Good morning, ladies and gentlemen, and a warm welcome to the Elmos Semiconductor conference call regarding the results of Q2 2025. At this time, all participants have been placed on listen-only mode. The call will be open for questions following the presentation. Let me now turn the call over to your host, Dr. Arne Schneider, CEO.
Ladies and gentlemen, good morning from Leverkusen, and welcome to the Elmos conference call for the second quarter 2025. Thank you very much for your participation and your interest in our company. Today, I would like to welcome our new analyst, Vaishal from Metzler , who has started to cover Elmos since June. We already know the name, but the company is new, and we very much appreciate the uptake of coverage. Ladies and gentlemen, we can report an encouraging revenue growth for the second quarter, although we continue to face ongoing geopolitical challenges and quite dynamic markets. Let me start with an update about the current market environment. The stocking activities in the automotive semiconductor market are slowly but steadily decreasing. Our customers are now increasingly returning to normal order levels as they continue to reach their desired inventory.
Nevertheless, visibility remains low, and some of our customers still order on a very short notice. We also do see an increasing amount of rush orders, where people exceed the level that they actually planned for this year. The economic and geopolitical environment remains challenging. In particular, the Chinese automotive market has recently shown an even more dynamic growth momentum than in the past. There is also increasing competition among Chinese OEMs, especially in the field of electric vehicles, so the new energy vehicle. This fierce competition leads to faster innovation cycles, increasing price pressure, and ultimately will result in consolidation among the automotive OEMs in China. Of course, everyone desires local chips. We have adapted to these latest developments very quickly and are going to realign our Chinese footprint even faster and more consequently than originally planned.
We will further expand our organization in China and establish a fully functional local company with all relevant business purposes, including the development of ICs for the local markets. The entire Elmos China business will then be handled fully locally. The new structure offers the flexibility needed to deal with future market developments and geopolitical scenarios. We want to continue our great success in the Chinese market and secure our strong position. To do this, we build a local and agile organization in China, and we do that at China's pace. Before we talk about the second quarter results, I would like to comment on the latest tariff deal between the E.U. and the United States. According to the E.U., there will be a basic tariff of 15% for the majority of EU exports going into the U.S. This rate applies across most sectors, including cars and semiconductors.
This is all we know so far because all relevant details will be released only in the coming months. It is still not possible for us to quantify the potential direct and indirect effects of the new tariff on cars, automotive components, or semiconductors. We also do not yet know whether analog mixed signal semiconductors will actually be included and what will be the basis for the tariff, as the majority of the value added of Elmos chips is generated outside the E.U. However, let's assume the worst is Elmos semiconductors were included in the new tariffs. The direct impact on Elmos will be very limited, as we only ship 2% of our product directly to customers located in the United States. I have serious doubts that they wouldn't need to pay the tariffs that we pay and reimburse us.
Lastly, I would like to inform that we have successfully transferred our SAP R/3 system to SAP S/4HANA. After more than 30 months of intense project work, the go-live of the new system took place in the early morning hours of July 7th. So far, the new system is running, a great success for the entire project team, which includes more than 200 internal and external experts. We, of course, have to monitor the performance of the new system very carefully, at least until the end of September. This is called the hypercare phase, where the system is stabilized and any defects will be fixed. We budgeted some money for it, so let's see whether we budgeted enough. The SAP transfer has and will continue to impact our financial results, and we hope that everything will run as smoothly as possible.
We saw some impact on Q2, and I'll actually comment on that a little later. Let me now continue with the financial highlights of the second quarter 2025. Our Q2 sales developed better than expected, driven by a strong demand for our innovative ICs. Compared to the previous year, sales increased by almost 3% to EUR 145.7 million and almost by 15% sequentially. The strong sales performance is mostly driven by our Asian customers, whereas Europe and the U.S. are still lacking in terms of growth. The weaker U.S. dollar had a negative impact on our Q2 sales, almost 3 percentage points. As FX-adjusted, Q2 sales growth would have been even higher, with around 5% year-on-year and almost 20% versus Q1 2025. The gross margin was 41.2% in Q2, slightly lower than Q1, impacted by fixed cost effects and higher material costs, including higher gold prices in assembly.
EBIT was EUR 30.1 million in Q2 compared to EUR 35.9 million one year ago. In addition to the effects of the cost of goods sold, EBIT was impacted by special costs for the SAP transfer, consulting costs for the expanded China strategy, as well as negative FX effects. As a result, the EBIT margin reached 20.6% in Q2 2025. Just as a side note, without the negative FX effect, the EBIT margin would have been around 24% in Q2. We are responding to these developments with consistent cost-cutting measures and selective price increases to pass on higher material costs to our customers. I mentioned the gold issue, for instance. Our cost optimization program will lead to notable reductions in personnel and material costs in the coming quarters. At EUR 4.6 million or 3.2% of sales, the Q2 CapEx decreased significantly.
At 6.6% of sales after six months, we are in line with our full-year CapEx expectation. Please keep in mind, we bought a building in Q1, which was quite an expense. The transfer of our SAP system has not only impacted our P&L, but also had a notable effect on cash flow at the end of Q2. In preparation for the go-live, we had to freeze the system before the cutoff, resulting in higher working capital at the reporting date. While we had pretty good cash flow in April and May, we estimate this special impact in June at around EUR 15 million. Despite the lower free cash flow of EUR 0.5 million in Q2, overall, we are still on a very good track for sustainable improvements this year, with a free cash flow of EUR 22 million or 8.1% of sales after six months.
That includes, of course, the negative effects of the SAP changeover, which are only temporary, of course. Ladies and gentlemen, let me finish my presentation with the market outlook and our guidance for the fiscal year 2025. According to S&P Global, the latest global light vehicle production forecast shows a total number of 89.9 million new cars, a slight increase versus the last forecast, still virtually unchanged versus 2024. S&P expects a + 4% increase in China and - 3% in Europe, as well as - 4% in the U.S., which is mainly a result of potential new tariffs on cars and automotive components. The good news is that S&P has upgraded its forecast in the right direction. Still, we think markets are volatile and visibility is, of course, more limited than it was before.
Regarding our outlook for the year 2025, please note that the potential impacts of the new tariffs and increasing trade conflicts with the U.S. or a global recession, of course, cannot be estimated and therefore are not included in our outlook. I believe a lot of people are in a positive mood concerning U.S. trade policy, but you never know, right? We will, of course, give you an update should this become necessary in the future. Our four-year guidance from February 2025 has been adjusted regarding the U.S. dollar exchange rate. Previously, it was based on a forex rate of EUR 1.05 to the U.S. dollar, and now we base it on 1.15. However, Elmos continues to expect sales of EUR 580 million, EUR ± 30 million for the fiscal year 2025.
That's despite the new exchange rate assumption, which would imply a negative impact on sales of around EUR 25 million. For the macro-epically inclined, you could say that we just increased our sales guidance by EUR 25 million. We also continue to expect an EBIT margin of 23%, ± 3 percentage points of revenue. However, based on the EBIT performance since the beginning of the year, and in particular due to one-time effects mentioned above, we think it's currently more likely that we may achieve the lower half of the forecast range for the full year. Overall, our four-year guidance would be a better performance than most of our closest peers, which expect a higher single-digit sales decline on average in 2025 and a much more significant drop in profitability versus last year.
Investments in new machinery will be limited as we continue our successful OEE optimization, as well as test time reductions, and we expect CapEx in 2025 to be around 7%, ± 2 points of sales. Based on a solid test performance in H1, we are forecasting a positive adjusted free cash flow for 2025 of 7%, ± 2 percentage points of sales, and the CapEx and test guidance is, of course, unchanged. Let me sum up. In an ongoing challenging environment, we have achieved a strong top-line performance in Q2. We are confident that the inventory adjustments will continue to subside and order levels will continue to improve. However, we have to manage significant market and geopolitical dynamics, leaving some traces on profitability in the short term and forcing us to react.
Ladies and gentlemen, we are convinced of our operating model and strategic positioning, and we are confident that we'll be able to achieve our ambitious targets in 2025 and beyond. Our approach, focusing on profitable growth, cost discipline, and operational efficiency, combined with a clear focus on better cash generation, will continue to increase the valuation of our company and create attractive opportunities for capital allocation. Thank you very much. I would like to open the floor for questions.
Dear ladies and gentlemen, if you would like to ask a question, please press nine and then the star key. You tell us in people now to answer the key. It will be the combination of nine and star. If you wish to cancel your question, please press three and then star. For now, please press nine and then press the key. We have the first question already in mind. It is from Johannes Ries of Apus Capital . Over to you. Please go ahead.
Yes, good morning. Congratulations to a good top-line development. A couple of short questions. I will try to be faster than even that open-sensor call for the other participants. First, maybe on this one-time effects on the margin. Got it. Do I got it right? The strongest one-time effects is the FX effect. Like you mentioned, the margin effect is a three, whereas I think we would have seen 24% without the FX effect. What are the other one-time effects? Is it also the SAP transformation or anything else?
Yeah, you're right. FX is big, and SAP is also very noticeable. We also spend more on gold than we did in the past. We are still working on some compensatory measures. We spent some consulting costs on our new China setup, which we also want to kind of get forward as China speaks. This is one item, and the rest, I believe, is smaller.
Maybe a clarification. There is some speculation that maybe there's more price pressure or margin pressure in China because of the competition between the players and overcapacity and so on. What is your situation or what they are facing in China on the margin and pricing side to make this clarification?
I mean, China has always been a very tough environment, but they also value innovation and the best product. China, I believe, is the market that can be described in their buying behavior as making a list of who's number one, number two, and number three in the market, and then just talking to these. Of course, it's also a question of price once you settle on the engineering issues. Yes, China is a tough environment. You can see that we are excessively successful in China because this is really a big source of growth. If now and then we have to make a little compromise, we do. Generally, we steer our course.
Okay. Make it very clear that not the speculation is the market. Your lower margin size has nothing to do with market pressure or price pressure for China. There are the other reasons you mentioned before, other than the main reasons.
If I mean, having we fight in all regions to kind of extend our pair and to be successful. It would be completely wrong to say our lower margin guidance is mostly linked to China. China has an influence. The rest of the world has an influence. The one-time effect I mentioned has the most influence of all. It would be a little cruel to say the pricing environment in China because then you want to explain 100%, and then you only, I mean, this is what you can explain not a lot with. No, this would be the wrong connotation.
On cash flow, you mentioned this special effect in receivable, although this, yeah, you bought a building, which was also in the free cash flow. As this was a one-time effect in Q2, and I think the receivables now may be coming to a lower level in the second half as the system is up and running. Definitely, maybe the free cash flow in Q2 will be an exception and will be definitely the lowest maybe free cash flow in the quarters this year.
This is very likely. I mean, the thing is, we bought a building, by the way, in Q1 already. Due to the SAP changeover, we paid some guys that we wouldn't usually have paid. The thing is, it's quite complicated to migrate all that data. For a week, you can do manual payments, but nothing system-based. There is a strong rationale to pay a lot of people before you change over, even if it's a little early, even if that hurts cash flow in Q2, because you need a smooth cut over. You do that with the minimum amount of data that is critical payment data. If you kind of pay some people even before it's due, it's a clever strategy. Of course, this is not structural. This only affects one quarter. You have little problems with incoming payments in this cut-over phase. The assumption that Q2 is the worst set performance is very justified.
Very short, very quick final question to us. Designed in the first half or in the second quarter, there's nothing that's resisted, maybe an update on this point because it's a longer-term future and very helpful even regarding your 2030 targets you're committed to the market.
If the second half develops exactly as the first half, everyone on the call is invited to join for a little bottle in Leverkusen or Dortmund. It is too early to say, right? I do not know about the second half. There are a lot of things you could be cautious about, but this is something we may open a bottle on.
Super. I believe my next suggestion has a special chart on the topic of robotics that could be also a very interesting opportunity maybe in the mid to longer term for their business. Okay, they are more in the center of business, but partly I could maybe imagine that you could see also an interesting opportunity outside the automotive space. No, it is maybe different because they are in a little bit different angle in the product range.
Not at all. We only wanted to tell people about robotics later. I can do it now. We think robotics is a super interesting field because what currently happens in China with humanoid robots is great. We saw a lot of these robots at the Shanghai Autoshow already. If you go more towards the robot people, you will see more and more of them. They will be at an attractive price point. I think they will have huge market success. I mean, not next quarter, but China's speed is quick. Expect a lot to come. We are talking with various potential customers. Today, of course, there is no volume because everyone is developing. The robotics sales of Elmos Semiconductor SE in 2025 will be very limited, if anything at all. Let's see where that goes. We just don't want to hype the topic so much because it's not short term.
In the mid and long term, this is a super interesting topic. We are actually working. We're putting quite a lot of effort into that topic.
Super. Is robotics of any kind included in your 2030 ambition?
Not formally, but currently it looks like that it may well contribute something.
Okay. It could be another one, icing on the cake.
Yeah, I mean, it was not kind of part. It was not so big when we first told you about our 2030 ambition. I think it's a super interesting field, and by 2030, it should contribute.
Thanks a lot for these very concrete and key answers. Good luck for the next half.
Thank you. We are on a roll. It's good.
Okay, I see. Thank you.
Thank you very much. Moving on to the next question. The next question is from Malte Schaumann of Warburg Research. Looking forward to it. Over to you.
Good morning. This question is also on the gross margin. I mean, you mentioned rising input costs, and then we've heard gold. Is gold the only factor that is leading to rising input costs? Are you seeing other cost inflations, wafer pricing, other stuff? The follow-up question would be, how are you able to mitigate these effects to potentially pass it on to the customers? We replace gold with copper in products, etc., which might take a longer time. What are your thoughts on that?
Yeah, gold is actually about half of the issue. The other things, the small things that I'd ask. Gold is a major issue for us. We still have a lot of old gold products, and we're in the process. We already started in Q3 last year to transfer some of these. It takes some time. Gradually, they are moving to copper, which is, of course, a lot less expensive. While the gold price keeps rising and rising, I mean, we look at $3,300 today. Wow, this is a lot. We've been as high as $3,450 recently. This is really something where we suffer a little bit. The discussion, I mean, we're currently in the discussions to pass on some of their black burns because we really dislike them. It's not our fault. Let's see. These discussions are not bad.
Okay. What could be the expectation then for the second half? It probably will benefit from rising volumes. Do you expect gross margins to go back to the Q1 level, potentially even higher, mid-40%? Should we expect something rather in the lower 40%? What is the expectation seeing all that moving parts for the second half of the year?
It is so hard to predict because there are a lot of moving parts these days. I think if we take the first half, this is not a bad indication per se because actually a good part of the first half was impacted by higher gold and higher material costs. Some of our methods concerning cost cutting only get online or get visible in Q3 or even Q4. I think there are so many moving parts that it's really hard to predict, especially if you want in the 1% range. We're talking very low percentages here, right, that we want to predict. We currently think that the first half may be the best indication we have. Rising volume will help. Some cost methods will help. We also may face additional headwinds out of volatile markets.
Since so much is happening short-term these days, also in terms of sales developments, it's particularly hard to predict. Our portfolio changes. Even now, for Q3, we do not have a complete view on the portfolio. You see that our book-to-bill is a little bit below one. You could round that to one. There are a lot of short-term orders. It depends on what products are ordered, whether there's a margin impact on one or the other side. I would love to know it, but it was a long answer for a very concrete question. It's really hard to predict. I'm sorry.
Okay. Would you say that you have seen the trust in terms of gross margin in the second quarter?
Yeah, this would mean that we would kind of guess the gross margins. I mean, we certainly see some uptrends with the methods that are currently running. We shouldn't kind of put our, I don't know whether you say that, put our hats in the sand. Within all the volatility that we have, there is also a fair chance that there's some uptrends.
Okay. With respect to the watch orders you mentioned, are these mainly coming from Chinese customers?
Yes.
Okay. On visibility generally, are customers, is confidence among customers growing in talks you have with customers going into the second half and potentially into the next year? Do you feel a sense of rising confidence that provides stronger visibility that inventory correction eventually is behind as customers grow confident regarding required volume, country growth, etc., typical mechanics for the upcoming quarters and into next year?
I think that generally people feel that with the latest trade deals, things are kind of calming down, right? The range of potential outcomes we have of this big disruption is a lot smaller than some people thought. We're tackling on things that are more manageable. Generally, I believe the Europeans, the Japanese are very much on track on what they thought. Of course, there are structural challenges, but they have nothing to do with chip supply or chip needs. That is all good. I believe the Chinese, by and large, are seeing a little bit more upside than they thought and are not struggling in their value chains to make it happen.
We just had a little test with the SAP chart over because we actually were not, and we announced it really long before and reiterated it 100x that we wouldn't be able to shift for one and a half weeks or so, and that everyone should kind of be aware. Still, we saw that even within a very short period of time, some people were on the verge of running dry. Inventory levels were structurally too low. On the way up with very low inventory levels, now and then you struggle. I mean, you're confident about the market, yes, but you struggle operationally. Does it feel good? Yeah. We make it work. I believe overall the market is pretty positive in China. It's very positive also in India. Europe and the U.S. are kind of more muted also in terms of self-development. IHS is seeing slight declines in Europe and the U.S. and a reasonable upside in Asia. This is also reflected, I believe, in customer sentiment.
Yeah, okay. Many thanks.
Thank you, Mr. Schaumann.
Thank you very much also from my side. Dear ladies and gentlemen, last call, please press nine and then the star key to state a question. I repeat, the combination is nine star. At the moment, there are no more questions in the queue. There was another one incoming. From Vaishal Tagore of Metzler , the floor is yours.
Hey, good morning. Thank you for the warm welcoming you had at the beginning. A few questions, just follow-ups. On the work orders we had in this early season from the analog mixed signal companies, particularly from the large ones, a little bit mixed signal regarding are we seeing demand pull forwards due to the tariffs topics or not? You mentioned also the work orders, although you said mainly China. Do you see the risk of any demand pull-in at this stage, particularly considering that we are still close to the cyclical bottom or that we just passed the cyclical bottom in the auto industry?
I think that some of our dear customers have optimized their logistics and their inventories may be beyond the level that is ideal for an upswing. Since the assumption, which was true in the last half year, and what was always, chips will be available at very short notice because inventories are there. This will, of course, gradually need an update because on the very short notice, not every chip is in stock. This is, I believe, where there may be some short-term shortages that we currently can manage. I believe in the coming upturn, some people will have to be a little bit more careful in their logistics and plan a little bit more ahead. Otherwise, they might face more severe challenges because chips are just not ordered a week, two, or three, or four in advance.
On another note, we saw, and this is just market-related, tariff-related, has nothing to do with automotive chips, but a little bit of side impact. We see that assembly is pretty full. That was because a lot of people from the non-auto space, consumer, for instance, tried to get product into the U.S. while still in a more favorable tariff environment. If you're doing, say, electronic toys or so, you can have a product ready pretty quick and get it beyond the borders, even in 90 days or a little bit more. We think this shortage in assembly will subside now that it's more clear what the midterm tariff conditions will be. We had indeed that little assembly shortage. No impact really for us. We had our capacities, and this was all good. It created for sure some little friction in the value chain.
Got it. On the second half, the underlying growth in the first half was really quite strong, particularly when you see now the FX effects adjustments on your side and still confirming the phase guidance. Can you give a little bit of color around Q3 versus Q4? Do you think that we will see a much stronger seasonality into Q4, or is it rather a confidence into Q3 already? On the profitability discussion, it looks like the one-offs in the first half that you mentioned in your guidance, also some one-offs in the second half. Can you quantify the impact in the second half related to the one-off? Would you agree that the phase of or this period of several one-offs is behind the company, and we should enjoy a little bit of cost-cutting benefits from the first quarter going into Q4 and second half?
Let me comment. I mean, we see the sales development to be a little bit more continuously fading up. Here, we had actually a weaker Q4 than Q3, and this was not normal in a way, right? If you ask me today, I would guess that Q3 is a little bit below Q4, but not too much. We see a pretty constant development with no huge surprises as little as we can see it today. There is for sure some upside, but I already commented. It's a lot of moving parts that we have here. I believe what is here is that we will fare a lot better than most or all of our key competitors.
On the profitability of the second half on the one-off, if you can quantify that.
We will continue to spend a little money on China. Let's see where the gold goes. We don't know, of course, but currently, gold is still a burden. We will discuss on some path ons. This is starting now. Let's assume no major FX impact, right? It would be kind of an outlying assumption to assume that the same FX occurs again. That for sure is helping us, right? Overall, we are kind of cautiously optimistic.
Thank you.
Thank you very much. The next question comes from Lukas Spang of Tigris Capital . Mr. Spang, over to you.
Yeah. Hi. Good morning, Mr. Fanger. Just two questions from my side. The first one is related to the CapEx ratio, though that was very low in Q2. What should we expect for Q3, Q4? I know you have this guidance of around 7%, but after 10% or nearly 11% in Q1, it was very low now in Q2. Is Q2 more the range or the indication for the second half, or is there maybe some room for the lower end of your CapEx ratio? The second question is related to your revenue guidance. If we exclude the FX effect for a moment, you would probably have lifted your revenue guidance to the upper end. From an underlying perspective, there is, from my perspective, a positive development. I would be interested if you could explain these a little bit more in detail. That is, let's call it underlying positive development is coming from. Thanks.
Yeah. First on the CapEx, we are at EUR 6.6 million, I believe, in the first half. That includes a building reward. This was a little bit more than a percentage point. We think that the 7% is not kind of wrong, but we may use the guidance range also in the lower half of the CapEx a little bit. This is noted, but we didn't want to change because it's kind of, you know, these small adjustments of the midpoints we generally don't do if we are still within the range. You asked about the revenue development. Yes, it's true. In the end, like for like, we increased our sales guidance by EUR 25 million. We think that Q2 shows that we're a little earlier than expected in the upcycle.
We thought actually at the beginning of the year more that the second half will be the upcycle and Q2 will be part of the so-so part of the year. Now Q2 already is very strong. We made significantly more progress in revenue than was part of the EUR 580 million plan. We, of course, have the dollar development, which does not help. Given that we make this underlying very, very strong progress, we think that we will be able to keep the EUR 580 million. In terms of revenue, we're in a really good mood.
From your order intake or your order book, you can also exclude that this Q2 had no pull-forward effect.
The key growth driver is China. They tend to order as they need. I'm trying to find the most polite word I can. This is very much demand-driven order behavior.
Thank you, Mr. Schneider.
Thank you very much. At the moment, there are no more questions. The combination is nine star, so please press nine star if you have a question or a follow-up question. A question incoming from Robert Sanders of Deutsche Bank . Over to you, Sanders.
Yeah, hi. Sorry, I joined late on the call. I just was interested if this is already, if it hasn't been answered, which is just regarding the China business. I was just hearing from another player that was talking about their business in China being down sequentially in Q2 just because of slower production and exports and entry. Have you seen any evidence of any kind of slowing in the mass market in China? Thanks a lot.
We actually cannot confirm that because we are very much up sequentially and broadly in the portfolio. We actually see that our China customers have very much optimized their inventories now, and that they now have caches where they are a little short. The overall China market development actually is not bad, maybe also confirmed by the S&P numbers. I believe it was 3% or 4% up in China in terms of vehicles. We can today only report very good things in China.
Have you seen some evidence of preference for European vendors over American competitors? I know you don't compete with that many, but for example, on some new.
Oh, yes.
Ultrasonic Center.
Ultrasonic, great idea. We do see that. We do see that while all foreigners are foreign, of course, we see that the U.S. are even more foreign than the rest of the world in China.
How quickly could that affect your business? Obviously, it takes time to get designed in and all of that.
China is very fast in getting things done. Recently, actually yesterday, I heard a rumor that a certain U.S. company, I don't want to spread the rumor, but it was a rumor that a certain U.S. company is now basically dead. This is meant to be the first example of really excluding a U.S. company, basically from the automotive chip market. I don't know whether it's true or false. I only heard it from one person. I believe the general sentiment in China is that particularly after the EDA tool crisis, where the U.S. for some time was about to restrict the EDA tools used in chip development for all Chinese, all nodes, by the way, leading edge, lagging edge, everything, that certainly did not help to induce confidence in U.S. suppliers.
Got it. Thanks a lot.
Thank you, Mr. Sanders.
Thank you very much also from my side. At the moment, there are no further questions. Let's wait a couple more moments. Nine stars for the combination. All right. Since there are no more questions incoming, with that, I'm freeing the Q&A session and handing it back over to the host.
At the end, I would like to wish all of you a great summer. Perhaps we'll meet at one of the many investment conferences in September and throughout the rest of the year. Actually, a detailed overview of our IR activities can be found in the financial calendar on our website. The next regular quarterly reporting is scheduled for November 4 with the publication of Q3. For today, thank you very much for your participation and your interest in Elmos. Goodbye from Leverkusen. Take care and stay.