Mycronic AB (publ)

STO:MYCR

Earnings Call Analysis

Mycronic Sees Strong Q2 Growth and Raises Annual Outlook

In the second quarter, Mycronic reported a 23% increase in sales, reaching over SEK 1.5 billion. The order intake rose significantly to SEK 2 billion, driven primarily by the Pattern Generators division. EBIT doubled to SEK 348 million. Noteworthy product launches included the Prexision 8000 and MMX. The company raised its full-year sales guidance from SEK 6.25 billion to SEK 6.5 billion, reflecting improved market conditions, particularly in China. Mycronic also announced new sustainability targets, aiming to reduce Scope 1 and 2 emissions by 56% and Scope 3 emissions by 52% by 2030.

Strong Financial Performance in Q2

In the second quarter, Mycronic achieved significant growth, with sales increasing by 23% year-over-year to approximately SEK 1.5 billion. The Earnings Before Interest and Taxes (EBIT) doubled to SEK 348 million, resulting in an EBIT margin of 23%. This growth is notably characterized by a strong order intake of around SEK 2 billion, primarily driven by the Pattern Generators division.

Segment Breakdown: Pattern Generators Lead the Charge

The Pattern Generators division stood out with an impressive order intake increasing by nearly 50% to SEK 1.2 billion. The division saw sales jump 47%, reflecting robust demand in both the semiconductor and display markets. The gross margin for this segment remained stable at an impressive 67%, with an EBIT margin of 53%, underscoring strong operational efficiency. Mycronic delivered five systems in this segment, contributing to a solid backlog of SEK 3.4 billion.

Challenges and Improvements in High Flex and High Volume Segments

In the High Flex division, a modest order intake increase of 4% was reported, with net sales slightly up by 2%. Despite challenges in the U.S. market, demand in Europe showed signs of improvement. This division maintains a stable gross margin of 40%. Meanwhile, the High Volume division witnessed a solid recovery in the Chinese market, with order intake increasing by 2% and sales soaring nearly 30%. The EBIT margin here stood at 14%, while the gross margin was a respectable 41%, indicating resilience in operational performance.

Global Technologies: Mixed Results and Future Potential

The Global Technologies segment experienced varied performance. The PCB testing business showed healthy demand due to AI investments, whereas the die bonding business faced a decline in order intake, down 16%. This division reported a negative EBIT of SEK 15 million, largely attributed to integration costs from the recent Vanguard Automation acquisition. However, it is expected that the impact of this acquisition will diminish by year-end, and backlog remains strong at SEK 330 million.

Positive Outlook and Guidance Updates

Looking ahead, Mycronic's management provided an optimistic revenue outlook, raising the full-year sales forecast to SEK 6.5 billion from a previous estimate of SEK 6.25 billion. This increase is supported by trends observed in the Chinese consumer electronics market and sustained demand in semiconductors. The management's view indicates a firming up of market conditions compared to earlier projections, reflecting a more positive sentiment despite the challenging U.S. landscape.

Commitment to Sustainability

Mycronic is committed to sustainability initiatives, aiming to reduce Scope 1 and Scope 2 greenhouse gas emissions by 56% and Scope 3 emissions by 52% by 2030. These efforts align with the Paris Agreement and are bolstered by the recent introduction of the company's new laser systems, expected to significantly lower emissions over time.

Cash Flow and Investment Strategy

The company reported a robust cash position of SEK 2.5 billion, despite a dividend payout of SEK 440 million and acquisition-related cash outflows of SEK 160 million. This strong cash position enables Mycronic to continue investing in R&D and business development in various sectors, which is critical for sustaining long-term growth.

Earnings Call Transcript 2024-Q2

[Sven Chetkovich, executive]

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

[Anders Lindqvist, executive]

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. We'll go a little bit deeper on the different divisions. 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. So, we have a quite good increase compared to the same quarter last year, both on order intake as well as on sales. The order intake of about SEK 2 billion is a very good level and contribute really to our long-term growth ambition. The -- 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 SEK 1.5 million, which is kind of normal. Quarter 2 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 SEK 348 million or equal to 23% and very strong backlog of SEK 4.7 million, which is -- I would get a little bit more than 8 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 2 very important product launches, the Prexision 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 Pattern Generators. You've 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 SEK 1.2 billion, and we had both display mask writers and semicon mask writers in that order intake, 8 systems in total on Prexision 80 Evo, on Prexision 8 Evo, on Prexision Lite 8 Evo. They are all from the display industry, four SLX and one MMX for semiconductor. So, a good mix on that one.



Sales up 47%, 650. We also delivered the five systems, two display machine, yes, two display machines, one Prexision 80 Evo and one Prexision 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 Pattern Generators in the quarter and a continuous good backlog of SEK 3.4 billion.



If we move into High Flex, so we have seen previously in High Flex a little bit of headwind from the market. And you'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. U.S. 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%. So I'm happy that we can keep it on this level and an EBIT of SEK 18 million. The order backlog of SEK 167 million is a little bit on the low side. We would like to see more here. But in a way, this is -- 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% and EBIT of 14% and quite strong backlog of SEK 780 million almost in this division.



On the Global Technologies, we have a little bit of a 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 a healthy demand, very much driven by AI investments in here. On the other hand, the die bonding business line was quite slow. I'd say also that in die bonding were quite a few orders of high value. So, 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. A decline of order intake by 16%. And as I said, there is a 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 SEK 15 million there, and we had a negative impact from the acquisition of Vanguard Automation of SEK 16 million. So without that, it would have been a little bit positive. Backlog, SEK 330 million, which is quite good.



If we then move into the outlook where we have made a change for the Board of Directors have made a change in what we believe we will end the year at. So, we believe that we -- our sales will end at SEK 6.5 billion at the end of the year and the previous outlook was SEK 6.25 billion.



All right. So yes, then I will hand over to Pierre Brorsson to talk a little bit more on the financials.

[Pierre Brorsson, executive]

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 SEK 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 referred to that we have now had three really strong quarters above SEK 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 SEK 135 million. We had an improvement of the gross margin. And this is largely driven from an increased share of Pattern 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 we 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 SEK 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 Pattern Generators where SEK 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 continued 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 SEK 160 million. We had also a dividend, which was SEK 440 million. But still, we have a cash position of SEK 2.5 billion.



And with that, I hand the word back to Anders to take us on further on sustainability.

[Anders Lindqvist, executive]

So yes, thank you very much, Pierre. So, on the sustainability side, so we're 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 Mycronic, what it means for us is that we commit to reduce what is our Scope 1 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're also committed 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 the 52%, and this will be then 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 Mycronic side, the largest portion of greenhouse emission. 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, we think. All right, that was the end of the formal side of the -- or the normal side of the presentation, and we can start with the question and answer, I think Sven.

[Sven Chetkovich, executive]

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 Lithell at Handelsbanken. And Fredrik, please go ahead and ask your question.

[Fredrik Lithell, analyst]

Thank you very much. Thank you for the presentation, nice results. I have several questions, but I'll keep it to two and then I will join back in the line. May be 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?

[Anders Lindqvist, executive]

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.

[Pierre Brorsson, executive]

And then when it comes to the lumpiness in 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 as well. 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 will still -- we have a positive view on this business.

[Fredrik Lithell, analyst]

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?

[Pierre Brorsson, executive]

No. I think have -- depends, of course, when in the quarter, the order comes and were not comes, if you want, and so on. But as you said initially, there we have quite short lead times in the die bonding business, and we can turn around the orders within the same quarter.

[Sven Chetkovich, executive]

[Operator Instructions] But before that, we hand the word over to Carnegie and Mikael Laséen. Please go ahead and ask your questions, Mikael.

[Mikael Laséen, analyst]

A quick one on the Global Technologies segment first of all. What was the reason for the SEK 16 million result impact from the acquisition of Vanguard?

[Anders Lindqvist, executive]

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 SEK 16 million is related to the cost of running the business.

[Mikael Laséen, analyst]

Why didn't they have any sales? Was it sort of accounting phenomenon?

[Anders Lindqvist, executive]

No, it's not an accounting phenomena. 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. So -- which was the situation. And we foresee this to be less towards the end of the year.

[Mikael Laséen, analyst]

So gradually improving?

[Anders Lindqvist, executive]

Gradually improving is what we expect.

[Mikael Laséen, analyst]

And I was thinking about moving on to the PG segment. If you can talk a bit more about the current market situation. You had a really strong order intake in the quarter. And if you can maybe discuss the Prexision situation and the SLX product line demand situation for those two?

[Anders Lindqvist, executive]

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 Prexision 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 Prexision 8000 is quite high. So that one is also in discussion with a few potential customers. So, we have not changed the view really on the display side. And the same go 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.

[Mikael Laséen, analyst]

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

[Anders Lindqvist, executive]

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.

[Sven Chetkovich, executive]

And now we will move over to Nordea and Anders Akerblom. Please go ahead and ask your questions, Anders.

[Anders Akerblom, analyst]

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 than 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 down and is that growth driver behind us? Or is it still something that's ahead of us for the year because it's a quite significant kind of step up?

[Pierre Brorsson, executive]

So I think not sure exactly, I don't have the report in front of me, but.

[Anders Akerblom, analyst]

It's in the outlook [indiscernible].

[Pierre Brorsson, executive]

But it's on display. It's not photomask, it's for display I guess, right? So, it's -- so that correlation is not really a one-to-one and also not -- especially, there's 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 photomasks 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. And when we see -- 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.

[Anders Akerblom, analyst]

No, I understand that dynamic. But I mean it's still not to the negative, so to speak, that it's a 7%-point upgrade kind of in the market forecast. Okay. Maybe you should read that then is a bit more positive for 2025 rather than 2024 in that sense for the [ masks ].

[Pierre Brorsson, executive]

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

[Anders Akerblom, analyst]

And secondly, I noted during the quarter that the SLX orders that you received, I noticed a 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?

[Pierre Brorsson, executive]

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. And 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.

[Anders Akerblom, analyst]

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 at 25%. That's not the case as to why you're kind of extending the delivery time?

[Pierre Brorsson, executive]

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

[Anders Akerblom, analyst]

I was wondering kind of on -- during the quarter, we've seen quite a few reports on China building up quite a lot of capacity in mature nodes 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 able to deal with this if a regulatory kind of shift were to occur?

[Pierre Brorsson, executive]

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.

[Anders Akerblom, analyst]

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

[Pierre Brorsson, executive]

So far, no.

[Sven Chetkovich, executive]

So now let's move back to Fredrik Lithell at Handelsbanken.

[Fredrik Lithell, analyst]

Could I go back to Anders. I recollect, maybe I have a 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 what -- how has that changed now compared to how you described it at the CMD the last time?

[Anders Lindqvist, executive]

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 so, 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 done in the business, and you can look on peer companies like EMS companies or PCB manufacturing companies, which have had some quite difficult time and exactly the same regions or geographies that we are active in, which is mainly Europe and the U.S. And the kind of signals from the market was that there was a little bit of a weakening. And now I think we have -- we see a little bit less business in the U.S., 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 than what we believe. 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 market 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 to the rest of the world and so on. And maybe not the electrical vehicle market picking up as believed in a way.



On the other hand, the semicon market is very strong. We also see a lot of potential for geographical expansion on the high-volume side. We have had very good progress on our establishment in Mexico which I think we announced 1.5 years ago or something like that. We're just [ snapped ] up 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 also other markets, especially like close to China markets like Thailand, Malaysia, Vietnam, those Southeast Asia market. So yes, and that is still the strategy for high volume. And I think it's -- it will be -- we still -- there's 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.

[Fredrik Lithell, analyst]

And maybe a housekeeping for Pierre. Capitalized R&D came in at SEK 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 and [ I think ] we can say about it?

[Pierre Brorsson, executive]

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 Pattern Generators and to some degree High Flex divisions. But we haven't changed principles really. So -- but we do see good organic possibilities to develop the company going forward. So that might come to increase somewhat. We are still compared to most industrial companies on a very low level in terms of [indiscernible].

[Sven Chetkovich, executive]

And now I'm not sure whether Mikael at Carnegie had additional questions, but I'll hand the word over to you, Mikael.

[Mikael Laséen, analyst]

One quick question on the [ PED ] segment. Just wondering how much services sales you had approximately in Q2?

[Anders Lindqvist, executive]

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.

[Sven Chetkovich, executive]

And now over to Anders again at Nordea. Please go ahead, Anders and ask your questions.

[Anders Akerblom, analyst]

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 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 PG 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?

[Pierre Brorsson, executive]

Percentage-wise of sales, it's not really dilutive. So -- but it is correct that -- 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 Pattern Generators by adding contracts.

[Anders Lindqvist, executive]

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 all systems even -- so the installed base is not may be 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 way 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 growing a little bit slower than our sales.

[Anders Akerblom, analyst]

Just a final question on kind of the new systems then on complexity. So, I mean with the new Prexision 8000 Evo, could you speak a bit in terms of -- I mean, I assume that you've developed this together with customers and customer -- 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 is the complexity in the market developing, if I ask the question as such instead.

[Anders Lindqvist, executive]

Yes. And there's a dynamic. It's -- so the customer, of course, need 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 their -- the quality and the functionality and whatever features they have on the display side. So that's there. And then we also need to be -- go step what do you say, walk hand-in-hand with the other process equipment manufacturers like -- 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 Prexision 8000, we can maximize the performance of aligners now. So, I think that is 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 is -- it's not very precise, but we could see a little bit when we launched the previous generation, which was the Prexision 800. I think we had, what did we have 10, 12 months before we go to first order, something like that.



And I don't know if that is typical or not. But from our point of view, we have several customers that should need a Prexision 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.

[Anders Akerblom, analyst]

So we'll wait. I'm just joking.

[Sven Chetkovich, executive]

And we have another question from Fredrik Lithell at Handelsbanken. Go ahead, Fredrik.

[Fredrik Lithell, analyst]

Maybe just again, one housekeeping Pierre, if I could ask, the Group functions was minus. You had a cost of SEK [ 43 ] million in the quarter. Is that a normal run rate for the normal Group functions? Or do you have -- 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 1 and 2 with 56% of Scope 3 with 52% until 2030. On the Scope 3, I guess that is a lot helped by your new laser system in the machines on the Scope 1 and 2. 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.

[Pierre Brorsson, executive]

If I start with the group functions. I mean this quarter it's 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.

[Anders Lindqvist, executive]

And on the sustainability. So yes, Scope 3 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 1 and 2, 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.



Largest portion is actually the energy mix. How is the energy generated to serve our facilities. We have quite a 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 quite related also to our geographical existence 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 have the possibility to generate our own electricity and so on. So, several initiatives on that side as well.

[Fredrik Lithell, analyst]

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

[Anders Lindqvist, executive]

Exactly, that yes.

[Sven Chetkovich, executive]

Did we have any more questions?

[Unknown Analyst]

May I ask one final question?

[Sven Chetkovich, executive]

Absolutely. Go ahead.

[Unknown Analyst]

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 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?

[Pierre Brorsson, executive]

It was mainly related to that we had almost SEK 900 million in sales in Q4 and SEK 650 million now.

[Unknown Analyst]

So higher capacity utilization basically than and [ the fixed cost] ?

[Pierre Brorsson, executive]

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

[Unknown Analyst]

Absolutely. But I thought in terms of kind of the variable costs in the business, it was a bit higher than seemingly now in the quarter, but -- all right. I'll follow up on that in that case. But I think in that case, that was pretty much all of my questions. Thank you.

[Sven Chetkovich, executive]

[Operator Instructions] But I believe otherwise, we have reached the end of today's presentation on Mycronic's Q2 report. Thank you very much for attending.