INFICON Holding AG (IFCN) Earnings Call Transcript & Summary

Good morning and welcome, everyone. My name is Bernhard Schweizer, Investor Relations contact at INFICON. I have the pleasure to host the online Microsoft Teams webcast of our live results presentation today in Zurich. Thank you for joining INFICON conference on its fourth quarter 2022 and full year results. With us today are Oliver Wyrsch, CEO of INFICON since January 1; and Matthias Troendle, CFO of INFICON. The management team will first present the results and then take questions. [Operator Instructions] You should have received by now the press release on the Q4 and full year results, together with the links to the accompanying visuals for this web conference. All these documents are available for download in the Investor Relations section of the INFICON website. [Operator Instructions] I would also like to inform you that we record this web conference to archive the audio file later on the INFICON website. The overall statements made by INFICON during this MS Teams session may contain forward-looking statements that would not solely relate to historical or current facts. These forward-looking statements are based on the current plans and expectations of our management and are subject to a number of uncertainties and risks that could significantly affect our current plans and expectations as well as future results of operations and financial conditions. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Having said all that, I would like to hand over now to Oliver. Oliver, please.

Thank you very much. I'm super excited to be here today with everybody here in the room and everybody online. My first time, obviously. It has been a couple of months already that I'm now in the job. It has been an exciting time, lots going on, intensive time, but also a very positive time. And I'm also happy to go through the results of last year. I think it's a good result, and we'll give you some more details now then as Bernard said, also have time for some questions. We have 2 parts. First, it will be me about the general results, the key messages, the markets and expectations for 2023. Afterwards, we will hand over to Matthias Troendle, and he will talk in more detail about the financials, the dividend and the corporate calendar, and then you'll have some time for questions. And with that, I will start. Very good. So the highlights of the results 2022, certainly a strong year. Growth in all segments, growth in all regions. That's something that is very special, of course. Also the orders quite high, higher than the sales. And even though we did a lot of capacity build up last year, you know about our CapEx numbers. The bottleneck was now not capacity -- was mainly sales as is mainly the supply chain. There could be -- could there be more sales if we have less troubles there. It did lighten up a little bit towards the end. But it's something that we'll talk about some more indexation also for this year. We could also -- with the cost inflation, particularly in our supply chain, defend our profitability. As you know, we spent about 15 million to 17 million just on extra cost to get chips for our sensors. That's something we communicated last year already. This is one of the headwinds we had. Transportation was another one, some energy factors, labor and so on. Nonetheless, I'm proud that we have achieved this result of -- is 19%. Overall, the growth in all different markets, 13% increase, USD 581 million. And they're -- in there actually were a significant FX effect. One, for instance, was the Europe, but we also had effects in Korea and Japan. So that was negatively impacting, in particular when we then look at European numbers or large European accounts. What we can say in terms of profitability, I think, in particular, Q4 and Matthias will talk some more about this, was a strong year, not only on sales, but also in profitability that really pushes forward and [Technical Difficulty] also mostly optimistic for this year. Last year, we invested in CapEx, USD 34 million. That was the second year with high investments. This was our [ 2-year ] program to increase CapEx by about 50%. We will continue this year also with investments as we see the need, also now and for future. And the same also in R&D, we continue to invest in R&D in leading-edge technology for our sensors is a key capability and an important factor for our strength in the market. You can also see on the right side in the donut, our split in the market. Still Semi is, of course, large, there was a large growth there, over 50%. Then we have General Vacuum, which is the general industrial sector in orange. And in green, you see as an RAC and Auto and then in yellow, the Security and Energy market. In a minute, I will tell you a little bit more about all these markets. First, the global overview. Interesting was that we had a lot of growth also in the West. I think the prior quarters, they were often, there was often a lot of growth in Asia, particularly also in China. And last year, we had seen also a lot of growth in North America, an increase of 21%. And then also in Europe, specifically, if you look at the local currency, actually, EMEA was the second fastest-growing region which is certainly something a little bit exceptional for us. This year, probably this will change again, and we'll talk about that a bit more. I look through the markets. Our biggest market, Semi & Vacuum Coating, the rate growth last year, orders even more growth. We have certainly built up the backlog here as well. Capacity is increased, capacity will further increase also this year, and we will go and be able, hopefully, to reduce our delivery times. We had always the leading-edge delivery times. We believe we still have them, but in a difficult comparison, and we want to get back to that, and we want to also, of course, reduce our backlog. We see the market mixed and we certainly look at this market very closely. We have a lot of discussions. I myself travel a lot to customers. I was just recently with [ TSMC ], larger Semi customers. This is a mixed picture because, yes, memory is weakening. We see that, too. INFICON is a bit less affected. Why? The memory market is one that doesn't use as many sensors yet. It's just about to start, actually the last couple of years. So the decrease of the CapEx doesn't affect us as much. The leading edge. At the same time, yes, it's softening this year, but it's not as dramatic. When I talk to TSMC a couple of weeks ago, they told me yes, it will be a softer year, but we'll also have to make the strategic investments. At the same time, as soon as they have the [ fab ] equipments, the tools and to start them up -- start the processes, they see the need for optimization, that excursions, they will need sensors. So often, the sophisticated sensors from our part are actually only really coming on board later in the process versus maybe some of our other sensors that are sold for the OEM channel like the [indiscernible] So for us, it's a bit more of a mix there. We also see the trailing edge, where we sell, in particular, also software, scheduling software, [ FTC ] hasn't really slowed down so much. These are companies like [indiscernible] [ NXP ], [ TI ], [ ST Micro ]. So when I then take on top [ ASML ] that as you all know, totally doesn't slow down, but basically has a backlog of more than 1 year, which we are part of, we see a bit of a mixed picture. But with a lot of uncertainties of what exactly will happen this year. What we also see in China is that the leading edge strategy maybe be will slow down's next year after dysinvestment round of this year. Potentially, the trade war has finally taken some effect. I don't believe that China will give up semiconductor. I just believe that maybe they will focus more on lower-end technology. And then there is, of course, a lot of other leading-edge signals that are related and relevant for us, like battery or solar. So the mix might change there as well. All in all, I would like to say we are very happy to present such a result in this segment and also are very positive for the long-term future with maybe a bit of a mixed feeling for this year. What we do know is we have a strong pipeline of new products that are coming in the market. But of course, even though the semiconductor market moves quickly, the actual product development moves very slow. So it's not like pharma, where I was before, where it may be that long, but it is a long pipeline, but we can also, therefore, say with a certain confidence that there is a lot more in the works. And if I move on to the next market, Automotive, Refrigeration, Air Conditioning. Here, overall, we see a slight growth. Actually last year, we've seen a growth as well, but you have this effect of the currency. A lot of this business is in Europe. Therefore, you don't see a big step forward if you look at the U.S. dollar numbers in this year report. The traditional auto market, so combustion engine is slowing down. That's just a transition -- energy transition to EV that we see as well. So there is a bit less dynamic there, but there's a lot of dynamic on the battery side for EVs. And the general market, where it's about air conditioning, refrigeration is a positive market, but of course, not as dynamic and as fast growing. There's a trend there towards automatization and more precision inspection, which we part of with automation solutions that we have and new software. Also here, we believe we have a good pipeline of products for the future. In the next market, General Vacuum, [Technical Difficulty] this is the general industrial market. This is often driven through the general economic development. Good growth also here, 14%. Also here, we believe we have mostly a #1 position in these segments where we are in. We believe this year, this is softening to flat. I believe all of you when I talk with you, have also certain doubts of what is exactly going to happen in the general economy. I wouldn't say we are smarter than you. I think we collectively all try to find out what is exactly happening. What we think right now is that Europe and U.S. will probably not slow down too much. That's why the softening flat mix is there. And then we see China, though, that was a bit slower last year compared to the usual growth, we see there an acceleration this year. So our China team is actually quite optimistic. What exactly happens, we don't know yet. We have Lunar New Year, and it's just starting up. And we just came out of the pandemic end of last year. So we are also here cautiously optimistic for China, and you can maybe say even globally, it's a very mixed picture, as I just outlined. It's also many different segments that have really very different dynamics. The last segment, Security and Energy. As you all know, we have launched a new product line, the flagship product, you see here in green. The HAPSITE [ TDT ] this is developed together with the DoD in U.S. and had certainly reached a lot of interest across NATO. Unfortunately, we are in difficult times security-wise. On the other hand, that is providing some additional dynamics also for a business like that. So the largest part in Security and Energy as product line is certainly the HAPSITE. And as you've seen, we have had a very positive reaction from the U.S. government with this large order last year. There was some more coming in the meantime, and we will expect more this year. The problem there is rather like with most segments as well, but in particular with such a complex product with so many parts, the supply chain. You missed one part, you're not shipping it. So that's a bit what constrains us for now. Small segment, but we see growth in this segment. There is other parts of this energy. So there's a part of new energy as well by methane, even some hydrogen. I wouldn't say, though, that these are massive markets yet. In particular hydrogen, it will take years to really develop that, but we are part of this transition. And there's a little piece of environment in here as well. Water, air -- there is also a dynamic there, but also this is, of course, as you see, much smaller than other markets. With this I come to the topic of sustainability. I'm actually quite proud of what the team achieved here. We worked on different fronts, but we certainly worked hard on the CO2 emission reduction. As you've seen, we have, again, if you look at the lower left corner here, reduced massively with 59%. This is the second year, so we almost 1/3 from 2 years ago at 502 tons. We have most of our factories now running with green energy, some have their own. As you can see here, where we have added photovoltaic or we reuse heating like in bolters from the production machine's air and use that instead of an actual heating to heat the building. So there's a couple of innovative ideas also here, I think innovation and creativity in the team helps us. And we will, of course, continue with this. My last point for today before I hand over to Matthias, expectations 2023. I said it already a bit in the segments, we are mostly optimistic for this year. We see risks. We see a slower general economical environment, but we have a backlog for many quarters, we had a book-to-bill higher than 1. We are building up capacity still that will come online. And we also believe that there's a number of segments where there will be growth or there will be, let's say, a flat tendency. So even though there is some declines also in the mix that comes to this conclusion that translated into numbers, we see a range of USD 570 million to USD 610 million possible and an operating income of approximately 19%. This is also depending a lot on general dynamics, supply chain, the geopolitics, the inflation economy, depending on each region but this is something that today we see possible. And with that, I would like to go and hand over to Matthias.

Thank you, Oliver, and good morning, everyone. I will cover, as usual, our Q4 and fiscal year results for the current year or for the past year. In addition, I will comment on the dividend proposal and our expectation. First, let me start with some highlights for Q4. Orders have been pretty good. Sales and operating income have been at a record level. The gross margin improved slightly versus Q3 and what is really not happening so often, sales in all regions and also in all end markets did grow in Q4. From a balance sheet point of view, we can say that CapEx was somewhat lower in Q4 than in the previous quarters, net cash and cash flow have been impacted by higher working capital, while the cash flow improved slightly versus Q3. For the full year, we can say this was a record year in terms of orders and sales, operating income and capital expenditures, we invested a lot. But due to high working capital also with a lower cash flow. With regards to environmental and social, the green ones here, I think Oliver mentioned it already, the CO2 emissions could be reduced again, the second year in a row. There has more green energy and less waste. And very important, we could attract and employ more than 200 people in [indiscernible] employees. Now let me [Technical Difficulty] little bit to the details. As you've seen from the press release, we achieved revenue of $159.4 million in Q4, which compares to $144.5 million in Q4 last year. This is an increase of 10.3%, taking into account the negative currency impact, which is mainly driven by the euro, but also we had strong changes in the Korean won and the Japanese yen during the year of minus 6.5% or $9.4 million. We achieved an organic growth of 16.8%. Compared to previous quarter, we achieved also an increase which was 10.8%. Oliver did already comment the development of the individual markets. We can highlight that sales in all markets did grow and this grows in comparison with previous year and also previous quarter. In both comparison, the growth was driven by Semi and Vaccuum Coating as well as Security and Energy markets to speak of. With that, the first quarter was our record quarter. The regional distribution of sales, which you can see here on the right side shows growth in all regions and with the highest growth in North America with 27%, while Asia and Europe did grow by approximately 5%. The strong growth in North America was mainly coming from sales to Semi, but also Security and Energy. Now let's go to the next slide. The gross profit reached 46.1% in Q4, slightly down by 57 basis points compared to last year Q4. The positive impact of the higher volume was partially compensated by still high material prices and high broker fees, freight and duties. Positive is that now after the last 2 quarters with a gross margin range of about 45%, the margin could be improved by 114 basis points compared to previous quarter. What happened on the cost side, we spent $11.7 million on R&D in Q4, an increase of 1.7%. Additional headcounts to support our efforts in development, partially compensated by favorable foreign currency impacts to drive this slight increase. In SG&A, the expense level increased by -- increased to $27.9 million or 12%. Personnel expense have been the main reasons for that one, but also general cost increases and reviving, I always say, reviving trade shows and driver costs are the main driving elements which have been there. The operating profit, as a consequence, we achieved regulatory operating profit of $33.9 million or 21.3% of sales after 31.1% and 21.5% last year, is an increase of 9%. Compared to our previous quarter, the result did improve by strong 34%. Income tax expense for fourth quarter was $2.6 million, which represents a tax rate of 8%. Due to the profit mix of our international entities and some favorable year-end deferred tax entries, the rate was lower than last year's Q4 rate. The net profit, therefore, reached $29.6 million or 18.6% in Q4. This compares to $26.3 million or 18.2% in the prior year, a 12.5% increase in absolute numbers. Now let's move to balance sheet highlights. Our net cash reached $2.5 million, which is about $52 million lower than last year. There were basically 2 main factors for the decrease. One is our working capital and as a consequence, lower operating cash flow and two, our CapEx investment programs. Working capital, which consists of accounts receivables, inventories minus accounts payments closed at $208.5 million or 33% of sales and with that about $56 million higher than end of last year. The increase was partially due to the accounts receivables because we had higher sales, but the majority was coming from a $46 million increase in inventory resulting from the high business and order volumes as well as the various supply chain issues with corresponding availability and bottleneck situations. As a consequence of the increased working capital, cash flow was impacted, and we reached $14.9 million, improved versus Q3, but lower by about $5 million than last year Q4. The turns for inventory decreased to 2.8 and the DSO ratio was more or less stable. The second driver, and I said, so even in 2021 of last year, we continued to invest in our capacity, meaning mainly building and machinery and equipment. After the high levels in Q2 and Q3, was close to $10 million per quarter spent, we had -- and as mentioned in the October call, a somewhat lower spend in the last quarter of about $6 million. Balance sheet shows solid structure with a 65% equity ratio and no long-term debt. And well, this has been my comments on the balance sheet in Q4, now I want to say a few words to the full fiscal year results. For the full year total, we reached revenue of $581.3 million after $515.8 million in the previous year, which corresponds to an increase of close to 13% or around $65 million. Excluding currency effects of 5.2% and a small impact from acquisitions of 0.2%, this represents an organic increase of 17.7% for the year. As you can see in the chart, we are able to grow in all end markets in the Semi, and Vacuum Coating end market with a plus of 17%, the strongest growth. From a regional point of view, Asia is our largest region, basically grew by 11% and reached $276 million last year, about 48% of global sales. North America had a 26% share and did increase by 21% and Europe has now share of also 25% of global sales and did grow by 9%. The gross profit margin reach for the full year 45.9%, showing a decrease of 201 basis points compared to previous year. Higher volume partially compensated by higher material prices, very high broker fees and logistics costs, it impacts this decrease. Turning to the costs. We spent $45.5 million on R&D for the full year, a slight decrease of 3%. The decrease was influenced by favorable foreign currency impacts, while our development efforts continue to be high. The SG&A costs increased by 10%, higher variable compensation, additional headcounts and general cost increases also here some favorable FX impact, it did compensate certain increases, but these have been the main drivers for that. Operating profit therefore, reached record high of $111.6 million or 19.2% of sales after $100.4 million in the previous year or a plus of 11.2%. Year-on-year, the tax expense decreased by approximately 5% to $18.4 million, which gave us an average tax rate of 17.2% compared to the 19.4% in the previous year. The net profit reached $88.5 million or 15.2%. This compares to $80.3 million or 15.6% in the previous year, an increase of 10.2%. Now let us turn to some balance sheet data. Operating cash flow for the full year decreased to $46.2 million or 7.9% of sales from $85.1 million in the previous year. As mentioned earlier, higher accounts receivables, lower provisions and especially higher inventory balances have been the main drivers. The capital expenditures were close to $34 million, giving an increase of 17%. 2022 was the second year in a row where we had really heavy investments in capacity especially buildings and machinery and equipment. I already commented the working capital development. Working capital closed to $208.5 million, mainly due to AR and inventory. Equity ratio for the full year, 65% compared to 69% in the last year. Now let me continue with the outlook. You see here some history data and the new figures we just published. Based on our assessment, the order book, the order intake and the overall business situation in the end markets, we are mostly optimistic for the start of the year. We expect sales between $570 million and $610 million and operating income margin of about 19%. Now finally, last slide, I come to the dividend. We have released this morning the information that we want to distribute CHF 18 per share. We have invested significant amounts in additional capacity for our growth in 2021 and also last year. This was more than $60 million. Due to the expected future and medium and long-term development, we also continue to expect further investments in the future. Due to that and to support our growth plans, the Board of Directors has decided to propose to the shareholders at the AGM on March 30, the distribution of CHF 18 per share. This is CHF 3 lower than last year, 14% lower and represents a still higher 54% payout. This also means that we will return approximately USD 47 million to our shareholders. The payout is expected to take place on April 6. With that, I would like to close the presentation, and we are now ready for your questions. Thank you.

I don't have any question, although we can just read to the microphone, so people can hear us online. I know that there are about 40 people joining us online. And I saw that Marta in London, she has questions. May I ask you, Marta, to switch on your microphone and maybe ask the questions just orally. Then we can see whether we can hear you and if you can hear us. Are you with us, Marta?

Yes, I'm sorry. Yes. So if I -- can you hear me, please?

I hear you. The audience probably has difficulty.

Sorry for that. So I would like to ask about the guidance and the assumed margin development in 2023, whether this flat year-on-year margin development assumes any normalization in the supply chains and in particular, for the prices for the electronic components, please? And then I have 2 more, if I may. Thank you.

So I hope I captured that fully.

So should I repeat, Oliver?

Yes, please do that.

Could you please explain whether your guidance for a flat year-over-year EBIT margin development assumes any normalization in the supply chains and in particular, the prices for electronic components and [indiscernible]. Regarding [indiscernible] what does you expect -- what do you expect for [ margin in ] savings? Is it fair to say that we are guiding for 10% on performance for greater spend in revenue.

Yes. Okay. Thank you, Marta. And hopefully we meet again soon, in person. That's in May, I think. So first part of the question, yes. We believe with this profitability, I have to say it was not as easy as maybe -- it could have been because there's a lot of moving parts around on that. We assume that the supply chain will further improve. That means in terms of availability but also in terms of pricing, we have seen a first trend of this end of last year. It has though a little bit stopped at that level with only slight improvements. Now it's a bit hard to say how quickly it will improve, but we expect that it will improve throughout this year. Now on the other side, regarding Semi. Again, we see a mixed picture. So I can go from different extremes. One extreme for us being the leaf of business with [ ASML ] that has nearly no impact to the other extreme of where you may be seeing memory, have massive reductions in CapEx, though not so impactful for INFICON. And in the middle is automotive, IoT, HPC. So for us, it's really a year we would say in the average, maybe flat, maybe a little bit of reduction. But of course, we come in with our backlog and take that also into account and we can only ship backlog, of course, when the supply chain also improves. So this is a little bit connected with the answer to the first question, right? So this assumption. We see with all possibilities that it will change over a year regarding our expectations, but that's what we see from what we know in currently and in latest trends. I hope I could answer that -- this question now -- Marta, you mentioned you had one more?

Yes. So basically -- but I didn't understand the answer, to be honest. So is that -- I understood that you expect the supply chain to improve, but does that reflect in your guidance, and to what degree? Basically, do you expect that the prices for the electronic components will go back to the pre-COVID level? Or would they stay at the level of the Q4 improvement going forward, please?

Yes. Thank you for clarifying. Yes, we believe that over the course of the year, this will largely improve. So that's what we factored in with our assumption, but it hasn't fully yet. It has just reduced a little bit, right? I mentioned earlier, I don't know if you have heard that last year, we talked about $15 million to $17 million extra costs just to get our [Technical Difficulty] chip for our sensors. So it hasn't gone away. It's still there to quite a large degree, but we have seen some positive tendencies. So we hope that towards midyear and end year this will reduce, and that's what we put into our model.

So basically, if it doesn't happen, then they have to stay above $16 million, $17 million may be.

You would have to do that, yes.

All right. Thank you. So then with regard to your comments at the beginning of the call, I was an -- I find really little bit hard to reconcile. So with all then what you said about the weaker and stronger areas in the Semis, shouldn't we expect a positive product mix development into 2023 and stronger end users, which typically have also much stronger margin?

Yes, I have to think about this a little bit because there is probably 6, 7 different product lines moving in a different direction. There is maybe some effect in there. However, also the high-margin product lines have been more affected by this chip effect, right, more complex products have more complex chips and we had to pay a higher premium. So it's a bit hard to say. I would say there is not a too strong tempest that you could factor in for your model. Okay. More questions from the room? Yes, please?

So my first question is regarding your CapEx plans for 2023. What was the magnitude? And what would that have been investing in and should be CapEx beyond [indiscernible] trade. And the other question -- the second question would be regarding a few of priorities as a CEO moving into 2023, is there anything is particular focus from your side that is [Technical Difficulty] interest or issue, if you want, where you have to [ get in ].

Thank you for this question. So first, on the first question on CapEx. So we invested $60 million in the last 2 years, right, in this 50% CapEx expansion, which were really needed. We still could not ship as much as we would have wanted. It was though quite a lot impacted by supply chain parts availability. What we believe for this year, and it has changed in the last 6 months a bit because we thought we would conclude this program this year, we have actually seen now the need that we need to add another face to it. So we're currently in preparation of another program that might be smaller, and it might go into next year. But certainly, this year, this will lead to not much smaller CapEx number than last year. More precise maybe would be something that Matthias could outline, I would say -- it's good -- it's not possible that we are around 3 again, but we will have to work through this now how we work with the CapEx planning.

[Technical Difficulty] operation should be [Technical Difficulty]. So it could be up to a similar level than we have in the last years, depending on [Technical Difficulty] go down, we are trending for some, which should not happen if you be in the same mid range just [Technical Difficulty].

So in the -- if I remember correctly, you also asked a bit in what area. It is certainly still in the Semi area. So you will see some also here in [indiscernible]but also in other locations globally. And you will see also in other segments. In particular, if you think about security, HAPSITE, that has a total different dynamics. So we basically started there the investment program last year and it will probably go into this year. But then the second question was around priorities for this year. It hasn't dramatically changed, let's say, since we last communicated for instance, other [impairment or Credit Suisse event], it will be what always a year that was a bit in the middle. We have a mixed picture that needs a lot of feeling for how much of work is required, small adjustments, such as we just talked a bit to CapEx. Look at the general market, we have this discussion. We have what is the economy doing in Europe and U.S. or in Asia. So we will stay close to this. I mean, the focus is though mainly on the future. I think like I mentioned here in the segments, there is a lot of opportunities. There's a lot of products in the works. They have long development cycles. I want to focus on that. I want to focus on the partnerships we have with large customers, be it chip makers or toolmakers, there's actually a lot going on in that area. That's certainly something that keeps me busy. There's a few things that I want to do in the company itself. We have some opportunities with the size that we now are and the size for where we're going, that we would like to work more on our scalability and productivity topic that is maybe operational excellence that's in particular also what we mentioned earlier, also more digitalization. There are a few topics around that.

Very good. Now I think [ Joan ], you were next.

Maybe start with 2 questions. If you must focus on the absolutely key innovations, [indiscernible] recently, what are the product areas you want to point out? Is it software, is it coding applications you have and maybe also if you can refer to any kind of revenue prospect you can provide [indiscernible]'23, '24. This will be the first question. And the second question is on the gross profit margin, as you mentioned, I mean, it was again quite [indiscernible] gross profit margin in 2022. I mean, don't you have more pricing power? What is hindering you or what is preventing you of increasing price points higher to pass on rising cost that we see for our company.

Okay. Yes. So maybe for pricing, yes, we have long-term partnerships. This is also an advantage when you develop new products, that is true. At the same time, it's a give and take to find solutions. When you do price increases -- last year, we had a lot of tough discussions. Many of our customers had pressures. Many of our suppliers have pressures. We do believe we have pricing power but we also needed to find good solutions and some of these contracts or agreements have been longer term, there was backlog in there. So in that mix, yes, I believe we have made good progress in these discussions, and some of this will come into this year. I believe we can -- working into the future as well in certain areas, there we have new products, which is your first question. But it is a mix certainly, right, in some markets where we penetrate new and there you have struggles to deliver. The discussion is harder. Understandably. So when I come to the products, the pipeline. So I mentioned in particular, Semi. So I would say for most product lines, they are new generation somewhere in the works, maybe early days, maybe day some things we have launched. I can, for instance, mention the mass spec, the apex or the new Leak Detector, UL6,000 Ultra that we just launched and there's more in there, I believe, new generations for the more sophisticated processes across portfolio, more automation, certainly also more data analytics. We see that more and more. We can collect more data and we want to provide the customer more meaningful information and conclusions for what they get out of the data, but also what they can potentially do with it. Predictive maintenance, potentially proactively steering the whip in the [indiscernible] when you think about our scheduler application. So it goes really quite a bit across the product lines, in particular in Semi, but then yes, to go for the other segments, the battery is a fast-moving market, whereas the traditional combustion engine, not so fast. I think there, the focus is certainly on anything in this EV transition and battery, there is more automation there, there's more automation RAC coming. Some of this you have already seen. All of these products make me excited. Not all of them will be immediately visible this year, next year will maybe even take a bit longer. And then regarding security energy, I think the biggest one I did mention was the launch of the HAPSITE [ TDT ]. There's a few more other products in there, but that was certainly a massive investment and a longer project than usual. I hope with this, I could help you a little bit give a feeling for next year. I will probably not be able to give you numbers for next year. I will not be able to give you a guidance for next year. We will also look into next year, mostly optimistic, I would say, right? We see this pipeline -- if the market has the dynamic and we expect a bit of a bottom in memory and may be others in the second half. So I'm optimistic for next year work that is happening with the general dynamic. And we see a rather higher sensorization if I can say it like this, in the semiconductor environment and other segments we play. So we see more opportunities in any case.

On [Technical Difficulty] question, it's [Technical Difficulty] on the other hand side, I guess, there are certain [Technical Difficulty] even if you do it in September, you start with your customers, they mostly kick in this year only. So in March [Technical Difficulty] many of these price changes will get really effective because typically [indiscernible] it's hard to convince the customer when we say that is say, okay, this is also for existing orders. So they don't want to go back. So normally, [Technical Difficulty] rising reason that we brought forward. But for the other old models, we still be shipping in lower old price. We expect here in Q2 -- in Q1 and Q2 [Technical Difficulty]

Very good. Yes, please?

I have three questions, maybe first on the [indiscernible] came from that, but you said in the presentation that there was more [Technical Difficulty] more than how we would split over the next years revenue wise or [Technical Difficulty] for 5 years or may just that we understand are not just [Technical Difficulty] guidance mainly and then I have one question on [Technical Difficulty] I was just wondering if you could explain little bit [Technical Difficulty] at the moment. And third one, [Technical Difficulty] to change your revenue needs [Technical Difficulty] that you are able to go on hold to the, let's say, 20% to 25% or get stock registration for same level [Technical Difficulty]

Okay. I'll go for the questions in the order of how you asked. Thank you very much. So first, about the DoD. These programs are normally long term, right? So we explained before that this one program that we part of here needed 5, 6 years for qualification and all the testing and so on. And then the first order came that was the first phase. We expect several phases. The size of it, I don't know exactly. And there were some more orders for accessories and service stations that came afterwards. There is always also a training program. So there was a part already coming in last year. This slow orders that came then we deliver over the course of 18 months. Problem there is, again, rather the supply chain, I think we could deliver faster, the customer would accept it. At the same time, it is a renewal program. So it's not something that has a hard timeline on it. So it's step by step, and they also need to digest this. You can imagine different parts of U.S. military that did an upgrade, a training, a new service tool, the next one and so on. So it's a joint effort doing that in the coordination. In any case, we should expect several times something like that over the course of the years. That's what they tell me today. Things change, all right, in military budgets. We will see that. So that around that then about [ VAT ] and [ MEMS]. Generally, we see [ VAT ] as a partner. They do something that we use and use together, and we have similar customers, where we both provide parts for tools and also for chip makers, replacement and services. So to the largest degree, we are not competing. So these investments that they made in this small acquisition, something we also looked at. We tested it for early and we decided against it. We didn't decide against technology in general. We believe there's something there. We're working with it, too. At this point, it's not a technology that works very well in a harsh environment. It's all about the coatings that you put on top and still have the sensitivity. So we currently have a technology that in most applications is superior, but it's a new development. So it's something we're watching closely and working on it as well. Yes. At the competition currently, we don't see it. It's very small. All right. So the first question was on -- the third question was around the margin. We mentioned before on the gross margin, we see a path towards $50 million. We have too much uncertainty right now but we couldn't expect last year what happened to supply chain and the cost inflation. So we're a bit cautious there of what we're going to go and state this year. There is a lot of things that can negatively impact it. There's also positive factors in there. For instance, the price negotiation of the half. I believe in future, yes, there is offer to -- potential for the margin. I think right now, part of this is also the growth. The growth costs the money, we still believe this year, we made further investments. So maybe it's a bit of a different year than for other companies in that sense, if that makes sense. So I would be optimistic for the future. But for this year, I see a bit of a mixed picture. That helps. Maybe, Matthias, you want to add?

For sure, our ambition is to bring the 20% to be above [indiscernible] (61:32)in Q4. In Q4, the volume of [Technical Difficulty] some improvement on [Technical Difficulty]. And again, we are planning to [indiscernible] on the full year last year was basically impacted by 300 percentage points or 300 basis points [Technical Difficulty] program or straight duty material invoice and so on. And we did see some improvement in portfolio so far, but we see some improvement, and we also see a chance that including the way we just expect price increase that there will be a stark increase in gross margin and latera on, I think we should be able, and our business [Technical Difficulty].

Very good. Any more questions? Yes, please?

Again the margin. Very important, can you find us -- what's the margin of each business segment in relation to the [Technical Difficulty] above proportion, the loan book margin that we talk about Semi presently, [indiscernible] and RAC.

Yes. Is that okay if I turn it over to you?

Yes. Basically, I must remind you how actually we don't comment on gross margin on these end products. These end products are lot -- let's say, information number, we don't report segments, we don't get segments, we see as -- we see a lot [Technical Difficulty] the company overall, but we don't report, and we don't have it actually. So you can have a feeling. I can tell you, of course, maybe the Semi market is at higher, a little bit higher margin than the General Vaccuum market, but there were so many [indiscernible] factors, which has to be considered. It's not so easy to make a general judgment on that. To give you one example, we have businesses where the gross margin is stated as only 30%, but the operating margin [Technical Difficulty] because we don't have any major SG&A in that business. And then there are others where we have 70% gross margin but we have a huge application engineer's efforts, people, head counts, machines and tools, and then the end, we're also add 20%. So the gross margin is an indicator, yes. Maybe Semis is a little bit higher than General Vaccuum, but overall, we don't really calculate [Technical Difficulty] spent.

So sales mix has no impact on the [Technical Difficulty]

[indiscernible] impact, yes, but then [Technical Difficulty] has a positive impact last year, because [indiscernible] change in the current year. There is a lot more impact on OpEx, we mostly [Technical Difficulty] because there are many compensating impacts, sometimes you have, let's say, a negative impact on the top line, like we have in [indiscernible] and we have positive impacts in SG&A. So most of them are really compensating. So it's, for us, not so important.

For sales mix, is it's [ neutral ], CapEx is [ neutral ], depreciation is probably [Technical Difficulty]. On the positive side, you have lower [indiscernible], lower brokerage fees, lower logistic costs, and you will have also sale because the guidance is on the same topline guidance. So I'm wondering what portion is this coming from?

The consumer point [indiscernible] , I can follow your argument that there are different positives and negatives [Technical Difficulty] trading up to our guidance. But there a lower point, there is quite certainly another higher point but it is past 600, and let's maybe ask and answer your question.

Okay. That's also probably on dividend. Basically reported a record year, and you are guiding for second record year for basically implied growth of 1% in the midpoint, equal margin. So are you not trusting our guidance [Technical Difficulty]

We are asking and we think about it, that's for sure a problem. But as you know, and there are uncertainties in there. But as we said, we are mostly optimistic. We are not pessimistic. And with regards to the dividend, we talk about the dividend. We try to give some [indiscernible] in the past 3 years, and we continue the investments this year, the next year on this was on the [indiscernible] $5 million [Technical Difficulty]

Maybe to add some color to it, it was a discussion, right, to go and stay in a logical next step to what we had in the past. But nonetheless, in the past, also we had varying on the business development changes. So this is not a dramatical step, but it is a certain signal. But it's also growth-driven that we actually have a lot of cash that goes into the growth. I mentioned the inventory briefly, that's a little bit blowing up because -- increasing because of the supply chain, not -- availability of parts. We believe that will be better. And also into new investments. Again, our investment program -- this 2-year investment program would run into this year, but now we're already looking at the next one. So we believe that a balanced solution there, so that investors understand that, we want to explain it, and we will also take a little bit of a middle solution there. It's not a dramatic reduction, but it gives something in the middle, right? Because the program for us is relatively big. If you look at the past, before the 3 years now, it was quite a bit lower, 15%, 20% -- $15 million, $20 million was normal. Now we had over $60 million for this program, and there will be more coming this year, probably even next year, that's a bit in light of that. The profitability is not our concern, our concern is to have this a bit in the balance. That makes sense.

First question, could you please elaborate on [Technical Difficulty]. So we add [Technical Difficulty] to our statements, which [Technical Difficulty] March was the 2024 recovery. And if you assume [Technical Difficulty] assume that your guidance might be more geared towards the second half of '23, given your higher [indiscernible] exposure. So could we expect more, I would say, order intake and backlog [indiscernible] but could we assume more huge first half and it is going step up in H2 for a jumpup?

Yes. Good question. I mean maybe on the general Semi market, I'm just one of the people that stay closely talk to a lot of people, the customers and all of you. So it's a bit of a crystal ball question as well. First of all, I would stress that the Semi market today breaks down into many submarkets. Each one has its own CapEx dynamic. Again, one extreme is memory, the less affected by it. IoT, automotive I don't see a slowdown, frankly, not really something I can tangibly see from our perspective. Leading edge, yes, a bit, but not dramatic; [indiscernible], no, frankly. [ EV ], yes. So in that, I see the mix. Now the statement about the second half of the year was the expectation that memory will hit the bottom and then rebound from there on. That doesn't mean it's going to the same level as before, but the demand supply could flip somewhere there, and then the investment programs should come back. There's an assumption a little around memory. But I believe there's many people in the room or online that can also give very eloquent statements about their analysis of what the market is. And that's just giving my perspective. Now regarding the guidance, I would almost say that it could be not too far away from the usual seasonality. Why? Yes, we might have a slowdown of orders. Well, we don't really see it too much yet. We see some but we have also a lot of special effects, pandemic, Lunar New Year, a couple of special orders from segments that have nothing to do with Semi. So we don't really see it yet, but we have a backlog that will bridge some of the gap as well. So in the mix of that, what actually comes out of the factory might not have such a close connection to the immediate market demand of one of the Semi segments. That makes sense. So we will probably, again, will have a slower Q3 equity match interest because that's our seasonality, and we might have a large Q4. The first half is also not that bad. It is though hard to say, right? Month-to-month moves. If you imagine, in particular, the chip maker projects, [ TSMC ], for instance, would say we built this next part or part of the fab, and that's a big chunk of an order for us, and they move it by 2 months because, let's say, the applied tool isn't there, hypothetical scenario. That is something that is a bit random for us. The board is not gone, the project isn't stopped, but something moved around. As a month to month, we have a difficulty to really see that we have a broad -- we have a diversification. We have a broader product line mix. So that gets balanced out. But there is actually in itself quite a bit of randomness if that helps. And so I would see that it is not much different than other years taken on what I just said into account.

One query follow-up. To manage this in month-over-month swings, I was comfortable in to [Technical Difficulty] control as month-over-month [ sales ].

I think INFICON has a certain DNA, I would almost say or a certain structure approach how to deal with this. I mean INFICON, before my time, was successful navigating these cycles down to the vacation model, for the compensation model. There's a lot of models in place that this can live and breathe. Our capacities also need to be a bit bigger than the average because of this volatility quite a bit more maybe than in other markets, but that's a semi characteristic a bit. And so I believe we can work with that, but you are right. And that's also were we will be a little bit cautious with our statements. Is there a slowdown and we ramped up and this is not in Semi. We had plenty of that last year, all of us in Semi, but we all have great record years. There was a lot of these timing issues, right? The part is here, but the people are not here and the other way around that. We have a lot of that.

A follow-up in the investments [Technical Difficulty] onwards. [indiscernible] needs to utilize investments was [indiscernible] CapEx or what point basically being the basic assumption that are [indiscernible]?

I don't understand fully the question.

A certain amount, what is the base case or [Technical Difficulty] plus/minus. That doesn't assume 20% recovery from a potential trough in '23 or [Technical Difficulty].

We work with at least 3 scenarios typically. But I can tell you right now, if you want to reduce the backlog, we're going to reduce delivery times to where we want to be. That's our aspiration to have, leading delivery times. We just know that we need to push investments anyway. Actually, the back end of it, we might have to go and size a little bit smaller or, let's say, do it a little bit later. Yes. But right now, when you buy tools, production tools, it's almost a year still till you get it, maybe 10 months. Why? We use a lot of these products, pumps, chips, yes, same thing. We still have not really a relaxation there. So we plan quite a bit ahead. And so we have already started to think 12 months ahead but is to roughly hit this corridor.

First on the capacity. I think in the last 3 years, been the [Technical Difficulty] invested. Now you said there's another [indiscernible] happening. I think you joined capacity, it's paid around 700 [indiscernible] sales, and now you add another side of investments, so you got to the total capacity of [Technical Difficulty] how do you think about this delivery [Technical Difficulty] before the first question.

Having to pull it very simply, last year capacity was $581 million, right? We had to run, and of course we had the slowdowns and some of the capacity was not fully utilized. It's not entirely true, right? We could probably have shift a bit more, as I mentioned, because we were ahead with our capacity versus what the supply chain gave us in parts. Yes. It's not such a big step like in the last 2 years, right, that we will now plan for. But it will be a significant step, nonetheless, that we have for the next 2 years ahead of us. Can't give you the full details that I have the same reasons right now, we don't know exactly what the dynamics are going to be, second half of this year or next year. But of course, we see another bigger step forward in growth and then you put out the plant in our capacity. And so I'm not confident to give you numbers for that, to be frank.

Yes. Second question on the memory potential because as you mentioned, [Technical Difficulty] product, monitor the process [indiscernible] is doing. Let's assume the memory market was having memory expert [indiscernible] sales. There's a technology [indiscernible] meters. But what was the right [Technical Difficulty]. It's going on change in over the next few years, is also the same products you will sell in to [Technical Difficulty]?

Yes, it is -- let me start with the products first. So the products are largely the same, but they are specialty products that are just much more relevant in memory, what we see on the horizon now and where we already work on together with customers and partners. So I think, for instance, NAND, you have this extreme sandwiches, where you build these towers of memory layers. And then you go to these high aspect ratio edges, this is something that is very particular to this. So when you have a sensor that can understand how well are you -- how far are you going and what angle exactly you have, then that's something that is more particular for memory. That's an example for an application that is specific. However, as you said, right, they go towards EUV, that's certainly the same from us, the sensorization there. If it goes into the standard process, specifically PVD, it's very much the same products. But because of the smaller nodes, the higher sensitivity to influence process operations and impacts of small changes in the mix and the recipe, yes, they need more process control. Yes, they need more data analytics, they need more sensors. So yes, we just recently -- really the last 2 years, broke into the chip maker for memory. We had always business with them. It was always, of course, also through the OEMs or the tool maker products there, but that we have things like there is a big excursion. And now we need to clamp down and build as they call it, defense system that we just seen the last 2 years, right? They are the similar kind of orders come live from the logic customers. And that is a starting thing [ at this moment ]. And right now, it's very unclear. So we had the first session as phase of these investments in the last 2 years, but now right now, it's stopped, right? Now it's a bit smaller. Now it's more leading edge for them or service or application optimization where the revenue comes from. And these projects are a little bit moved out. So it's a bit an unclear picture how quickly it will come. But I mean, I'm a strong believer in this segment also becoming very relevant for us over time. It probably be years, I think, right even though Semi is fast moving, but it's the same adopting new products, new processes, it does take time to just prove it out. Any more questions? Everybody tapped out. Really good to go to the next event, you've got a busy day today, right? If there's no more question -- is there online any questions I'm asking Bernard or Matthias, just to make sure? And I know online, maybe it was a little hard to hear at times [indiscernible] , so apologies for that. I would like to thank everybody for coming today. It was a pleasure for me and I hope to see you again soon. Some of you I see through the course of the day. So thanks for calling, and have a beautiful day. See you again soon. Thank you.