Good afternoon, ladies and gentlemen, and welcome to the Jenoptik conference call regarding the interim financial statements 2018. 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 hand the floor over to Dr. Stefan Traeger.
Thank you very much, and good afternoon from here as well. Today, quite literally, a very warm welcome to our Q2/H1 earnings call. With me today in the room is Hans-Dieter Schumacher, our CFO, who will guide us through the numbers in a bit more detail. Let me get started with our earnings call here by saying that the first half of 2018 has been really very successful for the group, I believe. We managed to grow our sales and revenues by 10.4% in the first half, and we expanded our EBITDA margins by 230 basis points, actually from 12.3% EBITDA of sales last year to now 14.6% of sales in the H1 of this year. EBITDA has been at EUR 56.3 million, 31.4% more than in the first half of last year.
As a result of the very pleasing development of our ongoing core business and a pretty good demand in some of our very important core markets, in combination with the acquisition of Prodomax Automation Ltd., we have raised our revenue guidance a few weeks ago. Today we'll explain to you that we'll also raise our earnings guidance to around 15% EBITDA of the expanded sales guidance and around 11% EBIT of the expanded sales guidance, including the PPA effects, which we are going to detail a bit later in the call. We will also detail a bit more about the impacts of Prodomax on the call. Not only has been the first half very successful in our ongoing businesses in terms of sales and profitability, the first half also has seen us investing substantially, actually, in our core businesses.
We have communicated throughout both quarters, actually, investments and planned investments in our facilities in the south of Germany, in Villingen. You see it on the picture of page number three, a sketch of how the new facility for our automotive business could look like in the future. We've also communicated investments in our France building in Bayeux for automotive industry. Pretty recently we've communicated important investments actually in plant and equipment in Berlin, a factory in which we produce semiconductor laser devices, an area with very strong demand. We hope that with new equipment we'll be able to maybe fulfill our demand a bit faster than at the moment. Throughout the call, I will also put a bit more color around demand and supply, in particular in the optics business.
Overall, as I said earlier, we're very pleased with development of the first half core business, and of course, our investments in our locations. The biggest move though for us in the first half, or actually just recently, has been the acquisition of Prodomax. Which, by the way, I think has been the biggest acquisition the company has made in a number of years actually, I think in the decade. Therefore, on page number four, we've provided a couple of more of details around Prodomax. I guess it's fair to say that with the acquisition of Prodomax, we've continued to move down a path that we've successfully started with the acquisition of Five Lakes Automation. Like Five Lakes, Prodomax is also focusing on machine integration and process automation for the automotive industry.
With Prodomax, we're now able to address a segment of this particular marketplace with higher project volumes. Five Lakes has been focused, and is focused on sort of low to mid-range project volumes, and Prodomax now enables us to address mid to high-end projects in terms of value of the projects. The company is headquartered in Barrie, Ontario in Canada. It had a revenue in the fiscal year 2017, which for Prodomax had been starting in November 1st, 2016, and ended October 31st, 2017, with revenues of approximately CAD 65 million. Profitability of this company, Prodomax, is clearly above Jenoptik's group average. We believe it's been a very good deal for us. Purchase price, we've communicated that, has been around 2x the expected 2018 sales and approximately 7x EBITDA of 2018 expected.
As I say, good deal, for us at least, and we're continuing to move down a path that we successfully started with the acquisition of Five Lakes. Overall, I guess it is important to stress that a combination of automation solutions and laser processing here from Jena actually enables us as Jenoptik to tap into additional growth potential in advanced manufacturing. Throughout the call, we will continue to detail on the financial impact of the Prodomax and also what it does mean for our forecast and for our new guidance for the year. Now let's start with looking into the numbers in a bit more detail of what we believe has been a very successful H1, and Hans Dieter will lead us and guide us through that. Hans Dieter?
Thank you very much, Stefan. Good afternoon from me as well. Please follow me on page five. Here you see our revenue development throughout the quarters and the first half year compared to previous year. As already mentioned, a very strong growth rate of 10.4%, leading and ending to EUR 384.7 million in revenue, which is an all-time high for Jenoptik for the first six months. You see it in the quarterly revenue development with roundabout EUR 195 million. It was a very high Q2 as well. Revenue too has been realized in all of our three segments, which Stefan Traeger will explain to you later in a little bit more detail.
We have still a strong demand in particular from the areas of semiconductor equipment and health care and industry, as well as scheduled and already talked about to you of toll monitoring systems with our customer Toll Collect in the area of traffic safety solutions. Very, very strong tailwind. Now let's have a look on next page about the region where the strong growth came from. You see in every region, in Germany 27%, in Europe 21%. In Germany, it's mainly driven by Toll Collect, our customer in Germany for the toll manufacturing, for the pillars we have delivered. You see the only region where we have a decrease is in Asia Pacific, where we have realized EUR 44 million instead of EUR 53 million a year ago. This is mainly caused by our Australian business, where a project has run out.
This is the main reason for this development. If you now then look with me together on page seven, please. You see that the earnings, every earning figure we explained to you, like EBITDA and EBIT, have overproportional and stronger increase than the revenue. Our EBITDA has increased by 31.4% and our EBIT even with 46.1%. This is due to a favorable product mix and a smaller increase in functional costs. With this having realized now our EBITDA margin is, as already mentioned, at 14.6%, which is also an all-time high for the first six months, like the EBIT margin with 11.1% for the first six months as well. Both earnings showed really a very good and strong improvement, which is obviously coming from the sales and revenue growth. If you now then follow me please on page eight.
Here we have our P&L of the group, in a little bit more detail. You see the functional cost, the gross margin, financial result, and the tax rate and taxes. The functional costs, let me highlight this a little bit. The functional costs have increased a little bit from EUR 90.8 million to EUR 92.7 million, which is mainly driven by R&D and selling expenses. R&D, we still are investing in our efforts for new and innovative products. The selling expenses are going up in line with our growth rate. Whereas the administrative expenses we have been able to reduce. This leads to the EBITDA and EBIT figures I've already explained to you. The financial result has improved again in the first half year of this year compared to the first six months last year, from -EUR 2.1 million to -EUR 1.6 million.
This is mainly driven by a positive currency effect in the saldo from currency gains minus currency losses. We are now a little bit positive that we have been negative in the prior year with the first six months there. This leads to a very high increase in the earning before taxes. The earning after taxes is also very high because we have a decline in the cash effective tax rate to 14.2%. Prior year, we have been at 15.3%, which is also particular due to the U.S. tax reform, where we have positive impact on this side. All in all, it leads to earnings per share in euros of EUR 0.59 compared to EUR 0.40 last year.
Please follow me to the key performance indicators we are looking at, which give us a view and impulse how the business will develop throughout the rest of the year. Order intake and order backlog on page nine. You see here that we have in the Q2, obviously, a relatively good development in the order intake. We could catch up with a relatively weak start in the Q1, and we have an increase realized in Q2 alone on the order intake side by 7.2%. In a accumulation after six months, we are now only a little bit below prior year, EUR 397.2 million compared to EUR 405 million. This is mainly the fact because of the Defense & Civil Systems segment, which Stefan will explain to you in some minutes.
There we had to remember we had a very strong start in the last year, which had shown a strong order intake development. Even after six months, the book-to-bill ratio is above one. It's 1.03. This is a good development in Q2. We are optimistic that for the rest of the year, this will steadily improve. There you see the order backlog on the right side. The order backlog is a little bit above or at the same level like at the year-end 2017, EUR 454.7 million. For us, a good basis for the coming months. We assume that 66% of this order backlog will be converted to revenue in this year, which gives us also a good basis for our prognosis and guidance for the rest of the year.
Please follow me to the next slide now on page 10, where we have shown you the free cash flow development. It increased. It's a good basis for future investments. It's positively influenced by our operating profit. We have a little bit higher increase in working capital. It has been grown to EUR 227.1 million compared to EUR 212.8 million a year ago after six months. In particular, it's due to higher operating receivables in relationship to the higher sales increase. It will be realized in cash and cash flow in the months to come. The working capital ratio is at 29%. We have always talked about our target to come to 30%, around 30%, we are still at 29%, which is good. In the prior year at the end of June 2017, we have been at 30.1%.
The investments have been a little bit lower than in 2017 after six months. As Stefan Traeger has explained to you in his starting statements, we have some investments in front of us, the investments will increase throughout the year. The free cash flow rose in follow-up of this development from EUR 22.1 million last year to now EUR 28.8 million, which, as I already mentioned, is a good and a solid base for the development in the second half year. Having said this, I'd like to hand over back to you, Stefan, that you can explain the segments of our businesses.
Sure. Thanks very much. Let me take you to page 12 right away. Let me start with our Optics & Life Science business. In Optics & Life Science, we've seen a really continuing, very high demand in some of our very important market segments. In particular, in the semiconductor equipment industry, but also positive development in healthcare and in industry. As a result of that, the sales in Optics & Life Science grew to now almost EUR 140 million in H1, which is really a very strong development. Growth of 11.7% versus the same time previous year. Driven by that volume increase as well as an evermore favorable product mix, we've seen another step up in our profitability in this business. The EBITDA of our Optics & Life Science segment is now at EUR 32.4 million, which is 22.4% higher than H1 previous year.
The EBIT margin now came to 20.6%, so remarkably higher than an already very strong H1 in 2017. Very important for us, obviously, is order intake in that business. We have seen another quarter with good order intake in Optics & Life Science segment, actually. On a very strong comparator 2017, the segment managed to again grow order intake by 5.7% to now EUR 157.5 million, which is really strong. Let me remind you that the book-to-bill rate is still clearly above one for this business. In other words, we've managed to again expand the backlog of the business by almost EUR 16 million versus the end of last year. Which also does indicate that probably the biggest bottleneck for the group for more growth is the ability to ship more product out of this business.
We're not limited by demand here, we are really limited by actually the ability to ship. That is influenced by an ever-increasing tightening of our supply chain and the availability of skilled labor. We've talked about that a number of times in the last few calls, as well as in some one-on-ones, and I think I stressed that a number of times. We could grow faster if we would be able to recruit more skilled labor, in particular for our Optics & Life Science business. When it comes to core growth, where the limitations are more around tightening supply chains and availability of skilled labor than around the demand in our Optics & Life Science business. Overall, though, it remains to be said that, again, Optics & Life Science, we are very, very pleased with.
In particular, in the semiconductor industry, we continue to see very high demands and are also very positive about the development in our healthcare and industry segments in Optics & Life Science. Said that, let me guide you to the next page 13, in our Mobility segment, which has, as expected, it has to be said, seen a very strong H1 2018, driven primarily by the delivery of our toll monitoring system. As a result, the business has seen significant improvement in sales and profit. Revenue grew by 17.6% in the first two quarters, and the increase really has been driven by both businesses. Our Traffic Solutions business obviously dominating the growth with the expected and scheduled delivery of the toll monitoring systems. Also the automotive industry, we've actually seen good growth in the first half of this year.
As a result of that, the profitability of this segment has significantly increased as expected. We have seen an EBITDA, and we post an EBITDA of EUR 16.1 million for this segment in the first half. Again, that is as expected driven by the delivery of the toll monitoring system, and again, it has to be said that the last year has been, in particular, impacted by one-time effects from our investments into these toll pillars. In a way, we're now harvesting from what we invested into last year. Order intake in this segment has been flattish and some decline, a slight decline of 2.9% in the marketplace. We have seen actually a positive order intake development in the automotive industry, in our core Traffic Solutions business, which traditionally is very lumpy.
We haven't seen large projects coming in the first half of this year. Again, so it's a very lumpy business. By and large, a flattish, slightly negative order intake development for this segment, with some positive momentum in the automotive industry, an industry that we all monitor very closely at the moment. We have seen a positive development there and some slower or missing of larger projects for our core Traffic Solutions business impacted that. Said that, let's go to our Defense & Civil Systems segment, which has been flattish throughout the first half. A slight growth in sales by 2.7% to now EUR 108.2 million. EBITDA in line grew by 3% to EUR 11.7 million. The EBITDA margin is now at 10.8%, which compared to a few years back, that's a good result, and yeah, we're pleased with that.
Order intake is negative double digits, minus 10.2% for this segment for H1. However, let me remind you that we had a particular difficult comparator in Q1. The order intake in the second quarter has actually been very strong. In the second quarter, the order intake for the segment grew by 134.1% from EUR 42 million last year to EUR 56.3 million in the second quarter of this year. We're catching up from this particular one-time effect that we have seen in the first half. Overall, Defense & Civil Systems, as I said, good solid development of sales and EBITDA, and obviously, we're hoping to see an improving order intake figure throughout the remainder of the year. Let me actually spend some time on our new 2018 guidance.
Following the very good demand in some of our core markets, and obviously I'm particularly talking about semiconductor and some other core marketplaces, following a very pleasing development of our core group business in H1. Combined with the acquisition of Prodomax, we have already increased our expected revenue guidance for the group overall in 2018 to now between EUR 805 million and EUR 820 million. In this revenue guidance, we have dialed in, as a sort of an indication here, we have dialed in a bit more than EUR 15 million sales contribution from Prodomax for the remainder of the year. We've also now raised our targets for EBITDA and our EBIT margins. We believe that a group combined on the bigger business will be able to produce around 15% EBITDA margins and around 11% EBIT margins, as I say, on the higher sales number.
Included in that, we already have included in that PPA effects, which negatively impact the group's EBITDA number by around EUR one and a half million and the group's EBIT number by around EUR 5 million. Please do let me point out that the acquisition-related effects in terms of numbers here are really very preliminary. The Prodomax business is a very project-driven businesses, as we have in our other businesses quite a lot. The nature has it or the nature of this business has it that with it being such a project-driven business, there are quite a number of contracts we're now going through and assess how we have to and can translate them from Canadian GAAP into IFRS 15.
Canadian GAAP has quite a different way of revenue recognition compared to IFRS 15, and so therefore, all the numbers with respect to Prodomax are really preliminary on the top line as well as on the margins and in particular around the PPA effects. Yeah, we're very pleased with that acquisition, as I already indicated, including the PPA effects due to our very strong core business, we're actually able to raise our guidance on EBITDA and EBIT for the group for the year. We do see some potential, shall we say, tailwinds or chances for even better numbers for the rest of the year, but we also see risks. The chances that we see is that potentially we could see an even better than anticipated combination of Five Lakes and Prodomax, which could contribute to a higher sales figure in the automotive business.
We've also seen some significant risks actually, to do with political uncertainty. We all know that the political environment continues to be very volatile, and as a result of that, the FX rates are pretty volatile at the moment. Currently, we have a good development in the last few weeks. In particular, the dollar to euro rate has developed in a good way for us. We all remember in the last earning call we were saying that, oops, the FX rates are pretty negative at the moment. At the moment, FX rates are okay, but given the political uncertainties, we are very cautious that that could, in the volatile environment, go back to an area where it's not as positive.
Again, I do have to stress that again and again, the risks around supply chain, in particular for our optics business and the ability to hire skilled labor. Really the biggest hurdle for more growth in the group, in our core business is the ability to deliver. We do see and continue to see strong demand, and in particular in our optics business, we do all we can to get more skilled labor and to make sure that our supply chains actually hold. At the moment they do, but there is quite a lot of tightness in this area. Well, with that said, again, we're overall very positive about our business. We believe we have had a very strong H1 with, again, 10.4% growth in our business in the first half. A good step up, actually a real step up of profitability.
We look into the second half of the year with a lot of optimism, we obviously do hope that we will be able to continue to communicate good news throughout the year. With that said, let me pause here. Thank you for your attention and ready for your questions.
Ladies and gentlemen, if you would like to ask a question, please press nine and the star key on your telephone keypad. In case you wish to withdraw your question, please press nine and star again. Please press nine and star to state your questions. The first questioner is Craig Abbott from Kepler Cheuvreux.
Yeah. Good afternoon, gentlemen. A couple questions from my side. First of all, you mentioned that you're quite optimistic that the order intake will likely steadily increase throughout the rest of the year. I just want to make sure I understood this correctly. Is that your general thinking across all three divisions? Then carrying on from this line, I thought maybe you'd give a bit of color on the customer pipelines per division, and obviously in particular, Optics and Life Science, which actually was down 19% sequentially. Obviously we've had some headwinds being announced by some players in the semi space, calling for somewhat slower second half versus the first half. I just wondered if you could give us maybe a little bit of update there. Also, you mentioned this several times, the supply chains are tightening.
I understand on the personnel side, which you're trying to alleviate. On the supply side, could you maybe be a little bit more specific on what kind of potential risks you might be facing here in terms of potential impact on the gross margin in the second half, and going forward beyond that? Thank you.
Sure, Craig, and good afternoon, and thanks for your questions. On that order intake note of mine, the steady increase was referring to the DCS business.
Oh
The fact that we had a difficult comparator in Q1. Q2 has been very strong in DCS, and, well, obviously we have to see how the second half develops, but there's no reason to believe that we'll fall back on the DCS side. The steady increase was particular in the DCS. However, you did ask around semi space, and that is something that we all monitor, obviously very closely. I can repeat actually what I've said a number of times in the last few weeks and months. On our end, we do not see any slowdown here. It's a lumpy business. It's not a lumpy business, but it has its ups and downs in the quarter-over-quarter comparison. We, in terms of pipeline and the like, it seems to hold.
Obviously, we're monitoring the same thing that you guys all monitor, and we've discussed it on a number of times that none of us has a crystal ball here. It's getting more and more difficult to look beyond, shall we say, a few weeks or months. Although, I have to say, our customers, and you all know we talk about the typical household names here. Our customers keep telling us that they're very, very positive also for 2019, at least the first half. Obviously, and Craig, as you know, and your colleagues out there, we are supplying to semiconductor manufacturing equipment suppliers. There is a bit of a difference in the cycle here. In summary, in the semiconductor space, we do not see a slowdown at the moment, and we're looking very comfortably, shall we say, into the second half in this business.
In terms of supply chain, that's an interesting one. What I'm referring to is the following. Not all the optics, in particular in the semiconductor space, we're building ourselves. In other words, we are able to please a bit in demand the lower spec stuff. The more simple optics that we have or that we sell on to our customers, we actually use suppliers to produce that for us. In particular, on lower ends of the value chain, if you want. They produce it for us. They see the same demand out there, apparently, and it's getting more and more difficult to make sure that we get the required quality. Because they're under pressure, and we're all under pressure, and we are very committed to quality. Often, we have to actually do some rework there, and it makes it even more difficult.
We don't see a lot of price pressure at the moment. You were indicating, is there a price pressure? Do we see inflation here? We don't see that in a moment, but that could be an effect of long-term contracts that we have in place. Whether there's going to be inflation in the supply chain in future is a hard thing to tell. At least it wouldn't be that much of a surprise given the environment we're in at the moment. There's another effect. That's the availability of raw material. Here, where I'm talking about some very specific optical materials, just to mention a particular material, calcium fluoride-
optical material seems to become ever more difficult to get at the moment. That is a result of actually, there are only just a few suppliers of these particular materials left. That's the other, if you want, the other side of the coin in the supply chain equation here. We're still okay, but I just have to again and again mention that because just the other day, I met a customer, and they were saying, "Look, please do deliver a bit faster, and why can't you just order more machines?" I keep telling, "Look, I mean, I can buy a machine." Well, at the moment, it's even difficult to get machines.
Yeah.
I put that on the table as well.
Every time.
Even if you would spend more money on it, or we do spend more money on it's even harder to get machines at the moment. The machine in it by itself doesn't help. I need somebody to put in front of the machine to actually produce something. That's why I'm saying the availability of skilled labor, in particular in optics and here in Jena, it's a challenge. That's something that we're managing. It's something that we're talking about since a number of months now, that we have to see. We're doing all we can to get good people. We will certainly not jeopardize in quality. Quality is something that's very, very important for us and for our reputation, for our brand. That's why people buy from us and not from others, and we'll not jeopardize on that. I hope that answers your query.
At least it gives you a bit more color on it.
Absolutely. If I could just, one quick follow-up, please, on the calcium fluoride market. Just maybe give us some kind of broad indication of how sensitive you could be to that. I just want to know, if those prices were to move 10%, 20%, or even worse case, what's kind of the sensitivity to your earnings, I guess, from that division?
Sure.
I don't expect a precise number or something like that.
Sure
a feel of how important, in terms of your gross margin-
Sure
sourcing that material is.
Sure. Look, the interesting thing is we don't need that much, actually, and it's not a huge part of the BOM. However, without it, we can't produce.
Okay.
If you buy a car, the steering wheel in it by itself is not a big part of the cost of the car. If you haven't got the steering wheel supplier anymore, you can't-
You're not going very far.
That's the analogy that I would use.
Okay. All right. Thank you very much.
The next questioner is Malte Schaumann, Warburg Research. Over to you, Mr. Schaumann.
Good afternoon. A couple of questions. The first one is on the Mobility segment. Could you maybe elaborate on the revenue development, especially in Asia? You mentioned a traffic project in Australia. I thought you gained the follow-up project. Maybe you can elaborate on why that is giving a time gap or kind of a gap in sales development.
Good afternoon. It's a good question. The factor from it is that we've actually lost the project in Australia in terms of their traffic monitoring. That has an impact on our revenue development in order intake. Sorry, on our order intake development in that segment. When I came to the business, I was a bit surprised about the importance of Australia. I mean, I love the country, but it's not that big a market. However, for Jenoptik, it's actually one of the biggest markets in Asia, funny enough. That is because the business has been very strong in Traffic Solutions in Australia. We've just lost a follow-on contract there. Therefore, the negative development.
Okay. In January, in order intake, you said that order generation and traffic had been generally a bit slower. Was that generally due to slower market development? Has there been a less number of decisions? Did you lose more projects to the competition than usual?
We lost an important one in Australia. That's something that we really actually lost. There are a couple of bigger ones in the pipe. Obviously, we hope that we can land one or the other in H2. Remains to be seen. There are big projects out there. We're pursuing them. Some of them are, as I say, in the pipeline. We have to see to what extent we can bring home those projects in the second half. We monitor that very closely. I wouldn't say there is a particular downturn in the marketplace. As I say, projects are there. We'll have to make sure that we win them in the second half.
Yeah. Okay. In terms of your new sales guidance, you increased the upper end less than the expected revenue contributions from Prodomax. Was there a specific area where you see a slower development in comparison to your earlier planning?
Yeah. It would be easy for me to say, "Don't read too much into it." There is a reason. We did want to signal something with that narrowing of the corridor, if you want. I guess what we did want to sort of signal here is that we have those risks on the shipment side. Not on the demand side, really, but on the shipment side. We wanted to make clear that even if the demand would go even higher, at some point, we're not able to ship more. That's what we wanted to signal on our core business. Please be aware of the fact that despite order intake, we also need to be able to produce and ship and invoice in this year.
Overall, we believe that the guidance that we've given you at the moment and with all the risks that we were just indicating, also in particular on Prodomax, the uncertainties of those numbers and the translation from Canadian GAAP into IFRS. We saw that narrowing of the corridor is a prudent thing to do.
Okay, understood. On the Mobility sales development in the Americas, it seemed that had been a bit slower in the first half of 2018 if I exclude the Five Lakes contributions. Any specific markets development you see there or just the typical movements of projects?
Other than Five Lakes, in the automotive business in the U.S., there had been quite some uncertainties in the first half. The growth of the automotive business was, shall we say, stronger in Europe than in the U.S.
I think that's fair to say. Obviously, we wouldn't like to go into much more details here as you can understand. As an indication, I think it's fair to say that we have seen growth in the automotive business in Europe, but not necessarily that much in the core automotive business U.S. excluding Five Lakes, as you have already indicated.
Okay. Do you expect that market to stay in that level or do you see some kind of recovery to the former levels ahead of you?
It's a bit hard to say at the moment. It's not as if we do have a dramatic downturn there.
No.
It's not that dramatic, if that makes any sense. We'll have to see.
Okay. Fair enough. On the PPA effects, will these impact the gross margin mostly in 2018 or will they show up in other lines in your P&L?
Maybe it's best this time for you to explain that.
Yes, I will do it. Yeah, Malte, this is a good question and an expected question, obviously. As Stefan already mentioned, we are going through the evaluation and the evaluation of these impacts and effects. We have a 60 days timeline in front of us, so we have to end up with the final figures at the end of the Q3. We have already some good ideas that I can explain to you that roughly roundabout at the actual status, we see a EUR 1.5 million less EBITDA on a group point of view coming from the purchase price allocation. The target, Prodomax, is still delivering a good EBITDA, which means finally the saldo of the operational EBITDA from Prodomax minus the group PPA is still positive. Even in the five months for the rest of the year. On the EBIT level, it's different.
Where the target is still clear above group average, above 11%, that is mean. The purchase price allocation impact on the EBIT is relatively high. It's around EUR 5 million at the moment. We calculate with EUR 5 million and EUR 5 million are a little bit more than the EBIT on the operational base from Prodomax is. If you take the operational EBIT for the 5 months minus our purchase price allocation, then it's slightly minus. With the saying that our EBIT margin will be around 11%, we took already the hit.
11% on the combined business. The higher top line with Prodomax after purchase price allocations being actually slightly negative does tell you how strong the other businesses are performing at the moment in terms of profitability.
Just to explain it to you, for the months to come, we assume that the EBITDA impact is only valid for this and the next year and the next year is already much less. This has something to do with the overtaking from our side of the inventory. It's an inventory step up. The main impact the next year is pure on the EBIT side. It's obviously coming from order backlog, customer relationship, brand and so on, and this has more to do with the EBIT. I'd like to say that from the meaning behind this all, the saying is that from the next year on already, from 2019 on, Prodomax will be positive for EBITDA margin.
Okay. Let me just one more time underscore what Hans just said. We do believe that Prodomax already next year will contribute positively to our earnings and margins actually.
Yeah.
Be margin accretive already in the first full year-
Yeah
that we have the business within the group.
Yeah.
At EBITDA level, if we only see PPA et cetera on EBIT level, Prodomax should give you a percentage points tailwind next year, right? Assuming the high profitability of the business.
Certainly a tailwind.
Tailwind.
Okay. In terms of capacities, you mentioned that you're in certain areas restricted or rather supply restricted. Is it right to assume that maybe this is less of a problem in Defense & Civil Systems and mostly Mobility and that mostly Optics & Life Science is affected? What does that mean for growth potential in 2019?
Yeah, that's very fair. It's predominantly in the Optics & Life Science segment, predominantly, where we're limited. What does that mean for the next year? Well, maybe an anecdote can put the most color around it. In our Berlin factory, if you order from us at the moment, certain semiconductor-based laser diodes, we have to give you an order confirmation date of mid-2019. That's how much we're limited at the moment. We can't ship, quite simply, or give you shipping confirmation for the next year. What does that mean for 2019? I mean, it's hard to say. We are doing all we can to improve capacity. We are about to invest in more machines. As I say, we have to be able to man them. We're running three shifts where we can.
We do have a lot of order backlog at the very moment, which is why we're looking positively into the future. Yeah, we hope we'll be able to build up capacity, whilst at the same time, obviously, monitoring the market environment and to see if there is a cool down at some point. Again, we don't see it at the moment.
Okay. Thanks.
The next question comes from Robin Brass, Hauck & Aufhäuser.
Yes, hello, and good afternoon. Just one question from my side also on Prodomax. Could you also let us know, is there a strong growth profile in the company? Because in general at least, I heard also some colleagues and also my investors wondering why you were able to acquire the company just for seven times EBITDA, given the high margin.
Well, we were able to acquire that company for a good price because we are such a strong negotiation team.
Yeah.
No. Look, obviously, we do believe that there is a growth case. Otherwise, we wouldn't actually purchase it. Now, it's always a question, what's a good deal? Did we overpay? Did we underpay? Did we pay the appropriate amount of money? We believe it's been a good deal for us. I guess a better way to answer the question would be actually to say, what did we bring to the table for Prodomax so that they had been so interested in actually going with us and not with somebody else? Firstly, I think we could clearly make or show them what we bring to the table for them in terms of growth potential. They do see as much as we do the ever-increasing importance of optical components in production for, in particular, in the automotive industry.
Laser-based processing or laser processing that we supply will become ever more important for the automated manufacturing of cars. That's something that we bring to the table, and not a lot of people in their core segments do own that type of technology. What we bring to the table for them is international sales channels. At this very moment, they sell to the automotive industry around Michigan and Ontario. They're basically selling to customers in and around Toronto and in and around Detroit, which as I say, is about 4 hours car ride distance. We can open up for them customers now in Europe, and potentially also in Asia going forward. That could be said for others as well.
What I think made us a very attractive acquirer for the colleagues at Prodomax is that we, I think very convincingly, could say that we have no intentions whatsoever of, shall we say, restructuring that business. For us, it's a new business in terms of yes, we kind of like dipped our toes or put our toes into it for the first time with FLA, with Five Lakes. We will integrate Five Lakes and Prodomax, but we actually need the whole capacity there. We, I think, could make it very clear to them that if we come together and they were not going to see a restructuring and consolidation of workplaces. On the contrary, we believe that we can actually open up more markets for them.
That's very important actually, we bring to them technology in terms of optics, which is very important for the future development in that market space.
Wouldn't the, let's say, Prodomax entering Europe be also competition for your own business, or where's the additional growth here?
No. On the contrary, actually. What Prodomax does, like Five Lakes Automation, but just on bigger scales, if you want. They develop and produce and install full lines, if you want, production lines for the OEMs and for tier 1 providers in the automotive industry. They're purchasing robots, they're purchasing laser machines, they're purchasing other materials, and integrate it all together in fully automated production lines. The more laser-based machines they use, the better for us. Obviously, if a customer wants to have another robot, another laser processing unit, another laser from another competitor, fine, that's okay. We hope that Prodomax is able to indicate to their customers that Jenoptik lasers are particularly good. That's where the synergy actually comes from. The more they sell in Europe, and we can open up doors to them-
To customers
to customers. We can help them with addresses and the relationship. There's another measure. If Prodomax Automation Ltd. from Barrie, Ontario, knocks on the door of, I don't know, Daimler or VW in Germany, it's a hard sell. If Prodomax Automation, a member of the Jenoptik group, knocks on the door of Daimler in Stuttgart or VW in Wolfsburg, that's another conversation to have.
Sure. Okay. Thank you.
The ability to finance those projects is very important for customers as well. Often these projects are pre-financed only to a certain extent from customers, and the automation provider has to be able to finance actually the work. We obviously have the financial means to actually do that with our access to capital and stock market and the like.
With our help, you can even realize bigger projects.
Yeah.
Okay.
At the moment, there seem to be no further questions. If you have any additional questions, please press nine and the star key.
First and the last.
The follow-up question comes from Craig Abbott from Kepler Cheuvreux.
Yes, hi again. Just one more real quick then, please. On Mobility, I think you've now completed the Toll Collect contract, and I just wonder how confident you are in being able to compensate for that non-recurrence of sales in the second half of this year. Thank you.
Hey, Craig. There will be a step down, that's for sure. We can't compensate entirely that big one-timer in the second half. We're not confident. We're actually not going to be able to. I think that's fair to say.
Right. Okay. All right. Thank you.
Okay.
Yeah. No further questions.
All right. If there are no further questions, thank you very much again for listening and for your attention, for your questions. I'm looking forward to see quite a number of you, I think, tomorrow in Frankfurt on the roadshow.
Yeah.
In summary, again, we've been pretty pleased with the development of our business in H1. We're, I think, looking forward to hopefully be able to deliver further good news in the remainder of the year. We're looking pretty confidently, actually, into H2. Looking forward to seeing some of you tomorrow then. Thank you very much and a very good afternoon.
Thank you. Bye.