Siltronic meets sales and margin expectation in a difficult market environment

Siltronic AG (MDAX/TecDAX: WAF) meets sales and margin expectations in the third quarter. As expected, the third quarter has been weaker than the second quarter of 2019. Overall, business development in the first nine months was in line with the outlook.

"Finished goods inventories in the value chain remain high. We do not see any meaningful improvement in this area in the short term and therefore no notable growth impulses. The continuing economic and geopolitical turbulence is also leading to a severely limited short to medium-term predictability of the markets," says Dr. Christoph von Plotho, CEO of Siltronic AG.

Decline in sales due to lower wafer area sold

Mainly due to the lower wafer area sold in the first three quarters of 2019, sales decreased by -9.6 percent or EUR -102.5 million to EUR 966.0 million (Q1-Q3 2018: EUR 1,068.5 million). All wafer sizes were affected by the decline in demand. However, the decline in 300 mm was more moderate than in 200 mm. The small diameters were most severely affected.

The continuing strength of the US dollar, in which Siltronic generates most of its sales, had a positive effect on business. In the first nine months of 2019, the euro by an average of 1.12 against the U.S. dollar weakened about 6 percent compared to the first nine months of 2018 (1.19). This led to higher average sales compared with the first three quarters of the previous year. However, the positive exchange rate effect of the US dollar could only partially compensate for the effect of the declining wafer area.

In Q3 2019, sales of EUR 299.8 million were realized, EUR 12.0 million less than in Q2 2019. In addition to reduced demand, there was a minimal price decline, which mainly affected the small wafer diameters and in some cases 200 mm. At 1.11, the euro was slightly weaker against the US dollar compared to 1.12 in the second quarter.

Higher energy costs and depreciation burden cost of sales

The decline of the produced wafer area led to reduced cost of sales of EUR 605.4 million (Q1-Q3 2018: EUR 616.7 million) while depreciation and energy costs increased noticeably.

Compared to the second quarter, the cost of sales in Q3 2019 fell only disproportionately by 1.7 percent due to increased depreciation, although sales revenues declined by 3.8 percent.

At EUR 360.6 million, gross profit in the first three quarters of 2019 was 20.2 percent down year-on-year (Q1-Q3 2018: EUR 451.8 million). The gross margin fell from 42.3 percent to 37.3 percent .

Compared to Q2, gross profit decreased by EUR 8.7 million to EUR 103.7 million.

Selling, R&D and administrative expenses increased slightly

Selling, research and development (R&D) and administrative expenses amounted to EUR 97.8 million in the first three quarters of 2019. This corresponds to 10.1 percent of sales. Compared to the same period of 2018, there was a slight increase of EUR 1.6 million.

Effects from currency hedges burden the first three quarters of the year

The development of the US dollar and the Japanese yen had a positive impact on Siltronic's sales and gross margin in the first three quarters of 2019. Siltronic is implementing currency hedging measures to mitigate future negative exchange rate developments. In contrast to the development of sales and gross margin, currency hedges have the opposite effect on net other operating income and expenses.

In the first three quarters of 2019, net expenses from exchange rate effects amounted to EUR 22.8 million, with expenses in Q3 2019 of EUR 7.7 million being roughly on par with Q2 2019 of EUR 6.9 million

Weaker demand weighs on EBITDA and EBITDA margin

Due to the declining wafer area sold and higher energy costs, EBITDA of EUR 318.7 million in the first three quarters of 2019 was lower than in the same period of 2018 (Q1-Q3 2018: EUR 428.6 million. The EBITDA margin fell from  40.1 percent to 33.0 percent.

EBIT decreased from EUR 358.8 million in the first three quarters of 2018 to EUR 241.6 million in the first three quarters of 2019, the EBIT margin from 33.6 percent to 25.0 percent. This is due to the weak start into 2019, the rise in energy costs and higher depreciation.

The decline in the EBITDA margin from Q2 to Q3 2019 was mitigated by lower cost of sales.

Profit of EUR 216 million in the first three quarters of 2019

The share of Siltronic’s profits, that is achieved at entities with low tax rates, is increasing. This resulted in low tax expenses in the second and third quarter of 2019.

In the first three quarters of 2019 a profit for the period of EUR 215.6 million was generated. Compared to the previous year period (Q1-Q3 2018: EUR 294.6 million), it declined by 26.8 percent.

Earnings per share in Q3 2019 were EUR 1.65 compared to EUR 1.98 in Q2 2019 and EUR 2.68 in Q1 2019.

Non-current assets up due to investments in property, plant and equipment

The increase in property, plant and equipment compared with December 31, 2018 is mainly due to higher additions compared with scheduled depreciation. Capital expenditure including intangible assets totalled EUR 266.5 million in the first three quarters of 2019.

The new accounting rules for leases (IFRS 16) increased other non-current assets by EUR 45.3 million. Siltronic adopted the new standard on accounting for leases on January 1, 2019. Accordingly, a lessee capitalizes his right to use leased assets and recognizes as a liability the obligations resulting from lease payments.

Non-current assets accounted for 54.1 percent of total assets as of September 30, 2019 (December 31, 2018: 42.0 percent).                                                                            

Current assets lower mainly due to dividend payment

Cash, cash equivalents and financial investments (current and non-current) decreased by only EUR 112.5 million due to the positive cash flow from operating activities in the first nine month 2019 minus the dividend payment of EUR 150.0 million, payments for capital expenditure of EUR 260.7 million and EUR 48.5 million refund of customer prepayments.

Equity ratio of 42.4 percent

The EUR 106.7 million decrease in equity is mainly attributable to the profit for the period of EUR 215.6 million minus the dividend payment of EUR 150 million and the interest-related change in pension obligations of EUR 202.1 million.

Non-current liabilities as of September 30, 2019 amounted to 44.1 percent of total assets.

The impact of interest rates on the valuation of pension provisions was material. The pension provision in Germany was discounted at 0.97 percent as of September 30, 2019 (December 31, 2018: 1.98 percent). In the US, the interest rate fell from 4.08 percent to 2.99 percent.

Net cash flow of EUR 72 despite high investments

Capital expenditure including intangible assets amounted to EUR 266.5 million in the first three quarters of 2019 and mainly related to capacity expansions, the new pulling hall in Singapore and further automation of production. Payments for capital expenditure including intangible assets amounted EUR 260.7 million.

The cash flow from operating activities includes an amount of EUR 48.5 million for the refund of customer prepayments. New customer prepayments were not received in the first three quarters of 2019.

In Q3 2019, net cash flow was slightly negative at EUR -8.8 million compared to EUR 0.4 million in Q2 2019 and EUR 80.8 million in Q1 2019.

Net financial assets of EUR 579 million despite dividend payment and high investments

Despite the dividend payment of EUR 150.0 million to Siltronic AG shareholders, the payments for capital expenditure of EUR 260.7 million and the refund of customer prepayments of EUR 48.5 million, net financial assets decreased by only EUR 112.5 million due to the clearly positive cash flow from operating activities.

Full year 2019 in line with expectations

Siltronic confirms its forecast for fiscal 2019 adjusted in June, but expects wafer sales in the fourth quarter of 2019 to be significantly below the third quarter in line with usual seasonality. Therefore, sales and EBITDA margin are expected to be in the lower half of the forecast range, and thus in line with market expectations.

"We are working hard on our cost base and productivity. Personnel costs make up a large part of our cost structure. In order to cope with the low capacity utilization, we already laid off a considerable number of temporary employees in Germany in the first half of 2019 and are currently reducing the number of employees in Portland. Despite the current challenging market environment, we are convinced that the growth drivers for the wafer industry are intact. The long-term growth prospects for Siltronic are good," continues Dr. Christoph von Plotho.

Conference call for analysts and investors

The Executive Board of Siltronic AG will hold a conference call with analysts and investors (in English only) on October 24, 2019 at 10:00 am (CEST). This call will be streamed via the Internet. The audio webcast will be available live as well as on demand on Siltronic’s website.

The Q3 interim statement and the latest investor presentation are also published on the Siltronic website.

Contact:

Petra Müller

Head of Investor Relations & Communications

Tel.: +49 (0)89 8564 3133

Email: investor.relations@siltronic.com

Company profile:

Siltronic is one of the world’s largest manufacturers of hyperpure silicon wafers and partner to many leading semiconductor companies.  The company operates production sites in Asia, Europe and the USA. Siltronic develops and manufactures silicon wafers in diameters of up to 300 mm. Silicon wafers form the basis for modern microelectronics and nanoelectronics and are a key component in semiconductor chips driving computers, smart phones, navigation systems and many other applications. Siltronic AG employs around 4,000 people and has been a stock-listed company in Germany (Prime Standard) since 2015. The Siltronic AG stock is listed on both the MDAX and TecDAX.