Good afternoon, ladies and gentlemen, and welcome to the Genoptic conference call regarding the preliminary results of 2017. I will now turn the floor over to your host, Doctor. Stefan Traeger.
Thank you very much, and a warm welcome from our side here to our earnings call today. And 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 room here is Hans de Leschumacher, our CFO. And we will, 1st of all, discuss our, again, preliminary 2017 results. We'll then dig a bit deeper into our individual segments, and we round it up with some strategic thoughts and how we see our future going forward.
We'll discuss our 2018 guidance, and 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 beginning of the year, we could announce the acquisition of Essar 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 5 Lakes Automation, again, the 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.
And we've expanded our profitability quite a bit. Our EBIT has been 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 Antti Schumacher, our CFO, who is going to take us through our 2017 financials for the group.
Yes. Thank you, Stefan, and a warm welcome from my side as well to all of you. On Page Slide 4, you see our revenue in comparison to prior year split it out into our quarterly revenue figures. And here you see that with our Q4 2017 on a very high level, EUR 221 1,000,000 in sales. Again, a very strong quarter.
All quarters have been above the prior year quarters. And in total, it ended up at SEK748,000,000, 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 is 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, very strong profitability level taking into account that we did not have only positive impacts by the very well developed optic 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. But we also had one off expenses. As you all may remember, we have spoken about it throughout the year concerning our big projects in the mobility segment and traffic solutions all around Toll Collect. Then we have had also in the EBIT figures realized some of our purchase price allocation impacts, PPI effects from the acquisitions of Essa and Five Lakes in total roundabout €2,000,000 In the sales figure, you have a mid single digit number in sales. So these are the impacts we have seen here in the group.
When you then follow me to the next slide on Page number 6, you'll see our key performance indicators who are looking more in the future in the upcoming months years concerning our development. You see our order intake, which has been at a little bit above €800,000,000 €803,000,000 which is an increase of roundabout9%, It shows you also again book to bill ratio clearly above 1. Our order backlog increased by 12% with EUR453,000,000 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 due to order intake and backlog due to, for example, Tolpellet, which is alone €29,000,000 So this has an impact here. Our next slide then shows you the on Page 7.
Our net GAAP development over the years coming from a very, very high negative situation in 2006. Now even taking into account that we had roughly €10,000,000 higher investments last year, our dividend payment increased by roundabout €2,000,000 We had to finance the acquisitions. In total, our net debt increased. We are now at €69,000,000 plus, meaning €69,000,000 more cash than debts. In total, a very strong development.
Our free cash flow throughout the last year has been approximately €72,000,000 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. Then I'd like to hand over again to Stefan, who will lead us now through the development of our segments. Stephan?
Certainly, and thank you very much, Hansita. Let me take you first of all to our Optics and Life Science segment, and you see that on Page 9 of the presentation. In our Optics and Life Science segment, we've seen again new records in revenue and earnings, driven by a high demand in for solutions in the semiconductor equipment industry, but also driven by a very positive development in our health care areas. Revenue grew from €221,000,000 to more than $259,000,000 in the past 12 months. And with that growth in revenue, we've seen a step up in EBIT from $33,000,000 to more than $50,000,000 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 semiconductivities. And that does look very optimistically into the year 2018, in particular for Optics and Life Sciences. Let's have a closer look at our Mobility segment. And 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 €270,000,000 Both segments or both divisions actually contributed to the growth in revenue as well as, of course, the additional consolidation of our acquisitions, 5 Lake and ESTA for this particular segment. The consolidation effect here, the non organic effect, if you want, is somewhat below €10,000,000 So even organically, the sales in this segment grew significantly. We have had some positive sales effects also already from our toll collector project in the Trap solutions business in the low double digits. The priority of the sales from that Torque Collect project will come in 2018. That said though, EBIT margins are in decline in this or have been declined, I should say, in this segment due to really one off expenses.
And we've discussed that in prior earnings calls in detail. We have had expenses, in particular, around the Tor Collect project. And in addition to that, we have obviously had PPA effects from the 2 acquisitions in this segment. So again, margins have been declined in 2017 despite the growth in revenue, and that is due to the onetime effects that we've discussed in the past already. Let's go to our Defense and Civil Systems segment.
Sales in the segment are flat. And with that comes a flat development in our profitability in the segment. Sales, let's put it that way, are flat on a or versus a very challenging comparator. I think you might remember that in 2016, this business has invoiced several major projects. And for 2017, we're actually proud 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, and 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 the strategic development for the Enoptic Group. And let me take you to Page 13. Before we talk about the future, I think it's worthwhile to at least have a very short look into the rearview mirror here.
And I think it's fair to say that in the past 10 years, things haven't always been easy for Genoptic. I guess the company steered the ship through some choppy waters at times. The financial crisis of 2,008 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. We have a very strong balance sheet, and we have the means and certainly the willingness to invest into growth. And for that, we've put together a strategy that really focuses on 3 major building blocks. Our strategy going forward is going to focus on focus, focus on focus, is going to focus on innovation and is 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 Enoptic from a rather diversified industrial conglomerate towards a more focused technology group.
So I've used the word focus quite within 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 ENoptic. I guess it's fair to say that the ENoptic by today is still a pretty diverse thing. We have
a broad product portfolio and
we have a very broad business portfolio. And at times, I do wonder if we can actually do everything with the same amount of intensity and quality across the whole portfolio. And 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. And the question what we are really good at, I, for one thing, we can answer by mentioning Photonics and Optics. Optics and Photonics really is at the heart of your optic, something that we're really good at.
It is, if you want, our core competence. Now 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 forced industrial revolution without photonics and optics.
Without photonics, no modern life science, no public safety. So photonics really is influencing more and more areas of our society. But photonics is more than that. Photonics is not just a cool and interesting technology and enabling technology. Is actually a very interesting marketplace.
The markets 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. So 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 to our high-tech markets, And we really intend to enhance our R and D work and stepping up our investments into innovation. We have the willingness to increase the level of R and D spend of our group to about 10% of revenue by 2022, and that includes obviously direct R and D spend as well as customer focused project work. We'll not only enhance our R and 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.
Well, I think that's quite an important factor if you want to be of a company, one wants to be really innovative. Innovation is driven by creativity. And if we are going and that's what we intend to do, are going to push our decision making process more into our operating units. It will make our company faster. And again, Varejo, I think the uptake has a bit of a tendency to centralize decision makings at the moment, and we will certainly change that.
We believe that 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 that we have luckily global facilities. We have offices around the globe.
But 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. But 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. So we will see us going forward having more managers with an international background, intercultural experiences. But 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're certainly very well established in our home turf here in Europe. But 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 will particular focus on China to begin with.
We intend to have local R and D teams going forward in all major markets, not just in the U. S. And in Germany or in Europe. So in particular, in Asia, we aim to have local R and D teams going forward. And we do have the willingness to have at least one of our divisions with its headquarters outside of Germany in future.
So in summary, our strategy going forward calls for accelerated growth and margin expansion based on 3 major building blocks: more focus, more innovation and more international. That said, having a strategy is one thing and certainly a good thing. But 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 house come home. But if we don't have the culture in the company to actually deploy it successfully, we're not going to win. But winning is what we want and we want to have a winning culture within our company. So you will see us also focusing on cultural development and on making the 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, and we will certainly continue to report on that in future.
Let me take you to Page number 18. And part of a culture of a company is focused. We talked about that a lot. Part of the culture of a company is also the ability to prioritize. When I started at Genoptic, I was at times a bit surprised.
Whenever I asked folks for their priority lists, I got lists of lung in my arm at times. So I think it will be important for us to become better in prioritizing. And obviously, as the Executive Board, it's our duty to walk the talk here. And we intend to do that by establishing and communicating priorities more clearly into the organization, but we also intend to or 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.
And by the way, maybe it's a good idea to explain that a bit more in detail. I don't think if I talked about that, that much in this call yet. We do intend to make our organizational structure clearer and easier. The Enoptic is, yes, it's a pretty fragmented thing, shall we say. We run the business or we report the business in 3 segments, but we're managing our business in 5 divisions, and we have lots and lots of legal entities within the company.
And part of the parenthesis focus project will be to make our business setup easier to understand. We intend to, going forward, establish 4 major divisions, and we will not talk about segments And there was the German name for the divisions. Schwarthen, we will not talk about segments and Schwarthen anymore in future. We'll just have 4 major divisions, and we will make our we will consolidate the legal entity structure that we have in particular here in Jena but also in other places. So 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've discussed earlier. And the last priority for 2018 The 3rd major priority for 2018 is the launch of 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 €790,000,000 €810,000,000 this year. And we expect an EBIT margin between 10.5% 11%, somewhat up versus prior guidance of around 10%. We do see and continue to see tailwinds, 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, as I say, monitor these risks very closely. Overall, though, we're actually pretty optimistic for 2018. And as I said earlier, we will see sales of around €800,000,000 somewhere between €790,000,000 €810,000,000 and an EBIT margin in the corridor between 10.5% 11%. Let me look a bit further into the future. We've discussed our strategy.
And our strategy aims for accelerated growth and margin expansion Under the 3 major building blocks of more focus, more innovation and more international, we will see, yes, 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. And 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. And let me point out, we're talking EBITDA here.
We're we'll increasingly talk about EBITDA So we think that, that makes us more comparable, in particular, when we see a more active portfolio management process. We've 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. So therefore, we will increase our communication around EBITDA or EBITDA in future. But in summary, again, we expect revenues to grow in the mid- to high single digit range in the next 5 years on average and margins to expand to about 16% EBITDA by 2022.
With that said, let me pause here. Thank you for your attention and time for questions. Okay.
And the first question comes from Craig Abbott from Kepler Cheuvreux.
Hello. Can you hear me?
Yes. Yes. Perfect.
Okay, great. Thank you. I guess I'll start with 3 questions and move on. First question, you mentioned in your closing comments one reason why you shifted the focus with regards to your midterm target EBITDA for more international comparison. But 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 and A spend, but I would assume maybe that implies you also have a higher investment rate going forward. So 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 and A over the next 2, 3 years? The second question was this maybe a little bit premature, but I wondered if you could give us at least a ballpark indication how much of your activities are both sales and EBIT wise are currently related to your Medtronic's that you're wanting to carve out? And my third question is you mentioned you want to increase the R and D spend around 10% by 2022 and I believe that will be almost 4 percentage point increase. I just wondered to what extent you feel you might be able to offset this with declines in SG and A costs?
Thank you.
Yes. Look, Mike, thanks for your for your thought. Thank you for calling in, 1st 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 and 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 Genoptic. So just to give you an indication, I think the total of that spend in 2017 will is or has been around 8.5%, 8.6%. So 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 covering out of that business. So the as you already know or pointed out and pointed to DCS today is a number of businesses, mechatronic businesses as well as some photonic businesses, namely our sensor business and our joint venture with Hilti, the Hilla's GmbH. And those two businesses, the photonics businesses, we will carve out from the DCS segment and merge with our OLS, essentially our 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 million range.
Obviously, I can't give you any sort of specific numbers here. But if you sort of think about mid double digit, then 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.
And this last question has been around EBITDA and investment and better comparison and DNA. So we don't intend to give you a long term forecast, in particular, on investments and DNA. We don't guide on that for long term. But you're certainly right. If you want to grow, then we do want to grow organically as well as via M and A activities.
And we have, as I said earlier, we have the means and certainly the willingness to continue our M and 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. And 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 effect and the likes.
It makes, I think, our life easier, make your life easier. But nevertheless, we'll continue, of course, to report on EBIT. So 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. But again, we will continue to report on EBIT.
And for this year, actually, our guidance is in EBIT and not in EBITDA.
Correct. But may I just ask a quick follow-up on that? Can we generally expect on an organic basis excluding obviously in between Germany but on organic basis, can we generally expect that CapEx and therefore also D and A line to be somewhat higher over the next couple of years than it has been over the last couple of years as a percent of sales?
Look, I mean, I think we'll disclose the numbers in particular when we have audited financial results. But our investments in 2017 have been pretty substantial actually. And so we've stepped up investments in 2017 already Quite a bit. But £10,000,000, as Peter just points out. So we certainly don't intend to reduce that.
Okay. That's very helpful. Thank you very much for the answers.
And
the next question comes from Stefan Meisel from LBBW. Your line is open now.
Yes. Stefan Meisel from LBBW in Stuttgart. Good afternoon, gentlemen. Some questions from my side. First one is from Mr.
Schumacher and 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?
And the 3rd and last one, I've tried to reconcile your 2018 EBIT guidance. I mean, you've given margin range points at 80 €3,000,000 to €89,000,000 versus €78,000,000 in 2017. And if we add around €6,000,000 I would assume 1 offs back booked in 2017, we already would reach the lower end of your given guidance range. And then having in mind around €50,000,000 in sales lift you pointed out, assuming a stable gross margin of around 36%, I would come up to an EBIT above €100,000,000 So 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 I'll ask you is what has been around cash. Yes, cash here. Thank you, Stefan.
This was the easiest question, but not the talk 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 December. So with this big payment, we ended up, as you mentioned it a little bit, mainly this was a factor why we ended up a little bit above our expectations, yes? But all in all, to be honest to you, we have pushed our teams in sales and supply chain and in R and D and operations to collect as much as possible.
But 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 publish probably or talk about the final figure in a couple of weeks. But I can tell you it was again a very, very high month in December, which is only 3 weeks, yes, you know. And this is still in our balance sheet, not in cash position and trade receivables.
And we prepared on the inventory side our deliveries in Q1 and Q2 to TOEKOLLECT. We will deliver our pillars to our customers. So we increased our inventory. So we had a little bit an increasing working capital pressure, so to speak, coming from the good businesses. So this led finally to the situation that we had not cash flow in, which we realized normally in the last weeks of the year.
And in addition, we spent a little bit more money in investments than in the prior year because our investments went up in total by €10,000,000 compared to prior year and the part of it we realized in Q4. So we have some spendings in customers and in investments. So this ended up with the cash free cash flow we explained or we informed you about.
On the Abbott question, look, I think 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. But we also do see potential risks, in particular around our supply chain and around FX developments. And so therefore, we I believe have given a guidance that we've been comfortable with, and that is we will expand our margins again this year. We, I think, 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% 11% for now. And that's a range we feel fairly comfortable.
Yes. So 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?
Look, 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% 11% in EBIT margins.
And 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.
And I still feel good with the target of 30% working capital quota, yes.
And lastly, two points. The first one, again, one offs booked any one offs booked in Q4. The second one, maybe some ballpark figure for the tax rate, if you might pencil in our models for 2017.
Okay. Well, we had the purchase price allocation, which we finally booked because we made the last acquisition, 5 Lakes Automation in August and the main impact we have in Q4. So in total, as our end and 5 Lakes, it's around about EUR 2,000,000 in EBIT,
€2,000,000 For loan in Q4?
No, in total for the whole fiscal year, but the main impact has been in Q4. I think it has been €1,000,000 till end of September and an additional €1,000,000 in Q4. In total, it's a little bit more than €2,000,000, yes? And then we have talked throughout the year about our initial costs of our big project. And we have talked about some €1,000,000,000 impact.
I am not quite sure whether we have Toll Collect, yes. Toll Collect, I think we
I think what we can say is that our Toll Collect the expenses on Tor Collect have been higher than originally anticipated. And we have this closed already that the expenses or the overspend, if you want, is in the few million range. And certainly, those expenses do not roll over into 2018.
So has
there been any additional expenses for Toll Collect in the last quarter? Because you've already booked about around €5,000,000 in the 1st 9 months.
We have had we've continued to spend, but within the planned area. And again, let me maybe specify that a bit more. The total expenses on that project are higher than the number you just mentioned. The total R and D expenses on that project are in the double digit million range. But low double digit.
But the overspend is what we've specified in this particular instance and that we have digested in our P and L in
2017. Though you will make your calculation, it's a certain amount which will disappear in 2018. That's for sure. And coming to your last question, Mr. Marshall, concerning the tax rate, you can we feel relatively low tax rate, let me say it in this words, because we have you will see 1 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. So it's a company named ATS in U.
S, which is in the traffic solution business where we had 4% stocks part and they have been taken over and we had we had to realize a so called squeeze out, yes? So we could not say yes or no. We got the money, so to speak, yes? Yes. And it's a certain it's a relatively big amount for the 4% and this will increase our E.
So the EBT will be relatively high, and the tax rate will be influenced by realized tax assets, yes? So the tax rate in terms of cash tax is in a normal level for us because we have carried forward losses, but the positive aspect, the activated tax assets will take a little bit out the tax rate is a little bit, let me say, in the region of possibly at the moment, we have polymer figures 10% like this, you can calculate.
10% from EBT. And could you quantify this one off below EBIT or between so which amount should we assume?
We will publish it in a few weeks.
Okay. Good. Thanks a lot. Bye bye.
Bye, Tom. Thank you.
And the next question comes from Richard Schram, HSBC. Your line is open.
Yes, good afternoon. I would like to ask something in connection with this new segmentation. So in your press release, you have outlined that you would like to follow this new segmentation here, the markets and the customer groups, and you mentioned OEM industry customers and public customers, something I cannot find here in your presentation where you put a different focus. And 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 the beginning of last year.
So what really now is here the key for this new segmentation kind of 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. And it gives me the opportunity to explain that a bit more in detail. And we will certainly focus on that more on our during our Capital Markets Day in a few days. But I think a good way to explain that is in the following manner. As you know, within our OLS segment, we currently have 2 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. And so yes, as I said earlier, it's an OEM business type.
And we will merge those 2 divisions together into 1 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 Hilla's business. Essentially, because again, these are OEM type business models, where we don't have a direct sales channel to end customers. In if you want, in the middle of portfolio, in what we call today our Mobility segment, we've grouped together 2 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. And 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. So 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 sales global sales channels there, and we do have service businesses. So we can in both businesses in our today's automobile 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 industrial customer. Therefore, we believe that these businesses should be run more focused towards their customer groups going forward.
So in summary, the major advantage that we do see is we're decomplexing our structure at the end of the day. Again, we're reporting in 3 segments, but yes, we're managing in 5 divisions, and we have lots and lots of legal entities underneath those divisions. And those legal entities will consolidate. And so you will see us consolidating quite a lot of legal entities into larger single GMB ages or legal entities, and that is going to give us more effective process landscapes and a reduced admin burden.
Okay. That's very clear. Thank you.
And the next question is Maite Schalmann from Babcock 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 single digit, double digit €1,000,000 amount. How does that profitability terms compare with the other businesses? The average profitability comparable to the other businesses?
Or is there a significant difference?
Okay. Probably answered right away. And again, just to be clear, we're talking about 2 business DCS today is essentially 5,000,000,000. And the 3 will remain within that segment, will be carved out under the from under the name EN OPTIC, and we'll get a new brand name more suitable to their market environment. The business we will merge with the OEM business, our sensors business and our glove business.
And that is the part that has this roughly double digit sales volume. We're not disclosing profitability of individual business units. So pleased to understand that we will not answer the question precisely. But it's not as if these businesses, the Photonics businesses in the DCX 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.
Yes. Okay. And then secondly, on the 2018 margin guidance, I do also think that it appears to be a bit on the conservative side. But however, do you have any effect 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. So are there any specific one off factors into that guidance?
Look, again, whether conservative or aggressive, it's a guidance we feel relatively comfortable with. And we do see potential tailwind, but we also do see some risks around FX and FX. We have not factored in any particular one offs that we don't know yet. So therefore, we haven't factored in that. Obviously, when we do acquire businesses, we will have PPA effects and the like.
But it's pretty hard to give a guidance on that, and 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. So therefore, it's a guidance essentially based on the business as we know it today, and we'll see how it develops going forward.
Okay. Okay. And then regarding the 2020 2 guidance of 16% EBITDA, I mean, at the upper end of your 2018 guidance, you should come close to somewhere around 15%. So that's just more or less just in percentage points more than you already have today. So what is it why you maybe even there you remain potentially on the a bit on the conservative side?
Well, I think today, we have we've discussed that earlier today. Our EBITDA margin for 2017 is slightly above 14% in our preliminary figures. And that would we plan to expand that in the horizon to around 16% EBITDA. So slightly above 14% is what we have today.
Yes, true. Including the 1% almost 1 percentage point negative one for TotalCollect and other things. So if I exclude that, you are more or less close to 15% in 2017 and probably will be around 15% in 2018. So this is one percentage points above the current level.
Yes. Again, we're slightly above 14% in 2017%. And we'll see where EndUp is in 'eighteen. But today, we're slightly above 14%. And again, we said around 16 percent for 2022.
Okay. Then I'll let me ask differently. First on the OpEx level, within the next 3, 4, 5 years, what do you expect to see? I mean, I understand that you invest more in R and D, so to step up your efforts there. But then on the other side, probably you see some operating leverage effects in SG and A.
So do you think that net in 4 years, 5 years' time that you see a better OpEx ratio in comparison today? Or will that remain broadly stable?
No, I think it's still a very good observation. We will see leverage effects from growth, obviously, in particular, in our G and A. I would exclude, yes. I think sales and marketing expenses, we will not reduce and we shouldn't reduce. We want to invest into growth, and that is in growth via innovation but also growth via stepped up commercialization activities.
But certainly, our admin costs will not grow as much as all sales will grow. And so therefore, you'll see leverage effect in the OpEx line there. And again, I mean, we can argue whether 200 basis points expansion of EBITDA over 5 years is aggressive or not. To be honest, I think 200 basis points, 200 basis points. It's pretty good expansion of profitability.
Yes. But taking out the negative one offs, I mean, then that's 100 basis points are on the table. But 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 on relative terms?
You know, growth and project business is influencing in a year our working capital quota. But I don't see a big increase in the working capital in 2018 compared to 2017. It will be in the region of 17 figures in percent of the balance sheet, yes.
Okay, good. Okay, thanks.
And the
next question comes from Craig Adedegam, Kepler Cheuvreux. Your line is open.
Yes. Hi. Thank you again. I do have 3 follow ups, sorry. First of all, I just want to be really clear on this.
The midterm target for your revenue growth of mid- to 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 just during 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 can maybe clarify for us what you mean exactly.
And the third one again, I'm just trying to better understand the top line guidance for this year because if we add the sales to come in from the Tokelau contract, which I think you indicated in past calls should be a very solid mid double digit million 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 semi 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 in 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 Tor Collect project in total will contribute a mid single digit sales figure to the company in total over the course of the project.
Mid double digit. Mid double digit.
Sorry, mid double digit. Did I say single digit? No, I mean
Yes, yes, fine. Okay.
Thank you. Of course. Of course. No, no, mid double digit. In total, over the course of the project.
And I think I indicated earlier that we have already realized some sales in 2017, low double digit €1,000,000 range. And of course, some of the sales from the project, in particular, when it comes to services are ongoing. So it's not as if the whole mid double digit, whatever that is, is in there for 2018. But you are right that TallCollections will give us a sales boost in 2018, in particular, in our Traffic Solutions business. And 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 is saying we will spend more on our defense activities, but the other thing is us actually getting orders and getting export licenses. And so 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. Around the supply chain. And 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.
And there's quite a lot of talent out there at the moment, in particular in our marketplaces. And we think we're in a very attractive employer. But 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.
And it's okay. We're doing good at the moment, but it's certainly an area we're monitoring very closely.
Which ones can you give us an example with raw materials in particular?
Look, I mean, if you think about optics, I know for some it's just glass. But in reality, the materials that we use for a lot of complex optical setups and lenses and equipments are pretty special. There are lots of different special glasses that we need.
I don't want to go
too much into a technical discussion here, but starting with just ordinary Pyrex glass, some silicates, some fluorides. So specific glass material is getting, yes, under quite some heavy demand at the moment because that is that's material that goes into in particular for the semiconductor industry, into lots of machines at the moment. And but it's also getting quite funny, but it's we all experience that probably when we bought in a 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.
And so our supply also in mechanics and steel and all of that is under heavy demand at the moment. Again, nothing to worry about like short term. I think we're doing okay, but it's certainly something that we're managing and monitoring very closely. I think your last question has been around the FX effect.
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, no, no. It's supposed to be the total growth of the company, organic and inorganic. But let me point out that I talked about active portfolio management quite a bit. And again, active portfolio management means, to me at least, acquisitions where it makes sense, But it also could include divestments in areas that we're not necessarily the best owner. Now I don't want to go into any more specifics here, but I think we've developed on some point.
We will certainly focus on intensify our focus on our Photonics core competencies going forward. And yes, 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. So I would like to repeat. Yes. And the next question comes from Peter Rodenay from Baader Bank.
Yes. Hello, gentlemen. One question regarding prospects for your traffic safety business. You now had the PolCollect. You had some time ago, big orders for traffic service providing.
What do you see in terms of the pipeline? Is the business progressing well? And do you expect here for 2018 for the good project pipeline? And second question, it was already somewhat in discussion, but 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, and hello from our side here. And thanks for your questions. On the Traffic Solutions side, you pointed out correctly that we don't just have our Talkcollect business. We have an ongoing traffic safety business. And 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, but we haven't necessarily won all these projects yet. So the underlying business is, shall we say, helped by the additional sales that we get throughout the 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. Now I don't think that these will be big restructuring costs in the sense of we don't plan any sort of, I don't know, mass layoffs or anything like that, not under control.
We have no such plan at all. But 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 off cost here or there. Again, do not we do not intend to or plan any kind of like massive restructuring here. But you are right, there could be some one off costs in relation to the restructuring of all legal entities and the merger of a lot of individual legal entities.
Okay. And 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 some 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, I mean, you feel spot on.
That's exactly right.
Okay. Thanks.
The next question comes from Stefan Meisel again Meisel from LBBW. Your line is open.
Yes, thanks. One follow-up. Have you added any major orders to the frame contracts in the last quarter in Q4?
Yes. We have 1 in the healthcare business. We have 1 in the healthcare business, but it's not a major can you classify that as a major?
About $10,000,000
or Probably $1,000,000 but sometimes $1,000,000 We did get an order from our partners at Torkelact actually for service businesses, but that's not in the frame, I believe. No. It's not in the frame business. So we have in the Q4, we've got an order in our Healthcare and Life Science business but not double digits.
Between €5,000,000 and €10,000,000 or
Yes, in total.
Okay. 5% to 10%.
Okay? Yes. Okay. And we're talking specifically Q4,
yes? Yes. Okay. Thank you.
You're welcome.
Doctor. Traeger, we don't have any further questions.
Okay. Well, then 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 ENOPTIC. We're pleased with the development. Given the factors that we've discussed, we look with quite an optimism into 2018.
And we believe that the strategy that we've discussed will enable us to accelerate our growth, will enable us to further expand our margins. And in particular, as I said earlier, we believe that it will help us and support in developing ENOPTIC 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.