Afternoon, ladies and gentlemen. Welcome to the ENOPTIC Conference Call regarding the Interim Financial Statements for the First Half of twenty nineteen. 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 Trega.
Yes, 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 Wilhelm Schumacher, our CFO. The Q2 has seen, from our perspective, acceleration in sales actually and quite a bit of margin expansion. The isolated quarter has been up $15,000,000 in sales versus Q1 of the year and plus 2.2% growth we have seen in sales versus the Q2 2018.
Margin in the business has expanded in the quarter by 15 bps, and we have seen an EBITDA margin of 15.2 percent in the Q2. As a result, the first half of twenty nineteen 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 Q2 last year.
Compare that and combine that with a very good order intake in the Q1, 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 months is coming from. And without seeing too much airtime 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 in the at the end of the call. We also point out, and most of you are aware of that, that we have started a structured process to potentially dispose of Vincorin, our defense business. It's, from our point of view, a major milestone in the transformation of the Enoptic into a focused technology group. And we're looking forward to that process, and we're happy to answer any questions that you might have around this process. With that said, 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 4, 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 6 months is nearly flat, a little bit below prior year with €392,500,000 Light and Production and Light and Safety divisions contributed to growth, especially Light and Safety and Stefan will explain it to you later on, has a good order intake development, a strong contribution. Light and 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. So 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@1.02, which is a very important ratio that for us that it is as long as possible above 1-0. The order backlog is also on a still high level of EUR 522,500,000, which is equal to the year end, nearly the same. And we are planning to convert 65% of this order backlog to revenue in the actual fiscal year compared to 58% last year.
So it's a solid basis for the coming months of the rest of the year. If you then follow me please to the next slide, you see our revenue development over the quarters and cumulated. And as already explained by Stefan, we had a very good quarter, too, stand alone with €199,200,000 It's a pity that we could not reach the €200,000,000 but it was close. So €199,000,000 which is an increase compared to a year ago of roughly €5,000,000 or 2 0.2%. And cumulated with the development in the Q2, we could close the gap from the Q1 a little bit so that you can say we can say we are at the same level after 6 months like a year ago.
The acquired companies around Protamax, including auto in Vienna here, Auto Vision in Vienna has already contributed €29,000,000 in the actual figures. But the comparator of the prior year has also been influenced by our toll monitoring project in Germany. You remember the toll product project where we had approximately EUR 25,000,000 positive revenue in the 1st 6 months, which are missing in this year. So it's nearly equalizing each other. So that's important to know.
And then please let us go to the next page where we have prepared to you the revenue split throughout the countries. And you see that the percentage of foreign revenue is at 73% right now, which is quite impressive percentage. And you see a strong growth in Americas, obviously, very much influenced by our acquisitions there. And also in Asia Pacific, with a growth rate of nearly 11%, You see the less good performance in Germany with minus 16.6%, but this is due to the missing Toll Collect revenue in the prior year. Then please follow me on Page 7.
There you see our earnings development in EBITDA and EBIT, especially in EBITDA, where we have no purchase price allocation impact in you see that our EBITDA in absolute terms and in percentage in Q2 was €30,200,000 compared to €28,500,000 a year ago has improved. So that also there we could close a little bit the gap compared to the Q1. In total, we are at €54,000,000 which is 4% below prior year after 6 months and 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 and Optics and now the other business last year.
So we hired people to serve our customers and to be ready. This has shown up for the first time now with the whole momentum in figures 2019 because most of them have been hired in the last second half year of 2018. And of course, obviously, the colleagues who joined us throughout the acquisitions are also in the functional costs. So 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 down, more down in the P and 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 3,000,000 negative impact in the EBIT coming from the purchase price allocation effects. But the acquired companies, including the PPI effect, contributed with €1,500,000 positive EBIT to the development of the group. Yes, when you then please follow us on the next slide. Here, we see the P and L of the group in a little bit more details.
What I'd like to highlight here is our gross margin, which improved from 35 0.2% to 36%. The investments in the functional cost, I already explained, increased from €92,700,000 to €103,000,000 EBITDA and EBITDA, I have already explained. Financial result is nothing special to mention. And earnings after taxes is influenced by the effective cash effective tax rate, which in the 1st 6 months has been at 15.2% compared to 14.2% due to higher share of earnings generated outside of Germany. If you then 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 €53,500,000 compared to €55,000,000 And then you see the changes in working capital, And you see a huge growth in the working capital from €216,800,000 at the year end to EUR 256,400,000. And if you look to the comparison on the first half year twenty eighteen, you see development from EUR 227,100,000 to EUR 256,400,000, which is the main reason for the negative development and negative influence of our free cash flow in the 1st 6 months. Where does it come from? The capital working capital ratio of 30.8%. It's influenced mainly by 2 major points, so to speak.
The one is the Vincorion business, where we don't but still did not get the allowance to export to our customer in United, Arabian Emirates. Our goods, we have already produced and on stock. So 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 and the other impact is coming from the Light and 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. We already finished goods, but they have the obligation to take the goods from us. And in the meantime, by the way, we have already delivered some of them to them and have invoiced it. But at the year 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. So we are quite sure, very confident that in the second half of the year, this is will materialize and realize into free cash flow in the months to come.
So all in all, the free cash flow from operating activities, including the working capital, has been already at a zero line with EUR 1,900,000 compared to EUR 42,700,000. And then coming to our calculation of the free cash flow, you should take away the cash flow from investing activities. And as we have invested a little bit more than prior year, it also took away some 1,000,000 from the free cash flow. All in all, we ended up at EUR 14.6 €1,000,000 minus free cash flow compared to CHF 28,800,000. So 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 €79,000,000 we have an impact of IFRS 16 of around €56,600,000 So heavily an impact from IFRS. Operational, it's still close to 0, and it will improve throughout the rest of the year. Having said this, I'd like to hand over again to Stephan, who will explain to all of you now the development of our divisions.
Yes. Thank you. And let's go straight to Light and Optics, Page 1 of the presentation, where you can see that the sales in Light and Optics are essentially flat compared to a very strong first half last year. We did see good business in semiconductor equipment. And I'll just come back to the mechanism that Hans Dieter just explained.
So 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 refrac according to PRC, thus the revenue is stable, which is good. We have good sales. And 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.
So 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 on Caverside. We never expected to keep the extremely high levels of wellmores 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. And quite frankly, we had to also to sustain the very high output levels in our factories. On the right hand side of the chart, you see our order intake pattern. And order intake has contracted by 14.7 percent for this business to now €153,000,000 However, as I had already pointed out, we have taken one big, big order really in the last like literally in the last hours of 2018.
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. But 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.
And 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. So we're actually fairly okay with the development of the light and optics and in particular when it comes to the semiconductor industry. With that said, let's go to life and production. Now if you look at the chart, life and production seems to be in a very good shape.
Revenue grew by 40 the 54.3 percent to now €111,300,000 In this growth figure, though, €29,000,000 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 of course, as a result of the volume and the favorable mix effect, the EBITDA margin actually grew quite significantly to now a 10.7%. Moving to the very right hand side of the chart, you see that the order intake in lighter production also grew by 22.8 percent to now €113,000,000 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, in around the German automotive industry, seems to be, shall we say, weaker.
We did see harder conditions and the tougher conditions in this automotive industry in the last few weeks, in particular. We all have here have seen and heard the news, particular when it comes to the supply chain in the automotive industry in Germany. And as a matter of fact, that triggered us to say, we 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 Life and Safety, where in a way, it's a bit of an opposite scenario here. If you look at the page, it seems quite some.
But actually, the business is developing pretty nicely. We did see the sales declining by 21.7 percent to now €48,400,000 However, as Sanjit already pointed out, €25,000,000 in the prior year came from our Tor Collect business. If we would sort of take that out and compare the 2 first half like for like, business would have seemed quite significant growth actually north of 30%. Obviously, as a result of the missing toll collector business, EBITDA has contracted and declined, and we do see a EBITDA margin now of 13.5% versus 15.2% prior year. But as we always discussed, prior year, first half Q1, Q2 has had this specific Forecollect 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 Life and Safety division in both quarters, quarter 1 and quarter 2. And the backlog is now at a pretty good and pretty healthy level, also in our life and safety division. Now let's go to Vincorion.
And 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 Vercorium declining by almost 30% by 27.6% to now actually it's a size of €60,000,000 in the first half of the year. As a result of that, the profit in Vincorion also declined to now €4,500,000
in the first
half, which represents an EBITDA margin of 27.6%, 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 €173,000,000 And if you think about it, a business that turns over in the first half, not even €60,000,000 has a backlog of 100 and €70,000,000 It does indicate that we do expect for Vincroion very strong sales in Q3 and Q4. We believe that Vincorion by itself is in a very healthy state if it comes to its order backlog, obviously.
Those political influences are always very hard to predict. So we'll see how this export ban situation develops in the next few weeks. As I say, obviously, it's very hard to predict. But overall and by and large, the order situation in mean, corona is actually very good. And the demand for the products, I think, corona 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. And what we have seen is quite a bit of a slowing down in investment decision making in the last 2 weeks. We now anticipate revenues without major portfolio changes, so for the business that we have in this major scale, in a range between €850,000,000 €860,000,000 As you all know, before, around 15.5%. And before, we have guided for 15.5% to 16%.
So 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 say the or don't want to use the word record year that much at the moment, but it's still a fact that we anticipate Genoptix to grow even in this year and to actually expand margins. And in the light of 2 record breaking years of gross margin expansion in 2017 2018, we are still pretty pleased with the development. That said, though, we are aware of, let's say, dark oxalies and the horizon if it comes to the economy, and we're a bit more cautious and thus our slightly downward adjustment in our guidance.
So with that, let me pause here, and we're looking forward to receiving questions from Europe.
The first question is from Liza Schalmann of Warburg Research.
Good afternoon. My first question is regarding the push out in the laser optics business, Allied optics business. Are you able to
quantify them? Good afternoon. To quantify them, I don't think so, to be honest. I mean, there are legal reasons for us not to go into too many details here. I mean, you can sort of triangulate to some extent with the decline in cash flow, but you have to take into consideration a bit core and piece.
So it's not all from if you take the increase in working capital, it's not all from Life and Optics,
but
quite a bit of it is from Light and Optics. So that's sort of in the ballpark, that's sort of a range. And obviously, and please do understand that we can't go into much more details here. Yes, I hope that gives you an idea of what we're talking.
Yes, fair enough. And do you think that with the towards the end of Q3 that customers have to are pulling now that you worked throughout these projects?
Yes. Well, I mean, the way these contracts are typically structured is that they have a certain time period for them to push out through fairly long actually. We are in discussions with them, and they have started to actually pull or the trigger on some of these deliveries, which is, as Anzida pointed out, we have seen in the recent weeks actually, deliveries and also cash flow coming in. So we're confident that this mechanism works pretty well. For us, the most important thing obviously is that we're very, very well, very, very, very confident that we will get the money.
And that's for us, that's almost a given. It is a situation that's not unusual in this industry. I mean, we all know that semicon is maybe not as booming as it used to be some time ago. But yes, overall, we're still sort of okay.
Okay, good. And then towards your on your full year guidance, I was wondering if you could provide some additional color what you actually factored in. I mean, seeing the order intake level of light and production, have you factored in kind of a stable development for the next two quarters or kind of a slight recovery? And then with respect to the export license, have you taken that product fully out of your guidance? Or is maybe a third party solution with another customer than to include it?
Yes. Very good question. With respect to the UWA, the Patriot business from Vincorion, we have it still in the in our model, if you want. So this is still in. We still believe that there is chance that we get the expert or a expert license in the next few weeks 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. And you have mentioned this alternative scenario that we're trying to send the products together with our customer, ASEAN, to an alternative destination, if you want. And this decision has to be made within the current quarter. But at the moment, we still have it in our forecast in its entirety.
So there is some risk on that, which is why we also have a range here. The risk is not the full 10% sorry, €10,000,000 of the range that we have here. If it comes to the automotive industry, I mean, we have a very large backlog. So our typical 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 orders shippable book ship orders that we have to still generate this year is actually fairly little.
It's €100,000,000 It's not that much actually. But 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. And again, the backdrop we have is still good for some time.
But there is still some risk. That's our portion here. So stable is what the is the word that I would like to use at a low level.
Yes. Makes sense, I guess. And then on Vincolion, we can show your expected time frame for the potential disposal. And then more importantly, what was the reaction? I mean, it's it's not that much time since you announced the move, but maybe you can talk about a bit about what kind of potential buyers have come to you and maybe the amount, obviously speaking about, I don't know, I mean, it's
up to you what you want to share.
It's appreciated.
Yes, yes, sure. I mean 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 indications of interest, and then we have a look at them, analyze them in our bodies and our boards. And then we see if there is 1 or 2 or 3 or a handful or however many indicative offers for people that can provide a better future for the business of Incorion versus us.
And then the typical discussions start around how much price tag and all these good things. And that's going to take a while. And that will 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 1, would not expect that we would, say, close a transaction this year. That seems to be very unlikely in my point
of view from my point
of view. But I think sometime sort of during 2020, that's likely. If there are attractive offers for the business And if there are attractive yes, there is enough interest for the business. And I hope that explains. It's not a clear process.
I mean it's not as if I can give you any sort of milestone dates or anything like that. But I think it's fair to say that it's not a process that one can expect to finish in a few weeks.
Yes, sure, sure. Did some guys already raise the rules 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 months and as a matter of fact, throughout the last 2 years since I'm here. There always have been people approaching us indicating their interest. We have engaged an investment bank, and they're handling the process for us. So even if I wanted to, I couldn't even answer the question at the moment.
Yes. Okay. Fair enough. Thanks.
There are no further questions.
No.
Okay. There is another question from Christian Zanther of Hauck and Aufreuze. 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, then you would reinvest the money in a more suitable company. Do you already have anything in your mind we're looking at or something of few companies in shortlist?
Maybe you can shed some light on this.
Well, look, I mean, you will understand that we cannot talk about particular targets or mention names or anything like that. But what we can share is that we as we always said, we do want to strengthen our and strengthen our focus on our Photonics business. We want to transform EN OPTIC into a focused technology group, focused around optics and photonics. And obviously, that's an area for us of hopefully and potentially investments. So yes, 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 transformative deals, adding product to the basket of sales reps and adding regional expansion versus adding whole businesses. And we're happy to go into that in more detail. But for now, I'd say our focus is around optics and photonics and our photonics businesses, which is essentially the 3 divisions that operate under the name of Genoptic.
All right. Great. And then I would have another follow-up question on your license production business. I mean, with the 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 1 or 2 years? Because I mean, Conti, for example, has been really careful in regards to recovery for this being a stable market in this area?
So you've seen this to your guidance, if the market was to, I'd 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, I mean, we have framed the guidance or to the best of all 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.
And 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. And we have also some mix effects here because 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, ProtoMax. And 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. And the news that you just mentioned around certain Tier 1s, Tier 2s are certainly not very helpful. So very fairly good, no actually pretty good business environment for automation, Boeing Potomax on the one hand, deteriorating market conditions for our legacy business, in particular in Germany on the other hand.
And if you take that all together, this whole ball of wax together, then it's kind of like where we sit at the moment. And that's why we lower our guidance somewhat. Now of course, if the whole automotive industry sort of breaks down in the next weeks months and comes to an entire stencil, then we wouldn't be immune to that. But we are as I say, we do have a fairly good backlog in the business. So that's sort of the balanced view, I should say.
All right. Okay. And then 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, much weaker than April May combined. Is that also something in terms of order intake that you can confirm?
And has it always improved in July again? And maybe you can shed some light on this.
Yes. I can confirm your June picture. And July, we will discuss when we discuss our Q3 results.
The next question is from Thomas Schiefler of Equit. The floor is yours.
Yes. Thank you. This is Thomas Schiefler. Hi, gentlemen. Actually, my question concerning the order quality had been answered by you, Stefan, quite frankly and quite comprehensive.
Thank you. So there is no question left and see you tomorrow. Bye.
There are no further questions.
Okay. Then 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 months. And have a good rest of the day and an interesting rest of the summer, shall we say. All the best.
Thanks.
Thank you.