Jenoptik AG (JEN) Earnings Call Transcript

Ladies and gentlemen, and welcome to the Jenoptik conference call regarding the results of the first half year 2026. The conference will be recorded. [Operator Instructions] Let me now turn the floor over to your host, Dr. Prisca Havranek.

Good morning, everyone, and welcome to our call on the results for the first half year 2026. As in the past, I will lead you through the presentation and then Andreas, our Head of Investor Relations, and I will be open to your questions. But before we go into detail here, I would like to hand over to our new CEO, Dominic Dorfner.

Thank you, Prisca, and good morning to everyone. I'm very pleased to introduce myself to our investors and analysts on the occasion of our first year results release now that I've been officially on board since August 1. I've already had the chance to meet many optic colleagues at several different sites and even different continents over the past weeks and have gained some first good impressions of Jenoptik. What I saw during the first interactions impressed me. Firstly, I saw great people, highly dedicated to their business as well as highly motivated. So for me, that represents a strong basis. Secondly, I saw strong technologies. Jenoptik's competencies, for example, in optics are just impressive. And so is its ability to turn science or physics into solutions that truly add value to our customers. And finally, I'm personally convinced that there is a great relevance of photonics for many industries we serve, and its importance may even accelerate in the future, or maybe in more simple terms, I'm convinced that photonics is an attractive industry with a lot of growth potential. So for me, as a physicist joining Jenoptik is a dream. For me as a manager, it means potential and ambition. So what ultimately drives me is finding out what is possible, shaping and building the courage and this is what we are striving towards together as the Jenoptik team. As I said earlier, I already had the chance meeting and talking to many people in the company and for the next few weeks, my focus will be on listening, getting to know even more people, customers and to understand all of our business in full. Finally, I'd like to comment on a matter that has been mentioned in the news in the recent weeks or even months. You might know that we are currently undergoing some sort of a strategy process update which is in full swing already, and we expect the Jenoptik Executive Board to be in a position to communicate key findings and outcomes towards the end of the year at the earliest. So please bear with me and my colleagues that we may not be able to answer questions relating to that matter in the very near future. Thanks to you and I'll now hand back to Prisca for the H1 results, and also later the Q&A session. Thank you.

Thank you, Dominic. Now let me start with an overview on Page 4 of our slide deck. First of all, we saw exceptionally strong order intake dynamics, particularly in our OEM businesses to continue also in the second quarter, overall, exceeding our expectations. The ramp-up in the semi industry continues to be in full swing as far as we see it, but also order intake in our biophotonics business unit was substantially up compared to last year for reasons I will address a little later in this call. I am pleased to report that revenues for the first half year was slightly up year-on-year for the first time in a while driven by our semi business and SMS. We are also pleased to report a strong improvement in our profitability in terms of EBITDA margin, noting, however, that profitability in the first half of 2025 represented a modest comp. Free cash flow improved slightly year-on-year, reflecting besides higher profits, greater working capital needs in conjunction with our strong order intake. Now looking forward, our near-term focus is clearly on our capacity expansion projects in our OEM businesses, as well as maximizing output in the light of the significantly increased order backlog. Furthermore, as Dominic has already mentioned, we are currently reviewing our businesses, including strategy, with outcomes expected towards the end of this year at the earlier. And finally, we continue to focus on, and address our commercial opportunities besides semi, for example, in optical data communications, defense applications as well as our SMS business in the U.S. Regarding guidance, given what I've just been stating before, we now expect to reach the upper half of the initial guided revenue range and EBITDA margin range. Now moving on to Page 5. As I've just mentioned, we saw particularly strong demand in semi and advanced manufacturing as well as in biophotonics continue in the second quarter, driving order intake group level up by more than 50% year-on-year. Overall, exceeding our expectations. Now starting with semiconductor and advanced manufacturing, as you know, by far, our biggest business unit. Order intake was driven by both our lithography business as well as continued strong customer activity in our semi inspection business. And given that we mentioned in our last call that Q1 benefited from a large annual order, I think it's not a surprise that Q2 was a little below the order intake levels recorded in Q1. Turning to our biophotonics business. Order intake was again very strong also in the second quarter, therefore, H1 '26, where we report a 45% increase year-over-year. This performance was, to a certain extent, driven by very high demand for our portfolio related to the defense end market in the first half year. In addition, we also saw an overall positive order intake dynamics in the med tech and life science fields. Here, a lower momentum in the field of dentistry was more than compensated by a multiyear order in the low double-digit million range that we received in the med tech space. Similarly, also, as we discussed in the first quarter, we believe that there also may have been certain early order effects in conjunction with growing geopolitical uncertainties since the start of this year. Also, let me remind you that we continue to believe that quarterly volatility of order intake in this business unit will remain high going forward, partly because of a special pattern in the defense industry as well as a certain volatility that you usually see while running a concentrated key account business model. Now moving on to our solutions businesses. For both metrology and production solutions as well as smart mobility solutions, order intake develops broadly as we were expecting, with both business units reporting low double-digit order intake growth. So overall, as a consequence of these developments in demand, our H1 book-to-bill ratio for the group went up sharply to 1.4, and our order backlog grew substantially to around EUR 825 million. Please follow me now to Page 6 to cover our revenue development. So whereas Q1 revenues were still slightly down year-on-year, as you can see on the left side of this slide, we returned to growth in the second quarter. This leads to an overall modest 1% growth at the half year point. Excluding effects from currencies, especially relating to the euro-dollar exchange rate fluctuations, revenue growth would have been up by close to 3%. At a segment level, semi advanced manufacturing revenue was up by around 10% year-on-year, driven both by our lithography as well as our semi inspection business. Digital datacom was supportive, albeit on a lower level, given the relative size of this business compared to the other 2 businesses. Now let's look at biophotonics. Here in the last year, as you know, we benefited from a strong dental business. Given this base effect, the medtech business did not quite reach the prior year's levels as we were expecting. On the contrary, a strong development in defense, partially compensated for this. However, overall revenues were still down by almost 5% year-on-year. For Metrology and Production Solutions, revenue development primarily reflects the continued difficult market environment in the European automotive sector. Nonetheless, given the typical seasonality in the U.S., in the MPS business overall and considering the overall robust order intake in this business, we expect the second half of '26 to be better than the first half. Finally, revenue of our Smart Mobility Solutions business was up by almost 11%, driven by almost all regions. On the next page, Page 7, that is, we look at our profit performance. As you can see on the left side of this slide, the group's EBITDA reached around EUR 99 million, up by a little more than 25% compared to last year. This implies an improvement of our EBITDA margin by almost 400 bps, which is primarily driven by the following elements. Firstly, of course, we see the benefits of the overall lower cost base resulting from our cost reduction program executed last year. Secondly, we see our product mix improving, especially relating to the semi business. And finally, please remember, the first quarter of 2025 was influenced by onetime relocation costs relating to the move to our Dresden fab, which we didn't have in the first half of '26. On business unit level, based on the aspects mentioned before, our semi business recorded a very strong EBITDA margin of close to 32%. Despite a certain decline in revenues, as I've explained earlier, our biophotonics business continued to operate at a strong margin level of almost 22% in the first half. In the SMS business, we also saw a good move forward in terms of margins as top line growth was driving operational leverage, while in addition, R&D expenses were lower year-on-year. MPS remains slightly loss-making given its modest revenue development in the first half. And as I mentioned before, we believe the second half of the year performance may be better than what we have seen in the first 6 months. The other line, which includes our corporate center as well as Prodomax, we saw in about EUR 8 million negative swing in the EBITDA year-on-year. largely relating to certain corporate project costs as well as provisions related to share-based compensation, while Prodomax is no relevant factor here. Now looking at key aspects of our P&L on Page 8. Gross margin was considerably up year-on-year, which was primarily influenced by a general lower cost base as well as a higher contribution by our semi business, as I have already alluded before. On the functional expense side, we remain very disciplined. However, those expenses grew by 3.7% year-on-year as we had to recognize higher expenses for share-based long-term incentives, amongst other things. EBIT for the period under review, grew faster than EBITDA, given slightly lower depreciation and amortization. Therefore, EBIT was up by 56% year-on-year, while the respective margin jumped to 12.3% in the first half. Bottom line, our earnings per share reached EUR 0.69 versus EUR 0.42 in the prior year. Now turning to Page 9 and looking at cash flow and balance sheet data. Let me start with operating cash flow. The trend in the first half year is very much mirroring what we reported in the first quarter already, meaning that the strong order intake has led us to shift our priorities towards optimizing our ability to serve our customers. Hence, we've been taking on more working capital comfort to the end of last year, reducing -- resulting in a reduced operating cash flow. Adding on to what I just said, you see that our working capital ratio was up at the end of the first half. And I would like to note that given the ongoing semi ramp, we expect this ratio to trend to slightly above 2025 levels in the second half. Free cash flow, however, was slightly up year-on-year due to lower investing cash outflow. Please note that the first half of 2025 was still including considerable cash outflows relating to our new fab in Dresden. On the remaining financial parameters, we have not seen any major changes compared to the end of last year, meaning that overall financial situation has remained very, very robust. And finally, please follow me to Page 11 to cover our specific guidance for 2026. So eventhough order intake is not a guidance KPI for us, as you know, I would like to make a comment here. It is clear that we are very pleased with the dynamics that we have seen in the first 6 months of this year. However, I think it is fair to note that we received some orders supplies in the early that as they were originally expected to come later in this year. Therefore, we believe that the very strong order intake dynamics in the first 6 months may not necessarily continue in the upcoming 2 quarters. Now on basis of our performance year-to-date, we now expect our full year revenues to reach the upper half of our initial guidance range of single-digit revenue growth. That means we are now expecting revenue growth of between 5% and 9% for this year. The prime driver is our semi and advanced manufacturing business, where we now expect to develop better than we expected earlier this year. Also reflected in this updated guidance is the continuing weakness in our automotive-related businesses, which is very relevant for our MPS business unit. In line with our updated revenue guidance, we also expect our EBITDA margin to be in the upper half of the original guidance range of 19% to 21% on a full year basis. That is, we expect our EBITDA margin to come in at between 20% and 21% this year. We left our guidance on CapEx unchanged, meaning CapEx remains expected to be slightly below last year's level. Please be reminded, however, that, amongst other things, the main capacity expansion project at the moment relates to our classical optic sites in Jena, where we are working on expanding our high-precision premium production, which mainly relates to our semi-inspection business. And with that, I would like to thank you and hand back to our moderator to start the Q&A session.

[Operator Instructions] The first question is from Michael Kuhn from the Deutsche Bank.

Firstly, 2 on order intake. You mentioned a bigger, let's call it, onetime order in biophotonics and, let's say, early orders in semi, would there be anything in the semi space, which you would regard like a onetime bulk order? Or is it just early ordering just to get a bit of better idea here?

Thank you for your question, Michael. Yes, let me reiterate. We have received a large order in Q2 in the biophotonics space relating to our medtech business. The remarks regarding pull-forward orders is less relating to the semi space. It's actually more relating to the biophotonics space, in particular, both, I would say, in the defense as well as in the life science and medtech area.

Okay. So semi, is kind of the, let's call it, run rate that you would see for now?

I think what we have to keep in mind there is that we have had an exceptional annual order that we have already pointed out in Q1, as you remember. And while I do not see any particular move forward of orders, I think, let me remind you of what general dynamics we have also discussed in our Q1 call, meaning that in a semi ramp up, of course, it could also be that some customers are putting in orders that are maybe mainly there to secure capacity because, as we know, in a ramp-up phase that is a key criteria. But don't interpret this as a specific pull forward of orders in semi from the first -- from the second half into the first half. That remark was mainly meant for the biophotonics business.

Okay. That's very helpful. Then on orders, again, if I look at the 60% to 65% conversion of the backlog that you're targeting, that would leave, let's say, roughly EUR 100 million of orders still missing to get to the sales target. What visibility do you have by now and, let's say, in which segments you would still need to collect orders turning into sales quickly to deliver on targets?

Yes. Thank you for your question, Michael. Now I mean, with above EUR 800 million backlog,we have a very, very strong backlog to execute both for the first half, but then, of course, also into 2027, as you know, right? So I think to your question, the answer lies in the -- on the one hand, on the mix, on the other hand, also in the differences between our businesses in the solutions business and the OEM businesses. As you know, the solutions businesses tend to have shorter, I would say lead times for orders. So as we have pointed out, for example, in the MPS business. During the course of last year and that, to a large extent, may also be true for this year, that we can still get orders in that then convert into sales still this year, as it's a different cash cycle than we, for example, have in our optics business. And that explains obviously the gap that you may see from converting the backlog into revenue to the -- depends on where you set yourself in the guidance range.

Understood. Excellent. Then absolutely, it does. Last one on strategy and having listened to the introductory remarks. So strategic review taking place, no, let's say, findings to be announced before year-end, and you said earliest year-end. So that would make me think a CMD at some point over the course of next year. Is that the right way to think about it?

Yes. Let me cover that for Dominic for now. We have said that at the earliest at the end of this year. And obviously, at this point, we cannot specify this any further. We are very aware of the requirements of our -- the capital markets to get information, but of course, also please allow for us as the new executive team, to go to proper processes. So I can't give you a more specified answer than what we have already said in the call earlier.

The next question is from Maissa Keskes from ODDO BHF.

I will ask regarding Prodomax. So could you provide more colors on the business? It appears that the business saw some order intake in Q2 as well. Should we view this as an early sign that the situation is improving? Or it's still early to call a sustained positive trend?

Thank you for your question, Maissa. So I think it is a similar answer that I have given you in the Q1 call. And that is, it is encouraging. You're fully right that we see an uptick of orders also in Q2 after also an uptick of orders in Q1. Bear in mind that we have seen before that 4 to 6 quarters with very, very subdued order development. However, I wouldn't call this a trend yet. The geopolitical and economic situation for the end market in North America has not changed in any substance that I'm aware of. So I would -- while I'm encouraged by the trajectory we've seen in Q2, I think it's too early to call this a trend. And on our strategic intent, also preempting that question, nothing has changed on the strategic intent to divest this business over the course of time.

The next question is from Martin Jungfleisch from BNB Paribas.

Maybe to start just on demand in the semi space. If you can just talk about briefly how your discussions with your main lithography inspection customers have developed over the last few weeks? Are they signaling increasing demand going into '27? Are they asking for more capacity? Are they worried about not having enough supply? And then also, I guess, if you would say that visibility has extended into 2027? That's the first question.

Thank you, Martin, for your question. And I'll definitely try to give you a little bit more color around the dynamics of the demand in semi. Now I think maybe starting with the obvious, you've seen in this year that the lithography business has reported very strong orders. And of course, it's also a revenue driver also in the first half. And you know that we have gone through the supply chain, let's say, adjustments that we went through 2025, and we now expect to grow a little lithography business. So nothing changed there. If you ask me change in order dynamic or, let's say, demand between Q1 and Q2, I would say it's broadly the same dynamics that we've been seeing since early of the year. And on your question about visibility, I think we are in the semi business, keep that in mind, right? Things as you have seen, can change and I cannot give you any more flavor on to more or less visibility into the next coming quarters on the lithography business. Overall, of course, maybe let me finish with that. Overall, of course, we see this as a proof point that the semi ramp up is in full swing. I also mentioned that earlier in the call and we will support our customers and focusing the ability to deliver this.

Okay. No, that makes sense. And then I guess our customers increasingly worried about supply. I mean, you mentioned some capacity topics in your prepared remarks and can you maybe discuss also on capacities? How does it look like today in inspection and litho, both physically, the space but also on headcount?

Yes. So let me remind you, as I've also mentioned earlier in call, we have specified our guidance to the upper half and have explicitly mentioned that this is, amongst other things, based on a better-than-expected performance in the semi business. So that is clearly one large driver of the specified guidance in the upper range. So that means we expect, I would say, a higher growth in our semi output in this year and of course, also a step-up implied into the second half of this year. So that means we, of course, have capacities. As you know, we have a broad production footprint. And as you know, capacity in loading and also mix, it's not the same across the system. So we are doing our best to obviously balance the demand as best as we can. And are adding capacities in the terms of people and machinery, where needed. Having said that, a ramp-up in semi is always a team effort between the customers, the suppliers and our supply chain. And I think we have a good momentum going there basically to cater to that demand.

And then maybe my final question is really on photonics. If you can just talk about your microlens arrays a bit. I mean demand must be quite strong given what's happening in the data center space. Can you just provide some color how this business has performed in H1 and also on the capacity point, if you have enough capacity to cater for demand in the next 1 or 2 years? And then also in terms of customers, I mean, can you talk about the number of customers you have in this business? And if you have seen additional customers actually coming to you and asking for products?

Yes. Just I get that right, you were referring to the microlens arrays that we -- that relate to our optical data communications business, correct?

Right.

Yes. Okay. Thank you for the clarification. Yes, what I want to reiterate also what we have discussed, given a bit more flavor is that we see a growth in demand in that business. We are also seeing a growth in revenues. As I've mentioned that in my remarks, obviously, on a significantly smaller base, but it is supportive and we will be growing on any other -- and we cater to multiple customers. So there is obviously not one customer, but we have an array of customers there. On any more longer-term or strategic considerations with that regarding that business, I would ask you to allow us to do our strategy update process and then potentially communicate more when we have the time at the Capital Markets Day or something like that.