Mycronic AB (publ)

STO:MYCR

Earnings Call Analysis

Mycronic Reports Record Q4 Performance

Mycronic achieved record-breaking sales reaching nearly SEK 2 billion in Q4 2023 and saw its best ever EBIT at roughly SEK 620 million, sustaining an impressive EBIT margin of 32%. Despite a significant 43% drop in order intake compared to Q4 2022, the overall performance was in line with average levels. The Pattern Generators division led with exceptional deliveries, revenues nearing SEK 900 million, and an EBIT of SEK 510 million. A major product launch in the electronics production fair 'productronica' energized the High Flex division, while challenges persisted in China, notably in the consumer electronics segment. However, the electric vehicle industry provided good demand. Looking forward, Mycronic anticipates a year-end sales figure of SEK 6.25 billion.

Record Achievements Amidst Market Adjustments

The fourth quarter of 2023 was notable for the company, as they celebrated record sales nearly reaching SEK 2 billion, alongside an all-time high EBIT at approximately SEK 620 million. The impressive EBIT margin stood at 32%, maintaining a significant backlog exceeding SEK 4 billion, with 27 systems pending in queue. Post-quarter events further bolstered their backlog, with additional orders for 5 machines across various industry verticals, indicative of their capacity to constantly replenish their pipeline. Despite a sharp 43% drop in order intake compared to the fourth quarter of 2022, executives noted this was not alarming, attributing the decline to an extraordinary previous quarter and considering the current intake close to the company's average.

Divisional Highlights Point Towards Balanced Growth

The Pattern Generators division, excelling in both sales and profit, experienced stellar performance with significant deliveries of eight machines, leading to a robust sale close to SEK 900 million, a gross margin of 68%, and an EBIT of SEK 510 million. Even with a decrease in order intake, the division remained optimistic due to a substantial backlog which ensures sustained productivity. The newly launched pick-and-place machine under the High Flex category gained positive market reception for its enhanced speed and flexibility. This division witnessed a sales increase by 7% with a gross margin at 46%, showcasing its stability in industrial performance. On the contrary, the High Volume segment grappled with a sluggish market in China, with consumer electronics demand tapering off. Nonetheless, a focus on international expansion, particularly towards the electric vehicle sector, yielded a 29% increase in order intake, although sales dipped by 18%.

Firm Financial Standing with Positive Outlook

By the end of the period, the company was in a robust financial position, boasting over SEK 2 billion in cash. This strong liquidity, paired with optimistic revenue projections for the following year, prompted the proposal for a dividend increase to SEK 4.50. The organization is secure with its cash generation strategy, which remains focused on optimizing both order backlogs and gross margins across all divisions.

Strategic Considerations and Forward-Looking Ambitions

Expanding the photomask production for semiconductors has led to significant growth opportunities, particularly in China and with new customer segments. Simultaneously, the executives are cognizant of the potential for market expansion by replacing older equipment. Amid tougher comparisons in EBIT margins between Pattern Generators divisions, efforts to boost efficiency and scale are ongoing, with attempts to close the margin gap between display and semiconductor segments. The company's vision is far-reaching, with continuous efforts to intensify profitability while optimizing the cost base through strategic sales and mix of high-margin products.

Earnings Call Transcript 2023-Q4

[Sven Chetkovich, executive]

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

[Anders Lindqvist, executive]

Thank you very much, Sven. And welcome, everyone. We are happy to present the report today. So agenda is, as usual, talk a little bit about the quarter 4 last year, going a little bit more in details on the different divisions, Pierre will talk about the financials, a few words on sustainability, and then we move into the question-and-answer session. And as usual, in the presentation that you can find on the website, we have also a market update, which we will not present, but it's there.So when it comes to quarter 4, we had the -- quarter 4 of 2023 delivered a lot of records. We had the best ever sales of close to SEK 2 billion. We had the best ever EBIT, a little bit about to SEK 620 million. We have a very good EBIT margin at 32%. And still have a very good backlog at a little bit more than SEK 4 billion. And in that backlog, we have 27 systems.After the quarter, we also received 4 more orders for 5 machines. It was 1 Prexision, 8 Evo for the display industry and then 4 SLXs for the semiconductor industry. So we are really filling the backlog as well.A comment on the order intake. So we had a decline compared to the quarter 4 in 2022 of as much as 43%, which can look quite dramatic. But that quarter was exceptionally high. So the current order intake, close to SEK 1.5 billion, is more or less on an average level for our company. So still happy with that.If we go a little bit more into details on the different divisions. So the strongest contribution both of sales and the profit came from Pattern Generators division. And we had a lot of focus on execution. In the last -- in quarter 4, we had a commitment to deliver 8 machines to our customers and we fulfilled that commitment totally. So we didn't slip on any order. We delivered 6 SLXs and 2 Prexision, 8 display writers.Because of that exceptionally high delivery, we also had exceptionally high sales of almost close to SEK 900 million. Also a very good gross margin of 68%, and a record high EBIT of SEK 510 million. And order intake was still strong, although compared to the same quarter last year down quite a lot. But that was an exceptionally high quarter. We had orders for 4 mask writers, 1 Prexision 8 and 3 SLXs in that. So still a good backlog of more than SEK 3 billion that we will continue to deliver on. So we are very happy with the result here.High Flex, also a lot of records. I think I will actually start not with the financial information, but we launched a new product last year. And this is quite a big launch for us. It's a new -- completely new pick-and-place machine that is both faster but also more flexible than the previous one. And we believe that this will be perfect for the current market. That was launched on productronica, which is one of the world's largest fairs within electronics production, and we received very good feedback on the launch of that machine.For the quarter, good order intake, SEK 360 million, which is up 11%, and extremely good deliveries, beating a very strong quarter in the same period last year. So we increased sales by 7%. Gross margin to a very high and good level at 46%, and EBIT close to SEK 100 million, which is a really good result.Because of the extremely high delivery in the quarter, we had a little bit -- we have a backlog of EUR 120 million, which is slightly lower than normal, I would say, which is typical after such a good quarter. But very happy here.On the High Volume side, we still have -- as before, we struggle in China. The market in China has not yet really recovered. We are still -- the consumer electronics segment is slow. We have good demand from the electric vehicle industry customers. But the consumer electronics segment is much, much bigger, so that effect we see. So we focus a lot here on international expansion, setting up subsidiaries and sales coverage in other countries, mainly targeting the electrical vehicle industry.Despite that, the order intake went up with 29%, but that is also compared to a quite weak quarter in the previous year. Sales down 18%. We managed to maintain the gross margin at 40%. And EBIT down to SEK 32 million. And backlog more or less stable at EUR 662 million, so no big change in that one. And all that corresponds to an EBIT margin of 10%, which is a little bit lower than what we are used to in this division.Moving on to Global Technologies. Here, we have a little bit of a mixed result, and that mix is depending on the demand we see in both business lines. Very good demand driven by AI. In the die bonding, we saw both order intake and we managed to turn it into sales already in the quarter. And PCB test, which is our other business line, the demand for normal electrical testing and substrate has been quite weak. But AI demand, which is impacting the high layer count PCBs, much more advanced PCBs, has been very strong to compensate partly for that.For the whole division, order intake up with 84%, sales up almost 40%. Gross margin also stable and a little bit improving at 39%. And EBIT of 12% or SEK 37 million, which is quite okay. It's moving in the right direction here. Order backlog close to SEK 300 million, which is also a good level for us.So moving on to the future a little bit. So with that backlog we have and the order intake and the trends that we see, we believe that this year we will deliver sales of SEK 6.25 billion at the end of the year, and this is at current currency rates.So with that, I will now hand over to Pierre Brorsson to talk a little bit more on the financials.

[Pierre Brorsson, executive]

Yes. Good morning from my side as well. And happy to deliver a little bit more insights to the financials. We had a very strong ending of the year, ending the 12-month curve a little bit above our outlook or slightly above the outlook that we have communicated before of SEK 5.5 billion, executing very well, in particular, in the Pattern Generators in the fourth quarter.Also very happy to see that we continue to grow our aftermarket business. This is a strategic initiative that we run in several of our divisions. Of course, the relative share goes down when we sell a lot of equipment, but the important thing here is that we continue to grow the recurring base. If we look at it quarter-by-quarter, here you see the standout quarter that we had in Q4 and delivering a sales level of almost SEK 2 billion and an EBIT margin of 32%, SEK 620 million, a distinct record in absolute terms both in sales and in profits.If we look where this comes from in the profit and loss statement, you can see that this comes from both volume increase and margin improvement. We had, in particular, a high share of Pattern Generator sales, which supports an improved margin on company level. We had also very good margin and good volume in the High Flex division and we had a good volume, in particular, in the Global Technologies division. So the outlier was the High Volume in this case, where we did not see the same level of increase.We're also happy to see that we can deliver this with a relatively stable cost base overall, and that the fall-through of this gross margin that we generate is very good down to the bottom line.Here, you see it division by division. And we have mentioned before the increase in Pattern Generators' profitability in the quarter, which was high, of course. And we have then the High Flex division, which was up against the previous record quarter, so this was a strong comparative. But managed -- very well executed, turned orders quickly into sales. You can also see that the backlog is relatively small on the High Flex going out of the year. So it was a really good execution on the orders that came in.High Volume, we declined in sales, and we have seen that we haven't really turned the corner in full in China. There are some positive signs, that we have a higher request for quotations, et cetera, already in the fourth quarter. So maybe we have at least turned the bottom there and that we can start to pick up. If we take Global Technologies, like Anders mentioned, we have a strong demand from the AI-related investments. But apart from that, the traditional business is somewhat weaker.A year where we have delivered very strong results, but we have also managed to deliver a very strong cash flow throughout the year. We have even a positive working capital despite the strong growth we have here. And this is, to a degree, related to that the customers are paying a certain portion of the orders in advance. So this is very supportive to this. And we are in a very solid position with more than SEK 2 billion in cash at the end of the period. And with a strong result and a strong revenue outlook for the next year, we have also decided or proposed to increase the dividend to SEK 4.50.With that, I hand the word back again to Anders.

[Anders Lindqvist, executive]

Okay. Thank you very much, Pierre. And some final words from my side. So we also put a lot of focus on sustainability. As you know, we also have sustainability targets in our long-term goals for the company. And what was happening in quarter 4 is that we put a lot of focus on diversity and inclusion, which was also the highest rated topic in our internal global employee engagement survey. And it shows our ambition and our activity to be an attractive employer.We also completed our materiality assessment, which is to support the forthcoming requirements with the CSRD directive. And this will also form the basis for our sustainability reporting as of this year already. It's quite some work that goes into that, but all for the best of everything.So that was the part of the normal presentation. So we can move into the question-and-answer session here.

[Sven Chetkovich, executive]

Thank you, Anders, and thank you, Pierre. So now it's time to move to our Q&A session, as Anders said. And we will start with Handelsbanken and Fredrik Lithell. Fredrik, please go ahead and ask your questions.

[Fredrik Lithell, analyst]

Congratulations to a very nice, strong report. Love to see that. I will keep myself to 2 questions and then get back into line. I have more questions on that. But if we start with High Flex, it would be interesting to hear a little bit -- if you could give a little bit more color on the new products that you launched in Q4 that also got good reception. If you feel that, that is sort of changing your addressable market scope? Is it -- are there ASPs? Do you have other gross margins on it? Something that gives us a little bit more flavor would be interesting to hear.And if we stay with High Flex's 46% gross margin, I'm not sure I've ever seen that in that division. So if you could talk a little about the mix and maybe if you have any software contributions or something in the quarter? Or if it's only volume?

[Anders Lindqvist, executive]

All right. So starting on the product side then. So the highlight of quarter 4 was this launch of a new pick-and-place machine. We call it the A40. That machine is almost 40% faster than the previous fastest machine. So that's a big lift. And also more flexible. So there's no compromise really on flexibility. So we still work in the High Flex area. And it's more flexible that it can pick more strange -- or more larger components and the auto components and somewhat, which is a trend, especially maybe on the electrical vehicle side, where you have big power on the components or large power components that has to be assembled on the board as well.So we believe that we will have a more competitive offering, of course, and also go a little bit into -- we will not step into the High Volume market with that machine, but we're getting closer or we can step into more of the High Volume market. And we can also meet our customers' demand to increase production speed when they ask for. So it's also a defensive launch. You can say that when they don't need to move to high-speed machines or super high-speed machines that we can still manage that.The contribution financially has not been launched yet because we launched it in November last year. And so that is not visible in the numbers. But we believe that this will be a good product.We also do some upgrades and freshen up our current range. We have done a boost on the inspection equipment. I've seen sales increase on that one. We also have an increased focus on our material handling equipment and storage towers and so on, which is also giving a very good margin contribution. So it's a little bit here and there. But looking forward, we believe very much in this new pick-and-place machine.

[Fredrik Lithell, analyst]

All right. Just a follow-up on that one. You say it's a good product. I'm sure it is a good product. But do you feel that it's sort of -- you talk about that it sort of improves your competitive position where you have your strength in the high mix. Do you feel you can have another price point on it, another gross margin on it when sales starts to sort of move in here?

[Anders Lindqvist, executive]

Yes, it's definitely more expensive than the previous machine because it generates almost 40% more throughput and also more flexibility. So it has a much bigger value to the customer. So that should...

[Pierre Brorsson, executive]

If we speak about the quarter as such and the strong gross margin that we have, we have a benefit of having higher volume, higher throughput covering the fixed cost base, which is essentially similar. We also had a number of successful initiatives related to -- also to jet printing and certain accessories, which is a bit margin supportive in relative terms. Not so much on the software side. So that is not the case.

[Sven Chetkovich, executive]

Okay. So now we will move over to Carnegie and Mikael Laseen. Please go ahead, Mikael, and ask your questions.

[Mikael Laséen, analyst]

Just one quick follow-up. First of all, on the margin question for the High Flex segment. So if we assume that sales will be maybe roughly the same in the coming couple of quarters, then the margin should be well above 40%, 41% that you have been for a very long time. Is that how we should think about it?

[Pierre Brorsson, executive]

I think yes. If we can deliver this type of volume, we can also be distinctly above 40%, yes.

[Mikael Laséen, analyst]

Okay. So there is some form of fundamental change in what you have done there, so you can maintain a high gross margin. I mean, historically, we have seen that sales could move up and down and the gross margin would be more or less unchanged. So you would scale on OpEx to reach higher EBIT margins. But now you can maintain this higher level, right? Is that a fair assumption?

[Pierre Brorsson, executive]

Yes. If the number is precisely the same, but we should be on the right side of 40%, yes.

[Mikael Laséen, analyst]

Okay. Got it. And then I have a question on the market conditions and the outlook for Pattern Generators and what you're commenting on, the display market, that you see slightly lower activity. Can you elaborate a bit on that, what you see and the outlook?

[Anders Lindqvist, executive]

I think if you look on the display side, we have had quite a lot of orders recently. And it is -- if you look historically, this is how it has looked like. And I think you will see the same pattern going forward.We still believe that in a long-term perspective, the display market will be still be attractive. And the market as such, the photomask market, is still increasing in both volume and value. We also see bigger demand for high-end photomasks and also localization efforts on manufacturing of photomask, which means that China will be most likely a bigger producer of photomasks than before. So long term I think we still see a good market here.

[Mikael Laséen, analyst]

Okay. I was just wondering if you compare to the very unusually strong Q4 last year, that obviously it's a bit lower than that. But maybe -- I don't know what you're referring to, if it's -- in absolute terms going forward or if it's compared to that very high level?

[Anders Lindqvist, executive]

No, I looked very much forward, maybe on a 3 -- 2 to 3 year's perspective.

[Mikael Laséen, analyst]

Okay. Okay. Got it. And when we look at the order intake, you have received a lot of replacement orders. I'm just curious if you can say something about the installed base of slightly older machines, the LRS type, how many of that could be still left to replace?

[Pierre Brorsson, executive]

I mean, we don't give out the exact installed base by unit, but we do have replacement programs also in the more medium-term perspective with customers.

[Mikael Laséen, analyst]

Okay. And then I'm curious about the Global Technology segment. It was, I mean, a very significant improvement in sales in Q4. And I was just wondering if you can talk a bit more about the AI-related demand and if you can be a bit more specific what is actually happening there. What you mean with that comment? For example, what type of applications, what type of end customers are relevant for you?

[Anders Lindqvist, executive]

So it is more or less the same end customers as we usually have, but the products at the end customers are a little bit different because of the AI computing. So it's very much about the data transfer and computing power. So in the PCB test, it is a much more powerful PCB, which is this multilayer or, what do you call it, high layer boards. That is a more complicated board to test. And that is -- has increased quite a lot on the PCB test side.On the die bonding side, it's the traditional equipment that we sell, but the customers have large orders because of the AI computing expansion in data centers and so on. So it's driven by that.On the other hand, we see that the traditional datacom and telecom markets and PCB test markets are a little bit weak at the same time. So it's a little bit plus and minus at the same time here.

[Sven Chetkovich, executive]

Okay. Thank you, Mikael. Now we will move over to ABG Sundal Collier and Bradley Ware. Please go ahead and ask your questions, Brad.

[Bradley Ware, analyst]

Congratulations as well on today's very strong result delivery. I going to be a bit cheeky and kind of ask 2 questions, but with a couple of sections on them. So my first question is generally around cost discipline and the margins in Pattern Generators, but also in the group in general, as we've already discussed in High Flex.Can you please just elaborate on some of the reasons driving this improved profitability? And are they sustainable? And I'll throw some data at you. And feel free to comment on them or anything else. But is it higher average selling prices due to more optionality? We have discussed the production process before. And I think there's a continued underlying improvement in the production process. And actually, have you -- can you comment if you've had any conscious price inflation with what's happened in the last couple of years? Have you actually increased prices as well?

[Pierre Brorsson, executive]

We can talk a long time on this topic, I think. So -- but if I start a little bit -- on the Pattern Generator side, we have scaled up the volume, in particular, of the semicon related equipment. And this, of course, also generates some benefits in the supply chain, in the operations and so on, in the installation phase as well as we learned how to do this in the most efficient way. And this pays off in improved margins.We have a focus on aftermarket in several of our divisions. This is something which is really good for our customer base, but it's also good for our margins. So it's margin supportive. So this is a conscious initiative that we continue to drive. If we take the High Volume division, which has had a declining volume, we have had a very good cost control, a very strict cost control in -- on the OpEx side.At the same time, we try to grow this business outside China. And we are investing. You see partly that the administrative costs are a little bit higher, et cetera, et cetera. So we are doing conscious cost initiatives where applicable, and we're also trying to develop the business where we need to develop the business going forward.

[Bradley Ware, analyst]

Understood. Just maybe 2 follow-up questions around this thematic. The aftermarket in SLX, is it at the same level as group, at 29% today. What can you comment there, please?

[Pierre Brorsson, executive]

Sorry. Can you tell it one more...

[Bradley Ware, analyst]

So SLX aftermarket revenues, is it consistent with group revenues of 29%? I'm assuming it's still lower. But...

[Pierre Brorsson, executive]

It is still a low base because you have typically installation and you have a warranty period before it starts to run into a service contract. So this is in itself a supporting thing that will come over time. So it is lower than the other part of Pattern Generators, of course.

[Bradley Ware, analyst]

Okay. And sorry to force this issue. But again, have you had any unusual price increases due to the disruptions we faced over the last few years on your product sales?

[Pierre Brorsson, executive]

On components coming into us, inflationary adjustments or -- that we have imposed on our customers, which...

[Bradley Ware, analyst]

Yes. The latter, the charge.

[Pierre Brorsson, executive]

The latter. No, I think we haven't imposed specifically due to component shortage. But of course, we try to place our products where the market is and corresponding to the value that we can generate to the customer. And as such, then there has been some price increases, yes.

[Bradley Ware, analyst]

Understood. Okay. Okay. My second question is just trying to better understand China and its impact on your business. So the first part of this question really is, can you just talk us through the underlying changes in demand during 2023? I recall the first half was pretty tough in China. There seems to be some broader market information that Q4 is seeing an improved performance by many companies from China. So just wanted to know how those broader trends are impacting your underlying business?And then the second part of that question is regarding the 2024 guidance. I think we can mathematically calculate the impact from Pattern Generators on the group guidance. But I'm just trying to understand your assumption about the old assembly solutions, the other 3 businesses, and kind of how should we understand their performance in the coming year, please?

[Pierre Brorsson, executive]

Okay. Two things. Shall we start with China a little bit?

[Bradley Ware, analyst]

Yes, please.

[Pierre Brorsson, executive]

High level, China consumer electronics, which is an important market for our High Volume division, has been very weak. It's still weak, but a little bit of positive indications. Let's see how this goes going forward.If we take the other important area, which is the semicon side for Pattern Generators, it has been investing very much. So there is a significant portion of the semicon sales which relates to China. So very mixed for us in China in...

[Bradley Ware, analyst]

Understood.

[Pierre Brorsson, executive]

If we take the outlook question and the old Assembly Solutions divisions in relation to that, I think we work very much with the divisions and we try to look at the opportunities that we have in the respective divisions. And I think we have -- of course, we have a growth plan for all our divisions more or less. I think we are in a strong position in the niches that we are operating. And we do see from where we come, that the basic scenario is that we should be able to grow in these divisions.

[Bradley Ware, analyst]

My underlying work -- and I'm not as detailed as some of these other analysts in the market, but based on the Pattern Generator order book, which is higher than last year, and deliveries, it does -- I get the impression that the underlying assumption on the other 3 businesses is kind of very flat, which, again, based on industry data we'll see how that performs. But I don't think you've got any -- I mean, of course, you're looking for long-term growth, but I think I don't see much growth in the guidance coming from Flex volumes and Global Technologies.

[Pierre Brorsson, executive]

You may call it modest growth, but that's okay.

[Sven Chetkovich, executive]

Thank you, Brad. And now we will move over to DNB and Anders Rudolfsson. Please go ahead and ask your questions, Anders.

[Anders Rudolfsson, analyst]

Unfortunately, I have some technical issues, so I have to go directly with my phone. Sorry for that. But -- we have perhaps touched upon this already through Mikael's question, but it's actually 12 months ago today that the order momentum started. And since then you have released 22 orders with different size of them. And it's something like $200 million up to $250 million in order value.So my question is, what's actually behind this enormous order momentum? And the second question will, of course, be then -- and you perhaps answered that already a little bit, but how long can this continue?

[Anders Lindqvist, executive]

I think you refer to Pattern Generators in that case. So...

[Anders Rudolfsson, analyst]

Yes.

[Anders Lindqvist, executive]

Absolutely. And it's mixed between semiconductor and display industry. So I think on the semicon industry, which we address with the SLX mask writers, we have had very good momentum and we believe that this can actually continue for some time.On the display side, it is a little bit more up and down, and we had the peak around this time last year. But we continue to take orders in that segment, not maybe at the level as we had in Q2 '22. But there's still activity on that market, maybe back to a more normal level if there's one.

[Anders Rudolfsson, analyst]

And you also mentioned that you have seen better gross margin, up to 11% now, where -- could it be sustainable? And can it actually improve further?

[Pierre Brorsson, executive]

It will also depend a little bit on the mix. We have different mask writers for the semiconductor industry. We call them SLX 1, 2 and 3. And depending on the size of this, they have a little bit different gross margin. So we will also depend a bit on the mix of semicon mask writers that go out. But we do believe that we have improved the cost base and that we are more profitable than when we launched the semicon mask writers.

[Anders Rudolfsson, analyst]

Congratulations to a very strong report.

[Sven Chetkovich, executive]

Thank you, Anders. So now we will go back to Handelsbanken and Fredrik Lithell, who had some additional questions. Please go ahead, Fredrik.

[Fredrik Lithell, analyst]

I was -- maybe a continuation on Bradley's question on cost and price and everything. I recall, and correct me if I'm wrong, that you did some changes to your sort of production logistics processes in 2018, '19 or something like that. Is that a fair assumption that you have since been able to sort of improve the productivity in your specific sort of assembly capacity that you have? So has that improved in the last few years? And is it significant? Because I mean, you did a few deliveries in Q4 here. So could you talk about that in general?

[Anders Lindqvist, executive]

Yes. I think in production, there's a continuous effort to be more efficient in all divisions all the time. And I think we have been increasing our efficiency in every division. If you talk about Pattern Generators, we've had this big delivery in Q4. That was -- it was a little bit of a struggle, but well planned and well executed. And our capacity because of improvements is much higher now than it was any time before actually and very much compared to 2019. There is no way that -- with the processes and setup we had in 2019, we could have never delivered the quarter 4 as we did last year.It's very much also due to lead time reduction. Even though there is a significant lead time of our product, we feel that we are more in serial production on the Pattern Generators with different flows, different setups and different layout. But we still do it on the same amount of square meters as before. So that really improves efficiency.

[Fredrik Lithell, analyst]

Is it also the same FTE that is behind the production? Or -- so have you increased the productivity in terms of employees?

[Anders Lindqvist, executive]

I would say value per employee has most likely gone up quite a lot. But we also have increased the number of employees to meet the demand.

[Fredrik Lithell, analyst]

My second question then. You introduced new laser technologies in your PG machines in the fall of last year or 2023. What's the traction right now? What is -- I mean, we have listened to you and how you have described it before, but it would be interesting to hear where we stand right now.

[Anders Lindqvist, executive]

Yes. So that technology will go into all of our mask writers over time. So already in the SLX since before and also now in Prexision, and we will also look on FPS equipment. And also for most equipment, it's possible to upgrade them. We have received so far an order for 7 machines to be upgraded, and that is still going on. The upgrade sales will not have a significant impact on results and revenue. It will have a significant impact on climate, of course, or carbon dioxide emissions from the installed base. So it's still contributing to our target, but not so much to the money.

[Sven Chetkovich, executive]

Okay. Thank you, Fredrik. I believe that Bradley Ware at ABG Sundal Collier said that he might have some more questions. If you do, please go ahead, Bradley.

[Bradley Ware, analyst]

Yes, I do have one more question or maybe 2. I guess the question is about the balance sheet. And during 2023, there was a lot of one-off costs for growth initiatives. Just wanted to know if you could give us an update on some of those initiatives, for example, the possible listing of Axxon versus kind of underlying group growth initiatives, please?

[Pierre Brorsson, executive]

If we take the largest portion of the cost that we had in '23 related to the business development, this was related to an acquisition that did not materialize in the end. That's something that can happen. If we then take the listing of Axxon, this has not incurred material costs. We have been slowing down the pace on this project a little bit. But this project is still very much alive, and we will continue the project.

[Bradley Ware, analyst]

Okay. And sorry, just to confirm, the work done on that potential acquisition, that has officially closed, has it?

[Pierre Brorsson, executive]

Yes.

[Bradley Ware, analyst]

Okay. Great.

[Pierre Brorsson, executive]

Sorry, sorry, sorry. I should correct myself. I will not comment on whether it's a closed deal or no deal or...

[Bradley Ware, analyst]

Okay. Understood. And maybe just one kind of strategic question. I'd like to ask these to both Anders and Pierre. But recurring revenues, 30%. SLX is still obviously expanding the installed base. So it sounds like it's going to drive up recurring revenues within this division in the future.But have you given the market any guidance in terms of what is optimal or normalized when everything is running efficiently? Is 30% as good as it gets for Mycronic? And without -- for the avoidance of doubt, the profitability is excessively better than group profitability, whether you can just deny or agree with that final statement, please?

[Pierre Brorsson, executive]

We will not comment on the profitability on aftermarket. I think you can look at other companies and maybe draw some conclusions on that. I think for us, we want to drive the aftermarket as high as possible. If we happen to sell a lot of equipment and thereby reducing the share, it's not a problem because it will generate more aftermarket over time. So we don't really have a percentage target. We want to drive up the aftermarket business.

[Anders Lindqvist, executive]

But there's still potential. As you said, SLX is not fully covered as we still sell a lot of new equipment, and they are still in warranty agreement. Some divisions have lower than average and could definitely improve. So yes. So it's still quite a lot of upside on that side.

[Sven Chetkovich, executive]

Thank you, Bradley. And now we will move over to Carnegie again and Mikael Laseen, who has some additional questions. Go ahead, Mikael.

[Mikael Laséen, analyst]

Yes. I just had a follow-up on capital allocation. If you can maybe say something how you plan and think around the developments in acquisitions, divestments and dividends? You have, I think, SEK 1.9 billion in net cash.

[Pierre Brorsson, executive]

Yes, correct. No, I think we have the mission to drive this company to become a larger company. We have set out a route to 10 billion. This will require certain acquisitions and we are actively looking, but we will not just do an acquisition to do an acquisition. We will do things that we believe in, that has the right possibilities to succeed within Mycronic. So we are not desperate to do the acquisitions.But clearly, there is power to do the acquisition in the balance sheet today and with the commitments that we have from our bank as well. So we feel good about that. We also have certain organic opportunities to explore further, which could also consume some of the cash in the balance sheet.

[Sven Chetkovich, executive]

Thank you, Mikael. And now Fredrik Lithell at Handelsbanken has some additional question. So over to you, Fredrik.

[Fredrik Lithell, analyst]

We could have questions all day here. But I'm going to keep myself to one more then. I think, Anders, you alluded to a little bit describing the SLX potential going forward. And I remember you said at one point that a lot of the already received contracts on SLX is a lot about enlarging the installed base, the capacity out in the world rather than that you have sort of started to replace old machines. Can you sort of update a little bit on that, if I understood you correctly and how you see that progressing going forward?

[Anders Lindqvist, executive]

Yes. So the photomask production for semicon has expanded really. And as Pierre said, a lot of the sales have been going to China, but also to other countries and also to new customers, new type of companies that were not existing before. And all that is new capacity actually or new capability as well, not only capacity, but also capability of doing a different type of semiconductor and different type of granularity or precision on the layers and so on. So that has been driving a lot of our sales. There is still an enormous installed base in the world of -- much, much more than on the display side and also quite much older at the same time. So that is still a potential, of course, to replace that.You can also say that, of course, instead of replacing -- also new capacity will maybe a little bit replace the old installed base by maybe retiring other machines rather than replacing them, which we haven't seen yet, but it could be the scenario as well. So -- but anyway, there's still a potential very much on the installed base side. But majority of our sales so far has come from expansion.

[Sven Chetkovich, executive]

Thank you, Fredrik. And Bradley Ware at ABG Sundal Collier has another question. So go ahead, Brad.

[Bradley Ware, analyst]

Yes. Apologies, gentlemen, but I just wanted to follow up on Fredrik's question regarding the SLX market. Again, when this initiative started back in '19, there was a clear gap in terms of gross margins and EBIT margins between the 2 divisions within Pattern Generators, between display and semicon. There has been a lot of effort put. And it seems like the margin gap is closing. I haven't seen a 58% EBIT margin in Pattern Generators, if my analysis has served me correctly.So can we just talk, please about -- display used to be 70% gross margin and 50% EBIT margin business and SLX was much lower. And I think to help us understand this improved efficiency and increased volume and scale to try and analyze better the financial performance, can you give us any guidance, please, in terms of what's happening? Are we seeing new highs in display? We're seeing, obviously, improvement in SLX. But maybe a little bit of guidance would be helpful, please.

[Pierre Brorsson, executive]

Yes. I think there is a gap still between the profitability in the 2 sectors. Of course, working hard on the cost base and having -- like we had now 6 SLXs going out in the quarter. That really supports the flow, buildup. And we learned the installation work and so on. So if we can reduce the cost base, the gross margin increases nicely. So I think that has been a good thing. We have also the mix between the SLXs. If we sell more of the high-margin SLXs, it also improves a little bit. So it will shift a bit from quarter-to-quarter. We should be prepared for that.And of course, that is our ambition, to make this as good and as profitable as possible for us. So it's more of a change on the SLX side than what you see on the display side. The display side is more as it has been before.

[Sven Chetkovich, executive]

Okay. So with that, we have now reached the end of the presentation of Mycronic's Q4 report. Thank you very much for watching.