INTERVIEW WITH THE CFO
Although the drop off in the single wafer ALD market affected ASMI’s financial performance in 2016, Chief Financial Officer Peter A.M. van Bommel expects this market to recover again in 2017. In the following interview he discusses some of the key financial topics that impacted the company in 2016, and explains the importance of maintaining a strong balance sheet to continue investing in the growth of the business.
How would you describe ASMI’s financial performance in 2016?
After years of strong growth, the single wafer ALD market suffered a double-digit drop, due to lower spending in the memory segment. Even though we expect our single wafer ALD market to recover again in 2017, this slowdown impacted our financial performance last year. Our revenue was down 11% compared to the record level we saw in 2015. Gross margins were stable and operating expenses remained under control. SG&A expenses, excluding restructuring expenses, were 5% lower. R&D expenses rose slightly which was the balance of an increase driven by customer requests for new applications and lower impairment charges compared to 2015. Operating margins remained comfortably in double digits at 13.8% (2015: 16.6%). Results from investments – reflecting our 39% share of ASMPT’s net profits – showed a strong increase of 52% to €68 million. In total, normalized net profits decreased by 22% to €163 million.
Free cash flow dropped in 2016. What factors caused this?
On the back of structural improvements in the gross margins and working capital levels, over the last few years we have consistently generated positive free cash flow. In 2016 the free cash flow dropped to €31 million, down from a record high of €104 million in 2015. Next to lower profitably, this was the result of cash used by working capital. While the quality and the underlying level of working capital remained healthy, this increase was impacted by the back-half weighted character of sales in the fourth quarter of 2016, as well as a rise in inventories in anticipation of increasing shipments in the forthcoming quarters.
What are your expectations for gross margins going forward?
We kept gross margins stable at approximately 44% in 2016, despite the drop in revenue. This solid performance reflects the impact from the programs that we implemented over the last several years to further improve the efficiency and flexibility of our manufacturing and supply chain operations. These measures included new outsourcing initiatives and a stronger focus on sourcing of complete subassemblies. Over time, we have further reduced the fixed costs part of our total costs of goods sold, which means that our gross margins are not impacted as much by short-term fluctuations in activity levels. Another example is the migration of a larger part of our supply base to Asia. With an ongoing strong cost focus throughout our organization, we expect to maintain gross margins within a percentage range of low-to-mid 40s, barring a downturn in the semiconductor equipment market. On a quarterly basis, gross margins will continue to be impacted by factors such as revenue mix and utilization.
ASMI announced another share buyback program last year. Can you say more about your policy with respect to excess cash and shareholder remuneration?
Our key priority is to maintain a strong balance sheet that enables us to continue investing in the growth of our business. With free cash flow consistently positive, over the past few years our cash position has remained above our minimum target level of around €300 million. Our commitment is to use excess cash for the benefit of our shareholders. We aim to pay a sustainable dividend. After an increase of 17% in 2016, we will propose a stable dividend of €0.70 per share to the AGM 2017. In addition, since 2014 we have announced three consecutive share buyback programs. Last October we announced a new buyback program for an amount of €50 million, which was 13% complete by the end of December 2016. As our financial position continues to be solid, we announced an increase early March in the size of the current share buyback program from €50 million to €100 million. In total, we spent approximately €140 million on dividends and share buybacks during 2016, up 20% from €116 million in 2015.