AT & S Austria Technologie & Systemtechnik AG

VSE:ATS

Q1-2026 Earnings Call

[Operator]

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 Quarter 2025-'26. [Operator Instructions].

I would now like to turn the conference over to Mr. Philipp Gebhardt. Please go ahead.

[Philipp Gebhardt, executive]

Thank you, Alexander. Good morning or afternoon, ladies and gentlemen. Welcome to the AT&S Q1 '25-'26 Conference Call. With us today are Michael Mertin, CEO; and Petra Preining, CFO. Mr. Mertin will give an overview of the key developments as well as a 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. Mertin. The floor is yours.

[Michael Mertin, executive]

Thank you, Mr. Gebhardt. Hello, everyone. Good morning, good afternoon. My name is Michael Mertin. I'm the still relatively new CEO of AT&S, and I welcome you to our conference call on the Q1 figures, numbers and our view on the actual markets.

The positive side is, revenue and EBITDA for the company increased. So together with this increase, we have a positive cash flow development. What is essential, maybe you heard from my previous calls and from my statements I've given so far that focus on cash flow as well as on profitability, that means not just EBITDA, but also EBIT to, on the long run, fill up our equity again, is important and is a key figure in the company, and we are focusing on that. So I'm very proud on the organization that this focus, especially on cash flow, works. More on the figures later on from Ms. Preining, our CFO.

We opened 2 of our new mass manufacturing sites. We opened Kulim in Malaysia as well as our site here in Austria, Hinterberg 3 for the volume manufacturing of IC substrates. And what I've seen is even if this went quite positively without any technical hurdles and problems so far, some of you had the expectation that with the first switch of a key, such a kind of a mass manufacturing starts immediately with full volume. I will show you some pictures later on, giving you an impression on the complexity of this technology. And then I suppose you will share my opinion that we can be proud that from a technical point of view, everything runs perfectly, and we are starting the run of the qualification of all the products together with our customers successfully.

Unfortunately, we had impacts on the FX, especially on the dollar. So this had a significant impact for us, especially against our planning. The equity ratio went to our [ unfortune ]. So we will see the impact a little bit later on. We have it on both. We have it on the top line as well as on the earnings side. The uncertainties stay high, so that we decided in the Board not to forecast the entire year. We have a good view, of course, for the first half. We have ideas on how we proceed. So we are not nervous at all. But the prognosis will stay, because of all these uncertainties, just for the first half of this year.

We had a positive market development in both for the printed circuit boards as well as for the IC substrates, especially if we have a close look to these markets in dollar. So for the printed circuit boards, we see 8% positive market development, prices more or less equal during that quarter. And for the IC substrates, there was a market growth of roughly 10% in dollar. Price pressure also relatively low with minus 1%. So the problem is for us that this market growth has been eaten up by the dollar exchange rate. Nevertheless, you will see it later on, we had some success in the market.

The artificial intelligence-related investments remain drivers for the substrate business and the PCB market for computer and consumer communication as well. So both markets are not just stable, they are coming up again, and they will be, and we are pretty sure about this, they will be prospering for the upcoming years. It is very hard to give a prognosis when the artificial intelligence installations really will be in place. So it is a little bit difficult actually on a monthly basis or even on a quarterly basis to give an exact prognosis when these revenues will come into effect, but definitely, they will.

We still have regional differences. They remain strong. We also have different market developments in automotive and in industrial. Especially in Europe, we know these market environments. This is still a weak market environment.

We have a look on the next slide. We see the development for our Electronic Solutions unit, that is the printed circuit boards. And we see in euro now that we achieved a growth of 4% year-on-year and at least of 1% over the last quarter. So we performed with, slightly outperformed the dollar exchange rate. Interestingly, we see an effect, especially in that very stable business, very foreseeable business for us. We see the effect from our cost down projects. I will refer to that later on, so that we have a positive development on our earnings basis here.

Next slide is microelectronics. Here, we have the strong growth from the substrate business here in euros again. So overcompensating the dollar exchange rate significantly with 29%. And in last quarter, we see a slight growth of 2%. And please take into account, as I said before, just switching the key to open and start the runs and qualifications does not mean that we have a full-blown production with full capacity. And even if you run a circuit board through production, through operations from the first stage until it is ready and can be sold, it takes up to 6 weeks even in process times in a running process. Nevertheless, qualifications are all perfect so far, customers are satisfied, and the ramp-up is in process.

Next one. I'm not sure if you've seen these pictures before. I especially choose these 2 pictures, both from Kulim and here from Austria to give you an impression what it means to have these kind of production sites. You see clean rooms, you see big machines. And those of you which have seen a semiconductor manufacturing fab so far will be reminded exactly on these fabs. So these are huge costly installations. You need perfectly educated and taught persons to run this, and you need the very stable processes.

Everything is not just ready. The qualification is going on. So in Kulim, we started exactly with these kind of qualifications with our core partners, for example, AMD. April 1, the investment was more than EUR 1 billion. And end of June, we already have 1,600 employees, and we not just follow the headcount, we also follow the level of qualification of these people. The people we need for running these first lines are already qualified, so that the ramps are in plan with qualified people. That's the important message.

The products we are producing there are IC substrates for high-performance processors, especially for these artificial intelligence centers, the huge centers where you have not just thousands, maybe in the future up to 1 million processor units working together. And there's definitely more to come, and we are looking forward for these ramps.

Key customers here, and we are proud that we can say the name, this is a little bit unusual, is, for example, AMD, a well-known company here, and we are further developing and qualifying other of these large-scale customers in Malaysia as well.

The site in Leoben-Hinterberg here in Austria was opened in June 2025. So I was proud to be, just for first days, present during that opening. So I had the chance to visit this company directly after it was opened. The investment was more than EUR 500 million, more than EUR 0.5 billion. And also here, we have the employees in place. The qualification runs are going on. And what is so special here is that we have both in one side. We have a volume manufacturing site on the one hand, qualified for the latest generations of IC substrates. And hand-in-hand with this, we have an R&D facility for the further development of all kind of new processes.

This is especially of interest because we are in a more or less safe haven here for all new technologies for all kinds of markets. If we listen to what is going on actually with tariffs, with China, with the ideas moving away from China for certain products in certain industries, all these uncertainties will not be here in Austria. So that's the safe place for many kind of new developments. As I said before, the qualification is already going on here, and we will see the revenues now coming up over the next months and quarters up to full loads in the upcoming future.

On the next slide, #7, you will see our cost saving and efficiency program. You've seen in the past that the company was a little bit overinvested. So the assumptions of future growth have been significantly over the demand, so that cost savings are necessary for AT&S. And we had a very successful program, or my predecessors already had a very successful program in place. And they saved roughly EUR 120 million from operations, from procurement, but also from the overhead costs in the last fiscal year.

We continued this program in this fiscal year, and we are actually underway to deliver more than EUR 130 million additional in cost savings as a run rate on top of the run rate of already EUR 120 million, which have been realized. We are confident that we can reach that target. These many projects and/or sub-projects and tasks are sorted by their status, so how far they are developed, what is the status from which point in time when they can deliver to the bottom line. And so we are quite confident that we reach step-by-step over the upcoming quarters, the full amount of these savings to the bottom line.

So all in all, we expect end of this fiscal year that we drop our cost bases by roughly EUR 250 million against the status of the beginning of the fiscal year '24-'25 as a sustainable basis. So that's important. Due to that effect, we also think that our profitability step-wise will increase in the future, and we have to counterfy the price pressures in the market exactly by these measures.

So now, of course, you are interested in more details of our numbers and figures, and I will hand over to our CFO, Petra Preining. Ms. Preining, please, it's your turn.

[Petra Preining, executive]

Thank you very much. A very warm welcome also from my side. I will directly jump into the comparison year-on-year and quarter-on-quarter. Allow me one comment upfront. We have, as you do know, guided only 1 quarter on 15th of May. And this quarter, we are very happy to announce that top line-wise, we have fulfilled it on spot, and we have even outperformed the EBITDA margin guidance we gave by reaching roughly 18% in Q1.

Q1 as such, was a very good quarter for AT&S. We managed to increase year-on-year 14% our top line and achieved a stable EBITDA margin of 18% also compared to 18% in Q1 '24-'25. Please note though that the growth of 14% is at current exchange rate. On constant currency, the increase would even have reached 19%. Similarly, our EBITDA has increased by 9%. On constant currencies, we would have talked 24%. The downside definitely is on the net loss to be found with minus EUR 56 million, very heavily impacted by FX and ramp-up costs in that particular quarter. One comment on the top line on the roughly EUR 400 million. Please note though that the price effect and the foreign exchange effect has eaten up half of our growth in volume that we could have reached at constant currency.

Over the page. We have our maturity profile and financial position for you. We have managed to not only sign in last quarter of last year, the first tranche of the IFC loan with $250 million, but also now have already signed the $150 million tranche with the second tranche with the IFC. Therefore, we have a solid financial position of EUR 924 million cash in, which includes cash, cash equivalents and unused credit lines. That is a strong increase from roughly EUR 841 million, including the cash deposits by 31st of March this year. Our current financing costs have come down from 4.34% to 3.9%, which is in light of the current interest structure, but also our internal structure on loans.

Over the page. Mr. Mertin has already mentioned this, high focus on cash flow and working capital. We have shown in the middle, you can see the quarters where our factoring program was not yet ready to be deployed. Now as I told you in the conference call for Q4, in Q1, we are up and running. And as promised, our working capital position is again single digit, 9.5%, very strong signal. So all the measures are in place.

Over the page. As mentioned, cash flow, very strong increase from operating activities. A number which doesn't really make a lot of sense, 1,236% on top, but in reality, EUR 184 million cash flow from operating activities, strongly driven by the factoring program I've managed, but also by the operating result as such.

On the investing activities, please note that at Q4, we had EUR 100 million invested in cash deposits, which run by 1 day longer than the allowed 3 months. Therefore, it was shown on a different line item. Therefore, the cash flow from investing activities shows here a delta. Cash flow from financing activities, more or less on par with Q1 '24-'25, resulting in an operating free cash flow of EUR 130 million, taking into account that we, as planned, lower our net CapEx by roughly 40%, which is in line with our investing program as announced earlier.

Looking into the balance sheet, we have a minus 2% impact on assets, which is driven by slight exchange rate, but also depreciation. The equity, and this is a topic Mr. Mertin has already announced, is strongly impacted by FX. That FX impact is translation of the other comprehensive income, our intercompany loans to our daughter companies. Just to give you a sensitivity outlook on how that would look like using current exchange rates. So as of today, you do note that the euro-dollar exchange rate, the dollar has improved significantly since end of June to end of July. So that impact would have been significantly less by roughly 1/3. That has definitely a negative income of the equity ratio, which closed on June 30 with 19.4%. Taking into consideration the effects I have just described, we would be definitely above 20%. Our net debt has increased by minus 7%, leading to a net debt-EBITDA ratio of 2.3x, reduced from 2.5x by end of March.

On the general current geopolitical situation, a situation you do know all very well. We have certain uncertainties, which results, a, from the trade conflict, but also from the military conflict. The trade conflict leaves us with uncertainties on the potential tariffs on our customers' products that depends on where those customers are assembled and then shipped to the U.S. That might lead into higher tariffs leading into higher recession risk in the U.S., and particularly even though reduced now from our point of view, the currency risk in particularly U.S. dollar-euro remains still high.

On the military side, we have effects that leads to longer or very complex transportation situations. So logistics is something to review. Our energy prices and the supply need to be followed and checked very carefully. And overall, we have an increased uncertainty of the market as such. Nevertheless, the opportunities for AT&S remain unchanged. The megatrends continue to be the same and also our global production footprint is an advantage AT&S has above other suppliers.

You might remember the substrate triangle, we have the same situation on PCB. So we have a triangle, which balance of different production sites when it comes to substrate production and the same we do have for the PCB production. The risk, nevertheless, is something you also do know quite well. Geopolitically and macroeconomics is something we have to review. And generally, we have a still volatile demand in case of recession.

Over the page. Thank you very much. We have decided, based on what Mr. Mertin has described earlier, to guide only half year '25-'26 and not the remainder of the full year '25-'26. We guide a revenue of approximately EUR 820 million and an increased EBITDA profitability margin of 20% compared to the 18% we had in Q1 only. On CapEx, we aim for EUR 110 million for the full year. Needless to say that we will inform you and the market on the full year as soon as there is more clarity regarding the U.S. tariffs for the remainder of the year.

Last point, our midterm guidance remained unchanged, EUR 2.1 billion to EUR 2.4 billion with an EBITDA margin of 24% to 28%, ROCE below the midterm target of roughly 12%, and a net debt-EBITDA of less than 3x. Equity ratio might be temporarily below 20%.

With this, I have come to an end, and I hand back to Philipp.

[Philipp Gebhardt, executive]

Yes. Thank you, Mr. Mertin; thank you, Ms. Preining. We will now start the Q&A. [Operator Instructions] Now I would like to hand over to Alexander to handle the session.

[Operator]

[Operator Instructions] And the first question goes to Gustav Froberg of Berenberg.

[Gustav Froberg, analyst]

Two, please. First, on cost savings. You're now talking about another EUR 130 million worth of savings this year, which is a significant amount of money and, by my estimate, roughly 10% of your total cost base before depreciation. Could you elaborate a little bit more on where exactly the savings are coming from, if it's personnel cost reductions, for example, and maybe a little bit more about how you are arriving at this number, the EUR 130 million? And what then would be some of the offsetting items in your margins, which are not causing them to go up as much as a 10% cost reduction would imply?

Second question is around innovation in the packaging space. We've been reading a lot recently about packaging innovation related to chip-on-wafer on PCB technology coming out of TSMC, for example. Is this something you are looking at with customers? And does this potentially impact your business as it looks like co-op basically removes the need for an IC substrate altogether?

[Michael Mertin, executive]

Okay. Let's start with our cost down. I think it would be the best if our CFO will answer that question. It's the most trustful answer if it directly comes from finance.

[Petra Preining, executive]

Thank you very much. Indeed, thank you for that very valid question. That is a very demanding program we have ahead of us. Why are we so confident that we can reach the EUR 130-plus million? Because that program, as already mentioned, has started a year ago. So those measure cards, and we talk roughly about 3,000 measure cards, which chip into that additional EUR 130-plus million are already in place. They very strongly come, or are supported by procurement savings. So that cost pressure that we receive from our dear customers, we definitely also ask our suppliers to contribute, but also efficiency gains by changing processes on the shop floor, but as well in the way we do business.

In a nutshell, this is clearly something we have to state very loud that this does not come by itself. It's a huge management attention. It has been a huge management attention last year, and so it is this year. We, in principle, talk roughly, if you like, 1/3 of procurement and 2/3 of operation that will chip into that amount.

[Michael Mertin, executive]

Yes. And operation is both. It's not just cost down in terms of people, et cetera, but it's also the increase of yields. It is better processes, better handling of chemicals, et cetera. So all this contributes to cost down, of course, technology advancements in operations, Six Sigma programs and all that stuff. It's a full-blown program and nothing is untouched. And by the way, one of the good things is, if you go down that cost road on a technology way as well, with these improvements, you also gain customer satisfaction through improved quality. And this is a pretty nice side effect.

But now coming to your technology question, what is going on there with advanced packaging? AT&S already is participating in all these technology parts you mentioned and which are under evaluation, for example, from TSMC and some of their customers and suppliers. So that's the big advantage. We are already in all of these technologies. And in most of these, we are leading. So we are already working with silicon interposers, for example. We are already working and developing with glass substrates. So this is a pretty nice thing for us. It's an advantage for us. And we are sure that we are well positioned here, especially, and please remember what I mentioned before, that we have a development unit here in Austria, as I said, in a safe place for all kinds of applications to co-develop innovations together with our customers. But be sure, this is something what I have on my agenda.

There will be innovations beyond what you already mentioned. And this is what I'm actually evaluating in my first talks to our cost customers along the supply chains. I'm not really finished with this. You know my first 100 days are not over so far. And I'm still traveling and meeting customers and talking about how our supply chains and how our technology base will look like in the future. And be sure that the key challenge for all participants in our industry will be that the technologies we are in are developing quite fast. And there will be technology changes in the future, which is leading us to a very close cooperation along the value chain, significantly closer than we've seen it in the past.

This is an experience from my side also from, let me say, industries from the neighborhood. If you have a closer look to the computer chip industry itself, if you have a look to the equipment industry, there these kind of higher integration, joint roadmaps, et cetera, already happened. So positive answer to your original question. Yes, we are in this kind of technologies in everything what is going on, what you mentioned, but we are consequently looking significantly beyond that, not just alone, but together with our customers. So hopefully, this is a satisfying answer for you. And thank you for your question.

[Operator]

And the next question goes to Daniel Lion of Erste Group.

[Daniel Lion, analyst]

I would like to focus on the FX side. Is it fair to assume that the IC substrate business is fully in U.S. dollars, in revenues, I mean?

[Petra Preining, executive]

I was expecting more questions from you. So I paused. It's fair to say that a large part of our customers are U.S.-based customers, and therefore, the revenue is billed in U.S. dollars. This is correct.

[Daniel Lion, analyst]

Okay. And what would be -- also FX related, what would be the assumption of FX that your guidance is based on?

[Petra Preining, executive]

Our guidance is based on $1.14, which is basically where we are right now. So that's what I've mentioned earlier, the FX rate, not only the euro-dollar, but please also keep in mind, because we produce in other currencies than dollar and euros to a large extent, that the status by end of June was very unfortunate when it comes to the dollar. This has settled to some extent as of today. And depending on the further development, this is currently looking for AT&S better than it was looking at the 30th of June. But the guidance for half year 1 is based on $1.14.

[Operator]

[Operator Instructions] And the next question goes to Bruno Read-Cutting of ADF Asset Management.

[Bruno Read-Cutting, analyst]

I just had a capital structure question just regarding your hybrid bond. Obviously, that's got the call/coupon step-up in a few months. So I was just wondering how you're planning to address that security specifically?

[Petra Preining, executive]

Thank you very much. That's a question we receive quite often. It's actually 1.5 years out. So call date is end of 2026. Therefore, there is still some time to go. Please understand that we reckon that this is of utmost importance that we currently have not made up our mind. However, we see also from recent transaction that the market is reacting quite positively on products like this, but there is no decision yet. And we, of course, will inform you as soon as there is a decision on that.

[Operator]

And we have a follow-up question from Daniel Lion.

[Daniel Lion, analyst]

Can you share maybe a little bit on your CapEx development? You guided of EUR 110 million in the first half year. In your full year call, you indicated some EUR 300 million in CapEx. Is there any variable in spending up to EUR 300 million in the second half of the year that you might be waiting for? Or what would be actually driving this increase then in the second half year again?

[Petra Preining, executive]

Thank you very much, and you know us quite well. So there is a larger portion upcoming for the second half of this year that much we are very sure of. However, there are certain milestones which trigger those payments. Therefore, the first half is a lot lower than we will see in the second half.

[Daniel Lion, analyst]

Okay. And then maybe the implied guidance, when we break it down to your divisions, looking at last year's development and factoring in the U.S. dollar devaluation, would it be fair to assume that we would more or less see a flattish development on constant currency?

[Petra Preining, executive]

Constant currency, of course, not.

[Daniel Lion, analyst]

Sorry, not constant currency based, on the current exchange rate.

[Petra Preining, executive]

On current, yes, we have closed the first half of '24-'25 at EUR 800 million top line if we focus on the top line. On constant currency, that definitely would show an increase of roughly 7%, 8% compared to the last year. However, the dollar eats away. The current exchange rate eats away some of the euro development. Needless to say that volume-wise, obviously, there is an increase, which we will see and which we are also seeing for Q1.

[Michael Mertin, executive]

Volume-wise, you have a double increase. You have the increase coming from the exchange rate as well as from some price pressure, of course. And that's the reason why we are counterfying that hard by our cost measures.

[Daniel Lion, analyst]

Understood. Maybe one last one. Sneaking into the second half year in terms of volume development, to what extent would you see the volume development be positively impacted by the ongoing qualification processes of new clients? Do you see that this is positively impacting growth in the second half year? And by how much roughly? How many clients would there be that are currently still in the qualification process where you not yet produced in mass volumes or in bigger volumes?

[Michael Mertin, executive]

So if we could answer that in detail, we would have a year-end prognosis. So the point is, it is going on in a very positive way. Everything what we qualified so far works perfect. But we can't influence the qualifying times from our customers. They have third parties involved. They have their own qualifying process chain. The only thing where we are quite sure about, and you see this from the fact that we renewed our midterm guidance, that we see all these processes going on, bringing us to a significant revenue upside for the next fiscal year.

But please don't punish us with the details on weeks and months now, especially, personally, I will be a little bit reluctant here, because maybe some of you know my history in my past. I don't give promises we can't hold as a company. So we are honest in what we are telling you. It's our best knowledge. And if we make a statement, this is a correct one. This is something what I give to you personally. That's my personal promise. So the process is underway. It is looking quite well. All the qualifications so far are not just good, they are perfect. But we can't influence that time line in detail.

But we are pretty sure that next year, you will see the results with a significant increase in revenue and as well as in profitability as you've seen. So if the volume goes up, we will cover the fixed cost of the site to a higher extent. And so the cost impacts we've seen so far in the first half, Ms. Preining mentioned it, they will be compensated by the higher volume in the future and the future is next year definitely. But please trust us a little bit. It is hard if you have a look to our past, but please trust the management team. We confirm the guidance for the next year and the revenue will come.

[Philipp Gebhardt, executive]

Okay. If 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, please feel free to contact our IR team, Johannes Mattner and me any time. Thanks again, and goodbye.