Siltronic increases third quarter sales year on year, currency related decline in EBITDA
Thanks to the favorable effects of a strong dollar more than offsetting the declining price of semiconductor wafers Siltronic AG increased its sales in the third quarter of 2015 compared to the corresponding prior-year period. The Munich-based semiconductor wafer manufacturer generated sales of €230.6 million, a year-on-year increase of almost 7 percent (Q3 2014: €216.0 million). In the first nine months of the current financial year, sales totaled to €716.0 million which is a year-on-year increase of 15 percent (Q1-Q3 2014: €622.7 million).
Sales fell by 6 percent (Q2 2015: €246.7 million) compared to the preceding quarter. This was primarily due to a market-driven drop in unit sales as Siltronic customers reduced inventories. The main reason for inventory correction from customers was the notably lower than originally expected number of smartphone, tablet, and PC sales.
Siltronic's EBITDA for the third quarter of 2015 was €29.3 million, almost 12 percent down on the corresponding prior-year period (Q3 2014: €33.2 million). Compared with the preceding quarter, EBITDA fell by just under 7 percent (Q2 2015: €31.4 million). The EBITDA margin for the quarter under review was 12.7 percent compared to 15.4 percent in the third quarter of 2014 and 12.7 percent in the second quarter of 2015. For the first three quarters of 2015, EBITDA amounted to €100.8 million, more than 8 percent up on the same period of the previous year (Q1-Q3 2014: €93.0 million). The EBITDA margin for the first nine months was 14.1 percent (Q1-Q3 2014: 14.9 percent).
Besides lower wafer prices (in US dollar), the main reason for the year-on-year decline in EBITDA in the third quarter of 2015 were losses arising in connection with currency hedging. These losses reduced Siltronic's EBITDA in the third quarter of 2015 by €15.5 million. In the third quarter of 2014, corresponding gains had increased EBITDA by €5.3 million. The adjusted EBITDA margin for the third quarter of 2015 was 19.4 percent (Q3 2014: 12.9 percent).
Earnings before interest and tax (EBIT) were €0.3 million in the third quarter of 2015, an improvement of €8 million on the same period of the previous year (Q3 2014: loss of €7.7 million). The EBIT margin was 0.1 percent (Q3 2014: -3.6 percent). For the first nine months, EBIT was €8.8 million (Q1-Q3 2014: loss of 18.1 million) with EBIT margin reaching 1.2 percent (Q1-Q3 2014: -2.9 percent). In the third quarter of 2015 Siltronic generated a loss of €6.2 million (Q3 2015: net loss of 12.2 million), representing a loss per share of €0.15 (Q3 2014: loss per share of €0.31). For the first nine months of the year, the loss for the period amounted to €11.2 million (Q1-Q3 2014: net loss of €29.3 million), which represents a loss per share of €0.21 (Q1-Q3 2014: loss per share of €0.69).
"Despite the current market weakness, we managed to increase our sales in the third quarter and drive forward with our core operational and strategic objectives," noted Chief Executive Officer Christoph von Plotho in Munich on Thursday. "That applies in particular to our cost performance. For example, our variable manufacturing costs for 300mm wafers reached an all-time low in August. At the same time, several production lines set output records. That played a significant role in maintaining our EBITDA margin at the same level as the previous quarter."
Cash flow, capital expenditure, net financial assets, equity ratio, and ROCE
Cash flow from operating activities for the period January to September of 2015 amounted to €88.1 million, a decline of just over 24 percent on the first nine months of 2014 (Q1-Q3 2014: €116.3 million). The main reason for this was the reduction in the amount of prepayments received. Whereas Siltronic had received prepayments of €53.2 million in the first nine months of 2014, there was no inflow of funds from prepayments in the first three quarters of 2015.
At the same time, cash payments for capital investments in property, plant and equipment and intangible assets increased significantly, totaling €40.2 million in the period from January to September of 2015 (Q1-Q3 2014: €20.9 million). In addition to the capital expenditure on the development of products and processes, funds were also channeled into targeted measures for the further automation of production and the selective replacement of crystal growing capacities.
Overall, free cash flow for the first nine months of 2015 (net cash provided by operating activities after capital expenditure on property, plant and equipment and on intangible assets) amounted to €47.9 million (Q1-Q3 2014: €95.4 million). Although this is a decline of almost 50 percent, free cash flow actually grew year on year by almost 14 percent after adjusting for prepayments received.
As a result of the IPO and the positive free cash flow generated in the first three quarters of 2015, Siltronic had net financial assets of €166.2 million as of September 30, 2015 (December 31, 2014: -€24.5 million).
The equity ratio improved considerably over the first nine months of 2015. Siltronic's equity amounted to €501.7 million as of September 30, 2015 (December 31, 2014: €311.8 million). This reflects, above all, the inflow of funds from the IPO, which, after transaction costs, increased equity by €143.2 million. In addition, higher discount rates used in the calculation of provisions for pensions and other post-employment benefits also had a positive impact on equity, increasing it by €49.9 million. The equity ratio was 48.3 percent as of September 30, 2015 (December 31, 2014: 29.1 percent).
The return on capital employed (ROCE) for the first nine months of 2015 was 1.5 percent (Q1-Q3 2014: -2.9 percent).
The average number of employees declined further compared to December 31, 2014. The reduction was primarily due to pre-retirement part-time employment arrangements, voluntary severance agreements, natural fluctuation, and transfers to Wacker Chemie AG. As of September 30, 2015, the Group employed 3,978 people worldwide (December 31, 2014: 4,163).
Following a strong start to the year with unit sales in the first half of the year up by more than 10 percent, unit sales in the second half of the year have been falling sharply. Some customers purchased fewer wafers in the third quarter in order to run down their surplus inventories. In fact, the same inventory correction actions appear to have been carried over into the final quarter of 2015. Furthermore, unit sales of wafers tend to be weaker in the fourth quarter, this usual seasonal effect being more pronounced this year. The persistently weak sales of PCs, tablets, and smartphones in China are having a particularly negative impact on wafer demand for logic components. However for 2015, Siltronic still expects to see a slight year-on-year increase in unit sales.
Prices in invoicing currency (US dollars) were significantly lower in the first nine months of the year than in the corresponding prior-year period, but in Euro, average sales price per wafer was significantly up on the prior-year level. Wafers for logic applications command higher prices, but as this is the area that has been hardest hit by the current weakness in the market, average sales price per wafer for 2015 as a whole will fall slightly compared to the figure for the first nine months of the year, but will remain well above the level of 2014.
There was a 15 percent year-on-year increase in sales in the first nine months of 2015. For 2015, Siltronic expects currency-related sales growth in the high single-digit percentage range.
Exchange rate effects, which are recognized under other operating income and expense, will lower the EBITDA margin for 2015. The EBITDA margin for the first nine months of the year was 14 percent. This included net exchange rate losses of €35 million, primarily relating to foreign currency derivatives that were entered into in 2014 for currency hedging purposes. For 2015, Siltronic expects exchange rate losses to lower earnings by a total of €50 million. The EBITDA margin for the year as a whole will be slightly lower than for the first three quarters. Siltronic's medium-term EBITDA margin goal is 20 percent.
Siltronic generated a positive ROCE in the first nine months of 2015. Contrary to the forecast provided in the second quarter of 2015, Siltronic now expects ROCE to be slightly negative for the year. Siltronic's medium-term ROCE goal is 11 percent.
Capital expenditure is now rising in accordance with plans. In the first nine months of 2015, Siltronic invested €41 million in additions to property, plant and equipment and to non-current intangible assets. For the year, the Company expects capital expenditure to total around €70 million.
Free cash flow is expected to remain positive over 2015. In the first nine months of 2015, Siltronic generated free cash flow of €48 million. For the year as a whole, the Company anticipates that free cash flow will be close to the level of the first nine months.
Information for editorial offices: The Q3 2015 report is available for download on the Siltronic website (www.siltronic.com) under Investor Relations.
This press release contains forward-looking statements based on assumptions and estimates of Siltronic’s Executive Board. Although we assume the expectations in these forward-looking statements are realistic, we cannot guarantee they will prove to be correct. The assumptions may harbor risks and uncertainties that may cause the actual figures to differ considerably from the forward-looking statements. Factors that may cause such discrepancies include, among other things, changes in the economic and business environment, variations in exchange and interest rates, the introduction of competing products, lack of acceptance for new products or services, and changes in corporate strategy. Siltronic does not plan to update the forward looking statements, nor does it assume the obligation to do so.
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