VAT : Full-Year Results 2016 - Media release

Media Release

Haag, March 31, 2017

• Continuous strong demand for high-vacuum valves due to significantly increased semiconductor device and display panel consumption and technology upgrades

• Year on year Q4 order intake up 65%; net sales increase 46%

  Full year 2016

• Net sales up 24% to CHF 508 million; order intake by 31% to CHF 562 million

• Adjusted EBITDA of CHF 158 million; adjusted EBITDA margin of 31.1%

• Net income of CHF 67 million supported by higher operating performance and substantially lower finance costs; net debt to EBITDA ratio of 0.9 times

• Free cash flow generation improved to CHF 128 million, plus 21%

• Dividend proposal of CHF 4.00 per share

• Dr. Martin Komischke nominated to succeed Dr. Horst Heidsieck as Chairman of the Board, Dr. Hermann Gerlinger nominated as additional member of the Board

  Outlook 2017

• Revenue growth of at least 20% expected at constant FX rates

• Adjusted EBITDA margin target around 31%

• CAPEX to be around 5% of sales

VAT completed the 2016 fiscal year with a strong fourth quarter. Order intake was CHF

168.1 million, up 64.8% from the previous year and the order backlog at year-end amounted to CHF 122.1 million, a plus of 69.8%. Net sales reached CHF 142.7 million, representing an increase of 46.4% year on year. VAT took advantage of high investments in manufacturing facilities mainly in Asia and the United States.

VAT reported record results in 2016, driven by strong customer demand and a further expansion of its leading market position. VAT entered a new chapter in its history with the successful initial public offering (IPO) on April 14, 2016 on the SIX Swiss Exchange. The transition from a privately held enterprise, with more than 50 years' experience in vacuum valve technology, to a publicly listed company marked a major step forward and further enhanced VAT's position as a global market leader in the vacuum valves segment.

Growth of VAT's primary markets accelerated throughout 2016, driven by the rapid proliferation of microelectronics and displays in the industry, our daily life, and new technologies. As the global market leader in high-end vacuum valves, VAT was able to benefit from this positive development and to outgrow the market.

Continued miniaturization of high performing micro-electronic devices led to higher manufacturing complexity and additional production steps. One example is 3D NAND flash memory device technology, which consists of more than 60 nano-layers to significantly increase storage capacity while reducing power consumption at the same time. 3D NAND devices require highly performing and ultra-clean manufacturing processes, free of particles and other contaminants. To achieve such clean manufacturing conditions, advanced sub- components such as high-vacuum valves are mission critical. Customer investments in these highly demanding components have driven VAT's valve sales for the semiconductor industry in 2016. The displays business mainly profited from capacity ramp-ups in Organic Light Emitting Diodes (OLED) production. OLED delivers brighter colors combined with reduced energy consumption, making it highly attractive for the new generation of smartphones. Remarkable capacity was built up mainly in Korea and China to meet the upcoming demand in 2017 and beyond. Compared to LCD technology, OLED needs additional vacuum deposition steps for the organic layers that result in a higher number of valves installed per manufacturing line.

In 2016, VAT's order intake was CHF 561.9 million, up 31.3% from the previous year, while the order backlog increased to CHF 122.1 million at year-end. Net sales of CHF 507.9 million represented an increase of 23.6% compared to a year earlier. Net sales increased in the Valves and Global Service segments and were flat in the Industry segment. The Group net sales growth includes a positive impact from foreign exchange movements in 2016 of about 5%.

As a result of the strong growth in net sales, VAT increased its gross profit by CHF 57.0 million, or 21.8%, to CHF 318.0 million. The decline in the gross margin from 63.5% to 62.6% is mainly the result of the change in the product mix as the Display & Solar business more than doubled its sales in 2016, but has slightly lower gross margins than the Semiconductor business for example.

Adjusted EBITDA for the year improved by 24.7% to CHF 158.1 million. The adjusted EBITDA margin increased to 31.1% compared to 30.8% in the previous year despite investments in future growth and additional costs associated with the strong increase in demand in 2016.

The conversion of the shareholder loan of CHF 414.1 million into equity as part of the IPO in April, the refinancing of the outstanding senior secured credit facility of USD 276 million with a new syndicated five-year revolving credit facility of USD 300 million and further deleveraging of the balance sheet lowered finance costs from CHF 71.4 million to CHF 37.7 million and will have a positive impact on VAT's future cash flows from financing activities.

The effective tax rate in 2016 of 23.5% was higher than the target range of 18% to 20%, due to the non-tax deductibility of certain IPO-related costs.

For the full year 2016, VAT realized a net income attributable to shareholders of CHF 67.2 million. The improvement was the result of higher operating profits coupled with lower net finance costs and a lower tax rate.

On December 31, 2016, VAT's net debt amounted to CHF 133.9 million, representing a leverage ratio expressed as Net Debt to EBITDA of 0.9 times. The equity ratio at year-end amounted to 57.8%.

One of VAT's key performance indicators is free cash flow, which improved in 2016 to CHF 128.1 million from CHF 105.6 million in 2015. The improvement was driven by the better operating performance coupled with tight working capital management. Net trade working capital decreased from 22.9% at the end of 2015 to 20.2% of sales at the end of 2016. In the medium term, VAT expects trade working capital to be around 20% of sales. The free cash flow margin was 25.2% and the free cash flow conversion rate was 85.6% of EBITDA.

At the end of 2016, VAT had 1,439 employees worldwide, an increase of 250, or 21.0%, compared with the end of 2015, reflecting the strong growth of our business.

The Board of Directors of VAT is proposing to its Annual General Meeting on May 17, 2017 a dividend for the business year ending December 31, 2016 of CHF 4.00 per share to be paid out of reserves from capital contributions, representing a total dividend amount of CHF 120 million.

VALVES

Valves, the largest segment of VAT Group, had a record order intake in Q4 of CHF 139.7 million, a plus of 75.3% over the previous year and realized net sales of CHF 116.4 million - a plus of 54.6% - in the fourth quarter of 2016. Ongoing high demand from key customers and the absence of the normal slowdown towards year-end contributed to these strong results.

For the full year, net sales in the Valves segment grew to CHF 394.6 million, an increase of 27.5% compared to the previous year. Growth was strongest in the Semiconductor and Display & Solar business units. Sales increased in Modules and were stable in General Vacuum. Segment EBITDA rose 32.0% to CHF 129.3 million, leading to a segment EBITDA margin of 30.3%. The decline in the full year margin from 31.6% in 2015 was mainly the result of changes in the product mix as the display business carries slightly lower average margins, and by costs associated with growing the business, such as investments to increase production and higher research and development expenses.

GLOBAL SERVICE

Global Service increased its order intake in the fourth quarter by 34.0% to CHF 20.9 million and recorded net sales of CHF 20.4 million a plus of 35.1% compared to the previous year.

Net sales for the year increased by 17.3% to reach CHF 81.9 million. Growth was strongest for retrofits while spare parts and service sales also increased. Segment EBITDA rose by 12.9% to CHF 40.5 million, leading to a segment EBITDA margin of 49.4%. The margin was supported by ongoing performance improvement programs such as the optimization of valve repair turnaround time to increase throughput, while costs associated with growing the business had a slightly dampening effect.

INDUSTRY

Order intake in the Industry segment increased by 11.9% to CHF 7.5 million in Q4 with new orders coming mainly from Europe and the US. Net sales reached CHF 5.9 million in the fourth quarter of 2016, a decline of 15.7%. This was the result of higher internal sales to support the Valves segment.

Net sales in the Industry segment were CHF 31.4 million in 2016, a decrease of 0.5% compared with the year before. However, internal sales (not included in the net sales number) to the Valves segment grew, reflecting the positive market for semiconductor manufacturing equipment in 2016. Sales to the automotive sector remained stable, while sales to other markets were steady to slightly lower. Segment EBITDA rose by 5.8% to CHF

10.3 million, leading to a segment EBITDA margin of 22.1% compared to 21.4% in 2015. The positive margin development was supported by productivity improvements in VAT's facilities in Switzerland and Romania, as well as other operational excellence measures implemented as part of the VATmotion initiative.