Good morning. Warm welcome to Mycronic's third quarter 2020. My name is Tobias Bülow, and I'm heading Investor Relations. With me today here in Stockholm, I have the Mycronic President and CEO, Anders Lindqvist, as well as our CFO, Torbjörn Wingårdh. After the presentation, there will be time for questions. I would already now like to ask you to limit your questions to two per person as a start. Our operator today will guide you on how to ask questions. We will end at latest 11:00 A.M., and for your information, this session will also be uploaded as on-demand on the web. For this reason, we ask you to stick to English also during the Q&A. With that, I'll leave you with Anders.
Okay, thank you very much, Tobias. Today we'll present our last quarter performance and starting with the agenda for today. First, talk a little bit about the quarter, and then we do comments on business area performance, as well as some comments on the division level, on the market development, and the division development. Torbjörn will go a little bit in details on the financial side, talk a little bit about our platform for future growth, and then, as Tobias said, we will end with a Q&A session. To start with, I want to explain or try to tell you what we are doing at Mycronic. Our products and solutions makes it possible for our customers and also our customers' customers to develop and produce electronic products with leading technology.
Examples here are all the latest TV screens, computer centers, data centers, sport watches, state-of-the-art mobile phones. That is why we say that we enable the future of electronics. Looking at quarter three, this is a short summary of the quarter. We could see that we have a strong quarter when it comes to sales. We grow the sales with 20%. We grow the EBIT with 76% and at a very good margin. Even though we had the very strong sales, we still have a very strong backlog, which is at SEK 2.1 billion, and this is to be compared to SEK 1.6 billion at the same quarter last year.
Inside the different business area, if we start with the Assembly Solutions, we had a mixed development inside Assembly Solutions, where we could see that in the High Flex division, we had an improved activity level towards the end of the quarter. Especially in September, we could see that we had order rates picking up quite strongly. In the High Volume division, this is mainly activities in China, for China, we had a very strong performance. In Global Technologies, we had a mix. In Global Technologies, we have two lines of business. One is in optoelectronics segment, and the other one is in the camera module assembly segment for automotive. We had a very strong demand on the optoelectronic side, but a very weak demand from the camera module segment, mainly serving the automotive market.
In the business area, Pattern Generators, had a very strong development, good deliveries, and all the service and aftermarket activities are on track because of local support. For the outlook for the year, we have revised this to SEK 3.9 billion, the main reason for that is the impact of currency effect, which is the majority of the difference, also a little bit from the pandemic situation. Moving into the business areas, starting with Assembly Solutions, as I said, we saw a mixed performance here. The overall sales declined by 4%, but we had a very strong momentum in the dispensing segment in China. This is the High Volume division, which is mainly serving the Chinese market and mainly the mobile phone segment. We had a very strong development in optoelectronics, which is the Global Technologies division, driven by data centers and communication equipment.
The camera module assembly was on low level. We are serving the automotive market, which has been very slow for quite some time. Also the High Flex market was low in general, but we saw that it was an improvement from low levels, especially at the end of the quarter. We are very happy to see that we sell more and more of what we call full line solutions. This is a complete production line compared to selling single machines. This is mainly in the High Flex division, and we could see that the average order value is increasing all the time. It is proof of that this concept is working. Backlog is stronger, and this is compared to the Q3 last year.
The EBIT in the business area was negative by SEK 6 million, but there was also impact from write-down, where we made a write-down for the camera module assembly business on intangible assets, and this is equal to SEK 43 million. This is based on that we see the camera module assembly market being weaker than originally planned. The underlying EBIT in the division was SEK 46 million, which is giving an EBIT margin of more than 8%. I think this we're quite happy with.
As you know, we have a target of being above 10% for the full next year in this business area, and we could see that we are on our way to that target. One way to reach the target is efficiency improvements, and we are running programs both in the High Flex division and the Global Technologies division, this is also reason for the improved margin. As I said, we confirmed that the target of 10% for next year is still there. I would like to comment on the different divisions a little bit. In the High Flex divisions, we see that with market activity that increased towards the end of the quarter, we have seen that the investments that have been on hold throughout the period had started to materialize.
We've also seen, as I said, that the average order size is increasing. This is due to that when they sell more and more of full line solutions. There is still an uncertainty in the market, mainly because of the pandemic situation. Our main geographical focus or market is in Europe and the United States for this division. We are continually to streamline the operations in the division to be able to reach our EBIT target. In the High Volume division, we have seen a very strong performance, a very strong momentum. We have a leading position for dispensing equipment. We have seen a very healthy and stable Chinese market. The majority of our sales in this division is in China. In particular, a very good demand from key accounts, our larger customers.
We have had very limited COVID-19 impact in this division. We have had also very limited impact from trade war. This is something that we are monitoring very closely as this can change from day to day. In the Global Technologies division, we have two lines of business here. We do die bonders for the optoelectronics market. We do camera module assembly equipment, mainly for the automotive market. Here we have a mixed development where we have seen that the demand in optoelectronics have been very strong. This is driven mainly from data centers and communication equipment. That is driven by the 5G implementation in various countries. We had the very good market in China with major orders. At the same time, we see very slow activity in the camera module segment.
The automotive industry is affected by the pandemic situation and was already weak before that. Because of that, we also make a write-down of intangible assets of SEK 43 million. These products are produced in the U.S. and, as said, we had mainly sold in China. Here the trade war between U.S. and China have a bigger impact. Far, we had quite limited impact on our business. This is something that we monitor very carefully. On the Pattern Generators business area, we had a very strong development, very good deliveries in the quarter. We had two machines, an FPS 6100 Evo and the Prexision 800 Evo, our most advanced system. The net sales was up 60%. We ended at a little bit more than SEK 500 million in sales. The order book is strong and intact.
No changes in the delivery plan. We plan to deliver three systems for quarter four and also one major upgrade. For the next year, we have seven systems on the schedule for delivery. No changes so far in the timeline of deliveries. Of course, the pandemic situation could make that more uncertain. So far, no signs of that. In this business area, all the service activities are on track. We have a local service support in all the markets where our customer have their operations. This is going on as planned.
If we look on the long-term performance, we have revised our target or our outlook for this year, where we believe that we will reach a sales of SEK 3.9 billion, and the majority of the difference between the previous outlook of SEK 4.1 billion is because of quite a large currency effect on our business and also a little bit of this pandemic situation. Even though we have a very strong order book, it's up compared to last year, and we confirm our long-term target of being at or above SEK 5 billion for the year 2023 at the latest, as well as our profitability target of being above 15% over a business cycle, and specific target in the Assembly Solutions business area to be at or above 10% for full year 2021. We were, as I said, above 8% in the quarter already.
For Pattern Generators, our profitability target is to continue on healthy level. Capital structure net debt should not be higher than 3x average EBITDA counted over three years. With that, I want to like to hand over to Torbjörn to go a little bit deeper on the financials.
Thank you very much, Anders. We look with confidence on a robust order backlog. Where we, over the last 12 months, had an order intake of SEK 4.5 billion. The Q3 order intake, though, decreased with 40% to a little bit more than SEK 700 million. For Assembly Solutions, the decrease was 24%, and for Pattern Generators, there were no new system orders. As you know, there is a natural variation in the order intake for Pattern Generators. Looking at the backlog and compare that to end of September last year, it is quite much higher. It's a bit almost at SEK 2.1 billion, compared to a little bit more than SEK 1.6 billion last year. For Assembly Solutions, it's almost SEK 1 billion, a bit more than SEK 879 million end of September last year.
For Pattern Generators, it's a bit more than SEK 1.1 billion, which is also significantly higher than end of third quarter last year. For this year, in Q4, deliveries in the backlog that are scheduled, as Anders mentioned, are three mask writer systems and one major upgrade. Looking at net sales. It was a net sales growth of 19% to SEK 1,068 million. As we previously have described here, there was a mixed performance within Assembly Solutions, and there was a decrease of 4%. While in Pattern Generators, there was an increase of 60% to a little bit more than half a billion SEK, including the system deliveries of FPS 6100 Evo and a Prexision 800 Evo, together with stable aftermarket revenue. In this, we had a negative impact of SEK 57 million in foreign exchange.
The rolling 12 months net sales is now at SEK 4.1 billion. This all helped us to good margin development. The Q3 gross margin was at 58.3%. That was despite a slight decrease for Assembly Solutions, going from 40.9% to 38.9%, but a strong increase for Pattern Generators, 79.7%. Looking then at the EBIT, that was 32.6% compared to last year's 21.9%. With Assembly Solutions, which had a -1% EBIT margin, that was affected then by a SEK 43 million writedown in Global Technologies related to the AEi business. It's an impairment of their intangible assets related to customers and technology. The underlying EBIT margin was a bit above 8%, which we feel good and feels good as preparing for next year's target, which Anders mentioned was above 10%. For Pattern Generators, the EBIT margin was the quite fantastic 70%.
Looking a little bit on our R&D spending. It was slightly lower than the same quarter last year. Still we are at a little bit more than 30% R&D to cost to sales ratio. This is important for us to continue the R&D spending as we prepare for the future of our products and our future product portfolio. Rounding then off a little bit with cash flow. We have a very strong cash position. We had a positive contribution from change in working capital. Then, in the quarter also, we amortized SEK 200 million, which was the part that we had used of our credit facilities, which amount to SEK 2 billion. We also paid dividend, which was then related to our AGM being a little bit later than usual, so the dividend was paid in Q3.
We feel confident then around our cash holding at the end of the period, which is almost at SEK 1.1 billion, which gives us a strong balance sheet and strong position, and also makes it possible for us to use any opportunities that would occur in terms of our growth strategy, which, as you all know, includes potential acquisitions. Having said that, I would like to give the word back to Anders.
Okay. Thank you very much. We believe that we have a strong foundation, a very strong platform to grow further and to reach our longer-term target of SEK 5 billion in 2023, latest. Before is, of course, appreciated as well. We changed the organization earlier this year. Now we have a very scalable structure and also a very clear focus on the different market segments with clear leadership in the divisions, clear accountability, and clear responsibility and authorities. I think this is in place. It's working very well. We are continue to invest in R&D and next generation solutions. We haven't really changed the spending at all. I think we are somewhere around 13%-14% of revenue that we invest in R&D to continue to offer leading products and solutions. This is important to us. We are actively looking for acquisitions and other type of partnerships.
We do have an agenda. We have a strategy on what kind of technologies, what kind of segments, what kind of markets do we want to participate in. We have a strong balance sheet. Should there be any opportunities, we should be able to act on that. We also have a very good credit facility to support the acquisition activities. Very much a result of the reorganization earlier this year, we have increased our market focus and customer focus. The divisions are organized after the different market segments and customer segments that we serve. As I said, we have a customer obsession and the long-term growth strategy remains intact. Even though we calibrated a little bit our outlook for this year, the long-term financial outlook has not changed. We confirm that. By that, we move into the questions.
Okay. Thank you, Anders. With that, we conclude the presentation and move over to the Q&A session. As I said in the start, please limit yourself to two questions, at least as a start. Operator, please go ahead.
Thank you, sir. Ladies and gentlemen, if you wish to ask a question, you may press zero one on your telephone keypad, and if you wish to withdraw, it's zero two on your telephone keypad. We have one first question from Mr. Daniel Djurberg from Handelsbanken. Sir, please go ahead.
Thank you, and good morning, and congratulations to stellar margins and especially PG, of course. My question is, first, if you can comment a bit on the display market trends. We have seen some disruptions, of course, with Huawei, and so on, and some display manufacturing movements, et cetera. Can you comment a bit if you expect this to create uncertainty and delay the timeline for your customers to order from PG?
Yeah, I think you have also in the report, and we show also the third-party investigations and analysis on the display market, and it is a little bit slower development than it has been on the number of displays and the sizes and so on. Still, there is a growth in the market long term, and there could, of course, be short-term changes. What we see that our mask writers are sold maybe three years before a technology change or even more than that. We are not really affected, I say right now, what is happening right now. We're more driven by the really long-term and especially the long-term development when it comes to technology shift. We still see a positive impact from the shift from LCD to AMOLED.
Short term, of course, investments could be put on hold and delayed because of disturbances among customers.
If you look at your sales funnel in Q4 last year, you had an amazing order intake for PG. Should we expect that to be more into various quarters coming 2021, or it depends? When you look at your funnel, can you see a similar possibility for Q4 and coming months, three, four months to see this kind of order intake as well?
I can say that we had a very strong order intake also in quarter one this year, maybe stronger than normal. I think that is still visible in the backlog, which is up compared to last year as well. That backlog is filling almost the whole of 2021 and a bit into 2022. I think you need to see it on quite a long perspective. We haven't had any order. That being said, we haven't seen any orders in the PG now for two quarters. Of course, we're looking forward to get that. There is a pipeline, and there is a maturity progress in that pipeline, but the sales cycle is very long in PG, it's difficult to say how it should look like and when it will materialize.
What I can say that we see a good pipeline also on the SLX, the semiconductor business.
Yeah.
Which we haven't had before. This is an addition to before.
Perfect. Okay, I guess that was my two questions, and good luck here in Q4. Thanks.
Thank you.
Thank you, sir. Next question is from Mr. Mikael Laséen from Carnegie. Sir, please go ahead.
Yes, good morning. I also have more of the same questions. I focus on Assembly Solutions instead. Just to clarify the margin target next year of 10% or more than 10%, is that the underlying margin excluding amortization or intangible assets, or is it the reported margin?
It is the reported margin.
Excellent. Another question actually on the cost side. The PG segment had very low SG&A costs. It looks like that at least. What is the reason for this?
Could you repeat the question, please?
The PG segment had very low SG&A costs in Q3 compared with prior quarters. What was the reason for a low cost?
The reason was partly reversal of provisions for customer credit losses. That impacted positively on that line.
Okay. Approximately how much was it?
We don't disclose that exact number, but in the size so that it's visible from your analysis. That's correct.
Mm-hmm. Okay, got it.
A couple of SEK millions. Yep. Mm-hmm.
Okay. No, more than that. Okay, thanks.
Yep.
Thank you, sir. Next question is from Mr. Viktor Westman from Redeye. Sir, please go ahead.
Thank you for taking my questions, and congrats on a strong set of numbers. I have a question on the SLX market that you mentioned, Anders. Do you think there's a chance that this market could be a lot bigger than you previously expected now with Intel waking up, for instance?
I think the market for mask writers we believe is what we have said before, it's around SEK 60 million. We would like to take a big part of that. Of course, the willingness to invest in new technology will likely be higher with successful customers. I think the market may not grow, but the speed of replacing the installed base might increase, and I think we are in a good position to capture a good part of that market.
Okay, good. The second question on the order intake in Assembly Solutions, that was down 24%. Can you give some guidance on how much is delayed customer decisions and how much is currency, et cetera?
Currency will be a little bit difficult, but I think you can maybe use the same numbers on the sales side just to be close there because we don't look at currency effect on the order intake side. It's very mixed. I think in the Assembly Solutions, we have had very slow demand in the camera module assembly side. We have not sold any equipment for quite some time, or not get any orders for equipment for quite some time there. On the other hand, we had very strong development in the optoelectronics with the die bonders, strong demand on the High Volume side, and lower than targeted demand on the High Flex side, but a good improvement in the quarter three. To quantify, I think also you could say that the order intake was actually higher than the sales in the quarters.
I think it shows that we are not as bad as the -24 looks like, I think.
Okay. Yeah, that's good. Thank you so much.
Thank you.
Thank you, sir. We have no other questions. Ladies and gentlemen, I would like to remind you that if you wish to ask a question, you may press zero one on your telephone keypad. We have another question from Mr. Viktor Westman from Redeye. Sir, please go ahead.
Okay, thank you. I will go ahead then with two questions. Can you discuss the pricing of the MYPro Lines in Assembly Solutions? I remember when you charged SEK 1.5 million for your systems, and now I saw that in your last press release order, the systems cost you $1.5 million. That's a big, big leap there. Can you discuss the pricing in general, what it looks like, if you're increasing it and how, et cetera?
It's difficult to get a fixed price because the composition of the order could look very different from case to case. In general, we're selling to a not very price-sensitive segment, and we haven't lowered the prices. We could say that the value of a combination order is bigger than the single parts, you can say the value for the customer, because we offer more productivity, than if it would be the same kind of stuff with single orders, you can say. This is a benefit that we of course ask a little bit a premium for, as well as offering bigger productivity. I think with that offering, we have a better pricing power than we would have without that. It's difficult to put an average price or a fixed price on that because the composition is so different from case to case.
Okay. I will squeeze in one more question also. You mentioned previously entering new dispensing markets like semicon and automotive in the dispensing, and I'm just wondering how big is this potential investment of yours, and what will it take in terms of boots on the ground, et cetera? How big is your commitment?
That's quite big because we have a leading position in the dispensing market for mobile phone in general in China. To expand that, we need to look into new segments or adjacent segments. As you said, the semiconductor is one, and we already have started to offer equipment now in the semiconductor industry, for that, also based on dispensing, but also some other technologies, which is very adjacent to dispensing and belong to the same process steps. Also serving especially the electric vehicle market or the sub-suppliers to the electric vehicle market, which is very strong in China. Our investment, it's ongoing. It's in the R&D spend that we have. There's nothing more to come on that. It's already happening, I would say, in the kind of run rate of R&D investment that we have.
We believe that when entering these two additional segments, we will open up for an addressable market, which is quite bigger than we already have. We see that as a great opportunity.
Okay. Very good. Thank you.
Thank you, sir. We have no other questions.
Okay. As there seems to be no questions left, we will end the call. Thanks for joining us today, welcome back next quarter.