Siltronic with positive business development in Q3 2020

  • Wafer area sold slightly above the high level of Q2

  • Euro strength and product mix weigh on sales and earnings in Q3 2020

  • Q3 EBITDA of EUR 80.1 million (EBITDA margin 26.8 percent)

  • Net cash flow of EUR 28.6 million

  • Forecast for 2020 unchanged

In Q3 2020, Siltronic AG (MDAX/TecDAX: WAF) slightly exceeded the already high level of wafer area sold in Q2 2020. However, business performance was impacted by exchange rate-related headwind triggered by the strength of the euro and an unfavorable product mix. As a result, sales in Q3 2020 fell by a total of 7.4 percent to EUR 299.2 million compared to Q2 2020.

"We continue to benefit significantly in many business areas from ongoing investments in digitization and the improvement in demand triggered by the economic recovery in many countries," said Dr. Christoph von Plotho, CEO of Siltronic AG.

Business Development in Q3 2020

Although demand for wafer area proved to be very robust in Q3 2020, Siltronic AG's earnings declined due to the strength of the euro and an unfavorable product mix. The Corona pandemic caused shifts in end markets. This had a negative impact on Siltronic AG's product mix in Q3 2020. As a result, sales of EUR 299.2 million were a good 7 percent below Q2 2020. On a sequential basis, the euro gained 6 percent against the US dollar, in which Siltronic generates most of its revenues (average exchange rate 1.17 in Q3 after 1.10 in Q2 2020). This strength of the euro alone led to a sequential decline in sales of around EUR 16 million in Q3.

ASP (average selling price) per wafer area had already declined significantly during 2019 and thus, as expected, had a negative effect on revenues in 2020. In the first nine months of 2020, revenues were EUR 922.5 million, 4.5 percent down quarter-on-quarter.

Cost of sales fell in Q3 2020 due to exchange rate effects. Higher scheduled depreciation partly offset this decline.

In the first nine months 2020, cost of sales amounted to EUR 655.8 million, a year-on-year increase of EUR 50.4 million. This is mainly due to higher wafer area sold and an increase in scheduled depreciation. Disregarding the increase in depreciation, cost of sales per wafer area fell year-on-year.

Gross profit in Q3 2020 was EUR 78.2 million, 21.1 percent down quarter-on-quarter. Gross margin fell from 30.7 percent to 26.1 percent. This was mainly due to the development of the euro against the US dollar and the unfavorable product mix.

In line with the development of the gross profit, EBITDA decreased by EUR 20.3 million in Q3 2020 quarter-on-quarter and amounted to EUR 80.1 million. The EBITDA margin fell by a good 4 percentage points from 31.1 percent to 26.8 percent.

On a nine-month comparison, EBITDA was 16.9 percent down year-on-year. The ASP decline is the main reason for this development.

In line with EBITDA, EBIT in Q3 fell by EUR 23.3 million quarter-on-quarter to EUR 43.6 million, partly due to higher depreciation.

After the first nine months of 2020, EBIT reached EUR 163.8 million (Q1-Q3 2019: EUR 241.6 million).

The effects of Coronavirus were not only reflected in the infavorable product mix but also in the financial result. Q1 2020 was impacted by declining financial markets, while Q2 saw an income of EUR 2.2 million. In Q3, income from financial investments almost compensated for the accrued interest on long-term provisions. This resulted in a total expense of EUR 0.5 million.

In Q3 2020, Siltronic generated a net income of EUR 39.1 million. Earnings per share were EUR 1.08  compared to EUR 1.80 in Q2 2020.

After nine months, net income for the period was EUR 145.9 million, of which EUR 125.8 million were attributable to Siltronic AG shareholders. Earnings per share were EUR 4.19 compared to EUR 6.31 in the previous year.

Development of equity, capital expenditure, net cash flow and net financial assets

With equity of EUR 832.6 million at September 30, 2020, Siltronic AG's equity ratio was 43.7 percent compared to 47.8 percent at December 31, 2019. The EUR 97.6 million reduction in equity is primarily due to the net income of EUR 145.9 million for the first nine months of 2020 less the dividend payment of EUR 90 million, the increase in pension obligations of EUR 101.9 million and negative currency effects of EUR 52.7 million.

The impact of interest rates on the valuation of pension provisions was significant. As of September 30, 2020, pension provisions in Germany were discounted at 0.95 percent (December 31, 2019: 1.24 percent). In the USA, the interest rate fell from 2.98 percent to 2.41 percent.

In the first nine months of 2020, Siltronic invested EUR 129.4 million in property, plant and equipment and intangible assets. These investments mainly relate to capability and automation projects as well as ongoing projects to expand capacity. Due to travel restrictions caused by the Corona pandemic, the company was not able to implement all measures as planned, but is confident that it will be able to largely complete them by the end of 2020.

In Q3 2020, net cash flow amounted to EUR 28.6 million (Q2 2020: EUR 26.7 million). In the first nine months of 2020, net cash flow was EUR 96.3 million (Q1-Q3 2019: EUR 72.4 million). During this period, Siltronic refunded customer prepayments of EUR 49.0 million.

Due to the positive free cash flow, net financial assets decreased by only EUR 69.6 million despite the dividend payment of EUR 90.0 million.

Demand for wafer area in H2 2020 slightly better than expected, forecast unchanged

The digitization of society, accelerated by the Corona pandemic, is continuing. After some massive slumps in certain end markets, such as the automotive industry, the first signs of recovery are slowly emerging, which should also have a positive effect on the demand for wafer area.

The strong demand for epitaxial 300 mm wafers is continuing and the demand for polished 300 mm wafers is also developing positively. For 200 mm wafers, Siltronic was able to book short-term orders for Q4 2020. Thus, contrary to earlier assumptions, wafer area sold in H2 will be slightly above the level of H1.

The forecast for 2020 is unchanged, as the strong euro and an unfavorable product mix in the second half of the year will not be able to compensate for the positive trend in wafer area sold.

"Q4 should no longer provide any surprises in terms of wafer area sold and the volume should be slightly above our previous expectations. However, sales and EBITDA will be negatively affected by the strong euro and a less favorable product mix in the second half of the year. Uncertainty remains due to the Corona pandemic, as the number of infections is rising massively in many countries and further lockdowns cannot be ruled out," said 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 29, 2020 at 10:00 am (CET). 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.