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Elmos Semiconductor SE

Quarterly Report May 6, 2014

137_10-q_2014-05-06_fca0aaab-d47a-4fe0-b77a-69a7d16b33b1.pdf

Quarterly Report

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Elmos Product Quartets

Interim report Q1 2014

Overview

In focus

  • -> Record start to the year 2014
  • -> High operating cash flow
  • -> Sales and earnings show positive trend
  • -> Forecast confirmed

Key figures 1st quarter 2014

in million Euro or percent
unless otherwise indicated
01/01 –
03/31/2014
01/01 –
03/31/20131
Change
Sales 49.4 43.1 14.4%
Semiconductor 45.6 39.1 16.5%
Micromechanics 3.8 4.0 –5.5%
Gross profit 20.5 16.8 22.0%
in percent of sales 41.6% 39.0%
R&D expenses 8.7 8.8 –1.4%
in percent of sales 17.5% 20.4%
Operating income before other operating expenses (–)/income 2.8 – 0.7 n/a
in percent of sales 5.7% –1.5%
Exchange rate losses (–)/gains – 0.2 0.1 n/a
Other operating expenses/income 0.6 0.8 –21.2%
EBIT 3.2 0.2 >100.0%
in percent of sales 6.5% 0.6%
Net income for the period after non-controlling interests 4.0 0.4 >100.0%
in percent of sales 8.2% 0.9%
Basic earnings per share in Euro 0.21 0.02 >100.0%
Cash flow from operating activities 11.6 5.9 95.1%
Capital expenditures for intangible assets and property, plant and equipment 8.0 3.0 >100.0%
in percent of sales 16.2% 6.9%
Free cash flow2 3.4 –13.3 n/a
Adjusted free cash flow3 3.6 3.0 20.3%
in million Euro or percent
unless otherwise indicated 03/31/2014 12/31/2013 Change
Equity 196.8 192.7 2.1%
in percent of total assets 70.6% 71.1%
Employees (reporting date) 1,063 1,060 0.3%

1 Adjustment of prior-year amounts; please also refer to note 1 in the condensed notes to consolidated financial statements

2 Cash flow from operating activities less cash flow from investing activities

3 Cash flow from operating activities less capital expenditures for intangible assets and property, plant and equipment, less payments for investments, plus disposal of investments

Due to calculation processes, tables and references may produce rounding differences from the mathematically exact values (monetary units, percentage statements, etc.).

Interim group management report

Course of business

Sales development and order situation

Elmos starts the year 2014 with the highest first-quarter sales in company history. Elmos has been performing in line with the positive trend for new car registrations in Europe, the U.S.A., and China. Compared to the previous year, sales went up 14.4% to reach 49.4 million Euro (Q1 2013: 43.1 million Euro).

The disproportionate growth of the Asian market (+2.0 million Euro or 20.4%), again, and the growing European market (+2.4 million Euro or 8.6%) both contributed to this result.

The semiconductor segment gained 16.5% on the prior-year period, reaching 45.6 million Euro. Sales of the micromechanics segment were on a slight decline in the first quarter of 2014, coming to 3.8 million Euro (Q1 2013: 4.0 million Euro), due in part to the weaker U.S. dollar compared to the prior-year quarter. Supported by ramp-ups launched already, a higher sales level is expected for the micromechanics segment in the course of the year.

In comparison with the fourth quarter of 2013 (Q4 2013: 52.7 million Euro), sales were down by 6.3%. However, it must be taken into consideration that the fourth quarter of 2013 was positively affected by catch-up effects. Furthermore, price reductions, typically to be granted at the beginning of the year, materialized in the first quarter.

The receipt of orders currently justifies the expectations for yet another sales increase in 2014. The relation of orders received to sales, the so-called book-to-bill, was above one at the end of the first quarter of 2014.

Sales generated with
third-party customers
01/01 – 03/31/2014
thousand Euro
in percent
of sales
01/01 – 03/31/2013
thousand Euro
in percent
of sales
Change
Germany 17,035 34.5% 14,901 34.5% 14.3%
Other EU countries 13,253 26.9% 12,980 30.1% 2.1%
U.S.A. 4,167 8.4% 2,683 6.2% 55.3%
Asia/Pacific 11,781 23.9% 9,788 22.7% 20.4%
Others 3,132 6.3% 2,790 6.5% 12.3%
Consolidated sales 49,368 100.0% 43,142 100.0% 14.4%

Profit situation, finances, and assets and liabilities

Compared to the prior-year quarter, the 9.6% increase in cost of sales was disproportionately low in relation to sales in the first quarter of 2014, coming to 28.8 million Euro (Q1 2013: 26.3 million Euro); thus the gross margin climbed from 39.0% to 41.6%. The gross profit reached 20.5 million Euro in the first quarter of 2014 (Q1 2013: 16.8 million Euro). As in the previous years, price reductions typically to be granted at the beginning of the year had a negative effect on gross profit and gross margin in the first quarter of 2014 as well.

Research and development expenses of 8.7 million Euro in the reporting period remained stable in comparison with the first quarter of 2013 (Q1 2013: 8.8 million Euro). Due to higher sales, the R&D ratio dropped drastically from 20.4% to 17.5%. Distribution expenses rose from 4.6 million Euro in the first quarter of 2013 to 4.8 million Euro in the quarter under review. However, expenses went down from 10.7% to 9.6% in relation to sales. Administrative expenses were also reduced in relation to sales, from 9.5% to 8.7%.

Owing to the relative reduction of the cost of sales and to the relatively lower operating expenses compared to the prior-year quarter as well, earnings before interest and taxes (EBIT) went up considerably to 3.2 million Euro or 6.5% of sales (Q1 2013: 0.2 million Euro or 0.6% of sales). Due to the recognition of deferred tax income in connection with tax-deductible losses in the quarter under review, the consolidated net income attributable to owners of the parent amounts to 4.0 million Euro (Q1 2013: 0.4 million Euro). This equals basic earnings per share (EPS) of 0.21 Euro (Q1 2013: 0.02 Euro).

The cash flow from operating activities climbed from 5.9 million Euro in the prior-year period to 11.6 million Euro in the first quarter of 2014. Apart from the higher consolidated net income (+3.5 million Euro), another essential reason for the increase in operating cash flow is the reduction of trade receivables, leading to a cash inflow in the quarter under review (+1.6 million Euro) in contrast to the first quarter of 2013 when cash outflow was reported (–2.2 million Euro in Q1 2013).

Capital expenditures for intangible assets and property, plant and equipment amounted to 8.0 million Euro or 16.2% of sales in the first quarter of 2014 (Q1 2013: 3.0 million Euro or 6.9% of sales). The conversion from 6- to 8-inch production as well as the expansion of testing capacity accounted for a large portion of the relatively high capital expenditures. Despite their relatively large amount, the high operating cash flow allowed for an adjusted free cash flow (cash flow from operating activities less capital expenditures for intangible assets and property, plant and equipment, less payments for investments, plus disposal of investments) of 3.6 million Euro, turning out even slightly above the prior-year quarter's value (Q1 2013: 3.0 million Euro).

As of March 31, 2014, cash and cash equivalents plus fungible securities came to 82.1 million Euro, having thus increased from December 31, 2013 by the amount of 5.0 million Euro (December 31, 2013: 77.1 million Euro).

At 44.0 million Euro, net cash is also up compared to December 31, 2013 (39.3 million Euro). The equity ratio remained stable at 70.6% as of March 31, 2014 (December 31, 2013: 71.1%).

Economic environment

The major global car markets show positive developments for the most part. In the first three months of 2014, the Western European passenger car market as a whole grew by slightly more than 7% to 3.1 million units. All relevant European markets contributed to this growth. The increase in new car registrations registered for the first quarter of 2014 came to 2.9% in France, 5.6% in Germany, 5.8% in Italy, 11.8% in Spain, and 13.7% in Great Britain.

At 3.7 million units in the first three months, the market volume of light vehicles (passenger cars and light trucks) in the U.S.A. was more than 1% above the prior-year period. The harsh winter had resulted in declining sales figures back in January and February. However, sales gained 6% in March.

The Chinese market for passenger cars continued to show impressive speed in the 1st quarter of 2014: 14% more new cars were sold than in the prior-year period. This equals close to 4.5 million new vehicles.

1

New passenger car registrations in Japan gained almost 21% in the first quarter, coming to 1.6 million units. Yet it must be taken into consideration that a new sales tax rate has been introduced in Japan effective April 2014. Therefore many new car purchases were made early to meet that deadline.

Significant events

Dr. Anton Mindl, CEO, and Nicolaus Graf von Luckner, CFO, explained the annual results 2013 within the framework of the annual press conference and the analysts' conference held on March 20, 2014. The Management Board also presented the economic conditions and the outlook for 2014. The analysts' conference is available as a webcast recording at www.elmos.com.

Furthermore, Elmos has introduced its products at the world's leading trade shows. In the first quarter of 2014, Elmos presented its products at the trade fairs "embedded world 2014" in Nuremberg, "electronica China" in Shanghai, and "Light+Building" in Frankfurt/Main and received very positive customer feedback throughout.

Elmos subsidiary SMI (Silicon Microstructures, Inc.) has developed a new MEMS low-pressure sensor and brought it to series production. The sensor was designed especially for respirators and spirometers (lung capacity measurement device). The sensor has the world's highest measurement precision in this industry. Elmos also stepped up the distribution of an LED controller family for application in rough environments. The semiconductor family is suited for broad application fields in the automotive industry and for applications in industrial and home lighting.

After the end of the quarter under review, Elmos has increased its investment in the Dresden-based company DMOS from previously 20% to 74.8% effective April 1, 2014 so that this entity has been fully consolidated as of that date. This transaction underlines the very good development work DMOS has done over the years and commits its know-how to the Elmos Group.

Other disclosures

Staff development

The Elmos Group's workforce came to 1,063 employees as of March 31, 2014. Compared with December 31, 2013 (1,060 employees), the staff has thus changed only insignificantly.

Elmos share

Despite the political and economic crises, the stock markets continued their positive performances in the first quarter of 2014 on the whole. While the DAX moved sideways over the first quarter of 2014, all technology-relevant, industry-specific indices recorded growth. Cases in point, TecDAX, DAX Sector Technology, and Technology All Share gained 7.3%, 11.4%, and 6.7% respectively.

The Elmos share gave a very good performance in the first quarter of 2014 by gaining 27.0%, thereby ahead of relevant competitors. It closed on March 31, 2014 at 13.59 Euro. Market capitalization at that time amounted to 267.4 million Euro (based on 19.7 million shares outstanding). The stock recorded its high on March 28, 2014 at 13.80 Euro and its low on January 2, 2014 at 10.65 Euro (Xetra closing prices). The average daily trading volume of the first three months of 2014 was 40.9 thousand shares (Xetra and Frankfurt floor) and thus exceeded the 2013 average significantly (21.6 thousand shares).

By servicing stock options with treasury shares, the portfolio of treasury shares has been reduced. As of March 31, 2014, Elmos Semiconductor AG held 313,947 treasury shares (December 31, 2013: 327,697).

Company boards Supervisory Board Prof. Dr. Günter Zimmer, chairman Graduate physicist | Duisburg

Dr. Burkhard Dreher, deputy chairman Graduate economist | Dortmund

Dr. Klaus Egger Graduate engineer | Steyr-Gleink, Austria

Thomas Lehner Graduate engineer | Dortmund

Sven-Olaf Schellenberg Graduate physicist | Dortmund

Dr. Klaus Weyer Graduate physicist | Penzberg

Management Board

Dr. Anton Mindl, chairman Graduate physicist | Lüdenscheid

Nicolaus Graf von Luckner Graduate economist | Oberursel

Reinhard Senf Graduate engineer | Iserlohn

Dr. Peter Geiselhart Graduate physicist, Ettlingen

1

Outlook

Opportunities and risks

Risk management and individual corporate risks and opportunities are described in our Annual Report 2013. No material changes of the Company's risks and opportunities as detailed therein have occurred in the first three months of 2014. No risks are visible at present that could either separately or collectively jeopardize the Company's continued existence.

Economic framework

The German economy has been experiencing an upswing in spring 2014, according to the ifo Institute for Economic Research. The gross domestic product will probably grow by 1.9% this year. Domestic demand is identified as the main growth driver. Over the first months of the year 2014, the global production output has increased strongly. Stimulation originates especially from the industrialized nations where the economy gained momentum in the course of the past year. The U.S.A. and Great Britain are also booming and the economy in the euro area is recovering slowly from the recession, the ifo Institute continues.

One risk for the global economy is currently the further development of the emerging markets; growth has been slowing down there. In the first quarter of 2014, China's economic growth for instance has reached the lowest level in one and a half years. With a sales increase of 7.4% over the prioryear period, the growth of the second largest national economy was slightly below the self-imposed target of 7.5% for this year, according to China's Bureau of Statistics.

The greatest risk to the economy, particularly in Europe, is the Ukraine crisis. Marcel Fratzscher, President of the German Institute for Economic Research (DIW), thinks that economic setbacks in Europe are a possibility if economic sanctions are imposed on Russia. "Yet possible disturbances in the financial markets represent a greater risk factor – especially due to turbulences and losses regarding the still troubled banks in Europe," says Fratzscher. Such a scenario would jeopardize the fragile economic recovery in the eurozone.

For the auto industry, Matthias Wissmann, President of the German Association of the Automotive Industry (VDA), expects an increase of the global market for passenger cars by 3% to 74.7 million vehicles in 2014. Wissmann refers to expert forecasts according to which even 90 million cars will be newly registered annually by 2020.

Outlook for the Elmos Group

Based on the currently available information and the performance of the first quarter of 2014, the Management Board provides the following outlook for the full year 2014.

As described above, the market recovery in Europe increasingly reflects in the receipt of orders and in sales. All indicators show that Elmos will grow faster than the global automotive market. Due to the positive start of the year 2014 and based on internal and external market appraisals, Elmos anticipates a sales increase in the upper single-digit percentage range, as explained in the Annual Report 2013. Elmos predicts a value in the upper single-digit percentage range for the EBIT margin.

Capital expenditures for intangible assets and property, plant and equipment are budgeted to amount to no more than 15% of sales in 2014. We assume that Elmos will generate a positive adjusted free cash flow in 2014 once again.

This forecast is based on an exchange rate of 1.30 USD/EUR.

The outlook is based on the premise that a stable macroeconomic performance is expected. Then Elmos will benefit from the positive development in the automotive and industrial semiconductor markets in 2014. The electrification of these markets will continue. At the same time it is true that such expectations can be affected by market turbulence. Particularly the developments in Ukraine cannot be foreseen with respect to their effects on the global economy and our core market.

Interim consolidated financial statements

Condensed consolidated statement of financial position

Assets 03/31/2014
thousand Euro
12/31/2013
thousand Euro
Non-current assets
Intangible assets1 25,922 26,664
Property, plant and equipment1 74,501 72,388
Investments in associates 0 0
Securities1, 2 50,002 48,987
Investments1, 2 470 470
Other financial assets1 2,599 2,493
Deferred tax assets 4,201 2,671
Total non-current assets 157,694 153,674
Current assets
Inventories1 41,219 40,480
Trade receivables2 36,809 38,450
Securities2 702 203
Other financial assets 3,415 2,905
Other receivables 7,111 7,007
Income tax assets 540 61
Cash and cash equivalents2 31,392 27,949
121,188 117,055
Non-current assets held for sale 5 121
Total current assets 121,193 117,176
Total assets 278,887 270,850

Cf. note 3 2 Cf. note 4

Equity and liabilities 03/31/2014
thousand Euro
12/31/2013
thousand Euro
Equity
Equity attributable to owners of the parent
Share capital1 19,675 19,675
Treasury stock1 –314 –328
Additional paid-in capital 88,305 88,161
Surplus reserve 102 102
Other equity components –3,666 –3,920
Retained earnings 90,902 86,868
195,004 190,559
Non-controlling interests 1,817 2,127
Total equity 196,821 192,686
Liabilities
Non-current liabilities
Provisions 468 492
Financial liabilities2 37,491 37,491
Other liabilities 4,576 4,650
Deferred tax liabilities 3,586 3,049
Total non-current liabilities 46,121 45,682
Current liabilities
Provisions 9,177 7,505
Income tax liabilities 1,159 1,613
Financial liabilities2 581 303
Trade payables2 21,754 19,492
Other liabilities 3,274 3,569
Total current liabilities 35,945 32,482
Total liabilities 82,066 78,164
Total equity and liabilities 278,887 270,850

Cf. note 3

Cf. note 4

Condensed consolidated income statement

01/01 – 01/01 –
For the period January 1 to March 31 03/31/2014
thousand Euro
in percent
of sales
03/31/2013
thousand Euro1
in percent
of sales
Change
Sales 49,368 100.0 43,142 100.0 14.4%
Cost of sales –28,820 –58.4 –26,303 –61.0 9.6%
Gross profit 20,548 41.6 16,839 39.0 22.0%
Research and development expenses –8,662 –17.5 – 8,783 –20.4 –1.4%
Distribution expenses –4,762 –9.6 – 4,610 –10.7 3.3%
Administrative expenses –4,308 –8.7 – 4,104 –9.5 5.0%
Operating income before other
operating expenses (–) /income
2,816 5.7 – 659 – 1.5 n/a
Finance income 642 1.3 462 1.1 38.8%
Finance costs –451 –0.9 –565 –1.3 –20.2%
Exchange rate losses (–)/gains –200 –0.4 125 0.3 n/a
Other operating income 872 1.8 1,030 2.4 –15.3%
Other operating expenses –263 –0.5 –256 –0.6 2.6%
Earnings before taxes 3,417 6.9 137 0.3 >100.0%
Income tax
Current income tax –544 –1.1 – 505 –1.2 7.8%
Deferred tax2 1,129 2.3 861 2.0 31.1%
585 1.2 356 0.8 64.2%
Consolidated net income 4,001 8.1 493 1.1 >100.0%
Consolidated net income attributable to
Owners of the parent 4,034 8.2 407 0.9 >100.0%
Non-controlling interests –32 – 0.1 86 0.2 n/a
Earnings per share Euro Euro
Basic earnings per share 0.21 0.02
Fully diluted earnings per share 0.20 0.02

Condensed consolidated statement of comprehensive income

For the period January 1 to March 31 01/01 –
03/31/2014
thousand Euro
01/01 –
03/31/2013
thousand Euro1
Consolidated net income 4,001 493
Other comprehensive income
Items potentially to be reclassified to the income statement including respective tax effects
Foreign currency adjustments without deferred tax effect –32 –5
Foreign currency adjustments with deferred tax effect –4 394
Deferred tax (on foreign currency adjustments with deferred tax effect) 1 –99
Value differences in hedges –29 74
Deferred tax (on value differences in hedges) 9 –13
Changes in market value of available-for-sale financial assets 434 38
Deferred tax (on changes in market value of available-for-sale financial assets) –142 –47
Items not to be reclassified to the income statement including respective tax effects
Actuarial gains from pension plans 9 21
Deferred tax on actuarial gains from pension plans –3 –6
Other comprehensive income after taxes 243 357
Total comprehensive income after taxes 4,244 850
Total comprehensive income attributable to
Owners of the parent 4,287 782
Non-controlling interests –43 68

Adjustment of prior-year amounts; please also refer to note 1 in the condensed notes to consolidated financial statements

1 Adjustment of prior-year amounts; please also refer to note 1 in the condensed notes to consolidated financial statements Cf. note 3

For the period January 1 to March 31 01/01 – 03/31/2014
thousand Euro
01/01 – 03/31/2013
thousand Euro1
Cash flow from operating activities
Consolidated net income 4,001 493
Depreciation and amortization 5,835 5,697
Financial result –191 103
Other non-cash income (–)/expense –1,182 –909
Current income tax 544 505
Expenses for stock option and stock award plans 107 109
Changes in pension provisions –15 –45
Changes in net working capital:
Trade receivables 1,641 –2,250
Inventories –739 –1,692
Other assets –603 –220
Trade payables 2,262 2,477
Other provisions and other liabilities 1,328 2,226
Income tax refunds/payments –1,476 –454
Interest paid –451 –565
Interest received 525 462
Cash flow from operating activities 11,586 5,937

Condensed consolidated statement of cash flows

Adjustment of prior-year amounts; please also refer to note 1 in the condensed notes to consolidated financial statements

For the period January 1 to March 31 01/01 – 03/31/2014
thousand Euro
01/01 – 03/31/2013
thousand Euro1
Cash flow from investing activities
Capital expenditures for intangible assets –485 –376
Capital expenditures for property, plant and equipment –7,535 –2,597
Capital expenditures for (–) /Disposal of non-current assets held for sale 2 –125
Disposal of non-current assets 927 474
Payments for securities –1,080 –17,581
Disposal of securities 0 1,013
Payments for non-current financial assets (–) 0 –8
Cash flow from investing activities –8,171 –19,200
Cash flow from financing activities
Repayment of current liabilities to banks 0 –104
Borrowing of current liabilities to banks 277 0
Purchase of treasury shares 0 –1,525
Issue of treasury shares 51 183
Distribution to non-controlling shareholders –267 –84
Increase of majority interest 0 –570
Other changes 0 –4
Cash flow from financing activities 61 –2,104
Increase/decrease (−) in cash and cash equivalents 3,476 –15,367
Effects of exchange rate changes on cash and cash equivalents –33 124
Cash and cash equivalents at beginning of reporting period 27,949 55,576
Cash and cash equivalents at end of reporting period 31,392 40,333

1 Adjustment of prior-year amounts; please also refer to note 1 in the condensed notes to consolidated financial statements

Condensed consolidated statement of changes in equity

Non
controlling
Equity attributable to owners of the parent interests Group
Other equity components
Shares
thousand
Share
capital
thousand
Euro
Treasury
stock
thousand
Euro
Additional
paid-in capital
thousand
Euro
Surplus
reserve
thousand
Euro
Provision for
available-for-sale
financial assets
thousand Euro
Hedges
thousand Euro
Foreign currency
translations
thousand Euro
Unrealized
actuarial gains/
losses
thousand Euro
Retained
earnings
thousand
Euro
Total
thousand
Euro
Total
thousand
Euro
Total
thousand
Euro
January 1, 2013 before adjustments 19,616 19,616 –240 88,599 102 71 –1,306 –1,634 0 82,255 187,463 2,587 190,050
Effects of first-time application of IAS 19R –533 72 –461 –461
January 1, 2013 after adjustments 19,616 19,616 –240 88,599 102 71 –1,306 –1,634 –533 82,327 187,002 2,587 189,589
Consolidated net income 407 407 86 493
Other comprehensive income for the period –9 61 308 15 375 –18 357
Total comprehensive income –9 61 308 15 407 782 68 850
Transaction costs –4 –4 –4
Purchase of treasury shares –189 –1,336 –1,525 –1,525
Issue of treasury shares 50 133 183 183
Distribution to non-controlling shareholders –84 –84
Expense for stock options and stock awards 109 109 109
Increase of majority interest –85 –85 –485 –570
March 31, 2013 19,616 19,616 –379 87,501 102 62 –1,245 –1,326 –518 82,649 186,462 2,086 188,548
January 1, 2014 19,675 19,675 –328 88,161 102 78 –1,119 –2,191 –688 86,868 190,559 2,127 192,686
Consolidated net income 4,034 4,034 –32 4,001
Other comprehensive income for the period 292 –20 –24 6 254 –11 243
Total comprehensive income 292 –20 –24 6 4,034 4,287 –43 4,244
Issue of treasury shares 14 37 51 51
Distribution to non-controlling shareholders –267 –267
Expense for stock options and stock awards 107 107 107
March 31, 2014 19,675 19,675 –314 88,305 102 370 –1,139 –2,215 –682 90,902 195,004 1,817 196,821

Condensed notes to the consolidated financial statements

The condensed interim consolidated financial statements for the 1st quarter of 2014 were released for publication in May 2014 pursuant to Management Board resolution.

1 – General information

Elmos Semiconductor Aktiengesellschaft ("the Company" or "Elmos") has its registered office in Dortmund (Germany) and is entered in the register of companies maintained at Dortmund District Court (Amtsgericht), section B, no. 13698. The Articles of Incorporation are in effect in the version of March 26, 1999, last amended by resolution of the Annual General Meeting of May 24, 2013 and edited pursuant to Supervisory Board resolution of January 13, 2014.

The Company's business is the development, manufacture and distribution of microelectronic components and system parts (application specific integrated circuits, or in short: ASICs) as well as technological devices with similar functions. The Company may conduct all transactions suitable for serving the object of business directly or indirectly. The Company may establish branches, acquire or lease businesses of the same or a similar kind or invest in them, and conduct all business transactions that are beneficial to the Articles of Association. The Company is authorized to conduct business in Germany as well as abroad.

In addition to its domestic branches, the Company has sales companies in Asia and the United States and cooperates with other German and international companies in the development and production of ASIC chips.

Basic principles of the preparation of financial statements

The condensed interim consolidated financial statements for the period January 1 through March 31, 2014 have been prepared in accordance with IAS 34: Interim Financial Reporting. These financial statements do therefore not contain all the information and disclosures required for consolidated financial statements and should therefore be read in conjunction with the consolidated financial statements for the fiscal year ended December 31, 2013.

Essential accounting policies and valuation methods

For the preparation of the condensed interim consolidated financial statements, the same accounting policies and valuation methods have been adopted as were applied for the preparation of the consolidated financial statements for the fiscal year ended December 31, 2013, with the exception of the following new or amended IFRS standards and interpretations listed below.

  • ->IFRS 10: Consolidated Financial Statements
  • -> IFRS 11: Joint Arrangements
  • -> IFRS 12: Disclosure of Interests in Other Entities
  • -> IAS 28: Investments in Associates and Joint Ventures
  • ->Amendment to IAS 32: Offsetting Financial Assets and Financial Liabilities
  • -> Amendment to IAS 36: Recoverable Amount Disclosures for Non-Financial Assets
  • ->Amendment to IAS 39: Novation of Derivatives and Continuation of Hedge Accounting

First-time application of these standards did not result in material effects on the Group's financial, profit and economic situation.

Adjustment of prior-year amounts

-> Amendment to IAS 19 Employee Benefits

In June 2011 the IASB released amendments to IAS 19: Employee Benefits that were adopted by the EU in June 2012. The amendments to IAS 19 generally had to be applied with retrospective effect for financial statements prepared for fiscal years beginning on or after January 1, 2013.

Elmos fully implemented the effects of the amended standard in the 6-month financial statements as of June 30, 2013 for the first time. In these 3-month financial statements, the reported prioryear amounts as of March 31, 2013 are still adjusted for the effects of the amendments to IAS 19 with respect to the first quarter. This resulted in the following effects:

Presentation of the consolidated income statement for the first quarter of 2013:

thousand Euro 01/01 – 03/31/2013
before adjustments
Effects of first-time
application of IAS 19R
01/01 – 03/31/2013
after adjustments
Consolidated income statement
Administrative expenses –4,083 –21 –4,104
Operating income before other operating
expenses (–)/income
–638 –21 –659
Earnings before taxes 158 –21 137
Deferred tax 855 6 861
Consolidated net income 508 –15 493

Presentation of the consolidated statement of comprehensive income for the first quarter of 2013:

thousand Euro 01/01 – 03/31/2013
before adjustments
Effects of first-time
application of IAS 19R
01/01 – 03/31/2013
after adjustments
Consolidated statement of comprehensive income
Actuarial gains from pension plans 0 21 21
Deferred tax on actuarial gains from pension plans 0 –6 –6
Other comprehensive income after taxes 342 15 357

-> Clarification of accounting treatment of spare parts according to IAS 16 by Annual Improvements 2009-2011 Cycle

Pursuant to IAS 16.8, items such as spare parts are recognized according to the standard applicable to property, plant and equipment if those parts meet the definition of an item of property, plant and equipment. Otherwise such items are treated as inventory. Within the framework of the Annual Improvements 2009-2011 Cycle, the IASB provided a clarification to the effect that spare parts and servicing equipment must generally be capitalized as property, plant and equipment regardless of whether or not they can only be used in connection with an item of property, plant and equipment if only they meet the respective definition (see IAS 16.6). In previous years Elmos reported all spare parts as part of the inventory. In order to comply with the IASB's clarification and the amended IAS 16, spare parts were reclassified to non-current assets. This reclassification was carried out effective December 31, 2013 for the first time. In the 3-month financial statements as of March 31, 2013 the clarification described above had not yet to be implemented mandatorily so that the prior-year amounts have been adjusted for this change in these 3-month financial statements.

The following effects resulted for the presentation of the consolidated statement of cash flows:

thousand Euro 01/01 – 03/31/2013
before corrections
Corrections
pursuant to IAS 8
01/01 – 03/31/2013
after corrections
Consolidated statement of cash flows
Depreciation and amortization 4,652 1,045 5,697
Changes in inventories –1,434 –258 –1,692
Cash flow from operating activities 5,150 787 5,937
Capital expenditures for property, plant and equipment –1,810 –787 –2,597
Cash flow from investing activities –18,413 –787 –19,200

Estimates and assumptions

The Company recognizes provisions for pension and partial retirement obligations pursuant to IAS 19. An actuarial interest rate of 3.1% has been applied for 2014 for the pension retirement obligations and an actuarial interest rate of 1.41% for the partial retirement obligations, unchanged from December 31, 2013.

Exceptional business transactions

There were no exceptional business transactions in the first quarter of 2014.

Basis of consolidation

There were neither additions to nor disposals from the basis of consolidation in the first quarter of 2014.

Seasonal and economic impact on business operations

The German economy is experiencing an upswing in spring 2014, according to the ifo Institute for Economic Research. The gross domestic product will probably grow by 1.9% this year. Domestic demand is identified as the main growth driver. Over the first months of the year 2014, the global production output increased strongly. Stimulation originates especially from the industrialized nations where the economy gained momentum in the course of the past year. The business of Elmos Semiconductor AG is not subject to material seasonal fluctuations.

2 – Segment reporting

The business segments correspond to the Elmos Group's internal organizational and reporting structure. The definition of segments considers the different products and services supplied by the Group. The accounting principles of the individual segments correspond to those applied by the Group.

The Company divides its business activities into two segments. The semiconductor business is operated through the various national subsidiaries and branches in Germany, the Netherlands, South Africa, Asia, and the U.S.A. Sales in this segment are generated predominantly with electronics for the automotive industry. In addition to that, Elmos operates in the markets for industrial and consumer goods and provides semiconductors e.g. for applications in household appliances, photo cameras, installation and building technology, and machine control. Sales in the micromechanics segment are generated by the subsidiary SMI in the U.S.A. Its product portfolio includes micro-electro-mechanical systems (MEMS) which are primarily silicon-based highprecision pressure sensors. The following tables provide information on sales and earnings (for the period January 1 through March 31, 2014 and 2013, respectively) as well as on assets of the Group's business segments (as of March 31, 2014 and December 31, 2013, respectively).

Consolidation thousand Euro

Group thousand Euro3

Quarter ended 03/31/2014 Semiconductor
thousand Euro
Micromechanics
thousand Euro
Consolidation
thousand Euro
Group
thousand Euro
Sales
Third-party sales 45,551 3,817 0 49,368
Inter-segment sales 84 351 –4351 0
Total sales 45,635 4,168 –435 49,368
Earnings
Segment earnings 2,899 327 0 3,226
Finance income 642
Finance costs –451
Earnings before taxes 3,417
Taxes on income 585
Consolidated net income including non-controlling interests 4,001
Assets
Segment assets 226,522 15,762 36,1332 278,417
Investments 470 0 0 470
Total assets 278,887
Other segment information
Capital expenditures for intangible assets and property,
plant and equipment
8,090 44 0 8,134
Depreciation and amortization 5,647 188 0 5,835
Capital expenditures for intangible assets and property,
plant and equipment 2,947 26 0 2,973
Depreciation and amortization 5,529 168 0 5,697

Other segment information

Assets and liabilities (as of 12/31/2013)

Quarter ended 03/31/2013

Sales

Earnings

Sales from inter-segment transactions are eliminated for consolidation purposes.

2 Non-attributable assets as of March 31, 2014 include cash and cash equivalents (31,392 thousand Euro), income tax assets (540 thousand Euro), and deferred tax (4,201 thousand Euro), as these assets are controlled at group level.

1 Sales from inter-segment transactions are eliminated for consolidation purposes.

2 Non-attributable assets as of December 31, 2013 include cash and cash equivalents (27,949 thousand Euro), income tax assets (61 thousand Euro), and deferred tax (2,671 thousand Euro), as these assets are controlled at group level.

Semiconductor thousand Euro3

Third-party sales 39,101 4,041 0 43,142 Inter-segment sales 91 227 –3181 0 Total sales 39,192 4,268 –318 43,142

Segment earnings –36 275 0 239 Finance income 462 Finance costs –565 Earnings before taxes 137 Taxes on income 356 Consolidated net income including non-controlling interests 493

Segment assets 223,533 16,166 30,6812 270,380 Investments 470 0 0 470 Total assets 270,850

Micromechanics thousand Euro

Adjustment of prior-year amounts; please also refer to note 1 in the condensed notes to consolidated financial statements.

3 – Notes on essential financial statement items

Geographical information

Sales generated with third-party customers Quarter ended
03/31/2014
thousand Euro
Quarter ended
03/31/2013
thousand Euro
Germany 17,035 14,901
Other EU countries 13,253 12,980
U.S.A. 4,167 2,683
Asia/Pacific 11,781 9,788
Others 3,132 2,790
Consolidated sales 49,368 43,142
Development of
selected non-current
assets from January 1 to
March 31
Net book value
01/01/2014
thousand Euro
Reclassification
thousand Euro
Additions
thousand Euro
Disposals/Other
movements
thousand Euro
Depreciation
and
amortization
thousand Euro
Net book
value
03/31/2014
thousand Euro
Intangible assets 26,664 0 485 0 1,227 25,922
Property, plant and
equipment
72,388 0 7,649 –928 4,608 74,501
Securities 48,987 0 1,080 –65 0 50,002
Investments 470 0 0 0 0 470
Other financial assets 2,493 0 106 0 0 2,599
151,002 0 9,320 –993 5,835 153,494
Geographical distribution of non-current assets 03/31/2014
thousand Euro
12/31/2013
thousand Euro
Germany 142,277 139,613
Other EU countries 4,179 4,297
U.S.A. 4,360 4,511
Others 79 89
Non-current assets 150,895 148,510

The item "Disposals/Other movements" includes negative currency adjustments in the amount of 1 thousand Euro.

Inventories

Selected non-current assets

03/31/2014
thousand Euro
12/31/2013
thousand Euro
Raw materials 3,627 3,866
Work in process 30,751 28,731
Finished goods and merchandise 6,841 7,883
41,219 40,480

2

4 – Information on financial instruments

The following table lists the book values and fair values of the Group's financial instruments. The fair value of a financial instrument is the price that would be received for the sale of an asset or paid for the transfer of a liability between market participants in a regular business transaction as of the measurement date. In view of varying factors of influence, the presented fair values can only be regarded as indicators of the amounts actually recoverable in the market. Detailed information on the methods and assumptions underlying the determination of the value of financial instruments can be found under note 29 to the 2013 consolidated financial statements. Their relevance to these 3-month financial statements is undiminished.

Book values and fair values of financial instruments

03/31/2014 12/31/2013
thousand Euro Book value Fair value Book value Fair value
Financial assets
Investments 470 470 470 470
Long-term securities 50,002 50,002 48,989 48,989
Short-term securities 702 702 203 203
Trade receivables 36,809 36,809 38,450 38,450
Cash and cash equivalents 31,392 31,392 27,949 27,949
Other financial assets
Other receivables and assets 2,804 2,804 2,639 2,639
Other loans 3,045 3,045 2,711 2,711
Call option 48 48 48 48
Embedded derivatives 117 117 0 0
Earn-out 0 0 0 0
Financial liabilities
Trade payables 21,754 21,754 19,492 19,492
Liabilities to banks 38,072 39,180 37,795 38,811
Other financial liabilities
Miscellaneous financial liabilities 142 142 429 429
Put option 2,392 2,392 2,392 2,392
Hedged derivatives (short-term) 573 573 522 522
Hedged derivatives (long-term) 1,121 1,121 1,144 1,144
Forward exchange contracts/Foreign exchange options 122 122 0 0
FX derivatives 42 42 0 0

Equity

As of March 31, 2014, the share capital of Elmos Semiconductor AG consists of 19,674,585 shares. The Company holds 313,947 treasury shares.

As of March 31, 2014, altogether 997,841 options from stock option plans are outstanding. The options are attributable to the separate tranches as follows:

2009 2010 2011 2012 Total
Year of resolution and issue 2009 2010 2011 2012
Exercise price in Euro 3.68 7.49 8.027 7.42
Blocking period ex issue (years) 3 4 4 4
Exercise period after blocking period (years) 3 3 3 3
Options outstanding as of 12/31/2013 (number) 140,910 235,128 243,510 394,693 1,014,241
Exercised 01/01 – 03/31/2014 (number) 13,750 0 0 0 13,750
Forfeited 01/01 – 03/31/2014 (number) 0 1,855 300 495 2,650
Options outstanding as of 03/31/2014 (number) 127,160 233,273 243,210 394,198 997,841
Options exercisable as of 03/31/2014 (number) 127,160 0 0 0 127,160

Taxes on income

The first quarter of 2014 includes a one-off effect with respect to the reported deferred tax to the benefit of taxes on income as disclosed in the consolidated income statement in the amount of 1,847 thousand Euro. The corresponding reported deferred tax assets will be used in fiscal year 2014 to a large extent.

At the end of the reporting period a review is conducted to find out whether reclassifications between valuation hierarchies must be made. The following presentation shows which valuation hierarchy levels (according to IFRS 13) financial assets and liabilities measured at fair value are classified to.

Hierarchy of fair values

The Group applies the following hierarchy for the determination and reporting of the fair values of financial instruments according to the respective valuation methods:

Level 1: quoted (unadjusted) prices in active markets for similar assets or liabilities

Level 2: methods where all input parameters with material effect on the determined fair value are observable either directly or indirectly

Level 3: methods using input parameters that have material effect on the determined fair values and are not based on observable market data

As of March 31, 2014, the Group held the following financial instruments measured at fair value:

Securities Level 1
thousand Euro
Level 2
thousand Euro
Level 3
thousand Euro
January 1, 2014
Addition of securities (long-term)
42,691
1,080
0
0
0
0
Disposal/Reclassification of securities (long-term) –499 0 0
Market valuation of securities (long-term) 434 0 0
Addition/Reclassification of securities (short-term) 499 0 0
Market valuation of securities (short-term) –1 0 0
March 31, 2014 44,204 0 0
Investments
January 1, 2014 0 0 470
March 31, 2014 0 0 470
Hedged derivatives
January 1, 2014 0 –1,665 0
Correction of valuation of hedged derivatives outside profit or loss
(short-term and long-term) 0 –29 0
March 31, 2014 0 –1,694 0
Call option
January 1, 2014 0 0 48
March 31, 2014 0 0 48
Put option
January 1, 2014 0 0 –2,392
March 31, 2014 0 0 –2,392
Forward exchange contracts/Foreign exchange options
January 1, 2014 0 0 0
Addition of forward exchange contracts/Foreign exchange options 0 –122 0
March 31, 2014 0 –122 0
FX derivatives
January 1, 2014 0 0 0
Addition of FX derivatives 0 –42 0
March 31, 2014 0 –42 0
Embedded derivatives
January 1, 2014 0 0 0
Addition of embedded derivatives 0 117 0
March 31, 2014 0 117 0

The securities reported under hierarchy level 1 are bonds classified by Elmos as available for sale. Plausible alternative assumptions would not result in material changes of the reported fair value.

The hedged derivatives allocated to hierarchy level 2 comprise the Company's interest rate swaps. In addition to that, foreign currency transactions (USD) and embedded derivatives are also reported under this hierarchy level.

The available-for-sale financial assets reported under hierarchy level 3 are investments in various companies, among other assets. With this respect, the book value essentially corresponds to the market value. The call and put options agreed on with a non-controlling shareholder are measured annually at fair value, most recently as of December 31, 2013, in application of the DCF method and in consideration of the terms and conditions of the contract. In the course of the measurement process, the required publicly available market data are collected and the input parameters that cannot be observed are reviewed on the basis of internally available current information and updated if necessary. Material changes of the input parameters and their respective effects on book values are subject to routine reporting to management.

5 – Related party disclosures

As reported in the consolidated financial statements for the fiscal year ended December 31, 2013, the Elmos Group maintains business relationships with related companies and individuals in the context of the ordinary course of business.

These supply and performance relationships continue to be transacted at market prices.

Directors' dealings according to Section 15a WpHG (Securities Trading Act)

No reportable securities transactions (directors' dealings) were made in the reporting period January 1 through March 31, 2014.

6 – Significant events after the first three months of 2014

Following the exercise of the purchase option for the acquisition of a majority interest in DMOS Dresden MOS Design GmbH, Dresden, this entity has been included in the consolidated financial statements as a fully consolidated subsidiary since April 1, 2014. This successive acquisition has no material effects on the Group's financial, profit and economic situation.

There have been no other reportable significant events or transactions after the end of the first quarter of 2014.

Dortmund, May 2014

Dr. Anton Mindl Nicolaus Graf von Luckner Reinhard Senf Dr. Peter Geiselhart

Financial calendar 2014

Quarterly results results Q1/20141 May 6, 2014
Annual General Meeting in Dortmund May 13, 2014
Quarterly results Q2/20141 August 6, 2014
Quarterly results Q3/20141 November 5, 2014
Equity Forum in Frankfurt November 24-26, 2014

1 The German Securities Trading Act (WpHG) obliges issuers to announce immediately any information that may have a substantial price impact, irrespective of the communicated schedules. Therefore we cannot exclude that we will announce key figures of quarterly and annual results ahead of the dates mentioned above. As we can never rule out changes of dates, we recommend checking dates and news on the Company's website (www.elmos.com). Conference calls are usually held on the day after the announcement of quarterly results.

Contact | Imprint

Janina Rosenbaum | Investor Relations Phone + 49 (0) 231-75 49 -287 Fax + 49 (0) 231-75 49 -548 [email protected]

Elmos Semiconductor AG

Heinrich-Hertz-Straße 1 44227 Dortmund | Germany Phone + 49 (0) 231-75 49 -0 Fax + 49 (0) 231-75 49 -149 [email protected] | www.elmos.com

Further information

This interim report was released on May 6, 2014 in German and English. Both versions are available for download on the Internet at www.elmos.com.

We are happy to send you additional informative material free of charge on your request.

This report contains statements directed to the future that are based on assumptions and estimates made by the management of Elmos. Even though we assume the underlying expectations of our statements to be realistic, we cannot guarantee these expectations will prove right. The assumptions may carry risks and uncertainties, and as a result actual events may differ materially from the current statements made with respect to the future. Among the factors that could cause such differences are changes in economic and business conditions, fluctuations of exchange rates and interest rates, the introduction of competing products, lack of acceptance of new products, and changes in business strategy. Elmos neither intends nor assumes any obligation to update its statements with respect to future events.

This English translation is for convenience purposes only.

Elmos Semiconductor AG

Heinrich-Hertz-Straße 1 44227 Dortmund | Germany Phone + 49 (0) 231 - 75 49 - 0 Fax + 49 (0) 231 - 75 49 - 149 [email protected] | www.elmos.com

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