Now being recorded. Good afternoon, ladies and gentlemen, welcome to the Jenoptik conference call regarding the preliminary results of 2017. At this time, all participants have been placed on a listen-only mode. The floor will be open for questions following the presentation. I will now turn the floor over to your host, Dr. Stefan Traeger.
Thank you very much, a warm welcome from our side here to our earnings call today. Again, let me point out that the results we're going to discuss today are preliminary and show our fiscal year 2017. With me today in the room here is Hans-Dieter Schumacher, our CFO, we will first of all discuss our, again, preliminary 2017 results. We'll then dig a bit deeper into our individual segments, we round it up with some strategic thoughts on how we see our future going forward. We'll discuss our 2018 guidance, we'll give an outlook towards 2022. Ladies and gentlemen, I think it's fair to say that 2017 has been certainly a very successful year for our company.
At the beginning of the year, we could announce the acquisition of SR Technology in the U.K., a company that brought interesting new technologies to us to do with back office solutions for our Traffic Solutions business. Mid-year, we've opened up a new technology campus in Detroit, Michigan, right at the heart of the U.S. automobile industry, with there now a state-of-the-art modern facility for research and development, but also for modern production technologies. In the second half of the year, we could announce the acquisition of Five Lakes Automation. Again, a company in Michigan that's going to help us to develop our automobile business, indeed, in a, let me say, full solution provider. In summary, I think it's fair to say that our good year expresses itself in very strong financials. We managed to grow our company by a bit more than 9% in the year 2017.
We've expanded our profitability quite a bit. Our EBIT margin has expanded by about 70 basis points. We are now showing an EBIT margin of around 10.4%, quite a bit higher than originally anticipated. With that, I would like to turn over to Hans-Dieter Schumacher, our CFO, who is going to take us through our 2017 financials for the group.
Yeah. Thank you, Stefan, and a warm welcome from my side as well to all of you. On slide number four, you see our revenue in comparison to prior year, split it out into our quarterly revenue figures. Here you will see that with our Q4 2017 on a very high level, EUR 221 million in sales. Again, a very strong quarter. All quarters have been above the prior year quarters. In total, it ended up at EUR 748 million, which is 9.2% growth compared to prior year. Taking into account that also in the Q4, we had a good supporting business development in Optics and Life Science, as well as in Mobility segments, these figures realized. When you then go ahead with me to the next slide, you'll see our operating results, EBITDA and EBIT.
Both earning figures increased stronger than our revenue figure, the EBITDA by 12.8% and our EBIT even at 17.6%, with an EBITDA margin above 14% and an EBIT margin around 10.4%. We realized again, a very strong profitability level, taking into account that we did not have only positive impacts by the very well-developed Optics and Life Science segment with substantially higher EBIT contribution. Stefan will show it to you later on when he will lead us through the segment development. We also had one-off expenses, as you all may remember. We have spoken about it throughout the year concerning our big project in the Mobility segment and Traffic Solutions all around Toll Collect. We have had also in the EBIT figures realized some of our purchase price allocation impacts, PPA effects from the acquisitions of SR and 5 Lakes. In total, around about EUR 2 million.
In the sales figure, you have a mid-single digit number in sales. These are the impacts we have seen here in the group. When you then follow me to the next slide on page number six, you will see our key performance indicators who are looking more in the future upcoming months and years concerning our development. You see our order intake, which has been at a little bit above EUR 800 million, EUR 803 million, which is an increase of around about 9%. Shows you also, again, a book-to-bill ratio clearly above one. Our order backlog increased by 12% with EUR 453 million. A solid, strong basis for 2018.
The frame contracts came a little bit down, as expected, and communicated to all of you, because of the reclassification of some of the frame contracts to order intake and backlog due to, for example, Toll Collect, which is alone EUR 29 million. This has an impact here. Our next slide then shows you on page seven, our net debt development over the years, coming from a very, very high negative situation in 2006. Now, even taking into account that we had roughly EUR 10 million higher investments last year, our dividend payment increased by around about EUR 2 million. We had to finance the acquisitions. In total, our net debt increased. We are now at EUR 69 million plus, meaning EUR 69 million more cash than debt. In total, a very strong development.
Our free cash flow throughout the last year has been approximately EUR 74 million, which is a little bit below the prior year, as always told to you, but still, taking into account what we had to finance, still on a relatively high level. I'd like to hand over again to Stefan, who will lead us now through the development of our segments. Stefan?
Certainly, and thank you very much, Hans-Dieter. Let me take you first of all to our Optics & Life Science segment, and you see that on page nine of the presentation. In our Optics & Life Science segment, we've seen, again, new records in revenue and earnings, driven by a high demand for solutions in the semiconductor equipment industry, but also driven by a very positive development in our healthcare areas. Revenue grew from EUR 221 million to more than EUR 259 million in the past 12 months. With that growth in revenue, we've seen a step up in EBIT from EUR 33 million to more than EUR 50 million in 2017. The EBIT margin has been growing, of course, due to the higher volume in the segment, but also, and in particular, due to a very favorable product mix.
Let me point out that we have seen, and we actually continue to see really strong tailwind in this segment from our semiconductor activities. That lets us look very optimistically into the year 2018, in particular for Optics & Life Science segment. Let's have a closer look in our Mobility segment. As you know, in the Mobility segment, we consolidate our automobile business as well as our Traffic Solutions division. Revenue in that segment also grew quite significantly by about 9% to now roughly EUR 270 million. Both segments or both divisions actually contributed to the growth in revenue, as well as, of course, the additional consolidation of our acquisitions, Five Lakes and ESSA, for this particular segment. The consolidation effect here, the non-organic effect, if you want, is somewhat below EUR 10 million. Even organically, the sales in this segment grew significantly.
We have had some positive sales effects also already from our Toll Collect project in the Traffic Solutions business, in the low double digits. The priority of the sales from that Toll Collect project will come in 2018. That said, though, EBIT margins are in decline in this segment, or have been declined, I should say, in this segment due to really one-off expenses. We've discussed that in prior earnings calls in detail. We have had expenses, in particular around the Toll Collect project. In addition to that, we have obviously had PPA effects from the two acquisitions in this segment. Again, margins have been declined in 2017 despite the growth in revenue, and that is due to the one-time effects that we've discussed in the past already. Let's go to our Defense & Civil Systems segment.
Sales in the segment are flat. With that comes a flat development in our profitability in the segment. Sales, let's put it that way, are flat versus a very challenging comparator. I think you might remember that in 2016, this business has invoiced several major projects. For 2017, we're actually proud of the fact that we managed to grow slightly, essentially a flat development despite this very challenging comparator. We currently do monitor very closely the political developments in Berlin. We do hope for a bit of a faster decision-making process in our political environment here going forward. Talking about going forward, talking about future, let me take you somewhat on a journey, and let me discuss with you our thoughts around strategic development for the Jenoptik Group. Let me take you to page 13.
Before I talk about the future, I think it's worthwhile to at least have a very short look into the rearview mirror here. I think it's fair to say that in the past 10 years, things haven't always been easy for Jenoptik. I guess the company steered the ship through some choppy waters at times. The financial crisis of 2008 had to be managed. The company had to reduce debt that was at times, I guess, limiting the ability of the company to invest and to grow quite a bit. Today, the situation is quite different, actually. We're now in a very strong financial position with a very strong balance sheet. We have the means and certainly the willingness to invest into growth. For that, we've put together a strategy that really focuses on three major building blocks.
Our strategy going forward is going to focus on focus. Focus on focus. It's going to focus on innovation. It's going to deal with more internationalization of our company. Before I go into more detail and try to explain that a bit more in detail, in summary, I would probably say that our strategy is going to take the Jenoptik from a rather diversified industrial conglomerate towards a more focused technology group. I've used the word focus quite a bit in the last few seconds already. Let me dwell on that a bit more and try to explain what I mean by focus and what I mean by more focus for Jenoptik. I guess it's fair to say that Jenoptik by today is still a pretty diverse thing. We have a broad product portfolio. We have a very broad business portfolio.
At times, I do wonder if we can actually do everything with the same amount of intensity and quality across the whole portfolio. As a matter of fact, I think focusing a bit more on what we are really good at is a good strategy for us going forward. The question what we are really good at, I for one think we can answer by mentioning photonics and optics. Optics and photonics really is at the heart of Jenoptik, something that we're really good at. It is, if you want, our core competence. Optics and photonics is not just something that we are really good at. It's actually a technology that drives a lot of change in the moment. There wouldn't be any digitization without photonics. There wouldn't be any fourth industrial revolution without photonics and optics. Without photonics, no modern life science, no public safety.
Photonics really is influencing more and more areas of our society. Photonics is more than that. Photonics is not just a cool and interesting technology, an enabling technology. It's actually a very interesting marketplace. It's a market that grows on average 2x the global GDP, and thus opens up for us really an entrepreneurial potential and opportunities for future accelerated growth within the company. Going forward, you will see us intensifying our focus on our photonic core competencies and photonic technologies, and we will manage our portfolio more actively in future. With that said, I think it's fair to say that we have part, and you all know that, we have parts of our business that are not engaged in photonic technologies, in particular in our defense business, where we're pretty much focusing on mechatronic technologies.
These businesses will be carved out and will operate under a new brand going forward. The new brand will help these businesses to better utilize their chances in the marketplace. Let me anticipate a question you might have. As of today, we have no concrete plans to sell these businesses, but we will explicitly not exclude that for the future. The other major building blocks are innovation and internationalization, and let me start with innovation. I think it's no question that innovation is really the fuel for our business. Innovation is very, very important in our high-tech markets, and we really intend to enhance our R&D work in stepping up our investments into innovation.
We have the willingness to increase the level of R&D spend of our group to about 10% of revenue by 2022, and that includes obviously direct R&D spend as well as customer-focused project work. We'll not only enhance our R&D spend and stepping up our investments into more innovation. We will, in particular, work on making our processes faster, making ourselves more agile. You might wonder what's that to do with innovation. I think it's quite an important factor if one wants to be really innovative. Innovation is driven by creativity and if we are going to push our decision-making process more into our operating units, that will make our company faster and again, more agile.
I think that Jenoptik has a bit of a tendency to centralize decision-makings at the moment, and we will certainly change that. We believe that the decentralized decision-making processes will make us faster and will enable faster development cycles, more freedom to explore, and we will certainly see the encouraging of the competition of ideas. In other words, creativity enabled by more local decision-making, and that will enable more innovation, which is driving growth in our businesses. The last building block I would like to talk about is internationalization or more international, as we call it. We are an international company, no doubt about it. We have, luckily, global facilities. We have offices around the globe. I don't think we're actually a truly global enterprise in more of a cultural sense. Having offices around the globe is one thing, and it's very important and it's good to have that.
What we're aiming for is to become a truly global enterprise by also fostering an international culture in a much more diversified leadership team. You will see us, going forward, having more managers with an international background, intercultural experiences. You will also see us focusing more than we do today, in particular, in Asia. We have a very good structure in the U.S. We are certainly very well established in our home turf here in Europe. In Asia, I think we can step up our activities there. We can definitely make our business set up better over there in Asia, and we'll particular focus on China to begin with. We intend to have local R&D teams going forward in all major markets, not just in the U.S. and in Germany or in Europe.
In particular in Asia, we aim to have local R&D teams going forward. We do have the willingness to have at least one of our divisions with its headquarters outside of Germany in future. In summary, our strategy going forward calls for accelerated growth and margin expansion based on three major building blocks: more focus, more innovation, and more international. That said, having a strategy is one thing and certainly a good thing. Deploying the strategy successfully, that really is, if you want the name of the game or the goal. We want to deploy the strategy successfully and what comes to mind is the good old saying, "Culture eats strategy for lunch." We can all write down strategies on paper until the cows come home. If you don't have the culture in the company to actually deploy it successfully, we're not going to win.
Winning is what we want, and we want to have a winning culture within our company. You will see us also focusing on cultural development, and on making or changing somewhat the culture in our company towards a more agile and faster environment and an even more attractive environment for our associates. We will kick off a program that will deal with cultural change under the headline of More Light. We will certainly continue to report on that in future. Let me take you to page number 18. Part of a culture of a company is focus. We talked about that a lot. Part of a culture of a company is also the ability to prioritize. When I started at Jenoptik, I was at times a bit surprised. Whenever I asked folks for their priority lists, I got lists as long as my arm at times.
I think it will be important for us to become better in prioritizing. Obviously as the executive board, it's our duty to walk the talk here. We intend to do that by establishing and then communicating priorities more clearly into the organization. We also do actually want to share that with you here on the call and with the whole stakeholder community, if you want. The priorities for us for 2018 is, A, to establish the new business structure we've talked about. By the way, maybe it's a good idea to explain that a bit more in detail. I don't think I've talked about that that much in this call yet. We do intend to make our organizational structure clearer and easier. The Jenoptik is a pretty fragmented thing, shall we say.
We run the business, or we report the business in three segments, but we are managing our business in five divisions, and we have lots and lots of legal entities within the company. Part of the, in parentheses, focus project will be to make our business setup easier to understand. We intend to, going forward, establish four major divisions. We will not talk about segments. What was the German name for the divisions? Sparten. We will not talk about segments and Sparten anymore in future. We will just have four major divisions, and we will consolidate the legal entity structure that we have, in particular here in Jena, but also in other places. Establishing a new business structure, consolidating all businesses somewhat in four larger divisions is going to be a focus priority for 2018.
Another priority for 2018 will be the reorganization of our business in Asia, as we have discussed earlier. The last priority for 2018, or the third major priority for 2018, is the launch of a new brand for our mechatronic businesses. We intend to establish the new business structure within 2018, and we will go live with that beginning of 2019, by the way. With that said, let me discuss our guidance for 2018. You might have seen that already. We expect revenues to be in a range between EUR 790 million and EUR 810 million this year. We expect an EBIT margin between 10.5% and 11%, somewhat up versus prior guidance of around 10%. We do see, and continue to see, pretty strong tailwinds, actually, in some marketplaces, namely around semicon and the other OEM businesses. We do have certainly a strong order backlog this year.
Our order book is up 12% versus last year at the same time. On the other hand, though, we see ongoing challenges in supply chain, and we monitor very closely developments in the exchange rate, and we monitor these risks very closely. Overall, though, we are actually pretty optimistic for 2018. As I said earlier, we will see sales of around EUR 800 million, somewhere between EUR 790 million and EUR 810 million, and an EBIT margin in a corridor between 10.5% and 11%. Let me look a bit further into the future. We have discussed our strategy, and our strategy aims for accelerated growth and margin expansion. Under the three major building blocks of more focus, more innovation, and more international, we will see, as I said, accelerated growth. We expect our sales to grow on average in a mid to high single-digit area for the group in the next five years.
We intend to step up our margins and expand our margins. By 2022, we expect to achieve about 16% of EBITDA margins for the group. Let me point out, we are talking EBITDAR here. We will increasingly talk about EBITDA, for we think that that makes us more comparable, in particular when we see a more active portfolio management process. We have talked earlier that we do have the means and certainly the willingness to grow organically, but also by acquisitions, and more active portfolio management might also include divestments at times and where it makes sense. Therefore, we will increase our communication around the EBITDAR or EBITDA in future. In summary again, we expect revenues to grow in a mid to high single-digit range in the next five years on average, and margins to expand to about 16% EBITDAR by 2022. With that said, let me pause here.
Thank you for your attention, time for questions.
Okay. Ladies and gentlemen, I'll shortly explain how it works. If you would like to ask a question now, please press 9 followed by the star key on your telephone keypad. In case you want to cancel your question, please press 9 and the star key again. Now please press 9 and the star key to raise your question. The first question comes from Craig Abbott from Kepler Cheuvreux.
Kepler Cheuvreux. Hello, can you hear me?
Yeah.
Yeah. Perfect. Okay, great. Thank you. Yeah. I guess I'll start with three questions and move on. First question, you mentioned in your closing comments, one reason why you shifted the focus with regards to your midterm targets, EBITDA, for more international comparison. I just wondered if we should also interpret this to mean that, obviously to achieve your accelerated growth, you'll have to invest more. You already mentioned you'll be increasing your D&A spend, I would presume maybe that implies you will also have a higher investment rate going forward. I just wondered if you could give us some kind of guideline as how we should be thinking in terms of your CapEx and D&A over the next two to three years.
The second question was, this may be a little bit premature, but I wondered if you could give us at least a ballpark indication for how much of your activities are both sales and EBIT wise are currently related to your mechatronics, that you're wanting to carve out. My third question is, you mentioned you want to increase the R&D spend to around 10% by 2022, and I believe that'll be an almost four percentage point increase. I just wondered to what extent you feel you might be able to offset this with declines in SG&A costs. Thank you.
Yeah. Hello, Craig. Thanks for your call. Thank you for calling in, first of all, and thanks for your questions. Let me start with the second one or the third one actually, because I think I might need to clarify that somewhat. We talk about 10% spend on innovation. That includes the R&D spend that you find in our OPEX lines, but it also includes spend that we have for new products for specific customers, which you would see in the COGS at Jenoptik. Just to give you an indication, I think the total of that spend in 2017 has been around 8.5%, 8.6%. It's not 4% increase, but more from sort of 8.5% to 10% in that arena.
Okay.
Okay. Secondly, on the mechatronics businesses, I think a good way to answer that question might be to discuss the parts that we're actually carving out of that business. You already know or pointed out and pointed to DCS today is a number of businesses, the mechatronics businesses, as well as some photonic businesses, namely our sensor business and our joint venture with Hilti, the Hillos GmbH. Those two businesses, the photonics businesses, we will carve out from the DCS segment and merge with our OLS, essentially our whole OEM business going forward. The amount of business that we will carve out from the DCS segment and merge with the OLS business going forward is somewhere in the mid double digit EUR million range.
Obviously, I can't give you any sort of specific numbers here, but if you think about mid double digit EUR million, that's about a good number of sales that we are going to carve out from DCS and merge with OLS, the rest will get the new name and will operate under a new brand going forward.
Okay.
The last question had been around EBITDA and investment.
D&A
better comparison and D&A. We don't intend to give you a long-term forecast in particular on investments and D&A. We don't guide on that for long term. You're certainly right. If you want to grow, then we do want to grow organically as well as via M&A activities. We have, as I said earlier, we have the means and certainly the willingness to continue our M&A activities. We continue to scan the market and scan the environment and when it makes sense, we will add acquisitions to our organic growth. In order to help us all to compare numbers going forward a bit more, we'll switch more and more to EBITDA. In particular, we don't want to have to explain all the time PPA effects and the likes. It makes, I think, our lives easier, make your lives easier.
Nevertheless, we will continue, of course, to report on EBIT. It's not as if we're not going to report on EBIT. We just thought and think that it makes our, but also your life actually a bit easier and makes us a bit more comparable to our peers if we give our guidance going forward more on EBITDA. Again, we will continue to report on EBIT. For this year, actually, our guidance is in EBIT and not in EBITDA.
Correct. May I just ask a quick follow-up on that? Can we generally expect on an organic basis, excluding obviously anything to do with M&A, but on an organic basis, can we generally expect that CapEx and therefore also D&A line to be somewhat higher over the next couple of years than it has been over the last couple of years as a % of sales?
I think we'll disclose the numbers in particular when we have audited financial results. Our investments in 2017 have been pretty substantial, actually. We've stepped up investments in 2017 already.
Quite a bit.
EUR 10 million, Hans-Dieter just points out. We certainly don't intend to reduce that.
Okay. That's very helpful. Thank you very much for the answers.
You're welcome.
The next question comes from Stefan Maichl from LBBW. Your line is open now.
Stefan Maichl from LBBW in Stuttgart. Good afternoon, gentlemen. Some questions from my side. The first one is for Mr. Schumacher. Mr. Cash is king. Free cash flow was ahead of your guidance, I would assume. Could you outline the main driver of this successful development in 2017? The second one, has there been any one-offs in the EBIT in Q4 we should take into account? The third and last one, I've tried to reconcile your 2018 EBIT guidance. Your given margin range points at EUR 83 million-EUR 89 million versus EUR 78 million in 2017. If we add around EUR 6 million, I would assume one-offs back booked in 2017, we already would reach a lower end of your given guidance range.
Having in mind around EUR 50 million in sales lift you pointed out, and assuming a stable gross margin of around 36%, I would come up to an EBIT above EUR 100 million. Is there something I missed in the calculation, which might be against you? Probably one-offs or some changes, costs linked with your structural changes. That's my question.
Cool. I think the first one, Hans-Peter, has been around cash.
Yeah. Cash. Thank you, Stefan.
Easier question.
This is an easier question, yeah.
Thought it'd be the easiest, yeah.
Yeah. This was the easiest question, but not the easiest job we did in the last year, especially in the Q4. We managed it very close with our colleagues in the businesses. One big customer in one area we have talked about was supporting this development because we asked him to pay his duties, and he did it 29th of December. With this big payment, we ended up, as you mentioned it a little bit, mainly this was the factor why we ended up a little bit above our expectations, yeah. All in all, to be honest to you, we have pushed our teams in sales and supply chain and in R&D and operations to collect as much as possible. You can imagine with this high sales figure, we had a lot of trade receivables, especially in the month of December. Our sales has been very high.
I can say to you, we will probably talk about the final figure in a couple of weeks, but I can tell you it was again, a very high month in December, which is only three weeks. Yeah. This is still in our balance sheet, not in cash position and trade receivables. We prepared on the inventory side our deliveries in Q1 and Q2 to Toll Collect. We will deliver our pillars to our customers, we increased our inventory. We had a little bit an increase in working capital pressure, so to speak, coming from the good businesses. This led finally to the situation that we had not the cash flow in which we realized normally in the last weeks of a year.
In addition, we spent a little bit more money in investments than in the prior year because our investments went up in total by EUR 10 million compared to prior year. A part of it we realized in Q4. We had some spendings in customers and in investments. This ended up with the free cash flow we informed you about. Yeah.
On the EBIT question. We have some factors in the marketplace that make us optimistic for 2018, and we've discussed that. We have tailwind in our markets and we have a strong order book. We also do see potential risks, in particular around our supply chain and around FX developments. We, I believe, have given a guidance that we've been comfortable with. That is that we will expand our margins again this year. We, I think, have raised the guidance on EBIT margin quite a bit. In the past, the company has talked about an EBIT margin of around 10%. We assume somewhere between 10.5% and 11% for now. That's a range we feel fairly comfortable with.
Would you agree with me that it's a kind of conservative guidance given FX volatility, market volatility at the beginning of the year as usual?
Obviously it's not our job to discuss whether or not our guidance is aggressive or conservative. It's a guidance that we feel comfortable with, and we think that we will end up somewhere between 10.5% and 11% in EBIT margins.
A quick follow-up on free cash flow, Mr. Schumacher. Could you report the working capital ratio you have achieved in 2017, and would you confirm the 30% midterm target, given some quarters ago?
Yes. Do you want to hear the working capital quota right now for the last year? We will publish it in a couple of weeks from now on. Please wait until we have our final figures. We'd like to have some additional information for all of you. I still feel good with the target of 30% working capital quota.
Lastly, 2 points. The first one, again, one-offs booked. Any one-offs booked in Q4? The second one may be some ballpark figure for the tax rate we might pencil in our models for 2017.
We had the purchase price allocation, which we finally booked, because we made the last acquisition, Five Lakes Automation, in August. The main impact we have in Q4. In total, SR and 5 Lakes, it's around about EUR 2 million in EBIT.
In Q4 alone.
No, in total. For the whole fiscal year, the main impact has been in Q4. Yeah. I think it has been EUR 1 million till end of September and then an additional EUR 1 million in Q4. In total, it's a little bit more than EUR 2 million. Yeah?
Yeah.
We have talked throughout the year about our initial costs of our big project. We have talked about some EUR million impact. I am not quite sure whether we have-
Toll Collect. Yeah.
Yeah, Toll Collect. I think we-
what we can say is that our Toll Collect-- the expenses on Toll Collect have been higher than originally anticipated. We have this closed already that the expenses or the overspend, if you want, is in the few million EUR range. Certainly, those expenses do not roll over into 2018.
Has there been any additional expenses for Toll Collect in the last quarter? Because you have already booked about around EUR 5 million in the first nine months.
We've continued to spend, but within the planned area. Again, let me maybe specify that a bit more. The total expenses on that project are higher than the number you just mentioned.
Yeah.
The total R&D expenses on that project are in the double-digit million EUR range. Low double digit. The overspend is what we've specified in this particular instance, and that we have digested in our P&L, in 2017.
Yeah.
Though you will make your calculation, it's a certain amount which will disappear in 2018, that's for sure. Coming to your last question, Mr. Maichl, concerning the tax rate. We feel well with a relatively low tax rate, let me say it in these words. Because you will see one extraordinary positive impact in our earnings before taxes and earnings after taxes as well, and it's concerning the payment from a takeover of a company where we had a stock. I think it has been 4%, and it has been taken over. It's an American company. I think we have already talked about it, and we will publish it anyway in our annual report.
It's a company named ATS in U.S., which is in the Traffic Solutions business, where we had a 4% stock part, and they have been taken over and we have to realize a so-called squeeze-out. We could not say yes or no. We got the money, so to speak. It's a relatively big amount for the 4%, and this will increase our E. The EBT will be relatively high. The tax rate will be influenced by realized tax assets. The tax rate in terms of cash tax is in a normal level for us because we have carried forward losses.
The positive aspect, the activated tax assets will take a little bit out the tax as we show, so that the tax rate is a little bit. Let me say in the region of approximately at the moment, we have preliminary figures, 10% like this. You can calculate.
10% from EBT. Could you quantify this one-off below EBIT? Between impact. Which amount should we assume?
We will publish it in a few weeks.
Oh, okay. Good. Thanks a lot. Bye-bye.
You're welcome. Thank you.
The next question comes from Richard Schramm, HSBC. Your line is open.
Yes. Good afternoon. I would like to ask something in connection with this new segmentation. In your press release, you have outlined that you would like to follow this new segmentation here, the markets and the customer groups. You mentioned OEM industry customers and public customers. Something I cannot find here in your presentation where you put a different focus. This customer-oriented segmentation, wasn't that already the status quo and the reason why segmentation was changed just a couple of months ago at beginning of last year? What really now is here the key for this new segmentation behind the general focus of this optics and photonics you mentioned? What do you think is really the massive benefit you will get from this one? Thanks.
Richard, good question. It gives me the opportunity to explain that a bit more in detail. We will certainly focus on that more during our capital markets day in a few days. I think a good way to explain that is in the following manner. As you know, within our OLS segment, we currently have two divisions, our optics division and our health care and life science division. Those divisions, they essentially have the same business model. At the end of the day, what they're doing is they develop and produce OEM-type products for large corporate accounts. We don't have a large sales force in that division. It's essentially a key account sales mechanism. Yeah, as I said earlier, it's an OEM business type.
We will merge those two divisions together into one entity, essentially running the same business model, and the same sales model. We will add to that the activities from our DCS segment to do with photonics, as I said earlier, our sensor business and the HLS business. Essentially, because again, these are OEM-type business models, where we don't have a direct sales channel to end customers. If you want, in the middle of the portfolio, in what we call today our Mobility segment, we've grouped together two businesses that in reality have little to do with each other. Our automobile business sells to industrial customers. Our Traffic Solutions business sells to governmental bodies. Completely different sales mechanisms and completely different ways to market and commercialize products. We will give these individual businesses more focus by basically running them as larger divisions.
In our automobile business, where we do already have a direct sales channel, we intend to develop that into more of a solutions provider for smart manufacturing. Whenever you think about smart manufacturing and whenever you think about automation in product environments, that is where this business is going to focus on in future. Yes, today, that's mainly in the automobile industry, but I don't think it has to just stay in that segment. You could think about smart production environments in way more than just an automobile industry. On the other hand, in our Traffic Solutions business, we also have an end customer business, by the way. We have a very strong global sales channel there, and we do have service businesses.
We can in both businesses in our today's automotive industry, but also in our Traffic Solutions business, offer really soup to nuts models, if you want, full solutions for our end customers. But again, the way to address customers in these segments are just very different. Selling to a governmental body is something completely different from selling to an industrial customer. Therefore, we believe that these businesses should be run more focused towards their customer groups going forward. In summary, the major advantage that we do see is we're de-complexing our structure at the end of the day. Again, we're reporting in three segments, but yeah, we're managing in five divisions, and we have lots and lots of legal entities underneath those divisions.
Those legal entities will consolidate. You will see us consolidating quite a lot of legal entities into larger single GmbHs or legal entities. That is going to give us more effective process landscapes and a reduced admin burden.
Okay. That was very clear. Thank you. The next question is Malte Schaumann from Warburg Research. Your line is open. Please go ahead.
Good afternoon. A couple of questions on my side. The first one is regarding the proposed business, which should be carved out in the mid double-digit million EUR amount. How does that, in profitability terms, compare with the other businesses? The average profitability comparable to the other businesses or is there a significant difference?
Okay. I'll answer it right away.
Yep.
Again, just to be clear, we're talking about two businesses. DCS today is essentially five businesses, and the three will remain within that segment, will be carved out from under the name Jenoptik, and will get a new brand name more suitable to their market environment. The business we will merge with the OEM business are our sensors business and our HELOS business. That is the part that has this roughly mid double-digit sales volume. We're not disclosing profitability of individual business units, so please do understand that we will not answer the question precisely. It's not as if these businesses, the photonics businesses in the DCS segment, are above the DCS average. On the contrary, I think the businesses in our mechatronics technology businesses within the DCS segment have a somewhat higher profitability at the moment, for the DCS in summary.
Yep. Okay. Secondly, on the 2018 margin guidance, I do also think that it appears to be a bit on the conservative side, however. Do you have any factored in, any specific one-offs apart from currency movements and these kind of things, potentially with respect to the structural changes you are trying to implement or intending to implement? Are there any specific one-offs factored into that guidance?
Look, again, whether conservative or aggressive, it's a guidance we feel relatively comfortable with, we do see potential tailwind, we also do see some risks around effects. We have not factored in any particular one-offs that we don't know yet. Therefore, we haven't factored in that. Obviously, when we do acquire businesses, we will have PPA effects and the like, it's pretty hard to give a guidance on that, we really don't intend to do that. We cannot tell you, do not know when we are going to close certain deals or whatever. Therefore, it's a guidance essentially based on the business as we know it today, we will see how it develops going forward.
Okay. Regarding the 2022 guidance of 16% EBITDA, I mean, at the upper end of your 2018 guidance, you said come close to somewhere around 15%, that this more or less just in percentage points more than you already have today. What is it why you maybe even there you remain potentially a bit on the conservative side?
Well, we've discussed that earlier today. Our EBITDA margin for 2017 is slightly above 14% in our preliminary figures. We plan to expand that in the horizon to around 16% EBITDA. Slightly above 14% is what we have today.
Yeah, true. Including the almost one percentage point negative one-offs for Toll Collect and other things. If I exclude that, you are more or less close to 15% in 2017, and probably will be around 15% in 2018. This is more or less a percentage point above the current level.
Yeah. We're slightly above 14% in 2017, and we'll see where we end up in 2018. Today, we're slightly above 14%. Again, we said around 16% for 2022.
Yeah. Okay. Let me ask differently. First, on the OpEx level, within the next three, four, five years, what do you expect to see? I mean, I understand that you invest more in R&D, to step up your efforts there. On the other side, probably you see some operating leverage effects in SG&A. Do you think that net- net in four years, five years time that you see a better OpEx ratio in comparison to today or will that remain broadly stable?
No, I think it's a very good observation. We will see leverage effects from growth, obviously, in particular in our G&A. I would exclude the S, I think sales and marketing expenses, we will not reduce, and we shouldn't reduce. We want to invest into growth, That is in growth via innovation, Also growth via stepped-up commercialization activities. Certainly, our admin costs will not grow as much as our sales will grow, Therefore you'll see a leverage effect in the OpEx line there. Again, we can argue whether 200 basis points expansion of EBITDA over five years is aggressive or not. To be honest, I think 200 basis points, it's a pretty good expansion of profitability.
Yeah. Taking out the negative one-offs, Just 100 basis points are on the table. However, maybe last question is for Mr. Schumacher. Do you expect a stable working capital ratio in 2018, given that you had some kind of cash coming in from receivables at the end of 2017? In relative terms.
You know growth and project business is influencing in a year our working capital quota. I don't see a big increase in the working capital in 2018 compared to 2017. It will be in the region of 2017 figures in % of the balance sheet.
Okay, good. Okay, thanks.
The next question comes from Craig Abbott again, Kepler Cheuvreux. Your line is open.
Hi, thank you again. I do have three follow-ups, sorry. First one, I just want to be really clear on this. The midterm target for your revenue growth of mid-high single-digit, that is referring to organic growth only? I just want to clarify that, please. The second question is, you mentioned a couple of times yesterday in the call when you were cautioning us that you do see some risks. You mentioned FX several times, but I think you also mentioned you see some risks around the supply chain, and I just wondered if you could maybe clarify for us what you mean exactly. The third one, again, I'm just trying to better understand the top-line guidance for this year.
If we add the sales that come in from the Toll Collect contract, which I think you indicated in past calls should be a very solid mid-double-digit million EUR amount. Where is it that in the rest of the business are you expecting sort of flattish development, i.e., are you sort of expecting semicon to simply flatten out at this very high level? Or is it more on the residual Mobility business? Because otherwise, it seems like the guidance is also on the top line looks relatively conservative otherwise. Thank you.
Let me address, Craig, the top-line guidance first. You're right, we did say that the Toll Collect project in total will contribute a mid-single-digit sales figure to the company in total over the course of the project.
You mean mid-double digit? Mid-double digit.
Sorry, mid-double digit. Did I say single digit? No.
Yes. That's fine. Okay. Thank you.
of course. Otherwise No, no. Mid-double digit EUR million, in total over the course of the project. I think I indicated earlier that we have already realized some sales in 2017.
A low double-digit EUR million range. Of course, some of the sales from the project, in particular when it comes to services, are ongoing. It's not as if the whole mid-double digit EUR million, whatever that is in there for 2018. You are right that Toll Collect will give us a sales boost in 2018, in particular in our Traffic Solutions business. On the other hand, of course, there is a running business in Traffic Solutions, where some projects are running out, and we have to find ways to compensate that. The other area of, shall we say, maybe less aggressive growth is in our defense businesses. There's one thing, government saying we will spend more on our defense activities. The other thing is us actually getting orders and getting export licenses.
Therefore, I don't think that our defense business, it hasn't grown through the roof, particularly in 2017, and we don't expect that to go through the roof in 2018 either. Thank you. The other question you had was around the supply chain. Here I'm referring to actually a number of factors. One is, of course, the availability of personnel. It's getting harder and harder to recruit the folks we need to actually produce our stuff. There is quite a war for talent out there at the moment, in particular in our marketplaces. We think we're a very attractive employer. Nevertheless, I think it's fair to say that everyone in the industry currently struggles to get the people on board that we need in order to fulfill the demand that we have.
The other areas around supply chain is actually increasingly the availability of raw material. There is only a limited amount of capacity when it comes to the supply of certain materials that we all need. It's okay. We're doing good at the moment, it's certainly an area we're monitoring very closely.
Which ones? Can you give us an example? Which raw materials in particular?
Look, if you think about optics, I know for some it's just glass. In reality, the materials that we use for our rather complex optical setups and lenses and equipment are pretty special. There are lots of different special glasses that we need. Don't want to go too much into a technical discussion here, but starting with just ordinary Pyrex glass, some silicates, some fluorites. Specific glass material is getting under quite some heavy demand at the moment. Because that's material that goes into, in particular for the semiconductor industry, into lots of machines at the moment. It's quite funny, but we all experience that probably when we bought and are building houses or whatever. It's getting harder and harder to get, sometimes even just ordinary mechanics work, to get in time and in quality that we need.
We have a very high quality demand. Our supply also in mechanics and steel and all of that is under heavy demand at the moment. Again, nothing to worry about short term. I think we're doing okay, it's certainly something that we're managing and monitoring very closely.
Okay.
I think your last question has been around the FX effect, huh?
No, no, my last effect was about the organic growth. Was just to confirm that your sales CAGR target for the midterm was only referring to organic growth, correct?
No, it's supposed to be the total growth of the company, organic and inorganic. Let me point out that I talked about active portfolio management quite a bit. Again, active portfolio management means, to me at least, acquisitions where it makes sense. It also could include divestments in areas that we're not necessarily the best owner. No, I don't want to go into any more-
Sure
specifics here, I think, yeah, we've dwelt on some points. We will certainly focus on or intensify our focus on our photonics core competencies going forward. Yeah, I think that's where I would like to leave it at this point.
Okay. Thank you.
At the moment, we don't have any further questions, I would like to repeat. If you would like to ask a question, please press nine followed by the star key on your telephone keypad. The next question comes from Peter Rothenaicher from Baader Bank.
Hello, gentlemen. One question regarding prospects for your traffic safety business. You now had the Toll Collect. You had some time ago, the big orders for traffic service providing. What do you see in terms of the pipeline? Is the business progressing well, do you expect here for 2018, further good project pipeline? Second question, it was already somewhat in discussion, your implementation of the new structure, don't you expect here major one-offs for the implementation? Is this more or less cost neutral?
Peter, thank you very much, hello from our side here, thanks for your questions. On the traffic solution side, you pointed out correctly that we don't just have our Toll Collect business. We have an ongoing traffic safety business. You did point out that we had some major contracts won in the past, which need to be replaced. By me saying that, I do indicate we have a pipeline there, we haven't necessarily won all these projects yet. The underlying business is, shall we say, helped by the additional sales that we get for the toll business in 2018. On the new structure I don't think we will see a lot of one-offs in terms of restructuring. We will see some, though, in terms of consolidating GmbHs.
I don't think that these will be big restructuring costs in the sense of we don't plan any sort of mass layoffs or anything like that. Not on the contrary. We have no such plan at all. Of course, when one consolidates companies and restructures in order to prepare ourselves and make ourselves even better prepared for future challenges and future growth, then there might be the odd one, of course, here or there. Again, we do not intend to or plan any kind of massive restructuring here. You are right, there could be some one-off costs in relation to the restructuring of, in particular, of our legal entities and the merger of a lot of individual legal entities.
Okay. Your guidance you have given for 2022 with the 16% EBITDA margin, is it perhaps a right interpretation that you're currently experiencing an extremely favorable environment, particularly from the semiconductor industry, and everybody knows that here, the margins are extremely high and that this development will not continue forever, and this might have perhaps in future year also some negative impact as well?
Lovely question. Thanks for that question, and essentially you've given the answer already.
Okay.
No, you've hit the spot on. That's absolutely exactly right.
Okay, thanks.
The next question comes from Stefan Maichl again. Maichl from LBBW. Your line is open.
Yeah, thanks. One follow-up. Have you added any major orders to the frame contracts in the last quarter, in Q4?
I'll come. Yes.
We have-
In the healthcare.
We have one in the healthcare business, but it's not a major Would you classify that as a major?
Above EUR 10 million, or?
EUR 1 million, but some EUR 10 million. We did, though, get an order from our partners at Toll Collect actually for service businesses, but that's not in the frame, I believe. In the frame business?
No.
That's not in the frame business. We have in the first quarter, we've got an order in our healthcare and life science business. Not double digits.
Between EUR 5 million and EUR 10 million, or?
Yeah, in total.
Okay. EUR Five to EUR 10. Okay.
Yep.
Yep.
Okay.
We're talking specifically Q4, yeah?
Yeah. That's it.
Cool. Yeah.
Okay. Thank you.
You're welcome.
Dr. Traeger, we don't have any further questions.
Okay. Well, thanks very much for your participation, and for your interesting questions and the discussion that we had. Again, let me summarize that 2017 has been a solid year for Jenoptik. We're pleased with the development. Given the factors that we've discussed, we look with quite an optimism into 2018. We believe that the strategy that we've discussed will enable us to accelerate our growth, will enable us to further expand our margins. In particular, as I said earlier, we believe that it will help us and support in developing Jenoptik from a relatively diversified conglomerate into a quite a bit more focused technology group. That is essentially the strategy that we have, and we believe it's good for our company, it's good for us, and it will see us expanding margins and accelerating growth. Thanks very much.
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