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Jenoptik AG
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Good morning, ladies and gentlemen, and welcome to the Jenoptik conference call regarding the results of the first half, year 2022. [Operator Instructions]
Let me now turn the floor over to your host, Leslie Iltgen.
Thank you very much, and a warm welcome to our conference call on the half year 2022 results. My name is Leslie Iltgen, Head of Investor Relations and Corporate Communications at Jenoptik. And with us today are our CEO, Dr. Stefan Traeger; and our CFO, Hans-Dieter Schumacher. Dr. Traeger will point you to the key highlights, as always, of our half year results, and Mr. Schumacher will cover the financials in more depth. 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, and 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. Stefan, please go ahead.
Okay. Leslie, thanks very much. And also from our end here, a very warm welcome to all the participants in the call. Welcome to our earnings call. I think it's fair to say that our company continues to perform very well in what is a challenging environment for many people. We will point out towards the call that with all the challenges that we all see, a lot of political problems that we see in this world among all the other issues, we at Jenoptik, we're not decoupled from that. We're not decoupled from political challenges, but by and large, we can keep the impact on our business fairly under control actually.
As you can see from the statements we already made, and we will, as I said, point that out in more detail towards the call, our first 6 months of 2022 shaped up very nicely. In particular, the second quarter has been very strong. In the first 6 months, orders were up by 36.8% and sales is up by 35.8%. So very strong top line development, which also brings us at very good development of our profitability. Our underlying EBITDA margin after 6 months is at 15.6%. And in particular, the second quarter has been very strong with 20.4% EBITDA margin, and we are really proud of that.
Our business continues to be driven by the ongoing trend to the digitization of our world. There's no question about that. That does drive our business. And we all still hear about all the challenges of chip shortages and the demand in the world for more digitization solutions. And that helps us, that helps our business, and we are proud to actually contribute to that. Not only is our semiconductor business going very nicely at the moment, actually very, very strong at the moment. But also our electronics business is growing very healthy and our life science and health care business contributes to the growth.
We do see very strong order intake momentum for our Smart Mobility Solutions, although in this area we still have challenges to convert orders into sales due to certain supply chain issues. But overall, I think it's fair to say that top line is very strong, order intake going very, very nicely. We managed our supply chain challenges. Sales are up very nicely. And we are proud to report a very good EBITDA margin.
Based on a very strong order backlog, we actually raised our full year guidance to now sales between EUR 930 million and EUR 960 million and an EBITDA margin of between 18% and 18.5%. And again, that's based on a very strong order backlog and a very good performance in the first half. Order backlog is EUR 710 million, it's up around 31% versus prior year, so very strong performance overall.
Let me just point one more time to a very important milestone in the transformation of Jenoptik. On the 30th of June, we finally managed to close successfully the transaction of the sale of VINCORION. And again, that's, from our perspective, a major milestones and the transformation for our company to a global leading pure-play photonics company. We do want to focus our company and our portfolio more on our core competencies around optics and photonics. We want to focus our portfolio even more and ever more on those growth drivers.
We want to participate and actually make profit out of the ongoing trend to the digitization of our world. We enable the digitization of our world. We want to enable more effective, more efficient health care systems around the globe. And we want to drive smarter ways to get from A to B. And those are sort of the big drivers in our business. And they remain intact. They remain strong. They're actually even driven, to some extent, by the transformation in our world. So looking forward to a successful H2. But before we go into that, we will share with you the results on the first quarter.
On Page 5 of our presentation, we have, one more time, tried to help everyone with the reorganization of our company. I don't want to go too much into it anymore. Just a reminder, that from now on -- actually, since the beginning of this year, we are reporting our numbers in the new segment, Advanced Photonic Solutions, comprising the formal Light & Optics division; and some parts of the Light & Production division; our second core business, Smart Mobility Solutions, basically what used to be called Light & Safety; and we report our Non-Photonic Portfolio Companies comprising some particular automotive-related businesses, Prodomax, INTEROB and HOMMEL ETAMIC by and large. I think you all are fairly aware of that.
So with that. I'll hand over to Hans-Dieter, who is going to talk us through the numbers in more detail of, again, what we believe has been a very, very strong first half of the year. Hans-Dieter?
Yes. Thank you so much, Stefan, and a very warm welcome from my side to all of you as well. A pleasure to go with you through the figures. You see on Slide and Page 7 the order intake and the order backlog development of the first 6 months. And as already mentioned, it's a very, very strong development in both KPIs in the second quarter, and this is setting a very, very good stage for the further growth.
In figures, we grew order intake by nearly 37%, exactly at 36.8% to EUR 608.6 million. Yes, it's very much driven by Advanced Photonic Solutions, and it includes the first consolidation impact from the acquired -- late in the year 2021 acquired businesses, Berliner Glas Medical and SwissOptic Group. It's in total, EUR 92 million. Even if you take out this first consolidation impact, then it equals to EUR 516.4 million. It's still a growth of 16.1% from the order intake side organically. So it's really a strong growth.
Our book-to-bill ratio is now 1.36, prior year 1.35. So all these indicators showing our potential are very, very, very good and strong. The order backlog is even now, at least for my 8 years with Jenoptik, an all-time high with EUR 710.5 million order backlog after 6 months. I've never seen before. So it's a very, very high number. Yes, there are also some first consolidation impacts from the Berliner Glas and SwissOptic. But as we have booked the order backlog already in the year-end, it's only a small impact. If you calculate it, it's still an organic growth of 26.2% compared to the [ 13.7% ] we show here. And our estimation is that we will convert 63.2% of this order backlog to revenue in this fiscal year 2022.
So as already mentioned, the stage is really set for further growth. And I show you now on the next slide, the next page, the revenue development. And here you see the 36% -- 35.8% growth after 6 months. And it's including also EUR 73 million first consolidation impact of Berliner Glas and SwissOptic. Taking this out, it's still 13.7% growth -- organically growth. So also a strong organic growth of double digits. Yes, the revenue of Smart Mobility Solutions is slightly above the prior year figure, whereas the revenue of the Non-Photonic Portfolio is a little bit lower than prior year. Stefan will run through you -- will show you the division development -- the divisional development later on.
So let me now switch over to the Page #9, the earnings, the EBITDA and the EBIT figures. And we have done for you a small exercise because we have to take into account that in the prior year, we started already to realize and then to book special income, so to speak, coming from the acquisitions of TRIOPTICS and INTEROB. And it equals after 6 months to EUR 18.4 million for the whole year later on because there is more to come in the second half last year. It's around 30 -- a little bit more than EUR 30 million. So we did the exercise for a like-for-like comparison. Because in this fiscal year, we don't have extraordinary special one-offs in our results.
So on a first glance reported it's only 4.4% increase in the EBITDA from EUR 66.6 million to EUR 69.6 million. But we managed, even if you look at this, we managed to compensate the extraordinary impact and even show more results. So it's also good news in this development. But taking this one-off into account, it's an increase of EBITDA of 44.4%, which is even more than the sales increase after the first 6 years. This is very important for us to mention this for you. Our EBITDA margin after 6 months in this year is 15.6%. In the prior year reported has been 20.2%. But if you take the one-off effects out, it's 14.6%. So the underlying profitability has also significantly around 1 percentage point improved after 6 months. This is the key message here.
And by the way, I can tell you, if you do a like-for-like comparison on the organic EBITDA, it's a flat development. It's stable. This means we have been able to compensate more and more the impact from the more higher expense supply chain and personnel costs. So this is also good information, but I'll come back to it later.
If you look at the EBIT margin on the right side on this chart, you see the quarter prior year, EUR 42.7 million, which has been 13% including the one-offs. If you take them out, the EUR 18.4 million is only EUR 24.3 million last year, which is 7.4%. And this is the comparison to the 8.3% we have reached right now. So it's also nearly 1 percentage point better. And this, including much higher purchase price allocation impacts in the EBIT, which has increased to EUR 14.4 million compared to EUR 8.9 million after the first 6 months prior year, it's an increase of EUR 5.5 million.
And it's obviously coming from the BGSO acquisition, which we booked in -- mainly in December, we started to book it in December last year. And we assume that for the whole fiscal year 2022, to take your question already right now, we assume that it will be EUR 26 million for the whole year. Last year, it has been EUR 16.4 million. So the EBIT will be influenced by purchase price allocation effects, which will be roughly EUR 10 million higher than last year, and it's coming from the acquisition from BGSO.
But now, follow me, please, if you take the EUR 5.5 million on top to the EUR 36.9 million, which we report after the first 6 months this year, it's EUR 42.4 million. And this shows you that the profitability, even the EBIT profitability, is exactly on the same level as last year, including EUR 18.4 million. So the same obviously as in the EBITDA figure, we are operationally able to compensate the one-offs in this year already after 6 months.
It's a good news, I think. And you need see the growth. If you take the one-off out, it's a plus of [ 52% ] in the EBIT, not a minus of 13.6% just to highlight this a last time. So this is why Stefan and I, we are proud of our team, of the whole Jenoptik family, that we have done such a good job in the first 6 months of this year.
And if you then look at Page #10 together with me, you see our statement of the income, our P&L, a little bit more in detail. I just want to highlight some points. If you look at the gross margin, the gross margin is now 32.7% compared to 33.7%. It has obviously to do with higher material and personnel costs, yes. But if you remember, in the quarter 1, it has been 2.6 percentage points difference. So we managed in Q2 as promised to close the gap mainly via price increase. And just to give you this information, the gross margin is also influenced by the first consolidation impact of BGSO, which brings a very high EBITDA and EBIT margin with us but a little bit lower gross margin than the fleet average of the group. So taking this into account, we are quite happy with this development.
And if you look then at the functional costs, which are increasing from EUR 89.3 million to EUR 110.8 million, please don't forget there are additional costs with the acquisitions coming with us, people who joined Jenoptik family. You see the R&D expenses and the R&D output, we increased it, yes, with the consolidation of the people. But we are also spending as promised and as in our strategy road map fixed, we are spending money in our R&D area to invest in future growth potential of the group. And selling expenses increased by EUR 10 million roughly from EUR 43 million from -- yes, from EUR 43.3 million to EUR 53 million. And in this EUR 10 million increase is a EUR 6 million purchase price allocation impact for customer relationship and order backlog from the BGSO acquisition. So it's also a special impact reason for this increase.
The admin is also increasing because of the consolidation. We have checked it, if you look at the organic base, the admin costs have been stable, yes. So this is also very important. The operational results -- the other operating result, there you see the EUR 18.4 million, which are not in anymore from TRIOPTICS and INTEROB. So this is the reason why it came down from EUR 31.1 million to EUR 1.5 million.
The rest, I have already talked about. But now another exercise, the earnings after taxes, which is very important for the earnings per share figure. Here, you should also take out the EUR 18.4 million because they have not been tax relevant last year. So if you take EUR 37.7 million, minus EUR 18.4 million, it's EUR 19.3 million, which equals to earnings per share of EUR 0.33, which then shows you like-for-like increase of 24% in the earnings per share as well to EUR 0.41. Just to follow the logic I tried to explain with EBITDA and EBIT figure.
And the last remark on this slide is concerning the tax rate. As indicated to all of you in the past, we are now aiming for, let me say, regular normal tax rate as a headquarter German group. So we have now 27.6%, in the prior year 10.3%. It has to do with the regional profit distribution and on the other side -- and the deferred tax expenses resulting from the fact that we are now utilizing the tax loss carry forwards. The cash effective rate is nearly stable compared to prior year. It's now 16.3%. Last year, it has been a little bit less, but it's not enough to talk about those as here we are now heading for regular, let me say, as a German headquartered company. And this will go in the direction for the whole year, yes, before you ask me the question later on.
So then on the next slide, and it's my last slide before I hand over again to Stefan, who will go with us and you then through the divisional development. On the last slide, I have with me here in our slide deck, you see the, of course, of very much interest for Stefan and me, the cash flow development -- the free cash flow development of our group. And you see -- this is something we'd like to highlight for you. You see that the cash flow from operating activities before income taxes increased compared to prior year from EUR 31 million to EUR 49 million.
On the other side, the cash flow from operating investment activities also increased very much from EUR 19.7 million to EUR 30.8 -- to EUR 38.4 million. This has to do with our investment in the new fabs in Dresden. It has to do with a lot of machinery and equipment we are investing in our factories to increase our capacities. So it's planned. It's on our agenda for this year to increase the investment. But obviously, it takes the very free cash flow from us.
But taking this high increase in investment activities into account, we still managed to show you after 6 months EUR 12.6 million free cash flow of the continuing operations -- coming from the continuing operations compared to EUR 11.7 million after 6 months prior year. And this taking into account that we -- in the clear understanding, Stefan and I, that we have to support our business for the second half, which will show you a huge rally in terms of revenue and profitability, we are preparing this with higher working capital, obviously, with higher inventories to be able to deliver.
So we increased our working capital to EUR 281 million compared to EUR 260 million at the last year end. But the working capital ratio, because of the increase in revenue, even decreased to 32.3 million -- 32.3% compared to 34.7%. And this is a very, very much [ feared ] and supported development because of the second half of the year.
So having said this, Stefan, I'm happy to turn it over again to you that you go with us through the first half year of our division. Thank you.
Yes. Thank you very much. And as always, let's start with our core optics division, also known now as Advanced Photonic Solutions. And again, it comprises the formal Light & Optics and some parts of the former Light & Production division. In Advanced Photonic Solutions, we do see an ongoing very positive operational development. No question about it. And we do see that, in particular, on the top line, but also in profitability developments which are, of course, influenced by certain one-off factors Hans-Dieter already pointed out, but the underlying profitability is very strong.
Let's go to the top line first. And as you can see from the numbers here from the table on the lower half of the presentation on Page 13, our order intake in Advanced Photonics Solutions grew by a whopping 55.7%. Yes, in there are effects from the first consolidation of SwissOptic and Jenoptik Medical. They both contributed in the first half EUR 92.2 million, which is great. We are very happy to see that these acquisitions, at least in the first half year here, yes, contribute very, very nicely and work out very nicely thus far.
So order intake, up big time. Revenues are actually following. I mean, yes, we are having, as I said, some challenges if it comes to supply chain and other things. But we managed. You see that our revenues are up 53.9%, also very, very strong development. In there is -- also here a very good contribution from the acquired companies with EUR 73.3 million. We also can report that TRIOPTICS continue to be a real growth driver for the company, and we can report that our biophotonics and our industrial solutions businesses are growing very nicely. So really actually across the board when it comes to APS, we see a very good top line development.
It does have, as I said earlier, a good impact on the margins. I'm not going to go into the details. Again, Hans-Dieter pointed it out already. Prior year did have a significant sort of onetime effect, which, of course, the comparator -- makes the comparator very difficult and very challenging. But I hope that for you now, and for those of you at least who follow us a bit longer, makes it very clear why we are very, very happy with the profitability of Advanced Photonic Solutions as well.
And let me just point that out because you might ask at the end anyways. Yes, political situation is challenging. And yes, again, we are not decoupled of that. But the demand for digitization solution, for solutions to transform our world into a more digital setup, is so strong. And we are not limited in any way, shape or form by demand here but by capacity, and that's why we invest into more capacity. With the new factory that we are building, we're trying to get more experts on board. So we are working hard to increase our capacity to fulfill the -- what seems to be an endless demand out there for products and solutions.
We go to Page #14 and Smart Mobility. The picture is also good, though a bit different. Not that's much more difficult but different. In Smart Mobility, our order backlog is very high due to the fact that we have an order intake growth of almost 17%, which is really pretty good given the environment. So order intake for Smart Mobility Solutions is growing nicely. But here, we do have challenges to convert order into sales. That is to do with -- there's this odd chip we might be missing for a camera or the odd [indiscernible] cable that's missing and all of these things. So that -- as a result, the order backlog was EUR 86.5 million on a level unseen before for this business.
The challenge for Smart Mobility is to what extent we will be able to convert that order backlog into sales is in this year. As a result of that, we have not been able to push higher costs from the supply chain into the -- or towards our customers just yet because, again, we have to, yes, work down the backlog. So our efforts to raise price, which we do across the board in all our businesses, in Smart Mobility is basically ending up in the backlog at the moment. And so you don't see it that much in the P&L here.
Overall, though, we are confident that we are on a very good track with Smart Mobility. Say, demand is strong. And it's our task now for the next couple of months to convert that order backlog into sales and with that to push our price increase into -- and flash it into the P&L action.
We go to the Page #15 or non-photonic or nonportfolio -- Non-Photonic Portfolio Companies, also known as Prodomax, INTEROB and HOMMEL ETAMIC by and large. Obviously, we do have challenges here. There is no question about it. Our business in the automotive industry is under stress. The whole marketplace is under stress. The transformation of the automotive industry doesn't go unnoticed by us, and we do feel that. You do see that the order intake is declining quite a bit versus an already fairly weak H1 2021.
As a result, revenues are below expectations and below prior year. And despite the fact that we have actually invested a significant amount of money into restructuring already, profitability is under pressure. Margins are under pressure in our automotive industry. At the end of the day, what it does demonstrate for us at least is our decision to focus Jenoptik ever more on those big mega trends that I was talking about in the beginning, on our stronghold and the digitization business, in semicon and in electronics, in health care and life science and then Smart Mobility, has been the right decision.
And I think -- just 6 months. But to be honest, in this business, challenges remain beyond the short term. And therefore, as I say, we made that decision to focus even more -- to focus on portfolio even more, to our growth drivers. And I think it's pretty clear, at least from our perspective, that it was the right decision. It is the right decision. Diving a bit deeper into these different companies would reveal sort of different uncertainties. But by and large, the automotive industry is under pressure.
If we take it together, though, all in all, say, I think very strong second quarter, very strong H1 2022. We're very pleased with the fact that we can manage all those challenges in supply chain and capacity constraints we have. We invest significantly into further growth. We have a very strong order book. We do see demand, if anything, and growing, in particular in our core business, around life sciences, health care and, in particular, of course, around semicon and electronics. Based on that and based on a very good order backlog, we raised our forecast for sales to come in between EUR 930 million and EUR 960 million, and we believe that we can convert about 80% to 80.5% of that into operating profit into an EBITDA margin.
So with that said, thank you very much for your time. Thank you very much for your attention. And we're here to answer any questions you might have.
[Operator Instructions] And the first question comes from Craig Abbott, Kepler Cheuvreux.
I have quite a few questions. I'll just ask a couple now and come back. One is strategic but the others are relating more to the whole balance between being able to raise your prices to offset higher material costs and what your suppliers are seeing. And in particular, I'm thinking about your gas suppliers who's still -- I guess, glass, excuse me, glass suppliers, who still face obviously a lot of risk in the second half of the year. But you've raised your guidance slightly at this stage already. So I, mean if you could give us some insights on things like have your key suppliers at glass been able to secure their energy needs through this winter through alternative sources or whatever? I mean, you must have reasonably good visibility on the balance now between your material cost inflation and your price increases that you're putting through. Can you give us some color there?
And the second question for now is more strategic. I just wonder if there's any flavor, any update you can give us on your current thoughts regarding your various business units in the Non-Photonics Companies.
Yes. Craig, thank you very much for those 2 questions. With respect to the first question, I mean, you pointed to the one area that is the high -- probably the highest uncertainty in our supply chain at the moment. Glass manufacturers need a lot of energy to manufacture glass. And that is gas, we all know that. On the other hand, I think that the political arena in -- at least in Germany is by now aware of the fact that if you stop a glass oven, it's gone. The only way to -- but there is basically no way to get it back. And from all the discussions that we have at least with politicians in Germany, it becomes clear that they are fully aware of that and that supply of energy of sufficient gas to glass manufacturers is basically for them essential. And therefore, we can only believe that they will get enough energy to keep their operations running.
Of course, if for whatever reason the political decision will be otherwise at some point in the future, then that would impact us. It would impact us probably more in sort of the beginning of next year. But to be honest, for me, it's hard to see. I mean, a lot of glass is manufactured in particular in actually structurally not very strong regions. And I think the last thing that politicians want is that we would lose a lot of jobs in these regions, which are struggling anyways. I mean, I'm thinking about sales of to India and other places.
So again, I don't have a crystal ball, which is almost funny to say crystal ball in this circumstance here. But of course, we don't have a crystal ball. But I have to believe that our political decision-makers in this country are at least more than enough to understand that if they cut the gas supply to glass manufacturers, it's the end of that industry. And I don't think that's going to happen.
To the second question, in particular with respect to the Non-Photonic Portfolio Companies. I mean, there is -- again, in that development, there are some differences in their top line development. Prodomax continues to be well under way, I should say. We do see growth in Prodomax and the margins develop okay. HOMMEL is okay. INTEROB is under pressure. So no particular news there. I know that your question actually points towards our thoughts around possible disposal of those assets. And you know that I cannot give you any more details on that. We do have every now and again question requests. And every now and again, we are in talks with respect to a potential disposal of these assets. But at this moment, nothing that's concrete enough to communicate here.
The next question comes from Peter Rothenaicher, Baader Bank.
Firstly, congratulations on the strong performance of Advanced Photonics. So this margin improvement was really impressive. Could you please comment what was the impact on organic sales growth from the price increases? Here, a rough indication would be helpful.
Yes. That's a very good question. It's not easy for us to sort of give you details around it because for obvious reasons we don't want our customers to sort of be fully aware of that. But what we can say is that we have executed several rounds of price increase in this business as well. Obviously, it's a long-term business. It's a business where we are in sort of a long-term contract most of the time. Nevertheless, given the pressure to deliver, we can manage to convince our customers that we have higher costs, and they should share some of that. And we see that. Now giving you a number is a bit sort of difficult, but it's obvious that it worked, maybe that helps, and it's a substantial amount.
Then let's come to the less favorable side, to the non-photonics business. So if you paid really relatively high purchase prices for INTEROB. Prodomax -- you mentioned Prodomax is performing solidly. But given that the valuations have come down drastically, do you see overall here the risk of major amortizations necessary in this area.
Well, that's a good question. I mean the question is what do you mean by major and things. But look, maybe the best way to respond is Prodomax works. And we have no reason by no means to -- should somebody want to purchase -- acquiring -- with the wish to acquire Prodomax, to sell it with loss, why would we do that? I mean, it's a good business. It's on track and it's growing. And yes, it had its challenges throughout the pandemic, but we're growing out of that and so it's good. No reason to feel under pressure to do a fire sale here.
When it comes to INTEROB, I think, yes, that was -- that acquisition didn't work out as planned. I think it's pretty clear.
And we did already depreciate.
Exactly. And we did depreciate that already, not to the full extent though. But it's fair to say that the post-merger integration of INTEROB failed, almost at least or -- no, actually, let's be open here. It failed. We acquired INTEROB just weeks before Covid started in Spain. And I mean we talked about it a number of times. And then we ran into what had been a very hard lockdown in Spain, and INTEROB is in -- I don't want to get too -- in the middle of what's called Castilla somewhere, very hard to get to...
In the middle of nowhere.
I didn't want to say that, but yes. And all of these issues, COVID and cultural challenges, led to the fact that this integration didn't work out as planned. And then we wanted to help with adding a large project in the electronic vehicle area. And quite frankly, we actually didn't help. We made matters worse with that. So again, Prodomax worked out nicely. Why would we -- there is no need for a fire sale, and we certainly don't want to sell it below any sort of -- realizing any losses here. Situation with INTEROB is different. And again, as Hans-Dieter already pointed out in the background, we already depreciated some of it.
Let me comment, Prodomax is okay and there is no risk for the next -- for the -- in the future to do so.
I hope that answers your question.
Yes. Then 2 technical questions. So on the one hand, you had a loss from discontinued operations. I think this is referring to VINCORION. So what is the reason for that?
Yes, Peter, that's right. It's coming -- and it's coming only from the closing of the selling process with STAR Capital concerning VINCORION at the 30th of June. And we realized a little bit higher than anticipated loss in the first 6 months at VINCORION. And this is a difference which we did not book at the year-end '21. This is the reason why there was a small loss coming with the sales of VINCORION after 6 months. Yes. And it's only VINCORION.
Okay. And nothing else is coming up from there?
No, not expected right now.
Okay. And the last point is regarding PPA. So if I compare the second quarter with the first quarter, you generated EUR 3 million to EUR 4 million higher PPA. What is the reason for that?
EUR 3 million to EUR 4 million higher PPA than in Q1, do you mean?
Yes. For example, for Advanced Photonics, in the first quarter report, you mentioned EUR 4.1 million PPA effects weighing on EBIT. And for the first half of the year, it was now EUR 11.8 million.
As you know, Peter, that the PPA calculation and bookings are open for the period of 12 months. And the more we get in touch with the businesses and the development, the more we got knowledge. So we first -- it's all about BGSO, which came to us in end of November, beginning of December last year. So we are still -- we worked until the last weeks and months on the PPA. And now we have, let me say, a very clear picture.
And this is why I took the opportunity already to give you an indication for the whole year. The whole PPA impact we see right now coming from TRIOPTICS in the past from Prodomax and obviously, also from BGSO, will end up at EUR 26 million compared to around EUR 16 million last year. So it will be for the whole year an increase of EUR 10 million roughly, around about. This is the actual so to speak, stand or knowledge of the PPA calculation together with our auditors.
The next question comes from Malte Schaumann, Warburg Research.
First is just a follow-up on the PPA exercise. I mean I also saw that the PPAs increased in the second quarter, but at the same time, the total D&A level remains flat. So what is the expectation as we see the EUR 3.5 million higher D&A that's only flat D&A overall development, is there a specific explanation for that?
The depreciation is increasing for us. I can't follow your calculation, yes.
Okay. I'll take it. And my numbers to D&A is at the Q1 level, so not reflecting the other CPI increase. But I'll check my numbers and get back to IR.
We'll double check on that as well, and we can -- yes.
Then on for TRIOPTICS. I mean, the company has some exposure to consumer products, and we are currently seeing a slowdown in demand for smartphones, et cetera. So do you see kind of push outs, change in the order behavior from customers in their business?
And that's a good point. TRIOPTICS does, to a certain extent, depend on consumer electronic products. So it's going to be critical. We are watching that very carefully to -- and it will be critical for TRIOPTICS that certain developments in for new products coming. In particular, we're talking about extended reality and virtual reality here coming in hopefully sooner than later. Sales are up for TRIOPTICS, but on the new order intake side, TRIOPTICS is, I wouldn't say under pressure, but it's not -- sales are higher than order intake, let's put it that way. And we are monitoring that very closely. I wouldn't go as far as saying we already see pushouts, but it is certainly something we are monitoring.
Okay. And do you fear that orders might worsen from current levels? Or would you say that the -- I don't know, drop or whatever you saw in the second quarter is already kind of the level that might be sustainable in the second half as well?
I -- that's hard to say really. We are hoping that the order will be good for the second half of the year. But I really hesitate to give you a particular sort of guidance on order intake of a particular product line or one of the businesses of the portfolio. So no, we typically don't do that. But since TRIOPTICS is so important, it's fair -- the question is very fair.
And again, from my perspective, it's a bit too early to say, bit too early to tell. It's not as if we're falling off a cliff here at all. It's good order intake for TRIOPTICS versus a very strong last year though. I mean let's remember that last year was very, very strong. We don't see that very same level at the moment, but if you sort of take a more long-term trajectory, then we are on track. At this very moment, no sort of big alarm bells, but as you said, that's certainly something we're monitoring very closely.
Okay. That's fair enough. Then on Berliner Glas, SwissOptics, I think you shared a number of almost EUR 100 million order intake in the first half, so that's a pretty high run rate. Is that driven by -- across the board? By all applications, was there something specific and that kind of from the product pipeline you see is that kind of one way that could potentially held up well also in the second half?
The answer is yes. It's particularly strong for Berliner Glas, which is now Jenoptik Medical. Jenoptik Medical has seen very good momentum and I think that should be sustainable, why not? I mean, medical is a very sort of long-term business. And for SwissOptic, to be very fair it's semicon, Semicon, semicon, semicon.
Okay. That leads me to the follow-up question on semicon. Assuming -- I mean it's not what markets are currently expecting, but assuming that potentially a few customers, the last ones, the [indiscernible] and as our demand will kind of slow down going into next year, would you expect then that orders would also decline for your products? Or given the extended lead times, probably last already well into '24 potential years for some products, will help you to keep up a high demand even as the end demand temporarily might kind of slow down a bit?
Yes. I mean I think, first of all, you're right. Nobody expects that at the moment. And it's hard to see. There's all the noise around Taiwan at the moment. If anything, home shoring is more on the agenda than slowing down. It's speculative if our end customers see a slowdown in their demand, what they would do is basically then relax the scheduling -- or the shipment schedules which, at the moment, they're crying on pull in, pull in, pull in, and then they might say, okay, don't pull in as much and maybe push out a bit more. But there is -- I have -- I must have never seen a cancellation of orders in this business, and I don't expect any.
Yes. Okay. My last question is on profitability in the non-photonic business that has thankfully improved in the second quarter sequentially. Would you say that the current level achieved in the second quarter is more or less the expectation one should have at a similar sales rate than the second half? Or are there any specific effects, positive or negative effects affecting profitability in the quarters to come?
Yes. I don't think any specific effects, to be honest. It does depend on the volume here. I mean really the challenge that we have in this business is volume, and that's the expected order intake. We need orders we can convert into sales. And if we can get a decent amount of sales, then we can have better profitability. It's all to do with volumes then.
Okay. So profitability is where it is and it's volume expanded difference going forward?
Yes.
Yes. But you see if there is a normal fiscal year in front of us, the second half will be in all businesses much stronger. Stefan already pointed out, we have a pure -- to be honest, I, from my point of view, I see [ poor ] P&L from SMS, from Smart Mobility after 6 months. But they will make a huge step forward in sales and profitability in the second half. The same will if there is no deeper disturbance in the business happen with NPC, with the Non-Photonic Portfolio Companies.
Next question comes from Michael Kuhn, Deutsche Bank.
Firstly, on a smaller bits in your guidance, in the annual return you say you plan to increase the cash conversion rate to 45% to 55%, when it was 28% last year. With CapEx running at relatively high levels right now, are you still on track to deliver on your cash conversion guidance for the full year? That would be the first one.
And then secondly, when you presented your medium-term targets, you obviously had an M&A component included as well. And I think that M&A component at that time was based on debt and equity financing. The cash -- share price has obviously come down in the meantime. So what is your current thoughts on M&A? And do you see any attractive assets in the market? And if you see them, what could be the financing options for those?
I'll take the second one first. And then, Hans, if you can go into the cash conversion question.
Yes.
So on M&A, you are right. We do see our share price being lower than -- at the time. And I say, below what we believe is -- well, anyway, not where we wanted it to be, where we believe it should be, to be honest. And that has an impact on, obviously, on our ability to do certain equity components here, or our [indiscernible]. When it comes to targets, I think you understand that we're not in a position to share particular names here. But as always, we are always in discussions with this potential physician targets or with obvious partners.
From a more sort of strategic perspective, I think we've made a number of fairly large acquisitions for our core optics business. And for the next couple of months or quarters, I think our optics business, APS, needs to, let's say, digest a bit and focus on post-merger integrations so that we don't see any sort of fallout from that. Yes, if there is an option for sort of capacity expansion, that's certainly something that we would look into in more detail. But by and large, for the next months and maybe a couple of quarters, I don't think that we should see a lot of larger M&A activities for APS. That might be different in a year from now. But for now, I think we need to make sure that the post-merger integration works well.
Different on the SMS front. We always said that our Mobility business is somewhat under critical, and we need to grow that organically and via M&A and the trajectories for growth here, the vectors for growth are quite a number. I mean, the technology that we could acquire that is in particular regional expansion. There are significant regions around the globe where we are not really present with that business. And last but not least, if there's an ability for -- a possibility for industry consolidation, we would be interested to consolidate. And that -- we're working on all these 3 fronts, but nothing at this very moment where we are in a position to share any particular names or anything. Not -- there's no process that's at least at that stage at the moment. But we are always in discussion around those factors and those sort of corners of the work. And Hans-Dieter, on the cash conversion question.
Yes. And Michael, to combine the first part from Stefan and the cash conversion rate, just let me share with all of you, the leverage of our group after the first 6 months, EBITDA last 12 months in relationship to our net debt, which has significantly come down already after 6 months to a little bit more than EUR 500 million from EUR 550 million around. So our leverage right now is 3.16 coming from 3.41 at the year-end. So we improved already very close to investment grade. And with our guidance fulfillment and forecasting this, the leverage at the year-end as the company is today, it will be very clearly below 3.
So headroom for maneuvers, let me say in this. But also on the debt side, and we have still means, not used means in the pockets. Because you pointed out the actual share price is not of interest for us coming to the fact that it could increase and take the 10% from own shares. But at the moment, it's not attractive, let me say in this way. But there is room to maneuver, and we are aiming for it. And this is leading to the second part of your question, the cash conversion rate and the free cash flow because after 6 months, we have been around EUR 12 million, which is normal for the first half year that we are not so strong in cash conversion rate and free cash flow.
We have nothing said to the new guidance because we are still optimistic and self-confident that we will reach our original target which you have mentioned, yes. So we will improve it clearly from 27.7% last year. This is why we did not say something to it. We will stick to this range you mentioned. And this with the increasing or the higher -- much higher investments, having this in place. But this combines both of your questions a little bit.
The next question comes from Richard Schramm, HSBC.
I have a quick one on the working capital development, which was, in my understanding, surprisingly moderate. Although it has gone up quite a bit, of course. But compared to other companies, what we have seen there, I found it relatively moderate what you have on your balance sheet. So can you give us an idea how long your inventory secure [indiscernible] production? Is it all complete already for the second half? Or are there still risk of supply disruptions there? And what about pricing on the supply side? Do you see also, as some companies reflect, certain top level, and that's the big move we have seen over the last months seems to be over for now?
I think it's -- so on time that I -- I think Hans-Dieter would not agree to the statement what our working capital is.
Yes.
I don't agree either. I think that our working capital is going up significantly, but it's an interesting observation. And yes, it's something that we see across the industry, obviously. And we will work hard to manage it down as much as we can. I don't think that we have seen any sort of...
We have lost VINCORION, yes?, Don't forget, we have taken VINCORION out of the balance sheet.
That's a good point. That will balance out the figures a bit.
The figures are not so easy to compare because now in the working capital, VINCORION is out completely.
Yes. And maybe then that makes it more transparent. But we are actually really closely monitoring our working capital here. On the other hand, we do want to support growth and we're pretty clear on that. I don't think we have seen sort of leveling off of price increases or cost increases in our supply chain at the moment. It might be a bit early days, and we are typically fairly low or late in the cycle. I think that's a fair way of saying it. We're typically late in cycle and we have long-term contracts both with our suppliers and our customers. But at the moment, I don't know if either of you have heard anything. But I haven't heard anybody saying, well, the big pressure on cost is over. No, I have not heard that.
No, no, no. It's still there. And we increased our inventory very significantly. That's true. The balance sheet is stable around EUR 1.7 billion, even taking into account that we took out VINCORION. You see there should be other drivers, and this is inventory -- mainly inventory. And as the businesses in SMS and NPC did not work out quite well in the first month concerning sales revenue, the trade receivables are not so much increased, and we managed to balance our supply chain a little bit better than in the past.
I gave out a clear target to increase the DPOs with our suppliers. If we can't avoid price increase, at least, I can -- and this was my assumption together with purchase department, we can at least push back a little bit payment terms to a longer time, more fitting to the selling side, to the revenue side. And we did it in the last month. So this is maybe a little bit better for you to understand the [indiscernible]. So we are quite good, but we have high working capital, yes.
Yes. But my question was how much of your production plans you have for the second half are then covered? Are you already secured with your inventory here? Or do you still have the risk that if there would be a supplier falling out, that you also have trouble in achieving your stated target, for example?
Stefan mentioned the glass industry. Overall, I should -- I would say if nothing very much unexpected happens, we are quite safe to reach our guidance for the fiscal year because we have high work in process inventory level in the factories. We have it in the inventories. Yes, we have bought some goods in advance. We have, by the way, also prepared ourselves if our company is forced to save gas for heating, we have installed heaters and we have bought oil to produce more warm working space for our workers so that we can save gas consumption from our side in the production, if it's necessary. So no, at the moment, we are really quite optimistic that we can deliver. Yes, so to speak. Yes.
There is a follow-up question from Craig Abbott.
As mentioned, I got back in the queue. Just a couple of -- I think 3 or 4 most really pretty quick questions, I think. The one is just you talked quite a bit about the cash conversion earlier that was certainly encouraging. Is it possible to get like a road map, and obviously not in exact figures, but a road map for your CapEx plans for, well, the rest of this year and maybe like an early indication for next year? That will be the first question.
The second question is kind of a double question, technicals regarding the cash flow. First part of that is, could you give us an update on where you are now in your factoring program? And second one is, just if you could just highlight what the provision reductions were, and if these were off cash calls, and what they were related to?
And the third question is just -- and I know this as well, very, very difficult one to add color on. But we talked a little bit earlier about slowing order trends in TRIOPTICS. Still very, very strong order trends in semi and so forth. But I mean, any early thoughts at this stage in general, about '23?
I'll take the last one. That's the more easy one. Well, because it will be very qualitative, it doesn't have to be that quantitative. In a qualitative way, I am fairly certain, I note, please, this is not going to be a guidance in any way, shape or form. But I would be very surprised if we don't see further growth in '23 in our business overall. So that sort of by now gives us a floor to the guidance for '23, and I think everybody here in the room is saying, "Oh my God, what is he doing?" But I mean, serious point, I mean, we all -- again, we're back to the crystal ball territory. We don't know. Nobody knows. Nobody knows how the political environment shapes up, and do we get another wave of COVID and all of those uncertainties. But I would say that at least in our core businesses, for the next 9 months, I don't see a major slowdown.
Now the second half of '23, I don't know, but at least for the first half of '23, I think at least in the semicon business, we will continue to see high demand and what's going on. Anything beyond 12 months from now on is very difficult to say, but -- very, very difficult to say. But overall, that's why I'm saying I think we should at least aim for further growth in '23. But of course, again, we will come back with a more concrete guidance. In other words, we will cross that bridge when we will come to it. But again, yes, from an overall perspective, in semicon, at least, I don't see any slowdown for the next couple of quarters.
Okay. Should I take over then, Stefan? Concerning your questions correct to CapEx plans and factoring program, let me start with factoring program. It stayed stable at EUR 25 million. There's no intention to increase it. And I think EUR 25 million for a year in a company close to EUR 1 billion in sales and EUR 170 million plus EBITDA is not so bad. So no intention to increase it. And it's stable and it's in place, and there's nothing more to say from my point of view. And the transparent for all of you is, the volume is EUR 25 million.
So concerning the CapEx plans, we have already said in our guidance earlier this year that it will be clear above prior year, which has been around EUR 50 million. And taking into account that Jenoptik is building a fab increase. We acquired 24,000 square meters ground. We paid it now. It's, by the way, burning the free cash flow in the half year with around EUR 5 million already. So all in all -- and it's booked, you see it.
All in all, you can think about the region of, let me say, around EUR 100 million in the next 1, 2 -- this year and the next year after because we will have to significantly invest in our factory sites, for example, in Berlin, where we acquired Berliner Glas Medical, it's necessary to move out from the ASML factory site. They need the space for their development. And we have found a new place to be in Berlin. It will be rented. But we have to invest in the space, in cleaning rooms, in machinery and equipment, we will do. So it's in our budget. It's planned. And by the way, the rental for the next 10 years, we have to take into the balance sheet as investment, but it's not cash flow relevant. It's IFRS 16 rule, just to give you this information as well. So there is a gap between cash-relevant investments and activated investments in the balance sheet, coming from this impact, for example.
But all in all, Jenoptik will certainly invest in the actual year and the following year a high amount in capacity expansion and new capacity. I mean, we talked about tracing to all of you that we will double our production capacity in the EUV technology for ASML with this investment. And this needs investment. And it's split over the next 3 years, this fab. Because it will be ready in the beginning of 2025. So this is an indication I can give you. Stefan, this we you can say.
Yes.
It will be on a high level, which we will have this year already, but it's in our forecast within our budgeted figures. So we have to do. And it's the basis for further growth and profitability growth.
Okay. The last remaining catalog question was on the provisions.
Provisions for?
Moving in provisions.
All in all, it's stable. There's no big movements, no extraordinary things to report. This is nothing extraordinary.
[Operator Instructions] There's a question coming from [indiscernible].
One question for me. You said In Smart mobility, there are currently supply issues, the components are missing. Can you elaborate on this in more detail? And is there mainly a chip shortage? And how long could this situation persist?
Nothing in particular anymore. I think there was a point in time when we had a very particular component missing about a year ago, but that's fixed. It's in about a year. And now it's just the overall availability of components overall, camera chips as well as electronic components and, of course, capacity in the factories and things. So nothing in particular, just the overall component shortage, in particular electronic components that we all see in the industry. But if we think -- well, we certainly work hard on getting -- our purchasing teams working hard on getting the needed material. And we also work hard to make sure that as much of the related price increases possible we can push to our customers.
No major issue then at the end? Or...
It's not a single particular issue to report. It's more the overall, yes, difficulties of getting components, like we see in all other industries and across the board.
There's one more question coming from [indiscernible], JMC.
This is Neil speaking for [indiscernible]. Can you hear me?
Yes. Yes, we can.
Just one question regarding, again, depreciation. It was raised before, although a bit let's say, not in all clearness. Maybe you can clarify. So you basically had a very stable depreciation and amortization figure of EUR 16.3 million in Q1 and EUR 16.4 million in Q2. Now if I take your Q1 and Q2 presentation, I understand and you mentioned that before that your PPA actually went up from EUR 5.4 million in Q1 to EUR 9 million in Q2 to a total of EUR 14.4 million for the half of the year. Now if I then take the remainder, basically the EUR 16.3 million or EUR 16.4 million minus the EUR 5.49 million, I get to a decrease in depreciation from close to EUR 11 million down to EUR 7.5 million. I think that was also basically the question that the colleague wanted to ask before. Can you please comment on that? And not just basically the fact that the depreciation went down in Q2 versus Q1, but also the fact that it went down versus last year, despite the fact that you basically have now integrated all these acquisitions.
Again, obviously, a question that needs maybe a bit more analysis. So we will check into it. We'll look into that. And maybe if you can contact our IR department for further information here. Frankly, we have to check. We have to double check here. Yes. I can understand the calculation. But the -- I think we understand now where the question is coming from. The underlying D&A basically declining quarter-over-quarter. If D&A stays the same and PPA increases, then the underlying D&A -- maybe it has to do with M&A activity or portfolio changes. So rather than just speculate, please allow us to drill into it and maybe you'll touch basis or our IR department to clarify. And apologies for not having a satisfactory answer here at the tip of fingertips, but yes.
Now there are no more further questions. So back to you for some closing remarks.
Okay. Well, thank you very much for, first of all, for your questions and for being with us today. I think it's -- I hope at least it's pretty clear that the fundamentals in Jenoptik, the fundamentals in our business are in place, both in short term and in long term. I am convinced that we are going to see a very strong H2. We have just raised our guidance. But let me also reiterate our midterm guidance, which points to EUR 1.2 billion in sales and around 20% in EBITDA in 2025. If we compare that and keeping that in mind and compare that and analyze our market cap and our multiples, then I think it's very clear that Jenoptik share at the moment is a very, very good investment. And I will leave you with that thought. And thank you very much again for your participation today.
Thank you.