AT&S Reports Record Revenue in a Challenging Market Environment in FY 2022/23May 16, 2023 | AT&S
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In a challenging market environment, AT&S continued its growth course and generated record revenues in the financial year 2022/23. “After a strong first half, the market cooled down significantly in the second half of the financial year, in particular in the growth segment of IC substrates. To address the resulting challenges, we significantly boosted and accelerated our cost reduction programmes. We are still convinced that the company is in a good and promising position in segments benefitting substantially from digitalisation and electrification. And we are achieving one of our key strategic goals, further diversification of our customer base, even faster than planned,” CEO Andreas Gerstenmayer comments on the company’s perspective. “I am particularly pleased about the progress of our projects in Kulim and our research and development centre in Leoben,” says Gerstenmayer.
Driven by the good development in the first half-year, consolidated revenue improved by 13% to € 1,791 million in the financial year 2022/23 (PY: € 1,590 million). Adjusted for currency effects, consolidated revenue rose by 3%. The strategy to broaden the application portfolio of mobile devices and to promote the module printed circuit board business was a key driver for the positive development. Moreover, the additional capacity for IC substrates in Chongqing, China, also contributed to the success, in particular in the first half of the year. As demand slowed down in this segment in the second half of the year, the annual guidance had to be adjusted downwards. In contrast, the Segment AIM (Automotive, Industrial, Medical) maintained its positive revenue momentum, with the Automotive segment recording the strongest percentage growth.
EBITDA rose by 19% from € 350 million to € 417 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 € 125 million on earnings. Lower demand in the second half of the year, the start-up costs in Chongqing, China, 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 € 470 million (PY: € 378 million), which corresponds to an increase by 24%. Without currency effects, adjusted EBITDA would have decreased by 9%, which is primarily attributable to the weakness of the IC substrate market in the second half of the year.
The EBITDA margin amounted to 23.3% (EBITDA margin adjusted for start-up costs: 26.2%), thus exceeding the prior level of 22.0% (EBITDA margin adjusted for start-up costs: 23.8%). Depreciation and amortisation increased by € 47 million to € 270 million (15% of revenue) due to additions to assets and technology upgrades. EBIT rose from € 126 million to € 146 million. The EBIT margin amounted to 8.2% (PY: 8.0%). Finance costs – net improved from € -4 million in the previous year to € 22 million primarily due to a change in currency effects on the high level of cash and cash equivalents. Profit for the year increased from € 103 million to € 137 million, leading to an increase in earnings per share by € 0.64 from € 2.39 to € 3.03.
The financial position as of March 31, 2023 was characterised by an increase in non-current assets. Total assets rose to € 4,162 million, up 11% 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. Due to the high investment volume, the equity ratio declined by 5.6 percentage points to 27.8%, thus falling below the target of 30% at the balance sheet date.
Cash and cash equivalents declined to € 792 million (March 31, 2022: € 1,120 million). In addition, AT&S has unused credit lines of € 726 million to secure the financing of the future investment programme and short-term repayments.
Cost optimisation programmes initiated
In order to counter effects such as pressure on prices and inflation, which result from the currently difficult market situation, AT&S has significantly intensified and accelerated its previously initiated comprehensive cost optimisation and efficiency programmes. Along with market-based capacity adjustments, these cost optimisation programmes are a key focus topic in these challenging times. Compared with the financial year 2022/23, cost reductions totalling € 440 million are expected for the following two years.
Customer diversification successfully started
As part of its diversification strategy, AT&S succeeded in winning additional renowned IC substrate customers in the areas of computing/data processing. The new customers will be supplied from the plant in Leoben. The R&D centre in Leoben, which is currently under construction, will therefore be expanded to include real series production with the help of financial contributions from the new customers.
New reporting structure as of the first quarter of 2023/24
As of April 1, 2023, AT&S has reorganised the structure of its “Mobile Devices & Substrates” and “Automotive, Industrial & Medical” segments. The company’s new structure comprises the business units “Electronics Solutions” and “Microelectronics” going forward. Reporting will therefore be adjusted accordingly. Each business unit will be represented by a member of the Executive Board. Peter Schneider will be responsible for the “Electronics Solutions” segment and Ingolf Schröder for “Microelectronics”. “Electronics Solutions” will bundle the printed circuit board and module activities across the Group while “Microelectronics” will focus on IC substrates.
The change will primarily be made for two reasons. The new structure will support the strategic management of the company. In terms of content, the former “Mobile Devices” segment is more closely related to the former “Automotive, Industrial & Medical” business unit than to “Substrates”, so that merging these segments will enhance synergy effects and strategic management. The company is also responding to the interests of the capital market. The new reporting format facilitates the comparison with competitors in the respective business areas as well as monitoring the company’s strategic development.
The company is aware that the results reported for “Microelectronics” will be particularly strongly affected by the current challenging market environment in the first quarters of the new reporting period. Nevertheless, the decision was made to implement the change now to offer the capital market maximum transparency regarding the current situation and the undoubtedly positive further development.
Also effective April 1, 2023, Peter Griehsnig took over the role of Chief Technology Officer, which was created to steer, coordinate and accelerate research and development. Peter Griehsnig joined AT&S in 2001 AT&S and worked for AT&S in Shanghai, China, since 2002.
The Management Board will propose a dividend of € 0.40 per share (PY: € 0.78 per share and a special dividend of € 0.12 per share) for the financial year 2022/23 to the Annual General meeting on July 6, 2023.
Tensions between China and the United States
The tensions between Mainland China and Taiwan as well as the United States of America increased significantly during the financial year 2022/23 and led to trade restrictions, in particular in the area of state-of-the-art semiconductors. AT&S has so far not been affected by these restrictions on the customer side, but monitors the current developments carefully and closely coordinates with its customers. AT&S had already decided in 2021 – before the tensions increased – to diversify its production geographically and establish new capacities in Kulim and Leoben.
Depending on the market development, AT&S will continue to push ahead the investment project in Kulim and the expansion of the site in Leoben and implement technology upgrades at other locations in the financial year 2023/24. 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: In the markets for IC substrates, demand for notebooks in 2023 is expected to be lower than in 2022. The negative impact on the supplier chain will be aggravated by high inventory levels. According to current forecasts, this will affect the first half of 2023 in particular, with a recovery of demand anticipated towards the end of the year. Demand for IC substrates for servers will benefit from the technology shift towards heterogeneous integration in the medium term.
In the area of mobile devices, the 5G mobile communication standard as well as the module printed circuit board business will remain positive drivers. 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 € 800 million for the financial year 2023/24 depending on the market environment and progress of projects. Roughly € 100 million are budgeted for basic investments. Planned investments of approximately € 200 million in the financial year 2022/23 have been postponed to the financial year 2023/24. As a result, the planned investment volume totals up to € 1.1 billion.
AT&S expects the deterioration of the market environment in the second half of 2022/23, in particular in the market for IC substrates, to continue in the first half of 2023/24. Continued high inflation rates, rising interest rates, recession risks as well as geopolitical developments represent additional elements of uncertainty for the end markets. The company expects that inventories in the supply chains will have normalised by the second half of 2023/24 and that demand picks up again. This market forecast, combined with successful customer diversification and the company’s constant high innovative strength, opens up perspectives and opportunities that enable a positive development. In this challenging environment, AT&S expects revenue in the range of € 1.7 to 1.9 billion. Not including effects from the start-up of the new production capacities in Kulim and Leoben totalling approximately € 100 million, the adjusted EBITDA margin is expected to range between 25 and 29%.
The progress of the production capacity expansion in Kulim as well as the expansion of the site in Leoben is still positive despite the challenging global economic 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 2026/27 and expects an EBITDA margin in the range from 27 to 32%. 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. With the projects in Kulim and Leoben, which were adopted in 2021, the company proved its vision and took an important step towards diversifying its value added structure.
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