S&T AG: Statement to short recommendation report

S&T AG: On Monday, 28^th of September 2020, a UK based analyst firm has issued a short recommendation on the S&T AG share (ISIN: AT0000A0E9W5, WKN: A0X9EJ, SANT). The short recommendation includes various concerns on the S&T Business Model, its operational performance, its financial situation, its exposure to certain geographies, on the Auditor engagement, on corporate governance and others. The short recommendation does not include any legal or criminal allegation against S&T. S&T is taking the points raised very seriously and hereby addresses them as follows:

1.
S&T's Business Model: The short recommendation challenges the S&T business model in respect to its complexity and sees it as low margin business: S&T started its business originally as IT Services Provider predominantly in Eastern Europe and Austria, while the merger with Quanmax AG in 2012 added classic own IT Products (PCs, Notebooks, Servers) and first own IoT technologies in the area of industrial firewalls. In 2012 lower level IT Products plus IT Services represented 89% of the S&T business. Since then, S&T has been a company in transformation: while constantly adding new own technology products, both via internal R&D and M&A, S&T reduced, divested or closed non-strategic areas such as the own IT product business in 2016. In the FY 2019, already 55% of our revenues and 70% of our EBITDA were generated by our IoT Segments - from our perspective not a low margin business. With our Agenda 2023 and our upcoming Vision 2030 this transformation process will be continued and executed.

2.
S&T technology: the analyst claims S&T is rather an IT services business with limited own technology: from our total staff of 4.934 FTE (31.12.2019), 2.649 FTE are engineers increasing and improving our products constantly. In FY 2019 we spent EUR 170 Mio. for our engineer's salaries. The short recommendation states that the different bits and pieces acquired are no solid foundation for building a global scalable IoT Platform allowing S&T to compete with big players like SAP. That is in so far correct, as it was never the target of S&T to compete against the big players on mass markets, but be a technology leader in selected vertical (niche) markets like railway control communication, medical systems, avionics and others, which have similar underlying technology building blocks in the area of communication, security and software. These technologies include:

• SUSiEtec, TSN and Embedded Hardware for smart factories to connect machines (ABB, Kuka, Hauser);
• GSM-R communication to control high speed trains (SNCF, Network Rail Technologies, Deutsche Bahn Netz);
• Medical Systems for Dräger, Philips, Maquet, GEHC, where we are qualified from government perspective as mission critical supplier;
• Real Time Embedded Edge Computing for Autonomous Driving (Lyft, Autoliv);
• Avionics “Flynet” connectivity system (Air China, Lufthansa, Immarsat).

We understand that this broad portfolio adds complexity, on the other side it reduces dependency, which allows us during the Covid-19 pandemic to compensate the developments between different end markets. Nevertheless, we acknowledge that S&T needs to better explain and communicate its technology developments and value proposition to the investor's community.

3.
S&T's complexity: We are aware that the IT legacy business in combination with our own technology solutions for various vertical end markets create a high level of complexity. Furthermore, we understand that the number of subsidiaries resulting from our M&A activities is too high. With our PEC program, started in summer 2019, we aim to reduce the number of entities and therefore complexity - a process we will even accelerate in the near future.

4.
Operational Performance: The short recommendation states that adjusted operational EBIT margins are much lower than reported: