Comet Holding AG (COTN) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the Comet Full Year 2023 Results Conference Call and Live Webcast. I am Sandra, the Chorus Call operator. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Ulrich Steiner, VP, Investor Relations, Comet Group. You will now be joined into the conference room.

So, it looks like we have a full house today, so the 1-minute delay is due to that. Good afternoon, ladies and gentlemen. Welcome to the Comet Group's conference on the publication of our annual results for 2023. Whether you are joining us in person or via webcast, we are pleased to have you all here. The press release, annual report, as well as the presentation have been available for download on our website, since 6.30 this morning. With me are our CEO, Stephan Haferl, and our Interim CFO, Nicola Rotondo. They will guide you through the presentation first, followed by a Q&A session. Before we start, as always, I would like to remind you that we will be making forward-looking statements during the speeches, as stated in the disclaimer on Page 2 of the presentation. Please read this disclaimer carefully. With that, let me hand over the mic to our CEO, Stephan Haferl. Stephan, please.

Well, thank you, Ulrich. Ladies and gentlemen, also, from my side, a warm welcome to the presentation of Comet's annual results for 2023. Thank you for taking, first of all, the time to attend our conference, either in person or if you're out there in the ether, in the webcast. As mentioned, our interim CFO, Nicola Rotondo, will be joining me for the middle part of the presentation to do a deep dive into the financial results of the year. So, before we dive into the numbers, allow me to provide an overview of the macroeconomic and industry events of 2023. Now like most companies in the semiconductor value chain, Comet was definitely not immune to the weak market conditions. After several years of rapid growth, mostly fueled also by the pandemic, the entire semiconductor industry experienced a significant cyclical correction. This correction had a clear impact on all levels, from revenue to profitability, with key metrics contracting significantly below the record results of the previous years, despite a strong finish to the year in Q4. And despite this setback in 2023, we made important progress. First of all, design wins for Synertia, including 1 with a Tier 1 wafer fabrication equipment manufacturer, underscored the progress we have made in commercializing our Synertia RF power platform. We completed important projects with the consolidation of sites both on the West Coast of the U.S. and the launch of another expansion phase in Malaysia, to optimize and expand our geographic presence and customer proximity, which is very important in our industry. In our X-Ray divisions, we launched new X-Ray Modules and Systems for non-destructive testing in the growth markets for semiconductors as well as batteries. Nevertheless, needless to say, we had our hands full mitigating the impact of the very sharp correction. Our portfolio, based on 2 technology pillars, helped, as you will later see, in the strong performance of IXM, as well as the improvement in profitability at IXS softened this impact. In addition, we took measures to adapt our organization to the new level of demand with the necessary prudence to take advantage of the secular growth trend and the upturn that lies ahead. We want to be ready. We have to be ready when things pick up again, presumably in the second half of this year. However, we reduced our workforce during the year by nearly 200 employees, or 12% of our total workforce, mainly temporary workers, to the level that we actually had back in 2021. At the same time, we made every effort to retain our key employees, such as fully compensating for wage losses caused by short-time work in Switzerland. Now, let's take a look at the developments in our most important end markets on the next slide. Overall, we can say that it was a solid year in our traditional industrial markets, while we experienced, as mentioned before, a very strong correction in semiconductors, with weaknesses in the memory sector in particular. The cycle bottomed out in the second half of last year, and we began already to see signs of stability, if not recovery, towards the end of the year. Overall, investments in equipment for the semiconductor industry decreased by over 7%, which naturally had an impact on our results. On the other hand, we saw actually good growth in the automotive sector, with the proportion of electric vehicles sold and the demand for batteries and electronics increasing. The aviation industry saw actually strong growth and almost reached pre-pandemic levels. Increased traffic led to more aircraft built, and demand for services continued to rise. Last but not least, the global security market remained at a high level and was closely linked to the recovery of the aviation industry and the increased need for security in the face of geopolitical uncertainties. In light of this challenging environment, how did our divisions position themselves and how did they fare? Now, despite the difficult market conditions, all 3 divisions made significant progress. At PCT, we accelerated the commercialization of our Synertia platform and secured several design wins, including 1 with a Tier 1 customer. The good news is that we have, since we communicated that first design win with a Tier 1, secured 4 more design wins with a Tier 1 customer across multiple applications and chambers. In addition to commercializing Synertia, we have begun planning for expansion in Penang. As you know, we will be setting up our own manufacturing facility in Penang, and we recently secured a plot of land for this purpose. This expansion is not just about increasing our assembly capacity that we have today already in Penang, but also about establishing a second site for the production of vacant capacitors, what we actually do today only in Flamatt as part of our -- actually our business continuity plan. Looking ahead to 2030, we are also considering Penang as a location for other divisional activities. The other 2 divisions, IXM and IXS, will be settling in Penang with manufacturing activities and potentially establishing, thereby, a hub in Asia in addition to our established Flamatt and Hamburg sites in Switzerland and Germany, respectively. At IXS, we have taken yet another step towards establishing a leading position in the higher margin business of semiconductor inspection. Our new X-Ray system, the CA20, is tailored for use in the semiconductor industry, and we are moving quickly to commercialize it. We signed new contracts with customers in the semiconductor and battery industries, and to accommodate expected growth, we have strengthened our sales teams, particularly in the growth markets of Asia. We feel that we have repositioned IXS well by now and will continue to invest to secure the ongoing journey. At IXM, we are now finally reaping the rewards of investments made in recent years. New products are driving growth and contributed to 50% of net sales growth in 2023, and we will continue to invest in the development of technologically leading X-Ray modules to meet the growing demand from new applications such as inspection of batteries or in the semiconductor industry for 3D advanced packaging inspection, additively manufactured components, and metrology in general. To summarize, I can say that, we have emerged, strengthened from a transitional year in 2023. We certainly felt the strong impact of the semiconductor cycle correction, but it reached a turning point in the fourth quarter of 2023 and should now show an increasingly upward trend. Thanks to the work we did in 2023 and the careful implementation of adjustment measures, we feel that we are very well prepared for the awaited upswing. At PCT, we have strengthened our resilience against the semiconductor cycle while also making good progress in commercializing our products and are on track to achieve our goals. At IXS, we have improved profitability, although at a low level still, and will use everything at our disposal to further improve profitability through increasing our share of wallet in the semiconductor industry. The introduction of our new system to the semiconductor industry, called CA20, will certainly contribute to this. Lastly, at IXM, we had a record year in 2023, demonstrating that our investment in leading edge technology and products was the right decision. Now, after this brief overview of the past fiscal year, I will now hand over to our CFO. As Interim CFO, Nicola Rotondo, who can provide you with more color and detailed explanation of the numbers at the divisional level. Thank you, Nicola.

Thank you, Stephan. So good afternoon also from my side, I'm happy to be here and to guide you through our numbers. So before I start with that, let me share my thoughts on how I look at the year 2023. On 1 hand, of course, it was dominated by the semi-correction with the related impact on our profits, which did trigger, among others, workforce adaptation. On the other hand, our strong cash position did allow to further invest into the future. Namely, we kept an elevated CapEx level and in R&D, we did even increase our staffing level. This shows not only our commitment, but also our ability to execute on our strategy in any given market situation. And with that, let's now go into the details of our financial performance. After 3 quarters of sales contraction, Q4 came in at the higher end of our expectations. This was mainly driven by PCT, which realized quite strong sales in Q4. Next to that, also capacity utilization in PCT was high compared to the previous quarters. So these 2 elements did lead to a rather high gross profit margin in Q4. Now, in looking at H2, the second half of the year, despite having lower sales, we were able to deliver a higher EBITDA margin. So besides the strong Q4 performance, also in H2, we had an overall lower cost base compared to H1, and this did lead to increased profits in all 3 divisions. Now, let's have a look at how the divisional performance was on a year-over-year basis. So as Stephan said, what stands out here is the record result of the division IXM by achieving for the first time CHF 100 million in sales. In addition, this sales increase was generated coming from our focus markets, electronics, semi, and battery. In fact, 70% of the sales increase of the division IXM came those growing industries. And so the combination of higher sales and a lower cost base did lead to the improved profitability at EBITDA level. What also stands out here is the improved profitability of the division IXS, despite having lower sales. So when we look at the markets, our focus market, electronics, the share of electronics year-over-year remains stable. When we look at product, we can see that the service business year-over-year did even increase. And so service, being a very profitable part of the IXS division, in combination with the lower cost base, did more than offset the profit impact of the lower system sales. And this also did lead to improved profitability. So the increased profits of the X-Ray divisions, of both X-Ray divisions, did help to partially offset the sharp decline in sales of the division PCT. And so to mitigate the negative profit impact, PCT did implement measures, among others, short-time work, shorter working weeks, temporary shutdowns, and workforce adaptation beyond reducing temporary labor. It should also be noted that compared to the last downturn, being now in Penang also helped to have an overall lower cost base compared to the last downturn. How the division now did consolidate into the group, we are going to see on the next slide. So let's start with sales. Besides the volume impact, we also had currency headwinds, meaning that we lost CHF 25 million in sales due to lower currencies compared to the Swiss franc. That caused a drop of 4% alone. What also should be noted is that we were able to grow our sales in China on a year-over-year basis, this driven by PCT and IXM. Gross margin also came down, mainly driven by lower volumes, but also here, of course, having the negative effect of the strong Swiss francs. Should be noted also here that, gross profit margin is still higher compared to the last downturn, thanks to the ongoing lean activities in the division. Then at bottom line level, the overall lower cost base compared to prior years, it only partially offset the lower gross profit that we generated in the year. And so EBITDA, of course, contracted, leading to a significantly lower net income compared to prior years. Free cash flow had also here 2 phases. In H1, we were negative by CHF 50 million, and in H2, we were positive by CHF 40 million. That's mainly due to lower CapEx and lower working capital requirements that we had in H2 compared to H1. Then ROCE, finally, being a good proxy for value creation, did drop below our WACC, and so not covering the cost of capital anymore. This, of course, is not meeting our ambition to create value in all the phases of a semi-cycle. The drop year-over-year is only driven by the lower profit, as the average capital employed remains flat year-over-year. And how the other balance sheet KPIs developed, we are going to see on the next slide. The high cash balance in the beginning of the year did allow for dividend payments, despite having a negative free cash flow, and was the main cause of having a lower ending balance of the cash position. CapEx was mainly driven by the side consolidation in San Jose that we finished successfully in H1. Next to that, we also expanded our presence in Penang, and we continued to invest into replacement and enhancement for the divisions. Net working capital came down almost in line with the sales drop, and what should be highlighted is that despite the lower sales level in the division of IXS, we were able to maintain the same level of customer prepayments. Net debt did increase. This only due because we have a lower cash position, as debt overall remains flat year-over-year. And with the debt factor close to 0, we still have a very good value. So, in short, our balance sheet KPIs remained at healthy levels, which we are going to see also on this slide here. An equity and equity ratio are signaling strength and solidity. And with the dividend per share of CHF 1, we are even a bit above our guided payout ratio. This implies that we are anticipating a positive development of the business in the year 2024. But before talking about 2024, let me briefly summarize the year 2023. So to dive back of what I said in the beginning, yes, it was a very challenging year. And at the same time, we continued to execute on our strategy without trading off our mid-term goals. With that, we are ending our backward-looking assessment and are now moving into the outlook section. Stephan, please.

Thank you, Nicola. And let's take a look into the crystal ball of the outlook here. Now, we expect different developments for our 4 main markets going forward. The shape and exact timing of the awaited upswing in the semiconductor industry obviously still remains a bit uncertain. While the stabilization observed in the second half of last year, especially in Q4 2023, has continued in the current year, we still do not see significant demand dynamics. Accordingly, we expect a moderate upswing in the first half of the year, followed by an acceleration in demand in the second half. The uncertainty about the course of the recovery is reflected in the widely differing estimates that you see on the left side for expenditure in semiconductor equipment in the financial year of 2024. Market research expects semiconductor equipment revenue growth to range from minus 2% to plus 7%, or in absolute terms, wafer fabric equipment spend is estimated to be between USD 87 million and USD 107 billion. For the group, we anticipate soft sales in the first quarter of 2024, both compared to the same period of the previous year and to Q4 2023. This is because the correction was still beginning to unfold for us in Q1 2023, and we realized additional sales in Q4 2023 that benefited us. From the second quarter of 2024 onwards, we expect a positive development compared to the previous year, with an acceleration in the second half of the year. Turning to the automotive industry, car production in 2024 is expected to stagnate after a strong year of inventory buildup. However, the increasing sales of electric vehicles will have a positive impact on Comet, on us, as more sensors, more electronics, power electronics, but also logic components are used in EVs, benefiting all our businesses, actually. In civil aviation, passenger miles are expected to reach pre-pandemic levels actually early already this year in 2024, followed by a more moderate growth thereafter. In the military aviation sector, expenditures are expected to remain robust. The growth trend in aviation and the increased demand for security solutions will also lead to solid development of the security industry. So overall, we expect the recovery in the semiconductor industry to increasingly drive our business in 2024 as the year progresses, while the other important end markets will stabilize or slightly improve in function of the overall macroeconomic development and obviously also consumer sentiments. Now, what does this mean for our divisional priorities? Now, at PCT, we will continue, we will further focus on commercializing the Synertia platform while intensifying our key account management. We will also drive expansion in Penang as the best manufacturing location and continue to develop our operations and business approach in all areas. At IXS, we will strategically expand our portfolio, building on top of the newly launched CA20 semiconductor inspection system. We will continue also with our successful co-creation approach with our customers in the semi sector. Additionally, we will continue to further expand our local presence in growth regions, particularly in Asia. At IXM, we aim to further strengthen our market position in the semiconductor electronics inspection market. We will continue to develop markets for testing of batteries and additively manufactured components, as well as expand our sales organization, like in the other 2 divisions, mostly in Asia, including also our service business at IXM. These strategic priorities reflect clearly our commitment to leveraging our strengths in our key markets and key technologies, and we are confident that these efforts will continue to position us for long-term success and create value for our shareholders. Now, let me turn to the outlook for the fiscal year 2024. Comet is ready for the upswing. That's kind of the key message for today. The slight upward trend we have seen in the semiconductor industry will gain momentum as the year progresses, and we are forecasting an acceleration in orders in H2 on the back of a rising demand in the sector of wafer fab equipment. As previously mentioned, the first quarter may be below last year's and also Q4's performance, but we expect to exceed previous year's quarters thereafter. For the traditional industrial sectors, we foresee a moderate, a stagnant outlook going forward on the back of the macroeconomic development, as well as consumer sentiments. Besides growing, however, with the semiconductor recovery, we want to continue to improve operationally by furthering lean approaches across our entire organization, not only in production. This includes, obviously, a lot of work within the area of digitization and automation, which will contribute to efficiency gains and are an integral part of our boost strategy execution program. All of these measures obviously come at a cost, as reflected in our guidance for 2024. At the top line level, we expect revenues of CHF 440 million to CHF 480 million, with an EBITDA margin of 15% to 17%. The margin will be reduced by an enhanced level of spend compared to previous years, as already explained by our CFO. We plan to spend around 8% of sales for projects to support growth in the coming years, among other things, for the build-out of the Penang factory. This obviously also includes investments in cyber security, and we will also start this year with upgrading our ERP system to S/4HANA. Additional investments in the commercialization of our new product in IXS, CA20, as well as further expansionary moves that we are foreseeing in Penang. Now, with these final remarks, I conclude my presentation. I'd like to thank you for your attention, and we'll open now the floor for questions that we are very much looking forward to. Thank you very much.

Thank you, Stephan. So we start with the Q&A now. 2 remarks, as always. Please wait until the microphone is with you, and secondly, limit your questions to 2. So the first question I saw came from Michael Foeth. Michael, please.

Yes, hello, Michael Vogt, Vontobel. So 2 questions. Basically, in terms of the guidance, you showed that the industry last year was down 7% WFE. Your revenues were down about 50% in PCT. How should we think about the sort of the rebound, the over-proportional rebound? If the market was to grow 7%, what can we expect from PCT in terms of percentage bounce back? And the second question is, do you have sort of an idea, ballpark, how much revenues to expect from the Synertia platform in 2024?

Let me elaborate a little bit on the semiconductor market decline. As you mentioned, and as I alluded to in my presentation, for the entire wafer fab equipment sector, the correction downwards last year was slightly above 7%. It was slightly above 7% while at PCT, the correction was just a little shy of 50%. So how does that happen? Let me put a little color to that. When you look at the wafer fab equipment spent specifically in memory, you see that that part plunged by well above 30%. That's still not almost 50% at PCT. But when you look into the wafer fab equipment spent of, in particular, NAND memory, you see that this was in excess of 70%, which shows that we are still strongly exposed or dependent on memory, first thing. And then second thing, quite strongly exposed to NAND memory. Now, how is this going to play out this year? Certainly, at 1 point, NAND is going to come back, and it will come back probably with a vengeance. Now, when is this going to be? That's the good question, because what we already see is that the DRAM, so the other variety of memory bricks or memory ICs have already started to move, especially a specific type of DRAM, which is called HBMs or high bandwidth memory, which are being used by most of all artificial intelligence microprocessors. So from our vantage point, we expect that the business in NAND, given the inventory levels, will start to pick up in the second half and towards the end of this year, we will, and that's what we anticipate, see quite high investments in NAND as they come back. And with that elaborate answer, I forgot your second question. Oh, yes, Right. So as mentioned, by now, on the Tier 1s, we have 5 design wins, and if the deployment is happening as fast as we anticipate, alongside the design wins that we have with Tier 2s as well as Tier 3s, we expect to be in double-digit revenue, low double-digit revenue. But this is sort of plausible given the breadth and the opportunities that lie ahead, all with the caveat that the markets are really coming back starting H2.

Michael?

Yes. It's [ Michael ] from ZKB. So only 2 questions. You mentioned already HBM or high bandwidth memory. Stephan, can you elaborate a little bit what can we maybe expect from Comet in terms of high bandwidth memory? Because as far as I know, LAM Research is pretty strong in that field. On the machine side, we know it's your largest client. So maybe you can tell us a little bit how -- what you think about this discussion. And maybe on CA20, what can we expect from CA20 going forward? You have just launched it actually, let's say, towards the end of last year. There are a couple of machines probably in laboratories where they are tested or in lab environments, let's put it that way. So when can we see their real orders coming?

Okay. So on HBM, where we also participate, not as strongly as on NAND, indeed, we see that there is business around, but it is still on a lower level, let's call it like that. There's a lot of dynamics in AI in general, and it is probably going to be the prevailing kind of trend or business generator towards 2030. But it is still on a rather low level compared to everything else, 2, 3 years, I think that will be one of the big parts of growth. When it comes to the CA20, which was launched back in November, we anticipate that we will see first orders very shortly, given the fact that this system was developed, co-created with customers. And therefore, the lengthy market introduction that usually typically goes hand in hand with such complicated systems will be shortened quite drastically. So expect sales to happen this year, and that is only for the CA20 that is actually meant to go into labs. What we are currently working on with our co-creation partners is systems that will go into the fab, and that is where the volume is. But typically, the way a system actually comes into fab or in-line, out-line inspection is through a lab, where basically the quality inspection processes are first developed. The former, or the latter, is what is going to happen this year. So expect sales this year.

Yes, Doron?

I'm Doron Lande, Kepler Cheuvreux. I have a question on IXS. Especially, even though we are quite progressing this realignment story, the profitability is still a bit on the lower end. Can you tell us what's actually possible when we're talking about turning IXS into a profitable division? And the second question would be regarding FX impact. If I understood correctly, the FX impact in 2023 was negative 4%. How would this develop, or do we have an outlook how this develops into 2024?

So I'll give a little color on the first one, and then I'll pass over to Nicola for the FX question. So what is possible? We have high expectations on the market of 3D advanced packaging, as X-Ray is crystallizing more and more into the tool of choice going forward. And we are very well positioned with the CA20, or the technology package that we have at IXS, starting with the AI software that comes from the acquisition we made back in 2020 with ORS in Montreal, to actually the light source, the X-Ray module coming from IXM. We expect, given the fact that 3D advanced packaging is sort of the extension of Moore's Law, that this business is becoming rather large. So a large served available market. At the same time, we know that there is tremendous value in those 3D advanced packages, and the indications that we have is that the gross margins achievable for us with systems such as the CA20 are on an entirely different level as compared to what we have today in our legacy markets of automotive, as well as aerospace. So we expect that the long-term plans that we have communicated in the past with higher EBITDA numbers, at least 2 digits, is totally reachable. It's plausible. And on FX, how about it, Nicola?

Yes. FX, if we would know, that would be very good. Look, if the currencies would develop from '23 to '24 in a similar range, like they develop from '22 to '23, you may expect a similar impact. So again, CHF 20 million to CHF 25 million. If the drop is mainly for euros and for dollars, I mean, we have a drop, average currency dropped by roughly 5% when it comes to dollar and euro. And so basically, if that drop continues, expect the same impact. If the drop is only half of it, expect half the impact. That's basically what our outlook is, which is reflected in the guidance.

Did that answer your question, Doron?

Yes.

Okay, who's next? Then I saw Felix, and after that Sebastian.

Yes, One clarification question. Did I understand that correct, that you are speaking now of 5 design wins for the Synertia platform with Tier 1?

Correct.

So that's a 4 increase versus the Capital Market Today in November?

Correct.

Okay, good.

You remember at the Capital Market Day, we showed quite a pipeline, a lot of activities, and some of them have now materialized. And we have, as a matter of fact, also 3 systems out with customers, which is kind of, that is big. It's not only you won a design win, it is in the field.

And feedback is so far positive?

Very positive.

Okay. And the second question is on inventory with your largest customers. I mean, I guess one of the reasons for the first question, the delta between CapEx industry spend and your sales development in PCT, I understand it was also largely driven by inventory. Can you share a bit of light? What do you see in terms of inventory? And are they now depleted? And what behavior is returning to normal patterns? Or just to have a bit of a sense here?

Yes. So in general, what you can say is that the excess inventories which were present at the onset of the cyclical correction have come down tremendously. And also at our largest customer, that was one of the things that plagued us last year. We see that their inventory of our products have come dramatically down, so that we expect as of, I'd say, Q2 of this year, normal, all the patterns to come back. So that we sort of get back to the baseline business that you have in a correction market. Hope that gives a little color to your question. Sebastian?

Yes. Here we are. First one is a follow-up to that one. With regard to the guide --

Which one?

The first one, actually.

Okay.

With regard to the guided digital sales you mentioned, is that mainly related to the sales by the first Tier 1 you alluded to on the Capital Markets Day? And those that are coming in now, that is something then for '25? Or how do you see the sort of sequence there?

So we expect that we will see the first bulk orders actually from that first Tier 1. They were sort of the first to qualify for actually a new system. So, a leading-edge system. And we expect that system to go into mass production this year. Having said that, first orders, actual orders, we received from Tier 2s. But those are typically of lower volume.

And these new ones are most likely then for '25?

I would be careful saying that, just like that, at the beginning of the year. It's always a big question once you win the design, how fast will it go out there? Some of those design wins we know are for chambers where actually an incumbent is being replaced. So there is no market introduction or proof phase for a new tool. The tool is already there. And there is already a rather large installed base. So the question is, how fast will we come into replacement?

Got it. Second question is, if I recall correctly, on the Capital Market Day, you sort of guided rather into the direction of 5% CapEx. Now you said like 8%. That's a few percentage gone within like 4 or 5 months. And as well for the margin in that regard. I was wondering, what is the sort of the change in thought behind that?

Yeah, so basically, I think we indicated even levels of 7% at the Capital Market Days and also indicated that '24 would be rather on the higher end of that. And now, of course, depending, looking at the guidance, of course, now, that may be rather on the high side as a percentage of sales. And to your question, did something change compared to that outlook? Basically, not. So the absolute numbers in terms of CapEx, we are still basically continuing to have at the level that we anticipated. And the percentages is basically a result of the sales.

That plus we are presumably going to move faster.

Thank you, Sebastian. We have Michael with another question.

Yes, it's just a follow-up. Sorry on the Synertia. You said 5 Tier 1s, but you didn't say 5 different Tier 1s. So the question is, are we talking about 5 different Tier 1 clients or just 5 Tier 1 orders could be 5x the same client, no?

So there are 3 Tier 1s. We have -- we're on 5 different chambers, different applications with a Tier 1.

More questions in the audience. If no immediate questions, then we go to Sebastian. But we have 2 questions from journalists from the webcast. I'll start with the first one from [ La Liberte, Thibaut Guizon ]. And he's asking number of employees at the end of 2023 is lower than at the end of 2022. How do you explain the reduction from 1,763 to 1,577 employees and especially the reduction in Flamatt? Did you have to lay-off people? And a second question you introduced short time working in Flamatt. Is it still in force?

So the first and foremost, what we can say is we had practically no termination of 6 contracts. And 1 part, what we can say in Switzerland that we did in order to mitigate the effects was that we partially did not replace people who left on 6 contracts. However, what we did was that we terminated a lot of the temporary contracts. And in addition, and given the severity of the correction, we introduced late last summer short time work, which we extended up until November, if I'm not mistaken. And then sort of for the Christmas period and in order to boost Q4, we stopped it. And to the best of my knowledge right now, maybe Nicola knows that better, we have not reintroduced short term work in 2024. And as it looks right now, it is probably not going to be necessary. But maybe you know better.

Yes, indeed. On that one, I have to correct you. Actually, we did reintroduce it by mid of January. But on your other point, basically, that is also somehow right. We are not likely going to use basically the 3 months that you typically have when you are introducing it as we really see signs that we don't need to extend for the 3 months entirely. So we are going to likely end it somewhere in March.

Thank you, Nicola. Good to have you here.

And the second question from the webcast is from Christian Brown from Finanzen Wirtschaft. I would have been surprised if we had no question on artificial intelligence. So everybody's talking about it. It's been coming for some time, but now it seems to be coming stronger than expected. Could you therefore please give an indication on how much AI will supposedly add to total semi-demand in the coming years?

So I think it is fair to say that, the projections of the semi-industry, and maybe it's also to a certain extent visual thinking of becoming a trillion dollar business by 2030, is on the back of artificial intelligence. The amount of hardware required is mind-boggling, especially as the large language models and the parameters that go in there are still in a phase of very, very rapid expansion. And that can already be actually achieved and covered by a humongous amount of hardware, specialized hardware, leading-edge hardware. So I would say it is going to be one of the most important trends. And it will kind of transpire through all or most elements of semi. So when you look at smartphones going forward, smartphones have stagnated over the past couple of years. 5G wasn't the big thing that everyone thought that everyone is going to change the phone to get 5G. It didn't happen. Bigger foldable screens wasn't a big thing either. But once you will see that AI is becoming a built-in feature of smartphones that will therefore boost the smartphone market as well. So AI is going to be the trend going forward in our industry.

So thank you, Stephan. Thank you, Thibaut, Christian, for those questions. I hope everything is answered. And we continue in the audience with Sebastian.

Yes, just a quick follow-up with regard to the book-to-bill. You have shown that in the past quite consistently. This time I didn't see it. I was just wondering, was it left out on purpose or was the thinking there behind?

Actually, it was not on purpose as such. I mean, the book-to-bill, at the moment for the year still was below one. That is true. And what we have seen, as I said, in Q4 really is an acceleration of the orders that we did convert immediately into sales. So it did not have an effect on the year-end backlog. Going forward, Q1, we expect not yet the rebound that we are then going to see from Q2 going onward. So to give you a bit of an indication of the book-to-bill, and how it is translating into Q1, basically that is what you're going to expect, that rebound you're going to see in Q2.

Any further questions in here? Serge?

Yes, I take 2 questions in that case. First question is, in IXM, I remember in the old days you had margins north of 25%, if I'm not wrong. And now you achieve the record year of CHF 100 million, and you're at 23% and whatever. Truth, does IXM cover more corporate costs, or is this a new normal to achieve a 23%, 24% margin, or what should I read into these numbers?

Serge, actually, you're right. Back in 2018 and 2019, we achieved EBITDA margins in excess of 25%. Why, with the record year, aren't we there yet? Well, that goes hand in hand with investments that we continue to do. I mentioned before that IXM is of pivotal importance in order to make the CA20 and this entire advanced packaging inspection play that we are pushing at IXS possible. The level of EBITDA right now is not on the level because we continue to make investments. Will it get above 25% for sure? Probably. I think we alluded to that back at the Capital Market Day at least 2 years ago. We expect to be above 25% in about '25. It kind of fits nicely.

Okay. Fair point. Maybe the same or similar calculation, Nicola, told us it's important, leverage is important, whatever it is, and now you are guiding for sales growth by plus 20%, probably over the H1 double digit, probably not. I don't know. But you are guiding your EBIT margin guidance midpoint. It's the same we have seen at H2 with CHF 190 million. Now we are going, let's make it equal, CHF 220 million sales, so CHF 240 million sales per 6 months. So I understood that you invest into growth, but this is more or less capitalized. It's not expense, I understand, from the CapEx. I can't make the calculation because I have a form restraining.

So, basically, we are investing in CapEx, yes, but not only. We are also investing basically in activities that are going directly into the P&L, and Stephan basically then can elaborate a bit more on what that is. So that is basically an additional burden into the P&L compared to the prior year. Second, what we also should have in mind is that the second half of the year is everything being equal, always better than the first half of the year. In this year, it was particularly the case. Why? Because in this type of situation, we have introduced a 0 vacation balance policy for the year end. What happened is that we did reverse all the vacation balances that we did accumulate in the first half year and the second half year. So that had quite a significant impact just looking at the second half of the year. That's why the second half of the year, taking this as the new normal would not be appropriate. Third, we also reduced third-party spend in light of the semi-correction that we have, also in a quite significant way, but that we did really just for a short time of this semi-correction. It would not be sustainable then to basically keep it at the level that we are, just from operational point of view. It may be now on the additional initiatives, Stephan, you may shine some light on it.

Yes. Versus consensus, you would probably expect an EBITDA that is 2 percentage points higher. I mentioned in my outlook that we are accelerating on the commercialization of all platforms, but at the same time, we continue to make quite some investments in R&D to push that commercialization and acceleration right out of R&D, out of the lab into the fab. This is excess operational spend that obviously then lowers the EBITDA. That is one side. The other thing that I alluded to in my presentation is that we will be starting to do the transition from our current ERP to a new ERP, which is cloud-based, and therefore, we cannot capitalize it. It is pure OpEx. And the third one is that, we are taking quite some precautions and investing more than we have in the past in cybersecurity measures.

Now, you speak on about the headwinds, but not the tailwinds, such as Penang leverage, operating leverage, all this stuff. That's already --

We will take a coffee afterwards.

Yes, yes. Sure, sure. But that is already in the model. That is already in the consensus model. Otherwise, you would have forgotten something in your model.

Thank you, Serge, for the question. Reto?

Hello, Reto Brühwiler from Enpa. What is your estimate for de-stocking impact at your clients for the last fiscal year?

What is our estimate for the de-stocking oh, okay. In terms of how much revenue did we forego because they had so much on stock? Is that -- okay. Personally, I think it is about CHF 30 million that we probably did more in 2022 and hurt us in 2023. But that is just a rough estimate as we did not initially get the exact numbers from our customers on what they actually have on stock. But we saw throughout the year that sort of the baseline revenue, the revenue that you would also expect in a correction, was lower than in years before, which made this whole correction obviously quite painful for us. I hope that gives some color to your question.

While you are thinking about the next question, I heard that we have a question coming in over the phone. Can you open the channel, please?

We have a question from Marie Ganneval from Bank of America.

Just to follow up on Synertia, I understand you have secured more forwarders than we had Tier 1 customers. I was wondering, if you could give any color on the type of application this could be? And also, I was wondering if it would be possible to see Synertia being used into HBM, for example? And my follow-up is, did you see any more design websites to Tier 2 customers?

So, I'm not sure whether I got the entire bundle of questions, but to give you some color on the applications, it is in deposition. More specifically, the majority of the design wins are in metal deposition. The second part of the question or 1 part on further design wins with Tier 2s, I can answer we've had more design wins there, too. Was there a third part?

Yes, I was just wondering if it was more oriented towards logic or memory in terms of the design we've had.

That, we don't know.

Okay. And just to follow up as well, in terms of PCT, obviously, you had to lower your utilization levels back in 2023. When do you actually expect to be back to full utilization levels for PCT in 2024, if that's the case?

Okay. So, in terms of capacity levels, we have, in terms of equipment, capacity that is probably not going to be fully exploited this year. Rather, if we see then a strong up-tick in demand in 2025, presumably towards the end of 2025 or beginning of 2026, where we then presumably will have to go to 4 shifts, and then until we have the factory in Penang up and running, also in the course of 2026, it will then gradually drop down to 3 shifts again.

We had a question over there, I think. It was on capacity utilization. Any other questions in here? Other question over the phone?

Sir, there are no further questions on the phone.

Okay, great. Thank you. No webcast questions, so that means. We end the conference here. Thank you for your active participation. For those who are here in the room, we invite you for an operative on the other side of the floor of the building. So, thank you again for joining us. Happy to stay in contact with you. This concludes the conference. Have a good day. Thanks for participating, and goodbye.

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