Jenoptik AG

XETRA:JEN

Earnings Call Transcript 2022-Q1

[Operator]

Good morning, ladies and gentlemen, and welcome to the Jenoptik conference call regarding the results of first quarter 2022. [Operator Instructions]

Let me now turn the floor over to your host, Leslie Iltgen.

[Leslie Iltgen, executive]

Thank you, and a warm welcome to our conference call on the Q1 2022 results. My name is Leslie Iltgen, Head of Investor Relations at Jenoptik. And with us today are CEO, Dr. Stefan Traeger; and our CFO, Hans-Dieter Schumacher. Dr. Traeger will point you to the key highlights of our Q1 results. Mr. Schumacher will then cover the financials in more depth. And as always, both will be happy to answer any questions you may have in our Q&A session at the end of this call.

Also, let me remind you that this call will be recorded. A replay will be available on our Investor Relations website after this call.

Before I hand over, please also pay attention to our usual disclaimer that you will find in the presentation.

It is now my pleasure to hand over to our CEO, Stefan Traeger. Please go ahead, sir.

[Stefan Traeger, executive]

Leslie, thank you very much, and a very warm welcome from my end as well to all of you in the call here.

First quarter of 2022 for Jenoptik has been characterized by a very strong growth pattern. Our order intake grew by almost 30%, driven, of course, by an extremely strong demand in the semiconductor industry, where we are a critical supplier. Despite all the challenges in supply chain that we all talk about all the time, we managed to grow our sales by almost 40%. You take out the acquisition effects, our organic growth -- and something I'm particularly proud of -- organic growth amounts to almost 17% in the first quarter of 2022, which is a very strong number, very strong growth figure.

We managed to expand our margins. Our operating profit margins -- if you take out certain -- in particular one-off effect from prior year in connection with a purchase price component of an acquisition that we've made in the past -- if you take that out, our organic -- or our margin -- our operating profit margin expanded by 70 basis points to now 10.1% of sales in terms of EBITDA margin, which I believe is a very strong development. Also, given the fact that we had quite a lot of expenses actually in connection with the acquisition that we've made at the end of last year and the efforts to integrate those new businesses.

But not only has the first quarter been characterized by very strong growth patterns and growing our top line, we've also operationally and strategically made way forward in changing the company. Just recently, we have revitalized the HOMMEL ETAMIC brand. Since a few days back, we've actually now operating our industrial metrology business under its brand name HOMMEL ETAMIC, and we launched that -- or we launched, actually, that brand at Control show in Stuttgart. And we've now formed a new business group, Non-Photonic Portfolio Companies. We've merged Light & Optics and Light & Production, and we've carved out those businesses which are operating under its own brand name going forward.

And if you follow me on Page #4, we tried to make that transition on our operating setup a bit more easy to understand. So basically, as you can see on Page #4, Light & Optics and Light & Production have been merged together into Advanced Photonic Solutions. Out of the old Light & Production business, mid-single-digit sales number in the first quarter goes into the Advanced Photonic Solutions. The remaining business is now operating under the -- or within the business group, Non-Photonic Portfolio Companies under its own brand name, namely Prodomax and Five Lakes in North America, INTEROB in Spain and HOMMEL ETAMIC in Germany and in France and a couple of other places here in Europe.

Within the Advanced Photonics Solutions business, we also have consolidation effects from the acquisitions we made. We are very proud of the fact that Berliner Glas and SwissOptic, the former Berliner Glas Group, is now forming a good part and contributing nicely to our success in Advanced Photonic Solutions business. About EUR 73 million of the EUR 157.1 million in the first quarter, that Advanced Photonics managed to post the sales actually from the acquired companies. If you take that out, still very -- and go back to the organic growth rate, organic in particular, in our Optics business is really strong. And we are, again, very pleased with that, in particular, given the fact that we are all talking about those supply chain challenges. We manage it.

And we managed to convert what's a very strong order intake into good sales growth. Again, sales growth in the first quarter, almost 40% despite all these challenges and organically, almost 17%. I think it's a very strong figure.

And I'm glad to hand over to Hans-Dieter, who will now talk us through the numbers in a bit more detail. Thank you very much. Hans-Dieter, over to you.

[Hans-Dieter Schumacher, executive]

Thank you so much, Stefan, and a warm welcome from my side as well to you.

Please follow me on Page #6 here. You see the order intake and the order backlog for the group. The continued businesses in the first quarter in comparison to prior year. And you see, as I already mentioned, the strong increase, a strong growth in both figures, setting a very good stage for our further growth throughout the year -- the rest of the year. Resulting into nearly 30% -- 29.5% -- order intake growth. Taking the first consolidation impact from Berliner Glas, SwissOptic acquisition out, it's still around about 12%. It's 11.8%. The Advanced Photonic Solutions division has realized a very significant increase in order intake. The book-to-bill of the group was 1.49, which clearly indicates a good situation because we had also a revenue increase you will see in a minute. The order backlog compared to the year-end is resulting into EUR 641.9 million with 18.1% above the year-end figure, which includes already the order backlog from the acquisitions at this time because we consolidated them. So it's a very strong and very good and solid base for the rest of the year and the months to come.

We anticipate at the moment, 78% roughly -- 77.7% -- to be converted into revenue throughout the rest of the year. So as already mentioned, a solid base for the rest of the year.

Then follow me, please, to the next page, Page #7. You see our revenue increased by nearly roughly 40%, 38.5%, including the acquisitions. Taking them out, as already mentioned from our CEO, a very strong organic growth of 16.6%. The Advanced Photonic Solutions division grew significantly. The reasons already explained by Stefan. The revenue of the Smart Mobility Solution division was also above the prior year figure, a good start for this business in the year whereas the revenue of the Non-Photonic Portfolio Companies has been a little bit below prior year. So a good start in the main and the core businesses of Jenoptik.

If you then follow me to the Page #8, you see the earnings figure, EBITDA and EBIT. You see it's clearly above prior year level. And this in spite of higher costs around integration of acquisitions, which are happening. I should not forget the higher material prices, which we are facing, and this is all obviously in the figures. So the EBITDA increased by 27.3% to EUR 21 million, which is equaling to the 10.1% EBITDA margin. Stefan already mentioned taking in the prior year, the EUR 2.4 million earnout -- positive earnout impact from INTEROB acquisition out, the comparable prior year is 9.4%, which is the 70 basis points improvement Stefan already mentioned.

It's -- from our point of view, it's a good start in this not so easy year at the moment with the Ukraine, Russian conflict or war close to the doors of Europe and the ongoing COVID restrictions in China, in Shanghai. So we are quite happy with these figures. And these, don't forget, Jenoptik is always starting with, performance-wise, with weaker results and cash flows in the beginning of the year, the first quarters are always the quarter for Jenoptik to prepare for the rally in the second half of the year with high margins and strong cash flows. And this will happen in this year again.

So the EBIT figure goes up by 9.6%, equaling to EUR 4.7 million. That's absolutely [ bigger ] compared to EUR 4.3 million the quarter a year ago in Q1. Yes, we have higher depreciation and amortization coming from the acquisitions. Yes, we had purchase price allocation effects, but still black figures. And the margin of 2.3%, not so far away from the prior year. So for us, a good end and start, as expected, for the Q1.

If you then follow me to the Page #9, you see our P&L a little bit more in detail. Let me highlight first the gross margin. The gross margin was impacted by higher material and personnel costs, no doubt. And we are on our way with our teams, from sales departments, operations, purchase and with our customers to start to pass through some of these effects in the months to come. We are in discussions because we have long-lasting relationships where we can't pass it directly through but this will happen throughout the weeks to come. And the functional costs are increasing from EUR 45.8 million in EUR 54.9 million because of the acquisitions -- mainly driven by the acquisitions. If you take the percentage of sales of the functional costs, it's an improvement from around 20% to 18.7%. So the relatively increase of functional cost is quite under control and shown in the right direction.

Then we have these extraordinary impact in the year '21 and Q1 in the other operating results where you see the EUR 2.4 million in the last year from INTEROB acquisition. This is the main reason for the depreciation.

So all in all, it ends up as an earnings before tax of EUR 4.2 million. Then, as already stated, when we had last time, the occasion, the call together, that our tax rate will increase throughout the year. And as we have activated nearly all the carryforward losses, now the tax rate is 27.3% compared to prior year. So this is the reason why the earnings after tax is a little bit below prior year, but still black figure. There's no reason to worry so much as we see it actually in our share price. We can't follow this logic, to be honest, to all of you. Yes.

So if I then see on Page 10, the cash flow statement of the group, you see that even facing the challenges started by the Russian [ prohibitions ] from the supply chain side, we definitely increased our inventories to be able to deliver to our customers the goods they envisioned to prepare ourselves for the increasing deliveries in the months in front of us ahead of us. Taking this into account, our working capital is increasing.

But all in all, the cash flow from operating activities is more or less in line with the prior year. It's a little bit below. So why is the free cash flow below prior year significantly more? It's because we started to invest. It's a wish of our customers. It's a vision of our operational people to have more means to deliver, and we started our investment in the new fab at Dresden. You all know about it. We started investments with the acquisition around the former Berliner Glas Medical in Berlin. They have to move out from ASML. So our investments are increasing to EUR 25 million compared to EUR 8.6 million prior year.

And in the cash flow from investing activities, you see the most depreciation compared to prior year. And that's the reason why the free cash flow is a little bit below prior year. But be sure that the free cash flow will improve throughout the months to come. We have an eye on it. And this is very much in line for us for the starting in the year 2022.

Having said this, I'm happy to head over again to our CEO, Stefan, who will go with you then in more details concerning the development of our divisions in the first quarter. And having said this, Stefan, it's your stage again.

[Stefan Traeger, executive]

Thank you very much. Thanks very much. And let's go to Page #12, starting with Advanced Photonics. Again, in Advanced Photonics, we basically consolidated Light -- the former Light & Optics and the former Light & Production business, minus HOMMEL ETAMIC, minus Prodomax and Five Lakes and minus INTEROB. Now why do I stress that? Within prior year's numbers in the EBITDA figure is a one-off effect of EUR 2.4 million from the acquisition of INTEROB included -- from the variable purchase price components INTEROB.

You might wonder why that ends up in the Advanced Photonics business. It's just an accounting effect. Essentially, the part that -- from Light & Production went into the Advanced Photonics Solutions business, i.e., our laser processing business, from a legal perspective, has been the acquirer of INTEROB. And therefore, the positive effect of last year, the EUR 2.4 million, actually ended up in the Advanced Photonic Solutions. I can't change it. That's just the accounting rules. It's funny, but that's what it is. So please bear in mind that in the Advanced Photonics Solutions,Q1 2021 figure, there is a positive effect of EUR 2.4 million from the acquisition of INTEROB, which has actually nothing to do with the Photonic Solutions business.

With all of that said, in terms of Advanced Photonic Solutions, we're really happy with how the business developed. The top line, in particular, I mean, we have seen order intake growth by 63%, 63%. That's phenomenal. And even if you take out the EUR 42 million -- EUR 42.5 million from the first consolidation or initial consolidation of the Jenoptik Medical and SwissOptic, formerly known as the Berliner Glas Group. Even if you take that out, we have an organic order intake growth of 33%. So phenomenal order intake, particularly driven, of course, by the search and demand for semiconductor and semiconductor equipment industry. And I think I don't have to stress our position in this industry, but it obviously is a very, very important part of our business.

But not only grew in semiconductor. We've also seen a very strong order intake growth in our biophotonics business. So overall, Advanced Photonics Solutions with a very strong order intake role. We're particularly proud of the fact that we managed to convert a lot of that order intake actually in sales growth. Sales grew by 56.2%. So very strong sales growth. Even if you again, take out the effect of EUR 33 million from the consolidation of the form of Berliner Glas Group, the organic sales growth figure in this business is very, very strong. And again, that in light of all the challenges that we all see with respect to supply chain and the things in China and in all of these discussions that we all have, we believe is a very strong achievement. And in particular, our sourcing team and our operations teams who, despite all these challenges, managed to turn all the order intake or a lot of the order intake actually in sales in the first quarter is a strong achievement.

Sales were up 56.2% for Advanced Photonics Solutions, including, of course, EUR 33 million of consolidation effects. With the higher volume comes more profit, very simple. EBITDA is up by 28.3% versus prior year, and I already discussed the additional effect of EUR 2.4 million that had been in the prior year's number. We're happy with that. No question. We do see profits up. We do see free cash flow up. So our optics business in a nutshell is -- it's just very, very strong. I don't like to sort of overboard on the terms here, but it's just very strong, and we're trying to manage all the challenges and we think we do manage all the challenges around supply chain and all of these things. But it's a very strong business and we're very happy with that.

If we go to Page #13, you see our Smart Mobility Solutions business in which we also managed to post double-digit sales growth in the first quarter. We do see sales up by more than 10% -- 10.2% actually, so a bit more than 10%. Come on, it's double-digit sales growth, which given the fact that in particular, the former Light & Safety business, now Smart Mobility Solutions, does need electronic components and it's not just a pure [ polishing ] of optics, but actually solutions, including services, software, electronic components and all of those things which are affected by supply chain challenges, is a strong development. We're very happy with that.

We are happy with the fact that we can post 10% sale growth in the first quarter. We're happy with the fact that we managed to expand EBITDA in this business strongly versus prior year. It does come with challenges in the cash flow, but compared to prior year, it's a very, very strong development from that business as well. We do see that order intake is somewhat below last year, but we all are aware that we -- those of you who follow us a bit since a bit longer, you know that in this project-driven business, you have fluctuations from quarter-to-quarter. And last year, we posted strong order intake from a particular tender in North America in the first quarter. So it's a typical up and down in the project-driven business. Nothing to worry about. The order backlog grew by 34% almost. So we have a very strong order backlog in that business as well.

We always talk about numbers in these calls. But I would like to point your attention to the picture on the right-hand side. We posted that intentionally. It's a new product we just launched in -- during the Intertraffic show, the biggest show when it comes to traffic management, which has happened lately in Amsterdam, the Netherlands. And that project and that product will help us to grow our business, in particular, in areas where we are not that strong, i.e., in areas in the Middle East and the like. It's a project and it's a product for which we've got a number of awards, design awards -- prestigious design awards here in Germany. And we're very glad of the fact that it has been selected as the most important product introduction when it comes to sustainability and sustainable new products in that very show.

So from time to time, it's worth to also talk about products and solutions and not just numbers. I think with this new product introduction, we also can show that we are a very innovative company in bringing new products and solutions to the marketplace.

Let's go to Page #14. On Page 14, we have grouped together this new business group of ours that we formed, including to say, the HOMMEL ETAMIC business, the brand that we just launched for our industrial metrology business; Prodomax; and Five Lakes and INTEROB. And as the picture indicates, this is basically the business that's predominantly exposed to the automotive industry. We all know that automotive has its challenges and the market conditions in automotive are challenging. It's in choppy waters. We have pockets of growth, in particular, when it comes to the e-mobility part and to electric vehicles, something where as most of you know, we actually contribute quite a bit. But we have other parts, in particular when it comes to combustion engines and the like, where we see big challenges.

Just this morning, we heard again that the -- the automotive market in China almost crashed in the last 4 weeks and has seen huge declines in sales in automotive going forward. So I mean, I'm not necessarily here to explain the challenges of the automotive industry, but it is a challenging market environment, at least from our perspective. And therefore, the fact that we kept the revenues almost at last year's level is okay. Of course, we always like to see businesses growing, but the automotive industry at the moment, at least where we are positioned, we were okay to see that revenues are almost flat. We do see a slight decline in it. Of course, we have challenges in the margin in this business. And essentially, we managed to keep it at last year's level. We do see negative cash flows in this business, which is due to the fact that we have project delays at some point, and we need to finance certain projects. We do hope that this is going to turn in the next quarters in the world.

Again, these are the businesses that we group together under the Non-Photonic Portfolio Companies, a new business group that we have established. The businesses in these business groups are now operating under its own brand. INTEROB in Spain, Prodomax and Five Lakes in North America and just recently HOMMEL ETAMIC. And I think from a strategic perspective, it is pretty clear that for us, we will focus more and more in particular investments in the future on our core businesses in optics and photonics.

With that said, let's just go to Page #16 real quick and discuss the outlook. I think I said last call, I almost don't want to give an outlook because giving a guidance at the moment is like trying to read the tea leaves. It's very challenging because there's so many uncertainties in this world. I mean, just this morning, there was this news that there is no gas now coming in anymore from Ukraine. And all of these uncertainties, we try to factor in and try to dial into our model.

I mean, just on this gas thing, we do not depend that much on gas for our production. Thank God. We're not that much depending on raw material. Thank God. Our exposure to the markets in the Russian Federation and in the Ukraine and Bielorussia is very little. Our sourcing from that area is also fairly little. So in a sort of first derivative effect, as the mathematicians would probably say, we're not that much affected by it. Nevertheless, we cannot decouple ourselves completely from all of these challenges. We're, in particular, worried about -- or you shouldn't say worried about -- but having a close eye on the developments in China. That is something that might affect us going forward.

But as I say, all of this is like trying to read the tea leaves. So from our perspective, with all of these uncertainties, we do put into our model the following thought process. Order intake is very, very strong. The demand is very strong. And we're very proud of the fact that in the first quarter, we managed to convert a lot of that order intake into net sales. In the very first quarter, we managed organic and inorganic -- very strong organic and total growth. We believe that we can continue that. We believe that with all these risks, we will be able to grow the Jenoptik Group to -- or by at least 20% for the year 2022. And I underscore at least in that. Is it possible to grow more and harder? Yes, of course, it is. Are there risks? Yes, of course, there are. And as I say, nobody knows. We do not have a crystal ball, nobody of us has a crystal ball, but we stand behind that we are saying at least 20% sales growth is what we can promise -- guide for.

We do believe that we can, with that sales growth, substantially grow our operating profit. We do believe that we can achieve around 18% EBITDA margin. Last year, excluding the one-off effect that you're all aware of, we had 16 -- posted 16.7% EBITDA margin. So we do believe that we will be able to continue to pipe cost increases on our supply chain through to price increases in the market. To what extent, we have to see, but we do believe that we will be able to achieve around 18% EBITDA margins off that strong top line figure.

With that said, let me just reference for a moment also to a sort of a more midterm outlook. As you know, we've -- about 1.5 year ago, communicated next chapter in our strategic book, if you want. In the last few years, we spent a good time transforming Jenoptik from a fairly diversified industrial conglomerate to a focused technology company, focused around our core competencies in optics and photonics. So the first part of our strategic journey has been to focus everything on a certain particular technology, optics and photonics. And as you know, we've communicated last autumn that we are now embarking on the next stage of our transformation.

Going forward, we want to transform Jenoptik and focus everything even more on certain market segments. The market segments we are going to focus on in particular: semiconductor and electronics, health care and medical and Smart Mobility. We want to participate from the ever stronger trend of the digitization of our world. We want to participate in driving the future of the internet, capitalizing on that digitization of our world. We want to enable more effective and more efficient health care systems around the globe, helping all of us with our health care and basically with our health. And we want to drive the future of mobility on planet Earth.

And based on that, we believe that we can grow Jenoptik to about EUR 1.2 billion by the middle of the decade -- in 2025. We want that and actually guide for that. But Jenoptik Group will be about EUR 1.2 billion in sales in 2025. And 20% of that, we want to post as operating profit in terms of EBITDA. We do focus our managerial efforts more and more also on return of capital. We also have said in public that we aim to post 20% ROCE figures excluding goodwill by 2025.

And we believe that with this outlook, this strategic guidance -- midterm guidance, if you want -- we can share that not only will 2022 be a very strong year for Jenoptik, but actually, we have a very good mid- and long-term outlook for our business.

That said, thank you very much for your attention, and we're more than happy to try to answer the questions that you might have. Thank you.

[Operator]

[Operator Instructions] The first question comes from Jurgen Pieper, Metzler.

[Jürgen Pieper, analyst]

Can you hear me?

[Stefan Traeger, executive]

Yes, very good.

[Jürgen Pieper, analyst]

Good, because I'm sitting in the car, but okay, fine. I have just one question. At this point in time, if you look at the month-by-month development in the first 4 months including April, if -- can you then maybe illustrate the cost curve and the order intake curve? Is it a relatively steady and stable process? Or do we see, if you want, do we see some kind of negative trend as we would probably assume looking at the development of all these problems in the world?

[Stefan Traeger, executive]

I mean, obviously, we're not publishing numbers month by month, but only on a quarterly basis. But from a qualitative point of view, I think it is fair to say that the first quarter has been characterized by a very strong order intake month by month, really. And obviously, we cannot disclose figures for April at this moment. But let's just say that April also is very strong from a top line perspective. So we don't see any changes in that trend.

From a cost perspective, that's a bit more challenging sort of to qualitatively answer the question. We will have to wait, I would say, a bit longer if we see an acceleration in the costs. I mean -- and the positive side is that we do not depend that much on energy. We don't need a lot of energy to produce. We were saying the other day, we need gas -- oil, gas and energy to heat our offices. That's, of course, not quite true. And it's a bit of a provocative statement.

But we're not producing glass. But we are buying glass. So yes, it could be that our suppliers will try to push their higher cost onto us and then we will try to and hopefully successfully manage to push our higher costs onto the marketplace. But I think in simple terms, we haven't seen a huge acceleration in cost, and we have certainly seen a continued strong order intake pattern.

[Operator]

And the next question comes from Craig Abbott, Kepler Cheuvreux.

[Craig Abbott, analyst]

In the Advanced Photonics division, if we strip out -- or, excuse me, we adjust last year's one-off effect, which you explained as well on the call, it looks like the underlying margin actually declined about 140 basis points, I think, despite the continued strong semi demand. I'm assuming some of this was due to the scope effect. And -- but I'm just wondering if you could maybe give us some insight on what the factors were? Was it cost inflation? Was it scope effect? Are there some seasonality impacts at SwissOptic and BG Medical we should be aware of? And I'll pose my second question after the answer.

[Stefan Traeger, executive]

Yes. Thanks, Craig. And actually, thank you for asking that because it gives us the opportunity to try and handle that a bit longer and try to explain it a bit more. It is an [ obvious ] effect.

So you already referenced again to the one-off effect. And also, if you strip that back out, still, there is a somewhat of a decline in margin percentage. And that is contributable to a number of effects that we do see. Yes, there is cost inflation in labor and in wage inflation, material cost inflation. And there are also additional effects that we do see from having to pay for certain integration efforts.

Like just to give you an example, we need to pay for certain IT licenses for Berliner Glas if we -- we've carved out Berliner Glas from the former Berliner Glas Group, our Jenoptik Medical business now. And of course, the carve out doesn't come with a lot of SAP and things. So we have to cover that. Those are just sort of some examples of what we do face. It's not something that should be recurring. So I think those are one-off effects. So we believe that it will heal over the remainder of the year.

What, of course, will be with us for the rest of the year to some extent is, of course, the cost inflation that we see on material and on the labor. But the one-off effect from the acquisitions or these additional effects from the acquisitions, they should actually flow out the P&L over the next coming quarters.

[Craig Abbott, analyst]

Okay. If I may follow up on that, please. As we get later in the year and you have more visibility on these sort of one-offish integration type costs, will you maybe communicate these just so -- not obviously in the form of an official adjusted earnings figure, but I mean, at least in the conference calls, just so we kind of have a feel how the underlying is developing?

[Stefan Traeger, executive]

I mean, we had this debate in the past already. You know, do we or do we not adjust EBITDA? And then one year we did and then everybody is saying, "Well, this is distorted now and never [indiscernible]." But I understand what you're getting at. We will try to give you a feeling for it, shall we say. And in particular, we will try to, from a tonality point of view, give you some color around on what it is.

We will not -- and I hope you understand that, we cannot give you a sort of a concrete figure. Qualitatively though, we will try to explain, but not a quantitative figure. I hope that helps.

And I apologize for not being more transparent. We're trying to be as transparent as possible on these things. But of course, there are also limitations to what we are able and allowed to do.

[Craig Abbott, analyst]

Yes. Okay. And my last question for now, and I'll turn it over, is just -- and this is also more of a qualitative type question. But you sounded quite confident in when you gave us the update on your outlook thoughts a moment ago. But I just wanted to -- and then you also reminded us that this is typical seasonality throughout the year in your business. But still, if we do the math and you just take say, just take 20% of sales growth and EBITDA margin, the implied revenue and earnings you have to achieve the rest of the year is quite a bit. So -- particularly given the backdrop of all the various geopolitical and cost pressures we see at the moment. So I just wondered if your level of confidence in that outlook -- is it similar to what it was in the first 2 calls this year? I would just say the level of risk is potentially risen, I think.

[Stefan Traeger, executive]

Sorry, I interrupted you, Craig. But I think it's a very, very fair question. And again, my team here needs to stop me if I'm going too far. So somebody is hitting me from behind if I'm going too far. I mean essentially, I would say, on the sales figure, I mean -- look, I mean, we posted 16.6%, almost 17% organic growth in the first quarter.

We would basically need to stop growing in the next coming quarters if we would not grow by more than 20% in total. So I'd say, on the top line, I'm looking around here like, "Are you crazy?" I would say, on the top line, I mean, I think we are on a rather conservative side, shall we say. So I'm feeling very confident about the top line growth guidance. I think on the profit guidance, that's a bit more of a challenging part because we don't know to what extent the costs are going to -- or how the costs are going to development in the rest of the year. And that refers to labor, wages increase. I mean some of you may have seen some communication, let's say, other people here in the area lately, and there is wage pressure -- cost from raw material and supply chain and so on so.

So I think that's the part that's more -- or that's harder to predict. So if you take it all together, I'd say, on the top line, yes, I don't want to sound arrogant or overly confident, but on the top line, yes, very confident. I think that should be easy. But -- and we should probably be able to push more. But on the margins, that's the part where I think we will have to manage it or continues to lead to manage it hard going forward. Is that okay?

[Craig Abbott, analyst]

That is very helpful.

[Stefan Traeger, executive]

I'm actually looking to my team here.

[Hans-Dieter Schumacher, executive]

But we are still looking, Stefan. Nobody stopped you.

[Operator]

The next question comes from Richard Schramm, HSBC.

[Richard Schramm, analyst]

Yes. I have a question concerning your Non-Photonic Portfolio Companies. And it's more a general one because when I -- if I remember correctly, when you collected all these companies into your portfolio a couple of years ago, the idea was to form a group and to use also the financial strength of Jenoptik here to give these companies better access to customers and to give them better credibility in the market and so on. Now as you have quite officially sorted these out and declare this not core, isn't there a risk that customer behavior is changing in this respect and that customers might be reluctant to place bigger orders again with these companies as they do not know what will happen with them in the foreseeable future? If Jenoptik is still sheltering these or not? How do you see this risk?

[Stefan Traeger, executive]

Yes. I think that's a fair question. And there I mean, this market has changed so much in the last 18, 24 months in many ways. I mean, it has -- the transformation of the car -- of the automotive market has accelerated big time, certainly. I mean, again, just today, we heard the news from China and about car sales almost crashing there. And on the other hand, there is, of course, car manufacturers posting record profits and all of that. So it is a very heterogeneous marketplace.

For us -- let me stress that again -- for us, at the end of the day, it's an investment decision. We cannot spend a euro twice as the saying goes. We have to think where do we spend our investments, and it's pretty clear to us that the world has changed, driven by COVID, and it has, on the one hand, accelerated and pushed our markets around semicon and the digitization of our world and plunged car industry in even more difficulties.

And so we said strategically we will focus our investments and our growth expectations more around the 3 markets that I referenced to. That, of course, does create uncertainties in those businesses of us that are catering to the automotive industry. And it does create uncertainty, so it's a good point. I think it is different, though, from business to business.

I mean, Prodomax, for example, all have been operating under the brand name Prodomax and is in the local market very well integrated. For those integrated businesses, it is crucial to be local and to be in these local marketplaces. Could it be that we get challenged by -- with bigger or these businesses get challenges in bigger systems and bigger projects? Yes. But it's also true that these bigger systems and bigger projects come with a huge amount of cash that we need to provide to these businesses upfront because that's exactly the change in the marketplace.

And so there is a part of me saying I don't even want these big projects anymore because you have to finance it. And I should rather finance the growth in optics and photonics and in the semicon industry, where we make so much profit. So I think the answer to your question actually is yes. And then -- but maybe that's not even a bad thing.

[Hans-Dieter Schumacher, executive]

Stefan, if I may add here. Prodomax is over decades very well established, mainly in Canada and U.S., so they have an established customer base. And what we see is an ongoing business relationship with good potential of order intakes and business development for this fiscal year already. So I don't see a potential risk that a new owner of Prodomax could disturb something. This is the question behind his question. So I don't think that in this business, this is a real threat, to be honest. I think this will not happen.

[Stefan Traeger, executive]

Agreed. And in addition, again, the cash strain that we have to provide to execute those large projects like, for example, the one that we -- that's very famous in the northeast of Germany. I mean, let's face it, we -- hindsight is 2020, but yes, there's a lot of cash that these things burn.

[Richard Schramm, analyst]

Okay. And another question concerning China, where you mentioned that this might be more serious risk than Russia, Ukraine, which is obviously not of a concern for you at the moment, at least directly. So what is your observance in China? How are your activities developing there? Do you see any negative impact already from these lockdown and disruption in logistics chains, et cetera? Or can you still get around these at the moment?

[Stefan Traeger, executive]

No. This -- and you're absolutely right. We're more concerned -- I shouldn't even say that because we have a war on our doorsteps here, but for Jenoptik from a business perspective, development in Asia, in particular in China, we are a bit more concerned. The sheer fact that we acquired a factory or a company which has a factory in China, Wuhan, China -- SwissOptic, China, yet none of us ever has seen it, is [ selling stories. ] I haven't been there. None of us actually have ever had the chance to even see the factory that we acquired. And I think that's concerning. We know that our headquarters is in -- and we have a factory in Pudong, Shanghai. And the colleagues there, they can't go to work. There's been 6 weeks locked -- in a lockdown and at home. And as much as we can try to do all the internet things -- their problem at the moment is to make sure they get food, to be honest. And it sounds scary. And it is scary. And we -- it's hard to quantify that.

But obviously, in particular, with respect to the laser processing business, which had a stronghold in China and in particular, with respect to the HOMMEL business, I mean, let's not forget that part of our Opticline product line, for example, for metrology is actually produced there. Well, at the moment, is not producing that because nobody can produce there.

So that's -- that's why we're saying this could have even a much bigger effect than the war in Ukraine on our business as much as we, of course, are devastated by the fact that we have a war not too far away from Jena.

[Richard Schramm, analyst]

Okay. So as you just said, at the moment, your production is stopped there, at least in the Shanghai area? Or is it also in this one facility you mentioned?

[Stefan Traeger, executive]

No, Wuhan is producing. Wuhan is producing, but of course, as I said, we can't go there. Wuhan does produce -- and it's fully loaded. Yes, that's important -- it's loaded up to the roof. But in Shanghai, we also have a large part of our sales force. So the sales people can't go out. They also sit at home. Now, of course, you can do con call from home and you can do all -- those few things by the Internet.

But what that means for the rest of the year, it's hard to see. I think that's again the uncertainty we're facing. We don't know to what extent once the lockdown is over, all these people can call on customers again and basically everything goes back to normal or does it take a longer time? And those are the uncertainties that we face. But Wuhan is fully loaded and operating.

[Operator]

Next question comes from Lasse Stueben, Berenberg.

[Lasse Stueben, analyst]

Just 2 additional follow-up questions. The first one, just again on the EBITDA guidance and sort of the pickup that's required there in the remainder of the year. Can you just give us maybe just some additional thoughts on where you see that coming from? I mean the APS division, the margins are still at quite a high level. And sort of are you baking in a much better return, particularly in Smart Mobility? So I'm just wondering where that pickup comes from.

And then the second question would be in semis, and we spoke about this in the past of potential over-ordering. I'm just wondering if you have any additional color on or insights on that? And then just a mechanical question, if you were to have cancellations of orders, how would that look in your financials? Would there be a balance sheet effect because you're receiving prepayments from some of these customers? Or is it simply you're writing down the order intake or backlog number?

[Stefan Traeger, executive]

I'll take the order intake questions first. To say -- to speculate how much over-ordering is in the system at the moment is hard. I think what I said last time is that even if you dial back out about 30% or so, the remaining growth is still phenomenal.

And I think -- I think that's the only thing I can say really. We do not have any more insight into this than anybody else. But what I can tell is that our customers are pushing us hard, hard, hard and harder to deliver, deliver, deliver. It seems as if -- yes, it goes up and up and up. I think that's something we can see in our pipeline at the moment. We do not expect any order cancellation at the very moment. That would be -- I mean, that would be unheard of at the moment. This is -- [ the offer, that is the case. ]

We do tell our customers, sorry, we cannot take these orders. We cannot because we cannot deliver or we -- if we take the order, we can deliver in 2024. I mean that's what we're talking here. We have -- I mean it's crazy, but our customers are pushing us to invest into more capacity, capacity, capacity because we can only deliver in a lot of -- 2024 and beyond. And so I don't think that's an issue.

With respect to the margin, I mean, maybe Hans-Dieter can shine a bit more light on that. But I think we have multiple effects. We will see further growth from the top line perspective, that give us more volume. We see these onetime effects flowing out over the and smearing over the quarters, I think. Those are the main effects I would think?

[Hans-Dieter Schumacher, executive]

Yes. That's correct -- that's it. We have the cost base established for much higher volumes. So we should have a positive impact. We call it fixed cost [indiscernible] in the future. And one part you did not yet mention is price increase on our side, which will happen throughout the rest of the year. And this leads to this effect.

[Lasse Stueben, analyst]

Okay. So may the operating leverage and price increases coming through in the remainder of the year?

[Hans-Dieter Schumacher, executive]

Yes.

[Operator]

At the moment, there are no further questions. [Operator Instructions] And there is one follow-up question coming from Craig Abbott.

[Craig Abbott, analyst]

Just one real quick, please. Just to follow up on your last point on the price increases. Now I appreciate you're not going to tell us numbers. But have these already like been agreed of the -- have you already started to implement them and are we talking pretty much across the board? Or is this all still very much in negotiation phase and you just sort of plan with them?

[Stefan Traeger, executive]

It's an active process, Craig. And the funny thing is that we do multiple rounds, actually. In the past, we would have been able to implement price increase once a year when we publish new price lists. That doesn't seem to be the case anymore. It's like we're going every other month at the moment, in that sort of sequence. And funnily enough, it seems as if there is almost no pushback as long as you can deliver. Sort of, it's like, "Yes, yes, that's fine. Just deliver, deliver, deliver." I know that sounds a bit -- it's almost scary to be honest, because essentially that's what we tell to our suppliers as well. So it's almost scary. But that's how it goes.

And it is across the board with, of course, the exception of the Non-Photonic Portfolio Companies. In the automotive business, there was price pressure. There continues to be a price pressure. If anything, it's even higher. But in particular, in optics and photonics and but also in the Smart Mobility Solutions business, we implement multiple rounds of price increase, and it doesn't look as if there's a lot of pushback at the moment.

[Craig Abbott, analyst]

Okay. I just had another follow-up since apparently nobody was in the queue. I'll ask it. Given what's going on in the financial markets and all the various macro risks, I guess it's fair to say that your phones aren't exactly ringing off the hook with potential buyers for your Non-Photonic businesses. I mean, to the extent that you can, I mean if you could give us any update on where you stand with noncore activities?

[Stefan Traeger, executive]

Yes. We communicated very clearly that we do not feel under any particular time pressure on this. I mean, not even referencing the VINCORION process anymore. So don't feel under any particular time pressure -- so we're -- every now and again, people are calling and then we'll pick up the telephone and have discussions. But nothing where we are at the very moment of saying that we need to classify it as IFRS 5 that way. So there are discussions and people that are asking if they could talk and then we talk, but it's all in very early stages.

[Operator]

There are no further questions. So I would like to hand back to you for some final remarks.

[Stefan Traeger, executive]

Okay. Thank you. Well, again, first of all, thank you very much for dialing in today. We know -- and we appreciate the fact that you all are with us. We know these are challenging times. And we know that Jenoptik is not decoupled from the world. We, like everybody else, do see the challenges around the globe.

On the other hand, it seems as if at least in some of our core markets, we are in a pretty sweet spot actually at the moment. I mean, referencing our very strong order intake -- again, thanking our people or associates in purchasing and in operations that they -- and they do face the challenges every day, more than we at the management level here. They have to work hard to get the material that we need.

It does, of course, transpire that our inventory is going up at the moment, which is pretty clear. If there is this one odd component that we can't get at the moment and -- the product ends up in the inventory. So we do invest -- our inventories go up, our working capital goes up, we do prepare ourselves for the remainder of the year. We're confident, very confident on the top line, and we will, I think, be able to deliver also on our guidance on the EBITDA margins, at least from what we can see at the moment.

We look with confidence on the rest of the year, but it's also clear that there are challenges and risks out there and we'll continue to manage them as much as we possibly can. Thank you very much. And thanks for being with us.

[Hans-Dieter Schumacher, executive]

Yes. Thank you all.