AT&S saw a sharp downturn in customer order intake in Q3

November is generally one of the strongest months in the AT&S financial year, before demand falls off again in December in anticipation of the impending holiday season. This meant capacity under-utilisation in November rather than full capacity operation, with the trend worsening in December; high fixed costs mean that this directly impacts the Group’s profitability. In addition, there were also major non-recurring items. Migration of volume orders to Asia has become progressively more noticeable in recent years, and this development has been exacerbated by the weakness of the US dollar, with which many Asian currencies are aligned. These currency effects alone pushed production costs in Asia significantly lower than anything achievable in Austria. The general tendency to relocate production to Asian factories recently reached a level that made it necessary to make adjustments to capacity at AT&S’s Austrian facility in Leoben-Hinterberg. Production capacity, measured in surface area of printed circuit boards manufactured, was reduced from 215,000 m2 to 130,000 m2. Some of the equipment no longer needed here will be transferred to the new plant in India, reducing investment costs there by about EUR 7.4m. In the course of the restructuring process, 293 of AT&S’s own staff and 159 contract workers are being made redundant. After restructuring, the facility will employ about 900 people. The costs of this reorganisation mean a EUR 20.2m charge in third quarter 2008/09, with approximately half of the amount payable immediately. AT&S Korea achieved a positive EBIT for the first time in October 2008, and its future development is viewed very positively. Its business plan has however had to be adapted to the global economic climate. This resulted in goodwill writedowns of EUR 5.6m, and tax loss carryforwards amounting to EUR 1.4m also had to be written off. AT&S’s positive EBIT after the first nine months of the financial year – despite the heavy one-time expenses – is impressive testimony to the Group’s strong operating performance. Adjusted for non-recurring items, results for the period were as follows:EBIT was EUR 28.1m, with an EBIT margin of 8%. EBITDA was up 0.7% on the same period a year earlier, to EUR 60.5m. The EBITDA margin was 17.2%. Consolidated net income was EUR 22.3m. Third quarter EBIT after adjustment for non-recurring items was EUR 7.5m, with an EBIT margin of 6.4%. Adjusted EBITDA came to EUR 19.2m, and the EBITDA margin was 16.4%. Consolidated net profit was EUR 3.7m after adjustments. AT&S has not been left unscathed by the economic crisis. Global demand for printed circuit boards will shrink considerably in 2009, and downward pressure on prices can be expected to increase in a number of different areas. Management is fully aware of the need to concentrate on two main strategic thrusts: strictest cost containment, and intensification of efforts to win profitable orders. Groupwide and at every level, an extensive program of cost savings is already in operation. Restructuring at Leoben-Hinterberg will also reduce the cost basis. Extreme caution will be exercised with respect to capital expenditure in the coming financial year. In China and India we have ample space and equipment available to be able to build up additional capacity very swiftly as soon as customer demand revives.