Consolidated Key Figures

The SEZ Group in Brief

  
The SEZ Group is the leading provider of single-wafer, wet-processing solutions for the global semiconductor industry, with an installed base of over 950 tools. The company maintains operations in Asia-Pacific, Europe, Japan, and North America. SEZ Holding AG is traded on the SWX Swiss Exchange under the symbol SEZN. Additional information about the company is available on the Internet at www.sez.com.
 

Letter to the Shareholders on the First Half of 2005

Dear Madam/Sir:
  
During the first six months of the current fiscal year, SEZ registered record net sales of CHF 156.4 million and net profits of CHF 6.2 million, equaling a profit of CHF 0.38 per share. Demand for SEZ Spin Processors remained strong, despite the backdrop of sustained price pressures that dominated the market for semiconductor equipment and which limited gross margins. Due to an order placed by a world-leading Korean memory chip manufacturer, which is employing our landmark Da Vinci≥ systems in high-volume production, SEZ decidedly strengthened its competitive position. For the full fiscal year 2005, the SEZ Group expects net sales of about CHF 300 million. From the fourth quarter onward, SEZ expects a sustainable improvement in margins.
 
In the first half of 2005, the SEZ Group increased its consolidated net sales by 7.5 percent to CHF 156.4 million (first half of 2004: CHF 145.5 million). Continuing price pressure on the semiconductor equipment market as well as measures taken to increase our market share in the wet chemical wafer cleaning segment led to a drop of gross profits to CHF 55.1 million, matching a gross profit margin of 35.2 percent (51.6%). This resulted in an operating income (EBIT) of CHF 6.2 million (CHF 23.9 million) for the first six months, equaling a cumulated EBIT margin of 4.0 percent. With financial results of CHF 1.8 million and a tax rate of 22.4 percent, the SEZ Group achieved consolidated net profits of CHF 6.2 million (CHF 16.2 million) or CHF 0.38 per share, respectively. Net profit margin was 4.0 percent.
 
Asia-Pacific showed the most dynamism of all sales regions with net sales of CHF 96.2 million or 61.4 percent share (first half 2004: CHF 85.1 million / 58.5%). Europe represented the second strongest region - mainly due to deliveries in the first quarter of 2005 - with net sales of CHF 39.7 million, equaling a sales share of 25.4 percent (CHF 15.1 million / 10.4%). Due to low investment confidence, sales in Japan dropped to CHF 10.3 million or 6.6 percent of net sales, respectively (CHF 37.0 million / 25.4%). Net sales in the U.S. were CHF 10.3 million, or 6.6 percent of group sales (CHF 8.3 million / 5.7%). More than 60 percent of equipment sales were generated with the Da Vinci product line, and nearly 70 percent of equipment sales were with 300-mm wafer processing systems. Equipment for wet chemical wafer processing comprised 93 percent of net sales, while service and spare parts comprised 7 percent.
 
In the first six months of 2005, the SEZ Group registered new orders totaling CHF 132.6 million, of which the Asia-Pacific region contributed 61 percent, which was once again the largest share. Order volume in Japan amounted to 24 percent, most importantly through orders in the second quarter. On 30 June 2005, the SEZ Group registered an order backlog of CHF 53.8 million (CHF 88.2 million). The ratio between orders and sales (book-to-bill ratio) equaled 0.85 (1.13). 75 percent of ordered systems are intended for use in 300-mm production. More than 50 percent of the orders concerned the new Da Vinci platform.
 
In the first half of 2005, the SEZ Group invested CHF 12.8 million in fixed assets and intangibles, of which CHF 8 million were spent on the expansion of production and laboratory facility, and about CHF 4 million on the construction of prototypes, training and laboratory tools. Expenditure on research and development totaled CHF 23.2 million, equaling 14.8 percent of net sales, which reflects our historical average. Our research and development activities focused on solutions for critical cleaning steps and the removal of photoresists. Additionally, we continued to invest in the improvement of our proven tools and process applications.
 
The technological transition from batch to single-wafer processing taking place in the wet chemical clean process segment of microchip manufacturing gathered speed again in the first half of 2005. A strategic success for SEZ was the decision by a major Korean memory chip manufacturer to begin replacing existing batch systems with SEZ's single-wafer systems. Japan-based Elpida Memory Inc., another key memory chip manufacturer, ordered SEZ Spin Processors for use in DRAM manufacturing. The SEZ Group has thus succeeded in entering the memory chip market in high-volume production, which will increase our market potential considerably. 
 
Against the backdrop of pressures on price and margins, SEZ will outsource parts of the production to new EU member countries in Eastern Europe. This step in connection with considerable optimization measures taken in supply chain management and tool configuration, will enable cost reductions. Despite this, profitability will still be impacted in the third quarter 2005 due to intensive market penetration costs. From the fourth quarter 2005 onward, SEZ expects a sustainable improvement in margins. 
 
Owing to the development of new products for critical cleaning steps and the removal of photoresits that will contribute toward group sales from 2006 onward, SEZ could double the size of its currently addressable market. Independent market observers currently forecast a decrease of up to 10 percent in market volume for the wet chemical clean market segment in 2005. Due to its market position and focus on expanding market share, the SEZ Group is once again expected to exceed market development and further enlarge its share in the overall market for wet chemical systems, which is currently 15 percent.
 
We take pleasure in the fact that the SEZ Group's corporate achievements continue to advance, both technologically and economically. A case in point, our Da Vinci series received product awards from the renowned trade magazines Semiconductor International and Solid State Technology in the first half of 2005. Swiss business newspaper Cash ranked SEZ number one as the company with the highest growth rate, thus confirming that even in a very cyclical industry it is still possible to achieve profitable and sustainable growth over the long term. All these achievements are based on the high commitment of our staff, close cooperation with our customers and the confidence our shareholders place in our company. For this we would like to express our sincerest thanks.
 
Villach/Zurich, 17 August 2005
 
For the Board of Directors:

Egon Putzi | Chairman
Franz Sumnitsch | Vice-Chairman
 
For the Corporate Executive Board:
Kurt Lackenbucher | Chief Operating Officer

Sabine Kampitsch | Chief FinancialOfficer 
 

Consolidated Statements of Income

Consolidated Balance Sheets

Consolidated Statements of Changes in Shareholders' Equity *

Consolidated Statements of Cash Flows in CHF 1000 1/1-6/30 2005 unaudited 1/1-6/30 2004 unaudited 1/1-12/31 2004 Consolidated net profit 6 249 16 205 32 063 Depreciation of property, plant and equipment and amortization of intangible assets 9 909 8 352 19 477 Impairment of property, plant and equipment and intangible assets 0 893 1 758 Increase in provision for retirement benefits 0 0 523 Release of provision for subsidies 1 193 1 419 3 620 Changes in deferred taxes (200) (222) (579) Non-cash foreign exchange effects 186 (412) (5 359) Loss on sale of non-current assets 46 4 357 Non-cash foreign exchange effects (458) (3 197) 399 Operating cash flow before changes in net working capital 16 925 23 042 52 259 (Increase) in inventories (1 446) (25 553) (41 397) Decrease (increase) in trade receivables 31 (37 337) (38 864) (Increase) in other current assets (3 913) (6 529) (2 919) (Decrease) increase in trade payables (7 909) 3 930 10 349 Increase in other liabilities 3 384 20 764 14 277 (Decrease) increase in warranty provisions (318) 1 545 3 550 Cash flow from operating activities 6 754 (20 138) (2 745) (Purchase) of property, plant and equipment and intangible assets (12 817) (4 667) (25 255) Proceeds of property, plant and equipment and intangible assets 127 150 310 (Purchase) of other financial assets and receivables (994) (119) (343) Proceeds from other financial assets and receivables  0 0 13 Decrease (Increase) in financial investments 35 5 600 (6 613) Cash flow from investing activities  (13 649) 964 (31 888) Increase in debt 5 233 15 133 17 871 (Decrease) increase in non-current liabilities (73) 557 241 Principal payments under finance leases (587) (590) (1 435) Decrease (increase) in treasury shares 650 (295) (5 048) Increase in share capital 0 110 777 110 220 Subsidies received for investing activities 0 1 103 470 Cash flow from financing activities 5 223 126 685 122 319 Effects of foreign exchange rate changes on cash balances 1 206 150 (316) Net (decrease) increase in cash and cash equivalents (466) 107 661 87 370 Cash and cash equivalents, beginning of year 162 908 75 538 75 538 Cash and cash equivalents, end of period 162 442 183 199 162 908

Notes to the Unaudited Consolidated Half-Year Results 2005 (condensed)

Changes in consolidation and accounting principles

According to IFRS 3 "Business Combinations", goodwill from prior acquisitions is not amortized on a straight line basis anymore from business year 2005, but tested at least annually for impairment, or, when indicators for a potential impairment exist earlier. In the first half-year 2004 amortizations on goodwill on a straight line basis in the amount of CHF 0.4 million are included.