Good afternoon, ladies and gentlemen, and welcome to the extraordinary conference call from Elmos Semiconductor SE. 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.
Ladies and gentlemen, welcome to this extraordinary conference call, and thank you very much for participating on such short notice. As you may have already read in our ad hoc notification this morning, Elmos and Silex Microsystems have signed a sale and purchase agreement to transfer the Elmos wafer fab in Dortmund for a net purchase price of around EUR 85 million to Silex, and in parallel have entered into a long-term supply agreement until at least 2027. This transaction is an important structural alignment. Elmos will become fabless, and I think we are delivering that in a very elegant way. It also provides a sustainable and a very long-term perspective for the Dortmund wafer fab and all of its employees. With our agreement today, we have solved a potential future problem for Elmos.
Asking what will happen when the 350 nanometer technology project will eventually phase out and the new 180 nanometer and 130 nanometer projects are going to take over. This is a valid question and a very valid question. With our supply agreement, we have secured the ongoing wafer supply out of Dortmund, so there is no negative impact from this transaction during the allocation phase. At the same time, we have a new owner that can ramp new product when Elmos does not need the full capacity anymore in the longer term. For Elmos, going fabless does not come with a price tag for restructuring, but with proceeds for the sale of our fab and a great perspective for the fab-related employees.
Let me first summarize this important transaction before I will explain some more detail and provide you with more information about the buyer. As I said in the beginning today, Elmos Semiconductor SE and Silex Microsystems AB have signed the sale and purchase agreement to transfer the Elmos wafer fab in Dortmund to Silex. In addition, Elmos and Silex have entered into a long-term supply agreement until at least 2027, with Elmos buying process wafers produced by Silex at the Dortmund fab. Initially, for the first years, Elmos will take virtually all of the capacity of the fab. We will sell our wafer fab activities in Dortmund for a net purchase price of EUR 77.5 million, plus around EUR 7 million for the work in progress inventory. The total purchase price therefore is around EUR 85 million.
This is cash and debt-free and with normalized working capital, so there will be small adjustments to the purchase price at closing. The closing of the transaction is expected to take place in the second half of 2022 and is subject to customary closing conditions and regulatory approvals. Elmos will remain the owner of the property and will lease the clean room to Silex based on a long-term lease agreement for 10 years plus a 10-year renewal option. Elmos will also provide the necessary infrastructure, utilities, IT support and licenses to Silex based on separate lease and service agreements. To accommodate the acquisition, Elmos will transfer all relevant assets and contracts that are directly linked to the wafer manufacturing process into the newly founded company, which is called Dortmund Semiconductor GmbH.
At the closing date, Silex will acquire 100% of the shares of this SPV entity, including direct and indirect personnel under the leadership of the former management of the Elmos fab. The experienced Elmos team guarantees continuity and stability for the new fab operator, which will allow Silex to continue the highly efficient semiconductor production here in Dortmund. Silex will acquire the wafer fabrication processes only. Elmos will continue to conduct all testing activities, wafer testing and final part testing in-house and in cooperation with our external testing partners in East Asia. This transaction also offers tremendous benefit from our customers' perspective. Thanks to the safe and the long-term supply agreement, we will continue being able to provide our customers with our 350-nanometer products out of Dortmund for a very long period of time.
There will be no immediate larger impact on our operational profitability, as the new fab will operate as an external foundry with a similar cost structure compared to the in-house production. Of course, there will be one-time impacts in our results which are directly linked to the transaction. Thinking about profitability, on our midterm profitability outlook, let me comment as follows. As you know, we expect to achieve our 17% midterm EBIT target already this year. We are not yet sure when we will publish a new and potentially more ambitious target, but this transaction will certainly help us to be bolder and more ambitious in the future. The process will be first we reach the current target, then we think about a new ambitious goal, and then we let you know.
Hopefully this is happening not too late. We also expect a little lower investment after the transfer of the fab as we currently invest approximately 2% of sales in our wafer fab in Dortmund on average per year, including the spare parts. We are convinced that we have found a very good and sustainable solution for our employees and our customers and have now a solid basis for an even more successful development of Elmos in the future. Who's the new owner of the Dortmund wafer fab? Founded in the year 2000, Silex Microsystems AB is a globally leading MEMS foundry based in Järfälla, which is located near Stockholm in Sweden. Silex is the largest pure-play MEMS foundry and offers MEMS production of advanced sensors and actuators, mainly for the medical sector, as well as for the consumer and telecom industries.
With around 650 employees in total, Silex operates two- eight inch wafer fabs in Sweden and in China, where also the anchor shareholder, Sai MicroElectronics, publicly listed high-tech company is located. Silex plans to expand its activities in the industrial and automotive sectors, in particular, going forward. The acquisition of our automotive-qualified eight-inch wafer fab is an important milestone in their strategy, as Silex needs additional capacities to realize its growth potential. The technological profile and equipment of the Elmos fab is a perfect fit for Silex. That is why today's agreement is a real win-win situation for both companies. Silex leases the cleanroom for 10 years, plus a 10-year extension options underlying their long-term commitment. Silex will invest in new MEMS and other technologies in Dortmund after the transfer and expand capacities in Dortmund for new applications and new customers.
One more information about our 2021 EBIT margin guidance before I come to the summary of my presentation. Our EBIT margin guidance for the full year 2021, published on November 4, which was 70% percentage points, already includes transaction-related expenses, and therefore remains unchanged. Ladies and gentlemen, this transaction and our new partnership with Silex is a major milestone for Elmos. We have found a new partner for our fab in Dortmund and secured the supply of our 350 nanometer products for a long period of time, and especially the ongoing uninterrupted wafer supply out of Dortmund during the allocation phase. As a fabless company, we will be fully flexible to access a wide range of state-of-the-art wafer technologies and can continue to focus on utilizing our strong growth potential with highly innovative automotive IC applications.
Today marks the start of an excellent foundation for an even more successful future of Elmos and all of our employees. Thank you very much for your attention, and I'm, of course, looking forward to your questions.
Ladies and gentlemen, if you would like to ask a question, please press nine and the star key on your telephone keypad. In case you wish to cancel your question, press nine and the star key again. Please press nine and the star key now to state your question. The first question comes from Stefan Jury p lease go ahead.
Yes, hello. Everyone. Sorry. I have a few questions, some on the transaction and some on the, you know, the environment. On the transaction, you're going to have a massive amount of cash, and I know it's still early to talk about it, but what are the possible uses of this cash? Are you know, thinking about share buyback or dividend, special dividend? Or do you think there are opportunities in the market to, you know, to use this cash and change your profile or maybe strengthen your profile? Thank you. That's the first question.
Yeah, on the use of cash, to be frank, we haven't quite made up our mind yet. First, we need to close, most likely kind of middle of next year, at least in the second half; this should be possible. We have the cash inflow, and of course, we can't sit forever on a huge cash pile. This is also clear, but we haven't made up our mind where it should be going. We're always looking for interesting M&A targets, but there's no guarantee that it actually happens and that the cash can be used for such purposes. On the buyback, it's I mean, we just did a buyback. There's not that much free float.
I don't know whether a big buyback would make any sense. I currently see no kind of strong rationale for that. We have to think then about other means to distribute the cash if we have it, and that is certainly something that may influence the future decision on distribution to shareholders or by now, the dividend that is paid in 2022, because that is actually paid before closing. I wouldn't foresee too much influence on that, but maybe the years later.
Okay. The second question won't surprise you as you are going to become fabless. How do you think about your future profitability? I'm talking mostly in terms of gross margin.
Yeah. The gross margin is an interesting thing because some things that were below the gross margin now actually shift as being part of the gross margin. So I wouldn't foresee that the gross margin hugely improves because we just have things that are. It used to be admin costs and that are now part of the gross margin. On the EBIT margin, I believe, which is more what we currently look at as kind of a clean measure of profitability regardless where the cost ends up. We do have a successful year, and we're kind of set to achieve at least. It's within our guidance range as a part of the guidance range where we wanna be our 17% mid-term goal this year.
We're set to achieve it despite the transaction-related costs, which are also not that small. So that is, I believe, a very good start for a discussion on where we really should be profitability-wise, and what our next midterm goal should be.
Yeah. Well, if you look at the future prospect of the group, I mean, is it changing the way you see the evolution of your product mix and maybe the possibilities to develop new products, now that you're, you know, you're not linked anymore, let's say, to an industrial tool and maybe can think about something different? Or is it not at all what you have in mind?
Well, fundamentally, I think you could argue that it makes no difference. I believe the reality is it makes a huge lot of difference. Because it's always a question of where you focus your energy and where you focus your thoughts. With us going fabless, I believe we will be even stronger in focusing our energy and thoughts on the broad variety of processes that we can procure from foundries on the great things and the great innovation we can deliver using such processes. The part where we, as an organization, think about, oh, what happens to the fab? What if we don't fill it? I mean, the answers can increasingly get obvious. What happens to a fab that is not filled at all?
This is taken off the table now, so it is a great relief, I believe, for the whole organization, that we have a great prospect for the fab, and we don't need to worry about it. It will add focus on all other endeavors going forward, and that is very good.
Okay. Maybe one of the last questions, sorry from me, and then I will leave the floor. Are you going to book a capital gain, or did you? You didn't communicate on that, I think.
Yeah, we will. It will be EUR 10 million. We haven't completely made up our mind because there are complex accounting things. It will be, I would guess at least EUR 20 million, if not a little bit more.
Of capital gain? Yeah. Okay.
Yeah. This is extraordinary use.
Okay.
This will come at closing, right? This will not come this year.
Yeah. Sure. Okay. Thank you very much. I leave the floor.
Thank you, Stefan Jury.
The next question comes from Malte Schaumann. Please go ahead.
Good afternoon. The first one is on CapEx. Can you elaborate on your expected CapEx profile going forward, as you obviously get rid of the front-end CapEx in terms of front-end part?
Yeah, I mean, we spent in the past kind of roughly 2% of revenue on directly front-end related activities. If you have some indirect things, maybe even a little bit more, and at least the direct things go away immediately, I mean, after closing, of course. This is already good, and some indirect things may benefit a little bit over time. We think we gain some points, maybe 2, maybe 3 on the CapEx line. Of course, our CapEx usually depends on growth.
I mean, if we grow as strongly as we've been in this year, and I mean, if we can continue such a growth line, yes, there will of course be a lot of CapEx, but it will be extraordinary growth. I think it is fair. Kind of on a like for like basis, we will certainly gain in the CapEx line.
Okay. On the shift of G&A expense to the COGS level, how much could that be? Is it in the lower single-digit million range of reassessment of costs?
I mean, this is certainly right. Yeah, this is the right range. It's not that much.
No. Okay, good. On price, do you have already price agreements until the end of your supply? I mean, your product innovations probably will more or less 100% come from foundry partners. The wafers you need under 2027 or so, or I don't know. I mean, do you have price agreements in place that for that long, or are these-
Yes, we.
More short-term nature?
We do have a price agreement. There's some flexibility baked in, for instance, concerning energy prices, where actually both sides may make profit. I mean, it's really the EEG-Umlage, this regulation-based add-on energy prices goes away. Elmos will profit a little bit. If electricity goes through the roof, we'll not profit, but we'll rather pay for it. There are some little things that are kind of making it a little bit variable, but fundamentally, the way the price is nothing.
Okay. It's pretty good visibility on what will happen. That's right. Okay, good. On another topic, wafer supply next year, and I can provide an update on things have changed in the past, yeah, four weeks or so, to the better, to the worse.
Yeah, we actually made some additional progress, and we are pretty happy about it. I mean, we're not there that we can supply everything of all customers that they ever wanted, but I believe no one can these days. If we could, we would probably build, I don't know, 120 or 150 million cars next year. This seems not to be kind of a realistic prognosis. While we are still tight, what we got over the last week now puts us in a position to expect solid growth for next year.
Mm-hmm. Okay, good. Okay, thanks. Congratulations on this great deal. Sounds good.
Thank you, Mr. Schaumann. We are also very happy. It's a good day for Elmos.
Okay. At the moment, we have no further questions. If you would like to state another question, please press 9 enter star key on your telephone keypad now. Maybe let's wait a couple more seconds. All right. There seem to be no further questions, so let me hand back over to your host for some closing remarks.
Thank you very much for your participation on such short notice and your interest in Elmos. I lastly would like to remind you that we will publish our preliminary 2021 results on February 17, 2022. Finally, what remains, I would like to wish you a very merry Christmas and a happy, successful and healthy New Year. Goodbye from Dortmund.