Comet Holding AG (COTN) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to Comet's webcast and conference call on the 2024 Half Year Results. Joining me in the room today are our CEO, Stephan Haferl; and our Interim CFO, Nicola Rotondo. Before I hand over to our CEO, who will explain the results in more detail, I would like to draw your attention to the disclaimer on Page 2 of the presentation and to the included forward-looking statements that my colleagues will be making in the course of this conference. With that, I would now like to hand over to our CEO, Stephan, please.

Thank you, Ulrich. Ladies and gentlemen, I would like to welcome you to the presentation of the results for the first half of 2024. Thank you for taking the time to participate in our webcast and conference call. As Uli already mentioned, our interim CFO, Nicola Rotondo, will be joining me today to present the detailed financial results for the year. Before we get to the financials, I would like to give you an overview of the macroeconomic and industry-specific events from January to June. So, let's move to the next slide, please. Let me start with the statement that the semiconductor cycle has finally turned back to growth in the first half of the year. Although this is not yet fully visible in our half-year results, numerous indicators which I will discuss in the outlook support this statement. Before I do so, let me give an overview of the half-year results. In the first half of 2024, we were not able to match the previous year's level of sales. Nevertheless, we managed to maintain the reported EBITDA margin at the previous year's level. The first half of the year was split in 2 in terms of business results. The first quarter was weak with net sales of CHF 81 million, while the second quarter improved to CHF 108 million, a sequential increase of almost 34%. Incoming orders also increased significantly, growing by around 30% from the first to the second quarter. Compared to H1 '23, incoming orders increased by 22%. The resulting book-to-bill ratio was 1.1. Now, this development was primarily driven by the division PCT. Also, free cash flow improved, lower working capital and reduced CapEx in the first 6 months led to an increase in free cash flow from minus EUR 15.3 million to plus $8.1 million. We also made significant progress in our strategic investment projects, which I will discuss in more detail later. First, let me talk briefly about the market environment relevant for the Comet Group. What developments in our end markets drove our tickets. First of all, I would like to talk about the semiconductor market, which has made strong progress this year and seems to have finally emerged from its long-lasted post-pandemic correction. From a slow start to the year, semiconductor sales have grown month-on-month in 2024 with Microchip revenues increasing by almost 90% compared to the first month of 2023. This is due in no small part to the booming demand for logic chips and high-bandwidth memory for artificial intelligence applications. In contrast to semiconductors, on the other side, the automotive industry has developed at a slower pace with the overall production of new cars stagnating compared to the same period last year. The trend toward more electric or hybrid vehicles has continued at the expense of plastic combustion engines. For Comet, a lower proportion of combustion engine means that fewer components are being tested. However, this trend will be more than compensated by the numerous opportunities related to electric vehicles, for example, battery testing. The aerospace business, on the other hand, has shown good growth. Passenger numbers have risen significantly and have now exceeded pre-pandemic level. Digitalization also plays a major role in aerospace, but the penetration of new technologies, digital technology is slower for safety reasons. Volumes on the security markets are high, which is, of course, also due to the global security situation and geopolitical tensions. However, this market is also driven by government and influenced by global politics, which can result in increased volatility. To summarize, it can be said that the semiconductor business is on a continuous recovery path. In the traditional end markets of automotive, aerospace and security, the situation is far less uniform. There are pockets of growth here and there, but also sticky stagnation or slowdown in other areas. While both X-ray divisions are pivoting into the semiconductor industry, it remains important for both divisions to keep focus on niche markets in the traditional industries with growth and good margins are still possible. So, how have the divisions fat thus far in 2024? Next slide, please. So, after a slow start into the year, the division PCT has finally embarked on a recovery cost due to the turnaround in the semiconductor market, especially in Q2. Encouragingly, various new design wins were achieved with the RF generator platform Synertia. Also the new Synertia-based RF Matchbox platform was officially released at this month's SEMICON West show in the U.S. First, tests and projects have been successfully initiated with selected customers. Lastly, but very important midterm for PCT, the construction project for the group's Asia, have been pronounced is well on track. The X-ray division, IFS, faced since the beginning of the year, significant headwinds through pricing pressure from mainly Asian competitors in lower-value applications. We did not take part in such price competition and focus on high-margin orders. This also resulted in us turning down some orders which had an impact on our top line. Our CFO will talk about this in his presentation. To drive forward our market entry in advanced packaging, we are focusing on exploiting this fast-growing market. We launched our CA20 lab inspection system, which was developed exclusively for the semiconductor industry in November last year. The division is currently working on further developing CA20 into a production system or, in other words, into a system that will be integrated into a fab production line. The feedback from customers currently qualifying the CA20 system is excellent. However, to guarantee a fast market introduction and to keep our leading position, this requires increased expenditure on continuous development as well as strengthening the local sales, support and service network. These investments are the basis for future success, which is why we are prepared to sacrifice some margin in the short term. The third division item recorded lower sales in the first half of 2024. This is mainly due to the fact that we had an exceptionally strong first half of 2023, in which the division still delivered on a large backlog accumulated due to supply chain disruptions during the pandemic. Without the same effect in 2024, IFMS was therefore unable to achieve the same performance in terms of sales or margin in the first half of the year. Absent of this one-time effect, IFM remained very well positioned to address the good opportunities in the semiconductor, electronics and battery business while continuing to explore its very strong position as a market leader for industrial X-ray components and modules. All in all, we believe we are on track in all divisions. PCT is benefiting from the improved fundamental data in the semiconductor market and the launch of new innovative products. IFS is focusing on advanced packaging and IFM has good growth opportunities in the battery business and in the semiconductor and electronics industry. Let me therefore summarize. First of all, we would like to emphasize that we are on the road to a full recovery after suffering a setback in 2023. Despite a weak start to the year, all our key figures have improved over the course of the first 6 months. The development in the semiconductor industry and, therefore, for our PCT division is particularly pleasing. In the X-ray segment, we see a mixed picture in the traditional markets, but overall, we can report a stable market environment. An important factor in achieving our medium-term goal is the development and market launch of new key products. We are pleased to report that we made further progress in this area during the reporting period. Summarized, you can say that we are making good progress in all divisions, and that's the improved fundamental data in the semiconductor industry makes us optimistic. After this brief overview of the business environment and the qualitative development of our divisions, I will now hand over to our Interim CFO, Nicola Rotondo, who can provide you with a more detailed explanation of the numbers at divisional level. Nicola, please?

Thank you very much, Stephan, and good morning to all also from my side. I'm happy to guide you through our numbers. But before we start, let me briefly summarize on how I look at the first half year of 2024. On the one hand, as mentioned already by Stephan, we started the year very fast and eventually, the second quarter developed quite nicely and did show good signs of improvement. Nevertheless, this was not enough to offset the rather low profit of the first quarter. On the other hand, our incoming orders show the positive dynamic with clear signals that this will continue also in the second half of the year. It's also important to say that we were able to generate, unlike in the prior year, a positive free cash flow, which helps to maintain our strong cash position. As stated, several times, we are financially able and committed to execute on our strategy. And, as a result, we did further increase our staffing levels in R&D. We are convinced that by doing so, we act in the best interest of Comet and all its stakeholders, be it customers, employees and shareholders. Let's now go into the details of our financials. And let's start with sales. We not only have a volume drop, but also currency headwinds, which resulted in a negative impact of roughly EUR 7 million or 3% of sales. Most of the sales decline versus the prior year are coming from China and driven by PCT. This is mainly because sales in early 2023 were exceptionally high due to the trade restrictions in 2022. However, it should not occur the fact that China will continue to be a growth region for us in the future. This is reflected in the sequential sales development sold from the second half of the prior year to the first half of the current year. Here, the picture looks different with sales to China further increasing by 5%. Gross profit margin showed positive development and ended higher compared to the prior year. The lower headcount, short-time working and shutdowns helped to reduce idle costs in the manufacturing area. This is offset by the negative rent volume and product mix impact as well as the currency headwinds. As reported, EBITDA margin is flat compared to prior year, but dropped on an adjusted basis as we do show in the appendix. Here, the lower sales volume and the negative currency impact was not completely offset with the lower manufacturing costs as mentioned before. Despite the lower operating profit, net income was higher as we have positive currency translation differences, whereas last year, they were negative. And finally, rose in as a proxy for value creation dropped below our WACC and so does not cover the cost of capital. This is, of course, not meeting our aspiration to create value during all phases of the semi-cycle. The year-over-year reduction was only driven by the lower net operating profit after tax, while the average capital employed did even decrease. In fact, the decrease of the capital employed was mainly driven by a lower net working capital, which brings me now to the next slide. As said, net working capital decreased versus prior year, mainly banks on lower inventory levels. It is worth mentioning that we were able to increase the level of customer prepayments in the division, IXS, despite slightly lower sales. Free cash flow performance was good, while being negative in the prior year, we were able to generate a positive free cash flow. This was banked on both lower CapEx and lower working capital requirements. With all the high CapEx in the prior year was mainly driven by the site consolidation in San Jose, which we finished successfully. We expect that CapEx will increase in the second half of this year. This will depend heavily on the start of the construction bank of our new manufacturing building in Penang as well as placing orders for production equipment have a long lead time. Overall, we expect lower CapEx as previously guided at our full year results presentation in March. We were able to keep still a high cash balance and do expect to further increase it till year-end. And by having a cash balance and stable finance liabilities, also our net debt remains very low. With the debt factor close to 0, we have a very good value. Finally, and almost as a recurring theme, our equity and equity ratio is signaling strength and solidity. In short, our balance sheet KPIs remains at good levels. Let's now have a look on how the divisions performed on a year-over-year basis. A positive sign in terms of good cost management is the fact that PCT's profitability increased on a year-over-year comparison despite lower sales. Sales drop that was last year is, on the one hand, driven by fact that the downturn was still unfolding in H1 '23, with good sales, especially in Q1 '23, while Q1 '24 was very tough. On the other hand, the softness in Q1 '24 was mostly driven by very low sales to China compared to the last year. But on a sequential basis, both from the second half of the last year to the first half of this year, sales to China did increase by almost 30%. Improvement in profitability comes from the following factors: PCT, the lower headcount, short-time working and shutdown helped to reduce idle costs in the manufacturing area. This in combination with the absence of some nonrecurring one-time costs in the previous year, which more than offset the negative volume impact, leading to a year-over-year profit increase. Sales at IXS decreased slightly. But when looking at our focused market electronics, the share of sales remained stable on a year-over-year basis. At product level, the service business contracted, while the sale of systems will even increase. So, the sales drop and the additional investments in our strategic goal to enter the semi-market with the CA20, this result into a negative EBITDA. Also, at IXM, sales were lower compared to the prior year. This was mainly due to the very high backlog at the beginning of the last year and since boost sales over proportionally in the period of the last year. Nevertheless, the share of sales resulting from our focused markets, semi-electronics and battery did further increase. From a product point of view, the share of new products also further increased and showed indeed a solid proof point that strategy execution is well on track. Increased profitability compared to the prior year was driven by the sales volume growth. And to close the finance section, let's go and see how our incoming order development was during the last quarter. As it stands, we are very confident that we are now seeing a change in the trend, which started to accelerate in the second quarter of the current year. If we just compare this second quarter with the long third quarter of the last year, we see an increase of 60%, of course, mainly coming from the semiconductor market. Our full year guidance is implying a further increase in orders and stand for sales that will be realized in the second half of the year. We have the capacity available and are ready to execute. And for this, we now move to the outlook section. Stephan, please?

Thank you, Nicola. Let us now turn as you said, to the outlook for our main end markets for the rest of the 2024 financial year. The prospects for the semiconductor equipment industry in 2024 are encouraging. After a difficult year in 2023, 2024 will be the year in which the industry returns to growth. Market observers currently expect growth of 3% to 5% in 2024. And, according to market observers as well, this positive development will accelerate further in 2025 to around 14% growth year-on-year. It is expected that those segments of the semiconductor market, namely NAND flash memory and DRAM, which were most affected by overcapacity during the correction phase of the cycle will follow the recovery in other segments in the second half year or in 2025, the latest. This demand is primarily driven by the increasing need for memory for AI applications in AI, service and in data centers. Due to its high exposure to NAND and DRAM, Comet will benefit this proportionately from this after. In the automotive sector, the slow growth will continue in 2024. Electromobility will continue to be an important driver of growth here, which offers corresponding opportunities for common. The aerospace industry also has good growth forecast for the coming years. Passenger, air miles that solidly exceeded pre-pandemic levels in the first half of the year and the investment in safety infrastructure will continue to grow. Advances in security technologies where the use of artificial intelligence and data analysis approaches opens new opportunities and will also contribute to growth. In summary, we can say that these promising prospects mean we are looking forward to a successful 2024. We are ready to seize the opportunities that present themselves, and we will accord to strengthen our position in the various markets. With that, I come to the last slide. We expect the recovery in the semiconductor industry to gain momentum in the second half of the year. Our optimism is based on various industry indicators. For example, we are seeing higher capacity utilization in the past. These are currently at the level that has triggered new investments in equipment in the past, higher average selling prices or inventories at normal levels. Also, statements based by semiconductor manufacturers regarding rising investments reinforce our view. Nevertheless, while the upswing is increasing momentum, speed and scale for 2024, speed and scale are still somewhat clouded on account of uncertainties related to macroeconomic and geopolitical events. In line with the recovery in the cycle, we expect a further increase in incoming orders we are and will be ready operationally and the organization as to follow the ramp. We've done it several times before and know how to execute the playbook. Our workforce is prepared to handle the expected growth in a timely and reliable manner. Lastly, we will continue on executing our strategic initiatives. We will press ahead with the work in Penang to ensure that we remain able to deliver when we will reach the limits of capacity at some of our production facilities. Our PCT division will prioritize gaining market share with Synertia, not only with the generator, but now also with the latest generation matchbox available, enabling us to offer our customers a one-stop solution for RF subsystems. And we look forward to reporting on the market launch of our x-ray inspection fab system later this year. The development in the first half of the year, our bottom-up analysis with the forecast for market development in the second half of the year and the patterns of past recoveries in the semiconductor cycle allow us to confirm our guidance for the full year 2024 today. We continue to expect sales in the range of CHF 440 million to CHF 480 million and an EBITDA margin of between 15% and 17%. Now, this concludes my remarks and presentation. I would like to open the question-and-answer session for our audience. Thank you.

[Operator Instructions]. Our first question comes from Nate Laberish from Octavian.

Maybe the first question would be regarding the orders. I mean, you have shown this graph with June clearly showing an uptick. Can you maybe tell us -- do you think this is sustainable? And also, what was maybe the development in the July based on your conversations with OEMs?

So, maybe I will pick up more on the number part of it, and then we'll hand over to Stephan to talk about the quality of the aspects. We believe that this is sustainable. And actually, we have indication that this will further increase, which is basically supporting our guidance. I mean you have seen really quite a nice improvement compared to Q1. And the indication that we have so far is that it will continue.

I can add from my side that, well, on a qualitative level, all the discussions we've had, especially this month at the SEMICON West Show confirms that the large market dynamics that we have seen now for the past quarters related to AI and HBM is now starting to spill over into NAND and DRAM, especially, which will obviously then continue to boost the incoming order situation on our side. So, qualitatively, what we hear from our customers is giving us the optimism that quarter-to-quarter, we will be seeing increasing incoming orders. A lot of those will be actually end up in sales revenue for this year.

And then maybe as a second question, I mean, your EBITDA margin for H1 was quite low. So, you would need to have a very good H2 in order to meet even the bottom end of your guidance, which you now confirm. So, can you give us maybe further explanation on how you really expect for each of the division to support that in H2?

Yes. So, basically, the support from the division will be first to say that all of them are going to grow. That is the plan that IFS and an are going to grow into the second half. But, of course, the majority of that growth will come, that is obvious from PCT. And how are we going to achieve then the need of profitability to reach the guidance? I mean we have quite a strong operational leverage. And we have seen that now in the last couple of quarters that as soon as demand and especially production volume is picking up, that is really boosting our gross profit margin. And so, by keeping that pace and we don't have at the moment, indications that also that will not continue for Q3 and Q4, the operational leverage, these are basically the elements that will bring us to the guidance EBITDA margin. So, it's basically volume and operational leverage that is mainly coming from the production site here in Tamar.

So, just to confirm, you're expecting higher volumes, so let's say, higher top-line growth, but also EBITDA despite systems having minus 3.5%, I believe, EBITDA margin. So, this should then be positive?

So, basically, what we expect is, yes, all divisions are going to improve their results compared to the third or the second half year is coming in for all divisions higher.

Next question comes from Didier Scemama from Bank of America.

Maybe a question for Stephan on the Synertia platform. And if you can share with us any further design wins, how things are progressing? And maybe if you've got any update on your target of market share, 5%, 10% over the course of the next several years, that would be great. And I've got a follow-up.

Sure. Thanks for the question. So, progress with Synertia continues on many levels. The pipeline continues to be filling and advancing. And as mentioned during the presentation, since we spoke last, we have been able to win a couple of additional design wins. We are confirming at this point, the 5% to 10% market share for our midterm goal. Nothing has changed on that level. And we have, in general, intensified our engagement with all Tier 1s as well as, I would say, by now, pretty much all Tier 2s. So, again, progress is very good on all levels. And I would especially also emphasize that we had a very, very good engagement right out of the bat on the Synertia Matchbox, which we've released at SEMICON West.

And just on the CA20 product line, maybe just give us an update on where you are at qualifying at other customers. And I don't know if you want to share with us any sort of revenue forecast or how much revenue you actually expect maybe this year, that would be helpful.

So, we have actually perhaps with some of our customers, all the technical qualifications for the fab machine and are in different stages of the commercial negotiations. We are, I would say, well ahead with the development of the fab machine, first prototypes will be sent out in September as a matter of fact. And nothing stands in the way for the full launch of the Fab system at SEMICON Europe this year. We are not going to share any projections in terms of revenue, needed for the lab or the Fab system, especially for the Fab system, we will definitely see that the final qualifications will take some time. And therefore, it is quite difficult to basically make a projection on this side.

And maybe one question on the margin. I think the question of starting that. But I mean, to make your numbers pretty significant step-up in EBITDA margin in PCT probably in the others as well, but probably PCT biggest moving parts. I mean, how should we think about the incremental margin in the second half on a year-over-year basis? I mean historically, you do around 50% incremental margin. Is that the right way to think about it?

Yes. Let me pick that up. So, yes, your observation is right. I mean, the main contribution will come from PCT. And although we do not really guide precisely incremental margin as such, I would say that your assumption is not far away from what it will be.

I'll say it goes back to what Nicola said before, the operational leverage that we have on incremental volume is high positive. And what we can share is also that already in the first half of the year, we have seen levels of EBITDA that are required in order to reach the full year EBITDA. So, given the fact that the volume is coming in and backlog is very healthy right now, then all of that will lead to the outcome that we have in the full year guidance.

Maybe as a follow-up, I mean you've seen some -- I guess the question is, have you changed your view on the recovery of the NAND WFE orders? I mean I think you said early calendar maybe late calendar year '24. Is that still the sort of way of thinking for management? Because we've seen Samsung accelerated the ramp of the AON Tech fab for NAND. I think the fab utilization in NAND, maybe I'm not at 100%, but not far. So, any change to that sort of shape of recovery for NAND WFE?

No, we stick basically to the view that by the end of this year, we will start to see a very strong recovery of the NAND industry.

The next question comes from George Brown from Deutsche Bank.

I have 2, if I may. So, firstly, you stated previously that you have 5 design wins with a single Tier 1 customer. I'm just wondering how things are progressing with the other 2 Tier 1 customers. More specifically, when do you expect to get design wins with the second Tier 1? And then second question on the competitive landscape in the RF generator business. I saw Advanced Energy recently released a new generator and even more recently, the new RF Matchbox, the NavX, I believe. I'm just wondering how does Synertia compare to these platforms.

Yes. So, we commented earlier this year on the 5 design wins with our first Tier 1 customer. And currently, we are in engagement with the other 2. We have with those not reached a design win yet. We are, however, in deep collaboration, engagement and qualifications. When it comes to the recent release of AE's new generator platform as well as the even more recent release of the matching Matchbox, NavX, it's hard to do the comparison really on technical level because very little is actually known to us at this point in time. But obviously, I was over there just a couple of weeks ago when they released it and took a hard look at it. And the thing that is actually a positive to me, I like competition. Obviously, I'm very competitive. But what I'd like to see is that they are really trying to copy Synertia. Well, that means we've done something wrong when the Behamers of the industry in this area is actually following our path. So, over the next quarters, if not years, we will see how we kind of size up on the technological level. We still believe, and I am just reiterating what I have been saying for the past 2 years, I have a strong belief that we have technologically a leg up. Having said that, we have to be aware of the fact that AE does not necessarily have to beat us on the technological side because they have a very strong basis already in the industry. So, in other words, we have to be technologically better in order to beat them. I hope that gives some color to your question.

The next question comes from Michael Foeth from Vontobel.

So, I have one question last on China. You mentioned that China was actually growing again. My question is, if you can give an indication of how much the Chinese market represents for you in the first half? And also, what risks do you see going forward in terms of the dynamics that are going on there, both in terms of restriction and domestic competition.

So, I will comment on what the share of sales was in the first half year and then hand over to Stephan for the flavors of the market. The share we have in the first half of this year for the Italian group is roughly 1/4 or 25%...

And, in terms of the market dynamics in China, obviously, they are very active trying to further develop the entire semiconductor ecosystem. They are also making quite some important steps forward there. There are in our field of activity, both on the RF subsystem as well as on the X-ray side, a number of companies that crop up, certainly also benefiting from the sort of Chinese chip act. We do see them trying to break into our markets. But so far, in the areas where we are active, we don't look at them as a competition. They address rather the low-tech area. This will change going forward, obviously. So, I mean being able to compete in China means you have to be better than that meet you lose, right? When it comes to the geopolitical situation, I mean with the current export restrictions, we are, I would say, not really hindered in developing business, we are sort of in the clear how that changes going forward, obviously, is a crystal ball for us. What we do is, I mean, we have a very strong team that is kind of on the polls for anything that has to do with trade restrictions and export restrictions. We just follow the rules and adapt accordingly. So, this is the only thing we can do. And so far, we've done that quite well. I hope that answers the question.

Yes, it does. Maybe following on, on that, in terms of your outlook, would you expect your sales to China to continue to grow also into 2025?

From the current vantage point, our perspective is that we will continue to grow with our business in China, both on the x-ray as well as the subassembly side. Yes.

The next question comes from Sebastian Vogel from UBS.

I have 3 questions. I would ask them one by one. The first one is with regard to PCT in the second quarter. On my guesstimate, so to say, I sense that there could be or that the growth was around like 50% to 60% in the second quarter. Is that fair to assume? And therefore, also if the sequential growth or the sort of intra-quarter growth, is it fair to say that the June growth was the strongest compared to this average number?

Yes. So, I mean, when we look at orders, indeed, your estimate what the growth was Q2 to Q1 is in that range. And actually, also your assumption that I mean, it starts to accelerate, we have to say already from March. We had a very weak January, February started to accelerate in March and continued with that pay ending up with quite a high value in the month of June. So, we really saw an increasing trend drafting from March in the right direction.

Second question is on the guidance, in particular on the sales side. What I mean, in H1, in IXM and IXS you had EUR 100 million around and you said it that it should be sort of flat for the second half potentially. So, assuming that would be around like EUR 200 million for the full year. If I add the sort of the EUR 90 million from PCT, so, I'm around like EUR 290 million. And that leaves me to around like EUR 160 million, EUR 170 million for PCT in the second half would imply that's like 80% to 90% up in that regard. Does that make all sense? Or is there any sort of mistake in my thought process there?

Basically, I was not clear enough when I said that the iterate businesses would be flat. Also then, we project to increase sales in the second half of the year which is not usual actually for those 2 businesses. They have a bigger seasonality that goes towards the end of the year, but we are expecting also that growth. But at the end of the day, of course, to make the guidance, we need the anticipated drop coming from the semiconductor market being PCT. So, that will be the lion's share of the growth. That does not change completely your assumptions, but would factor in that we are also expecting a bit of growth for the X-ray businesses.

And the third question is kind of back to the after generator side. If I'm not mistaken, in the beginning of the year, you were alluding to sort of a double-digit million share that could coming out of that corner for the full year and this year, are they on sales and orders. Is that still the same punchline there? Or has anything changed in that regard?

So, what we can say there is that we've sort of done our homework. The projections that we made beginning of the year, I wouldn't revise them, but emphasize what I actually already said at the full year and at diverse conferences that it is to a certain extent now out of our control span. Our customers are qualifying their champions and tools with end customers. And when that qualification is through and the market picks up, then the outcome is going to be revenue on Synertia. So, we're still kind of keeping our fingers crossed that the qualification at the end customers in the fab as well as the pickup, hopefully, on such tools will yield good revenue this year.

And if I may slip in one follow-up question with regard to the C-level management side of things, when do we see their final conclusion or final situation?

Well, I was fearing that question to pop up. Listen, the process is ongoing. As you know, we had last year, sort of a broken search and decide, okay, let's redo and that second search is now converging and I hope that over the course of the next cautious months, we will be able to clarify the winner.

The next question comes from Michael Inauen from ZKB.

A couple of questions on IXS. You made a loss there on EBITDA level because of investments that you have done, I mean, I read R&D sales service infrastructure. So, how much of these costs are sticking, so i.e., our fixed costs actually going forward? And have you done this now a bit earlier than expected? In other words, what gives you the confidence to really build up this whole infrastructure right now? And that will be the first question on the cost side of IXS. And then on the CA20 specifically, can you give us just a feeling if you are designed into the fat, for example, how many such machines are in a fab. I mean, I know we don't have a price list for it, but what are you trying to charge for it?

Okay. I'll answer the last question last. So, yes, we have increased investments into IXS, especially on the R&D, but then the entire support ecosystem side. So, the sales engineering, application engineering and service organization side, especially in Asia, where our tentative customers set. We've not done infrastructure investments per se. So, I would say that these costs are to a certain extend temporary or flexible. Will they remain? I believe, going forward, however, on the different signs. So, once we start developing revenue on the CA20 platform, the R&D investment levels will remain high because we will get on a trajectory that is going to be dictated in terms of speed and scale by this ecosystem of 3D advanced packaging. Now, why did we do these investments? Because we are very optimistic about the potential outcome of this strategic initiative at IXS. And having said that, we do believe that x-ray, both in 2D as well as in 3D in the Fab environment is going to see very healthy growth forward. How many machines will there be in a Fab? Difficult to say. This is part of sort of the entire ecosystem and business development happening. In terms of the margins or the sales prices, all I can say is what I've said before, we are in terms of functionality, obviously, but also in terms of the prices, the value that we delivered with those functionality in a different league than what we have seen so far in automotive and aerospace. So, in our legacy business. So, there is much more value to grab and translate into margin for us in this business.

So, I assume you can or want to charge a couple of millions per machine. Is that fair to say? Lower single digits?

I'm not going to comment on that. I will leave you in disbelief. And hopefully, in due course, you can plausibilize that number and then we'll have probably a more detailed discussion on that. But right now, I think the situation is critical in the sense that there are obviously a lot of competitors trying to grab a part of that pie and so, we will not disclose any information that could be of any help to them be tactically or strategically. So, I will remain of fewer. Apologies for that.

Yes, no worries on words. We can discuss that next time when they have more information. Maybe just on the Synertia's design wins. And I was just wondering your discussions with the other 2 Tier 1 suppliers. Is there a better chance to get RF generator qualified with them once or actually now that you have the Gen III match also out? I mean, there is a connection between the products. I know that, but does it help you in discussions with the other Tier 1 clients? Would they be willing to probably look at both at the same time?

So, that's a good question. And we do believe so. We always believe that would be the case. And the first indications that we have now, it is confirming that believe the prior belief that the combo, the combination of both are what is going to increase the interest even more.

Yes. which makes sense. And maybe just the last one on the guidance, too. I mean we had the discussion now, how confident you are with your guidance in general, mostly on the margin side. But when we look at the sales, I mean, 440million to EUR 480 million is still pretty broad to get to EUR 440 million, you need around EUR 250 million, which is already pretty good H2 actually. But to get to 480, is that really realistic? I mean you would need to have one of the best H2s that you ever had in history? Or in other words, what will need to happen to get to the upper end? Just on the revenues?

Maybe to start with, I mean we have quite a decently high backlog already in our books. And most of that will convert already this year. So, from that point of view, that made quite confident that in combination with increasing orders, that are needed, but we are very confident that this trend that we have seen in Q2 will continue. So, these 2 elements of high backlog and increasing trend in orders is really making us very confident that we will end up in that range that we have guided. And during the second half of the year, I would say, latest then a trading update, of course, we will be able to build narrow that range further down. But at this moment, basically, the outlook is that, it is possible also to end up the higher end.

We have a follow-up question from Didier Scemama from Bank of America.

Maybe one question on the balance sheet. I think you've got a target of 20% of working cap in sales or sales and working cap, I should say, I think you're well above that. And obviously, you have inventories are suggesting that you're quite confident about your second-half revenue growth. But when do you think you could sort of get back to 20% of sales in working cap? Is that '26? Or can that happen in '25? And I've got a quick follow-up as well.

Yes. So, related to our guidance that we gained at the Capital Markets Day, our target level is for net working capital that is indeed the 20% that we are aiming to. But at that same capital market day, we also said that we are not going to see this level already in the year 2024. So, what we see now is basically within what we accepted and within what we communicated. Now, to your question, when is that assumed to come down? I mean our projection is that we are going to see improvements already in the next year going into that direction.

And maybe a clarification. I think you mentioned pricing pressure earlier in your prepared comments. I'm not sure I understood what part of the business was impacted by pricing pressure. If you could just repeat that, that would be helpful.

So, we see, in general, pricing pressure in the x-ray side of the business, be it on systems, more on the, let's say, the less complex systems, entry-level systems and then also on less complex x-ray modules. So, there is quite considerable pricing pressure. And this is in the legacy markets of the extra side of the business, where we have decided that we're not going to compete on price but rather walk away from such deals.

Also, the next question is a follow-up from Sebastian Vogel from UBS.

I have a small follow-up on the CapEx side of things. If I'm not mistaken, you entered the year with quite an active CapEx guidance. H1 was a bit slow start into that one. I was wondering if you still see the sort of implied acceleration for the second half or if you should think about a bit of a smaller number essentially then?

I mean we are going to see an acceleration compared to the first half, was rather on the low side, but we will not end up at those values that we have implied guided at the full year presentation back in March. So, we are going to end lower compared to what we have guided. But, of course, we are going to see an acceleration still really driven by our new signs in and on and the related equipment that we are going to already preorder for those having long lead time items. But, yes, we will not reach those levels that we guided in the beginning of the year, CapEx for sure.

That means some sort of 6%, 7% of sales as a starting point, is that fair to assume?

Yes, that it's already on the high side, I would say.

Ladies and gentlemen, that was the last question over the phone. I would now like to turn the conference back over to Mr. Steiner for the rating question from the webcast. Please, you may proceed.

Thank you, Sandra. We have received several questions. And in the interest of time, we cannot answer all them now in the conference, but we will get back to you in written format later. One question comes from Doron Lande, and he said that at the last Capital Market Day, we mentioned the goal to become more resilient on profitability. Now, we are back at 7%, albeit at lower sales. Where are you this process to increase the resilience and what else needs to be done? What would be a satisfactory EBITDA margin during a downturn? So, that's the question from Doron.

So, I mean, in terms of resilience, when we look at our P&L, especially in downturns, what we have to work on is to flexibilize our costs. So, we have rather high fixed and complexity costs. And for that reason, we are, among other things, now is forming in Pennon, where we will be able to consolidate a lot of the activities in a best cost environment. That is one of the activities that we are doing in order to become much more resilient going forward. There are plenty of other activities that we do in this direction, but I'm not going to go directly into the details there, but to hand over to Nicola to give a bit of color to the question of what is the EBITDA or the return on capital employed that we would like to achieve through a cycle.

Exactly. So, basically, indeed, starting with the return on capital employed as already offer mentioned in big feature. I mean, our ambition is that during all cycles of the Sani market, we want to earn more than our cost of capital. So, having a ROCE that is above 9%. That implies that during a downturn, we should aim for roughly an EBITDA margin that is around 20%. And that is basically what we are aiming for. As you know, we have anticipated the next piece of the cycle being in '27. So, if in '28, we are entering into Datansha. This is what we would like to achieve at that point in time and beyond of what step-on related to the activities that we are going to look at and initiate to become more resilient. I mean, what will be different compared to the previous downturn is that, we will have a manufacturing base and assembling base in Pennon, which is compared to where we used to be in Dankort or Matchbox assembling, particularly from a cost point of view, much more attractive. So, already that should help us basically to lower our fixed cost bank and those improving our downturn profitability only with that move beyond of what the other activities will be that we are going to initiate.

So, thank you, Stephen, and Nicola and the last question I have here on the list from Serco from Bombardier, who asked it, we can say something about lead times in PCT.

So, given the fact that we have a healthy inventory level and we have already started to reestablish the organizational structure ahead of the ramp. The lead times are within the expectations of our customers.

Okay. Thank you. That was the last question we could take in the conference. So, therefore, I think we can conclude here. We would like to thank you for taking the time to listen to our presentation and for your interest in Comet. Should you have any further questions, please do not hesitate to contact our IR team. Thank you very much, and goodbye. Have a nice day.