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Jenoptik AG
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Good afternoon, ladies and gentlemen. Welcome to the Jenoptik conference call regarding the interim financial statements for the first 9 months of 2019. [Operator Instructions]Let me now turn the floor over to your host, Dr. Stefan Traeger.
Good afternoon and warm welcome also from our end here in Jena. Welcome to our Q3 earnings calls. With me today, as always, is Hans-Dieter Schumacher, our CFO, who is going to dive a bit deeper into our numbers. Before we do that, let's kick it off with a quick look at some major events in the first 9 months of 2019.We believe that, as a company, we have achieved quite a number of major milestones in the transformation of our organization to a more focused technology group. Quite importantly, at the beginning of the new year, we've started to make our new corporate structure operational. So we're now managing the company in 4 major divisions, reporting our numbers in those 4 divisions. And the start of the new organization, I think, went pretty smoothly this year. Importantly, during the summer months, we've communicated that we have started the sales process for VINCORION. The process is well underway. And I'll say a couple of words about the process and how it goes later on during the call.As a part of that and playing into that essentially is also the fact that we've now received the permission and the license to export energy systems for the Patriot air missile defense system to the United Arabian Emirates (sic) [ United Arab Emirates ]. We've received that export license -- the permission to ship at the beginning of October. So you will not see that reflected in our 9-month numbers. But you can expect that to be reflected in our Q4 numbers once we report them.We have also received several orders for Prodomax in the area of automation, and we believe that's essentially and predominantly very important because it does show that the acquisitions are paying off. Apparently, the investments that we've made in a more automated production environment and expanding our footprint in America is actually now paying off, and Prodomax contributes nicely to the result of the group.Most importantly, though, is how that all reflects into our numbers. And here, we can proudly report that we are growing. The company is growing top line, and we're expanding margins. Sales for the quarter were up by plus 1.9%, so almost 2% versus the Q3 2018. And EBITDA margin expanded by 30 bps for the period. So I think it does show that our strategic development actually also reflects in better numbers.And Hans-Dieter is now going to detail the numbers for you even a bit more. Hans-Dieter?
Yes. Thank you, Stefan. Hello to everybody. Please follow me now on the next page where we show you the order intake figures and the order backlog figures. And the order intake is a little bit below prior year with EUR 574.9 million compared to EUR 588.4 million in the first 9 months last year. But please take with me into account that at the end of last year, at 28th of December 2018, we received a very big order in the optic businesses from a customer there. Clearly, above EUR 30 million, we expected to book this in the first quarter of this year. So it was part that had been planned in this year, but it was already realized and booked at the end of last year. Nevertheless, we -- later on, Stefan will show you the development of our divisions.In Light & Production, we had a growth in order intake. In Light & Optics division, we received this major order at the year-end, earlier than expected. But in the semi area, we are fine with the business development. And Stefan will explain to you where it does come from. But all in all, concerning with circumstances, we are fine with this. And we think that we will have chances and opportunities in Q4 to gain orders, but Stefan will explain it to you later on. The order backlog is 5.8% below prior year. It's still a very solid basis for the coming months. We estimate around 46% will be converted into revenue in this fiscal year compared to 48% last year. So both indicators, at least, show us that we will reach our target to the year-end.Then please follow me on Page 5, where you see what Stefan already explained to you, our momentum in revenue, that we increased the sales further in the third quarter. You see the 1.9% equal to EUR 212.7 million compared to EUR 208.7 million in Q3 last year. Accumulated, we are now closing the gap we had after the first 6 months with EUR 595.7 million compared to EUR 593.4 million. We are now, so to speak, at a level of prior year, a little bit already above. And as you have read already, we -- our guidance is that we will have growth until the end. So we have a strong Q4 in front of us. And the quarter 3 showed already the potential we have.The revenue increase is underlined or has a tailwind from the semiconductor equipment industry and the Automation & Integration area. The acquired companies already contributed EUR 52 million to the sales development. In the last year, it has been, at the same period, EUR 22 million, so it's a EUR 30 million increase. The export restrictions in our VINCORION business have affected the development until Q3. You may have read our information that we have gained the allowance -- the export allowance in beginning of October this year. So we will have also positive, let me say, inputs from this in Q4 as well, but Stefan will explain it to you a little bit later. And don't forget, in the prior year, we had the toll win -- the back -- from the back from the toll monitoring project with Toll Collect. So in the first 6 months, we have EUR 25 million more sales from this project, which we nearly have compensated. We have closed the gap very much in the business.Then, please follow me to Page #6, where you see our development in the countries, in the regions of our world. You see a strong sales increase in our Americas businesses with 14.5% above prior year. It's obviously supported by our acquisitions, but also by the higher revenue in our Light & Optics business. And I may add also the Light & Safety business has a good development in U.S. in this year. So all in all, we are quite happy with the development in Americas. In Germany, you see the impact from the missing sales with Toll Collect. This is the reason why we are below prior year. And in Asia Pacific, we have a slight growth of 0.9% compared to last year.Then you can please follow me to our EBITDA and EBIT figures on Page 7, where you see that the EBITDA has improved compared to the prior quarter and the prior year quarter. You see that with EUR 37.4 million in Q3 compared to EUR 32.8 million we had already a good development in the quarter. The margin has been very high. And accumulated, we are now at, as already mentioned from Stefan, at 15.3% EBITDA margin compared to 15.0%. This is a 30 margin points improvement there of 30 -- 0.30% -- basis points, 30 basis points. The EBITDA has been impacted by higher functional costs from the acquisitions and our investments. It has also been positive affected from the first-time application of IFRS 16 and obviously by the contributions of our acquisitions.The contribution by the acquisitions in the EBIT has nearly been neutralized through the purchase price allocation impacts, nearly with EUR 4.2 million. So if you take into account that in the first 9 months we had this EUR 4.4 million negative impact in the EBIT, it would have been already very close to the prior year, even at the EBIT. The EBIT margin is, including the PPA impacts, at 9.7%, is also a strong EBIT margin after the first 9 months.Then please follow me to the next page on Page 8. Here you see a little bit more of the details from our group P&L. As already mentioned, we have higher functional costs, higher spending for future growth in R&D, in selling, in administrative area, also obviously influenced by the acquisitions. Our gross margin is stable, at the same level as last year, very important for us. A good development. The financial result has improved from minus EUR 2 million to minus EUR 1.6 million. The earnings before taxes is influenced with the purchase price allocation, impacted the EBIT level, but it's still on a high level. And the earnings after taxes, our tax rate has a little bit increased to 21.5% due to the utilization of capitalized deferred taxes on losses carried forward. And our cash effective tax rate has a little bit increased only from 14.5% to 14.9% because we had higher earnings in abroad -- in other countries. So all in all, we are quite happy with the development of this figure.The free cash flow -- you see on the next slide, the free cash flow has been very much influenced, we have informed you throughout the year, by the changes in our working capital. For example, the export plan for the business in VINCORION for United Arabian Emirates has negatively influenced our working capital, a huge amount. The pushouts in the semi area at the beginning of the year for the first month has also negatively influenced. And now with a very high sales volume in September, we have trade receivables in the books, but we look forward to the year end to realize a lot of the working capital issues because we have prepared ourselves for a very strong Q4. So we are positive that the free cash flow with EUR 7.3 million, still a way to go to reach our targets, but we think that we will have a very strong Q4 concerning the cash flow.The free cash flow was also impacted by higher investments, I should say, I should mention, with EUR 31 million investments compared to EUR 26 million a year ago. We have invested some millions more in our businesses, but it's fine with us because we are preparing for the future. So all in all, we are very, very satisfied that we could gain speed in the cash flow development in Q3 stand-alone with EUR 22 million free cash flow in the quarter.And having said this, I'd like to hand over back to Stefan. He will explain all of you the performance of our divisions.
Yes. Thank you, Hans-Dieter. And let's dive right in, Page 11, we detail the numbers of Light & Optics division that caters to the semiconductor industry or semiconductor equipment manufacturing industry amongst others. You do see that orders for the division are down by almost 12%. However, as we already pointed out a number of times, we have booked a large order from the semiconductor area at the -- almost in the last couple of days, quite incidentally last days of December, which, of course, we're missing the contribution to 2019 now. So that's basically part of the explanation why orders are down. If you would correct for that, it would be fairly flat because the order value we don't have in 2019, that equates to about EUR 30 million.In revenues, you see that the business is still growing. It is already on a very high level. But in first 9 months of this year, we managed to further grow that business to now EUR 251 million. It is boosted by a continuously good business and sales in semiconductor arena. We do have some issues in the business as well. We do have a bit of a softening -- we do see a bit of a softening in some industrial solutions areas. So just to explain that. In the Light & Optics division, we have this major contribution from the semiconductor industry. We also report our biophotonics business in Light & Optics.We have another business in Light & Optics, which is more sort of components and optical modules to industrial applications. We didn't talk about that much because it's not sort of a major contributor here, but we do see softening in this specific field and as a result sort of some headwind in the sales area. In particular, in the profitability, it does drag down the profitability of the business somewhat. Nevertheless, we're still very, very happy with the profitability of Light & Optics. It's still at a almost 20% EBITDA margin level, which really is pretty, pretty high, and we're very happy with that margin level for the business.If we turn the page and go to Light & Production, all arrows point upwards, which does seem to indicate that Light & Production has no problems whatsoever. That's not quite the case. As much as we're very happy to see order intake growing by almost 15%, sales growing by 22% and a massive increase in profitability, it has to be said that the growth is driven by the acquired businesses, Prodomax, in particular in North America. So as I indicated in the beginning of the call, our investments into more, say, smart manufacturing, into more industry 4.0 activities, into integrated and automated production environments do pay off.We've obviously invested into the right sort of area. However, our legacy businesses in Germany, in particular, our metrology business, that depends on quite a significant percentage on combustion engines is under pressure. And again, that's, in particular, in the legacy businesses in Germany. Overall, though, as I said, we do see numbers growing, which is great, and profitability expanding. Again, obviously, we have invested into the right areas of the business.Then go to Light & Safety. There are some sort of mixed messages, if you take the numbers at face value. Nevertheless, we are actually very happy with how this business goes. Order intake is slightly declining in the first 9 months. However, we have a very strong pipeline for that business. We're hopeful that we can turn some of the projects that we're working on into order intake in Q4. Obviously, it's always sort of a risky thing to say that in an earnings call because now you guys are expecting us to deliver. But we are pretty, pretty hopeful that some of the pretty large orders that we have in the pipeline will actually turn into orders. Real orders are booked almost in Q4, so that we believe that, overall, the business from a demand perspective is actually pretty, pretty strong.If you go to the sales side of the house, revenues are down almost 10% in this business. Nevertheless, as we pointed out quite a number of times already, in the first half, in the first 6 months of 2018, we have booked EUR 25 million of sales from the Toll Collect project, which, of course, skews the comparator quite significantly. In other words, if we would -- if we basically calculate like-for-like result of the Toll Collect project, the business would actually grow almost 25%. So that's what I'm saying. Excluding the Toll Collect effect, which has been sort of a one-off event, we are very, very happy as to how the business goes. And you see profitability expanded quite considerably. The EBITDA margin is now at 15.9% which is a good level for that business.Let's go to VINCORION, where we have a good order backlog. We have flat order intake, but we have significantly decline in sales in the first 9 months. We talked a lot about the export restrictions that we have faced in the first 9 months, and we're grateful to now have gotten the license to actually ship the equipment that we have already produced and that we had sitting in the warehouse until relatively recently. So this is now going to pan out and to be solved. We have shifted the products, and we can revenue recognize it in Q4. Obviously, the reduced sales had an impact on our earnings. Profitability for VINCORION in the first 9 months is down quite a bit, EUR 4 million versus to year before or minus 26.4%, but we are pretty optimistic, shall we say. We're pretty sure actually that, that will change in the fourth quarter because of the high sales impact that we will have in the fourth quarter.Let me just say a few words on the process itself, and I expect that you might have questions in the Q&A session later on, but just sort of on a high level here. The process as to sell VINCORION has been kicked off in summer, as you are all aware of. We have a good and orderly process. We have -- we are in discussions with a number of different parties in terms of due diligence [ and things alike ]. We have to see how the potential SPA negotiations will go, whether or not we're going to be able to sign an SPA, to sign a deal this year or at the end of this year or beginning of next year. We have to see, but that's sort of the time frame we're thinking, maybe at the end of this year, maybe beginning of next year.However, we don't expect any closing of a deal this year. If we are successful in the process, if we are successful in the process, then the deal, again, certainly not be closed this year, but rather next year because there are a number of approvals required internally, but even, more importantly, externally from the political side, since this is a defense asset. And I think it's up to what I'm talking about. So happy to receive any questions about that, but just from the sort of big picture perspective, the process is going along, as expected. We're okay with how the process goes, and we have to see from a timing perspective where we're going to end up this year. And -- but certainly, no closing this year. That's more for next year.With that, let's just go to forecast. And yes, we are reiterating our forecast as a number of you might have expected by now. We do believe that Jenoptik will grow. We had 2 years of record-breaking growth in the past or behind us. And we will have, nevertheless, another year of growth for the company. Given the industrial sort of circumstances and market conditions, we're pretty proud of that. We forecast sales to come in between EUR 850 million and EUR 860 million, in that range. And we do believe that we will be able to expand margins yet another time this year to now around 15.5% EBITDA of sales.Obviously, that still does have to condition -- the precondition that economic decisions do not worsen completely. However, given the fact that it's already sort of mid-November, I think that's more a formality that we mentioned that. We're pretty confident that we can make our forecast, and we fully stand behind our guidance for 2019. Which as I said earlier, means that we will grow the company this year, and we will expand margins this year versus prior years.So with that said, let's pause here, and we're looking forward to receiving a number of questions from you.
[Operator Instructions] The first question is from Craig Abbott of Kepler Cheuvreux.
Yes. I have several, but I'll limit myself to 3 for now. Just on the order outlook, if I read the outlook statement today, you mentioned expecting a good order intake in Q4. And listening to your comments now, it sounds like, in particular, in Light & Safety, you've got a nice pipeline. I just want to confirm. When you say good order intake, that means you're expecting sequentially higher than in Q3?And secondly, just on -- to continue with that question, I just wondered if you might have some early thoughts on 2020. I know you don't have an outlook for 2020, obviously. But in terms of -- if we were to extrapolate recent order development, obviously, you could imply that you might struggle to grow sales next year? Secondly, I just wondered in terms of the quality of the orders you are booking, particularly in Light & Production, if you're seeing any particular pricing pressure there on new orders, particularly in your legacy businesses.And the third question is just in Light & Optics margin, as we saw in the first half, down again. I think, also sequentially, but it's down about 340 basis points I believe year-on-year. We know there's a structural effect here from the shift of the sales of the sensor, optics from VINCORION to L&O and you said you had saw some further weakening in industrials in Q3. But I just want to know, is this the only factor here? Or maybe you could shed some light on the margin development also looking ahead in L&O?
Craig, thanks for your questions. Maybe we start with the last one because you actually hinted something pretty important. We know there is a structural effect with the shift of the sensor -- we're putting the reporting of the sensor business from the former DCS into now Light & Optics. I'll pick up on that, in particular, since that is exactly the point where we see the weakening and where we see the weakening in orders, in sales and in the margins. So essentially, you hit the nail in the head. That is the part of the business that struggles. And thus, I'm picking up on that. And it's because of the -- obviously, because of the industrial environments they're selling into. So that, in a way, already explains the decline in the margins in L&O because decline in the margins at the sensors business is actually even bigger than sort of -- that's written there. So the effect is pretty severe in this business. Now again, we don't talk about it that much typically because it's not such a big business. But at a certain point even that has an impact. It does show that the sensors business is struggling quite a lot. It's struggling quite a lot.So let's go to the first question then, on outlook for Q3 -- sorry, on the outlook Q4. Yes, we have several large particular on the -- several asset flows in the pipeline, in particular, on Light & Safety. It does -- you're right, it does mean that we expect the order intake in Q4 to be above Q3. It does not mean that we expect it to be above Q4 last year. Why is that? Because we had this big impact last year in the semicon industry, yes. So your analogy or your triangulation to Q3 is correct, in other words, not to Q4 last year.And your follow-on is the outlook in 2020, where you -- and I thank you for that. I already said we do not have a guidance out for 2020, and we do not want to go on that scenarios at this point already. You would have to -- surely you'd have to wait. And it comes back to the question of visibility, which is fairly limited still, in particular, in the automotive industry. And it comes back to the question of backlog. I mean in the beginning of last year, we were -- sorry, at the beginning of this year, end of last year coming into this year, we were very optimistic because of the huge backlog that we had. We still have a high backlog, but it's lower than when we came into the beginning of 2019. And obviously, for us, the time between order intake and sales is quite long.So at least in the first half of next year -- it's a bit hard to see how we can generate significant growth next year, at least in the first half. Again, I don't want to go any further because the ice gets ever thinner the further I go out on that. And so we're very careful not to at least we seen to give an outlook on 2020, which we really don't want to do at the moment. But I think it's fair to indicate that given the reduced backlog that we will have versus the year before, at least in the first sort of half, it's hard to see that we can gain significantly -- generate for us, but we'll have to see how it goes. Quality of orders. Quality of orders, I don't think there is a significant change to what we had in the past. I'm looking to Hans-Dieter here because I think it's sort of business as usual, yes.
Also in the legacy business, in metrology and laser.
We do get -- no, I wasn't really commenting on -- you're referring to price pressure in the legacy businesses, metrology and laser?
Yes, yes.
Okay. I see. That we do see, yes. There is price pressure, in particular in metrology, that's for sure. That's for sure. Now I think it's important to point out that on the other hand, Prodomax grows very nicely, and Prodomax has higher margins. So if we wouldn't have had the effect of the price pressure on the legacy businesses, our margin ramp-up would be more -- even more pronounced, if that makes sense. So on balance, there is still a margin uplift in the business, Light & Production, and it's overcompensating the struggling margins in -- or the price pressure in metrology by a good business in Prodomax.
Got it. And they have a good pipeline as well, Prodomax?
They do. Yes. Looks good. I wonder how you manage always to be the first one on the question. That's good skills man. I don't know how you do that but that is fantastic. You press the button pretty quickly apparently.
The next question is from Stefan Maichl of LBBW.
Yes, Stefan Maichl from LBBW. Some questions from my side. First one, could you give us an update on your divisional targets for 2019 as stated in 2018 report? Then would you confirm the free cash flow guidance for this year for around EUR 80 million and guidance for our tax rate P&L for 2019, would be helpful. And last, see in R&D, declined in Q3, about 17%, below EUR 10 million? Was this a phasing issue with a rebound in Q4? Or do you have a lower full year target in mind for full fiscal year 2019?
Thank you for your questions. And we will start with divisional update. I mean we don't give updates on guidance of the divisions I think within the year. But maybe sort of qualitatively, at least, we think that the trend that we have -- that we see thus far will basically also be seen at the end of the year. So Light & Production will grow based on the acquisitions. Light & Optics also growing, but in sort of the demand that we have. And in Light & Safety, we will also see some growth this year.
In Light & Safety, if you take out the...
The Toll Collect.
The Toll Collect.
Yes, if you take out the Toll Collect effect.
And VINCORION a stable scene?
VINCORION, what was it in last year? I think VINCORION will be stable at that.
Shall I take over to tax rate and cash flow, Stefan? Tax rate, Maichl, is relatively hard to say because our sales process of VINCORION certainly will have an impact. But taking this not into account, like-for-like, as of today, it should be around maybe slightly above 20% because of this deferred tax assets issue, as I have already explained in the past. But the underlying operational tax rate, so to speak, will be around 15%, yes. But the influence by the deferred tax assets will increase the tax rate, which we have to book above 20% or around 20%, a little bit above 20%, because we are using our carryforward losses more.The cash flow target is -- as we have talked about is about EUR 80 million for the year 2019. Obviously, EUR 70 million gap from today until the end of the year. Maybe it will be slightly below EUR 80 million now. I'm not quite sure. It's depending how quick we can turn trade receivables into cash, because the first step is inventory into trade receivables and then into cash. And as we have payment terms with our customers, ASML, for example, is paying us after 60 days. So it's hard to be very precise, but we will see -- you have already seen EUR 22 million in Q3 stand-alone, and Q4 is by far always the highest cash flow month of the group. So we will deliver a significant amount, much more than in Q3, that's for sure. But I'm not quite sure, to be honest, that we will reach exactly EUR 80 million, maybe it's a little bit below, but not so much. Yes. This is my answer. Anything else, Maichl, did we answer your questions?
You only left this R&D decline in the third quarter.
Okay. It was not an intentional -- I don't think that's a major effect. It's not driven by the sort of program. There might be some phasing in some projects, but it's not something where we're currently pushing in any way. No.
Okay. And CapEx might be around EUR 50 million this year?
Yes. Maybe it's a little bit above EUR 50 million at the year end, around EUR 50 million, a little bit above EUR 50 million. Because we have one extraordinary investment in Villingen-Schwenningen where we are building the new headquarter for the Light & Production business which is the biggest portion in our budget 2019, and it's doing quite well. We will take the people in the new building at the end of Q1, beginning Q2 next year. And we are in time and budget compared to Berlin. We can at least say we are in time and budget, so to Stuttgart in 2021. So -- but yes -- so roughly in this amount, we should end up, a little bit, maybe a little bit higher than EUR 50 million.
The next question is from Malte Schaumann of Warburg.
The first is regarding the [indiscernible] in the fourth quarter. You already indicated to expect some contributions from large projects. Maybe you can give us some additional color. How do you see orders trending in the other divisions?
Yes, you're right. I mean we talked about the safety business and the fact that we have some large orders in the queue there. And with respect to the other divisions, Light & Optics, Q4 this year versus Q4 last year will be below for a very simple reason. Again, we've this large EUR 30 million contract in December last year. And so if you compare Q4 this year versus Q4 last year, it will be below. It doesn't mean that the business is much weaker, just the comparison is much harder. But yes, if you want, because of this onetime effect that we had, overall, of course, the industrial area, in sensors, we talked about -- and Craig asked this question, is also softer. So that in Jenoptik, the order intake will be below prior year quarter versus the Q4 prior year.And Light & Production, you as well, the -- I mean, same thing that we have said during the call. The legacy businesses are under pressure. There's no question about it. In particular, metrology. The pipeline in Prodomax is okay. It's pretty strong, somewhat compensating the problems that we have in metrology. And so we'll have to see where we end up in the quarter itself in terms of order intake. But I think from the sort of big picture perspective, hoping and then pushing hard that Prodomax compensates for the problems we have in metrology and to some extent also in data processing.
Okay. Next question is regarding the traffic business. I mean it has been quite a while that there were no real order intake but seems about the same...
Malte, you're breaking up big time. Can you repeat your question? Your -- it seems like a very bad line.
So the connection is pretty bad here. In the traffic business, there have been many larger orders in the past quarters, over a couple of quarters, that seems about to change. So is there a general development? Or is that kind of a 1-quarter thing? Or are you more positive regarding the, let's say, in the term view over the next year?
I think there was -- I wouldn't say that, that is a particular pattern. You're right. Last quarter's interval was more sort of smaller overall that came in, but not significant big projects. We now have project -- a big project in the pipeline, should hope will materialize still in Q4. But I don't think it's a general pattern in the industry. It just does come in lumps. And sometimes, you have these quarters where you have a number of tenders being issued. And sometimes it's -- that's not the case. So in summary, I don't see a complete change in the pattern in the industry in the last few quarters. But your observation is pretty correct. But in the last few sort of last half year, it was coming in smaller portions, but I don't think it's a big trend.
We -- if I may add, Stefan, we had the opportunity to compensate Toll Collect with this big order from the Middle East some months ago we announced. And it's now showing sales and profits. And the perspective which you mentioned in the call, it has to do with a very good development in U.S., North America. There we see also a positive development in the market. Big projects coming up, but not -- as you mentioned already, not changed. Correct, but this may explain that a little bit better, yes.
Yes. Okay. Good. Good. Then on the Light & Optics business with the weaker industrial segment, what can we do about it? You have to wait for orders to come back? Or are there other measures possibly to improve profitability in that area?
That's a tricky one. So let's just, again, just very qualitatively -- I don't want to give you a quantitative answer but qualitatively. Yes, we push for order coming back in. Sales activities are on the go. But we also think about how we can take cost out of the business there. We're not at a point where we want to discuss that in detail. And so -- but I think it's fair to say if that trend of overall the industrial environment staying where they are, we have to take cost out. And we will do that. And we're committed to do that. And we will communicate if and when we have -- even when we think the point in time is reached. But we will have -- we'll not sit here and wait for the markets to become better.
Yes, that's fair. My last question is regarding the overall order intake in the full year, I mean probably better but down year-by-year, which might be at play given the environment. Looking to the orders. I mean, they're only kind of only driven in the -- or mostly driven from the automotive business? Or are there other areas where you see the kind of larger shortfall in comparison to your initial expectations?
I think it's down in the automotive arena. We'll have to see how Light & Safety at the end, really, where we come in at the end of the year. It's down in the industrial businesses. We were talking about a minute ago. Again, it's not that big a business. Nevertheless, the amount of decline is pretty significant. So in a way, we can be happy that it's not that big a part in our portfolio. But the fact that we talk about it now for the third time in this call alone indicates that this business is really actually under pressure. And again, these are -- you pointed that the industry, the environment, that was -- that are entirely in this business. You see it much more pronounced than we do.I think in the biophotonic arena, we should be okay. The product now looks good. And semicon -- I mean, we have -- we said that a number of times. We don't -- we have not seen a significant decline in semicon this year. And the effect is for multiple reasons, but it's to do with the fact that we are so heavily engaged in the optical lithography subsegment. And therefore, we don't see a big sort of upswing next year either, right? I mean we haven't seen a downturn this year. We will not see a big upturn next year. It's more sort of -- I think it's more on the stable sort of playing field.And a very sort of long answer to a short question, but I'm dancing around the issue here a bit. But I mean, at the end of the day, we all know 2020 is -- we've got to see how it develops. I think it's fair to say that overall and compared to the industry, we're holding out this year. But it's also fair to say that without giving any guidance on next year, I mean, we're not going to go, I think, growing the business through the roof next year organically. That's -- but I don't think you expect that from us.
The next question is from Craig Abbott of Kepler Cheuvreux.
I didn't expect to get back in that quickly. I just had a question on metrology. And I just wondered on this more qualitative, if you will. But to what extent do you think the pressure you're currently seeing is just due to the cyclical weakness or potentially short-term holding off by the OEMs of ordering until visibility on trade discussions improve? Or is it perhaps already a reflection of the structural shift in engine technology away from pure combustion engines? And if it is the latter, might you have to respond with cost adjustments here?And next question is perhaps really small, but just in your risk report, you mentioned that the Saarland high court ruling earlier this year might still impact negatively on revenues and earnings in Light & Safety related to the TraffiStar 350 despite the fact that a number of other high courts actually ruled in favor of continued use of that product. I just wondered, is this just a really cautious, to be careful, type of restatement? Or could this potentially be material and a worst case?
Craig, thanks for your questions. Let me answer the last one first because it's the easier one. It's just -- let's be cautious and let's put it in the restatement just so that nobody can claim that we haven't said recently any particular impact here. On the first one, which is more sort of pronounced and to the point -- and I would like to answer it in also taking laser processing into the picture here, because I think there is a difference between laser processing weakness and metrology weakness. The weakness in laser processing, I think, is short term. That's really because of the uncertainty in the industry and signatures under investments holding back and things like that. So that should come back.On metrology, I think it is more structural. Our metrology business does depend on -- to a large extent, on combustion engines. And as much as we all believe that there is still years and years to go with combustion engines, but quite structurally and in the long term, it certainly -- it will have an effect. Which does trigger your next question, would that also indicate that at some point we need to think about structural cost takeout in this business? Or what else can we do about it? And like very often, there are 2 sides of the coin. We are working on adding additional products into the portfolio of metrology. And our acquisition of OTTO Vision, which we don't talk about that much because it's fairly small compared to Prodomax, but actually it brings us technology we didn't have in the metrology business because what OTTO Vision does is optical inspection. And therefore, that's more of -- that's what we can do to mitigate the effect of declining demand for combustion engines.They also apply the technology that we have in metrology to other segments. We're working with parts of sort of aircraft manufacturers inspecting products there. That's all in the very early stages. So there's in effect an additional technology and additional adjacent market segments to mitigate the top line effect. And then the second part or the other half of the coin or the side of the coin is, yes, it does mean that we have to also in metrology business took very carefully into our cost structures. And here again, if required, we will take the structural cost takeout actions that are needed to keep the business intact or bring it back into shape.
[Operator Instructions] The next question is from Peter Rothenaicher of Baader Bank.
You mentioned that your project pipeline at Prodomax looks nicely. Perhaps can you add a few words? Is it especially on North America? Or do you see this Prodomax already as opportunity to expand this business to Europe, to Asia? And also with regard to Prodomax, do you see here that the margins, which were, as you always mentioned, quite favorable, can remain on this level?
First half of the question, it is predominantly North America at the moment. We have one project in Europe for Prodomax. But it might sound funny, but they're so busy at the moment that we keep them focused on North America. We're actually in the process of -- we have already added a second shift to fulfill the high demand. So there is apparently enough work to do for them at the North American marketplace. So we keep them focused somewhat on North America. So first half, it's North America more than anything. Second part, the margins. I would not want you guys to model the very, very high margins going forward. There will be some margin deterioration, but it still will be way above the average for the group.
The next question is from Richard Schramm of HSBC.
Yes. Just concerning this consolidation effect, I'm struggling a bit with it though. If I take your numbers, you mentioned in connection with sales and you gave out this EUR 30 million difference, which was added by the consolidation effect, if it's correct? When I calculate then the organic decline, let's say, was minus 5% on your sales level and on orders, I would arrive at about 7%, assuming that the figure is a similar one. Is that reasonable? And then you always talk about nice development at Prodomax, which could be. But is this really a like-for-like comparison? So are you looking to the 9 months Prodomax 2018 to the 9 months Prodomax 2019? Or what is the trend here, the underlying trend? That would be interesting for us, I assume.
Yes. When it comes to your calculation of numbers, I think your mechanics, I think, is correct. Look, I didn't quite follow exactly your numbers in terms of the sort of the magnitude of numbers that you have there. But your mechanics, I think, is correct. So the organic business, if you strip out Prodomax and OTTO, I think, the business were down versus prior year...
But you have to take out in prior year also EUR 25 million of Toll Collect.
Yes, I was about to say it, but you have the EUR 25 million of Toll Collect as well, which we also didn't have. So that's what we're saying. It depends on what you strip out. But -- so I think your mechanics is sort of correct there. On Prodomax, you're also correct. There is an annualization effect. So we're saying that Prodomax is growing nicely, and there is 2 effects. There is, of course, the effect of the annualization, which you're pretty correct. But despite that annualization, we still see a good business in Prodomax.
Yes. The first consolidation has been in September last year. But because of IFRS 15 impact, we took a bigger portion into our figures last year, then it shows then we have signed and closed the deal. So in other words, we did not have a full year impact last year, 2018, for Prodomax, but it was more than only 3 months, so to speak, because we have the IFRS 15 impact. We can roughly say we had more than 6 months into the book, so to speak, roughly roundabout compared to now 12 months. This is fair. This is more fair to you.
Maybe we can remind the friends on the telephone of this mechanism. So you might remember that the world is shift from U.S. -- sorry, Canadian GAAP to IFRS. And under Canadian GAAP, Prodomax has revenue recognized projects when they had been at 80% fulfillment rate, and we turned that into IFRS...
15.
15 revenue recognition, yes, which does mean that essentially, we have -- although we only owned them for 6 months, we essentially have had almost 9 months of business, if you want, as the sales impact in 2018. I know it's a bit more complicated, and I'm not the IFRS expert here. I'm the physicist. But that has been my understanding of the translation from Canadian GAAP into IFRS 15.
But Richard, we have the 12 years figures in Canadian GAAP and IFRS GAAP comparable for us in our controlling tools. And we can commit and say that there is a growth at Prodomax. There is a double-digit growth. It's more than 10%.
Okay. And then maybe on -- concerning VINCORION. Yes, maybe trying to read a bit between the lines. You said that definitely closing will not happen this year, agreed. But could there be at least some action that leaves the door open for this?
Some action. What do you mean by action?
A kind of, first, let's say, yes, contract in a way or kind of assignment for further next step with a specified partner.
Okay. Yes. So we are in -- I mean, in an M&A process, you typically have certain deal phases. You have the Phase I when folks send their initial nonbinding indicative interests or letters of interest, and we have received those. We have -- we are now in Phase 2, which is the phase where you have your typical management presentations, followed by due diligence and then followed by SPA negotiations. That's the phase we're in at the moment. We haven't started any SPA negotiations or anything like that, but we are -- may have started with this Phase 2. And that's why we -- that's where we're at, at the moment.
The next question is from Craig Abbott.
Maybe one follow-up kind of nitty-gritty financial type question. You mentioned in the -- what we saw in the consolidation line and the EBITDA result in Q3 and saw a positive swing, particularly year-on-year. And there was a positive impact from the revaluation of the share options, which obviously linked into the then weak share price developments in Q3. In the meantime, obviously, you've had a nice reversal in the share price. I just wondered if there -- if you could give us at least some kind of magnitude of how big a figure we might be talking about here? And secondly, presumably, I guess, there could be some risk, if you will, that, that might be partially reversed in Q4. Would that be fair?
I think your assumption is fair that it might partially reverse in Q4, depending, of course, on your report. Serious point, depending on how the share price develops, you're absolutely right. I mean Q3 was weak and it bounced back, and so we have to see how that translates into the figures in Q4. So your assumption is correct. The order of magnitude, I don't think is that much, to be honest. I mean we're not talking multiple millions here. It's -- if it's...
Well, I mean this thing was like over EUR 3 million. I just wondered like was 2/3 of that roughly related to this or no?
More like 1/3 maybe or even less than that.
There are currently no questions in the queue.
Okay. Then we -- thank you very much for your interest in our business and for your questions. And we look forward to closing another successful year for Jenoptik. Again, overall, I think we're fairly happy and given the environment, the fact that we still guide for growth and margin expansion this year, is, from our point of view, at least, showing that our strategy actually pays off, of focusing on our photonics business. I think we have achieved some major milestones in transforming the company, but we have a ways to go. And we have a good plan for the long run, and we want to execute on the long run. We're here to execute this and to make our business even better in future. Thank you very much.
Yes. Thank you very much.