is fueled by sustainability, electrification, and digitization, all of which are global megatrends. In GaN power, we are at the beginning of a multi-year growth cycle. GaN-based power switches are being increasingly adopted for a widespread number of applications in the areas of IT infrastructure, renewable energy, data centers, or white goods, just to name some examples. Please remember that some time ago, we were only talking about fast chargers for cell phones. Some customers are now even telling us that their roadmaps have been pulled in by two to three years due to the acceleration of adoption. So overall, this market is developing very dynamically, and we are supporting large app expansions of our existing customers while also supporting still new entrants to this industry. In silicon carbide power, we are very pleased about the development of orders, having accelerated in the course of 2021 to representing 15% of equipment orders in Q4. And based on our current order pipeline, we expect this positive momentum to continue in 2022. Our new silicon carbide epitool, which is suitable for 6-inch and 8-inch wafers, is getting great customer feedback. And even though it is still in development, we are already receiving sizable orders for it. This makes us confident that silicon carbide-based orders and revenues will already make a significant contribution to our business in 22, especially in the second half of the year, as we continue to be in contact with all industry players. For LED applications, momentum also remains strong, driven by the demand for red, orange, yellow LEDs, which are used at fine-pitch displays but also in horticulture applications such as indoor farms. In microLED, we are part of major development projects of large customer, electronics players, and LED specialists, such as HC Semitech, with whom we announced a collaboration yesterday. We get clear signals from customers that innovative displays of the next generation will all be based on microLED rather than OLED. This is very good news for us, as our MOCBD API tools are very well positioned here, and the same properties become relevant that make us so successful in GAN power and in lasers or pixels. Hence, we have decided to close down our OLED subsidiary, Apiva. But this is good news, as the alternative also brings us into the display market, but with a much stronger position right from the beginning. We expect a growing contribution of micro ABVs to our orders already during 2022 with shipments taking place this latest year or in 23. You can see we enjoyed a very positive momentum from our address market. However, we continue to watch the development of the global supply situation very carefully and we remain ready to take measures should it become necessary. With that, Let me now present our 2022 guidance on slide six. First of all, it's very important to note that our guidance is based on our 2022 budget exchange rate of 1.20 US dollars to the euro. In the quarters to come, revenues and profit margins will be reported based on actual exchange rates, which may differ from our budget. So, for 2022, total orders received I expect it to rise further year on year to a range between 520 and 580 million euros from the 497 million euros in 2021. With an opening backlog of 217 million euros for 2022, we expect revenues in the year in a range between 450 and 500 million euros, growing further from the 429 that we had achieved in 2021. We expect our growth margin to be around 41% and an EBIT margin in the range between 21% and 23%. This guidance includes our R&D spending from the completion of the development of our next generation products, as well as our activities to strengthen our organization in anticipation of further growth ahead of us. We have made our guidance based on the assumption that our business will not be impacted by any global crisis or pandemic. In summary, we are looking forward to see another growth year in 2022 as the strong momentum driven by multiple end markets continues with the underlying trends being fully intact. And with that, I'll pass it back to Guido before we take questions.