Elmos Semiconductor Ag

Good morning, ladies and gentlemen, and welcome to the Elmos Q3 conference call. We are still operating in a very challenging market environment, heavily impacted by the ongoing semiconductor shortage and by persisting restrictions of the coronavirus pandemic. But once again, Elmos was able to post record sales numbers in Q3 and could further improve profitability. Our solid operational performance, we actually faced less disruptions than we feared this quarter, made the past quarter a very successful one. As usual, you have the opportunity to ask questions at the end of my presentation. The COVID-19 pandemic is still part of our daily lives, so I would like to start my presentation with a brief update of the situation at Elmos. After almost two years, I can say that Elmos has managed the pandemic very well. Since the outbreak, of the pandemic in January 2020, we have introduced extensive protective measures at all Elmos sites. This has enabled us to maintain our own production and business operations until today without any major disruptions. Since the end of the summer, we have eased some of the corona-related restrictions regarding travel and business meetings, as well as, of course, less important, in our company fitness studio and sports programs. We have also decided to gradually return to a normal office routine with around 50% of our employees now on site, and have introduced a new company agreement that applies for the remote office working in the time after the pandemic, which can be summarized as a day per week remote working is okay. We hope to be able to ease further restrictions and to finally return to a more normal business life when the current wave is over. However, we remain cautious and are prepared to quickly tighten our safety measures once again should this become necessary due to high infection rates or new virus variants. Let me now talk about the current market environment. As we all know, the high demand for electronic products and components across all industries is heavily impacting the entire supply chain for semiconductors since the end of last year. The soaring demand levels for semiconductors are much higher than the global IC manufacturing capacities, which led to a severe allocation situation which is by far from over. Automotive OEMs and Tier 1s are trying to secure as many semiconductors as possible, forcing IC manufacturers to prioritize their deliveries based on the real demand of their customers. The bottlenecks along the entire value chain led to massive delivery problems and line shutdowns at the car OEM levels. In its latest study, Alex Partners estimates that 7.7 million cars cannot be built this year due to this shortage. And in its September forecast, IHS, also a forecasting agency, has significantly lowered its light vehicle production forecast for this year and next year. The current ship shortage has more and more effect on other industries as well. Apple, or even Apple, is likely to splash production of its iPhone 13 by as many as 10 million units due to the global shortage in semiconductors and other supply chain issues. And also PCs, tablets, or gaming consoles are in short supply right now, so I guess we should all order our Christmas presents very early this year, or go for homemade cookies, as I will do. The Amos focus is to meet all of our delivery obligations based on the real demand of our customers. Every day we are fighting for a sufficient allocation of wafers from our foundry partners. The current situation requires close coordination with the foundries at the operational and on the management board level. Our own fab in Dortmund is also fully utilized and running very well. Overall, the situation is demanding a lot from us, but our efforts have paid off. So far, we have been able to supply all our customers so that Elmos had not caused any production line stoppages among the Tier 1s or OEMs this year. Please remember that our higher inventory level at the beginning of this year helped us with the tight situation in 2021. As our stock levels are now very low, we will not be able to use inventory like we have this year, also in the future. It is obvious now that the semiconductor shortage will most likely persist in 2022. This may limit our growth potential next year. I will further comment on this later in my presentation. Of course, you all want to know when the allocation ends, but to be honest, nobody knows for sure when the allocation situation will end. Coming to the Q3. In this very dynamic environment I just described, Elmos was able to continue its positive business development in the third quarter, with a further increase in both sales and earnings compared to the previous quarter. With an increase of 98% to €80.8 million, sales in Q3 almost doubled versus the previous year, which was, of course, heavily impacted by the coronavirus pandemic. This, once again, is a record sales within the quarter and slightly above the midpoint of our quarterly sales guidance. The EBIT further improved to €13.6 million in the third quarter, supported by higher volumes, but also impacted by allocation-related effects and higher prices from our foundries. The EBIT margin improved to 16.8%, which is at least close to our midterm target of 17%. At 16% of sales, R&D expenses continue to remain on a high level. Our R&D activities support the numerous serial launches and new projects in all application fields. We were able to acquire attractive new projects in all of our product segments, and we are still on track to meet our ambitious target for new design wins this year. Our investments also remain on a very high level, as already explained in the last conference call. The CapEx program is mainly targeted for the testing area to expand the capacities at the Dortmund site and at our partner sites in Asia. which are necessary to secure our delivery capabilities for this year and for next year. In addition to the backend CapEx program, we have invested in a new building for our software division in Q3. As you may know, we are strengthening our software activities at Elmos. The acquisition of online engineering at the beginning of the year was an important component of our software strategy. Now we are further expanding our activities and building a bigger Elmos software organization. With all these measures, we will be able to further enhance our innovative semiconductors with high-performance software functions, and to increasingly pursue in-house software development for our customers. In total, we have invested 18.6 million Euro, or 23.1% of sales in Q3 2021. At 23.6 million Euro, the cash flow from operations was supported by a strong net result and slightly positive impact from working capital, mainly by increased trade payables. The higher cash flow from operations combined with the ongoing higher cap expanding resulted overall in a slightly positive adjusted free cash flow of 2.7 million euro in Q3 2021. Due to our successful public share buyback program, our net cash position decreased from 47.3 million euro at the end of June to now 8.3 million euro at the end of the third quarter. We are confident that the last quarter of this year will also be a successful one. We estimate that sales for the fiscal year 2021 will overall reach 320 million Euro plus or minus five million. The full year EBIT margin is expected to reach our midterm target of 17% plus or minus two percentage points. I've mentioned it before, the global semiconductor shortage and therefore the challenging market environment and uncertainties will continue into 2022. For Elmos, the wafer capacity situation for 2022 has gradually improved compared to our last communication. We could secure additional wafers from our foundries, but we still need a lot more wafers to cover what we call the bare minimum demand of our customers and to eliminate the risk for delivery constraints and line shutdowns caused by Elmos. The worst case scenario, however, a noticeable revenue decline in next year is not likely as of today. Still, the wafer shortage hurts growth, and we have to put a lot of effort into resolving that. The negotiations with all of our foundry partners are still ongoing. We are pushing very hard for additional capacity, also together with the OEMs and tier ones. So we do our utmost to ensure that Elmholtz will be able to continue its successful business development in the next year and beyond. We are sure we have innovative products. We are sure we have leading market positions. We are sure we have a strong balance sheet and we are just as sure we have a great and highly motivated team. So we look with confidence to the future. Thank you very much. I'm now opening the floor for questions.

Ladies and gentlemen, we will now begin the question and answer round. If you'd like to ask a question, please press 9 followed by the star key on your telephone. After pressing 9 star once on your telephone keypad, you will hear an automatic confirmation. To withdraw your question, please press 9 and the star key again. Now, given the key combination 9 and star key once, to raise a question. Our first question is from Mr. Zantier.

please your line is now open okay hi everyone and thanks for taking my question and maybe i would like to start off with understanding your guidance a little bit more and could you explain what's really based into the upper end of your margin guidance because and i mean really looking at what's implied for the fourth quarter i think the event would be about 25 so how realistic would that be and if so what would be the the levels that could be driving this