Soitec SA

PAR:SOI

Earnings Call Transcript 2022-Q4

[Paul Boudre, Chief Executive Officer]

So, ladies and gentlemen, first of all, on behalf of the entire management team, I would like to welcome you -- to welcome you in Paris in person, but also to welcome you online to the presentations of Soitec's fiscal year '22 results. I'm also delighted to be speaking with you in person. I mean, it has been too long since we were able to have this face-to-face discussions. So that will be the case today.

And so, let me open with a brief recap of the year that summarize Soitec's current positions. Fiscal year '22 was a record. It was a record-breaking year for Soitec. I mean, if you look at what we have done, we have surpassed the $1 billion mark in terms of revenues. We have achieved the company EBITDA's highest ever at 35.8%, and we delivered a very strong operating cash flow in terms of performance, I think that our financials and Lea will talk about it [indiscernible].

So despite the current challenging macro environment, we have a very positive outlook for fiscal year '23. And we, as you know, I mean, we have upgraded also our fiscal year '26 model to give you, in fact, even more visibility. So, thanks to our fundamentals and our operating model, we will continue to grow much, much faster than the semiconductor industry. And more importantly, I mean, what Soitec does, Soitec does it with purpose. This is important today. Sustainability is at the heart of our value creation strategy.

So the world will continue to be largely driven by very powerful mega trends. The adoptions of new technologies would accelerate our transitions in our society. Let me give you at least three very specific examples. 5G will be an important driver and will foster new services beyond mobile, and you can name it all. I mean, I'm talking about health, I'm talking about security, I'm talking about autonomous vehicles, I'm talking about agriculture, education, security. So there is myriads of applications that 5G is going to bring and to boost in terms of opportunities. 5G will also support a more inclusive society by connecting what I call the non -- the unconnected.

So energy efficiency is becoming also another big factor for growth and for what we need as a society. Energy efficiency is becoming increasingly indispensable. And if you think about a couple of examples, I mean, I will at least name one, this is the electrical vehicles. This is just the peak of the iceberg. But this is also one of the main driver for our technologies, and this is critical for the next five years, specifically with the announcement of this morning, by the way.

So advanced electronics will be also a tool to really fight for climate change. And as we grow, as we continue to accelerate, I mean, advanced electronics will be one of the solutions that we will have to implement. So as a result of our semiconductor industry we will more than double over the next 10 years, and we will deliver an annual growth of around 10% as a semiconductor industry until 2030.

So, Soitec. In Soitec, what do we do? We design engineered substrates to make the world basically more connected, to make the world more energy efficient, to make the world more intelligent. So this is clearly the focus that we have as a company. But around Soitec, we have built a unique ecosystem with our strategic partners, and I would like to spend a few minutes here to explain this, because it is where we stand today and probably a unique differentiation compared to what other material company can do in the world. So around Soitec, we have built this unique ecosystem, and I'm talking about our suppliers, I'm talking about the foundries, the design house, the fabless and the OEMs. And our mindset in this ecosystem, our mindset is really very simple, it's to focus on two questions, where to play? How to win? That's the always two questions that we ask ourselves.

So first, let's start with where to play. At the OEM, obviously, and end market level, we have increased our ability to anticipate demand and market trends and identify key applications with an attractive growth for the future. So a lot of effort has been done in the organizations to really get connected to this part of the industry. The second is, how to win. We engage with fabless at the technology level to basically better anticipate semiconductor needs and semiconductor architectures. So it is very important for us at the fabless level to connect the dots and to understand the problem they are trying to fix in order for us to -- with the small signals that we are getting there, to understand how we can provide a solutions based on our materials. So we collaborate to better design and offer the type of engineered substrates that they will require to deliver the best performance at the device level.

To support -- basically to support our fabless customer, we have also invested in design and design capabilities to accelerate the development of our engineered substrates. Now, with our direct customers, the foundries, an integrated device manufacturers, we work together, I mean, to reach basically the best industrial cost of ownership and capabilities working on their heels and continuous improvement to make sure that our product in their manufacturing not only outperform, but deliver the right performance.

So what is maybe one of the most important things into this, specifically driven by the situations today. Everybody thinks about shortage, right. And we are on allocations at Soitec. But when you think about shortage and when you think about what is happening now, which means that we have to continue to accelerate the growth and to build the capacity and the capability for the growth. It is true that basically we need to rethink the supply model. And this is a good time now, this is what will probably keep us out of the problems we are in today as an industry. What is happening? I mean, we are getting much more visibility. We have now from our customers and customers' customers, long-term commitment. We had an average of two years visibility at best. We are now on a four years type of average visibility, meaning that we have long-term visibility for some customer three to five years.

But this is also linked to real commitment, okay. And with financial commitments, and this gives us also the opportunity to build our own capacity, but also to make long-term commitments with our suppliers. So there is a big change in our industry, and if you think about that for this industry that is going to double over the next seven, eight years, this is one of the major changes that we are going to see and that we are going to continue to focus on.

So you know also that innovation is in our DNA. So we have a critical mass in Europe at Soitec, and with important collaborations with CEA-Leti, with Zymac, the Fraunhofer Institute, but also several universities. And we are building a global network for international alliances for innovations. I mean, clearly, what Christophe Maleville and his team are doing is really to take the talents where they are, but to create this network that give us the agility and the performance that we need when we start thinking about new product development.

So how do we convert these strong mega trends and fundamentals in numbers? In fact, we position ourself on markets that will grow at 20% annually in the next four years, and our markets will grow basically two to three times faster than the global semiconductor industry. Soitec will grow even faster at 20%, 25% annually. I mean, a clear sign of the value for our product and recognized by our clients.

Starting of a record fiscal year '22 which saw Soitec revenue grow 50% to $1 billion. We now manage our business towards revenue of around $2.3 billion by fiscal year '26. So this number compared to the number that we shared with you last year and we were managing basically our model towards the $2 billion. Now, we are seeing basically a kind of acceleration. So it’s not a gain, it's an acceleration in the businesses we're in. So we expect our three divisions really to grow significantly and we have built low and high case scenarios that you will be able to hear later.

Fiscal year '22 was also a record year in terms of profitability. And this, clearly, we have delivered, and you know that, an EBITDA at 35.8%, which is the record ever for the company. And we are now driving the company also towards 40% on the fiscal year '26 horizons. Lea will comment on this, and she will give you much more details. But this record performance basically illustrates couple of things. Exceptional executions, obviously, but based on our operational excellence, our product mix, our customer recognizing the product of -- the value that we are offering them, but also our internal cost management system. So we all know that -- I mean, it's simple to understand, I mean to grow fast we need to invest. Our duty is to commit capacity to support basically our customer growth, and this is where this long-term commitment are playing a major role.

Our EBITDA expansion will fund our CapEx to support both our customers and markets growth. Our capacity will significantly increase between fiscal year '22 and fiscal year '26 to a total capacity well above 4 million wafers. So to achieve this, we have been very pleased to announce basically two extensions and two new manufacturing, one in France, we call it Bernin 4, and this is for SmartSiC product and it will also include some refresh activity on site. The second one is Pasir Ris in Singapore, so where we extend our 300 millimeter SOI capacity and facilities. Again, I mean Bernard and Lea will talk in more details about it, but as you can see, I mean, there is an acceleration in the business that we are driving that we need to take care of.

So, now let's take a moment to talk about sustainability. As I said at the beginning, sustainability is at the heart of our value creation strategy. We don't just talk about it, I mean, we just don't put word around it, we really work for it and think about it and develop a lot of our activity with sustainability in mind. So last year at our shareholders' meeting, we adapted our corporate purpose. I hope you know it by now, but I'm going to say it again, because we've spent a lot of time together with my team to come up with this. We are the innovative soil from which smart and energy-efficient electronics go into amazing and sustainable life experiences.

Our corporate purpose motivators. Our corporate purpose differentiates us. Our corporate purpose is true today and is going to be true tomorrow. Our corporate purpose reflects our ambitions to commit to sustainability in the interest of all our stakeholders. And we have built basically our strategy on three pillars that really highlight our commitments. Sustainable innovation, people, and society. Now let's dive into each of these engagements starting with sustainable operations and product innovation.

So regarding our operations, we are committed to reduce our carbon footprint and align with the 1.5 degree pathway by 2026. This is a very ambitious objective and these ambitions have been approved by the Science Based Target initiatives. That means that we are putting real numbers, we are measuring ourselves against these numbers, and we are basically challenging ourself from this set of numbers.

Regarding our products, our climate change roadmap is driven by our innovations. We design semiconductor materials, enabling energy efficient product. This is part of the DNA of the company, low power capabilities, overall energy efficiencies already embedded as part of our product. But let me give you an example. I mean it's our SmartSiC product portfolio for electronic vehicles is clearly one of the latest examples that we have on how our engineered substrates are low-efficient carbon emission saving at the system level.

So if we move on to our second pillar, which is also very important, it's about people. You heard me many times saying everything starts with people and everything ends with people. I mean this is -- people are so strategic all along the value chain. So we are focused on how to attract new talent, how to grow our talent, how do we keep our talent. So our industry is growing fast and competition for our talent is fierce. This is a challenge for this industry. This is a challenge for all of us, and this is a challenge for us as well. So our corporate culture is centered on attractivity and talent development. It's centered on diversity and inclusion and guaranteeing that a safe and healthy workplace.

Finally, I will talk about accountability. Our commitment is to reach the highest standard of governance and ethics. We now have a set of new recommendations that we have built between -- at the governance level that we will deploy soon our governance bodies to reach the highest standards of governance. We deploy our highest standards also throughout our supply chain. Today 100% of our strategic suppliers have signed our supplier quality policy, requiring compliance with our own standard. So this is the first big achievement also in this sense.

So now let's talk about just the executive team. How do we deliver this exciting plan? Earlier this year -- calendar year, we have slightly reshuffled our organizations to do couple of things: accelerate the development of our three divisions; better serve our customers; optimize the management of our global supply chain. As we continue to grow and accelerate, the company is alive anymore in a way, right. I mean, you have to adjust, adapt and anticipate with organizations. But as you know, at the end of July we will take a different personal journey and Pierre Barnabe will be with me. So for weeks here, the management team and I have started to work on seamless transition. Soitec ambition and organizations are clearly in the right hands with Pierre who will become CEO on July 26. And I would like to really today for you to meet with Pierre, and as our future CEO, he will write these next chapters for the Group and all its stakeholders. So, please, Pierre joining me on stage.

[Pierre Barnabe, Upcoming CEO]

Thank you very much, Paul. Thank you for the warm welcome, and warm welcome of the team. Thank you very much. For me, I'm very happy, very proud to be there and to take the relay off you Paul. And of course, a lot of responsibility because what you have done, Paul, is totally amazing with the team. You laid the foundation for a leader -- world leader with an incredible story, an incredible turnaround with, of course, the foundation that will be extremely solid and strong to make -- to step up and to scale up even further. And I would like to pay you a tribute to what you have made over these years in a difficult time and what you have demonstrated again today is totally incredible.

Then for me it's, of course, a lot of excitement, a lot of responsibilities, as I said, and I'm coming from a, let's say, close environment. I've spent 20 years of my career in telecommunication industry, defense, civil projects mainly. Then 10 years in electronics, where we moved from number nine to number one in the world of cybersecurity and number five to number two in super-computers, even working at the computing unit level. Then, of course, the proximity to Soitec was quite obvious, and now I'm working with the team on making the materials more intelligent with a lot of features and functionalities embedded to make the semiconductor industry stronger again.

And of course, I've also seen after really a warm welcome by all the team and all the Soitec employees over the last weeks, if not, months that we are sharing some passions altogether. First of all, the passions of product and industry that is really extremely important for me. I'm coming from the industry, I used to work in product for all my career. R&D innovation, that is also key for me and it's really the future of our world. And the third element, and Paul underline it a lot is people, passion and value creation. And I believe that ultimately this is what makes a company successful or not, it's really the passion of the people to create value in the company.

Then again, pleasure to be there, pleasure to be with you Paul on stage now. I will have the occasion to talk with you afterwards, and of course, in the coming months with the team. And again, big, big, big pride for me to take the relay. Lot of responsibility. And again, big, big congratulation for what you have done over the years. It's totally amazing and it is unique. Thank you, Paul.

[Paul Boudre, Chief Executive Officer]

Thank you, Pierre. I mean, thank you for these nice words. And as I said, I truly believe that that under your leadership with Bernard and Lea and the executive team, this company in good hands. Okay. So we have a fantastic challenge in front of us, but you guys -- and again, Pierre, thank you for taking the challenge to lead this team. This is a beautiful company and we will have great things coming.

So with that, I mean I'm going to leave the floor to Bern Aspar, our COO. Bernard is going to talk to you in more details about our markets, our products and give you an overview on where we are and where we're going. Bernard?

[Bernard Aspar, Chief Operating Officer]

Thank you, Paul. Hello, everyone. And it's a real pleasure for me to be here with you in person to discuss with fiscal year '22 results. So Paul gave you an overview of our ambitious growth, reinforced by our record fiscal year '22 performance. I will now update you on how we will execute this vision and achieving our upgraded growth ambition.

You know about our ambition growth and you see that our fiscal year '22 record revenue of $1 billion, we are on track with the journey. Strong mega trends are supporting our double-digit growth in our three strategic end markets. The continued increase of semiconductor content in end products is driving around 20% growth of our addressable market for fiscal year '26. Based on this element and improved visibility on our customers and prospects, we are managing now our business to grow toward $2.3 billion in fiscal year '26, a 20% to 25% growth -- annual growth rate.

To deliver this, we are expanding our product portfolio to enable customer differentiation and increase value creation for Soitec and for our customers. We are constantly -- first of all, we have built a collaborative innovation model and this innovation model is based on our own R&D and partnership with key research players and universities across the world. We are constantly improving customer intimacy to understand the customer critical needs and ensure adoption of our product in their technology roadmaps.

We also integrate sustainability from the substrate design level at the very beginning, down to end product application. To achieve our ambition, we have deployed a new organizational structure that will help us to execute our vision and deliver solid commercial, operational, industrial and financial performance. Our customers request faster product development, so we are accelerating our go-to-market strategy through faster alignment between our customer group, division, and global supply. We are piloting performance in every aspect across the company, from product design to operational excellence. And we are becoming more and more agile. We are improving our ability to anticipate market trends and better adjust demand and supply dynamics.

You are familiar with our three strategic end markets. To better understand -- for us it’s key to better understand the customer needs, to propose a comprehensive product portfolio, bringing value to them. For that we have shaped our new organization around these three markets, with three divisions. And the three divisions are mobile communication, industrial and -- automotive and industrial and smart devices.

Now let's analyze these drivers market by market, please. On mobile communications, we grew around 50% in fiscal year '22, comparing to fiscal year '21 and this business is expected to double by fiscal year '26 with a revenue of around $1.5 billion in fiscal year '26. What are the drivers beyond this growth? 5G, and when we talk about 5G, first we talk about 5G sub-6 gigahertz, the first generation of 5G. And you need to keep in mind that 5G sub-6 drive large increase in RF content, two times versus 4G. 5G millimeter wave, second wave of 5G is now becoming a reality as penetration is accelerating and 20% of the 5G smartphones are expected to support millimeter-wave in calendar year '23. WiFi 6, WiFi 7 ultra-wave band for both connected object in smart home and mobile is also a key driver for us. The value that we bring to our customers, the industry standard that we are defining, and the increased visibility on our business will support on our growth of around 18% per year until fiscal year '26.

When you look at the smartphone, we have addressed the customer need for front-end module with a comprehensive product portfolio. For sub-6 gigahertz 100% of smartphone [indiscernible] RF-SOI. Today, this product is a standard for antenna tuner, switch, low-noise amplifier, and we are proposing only one product but to a full range of product to maintain our leadership in the market segment. We are also proposing POI for filters and GaN for power amplifiers.

For 5G millimeter wave, we have developed different solutions, from RF-SOI to FD-SOI, depending on the level of integration. Specifically, on FD-SOI, after this Pixel 6 phone using Samsung FD-SOI product, we are very happy now to see MediaTek announcing publicly that they are adopting the generic platform FD-SOI for millimeter-wave solution. With this ala carte menu of products that we have, we address all of our customer needs for front-end module and we are continuing to increase the penetration of Soitec products into the smartphone.

Our mobile story is a content story. Most of you will recognize this chart, it represents the aggregate die-size RF content opportunity of our product in high-end smartphones. The order of magnitude of the total opportunity remains the same that we introduced to you last year. The total opportunity was in the range of 60 square millimeter for our smartphone and is expected to more than triple in the next four years to over 200 millimeter square for RF-SOI, FD-SOI, POI and GaN.

Now, let's have a look to our automotive and industrial division, which also delivered around 50% growth in fiscal year '22 and is expected to be multiplied by five by fiscal year '26. We have been developed product like Power-SOI solution for automotive segment for around 25 years, starting for infotainment applications. More recently, we are penetrating new markets, including ADAS and functional safety. Today, we are expecting electric solution to become a significant growth driver for us, as they require new technological solutions and new materials for powertrain, traction inverter and onboard charger.

For this division, we are developing a comprehensive product portfolio to address the customer need in automotive with specific product for the following application. For infotainment and ADAS, we have developed different flavor of SOI, such as Power-SOI for Class D amplifier, in-vehicle networking and FD-SOI for application and vision processor, RADAR and data fusion. To address the powertrain, on top of our Power-SOI products we are developing new materials such as Power GaN and SmartSiC to support the development of new Power MOSFET. All of our products are encouraging the adoption of the car that are safer, more connected, more autonomous, and more energy efficient.

This product portfolio that we develop to address the growth driver that I mentioned is translating into an increase in content of Soitec products in high-end cars. This content is expected to be multiplied by six in the next four years. Here again, the order of magnitude is on track with what we communicated last year. We are seeing more opportunities materializing for SOI and silicon carbide in applications such as ADAS, Power-SOI, functional safety and electrification. We are progressing on our SmartSiC roadmap and are getting a better understanding of the SmartSiC value creation that we are proposing to our customers.

We have upgraded our vision on this footprint. So let me explain now to you SmartSiC's value proposition. Our engineering substrate called SmartSiC is a new generation of silicon carbide which benefits from the combination of prime mono-silicon carbide layer, bonded on to ultrahigh conductivity polysilicon carbide wafer, which enables high conductivity substrates. So SmartSiC brings many advantages over bulk silicon carbide. It is greener, faster and better. Better, we can get an improvement of device resistivity of up to 30%. This benefit to current devices, but more important, it enables new generation of silicon carbide devices. Greener, SmartSiC saves 20,000 tons of Co2 for each 500,000 wafers produced. Faster, thanks to our Smart Cut technology, we can accelerate silicon carbide adoption with around 10 times wafer reusability with our Smart Cut process and 200-millimeter scalability.

To summarize, SmartSiC brings significant value to device makers and silicon carbide ecosystem by answering to the need to improve the yield, increase device performance and enable larger dies. So where we are on our SmartSiC roadmap? We started to talk about that in 2019. 2020, we built our Pilot Line agility and we are now continuously delivering wafer to many customers. In 2021, we acquired NOVASiC to complement our technology portfolio with polishing capability and signed a strategic partnership with Mersen to secure polysilicon carbide supply.

A few months ago, thanks to our strong confidence level, we launched the construction of Bernin 4 where we will produce SmartSiC wafers. Next year the fab will be ready and end of 2023, beginning of 2024, Bernin 4 will be qualified and will begin ramp-up for this product. On top of that, we have developed several product families, such as SmartSiC performance or another family, SmartSiC Advanced product, where these different flavors provide different advantages to the customer, like SmartSiC Advanced is providing, both ultra- load effectivity on top of ultra-low resistivity. We are working on this product, both on six-inch and eight-inch. So we have a very clear product and industrial roadmap to bring SmartSiC to the market and address the new silicon carbide device generation.

Let's move now to Smart Device division. For this business, our revenue grew significantly in fiscal year '22. And it represents the greatest upside for our high-case revenue scenario. Smart devices is a rich market segment that covers a lot of different applications. Edge computing, which require low power consumption to bring artificial intelligence on the device, sensing to collect information, datacenter to support cloud infrastructure, and new trends such as metaverse, which is a requirement for augmented reality and virtual reality.

Here again, we have developed a comprehensive SOI product portfolio to address critical needs in the smart device environment and address different markets to sense, connect, compute and display. In all of these cases, ultra-low power consumption and performance computing are required, and our FD-SOI product is a great platform to offer system-on-chip technology solution.

Photonics-SOI capture several applications, such as optical transceiver for datacenter, critical to supporting cloud infrastructure. But with Photonics-SOI is also suitable for new applications such as bio-sensor, essential for a smart device to capture information it requires. And we are seeing today a proven deceleration of application in health and safety.

So now that we have reviewed the key driver of our business, how do this translate into numbers? So you see that we are upgrading our financial model and now we are driving the company toward a $2.3 billion revenue for the base case. You understand the growth drivers. 5G, where RF-SOI remains a strong driver today and tomorrow. Automotive, with ADAS and electrification and smart devices. And all of that, thanks to our current product portfolio and the introduction of new products.

We have also low case, which is $2 billion, mainly linked to macro-economy and slower adoption of our new products. In parallel, we have identified a lot of new opportunities to build a high case. It is driven mainly by FD-SOI adoption, acceleration of SmartSiC and more RF. To achieve our growth ambition, we are adapting our industrial footprint and capacity to meet customer demand. In France, Paul already highlighted, we have announced a few months ago the extension of our building with Bernin 4 for 150 and 200 millimeter SmartSiC, as well as 300 millimeter SOI refresh. And yesterday, we announced another significant milestone, the extension of our Pasir Ris 300 millimeter SOI fab. This will bring Soitec a total 300 millimeter SOI capacity to 2.7 million wafer per year. With this further extension model to increase capacity in order to be able to optimize our industrial footprint, to optimize our operation, and to accelerate the qualification process of our product. On this slide, you see also that we are growing -- that we are growing our industrial footprint and this with a diversified product portfolio beyond SOI.

So to conclude, after a record fiscal year '22 performance and the solid positioning across our three strategic end markets, we are driving our business to $2.3 billion revenue by fiscal year '26, thanks to our ability to understand the challenge of the customer, innovate, to reinforce our product portfolio and adjust our global capacity to demand scenarios. And we are prepared for all the next challenges.

Thank you very much. I am pleased now to leave the floor to Lea that will present our financial performance.

[Lea Alzingre, Chief Financial Officer]

Thank you, Bernard, and hello everyone. So as promised, FY '22 -- in FY '22 we resumed our growth trajectory and we achieved a record level of revenue and EBITDA. This FY '22 performance and the increased visibility for the coming years give us the confidence to upgrade our financial model for FY '26. I will come back to it at the end of my presentation. But, first, let's take a look at the FY '22 financials.

In line with what Paul has disclosed in his introduction, we are happy to report that we overachieved on our initial commitment for FY '22, both in terms of revenue and EBITDA margin. We delivered a record revenue of EUR863 million, up by 50% year-on-year at constant FX rates. And our EBITDA margin reached 35.8%, up by 5.1 points year-on-year, the highest level in our history.

The main highlights are, all profit indicators from the revenue to the net profit improved. Our FY '22 net results reached -- more than doubled and reached more than EUR200 million. We invested EUR229 million in CapEx, mainly for capacity investments and at the same time we achieved to reach a positive free cash flow at EUR42 million. Finally, we reached a very strong net cash position at the end of March 2022.

Beside achieving a very strong financial performance and delivering on our objective, what has been key for us and for me has been to prepare for the future. There are four key items. One, make capacity investments at the right time in order to have the prediction on time, while optimizing cash flows and business visibility. Two, ensure we have the appropriate level of R&D in order to prepare the next generation of products for the midterm, but also beyond FY2026. Three, be confident we'll be able to finance our growth through -- thanks to our available cash. The cash we will generate with the operation and also with all the financing tools we have access. And, fourth, of course, make sure we have a sufficient number of staff and the right talents to support this growth.

Let's move to the revenue. We published our revenue last April, so surprise there. We delivered about 50% growth this year, driven by the increased success of 300 millimeter SOI wafer sales products. This 300 millimeter wafer sales grew by 79% at current FX rates, thanks to a sharp increase in volume driven by all our product lines, RF-SOI, FD-SOI, Imagers, Photonics.

As presented by Bernard few minutes ago, we are now organizing our business across three end markets: mobile communication; automotive and industrial; and smart devices. And we now plan to change the way we will report our from this fiscal year, moving from wafer size to end market to better reflect the way we are driving our business. If we look at the FY ‘22 performance, you can see that all our three end market recording significant growth.

Let's talk now about profitability. Our gross profit reached EUR316 million with 36.6% margin. It's a 5.2 point improvement year-on-year despite an unfavorable currency effect. Our strong growth improved the loading of our fab and our operating leverage, and on top of that we enjoy a very strong operational performance with better yield and highly efficient cost control. Finally, as anticipated, we benefited from a favorable timing effect of our long-term agreement with our key bulk supplier.

From this EUR316 million I just commented, we generated EUR195 million of current operating income. This represents more than 22% of our revenue. We increased our investment in R&D by 28% to EUR57 million in FY ‘22. This was done to strengthen our position in each of our three end market. To maintain leadership in the SOI business for the -- especially for RF-SOI and FD-SOI new products, to go deeper in POI development for the next generation of product, to accelerate on silicon carbide and to continue to develop Dolphin Design portfolio. We invested both in hiring new talents and in our collaborations with innovation platforms.

Regarding SG&A, we have continued to structure our multiregional footprint to prepare for the growth beyond FY ‘22. In a high growth context, we increased our SG&A expenses, but we manage to reduce them as a percentage of the revenue. Employee expenses increased due to new hiring this year and the effect of the last year new hiring’s and higher employees compensation items. We are focused on talent acquisition, retention and making our group an attractive place to work in. This is key to secure our growth.

At the net income level, we also improved our profitability, we reached EUR202 million at the end of March 2022, representing 23% of revenue. In addition to the current operating income I commented just earlier, we booked a non-recurring income of EUR9 million, that is mainly related to the reversal of the impairment loss related to our Singapore plant initially booked in FY ‘16. Our financial results, which was a loss of EUR15 million last year is close to zero this year. Financial expenses increased by EUR2 million. This was mostly related to the non-cash interest of following the issuance of our new convertible bond in October ‘20, partially offset by the conversion of our convertible bond 2023 in October 2021. In FY ‘22, financial expenses have been fully offset by a net gain of EUR13 million, thanks to a positive foreign exchange rate effect. And, finally, our income tax continued to benefit from tax loss carry forward and we recorded an additional EUR12 million of deferred tax assets.

Let's conclude the P&L chapter with the EBITDA margin, the main profitability indicator of our guidance. EBITDA amounted to EUR309 million in FY ‘22, up 73% year-on-year. While we continued -- we continue to invest in R&D and in SG&A and despite unfavorable currency effect, EBITDA margin reached the record level of 35.8%, benefiting from a strong operating leverage and a very strong industrial performance.

Moving on, let's take a look at the cash flows. Overall, net operating cash flows increased by 46% to EUR255 million in FY ‘22. Of course, we had higher working capital needs over FY ‘22 due to the growth, while last year revenue was flat. Nevertheless, we drove our group to monitor strongly this working capital and to contain the increase at EUR52 million. To add to this, we paid less tax than last year due to tax reimbursement and lower down payments. Cash-out from investing activities reached EUR213 million compared to EUR133 million last year. This EUR213 million do not include tools to finance through leasing contract. If we include them, cash out for CapEx would amount to EUR229 million, in line with our expectations.

Capital expenditures mainly related to capacity investments both in Singapore in our current fab for 300 millimeter SOI products, but also additional capacities for epitaxy and refresh, and in our balance three facility for POI product production. They also include investments for innovation, including capitalized R&D as well as NOVASiC acquisition. Overall, FY ‘22 was really good on the cash generation side as we managed to generate positive free cash flows at EUR42 million, while also investing in order to fulfill our growth plans.

We had a strong increase in our cash position moving from EUR644 million to EUR728 million at the end of March 2022. Investing flows are positive at EUR37 million, thanks to two new loans. The EUR31 million draw down under EUR200 million long-term loan granted by Banque des Territoires as part of the Nano ‘22 plan and the second loan in Singapore to finance tools for EUR31 million.

Let's move on to the financial structure. Few KPIs to underline the solidity of our balance sheet. Equity is above EUR1 billion, up EUR367 million year-on-year, thanks to the result from the period, but also the conversion of OCEANE ‘23 for EUR139 million. We moved from a net debt position of EUR4 million last year to a net cash position at EUR142 million this year, thanks to the positive free cash flow over the period and the conversions of our OCEANE. And, overall, our liquidity remains very high.

I will now move to the outlook for FY ‘23. In FY ‘22, we resumed our growth trajectory and we plan to continue this trajectory in the following years, including for FY ‘23. We anticipate FY ‘23 revenue to increase by around 20% at constant exchange rate. However, this growth will not be linear over the year with a lower half year. This growth will be driven by all our three end markets: mobile communication with ongoing deployment for 5G; automotive and industrial with further expansion in the automotive market; and solid market trends for smart devices.

Of course, our confidence in the ability to achieve our ambitious goals does not prevent us watching closely the international situation. The consequences of geopolitical conflict, such as the rising inflation are embedded in our budget but may have a greater impact than currently anticipated depending on the evolution of the situation. We anticipate EBITDA margin to be around 36%, slightly above FY ‘22 EBITDA margin. We will continue to benefit from a strong operational performance and from the operating leverage due to the higher level of activity. But we will have some headwinds such as raw material cost, due to the timing of our long-term bulk agreement, energy cost and more generally the effect of the inflation.

On the FX side, FY ‘23 is fully hedged at a euro/dollar rate of around 1.18. Cash out from CapEx is expected to be around EUR260 million and it will be mainly explained by our first investment for the fresh tools, for silicon carbide for our Bernin 4 facility, equipment for 300 millimeter SOI refresh capacity, again in Bernin 4, further ramp up in our current Singapore facilities for 300 millimeter SOI products, and investments for innovation, including capitalized R&D.

Let's now move to the midterm outlook. As we disclosed, we are now managing our business to reach a revenue of around $2.3 billion in FY ‘26. To support this growth, we will need to continue to invest both in investment capacities and in R&D. We presented our CapEx plan last year during the CMD at EUR1.1 billion for the FY ’22, FY ‘26 period, excluding new building cost. We confirm today this estimate and moving to the right of this slide you can see that we are now including two new building, leading to a total investment of EUR1.4 billion.

We will need to invest in two new building extensions before FY ‘26. First one, as presented by Bernard earlier, in Bernin 4, dedicated to SiC products, but also refresh capacity of 300 millimeter SOI product and the costs of this building is estimated at around EUR80 million. And we're building it on an extension for our current Singapore factory as we announced yesterday. For 300 millimeter SOI product that will ultimately reach 1 million SOI wafers capacity. Construction will start this year in FY ‘23 to be ready end of FY ‘25 and the estimated cost for this building is around EUR200 million.

As Bernard explained few minutes ago, we have several very solid growth driver which focus on value-added products. We are now guiding our business to reach a revenue of around $2.3 billion in FY ‘26 compared to $2 billion announced last year during the CMD, thanks to higher average selling prices, better product mix with the introduction of new generation of products and strong visibility for the business, leading to additional volumes. Our profitability will benefit from this upside and we are now driving our business to reach an EBITDA margin of around 40% in FY ‘26 compared to around 35% communicated last year. Our profitability will benefit not only from a full loading of our current factories, but also from more value added products.

And the upside with the last year estimate is explained by the anticipated increase in the average selling prices and a better product mix, but also the very strong operational performance we achieved in FY ‘22 with yield improvement and cost control, which we expect to maintain in the future despite the effects of the inflation. This 40% EBITDA margin is based on 1.20 euro/dollar rate. Remember that a change of 0.05, for instance, if we are at 1.15 instead of 1.20 has a positive effect of 1 point of EBITDA margin.

On the financing side, thanks to our current cash balance, thanks to the cash we will generate through the operation, we will be able to finance our CapEx level. And, in addition, our balance sheet is really solid. We have liquidity tools such as credit lines and further draw down on our loans, if necessary.

To conclude, you can see we have multiple growth drivers that will allow us to more than double our revenue between FY ‘22 and FY ‘26, and boost our profitability. FY22 was the first step of the journey.

I will now hand over to Steve to open the Q&A session. Thank you for attention.

[Steve Babureck, SVP, Strategy and Investor]

Thank you, Lea. And, yes, indeed, we are going to start the Q&A session. So on stage we'll ask Paul and Bernard to come back. And for your information, first row here we have other members of the executive team with Pascal Lobry, Thomas Piliszczuk, Cyril Menon and Christophe Maleville in case we have additional details to be provided. So maybe -- so for the Q&A -- of course, online you can ask questions either through the platform or on the phone and maybe I'll try to take some questions from the audience. Try to refrain to two questions max for now and we'll turnaround.

First question from Emmanuel Matot, ODDO.

[Emmanuel Matot, ODDO]

Hi, everyone. Emmanuel Matot from ODDO. Two questions. So, that's great. First, Soitec is very exposed to mobile ecom. How do you explain that? You seem to be immune to the slowdown of the smartphone market? Some institute of research are now clearly speaking about a decline in volumes this year after around minus 10% in Q1, so that would be interesting to hear why you are so resilient? You are still speaking about 20% organic sales growth for this year?

And, second, why is Singapore for the new fab? I was thinking about another location, such as US or -- why such a decision and maybe what about incentives in Singapore? Thank you.

[Paul Boudre, Chief Executive Officer]

So, thank you, Emmanuel. I will start and maybe Bernard you can complete on the RF. So that is, for sure, that RF is very strong and continue to be a very strong business for us. We are not immune, but because we see that there is a shift in the demand and specifically in the low-end phone. The phones that are below $400 and we -- on the other way, I mean, we continue to see an accelerating -- an acceleration on the higher end phone, which for us it's a content story. So -- and you have seen on the graph that we are moving even higher right now on the 5G, but also starting to see more applications to come into the smartphone. We talked about WiFi, we talked about millimeter waves, even if it's the beginning it's still coming. So we continue to see that the mix of this low end phone, obviously, going slower and the -- still very well sustained growth on the -- stable growth on the higher end phones continue to fuel our internal growth, because of the content.

Another indicators for us is the entire supply chain and the level of inventory that we have throughout the supply chain. So, clearly, we were in a desperate mode and we are still in -- in some places, in a very complicated mode. So we are still under allocation. I mean, we are under location on RF. So we continue to fuel the base and making sure that we can deliver as much as we can. I covered it [indiscernible] that's one my problem, I need to stop.

[Emmanuel Matot, ODDO]

On the second question, why Singapore?

[Paul Boudre, Chief Executive Officer]

Maybe why Singapore, Bernard, maybe we should give it to --

[Bernard Aspar, Chief Operating Officer]

Yes, to Cyril.

[Cyril Menon, Senior EVP of Operations & Global Supply]

Yeah. Thank you. Thank you, Bernard, thank you, Paul. Why Singapore? Thank for the question, Emmanuel. So, obviously, I mean, three major points. The first one is definitely the speed. As you know, erecting and building a plant in a semiconductor environment take a bit of time, 18 month, and qualifying a new site takes time as well. So you've seen the amazing growth in front of us and obviously having this opportunity to qualify – to have a short qualification time is playing a major role in the decision.

Second, the synergies. Obviously, you know that when we start up our Pasir Ris plant, we started our Pasir Ris plant four years ago. We have announced that this create a significant amount of fixed cost. At the time, it was EUR20 million and we believe that these additional fixed costs will be very limited in the fact that we extend a building already existing and having already the know-how, the fixed cost, including the facilities there. So there’ll be a very limited fixed cost to take into account in our perspective.

And the third point is the ecosystem and end talent is critical in this ecosystem, the ability in France and in Singapore demonstrated to be able to acquire talent at proper speed is critical for such a growth journey. So this is the third reason.

[Steve Babureck, SVP, Strategy and Investor]

Thank you. Sebastien?

[Paul Boudre, Chief Executive Officer]

And obviously the level of subsidies were in line with our expectations. I mean, at lease for the year.

[Sebastien Sztabowicz, Kepler Cheuvreux]

Yeah. Sebastien from Kepler Cheuvreux. One question regarding the visibility. It seems that 2023 you are fairly relaxed with your business. What is about 2024? Do you have any kind of visibility already building up for 2024? What is the sales that is already covered by your contracts for next fiscal year? And coming back to millimeter wave, you have been quite successful with both MediaTek and Samsung, what is happening to Qualcomm? Can you make some update, what are they doing? Are you working with them? Are they preparing anything for millimeter wave? Thank you.

[Paul Boudre, Chief Executive Officer]

Maybe I'll start with the first and you take the second, right? Yeah. We are not -- we are never relaxed in this industry, that's the problem. Everything keeps us busy and awake every day. But you are true. I mean, what is correct is that, we have this now level of commitment that is really shooting not on the one year, but several years in front of us. So for fiscal year 2023, we have basically the visibility, the total visibility. I told you we are basically under allocations all in in our factories, specifically in 200 millimeter and in 300 millimeter. So, yes, we know that fiscal year 2023 will be a good year.

When it comes to fiscal year 2024, we are fueling it. I mean, we have already long-term commitment. As I said, we have commitment from customers, three, four, five years. Okay. So, obviously, as we go down to fiscal year ‘26, we are probably in the range of still a low number in terms of percentage, but fiscal year ‘24 I, will say, it's high double-digit number. Okay. We are not at those three-digit number, it's not100%, but it's clearly on the high double-digit numbers that we have feeling and it is part of -- again, it is part of the decisions we have made. We cannot make decisions on a new factory without strong commitment and you have seen the commitment in terms of dates. So that means that, yes, we are going to fuel and to feel not on the Bernin 2, but also the Phase 1 of Pasir Ris in order to get into in fiscal year 2026 -- in 2025 already, end of 2025, the need for this new factory.

[Bernard Aspar, Chief Operating Officer]

Yeah. On the millimeter wave, so from two, three years, we talked about -- we talk to you about the value of our FD-SOI solution for millimeter wave. It's now with the Pixel 6 using this Samsung technology, Samsung product is a demonstration about the value. MediaTek, moving to that is again a new win for FD-SOI, so which mean that several players now are adopting, they see the value and everyone is looking to this value. So let's see, stay tune and we would see who could be the next one coming to that, but the value that FD-SOI is bringing to the ecosystem is clear, is recognized. Millimeter wave require low power kind of solution and FD-SOI is very suitable for that.

[Steve Babureck, SVP, Strategy and Investor]

Okay. Thank you. Anything to add, Thomas. No? Okay. Thanks.

[Unidentified Participant]

Thanks. I have two questions as well. The first one would be on your CapEx. So I guess you're guiding for EUR240 million for the year you just reported and that came a little bit lower. So what are the reasons, rather delays in equipment shipment to you or any other reasons for discrepancy? That would be the first question.

And then, secondly, you mentioned some headwinds for margins going into the current year, so just wondering that some of your input costs will increase quite substantially? Do you anticipate more pressure in H1 and then an improvement in the second half? How should we think about the phasing of the gross margin and EBITDA margin over the year? Thank you.

[Lea Alzingre, Chief Financial Officer]

So on the first question regarding the CapEx. So, yeah, we are a little bit lower for EUR10 million, but it's only related to the cash flow profile. We placed all our purchase order as expected, but we were able to better manage the cash flow related to these investments. So we are in line with our capacity expansion plans, you saw it in FY ’22. We were able to do even more than anticipated. And we don't expect any delays for FY ‘23 of the following year with all the information we have as of today.

In terms of gross margin profile for our next year, in terms of cost, we don't expect significant discrepancies during the year, but as usual the first semester will be lower in revenue than the second one. Yes, we expect a better profitability in terms of margin for the second half of the year.

[Francois-Xavier Bouvignies, UBS]

Hi. Thank you. Francois-Xavier Bouvignies from UBS. My first question is on your comments probably in the beginning. You said one major change in the industry is like the commitments and you talked about commitments already in terms of the US, but to mention as well financials commitment from your customers. So I would like to understand if you could elaborate on this financial commitment, how is it -- details around it? Are we talking about prepayment or how many of your contracts are locked in -- are we talking about pricing locked in volume, just a bit some details around this comment would be helpful.

The second question is maybe on the capacity. So you have your target of EUR2.3 billion and you -- Pascal, you mentioned the high base scenario. The CapEx you're spending today, is it on your base or what is the total capacity, basically the CapEx spend you forecast for the next three years is. So I just want to understand the total capacity you have for fiscal year ‘26 and the current CapEx level? Thank you.

[Paul Boudre, Chief Executive Officer]

I can start with the first one a little bit, you can complete and take the second. So, yeah, I mean there is a major change in the semiconductor industry. I mean, as I said, we have to double this industry over the next seven years. And so everybody has to double -- I mean, we have to double capacity overall, right? So it starts with long-term commitment from the end customers and these commitments translate to us in basically down payment, as you said, take-or-pays and clearly it is linked to volumes, it is linked also to the pricing and it is linked to going through the entire commitment, meaning, that you have down payments that you don't release if the contract is not really fulfilled, right?

So we are all very serious about that from up to bottom, because we are also doing the same with our suppliers in order for them to grow their capacity for us, in order for them to give us access to new product and new capability. So it is a big change in the entire value chain. I mean, when you talk to other players, you see -- you can basically ask the same questions, they will all tell you the same thing. We are all moving up into this, because this is the only way to secure and to grow the entire supply chain. So we are exercising this and this is basically what is happening for us, right.

Second question was more about, do you want to add something on the contract itself.

[Lea Alzingre, Chief Financial Officer]

No, I don't think so. Yes, we got significant down payment from customers and we will continue to do in the future.

[Paul Boudre, Chief Executive Officer]

Maybe one more thing to add is that, in our contract, we have also built into it clauses where you can reopen and re-discuss the contract in case of major change. I’m talking about if there is situations where you have material or utilities increase or things that you have not planned, I mean that is totally outside what we have already agreed with our customers. We basically on all our contract we have now the right to reopen it and to re-discuss this very specific situation. So we are obviously taking into account what we see every day and this is also to continue to protect not only the company, but to protect also our suppliers and customers.

[Lea Alzingre, Chief Financial Officer]

And the second question was regarding the capacity expansion plan. So our CapEx plan is based on our baseline, so the $2.3 billion. And if you -- if we are on the high case, we will need to accelerate some investments in term of tools. But our current factories and the two extensions we are planning will be sufficient in terms of building. We will not need another factory in order to be able to reach this $2.8 billion.

[Steve Babureck, SVP, Strategy and Investor]

Maybe one more question here and then I have some in the queue.

[Jerome Ramel, Exane BNP Paribas]

Jerome Ramel, Exane BNP Paribas. On the SmartSiC, could you quantify the one improvement on the MOSFET trajectory you're seeing for your customers? And the second question I have, the slide you show on the automotive industrial revenues multiplied by five. Even if I strip out the SmartSiC, it seems that the strong growth coming from automotive industrial, what is driving this growth? Is it the microcontroller? Just to get a sense of what is the driver beyond SmartSiC? Thank you.

[Paul Boudre, Chief Executive Officer]

So I will answer to the last question first and then I will give the floor to Christophe to talk a little bit about the reserves that we get on the SmartSiC and the property of the products. So what is beyond the growth? we have the FD-SOI with MCU, it’s a part of it. Power-SOI is also for power management IC and so on is also key driver. So beyond this SmartSiC, we have this SOI product portfolio which can be totally different when you are talking about the Power-SOI or FD-SOI, which is supporting also the growth and the penetration. On the lower scale, the gallium nitride is also part of it, but the main is SmartSiC and our SOI flavor -- different product. Christophe? You want to answer.

[Christophe Maleville, Chief Technology Officer]

Thank you. Thank you for your question on silicon carbide and giving me the opportunity to tell you a bit more and answer your question. So we started silicon carbide in 2019 just before COVID winter, what I would call. And thee years later, so, well, we have the pilot line running, then I talked about it and we have frozen the technology and we are now qualifying this technology, shipping product to the customer every week and shipping products with lower defectivity, looking at improving the yield, shipping product with better geometry, improving the die size and shipping product, most importantly, with lower resistivity overall into the strictures, thanks to this substrate that Bernard described.

So the most important is that we are demonstrating the value, working with the customers, the value is a lower die side -- lower die cost through yield and die size, as I said, and improving the overall system cost through energy efficiency. That's what we are working with customers. So you asked the very key questions, which is how is the improvement of the LDSN on to the product. So on the work with the customers depending on the design, depending on the voltage they are using were like 7% to 20% improvement into this LDSN and we are working further with them in looking at designs and improving again our products to seek for even better efficiency.

[Steve Babureck, SVP, Strategy and Investor]

Okay. Thank you, Christophe. Maybe to just to take a question that was sent on the platform. So a question from Didier Scemama at Bank of America. So I'm reading the question, so don't shoot the messenger, but many -- it's on silicon carbide. Many of your potential customers for silicon carbide substrates are complaining that your solution is too expensive. When do you expect to meet the right total cost of ownership required by your customers?

[Bernard Aspar, Chief Operating Officer]

I will start with that. So, first of all, what we are always proposing to our customer is bringing value. With our SmartSiC, we are bringing value to the ecosystem. We are bringing value to the direct die makers, but at the system level we are bringing value. So it's for that that we are now in the phase of defining and really defining the value for all our -- all the stakeholder in this ecosystem. And as we are progressing and with all the resource that we have, the value that we are bringing is totally recognized today. Okay. So -- and then -- so which means that the story on the price is another story. What is important is that, the value is recognized today by the key player. This is the first thing.

Then the second thing, we are always working to have a competitive and to propose competitive solution, so we saw that also that when we are planning to have our Bernin 4 building is really to have a fab which is big enough in order to provide a very competitive cost structure to bring value, as I say, to the customer, but also to Soitec by controlling our cost structure.

[Steve Babureck, SVP, Strategy and Investor]

Okay. Thank you, Bernard. Maybe just to follow-up online also and on silicon carbide. Question from Rob Sanders at Deutsche Bank. How soon would you look to scale up to 0.5 million 8 inch wafers per year in SmartSiC? I think that goes back to the roadmap.

[Bernard Aspar, Chief Operating Officer]

Yeah. So in terms of -- back to the roadmap, so as you see and today what we provide is up to fiscal year ‘26 information. So in fiscal year ‘26 you will not be at the level of 500,000 wafer, but what we see in the two years -- one, two years after we can reach this full capacity.

[Paul Boudre, Chief Executive Officer]

Yeah. And the model will also -- could be that we don't also manufacture all the wafers ourself. I mean, clearly, as Christophe said and Bernard said, we are bringing unique values. And what we did last year is really to work with customers in Europe, in US and in Asia to make sure that we could really -- out of all the materials in that we are using in polysilicon where we have now several sources when it comes to silicon carbide, where we have also various sources, we come to basically a point where we wanted to check that all the value that Christophe just mentioned was recognized. And then you can start about how do we share the value with our customers, how do we share the value with our customers, and to come up to a competitive pricing that give us and give them this competitive axe that we are all looking for. So it could happen also that from the modern fab in Bernin, we could also leverage some other business model where we could have a license to expand and quickly also expand our footprint in silicon carbide with direct customers. But the modern fab is very key in our model, because it will be the place where we can continue to implement new improvement in the technology and if there is specification with specific customers also to make sure that we can transfer this to our end customers. So it will grow as fast as we can in order to make sure that we can basically fulfill the end customers' commitment.

[Steve Babureck, SVP, Strategy and Investor]

Yeah. And maybe one last question from -- on silicon carbide from Adithya Metuku with Credit Suisse. So, you have previously noted that your silicon carbide products are being trialed by IDMs. Can you please provide an update on qualification?

[Paul Boudre, Chief Executive Officer]

Yeah. Last year, if you remember, in calendar Q4 last year I told you that we will make decisions on the factory based on business milestones. So we have passed all these business milestones, and part of the business milestones, it was also obviously taking into account that we needed to get very advanced devices built on our substrate that we were able to demonstrate the value on these very advanced devices in terms of everything Christophe said. But we also -- and you know that there is a long process in automotive is to make sure that all the reliability test are also well engaged and not showing any significant impact on the quality of the devices. So that's where we are. I mean, we are on the -- I mean, we are very comfortable right now with the quality of the wafers that we are shipping. And obviously, we're working and talking to the customer to -- looking, how do we build this together now.

[Steve Babureck, SVP, Strategy and Investor]

Thank you, Paul. In the room, any follow-up questions?

[Unidentified Participant]

One follow-up if I may. On the organic growth evolution quarter-after-quarter, you mentioned that it will not be linear. What should you expect H1, H2? What are the puts and takes on the organic growth?

[Lea Alzingre, Chief Financial Officer]

I would not give guidance for H1 or neither Q1. But yes, we expect less growth during the first part of the year.

[Paul Boudre, Chief Executive Officer]

I would say, okay, I'm going to push it a little bit. It's always the same. We have an H1 slightly below and H2 slightly above. And this is where -- I mean, if you look at the pattern every year. Okay? So that's the same pattern that you have seen last year, that you have seen the year before, we are going to duplicate this again. But basically no change.

[Unidentified Participant]

I was talking about the organic growth, the revenue growth, not the revenue in near term. So --

[Paul Boudre, Chief Executive Officer]

In terms of organic growth?

[Unidentified Participant]

Yes, organic growth.

[Lea Alzingre, Chief Financial Officer]

This is the same, yes.

[Paul Boudre, Chief Executive Officer]

Probably, it's the same.

[Unidentified Participant]

Thank you. Just a clarification on your pricing. So you had a target to 2026 and you mentioned pricing positive mix. Can you quantify what the pricing positive that you forecast for the next three years? Is it like low-single, mid-single?

[Paul Boudre, Chief Executive Officer]

We don't really share pricing information, but clearly we always told you that we have been able over the years and including today to pass to our customers the supply increase that we had. We have been able to pass also in our new contracts, not only the supply, but also some of the inflations that we have across all our supply chain and -- but also what we have also to deliver to our people. So basically, we do have the ability to continue to really deliver competitive product and still continue to manage with our customers an acceptable pricing increase to make sure that we protect our gross margin, we protect our EBITDA margin.

[Lea Alzingre, Chief Financial Officer]

Yes. And as you said before, we now have better visibility due to longer-term contract with customers. So we have quite a good visibility on the pricing we can have in FY '25-'26.

[Steve Babureck, SVP, Strategy and Investor]

Okay. Maybe back online, some questions on the P&L and cash flow side and financials, from Didier Scemama, Bank of America. So maybe one on clarification, because we talked about the booked capacity for fiscal '23 and the visibility on fiscal '24. So how much of the capacity is booked for fiscal '23 and '24? And the second is about free cash flow generation. Do you expect to generate positive free cash flow going forward?

[Paul Boudre, Chief Executive Officer]

So in terms of capacity, clearly, as I told you, most of our products are running stretched and we are -- for some of them there are allocations. Our Bernin 1 is running full and the overflow is going to our partner in China, Simgui. And Simgui is increasing their capacity and they will be running in the 450,000 wafers per year. So that's where we stand. And so for 200 millimeter, our Bernin 2 is full. And basically, the overflow is going to Pasir Ris. Pasir Ris, every time there is a tool coming in, we rush for qualifications and we bring these two back to manufacturing as quickly as possible. And we will continue to do so, because this is where the growth in 300 millimeter is coming from.

On six-inch, we have multiplied by four our capacity over the last 24 months. And clearly, we will not increase capacity this year, but we are going to basically run with the capacity -- installed capacity here. So that's the way we manage things for silicon carbide. I mean, you have heard, we will use our pilot line for the next 18 months until the capacity is installed in Bernin 4, and by then, I can tell you that we will be in a rush exercise to continue to expand the capacity and fill it.

[Lea Alzingre, Chief Financial Officer]

And the question regarding the cash flows, so we are not providing any guidance for cash flow, but of course, we will continue our efforts to manage the best as possible our working capital needs.

[Steve Babureck, SVP, Strategy and Investor]

Okay. Thank you, Lea. Another question -- a business question online regarding POI from Adithya at Credit Suisse. Can you please give an update on recent traction with POI? We haven't heard much about other customers after Qualcomm started using POI.

[Bernard Aspar, Chief Operating Officer]

Yes, I can take it. So on the POI today what we see on the -- across the ecosystem is that the value of POI is recognized by all the players. So this is a key thing. And so which mean that today most of all the players are working on this kind of a solution doing -- depending on the customer today, we -- okay, we were public with Qualcomm, but there are several customers beyond that, and with all of them we are running wafer and there are at different levels. Some of them in qualify, not qualify evaluation. So there are different steps with different customers. But the key thing is that, this POI is recognized today as a key solution for this RF business.

[Paul Boudre, Chief Executive Officer]

Yeah. And it takes time for our customers -- for our qualified customers. And as you said, there is several now that have qualified our technology and product, but it takes time for them to also be qualified at the system level. And so they have to tune their design to get into the final socket for the -- on the phone. So even for us, I mean, we see that as something that it takes more time than expected. Okay. But the good news is,, across the board now there is a trend moving to POI for the value that Bernard expected.

[Steve Babureck, SVP, Strategy and Investor]

Thank you, Paul. Any questions in the room? Okay. So I have a question online regarding governance from Rob Sanders at Deutsche Bank. So how is the progress with retaining key top talent in the ex-co after the disagreement around CEO succession in January?

[Paul Boudre, Chief Executive Officer]

Yeah, in fact, it was not really a disagreement of the CEO, because I personally think there is always a time to make a change and we all agree that the Board has made the decision a little sooner. It was a decision to be made and everybody excepted it. So it's not a question about this. Clearly the situation has probably shown some irritants that have been public and we all regret that, but at the end of the day that was for the good, right, because we are scaling up in basically the way we think about governance. We are scaling up in the way we are looking and facing how do we grow this company, how do we expand, how do we manage all together and what is the role and responsibility and governance for any stakeholders in the company and outside the company.

So the outcome is that there is a strong plan basically in place right now with responsibilities at the Board level, at the management level, and we are all as a team driving this trend to make this company even stronger and even more ready for the next big things, right. So back to the questions about the management team, I think that you have seen the plan. I think the team has demonstrated an incredible strength in supporting this plan and in building this plan with our customers and with our suppliers. I will let them comment but -- and you can talk to them during the drink, but everybody is excited, everybody is clearly on board and I think it will be a beautiful ride. But Bernard, do you want to comment? You should. By the way, you should. That's a good point.

[Bernard Aspar, Chief Operating Officer]

Yeah, I think that you said it. I think that we will build altogether this plan, this growing plan, and it is our plan, but we all want to execute to achieve this what we are -- this very ambitious growth. And here is -- as you say, there is many things also on the governance side. There is some, as you highlight, some, I would say, improvement at the governance level which are mandatory to go to the next step. So it was -- at the end, we are all here and are ready for the next challenges.

[Paul Boudre, Chief Executive Officer]

Yeah. And let me joke a little bit about it. When you have an accident, you could be killed or you could get stronger. In our case, we will get stronger, okay, and that's the beauty of what happened. So this is great.

[Steve Babureck, SVP, Strategy and Investor]

On that note, Paul, thank you. So another question online talking about finance, and more housekeeping question from Russell Champion. Will working capital remain constant as a percentage of sales? Working capital in percentage of sales remain constant or up or down in the next few years.

[Lea Alzingre, Chief Financial Officer]

It decreased. It decreased at the end of March '22. We were at 26%. At the end of March '21 around 31%.

[Steve Babureck, SVP, Strategy and Investor]

Going forward what should we expect?

[Steve Babureck, SVP, Strategy and Investor]

Last year, during the CMD, I said around 30%. I believe we have to be between 25% and 30% -- at the end of March '22 our level of inventory is a little bit low due to the shortage, of course, but at the same time, we will continue our actions in order to optimize -- so to be between 25% and 30% is a realistic but ambitious goal, I believe.

[Steve Babureck, SVP, Strategy and Investor]

Thank you, Lea. I have no further questions on the line. Anyone here? Okay. So if everything is clear. Thank you very much. I think Bernard and Lea will go back to their seats and we will let the floor to Paul for some final remarks. Thank you, Paul.

[Paul Boudre, Chief Executive Officer]

Yes, thank you. And thank you first for all these questions. And let me share maybe a few words before we conclude this call and end the meeting here. So we are in '22 and Soitec is turning 30. So this is a beautiful year to celebrate a wonderful event with absolutely great results. You have seen it and a greater outlook. So I'm very, very pleased for that. And I think the team is excited about what we have presented today and the outlook. So throughout the years, I mean our internal process of strategic planning has become stronger and stronger and clearly has helped us to deliver the results that we presented today. I mean, what is interesting is that every year, for five months we have about 200 people in the company going deep in our strategic planning and looking at this 10 years' horizon and deciding where to play and how to win for five years. And we need to do that every year because we have been through the pandemic, we have been through the trade war, we have been through many other changes in technology. And so we can then plan, anticipate, revisit and stay agile on all these.

Just as a kind of leader story here. In fiscal year '17, we were planning for fiscal year 2022, and the plan was called One, Two, Three. One for 1 billion, we were planning in fiscal year 2017 to really deliver this 1 billion. Two was to double the profitability of the company. You will see on this slide, we were in the range of 15-point something -- 16% EBITDA and now we are at 35.8%. And three was to say we need three revenue streams. We had only SOI. So now we have SOI, now we have compound and now we have designs and royalties that we are going to continue to grow as part of the licensing process.

So, the plan of last year is going to extend into this year. The name is Going Beyond. I can tell you that the team is really on how do we go beyond was what we have shared with you on fiscal year 2026 and beyond. This is clearly how do we continue to grow the company, what are the opportunities that we have in terms of technology inflections and the trends that are coming to us. So this is the value and this is deep into the company and this is why we're probably, in terms of materials company, a kind of unique in terms of how do we think about our strategy, how do we deploy our strategy, how do we anticipate with our customers. So, for that, I would like to really congratulate the teams here, because they have done a fantastic job and they will continue.

So, I can tell you also that we will guarantee strategy continuity during our CEO transitions. And Soitec is now ready for the next chapter, and this is going to be a beautiful chapter and I really trust not only Pierre but the entire team to make it rise. So, this is also a very important time for the company but the company is prepared for that. There is no things that we have not really anticipated. And this is a good time also to do this. So now, this is my emotion time. Now, clearly it has been a beautiful journey. It has been a great journey and for some of you, I mean, I met in 2015, wow, that was a tough day, right. In some of your office, I couldn't stay more than five minutes. But we had to rebuild that credibility together. I told you at that time, I mean, we are going to tell you what we are going to do and we will come back and show and demonstrate to you that we are doing what we said we will do. So it has been a beautiful journey for me, for the team.

And I'm going to do some CDLs and my journey will be more on the beach maybe for some times, but I really, really would like to thank you all, because you have been part of this journey. You have been clearly supporting us. You have been part of the excitement that we were building every day. And so, I would like to thank you, all of you, for these years.

Again, maybe to finalize this, again on the -- reiterate my convictions that Soitec is a great company. We read books in the company and every year before summer, I try to give my executive team some books. Some are smiling, some are not smiling, because they don't want to read, but in September we talked about books. And over the last seven years, we have read two times the same book, Good to Great, okay. And if you -- I can tell you that Soitec is becoming a great company and this is a very important book that makes a lot of sense. Even if it's 25 years old book, it gives you a lot of sense in terms of how do you differentiate your company, how do you compete, how do you stay strong despite the trends in the economy and situations like that.

So Soitec is prepared to double the size over the next three to four years. It's an impressive challenge. I trust the team, I trust Pierre, I trust the company to make it right and I would like again to thank you all and maybe we can meet over a glass of water. Thank you.