Mycronic AB (publ)

Hello and welcome to the presentation of Micronic's Q1 report. My name is Svend Tjetkovich, I'm the Director of Investor Relations at Micronic and with me I have CEO Anders Lindqvist and CFO Pierre Brusson, who will be presenting today. With that, I hand over to Anders. Please go ahead and present Micronix Q1 report.

Thank you, Sven, and welcome everyone to this call. So today we will of course talk about the report, Q1 in short. We will go deeper in the different divisions. Pierre will talk about the financials, a few words on sustainability, and then we end the session with the Q&A part. And as always, there is an appendix in the presentation that we will not present, which is containing data from independent sources on the market. So starting with the quarter. So we had a very good start, a good start of the year. And comparing to the same quarter last year, and the same quarter last year was also a good quarter. So it makes the figures even nicer, I would say. So we had a good increase in order intake with 25%. Up to a little bit more than 2 billion. And we had a record in sales increasing 27% over the same quarter last year up to 2.14 billion Swedish, which is very high and good. We also recorded a very strong EBIT, the highest ever in a quarter with $775 million and corresponding to a margin of 36%. Also, backlog has continued to be strong at $4.6 billion. And we also made two acquisitions this year. One within the quarter, which is H-Probe, which is a company that has developed a unique technology for high-speed testing of what's called MRAM, magnetic memories, and also magnetic sensors, based in France. And this will be integrated in the global technologies division. as a new business line. And after the quarter, we also made another acquisition with Global Technologies, a company called Robot, which has a good, unique technology for testing of signal quality on PCBs, and that will be an important part of the PCB test business area, also within the Global Technologies division. So, good start of the year on numbers, but also on acquisitions, two very good acquisitions so far. If we then move into the different divisions, starting with the patent generators, a lot of the records are coming from here. So we can see that the markets, both for displays and semiconductors, have continued to be stable. We also saw the first order for the Precision 8000 EVO, the newly launched high-end machine for mask writing in the display industry. And we can see that it confirms our thinking that it was well in line with the industry needs for more advanced photo masks and really to take the most out of the capacity of aligners, etc. And so on. So, very happy with that. Also, we could see that the order intake was very strong, up 48% to almost a billion. And the record in sales to very close, increasing 43%, close to 1.2 billion. Gross margin 76, good. And the record EBIT 752 million. So very strong start. And backlog a little bit more than 3 billion, which contains 27 systems at the moment. So strong performance in patent generators. HyFlex is maybe that division where we did not see a strong performance. I think every other division contributed nicely. And in the HyFlex business, we could see that the demand in Europe was very weak. We also took part in the largest show or exhibition in North America called Apex, which generated a lot of interest. And at the same time, we could see that the order intake declined 12% down to 295 million. And we also could see the first impact of tariffs. The new tariffs for the US have led to delays in deliveries. Things get stuck in customs longer than normal. And for the quarter, we saw a negative impact or delay, actually, but it's a negative impact for the quarter, about 15 million. And overall net sales down 1%. Gross margin okay at 37% and EBIT mine at 13. Backlog 105, which is quite low level of backlog for us. So not that good. High volume, much better. We could see that China is really coming back. We had a very good demand in the Chinese domestic market. We could see the order intake rose with 42% to 553 million, which is a very high number. For this division, we had an increase of sales up to 330 million. And the newly acquired company Modus contributed with 9 million to that. Good gross margin at 43%, EBIT 59. And we had an impact of 4 million on that EBIT because of acquisition cost of Modus. Also strong backlog of 975 million. So overall good performance from the high volume division. Then we moved to global technologies and as I said initially we had these two acquisitions. We could start with the business side. We could see that we have a slowdown in the order intake from the dye bonding business in the quarter. It's not related to market. We have not that many customers in this business and we saw just fewer orders coming in. And at the same time we saw that the PCB test business line continued to be very strong. What you see in the picture is the equipment from the newly acquired company H-Probe, based in Grenoble, France, that has a unique technology for high-speed testing of MRAMs and magnetic sensors. This is a technology that is coming, so we believe very much in this acquisition. The orders situation, so we had a decrease of 8%, down to 254, while the increase, there was an increase of sales, 31%. Gross margin, good, at 46%. And EBIT, 54. And in that 54, we have a negative impact of 18 millis from the previous and recently acquired businesses. Backlog was 445, which is reasonably strong. And after the quarter, as I said, we also acquired a robot that has the technology for testing the signal quality on PCBs. So overall, I think a very good performance from the global technologies division. And we are happy with that. we talk about the outlook so of course there's a lot of talk on tariffs and what impact that will have on the business because of that we could see that the uncertainty have increased and it's more difficult really to say now after one quarter how the year will end we believe that we can still reach the seven and a half but there is also a little bit downside to that you can all all have seen i guess that the currency have changed quite a lot since we gave the forecast and The board of directors opinion now is that we will reach a sales of between seven and seven and a half. So introducing a range instead for a fixed number here. And talking more about the tariffs. So the direct impact on tariffs are quite limited on Micronic. We have not that much flows between US and China that are directly impacted. And in most cases, the customer is the importer and we don't carry the cost of the duties or the tariffs in that case. But we believe that the indirect impact has a bigger impact on us. And we can see that the investment climate can change and there's most likely hesitation to invest. We could see changes in currency, etc. So therefore, we see that it is uncertain to have definitely increased since the introduction of this. All right. So with that, I hand over to Pierre Brochon to talk about the financials.

Thank you so much, Anders. And going back then to the first quarter, which we are super happy about on a total level. We had the increase of 27% on a pretty good quarter of last year to the level of 2.1 billion Swedish. We had also the highest ever aftermarket revenues, 531 million. You can see that we have now two really strong quarters in the aftermarket side, and this is mainly in the patent generators division where we have additional contracts, but we also have some one-time effects there, works that we have been doing on that side. You can see on this picture that we have also an EBIT margin higher than before, breaking the level of last year where we were at 35% now even up to 36% on the quarter. So exceptionally high profitability levels on record sales levels. Here you can see that we have now reached our previously communicated outlook of 7.5 billion, which is still the upper range of the interval. So good continued growth over many quarters. and a very high EBIT level at 29%. And with the aftermarket, we have been able to continue to grow quarter on quarter all the way back since early 21, which we're really proud about and happy about. If we look at the bridge comparing this quarter with a similar quarter of last year, We had a strong improvement of the gross profit partly or largely because of higher volumes at maintained levels, which was the case for pattern generators. But we also had improvements in the gross margin, in particular in the global technologies division, as well as in the high volume division. There is also a portion of that which is related to a higher share of pattern generators sales. On the cost side, we have added costs in all categories, deliberately so, because we see opportunities both in developing new products and in the markets. A large portion of the R&D expansion relates to patent generators, whereas the marketing and sales cost is more spread across the divisions, and it also includes a portion of acquisition costs for the two acquisitions we have been able to complete in the beginning of the year. Also the G&A is spread across divisions and here the new companies in global technologies has also an important portion. Other items is largely related to currencies, actually the revaluation of receivables is in particular affected because you get paid later than when the receivables are created so we have a negative impact here and the impact of the exchange rates is actually bigger than the total 46 here so we have received more other positive impacts from largely from government's grants in this amount so about 60 million is effects related to this Despite that, we end on a new record level of 775 million. If we cut it the other way around and look at it based on how we are organized, you can see that the main part of the improvement comes from pattern generators, where we have added 209 million, largely by selling more than the prior year. In the HyFlex division, as Anders mentioned, we are actually making a small loss in the quarter, which we are not happy about, but based on the volumes that we saw, and the additional cost that we had to bear for having the largest fair we have in North America in the first quarter compared to in the second quarter of last year. This is the main explanation for the negative result and the residual between this quarter this year and last year. On the high volume side, we had fantastic order intake driven by a strong business in China. We couldn't get that all to revenues, so the improvement on the result is limited. But we still consider this as a very good first quarter of the year for high volume. For global technologies, as Anders referred to, we had a very good quarter in the PCB test division. And we had also a strong result improvement in the die bonding. part of the business and this more than covered for the costs that we have with the newly acquired technology companies compared to last year. On the group function side we have, it's a bit split in two, we have on one hand exchange rate differences on loans that we do from the group to subsidiaries which are in different currencies. and acquisition costs for the two acquisitions we have made. By that, we ended up at 36% or 775 million. On the cash flow side, We continue to have strong cash flow from our operations, but in the quarter we had lower advance payments and this is mainly a reflection of patent generators having stronger sales than order intake. And we also built inventory and in particular in the high volume division where we had strong order intake but could not realize the sales. And this is where we are Having a rather late point of revenue recognition, customer has to accept before we recognize revenue. On the investing activities, we had mainly the acquisition of H-Probe in the quarter. And by that we had a relatively modest cash flow for the period. With that, I hand the word back again to Anders.

Thank you very much. Before going into the Q&A session, a few words about sustainability. What we have done in the quarter, this is a continuous effort. In the quarter, we launched an initiative to strengthen the efforts in the supply chain when it comes to environmental and social conditions. So that was the focus area for the quarter. We also finalized the sustainability report for 2024, which broadly follows the CSRD reporting standards. So quite big work going into that, of course. And really to optimize and align the sustainability reporting with the company strategy, we will review both the processes and reporting during 2025 to find a maximum alignment between the business strategy and also the reporting. So that was that for that quarter. So with that, Sven, we can start the Q&A.

Thank you, Anders, and thank you, Pierre. So now we are moving over to our Q&A session and we will start with SEB and Ina Gypsund. Please go ahead and ask your questions, Ina.

Yes, hi. So thanks for taking my question. I wanted to ask about the gross margin strength we saw in the petro generators division and was this driven by some specific orders or something more structural? And then if you could talk about the kind of customer conversations you had over the past few weeks and has there been kind of a significant change in the demand picture for the pattern generators or the senior view?

If I start by speaking about the gross margin, there is a little bit different gross margin profile in the display industry and the Semicon industry and we had large display sales in the quarter so it's more a reflection of that than anything else and we were on not to the similar levels last year as well. When it comes to demand, we have seen so far a stable demand in the pattern generators businesses. So it has not yet changed of any significance.

I can add a little bit on the customer conversation. So we have actually had the opportunity to talk with most customers a few weeks ago on big conferences that is normally happening in the beginning of the year. And so far, no one is changing their long term plans. Everyone in this industry is really in for to have a quite long horizon and still holding up their investment plans and expansion ideas. So no change of that.

Okay. And you said on outlook, there's a little bit more uncertainty now, which is a big surprise, but could you give us some flavor on if the higher uncertainty is related to some specific end market or country or division, that would be great.

I think it's generally a reflection of the uncertainty related to both the underlying demand. I mean, if we see a lower general demand, it will also affect the investment climate. So I think that's the most important. Second to that is the exchange rates fluctuations that we see at the moment. And we have... compared to the cost base, we have obviously little revenues in Swedish krona. When it comes to project orders, this is all hedged, but of course it affects the SEC amount over time.

If you see different divisions, I think The one that have shorter lead times and shorter decision times, of course, will be more affected by by hesitation. I think that's typically our high flex division would be the most likely the most most affected by uncertainty. And the pattern iterators most likely the least, if anything, affected.

Great. That's good for me. I get back in line here.

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

Thank you very much. Thank you for taking my questions as well. I just want to stay with Ina's question actually on the gross margin on the PG side. You also alluded to that you had some positive one-off related items in the aftermarket revenues in the PG side. So it would be interesting to hear how that sort of inflected or improved your gross margin and how big that could have been. It would be interesting. So that's the first one. And then in high flex, you alluded to that also there, Anders. And I think, you know, if you could talk a little bit, if you have seen or felt that this is some pre-buying in the high flex, especially from the US clients and in front of the tariffs or anything like that would be interesting. Thank you.

Take the first one then on the PG side doesn't have a material impact on the relative gross margin in the quarter. Okay.

And on the high flex situation, so the weakening we saw in quarter one on order intake was actually Europe and not North America. So that was that. We haven't really seen a rush in North America either. So I think it's more just the business climate that is affecting here.

So yeah, I mean, that was really the feeling that you had a fairly decent North America. So maybe there were clients that were rushing. But I mean, you you see the everyday behavior and you don't feel they were rushed?

No, no.

Okay. Thank you. I'll get back in line.

Thank you, Fredrik. And now over to Nordea and Anders Åkerblom.

Hi, thank you for taking my questions. I was wondering first a bit on the updated sales guidance. So obviously SEAC 7 to 7.5 billion from 7.5 billion previously. If I just look at the midpoint value and also with you having moved the delivery of one precision aid from this year to being replaced to precision 8,000 being delivered next year, that accounts for approximately half of this change in the midpoint value. So should one interpret that as being a substantial portion of the updated sales guidance, or is it other factors driving this primarily? You mentioned currency as such, but still.

I think it's more a reflection of the uncertainty that we have opened up. We are delivering a record quarter, which is almost not at all affected by any of this turmoil that we see in the markets right now. And as such, we want to also signal that, well, there is a downside to this as well, potentially. So it's more a reflection of that than any specific other events.

Fair enough. And asking just about PG, I mean, you, you mentioned that it's the, the, the, the maybe more resilient of the business areas, but just looking at the quarter and not to in any way sound unpleasant, but, but I mean, you, you received six orders in the quarter and as Anders, as you mentioned in the beginning, most of that was in January, I think four or six orders were in January. So, I mean, in my mind, that's, that's maybe not stable. Uh, I mean, it, it, it seems as such, at least that there was a quite rapid deterioration towards the end of the quarter. But I'm just trying to balance that a bit with what the display OEMs are saying, as you mentioned, in this environment that they have to continue to invest to support earnings, maybe especially in this environment. So how should one balance that going forward with using stable? I mean, looking at Q2 last year, that was a very strong quarter for display order intake. So is something in line with that, or do you get my question?

I think stable in the PG business, I normally say a quarter is much too short window of time to look at. I normally say that we need to have a three years perspective more or less. uh on this and uh i think six machines in a quarter is is good and then it happened all in january that was not so i think that is kind of a normal distribution as you see if you see historically they have been quite a lot of months without machine sales and then all of a sudden it happens so it's very difficult to When we say stable, it doesn't mean that we will have two orders every month or something like that. It's more kind of the customers, how do you say, investment plans and the technology shift and the whole business. And still we could see that there is stability in the transformation from LCD panels to OLED. We still that according to... third-party analyst companies and so on. We still see growth in the display industry. We see a bigger growth on the OLED side. We see it's forecasted also to have quite good growth on the semiconductor side. And then we have the replacement cycle on top of this. And all of that is very stable. And we have not seen no change of customers' willingness to get quotes or to discuss opportunities and so on. And then the orders, they will come with a little bit irregular pattern.

Yeah, no makes makes sense. If I may just ask a follow up on that. I mean, speaking about the new precision 8000. Last time around, you mentioned that when you get the inaugural order that tends to create a bit of a spurring effect among competitors to also order, do you still see that that is the case and that maybe we should expect a somewhat similar pattern to when you launched a Precision 800 in terms of the phasing and timing of the orders or has it fundamentally changed?

No, I think that's a very good comparison actually. I think the time between launch and order was quite much shorter actually on the 8000 than it was on the 800. So that was a really wanted machine in the market. I think we could most likely we will not sell any or so many 800 anymore. I think customers will really move to the 8000. So I think you can look on the 800 as a kind of a proxy to see how the 8000 will sell in the future.

super helpful thank you i'll get back in line thank you okay and thank you andres now we move over to a new participant joachim gunel at dnb please go ahead and ask your questions thank you for that and good morning uh so when it comes to the ai driven um demand opportunity for for my chronic

You called out maintain the momentum here for PCB test, but saw some weakness in dibonding. So have you observed any sort of hesitancy in customer spend in this end market in your quality sales pipeline recently?

Not really. I mean, AI is a driver for both of these business lines. And despite that, we saw a decline on the die bonding and still a very good demand on the PCB. So this is a little bit of a contradiction. The difference is that on the PCB test, we have quite a big customer population. So orders are more spread, so you can more easily see trends and general demand will affect more directly, while in the die bonding, the customer group or customer universe is quite small. So it depends there a little bit on when the order is coming and so on. But so far, that demand still exists and it's still there.

Great. And if we raise the line of sight a bit here and focus on the bigger picture. So over the past five years, SLX series in patent generators have been one of the key growth drivers for the overall group growth. So you've essentially captured the low hanging fruit now in the Semicon opportunity. You will increasingly go head to head and replace incumbent competitors in that space. So just if we look over the coming three to five years, just from a more philosophical standpoint, do you think that Micronic needs to find a new growth vector similar to SLX in order to deliver high single digit organic growth? Or do you think that the current product portfolio can support such a growth trajectory?

Now we will certainly welcome one more. But the display, of course, as we have the majority, if not everything, of the market there, the market growth is, of course, very important for the growth there. And then it's our ability to develop technology to increase the value of that market really to do that. And I think that can continue as before. On the SLX side, it's correct that we have sold the majority of the newly, of greenfield installation where new factors have been built or new capacity has been built. And we haven't been as good in replacing the installed base. But the installed base is still huge. And we still have quite a small part of that installed base. So we think that the market will shift a little bit more into replacing existing equipment rather than building new factories or new lines or new capacity. And that can still go on for maybe five, ten years, I think. And then the installed base will be old again. So I think that opportunity still exists. We have recently launched also equipment called MMX and so on. It's not big money, but I think it's a way for us to expand the market and to participate in more applications. And this is also what we would like to continue to do, of course, to launch technology that can participate in new adjacent applications and expand the market by doing that.

Great, thank you for that. Thank you Joakim. So now we go back to Ina, you at SEB and I think you had some additional questions.

Yes, I wanted to follow up on Joakim's question there. If you could talk a little bit what kind of new growth vector you're looking at and if you already started doing some R&D for this.

Yeah, I can speak in general terms. I think if you see we were only in display before with mask writers and then we expanded into metrology or measurement equipment in the display and then we went into Semicon and then also launched inspection or metrology equipment in MMX. into that i think around that theme i think we can we can do more so we're looking of course into different areas but we believe it should be close to the existing products or the existing technology and as an example the inspection business is almost as big as the master writer business most and that is valid for almost the whole electronics industry that quality control and inspection It's almost as big as production equipment, and we are much, much more leaning to the to the production side in every in every division, actually. So that would be a natural step. But there are several other areas as well. So we're looking looking wide.

And then I wanted to ask a question on your expansion in Southeast Asia in high volume. And is this kind of proceeding as planned? And have you seen any change in outlook on growth there? And if you could talk a little bit about the opportunities you see there.

So we are establishing ourselves in Thailand now where we also will have production of high volume equipment. And this is as many companies have a strategy to be not only producing in China, also to have a second place. We thought originally Vietnam could be one of them, but now we have considered Thailand to be a better, much better place to be at. So that is in line with that strategy to have additional manufacturing location for that kind of business. It's also a very important market, of course, and Thailand is coming up or Southeast Asia is coming up as a quite big additional market to China in Asia. So that's very important. So that is going according to plan. I think it's maybe that kind of expansion is faster than expected. There's also, we have also thoughts about India, which is a little bit more difficult when it comes to regulatory and also the sensitivity between China and India currently and so on. not yet decided, but it's under consideration, if that could be the next expansion in Southeast Asia.

Awesome. Thanks a lot. That's all for me. Okay, thank you.

Thank you, Gina. Then over to Handelsbanken again and Fredrik.

Thank you very much. A few more questions then. I was thinking about the strong Swedish krona and your prices you have on the PG side specifically, if this is sort of triggering you to look over the prices you offer to clients and make adjustments to them in any way, or if you're sitting still as is. So that's really how you elaborate on your prices would be interesting to hear. And then another question is, we got in last week a new update that export restrictions in the US, mostly on the semiconductor side, but still they get tougher and tougher. So the question is really, have you gone through them, evaluated them, see if you are sort of touched by them or are you still outside of what is demanded in those routes? Thank you.

So we had first the prices question, and this is something that we are, of course, always reviewing and considering different factors, and the Swedish krona is one, the competitive landscape is a different one, the tariffs is the third one, et cetera, et cetera. So this is something that we work with on a continuous basis, and this we will do going forward as well. On the PG side specifically, it's not that we have a similar competitor which is based in Swedish krona. So from a competitive point of view, it's not an important consideration. Of course, for us, when it comes to earnings, it pushes us a little bit harder. But customers do not feel the Swedish krona, and we don't have competitors in Swedish krona.

Okay. And the second one on export restrictions, U.S.

export restrictions, anything that... Nothing at the moment that is changing the situation for us when it comes to export. And also worth to mention is maybe that on the import to U.S., the mask writers are actually exempted from the tariffs.

Okay.

For now, at least.

Thank you. Yeah, things can change quickly. Okay. Thank you, Fredrik. Over to Anders at Nordea.

Again, thank you. So firstly, just asking the obvious. I mean, you've had a quite significant net cash position for quite some time now. With 3 billion currently, I mean, what What should we think here? Are you going to keep having it and letting it yield 3%? Or will you be more forward-leaning in this environment? How should we think about that?

I think very few companies want to have cash for having cash. So that's not in the plan. We will distribute a bit here in the second quarter to the owners. But of course, we are actively looking and what you've seen so far is maybe a limited size acquisitions. But we continue to look for those opportunities as well as for the opportunities to organically develop products within the company. And we are accelerating the R&D now, as you may have seen in the numbers. So all fronts, but the idea is not to collect cash to a very high level. high degree.

That's comforting to hear. But kind of talking about R&D, I mean, in the quarter, some 230 million in R&D investments. I mean, that continues to trend up quite nicely every year after Q4 also being seemingly noting something of a substantial step up. I mean, not in the least PG. Could you give us any type of indication on the timing of when we might expect to see some results of that?

Once we have new products, we will communicate the launch of the new products. So nothing to communicate today, unfortunately.

All right. Makes sense. Thank you.

Thank you, Anders. Over to Joakim at DNB again.

Yes, thank you. So I just wanted to double click to start off with the revised sales guidance. We all know the FX headwind, right? But can you just comment a bit on what the underlying assumptions are for the trajectory of the year when it comes to, call it the tariff impacts? Have you only baked in a headwind for Q2 or have you basically penciled in a headwind for the remainder of the year in what you currently state?

I think what is in that revision is more the uncertainty rather than precision. I mean, we still have three quarters to go. And if currency stays where it is, then there will be quite some impact on the full year. But the currency change is most likely affected by the tariff. uh turmoil i would say so if that is that could change in any direction so that is kind of the difficulty in the prediction i think the currency is a big part of course and connected to that will be of course the customer's willingness to to invest i think that's uh just more difficult to predict and and most likely there's more from the 7.5 we had earlier it's more if anything there's downside because of this but we could still if everything kind of normalizes or so and then I think we could definitely reach the 7.5 again so it's not really that we are seeing a new number just seeing more difficulty in predicting that number that makes sense thank you Anders and I mean how do you think about my chronic should we say call it a

even more uncertain world than you currently see. So in the past, of course, Micronic was a bit more cyclical. You have now created a much more diverse dynamic company. So can you just comment about, okay, where do you actually see like relative resilience in the portfolio? Should macro worsen even more? And then where would you anticipate the largest cyclical swings?

I think long term we think we have a good position still. I think to be based in Europe and particularly in Sweden is today a good geographical location. We have a majority of sales in Asia. I think the Europe-Asia relation is still very strong and maybe could be even better because of uh what is going on um i think what we have seen in the past when supply chain kind of localizes where we had this called reshoring from from china to europe everywhere i think we normally sell more so the more places things are produced that it's normally better for us So that could be quite positive. I think the impact is more on the short-term hesitation for our customers really how to position themselves in this. And I would say that in the high flex we've had quite short time between investment and yeah discussion decision and investment I think that will maybe be the and the more affected we could see already the good growth in the high volume side because of China taking off and I think on the global technologies that is also quite long term and driven by factors that are that are here for long term so I think we have a good position to continue to have good business, I think.

That sounds encouraging. Thank you. That's all from me.

Thank you.

Thank you. So now I think I will just leave the floor open to if there are any additional questions. In that case, please jump in. Seems like everybody has had their answers. So with that, we have reached the end of today's presentation. And thank you very much for participating and listening.

Thank you. Thank you, everyone.