AT & S Austria Technologie & Systemtechnik AG
VSE:ATS
Earnings Call Analysis
Q2-2024 Analysis
AT & S Austria Technologie & Systemtechnik AG
The company faced a challenging year as the CCC market experienced a decline of 11%, along with a 3% dip in the AIM and aerospace market. However, expectations are currently tilted towards recovery, albeit with continued volatility. The substrate market is also adjusting post-pandemic, with server market declines unexpected at the year's outset. Despite these conditions, the long-term view appears positive, as the substrate market is forecasted to grow in value by 12% over the coming years, suggesting a move towards higher valuation and greater complexity in products that the company can leverage.
Financially, the company's revenue decreased by 24% to EUR 814 million, significantly impacted by seasonality and market adjustments. Nevertheless, resilience is notable as the like-for-like dollar-euro exchange rate has weakened, yet earnings before interest, taxes, depreciation, and amortization (EBITDA) stood at EUR 217 million, with an adjusted EBITDA margin similar to the previous quarter. Net profit was reported at EUR 49 million. Encouragingly, quarter-over-quarter increases in various business units reflect the potential for rebound supported by strong product mixes and cost optimization programs.
The company's financial strategy is being rigorously tested, with net debt reaching 3.25 times due to the extensive capital expenditure (CapEx) programs. Even so, a focus on working capital management has yielded a decrease in working capital demands, now at a low of around 12%. Total assets increased by 4%, and despite a 4% decrease in equity, primarily due to foreign exchange impacts, they maintained a solid financial reserve with EUR 1.35 billion in cash equivalents and unused credit lines. These resources are vital for the company as it navigates the balance between funding expansion and managing current financial pressures.
While confidently confirming the current year's and midterm guidance, the company's management acknowledges the high price pressure expected to continue over the next year. The company anticipates this pressure will remain a significant factor influencing margins. Investments, particularly in the Kulim plants, are being carefully timed in accordance with fund availability and strategic considerations. Revenue from new plants is expected to contribute meaningfully starting 2025, which aligns with the predicted market recovery. The company's executive team expressed comfort with the current cash position and remains vigilant in maintaining financial stability through this period of significant investment.
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Ladies and gentlemen, thank you for standing by. I'm Alexander, your operator today. Welcome, and thank you for joining the AT&S conference call on the results for the first half year of the fiscal year 2023/'24. [Operator Instructions] I would now like to turn the conference over to Mr. Philipp Gebhardt please go ahead.
Thank you, Alexander. Good morning or afternoon, ladies and gentlemen. Welcome to the AT&S Q2 2023/'24 Conference Call. With us today are Andreas Gerstenmayer CEO; and Petra Preining, CFO. Mr. Gerstenmayer will start with a brief overview of the key developments as well as the market update. Afterwards, Ms. Preining will comment on the financial figures and our guidance. As Alexander mentioned, the presentation will be followed by a Q&A session.
Now I would like to hand over to Mr. Gerstenmayer, the floor is yours.
Yes thank you very much, and a warm welcome to our half year earnings call. Let's jump into the presentation. On Slide 1, you can see the overview about the key developments of our first half year of the fiscal year 2023, 2024. And I think it's important to explain also the environment we are in. So if we now compare H1 of 2020, 2023 with the current fiscal year, we need to keep in mind that since then the entire market environment has significantly changed. There have been fundamental disruptions in the market that have entered the market and the demand side on our customers. And therefore, it's important to keep also in mind the quarter-over-quarter development because that shows the latest development and the latest trends in the market.
What we see from the [ semicon ] market, for example, is that somewhere in April, May, we assume we have seen the lowest numbers. So the bottom should have been behind -- should be behind us, at least in a general trend. Certain recovery has started to enter the market environment, and we see step-by-step also improvements from the market demand and customer demand.
So this is the base for the numbers we can present today. And I think this is also the way forward, which we need to keep in mind for the coming quarters that still a certain volatility needs to be considered even if the mid-trend will be positive or should be positive, we will have certain fluctuations to expect. In the midterm, we also see still a very strong robust trend from the market. And this is also the reason why we can confirm our midterm guidance, 2026, 2027. The very strong indications we received from the market give us the confidence that this is the way, the market, the demand and the industry will head to us.
Based on that, we have seen in the first half year, a significant recovery also in our profitability and EBITDA numbers. As I said, this is more the quarter-over-quarter development. For sure, there is a decline compared to a very strong first half year last year. But you have seen the second half year was significantly under water. What is the main drivers besides the recovery, a step-by-step recovery in the market, in the demand and the mix from the customers. We have initiated and executed successfully our cost optimization programs. This show both, on the one hand side, really efficiency gains. On the other hand side, also impact from the cost cutting we introduced, and I will come to that a little bit later. So summarizing, the tailwind we received from the market, the opportunities we created ourselves have ended up in significant improvements. And therefore, we can confirm both the 2023, 2024 outlook and guidance and the midterm guidance, as I said in the beginning, already. So let's move to the next slide. Here, you can already see the speed of implementation of our cost optimization programs. So we have 8 quarters of program defined, and the total amount of savings is EUR 440 million we are targeting. After 2 quarters, we are ahead of our schedule. We are ahead of our initial plans. And this is why we are so confident that the entire program will be finally executed successfully. On the other hand side, we have also our CapEx program optimization, which finally ends up in adjustments according to the market demand short term. We have already communicated that, especially in Kulim, we will slow down the ramp of the -- and the investment in the second plant as long as the market is not fully clear, and we have clear and robust indications that the capacity will be needed in a certain period of time. And this is exactly what we are executing now. We have cut down the investments for this year significantly and observing the latest market development. So moving on to the next slide shows that with the projects we have continued to implement. We are nicely on plan. So in Q2, we have achieved our milestones for the project in Austria for the old void project, how we call it, the main tools are moved in and under installation. We are progressing nicely with the onboarding of new employees, 240 highly qualified people from 28 nationalities have been onboarded. Now we are entering more into the blue color onboarding, things like that. And also that is progressing according to our plans. In the next slide, it's just a cleans that I think it's a record time in Austria, probably in Europe, building such a highly sophisticated plant in just a little bit more than 2 years. We have our clean room environment under condition. And this is the preacquisitat we can, in due time, start the qualification of processes and equipment. The same is true on the next slide for Kulim. It's an even larger investment and also buildings. It's not only the factory building that is now more or less finished and all the tools have been moved in. Qualification has started already, plant certification has been started, and we are fully on plan. Besides the big factory building, we have the second one, which is almost or close to be finished at the status wind and water type, including some security equipment that we need to move on. And we have a lot of utility buildings on site in operations already. So power supply, water supply and so on and so on is already finished and in condition. Also here, you can see this large site has been built in record time, 2 years, a little bit more than 2 years. We have also achieved cleanroom status qualified already. People are working on the original or the final equipment and to prepare the qualification, which will keep us busy throughout the year 2024 and to prepare the ramp end of 2024, begin in 2025. So the projects are running nicely. And what we also thought it would be helpful that we do a brief deep dive in one of our business areas, which we do typically not talk so much about. But again, it's also a very nice success story that shows that ATN is able to execute according to the strategies and enter into very nice niche markets as well. It's the medical business. We have been able to benefit from the positive market environment. The medical market has been growing over the last couple of years by around about 8% in the most important applications, just pick some of them hearing aids patient monitoring variables, but also implants like pacemakers. And this is the area the business is active in. We have been able to grow over the last couple of years, double digit. So we've outperformed the market in this field, and we positioned ourselves as one of the leading suppliers for flexible printed circuit boards in the medical area globally.
Moving on to the next slide. Here, you can also see what is the root cause behind the success. First of all, we have defined a very clear strategy in the clear setup of our team. We gained all the experience and capabilities we needed and one would need to create such a success story by growing double digit. We have all the certifications you need to support the market globally, and we have also established best-in-class processes that helps us to cooperate closely with our partners and customers to develop latest stage of technologies. Altogether, it's a very healthy business, despite we don't talk about detailed numbers because this is under the structure of our reporting segments, but I can assure you this is really nice business. It makes a lot of fun, not the largest one, not the most important one for ATS, but it's really a great success story. The team has created them. Then let's move on a brief overview about the market environment we have in front of us, and we have experienced over the last couple of quarters. Here, you can see the PCB market had a hit in the running fiscal year by a decline of 15% in the consumer communication and computing area. Still, we see a very healthy future there. The expected growth rates for the coming years is about 5%. The automotive, industrial, medical, aerospace is not so significantly declining in the running year. Main supporter there was the automotive business and medical aerospace. But still, we see a lot of good opportunities for the future to grow again once the cycle we are experiencing currently is over. Giving a little bit more in view on the dynamics of the market, here you can see what we have really been fighting with. It was a significant dynamics in the market. We just here compare the forecast we received in each of the quarters. And you can see just the latest change between forecast in June and forecast in August 2023 showed a decline of 11% in the CCC market and minus 3% in the AIM and aerospace market. So it's really a significant level of volatility there. And the expectation is, it will most likely stay a little bit like that, but hopefully in the other direction, knowing that CCC market has a significant impact of seasonality. Typically, the challenges in the market are in front of us once the calendar year starts.
Then moving to the substrate market. Here, 2 main messages. The one is the, I would call it, client computing area on the right-hand side. It has returned to the market numbers we have seen in the year 2019. So the COVID party or peak is over. We see a consecutive decline, second year decline, which is significant. There will be still growth in the future, but without having the boost of effects like we have experienced in the COVID time, this is not expected to enter into the market. Again, this is more about new technologies and replacement of existing equipment. On the other hand side, the server market surprised us a little bit in a negative way in the beginning of the year 2023.
Originally, there was no plan for a decline, and I will show it on the next slide also. But this is what we have experienced currently. On the other hand side, the expectation is that once the correction is over, the recovery should also kick in quite soon. So here, you can see the real decline we have. Yes, we have received the message in the forecast in September, 8% is significant and almost explaining the whole picture of the running year. Nevertheless, all the market intelligence we receive it's expected that recovery should be somewhere in the new calendar year starting. This is what I showed you so far was all numbers. Unit numbers shipped to the market. Here is the picture we collected in terms of market value.
And if you now compare the outlook for the substrate market in unit numbers, the growth is expected to come in between 4% to 9% depending on the market segment. Here, you can see, in average, the value of the market is expected to grow by 12% over the next couple of years. So this underpins our message that we are in a market that shows value-driven growth in the future, which is a good message in our point of view, at least, that the components we are shipping to the market are growing in their value, they show higher valuation, and they are getting more and more complex.
And this also should provide us good opportunities to differentiate ourselves via technologies and not so much being under pressure by pure economies of scale. Nevertheless, for the coming period of time, market price pressure will stay with us. But I think we have proven in the first half year that we can cater it, we have initiated what is necessary to improve, and we have also shown that in a given environment, we can sustain a healthy level of profitability.
And the details about that will be now explained by Ms. Preining. She will talk you through the numbers, facts and figures.
Thank you very much, and also a very warm welcome from my side. It is indeed a pleasure to present the Q2 numbers. Why do I say the Q2 numbers, knowing that this is a half year's earnings call. Before starting going into the details, I would very much like to draw your attention to the bottom graph of that slide. Knowing that the decline compared with the first half 2022, 2023, so the first half of the previous fiscal year is significant. Having said that, you do know that the environment has changed significantly in between. So what we do see, starting from Q4 2022, 2023 to the last quarter of the last fiscal year to this quarter, Q2 2023, 2024, we see a very strong recovery. As that, this is noncomparable to the previous year. We live in a completely different environment. This is driven by macroeconomics inflation interest, but the industry as well. And of course, as Mr. Gerstenmayer has already explained by loading and pricing. So the achievements the team of AT&S has reached in the last 2 quarters is, I would say is really significant. We have not only managed to increase the top line by 25% over the last quarter. We have also increased our margins substantially. One important topic going now to the top line numbers by stating that the revenue decreased by 24% and have reached EUR 814 million. One has to know that all the comparable numbers of the first half 2022, 2023 have catered by a very nice tailwind through FX. This has changed slightly. So we see like-for-like the dollar-euro exchange rate has weakened compared to the first half of 2022, 2023. Hence, the EUR 84 million is a very, very good achievement. The EUR 840 million are translated into EUR 217 million EBITDA, leading to an EBITDA adjusted margin from roughly the same number as Q2 2022, 2023. In the end, that resulted into a net profit of EUR 49 million. Turning the page. Going through the business units. As you do know, by 1st of April this year, we have changed our structure. Hence, we have now business unit, electronic solution and microelectronic product. Actually, the picture mirrors what I have already told you on group level, we see revenue year-over-year, a decrease by 24%, which basically is due to the changed environment. On the other side, quarter-over-quarter, we see a very strong increase of 30%, which is on the back of seasonality, which usually kicks in during that time of the year. The margins are very nicely supported by, as already stated, the cost optimization program on a small degree also onetime but very importantly on the product mix. So quarter-over-quarter, we see a nice impact on the margin driven by loading and the product mix. One thing I have to state, however, and this goes for both BUs that forward looking, we do expect the price pressure to stay quite high as we have seen in the past. Over the page business units, microelectronics, similar overall picture, year-over-year, the weaker market environment leads to minus 13% in top line. However, quarter-over-quarter, we could stabilize and increase the top line by plus 18%. This is mainly driven by the client computing, but very nicely and very importantly for AT&S also by new clients showing effects of our diversification strategies. On the margin similarly, the cost optimization programs add their fair share and could have almost balanced off all the price pressure. The quarter-over-quarter tailwind clearly results from higher loading and similarly to the business unit yes, also a very good product mix. Also here, I have to stress that AT&S management expects the price pressure to remain for at least the next 12 months to stay high. Thank you very much. One of the questions we received most input for is our financial position. And you can see and if you compare it with the results we have published in Q1, the total of our cash equivalents and unused credit lines have only insignificantly be lowered by roughly EUR 20 million and have reached EUR 1.35 billion in total. The overall strategy to very carefully and very diligently deploy our financial users. Therefore, it's very vital that this has paid off, and we have a very solid financial position for looking. The maturity of our outstanding debt instruments has changed a bit due to the phasing of the year from the last quarter to this quarter. We see that roughly EUR 340 million will mature within the next 12 months at the lion's share within the next 1 to 3 years. As stated already in the past, roughly 40% of our debt instruments are on fixed interest rates. And currently, we see 3.9% of our current financing costs. Although as we have already stated in the past that we do expect also customer prepayments to come.
Over the page. Thank you very much. One of the streams we have focused most on is the working capital management. You can clearly see that the achievement we have been able to see from Q2 2022 to 2023 to this quarter, a decrease in our working capital from roughly 21% to little 12%. However, this has now reached kind of an almost all-time low. Last quarter was a bit lower. I expect it to increase slightly, but you can clearly see the focus item or the focus is very high on this particular item. Leading us to the balance sheet. It will not come as a surprise to you that our total assets have increased by roughly 4%, mainly driven by our large CapEx programs and hence the investment. The equity has decreased in the same period by 4%, basically driven by FX effects. By a large balance sheet and decreased equity, the large consequence is that our equity ratio has decreased by 2.1 percentage points and hence has reached a level lower than 30%. Although this does not come as a surprise, we have stated that over the last couple of years, I would even want to say at least quarterly announcements that due to the large CapEx programs and in the period of heavy investing that can happen. However, our long-term prediction is again to reach over 30%.
Net debt has reached 3.25x, again, due to the same reasons on purpose continue our large CapEx programs in order to secure and we feel very comfortable to reach our midterm guidance and hence we have to prepare for that period. But by EBITDA levels of the past, particularly the last 2 quarters, it doesn't come as a surprise that this has reached to 3.2x. On the cash flow, we see a slight decrease over the first half, driven by the lower EBITDA. The investing activities are basically almost on par. And the cash flow from finance activities is lower, is higher due to lower dividends and lower change in long-term borrowings. Operating free cash flow is a consequence with net CapEx of EUR 517 million. As Mr. Gerstenmayer has stated already on his entrance slide, we are happy to confirm this year's guidance as well as our midterm guidance.
With this, I have come to an end, and we'll now open for questions.
Thank you, Mr. Gerstenmayer. Thank you, Ms. Preining. We will now start the Q&A. In order to give everyone the opportunity to raise questions, we would like to ask you to limit yourself to 2 questions. Once we are through if there are any still questions until time, we will start another round. Now I would like to hand over to Alexander to handle the session.
[Operator Instructions] The first question comes from Alexander Thiel from Jefferies.
My first question is on your CapEx planning for the next year. Based on the previous time line, it seems that Kulim is slightly ahead of schedule and assuming plan 2 with Intel space, so nice. Could you provide more colour on your CapEx needs for the next year and how this might be split between the regions? And my second one is on your medical segment, where you stated in your H1 report that you're currently assessing strategic options. Could you give us some ballpark assumptions for top line and EBITDA? And if you don't, will you agree with my estimates of around EUR 100 million revenue with an EBITDA margin of over 40%.
On the CapEx side, allow me to comment. Firstly, with the CapEx already communicated for last year and the guidance for this year, we see that those 2 years are definitely our peak years. What we have also and already communicated in March this year that we will postpone EUR 450 million of CapEx spending to a later period due to the shift for the second plant in Kulim. Please allow us that to make a comment, so far we have never disclosed the CapEx per regional or per plant. So therefore, I hope that answers your question.
Let me take the medical question. So as you know and as I have stated before, medical it is part of our reporting segments, but we are not disclosing the detailed number about businesses under or below the typical reporting segments. Slide 1, they can give you probably your EUR 100 million is a little bit overstated. But they don't want to comment more on that.
Maybe a touch to the CapEx one on your prepayments. I see you have now booked roughly EUR 700 million for Kulim. So firstly, how should we think about the prepayments you received from Intel? And secondly, from an accounting perspective, how will this balance sheet item be booked once Kulim starts producing revenue next year, especially the Intel part is interesting.
You have put it very nicely. You do know that we do not talk about customers and definitely do not complete it. I think, 2 years, we have, on purpose, communicating very transparently disclosed the prepayments we received, as you can see in each of the applications. The overall number, as you can see from our balance sheet is correct, but we have not disclosed this for which plants and in which sequence. So therefore, as we do not talk about our customers, please allow us that not to also answer the prepayments per customer.
And about the accounting treatment?
It's a prepayment as it states in the balance sheet.
And the next question comes from Patrick Steiner from Kepler Cheuvreux.
My first 2 questions would be, firstly, I've seen that you have booked the contract level is the prepayments, you've booked EUR 6.5 million of them into current liabilities. Why is that the case? Did you move that from noncurrent? And if yes, is there more to come? What's the rationale behind this? The second credshould be in the microelectronics business you mentioned, 18% quarter-over-quarter sales increase driven by client computing and also by new clients. How much of this is new clients? Is it 50-50? Is it much less than 50%.
I'll take the last one first. I think it's a mix out of both. The majority basically comes from the client computing core. As you know, when we bring new customers on to production, we need to ramp. So it's getting step-by-step.
The movement from the EUR 6.5 million you have just mentioned this from the long term to the short-term liabilities and EUR 6.36 million to be very precise to you within the next 12 months.
Yes, exactly. And the question is why are they to you? And are there more coming to you?
As we go forward, yes, because they all age, if you like, and this is the pattern of the contracts we do have.
And could you give us what was billed in the next 2 to 3 years, how much of this kind of contract liabilities coming to you, in terms of cash outflow?
I mean, in the very, very long term, right? I don't split it out by year. everything, right? Because it's a prepayment. But my understanding, initially, it was different. I think for the first 5 years, there's nothing coming to you, is the understanding on?
It's exactly like I said. In the next couple of years, all the long-term liabilities will, at some point, will move into the short term, starting with production. It's not capital neutral.
But is this something you have some room on to decide?
It's along the line of production.
And the next question comes from George Brown from Deutsche Bank.
I have 2, if I may. So firstly, you mentioned in the report that margins were partially supported by a onetime effect in Q2. Can you explain what that is and the magnitude of that? And then secondly, can you provide any detail on your average load in and utilization in Q2 across both PCBs and substrates?
So I would take this question, llet's stick with the sequence. The onetime, the nature of it is basically the release of accruals we had for aged inventories, which we were very happy to say. And that usually fluctuates over time, it's in a very small single-digit percentage deviation on margins in the effect. I understand [indiscernible] but I think you got the point.
Then I take the loading thing. It's not so easy to comment on that because, as I said in the beginning, we have a high level of volatility and also the fluctuations of loading is quite significant. I'm not sure whether it really makes sense to talk about different, very detailed loading situations. For sure, there is some areas you can imagine from our numbers, we have shown that the -- for example, for the ICS plants, we started on a lower level and improved step by step. And in the PCB area, especially when it comes to those factories that support the communication and consumer product by entering the peak season, loading became more and more sufficient. I think this is what I could state here.
And the next question comes from Gustav Froberg from Berenberg.
I have 2, please. The first is around full year guidance and the outlook. I mean, clearly, the business is improving sequentially, but you are also talking about seeing price pressure coming through and sort of remaining high for the next half year or so, most of the market figures that you put out in your presentation today point to year-on-year declines, which basically leaves at an asset 1 quarter into next year to sequentially or year-on-year grow the business? And what gives you confidence that you'll be able to hit guidance, which basically implies a flat year-on-year sales development? That will be my first question. And then second is just a follow-up on the onetime effects. Could you be a little bit more specific, please, on the margin impact there? And also whether or not you have any more aged inventory to sell in the coming quarters?
Then I Take the outlook guidance thing. What gives us confidence. I think this is purely the development we observed in the market and the development on the demand side. As I tried to explain in my part of the presentation is that we started pretty low in the first quarter. We have seen a significant improvement in the second quarter. If not everything is wrong, what we receive from Market Intelligence, there should be at least a certain sustainable recovery happening. How fast that will be, needs to be seen. As I said, the midpoint trend should be positive, but we will have certain fluctuation around that.
What makes us confident regarding profitability. Yes, this is, on the one hand side, improved loading of our capacities and factories. On the other hand side, we see the impact in the gains we generated from our own activities in terms of cost reduction, efficiency improvements and so on. So both together make us really confident that we can achieve our guidance.
And I take the second question on the onetimers. It's basically what I said before. If you would normalize it, the effect would be a very small single-digit percentage point deviation on our margins. And to the question of the aged product not to that extent.
And the next question comes from Daniel Lion from Erste Group.
I would like to follow up on the seasonality topic because it's obviously not that easy to get a good view on the dynamics going in the second half year. Previously, you boldly pointed to seasonality in an adverse order compared to last year. I think first half year would be more or less like the second half year OF last year, obviously. And the second half year would then catch up and be much stronger. Is this something you would still expect. And going into the segments, do you see maybe in the PCB segment less seasonality or less promoted seasonality than usually in the microelectronics dynamics to continue catching up. You're actually not that far away from the revenue levels that you had last year in the first half year on the quarterly level. So could you somehow give us a little bit more indication on how to expect this to develop?
When you go back a little bit in AT&S history, it was always a bit fluctuating between Q2 and Q3 in terms of peak season. We had very strong Q2 and weaker Q3 and the other way around. So I think this is one potential explanation because I assume you want to understand whether our guidance is understated or not. So I don't think so. I think it's exactly what we expect and what we see from the latest information we received from the market. And we need to split it. As you rightly said, PCB, especially when it comes to the CCC market, shows a certain seasonality. This is true again. This year, will be Q3 significantly more strong than Q2, most likely not because what we see from the market, we expect more of flat development there. Secondly, when we talk about ME and you see it from our quarterly reports of the segments, we had started quite low in the first quarter, and we have improved significantly in the second quarter. This is not so much due to seasonality. It was mainly driven by the low demand side. And as I said already, our expectation is step by step, we expect a certain improvement or recovery there. This will not be a digital jump. And also, we need to understand that certain volatility will be there. There can be shifts between quarters and so on. So overall, slight improved outlook for the second half year, I would say, mainly driven more by the overall demand development, but not so much about peak season extending and so on and so on.
So this is what is underlying the assumptions for our guidance. When it comes to profitability, we also need to keep in mind besides volatility that impacts our loading partly. We have also a certain price pressure. You should also remind back that when we entered into the new market environment a year ago, we call it this has entered a new normal into the market. We have been benefiting from a sellers market quite some time, which turned now into a buyer's market, which will remain a certain period of time with us. So this is what we are experiencing currently. But finally, we are confident that we can manage that. This is what the industry always was in. We had this extraordinary situation for the last couple of years. But as you see in the first 2 quarters, we could really manage the pricing and volatile loading situation with our efficiency and cost cutting gains.
Actually, the second focus would be obviously on also CapEx and balance sheet situation. Maybe also in light of the currently postponed or put on hold investments into Kulim plants too. How do you reflect on your available funds? Is there any idea of the timing when you would start to proceed with the capacity expansion and also, to round it up,when you look at your KPIs, especially equity ratio and net debt to EBITDA, which are currently above your target rates or below. Where do you expect this to peak? And how do you reflect on your current funds? Can you easily manage also the second expansion stack, which is currently outstanding? Maybe some more thoughts on timing and options and how safe you feel with your current setup.
Well, it was a very long question. Let me try to answer it. I hope I can give you a sufficient answer. To our current cash system, we have put that into one of our regular flights. We currently have - with our cash and cash equivalents, roughly EUR 1.3 billion cash equivalents and unused credit lines. That gives us, for the moment, clearly, a very comfortable -- or we are in a very comfortable situation. When addressing our KPIs, that's also something we have stated for already some time that both the equity ratio can fall below 30% as well as the leverage can be above 3x. This is nothing unusual in times of such a heavy expansion.
And as probably every company as a standard component of our financing strategy, we start or let's say, we refinanced discussion on time and consider all possible sources of funding in terms of categories and instruments, markets and so on. So that's our current situation. I hope that answers your question.
Not fully, maybe a little bit of an idea by when would you think that you'll reach some kind of peak based on the current margin development? When would you expect free cash flow to turn positive again to take out the pressure you currently had have on the balance. Because there's a lot of discussions in the market regarding your liquidity and balance sheet situation. So it would be definitely helpful if you provide a little bit more insight of how you see the situation.
Probably, I try to start and as Preining jumps in later. What is the underlying driver that is addressing the concerns of the market you are describing. It's basically how we ramp the new factories. So as we communicated, the ramp in Leoben and in Kulim, plant 1 will start 2025. So also revenue generation will be a little bit later because there is some delay. We started producing and the shipments will be somewhere end of the first quarter or so, and we start generating business there. So expectation until 2025 from the new plants, there should be no big contribution to cash flow. It does not say that if the market continues recovery that we also will have a positive impact from the existing plants. And as we said before already, if market continues to recover over the turn of 2024, there should be also improvement there because also the cash generation and the positive contribution from the existing plants as part of the entire financing strategy.
I can just conclude that. As you do know, we are not giving guidance on cash flow. We have given the data in the CapEx data from last year and the one from this year that allows you to calculate forward-looking our KPIs. As I said, with the cash and cash equivalents plus unused credit lines, we feel currently comfortable, but as you do know, financing is within H&S. An important topic it always has been, and we need to continue until the plants are ramped.
And the next question comes from Jürgen Wagner from Stifel.
Coming back to the question on the price pressure. Where is it most pronounced? And do you see currently customers renegotiating prices that were agreed, let's say, 1 or 2 years ago under LTAs. And my second question, last week, some of your competitors ordered, I would say, much weaker than you did today? Are you gaining market share? And if yes, where?
So regarding price pressure, as I said already, the demand situation in all areas of the market is on the weaker side currently. So this typically implies that there is price pressure in all areas. For sure, all customers always try like we do with our suppliers to negotiate and renegotiate agreed prices. whether you really confirm to everything or not depends how strong you are in the business. So I cannot tell more because then it's entering already into the nondisclosure territory. Competition yes, I think this is a good story or the good message, we do better than our direct competition is doing, obviously, just based on the reports we all received, you received, and we received. This is what we also know and see. Are we gaining market share difficult to say because this is not a one-to-one calculation easily because you have stock levels on the customer side, your stock levels on the competitive side in the supply chain and then, but we have quite an assumption that there is a likelihood that we are gaining market share because low volumes, will do better. We have a better revenue generation. So we have a certain assumption that we could have gained market shares, at least for the timebeing.
Is it across the board? Or is it more in substrates.
I think what you were talking about was the main reports you are referring to is mainly from the 3 big substrate competitors. It's IBIDEN in [indiscernible], which are purely substrate players and Unimicron, which has a more mixed portfolio. But I was mainly referring to substrates now because the portfolio of in the PCB world is so diverse that it's even more difficult to assume anything out of this average numbers. But let me conclude with the price pressure also, and I need to repeat myself again. So we had the same price pressure now for quite a while. And we could, by executing our very ambitious cost-saving activities, manage this situation quite nicely. Otherwise, the profitability improvement would not have happened. And this is what I think is also one potentially of our success stories over the last at least 2 to 3 quarters that we were able to execute these programs very consequently and very fast.
And the next question comes from Alexander Thiel and it's a follow-up question.
Just checking again on the answer that you gave before on Kulim. So it's basically that you start with the production in '24. But the first revenue, if I understood that correctly, we should plan for beginning of '25. Could you tell us what are the milestones basically for Kulim? And the second one, again, coming on the contract liabilities. I think the answer was not clear also with the follow-up questions coming from Patrick and my side before. If you can again walk us through how this will impact the P&L, cash flow and balance sheet going forward? Is it basically a prepayment that's booked against revenue? Or how should we think about it?
So I take the Kulim question. I would have -Can I please make one proposal because we are also close to run out of time. This contract liability topic probably could be a better discussion on a 1 and 1 and not having this in a general call. So if you really are interested in it, I would really ask to have a follow-up call on that with our experts, then they can walk you through. I think people are available to do so, and it would be my proposal on that. Kulim, again, so there is always a timely shift between you start production, that has a certain lead time until you ship it to the customer and you receive your money. So what I was referring to, starting ramp is somewhere end of 2024, beginning of 2025. But the real revenue generation will kick in somewhere mid- to later 2025 first quarter. And this is what I was referring to. So now if there is any suspicion that we try to postpone the ramp, no reason for that. And the rest, if you agree on that, I would postpone this or leave the question for a later discussion.
It's a very quick one. It's the latter. It's the prepayments once the revenue has started, the production started, it will be rewarded against revenues and then reverse the prepayments. So it's the latter of what you said.
So there are no further questions, we will conclude today's conference call. Thank you for your participation and questions. If you have any further questions anyhow, please feel free to contact me or Johannes anytime. Thanks. Goodbye and to next time.