ASML Holding N.V. (ASML) Earnings Call Transcript & Summary

Ladies and gentlemen, a warm welcome to this Annual General Meeting of Shareholders of ASML. This meeting will be conducted in Dutch. For those of you who wish to choose the English translation, translation is available. [Interpreted] Ladies and gentlemen, a warm welcome to this Annual General Meeting at ASML. We are at the beginning of a general meeting under special circumstance, following the outbreak of the coronavirus. And it goes without that for ASML, the health of its employees, shareholders and stakeholders is a top priority. That is why we've been forced to take these additional measures around this meeting as announced on our website. The general meeting, therefore, is not being held in the auditorium as per usual, but we've moved to the plaza on our campus. In light of the coronavirus outbreak, this year, we've enabled shareholders to virtually participate and to cast their votes. A special welcome to you all who are virtually participating in this fashion. With respect to the developments regarding the coronavirus, we have taken consequences for the presence of our Board members as well. In order to minimize the risks for all present, it was decided to minimize the number of members of the Board of management as well as the Supervisory Board present at this meeting in person. The Board members who are not present are attending remotely. And that is why I'd like to introduce ASML's President and CEO, Mr. Peter Wennink, who is sitting here next to me at the correct distance. And in addition, I'd like to introduce Mr. Reinier Kleipool, Deputy Civil Law Notary at De Brauw Blackstone Westbroek, who will act as secretary of the meeting. Mr. van Delden, I'd like to introduce him as well, present on behalf of KPMG accountants, our external accountant. He will only be able to answer questions regarding the auditor's report on ASML's 2019 financial statements. Now despite the fact that they are not present in person, I would like to extend a welcome to the other members of the Board. Mr. Van den Brink, Dassen from Hout, Schneider-Maunoury and Fouquet. The same applies to the other members of the Supervisory Board, Mrs. Aris, Smits-Nusteling and Kelly, as well as gentlemen, Grose, Stork, Schwalb and Ziebart. I would also like to extend a special welcome to Misters Duncan and East. Their appointment as a member of Supervisory Board is on the agenda today. This year, there are 2 possibilities to ask questions. Before the meeting, shareholders were granted the option of submitting questions in writing. Furthermore, they can see the Q&A on our website in this respect and these questions will be addressed in the relevant agenda items. Then shareholders have the opportunity to not only virtually participate, but also to submit questions during the meeting via the chat function. For clarification, this only concerns asking further questions about the answers we've given in writing to the questions previously received. Now for each agenda item, I will deal with the questions that were asked prior to the meeting. Questions that are being submitted during the meeting will be dealt with when discussing the relevant agenda item as much as possible. If you still have a question about an agenda item that has already been dealt with, you can still submit that question. It will be under agenda Item 13, any other business. Now if multiple questions are received, though, on the same subject, they will be clustered and answered in one go. In this way, the dialogue is optimized under special circumstances. Microphones are available for those present in the room. I'd like to ask you to state your question as clearly and as briefly as possible and to introduce yourself by name. Now I will be able to limit speaking time and/or the number of questions accordingly. The registration details, by the way, for this meeting are currently being processed. Once all data has been processed, Mr. Kleipool will announce how many people are present as shareholders or proxy holders. This means, both the shareholders and proxies in the room as well as remotely. It will also be announced how many votes can be cast. Then Mr. Kleipool will explain the voting procedure, after which the possibility of casting votes will be opened. This general meeting has been convened in accordance with ASML's articles of association, the legal requirements. Shareholders participating via the virtual voting platform are able to vote remotely in real-time if they are logged in online via the voting platform. The shareholders present in the room vote via their own smartphone or tablet or via the device issued at the registration desk. Now all votes may be cast during the entire meeting. At the end of the meeting, before any other business, the vote will be closed for all voting items. The voting results on all voting items will then be announced after the any other business agenda item. As usual, an audiotape will be made of the meeting for the preparation of the minutes. I will now move on to Agenda Item 2. This is an overview of recent events and the state of affairs financially at -- and socially responsible entrepreneurship by Mr. Wennink.

Thank you, Gerard. I would like to start with a presentation on the financial year 2019, and I'd like to refer to the safe harbor statement, which is posted on our website. The financials now. 2019. When we speak about 2019, the financial year, it seems ages ago with all the turbulent times that we're living in now. Nonetheless, it is a subject of today's meeting. So I'd like to concentrate on it for a moment. If we look at 2019, we see that our industry in 2019 experienced a year that can be characterized as a year of very limited growth, actually shrink because the Memory industry in 2019 after several years of growth '16, '17 and '18 started to consolidate in 2019. So the industry in 2019, was declining. But at ASML, we were able to show an 8% growth. And this really has to do with an extraordinary position because customers were very much focused on investing in future technology, particularly in EUV. And our net sales grew to a record of EUR 11.8 billion at 44% gross margin. This led to a net income of EUR 2.6 billion, which led to EUR 6.16 earnings per share. EUR 2.6 billion equals the net income in 2018. As I said, EUV, extreme ultraviolet, EUV lithography, very important for us in 2019 and will become increasingly important over the next few years. We shipped 26 systems, 9 systems of the C model, which is the model that we are selling now exclusively with better capacity and a better throughput, productivity, if you will. And it's particularly EUV focused on the market for Logic, logical chips and we see a first use in the market for memory chips. But particularly in the Logic market, we see that there's a great demand for EUV. So in terms of EUV, we've got to be careful. The next-generation EUV, which is High-NA, High-NA equipment, and we're working full force on the preparation thereof with ASML, but also suppliers ZEISS. And this -- after 2025, in this decade, it will be an important way to make advanced, sophisticated chips. DUV, our bread and butter remained because in part of the demand for advanced EUV that you cannot exclusively use for these chips, you also need DUV remained very healthy despite the fact that the memory market, as I said, in 2019 could be characterized as outright weak. Our Application business, which is the business that makes sure that the DUV systems process technology of our clients have better performance. In this business line, we saw 50% growth of our YieldStar systems. And once again, driven by leading-edge logic. So these are the most advanced and sophisticated chips. As far as capital return is concerned, EUR 1.7 billion has been returned to dividend -- to shareholders, excuse me, and most of the money was returned by means of dividend payments, full dividend for 2018 was paid out in 2019. And the first interim dividend was also paid out at year-end 2019. I can't really reflect on 2019 without briefly commenting on the current situation, the first quarter, we reported on that last week. Net sales of EUR 2.4 billion, EUR 1.6 billion in system sales, installed base management sales, these are services and upgrades of EUR 850 million -- EUR 857 million. So this amount of $2.4 million was lower than we had envisaged earlier in this quarter, and this had to do with the fact that the number of shipments. The number of shipments either had to be postponed to the second quarter or were we also affected by the COVID-19 virus and sales will be accounted for in the second quarter. So it's not a loss of sales, it's a shift, if you will. And the fact that our customers are positive, in terms of their businesses and their outlook, their capacity, that is reflected in the number of orders, EUR 1.3 billion, half of which are EUV systems. These net bookings are very important. And of course, in this situation, we have to reflect on the COVID-19 outbreak, the crisis that so far has had a bit of an impact on our manufacturing capability, but it's been limited and that had to do with the fact that across the world, there were lockdown situations and obviously, a number of our suppliers were affected. And so deliveries of parts were delayed, postponed and one of the reason -- that was also one of the reasons that we conducted our shipments somewhat later. But also in our systems, in our plant were adjusted. We found alternatives, and albeit with some delay of a couple of weeks in some cases, we were able to continue our production, our manufacturing capability. But there still is a strong demand from our customers. Our customers have not canceled any orders or delayed them for this year. So the outlook for this year, for the moment, is unchanged, is good. But obviously, we cannot turn our backs on what is going on. We see a decline of macroeconomic growth. And these percentages have declined because we're talking about decline percentages, they vary somewhat, but double-digit decline is what people are talking about. So that's quite substantial. So it is to be expected that, that will affect consumer spending and particularly, consumer electronics. That will also be affected. This is something that we may not be seeing right now. But in the future, it may well be the case, but we cannot estimate how big the effect will be. But there are positive signs. We live in a digital world more than ever and this digital infrastructure is part of our lives, it's not going to disappear and in many cases, and many of us have experienced this personally or the office, that the infrastructure doesn't always comply with the standards and our criteria. So we'd see an enormous increase of data traffic that needs to go through the data centers. Data centers need sophisticated chips, memory chips, logic chip and you see this also in the demand for PCs, which is indeed growing. So -- and this also has to do with the fact that people are working from home and children are being -- are following their schooling at home. But all in all, it's incredibly difficult to estimate what the effect will be of this COVID-19 crisis, the effect on our business and all the business of our customers and so, therefore, on our business. So there's so many uncertainties. And given those uncertainties, we cannot give guidance for sales in this quarter and especially not for the full year 2020. So let's go back to 2019, as I said, an increase of net sales, 3.9 -- as you can see on Slide 7, the blue bit, the blue bit of the last bar, you see that particularly, the logic chip market is much bigger than in 2019, twice as big. Because in 2018, we depended on a strong memory market. And if we look at Slide 8 and then if we look where those systems went, you can see this because if we look at the left-hand side of the slide, we see. But in terms of technology, EUV in its share in overall sales system sales, increased from 23% to 31% and this is a trend that we will see continuing this next year. EUV as a percentage of sales will only increase. And as far as end-use is concerned, I said earlier on 2018, most of the sales went to memory customers in 2019, we see that almost 75% of sales was accounted for by logical chips, chips that we call high-power compute. That is where we really need the arithmetic power, data centers, artificial intelligence, we saw an enormous increase of demand there. And where are these logical chip makers in Taiwan, particularly U.S. and also, in part, in Korea, and if we then compare that to 2018, we see that Korea became much more important in our sales and that had to do with the fact that Korea has most, by far, most of the memory chip manufacturers and in 2018, that market was very good -- was good in 2019. In China, there may be questions. Decline from 19% to 12%. So we need to take into account here, that in China, the Chinese customers -- it is to Chinese customers, but also foreign companies that have operations in China, and particularly foreign companies in China focus very much on the memory market. I'm not saying well, as I said, the memory Market declined, but also sales to China. Foreign companies in China declined, whereas the Chinese companies themselves remained pretty strong. If we then look at Slide 9. This is an overview of the last 5 years, overview of sales, net profit. Last 5 years, sales almost doubled. The same applies to R&D costs. You see almost -- a bit more than EUR 1 billion in 2015, almost EUR 2 billion in 2019. R&D costs, the general costs have not doubled, they increased by about 50%, and you might well say, well, then your operational profit should increase, which is not the case and this has to do with our gross profit margin is lagging behind somewhat. And this has got to do with the fact that our EUV sales, it is increasing, but we are still not at the desired profit level and this takes a couple of years. We've said it before in order to achieve the same gross profit margins as in DPV. All in all, a healthy financial performance. If we now proceed to Slide 10, this is the cash flow statement. Cash flow or the cash generated by operational activities 2019 between EUR 3.3 billion and we've returned to shareholders, we've talked about that already, 1.1 -- between 1.1, 1.2 in terms of investment activities were conducted. And in the past, in 2016, for instance, we had acquisitions 2019 who were mainly investments in fixed assets, and we need to keep in mind that these are -- this is money that we paid to our partner ZEISS for the H&E program. And at the year-end, EUR 4.7 billion in cash and cash equivalents. So that is a healthy situation with respect to cash and cash equivalents. In the current situation, with more uncertainty, this is a comfortable position. If we then look at the balance sheet, you can see that the company's solvency is good, in excess of 50%. And the company also has strong liquidity, not only in cash and cash equivalents, but also, the short-term invested capital. We've also got short-term liabilities. You see that the situation is very healthy. In other words, we're financially strong and robust company. Slide 12, an overview of the capital returns to shareholder -- shareholders, as I said, EUR 1.7 billion in total, EUR 1.3 billion thereof was paid out in the form of dividend, the dividend 2018 and interim dividend 2019. And we also purchased shares worth EUR 410 million. The overall dividend 2019 is proposed at $2.40 per ordinary share. Interim dividend of EUR 1.05 cents per ordinary share in November 2019 and the final dividend payment of EUR 1.35, per ordinary share is proposed for 2020. And our 3-year share buyback program for 2020, 2022 up to EUR 6 billion in the first quarter, about EUR 500 million was bought back In the first quarter, when it became clear that it was going to be difficult to make an estimate of the impact of the corona crisis, we discontinued this and we decided for the second quarter also given the uncertainties not to conduct any further share buybacks until we have more clarity. And we hope to have more clarity in about 3 months' time. So the 3-year program remains in place. And now I'd like to briefly reflect on the people and the world around us and obviously also reflect on the current crisis, employees and in current crisis, our main concern and our main responsibility are our employees, 25,000, approximately, 25,000 FTE's, 107 nationalities, a very diverse company and also in Veldhoven, over almost 100 or more than 100 nationalities, 55% of the 24,900 people work in Europe and the other 45% distributed equally across Asia and the United States and the growth in Asia is slightly higher than in the U.S. In both continents, we see considerable growth in the number of employees. And this, again, is a reflection of the company's growth. This then takes us to where we stand, COVID-19, the corona crisis. What are we dealing with? This is not what we would call a single event, a one-off. Every day, every week, we are dealing with the impact of this crisis, whether it's the impact from government measures or supply chain. Customers are not really feeling anything, but also our plants, the number of people that can go to work, the guidelines of the WHO, there are several things, several events, as we call them, several things that we need to follow on a day-to-day basis. And this is something that is affecting all of us across the world, whether it be suppliers, our own people, our own employees, the operations of our customers. This is a pandemic and so it affects each and every one of us without exception. And so it's affecting all our stakeholders. As we said earlier on, this is impacting on our customers, our suppliers, our shareholders our employees and society at large. And let's not forget about that. And everything is sort of covered by uncertainty. We don't know how long this is going to take. We don't know when we will be in a situation in which we can actually proceed to a new normal. We are preparing for such a situation, a situation in which we will transition from a situation of extreme risk to high-risk to average risk. But the timeline is unknown. If we then look at how the crisis developed, it's clear that the first signs arose in China, Asia, China that impacted on us in the first quarter. Shipments of products of our clients in China, particularly Wuhan, could not take place and we see that the crisis is now sort of softening, but it's not in control. It can reemerge again. So there are strict measures, China and other countries have not opened up, so to speak, and since March. We've seen how we've been impacted in Europe and the U.S. by the crisis. But then, later on, we see a slight decline. You could venture to say that we've already passed the peak, but it may be early days yet to be able to optimistic. And indeed, there's a reason for these governments to announce strict measures, which has an impact on industry, on businesses, people working in businesses. So that's why it's so difficult to estimate the impact of all of that. What are we doing? Well, we have rolled out a package of crisis measures, and we did that about 2 months ago, perhaps a bit longer and it, first of all, focuses on the safety of our employees. And we then have 2 main subjects. First of all, business-critical projects. What are the things that we really need to do? And what kind of process improvements can we implement? Let me explain briefly. Business-critical projects, our technology, our technology road map. Implementation of our technology program is crucial. People who have been following ASML for a longer time will know that we always continue to invest. Despite crisis, this company has always emerged stronger from crises and the crisis will end someday and then we expect that the demand for sophisticated chips, that will have to strengthen digital infrastructure, new economic models, models of cooperation will be fostered and enhanced by electronic innovations. And we will have to be ready for that, along with our customers, securing the road map, making sure that the implementation of our projects, our programs are not delayed in critical terms. Second, our customers. As I said, there is demand from the customers. At this point in time, we're not completely capable also because of delays and the impact of the COVID-19. We're not completely capable of fulfilling the demand in the first quarter. Also, a number of shipments had to be delayed and took place in the second quarter and perhaps, some shipments from the second quarter will be moved forward to the third quarter. So customers, very important. We need to continue to service those customers. We need to focus on the supply chain. We need to focus on the manufacturing plants and then we've got to make the product, ship the product and service the product mix. That's how we make the money. And as I said, the business looks relatively healthy, and I absolutely expect that over the next quarters, our industry, the customers of our customers and our own customers will be affected somehow. We don't know entirely how, but it's all about the customers because the customers at the end of the day, pay the invoice, pay the bill. And then what you do, last but not least, in a situation of great uncertainty? You keep an eye on your cost, discretionary spending, only spending money. If it's absolutely necessary investing in fixed assets, things that are really necessary, particularly focusing on manufacturing and rolling out new technology and cash. Cash is king and in every crisis, ASML has always had a healthy cash balance, and that is going to help us in this case. Last point, process improvements, we've got improved processes. Excluding our people in the plants, 90% to 95% of our employees are working from home. So you should never waste a good crisis. You need to improve those processes that we've been needing to improve for a long time. So we're going to concentrate on that as well. Now a brief explanation as to why it is so important that we continue to focus and work on the technology road map. High-NA, why is that so important? I spoke about the second half of this decade. Well, the development times are very long and in High-NA machine, this technology is the certainty our customers get to be able to continue their own road map, making processes more simple. It leads to cost reduction. It -- and the quality of chips, high-power computers, that is what we see. So there's an absolute necessity to continue to invest and you see this in the fixed assets as well. So wherever it's necessary to strengthen our production process at ASML and it -- and to support that by means of better manufacturing facilities. If that is the case, we will conduct investments. And this applies to 2020, but also 2021. And one of the most important stakeholders here for our company is society. What have we been able to do for our communities in this crisis? We've tried to lend a helping hand as much as possible. Whether it be the medical-grade cleanroom gloves that we donated, the tablets, the PCs for children in underprivileged situations that had to do their homework online, online schooling, hundred thousands of face masks that we donated to the hospitals. So not only that, our expertise is being required. We're being asked to use our expertise to find Technical solutions, simple things. If you look at, for instance, at Slide 21, what is that airplane doing there? We have extraordinary expertise in the field of logistics. We have operations across the world. And as you know, many medical suppliers come from China, Asia, our procurement, our logistic capacity. To be able to procure to buy those products and to transport them with the capacity that we have. That contributes to bringing to Europe and to the U.S., this medical equipment, but also setting up production line for face masks. I think that concludes my presentation. Perhaps a bit detailed, but given the circumstances, I'm sure you'll understand, for 2019 is important, but it's also important to reflect on the current situation because it's such an extraordinary situation. Gerard.

Thank you, Peter. We'll now continue with questions. A couple of questions were sent in before the meeting. Let me start with the first question that comes from the Foundation for the Legal Protection of Investors, SRB. They are about the impact around the corona crisis. Working at home, data storage, data traffic, artificial intelligence, medical care, what kind of influences that have in the consumers' need for computers, laptops, et cetera, mobile phones and others, what can ASML say?

This is a question that is being asked repeatedly, and I've answered some of its aspects already, specifically looking at the future. The demand then will indeed concentrate on data traffic, data storage, Internet of Things, artificial intelligence, et cetera. That is where more arithmetic power is necessary, more capacity. It's quite clear that sophisticated chips will be an even stronger demand. On the other hand, this is a warning because we expect a significant shrinkage of economy, and this will impact consumer behavior. So it's difficult to look into the future. The question is whether a reduction in disposable income with consumer households will lead to refraining from making purchases, some of them will still have higher demand with respect to a better PC, a better WiFi connection, children with homeschooling and online lessons, they may have an increased demand. So there are various aspects that play a role here. We believe that the demand for sophisticated chips will increase and also demand for sophisticated devices. So EUV has a role to play. EUV is being bought by our customers because, indeed, the development of Menzis that we've sort of rolled out for the coming 10 years, where every year-on-year, new EUV systems are planned in with the capacities of those systems to make those sophisticated chips. So I believe that what we see at this point in time, the request for EUV systems doesn't really have a much to do with that. But in general, if the demand for more sophisticated chips are -- is increasing, then we'll have an increased demand for lithography systems, not in the short-term but in the long term.

A second question from the Foundation SRB. And I'm sure many others share this question. Will the corona measures adversely affect labor productivity, given the fact that people in the factory of where special work close?

Indeed, that will play a role. That will have an impact. We follow all guidelines by the Dutch RIVM, all the guidelines in other parts of the world from the governments as well. And they indicate very clearly that as soon as anyone shows symptoms of COVID-19, they must remain at home. And that has really had an impact on absenteeism in our factories. We were able to compensate that. It did lead, though, to a delay of 1 to 2 weeks. So it does have an effect on productivity. In the supply chain, we've seen effects as well. Of course, this is all a combination of the crisis measures that have been announced by the governor with respect to personal protection equipment, but also it -- the lockdown situation has its effect as we have suppliers in areas that have to deal with quite strict lockdown situations. Just to mention Mexico, Malaysia, Italy. There, of course, we needed to come up with alternatives. This led to short delays. But in general, I believe I can say that our production capacity was only impacted slightly. No shortfalls, only delays. Sure. It has its effect, but it is controllable.

A following question, Peter, asks about the increased sales of ASML and ASML's stronger role in the supply chain and in its added value, how does ASM deal with this increased role?

I think that in that respect, and I mean by we, ASML and its customers. We have a joint responsibility. We -- it is an empirical economic rule that when the costs per arithmetic function are not continuously reduced, there is no reason to buy the following generation of sophisticated chips. And that's why we are in close contact and consultation with our customers, ensuring how the cost per function of a chip can be reduced. ASML cannot claim a large share and all of that because otherwise, there's no stimulus for the customer to indeed introduce a new generation of chips in the market. So all this happens in close consultation. If you look at ASML's share in the value chain, on our Capital Markets Day in 2018, I showed a slide in that respect. I talked about the ecosystem, ASML, our customers, the customers of our customers and their customers. And then you talk about Google, Amazon et cetera platforms and the big tech companies, they are all dependent on this technology. If you look at the business model of that whole ecosystem, it is about $400 billion in -- excuse me, $1 trillion in operational profit and we're only 20% of that. So I wouldn't indeed exaggerate our share in all of this.

Let me ask the next question from the Dutch Investors association. They point to the publication of the half year figures, where you indicated the current crisis has a limited impact on the production capacity of ASML. At the same time, net turnover in the first quarter turned out to be below expectations by at least EUR 700 million.

Very good question. Well, you have to imagine that an EUV machine was a couple of million euros value. If those systems have a couple of weeks of delay. And that then moves over to the next quarter. This isn't an outage or a failure, but this is just a delay. Then that has its impact. We shipped too. That had a delay because of the COVID-19 situation. So the shipment went into the second quarter. Of the 4 that we did manage to ship, 2 of them based on accounting guidelines could only be included in the second or third quarter figures because the customer had logistic problems to indeed transport those systems. There's not always sufficient capacity. Normally, we do the full testing in our factories and then we indeed book the sales. In this case, it was different. We transported it. The final testing took place at the customer's premises, which means that you cannot book the sales yet because the final testing hasn't taken place yet. And those are delays. Those are delays in the sales of the first quarter that then move over to the second one, I believe, we're looking at EUR 500 million based on COVID-19 and EUR 200 million that had its reasons in shipping difficulties from China. And now I am quite hopeful because the airport at Wuhan is open again.

The next question about -- by VEB. The workarounds that ASML needed to circumvent temporary disruptions of production processes. Until when and in which circumstances do you believe these deviating routines are necessary? How long will that be viable?

Well, I wish I had that answer, then we would know much more. All of this has to deal with the measures announced by the government officials in the Netherlands. Yesterday, we had another announcement by our minister by our Minister -- by our Prime Minister. And in that announcement, he made very clear that we haven't come for enough to indeed lift measures in a substantial way. In other countries, lockdown situations haven't been lifted or eased either. I believe we're still in the situation, a situation that will take a couple of weeks more. Situation that continues from the last 6 to 8 weeks. There is no certainty. There's no foreseeability. We will have to resort to creative solutions. And those solutions will not have to come only from ASML, but also from our suppliers. We'll just have to deal with it. And to date, this -- we've been successful with some delay though.

Another question again from the VEB pertains to critical suppliers. We said in the annual report that for some components, we only have 1 supplier. Does that make us more vulnerable in this situation? And how does the management intend to mitigate these vulnerabilities?

Very important question. In this situation, we decided that the first tire suppliers for critical components that we have a unique relationship with them. This is a unique supplier relationship. There, we, of course, do not purchase huge amounts or volumes, but we do purchase at high value. And all of this has its economic reasons. The first suppliers, the first tire are so-called system integrators. We then purchase with other tiers, second, third and fourth tier suppliers. These are many ASMLs. From economic perspective, we choose to entertain these relationships that they are the sole suppliers does not mean that they have those competencies only or specifically. We have ZEISS with unique competencies. We have certain suppliers where they have one product and others that supply us with another product, but they do have comparable competencies. So if supplier A cannot deliver, then the second supplier is called in and can indeed produce what we need with a certain delay. That is exactly how we approach it. And this led to the measures we took in the lockdown situation of the first quarter. Moving forward production, finding alternative solutions being created creative cost time. This leads to some delay, and that means that the exact date of the shipment of a product to the customer has to be reviewed.

Next question shows -- refers to the large interest of the consequences of the border closures in China and the U.S. for the production process at ASML.

Now with respect to the production process, the border closures do not really have great consequences for ASML. We don't really source much products from there. There are some suppliers in China, if you go from the first tier to the second, third, fourth, then the complexity goes -- decreases step by step. So it's easier to find alternative solutions. In China, we didn't have any difficulties. Wuhan was closed, is now open again. We have a well-trained service crew in China. They can take care of the installations. It's quite difficult to send over other experts, there are certain measures that we have to follow and there are strictest visa requirements. We were able to manage around all of that to date. In the U.S., the situation is different. We have more suppliers. There is some difficulty in tackling the differences between the various states in the U.S.A., not all states, such as San Diego, California, and the county of San Diego, where we belong to the critical industry, same is the case on the East Coast and Wilton. But in Silicon Valley, we have a couple of suppliers where the production industry for chips does not belong to critical -- the critical sector. And we had some difficulties there, specifically with the shipment of our first multi-beam tool, which was ready for shipment. Shelter in place, then everything was closed down. And unfortunately, this machine was not transported. We do hope and we believe that it will be shipped this quarter. China, therefore, no problem, the U.S.A. inconsistent. But as I said, we're on top of it and managing it. No

Well, thank you again, Peter. Another question by the VEB, asking about ASML's breakeven level for net sales under the current circumstances.

This is a question that we could answer if we were to work on a number of scenarios. But it is not a question that is on our minds yet. The breakeven level, it's difficult to establish. You need to know the mix. Some customers request certain products, others, others. The products have various margins. There's still a lot of flexibility. 80% of the cost price of our goods is cash out 2/3. So we if some of the internal sales falls breaks down, then the cash falls down and decreases as well. We also have a remuneration costs. We have expenses in which we can take decisions, whether they are business-critical or not. So there is some flexibility in this whole situation. So the breakeven point has to be looked at from various perspectives. So we don't have to think about breakeven yet either. Let's go back to demand. The demand is there. Our customers still request our products. There have been no cancellations of orders. I do believe that the following months will have negative impact in consumer electronics, but positive impact in investments in digital infrastructure. And whether that sets each other off or compensates, I'm not really sure, I cannot say at this point. But thinking of crisis situations and breakeven point, that is not topical at the moment. Now in that connection. In the first quarter, we've seen some postponement of deliveries, as you've just explained. ASML is optimistic that, that can be caught up with the course of this year, will investors be able to trust that this catch-up demand is 100%. As I've already said, in the EUV system, certainly, the ones that weren't shipped will go out this quarter, there were a couple of updates, adaptations of systems that these systems can perform even better. These adaptations weren't possible to date because of COVID-19, this will happen, though, in the second quarter. This is a postponement of sales, not a decrease in sales.

Thank you. There is interest in knowing about the consequences for ASML. From the political difficulties between the U.S.A. and China with the Netherlands in the middle, what does ASML do to deal with this?

This is primarily a political issue. And I've said already, we are a commercial business, we deliver to customers that we are allowed deliver to. They are not on blacklists. We accept orders, we accept prepayments. So we will deliver, but of course, within the rules and regulations. The applicable rules and regulations, of course, are determined by the various governments, the American, the Chinese and the Dutch government. So what happens there is a political issue. We are going to wait and see. We don't need to take on lobbying organizations to work for us in any form or fashion, fares and industrial organization in the U.S.A. That tackles this subject. And you can imagine that our American colleagues in the chip machine industry that they, of course, wish this conflict not to escalate.

Well, thank you. I think you indeed answered a question by SRB, asking about possible consequences with respect to the export restrictions by the U.S.A. and the possibility of China to retaliate now that the world leads medical equipment from China is that, again, a political issue, we don't want to get mixed up with?

No there have been suggestions, but we see no relation and we haven't felt any kind of consequences here. So there's no relationship between the shipment of our machines and the access to medical equipment from China.

Back to a question by VEB with respect to the long term, ASML has a very wide bandwidth with regard to the turnover target for 2025 projected from a number of scenarios VEB is asking whether the Board of Directors, despite the corona pandemic is now unable to narrow this bandwidth.

Well, of course, I'd like to answer that. If we look at this bandwidth, with respect to 2025, we will have to have a secure understanding of how we established this bandwidth. It was based on 3 scenarios, market scenarios. What you're actually talking about is where is GDP in 2025. Is that going to create a market that is a slow market or a market at average economic level or at a high economic levels? Now those 3 scenarios are scenarios that we've worked on. And even with a low economic scenario, you'll see lower demand, and we translated that into the demand for a certain number of lithography machines. That is the lowest number in the bandwidth, 25 -- excuse me, 5 billion or the highest bandwidth number 25 billion. Now can the management give you more certainty about this bandwidth?

I would like to reask that question. Can you give us more certainty about GDP in 2025? Mr. Kleisterlee adds.

I think that will only be more difficult.

The next question by VB. What percentage of sales can services make in the long run? And how do you see that development?

Well, service revenue, that's a very good question. What we see is that the number of installed base in the field is increasing. Our industry, the industry of ourselves, of our customers and of the customers of our customers is more and more important for society. So we are becoming more and more mature. The investments into a chip factory, $15 billion per factory. Those investments, of course, mean that our customers wish to maintain the long-term productivity of such factories. They gave these factories upgrade and they managed the installed base. And this becomes increasingly more important. We are noticing this. In 2018, this is traditional service, this is upgrading. The installed base management includes those 2 factors, keeping a factory economically productive and profitable. In 2010, it was about 15% of our turnover. In 2019, approximately 25%. If you look at our 2025 models, it is between 26% and 32%. And this shows the development and the maturing of our industry. Now let's now look at the climate. That is important, specifically in this corona day and age. A question by the association of investors for sustainable development. ASML conducted research on the first-order physical impact of climate change for the company's operations and its supply chain. Has ASML used climate scenario analysis, and related to this is ASML willing to develop policies in line with the TCFD recommendations related to the management of physical impacts of climate change. Well, my answer here is that we do apply various mechanisms to assess the climate change-related risks and opportunities, and this includes engagements with our stakeholders, business continuity, business impact analyses, supplier recovery plans, and of course, the questionnaire is about climate change. At this moment, though, we've not yet included the 1.5 degrees and 2.0 degrees scenario. Because there is not yet an unambiguous global industry methodology or framework to conduct such scenario analyses. So we assess risk related -- the risk related to climate change and its impact using the assessment guidelines of the task force on climate-related financial disclosures, the TCFD, we're currently exploring how we can enrich our disclosures and that in line with those recommendations, and how they would fit with our current annual reporting standards. ASML also participates in the annual CDP program and its climate risk questionnaire, which is fully in line with the TCFD recommendations.

A second question by VBDO pertains to the exact origin of 3TG Minerals, conflict minerals, which are used in its products. There is nonavailable or incomplete information related to the supply chain. So does ASML have ambitions to further increase the traceability of all minerals and include information on risks beyond conflict regions? Furthermore, is ASML willing to map its supply chain more broadly as part of the due diligence process and communicate about this to stakeholders in 2020.

Well, with respect to this, as per the 1st of January 2021, a new EU regulation will be effective. This is Regulation 2017/821 for supply chain due diligence on conflict minerals. In this regulation, the EU has adopted the OECD guidelines. And this means at the current scope, DRC and adjoining countries will expand to conflict-affected and high-risk areas. ASML is member of the RBA. This is responsible business alliance and adheres to the RBA code of conduct. Now in this alliance, we work together with a global network of manufacturers in the electronic industry. At this point in time, the RBA is revising their code of conduct to become effective in 2021. And in this revised code of conduct, the OECD guidelines will be adopted to meet the EU regulation and also the growing interest from stakeholders in this subject. Now as part of this project, the RBA will also update their tools to support their members, at least that is what we do hope so we can conduct due diligence procedures. And in addition to that, we are working on a conflict minerals policy this year.

Well, thank you very much for the questions by VBDO. VBDO has indicated that it's pleased with the way in which ASML has approached the topic of diversity. I see that there are no women represented in the management board, contrary to the balanced composition of Supervisory Board. VBDO acknowledges the difficulties in finding female personnel in technology-related sectors. Nevertheless, VBDO is curious if ASML is willing to develop a concrete diversity strategy that serves a more gender-balanced and diverse composition of the boards, workforce and senior management. What can VBDO expect on this topic in 2020?

Well, the VBDO has indicated this itself, achieving real solid gender diversity in a technology environment or hard technology environment such as ASML has proven to be challenging. And in general, the ratio of women compared to men in technology and science-related studies is lower. We are supported -- supporting initiatives to get young women interested in technology. We're working hard on that by creating awareness, attention for the career prospects in our sector. We believe that there are so many development opportunities, not only in technology, but also in general management in our way. We tried to increase the number of women across ASML so that the future talent pool can grow. And to be quite honest, we do see that the number of women at ASML is growing, and I'm talking about management positions here. We see an increase, and we've included this in our 2019 integrated report. Obviously, it's not enough. There's -- we do see a change in the trend in the sense that the trend is moving in the right direction, but we are indeed intending to develop additional activities in order to enhance gender diversity. We're working on inclusiveness strategy, which will include gender diversity, we'll be doing more in terms of -- in gender diversity and inclusion. And in the course of this year that will be ready so that we can proceed to implement it. On behalf of the Supervisory Board, I can add that as a Supervisory Board, we are specifically asking for more attention on the gender diversity issues and that at ASML, when we hire people for senior management positions, we always ask the head hunter to include and to propose a number of women for the selection.

Back to the question of VB. A question that has to do with last year's sales, that VB wonders what the causes of the relative increase of sales to the largest customer by more than 12 percentage points, almost a doubling in absolute numbers. I'm sure you can explain.

Well, fortunately, I had the opportunity to look at this question, and I looked it up, and any reference to the question was found in the ASML integrated report, Page 147. Indeed, it's not specified as such, but it does indicate the size of the largest customer in relation to our sales. In 2019, it was EUR 4.7 billion, almost 40%, 39% of sales. In 2018, it was EUR 2.5 billion. So EUR 2.5 billion to EUR 4.9 billion. That is probably the doubling that the VB is referring to. This is in euros, but it need not be the same customer because in 2019, as I said earlier on, we mainly had logic chips, the foundries were the main customers. 2018, the memory manufacturers, our Korean customers were the customers. The doubling doesn't have to be one customer. On a percentage to try and understand because the largest customer in 2018 had 22% of sales instead of 39%, which is a 17% difference. But in 2017, it was 27%. So that's 12%. So there may be a minor confusion here. And if this question remains to be an urgent question, Investor Relations department will certainly be able to answer that question. The Chairman? Yes.

Question of SRB, asked a question about ASML's intention to agree on an own collective labor agreement. And what the views are, the unions and the staff and SRB refers to the staff bonus, which in 2019, is lower than in 2018. The CEO, Mr. Wennink.

As ASML, we are -- we form part of CLA in the metal industry. Well, there's a great deal of diversity there. There are shipyards, there are fitters that are part of this collective labor agreement. So the CLA includes companies that supply the industry, and there are companies such as ASML. And the nature of ASML is significantly different. Heterogeneity is a wonderful thing on the one hand. On the other hand, you see that because of this heterogeneity, there are differences in terms of what is important to a specific company. If you look at the age buildup at ASML, average age is 38 years. I know that in certain companies in the metal industry, the average age is about 20 years more. So you can imagine that the employment conditions in one company can be quite different than another company because the focus of the employees themselves can be different. And this is precisely what we envisage to achieve that the voice of the employee be better reflected in the labor agreements, in the collective labor agreements because a simple fact is that, first of all, we're a different type of company and second, that the composition of our workforce is quite different. But there's one thing that is very important, a number of unions and not all unions, not all unions are against it. There are a number of unions that are in favor. But there are unions that disagree and they then say that we're doing this in order to apply a negative adjustment to the employment conditions, it won't surprise you that particularly in this tech business, it's a war on talent. It's all about recruiting the best engineers, 107 nationalities. Now you cannot recruit the best possible people by applying a downward adjustment to your employment conditions. So that's absolutely not an issue here. And I would reject any suggestion in that direction. What we did was we conducted an overall survey. And in the Netherlands, we have about 13,000 employees, but there are a number of flexible workers that are not part of our FTE numbers. They are not covered by a CLA. Between 10,000 and 11,000 FTEs of fixed employees, 7,000 of them filled in a survey. We ask them, "What they consider to be important?" We are analyzing the input as we speak. And that input will be the framework for the employment contract because it has to be a reflection of what is important to our employees given their average age. And also what is important to the company. And I would just like to highlight that we are going to adjust our profit distribution system. It's not true that we adjusted that. Our bonus system in 2019 has remained exactly the same, but as a percentage of net profit. And if net profit declined slightly, well, then also the incentives will decline. That's simply how it works. And this applies to a minority of ASML employees across the world. The vast majority of our employees of our workforce in the world is paid a variable remuneration according to the exact same rules and conditions that apply to the management board. So most of our employees, the majority of our employees follow the short-term incentive plan of the company, and a minority has the same conditions as the management board.

Last question that was submitted beforehand were some points of interest of the association of stockholders with respect to these times of crisis. This concerns matters such as how to deal with variable remuneration and additional review by the auditor, possible impact of the crisis on climate change and also incentives.

Well, in part, these questions require further studying, and it would also be determined by what turns out to be market practice in the future, but I think by and large, we can say that a large part of the problems at this point of time, the way we see it seems to pass ASML by -- despite the crisis, we can speak of a reasonable visible operation. There's no decline -- no disappearance of demand or production capability, there's still performance and performance should be rewarded decently and the Remuneration Committee, part of the Supervisory Board has found no reason to deviate for the ordinary rules that apply to remuneration of ASML employees. And with respect to other positions, ancillary positions, there's a time pressure for members of the Supervisory Board and companies that go through a crisis obviously require more attention of their board members. And there is a downward pressure on the number of supervisory directorships that are allowed, and we are complying with those rules at ASML and we don't really see the crisis as a touchstone for the maximum or minimum number of supervisory directorships that a board should have. This is a debate that one should pursue once the situation has normalized. And as far as the additional review of the auditor is concerned, I'd like to allow Han van Delden to say a few words about the closing of the books at ASML and his personal views thereof.

Thank you. Today, on our agenda, we have the IFRS accounts of ASML. We issued 3 opinions for the consolidated accounts, the nonfinancial information, the ordinary accounts and on the 11th of February, we issued an opinion to the U.S. GAAP statements that were audited according to the American principles and the extraordinary thing is that we also issued an opinion on the internal audit with respect to financial information. I pointed out earlier on -- it has been pointed out how ASML is organized, and we can do most of the audit here in Veldhoven with the Dutch team with the exception of the business unit in size which is in audit, conducted by EY. The scope of our audit is 93% for sales and 60% of assets. And we checked the financial statements with a materiality of EUR 130 million. In our audit statement, we specify the work that we've done and we've also included the key audit matters. Those are the matters that the auditor based on his professional view considers to be the most significant elements in the audit for us. This is revenue recognition. Revenue recognition is a very complex process at ASML focused on system sales, but also sometimes other products are delivered, warranty, training, service, their arrangements on discounts, systems that are being delivered have discount -- may have discounted so attributing this to individual performance is very complex and we turned this into a key audit matter. There was a question of the VEB, the Stockholders association. It was about the fact that there's only 1 key audit matter, whether that's not very little. But it's all about what we consider to be the most significant in the audit. It's very complex, and we dedicated a lot of time to that. And we report to the Audit committee about it quite extensively. In the past, we have included other elements in our opinion, goodwill in the first year, better understanding of the company, profitability of ASML. Well, we didn't make it a key audit matter anymore. Acquisition of HME was also included at some point as a key audit matter. That doesn't mean that there are no other important things, and the audit plan is at the Supervisory Board, we've included other issues such as the valuation stock, goodwill, tax positions, but also the implementation of ERP systems. And one of the units of ASML.

Another question of VB was about the current -- in the current condition of 2020, whether that would continue to be the case that you only have one significant key audit matter?

In the presentation to the Audit Committee last week, in our risk analysis, we put one big question mark, which is the impact of COVID-19 with respect to the business operation of ASML and possible impact on financial information. Obviously, we will be following this closely. Mr. Wennink already shared his extended analysis. We will be doing that in the course of the year. And the question is how this will impact on suppliers and customers of ASML. Should there be significant disruptions, obviously, that will also have an impact on those items that require estimates such as valuation of stocks, goodwill, deferred revenue and other items. So that would be different for 2020. You have indicated that the VEB is interested in a further opinion on the half-yearly figures, a review thereof. I'll be prepared to do that, but it's up to management to decide on that and the Audit committee. I would like to add to that, that the auditor's opinion is quite different from a review. A review would involve less work and provides less certainty. But it's up to the company to decide on that.

Thank you very much, Mr. Van Delden. I confirm that at this point in time, there are no additional questions from the meeting. And now I would like to give the floor to the Secretary of the meeting, Mr. Kleipool.

Thank you. On the record date for this AGM, the total number of outstanding ordinary shares with a value of EUR 0.09, 425,659,415 ordinary shares, 7,476,943 shares, thereof are kept by the company's treasury shares. Number of outstanding ordinary shares with a value of EUR 0.09, connected to voting rights amounted to 418,181,472 shares. So as one share gives an entitlement to 9 votes, the foregoing number of shares gives entitlement to 3,763,633,248 votes. We know that 3,104 shareholders of ASML are represented or present. EUR 29,072,344.23 are represented here today, entitling to EUR 2,907,234,423 votes, which means a 77.25% of subscribed issued capital is represented of the meeting. There are 2 items on the agenda that require 75% majority at this meeting, which is item 6 and 7 with regards to Remuneration Policy. All the other points of the meeting can be adopted with a simple majority of the votes cast since more than the -- more than half the outstanding share capital is represented. Now let me explain the voting procedure. Since there are no shareholders physically present at this AGM, at this meeting, we will be able to vote by means of the voting platform. There's an explanation of virtual voting posted on the website of ASML.

Different from other years, after the voting has been concluded, the voting will be opened for all agenda items. So you can vote on all items up to any other business. So you don't have to wait until an agenda item has come up through the virtual voting platform, you can vote. And you can select your vote, and you have the opportunity to do so until the vote is closed, and that will be prior to agenda Item 3, which is any other business. The vote for the different items on the agenda is open up to any other business. I will ask the operator to activate the system, and we can proceed with agenda Item 3A, which is an advisory vote with respect to the remuneration report for the Board of Management and Supervisory Board for the financial year 2019. Agenda item concerns the discussion of remuneration report of the Board of Management and Supervisory Board as prepared for the financial year 2019. Remuneration report has been prepared in accordance with the requirements of the revised EU shareholders' directive as implemented in the Deutsche legislation on the 1st of December 2019. Under this new legislation, the general meeting has an advisory vote on the remuneration report. This item on the agenda is also a voting item as stated in the agenda in the explanatory note to the agenda. And the general meeting is asked to vote on the fact that the remuneration report is clear and understandable. I shall now give a brief explanation on this topic. The remuneration report 2019 for the Board of Management, Supervisory Board is in accordance with the revised EU's Shareholders Rights Directive as implemented in Dutch law as per December 1, 2019. Pursuant to this new legislation, the general meeting has an advisory vote on the remuneration report. Changes to the Remuneration Policy for the Board of Management were adopted by the Annual General Meeting of Shareholders held on April 24, 2019 and became effective as per the 1st of January 2019. The main elements in the implementation of the Remuneration Policy 2019 are the base salaries of the Board of Management have been increased by 2.3% for the President and 2.9% for the other Board of Management members. Short-term incentive and STI payout over 2019 amounted to 89.2% of the maximum of 133.8% of the target, the target being 80%, which means 107% of the base salary. The nonfinancial performance criteria, such as technology leadership index and market position, were both achieved between target and maximum performance level. On the financial performance criteria, the EBIT margin amounts to 122% payout of target. The EUV gross margin is 150% payout of target and free cash flow, 150% of payout target long-term incentive, LTI payout over the performance period 2017, 2019 has been 82.7% of maximum. The ASML total shareholder return outperformed the semiconductor index, the Philadelphia semiconductor index with 55.4 points, leading to a payout of 100% of MAX. Return on capital payout with 62% of MAX quality targets such as technology leadership and index and sustainability are between target and maximum achievement. So having explained this, we can now proceed to the vote. I see that there are no further questions. And I'd like to wrap up this agenda item and invite you to cast your vote. You can vote until the end of any other business. [Voting]

And now we can proceed to 3B. 3B concerns the proposal to adopt the financial statements of the company in the financial year 2019 as prepared in accordance with the Dutch law. As you've been able to see, ASML has published the integrated report with financial and nonfinancial information. This year, ASML, again, prepared 2 financial statements, one based on the accounting principles as generally accepted in the United States, the so-called U.S. GAAP principles and one based on the International Financial Reporting Standards, IFRS, and Dutch law. The 2019 integrated report based on IFRS and Dutch law are now submitted to you for adoption. And this has been available for inspection at the offices of the company and has also been posted on ASML's website. Mr. Van Delden of our external auditor, KPMG, is attending this meeting. He will provide some insight on the audit activities that KPMG has conducted for ASML in 2019. He can answer any questions concerning audit performed. So once again, I'd like to give the floor to Mr. Van Delden.

Chairman, actually, I was so excited. So I more or less covered all the activities that we conducted in the context of the audit. So I think I can leave it at that.

Thank you for that. Since there are no further questions, we can wrap up this item on the agenda, and I would urge you to proceed to cast your vote on this item. I repeat that you can vote until any other business. [Voting]

And let's proceed to 3C. This is a discussion item, not a voting item. It concerns the clarification of the company's reserves and dividend policy. The company aims to pay out a dividend on a yearly basis that will grow and that will be paid every 6 months. For further explanation, I would like to refer to the explanatory notes in the agenda. So there are no questions on this agenda item either. So we will proceed to wrap up this item and the vote. [Voting]

And then we can proceed to 3D. The next item of the agenda, which is the adoption of dividend for the financial year 2019. On November 15, 2019, the company paid an interim dividend of EUR 1.05 per ordinary share for the first time. The Board of Management now proposes to the general meeting to declare a final dividend of EUR 1.35 per ordinary share. And that brings the total dividend for the financial year 2019 to EUR 2.40 per ordinary share, which is an increase of 14% compared to last year. For the sake of completeness, I would inform you the Supervisory Board has approved this proposal. As this topic has already been discussed under agenda items 2 and 3C, I'd like to refer to the explanation which was provided earlier. And here, once again, we can proceed to the vote. [Voting]

And I will continue with agenda Item 4, which is the proposal to grant discharge to the members of the Board of Management from liability for their responsibilities in the financial year 2019. And so we can wrap up this agenda item now as well, and I would urge you to cast your vote. [Voting]

And we can proceed with agenda Item 4B, which is the proposal to grant discharge, the members of the Supervisory Board from liability for their responsibilities in the financial year 2019. This agenda item can be wrapped up now. [Voting]

And we can proceed to item 5, which is the proposal to approve the number of shares to be allocated to the Board of Management. Agenda Item 5 concerns the approval of the maximum number of ordinary shares being 200,000 ordinary shares that is actually made available for remuneration of the Board of Management and a number of shares that will actually be allocated to members, the Board of Management will be determined by the Supervisory Board based on applicable Remuneration Policy by applying the calculation method as described in the policy. Furthermore, it is proposed to the general meeting to designate the Board of Management as the body authorized to issue aforementioned shares subject to approval of Supervisory Board. This designation is requested for a period from this meeting until the Annual General Meeting to be held in 2021. ASML has previously committed to inform the general meeting each year about the exact number of shares that is granted conditionally. In 2020 -- for the financial year 2020, 41,362 shares will be granted conditionally to the Board of Management. The volume-weighted average share price during the last quarter's financial year 2019 amounted to EUR 242.75. In 2021, the general meeting will also be informed about the number of shares granted conditionally to the Board of Management for the financial year 2021. I'd urge you to proceed to the vote on this agenda item. [Voting]

We can proceed to 6. Proposal to adopt some adjustments to the Remuneration Policy for the Board of Management. Now the reason for this implementation lies in the fact that on the 1st of December 2019, the revised EU Shareholders Rights Directive has been transposed into Dutch law. Now this directive sets requirements for the content of the Remuneration Policy. To meet these requirements, a number of changes to the current Remuneration Policy are required, which are further explained in the explanatory notes to the agenda. The amended Remuneration Policy does not contain any substantial changes to remuneration structure and elements. The Works Council was given the opportunity to advice on this policy in good time and informed the Supervisory Board that was positive about this. On the recommendation of the Remuneration Committee, the Supervisory Board proposes to adopt the changes in the remuneration policy for the Board of Management. If adopted, they will take effect with retroactive effect as per the 1st of January 2020. Again, I would like to move to the vote. [Voting]

We are now going to continue with agenda Item 7. This agenda item concerns the proposal to establish the remuneration policy of the Supervisory Board. Now the Shareholder Rights Directive, which was also discussed in agenda Item 6 requires that a remuneration policy for the Supervisory Board is drawn up and adopted by the general meeting as well. The Supervisory Board's Remuneration Policy meets the requirements set by the shareholder rights Directive and the Dutch law. The remuneration policy has not made any changes to the remuneration structure or the amounts as determined by the general meeting in 2019 and as further explained in the explanatory notes for this meeting. As for the changes to the policy for the Board of Management, the Works Council was, again, timely given the opportunity to provide advice on the remuneration policy for the Supervisory Board. It is indicated to be positive about it. On the recommendation of the Remuneration Committee, the Supervisory Board proposes to adopt the Remuneration Policy for the Supervisory Board. If adopted, this policy will take effect with retroactive effect as per the 1st of January 2020. There are no questions. I would like to invite you to vote on this agenda item. [Voting]

Before we continue with the next one, I would like to indicate that we're halfway down the agenda. And I would like to remind you to cast your vote in time before the -- any other business agenda item because the vote will be closed then. We will now continue and move on to agenda Item 8. This agenda item consists of 3 voting items and 4 discussion items. As announced last year, Mrs. Aris and Mr. Ziebart will retire rotationally at this general meeting. Mr. Ziebart has indicated that he is not available for reappointment and will, therefore, step down as member of the Supervisory Board. Dear Wolfgang, we would like to thank you for your strong commitment to ASML's Supervisory Board, not only as a member of the Supervisory Board for the past 11 years, but also as a member of the Audit Committee and the Technology Committee. We will miss your valuable contribution to the Supervisory Board. And as soon as this corona period is over, we are going to take, say, our goodbyes in a face-to-face meeting. Mrs. Aris though has indicated that she is available for reappointment, and the Supervisory Board has nominated her for reappointment as a Member of the Supervisory Board of ASML. Mrs. Aris' nomination is based on the enhanced recommendation right of the Works Council. Now in addition to the vacancies that arise as a result of the resignation of Mrs. Aris and Mr. Ziebart, the Supervisory Board intends to nominate an additional candidate as a member of the Supervisory Board. As a result of which, the number of members of the Supervisory Board will increase from 8 to 9. In this way, Supervisory Board will be more extensive than in previous years. I would, therefore, like to proceed to agenda Item 8A. The Supervisory Board considers it desirable to nominate an additional candidate as a Member of the Supervisory Board during this general meeting. Now this nomination meets the need within the Supervisory Board to have more experience in semiconductor technology and semiconductor industry in the ranks. This is considered desirable in view of the company's growth and size and complexity. For the time being, the increase in the number of members of Supervisory Board is temporary. This has also been further explained in the explanatory notes. I will now continue with agenda Item 8B. During the course of 2019's AGM, the Supervisory Board notified the vacancies that would arise from rotation due to rotation of Mrs. Aris and Mr. Ziebart. The shareholders were given the opportunity to make recommendations for the nomination of candidates for these vacancies. Now with regard to the additional vacancy, the general meeting has given the opportunity during this agenda item to make recommendations for the nomination of candidates for this new vacancy. The Supervisory Board intends to fill the 3 vacancies, including this additional vacancy by nominating Mrs. Aris and Mr. Durcan and East, for appointment by the general meeting in accordance with the profile of the Supervisory Board. The nomination of the Supervisory Board for the filling of the extra vacancy is made on the condition that the general meeting does not make a recommendation. I note that the general meeting does not exercise its right of recommendation for the new vacancy and will, therefore, finalize this agenda item and proceed to agenda Item 8C. 8C, the Supervisory Board announces its intention to nominate Mrs. Aris for reappointment and to nominate Mr. East and Mr. Durcan, for appointment as members of the Supervisory Board. Now the explanatory notes to the agenda contain the motivations for these nominations as well as the details of the candidates. The reappointment of Mrs. Aris and the appointment of Misters East and Durcan will apply for a period of 4 years from the date of this AGM. Because of the coronavirus, it is not possible for Misters East and Durcan to be present in person or to personally introduce themselves. I will, therefore, very briefly say something about them. Mr. Durcan has extensive experience in the semiconductor industry, 1984. He was in -- with microtechnologies, and he had various positions up to 2017. Mr. East, at this point in time is CEO of Rolls-Royce. He had a career at Texas Instruments. And in 1994, he worked for Arm Holds in various management functions. And in '21 -- '01, he was Chief Executive Officer there, a function that he held until 2013. We are convinced that ASML and the Supervisory Board will profit from the knowledge, the experience and the leadership capacities that both candidates bring. The Works Council did not recommend any candidates for these vacancies. And the Works Council, furthermore, has been given a timely opportunity to determine its position regarding the proposed reappointments and the vacancies, but withheld because of the temporary characteristics of this increase in members of the Supervisory Board. Furthermore, the nomination for appointment of Ms. Aris is based on the enhanced recommendation right of the Works Council. And furthermore, the Works Council has had timely opportunity to determine its position regarding the proposed reappointment and the appointment of Misters East and Durcan and as indicated to the Supervisory Board that is in favor thereof. I would now like to walk you through the next agenda items. 8D. 8D, concerns the proposal to reappoint Mrs. Aris as a Member of the Supervisory Board of the company for a period of 4 years. Agenda Item 8E concerns a proposal to appoint Mr. Durcan as member of the Supervisory Board of the company for a period of 4 years. And agenda Item 8F concerns the proposal to report Mr. East as a Member of the Supervisory Board of the company for a period of 4 years. You can now vote on these agenda items. As you know, you can vote up to the agenda item, any other business. [Voting]

We will now continue with agenda Item 8G. 8G, the composition of the Supervisory Board in 2021. This Item 8G is a discussion item. The Supervisory Board gives notice of the vacancies that will arise in Supervisory Board in 2021. In 2020, Ms. Smits-Nusteling and Mr. Grose will retire by rotation. Mr. Grose has indicated that he is not available for reappointment. The vacancy created by the resignation of Mr. Grose will not be filled, bringing the number of Supervisory Board members back to 8. Ms. Smits-Nusteling has also indicated that she is not available for reappointment. The general meeting and the Works Council have the right to recommend candidates for the vacancy that has arisen. I would also like to conclude this agenda item and proceed with the next slide. Item 9, proposal to appoint KPMG as external account auditor for the reporting year 2021. As described in the explanatory notes of the agenda, the Audit Committee finalized an assessment of the performance of KPMG as ASML's external auditor over the past year. The survey addressed, among others, the quality, scope and planning of the audit and the independence and reporting of the external auditor. Pursuant to the outcome of the survey has conducted, it is proposed by the Audit Committee to again appoint KPMG as external auditor. Therefore, the Supervisory Board, per the recommendations of its audit committee now proposes to appoint KPMG as the company's external auditor. Before the meeting, the following question was received by the VEB. With regard to ASML, KPMG is able to draw attention to a key point in the audit of users of the financial statements. This is low given the practice that other companies and the environment complexity and global presence of ASML. VEB is asking what is the reason that you have not found it necessary to identify more than one key audit matter, while noting that the loss of attention to transition to IFRS 15 is justified. The VEB further is asking which key audit matters usually were selected from a list of topics eligible for additional attention and control and which were part and partial of the discussion with the Audit Committee? And the VEB further hopes that ASML will have an extensive review carried out on the half year figures. If revenue inclusion will also be a key audit matter and recognition, what would be different in KPMG's approach given the current rapidly changing environment? These questions were dealt with Han van Delden in his earlier explanations, and I hope that they were satisfactorily answered. Still, the question is for ASML, what to do with the half year audit and as management boards, we shall discuss that and take a viewpoint on it. There are further no questions. I will then proceed to the next agenda item after having asked you to vote on this item. [Voting]

Agenda Item 10 consists of 4 voting points, A, B, C and D. Although it's an annually recurring agenda item, this item remains important for ASML. It is in the company's interest and that of its shareholders to be able to react timely and quickly if particular circumstances for which an issue of shares required arise. Therefore, the Board of Management would like to have the authorization to issue shares when such circumstances arise and to exclude the pre-emption right in situations, which is necessary to act quickly. In 2012, this authorization was used, for example, in connection with the acquisition of Cymer, and in 2016 in connection with the acquisition of Hermes Microvision. In the past, this authorization was also used for the issue of convertible bonds. The authorizations to be granted will be valid for a period of 18 months, i.e., until and including October 22, 2021. If you approve the proposals of this agenda item, the existing authorizations will cease to apply. Agenda Item 10A concerns the authorization of the Board of Management to issue ordinary shares or grant rights to subscribe for ordinary shares in the company's share capital, limited to 5% of the issued share capital for general purposes at the time of authorization, subject to Supervisory Board approval. Agenda Item 10B concerns the authorization of the Board of Management to subject to Supervisory Board approval, restrict or exclude the pre-emption rights accrued to shareholders in connection with agenda item 10A. Agenda Item 10C is the authorization of the Board of Management to subject to Supervisory Board approval, issue shares or grant rights to subscribe for shares for an additional 5% of the current share capital of the company. This additional 5% can only be used in connection with or on the occasion of mergers, acquisitions and/or strategic alliances. Finally, agenda Item 10D. This is the authorization for the Board of Management to subject to Supervisory Board approval, restrict or exclude the pre-emption rights accruing to shareholders in connection with the issue of shares or rights to subscribe for shares as described under 10C. I see there are no further questions. I would like now ask you to vote on this item. [Voting]

You can vote up to the -- any other business item, and you can take this -- we can take this vote because there is more than 50% of the shares represented. We will now continue with agenda items 11 and 12. ASML wishes to have suitable flexibility in the execution of a return of capital to its shareholders. To enable such flexibility, ASML requests the general meeting to mandate further share repurchases and to approve further cancellation of shares to be able to implement further share repurchase programs should the company decide to do so. As you will understand, the implementation of further share repurchase programs is dependent on many factors. Shareholders are advised that there is no certainty as to further return of capital or as to the timing or of another potential execution of a return of capital to shareholders nor as to the method of achieving such return. The current share repurchase program, which started on January 23, has been explained before this meeting under agenda Item 2. I will now deal with agenda items 11 and 12 separately. Now agenda item 11 consists of 2 voting items, A and B. The 2 authorizations proposed in this agenda item allow ASML, in combination with the proposal under agenda item 12, to, one, acquire a maximum 10% of the issued tier capital; and two, cancel these shares; subsequently three, acquire once again, a maximum of 10% of the issued share capital; and subsequently four, cancel these shares. Agenda Item 11A concerns the proposal to authorize the Board of Management to acquire a maximum of 10% of the current outstanding share capital of the company. Shares can be acquired on the conditions that are set out in the explanatory notes. Agenda Item 11B is the proposal to grant the Board of Management the authorization to acquire additional shares up to a maximum of 10% of the current outstanding share capital of the company. Shares can be acquired on the same conditions set out under agenda item 11A and subject to the additional conditions as set out in the explanatory notes. The reason for requesting this additional authorization is to have further flexibility in the execution of our return of capital to the shareholders. These authorizations are requested for a period of 18 months, commence today and end on October 22, 2021. If the general meeting approves the 2 proposals of this agenda item, the existing authorizations will cease to apply. I know that there are no further questions. I invite you to vote on these 2 items on the agenda. If you've not already done so, it is still possible to vote, I will say again, until the agenda item of any other business. [Voting]

I will now proceed to agenda Item 12. In this agenda item, it is proposed to cancel ordinary shares repurchased by the company. It is proposed to cancel any or all ordinary shares and share capital of the company held or repurchased by the company under the authorization referred to on our agenda item 11 to the extent that such ordinary shares are not used to cover obligations under employee share and stock option plans. This cancellation may be executed in one or more tranches. The number of ordinary shares that will be canceled will be determined by the Board of Management, but may not exceed 20% of the issued share capital at 22 April, 2020. During the meeting, no questions have been submitted with respect to this agenda item. I know that there are no further questions, I then invite you to vote on this item. This resolution can be adopted by a simple majority as more than 50% of the capital is represented at this meeting. I will now give the floor to the Secretary.

Thank you, Chair. We've now arrived at the any other business item. And as indicated previously, the vote for the various voting items on the agenda for the meeting will now be closed. I kindly request you to complete your votes now. [Voting]

Ladies and gentlemen, the vote is now closed. We are waiting for the results, and we'll show them after the, any other business item. Then we've now arrived at any other business, ladies and gentlemen. During the meeting, no questions were received that haven't been dealt with in other agenda items. Again, I am looking at our admin support. No further questions have been received. Therefore, I would like to suggest handing back to the Secretary and looking at the voting results.

Thank you. I hope the results are available. I see that, that is the case. Agenda Item 3A with 93.78% in favor of and 6.22% against. 3B, 99.13% in favor, 0.87% against. 3D, 99.93% in favor and 0.07% against. Abstentions aren't accounted in the presentation here. Agenda Item 4A, 98.86% in favor, 1.14% against. Agenda Item 4B, 98.86% in favor, 1.14% against. We will continue now with agenda items 5 and further. Agenda Item 5 carried with 96.36%, 3.64% against. Agenda Item 6, 95% in favor of, 5% against. Agenda Item 7, 99.47% in favor of and 0.53% against. Further agenda items starting with 8. 8D carried by 99.19%, against 0.81%. 8E carried with 98.05%, against 1.95%. Agenda Item 8F carried with 98.72%, against 1.28%. Agenda Item 9 carried with 99.24%, against 0.76%. We will continue with agenda items 10 and following. Agenda Item 10A carried by 99.77% and against 0.23%. 10B carried by 99.48% and 0.52% against. 10C carried by 99.77%, against 0.23%. 10D carried by 96.76%, against 3.24% of the votes. We will now continue with agenda items 11 and 12. Agenda Item 11A carried by 98.19% and 1.81% against. Agenda Item 11B carried by 96.52%, 3.48% against. Agenda Item 12 carried by 99.22%, against 0.78% of the votes. I would like to hand back to the Chair.

Thank you very much. I note that all proposals submitted to this general meeting have been adopted. And that, congratulations on your reappointment, Mark and Warren. Congratulations on your appointment. The Chairman is addressing you in English now.

To see hopefully soon physically in our next Board meetings. [Interpreted] Ladies and gentlemen, then I hereby conclude the meeting. I would like to thank you all very much for participating and contributing. It is very regrettable that in view of the coronavirus, we had to choose this setup. We hope that we will be able to see you again in the next year under normal circumstances in 2021 and to welcome you in Veldhoven. Thank you, again, for your contributions. I wish you all the best. Stay healthy. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]