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Ladies and gentlemen, thank you for standing by. I'm Yelena, your operator today. Welcome, and thank you for joining the AT&S conference call on the results for the first 9 months of 2019 and 2020. [Operator Instructions] I would now like to turn the conference over to Gerda Königstorfer.
Thank you, and welcome to the AT&S conference call about the third quarter financial and business update. We released here today also an update regarding the press release of -- about the coronavirus which we published yesterday. And today, Mr. Gerstenmayer will help the presentation and answer your questions. And with that, I want to hand over to Mr. Gerstenmayer.
Good morning, everybody, to the Q3 results announcements. So first of all, I have to announce that Miss Stoisser, due to sick leave, is not able to attend the call today. I ask our Director of Finance and Accounting, Mr. Leitner; and our Director Controlling, Mr. Karim Beglari to join the meeting. So if there are any more detailed questions, they will support me, and potentially, they will also step into the question-and-answer session directly.
First of all, I want to touch on the ad hoc message we have had to send out yesterday. Basically, it was due to the latest development over the last weekend. We have a pretty nice start in January with the business coming in. But due to the latest development in China due to the coronavirus, we have to observe the situation. And I'm sure you know, it started in Shanghai that we could not [ reramp ], and after the Chinese New Year break like we had been planning. So the reramp was postponed by the extension of the Chinese New Year holiday phase, until the 10th of February.
And over the weekend, we received the same requirements for our Chongqing II factory. And this is the reason why also this factory now stays down until the 10th. And this caused us finally to decide -- to make this ad hoc announcement because with all these capacities and manufactured value being down for at least 3 to 4 weeks. I think there is no opportunity to catch up -- to come to the numbers we have been communicating in the beginning of the fiscal year. So unfortunately, this was the situation we were in.
Basically, beginning of January, we're quite optimistic that we could hold the guidance, but with these environment, it was simply not possible anymore to stay on that level.
Nevertheless, I want to step into some more details about the future. So we have to deal with the actual situation. This is well under management. So what we can do, we are doing. We have a couple of task forces running in the company, and we are in very close link with our local management, day-to-day or sometimes on a hourly base. We have all the informations available, and we are trying also to secure the health of our people, which is highest priority. But on the other hand side, we're in close contact with all of our customers to give them a good picture what is happening.
Nevertheless, this situation will be over in -- at a certain point in time, and we will run our business again. So in the background, definitely, we continue to implement our strategies. And this is also one topic I want to also refocus all of us because I think prices are there, prices needs to be managed, but then we need to return to real business, and we need to handle the future of the company. And that's the reason why we prepared some slides about the future of the company also, not only to focus on virus crisis, also to focus on strategic topics and to be aware that a lot of opportunities are out there in the market. Once the situation is stable, again, we can start to recover and implement all the necessary actions to see a bright future of AT&S.
Turning to Page 3. It's not a very new slide. Some of you know it, but I just want to remember all the sectors, the industry sectors we are in, show significant growth opportunities either in communication with the 5G is entering now the market consumer, computer. We all know everything about Internet of Things, big data, cloud computing is driving this kind of business. Automotive, we have some restructuring in the market out there, but once the picture is also clear about the new traction systems, I'm sure the market will fast recover. And also there are new applications like e-mobility and autonomous driving will push the market to new higher levels. And the same is true for Industrial and Medical. So overall, what we see is significant growth in all of these applications we have selected in the industries and that will definitely drive our future growth.
Coming to Slide 4. Here, we -- you can see the development of 5G. Just to enter a little bit more into the details, what -- how big the opportunity there is.
In 2019, we have round about 1.46 billion smartphones in the market. Until 2024, it's expected to raise or to grow to 1.6 billion smartphone, which is average growth rate of 2% around. But if you have a closer look on the 5G market there, you can clearly see the penetration of 5G smartphones in 2019 is quite low, just 27 million. And within the next few years, until 2024, it's expected to come up to 509 million, which represents round about 30% of the entire market. And this is one part, the transition from 4G to 5G, transition from old phones to new phones, will happen. And 5G definitely requires high-end technologies in regard of AT&S products. And this is one of the big growth opportunities we are facing now, and we are preparing ourselves together with the leading OEMs in the market.
On Slide 5, you can see the opportunities coming up in the big data and computing area, a lot of market participants talking about high-end processor modules. You see, in 2019, we had just 38 billion devices being connected in the Internet. The expectation is, until 2024, 52 billion will be connected, which is average growth rate of 7%. This is mainly driven by the volume of data, which is on the next part. This is growing by almost 30% year-over-year to a level of 137 zettabyte, which is a tremendous, big number and probably nobody really can imagine how big these data volumes are -- really are.
Coming to our business in regard of the high-end computing. Turning to Page 6, you can see that the high-end processor modules show an average value-wise -- unit-wise, a growth by 3%, which is not that big until 2024. But if you go to the next part, you can see what is the main driver there due to more powerful processors, which require larger form factors, higher layer counts and also higher-valued IC substrates. The real growth will take place in the value, which is also a very good message because normally, value growth drives more the margins than just unit growth. And here, we see, in average, a growth rate of 11% for the next upcoming years.
This is also the reason why we decided to do this heavy investment in our Chongqing facility. You all know about it. In November 2018, we decided to fully equip Chongqing I, which on -- is on the way, almost finished. The ramp is in front of us, and we are preparing for that. By the way, I did not really mention before that Chongqing I is still running. We did not have a Chinese New Year break in Chongqing I due to the loading situation and the demand in the market. And that case brought us to a more favorable position because running operations are allowed to continue to run or to operate. It's not full capacity there -- available there because some of the people were not able to return. But at a certain level, we are running, and we are producing, and also starting and continuing to prepare the ramp of the second phase of investment.
In addition, last summer, we announced this EUR 1 billion investment for the plant 3 in Chongqing, again, addressing the high-end IC substrate market.
And on Slide 7, you can see how the capacity will ramp. So we will see a significant increase already in the new fiscal year. And starting now with April 2020, we will have some additional capacities due to some technical investments in '21, '22. And then the big factory Chongqing III will start to produce in 2022, 2023, which is again a significant step up in capacities and for sure, also in revenues.
And this is finally also the reason why we changed our midterm guidance in summer because with the full [indiscernible] on Chongqing I. I talk a little bit more about Chongqing II later, and the Chongqing III being fully operated. This will bring us up to the EUR 2 billion revenue stream in 2024.
Regarding financing of all these capacity expansions and CapEx, you can see on Slide 8, a very nice profile. You can also clearly see that until 2023, everything is nicely financed. Also when we have to repay some of the debt facilities we have in place in 2024, all the capacities are already up and running, and we expect a significant higher cash flow and much stronger cash flow until then. So for us, the repayment of the debt facilities we foresee for that period of time, it should not be any problem.
Moving on to another business opportunity in the market on Slide 9, the Automotive business. As I mentioned already in the beginning, we clearly can see the change in the mobility in all areas. In the bubbles, you can see how the electronic content is continuously growing. 2020, it's expected to already come to a level of 35% electronic content in a car, which will continue to increase up to 50% until 2030. So all areas like electrification, autonomous driving, connected vehicles and/or [ entered in ] will support the drive and will help us also to meet our growth targets.
On Slide 10, you can see how this will impact the PCB market. From a today's market volume in Automotive, PCB is from $6.9 billion to a level of $9.6 billion in 2024, growth rate of 6.8% year-over-year. In addition, automotive electrification and entering electronics in automotive will also drive our new business in the module area. And also it will significantly support the market development in the IC substrates because autonomous driving will need very powerful computing performance, which we are preparing ourselves for and which our customers are also addressing.
This brings me to Slide 7, some words about the module business. We have been talking about several times already. Some of you know most likely that we have defined several layers, how we want to enter the business, starting from our today's business, PCB/substrates, which is on the bottom, the layer one. We already started to enter the substrate modules business, which is very tiny, small PCBs for modules. And we also made a decision over the last couple of months that our factory in Chongqing will become the competence center for module substrates.
This you can see on Slide 12. Here, we already started some investment in the running fiscal year, which will come in on a level of around about EUR 30 million in total over the next 2 to 3 years to fully equip Chongqing II. And to prepare the factory for the module business, we will need to spend around about EUR 160 million in CapEx, and then we can -- and we are ready to really play a significant role in this kind of market. The business already started. We have projects under qualification. The expectation is that within the next couple of months, 1 or 2 quarters, first orders will start production.
Slide 13, again, is a brief overview about the PCB and IC substrate market. I will not go into each and every detail. In total, what we can see, is round about 6% at -- average growth rate over the next 5 years in the entire market. So again, also, this market shows very nice development.
On Slide 14, also, again, the growth rates in module business. We are addressing or starting to address more and more. This is more than 11% growth rate over the next 5 years. So all areas show good opportunities. And as I said before, once we have solved the corona issue, we will go back to normal business and drive forward the development to achieve the targets and to participate in this nicely growing market.
So now coming to the Q3 results or the highlights. Basically, as an overview, and I think this is -- you're all aware of that. We had already quite a challenging market environment throughout the entire fiscal year from Q1 until Q3. We had all these trade frictions. We had the uncertainties coming out of several conflicts, either it's China versus U.S. We have the Brexit, we have others, so it was already very turbulent. We had like quite some macroeconomic changes like in the Automotive business. We had some kind of downturn in the Industrial business. So it -- and some mix changes also in the mobile and smartphone business. So this was already quite some challenges, but overall, I think we did quite well. We kept our business almost stable. For sure, we have seen some impact to our profitability mainly driven by the changes in the mix but also driven by changes in the mix and the lower volumes. But in total, I think, the whole performance was still quite okay.
So this finally brought us in the Q3 -- Q1 to Q3 accumulated to a revenue of EUR 753 million, which is lower than previous year with -- previous year, we were on EUR 790 million. The EBITDA came in with EUR 156 million versus EUR 220 million the year before. And the EBIT, which suffered most, also due to higher level of depreciation, came in with EUR 47 -- or almost EUR 48 million versus EUR 121.5 million in the previous year.
So in total, yes, there is a decline, but it's not completely surprising. The depreciation, we had foreseen. And the market environment, a bit -- and additional -- of course, an additional impact that we ended up with these figures. Our internal expectation would have been that we plan to make up a little bit the decrease in the last quarter. But as I said in the very beginning of the meeting today due to the corona crisis, we are simply not able to catch up, and now we have to accept that the situation is as it is.
On Slide 18, you can see that the business segment, it's the overview story. On Slide '18, you can see the development quarter-over-quarter. Also, the regional split is a little bit more turned into the U.S. focus, 69% is U.S., 30 -- 16% is Germany/Austria; 8% is Asia and other European countries is 7%. The segment split is 69% Mobile Devices substrates, and 31% Automotive, Industrial and Medical.
Slide 19, you can see the overview about the business development of mobile devices and substrates. The revenue slightly declined by 1.9%. The EBITDA declined by 27%. This is due to the already mentioned mix changes, which is not favorable for our setup in the HDI and subfactories, and some lower demand.
On Slide 20, the business development of Automotive, Industrial and Medical. You can see the impact mainly coming from the Industrial business in the revenue side, which is a decline of 4.2% and also the EBITDA suffered and declined by 3.7%, mainly due to two reasons. The one is the underutilization of capacities and the certain price pressure, also due to lower business volumes, which we assume will be more temporary effect once the -- especially Automotive business is coming back to higher demand levels. We expect a recovery there.
On the financial side, I think, not so much to add. I already mentioned almost everything on -- which is on Slide 21, which is the profit and loss statement. I think only the financing costs' slightly increase is mainly driven by FX effects.
Slide 22. The financial position, I think, equity definitely shows certain impact, but the largest impact is coming from the -- from negative FX effects. This is the translation effect we see. Also, net debt increased due to the higher CapEx and the impact of the newly introduced IFRS 16. We had some factoring activities. So net working capital has also shown a certain decline. And what we do see -- any -- I think this is mainly what we wanted to highlight on Slide 22. The cash flow, main topics is the cash flow from investing activities. Here, we have higher net CapEx, but lower temporary net interest in financial assets compared to last year. These are the main reasons for this high -- significant, more significant change, but I think not any operational problem out of that. And also, for sure, the cash flow from financing activities shows significant changes. Main reason is that last year, in the third quarter, we issued the promissory note loan, the large one, and this impacted the financing activities in the previous fiscal year significantly.
Coming to 24, the net CapEx profile. You can see, we are on -- now after 3 quarters on a level of EUR 145 million. Last quarter, there will be some CapEx additions coming in. But in total, this is already explained on Slide 25.
The total group CapEx will be lower than originally planned. The original guidance was 304 -- up to EUR 340 million. We are planning now to come up to EUR 270 million, which is not a big problem. It's not caused by delays in the projects, it's mainly timing variances out of negotiations with the suppliers. And also in certain areas, some adjustments, timing adjustments when we issue the POs, and when we issue binding contracts with the suppliers.
Capacity technology expansion will be on the level of EUR 40 million, which is mainly caused by the Chongqing II, phase 2 for modules, as I explained before. No other projects we have implemented this year, and maintenance is like we have planned in the beginning, EUR 80 million to EUR 100 million.
And -- as already stated before, the midterm guidance is still in place. We are executing all the projects, which will support the midterm guidance. We see the demand out there in the market. We see the opportunities there. And the 2 billion target is still there. The same is true for the EBITDA margin and also the ROCE target of above 12%.
So this was a very fast rush through AT&S and the future of AT&S. I'm sure, there will be some questions. We are now open to receive your questions.
Thank you, Andreas Gerstenmayer. May I ask the operator to introduce the rules for the Q&A, please?
[Operator Instructions]
And actually, we have first question, and it's coming from Mr. Daniel Lion.
I guess there would be really many, but just to focus on the most important ones. I guess it's very difficult currently to really assess or have a visibility of when production is going to really to resume and some of -- what impact it might have beyond your fourth quarter. But -- so I would still like to focus more on maybe the strategic issues and some that's -- could be maybe answered from the current point of view with a better visibility, starting with the availability of supplies and components and the prices for those.
To what extent are these impacting your production already now? Or are you expecting those 2 to impact your production going forward once you resume your production fully next week, hopefully? Would you expect that's due to some bottlenecks, prices might go up in the short term and then put additional pressure on you? Or what would you expect in this respect?
First of all, I think, to understand the situation there, we need to look a little bit what is happening in the entire supply chain. So either on our side or on the side of our customers, the other partners in the value chain, who are allocated in China, nobody is really able to run operations. So almost everything is standstill. So the demand is not really there. Also, transportation is actually quite difficult. But due to not really running operations, it's not causing a big issue now. Our expectation is that once the release to get restarted, the factories is there. And we assume this will not be just one single place, there will be several places to be approved to restart. We expect that the supply chain will speed up very fast because there is not really a big issue in there. There is no shortage in capacities or anything like that. It was just -- everybody had to switch off the production. Yes, everybody needs to ramp them again, but also on all sides, there are certain stock levels. They can ship out immediately once the whole thing is reramped or released again.
So in our case, what we foresee is, we can still run our Chongqing factory. We have enough material on stock, but there needs to be a recovery of the supply chain within the next almost 2 weeks. But if nobody will be allowed to restart production at the 9th or the 10th, so the situation will slightly or will not change for the operations we have stopped already. It can become a -- some challenge for the Chongqing I factory, but we have already started preparing ourselves, and we are still optimistic that we can find solutions to support also with materials, the running operation in Chongqing.
Regarding the pricing, we do not see any request for price increases. The expectation is more that everyone in the supply chain will be happy to restart again and to ship materials and components as soon as possible to the market.
Okay. Maybe strange to ask, but would there be any risk of penalties for not delivering?
As I said before, we have very close connections to all of our customers. So far, nobody did mention anything like that. Especially the large ones, they are facing similar situations. They face also a line down. In other factories, [ they ] supporting them. And a little bit surprised already how -- on what level the loyalty of the entire industry is in a time like this. Everybody tries to help each other and to overcome the situation. For the time being, I don't see any liability of penalty issues.
Okay. Good to hear. Then maybe one question to your product mix that you mentioned, especially in the Mobile Devices business. Just to maybe get a clearer picture for this really happening in terms of demand, what's causing the weaker product mix? Is it price pressure of some products? Or is it less sophisticated products being demanded overall? Or is it underutilization? What is it?
It's a mix of several topics. First of all, we see strong demand in technologies like any layer. We see some weaker demand due to technical changes also in the mSAP area for the time being, which is -- all of that is somehow causing a disbalance of the capacities or in the factory. We have, in some areas, we have bottlenecks. And in some other areas, we have idle capacity due to these moving technical requirements, moving mix requirements and so on. So it's quite a challenge to try to balance the factory.
And we also need to consider that in the previous fiscal year, I can say, we had almost a perfect year because we had a share in some products on above 40%, which is not normal. So 2019, 2020 was somehow the year where the market turned to a normal situation, transact to a normal situation where the share distribution was more equalized. And for sure, you can say we lost market share, but it is a market where you normally can only get a share of round about 30% in certain projects and products. We were favorably the year before because our competitors had significant issues. They improved, and now we have a more balanced situation in the supplier portfolio for our customers. I think this is simply the situation what we also have to face, and this was mainly causing the volume reduction in some areas.
This is also providing us the opportunity then that we can offer these capacities to other customers like we did already. And I think we were quite successful this year that we could also enter new accounts also in the smartphone area. And we are foreseeing ramping up some of these customers in the next fiscal year.
So you would expect, in a normalized situation that's starting with the new fiscal year, this product mix would improve again towards historical normal situation?
Yes. What we have -- what we see from the forecast we received, not giving already any kind of guidance for the next fiscal year, but we are quite optimistic, especially with the 5G coming in, which is requiring different technologies, more high-end technologies. And our expectation for the coming future is quite positive.
Okay. And then I would like to ask you about your investment in Chongqing II, the modularization business. They're up to EUR 160 million within the next 2 to 3 years, would this be it for the modularization? Would this be the size of the business, like you would expect it? Or would there be a further investments into this business? And is there still enough space in Chongqing II to expand this business? Or would you need someone to go somewhere else?
And finally, also related to this, is this investment already included in the EUR 2 billion guidance?
Okay. Starting with the last question, yes, it was already included somehow in the guidance for the EUR 1.5 billion, the first midterm guidance we disclosed 2018 number. Because that time, we said EUR 1.5 billion we want to achieve with fully utilizing Chongqing I and Chongqing II, and the underlying business staying stable. Regarding the module business, I think, you know us quite well. We do things step by step. So we are now focusing on entering the market, establishing the necessary technologies and capabilities. And like I have shown on the Slide 11, it's the layer 2 what we are addressing. So it's the PCB/substrates for modules. And this is already a significantly growing market. So when we have entered this market, I'm sure there will be additional opportunities, and we will take care about them and how we address them at a later point in time.
But there's also the layer 3 on this slide, and this is also one thing we already mentioned in the past. This is one of our strategic targets to enter not only PCBs and substrates for modules, we want to also enter the market for the entire module integration services, which is additional services in the value chain we want to provide, and we are on the way to prepare ourselves for that.
How we will establish the necessary capacities there? We are sorting out now. And there's nothing decided so far, but we are working on that. And once we have made up our mind, and we are clear what we want to do, definitely, we can talk about it.
Okay. Maybe just one really final one. The EUR 125 million of CapEx in the fourth quarter sounds quite a lot.
Yes. But I think this is mainly driven -- we had a lot of activities running, especially now the Chongqing I expansion. This EUR 118 million or what EUR 180 million, I think, we announced is coming to an end. So we have to pay the last portions, which is already -- which is on the way. And we have started construction of Chongqing III. We have to issue first POs for equipment because the lead time for some of this equipment are very long, up to 2, 2.5 years. And normally in this business when you order equipment, you have to do certain down payments, once you place the order. This is all considered in this number.
And we have one more question coming from Teresa Schinwald.
Actually, only one remains, and this would be the U.S. dollar effect on EBITDA in the first 9 months.
I think it would be best if Mr. Leitner will answer this.
You asked for the FX effects on EBITDA, correct?
Yes. Yes.
Yes. The EBITDA effect -- on EBITDA, it's round about EUR 13.9 million to round about EUR 14 million.
[Operator Instructions]
And actually, we have another person who would like to ask a question. This is Mr. Benjamin Varrow.
Just two for me, please. Just very quickly on the coronavirus again. How many weeks have you now factored into your guidance in terms of the shutdown? So if this continues well beyond the 10th, I mean, how comfortable are you if it goes on for like a month or so?
What we factored in, in our simulation is a 3 to 4 weeks shutdown of the Chinese factories in Shanghai and Chongqing II.
Okay. And then just on a separate note. Just next year, looking at the new capacities coming on and the strong demand that you're seeing for the IC substrates, and on the expected ramp of that new capacity, do you expect that to be relatively quick in term -- from a technological standpoint? And so in terms of the profitability of the new, the new capacity, are you quite confident that, that comes up quite quickly?
Yes. What we always said already in the past is that once the Chongqing I factory is fully up and running and all the technologies are implemented, definitely, we will see a much more favorable profitability of the factory. This is the last 2 steps, which we have been showing on Slide 4. Give me a second.
So it's Slide 7. We are now doing the bigger first step of the expansion in the coming months, bringing up the capacity by additional 90%. And then you can see our next step in '21, '22, which is again, 20% additional capacity and also additional technologies entering the business.
For the first step, the technology is all qualified. Everything should be prepared. We did a lot over the last 12 months. The technology development for the second step is on the way. This is a little bit more complex technology. This takes a little bit more development and qualification time. And this is also the reason why it is scheduled in for the next fiscal year.
At the moment, there seem to be no further questions. The Q&A session is closed. Thank you.
Ladies and gentlemen, thank you for your attention on the conference call, and we will come back for the first guidance for the outlook in the next year, and we'll give the preliminary result for the actual financial year in May and on [ 14 ] May. Then we have the next conference call. Thank you, and have a nice day.
Thank you. Goodbye.
Thank you.