Integrated Micro-Electronics, Inc. (IMI) Earnings Call Transcript & Summary

Good afternoon, everyone. Welcome to Integrated Micro-Electronics Full year 2021 Operating and Financial Result. This afternoon, we have our CEO, Arthur Tan, who's going to open the presentation; to be followed immediately by our President, Jerome Tan, who's going to talk about the operating environment and operations of IMI; and finally, to provide the financial highlights is our CFO, Laurice Dela Cruz. After the presentation, we're going to give enough time for your questions. Thank you.

Thank you, Anthony, and good afternoon to everyone, everybody that dialed and logged in. I guess one of the things that's interesting is the current situation that we're in, where we're really seeing quite a number of moving variables on a global scale that's affecting every business in every industry. I guess I just want to open and start off just to iterate that in spite of these challenges on a global basis, what we have seen and actually have felt was that the mega trends we have decided to pursue almost a decade ago, is now coming into fruition, and the adoption rate has actually accelerated. So the digitization, this disruption in mobility, the convergence of connectivity and mobility and then, of course, now even more so, the energy and the smart energy issues that is compelling everybody to revisit, overhanged by this climate change direction and electrification and net carbon neutrality that the rest of the world is looking at. So under that guise, I'd like to just reiterate the fact that instead -- in spite of the near-term challenges that everybody in our industry, including IMI itself, is facing, we're very bullish that the fundamentals of the company is strong as well as the markets that we have built our capabilities, both on a manufacturing as well as from a technology engineering basis, seems to be well aligned and accelerating. So under that guise, I just want to pass it over now to Jerome, who's going to talk about the specifics of the current situation that we're faced with as far as the last year performance. But nonetheless, what I just want to reiterate is that there is no question on the direction that we are taking. We're quite bullish with based on some of the projects that we've been winning and the ability of the company to adapt quickly in under this environment. So with that, thank you again, and I'll pass it on to Jerome for the details.

Thank you, Art. We'll start off, as usual, with the global economy. If you look at the chart, the global economy rebounded in 2021 to a growth of 5.9%, but it's expected to slow down in 2022 and into 2023, led by the U.S., EU and China. But just, I guess, to put it in context, even because -- even before the pre-pandemic level, a normal or normalized global GDP growth rate, it's around the 3%. So even though it has dropped, the forecast is expected to drop from 5.9% to 4.4%, it's still a healthy GDP growth. There are, however, a number of risks, as Art mentioned, geopolitical risk as one, also because of that and also the imbalance between the supply and demand. There's rising demand of energy as well as supply disruption. We expect that continue to drive inflationary pressure globally. Added to that, the ongoing retrenchment of China's real estate and the slower-than-expected recovery of private consumption in China also limits to a certain extent, the growth prospects that we see this year and into next year. So we're watching that closely. There are a lot of uncertainty, and the biggest one is really the geopolitical effects that might have a longer-lasting impact on the inflation and, therefore, dampen demand globally. Going into the next page, please, yes. If you look at the global electronics PMI, last 3 months, it's still continued expansion up to January. Although I think it's also subdued because of the supply chain issues that we are seeing and also similar to IMI, we are showing very strong growth in demand, but because of the component shortage and supply issues, a lot of our growth is also dampened. So that's consistent what we're seeing here. Going into next page, on the -- just on the component supply situation. We originally had forecast, I think it was Q3 of last year, wherein we show on the white bar our expectation in terms of when the component shortage would normalize. Originally, we forecasted it would start normalizing in Q2 2022. However, because of the surge in Delta variants in the second half of last year as well as natural disasters in certain manufacturing regions, the delay on the normalization of the component shortage and supply chain, we expect to be delayed by another 1 to 2 quarters. So that's represented in the red bar. In particular, the Automotive segment, the recovery is expected to be slower, mainly due to the nature of the automotive industry. They have fewer alternate components that they can use, and it is -- it takes longer and more expensive to qualify alternative components unlike consumer and industrial wherein, to a certain degree, they have a bit more flexibility to adopt alternate components. So we are seeing more slower or more allocation move towards the consumer industrial segment. The component price and supply is expected to ease in the second half of 2022. We are seeing very tight supply still in Q1 2022, although we're starting to see some improvement in allocation and better allocation as well is expected to continue in Q2. So we're continuing to watch this space and expect by second half of this year, this would start to ease. There are also a number of things that we're doing to be able to help improve our operating performance. One is, because of the component shortage, we are looking at opportunities to tie up with component manufacturers directly. So we've been successful in the last 1.5 years to be able to, at least, have direct sourcing from some of these component manufacturers. This allows us to participate directly with their escalation process and also give us more visibility in terms of the supply chain and the allocation, which allows us to plan better. And we've also looked at ways to identify alternate component. So this is the other thing that we're pushing. We're more successful, as I mentioned earlier, in our Industrial segment. We're able to replace a number of these tight components with alternate, less so on the automotive segment. And then lastly, what we're also doing is, to the extent that we can pass on a lot of the increase in component cost as well as high increased energy costs and freight costs, we're passing on to our customers as well just to protect our margins. So these are some of the things that we're working on to address the component shortage and supply chain challenges that we had in 2021. Next page, please. Just wanted to share some indicators that we track on the component situation. So if you look at the left-hand side of the page, you're showing a number of these key components in terms of allocation lead time peaking, although still very long lead time, and there's still allocation, at least it's not increasing, right? So we see the peak in Q4 2021. As I mentioned earlier we're also seeing some pockets of improvement in terms of allocation, and we expect that to continue to ease. On the right-hand side, you see the inventory levels of suppliers also starting to increase. So a normal level would be around 3, 3.5 months of inventory. You'll see the trend now is moving upwards, so this gives us at least -- give us an indication that better allocation would start to happen towards Q2 and then towards the second half of this year. Moving into our financials. On our segment updates, full year group revenues closed at $1.3 billion, up 15% despite the component shortage and supply chain issues that we've experienced in 2021. We had, at the end of the year, approximately $65 million revenue of backlog, which we're not able to serve because of these challenges. So if you had -- if we were able to serve, the growth would have been 20% growth rate. So still shows a very strong demand in the market where we serve. Our core segments remain to be Automotive, Industrials and Aerospace. They remain to be drivers of our growth, growing double digit for the full year. And as reported in previous analyst brief,IMI's position in this global trend--mega trend of electrification, autonomous driving and connectivity is the one driving the growth in electronics. In mobility, in particular, EV-related project, we started -- we're starting to see a ramp-up in the second half of this year. And also, we have seen significant wins in 2021, $218 million of annual revenue potential won in 2021, which represents about 68% growth in 2020. In industrial, applications driving growth would be our asset-tracking business, smart meters as well as connectivity. And the new area that's driving also our growth is the electrification where we see increase in our industrial power module segment as well as charging station growth. In Aerospace, although we're seeing a growth here, the industry continues to be quite challenged because of the supply situation. I think more particularly in Aerospace and Defense, wherein critical components are supplied by a much smaller group of component supplier. So that aggravates the situation in the aerospace and defense market, although what we're seeing now some positive developments would be coming off the tensions that we're seeing in Europe, a number of the Western countries are starting to look at how do they invest more in the aerospace and defense field. So we're starting to see queries from a number of our customers in terms of being able to provide the capacity for new projects that will -- we expect to get additional growth into the future because of the situation. Our consumer and medical is showing a drop versus last year. That's mainly because of the normalization of moving from a pandemic era to a more endemic era on COVID-19. So we see less growth in terms of the work-from-home environment and the medical testing for COVID. So that is driving the drop in 2021 for consumers and medical. On the telecom, we -- the telecom year-on-year drop is 19%. That's mainly driven by our customer in China wherein they are switching -- in the first half of 2021, they were switching a lot of the components from imported components into locally sourced components, driven by the U.S.-China tensions. So we saw a significant decline in the first half, but as you can see, in the second half, particularly in Q4, we are starting to see recovery in this segment. So we expect this segment, as they normalize their supply chain, to have more locally or China-based components. We expect that growth to normalize and continue. Next page, on the region updates. Although in the full year, you see growth, we see most of the impact on the component shortage hit us in Q4 of 2021. So you'll see particularly in the countries where we are mainly automotive or serving mainly automotive customers. In Bulgaria, Czech Republic and Mexico, you see a decline in Q4 that's mainly driven by component shortages, except for China, even though we have an automotive segment in China, that the business continues to grow significantly. I think in China, our Jiaxing facility, which is close to Shanghai; and our automotive facility, the growth of our Jiaxing facility is actually 30% year-on-year. The other thing that we're seeing across most of our operations are increased attrition and higher labor costs. So because of the strong demand in the electronic manufacturing space, we're seeing higher attrition, and therefore, we need to remain competitive and look at opportunities to increase our retention and also adjust a lot of our labor costs so that we are able to maintain our workforce. Those are the updates that we have on the revenues by segment and by region. I think now I'll turn it -- okay, next page, we go into the new wins. So for our new wins, as I mentioned earlier, for the wholly owned business, we closed the year with annual revenue potential wins of $356 million, up 52% from last year, and the driver of that growth is mainly coming from our mobility business. If you look at the entire mobility, it's actually up 68% to $218 million annual revenue potential wins. And a big part of that win is coming from the electric vehicle space. So if you look at the notable wins in the bottom half of the chart, the first 3 are actually related to EV or applications for electric vehicles that's going into the market. And most of them are significant project wins. The first 3 combined is a total of about $130 million annual revenue potential wins. So that's driving a lot of our growth. In STI, on the top of the bar chart, you actually saw a drop, and that drop is mainly because in 2020, we have a number of wins related to the COVID-19 testing, which we don't see that anymore as the pandemic now is moving towards more endemic stage and less testing is required. I think with that, I'll hand it over to Lau to talk about the financial results.

Okay. Thank you, Jerome. Good afternoon, everyone. So as mentioned by Jerome, despite the global component shortage, we still ended the year with a strong revenue growth of 15%. However, the challenges brought about by the supply chain tightness affected our margins and that we ended with a net loss of $10.6 million for the year 2021. On this slide, let's put -- I'll put emphasis on the Q4 performance versus Q3. If you will see our revenues slightly higher than Q3 with the recovery of our core business, specifically our China subsidiary, also our Serbia factory. And with -- also, STI slightly increased because of some material milestones that they were able to recover from the customers. But we experienced some challenges in our Europe and Mexico -- in our Europe factory because of the component shortage and also the effect of depreciation of the euro because in Q3, the euro is about $1.19 million. In Q4, it declined to 1.15 -- EUR 1 to U.S. dollar. On the gross profit margin, if you will look at the margin, it's better mainly driven by the non-wholly owned subsidiaries, while our core business was impacted by the material price increase that we have in our Q3 spend. So that would affect our Q4 material cost. Also, there are high margins -- high DM cost for our communication, mainly driven by the high [ turnkey ] sales and some IFRS 15 adjustments. On the operating loss level, the operating losses are higher in Q4, driven by some additional inventory provisions and some ECL provisions. There were also additional costs, especially people costs and insurance costs related to our non-wholly owned subsidiary. In particular, for VIA Optronics, as they have reported in their Q3 earnings, they are strengthening their R&D and corporate capabilities to support growth plans, especially on the Automotive segment. So that increased our cost in R&D technology cost. And there are also some costs related to the acquisition of German [ years ] that were booked in Q4. Also, in Q4, we have some one-off costs like the transfer -- related to the transfer of our PSI subsidiary because we transferred the location from Calamba, Laguna to Binan, and we incurred some one-off related to that. On the bottom line, net loss position. Despite the lower operating losses or the higher operating losses, we were able to get some benefit from FX position, and we also got some incentives from our -- from the Serbia government, from -- also from Shenzhen and Bulgaria related to industrial incentives and COVID incentives for our Bulgaria factory. Next slide, please, Brian. Okay, just to show the split of our wholly owned and non-wholly owned subsidiaries. For the wholly owned, the growth from Q3 to Q4 was driven by the high demand in our China facility. Also, for our Serbia factory, some of the component situations are -- and recovered backlogs improved the revenues. But overall, backlog is still at a level of $66 million as of end of the year. Hopefully, some of those will be reinstated in 2022. For our non-wholly-owned subsidiaries, the decline was -- there was actually an increase from STI, but the decline mainly from VIA, is because we expected some disruptions in the supply chain and that the impact of shortages are affecting the Industrial and Consumer segments. Plus, there were also reported impacts of the power shutdowns in China towards Q4. Okay. So on the net income, for the wholly owned subsidiary, we ended negative -- at negative $0.7 million, but if the adjusted earnings is actually positive because of the one-off expenses that we have. One of this is the -- the one of PSI transfer, which is about $900,000. There were also one-off inventory and customer provisions of around $700,000. And on the non-GAAP, we also removed the unrealized FX impact and that the losses -- the FX losses of our core subsidiaries is at $1.7 million and also the amortization of intangibles at $1 million. For the non-wholly owned subsidiaries, the Q4 was affected -- well, as mentioned earlier, it was driven by additional provisions related to technology and growth-related investments. And also, we have removed the positive impact of our -- of the FX benefit we had in VIA. Okay. Next slide, please. Okay. So this slide shows the gross profit margin walk from our 2020 performance to the 2021 performance, and it's showing a decline of 1.5%. And the main drivers really are coming from materials, labor and variable overhead. Out of the 1.2 or 116 bps gap in the material cost, around 500 bps of this can be attributable to the freight-in increase, wherein last year, the average freight-in cost is just 1% of revenues. Now it has grown to 1.5%. And on a P&L impact, this will translate to around $5 million. There are also high material prices, especially towards the second half of 2021, and that the total impact for the year is around 0.5% increase in material costs compared to our last year wherein we expect cost reductions of about 1.5% every quarter. But some of those price increases are actually being recovered from the customers. On the direct labor side, the 0.7% increase are mainly driven by mandated region salary adjustments, which started in Q3 and also some adjustments -- well, the adjustments in the salaries are driven by government mandate and also increases to address high attrition. There are also effects of overtime expenses to cope up with the supply chain issue and increase in the contractual workers and impact of hourly workers, plus unfavorable FX rates in our Mexico and Europe factories. So the -- on the labor, these factors, including the impact of the shortage also caused some underutilization or labor inefficiencies. On the variable overhead, aside from the elevated consumable and material packaging expenses, we also have some increase in electricity costs towards the second half, affecting our Europe subsidiaries. On the fixed overhead. In terms of amount, the fixed overhead actually increased by around $16 million, but this is relevant to the growth in revenues. In terms of percentage, the -- it has actually decreased from 14.3% last year to 13.7% this year, and that we are trying to rationalize the costs, particularly, let's say, people cost, wherein we try to align it with the right level of revenues that we have. So for people costs, the percentage last year to revenues was around 8.5%. Now it's down to 7.6%. Another factor also of the increase in freight -- in the fixed overhead is the freight-out, wherein it increased by 0.2% versus last year, also related to the elevated logistics expenses. We also have some increases in supplies and materials and also some subcontracting costs, but these are actually being billed to the customers. So there's a recovery on those items. Next slide, please. Okay. So in our aim to return to better profitability, we are seeing that these are -- these factors are just temporary and that on the medium term, we can actually go back to the double-digit margin levels. Some of the initiatives that we're doing are, first, we're trying to identify alternative components, and with that, we can generate some savings of -- from, let's say, around 30% savings for those alternative components. We are also trying to increase our involvement in the design in developments, and we're shifting to box build systems and infrastructure to improve the margins. On the renegotiation, we are actually negotiating price increases with the customers, including the price increase for materials, labor and also freight, and that as of the moment, we have already negotiated around $7 million worth of price increase for 2022. We are also trying to prune some low business -- low-margin businesses to improve the profitability of the company. Then if, let's say, we will be able to go back to the normal freight levels, that would also improve the margins because the effect of that in 2021 is about $7 million increase to the whole cost of the company. Likewise, we're trying to clear some backlogs. So as of December 31, '21, our backlog has already reached $66 million, and if we will be able to recover some of it next year for 2022, that would increase the margins by 30 bps. Then on a long or midterm basis, we're also trying to improve utilization by the contribution of the new businesses that we have won and that the mass production has already started towards -- sometime in Q4 of the year. Also, we're trying to consolidate some of the sites, and also, we're looking at rightsizing of the organization to its level of revenues and margin. Okay. So on the capital structure, we remain resolutely committed to our disciplined approach to capital allocation and to maintaining a robust balance sheet. As of December 31, '21, our current ratio stood at 1.59, and our debt-to-equity ratio is at 0.69. On the financing activities, our cash level and available credit lines provided opportunity for the company to redeem $70 million of preferred shares, $40 million which are coming from our bank loans and $30 million of that are from internal cash. This will translate to lower financing costs for IMI. Next slide, please. So despite the current market situation, we continued investing on capital expenditure for further space utilization and line upgrades to ensure readiness for capacity expansion when the supply issues begin to resolve. In 2021, IMI spent $31 million on CapEx, higher than last year's $18.7 million, but this is still lower than our CapEx levels prepandemic of $65 million and $39 million. Okay. That's it on the financials. I'll pass you on again to Jerome for the key takeaways.

Yes. Just wanted to summarize the results of 2021. Our biggest challenge that we had was the component shortage and the supply chain disruption, but indications show that starting -- sorry, Q2 of this year, we are expecting to see some easing and continued improvement or much better improvement in the second half of 2022. There continued to be very strong demand, as Art mentioned, that we are -- in the space we're in. A lot of the mega trends are driving our growth. However, it's still -- 2021 was muted by the supply constraint where we ended the year with a backlog of $66 million. We continue to look at ways to improve our margins. One of the big things that we are focusing on is renegotiating the prices and pass along price increase that we are getting from the component suppliers, which we have been successful, and I think another quite significant price increase we're able to pass on and negotiated that would help improve the margin starting 2022. In addition, we also look at the inflationary prices from energy and labor, which we have incorporated as we bid for new projects, we have assumed a much higher cost -- operating cost in the supply chain, in the people cost and the energy cost, some of which we are also passing on to the customers to the extent that we can in 2021 and taking effect in 2022. We've looked at the recent Shenzhen COVID lockdown. Fortunately, the lockdown was shortened from original 1-week lockdown down to a 4-day lockdown. So the impact on that is not significant for IMI. We also look at the impact on the Russia-Ukraine conflict. Also, again, direct impact is not significant, although things are changing, and things can change very quickly. In China, you're seeing -- we're seeing risk of additional lockdowns. So hopefully, it won't be a severe and it won't be a complete lockdown, wherein even businesses are not able to operate. So we continue to watch this space, and that continues to be the uncertainty that might impact us in 2022. And then lastly, we've invested over the last 2 years in additional CapEx, in R&D, and we expect those to be able to support our growth in revenue. And with that, we would be able to have a much better margin with additional revenue to improve our utilization in our fixed overhead. So I think that's -- those are the takeaways for 2021 and our expectations for 2022. So I'll open it up now for questions. Anthony?

[Operator Instructions] I have a question here first, Jerome. What's going to be the impact of a higher energy prices initially at least for IMI?

The -- I think energy as a percent of our cost is about 2%. So in certain areas, we're seeing some significant increase. Like, for instance, in Bulgaria, we're seeing a -- I think this is even before the Ukraine-Russia conflict, has increased almost double. And to that -- to those extents, wherein the increase is significant, we would pass on the increase to the customer. In areas wherein the increase is less significant, we are not necessarily able to automatically pass on to the customers. So I think overall, if you look at our energy, which is about 2% of our revenue, an increase that -- a very rough estimate would be maybe 20 to 30 basis point impact on our cost. So how we would mitigate that is depending on how much we are successful in being able to pass on these costs to the customer.

Thank you. [ German ], you're raising your hand. Go. Please proceed.

Yes. May I ask, first, if you can hear me?

Yes.

I only have 3 questions. First, I think the chart shown earlier regarding lead times was only until Q4 2021. I just want to ask how 1Q 2022 is faring quarter-on-quarter, especially considering the Ukraine crisis. I read that palladium and neon, both are critical components of semiconductors, are mostly supplied by Russia and Ukraine. So I just want to ask for any updates on that. And then second, that there was -- there were other one-off items mentioned in the financials -- financial slides earlier. I just want to ask if we net all this out, what would be the recurring bottom line figure? And how does this compare year-on-year? And then third, there was a mention earlier that there are some low-margin businesses that are being pruned. So I just want to ask, which businesses are these specifically?

I can take the lead time first. Lead time, we don't have the Q1 data yet since the data is a bit lagged, but we're seeing it -- if you remember, a lot of the lead times have peaked in Q4. So we expect the lead time in Q1 to improve slightly. I don't think it's going to be a significant improvement, but at least it's trending downwards or becoming shorter lead time but still very extended. On the impact on the neon and palladium, we don't see immediate impact. That also depends on how long the conflict would be. If the conflict gets extended much longer, then we might see, again, more supply chain disruption maybe towards the end of the year because there is a lag between the raw materials being depleted throughout the supply chain.

Maybe I can add a little bit on that. So the supply -- the importance of neon and palladium, actually on the equipment side and the material side for the semiconductor manufacturing of the wafers themselves. And so that's that way at the beginning of the supply chain side for us. The thing there is that the volume necessary to be able to operate using these exotic materials are not that big. So they're not directly -- I mean they will affect, but I don't think that they can affect that tremendously because the requirement for that material is not that high. The sourcing is quite challenging, as what you've mentioned. I don't know how much just-in-time inventory the wafer fabrications have done in order to support their requirements. But there will be an effect, but I don't think it's immediate, and it will be trickled down.

On the second question on recurring, it's a bit difficult to say what would be the new recurring as a lot of things are in a way not normalized or assuming the situation is becoming a new normal, right? But if you look back to prepandemic normalized net margins where IMI was operating at around 3% net margin, so we're looking to be able to at least, as things start to normalize, being able to hit that more normalized 3% net margin in the near future, right? And then lastly, on the -- Lau, feel free to add if you have anything else to add. On the pruning, those are specifically more the smaller customers that we have wherein it's less profitable, and we have to deploy resources. So we're looking at how we can either adjust the price so that we continue to serve them but make sure that it's still profitable for IMI, especially with all the costs going up. But to the extent that the customer won't accept the price increase, and it's not a significant part of our portfolio or our strategic customer, then we would look at ways how we can transition out from IMI.

Yes. Maybe -- I'm sorry.

Go ahead. Go ahead.

Yes. Maybe just to add on the normalized earnings. Well, if you will compare it with the second half of 2020, wherein that was actually our post-COVID recovery period, we were able to perform at around 9% to 10% GP. But the challenge is we don't -- the big impact on the freight, we don't really know if the freight costs will go back immediately to the normal level. So that's one challenge that we're facing right now.

We have one question from the chat box. On a scale of 1 to 10, how well positioned is IMI in the expected secular boom in defense spending? It's coming from Louie Lichauco.

I guess on the defense spending, I would say that probably more in the 7 range. And the reason why I'm saying that because in terms of the size of STI, it's relatively small compared to the other defense provider, although STI is qualified for certain key project as part of the listings. So it's very difficult to say. I would just say that we are seeing a number of our customers engaging with us to see how we can support them in terms of the growth. Whether we can capture all of the programs may not -- may be more difficult to assess, and size can be a factor in being able to win major projects.

Yes. And then just on, I guess, the current situation, the geopolitical situation in Ukraine right now sends a signal that NATO will need to go beef up its resources, and I think that's where, on an overall basis, STI is actually poised because its predominant market has always been the European NATO side rather than the U.S. -- in the U.S. defense side. So from that perspective, it is well positioned. Unfortunately, as what Jerome has mentioned, the size of the company also dictates on the availability of it being able to source the materials necessary in order to win the programs. Programs are pretty much decided upfront. And the nice thing about the military side and the defense side is that they do not adhere to a single-source policy, and therefore, every project requires multisourcing. And this is the reason why the backlog is increasing, and the projects that the STI is also looking at is increasing significantly because there is no single supplier that will be given a program. Everybody has to be second source. So that part of it is actually promising. The thing that is going to be very, very telling here will be the effect of how much of the Brexit is going to be directly affecting the way that the EU and NATO is going to protect itself together with the U.K. And I think this is where the potential for STI can be really big or it will be around the area of what Jerome is saying about. That's all.

One other question here. IMI installed EV charging station in the Philippines. How do you see this moving forward?" Thank you.

I'll take that one. Yes, we did. We were part of a project. It's actually not just IMI. We supply the charging system to a local integrator who has been tasked by GAT, the transport company, who is the ultimate customer for the charging stations that are deployed inside the Ayala Malls. So to date, I think we've had almost 5 of them already installed, including one in Davao, and we're -- and the projection is that we're actually going to install about 100 of them. So the 4 -- and this is just the beginning. This is just on one program on one transport company. And our belief is that there will be a movement that will help us move closer to carbon neutrality by deploying these charging stations that ultimately is actually built by IMI and then serviced within the IMI sphere. So that's where we are right now. We -- the nice thing about it also is the charging station that IMI does actually has the capability of supporting all the protocols, the protocol for the United States and Europe, the protocol for Japan, protocol out of China, the protocol of Tesla and so on. So we remain to be agnostic to the changing protocols required for these different vehicles that are going to be entering the market.

Thank you, Art. There's no more question in the chat box. I think we can close now. Maybe Art and Jerome, you can say a few closing messages before we formally close the presentation. Thank you.

I guess as I mentioned in the takeaway, we continue to see a lot of headwinds with the geopolitical situation, inflationary pressure, supply chain disruption. The positive thing is on -- at least on the component shortage and supply situation, we're starting to see some increase in allocation and more improvement as we go into Q2. And I just hope that continues to normalize, and we get back to a level that's more manageable in the second half of this year. We can -- there's still a lot of risk in terms of the macro environment with all the situation happening, but we are looking at ways that we can protect our margins. And the good thing is a lot of our customers also see that pressure across. And so they are more open to having price adjustment, particularly in most of the segments we serve, a bit more challenging would be in the automotive space, although the customers are also putting a lot of resources that they have to be able to improve the situation and manage the cost with their component supplier as well, so that we don't suffer a significant increase in the raw material prices. So I think the outlook is still quite uncertain, a bit of risk, but we are starting to see some improvements, and hopefully, that becomes more manageable in 2022.

Yes. And then just to add to that. First, I think Jerome and the executive team has done an excellent job of being able to manage this very volatile situation. From where we're looking at, one thing that I use as an indicator is always the total consumption market and the growth of each of these developing markets, the industry that's driving that growth. From that perspective, I can see that the inflection point is happening already post COVID for a lot of these markets, and I see sustainability within that market. The good part, I guess, on a short-term basis, I agree completely with Jerome. Challenges are there. It's real, and we'll probably need to just adjust and adapt to that on a daily basis. However, what's actually for me is a good indicator is that the number of projects that we are looking at, and not only that, but the quality and type of those projects, those are -- these are really key projects of our customers, of which their own businesses depend on their success as a company depends on, and we are actually actively being asked to participate in that and look at those projects. So that's the part that gives me some level of optimism for where IMI is and its position within the global sphere and the type of projects and customers that we continue to attract. So yes, we don't have a crystal ball to tell when all of these is going to normalize, but I'm pretty sure that on a normalized basis, then IMI will be able to perform very well. Thank you.

With that, we officially close the presentation for our 2021 financial and operating result. I'd just like to invite everyone to visit the website for updates and an announcement, and we'll upload the presentation on the website once we finalize it. Thank you for joining us this afternoon. Have a good day.

Thank you, everyone.

Thank you.

Thanks, everyone.