AT & S Austria Technologie & Systemtechnik Aktiengesellschaft (ATS.VI) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by. I'm Helena, your operator today. Welcome, and thank you for joining the AT&S conference call on current business environment. [Operator Instructions] I would now like to turn the conference over to Gerda Königstorfer.

Thank you, and welcome to the conference call on the current business environment due to the coronavirus. Today, CEO, Andreas Gerstenmayer, will give you an overview on the actual development in the plants and on the market. And we'll also speak about the expectation of the remaining year and the next months. After that, as we already mentioned, we will take your questions. And now I will hand over to Andreas Gerstenmayer.

Thank you, Ms. Königstorfer, and welcome to this extraordinary call. Our idea of having this call was mainly about the very dynamic development out there in the markets due to the corona issue. As you know, we have been experiencing the impact now quite a while. So we started somewhere mid of January in China to help to manage the situation there. And now it was spreading over via Korea to Europe. And what we also see for the future, it will also enter into India. The intention for today is to give you a brief update about what is AT&S doing, how we are ensuring safe operations, what do we see in the market around us and what is the expectation for the remaining few months in -- few weeks in the running fiscal year. It's not intended to give you an outlook for the next fiscal year from today's point of view. This traditionally we do when we disclose our annual figures in May. So starting into the presentation about the current development. First of all, it's important to highlight that our 3 manufacturing sites: Shanghai, Chongqing I, Chongqing II in China, are back to normal operations. They are running on full capacity, we -- what we provide to the market. And also from the loading perspective, it's relatively good, completely in line with this season. We are in traditionally not 100% utilization but, I think, in total a satisfying utilization of the capacities we have. We have almost all employees back to the plants in China. This took us quite some weeks. But finally, we made it. And the rest of the gap is, for the time being, captured by overtime. But I think this is a minor quantity of employees what we are still missing. And some of them we have to replace completely. Also, the other locations in Europe, the 2 in Austria, Leoben and Fehring, but also the other locations in Asia, in Korea and India are running on full operations. We do not see any restrictions so far. Everything is up and running. And also from the supply chain point of view, we do not see any interruptions by being short on materials or anything like that. Why we have been successfully recovering in China? It was mainly due to the fact that we incorporate very strict security rules. There was a huge catalog of measures implemented to secure the people, to secure the health of the people and also to avoid that any corona issue and incident will happen within the company. We are proud to state for today and for the time being, we had no corona issue in any of our locations so far. And I clearly connect that to the activities our teams have successfully introduced and implemented. But we also did some details about that. It was a lot of preventive actions. We also now canceled almost all of the business trips. So our people are grounded in the locations or in their home office space. We extended significantly the video and telephone conferences. The lines are in place there. The equipment is handed over to the people, if not already there before. In parallel to home office solutions, we introduced the face mask -- mandatory wearing of face masks in all of the locations now, which is also important, in our point of view, to protect our people on-site and not only the people in the home offices. We have a lot of behavioral rules implemented. We are doing temperature measure in front of the locations in all of them every day. And we have also a wide range of communication activities internally and externally initiated to have a very transparent, clear situation and communication towards our people, towards our customers, to the society, but also hopefully, you receive as the financial markets the messages we try to send. Slide 2 about the market update. I am sure you can imagine that estimating the future development for the market is rather complicated. What we see is that we do not have significant order cancellations or changes in customer demand so far. Our loading perspective for the next 2 months is quite positive. Where we see some clouds on the sky is more in the automotive area. This is not a very, very clear development. What we hear from a lot of OEMs and subsequently starting now from the Tier 1s is that the shutdown of some of their factories will most likely happen or already happened. So Automotive business, in our point of view, will face some challenges in the upcoming weeks or months. The other areas, we do not see significant changes, but we don't really have a view beyond the 2-month time frame. We are in very close connection with all of the customers where we can. I think especially in the Mobile Device area, we see new projects coming up. New projects are under preparation and under preparation for the launch in later part of the year. So the schedules are not completely out of reach. But also there, the dynamics and the volatility is high. But what we can clearly state, we are involved in all of the intended projects we have been targeting over the past quarters. So no cancellation there, sometimes smaller delays, which is also communicated by media for the one or the other customer. Especially in the IC substrate business, demand is very strong still. So we are on the limits of our capacities that we can provide. But also the loading in the China facilities from the Mobile Devices and also some module businesses is quite nice. As I said in the beginning, it's not the time that we typically disclose the guidance for the next fiscal year. Even more this year, it will be quite a challenge. So we need to really observe closely the latest market development for the next weeks to come. And then we will make up our mind what we are able to disclose in May when we publish our annual figures for the fiscal year 2019/'20. Outlook for the soon ending fiscal year '19/'20. We have updated the outlook in January with a revenue of EUR 960 million. EBITDA margin, 18% to 20%, this is still valid. We still can confirm this one. Otherwise, we anyhow would have made an ad hoc announcement. The results for the final result or the preliminary results for the year will be published in -- on May 14. So this is also the time when we will try to give an outlook for the next fiscal year. The CapEx, we are very cautious with that. So what is not really necessary to support our future projects, the growth projects, which are still in place, we will not spend. So probably we are a little bit below the latest guidance. But this is also due to timing variances. There is no significant mid or long-term delay in the projects. For sure, we have some delay in the construction side in Chongqing III because also the site was closed for almost 2 months. We got already all the approvals back from the local government, so now we are increasing labor force on the construction side. And we have started already catch-up and recovery plans. Let's see how far we can get, but there's nothing significant where any of this project is in danger. What else I want to tell, also the expansions about the capacities Chongqing I and II are still on track. The good thing there is that the equipment which we need for the ramp in 2020/'21 is already in place. The qualification has continued all the time. And as we communicated also over the past weeks, Chongqing I was never shut down. We were able to continuously operate this factory. Yes, we had some shortage in labor force for a certain period of time, but then this factory, we never had to shut down. Chongqing II is a similar situation. Equipment is there. Projects are under qualification. There, the shutdown was a little bit longer for 2 weeks. But also there, we are back on normal operations. People are back, and we are working to qualify the new projects where we see also nice demands in the months and quarters to come. So in total, I would say, a challenging environment. So far, not a real catastrophe. Very difficult to estimate what is in front of us, a very volatile situation and depending heavily how fast Europe and the rest of the world will be able to manage the corona impact and recover the economy. This will heavily -- our outlook and our performance will heavily depend on that. So I think this was mainly the information we wanted to provide for today, but it's also part of the intention for today's meeting to receive your questions. I'm sure there will be numerous questions from your side. We will try to answer them open and frankly. But I would also ask for your understanding if we cannot answer everything.

Thank you, Andreas Gerstenmayer, for the overview of the actual situation. Now I want to hand over to Helena to introduce us for the Q&A session.

[Operator Instructions] And we have first question coming from Mr. Daniel Lion from Burbank (sic) [ Erste Bank ].

Yes. Thank you for the opportunity giving us this call and this overview. I think this is very much appreciated. And so when you look at your share price, I think the market likes this as well. What I would be interested in is how the communication currently is ongoing with your clients with regards to new projects that are going to be launched in the course of the year with regards to units and also timing when the current situation is really very difficult to assess for the coming months.

I think this is not one answer on that. So with the bigger clients, with the key accounts, we have almost daily or daily multiple communications through our key account teams. For God's sake, we have all the locations where the headquarters of the large clients is our local teams available. So we are not impacted by any travel restrictions. People are there on site. They can visit them, they can talk to them directly, and they can align on the progress of the projects and be the interface to our internal activities. So there's a very heavy interaction from the projects. What we see, there are no significant pushouts. There are no reductions in their demand forecasts. But we also need to consider or keep in mind the visibility is limited, I would assume also for them. Everyone is observing how the consumers are behaving, how the consumer sentiment will develop. And depending on that, the further development will be created. But so far, no significant indications. With the other customers where we don't have key account teams in place, we have regular communications via our account managers and our sales segment managers. But also from the company side, we have sent weekly communication and status reports to them in written, so that we clearly stated where we are, how well we are prepared for their demand, for their requirements. And this is also heavily appreciated. So very intense interaction and communication towards our customers ongoing.

Now with the whole thing happening and seeing what impact it has on the supply chain, we already witness some of your clients stacking up inventories in order to secure enough components for future production?

Even if we are not really told about that, we assume it is happening. The same is happening on our side. We also increased in certain areas our stock levels to increase the safety stocks. If any disruption of the supply chain would happen, on our -- in our case, we could continue to produce at least for 3 weeks in all of the sites. And I think this similar situation is happening or has happened on our customer side. What we have seen when the peak of the entire thing happened in China that a lot of customers ask for European source. Especially out of the industry and automotive segment, we had significant increasing requirements and requests for proposals out of Austrian sites. This already has a little bit slowed down again because the Chinese ecosystem is back on track. They already started offering volumes and capacities to the customers again. So you can see after 2 months, the Chinese ecosystem recovers already and they can offer again to the customers what they require.

Have you witnessed any price changes following in both directions, either following under the capacity or over capacity or much capacity in -- regarding certain products?

Not really. The only thing, what we clearly did for all of them which returned from China to Austria, we just offered the Austrian prices based on the Austrian price levels and cost levels. That was accepted. So we did not -- we are not forced to propose Chinese cost and price levels. Otherwise, we wouldn't have done it. But on the other areas, we more or less stayed on the similar or same price level what was agreed on before.

And maybe one last one. Maybe difficult to answer, but indirectly, maybe you've got a feeling of how your competitors are coping with the current situation. Is it possible for you to somehow taking over slots of your competitors because you're up and running well again? Or do your peers have also managed how to get the situation under control?

It depends a little bit. As I said before, in the Automotive, Industrial area, definitely, we could at least temporarily regain some of the requirements or the demands from Chinese competitors. But our assumption is that this will be only temporarily and will return back to this once they are back and up and running. In the mobile area, there was not a real big shift because some of the direct competitors are operating out of Taiwan, which was not so heavily impacted. There was more for us the challenge to catch up and not fall too far back behind their progress, which we could manage. So there's no impact to be expected from that. We see the one or other competitor who is located in the Hubei, Wuhan area where we gained some projects because they are still not able to operate. But let's see. I think there, we can probably gain a little bit more advantage from because some of these projects have progressed very much over the last weeks.

Maybe a real last one. Do you see the project pipeline that has been in place like before the outbreak anyhow at risk? Or do you see already that some models might be skipped, so some production might be skipped and OEMs are moving already to the next-generation models?

You're referring -- I assume you're referring mainly to the mobile area. So there, we...

Yes, you're right.

There, we don't see any cancellations so far. I think the big question will be how is the consumer sentiment developing. It's more about what is finally really the demand they will have once the projects are launched. But there's always 2 phases. First of all, they need to fill up the pipeline of their global supply chain and then fill up the stock level in the shops. Once that is there, the question is how big is the demand from the consumers.

And the next question comes from Teresa Schinwald.

Thanks for doing this call in these difficult times. I have more questions about the variability of the upcoming projects and CapEx plans. What's your room for maneuver on that?

In terms of what, if I ask?

In terms of strengthening -- lengthening the investment period to flatten some peaks or reduce the annual CapEx in the next 1 or 2 years?