Elmos Semiconductor Ag

Good morning, ladies and gentlemen, and welcome to the Elmos Semiconductor SE conference call regarding the Q1 result 2024. 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. Arne Schneider, CEO. Please go ahead.

Good morning, ladies and gentlemen, and welcome to the Elmos conference call for the first quarter 2024. Thank you very much for your participation and your interest in our company. Before I start, I would like to remind you that all relevant figures can be found in our investor presentation, which is available on the Elmos website. And of course, you have the opportunity to ask questions at the end of my presentation. Ladies and gentlemen, I'm pleased to report a solid start into the new fiscal year, fully in line with our expectations. The destocking by our customers is visible, but the reductions are also at a level that we have expected. All in all, we are on track for another very successful year, despite ongoing geopolitical and economic uncertainties. Let me start with a short update about the current market environment. After three years of very dynamic growth, the automotive semiconductor market has entered into a normalization phase, resulting in adjusted order levels and temporary inventory alignments. I have mentioned this last time already. This is not surprising, as most customers no longer see any major supply risk for semiconductor products after the end of the allocation. Customers are therefore adjusting their orders temporarily and taking advantage of the opportunity to focus a little bit more on working capital optimization. It is expected that most of the excess inventories will be digested at the end of the second quarter and order levels in the second half of the year should be closer to the real production demand again. More importantly, the structural growth trend remains robust due to more smart electronics in modern cars. Let me now switch to the financial highlights of the first quarter. Our performance in the first three months of the year laid a solid foundation for the business development ahead and was as I mentioned, in line with our expectations. With plus 4.5% year on year, we achieved a robust sales growth in Q1 2024 to 136.8 million euro. Gross margin was 45.8% in Q1, slightly higher compared to the same period last year. EBIT rose to 33.8 million euro in Q1 2024 compared to 31.8 million one year ago. As a result of higher volumes and the under-proportional increase in R&D and SG&A expenses, the EBIT margin even increased slightly to 24.7%. At 14.8% of sales, the Q1 CapEx ratio decreased compared to the 2023 full-year ratio of 20%. However, due to year-end carryover effects, CapEx were €20.3 million and therefore still at the higher end of our full-year target. As you know, various projects to optimize machine utilization, machine uptimes, and to improve testing times have been initiated. The expected improvements from these activities will help to further reduce investments in the course of the year and, of course, beyond, in line with our guidance. After strong cash flow at the end of last year, the Q1 cash flow from operations was influenced by typical year-end effects, resulting in higher inventories and lower trade paywalls, including investments the free cash flow stood at minus 48.9 million euro for the Q1. Ladies and gentlemen, let me finish my presentation with the market outlook and our unchanged guidance for fiscal year 2024. According to S&P Global, the latest global light vehicle production forecast show a total number of 90.3 million new cars, so slightly up versus the last forecast, on par actually with the 2023 volumes. From a regional perspective, China and North America show a positive trend. On the other hand, production volumes in Europe, Japan, and South Korea are expected to decline slightly year on year. The global automotive semiconductor market is now expected to grow by around 3% in 2024. The lower growth compared to the previous forecasts reflects the temporary stocking effect as some pockets of semiconductor inventory building have been realized during the allocation. However, despite these temporary inventory adjustments, the structural trend based on more intelligent electronics in modern cars and that's independent of the drivetrain concept remains valid. Higher IC content combined with our very successful new design wins over the last year is very promising as a basis for our ongoing growth in the future. For the current fiscal year, we fully confirm our financial outlook published in February. expect full-year sales in 2024 of €605 million plus or minus €25 million. This is a growth rate of 5% at the midpoint of our guidance and therefore slightly better than the expected market growth of 3%. We want to keep our strong profitability and expect an operating EBIT margin of 25% plus or minus 2 percentage points for the full year 2024. And just as a reminder, the expected operating EBIT margin does, of course, not include any effects from the closing of the sale of the wafer FAB to LittleFuse. Elmos expect lower CapEx in 2024 compared to the previous year. We are forecasting capital expenditures of around 12% plus or minus 2 percentage points of sales compared to 20% CapEx ratio in 2023. And we also expect a better cash generation and project a positive operating adjusted free cash flow in the fiscal year 2024, again without effect from the closing of the sale of the wafer fans. Ladies and gentlemen, our start in 2024 was very positive and in line with our forecast and strategic expectations. The solid performance in the first quarter is reflecting our commitment to operational excellence and profitable growth. We're now almost 40 years Full of dedication and passion to create innovative microelectronics, we will continue to expand our leading position in the automotive semiconductor industry. Thank you very much. I'm now opening the floor for questions.

Ladies and gentlemen, if you would like to ask a question, please press 9 and the star key on your telephone keypad. In case you wish to cancel your question, press 9 and the star key again. Please press 9 and the star key now to state your question. And the first question comes from Florian Saga from Stifle. Please go ahead.