AT&S Well Prepared for Challenging Market Environment
AT&S continued its growth course in the first three quarters of the financial year 2022/23. “After the positive development in the first half of the year, market conditions deteriorated significantly in the third quarter. Depending on how long this market weakness persists, we will react in the short term – however, our long-term strategy will remain unaffected,” says CEO Andreas Gerstenmayer. “The major digitalisation and electrification trends remain intact, and we have initiated additional cost optimisation programmes in order to cushion the effects of short-term volatilities,” Gerstenmayer comments on the company’s perspective.
Driven by the good development in the first half-year, consolidated revenue improved by 30% to € 1,489 million in the first three quarters of the financial year 2022/23 (PY: € 1,147 million). Adjusted for currency effects, consolidated revenue rose by 17%. It should be noted that the increase was again supported by all segments in the nine-month period. The development was primarily driven by the additional capacity for ABF substrates in Chongqing, China. Furthermore, the strategy to broaden the application portfolio of mobile devices and to promote the module printed circuit board business continues to contribute to the company’s success. The AIM (Automotive, Industrial, Medical) business unit maintained its positive revenue momentum. All three segments benefited from the dynamic market environment, with the Automotive segment recording the strongest percentage growth.
EBITDA rose by 71% from € 244 million to € 416 million. The improvement in earnings is primarily attributable to the increase in consolidated revenue. Currency fluctuations of the US dollar and the Chinese renminbi had a positive influence of € 103 million on earnings. Lower demand in the third quarter, start-up costs in Chongqing and Kulim, Malaysia, as well as Leoben, Austria, and higher material, transport and energy costs had a negative impact on earnings. Research and development expenditures were further increased to ensure that AT&S will remain a leading innovation driver going forward.
Adjusted for start-up costs, EBITDA amounted to € 452 million (PY: € 262 million), which corresponds to an increase by 73%. Without currency effects, adjusted EBITDA would have grown by 33%.
The EBITDA margin amounted to 28.0% (EBITDA margin adjusted for start-up costs: 30.4%), thus significantly exceeding the prior year level of 21.3% (EBITDA margin adjusted for start-up costs: 22.9%). Depreciation and amortisation increased by € 42 million to € 203 million (14% of revenue) due to additions to assets and technology upgrades. EBIT rose from € 83 million to € 214 million. The EBIT margin amounted to 14.3% (PY: 7.2%). Finance costs – net improved from € -11 million in the previous year to € 37 million due to a change in currency effects on the high level of cash and cash equivalents. Profit for the period increased from € 62 million to € 221 million, leading to an increase in earnings per share by € 3.90 from € 1.42 to € 5.33.
The financial position was characterised by an increase in non-current assets as of December 31, 2022. Total assets rose to € 4,073 million, up 9% compared to March 31, 2022, primarily as a result of additions to assets and technology upgrades as well as the inflow of liquid funds due to bilateral agreements. Despite the increase in total assets, the equity ratio rose by 1.4 percentage points to 32.0%, thus exceeding 30% despite the large-scale investment programme.
Cash and cash equivalents declined to € 686 million (March 31, 2022: € 1,120 million). In addition, AT&S has unused credit lines of € 738 million to secure the financing of the future investment programme and short-term repayments.
Measures in a challenging market environment
AT&S has initiated comprehensive cost optimisation programmes in order to cushion the effects resulting from the current market environment. The programmes focus on increasing the requirements for the ongoing improvement measures and on intensifying and accelerating their implementation. The effects of the sustainable cost optimisation are expected to amount to approximately € 180 million starting from the financial year 2023/24.
In addition, a differentiated approach to the investment programmes will be adopted depending to the expected demand. The construction activities at the new plants in Leoben and Kulim will be completed in the coming months. The cost-intensive implementation of the equipment can subsequently take place flexibly in line with market demand. The medium-term development will not be affected by this.
Depending on the market development, AT&S will continue to concentrate on the start-up of the new production capacities at plant III in Chongqing, push ahead the investment project in Kulim and the expansion of the site in Leoben and implement technology upgrades at other locations in the fourth quarter of 2022/23. In view of the highly volatile environment, the ongoing investment projects will be reviewed at frequent intervals and adapted to the respective current situation if required.
The expectations for AT&S’s segments are currently as follows: Despite the current fluctuations in demand, the market conditions for IC substrates continue to offer significant growth opportunities in the medium term. The 5G mobile communication standard as well as the module printed circuit board business will remain positive drivers in the area of Mobile Devices. In the Automotive segment, the semiconductor shortage should continue to ease and the growth trend should consequently intensify as the share of electronics per vehicle continues to increase. In the Industrial and Medical segments, AT&S expects a continued positive development for the current financial year.
As part of the strategic projects, the management is planning investments totalling up to € 1 billion for the financial year 2022/23 depending on the market environment and the progress of projects. Roughly € 150 million are budgeted for basic investments. Planned investments amounting to € 100 million of the investment budget for the financial year 2021/22 have been postponed to the financial year 2022/23. As a result, the planned investment volume totals up to € 1,250 million.
After the good development in the first half of the year, AT&S expects the deterioration of the market environment in the third quarter, in particular in the market for IC substrates, to continue in the fourth quarter. Continued high inflation rates, rising interest rates, recession risks as well as geopolitical developments represent additional elements of uncertainty for the end markets. In this highly volatile environment, AT&S has adjusted its expectations for the financial year 2022/23 and now expects revenue of approximately € 1.8 billion (previously € 2.1 billion). Not including effects from the start-up of the new production capacities in Kulim, Leoben and Chongqing totalling approximately € 50 million (previously: € 75 million), the adjusted EBITDA margin is expected to amount to approximately 25% (previously: between 27 and 30%).
The progress of the production capacity expansion in Chongqing and in Kulim, as well as the expansion of the site in Leoben is still positive despite the challenging global economic and health situation. The management is convinced that the major trends – digitalisation and electrification – are intact. Therefore, AT&S assumes that revenue of approximately € 3.5 billion will be generated in the financial year 2025/26 and expects an EBITDA margin in the range from 27 to 32%.