AT&S Concludes Q1 2017/18 with Significant Revenue Growth and Improved Earnings

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After more than one year of production at the plants in Chongqing, China, which initially had a significant influence on the profitability of AT&S, a clear upward trend is showing and, consequently, a positive development of revenue and earnings compared with the previous year.

First quarter of 2017/18: AT&S starts the financial year with significant revenue growth and improved earnings:

• Stable demand and good capacity utilisation
• Efficiency and productivity measures are taking effect
• Revenue growth of 11.6%
• EBITDA improves by 57.5%, but is still negatively influenced by Chongqing start-up effects and price pressure in the IC substrate segment
• Start of new technology generation for mobile applications (mSAP) – good utilisation expected
• Decision regarding second expansion phase in Chongqing: no expansion of plant 1 in the financial year 2017/18, plant 2 under further evaluation
• Financing of CAPEX of EUR 160-200 million planned in FY 2017/18 secured with existing instruments  

“Thanks to the strong demand in the core business and due to higher revenue from the plants in Chongqing, our revenue was at a very high level in the first quarter, which is usually weaker, even though we partially upgraded our largest plant in Shanghai and had reduced production capacity at our disposal”, CEO Andreas Gerstenmayer explains. “Our profitability improved significantly due to the operational success, above all in Chongqing, but also at all other sites. Negative influences such as increases in material prices and the burdens related to the very extensive upgrades in Shanghai were thus largely compensated for by the appropriate countermeasures. In addition, we are launching the next technology generation in the core business; the utilisation forecast is positive for the coming months. In contrast, the issue of significant price pressure on IC substrates remains a clear challenge for us. Therefore, an important focus lies on continuing the measures to enhance efficiency and productivity. Based on the current technology evaluation, we have decided not to start the expansion of the IC substrate plant this financial year; for the second plant, we are currently still evaluating a possible plan of further expansion. The planned investment volume of roughly 160-200 million euros in 2017/18 is secured with the existing financing instruments. Nevertheless, we will continue to examine possibilities to optimise our financing portfolio.”

Asset, financial and earnings position

Revenue rose by 11.6% from EUR 178.9 million to EUR 199.6 million in the first quarter of 2017/18 due to strong demand in the core business and the revenue from Chongqing; in a multi-year comparison of revenue generated in Q1 this represents a new peak value.

EBITDA improved by 57.5% from EUR 18.8 million to EUR 29.7 million due to the successful implementation of efficiency and productivity measures, above all because of the Chongqing plant and positive exchange rate effects. The EBITDA margin amounted to 14.9%, thus exceeding the prior-year level by 4.4 percentage points.

Depreciation of property, plant and equipment and amortisation of intangible assets amounted to EUR 33.1 million (prior-year period: EUR 28.0 million), increasing by EUR 5.1 million, primarily due to the Chongqing project. EBIT was up EUR 5.8 million, from EUR -9.2 million to EUR -3.4 million. Due to the increase in depreciation and amortisation, the operational improvements in the Chongqing project had a significantly smaller effect on EBIT than on EBITDA. Therefore, the improvement in EBIT is predominantly attributable to positive exchange rate effects. The EBIT margin amounted to -1.7% (Q1 2016/17: -5.1%).

Finance costs – net improved significantly from EUR -5.7 million to EUR -2.2 million, especially due to the discontinuation of the high-interest bond as well as due to exchange rate effects (EUR 5.4 million). Tax expense amounted to EUR 5.6 million (previous year: tax income of EUR 1.3 million) due to the good results at nearly all sites, because of the discontinuation of deferred taxes for Chongqing and because the reduced tax rate in Shanghai no longer applies (it is expected to be regained in 2017).

The loss for the period improved from EUR -13.6 million in the previous year to EUR -11.2 million despite higher tax expense due to the better operating result and the significantly better finance costs – net. As a result, earnings per share improved from EUR -0.35 to EUR -0.29.

Cash flow and statement of financial position

Cash flow from operating activities before changes in working capital amounted to EUR 17.5 million vs EUR 8.6 million in the previous year. Cash flow from investing activities – investments in the plants under construction in Chongqing, technology investments in other locations and investments in financial assets – amounted to EUR -67.0 million (prior-year period: EUR -101.5 million).

Equity decreased by -10.2% to EUR 485.2 million due to the loss for the period and negative currency differences of EUR 43.6 million. The resulting equity ratio, at 37.2%, was 0.4 percentage points lower than at 31 March 2017.

Net debt rose from EUR 380.5 million at 31 March 2017 to EUR 496.7 million. This expected increase resulted from the continued high investment activity and the higher net working capital. The net gearing ratio increased to 102.4% compared with 70.5% at 31 March 2017.

Mobile Devices & Substrates segment with clear revenue growth and improved earnings

Strong demand in the core business and significantly higher revenue from IC substrates caused an increase in revenue by 14.0%. EBITDA improved by EUR 12.2 million to EUR 20.9 million and was predominantly characterised by positive developments in the Chongqing project and positive exchange rate effects. The EBITDA margin amounted to 15.2% and thus clearly exceeded the prior-year value of 7.3%.

Automotive, Industrial, Medical segment records slight increase in revenue and earnings

In the Automotive, Industrial, Medical segment, revenue was up 3.3% to EUR 89.6 million and resulted from all three business units. EBITDA was at EUR 9.7 million, plus 9.6% compared to last year’s number of EUR 8.9 million, the EBITDA margin was 0.7 percentage points above the level of the previous year and amounted to 10.9%.

Status Chongqing and decision regarding the further expansion of the two plants

As at 30 June 2017, AT&S invested EUR 489.3 million in property, plant and equipment in the two plants in Chongqing. AT&S has made significant progress in overcoming the technical challenges.

Plant 1 – IC substrates: The product portfolio still focuses on IC substrates for servers and computing applications (desktop, notebooks), manufactured with two production lines. At the beginning of 2018, AT&S expects the gradual introduction of the product generation that the plant 1 was originally planned for. First products are currently undergoing qualification. Due to the current technology evaluation, AT&S has decided not to start the expansion in the current financial year yet. Plant 2: Building on a very positive start of production in the financial year 2016/17, the introduction of the new mSAP technology has also been successful and serial production started in July. A further expansion plan for plant 2 in Chongqing is under further evaluation.

Investments and financing

AT&S expects CAPEX in the range of EUR 160-200 million for the financial year 2017/18, which will essentially consist of the remaining investments in the first phase in Chongqing, the investments in the next technology generation in the core business, mSAP, at the plants in Shanghai and Chongqing, plant 2, and for maintenance and the usual technology upgrades at other existing locations.

The investment volume planned for 2017/18 is secured with the existing financing instruments. The further optimisation of the financing portfolio is continuously worked on.

Outlook for the financial year 2017/18

Provided that the macroeconomic environment remains stable and the USD/EUR currency relation stays at a similar level as in the past financial year, AT&S expects an increase in revenue of 10-16% for the financial year 2017/18. The EBITDA margin should range between 16-18% based on the market developments for IC substrates and the launch of the next technology generation (mSAP). Higher depreciation for predominantly new production lines of roughly EUR 25.0 million in the financial year 2017/18 will have an influence on EBIT.