Good morning, ladies and gentlemen, and welcome to the Jenoptik conference call regarding the results of the first nine months, 2022. At this time, all participants have been placed on a listen-only mode. The floor will be open for questions following the presentation. Let me now turn the floor over to your host, Professor. Please go ahead.
Thank you very much, and a very good morning from our end here in lovely sunny Vienna. It's a pleasure to have you with us for our Q3 earnings call. With me today, as always, is our CFO, Hans-Dieter Schumacher, who will guide us through the numbers in more detail. Before I hand over to Hans-Dieter, though, just a quick reminder on the major events that we've seen, in particular in Q3. For us, very important, in Q3, we had a nice groundbreaking ceremony for a new high-tech fab, which we are going to build in Dresden for our semiconductor customers. We're gonna invest a significant amount of money into expanding our production capacity, in particular for the real high-end applications in semiconductor manufacturing.
We were already in Q2, but really at the end of Q2, we managed to close the sale of VINCORION. Great to see that this somewhat lengthy process came to an end in summer, and we're now sort of almost done with it. We have certain factors still going on to do with earn-outs of VINCORION in connection to sale of V VINCORION. We are gonna talk about that later in presentation. By and large, the whole process is now done with us, and so we are on the blackboard, probably the last time wishing a very good luck to our former colleagues of VINCORION.
Not on the page, but this is equally important. We have just very recently actually signed a settlement agreement to end our engagement in a project aiming to automate certain production of e-cars in a factory near Berlin. I think those of you who follow us more closely are aware of what I'm talking about. Again, we have just recently signed a settlement agreement to end our engagement in that project. We have to accept certain discounts versus the original project value, but in return, we got to a point where we can hand over the project as is, as of today, without further claims or liabilities towards our customers. Our customers signed away for any further claims or liability.
The financial impact of that settlement agreement, we have essentially booked in Q3, and we will see that when we talk about the financials in particular and our NPC companies in more detail. We've seen a very strong momentum and an ongoing strong momentum, in particular in the semiconductor equipment business. I know that's always a discussion point in the semiconductor. Obviously it's very important to us. What we can tell at this point already is, at least in our funnel and in our books, semiconductor is still growing very strongly, and indeed is a major driver of the order intake and of course of revenue at the moment. In total, we were able to post strong organic growth of almost 12% of continuing operations.
With that comes a significant increase in profitability on a comparable basis. If you want like for like, excluding certain one-off effects that we had in the prior year to do with the variable purchase price commitment effects in a transaction. Again, those of you who follow us kind of closely will remember there were several million, or actually a significant number of millions in last year's P&L from that one-off effect. To exclude that, we managed to significantly increase our profitability and on a comparative basis of up to now almost 17% EBITDA margin after nine months, which is a very strong EBITDA margin expansion. You all know that Q4 traditionally is most profitable. This leads us to two things.
Firstly, we specify our guidance for the full year in terms of sales. We now do expect the sales to come in in the upper half of the range given in our guidance, which we just increased in summer. Just to remind all of us, we increased guidance in summer to EUR 930 million-EUR 960 million in sales, and we are now saying we expect to come in in the upper half of that corridor. We can fully confirm our EBITDA target for the year, despite the fact that we had certain one-off effects in particular in Q3. We can fully confirm our EBITDA guidance of 18%-18.5%.
With that said, I'll hand over to Hans-Dieter Schumacher, who will explain the numbers in a bit more detail.
Okay, Stefan. Thank you very much. Good morning to all of you from my side as well. Please follow me to the figures of the group for the first nine months concerning the continuing operations. Here you see the order intake on the left side and the order backlog on the right side for the group. We are very happy to report more than 30%, 32.1% increase in order intake for the group. Obviously, mainly driven by the really good running, still good running semi business in Advanced Photonic Solutions, including also Biophotonics life science business. Of course, contributed by the former Jenoptik Medical, because we acquired Berliner Glas Medical and SwissOptic acquisition.
If you take this into account, they contributed EUR 156.1 million from the increase, but it's still then really more than double digits increase in the order intake. Still supporting our outlook for the rest of the year and even the start of the next year. Very promising. Our book-to-bill ratio with 1.27 still very high, taking into account our revenue growth. On the right side, you see that the order backlog even grows more than the order intake by 38%, reaching roughly EUR 750 million, EUR 749.8 million, which is all-time high for this time in the year. It's a really good base for the weeks and months to come.
We are thinking, because we have so huge pressure on our operations people and volume-wise, that we will convert 33% of this into revenue to the year-end. A very promising development. If we then go to the revenue development, you see the EUR 250.7 million in Q3, which is clear above the prior year from EUR 190 million. Totaling to EUR 698 million after nine months, which is an increase of 34.4%.
If we take into account the contribution of Jenoptik Medical and SwissOptic Group at EUR 117.8 million in this figure, it's still an organic growth of 11.9%, which is also double-digit growth, driven by Advanced Photonic Solutions in their core business and in the additional businesses we acquired. The Smart Mobility Solutions is also growing in order intake side and in revenue side. The revenue of the non-photonic portfolio companies is a little bit lower than prior year. The main impact is really the correction we made with the agreement, the damages our customer did claim, which Stefan Traeger just reported to you. If we then go to the next slide, please.
You see the earnings, the EBITA figures and the EBIT figure. Here you see some information on a like-for-like basis. You see 2024 reported. If you compare the reported figure this year, EUR 170.8 million EBITA versus EUR 109.7 million last year, it's only an increase of 7.4%. The margin is coming from 21.1% to now 16.9%. Please remember, together with all of us, that in the prior year we had this one-time effect from the earn-out in connection with the acquisition of TRIOPTICS and INTEROB, including the EUR 25.6 million. You see it here in the lighter green below.
You can see if you take this into account, we have an increase on a like-for-like basis in the EBITA margin from 16.2% or EUR 84.1 million to 16.9% or EUR 117.8 million, which is even more than sales. It's 41% increase in EBITA. This is the underlying profitability of our businesses today. The EBIT is a little bit burned or burdened by the one-off effect in the prior year, but also because of the higher, much higher purchase price allocation impact than in the prior year. They are now EUR 20.4 million compared to EUR 12.8 million in the last year period.
As already mentioned, we assume a little bit more than EUR 27 million at the year-end. Purchase price allocation impact on the EBIT. We made the same calculation here. The reported figure is 7.9% below prior year. The EUR 68.4 million compared to EUR 74.3 million. If you only take the one-off out, the EUR 25.6 million, then it's a 4.5% increase. The EBITDA margin is with 9.8% compared to 9.4%, also better, and we did not correct here the PPA impact. Around 10% EBIT margin, including the higher allocation impact is, as we both think, not so bad after nine months. Our P&L, our income statement, in a little bit more detail. As promised, we delivered.
The gross margin is now better than prior year after nine months with 34.1% compared to 33.3%. As discussed with you, we had at the beginning of the year a little bit pressure on the margin because of price increases on supply, on the supplier side. We did manage it with own price increases and efficiency gains throughout the year. Now we can show you that the gross margin has improved a little bit. This is something which was very important for us to see this development. Functional costs are up, of course, driven by the acquisitions. We added more, much more than 400 people to the organization, which brought a little cost with them.
In addition, we had some projects running in M&A cost spending. All in all, an increase in the functional costs, but less than the revenue increase. This is clear. On the EBITDA, I have already explained financial results. It's a little bit better than prior years. Taking into account, by the way, in the EBIT, below the EBIT, above the EBITDA you see the other operating results which are much less than prior year because of the one-off effects. There you see the impact of the one-off effects I should mention. The EBIT, I have explained. The financial results is a little bit better than prior years.
This is something which has to do with our ability to take out the adjustments for the rating of the bank accounts that we have worked for and cheaper financing costs. We have earnings before tax, even taking into account that in prior year there you see the EUR 25 million. This is close to the EUR 69.4 million of prior year. It's EUR 64.8 million. Now, as already discussed with all of you throughout the last months, our tax rate is now at a, let me say, at a normal level for a German headquartered company with 28.7%.
This has something to do with a regional profit distribution and mainly driven by different tax expenses because we are now utilizing our tax loss carryforward. Meaning, we no longer have tax assets which we can count on. You should now calculate this tax rate for the future for Jenoptik now. This is the key message. Of course, it's an impact on the earnings after taxes and then the earnings per share. By the way, we have for you a calculation taking in the prior year the one-off impact because they have not been tax relevant. We have not paid taxes on this.
If you deduct this in the prior year, it's not 1.12 euro cent per share. Earnings per share is EUR 0.68 compared to the EUR 0.71. It's also there an improvement. Let me say one word to the discontinued operation. It's a disappointing result, the -4.8%, no doubt. That is clear after the first six months when we closed the deal with Vincorion. Vincorion had still a negative EBIT reported, and in addition, in the Q3, we booked now the earn-out adjustment because we see the development of Vincorion, which is very, very poor and disappointing. They are much below their own budget and targets, and we therefore scrap all our expectations that we can get an earn-out this year.
We corrected it by EUR 1.9 million. It's in this minus EUR 4.9 million in combination with the losses after six months. We have the chance to regain it next year if the development at Vincorion is better, and we still have the opportunity to get an earn-out for the next year, which we did not take out of the books. This is the message of this line here. If you then join me please to the next slide. The free cash flow development of the group, and we are coming from the earnings before taxes of the group. You see we have two major impact on the free cash flow development.
This is the increase in working capital because we did some extra buy from our supply chain, so to speak, to be able to deliver and to avoid high prices. Meaning we increased significantly our inventory throughout the first month or nine months of the year. You all know that the Q4 will be an overwhelming quarter with very high revenues and very high profitability and a very high free cash flow. This is the one aspect, and you see it in the line, cash flows from operating investing activities. We also are investing much more than in the prior year. Both the working capital increase and the increasing funding for investment put a little bit pressure on the free cash flow.
Nevertheless, we managed it to be better than prior year with at the continuing operations at EUR 28.4 million compared to EUR 11.1 million. Yes, it's not a huge improvement of in the cash conversion rate, we know this. But it's at least a signal that we already improved it after nine months, and we promise to you that we're safe with that in the quarter four we will be much better in the quarter four. In total, we still are aiming for more than 60% cash conversion rate in the free cash flow for the whole year. We know that the working capital is an issue. We are working on this.
Our working capital ratio is still very high in the investment, so we will see an improvement in the Q4 on this figure. Having said this, I'm happy to hand over again to our CEO, to Stefan, who will lead us through the nine months of our division. Stefan?
Thank you, Hans-Dieter. As always, we're gonna start with our optics business, the Advanced Photonic Solutions division. We've had, again, shown a very positive operational development in the third quarter. We're also very happy with the performance of the acquired businesses, in particular Jenoptik Medical, formerly known as Berliner Glas Medical, and the TRIOPTICS, who contributed almost EUR 180 million to the sales of APS in the first three quarters of the year. Revenue in total is up by more than 50% at APS. If we strip out the acquisition effect, organic revenue growth is still at 18%, which is a very strong result again. It is also a testimony of what we can do operationally.
Our factories and with our people who are really working very hard and managing all the growth that we see in this business. Not only is the sales up, which is of course a result of conversion, order intake that we have seen in the last year, two years actually for that business. Even order intake is still growing, if you want, through the roof. Order intake is up by 43.5%, so yeah, a bit more than 30%. Very strong order intake development. Again, growth organically as well as with the acquired businesses. You do see that order backlog is at an absolute record high level. We have an order backlog which is higher than nine months worth of sales in this business.
That is what leads us to say that at least for the foreseeable future, for say up until somewhere next year, this business is essentially booked out and full with all products. You do see that the EBITDA margin seems to be down from last year. I think again, those of you who follow us for a while are highly aware of the one-time effects that we had last year in the P&L of those businesses that we brought together in the Advanced Photonic Solutions division. Operationally, performance of the business is very strong, and with EUR 123.5 million EBITDA out of the EUR 529 million sales, it posts a very strong margin, which is clearly above city average for that business.
We're very happy with the development in our core optics business, that's for sure. If you follow me on to page number 13, you can see the development of our Smart Mobility Solutions business. Here we're also very happy, in particular with the order intake. Order intake is up 18.4% to now a tad over EUR 100 million after nine months. Good development on the order intake side. You do see that revenue or sales is kind of up by almost 5%, indicating that SMS managed to catch up more and more the sort of the challenges that they had, particularly in the first quarter.
We're now already ahead of last year also in sales, and we do expect the Q4 for our Smart Mobility Solutions to be very strong, both in terms of sales and in terms of profit. We're very confident that we see Smart Mobility compose the growth that we expect from the business at the end of the year. That's more probably even more important, the margin expansion. This is 11.1% margin after nine months. They're well in the corridor of achieving the EBITDA margin that Smart Mobility typically has in sort of.
In the fifth year again, you do know that Q4 is typically the quarter in which smart mobility basically cashed in a lot of, like, the profit from a lot of projects we are running. With that said, if you go to page number 14, you come to the business group that is under pressure, has been for quite a while. I think the stock has its pains, order intake in our non-photonic portfolio companies and the companies that are exposed to the automotive business, namely INTEROB, Hommel-Etamic and Prodomax. Order intake is down. Now, that does vary from business to business and I'm pretty sure we will talk about that a bit more in detail in the Q&A session.
There are subtle key differences between the business activities in the group. Prodomax, our business in North America, actually the division is still going good. We're happy how Prodomax is developing here. At the very moment, at least, we do see growth and margin expansion in Prodomax to close to almost prior crisis levels. Happy with that. On the sort of negative end of the scale is INTEROB, obviously. We're actually very happy that we could sign the settlement agreement. At the end of the day, it's probably better to stop the bleeding by a thousand cuts.
We stop the bleeding here, get out of this project and take the hit now, and going forward, we can build up from a fresh start, if you will. Hommel-Etamic, sort of in the middle here. As a result, you see that EBITDA is actually negative up to nine months. Again, that's just negative due to this hit we took in the third quarter in our IINTEROB business in relation to the project that we ended, project in sort of factory near Berlin. If you take it all together, again, we're very positive about this year. We specify our sales guidance.
We now do expect sales to come in in the upper half of the existing range of EUR 930 million-EUR 960 million. We fully confirm our margin guidance of 18%-18.5% of EBITDA, and obviously, we're well on the way to make our midterm guidance. No question there at this very moment. We're fully behind that midterm guidance as well. We expect development in the rest of the year to be very strong operationally. At least for the first half of next year, we see still very good business. Obviously, you know, hard to predict what happens in H2 of 2023. It's why we're, you know, need to manage 2022.
Again, we do not want to give any sort of guidance on 2022 at this moment. We can say that at least in our semi business in particular, and on some other businesses, we still have a very strong order book, which makes us confident at least for the first half of next year, and then we have to see what the second half is going to bring. With that, thank you very much for your attention. Thanks for being with us today, and we are looking forward to a lot of questions, which I'm sure you will ask.
Thank you very much. Ladies and gentlemen, if you would like to ask a question, please press nine and the star key on your telephone keypad. In case you wish to cancel your question, press nine and the star key again. Please press nine and the star key now to state your question. Our first question comes from Adrian Pehl. Go ahead.
Yes, hi, everybody. Adrian from my side. Couple of questions. First of all, housekeeping here at this point. I didn't see actually that your G&A part was substantially above prior. I was just wondering whether you could provide some insight on what happened here and what should we think of it actually going forward. The same question for other operating expenses, and I didn't mark directly. I just have a little bit of a second check potentially. On that and into the question, could you elaborate a little bit on the foreign exchange impact that you actually had in the quarter?
The third question is, when you were talking actually about Prodomax building the amenities, is this the right time actually to think about disposal of this business at the moment? Maybe could you give us a broader take on what you think in terms of a seller's or buyer's market? Obviously, you also want to engage into M&A to pursue your longer-term targets. Is there any progress there? Thank you.
Yeah, thanks very much, Adrian. We'll just take the last question and deal with the quote, unquote, "housekeeping" on G&A and other operating expenses. In terms of a potential disposal of assets, obviously we cannot sort of comment on particular individual discussions we may or may not have. But with respect to Prodomax, yeah, I mean, in a way, the business is going good, and it helps us. You know, we don't feel under any pressure here to sell it. Why would we? I mean, why would we give it away? If, however, a good offer comes our way, we would certainly talk, and we would certainly be very, very interested.
At this very moment, we are not in, I would say, advanced discussions when it comes to a potential disposal of Prodomax. We also know that, you know, there's only a limited amount of time in which you can call a business non-core. At some point, of course, people might say, "Oh, what's going on?" However, there's some expectation with Prodomax because we kept Prodomax independent all the time, actually. They're always running as a very sort of standalone company. They were always running under the name Prodomax, and we put onto the tag line Prodomax, a little sort of intrusion, the member of the Jenoptik Group. Quite frankly, if we take this off and somebody else puts its part onto the brand, I think nobody at Prodomax would actually care much.
Prodomax, no specific active advanced discussions when it comes to disposal of Prodomax. We are very relaxed in that respect. You also did ask the proverbial M&A question. That's probably the more important question at the moment, because we were always saying that we want to continue on organic growth paths and wanna add businesses to portfolio where it makes sense. Let me just say that at the moment we're maybe a bit more cautious than we have been in the last years, if at all. Quite frankly, also for us, the environment does change. You know, interest rates are rising, and we did leverage the company quite a bit in the past couple of years.
Our focus at the moment is more on deleveraging our balance sheet, on making sure that we stay, say, significantly below three times EBITDA or what, Marco? Or at least definitely below three times EBITDA in terms of debt of the company and we do wanna make sure that we maintain our investment grade in the market. We are looking more to organic than to inorganic growth at the very moment. Again, that doesn't mean that we are not interested in acquiring businesses if and when it makes sense, and more than in the past, I would say, if and when the price is right. Okay. With that, I hand over to Hans-Peter. On the housekeeping items Q&A, I think on the FX effect, we have certain numbers.
We can sort of indicate that. We're not actually disclosing that in a way. I hand over to Hans-Peter. The first question has been on this FX effect in Q3. The second question, what extent has FX effect impacted our other operating expenses?
Yeah. Let me start with the G&A cost, Stefan. The G&A cost has been influenced by the new businesses, by the integration of the businesses. We had to buy IT licenses for the new acquired businesses because we did not get SAP and Microsoft licenses, for example, for hundreds of people. In the new world, you have to buy them, to pay them instead of activating them in the balance sheet and depreciate them. We are now passing them part by part through to the businesses, which should not yet be the case in the Q3 in total. Through the year-end, we will see a better, clearer picture.
The personal cost in the admin has been at the level of prior years, even 0.1 million 100,000 less than prior years. With EUR 8.5 million personal costs in the admin. Of which is EUR 8.5 million instead of EUR 8.6 million personal costs. There you can see that it is a good development in this sense. The operational cost, the other operating income and other operating costs has also been influenced in the Q3. In the comparison in the prior year, we took the earn-out from TRIOPTICS and Interob, as you already mentioned, with more than EUR 7 million in Q3 of them alone.
We took out an accrual in the business for restructuring costs, which equal to close to EUR 4 million, and this we did not do in this year. This is the main driver there. The exchange rate impact is around in total on the top line, and we have the same then on the cost side. It's little bit more than 3.5%. We have now tailwind from the US dollar, the Canadian dollar and the Swiss franc mainly, through the acquisition of SwissOptic, our exposure in Swiss now much higher than in the past. We are taking some extra profits, so to speak, from the development-
From the sales side, yeah.
From the sales side, confirming the development there.
Yeah. Thank you. I think what we're just sort of indicating is that around 3% or so comes from FX effects in the sales side, but we also have obviously FX effects on operating costs and stuff. That's, you know, in a way as well. Okay. Thanks very much.
Thank you.
The next question comes from Michael Kuhn. Please go ahead.
Gentlemen, a few from my side, mostly follow-ups, I would say. First, once again, let's take on the underlying development. If you look at Advanced Photonic Solutions and strip out the consolidation effect, could you tell us what the underlying margin development for APS was over the year? All three numbers, let's say. Maybe the same again for underlying cost inflation. Obviously, you mentioned administrative costs down year over year, but let's say if you look at overall costs, what do you see there right now and do you see signs of rising inflation into next year? Okay. Second one on the strategic update.
Obviously, you mentioned strong order intake and backlogs, and also mentioned that the question mark is the second half of 2023. Are there any early conversations you have with your clients about this timeframe and what would you say you anticipate into the second half of next year and maybe beyond in terms of client behavior? Then, the last question on the settlement costs for the project in the Berliner Glas building. Have you specifically quantified them? Maybe I missed it, or can you quantify them? That would be helpful. Thank you.
Thank you very much. I can take the last one first 'cause that's relatively easy. We can quantify it, but we cannot disclose that because we have an NDA, so we cannot talk about it. But it's sort of, let's say, a mid-single-digit EUR million figure. And that's probably further than I should do anyway. But it's a significant number, but as I say, we cannot disclose details for NDA reasons. The first question has been sort of stripping out the extraordinary effects. I think, again, if you go to page number 12 of our presentation, you can see the number.
The prior year effect after nine months of this one-time more, from a point of view of the payment that we had last year, some additional one-off booking has been EUR 25.6. Now, I realize it probably asks actually if you can strip out the profitability of or the profit of Jenoptik Medical and SwissOptic out of the out SwissOptic rather out of 2023. Here I sort of need to disappoint you again, we cannot disclose that number. Sort of indicatively, it's not as if Berliner Glas and SwissOptic is higher than the average of APS. That shows that the underlying business continues to be very profitable.
Your last for client behavior, obviously that's in a way not quite easy to ask and also to answer. Because I mean, as you know, it's a lot of crystal ball at the moment going on. We do see very different reactions in the different marketplaces. In the core semi business, which is I think what you ask, one in particular, our biggest customer here, is continuing to push us for more delivery. I think that to a large extent is due to the fact that, you know, the backlog of our very, very important customer is a public one. You can. It's a public figure. You can look it up. Everybody can look it up.
They have, I mean, a unbelievable high order backlog, which does force our customer to push us for building capacity, making sure that as much as we possibly can, we can deliver more into the Netherlands. Now, you know, anything beyond nine months or so, then it really becomes, you know, crystal ball trying to explain or understand or more speculative, which is always a tough thing to do. From my personal perspective, I mean, that's really just our gut feeling here. I mean, there is a piece of data going on, whether it's in the U.S., China and all the discussion about China, impacts our business going into the future. We don't see that much.
Actually, in a way, we see the opposite because, you know, as bad as it is, but if home-shoring is really a big trend, and it clearly is a trend, you know, the U.S. shifting designs back to European chips back and all of that points into that direction, then it means that, you know, even more machines are needed to fill all the factories that are currently being built in the Western Hemisphere, and that's positive as well. I hope that gives you at least an indication. We have a clear picture until next summer, and let's see what the second half of this year brings. At the moment, I do not have any indications that we have a slowdown, yeah.
The next question comes from MMalte Schaumann . Please go ahead.
Yeah. Good morning, guys. The first one is on the order intake after the last one. Maybe a bit more diversified picture for this team. So I mean, when you talked last in August, I think you mentioned that it was a bit slower, but with some semi products, the order intake dynamic was a bit slower. So maybe you can elaborate on that as well. Maybe then secondly is that do you see other trends, maybe more consumer-oriented, like lifestyle applications, hair removal, and kind of stuff where your customers potentially become a bit more cautious or is everything pretty on a pretty good level so far still in the second half?
Mm-hmm. No, you're you put your finger in the right sort of points in the business, I guess. Yeah. You're right in poking in those the right. Your TRIOPTICS order intake is somewhat slower because, yeah, you mentioned it because it's exposure to more to the consumer business. It's not as if it's falling off a cliff here in any way, shape, or form. It's still going good, but it's not from order intake perspective, the dynamic became somewhat weaker, obviously. So again, TRIOPTICS, not to worry anybody too much. It's not as if TRIOPTICS is becoming a problem child here. But you know, it is the dynamic in the order intake has slowed down somewhat. There is still a very high order backlog which the guys need to plow through.
Again, in the order intake side, it's becoming somewhat weaker. We do see the effect in the medical business, even more. You will remember what we have had when COVID hit, that, you know, medical downturn was very quick and very fast and very deep. Not quite as dramatic, but it is visible. The medical business and laser bar business for hair removal applications and tattoo removal applications and similar aesthetic procedures, we do see quite a significant slowdown, actually. At the moment, obviously, you know, people. There was quite some overordering going on coming out of COVID, and now people go on breaks again. Those are the particular areas where we see in APS a slowdown, and that's offset, more than offset by the continuing strong growth in semiconductor.
Okay. In these areas, do you have a high order backlog or is it kind of a more neutral with certain areas apart from under your presentation?
Yeah. Yes, in both cases. Yes, definitely in TRIOPTICS, we still have a high order backlog. We also have a high order backlog still or a significant order backlog in Medical. I can't really quantify it at the moment off the top of my head. Medical sells so intuitively because it's a high fast turning business in a way. I think they still have a good backlog. I don't think we will run into any, you know, underutilization in the factory in the next couple of months. We'll have to see how that develops in the first half of next year. For this year, they still have enough order backlog and for next year we need to see.
Okay. Fair enough. I'll follow up on the NDA cost. I understand that you had some kind of a run off in the fourth quarter. Should we then specifically think about the fourth quarter? Was it then kind of like 16 point something rather than 21.2% or was it really season over because you kind of pulled in four of them to the fourth quarter?
It will be on the level like in 2021 and 2026. Yeah. It should level off actually. Yep.
Okay. My last question would be on component shortage, supply chain. Is there anything new you are seeing that potentially blocks a few players or whatever?
Not necessarily. I'm actually in like maybe a better position to answer that. I think the grip shifted somewhat on supply chain to installation at customer. In particular in China, that's, you know, for like, because as in TRIOPTICS, that's an issue, you know, that, you know, we have to ship the basic machines to China, and then they need to be installed, and we have our service folks there installing it. Of course, if they run into lockdowns again and again, then we cannot sell to the customers. I mean, I don't even have to mention Foxconn here, but we're all aware of that. If there
To me, the bigger risk for our sales guidance for the year, the last couple of weeks that are left, it's less on the supply chain, more on the, you know, are we able to commission the product, install, train the customer, get the acceptance certificate signed so that we can actually revenue recognize under IFRS, in particular in China. I think that's the biggest risk we have at the moment.
Yeah. Mm-hmm.
Okay. Thanks.
Next question comes from Luca. Please go ahead.
Hi, good morning. This will be a bit short for me. Please correct me if I'm wrong, but if I'm in Advanced Photonic Solutions, I'm just picking up the order intake that you've got in from the medical. From this aspect, it looks like underlying order intake declined in Q3. Please correct me if that's incorrect. If that is the case, what's the reason for that? The second question, the margin profitability in Q3 was much, much better. Is there anything particular behind that or is that just the normal lumpiness of the nature of the business? The final question is, you mentioned that you're being pushed by your strategic customer incentives for more delivery.
Again, are you worried about ending up with excess capacity in this market as the cycle turns also for that customer or are you fairly relaxed on that front?
That's on the first one, organic order intake Q3, I think for APS still has been positive in total. Q3, I think still has been positive. We're double-checking it, as we speak here. Again, I think it should be still a slightly positive number in terms of order intake in Q3. I will say, though, that I'm not quite sure actually on Q3. Let's double-check on this. You're talking specifically about the isolated quarter. Let me double-check on that, to make sure we're not giving you a wrong number here. Overall though, I mean, of course, the dynamic in order intake for the business has slowed down and will slow down in the coming months simply because the comparative becomes more and more challenging, right?
I mean, the Q3, Q4, even Q1, Q2 last year, order intake for this business has been so strong that the comparator, so to grow versus those strong order intake in Q4 in particular for APS could be quite a challenge. We will get closer over the next months. The order intake in APS will get closer and closer organically to last year's figure, and at some point, month-over-month, the dynamic slows down, that's for sure. Again, folks, that is tracking here the isolated Q3 number.
The intake is coming from TRIOPTICS, which is in the APS business.
Oh, right.
Less order intake than entire year, a much less order intake. This equals to APS below.
Yeah.
It's not driven by TRIOPTICS.
It's by TRIOPTICS.
By TRIOPTICS.
Okay.
Okay. Yeah.
That's yeah. Yeah.
They're also a business issue.
Yeah, your calculation is correct. Again, I mean, it does show that, you know, we had such a high order intake, particularly in Q4 last year. I mean, it's too early to call it Q4 here, but I would personally say, I mean, Q4 last year was phenomenally high in terms of order intake. To beat that one more time in Q4 this year will be a challenge. In terms of margin, SMS, I don't think there was any particular. I'm looking to see here. You have any particular development Q3 margin SMS?
No.
No, I don't think so.
No.
No.
We had a good development in Q3 standalone like always. Q4 because they finished projects and
Yeah.
the final calculations as you speak.
Yeah. In terms of like versus last year, the first nine months, I mean, basically almost like at the same level of book-to-bill. Now, of course, the million-dollar question, you know, what the customers and to what extent are we fairly relaxed or not? I mean, I think the first and most important statement is we are never relaxed about things like that. We shouldn't be relaxed about it. There's also no point in panicking, because again, there is a lot of good reasons to believe what our customers are telling us, and they are saying that there is no end in sight, if you want, and driven by all the things that, for example, ASML, but also the other customers in semi area are discussing with you all the time.
You know, things about the impact of ever more chips being digitization basically in our everyday life, and things about the struggle about home-shoring, and new businesses, already mentioned USD decline back then the European impact. At least in the foreseeable future, we don't see any sort of major downturn here. Of course, it's hard to discuss and hard to foresee what in 2025. It's hard to say. For now, again, in the semi business, one is always on the go. That's the nature of semi. You know, you need to run fast to stand still, basically. Yeah, we don't see any particular major negative trends coming our way, at least in the foreseeable future.
I hope that at least sort of answers your question, at least as much as we possibly can at the moment.
No, that's fine. Thank you.
The next question comes from Martin Jungfleisch. Please go ahead.
Yeah. Good morning. Thank you. My questions are two, please. The first one is on costs and advances a bit. To my knowledge, the negotiations with the IT employees have not been concluded yet. There are also some power strikes this week, and we could see a system wage hike, as demanded by the unions, will go through. How would that impact your planning for further margin in next year? And what do you expect to be the extent of the pass on those costs to your customers also in light of the competitive environment? And the second question is maybe on the Non-Photonic investments. If you could provide the update here on progress of investments. Prodomax, I think you already discussed. Prodomax is not the other one. Yeah. Thank you.
The first question, you know, the standard line of any board member in these days is and has to be, we will not comment on ongoing tariff discussions between the unions and the management. We will not comment on that. In our planning, we made a certain assumption. We're building our budget at the moment for next year. We do make certain assumptions that here as well we probably not discuss that. And as I say, we cannot comment on the ongoing negotiations for the tariff agreement. On the non-photonic, so yeah, when it comes to Intop, we are in discussions. Nothing where we are very close to signing a deal.
I think that, and I hope that the settlement agreement that we just achieved, and again, we cannot disclose all the terms of this agreement, but essentially the important part of the sentence I used has been that the customers waived any sort of claims and liabilities. I think it, of course, is okay, and it should make any discussions about Intop a bit easier whether we, you know, somebody else is interested in acquiring this business or we can use it for other purposes or whatever. Yeah. I think first things first, we now signed this agreement, which is a big relief in those discussions.
If maybe I can support for the first question a little bit. As you already mentioned, our high order backlog for the first month in the next year. At the moment, we are looking into a year with growth next year as well and the profitability. We will be able to contemplate the increase in the cost base. This we can already say, yeah. Because we will pass it at least partially through with our price increases, and we will gain from our efficiency progresses. So in our planning status at the moment, we are optimistic that we can look into a good, you know, into another good year under this aspect at least.
For all legal purposes, this is not meant to be a guidance for next year.
That is clear. I didn't give any figures. I said it's overall, you know.
We will see further margins.
Yeah.
That is what I indicated.
All right. Sounds good. Thank you.
Yeah.
The next question comes from Craig Abbott. Please go ahead.
Craig.
Hi. Good midday, everyone. I have many questions for you, please. First of all, getting back to the Advanced Photonic Solutions division, both APS and matter of fact, Industrial Metrology, please. Your earlier comment regarding the slowing in medical, I just want to make sure it's clear. Are we talking only about the legacy other activities or also BG Medical?
Thanks for that question.
Oh, if you wanna answer that first, and I'll go to my remaining two. Thanks.
Yeah. Thank you very much for that question, Craig. Thank you very much, actually. Yes. It's only the legacy business, not the BG Medical. Thank you for helping me to clarify that.
Thank you. Quite important, I think. Okay. On the TRIOPTICS, I mean, clearly now everyone can see obviously that this book-to-bill only equal to one, although you don't, you know, disclose the ticket per se. At this stage, obviously that would suggest at least a modest decline in revenue perhaps in 2023. On that kind of basis, I mean, are you concerned about, you know, how severe an impact that might be on the margin in that instance?
Thank you.
That's okay. I have one more remaining. Thanks.
Okay. I take the second one. Yeah. There are below one in terms of book-to-bill. The task of that business is going to be to get orders now for the next year, for 2023. I mean, at this moment, again, we're always concerned and always under pressure or whatever, however you wanna call that. At this moment, there's nothing where we are saying, "Oh my God, it's very sort of severe," because it's been set up as order backlog. We are managing it very closely at the moment. I think that's probably the best way to describe it.
Thank you. My final question is just, bearing in mind your earlier comments about your focus now is very much on free cash flow. I just wondered, and I know this is obviously, you know, quite early days because you haven't even released your full numbers, but just directionally, how might this or might this not impact your dividend payout policy? Thank you.
Too early to tell.
Okay. Got it. Okay.
All right. Thank you.
The next question comes from Peter Rottensteiner . Please go ahead.
Yes. Thank you very much. Firstly on the pricing situation in the semiconductor business, particularly with your big customer, you mentioned that you are also able to pass on higher prices or higher costs. To what extent has this already been reflected in, let's say, how this entered your quarter and with upside potential, what this means for the upcoming quarter?
Look, I mean, I just hope that the colleagues in the Netherlands are not dialed into this call here. Oh, my God. Obviously I cannot disclose the details of that relationship. Again, I will be absolutely clear or let you be absolutely clear, the relationship in particular with ASML, very good, very strong, very professional. Let's be also very clear. It's not a walk in the park with ASML, okay? It's a tough customer. In a way, I think it's as they should, you know. It's tough with them. It's not as if we have a coffee every now and again, and that's it. We have tough negotiations, tough discussions with them.
Let me just leave it there. We have reflected that in our models and in our figures. We wanna make clear though that the semiconductor is not only ASML. We also have other customers in the semiconductor arena. They are very, very important. You know, Applied Materials is the biggest semiconductor company in the world. KLA Corporation are very important customer of ours, are also very, very important. We try our best to help all of these customers simultaneously in their quest to build more capacity for the whole industry. Obviously they help us to digest the margin impact of us coming all the way higher cost than in the past.
Just allow me to leave it there, please.
Mm-hmm. Okay. Regarding Smart Mobility, how would you consider here the order pipeline? Something big coming up again, yeah.
Yeah. Not a tender or project that's as big as those ones that we have typically published in the past. At the moment, I'm not aware of a major mid-single digit million EUR projects and the like, but nothing like Toll Collect or the famous North American deal where we had multiple tens of millions EUR coming our way over years. At the moment, it's more like steady business as usual.
That makes sense. Yeah. The last point, actually on expectations for your financial results. To what extent will you be affected by the strong rise in interest rates? Do we have to expect here for the upcoming years strong future increase in the financial results?
I mean, Hans-Dieter Schumacher is better positioned to answer that, but just in principle, I think we have a good coverage in terms of security.
Security.
Yeah, we have security. Exactly.
Yeah.
We have certain caps in our lines and fixed interest rates. There's a mix of fixed and variable interest rates, and the fixed interest rate is to some extent also and the variable interest rates are capped. I think that's pretty clear.
Yeah.
We can discuss more than that.
The percentage of the fixed interest rate is much higher than the variable ones. The variable ones we have because we want to pay back in debt. Yeah. Therefore it doesn't make sense to make interest.
Yeah.
swaps for our businesses on top of it. By the way, in the first nine months of this year, we already paid back a significant amount of debt.
Yeah.
This is how we handle this. I don't see a huge impact coming from the increased interest.
Maybe just to indicate again, Peter, we sort of mentioned that earlier, it's our aim to be sort of between two and three times EBITDA, when it comes to debt to EBITDA.
Mm-hmm.
We think it's a level of debt. We wanna be a bit surely and certainly below three at the end of this year already.
Okay. Thank you.
Okay. At the moment there seem to be no further questions. If you would like to take another question, please press nine and star key on your telephone again. Let's just wait a couple more seconds. Okay, we have another question. It comes from Richard Schramm. Please go ahead.
Yes. Gentlemen, just a very quick clarification on this case. The reason why you have gone out of this project, was it technical reason? Was it just bad calculation and you saw that you're not getting the contract? Thanks?
I have a tendency to say I directly just take that question. Look, I mean, I think what we just closed in the past already and aside from not disclosing anything that's not in public domain already, the execution of this project is very challenging. We have seen, let's say, fluctuations in key parameters from a technical perspective. Now one could say, "Okay, that's bad project management," because if you have a good project management and you have contract up front and you don't see feature creep. Did I just say feature creep? I'm not quite sure if it's that bad, but if it's that bad, I shouldn't have said it. We do see. The execution of this project has been very challenging right from the get-go.
That led to this project being significantly under the waterline when it comes to profitability. We were bleeding there big time. At the end of the day, we are really glad that we managed to get out of it.
Okay. That's really the only project of this kind in the portfolio at the moment, or in the backlog of this company?
Of that. I don't know other comparable projects.
Okay.
No, no. Just not of this size. I mean, we have lots of projects in the company and I just don't know every individual project of the business. But in terms of major projects that we would discuss here in to get around, no, that's the only one that I'm aware of.
Okay. Thank you.
Okay. We did not receive any further questions, so let me hand back over to your host for concluding remarks.
Yeah, thank you very, very much. Thanks for being with us today. Again, I think, we are performing well in a challenging environment. It's not as if we're completely decoupled from what's going on out there, but I think overall we have shown once more that we have a fairly resilient business actually. That is to do with our business model, and it is to do with the markets we're serving. We're lucky enough to be by and large in markets that show resilience against the crisis. In some markets, we're actually even seeing tailwinds because of geopolitical developments, you know, just to name the home-shoring in the semiconductor environment. Overall, despite the fact that, you know, the world becomes a bit tougher, we are well on the way.
We've just re-specified our guidance to the upper end of the corridor in terms of sales, and we can fully confirm our guidance in terms of profit. At least for the first half of next year, we are very confident that we will see also very strong business. That said, thank you very much for your questions. Thanks for being with us today and we're looking forward to seeing many of you in individual roadshows in the next couple of weeks. Thanks. Thanks very much.