The conference is now being recorded. Good afternoon, ladies and gentlemen. Welcome to the Jenoptik conference call regarding the interim financial statements for the first nine months of 2019. At this time, all participants are 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, Dr. Stefan Traeger.
Hey, good afternoon, and a warm welcome also from our end here in Jena. Welcome to our Q3 earnings calls. With me today, as always, is Hans-Dieter 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 first nine 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, in the beginning of the new year, we have started to make our new corporate structure operational. We're now managing the company in four major divisions. We're reporting our numbers in those four divisions. 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 Defense Missile System to the United Arab Emirates. We've received that export license permission to ship the beginning of October, so you will not see that reflected into our nine-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 Prodomax 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 in expanding our footprint in America is actually now paying off, and Prodomax contributes nicely to the result of the group. Most importantly, though, is how that all reflects into our numbers. Here we can proudly report that we are growing. The company is growing top line, and we are expanding margins. Sales for the quarter are up by +1.9%, so almost 2% versus the Q3 2018. EBITDA margin expanded by 30 basis points for the period. I think it does show that our strategic development actually also reflects in better numbers. Hans-Dieter is now going to detail the numbers for you even a bit more. Hans-Dieter?
Yeah. 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. The order intake is a little bit below prior year with EUR 574.9 compared to EUR 588.4 in the first nine months last year. Please take with me into account that at the end of last year, at 28th of December 2018, we received a very big order in the optic businesses from a customer there, clearly above EUR 30 million. We expected to book this in the first quarter of this year. It was budgeted and planned in this year, but it was already realized and booked at the end of last year. Nevertheless, later on, Stefan will show you the development of our divisions. In Light & Production, we had a growth in order intake.
In Light & Optics division, we received this major order at the year-end, earlier than expected. In the semi area, we are fine with the business development, and Stefan will explain to you where it does come from. All in all, concerning with circumstances, we are fine with this, and we think that we will have chances and opportunities in Q4 to gain orders. 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. Both indicators at least show us that we will reach our target till the year-end.
Please follow me on page five, where you see what Stefan already explained to you, our momentum in revenue, that we increased the sales further in the third quarter. You see the 1.9% equal to EUR 212.7 million compared to EUR 208.7 million in Q3 last year. Cumulated, we are now closing the gap we had after the first six months with EUR 595.7 million compared to EUR 593.4 million. We are now, so to speak, at a level of prior year, a little bit already above. As you have read already, our guidance is that we will have growth until the end. We have a strong Q4 in front of us. The quarter three showed already the potential we have. The revenue increase is underlined or has a tailwind from the semiconductor equipment industry and the automation and integration area.
The acquired companies already contributed EUR 52 million to the sales development. In the last year, it has been at the same period, EUR 22 million, so it's a EUR 30 million 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 export allowance in beginning of October this year, so we will have also positive, let me say, inputs from this in Q4 as well. Stefan will explain it to you a little bit later. Don't forget, in the prior years, we had the tailwind from the back from the Toll Collect monitoring project with Toll Collect. In the first six months, we had EUR 25 million more sales from this project, which we nearly have compensated. We have closed the gap very much in the business.
Please follow me to page number six, 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 & Optics business. I may add also the Light & Safety business had a good development in U.S. in this year. All in all, we are quite happy with the development in Americas. In Germany, you see the impact from the missing sales with Toll Collect. This is the reason why we are below prior year. In Asia Pacific, we have a slight growth of the 0.9% compared to last year.
You can please follow me to our EBITDA and EBIT figures on page seven, where you see that the EBITDA has improved compared to the prior quarter and the prior year quarter. You see that with EUR 37.4 million in Q3 compared to EUR 32.8 million. We had already a good development in the quarter. The margin has been very high and accumulated. We are now at, as already mentioned from Stefan, at a 15.3% EBITDA margin compared to 15.0%. This is with 30 margin points improvement there of 30.30% 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 impact nearly with EUR 4.2 million.
If you take into account that in the first nine months, we had this EUR 4.4 million 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 PPA impact at 9.7%, is also a strong EBIT margin after the first nine months. Please follow me to the next page, on page eight. Here you see a little bit more the details from our group P&L. As already mentioned, we have higher functional costs, higher spending for future growth in R&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 - EUR 2 million to -EUR 1.6 million.
The earnings before taxes is influenced with the purchase price allocation impact at the EBIT level, but it is still on a high level. 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. 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. All in all, we are quite happy with the development of these figures. The free cash flow you see on the next slide. The free cash flow has been very much influenced. We have informed you throughout the years by the changes in our working capital. For example, the export ban for the business in Vincorion for United Arab Emirates has negatively influenced our working capital by a huge amount.
The push-out in the EMEA at the beginning of the year for the first month has also negatively influenced. 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. We are positive that the free cash flow with EUR 7.3 million, 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 EUR 31 million investments compared to EUR 26 million a year ago. We have invested some millions more in our businesses, but it's fine with us because we are preparing us for the future.
All in all, we are very satisfied that we could gain speed in the cash flow development in Q3 standalone with EUR 22 million free cash flow in the quarter. Having said this, I'd like to hand over back to Stefan. He will explain all of you the performance of our division.
Thank you, To dive right in, page 11, we detail the numbers of Light & Optics, our division that caters to 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 almost in the last couple of days, quite literally last days of December, which, of course, we're missing the contribution to 2019 now. That's basically part of the explanation why orders are down. If you would correct for that, it would be fairly flat because the order value we don't have in 2019 equates to about EUR 30 million. In revenues, you see that the business is still growing.
It is already on a very high level. The first nine months of this year, we managed to further grow that business to now EUR 251 million. It is boosted by 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. Just to explain that, in the Light & Optics division, we have this major contribution from the semiconductor industry. We also report our biophotonics business in Light & Optics. We have another business in Light & Optics, which is more sort of components and optical modules to industrial applications. We don't talk about that much because it's not sort of a major contributor here. We do see softening in this specific field.
As a result, sort of some headwind in the sales area. 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 Light & Optics. It's still at almost 20% EBITDA margin level, which really is pretty high. We're happy with that margin level for the business. If we turn the page and go to Light & Production, all arrows point upwards, which does seem to indicate that Light & 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, Prodomax in particular in North America.
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. 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. Go to Light & 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. Order intake is slightly declining in the first nine months.
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 order intake in Q4. It's always a sort of a risky thing to say that in an earnings call, because now you guys are expecting us to deliver. We're pretty hopeful that some of the pretty large orders that we have in the pipeline will actually turn into real orders or booked orders in Q4, so that we believe that overall, the business from a demand perspective is actually 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, in the first six months of 2018, we have booked EUR 25 million of sales from the Toll Collect project, which of course, skews the comparator quite significantly. In other words, if we basically calculate like for like without the Toll Collect project, the business would actually grow almost 25%. That's why I'm saying, excluding the Toll Collect effect, which has been a sort of a one-off event, we're very happy as to how the business goes. 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 a good order backlog. We have flat order intake, but we have significantly decline in sales in the first nine months.
We've talked a lot about the export restrictions that we have faced in the first nine months. 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. This is now going to pan out and to be solved. We have shipped the products. We can revenue recognize it in Q4. Obviously, the reduced sales had an impact on our earnings. Profitability for Vincorion in the first nine months is down quite a bit, EUR 4 million versus the year before or -26.4%. We are pretty optimistic, shall we say. We feel pretty sure actually that will change in the fourth quarter because of the high sales impact that we will have in the fourth quarter. Let me just say a few words on the process itself.
I expect that you might have questions in the Q&A session later on, but just sort of on a high level here. The process has to sell Vincorion, 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 the potential SPA negotiations will go, whether or not we are 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. That's sort of the timeframe 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, 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 what I'm talking about. 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. We have to see from a timing perspective where we can end up this year, but certainly no closing this year. That's more for next year. With that, let's just go to forecast. Yes, we are reiterating our forecast as a number of you might have expected by now. We do believe that Jenoptik will grow.
We had two years of record-breaking growth in the past or behind us. We will have, nevertheless, another year of growth for the company. Given the industrial sort of circumstances and market conditions, we're pretty proud of that. We forecast sales to come in between EUR 850 million-EUR 860 million, in that range. We do believe that we will be able to expand margins yet another time this year to now around 15.5% EBITDA of sales. Obviously, that still does have the precondition that economic decisions do not worsen completely. Given the fact that it's already sort of mid-November, I think that's more a formality that we mention 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. With that said, let's pause here and we're looking forward to receiving a number of questions from you.
Ladies and gentlemen, if you would like to ask a question, please press nine and star on your telephone keypad. If you would like to withdraw your question, press nine and star again. 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 three for now. Just on the order outlook, if I read the outlook statement today, you mentioned expecting a good order intake in Q4. Listening to your comments now, it sounds like in particular in Light & 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? 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 orders you are booking, particularly in Light & Production, if you're seeing any particular pricing pressure there on new orders, particularly in your legacy businesses. The third question is just in Light & Optics, margin, as we saw, in the first half down again, I think also sequentially, but it's down about 340 basis points, I believe, year-on-year. We know there's a structural effect here from the shift of the sales of the sensor optics according to L&O. You said you had saw some further weakening in 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&O. Thank you.
Craig, thanks for your questions. Maybe we start with the last one, because you actually hinted something pretty important. We know there is a structural effect of a shift of the sensor or in the reporting of the sensor business from the former DCS into now in Light & 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. Essentially, you hit the nail on the head. That is the part of the business that struggles. Thus, I'm picking up on that. It's obviously because of the industrial environments they are selling into.
That, in a way, already explains the decline in the margins in L&O, because decline in the margins at the Sensors business is actually even bigger than that is written there. The effect is pretty severe in this business. 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. let's go to the first question then. Order outlook for Q4. Yes, we have several order flows in the pipeline, in particular on Light & Safety. 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.
Sure.
Why is that? We had this big impact last year in the semiconductor industry, yeah? Your analogy or your triangulation to Q3 is correct, in other words, not to Q4 last year. Your follow-on is the outlook in 2020, and I think you already said we do not have a guidance out for 2020, and we do not want to go on that thin ice at this point already because we don't have to. We rather wait. It comes back to the question of visibility, which is fairly limited still, in particular in the automotive industry. It comes back to the question of backlog. 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, it's lower than when we came into at the beginning of 2019. Obviously for us, the time between order intake and sales is quite long. 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 ice gets ever thinner the further I go out on this.
Sure. Mm-hmm.
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. 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 with this generate growth, but we'll have to see how it goes. Quality of orders, I don't think there is a significant change to what we had in the past. I'm looking to Hans-Dieter here, but I think it's more sort of business as usual. Yeah.
Yeah, also in your legacy business, metrology and laser.
Oh, now 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. I think it's important to point out that on the other hand, Prodomax grows very nicely and Prodomax has higher margins. If we wouldn't have had the effect of the price pressure on the legacy businesses, our margin ramp-up would be even more pronounced, if that makes sense. On balance, there's still a margin uplift in the business, Light & Production.
Yeah.
It's overcompensating the struggling margins in, or the price pressure in metrology by a good business in Prodomax.
Got it. They have a good pipeline as well, Prodomax?
They do.
Very good.
Yeah.
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. That's 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 Maichl of LBBW.
Yeah, Stefan Maichl from LBBW. Good afternoon. Gentlemen, some questions from my side. The first one, could you give us an update on your divisional targets for 2019, as stated in 2018 report? Would you confirm the free cash flow guidance for this year for around EUR 80 million? Guidance for tax rate P&L for 2019 would be helpful. Last year, I've seen R&D declined in Q3 about 17%, even below EUR 10 million. 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? Thanks.
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. Maybe sort of qualitatively at least, we think that the trend that we see thus far will basically also be seen at the end of the year. Light & Production will grow based on the acquisitions. Light & Optics also growing, but in sort of the demand that we have. In Light & Safety, we will also see some growth this year In lighting safety, if you take out-
The oll collectors.
Yes.
Yeah.
If you take out the Toll Collect factor. Sure.
No..
Vincorion, stable seen? Vincorion, where have they been last year?
I think Vincorion will be stable at best, shall we say.
Okay.
Shall I take over to tax rate and cash flow, Stefan?
Yes.
Tax rate, Maichl, is relatively hard to say because our sales process of Vincorion certainly will have an impact. Taking this not into account, like for like, as of today, it should be around maybe slightly above 20% because of this deferred tax asset issue, as I have already explained in the past. The underlying, the operational tax rate, so to speak, will be around 15%. Yeah. The influence by the deferred tax assets will increase the tax rate with which we have to book above 20% or around 20%, a little bit above 20%, because we are using now our carried forward losses more. The cash flow target is, as we have talked about, is around EUR 80 million for the year 2019. Obviously, EUR 70 million gap from today until the end of the year. Maybe it will be slightly below EUR 80 million. 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. As you have payment terms with our customers, ASML, for example, is paying us after 60 days. It's hard to be very precise, but we will see. You have already seen EUR 22 million in Q3 stand alone. Q4 is by far always the highest cash flow month of the group. We will deliver a significant amount, much more than in Q3, that's for sure. I am not quite sure, to be honest, that we will perfect reach exactly EUR 80 million. Maybe it's little bit below. Not so much. Yeah. This my answers. Anything else, Maichl? Did we answer your questions?
Only left is R&D decline in the third quarter.
Okay.
I don't think it has 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 currently pushing in any way more.
Okay. CapEx might be around EUR 50 million this year?
Maybe it's a little bit above EUR 50 million at the end. Around EUR 50, a little bit above EUR 50. Because we have one extraordinary investment in Villingen-Schwenningen, where we are building the new headquarter for the Light & 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. We are in time and budget. Compared to Berlin, we can at least say we are in time and budget. Or to Stuttgart 21. But yes, roughly, in this amount, we should end up maybe a little bit higher than EUR 50 million.
Okay. Thanks for your answers. I go back into the queue.
Yeah. Thank you.
The next question is from Malte Schaumann of Warburg.
Good afternoon. The first thing is regarding the order in the fourth quarter, you already indicated to expect some contributions from larger traffic projects. Maybe you can give us some additional color. How do you see orders trending in the other divisions?
Yeah, you're right. We talked about the safety business and the fact that we have some larger orders in the queue there. With respect to the other divisions, Light & Optics Q4 this year versus Q4 last year will be below for a very simple reason. Again, we've this large EUR 30 million contract in December last year. So if you compare Q4 this year versus Q4 last year, it will be below. Doesn't mean that the business is much weaker, it's just the comparison is much harder. Yeah. If you want. Because of this one-time effect that we had. Overall, of course, the industrial area in Sensors we talked about, when Craig asked this question, is also softer. In Light & Optics, the order intake will be below prior-year quarter versus the Q4 prior year.
In Light & Production, here as well, the same thing that we accepted during the call. The legacy businesses are under pressure, there's no question about it. In particular, Metrology. The pipeline in Prodomax is okay. It's pretty strong. Somewhat compensating the problems that we have in Metrology. We'll have to see where we end up in the quarter itself in terms of order intake. I think from the sort of big picture perspective, hoping and then pushing hard that Prodomax compensates for the problems we have in Metrology and to some extent also in Laser Processing.
Okay. Next question is regarding the Traffic business. It has been quite a while that there were no real orders, large orders in the order intake. That seems about to change.
Malte, you're breaking up big time. Can you repeat your question?
The 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 about to change. Is that a general development, or is that kind of a one-quarter thing, or are you more positive regarding the, let's say, midterm view over the next year?
I wouldn't say that is a particular pattern. You're right. Last quarter in plural was more sort of smaller orders that came in, but not significant big projects. We now have a big project in the pipeline, which I hope will materialize this still in Q4. 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 that's not the case. In summary, I don't see a complete change in the pattern in industry in the last few quarters. Your observation is pretty correct that in the last half a year
It was coming in smaller portions, but I don't think it's a big trend.
If I may add, Stefan, we had the opportunity to compensate Toll Collect with this big order from the Middle East.
Yeah.
Some months ago, we announced, it's now showing sales and profits. The perspective that you mentioned in the call, it has to do with a very good development in U.S., North America. There we see also a positive development in the market, with projects coming up, but not as you mentioned already.
Not a change in pattern.
Yes. Correct. Yeah. This may explain it might a little bit better. Yeah.
Yeah. Okay. Good. On the Light & Optics business with the bigger industrial segment, what can you do about that? I mean, do you have to wait for orders to come back or are other measures possible to improve profitability in that area? I mean.
That's a tricky one. Let's just, again, just very qualitatively, I don't want to give you a quantitative answer, but qualitatively, yes, we push for orders coming back in, sales activities are on the go. We also think about how we can take cost out of the business there. We're not at a point where we want to discuss that in detail. 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 cut, and we will do that. We're committed to do that. We will communicate if and when we think the point in time is reached. That will happen n ot sit here and wait for the markets to become better.
Yeah. That's fair. My last question is regarding the overall order intake in the full year, I mean, probably that will be down year-over-year, which might be okay given the environment. The missing orders, I mean, they're only driven or mostly driven from the automotive businesses, or are there other areas where you see a larger shortfall in comparison to your initial expectations?
I think it's down in the automotive arena. We'll have to see how Light & 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. It's not that big a business. The amount of decline is pretty significant. In a way, we can be happy that it's not that big a part in our portfolio. The fact that we talk about it now for the third time in this call alone indicates that this business is really actually under pressure. You pointed at the industry, the 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.
That looks good. Semiconductor, I mean, we've said that a number of times. We have not seen a significant decline in semiconductor this year. The effect is for multiple reasons, but it's to do with the fact that we are so heavily engaged in the optical lithography sub-segment. 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. I think it's more on a stable sort of playing field. A very sort of long answer to a short question, but I'm dancing around the issue here a bit. 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. 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 roof next year organically. I don't think you expect that from us.
Yeah, sure. Thanks. Sorry for that, again.
Thank you. Thanks for your questions.
The next question is from Craig Abbott of Kepler Cheuvreux.
Hi again. Didn't expect to get back in that quickly. I just have a question on Metrology, and I just wondered, and this is 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?
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 Light & Safety related to the TraffiStar S350, despite the fact that a number of other high courts actually ruled in favor of continued use of that product. I just wonder, is this just a really cautious, just to be careful type of risk statement, or could this potentially be material in a worst case? Thank you.
Craig, thanks for your questions. Let me answer the last one first because it's the easier one. It's just saying, 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.
Okay.
We don't see any particular impact here.
Yeah.
On the first one, which is more sort of pronounced and to the point. I would like to answer it in also taking laser processing into the picture here. I think there is a difference between laser processing weakness and metrology weakness. The weakness in laser processing, I think it's short-term. That's really because of the uncertainty in the industry, and significant under investments holding back and things like that.
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. As much as we all believe that there's still years and years to go with combustion engines, but quite structurally and in the long term, it certainly 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? What else can we do about it? Very often there are two sides of the coin. We are working on adding additional products into the portfolio of metrology. Our acquisition of OTTO Vision, which we don't talk about that much because it's fairly small compared to Prodomax, but actually it brings us technology we didn't have in metrology business.
What OTTO Vision does is optical inspection. Therefore, 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. That's all in the very early stages. There's an effect in additional technology and additional adjacent market segments to mitigate the top-line effect. The second part or the other half of the coin or 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. 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.
Ladies and gentlemen, if you would like to ask a question, press nine and star now on your telephone keypad. The next question is from Peter Rothenaicher of Baader Bank. The floor is yours.
Yes. Hello, gentlemen. You mentioned that your project pipeline at Prodomax looks nicely. Perhaps, can you add a few words? Is it especially on North America or do you see with Prodomax already there's the opportunity to expand this business to Europe, to Asia? Also with regard to Prodomax, 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 Prodomax. 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. There is apparently enough work to do for them out of the North American marketplace, so we keep them focused somewhat on North America. First half, it's North America more than anything. Second 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. If I take your numbers you mentioned in connection with sales, and strip out this EUR 30 million difference, which was added by the consolidation effect. If it's correct what I calculate, the organic decline, let's say, was -5% on the sales level and on orders, I would arrive at about 7%, assuming that the figure is a similar one. Is that reasonable? You always talk about nice development at Prodomax, which could be, but is this really a like-for-like comparison? Are you looking to the nine months Prodomax 2018 to the nine months Prodomax 2019? What is the trend here, the underlying trend? That would be interesting for us, I assume. Thanks.
Yeah. 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 magnitude of numbers that you had there. Your mechanics, I think is correct. The organic business, if you strip out Prodomax and OTTO, I think the business, we're down versus prior year.
You have to check out in prior year also EUR 25 million of Toll Collect.
Yes, I was about to say. You have the EUR 25 million of Toll Collect as well, which we also didn't have. That's why we're saying it depends on what you strip out. I think your mechanics is sort of correct there. On Prodomax, you're also correct, there is an annualization effect.
We're saying that Prodomax is growing nicely, there are two effects. There is, of course, the effect of the annualization, which you're pretty correct. Despite that annualization, we still see a good business in Prodomax.
Yeah, the first consolidation has been in September last year. Because of IFRS 15 impacts, we took a bigger portion into our figures last year than it shows when we have signed and closed the deal. In other words, we did not have a full year impact last year, 2018 for Prodomax, but it was more than only three months, so to speak. Yeah. Because we have the IFRS 15 impact. We can roughly say we had more than six months into the book, so to speak, roughly, round about compared to now 12 months. This is fair.
Yeah.
It's a more fair view.
Absolutely. Maybe we can remind the friends on the telephone of this mechanism. You might remember that there was this shift from Canadian GAAP to IFRS. Under Canadian GAAP, Prodomax has revenue recognized projects when they had been at 80% fulfillment rate, and we turned that into IFRS.
15
15 revenue recognition. Yeah. Does mean that essentially we have, although we only owned them for six months, essentially have had almost nine months of business, if you want, as the same impact in 2018.
Yeah.
I know it's a bit more complicated, and I'm not the IFRS expert here, I'm the physicist.
Very well explained. Yeah.
That's my understanding of the translation from Canadian GAAP into IFRS 15.
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 Prodomax. Yeah. There is a double-digit growth. Yeah. It is more than 10%. Yeah. It is.
Okay. Thank you. Maybe a touch concerning Vincorion. Yeah. Maybe trying to read a bit between the lines, you said that definitely closing will not happen this year. Agreed. Could there be at least some action? Does this leave the door open to this? Thanks.
Some action. What do you mean by action?
A kind of first, let's say, contract in a way or kind of assignment for further next steps with a specified partner.
Okay. Yeah. In an M&A process, you typically have certain clear phases. You have the phase I when folks send their initial non-binding indicative interests or letters of interest, and we have received those. We are now in phase II, 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 SPA negotiations or anything like that. We have started with this phase II. 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 type question. You mentioned, we saw on the consolidation line and the EBITDA result in Q3 and saw a positive swing, particularly year-on-year. 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, A, if you could give us at least some kind of magnitude of how big a figure we might be talking about here. 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. Depending, of course, on your report. Serious point, depending on how the share price develops. You're absolutely right. Q3 was weak, and now it bounced back, and so we have to see how that translates into the figures in Q4. Your assumption is correct. The order of magnitude, I don't think it's that much, to be honest. We're not talking multiple millions here.
Well, this thing was over EUR 3 million. I just wondered, was 2/3 of that roughly related to this, or no?
More like 1/3, maybe. Even less than that.
No, that's fine. All right, thanks.
Okay.
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Okay, we thank you very much for your interest in our business and for your questions. We look forward to closing another successful year for Jenoptik. Again, overall, I think we're fairly happy. 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. We have a 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 to make our business even better in the future. Thank you very much.
Yes, thank you very much.
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