Good afternoon, ladies and gentlemen. Welcome to the Jenoptik conference call regarding the interim financial statements for the first half 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, Dr. Stefan Traeger.
Thank you very much, and a warm welcome from my end as well here. A warm welcome to our Q2 H1 earnings call. With me today, as always, is Hans-Dieter Schumacher, our CFO. The second quarter has seen, from our perspective, acceleration in sales, actually, and quite a bit of margin expansion. The isolated quarter has been up EUR 15 million in sales versus Q1 of the year, and plus 2.2% growth we have seen in sales versus the second quarter 2018. Margin in the business has expanded the quarter by 15 basis points, and we have seen an EBITDA margin of 15.2% in the Q2. As a result, the first half of 2019 is now essentially flat in sales. We have seen a bit of margin contraction, 15 basis points to now 14.1%.
It has to be said, though, that the second quarter has also seen quite a significant contraction of order intake for our company. The order intake in the quarter has been 8% below the second quarter last year. Compare that and combine that with a very good order intake in the first quarter. We have now essentially a flat order intake development for the year. We'll detail a bit later in the call what that does mean. We will also detail where the dynamic, in particular in the last weeks and months, is coming from. Without taking too much air time right now, we are increasingly concerned about the development, in particular in the automotive industries, but we have good order intake in other parts of the business. We will also detail our adjusted guidance at the end of the call.
Let me also point out, and most of you are aware of that we have started a structured process to potentially dispose of VINCORION, our defense business. We're, from our point of view, a major milestone in the transformation of Jenoptik into a focused technology group, and we're looking forward to that process. We're happy to answer any questions that you might have around this process. With said that, I would like to hand over to Hans-Dieter, and Hans-Dieter is going to go through the numbers in a bit more detail.
Thank you, Stefan. A warm welcome from my side as well. Ladies and gentlemen, please follow us and me on page four, where you will see our key performance indicators looking in the future and the rest of the year, our order intake and our order backlog. As already mentioned from our CEO, the order intake after six months is nearly flat, a little bit below prior year, with EUR 392.5 million. Light & Production and Light & Safety Divisions contributed to growth, especially Light & Safety. Stefan will explain it to you later on, has a good order intake development, a strong contribution. Light & Optics, you should always keep in mind that we received already at the year-end, as late as possible, at the end of December last year, a huge order from a customer which we had to book in December 2018.
We anticipated it, and we planned it to get the order in this year. Please keep in mind that it's a missing order in this year, so to speak. Our book-to-bill ratio is still above 1, at 1.02, which is a very important ratio for us that it is as long as possible above [1.0 ]. The order backlog is also on a still high level of EUR 522.5 million, which is equal to the year-end, nearly the same. We are planning to convert 65% of this order backlog to revenue in the actual fiscal year, compared to 58% last year. It's a solid basis for the coming months of the rest of the year. If you follow me, please, to the next slide. You see our revenue development over the quarters and cumulated.
As already explained by Stefan, we had a very good quarter two standalone with EUR 199.2 million. It's a pity that we could not reach the EUR 200 million, but it was close. EUR 199 million, which is an increase compared to a year ago of roughly EUR 5 million or 2.2%. Cumulated with the development in the Q2, we could close the gap from the first quarter a little bit so that we can say we are at the same level after six months, like a year ago. The acquired companies around Prodomax, including Otto in Jena here, Otto Vision in Jena has already contributed EUR 29 million in the actual figures. The comparator of the prior year has also been influenced by our toll monitoring project in Germany.
You remember the Toll Collect project where we had approximately EUR 25 million positive revenue in the first six months, which are missing in this year. It's nearly equalizing each other. That's important to know. Please let us go to the next page where we have prepared to you the revenue split throughout the countries. You see that the percentage of foreign revenue is at 73% right now, which is a quite impressive percentage. You see a strong growth in Americas, obviously very much influenced by our acquisitions there. Also in Asia Pacific, with a growth rate of nearly 11%. You see the less good performance in Germany with -16.6%, but this is due to the missing Toll Collect revenue in the prior year. Please follow me on page seven.
There you see our earnings development in EBITDA and EBIT, especially in EBITDA, where we have no purchase price allocation impact. You see that our EBITDA in absolute terms and in percentage in Q2 with EUR 30.2 million compared to EUR 28.5 million a year ago, has improved. That also there we could close a little bit the gap compared to the first quarter. In total, we are at EUR 54 million, which is 4% below prior year after six months and it shows EBITDA margin at 14.1%. We have higher functional costs. We did it because we had a lot of work to do in the businesses in Light & Optics and all the other business last year. We hired people to serve our customers and to be ready.
This is shown up for the first time now with the whole momentum in the figures 2019 because most of them have been hired in the last second half year of 2018. Of course, obviously the colleagues who joined us throughout the acquisitions are also in the functional costs. We have also an impact of IFRS 16 in the figures, which supported the development. In the EBIT, if we go a little bit ahead and more down in the P&L line, you see the EBIT on this slide. The EBIT margin is now at 8.4% compared to 11.1%. Please keep in mind that we have already realized roughly EUR 3 million negative impact in the EBIT coming from the purchase price allocation effects. The acquired companies, including the PPA effect, contributed with EUR 1.5 million positive EBIT to the development of the group. Yes.
When you please follow us on the next slide. Here we see the P&L of the group in a little bit more details. What I like to highlight here is our gross margin, which improved from 35.2% to 36%. The investments in the functional cost, I already explained, increased from EUR 92.7 million to EUR 103 million. EBITDA and EBIT, I have already explained. Financial result is nothing special to mention. The earnings after taxes is influenced by the effective cash effective tax rate, which in the first six months has been at 15.2% compared to 14.2% due to higher share of earnings generated outside of Germany. If you please follow me to the free cash flow development, where it's important to realize major development there, which I will explain to you in a second.
The operating profit before the working capital adjustment is more or less on the same level like prior year with EUR 53.5 million compared to EUR 55 million. Then you see the changes in working capital, you see a huge growth in the working capital from EUR 216.8 million at the year-end to EUR 256.4 million. If you look to the comparator on the first half year 2018, you see a development from EUR 227.1 million to EUR 256.4 million, which is the main reason for the negative development and negative influence of our free cash flow in the first six months. Where does it come from? The working capital ratio of 30.8%. It's influenced mainly by two major points, so to speak. The one is the VINCORION business where we still did not get the allowance to export to our customer in United Arab Emirates.
Our goods we have already produced and on stock. We are not allowed from German government to export these goods. This means we did not show any sales, any profits, and obviously no positive cash flow impact here. This is one impact. The other impact is coming from the Light & Optics business. We have explained to you in the Q1 already that we have had some so-called push-outs from our customers there, meaning they have asked us not to deliver yet the already finished goods, but they have the obligation to take the goods from us. In the meantime, by the way, we have already delivered some of them to them and have invoiced it. At the half-year end, we had a lot of inventory from the push-outs, meaning we still have it on the inventory and not invoiced.
We are quite sure, very confident that in the second half of the year, this will materialize and realize into a free cash flow in the months to come. All in all, the free cash flow from operating activities, including the working capital, has been already at a zero line with EUR 1.9 million compared to EUR 42.7 million. Coming to our calculation of the free cash flow, you should take away the cash flow from investing activities. As we have invested a little bit more than prior year, it also took away some millions from the free cash flow. All in all, we ended up with EUR 14.6 million minus free cash flow compared to EUR 28.8 million. This means that our net debt increased a little bit.
Please keep in mind that in the shown and booked net debt we have of EUR 79 million, we have an impact of IFRS 16 of around EUR 56.6 million. Heavily an impact from IFRS. Operational, it's still close to zero, and it will improve throughout the rest of the year. Having said this, I'd like to hand over again to Stefan, who will explain to all of you now the development of our divisions.
Yeah, thank you. Let's go straight to Light & Optics, page one of the presentation, where you can see that the sales in Light & Optics are essentially flat compared to a very strong first half last year. We did see good business in semiconductor equipment. I'll just come back to the mechanism that Hans-Dieter just explained. With our big customers in semicon, we have certain contracts with obligations to receive goods for our customers, but they can decide about the timing of shipment. We do recognize according to POC. Thus, the revenue is stable, which is good. We have good sales. Related to that, of course, the profit that comes from those products, if you want, and cash flow comes at a later point in time when the customers are required to take those goods and need those goods.
Sales essentially flat versus a very strong first half of last year, which we're pleased with. EBITDA margins have contracted somewhat to a still very, very healthy 19.5%. We're okay with that. We never expected to keep the extremely high levels of, well, almost of 20%. With 19.5%, we think we have a very good level of EBITDA margin for this business. We have invested and layered in some costs in this business to prepare ourselves for the future. Quite frankly, we had to also to sustain the very high output levels in our factories. On the right-hand side of the chart is your order intake pattern. Order intake has contracted by 14.7% for this business to now EUR 153 million. However, as Hans-Dieter already pointed out, we have taken one big, big order, really in the last, literally in the last hours of 2018.
Now we have explained that and discussed that in prior calls here and in other meetings. This very large order is an order that came such that we had to book the order in one chunk, and it's a double-digit million order. It's due to the structure of the contract. Typically, we book frame contracts and then book orders when the call-offs come. This contract is structured such that delivery dates and values have been fixed in the contract, and thus we had to book the whole order in one go in December last year. Obviously, that we do not have now in the first half of this year. Otherwise, this order intake in this business actually would still have been growing. We're actually fairly okay with the development of Light & Optics and in particular when it comes to the semiconductor industry.
With that said, let's go to Light & Production. If you look at the chart, Light & Production seems to be in a very good shape. Revenue grew by 54.3% to now EUR 111.3 million. In this gross figure, though, EUR 29 million is coming from acquired businesses. It does mean that our legacy business still did show some growth in the first half of this year. As a result of the growth, the EBITDA margin, and as a result of the volume and the favorable mix effect, the EBITDA margin actually grew quite significantly to now 10.7%. When you go to the very right-hand side of the chart, you see that the order intake in Light & Production also grew by 22.8% to now EUR 113 million.
However, this is actually the area of concern for us, since almost the entire growth in the order intake is coming from the acquired businesses. In particular, in the last few weeks, it seems as if the dynamic in our legacy businesses in the automotive industry, in particular around the German automotive industry, seems to be, shall we say, weaker. We did see harder conditions and tougher conditions in this automotive industry in the last few weeks, in particular. We all have seen and heard the news, particularly when it comes to the supply chain in the automotive industry in Germany. As a matter of fact, that triggered us to say, "Hmm, for us, it's better to adjust our guidance somewhat," and we'll discuss that at the end of the call.
With that said, let's go to Light & Safety, where in a way it's a bit of an opposite scenario here. If you look at the page, it seems quite dumb, but actually the business is developing pretty nicely. We did see the sales declining by 21.7% to now EUR 48.4 million. However, as Hans-Dieter already pointed out, EUR 25 million in the prior year came from our Toll Collect business. If we would take that out and compare the two first halves like for like, the business would have seen quite significant growth actually in also 30%. Obviously, as a result of the missing Toll Collect business, EBITDA has contracted and declined, and we do see an EBITDA margin now of 13.5% versus 15.2% prior year.
As we always discussed, prior year first half Q1 2022 has had this specific Toll Collect effect, and 13.5% EBITDA margin for first half is pretty decent actually for our traffic business. What's very positive is that the order intake has been growing. We have seen positive order intake dynamics in the Light & Safety division in both quarters, quarter one and quarter two. The backlog is now at a pretty good and pretty healthy level, also in our Light & Safety division. Let's go to VINCORION. In VINCORION we still have, shall we say, the problems, if you want, or the issues that we have discussed with you a number of times when it comes to the export ban for military goods to certain Arabian countries.
We do see the sales in VINCORION declining by almost 30%, by 27.6% to now actually to size of EUR 60 million in the first half of the year. As a result of that, the profit in VINCORION also declined to now EUR 4.5 million in the first half, which represents an EBITDA margin of only 7.6%, pretty low for this business. We also have seen order intake declining to now 73.8%. However, if you compare order intake and sales, and you do see that we have a book-to-bill ratio of 1.25, which is pretty high. As a matter of fact, the order backlog for the business is at EUR 173 million. If you think about it, a business that turns over in the first half, not even EUR 60 million, has a backlog of more of EUR 170 million.
It does indicate that we do expect from VINCORION very strong sales in Q3 and Q4. We believe that VINCORION in by itself is in a very healthy state if it comes to its order backlog, obviously. We'll see how this export ban situation develops in the next few weeks. As I say, always very hard to predict. Overall, and by and large, the order situation in VINCORION is actually very good and the demand for the product of VINCORION is very strong. With that said, let me come to our view on how the year will continue to develop.
We did point out that we do adjust our forecast slightly due to the ongoing uncertainty, in particular in the automotive industry. What we have seen is quite a bit of a slowing down in investment decision-making in the last weeks. We now anticipate revenues without major portfolio changes, so for the business that we have in this major scale, in a range between EUR 850 million and EUR 860 million. As you all know, before, we have guided to a growth in the mid-single digit percentage range. We believe that the EBITDA margin will come to around 15.5%, and before we have guided for 15.5% to 16%. Essentially, our margin guidance is at the lower end of the guidance, if you want. Although we have adjusted our guidance somewhat to down, I would like to point out that this is still a good growth for the business.
I don't want to use the word record year that much at the moment, but it's still a fact that we anticipate Jenoptik to grow even in this year, and to actually expand margins. In the light of two record-breaking years of growth and margin expansion in 2017 and 2018, we're still pretty pleased with the development. That said, though, we are aware of, let's say, darker clouds on the horizon when it comes to the economy, and we're a bit more cautious, and thus our slightly downward adjustment in our guidance. With that, let me pause here, and we're looking forward to receiving questions from your end.
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. Please press nine and star to ask a question. There are currently no questions in the queue. Oh, yes there is. The first question is from Malte Schaumann of Warburg Research.
Good afternoon. My first question is regarding the push-out in the laser and allied optics business. Are you able to quantify them?
Good afternoon. To quantify them, I don't think so, to be honest. There are legal reasons for us not to go into too many details here. You can sort of triangulate to some extent with the decline in cash flow, but you have to take into consideration the VINCORION piece. If you take the increase in working capital, it's not all from Light & Optics, but quite a bit of it is from Light & Optics. That's sort of in the ballpark, that sort of a range. Please do understand that we can't go into much more details here. Yeah. I hope that gives you an idea of what we're talking.
Yeah, fair enough. Do you think that towards the end of the third quarter, that as customers are pulling now, that you worked throughout these projects?
Yeah. Well, the way these contracts are typically structured is that they have a certain time period for them to push out. Fairly long, actually. We are in discussions with them, and they have started to actually pull the trigger on some of these deliveries, which is, as Hans-Dieter pointed out, we have seen in the recent weeks, actually, deliveries and also cash flow coming in. We're confident that this mechanism works pretty well. For us, the most important thing, obviously, is that we're very confident that we will get the money. For us, that's almost a given. It is a situation that's not unusual in this industry. We all know that semicon is maybe not as booming as it used to be some time ago. Yeah, overall, we're still sort of okay.
Okay, good. Towards on your full year guidance, I was wondering if you could provide some additional color what you actually factored in. Seeing the order intake level of Light & Production, have you factored in a stable development for the next two quarters or a slight recovery? With respect to the export license, have you taken that project fully out of your guidance or is maybe a third-party solution with another customer then still included? Yeah.
Yeah. Very good question. With respect to the UWA, the Patriot business from VINCORION, we have it still in our model, if you want. This is still in. We still believe that there is chance that we get an export license in the next few weeks and months. A decision has to be made in Q3, to be honest. If it doesn't come in Q3, then we have to trigger the alternative route, you have mentioned this alternative scenario that we're trying to present the products together with our customer, Raytheon, to an alternative destination, if you want. The decision has to be made within the current quarter. At the moment, we still have it in our forecast in its entirety. There is some risk on that, which is why we also have a range here.
The risk is not the full 10%, sorry, EUR 10 million of the range that we have here. If it comes to the automotive industry, we have a very large backlog. Our shippable backlog for the year is fairly high. If you calculate our sales for the year for the total group year to date, plus the shippable backlog, the amount of all those book ship orders that we have to still generate this year is actually fairly little. It's EUR 100 million. It's not that much, actually. Given the uncertainty in the automotive industry, we wanted to be a bit cautious. We have factored in a stable development in the automotive industry. We don't think it will deteriorate much beyond what we see at the moment. Again, the backdrop we have is still good for some time. There is still some risk. That's our portion here.
Stable is the word that I would like to use at a low level.
Yeah. Makes sense, I guess. On VINCORION, maybe you can share your expected timeframe for the potential disposal, and then more importantly, what was the reaction? It's not that much time since you announced the move, but maybe you can talk a bit about what kind of potential buyers have come to you and maybe the amount are we speaking about. I don't know. Up to you what you want to share.
Yeah.
It's appreciated.
Yeah. Sure. The way this process works is, as you all know, we have now indicated that we have an interest in seeing if there is a better owner for this business out there. The process now will be as follows. At some point, we will collect potential indication of interest, then we'll have a look at them, analyze them in our bodies and our boards. Then we see if there is one or two or three or a handful or however many indicative offers for people that can provide a better future for the business of VINCORION versus us. Then the typical discussions start around how much around price tag and all these good things. That's gonna take a while.
That would be the first stage of a stage gate process, because at the end of the day, even if we are able to sign a share purchase agreement at some point, there is still quite a lot of necessary approval steps since this is a military business. I, for one, would not expect that we would, say, close a transaction this year. That seems to be very unlikely from my point of view. I think sometime during 2020, that's likely. If there are attractive offers for the business and if there is enough interest for the business. I hope that explains, it's not a clear process. It's not as if I can give you any sort of milestone dates or anything like that. I think it's fair to say that it's not a process that one can expect to finish in a few weeks.
Yeah, sure. Did some guys already raise a hand in their hands, or is it too early at the current stage to really expect already initial indications?
There always have been people that approached us throughout the last month, and as a matter of fact, throughout the last two years since I'm here. There always have been people approaching us, indicating their interest. We have engaged.
Investment bank.
investment bank. They're handling the process for us. Even if I wanted to, I couldn't even answer the question at the moment.
Yeah. Okay. Fair enough. Thanks.
If you would like to ask a question, press nine and star on your telephone keypad. There are no further questions.
Okay.
Okay.
There is another question from Christian Sandherr of Hauck & Aufhäuser. The floor is yours.
Yes. Hi, everybody. I would have a follow-up question regarding the VINCORION sale. I believe that you've said in the past that if you were to sell the business, you would reinvest the money in a more suitable company. Do you already have anything in your mind that you've been looking at or something, a few companies in shortlist, maybe you can share some light on this?
Well, look, you will understand that we cannot talk about particular targets or mention names or anything like that. What we can share is that we, as we always said, we do want to strengthen our focus on our photonics business. We want to transform Jenoptik into a focused technology group, focused around optics and photonics. Obviously, that's an area for us of hopefully and potentially investment. Yeah, we are always and constantly in discussions, and in processes for potential bolt-ons onto all our businesses, and we have discussed with you in some detail in the past, how we think about bolt-on acquisitions versus larger transformatory deals. Adding product to the basket of phase reps and adding regional expansion versus adding whole businesses. We are happy to go into that in more detail.
For now, I'd say our focus is around optics and photonics and our photonics businesses, which is essentially the three divisions that operate under the name of Jenoptik.
All right. Great. I would have another follow-up question on your Light & Production business. With a lot of the OEMs really talking about or thinking about delaying investments, do you see potential risk to the needed growth in the segment for this year and also for the next one or two years? Continental, for example, has been really careful in regards to recovery, or at least being a stable market in this area. You're seeing a risk to your guidance, if the market was to, let's say, deteriorate even more or the OEMs delaying investments further?
That's a very good question. If only I would have a crystal ball. Look, we have framed the guidance to the best of our knowledge based on what we know today. We have seen things slowing down in the last few weeks, months, but, in particular, sort of in the last few weeks, quite a bit, and thus we have toned down our guidance and adjusted our guidance, overall for the group. That does obviously mean and is particularly triggered by exactly the events that you just described. To what extent the market situation further deteriorates in the next months is also for us very hard to predict. The only thing that I can say if it comes to the automotive industry is that the uncertainty is very high at the moment. We do have a fairly strong backlog though. We have also some mix effects here.
If you look at the thing in more detail, if you segment our own business, then we see a continued strong demand in our automation business, i.e. Prodomax. We do see that companies still invest, in particular in North America, in automating their production processes. The weakness that we see is more in our legacy business in the metrology and, to some extent, the laser processing, in particular in the German automotive environment. The news that you just mentioned around certain tier ones, tier twos are certainly not very helpful. Fairly good, no, actually pretty good business environment for automation. Growing Prodomax on the one hand, deteriorating market conditions for our legacy business, in particular in Germany, on the other hand. If you take that all together, this whole ball of wax together, then it's kind of like where we sit at the moment.
That's why we lower our guidance somewhat. Now, of course, if the whole automotive industry sort of breaks down in the next weeks and months and comes to an entire standstill, then we wouldn't be immune to that. We are, as I say, we do have a fairly good backlog in the business. That's sort of the balanced view, I should say.
All right. Okay. Just a quick follow-up question in regard to your order intake, also in the automotive related business. A lot of automotive companies have been saying that particularly June was very, very weak and much weaker than April and May combined. Is that also something in terms of order intake that you can confirm? Has this already improved in July again? Maybe can you shed some light on this?
Yeah. I can confirm your June picture. July we will discuss when we discuss our Q3 results.
All right. Thank you.
Yes.
The next question is from Thomas Schießle of EQUI.TS. The floor is yours.
Yeah. Thank you. This is Thomas Schießle. Hi, gentlemen. Actually, my question concerning the order quality had been answered by you, Stefan, quite frankly and quite comprehensive. Thank you. There is no question left, and see you tomorrow. Bye.
Bye. Thank you.
If there are any further questions, please press nine and star now. There are no further questions.
Okay, thank you very much for participating from our end here. Looking forward to seeing many of you tomorrow or in our investor relations events in the next few weeks and months. Have a good rest of the day and an interesting rest of the summer, shall we say. All the best. Thanks.
Great.