Siltronic Ag Ord

Hello everyone and welcome to the presentation of Siltronics Q2 2025 results. Please note that this call is being recorded and streamed on Siltronics website. The call will also be available as an on-demand version later today. Your participation in this call implies your consent with this. At this time, I would like to turn the conference over to Verena Študze Head of Investor Relations and Communications of Siltronic AG. Thank you, Elaine.

Welcome, everybody, to our Q2 2025 results presentation. This call will also be webcast live on Siltronic.com. A replay of the call will be available on our website shortly after the end of the call. Our CEO, Michael Heckmeyer, and our CFO, Claudia Schmidt. We'll give you an overview of our financials, the current market developments, and our guidance. After the presentation, we will be happy to take your questions. Please note that management comments during this fall will include forward-looking statements that involve risks and uncertainties. For a discussion of risk factors, I encourage you to review the safe harbor statement contained in today's press release and presentation. All documents relating to our Q2 2025 reporting are available on our website. I now turn the call over to Michael for his remarks.

Thank you, Verena, and a warm welcome also from my side.

Let's start with the key messages of today's call. Waiver demand remains subdued, continuing the soft trend we've observed over recent quarters. Despite this, we achieved our targets for H1 this year and delivered solid results in Q2 2025. Regarding the tariff situation, even though things seem to be clearing up lately, we have to analyze this in detail, including implications for our sector and our business. So far, our overall end market assumption from the beginning of the year is unchanged. The most significant headwind for us is the weakening US dollar against the Euro. This is why we've aligned our full year 2025 sales guidance based on these FX developments. Our new FX assumption for the second half of 2025 is a Euro-US dollar rate of 1.15 compared to our previous assumption of 1.08. Consequently, we now anticipate that full-year sales will be in the mid-single-digit range below 2024 levels. Before we look at the details of our performance in the second quarter, I'd like to take a moment to recap the progress we've made in H1 2025. The key highlight was the successful completion of important prime waiver qualifications on UFAP. taking the way for depreciation to begin in August. At the same time, our cost and cash initiatives are progressing well, further emphasizing our commitment to operational discipline. And last but not least, we remain fully on track to complete the phase-out of the small diameters business in just a few days, by the end of July 2025. This marks the successful conclusion of a highly professional and well-executed transition process. Thanks to the outstanding collaboration and commitment to everybody involved. Let me give you a broad overview of our development in the second quarter, and Claudia will provide a detailed financial overview shortly. Quarter on quarter, our sales declined by 5%. This development was in line with our expectations. While we saw an increase in waiver areas sold, this was not sufficient to fully offset the negative impact driven by FX effects and, to a lesser extent, by price effects. Despite the decline in sales, we achieved an improvement in our profitability in Q2. EBITDA reached 86 million euro in Q2, up from 78 million euro in Q1. Consequently, the EBITDA margin increased to 26.3% compared to 22.6% in Q1. This positive development was largely driven by non-operating effects, which Claudia will explain shortly. CapEx came in at 126 million euro, primarily related to our new FAP in Singapore. Consequently, and as anticipated, the net cash flow continued to be negative at 83 million. On a positive note, our market share among the major competitors remained stable in the first half of 2025, underscoring our resilience in a challenging environment that continues to affect all wafer manufacturers.

Let's move to the financials. Claudia, please.

Thank you, Michael. A warm welcome from my side as well. I'm pleased to walk you through our performance over the past quarter and highlight key developments. As Michael mentioned, sales in Q2 developed in line with expectations, totaling 329 million euro, a 5% decline compared to the previous quarter. By the way, for area sold increased. This was more than offset by headwinds from the US dollar and to a smaller extent pricing. The product mix remained largely unchanged compared to Q1. On a positive note, EBITDA rose to 86 million euro in Q2, marking an 8 million euro increase quarter over quarter. In addition to positive contributions from fixed cost dilution, this development was supported by two main factors. First, Q1 typically includes seasonal effects such as vacation accruals that are more pronounced at the beginning of the year. Second, Q2 benefited from, I would categorize as non-operating effects. On the one hand, we adjusted the valuation of our spare parts following the phase out of small diameters. On the other hand, compared to previous quarters, a somewhat higher amount was capitalized for innovation projects that have now entered the development phase. Importantly, our overall R&D spending remains unchanged, even under the current cost discipline, as we continue to invest in our future. With higher EBITDA despite lower sales, our ABTA margin improved significantly, reaching 26.3% in Q2, up from 22.6% in Q1. In the comparison of the first half of 25 versus 24, FX effects had only a limited impact on the top line performance. However, we observed noticeable effects within the P&L lines, other operating income and expenses, where FX-related impacts are recorded. In H1 last year, we benefited from positive hedging results, resulting in a net gain of 5 million euro. In contrast, H1 this year showed a net expense of nearly 6 million euro in these line items. While Q1 was negatively affected by hedging losses, Q2 brought a new dynamic. with hedging gains driven by the sharp weakening of the US dollar. However, these gains were more than offset by valuation effects on recorded receivables at the reporting date. To put this into perspective, within just one quarter, the US dollar weakened significantly against the Euro, moving from 1.08 at the end of March to 1.17 at the end of June, compared to 1.04 at the end of last year. As depreciation remained almost unchanged quarter over quarter, the positive development in EBITDA also translated into a higher EBIT of 24 million Euro, an increase of 9 million Euro compared to Q1. Looking ahead to Q3, we expect depreciation to rise significantly starting in August as our new FAB in Singapore will begin to be depreciated. Turning to the financial results, a slight decline was offset by lower tax expenses. Taking all these factors into account, Q2 net income came in at 15 million euro. Let's now turn to the key developments on our balance sheet. At the end of June, total assets amounted to 4.9 billion euro, slightly below the 5.0 billion euro reported at the end of March. CapEx and Q2 totalled €126 million, once again clearly exceeding depreciation of €63 million. However, the FX valuation effects related to our Singapore entities had a counterbalancing impact, resulting in a slight decline in fixed assets. Inventory saw slight increase, mainly due to lower write-downs on spare parts. Trade receivables declined, partly as a result of FX valuation effects at the reporting date. In contrast, other receivables increased, reflecting positive market values of our FX hedging positions. Operating cash flow fell short of covering our payments for CapEx, leading to a decline in cash and securities to 535 million euro. Our equity ratio remains stable at a healthy level of 43%. As communicated in Q1, we drew 53 million Euro of our syndicated loan in Q2, which is reflected in financial liabilities. The increase was partially offset by FX valuation effects related to our Singapore dollar loan at the end of June. Trade tables. Primarily, those related to investment activities decreased as planned from 280 million euro at year end 24 to 233 million euro by the end of June. Alongside the refund of prepayments and effects, this contributed to a noticeable reduction in liabilities and prepayments. CapEx in the first half of 2025 totaled 222 million euro. Given our full year CapEx guidance of 350 to 400 million Euro, investment activities will be lower in the second half of the year. Our strategic focus remains unchanged. The ramp of our new FAB in Singapore and the necessary steady state CapEx level to support our operations. Looking beyond 2025, we still expect some incoming equipment from the initial ordering for our new FAB. However, new equipment orders will only be placed if we see clear positive market trends. We continue to provide updates on the structure of our financial liabilities as illustrated on the left-hand side of this slide. As of today, our total loan drawdowns amount to 1.42 billion euro. This includes 53 million Euro from our syndicated loan, newly accessed in the second quarter. Our revolving credit facility of 127 million Euro remains entirely undrawn and fully available to us. On the right, you will find the corresponding maturity profile. As previously communicated, Green payments will start in 25, beginning with a modest tranche of 65 million euro in the fourth quarter. Our balance sheet also reflects short-term prepayments of 42 million euro, which will be reimbursed within the next 12 months. Overall, our liquidity position remains robust, with 535 million euro in cash and securities, excluding the undrawn revolving credit line, which further strengthens our financial flexibility. Turning now to net financial debt. As shown in the bridge, Siltronic closed the year 24 with net financial debt of 734 million Euro. In the first half of 2025, we generated an operating cash flow of 80 million Euro, negatively impacted by working capital effects, prepayment refunds, and rising interest payments. As anticipated, capex payments in the first half totaled 250 million euro, exceeding the investment by around 30 million euro. Consequently, net financial debt increased to 903 million euro by the end of June. Looking ahead, we expect net cash flow to improve significantly in the second half compared to H1 level. mainly driven by positive working capital effects and an improved cash flow from investing activities.

With that, I'll hand it back over to Michael. Thank you, Claudia.

Coming to the market outlook, even though the situation around the U.S. tariffs begins to clear up, it remains volatile. This makes it difficult to assess the broader impact on global GDP growth and demand for waivers in end markets. Nevertheless, we would like to share our current view on the end markets. Looking at individual end markets, the smartphone market has softened slightly. Meanwhile, PCs have shown a notable uptick compared to our March assumption, driven by a stronger than expected Microsoft Windows 11 impact. Server demand remains robust, fueled by the continued AI momentum. The automotive segment has seen a slight decline, partly due to lower sales of electric vehicles. Overall, our market assumption is still valid, and the end markets are expected to grow approximately 7% this year. The majority of this growth comes from content, and only a smaller share from unit growth. However, elevated inventory level continues to weigh on this positive end market picture, resulting in a significantly lower volume impact for the wafer industry. Our internal market assessment indicate that there was no meaningful inventory digestion in the first quarter, as most of Q2 data for customers are not yet available. Inventory levels across key segments remain elevated, continuing to weigh on wafer demand. Memory inventories are still elevated. Power inventories have reached record levels, further limiting short-term demand impulses. In contrast, logic inventories look the best. Or was it too little to improve market visibility, as elevated inventories still postpone our demand recovery?

As you all know,

We have so far been calculated with an FX rate of 1.08 in our guidance. However, due to recent developments in the FX market, we've adjusted this rate to 1.15 for H225 and updated our guidance accordingly. It's therefore worth taking a closer look at this. As you can see on the left side in 2025, We have a US dollar exposure of more than 80% of our top line, while the majority of our ABTA costs are Euro-based. This makes us sensitive to exchange rate fluctuations. Let me explain our updated US dollar sensitivity based on our 2025 exposure and the revised exchange rate of Euro-US dollar 1.15 for H2. A change of one US dollar cent, including the highly correlated Singapore dollar, would impact our full year sales by approximately 10 million euro, and our EBITDA by around 6 million euro before hedging. Our hedging strategy remains unchanged. We hedge up to 18 months ahead based on the expected foreign exchange net exposure.

In closing today's presentation, we would like to share our refined guidance for 2025.

Although we are more than confident in the mid- and long-term growth of the silicon wafer market, we expect elevated customer inventory levels and related volume shifts to continue influencing the next quarters. Furthermore, there's clear uncertainty in the market from U.S. tariffs going forward and the continuous change in regulations. We maintain our full year 2025 guidance based on a constant exchange rate of EURUSD 1.08. However, as explained before, we have updated our expectations for the second half of the year using a revised exchange rate of EURUSD 1.15. With this new assumption, we now expect 2025 sales to be in the mid-single-digit percentage range below 2024. Previously, we had anticipated sales to be roughly in the region of last year. For Q3 25, we expect sales to come in below the second quarter. This is primarily due to intra-year shifts in delivery volumes, with a significant portion now scheduled for Q4. While the gain margin forecast remains unchanged at 21 to 25%. We've also refined our depreciation outlook. Depreciation is now expected to range between 340 to 400 million euro. This adjustment reflects improved visibility and the impact of a weaker Singapore dollar. Our gains for CapEx, EBIT, and net cash flow remains unchanged. With this, we conclude our Q2 2025 results presentation, and Claudia and I are happy to take your questions. Thank you very much for your attention. Elaine, please open the Q&A session.

Thank you. If you would like to ask a question, please signal by pressing star 1 on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press star 1 to ask a question. We'll pause for just a moment to allow everyone an opportunity to signal for questions. Please state your name and organization before asking a question. And the first question comes from Amelia Banks from Bank of America. Please go ahead. Hi. Thank you for taking my question. I was wondering if I could just ask a question on your margin. Is it possible if you could quantify the decrease in cost of sales from the write-down of the spare parts?

Thank you. Hi, this is Claudia.

Yeah, just to give you a ballpark number, this was, let's say, a mid-single-digit amount in Q2, which impacted our ABCA positively.

And is that quarterly?

That's a one-time effect.

Okay. Okay. Thank you.

We will take our next question from Daniel Tracy from AT Group. Please go ahead.

Hello. Good morning. So, I have two questions, the first one being, You're mentioning that you continue to have a stable market share among your main competitors. However, relative to your peers, your dynamics are slightly slower now on customer and product mix. How is then your share stable right now? And in addition to that, kind of also we see China now accelerating in 300 millimeter. Sure, it's not leading edge yet, but still do you see any pressure there? If you look at the overall share, is it then decreasing? And my second one would be on guidance. Basically, you lowered it on FX reasons with a sequential deterioration in 3Q. Could you elaborate what gives you the confidence in the 4Q order as it was already pushed out twice and now end markets continue to be sluggish and customer inventory is high?

Thank you. Well, thank you, Daniel.

A couple of questions. Let me take the market share question first. Market share, of course, is an average of all the different customers. And indeed, we have some negative mix effect, which means there are effects that certain customers buy less in certain, let's say, segments. On the other side, this is opposed by market share gains and other customers. So, that in the overall average consideration, and that's what we're talking about, we can say our share is stable. With regards to the China question, we do not see, you know, very specific or very accelerating China dynamics. And when you study, let's say, the wording around this of our peers, There are also, let's say, more optimistic and more pessimistic statements. So, we would see ourselves in the middle of this range. So, China is, on the one side, a very important market for us. China competition is the most serious, the smaller, the way her diameter is. We see 200 millimeter, I would say, as a mixed bag. They are still very attractive. where we can play our technology leading position. And in 300 millimeter, particularly in the higher specs, and you mentioned leading edge, there's still a huge technical gap between the Chinese players and the three major players that are able to serve leading edge. guidance question and the patterns in Q4. So, these are particular and individual customer postponements of volumes. So, we have allocated those volumes now to Q4 and I can say we have reasonable confidence that the customers will execute and we are in a way positive that this will happen as predicted in our guidance.

Thank you.

We will now move to our next question from Constantine Hesse from Jefferies. Please go ahead.

Thank you very much for taking my questions. Also from me, if we could talk a little bit about, Michael, the outlook overall. I mean, clearly this bottom has just been dragging on and on and on, and it just feels like it's almost never-ending. Inventories, if I look at the Sumco charts, are still extremely high. I mean, logic obviously a little bit better, but Memory, of course, pretty bad. Power getting only worse. And what I'm trying to figure out now is, you know, I think even if we want to be conservative on the top line on the P&L going into 26, how should we think about CapEx in 26? Now, I think you did say during the call that you will not invest in additional equipment unless you see a sustainable improvement in markets, which I guess implies that CapEx will obviously come down next year, but I think your maintenance CapEx is currently running at about 200 million. Is there any CapEx that you already have committed, expansion CapEx beyond maintenance CapEx that you already have committed that you have to spend in 26? I mean, it would be just pretty good if we could have a clearer picture of how we should think about investments in 26 because clearly, you know, your balance sheet is levering quite significantly.

So, it'd be good to have a bit of a picture there. Thanks. Thank you, Konstantin.

The outlook, I mean, you're absolutely right. This inventory situation is hanging on for quite a while. We see the good progress in logic. Memory, I mean, the overall picture isn't good. Still, individual customers are on the right track on memory. Also, there's a huge variety of different statements from different customers. And power, indeed, from all what we see is further creeping up. And this might be related to the very, let's say, poor overall automotive sentiment and industrial environment. On the other side, we have this end market growth of 7%. So, I mean, it's very difficult to predict, but it should be and will be hopefully a question of time until those 7% are making its way through this inventory, through the supply chain, and also eventually landing at the wafer industry. But it's a way to go, and it's very difficult to predict how long this will still need. I mean, your 26 question is a bit of a difficult one. Today, we don't guide any 26 numbers. However, maybe around your specific capex point, let me emphasize a couple of things. So, we communicated the steady-state capex of around 200 million, but we also said it's an average number. So, there could be years below, there could be years above. So, that's maybe something you might want to have in mind. And indeed, there is, let's say, a certain capex hangover still that will trail in 26. So, overall, we would see capex coming down, and we will specify this more concretely when we come closer to the 26 and related guidance timeframe.

That's very, very helpful. Thanks, Michael. On the next question, if I may. I think part of the depreciation adjustment was driven by an improved knowledge of equipment activation. So, I'm just wondering, does this at all change that old or the legacy outlook that you used to have on depreciation of 500 million plus a year once Singapore is being fully depreciated?

Just to have a rough idea.

Yeah, you're absolutely right. With the progress of investment projects, you gain a better visibility on the timeline. And we had to do the adjustment due to FX. So, but we stick to our communication that depreciation will be above 500 million euro. Not this year, definitely not, because we have the guidance out, but once FedNext is in full depreciation, going forward, we will see the 500 million plus in depreciation.

Okay. This is great. Thanks. And then, lastly, on the long-term agreements, I think, Michael, last time, I think in Q1, you said there are no major long-term agreements expiring either this year or next year. if you could just confirm that. And then second of all, is there any reason to believe that the bargaining power of Soltronic, Sobhanko, Shinetsu may be at a place where if you do have to renegotiate these long-term agreements, say in two, three years, given the current market conditions, could you potentially experience significant pricing pressure here? Or is there an understanding that between the semi players and the wafer manufacturers, and I don't want to sound naive here, but would there be an understanding that they do understand how much money you just invested into these plans? And there will be some kind of in the core that, you know, pricing would probably be under pressure, but it wouldn't be a huge amount. So I'm just trying to get an idea of the potential negotiation dynamics of yourself and your customers given the current market environment.

Yeah, thanks, Konstantin.

First of all, let me confirm, indeed, no major LTAs expiring this year or 2026. And the major LTAs, which we concluded in the framework of our new in Singapore, have a very long duration. So, we talk almost like 2028 or even 2030 there, yeah. So, there's a very, it's an overall robust situation around the LTAs. Further LTAs, yeah, we also concluded smaller ones, and there are here and there segments that are still, you know, very significant in demand, and that is also reflected in pricing. On the other side, of course, we will not conclude major LTAs in this current market environment for sure, but customers have a rather strategic perspective on this, and some talk about, you know, of a couple of years for certain products, even in the current environment. So it's really kind of portfolio. You have to imagine, you know, one small one can go away, another one is coming in, but the major ones are fixed for a long period. And with regards to pricing, I can also confirm that all the LTAs are adhered to in contract price. And the price effect we were describing is happening outside LTAs, and that is around one-third of our business.

Great. Thank you so much.

We will now take our next question from Harry Blakelock from UBS. Please go ahead.

Good morning. Thanks for taking my questions. My first one is just around, I guess, I mean, you kind of answered a bit, but why you think inventories are taking so long to come down? And in particular, with Asian manufacturers having a higher portion of LTAs than you do, quite significantly higher, do you think you might be suffering because they continue to deliver contracted volumes despite higher inventories? And then I guess to follow up on that, if you and competitors continue delivering LTAs, how can we expect inventories to come down, especially when they haven't budged, even when you've been saying that end demand is kind of greater than what you've been shipping and what waste demand is?

Yeah, why is this hanging on for so long time? It is indeed, in a way, the key question here. I think it's still the situation that the chip manufacturing is in a way bifocal. There are a small number of companies that are centered around AI chip developments. And they're doing extremely well, and you can study their quarterly and monthly numbers, which are going up significantly. However, when we analyze this in more detail, we see that this is primarily value-driven. So, they are, with technical developments, in a position to charge much more for their chips than they used to be for previous generations. At the same time, the amount of wafer area sitting underneath these chips is not growing significantly or only moderately. So, we have those decoupling of volume and value growth at certain customers. And then, of course, we have others, particularly those in the power segment, whose business is not, let's say, developing pretty aggressive. You know, so that means their volume demand and their wafer situation, is still tuned down for quite a bit. And this is a way, in a way, totals to the overall picture we're describing here. Healthy or reasonable end market demand of around 7%, but not lending yet, vastly, and in some parts are progressing, as we talked about logic, but vastly in its totality, not lending in the wafer industry. And your question was whether Asian, Peers are, you know, insisting on LTAs or whatever. Everybody tries to insist on LTAs. It's not just possible. And I think the clear evidence that this is affecting everybody to the same extent is our market share statement. We are stable, so there is no indication that we are doing, you know, significantly better or worse than our peers. It's really an industry-wide phenomenon and affects all of the wafer manufacturers.

Got it. Thank you, Michael.

And then on the ramp of FAB next, I know you said it kind of depends on market conditions, but based on your current view of that and how the market will develop into 26, Can you give some color around how much capacity you think will be added in Singapore this year and next?

We talked about the initial rent capacity. It was under K per month by end of last year. So now that is further built up, we're reluctant, you know, to talk about very specific numbers in relation to equipment, et cetera, that would be highly competitive information. So therefore, yes, this will be further ramped, but we will be also very careful with the ordering of new tools, as we explained, and that we will only trigger once we have the indication that markets are really ticking upwards again. So, for the time being, we work with what we have. We have certain hangover of CapEx, which means there's still some effects trending CapEx-wise into next year, as we said already. And then, there will be a decision point when we have market, let's say, clearance indications to further bring capacity into this . So, detailed numbers is not what we want to communicate for competitive reasons.

Got it, thank you.

And then just a quick one on Q3, are you able to give a bit more complication on kind of below the level? Is it slightly below the level, mid to low single digits, significantly below the level of Q2?

Any color would be helpful.

So, I mean, you can do a lot of maths, right? You have a full year guidance, half year is over. We gave some indication where Q3 will sit and that Q4 should be further elevated. Giving more details would be very difficult as we have those, you know, quarterly phasings and quarterly closing effects typically letting in a few millions left or right in the end of the quarter. So, therefore, I think all you can do is do the calculations which should be then already pretty precise.

No worries. One last quick one just on, I'm not sure whether you've just raised in the past, but in terms of the debt that you have, are there any covenants that we should be aware of?

You are asking for our covenants, right? Yes, we have covenants in place, but we haven't communicated so far any contract details, and we will stick to that. So, we won't disclose any details here.

Okay. All right. Thank you both.

We will now take our next question from Florian . Please go ahead.

Yes, good morning all. Just a quick follow-up on my end. It's mainly around phasing Q3, Q4. I mean, you mentioned that end of July, the smaller diameter part will go out of the equation. Can you maybe quantify the impact in Q3, Q4? And I mean, in general, I mean, you have pitched the story that the next or the quarter after the next quarter will be better. I mean, you mentioned you have a decent confidence that the shifts from Q3 are going into Q4. Is there something different in the structure of it compared to the last couple of quarters, or is it the same crystal ball you like to mention in the quarterly calls?

Thank you.

Thank you, Florian, and I think very good question. So number one, the small diameters will be closed as scheduled by end of this month. that the revenue effect from that is very small for total year was mid-single digit percentage of total revenue. And now let's have in mind this is only seven months, so it's really small. So, we will not see any significant effect from this in the second half. The crystal ball is still there, and let's say the overall view on the future is still foggy. I think we explained that in great detail. Nevertheless, the particular phasing within Q2, Q3, and Q4 this year is something different, as it's the result of individual customer discussions and allocations with different customers and the contents with different customers. to the different quarters according to their demand need. Therefore, there's, I think, a different level of confidence of our quarterly facing, our quarterly statements we made for this year. The overall situation is still a bit in the cloud, and I think I would really like to differentiate those two in terms of how large our trust and confidence is.

Great. Thank you very much.

We will now take our next question from Martin John from BNP Paribas. Please go ahead.

Yeah. Hi. Good morning. I just have two questions. The first one is on the pricing impact that we've seen in the second half. I mean, the guidance implies now relatively flat sales development in the second half, so it's right to assume that the small diameter wind down, which I've seen price pressure. and also the ramp of FedNext volumes that typically, or should carry higher prices, should need to have at least flat pricing development in the second half?

That's the first question.

So, I mean, overall, we don't, you know, give quarterly or half year. pricing statements or comments. But the effects you were mentioning, like a small diameter and ramping off of the FEPP should not affect the pricing at all, you know, because the pricing is more market thing where we clearly can confirm that around two-thirds of our business are in LTAs where the prices are up as contracted. And the other one, third, which is maybe a bit more smaller diameter and 200 millimeter, is more under price, let's say, discussions, which leads then to our overall price situation as described. So, we do not see, you know, a very particular quarterly pricing effect, and it should not be affected by the SD business closure, neither and nor the Singapore wind.

Okay, thank you. And then just to follow up on this cost stuff that you had in the second quarter, I mean, you mentioned the single, mid-single-digit number from the write-down. You also had a positive effect from capitalized RMD, negative effect from the revaluation of receivables. Can you just disclose what total number and the cost base was considered one-off and what we can extrapolate into the third quarter? And then just on hedging, I mean, would you expect to realize hedging gains now in the second half at current FX rates?

So yes, we just disclosed the rough amount of the valuation effect, mid-single digits. Regarding R&D, you should have If you look at our P&L, there you see the development quarter over quarter in R&D costs. That gives you an idea, and this will also translate into the next quarter. So, R&D costs will stay on roughly that level because we will continue to capitalize those activities that we started right now to capitalize.

Let me emphasize, this is not affecting our R&D activities and our operative R&D works. Yeah, so we didn't cut there at all. So the activities on the ground working on R&D and tech development are unchanged.

Okay, thank you. And then just on hedging.

Yeah, and regarding hedging, yeah, in total, we had a positive hedging result in Q2, but it was counterbalanced by those valuation effects. Nevertheless, for Q3, we have some beneficial, let's say, hedging positions in place for the second half of the year. So, there's a strong movement always in the US dollar, so you can't really, on valuation effects, but given that the U.S. dollar would stay at 115 like it's today, we should have a positive effect from hedging in the second half of the year.

That's good. Thank you very much.

I would like to add something which you hadn't mentioned, but which is important for the second half of the year. And this is rent cost. As we start to depreciate FedEx in August, there's also an effect in rent cost. We will see them in the P&L from August on. Until now, we capitalized them on the CapEx.

Can you just remind us how much it roughly is in the second half?

Yeah, we don't disclose a number here. On a full-year base, the effect is not so big, but on a quarterly or half-year base, you will definitely see it.

Okay, thank you very much.

We will take our next question from Jimmy Wang from JP Morgan. Please go ahead.

Hi, Dr. Heckmayer. Thanks for taking my questions. First, I would like to ask about how do you think about potential impact of Chinese competition within the China market and in international markets? Because we see that five Chinese second wave suppliers, they reported their 12-inch revenue was around 100 million U.S. dollar in 2021, but it has increased to about 1.1 billion U.S. dollar in 2024, only for 12-inch second wafers. So I still would like to ask about your views on potential Chinese competition for international suppliers.

Thank you. Thank you very much.

I mean, Chinese competition is definitely on the ground, and they're progressing and developing. So, we see their capability strongest in the smaller of the diameters, and in 300 millimeter, as you highlighted, They are starting with some low spec, some test waiver activities. We do not see a lot of activities outside China, and here we think geopolitics could even be contained locally as, you know, the tariff discussion is hot between China and China. China and U.S. and some other countries. On the other side, we also have, let's say, good business in China. A lot of customers appreciate our quality, our technology, and our, let's say, technical support and capability there. So, yes, there is a Chinese dynamics and a Chinese progress, but I think it's a very long time to go until they, would be in a situation to deliver premium products, particularly such as leading edge or high bandwidth memory or something like that.

Yeah. Thank you so much for that. And second, I would like to ask about leading edge logic, because previously people think there are three major suppliers, including you and Japanese companies. But we heard that another international supplier from Taiwan is also relatively confident about their progress within the leading edge logic, i.e., from the US . So how do you think about potential, like, more competition from this international supplier in the leading edge market? Yeah, thank you.

So thank you very much.

I mean, I must note and cannot comment on individual competitors. However, when you talk about a new FAP in the U.S., of course, we have to take in mind that qualifying new FAP, and we experienced ourselves in the last couple of years, I can say it's a very, let's say, long and difficult process with customers. You might remember when we had the first wave out ceremony in late 23, and now we're starting depreciation in August this year. with being fully qualified with prime products at our customers. And if we had no leading edge experience, it would have taken even much longer time. So, therefore, yes, everybody's ambitious to go into the leading edge segment and provide premium products. However, we know there's a clear entry barrier, and it's, let's say, long and very, difficult path to go there, and customers feel quite happy with three volume suppliers of leading edge, so there is not a very aggressive need for another one.

Yeah, understood. Thank you so much. I'll be back to the queue.

Thank you.

As a reminder, if you would like to ask a question, please press star 1 on your telephone keypad now. We will now take our next question from Robert Sanders from Deutsche Bank. Please go ahead.

Yeah, hi. I just was hoping to ask about the FAB-NEXT scale that will give you accretion on the EBITDA margin level. Is there like a 100K or 200K level where you think that could, that ramp could start to be accretive rather than dilutive at the EBITDA margin level? Second question would be about what cash flow burn you expect in 2025. And then lastly, if you could just, although you're not willing to disclose covenants, I think it would definitely benefit investors to understand if you're at least close to breaching covenants. So if you could just confirm that you're not actually close to breaching covenants.

Thank you. Thank you, Rob.

And I take your first question about the new FEPP. And then Claudia will talk about the other elements of your questions. I mean, the good news is now FEPP Next is qualified in major products. And with that, we have for the first time the opportunity to ramp volumes, to balance volumes between our global FEPP's footprint. So that means we can actively steer more volume developments in the FEPP. And we will do that to, let's say, an optimum manner. On the one side, there's an interest to load the FAP, let's say, as quickly as possible to come into the volume area where it becomes much , which will take some time. And, of course, the target is unchangeably to deliver those EBITDA margins north of 50% out of that FED, which only will happen with what we call a significant loading, as you might remember. So, that's the clear path going there. On the other side, we must not underutilize our existing footprint in Germany to avoid to heavy idle costs. And it's, let's say, the ongoing task of our global operations team to steer this mix in an optimal manner. But for sure, FABnext will see volume increase now because the way is clearly paved with the prime volume equations we've done, particularly achieved in the last couple of months, where we now say the FAB is ready. And that's also the reason why it's depreciated starting in August. For the other elements of your questions, I'll hand over to Claudia.

Okay, Rob. I'll start with the cash burn. Yeah, our guidance for net cash flow this year is significantly negative, but still better compared to previous year. And I can only add that, yes, we had a cash burn in H1. Let me put it like that. That was the majority of our cash burn this year. We will see definitely an improvement of net cash flow in the second half of the year, mainly driven by, as I mentioned, positive working capital effects and then improved cash flow from investing activities. We will drive down our investing activities in the second half of the year. And regarding the questions, financial governance, I can only underline that as of today, we expect to stay within the financial covenant. So, unfortunately, no more details on that.

Thanks a lot.

Please state your name and organization before asking your question. We will now take our next question.

Please go ahead. I hope you can hear me. A few questions. The first one on the inventories. I mean, I'm not sure if I got that correct. So your inventory analysis is basically based on custom inventories from the first quarter. Is that correct? And then related to this, particularly in the memory business, where do you see the Yeah, the crossover for the inventories where customers should start to see higher order activity or start with higher order activity. I mean, we have seen where inventory days in Q2 came down much stronger. And related to this also is in memory maybe your customer mix rather than really the overall demand?

Yeah.

Thank you very much for your questions. And indeed, as you mentioned, the Q2 picture is not fully on the table yet. So, a couple of other statements are really, you could say, outdated or let's say based on Q1 data where we have the full picture of the inventory for all the three segments, logic, memory, and power. You're right, and I said it already, within memory, there are some differences between different customers. Some reported a bit, let's say, progressing data. On the other side, the question might imply, do we have negative exposure or customer mix, which I can deny clearly because it's, again, coming back to the overall market share. from this independent organization. So, if that was a significant influence, we would see market share differences, which we don't see. So, I would say all the wafer manufacturers are exposed to different customers. And as everybody said, every customer, of course, with different market shares. On average, those major players are affected similarly by this inventory picture. There's nobody really better off than the others.

Got it. And then on the customer push out, you mentioned from Q3 to Q4, in previous calls, You mentioned that customers are pushing volumes to the second half of 2025. And now in this call, you mentioned especially this one customer. Is that really related to this customer, or is the big picture still a lot of customers are pushing out volumes, sticking to the LTAs, but pushing out volumes? And are you willing to share what type of customer or which end market?

So, thank you very much for this request. I mean, what we see as, let's say, the quarterly pattern of volume of our sales development is the total of a couple of, let's say, individual customer discussions and conclusions. So, some of them wanted to have more in Q2, others wanted to have more in Q4, et cetera. So, it's really a pattern of many customers. We're not in a situation to disclose individual customer patterns or individual segments there, but what we see is now the consolidated picture, and as you know, we have a couple of huge customers, and some of them were also, let's say, demanding specific allocations.

And then, if I may, on the smaller diameters, the question was asked previously, and you mentioned the impact is, yeah, small. I understand that on the full year basis. However, if the smaller diameter is 5% of the sales, which basically means from last year sales It's roughly 70, around 70 million headwind. And that would be probably 10, 11% of your second half saves. So it would be, I think, helpful if you could give a little bit color around how this is going to shape out between Q3 and Q4, the phasing out.

The phasing out is ongoing already for more than one year, yeah. So, we were in that business already on a kind of phase-out level. And when we say the overall market share is stable, then, of course, you could conclude, and that's definitely true, that some other segments we did overcompensate the decline in HD. So, I would not. and we don't see any particular further effects in the second half. It's all been worked into our guidance already.

Okay, got it. Thank you.

At this time, I would like to turn the conference back over to Verena Stütze, Head of Investor Relations and Communications at Seltronic AG.

Thank you, Elaine. This concludes our Q&A session. Thank you for joining us today. We will release our Q3 2025 figures on October 28th. On this slide, you can also see our next IR event. Thank you. Bye.

This concludes today's call. Thank you for your participation. You may now disconnect.