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

Thank you, Marek. Good morning or afternoon, ladies and gentlemen. Welcome to the AT & S Full Year 2024-'25 Conference Call. With us today are Michael Mertin, CEO; Petra Preining, CFO; and Ingolf Schroeder, member of the Board and EVP of the Business Unit, Microelectronics. Mr. Mertin will briefly introduce himself and then hand over to Mr. Schroeder, who will give an overview of the key developments as well as a 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. Mertin. The floor is yours.

Yes. Thank you very much, and also good afternoon, good morning from my side to everyone. My name is Michael Mertin. I'm the new CEO of AT & S since 2 weeks now. So hopefully, you can accept that I will not answer all your questions in detail, especially not the questions regarding the last year. Nevertheless, I'm proud to be part of the team now. And later on in the Q&A, I can share some of my first experiences, especially the positive ones, of course, with the highly engaged team here and the highly engaged employees. So something what is not usual for each company I've seen so far. Please let me hand over now to my colleague, our CFO, Ms. Preining, who is guiding you through the numbers and figures for the last fiscal year.

Thanks a lot. The floor is now with Ingolf Schroeder, he will do the market and I will do the numbers.

Okay.

No problem.

Okay. Good morning, good afternoon, also from my side, Ingolf Schroeder. So let me start off with some key developments of the last financial year before I start in a bit more deep into the markets and the various segments. So the last year, we could show a very strong operating performance in a very challenging environment, primarily driven with price pressure, geopolitical aspects, many, many aspects. So we do believe that we have performed very strong. Our both huge investments announced a couple of years back, Kulim and also Leoben are in ramp and on plan. Same as the diversification with regard to IC substrate customers is also driven forward and is very promising also going forward. We have been very successful in the sale of our Ansan plant. And last but not least, I would like to mention also, there is still a certain lack of clarity regarding tariff and the overarching situation. In addition, I would like to mention that the last financial year is the second best result in company's history in terms of sales and EBITDA. You can switch to the next page, please. I'd like to start with some PCB and end market insights or perspectives. So the overall market for PCB in the last year 2024 grew by 7%. The market growth was primarily out of the area CCC and here dominated by computing and investments and activities primarily in the AI and infrastructure area. Automotive, industrial remained pretty weak over the last year, mostly in Europe, while the Chinese automotive supplier proved to be more stable. As said, the European market was under severe pressure, ended up with even a volume shrink by 2% year-over-year comparison. The same is also for the value, which was reduced by 5%. Consumer and communication market saw price pressure as well. But here, the growing volume could over -- could compensate the decline. If you go on the next page, please, how did the business unit Electronic Solutions perform in the last year. So the weak European market restrained the growth and this price pressure was coming primarily from European automotive and industrial customers. So overall, the revenue over the last year was rather flat, minus 1%. If you compare Q4 year-over-year, the price effects outweighed the positive product mix and volume development. And as usual, at the end of Q4, we could even see the not unusual post-Christmas seasonality. On the next page, when it comes to IC substrates and end market. So the market size for advanced substrates was rather flat in the last year in 2024, shrink by 1%. So here, it was clear the general volume growth was overcompensated by a severe price pressure, at least 13%, in some areas even more. AI investments remain super strong, while in the data center environment, even signs of recovery visible, but data center is still somewhat muted. There is a slow recovery in traditional server and a significant growth in AI server, more than 50% year-over-year growth. And it's visible that end of the last year, there are here and there signs already of an elevating inventory level in various areas. So when it comes to ABF substrates, it's a minus 5% year-over-year value decline despite a significant growth, 17% server growth and with the 17%, it's even back on the 2022 level -- 2022, 2023, sorry. Notebooks, 3% year-over-year and still 10% below the level of 2022, 2023. How did the business unit -- on the next page, the business unit performed? So very positive. The market growth outperformed. So revenue-wise, the business unit microelectronics would grow by 9% and this in an environment of the before mentioned severe and heavy price pressure. Q4 year-over-year growth, positive effects from the new and long-term customers visible and Q4 quarter-over-quarter volume growth also due to new clients. On the next page, some words on our investment into Kulim. So the current status of the investment, which we spent more than EUR 1 billion. The high-volume production started in April. We had 2 weeks ago, the press conferences, the formal press conferences where we communicated the production start. We are producing here our latest technologies and products in a, let's say, state-of-the-art environment. They are primarily clean rooms all the level from ISO 5 to ISO 7. Currently, we are employing 1,500 employees. Of course, this is growing over the time since we add new capacities and ramping the capacities. And this Kulim site is primarily designed for IC substrate for high-performance processors. Customers currently also here openly communicated with AMD, and we will also develop the site further with this customer. On the next page, how the situation is with the investment in Leoben in Austria. So here, we have spent so far more than EUR 500 million. The official opening ceremony will be in the beginning of June. Same here, when it comes to production area and clean room, all the level between ISO 5 and ISO 8. 400 employees at the moment. In addition to the small-scale substrate operation, we have this attached R&D center where prototyping small volume for advanced IC substrate and even advanced packaging activities can be executed under HVM conditions. When it comes to the customers, the product qualifications are onboarding for our customers, first functional samples were shipped. And in end of 2024 and 2, 3 customers, we are waiting now for the final approval. Once the final approval is done, then, of course, HVM will start. On the next page, a few words on our October 2024 communicated cost saving and efficiency program. Also here, we have strongly executed what we have promised. AT&S delivered the communicated EUR 120 million over the last year. This target has been successfully achieved. And of course, the baseline is important, also to mention here, the baseline was the actual cost of the year before. So it's really P&L effective and very efficient. And small outlook into '25, '26, so the running financial year, additional EUR 130 million savings expected to counteract challenging market environment and of course, also to somehow compensate the ramp-up costs from the additional lines in Kulim. And with that, I would like to hand over to Petra for the financial results.

Thanks a lot, Ingolf. A warm welcome also from my side, from here from, Leoben. I have the pleasure to walk you through the financials. As we have heard already from my colleagues, a mixed picture, the year '24, '25. We were -- we had to face quite some challenges coming from the market but have defeated those challenges quite well. Firstly, the very strong EBITDA adjusted, Ingolf has already mentioned, second best in AT & S history. If we look at the EBITDA, even better. One has to say, though, that this result is highly impacted by the sale of the Korean plant. We have been very successful, signed and closed, closing on 31st of January, that transaction, which we have reported about already. Additionally, a very strong second pillar, our efficiency program, Ingolf, just has elaborated on. This part with a good performance in the BU microelectronics and also solid one from Electronic Solutions, we have managed to increase our equity ratio and reduce the leverage. On the financing side, I have already shared some information in Q3. Our new factoring line is up and ready, visible in the results in Q1 '25, '26. We have successfully also refinanced and signed our loan with the IFC. However, given the current volatile situation in the market, geopolitics, macroeconomics, as have been mentioned, part with our current balance sheet structure, we have decided not to -- or to propose no dividend to the AGM this year. Additionally, we have shared the guidance for Q1 for '25, '26. This is new. Usually, at that point in time, we share the full year's guidance, but based on the same reasons, given the blurred outlook, we have decided to share Q1. But I will dig deeper at a later point. Over the page, partially those topics have already been addressed. We have guided initially EUR 1.5 billion to EUR 1.6 billion with an EBITDA adjusted percentage of 24% to 26%. Now, well, I'm quite pleased to announce that both numbers have been reached on the upper end. So our revenue roughly at EUR 1.59 billion to EUR 1.6 billion, if you like, it's a plus of 3% on the group level and an EBITDA adjusted of EUR 408 million adjusted by the start-up cost you are already aware of, but as well-adjusted by the transaction of the same [indiscernible]. That brings us to a very strong 26%, which is even stronger by 0.9 percentage points over last year. The EBITDA margin, as already said, gets highly impacted by the sale in Q4 and hence, might not be sustainable forward-looking Quarter-over-quarter, plus 14%. That's a very solid growth, mainly driven by IC substrates. Ingolf has already elaborated on the reasons for that. Overall, in -- for the full year, we are happy to share a net profit of EUR 90 million, which is an increase of roughly EUR 126 million. Over the page, our financial position and the situation development, cash and cash equivalents as well as unused credit lines have come down in comparison to the March '24. However, this is planned. We have slowly but steadily finished now our large CapEx programs. Just to remind you, the last 2 years prior to the year '24, '25, we have roughly invested each year EUR 1 billion or slightly shy of EUR 1 billion. This year, significantly lower and further decreasing. Therefore, there is not that much cash and cash equivalents and unused credit lines needed. However, one important information. So both pillars add up to EUR 741 million. Additionally, we have deposited EUR 100 million for longer time than 3 months at the end of 31st of March. This has come available again. So if you would like to add those EUR 100 million, we are at EUR 840 million-ish. Additionally, the new factoring line has been finalized in Q4 and will now in Q1 be ramped. We can see already the effect in April, but this I will share in Q1 with you. As there is still, with glimpsing into the next page and actually turning the page, there is quite some substantial debt outstanding. We, of course, elaborate further financing measures, and those are in progress. We talk to new financing partners as well as to our existing ones, which we have very good relationships with. Overall, we are a little shy of 30% on fixed interest rates and financing costs also have come down compared to the last quarter to 4.34%. Over the page, as we have received a couple of questions on that already, you see the effect of the sale of the Ansan plant. I don't think I need to read out the numbers for you, but the impact, as already stated at the very beginning, has been substantially positive and so has also been the effect on net income and EPS. As we -- as this is a one-off effect, you can also see that the reason for not paying out the dividend is that we want to continuously grow the company, again in a good position, in a healthy position, which we are already progressing in a very good path, but that's the reason for not paying out dividends currently. Over the page, and development on working capital, detraction due to the fact that we have only late in Q1, finalized all the legal procedures for our factoring line, the impact will only be seen in Q1. And therefore, we have, as a comparison, put the -- as it would look like situation in the box. You know that from the previous quarters already, and we are strongly driving to that lower level into Q1. Over the page, cash flow that most probably needs a bit more explanation and also on each and every line because a lot has changed year-over-year and in comparison. Firstly, on the operating activities, the major deviation is that, as you do know, we have a very strong and solid contracts with our dear customers, and those have been contributing to the 2 plants in Kulim and Hinterberg mainly. Those customer prepayments have come to an end. That has been planned like this. Only very minor additional amount has been received this year as it was scheduled. So there is -- a large portion of the delta comes from customer prepayments, which has been received last year, but no longer this year. Additionally, as already I have mentioned, there is a quite large share, roughly EUR 170 million of factoring, which is -- has not happened in comparison to last year, which we are now starting to ramp, as I said already. And of course, you have also the impact on interest and taxes mainly due to the sale of Ansan in that bucket. Payables have been -- there has been a delta in accounts payables as well. This is partially due to the ramp of the new plants, partially also a cutoff topic. We will have a very close eye on that development and bring that back to the usual levels once the 2 plants run steadily. Cash flow from investing activities, this mainly has 2 reasons for the big deviation. Firstly, as already said, we used to have very high CapEx amounts in order to build the 2 plants and equip the 2 plants, which came in significantly lower already as planned. And additionally, you also see the impact of the proceeds of the sale of Ansan. In the financing activities, this is plus/minus EUR 20 million, very balanced, the repayments and the additional drawdowns keep on a steady level. Net CapEx, as you see in the bottom line, so the operating cash flow -- free cash flow is obviously some of the parts above. The net CapEx, as said, has come down and almost halved it's -- the level of the year before. Turning the page to the balance sheet. Total assets on par. So depreciation and new additions keep on par level. Equity nicely increased partially due to the sale of Ansan, partially also via the FX effect in the OCI, the other comprehensive income, reaching 23.3%, a plus of 2.6 percentage points. Net debt has strongly come down, as I have already told you for the last 2 quarterly calls and has reached 2.5x. Turning the page to the last 2 topics on guidance. We, as said, due to the current situation on the market, we have decided to guide Q1 for the time being and give you an approximate revenue target of EUR 400 million, which is still quarter -- sorry, year-over-year plus 14% with the profitability of EBITDA, [ careful ] EBITDA, no longer EBITDA adjusted as we have ramped those 2 plants of approximately 16%. This is still burdened by the ramp phase, in particular, in Kulim, sales, which will be -- sorry, products that will be produced in Q1 will only be invoiced in Q2. So there is a mismatch in timing. And then forward-looking in Q2, you will see a nicer number. Investments, we aim to spend EUR 65 million for Q1, which might be a good indication for the year. However, at the end of the year, we will see slightly higher quarterly numbers. The full year guidance will be given once there is more clarity regarding the U.S. tariffs and potential recession consequences out of the same, and we'll come back to you as soon as the situation is more -- yes, is more clear. On the midterm guidance, there is no deviation, and we confirm the midterm guidance as we have announced that earlier. With this, I have come to an end, and we are happy to take your questions. Over to Philipp.

Thank you, Mr. Mertin, Ms. Preining, and Mr. Schroeder. [Operator Instructions] Now I would like to hand over to Marek to handle the session.

[Operator Instructions] So the first question comes from Daniel Lion, Erste Bank -- Erste Group.

Actually, there's many questions, but I'll start with 2. You mentioned the unclear tariff situation. Obviously, there's tariffs announced to come on the semiconductor industry. But can you share your current impact from the tariff situation, maybe some details. How are you already impacted now? Or are you already impacted now?

Sure. Happily to do so. The current situation hardly impacts us on a direct level. So the orders, the assembler are not sitting in the U.S., so we don't ship products so -- or hardly any products directly through U.S. So on a direct level, there is hardly any tariff impact outbound. Inbound, there is a very small impact to receiving goods from the U.S. to China. But this is in a very low single-digit million level. What is still unclear, however, whether that will have a volume impact on consumer products. And therefore, the situation needs to be cleared. We have not received any negative feedback from our customers yet. There has been, after Liberation Day no updated lower forecast. So from that angle, we have no updated information. But the overall situation needs to be clear to whether, in particular, the U.S. is entering into a recession or the tariffs cause general less consumer spending. That's the bigger -- or if there is an impact on us, this would be the impact. The direct tariff is just fueling the situation, if you like.

Okay. And then my second one, for the time being, you're showing your maturity profile. We know that. So it's roughly EUR 1 billion plus the hybrid to be refinanced in the coming 2 years. Your current liquidity and credit lines, actually also EUR 1 billion if we add the factoring. So how do you expect to balance liquidity and clients going forward? What would be a level that you'd feel fine regarding your liquidity only? Yes, just how do you want us to model this?

There were several questions in one. I just started with an indirect question on the hybrid. And now we can say that we are still 18 months until the first call date of the hybrid. So we will decide how to proceed in due course. And any decision that will depend or any decision that we will make will definitely be shared then once taken. On the EUR 1 million -- EUR 1 billion, sorry, excuse me, you have mentioned on the maturity level. Indeed, this is correct. I've also shared that roughly -- and that's also the number you have had now added up with the factoring. That's EUR 1 billion what we currently have in our books. Additionally, there will be also forward-looking and even lower leverage, so refinancing on the market should not be a big issue. I have also told you that we are currently actually on the back of IFC, they have high interest to even increase the exposure they have with us further. This is something we're currently evaluating what would suit us best. So there are several options with international banks, but also with our house banks, which have, where we have very good contacts with. And don't -- lastly, and don't forget that also forward-looking AT & S will spend less CapEx and therefore, come to a positive operating free cash flow.

So we come to the next question from George Brown, Deutsche Bank.

I have 2, if I may. Just firstly, can you tell us what you expect for total CapEx or any further start-up costs in fiscal year '26 or at least give us a range that we should think about? And then secondly, can you share what the current utilization rate is at Chongqing? Do you expect utilization at Chongqing to decline over the coming years because Intel is either facing more competition from domestic suppliers in China? And I guess, because also AMD will eventually ramp down whatever volume they have in China over time because they have capacity at Kulim. Any color on that would be useful.

Okay. Happily, we will share the answer. I will take the first one. That was on CapEx for the current fiscal year. EUR 65 million for quarter 1, it would be understated to time it's -- 4x. We have always said we have from last year to -- from the year before to last year to this year as there has been a shift between what we have initially guided last year and what we came -- what we have basically finalized the year with. This is roughly the amount you can add to this year. As said, we are not guiding. So if you ask each and every KPI, we're not guiding the full year, but I think it would be safe to say that this will still have 2 in front, but a very, very high 2. I hope that helps for your modeling. I guess this is a yes. So, Ingolf, would you like to answer?

Yes, I'll take the second part regarding Chongqing. So first, what we have shown that we were able to outperform market growth-wise, the current advanced substrate industry. So meaning as we could, over the last year, stabilize the utilization in Chongqing since this was the only running and active IC substrate plant within AT & S. So given the fact that there is still massive overcapacity in the market, we are from a utilization point of view in the neighborhood of 60-plus percent in Chongqing. And based on the inputs we have from our various customers, we consider that this will also continue over the running year.

The next question is from Gustav Froberg, Berenberg.

I have a question to Mr. Mertin actually. I know it's obviously very early in the process for you. You've just joined pretty much. But could you talk to us a little bit about whether or not you have any plans to make any broader bigger picture strategic changes in the CEO position and maybe give us a hint as to what is first on your agenda? And then I have a question on CapEx as well. We talked about it being kind of with a high 2 in front. Now with this in mind, could you help us understand the moving parts around what will make your free cash flow be positive this year? Is it only due to factoring? Or are there any other items that you think will move around in order to make sure that AT&S will be free cash flow positive for '25, '26?

Thank you very much for your questions. So, first of all, it's a little bit early, of course, as you said, to start with a real strategic discussion before I got the chance for the first 100 days to get a little bit of deeper impression on details of the company, on details of the markets. Nevertheless, maybe some of you know my work already, what I've done for Jenoptik for serving them from roughly 10 years as CEO. It also was a kind of a situation with high debt at the beginning, and it was a continuous promise for profitable growth in this company, especially during my time. And what is important for me is walk your talk. So therefore, I'm not talking too early, but when I talk, hopefully, it's a promise for you. And what is relatively clear is that this company has to come back to the path of profitable growth. So growing constantly, having costs under control and delivering profit at the same point in time. We are not here yet, sure. But I think this definitely will be part of the plan we have to develop in the upcoming time. And you, of course, will be informed about all kind of processes and projects we will start to come to exactly that point. So hopefully, this gives you a little bit of an impression. And the other hand is just have a look to my time at Jenoptik. The time with private equity was a little bit more in transparent, of course, for some of you, but it gives you an impression.

Great.

Cash flow?

Happy...