Ladies and gentlemen, thank you for standing by. I am Alexander, your operator today. Welcome and thank you for joining the AT&S conference call on the results for the first half year, 2024, 2025. 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. If any participant has difficulty hearing this conference, please press zero and the hash key 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 H1 2024, 2025 conference call. With us today are Petra Preining, CFO, and Peter Schneider, spokesman of the board. Mr. Schneider will give an overview of the key development 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. Schneider. The floor is yours.
Thank you very much, Philip, and welcome everyone to our call. For once, we would start with an internal topic. As you have observed, we have a change in the management board and we have been taking over. We have taken over the responsibility of the CEO within the management board of the three colleagues and myself. I think we can say that we have managed the last weeks very well, and we are very confident that we will be able to continue well in that constellation in the coming months.
As far as the business is concerned, to start with, the most important confidence that we would like to give you is that we are very satisfied with the development of Kulim and Leoben as far as the proceeding with the installation of equipment is concerned. Actually, all the infrastructure is working, the equipment is working. We are now in the midst of qualification also with some first, very positive results. The confidence that we would like to give you is, the machines are running very well, and we are now in the course of qualifying our customers. Despite the fact that we have announced that we will ramp a little later than expected, this is more related to the overall market condition and some fine-tuning in close alignment with our customers than anything else.
I'm sure that we'll be able to share more information on that and give more light into that topic later on. As I mentioned already, we are facing quite weak end markets. This turns out in particular to be tough for us in terms of a continuous price pressure that to a large extent also eats up our gains that we are having in volumes. Very good volume increases are unfortunately eaten up by price reduction from a big picture point of view. Consequently, we have slightly revised, but nevertheless revised our outlook for the year 2024/2025, as you have seen in our announcement earlier this week. Do confirm, however, our mid-term guidance. As far as the market are concerned, in particular PCB and substrate.
First, to the PCB market, unfortunately, there are no quarterly data. There is no quarterly data available for PCB, only yearly. The market sentiment at the moment is that printed circuit boards grow with 6%, in particular in the area of smartphones, 6% growth over a year-over-year. Also, smartphone, smartwatch developing well. Rather difficult automotive and industry market. What we believe is not properly keyed into this market is expectation is the significant price drop that we see and we believe is an overall market tendency. Let's see what the figures and numbers will tell when we look back into the year 2024.
As far as our business is concerned, this overall market development, if we could turn the page, I'm not sure if the computer is reacting. Okay, thank you. In the Electronics Solutions business unit, so that's the business unit that takes care of the PCBs. We see a very strong growth from quarter to quarter, which, as you know, is to some extent to be expected because of our seasonality that we have every year. Nevertheless, we do see also from quarter to quarter less price pressure, and therefore, the volume increase that we have now also materializes quite well into the EBITDA margin. That's a positive trend that we observe now from quarter to quarter.
Year-over-year, however, we do see that the volume increases is eaten up by price pressure and overall almost flat only slight growth in revenue. In the IC substrates end markets, pretty much overall, I would say we have the same mega trends in the substrate and the PCB area. Here the market observers estimate a flat market. We do see server growth with 13% being quite strong. However, there also we see this negative price trend. If we look at our results, we do see that from quarter to quarter as well. Minus 4% from year-on-year in the revenue, where volume, again, as in the PCB area, then is compensated by the price decline.
We do see from quarter to quarter an improvement of the EBITDA margin. Please do not get confused by the quite high EBITDA margin. In the first quarter, we had some one-timers. If you would take that out, we would rather see more steady increase of the EBITDA margin, and certainly some improvement still necessary and to go, and we'll have possibilities to speak about that later on. As I mentioned, our expansion is moving on in Hinterberg 3, our smaller factory in Austria, and also the large factory in Kulim. You see here on the slide the number of employees and how we develop with our customers already in Hinterberg, already three customers. Originally, we had contracts with two and now three. It's a good development.
The diversification moves on, and we will have start of production for both factories early next year. As far as the cost saving is concerned, and as I have mentioned, we do see this price pressure, so we do react on the cost side. To give you more transparency on our cost saving programs, here on the left side, you see this in the dark blue, the EUR 80 million. That was the program that we had with our first efficiency program materialized in sustainable savings of EUR 80 million. Based from that, with that starting point, we started a new efficiency and cost cutting program, which brought us then into this current fiscal year with the target of EUR 250 million saving. Where do we stand there?
In this first half year, we see already EUR 40 million materialized P&L effective. We do expect and are very confident to achieve EUR 120 million over the whole year, and are also confident and very much on track to reach the EUR 250 million in the next year as P&L effective cost saving. The program is running, as I mentioned, very well. We're on track. The measures are defined. It's now about implementing it and getting it into the P&L, we are very confident that we will be able to achieve these numbers. With this, I would like to hand over to Petra for the financial results.
Thanks a lot and a warm welcome also from my side. You have to apologize for my voice. I hope it will last till the end of the call. Try very hard to speak loud and clear. The last quarter from a key development side, it's a mixed picture. We have achieved actually all our plans from the finance side, which means a successful signing of our sell side activity of Ansan and also further financing, for example, with IFC. I don't know whether you have seen the internet link already. We have been able to sign and secure another financing line in the amount of EUR 250 million with the International Finance Corporation, a member of the World Bank Group.
Furthermore, we have also We are in a good process in the selection of our new factoring provider, and on top our cost saving program runs very well as we have just seen. Though we have achieved all that deliverables, we have to accept the weakness of one of our biggest customers, as well as the challenges of the market. Therefore, we had unfortunately to reduce our guidance for this year on Monday this week in order to mirror our expectation for this week. For this year, excuse me. Hence the current market situation is still a volatile one, even though we see clear improvements forward looking. Over the page, how does this look like? You allow me to start on a half year comparison, though this is a quarterly earnings call.
On a half-year comparison, we came out flattish, half-year 2024, 2025 compared to half year 2023, 2024, meaning EUR 800 million. It's a slight decrease of 2%. More so on the Microelectronics side of the business unit Microelectronics than on the Electronics Solutions. Overall, I think one could say very much flattish. On the EBITDA side, on the positive note, we have still, even though the price pressure is significantly, and when we talk about significantly, we speak about low EUR 3-digit million in comparison to the previous half year. That's a hit, which is hard to digest with the cost efficiency programs.
Even though we have been very successful by increasing volume and forcing our e-efficiency programs forward so that the percentage in EBITDA declined only by a little shy of 2 % points. Nevertheless, the EBITDA is also clearly below our expectation. All of this lead to a net loss of EUR 63 million, and this is something we clearly have focused on improving forward with the efficiency program Peter Schneider has just elaborated on earlier. Over the page, similar picture as you have seen on the business unit now for the entire group. We see the flattest development year-over-year to Q2 2023/2024 on par with Q2 2024/2025. Excuse me. A very strong increase Q2 over Q1 this year.
This is clearly supported by the seasonality of the BU Electronics Solutions when it comes to the mobile phone, Christmas and Chinese New Year business. Also in the BU Microelectronics, we saw a strong Q2 over Q1. Important to note and very positive, we were able, though still there is a price pressure to be digested, that we were able to hold the EBITDA margin 28% from Q1 to Q2. Also we were even more so able to increase the EBITDA non-adjusted margin from 18% to 21%. This despite the excuse me, this the huge price pressure. What is the driver? On top of the...
Sorry, on top of the price pressure, what you also need to know is that the startup costs have also been increased quarter-over-quarter due to the ramp phase we're currently in. Over the page, our financial position, please note that the graphic is excluding the IFC loan of EUR 250 million. It's the last bullet point on the right-hand side. We have currently EUR 900 million cash equivalents and unused credit lines. This is still a very solid position. That very solid position has, however, decreased and on purpose because the funds we have secured were clearly defined for the large CapEx programs, as you know, Hinterberg III and Kulim. This is a logical depletion of those funds because they are meant for a certain purpose.
On top, we have decided to change our factoring provider, and we are currently in the process of selecting a new one. Like for like, the Q2, September 30 versus March 31 is lacking that factoring impact of roughly EUR 140 million, which we will see again, once the factoring lines are in place. Nota bene, as said, the IFC loan to the last bullet point, the EUR 250 million, and there is even a chance to increase to 400, so a top up of EUR 150 million on top is not yet included in that chart. On the maturity profile, a picture you clearly recognize. It's very much the same from the last quarters.
Again, also here, the EUR 250 million is not yet included. What might be different from quarters of the past that based on a declining interest rate market condition, we have lowered the instrument on fixed interest rate, which comes, I would think, naturally, and now use the tailwind from a declining interest rate forward looking. Currently, as of Q2 2024/2025, we have financing costs of a little shy of 5%. To shed a bit more light on the sale of AT&S Korea, so the Ansan site, you have for sure seen the ad hoc we have launched on 23rd of September, stating that we will sell that site to Somacis, an Italian PCB company.
The purchase price was agreed with EUR 405 million on equity value, and with the transaction, because it's with lock box date March 31, 2024, so with the lock box date, we had a book value of EUR 73 million. An information which we also would like to share that we of course have to pay taxes on that transaction of roughly EUR 18 million, which is current as well as deferred of roughly 50/50. The transaction is expected to be closed on or before March 2025, so still in our fiscal year.
The transaction is sort of subject to merger control clearances on our side, so our transaction, but also on a transaction which is predates our transaction, but we are on a very good path on the first one, as we have been told. This is the finest part of the half year presentation, how does this reflect now our numbers? With the successful signing, we had to change our books and reflect the transaction in IFRS 5 as disposal group. What does this mean? The, you will find and most probably have seen already, you will see one statement in our balance sheet where we show the assets held for sale.
The net asset of the disposal group as of 30th of September, so no longer March, but September, is roughly EUR 40 million, EUR 39 to be very accurate. Over the page, a picture we have been always very proud of, but with the newly in assignment, or the transaction that is in assignment to select a new factoring provider, that picture has slightly changed. You can see now that the accounts receivable is a lot higher that bar than in the previous quarters before. In order to allow you to have a transparent like for like comparison, we have put on the very right-hand side a little box to show you a simulation. We expect that we will have the new factoring provider on board, latest, before March 2025.
This of course, has various impacts, mainly on the cash flow. The cash flow with minus from operating activities with minus EUR 91 is clearly impacted firstly in comparison to half year 2023, 2024. Firstly, with a lower EBITDA, lesser prepayments from our customers and of course the impact on the factoring as we have just said. On top of this, as you have, if you have followed us, we were very successfully optimizing our working capital last year. The EUR 341 were clearly also on the back of the optimization program. Cash flow from investing activities, also, you see it on bottom of the chart net CapEx. We have guided EUR 500 million for this year as clear reduction compared to the last two years.
As you can see, pretty much in line with what we have said, even though that those CapEx don't come in a linear path, but still we see ourselves in a very good path to A, finalize the CapEx programs as stated, and B, also, comply with the EUR 500 million. Cash flow from financing activities is a result of the drawdowns we did this year. As I have shown you in the on the cash and cash equivalent comparison, the cash we have secured were for a clear reason in order to finalize our CapEx programs. Hence, we had to draw now the lines that were reserved for exactly that purpose.
Over the page, this is the result of everything I have told you so far. The total asset, the amount of total asset increased on the back of our CapEx programs. Equity pretty much on par, supported by FX tailwinds in the OCI. Equity ratio pretty much on par with March 31st, hence, net debt which got increased by 19% to EUR 1.67 billion. That has an unfortunate result that our leverage comes to an amount of 6.7 times. Nota bene, this is on the back of the fact that we have not factored and that we are in the final execution of our CapEx program.
We have very high cost already deployed to the CapEx programs, but the ramp is yet to come, and therefore we do not see profitability. To some extent, that has been expected, not to that high amount, and we are very, very confident, however, that with the successful closing of the transaction, we will bring that down to a level below 3 times. Summing up the current year guidance, as you have seen it from Monday, just a summary, approx EUR 1.5 billion-EUR 1.6 billion, which is in the midpoint exactly where we have closed last year, and the profitability which follows also last year's results, having an EBITDA adjusted margin of 24%-26% guided.
What we had to increase slightly is our adjustment, from EUR 88 million to EUR 110 million, reflecting the fact that it will take us 1 to 2 quarters longer to reach high volume manufacturing. Net CapEx of up to EUR 500 million remains unchanged. Finally, the midterm guidance. I don't think I have to repeat what you can read here because there hasn't been any change on that slide from the last quarter. With this, I have come to an end, we both are happy to take your questions.
Thank you, Ms. Preining. Thank you, Mr. Schneider. We will now start the Q&A. As usual, in order to give everyone the opportunity to raise questions, we would like to ask you to limit yourselves to two questions, and once we are through, and there are still questions and still time, we will go another round. Now, I would like to hand over to Alexander to handle the session.
Thank you very much. Ladies and gentlemen, at this time, we will begin the question and answer session. Anyone who wishes to ask a question may press 9 and the star key on your telephone keypad. If you wish to remove yourself from the question queue, you may press 9 star again. If you are using speaker equipment today, please lift the handset before making your selections. Anyone who has a question may press 9 and the star key at this time. The first question is from Mr. Patrick Steiner of Kepler Cheuvreux. Please go ahead.
Good afternoon. Patrick Steiner speaking from Kepler Cheuvreux. Two questions from my side. Firstly, could you give us more information on the delayed ramp-up of the two plants in Kulim and Austria? Secondly, you stated that you see clear improvements in the market environment. Can you give us more info on that? Which markets or products you see improving and how far your visibility goes? Thanks.
Hi, Patrick. First to answer to your first question. As far as the ramp is concerned, as you know, we, having Kulim, we closely work together with one customer, and we were able to announce that previously with AMD. What AMD does is, as you know, they have the generations that they bring into the market. Actually, they have asked us to start and kick off Kulim with the next generation of its chips. At the same time, as you know, we have already started quite a while ago to work with AMD in Chongqing.
That means that we'll continue a little longer than expected in Chongqing with the current generation and then move a little later than expected to Kulim with the new generation then. It's, as I mentioned, it's more fine-tuning. If you take the whole picture or the big picture, the installation of the whole factory takes 2.5 years, which is from what I know, a benchmark in the world. Typically such qualifications, customer qualifications take at least one year for new products. If we move now a quarter up and down in the timescale, also given the multi-year contract that we have, I think it's fair to speak of a fine-tuning.
As far as the outlook is concerned, I referred primarily looking into the first half year rather than outlook, and mentioned that we are very satisfied with the volume development, which I think is also very important in regards to market shares, right? It shows that the customers like to work with us, continue to like to work with us. The feedback that we receive on quality and the way we cooperate with our customers is outstanding to say the least. At the same time, we have the price pressure. We do all see the market weaknesses, for example, in automotive. We do have, for example, automotive business in Europe, and we observe that closely. We are in close contact with our customers.
However, also our customers don't give us a clear visibility. Same in the substrate area. Markets are extremely dynamic.
The pickup of the market had been announced several times by our customers and pushed out several times. Let's see when it comes. We are confident that we'll see it. We will not see it in the year 2025, we are confident that we are also, with our cost-saving programs, very well prepared for the market uptake to come.
Okay. Thank you very much. No product or execution-related problems at Kulim or something like that?
No, not at all.
Okay.
Qualification runs super smoothly.
Okay, great. Perfect. Thanks.
Thank you.
The next question is from Mr. George Brown of DB. Please go ahead.
Yeah. Hey, guys. Thanks so much for taking my questions. I have two, if I may. Just firstly, in terms of price pressure, are these price declines in line with what you've seen in previous downturns, or has it been worse than normal? I guess a follow-up to that, is this price pressure due to overcapacity in the industry, or is it more to do with one customer of yours being under pressure to cut costs? Thanks, guys.
Thanks for the questions. Both very good questions. The low three-digit EUR million number I have shared is the comparison first half 2023, 2024 to first half 2024, 2025. That is an immense price pressure. The last year wasn't particularly hard when it comes to price pressure. We see that it's lowering slightly. It's lowering significantly on different products. On some others, it's still very high. There is a mix on what we can see right now. Overall, we have the price pressure that we have seen in the market, in the overall market. This is not an AT&S topic only.
If you look at our peers, and their margins, you could see similar developments. That's a general topic. Where does it come from? It comes clearly from a current overcapacity, which will, following the researchers and market developments also, it will be evened out, but it will stay for some more quarters with us. On top of this, we have one very big customer, and you do know following us for quite some time, that unfortunately we cannot name this one customer, but as this customer owns still the largest share of the market, and this customer has currently some productivity issues that can then also be translated to the supplier.
Price pressure is translated also, or cost efficiency programs on our customer side is translated into price pressure on our side. This is something we see in the entire market. Price pressure was very high, and if you keep following us also for the next quarter, that was also very high in the second half of the last year. Compared to what we have seen last year, it's getting better. It's not gonna go away. It will never go away, it will hopefully reach a normal level forward looking.
Okay. Perfect. Secondly, just regarding the delay to Kulim, can you give us an update around the timing of revenue recognition? You say in the presentation that you are beginning the ramp in Q4. Does that mean that revenues will be recognized in Q2 or Q3 of next year? Is that the right way to think about things? Thanks, guys.
There will be revenue recognition already in Q1, but as we have always stated, the ramp for high volume manufacturing, so HVM, that will be visible only 1 month, 1 quarter later. The exact guidance for the year 2025, 2026 will be given in roughly half a year when we close our books for this year.
Okay. Perfect. Thank you so much.
The next question is from Mr. Gustav Froberg from Berenberg. Please go ahead.
Hi, everyone. Thank you for taking my questions as well. First one on midterm targets. I mean, much has changed since you set them. They've been set quite some time ago. Price pressure is still here. Competition's a bit tougher. Fab ramp-up being delayed, et cetera. What needs to happen from here for you to hit that midterm target again? Do we need to see prices come back to normal levels, more utilization? Do you need more factory space? Any color there on the ramp-up would be very helpful and the roadmap to midterm targets. That's my first question.
In regards to the development of the factories, we are pretty much on track. I would say, with the expansion in Kulim and in Hinterberg ongoing, if we finish that, we should have to a large extent necessary capacities in place. Of course, we will continue to invest here and there in a normal scale, but this outstanding, let's say, greenfield investments that we're doing now, will be finished, and we do not need any further greenfield, for example, in order to reach our midterm guidance. Therefore, it's self-understanding. It needs certain market dynamic in order to reach that. We've communicated already that we have very good contracts in place.
In particular for our factories in Kulim and in Hinterberg, we are in close cooperation with our customers. We've also communicated already that these customers are working in the server area primarily. Whatever helps the server market helps us to pull in, let's put it that way, all our activities.
Okay. Super. A quick one to finish. Just on the cash impact from the Ansan sale. I know it's in the future, but perhaps you could give us an indication as to the actual cash impact from the sale once you've paid taxes and dividends and all the rest of it.
Certainly. I mean, you do have actually all the data available. It's EUR 405 million is the purchase price. We have, roughly, as I said, current taxes of roughly half of the EUR 80 million. Let it be EUR 40 million on taxes. There are definitely transaction costs in the EUR high single-digit million amount. There is also an additional interest that comes on top positive of the purchase price as we call it, the equity ticker starts ticking on first of April 2024 up until closing. That's basically the component that you will have on the liquidity side.
Okay. Thank you.
EUR 370 million. If you haven't done the calculation now with me.
There we go. Super. Thank you very much.
The next question is from Mr. Jürgen Wagner from Stifel. Please go ahead.
Yeah, good afternoon. Thank you. Investors are currently very concerned about companies having significant production in China and generating high revenues in the U.S. How are you prepared for potential political changes, let's say tariffs or what could you do? As you quantify the price decline, is it realistic or over what time period can you or can the market recover that, if you compare it to historic downturns? Thank you.
To answer your first question, we are very happy that we, at the time when nobody spoke of the China risk, that we decided to invest in Kulim, and that helps us to diversify our exposure to China. On top also, we have decided to invest in the factory here in Hinterberg, Austria. We still have very large capacities in China. On the other hand, we also have customers that have a lot of business in China, in particular in this mobile device area. Yes, in the semicon area, that's a big topic. So far, we are not exposed to any tariffs or not even close of that. We are closely observing that, for sure.
In the mobile phone area, we don't see any signal that would lead to necessary discussion on this topic. The second part of your question was on the price development. Thank you. On the price development, typically, we do see price declines on the same generation as the generation proceeds independent of the market, whether it is mobile devices, automotive, semicon. It's a very natural thing. We need in order to. Typically, it's very difficult to correct prices in the same generation. It needs the new generation to start off with a higher price level again. There, the cycles are very different. Mobile device, we have a new phone every year. In automotive, it takes longer.
At the moment, the new generations, the new, upper class, car models are pushed out a little bit. In semicon, we just mentioned also that, I mean, there you have also very quick cycles. I think that, in the course, let's say, of the coming years, if the, if the overcapacities, go away, we certainly would be able to also correct, the price declines that we have observed.
Okay. Yeah. Thank you.
The next question is from Mr. Daniel Lion from Erste Group. Please go ahead.
Yeah. Thanks for letting me on as well. Just maybe two short ones. Is it correct to assume that depreciation will also kick off only in the fourth quarter when you delay the production? Related to this, maybe you just talked about the Kulim plant. Of course, it's a bigger capacity coming online. What about the Leoben line wise distillate? Is this only due to, you know, shifts on your client side or maybe you could share also some details on this one.
Thanks for the question. The depreciation for Kulim for maybe to fine-tune what we have said today on the certificate, the plant has been certified. This triggers the depreciation. The depreciation for Kulim has started. What is now coming on top is the qualification of the product. This is now decided by the customer to start with a different product, and hence this needs now to be qualified. Kulim depreciation has been started. You can also see that in our numbers, there has been, excuse me, already an increase from this half year to last half year. For Leoben, we expect the depreciation to start in the upcoming quarter.
On the shift, why has this also been shifted by a quarter?
Leoben?
In Leoben, yeah.
Similarly, there is, as Mr. Schneider has pointed out, but maybe to deep dive, we initially thought we have less number of customers and now have the pleasure to have more of those. Hence also the qualification of the products takes a bit longer, and therefore we had to push out for a quarter or two maximum in order to realize all the qualification on all the various products for the three customers we have currently in Leoben.
Same here, right? We are producing for these customers already in China. That, let's say, releases a little bit the pressure on our side to push harder and harder for the qualification because we can continue to produce in China with the products that have already been qualified there.
Mm-hmm. Okay. Thank you.
The next question is a follow-up question, and it comes from Patrick Steiner. Please go ahead.
Hi. Thanks. Two questions from my side. Since we heard rumors that customers are not willing anymore to qualify new products with the suppliers in China, how should we think about your two substrate plants in China? I mean, is there a risk of them becoming some kind of orphan asset, or is there any scenario that includes the sale of these assets? That's the first one. The second one would be, I mean, firstly, why are you changing the factory provider? Can you also explain why you allow such a big cash outflow related to it? Couldn't you have another one or a replacement lined up? Thanks.
I'll, we split the answers. I take the question on the factoring. Yes, there is a lineup. There is currently a process, a beauty contest, of, to be very precise, three different banks, where we will make our selection very, very soon. Then you know that it takes some time to have all the, you know, your customer processes in place. We felt that it's time to change. The, the outflow in cash, if you like, it's a timing. Factoring is nothing else than a timing difference. Once we have the new supplier in place, you will immediately see the reversion of what we have shown right now.
As far as the China topic is concerned, it was always our plan actually to develop our customer base in the next step. As you know, we started with one customer. Second customer was an AMD, and we always spoke about adding a handful of additional customers. Our plan always was and still is to have AMD in primarily AMD in our factory in Kulim and the other further customers in our factory in Austria. We are completely in plan with our diversification. As planned, we will transfer whatever we have started off already in China in order to get prepared for our factory in Austria and Kulim. We will transfer as planned from our factory in China to the factory in Kulim and into Leoben.
Chongqing then remains with our one big customer also as planned. As you know, this big customer also has a very big factory in China, where we are a major supplier. We continue to count on the business in China as well.
If I understand this correctly, you're going to produce for your largest customers, product substrates. Is your customer for these plants going to qualify new products from Chongqing I and III? Is this something It's going to produce all the products going forward?
I think, well, this is Gerstenmayer also correctly answered because it's a very much forward-looking statement and less backward-looking. At the moment, we see business as normal, I would call it that way. How the future looks like, we will see.
Okay. Thank you. What was the reason for the fracturing provider change? Was this, like, different conditions or can you give us more info on that?
Certainly, different conditions. We wanted to have more flexibility. I do not want to go into further details on that reason. We felt, with one of the three we have now in the pipeline, we have the better relationship and the better terms forward-looking.
All right. Thank you very much. I'll get back in line.
We have another follow-up question, and it comes from Daniel Lion. Please go ahead.
Oh, yeah. Thanks for giving me another opportunity. When I look at the adjustments, the cost adjustments that you now got with EUR 110 million in first half, we had, like, EUR 66 million, which includes EUR 88 million for severance that was booked already in first quarter. We still have, even if you're coming closer to the ramp, and we have no revenues from the ramps in the quarter, we have lower cost adjustment costs in the second half year. Is this on purpose? I would actually assume that the closer it gets, the final is the adjustment or the setup of in terms of personnel and everything.
I would have assumed higher costs actually, that you don't get reimbursed without revenues. Can you help me to understand this development?
Yes, this is. It's a very good question, the same, the answer is a very technical one. The guidance is excluding the Anlauf because we, it's EBITDA adjusted, right? The part of the start of course, this includes, sorry, depreciation of Anlauf, sorry.
Mm-hmm.
It was a German word. It excludes the depreciation. The 66 you're referring to includes the depreciation part, but as the guidance is on EBITDA adjusted, it excludes the depreciation. If you take that out, you're fully in line with the forward-looking start-up cost development.
This means that you guide actually on EBIT level the adjustments.
We guide on EBITDA.
I have to add it back if I wanna add, arrive at EUR 210 million?
Daniel, happy to take that offline with you.
Okay. The second would be, obviously, the market is recovering slower than anticipated, of course. Yeah. Still you have slightly positive trends going into second half year from substrates demand. Still there's a actually huge decline in profitability included in the in your guidance, full year guidance, and stripping it down to the second half year. Can you put some more, I don't know, color on how you expect actually the substrates to develop and how you think that shift towards higher value, higher priced substrates is going to continue for you?
I'll start on the numbers and the EBITDA adjustment margin that you referred to on 27.9%, right, compared to the EBITDA, the current year guidance of 24%-26%. We still will see price pressure, which we will compensate to the vast extent with our continuous improvement or cost efficiency programs. How to put that? If you ask now the CFO, if I would say that offline, which is impossible in an investor call, I would hope to get out on the upper end of the margin. We still fight price pressure.
This is for the margin grids, I would hope to get out of the upper end of it.
I think maybe to build on this. What we have seen in the last quarter, also a slowdown of the price decline. The question is, will that slowdown continue or will it pick up again? That's a little unclear to us yet.
Do you see market participants really dumping like your peers, yeah, dumping prices or because there's actually new capacities coming online and also actually also the investment into again the buildup of new capacities has been announced in the past month going forward? Is this something that you expect to end at some point, and when would this be? Could you somehow provide a, I don't know, a timeline or an idea of when you think that the pricing will stop, or is this more or less? Do you think that it won't end anymore because there's so much capacity coming online, which will exceed the market demand anyway in the next few years?
What we do see is we see currently overcapacities in the market in basically all areas. That is due to a slower than expected market growth primarily. This is really in every area that we look at. Standard PCBs, high-end PCBs, substrates. The big question is, when will the overcapacities be, let's say, vanish again? It's very hard to tell because that will depend on the timing and the strength of the market recovery.
What is clear also is that, in particular with the factories in Kulim and in Austria, we are engaging into high-end substrates, large body sizes where we are able to differentiate, where there is a very, very small amount of competitors that is able to produce that. Also the number of factories that are able to produce such large body sizes with an acceptable yield are very few. Similar also to all other areas, also in the high-end PCB, similar situation. The way out of price pressure is number one, reduction of over capacities, which is to some extent not in our hand, and number two, diversification into a higher end, also with new customers. There we are very much on track.
As I mentioned, we see and are confident that will help us in the coming years to reduce the price pressure.
Okay. Understood. Thank you.
Okay. Thank you. 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, please feel free to contact our IR team, Johannes Mattner and me anytime. Thanks again and goodbye.