Siltronic off to a muted start to the year 2019, as expected

  • Less wafer area sold q-on-q in line with expectations

  • Sales down 8.7 percent q-on-q to EUR 354.4 million

  • EBITDA drops 20.9 percent q-on-q to EUR 127.2 million

  • EBITDA margin at 35.9 percent in Q1 2019

  • Sales and profitability higher y-on-y

  • Ongoing strong net cash flow and investments in the future

  • Adjusted forecast for 2019 confirmed: sales down 5 to 10 percent y-on-y, EBITDA margin between 33 and 37 percent

Siltronic AG (MDAX/TecDAX: WAF) was unable to escape from the general trend of a cooling semiconductor industry and consequently got off to a muted start into 2019.

“With the general slow-down of the economy, geopolitical uncertainties and inventory adjustments in the value chain not yet completed, 2019 is proving to be challenging, as expected. This is also reflected in our current financials,” says Dr. Christoph von Plotho, CEO of Siltronic AG.

Less wafer area sold results in sales decline q-on-q

In Q1 2019, sales declined by 8.7 percent to EUR 354.4 million compared with EUR 388.1 million in Q4 2018, due to less wafer area sold.

Exchange rate effects had a negligible influence in a q-on-q comparison as the US dollar against the euro stood at an average of 1.14 in Q1 2019, similar to the previous quarter.

Compared with Q1 2018 (EUR 327.4 million), sales rose on the back of an increase in Euro ASP by 8.7 percent. The decisive factor was the development of the EUR/USD exchange rate. In Q1 2018, the exchange rate still averaged 1.23 (Q1 2019: 1.14).

Higher energy costs burden gross profit

Compared with the previous quarter, cost of sales edged up from EUR 208.1 million to EUR 209.9 million in Q1 2019 even though the wafer area sold was down. The increase in the cost of sales per wafer area is attributable in particular to higher energy costs and the lower dilution of fixed costs due to lower capacity utilization.

As a result, gross profit with EUR 144.5 million dropped significantly below the previous quarter (Q4 2018: EUR 180.0 million). The gross margin declined from 46.4 percent to 40.8 percent.

Compared to EUR 202.5 million in Q1 2018, cost of sales increased by 3.7 percent. Primarily due to exchange rate fluctuations gross profit was up by EUR 19.6 million (15.7 percent) y-on-y. The gross margin stood at 38.1 percent in Q1 2018. In Q1 2019, this figure increased by 2.7 percentage points.

Marginal decline in selling, R&D and general administration expenses

In Q1 2019, selling, R&D and general administration expenses came in at EUR 32.2 million, which is 9.1 percent of sales. Compared to the previous quarter, this reflected a slight decline of EUR 2.1 million. Due to the decline in sales expenses increased as a percentage of sales.

Compared with EUR 31.6 million and a ratio of 9.7 percent in Q1 2018, expenses remained relatively stable though slightly lower as a percentage of sales.

Effects of currency hedging burden the first quarter

Other operating income and expenses are characterized by foreign exchange gains and losses, in particular for currency hedging of the US dollar and the Japanese yen.

The expenses stood at EUR 8.2 million in Q1 2019, which is significantly higher than in the previous quarter with EUR 4.8 million. Q1 2018 showed an income of EUR 2.7 million.

Weaker demand burdens EBITDA and the EBITDA margin

Due to the downtrend in wafer area sold, EBITDA of EUR 127.2 million were generated in Q1 2019 (Q4 2018: EUR 160.8 million). This corresponds to a decline of 20.9 percent. In Q1 2019, the EBITDA margin came in at 35.9 percent compared with 41.4 percent in the previous quarter.

EBITDA in Q1 2018 stood at EUR 122.3 million and was therefore exceeded by 4.0 percent in the reporting quarter. The EBITDA margin was 37.4 percent in Q1 2018.

EBIT of EUR 103.4 million achieved in Q1 2019 dropped 25.6 percent below that of the previous quarter (Q4 2018: EUR 138.9 million). The EBIT margin stood at 29.2 percent (Q4 2018: 35.8 percent). Along with a weak start into 2019 and the increase in energy costs, the higher depreciation level was a contributing factor.

In Q1 2018, EBIT stood at EUR 96.6 million and was therefore exceeded by 7.0 percent. The EBIT margin was 29.5 percent, comparable to Q1 2019.

Profit for the period and earnings per share down q-on-q

Profit for the period of EUR 87.6 million was generated in Q1 2019, reflecting a decline of 17.4 percent compared with the previous quarter
(Q4 2018: EUR 106.0 million).

In Q1 2018, profit for the period was EUR 82.0 million. The increase of EUR 5.6 million in profit y-on-y despite a higher tax rate is mostly attributable to favorable foreign exchange rate movements.

Earnings per share came in at EUR 2.68 in Q1 2019 compared with EUR 3.25 in Q4 2018.

In Q1 2018, earnings per share equalled EUR 2.62.

Significant increase in property, plant and equipment as well as securities and fixed-term deposits

Property, plant and equipment increased due to the investments made in Q1 2019. The new accounting rules for leasing (IFRS 16) increased other non-current assets by EUR 46.3 million. Siltronic has applied the new standard on accounting for leases (IFRS 16) since January 1, 2019. Under this standard, a lessee capitalizes his right to use leased assets and recognizes as a liability the obligations resulting from lease payments.

Short- and long-term investments together with cash and cash equivalents increased by EUR 70.5 million.

Further increase in equity

While profit for the period came in at EUR 87.6 million in Q1 2019, equity rose by EUR 52.6 million. The valuation of pension provisions due to interest rate effects reduced equity by EUR 52.8 million in Q1 2019 while foreign exchange effects raised equity by EUR 17.0 million in the same period.

Non-current liabilities have climbed by EUR 86.4 million, of which EUR 59.5 million was attributable to pension provisions. As of March 31, 2019, pension provisions in Germany were discounted at 1.66 percent (December 31, 2018: 1.98 percent). In the US, by contrast, the discount rate has fallen from 4.08 percent to 3.69 percent. Non-current liabilities also increased by EUR 43.7 million due to the new IFRS accounting rules for leasing (IFRS 16).

Strong net cash flow and investments in the future

Capital expenditure on property, plant and equipment and intangible assets amounted to EUR 72.8 million in Q1 2019 and mainly pertain to ramping up capacities, the new pulling hall in Singapore and ongoing production automation. Payments for capital expenditure on property, plant and equipment and intangible assets were EUR 67.1 million.

The cash flow from operating activities includes the repayment of customer prepayments of EUR 16.8 million. In Q1 2019, no additional customer prepayments were received.

In Q1 2019, net cash flow came in at EUR 80.8 million compared with EUR -32.2 million in Q4 2018. The negative cash flow in Q4 2018 was the result of higher capital expenditure.

In Q1 2018, net cash flow came in at EUR 112.4 million.

Net financial assets at new record high

Owing to the high cash flow, net financial assets reached a new record level of EUR 761.8 million at March 31, 2019.

Cautious outlook for the full year 2019

Siltronic released its annual forecast at the end of February based on the assumption that the incoming orders would pick up significantly in the second half of 2019. However, the timing of the market recovery can not be predicted with certainty. Accordingly, the Executive Board adjusted the original forecast on
April 10, 2019, and hereby confirms it.

Siltronic expects Q2 2019 to be significantly weaker than Q1 2019.

For the full year 2019, given the challenging market environment, sales are expected to be around 5 to 10 percent below the previous year. The EBITDA margin is estimated between 33 percent and 37 percent. EBIT is forecasted to be significantly lower than 2018. Net cash flow is expected to remain clearly positive but nevertheless to decline by around EUR 150 million. Earnings per share will be substantially below the previous year. This forecast continues to hinge on the recovery in the market environment as well as on exchange rate effects.

“Irrespective of the currently challenging market environment, we are convinced that the fundamental growth trend in the wafer industry, driven by mega trends such as digitalization and electro-mobility, remains intact,” Dr. Christoph von Plotho continues.

 

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 May 3, 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 latest investor presentation (in English only) and the quarterly statement are also published on the Siltronic website.

Other dates

May 7, 2019             Annual General Meeting

July 25, 2019            Interim Report 2019

October 24, 2019     Q3 2019 quarterly statement

 

This press release is a quarterly Group statement in accordance with Section 53 of the Exchange Rules for the Frankfurt Stock Exchange.


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