Elmos Semiconductor Ag

Good morning, ladies and gentlemen, and welcome to the ELMOS Saving Conductor SE conference call regarding the result of the third quarter 2023. At this time, all participants have been placed on a listen-only mode. The floor will be open for questions following the presentation. So let me now turn the floor over to your host, Dr. Arne Schneider, CEO.

Good morning, ladies and gentlemen. Welcome to the ELMOS Q3 conference call, also from my side. I'm very happy to present to you today the highlights of another very successful quarter. And in addition, I have some exciting news to share about our ESG activities. I would like to remind you that all relevant figures can be found in our investor presentation, which is available on our website. The audio recording of this conference call will also be available on our website shortly after. And of course, you have the opportunity to ask questions at the end of my presentation. Unfortunately, I have to start my presentation with the latest geopolitical conflict, the war in Middle East. Similar to the ongoing war in Ukraine, there are no direct effects for Elmos due to this latest escalation between Israel and the Hamas. We do not ship products to Israel, nor do we have offices or relevant suppliers in these regions. We hope, of course, that this new conflict, as well as the ongoing war in Ukraine, will end as soon as possible and the people can live their lives in peace. Now to a very positive topic. In August, the German Federal Ministry for Economic Affairs and Climate Action, the BMVK, and the German Federal Castle Office, the Bundeskartellamt, granted the approvals for the sale of the wafer fab to Littlefuse without any conditions. After the regulatory approvals, Elmos received a payment of 37 million Euro from Littlefuse in Q3 2023, The closing of the transaction with the transfer of the remaining purchase price of 56 million euros is expected to be effective end of December 24. With regulatory approvals, the path to a fabless company is now finally paved and we will become more innovative, we will become faster and we will become more efficient than ever before. Ladies and gentlemen, as mentioned in the beginning, I would like to share some exciting news about the ESG activities at Elmos, highlighted actually on page five of our investor presentation. Since many years, sustainability is an important part of our corporate strategy, management processes, and business goals. Our social and ecological responsibility is reflected in many activities and projects. As you all may have noticed, we continuously make our efforts in this area even more transparent to all stakeholders. Our ESG team has compiled a large amount of ESG policies and KPIs and uploaded these documents on our website. The latest project of our ESG team was the calculation of a comprehensive corporate carbon footprint, including Scope 1, 2, and 3. The calculation of a corporate carbon footprint is based on the International Reporting Standards Greenhouse Gas Protocol. And it is the basis of all Elmos climate targets, which I'm happy to announce today. Based on our future organizational structure as a fabless company, we want to reduce the greenhouse gas emissions of our own activities, that means scope one and two, by 40% until the year 2026, compared to the base year 2022. To achieve this significant reduction, we plan to lower our greenhouse gas emissions each year by 10% in the next four years. So then we reach minus 40% in 2026. And we want to become climate neutral for our own activities by 2035. With these targets, we are supporting the European Green Deal and we have defined specific activities to achieve these reduction targets. In addition to our own climate targets, we are encouraging our suppliers to reduce their own carbon emissions as well. I won't go into more detail today because we will invite all of you interested in a special webcast on November 29 to learn more about ESG at Elmos. So we will soon send out a separate invitation and have this special ESG call for all that want to join. So please do join us. It's an interesting topic. Let me continue with an update about the current market environment. The fiscal year 2023 will continue to be affected by many geopolitical crises, economic uncertainties, and high inflation. The allocation situation has further improved, and we believe that the supply and demand levels will be more or less normalized, at least in the course of 2024 latest. For the remaining months of this year, we continue to execute our allocation plan with our customers and transition also back to the lead time-based system for the next year. The demand for Elmos innovations continues to be very strong, and we are happy with the progression of our new design wins. From an operational standpoint, we continue to focus on the preparation and execution of various ramp-ups in the second half of the year. The hard work of the Elmos ramp-up team and the targeted investments in the expansion of our test capacities are now paying off, underlined by the strong growth in Q3. With this growth momentum, we are clearly outperforming the automotive semi-market and most of our peers this year. So, let's now have a closer look at the Q3 results. Once again, Elmos delivered a very impressive performance, I think, in the last quarter. Sales in Q3 increased by €32 million year-over-year to €151.5 million. This is the 11th consecutive quarterly sales record. Both the growth rate of plus 27% year over year and the increase versus the previous quarter of plus 11% underline the momentum of the Elmos business. Besides the ongoing high demand for our innovative mixed signal semiconductors, the strong increase was driven by the various product ramps as mentioned. Fueled by the high growth and underproportioned OPEX increase, Q3 EBIT rose by 40% to €41.6 million compared to €29.8 million one year ago. The EBIT margin further increased by 2.6 percentage points year-over-year to now 27.5%. In the last quarter, we continued to invest in the expansion of our testing capacities as explained. We have invested another 34 million euros in Q3 after the record spending of 42 million in the second quarter. Our investing program is a key element of our growth strategy, and some of the invests we've seen now were really just in time when we needed them now to get the growth going. So this provides us also with capacity for future growth. And by the way, of course, you will ask, I can tell you now, there will not be that much investment in Q4. Due to the ongoing high capex level and increasing working capital for the product ramps, and without proceeds from the FAP sale, the operating adjusted free cash flow, so operating cash flow, and we always use the adjusted for the other assets, was slightly negative at minus €3.3 million in Q3. However, including the payment of €37.2 million for the sale of the WaveFab, the adjusted free cash flow totaled plus €33.9 million in Q3. Due to the positive free cash flow, Amos recorded a lower net debt position of now €43.8 million at the end of the third quarter. So now I come to the outlook for the year. According to the latest IHS light vehicle production forecast, the global automotive market is expected to grow by around 8% to 88.6 million new vehicles this year and another small increase of plus 1% in the next year in 2024. According to the available industry's forecast, the overall global semiconductor market will shrink by 10% in 2023, while the automotive semiconductor market is expected to grow by 12% this year and by another 10% in 2024. So it's really important to look at the different market segments separately. Although the overall share of automotive within the entire semiconductor market is relatively small, the automotive semi-market proves to be a lot more resilient than the overall market. Driven by the increasing IC content for autonomous driving, e-mobility, comfort and safety, there is actually good growth. Ladies and gentlemen, after nine months, Elmos is heading towards another very successful fiscal year. For 2023, we confirm our guidance as of June 28th despite ongoing challenges and uncertain economic and geopolitical conditions, as well as the ongoing high inflation. We continue to expect full-year sales in 2023 of more than €560 million, representing a strong growth of more than 25% year-over-year. The full-year EBIT margin in 2023 is expected at 25% plus or minus 2 percentage points. Elmos continues its expansion of the testing capacities for future growth, and we continue to forecast capital expenditures of approximately 19% plus or minus 2 percentage points of sales in this year. As a result, Elmos expects a negative operating adjusted free cash flow in 2023. Ladies and gentlemen, I'm very excited about the future prospects of our company. We're executing our growth strategy, preparing for future growth and innovations as a sapless company, and reducing the carbon footprint of our own activities. Or, in line with our vision, we are shaping the mobility of the future and make our world more sustainable, safer, and a better place to live. So that is the end of my presentation. Thank you very much for your attention. I'm now opening the floor for questions.

So, ladies and gentlemen, if you would like to ask a question now, please press 9 followed by the star key on your telephone keypad. And if you wish to cancel your questions, please press 9 followed by the star key again. So now let's start, and please press 9 star to state your question. First one is Robert Sanders. Mr. Sanders?