Ladies and gentlemen, welcome to the Half-Year Results 2024 Conference Call and Live Webcast. I am Maria, the Chorus Call operator. I would like to remind you that all participants will be listen-only mode, and the conference is being recorded. [Operator Instructions]. At this time, and it's my pleasure to hand over to Urs Gantner, CEO. Please go ahead, sir.

Good morning, ladies and gentlemen. Thanks for joining this webcast on our Q2 and half-year 2024 results. We have done things a bit differently this year by not publishing preliminary key figures earlier, but by speeding up our closing process until delivering final results a bit earlier. We now are one of the first companies reporting in the sector. Today, I'm joined on this call by our CFO, Fabian Chiozza. Also here with me are Michel Gerber and Christopher Wickli from our IR and Sustainability team. Let's move to slide 2, the agenda. For today's agenda, we have scheduled the following four parts before opening for a Q&A session. I will start with the highlights of the Q2 and half-year results, and then Fabian will go through the results and financials in more detail before sharing some of our 2024 sustainability efforts. I will then conclude with a look ahead, followed by the usual moderated Q&A session. Move to slide 4. We have a lot of ground to cover before we start with the business review. I want to share some observations I made during last week's SEMICON West Trade Fair in San Francisco. The VAT team had a great set of meetings with our largest customers. And you may have seen already some commentary and feedback from the event. Aside from presenting our product and meeting customers, there is a different aspect that is important at SEMICON; it's a chance for the industry to come together and discuss some of the challenges that face us all. The one thing I think remarkable in the industry is our collective focus, delivering on the promise of the USD1 trillion semi industry, continuing to push the boundaries of R&D beyond what is physically possible, and at the same time, ensuring that the core product, the chips, remains affordable. You're facing, as an industry, some real challenges, like ensuring that talent is nurtured. We have said net-zero targets for the industry, and we are establishing a new normal for our supply chains, especially after the COVID. Finally, geopolitics are impacting where and how we will manufacturing as an industry. The level of cooperation in the industry is astonishing, and I believe are unique to the semi space. Yes, established and various forums to address these topics. We have spoken to you previously about the semiconductor climate consortium and energy collaborators, for which VAT was founding member. We have also introduced a comprehensive workforce development program, which includes both raising awareness at a young age, but also reskilling and upskilling and training to chip workers. Finally, SEMI International Policy Summit, SIPS, serves as a platform driving alignment across industry, government, academia, and simple societies. So let's move to slide 5. On slide 5 that's available on our website and look at -- maybe look at an overview of the half-year key figures and the segment breakdown. Valves, our largest segment, accounted for about 81% of our sales, which is up from 79% in total a year ago. Global services grew as well proportionately less so, which explains somewhat smaller share in H1 sales. As we communicated back in March with the full-year 2023 results and reiterated in April with our Q1 2024 trading update, VAT's markets have seen continuous recovery since Q2 2023, with sequential growth in order and sales and with our book-to-bill ratio remaining above 1 for this period. We achieved sales of CHF450 million, flat compared to our H1 2023 sales. Our EBITDA margin increased by 0.9 percentage points over H1 2023, standing at 30.1%. We achieved 48 spec wins in H1 alone, 17% higher than last year. Fabian will give you a deeper dive into the numbers, so I will focus on discussing some of the key observation in H1 2024. Next slide. Orders have been up this half year by 74% compared to last year and are up sequentially 50% compared to the first quarter of 2024. This has been mainly due to the order recovery of 140% in the semiconductor business unit it compared to last year, which has also increased 23% over the last quarter. Sales and orders from customers in Asia, especially in China, have remained strong. Regionalization remains a key topic and a driver for demand from the region. Utilization rates are on the rise across logic and DRAM fabs. And we are hearing indication that NAND utilization rates are slowly creeping up as well. And yet, despite all the good signs, there are still areas where semi markets are recovering more slowly. Consumer electronic sales are running slower across the world as economies are grappling with residual post-COVID inflation. Some industrial and automotive chipmakers are still seeing slow demand due to high inventory levels at their customers. Our ADV business saw a decline in orders of 23% versus Q2 2023. For energy transition applications, solar remained sluggish, which our sales to nuclear enrichment and fusion continued at good pace. Some end markets in the industrial and scientific instruments business remains muted as well. The global service segment has continued to see improving market conditions. Chip fabs are seeing higher capacity utilization levels with certain customer fabs reporting over 90% utilization, which in turn increases demand for VAT consumables and spare parts. Sales of replacement gate have grown strongly at 40% plus over H2 2023, while spares and repairs are showing a slower growth that is in the 20s. VAT also posted sequential growth. Six months' orders are up 37% versus the same period last year. While demands are related to logic tools our stable, demand increased for the service business from memory manufacturers. In the retrofit and upgrade business, it is currently engaged in qualification activities with fab customers while creating capacity in anticipation of strong demand. Finally, for the group, sales of CHF450 million for H1 are flat at less than 1% below the levels of last year. Last year's numbers benefited from a strong order book that we were able to execute during the order slowdown, whereas the sales for H1 2024 are effectively the conversion of orders received during the last 6 to 12 months. Sales to our customers across semi include both our top OEM customers as well as our emerging Asian OEM customers. On profitability, the EBITDA margin for H1 2024 was at 30.1% versus 29.2% last year. We have maintained our efficiency measures from last year, but with a focus on getting ready for the ramp will continue to execute our CapEx plans and R&D at strong levels. Our planned 1B in Malaysia remains on track to open at the end of this year. I was there just a few weeks ago, and the space and capacity we have available are exciting. Our innovation center here in Haag is progressing according to plan as well and is on track for opening early in 2025. Who knows, we might even meet you there for our annual media conference. We have mentioned several times our ERP implementation to you in the past, and this continues to be a focus and the actual transition to be completed in the coming weeks. The good news is we have successfully done two of these implementation in the past in Malaysia and in Romania. The good news is that clients have commented that this transition has been completely unnoticeable to them, and there is no bad news. We are working with the same protocols for the transition in Switzerland. You know that there could be shortfalls, which we have hatched for, and our sales guidance for Q3 sales is taking all this into account. From our perspective, we believe that the semiconductor investment ramp is imminent, and as previously stated, we must maintain a high degree of readiness. Our close dialogue with customers gives us good visibility on what we can expect in the coming quarters. We have started to hire again, both workers and full-time employees. Our employee count increase just shy of 3,000 at the end of H1 2024, a plus of about 12% compared to the end of 2023. So for the rest of 2024, we confirm our expectations of higher overall results. The degree to which we will be above last year's result will ultimately be driven by the CapEx of fabs updating to the latest tools to manufacture the most advanced chips. There are several promising data points such as new releases of smartphones later this year or memory manufacturers announcement of increased CapEx in 2025. Let's talk about outlook a bit later, and let's go to slide number 7. Chart number 7 gives you an overview of the segment and regional breakdown. I don't think there are any surprises here. On the left-hand chart, we reiterate that about 80% of our total business comes from the semiconductor market. Compared to last year, ADV is lower by about 6 percentage points at 15% of sales. We have always said that ADV is a bit lumpy and often driven by large projects. While the nuclear enrichment infusion project business is running well, the solar and scientific instrument businesses are underperforming, especially the later was expected to recover post-COVID over ordering, but this recovery seems to be delayed into 2025. The regional split shows a very similar picture to what we showed you one year ago, confirming that we continue to develop very much in line with the global wafer fab equipment split. Around two-thirds of our business come from Asian customers, one-fifth from the US, and at similar number from our European customers. To preempt the question, direct sales to domestic Chinese customers there around 28% of group sales during the first six months of the year. Let's go to slide 8 for the market trends. I have covered some of these points already in the previous remarks, but wanted to recapitulate some of the developments in our key markets. Our largest end market is the semiconductor market. Memory manufacturers are seeing higher demands for DRAM, driven by the introduction of HBMs and have been able to sell down inventories. NAND still is recovering slowly but steadily. The logic market is seeing increased demand for leading-edge chips, again, fueled by AI applications. This is visible also in the PC and desktop market, where major manufacturers have presented their new models, which incorporate AI function as a new feature. At the same time, WFE spending in 2024 has not seen a significantly higher pickup versus H2 2023, while 2023 months about the recovery of , 2024 to date is a normalization of spending pattern. Our customers had built up significant inventories, which they have been managing down over the course of the last year. The current levels look normalized, and we are seeing a good run rate of sales that corresponds with replenishing these normalized inventory levels. Finally, this is the introduction of EUV machines. There is also a notable shift in the wafer fab equipment spend towards the lithography, which used to make up 50% of the WFE and now is closer to 30%. In solar, overcapacity continues to dampen orders from customers. Our energy transition customers continue to work closely with us, and fusion and uranium-enrichment approaches continue to demand for our valves. The impact of recent elections with left-wing swings in UK and France must still be assessed, but nuclear power must not key policy for the parties involved. For industrial and scientific instruments, the expectation where to see a recovery in 2024. Our conversation with customers indicate that they are not yet seeing the demand they were expecting. Finally, consumer and end-user market demands for products such as smartphones and TVs are still volatile. Macroeconomic data on inflation and consumer spending has been fixed in H1, but the presentation of AI-enabled smartphones in the past months has showed that technology is progressing for consumer application as well. This concludes my initial remarks for the H1 review, and I would like to hand over to Fabian for a more detailed look at the financials.

Thanks, Urs, and welcome to all of you who are joining us on the webcast today. Let's start on slide 10 with a quick recap of our key figures as Urs has covered the highlights already. Our results reflect the overall normalized market conditions in H1 '24. We have recovered off the '23 loss, and they are operating under normalized conditions. So look at these numbers as normalized basis as we have gone through the recovery, and we are still preparing for an industry-wide ramp. There are four key messages around to demonstrate to you in this section. As orders up considerably versus prior-year sales are flat. This is due to the strong order book we had last year and that we were able to execute on. In the past three quarters, our book-to-bill has remained above 1, which means we are rebuilding our backlog. Our planned ERP implementation in the third quarter has a limited impact in second quarter on the current business, and we expect a small reversal of these effects in the coming quarter. During the second quarter, depending ERP implementation has boosted sales by around CHF8 million or about 3% to 4%. We have been coordinating with our customers to deliver their requirements ahead of the plant production shutdown in early August. This is nevertheless important to better understand our Q3 sales guidance, on which we will elaborate later. Profitability remains a focus for VAT, but we are in a phase where we still must invest in anticipation of substantially higher customer demand in the next industry-wide ramp. VAT achieved an EBITDA margin of 30.1% despite type investments into R&D. Free cash flow of CHF26 million, down 29% year on year reflects the still high capital expenditure related to the 1B plan in Malaysia and the new innovation center in Switzerland. Both these projects are expected to be largely finalized by the end of this year. CapEx in the first six months amounted to CHF40 million, or 28% more than a year ago. Let me take you in detail through our results. Chart 11 shows the development of orders in the second quarter and half years. Our customers has managed to reduce their inventories in the past quarters, and current orders patterns of what we believe to be the regular run rate. Those we have seen continuous sequential orders and sales growth since Q2 2023. In Q2 '24, we achieved orders of CHF271 million, up 15% over Q1. Main contributor was the semiconductor business, where orders increased 23% quarter on quarter. Sales amounted to CHF251 million, which was up 27% on last quarter and at the upper half of the sales guidance we communicated to the market at Q1. Versus 2023 group orders for H1, CHF507 million surpassed H1 2023 orders by 74%, again, with the significant increase in the semi business of over 149%. Versus H1 '23, our sales were flat, demonstrating the importance of strong order book in a downturn. Our order backlog in H1 has seen small growth of 7% and 2%, respectively, versus both previous quarter and the same period last year. Definitely impacts in our six-month sales amounts approximately minus 4%. We have been talking about the ERP implementation of a lot of you for good reason. Keeping customers in the loop has been important for us, and we have had a close discussion on ensuring that all our customers to receive the required orders during this downtime. At the start of August, we will effectively have two weeks in which we will not be able to produce anything in Switzerland. Thus, we have been pre-producing and selling out of all some other products out of this downtime. We believe that approximately CHF20 million of orders and approximately CHF8 million of sales in the second quarter replaced related to these free shipping. Including these adjustments, our book-to-bill was still above of 1 times for the quarter. Our sales in Q3 will naturally be affected, and this is reflected in our guidance. On slide 12, we want to put the current result into historic context. Here, we see the development of orders and sales since the first quarter of 2018. As you can see, we have increased orders and sales since the trough at Q1 2023, which compares very similarly to the trough levels in Q1 2019. Our book-to-bill has been increasing steadily since Q1 '23 when we hit a low of 0.6 times and currently is running at 1.1 times, slightly down versus the previous quarter; it was at 1.2 times. Looking back at history, you can see we are only at the early stage of the next upcycle. Let's move to profitability. Chart 13 shows the development of net sales and EBITDA. We recorded a gross profit of CHF298 million in the first six months of '24, which is an increase of about 6% on '23. This equates to a gross profit margin of 66% and an increase of 4 percentage points compared to a year ago. Note, our gross profit is calculated as net sales minus cost of raw materials and consumables, and the change in inventory is finished goods and work in progress. Thus, coming ERP implementation in Switzerland has had an impact here. We have had a substantial buildup of inventory in semi-finished and finished goods, which we were able to capitalize, increasing to gross margin. We expect to counter effects in the second half of '24 as we all sell down these excess inventories. EBITDA for H1 '24 increased by 2% to CHF135 million while the margin increased 30.1% versus 29.2% a year ago. This increase can be explained by the contributions of our operational measures introduced last year. The margins still reflect our high R&D investments as well as the hiring of additional staff for these brands. On slide 14, putting this performance into historic context, again, you see the sequential EBITDA margin development since H1 2018. As you can see, we have constantly improved our EBITDA margin since the last downturn in the first half of 2019. The current margin results represents step off the trough margin recorded last year, a 30.1% or 5 percentage points higher than the last trough level. So based on this, we wanted to provide our outlook that year end had line EBITDA margin would likely come out at the lower end of our communicated EBITDA margin range of 32% to 37%. Note, this is again with the caveats of FX rates. Our range communicated at the Capital Markets Day 2022 was defined at the US dollar to Swiss franc of 0.95 to 1. Our efficiency programs, including, for example, ERP implementation, will help get the EBITDA margin back into the range. But clearly, significant pickup in sales we create operating leverage we can benefit from most. On to the next slide. This is our classic slide to demonstrate that VAT continues to create value. We measure this based on return on invested capital and the cash return on invested capital. For H1 '24, we achieved a ROIC of 32.5%, which is in line with the trough level in '23 and 2019. Our cash return on invested capital due to investments into capacity and working capital has moved to 27.9% versus 31.3% for the year '23. Comparing this to the back of 14%, our cash returns remain around 15% above , confirming that we are creating economic value while investing further. I expect this number to look, again, even better as our free cash flow improve in the coming quarters. Let's now get to the bottom line with some of the other financials on chart 16. Depreciation and amortization are about the same level as during the first six months of last year, using an EBIT of CHF114 million, corresponding EBIT margins of 25.3%, which is slightly higher in the 24.6% recorded a year ago. Net finance costs of around plus CHF1 million compared to minus CHF11 million in H1 '23. Revaluation gains on cash balances and inter-company loans contributed to the overall positive result. Effective tax rate for the first six months of '24 was 18% compared with 16% a year earlier. So taking all that together, net income amounted to CHF94 million, 12% higher compared to the first six months of '23. Slightly higher EBITDA and the positive financial results more than offset the slightly higher depreciation and tax rates. EPS recorded is CHF3.14 per share for this period. Our free cash flow generation is shown on chart 17. Our free cash flow in H1 '24 amounted to CHF26 million, down 29% compared to '23. Major impact here was CapEx, which amounted to CHF40 million in H1 '24, up 28% compared to CHF31 million in H1 '23. Our capacity expansions in Malaysia and new innovation center in Switzerland continue with focus to meet expected higher demand in '24 beyond. As a percentage of net sales, our trade working capital was at 36%, up from 30% one year earlier. This is due to the already explained inventory buildup ahead of the ERP change in Switzerland. We expect this ratio to decrease during the rest of the year. At 20%, cash conversion rate measure that free cash flow as a percentage of EBITDA ratio to usual seasonal lower level. Our goal is to return to the target band of between 60% to 65%. EBITDA. When it comes to leverage on chart 18, we continue to demonstrate our conservative views on leverage and capital structure despite our significant investment appetite. Net debt amounted to CHF231 million compared to CHF198 million one year ago. This translates to a net debt to EBITDA leverage ratio of 0.8 times. This in line with the normal seasonal pattern and includes the dividend payment in May of each year. As a reminder, we distributed the 103% of free cash flow in '23 in form of a dividend of CHF6.25 per share to our shareholders. This means we retain a very healthy balance sheet that allows us to self-fund our R&D and growth initiatives in the years to come. And summarizing the half-year 2024 financial performance on slide 19, we can state that investment conditions are expected to continue to show a gradual improvement during the second half-year '24; the order and sales figures grinding higher. 2025 is expected to be a strong year. ADV is expected to grow orders and sales, especially as investments return in some core end markets. However, the visibility here is somewhat blurred. For the service, it's expected to continue its growth, driven by higher fab utilization and higher demand for upgrades and retrofits, driven both by ESG needs and upgrading older fabs to manufacture new chip fabs. For the rest of '24 into '25, the following financial priorities supply

successfully completes the ERP implementation in Switzerland and manage our inventory of raw materials semi-finished and finished goods. It is important that our clients provide us with same feedback from Malaysia and Romania. We did not realize you completed implementation. Maintain a disciplined approach to CapEx expected around CHF70 million to CHF80 million in '24, driven by effect in Malaysia plant and innovation center in Switzerland, given our improvement program drive to drive productivity measures. Thus, we expect higher sales, EBITDA, EBITDA margin, net income, and free cash flow in '24 versus 2023. FX headwinds will continue to prevail, especially with geopolitical risks remaining. This concludes my financial remarks, and I look forward to any questions in our Q&A session. Let me now turn to another important topic at VAT, ESG. In April, VAT published its third sustainability report. In line with the new Swiss regulation, we have provided the report to the , and it was subject to a consultative vote. The report was signed off by 94% of the votes. I'd like to show you some of the highlights on slide 21. Over the course of '23, we continue to work on improving our ESG credentials. We believe that our long-term business success is subject to our success integrating ESG targets into our strategic and operational planning. This is not only a question of ecological goals, but also enabling our employees to grow and develop as well as having a positive impact on the communities in which we operate. Our improvements reflect a clear focus of our Board of Directors and executive management and translating our measures and targets and to everyday results. Amongst improvements reflected in the report, we highlight the better data quality and availability. We can demonstrate the decrease of our Scope 1 and 2 greenhouse gas emissions by 45% versus '23 and the group-wide increase of the renewable energy proportion to 68%. This was achieved by our solar array installed in Malaysia and sourcing electricity from our renewable resources. Our employee engagement score has increased for the seventh year in a row, and our accidents have reduced by one-third. Finally, we continue to make strides in diversity inclusion hirings, as 24% of our new hires being female. For highlight the importance of sustainability in our overall corporate strategy, VAT has also formed a proper Sustainability Committee on Board level replacing the previous more informal Sustainability Council. With that, I would like to hand back to Urs.

Thank you, Fabian. Let me now turn on slide 23 for the shorter-term expectation for our markets. And we were at the SEMICON West event, market outlook discussions revolved around the same few topics every single time. First will be in the industry about dealing with the overall impact of demand for AI-related products. Second, the introduction of major chip production tax developments like EUV, gate, all-around atomic layer deposition, and high bandwidth memory. And third, the timing and the shape of the market trend. Overall, the first and second topics and their development are feeding into the third topic. AI is providing to be a key growth driver, on the one hand, require an equal or better computing capabilities at lower power output, but also driving demand for more than fast memory. This in turn is driving demand for new manufacturing technologies to produce these advanced chips as we continue to drive node size down across the industry. And yet, wafer fab equipment spending is not expected to accelerate strongly this year. There is a lot of uncertainty in the equipment market. One of the factors is the geopolitical risk such as the elections in the US or the duration of Chinese government subsidies for domestic Chinese semiconductor manufacturing. Overall, with largely depleted inventories at our customers, the current market is showing of what we could call normal run rates rather than a ramp phase. The current consensus is that wafer fab equipment spend in 2024 will reach around USD90 billion to USD100 billion, accelerating in 2025 to USD110 billion to USD120 billion. For semi market, we expect demand overall to grind higher in H2. With wafer fab equipment estimates forecast to be around USD100 billion this year, we expect sales and orders from our semi clients to grow over the levels in 2023. In advanced industrials, overall business should be flat for the remaining half year. By some areas have performed very well, others have been lagging. These markers are likely to start ordering towards the end of year again, with sales recognition coming through in 2025. With the service market, we expect higher capacity utilization in the fabs combined with the normalized inventory levels of spares and consumables will lead to higher orders and sales in these segments. Move on to slide 24. WFE fab equipment spend is a topic that I want to address here. Fab equipment spend is a measure that captures the industry-wide front and investment in semiconductor manufacturing equipment. Unfortunately, and as you have noticed yourself, the numbers from the various data providers very widely and change fast, basically, even as we approach the year end. The consequence, we at VAT do not manage our company and financial planning and analysis based on this number. Nonetheless, I think it serves as a good indication of potential future market development. Looking at 2024 and based on the consensus of multiple sources, the USD98 billion representing a growth of approximately 3 percentage change over 2023 reflect our current expectations of the 2024 market very well. Comparing, however, the high and low end of the 2024 to estimate, you see a huge spread of USD26 billion. There is a clear consent, so the 2025 remains a good year for the industry and that we will see strong demand for wafer fab equipment develop. Some of the uncertainty factors remain on the timing of the NAND recovery to geopolitical developments, driving the speed of onshoring, the continuation of Chinese subsidies for the domestic ship industry, and the adoption of new production technologies such as the two-nanometer nodes gate all around and HBM. We have updated slide 25 for the latest statements made at SEMICON West. The great news is that despite some lack of visibility on the exact timing of the ramp, we continue to see great opportunities ahead. There are over 100 fabs that will come live over the next two to three years, 22 are presently in qualification runs, with 14 equipping. Two-thirds of all are either under construction or in the planning stage now. These numbers give us confidence that the demand for VAT products continues to be out there. Move to slide 26. R&D remains core to be at historic, and our R&D spend ensures that we remain at the forefront of technological developments in our markets. We were able to achieve 48 spec wins in this half year, which represents another 17% growth on the spec wins we posted last year at the end of the first half. As usual, this represents product that will be turned to sales in the coming years, which demonstrate as we continue to win new business; two out of three spec wins are in the semi business, one-quarter of the spec wins relate to adjacent products. And while R&D will impact our bottom line, in the end, this is making VAT future-proof. We increased our R&D spend in H1 2024 by more than 12% on H1 2023, but remained with our stated R&D guidance spend. Finally, coming to the outlook. So for VAT and the rest of 2024, we expect that trend will continue similarly. We mentioned geopolitics and the uncertainty over where and when the semiconductor investments will be made. We showed you why we believe in a strong ramp in the future. As a consequence and communicated earlier, VAT expects sales, EBITDA, net income, and free cash flow to be higher versus 2023. We now expect full-year 2024 EBITDA margin to be at the lower end of the 30% to 37% target spend. This obviously is still dependent on continued sales and subject to the usual caveats that we set at the 2022 Capital Markets Day and based on a US dollar/Swiss franc rate of 0.95. For the third quarter, we expect sales between CHF235 to CHF255 million. This includes planned lower output from the production ramp, which is the result of the ERP implementation. With that, I'd like to conclude our remarks and hand over to Michel Gerber for the Q&A.

Thank you, Urs. We'll now start the Q&A session, and we will have our call long for more than an hour. So all the questions you might have, we could possibly answer. [Operator Instructions]. I would now like to ask the operator for the first question from the phone.

[Operator instructions] The first question comes from Olivia Honychurch, Jefferies.

Good morning. Thank you for taking the question. I've got a couple, if that's okay. The first is around quantifying the impact of the ERP in Q3. So you said that that led CHF8 million of advanced shipment in Q2. If we assume that was pulled into Q3 and therefore add by million back to your Q3 revenue, that would imply CHF253 million, which is broadly flat versus Q2. So I'm just wondering if you can talk about what might be behind that lower-than-expected growth in Q3 or is there also an ERP role to be had, i.e., you also think some customer delaying shipments into Q4? I guess I'm really asking what is the hit to security revenues of CHF8 million or is actually higher than that? Thank you.

Hello, Olivia. Thanks for the question. The first part of the question was pretty hard to understand, but I think the question goes around the Q2 versus the Q3. Well, the guidance, it remains flat. And as you know, there are kind of a balancing now in Q2/Q3. So we had this pre-built in Q2 of approximately CHF20 million. And part of it, we already shipped, so this was then already booked, of course, in Q2. So if you would balance out that we will see also, even grow is now also in Q3, not a huge growth by balance out. There will be a growth from Q2 to Q3. So the ERP certainly has an impact. Now, on the numbers, Q2/Q3, that's correct.

Maybe to give you a bit more color on that, Olivia, take a given months, there, you have a CHF25 million, CHF30 million out of Malaysia and the rest is coming out of Switzerland, also with some that say maybe 10% service business. And from that, we have about two weeks of production outage, which we have partially already covered by shipments in H1 and then the remainder to be happening in Q3 also from inventories that we have a built in the meantime.

Okay, that makes sense. Thank you. And my second one was around your order expectations. You've now explicitly said that you've seen inventory levels at your customers fully normalized. I noticed that you added a new wording in your release statement around customers now moving into order replenishment territory. So I'm wondering, is there scope for your order over the next couple of quarters to exceed your previous guidance order growth, which you said on multiple actions will be low-double-digit sequential growth?

I think what we can mention here is that compared to last year's very important factor is that the lead times are much reduced now. So during the COVID time, everybody was ordering sometimes almost a year ahead and so the visibility of orders and what's coming was much better. So market, I expect the lead times, let's say, normal, 8 to 12 weeks and it turns in two to three months or quarter. I'd say that's why the visibility in orders is not that high anymore. But of course, it's very important to stay very close to our customers. We have weekly alignment meetings with our key clients so that we know what's coming on. But it's, of course, it's not yet in the order book. And with this discussion, we know that there will be sequential growth over the next quarters as well. Then also going into the 2025, the industry anyway expects final [indiscernible] coming. So the lead time is a very, very important element in this equation now that this is reduced, and that's why our orders are coming short closer to sales.

So just to clarify, no change in your outlook for like double-digit sequential growth going forward for sequential orders?

Can you say it again?

Just trying to clarify that you're not changing your expectations for the time being around order growth as being low-double-digit sequential growth over the next few quarters.

No, there is no change. No.

Okay, that's great. Thank you.

The next question comes from Jörn Iffert, UBS.

Thank you. Hopefully the first question only counts as half a question because of the follow-up with the CHF20 million orders portfolio mix due to the ERP shutdown. Is this part of your guidance? Have you really should take the CHF271 million and multiply it with low-double-digit growth for Q3 or should we adjust for the CHF20 million?

No, you have to adjust that, Jörn.

Okay, thanks. This is also half a question. Second question, please, if I may ask. Look, on the mix deposition lithography, how do you think this is developing in 2025 versus a mix in 2022 when we had the non-semi CapEx peak? Is that much more lithography in 2025 like the EUV, which is not so favorable for you, or is it relatively balanced versus 2022? If I may ask.

I mean, Jörn, we like EUV, right? Everybody loves it, it's such a fantastic technology. Yeah, but you're right. There was, of course, a huge shift there in last year in the wafer fab equipment, so the focus is really a pickup, if I'm not wrong, from 18% to 28% or close to 30% in that range. I think it would be probably quite similar now also this year. And then as soon as the two-nanometer and also especially NAND is kicking in, so there will be more etch and deposition tools required. So this will balance out. And again, this hype in lithography as we have seen in the past, so I expect this will go back. But there, of course, there are official numbers from the obvious companies where you can also see what they expect -- we expect it's going back in percentage, but certainly stay at beyond the 20%.

Okay, thanks. And then really the last half question. Just incrementally of assets is so often, but China . Anything else incrementally you can add from the SEMICON for this industry view or your view?

Well, of course, China is a very challenging business, but also offering the huge opportunities for us as well. I think China is -- meanwhile, also always call it like a run rate. It did build up capacities to build also tools, and they are currently on this run rate. And then, we can expect that this will be kind of a stable business going forward until they have got to build out more capacity. I'm talking more about the wafer fab equipment manufactured, not on the chip side. So our clients are wafer fab equipment, only in service business, we go to the to the fabs directly. So I see there is kind of -- it's a huge move. So they are, I think, up to CHF28 billion last year. This year, will be up roughly the same, and latest numbers I have seen, this will also stay quite stable over the next year.

Thank you very much.

In the percentage, of course, is going back since we expect that the others will grow.

Thank you very much. Thanks, Urs.

The next question comes from Sebastian Kuenne, RBC Capital Markets.

Yeah. Hi, gentlemen. My first question is regarding the pricing level for consumer electronics. When I look at the retail price to used in memory, they're all trending down still. Could you give us a bit more indication of what you see in the lagging etch of the monitor, everything outside AI? And the second question is again on China. So you mentioned overstocking of equipment there. I think the first time that anyone mentioned, I think [indiscernible] mentioned it, does that overstocking also applied to components, so vacuum components? And if so, I mean, I think China must now contribute about 45%, maybe 50% to your revenues, if you include the OEM exposure. What makes you so confident that Chinese demand can remain flat this year? This is the question. Thank you.

Let's start on the China, and then maybe we can conclude on China. I know it's a hot topic for everybody. So for us, of course, we always see, as you know, China for the semiconductor market and for rest of the industry, and in semiconductor, we delivered directly to the OEMs. And in for this Chinese domestic OEMs, there is no overstocking of tools, and there is also no overstocking in components. I think they are now at this run rate, and they are even before to deliver more if they could. But of course, they also have to build up all these expertise, capabilities for all these different, for the hundreds of process steps to serve the domestic market. So yes, that's why I say it's a quite of a steady flow into China, and there is no overstocking for sure, but that's -- I don't have numbers on that. For the best and wafer fab equipment tools, of course, the fabs in China, of course, they did buy whatever they could. And I expect they will do that also going forward. This might change in the future as well. Nobody knows; there's nothing set carved in stone, but that is something that can be expected. On the pricing on consumer electronics, well, for us, what we track is more the quantity. It's much more important to us than just the pricing because the quantity of semiconductor chips produced kind of equal stand in the number of equipment that is used. And we are providing the equipment manufacturers, and this is something we are tracking. That's tracking on the price -- pricing on consumer electronics [indiscernible] maybe this is an indirect impact to our business.

Understood. Follow-up on the Chinese [indiscernible] because you write in your presentation that there's always talking about [indiscernible] So you seem to have some --

We can hardly hear you.

Yeah. In your presentation, you write that there's some overstocking of tools anticipated to be restricted in future. So you do seem to have [indiscernible] of overstocking, right? It's on page 24.

Well, as mentioned, it's certainly not the Chinese audience, so actually better than…

Okay. Thank you very much.

Okay. We now take a question from the webcast. It's from , and he asks, if we can shed some light on the achievement of the solid EBITDA margin, whether it is just the capitalization of the inventory build or whether we have any other measures we took on the pricing or operational excellence or so. Any changes in the competitive landscape?

So let me address that question. Thank you very much for it. So from the, let's say, 4 percentage points increase in gross profit margin, we can allocate about 50% of it to the inventory build, which will then also reverse in into the second half. But we still have a daring 2 percentage points improvement on a normalized level, thanks to all operational excellence measures that we are driving on the one-hand side, but also a favorable mix on the other hand. As usually pricing in our industry tends to be very stable, so that is not a significant contributor here, neither is any change that you make reference to in the competitive landscape.

The next question comes from Sandeep Deshpande, JPMorgan.

Yeah, hi. Good morning. My question is, you've talked about the adjustments because of the output ERP and other points in the third quarter. How you see the trajectory now because of that into the fourth quarter and full year?

Good morning. I do expect that the return to normal operations towards the end of Q3. So into Q4, we will be fully back to the normal run rates. And here, I would just add a bit of color. We are currently operating in Malaysia, about 70% to 75% of capacity, and in Switzerland is about the 70%. So here, we have certainly enough headroom to ramp. We do have also the staff in place. And as Urs also said before, we're taking this investment ahead of the curve very seriously and are preparing ourselves for a strong Q4.

And my second quick follow-up on that is, based on what you're hearing from your large semi-cap customers, they are preparing for a big '25. And so, do they already have inventory by the end of this year and perhaps that there's the need from you or you will continue -- you expect significant growth next year as well at the back of that?

Certainly, we are checking with our customers as mentioned our peak level what their outlook is will be sold. Today, they have kind of visibility for the next quarter. So it's just that the dual order is this customer -- also through consignment, and this helps about to buffer then that you are ready for the ramp as well. And yeah, for us, the inventories did quite normalize over the last year. As you may remember, after 2022, this is huge ordering, and they had a lot of inventory as well. And now, it's kind of normalize as well. So it's going back to our run rate. Of course, if we see that's picking up, the whole inventory level builds the adjusted all on the expected run rates as well. So this is a kind of checking and adjusting on a weekly and monthly base with our customers, but also important with our suppliers as well.

Thank you.

The next question comes from Timm Schulze-Melander, Redburn Atlantic.

Hi, good morning. Thanks for taking my questions. Just very quick one, please. Just a clarification on ERP. I think you said it's a two-week implementation, but I think, Fabian, you also just said that you expect normal operations at the end of Q3. Maybe you could just let us know when do you expect to start and finish that implementation, please?

Yes, hi, Tim. Good morning. So the changeover is happening early August, which triggers production outages for about two weeks. And then you gradually ramping your production back up, get people back on board, having them work with the new system, processes, et cetera. And what I said is that I do expect that after about four weeks, four to six weeks, we should be back at run rate that we have seen prior to the [indiscernible] takeover.

Okay, super clear. That's very helpful. Thank you. The second question is on China. I know it's a hot topic. I just want to focus very specifically on the aftermarket business. So in that China aftermarket business where you supply non-China OEMs, so is there anything that has changed in that part of your business? Or is the supply and the flow of spares, consumables, upgrades like everything that's aftermarket, is that still running normally with your non-China OEMs in China?

Of course, it is our non-China OEMs. So what we delivered there, we don't know what -- where this will end up, right? If you deliver to a non-Chinese OEM in the aftermarket, so we go through them. So we work with our OEMs. And then, of course, they decide where they go. And just today, I'm sure this -- our products still flow into China. We have seen me mainly the pickup as well in the aftermarket from -- not in China -- because in China, they are building up now to capacity. So there is not yet an aftermarket established; this will come then in a few years. So service business is always lagging three to five years behind. And the first years anyway, it's always going through the OEM and if the tools [indiscernible] or tools are out of warranty, then there, the aftermarket gets established.

Very clear. And maybe just one last quick one. In the risk factors, you talked about the sustainability of China government incentives. Is there anything you've seen or any news flow? Anything that's caused you to question rule or doubt the durability of those incentives? Thanks very much.

Yeah, of course, it's a more of a political question. I can't read their minds. I expect that they will not stop to have a clear road map, a long-term road map, and it will continue. They want to build up the semiconductor industry locally and do not expect at all that this will stop. It will be the biggest surprise probably this year.

All right, super helpful. Thanks very much.

The next question comes from Craig Abbott, Kepler Cheuvreux.

Yes. Good afternoon, everyone. Thank you. Yes, just one question. I realize there's very high-level generalized, but looking at the kind of revenue growth potential into '25, if we start as a base for '24, assuming whatever sales around that CHF1 billion level a little bit more. And looking at the midpoint of the WFE CapEx outlook you gave us for '25, say high-teen growth or so. I'm just wondering what your current thoughts are in terms of the sort of correlation potential for what kind of revenue growth VAT might be able to generate in if that all comes through as expected in '25 versus that underlying WFE CapEx that is expected? Thank you.

Yeah, of course, as always, thanks for that question. A very interesting one and cycling keeping our modeling, how we model our markets, and the growth. And it will depend, of course, which technologies will be ramped and what kind of equipment goes to the market. Our ambitious goal is always to say that we want to outgrow the markets, so we extended to 10% growth in the market; we certainly want to outgrow. And with newer technology going to market, our share, of course, will be higher. And this will -- certainly, VAT will benefit from that as well. And then, of course, we also hear Fabian facing always, FX, of course, ought to be a big driver as well. This might be not in favor to us. If it's different there with, of course, will be taped out. But this will also play a certain role. But in general and normalized or with a constant FX rate, we will outgrow; that's our ambitious and is our initiative. We will outgrow the market if the new technology goes into the market.

Okay, thank you. Very helpful.

The next question comes from Robert Sanders, Deutsche Bank.

Yeah, thanks for taking my question. I just had a question regarding the Malaysian expansion. You've obviously got 1B opening at the end of this year. Are you going to ramp up at full health to get to the feasible capacity, and what kind of standard cost reduction could that give you per value or what could it do to the EBITDA margin by '27 for example? Thanks.

As we mentioned, we are investing ahead of the cycle, right? And we started -- that we've had started already qualifications of our machining in our 1B. I think that's the most important because we also want to kind of save or the whole supply chain in Asia. And so if the ramp is coming, we want to deliver. So we kind of qualify already 1B in machining. And then we will gradually increase, of course, capacity and buildout, build out the clean rooms when it's needed. so the VAT capacity in Malaysia will be 1 billion. So this will be our two-billion story, which we want to achieve by 2027/2028 timeframe. So over the next years, and we will gradually increase the output and capacity in the 1B. But we already started qualification of machining always takes time towards our close collaboration with the whole industry. There is a copy exact in the market and that, so we follow the rules in the market and that's why we started off early.

And is there a particular standard cost reduction that you're targeting in Malaysia versus Switzerland?

So what we have commented before is that labor rate in Malaysia are about of 3 to 3.5 blended cost lower compared to Switzerland. And if you just take now a standard product, say you have so over CHF100 of sales, then your labor content in that is between 10% to 15%. And that is where you can apply this cost, labor cost benefits. So overall, I think the contribution is rather small, given the views also in machinery, equipment, et cetera, that we have in Switzerland. So there, you do not have a benefit. Overall, I think where we definitely will see our operational leverage kicking in, then this is definitely with the volume plus. Also, just complementing to what Urs has said, that we have a nice ECP opportunity with a Malaysia 1B on the one hand side. And on the other hand, we can also accelerate the buildup of our supply chains and could just play them with the ratio. So in case of the external supply chain, not being able to cope with the expected growth next year. So overall, I think that gives another comfort for us, but especially for our customers as we prepare for the next ramp.

Thanks for that. Just one quick follow-up on adjacencies. How should we think about the ramps from below 100, I guess, this year, to 300 and above in '27? Is that going to be sort of linear growth? Is it more back-end loaded? Just so we understand. Thanks.

Depends on the technology going in, it's quite linear growth on leading-edge equipment going to market.

Great, thanks a lot.

The next question comes from Nejc Lavric, Octavian.

Yeah, hi. Thank you for taking my question. Maybe just as a follow-up on the adjacencies. You mentioned, I think, two or three times, you have substantial R&D investments, significant guaranteed investments. Could you provide more color on that? I mean, is it just the higher personnel cost and to use for the innovation lab? Or are you developing some new applications that are experiencing high demand? And of course, if you could quantify some of these movements would be great.

Yeah. Well, of course, R&D that's in the DNA for VAT. So we are always saying, actually, we started -- our founder was really an engineer and tried to solve industry problems of the first to universities and centers, for example. So that's in our DNA. And I think this was, of course, we are certain now that we set a few years back already to standard, but there's nothing finished, right, to be able to see that we have continued R&D going forward here. So there are issues in the market. For example, that PFAS and also in ESG to make it more environmental friendly. So there is a lot of also here innovation ongoing, even in our core product. Apart the core products, yes, we have also adjacent product, as we mentioned. And then looking ahead in the five-plus years, our R&D team is also working on, we call them Horizon 2 products. Products that is not yet in the market, but we anticipate there will be inflection point coming. And we are preparing for, let's say, the next generation on the gate, all-around technology, or even the technology coming down into five-plus year.

Maybe more specifically on the advanced modules and motion control, I mean, you did say last year that the sales was down with the market and it -- could you maybe say more to that to this year?

Yeah. So this is kind of why it was down? Because we always have this adjacent products qualified on the latest generation of wafer fab manufacturing tools and basically on all in the etch deposition and also lithography. And especially etch, that was quite new -- last year leading edge, so it was more, the ICAPS growing, and that's why we saw the decline, as mentioned already before. As soon as we see that these two-nanometer and beyond will be invested for the two-nanometer and beyond the adjacency, our adjacent products could kick in. But we keep working on that. And as I also mentioned, the 20% of the spec wins we have done in half-year one was for adjacent products.

Okay. And then maybe, again, question on China. I was maybe a bit surprised because recently also read from the senior organization that the wafer fab equipment for next year could be down for China. So my question to you would be, we think that the wafer fab equipment projections reflect the risk that maybe China want to really grow? And why would it onto such a change? Because it's somehow contradictory that they have kind of the amount higher-than-expected subsidies to support the industry, and yet, now we are seeing that second company or you guys are also highlighting the China might be overstocking. So it almost appears there is a risk of overcapacity.

I always mention that we -- if I just talk about China, I spoke about the Chinese OEM. And with our Chinese OEMs, there is no overstocking. And the government in China, they have to invest because they have to develop all the process for the wafer fab equipment. And I think that that's canceled. The one with the overstocking, that's not what we have seen. In China, of course, it's mainly what it is now installed is more matured technologies, and that they have to work also on the leading edge. They are behind that, and that's why they will invest a lot in achieving also the seven/five nanometer technologies. They are not yet there, that's why they have to invest in these technologies. So the investments will not stop.

Okay. So the wafer fab equipment projection for next year assumes growth in China?

I didn't say that this will be stable on a very healthy level. And in the kind of the percentage from the total wafer to wafer fab equipment, it will go down because the others will growth.

Okay. Thank you very much.

The next question comes from Didier Scemama, Bank of America.

Hey. Good morning, gentlemen. Thank you so much for taking my question. I've got a few. Just wanted to clarify a little bit the impact of the ERP implementation on your Q3 guide. Is that -- if you take CHF250 million is sort of the base assumption, is that sort of the two weeks disruption on that basis? Or is it just on the Switzerland portion of revenue? Related to that, also, you mentioned that you'll start the implementation in August. So should we expect additional disruption to Q4? And I've got a follow-up on China. Thank you.

Hi, Didier. I can just repeat what I've said about 10 minutes ago. So the effect of the changeover are included in the guidance that we have established to the amount that I have said before. And in Q4, I do expect business to run at the pre-changeover run rates. There is no impact to be expected at this point in time.

I'm sorry. I didn't quite get it. And I get quite a lot of questions from investors that didn't get it either.

So we have about CHF8 million of sales in our Q2 numbers, which have been, let's say, anticipated in order to bridge to changeover, and then you have two weeks of production outages. This equates to about CHF20 million to CHF25 million worth of sales, which we have either already pre-shipped. This is the CHF8 million or which we then ship as soon as we ramp back up. And that is what would be meant what is already included in this guidance that we have established.

How brilliant. Okay. Thank you so much for that clarification. On the China a bit, I know it's probably out of your hands, but -- and related to previous questions, what's your understanding of your China semi-cap customers benefit from the third big fund that was announced by China, I think, like many months or so ago? China talking about $48 billion investment. A, is that included in your assumption that in China, WFE next year will be flattish? And then B, I think the press reports suggest that your Chinese semi-cap customers are going to be the key recipients of that subsidy. So any comments or color on that would be great. Thank you.

Yeah. So the whole ecosystem, right, in China, they have to build up so they certainly invest in the fabs and then also in the wafer fab equipment and the companies. So why I say it's more flat and the total amount is that I also see the run rate of the wafer fab equipment companies, they are also added at the limit at the moment. They cannot produce more. I know they will invest in more capacity. And in China, this can go pretty fast. But what I see, they will need one or two years to be ready. And also in technology, it's not just that we build up a factory and then they have a technology ready; they also to build up the technology. The Western World used there now for 20 to 30 years to come up to that level. China will be faster, but they still need a few rounds behind to achieve the same level. So for us in the end, we always benefit this effect. It's a fab anyway; doesn't matter where it is, even if there would be something in Chin, that with restrictions, if the demand semiconductor is here and there are 100 fabs in the production at the moment or will be billed, so as soon as they get better equipped with wafer fab equipment, we will benefit. I think that's the key measure for us and also the message I want to transport at any time a fab goes online. That's fantastic for VAT.

Okay, fantastic. Thank you so much.

The next question comes from Jürgen Wagner, Stifel.

Yeah, good afternoon. Thank you for taking my question. I'm afraid to follow up on China. You mentioned 25% -- 28% of revenues in Q2. What was the share in your order intake? And how much is within your order book? And the second question would be on the semi strong -- semi CapEx in '25 that the industry is currently expecting. As of today, what would be your best guess when you will see that in your order book? Thank you.

So the share of China, you said correctly; there is 28% in sales. And in order book, it's roughly 30%. So it's a quite on par book-to-bill. And what was the second one was the delay ranks?

No. The strong semi CapEx '25 that currently everybody is expecting. When would you see it in your order book?

We expect that the DRAM will come first and then the NAND will follow. So it will be not -- it's also good for the whole industry that not everybody to ramp in at the same time. So it will be expect that that will discuss this further sequential growth. Normally, we see it. As I mentioned, our lead times will be between 8 to 12 weeks. So we see it, let's say, one quarter ahead of our -- ahead of what you will -- or the numbers will be in a wafer fab equipment going to market. So roughly one quarter ahead.

Okay, thank you.

The next question comes from Michael Inauen, Zürcher Kantonalbank.

Thanks very much. Thanks for taking my question. Just two short ones. Maybe on the spec wins that you mentioned, Urs, about 20%/25%, if I got it correctly from adjacencies. Can you elaborate a little bit against whom are you winning, though? I mean, are you actually designing as someone else, or are you winning new projects from your -- from OEMs who were producing at these adjacencies themselves? So they're basically, let's say, outsourcing it to you, if I can use that term? That will be the first question. And the second one, you've mentioned NAND recovery would be after DRAM recovery. I was just wondering if you can -- if you have a little bit better feeling on the timeline on NAND? When is this recovery actually starting? And would you imagine that it could be more V-shaped than the recovery in the other areas that we will it see now stabilizing and basically jump in 2025? Or what's your view on that?

So starting with the adjacencies. Adjacencies are, of course, not only one product. There are several products. We work with our largest clients here. And there is a -- it's a mixture between that we win from a from competitors where we get the business because our clients, they don't want -- they want to outsource that or it can be also a technology move that takes a while we need [indiscernible] VAT to fulfill the specifications and move it from contract manufacturing to VAT. I think they are three pillars here. And in the second question about the that around ramp pattern. And as I've always tried to point out, our valves, our adjacent products, they go all to the lithography, that etch products. These products will go then to the fabs. And what the fabs will do with it that, we normally don't know if it's quite kind of similar specification sometimes from the valves. So for us, the most important is that one of the technology or fabs will be built and the utilization reaches a high level that the VAT can start to invest again in new technology. I think that's, for us, the most important what we are also tracking. If it is NAND or DRAM, it doesn't matter. And I'm happy that I see now that's maybe -- that will not come at the same time. We expect that the DRAM revenues coming in the first half and then the NAND in the second half of next year.

Thanks. That's clear. Thank you very much.

The next question comes from Nigel van Putten, Morgan Stanley.

Hi. Good afternoon, guys. And I think you might have already covered this; might have missed this, but just on the map for the order intake. So instead of using -- so I got to reported first-half order intake of about CHF507 million, which is about a 26%/27% growth rate. But because there's a CHF20 million sort of pull in there, the base I should be using is lower than CHF507 million. Is that correct?

That's correct. Yes.

So that lowers the base, but also the growth rate. So if you then say in the press release, we expect sequential demand improvement to continue in the remaining two quarters, you had a similar run rate of H1, then the math I should do is take CHF507 million, deduct CHF20 million, apply a growth rate of about 22%, and then add back to CHF20 million. Is that sort of -- I mean, I know there's no actual numbers here, but you know, that's what we have given us. So 22% half-on-half growth on plus gives about . Does that make sense?

I mean, again, as we said before, we ultimately depends now on how this recovery will unfold. Then we certainly can reiterate what we said before that we do expect sequential growth rates in the low-single-digit territory, whether this is now 15%, 20%, or 22%. We'll definitely have to see how this unfolds. But I think what is important is that the trajectory, which will then bring us back to the 2025 milestones that we have alluded to earlier on.

Yes, of course. But I mean, we're tracking that, obviously. So I mean, it would come to about 10% growth? So that's like double digit, but like around rather than -- maybe at least -- I'm not entirely sure what the communication was, if you said at least low-double digit this deck where, again, I don't know -- (multiple speakers) this morning because I don't think the press release contains the CHF20 million, even though you put on the CHF8 million? So I'm just trying to get the math here correct.

That's right. That was a color we added now for the call here.

Right. Okay. So CHF20 million. Okay, that's fine. Thank you. Thanks for the clarification.

Okay. So with that, I thank you all for your participation and interesting questions. I'm sure you will stay in touch with our team here with us. The third-quarter results will be published on October 17. Until then, I wish you a wonderful day. Bye.

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