Elmos Semiconductor Ag

Good morning, ladies and gentlemen, and welcome to the ERMOS Semiconductor SE conference call regarding the results of Q3 2020. At this time, our 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 to your host, Dr. Anton Mindl, CEO, and Dr. Arne Schneider, CFO.

Thank you, and good morning, ladies and gentlemen. I would like to welcome you to our conference call on the results of the third quarter 2020. Our COO, Dr. Anton Minder, is here as well. And of course, we are both available to answer your questions and give comments following the presentation. To start, I will briefly give you an overview on the current business sentiment. The third quarter turned out as expected within our given guidance range. It marks the trough in our business development and is significantly hit by the corona pandemic effect. As we pointed out already in our last earnings call, the order situation is showing a more positive development, indicating a revival of the business. This continued, and over the course of the last week, Q4 orders again rose significantly. Thus, we are seeing a strong sequential sales growth for the fourth quarter 2020. The recovery is widespread. However, the strongest impetus is coming from Asia. So far, we have seen no effect from the recent lockdowns, but we would also not expect that to show so quickly in our orders. With this, I will go into detail on the third quarter results. As mentioned, the results turned out as expected. The quarter was affected significantly by the crisis. What automotive manufacturers, tier ones, and most of our competitors experienced a little earlier this year, driven by lockdowns of car dealers and plant closures, is what hit our results in the third quarter with delay due to the rather long lead times. We recorded a sales decline in comparison to the respective prior year quarter of almost 40%, resulting in sales of 40.9 million euros. Just for the sake of clarity, we compare our results against the continuing operations in order to account for the sale of our subsidiary SMI which took place as of the end of Q3 2019. Because the sales level of Q3 2020 is way below the volume needed for a profitable production, and below the level that we are able to compensate with the Fab Light strategy and corresponding outsourcing share, we recorded a significant loss. On an EBIT level, we lost 10.5 million Euro in the quarter under report. Because of the fixed cost, the gross margin was under pressure and came out at 29.1%, reflecting the underutilization in production. The fact that we did short-time work in production throughout the third quarter helped to reduce the cost, but of course not as much as sales declined. At this level of sales, most of the proportional costs have already been reduced to the maximum, so that the residual costs have a predominantly The fixed nature and operating expenses are, of course, mostly fixed as well. Furthermore, other operating expenses for restructuring purposes are included in the EBIT. CapEx continued to be on a rather low level, amounting to €3.7 million or 9.1% of sales. This is due to the fact that we are currently still very restrictive with respect to new investments in hardware. The adjusted free cash flow was almost balanced in the third quarter. We have implemented operational matters to cope with the economic impact of the corona crisis. Our cost-cutting measures include short-time work, which throughout the third quarter has been practiced in all production areas and most of the administration departments. Just recently, as of the beginning of this week, we suspended short-time work due to the current upswing in orders for the time being. These measures will be adjusted as appropriate and as needed in the future. Another measure taken is the selective reduction of personnel using a voluntary leave-in scheme and not prolonging fixed-term employment contracts. No one knows how many more waves will come or when a vaccination is available, but there is one thing we are quite sure of. We can rely on our very strong financial basis to weather quite a long and intensive storm. We have at our disposal gross cash of more than 85 million euros and we are using the crisis to improve our internal setup as well as to enhance our product portfolio, which brings us in a position to come out of the crisis in good shape. Now I will come to the guidance. Based on the status of the order book and the customer feedback, we expect total sales for the full year 2020 to be within the range of 227 to 233 million euros. This implies sales for the fourth quarter of between roughly 63 to 69 million euros. And this means that sales will be approximately on the level or even a bit higher than sales of the first quarter 2020, which is noteworthy insofar as the first quarter's top line was completely unaffected by the corona crisis. With respect to the bottom line, we're expecting an EBIT of between 6 and 9 million euros for the full year, This translates into EBIT margin expectations for the fourth quarter of between roughly 10% and 13%, and we base the guidance on an exchange rate of 115 euro to the dollar. So despite the fact that right now the normal life and the business is, of course, dominated to a great extent by the coronavirus, we would like to stress that we are positive with respect to the medium and long-term future of Elmos. We are working intensively on numerous new projects. We are well on track to achieve another very good year for design wins, even in this challenging month that we currently experience. Our existing strong product portfolio also makes us confident when it comes to our success at customers. Our market-leading positions in selected applications, such as, for example, ultrasonic distance measurement, motor control, sensor ICs, or LED lighting, help us to also win completely new customers. So overall, we are therefore convinced that in the medium and long term, we will participate disproportionately in the dynamic growth of semiconductors in vehicles. With this, I would like to open the floor for your questions.

Ladies and gentlemen, if you would like to ask a question, please press 9 star on your telephone keypad. Please press nine star if you'd like to ask a question. And the first question comes from Mr. Stefan Ruhi. Your line is open.