Mycronic AB (publ)

Hello and welcome to the presentation of Micronic's Q4 report. My name is Sven Tjatkovich. I'm the Director of Investor Relations at Micronic. And with me I have Anders Lindqvist, CEO, and Pierre Broson, CFO, who will be presenting. And with that I hand over to Anders. Please go ahead and present Micronic's Q4 report.

Thank you very much, Sven, and good morning to everyone online. So the agenda today, what we will present is as usual. So I will talk about the quarter four in short. Summary, Pierre will talk about, or I will also explain the divisional development in the business, and then Pierre will talk a little bit deeper on the financials. Very short notice on sustainability, and then, as usual, we will end with the question and answer session. And in the material, which you will find on the website, there is also an update on the market from external sources for your help. So, starting with the quarter four, we are very happy, very proud to report that we finished the record year in a very strong way. In terms of order intake, we had the second best quarter ever, an increase of 64% to the comparable quarter in 2023, up to almost 2.4 billion. In terms of sales, we saw a record, 5% up to almost 2.1 billion. Compared to the same quarter the previous year. And of course, in our business, this can go up and down quite big when comparing to the quarters. But a very strong quarter in terms of sales and orders. EBIT margin a little bit lower than the quarter. Corresponding quarter 26%, meaning that we ended on 527 million, which is nevertheless a very strong number for us. Backlog is really high, also a record actually of 4.702 billion. And for the full year, we also have a record with our EBIT which exceeded 2 billion for the first time ever. What was also very good in the quarter and the full year is that all the divisions delivered a margin of about 10% in terms of EBIT for the full year, which is our lower threshold for the divisions. So, very good. And because of a strong result, we will propose to the AGM a dividend of... 5.5 krona per share which is one krona up compared to the previous dividend last year and also in addition to that also propose an extra dividend of two krona per share. So moving a little bit more into the different divisions, starting with pattern generators, we had a really good order intake. You can also see that the markets, both in our Semicon business and also in display business, continue to be stable and strong. We had a notable event end of last year where we received a very important award on an industry conference in the United States. called Bacchus, which we are very happy and proud about. The order intake was up a lot, 123 percent to a little bit more than 1.1 billion, and a little bit down on sales to 700 million. Gross margin ended at 63 percent compared to 68, the same corresponding quarter previous year, and this is because of a less favorable product mix, so different margins on different products. And because of that, EBIT declined to 311. So here we have a very strong backlog of a little bit more than 3.3 billion. In terms of systems, this is 29 systems in the backlog. And after the quarter, We received quite some important orders, especially one which is our first order for a Precision 8000 EVO. The first ever. This is a recently launched machine. And also for two Precision MMS EVOs and also Precision 8 entry EVOs. So good order intake after the quarter as well. Moving to high flex. Had a very strong finish to the year. Struggled here a little bit. The market, especially in Europe, remains weak. We could see some improvement, signs of recovery in the U.S., likely following the election. in the US and also we could see that in high flex division we have gained market share in a weak market especially as the segments that we operate in have a stronger demand so typically our segments is in the industrial aerospace defense med tech industry which are doing better than the average industry I would say. So, meaning that order intake was strong, actually. We increased 8%, up to $389 million. And the deliveries were really good at the end of the year. And we compared to a very strong quarter the preceding year, but despite that, we increased sales with 2% to $486 million. Very strong gross margin. It follows the sales, the volume, a little bit, so 45%. And a good EBIT of 106 million. The order backlog of 102 is a little bit on the low side and this is of course also because deliveries was really good at the end of the year. Moving to high volume, here we can see some change, continued improved demand. I think we saw those signs already before during last year and we see that continue. And this demand is improved both in the Chinese domestic market and also in the markets outside of China. And in terms of customer segments, we could see that this is both the case for the automotive industry, which has been a bit slow, but also for the consumer electronics industry, which is picking up. Notable event in the quarter was that we acquired a company in Germany called Modus High Tech Electronics. Modus is a provider of optical inspection systems for high volume electronics production. So this will be a very good addition to this division. Looking a little bit on the order intake. So yeah, improved demand means increase in orders of 40% up to 387 million, which is a good number. and also sales up a lot 53 percent to 467 million and here we had a contribution from the acquired business models of 9 million gross margin a little bit lower than normal i would say 35 percent it was 40 percent the same quarter pre corresponding year and this is because we had a mix with less favorable projects in the deliveries ebit increased to 76 million also a good number And here the contribution of motors is actually a negative impact of 4 million to that number and a strong backlog of 752 million. So solid performance, I would say, in the high volume division. Then we move to global technologies. Here we can see the most direct impact of AI-driven demand. And we have different lines of business here. If we start with the testing of PCBs, which are used in advanced servers for AI applications, we saw a good demand here. You could see also that investments in Southeast Asia is strong, and this is in their strategy to be less dependent on China and have alternative and additional manufacturing sites outside of China, where Southeast Asia is a clear winner. We see good demand because of that. Also in die bonding, the next business line, we see also demand supported by AI applications, especially in the high-speed optical transceiver technology. And also we had a good quarter for the newly acquired business, Photonics Interconnect. And a good quarter is we had a good order intake. So for the whole division, we had an increase of 52% to 461 million in the quarter. Good number. Sales up 30% to 400, a little bit more than 400. A strong gross margin of 44 and a good increase in EBIT to 86 million. So very happy with that as well as the backlog that we go into this year with a strong number of 514. So good numbers from global technologies division. If we look this year, our outlook for the year, we believe that we will reach a sales of 7.5 billion during this year, which will be the guidance from the board of directors. So with that, I will hand over to Pierre to talk a little bit more about the finances.

Yes, good morning from my side as well and I will then go through a little bit more graphically the strong ending we had of the year and a bit through the result of the full year as well. So we ended the year with a record sales level above 2 billion and this is even higher than we had in the fourth quarter of last year. We had an almost perfect execution in the fourth quarter where Things really went our way in all divisions, basically. And in addition, we had a relatively weak Swedish krona also supporting the number in krona. But fantastic result. And the order intake even stronger than this. So really, really good. Also very positive to note that we had the highest aftermarket revenue we have ever had, with above 500 million. So also good continued growth here. We ended with an EBIT margin of 26%, and this is not a record level. This is a good, healthy level for us, especially given the relatively modest share of revenues that came from pattern generators in the quarter. If we look at the full year graphically, we ended just above $7 billion. Continued growth throughout several quarters here consistently. And with the full year EBIT exceeding actually the long-term financial target that we put up of $2 billion and EBIT margin on the very high level of 29%. The aftermarket revenue continued up with a strong ending of the year and is now above 1.7 billion. In terms of share of sales, it has been higher before, but this is of course related to the strong equipment sales we've had throughout the year. And this is also promising for the future aftermarket revenue. If we look at bridges on the result, we had a lower result than what we had in the fourth quarter last year which at the time was the record level and this was mainly because we had a very high profitability in the pattern generators in the fourth quarter of last year and this is then displayed by a lower average gross margin for the company this year. So despite higher sales we had a lower gross margin in absolute terms. And as we have been growing the organization in line with our strategy, this resulted in a slightly lower total EBIT for the quarter. But the 527 is still a good, very good level for us. It's about one fourth of the annual result as well. If we look at the bridge for the full year, here you can see a bit the reverse, where you have a very strong positive volume effect and a strong margin effect positively as well. We have expanded in the R&D and we have actually expanded on the marketing and sales side as well. But in 2023, we had high M&A costs that we communicated around, which we did not have to the same extent this year. If we cut it the other way around and look at it by division, in the fourth quarter we had a lower profitability in the patent generators, largely driven by volume, but to some degree also driven by a lower gross margin, as Anders mentioned, where we had a somewhat worse product mix. All other divisions actually improved and we're very satisfied with the result in all divisions in the fourth quarter. If we look at it on an annual basis, you can see that the majority of the profitability increase is generated in the pattern generators division. And I think largely we are happy with the development in all divisions. I think HyFlex has been suffering from quite difficult market conditions, and we have seen that we are gaining market share in this market, but we could not fully meet the strong result of 23. On the cash flow side, we have a strong cash position with cash at the end of the period exceeding 3 billion. We have a strong contribution from the result during the year. However, we have built inventory in particular in patent generators and high volume divisions. We have invested in two acquisitions, not so big ones, but still two acquisitions. And we have invested in certain facilities in the global technologies division. On the financing side, the majority of that is related to dividend. So improving the cash position almost a billion. during the year and adding up to a position of 2.8 billion net at the end of the year. So with that I hand the word back to Anders again for some words on sustainability.

Okay, thank you very much, Pierre. And when it comes to sustainability, so what we have done during last quarter, so if you look on our scope one and two emissions, the majority of that is coming from energy use in our facilities. And most places we have switched where possible to green energy in those, except for China, which is much more difficult in the location where we are. And What we have done in China is that we have purchased wind power to that facility through what is called IREX, International Renewable Energy Certificates, which is possible to do. Also what we have done is the preparations for the quarter for the annual sustainability report and why that is something to mention is because the Swedish implementation of CSRD is postponed one year but we have decided that nevertheless that publish full according to the CSRD reporting standards in the annual and sustainability report already for 2024. And we aim to meet substantial portions of those requirements. So quite some work has gone into that. Okay. That was that part. Now we move to Q&A.

Thank you, Anders, and thank you, Pierre. So now we will be moving into our Q&A session. And usually we have three analysts covering my chronic, but this week We had a fourth added, which you are very happy about. It's SEB with the analyst Ina Jypsund, who will also be participating in the call today. But we will start with Anders Åkerblom from Nordea, who can start with his questions. Please go ahead, Anders.

What an honor. Thank you. Good morning, Anders, Pierre and Sven. So I have a few questions on... If we start on global technologies, I mean, obviously, very strong performance in the quarter. And I was curious about if you're seeing increasing competition in this end of the market, particularly done for, of course, advanced servers for AI. I mean, orders, they keep trending in a positive direction. But I guess I'm trying to understand how long tail this sort of very large margin improvement can be assumed to be, and what's your outlook on this is?

Yes, we have to look into the different divisions, I think, and we have seen increases everywhere, actually.

Sorry, I meant specifically in global tech.

Yes, yes, absolutely. But I think in global tech, we also have different lines of businesses. So I think in the die bonding business, we are quite sure that we have actually gained market share. We have In the die-balling, there is a segmentation of performance in the competitive landscape, and we are really in the top layer of that, and there we don't see any increased competition. There's quite a lot of competitors in the low-end side of that, but the requirements, what is driving the market right now with those AI-related applications is favorable for the technology we have. During last year, we have gained market share. We have got quite a lot of new customers that we didn't have before. So, we see that. We can also see that we go into 2025 with a very good backlog. So, I think we will have quite solid performance going forward as well here. A very similar picture for the PCB test, the electrical test. It's driven more or less by the same demand.

Okay, thank you. That's very helpful. Could you elaborate something on the margin in the quarter? What drove this and so we can try to understand and bridge how it will develop going forward?

Yeah, maybe I take that one. I think it's, of course, supported by the strong volume component in this. But we have also done, particularly on the die bonding side, a number of efforts. And we have not historically been happy with the results. So we have done a lot of things on the operations side as well there. which should be a benefit for us going forward. And we see not only the volume going up, but also the relative margin going up there. So we're very happy with that development, and we will continue to push that and make sure that we make that sustainable, even if the demand can be volatile. But we are in a much better position now than we have been one or two years back in that side. On the PCB test side, I think there is more than the demand that has been really good. And the organization there has prepared and now actually in January also moved buildings without any disturbances to the volume, which I think is a fantastic achievement. And the new facility will also enable an improved efficiency over time expected there. So I think... Global technologies is in a good position. Then we have this recent acquisition, the Bolton acquisition, and we are actually internally looking at the result more without that than with that. And that had a bit of a... load on the result in the second and the third quarter and hardly any load on the result in the fourth quarter which was stronger there I think that business is really small still so it will be a little bit affecting the result from quarter to quarter but we do see a very interesting demand also in photonic interconnect small business we have so medium long term we look very positive to that as well

Yeah, sounds promising. Thank you for that answer. Moving over to PG, I mean, if we kind of looked last week, we saw Samsung Electronics Deliverance Q4 report, and they were talking a bit about sort of increasing AI functionality and handsets and other consumer-related applications sort of putting pressure on increasing advancements in materials and technology in other parts of the application, such as backplane. So it would be interesting to hear how you view this and if there's been any sort of, say, incremental change in your outlook for the demand for photo masks driven by this.

I think the demand for photo masks is quite stable and expected to be continued to be stable. And for us, stable could look from quarter to quarter, maybe not stable in a way. But I think we will see a similar pattern that we had. On the display side, the demand is very much driven by the transition to OLED and also new shapes, new sizes, more applications, more than normal. And the OLED transition is still... quite a lot to do on, but also we see volume demand and increased total area because of more applications and so on. On Semicon, for sure AI will have an impact on the chip and so on. Now we are not really participating on the super high end chip side, but even a high-end chip will have a lot of kind of legacy chips or transistors around them as well. So we follow that demand and also we are writing mask layers also for the advanced nodes and so on. I think everything which is kind of new and better will support our demand, but I don't think there will be a change in direction for what we have already seen.

Okay, okay. So if I read you correctly, it's mostly done the continuation of primarily done the LCD to the transition, not so much maybe that I interpreted as some orders, it's not crucial, maybe what's been driving orders recently in terms of say, display energy efficiency and such to kind of counteract the increased energy consumption from AI and smartphones and such.

Not only AI, but I think we sold the first P8000 just recently, and this is definitely aimed for super high-end applications, of course. So I think the trend that we talk about is there, and we could see that in the sale of that machine and also in the continued interest from other customers in that equipment. So I think that's a sign of the transition, not necessarily only AI-driven.

Okay, thank you. Makes sense. I'll get back in line. Thanks.

Thank you, Anders. And now over to Ina Juupsund, SEB. Please go ahead, Ina.

Yes, hi, thanks for taking my question. Happy to be here. So like you said, you received your first order for the Prexision 8000 here in January. And you previously said that you've been having kind of multiple discussions with customers. So Could you talk a little bit what kind of road-based interest do you see here and give some color on that?

So I think... So this is a generation change where we kind of increase our capability to the market. And I think we could see a similar thing when we introduced what we call the P800, which was the previous most advanced machine, that big interest and someone has to be first. And we are happy that someone dared to buy the first one. And that normally triggers interest from the rest of the community because the customer who had the first one will be more competitive than the other ones. of course they would like to to catch up one thing in this whole thing is also that to produce super high-end photo mask with the to use the full capability of the p8000 mask writer there's also other equipment needed to utilize that aligners which is the process after the mask writing but also inspection equipment and so on and currently there is quite quite long lead times on those items so it's kind of a game that customer need to coordinate a little bit here. But nevertheless, we have seen that after the sales of the first one, the interest have increased from other customers of this equipment. And I think if you compare it to the P800, how many did we sell? Five in total. So it's not really mass production, but it's quite an important product for us.

I see. And then in terms of OPEX growth, I know you're expanding capacity in a few of your divisions. What should we expect for 2025?

Yes, so we will invest quite heavily in 2025, both in R&D for new products and so on. We will also move the HyFlex division to another location. We are also investing in a stronger sales network globally. So we are planning to increase the OPEX. Maybe you want to add something on that, Pierre?

No, I think that's correct. I think we see new markets opening up. We mentioned earlier in the report that the demand in certain products in Southeast Asia is strong, and we have a very limited presence in Southeast Asia. So that's an area where we need to strengthen. And that, I think... will not will not guide an opex in percent but but we will be uh we are in a position where we have a strong a strong business and we are strong in niches and we can exploit that further by investing in r d and sales network and and see that as a as a good complement to acquisitions and and other growth opportunities thanks that's all for me i get back in line

Thank you, Ina. And now over to Fredrik at Handelsbanken. Please go ahead and ask your questions, Fredrik.

Thank you. Good morning. Congrats to a great report. Nice to see. Two questions from my side before I get back in line. Hyflex, if we could, or if you could elaborate a little bit more on what drove the sort of the profitability improvements and the margins. It's very rarely we see these kind of margins in Hyflex. Is it an effect of system sales as share or revenues and that sort of provide support uh so a little bit more color on high flex and how we should sort of gorge that going forward the second question is after market revenues in the quarter was strong did you have any sort of software upgrades in baked into that or is that annual service contracts only in that figure thank you

Good questions. I think if you look at HyFlex and if you look at the last two years earlier as well, you will see that the Q4 results are different than the rest of the year. And we are in all ways trying to get more Q4s for HyFlex than other quarters. But this year was really... A bit like last year, but maybe even more surprising to us. There was good demand. There were some end of the year budget emptying. There were improved demand in the US in particular following. I think the clarity that came out of the election was more important than maybe the result as such. strong demand in the US and basically emptying the order stock. You see, we have now Only 100 million orders on hand. So also the operational execution was fantastic towards the end of the year. Really trying to take all opportunities we could. So a little bit of a perfect quarter. And we have a fair share of fixed cost base in the HyFlex division. You can see that in quarters where we have high sales, we have also a higher relative gross profit. And this is also reflected in the fourth quarter of the year. So I think we cannot... draw a line here and say okay this is the level it will be in the in the future but we're really happy that that we could end the year in such a strong manner and despite the challenges we had in during the year and the year on the right side of the 10 mark which we have put out so i think really really really strong achievement there

And I also think you alluded to that you're gaining market share in HyFlex. On what specific products is it that you can mention that sticks out?

I think we have been better than ever before in selling complete lines that adds to our market share. And it's a little bit early to say, but with a new pick and place machine, which is the heart of the HyFlex equipment, We are also addressing a slightly higher market in terms of higher volumes. So I think those two in combination. And where we are strong, the high mix type producers, they have maybe not in all their subsegments suffered as much as the high volume manufacturers, which we have also benefited from. So I think that's... With regards to the aftermarket, there is a little bit of... There is a little bit of software upgrades in the Q4 or a little bit more software upgrades than the average quarter. But this is not, of course, if you measure the delta, it may be of some importance, but it's not so important in the total mass of the market sales.

So have you increased pricing? I mean, what was the step up in the aftermarket revenues if it wasn't sort of a temporary software upgrade?

It's more contracts that are coming in, especially on the PG side. There is a good accessory sales among others on the high flex side and also on the global technology side. So it's a bit of a mixed bag there.

Okay, thank you.

Thank you, Fredrik. And now over to Mikael Lassén at Carnegie. Please go ahead and ask your questions, Mikael.

Thank you. I have three questions and the first one is on R&D and the sales expansion that you have talked about. So if you can mention more in detail and provide more color on which specific areas of R&D you will see which will see increased investments and what you will focus on more.

Yes, I think that all divisions we have our positions and we are relatively strong in most of our positions in the various niches we are operating and several of them we have identified opportunities which we could take by organic measures. I think you have seen throughout the year that we are investing more than before in R&D. And I think we do see it in global technologies, we do see it in high volume, we do see it in the pattern generators, maybe a little bit less in HyFlex, because there we launched a big project last year. And I think running into next year, it's likely to see the same pattern.

Okay. But can you maybe clarify a bit more maybe if we can expect a significant increase or is it just a continuing trend from the second half LTM performance in terms of R&D cost and R&D investments?

I think you do see it in particular in the fourth quarter and it will continue and we have a plan for increased R&D throughout 2025 compared to 2024.

Right, good. And I was curious also about the M&A comments that you made in the report. You highlight that you have a strong balance sheet and it's a good foundation for M&A. So can you provide an update on the M&A pipeline?

I think we have been active and looked at small and big M&As throughout the last couple of years. And this year, two of the somewhat smaller ones materialized. And we keep pursuing the opportunities that we can find, both when it comes to small Bolton and a little bit larger, potentially a bit transforming M&As. M&As. So there is no real change to that. We just state that we are pursuing various cases, but if and when they will materialize is very hard to say.

Okay, so in combination, is it fair to assume or think that your comments about extra dividend and increased R&D investments organically suggest that it's maybe a bit more difficult to find relevant M&A targets or that they may take longer to complete?

I think that the extra dividend is a sign that we say, okay, we don't need to have further capitalization in the company to pursue the strategy we have. So we have generated a lot of cash during this year, and we had already a strong position going into the year, and the relatively modest acquisitions we did did not consume all the cash we had. So I think that's fair. I think that... It's healthy to look at the organic opportunities and in the position we are, be a little bit more bold on some of those rather than only focusing on M&A. But it's definitely so that the M&A agenda is as active as ever.

Okay, good to know. And the final one, if I may, when it comes to the high-flex order backlog, it's only 100 million now, unusually low. Just curious about how you see the order trends developing now in 2025 so far, and if we should anticipate a more subdued start to 2025 instead, given the strong end to 2024.

Yeah, I think we saw that a bit last year as well, where we had a very strong ending of the year and a slow start. So I think even if we would like to copy Q4 every quarter, this will not happen in Q1, at least not this year. So it will be a relatively slow start to the year. Okay, thank you.

Thank you, Mikael. And I believe there might be some follow up questions. So let's go back to under chat Nordea and see if you have anything extra that you would like to ask.

Thank you, Sven. Yeah, I just wanted to follow up with with two quick questions on the contracts coming in in PG. Could you elaborate a bit on how many of the warranties that have expired and how many, you know, so to speak, or remain to come in to the aftermarket revenues in terms of the SLX product line mainly.

Okay. I mean, it's a continuous flow, so you can basically calculate one year from delivery to when the warranty expires and service contracts are typically started up.

Okay. Yeah. And looking at the organic opportunities that you see and sort of increased R&D investments, could you elaborate anything on the sort of incremental return you expect to get from these investments in the respective divisions?

We'll not go specifically into returns or specific products, but we do see nearby areas in more or less every division which can be exploited by internal efforts, even if it takes a little bit longer time. But it's a controlled spend over time and where we know the customer, where we know the technology and so on.

Okay. Thank you. Thank you very much. Bye.

Thank you, Anders. Ina at SEB, do you have any follow-up questions?

I think it's good for me. Thanks.

Okay. Then over to Fredrik at Handelsbanken.

Yes, thank you. I have a few follow-ups. If we could talk a little bit about SLX. You described that you sort of, there are two questions of this really. One machine is moved from 25 to 26. It's a quite big jump. And one was moved back into 24 and delivered in Q4. Is that sort of, should we expect these kind of events to happen more when it comes to SLX out of any reason? So that's one small question. The other is, we have talked about the potential for SLX along the way, and you have stated also that, you know, the market has been enlarged, the capacity has been enlarged. That's really what you have delivered to the majority of the machines too. So the installed old base, is that starting to move? Do you see any sort of implications from the fact that you received an award or something around that? So that's also one. And then connected to that, the MMX machine, how do you size that market going forward? And what's the interest of it? Thank you.

So first we had... Maybe I can take the first one and you can do the other one. I think it was the installed base versus capacity market expansion in the market. I think... I don't have hard numbers, but I feel that we have, I mean, starting with the award maybe then, that comes from the industry itself. So it's a recognition from customers and the partners in the industry that what we have launched is really a very good offering in this market. And I think that is visible in the sales also. I would say that in the When there's a new factory, a new line or anything, we are very strong. We take almost every order in that area. Replacements, it's a little bit more difficult, but I would say that we see more and more replacement business coming now as well. And I think this award is a recognition from customers and so on that we are a good player in this business space. And I think that will continue as well. And most likely the installed base will be bigger than before. I think our original assumption with SLX was that the installed base would be kind of constant and it would be a replacement business. But the market expansion has been larger than what we fought six years ago. So that is good for everyone, of course.

so do you mind repeating the the other question briefly yeah it's just a bit of a movement that that customers tend to as we saw in this report the one machine is moved to 26 and one was pulled into 24. so is there

No, there's no general trend that this is a lot of uncertainty or things like that. But it may happen that it fits a certain customer better to receive the machine online. a little bit later or a little bit earlier. And we try to accommodate that to a certain degree. And in the case of now here in Q4, Q1, there was one wanting the machine earlier, one wanting the machine later, and we were able to replan our production. So no drama in that and no trend in that.

Okay, that's good to hear. And then finally, the MMX, if you sort of could put some more color on that one, what we should expect going forward.

MMX is not going to be a product which is significantly changing the PG business. It will be a modest add-on product, but it will be really good for the customer to have that alongside the SLX. And we will sell a few, but it will not change the... the company Micronic or even the PGE division as such.

So it's an expectation a couple a year? A few a year. Thanks.

Thank you Fredrik. And now over to Mikael at Carnegie. Do you have any follow-up questions?

No thanks, I'm good.

All right, so I think with that we have reached the end of today's presentation. Thank you very much for attending.