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 H1 year of the fiscal year 2023/24. Throughout today's recorded presentation, all participants will be in a listen-only mode. The presentation will be followed by a question-and-answer session. If you would like to ask a question, you may press nine and the star key on your telephone keypad. If any participant has difficulty hearing the conference, please press star zero for operator assistance. 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 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. Gerstenmayer. The floor is yours.
Thank you very much, and a warm welcome to our half year's earnings call. Let's jump into the presentation. On slide one, you can see the overview about the key developments of our H1 year of the fiscal year 2023/2024. And I think it's important to explain also the environment we are in. So if you now compare H1 of 2022/2023 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 semiconductor 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 of us, at least in the general trend. Certain recovery has started and 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 a reason why we can, confirm our midterm guidance, 2026/ 2027. The very strong indications we receive from the market give us the confidence that this is, this is the way the, the market, the demand, and the industry will head towards. Based on that, we have seen in the H1 year, a significant recovery, also in our profitability in EBITDA numbers. As I said, this is more the quarter-over-quarter development. For sure, there is a decline compared to very strong H1 year last year, but you have seen the H2 year was significantly underwater.
What is the main drivers behind, behind... b eside the recovery, 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. They 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 our, 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 eight quarters of program defined, and the total amount of savings is EUR 440 million we are targeting. After two 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, you know, we have already communicated that, especially in Kulim, we will slow down the ramp and the investment in the second Q, 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.
This is exactly what we are executing now. We have cut down the investments for this year significantly, and yeah, observing the latest market development. So moving on to the next slide, shows that with the projects we have, 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 New Working World 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-collar onboarding, things like that, and also that is progressing according to our plans.
In the next slide, it's just a glimpse that I think it's record time in Austria, probably in Europe, building such a sophisticated, highly sophisticated plant in just a little bit more than two years. We have our clean room environment under condition, and this is the prerequisite that 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 started, and we are fully on plan.
Beside the big factory building, we have the second one, which is almost or close to be finished at the status, wind and water tight, including some security equipment that we need to move on. 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, two years, a little bit more than two years. We have also achieved clean room 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, beginning 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 AT&S 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 take, pick some of them, hearing aids, patient monitoring wearables, but also implants like, pacemakers and so 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 with a 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. Makes a lot of fun. Not the largest one, not the most important one for AT&S, but it's really a great success story the team has created there. Okay, 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 has really had a hit in the running fiscal year by a decline of 15% in the consumer communication computing area. Still, we see very healthy future there. The expected growth rate 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. 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 two 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 it 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.
Yeah, we have received the message in the forecast in September. 8% is significant in almost explaining the whole picture of the running year. Nevertheless, all the market intelligence we receive, it's expected that recovery should be somewhere with the new calendar year starting. This what I showed you so far was all numbers, unit numbers shipped to the market. Here is the picture we collected in terms of value, 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%-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, 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 H1 year that we can cater it.
We have initiated what is necessary to improve, and we have also shown that we, in a given environment, 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? I would, 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 H1, 2022/ 2023, so the H1 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, so the last quarter of the last fiscal year to this quarter, Q2 2023/2024, we saw - we see a very strong recovery. At times, this is non-comparable to the previous year. We live in a completely different environment. This is driven by macroeconomics, inflation interest, but the industry is well, and of course, as Mr. Gerstenmayer has already explained, by loading and pricing. So the achievement the team of AT&S has reached in the last two quarters is, I would say, 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 H1 2022/ 2023 have carried by a very nice tailwind through FX. This has changed slightly. So we see on like-for-like that the dollar in the dollar-euro exchange rate has weakened compared to the H1 2022/ 2023. Hence, the EUR 814 million is a very, very good achievement. The EUR 814 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, this, that resulted into a net profit of EUR 49 million. Turning the page, going through the business units, as you do know, by first of April this year, we have changed our structure. Hence, we have now business unit electronic solution and microelectronic. Actually, the picture mirrors what I have already told you on the group, 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 into it that time of the year.
The margins are very nicely supported by, as already stated, the cost optimization program, on a small degree, also one-time, but very importantly, on the product mix. So quarter-over-quarter, we see a nice impact on the margins, 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, the business unit Microelectronics, similar overall picture. Year-over-year, the weaker market environment leads to -13% in top line. However, quarter-over-quarter, we could stabilize and increase the top line by +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 receive most input for is our financial position.
As you can see, and if you compare it with the results we have published in Q1, the total of our cash, cash equivalent, and unused credit lines have only insignificantly been lowered by roughly EUR 20 million and have reached EUR 1.335 billion in total. The overall strategy to very carefully and very diligently deploy our financial uses therefore is very vital that this has paid off, and we have a very solid financial position forward looking. The maturity of our outstanding debt instruments has changed a bit due to the phasing of the years from the last quarter to this quarter.
We see that roughly EUR 314 million will mature within the next 12 months, the lion's share within the next one to three years. As stated already in the past, roughly 40% of our debt instruments are on fixed interest rates, and currently we see 3.9% as our current financing cost. Also, 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 one of the streams we focus most on, or 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% or a little shy of 21% to a little shy of 12%. However, this has now reached the 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 investments.
The equity has decreased in the same period by 4%, basically, driven by FX effects. By enlarged balance sheet and decreased equity, the logical 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 a quarterly announcement, that due to the large CapEx programs and in this in the period of heavy investing, that can happen. However, our long-term prediction is again to reach over 30%. Net debt has reached 3.25 x.
Again, due to the same reasons, we on purpose continue our large CapEx programs in order to feel secure and feel very comfortable to reach our midterm guidance, and hence we have to prepare for that period. But by EBITDA levels of the past, in particular, the last two quarters, it doesn't come as a surprise that this has reached 3.25x. On the cash flow, we see a slight decrease over the H1, driven by the lower EBITDA. The investing activities are basically almost on par, and the cash flow from financing activities 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 our this year's guidance as well as our midterm guidance. With this, I have come to an end, and we're now open for questions.
Yeah. 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 yourselves to two questions. Once we are through, if there are any still questions and still time, we will start another round. Now, I would like to hand over to Alexander to handle the session.
Thank you very much. Ladies and gentlemen, if you would like to ask a question, please press nine and the star key on your telephone keypad. In case you wish to cancel your question, press nine and the star key again. One moment for the first question, please. The first question comes from Alexander Thiel from Jefferies. Please go ahead.
Hi, good afternoon, Petra and Andreas. Alexander Thiel from Jefferies speaking. My first question is on your CapEx planning for the next year. Based on the previous timeline, it seems that Kulim is slightly ahead of schedule, and assuming Plant 2 with Intel stays on ice, could you provide more color on your CapEx needs 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, would you agree with my estimates of around EUR 100 million revenue with an EBITDA margin of over 40%? Thank you.
Thank you very much for your questions, both anticipated. On the CapEx side, I mean, allow me to do two comments. Firstly, with the CapEx already communicated for last year and the guidance for this year, we see that those two 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 to make the comment that we so far have never disclosed the CapEx per region or per plant. So therefore, I hope that answers your question.
Okay, then I take the medical question. So as you know, and as I have stated before, medical is not, it is part of our reporting segments, but we are not disclosing the detailed number about businesses under the or below the, the typical reporting segments. A slight hint I can give you, probably your EUR 100 million is a little bit overstated, and, but I don't want to comment more on that.
Okay, very clear. Maybe attached 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. Thank you.
You have put it very nicely. You do know that we do not talk about customers and definitely do not complete it. For the, I think two years, we have on purpose communicated and very transparently disclosed the prepayments we receive, as you can see in each of the publications. The overall number, as you can see from our balance sheet, is correct. What we have not disclosed it for which plant and in which sequence. So therefore, as we do not talk about our customers, please allow us that to not also not answer the prepayments per customer.
About the accounting treatment?
It's a prepayment, as it's stated in the balance sheet.
Okay. Yeah, very clear. Thank you.
The next question comes from Patrick Steiner, from Kepler Cheuvreux. Please go ahead.
Good afternoon, ladies and gentlemen, Patrick Steiner from Kepler Cheuvreux. My first two questions would be, firstly, I've seen that you have booked the contract liabilities, the prepayments. You've booked EUR 6.5 million of them into current liabilities. Why is that the case? Did you move that from non-current? And if yes, is there more to come, or what's the rationale behind this? The second thread should be in the microelectronics business. You mentioned 18% quarter-over-quarter sales increase driven by client computing and also by new clients. Is this like, how much of this is new clients? Is it 50/50? Is it much less than 50%? This would be great. Thank you.
I take the last one first. I think it's a mix out of both. The majority basically comes from the client computing part. As you know, we need, when we bring new customers on to production, we need to ramp, so it's getting step by step now.
Mm-hmm.
All right, thank you.
Oh, excuse me. The movement from the EUR 6.5 million you have just mentioned is from the long term to the short term liabilities, and EUR 6.536 million, to be very precise, are due within the next 12 months.
Yes, exactly. And the question is, why are they due, and are there more coming due?
As we go forward, yes, because they, they all age, if you like, and this is the pattern of the contracts we do have.
Okay. And could you give us a bit more visibility the next two to three years, how much of these kind of contract liabilities is coming due, so in terms of cash outflow?
I mean, in the very, very long term, right? So not... I don't split it now by year. Everything, right? Because it's a prepayment.
Okay, I understand, but I think my understanding initially-
Yeah.
was different. I think for the first five years, there's nothing coming due. Was this the understanding wrong here?
It is, it's exactly like I said. It's in the next couple of years, all the long-term liabilities will, at some point, move into the short term, starting with production.
Mm-hmm. Okay.
But definitely it's, it's not cash flow. It's cash flow neutral.
Okay, but is this something you have some room on to decide?
It's in along the line of production.
Okay. Okay, thank you very much.
The next question comes from George Brown from Deutsche Bank. Please go ahead.
Thanks for taking my questions. I have two, if I may. So firstly, you mentioned in the report that margins were partially supported by a one-time 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 loading and utilization in Q2 across both PCBs and substrates? Thanks, guys.
Nothing else. Okay. Sorry, who take which question and who, who goes first? Okay, then, let's stick with the sequence. The one-time item is of the nature of it is basically the release of accruals we had for aged inventories, which we were very happy to sell, and that usually fluctuates over time. It's in a very small single-digit percentage deviation on margins in effect. I don't, I don't. I'm not sure whether this was an English sentence, but this is, I think you got the point.
Okay, 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 there, 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, for example, for the IC substrates 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 part, by entering the peak season, loading became more and more sufficient. I think this is what I could state here.
Okay. Thank you.
The next question comes from Gustav Froberg from Berenberg. Please go ahead.
Good afternoon, everyone. Thank you for taking my questions also. I have two pieces. 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, 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 a year-on-year declines, which basically leaves AT&S one quarter into next year to sequentially or year-on-year grow the business. What gives you confidence that you'll be able to hit guidance, which basically implies flat year-on-year sales development? That'll be my first question. And then second, is just a follow-up on the one-time 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? Thank you.
Okay, then I take the outlook guidance thing. Yeah, what gives us confidence? I think this is purely the development we observe 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 Q1. We have seen significant improvement in the Q2. 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?
Yeah, this is one, on the one hand side, improved loading of our capacities and factories. On the other hand side, we see the impact and 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-- confident that we can achieve our guidance.
All right, and I take the second question on the one time. 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.
Okay, thank you.
The next question comes from Daniel Lion from Erste Group. Please go ahead.
Hello, good afternoon. Thanks for letting me on as well. I would like to follow up on the seasonality topic, because it's obviously not that easy to, to get a good, good view on, on, on the dynamics, you know, going in the H2 year. Previously, you, you boldly pointed to, to seasonality in an adverse order compared to last year, thinking H1 year would, would be more or less like, like the H2 year last year, obviously. And, and the H2 year would then catch up and, and, and be much stronger. Is this, is this something you can, you, you would still expect?
And in going into the segments, do you see maybe in the PCB segment, less seasonality, or less promoted seasonality than usually, and the microelectronics dynamics to continue catching up? You know, you're actually not that far away from the revenue levels that you had last year in the H1 year, on the quarterly level. So could you somehow give us a little bit more indication on, yeah, how to expect this to develop?
Okay, I try it. 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 Q2s and weaker Q3s 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.
Mm-hmm.
So I don't think so. I think it's exactly what we expect and what we see from the latest information we receive 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 Q3 be significantly more strong than Q2? Most likely not, because what we see from the market, it's more we expect more a flat development there. Secondly, when you talk about AIM, and you see it from our quarterly reports of the segments, we had started quite low in the Q1 and we have improved significantly in the Q2. This is not so much due to seasonality. It was mainly driven by the low demand side.
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 a certain volatility will be there. There can be shifts between quarters and so on. So overall, slight improved outlook for the H2 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 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 seller's 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 two quarters, we could really manage the pricing and volatile loading situation with our efficiency and cost-cutting gains.
Hmm. Yeah. Okay. Thanks. And, 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 Plant Two. 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 somehow to round it up, when you look at your KPIs, especially equity ratio and Net Debt/EBITDA , which are currently above your target rates, or below, when do you expect this to peak, and how do you reflect on your current funds? Can you easily manage also the second expansion step, which is currently outstanding, or what's- Yeah, maybe some more thoughts on timing and options, and yeah, how safe you feel with your current setup?
Okay, well, this was a very, very long question. Let me try to answer it. I hope I can give you a sufficient answer. To our current cash position, we have put that into one of our regular slides. We currently have, with our cash and cash equivalents, roughly EUR 1.3 billion cash, 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. As probably every company, as a standard component of our financing strategy, we start, or let's say we refinance discussion on time and consider all possible sources of funding in terms of categories and instruments, markets, and so on. That's our current situation. I hope that answers your question.
Maybe not fully. Maybe, could you give maybe a little bit of, an idea by when would you think that, that, you'll reach some kind of peak, based on the current margin development? When, when would you expect, free cash flow to turn positive again, to take, take out the pressure you currently have on the balance? So, yeah, because, you, you know, there's a lot of, lot of, discussions in the market regarding your, 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 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 One, will start 2025. So also revenue generation will be a little bit later because there's some delay. We start producing, and the shipments will be somewhere end of the Q1 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. Does not say that if the market continues recovery, that we also will have a positive impact from the existing plants.
As we said before already, if the 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 is 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 like, the CapEx data we, you know, from last year and the one from this year, that allows you to calculate forward-looking our KPIs. As said, with the cash and cash equivalent, plus unused credit lines, we feel currently comfortable. But as you do know, financing is within HNS, an important topic. It always has been, and we need to continue till the plants are ramped.
Okay. Thanks. Thanks a lot.
The next question comes from Jürgen Wagner from Stifel. Please go ahead.
Yeah, good afternoon. Thank you. Coming back to the questions on the price pressure, where is it most pronounced? And do you see currently customers renegotiating prices that were agreed, let's say, one or two years ago under LTAs? My second question, last week, some of your competitors reported, I would say, much weaker than you did today. Are you gaining market share, and if yes, where? Thank you.
Okay. 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 non-disclosure territory. Competition, yes, I think this is the 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, 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, you have stock levels on the competitor side, in the supply chain, [and]. But we have quite an assumption that, yeah, there is a likelihood that we are gaining market share because low volumes, we do better. We have, yeah, better revenue generation, so we have a certain assumption that we could have gained market shares, at least for the-
Across the board or-
Pardon?
I think. Is it across the board, or is it more in substrates?
I think what you were talking about was, and the main reports you and we are referring to is mainly from the three big substrate competitors. It's Ibiden and Shinko, which are purely substrate players, and Unimicron, which has a more mixed portfolio. But I was mainly referring to substrates now, because the portfolio in the PCB world is so diverse that it's even more difficult to assume anything out of these 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 the situation quite nicely. Otherwise, the profitability improvement would not have happened.
This is what I think is also one potentially of our success stories over the last at least two to three quarters, that we were able to execute these programs very consequently and very fast.
Okay, thank you.
The next question comes from Alexander Thiel, and it's a follow-up question. Please go ahead.
Yeah. Hi, good afternoon again. Just checking again on the answer that you gave before on Kulim. So it says basically that you start with the production in 2024, but the first revenue, if I understood that correctly, we should plan for the beginning of 2025. Could you tell us what are the milestones basically for Kulim? And the second one, again, coming on the contract liability. 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 the revenue, or how should we think about it? Thank you.
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 one-on-one 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. People are available to do so, and that 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, yeah, somewhere end of 2024, beginning of 2025, but the real revenue generation will kick in somewhere mid- to later 2025, Q1. And this is what I was referring to. So no, no... If there is any suspicion that we try to postpone the ramp, no, no reason for that. And the rest, if you agree on that, I would postpone this or deviate the question to 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, it will be reverted against revenues, and then reversed the prepayments. So it's the latter, what you said.
Okay. No, that, that's how I understood it. Okay.
Yeah.
Thank you.
Okay. So as 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 till next time.