Elmos Semiconductor Ag

Ladies and gentlemen, good morning from Leverkusen and welcome to the ELMOS conference call for the third quarter 2025.

Thank you very much for your participation and your interest in our company. Ladies and gentlemen, Elmos showed a very robust performance in the third quarter of 2025 with improving profitability and strong cash flows, while the top-line development was somewhat impacted by revenue shifts from Q3 into Q4 due to the SAP transition. In parallel, we are driving forward our operational and strategic agenda to even better position the company for future profitable growth and higher cash flows. Let me start with an update about the current market environment. The stocking activities in the automotive semiconductor market are gradually decreasing. More and more customers return to normal order levels, and our Q3 book-to-bill ratio was well above 1%. Nevertheless, visibility remains somehow low, and our customers still order at least some of them on a very short notice. Actually, especially in China, which is kind of the global headquarter of short-term ordering. This order pattern requires a high degree of flexibility and reaction speed from chip suppliers. But as an agile tabless player, you have a clear advantage here. Please allow a short comment on the Nexperia situation at this point. Nexperia primarily manufactures simple discrete components like diodes and MOSFETs. Elmos specializes in more complex analog mix signal semiconductors. So actually there's little overlap with Nexperia's product portfolio and we cannot expect any significant volumes we could take over from Nexperia. However, this situation is, at least I believe, another sign that the current inventory level by Tier 1s and OEMs are clearly too low to secure delivery and avoid line shutdowns when there is any kind of major disruption. The geopolitical environment remains challenging. I can report today that we are progressing very well with the adoption of our China footprint towards fully functional organizations. As of today, we have hired more than 20 additional engineers and IC experts in our new entity in Shanghai. The goal is to establish all relevant business processes and to manage most of our China business locally during the course of next year. China is indeed very dynamic, and that's why we are executing our localization strategy at China speed. I have already informed you that the successful go-live of the new SAP system took place at the beginning of July. We expect that the so-called hyper-care phase of the new system will be completed in Q4. Due to the system freeze before the go-live, we had to postpone some orders from Q3 into Q4, which I will explain later. The acquisition of new projects continues to develop very positively, with promising new design wins in all regions and across all segments. The performance year-to-date indicates actually a significantly better result last year, so we are very happy about that. Finally, I can report great news for my ESG team. Elmos has been awarded prime status for the first time in the ESG rating of the internationally renowned rating agency ISS. As part of the regular review, Elmos improved its ESG corporate rating to C+, and that's then the prime status. This wonderful recognition reinforces our strategy of achieving long-term profitable growth while making a positive contribution to environment and society. Let me continue with the financial highlights of the third quarter 2025. Order intake in the third quarter developed very positively with a book-to-bill ratio well above 1. The transition to the new SAP system in July has led to some orders being postponed from the third to the fourth quarter. The approximately two-week system shutdown at the end of June 2025 due to the conversion of the new SAP S4 HANA led to a production backlog that could actually not be completely cleared by the end of September. This resulted in orders equivalent to approximately one week of production being postponed to the fourth quarter. For this reason, revenue in the third quarter was somewhat lower at 140.8 million euros. However, despite this revenue shift, Q3 sales were above the quarterly average of the last 12 months, and I mean, kind of looking on a longer horizon, it's actually not a bad quarter at all. The order backlog will be caught up in Q4, which will then most likely result in a new quarterly sales record, and we confirm the midpoint of our full-year sales guidance of 580 million euros. In terms of regional dynamics, we once again saw very positive momentum in China and a more muted development in Europe and the U.S. The weaker U.S. dollar had a negative impact on our Q3 sales by around three percentage points. So if you do the grounded theoretical FX adjusted Q3 sales, it would have actually been about 145. Gross margin was 43.6% in Q3. improving 2.5 percentage points versus Q2. Like in the previous quarters, gross profit was impacted by fixed cost effects and higher material costs, including higher gold prices in assembly. I mean, those of you who regularly look at the gold price, it's really eye-watering. But you can also see the positive effects of our cost optimization program, which will lead to further reductions in personnel and material costs in the coming quarters. EBIT improved to €31.7 million in Q3 2025 compared to €30.1 million in Q2. The EBIT continued to be impacted by special costs for the SAP transfer, consulting costs for the expanded China strategy, and all by somewhat less pronounced by negative FX effects. As a result, the EBIT margin reached 22.5% in Q3 2025, which is around 2 percentage points above Q2. At 5.9 million euro or 4.2% of sales, the Q3 capex was at a low level as it was planned. At 24 million euro or 5.8% of sales after nine months, we're at the lower end of our full-year capex expectation. Adjusted free cash flow developed very positively in the third quarter. At 32.5 million euro or 23.1% of revenue, It was significantly higher than in the second quarter. The activities to improve our cash performance show positive results, and we are confident to build a very solid track record going forward. After nine months, we exceed our full-year expectation with a free cash flow ratio of 13.2% of sales. Due to the positive development, we have increased the full-year free cash flow guidance. So our initial comments that our free cash flow guidance for the full year 2025, if all works out, may prove to be conservative, this is actually true. Ladies and gentlemen, let me finish my presentation with the market outlook and our guidance for fiscal year 2025. S&P increased its latest global production forecast to 91.1 million new vehicles, up 1.2 million from its July forecast. This new forecast corresponds to a year-over-year increase of almost 2%. The positive trend of recent months continues. Still in April, S&P was forecasting a decline of minus 2% in 2025. The momentum is clearly driven by China, where S&P now expects 6% growth to almost 32 million new vehicles. For Europe, minus 2%, and North America also minus 2%. There's a somewhat lower production volume. mainly a result of the ongoing weaknesses of the European automotive industry and new tariffs in the U.S. Speaking of tariffs, as usual, I have to remind you that our outlook for the year does not include potential impacts of any new tariffs or potential indirect effects of this tariff situation and trade war beyond the level we actually see today. So for the full year 2025, we expect sales of €580 million plus or minus €20 million despite negative FX effects. As highlighted in August, we continue to expect an EBIT margin somewhere in the lower half of the guidance range of 23% plus or minus 3 percentage points of sales. Overall, our full-year guidance, both in terms of top-line development and profitability, would actually be a much better performance of Elmos than most of our closest peers. Investments in new machinery will be limited due to the lower growth. Our successful OEE optimization, as well as the test time reductions we've been talking about for some time now, and we now expect CapEx in 2025 to be the lower half of the guidance range of 7% plus or minus 2 percentage points of sales. Based on a solid cash performance in the first nine months, we have increased our guidance for the adjusted free cash flow in the fiscal year 2025 from 7% to now 10%, a plus or minus 2% point of sales. Let me summarize. Order intake continues to develop positively. There are clear signs that inventory reductions by our customers are coming to an end, and order volumes are returning to normal levels. Ladies and gentlemen, Thanks to our innovative product portfolio and excellent positioning as a fabulous company, we expect a strong final quarter and are also very confident about our growth opportunities in the coming year and beyond. We are continuing to work consistently on implementing our operational and strategic agenda for profitable growth and higher cash generation. We are convinced that this approach will continue to increase the valuation of our company and and also create attractive opportunities for capital allocation. 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 star on your telephone keypad. In case you wish to withdraw your question, press 3 and star on your telephone keypad. For any questions, please press now 9 and star. And the first question comes from Johannes Ries, Arbus Capital. Please go ahead with your question.