Sensirion Holding AG (SENS) Earnings Call Transcript & Summary

All right. Good morning. Welcome. Greetings from my side. My name is Heiko Komaromi. I'm the Director of Investor Relations. And I'm very pleased to welcome you to the financial results presentation of Sensirion for the year 2022. Today with me, as always, is our CEO, Marc von Waldkirch; and our CFO, Matthias Gantner. I will be moderating through this presentation, and we will do an analog to last year. So first of all, we will show you the financial results from 2022, moderated by Marc von Waldkirch, including an outlook. Matthias Gantner will then deep dive into the financials, and Marc will conclude with the deep dive into the outlook. Once we finish that third session, we will be open for Q&A, and I invite everybody online and also here in the panel to ask your questions. Here in the meeting room, you can feel free to raise your hand. [Operator Instructions] All right. And without further ado, I hand over to Marc.

Thank you, Heiko, and warm welcome from my side here in Zurich. First of all, to you here in the room but also to our virtual colleagues and online. So first of all, a short summary of 2022. I think 2022, and this is more than known for you, was characterized again by a lot of geopolitical and macroeconomic challenges, so starting with the shortage in electricity about the allocation in raw material markets, about the Ukraine war but also last but not least, also the COVID situation in China. Unfortunately, at least 2 of them, that means that COVID situation in China and also the allocation seems to be relaxing more and more today. So that all the others are still there. Despite all of these challenges, we can actually look back to a pretty successful 2022 again. We ended up the top line with growth of 12% to CHF 322 million -- CHF 321 million. This was mainly driven by all our new products in the environmental sensing area. That means with a particulate matter with CO2, these products, they have now taken over major contribution of our growth. [indiscernible] there is also humidity, there is also flow products. They are still contributing but not on the level, which is -- for only with them, we cannot actually record these growth rates as we can present today. On the other hand, we have also -- if we are looking back to 2021, we have this medical ventilator business driven by the pandemic, which normalized 2022, which was also more or less compensated by -- they added additional one of extra business, which came also for medical, but it was more driven by replacement activity of one of the largest tech companies, which is also disclosed today as a one-off business of CHF 28 million to be very transparent to you on this extra value. In terms of profitability, we recorded a gain of above average profitability level on gross margin but also [ net DLL ]. This was driven by very high utilization of our fab. Both figures backed down slightly compared to 2021, which is also illustrating the fact that we are investing heavily into additional CapEx in order to bring down the utilization of our fabs to a normal level, also to be ready again to react fast on additional risks of our customers. That's one of the major USP of the company that even during the whole pandemic and allocation phase over the last few years, we were always able to deliver, and we have always long [indiscernible] ever significantly shorter than all our competitors, and we like to keep this USP with the company. That's also one of the reasons why we are investing heavily in CapEx. On the other hand, we like also to invest into additional R&D and sales resources. Also, this is part of our DNA in order to grab and to address additional growth initiatives for the next couple of years. That's also one of the reasons why we are coming back now to normal levels of equity. Since middle of 2022, and this was also one of the messages I shared with you during our conference call in August 2022, we see also some slowdown in the market. So this is very hot space where all the customers were mainly concerned about the fact that they might get few products is old. Now the customers also started again to optimize their inventories. This is mainly seeable in the appliances and the consumer industries, not yet in automotive. As I have written in my shareholder letter this morning, we expect that also in automotive, there will be some slowdown effect in the next months to come due to the fact that automotive seems to slurk still on the backlog -- to reduce the backlog orders that they have taken in the last couple of months, and they were not able to do so -- to deliver due to the shortage of components, which is now relaxing a little bit. As a result of all these estimations, we are pretty cautious about the forward-looking statements on 2023, but I'll come back to this at the very last slide of this presentation today. First of all, coming back to 2022, some words about all the markets in automotive. We recorded a small growth of 3.4%. After weak H1, so H1 was a shrink of top line. We could now come back to a small growth due to the fact that we have also seen in the second half of 2022 the orders picked up. Also, this was on the base or on the back of the fact that the automotive car manufacturers, they could normalize more and more operations in their fabs, thanks to the fact that electronic components were just relaxed in the last couple of months. Strategically, we made significant progress also looking forward to win additional sockets with European OEMs directly. So probably you can also remember that we started this direct business in 2020 -- 2018 by an acquisition in the Korean and Chinese market. We are now more and more -- we can actually win track record in this direct Tier 1 business. And looking back in 2022, we could win additional designs for European car manufacturers. These are not yet influencing the top line because it takes typically 2 years in order to be ready with auto production. Vertical markets, here, again, as I have already mentioned, this was heavily influenced in 2021 but also 2022 by one-off effects. In 2021, it was mainly by ventilator sensors. And in 2022, it was mainly driven, this one-off business by the CPAP replacement activities of a cheaper manufacturer in the U.S. Those one-off effects seems to be old. That means we are not expecting to have a significant contribution to the top line in 2023 by one or the other of these 2 one-offs. In the core of medical, we put record robust growth rate of -- it was more or less 8% from 2021 to 2022. There's more dynamic in the industrial market. Industrial is actually a market, which is highly diversified. In these markets, we see all these appliances but also HVAC heating, ventilation, air conditioners. There's also [ semicon ] that is part of industrial. And there, we have a high dynamic in the last couple of years. This is mainly driven by all these new environmental sensors. All these new products, CO2, particulate matter, formaldehyde, but also volatile organic compounds, all these measurements or sensors, they address the indoor air quality, is mainly addressing the industrial market. And here, that's also the reason why we see this very high growth rates in the last couple of years. We could -- more than double the top line of industrial markets within 2 years, as you have seen earlier on the slide. And here, we see also some slowdowns now. So if you compare the full year result of 2022 with the half year or third quarter of the year results, then you see that there is still a good growth rate, but it's lower than the one we have disclosed in August last year. We see also good demand that we have seen in 2022, good demand for flow center for semiconductor industry. Semiconductor is definitely also running pretty well. Also there, we see now some slowdown effect due to the cycles of semiconductor industry. And last but not least, the consumer, which is more or less the same dynamics. So we had a very strong first half of the year, and we have a weaker second half of the year. Consumer is typically one of the fast changing markets, especially if it comes to slowdowns or to a pickup in the economy. So here, we are addressing mainly gadgets. So the gadgets, you can typically buy in any shops, electronic shops as a consumer, the end consumer directly and they are table based, indoor air quality monitors, humidity monitors and so on. And there, we see now the slowdown effect maybe the Chinese market as well. For both markets for industrial also for consumer, we can also state that we see still the strong demand of this higher sensitivity for indoor air quality in any aspect. So either or just as the end consumers are interested to get information about the air quality in rooms but also from all the manufacturers. They are interested to do more in order to guarantee a good indoor air quality, at least to guarantee that, they need also the sensors to either control or to regulate their air condition systems or their heating ventilation air conditions. And on the other hand, we see also this comes together, the indoor air quality sensitivity comes together with energy efficiency. But on the other hand, if you like, actually to increase the quality of air in rooms, you have actually to ventilate more. But ventilation needs also energy. And in order to optimize these 2 different goals, you need sensors, for example, CO2, in order to get the information about how many human beings are in the room. If there are many human beings, you see a higher CO2 level. So then definitely you have actually to increase the ventilation rate. Whenever you see that the room is empty, you can also reduce or almost empty. You can reduce the ventilation rate, you can save energy while keeping the quality of -- the indoor air quality. That's actually one of the main motivations to integrate sensors to get this information to optimize the -- this is just where we arrive on here, the historic revenues and also gross and margin rate in last couple of year, as I'd like to provide you as usual. And last but not least, I'd like also to not forget to mention some strategic progress, not just 2022. As you might remember, our strategy, which is the very same as we have presented in 2021 in the Capital Market Day is actually based on 3 different strategic focus, all on the fundamental of our very special entrepreneurial spirit of the company. Focus 1 is actually -- Focus 1 is focusing on unique inflow. Our core business, historic core business where we have very high market shares, and we like even to expand our dominance in the market. Here, we can state that we launched successfully the fourth generation of humidity sensors. This was already in 2021 with the base model. In 2022, we could expand the family of the fourth generation by an automotive version with a high-end solution in order to provide our customers all possibilities, also an analog version, which is part of the family today that the customers can actually pick up those solutions they need best for their individual applications. Secondly, we have recently, I think it was last year -- last week, we announced that one of our competitors, it's STMicroelectronics, they decided to give up the unit business with their own unit sensors and to take over our solutions. So there will be some transitions for their customers in the next couple of years. To be very transparent to you, ST is a big company, but they were not that big in humidity. But it's steadily a good message that another competitor actually decided to roll out of this immediate view, which also underlines our dominance in this market. In Focus 2, we like to do the very same. We have already done in humidity and flow, but now with environmental sensors, mainly to become market leader. We are not yet there, but we like to become market leader for the whole environmental sensor market. There, I think we can state that with the second generation of CO2, which was already launched in 2021, where we see additional design win from month to month, we are fully on track on that. And we're also working on the second generation of particulate matter, which is very close to be launched and for [indiscernible]. It is exactly the DNA of the company that we start first with the first generation, which is more or less a robust solution but not yet optimized in all corners. And then we come up with a second one where we bring all our technologies in. That means about CMOS, about chip design, CMOS chip design, also about packaging in order to make this solution smaller, more cost effective and better performance. And this is exactly the track we are following for all these 3 new product lines, CO2, particulate matter but also [indiscernible]. And in Focus 3, there, we have a long-term orientation. That means we like to lay the foundations today on technology level in order to continue our growth journey for the next not even 5 or 3 to 5, but also 5 to 10 years. And there is -- this was also already disclosed to you. We decided to develop an additional business model with the company, not just to focus on hardware only, which is the historic business model with the OEM customers but also to go more into the field of selling data or selling qualified data based on sensors, a kind of a sensor as a service business. To launch this strategic initiative, we acquired a company, Berlin, in September 2021. We are still working, and this is the main focus on -- in Focus 3. We are now developing these new business models for the company. But for now, we are fully fine with that. But it takes some time in order to contribute heavily or significantly to the top line. And last but not least, I come back to the fundamentals. So this is probably the most important asset of the company that means the culture of the company. We are very proud that we have now got the certification on Great Place to Work for all our European subsidiaries. That means in Netherlands, in Germany but also in Hungary, also in Switzerland as well. We have the certification for Great Place to Work, which helps also to attract a lot of good talent for the company. And I think if you are looking back, especially all to these one-offs and the additional demands in medical, this would not be possible without the spirit of entrepreneurship in the company to take chance whenever they pop up. And I think I'm really proud of that. So on this side, a big thanks to all the employees worldwide, they have supported the figures we can now present here on this media, press of the earnings calls today. That brings me to the end of my fourth review to -- of 2022 and now also details of financial figures, I'm happy to hand it over to Matthias.

Thank you, Marc. And also a warm welcome from my side to the whole audience. Let me take the opportunity to elaborate a little bit on the set of numbers of the business year 2022. Starting here with another overview about the key PIs that we have in our company, Sensirion. So looking at the first 3 from left to right, I think it's more or less, as Marc mentioned, it's the continuation of our growth and also a quite stable scenario about stability, where we see for 2022, and I will elaborate on that a little bit later, that is the matter and the topic, capital bound further invest in CapEx, resulting in a new or in a refreshed picture of free cash flow. But I will elaborate on that. First, starting from the top line development '21 to '22. I think what is illustrated here on that chart is, again, these gray blocks with onetime business that we could book in '21 in the range of CHF 22 million. And again, with this replacement of products in the field with a customer, Philips, with CHF 28.3 million in '22. So overall, if you carve out those both stones of the revenue pillar, you see with a reference point, CHF 265.5 million in '21, also for the sustainable business, a quite good growth rate in '22. What is according to the plan is the contribution from our new acquired companies in the last business year, '22. This is marginal with CHF 0.6 million. That is not a surprise as we call that 2 companies really as start-up companies, which definitely have to do their homework with market integration and initiate our end of sales force and so on. So the FX effect in our reporting is on the top line, minus CHF 0.8 million. Of course, we took a lot of benefit from a strong U.S. dollar, but this was definitely overcompensated by weak currencies, euro, Korean won and Japanese yen, so especially for Korean won and Japanese yen, we saw a down of [indiscernible] in that year-over-year currency rates. Another view on the revenue composition, as mentioned by Marc, is already about the markets themselves. So what makes us quite confident. And if there's a lot of relief is the composition of the market shares of this total revenue. There is a strong, very strong developing industrial, which itself, again, is -- can be split up in several submarkets. So we see, over a period of 3 years, a growth in all markets. And this gives us a lot of resilience if we see downturns in the one or the other market. And of course, this gives quite a good safety level when it comes to development of our revenue. If we look at the revenue distribution in terms of the geography, we see an increase in the EMEA market. This is driven by the tough project that we have with Dyson. And of course, it is also driven that we succeeded in getting projects as a Tier 1 supplier with European targets. So here, we see also there a smaller change in the composition from geographical perspective. We have the profitability. As mentioned, we have still missed high 50s percentage in contribution margin. I think on the one hand, we had the impact of increasing material costs during 2022, which we could in majority transfer to our customers by increasing sales prices. And on the other hand, why definitely there is a slight down in the contribution margin is that we -- as Marc said, we started to normalize the utilization rate of our production facilities, meaning bringing more operators in starting to increase CapEx, which in the end resulted in some higher depreciation. And that, of course, drives the contribution margin down to still very high and above long-term average. You saw that on this long-term track record and that always announced mid-50s target for the gross margin that we have, so we are still above that. If we look on the other cost blocks, especially R&D and SG&A, I think India, the cost level of R&D, here, we see the starting of the first phase reflected in the numbers of our strong ambition to increase the R&D forces that we have in the company. As per today, we have around more than 300 R&D people allocated to this function. More or less all of them are graduated. So I think our -- we have empowered also here the initiatives to find the talents, but the situation in the labor market is still a very tough part. We talked about this flow of talents, and that is ongoing, but we are doing our best to recruit more and more people really to take all the opportunities that are in our project pipeline. I think the project follow with ideas, following the major trends, starting initiatives, doing really long-term investments in very new fields that is very high loaded, and there are numerous opportunities we want to start. So looking on SG&A, we also see an increase here. This is more or less driven that, on the one hand, we now for the first time, have 12-months consolidation of the new companies in 2022. They need a certain setup of these functions of sales, especially, and second factor is that we, of course, for the new company, AI side, which isn't now in this space where they want to penetrate the market, where they want to do more and more acquisition of their sensor as a service solution, they need a lot of sales staff, and they have increased tremendously their sales. On the other hand, regional-wide, we have also empowered our sales force in the U.S. market where we definitely saw that we are -- have a little bit of lack of sales power there. So this drives the SG&A cost. So resulting on the EBITDA, I think we end up in EBITDA close to CHF 90 million, EBITDA ratio in the higher 20s. I think this is a little bit on the way to the normalization, I think, we had reported core H1 and EBITDA of around 30%. So now we see that on the cost side, we catch up a little bit to really empower the functions and bring the utilization of our production facilities to this normal sustainable level. Having a look on the condensed complete income statement, I think below the EBITDA or the EBIT, there is not that much special effects. We have the net finance result, which is more or less generated in majority by realized, unrealized FX losses. We see still this favorable situation about the income tax, which definitely is sustainable because we have taken all the opportunities that we could from staff sits in, the revision of the tax ruling in Switzerland, where we take a lot of benefit as we are a company, which generates a lot of R&D activities here and also the instrument of using patent boxes, also gives us or brings us in this quite favorable tax situation with a majority of substance here in Switzerland. So net profit after tax, close to CHF 64 million in a ratio of close to 20%. I think this is still a very good performance. Second part, as mentioned already, let's talk a little bit about capital bound in the company. I think here, we see a little bit of change compared to the last years. Why that? First, if we have a view on the net working capital, we have definitely proactively driven our inventory in terms of raw material, in terms of increase of semi-finish, in terms of increase in finished goods. Why that? I think it's a matter of risk mitigation, looking at prepared for downs in energy, for potential next COVID phase, which we don't hope to see. But here to really assure that we can keep a service level for overseeable time horizon of 12 months. I think that is our ambition. And for that premium, of course, we had to increase the inventory. The other composition is more or less the increase of receivables if read through our balance sheet, then you see also an increase of receivables. This is more or less driven by this view, year-end, 31st of December view on that. If you look at the risk on debtors here, we can definitely please say that with DSO around 40 days and the long-term relationship with our customers, we'll be very safe here. So there is no additional risk. In terms of CapEx, I think also here, when it comes to where do we spend our money to, we see that 2022 definitely is a new horizon for us. Now it's up to CHF 30 million, close to CHF 30 million. CapEx in CPAP compared to CHF 12 million or CHF 14 million or CHF 10 million that we saw the years before. I think that definitely is this catch-up of adjusting our facilities and in parallel, prepare for the next growth steps. I think, here, it's definitely a lot of money spent in the production equipment, in [indiscernible] itself, but also in Hungary. Here, we prepare us for the next growth steps. So looking at the balance sheet, still a very strong balance sheet, I think, with an increase of the equity up to CHF 304 million, not having any plans about dividends still. So equity ratio is 85%. So -- and with high CapEx and the high bound capital, I think, of course, the net cash did not develop so tremendously. We have an increase of net cash of close to CHF 12 million as per year-end in the year-to-year comparison. So what you can read here also is this increase in the receivables, as mentioned, about close to CHF 10 million, the increase in inventory, CHF 22 million net. I think all, at this point in time, just to mention it, all what is here reported with some judgment and valuation principles, I think we are quite conservative in evaluating our assets. And as a result of that, I think as a last topic here, the view on the cash flow. I think with the increased net working capital, we have a reduced operating cash flow with around CHF 50 million. We have this high cash flow for invest cash outs, and this results in this net cash of CHF 12 million. So if we then come back to our KPI free cash flow, which is then again net cash change without cash spent for merger and acquisitions and financing. So then we end up with a free cash flow with CHF 18 million. And yes, I think that's it. So we see more or less the change here in our cash situation, our cash generation, but that is broadly driven as one of the foundation stones of our growth path that we want -- definitely want to work. I think with that, I'm closed, and I give back the floor to Marc.

Thank you, Matthias. And the last slide, I'd like to also comment the outlook for 2023. I think that it's still a pretty fast-changing world we are in. That means that to make any kind of forecast is pretty hard, and it's hard to predict. That capability still remains low. As I have already mentioned before, at the moment, we see some slowdowns in appliance in the industrial. We expect also this might continue for the next couple of months. There are some indications from our customers that the customers expect to pick up with additional orders in the second half of the year, also based on the fact that the inventory should actually be optimized at that time. On the other hand, and I think that's important to understand, this is all about the existing business we have. Fortunately, on top of the existing business, which is highly depending on the economic situation, we have also additional growth projects they come in this year. And there, this is completely unlinked to the economic situation. Then we see that a lot of new projects to actually not be launched during this year. So what we expect is actually that we have a kind of a slowdown in the existing business, but on top of that, we can also compensate for that by new growth projects, they contribute first time to the top line in 2023. Some words about the one-offs of the last year. As I have already mentioned shortly, we do not expect that we have an additional contribution of one-offs, neither in CPAP nor in medical ventilators for 2023. But also there, we expect that more or less we can compensate these one-off effects, which goes away by additional growth projects coming in during 2023. That means if you bring all that together, we expect that on top line, we have a more or less stagnating situation. We indicated the CHF 300 million up to CHF 340 million, so the midpoint is more or less where we are today, but then without these one-offs of CHF 28 million. And the gross margin, we expect to come back to the normalized levels of mid-50s also the utilization should also come back to the levels we have already guided during the mid -- for the midterm guidance in 2021. And EBITDA, this should also come down to, I'd say, normal levels as we have already guided in 2021 because, on one hand side, yes, these additional one-offs should vanish this year. And secondly, we have this additional resources in R&D and sales. They are fully expensed as we do always, and we are not going to capitalize any of these other additional assets. Therefore, we come -- or we expect actually an EBITDA level of around 20% in 2020. That brings me to the end, and I'd like to hand over back to Heiko for the Q&A session.

Perfect. Thank you very much, Marc and Matthias. It was great. Now we can start with the Q&A session. As announced before, we're going to have some online questions as well as some from the audience. I will read through the questions, so I suggest that we start with the questions here in the room. If there are any. Yes, please.

Yes, I have 2 questions. First one is on your CapEx plans, where you said you need to invest further. And so what do you expect for 2023? That's the first question here. I'll ask the second one after.

Also you giving -- taking the reference, I think we always talked about 6% to 8% of our top line. That is our bandwidth where we see CapEx. And with this higher top line, I think we calculate around 8% and seeing this level, but you have seen for '22 numbers. I think if we retain this ahead for '23, I think that's the right dimension for what we see as definitely as in CapEx. There might be one impact when it comes to new buildings, where there are some ideas about expanding in Hungary, next phase or expansion there. This might be on top of that. But this is not that concrete how this will look like. It could also be that we go there for a build-to-suit solution, meaning that we pay as a long-term rent. So if you take this as an extra, but for the normal regular expansion plan, it is around 8%.

And the second question is the split between your traditional RHT sensor business and new sensors. I remember back at GIP, we had this picture of your oil markets and the expansion into new sensor applications. The question really is, when we spend, what's the contribution to sales now from all these new products? And what's basically the size of your addressable market or market share, if you want, to that new market or new market?

Well, at this point, typically, we are not going to disclose revenues by product due to the competitor analysis reasons. But what we have already disclosed last year is actually an indication of 25% coming from new environmental sensors without humidity. And this figure is definitely increasing from year-to-year, just to give you an indication about that. Some words about the addressable market, I think in humidity, my estimation is that we have a step-by-step increase in market share during the -- and the IPO 5 years ago, we indicated to have 53%. Now we expect actually to be higher than 55%, probably up to 60%. But this is our own estimations based on the fact that we are winning additional sockets for our competitors, and we are not going to lose other customers and also on the back of the fact that the -- in the meantime, there were 2 Japanese but also now STMicroelectronics decided to go out of the humidity field. So also there, we can actually drive additional -- minor and additional market shares. And then environmental sensing without humidity, it's not that easy to estimate addressable market because CO2, for example, is emerging at the moment. So some years ago, when we decided to go into this market to launch the first development project, the margin was estimated to be pretty small. Already now, we have revenues in our company, they are large to that first estimation 5 to 6 years ago. And definitely, we are not at the market share. It's more than 100%. We cannot leave that 100% fortunately. Unfortunately, though, definitely a market is highly dynamic and is increasing from year-to-year. So I think, looking forward, the market is not a limitation to grow in CO2. The challenge is more to have the right products and especially also to be better than the competitors as always because whenever you have any mark-to-market, there are also some competitors. Infineon is one them, but also the ones that the usual suspects like [ Huric ] in China. Thank you.

Can you give us, first of all, the design wins for European OEMs in the car. Is it similar products that you were already designed in Korea, just for understanding? And on the R&D, so you are -- that was already well flagged that you are increasing the R&D spending there. Can you give us some examples? What are you exactly doing there? I mean can we expect opening new sensors like the total organic compound for water, for example, that we were talking about, so ultimately, it doesn't really exist yet. So can you give us examples maybe there? And when I look back on 2022, your initial revenue guidance back then [ broadband ] was CHF 360 million. So we are now still well below that, which is not the issue, but I'm just trying to understand how were CHF 360 million comprised that you didn't make it like resemble in 2023. And are there projects that are postponed or will there be immediate catch-up effects in 2024 from the pipeline that you have and that you couldn't realize for external reasons? Just to understand how is development may be from second half '23, '24 without giving any [indiscernible].

Yes, definitely. So first start with the first question about the automotive business and additional sockets won in Europe -- with European customers. This is the whole bunch of environment [indiscernible]. What you are addressing or referring to is actually the Korean business particulate matter [indiscernible]. Also, this exists here in Europe and there is part of what I have mentioned before, but it's not limited to particulate matter. It's also kind of antibody modules. It's about new point sensors, so all the sensors monitoring, the air cabin quality or the energy efficiency of a car. For example, with GPON is definitely also [indiscernible] the energy efficiency of car. And second question about what is actually the pipeline. I cannot disclose you the project list. But to give you some light into that, on the one hand side, we are working heavily on the second or the third generation of environmental sensor. So for particulate matter but also for [indiscernible] we are working on the second generation, which would be significantly more miniaturized compared to the one which is already on the market. And while keeping the performance and this is already done with CO2. So there, we have already launched second generation. This is the sugar like sensors. You might remember that. And there, we are working on the third generation. So that our ambitions there are actually to bring even -- to package it smaller, to bring it, and this is our vision, to bring it on chip. So to make a humidity sensor or humidity sensor like, sensor for CO2, which is not yet existing on the market, also in our company, it's not yet on the table, but we're working on that. That's one of the prem. Another one is that there are also new additional opportunities popping up on the markets. For example, in -- we have already talked about that during the Capital Market Day. That's about leakage sensors. On the one hand side, we see that A12 or in Europe, it's R32, that's the new refrigerant for coolant, for air conditioner coolants, is one of the topics there because the fact there is that especially in the U.S. market, there will be new regulations starting in 2025. And to switch from the old coolants to a new one, which is less harmful for the environment, for the climate, but on the other hand, more flammable. And that's the reason why our leakage sensor has to be installed or to be designed in at least for larger air condition systems. And this is -- the rate varies on. We like definitely to work some of these additional opportunities with a leakage sensor based in our technology. There is also a leakage about H2, CO2. For example, there are more and more CO2-based heating pumps coming on to the market as well as longer-term oriented. And if CO2 is leaking, it's not that harmful for environment or for the human being as long as the room is well ventilated. But if you have, for example, in a car, if you have a leakage of CO2, then that's more harmful to people pretty fast. They're also there. There's a need for a leakage sensor. But that's -- looking forward, it's not affecting the top line 2023 or 2024. But just to give you some light about the R&D, so leakage sensor, on of the topics, one word about total organic compounds for motor that we are working on that. The market is not -- what we have learned in the meantime if the market is not yet fully prepared to adopt these solutions. And there are some interests, but it's not that fast moving as we have expected 2 years ago, but we are still working on that. And definitely, last but not least, to give you be some light into the R&D pipeline, one is definitely also connected solutions. So all what we are doing with this 100% [indiscernible] and Xerion, addressing this sensor as a service market. We are providing more than just a hardware solution but also the qualified data. And last but least, so question about CHF 360 million as of the expectation last year. I think it's not driven mainly by projects that were proposed -- definitely there are some. Their projects can be delayed. They can be postponed but we are not seeing significant delays or cancellations to project. We are working on together with our customers. It's more that the whole market is not that booming as it was expected to be at the beginning of 2022, so 1 year ago. It's actually the main reason. And if we are compared 2 years, then we are probably 10% lower than anticipated 1 year ago. But it's not that strategically changing. It's just the normal course of the economy.

I suggest that we move to online question just because we can address your questions then later on here in the audience. One question for Mr. [ Jean-Paul Garro ], is what is -- so what's the reasons behind from the drop of the EBITDA levels coming from 37% to 38%, 31% down to the 20% for the 2023 guidance? I think you addressed it a little bit. Maybe some comments there.

Well, I think there are 2 different aspects. One is definitely that we are coming back from a gross margin of 57% to 55% due to the reduced utilization of our banks, which is extremely strategically important to be flexible enough to address forward notice demands of our customers. And the other one is the in-depth higher invest into R&D and sales. So there, the specials ones in the second half of 2022, but also the first month of 2023, we hired a lot of new engineers in order to address this full pipeline of R&D business. And as always, in our company, first, you have to invest into R&D. And secondly, you can harvest the teams. And typically, it takes between 2 up to 5 years between first investment and harvesting top line, and exactly this affects the EBITDA margin.

Good. The next question from Sandeep. He is asking what percentage of our sales were coming from environmental sensors in 2022 and whether this will continue towards 2023.

I think this is a pretty similar question that as Michael has already asked. So 25% was disclosed, bigger or the portion the environmental sensors and trend is actually to increase further.

Exactly. Also, there was another question here from the online people, whether we disclose our shares by product group, which we typically don't do so.

The reason is actually not to give you full transparency, but there are a lot of competitors that are extremely eager to know about our humidity business or our inflow sales. That's the reason why we can't disclose it.

Exactly. Then one more question from Mr. Huber. He is asking whether it was the first time that the direct competitor was switching to us and becoming a customer. How often has happened that in the past? I think you mentioned that.

Yes. I think to my mind, it's actually the third time. There were 2 Japanese competitors, they are now customers, and now it happens also here in Europe.

Yes. And the next question was what is the market share of our CO2 and PM2.5 sensors today?

That's hard to say. As I have already mentioned before, so the market is too dynamic in order to estimate any market share. What I can say is that we are definitely in CO2 but also particulate matter, we are one of the top 3 or top 4 manufacturers today. We are not top -- #1 not yet. But in CO2 and in particulate matter, we are among the 3 largest manufacturers. But they are the same ones, so we are not competing with the same other ones with particulate matter as compared to CO2.

This one is interesting to clarify. He's asking in which regions have you increased the inventory the most.

So inventory is definitely our main focus is -- so as you know, there is some additional uncertainties in the Taiwan region and 60% from the semiconductor chips worldwide in our company. Worldwide semiconductor supply chain comes from this very small island of Taiwan. So we like to be safe there, and we like to actually increase our inventory from a strategic point of view, in order to react on any unforeseen events that might happen in this area.

Thank you, Marc. Maybe 2 questions towards Matthias. Matthias, do you have any forecast for us regarding depreciation and amortization for 2023? And any forecast for our FTE growth for this year?

Yes. I think the last one for FTE growth, I think we want -- could easily say, okay, we want to get as much -- as many as we can get in terms of R&D, but I think it's still our ambition that we will grow between CHF 150 million and CHF 200 million in headcount. That is our ambition, where we are aiming for. In terms of depreciation and amortization, I think it's just the calculation that we have. I think we do the normal depreciation move that it's about machinery for 8 years for all the rest, software center that we definitely capitalize in 3 years. So here to talk about -- I think if you calculate the ratio, I think it could be around CHF 22 million, CHF 23 million in depreciation in '23.

Thank you. Another interesting one, I believe, is with our current production facilities and productions, how much sales can we do.

It's not that easy to say because we're starting with very tiny. You have sensors up to a pretty complex solutions for connected solutions, and they are trading different sales at the end of the day. I think we feel comfortable now with the humidity capacity we have been sold in the last couple of months. And we are now -- as Matthias mentioned, we are now also working on investments for new products coming in, in the next couple of years. And yes, maybe it's definitely some limitations in the fab in Switzerland in the next coming years in order to increase the output more. So what we are doing at the moment is also to transfer some of the products in Switzerland to Hungary in order to have some empty space here to start new and exciting products. So this is what we do. But we cannot flag that by a sales level because it's highly depending on product mix.

Thank you. Another question is whether we recognize some reshoring, some business going out of China, reshoring or, I would say, it's a slowdown but not reshoring.

Probably it's also addressing this -- or this increasing wish of especially U.S. customers not to be sourced or not to be supplied by -- from China. Definitely, we do -- we see some increasing, at least, questions on that topic, so I hear questions about do you have to outsourcing in any Chinese events to be safe on that terms or we actually prefer not to be -- to get products from China. But it's not yet extremely conclude that it's not extremely bad. It's just some questions. They are more compared to probably the situation 2 years ago. What we see, definitely, and this is emerging, is in fact that -- for example, Chinese competitors, they have a pretty hard life in U.S. for U.S. customers. But on the other hand, also U.S. customers and sometimes also Swiss customer -- suppliers that we are and have harder times in China because in China, definitely, our customers, they prefer to have local sourcing whenever they can. Fortunately, we are in a field where technology is decisive. So there are still not good solutions in China. But we see that the wind in China is clean than before and that on the other hand, we have a better cards in the U.S., thanks to the fact that we are a Western company and not a Chinese one. This is more and more coming, and this is also seeable but still it's more not that dominant that besides all.

For the following, I will allow myself to combine 2 questions, they are very similar. Nicandro and Sandeep, they asked, what gives us the most headache when it comes to the financial year 2023 to not reach the guidance or, as Sandeep was asking what is driving our revenue guidance. So it's more or less that same.

I think referring to the guidance, the top line guidance, as the most critical aspect, is about the economy. So if there is an escalation of Ukraine war, is there any kind of escalations that we have seen [indiscernible] with the bank system in the U.S. with inflation, so all these macroeconomic and geopolitical aspects, also the tension between China and the U.S., if any of them are escalating, you can never know how they might affect the economy worldwide, the worldwide economy. That's the most critical aspect. In terms of our growth projects to come in and to contribute first time to top line, I see can pretty -- I feel pretty comfortable because, typically, you are working for 1, 2, 3, 4 years with customers to come to the point actually to start up the production. So I'm really safe on that.

Thank you. At the time of our IPO of our automotive market was around 30% of our sales, so the question is, this has now declined over time. Will this shift in future again? Or where do you see the automotive in terms of share?

I think we should actually change the question because, at the end of the day, the reduced portion of automotive businesses, it's just the effects of that dynamic, the increase of industrial sales, especially in appliances. So it is the success of all the environmental sensors in industrial. Looking forward, I think we also working on new solutions for markets. They are not industrial, definitely like also to strengthen automotive and medical, and they have declined in the last couple of years. So it's not strategically include that we are now in a reduced level for these 2 markets. In automotive, I think a lot of the environmental products, they are extremely suitable for automotive. But as always, automotive, it takes longer to adopt these products there. In medical, that will be working on other projects because all these environmental sensors, they are not the right ones for medical, which was anywhere clear at the very beginning already. And so coming back to the question. I think the successful industrial will also come to some limitations in the future. And then the automotive will also catch up with their portion and order of the full sales.

Thank you. And probably the last one from Mr. Testa is asking whether we can explain the gross margin 2023 versus 2022 and how this is impacted or influenced by the price cost of goods versus the inflation that we see on both.

I think, as Matthias has mentioned before, we were able to transfer most of that increasing raw material prices to our customers by 3 price rounds in the last couple of months. This was well also accepted by our customers. So the gross margin decline is not driven dominantly by raw material price. We expect that raw material prices will -- might come down in the next couple of months, and we see some verifications on that. I'm also pretty sure that our customers will knock on the door for ask also to discuss the prices on their side, but again, if combined with the fact that raw material growth might come down, but this should not influence the gross margin. The gross margin or decline in the gross margins is abundantly driven by additional capacity we are now installing in order to have a good utilization rate today. Just to remember, in the last 18 months is probably until all in 2022, we were running our fabs, especially in Switzerland, on a level which was more than 100%, which is not healthy, especially not in order to also to react fast. And we like to come back to a normal utilization. This is the main reason why the gross margin is coming back to normal levels.

Now the final question from the online crowd. What has been in 2022, the price effect on the organic growth? And whether we intend to increase the prices again in 2023?

So the price effect on the top line might be in the level of mid-single digit I would say. And looking forward, it depends highly on inflation and on raw material prices. If we see that there is a need to increase it again, definitely, we have to do so. And my expectation, that just today on March 14, I don't think with all the slower -- on the back of the slowdowns, I think there will be also a normalization of raw material prices, definitely not coming back to the level we have seen before the allocation situation because there is also some inflation effect. They are more recurring, but at least, there will be some more likely to come back to raw material plan. So it's very unlikely that we have actually to start and now price is up in the next couple of months. But you never know in these very fast-changing times.

Thank you very much, Marc. We'll reach the end of the online Q&A. Since I don't see any more questions coming on the online. Yes, one more from [indiscernible].

My question is regarding the competitor becoming the customer. What was the driver behind that decision? I sort of missed that [indiscernible].

No, you didn't miss because I didn't elaborate on that. So I think the -- I know you have also to ask about CPAP, let's be obvious. But I think what I have understood is the fact that humidity business is a chip business. That means, at the end of the day, you need higher volumes in order also to depreciate your very high R&D investments in front and all the competitors, we have this Japanese one but also now ST, they have seen that to invest again into the next generation of humidity, in order to keep the same level as we are, to keep the -- to remain competitive in the market, they have actually to invest again. And it's extremely hard on their volume levels to depreciate that in future. And the economy of scale is, at the end, the crucial aspect. They have decided actually to switch to us because they are strong. It is not changing. They are really extremely strong with microprocessors in all the telecom component. Sensor is more side marked for them. And the good opportunity for both companies, actually, that they can actually rely now on humidity sensors for all the boards they are provided to their customers for us. It's an additional field where we can promote our sensors with a partner, which is extremely well established on all the iconic markets and where we have also a very good combination of a microprocessor, which is not our business. And -- but that will be ST's business and our humidity sensor, which is working very properly together. That's actually the strategic advantage of the partnership. But from their point of view, it economy of scale, which was not -- was against them.

Maybe we take one more online question from Mr. [ Forarks ]. Industrial, we have a very broad portfolio, and we had -- again, we saw a very good growth rate in 2022. So the question is whether we can elaborate on our outlook for 2023 and beyond and whether we are confident to keep that growth in that specific area with our sensors.

So I started the outlook session with the statement that it's extremely hard to predict. So I would never give out guidance for one market only because then you have even higher statistical uncertainty. But definitely, if you're looking back, we have grown in industrial by 116% within 2 years. It's the only one I can say. Definitely not -- cannot be continuing for the next couple of years on the very same high growth rate because to double every second market is pretty unrealistic. But I don't like to give any guidance on market, I think because it's strategy. The only what I can say it's wrong when I say about the guidance in one market.

Okay. So you understand [indiscernible]?

Yes. It's fine. Just 2 additional questions, one on basically on products actually. IKEA has launched or is launching a new air more authorities that seems to be sincere products in there. Can you elaborate a little bit economics on that? I mean you -- that's just one device. There are obviously others, Amazon or other devices. Can you elaborate a little bit what's actually in there? Seems to be a combo module. So what we would you get, 35%, if you can say that? And the second thing is more generalized. As an investor, I invest with you all over on in your connected solution subsidiary. So how can I know how much you're actually investing into financials net solution with people and probably technology. And how can I understand what I'm getting back in a couple years' time? What's the potential width of that market? It must be either really huge because we invested a lot of money or I'm losing together with you all.

So first of all about the air condition monitoring, I don't like actually to talk about costs. But definitely, to have a very good picture of air quality, you need a bunch of different sensors. Temperature is important. Humidity is important. Particulate matter is important. Typically, NOx values is typically what the customers are interested in and last but not least, also a couple of halogen compounds and sometimes [indiscernible]. So these are a bunch of typical parameters to be measured. And then, we're also offering a combo, which all is apart from [indiscernible], all others are actually integrating. So this is definitely a good offering to these type of customers. And the second question about connected solutions, we are at the very beginning there. We wouldn't do it if we have noted the ambitions and also the confidence that we can also create values there and how much and how fast, I think it's too early to call at the moment. But what we do constantly not just for the connected solutions but also for all what we do in our innovation pipeline is a continuous monitoring of is it worth investing more into these initiatives. And I think that's very crucial for a company, which is also taking risks, entrepreneurial risks in order to drive innovation. To monitor all the time on is typically, it's on a quarter base, that we are reviewing all these innovation projects to see where we are on track and is the market the same as we have anticipated, is it changing fastly or slowly and is it worth continuing to invest. And based on that, we have -- in all the reviews in past, we have decided actually to go forward in the very same way. So this gives us the indications. But at the moment, we cannot say in 3 years, we are there. Specially, it's also not one initiative. We are doing more in that term.

Good. Another online one is whether we can disclose more about the share of distribution customers of our sales base and our visibility regarding our distributors and more or less the same question about the visibility of our customers' inventory, so the share of distribution and inventory of customers.

Distribution, now the exact bigger, I think the indirect business is more or less 20% of the whole savings. Is that more or less correct? It definitely includes not evenly balanced between the markets, it's mainly in consumers and in industrial and not in -- medically also some at lower and automotive, not the business for distribution. About inventory levels, customers in distribution, we do have a very good visibility of inventories at our distribution sites, which customer depends. So there are also customers that are pretty open to doing so also and to give us some light to provide -- to share their figures. Some obviously don't. And some others, they are disclosing some figures, but you never know whether they are the true ones. So especially during the allocation, this was just part of the game that they were happy to announce that the old inventories are actually empty. But it wasn't just not true. But that's also part of an allocation base. So it's a mixed picture there. We have some indications that it's on the full...

Okay. Thank you very much. I think with this, we have also run over the time by 8 minutes. I thank everybody from the online panel for all your questions. Thank you very much for your attendance. And yes, if you have any follow-up questions, feel free to contact me, contact us any time. And with that, I close this morning's session. Thank you very much.

Thank you. Have a good day.