Good afternoon, ladies and gentlemen, and welcome to the Anoptic AG Conference Call regarding the results of the 1st 9 months 2018. At this time, all participants have been placed in 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. Stefan Trager.
Yes, thank you very much and a very warm welcome from us here in Jena to our Q3 earnings call. With me today, as always, is Hans Wilhelm Schumacher, our CFO. As you know, we're going to start the call with a quick look into the recent developments of the Enoptic Group. We're going to give you a quick current trading update. We will discuss later on the individual segments of our company, have a closer look into that, and we will round up the call with our outlook.
You will have seen that we have given raised our forecast for year end on sales and the absolute profit targets, and we'll discuss that at the end of the call. Let me first of all, though, take you through some major events that have happened in the last few months or actually in the 1st 9 months of this year. But just relatively recently, we have launched the new brand for our mechatronic defense business. That has been a major milestone for us. In fulfillment of our new strategy, we brought to light the new brand for this business.
It has been received very nicely both in the marketplace as well as within our own organizational associates have been very positive about that. So for us, very, very important milestone, and we delivered on a, if you want, a promise of our strategy. We have made 2 acquisitions this year thus far. Earlier in the year, we have acquired Protomax. Protomax Automation has been the largest acquisition that Genoptix has done in the last decade or so.
And it's developing pretty nicely, and we're going to talk you through some of the, yes, backdrops and backgrounds of Prodomex later in the call. Recently, we've also added the Opto Group, OptoVision and OviTech to our business. It's more of a local acquisition here into India, and we explained that in more detail that one as well. However, we don't just invest into new companies that we acquire in addition to the portfolio. We're also investing into expanding and modernizing our own locations and facilities in order to improve our own business and prepare ourselves for even more growth in the future.
We have today raised our revenue forecast, as you will have seen. We kept our margin target now at the same level based however, based on the higher sales. So in return, that does mean that the absolute profit targets are now higher for the group and that we do that despite the fact that we have substantial PPA effects, which we are going to detail later on in the call. We had a quick look at the results itself financially. The 1st months of 2018 had certainly been very successful for Genoptix.
We're proud of what we have delivered thus far. Revenues are up 12.6%. And if we exclude the acquisitions that we just mentioned, organically, we have seen sales growing by 8.5% to now a total of €593,400,000 after the 1st 3 quarters. We managed to expand our margins pretty significantly. We added around 110 bps to our EBITDA margin, which is essentially a plus of 21.7 percent, and that equates to €89,000,000 on our EBITDA 1.
So overall, the 1st 9 months of the year have been very, very promising, and we're going to go into more details, as I said, in the call. Let me just take you to the next page and have a really quick look on the 2 acquisitions that we've made thus far, both of which did all very, very promising in the first weeks that we have them with us in the group. Firstly, Protomax. We've discussed that in the last call that we had together. Protomax had been the largest acquisition the company has made in recent years.
With Protomax, you basically continue down the road that we have started to sort of explore with the acquisition of Hyper Light Automation last year already. ProtoMax is a machine integrator and helps us to expand our business in the process automation, particularly on the automotive industry. Business and the second in our industry, automation of production processes, where we're very convinced that it's going to grow in the years to come. And we're very pleased to have our colleagues up in Barrie, Ontario now with us. Kodamax has about 180 employees, as I said, headquartered in Barrie, Ontario in Canada.
We think to them, obviously, is, number 1, our local or global sales channels. ProtoMax is thus far acting predominantly in the Toronto and Detroit area. They are selling to the big OEMs and Tier 1s in Detroit and Toronto. So really at the U. S.
Automotive industry, We bring to them, as I said, our global channel, and we want to and are going on hopefully are going to expand that business around the globe. We also bring to ProtoMx though our financial power. In this segment, pre financing of larger deals often is required. And we have the financial power and the willingness to invest into that business, to grow that business and to enable that business to participate in larger deals and therefore, enabling them to grow their own business going forward. So as far as I said earlier, very pleased with the acquisition of Photomax.
It contributes quite a lot already to the figures that we're discussing here. There is a consolidation effect and an IFRS 15 effect, which we have detailed in our reporting. But as I said, thus far, actually very pleased with how ProtoMx develops for us also operationally. The Acel Group that we've acquired more recently is a smaller and local organization and local acquisition. They're based here in our headquarters near our headquarters here in the A9, Turingia.
They do bring to us very interesting technology. Other comes with an optical 2 d and 3 d inspection systems for quality assurance and process optimization. They are selling currently predominantly in the automotive industry, and we are going to integrate that business into our automotive division, which is going to be called lighter production. Autoland doesn't just sell to automotive. They're also seeing a good potential in neighboring and adjacent segments, in particular in the electronic industry.
And we're pretty convinced that this type of production metrology and industrial imaging for process applications is an important step into what we call Industry 4.0, an expansion of our business into that direction. With that said, I'll hand over to Antieta, who is going to take us through the numbers in more detail. And later on, we will give more color around our segments.
Andreas? Thank you, Stefan. A very warm welcome from my side as well. Here you see now the slide concerning our revenue development over the quarters and the 3rd 9 months. In total, you see the increase of 12.6% to the highest revenue in the 9 months period in the last years of EUR 593,400,000.
Without the acquisition impact, so to speak, in the revenue, we have an organic growth of 8.5%, meaning that the acquired companies contributed around about €22,000,000 in revenue. We had a business increase in all three segments, stronger demand, in particular from the areas of semiconductor equipment, health care industry, which is still on a very high level, and we see no downturn in the near and middle time frame from now on. But Stefan will explain it to you later when he talks about the segments. As well as Plastic Safety Solutions, we have talked to you about our toll monitoring system with our partner, Tollkollect in Germany, which we have shown in our figures already in the 1st 6 months. So it has not had an impact in Q3 anymore, no major at least, but we have seen a very positive development in the 1st 6 months.
So this has been the policy tollwinds in the businesses. If you can follow me to the Page 6, you see the regional split of our revenue. In the meantime, our foreign part of the revenues has reached almost 70%. If you see it on the world card, you see that Americas has 24.7% increase, not only driven by the acquisition, but obviously, very supported by our acquisitions there with 5 Lakes Automation in U. S.
And Photomax in Canada. You see Europe, an increase of 15.7%. There you see the main reason is obviously our ongoing good business in semiconductor area. Then you see Germany with 19.4%, where you can see the positive impact from the toll collect business. You see not for the on the first few minus development minus in revenues in Asia Pacific of 15.8%.
This is due to the fact that we could not gain the follow-up project in Australia, but we are working hard to cover this in the months to come. This is the development in the regions. If you then look into the profit figures, EBITDA and EBIT, you see that they even strongerly were on a sales increase. EBITDA, Stephan has already mentioned, increased by 22%, roughly 21.7% And with 15.0% margin, we have now substantially improvement of 110 basis points compared to prior year. We had 13.9%.
And in these EBITDA figures, we have already booked an impact of the purchase price allocation effect of minus EUR 4,800,000. It's you can ask the question, why do you have some PPR effects also in the EBITDA, not only in EBIT. This is coming from the inventory side. We have the impact from inventory step up, but it means on the other side that they are turning around the inventories in the sales figure And now we took the negative fit. There is another approximately before you ask me the question, approximately you foresee another €1,000,000 to come to the year end.
So all in all, we will have booked then roughly €6,000,000 EBITDA margin to the year end, and we still keep our 15% EBITDA margin as a target. And then the acquisition costs, you know we have to have lawyers and auditors on our side to be very precise and have a sure basis that everything is done well. So we have booked costs for the acquisition of EUR 1,800,000. Both of these impacts, you also see in the EBIT. But on top, you have purchase price allocation impacts, maybe on the sales cost, sales functional cost coming from the customers, valuation, depreciation.
So all in all, you have we have an impact in the EBIT of minus EUR 6,300,000. But despite this impact, we have an EBIT margin of 11.2%, which is also a very, very good and strong EBIT margin for the Inopti Group for a lot of years. So we added clear about prior year, this 9.9%. And we have shown it to you here very transparent. The acquired companies contributed to this EBIT figure of EUR 66,700,000 or to the EUR 23,900,000 in Q3 alone, only minus 0.2%, including this PPR impact or effect.
So the calculation is then lying on the table. If you take out this, then you can take the message with you that the operational EBIT of the acquired companies has been around EUR 6,100,000 linked to 21.8 percent gives you an indication there. Hello? Well, that's not what. So
just continue.
Gives you a clear indication how profitable our acquired company is operational on the operational side. So there we go. The P and L in a little bit more detailed. I think a very important message from this slide is the clear improvement on the earnings per share, meaning the net net figure taking into account even our tax side. So the earnings per share increased from EUR 0.77 per share to EUR 0.94 per share, which is also a very strong development and above the sales, increased clear above.
And you see it here, it was driven by relatively slow low functional costs, only an increase of EUR 3,000,000 roughly, EUR 2 point something million, but it's mainly an increase in R and D and selling expenses, and the opposite is the case in the administrative expenses side. We have reduced them, which is one of our targets. So it's working out already a little bit. The gross margin was influenced by the PPR impact on the one side, and the other side is that the acquired business on the product market side has been in the business model a little bit lower gross margin than the rest of the Inoptic Group. But because that they have relatively low function cost, they have such a high EBITDA and EBIT margin, yes?
And you see it here. The financial results, I'd like to explain with one sentence. It has a development from plus EUR 2,300,000 to minus EUR 2,000,000, and this is a deviation which is only linked to a one off income from the disposal of a non operating financial investment we hold last year, and we sold it to a new owner of the company. This is the only impact there. And the tax rate is still the cash effective tax rate is still relatively low, the 14.5%, which is due to the tax U.
S. Tax reform which helped us here. So all in all, even if you look in a more detailed side to the bottom line and the very, very bottom line, it's a very strong development of our company. Then I'd like to look with you all. It's my view together with you all in the future of the development.
You see here 2 very important KPIs. On the one side, the order intake. On the other side, the order backlog of the group. The order intake, I'd like to highlight that the reason is, I think, yesterday, today, we have published Q measure order intakes. We have received our traffic safety business.
These big orders are not in the figures here. We will show that in Q4. But Stefan Preger will explain it to you a little bit later when he goes through the segment development. We'd like to address here that in the Q3 alone, we had a plus of 11.9% on the order intake side that we ended up now after 9 months with a plus of 2.1%, But with this very strong Q3 in mind, we think that the rest of the year will also develop very positive. Then I think we can switch over to the order backlog.
The order backlog is even plus 6 percent, reached now EUR 480,900,000. A good basis for our commitment to you concerning our revenue target till the end of the year. We assume that we will have 48.1% converted into revenue in this year, which gives us a strong basis for our guidance for the rest of the year. It's, by the way, also influenced by the acquired companies, of course. Then my last slide before I'd like to hand over to our CEO.
I love this slide. It always comes with me as the last slide because it's all about my table issue, the free cash flow. And I think we'd like to give you together the strong signal that the optic is able to high end the investments and the acquisitions from our cash and cash flow. So all in all, we ended up after 9 months, including the payouts for our investments and acquisitions with a net debt of only €16,600,000 a year ago. We have been, so to speak, plus €69,000,000 But we think that till the year end, it should even improve in the direction of a zero balance probably.
So all in all, a very strong development. You see it here. Cash flow is approximately double as high as in the prior year from €32,000,000 to €57,000,000 We have obviously increased our working capital in absolute figures because of the strong sales development, then the trade receivables and inventories are high. But the ratio is with 29.5%, still better than a year ago with 31.3%. So all in all, we are in good financial shape.
And this is, I think, the key takeaway from this slide. And then I'd like to hand over again to Stephan, who will explain to you the performance of our segments and the outlook.
Sure. Thank you. And you know what, let's dive right in into it and start with our Optics and Life Science segment. In Optics and Life Science, we have seen continuing very positive performance and development, driving growth and expanding profitability. There always have been a discussion, particularly in the last few weeks months about semi and semicon and the development of that market.
Look, I mean, I keep saying we don't have a crystal ball like none of us has. The only thing we can tell is how our own funnel is looking like and what we see in the marketplace and from our own customers. And quite frankly, that continues to be strong. We have not seen any indication for a downturn in that business, at least, as I said, not from our customers, not in our funnels. So as you can see, it's a result of continued strong demand from the semiconductor equipment manufacturing as well as our customers in health care and the life science area, we have seen order intake growing by 4.8% to now EUR 233,400,000 after 9 months, which is, I guess, versus last year, which already had been very strong, a really positive development.
You do see that sales have been growing even harder. We managed to grow our OpEx and Life Science business by 10.4% based on the strong demand ongoing strong demand and also based on the good performance of the business, our associates and the like, we have seen, yes, as I said, very strong growth. We work hard to ship as much as we possibly can out of this segment. Nevertheless, the book to bill rate is still above 1. We have a book to bill of 1.11, which again indicates the ongoing strong demand in and, quite frankly, the ongoing tailwind that we get out of this business.
With the even higher volume and positive product mix, we have seen EBITDA stepping up, yes, significantly. Our margins are very positive. We have seen EBITDA coming to know 51 point 1,000,000 euros for the segment after 9 months, an increase of 18.9%. And the margin has stepped up to 24.2% after the 1st 9 months. So if it comes to optics and Life Science, as I already indicated, we are very, very positive about that business.
We do see the current trading developing very nicely and at least for the foreseeable future, the next weeks, months and into the early part of 2019, we don't see any signs for significant downturn here. With that said, coming down to the Mobility segment, which has been influenced by onetime effects this year quite a bit. Order intake in this segment is now up by 5.7%. Asida already pointed out, what's not included in the EUR 212,300,000 are the large orders for the traffic Solutions business that we have communicated we have received and communicated yesterday. We have discussed those orders a number of times in the past.
So I think we have said a number of times that there is something in the funnel, but we weren't quite sure when it will land. No, it did land, and we're very positive and very pleased with the fact that we could bring home that business. It will show up though in Q4 in this segment. Revenues have improved even more significantly organically as well as via M and A effects. From an organic point of view, the rollout of our traffic solutions, Toll Collect project has helped us significantly in the first half.
We have communicated that and discussed that. And in the past already, we have made good organic growth from our Torquareg project in Q1 and Q2. We also see ongoing demand in the automotive industry for existing projects. So that overall and all in all, excluding acquisitions, the segment could bring in 11.6% of organic growth. And if we add to that the contributions that we have got from our acquisitions, OTO and ProtoMax, I've seen, as I said earlier, revenues growing by 23.7 percent to now 223,400,000 As we said that, in particular for Produmax, we have seen some consolidation effects from the translation from local Canadian GAAP into IFRS 15, which had an additional positive impact on our sales figure here.
With the higher sales number, with the higher volume and the positive mix effect, we also see the profitability expanding very nicely in that segment. The EBITDA figure that you see here of EUR 25,400,000 already does include substantial acquisition related negative effects. We have had around €1,800,000 of onetime costs related to the acquisitions that we've made. And we have seen TPA effects of €4,800,000 in the EBITDA and €6,300,000 in the EBIT figure. Those are, of course, estimations at this moment in time.
That's what we have thought. I think Jan Sita already pointed out what we expect for the remainder of the year. Nevertheless, the EBITDA margin of this business, including the acquisition effects, including the TPA effects and the onetime effects, came to now 11.4 percent EBITDA. And yes, that's I think that's a very positive development for us. So from its mobility, let me go to the Defense and Civil Systems.
The colleagues there have, as I pointed out earlier, launched the new brand of our defense business. We're now going to market under the name Binkorian, this business, positive development. As I said earlier, the new brand has been received very nicely actually in the marketplace, and it helps us to commercialize products in this area arena and in this area better going forward. I have said in the past and I'm continuing to use this sort of phrase or the line here. Let me point it out one more time.
We do not have an active process at the very moment to sell this business. However, they explicitly don't want to exclude that for any future developments. Revenues in the segment, in the Defence and Civil Systems, have grown by 3.8% to now €160,900,000 as expected. We have seen our EBITDA number of profitability rising quite a lot actually here as well, which is should be visible to a profit mix effect but also to some operational cost savings that we could achieve in the business in the 1st 9 months. EBITDA margin of the Defense and Civil Systems business or the Encore business is now at 11.6% versus 10.2% in past years.
And the EBIT margin improved to 9.6%, which I believe in this business is a very good development. Nevertheless, we think there is yes, there is positive development that we've seen here, and we're certainly going to work hard to
improve
the stats and figures of this business going forward. Quick look to the order intake in Vincorion or the Defense and Civil Systems business, you do see that the order intake declined versus the 1st 9 months of last year. However, please let me point out again that we have had a very tough comparator here in the Q1. So essentially, in the second and third quarter, we managed to close the gap here and to get closer to the last year's order intake. That's pretty normal in this project driven business.
And so at this moment in time, we're looking with certain confidence in the auto intake development of our Vincorion business. So with that said, let me switch gears somewhat and go to the outlook and to our guidance here. This morning, we have raised our guidance, actually the 2nd time this year. Following the acquisition of Protomax and the Autogroup and the application of IFRS for these companies, we now expect revenues to be in the range of between €820,000,000 to €830,000,000 We still anticipate an EBITDA margin of around 15% at this higher sales level, which obviously translates into higher absolute profit numbers. Included in our margin targets are already, as we've discussed, around €4,800,000 PPA effects in the EBITDA figure and around 6,200,000 PPA effects in the EBIT figure from the acquisitions.
And also, we have already digested onetime effects from acquisition effects, onetime effects from, as Valentino pointed out, the payment for lawyers and the like. So overall, we are very pleased with the development of the group in the 1st 9 months. We look with, quite frankly, a lot of confidence towards the remainder of the year and for the remaining weeks months. We think we have a good basis for strong growth and revenue expansion for our business. We do see at this moment at least the start in the New Year to be pretty strong.
Obviously, we do monitor very carefully the recent developments. I think in this call, we have discussed that a number of times. We do depend on global trade. We do believe in global trade. We monitor potential political effects very closely, in particular when it comes to trade wars between different jurisdictions.
At this moment, we don't see a major impact into our own business, but we monitor very closely. And it does come with sort of the disclaimer that God knows what's going to happen in 2019. As I said earlier, we don't have a crystal ball. All we can do at the moment is look into our own business funnels and our own pipeline. And that does look to or does continue to look pretty strong at this point in time.
So with that said, we would like to close our presentation here and look forward to receiving interesting questions from your end.
And the first question comes from Mr. Craig Abbott, Kepler Cheuvreux. Please go ahead with your question.
Yes. Good afternoon. I have 2 questions from Anthony. First of all, just getting back to your outlook statements regarding your semi activities, obviously very positive. But I'm just trying to get a bit of feel for why the outlook situation for your customers in semi has remained so positive when we've seen so many companies in that space, obviously, warn and see very real and very sharp declines in their order intake figures going into the Q4 as a number of sales producers are implementing quite significant cuts in the CapEx in the short term.
Is this because your customers are still benefiting from upgrade trends and in particular conversion to EUV? Or I'm just trying to get a better feel for why is this sort of special situation that your customers are still seeing have a good pipeline and are seeing such good demand there? And secondly, on the defense and civil system, I noticed in the report you mentioned that there's an arms freeze being considered for Saudi Arabia, which could also potentially include deliveries of equipment that have already been approved. I just wondered to what extent this has been taken into consideration in the upper revised guidance and whether or not this could represent a potential sizable risk in the business over the next months, should that come about? Thank you.
Thanks very much for your questions. Let me start with the Saudi Arabia question. At this moment, we don't have a large exposure to Saudi Arabia. We have had in the past deals to Saudi Arabia. We did make business there in the past.
But at the very moment, we our exposure to Saudi Arabia is next to none actually sorry, next to 0 actually. So it has been included in our figures in that we don't see an impact for our current business. Under Sandy 1, that's the to be honest, I think that needs a longer explanation. So frankly, we were asking ourselves a number of times in the last few months have come that we don't see it, while a lot of other market participants indicate and actually do see sharper declines there. And we came to the conclusion that mean, for a start, this whole business, this whole industry really has changed in that the end customer exposure, if you want, diversified so much.
While in the past, semicon was pretty simple, the more PCs are sold, the more the industry goes up or down. And nowadays, one has to look just so much more careful and closer and dissect the marketplace so much more sort of diligently. Now we do sell essentially into 2 segments of the whole semi space. We sell into optical lithography, and we sell into optical inspection businesses. And if one dissects the optical lithography, which for us is the biggest semicon sector.
We sell into machine builders of optical lithography machines. And there are a few less than a handful of real players in that segment left, if you want, 2 of which have their own optics business, significant optics business. I think we can talk about it. In this segment, there is ASML, there is Canon, there is Nikon and a few other much smaller players. And ASML sorry, Canon and Nikon essentially have their own if you want their own products.
And you all know that we sell to ASML. And if you follow what ASML has communicated actually just recently in their Capital Markets Day, I think that is a good explanation and actually probably the better explanation than whatever I can come up with of outcome that we don't see it in terms of downturn and the like. I guess the best way for me to answer the question is to point to their communication, to be honest, because it's very nicely explained there. And I guess that is why predominantly we didn't. And we do also sell into the inspection arena, an important segment for us as well.
And in the inspection, things are also still strong, not just in the feed space. There are some companies in the inspection that sort of are a little bit more cautious there. But overall, the impact for us is, yes, predominantly driven by our large customers and everyone is putting that away. But I don't want to raise sort of the perception that it's just that. I think it's just because essentially we in a way, we're lucky that we fell into 2 segments that don't seem to be as affected as, for example, the Wacom Industry.
I think that's essentially, that's the explanation. Okay. Thank you.
The next question comes from Malte Schaumann, Baabak Research. Please go ahead with your question.
Good afternoon. The first one is on the gross margin in the Q3. Is it would it be fair if you strip out the 4,800,000 dollars charge for the inventory step up and then arrive at a 38% gross margin in the quarter?
To be honest to you, we don't publish Q4 gross margin figures. But as I already tried to explain to you, we will see another inventory step up PPI impact in Q4, roughly around about an additional €1,000,000 so that we will end up with €5,800,000 or roughly €6,000,000 And on the EBIT side, you will end up with additional EUR 3,000,000. We are at the moment, we are foreseeing roughly EUR 9,000,000 in the EBIT coming from EUR 6,300,000. So all in all, there are some negative impacts to come in the Q4 as well, but they are not as big as they have been in the Q3. So with the strong development in the regular Q4, we will have we will see a strong gross margin, yes.
Okay. A short answer to your very short answer to the question is probably yes.
Okay. And then on that was it just product mix? Or were there specific drivers that led to the high-30s margin, which is above the above the levels seen in the prior quarters?
I guess the here, the answer is really mix. It's mix, product mix. The more we sell in certain highly profitable businesses for us or segments for us to have, of course, our gross profit. I would like to point out one thing. Maybe I used the opportunity or we used the opportunity to just discuss an effect from ProtoMax in particular.
Now it's not that big thus far, but ProtoMax or the Automation business per se, the Integration business per se, has not the highest gross margins because there's a lot of third party items that are essentially marked up and get pushed through into the channel. We can discuss that in more detail if we want to, but just sort of to
give you a full sort of
colorful picture here, there's a number of effects that we see that will affect our gross profit margin going forward, partially because of the interstrop effect and, of course, the positive mix effect that we've discussed on the opposite hand. Going forward, though, as I said, integrating businesses like Protomex inherently have lower gross profit margin because of the effect of locking up and pushing through channel 3rd party items. For us, it's a very profitable business because sort of the bottom line effect is very positive, but gross profit margin isn't effective there.
Okay. Okay. Good. Then on G and A, I mean that came down from the 9 month 2017 figures, probably some but probably minor currency effects paid a while here. So but you significantly gained in G and A efficiency.
When should we expect G and A to rise to start rising again? I mean, how long can you maybe keep that level stable? Or I would not expect to come that further down. So maybe what is your view on that? I don't know.
Look, we will continue to work hard to reduce our G and A expenses in terms of percentage of sales. I think your anticipation of at some point, it will, shall we say, find the bottom and it might even rise again at some point It's certainly not wrong, but we will make we'll work hard to keep at least the ratio and percentage of sales at a lower level and improve there going forward.
Yes. Okay. Then your guidance hike was more or less kind of a technical reason due to higher contributions from Portamax and Autogroup. Was the right view, compensation driven? Yes.
Yes. Okay. And then on your automotive business, especially the ProTech pipeline, I mean there was a lot of noise around the automotive industry, etcetera, recently over
the past, let's say, 2 to
3 months. Do you see changes in your project pipeline with regards to the industrial metrology and the automation business and laser business?
That's a very good question. As you said, there has been a lot of noise in the industry. And about a year ago or so, we were sitting here scratching our hat, almost quite frankly, even a bit worried about the impact of e mobility and all of that and what does that mean for us and so on and so forth. In the last few weeks, I've continued to say that this discussion, the tone of the discussion has changed, at least in our company, actually quite a bit. If you think about the underlying trend in the automotive industry, there is certainly a trend to more hybrid type cars.
And if you think about a hybrid car, hybrid between sort of combustion engine and an e mobility or an electronic engine, then these hybrid cars, they need downsized, yet way more efficient combustion engines. And in order to make that happen, companies need our metrology equipment, which drives sales for us. In addition to that, we can also participate in profit from the trends to more sort of e mobility, both in our metrology business but also in our laser processing business. Because quite frankly, whilst the uncertainty in the automotive business is still very high, one thing becomes ever clearer, the complexity for the industry rises. In other words, they have to provide more and more different models.
And the lifetime of a particular model becomes smaller and smaller. And when do we sell? Essentially, we sell when there is a change in the production street or in a production environment. And when there is a change, that helps us actually. So our view at the moment is more change in the automotive industry, the better for us.
However, it does come, of course, with the sort of the caveat of the uncertainty that certainly is in the industry. What we see is that there is a lot of pressure on payment terms, not necessarily holding back investment. As a matter of fact, I don't we don't believe we're actually convinced now that the automotive industry cannot hold back on investments. They have to invest if they want to survive. And if they want to sort of face that trend to changes in the industry, What does show up though is a lot of pressure on payment terms on pre financing of deals, if you want.
And as we've discussed that already when we sort of talked about ProtoMax, we are lucky enough to be in a position to at least be able to deal with that and therefore, actually taking share of it at the moment.
Okay. Sounds promising. And you just don't seem to be too concerned about the shorter term prospects or your more immediate project pipeline?
Actually, on the contrary, we have been a bit concerned last year. If you would have asked me the same question a year ago, I would have been more concerned than I am at the moment because of that effect. So of course, we don't know what the really what the future is going to bring. I said earlier, we don't have first of all, we do monitor the whole trade war effect and all of that. But short term, in our own pipeline, we don't see a negative impact here
at all. I'd like to say only one sentence because I'm acting as the head of the division in addition to my CFO For a couple of weeks. Since the beginning of the year and now till the year end probably or the beginning of the next year. But everything Stephan said, I'd like to underline because I am with the business. I talked to our colleagues and potential customers, and I can see a lot of promising context to customers.
So there's an ongoing demand for projects. So we are busy. The division is busy.
Okay. Last question in that regard and that is then my final question is, what do you see in that respect development, especially in China with the Chinese discussion with Chinese or maybe more Asian clients, but especially with Chinese clients?
Okay. Maybe that is the one thing where we should be a bit more cautious here. We are a bit more cautious. The ongoing discussion, in particular, between the United States and China, they could have an impact on our business. We don't know at this moment.
But certainly, we do ship stuff from the U. S. Into Asia and partially into China. And also, the tariffs on both sides, they could have an impact going forward. That's why we're so cautious here on this end.
We don't see a major impact at this moment. But how that is going to develop in 2019, we don't quite know.
Yes. Sure. Understood. Thanks.
You're welcome.
The next question comes from Richard Schwab, HSBC. Please go ahead with your question.
Yes. Good afternoon, gentlemen. Two questions, please. One concerning the PPA going forward. As you mentioned that this year, it's mainly driven by this inventory item, but this should then purposely fade out next year.
So is it a fair assumption that next year on EBITDA, never we should expect more or less no further impact. And on EBIT, there remains just around about EUR 3,000,000 per year going forward.
Okay. Yes. Hello, Mr. Scham. I think it's my on me to answer your question, we'd like to be a little bit cautious because it's concerning the next year.
But we can give you an indication. And our intention is and it's as I already stated, it's an ongoing process. It's a work in process with purchase price allocation work flows, we are still undergoing it. But today, we think that at the year end, we should be fine with the impact in the EBITDA, yes, for this year. And next year, there should be no or no at least no very big from our point to date, no impact in the EBITDA anymore.
But we will still have impact in the EBIT significantly, a little bit lower than in this year, obviously. And then we come to regular basis in the year to come with a certain amount. I think we will talk and this amount is not so big that we have some feelings of sorrows or bad feelings. We can handle it, yes? So all in all, we think that there will be 2 years, this and the next year, next year only in the EBIT.
And then the years after, it's coming down. And then we have a certain mail amount, which is not so huge anymore. We can talk to you a little bit in detail when we have finished this exercise till the maybe in the beginning of the next year, yes?
Yes. And maybe just to add to that, I mean, as Tidabond has increased CTEBITDA effect this year. There will be a remaining EBIT effect next year. We are certainly a bit careful about next year because there is a lot of calculation of backdrop in the background. And yes, we want to be clear and certain before we commit on anything for next year.
But for this year, let's just say we have digested it. We will we're very happy with where we are for this year. And on the EBITDA figure, no impact next year, but some on the EBIT figure and then some more things.
Okay. Thank you. And Trond, another question on mobility or not precise on traffic solutions and the contracts you just published yesterday. So can you shed a bit more light on the time line? It was said that already Q4 was the deliveries here, but it should stretch into 2019.
And the volume we talked about was on Eurofrigal, I think, low double digit €1,000,000 amount. So what should we think here, something between €10,000,000 20,000,000 or is it still more? And also the margin quality would be interesting. Will this help to further brush up margin development in this business here?
Sure. Look, we will see some impact this year, Q4, but not sort of the majority of
the sales will
materialize and be booked next year, some this year, but a larger part next year. You're right. We have set the numbers that you quoted in terms of sorry, it should be more precise here. We have set in our communication that it's a lower double digit figure. It's certainly not as big as the total Troll Collect project.
So it's not you will not compensate everything from Poll Collect, but it's a substantial figure. It's a very substantial figure, double digit, and we're happy that we have it. In terms of margins, we don't comment on the margins of individual projects, which I think you will understand.
Yes. But you should be able to give at least kind of indication if it's, let's say, above average or if it's just average here or even dilutive because it was a very competitive process and you had to more or less buy these contracts?
Well, I don't think that we have ever communicated that we are buying projects. Certainly not. It's we're happy that we have those businesses. Again, we really don't want them to understand, we cannot and do not want to disclose and discuss margins of individual projects. I will say that we have certainly not bought the business, and I don't think we've ever said that.
It has been a competitive process, but that's always the case in this industry. We're not the only ones that participate here. Some we win, some we lose. We lost 1 in Australia. We won 1 in our local in North Africa and the Middle East here.
I think we won this time because we have made a very good offer from a technology point of view. I think the customer liked our technology and overall liked the package that we put together for our customers. Again, we have certainly not bought it. And yes, we're happy to have it.
Okay. Thank you.
The next question comes from Stefan Majel, LBBW. Please go ahead with your question.
Yes. Stefan Michael from LBBW. Good afternoon, gentlemen. I have three questions. I will start with the first one.
We were astonished by the EBIT margin of your acquired businesses in the Q3, if I take out the PPA. Is that a normal level going forward? Or is this somewhat disturbed by seasonality or some one offs? That's my first question.
I'll try to address that real quick. I'll give you a qualitative answer and then I'll answer the few if you want to add to that. If it comes to the figures of the acquired companies, again, it's very important to point out that we had a conservation effect here. Ongoing business of the acquired company, and let's say that we're essentially talking Pronomax here. That's always important, but in terms of numbers, it's not for sure.
The ongoing business of ProtoMax is or the underlying business is very profitable, and we always said that. The business is just strong. It's developing strong from has strong demand. In addition, essentially, ProtoMax's last quarter or this quarter is essentially or used to be ProtoMax 4th quarter of care. Care fiscal spend up often for many companies for whatever reason.
That is a strong quarter. Dare I say, driven by market demand. But no, it's a very strong it's been a very strong quarter for ProbuMax. And again, it's essentially their last quarter of the old fiscal year. On top of that, we have the consolidation effect.
And I'm not an IFRS 15 expert. But in simple terms, and my understanding is by translating from Canadian GAAP to IFRS 15, certain revenue recognition rules kick in, which essentially mean that we revenue recognize projects that are that have been both in the pipeline beginning of the year already. ProtoMax used to work on it beginning of the year already that are now finalized, and we can revenue recognize it in our Q3. So it's a multitude of effects. It doesn't take away from the fact that Protomart's underlying business is very profitable.
And we have 2 additional effects. The one effect that I mentioned in terms of seasonality, it is they're essentially last quarter of their fiscal year reduced. We'll change that. And we have the additional top line effect, which of course comes with a strong margin from the IFRS 15 consolidation.
Yes. And this I may add some sentence, Mr. Marshall. This IFRS 15 issue is relatively simply explained that local GAAP, Canadian GAAP was handled in this that way that they recognized the full sales and profit after 70% of the project has been closed. Under IFRS rules, this is not allowed.
We are now ending up with the decision of our auditors and our Head of Group Accounting and Taxes, which is a very, very good IFRS expert that we will count it followed by the multi component rule. And this means we have now a different realization of cost and profits in the P and L, which is coming from 3 months before we acquired them. This is, so to speak, a little bit of shift over. But as I'd like to highlight this once again, as Stefan has already explained to you, the real bottom line, the underlying business model of bottlenecks is high profitably above group average. And what we will see in the months to come is clearly some costs we have to integrate them into our group and follow our IFRS accounting, planning, you know what I mean, this monthly report, quarterly report.
So they will have some additional costs, but we have done the business case and the projection in the phase. We talked to them and prepared ourselves for our Supervisory Board meeting. And looking forward, we will still have an above average margin. And taking into account that from today's point of view, the EBITDA negative EBITDA impacts will disappear next year. They will be already helping our group margin from the next year on, EBITDA margin for the group.
You know what I mean? You will see positive impact in our EBITDA margin from the next year.
I think that's a very, very important point, profitability and effect next year. Obviously, we really don't want to go into the forecasting 2019 here. I think it's just fair though to point out one is other effect or to clarify another effect on the top line. As you just said, with the conversion from local GAAP to IFRS 15, I'm the physicist's here, so layman's view on the marginalization effect is essentially, 18 already. So the effect is as if we would have acquired them a few weeks or months earlier.
Why do I even mention that? I wouldn't want you to sort of take the number and sort of roll it forward 12 months into 2019, yes, because of that consolidation effect. It is a onetime effect, yes. It's not an effect that we're going to have next year as well. So I think that's very important.
It doesn't waffle down the message at all that we have acquired a very profitable business, and we're digesting related expenses this year. We will have some PPA effects next year. As we pointed out, that the majority of the costs we have had this year already or will have had this year already.
Okay. Thanks, Adeir. Would you be willing to quantify that positive consolidation effect in the 3rd quarter
on EBIT? We have seen
boosting margin probably to around 28% EBIT margin, which might not be sustainable.
Look, I think we would be it's wise if we say, look, this is a very complex territory, and we would like to discuss those things very carefully with our auditors. And But
group average is 11.2%, and they are above
the level. Yes. That's for sure.
20% is too high, probably,
yes. Yes. The additional effect.
Okay. Let's move forward to the next point. Cash flow, congratulations, good figures in the Q3. Your outlook given for net debt or net cash for the full year, 0 would imply a rather weak Q4 free cash flow versus last year. Maybe could you give us the moving parts of free cash flow in the last quarter?
I mean, I'm aware of that, that CapEx might go up, but I think capital and or so
forth, it's hard to predict.
Yes. Yes, Stefan. I would like if I may take over from my CEO, I give clear answers. First of all, yes, you will we will see the major part of our yearly investments in Q4. So we are actually at EUR 26,000,000 all in investments after 9 months, and we will end up clearly above EUR 40,000,000 maybe in the region of EUR 45,000,000 at the year end, yes?
So there is a strong investment coming up in Q4. That is one point. The other point is we will have a strong Q4 in terms of sales. So this means we have a working capital increase in terms of trade receivables and probably also inventory because we are already also preparing Q1 next year because what our customers, especially on the semiconductor and optic area are forcing us is delivery. So we have to be able to deliver because our customers need our products.
So we have to check and balance the pure working capital, cash flow driven CFO where there's business support, which also is highly appreciated. And obviously, we'd like don't like to hinder our business to make our customers satisfied. So we will handle this. And as we are in a strong financial position, we can finance and support this because the money will come in then in Q1, yes? Because our biggest customer like ASML, he has ever paid us.
He has no single euro loss, so they will pay us. This is clear. And this is why I'm saying probably we can end up even better than 0, yes? Maybe 60, 10, what is happening. So if I say that it's a minimum target, yes?
And if there's happening some other spendings, then it's different, but we will explain to you. From the 2 days point of view, we should end up even cash positive at the year end.
Okay. Understood. Next on tax rate. You've given us some guidance some months ago for the full year, higher than the figure we have seen in 2017. After 9 months, you've seen 60.9% versus 18.8%.
So for the full year, is still a figure of 17, 2018 feasible estimate?
I would say no. From the 2 days point of view, it's lower, yes? I have talked yesterday to my tax experts about today from the today point of view, foreseeable tax rate, and it's influenced by our actual running planning of the next 5 years, and we will have then the 5th year. And if we look into this planning, we will see that we will again make a huge usage of our carried forward losses, which means that we have to show in the year end procedure a certain amount of the realizing of this tax carryforward losses, meaning we will have to book different tax assets. And then we have the operational tax rate, which stays at the level we have discussed, and we have the positive impact on the deferred tax asset side.
So probably, our tax rate will be below prior year, yes? So this is what we can estimate as of today, yes?
So below the 9% you have booked in 2017?
No, I don't think we have booked it. Do we have booked 9% all in? That was the operational tax rate. In all in, it was a higher rate, wasn't it? We will check it.
Okay. And maybe a follow-up.
Excuse me, we cannot say at the moment exactly where we are now concerning the tax rate, yes? But at least the tax side is not an issue in a negative sense. You know what I mean? So we will still have a very comfortable tax situation because we will consume more and more our carry forward losses, tax wise.
Okay. Maybe one follow-up. Have you confronted this with any supplier bottlenecks in the Q3, reducing your sales potential? Or do you anticipate anything like that in the upcoming months?
I mean, that's an ongoing backlog in the industry at the moment. And I keep saying, our biggest sort of hurdle for more growth or preventing more growth is, number 1, to get skilled personnel and number 2, to get supply from our supply side. So it is an issue. A follow-up question could be to what extent do we see that showing up in our COGS. Not material at the moment because we have these long term contracts.
And like I want to use the example of, I think, specific optical material, calcium fluoride, which becomes harder to get. And even if it becomes more expensive, it does have a relatively little part of our bond. So I think the short answer is it is an issue. It continues to be an issue. We negotiate and try to get deliveries faster as much as our customers want to have deliveries faster, but it's an issue.
It is limiting the ability for us to achieve more growth in the 4th possible.
Okay. Thank you, Foeil. Bye bye.
At the moment, there seem to be no further questions. There are no further questions left.
Okay. Well then, thank you very much for your attention. Thanks for the participation in the call. There's little we can have from our end. I will then say to reiterate that we look with a lot of confidence into the remainder of the year.
And we believe that we're going to have a good start into the New Year. And with that, I'll wish you all a good rest of today and rest of the week. Thank you very much.