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AT & S Austria Technologie & Systemtechnik AG
VSE:ATS
AT & S Austria Technologie & Systemtechnik AG
VSE:ATS
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Earnings Call Transcript
Transcript
Other Earnings Calls
Ladies and gentlemen, thank you for standing by. I am Beatrice Brunner, your operator. Welcome, and thank you for joining the AT&S conference call on the results for the first quarter 2018-'19. [Operator Instructions] I would now like to turn the conference over to Gerda Konigstorfer, Director Investor Relations and Communications.
Good morning, my name is Gerda Königstorfer, Head of Investor Relations. Today, we are presenting the first quarter results and from the contents at first, Andreas Gerstenmayer, CEO of AT&S, will present to the market update and the summary business performance. Afterwards, we will present to you the financial results. This will present by Monika Stoisser. And finally, we will give you an overview about the outlook for this year and also for the next coming years. And afterwards we will receive your questions and Q&As. And yes I will hand over to Andreas Gerstenmayer, and please go forward with your presentation.
Good morning, and warm welcome to everybody on this nice sunny summer day. As always I will start with a brief overview about the market development, how we see it from the base point of [ view ] on Slide 2. Overall what we foresee for the upcoming periods the PCB and IC substrate market will most likely grow with a margin of 3.1%. As you can see from the bars below, the computing area is more or less have lead business 1% to 2% growth mainly driven by very slight increase in server business and some textbook applications. The communication area is expected to be driven by 5G applications in future, which should generate further momentum in the market. A very nice growth is still expected in the consumer area, 4.3%, which is mainly driven by new applications like connected devices, Internet of Things and all these kind of applications. Also automotive with a growth rate of almost 4% shows very nice development in the future. Main driver for sure are the 2 applications or 2 trends autonomous driving and e-mobility. Industrial a steady growth of roundabout 3%. This includes also the Medical area, which we see a very nice trends especially in the area of diagnostics, imaging devices, but also mobile devices and patient monitoring. Military and Aerospace more or less continuously growing by 2%, which is not bad, important for AT&S. And last but not least, we see taking up of the growth in the IC substrate business almost 3% in the upcoming years, which is mainly driven by bigger demands in the server areas, in server processors but also what we perceive for the future is the All-in-One and System-in Package applications.
So overall you see we are in quite some nice areas of market development and market trends. And with the technologies we have on hand we are well positioned to support and to benefit from these trends.
Moving on to Slide 3. Overall, I think we can state we have a good start in the fiscal year. Certainly saw some seasonal effects like we have always have in our first quarter. We have definitely a very nice contribution from the additional capacities available in Chongqing compared to last year's first quarter, you -- most of you I think will remember, we were still in the ramp phase for both of the factories. Now we can say the capacities are very nicely utilized, especially in the IC substrate area and also the mSAP technologies will get back to more loading in the period to come.
Finally the revenue came in on a level of EUR 222 million, as I already said, mainly contributor is Chongqing with the additional capacities. And in the PCB area we can outline that especially medical and health care had a very nice development in this quarter and contributed also to a certain extent. Margin came in with a 24%. There have been some one time valuation effects, Ms. Stoisser will speak into more detail later on. And as we already have stated and disclosed, we were very successful issuing a promissory note loan of EUR 292.5 million. Mainly this will support our further growth strategy, which is targeting with EUR 1.5 billion revenues within the next upcoming 3 to 5 years. Also the conditions are very nice, we came in with a interest rate of 1.18%. And that provides also to improve our maturity profile and the refinancing of the promissory note loan issued in 2014.
Moving on to Slide 4. As you can see the growth in revenues versus last fiscal year first quarter is definitely there at 11.2% and also the margin recovered nicely. The business distribution regional -- region wise is still very strong in Americas. I know you all will think about how is that fitting to the trade war. If there are any questions we can definitely follow up on them during the Q&A session. Still some solid position in Germany/Austria it's mainly the automotive industrial business dedicated there, 8% Asia, and 8% other European countries. This situation over our business segments or business units 62% in the Mobile Device & Substrates business, 38% in the Automotive, Industrial and Medical business.
Now turning onto Slide 5. CapEx is on a lower level, as we always stated, once the first phase of Chongqing is finished and the second one is not started yet. From the employees figures we have seen a decline [indiscernible] of 9,598, this is mainly dedicated to the seasonality but also to a certain extent to the efficiency activities we are driving forward and which is definitely also supporting our nice profitability development.
On Slide 6, the overview about the Mobile and -- Mobile Devices & Substrates business. As already stated main contributor to the growth was the capacities in Chongqing either in Substrates but also in the mSAP business, which was not part of the business last year first quarter. We had certain operational improvements and better mix in the IC Substrates business, which is mainly dedicated to server business. And we have also seen a nice improvement and higher contribution margin in Chongqing due to the higher loading and better efficiency of the location.
On Slide 7, Automotive, Industrial and Medical business. Very good demand in all of the [indiscernible] in the quarter. As I said in the beginning outstanding, good development in Medical business. And for the future we definitely will contribute participate in this very strong trend of autonomous driving e-mobility, where we are preparing ourselves, we have a nice position there. We have a lot of projects and high interest on the customer side too to move on there and generate additional growth. And as you also know we have started some expansion projects in India and in Austria Fehring to support this strong trend. EBITDA margin improved versus last year, this is mainly an effect out of improved mix. And this is what we mainly can do for the time being as we don't have additional capacities on stream, we are continuously optimizing our mix and product distribution and through that we can both improve revenues and profitability.
So this was a very fast run through the major topics of the first quarter. And I will now hand over to Ms. Stoisser to go in more details about the financials and the results.
Thank you. Good morning and welcome also from my side. Monika Stoisser speaking. I would like to lead you now through our financials for the first quarter 2018 and '19. I will start with Slide 9, profit and loss statement.
As mentioned, we ended with EUR 222 million, which is an increase of 11.2% mainly driven by additional revenue contribution from our plant in Chongqing. You remember that last year Q1, we were on the ramp phase, now these plants contributed well to this revenue in the Q1. Our revenue was negatively impacted by the U.S. dollar development as we have a huge portion in U.S. dollar revenues.
On the other side if we look at our EBITDA, we had a huge increase of 75.4% from EUR 29 million to EUR 52 million, main drivers it was the one -- or around the one hand, as mentioned, the contributions of the earnings in Chongqing, which are running well now. And on the other side or additionally, we have positively -- positive effects of our ForEx valuation, especially in the accounts receivables. So we ended up with a EBITDA margin of 23.4% and an EBIT of EUR 18 million and an EBIT margin of 8.3%.
You see positive finance costs net of EUR 1.7 million, this is mainly driven by on the one side lower interest expenses, slightly higher interest income, but mainly driven by a positive ForEx effect within the -- in the finance sector.
Income taxes increased for sure as the profit increased, but the increase was slightly lower than the comparable profit due to a reduced tax scheme in Shanghai, which we did not calculate or we could not, and were not allowed to calculate last Q1 in this fiscal year 2018.
Coming to Slide 10, statement of financial position. Here I would like to highlight and mention our equity. The equity increased now to EUR 743 million mainly driven for sure with the -- from the accrued profit of the period, EUR 13.5 million. Additionally, we had the first time adoption of IFRS 9 and 15 which had a positive impact with EUR 10.4 million and positive ForEx effects as well.
The net debt stayed more or less stable at EUR 214 million; despite we had an increase of the net working capital, which we always have at the end of Q1. This is stable due to our positive result we could gain; gearing therefore is at 28.8%.
The net working capital increased, as mentioned, out of the seasonal situation we are always in and additionally had those effects in the first time adoption of IFRS 15. So we ended up our net working capital in relation to revenue of 14%, and the equity ratio is at 47.9% now.
I'm coming now to Slide 11, the cash flow statement. Starting with the much higher operating results and the lower changes in working capital. As mentioned, we end up with a cash flow of operating activities. Positive cash flow operating -- of operating activities EUR 4.5 million, the investing CapEx was at EUR 21 million, which is also lower than last year, because last year we -- it was still impacted by Chongqing.
So we end up with an operating free cash flow where we calculate the operating activities minus the net CapEx of minus EUR 12 million, which is a good result now nearly balanced. And the cash flow from operating activities minus -- investing activities we have EUR 17 million minus.
This was an overview about our financials and I’m coming now to the outlook on Slide 13. As we guided from the beginning of this fiscal year, our guidance stays at 6% increase in revenues, and then EBITDA margin at 20% to 23%. As we have seen or we see now this good positive Q1 development, we expect to end up at the say upper range of this guidance in the end of the year.
Our maintenance investments and minor technology upgrades is -- will be at EUR 70 million to EUR 100 million roughly. And additionally there might be some up to EUR 100 million additionally for capacity investments and bigger technology upgrades or expansions. This is depending on the market development and decision is not made so far.
Talking about what's going on, currently we are in the phase of the technology expansion and capacity increase in Nanjangud and in Fehring in Austria; Nanjangud, India; Fehring in Austria both are on track. And coming to Chongqing, Chongqing I, technology development projects are in preparations and second phase for implementation these are in preparation. And Chongqing II, we are intensively looking at the market development at the next evaluation for this will be mid of fiscal year 2018 and '19.
This was a short overview of our outlook and now I hand over again to Mr. Gerstenmayer to talk about our medium-term strategy.
Okay thank you very much, Ms. Stoisser. As already communicated during the annual conference call a few months ago, we have now defined our mid-term strategy and also our mid-term goals, which was disclosed on a revenue level of EUR 1.5 billion and EBITDA margin between 20% to 25%.
As you can see from the graph on the left -- right-hand side, this would mean we definitely will continue our path of value-added growth. We were able to significantly outperform the market development over the past couple of years, and going further there, you can see markets will be growing around 3% in average per year and our target is to grow by roundabout 8.6% per year in average.
The main driver there will be, as I said before, these new applications in the 5G area, in the autonomous driving, but also we see a strong trend towards modularization of electronics. One part is the All-in-One module also mentioned in the beginning of the presentation and where we can definitely expect improved or and higher value of our services we provide to the market. And as Ms. Stoisser said before, this is also part of the technology development project. We have already started and are executing to be prepared for the new trends and to cover the new demands of the market to generate additional value growth.
So this in total was a brief overview about the achievements of the AT&S an outlook of a very nice and I think attractive future of the company. And we will now hand back and would be open for any kind of questions you have.
[Operation Instructions] And the first questioner is Lukas Kothbauer from Kepler Cheuvreux.
Regarding the positive valuation effects. If I compare Q1 earnings sequentially with Q4, I arrive at a gross profit delta of EUR 5 million but at an EBITDA delta of EUR 16 million. Is it fair to assume that the resulting significant difference of EUR 11 million is a good indicator of the mentioned valuation effects?
The FX effect is not that high. The FX effect is approximately EUR 5 million and there is some other FX effects for -- so this is the main effect coming out of the -- of this FX effect EUR 5 million, the accounts receivable.
Okay, and then if I could remember correctly the wording was a one-off, among others, due to FX and what are the other effects?
The other effects are mainly mix -- a good mix that we had in this Q1 and some minor FX effect valuation effect for example that we had devaluation of our stock appreciation rights of EUR 1 million. This is an additional valuation effect. But ForEx EUR 5 million and the other is coming out of the business.
And regarding these measurements is it something that you’ve done in also in the past or is -- has there been a change in your approach?
No change in our approach. The only change that we had was what we had to do IFRS 9 and IFRS 15 and you can see all the effect but this does not affect EBITDA but you can see all the effect in our Q1 notes.
And one last question, if I may. Regarding the timing of mSAP orders, could it be that the suppliers were asked to deliver a bit earlier to avoid any potential delay on the OEM side?
This I would say like it always is, it relates heavily how the new projects, the new generations are prepared and starting to be introduced to the market. I would not say it's significantly earlier. It's a normal year no big delays visible so far.
And the next questioner is Daniel Lion from Erste Group.
I would have -- some questions I would like to start with the IC Substrates business. I's – obviously, this has also contributed a lot, especially on the efficiency side. How do you see the development and basically your target in breaking -- in reaching breakeven now for the full year on the EBITDA level? And how does actually the ongoing slow ramp of intel, which is maybe slightly delayed sort of [ master ramp ] and then later on or a master delivery later on but how does this play into your profitability expectations and also revenue expectations in the Substrates? Maybe you can give us a picture how this develops and how far we are in terms of this, at least breakeven target?
First of all the -- one question back the slow ramp you're referring to the new generation of the 10 nanometers, right?
Yes, yes, sure yes. Sorry, yes.
Sure understand the question. Yes, it's as we said, we
[indiscernible] significantly an improvement of the contribution rates in Chongqing 1. This was mainly driven by 2 effects the one was definitely efficiency increase. So the factory is really doing very nicely. And on the other side, the volume and the mix effects we have seen in the first quarter were also supporting this trend. So a more valuable mix with higher technologies especially from the server area help a lot. Regarding breakeven, we're still driving for that. This is still heavily related to the mix and the loading of the factory. And if that would be successful the target is still one which could be achieved. The slow ramp of the 10 nanometers, we did a reevaluation of our forecasts and it's a -- it's part of our mid-term guidance as it is disclosed schedule, the ramp schedule is that the 10 nanometers technology in volume will start in -- somewhere in 2019 beginning. So we will not see any significant volume in fact in the running fiscal year.
Okay so also that -- as you seemed to refer to the official start of the ramp in the December quarter so you do not expect any significant impact from the start of the ramp only from the master deliveries then in the second half of '19?
I think we need to rely on the official information, which is disclosed publicly and I think this is what we could state on it.
Okay, related to the capacity expansions, how is the decision-making process developing? What has changed since last quarter? Is there any more you can tell us about it in terms of expected schedules, expected decision making and...
Okay, as Ms. Stoisser stated before, for the mSAP business we made up our schedule and I think there was not -- no big change that we want to reevaluate the situation mid of the fiscal year once the new generations have started but also once we see what other potential customers are planning for the next year. Then I think we could have a good chance to make decisions, whether we go ahead or not. Regarding the IC substrate business, I would say there is a slight change what we could see in the first order now is a take-up of the demand and the take up of the forecasted volumes in the IC substrate business, especially in the higher end business what is allocated to the server business. For sure we -- as we always stated, we will reevaluate the market and the market situation once changes are visible. And there I would also say, we will be able to make further decisions also roundabout latest mid of fiscal year.
So this means that you're currently still evaluating to add another IC substrate lines instead of changing the technology?
No I think what we they stated so far, it means always to be in line with the technology development. And if we see a certain technology level, which supports out future strategy and the future roadmaps then we will reevaluate the situation.
And the last question on ECP, how is your demand developing? And what do we expect to be the main drivers for that? Should we expect 5G to be a driver for ECP or...
Basically, it's still a very young market despite we already talked quite some years about it, but what we don't see this is a very stable situation in terms of technology applications and demand. It's still quite like fluctuating. Sometimes we see very nice big projects as we have also been executing in the past and then it takes again quite a while to get into new applications or opportunities. Big drivers definitely are the modularization trend of the industry there [indiscernible] advantage for the embedding technology. And once the All-in-One package would come also there embedding could be a significant contributor to it.
Okay. So this means there's still some to go until this stronger demand really kicks off. So it's rather project-wise.
There's not that big application. We need to qualify and participate in the one or the other selected project. But it's still a good technology and there's a lot of interest out there in the market.
And the next question comes from Philip Saliba from HSBC.
I was wondering looking at the Auto, Industrial, and Medical business; you mentioned that medical did develop favorably. So overall, why did the segment not grow? Is it rather coming from the Auto side or rather from the Industrial side? That's the first question.
Mainly it was from the Automotive business, and the main -- or the main reason for that was that the -- especially the German car manufacturers and OEMs faced certain challenges in their approvals due to the diesel scandal. There was a little bit of slowdown of the market, and I would assume, and we don't have all the details, but our assumption there is that they also need to reduce their stock levels. But I think this is a temporary effect. It will pick up again once the stock is cleared to a certain extent, and the problems with approvers will be solved.
Okay. Then, can you give an indication on how strong the top line growth was in Q1 ex Chongqing effects?
I mean, as we have capacity -- we are on the edge of our capacity so the main driver of our additional revenue is coming out from this additional capacity that we have.
Okay. Then in general, can you give an indication on how the price levels of IC substrates have developed over the past 12 months? Maybe -- I mean I understand that the mix has also changed, but I mean, what is the price effect? Also to have an idea there, has the prices generally recovered as well or?
It's a good question. But, sorry for that. As you already know we are seeing a customer situation. We can definitely not talk about any kind of price issues.
And then looking at the CapEx, you have CapEx of EUR 17 million now in Q1. And you're guiding for EUR 70 million to EUR 100 million overall in maintenance CapEx and then the further expansions potentially. When should we expect most or, should we, let's say, expect an even split of the EUR 70 million to EUR 100 million across the year or will there be a special loading on a specific quarter?
I mean this EUR 70 million to EUR 100 million are over the quarter. There will not be, probably not be 1 peak in 1 quarter. But this is what is coming out of this, let's call it normal business as we have to do these upgrades and these reinvesting constantly. If there is a -- the other portion, if there is a capacity increase or a bigger technology upgrade, then for sure this will have more impact in 1 or the other quarters. But we're talking about CapEx, not about additions. So, it's also depending on when is the cash out to the -- coming out of the project.
And the next questioner is from Benjamin Varrow from Berenberg.
I have 2 questions actually. And the first would be on your growth. Your sales growth guidance is 6% for the remaining -- or for the full year basically. I'm just wondering firstly, where does -- where do you see that growth coming from in the next quarters? Given that obviously in Q2, Q3, last year, the new lines were fully ramped. So do you see that, is that coming mainly from a mix of things?
This is always a mix of different contributors. Definitely we will see higher revenue contribution from Chongqing, especially the IC substrate area which still -- was continuing to ramp last year, and we see it already now. And the rest I would allocate to mix effects out of all areas of the business.
Okay. And next question is on maybe your, a bit on your sort of competitive standing with mSAP. And would you be able to give an update on what you see in the market who else is able to offer this currently?
The question is how big is the interest in transformation towards mSAP, right?
Yes, definitely.
Yes, we have quite some discussions with certain customers. We always need to split up the market in 2 areas, which is on the one hand side, the new business for mSAP, which is the communication and mobile device area where mSAP is used in main boards. There we see quite some interest from the one or the other OEM. And the other market is this, we call it, SIP, and substrate related market, which is not that important for us so far. But also in future especially, in the system and packaging module business, mSAP will certainly play a certain role.
Okay, and then those able to offer say, in terms of your competitors, has that been, how many would you say can kind of offer this. Or would you still consider yourself to have an advantage over your peers?
I think what we can show is a very nice track record, especially if it comes to the main board business. I would still say AT&S is the market leader in mSAP for main boards in the mobile device business. And we're quite confident that we can at least for this year keep the position. And in the other area, this will more be in combination of different technologies we have on hand as Mr. Lion asked before. A combination between ECP and mSAP, would also provide additional opportunities for our customers in the system and package business and mobile business.
And next up is Teresa Schinwald from RCB.
Follow up on the earlier one-off question. The EUR 5 million FX effects, does it already include the IFRS 15 effect of around EUR 2.4 million or is this some add-on?
The EUR 5 million FX effect is a pure valuation of our accounts receivables that we have. IFRS 9 and IFRS 15 effect are additional effects that you can see in there, in our Q1 notes. So, these are additional effects.
And the second one is, you already introduced in your presentation. So what's your view on potential trade war scenarios? Could you elaborate on that please?
Basically, what we see is changes every day. But the mobile communication area is not impacted so much so far. There were some key communication also from the U.S. sides that certain product range will be excluded so far. And we do not expect any significant impact on our business as long as they are not touching on general electronic devices, which are imported from China to the U.S. On the other hand side, if these would be impacted, mainly the consumers in the U.S. will suffer because this is the only way how they get, for example, their smartphones, because all of them are produced somewhere in the Asian area. And all competitors, all brands, would face the same situation. So, for the time being we see the impact quite limited.
[Operator Instructions] And a follow-up question comes from Lukas Kothbauer from Kepler Cheuvreux.
One more question, if I may. Given the recent decline in copper prices, how long does it take for your manufacturers to sort of adjust their prices and for you to feel any positive impact?
There we have 2 levels to consider. The one is the copper price, which is the stock listed materials. This impact we see immediately. So from the one or to the other months we can see the impact on the copper prices on the base copper. If it comes to copper foil, it's a different story because this is more demand driven. There we have seen a significant sharp increase of prices last year. We were expecting if the whole economy would stay the same that still an increase could happen. For the time being we see more stabilized development, more sideward development on still quite some high level.
There are no further questions at this time. Please continue with any other points you wish to raise. Ladies and gentlemen, many thanks for attending today's conference. The conference is now concluded, and you may disconnect your telephone. Thank you for joining and have a pleasant day. Goodbye.