Annual Report 2018

Macroeconomic environment

The International Monetary Fund (IMF), Washington, D.C., USA, forecasts that the economy will begin to cool in 2019 and trimmed 0.2 percentage points from its forecast for global economic growth at the beginning of the year, lowering it to 3.5 %. Among other things, the IMF bases this development on the ongoing trade dispute between China and the United States and the numerous crises in emerging markets. Abandoning of the expansive low interest rate policy is also viewed as a risk. Turmoil in the financial markets and with the exchange rates could further exacerbate the situation.The IMF also lowered its forecast for Germany for 2019. Growth is only expected to reach 1.3 %. The reasons for this include a downturn in the export business and weaker industrial production coupled with uncertainty surrounding the UK's withdrawal from the EU.

Industry-specific expectations and outlook for fiscal 2019

Solar segment – Demand for photovoltaics continues to grow

According to analyses by the market research firm IHS Markit, photovoltaics capacity in 2019 will grow by 18 % to reach 123 GW of newly installed photovoltaic capacity. It is expected that the markets outside China will once more gain in importance and be the source of two-thirds of the newly installed photovoltaics capacity. The China Renewable Energy Outlook 2018 (CREO 2018) entitled "Time for a new era in the Chinese energy transition" was officially presented at the UN Climate Change Conference (COP 24) in Katowice, Poland. According to this outlook, the country's fossil fuel consumption will peak in 2020 before declining steadily until 2035. In turn, China aims to further step up renewable energy production. The country plans to add new photovoltaics installations of 80 to 160 GW in the decade from 2021 to 2030. For wind power, it plans to add from 70 to 140 GW. Thus, photovoltaics and wind power are expected to form the core of the nation's energy system by 2050.

In the next ten years, the global photovoltaics market is expected to undergo rapid growth everywhere. According to a publication of the Fitch Group, the installed capacity will increase to 942 GW by the end of 2027. Fitch forecasts that this expansion in photovoltaics will continue to be dominated by Asia in the next ten years. In addition, Fitch expects that in 2027, 60 % of the world's installed capacity will be located in Asia.

Overall, however, the growth is expected to see a regional distribution with the demand increasing by more than 20 % year on year in 45 countries. IHS Markit expects that Argentina, Egypt, South Africa, Spain and Vietnam alone will account for a total of 7 % of the global added capacity. In 2019, the market is expected to see 28 % growth in the US. In view of the growing global market and the slowdown in capacity expansion announced by photovoltaics manufacturers, IHS Markit concludes that the utilization rates of production capacities will be higher over the entire value-added chain in the next year. The overcapacity situation in the solar industry seen in the second half of 2018 is expected to ease.

Photovoltaics trends specific to SINGULUS TECHNOLOGIES

The conditions, including from the Company's perspective, continue to support continuous growth in the area of photovoltaics. The surface engineering and vacuum thin-film deposition offered by SINGULUS TECHNOLOGIES play an important role in achieving the ever-increasing efficiency of the modern cell designs. This applies both to processes for thin-film deposition technology (CIGS, CdTe) as well as to the use of new crystalline cell designs (incl. HJT) in manufacturing. The SINGULUS TECHNOLOGIES systems are positioned in a technical field that is essential in defining the competitive advantages of the customers. The successful implementation of a growth strategy is closely linked to the targets of the Chinese government for the local energy market being achieved as planned.

In the field of crystalline solar cells, SINGULUS TECHNOLOGIES expects the market to shift in the medium term towards crystalline high-efficiency solar cells, e.g., based on heterojunction technology (HJT). This is an area in which SINGULUS TECHNOLOGIES offers its own equipment for cell production and has a good market position with the SILEX II system in the key markets outside of China. SINGULUS TECHNOLOGIES is currently introducing further new system designs on the solar market. These include the cathode sputtering vacuum deposition system (PVD) and the plasma-enhanced chemical vapor deposition system (PECVD). The Company's objective is to establish itself in the market for manufacturing high-efficiency cells with new machines for the PVD and PECVD process stages.

The business in the Solar segment is expected to continue to grow in 2019. In the upcoming fiscal year, this depends on the realization of orders already awarded by CNBM and the receipt of the corresponding prepayments on the basis of the current project schedule. The Company will continue to work with the customer on the basis of the LoI signed in November 2018 for the three sites in China in Bengbu, Meishan and Xuzhou, to develop the detailed delivery agreements. Production and delivery of the systems for the three sites should mostly take place in 2019 and 2020. For these to occur, the delivery agreements must be signed and the corresponding prepayments received in the months to come.

Overall, a significant increase in revenue is anticipated for the Solar segment in fiscal year 2019 compared to the previous year. The operating result (EBIT) is also expected to improve significantly and close the year in the mid-to-upper millions.

The medical technology area is expected to develop favorably and result in new order intakes in 2019.

Optical Disc segment – The market for physical media is in decline

Consumer behavior in the entertainment industry has changed radically over the past few years. Demand for the enhanced quality of media such as Ultra HD Blu-ray in terms of sound and image is weakening, and these factors are no longer relevant in the consumer's purchase decision. Especially young consumers rely more on mobile devices and streaming services.

The British market research firm Futuresource Consulting confirms the downward trend and anticipates that standard Blu-ray discs will drop further to below 600 million discs in 2019. The production of Ultra HD Blu-ray discs is expected to grow slightly. However, this trend will have little or no impact on the equipment business at SINGULUS TECHNOLOGIES.

The service and replacement parts business in this segment follows this trend and will also deteriorate. The Executive Board's planning for 2019 assumes a slight decline in revenue. However, a significant downturn in the Optical Disc activities will partly be offset by increasing revenue from the consumer goods field of activity. The Executive Board continues to expect operating earnings (EBIT) breakeven.

For the consumer goods area, we anticipate growth and further order intakes in 2019.

Semiconductor segment – SINGULUS TECHNOLOGIES remains provider of special systems

SEMI (Semiconductor Equipment and Materials International, Milpitas, USA) expects investment volume for all semiconductor production systems to increase by 7.5 % to a total of USD 68.0 billion in the current fiscal year. Korea and China top the list of countries with new investments. The total revenue of the industries is expected to increase slightly by 3.63 % to a total of USD 491 billion.

At present, SINGULUS TECHNOLOGIES addresses niches in this market with its special applications. The Company is focused on applications in the area of sensor technology, for voltage regulation in chips and for the application of critical metallic layering systems for thin-film products in the semiconductor industry.

In these markets, SINGULUS TECHNOLOGIES is an internationally competitive provider of special machinery. Based on the TIMARIS and ROTARIS system designs, the Company sees strong potential overall for the future and for revenue diversification.

We expect significant revenue growth in this segment in fiscal year 2019 compared with the low level for the Semiconductor segment seen in 2018. The operating result (EBIT) should be slightly positive.