Jenoptik AG (JEN) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and welcome to the Jenoptik conference call regarding the third quarter results 2021. [Operator Instructions] Let me now turn the floor over to your host, Ms. Leslie Iltgen.

Good morning, everyone, and welcome to our conference call on the Q3 9 months 2021 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 on the third quarter 9 months results, and Mr. Schumacher will then 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. A replay will be available on our Investor Relations website after this call. Before I hand over, please also pay attention to our usual disclaimer that you will find in the presentation. It is now my pleasure to hand over to our CEO, Stefan Traeger. Please go ahead.

Leslie, thank you very much, and a very warm welcome from our end here to everybody out there. Thanks for being with us today. We're extremely proud to be able to report on a great operating performance and the detailed financials of our company after 9 months. The order intake is up by almost 50% versus prior years, 49% to be more precise, saying, actually that our products and solutions, in particular, in the semiconductor industry, but also in the other segments, we cater to do matter to our customers and actually do make a difference in many ways. Our sales are up by more than 20% despite all the challenges that we all know companies have these days in supply chain and then getting material. We are not decoupled from that, of course, but it does show that we managed fairly well. And we are aware of all those challenges, but we can -- necessarily, we can manage them, we would like to use the opportunity right up front and thank all of our associates and our production environment, all sales forces and admin offices for making that possible. It's a very strong result, sales up by more than 20% after 9 months. I think we're all really proud of that. I think almost 20% EBITDA margin after 9 months speaks for itself. There is a onetime effect we have in the figures. But nevertheless, I think it's important to point out that we did make -- we did make our homework. We did do our homework last year. We did rightsize all the port functions. We did a lot of structural cost takeout in 2020, and that pays us now. We did a lot of portfolio management and that pays us now as well. So as I said, profitability is up big time, yes, with a onetime effect, but almost 20% EBITDA margin after 9 months, I do believe, does speak for itself. Biggest highlight of the last 9 months, though, is certainly the acquisition of BG Medical and SwissOptic. Following a successful acquisition of TRIOPTICS in 2020, we now managed to pull out another next big milestone in our company's strategic development. And with this, we do strength not only our business in semiconductor, but almost double our sales in life science and health care, which always has been a strategic target of ours. And here as well, we would really like to extend our thanks to the Supervisory Board of Jenoptik that supported us and our quest in transforming Jenoptik into a focused technology company. And I think our results show that it's the right thing to do. I think is pretty clear. And we're pretty proud of say what we've achieved in the first 9 months. I mean, first of all, discuss again a bit on SwissOptics -- I think, Berliner Glas. I think we did explain in more detail in the specific calls that we had in the last couple of weeks why this is such a great acquisition for us. But just in simple terms, BG Medical and SwissOptics and Jenoptik, really is like hand in glove. We know each other since a long time. We know this business since a long time. It's a perfect strategic fit for us in many ways. Firstly, on that -- you can see on Page #6, important markets, we can strengthen. We together are obviously, in semiconductor equipment manufacturing, which is a strong lot of ours. And I don't have to remind everyone on the -- what's called the chip crisis out there. I mean the fact that we have such great business in this environment is not to a small extent contributed to the semiconductor business we have, a semiconductor manufacturing business we have. And with SwissOptics, we can strengthen that business significantly. As I said earlier, very important medical technologies. We always wanted to expand our footprint in life science and health care. And with the acquisition of Berliner Glas., we can almost double that in -- with that acquisition. Not only do we expand our business into interesting applications, but we also substantially expand our ability to produce in particular, in lower-cost regions. SwissOptics comes with a facility in Wuhan, China, as I said earlier, we can expand our production network we can even better shuffle around our production to places where it matters to our customers. We do believe that SwissOptics will contribute about EUR 130 million already next year, and we do believe that it will grow midterm by more than 10%. And that growth will be driven, in particular, in the semiconductor arena. And the fact that the digitization of our world is boosting that marketplace is, I guess, no question to everybody and we all see that in the news every day. And indeed, we do see it actually in our order intake. Nevertheless, let me also go to a patient Page #7 to point one more time to TRIOPTICS. About a year ago, we could close that transaction at the time, it has been the biggest transaction that Jenoptik did in its recent history. Of course, now with the BG Medical and SwissOptics, we made another big step. But TRIOPTICS has been a greater test for us. We pulled this off in the middle of the pandemic. And again, I think that was the right way and the right move and the right thing to do. Maybe some folks saw that great move, but it pays off now big time. We see a great development of TRIOPTICS, in particular, driven by, as I said earlier, the digitization of our world. TRIOPTICS does provide the gold standard when it comes to test and measurement of optics on mobile devices, and we all look ever more into cameras and mobile phones and computers and the like and those cameras and land systems do matter. They really do matter a lot. And quality is very, very important. TRIOPTICS -- and with TRIOPTICS, we at Jenoptik, as I said earlier, provide a gold standard for exactly that purpose. We also do believe that augmented and virtual reality will be a big future for us. I personally saying that there is -- we are near an inflection point for the usage of augmented and virtual reality and TRIOPTICS can help us -- will help us to play a very important role in that field. The forecast for TRIOPTICS, a revenue growth of at least 20% in this year and EBITDA margins are clearly above group average. So 2 very, very important acquisitions we pulled off in the last years, yes, this year and last year, we are making ways on our journey actually to transform Jenoptik into a focused technology group. Well, we certainly intend to continue down that path, we do not intend to stop here. We want to carry on down that path. And for that, operational excellence is equally important. It's not just about acquisitions. It's also about making our core business better. If you follow me on Page #8, please, and we have listed a number of steps that we have taken lately in that process. And then let me point out firstly that we were able to significantly boost our financial power. We've managed to place debenture bonds of EUR 400 million. That does include a sustainability component. We are very committed to sustainability and to make our business more sustainable and in a way to make our world a better place. We have the right products for that we have the right solutions for that. We want to be measured on that. And I think the placement of those debenture bonds is one very important milestone in the quest to make Jenoptik an even more sustainable business. We have developed a further focusing Jenoptik on our strategic core. In the last 9 months, we managed to sell our crystal growth business, which contributed about EUR 6 million in 2020 to a partner that's more focused on crystal growth application, a better home for that business of ours, we're really glad that we could close that transaction. We've also managed to sell our non-optical process metrology, in particular for grinding purposes, which contributed about $7 million in sales in 2020 to a partner, thereby focusing our own business more and more on optics -- on photonics, another important Tier 1 strategic promise that we made to the investors of our company. Let me just remind everyone that we also deconsolidated, the HILLOS some time ago, which also took out about EUR 20 million for our top line. That wasn't in the last 9 months, but nevertheless, it's an important contribution to further focusing in optic were under our core competencies in optics and photonics. Well, we did more than just that in the last years, in particular, in 2020, we executed on, again, rightsizing, right structuring and structural cost takeout in our business. Just to remind all of us that we've closed the plant in Berlin, we combined all our activities in Adlershof in 2020. One of the steps and measures we've taken last year become more effective and more productive, quite frankly, to improve profitability of our company. But not only didn't divest and closed plants in our operations. We've also invested in further growth. We acquired a property in Dresden in Germany, and we are going to invest into new clean room facilities, in particular, for our hard core high-tech optics capacity that delivers important products for the EUV machines that are used and needed in this world to enable the digitization of our world, highly needed products, very, very high demand for those products. And we invest into a new factory there -- production, which was -- will take a while. So in the midterm, we try to manage as much as we possibly can with the resources we have. But as I said, important investment into to further growth and the future development of Jenoptik. So all in all, I think we've done a lot in the last 9 months. Numbers show that it pays off. And with that, I'll hand over to Hans-Dieter, who will take us through the numbers in more detail. Hans-Dieter?

Yes. Thank you very much Stefan. Thank you so much. Hello. I am happy to be with you again a quarter later. And yes, I'm happy to go together with you through our key performance indicators. And let's start with Slide #10 with order intake and order backlog, please. And you see here the development, as Stefan already mentioned, 49% plus in order intake, reaching up to EUR 761 million, which is around about EUR 250 million more than a year ago at the same time. And including in this figure, the EUR 250 million increase is obviously also the first consolidation impact of TRIOPTICS with around EUR 88 million, EUR 87.6 million. But even considering this first consolidation impact, it's a strong development of the underlying businesses. And with having realized this, our book-to-bill grew to 1.25 compared to 1.01 prior year. In Q3 stand-alone, this year, our order intake reached EUR 252.7 million, which represents a plus of 42.8% compared to the Q3 of the last year. And if you then look at the order backlog, obviously, with 20.6% sales increase and 49% order intake development. We have also a strong increase in the order backlog, which grew by 34.1% and it's substantially higher than at the year-end. And we -- our intention is to convert this and the rest of this fiscal year 2021, around 44%, 44.1% into revenue. So then on the next slide, you'll see the revenue split over the quarters and for the 9-month period, I already mentioned the 20.6% sales increase, revenue increase in Q4 -- Q3 stand-alone, which has a record of revenue for Q3. In the last 10 years, we have 24.9% higher revenue than in Q3 2020, yes. And in this development, Light & Optics, grew significantly due to revenue contribution from TRIOPTICS. In this case, it's EUR 67.1 million. And the organic growth, Stefan already mentioned, our semi businesses are doing quite well, let me say, quite well. And our biophotonic is also developing very strong. Light & Production, you will see that on -- and Stefan is going with us through the division development. Light & Production also reported revenue growth. Happy to say this. The decline in revenue of Light & Safety, they are still around 12% behind prior year at this time, it was attributable to the late placement of orders, which is normal in such kind of business, it's a project-driven business projects sometimes lasting longer and especially in this COVID-19 pandemic times, not so easy to be precise, but we have also had related to the pandemic delays in delivery of electronic components. So all in all, these are the main reasons for this development. And we are quite optimistic that they will have a strong Q4 for the rest of the year. The acquisition of TRIOPTICS and the strong demand there, raised our revenue share, especially in Asia Pacific, significantly. As a matter of fact, around 60% of TRIOPTICS business is realized in this region. This was, by the way, one strategic reason to acquire them to strengthen our Asia Pacific footprint. And so all in all, the share of revenue we generate growth -- grew to 75.1% after 73.2% prior year. If we then go to our profitability, KPIs, EBITDA and EBIT, you will see also very strong positive development. In terms of EBITDA we have even passed the EUR 100 million line in -- after 9 months. We have reached EUR 121.2 million, which is an increase of 81.9%. Please take into account, Stefan already mentioned, there are some minus effects and a lot of other positive one-off effects concerning the conditional purchase price components from the acquisitions we made last year. So for example, the purchase price allocation coming with us in the inventory of TRIOPTICS with minus EUR 1.8 million. And on the other side, the one-off effect of around EUR 25.6 million in connection with TRIOPTICS and Jenoptik. But even taking this into account, it's a very strong underlying profitability. Don't forget that we have already booked into book acquisition costs with the acquisition of Berliner Glas and SwissOptics, which we have signed in the meantime. So all in all, we are really happy that our EBITDA margin has improved to 19.9% coming from 13.2% a year ago. The EBIT is including even stronger purchase price allocation impact coming from TRIOPTICS acquisition at the end of the last year in Q4, mainly. So we have seen our full year impact there. This is the reason why the purchase price allocation impact and the EBIT increased from EUR 5.9 million to EUR 12.1 million. But even taking this into account, we have reached EUR 80.5 million, which is a plus of 146.4% and the EBIT margin of 13.2%, which is really a strong underlying profitability coming from 6.5% a year ago. And yes, in this figure, we have already also included the EUR 25.6 million impact from the conditional purchase price components, as already mentioned when I explained to you the EBITDA development. If you then follow me, please, on the next slide, you see the P&L of our group a little bit more in detail with gross margin function costs and other operating results and the taxes. Let me state very first at the beginning, we are very happy when we look at the earnings per share, per share, which has increased from EUR 0.43 to EUR 1.12 per share, which is a very strong development having the reason that our tax rate is relatively low due to regional profit distribution and the tax neutral income I've already explained to you. The gross margin has been impacted already by a little bit higher material costs here and as well as the negative purchase price allocation impact of the inventory set up from TRIOPTICS, but also from a product mix impact, and we will see the development should be a little bit better in Q4. The functional costs one at the level of prior year plus EUR 10 million around from EUR 136 million to EUR 147 million, mainly driven by the selling expenses which have increased by EUR 10 million coming with us the people, the teams of TRIOPTICS and the higher purchase price allocation impact of TRIOPTICS here now. The rest of the costs, the R&D and the admin costs are more or less in line, also boosted by consolidation impact from TRIOPTICS in case of admin expenses. The other operating results includes the EUR 25.6 million one-off coming from conditional purchase price components from the acquisitions in the prior year 2020. Having said this, let me come to my final slide concerning our free cash flow development. And you see that the free cash flow ends up after 9 months. And in this case, it's a value of our operating free cash flow from operating activities minus from investing activities and before interest and taxes, I have to say. But this development at the first glance looks not so strong. It's better than prior year, but you could argue why is it so less in terms of absolute value in relationship to earnings before tax as well. We -- first of all, the extraordinary one-offs are not accounting for free cash flow. But obviously we will pay less for the purchase of the company, but it's not a matter of the free cash flow statement here. And we have increased our investments significantly and you will see relatively high investment at the year-end compared to prior year. We have already told to you, we are doing every effort we can to increase our capacities here and there and new machinery. We have -- we are on our way to increase our production space in Florida. We are on our way to buy new machines and equipment in the sites we are using right now. As Stefan already mentioned, our starting point for the new fab for the EUV business in place. So all in all, we are spending more and more money. But it's okay because it's for future growth and for future profitability development. And last but not least, you see that our working capital has increased significantly, mainly driven by an inventory increase of more than EUR 40 million compared to prior year at this time. And this is obviously a reason -- some reasons are there -- laying there. The major reason is we have a huge -- as always, a huge and strong Q4 in front of us, and we want to be very well prepared for the sales and the revising of our shipments to the customers. And on the other side, we have undertaken here and there some purchases for buffer stocks reasons for -- because of the supply chain issues we have here and there to secure our development for the rest of the year. But we did it because we have such a strong and good and ongoing free cash flow development, to support the business and the customer. And just to highlight this before you ask me this question, so to speak. But I'm sure, Stefan and I, we are totally aligned. Having started this part of the development of Jenoptik is transforming it to a very focused, clean and lean photonics machine, so to speak. We have taken some money from the capital market, and it's our duty to pay it back. So we have still a focus on cash flow. Cash is still king. But we still have, today, I can confirm a very strong wallet situation and have a lot of freedom to support the strategic development, our CEO is running for us. So this is all I'd like to share with you for the time being, and I'm happy to hand over to Stefan again, who will go with us -- with you through the 9 months development of our divisions. Stefan?

Yes. Cash is still king. It's great to have the CFO on my side that helps us to keep our feet on the ground there. We don't want to push for a strategic development. But at the end of the day, I just have a [Indiscernible] that keeps saying -- kept saying cash matters and it continues to matter for us. You follow me, please, on Page #16. Let's start with Light & Optics. What am I supposed to say, I just know how to best describe it without going completely overboard here. I'll just basically use the statements we made on paper here, continuing strong demand from semiconductor equipment. I guess that's perfect understatement. It's almost crazy what's going on out there when it comes to the demand for semiconductors and when that comes to demand for investment in the semiconductor equipment industry. We do all we can to support our customers in there doing a quest for delivering more and more and more. We do what we can do at the moment. But it's really almost crazy out there, which is, anyway, great for us, but we also know that we have a responsibility here towards our customers and the entire marketplace. Let me point out that not only semicon is growing Light & Optics, but we also do have a nice uptake in our biophotonics business. And I always -- I already referenced to the acquisition of BG Medical, which will significantly improve our footprint in life science and health care. As a result of all of that, order intake in the first 9 months this year almost doubled versus prior year, included is around EUR 88 million order intake from the first consolidation of TRIOPTICS after 9 months. Nevertheless, even if you dial that back out, the sort of core order growth is still at 60% for Light & Optics, which is really phenomenal. Sales were up 52.6%, little to add to that, where as I say, we're working hard to convert as many orders into sales as you possibly can. And I think the 52.6% is a strong result. And the profitability is, yes, what I am suppose to say, it's very, very strong. I do want to point out again that there are special effects in it, positive as well as negative. But the bottom line, we have an EBITDA margin of more than 30% for Light & Optics. Again, that does include specific onetime effects, please do not ask us to carry that forward into the future, definitely. But of course, we will continue to work as hard as we can to also make the underlying business as profitable as possible. Light & Production, which saw good development actually in the first 9 months. Order intake is up 20.7% versus last year. [Indiscernible] last year has been very, very challenging for the automotive industry, but going to say that the automotive industry is already out of the weather. But for us at least, the order intake develops pretty nicely, as I said earlier, up 20.7%. Sales are up 4.3%, but we still have ways to go. There are challenges in this business when it comes to supply chain and the like. But overall, I think we can show and demonstrate those financials and those numbers, like, we can manage these challenges. As I said all the time, we have dialed that into our forecast as we can manage. It's not as if we were completely recovered from the industry though, but I'm really proud of is profitability of Light & Production, almost grew by 3x as of last year to now EUR 12.6 million. The measures we've taken last year to take structural cost out of our business to bear fruit now. I think that's a topic that you'll hear us repeating again and again, we did lay the foundation for this year's success last year and the year before. Again, it's great to have a good quarter. It's great to have a good year. But even more importantly, we actually made the foundation for further growth and margin expansion into the future. Us going to Light & Safety, we're quick where we do see a great order intake, up 31.1%, but challenges in -- on the sales side. And that is indeed now the result of the challenges that we see in supply chain as everybody else. At the beginning of the year, we were almost on the ship hold for these products. We've managed to overcome those issues. We are catching up on the sales side as well, in Light & Safety. We do believe that we will get to around last year's levels in sales. I mean, we have to see how the last couple of weeks will pan out for Light & Safety. But essentially, the more complex the product becomes the more deliveries we have, the more we become an integrator in this business and with full solution model. So more we, of course, also depend on outsourced parts on supply. Again, we manage. But in Light & Safety, at least in the first few months, we did see the effect of the challenges in the supply chain. Again, order intake is great, and it's now a matter to convert orders into sales. VINCORION, order intake somewhat down versus last year, to be precise, 13.1% after 9 months. We do expect that to improve in the next few weeks, nevertheless, overall, the markets for VINCORION are not easy. They continue to be challenged. Yes, there are more flights now, but still, overall, the aviation industry is still in [ tropic ] waters -- in the [ trappy ] waters. You have to see how the next few weeks and months for VINCORION pan out on an operational perspective. But yes, it's -- I'd say markets start to stabilize, but it's still a challenging market environment, which incurs in operating, somewhat down. We also see our sales figure, sales is down by minus 1.4%, essentially at losses level but somewhat down. Again, I would like to point your attention to the profitability figure here as well, the structural cost takeout that we have executed, in particular, in 2020, does payout now. We have sustainable margin expansion despite the fact that we have challenges on the sales side, which I think is a great result. I mean, at this moment, also say that today, we are not going to comment on any questions around the strategic future of VINCORION. I think -- and I have said about it, no further comments on any speculations on the strategic future of VINCORION at this point. Let me take it all together. I mean, again, we are -- to put that -- we are German engineers. We're not necessarily known for going completely crazy in our emotional statements. We're not very good on the emotional side, shall we say. We better concentrate on developing products and helping our customers -- But by God, those 9 months, they were pretty phenominal for us. And it is driven by a number of effects in our environment. I mean we all know that COVID is a challenge to the society. And we all know that the digitization of our world, if anything has been driven by COVID and with our business is our portfolio, we actually profit from that. We benefit from that. I don't want to be cynical here. It is a challenging world out there, but I think we've made our homework. I mean that's the most important thing. We've made our homework in the few last years. We embarked on an important transition. We embarked on a journey to transform Jenoptik from a diversified industrial, almost a conglomerate into a focused technology group. And I think over the last years and in particular, over the last 12, 18 months, we delivered on that. And I promise, if you want, with the acquisition of TRIOPTICS, with the acquisition of BG Medical SwissOptics in Switzerland, SwissOptics in China and also with the portfolio measures that we've taken. We've cleaned up our portfolio and we have improved big time our operational setup when it comes to structures through organizations in many ways. We have our challenges still, that's for sure. But I guess the sheer fact that we basically already fulfilled almost all of our strategic promises that we made for 2022 actually speaks for itself. So we're proud of that. We would like to, again, thank all our associates everybody that supported us and of course, our investors that helped us and supported us in that journey and that are with us. We don't believe we're at the end. We're at the beginning. There is lots to do, and we will continue to work hard to fulfill all of that and to make our dream of making a better world possible with the power of lines reality. Let me come to the outlook here. We confirm our guidance for this year. I think everything else would be quite surprised. So we confirm our guidance for revenues between EUR 880 million and EUR 900 million. We have a very strong order intake, which is significantly above our sales number. Yes, we do believe that this year, our order intake for the portfolio that we have will be over and above the EUR 1 billion mark, which is, of course, an important milestone for us. We expect TRIOPTICS to increase revenues by at least 20% this year and therefore, contributing significantly to the sales number and to the success of Jenoptik. We do believe that the EBITDA margin will be between 19% and 19.5% this year. We've pointed it out a number of times during the call. There are positive and negative onetime effects in this number. But even if you strip it out, the underlying EBITDA margin is certainly over and above our strategic target for 2022 already this year. The effect of the restructuring measures and the rightsizing measures and the structural cost takeout that we've executed in 2020 bear fruit now. And we do see success of those measures. It wasn't easy, but I think it was necessary and we -- yes, we basically harvest the fruits of that this year and in the years to come. And talking about years to come, I already pointed to some of the structural drivers for growth in our business. Page #22, we've listed that again, the digitization of our world and the fact that COVID almost like a catalyst to that is going to be with us for the foreseeable future at least. We do so -- we do see no slowdown in the demand for silicon chips and semicon applications, and that does drive our business big time at the moment. we do believe that things like augmented and virtual reality are maybe near an inflection point. We do think that further out on the horizon, there are applications where quantum uptakes that might give you the plays what we know as a semicon business today, and we will play and we are aiming to play an important role in those optical technologies. When it comes to health, I mean, there is an increasing demand in therapies and diagnostic methods and most of those are actually based on optical mines, and we're nice in place with our Healthcare and Life Science business, and with the acquisition of BG Medical, we've expanded that big time, and we have a lot of faith and a lot of trust in that healthcare business of ours. We all talk about production and making the world a better place. There are a lot of people currently gathering up in Glasgow, Scotland, trying to find ways to reduce CO2 emission and things like that, very important. Thanks for you -- yes, for the human being for the planet essentially. But we also need to produce our goods and we need to keep producing somehow and we, at Jenoptik, have technologies that help the world produce in a more sustainable way. We enable the production of electric mobility and other very, very important parts of making the world more sustainable. And we are very committed to that. We pointed to the financial measures that we've taken. And lastly, but probably equally importantly, we do need mobility. I mean, yes, we need to reduce carbon-based mobility, but we also need to make sure that we have intelligent solutions for a safety way of getting around every life that's lost on our roads is a life to many. And with our technologies, we help communities to make our roads in public places safer. And I think that's a very, very noble thing to do. So taken all together, we are really proud of what we've achieved thus far, and we believe that there's more to come. So stay tuned. We're looking forward to seeing as many as possible a few our Capital Markets Day at the end of the month. With that said, let's pause here and looking forward to a lot of questions you might have.

[Operator Instructions] Our first question is from Craig Abbott from Kepler Chevreux.

I want to sort of please. Just trying to get a little bit more clarity exactly on all these different one-offs for all of us. And if we start with, first of all, my first question on that front is, please. What is the difference and where do we see this between the EUR 25.6 million reported at the group level and the EUR 20.7 million referred to in the Light & Optics section? That's the first part. Second is, could you please quantify all the different countering effects because you said several times there were some negative effects. I think some related already to M&A costs in the -- related to the acquisition. My third related question on that is why not just continue reporting statutory and adjusted EBITDA and make this much easier to track? And the final question on this point is just do you have some visibility on whether we might expect further earn-out related gains in the coming quarters. That's all on that second -- point and the second question, and I'll stop. It's just the order pipelines across your -- we understand semi looks very, very good. But in the other 3 divisions, you can maybe talk a little bit about your order pipelines. That would be very helpful.

Sure. Greg, thanks for your questions, and I'll try to address and I think Hans-Dieter is going to help me on the numbers figure. But just in sort of top level. So the difference between the group one-offs and the Light & Optics one-off is mainly INTEROB.

Yes. Have reported in L&P.

Exactly, which you'd find in L&P.

EUR 4.9 million.

Yes. EUR 4.9 million. That's basically the difference between group and I think that explains the difference between EUR 25 million, EUR 26 million and the EUR 20.7 million. Negative effects are predominantly PPA effect that we have, and that's to do with inventory step up. There's always a -- I have to say, that was also in the beginning a little bit puzzled, why do we see a PPA effect in an EBITDA number. And the inventory step-ups after a precision obviously, the majority of the PPA effects are in the EBIT, but some of those are also in the EBITDA, and that's the negative effect we are referencing to. And of course, there are one-off costs to do with the acquisition, but we do not report them. Costs to do with support like acquisition costs, we do not include in those one-offs, okay? Yes. Further earnouts, it's a bit too early to say, obviously, it depends on where, in particular, TRIOPTICS will end up with INTEROB is done on that front. We will have to see how the next few weeks of TRIOPTICS will pan out, I mean, we do have fairly good visibility on it by now. It's not as if we have quarters to go to the year-end. So we're -- I think we're mainly done -- don't -- I wouldn't expect huge swings anymore. Let's put it that way. I think we're fairly settle. It depends on the last couple of weeks, but don't expect huge things anymore. On your question on adjusted EBITDA or non-adjusted EBITDA, I mean that's always -- one looks like a philosophical question. We were -- for years saying we don't like adjusted EBITDA. We just want to -- again, that's just us engineers here. What matters is the line and we didn't want to sort of confuse everybody with all those adjustments. We did it last year, in particular to explain and make transparent the costs that we had in connection with restructuring, which is why for last year, we did do an adjustment in our EBITDA numbers. But we actually believe in the real numbers. So therefore, yes we don't like adjusted for whatever reason. I mean it's a clear question. But for now, we would rather just stick with statutory numbers, and that's it. But hey, it's always a good question.

And Stefan, let me please make some additional remarks, if you don't mind, we don't expect these one-off we have in this year around these earnouts because with the acquisition of Berliner Glas Medical and SwissOptics, they have not been any earnout agreed. So we will have not this impact in the next year. So it's always a option to change from year-to-year with adjustments or without adjustments, we talk to the auditors. And they also struggled with it, And [indiscernible] is struggling with. So we finally came to the conclusion to make it transparent to all of you. This is why we are informing you and reporting it with highlighting these one-offs, where they are, how big they are and where they are coming from because we think after having closed the fiscal year 2021, it should be okay for the future. This is also a reason because then we would have 1 or 2 years with adjustments and so we decided to stop these adjustments in the year 2021.

We always meant it to be onetime thing in 2020.

Yes.

On the order pipeline, I mean, you do see the order intake figures that the demand is high across the board. Obviously, it's different in the different businesses somewhat I would say, by and large, the demand in the government businesses, i.e., Light & Safety is ongoing strong. There is -- I don't see any change there. We did see a nice pickup in demand, in particular, in the automotive industry. But we also know that the automotive industry is still challenged. So we have to see how that develops. And our books, we do see a good order intake pick up, but we have to also take into consideration and that's versus a very weak comparator. So I think that sort of put this in perspective. VINCORION, I did try to say already. I mean, VINCORION, I don't know, it's -- I guess the best way to characterize it, it's uncertain in terms of how fast the demand in the aviation industry is really going to pick up. There are people that point to the amount of flights in North America being as high as 2019. They're other saying, well, yes, but try to get a flight from Europe to America, it's challenging already. So -- and at one point that translates into more order intake from the -- from Airbus and Boeing and the like is even more difficult to predict. At this moment, I would say that the industry is still taking out overcapacity, if I'm truly honest with myself on this, but as here. And of course, on the demand side, for the defense products. That's always -- there you have big swings because you have big, big tenders. There is discussions in Germany about defense spending and so on and so forth. So all in all, I would say it's stable. Maybe that's the best way to characterize it. I don't think it's going to grow big time in the next few quarters. It's stable, I would say. The more important, I think it is that we did do these measures around structural cost takeout for VINCORION to improve its underlying profitability big time. That's answering the -- I hope that this gives you a better resulted picture. And on Light & Optics, I mean just maybe again point out it's not just semicon think that's important. Semicon is, I mean, just to say, I don't even know how to characterize, it's almost crazy and we try all we can to help our customers here. But also in biophotonics and everything around -- yes, the digitization for world, I mean, TRIOPTICS is going nicely. And so on the order side, we're very happy, very happy. Paving the way for the future basically.

Our next question is from Richard Schramm from HSBC.

First question concerning Light & Production. So I'm not able to share your enthusiasm on the improvement of resides, I'm sorry, because if we strip out the one-off amounts we see here, the EUR 5.9 million and the EUR 3.6 million. Then nothing at all is left over for an improvement. So I wonder where the structural improvement than are or when they will kick in? So what has hindered you to show here underlying better profitability in this business so far? That would be our first question.

Well, I think I have to at least somewhat disagree with your statement here. If you take out the onetime effects, there is still an improvement in profitability of the business. But I agree. It's not as much as it might be in statutory accounts. And that's why we make it transparent. Now keep in mind that the structural cost takeout that we've executed will flush through the P&L over the months and quarters. It always takes a bit of time. And I always said that we expect for this year to see maybe half of that to materialize in our P&L. And obviously, particularly in the second half because it takes time until people basically need the payroll. So I think we will see more of that in the coming months and quarters. But as you say, there is an improvement, but you are right, it's boosted by the onetime effect, and we should see more of that in the coming quarters.

Yes. And Stefan, I would like to underline, in parts of the business, we see already these improvements. For example, in the industrial metrology business, where we have done the main part of the restructuring efforts, but it offset actually in the other businesses around automation integration because they have to recover from a poor order intake in last year because the industry stopped and COVID-19 pandemic hinder them in Canada and U.S. from creating order intake. And so they are now working on projects we took into the books in the past with lower margins in this business field. But they are improving on the order intake side and this projected margin. So the margin will increase. But at the moment, the one part, the one business field is improving. The profitability, whereas the other is still behind. So all in all, and in setup more or less 0, if you take the one-off out. But for us, it's an improvement because we see where our restructuring efforts are already showing first positive outcome. I would like to give a little bit more flavor, if you go a little bit more deeper in terms of the L&P division.

Well, I mean -- and again, sorry, but just to add to that, I mean, if you just take the -- let the numbers speak. We file back out the EUR 4.9 million, the one-off effect, if you dial it...

EUR 3.6 million.

Back out, then it's still a margin improvement of more than 200 basis points.

But there's one-off of fellow partner.

Yes. I mean, don't we have to strip out the EUR 3.6 million also. It's also a one-off effect, right?

That is true.

Yes, that's right.

And then we are at EUR 4.1 million, and that's the margin of EUR 3.3 million. So that's why I insist that there is no improvement at all. But I see that you have corresponding effects here on improvement on metrology, while the automation business obviously lags behind here. Okay, agreed. Is there a chance that Q4 sees a kind of a little bit of an acceleration here to catch up a bit on this? Or is it too early for this, do you expect?

I don't think we -- at this moment, we would want to guide on a particular product line or business quarter-by-quarter. I think overall and in the mid- to long term, we should see the effect of the structural cost takeout, but that's not sort of guide on and speculate on quarter-by-quarter figures.

Okay. Then another point on the supply side issues, you haven't touched this topic which is amazing because a lot of companies struggle with this. So how do you see the situation? Are you still reasonably doing well here? Or do you see also a lot of other companies, a deterioration of the situation? And are you running in one or the other business into trouble to get enough material here to keep up production levels?

Look, I mean we are not decoupled from the world. We do see this problem as well like everybody else. Our teams in purchasing are working hard to secure as much supply as possible. And that data pointed also to the working capital increase. We do spend cash or we bring cash to work to get stuff early and get stuff in. I think the huge difference between order intake and net sales shows that we have filed into our model, and that's what we always pointed out, we've filed into our model challenges going forward. We knew that we will get challenges and we've got challengers. And it's not as if we're sitting here saying we -- as I said, we're not decoupled from the world. We will make our forecast. And we are grateful that we were filing in our models, certain precautions and hedges there was, say, when we communicated our forecast.

Our next question is from Malte Schaumann from Warburg Research.

I will also focus on the profitability side in the gross margin. Gross margin is still not that strong. I mean it's still the gross margin level since 10 years, something like that. So I wonder your thoughts on that. I mean, what could be the explanation. I mean, semiconductor is strong, microoptics is strong. So this should generally be positive for gross margin. TRIOPTICS should have a pretty solid profitability. So why is gross margin actually down. And then what are your thoughts about future gross margin development that's kind of an exceptional year this year than improved clearly in the future? What are your thoughts around that?

Yes. Thanks for that question. It's kind of -- it's almost funny that in our business, with in particular, the semiconductor part in particular the nanooptics, micro optics and other parts, we have almost a counterintuitive effect because in these businesses, our gross margins aren't that phenomenal for a number of reasons. Firstly, because R&D expenses that are for particular customers and development expenses for particular customers on the IFRS are posted against Cox, which does take gross margin down, but it doesn't show up in the R&D line then anymore. So overall, on the profitability, the bottom line is good. And so the mix effect is actually -- I agree, it's a bit counterintuitive, but the more we grow in those businesses, the less gross profit we actually have in the overall mix? And maybe Hans-Dieter you can point out to some more numbers here.

Yes, I would like to support you, Stefan, in answering the question. Yes, so the main impact is coming from the areas where we are not using the full capacity of our production sites. For example, in, as already mentioned, in parts of Light & Production business, especially in the automation integration in the Prodomax business field. There, the gross margin is clearly behind prior year, but they will catch up, whereas in industrial metrology and the Laser Processing business, we are already above prior year. But in total, this leads that the gross margin in Light & Production is below prior year, still but it's highly profitable after the gross margin because we explained to you when we acquired Prodomax that the gross margin is below fleet average, yes, but the EBITDA margin is much higher. So that's not -- this is why we are not fearing so much focusing on gross margins in this business field at least. And the other reason and explanation is the full development in terms of sales and there are also linked in terms of gross margin from Light & Safety. So these 2 businesses -- and we call it product mix impact is hindering us from showing you an increasing margin, but this will improve. So this is -- this is on the radar screen, so to speak, and we know it. This is coming also from underutilization capacities in Light & Safety still, but they have a strong Q4 in front of us -- in front of them, yes.

Particularly Prodomax, I think, an interesting...

Yes. Okay. Makes sense. Then I mean, if I go down further in the line, I mean at EBITDA level. I mean if I say just, I mean, you don't like to talk about too much about adjusted margins. I mean it's clear that if I stay at kind of an adjusted level, I mean you have achieved kind of EUR 30 million one-off -- positive one-off this year, EUR 28 million what you currently reported so far, around EUR 28 million. So I strip that out. I mean in your margin will be at around 16%, roughly up to 16% margin, which compares to more than 17% last year, around 16% in 2019, 16% in 2018. But in 2018, there was [Indiscernible] [ 16 ]. So it was actually higher when I compare apples to apples. The margin has not really improved this year in comparison to the past year, it was lower than 2020, it is lower than 2018. So what are your thoughts around that? I mean is it just VINCORION and then the dilutive effects from Light & Production, which is not running optimally in comparison to prior years. So maybe some more color on that side.

Not quite sure because I think if I can follow your calculation on the total amount of one-off effects.

I mean that's pretty easy -- that's EUR 25 million, EUR 26 million coming from the earnout evaluation and then the EUR 4 million book gains reported. Would the sales be smaller units that makes then EUR 28 million?

Yes. Okay, exactly. But we also have the negative effects on the PPA side.

Yes. that's EUR 1.8 million so that's close to EUR 30 million if you deduct EUR 1.8 million?

And one-off costs to do with the acquisition, which we don't talk about here. Look, I mean...

But it's in the EBITDA margin included, yes. So the one-offs in the last year has been some millions and then this year, it will also be a lot of millions. Because these acquisitions with more than EUR 300 million value each are not cheap, with all the lawyers and the auditors and the investment banks on our side. So this we have burdened in the last 2 years. We have taken it into the EBITDA margin as it is, as a matter of fact, we have spent money for this transformation of the Jenoptik, yes.

And in particular, lastly, I mean, the profitability last year, again, we shouldn't compare the adjusted with the reported statutory numbers because last year, we did this adjustment. But you are right. There are special effects in it. There are one-off effects in it. I would say that if you think about it the fact that we -- we just go through a crisis or went through a crisis on COVID. That certainly had an effect on everything and everybody. We believe that we've made mileage on transforming the company. We improved the underlying EBITDA, the underlying profitability of the business. We do have businesses in the portfolio that are below fleet average. Obviously, you pointed to VINCORION. We pointed to Light & Production where we do see challenges. But overall, I believe that we did make quite a lot of progress when it comes to making our business more effective.

Stefan, for example, in the last year 2020, where [Indiscernible] referring to with the adjusted more than 17%. We had a lot of million savings, personnel cost savings coming from the short...

Short-term labor.

Short-term labor, especially in Canada and U.S., not so much in Germany, by the way. But as a group, as a matter of fact, it has shown a huge impact, which we have not in this and in the next year. So we got a little bit of boost in the EBITDA margin also in 2020 coming from this. Don't forget this also. We don't talk so much like [Indiscernible], yes, the increased dividend payments have resulted with hundreds of millions short-time work impact in Germany. We had also some of them, but especially Canada and U.S.

And also, I mean, if you take longer term, you're with companies since a while. You're following optics since quite a while. I believe that what was it in 2016, EBITDA margin was at what? 14%.

14%, yes, rig;ht.

14% EBITDA margin in 2016 over 2021. And what are you dialed back out the one-off the fact that we make transparency or not? It is I think, a nice improvement of an expansion of the margin of the company.

Yes. Looking forward to your new -- potentially new midterm targets then, coming up later this year. A quick last question on the order intake side at the Light & Optics division. The incremental demand we saw in the third quarter in comparison to the former quarters. So I saw that TRIOPTICS was a bit higher. Was the rest driven across the board or seen across the board? Or were there specific applications that drove this really high order intake in the quarter?

I think fairly across the board, but I'm looking around the room here, everybody is nodding. Yes, it seems to be across the board. I don't have any particulars which doesn't mean -- I don't remember and recall any particular big one timers or anything. So that would basically mean its probably across the board. Yes.

Our next question is from Peter Rothenaicher from Baader Bank.

Yes. One question regarding the guidance. So you increased your guidance in summer. Now we had in the third quarter aforementioned one-off effects in total around EUR 13 million. Nevertheless, you did not change anymore the guidance. So still the 19% to 19.5% EBITDA margin. Would it be fair to assume that considering this, the expectations for reported EBITDA should then be at least EUR 10 million higher, also considering then some one-off effects regarding the acquisition of Berliner Glas.

I'm not quite sure if I really understand the calculation here.

But you did your guidance, your increased guidance for 2021 in summer, when we had one-off effects from these purchase pricing for TRIOPTICS of in total around EUR 15 million, EUR 16 million. Now after 9 months, you have additional purchase price profit of EUR 10 million and the EUR 3 million to EUR 6 million -- EUR 3.6 million profit from the sale of the entity in Light & Production. So this means you have one-off profit higher than at a point in time when you increased your guidance. And therefore, I would expect that estimates for EBITDA in 2021 should then be including these additional one-off effects, at least EUR 10 million higher than expected so far.

Okay. Yes. But yes, so we have people are saying here, we also have additional costs regarding to the acquisition of [Indiscernible] optics.

And other projects we have in place and integration costs. But finally, in the first 9 months, we have not booked so much from these costs because they are now in October and November in the books, yes. And this is, as a matter of fact, a burden for a burden for Q4, which we have, so to speak, also calculated into our guidance because we have not only foreseen some supply chain issues. But also we knew already in the beginning of the year that we are fighting for acquisitions, and we have prepared some budget for this so to speak. So we have also included in our guidance, this special efforts for the acquisition. And you will see this in Q4, we will realize these costs, the main part of it.

And in the underlying core business.

And it's in the business, yes.

Okay. Then perhaps regarding a topic, which is also mentioned by many companies as a challenge, it's containers, freight costs, et cetera. How -- to what extent are you feeling such headwinds?

You see also some impact already in the gross margin. We talked about it. It's not only the underutilization here and there. It's also a little bit coming from higher purchase prices. But all in all, it's also in our forecast. It's included in our guidance, also this impact. And therefore, it should not be beyond this, but it's already in our estimation for the rest of the year, yes.

Are you able to quantify such headwinds, additional transportation costs and so on?

We don't like to do this, at least not at this time in the year, yes. Maybe we can share with you next year, but we don't do it, yes.

And last point, could you give us a hint on expected free cash flow than by the year-end. Typically, your fourth quarter is relatively strong in cash flow generation. You mentioned on the other side, that CapEx will be relatively high in the fourth quarter. So can you give us here some indication?

If we sell as much as we plan to sell the last months and weeks, then we will have a lot of accounts receivables...

We will have changed from inventory to account receivables, yes, to trade receivables. This is one impact. We -- and it's depending when the investments were realized, we are still looking for investments in Q4. But yes, finally, under the line, you are right, Q4 should be the strongest quarter concerning this. But we have some counter impact, yes, coming from supply changes, changes coming from high sales probably in December, which is then as trade receivables still not realizing the free cash flow because of the payment terms of our customers, obviously, and the investment part. It's also -- we have also some delivery issues from the supply chain concerning our investment goods. So it's not quite sure when this will be realized, yes. So this, all in all, it's very difficult, very hard to predict very precisely, but we are still aiming for stong Q4 and obviously, higher free cash flow than after 9 months. That's clear. yes.

Next question is from Uwe Schupp from Deutsche Bank.

Just one clarification really or maybe a suggestion because obviously led to a lot of confusions maybe -- could you maybe for the next quarter, prepare a reconciliation of the onetime items because I guess every one of us was quite surprised by the amount of one-offs -- additional one-offs this quarter. If I do the math and I look back at your guidance from early in the year, not the increased one, but the earlier one, when you guided for 16% to 17%, I think was margin -- EBITDA margin and a low double-digit increase in revenue. That roughly you could calculate was an EBITDA of EUR 140 million back then implied guidance. Now obviously, we calculated the onetime items now several times to EUR 30 million or so. You suggest there are some costs in the maybe low single-digit million area. But be that as it may, it seems that the entire profit guidance increase that you gave earlier in the year is driven by these onetime items. And this is despite much better semiconductor business, obviously, despite the recovery in biophotonics. I was just wondering what are we missing in terms of the negatives that you may have underestimated heading into the year? Where is the pressure really coming from outside of obviously VINCORION?

I would say -- we made that transparent all the time. As we said, there are these one-time effects, which leads to an increased EBITDA margin. I mean, I guess your calculation is correct. And we did originally guide before those onetime effects to between 16% and 17% EBITDA and the onetime effects drive it up to between 19% and 19.5% EBITDA. I think we have been very transparent on that. So your calculation is certainly correct. And I think it's still good improvement of our underlying business. No, you are right. There is a mix effect that we had with more semicon sales driving up margins and challenges in other businesses, which lack behind. And again, your calculation is correct, but it doesn't, I think change anything on the statement we made. We always said -- or we said at the beginning of the year that we expect the profit EBITDA margin to be between 16% and 17%. And then at the number of effects that were pointing us to a significant improvement in that, and we made that very transparent, I think.

Fair enough. And then just a follow-up on TRIOPTICS, where the revenue seems to be -- have been a bit lower in Q3, I guess, 10% if my calculation is correct quarter-on-quarter. Just wondering whether that is normal seasonality at TRIOPTICS and whether the EUR 20 million plus or so is still the normal run rate?

We -- I think we've said last time already that we made that transpired last time already. TRIOPTICS has its challenges when it comes to revenue recognition, in particular with the product in Asia. They have complex products, and they're going -- they need to be installed in China and other places in Asia, and it is still challenging to go there. We have engineers on the ground. We do get people there, but they have to stay quarantined. In China, for example, you get to stay quarantined for 14 days, by the way, sounds like it is actually a big burden because you get -- you bring people there, and they are not productive for 14 days because they are locked up in a hotel room for which, by the way, the company has to pay. -- we have to pay those engineers extra wages for them to be convinced to go through the hassle and actually do it. So we pay higher wages for these people. We pay for that accommodation for the hotels, it's not as if the Chinese government pays for it, additional cost and that all takes it all. So TRIOPTICS has its challenges when it comes to revenue recognition. Nevertheless, we do believe that it will this year grow by at least 20%. The rest flows into 2022, which is actually, in a way, not a bad thing for us, there I say. But we, of course, want to help our customers here because they badly need the product. So we do whatever we can to ship and install, but it has its challenges in particular in Asia force.

We have another question from Craig Abbott from Kepler Cheuvreux.

I just have one quick follow-up, please. Just on CapEx, saw the figure increase this year. You explained some of the reasons behind that. And I just wondered if you could give us an outlook, a, for the full year this year. But also probably more importantly for the next, say, 2 years. And particularly bearing in mind as you start to invest now in the new fab in Dresden. And if I recall correctly from the original press release on that fab project there will also be countering some of these government subsidies or government support if you could maybe -- we don't expect exact figures, obviously, but if you could maybe give us some ballpark figure out how much of the investments in Dresden fab might be countered by the government support programs? That would be very helpful.

So basically, what we said is about, I think EUR 70 million to EUR 80 million is going to be the total investment. Yes, there is support by the government. To a certain extent, but please do understand that we can't give you any specific details on that. We're basically drawn on the typical programs that the German government and the local government provides. It's within reasons and a typical numbers, it's not anything extraordinary in terms of support, weaker support we get. But of course, why would we not get a benefit from the support, the government does give us here. But let's just say, it's not -- no extraordinary in either way, not positive or negative, basically sort of more positive than everybody else can. On that CapEx guidance, I'm not quite sure what exactly you were looking for. So you're saying.

Total investments at the group level for this year and for the next 2 years.

For the next 2 years, we don't actually guide for that, I think it would be a bit too early. And total group investments for this year, we have -- I don't think we have a guidance there in...

No, we only mentioned that it will increase compared to prior year.

Which is pretty clear. Let's say, we spent on acquisitions as well as on operational expenditure depending on...

Indiana and all other place we are producing.

Okay. But I mean, can we assume that it will be even higher next year versus this year?

Yes. Because of Dresden, yes. Dresden will show up next year with the first motion. That's true.

As of the moment, there are no questions. [Operator Instructions] There are no further questions from the audience.

Well then, thank you very much. It's been an interesting call. As I said earlier, we are proud of what we've achieved. I think, in particular, to do the transformation of this company. And if you look back a few years, then I think we made some mileage and some miles down the path of transforming an uptick into a more focused technology group. It's fair to say there are onetime effects this year. There have been onetime effect last year, we tried to be as transparent as possible. And there's always a debate. Should we, at some point, maybe go to adjust EBITDA or continue on statutory or reported. We believe that at the end of the day, what really matters is what shows up in the statutory accounts and then the audited accounts, that's what matters at the end of the day. What actually really matters is cash flow and earnings per share and things like that. And what really matters is that we have a very solid balance sheet that is basically I do believe the foundation for future growth and margin expansion. I think that's what's important. Again, I think the acquisition of TRIOPTICS has been a major milestone last year, and we could follow up with another major acquisition this year. I think with that, we are well underway in transforming this company. I think we also implemented important measures to make the underlying core business better and expand our efficiency in models that solves challenges that everybody has at the moment. We still see great order intake, obviously, very good order intake. I would just that -- yes, it should be good for the future, and we do confirm our guidance for this year. Thank you very much. And looking forward to, as we said, are seeing many of you at The Capital Markets Day in Hamburg soon.

Thank you.