Micronic reports continued strong sales and growth in profit

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1 PRESS RELEASE 201E Micronic reports continued strong sales and growth in profit Taby, Sweden, July 7, Micronic Laser Systems AB (Stockholm Exchange s "O list": MICR) today presented the Group s Interim Report for January 1 - June 30, Order intake during the first six months of 2006 reached SEK 431 (557) million, of which SEK 83 (329) was booked in the second quarter. Net sales for the first half of 2006 totaled SEK 841 (390) million, of which SEK 464 (160) million was generated in the second quarter. Operating profit for the first six months was SEK 226 (-46) million, including SEK 130 (-55) for the second quarter. Operating profit for the period adjusted for capitalization and amortization of development costs totaled SEK 274 (18) million, of which SEK 155 (-23) million referred to the second quarter. Profit after tax for the first half of 2006 was SEK 162 (-36) million, equal to SEK 4.14 (-0.94) per share. Profit after tax for the second quarter was SEK 94 (-40) million, equal to SEK 2.41 (-1.04) per share. The order backlog at the end of the period was SEK 420 (1,039) million and consisted of systems scheduled to ship during 2006 and The first half of 2006 was characterized by fast-paced shipment of ordered systems. Sales for the first six months, at SEK 841 million, were on par with our expectations. Operating margin adjusted for net capitalized development costs was 33 percent for the first six months of The corresponding rolling 12-month figure is now 31 percent. Gross margin, which was bolstered by the product mix, reached a full 61percent for the first half of the year, says Sven Löfquist, President and CEO of Micronic Laser Systems AB. We are satisfied with our mid-year profit. The postponed order intake, as a result of a weaker display market, is however a major disappointment. The signals we are receiving from customers are in line with our latest assessment of a weak order intake throughout the remainder of Industry analysts expect the industry s overall capacity expansion to remain high in the coming year. In the semiconductor market, we have recognized the sale of two Sigma systems during the period. In the second half of the year we anticipate weaker sales in the third quarter but we stand by the earlier assessment for the full year, concludes Sven Löfquist. Company contact: Agency contact: Sven Lofquist Luz Rodriguez President & CEO The Loomis Group, Inc sven.lofquist@micronic.se rodriguezl@loomisgroup.com Q2 Report 2006, page 1 of 9

2 Second quarter key events Micronic received orders for: - one MP80+ laser pattern generator, designed for a wide range of applications from advanced electronic packaging to displays, from a customer in the US - one Omega6080 laser pattern generator, from a customer in Asia. Micronic has launched the FPS5100 laser pattern generator, a whole new tool for high-volume production of photomasks for advanced electronic packaging, passive matrix LCDs and other large area applications. Key events prior to the second quarter quarter Micronic received orders for: - two systems from the LRS series for production of TFT-LCD display photomasks - one Sigma7500 system for advanced semiconductor applications. Micronic has established a wholly owned subsidiary in South Korea, headquartered in Anyang, near Seoul. The subsidiary will conduct sales, setup and service in the local market, where Micronic has been active for more than 15 years and has over 20 systems installed. Markets and Micronic s products Semiconductors Market analysts forecast IC sales to grow 5-10 percent in 2006 compared with Going forward, continued moderate growth is foreseen at least through The market research company VLSI Research Inc. has raised its forecast for semiconductor equipment sales in 2006 to 23 percent over Semiconductor photomask sales in 2006 are expected to reach about the same level as for 2005, at just over USD 3 billion. The forecast indicates modest growth in the photomask market through 2009 (VLSI Research Inc., January 2006). Consolidations within the photomask industry are continuing, with an increasing shift towards Asia. A total of around 20 semiconductor pattern generators are sold yearly, primarily targeted for advanced IC applications. This created a total semiconductor pattern generator market of approximately USD 200 million in 2005 (based on Gartner Inc. and Micronic data). An ongoing shakeout among pattern generator suppliers is changing the market landscape, a situation from which Micronic has good potential to benefit. Micronic s Sigma7500 pattern generator is focused on advanced applications moving towards production ramp-up, where productivity becomes a driving factor. The tool extends the productivity advantage of Micronic s Sigma systems over e-beam, with significantly lower write times per photomask. So far, four Sigma systems have been installed at leading photomask makers. One Sigma system was accepted by the customer during the second quarter and revenue was recognized. The Omega6000 series pattern generators are targeted at mainstream ICs and image sensors for digital cameras and camera phones. The Omega6800 and Omega6080 products provide productive and reliable solutions for these applications, as well as a replacement path for the aging installed base of pattern generators. Displays After entering a period of overcapacity in the flat panel display (FPD) market, manufacturers in both Taiwan and South Korea have announced plans to postpone construction of new production capacity. Falling FPD prices, primarily for TV applications, are squeezing manufacturer margins but are critical for continued volume growth. The current market situation is also affecting photomask makers and their capacity utilization. Q2 Report 2006, page 2 of 9

3 Despite the recently announced postponements, capacity expansion for the industry as a whole is expected to continue in 2007 at the same pace as earlier. Sales of TFT-LCD equipment are predicted to reach USD 12 billion in 2006 and projections for 2007 vary between USD 11 and 14 billion (DisplaySearch, July, 2006). Multi Purpose Less advanced film photomasks have traditionally been used for electronic packaging applications, but an increasing number of applications require glass photomasks as features shrink and overlay requirements increase. This demands the higher stability and precision achieved by using glass photomasks, which is positive for Micronic. To meet this demand, in June 2006 Micronic launched the FPS5100, a new laser pattern generator for production of advanced electronic packaging and passive matrix LCDs. Manufactured for flexibility, productivity and stability, the FPS5100 is based on Micronic s LRS line of pattern generators, the industry standard for large-area display photomask applications. The new system offers the lowest cost of ownership in its application space, shorter turn-around times and easier production planning for mask makers. Comments on the Group result and financial position Order intake, order backlog and invoiced sales Order intake, consisting of systems, upgrades and service, in the first half of 2006 amounted to SEK 431 (557) million, of which SEK 83 (329) million was booked in the second quarter. In the first half of the year, Micronic received orders for laser pattern generators for manufacturing of advanced photomasks for display, semiconductor and electronic packaging applications. The order backlog, amounting to SEK 420 (1,039) million at the end of the period, consisted of systems scheduled to ship during 2006 and First-half net sales reached SEK 841 (390) million, of which SEK 764 (335) million referred to system sales and the remaining SEK 77 (55) million to aftermarket and service sales. Second quarter sales totaled SEK 464 (160) million, of which 429 (131) million referred to system sales and SEK 35 (29) million to aftermarket and service sales. Sales for the first six months consisted of laser pattern generators for display, semiconductor, electronic packaging and metrology applications. Operating expenses and operating profit Operating profit for the first six months was SEK 226 (-46) million, equal to an operating margin of 27 (-12) percent. For the same period, operating margin adjusted for capitalization and amortization of previously capitalized development costs was 33 (5) percent. Operating profit for the second quarter was SEK 130 (-55) million, equal to an operating margin of 28 (-34) percent. Adjusted operating margin for the second quarter was 33 (-15) percent. Operating expenses in the first six months totaled SEK 615 (436) million, of which cost of goods sold accounted for SEK 331 (199) million. Gross profit was SEK 510 (191) million, equal to a gross margin of 61 (49) percent. Gross profit is charged with direct costs for delivered goods and services, including costs for system setup at customer sites and a standard warrantee period of 12 months. Aside from this, gross profit is charged with certain fixed costs related to the production department. Gross margin for the second quarter was 60 (40) percent. First-half operating profit was charged with R&D costs of SEK 158 (162) million. Actual R&D expenditure for the first half of the year is reported at SEK 110 (97) million. Aside from this, operating profit was charged with SEK 65 (65) million in amortization of previously capitalized development costs. In the first half of 2006, new development projects were capitalized in an amount of SEK 17 (-) million (see also table on page 7). All development projects are assessed individually to determine whether capitalization is appropriate. Amortization of capitalized costs is started when a development project is concluded, at which time it begins to generate revenue. Q2 Report 2006, page 3 of 9

4 Selling expenses in the first half of the year amounted to SEK 73 (57) million, of which SEK 44 (30) million comprised sales commissions. Sales commissions as a percentage of sales have decreased from 8 to 6 percent. Administrative expenses for the same period totaled SEK 44 (32) million. The higher selling and administrative expenses are largely explained by the changed sales structure in Asia, including the establishment of a subsidiary in South Korea. Other income and expenses during the first half of the year are reported at SEK -10 (13) million, and consisted mainly of exchange differences. Other income and expenses also include fair value changes in operating derivatives. Earnings per share Consolidated profit after tax for the first six months was SEK 162 (-37) million. The total number of shares outstanding was 39,166,616. The last warrant program expired on December 31 without any subscription for new shares, whereby the dilution effect was also eliminated. Earnings per share calculated on the average number of shares during the period were SEK 4.14 (-0.94). Capital expenditure The Group s total capital expenditure in the first half of 2006 was SEK 61 (17) million. Investments attributable to capitalization of development costs totaled SEK 17 (-) million. Other investments, amounting to SEK 44 million, refer primarily to the construction of self-made development systems, completion of the Technical Center in Tokyo, as well as computers and other equipment. Investments in self-made development systems amounted to approximately SEK 32 million. Cash flow, liquid funds and financial position Cash and cash equivalents increased from SEK 562 million at year-end 2005 to SEK 763 million at June 30, Consolidated cash flow in the first half of the year was SEK 205 (3) million. Cash flow from operating activities was SEK 296 (56) million. Investing activities in the first half of the year generated a negative cash flow of SEK 61 (17) million, of which SEK 17 (-) million is attributable to capitalization of development costs. Financing activities generated a negative cash flow of SEK 31 (36) million. In the first half of the year, the Group raised new loans in a net amount of SEK 6 million. Liabilities relating to finance leases were reduced by SEK 7 million. ASML has carried out certain development of the SLM technology that will benefit Micronic, for which reason a portion of an advance payment has been refunded according to an agreement between the companies The refund, which was made by Micronic in the first quarter, amounted to SEK 33 million (equal to EUR 3.5 million). Personnel The average number of employees in the Group during the first half of 2006 was 468 (410). The number of the employees in the Group at the end of the reporting period was 498 (423), of whom 383 (334) in Sweden. Parent Company Micronic Laser Systems AB, based in Taby outside Stockholm, is the parent company of the Micronic Group and is responsible for the Group s development and manufacturing activities. The Parent Company s net sales for the first half of 2006 are reported at SEK 816 (352) million. Operating profit for the same period amounted to SEK 278 (15) million and net profit to SEK 200 (10) million. The profit effects of the application of IAS 39 in the Parent Company accounts as of January 1, 2006, are not significant. The Parent Company s cash and cash equivalents at the end of the period totaled SEK 718 (300) million. Capital expenditure in the first half of 2006 amounted to SEK 40 (8) million, of which approximately SEK 32 million referred to the construction of self-made development systems. Q2 Report 2006, page 4 of 9

5 Future outlook A slowing trend in the FPD market towards the end of the second quarter led to overcapacity and inventory buildup. Although several suppliers have postponed planned capacity increases, industry analysts expect the overall rate of investment in 2007 to be on par with the current year. Growth forecasts for the semiconductor industry vary somewhat for the remainder of 2006, but the majority of analysts predict continued stable development. With its high-throughput laser pattern generators, Micronic has good potential to significantly increase its market shares. The Board of Directors assessment for sales for the full year remains unchanged (after the revised assessment of full-year sales that was announced in a press release on June 15, 2006), which means that sales for the full year are expected to reach around SEK 1,500 million. Financial calendar Interim report January September October 19, 2006 Full year report January 26, 2007 Annual General Meeting March 29, 2007 Taby, July 7, 2006 Micronic Laser Systems AB (publ.) The Board of Directors Q2 Report 2006, page 5 of 9

6 Report on Review of Interim Financial Information Introduction We have reviewed the interim financial report of Micronic Laser Systems AB (publ), reg. no , for the period January June The Board of directors is responsible for the preparation and fair presentation of this interim financial information in accordance with IAS 34 and the Annual Accounts Act. Our responsibility is to express a conclusion on this interim financial information based on our review. Scope of Review We conducted our review in accordance with Standard för översiktlig granskning SÖG 2410 Översiktlig granskning av finansiell delårsinformation utförd av företagets valda revisor. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Conclusion Based on our review, nothing has come to our attention that causes us to believe that the accompanying interim financial information does not present fairly, in all material respects, the financial position of the entity as at June 30, 2006, and of its financial performance and its cash flows for the six month period then ended in accordance with IAS 34 and the Annual Accounts Act. Stockholm July 7, 2006 KPMG Bohlins AB Anders Malmeby Authorized Public Accountant Micronic Laser Systems is a Swedish high-tech company engaged in the development, manufacture and marketing of a series of extremely accurate laser pattern generators for the production of photomasks. The technology involved is known as microlithography. Micronic s systems are used by the world s leading electronics companies in the manufacture of television and computer displays, semiconductor circuits and semiconductor packaging components. Micronic is located in Taby, north of Stockholm and currently has subsidiaries in the United States, Japan, South Korea and Taiwan. The company has 498 employees. Micronic maintains a web site at: Q2 Report 2006, page 6 of 9

7 PROFIT AND LOSS ACCOUNTS SEK million Apr-Jun 06 Apr-Jun 05 Jan-Jun 06 Jan-Jun 05 Jan-Dec 05 Rolling 12 months Net sales , ,726.9 Cost of goods sold Gross profit ,013.9 R&D costs Selling expenses Administrative expenses Other income/expenses Operating profit Financial income and expenses Profit/loss after financial items Tax Net profit/loss Earnings/share before dilution, SEK Earnings/share after dilution, SEK Average number of shares before dilution, thousands 39,167 39,167 39,167 39,167 39,167 39,167 Average number of shares after dilution, thousands 39,167 39,307 39,167 39,307 39,307 39,237 CASH FLOW STATEMENTS SEK million Apr-June 06 Apr-June 05 Jan-June 06 Jan-June 05 Jan-Dec 05 Rolling 12 months Cash flow from operating activities before change in working capital Change in working capital Cash flow from operating activities Cash flow from investing activities Cash flow from financing activities Increase/decrease in cash and cash equivalents Opening cash and cash equivalents Exchange rate differences in cash and cash equivalents Closing cash and cash equivalents RESEARCH AND DEVELOPMENT SEK million Apr-Jun 06 Apr-Jun 05 Jan-Jun 06 Jan-Jun 05 Jan-Dec 05 Rolling 12 months R&D expenditure Capitalized development costs Amortization of capitalized development costs Reported R&D costs Q2 Report 2006, page 7 of 9

8 BALANCE SHEETS SEK million ASSETS 30 June, June, Dec, 05 Fixed assets Intangible assets Tangible assets Long-term receivables Deferred tax assets Total fixed assets Current assets Inventories Current receivables Cash and cash equivalents Total current assets 1, ,264.7 Total assets 2, , ,870.8 EQUITY AND LIABILITIES Equity 1, ,025.3 Long-term interest-bearing loans Other long-term interest-bearing liabilities Other long-term liabilities Deferred tax liabilities Short-term interest-bearing liabilities Other liabilities Total liabilities Total equity and liabilities 2, , ,870.8 CHANGES IN EQUITY SEK million Jan-Jun 06 Jan-Jun 05 Jan-Dec 05 Opening equity according to balance sheet 1, Effect of change to IFRS Adjusted equity 1, Changes in translation reserve Changes in hedge reserve Total transactions accounted for in equity 1, Net profit/loss for the year Closing balance 1, ,025.3 KEY FIGURES Jan-Jun 06 Jan-Jun 05 Jan-Dec 05 Gross margin 60.7% 48.9% 54.4% Operating margin 26.8% -11.9% 13.5% Operating margin, adjusted 1) 32.5% 4.7% 22.3% Return on equity 14.7% -4.1% 12.1% Equity/total assets 59.1% 56.0% 54.8% Equity/share before dilution, SEK Average number of employees Capital expenditure, gross Capitalized development expenditure Other fixed assets ) Operating profit/loss adjusted for capitalization and amortization of previously capitalized development expenditure. Q2 Report 2006, page 8 of 9

9 SEGMENT REPORTING SEK million Net sales per Jan-June 06 Jan-June 05 Jan-Dec 05 geographical market Europe USA Asia , ,275.7 Assets, June 30, 2006 Europe USA Asia Assets, June 30, 2005 Europe USA Asia Intangible assets Intangible assets Other fixed assets Other fixed assets Inventories Inventories Current receivables Current receivables Cash and cash equivalents Cash and cash equivalents , ,8 1, Investments, Jan-June 2006 Investments, Jan-June 2005 Intangible assets Intangible assets Tangible fixed assets Tangible fixed assets Additional information This report covers the operations of the Micronic Group, in which the Parent Company accounts for the Group s system sales. The subsidiaries are responsible for service and aftermarket sales in their respective regions, and also support the Parent Company s system sales. Accounting policies This consolidated interim report has been prepared in accordance with IAS 34, Interim Financial Reporting, which is consistent with the requirements in the Swedish Financial Accounting Standards Council s recommendation RR 31, Consolidated Interim Reports. The accounting and valuation standards applied in this interim report are the same as those used in the annual report for As of January 1, 2006, in accordance with RR 32, IAS 39 is applied in the Parent Company accounts instead of in the Group only, as previously. Accounting estimates and assumptions When preparing the financial statements in accordance with IFRS, the Board of Directors is required to make certain estimates and assumptions that affect the application of the company s accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual outcomes may differ from these estimates and assumptions. Forward-looking statements Certain statements in this report are forward-looking and are based on the Board of Directors present expectations and beliefs about future events. Forward-looking information is always associated with risks and uncertainties that can influence the actual outcomes. Q2 Report 2006, page 9 of 9

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