Good morning, ladies and gentlemen, and welcome to the Jenoptik conference call regarding the results of the first quarter, 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, Leslie Iltgen.
Thank you, and a warm welcome to our conference call on the Q1 2022 results. My name is Leslie Iltgen, Head of Investor Relations at Jenoptik. With us today are CEO, Dr. Stefan Traeger, and our CFO, Hans-Dieter Schumacher. Dr. Traeger will point you to the key highlights of our Q1 results. Mr. Schumacher will then cover the financials in more depth. As always, both will be happy to answer any questions you may have in our Q&A session at the end of this call. Also, let me remind you that this call will be recorded. The replay will be available on our investor relations website after this call. Before I hand over, please also pay attention to our usual disclaimer that you will find in the presentation. It is now my pleasure to hand over to our CEO, Stefan Traeger. Please go ahead, Stefan.
Leslie, thanks so much, and a very warm welcome from my end as well, to all of you in the call here. First quarter of 2022 for Jenoptik has been characterized by a very strong growth pattern. Our order intake grew by almost 30%, driven, of course, by an extremely strong demand in the semiconductor industry, where we are a critical supplier. Despite all the challenges in supply chain that we all talk about all the time, we managed to grow our sales by almost 40%. We take out the acquisition effects, our organic growth, that's something I'm particularly proud of. Our organic growth amounts to almost 17% in the first quarter of 2022, which I believe is a very strong number, very strong growth figure. We managed to expand our margins.
Our operating profit margins, we take out certain, in particular, one-off effects from prior year in connection with a PPA purchase price component of an acquisition that we've made in the past. If you take that out, our organic operating profit margin expanded by 70 basis points to 10.1% of sales in terms of EBITDA margin, which I believe is a very strong development. Also, given the fact that we had quite a lot of expenses actually in connection with the acquisition that we've made at the end of last year and the efforts to integrate those new businesses. Not only has the first quarter been characterized by very strong growth patterns and growing of our top line, we've also operationally and strategically made ways forward in changing the company.
Just recently, we have revitalized the Hommel Etamic brand. Since a few days back, we've actually now operating our industrial metrology business under its brand name, Hommel Etamic, and we launched that or relaunched actually that brand at Control show in Stuttgart. We've now formed a new business group, non-photonic portfolio company. We've merged Light & Optics and Light & Production, and we've carved out those businesses which are operating under its own brand name going forward. If you follow me on page number four, we've tried to make that transition on our operating setup a bit more easy to understand. Basically, as you can see on page number four, Light & Optics and Light & Production have been merged together into Advanced Photonic Solutions.
Out of the old Light & Production business, a mid-single-digit sales number in the first quarter goes into the Advanced Photonic Solutions. The remaining business is now operating within the business group, Non-Photonic Portfolio Companies, under its own brand name, namely Prodomax and Five Lakes in North America, INTEROB in Spain, and Hommel Etamic in Germany and in France and a couple of other places here in Europe. Within the Advanced Photonic Solutions business, we also have consolidation effects from the acquisition we've made. We're very proud of the fact that Berliner Glas and SwissOptic, the former Berliner Glas Group, is now forming a good part and contributing nicely to our success in the Advanced Photonic Solutions business.
About EUR 33 million of the EUR 157.1 million in the first quarter that Advanced Photonic Solutions managed to post, the sales are actually from the acquired companies. If you take that out and go back to the organic growth rates, organic growth, in particular in our optics business, is really strong. We're, again, very pleased with that, in particular, given the fact that, you know, we're all talking about those supply chain challenges. We manage it. We manage to convert what's a very strong order intake into good sales growth. Again, sales growth in the first quarter, almost 40%, despite all these challenges, and organically, almost 17%, I think is a very strong figure.
I'm glad to hand over to Hans-Dieter, who will now talk us through the numbers in a bit more detail. Thank you very much. Hans-Dieter, over to you.
Yeah. Thank you so much, Stefan, and a warm welcome from my side as well to you.
Please follow me on page number six here. You see the order intake and the order backlog for the group, the continued businesses, in the first quarter in comparison to prior year. You see, as already mentioned, a strong increase, a strong growth in both figures, setting a very good stage for our further growth throughout the year, the rest of the year. Resulting in nearly 30%, 29.5% order intake growth. Taking the first consolidation impact from Berliner Glas with optics acquisition out, it's still around about 12%. It's 11.8%. The Advanced Photonic Solutions division has realized a very significant increase in order intake.
The book-to-bill of the group is 1.49, which clearly indicates a good situation because we had also a revenue increase you will see in a minute. The order backlog compared to the year-end is rising to EUR 641.9 million, with 18.1% above the year-end figure, which includes already the order backlog from the acquisitions at this time because we consolidated them. It's a very strong and very good and solid base for the rest of the year and the months to come. We anticipate at the moment 78%, roughly 77.7%, to be converted into revenue throughout the rest of the year. As already mentioned, a solid base for the rest of the year.
If you then follow me please to the next page seven. You see our revenue increased by nearly roughly 40%, 38.5%, including the acquisitions, taking them out, as already mentioned from our CEO, a very strong organic growth of 16.6%. The Advanced Photonic Solutions division grew significantly. The reasons already explained by Stefan. The revenue of the Smart Mobility Solutions division was also above the prior year figure. A good start for this business in the year, whereas the revenue of the non-photonic portfolio companies has been a little bit below prior year. A good start in the main and the core businesses of Jenoptik. If you then follow me to the page eight, you see the earnings figures, EBITDA and EBIT.
You see it clearly above prior year level, and this in spite of higher costs around integration of acquisitions which are happening. You should not forget the higher material prices which we are facing. This is all obviously in the figures. The EBITDA increases by 27.3% to EUR 21 million, which is equaling to the 10.1% EBITDA margin Stefan already mentioned, taking in the prior year, the EUR 2.4 million positive earn-out impact from INTEROB acquisition out. The comparable of prior year is 9.4%, which is the 70 basis points improvement Stefan already mentioned.
It's from our point of view, it's a good start in this not so easy a year at the moment with the Ukraine-Russia conflict or war close to the doors of Europe and the ongoing COVID restrictions in China, in Shanghai. We are quite happy with these figures. Please don't forget, Jenoptik is always starting, performance-wise, with weaker results and cash flows in the beginning of a year. The first quarters are always the quarter for Jenoptik to prepare for the rally in the second half of the year with high margins and strong cash flows. This will happen in this year again.
The EBIT figure goes up by 9.6%, equaling EUR 4.7 million in absolute figures compared to EUR 4.3 million a quarter a year ago in Q1. Yes, we have a higher depreciation and amortization coming from the acquisitions. Yes, we had purchase price allocation effects, but still black figure, yeah, and a margin of 2.3%, not so far away from the prior year. For us, a good start as expected for the Q1. If you then follow me to page nine, you see our P&L a little bit more in detail. Let me highlight first the gross margin. The gross margin was impacted by higher material and personnel costs, no doubt.
We are on our way with our teams from sales departments, operations, purchase, and with our customers to start to pass through some of these effects in the months to come. Yeah, we are in discussions because we have long-lasting relationships where we can't pass it directly through, but it will happen throughout the weeks to come. The functional costs are increasing from EUR 45.8 million to EUR 54.9 million because of the acquisitions, mainly driven by the acquisitions. If you take the percentage of sales of the functional costs, it's an improvement from around 20% to 18.7%. The relatively increase of functional costs is quite under control and showing in the right direction.
We have these extraordinary impact in the year 2021 and Q1 in the other operating results, where you see the EUR 2.4 million in the last year from INTEROB position. This is the main reason for the deviation. All in all, it ends up as an earnings before tax of EUR 4.2 million. As already stated when we had last time the occasion to cast together that our tax rate will increase throughout the year. As we have activated nearly all the carried forward losses, now the tax rate is 27.3% compared to prior year. This is the reason why the earnings after tax is a little bit below prior year, still black figure.
No reason to worry so much as we see it actually in our share price. We can't follow this logic, to be honest to all of you. Yeah. If I then see on page 10, the cash flow statement of the group, you see that even facing the challenges started by the Russia-Ukraine conflict from the supply chain side, we definitely increased our inventories to be able to deliver to our customers the goods they wish and to prepare ourselves for the increasing deliveries in the months in front of us, ahead of us. Taking this into account, our working capital is increasing, but all in all, the cash flow from operating activities is more or less in line with the prior year. It's a little bit below.
Why is the free cash flow below prior year significantly more? It's because we started to invest. It's a wish of our customer. It's a wish of our operational people to have more means to deliver. We started our investments in the new fab at Wetzlar. You all know about it. We started investments with the acquisition around former Berliner Glas Medical in Berlin. They have to move out from ASML. Our investments are increasing to EUR 25 million compared to EUR 8.6 million prior year. In the cash flow from our investing activities, you see the most deviation compared to prior year. That's the reason why the free cash flow is a little bit below prior year.
Be sure that the free cash flow will improve throughout the months to come. We have an eye on it, and this is very much in line for us for the start in the year 2022. Having said this, I'm happy to hand over again to our CEO, Stefan, who will go with you then into more details concerning the development of our divisions in the first quarter. Having said this, Stefan, it's your stage again.
Thank you very much. Thanks very much. Let's go to page 12, starting with Advanced Photonic Solutions. Again, in Advanced Photonic Solutions, we basically consolidate the former Light & Optics and the former Light & Production business, minus HOMMEL ETAMIC, minus Prodomax and Five Lakes, and minus INTEROB. Now, why do I stress that? Within prior year's numbers in the EBITDA figure is a one-off effect of EUR 2.4 million from the provision of INTEROB included from the variable purchase price components of INTEROB. You might wonder why that ends up in the Advanced Photonic Solutions business. It's just an accounting effect. Essentially, the part that from Light & Production went into the Advanced Photonic Solutions business, i.e. our laser processing business, from a legal perspective, has been the acquirer of INTEROB.
Therefore, the positive effect of last year, the EUR 2.4 million, actually ended up in the Advanced Photonic Solutions. I can't change it. That's just the accounting rule. But it's a bit funny, but that's what it is. Please bear in mind that in Advanced Photonic Solutions Q1 2021 figure, there's a positive effect of EUR 2.4 million from the acquisition of INTEROB, which does actually nothing to do with the Photonic Solutions business. With all of that said, in terms of Advanced Photonic Solutions, we're really happy with how the business developed. The top line in particular, I mean, we have seen order intake growth by 63%. That's phenomenal.
Even if you take out the EUR 42.5 million from the first consolidation or initial consolidation of BG Medical and SwissOptic, formerly known as the Berliner Glas Group, even if you take that out, you have an organic order intake growth of 33%. Phenomenal order intake, particularly driven, of course, by the surge in demand from the semiconductor equipment industry. I think I don't have to stress our position in this industry, but it obviously is a very, very important part of our business. Not only grew semiconductor, we've also seen a very strong order intake growth in our biophotonics business. Overall, Advanced Photonic Solutions with a very strong order intake growth.
We're particularly proud of the fact that we managed to convert a lot of that order intake actually in sales growth. Sales grew by 56.2%, so you know, very strong sales growth. Even if you again take out the effect of EUR 33 million from the consolidation of the former Berliner Glas Group, the organic sales growth figure in this business is very, very strong. That in light of all the challenges that we all see with respect to supply chain and you know, the things in China and in all of these discussions that we all have, we believe is a very strong achievement.
In particular, our sourcing team and our operations team, despite all these challenges, managed to turn all the order intake or a lot of the order intake actually into sales in the first quarter. It is a strong achievement. Sales are up 56.2% for Advanced Photonic Solutions, including of course EUR 33 million of consolidation effects. With the higher volume comes more profit. It's pretty simple. EBITDA is up by 28.3% versus prior year, and I already discussed the additional effect of EUR 2.4 million that had been in the prior year's number. We're happy with that. No question. We do see profits up. We do see free cash flow up. Our optics business in a nutshell is—it's just very, very strong.
I don't like the sort of overboard on the terms here, but it's just very strong. We're trying to manage all the challenges, and I think we do manage all the challenges around supply chain and all of these things, but it's very strong business, and we're very happy with that. If we go to page 13, you see our Smart Mobility Solutions business, in which we also managed to post double-digit sales growth in the first quarter. We do see sales up by more than 10%, 10.2% actually, so a bit more than 10%, and go on.
It's double the sales growth, which given the fact that in particular the former road safety business, now Smart Mobility Solutions, does need electronic components and is not just pure polishing of optics, but actually solutions, including services, software, electronic components, and all of the things which are affected by supply chain challenges, is a strong development. We're very happy with that. We're happy with the fact that you know we can post 10% sales growth in the first quarter. We're happy with the fact that we managed to expand EBITDA in this business strongly versus prior year. It does come with challenges in the cash flow, but compared to prior year, it's a very, very strong development for that business as well.
You do see that order intake is somewhat below last year, but we all are aware that those of you who follow us a bit since a bit longer, you know that in this project-driven business, you have fluctuations from quarter to quarter. Last year, we posted strong auto intake from a particular tender in North America in the first quarter. It's a typical up and down in a project-driven business and nothing to worry about. The order backlog grew by 34% almost, so we have a very strong order backlog in that business as well. We always talk about numbers in these calls, but I would like to point your attention to the picture on the right-hand side. We posted that intentionally.
It's a new product we just launched in doing the Intertraffic show, the biggest show when it comes to traffic management, which has happened lately in Amsterdam, the Netherlands. That project and that product will help us to grow our business, in particular in areas where we're not that strong, i.e., in areas, you know, the Middle East and the like. It's a project and it's a product for which we got a number of awards, design awards, prestigious design awards here in Germany. We're very glad of the fact that it has been selected as the most important product introduction when it comes to sustainability and sustainable new products in that very show.
You know, from time to time, it's worth to also talk about products and solutions and not just numbers. I think with this new product introduction, we also can show that we are a very innovative company and bringing new products and solutions to the marketplace. Let's go to page 14. On page 14, we have grouped together this new business group of ours we formed, including, to say, the HOMMEL ETAMIC business, the brand that we just launched for our industrial metrology business, Prodomax and Five Lakes, and INTEROB. As the picture indicates, this is basically the business that's predominantly exposed to the automotive industry. Now, we all know that automotive has its challenges, and the market conditions in automotive are challenging. It's in choppy waters.
We have pockets of growth, in particular when it comes to the e-mobility part and to electric vehicles. Something where as most of you know, we actually contribute quite a bit. But we have other parts, in particular when it comes to, yeah, combustion engines and the like, where we see big challenges. Just this morning we heard again that the automotive market in China almost crashed in the last four weeks and has seen huge declines in sales in automotive going forward. I mean, I'm not necessarily here to explain the challenges of the automotive industry, but it is a challenging market environment, at least from our perspective. Therefore, the fact that we kept the revenues almost at last year's level is okay.
Of course, we all would like to see businesses growing, but the automotive industry at the moment, at least where we're positioned, you know, we were okay to see that the revenues are almost flat. We do see a slight decline in it. Of course, we have challenges in the margin in this business, but essentially we've managed to keep it at last year's level. We do see negative cash flows in this business, which is due to the fact that we have project delays at some point, and we need to finance certain projects. We do hope that this is going to turn in the next quarters in full. Again, these are the businesses that we grouped together under the Non-Photonic Portfolio Companies, a new business group that we have established.
The businesses in these business groups are now operating under its own brand, INTEROB Spain, Prodomax, Five Lakes in North America, and just recently HOMMEL ETAMIC. I think from a strategic perspective, it is pretty clear that for us, we will focus more and more, in particular investments in the future on our core businesses in optics and photonics. With that said, let's just go to page 16 real quick and discuss the outlook. I think I said last call, I almost don't wanna give an outlook because giving a guidance at the moment is like trying to read the tea leaves. It's very challenging 'cause there's so many uncertainties in this world. I mean, just this morning, there was this news that there's no gas now coming in anymore from the Ukraine.
All of these uncertainties we try to factor in and try to dial into our models. I mean, just on this gas thing, we do not depend that much on gas for our production. Thank God, we're not that much depending on raw material, thank God. Our exposure to the markets in the Russian Federation and in the Ukraine and Belarus is very little. Our sourcing from that area is also fairly little. In a sort of first derivative effect, as the mathematicians would probably say, we're not that much affected by it. Nevertheless, we cannot decouple ourselves completely from all of these challenges. We're particularly having a close eye on the development in China.
That is something that might affect us going forward. As I say, all of this is like trying to read the tea leaves. From our perspective, with all of these upsets, we do put into our model the following thought process. Order intake is very, very strong. The demand is very strong, and we're very proud of the fact that in the first quarter, we managed to convert a lot of that order intake into net sales. In the very first quarter, we managed organic and inorganic, very strong organic and total growth. We believe that we can continue that. We believe that with all these risks, we will be able to grow the Jenoptik group by at least 20% for the year 2022, and I underscore at least and that.
Is it possible to grow more and harder? Yes, of course it is. Are there risks? Yes, of course there are. As said, nobody knows. We do not have a crystal ball. Nobody of us have a crystal ball. We stand behind that we're saying at least 20% sales growth is what we can promise or guide for. We do believe that we can, with that sales growth, substantially grow our operating profit. We do believe that we can achieve around 18% EBITDA margin. Last year, excluding the one-off effect that you all are aware of, we posted 16.7% EBITDA margin. We do believe that we will be able to continue to pipe cost increases our supply chain through to price increases in the market.
To what extent we have to see, but we do believe that we will be able to achieve around 18% EBITDA margins of that, of strong top-line figure. With that said, let me just reference for a moment also to a sort of a more midterm outlook. As you know, we've about half a year ago communicated next chapter in our strategic book, if you want. In the last few years, we spent a good time transforming Jenoptik from a fairly diversified industrial conglomerate to a focused technology company, focused around our core competencies in optics and photonics. The first part of our strategic journey had been to focus everything on a certain particular technology, optics and photonics. As you know, we've communicated last autumn that we're now embarking on the next stage of our transformation.
Going forward, we want to transform Jenoptik and focus everything even more on certain market segments. The market segments we are going to focus on, in particular, semiconductor and electronics, healthcare and medical, and smart mobility. We want to participate in the ever-stronger trend of the digitization of our world. We want to participate in driving the future of the Internet, capitalizing on that digitization of our world. We want to enable more effective and more efficient healthcare systems around the globe, helping all of us with our healthcare and basically with our health. We want to drive the future of mobility on planet Earth. Based on that, we believe that we can grow Jenoptik to about EUR 1.2 billion by the middle of the decade, in 2025.
We want that and actually guide for that Jenoptik Group will be about EUR 1.2 billion in sales in 2025, and 20% of that we want to post as operating profit in terms of EBITDA. We do focus our managerial efforts more and more also on return on capital. We also have set in public that we aim to post 20% ROCE figures excluding goodwill by 2025. We believe that with these outlook, the strategic guidance, mid-term guidance, if you want, we can show that not only 2022 will be a very strong year for Jenoptik, but actually we have a very good mid- and long-term outlook for our business.
That said, thank you very much for your attention, and we're more than happy to try to answer the questions that you might have. Thank you.
Ladies and gentlemen, if you would like to ask a question now, please press nine followed by the star key on your telephone keypad. In case you wish to withdraw that question, please press nine followed by the star key again. The first question comes from Jürgen Pieper, Metzler. Please go ahead.
Good morning. Can you hear me?
Yes, we can. Very good. Thank you.
Good, because I'm sitting in a car, but okay, fine. I have just one question at this point in time. If you look at the month-by-month development in the first four months, including April, can you then maybe illustrate the cost curve and the order intake curve? Is that a relatively steady and stable process, or do we see, if you want, do we see some kind of negative trend as we would probably assume looking at the development of all these problems in the world? Thank you.
I mean, obviously we're not publishing numbers month by month, but only on a quarterly basis. From a sort of qualitative point of view, I think it's fair to say that the first quarter has been characterized by very strong order intake month by month, really. Obviously we cannot disclose figures for April at this moment. Let's just say that April also is very strong from a top-line perspective. We don't see any changes in that trend. From a cost perspective, that's a bit more challenging sort of to qualitatively answer the question. We will have to wait, I would say, a bit longer if we see an acceleration in the costs. I mean, that's on a positive side is that we do not depend that much on energy.
We don't need a lot of energy to produce. I mean, they were saying the other day we need gas, oil, gas and energy to heat our offices. That's of course not quite true and is a bit of a sort of provocative statement. We're not producing glass. We are buying glass. Yeah, it could be that our suppliers will try to push their higher costs onto us, and then we will try to and hopefully successfully manage to push our higher costs onto the marketplace. I think in simple terms, we haven't seen a huge acceleration in cost, and we have certainly seen a continued strong order intake pattern.
Okay. That's very helpful. Thank you.
The next question comes from Craig Abbott, Kepler Cheuvreux.
Yes. Good morning, everyone. Thank you for taking my questions. In the Advanced Photonic Solutions division, if we adjust for last year's one-off effect, which you explained to us well on the call, it looks like the underlying margin actually declined about 140 basis points, I think, despite the continued strong semi demand. Presumably maybe some of this was due to the scope effects. I was just wondering if you could maybe give us some insight on what the factors were. Was it cost inflation? Was it scope effects? Are there some seasonality impacts at SwissOptic and BG Medical we should be aware of? Thanks, and I'll pose my second question.
Mm.
after the answer. Thanks.
Yeah, thanks. Thanks, Greg. Actually, thank you for asking that because it gives us the opportunity to sort of touch on that a bit longer and try to explain it a bit more. It is an obvious effect. You already referenced again to the one-off effect from last year. If you strip that back out, still there is somewhat a decline in margin percentage. That is attributable to a number of effects that we do see. Yes, there is cost inflation in labor and in wages, wage inflation, material cost inflation. There are also additional effects that we do see from, you know, having to pay for certain integration efforts. Just to give you an example, we need to pay for certain IT-
Licensing.
Licenses for Berliner Glas. If we, you know, we've carved out Berliner Glas from the former Berliner Glas group, our, you know, BG Medical business now. Of course, a carve-out doesn't come with a lot of, you know, SAP and things. We have to cover that. Those are just sort of some examples of what we do face. It's not something that should be recurring. I think those are like one of the effects. We believe that it will, you know, heal over the remainder of the year. What of course will be with us for the rest of the year to some extent is of course the cost inflation that we see on material and on labor.
The one-off effect from the acquisitions, or the additional effects from the acquisitions, they should actually flow out of the P&L over the next coming quarters.
Okay. If I may follow up on that, please, as we get later in the year, and you have more visibility on these sort of one-off-ish integration type costs, will you maybe communicate these just so not, you know, not obviously in the form of an official adjusted earnings figure, but I mean, at least in the conference calls, just to, yeah, so we kinda have a feel how the underlying is developing?
Well, I mean, we had this debate in the past already. You know.
Mm.
Do we or do we not adjust EBITDA? Then one year we did, and then everybody is saying, "Well, this is distorted now, and now we do not." But I understand what you're getting at. We will try to give you a feeling for it, shall we say. In particular, we will try to, you know, from a tonality point of view, give you some color around.
Yeah.
What it is. We will not, and I hope you understand that, we cannot give you a sort of a too concrete figure. Qualitatively, though, we will try to explain, but not a quantitative figure. I hope that helps.
Okay.
I apologize for not being more transparent. We try to be as transparent as possible on these things, but of course, there are also limitations to what we are able and allowed to do.
Yeah. Okay. My last question for now, and I'll turn it over, is just and this is also more of a qualitative type question, but you sounded quite confident in when you gave us the update on your outlook thoughts a moment ago. I just wanna, you know. You also reminded us that of this typical seasonality throughout the year in your business. Still, if we do the math and you just take, say, just take 20% sales growth and EBITDA margin, the implied, you know, revenue and earnings you have to achieve the rest of the year is quite a bit, so particularly given the backdrop of all the various geopolitical and cost pressures we see at the moment.
I just wondered if your level of confidence in that outlook is, you know, is it similar to what it was, you know, in your-
Mm-hmm.
in the first two calls this year? Or would you say the level of risk is potentially-
Yeah.
You know, risen?
I think it's a very fair question. Sorry, I interrupted you, Craig Abbott, but I think it's a very fair question. And again, look, I mean, my team here needs to stop me if I'm going too far. Somebody is hitting me from behind if I'm going too far. I mean, essentially, I would say on the sales figure, I mean, look, I mean, we posted 16.6, almost 17% organic growth in the first quarter. We would basically need to start growing in next coming quarters if we would not grow by more than 20% in total. I'd say on the top line, I'm looking around here. It's like, are you crazy? I would say on the top line, I mean, I think we're on the rather conservative side, shall we say.
Yeah.
I'm feeling very, very confident about the top-line growth guidance. I think on the profit guidance, that's the bit more of the challenging part because we don't know to what extent the costs are going to or how the costs are going to develop in the rest of the year. And that refers to labor wage increases. I mean, some of you may have seen some communication from, let's say, other people here in the area lately, and there is wage pressure, costs from raw material and supply chain and so on. I think that's the part that's more or harder to predict. If you take it all together, I'd say on the top line, yeah, I don't wanna sound arrogant or overly confident, but on the top line, yeah, very confident.
I think that should be. We should probably be able to push more. On the margins, that's the part where I think we will have to manage it or continue to need to manage it hard going forward. Is that okay?
That is very helpful. Thank you very much.
I'm actually looking to my team here.
We are still looking. Nobody stopped you, so. Okay.
Okay.
The next question comes from Richard Schramm, HSBC.
Yes. Hello. I have a question concerning your Non-Photonic Portfolio Companies. It's more a general one because, when I remember it correctly, when you collected all these companies into your portfolio a couple of years ago, the idea was to form a group and to use also the financial strength of Jenoptik here to give these companies better access to customers and to give them better credibility in the market and so on. Now, as you have quite officially sorted this out and declared as not core, isn't there the risk that customer behavior is changing in this respect and that customers might be reluctant to place bigger orders again with these companies as they do not know what will happen with them in the foreseeable future?
Mm-hmm.
If Jenoptik is still sheltering these or not. How do you see this risk?
Yeah. I think that's a fair question. I mean, this market has changed so much in the last 18, 24 months, in many ways. I mean, it has the transformation of the automotive market has accelerated big time, certainly. I mean, again, just today we heard the news from China and about, you know, car sales almost crashing there. On the other hand, there is of course, car manufacturers posting record profits and all of that. It is a very heterogeneous marketplace. For us. Let me stress that again. For us, at the end of the day, it's an investment decision. We can not spend the euro twice, as the saying goes. We have to think, where do we spend our investments?
It's pretty clear to us that, you know, the world has changed, driven by COVID. It has, on the one hand, accelerated and pushed our markets around semicon and the digitization of our world and plunged car industry in even more difficulties. We said strategically, we will focus our investments and our growth expectations more around the three markets that I referenced to. I mean, that of course does create uncertainties in those businesses of us that are catering to the automotive industry. It does create uncertainties, so it's a good point. I think it is different, though, from business to business. I mean, Prodomax, for example, always have been operating under the brand name Prodomax and is in the local market very well integrated.
For those integrator businesses, it is crucial to be local and to be in these local marketplaces. Could it be that you know we get challenged by bigger you know or these businesses get challenges in bigger systems and bigger projects? Yes. It's also true that these bigger systems and bigger projects come with a huge amount of cash that we need to provide to these businesses upfront, because that's exactly the change in the marketplace. There is a part of me saying I don't even want these big projects anymore because I have to finance it, and I should rather finance the growth in optics and photonics and in the semiconductor industry where we make so much profit.
I think the answer to your question actually is yes, and then, but maybe that's not even a bad thing.
Yeah. Stefan, let me add here. Prodomax is over decades very well established, mainly in Canada and U.S. So they have an established customer base. What we see is an ongoing business relationship with good potential of order intakes and business development for this fiscal year already. So I don't see a potential risk that a new owner of Prodomax could disturb something. This is the question behind the question, yeah. So I don't think that in this businesses, this is a real threat, to be honest. Yeah. I think this will not happen. Yeah.
Agreed. In addition, again, the cash drain that we have to provide to execute those large projects, like for example, the one that's very famous in the northeast of Germany. I mean, let's face it, hindsight is 20/20, but yeah. It's a lot of cash that these things burn.
Okay. Thank you for this. Another question concerning China, where you mentioned that this might be more serious risk than Russia, Ukraine, which is obviously not of concern for you at the moment, at least, directly. What is your observance in China? How are your activities developing there? Do you see any negative impact already from these lockdown and disruption in logistics chains, et cetera? Can you still get around these at the moment?
No, you're absolutely right. We're more concerned. I shouldn't even say that because we have a war on our doorsteps here. You know, from for Jenoptik, from a business perspective, development in Asia, in particular in China, is we're a bit more concerned. The sheer fact that we acquired a factory or company which has a factory in China, Wuhan, China, SwissOptic China, yet none of us ever has seen it, is telling stories. I haven't been there. None of us actually ever had the chance to even see the factory that we acquired. I think that's concerning. We know that our headquarters is in, and we have a factory in Pudong, Shanghai. The colleagues there, they can't go to work.
They're since six weeks locked in a lockdown and, you know, at home. As much as we can try to, you know, do all the internet things, their problem at the moment is to make sure they get food, to be honest. It sounds scary, and it is scary. It's hard to quantify that. But obviously, you know, in particular with respect to the laser processing business, which has a stronghold in China and in particular with respect to the Hommel business. I mean, let's not forget that part of our optic line, product line, for example, for metrology, is actually produced there. Well, at the moment, it's not produced there because nobody can produce there.
That's why we're saying this could have an even much bigger effect than the war in Ukraine on our business. As much as we, of course, are devastated by the fact that we have a war not too far away from Jena.
Okay. As I just said, at the moment, your production is stopped there, at least in the Shanghai area, or is it also in this one facility you mentioned?
No. Wuhan is producing. Wuhan is producing, but of course, as I said, we can't go there. Wuhan does produce.
It's fully loaded.
It's fully loaded. Yeah, that's important. It's loaded to the roof. In Shanghai, we also have a large part of our sales force. The sales people can't go out. They also sit at home. Now, of course, you can do cold call from home and you can do all of these things via the internet. What that means for the rest of the year is hard to see. That's, I think, again, the uncertainty we're facing. We don't know to what extent once the lockdown is over, our sales people can call on customers again and basically everything goes back to normal or does it take a longer time? Those are the uncertainties that we face. Wuhan is fully loaded and operating.
Yeah. Thanks a lot for this.
Okay.
The next question comes from Lasse Stüben, Berenberg. Please go ahead.
Yes. All right. Good morning. Just two additional follow-up questions. The first one, just again, on the EBITDA guidance and sort of the pickup that's required there in the remainder of the year. Can you just give maybe just some additional thoughts on where you see that coming from? I mean, you know, the APS division, you know, the margins are still at, you know, quite a high level. And sort of are you baking in, you know, a much better return, particularly in smart mobility? So I'm just wondering where that pickup comes from. Then the second question would be in semis, and we spoke about this in the past on potential over-ordering. I'm just wondering if you have any additional color on or insights on that.
Just a mechanical question, if you were to have cancellations of orders, how would that look in your financials? Is that, you know, would there be a balance sheet effect because you're receiving prepayments from some of these customers, or is it simply you're writing down the order intake or backlog number? Thank you.
I'll take the order intake questions first. Well, to say how much or to speculate how much over-ordering is in the system at the moment is hard. I think what I said last time is that even if you dial back out about 30% or so, the remaining growth is still phenomenal. I think that's the only thing I can say really. We do not have any more insight into this than anybody else. What I can tell is that our customers are pushing us hard and harder to deliver. It seems as if yeah, as it goes up and up and up.
I think I said we can see in our pipeline at the moment, we do not expect any auto cancellation at the very moment. That would be, I mean, that would be unheard of at the moment. This is the opposite is the case. We do tell our customers, "Sorry, we cannot take these orders. We cannot because we cannot deliver." Or we, if we take the order, we can deliver in 2024.
Mm-hmm.
I mean, that's what we're talking here. Perhaps I mean, it's crazy, but our customers are pushing us to invest into more capacity, because we can only deliver in the middle of 2024 and beyond. So I don't think that's an issue. With respect to the margins, I mean, maybe Hans-Dieter can shine a bit more light on that, but I think we have a multiple effects. We will see further growth from the top line perspective that gives more volume. We see these one-time effects flowing out over the year and smearing out over the quarters, I think. Those are the main effects, I would think.
Yeah, that's correct. That's it. We have the cost base established.
Mm-hmm.
for much higher volumes, so we should have a positive impact.
By-
We call it fixed cost decrease here, yeah, in the future. One part you did not yet mention is price increase from our side.
Yeah.
Which will happen throughout the rest of the year.
Yeah.
Yeah. This leads to this effect. Yeah.
Okay. Mainly operating leverage and price increases coming through in the remainder of the year.
Yeah.
Yeah.
Okay. Thanks very much.
Yeah.
At the moment, there are no further questions. If you would still like to raise a question now, please press nine followed by the star key. There is one follow-up question coming from Craig Abbott. Please go ahead.
Yeah. Hi again. Just one real quick, please. Just to follow up on your last point on the price increases. Now, I appreciate you're not gonna, you know, tell us numbers, but have you already started to implement them and are we talking, you know, pretty much across the board? Or is this all still very much in negotiation phase and you just sort of plan with them? Thank you.
It's an active process.
Mm-hmm.
The funny thing is that so we do multiple rounds actually. In the past we would've been able to implement price increase once a year when we publish new price lists. That doesn't seem to be the case anymore. It's like we're going every other month at the moment. And that sort of sequence. Funny enough it seems as if there is almost no pushback as long as you can deliver. Sort of it's like, "Yeah, yeah, that's fine. Just deliver, deliver." I know that sounds a bit. It's almost scary, to be honest, because essentially that's what we tell to our suppliers as well. It's almost scary, but that's how it goes.
It is across the board with, of course, the exception of the Non-Photonic Portfolio Companies.
Yeah.
In the automotive business there is price pressure. There continues to be a price pressure. It's, if anything, it's even higher. In particular in optics and photonics, but also in the Smart Mobility Solutions business, we implement multiple rounds of price increase and it doesn't look as if there's a lot of pushback at the moment.
Okay. Thank you. I just thought of another follow-up since apparently no one was in the queue. I'll ask it. You know, given what's going on in the financial markets and all the various macro risk, I guess it's fair to say that, you know, your phone's not exactly ringing off the hook with potential buyers for your non-photonic businesses. I mean, to the extent you can, I mean, if you could give us any update on where you stand with
Mm-hmm.
like non-core activities.
Yeah.
Thanks.
Yep. We communicated very clearly that we do not feel under any particular time pressure on this.
Mm-hmm.
I mean, not even referencing the inquiry process anymore, so don't feel under any particular time pressure. Every now and again, people are calling and then we pick up the telephone and have discussions. Nothing where we're at the very moment of saying that, you know, we need to classify it as IFRS 5, let's put it that way. There are discussions and people that are asking if they could talk and then we talk, but it's all in very early stages.
Mm-hmm. Okay. All right. Thank you very much.
Yeah. You're welcome.
There are no further questions. I would like to hand back to you for some final remarks.
Okay. Thank you. Well, again, first of all, thank you very much for dialing in today. We know and we appreciate the fact that you all are with us. We know these are challenging times, and we know that you know, Jenoptik is not decoupled from the world. We're like everybody else. Do you see the challenges around the globe? On the other hand, it seems as if, at least in some of our core markets, we're in a pretty sweet spot that actually at the moment. I mean, referencing our very strong order intake. Again, thanking our people, our you know, associates in purchasing and in operations that they do face the challenge every day more than we at the management level here.
They have to work hard to get the material that we need. It does of course transpire that our inventory is going up at the moment, which, you know, is pretty clear. If there is this one odd component that we can't get at the moment, then the product ends up in inventory. We do invest. Our inventory is still up, our working capital is still up. We do prepare ourselves for the remainder of the year. We're confident, very confident on the top line and we will, I think be able to deliver also on our guidance on the EBITDA margins, at least from what we can see at the moment.
We look with confidence in the rest of the year, but it's also clear that there are challenges and risks out there, and we'll continue to manage them as much as we possibly can. Thank you very much, and thanks for being with us.
Yeah. Thank you.