Good afternoon, ladies and gentlemen. Welcome to the Genoptix conference call regarding the interim financial Statements for the 1st 9 months of 2019. 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, Doctor.
Stephan Tregha.
Good afternoon and warm welcome also from our end here in Jena. Welcome to our Q3 earnings calls. With me today, as always, is Hans de Schumacher, our CFO, who is going to dive a bit deeper into our numbers. Before we do that, though, let's kick it off with a quick look at some major events in the 1st 9 months of 2019. We believe that as a company, we have achieved quite a number of major milestones in the transformation of our organization to a more focused technology group.
Quite importantly, at the beginning of the New Year, we have started to make our new corporate structure operational. So we're now managing the company in 4 major divisions, reporting our numbers in those 4 divisions. And the start of the new organization, I think, went pretty smoothly this year. Importantly, during the summer months, we've communicated that we have started the sales process for Vincorion. The process is well underway, and I'll say a couple of words about the process and how it goes later on during the call.
As a part of that and paying into that essentially, There's also the fact that we've now received the permission and the license to export energy systems for the Patriot Air Missile Defense System to the United Arabian Emirates. We've received that export license permission to ship the beginning of October, so you will not see that reflected into our 9 month numbers. But you can expect that to be reflected in our Q4 numbers once we report them. We have also received several orders for ProtoMax in the area of automation, and we believe that's essentially and predominantly very important because it does show that the acquisitions are paying off. Apparently, the investments that we've made in more automated production environments and expanding our footprint in America is actually now paying off and pretty much contributes nicely to the result of the group.
Most importantly, though, is how that all reflects into our numbers. And here, we can proudly report that we are growing. The company is growing top line, and we're expanding margins. Sales for the quarter were up by plus 1.9%, so almost 2% versus the Q3 2018. And EBITDA margin expanded by 30 bps for the period.
So I think it does show that our strategic development actually also reflects in better numbers. And then Cesar is now going to detail the numbers for you even a bit more. And Cine? Yes.
Thank you, Stefan. Hello to everybody. Please follow me now on the next page where we show you the order intake figures and the order backlog figures. And the order intake is a little bit below prior year with CHF 574.9 compared to CHF 588.4 percent in the 1st 9 months last year. But please take with me into account that at the end of last year, at 28 December 2018, we received a very big order in the optic businesses from a customer there.
Clearly, above €30,000,000 we expected to book this in the Q1 of this year. So it was budgeted and planned in this year, but it was already realized and booked at the end of last year. Nevertheless, we and later on, Stefan will show you the development of our divisions. In light and production, we had a growth in order intake. In light and optics division.
We received this major order at the year end earlier than expected. But in the semi area, we are fine with the business development. And Stefan will explain to you where it does come from. But all in all, concerning the circumstances, we are fine with this and we think that we will have chances and opportunities in Q4 to gain orders, but Stefan will explain it to you later on. The order backlog is 5.8% below prior year.
It's still a very solid basis for the coming months. We estimate around 46% will be converted into revenue in this fiscal year compared to 48% last year. So both indicators at least show us that we will reach our target till the year end. Then please follow me on Page 5, where you see what Stefan already explained to you, our momentum in revenue that we increased the sales further in the Q3. You see the 1.9% equal to EUR 212,700,000 compared to EUR 280,700,000 in Q3 last year.
Cumulated, we are now closing the gap we had after the 1st 6 months with €595,700,000 compared to €593,400,000 We are now, so to speak, at a level of prior year, a little bit already above. And as you have read already, we our guidance is that we will have growth until the end. So we have a strong Q4 in front of us and the quarter 3 showed already the potential we have. The revenue increase is underlined or has a tailwind from the semiconductor equipment industry and the automation and education area. The acquired companies already contributed €52,000,000 to the sales development.
In the last year, it has been at the same period €22,000,000 So it's a EUR 30,000,000 increase. The export restrictions in our Vincorion business have affected the development until Q3. You may have read our information that we have gained. The allowance, the export allowance in beginning of October this year. So we will have also positive, let me say, impulse from this in Q4 as well, but Stefan will explain it to you a little bit later.
And don't forget, in the prior years, we had the toll wind, the
back from
the back from the toll monitoring project with Tol Collect. So in the 1st 6 months, we had EUR 25,000,000 more sales from this project, which we nearly have compensated. We have closed the gap very much in the businesses. Then please follow me to Page number 6 where you see our development in the countries, in the regions of our world. You see a strong sales increase in our Americas businesses with 14.5% above prior year.
It's obviously supported by our acquisitions, but also by the higher revenue in our Light and Optics business. And I may add also the Light and Safety business has good development in U. S. In this year. So all in all, we are quite happy with the development in Americas.
In Germany, you see the impact from the missing sales with Tolcollect. This is the reason why we are below prior year. And in Asia Pacific, we have a slight growth of the 0.9% compared to last year. Then you can please follow me to our EBITDA and EBIT figures on Page 7, where you see that the EBITDA has improved compared to the prior quarter and the prior year quarter. You see that the EUR 37,400,000 in Q3 compared to €32,800,000 We had already good development in the quarter.
The margin has been very high and cumulated. We are now at, as already mentioned from Stefan, at a 15.3% EBITDA margin compared to 15.0. This is 30 margin points improvement. They have 30 0.30 percent basis points, 30 basis points. The EBITDA has been impacted by higher functional costs from the acquisitions and our investments.
It has also been positive affected from the first time application of IFRS 16 and obviously by the contributions of our acquisitions. The contribution by the acquisitions in the EBIT has nearly been neutralized through the purchase price allocation impacts nearly with EUR 4,200,000. So if you take into account that in the 1st 9 months, we had this EUR 4,400,000 negative impact in the EBIT, it would have been already very close to the prior year even in the EBIT. The EBIT margin is including the PBR impacts at 9.7% is also a strong EBIT margin after the 1st 9 months. Then please follow me to the next page on Page 8.
Here you see a little bit more of the details from our group P and L. As already mentioned, we have higher functional costs, higher spending for future growth in R and D, in selling and administrative area, also obviously influenced by the acquisitions. Our gross margin is stable at the same level as last year, very important for us, good development. The financial result has improved from minus €2,000,000 to minus €6,600,000. But it's still on a high level.
And the earnings after tax is influenced with the purchase price allocation impact at the EBIT level, but it's still on a high level. And the earnings after taxes, our tax rate has a little bit increased to 21.5% due to the utilization of capitalized deferred taxes on losses carried forward. And our cash effective tax rate has a little bit increased only from 14.5% to 14.9% because we had higher earnings in abroad in other countries. So all in all, we are quite happy with the development of this figure. The free cash flow you see on the next slide, the free cash flow has been very much influenced.
You have we have informed you throughout the years by the changes in our working capital. For example, the export ban for the business in Victoria and for United Arab Emirates has negatively influenced our working capital by a huge amount. The push out in the semi area at the beginning of the year for the 1st month has also negatively influenced. And now with a very high sales volume in September, we have trade receivables in the books, but we look forward to the year end to realize a lot of the working capital issues because we have prepared ourselves for a very strong Q4. So we are positive at the free cash flow with SEK 7,300,000 still a way to go to reach our targets, but we think that we will have a very strong Q4 concerning the cash flow.
The free cash flow was also impacted by higher investments, I should say. I should mention with €31,000,000 investments compared to €26,000,000 a year ago, we have invested some 1,000,000 more in our businesses. But it's fine with us because we are preparing for the future. So all in all, we are very satisfied that we could gain speed in the cash flow development in Q3 stand alone with EUR 22,000,000 free cash flow in the quarter. And having said this, I'd like to hand over back to Stefan.
He will explain all of you the performance of our business.
Thank you, Arcelor. And let's dive right in. Page 11, we detail the numbers of Light and Optics, our division that caters to the semiconductor industry or semiconductor equipment, manufacturing industry amongst others. You do see that orders for the division are down by almost 12%. However, as you already pointed out, a number of times we have booked a large order from the semiconductor area at the almost the last couple of days, quite literally last days of December, which, of course, we're missing in the contribution to 2019 now.
So that's basically part of the explanation by orders all down. If you would correct for that, it would be fairly flat because the order value we don't have in 2019 adequate to about €30,000,000 In revenues, you see that the business is still growing. It is already on a very high level, but in the 1st 9 months of this year, we managed to further grow that business to now €251,000,000 It is boosted by a continuously good business and sales in the semiconductor arena. We do have some issues in the business as well. We do a bit of a softening.
We do see a bit of a softening in some Industrial Solutions areas. So just to explain that, in the Light and Optics division, we have this major contribution from the semiconductor industry. We also report our biophotonics business in light and optics. We have another business in light and optics, which is more sort of components and optical modules to industrial applications. We didn't talk about that much because it's not sort of a major contributor here, but we do see softening in this specific field and as a result, sort of some headwind in the sales area.
And in particular, in the profitability, it does drag down the profitability of the business somewhat. Nevertheless, we're still very, very happy with the profitability of Leiden OpEx. It's still at a almost 20% EBITDA margin level, which really is pretty high, and we're happy with that margin level for the business. If we turn the page and go to Light and Production, all arrows point upwards, which does seem to indicate that Light and Production has no problems whatsoever. That's not quite the case.
As much as we're very happy to see order intake growing by almost 15%, sales growing by 22% and a massive increase in profitability. It has to be said that the growth is driven by the acquired businesses, ProtoMax, in particular, in North America. So as I indicated in the beginning of the call, our investments into more, say, smart manufacturing, into more Industry 4.0 activities, into integrated and automated production environments do pay off. We've obviously invested into the right sort of area. However, our legacy businesses in Germany, in particular, our metrology business, that depends on quite a significant percentage on combustion engines is under pressure.
And again, that's in particular in the legacy businesses in Germany. Overall though, as I said, we do see numbers growing, which is great, and profitability expanding. Again, obviously, we have invested into the right areas of the business. Then go to Light and Safety. There are some sort of mixed messages if you take the numbers at face value.
Nevertheless, we're actually very happy with how this business goes. Auto intake is flat slightly declining in the 1st 9 months. However, we have a very strong pipeline for that business. We're hopeful that we can turn some of the projects that we're working on into Auto Integ in Q4. Obviously, it's always sort of a risky thing to say that in an earnings call because now you guys are expecting us to deliver.
But we are pretty hopeful that some of the pretty large orders that we have in the pipeline will actually turn into orders, real orders or booked orders in Q4 so that we believe that overall the business from a demand perspective is actually pretty, pretty strong. If you go to the sales side of the house, revenues are down almost 10% in this business. Nevertheless, as we've pointed out quite a number of times already, in the first half, the first six months of 2018, we have booked CHF 25,000,000 of sales from the Tal Collect project, which, of course, is curiously comparator quite significantly. In other words, if we would if we basically calculate like for like results, the Torquette project, the business would actually grow almost 25%. So that's why I'm saying excluding the Toll Collect effect, which has been sort of a one off event, we're very, very happy as to how the business goes.
And you see profitability expanded quite considerably. The EBITDA margin is now at 15.9%, which is a good level for that business. Let's go to Vincorion, where we have some good order backlog. We have flat order intake, but we have significantly decline in sales in the 1st 9 months. We've talked a lot about the export restrictions that we have faced in the 1st 9 months, and we're grateful to now have gotten the license to actually ship the equipment that we have already produced and that we had sitting in the warehouse until relatively recently.
So this is now going to solve to pan out and to be solved. We have shipped the products, and we can revenue recognize it in Q4. Obviously, the reduced sales had an impact on our earnings. Profitability for Vincorion in the 1st 9 months is down quite a bit, €4,000,000 versus the year before or minus 26.4%. But we are pretty optimistic, shall we say.
We're pretty sure actually that, that will change in the 4th quarter because of the high sales impact that we will have in the Q4. Let me just say a few words on the process itself, and I expect that you might have questions in the Q and A session later on, but just sort of on a high level here. The process has to sell Binkurin has been kicked off in summer, as you are all aware of. We have a good and orderly process. We are in discussions with a number of different parties in terms of due diligence and the like.
We have to see how potential SPA negotiations will go, whether or not we're going to be able to sign an SPA, to sign a deal this year or at the end of this year or beginning of next year, we have to see, but that's all of the time frame we are thinking, maybe at the end of this year, maybe beginning of next year. However, we don't expect any closing of a deal this year. If we are successful in the process, if we are successful in process, then the deal can certainly not be closed this year, but rather next year because there are a number of approvals required internally, but even more importantly, externally from the political side since this is a defense asset. And I think it's up to what I'm talking about. So happy to receive any questions about that.
But just from a sort of big picture perspective, the process is going along as expected. We're okay with how the process goes, and we have to see from a timing perspective where we can end up this year and but certainly no closing this year. That's more for next year.
With that said, let's
just go to forecast. And yes, we are reiterating our forecast as a number of you might have expected by now. We do believe that Genoptix will grow. We had 2 years of record breaking growth in the past or behind us, and we will have nevertheless another year of growth for the company given the industrial circumstances and market conditions, we're pretty proud of that. We forecast sales to come in between €850,000,000 €860,000,000 in that range.
And we do believe that we will be able to expand margins yet another time this year to now around 15.5 percent EBITDA of sales. Obviously, that still does have to condition the precondition that economic decisions do not worsen completely. However, given the fact that's already sort of mid November, I think that's more formality that we mentioned that. We're pretty confident that we can make our forecast, and we fully stand behind our guidance for 2019, which as I said earlier, means that we will grow the company this year, and we will expand margins this year versus prior years. So with that said, we let's pause here, and we're looking forward to receiving a number of questions from
The first question is from Craig Abbott of Kepler Cheuvreux.
Yes, good afternoon, everyone. Thanks for taking my question. I have several, but I'll limit myself to 3 for now. Just on the order outlook, if I read the outlook statement today, you mentioned expecting a good order intake in Q4. And listening to your comments now, it sounds like in particular in Light and Safety, you've got a nice pipeline.
I just want to confirm, when you say good order intake, that means you're expecting sequentially higher than in Q3? And secondly, I just want to continue with that question, just wondered if you might have some early thoughts on 2020. I know you don't have an outlook for 2020, obviously. But in terms of if we were to extrapolate recent order developments, obviously, it could imply that you might struggle to grow sales next year. Secondly, I just wondered in terms of the quality of the order you are booking, particularly in light reduction, if you're seeing any particular pricing pressure there on the orders, particularly in your legacy businesses?
And the third question is just in light and optics margin as we saw in the first half down again, I think also sequentially, but it's down about 3 40 basis points, I believe, year on year. We know there's a structural effect here from the shift to the sales of the sensor optics have been going to L and O. And you said you had saw some further weakening industrials in Q3. I just want to know, is this the only factor here? Or maybe you could shed some light on the margin development also looking ahead in L and L?
Thank you.
Greg, thanks for your questions. Maybe we saw this last one because you actually hinted something pretty important. We know that there's a structural effect of a shift of the sensor or the reporting of the sensor business from the former DCS into now Enlightened Optics. I'll pick up on that in particular since that is exactly the point where we see the weakening and where we see the weakening in orders, in sales and in the margins. So essentially, you hit the nail on the head.
That is the part of the business that struggles. And thus, I'm picking up on that. And it's because of the obviously, because of the industrial environments they are selling into. So that in a way already explains the decline in the margins and decline in the margins in LNO because decline in the margins at the Sensus business is actually even bigger than sort of that's written there. The effect is pretty severe in this business.
Now again, we don't talk about it that much typically because it's not such a big business. But at a certain point, even that has an impact. It does show that the sensors business is struggling quite a lot. It's struggling quite a lot. So let's go to the first question then.
Order outlook for Q3 sorry, order outlook for Q4, yes, we have several large particular on the several large hotels in the pipeline, in particular on light and safety, it does you're right, it does mean that we expect the order intake in Q4 to be above Q3. It does not mean that we expect it to be above Q4 last year. Why is that? Because we had this big impact last year in the semicon industry, yes? So your analogy or your triangulation to Q3 is correct, in other words, not to Q4 last year.
And your follow on is the outlook in 2020 where you and I thank you for that, already said we do not have a guidance out for 2020 and we do not want to go on that Syn Ice at this point already. We don't have to should we want to wait? And it comes back to the question of visibility, which is fairly limited still, in particular, in the automotive industry. And it comes back to the question of backlog. I mean, at the beginning of last year, we were sorry, at the beginning of this year, end of last year, coming into this year, we were very optimistic because of the huge backlog that we had.
We still have a high backlog, but it's lower than when we came into at the beginning of 2019. And obviously, for us, the time between order intake and sales is quite long. So at least in the first half of next year, it's a bit hard to see how we can generate significant growth next year, at least in the first half. Again, I don't want to go any further because the eyes get ever thinner before the right go out on this. And so we're very careful not to at least be seen to give an outlook on 2020, which we really don't want to do at the moment.
But I think it's fair to indicate that given the reduced backlog that we will have versus the year before, at least in the first sort of half, it's hard to see that we can change significantly what this generate growth, but we'll have to see how it goes. Quality of orders. Quality of orders, I don't think there is a significant change to what we had in the past. I'm looking to hand it to here, but I think it's more sort of business as usual, I think. Yes.
Also new legacy business, metrology and laser.
Listen, we do get. No, I understand where you're coming from. You're referring to price pressure in legacy businesses, metrology and laser. Correct. Okay, I see.
That we do see. Yes, there is price pressure, in particular, in metrology, that's for sure. That's for sure. Now I think it's important to point out that on the other hand, ProtoMx grows very nicely and ProtoMx has higher margins. So if we wouldn't have had the effect of the price pressure on the legacy businesses, our margin ramp up would be more even more pronounced, if that makes sense.
So on balance, there's still a margin uplift in the business, light and production, and it's overcompensating the struggling margins in or the price pressure in metrology by a good business in Protomax.
Got it. And they have a good pipeline as well, Protomax?
They do. Very good.
Yes, looks good.
Okay. Excellent. Thank you very much.
Thank you. You're welcome. I wonder how you manage always to be the first one in the question. As good skills, man, I don't know how you do that, but that is fantastic. You press the button pretty quickly, apparently.
The next question is from Stefan Michal of LBBW.
Yes, Stefan Michael from LBBW. Good afternoon. Just one question from my side. First one, could you give us an update on your divisional targets for 2019 as stated in 2018 report? Then would you confirm the free cash flow guidance for this year of around €80,000,000 and guidance for tax rate P and L for 2019 would be helpful.
And last year, I've seen
R and
D declined in Q3 about 17 percent, year over year below €10,000,000 Was this a phasing issue with a rebound in Q4? Or do you have a lower full year target in mind for full fiscal year 2019?
Thank you for the questions. Maybe we start with the divisional update. I mean, we don't give updates on guidance of the divisions. I think within the year, but maybe sort of qualitatively at least. We think that the trend that we have that we see thus far will basically also be seen the year.
So light on production will grow based on the acquisitions. Light and optics also growing but in sort of the demand that we have. And in Light and Safety, we will also see some growth this year.
In Light and Safety, if you take out the toll collect. The toll collect, yes. Yes.
If you take out the toll collect effect. Sure.
And vincolion stable theme?
Vincolion, what has it been last year? Vincorion will be stable, it best shows
that. Shall I Shall I take over to tax rate and peso, Stefan? Yes. Tax rate, Michael, is relatively hard to say because our sales process of recurring will have certainly will have an impact. But taking this not into account like for like, as of today, it should be around maybe slightly above 20% because of this this tax asset issue, as I have already explained in the past.
But the underlying, the operational tax rate, so to speak, will be around 15%, yes? But the influence by the deferred tax assets will increase the tax rate, which we have to book above 20% around 20%, a little bit above 20% because we are using now our carryforward losses more. The cash flow target is, as we have talked about, is around €80,000,000 for the year 2019. Obviously, €70,000,000 gap from today until the end of the year. Maybe it will be slightly below €80,000,000 I'm not quite sure.
It's depending how quick we can turn trade receivables into cash because the first step is inventory into trade receivables and then into cash. And as we have payment terms with our customers, ASML, for example, is paying us after 60 days. So it's hard to be very precise, but we will see you have already seen €22,000,000 in Q3 stand alone. And Q4 is by far always the highest cash flow month of the group. So we will deliver a significant amount, much more than in Q3, that's for sure.
But I am not quite sure, to be honest, that we will perfect reach exactly €80,000,000 Maybe it's a little bit below, yes, but not so much, yes. This my answers, okay? Anything else, Mike? Or did we answer your questions?
The only left is R and D decline in the Q3.
It's not an intentional I don't think there's a major effect. It's not driven by any sort of program. There might be some phasing in some projects, but it's not something where we're going to be pushing in any way.
Okay. And CapEx might be around EUR 50,000,000 this year?
Yes. Maybe it's a little bit above €50,000,000 at the end, yes, around €50,000,000 a little bit above €50,000,000 because we have one extraordinary investment in printing and training where we are building the new headquarter for the light and production business, which is the biggest portion in our budget 2019, and it's doing quite well. We will take the people in the new building at the end of Q1, beginning Q2 next year. And we are in time and budget. Compared to Berlin, we can at least say we are in time and budget.
So or to Stuttgart in 2021. So but yes, so roughly in this amount, we should end up a little bit maybe a little bit higher than €50,000,000, yes.
Okay. Thanks for the answers. I'll go back into the queue.
Yes. Thank you.
The next question is from Mauser Schalmann of Warburg.
Good afternoon. The first thing is regarding the in the Q4, you already indicated to expect some contributions from larger projects. Maybe if you can give us some additional color, how do you see all this trending in the other divisions?
Yes, you're right. I mean we talked about the Safety business and the fact that we have some larger orders in the queue there. And with respect to the other divisions, Light and Optics Q4 this year versus Q4 last year will be below for a very simple reason. Again, we've launched $30,000,000 contract in December last year. And so if you compare Q4 this year versus Q4 last year, driven below, doesn't mean that the business is much weaker, it's just the comparison is much harder.
Or yes, if you want, because of this onetime effect that we had. Overall, of course, the industrial area, the sensors we talked about when Greg asked this question is also softer so that in light and optics, the auto intake will be below prior year quarter versus the Q4 prior year. In Light and Production, here as well, the same thing that we've said during the call, The legacy businesses are under pressure. There's no question about it, in particular, metrology. The pipeline in ProtoMax is okay.
It's pretty strong, somewhat compensating the problems that we have in metrology. And so we'll have to see where we end up in the quarter itself in terms of order intake. But I think from the sort of big picture perspective, hoping and then pushing hard that ProtoMx compensates for the problems we have in metrology and to some extent also in laser processing.
Okay. Next question is regarding the traffic business. I mean it has been quite a while that there were no real orders in the order intake. I mean, that seems to about change.
I think you're breaking up big time. Can you repeat your question? Your
The bad connection is pretty bad here. In the traffic business, there have been many larger orders in the past quarters or a couple of quarters that seems a lot to change. So is that a general development? Or is that kind of a 1 quarter thing? Or are you more positive regarding the, let's say, midterm
view over the next year? I think there was I wouldn't say that, that is a particular pattern. You're right. Last quarter in total was more sort of smaller orders that came in, but not significant big projects. We now have project big projects in the pipeline, which I hope will materialize this still in Q4.
But I don't think it's a general pattern in the industry. It just does come in lumps. And sometimes you have these quarters where you have a number of tenders being issued, and sometimes it's that's not the case. So in summary, I don't see a complete change in the pattern in industry in the last few quarters, but your observation is pretty correct. But in the last few sort of last half of the year, it was coming in smaller portions.
But I don't think it's a big trend.
But we if I may add, Stefan, we had the opportunity to compensate to Collect with this big order from the Middle East. Some months ago, we announced, and it's now showing sales and profits. And the perspective which you mentioned in the call, it has to do with a very good development in U. S, America, where we see also a positive development in the market with projects coming up, but not, as you mentioned already, not changed. Not change your capital.
Yes. Correct. But this may explain it much a little bit better. Yes.
Okay. Good. Good. Then on the Light and Optics business, with the Wicker Tech and Industrial segment, what can you do about it? I mean, do you have to wait for orders to come back?
Or are there other measures possible to improve profitability in that area?
That's a tricky one. So let's just again, just very qualitatively, I don't want to give you a quantitative answer, but qualitatively. And yes, we push for orders coming back in. Sales activities are on the go. But we also think about how we can, yes, take costs out of the business there.
We're not at a point where we want to discuss that in detail. And so but I think it's fair to say if that trend of overall the industrial environment staying where they are, we have to take a cost out, and we will do that. And we're committed to do that, And we will communicate if and when we have the if and when we think the point in time is reached. But we will act we'll not sit here and wait for the markets to become better.
Yes. That's fair. My last question is regarding the overall order intake in full year. I mean, probably that will be down year over year, which might be okay given the environment. The missing or kind of missing orders, I mean, is that only kind of only driven in the or mostly driven from the automotive business?
Or are there other areas where you see a kind of a larger shortfall in comparison to your initial expectations?
I think it's done in the automotive arena. We'll have to see how light and safety at the end really where we come in at the end of the year. It's down in the industrial businesses that we're talking about a few minutes ago. Again, it's not that big a business. Nevertheless, the amount of decline is pretty significant.
So in a way, we can be happy that it's not that big a part in our portfolio, but fact that we talk about it now for the 3rd time in this call alone indicates that this business is really actually under pressure. And again, you pointed that the industry environment, others that are entirely in this business do see it much more pronounced than we do. I think in the biophotonic arena, we should be okay. I think that looks good. And semicon, I mean, we have we said that a number of times.
We don't we have not seen a significant decline in semicon this year. And the effect is for multiple reasons, but it's to do with the fact that we are so heavily engaged in the optical lithography subsegment. And therefore, we don't see a big sort of upswing next year either, right? I mean we haven't seen a downturn this year, and we will not see a big upturn next year. It's more sort of I think it's more of a stable sort of laying field.
And a very sort of long answer to a short question, but I'm dancing around the issue here a bit. But I mean, at the end of the day, we all know 2020 is we got to see how it develops. I think it's fair to say that overall and compared to the industry we're holding out this year, but it's also fair to say that without giving any guidance on next year, I mean, we're not going to go, I think, growing the business through the root and see organically. That's but I don't think you expect that from us.
Yes, sure. Thanks. And sorry for
that, Megan.
Thank you.
Thanks for your questions.
The next question is from Craig Abbott of Kepler Cheuvreux.
Hi, again. I don't expect to get back in that quickly. I just had a question on metrology. And I just wondered I guess more qualitative, if you will. But to what extent do you think the pressure you're currently seeing is just due to the cyclical weakness or potentially short term holding off by the OEMs of ordering until visibility on trade discussions improve?
Or is it perhaps already a reflection of the structural shift in engine technology away from pure combustion engines? And if it is the latter, might you have to respond with cost adjustments here? And next question is perhaps really small, but just in your risk report, you mentioned that the Saarland High Court ruling earlier this year might still impact negatively on revenues and earnings in Life and Safety related to the TrafficStars 350 despite the fact that a number of other high cores actually ruled in favor of continued use of that product. I just wondered, is this just a really cautious to be careful type of risk statement Or could this potentially be material in a worst case? Thank you.
Greg, thanks for your questions. Let me answer the last one first because it's easier one. Let's just say, let's be cautious and let's put it in the risk statement just so that nobody can claim that we haven't said it. We don't see any particular impact here. On the first one, which is more sort of pronounced and to the point.
And I would like to answer it and also taking laser processing into the picture here because I think there is a difference between laser processing weakness and metrology weakness. The weakness in laser processing, I think, is short term. That's really because of the uncertainty in the industry and signatures under investments holding back and things like that. So that should come back. On metrology, I think it is more structural.
Our metrology business does depend on, to a large extent, on combustion engines. And as much as we all believe that there's still years years to go with combustion engines, but quite structurally and in the long term, it certainly it will have an effect, which does trigger your next question. Would that also indicate that at some point we need to think about structural cost takeouts in this business or what else can we do about it? And like very often, there are two sides of the coin. We are working on adding additional products into the portfolio of metrology.
And our acquisition of OTO Vision, which we don't talk about that much because it's fairly small compared to ProtoMax, but actually, it brings us technology we didn't have in metrology business because what AutoVision does is optical inspection. And therefore, that's more of the that's what we can do to mitigate the effect of declining demand for combustion engines. We also apply the technology that we have in metrology to other segments. We're working with parts of sort of aircraft manufacturers, inspecting products there, perhaps all in the very early stages. So there's an effect in additional technology and additional adjacent market segments to mitigate the top line effect.
And then the second part or the other half of the coin or the other side of the coin is, yes, it does mean that we have to also in the metrology business look very carefully into our cost structures. And here again, if required, we will take the structural cost takeout actions that are needed to keep the business in shape or bring it back into shape.
Okay. Once again, very helpful. Thank you.
The next question is from Peter Rotenacker of Baader Bank. The floor is yours.
Yes. Hello, gentlemen. You mentioned that your project pipeline at Codomax looks nicely. Perhaps can you add a few words? Is it especially on North America?
Or do you see with Protomax already there's opportunity to expand this business to Europe, to Asia? And also with regard to product markets, do you see here that the margins, which were, as you always mentioned, quite favorable, can remain on this level? First half of the question, it is predominantly North America at the moment. We have one project in Europe for ProtoMax, but it might sound funny, but they are so busy at the moment that we keep them focused on North America. We're actually in the process of what we have already added a second shift to fulfill the high demand.
So there's apparently enough work to do for them as the North American marketplace. So we keep them focused somewhat on North America. So first half, it's North America more than anything. 2nd part, the margins. I would not want you guys to model the very, very high margins going forward.
There will be some margin deterioration, but it still will be way above fleet average for the group. Okay. Thank you. Welcome.
The next question is from Richard Schramm of HSBC.
Yes, good afternoon. Just concerning this consolidation effect, I'm struggling a bit with. So if I take your numbers you mentioned in connection with sales and strip out this 30 €1,000,000 difference, which was added by the consolidation effect. If it's correct what I calculate, then the organic decline, let's say, was minus 5% on your sales level. And on orders, I would arrive at about 7%, assuming that the figure is a similar one.
Is that reasonable? And then you always talk about nice development at Photomax, which could be. But is this really a like for like comparison? So are you looking to the 9 months Prodormax 2018 to the 9 months Prodormax 2019? Or what is the trend here, the underlying trend that would be interesting for us, I assume?
Thanks.
Yes. When it comes to your calculation of numbers, I think your mechanics, I think, is correct. I didn't quite follow exactly your numbers in terms of the sort of the magnitude of numbers that you had there. But your mechanics, I think, is correct. So the organic business, if you strip out, ProtoMax
and OTO,
I think the business were down versus prior year.
But you have to check out in prior year also €25,000,000 of toll collect. But yes,
that was about to say. But you have the 25 years of toll collect as well, which we also didn't have. So and that's why we're saying it depends on what you strip out. But so I think your mechanics is sort of correct there. On ProMax, you're also correct.
There is an annualization effect. So if we come we're saying that Permaat is growing nicely, then there is 2 effects. There is, of course, the effect of the annualization, which you're pretty correct. But despite that annualization, we still see a good business in ProtoMx.
Yes. The first consolidation has been in September last year. But because of IFRS 15 impact, we took a bigger portion into our figures last year than it shows when we have signed and closed the deal. So in other words, we did not have a full year impact last year, 2018, for Protomaxx, but it was more than only 3 months, so to speak, yes, because we had the IFRS 15 impact. And we can roughly say we had more than 6 months into the book, so to speak, roughly around about compared to now 12 months.
This is fair.
Yes. Yes.
This is fair. Yes. Absolutely. And maybe we can remind the friends on the telephone of this mechanism. So you might remember that there was this shift from U.
S. Sorry, Canadian GAAP to IFRS. And under Canadian GAAP, ProtoMax has revenue recognized projects when they have been at 80% fulfillment rate. And we turned that into IFRS 15 15 revenue recognition, yes, which does mean that essentially we have although we only owned them for 6 months, we essentially have had almost 9 months of business, if you want, as the sales impact in 2018. I know it's a bit more complicated, and I'm not the IFRS expert here.
I'm the physicist. But But it's very, very clear. I think it's well explained, yes. Translation from Canadian GAAP into IFRS 15. Yes.
But Richard, we have the 12 years figures in Canadian GAAP and IFRS GAAP comparable for us in our controlling tools. And we can commit and say that there is a growth at bottom up, yes? There is a double digit growth, yes? It's more than 10%.
Okay. And then maybe one question concerning Micron. Yes, maybe trying to read a bit between the lines. You said that definitely closing will not happen this year, agreed. But could there be at least some action?
Does this leave the door open to this?
Some action? What do you mean by action?
A kind of first, let's say, yes, contract in a way or kind of assignment for further next steps with
the specified partner? Yes. So we are in I mean, in an M and A process, you typically have certain deal phases. You have the Phase 1 when folks, yes, send their initial nonbinding indicative interests or letters of interest, and we have received those. We are now in Phase 2, which is the phase where you have your typical management presentations, followed by due diligence and then followed by SPA negotiations.
That's the phase we're in at the moment. We haven't started any SBA negotiations or anything like that, but we are in we have started with this Phase II. And that's where we are at the moment.
Okay. Thank you.
The next question is from Craig Abbott.
Hi, once again. Maybe one follow-up kind of nitty gritty financial third question. You mentioned in the what was on the consolidation line and the EBITDA result in Q3, you saw a positive swing, particularly year on year. And there was a positive impact from the revaluation of the share options, which obviously linked into the then weak share price developments in Q3. In the meantime, obviously, you've had a nice reversal in the share price.
I just wondered if there, A, if you could give us at least some kind of magnitude of how big of a figure we might be talking about here? And secondly, presumably, I guess, there could be some risk, if you will, that might at least partially reverse in Q4. Would that be fair? Thanks.
I think your assumption is fair that it might partially reverse in Q4, if depending, of course, on your report. Depending on how the share price develops, you're absolutely right. I mean Q3 was weak and now it bounced back. And so we have to see how that translates the figures in Q4. So your assumption is correct.
The order of magnitude, I don't think it's that much, to be honest. I mean we're not talking multiple millions here. It's Well,
I mean, the same was like over $3,000,000 I just wondered like was twothree of that roughly related to this or no?
More like onethree maybe or even less than that. That's
fine. Thanks.
Okay.
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Okay. Then we thank you very much for your interest in our business and for your questions. And we look forward to closing another successful year for Unoctic. Again, overall, I think we're fairly happy. And given the environment, the fact that we still guide for growth and margin expansion this year is, from our point of view at least, showing that our strategy actually pays off of focusing on our Photonics business.
I think we have achieved some major milestones in transforming the company, but we have ways to go. And we have a good plan for the long run, and we want to execute on the long run. We're here to execute this and to make our business even better in future.