Earnings Call: H2 2018

Mar 14, 2019

Ladies and gentlemen, welcome to the Media and Investor Conference Call and Live Webcast. I'm Andre, the Chorus Call operator. I would like to remind you that all participants will be in listen only mode and the conference is being recorded. The presentation will be followed by a Q and A session. The conference must now be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Doctor. Rene Langerhager, CEO of The Com Group. Please go ahead. Thank you very much. Ladies and gentlemen, I want to welcome you warmly to the annual results conference call of the Komet Group. Markus Portmann and I will briefly lead you through the most important Developments in 2018. You can follow the presentation after you have registered for the webcast. Alternatively, you can access our call presentation on the ComEd Group homepage. I will begin with a quick summary of the big picture and give you an overview of the business performance in 2018. Hi, Markus Brodmann will then go over the financial results in detail for you, after which I will discuss the outlook. After the presentation, we have reserved time for questions. In 2018, the Komet Group Managed a demanding year. After several years of substantial growth and excellent results, the second half of the year twenty Keane brought a significant market downturn, especially in the semiconductor market for 3 d NAND memory. This market downturn coincided with some challenges we had in the X-ray Systems and the E beam business. Despite the cycle change, we were able to generate sales of CHF 436,000,000, virtually holding the record level of 2017. We rapidly responded internally to the cyclical downturn. We adjusted production capacity at PCT to align it with the changed demand in the semiconductor market. We also divested the loss making business of Large E beam Systems in the USA, And we initiated an earnings improvement program at IXS after a disappointing first half year in this division. These measures are completed and, as already announced, will deliver results in 2019. Excluding the one time cost CHF 10,500,000 related to the corrective measures, we thus reached an EBITDA operating margin of 11.1%. Net income, excluding one off effects, was CHF 24,300,000. In our investments in the future, we took an anti cyclical approach. We invested about 12% of sales in future revenue drivers, for example, in the development of the new RF generator at PCT and the renewal of the product portfolio of IXS. With regards to CapEx, we invested 4% in the equipment and maintenance of of our production capacity. Last but not least, we expanded production capacity in Flamat and thus created urgently needed space for operational efficiency Improvements. We believe that under the circumstances, our performance was more than respectable overall in 2018. We managed the cycle and pulled the right levers for future growth. For the time being, COMET will have to cope with the downturn in the semiconductor market, but the underlying growth drivers are intact. The so called data economy is growing. Artificial intelligence will further drive demand for memory chips, Memory chips with ever increasing capacity and thus demand for more and more plasma processors in which COMET RF solutions are indispensable. But COMET Technologies do more than just enable the data economy in the semiconductor market. Komet Technologies enable a multitude of key globally relevant megatrends. To name 2 examples, More and more components are produced using 3 d printing. X rays are the only technology that allows you to look inside and thus ensure optimum quality and safety. The technology is also increasingly being used as an in line sensor right in production lines to improve manufacturing processes in real time. Safe food is another urgent issue worldwide. With our e beam technology, we support processes like the chemical free sterilization of Packaging and Enable Significant Productivity Increases. In fact, the e beam based tetra part filling machine produces twice as many packages as a conventional system in the same time. Now let's briefly look at How our individual divisions did in 2018. As already mentioned, at PCT, Despite the slump in the market, we still achieved sales in line with the previous year's level, thanks to the record high in the first half of the year. The EBITDA margin was at 19.7%. Two factors in particular influenced earnings in 2018. Our product mix changed and we invested heavily in the development of the new generator portfolio with which we plan to open up a new market from 2020. Let's have a closer look at what is behind this investment. PCT is the only manufacturer worldwide to develop and produce all core components of the RF power delivery system in house. The cornerstone for future growth is the modular flexible and high precision generator we are currently developing. The project is on schedule. But what makes this development special? In the semiconductor market, ever smaller chips with Ever more functionalities are being produced. This requires higher precision, measurability and repeatability of the processes. With the new integrated RF system, all components are digitally connected to each other and to the plasma chamber and are exchanging data. This allows the process to be controlled and optimized in real time. The prerequisite for this is the new generator. In 2018, IXM again proved its qualities as value generator. Under the leadership of Stefan Hafeli, the division successfully expanded its position in the core NDT non destructive testing market. This was primarily due to the brisk high margin business with portable X-ray tubes for the inspection of pipelines, mainly in the U. S. The investment made in the previous years in the IoT capable Ivario generator paid Most customers converted their systems to this new product shortly after the launch. EBITDA increased by a healthy 11% to 24.7%. This was achieved despite one off costs In connection with the building expansion in Flamat and productivity losses in pre fabrication as a result of the slowdown in business at individual customers. IXm is benefiting from its strengthened product portfolio. It consists of the robust portable X-ray tubes, modular components that are configurable to customer requirements and Intelligent Modules on the basis of Ivario, so far only IoT capable generated to date. On this basis, we are working on exploiting attractive growth opportunities in the NDT market that arise from robotics, Automated in line applications, miniaturization and additive manufacturing. In the security inspection market, the focus is on products that reflect the increased price sensitivity in this market. Let's move on to IXS, our X-ray Systems business. Towards the end of the year, we were able to report the first Successes in new products, particularly in the electronics market. In other markets, such as wheels and foundries, IXS recorded The decline in sales due to not yet completed product innovations. This resulted in an overall sales decrease of 4.7% compared to the prior year. Due to the weak results in the first half, we changed the management as reported in August and implemented Comprehensive Earnings Improvement Program. It comprised the focusing of the R and D projects, The workforce reduction by 50 full time equivalents and operational improvements. The program is completed, and in 2019, it will result in an improved EBITDA margin of about 6%. The program entailed one time cost of CHF 3,900,000. We also continue to invest in Product renewal, both of these are reflected in EBITDA operating earnings. Before one off costs, EBITDA earnings were at CHF 2,400,000. An important success factor for IXS is the portfolio renewal. We are on track with the launches. The good trend for the SF-two thousand and thirty five CT systems with which we were able to achieve new orders 100 and 20% higher The year before is particularly gratifying. Further releases for the core markets, electronics, automotive and aerospace, are scheduled for 2019. This will stabilize sales in 2019 and contribute to Financial additional orders from 2020 on. At EBT, the years defining development was the realignment. Despite the high investments in the product portfolio and in standardization, sales in the E Beam Systems business in the U. S. Declined. We therefore divest the E beam Systems activities. Markus Portman will go into the financial details of this later. Due to the separation from the Systems business, the loss from the divested Systems business of CHF 14,500,000 will no longer We incurred at EBITDA level in 2019 compared with 2018. We are now focusing on the promising components and modules business. This is where our USP is, the compact sealed EVIM lamp. Our OEM business offers us attractive growth opportunities in the medium term. We aim it to achieve growth through the scaling of existing capabilities in adjacent and in new applications. COVID works on innovative solutions together with Partners such as Tetra Pak, Buhler and Skanen made significant progress in 2018. As an important example, Buhler presented its e beam based system to the first customers. The machine is to be available to customers this year for the application in the treatment of spices. COVID also achieved gratifying progress in the application involving hedging eggs. Field test for this application yielded the first positive results. We are currently in negotiations with OEM partners to build an industrial prototype and its leading end customers to later carry out the tests in a high throughput environment. With this overview, I would like to hand over to Markus Portman for the financial results. Yes, thank you. I would like to welcome all participants of this call from my side as well and start leading you through the full year financials, starting with an overview on the key figures in the profit and As you have already seen, we were able to that generates revenues that almost match the record 2017 level. But not only this, on the incoming order side, we You can also see significant increases or compared to prior year, which are ultimately then reflected in the increased Backlog. The increase in backlog is mainly related to our X-ray Systems business. If you go further down the profit and loss statement, you will see the gross profit margin, which decreased compared to the prior year. This is due on one side to the lower sales volume in combination with an underutilization of our capacities. Roughly 1.2 percentage points are related to this impact. And on the other side, you see an impact related to one time effects. I will go into further details with respect to the one time effects on the slides to come. Further down in the profit and loss statement, we have the functional cost side. What you can see year over year, an increase of EUR 22,000,000 A large part of that is related to one time cost again. The rest is directly related to investments in the ongoing business. The next slide is a rather complex Slide that will help you understand the influences on the different positions of the profit and loss statement in a year over year comparison. Let me start on the very left side and work myself through to the right hand side. On the very left hand side, you see the as reported results for the year 2017 as a starting point. We have adjusted this first column with a onetime effect of last year. We had the pension fund Adjustment in the prior year, which actually brings us to a base of 14.8% with respect to the EBITDA margin. That's an adjusted and normalized result for 2017 to start with. What you then see is in the next column, the results as they have happened compared to prior year Before the one time effects and at the constant exchange rates. What you can see there is that with respect to revenue, we have almost EUR 10,000,000 lower Sales volume at constant exchange rates and an EBITDA loss of EUR 16,000,000 going with it. The reduced sales volume led to a lower gross profit, Driven on one side by lower volumes, but also driven by underutilized Fixed cost, so we had an underutilization of which all in all together with the volume impact our gross profit with Almost SEK 7,000,000. On top of that, in the functional costs, we have ongoing investments in projects Such as the generator project in the PCT division, but also an increase of resources throughout the year that are in line with our future and ongoing business. Furthermore, we have started to move from into the new building. We finished the new building the middle of the year and have now started moving into this new building. This, all in all, leads to an EBITDA margin of 11.4%. If we then, in the next Carl, consider the impact that the foreign exchange rate had in 2018. You can see that this impact is On the EBITDA level at 0.3%, which takes us to an EBITDA margin before onetime cost at 11.1%. The last two columns on explaining the impact of the 2 significant one time effects. The first column with the title EBS Impact is the restructuring, the divestment of our E beam Systems Business in the States in Davenport in the U. S. We can see an Impact on the cost side of $12,000,000 on the net income $9,000,000 And the €9,000,000 are in line with what we have already disclosed and forecasted in August last year. On the EBITDA level, we see an impact of now €6,600,000 This is also in line with what we have disclosed at the end of last year in November. All in all, the impact of this divestment sums up to 1.5% on the EBITDA margin level. Then the second column, that's the restructuring We have had in Germany, the overall cost is at 3,900,000, which is also lower than what we had originally forecasted with EUR 5,000,000 back in November. Together, the 2 have an impact of 2.4 percent on the EBITDA margin, EUR 12,000,000 on the net income and EUR 10,500,000 on the EBITDA level. You will find all these relevant numbers in the The next slide explains the change From prior year's net income to this year's income, you can see that last year we have €35,000,000 in the net income, which this year Especially impacted by one time effects is strongly down. The same you can see with the finance expenses, they are slightly up. And on the other side, we have much lower The finance expenses are mainly related to currency translation losses, Split approximately half and half between impact on the euro and on the U. S. Dollar. The tax rate It's lower than the normalized expected tax rate of 24%. We came out at 18.9%. This is related to the use of tax losses carried forward that were recognized this year and by a partial tax exemption by the Canton of Bribourg, where we still have a tax holiday till 2023. This takes me to the next slide, which is the cash flow statement. As you can see that even though we had a difficult second half of the year, we were able to generate And operating cash flow of SEK 22,000,000 in combination with significant investments, Partly in the building and partly in the Production Equipment, this led to a negative free cash flow. Normalized by the investments in the building, because these are one timers and will not continue in 2019, We were this year, at the same as last year, able to show a positive free cash flow. Last but not least, we have the financing cash flow, which is mainly related to the dividend payment. This takes me to the next slide, which is the balance sheet. As you can see, we have a very strong balance sheet. We have a high equity ratio of 54%. And you can see also some moves between different line items from current assets To non current assets, those are mainly related to the investments in production equipment and into the building. Liabilities are slightly decreasing. This is related to the slowdown in business in the second half of twenty eighteen. The next slide shows you the leverage ratio, net debt to EBITDA of comment, which is at the low level of 0.7. The other part of the chart, the gray bars are showing the EBITDA Development over the last few years and the lower part is the net debt situation, which increased this year related directly related to the increase in investments that we had. We do think that the Leverage ratio is still low even though it increased from 0.1 to 0.7 and that planned on invest The planned investment based upon this low net debt, the planned investments in the future businesses can still be financed, especially based upon the normalized EBITDA. That takes me to the last slide, which is the dividend, which is not on your presentation, but the Board decided To follow its payout policy and to distribute to shareholders a dividend of CHF 1.2 per share, which is a payout ratio on a normalized basis of 38% as in the past. Thank you. I will hand over back to the CEO of Lennkel Hardin. Thank you, Markus, for his explanations. Let's turn to the outlook now. The COME Group is in a sound position. The corrective measures for IXS and EBITDA have been completed and will have an impact on profitability in 2019. We are entering fiscal 2019 with a strong balance sheet and low net debt. At the EBITDA level, last This year's nonrecurring expenses of about CHF 10,500,000 are dropping out this year. The same is true for the losses from the divested EDS business. In addition, the underlying drivers of business remain intact. We are well positioned to address attractive market potentially in all our divisions. On this slide, you see the market that our addressable markets with our market shares with the great bars. So for all our businesses, we are in very attractive markets. Let's now move to the outlook in detail per division. Currently, visibility in the semiconductor market, Especially for 3 d NAND memory chip, a key market of the Comet Group remains very low for all market participants. For For the time being, this does not allow projections for fiscal year 2019 at group level. Our guidance is therefore for of the individual divisions. For PCT, we expect continued weak demand for 3 d NAND memory chips and High Inventories in the First Half of twenty nineteen. We do expect First half year sales to be around 10% to 20% below the level of the second half of twenty eighteen. For the time being, no forecast is possible for the second half of twenty nineteen. For IXS, IXM and EBT, we keep to what we said already last year. For IXS, we anticipate a slight year over year increase in sales for the full year 2019 and as announced, an EBITDA margin of about 6%. At iXm, we are projecting slight Growth for 2019 in line with that of 2018. And for EBT, we expect sales of about CHF 15,000,000 with an EBITDA loss of not more than CHF 5,000,000. At this time, I'm going to close the presentation part and open to the Q and A session. We have reserved about a quarter of an hour for questions. So maybe we have the first question, please. We will now begin the question and answer Participants are requested to use only handsets while asking a question. There are no questions at this time. Okay. Then I would like to thank you for your interest. We will see some of you at our roadshow in London, Frankfurt or Geneva. Also looking ahead, we would like to invite you to join us for the first half year result publication August 15 and for our Investor Day on November 21 this year. So thank you very much, and have a good afternoon. Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call and thank you for participating in the conference. You may now disconnect your lines. Goodbye.