Exosens (EXENS) Earnings Call Transcript & Summary

Hello, and welcome to the Exosens' H1 2024 Results Presentation. My name is Saskia, and I will be your coordinator for today's event. Please note, this call is being recorded. [Operator Instructions] I will now hand you over to your host today, Mr. Jerome Cerisier, CEO; and Mrs. Quynh-Boi Demey, CFO, to begin today's conference. Please go ahead.

So good morning, everyone, and welcome to Exosens' H1 2024 Results Call, which we're holding today in Paris. Thank you for joining us. I am Quynh-Boi Demey, CFO of Exosens and I'm with our CEO, Jerome Cerisier. We will guide you through this presentation, which will be followed by a Q&A session. And now I hand over to Jerome.

Thank you very much, Quynh-Boi. Welcome everyone to this session. We go on Page 5. And so for the ones that are -- that follow us, recently we are -- Exosens is providing innovative components in Amplification, Detection & Imaging solutions that contribute to either protect assets or people. So in a way, contribute to a safer world. So we use the different phenomenas that are not directly visible to human eye and we make them visible, useful for our customers for -- into their applications. We go on Page 6. So we are a leader in niche growing markets with top 1 and 2 positions. Our market share in Light Amplification is 71%. It was 71% in 2023, 24% in Detection & Imaging in our core market. We are positioned on 4 attractive markets: Defense, Industrial Control, Life Sciences and Nuclear. We have -- our markets are global. Our customers can be everywhere around the world. We have long-lasting relationships, and we work with these customers not by geography, but really by application. We are a technology house. 7.5% of our revenues are spent in R&D. We have a portfolio of over 130 patents. And actually, we had last year, 80 PhDs out of a population of 1,600. This number is growing. Our financials in 2023 were strong of a strong nature, but we are here today to present the H1 results. Also next page, as a reminder. So we are focused on critical components driving the performance of the products to the end user. We focus on technologies that are critical into the end application. Our activity is structured around 2 segments: Amplification, which is mostly geared to our Defense with Light Amplification and Electronic Amplification where we make intensified tubes and traveling wave tubes. The bulk of this activity is intensified tubes, so that is Light Amplification. And our other segment, Detection & Imaging and Nuclear is mainly geared towards commercial applications in Life Sciences, Industrial Control, Nuclear with digital cameras, in infrared, in UV, different types of detectors, neutron, gamma, ions, et cetera. We cover the whole spectrum and we focus on applications where the technology is a key differentiator in the end and we provide to the customer the ability to detect the invisible through our products. We recently announced 2 acquisitions. LR Tech will be joining or is active in the Industrial Control market, while Centronic is active in the Nuclear market. We focus on the high value-added niche applications where technology makes a difference. Next page, 8. What we want to achieve at Exosens is we want to be a leading platform covering the whole particle and light spectrum, cross-fertilizing technologies and markets on fast-growing markets, the ones we mentioned, leveraging innovation, global reach and accelerating our position with selective acquisitions and with the ambition to progressively balance revenues between Amplification and Detection & Imaging. We rely for that on a certain number of internal key assets, operational excellence, entrepreneurial mindset, selected markets, value creation focused and empowering our people to keep the flexibility, the agility to be as close as possible to our customers and to their applications to fulfill to the best of our ability, their needs. Page 9. So the key highlights for H1 2024 are a strong financial growth. Our revenue grew over 50% over H1 2023, out of which 35% is organic. We increased our margins with an adjusted EBITDA of around 30%, that is 2.8% more than H1 2023. We decreased our leverage. Following the IPO, our net debt at end of June has been reduced to around 1.3x the EBITDA. And we, since the end of the H1 quarter, closed 2 bolt-on acquisitions in line with our strategy, the U.K.-based Centronic and the Canada-based LR Tech. I will give a little bit more share or cast a little bit more light on these 2 acquisitions at the end of this presentation after we've discussed H1. Perhaps let me spend some time also to give you a short brief on our markets and how these markets -- what underlies in the growth we are seeing in our own business. Let's see -- let's go to Page 11. So the key drivers of our markets are, on the one hand, in the Amplification side, the return of high-intensity conflict, the increase of different type of threats over the world and, in fact, the need to protect -- to better protect platform, to protect areas, to protect people. In this field, especially night vision, which is in fact the image intensifiers that are used for night vision, has an undisputed key tactical advantage. There is no modern army that is not considering anymore during the majority of their operations at night where they need to see. This is a very strong driver together with other drivers that are more of a technical nature, like transforming monoculars to binoculars to give stereo vision to the soldiers. These equipments are also characterized by short acquisition cycles that allows the industry and Exosens to have fast ramp-ups and massive effect because, in fact, with a few -- you can very quickly equip a whole division or tens of thousands of people. So this has become really core to the acquisition policy and to the usage policy. It's used everywhere of modern armies. On the Detection & Imaging side, the trends and the aligning factors are really relevant more -- sorry, relying on the need to increase the device performance, to increase the speed of the production, to better control the quality, to develop more effective treatments, do it quicker and develop more faster and more reliable devices. That requires additional capability to sort, differentiate, analyze, understand the matter and this is what we provide actually to the market. In Nuclear, it's more the decarbonation and the low-carbon materials that are driving the rise to the nuclear industry where we benefit -- that we can benefit from. So let's go to next page, Page 12, on night vision. The night vision market remains robust with sustainable growth. I mean between '23 and '27, we estimate that the growth for the night vision tubes will be 8% altogether, market-wise, at market level. There are some tailwinds that are shortly described. So amongst which, I want also to emphasize that the constant need of the customers and the army is to improve the performance, to detect further and to be able to act earlier in the operations. We are, in this market, an undisputed leader of Light Amplification with high-end products, technological edge and we are the only sizable ITAR-free producer, which is a key parameter in understanding the dynamics of our operations in this market. That -- all of that results in long-lasting relationships where we are spec-ed in or designed in, okay? And the night vision tube market -- the night vision technology, in fact, will remain the main technology for the next 10 years. Infrared comes as a complementary technology, which is fulfilling different needs. Both technologies are required. But as of today and for the next 10 years, night vision is and remains the key element in night vision, the key performance second to none. Next page, 13. When we look at the different ways the armies want to use night vision, there are different ways of using it. Some of them, the most advanced NATO Tier 1 countries will go for one for one. Every soldier needs to be equipped, whatever their position, whatever their role, as long as they are deployed on the field, they must be able to understand the situation, have the situational awareness or act and operate and react. NATO Tier 2 countries are a little bit more selective, but they still are increasing their equipment rate over the time with different goals of having equipped the vast majority of their troops. Educated non-NATO Tier 1 countries, they are not part of NATO, but they have the same type of intentions as NATO Tier 1. And then we have a last tier of countries that are more budget dependent, but are still increasing the equipment rates. Overall, the night-fighting capabilities are brought at the forefront of the equipment of the forces everywhere around the world. Page 14, that drives the growth of the market. We estimate that the market will grow on average 8% between 2023 and 2027, but it will continue to grow beyond 2027 because by then, the forces will not, and the armies will not have reached the level of equipment they are targeting. And beyond that, the technology will, in our view, have progressed enough that the equipment will be progressively replaced with newer technologies that have better performance and allow to see further. So these underlying trends are strong trends for the -- on the longer term on the night vision market. In Detection & Imaging, so Page 15. We serve markets benefiting from strong secular growth. In Detection, the growth is estimated 7% CAGR between '23 and '27. Imaging, generally speaking, 9%; Nuclear, 9%. And in more detail, in the submarkets we target and we are present in, semiconductor inspection, machine vision, electrical power, life sciences, nuclear, science, gas detection, to name a few. The growth is really driven by strong needs and the development of added value applications that are emerging because the technology is enabling these applications now to be implemented. At Exosens, we are at the forefront of developing and enabling these needs to the customers. So perhaps now we will focus a little bit more on the practical H1 results. And I will leave the floor to Quynh-Boi. If you want to guide us through the results, please, Quynh-Boi.

So thanks, Jerome. So after this reminder and our competitive position and our key market drivers, let's see how all of this translates into our H1 financial results. So in the table below, I'd like you to take away 3 main points. The first is on growth. Our revenue is -- growth is 49.5%. So we have continued to grow at a very significant pace. Second point, margin expansion. So you see our gross margin amounts now to close to 49%. So it's a 350 basis points increase compared to last year, and it reflects our operational excellence. Third point is profitability increase, 3 points EBITDA margin increase, so reaching now 30% adjusted EBITDA margin, 24.7% adjusted EBIT. So we deliver growth, deliver margin expansion while controlling our cost base. And I will come back to all of these 3 points in the next few slides. On the next slide, Page 18, let's look at our revenue growth. 50% growth. We have continued to grow in the 2 segments, plus EUR 44 million revenue in Amplification, plus EUR 19 million in Detection & Imaging. So as Jerome mentioned, the organic growth is 35%. So just a quick reminder, last year, we closed ProxiVision, which was renamed Photonis Germany at the end of June 2023. We closed El-Mul in Israel in July 2023 and Telops in Canada in October 2023. So none of these companies contributed to our H1 2023. So if we remove the H1 '24 of these 3 acquisitions on a comparable basis, this is a 35% organic growth, which is still very significant. Now if you look at our guidance, we are fully on track to deliver our guidance on revenue, high-teens organic growth and 30% total growth, including our 2024 acquisitions, so of which 2 have been recently closed and others planned before the end of the year. Let's move now to Page 19 and focus a little bit on our segment's performance. So on Amplification, this market mainly addresses the defense market. And as Jerome mentioned at the beginning, we benefit from very dynamic end markets. And with a 71% market share outside of the U.S., we can benefit from this very dynamic market growth. But 47% growth means that we have to adapt our supply chain, we have to increase capacity while maintaining our yields, recruit people and this is what we managed to deliver in H1 in the continuity of what we already did last year. And this is demonstrating our operations excellence. Gross margin, we increased by 2.5 percentage points compared to last year. This is coming from the volume effect, but also we benefited from a favorable product mix. On Detection & Imaging that addresses mainly the commercial and industrial market, we have grown 60%. So in this market, we had the benefit of positive price evolution and we had also the benefit of the acquisitions that we integrated during H1. So if you remember, in Q1, we consolidated the sites of camera assembly, moving from 5 sites to 2 sites. Now it's completely up and running, and this is seen in the growth between Q1 and Q2. El-Mul and Telops integrations, they are also running -- up and running, both on R&D and commercial aspects. Note that we have seen a strong commercial performance in Q2, and this will lead us to a higher traction in our H2. So to summarize, in Amplification, continued ramp-up with good execution, good yields and favorable product mix. Detection & Imaging, positive price evolution, extraction of synergies and good commercial performance in H2 that allow us to expect a high traction in the second half. If we move to Slide 20, the gross margin, I've already highlighted the growth. Now if you look at our adjusted EBITDA and adjusted EBIT, it's 3 points -- almost 3-point percentage increase compared to last year. So 2 things here. First, achieving this level of EBITDA margin means that we are positioned on market with high level of technology and industrial know-how and these positions are difficult to replicate. Second point here, to explain also the fact that we managed to deliver this increase in our EBITDA margin. We control our costs on top of delivering very significant growth and margin expansion. So if you look at our EBITDA margin at 30%, it's fully in line with our guidance, which was slightly above 29% EBITDA margin. And on the EBIT margin, our guidance was between 24% and 25%. So with the 24.7% that we achieved at the end of H1, we are also fully in line with our guidance for full year. Next page, Page 21. So I would like here to highlight our 2 key success factors. So we operate on 2 legs. The first one is technology, and the second one is industrial excellence. So on the first leg, on R&D. It's really what will allow us to fuel our future growth. Over the period, we increased our R&D spend by EUR 3.5 million, of which EUR 1.6 million is coming from innovation projects that are at early stage of development and almost EUR 2 million coming from our acquisitions. As you remember, one of our key criteria to select a target for acquisition is the technology as it will complement our own product portfolio. So this is the reason why the R&D spend coming from acquisitions has an impact on our spend. Customer co-investment and tax credits, this is the dotted line. You see that it has increased by EUR 1.2 million. And as -- and it reflects our efforts to secure customer co-investment. As Jerome mentioned, design-in products, co-investment from customers, taking design-in is part of our strategy as it will allow us to secure repeatable business. So as a result, our gross R&D spend as a percentage of sales amounts to 7.9%. So very comparable level to last year at 8% and fully in line with our year-end expectation of 7% to 8%. Page 22, CapEx, which is the second leg. I'd like to recall here that we are an industrial process manufacturer, which means that we transform raw material into high-tech components. So having an industrial tool that is at the state-of-the-art is a key success factor for us because it will drive cost competitiveness. So 2 points here to remember on CapEx. First is the normalization of our CapEx. We invested significantly in 2021 and 2022 and 2023 to meet with the market demand. Now we normalize the CapEx spend, and this is -- you can see it in the light blue, as the CapEx for growth decreased from EUR 8.1 million to EUR 7.2 million. And as a result, our percentage of CapEx in terms of sales decreases from 8.8% of last year to 7% this year. Second point is that you will see that the weight of maintenance CapEx compared to growth CapEx has increased. This is the dark blue from EUR 3 million to EUR 6 million. In the maintenance CapEx, what we focus on is on productivity and improving productivity and improving our IT infrastructure. So just to give you some color on what a productivity project is. This is, for example, when we install an automated test bench. When we install automated test bench, this means that we remove the subjective assessment of the operator at the end of the control line. And this will reduce our scraps at the end. When -- what we did as well is we implemented robots to automate some manual tasks of the operator. When we remove manual tasks, this means that we remove manual manipulation and, therefore, potential contamination as we operate in clean room environment. So the examples of 2 projects gives us the benefit of this CapEx of productivity. It means productivity gains. It means scrap reduction. So in the end, future margin expansion. So if we move to Page 23, where we see our free cash flow. So over the period, we achieved almost EUR 24 million free cash flow generation, significant increase compared to the EUR 2 million -- almost EUR 2 million that we achieved last year. And this is in spite of the IPO consulting fees that we had to incur over the period. It's about EUR 4 million, and it's included in the line other income and expenses that amounts to EUR 5.5 million at the end of June. So what we did as well is we control our working capital requirements and control our CapEx, while delivering the substantial growth. Cash conversion ratio increases to 75%, up from the 63%, as we normalize our CapEx spending. And this is also fully in line with our year-end expectation of 75% to 80%. Page 24. So following the IPO, we strengthened our balance sheet. We received EUR 180 million from the capital increase. We refinanced our debt, securing a EUR 250 million term loan that matures in June 2029. We also secured a EUR 100 million revolving credit facility also maturing in June 2025 (sic) [ 2029 ]. And as a consequence, we reduced our leverage ratio down from 3.3x the EBITDA at the end of December now to 1.3x our EBITDA level. So with the cash that we generate from the operations, with the capital increase that we have plus the refinancing that we secured, we have strong liquidity now that can support our growth strategy, whether organic growth or M&A growth. Going to our conclusion on Slide 2026 (sic) [ Slide 26 ]. Let me mention the following key financial takeaways. The first one is strong growth, acceleration of revenue, 50% total growth, 35% organic growth. Second point, margin expansion and cash conversion. So we're able to deliver a substantial growth, while at the same time, increasing our margin and generate cash, demonstrating our operational excellence. Third point, strong balance sheet. We deleveraged now to 1.3x our EBITDA at end of June, and we can use the liquidity to fund our growth strategy. And Jerome will give us some color on the 2 acquisitions that we have recently closed. On Page -- on the next page, Page 27, full year guidance. So as I've already mentioned throughout the presentation, we are fully in line with the guidance, whether it's on revenue, from our EBITDA level, EBIT margin, cash conversion, cost -- gross R&D cost as a percentage of sales, we're fully on track to deliver our guidance. So on Page 28, I'd like to share with you a few developments since the end of H1, a significant event. I'm very happy to share that we were awarded a silver medal on EcoVadis, and this is a recognition of our ESG strategy. We are now placed in the top 15% worldwide and now we will target to get the gold medal by 2025, which was part of our ESG strategy. And I will hand over to Jerome, who'll give us some light on the 2 recent acquisitions.

Yes. So post H1 closure, we closed 2 acquisitions. So the long waited, if I may say, Centronic. So we announced during the discussions we had prior to the IPO that we had signed an acquisition in the U.K. that was not closed. This is now closed. This is the Centronic acquisition. So it's a company that is active in neutron detectors for nuclear power plants in Geiger-Müller detectors and specialized photodiodes. So this drives us to not only increase our market share from 19% to 38% in neutron detectors, but also increase our TAM, strengthen our position towards SMR and more generally be more competitive in the -- in addressing the nuclear detection market, while allowing us also to access some new markets like the Geiger-Müller detector who are specialized applications still in the same field. We also closed more recently because we closed it on 1st of September LR Tech. So LR Tech is a special -- is a Canadian specialist of infrared spectroscopy using a specific technology, closed Fourier transform. And there, we -- that will allow us to complement our portfolio in cooled infrared within Telops. The proximity of LR Tech convinced with Telops -- geographically convinces of the interest of pursuing this acquisition, which is a small company, but that reflects that could -- that will improve our portfolio. Overall, these 2 acquisitions are expected to be highly synergetic allowing us to be completely in line with our strategy to get -- to include some new technologies and some additional technologies to enlarge our portfolio, to increase our market and to accelerate the development of this company through a commercial global reach that we will have now to organize. And actually, if I go to Page 29, next page, that will be a key priority and a milestone for the next period in the M&A area on the right. We will start integration of Centronic and LR Tech and so that will be the objective to create the expected outcome in terms of integration, synergies, market development, et cetera. And we will continue to focus on delivering the strong pipeline that we have in M&A in line with our guidance. On our existing segment, Amplification, we will focus on executing the capacity plan to its end and continue the development of the next-generation product towards an official commercial launch that we still expect within the year 2024. On the Detection & Imaging segment, we will focus on increasing the design-in penetration of key Tier 1 customers in electron microscopy and semiconductor. We will focus on reinforcing our positions on the SMR markets in the nuclear field. And we will focus also through new product launches to reinforce our design-in position in optical tomography or in gas detection. These are the key focus for the next period, fully in line with our strategy. So in a nutshell, our H1 results are of a very good level, fully in line with our guidance and fully in line with our strategy, representing in fact the operational excellence, the ability to develop new products, new applications where technology makes a difference and also making obvious the operational excellence, which we thrive for and that was executed in H1 to produce these results. So I think that ends the part of our slide presentation, and I think we are now open for questions.

[Operator Instructions] And first up, we have Aleksander Peterc from Bernstein.

I would have a few. The first one is on your guidance. So with the first half adjusted EBITDA margin at 30% and the likely positive seasonality in the second half, would it make sense to upgrade somewhat your outlook for the year to a bit better and slightly above last year's margin at 29%, if I'm correct? To me, slightly means about 100 basis points, maybe 150 and it looks like you could do better. And the same is -- same goes for your EBIT margin, which is a 24.7% adjusted in H1. So if you have some positive seasonality in the second half, you should be probably at or above 25% and that's the high end of your guidance range. So are there any specific headwinds you'd like to highlight in this respect? That will be my first question. I have a follow-up.

Yes. Thanks, Aleksander, for your question. So first, H2, we're still going to grow compared to H2 of last year, even though H2 of last year was a significant increase versus H1 of last year. Second point is that we are new in the market. We've been listed only -- we were listed only 3 months ago.

Actually, we're listed since already 2 months and 26 days.

Yes. So we're still very new to the market, and we want to remain disciplined and conservative in our guidance.

Okay. That makes sense. The second question would be on the net financial items. So I've seen the P&L, a net loss of EUR 25.7 million and your interest payments were at EUR 14.8 million. So what's the difference? And maybe you could provide us a little outlook for the financial items in your P&L for the year, if that's possible at all? And while we're discussing financials, could you confirm your -- the terms in terms of the spread versus Euribor for your term loan, your RCF?

So you're referring to the net financial results, right? Was it your question, Aleksander?

Yes, net financials versus the interest payments.

Yes, it's a significant amount because it reflects all the financial restructuring that happened during H1. Part of the impacts are noncash. From the previous loan, we had OID that were capitalized in the balance sheet, and they're amortized over the lifetime of the -- I mean the loan -- the previous loan. And as we did the refinancing, we had to fully amortize what remained in our balance sheet. So this was already an EUR 8 million impact. We had the same impact for another loan that we had in the previous refinance -- in the previous refinancing, sorry, that we had also to fully amortize. On over EUR 3 million, we had breakage cost as we had to reimburse the previous debt earlier than expected. We had the IPO fees that impacted the financial results, EUR 4 million. So you see a lot of one-time effect is not reflective of the financial results as it will be in the future. And that comes to your next point on our debt costs for our new -- that we just secured. So it depends on the Euribor and it ranges from 150 to 250 basis points. And now currently it's 2%.

Okay. And just one last one for Jerome, if I may, very briefly on your pipeline of acquisitions. Could you comment on how many targets you're considering right now? And what is the average size in terms of revenue and the average profitability of the companies in your pipeline of deals?

Okay. So we are currently pursuing between 6 and 8 targets of different sizes. They -- in terms of profile, that perfectly correspond to what we have communicated so far. So they -- in the vast majority of them belong to the D&I segment, but it's only a majority. We have also some opportunities in the Amplification segment where we feel we could have some key technologies or access to key technologies. And in terms of size and numbers, they are mostly in line with what we've done in the past. Some of them are typically the same size and some of them are slightly bigger than what we actually did. But the average profitability of these targets varies depending on the market they're operating in, the operational leverage, the operational excellence, sorry, that the management in place has been able to implement. Only a few of them are -- have higher profitability than the current group profitability as we explained. But leveraging our strategy concerning acquisition is always to integrate them, to develop synergies on the technological side, use our global reach to increase our sales and accelerate the development of growth. All of them are growing fast. So we expect some of them to be in a position to make progress on -- in the coming months of some of them, as we have guided for the year on a certain level of overall growth.

And up next, we have Aymeric Poulain from Kepler Cheuvreux.

The question on the acquisitions. Perhaps you could give us a bit more detail on how much was paid for LR Tech and the type of margin that we should assume for this business? And when you guide for 1.6x net debt-to-EBITDA, I guess it includes not only this acquisition, but also 2 other larger acquisitions that you have planned for the year-end. So could you confirm that the 1.6, which may be slightly higher than the previous guidance reflect this -- the payment for LR Tech, which was probably not necessarily assumed initially? So that would be the first question. The second question is on organic growth. Obviously, you don't put the organic growth by division. The Detection & Imaging is mostly the result of last year's acquisition, so too difficult to put in the presentation. But what would be the level of organic growth you see right now in Detection & Imaging? And when do you expect this organic growth to pick up to the level of the market growth you see for the coming year? And in that regard, I think you mentioned several times the potential catalyst of SMRs. Again, when do you see this rollout of SMRs taking place to drive such acceleration?

So maybe I'll start with the leverage ratio and a few -- organic growth, and let you complement on the end market aspect. So Aymeric, thanks for your question. Indeed, the 1.6x the EBITDA as a leverage ratio includes the 2 acquisitions plus new ones that we plan to finalize before the end of the year. And this is in accordance with the guidance that we provided. We said around 1.6x the EBITDA at the end of 2024. On the organic growth by division. So in D&I, indeed, we had a low single-digit organic growth at the end of H1 as we were impacted by 2 factors -- 2 main factors. The first one is the consolidation of the camera site assembly that impacted Q1 and that was completed at the middle of Q2. So now it's behind us, and we have our supply chain up and running. The other factors that impacted us is the slowdown of the Chinese and semiconductor markets as other players. But we noticed an improvement in our commercial traction in Q2 and especially on drone and surveillance, and we expect H2 to improve versus our H1.

Yes. As a complement to your questions on the organic growth concerning D&I, SMRs, specifically, is a new era and a new area for nuclear. Nuclear remains a small business within our division, our segment. It's important for us because we believe there's a lot of potential in this market. Developing SMR technology takes time, but we are making good progress with some nice leads, prospects or even customers. So SMRs will be one. We expect, overall, the market growth in average to be in line with -- over the period '23 to '27. The current market growth seems to be more generally lower than expected, and we -- I think for some of the companies operating in the same market, I think it's even negative. We are low single digit, as Quynh-Boi mentioned. So we expect the market overall to recover or, let's say, to get to higher fields or higher levels. For semiconductors, probably beginning of 2025, that's what our expectation today for China's softness in the market that is more related to our mass spectrometry market and to a lower extent, to certain camera market. That is difficult to say because we are not economists, and I think not everyone agrees as to how it's going to happen there. But we expect that the current market conditions do not change the overall perspective over the '23-'27 period. Now I think there is one last point -- one last question you raised, which was the price paid for the acquisitions. I think that will be probably indicated in the final accounts of the year. We didn't pay anything very different from -- well, we didn't pay anything different. In fact, in average, it was slightly the same level than we paid in the past, that is a combined level of around 10x EBITDA being understood that the profitability of LR Tech is very high, very close, very similar to the one of the group. The profitability of Centronic was more in around, let's say, around 20% -- above 20%.

And our next question now comes from Charles Armitage from Citi.

Just a quick one. Going back to Aleksander's first question on margins. Will the acquisitions, the Centronic and the LR Tech make any material negative impact to margins in H2, please?

Slightly. It will be slightly dilutive and it's very similar pattern to what we saw in 2024 -- 2023, sorry, last year when we integrated the 3 acquisitions, ProxiVision, El-Mul and Telops.

And from JPMorgan, we have a question from David Perry.

Jerome and Quynh-Boi, congrats on the IPO. Two questions. The first one, and I apologize if I missed it in your comments. It seems a very obvious question. But the Amplification sales were very, very strong in H1. My forecast, and maybe I've misunderstood. But my forecast for the full year is only EUR 248 million of sales. So it actually implies a drop in sales in H2 year-over-year. I know defense can be lumpy and maybe I've got the wrong numbers. If you could just clarify what you're expecting there. And then just secondly, the Exosens' defined free cash flow, EUR 23.6 million looked quite strong to me in H1. Could you just tell me what you expect that number to be on that definition for the full year, please?

So concerning Amplification sales, first, if I may state something that I hope is not -- is obvious, is Amplification sales combine Light Amplification and Electronic Amplification. So the Amplification sales have been growing vastly in H1 compared to last year. But please remember that we were in 2023 in a very strong ramp-up in our capacity, so that the level of production and so our sales in H1 2023 was lower than the one in H2 2023, and in turn is slightly lower than the one that we observed in H1 2024. So I will not comment on your number of EUR 248 million sales. But definitely, most of the investments we've made in capacity, most of them are implemented. And so we are now entering a phase where the production output will grow at a lower pace than it has had in the past. We do not expect a decrease, certainly not.

Okay.

So coming back to our revenue guidance, so what we say is that we will be fully in line with our guidance. So our guidance for organic growth is a high-teens organic growth compared to our pro forma 2023 sales, which was close to EUR 320 million, and we're fully in line with this guidance.

Okay. Sorry, my question, Quynh-Boi, was just purely on the free cash flow.

On the free cash flow. Sorry, I forgot this one. So the free cash flow. Yes, you're right. So we were helped in our free cash flow generation with a cut-off impact. So we had some customer delays of last year that paid us this year. So if we remove this impact, we're in line with our expectations on free cash.

Okay. And if I can just clarify, Jerome, when you say we do not expect a decrease in Amplification, do you mean H2 over H2, so year-over-year?

Yes.

Yes.

Okay. That's very helpful.

You mentioned a decrease, so I was just responding to this word that you used.

And our next question now comes from Laurent Gelebart from BNP Paribas.

One question regarding Amplification. Could you share with us what is the share of Germany's [indiscernible] in this H1? And do you expect this country's contribution to remain also very steady in 2025 compared to 2024?

So the share of Germany is similar to the one we observed in 2023 and is similar to the one we expect in 2020, in the second half of the year or over the year, let's say, generally speaking, in 2025.

Okay. And regarding tender offer coming in or order intakes and so on or book-to-bill, could you comment on the prospect -- the commercial prospect of the division? And last one, when do you plan to launch your new 5G products?

Okay. So the prospects for the division, so we still have a strong traction in Europe. We have some regular repeated orders. We have some -- as we mentioned in the past, we have some frame agreements that allow our customers to place additional orders so that they do. So this is coming in at a regular pace. And so Europe remains a strong area. We see also some good developments and prospects in the Middle East and to a lower extent in very specific countries in Asia. There is -- the trend that we have presented during the IPO process remains there with the same customers developing their sales depending on their internal needs. We see that. We see the developments and the orders coming in at the pace we are expecting them so far. Concerning your question on 5G. 5G or next gen, the -- we are prudent on the commercial launch and official launch because we want to ensure that the product is fully available at a large scale when we go on the market. So that doesn't mean that we are not able to develop products to or to develop or to produce, let's say, some prototypes, some demonstrators of this product. And so we still expect to launch it before the end of the year or in 2025, early at most, depending on when we are confident to have reached this level and on certain other factors linked to the current product line that we want to ensure to be able to produce, to deliver to the customers as long as possible.

[Operator Instructions] And we now take a question from Aurelien Sivignon from ODDO BHF.

I have got 2 questions left. First, on the D&I segment. I was quite impressed by the 51% in H1 given all the deals closed last year. So should we consider now that de novo 50% gross margin for this division is sustainable despite the pace of expected new bolt-on acquisition in the next quarters? And second one was, can you confirm that both Centronic and LR Tech will be consolidated from September?

Yes. So the consolidation of Centronic and LR Tech, yes, they will -- as we have closed the 2 acquisitions, they will be part of our numbers, for sure, before the end of the year, noting that we need to do the opening balance sheet, PPA and so on. So it would take -- well, some time. But it will be fully integrated as of September. To your second question on the gross margin of D&I, 51%, yes, this is the level that we expect the gross margin of D&I to be. We might have a slight dilutive effect of acquisitions, but it would be more or less to this level.

And as there currently no further questions in the queue, I'd like to hand the call back over to you, the host of today's call, for any additional or closing remarks.

Okay. So we would like to thank you very much for your attention and your interest in Exosens. We remain at your disposal for any other interactions you would like to have. And we are pleased, in fact, to meet you in the next few weeks and months, as you wish. Thank you very much, and we wish you a very good day.

Thank you. Thank you to everyone.

Thank you.

Bye-bye.

Thank you for joining today's call. Ladies and gentlemen, you may now disconnect.