Mycronic AB (publ)

Hello and welcome to the presentation of Micronic's Q2 report. My name is Sven Kjetkovic, I'm the Director of Investor Relations at Micronic. And with me I have Anders Lindqvist, Micronic's CEO, and Pierre Brouchon, Micronic's CFO, who will be presenting today. And with this little introduction, I now hand over to Anders. Please go ahead and present Micronic's Q2 report.

Thank you very much, Sven, and most welcome to everyone to this presentation of the second quarter. So what we will cover today is the usual agenda for those who have seen it before. It's a short summary of the second quarter. go a little bit deeper on the different divisions uh pierre will talk a little bit more on the financials and also we will have some words on sustainability and we will end the session with the question and answer session and in the material that you can find on the website there's also an appendix where we have the market update which will not be presented I'm starting to talk a little bit about the quarter. We have quite a good increase compared to the same quarter last year, both on order intake as well as on sales. The order intake of about 2 billion is a very good level and contributes really to our long-term growth ambition. You can see that the order intake is mainly driven by pattern generators division, but also very positive contributions both from the high flex division as well as from high volume division, which is very nice. Sales a little bit more than 1.5 million, which is kind of normal. Quarter two is normally seasonally a little bit slower. Sales quarter and it's an increase of 23% compared to the same quarter last year. So a good difference there. And EBIT doubled to 348 or equal to 23% and very strong backlog of 4.7 million, which is I would guess a little bit more than eight months of orders. And in that backlog at the end of the quarter, we had 30 systems for the pattern generators, which is a very good number. We also had two very important product launches, the Precision 8000 from pattern generators and also the MMX. And the closing of the Vanguard acquisition that will form a business line within the global technologies division. We go a little bit more in details on the different divisions, starting with patent generators. We have seen that in both our segments where we are active, we have seen a strong and a continuous strong market development, both from semiconductor segment, but also the display segment. You can see that in the order intake, up almost 50% to 1.2 billion. And we had both display mask writers and Semicon mask writers in that order intake, eight systems in total. One Precision 80 EVO, one Precision 8 EVO, one Precision Light 8 EVO. They're all from the display industry. And four SLX and one MMX for semiconductors. So a good mix on that one. Sales up 47%, 650. We also delivered five systems, two display machines, one precision 8 EV and one precision MMS and then also three SLXs for the Semicon. Gross margin quite stable on 67% and EBIT margin corresponding to 53%. So very strong performance from the patent generators in the quarter and continuous good backlog of 3.4 billion. If we move into HyFlex, so we have seen previously in HyFlex a little bit of headwind from the market, and we've seen that it has improved slightly compared to the preceding quarter. Not a lot, but at least a positive trend here, where we can see demand in Europe was good. The US is still difficult. You see that it's characterized by uncertainty, very much driven by the autumn elections. Order intake, a little small increase, 4%. Net sales, 2% up. Gross margin, very stable at 40. I'm happy that we can keep it on this level. And an EBIT of 18 million. The order backlog of 167 is a little bit on the low side. We would like to see more here, but anyway, we have much shorter lead times in the high-flex division, so that's also a reason for that. Going to high volume, I think we have a solid performance in the high volume market. I think we could see that the Chinese market is slowly recovering. I think we have said that many quarters now in a row, and it continues to improve. We can see that the consumer electronic market for domestic China, which is the majority of our business, has improved a little bit. You see that the electric vehicle industry has been a little bit slower, especially outside of China. So order intake up 2%, sales up almost 30%. Also here we are able to maintain a good stable gross margin, 41%, an EBIT of 14%. And quite strong backlog of 780 million almost in this division. On the global technologies, we have a little bit of quite a mixed development, where we can see that on the PCB test, which is one of the business lines in global technologies, we have healthy demand, very much driven by AI investments in here. On the other hand, the die bonding business line was quite slow. I must say also that in die bonding, we have quite few orders of high values. This could change quite a lot between the quarters, and we didn't have a lot of sales in the quarter. Also, we have integrated the recent acquisition of Vanguard Automation to form a new business line and not much contribution to the sales and orders yet. And a decline of order intake by 16%. And as I said, there is some slow development in die bonding. And the same also goes for the sales decrease. On the EBIT side, so you see that we have a minus 15 million there. And we had a negative impact from the acquisition of Vanguard Automation of 16 million. So without that, it would have been literally a little bit positive. Backlog, 330 million, which is quite good. If we then move into the outlook, where we have made a change, or the board of directors have made a change in what we believe we will end the year at. So we believe that our sales will end at 6.5 billion at the end of the year, and the previous outlook was 6.25. All right, so yep, then I will hand over to Pierre Brochon to talk a little bit more on the financials.

Thank you so much, Anders. And if we start by looking at where we stand on a rolling 12-month basis, we are after three really strong quarters approaching 6.5 billion in sales. Our EBIT margin is at the moment on a high level at 28%. And even if it's not super clear in this picture, I'm very happy to see that we are continuing still to increase every quarter, a little bit quarter on quarter on our aftermarket revenue. This represents currently 26% of the net sales, and this can vary a little bit about depending on the equipment sales, of course, but really good that we continue to build this base of recurring revenues. Here is what I refer to that we have now had three really strong quarters above 1.5 billion in net sales. And even if we could not match the two last quarters, which were super high, we think that this is a really good level for us. And we had also a solid EBIT margin of 23%. And 23% was the number of the quarter as the net sales also grew equivalently 23% year on year. If we look at it in components of the income statement, We had a good sales increase, as we spoke about, and this gives us additional gross margin of around 135 million. We had an improvement of the gross margin and This is largely driven from an increased share of patent generators, but solid margin in all four divisions generally. On the R&D side, we continue to invest, and this is rather broad-based across the group. And what you cannot see here is that we are also investing on the sales side. But last year, we had exceptionally high business development costs in the first and second quarter. So this is why we have a positive impact on this component for the quarter versus the same period last year. And this basically takes us to a doubling of the profit up to $348 million. If we cut it the other way and look division by division, you can see that the majority of the margin improvement is coming from patent generators where 150 million was added. You can see contributions also quarter on quarter in high flex and high volume despite rather difficult business circumstances in both these two divisions. So we are happy with that. Global technologies, as Anders mentioned, this result is not according to plan, and we have different businesses here, and the PCB test is running well and delivering good results in the quarter as well. Die bonding is essentially running okay, but we had a weak quarter both in terms of order intake and sales, and we do not foresee this level is going to continue, so there will be improvement. With regards to Vanguard, they've just entered the group and had no impact on sales and orders. But we believe that this will come and that the negative result impact will go down towards the end of the year for Vanguard. Group functions improved then with lower business development costs compared to prior year. Cash flow continues to be strong. We measure this here or display this here on a year-to-date basis. And in the quarter, we had the acquisition of Vanguard going out with 160 million. We had also a dividend, which was 440 million. But still, we have a cash position of 2.5 billion. And with that, I hand the word back to Anders to take us further on sustainability.

So yes, thank you very much, Pierre. So on the sustainability side, we're very happy to see that our previously submitted targets for the science-based target initiative have been approved, where we have proposed two new climate targets. And this will replace the previously communicated climate target that we have communicated before as a target. The science-based target initiative organization is the most recognized organization for climate targets. And our agenda is of course to follow the policy to be in line with the Paris Agreement to limit global warming. And when it comes to Micronic, what it means for us is that we commit to reduce what is our scope and one greenhouse gas emissions by 56%. And this should happen at the year 2030 and 2022 is the base year for that. And in addition to that, we also commit to reduce what is called the indirect greenhouse gas emissions. And this is in our case from the use of sold product during the same period. And here we make a commitment to reduce to 52%, and this will be done in line with the Paris Agreement. The difference from the previously communicated target is with these targets we will cover more than 80% of our total impact, coming from 12% with the previous targets, because use of product is, from the macroeconomic side, the largest portion of greenhouse emissions. So we think that makes much more sense. Of course, what is really important now is good target is one thing and now we are turning this into action and we feel very happy to have committed to these targets and also we have a solid plan in place to how to achieve that. So that is very good, they think. All right. That was the end of the formal side or the normal side of the presentation and we can start the question and answer, I think, Sven.

Thank you very much, Anders and Pierre, for the presentation. So now we are moving over to the Q&A session and we will start with Fredrik Littell at Handelsbanken. Fredrik, please go ahead and ask your question.

Thank you very much. Thank you for the presentation and nice results. I have several questions, but I keep it to two and then I will join back in the line. Maybe first on the updated guidance of 6.5, if you could elaborate on the delta in between there from the old to the new one, what you feel is behind the raise in the guidance would be interesting to hear your elaboration on that. And then on global tech, if you could describe die bonding a little bit more. You had some comment on high ASP machines. Could you describe the variations on prices on the machines? And also if it is short lead times like we have in high flex, so it doesn't really matter what order intake you have. You can sell in the quarter and deliver in the quarter as well. Can you describe that a little bit more would be good. Thank you.

Shall I start then with the outlook? I think we are firming up the view on the year as such and getting more certainty to where we will come. And having looked at that and a little bit the improvement that we started to see in the beginning of the year in China has contributed to that assessment. And we feel now is a good time to up this to 6.5 together with the board.

And then when it comes to the lumpiness in die bonding, so if you look on that separately, so normally these orders come a little bit in clusters, that it's not only a single machine in an order, it's normally several machines in one order. And orders are not equally distributed as well are the deliveries. And I think we are a little bit in between such a period right now. But our long-term view on the die-bonding business is quite positive. So from my side of analyzing, I think it's no worries on this level. We have a positive view on this business.

But if you had a weak order intake also in the quarter, is that something that will spill into the Q3 performance, or is that something that you captured in the Q2 numbers, so to speak?

no i think we have depends of course when in the quarter the order comes and uh or not comes if you want and so on but as you said initially there we have quite look shortly times in the dive on their business and and we can we can turn around orders within the same quarters within the same quarter okay okay that's a that's very clear thank you okay thank you we'll get back uh to um

Fredrik and Handelsbanken in a while. But before that, we hand the word over to Carnegie and Mikael Lassén. Please go ahead and ask your questions, Mikael.

Thank you. I hope you can hear me. A quick one on the global technologies segment. First of all, what was the reason for the 16 million results impact from the acquisition of Vanguard?

The majority of it is the fact that we did not have any sales and that we had the operational cost for the Vanguard operations. Second to that, we have also some acquisition related costs, but the majority of the 16 is related to the cost of running the business.

Okay. Why didn't they have any? Was it sort of an accounting phenomenon?

No, it's not an accounting phenomenon. It is a little bit like we spoke about die bonding just now. You have a number of orders, you deliver that. It can be a super quarter and it can be a quarter without any sales or hardly any sales. Which was the situation. And we foresee this to be less towards the end of the year.

Okay, so gradually improving.

Gradually improving is what we expect.

Okay, got it. And I was thinking about moving on to the PD segment, if we can talk a bit more about the current market situation. You had a really strong order intake in the quarter, and if we can maybe discuss the precision situation and the SLX product line demand situation for those two.

I think it's, from our point of view, it's quite similar to before. We see it's still a continuous good interest for the Precision at previous levels. We have several discussions going on as normal, I would say. So there's no really change in opinion on that one. We can see that the interest of the previously launched Precision 8000 is quite high. So that one is also in discussion with a few potential customers. So we have no change in view really on the display side. And the same goes for Semicon. We still see a continuous good development of investments in the mask fabrication or mask manufacturing for semiconductors. So no change at all.

Okay. And just a quick follow up on the SLX side. What do you see in terms of replacement as a driver for that product.

We see a little bit more of that maybe compared to before, but still not to the level as we projected when we launched the product. So it's still a lot of new investments to capture future growth and also the more domestic manufacturing initiatives that many regions and countries have. So majority of orders is still really new equipment for new capacity.

Okay, got it. Thank you.

Okay, thank you, Mikael. And now we will move over to Nordea and Anders Åkerblom. Please go ahead and ask your questions, Anders.

Thank you, Sven. Not muted this time, I hope. So I wanted to follow up on what Mikael just asked here on kind of seeing the same pretty much market trends and discussions with customers as previously. But I did note in your most recent report that you wrote here that after Q1, the market was forecasted to grow in displays down 6.7% in 2024. But now in the most recent report, it was 13% that was forecasted to grow. So I was wondering kind of what this was due to then. And is that,

growth driver behind us or is it still something that's that's ahead of us for the year because it's a quite significant kind of step up yes so i think um not sure exactly i don't have the report in front of me but uh it's in the outlook yes but it's uh but it's on displays and not photo mask for displays i guess right so it's um So that correlation is not really a one-to-one and also not, especially there is a time lag in between. But of course, the more displays that are sold, the more money the display manufacturers have, and the more they invest in R&D and new models. And that's where we come in with the photo masks, really. So it's more driven by the investment in new models and variation. But of course, we want, of course, the display manufacturers to be very successful. If we see an increase there, sooner or later it translates into also mask demand, obviously, somehow. But it's quite a difficult correlation to make.

Yeah, no, I understand that dynamic. But I mean, it's still not to the negative, so to speak, that it's a seven percentage point upgrade kind of in the market forecast. But OK. Maybe you should read that then as a bit more positive for 2025 rather than 2024 in that sense.

Yeah, I think you need to see it in a really long-term perspective. Yeah, absolutely.

And secondly, I noted during the quarter that the SLX orders that you received, I noticed fairly longer... Delivery horizon, so you kind of extended this a few quarters. Usually it's three, four quarters delivery time, but I think I saw upwards of like six, seven quarters. What is this due to?

It's typically related to when the customers would like to have the equipment for the most part. So, of course, it can have to do with our delivery situation as well. But it's an advantage for the customer if they can plan ahead and obviously for us as well. This does not come as a surprise to the customer that they need an SLX or a display mask right there. So it is possible to plan for the most part quite well ahead of time to the benefit of all of us, really.

So if I were to take a more pessimistic stance and ask if it was for you guys to kind of even out the sales profile, if you would expect orders and SLX to kind of drop off a bit, then you kind of want to have it more even in 2050. That's not the case as to why you're extending the delivery time.

No, not really. I think we have up until... We are more or less booked out for this year, but for the coming year, there is certainly space to plan the deliveries.

Okay. I'll ask one final question and then I'll hand it back. I was wondering, during the quarter, we've seen quite a few reports on China building up quite a lot of capacity in mature node development. I mean, obviously this is good for you guys now, but I was wondering in terms of kind of what we've seen from the EU Commission on potentially having some type of regulatory standpoint on kind of importing mature nodes to the West, how are you kind of positioning yourself for this and potentially, you know, able to deal with this a regulatory shift were to occur.

For now, we can deal with the demand, and the demand has been for some time very big from China. Should there be a limitation on exporting semiconductors to Europe, and Europe building up its own semiconductor industry over time, we will obviously serve that market as well, potentially being positive. With that said, there is, of course, with a high investment boom in a certain market in a certain geography, there is always a risk that some of the companies will not survive long term. That we cannot judge really.

But you're not seeing indications on prices kind of eroding at the moment in that sense?

So far, no.

Okay, thank you very much. I'll hand it back.

So now let's move back to Fredrik Litell at Handelsbanken. I think you had some more questions. Go ahead.

Yes, thank you. Could I go back to Anders? I recollect, maybe I have bad memory, but I think you said in the beginning of the year, maybe in connection with Q4, that you saw in front of you a bit softer order intake maybe going forward. Correct me if I'm wrong there, but I think you said that. Do you feel that the situation has developed better than what you assessed in the beginning of the year? Were you too cautious at that point in time? So that is of interest. And then a second question. High volume is coming back a little bit in China. I would like to come back to the part of your CMD where your head of high volume presenter was a very interesting presentation where he talked a lot about new market potentials, Semicon, electric vehicle. How far have you come in these segments and how has that changed now compared to how you described it at the CMD the last time? Would be interesting.

Yeah, that's a good question. So I think on the general market outlook, I'm a little bit more positive now than I was at that time. I think we before saw, especially maybe on the high flex market situation, which is more kind of an industrial character where you have like a little bit where it has been down in the business, and you can look on peer companies like EMS companies or PCB manufacturing companies, which have had some quite difficult time in exactly the same regions or geographies that we are active in, which is mainly Europe and the US. And the kind of signals from the market was that there was a little bit of a weakening. Now, I think we see a little bit less business in the US, but we see still good demand in Europe. And I think we have managed better than what we thought actually during this. So difficult to say. I hope it's our own performance, but I think it's a little bit maybe less pessimistic market. what we believed. So it's not easy, but I think it's quite well. I think on the China side, we have seen step-by-step improvement in the consumer electronics markets in China, which is still the biggest part. But you're right. A lot of the future potential is in new segments, which is both like application segments, like electrical vehicle and semiconductor. And we are... more and more present into those. Now electrical vehicle is a little bit, has been maybe a little bit hyped and now it's maybe a little bit less boosted and not at least the local Chinese manufacturers of course because of import duties. uh for the to the rest of the world and so on and maybe not the electrical vehicle market picking up as as believed in a way on the other hand the semiconductor market is very strong um we also see a lot of potential for geographical exp expansion on the high volume side we have had very good progress on our establishment in mexico which i think we announced a year and a half ago or something like that we just snap up and run and running fully and We believe already it's too small, just being inaugurated maybe one month ago. So that's not good, but good in a way. And and also other markets, especially like close to China markets like Thailand, Malaysia, Vietnam, those Southeast Asia markets. So, yes, and that is still the strategy for high volume. And I think it's it will be we still there is a lot of potential in that direction as well. But in addition, we see also that the China domestic market is picking up. So that's a very solid base and very good also.

All right, that's very clear. Maybe a housekeeping for Pierre. Capitalized R&D came in at 23 million in the quarter. It's small figures, but it's still up compared to many of the last quarters. Any particular reason behind that increase there? Anything we can say about it?

No, I don't know if you saw, but we for the first time actually activated a small amount in the high volume division. And apart from that, I think the majority is still within the patent generators and to some degree high flex divisions. But we haven't changed principles really. But we do see good organic possibilities to develop the company going forward. that might come to increase somewhat. We are still, compared to most industrial companies, on a very low level in terms of equity.

Thank you, Fredrik. And now, I'm not sure whether Mikael at Carnegie had additional questions, but I'll hand the word over to you, Mikael. Please go ahead if you have any more questions.

Yeah, maybe one quick question on the PD segment. Just wondering how much services sales we had approximately in Q2.

We don't report on service sales by division per quarter, but we continue to develop this in the right direction and it's not a big swing compared to what we normally have.

Fair enough, thanks. Okay, thank you, Mikael. And now over to Anders again at Nordea. Please go ahead, Anders, and ask your questions.

Thank you, Sven. Just a quick follow up on the aftermarket question. I mean, looking at kind of aftermarket to your installed base, if I try to proxy it in the PG division, I know that there's some type of lag between from when you install it to when you get the aftermarket revenues. But still, I mean, it's been a quite significant step up in the installed base in the PEG division, but seemingly not as much so in the aftermarket revenue. Is that ahead of us? Is the SLX kind of dilutive in terms of the aftermarket value or service value? Or could you kind of give some flavor on that?

Percentage-wise of sales, it's not really dilutive. But it is correct that it has a lag. You typically install, and then you get the revenues for the machine. And then you have a warranty period, typically a year. And then you start to run into service contracts. So incrementally, we will see an increased service revenue in the patent generators by adding contracts.

And I can maybe add on the display side, quite some of our sales is replacing existing equipment. We drive also sales by having a replacement program where we take out old systems. So the stall base is not maybe growing. with the amount of sales that we have. It's also quite a retired system in that. Anyway, the service revenue from a new machine is higher than an old one because of the value of the equipment and the more complex equipment. So that is an increase, even though the installed base is constant, maybe we're growing a little bit slower than our sales.

Yeah, absolutely. Makes sense. Just a final question on... kind of the new systems then and on complexity. So, I mean, with the new Precision 8000 Evo, could you speak a bit in terms of, I mean, I assume that you've developed this together with customers and proven customer demand for it. But when do you kind of see that this might materialize in terms of, orders without being too explicit. How's the complexity in the market developing if I ask the question as such instead?

Yeah, and there's a dynamic. So the customer, of course, needs to have the desire to make something different, of course. And I think that is in the genes of all those customers. It's to develop the quality and the functionality and whatever features they have on the display side. So that's there. And then we also need to go a step further. walk hand-in-hand with the other process equipment manufacturers, and especially the aligners, which is the equipment used after our mask writers to produce the image, to generate the image that is kind of etching the layers that the display customers are using. And with the Precision 8000, we can maximize the performance of aligners now. So I think that is... a very good combination. If we should speculate a little bit on when it is materializing, I would say that any time between now and within two years. I think that it's not very precise, but we could see a little bit when we launched the previous generation, which was the Precision 800. I think we had What did we have 10, 12 months before we got the first order or something like that? And I don't know if that is typical or not, but from our point of view, we have we have several customers that should need a Precision 8000 to take the next step. So we are very positive on the product when in time the order comes. Don't really know really, but if it takes more than two years, then we will be very disappointed.

So will we. No, I'm just joking. Everyone.

Thank you.

Thank you, Anders. And we have another question from Fredrik Littell at Handelsbanken. Go ahead, Fredrik.

I'll keep going a little bit more. Maybe just again, one housekeeping. Pierre, if I could ask, group functions was minus You had a cost of 43 million in the quarter. Is that a normal run rate for the normal group functions? Or is that sort of higher still on the back of you using investment banking services or whatever it might be in there? So that is one of the questions. The second one is on your new sustainability targets. to reduce scope one and two with 56% and scope three with 52% until 2030. On the scope three, I guess that is a lot helped by your new laser system in the machines. On the scope one and two, is that impacted by that as well to some extent, or is that only internal and traveling and what have you? Would be good to know. Thank you.

Okay, if I start with the group functions, I mean, this quarter is about average for the last four quarters. So in that sense, it's more or less in line with what could be expected going forward. So that's the short version. Yeah.

Yeah, and on the sustainability. So yes, scope three is use of product and the new laser will have a big impact. It will not do everything. We need to do more than that to reach this target. So also other products, we need to reduce energy consumption for the rest of the fleet as well. But the biggest contribution is definitely coming from the from the laser. So that's good that that is in the pipeline, of course, or already existing in a way, but will gradually improve as we sell equipment, of course. On scope one and two, there is no use of product in that one. So that's all internal emissions. And there we need to have several initiatives. It's very much about transportation. It's very much about energy usage in our facilities. The largest portion is actually the energy mix. How is the energy generated to serve our facilities? We have a quite big operation in China, as an example, which don't have a good energy mix. We don't have so much business in Sweden, which have a very good energy mix. so it's it's quite related also to our geographical existence or where we are present but there are absolutely we don't rely on the energy mix to change so we say that we need to do what we can on our side and this is of course we are have the possibility to generate our own electricity and so on so several initiatives on that side as well

So solar panels on your factories in China could be one solution, is that it?

Exactly that, yes. Okay, okay.

Perfect, thank you. Thank you. So with that, I believe, did we have any more questions?

Yeah, may I ask one final question?

Absolutely, go ahead.

Thank you. Sorry about that. I just wanted to clarify a bit on the margin profile in PG. So, I mean, looking at the quarter, you delivered a gross margin of about 67%. And at the same time, an EBIT margin of about 52%. So, I mean, this was down a bit from Q1, and that's perhaps not You know, surprising given the mix in the quarter. But if we look at Q4, I mean, it was a fairly similar gross margin profile. But at the same time, the EBIT margin was 58% in Q4. It was 52% now. Could you explain maybe a bit what this was due to?

Yes, I can take that one maybe. It was mainly related that we had almost 900 million in sales in Q4 and 650 now.

So higher capacity utilization basically than fixed cost.

Higher sales and then higher absolute gross margin without adding any operational cost.

uh absolutely but i i thought in terms of kind of the variable costs in in the business it was it was a bit higher than seemingly now in the quarter but uh um all right uh i'm i'll follow up on that in that case but um i think in that case that was pretty much all of uh my questions uh thank you thank you

So do we have any more questions? In that case, please enter now. But I believe otherwise we have reached the end of today's presentation of Micronic's Q2 report. Thank you very much for attending.