AT&S 2024/25 on Growth Course Again

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AT&S operated in a challenging market environment in the financial year 2023/24. After a strong second quarter, demand was relatively weak again in some market segments in the second half of the financial year. The markets for mobile devices and industrial applications softened significantly. While notebooks and PCs saw a slight recovery, the market for servers slowed down further. “We see AT&S return to growth in the new financial year 2024/25. The general market recovery expected in our industry for the second half of the financial year 2024/25 should also have a positive effect on demand and, consequently, utilization of our existing plants. Business growth will be supported by the ramp-up of high-volume production at our two new plants in Kulim and Leoben at the end of the financial year. This will help us to further advance the initiated diversification of the customer portfolio for IC substrates and to address additional applications in the fields of data management and AI. To counter price pressure in the industry, which is expected continue, we have intensified our ongoing efficiency programs. In addition to many other cost-cutting effects, a reduction of up to 1,000 employees will also be implemented at the existing locations,” Gerstenmayer comments on the company’s perspectives and challenges.

Compared with the record level of the previous year, consolidated revenue declined by 13% to € 1,550 million in the financial year 2023/24 (PY: € 1,791 million). Adjusted for currency effects, consolidated revenue decreased by 11%. This development was primarily driven by the fundamental changes in the economic environment. Due to a less favorable product mix and higher price pressure, revenue in the Electronics Solutions segment fell short of the strong figures of the previous year. Revenue in the Microelectronics segment declined slightly due to lower demand for servers. In this challenging environment, AT&S was able to defend its good market position.

EBITDA decreased by 26% from € 417 million to € 307 million in the financial year 2023/24. The reduction in earnings is primarily attributable to the decline in consolidated revenue. The negative effects of the currently difficult market environment were in part mitigated by the consistent implementation of the efficiency programs. As was the case with revenue, both segments were unable to match the EBITDA figures of the previous year. In the Electronics Solutions segment, EBITDA decreased by 32% to € 210 million (PY: € 310 million) due to lower revenue and a less favorable product mix. In the Microelectronics segment, EBITDA declined by 17% from € 116 million to € 96 million for similar reasons as well as due to higher start-up costs at the new plants in Kulim, Malaysia, and Leoben, Austria.

Currency fluctuations had a positive influence of € 6.8 million on earnings. Adjusted for start-up costs in Kulim and Leoben, EBITDA amounted to € 384 million (PY: € 470 million), which corresponds to a decline by 18%.

The EBITDA margin amounted to 19.8% (EBITDA margin adjusted for start-up costs: 24.8%), thus falling short of the prior-year level of 23.3% (EBITDA margin adjusted for start-up costs: 26.2%).

Depreciation and amortization increased by € 5.9 million to € 276 million (17.8% of revenue) due to additions to assets and technology upgrades. EBIT declined from € 146 million to € 31 million. Finance costs – net fell from € 22 million in the previous year to € -50 million primarily due to changes in currency effects on cash and cash equivalents. Profit for the year decreased from € 137 million to € -37 million, leading to a decline in earnings per share, after interest for hybrid capital, by € 4.42 from € 3.03 to € -1.39.

The asset and financial position as of March 31, 2024 was still characterized by investing activities and the related financing activities. Compared with March 31, 2023, total assets rose by 12% to € 4,675 million due to additions to assets. The equity ratio declined by 7.1 percentage points to 20.7% due to the negative result for the year attributable to shareholders, the high investment volume and negative foreign exchange effects in other comprehensive income (OCI).

Cash and cash equivalents declined to € 676 million (March 31, 2023: € 792 million). In addition, AT&S has unused credit lines of € 582 million to secure the financing of the future investment program and short-term repayments.

Strategic decisions of May 10, 2024

Given the currently volatile market environment, the Management Board of AT&S has decided not to conduct a capital increase for the time being. Talks with potential investors were ended.

In order to further sharpen the Group’s profile, AT&S intends to sell the plant in Ansan, Korea, which primarily serves the medical market. The company has therefore decided to request binding offers for the sale. From a Group perspective, revenue of this company amounted to € 76 million in the financial year 2023/24 (PY: € 64 million) and EBITDA to € 38 million (PY: € 28 million). Property, plant and equipment totaled € 37 million (PY: € 38 million) in the financial year 2023/24. Based on non-binding offers obtained and strong interest in the transaction, AT&S will now request binding offers. Depending on the resulting conditions, the Management Board will make further decisions in the coming months.

Against the backdrop of the currently challenging market environment and the ongoing investment programs, the Management Board will propose to the Annual General Meeting on July 4, 2024, subject to the consent of the Supervisory Board, not to pay a dividend for the financial year 2023/24 (PY: € 0.40 per share).

Expected market environment

The expectations for AT&S’s segments are currently as follows: In the area of mobile devices, where overall market conditions are weak, demand is expected to recover only slightly; this segment will remain a challenge for AT&S. In contrast, the module printed circuit board business continues to develop positively.

Although the PCB market in the automotive segment is currently under pressure due to higher inventory levels in the supply chain, among other things, it is subject to a growth trend in the medium term, as the electronic content per vehicle continues to increase. In the Industrial segment, a slight recovery of the market is expected in 2024.

The market for notebooks is generally volatile and subject to significant quarterly fluctuations. In the markets for IC substrates, demand for notebooks in 2024 is expected to be slightly higher than in 2023. This should lead to higher demand for IC substrates since inventories have now normalized.

Since a growing share of investments in the server market is currently directed towards high-priced products focused on artificial intelligence, the reduction of inventories is proceeding more slowly than initially expected. Inventory levels should have normalized by the second half of the financial year 2024/25, and demand for server products is expected to pick up again. The most recent order planning of AT&S’s main customers also indicates such a development. Due to the expected change in architecture, the product mix should continue to change, with the trends towards technologically higher-end IC substrates also expected to continue; AT&S will benefit from this trend.

Outlook 2024/25

Some of the industries served by AT&S have stabilized over the past months. On this basis, demand is expected to recover in terms of volume, in particular in the second half of the financial year 2024/25. Nevertheless, the company assumes that strong price pressure will continue. The consistent implementation of and further focus on the already ongoing efficiency programs are intended to counter this pressure. In addition to comprehensive cost-cutting measures, a reduction of up to 1,000 employees will be implemented at the existing locations.

After the high investments of € 996 million in 2021/22 and € 855 million in 2022/23, net capex will decline significantly in the coming years. The management is planning investments of roughly € 500 million for the financial year 2024/25 depending on the market environment and progress of projects. The majority of these investments will be used for the IC substrate production at the new plants in Kulim and Leoben. With the start of high-volume production at the two plants at the end of the financial year 2024/25, AT&S will continue to further differentiate its customer base for IC substrates.

AT&S expects to generate annual revenue in the range of € 1.7 to € 1.8 billion in the financial year 2024/25[1]. Excluding effects from the start-up of the new production capacities in Kulim and Leoben amounting to roughly € 80 million, the adjusted EBITDA margin is expected to range between 25 and 27%.

Guidance 2026/27

“AT&S will grow with AI,” says AT&S-CEO Andreas Gerstenmayer. “We also supply the right technology for AI, from substrates for AI processors to efficient energy management solutions for IT infrastructure such as servers and data centers.” AT&S is also a sought-after technology partner for on-device AI, where devices such as smartphones and notebooks are equipped with AI functionalities. AMD, one of the global market leaders in the semiconductor sector, was won as a customer in this segment, and another three new renowned US technology customers have also specialized in AI solutions and rely on AT&S technology. Gerstenmayer: “Over the years, AT&S has established itself as a technology partner in industry and among customers. Our customers value our innovative strength, reliability and solution focus. This is why we regularly succeed in winning new customers for different, leading-edge applications.”

The production capacity expansion in Kulim and the expansion of the site in Leoben are still developing positively despite the challenging global economic situation. Nevertheless, AT&S had to adjust its guidance for the financial year 2026/27 on May 10, 2024 due to the most recent market forecasts. AT&S now assumes that revenue of approximately € 3.1 billion will be generated in the financial year 2026/271 (previously: € 3.5 billion), but still expects an EBITDA margin of 27 to 32%. This forecast does not include potential revenue from the second plant built by AT&S in Kulim. The management monitors the currently tense geopolitical situation very carefully in order to be able to respond to developments at any time and to make strategic adaptations.