Singulus Technologies AG (SNG) Earnings Call Transcript & Summary

Hello, and welcome to the SINGULUS TECHNOLOGIES conference call quarterly statement Q3. [Operator Instructions] I will now hand you over to your host, Dr. Stefan Rinck, CEO, to begin today's conference. Thank you.

Yes. Good morning, ladies and gentlemen. I would like to welcome you to the telephone conference for our 9-months figures 2020. I'm sitting here together with my colleague, Mr. Strahberger; and also with our Financial Chief, Mr. Oliver Hanz. And we are presenting you our, again, 9-months figures, and you can see and find the presentation also on our homepage. So let me start with some words about our current situation. We are, so to say because of COVID-19, in a very difficult situation. It's not easy for our company. You will see that afterwards in our figures. And we will inform you more about our strategy and about the things we have been working on. And -- but let me start with Page 5. On Page 5, you can see some pictures, which are done last week and this week on the important Shanghai CIIE 2020. And you can also see Mr. Markus Ehret, our CFO, who was participating in this important fair and met our shareholders and the big customer, CNBM, to discuss the next steps with them. And that is also the reason why he cannot participate today in this conference call. Before I will give you some more information about the status of our activities at the moment, I will pass over to Oliver Hanz, who will guide you through the financials.

Many thanks, Dr. Rinck. Good morning from my side. Some of you might have seen the key financials already. So basically, I think it's pretty clear that COVID-19 hit the business of the company very, very hard. But let's run through the details briefly. So the 2 key messages first. For Q3 revenue, that was still on a very low level with EUR 5.7 million. But order backlog is quite high at the end of September, which was EUR 75.3 million, compared to prior year with only EUR 38.5 million. So on the one hand, there is certainly a gap regarding the top line due to the pandemic, but the good news is the order backlog number looks quite promising concerning '21. Order intake in Q3 was just EUR 4 million. However, we realized some interesting order intakes in October. You might have seen the news. All of that is certainly not included in the robust numbers. Dr. Rinck will give you some more details on that later on. So our EBIT in Q3 was minus EUR 6.3 million because of the very low revenue and the resulting underutilization here in our headquarter and [ both ] production sites. EBITDA was minus EUR 5.1 million. Net income in Q3 was minus EUR 6.4 million. So as a result of that, the equity at the end of September was minus EUR 14.6 million. The operating cash flow in the 3-month period was positive and amounted to EUR 8.3 million, which is mainly related to the collection of down payments based on contractual arrangements with our customers. So how does the 9-months reporting period looks like? Revenue is up to roughly EUR 22 million. Order intake during this period was EUR 70.9 million. And as I said before, most of that is still included in our order backlog because we have not been able to start the project because of COVID. Referring to the earnings, EBIT for 9-months period was EUR 20.6 million, and EBITDA was minus EUR 17.1 million. So Page 9, talking about the profit and loss situation, what is important to add? As I said already, gross profit was only EUR 0.4 million because of the low revenues and the related underutilization at both production sites. Furthermore, we had to do some smaller adjustments on our project cost planning, not quite a big amount but necessary because of some delays here and there because of COVID. The OpEx in a total amount of EUR 6.7 million, this might be slightly higher than some of you have expected. I think good news on that is we have been able to realize some cost savings on the one hand. We will see that later on. But on the other hand, there are some strategical and important projects ongoing this year, leading to a slightly higher R&D expense. Furthermore, I have to add that the prior year total OpEx number was reduced by a onetime income effect. On Page 10. Regarding the P&L statement for the 9-months period, the gross revenue is up to roughly EUR 22 million, which leads to a slightly negative gross profit number. The total OpEx over 9-months period was EUR 20.4 million, which is EUR 1.7 million above prior year number. The reason for that is mainly, I told you already, the higher R&D expenses in the current period, the background behind I gave you already. So on Page 11. Regarding the operating expenses, I mentioned that before, we have been able to realize cost savings in both cost areas, personnel expenses and material expenses as well. In total, the amount for the 9-months period was EUR 2.6 million, which is, I think, quite a good number. But as I mentioned already, this was not reflected 1:1 in our P&L statement compared to prior year numbers because of the higher R&D expenses. So returning to the balance sheet. What is important to say, the available cash looks quite stable with an amount of EUR 12.5 million. This number is pretty much on the same level compared to end of last year. Receivables and other assets are EUR 5.5 million below prior year mainly due to the lower sales activity. Inventories are at the same level as prior year, which is underlying the slow business during the period. On the liability side, 2 comments. During Q3, we did reclassify the bond liability from long term to short term as the repayment has to be done in July next year. And the total equity, I mentioned that already, was minus EUR 14.6 million at the end of September because of the significant negative income in the reporting period. Last but not least, cash flow. The operating cash flow during the 9-months period was positive in the amount of EUR 3.6 million. This is mainly due to the collection of down payments based on the contractual arrangements from our customers. Cash flow from investing activities is mainly related to our R&D activities, of course. The financing activities reflects primarily the interest payments on the debt component and the repayment of leasing obligations. So the total cash at the end of September was EUR 12.5 million. So regarding the financials, that's it from my side. Let me now hand over back to Dr. Stefan Rinck.

Yes. Thank you very much, Mr. Hanz. So on Page 14, you see our -- the amount of employees. This is more or less the same compared with last year. Of course, we have decreased drastically all the overtime down to close to 0. And we are working on -- in short term in many areas, and we have reduced the temporary staff. And also what you cannot see in these figures is we also reduced our staff in the U.S. and slightly increased our employees in China to be able to ramp up our machines and to assemble our machines without major support from Germany, from our headquarter. Looking on the sales split by segments on Page #16. This shows you a complete different picture compared to last year. Normally, we do around about 2/3 of our business in Solar, 1/3 in Life Science and the rest in Semiconductor. And this picture, of course, for the first 9 months changed drastically. So the major part for this year was because of this COVID-19 situation and the drastic reduction in our Solar exports o China. The major part in the first 9 months was Life Science with more than 50% of the whole turnover. And so we delivered some machines here -- or machines in Europe for contact lenses. And Solar is down at 37%, and Semiconductor grew up to around about 12%. And also, you see this effect in the sales split by regions on Page 17. Europe is very strong -- or was very strong in the first 9 months because of this Life Science business. And Asia dropped to around about 30%, again, because of COVID-19. So coming now to our business fields. First of all, I will talk about Solar. And there you see on Page 19 the figures we update on a yearly basis. These are the levelized costs for energy from the Lazard study. And here, it's very interesting to see that solar and wind is by far the lowest-cost, effective source of energy, much below coal and nuclear. And you also can see that solar PV thin-film technology is slightly below crystalline PV technology. And because of this picture, where really solar now is one of the cheapest energy sources, we see a huge growth for the next coming years. And I also think because of this picture, there was the decision beginning of this year from Meyer Burger to really step into own production into PV technology because this cost level will increase the growth in the next coming years drastically. And that is something you also see on Page 20. The growth perspective for the coming years, we expect -- and this is the solar power Europe source here, expecting a double-digit growth in the medium scenario for the next 4 to 5 years to come. So this is very important for us that the market is growing. And this also gives a very good confidence level to us that our big Chinese customer, CNBM, with their thin film business, will further invest into the next steps, as they already promised some years ago. So coming to our activities in thin film. On Page #21, you see a picture out of our -- or out of the Bengbu factory, where we delivered machines in the total volume of around EUR 80 million to EUR 90 million. All the machines -- or nearly all the machines are now running, and we have the FAT for almost all machines on hand. And for some machines already, the warranty period is over, and the machines are successfully running. And at the moment, we are working on the last couple of machines also to get them FAT ready. And then the job is done in this factory, and we can move over to the next factories. Looking on Page 22, we show you here our portfolio for the thin-film CIGS business. And this is a picture you -- we already showed several times. And the important message is that we are now working already on -- in some areas on the next generation of our machines to improve the efficiency, to increase productivity for the customer and, of course, to reduce slightly the CapEx for the customer to be more competitive. And on Page 23, you see the first machine of the generation of the CISARIS furnaces, which is our major turnover machine. We delivered this already to CNBM, to one of their research factories here in Germany. And in the future, they want to reduce the CapEx with this machine and will have further energy savings and higher throughput. And this machine is already planned for the expansion of the Fab 5 and also Fab 6 and should also be the major machine for Fab 7 in the future. Besides CIGS, we have also now used the time in these difficult days with COVID to further expand our portfolio for cadmium telluride. So we have heavily invested in R&D and development for cadmium telluride machines because our major customer CNBM in China is now also investing heavily, besides CIGS, into cadmium telluride. And they have 5 factories at least in plan and already sold in China, where they built up a factory in between 150 and 300 megawatts. And our plan and our strategy is also to deliver in a big part, an important part for cadmium telluride machines, production machines in the future. Coming to the crystalline business. The heterojunction technology and also the other TOPCon and IBC part technologies are growing because of the high efficiency. We see that the heterojunction markets and technology is growing double digits, more than 20%. And we also work now on further developing our portfolio for heterojunction. There, we are offering a wet chemistry machine and also a sputtering machine. The wet chemistry machine, we could get an interesting order in the remaining months from an important customer from Japan. This is the leading customer in the world with the highest efficiency, above or close to 26%. And he selected our machine because it's the best. He found out that this is the best one he can get in the world. The machine we will deliver in Q1, Q2 next year is already in the design department. And we expect, together with this customer, to increase the cell efficiency up to 25% round about. And also, our sputtering machine is successfully running in the first production place in China. The customer is very happy about the machine. The machine shows fully what we promised and what the customer expected. In some areas, we are above expectation. And at the moment, this machine seems to be one of the leading machines in that area with some interesting advantages. So coming from Solar to our Semiconductor business. We announced that we could sell some of our TIMARIS machines for our inductor business, but that will be -- Mr. Strahberger will be -- will give you some more details about this business and also the future outlook for this semiconductor area.

Yes. Good morning from my side. This is Christian Strahberger. And to those who have been present in the last calls, I was already stating that we're working on an order with a major foundry. This has proven now successful. We could close the deal, and we received an order for our first cluster tool for magnetic inductors. Just briefly on the application. So when you have a mobile phone or a data center PC, typically the chip needs something of 0.6 to 1.2 volts, whereas the power supply is anything between 3.5 and 5 volts, seeming to some point step down the voltage. And this -- during this process, the current goes up and [indiscernible]. So you want to do that as close as possible to the power consumer, which is this chip. And so far, you need to somehow bring them closer. The problem is for that, you need coils. And these coils so far resisted integration to chips. Your mobile phone, as of today, you have 20% to 30% of the PCB board space occupied by these power converters. And now we are in an application where you basically can integrate these coils onto the chip in a package and thereby save lots of space and also energy as the high current is directly next to the consumer. So we're actually pretty excited about this new innovation. We delivered the first cluster tool for mass production application of 300-millimeter set. The customer has also its customers in the back hand. And their plans is to ramp up the production, and this will need more tools. For now for us, it's about to prove worthy of this order. We have to execute it flawlessly. And then I look forward to have one more -- yes, one where we have references in mass production, and I'm pretty excited about that one. So I hand back to Stefan Rinck again.

Yes. Thank you, Mr. Strahberger. So we are very much looking forward for this new business area because we really have some unique selling points, as Mr. Strahberger just explained. And so we're really hopeful that we can generate more business in that area in the future. At the moment, we are heavily working in R&D and in our design department to make this product ready, which should be delivered in Q1, Q2 next year. And so this is very promising besides Solar at the moment, which is heavily affected by COVID. And I already explained our customer in -- or customers in China, they are postponing and postponing and postponing, so moving forward their orders. So that's at the moment very difficult. And also in coming to our Life Science business on Page 28, you see our production machine for the medical market for the contact lenses. So this is the MEDLINE you see there. We have delivered a handful of these machines to Singapore, and they are running successfully in that area. But also because of COVID, the people are not wearing so many contact lenses anymore. So that means our customer business is also a little bit down. So he postponed also the follow-up orders. And we are waiting for them. And hopefully, we get these orders then in Q1, Q2 next year. And by -- beside this machine, which is a water-based machine, we also delivered the first solvent-based machine, which is a slightly different technology for contact lenses. The first machine was delivered mid of this year. The second one will be delivered early next year, which is at the moment in our production area. So we have now expanded our portfolio and being able to deliver this midline production machine for water-based production and also solvent-based production, which opens up more, let me say, bigger market for us in the future. And we already started now with this important customer here the design and development of a new machine, which we -- where we hopefully get also an order for next year. So this is regarding the medical technology, and our machines are running successfully without major difficulties. That's very important for us also for the future business. And coming now to our decorative coating area. There, we have further developed new coating technologies, new layer stacks. One interesting layer stack, which you see on the right side of Page 29, is a copper-based layer stack which we can, let me say, provide in different colors, like copper color, silver color or golden color, with a specific content of more than 90% copper. And with that, we can destroy dangerous infections like COVID or something like that. So that means the virus will automatically die because of this copper layer as soon as it touches the surface within a certain amount of time. So that means these surfaces are cleaning itself automatically. On Page 30, you see the complete line. We have delivered you the course -- during the course of this year a machine to the Netherlands, which is at the moment in the start-up phase. And that is also something, I have to say, which is at the moment very, very difficult for us because all the customers here in Europe, when it comes to decorative coating, semiconductor or medical products, they ask now strongly for support of our service engineers. And it's very, very difficult now to send people into other countries. I would say it's more or less impossible now because of this current COVID situation and the second wave. So we are very, very much influenced by that. And they have huge difficulties. We are now investing into new software solutions so that we can help these people with remote control and new glasses and these kind of things. But it's, at the moment, not easy. So coming to summary. On Page 32, you see our summary and the plans to recover the order intake. Of course, in Solar, we are working hard to extend our leadership in the thin film technology. And we are now growing also into this cadmium telluride area. And we are expanding our heterojunction business. We are working on further cooperation with research institutes. We have started several research projects, which are publicly funded. We recently also got an interesting order from the Fraunhofer Institute for a new research machine, where we want to cooperate with them in the future on the solar development and also on layer stacks for hydrogen-based for fuel cell technology. So that's the plan where we were also working on. Semiconductor, I think Mr. Strahberger explained very well, we are looking very much forward now to materialize our inductor business because there we have a huge or interesting USP. And we see that our competition is not, at the moment, so easily able to follow our ideas there. And in Life Science, we have now expanded our medical technologies, the MEDLINE for solvent-based. And we are looking to get more customers. We are already in contact and working with some more customers for these machines, and that looks promising. In decorative coating, we further expand the business there. We have gained new dealers around the world to sell more of our machines. And of course, we are also looking into new applications besides Solar, Semiconductor and Life Science, where we can sell our product portfolio. One was these interesting business for gallium arsenide, which we showed recently. Then we have also sold some sputtering machines into other areas. And so this is, in total, to say our strategy and objectives for 2020 and 2021. Besides that, we have to say the situation at the moment is very difficult for us. It's not easy. It's very challenging to handle this COVID situation. We have a lot of orders on hand. This is the very good signal. And Oliver Hanz already explained around about EUR 75 million orders on hand. And as soon as the situation with COVID improves and we can travel to China and talk with our customers and work out on the last couple of specifications, we can then directly start with producing these machines. We have for almost all of these orders the down payment already on hand, not by 100% but a good part of that. So we can directly start. It's not just on paper. We already have the down payment, which is an important signal so to start with these orders. So that's the current situation. Thank you very much for listening to us, and we are now happy to get your questions.

[Operator Instructions] Our first question has just come through, and it's coming from the line of Malte Schaumann from Warburg Research.

First question obviously is regarding if you could provide an update regarding the refinancing, what's the status? I know that Mr. Ehret is not on the call, so are you able to provide some indication what has happened throughout the past 3 months to -- yes, achieve a successful going concern?

Yes, this is Oliver Hanz speaking. We are currently working on the refinancing of the super-senior loan and the corporate bond, of course. We are in discussions with various parties. And at this point, we expect to reach a solution in the coming months.

Okay. And the trend, so your cautiously optimistic, so to speak, to conclusion timing. Yes, okay. Then as you touched cadmium telluride, how many machines -- different kind of machines do you think you're able to provide to supply CNBM with?

Yes. So for this cadmium telluride, first of all, we can provide some wet chemistry machines and to quote some areas with wet chemistry. So we already delivered the first machines, the first 3 machines, and they are running successfully. And because of these 5 fabs the customer has in -- or is planning, we expect now to get 5 more machines -- wet chemistry machines there. And we have now also heavily worked on our sputtering machines for cadmium telluride. And we are hopefully to get sputtering machines from this customer. And for, let me say, 100-megawatt fab, you need around about 2 to 3 sputtering machines, so there is a big opportunity for us to step into that. These machines were delivered from our competitor in the past, and it's not easy for us to really throw them out, but we are fighting heavily. And because CNBM is a major shareholder to us, and so if we can be competitive, and that looks like that we are competitive, I think we have some very good opportunities to get orders in that area. And so that's looking promising.

Okay. And this is for -- and you're positive about receiving orders for both sputters that are required? Or will it be one by one, one for you and maybe one for the competitor?

Yes, so that's not easy to answer here, Mr. Schaumann, but we hope that we get more than only 50%, yes. So that's our target and our strategy. And also our CNBM customer, who is our major shareholder, was close to 20%. He also has a major interest now to give us more orders so that we have a big workload, yes. So there are 2 interests coming together, and so that's why we hopefully get more than 50% of the share.

Yes. And it would make sense, obviously. And then how close is the order -- this customer, I don't know if there are already -- have been talks during the past days to place actually the order. I think there has already been orders placed at other suppliers recently. So what's the time frame with respect to these projects?

So they -- you are completely right. They have placed orders with laser suppliers, for example, yes? So these are out already. And we are, let me say, confident that the customer will realize these orders during the course of next year. And so I don't know exactly, but maybe in the next 6 months, we can expect a big order for cadmium telluride also. So that's what we are looking for. But we always have to say in these days, at the moment, it's so difficult to travel to China, yes. To give -- just to explain you, Mr. Ehret spent 2 weeks in quarantine in China in a hotel. He was not allowed to leave his hotel room even for eating or cleaning. Nothing was possible. So he was stayed -- he was in his hotel room like in a jail sitting for 2 weeks, yes. So we try to make video conferences and calls with him on a daily basis so that he has some contact. And then he was traveling for 1 week now in China to discuss with our customer and to discuss about these major orders and also to talk about money and payments. I think he will come back with some very interesting news, and he will, let me say, bring some hope. And so it's looking positive. And he also was participating on the CIIE fair. You have seen the pictures. And he had some very, very good talks and meetings with customers there. And so he's coming back with very, very good messages, let me say it this way. We cannot talk more deeply about that because it's too new, and we, first of all, have to digest that, but it's looking positively. What makes me a little bit nervous at the moment is that the situation to travel to China is becoming more difficult. It's not becoming easier. It's becoming more difficult. So it will stay the same with these 14 days in quarantine. But before you leave, you have to show to 2 measures that you are not COVID positive, and these should not be older than 48 hours. And you have sent them directly to China, so that will not be checked here by the Chinese Embassy, it has to be checked by the Chinese government. And then you get a signal whether you can fly or not. And this time frame is so short at the moment that it becomes more and more impossible to travel to China. And also, Mr. Ehret is reporting that he met on the CIIE only a handful of European or Western people. And he said most of them were expats, but more or less no visitors from Western countries. So this is a situation which makes it very, very difficult at the moment to work with China only to give you some detailed explanations about the current situation, how it looks like, yes.

Understood. So -- okay. So onto CIGS, I mean what's the status with Fab 6? I mean you already got the orders. So maybe there were only some technical details to be finalized with the German partners. So theoretically, it sounds a bit easier to actually start the project. So what's the status of moving ahead on that one?

So we have already started with the production of this order for the Fab 6, but we deliver 3 -- at the moment, 3 different kind of machines. The first one we started now, which is the selen evaporator, because there are no changes on this machine because it will be the same as already delivered, no changes. But the other machines, there are some changes foreseeable because of this COVID situation. The R&D partner, Avancis, further developed new ideas and implemented new ideas. And they want now to have some -- that's what we expect, some small changes to adjust the machines to increase the efficiency and maybe throughput. So we are waiting now for these new specifications so that we can start with the other machines. And that's outstanding at the moment. And that's not only an issue of Avancis, also the Chinese partners have to, let me say, be involved. And then again, now because of COVID, we cannot travel. It's very difficult for us to communicate with them. So the specifications at the end, the detailed specifications are still valid, and that's why we cannot order the parts to not make any mistake, which we maybe afterwards have to change and increase costs, yes, and do this on our own risk. So we have to wait for the large specification. But as soon as we have them and get them, we can make a jump-start because the down payment is already on hand.

Okay. And when will probably that take place?

At the moment, Mr. Schaumann, we are expecting that we can start hopefully in January, that is the situation, maybe end or beginning of February. So that's our time frame at the moment to get the remaining specifications. That is something we have been told by the customer. But yes, that's at the moment the plan. Can be changed again, but at the moment, that is the plan.

Okay. Okay. And maybe a brief update on Fab 5 equipment move-in and then -- yes.

So Fab 5, our machines are, let me say, desperate and waiting to move in. We have now had the first meetings on the construction site and have seen the building and made the check. And I would say 70% of all our checks are positive. Some 30% are not realized. So we have not enough power. We have not enough water at the moment. So that means the customer is now working on doing these last steps in the fab so that we can really move in with our machines because we said, compared with last time, we only start to move in our machines when the fab is completely ready because experience from Fab 5 -- 4 was that the customer was not ready. And then he had to drill holes in the roof, and we had dust on our machines. And so that was not very efficient to work on that. So this time, we said, okay, we only come when the fab is 100% ready. And because of this situation, I think it can start on a daily base, maybe in November, maybe only in December. But -- so we are ready, and the fab is also almost ready.

Okay. So actually, you see the customer now moving forward on that one, too.

Yes. Yes.

Okay. Maybe then on heterojunction technologies, I mean, obviously, the technology is gaining ground, also referring to the move of Meyer Burger. You already talked about some projects, I think, during the last call, so maybe you can provide an update where you are, I think there's several European opportunities and then how things are in China.

Yes. So China is moving forward with heterojunction. We have delivered some machines there. They are running successfully. We are slightly improving the machines, but they are running very good. Of course, again, COVID is difficult. We cannot travel to further discuss that. In Japan, we have got some wet chemistry order for heterojunction, and we are also talking with more customers outside of China. So there are some European customers expecting to -- or looking forward to invest in Europe and also outside Europe. So we have some projects in Croatia. We have -- there are projects in Russia. There are projects in Italy. And there are projects in France about heterojunction. And we are in discussion with all of them because, yes, Meyer Burger stepped out, and they are now a competitor, so to say. And this opens a certain opportunity for the others. And of course, we are trying to jump into this vacuum there which Meyer Burger left on the delivery side for machines. And hopefully, we can get some orders. But again, also on COVID, I have to stress again all the customers and all the projects are postponed, and they are working heavily, and they are talking to us. It's an enormous amount of work we have. And we are in telephone and video conferences on a daily basis talking with these customers. But they are moving forward and moving forward and postponing because they said, because of the situation and the second wave, we cannot start and take a serious decision.