Elmos Semiconductor Ag

Good morning, ladies and gentlemen, and welcome to the Elmore Semiconductor AG conference call on the first quarter results 2020. 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, Dr. Anton Mendel, CEO, and Dr. Anna Schneider, CFO. Thank you.

Okay, thanks. Good morning, ladies and gentlemen. Warm welcome from my side as well for our conference call on the Q1 2020. Also available, as you've heard already in the introduction, to answer your questions today, following my introduction, is our CFO, Dr. Arne Schneider. I will start with an overview on the development of the first quarter. As a summary, I can assert that the quarter and the report turned out as expected. We recorded a sales growth of 3.3% versus the prior year quarter, resulting in sales of 64.2 million euros. Just for the sake of clarity, we of course compare our results against the continuing operations in order to account for the sale of our subsidiary SMI, which took place as of end of Q3 2019. As expected, the first quarter revenue 2020 was not affected by the corona crisis. This is due to the order lead times and the time it takes until the lower demand from the core manufacturer trickles through the whole supply chain to the automotive semiconductor manufacturers. EBIT margin reached 11% and reflects the expansion of our development resources. As we reported, we built up a new design center in Dusseldorf in 2019 and invested in general in our research and development capabilities. CapEx amounted to €5.8 million, or 9.1% of the sales. This rather low level is due to the fact that we already saw a weaker development of the automotive industry. Going to the lower CapEx, as well as thanks to a high operating cash flow, we recorded a quite strong free cash flow of €30.5 million in the quarter under report. At the end of the first quarter, we have conducted a share buyback offer. at a share price of €70.50, Elmos now holds close to 10% of its share capital. When we come to the question, what's lying ahead on Q1 and its achievements are history. And we have to reflect on the consequences of the many planned closures of practically all OEs and most of the Tier 1s. These closures and the first consequences have also reached our order boards. So the question is, do we now see what many of the well-recognized institutes forecast, the minus 20 to minus 25% in core cells? Well, anyhow, be careful when you trust those well-known institutes too much. The same ones bravely forecasted half the decline just a few weeks before. This reminds me a little bit on the forecast from the Roland Koch Institute on the corona crisis itself, where more or less in the course of two to three weeks, The risk of infection came from no danger to a very high risk. It seems one shouldn't try to forecast what cannot be forecasted. So when we look at our overall situation, our conclusion after many internal discussions is to rather forecast what lies closer at hand. Instead of giving a guidance for the full year 2020 based on very few really reliable facts or emotions like wishful thinking or fears or even the Chrysler board, While giving no guidance at all, we rather concentrate in this exceptional situation on the potentially doable, and that is forecasting Q2. Doing so, we expect sales of between 55 and 60 million euros and an EBIT margin of between 1% and 6% of sales. Based on the minimum order lead times, we can foresee the sales volume with some certainty within a limited point frame. The width of the guidance range is due to the fact that there is the usual insecurity with respect to cut-off date effects, withdrawals from consignment stocks, and don't forget certain changes in customer behavior, in these times more probable than ever. One last remark on the rest of the year. With the rule of three, one can easily calculate that if you would have to mirror minus 20 to minus 25% of the car sales profits in our figures, Q3 and Q4 wouldn't be precisely delighting. The first half, taking a midpoint assumption for Q2, would end up with slight decline compared to the first half of 2019 regarding revenue. Rule of three tells us to make the minus 25 for a full year where the first half turns out to be only slightly down, requires minus 40% in the second half. Quite a drastic slump. Do we believe in such a scenario as the most probable case? No. But is it in the range of the possibilities at hand? Yes, of course. The fact is, we have to prepare ourselves for this kind of scenario as well. And that's exactly what we do. With this, let me come to what we did up to now. to weather the crisis and how we will continue. At Elmos, we have taken numerous preventive measures. On the one side, to protect our employees and their families to the best we can, and on the other side, to avoid being directly affected by corona infections in our business operations early on. Already at the end of January, the first measures have been imposed. and have been intensified at frequent intervals since then. Just to name a few, these include travel restrictions, which were noteworthy when we introduced them. They now seem obvious, yes, but that's much later now. We introduced social distancing, temperature screenings, meeting prohibitions and limitations, home office for literally most of all the employees, closure of the canteen very early on as well, buying masks for our employees and firm rules to wear them on site, but also supply these for their private safety, and lots more. We have seen some infections at the Amos employees, but due to our measures, none of them endangered our employees or their daily life and work at the Amos premises. Because some as vacation returners, they were quarantined right away in their home office at any time. By safeguarding the health and safety of our employees with respective measures, at the same time we have implemented operational measures, including short-time work in selected areas, and we will expand those measures to manage the economic effects of the crisis caused by the pandemic. Thanks to our headlight strategy, we have the ability to first reduce outsourced share of our weather production before having to cut into our own structures. Apart from the current uncertainties, we are confident that Elmos has a bright future. We will continue gaining market share in our core business fields and extend our technical capabilities in all the high-growth areas, such as sensing, especially dedicated for autonomous driving applications, efficient drive, all kinds of auxiliary motors in the car, be them based on combustion engine or electric-driven engines, on lighting, be it ambient or taillighting, and much more. We see this confirmed by the ongoing high level of design activities. Even in times of home office and travel prohibitions, we maintain close contact to our direct customers and the OEMs. Developments of new chips are continuing and many new designs are being discussed or have been started. And these activities concern various fields with numerous customers around the world. Furthermore, our very solid financial setup provides us with the opportunity to withstand such a crisis for quite some time. We have a comfortable gross cash position of €133.6 million at the end of Q1 2020. Even when subtracting the roughly €26.9 million for the share buyback and the proposed dividend payout of €9.4 million, this leaves us with sufficient room to maneuver. And of all that, we recorded an amount of €84.7 million as of the end of Q1 2020. With this, I'm done with my presentation and I would like to open the floor for questions.

Yes, ladies and gentlemen, if you would like to raise a question, please press 9 and star. If you would like to withdraw your question, press 9 and star key again. And we have the first question. coming from Mr. Johannes Ries from APOS Capital. Please, the floor is yours.