Earnings Call: Q1 2021

Apr 22, 2021

Good morning and warm welcome to Micronics First Quarter 2021. My name is Tobias Bilho and I'm heading Investor Relations. With me today here in Stockholm, I have the Micronic President and CEO, Anders Lindqvist as well as our CFO, Torbjorn Windgard. After presentation, there will be time for questions. I would already now like you to ask you to limit your questions to 2 per person as a start And then get then feel free to get back in line for 2 more new questions after that. We will end at latest 11. And for your information, this session will also be uploaded as an on demand on the web. With that, I'll leave over to Anders. Okay. Thank you very much, Tobias. So Today, we would like to present an agenda looking like this. Of course, talk about the quarter Little bit in short. With the new operating model we have when we run the business through 4 different divisions, we will Go deeper in that as well, and Torbjorn will give you a detailed view on the financials. We will end up with talking about our Strong platform for future growth and then ending with the question and answer session as Tobias just explained. But first talking about what we do at Macronik. So at Macronik, We make it possible for our customers and our partners to develop products based on the latest technology within electronics. And it's therefore that we are saying that together, we are bringing Tomorrow's Electronics to life. If we move into the quarter and the result, you could see that we had a very high relative growth of 75% compared to the same quarter last year. And it's a little bit What I usually call a mathematical effect because it's partly because of the comparative quarter last year was a very strong quarter Very weak sorry, the opposite, very weak quarter. And in this year, we had a very strong quarter On the sales and therefore, of course, the relative growth look very strong. And we had a good Very good sales in the quarter. We had a delivery of 3 mask writers from the PG division, Including high value mask rider being the Praxision 800 Evo. We had a very strong performance in the HV division And also reasonably good performance in the other divisions. Because of the product mix, especially because of the delivery of the high value precision mask right there, the EBIT came out very strong at SEK 4.90 SEK 8,000,000 corresponding to a margin of 39%. But we also had very good performance in the Other divisions and in the former Assembly Solutions divisions, which was the model that we used until April last year, we have made We announced the target last year that we want to reach an EBIT to be above 10% for this year, and we actually recorded an EBIT of 13% in the former Assembly Solution and also all this despite headwind where we had a negative currency effect of SEK 90,000,000 in the sale for sales in the quarter. If you look on the order intake, and here we are comparing to a quarter with a very high order intake last year. The order intake Last year, we had 5 mast writers, and the order intake this quarter was SEK 1,000,000,000, Which is quite a normal number, I would say, and I think it's quite a good number as well. If you say our guidance For this year is to deliver revenue of SEK 3,900,000,000 and then you can see that the order intake of SEK 1,27,000,000 is supporting that quite well. And that is without any display and the high value orders in the Patty Innovators division. But anyway, we had very good orders in the HyFlex division, especially in North America and China. We have two orders of SLX mask writers for the semicon industry in PG, and we have a very good momentum in the High volume business in China driven by the automation trend. And The backlog is then, of course, reduced because of the high sales and the lesser order intake to SEK 1,700,000,000 coming from SEK 2,700,000,000 and consists of at the quarter of 12 mask writers. If we move into the divisional view, and since a year ago, we changed our operating model. Now we drive the business in 4 different divisions in a very decentralized way. And the reason is to get closer to our customers, having a short decision, Making pads and be much quicker on reacting and really realizing the full potential of every business. So starting with the patent generators. So as said, we had very good deliveries, One Precession 800, which is an Evo, which is a high value machine, the first Precession Lite 8 EVO and also 1 SLX machine. So that was a very strong quarter. And of course, It's not possible really in the P and G division to make comparisons between quarters because the deliveries are a little bit up and down all the time. So it needs to be viewed on the On the order intake, we had the 2 XLX machines and that should be compared to 5 mass collectors last year. So of course that The reason behind the decline. On the backlog, it's down to SEK 800,000,000 coming from SEK 1,900,000,000 In that case and in the backlog we have also change in delivery, which is one SLX machine that should have been delivered in the first half of this year that is now moved So the Q3 and in the backlog as of now we have actually 13 system. I said we have 12 systems in the quarter 1, but we also received an order in early April for an SLX machine. So now we have certain systems to be delivered from the backlog in the future. So in the HyFlex division, We see good development and also an improved demand and we see this demand being sequentially improved. So from a low point that was somewhere mid last year, we have seen that quarter by or month by month actually quarter by quarter we have seen And improved demand and this has been especially visible in the U. S. A. And in China. And We also have a very good improvement on the result. When we announced this target of being about 10% in the Assembly Solutions divisions, A lot of that was coming from efficiency measures and we have done a lot of activities to improve cost efficiency in this division. And it has been difficult to see the effect of that because we also had a decline of revenue during last year. But now when revenue start to pick up, again, we clearly see The effect and we are very happy with this improvement. So we recorded an EBIT of SEK 35,000,000 for the quarter, which is equal to 13 Percent margin. And also just compared to the same quarter last year, the order intake is flat, But comparing to the previous quarters, it's actually improving. We and that improvement, as I said, is mainly coming from U. S. And China, and Eastern Europe is If you move into the High Volume division, so this is mainly selling and dispensing equipment and it's Mainly active in the Chinese market. We have a very strong performance. We have a very strong domestic market and domestic market It's China in general in this case. You see that the automation trend that is ongoing in China is Really increasing the confidence in doing investments. The order intake increased by 46% compared to the same quarter last year And we are improving our positions and also gaining share in this market and the growth of sales was 67% And EBIT is following very nicely. So we have 64% up and corresponding to a 24% margin. So I I think we see a very strong continued performance in this high volume division. We are, of course, very happy with that. Then we have a division, Global Technologies, where we currently have Two lines of business and one of this business line is we call it camera module assembly, Which is mainly for the automotive market. And the automotive market has been very slow. So last year was really Bad for this line of business, but we have seen a recent pickup in the automotive business, but still from very low level. We actually also have started to see sales outside of the automotive, as an example, in the drone market Where the same technology is also possible to use. The other line of business is Optoelectronics. And in the quarter, we had a very strong U. S. Market, very much driven by needs in data communication, fueled by 5 gs and cloud investments. So that has been very strong. We are usually very strong in China. It was a little bit slower in Quarter, but it improved towards the end of the quarter actually so that we saw an improvement. Still the result is not very good here. Recorded minus 14% in EBIT, which is actually an improvement from the same quarter last year, but Still not good, of course, and we have actions in the pipe to improve. That should be visible a little bit later this year. Also this division is the one where we have the biggest impact from potential trade conflicts between countries and companies, Of course, which is so far haven't had a major impact, but of course, this is increasing the uncertainty of our business here. If we look a little bit on our long term target, we feel very confident Still with them. So we confirm our long term targets, and one of them is that we should reach sales of SEK 5,000,000,000 And that is not later than the year 2023. We should have a profitability, which is above 15% EBIT over a business cycle. So this is on average in the cycle and a capital structure that is Where the net debt is less than 3 times EBITDA. We are far away from that at the moment. On the short term targets, we confirm them as well and this is this year we want to reach sales of SEK 3,900,000,000 And this SEK 3.9 billion, we have also said and that we said also when we did the guidance the first time that this is in Currency at the currency levels that was existing at the end of 2020 or end December actually 2020. So you can have that in mind also when you want to recalibrate on that one. And another short term target is that this year, During 2021, we should be we want to be above 10% in EBIT margin for the former Assembly Solutions divisions that was called the Business Area Assembly Solution in the past. And we were for the quarter and of course this is really a minimum. So we are very happy to see that we are above this level currently. So with that, I will now hand over to Torbjorn here to go a little bit more in detail on the Financial side. Thank you. Thank you very much, Anders. So in terms of net sales and EBIT margin on a rolling 12 month basis, our net sales rolling 12 months amounted to SEK 4,437,000,000, which was a very good level, and thanks then to this very strong first quarter. The EBIT margin in the Q1 was 39%, and on a rolling 12 month basis, it was 30%. So in addition then to the strong performance from PG, we also see positive margin development from improving performance in HyFlex And also improving in high volume, which already was at a very good level. And as you see here in this graph That aftermarket provides a stable base of recurring revenue for our business and for the group. Looking then at the last year compared to this year, we see then the very strong volume with the effect on patent generators and also from high volume. And the COGS increase we see here is in line with this volume increase. Our R and D investments in Imperial was stable, and we have also seen on the selling side that we have Cost savings from travel restrictions and less industry fares, which in the short perspective, of course, saves costs, but then longer term is can be a challenge, which we try to work around as much as possible under the current circumstances. You all know that we are now presenting the segments in terms of our divisions, which is new then and is related to the organizational change we did last year. We have we see here then the very strong difference and positive difference between last year's Q1 and this year's quarter related to the strong deliveries within patent generators. As Anders have commented on previously, also we are very satisfied to see the improvement on HyFlex and that now it's starting to show All the good actions that has been taken in terms of their performance during last year are now showing in these volumes that we can see here in the first High volume already performing on a good level, also show an improvement year over year. And we are very satisfied to see that Global Technologies come into an improvement compared to what they have done before. And as Anders commented, actions are being implemented in that division to improve performance. And the cost for group functions is at a stable level, all this resulting in a 39% EBIT margin for this quarter. In terms of R and D for Innovation and Growth, we saw a decrease in R and D spending from quarter 1 20. And we always have a stringent approach to our R and D investments in terms of having solid business cases when we do investments here. We also have seen with the The reorganization last year that more responsibility is taken by the divisions in terms of making And we find that, that is a good effect. And we then see the R and D spending decrease, which is not necessarily so the level that We'll find ourselves going forward. It's connected to the amount of R and D investment opportunities we see. Lower levels of capitalization and amortization in the Q1 and then the resulting R and D cost to sales ratio was 11.5%, then a decrease for the 14% compared to the SEK 14.2% last year. We end the quarter with a very strong cash position of a bit more than SEK 1,600,000,000. We had a slight increase in working capital, primarily driven by lower advances from customers, which is a result of the deliveries within the PG division. We also acquired a minority interest in 1 of Subsidiaries within the HV division, and that included then an outflow of SEK 39,000,000. And the net cash position then is SEK 1,400,000,000. So we feel on a very good footing In terms of the active M and A strategy, as part of our growth strategy that we have communicated several times before. And with that, I'd like to give the word back to you, Anders. Okay. Thank you very much. So I will conclude the presentation. So we feel that we have a very good foundations For continued strong performance, we have a solid it remains solid. You could see that the new organization That has now actually been in place than more than a year because the implementation the starting date was April 1 last year. You see that the results are start to come because of the customer centric scalable decentralized organization. And I think it was especially good during the pandemic, which is still out there obviously, but I think we have managed debt In a very good way and very much thanks to the decentralized way of working where we could take fast and good decisions. If you look on the product portfolio, We have a very competitive product portfolio, and we continue to invest to keep it competitive for the future as well. And there's no change in our attitude to this at all. In the growth plan that we have, acquisitions is a part or a part of that, of course. Obviously, we haven't done one in a while now, but it's We are really ready to do it. As Stobrjorn said, we have good funding, good we have the means To do it, of course, but it has to make sense and it has to add value to our business. And of course, being selective in that, It doesn't happen really every day, but this is really something that we have on the radar and it's included in the strategy to grow by meaningful and good acquisitions. And finally, we have a very strong Culture being innovative, dynamic and responsible and customer centric and so which is a very good base for us to deliver the future results. So by that, I feel really that we have a very good position to continue to be successful and continue our Strong performance. So that's ending the part of the presentation. I hand over to Tobias again here. Thank you Anders. And with that, we conclude the presentation and then move over to the Q and A session. So operator, please go ahead. Thank you. And our first question comes from the line of Daniel Djerberg of Handelsbanken. Please go ahead. Your line is now open. Thank you very much. And good morning, gentlemen. Congrats on very solid earnings in the quarter. I had a question on We can talk anything about visibility on the pattern generator, especially on the display side. As You mentioned you had very good order intake on the SLX side, the IC side, while less so in display. And I was thinking if you could With us some of the market dynamics that you see, are there any technology shifts already in the AMOLED or It's more temporary impacts from the OEM, You say, turbulence in Huawei and LG, etcetera, that impacts short term. So how should we think on the Visibility for the display would be great if you can elaborate a bit. Thanks. Okay. Yes, thank you. I Was expecting that, of course, that should happen. So I think first of all, there's no conflict in between SLX and display rights. The semi On the market segment is isolated from the display one. So we could to be successful in the semiconductor mean, unsuccessful in the display. So that is We could be good in both at the same time and the vice versa as well. And we have been very successful, I think, in the semicon Market space with the SLX. I mean, when we launched that machine, we said we should take the majority of orders of the launch and that we have definitely done. So I think But as you say, we haven't seen any orders on the display side for quite some while. And it's important we are quite early in this Value chain in the display industry, if you look from the where the consumer is actually buying panels in the shape of TVs and computers and Smartphones and all that there is a panel maker and there is a mask maker and then there is us selling to the mask maker. So it is Very long, how do you say, investment cycles, very long investment decisions and what we sell today could be used That technology could be seen in the few years in the future. So if we look on the technology trends, we see no difference there really. Still The shift from LCD to AMOLED is still ongoing, and the majority of panels are still LCD. So that shift will go on for some time. We also see that this increase in complexity for displays are also there, still there, no change in that as well as the area of displays and so on. And also new technologies coming in, in forms of micro LED and mini LED Stuff like that. So we don't really see any difference in the drivers long term at all. Could say that the shift from LCD to AMOLED is a little bit slower than it has been. And this is actually due to the success of panels makers where they produce a lot of LCD panels right now because of the big need in the market. That's really driven by consumer behavior. At the moment, we believe that long term that should be a good thing for us because it means that if our customers' customers are profitable, of course, they have a big willingness to invest in future technology. So or at least the Ability to do that and that should be positive for us. So we have not so short answer is that we have not seen any change On the technology side in the market, that should impact demand for our products and no really big change other than usual in the market dynamics on who is doing what and so on. So it's yes, we don't we see You just see that there is For your funnel, so to say, the visibility on your ongoing discussion with the likes of Photronics and so on. So you have the same number of or similar discussions ongoing that you saw like A year back or till you get back or whatever. Yes, I would say that all the major customers have similar or have the long term plans from the customers Or looking the same as they did. And then of course, they can be in different stages in discussions on new equipment and so on, but absolutely. May I have one last question perhaps? And I think we could just perhaps Torbjorn more for For me to understand on the R and D in the former ASI, HyFlex and High Volume, It was down quite much in HiFlex, but up a bit in high volume. So how to think about the R and D Resources, are they, so to say, joined, so they can work for one project and move with the high flexible volume and go to high volume or What is the deviation depending on? You should think about the R and D spending in terms of the divisional taking Possible for their own R and D. I think to a certain extent, there may be some resources, but it's not really much. It's more like the divisions Adapt and review their own business cases for R and D in a clear and accountable fashion. That the group level percentage goes down is not sort of a group centralized planned event. It is In event of the as a consequence of the division's diligent and disciplined approach to R and D Capital to our new organization. Okay. And if you look at the high spec, for example, down 27%, of course, A lot of the some of that is currency, I guess. But was that more of a plan to make it more profitable then or if you can't comment on? Well, the R and D spending and it was absolutely part of all the actions taken to improve the cost structure of the Asia division. Yes, we can confirm that. Okay, thanks. Thank you. Our next question comes from the line of Mikael Lasjen of Carnegie. Please go ahead. Your line is now open. Good morning. Hi. Yes, I have a few questions, but I'll take them 1 by 1. And first of all, can you comment on the component shortage, what you Said in the report and maybe also initially here during the call, I missed a couple of minutes here in the beginning. What is the year? And can you elaborate on those comments? And also, How this relates to the unchanged guidance? Because the start of 2021 is really, really strong and So just I mean a significant slowdown perhaps later on. So if you can elaborate around that? Thanks. So yes, on the component shortage, so yes, that was commented in the report. And for the quarter, There was no impact, I would say, or a very little impact on that. And of course, we are affected in Both ends of this in a way because also Semicon especially and it's also on our customer side. And so but if you look on the supply side, For us, we haven't been we haven't of course, there's a little bit more management with the inventory and Suppliers and so on, but no big impact. If you look forward, we believe that it could have A bigger impact going forward, but we don't force at the moment, we don't really foresee a big change and that is not Part of an unchanged guidance, I think in the guidance you need to remember that we actually peg that to a fixed currency which is Equal to end of December 2020. And so you might want to Recalibrate a little bit depending on that one. But you're right, I mean, we have a good start of the year. And I think I'm very happy with the order intake of a little bit more than SEK 1,000,000,000 in the quarter given that we had on the PG side, we had No large mask writers in that. We're 2 SLXs in that order intake and which is so I think we have a good base for our business, obviously. But on that business, we don't really take an order and turn that around in this short time. So it's But we are confident with the guidance of SEK 3,900,000 that I should add. Okay. Thank you. Our next question comes from the line of Victor Westman of Redeye. Please go ahead. Your line is now open. Thank you, and congratulations on a strong quarter. I want to ask about the growth prospects for the high volume division. And what is the runway there and what do you think the market growth can be here? All right. So we do a lot of things. I think we have been very successful for quite some time in this division. I think we deliver Good performance quarter by quarter in here, and it's now it's more visible also because of the divisional breakdown that you can see. We have been driven very much in the past by the investments in the mobile phone industry and so on, which Also see a lot of technology change, 5 gs being one of them of course. Yes, so on. Going forward, We want to be present in many more segments. We are present now also in semicon with dispensing equipment. We are also present in A segment which is growing very fast and especially in China, which is electrical vehicles or new energy vehicles, it's called in China. And we're trying to expand our applications within dispensing into more market segments to capture growth opportunities. Besides that, we're also expanding geographically. So still the majority of our business is in China, But we are expanding in the countries around obviously and also globally. And we're growing very fast outside of China, but coming from a smaller base. The percent of growth is high, but it's a smaller base, but Rapid growth and end of last year we opened a sales office in Vietnam as an example of that geographical expansion. It come to the market. We are actually taking share in this market. So we are growing faster than market, but we really want to participate in those market segments that is growing fast like new energy or electrical vehicles like semi concrete dispensing and so on. So and our ambition is to grow at least with that market and preferably in Bau, of course. But would you characterize these markets as Supercycle or are there rather long term structural growth trend? I think it depends. They're not the same, all of them. Some of them are short and incentive or intensive, of course. But I think in general there will be always I mean long term trend there is a good this is a good market to be in And then it can be faster and slower in between, of course. Yes. I'm just going to do a quick follow-up on the first Because I anticipated your answers about automotive there. So can you just say what's the timeline to address Automotive dispensing? Yes, we already do have sales automotive dispensing for especially for the new energy vehicles in there. We want of course to address more and more applications as going forward. As a part of growth initiative, I cannot really disclose any timeline for how complete, but I think a good thing with electrical vehicles is there are much more electronics, Much more applications in such a vehicle than another one. And of course, we want to participate as many as possible where it makes sense with our technology. Okay, great. Thank you. Thank you. Our next question comes from the line of Anders Rudolfsen of DNB Markets. Please go ahead. Your line is now open. Yes. Good morning, and congratulations to a great report. Looking into we have been Through the pandemic now for a year, and we can see there is a lot of, so to speak, pent up demand for a number of products out there in different Sectors. So the first question is, do you see anything regarding that in this report? And perhaps If it will be looking ahead. And the other question is perhaps related to that as well, As we can see that China now building up their own, so to speak, high-tech industry and really want to compete with the U. S. And so on, Will that lead to much more interest of your products with less looking to less than 20 22 or later? Thank you. Okay. So first on the pent up demand. So I think you need to split that a little bit in the world, I think, geographically and I think The China business has been good since mid of last year or even early before mid of last year. So I think there is no accumulated demand in that part of the world. And so while we have seen a good increase recently, especially in the U. S, If you take the remaining countries and Europe is actually still slow, especially Eastern Europe. So there's a big difference In between, I don't think it's difficult to say what is kind of a onetime effect of accumulated need and What is sustainable, but I think if you look under the sequential development, I think we have a step by step Improvements, it doesn't really say that it's one good month and that's it. But that is very difficult to say What is what? The other question there about China and the technology, I think it's And the same actually goes for other regions as well. I mean, U. S. And Europe also want to be independent, and we could see parallel supply chains being built up maybe. There's a lot of discussion on the semiconductor side where that should be manufactured and so on. And I would say short term this is or medium term, This should be good for us, of course, the more if we can sell to 3 places instead of 1, of course, that is that should be a benefit for us and including China, of course, and the increased need of Technology. Okay. Thank you. Thank you. Our next question comes from the line of Daniel Durburg of Handelsbanken. Please go ahead. Your line is now open. Thank you, operator. Sorry. Yeah. I had a question on M and A. You highlighted that you have a good Orsted for M and A. And a lot of companies that I cover indicate that pricing, especially on software and Companies with high recurring is quite high right now, ridiculously high more or less. I was Thinking, have you seen a lot of M and A process that has been hurdled or been not been done due to this? And A big problem is it for you? And also the second question would be a question on AS. You have a Target of at least 10% EBIT margin for this year and going forward. I was thinking if this target is Doing any is it a big hurdle for mitigating growth, I would say? Do you need to Back off a lot of procurements due to pricing or is this ambition to be about 10% and that we saw in Q1 here And onwards, more of an internal thing that to do the operations better. Okay. Thank you. Yes, I was thinking about the second question so much, I almost forgot about the first one. So yes, M and A it That's about right and the pricing and so on. Yes, correct. I think it's right. I mean, I've seen in Some very strange or ridiculous price level. We have not jumped off any kind of project because of Pricing yet, I would say. So that has not it has not been the reason for not doing an acquisition in a while actually. So That is one. But we are quite selective and I think we really want to have high performing companies in our portfolio and They are normally a little bit expensive, but I think that is how it should be that the good companies cost a little bit more. But as you say in some markets So some segments, this has been very, very crazy. I think we are more of course, we have different avenues in our M and A strategy On what we want to acquire and so on and it could be technology and so on, but we are mainly looking on the equipment Manufacturers that can complement and increase competitiveness of our portfolio and so on. I think it's a little bit less of craziness on that side. But it has not been a reason for not doing it so far, but it could definitely be of course that you're absolutely right. And then it was about HF, what has really created this improvement in profitability and so on and are we saying no to the market. So now that's not the case. The all the gain and when I communicated this target of 10%, I said that That should be reachable with no change in revenue. Now since I said that the revenue declined actually, so that was One reason for not having it visible in the past, but we have done a lot of efficiency measures and the idea is to deliver as much Sales power and innovation power and market coverage and so on. As before, just do it in a different way and become more scalable to get more leverage in the business and but without jeopardizing anything on innovation Or market coverage and so on. We are saying no to deals, of course, when there is no money in it. I mean, I see that as empty calories in a way, so that doesn't really help, but believe that It should not impact the growth rate, at least not profitable growth rate. So that is that's in the plan to continue to grow our sales. Okay, great. Thank you. Thank you. Our next question comes from the line of Michael Lassian of Carnegie. Please go ahead. Your line is now open. Okay. Hi, again. Yes, I was curious about the high volume results. I noticed that the margin improvement was almost more than 10 percentage points quarter on quarter Well, we're talking about gross margin. So what is the reason behind the gross margin and the strong results? Was this Unusual quarter or just a normal thing and how should we look at the gross margin going forward because it has varied quite a lot in that segment. Yes. That is correct. And there is The majority of business is in China. There's a very high cost pressure, price pressure actually in China. So that is heavy impact on volume, but also our Cost down initiatives are working in parallel on that. So the majority of changes here is customer mix, I would say product and customer mix, maybe more customer mix than product mix where we had at this time before Quite big orders to few customers with of course bigger negotiating power when it comes The prices and the different scope, so it's it will vary with product and customer mix going forward as well, but around these levels, I would say. Okay. Just a follow-up. So when we look at the order backlog Nearly SEK 700,000,000 for high volume. What type of sort of margin is built into that? Is it sort of The run rate the past 12 months, that we should think about fair level or A bit higher even maybe going forward, depending on the mix. Thank you very much for that question. I think, Firstly, we are disclosing the gross margin levels in the backlog, even though it is a very interesting aspect of it that we are that we, of course, ourselves, so keeping track of. I think it's fair to say that due to contractual reasons in the Chinese market, The turnaround of a contract from an IFRS revenue recognition perspective It's a bit longer than the pure sort of building the machine and deliver it aspect. So I think that's an important aspect to bring in. So Part of the realization or the revenue recognition in each quarter comes from orders a couple of months back. That means that the price pressure that Anders is commenting on, That effect is a little bit delayed. So trying to answer us directly on your question at the end, Should we look at higher gross margins? I would not think that, that is something that should build into your forecast. Okay. And I, for this accounting here, what is the reason for that delay? Okay. Yes. So I think maybe not this meeting is the right place to go into the details of IFRS revenue recognition, but it's connected To the change in usage of the equipment from all aspects that are important. So I'm sure you're familiar with the IFRS revenue recognition conditions. Yeah, exactly, but I was just curious about the revenue model that you have in China, if that is different compared to Europe or No, no, no, but the contractual model. Okay, thanks. Thank you. Our next question comes from the line of Victor Westman of Redeye. Please go ahead. Your line is now open. Thank you. Can a question for Torbjorn. Can you help me understand the SEK 32,000,000 in operating income? I was a bit surprised that there was not a negative Currency effect here. So what are those SEK 42,000,000 related to? So I I interpret as you're referring to the other operating income and expenses. And on that line, we have a number of currency effects, which you are correctly relating to. But we also have Contributions in different parts of the world, mainly related to R and D Spending, where we get Local Government Subsidies for R and D Investments. So those are main aspects there. Yes. Okay, great. So that's impact. I'm going to assume those yes. Thank you. So I'm going to assume those are one I have another question also on the EBIT margin. No, you should not sorry, sorry, you should not Assume the other one. Okay. All right. Okay. Thank you so much, Torbjorn. I was Going to ask also one question about the EBIT margin target. It was interesting To read Anders' comments in the report that he was talking about being well above 10% EBIT margin in the AS division Combined. This was the first time I heard or read this actually. So can you say what's The reason behind that what's the reason behind this new optimism? Is there anything that has Changed in terms of long term margin prospects? I can describe the thinking a little bit when we made the That's and I think I explained it at that time why 10%. I always say minimum 10. It means that everything above is better of course. So this is a minimum thing. And The reason why putting it up at the first place was we let we benchmarked to other business, other companies. There is no one really exact like us, but I think we have a lot of peers in a very similar industry with a very similar business model and so on. And we could see that The level of earnings, the EBIT level was higher in these businesses, even higher than 15%, 20%. And then we said, okay, then we should be at least at 10%. Once we are at 10%, of course, we will not be happy with 10%. So it's a kind of a journey Of continuous improvement, of course. And of course, it's easier to be more positive and we now deliver 13 also. So That is part of that, that it's visible that what we actually are doing is paying off and it's not one time items or one time effects In that, it's a good level to be at. But the target is 10, minimum, not 10, but at least 10. Yes. Okay. I'm sorry for squeezing in a last question also. The SLX market, SLX continues to impress us. Is it time to increase the market TAM estimate for SLX? That's difficult. So I think we the SLEX market is partly a replacement market and partly a new Market and I think the analysis we did in the past on the market size was quite wide actually and then also the Assumption on our sales and that, so we have not seen any reasons of change in that. But on the other hand, I mean, The shortage of semiconductor is on every news today of course. And also there is I think a lot of We have also said and the reason why we launched SLX that there is a need of course of less advanced semiconductors as well very much also in the new applications in automotive and so on. So I think we have a good position there, but that was in the assumption when we launched the machine and also estimated our potential in the market. Okay, very good. Thank you so much. Thank you. Thank you. We currently have no further questions. I'll hand back to the speakers for any final remarks. Okay. As there seems to be no questions left, we will then end the call. Thanks for joining today, and welcome back next quarter.