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

Ladies and gentlemen, thank you for standing by. I am Marek Wozniak, your operator today. Welcome, and thank you for joining the AT & S conference call on the results for the first 3 quarters 2024 and 2025. [Operator Instructions] I would now like to turn the conference over to Mr. Philipp Gebhardt.

Thank you, Marek. Good afternoon or morning, ladies and gentlemen. Welcome to the AT & S Q3 2024-'25 Conference Call. With us today are Petra Preining, CFO; and Peter Schneider, Spokesman of the Management Board and EVP of the Business Unit Electronic Solutions. Mr. Schneider will give an overview of the key developments as well as the market update. Afterwards, Ms. Preining will comment on the financial figures and our guidance. As Marek mentioned, the presentation will be followed by a Q&A session. Now I would like to hand over to Mr. Schneider. The floor is yours.

Thank you, Philipp, and welcome to the presentation of the Q3 results. To start, I'm giving you an overview on the key developments. Q3, we see a stable revenue with an increase of adjusted EBITDA. We will be able to show you that our cost reductions are very well underway. We are also happy to report once more, as you have seen already at the closing of the Ansan sale and Petra, our CFO, will give you more insights, that topic was under her lead. We unfortunately had to take note of Dr. Androsch passing away, our long-term Chairman of the Supervisory Board. We had a very quick succession of his deputy, Dr. Riedl stepping in. You might have questions in regards to the announcement of a new CEO. In order to answer that directly at the beginning, there is -- has not been taken a decision yet. However, we expect that announcement to come soon. We would today like and reconfirm the outlook for the year 2024-2025, so for this fiscal year. Coming to outlook, a word to the guidance. As you can observe in the market, we are in a rather difficult market environment. If you look at the years 2024 to 2026, analysts expect for the PCB area, a CAGR of 5% and for the substrate area, a CAGR of 11%. As we know, that growth is somehow lower than it was expected some time ago. And as a consequence, we see overcapacities both in the PCB as well as in the substrate market that lead then to price pressure that somewhat persists. But maybe in the Q&A, we can elaborate more on this topic. We also see some first signs of a slowing of that price pressure. CapEx, we will align to the lower demand. And this is also those or together with an increased flexibility that we have -- we have achieved freedom to operate for -- in particular, in the substrate area for our lines. So that gives us more flexibility and will allow us to adjust quicker our CapEx to the market demand. At the same time, we continue to work hard on reducing our OpEx. And at the same time, we would like to give you confidence that we see a growth, which is well above market with 20% CAGR for the year '24-'26 with our new factories in Kulim and Volt kicking in. Coming back to this year's results so far. Here, we see on the overall market a 7% increase in the PCB area, and I would like to start with the business unit, Electronic Solutions and the PCB. And you might wonder why we do not see that growth in the business unit Electronic Solutions, and that has 2 reasons, 2 major reasons. Number one is we have to look into the specific markets that we are working in. We have a certain exposure to the automotive and industry market, in particular, in Europe, which was very weak. And that you can see on the right side of the chart with overall 1% growth. Global growth, Europe certainly was weaker. And as far as the mobile and computing business is concerned, we are very much focused on the high end, which is often an advantage. But in this year, we saw, particularly low-end market, particularly in China, a stronger growth, and that is not so much our focus. At the same time, we face, as I mentioned in the beginning, continued price pressure. And that leads to a result that shows flat revenue, rather flat revenue in the first 9 months. If you would calculate correctly, it's minus 2% of revenue. And that is driven by quite some volume growth, but at the same time, price pressure that compensates that volume growth. And this side picture, we would see year-on-year comparison for the quarter as well as quarter-on-quarter comparison. The price pressure is also the main reason for the reduction of EBITDA margins for the year-to-date 24% to 21%. The OpEx programs, I will show in a minute, start to kick in. But so far, they are not able to compensate for the price reductions. As far as the Q-on-Q comparison is concerned, maybe just one word, we saw some pull-ins in the Q2. So that was relatively high. In the Q3, we have the counter effect. So please, if you compare it to prior quarter, you should level it out a little bit and maybe rather focus on the year-to-date results that gives, from my point of view, a better and complete picture. As far as substrate is concerned, the overall market growth with 1% despite a very strong AI investment. As you know, in the AI, the substrates needed are not as high and as for the CPUs, the CPUs for the data centers, here, the market is rather muted. So overall, for the substrate, together with a rather moderate growth in the client area, gives only a 1% overall market size move. At the same time, we see that inventories normalize. As far as the result is concerned of our business unit, microelectronics, which is our substrate business. Here also, we see the year-to-date revenue flat. If you would calculate that, you would see exactly the market growth of 1%. Here, same thing. Volume growth is compensated by price pressure. Maybe one positive sign that is not so obvious out of the pure financial data is that in the Q3, you do see this positive effect of new customers kicking in if you compare that on year-on-year comparison Q3 last year to Q3 this year. Same as for the business unit, Electronics Solutions quarter-on-quarter, I would suggest that you level it out a little bit. This is more a question of order momentum rather than to derive any kind of trend. As far as the margin -- EBITDA margin is concerned, we had some special effects last year. So I think that we were able to keep the EBITDA margin quite well despite the price pressure. For us, very important in terms of now the coming 2 years and our guidance is, of course, the successful ramp of Hinterberg, our factory here in Austria as well as Kulim, Malaysia. And the good news is everything is still on track, very much on track. As you know, we have completed the buildings in summer 2024. We have in both factories already customers working with us, 3 in Hinterberg. And as we have been able to announce in Kulim, we are cooperating closely with AMD, but we have also here, this factory finds interest of further customers. We will start production this beginning of this year. So as I mentioned, everything on track and set for future growth. At the same time, in order to tackle the price reductions in the market, we have launched already in the year '23-'24, a cost saving program. Overall, a lot of measures, 2,500 cost-saving measures have been developed and are tracked. And we had announced as a target to achieve EUR 120 million P&L effect in '24-'25 and EUR 250 million for next year. Also here, we are able to announce that we are fully on track. On the right-hand side of the slide, you see the ramp, which we hear also from parties that have benchmarks that this is very, very fast, very successful. So we are confident that we will also reach our target and thereby continue to improve on that side and increase the compensation of the price pressure of the market. With this, I would like to hand over to our CFO, Petra, for the financial results.

Thanks a lot, Peter, and a very warm welcome also from my side to Q3 earnings call. Starting with the key developments. Firstly and foremost, as you have also rightfully mentioned in Q2, our very high leverage will be reduced, firstly, with the successful closing on 31st of January of the sell side transaction we have announced several times already. And secondly, by the factoring contract, which is currently in finalization. Additionally, to those 2 work streams, we are working also very closely with IFC. This is the loans plural. As you do know, we have already informed the market in Q2 that we have -- that we are currently in negotiation about $250 million plus an additional $150 million loan. So those 2 we are currently in finalization. Additionally, and this is now mainly the task of the time, our net working capital optimization, those efforts will remain high. There will be enough focus on to continue the level we have achieved over the last couple of quarters or 2 years are also forward-looking. Additionally, we expect more support on the financing cost compared to this year's forward-looking. This is now, if you like, a [glimpse] forward-looking. As you do know, similarly to the [SFB], also the Fed has reduced significantly over the last 12, 15 months, the interest rates. So we expect our financing cost forward-looking to be significantly lower. And finally, we see a strong tailwind from the very strong current U.S. dollar, which given on the current level, if that persists, we see tailwinds in our operating business. Over the page, coming now to the numbers and the results, it's a very mixed picture, I have to say, 2 sides of one coin. Firstly, we have achieved on the back of, as Peter has already informed you, still high price pressure, a stable revenue quarter-over-quarter as well as year-over-year. So that's something we are very proud of because it comes, as I said, with high price pressure, which is compensated with very good volume and mix. Additionally, on the EBITDA adjusted, that's something which should give you comfort also forward-looking. We have managed to increase our EBITDA adjusted despite the price pressure. So our cost efficiency programs definitely pay off, and we can compensate for the headwinds we have on the top line. On the EBITDA, we have to record a decrease in margin. But please note that this decrease in margin comes with significant start-up costs this year versus last year, which -- and onetime costs, sorry, adding that, which also forward-looking will be significantly lower. And this is based on the ramps of the 2 big CapEx programs we have already mentioned some slides ago. The flip side of that coin is definitely the net loss of EUR 95 million, which is driven by higher financing cost, clearly, higher depreciation due to the ramp of those 2 plants and in total, a lower EBITDA driven by start-up costs. But we expect that once Kulim as well as Hinterberg are up and running, those depreciation will be turned into a profitable contribution and also the financing cost, as I said, should be lower forward-looking. Over the page. As you do know, last week, Friday, we have finalized our sell-side transaction and have successfully closed that chapter. The buying party is SOMACIS, an Italian PCB producer, and we are very hopeful and confident that our plant has found a new owner and will have a very prosperous future. With that transaction, we have not only sharpened the group's profile, we have also helped the KPIs of our balance sheet. The effect of that transaction, which you can obviously now see in the Q3 data as it has been closed on 31st of January, will be roughly an EBITDA increase of EUR 325 million and a cash inflow of a little shy of EUR 390 million. Note, please, that roughly EUR 80 million has been received either via dividends we have paid out from the [Ansan] side with -- by a small prepayment we have received ahead of the transaction information that we have shared already in Q2. With those -- with this transaction, our leverage, our net debt to EBITDA will fall below 3x. Turning to the page. Our financial position is definitely driven by ongoing measures to secure and fuel the liquidity that we need to run AT & S. Having said what I just showed you on the previous slide, with the increase of the transaction, an information I usually don't share at the end of January cash, cash equivalents, we are currently a little shy of EUR 1 billion, including the unused credit line. So to show you, we still very, very diligently treat our cash position and use our cash, cash equivalents and the unused credit lines. With the new factoring provider where we are currently in the contract finalization, that should again give us an additional headroom, which we will happily report about in the full year's earnings call. Not included is the IFC loan I've mentioned on my very first slide of EUR 250 million plus the possible $150 million, both are not included in the slide and the graphic you see on the left-hand side. Over the page, the debt financing overview. Our maturities, we just in a nutshell, what is important to note besides the fact that also here, IFC lines are not included that our current financing costs will come down and have come down already from 4.95% to 4.8% and expect it to be lowering forward-looking. The working capital development, in order to show you like-for-like comparison, we have taken again the liberty to calculate what if we would have factored. And you can see here that with a little shy of 8%, we are in a position to maintain the reduced working capital -- the reduced working capital as we have achieved it in the previous quarters prior to Q2. Turning the page. On the cash flow, looking at it. At first glance, it doesn't look very appealing with minus EUR 29 million on operating activities, which is explainable. So compared to the year-to-date Q1 to Q3 '23-'24, we have received less prepayments. You do know that by the end of the last year, we have received the majority of the customer prepayments, and we have also informed the market accordingly. Additionally, less factoring is something which will change again with the upcoming quarter. Definitely more interest than the 3 quarters in the previous year and also less EBITDA of EUR 36 million compared to the same period last year. With that, we reached roughly minus EUR 30 million. On the contrary, compared to the last 3 quarters of the previous year, we have invested less in CapEx. This is also in line with our planning and expectation. This year, which is guided with EUR 500 million CapEx come in significantly lower than the last 2 years, where we had roughly EUR 1 billion each year. So with the large CapEx deployment of the last 2 years, we are now in a good position to ramp also those big CapEx programs with the remainder of the investment which we have ahead of this year and a smaller investment for next year. Over the page on the balance sheet, what has changed. Definitely, the assets with a change of 3%, which is mainly driven by Kulim. Equity has shown a slight increase and so has the equity ratio, which is fueled by the OCI by the other comprehensive income due to our IC loans in daughter companies abroad. Net debt has -- still on a very high level. But as I told you, will be healed with the sale of the Ansan transaction. It has also come down from 6.7 in Q2 to 6.1, but notably still very high. Turning to my last 2 pages, current year guidance. Well, the good thing is we're definitely in line with our guidance. So there is -- we don't expect any obstacles or surprise. One smaller adjustment, you can say now with being a bit more conservative being the CFO, the adjustments might come in, in a single-digit million amount, slightly above the EUR 110 million. On the other side, we expect the CapEx slightly below EUR 500 million for the end of the year. On the midterm guidance, Peter has already given the reasons for the reduction. In a nutshell, 20% CAGR for the next 2 years is still something we are very proud of, and we are looking forward to show and confirm this expectation. It will be on the back of the Kulim and Volt CapEx programs, and we should look forward to a good growth story. One topic which has been raised a couple of times from investors and analysts and just to confirm that the hybrid is now calculated as a planning assumption, but this is still what it is a planning assumption has repaid in the year '26-'27, final decision has not been made. With this, I've come to an end for my presentation, handing back for Q&A.

Thank you, Petra. Thank you, Peter. We will now start the Q&A. In order to give everyone the opportunity to raise questions, we would like to ask you to limit yourselves to 2 questions. Once we are through, if there are still questions and still time, we will start another round. Now I would like to hand over to Marek to handle the session.

So the first question comes from George Brown, DB.

So I have 2, if I may. So firstly, just on CapEx. You're targeting CapEx to be slightly below EUR 500 million in fiscal year '25. And you stated in the presentation that your CapEx will be aligned to lower demand. I'm just wondering how low can your CapEx go for next year and I guess, beyond, given that you still remain committed to Kulim, you're ramping, I believe, all 3 production lines. And you obviously -- I think your maintenance CapEx is roughly EUR 200 million. Yes. And then I have a second.

Well, a very good question, very important question, forward-looking. As you do know, we usually give guidance in our full year's presentation in May. But this is a critical topic, I take the liberty to give you a bit of an insight. I mean what you can see from last year to this year, we have reduced it roughly by half. I would also expect that forward-looking shouldn't be such a wrong assumption. What I think you might be a bit on the high end is for the maintenance CapEx, which should come in a lot lower because and I can also give you the reason for that because the 2 new sites, there is no maintenance CapEx at the beginning. So you need to factor that in accordingly. But overall, I would expect, yes, maybe a bit on the higher end of 50%.

Okay. Brilliant. And then secondly, just on tariffs, I feel like the question has to be asked. How should we think about quantifying the impact on AT & S given the majority of your current volumes are in China? And then I guess just a follow-up to that actually. Was there any sort of pull-in effect in Q3 from one of your big customers trying to get volume ahead of tariffs?

On the tariff side, so if you would know what Mr. Trump has in mind, I would be very happy to hear. I think currently, we all have to wait till details are announced. We can only guess and where at least the CFO is not in the position or it's not in the top of guessing. So we will very carefully listen and follow the decisions made. We currently don't even know which industry will be affected, which regions and so forth. But we -- please note that we're definitely prepared to face whatever comes ahead of us. Currently, we don't -- as of today, 4th of February, to be very precise, we don't have -- we don't see anything, but we are following up on that very closely once more information is available. On the pull-in, Peter, you would like to.

There no pulling out of tariffs, right?

Yes. So there...

If that was the question.

Yes. There hasn't been any.

That's not the reason.

And the next question comes from Daniel Lion, Erste Group.

Yes. I would like to ask a question regarding your new midterm guidance that you released in mid-December. Can you outline a little bit your thoughts of what's really included in the figures? What's your basic assumptions for the revenues and for profitability?