Earnings Call: Q2 2020

Aug 6, 2020

Welcome to the conference call of SÜSS MicroTec SE. At our customer request, this conference call will be recorded. As a reminder, all participants will be in the listen-only mode. After the presentation, there will be an opportunity to ask questions. If any participant has difficulties hearing the conference, please press star key followed by zero on your telephone for operator assistance. May I now hand you over to Dr. Franz Richter, CEO of SÜSS 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. With me in that call is Oliver Albrecht, or let's say he's also in the line, CFO of SÜSS MicroTec SE, and I think also in the line is Sabine Radeboldt from Investor Relations. I would like to give you a short overview over the half year figures, and especially of the second quarter. Then 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. We did see a strong first half year in order intake, EUR 162 million in the six months of 2020. There was a contribution basically from all segments to that very result, very nice business. Of course, the order intake was driven from development in the second quarter, where we had intake in the second quarter, only order intake of EUR 93.6 million, the sales EUR 70 million, which then resulted in a positive EBIT of EUR 8.8 million, basically a 12.3% EBIT margin. Also here, development for the main units today, photomask equipment, but also lithography. Very interesting of course, the EUR 93 million order intake, there are orders pulled in into the second quarter. There was one big order of roughly EUR 25 million, which will be delivered over the next months and quarters. Also usually the orders would have come in into the 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 higher broadband installations. 5G is one big thing here. In general, you could say also everything around, there's a new expression, home office equipment. This means mobile communication. A lot of people are working in home office now, and that also has consequences on communication needs. There is an uncertainty, of course, and there was also, especially the first month, an impact from the COVID-19, which was more on the outlook, the uncertainty. Everybody was a little bit scared. We had some shifts of shipments, especially universities in China, which were closed. But that was not really a material impact, smaller shifts. 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 people talk about the second wave, and nobody knows what that might mean or the consequences would be. On the next slide, we have presented the 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 in 2020. 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 easy calculation shows first quarter was about EUR 40 million. I think the interesting part we 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, remaining EUR 210 divided by three means we are looking at roughly EUR 70 million per quarter for the rest of this year. Therefore, the second quarter is probably a kind of hint. First quarter, of course, was extremely difficult with the low revenue. Then all the other numbers like EBIT and cash, of course, were suffering from the low top line. That looks much better with the second quarter, EUR 70 million in revenues, remains an EUR 8.8 million EBIT, 12% EBIT margin, also the cash has developed nicely, and Oliver will go a little bit more into the details of why that is. If you go to the next slide, it's slide number 5. Here you can see the order intakes per quarter and the interesting view here is if you look to the last four quarters, in average, basically a EUR 60, EUR 65 million per quarter with an extraordinary effect in the second quarter, made it EUR 90. If you would, but 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. That is a fair assumption as we also will show later in our guidance, which without this explanation, the guidance may look a little bit conservative, but I think that we have to take into consideration this extra peak in the second quarter with the EUR 93.6 million in order intake. A strong impact, of course, 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. 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. I would like to start on page 6, with Micro Optics on the upper left-hand side. You can see that 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. This was a reason why we had, 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 a full scope. 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 quality issues 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. Therefore, SMO decided to change this key supplier because of this, 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. In the meantime, they have changed now this key supplier, and we expect that the EBIT and EBIT margin will increase then in the third and fourth quarter. 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 six months. This is, as Hans already mentioned, due to some big orders from major customers. We had regarding margin development, we have seen a slight decrease in margins with our coater and mask aligner. Regarding coater, we are committed to 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 six months, we will take up with the margin development. 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. If you would take this out, then the adjusted EBIT would be EUR 4.5 million, and this is 7.2% EBIT margin. 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. 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. Therefore, EBIT increased to EUR 9.4 million and EBIT margin increased to 30%. So this is a huge increase. For the rest of the year, we expect a certain normalization regarding the EBIT margin. 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 six months. The decrease in sales is mainly due to the postponement of shipments into the third and fourth quarter. Therefore, the EBIT margin and EBIT dropped. This is mainly due to a lower fixed cost coverage. For the rest of the year, we expect that we will pick up sales and reduce the loss, but for the whole year, we expect a slight EBIT loss in this business unit. Regarding the investments in R&D in this field, we expect that for 2021, that especially in this business unit, we expect an improvement. Okay. Let's move on to the balance sheet. Here you can see balance sheet increased, mainly due to the acquisition of our subsidiary Netherlands. This was the former PiXDRO business of Meyer Burger, and we had an increase in inventories, mainly work in progress increased and the finished good increased. On the other side, demo equipment slightly decreased in the first six months. Regarding the liability side of the balance sheet, just a few comments on it. Despite the absolute rise in equity, the equity ratio declines 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. The biggest change here is the change in our financial debt situation. As you can see here, short-term debt within the syndicated loan has been completely paid back by the end of the second quarter. 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. Here you can see cash flow from operating activities changed and improved significantly from minus EUR 15 million up to EUR 23 million. 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. As I mentioned, we have a change in accounts payables and contract liabilities, with a very positive impact on operating cash flow. The free cash flow for the first six months changed from minus EUR 19 million to now EUR 17 million plus. 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 market estimates and on our guidance. Franz? Oh, I'm sorry. I was on mute. Sorry. Thank you. Concerning the guidance I already mentioned before, 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%-5%. 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's hard to predict or hard to calculate, but roughly EUR 30 million pulled in with this big order and two orders basically into the second quarter, which we would usually would have received out in third quarter, fourth quarter. 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 quarters also in the range of EUR 60 million. That is right now the run rate where we see the business, 65, which on an annual run rate base is about EUR 260 million, which is in line with the business expectation we see also for this year. From our guidance. 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. Then we saw from Taiwan companies 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 are 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. I think SÜSS is very well positioned in that market. With that, I would also like to make a comment on our recent ad hoc from Tuesday, when I asked the board to start the search for a successor from my position. As you can see with these numbers, definitely to make it crystal clear, it has nothing to do with a change in expectation on the market with any business thing. It has much more to do with an aging problem. I just turned 65, and so I have a two-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 the responsibility of the board, but we will work together to look for a smooth transition. There is a lot of interest from my side to bring SÜSS and to help to remain SÜSS on a very positive trend. The whole expectation going forward is very positive, and I am sure we will find a way where we have a management team which continues with the growth strategy to the numbers we have published, EUR 400 million, 2025. 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 bring the profitability and the reward to return into SÜSS and to our shareholders. With this remark, I would like to hand back to the operator and then enter into the Q&A session. Thank you. Thank you. We will now begin our Q&A session. If you have a question for our speakers, please dial 01 on your telephone keypad now to enter the queue. Once your name has been announced, you can ask a question. If you find a question is answered before it is your turn to speak, you can dial 02 to cancel your question. If you are using speaker equipment today, please leave the handset before making a selection. One moment please for the first question. Our first question is from Johannes Ries from Apus Capital. You may begin your question, sir. Yes, good morning. Like always, a couple of questions. First, regarding the development in the market. Have you seen any change in July? Looking at your pipeline from the demand side, you have maybe a general view. We talked about this push in effect in Q2, but from a general demand, has there any change? 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. First of all, as we said, there is a demand on a broader range because that is also why I prefer this expression, home office equipment, because it is not only communication, it is computing, it is mobile phone, it is communication network. Everything is impacted. The drivers are really from the big foundries. The OSATs are still a little bit slower. One difficulty with the offset in China, because of that political tension, there was a little bit a setback and it is recovering now. The other thing is more surface acoustic wave filters is strong. With the question to China today is roughly 25% of our business. It is a growing business. We have to have a strategy for China. This will have an impact, of course, from the global political situation probably after November. Let us face it will not change immediately. Whatever happens is the result, we will have to adapt our business strategy to that situation as it is right now. About 25% is China. July so far into pipeline, no slowdown compared to the first half? No. No slowdown. As I said, this is always a little lumpy business. As I said, the photomask tools, there is still ongoing demand. There is also the, as I said, the one big order that is, I think, 25 tools in total. Of course, that is a little bit lumpy element in the whole order flow. But the slowdown, we don't see right now. There is still a demand ongoing, activity. The uncertainty remains, no question. Going into the next year, we don't see it right now. But you probably can see this also from market researchers. There is the information we also use, DRAM. For example, in all our numbers, there is still no temporary bonder for DRAM for volume expansion included. That is still expected to come. Also, a business we are looking into for next year is more strategic. The permanent bonder for hybrid bonding, that is an application where we see a very active market, and here we expect orders towards the end of the year, early next year. Okay, super. Maybe then moving to your different sectors. If I got it right during the presentation, maybe a slight slowdown in the margin, but staying at a high level in photomask equipment. All other three sectors, Micro Optics, lithography, and bonders will see higher margins in the second half. That is true, as Oliver said. Micro Optics, that is an effect which has two elements. One was the automotive slowdown. Yeah With short work. The other one was a difficult supplier, which is a strategic supplier for wafers. Here we have changed to a new one. New one has been qualified, much better margins for us. That will definitely increase significantly the margin going forward. The other equipment is, as I mentioned before, there was one on the coater side, one customer from China who first postponed. That is a relatively low margin, strategic. We have to compete in China. That has been recovered. That is going into better margins for the second half with the coater as well. Here we are 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 these products already in the market and should also help in the second half to improve the margins? No. This is really coming from a customer side. Again, if we look and we have done a lot of investigations what happened last year. In total from the pricing level, from a discount level, for example, 2019, if we look, and you remember the order intake started in the third quarter in last year. 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, means order intake was six months before, then we have an increase in discount. If we look to those orders booked in 2019, we have a decrease in discount, means there's a 2% price increase. That is really the reflection of the market situation. If the demand is high, then you of course can increase the price for shorter delivery time or for during the negotiation, you're in a stronger position if there's a strong demand. In other times, you have a 1%, 2% increased discount. Especially on lithography but also a little bit on Bonder. You had also mentioned in the past, you had organizational headwinds or problems internally. It was not only the topic of pricing, it was also the materials too expensive. You have done a lot changing person, changing processes. When we see the benefits, which will also be seen in the second half, or there's more topic of 2021? First of all, as I just explained, the pricing you can say 2% is the impact. If you look to our margin last year, there is much more than 2%. Of course, there is the huge impact from internal organizational issues we had and we have to overcome. There is a lot is under work, and that will come step by step. We will see a slight increase, and the margin will be better. Of course, it's a little bit difficult to understand because in parallel, the utilization this year is very much better because of the top-line growth. Now the challenge is that we, in parallel to the top-line growth, optimize our organization because that is what experience tells. We are not in a only growing market. We are in a growing, but also a cyclic market. There might be years where the growth will slow down or probably even be a slight decrease. Then we have to stay at a profitable business and not experience the same loss like last year. Very clear. Bonder also That will come over time. It's step by step. Okay. In the second half, we will have no restructure anymore for the laser business, or is it still a cost in some regard in the second half? The laser scanner business, COVID-19, the rent for the building is ongoing. Oliver, I don't know, but do you have a number which we expect for the second half as an impact? But it's probably another EUR 2 million or something. Yeah. We expect about approximately another EUR 3 million for the closure of our SÜSS MicroTec Photonic Systems in U.S. As Franz Richter already mentioned, it's a rental. We have to pay rent until the end of the year. Okay. We have then to turn back 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. Yeah, 2021, we expect there is no burden from this business. We have some material in our stocks. Maybe we can also see a certain benefit from the sales of these parts. I see. Final question to Litho. Therefore, if we sum this all up, there is 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 internal organization things are maybe more and more coming through at the bottom line. I cannot quite remember the good old times of the 15% margin, but I would be happy to see it at least maybe in a double-digit margin again. Yeah. What we can expect for 2020 is, if we can realize this. We expect a strong growth in the business for this year because of these big orders we have got. Regarding this sales increase, we expect, of course, a better fixed cost coverage, and therefore the EBIT margin should increase maybe closely to a double-digit number. I do not expect that we will go over 10%, but I think we can reach maybe a margin very close to a double-digit number. Okay. Super. Finally, bonders, you also have been very optimistic to turn this clearly around at the profitability side in the second half. Is it also a huge backlog which will be now delivered and so for also margins will be clearly going up? Again, the bonder is basically, as I said, it's a longer term. There are two segments, temporary bonder, 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. 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 U.S. and in Taiwan, that's hitting. That will depend clearly on the DRAM. That's a stack DRAM, high bandwidth memories, and as soon as that picks up, we will be in the game. Okay. The other part of the bonder business is running well, yes? Excellent. Yeah, as I said, there's the new systems, new versions are coming to market. 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 after better. There's a strong competitor having a place in the market. We are increasing, and we have increased our R&D spendings a year, two years ago, and that pays back and will pay back going forward. So I expect really a positive contribution more in next year from that. Nevertheless, a positive margin for the full year, a clear positive. That is what we-- Yeah, for the full year. Oliver mentioned the Bonder, so slight negative is expectation right now, but of course, also the BU managers, they clearly have a target to at least break even with that. But right now we have to expect a slight negative improvement, but a slight negative result for this full year. Okay. And finally, a positive free cash flow for the full year possible or? Sure. As you can see, we have generated EUR 17 million free cash flow. Now this is a tremendous change. And of course, it's depending a little bit from the order intake. 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 this to continue with this down payment. And I expect definitely a positive free cash flow. Okay, super. Thanks a lot. Thank you. Next we have Jean-Mark Mueller from JMF Invest. You may begin your question. Thank you. 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 are basically saying SÜSS should be able to achieve an EBIT of around EUR 20 million. If you take, for example, the upper end of the guidance, EUR 260 million, and as you calculate it with 5%, then it is EUR 13 million EBIT. This includes already the closure costs for the corona side. Exactly. It is EUR 7 million or so. We are talking about- 7 million. If you add them, you can expect about EUR 20 million adjusted EBIT. Okay, good. My second question. I mean, Harri, you did kind of imply that, if I 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 splayed over Q3 and Q4, we are talking about EUR 70 million of sales. However, we are talking about EUR 10 million of EBIT, so five and five, 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 Micro Optics 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 very good PE business. We had a strong sales volume and with a decent margin. 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. Of course, we do not want to disappoint regarding our guidance and we do not know. COVID-19 has also a certain risk, and we have to take into consideration all these fluctuations, and therefore we set this range. No, that is quite clear. That is already good enough for me. But I think exactly what Oliver said, especially with the experience from last year on the EBIT side, we have taken a conservative view. That's good. I don't mind. Order backlog was around EUR 140 million now in H1. That is already taking kind of a look into 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 gives me an indication of what 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 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. This is the problem. If I look back to the last four 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 two-quarter guidance is because of that unpredictability, because of the lumpiness. It's a lumpy business. That's a little bit of problem. So if you look back the last four quarters, as I said before, that is roughly we are the EUR 280 million run rate. So that is 65, 6. And then you take out these EUR 90 million. So what I'm looking at is the order intake this year will be roughly, probably is EUR 270, in that range, EUR 260, EUR 270. With the revenue in that range where we will basically build up, that is what I would expect, build up our order book last year to this year. There is uncertainty. I do not know what the order placed in the fourth quarter will be. Especially fourth quarter is very hard to predict right now. 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 DRAM. There are factories being built and those will go into production. The DRAM will come back. I also see activities will continue in the OSATs. That will come back. There is a slight increase right now, as I mentioned, one has placed orders. I think the general view is very positive, and we have to see what the order intake in real numbers in Q4 will be. Okay. The EUR 90 million is a conservative view. I do not have any better view, and I think at this point in time, it does not make sense to pre-speculate too much. 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. Is it fair to say, the products that you ship, they go to the big foundries. You do not really know for what type of chip manufacturing they use those products. They are not specified in a way that you can say, okay, this is now going into a production of chips which are then used in 5G communication tools, et cetera. This is for you just look at the end markets in general, right? It is not that you can make a conclusion from the products you ship. Not looking forward, but, of course, we look to the end markets because in the end, for example, mobile phone markets. It might be that this order may go to, let's say, a TSMC. It 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 two, three OSATs, and then one of those OSATs will get the order, and then the two other RFQs disappear. Therefore, I cannot just take the, let's say, the RFQs, request for quotation, and add that up because that might be fighting for the same order from the Yeah Qualcomm, Apple, and so on. 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. We do the installation, we do the service. Our service engineer clearly see what kind of application is running on that tool. We do have a good feeling who is working on which application in the end. But this is when we install the tool, and that is about six months after getting the order. So the order placement, the forecast here is a little bit difficult, but we do see, we have a good feeling which markets are developed with which pace. Mm-hmm. Okay. A final question, excuse me. On the free cash flow, obviously super strong now in Q2. I think there were some effects playing into Q2. I think there was this EUR 5 million tax payment. Was this a tax reimbursement? It is really a cash you received from whatever tax authority? Yes. This was, we normally do prepayments of income tax and quarter by quarter. Last year we made a loss and therefore we could claim this prepayment to be repaid. Oh, okay. This prepayment was- It was basically cash flow was understated in the previous year, and now you got a repayment because of the loss. Yeah. Because we prepaid too much, too high. Exactly income taxes in the Yeah. Okay. Understood. On the working capital, obviously very strong. Obviously a lot had to do, from what I understand, as you alluded to, prepayment you received on the very high order intake that you had in Q2. If you deliver this product, obviously that goes against those prepayments. Is it fair to say that the net working capital movement in the second half has to be expected to be negative? First of all, several factors. Of course, we should also have a look on an improvement in our net profit situation. Okay where we have shown a small profit in the first six months compared to last year. We expect here, we expect a further improvement in the second quarter. Sure. This will have a positive impact. Then we will have a close look on our Dunning procedures. We would like to furthermore to reduce our trade receivables. Then on the other side, there is the factor of down payments. This is now depending on order intake Yeah 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 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, these are customer down payments. We deduct normally by shipment. We deduct received customer down payments directly from the contract assets. This is due to the different reconciliation, according to our IFRS and the final closing invoice under German GAAP. Okay. So maybe to summarize, we expect, as we mentioned in our guidance, we expect a positive free cash flow Sure for the whole year. This is a tremendous improvement of our cash flow situation. My question was a bit in the 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. I would be interested in your view how those different items, prepayments and obviously going down potentially, and orders and other things that you might see, how they might impact free cash flow in the second half. 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. It is depending on the order intake. This is what I can say. Understood. Okay. Thank you. Thank you. Next question is from Malte Schaumann from Warburg Research. You may begin your question. Good morning. Just wanted on the Bonder business. You had quite a strong order intake for the second quarter, so maybe you can give us some more color. On the temporary side, was it just one customer? Was it multiple customer? Is it, again, a memory high bandwidth or DRAM, high capacity DRAM application? So what was really driver for the strong orders in that business? That's one memory, but I mentioned before the real intake or increase will come with volume expansion. That is what we don't see right now. There is basically the absorption of evaluation tools. We won an evaluation here, and then they take the tool, that is one. Of course, these are bigger orders, EUR 5 million, EUR 4 million, that has an impact. There was another temporary bonder for a different application, which is not a memory. It's basically in broader sense an automotive devices. The real big orders are coming, but I expect this will be a memory which is not yet in a volume expansion. Yeah. The customer finally took the evaluation tool as discussed earlier. For the non-memory application, could that develop into a bigger market? I mean, memory will probably be the dominating market, but this kind of new application, could that be a volume market as well, or is that kind of rather niche? No, there are different markets, and again, as techniques become more popular, then there are more and more application trying to that. But that is not really a big thing right now. But there are different application from. It's around the MEMS application and some devices for automotive application, but also cameras. So there are different applications looking into this temporary bonding, which is not a market size like a DRAM. It should not really get any wrong view here. The DRAM- Okay That is a big market, and the others are more one here and one there. Yeah. Okay. Good. Then, sorry for that again, on the margins. If I look at, especially in the Bonder business, maybe, revenue volume is better than that high, that might explain the world, but I think we are down to kind of 22% margins in the first half of this year. I think we're coming from, I think the good years, 2017, above 40%, usually about 30%, mid-30s in 2018 and 2019. Is it just the mix issue in the first half and once volume comes back, that business should also come back to kind of in the 30s margin level, or is there kind of a structural change, or what is behind the drop in the margins here? No, absolute, yes. That has really, it's nothing to do with the real product margin. It's an evaluation tool. You put a lot of effort into evaluation so that eats up the margin. The first one is this is the dominant product in that quarter, then it looks terrible. There's no doubt the bonders are in the 40-plus % margin. Then so if you calculate all costs after shipment included, then that definitely will be in the upper 30% margin. It's not a 70, 20% margin product. Okay. Temporary remains a margin driver. Yes Once the volume comes, then probably next year then. Absolutely. It's really an issue with the quarterly report. If you have a bigger order here for strategic purposes, you have to go through that. 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. All the development is done with this first customer, hence the margin with this first will be low. Next year, we sell the same tool, same developments to other customers or to the same customer, and again. Then the margins will be much higher. That is exactly what we see with photomask. There was the first installation that did 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. Okay. Same with Bonder. Same with bonders. A lot of development at a customer site, which then eats into the margin in the beginning. Okay. Good. Micro Optics, you mentioned the supply issue. Is that solved now? Could we expect a rising margin level from the current quarter onwards, or what has been the expectation there? That is solved. We do see it on a monthly base. We already see a significant improvement in margins, and that will continue for the rest of the year. There is a new supplier being qualified, has gone through all the qualifications, so it is qualified for production. 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 a very strictly defined qualification process. That has been done. The supplier has passed, and from now on, we will have much better margins again. Which is the biggest cost item in production of the microlens systems? It is the labor cost. Okay. How about you 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. SMO at the moment has to invest for some new contracts, some development expenses. 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, but which are at the moment reconciled under cost of sales. Yeah. Okay. Over medium term in the coming quarters, that division should go back to mid to high 30s margin level that came from in 2018, 2019. The EBIT margin, although I expect that the- Gross margin. The gross margin. Of course, the gross margin will be about 40%. Yeah. Okay. EBIT back to clearly double digit 15%, potentially more. Yeah. Maybe for 2020, we expect SÜSS MicroOptics, just over double digit EBIT margin. I'm not sure if it will be 15%, but it will definitely pick up in the second half. Okay. But then room for further improvement next year in light of the weak first half of the year. What we have also to take into consideration is that at the moment, we are investing to increase our capacities. By end of this year, we will have a new clean room available. This has also a certain impact on expenses. Yeah. Okay. Then same question for lithography. I think if I exclude the cost for the closure of SÜSS MicroTec Photonic Systems, then the lithography margins are slightly below 30%. As the largest business unit, what is the visibility that this unit can also go back to above 30%, potentially mid-30s margin levels over time? That is what I said before, the increase in profitability. Let's face it, lithography is our biggest unit. We would not be seen as successful if the biggest unit is below 30%. Definitely not. I think there is, as I mentioned before, the orders in the first half and second quarter, which for strategic purposes, had we accepted lower margins here, it will turn around and then we would have a different situation with customers in the second half where we have a higher margin. So that should improve in general. But the improvements which are coming from organizational optimizations is definitely affecting mainly the Litho business unit, because that is where the high volume is and where we do expect these improvements over time. But absolutely, yes, that business line has to be also in the mid-30s margins, at least. This would be a target for. How much does it take to really recover to these levels? Is it maybe 2021, maybe too early with kind of a two-year target, or what is the timeframe to expect? Again, it is a little bit difficult to predict, especially if it goes into the future. But we can just look in 2017. It is not that far away, and we had much better margins. If we can lose these margins in two years, why should we not be able to regain the margins in two years. Therefore, definitely, I think next year we will see, as I said before, that it is not one issue we turn around and then we are there. There are multiple things. There is a lot of detailed work to be done, and that will come step by step. We will see improvements, I am sure, in the end of this year, and then we will have discussion, 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 next year. Okay, that sounds good. What is the risk that there might be kind of negative surprise in the last years? I am just asking because I think it was always January of the next year when we figured out that margin target had not been met. Do you think that this is different this time? Definitely different this time. First of all, I have to say, it is always different. Of course, there is a different top-line growth this year. True. My biggest concern is that we are relaxing too early because we see the better numbers, and in the end, it is 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. There will be years where we have less or no growth on the top line, and also then we have swipe. This is why we are working very hard to really dig into the details, to have a better understanding, and to be safe on this side for surprise, that we do not see the surprise like last year. That was a disappointment not only for you, also for us, for myself. 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 come as a surprise, you connect against it. Okay. Final question on the OpEx. If I exclude the COVID-19 costs, 15, 16 million quarterly one-ways, can that be held to sustain this quite a while, or there is the need to account 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, that 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 it costs something in the beginning. But, yeah, 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, a decrease in top line. In a cyclic market, it would be naive to not prepare for the situation that for one year there might be a reduction in the top line. That is cyclic. Otherwise, it would be a permanent growth market. In cyclic markets, you have to be prepared, and the only way is to get a percentage-wise reduction in OpEx. Yep. Okay, thanks. Thank you. As there are no further question, I will hand the session over to Dr. Richter for closing statements. Yeah. Thank you very much for the question, for the discussion. I hope we can continue the same way to record good numbers for the rest of the year. As you probably have seen right now, we are pretty optimistic about that. 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.