Mycronic AB (publ)

STO:MYCR

Earnings Call Transcript 2023-Q1

[Sven Chetkovich, executive]

Hello, and welcome to the presentation of Mycronic's Q1 [indiscernible] Sven Chetkovich, I'm the Director of Investor Relations. With me, I have Mycronic's CEO and President, Anders Lindqvist; and CFO and Senior Vice President, Corporate Development, Pierre Brorsson, who will be presenting today. We have made a change to the Q&A session later in the presentation. [Operator Instructions]With that, I hand over to Anders. Please go ahead and present Mycronic's Q1 report.

[Anders Lindqvist, executive]

Okay. Thank you very much, Sven. And this is what we will present today. So we will start with the quarter one in short summary of that and then also the divisional development. Pierre Brorsson, CFO, will go through the financials, talk a little bit on our progress on sustainability. And then as Sven said, we will end with the question-and-answer session. And at the end, in the material in the presentation he will also present, which is with all the statistics from the market where we operate in. When it comes to the first quarter, the highlight of the quarter is that we have had continuous, very high and good order intake.We had an increase of 12% compared to the same quarter last year, up to a little bit above SEK1.6 billion. It's driven by the order intake in Pattern Generators. And you can put that in relation also to last year revenue, which was SEK5.1 billion. And then you see that the SEK1.6 billion level is a really strong order intake number for the quarter. At the same time, we also had an increase in sales by 7% to 1.2%. Quite a lot of that was driven by currency, so 2% organic growth in that number. EBIT ended at SEK182 million compared to SEK206 million. And for comparison reasons we have also, as we say here, that we had the divestment, we had AEi in the business, same quarter last year.So if we adjust for that, it's a flat development of EBIT and corresponding to a margin of 15%. So we have had also good order intake previous quarters, as you have seen, hopefully. And we have a record high now backlog of close to SEK4 billion at the end of the quarter and at the end of the quarter, we have 30 systems in the backlog. And then as an additional highlight, we had also two more orders after the quarter of two pieces of SLX mask writer. So backlog is extremely strong as you can understand. If we go a little bit more in detail on the different divisions, starting with Pattern Generators. We can see that we still have a very good market for photomask in semiconductors.And to say here that it's in the mature design nodes that remains strong. And the mature design nodes are the ones which we address with our SLX mask writers. So it's a good place to be at. Also, display has been good. We had -- if you look at the order intake, we had 8 systems for the quarter in Prexision 8 Evo, it's a display writer and then also in FPS6100 and six mask writers for the semicon industry SLX. So very strong order intake, 113% up compared to the same quarter last year. We also delivered some systems, and we had an increase of sales of 10%, reaching NOK351 million. And in the delivery, we delivered three pieces of equipment, on Prexision Lite 8 Evo, FPS6100 and one SLX.And we should have delivered on more SLX in the quarter, which was moved from quarter one to quarter two. So it will be delivered this quarter instead. Gross margin was okay at 62% and EBIT reached SEK150 million. So backlog of close to SEK3 billion in this one. And at the end of the quarter, we had 30 systems as said. If we move on to the other division, another division, High Flex where we had, we call it a decent start to 2023. We have seen that we have very good demand in Europe and also in North America. And a lower level in China and lower level in China, you will see in the other divisions as well. Actually, it's a kind of a common theme here. But in the beginning of the quarter in January APEX trade show in San Diego, which is the one of the big one in the electronics assembly industry, which had a lot of visitors, a lot of interest and a lot of activity, which is really showing that there is a good demand and a good interest from the [indiscernible] the North American market, including Mexico as well.And on the order [Technical Difficulty] sorry for that, we continue. So on the High Flex division, so we had an order decline of 3%. And also an increase of sales with 11% up to SEK322 million. Gross margin, quite stable and then good gross margin of 40%. EBIT ended at SEK23 million, which is a little bit up compared to last year and a backlog of SEK180 million. So it's kind of as expected start through the year. In the High Volume division, we had -- we can see that we have a little bit of slow pace of investments when it comes to consumer electronics manufacturing.And even though the COVID restrictions in China have been lifted, we have seen that this industry has not yet really recovered when it comes to investments. It's still hesitating a little bit, but we expect that to come. You can see that in the order intake, we had a decline of 41%. To compensate, we focus on new areas. One of them is electrical vehicle industry, which is very strong, especially in China and also looking at more aggressive geographic expansion outside of China. We have got an initial order from a production facility outside of China, but belonging to a Chinese manufacturer of electrical vehicles.Sales were flat; SEK367 million, same as last year, and we have an increase in gross margin. And this is what he have a better mix. We have a better delivery, better gross margin in the deliveries we have had. And also, we have worked with efficiency improvement in this division, resulting in that EBIT improved to SEK64 million. And in that SEK64 million, we also had a negative impact that we have bad debt provisions of SEK7 million in that so backlog at the end of the quarter, a little bit more than SEK600 million. When it comes to -- we have two lines of business here: one is Electrical Testing of PCBs and Substrates and the other one is Die Bonding, addressing the -- mainly the telecommunication market.And we have seen a little bit of slowdown in both of these markets, both related to the Chinese market as a whole, but also that in the market of data and telecom a little bit of decline and resulting in that our order intake decreased by 27%. If you make a fair comparison because we had this AI business in the quarter last year, it's a decline of 25%. So almost the same, a little bit an increase in sales, but mainly related to the currency exchange effect here. Gross margin flat at 35% and EBIT down to SEK3 million.Also here, we have a comparison effect with the AEi business that we had in the business last year, which had an impact of SEK25 million of the previous quarter last year -- or the same quarter last year, previous year. Backlog ending at SEK236 million; no change here. We still [indiscernible] SEK5.5 billion at the end of -- so nothing to update there.So by that, I will hand over to Pierre, CFO, to explain the numbers a little bit more in detail.

[Pierre Brorsson, executive]

Good morning, everyone, from my side as well. We will go a little bit deeper in some of the numbers here. If we look at it, we continue to have a fourth quarter in a row of continued growth on the revenue side, and we are now at SEK5.2 billion rolling 12 months. The margin is at 17% on a rolling 12-month basis and relatively flat development lately. The aftermarket revenue continued to increase since two years quarter-on-quarter, when looking at the rolling 12-month numbers and this is, of course, a good thing for us. Moving a little bit into the quarter-on-quarter comparisons; we have now six quarters in a row above NOK1 billion in revenue. We have establishing a good level, and this is the fourth quarter on SEK1.2 billion. So also there is good even if the organic growth in the quarter was modest, with only 2%.We had a little bit weaker EBIT margin than the last couple of quarters. And if we compare year-on-year, it's affected by the AEi divestment we had last year, which gave a gain of SEK25 million in the Q1 numbers two. We also have higher costs on what we call group functions and sometimes referred to group functions, etcetera, where we have also eliminations. And this is largely driven by our high activity in business development projects at the moment. This made us end the quarter at an EBIT margin of 15%.If we look at bridge of where the components make up the difference between the quarter one last year and the quarter one this year we had in volume and gross margin effect, positive development, largely driven from PG, where we had a little bit of volume and a little bit of improved margin. We had also improved margins in the High Volume division, in particular. If we look at the R&D, we are investing in the organic opportunities that we see. We had slight increase across in R&D, but in particular, in division, High Flex in the quarter compared to the same quarter last year. On the marketing and sales side, there we have the increased business development projects.We have also the provision for bad debt in division HV that Anders mentioned earlier. This is a provision, which we make as a calculation on the -- based on the aging of receivables and it's not attributable to a specific loss. We haven't basically had any concluded losses on the receivables, but we do see a delay in payments, particularly related into the High Volume division. G&A, some small increases and in this other position, the main difference on last year is the SEK25 million in -- related to the AEi divestment last year we have spoken about a few times already.If we then move into the other dimension and look at it division-by-division you can see that we have improvements in the Pattern Generators related to volume and gross margin, as mentioned. We have in High Flex a little bit increase in volume in the month -- sorry, in the quarter. And on the negative side, here, we had a little bit higher R&D spend. In High Volume, we have improved the gross margin in particular, and in the Global Technologies, then the sales of the AEi is recorded. And finally, in the Group Functions, etcetera, largely the business development and I should also mention a very low comparative number for the same quarter of last year.The average for the year, the difference is about SEK10 million less than the SEK34 million noted here. If we look at the cash flow, we have strong cash flow, both from the results and from improved working capital, positive development of the receivables compared to end of the year -- and also at that point. On the investing activities, we had last year in the comparative number, the sale of AEi, which generated SEK215 million. So this is a normal level of our investments, you could say. And apart from that, no other big difference is in the financing activities and the exchange rates. We have a strong cash position and the cash as such was SEK1.6 billion almost and adjusted for the IFRS, etcetera, we have a net cash position of SEK1.3 billion at the end of the quarter.With that, I hand the word back to Anders.

[Anders Lindqvist, executive]

Last picture from my side about sustainability, so we continue to improve our work around sustainability, not at least to meet our targets that we also added last year along our financial targets. And we have established sustainability goals for 2023 broken down and also connected that to the annual strategy process to implement that in all of our divisions and in line with the long-term action plan.We also -- when we announced the new financial targets last year together with our sustainability target we also said that we have joined the science-based target initiative. And we will -- we have started a working group there to preparing the proposals that we need to submit to this organization. And our target is to be ready by the end of this year with this. So we are included in that initiative.All right. So that was the part of the formal presentation. So I hand over to Sven.

[Sven Chetkovich, executive]

Thank you, Anders and thanks, Pierre. [Operator Instructions] And first in line, we have Fredrik Lithell from Handelsbanken. So yes, Fredrik, please go ahead and ask your question. Fredrik Lithell, Handelsbanken, please go ahead and ask your question. Okay. So there seems to be a technical glitch. So Fredrik, please try again. And in the meantime, we will let Mikael Laseen from Carnegie ask his question. Please go ahead, Mikael. Okay. Mikael Laseen, Carnegie, please go ahead and ask your question.

[Mikael Laséen, analyst]

Can you hear me?

[Sven Chetkovich, executive]

Now we can hear you. Sorry about the technical glitch here. So Mikael, please go ahead and ask your question.

[Mikael Laséen, analyst]

Okay. Thank you very much. Yeah, I'm a bit curious here about the guidance of SEK5.5 billion. You have a really strong order book in the PG segment and service revenue in that part is also relatively predictable and High Flex also starting off with a good order intake. So I'm just curious if you can maybe elaborate a bit on the outlook for High Volume and Global Technologies, how I should think about that?

[Pierre Brorsson, executive]

We are not making an outlook on divisional level. We do see the up so far this year has been the strong order intake on the PG side, the strong order book we have there, the down has so far been the time it takes to recover in China, which affects basically all divisions, even if we have had a strong development from PG there, and this means that we maintain the outlook of SEK5.5 billion.

[Mikael Laséen, analyst]

Okay. So if I'm correct, it implies significantly lower sales for High Volume in the coming quarters -- that must be the implied effect of the start of 2023 and the unchanged guidance. Just to be clear here, so we understand the dynamics.

[Pierre Brorsson, executive]

I will not guide on divisional level. We maintained the guidance of SEK5.5 billion for now.

[Mikael Laséen, analyst]

Okay. Yeah. Fair enough. Can you also then maybe comment a bit more in detail what you see in China primarily for the High Volume segment, how the quarter developed and the market activity and maybe also say something about the end market exposure for the High Volume segment, which type of customers and the markets that they are exposed to?

[Pierre Brorsson, executive]

If I start and then maybe Anders can continue. I think we do expect the Chinese market to recover. It's very hard to predict exactly the point when this will happen. But we have seen that it takes a little bit longer than what we had hoped and maybe thought as well. So -- and our High Volume division has then put more efforts on other segments than the traditionally strong Consumer Electronics segment, which has been the slowest to recover from our point of view.

[Anders Lindqvist, executive]

[indiscernible] many different segments with the High Volume division, Consumer electronics has traditionally been the -- is the largest one, but also in -- we're also now quite active in automotive as well as semiconductor with that division. And we have refocused more into automotive because of the enormous development of electrical vehicle that we see in that segment so to compensate. But just to add to Pierre's comment, that I think we among many others, also believe that that after the increase of [indiscernible] but there is longer than what we believe hesitation here. But the market is very active and the number of requests are very high. So long term, we still believe in this.

[Mikael Laséen, analyst]

Okay. And my final question is on the PG segment, if you can say something more about demand for your different type of systems, SLX replacement possibilities ahead and also the market situation in total, if you can elaborate a bit more on that?

[Anders Lindqvist, executive]

It's quite unchanged, I would say. So we had a -- we see a continued very strong demand from the semicon industry. And especially in the technology segment, which we address with the SLX writer. So no change from before. We have a similar interest on the display side as well. So compared to before, I think we see a similar situation. But it's, of course, difficult to say how this is translating into equipment sales, of course. But on the photomask side, we see that there's a good demand and a good market in all of our segments.

[Sven Chetkovich, executive]

Okay. And now over to Fredrik Lithell. Let's hope it works this time. Go ahead, Fredrik. Okay. So Fredrik, please go ahead and ask your question. We have some trouble hearing Fredrik. Okay. So Fredrik, please go ahead and ask your question. Okay. So we are having some trouble, unfortunately, getting Fredrik Lithell online. [Operator Instructions] Okay. Well, with that, we have reached the end of today's presentation of Mycronic's Q1 report. Thank you very much for attending.