Jenoptik AG (JEN) Earnings Call Transcript & Summary

Hello, ladies and gentlemen, and welcome to the Jenoptik conference call regarding the financial results in 2022. [Operator Instructions] Let me now turn the floor over to your host, Dr. Stefan Traeger.

Thank you very much, and a very warm welcome here from lovely Jena. With me today, as always, in the last almost 6 years as our CFO; Hans-Dieter Schumacher looking forward to actually, it's the last earnings call [indiscernible].

Indeed. Indeed. Yes.

So very warm welcome to all of you at [indiscernible]. As always, I'm going to kick it off as a bit of an overview. And after that, Hans-Dieter will go into the numbers in more detail. So if you follow me on Page #4 of our presentation, please, where we have sort of put together a couple of highlights of the fiscal year 2022. I think it's fair to say that we are really, really proud of what our teams have achieved in the year 2022. 2022 has been actually a great year for our company, despite what I think one can characterize as a very challenging environment. Our markets by and large, have been stable and actually positive. But let's not forget, again, that the economic environment overall has been quite challenging. And I don't even have to talk about the geopolitical situation that we live in since more than a year now. And then we have moved forward our company, I think, quite a bit. Very important for us. That's just one example, and the investments we made into the future, an uptake, very important for us at the groundbreaking ceremony for new high-tech fab in Dresden, an investment of more than EUR 70 million, which is going to help us to support our customers, in particular, in the semiconductor manufacturing industry going forward. Most of us have almost forgotten that in middle of 2022, we actually successfully closed the sale of VINCORION. Yes, we have signed the deal earlier in the end of 2021, but we've managed to close the deal successfully at the end of Q2 last year, which by way makes us a much better investment for, in particular, ESG-related investor community. We've seen an ongoing strong momentum, in particular, in the semiconductor equipment industry. I think we all talked about it quite a lot in last few earnings calls and in road shows and God knows where we met each other. But as a consequence, not just of the strong momentum, but in particular, the strong momentum in the semiconductor equipment industry. We managed to post organic revenue growth of more than 10% or double-digit organic growth, which I think is a strong message of the strength of the company. I think even, more important, at least from my perspective, actually, well, then the sheer sales growth is the fact that we could expand our margins one more time and significantly increase profitability. The EBITDA margin of almost 19%, 18.8% is a sign of sort of operating strengths, I think, of our business. It is an effect of the product mix that we can show and of course, economy of scales, but you all know that mix effects are very important for Jenoptik. I think it's also important to note that we managed to post an additional very good free cash flow, actually. Our free cash flow grew to almost EUR 83 million. And that despite the fact that we have had quite a high capital expenditure in 2022. And as a result of that, we have reduced our net debt significantly. I mean we've talked a lot throughout the year 2022 about deleveraging, but our desire to actually deleverage the company following the fairly large acquisitions in 2020 and 2021. And I think the fact that we managed to deleverage the company as promised quite significantly in the last year is another testimony of the operating strength of Jenoptik. As a result, we proposed together with Supervisory Board a higher dividend of EUR 0.03 per share. And based on an ongoing good momentum, but in particular, based on a very strong order book, we have issued a guidance that calls for further revenue increase and margin expansion in this year 2023. So with that, I will hand over to Hans-Dieter, who is going to go into the details of our numbers. Hans-Dieter.

Yes. Thank you, Stefan. Good morning to all of you. The very last time, as Stefan already mentioned, for me in-person. Yes. Let's go in more detail to the figures of the fiscal year 2022, and please take with you that we are talking from the continuing operations and the group only including [indiscernible] but explicitly specified just to remind you. Yes, let's go then please to Page #6. Here, you see the, both key performance indicators, which are very important for the next weeks and months and the start of the year with order intake and order backlog. The order intake has already passed clearly passed the EUR 1 billion and ended up at EUR 1.185 billion compared to EUR 936.7 billion prior year, which shows an increase of 26.6%. And then book-to-bill in comparison to a high growth in sales still clear above 1.21 compared to 1.25. So it's a strong book-to-bill ratio, and all divisions contributed to this growth, in particular, the APS, the Advanced Photonic Solutions obviously, also very big time supported by the acquisitions of Berliner Glas Medical, Pharma Berliner Glas Medical, and the SwissOptic. In the order backlog, I've personally never seen in the last 8 years such a high number at the year-end with EUR 733.7 million. It's an increase of 35%. And our intention is to convert throughout the year 2023, 83.4%, which is a similar ratio compared to prior year, where it has a little bit more 85.9% to revenue. And also here in the order backlog, all divisions had a substantial higher order backlog than at the year-end 2021. Having said this, please follow me to the revenue development, including the quarterly development, and you see that we have significantly grown our revenue by 30.6% to -- close to EUR 1 billion. I would be happy if we could have shown EUR 1 billion. I must contest, but EUR 980.7 million is clear, a very strong development. Stefan mentioned it already. And taking into account the one -- the first-time consolidation impact of the just mentioned recent acquisitions around Berliner Glas and SwissOptic Group. We still show a double-digit growth, a strong organic growth of 10.9%. And obviously, this is something where we are all proud of, and thank you so much to our teams who made this happen. And some of you have already mentioned that it was again year-end really with strong efforts from all our employees. Revenue of Smart Mobility Solutions division exceeded a little bit the prior year figure of the non-photonic portfolio companies ended up a little bit lower than prior year, but with huge increase in order intake. Yes. So meaning that they should come back a little bit stronger in this year. Then let us go to Page #8, please. Here you see the regional split of our revenue. Double-digit revenue increase is throughout the region there. You see fixed and forward in every region. The main step forward in Germany organically and throughout the acquisitions driven by this, but you see it in all regions. The foreign revenue part is now around 77% compared to 81% prior year. So still a very much outside of Germany, so to speak. Top 3 customers accounted for 25.8%. Always a very interesting information for all of you compared to 21.4% meaning, yes, all our top 3 customers had also good and a strong year, and we participated. This is a key message here from this slide. If you then come to Page #9, please. Here, you see our earnings figures. Our EBITDA earnings before interest, taxes, depreciation and amortization. And on the right side, the EBIT. And it's very important to take you with me on a little journey to explain a little bit more in deepness the figures there. You see the prior year, the reported figure has been in the EBITDA figure has been EUR 155.7 million, which equals to a 20.7 EBITDA percentage point EBITDA margin. But please remember, together with me, there has been a huge one-off impact coming from the acquisitions of TRIOPTICS and INTEROB. The earn-out impact we have shown you prior year, this has been EUR 30.5 million. And if you see the figures there of the quarter development in 2021, we have shown you for your information, the quarterly development of this earnout. If you add these figures, you end up at EUR 30.5 million. If you take this out, like-for-like operational underlying base for the EBITDA of 2021, you end up at EUR 125.2 million, which equals to 16.7% EBITDA margin. And now the blend year 2022, it ended up at EUR 184 million, which is then an increase, so to speak, like-for-like of 47% instead of 18.2%, a much bigger step forward than the revenue increase, and this is a margin, and Stefan mentioned it already at the beginning 18.8%. So we made a huge step forward. And yes, the product mix help and the economics of scale helps, and the new acquired companies performed very well as well. So a strong EBITDA development. And then you see the EBIT figure, which seems to look a little bit disappointing at the first few because it's a decrease of 5.8% or from EUR 108.1 million as reported in 2021 to EUR 101.9 million in the year 2022. But remember, the onetime effect of EUR 30.5 million, taking them into account, it's an increase from 31.3% from EUR 77.6 million to EUR 101.9 million, while percentage, it's an improvement of the EBITDA margin from 10.3% to now 10.4%. And if you take these into account that we had a special one-off in the year 2022, we took out of the balance sheet in preparation for a strong and a good year 2023. We took out every risk related to our business in non-photonic portfolio companies in Spain in the company INTEROB, it had an impact between EBITDA and EBIT of EUR 13.9 million. If you take this impairment out of the calculation because it will not happen again in 2023, it's a like-for-like comparison, then the EBIT would have been -- the EBIT margin would have been at 11.8%. So a strong increase then from 10.3% to 11.8%. It's a little bit longer explanation, but I think it's necessary at this point in time when we discussed it with you. It's very important to realize that it's a noncash effect impairment of EUR 13.9 million, which we realized in connection with the reassessment of the business perspectives of INTEROB in Spain. This is the key message concerning the EBIT development of the prior year. If you then follow me to the statement of income, the P&L in a little bit more detailed information on Page 10. You see the P&L the gross margin, which we all in the Board and in our team are quite happy that 35.3% gross margin is even better than a little bit above prior year of 34.2%. You remember in Q1 and even in Q2, we have been below because of the price pressure, the price increase of suppliers, and we have been happy product mix-wise, obviously, of course, but also with increase of prices here and there to have realized counter measurements and to have a stable and even a little bit better gross margin development, which we are quite happy about. The functional costs increased to EUR 227.7 million. Obviously, there's also one timeline inclusive in the sense of first consolidation impact of the new acquisitions included. But the expense -- the administrative expense ratio in the functional cost is has been coming down from 7.1% to 6.7%. It's very important information for us. Selling expenses, 11% and R&D expenses, 5.6%, if you take the R&D output ratio into account, which shows you also the customer-related R&D expenses then it is 8.9%, yes. And this is an increase compared to the 8.5% of prior year. A very important information also related to the tax rate for you because it's direct paying into the earnings per share ratio. The tax rate increased to 33.5%. Prior year has been relatively low with 9.4%. But in the meantime, we have activated all carryforwards losses in the group, especially in Germany. So we now have no positive impact on the deferred tax side. It's now the opposite of the case. We are showing deferred tax expenses by utilization of this tax plus carryforward. We have an increase in earnings and nontax effective losses abroad, yes. And please remember, in the prior year, the EUR 30.5 million extraordinary income has not been tax relevant. So had a very dilutive impact on the tax rate, yes. And the cash effective tax rate in comparison to prior year is now 20.8% compared to 13.6%. All in all, you can take with you for the future, we are thinking that we are back to normal as a German headquarters company as our CEO always stated, it's right in this direction, we will be around 28%, 29% in the future. This is a normal tax rate for -- in Germany headquartered company because we are now at this stage. The -- having said this, it's clear that the earnings after taxes is influenced by this development in the EBIT, I explained and in the tax rate. All in all, it leads to an earnings per share of EUR 0.96. If you compare it to the prior year and take into account the one-off impact, it would not be EUR 1.43, it would be EUR 0.90. And so it's also an increase in a like-for-like comparison there. And by the way, we intend to give back to the shareholders EUR 0.30, it's around 30% of these earnings per share. It's not a bad, it's an increase of 20%. So we feel strong enough to share the good year 2022 also with our shareholders. On the next page, on the Page 11, you see, the cash flow statement, you see that we have a strong increase in the cash flow from operating activities before income tax. It increased by 45.4%. And as Stefan already mentioned, as we have spent a lot in investments, our cash flow from operating investment activities also increased very much. So this is -- in our case, the free cash flow is a combination of both of these cash flows, but free cash flow before interest and taxes still shows a positive development of 26.8%, increase to EUR 79.6 million. And if you take the continuing operations into account, Stefan mentioned already the EUR 82.7 million, it's already nearly a doubling. It's 91% -- 91.4% better. And yes, the year 2020, one should not be really reference in this, but it's an increase of more than 90%. The cash conversation rate is at 44.9% for the last year, still something where we all intend to improve ourselves. It's clearly better than the year 2021, but 27.7% is not the benchmark we are aiming for, but all in all, we are quite happy because yes, we invested also in inventory to make the ramp-up happening and a good start in Q1 2023. Very important, Stefan mentioned it, the net debt came down to EUR 479 million at the year-end prior year-end, it has been about EUR 541.4 million. So we delivered, we promised it to you. Very important is also the improvement in the equity ratio to -- from 44.4% to 50.4%. But the main -- the key takeaway is the leverage, which is now at 2.6%. I promise, we promised to you throughout the year net debt to EBITDA. We did it, we are clearly in the investment grade range back to the investment grade range, clearly below 3%. And this is also a strong improvement, taking all this information into account. Having said this, I'm happy to hand back to Stefan, who will explain to you the fiscal year 2020 year from a divisional point of view.

Yes. Thank you, Hans-Dieter, thanks for those clear explanations. Let me just underscore one more time the net debt ratio because I mean, that's something that we indeed did promise to the shareholders and investors, we will be below 3. We're clearly between 2 and 3 now. And I think that's area where we're comfortable with, let's say. Okay, let's go into the individual businesses to some extent, at least. And as always, solves the APS divisional core optics business. Obviously, as always said throughout the year, very, very strong business environment, very strong development. Order intake grew one more time to really very high and record high EUR 892 million included, of course, our consolidation effect that it has to be said, nevertheless, it's good development. Because let's not forget the order intake at APS in 2021 has already been very, very strong, which helped us to convert so many orders into sales in 2022. So good development on the order side. There I say even better development on the sales side. The growth in sales organic without the consolidation effects is at EUR 17.4 million to now around EUR 30 million in sales. That's very strong. It's very, very good. Nevertheless, if you have a look at the book-to-bill ratio, then it becomes very clear that at APS, we have very high order backlog, which we carry into 2023. As a result of, again, both the mix as well as the scale effects, but predominantly mix effects, margin has been developed very good, the profitability or EBITDA of APS is now at EUR 170 million. You do see these also this year. When it comes to 2021, just to remind all of you that we had these extraordinary effects in 2021 in relation to the variable purchase price components. Actually 2 M&A deals, but predominantly the TRIOPTICS M&A deal. So keep that in mind, if you would deduct that from the 2021, then the margin improvement will be even more remarkable than APS. So overall, APS very strong development again in 2022. We have seen very good order intake in 2021 and in 2022. And in 2022, we could add significant sales growth into the picture here. If you follow me on Page #14, Smart Mobility Solutions. Here, we are actually particularly proud of the fact that SMS could catch up in the second half. You remember, we always said order intake is very strong. And indeed, for this type of -- sort of relatively steady business, 8% order intake versus a good number. But we had significant challenges in Q1 and to some extent, Q2 with certain supply chain problems that we had in SMS. And at the half year, you remember that we promised we will catch up in the second half. And not only did we catch up, we managed to grow also the sales year-over-year by almost 4%. It did come to some extent at least, at the expense of a bit of margin. The EBITDA figure is almost the same. In other words, the EUR 4 million additional sales didn't contribute as much to the bottom line, there is some erosion due to inflation and quite frankly, also to the efforts that we put into pushing the sales and helping our customers, which we're waiting way too long for their products. But as I said, we're actually very proud of our SMS business or our Smart Mobility business for its ability to catch up the challenges from H1, in H2, in particular, Q4 has been really very strong. Let's go to the NPC companies. And I think that -- well, I look very closely into that division at the moment or into this business group, I should say or group of companies, I'd rather say. What you do see is that order intake picked up quite a bit. Order intake and that obvious all organic picked up by 15.4%, which makes us actually fairly comfortable when it comes to 2023. And it picked up both in Prodomax and in HOMMEL ETAMIC. So both companies actually had a good development. INTEROB, obviously, is not as good, but I think we've talked about INTEROB quite a bit in the past. And INTEROB is not necessarily a shining star of the portfolio. But again, Hommel and Prodomax, from an order intake perspective, actually good 2022. Revenues, on the other hand, came down, and that's obviously to do with the challenges that we all see, and we have seen throughout the year, particularly in the first half in terms of supply chains, in terms of not being able to install machines at customer sites and all this challenges that everyone in the industry talks about. Nevertheless, it does mean that the book-to-bill ratio is at 1.24, which again, is actually a good development and gives us some confidence into 2023. Profitability is or has declined in 2022. That is, of course, an effect of the missing volume. There's nothing else to say other than the volume effect, and EBIT itself, which is obviously not in bar chart here, but the EBIT is negatively impacted by the impairment of INTEROB. Let me just again one more time point out that was this, together with the already communicated settlement that we've made in relationship to the project near Berlin. INTEROB is basically flashed through both the P&L here entirely. So don't expect any further from INTEROB action. Okay. With that said, let's go to Page #16. Page 16 is a new one in this [indiscernible] card here, in this deck, we put for the first time actually a sort of an overview of what we do in terms of sustainability. And I don't want to read all of the KPIs to you. Just wanted to point out that we tried to sort of have a spectrum of actions. We are very particular when it goes to gender equality. That's something we really push quite a lot, gender equality and more folks with non-German passports. Diversity is the name of the game here, and that's a very important factor for us. We push for more diversity in our businesses. In the recent year in 2022, in particular, we also push for engagements or quite a lot, in other words, for how many of our employees would recommend us to be a good employer. You might think well, why is that so important? Well, you all know that we have a very high-skilled labor force. And our biggest sort of obstacle for more growth is actually to find the right people. Therefore, it's important that our people, they look into our business and how we behave and how we have act, and then our folks are saying, yes, we like working for Jenoptik. That's very, very important for us because if you can retain talent, we don't have to find it on a very tense labor market. So engagement score for us are important. And given all the yes, [indiscernible] fall sales all have seen in 2022 and experience, an engagement score of 76%. In other words, 76% of all our global workforce would recommend to others to come to Jenoptik. I think that's a very good result. Again, I don't intend to go through all of the KPIs here. We measure new product introductions and more in particular, the revenue share of products introduced to the market in the last 3 years. We measure green electricity. We measure CO2 reduction in all of these good and very important things. And as a result of all of that, you can see all our sustainability ratings. You can see that MSCI, for example, rates us AA, which is, I think, very good. And of course, we'd love to be AAA, but at the very moment, the AA is not too bad. We all need further targets, obviously. EcoVadis granted us with a Silver Status, Sustainalytics called us a low-risk company. So I think from an ESG perspective, we came miles actually, I mean we made really mile reaching that in that respect. Okay. With that said, let's stop looking into the rearview mirror and let's look sort of into what's coming. On Page #18, you do see our outlook for '23. And yes, we've communicated that already. Earlier communications, so nothing new here. But let's reiterate what we said a couple of weeks back. We expect sales to be between EUR 1.05 billion and EUR 1.1 billion. That should be 1 billion, million here depending on what language we use, but between this is our no. Yes, okay, sorry. So I got mixed up. So between EUR 1.05 billion and EUR 1.1 billion in the -- during fiscal year 2023. We expect further margin expansion. We expect EBITDA margin to be between 19.0% and 19.5% of sales. And we, again, do want to point out that we are yes, investing into our future. Although we're not guiding capital expenditures as such, we wanted to sort of in the spirit of full transparency, in terms of full disclosure do mention to you that we will have to spend more in this year than in prior year when it comes to capital in order to fuel the growth that we want to achieve here for our company. Obviously, I mean, you all know the disclaimer is out of the space in particular good order intake that we have, a higher order backlog, good business environment. And we do put sort of the disclaimer around it that certain geopolitical risks shall not diverse further and the conflict and the war in the Ukraine and other geopolitical and environmental factors will not worsen any further. Okay. With that said, thank you very much for your attention. We'll be with you and happy to receive all of your questions. Before we go there, though, let me one more time thank Hans-Dieter. It's -- as your last earnings call together with me here, give an update.

Yes, sir.

Thank you very much. It's been a pleasure. It's been an honor. We're not done yet. We have to go through a Q&A session, and we have a couple of -- well, actually, a couple of hours, so to say, together here at the company. Thank you very much for the last 6 years. It's been, let's just say, an honor and a pressure. And I'm looking forward also to working with Prisca on these numbers going forward and to have Prisca on my side here, presenting figures to the capital markets. Now Leslie as well [indiscernible] right too, is with the company since a long time. So what is new person here in the game, but Prisca is new, so I'm looking forward to working so.

Thanks, [ Stefan ]. With that said, let's go to Q&A.

[Operator Instructions] And the first questioner is Craig Abbott of Kepler Cheuvreux.

And yes, also from my side, Mr. Schumacher, yes, thank you very much for all your support over the years and good luck. The three questions from my side, please. First of all, I'm just trying to clarify a little bit exactly what you mean with the CapEx definition. If I look at the EUR 106 million, you show on the slide versus the numbers for the investments in tangible and intangible assets we see in the cash flow statement, that seems to be a difference there. So if you could give me a little bit more concrete with what, how that breaks out, and what kind of magnitude you're looking for this year? That's the first question. The second question is on TRIOPTICS. I just wondered, if you could give us some color there on how the recent book-to-bill has been developing and what you expect going forward? And my third and final question is just a general update on the M&A pipeline?

Thanks for your questions. I'll take the last two, and then I'll hand over to Hans-Dieter to explain the CapEx definition and the numbers there. On TRIOPTICS, I mean we're discussing that throughout the whole last 6 months, I'd say that we are monitoring TRIOPTICS pretty carefully in terms of order intake. I guess you referenced to the mobile phone...

Yes. Yes.

and the discussions, yes. So I think the best explanation or the best way of answering the question is nothing particularly new from the last couple of conversations we had. Monitoring it very closely. TRIOPTICS had a good sales result in 2022, completely as expected. So fully in budget and plan. So we're happy on the sales side. Still okay on the order intake side, but monitoring it very carefully. I think that's the best way of saying it. So, yes, and that is essentially what we said in the last few earnings calls and conversations we have. So nobody is falling off a cliff here. We're still good. We are in very close contacts and working very closely with our customers. In particular for the new applications, we've talked about AR/VR in the past a lot and certain other applications for TRIOPTICS, not exactly at the inflection point yet, but we're fairly certain it will come. And in the meantime, let's say, working hard and pulling in the orders we need to make sure that the business stays in plan, which it does at the moment. I hope that's what adds enough color on that. In terms of M&A, we have communicated in sort of the middle of last year that we're somewhat changing or switching gears. We have communicated at the beginning of last year that we expect further large M&A deals. And those of you who are with us for a bit longer, you know that if we say that we probably did have something in particular in mind already at the time, where we, frankly, pulled up, not because -- well, actually really because we wanted to be more careful. So it's not as if we slammed the brakes last year, but we certainly took the foot off the gas panel. We wanted to be more careful. We wanted to deleverage the company, and we've stressed at a number of times throughout the year and in this call already today. The more focus has been in the last 6, 8, 9 months, actually on deleveraging the company. And as a result of that, we did follow-up on some M&A projects, and we sort of looked into a couple of things, but we want to be and we will continue to be very prudent, in particular, at the moment. There are certain M&A deals, in particular, in our area where we believe that, yes, well, I shouldn't need to comment on that. So I think that we will be very prudent and disciplined. That's the approach that we choose at the moment, very prudent, very disciplined, and we will -- we have been very careful lately, and we will continue to be very careful. We do not have any M&A deal in the pipeline that's currently in any stage that we could mention. And I think that for those of you who are sort of following the market very closely, I think you can translate that. And in terms of capital expenditure, I hand over to Hans-Dieter.

Yes, sir. Craig, thank you for the question. The main difference between the cash flow impact and the overall investment sum is the IFRS 16 topic. We have globally a lot of sites where we are in a rental position, and we have renewed throughout the year, the new contract. And if it's running for 5 or 10 years, you have to capitalize the whole period in, one showed in the well activated and showed in the balance sheet. But in the P&L and cash out and cash flow relevant is only the rental of the year, the rental fee of the year. So this is roughly around about an amount of EUR 20 million in the last year. So then you are already at close to EUR 100 million. And the rest is a timing issue between activating and pay the supplier for certain investments. So we have always the gap between the cash flow relevant figure of the investment cash flow, so to speak, and the total sum of our investments. I hope this helps.

Yes. It does very much. But if I may follow-up, just to give us a little bit of an indication of how much you mean by markedly higher for the underlying for modeling?

Markedly higher means, it will show in the numbers. How can we answer that question?

Craig, it's driven by the bigger portion of this now, the high-tech have been raised and is doing big growth progress. And the main investment parts are in this in the next year. Yes. So in total, are talking about in the mean I'm clearly above EUR 70 million, yes, so to speak. For the reasons I'm talking about the single investment in place, and it has been split over some years. The total sum has been split over the year 2022 until end of 2024, because hopefully for Ralf and his team, we will have a go-live situation, so to speak, at the beginning of 2025. So the next years are heavily influenced by this big investment, single investment. And no -- yes, and we have, for example, other investments in machinery and equipment to increase our capacity. You have seen that we have -- and you have heard it. And if you have listened to us, here and there already work at or near the capacity board, so to speak. And therefore, we are investing a lot in increasing our capacity as well, but you should not think in the dimension of EUR 200 million or something like this. So it's not doubling. Yes. It's, maybe -- it's in between, so to speak.

Yes, I think that's, because I hear -- I understand [indiscernible] comment. It's a bit the phrase might be a bit misleading. So markedly higher means a double-digit number more than what we spent in 2022. So it's not as if we're aiming for EUR 200 million here and all of a that's sort of somewhere between the 100 and 200. It's a good case. Yes, actually an important question because I was maybe that was a bit misleading actually.

Yes.

The next question is Mr. Adrian Pehl of Stifel.

Yes. First of all, starting with the 2025 target picture that you heard no mentioning of that in your presentation as far notice directly. There was already a question on M&A, obviously, which is linked to that. But I recall, given a quite optimistic interview last month, and it sounded to me like that, even without M&A, you're going to go for the financial targets that were outlined in the original plan. So any comments on that? And do we see a reworking of that 2025 target picture anytime soon? And then -- go ahead maybe take it one by one.

Yes. So the answer is yes. We believe that the 2025 targets, in terms of top line, we, give or take, can actually also achieve organically. We don't need further acquisitions for what we said on the top line. And just to remind everybody, we aim for around EUR 1.2 million, EUR 1 billion and EUR 1.2 billion in sales by 2025. And we should get there to that around 1.2 number by -- organic growth only. You do also -- or you did reference the interview I gave and the fact that I mentioned our margin guidance, I mean many people are saying, come on, if you're -- if you'd guide for between 19% and 19.5% on EUR 1.05 billion to EUR 1.1 billion this year. How can you guide for 20 -- around 20 in 2025. And I think that's a good point, in particular, if we aim to achieve that organically. Keep in mind that in our original 2025 in certain costs and synergies that we have to create from anticipated M&A deals. But if we do it mainly organically, then it's a fair assumption that the -- around 20% was maybe a bit sort of on the low side. So I did point out that we, in summer and throughout the fiscal year, we'll start off on our models from the time, and we anticipate to share with you the outcome of that exercise in the sort of a Capital Markets Day, which we're probably going to have in Q3, I would say, Q4, Q3. Q3 or Q4. Let's say, H2, that's for sure. So we'll set up at Capital Markets Day, and then we share with you our latest assumptions and models, and we'll see where we end up with at that point in time.

All right. Very good then. One question on M&A again you say, you have been very new ARPU looking at, let's say, where you included maybe be at -- in the market. So are the prices for targets? Are they still high at the moment? So in spite of rising interest rates that has not come off? Or is it that you just want to give a certain level of net debt to EBITDA as CapEx is going up.

I would say it varies really. I mean, in some deals that we see or some processes, we see apparently, if prices are -- anticipated prices are still very high. And given the high interest rates that in the marketplace, one has to wonder, we have this -- will continue to have a disciplined approach here. Other markets, it might be a bit different by now, but particularly in the optics business, we've made 2 very important acquisitions. We have to digest them. We have to make sure that we integrate them in a good and successful manner. We are going to focus on that. If there are strategically important targets, we can execute, but we will always be diligent and disciplined in that approach. Well, I think that's a very clear statement, I guess. And we also said that we want to add to our other businesses, in particular, to the SMS business. We'll have to see what's possible there. But also here, I think at this moment, the appetite for very large M&A transactions, acquisitions is fairly low on our end, period.

Got it. And two final ones, one very quick. Actually, on the order backlog that you have now, how much of that is actually for 2023 for the group and for the APS segment, please? And then lastly, on the business, I mean, obviously, you all seen that ASML is very strong and has put out a strong guide early this year. I was just wondering in the same year is obviously, your normalized SMS price base is the enjoying less the same kind of strong trends. Or is there a different to your account here?

The book-to-sales ratio, so the amount of backlog to be converted into sales this year for group is, I think it's 83% somewhere in the presentation and [indiscernible]. I think it's 83%. 83% of the backlog is to be converted is for shipment is book-to-ship backlog for this year. We do not specify whether it's for which division or businesses, this is something we don't specify and turn guide on. In terms of the semi business, I'd say, it is really across the board. I mean, the question is what drives the semi manufacturing market? I think it's very important. We're not selling to semi companies. I mean, we're obviously not producing chips, but we're also not selling to chip manufacturers. We sell to machine builders, and they have this special situation and despite the fact that the semi market is, yes. Maybe in -- you all know it better than I do, but the semi market is not necessarily in the best shape at the moment, but the machine builders' market is very strong. Why is that? Well, driven by all those home showing effects that we have seen and discussed in the last couple of quarters, the effect of the U.S. Chip and Science Act, the effect of the European Chip Act and that the fact that we're all building 2 factories around the globe here in Europe and in America. That brings us special effect. And this is not just for ASML, but also for our other customers.

Next, we have Mr. Malte Schaumann of Warburg Research.

Yes. Then for the non-photonic business, it was pretty positive to see, especially the order intake in the fourth quarter. How are the current trends developing into early '23? What that's kind of temporary lift? Or do you see kind of a sustained higher demand levels in these areas?

I'd say obviously, we cannot guide on Q1 yet. So we will be a bit careful here because we have few days to go to get some orders in. But I think in -- what we do see in the NPC business, more and more is dependent on large projects. something we have not seen that much in the past, but with Prodomax becoming actually ever bigger. So the share of Prodomax and NPC is enlarged. And Prodomax is a project business. So therefore, projects can fall to one side or the other of a period change. So let's give us the time to see how Q1 develops. But I wouldn't say that we expect a huge order intake increase in NPC Q1 this year versus Q1 2020. I'll be so careful because I really don't know because Prodomax, it can come this month, or it can come next. And therefore, I'm sort of hesitating to give you a clear answer. But at this moment, if you put a gun to my hat, then I would not sign into a model and order intake was for NPC in 2023.

Okay. Generally, did you see an elevated level of projects in the pipeline? Or do you see them be more successful winning huge projects?

Yes, that's an easier question to answer because it is specific about the quarter-over-quarter effects that we see. Overall, I would say Prodomax continues to be very strong. I think that's a very positive news here. Prodomax is strong. We do see also a good pipeline for Hommel actually, which is good. So no, I say generally from -- if I look into the pipeline, and it looks stronger than in the past.

Okay. Good. Then on profitability in that area, NPC have been we are quite okay at least at EBITDA level in the fourth quarter of the year, we had all these cost burdens from INTEROB et cetera prior quarters. So would you say, and the run rate we saw in the fourth quarter, this is kind of the profitability one should expect going forward? Or was that kind of elevated your product mix or so ever?

Nothing specific. No, I'd say yes.

Probably, yes.

Yes. Probably, yes. Yes, there is nothing specific in the fourth quarter, I would say.

Besides the INTEROB, we took all the risk.

For Hommel and Prodomax was not.

Prodomax is doing will in profitability as well. Yes. That's improving.

So yes. The answer is yes.

Yes. okay. Good. And then let me follow on with the Berliner Glas, SwissOptic part of the business. I mean, last year, I mean, it developed pretty strongly higher than initially expected sales and also orders seeing supply chains becoming more normal or reverting back to normalization, normal levels. Is there any negative impact? Any headwinds from that development? Or you can see their business, their pipeline still being pretty strong also for the coming quarters?

No, no. I don't have any sign of slowing down.

We are still strong.

We're still strong.

But the supply chain topic is not done yet.

It's not as bad anymore. No, I would say for Berliner Glas -- Jenoptik Medical and for SwissOptic, we don't see any headwinds at the moment. Still going strong.

Okay. Good. You already touched upon TRIOPTICS. I mean any other areas within the Advanced Photonics business that are worth mentioning positively or negatively current order trends, demand trends.

I mean we haven't talked in detail about the medical business or iStent Medical business, so we call it the biophotonics business. Berliner Glas Medical obviously or Jenoptik Medical, the Dental business is part of it, which is strong. No, I think overall, it's, we're good. I think that's probably the best way of saying it. We're okay. We're good.

Okay. Good to hear. Then also on CapEx. I mean, it was mid of last year when you guys guided for increased CapEx due to the last project this year, next year. Does the elevated CapEx guidance for this year also trends into next year? Or is it kind of impacted by pulling a tax that you pulled forward certain investment projects, and then it comes down next year again? Or how should we think about that?

Yes. I think I would think that 2023 is probably the peak. I don't think that it comes down very quickly. But I think 2023 will probably be the peak of what we need to invest. And -- yes, I think that's -- yes, we have to bring it down. So it. But it's a bit -- don't -- please don't dial it into or don't take it as a guidance for 2024 at this moment. That would be very I think, I mean, overall, I think it's fair to say that we have to bring it down somewhat. So 2023, I'd say, will be the peak.

Yes. Okay. Good. Understood. And a quick one on PPA. I think there was around EUR 27 million in the '22. Any guidance you can give for '23?

Yes, I can give the guidance. It should be around EUR 21 million and no extra impact from INTEROB. So the EUR 13.9 million are done and the regular in PPA taking into account no further acquisition, should come down in the region of EUR 21 million in this year, current year.

Next question comes from Mr. Martin Jungfleisch of BNP Paribas.

Just one quick question on the CapEx guide to clarify. So if you take the EUR 106 million from last year to strip out the EUR 20 million from IFRS 16, you get to EUR 86 million. And on the base of that, do you expect a significant increase for this year, which will also show in cash flow? Is that the right way to think about it? Or would you actually see more than EUR 100 million CapEx also in cash this year? Or maybe if we could ask the question the other way around would this increase in CapEx this year still imply an increase in free cash flow this year? Or is that not the case?

I mean, we don't give particular guidance on cash flow, but again, we will see more investments in 2023. I think we gave you an indication, and I'd say we leave it there.

So cash flow not improving?

We'll always work hard to improve and present more cash flow.

The cash flow will improve operational wise because EBITDA will increase significantly, order mix is good. The customers in semi updating us. By the way, it is not a problem to lose trade receivables, business stood out trade receivables in the group. So the operational cash flow will improve. And then, yes, a little bit more cash out from investments. And in this year, that's for sure. It's going parallel up if the investment, total investment will increase above prior year. Also, the cash flow impact will increase maybe in the same relationship -- yes, percentagewise. But all in all, the detail so should be very good. It should be okay.

Okay. And maybe a follow-up on the capacities in semi, before you ramp the new fab increase in the next 2 years, do you see any capacity constraints to deliver high single or low double-digit growth in the future? Anything you can do free your capacity?

Yes. I mean, capacity is something we talk about since quite a while. So the factory Dresden will not have as much in '23 and '24. But we obviously become more effective and more productive in the buildings we have, utilizing the machines we have that are -- by the way, the biggest capacity sort of bottleneck at the moment is more in our sort of classical optics, not necessarily in the micro-optics, we produce in [indiscernible]. So we will utilize the capacities we have much better. And we currently try to bring low-end non-semi production to other parts of the world, the factories that we have. For example, in China, we have a factory in Wuhan, which, by the way, I just visited last week. And we have more capacity there and now that it's possible to go there, we can bring business, more business there. Now obviously, not semi business, but by bringing other non-semi business into, for example, the capacity in Wuhan, we can free up capacity here for those high-end semi business.

I have one more questioner is Mr. Peter Rothenaicher of Baader Bank.

Firstly, I would come to the nonportfolio -- non-photonic portfolio companies. You mentioned that the Hommel at solid development. Perhaps can you comment a little bit what is the future focus for Hommel? It was in the past a strong dependency from combustion engine machine, and where is the future of this company? Is the potential that we will not see losses at Hommel anymore?

It's a good question. At Hommel, we push maybe even harder than in the past, for new applications. And in a way, sometimes shocks are helpful to a business. I don't want to say that we were like sleeping at the steering wheel here, but I think we all have been too comfortable in selling to the German or existing car industry of products. Now it's a bit more need for finding new applications. Funny enough, turns out there are new applications. And in some product lines, we can already see that more than 50% of the business is non-combustion engine anymore. In some regions, we see that there's a product, for example called optics line or optics ready business. And other, we have sometimes even 70% non-combustion-related business already. So we are actually more and more successful in finding other applications for the product for Hommel, which is a good sign. That is indeed what fuels their order intake growth at the moment. Now the challenge is to convert it all into sales. That's what we need to do and need to work on. But I would say, maybe there is a future for Hommel outside of the combustion engine and more optical measurements other things.

And in terms of profitability on an EBIT level, is there a chance to be at least break even or positive in '23?

Yes, positive EBITDA.

EBITDA. Okay. And for EBIT?

We don't guide on EBIT.

Then also regarding your guidance for non-photonic portfolio companies. So you have been mid-single-digit percentage sales growth, strong margin improvement. If I look at the order intake development, mid-single-digit percentage sales growth looks a little bit weak. What is the reason for this? Maybe because you are so conservative all the time.

No, I think, I mean, to be -- giving this here. I mean -- again, we see it currently. We see that we had last year, and we continued to have actually some challenges to convert orders into sales. The Hommel business, in particular, requires electronic components, certain PCB boards and other things, which are still difficult to get. And to some extent, we also -- I know that one a bit funny now, but we have been a bit surprised actually by the success and order intake in 2022. It's great to see that, but we didn't anticipate it. And therefore, we didn't have a lot of buffer stocks in the system, in particular for those critical components. And therefore, we are a bit careful in pushing up expectations too much, in particular for the Hommel business. Prodomax is different. Prodomax, we anticipated good growth, and we do see good growth and that will happen. But on Hommel, the order intake was maybe even stronger than we anticipated. And let's see how much we can convert into sales in the coming quarters.

And you mentioned your intention to do both non-photonics companies' business, at least in the mid- to longer-term. Would you go so far to say, if we decide this, we want to dispose everything? Or could it be possible only to dispose, let's say, Prodomax and keep Hommel or vice versa or something like that?

I think, yes, that would be possible. I think to, quite frankly, sell both companies in one go would be -- or to aim for that would be unrealistic anyway. They are very different companies and very different business models and actually very different parts of the automotive marketplace. Prodomax is 100% auto. Hommel is not anymore. Hommel is more and more transforms into more non-automotive, non-combustion engine parts, Prodomax is not combustion engine anyways. So I don't see it linked to other. We intentionally called it a group of companies. They are both operating independently, independently for the group and independently from each other. And if somebody intends to give us a good sum of money for 1 of the 2, we sell, we could sell them. But we are not under pressure. So if we have in our group, one or both companies going forward in the future, so be it. Again, Prodomax is a bit further away from our core business. But Prodomax is not optical focus. There is no optics there. Hommel different. There is, as I say, ever more actually applications in the uptick that, yes, that we see some links here, some maybe some synergies. We'll have to see. But to answer the question in a very clear manner, no, they are not related to each other. They operate completely independently from each other and from the group that can be sold separately if we desire to do so.

Okay. And last question on pricing for your core business advanced photonics, in particular the semiconductor business? Are you still able here to pass on higher costs and perhaps to increase support or even increase your margins due to good pricing?

We do see inflation coming down a bit. So the pressure is not as high as it has been in the beginning of the year 2022, when I was saying, pushing it on to customers is not a problem. That's not what we discussed with the customers. Still the case. There is still we don't have that much debate with our customers. But let me also say that the -- it gets a bit more normal, I would say. It's not the craziness of, in particular, Q4 2021 and Q1 2022 when it came to demand in the semi industry, when it was like whatever, just give me a product, give me, give me, give me, that's not as much anymore. It comes back to a more normal perspective. So to come back to a question on price, we still have some leverage, but we don't have that much sort of need for it at the moment. I would say the margins in APIs are good, and we were caught to keep them where they are.

And at the end, Mr. Schumacher once again, all the best for your future. It was a great pleasure working with you over the recent 8 years. All the best.

Thank you, Peter. Thank you so much. Hope to see you. Take care.

At the moment, there are no further questions. [Operator Instructions] There seems to be no further questions in the queue.

Okay. Well, thank you very much to everyone. Thanks for being with us today. Again, we're proud of what we've achieved in 2022. Let's see at the new year has in stock for us. And final, thank you to being here and -- but we have another couple of hours together, so not got a follow-up right now. Thanks. Great. I am looking forward to seeing many of you in road shows over the next couple of days. Thanks. Bye-bye.

Thank you. Bye-bye.