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SUESS MicroTec SE
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Welcome to the conference call of SUSS MicroTec SE. At our customer request, this conference call will be recorded. [Operator Instructions]May I now hand you over to Dr. Franz Richter, CEO of SUSS MicroTec SE, who will lead you through this conference. Please go ahead.
Thank you very much, and welcome to everybody to our conference call, talking about the first half year figures. And with me on that call is Oliver Albrecht, our -- he's also in the line, CFO of SUSS MicroTec SE. And I think also in the line is Sabine Radeboldt from Investor Relations. I would like to give you some overview over the half year figures and especially also, the second quarter, then we will hand over -- I will hand over to Oliver. Oliver will give us some more information on financial details, and we will summarize and wrap up in the end and then go into the Q&A session. You might have seen or you probably have received the presentation. I'm going through presentation on Slide 3, the highlights of the first half year and especially, the second quarter. So we did see a strong first half year in order intake, EUR 162 million in the 6 months of 2020. And there was a contribution basically from all segments to that very nice business. And of course, the order intake was driven from -- developed in the second quarter where we had intake in the second quarter on the order intake of EUR 93.6 million. The sales, EUR 70 million, which then resulted in a positive EBITDA of EUR 8.8 million, basically a 12% -- 12.3% EBIT margin. And also here, development for the main units today, Photomask Equipment, then also lithography. And very interesting, of course, the EUR 93 million order intake. There are orders pulled in into the second quarter. There was 1 big order of EUR 25 million -- roughly EUR 25 million, which will be delivered over the next months and quarters. And also, usually, the orders would have come in into the second and fourth -- into third and fourth quarter, but there was a package deal where we got the full order intake in the second quarter, which made the second quarter extremely high of EUR 90 million, which of course is a little bit extraordinary. The industry activity is very much driven from communications. There is broadband, higher broadband installations, 5G is one big thing here. And in general, you could say also the -- everything around, there's a new expression, home office equipment. This means mobile communication, a lot of people who are working in home office now and that also has consequences on communication needs. There is an uncertainty of cost. And there was also, especially in the first month impact from the COVID-19, which was more on the outlook, an uncertainty. Everybody was a little bit scared. We had some shift of shipments, especially [ universities ] in China, which were closed but that was not really a material impact, smaller shifts. And this has come back. And the impact, in general, as we see it right now is pretty low, but of course, the uncertainty remains looking forward. A lot of you talk about the second wave that nobody knows what that might mean or the consequence would be. On the next slide, we have presented here group figures for the first half year 2020. The next column shows here 2019 as a comparison, the delta and then also the second quarter 2020. And the interesting numbers, if you look to the sales, the sales in the second quarter, EUR 70 million. And as you see the first half year, the calculation shows first quarter was about EUR 40 million. And I think the interesting part you will see later, so we have increased our guidance and the average of our band is EUR 250 million. So if you deduct the EUR 40 million from first quarter, the remaining EUR 210 million divided by 3, which we are looking at roughly EUR 70 million per quarter for the rest of this year. And therefore, the second quarter is probably, yes, a kind of hint. First quarter of course was extremely difficult with this low revenue than all the other numbers, like EBIT and cash. Of course, we're suffering from the low top line. And that looks much better with the second quarter, EUR 70 million in revenues, remained EUR 8.8 million EBIT, 12% EBIT margin. And also the cash has developed nicely, and Oliver will go a little more into the details of why that is. And if you go to the next slide, it's Slide #5. Here, you can see the order intake per quarter and the interesting new here is if you look to the last 4 quarters, in average, basically EUR 65 million per quarter with an extraordinary effect in the second quarter, maybe EUR 90 million. And if you would basically take EUR 30 million out of the second quarter and distribute that over the third and fourth quarter, that would give us a rough expectation what the market activity right now is. And that is a fair assumption as we also will show later in our guidance, which -- without this explanation, the guidance may see -- or may look a little bit conservative, but I think that you have to take into consideration this extra peaking in the second quarter with the EUR 93.6 million in order intake. Strong impact of cost from Asia. Growth is in Asia, also Asia Pacific in Singapore. There is, as I said, big order came from the surface acoustic wave application, which goes into communication network systems. So with those comments, I would hand over to Oliver to lead us a little bit more through the details. Oliver, please.
Good morning, everybody. I would like to give you a more detailed overview about our business segments. And I would like to start on Page 6 with MicroOptics on the upper left-hand side. And you can see that we have -- we had a slight increase in order entry and sales. Regarding the sales development we had in the first and second quarter, we had some postponements, especially from automotive suppliers. And this was the reason why we had a -- or why SMO, our subsidiary had to go on short-time work in April and May. In the meantime, this has stopped and the SMO subsidiary now is working under full scope. And regarding the EBIT development, you can see here, there is a drop from EUR 1.7 million to EUR 0.1 million. This drop in EBIT and EBIT margin was due to some quantity issues with one of our -- with one of the key suppliers of SMO. As you can imagine, in the automotive business, you have to give ratios per year. This means the price with our automotive customer is decreasing year-by-year, and you have to compensate it by productivity gains and lower material prices. And therefore, SMO decided to change this key supplier because of this one -- on the one side because of these quality issues, but also then to have a better price. Unfortunately, COVID postponed a little bit the qualification of this new supplier. But in the meantime, they have changed now this key supplier. And we expect that the EBIT margin will increase then in the third and fourth quarter. And so we can expect a decent increase in EBIT regarding SMO. Let's move over now to our biggest business unit, lithography. Here, you can see a very strong growth in order entry and in sales in the first 6 months. This is, as Franz already mentioned, due to some big orders from major customers. We had -- regarding the margin development, we have seen a slight decrease in margins with our coater and mask aligner. Regarding coater, we have -- we are committed to an order from a huge order from a customer for strategic reasons. That was one reason why the coater margin decreased slightly. We expect that in the next 6 months, we will take up with the margin development. And I think it's important to mention here that in this EBIT figure, there's already EUR 4.5 million included closing costs for our U.S. site in Corona. And if you would take this out, then the adjusted EBIT would be EUR 4.5 million and this is 7.2% EBIT margin. So it's -- compared to the previous year period, it's an improvement, of course. Let's move on to our Photomask Equipment business unit. Here, you can see a strong order entry and sales development especially in Q2. As you know, sales development is always influenced by a few number of orders, but with a big size, and especially in Q2, we have realized orders and we shipped out orders to one of our top tier customers with a very profitable sales margin. And therefore, EBIT increased to EUR 9.4 million and EBIT margin increased to 30%. So this is a huge increase. It's -- for the rest of the year, we expect a certain normalization regarding the EBIT margin. And so the EBIT margin, I think, in this business unit -- a normalized EBIT margin would be around 20%, 22%. So this is, I think, important also to mention. Then on the lower left-hand side, our last business unit, bonder. Bonder is -- here, you can see a strong order intake, but disappointing sales and margin development in the first 6 months. The decrease in sales is mainly due to the postponement of shipments into the third and fourth quarter. And therefore, the EBIT margin and EBIT dropped. This is mainly due to lower fixed cost coverage. For the rest of the year, we expect that we will pick up sales and reduce the loss, but we will -- we expect for the whole year, we expect a slight loss -- EBIT loss in this business unit. Regarding the investments in R&D in this field, we expect -- but for the -- for 2021, that especially in this business unit, we expect an improvement. Okay. Then let's move on to the balance sheet. Here, you can see balance sheet increased mainly due to the acquisition of our subsidiary in Netherlands. This with the former PiXDRO business of Meyer Burger. And we had an increase in inventories, mainly work in progress increased and the finished good increased. And on the other side, [ demo ] equipment slightly decreased in the first 6 months. Regarding the liability side of the balance sheet, just a few comments on it. Despite the absolute rise in equity, the equity ratio declined to 30.3%. We had here, I think, this maybe is important to mention. We had an increase in deferred tax liabilities. This is due to temporary differences between recognized values in accordance with IFRS and the tax statements. And the biggest change here is the change in our financial debt situation. And as you can see here, short-term debt within the syndicated loan has been completely paid back in the -- by the end of the second quarter. And we had a strong order entry, which led to a rise in received down payments by customers. And especially to the strong order intake, we had a strong improvement in operating cash flow, which you can see on Page 9, there is the cash flow statement. So here, you can see cash flow from operating activities changed and improved significantly from minus EUR 15 million up to EUR 23 million. And this is due to, on the one side, reduced account receivables. We have done lots of efforts in our dunning procedures. And here, we can see the first positive results. We have got tax reimbursements paid back in the second quarter in the amount of EUR 5.7 million. And as I mentioned, we have a change in accounts payables and contract liabilities with a very positive impact on operating cash flow. And so the free cash flow for the first 6 months changed from minus EUR 19 million to now EUR 17 million plus. And so we could repay all of financial debts under our syndicated loan. Now I would like to hand over back to Franz Richter, who would like to comment on the market estimates and on our guidance. Franz?
Oh, I'm sorry, I was on mute. I'm sorry. Thank you.Concerning the guidance I already mentioned before, and we did an increase a couple of weeks ago where we basically increased the guidance for the revenue figures from EUR 240 million to EUR 260 million with an EBIT margin 3% to 5%. And the order intake, as I mentioned, seems cumulative Q3 and Q4 above EUR 90 million. That seems pretty conservative and the reason behind is that we did have -- it was harder -- it's a bit harder to calculate, but roughly a EUR 30 million pull in with this big order. And there's 2 orders basically into the second quarter, which we would usually just -- would have received both in third quarter, fourth quarter. And so this EUR 30 million, if you take it out of the second quarter would bring the second quarter to EUR 62 million, EUR 63 million, and the other quarter is also in the range of EUR 60 million. That is right now the run rate where we see the business, EUR 65 million, which on an annual run rate basis, about EUR 260 million, which is in line with the business expectation we see also for this year from our guidance. And the reason behind that is, of course, we are a little bit cautious with the uncertainty of the COVID-19. As I mentioned, there is not a clear picture worldwide how economies will react to that. There's another uncertainty on the political side. We do see increasing tensions between U.S. and China, which has an impact to our market segment with one big Chinese mobile phone company. And we saw from Taiwan companies which -- who could not deliver anymore. So all these tensions and difficulties makes it a little bit more difficult to give a clear picture. But taking that into account, we expect that run rate, what I said, EUR 65 million per quarter as basically the average run rate. Clear signal from the mega trends ongoing. As I said before, I like that expression, home office equipment because home office becomes popular. So it's a positive touch on that which goes into communication broadband, but also mobile devices, mobile phones, laptop computers and so on. Future trends, augmented reality, all this autonomous drive will continue and will impact our lives in the future. And I think SUSS is very well positioned in that market. And with that, I would also like to make a comment on our recent ad hoc from Tuesday when I asked the Board to start its search for a successor for my position. And as you can see with these numbers, definitely, to make it crystal clear, nothing to do with the different -- with a change in expectation on the market with any business, I think it has much more to do with an aging problem. I just turned 65 and so I have a 2-year contract running. I definitely don't want to extend the contract anymore. So I think it makes sense to start early to look for replacement. We have to make sure. And I'm in full agreement with the Board that this will be a collaborative effort to look for -- it's just responsible of the Board, but we will work together to look for a smooth transition. I mean there is a lot of interest from my side to [indiscernible] bring smooth and [indiscernible] to help to remain serious on a very positive trend. So the whole expectation going forward is very positive. And I'm sure we will find a way where we have a management team which continues with the strategy, or the growth strategy, to the numbers we have published, EUR 400 million, 2025. And today, I would say, 2025 or probably a little bit earlier. We will see this year, we will make a big step in that direction, also the increase in profitability is important. And we have to remain focused on those topics to really, yes, bring the profitability and reward return on interests and to our shareholders. So with this remark, I would like to hand back to the operator and then enter into the Q&A session.
[Operator Instructions] Our first question is from Johannes Ries from Apus Capital.
Yes. Like always, a couple of questions. Just regarding the development in the market, have you seen any change in July? And looking at your pipeline from the demand side, you have maybe -- generally, we talked about this push in effect in Q2 from a general demand. So has there any change? And who are the main drivers, is it the OSATs, is it foundries from what angle? How big is China? Only to get a feeling, what are the drivers in the demand.
I mean first of all, as we said, there is a demand on really on a broader range because that is why I prefer this expression, home office equipment because it's not only communication. It's computing, it's mobile phone, it's communication network, everything is impacted the drivers are really from the big foundries. There is the OSATs are still a little bit slower. OSAT is -- yes, one difficulty with OSAT in China because of that particular tension that was a little bit setback and that's recovering now. But the other thing is more surface acoustic wave filters is strong. And with your question to China, China, today, is roughly 25% of our business. It's a growing business. So we have -- definitely, we have to have a strategy for China. And yes, this will have an impact of course from the global political situation probably after November. But let's face it, it will not change immediately, whatever happens is the result. I mean we will have to adapt our business strategy to that situation as it is right now. About 25% is China.
And July so far and the pipeline, no slowdown compared to the first...
No. No slowdown. As I said, the -- I mean this is always a little bit lumpy business. As I said, the photomask tools, there is still ongoing demand. There is also the, as I said, 1 big order that is, I think, 25 tools in total. Of course, that is a little bit lumpy element in the whole offer. But the slowdown, we don't see right now. There is still a demand ongoing activity. The uncertainty remains, no question. So going into the next year, we don't see it right now, but I mean, you probably can see this also from market researchers. There is information. We also use DRAM, for example, in all our numbers, there is still no temporary bonding for DRAM for volume expansion included. So that is still expected to come. Also the business we are looking into for next year is more strategic, like the permanent bonding for hybrid bonding that is an application where we see. Very active market. And here, we expect orders towards the end of the year, early next year.
Okay. Super. Maybe moving to your different sectors. If I got it right during the presentation, maybe a slight slowdown in the margin, but at a high level, staying at a high level in Photomask Equipment and on all other 3 sectors, MicroOptics, lithography and bonders will see higher margins in the second half?
That is true, as Oliver said, MicroOptics that is has an effect, which has 2 elements. One was the automotive slowdown with short work. The other one was a difficulty with supplier, which is a strategic supplier for wafers. And here, we have changed with -- to a new one. The new one has been qualified, so much better margins for us. So that will definitely increase significantly the margin going forward. And the other equipment is, as I mentioned before, there was one on the coater side, 1 customer from China, who has first postponed. That is a relatively low-margin strategic, we have to compete in China. That has been recovered. So that is going into better margins for the second half with the coater as well. So here, we'll be positive for the second half.
On the coater, coming back on this topic, you also mentioned new versions of your coater product with better margins. Are the products already in the market? Then to also happen in the second half to improve the margins?
No, this is really coming from a customer side. Again, if we look, we have done a lot of investigations what happened last year. I mean in total, from the pricing level, from a discount level, for example, 2019. If we look and you remember the order intake started in second -- in the third quarter in last year. And we do see, if I look to the pricing, the agreed price compared to calculated price, which is a discount, we had an increased discount in last year. If we look to all orders shipped, I mean order intake was before -- 6 months before, then we have an increase in the discount. If we look to those orders booked in 2019, we have a decrease in discount, means there's a 2% price increase. And that is really the reflection of the market situation. So if the demand is high, then you, of course, can increase the price for shorter delivery time of -- during the negotiation, you're in a stronger position if there's a strong demand. And in other times, so we have a 1%, 2% increase this quarter.
Especially on lithography, but also a little bit on bonder. You had also mentioned in the past, you had an organizational headwinds or problems internally. It was not only the topic of pricing. It was also yet to produce, too expensive. You have done a lot changing -- process, changing processes. When we see the benefits, will it all be seen in the second half or this is more topic of '21?
I mean first of all, as I just explained, the pricing, you can say, 2% is the impact. But if you look at our margin last year, there is much more than 2%. And of course, there's a huge impact from internal organizational issues we had and we have to overcome. There is a lot that is under work, and that will come step by step. We will see a slight increase in the marginal, a little better. And of course, it's a little bit difficult to understand because in parallel, the utilization this year is varying that much better because of the top line growth. And now the challenge is that we, in parallel to the top line growth, optimize our organization because this is what experience tells. We are not in the only growing market. We are in a growing, but also a cyclic market. I mean there might be years where the growth will slow down or probably even be a slight decrease. And then we have to stay at a profitable business and not experience the same like last year. But it will come over -- it will come over time...
Okay. And then in the second half, we will have no restructuring anymore for the laser business? Or is it still cost in some regard in the second half?
There will -- yes, the laser scanner business, Corona, the rent for the building is ongoing. And then Oliver, I don't know, do you have a number which we expect for the second half of an impact, but it's probably another EUR 2 million or something?
Yes. We expect another -- about approximately another EUR 3 million for the closure of our photonic system in the U.S. As Franz already mentioned, it's a rental. We have to pay rent until the end of the year. And we have then to turn back the site, the factory to the former status. And we have still some people on board, which take care of -- to build back the factory and to clear up the factory.
But 2021 will be clean?
Yes. 2021, we expect there's no burden from this business. And we have some material in our stocks. So maybe we can also see a certain benefit from the sales of these parts.
I see. And final question to litho. Therefore, if we sum this all up, is there a chance that looking forward, litho could go back to double-digit margins, if the impact of photonic business is away and the business is running well, and your -- your internal organization things are maybe more and more coming through the bottom line? I can good -- remember the good old times of the 15% margin, but I would be happy to see if at least maybe in a double-digit margin again.
Yes. What -- I mean -- excuse me, what we can expect for 2020 is if we can realize this -- as we expect a strong growth in the business about this year because of these big orders we have got and regarding this sales increase, we expect, of course, a better fixed cost coverage. And therefore, the margin, the EBIT margin should increase maybe closely to a double-digit number. I don't expect that we will go over 10%. But I think we can reach maybe a margin very close to double-digit number.
Finally, bonders. You also have been very optimistic to terms, it's clearly around the profitable side in the second half. Is it also a huge backlog, which will be now delivered and so forth or margins will be clearly go up?
Yes. The bonder is basically, as I said, it's a longer term. The -- there are 2 segments: temporary bonder and permanent bonder. The permanent bonder is basically a manual equipment and the automated systems are going -- as I said before, we expect orders end of this year, early next year. But the temporary bonder is really depending on memory. I mean we do get orders here and there, but the real margin comes with volume expansion, which is still not happening right now at the big memory houses in Korea and in the U.S. and Taiwan basically. And that will depend clearly on the DRAM. That's the stack DRAM, high bandwidth memories. And as soon as that picks up, we will be in the game.
Okay. And then so the other part of the bonder business is running well, yes?
Yes, as I said, I mean there's the new systems, new versions are coming to market. And this is -- I think I've mentioned before, of course, coming back from discontinuation of permanent automated bonding to a stronger market position takes time. And I have to say, took more time than I had expected in the beginning, it's [ oddly ] better. There's a strong competitor saying having your place in the market. But we are increasing and we have increased our R&D spendings a year, 2 years ago, and that pays back and will pay back going forward. And so I expect really a positive contribution more in next year from that.
But nevertheless, a positive margin for the full year, if you're positive?
That is what we've -- yes, for the full year. So Oliver mentioned. So bonders, so slight negative, its expectation right now. But of course, also the BU managers, they clearly have a target to have at least breakeven with that. But right now, we have expected slight negative improvement, but a slight negative result for the full year.
Okay. Finally, a positive free cash flow for the full year, possible or...
Sure. Yes. Sure. If you can see, we have generated EUR 17 million free cash flow. So this is a tremendous change. And of course, it's depending a little bit from the order intake. And as you can maybe remember, we normally ask our customers to make a down payment of 30% after order confirmation. And we would like to keep to continue with this order -- or down payments. And I expect definitely a positive free cash flow.
Next, we have Jean-Marc Mueller from JMS Invest.
A couple of questions from my side as well. When I take the upper end of the guidance, you basically imply that this year, the EBIT will be around EUR 13 million. Just to clarify, the EUR 13 million does include the EUR 7 million Corona closure cost? So underlying, you're basically saying you should be able to give an EBIT of around EUR 20 million?
The -- if you take, for example, the upper end of the guidance, EUR 260 million. And as you calculate it with 5%, then it's EUR 13 million EBIT, and this includes already the cost, the closure costs for the Corona site.
Yes. The EUR 7 million or so. So we're talking...
Yes. EUR 7 million. So if you add them, you can expect about EUR 20 million adjusted EBIT.
Okay. Good. And my second question. I mean have -- you did kind of imply that if you take again the upper end of the guidance, we should expect EUR 140 million of sales in the second half. If this were now to be evenly split over Q3 and Q4, we're talking about EUR 70 million of sales. However, we're talking about EUR 10 million of EBIT, so EUR 5 million and EUR 5 million. And that compares to the nearly EUR 8 million you did in Q2. Is this really because of mix because Photomask will have a lower margin and that will not be compensated about all the things positive coming from lithography and the bonder business and the MicroOptics business? Or is it just conservative?
I think there are two reasons. Of course one is, as I said, we have in the second quarter, we have really a very good PE business. We had strong sales volume and with a decent margin for one -- this was one of our top tier customers. And you should more calculate with a normalized margin in the PE business. This is one reason. And of course, we don't want to disappoint regarding our guidance. And we don't know COVID has also -- it's a certain risk, and we have to take into consideration all these fluctuations, and therefore, we set this range...
Hence -- no, that's -- that is quite clear. That's already good enough for me...
But I think that -- but I think we take what Oliver said. Especially with the experience from last year. On the EBIT side, we have taken a conservative view.
That's good. That's good. I don't mind. Order backlog was around EUR 140 million now in H1. Now that is already taking kind of a look into now 2021. But let's assume you're guiding for order intake of above EUR 90 million, let's say, it's maybe EUR 100 million, but you have EUR 140 million in sales. So order backlog will come down by around EUR 40 million, I mean on that math. That would then imply that the order backlog at the end of 2020,will not be that much higher than it was actually at the end of 2019, maybe it's like EUR 5 million, EUR 6 million, EUR 7 million higher, but it's not by a huge amount. So if I want to see kind of sustained top line growth in 2021, I would then need very strong order intake in Q1 and in Q2 of 2021, the model is taking the order backlog plus order intake of Q1 and Q2, et cetera. That basically is an indication of how sales will be in 2021. But the base, obviously, now in Q1 and Q2 is very high. I mean you had EUR 70 million of order intake in Q1 and this extraordinary EUR 94 million in Q2. So should I be given the high base, should I be a bit conservative looking into 2021 in terms of sales growth? Or how would you argue with my math?
I mean the math is -- basically you're describing uncertainty in the forward-looking guidance. It's a problem. If I look back to the last 4 quarters, and I said before, that we do not see a big difference in the market, of course, that is quarter-by-quarter. The reason why we do a cumulative 2 quarter guidance is because of that unpredictability because of the lumpiness of the -- it's a lumpy business. So it's been a problem. So if you look back to 4 -- the last 4 quarters, as I said before, that is roughly, we have the EUR 280 million run rate. So that is EUR 65 million. And then you take out the EUR 90 million. So what I'm looking at is the order intake this year will be roughly, probably EUR 270 million in that range, EUR 260 million, EUR 270 million. And with the revenue in that range, where we will basically build up to that is what I would expect, build up our order book last year to this year. I mean that is -- but again, there is uncertainty. I don't know what the order placement in the fourth quarter will be, especially fourth quarter is very hard to predict right now. So I do not see a slowdown. I do see that there is an increase in activity. I do see that there are market segments not active at all as described. DRAM, and the DRAM will come back. I mean the world needs the DRAM. And there are factories being built, and those will go into production. So the DRAM will come back. I also see activities continue in the OSATs. That will come back. There is a small -- a slight increase right now. As I mentioned, one has placed orders. So I think the general view is very positive. And we have to see what the order intake in real numbers in Q3, Q4 will be. The EUR 90 million is a conservative view. I don't have any better view. And I think at this point in time, it doesn't make sense to speculate too much.
Sure. Sure. An add-on question from my side. Every now and then you speak about end markets, which you see are strong. You were talking about the whole home office space or 5G, et cetera. But is it fair to say, I mean, the products that you ship, they go to the big foundries. You don't really know for what type of chip manufacturing they use those products. I mean they're not specified in a way that you can say, "Okay, this is now going into a production of chips, which are the news in 5G communication tools, et cetera." Is this for you? You just look at the end markets in general, right? I mean it's not that you can make a conclusion from the products you ship.
Not looking forward, but of course, you look to the end market because in the end -- for example, mobile phone market. So it might be that this order may go to, let's say, TSMC, might be that it go to another. And then the question is who then gets the order. Very soon, we have demand from, let's say -- or from the OSATs, from 2, 3 OSATs. And then 1 of those OSATs will get the order and then the 2 other requests for quotation disappear. So therefore, I cannot just take the, let's say, the RFQs, first with quotation, and add that up because that might be fighting for the same order from these [indiscernible], apples and so on. So therefore, that is a little bit difficult. However, we do not deliver our tools to the front door and then have no further clue about. So we do the installation, we do the service. Our service initially, we clearly see what kind of application is running on the tool. So we do have a good feeling who is working on which application in the end. But this is when they install the tool, and that is about 6 months after getting the order. So the order placement, the forecast here is a little bit difficult. But we do see the -- have a good feeling which markets are developed which is -- and pays.
Okay. And then a final question. On the free cash flow, obviously, super strong now in Q2. I think there were a bit -- like there were some effect playing into Q2. I think there was like this EUR 5 million tax payment. So was this a tax reimbursement? It's really a cash you received from whatever tax authority?
Yes. This was -- we normally do prepayments of income tax, [indiscernible], and quarter-by-quarter. And last year, we made a loss. And therefore, we could claim these prepayments to be repaid...
Okay, sorry. [ And you're saying ] basically, cash flow was understated in the previous year, and now you got a repayment because of the loss.
Yes, because we paid too much, too high even on taxes. Yes.
Yes. Okay. Understood. And on the working capital, I mean, obviously, very strong. Obviously, a lot had to do from what I understand. And as you alluded to, prepayments, you received on the very high order intake that you had in Q2. Now if you deliver this product, obviously, that goes against those prepayments. So is it fair to say that the work -- the net working capital movement in the second half has to be expected to be negative?
I don't -- first of all, several factors. Of course, we should also have a look on an improvement in our net profit situation, where we have shown a small profit in the first 6 months compared to last year. And we expect here, we expect a further improvement in the second quarter. So this will have a positive impact. Then we will have a close look on our dunning procedures. So we would like to furthermore to reduce our trade receivables. And then on the other side, there is the factor of down payments. This is now depending on order intake in the second half of the year. If the order intake will keep up and will continue, then of course, we will see a very, very good cash flow situation. If the order entry will slow down a little bit, then of course the down payments will go down a little bit. But it depends also on our contract assets. As you can see in the balance sheet statement, we have quite a huge amount of contract assets and contract liabilities. Contract liabilities, this is -- these are customer down payments. And we deduct normally by shipment, we deduct to receive the customer down payments directly from the contract assets. And this is due to the different reconciliation according to IFRS and the final closing invoice under German GAAP. So maybe to summarize, we expect -- as we mentioned in our guidance, we expect a positive free cash flow for the whole year. And so this is a tremendous improvement of our cash flow.
I mean my question was a bit in direction whether we could actually even see an improvement compared now to H1, so that there will be more free cash flow being generated in the second half. So I would be interested in your view how those different items, prepayments and obviously going down potentially in orders and other things that you might see, how they might impact the free cash flow in the second half.
I don't -- this is a little bit hard to foresee. This is to forecast the cash flow. As I said, it depends very much also on the down payment situation. And it's depending on the order intake. This is what I can say.
Next question is from Malte Schaumann from Warburg Research.
Just one on the bonder business. You had quite a strong order intake in the second quarter. So maybe you can give us some more color on the temporary side. Just 1 customer -- was it a customer -- what was really -- is it, again, a memory high bandwidth or DRAM or the high facility DRAM application? So what was really a driver for the strong orders in that business?
That's -- yes, that's 1 memory, but I mentioned before, the real intake or increase will come with volume extension. And so that is what we don't see. Right now, there is basically the absorption of evaluation tools. We won an evaluation here. And so then they take the 2, that is one. And of course, these are big, big orders, EUR 5 million, EUR 4 million, that has an impact. And there was another temporary bonder for different applications, which is not a memory. It's basically from a -- in a broader sense in automotive devices. But the real big orders are coming, but I expect this will be a memory, which is not yet in volume expansion. Yes.
Yes. So kind of -- the customer finally took the valuation to, as confirmed earlier. For the nonmemory application, is that -- could that develop into a bigger market? I mean now is -- you'll probably be the dominating market, but this kind of new implication, could that be the volume market as well or is that kind of other niche?
No, there are different markets. And again, as techniques become more popular, then there are more and more application tuning to that. But that is not really a big thing right now. But there are different applications from -- it's around the MEMS application. And some devices from -- for automotive application but also cameras. So there are different application looking into this temporary bonding which is not a market size like the DRAM, it should probably -- get any wrong, [ confusion ]. The DRAM, that is a big market. And the others have one here and one there.
Yes. Okay. Okay. Good. Then -- sorry for that, again, on the margins. If I look at -- especially in the bonder business, I mean revenue volume has been that high that might occur at all. But I think we're down to kind of 22% margins in the first half of this year. We know you're coming from the good years. In '17, above 40%, and then above 30% -- mid-30s in '18 and '19. Is it just the mix issue in the first half, and once volume comes back, that business should also come back to kind of the mid-30s margin level? Or is that kind of a structural change or [ behind the actually ] low margins here?
No, no. Absolute, absolute yes. That has really -- has nothing to do with the real product margin with an evaluation tool. You put a lot of effort into regulation. So that gets up the margin. The first one, this is the dominant product in that quarter, then it looks terrible. But then there's no doubt the bonders are in the 40-plus margin. And so if you calculate all costs after shipment included, then that definitely will be in the upper 30 margins -- upper 30% margin. It's not a 70%, 20% margin product.
Okay. So temporary remains a margin driver and half the volume comes then probably next year?
Absolutely. It's really an issue with the quarterly report. And if you have a bigger order here for strategic purposes, you have to go through that. And I just can say the Photomask Equipment is very similar. There are no infrastructure in our house that we can really do R&D work for photomask clean, which go into 3-, 5-, 7-nanometer manufacturers. We don't have that environment. So all the development is done with this first customer hence, the margins with this first will be low. Next year, we sell the same tool and same developments to other customers or to same customers again, then the margins will be much higher. That is exactly what we see with photomask. So there was the first installation with the development of 3-, 5-nanometer. Special features developed for that market. Now we sell this to others, and then we have very attractive margins.
And -- okay. So -- yes...
Same with bonders. A lot of development with the customer, the customer side, which then eats into the margin in the beginning.
Okay. Okay, good. MicroOptics. I mean you mentioned the supply issue. What is that -- I mean is that solved now? So could we expect kind of a rising margin level from the current quarter onwards? Or what is then the expectation? I mean you...
Yes. The result, we do see it on a monthly basis, we already see a significant improvement in margins, and that will continue for the rest of the year. So there is a new supplier being qualified, has gone through all the qualifications. So that's qualified for production. And there are strict procedures especially for the automotive. You cannot just get material from another source and have advantages here and there. It has to go through this very strictly defined qualification process. When that has been done, the supplier has passed, and from now on, we will have much better margins again. And which is the biggest cost item in production of the MicroOptics, is the wafer costs.
Okay. How much...
What we can mention in addition is that we see a strong demand for the products of SMO from the automotive business. We think that the new front lights and this technology will be inserted in electrical vehicles. And so SMO at the moment, is also -- has to invest for some new contracts, some development expenses, and this is also -- which has a certain impact on the margin.
Okay. Is that also affecting the cost of goods sold, these development contracts? Or is that included in the R&D line?
Yes. This is R&D design, R&D expenses, which are -- but which are, at the moment, were concerned under cost of sales.
Yes. Okay. So during the -- so over the medium term, in the coming quarters, that dividend move back to kind of the mid to high 30s margin level that came from in '18, '19?
The EBIT margin. Although I expect that the EBIT margin...
The gross margin?
The gross margin of -- the gross margin would be upwards of 40%.
Yes. Okay. And you go back to clearly double digit, 15%, potentially more?
Yes. So maybe for 2020, we expect -- this is MicroOptics. Yes, just over double-digit EBIT margin. It's -- I'm not sure if it's -- it will be 15%, but it will be definitely pick up in the second half.
Okay. But then for further improvement next year, in light of the weak first half of the year?
Yes. What we have also to take into consideration is that, at the moment, we are investing to increase our capacities. We will -- by end of this year, we will have a new clean room available. And this has also a certain impact on expenses.
Yes. Okay. And then same question for lithography. I think if I exclude the one -- the cost of closure of Corona, then the lithography margin are slightly below 30%. I mean as the large business unit, what's the visibility that this unit can also go back to above 30%, potentially mid-30s margin levels over time?
I mean that is whatever I said before, the increase in profitability. And let's say that lithography our biggest unit. I mean we would not be -- see the successful if the biggest unit is below 30%, definitely not. And I think there is, as I mentioned before, the orders in the first half, so in the second quarter which had -- for strategic purposes, had to be [ at such a ] low margins here as with turn around and then we will have a different situation with customers. In the second half, we have a higher margin, so that should improve in general. But the improvements, which is coming from organizational optimization is definitely affecting mainly the litho business unit because that is where we -- where the high-volume is and where we do have -- and do expect this improvement over time. But absolutely, yes, that business line has to be also in the mid-30 margins, at least.
And this would be a target for -- how much does it take to really recover to these levels? Is it maybe 2021, maybe too early, but kind of the 2-year target? Or what's the time frame to expand?
I mean again, it's a little bit difficult to predict, especially with COVID in the future. But I mean we can just look in 2017, it's not that far away, and we had much better margins. And if we can lose these margins in 2 years, why shouldn't we not be able to regain the margins in 2 years. And so therefore, definitely, I think next year, we will see, as I said before, that is not one issue we turn around and then we are there. There are multiple things. There's a lot of detailed work to be done, and that will come step by step. We will see improvements, I'm sure, in the end of this year. And then we will have discussions. Is it because of restructuring or is it because of utilization, fixed cost dilution because of top line growth. That is a difficult value how to read those numbers, but we will see improvement this year in the margins, and we will also work very hard to see more improvements in next year.
Okay. That sounds good. And what is the risk that there might be kind of negative surprise in the last year? I mean I'm just talking because I think it was always January of the next year when we figured out that margin target has not been met. But do you think that this is different this time?
I mean First of all, I have to say it's always different. I mean of course, there is a different top line growth this year. That trend. So my biggest concern is that we are relaxing too early because we see better numbers and yet it's just because top line growth, and we cannot expect a percentage top line growth year-on-year as the same as we see it right now. So there will be years where we have less or no growth on the top line. And also then we have -- and that is why we are working very hard to really dig into the details to have a better understanding and to -- yes, be safe on the -- for surprise that we don't see the surprise last year. And that was a disappointment not only for you, also for us, myself. And I mean we have to work harder to get a better understanding. That should be more predictable, it should not come as a surprise. And if it does not come as a surprise, you can act against it.
Yes. Okay. Final question on the OpEx side. Kind of -- if I exclude the corona cost cut of EUR 15 million, EUR 16 million quarterly run rate, can that be hold to sustain quite a while? Or there is the need to come for adding further cost of structure?
We have seen already right now that we have been very careful with adding more cost to the OpEx. And of course, it was first triggered by the uncertainty due to COVID-19 when you put everything on hold because you have no clue what the development will be. Definitely, we have to add some costs here and there. And then to improve efficiency, sometimes cost something in the beginning. But yes, that will put a strong focus on keeping the OpEx costs low because that's the only way to be safe for, let's say, decrease in top line. And in the cyclic market, it would be naive to not prepare for the situation. But for 1 year, there might be a reduction in the top line. Otherwise, it would be a permanent growth market. And cyclic markets, I mean, you have to be prepared and that's only -- the only way is to get a percentage-wise reduction OpEx.
As there are no further questions, I will hand the session over to Dr. Richter for closing statement.
Yes. Thank you very much, and -- for the question, for the discussion. And so I think I hope we can continue the same way to report good numbers for the rest of the year. As you probably have seen, right now, we are pretty optimistic about that. And so with that, I would just say thank you, and bye-bye, and talk to you next time for the next quarter. Thanks. Goodbye.
Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect.