BESI, progress on Strategic Plan Limits Impact of Assembly Equipment Downturn on Besi's Q3-12 Results.

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Overig advies 23/10/2012 08:06
Progress on Strategic Plan Limits Impact of Assembly Equipment Downturn on Besi's Q3-12 Results. Headcount Reduction to Increase Profit Potential in Volatile Market Environment.
Duiven, the Netherlands, October 23, 2012 - BE Semiconductor Industries N.V. ("the Company" or "Besi") (NYSE Euronext: BESI; OTCQX: BESIY), a leading manufacturer of assembly equipment for the semiconductor industry, today announced its results for the third quarter ended September 30, 2012.

Key Highlights

Revenue of € 74.6 million down 14.3% vs. Q2-12 and below prior guidance. Down 1.3% vs. Q3-11. Global macro uncertainty after H1-12 capacity build causes customers to push out deliveries at quarter end.
Orders of € 48.7 million down 46.5% vs. Q2-12 and 35.2% vs. Q3-11. Reduced demand by Asian subcontractors for PC, smart phone and tablet applications and European IDMs for automotive components.
Gross margins of 40.3% vs. 41.5% in Q2-12 (40.0% Q3-11) due to lower volume. Within prior guidance.
Net income declines to € 4.3 million in Q3-12 vs. € 10.0 million in Q2-12 and € 4.9 million in Q3-11.
13% headcount reduction plan initiated to reduce European based fixed costs and align production with current market demand. Annualized cost savings of € 11 million anticipated.
Share buy-back program initiated for maximum of 1.5 million shares (4% of current shares outstanding).

Richard W. Blickman, President and Chief Executive Officer of Besi, commented: “Our Q3-12 results reflect progress in our strategic efforts to reduce costs and increase operating flexibility in a highly volatile assembly equipment environment. Results were below expectations as industry conditions deteriorated more rapidly than we had anticipated at last quarter end. Underscoring the rapidly changing landscape, the semiconductor assembly equipment book to bill ratio declined from 1.4x at the end of May 2012 to 0.5x at the end of September 2012. Similarly, our orders declined by 46.5% sequentially reflecting renewed caution by customers in adding capacity after a significant expansion in H1-12. Uncertainty as to the direction of the global economy has caused very short term customer purchasing patterns and significant quarterly order volatility for our systems over the past three years.
In confronting this volatile industry environment, we continue work on enhancing our product mix of advanced packaging systems and optimizing our cost structure and scalability in order to further reduce break even cost levels in downturns and maximize revenue generation and profits in ensuing upturns. As such, despite a 15.2% revenue decrease, we were able to increase our gross margins from 40.4% to 40.6% in the comparable nine months results of 2012 and 2011 and reduce our operating expenses by € 6.2 million or 8.7%. Our balance sheet also remains strong with net cash increasing sequentially by € 9.8 million to € 59.2 million at the end of Q3-12. Although visibility is limited at present, customer feedback indicates that the current downturn will limit order growth through year end. We anticipate that revenue will decrease by 25-35% in Q4-12, as compared to Q3-12, with a negative impact on profitability. As such, we have initiated a 13% headcount reduction plan which primarily seeks to lessen structural European based costs in the context of our ongoing transfer of production to Asia and reduce our Asian temporary production personnel to align capacity to current market realities. In addition, we will rationalize our plating operations to enhance their profitability and further integrate our die attach activities. In total, we anticipate that the plan will generate € 11 million of annualized cost savings with associated restructuring charges of € 2.8 million, of which € 2.1 million will be incurred in Q4-12. In addition, we initiated a share repurchase program covering a maximum of 1.5 million shares (approximately 4% of shares outstanding at September 30, 2012) in order to enhance shareholder value. We feel that the repurchase program is appropriate in light of the current market price of our shares relative to our anticipated future earnings potential as well as to further reduce share dilution resulting from the conversion of our 5.5% Convertible Notes in June 2011.” Third Quarter Results of Operations
Besi’s € 12.4 million (14.3%) sequential revenue decrease in Q3-12 reflected a downturn in industry conditions which began at the end of Q2-12 and accelerated in Q3-12. Soft industry conditions were reflected particularly in lower sales of flip chip and epoxy die bonding systems and molding equipment primarily to Asian subcontractors and European IDMs for automotive, PC, smart phone and tablet applications. The decrease was greater than prior guidance (decrease of 0% to 10%) due to the push-out of orders at quarter end that were scheduled for delivery in Q3-12. Such orders are now planned for delivery over the next two quarters. Revenue in Q3-12 decreased by € 1.0 million (1.3%) vs. Q3-11.
Orders for Q3-12 were € 48.7 million, a decrease of € 42.4 million (46.5%), as compared to Q2-12 and a decrease of € 26.4 million (35.2%) as compared to Q3-11. The quarterly sequential order decrease was primarily due to a pause in demand for incremental smart phone and tablet capacity after a significant build in the first half of 2012 as well as renewed customer caution in adding capacity due to global macroeconomic concerns. Specifically, bookings decreased as a result of lower orders by Asian subcontractors for advanced packaging applications. On a customer basis, the sequential order decrease reflected a € 34.6 million (63.1%) decrease by subcontractors and a € 7.8 million (21.5%) decrease by IDMs. Backlog at September 30, 2012, was € 57.3 million, a decrease of € 25.9 million, or 31.1%, as compared to June 30, 2012 and € 8.5 million, or 12.9% as compared to Q3-11.
Besi’s gross margin for Q3-12 was 40.3% as compared to 41.5% in Q2-12 and 40.0% in Q3-11 and within prior guidance (40-42%). As compared to Q2-12, the gross margin decrease was primarily due to lower sequential sales of equipment and spares. As compared to Q3-11, the gross margin improvement was due primarily to higher die attach and packaging equipment margins as a result of an increase in the US dollar vs. the euro partially offset by higher expenses to support the production ramp of Besi’s epoxy die bonding system in Asia.
Besi’s operating expenses declined to € 22.6 million in Q3-12 as compared to € 23.0 million in Q2-12 and € 23.6 million in Q3-11 and were lower than guidance (€ 23.0 million). In Q3-12, Besi incurred € 0.3 million of restructuring charges related to its headcount reduction plan. As compared to Q2-12, the decrease was primarily due to € 0.3 million lower general and administrative expenses as a result of lower consulting and travel costs and € 0.2 million of lower development spending due to decreased personnel. As compared to Q3-11, operating expenses declined by € 1.0 million primarily due to lower warranty and overhead expenses. As a percentage of revenue, total operating expenses were 30.3% in Q3-12 as compared to 26.4% in Q2-12 and 31.2% in Q3-11. Fixed and temporary headcount totaled 1,615 at September 30, 2012, a decrease of 3.5% vs. June 30, 2012 and 9.0% vs. September 30, 2011.
Financial income (expense), net reflected an expense of € 0.5 million in Q3-12 as compared to income of € 0.6 million in Q2-12 and expense of € 0.2 million in Q3-11. The decrease as compared to Q2-12 was due primarily to losses on foreign currency hedging positions from the upward movement of the US dollar vs. the euro and Swiss franc as compared to gains realized in Q2-12.
Besi’s effective tax rate in Q3-12 was 36.7% as compared to 27.2% in Q2-12 and 25.5% in Q3-11. The increase in the effective tax rate in Q3-12 was due to a change in profit mix of its European subsidiaries.
Besi’s net income in Q3-12 was € 4.3 million as compared to € 10.0 million in Q2-12 and € 4.9 million in Q3-11. The € 5.7 million profit decrease vs. Q2-12 was primarily due to (i) the revenue decline which also caused a reduction in gross margin levels, (ii) a € 1.1 million negative variance in financial income (expense), net due to losses realized on foreign currency hedging positions as compared to a profit in the prior quarter and (iii) an increase in the effective tax rate. The decrease was partially offset by a sequential reduction in operating overhead. As compared to Q3-11, the € 0.6 million profit decrease was primarily due to a higher effective tax rate, and, to a lesser extent, lower revenue and higher foreign currency losses on hedging positions partially offset by higher gross margins and lower operating expenses due to cost reduction efforts.

Nine Months Results of Operations 2012/2011
For the first nine months of 2012, Besi’s revenue was € 217.4 million a decrease of € 39.1 million or 15.2% as compared to the first nine months of 2011. Orders for the first nine months of 2012 were € 224.1 million, a decrease of € 21.8 million, or 8.9%, as compared to the first nine months of 2011.
For the first nine months of 2012, Besi recorded net income of € 14.6 million (€ 0.39 per share) vs. € 23.2 million (€ 0.65 per share) for the first nine months of 2011. The profit reduction was due primarily to (i) lower revenue and (ii) a higher effective tax rate (34.2% vs. 24.7%) due to the change in the profit mix of its European subsidiaries partially offset by higher gross margins and a € 6.2 million reduction in operating expenses (8.7%) due primarily to Besi’s headcount and cost reduction efforts and lower warranty costs. Financial Condition
At the end of Q3-12, Besi’s cash and cash equivalents were € 89.8 million, an increase of € 12.5 million vs. Q2-12 while total debt and capital leases increased sequentially by € 2.7 million to € 30.6 million. As a result, net cash increased by € 9.8 million to € 59.2 million. Besi generated € 14.2 million of cash flow from operations which along with € 2.7 million of bank borrowings and capital lease and other financing were primarily utilized to fund (i) € 2.6 million of capitalized development spending and (ii) € 1.5 million of capital expenditures.
Headcount Reduction Plan
In order to improve its profitability and scalability, Besi announced a headcount reduction plan to reduce its personnel costs by € 11 million on an annualized basis. The plan calls for a reduction of approximately 13% of Besi’s total worldwide headcount of 1,674 at June 30, 2012 of which approximately 55% represents a decrease of temporary personnel and the balance from contract personnel. The plan focuses primarily on the reduction of temporary production personnel in Asia and contract and temporary personnel in Europe including the rationalization of Besi’s plating operations and the further integration of its die attach activities. Of the anticipated annualized cost savings, approximately € 6 million relates to the reduction of contract personnel and € 5 million relates to temporary production related personnel. Substantially all of the headcount reduction will take place before the end of Q1-13. Besi currently anticipates that it will incur charges not exceeding approximately € 2.8 million in connection with the proposed plan of which approximately € 2.1 million is anticipated to be recorded in Q4-12 and of which € 0.3 million was incurred in Q3-12.
Share Repurchase Program
Besi will commence a share repurchase program in which it may buy back up to a maximum of approximately 1.5 million ordinary shares (4% of its shares outstanding at September 30, 2012) on the open market from time to time and depending on market conditions. Besi is engaging in the repurchase program to enhance shareholder value in light of the current price of its shares relative to anticipated future earnings as well as to further reduce share dilution resulting from the conversion of its 5.5% Convertible Notes in June 2011. At present, Besi has authority to purchase up to 10% of its ordinary shares outstanding (approximately 4.0 million shares) until October 2013.
The repurchase program is being implemented in accordance with industry best practices and in compliance with applicable European buyback rules and regulations. The Company has engaged an independent broker for the program and all purchases will be executed through Euronext Amsterdam. The maximum price to be paid per share under the program will not exceed the higher of the last independent trade price in the shares and the highest current independent bid price of the shares on Euronext Amsterdam. Furthermore, such price will not exceed 110% of the average of the highest quoted price for the shares on the five trading days prior to the date of purchase, as published in the Daily Official List of Euronext Amsterdam.

Outlook
Based on its September 30, 2012 backlog and feedback from customers, Besi forecasts for Q4-12 that:
Revenue will be down 25-35% from the € 74.6 million reported in Q3-12. Gross margins (excluding restructuring charges) will range between 36-38% as compared to 40.3% in Q3-12. Operating expenses (excluding restructuring charges) will decline to approximately € 22.0 million as compared to the € 22.6 million reported in Q3-12. Restructuring charges related to the headcount reduction plan will approximate € 2.1 million. Capital expenditures will be approximately € 1.8 million as compared to € 1.5 million in Q3-12.



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