Jenoptik AG

XETRA:JEN

Q2-2025 Earnings Call

[Operator]

Good morning, ladies and gentlemen, and welcome to the Jenoptik conference call regarding the results of the first half year 2025. [Operator Instructions]

Let me now turn the floor over to your host, Dr. Stefan Traeger.

[Stefan Traeger, executive]

Yes, thank you very much, and a very good morning from our end here in sunny Jena. With me today, as always, is Prisca Havranek-Kosicek, our CFO, and we're happy to present our first half numbers.

I'd like to kick off with saying that the first 6 months of the fiscal year has been characterized by really quite some challenges and a huge amount of uncertainty. I think we all have seen that in the news, and we all are aware of that. For us, in particular, the weakness in at least parts of the semicon business has, if you want, shaped the first half. That's something that we experienced since Q4 as of last year, and it continued in particular, in the first quarter this year. Second quarter, however, order intake in our semi business is actually 75% higher than in the first quarter, that's in a way, a bit of a positive.

Overall, we see positive trends in demand in the second quarter and as a matter of fact, also in order intake, revenue and EBITDA, all of the KPIs are up quarter-on-quarter. But for the total year, for the whole year most KPIs are down. And to see second quarter better than the first quarter is a pattern that's pretty regular in our business, and those of you who follow us a bit longer are aware of that.

So H1, most KPIs are down with the notable difference of free cash flow. Free cash flow is up versus prior year, that's a positive. But order intake is down in the first quarter, revenue is down in the first quarter, EBITDA is down in the first quarter. That said, again, quarter-over-quarter, second quarter versus first quarter, those KPIs, order intake, revenue and EBITDA are all getting somewhat better.

Cost management is something that's on our agenda big time. We intensified that. Headcount is down on year-over-year. Obviously, we do take structural and process improvements, and we've planned more of that going forward. I think a testimony of our stringent cash management is the fact that our cash conversion rate is up from 41% last year to now at around 55%. So that's another sort of positive point of view or positive data point, if you want, and the testimony to our, as I said earlier, stringent cash management that we do in light of the uncertainties and challenges that we face in particular parts of our market.

In general, market environments are very uncertain. I think, again, that's something that we all see. And for us, it's actually pretty fragmented. In 3 of our businesses, we see that orders are up, sometimes even quite -- not just moderately, but significantly up, some moderate ups in the order intake, but semicon is still down. And obviously, that for us has quite some impact.

We do continue to focus on additional growth opportunities for the strong future of Jenoptik. We have good assets. We have good technology. We are strong when it comes to our technological experiences and our technological strengths basically. We've talked a lot about AR/VR in the past, but there's more as optical communication for data centers driving and enabling AI applications, for example. There are defense applications that enable us to grow. So there are growth opportunities. But again, as I said earlier, overall, the markets are challenging. There are highlights and low lights in the markets that we serve.

A quick word on Prodomax. We communicated that we don't believe any longer that we're the best owner for Prodomax and that there should be better owners of Prodomax out there. That still is the case. We still believe that Prodomax is not necessarily a core business of Jenoptik in the long run. But given the recent developments, in particular, between Canada and the U.S., it has to be said that a sale of Prodomax in this strategic period, so within this year basically is really no longer feasible, we don't see that, that can be done in the remainder of the year with any sensible mean.

We do specify our forecast for 2025, and we'll talk about that a bit later in the presentation within the existing range, but we do expect KPIs to come in, in the lower half of the corridor. Again, we'll talk about forecast a bit later in the presentation. Essentially, there are so many uncertainties that we all know that it's pretty difficult to forecast at the moment anything beyond that horizon basically. But again, we'll talk about that at the end of the presentation.

With that said, I will hand the mic over to Prisca, and Prisca is going through the numbers in more detail. And later on, I'm going to round the call up with a look or at least the attempt to look into the future for the next couple of months. Prisca, over to you.

[Prisca Havranek-Kosicek, executive]

Thank you, Stefan, and good morning to all of you on the call from my side as well. I would like to now cover our performance in the first half of 2025 in greater detail, as always, starting with order intake on Page 6.

I think we've already stated several times in the previous call, but the start of the year was influenced by generally high market uncertainties and some temporary impacts in the semi space. Hence, our other intake H1 numbers are, of course, affected by this. As a result of that, first half year order intake on the group level came in at about EUR 473 million, down by 9.9% compared to prior year. The overall demand situation improved in the second quarter, which Stefan has already mentioned. However, this was still down by around 5% year-on-year.

On a business unit level, starting with Semi, we've seen a substantial improvement quarter-over-quarter, but the overall development remained affected by certain supply chain fluctuations as highlighted on our previous call.

Now from all what we can judge, we believe that the supply chain or inventory impact was less pronounced in Q2 versus Q1. On the inspection side, however, demand has been strong from our key customers.

Order intake dynamics in our Biophotonics business were very strong in the second quarter, driven by several segments, including dental, ophthalmology and life science. Demand in our Metrology & Production Solutions business as well as in our Smart Mobility Solutions business of overall robust in the first half with SMS showing the typical volatility that we have in this business to government activity.

So overall, as Stefan has already said, we are pleased with the order intake momentum that we've seen in the second quarter, but I would like to note that this is partly driven by some pull-forward orders from customers in our view. Therefore, we believe it's too early to call for a sustainable improvement of demand already. As a result, our book-to-bill ratio was slightly down year-over-year to 0.95, but I would like to mention that it was above 1 when we are just looking at the second quarter. Our order backlog reduced to around EUR 613 million and we anticipate turning approximately 60% of this backlog into revenue this year.

Now please follow me to Page 7. So revenue in the first half has declined by close to 8% year-over-year to around EUR 498 million, generally reflecting, as Stefan has already mentioned, a weaker order intake trend in Q4 last year and in Q1 this year, especially in the semi space.

With regards to our Semi business, revenue was down 15% year-over-year as a result of what Stefan alluded already, softer demand in the lithography business, which, as you know, makes up for a very big chunk of this business. Revenues with customers in the inspection area developed very well in the first 2 quarters.

Now looking at Biophotonics. Year revenue was up by 11%, driven by a strong performance across all main applications, including dental and ophthalmology. As we've mentioned in our half year report, and Stefan has also alluded to, also our optical solutions for defense applications are growing at a very good momentum, and we expect it to continue also going forward.

For Metrology & Production Solution, the overall business environment remains challenging, particularly in the automotive-related fleets of the business. Therefore, revenue was down by around 11% in the first 6 months of the year. Given the overall robust order intake development we've seen to date, we are expecting a somewhat better revenue development in the coming quarters.

Now finally, revenue of our Smart Mobility Solutions business was up by almost 18% in the first half year as our efforts in the important strategic U.S. markets are gaining traction in addition to some good momentum in the Middle East Africa region.

Moving to profitability on Page 8. As you can see the group's EBITDA reached around EUR 79 million, down by 22% compared to last year. Our EBITDA margin thus contracted by 300 bps year-on-year, including about 60 bps impact that is related to the onetime move costs for our new fab in Dresden in the first quarter. As expected, we had no impact from this move in Q2.

Looking now by business unit, influenced by the just mentioned onetime costs, lower utilization in our sites and product mix effects, EBITDA in our Semi business dropped by almost 1/3 year-over-year. However, if you look at second quarter EBITDA margin in Semi was close to 14%. This was, for sure, substantially lower year-over-year, but it is, in our view also an indication of a certain resilience in this business, considering the substantially lower turnover level.

In Biophotonics business, strong top line growth drove better utilization of our capacity and in combination with a positive mix effect, EBITDA margin substantially improved from 8.2% to 21.3%. As I have mentioned already in the Q1 call, while this is certainly a very encouraging development. I think this above 20% margin level is not indicative for the next 2 quarters.

When looking at our Metrology & Production Solutions business, as you know, Q1 was affected by a certain seasonality. In the second quarter, we saw some sort of normalization as we were expecting, however, in a generally weak market environment. As a result of the slow start to the year, first half year EBITDA was only modestly positive. Considering our order intake and the backlog, we for sure expect better profitability in the second half of the year in this business.

Finally, with Smart Mobility, we saw a very good margin improvement of more than 300 bps to 9.4% in H1 based on a strong top line development and the associated leverage of our financial costs.

Now moving to Page 9. Here, I would like to give you a little more insight into the drivers between the evolution -- behind the evolution of our margin. I think the key message is, as stated in the headline of this slide, the strict cost management is paramount to us at the moment, given the lower level, our revenue level. We started early on working on this subject and therefore, our headcounts measures in FTE is down by around 3% compared to mid-2024.

So now jumping into the details. In the first half, we saw gross margin approximately 250 bps down year-over-year, which was primarily influenced by the lack of fixed cost absorption and product mix effects. On the functional expense side, as I said before, we remain very disciplined as those expenses declined by around 3% year-over-year despite some general labor cost inflation impact. On the other operating results, we've seen only minor changes versus last year, mainly relating to slightly higher year-over-year fixed losses.

Moving on to the EBIT line. We see a marked decreased both in absolute terms as well as margin. Further down, we have recognized an income of EUR 2.6 million, resulting from a settlement agreement regarding the sale of VINCORION, our previous mechanical defense business activities. Bottom line, our EPS reached EUR 0.42 versus EUR 0.69 last year. Excluding the VINCORION, our EPS were at around EUR 0.38.

Page 10, looking at cash flow and balance sheet data. Despite the decline in earnings, as you can see our operating cash flow pretax improved slightly year-over-year with lower cash inflows into our working capital. Please note that when we look at our net working capital, there was overall a small increase compared to the end of last year, but this is driven by accounts payable movements relating to investments, so it doesn't affect operating cash flow. Our ever, our overall net working capital intensity increased somewhat year-over-year.

Moving on to CapEx. While IFRS CapEx in the first half year was down year-on-year as we expected. Cash CapEx increased a good EUR 3 million due to spillover effects from last year's investments. Finally, our net debt position was slightly up versus year-end at a little over EUR 400 million, also reflecting, of course, our dividend payment. Our leverage was at 2x at the end of the second quarter.

And with this, let me turn back to Stefan to cover our outlook.

[Stefan Traeger, executive]

Yes, thank you very much, Prisca. And with that, I guess I have the hardest part trying to predict the future at the moment.

Look, I mean, we all know that forecasting the next few months is a big challenge for any business at the moment. And that's the same for us. It's very blurred out there. There are so many uncertainties when it comes to FX rates, when it comes to tariff agreements, when it comes to uncertainties overall in our marketplace, there are ups and downs. There are positives and negatives. There could be an even better development than anticipated in Semi business driven by, in particular, our AI-related activities and stuff that our customers do to enable artificial intelligence applications.

On the other hand, there are potentially even bigger hits in our business from, for example, FX rates or other unforeseeable developments in the political arena, which makes it really hard to forecast the next few months. Forecasting anything beyond the next few months reliably is almost impossible given all these uncertainties that we see.

For this year, at this point, we do expect the revenues of the business in the lower half of our previous forecast range, which has been a corridor of plus or minus percent around the last year's number. And as I said, we do expect to come in, in the lower half of that, so somewhere between last year and a minus 5% decline in revenues.

Same goes for EBITDA margin. We anticipate our EBITDA margin as a result of that missing volume basically to come in, in the lower half of the previous forecast range, which has been between 18% and 21% EBITDA of sales. We also expect our capital expenditure now to come substantially lower than prior year. And I think both of us, Prisca as well as me pointed out that we do focus on cost management at the moment and also, of course, on making sure that we have enough cash in the business, in our chest basically for further activities.

With that said, anything beyond 2025 forecast is really, really hard. Our outlook does reflect above-average market uncertainties. And really, the overall risk for a pickup has further increased in -- due to all of these discussions in the political arena and other things that we are all aware of. And really, the extent to which these risks mentioned above will affect our business performance in 2026. We cannot really assess with any sufficient certainty at this point in time.

Let me point out again, we are a strong company. We have a strong balance sheet. We are in choppy waters in parts of our business. We have a good demand in our bio business, very good demand, actually, very good order intake pattern. We have a decent order intake pattern in our metrology business. We are happy with the performance of our Smart Mobility business. However, we also have huge challenges. And as a sort of a balance of all of that, we, again, forecast our KPIs to come in, in the lower part of the guidance corridor.

With that said, thank you for your attention, and we're looking forward to answering the questions that you undoubtedly have as good as we can. Thank you very much.

[Operator]

[Operator Instructions] So the first question would be from Craig Abbott of Kepler Cheuvreux.

[Craig Abbott, analyst]

Yes, a couple of questions, please. First of all, Prisca, just getting back to your comments on the orders. You mentioned there were some pull forwards. I was hoping you can maybe give us some color here, i.e., how significant were these? What end markets were they referring to? And what trends have you seen so far in Q3? And then I have one follow-up question.

[Prisca Havranek-Kosicek, executive]

Yes, Craig. So of course, thank you for the question. So what I was referring to was when we look at the full year, we try as best as we can to estimate, obviously also the business development by quarter. And I would say is that orders in some of our business, mainly our OEM-related businesses, we've seen some pull-ins into Q2 of orders that we probably would have more expected in the second half of the year. I cannot really, at this point, quantify this impact. Those are very hard because obviously, that's always relative to our expectations, but what I can tell you is that it's mainly in our OEM-related businesses, so basically the semi business and the bio business.

[Craig Abbott, analyst]

Okay. But I mean can you give us some color, i.e., but you're still expecting a positive, i.e., book-to-bill in Q3 would be a realistic assumption.

[Prisca Havranek-Kosicek, executive]

So I think I was trying to strike this balance. So while we've -- and Stefan in his intro, I think also said the same thing. So we've seen encouraging development in Q2. We are certainly happy to see a sequential improvement in the most important businesses, including the Semi business. I've already mentioned that we've seen the supply chain effect were probably less pronounced in Q2 than in Q1 is on our view. And we've seen a very strong business development inspection.

But having said that, It's, in our view, too early to call a sustainable improvement in demand pattern. As Stefan has alluded to, volatility is very high. And I think we look at our end markets, the announcements that we see in those, that would also sort of -- that's in line with the expectations of, of course, also other players in this space.

[Craig Abbott, analyst]

Okay. And my follow-up, and then I'll get back in the queue is kind of building on that, but not being specific, of course, in quantifying. Nevertheless, your major semi customers on both inspection or lithography side, give you a lead-in into how you should be ramping your capacity or preparing the capacities or not. And I mean, has the tone of the message there, when you're looking up to '26, for instance, has that changed in any way either to slightly more positive or slightly more negative? If you could give some color there.

[Stefan Traeger, executive]

Craig, maybe I'll take that. And before I go into that, let me remind all of us also that we had to -- this onetime effect on our order intake in the first quarter. Just as a reminder that in the first quarter, we had this double-digit takeout of a particular order, just sort of again, as a reminder.

Now to your question, it depends. It really does depend. It's -- even in semi, there is mixed messages from the different customers. Therefore, I really cannot give you a kind of like one-size-fits-all answer. Some customers are saying, well, we don't know. It may or may not come. Some customers are saying, please do prepare and please do ramp up capacity, and we're -- it's going to go -- yes, going to go up pretty soon. And really, there is different messages from the different customers and the one persistent picture it's uncertain and is segmented, and it's hard to tell.

And overall, that's why in this call, you will both Prisca and me always hearing trying to strike a balance between the real positive thing that we see in the business at the moment, some demand sort of stabilization, if you want. On the other hand, the risks that we also see. And that is why we are also in our business trying to balance, on the one hand, cost cuts that we do take significant or stringent expense management. On the other hand, being prepared for a potential pickup in the second half and beyond. But we can't bank on potential. We need firm orders, and we've got more orders in the second -- significantly more orders in the second quarter than in the first, but we also got significantly less orders in the second quarter 2025 versus the second quarter 2024. And striking that balance is really our topic of today.

[Operator]

The next question is from Lasse Stueben of Berenberg.

[Lasse Stueben, analyst]

Just a question on guidance. Just when I'm looking -- if I look at the lower end, so if I assume on revenues, you will be down 5% year-on-year. Just looking at versus last year, that would imply you need a fairly similar level of revenues in the second half, but your backlog is close to just over EUR 100 million lower. So I was just wondering if you can help kind of square that phasing or that effect or if there's been any changes in kind of lead times in some of those products versus last year.

And then I would have -- I guess, a very similar question on margin. You need quite a big pickup, which isn't unusual for you. But again, just given the structure of backlog, I was just wondering if you could give some more color maybe also across the divisions, just given the structure has changed. So we just don't as much visibility on the quarterly EBITDA sort of phasing, let's say. But any help there would be appreciated.

[Stefan Traeger, executive]

Yes. Thanks, Lasse. And first of all, your math is correct, obviously. And I couldn't agree more with what you've said. I mean, why are we -- why do we believe we can deliver the same in second half this year than last year with backlog being down, but there is still backlog. And if there is no pickup in the order intake, then we would deplete backlog a bit further in our backlog going into 2025 will then be lower, which then is, on the other hand, a risk for 2026.

However, if demand does pickup as still anticipated, in particular, in the semi world, when the situation is -- well, in a way the same, we would still simply have to -- I shouldn't have said that, but we would still have to deliver second half as big as 2024. And again, if we have the same order intake like last year, then we basically would have EUR 100 million less backlog to be carried into 2026.

The pickup in demand is expected in semi. That is the area where we do still expect to expect a -- yes, do expect the pickup in the second half with all the risks attached, as we mentioned earlier.

[Prisca Havranek-Kosicek, executive]

And maybe to follow on the other EBITDA question. I think it is actually quite simple. Following the acceleration or the expected acceleration of the semi demand in the second half, that, of course, sort of drives then the mix to the point of expansion of the margin that we need in the second half in order to comfortably reach our guidance range as we've specified today.

[Stefan Traeger, executive]

There's no doubt there is significant risks in the marketplace at the moment.

[Lasse Stueben, analyst]

Understood. Maybe just one follow-up, if I may. So if you do get that pickup in semis in the second half, I mean, would -- let's assume that comes in Q3, just for a sake of argument, would that partially be deliverable still this year? Or are you then looking at '26? Because, I guess, most of basically how the business has worked in the past is second half is really about delivering on backlog and then anything that comes in, at least in semis is then for the next year. So I'm just wondering if because your lead times have maybe shifted somewhat, has that changed in terms of you being able to deliver quicker?

[Stefan Traeger, executive]

All right. No, I understand. The part -- at least on our Semi business, we can -- we do, do POC, point of completion revenue recognition, IFRS -- is that 15, 16? I always mix those up.

[Prisca Havranek-Kosicek, executive]

15.

[Stefan Traeger, executive]

Oh 15, thank you. And thus, we can basically turn the order into sales almost like, I shouldn't have said, immediately but very, very quickly.

[Prisca Havranek-Kosicek, executive]

And maybe let me add to build on that on what Stefan said and maybe Lasse, to explain. You also know that certain parts of our lithography business have shorter lead times, and that is mainly in our -- actually our micro-optics business. So that has a shorter lead time in general than the optics businesses. And therefore, of course, it also has a quicker acceleration pace that you don't see in the numbers. So -- but having said that, I refer to what Stefan said about the demand picture.

[Operator]

The next question is from Olivier Calvet of UBS.

[Olivier Calvet, analyst]

I've got a couple left. Maybe if take them one by one. The first one is just on the guidance update. I mean, we know that the comp base gets easier in the fourth quarter. But in absolute terms. I'm just wondering if you'd expect a higher fourth quarter versus third quarter?

[Stefan Traeger, executive]

Yes.

[Olivier Calvet, analyst]

Also in absolute terms. Okay. And then the other question is sort of on the order intake, seasonality. I mean, we have 4 quarters or now 6 quarters of history on your new segment structure. And last year, you obviously had that weaker Q4. But I just wanted to ask this if there was any sort of seasonality to call out or any order pattern you expect specifically for this year?

[Stefan Traeger, executive]

I'm no quite sure, if I really understand the question. But if you're referring to the semi part again, then yes, I would point out that the order intake has been weak in Q4 last year already. So we had a very -- last year, I think we had a very strong start into the year, first half in semi. And then Q3, in particular, Q4 was pretty weak, I believe, in semi, is that right? I think that's pretty correct. Yes, yes, yes. So, yes, I'm just looking at the numbers. Prisca, maybe you can cover that.

[Prisca Havranek-Kosicek, executive]

So I would say, I mean, keep in mind, I wouldn't call it seasonality. But what I would say is that as you remember, and also what I alluded into our call, if we not talk semi isolated, right? Q4 was not a strong quarter for order intake in semi. So if you -- obviously, that also means that the base effect will be quite significant. And -- but I wouldn't call that seasonality because that is the effect of, I would say, the demand -- the uncertainty in demand that we saw in Q3, particularly in lithography, and sort of the knock-on effect on that.

[Stefan Traeger, executive]

The one customer that...

[Prisca Havranek-Kosicek, executive]

Yes. The rest, if you then would -- I would expect that broadly businesses just like MPS or SMS would broadly follow the seasonality that Jenoptik has seen, meaning a second half that is normally a bit stronger than the first half, right? So that I don't see any change in pattern. Yes, I hope that sort of gives you a little bit more color.

[Olivier Calvet, analyst]

Okay. Okay, that's helpful. And just maybe on the semi piece, if I sort of adjust for that nonrecurring customer product adjustments you had in the first quarter, I come to roughly around EUR 110 million average order intake per quarter over the last few quarters. Is that the right way to think about quarterly developments in the second half?

[Prisca Havranek-Kosicek, executive]

I don't think we can really give you a specific run rate for this business, and particularly because we've just said that it is highly volatile and there's future uncertainty, right? So we keep that in mind, but we expect an acceleration.

[Olivier Calvet, analyst]

For the high end of your updated guidance, would that be perhaps a fair assumption or...

[Prisca Havranek-Kosicek, executive]

I would say we need an acceleration, we need a step-up in for both scenarios, the lower and the midpoint of the old guidance or the higher end of the new range.

[Operator]

The next question is from Martin Jungfleisch of BNP Paribas.

[Martin Jungfleisch, analyst]

I have two questions, please. The first one is on the photonics for data centers. I think you mentioned that in your prepared remarks. Could you just talk about how big this business is today and what sort of growth rates you're seeing there? And is this something that is more for 2026 revenues or that even further out? That is my first question.

[Stefan Traeger, executive]

Martin, thanks for the question. It's not actually a new development for us. I mean we are in this data center business since quite a while, since years, in particular, our Huntsville, Alabama facility, where we use a technology called grayscale lithography to help people building routers and optical interconnects and photonic interconnects. However, it's something that seems to be surging at the moment, something that shows good traction and development because of those data centers being built at the moment. It's nowhere near where we see, I don't know, the lithography business is definitely not, but also not inspection. Inspection is still bigger than that part for us.

But it's a part and it's, I think, a good example of other non-lithography areas in that data-driven space, where we provide solutions to our customers and where we do see an uptick in demand and something that I think is sustainable. I mean, we all produce ever more data these days. And we -- even without AI, that has been the case, but now it's becoming even more prominent. And so therefore, there is a good development in that particular product line. As I say, from a sort of size perspective, at this point, it's even within the semi business, smaller than inspection, but it's growing.

[Martin Jungfleisch, analyst]

Okay. Interesting. And then I have a second question just on tariffs. I mean, could you just clarify how tariffs would impact margins and what kind of products are exempt or what kind of products are facing tariffs? And also, are you passing these costs on to your customers or you're doing some price increases? And then maybe also on -- given the latest news on tariff exemptions for companies that invest in the U.S., would this be something that you could look into, i.e., building some capacity in the U.S. for certain products?

[Stefan Traeger, executive]

Thank you. I'll kick it off and Prisca has more precise numbers, I think, and some more follow-up. But overall, I think our MPS business is most impacted by it. The other business, it really varies business by business. We are looking into the exemptions that seem to transpire at the moment when it comes, for example, the semiconductor related, whether it's applicable or not, we don't have, I think, real absolute clarity at the moment. That's one of the uncertainties that we have, where do we or do we not get exemption is still really sort of up in the air.

When it comes to production in the U.S., I mean, we do have important production facilities actually. We just mentioned Huntsville, Alabama, for our grayscale lithography application. We have Jupiter in Florida. It's our main hub in the U.S. where we do optics production. We have a production -- actually 2 production facilities around Detroit, nowadays, one in Auburn Hills, one in Rochester Hills. So we do have production facilities. And of course, we produce there, and that's good.

At this moment, we don't have any particular plans to move any production from, say, Europe into the U.S., or from other parts. That's not to exclude it. If it makes business sense, we, of course, follow and monitor that. But at the moment, we use production facilities that we have and see what the next couple of days, weeks, who knows will bring.

Prisca, do you have anything?

[Prisca Havranek-Kosicek, executive]

Yes. Maybe to try to quantify this a little bit. I mean, the way we address it, obviously, since it's fluid is by looking at sensitivities and scenarios, right? And our base case at the moment from what we know, and that is included in our guidance is around 50 bps for this year as impact. That doesn't include -- let's say, that's the base case. And that's also not an annualized impact necessarily. So that's my current thinking on it. And we obviously update, I mean, as the information comes in and then we refine our scenarios.

[Martin Jungfleisch, analyst]

Okay. Cool. If I may just ask one on biophotonics. I mean order intake was quite strong. And can you disclose what percent of orders came from the defense-related activities.

[Stefan Traeger, executive]

We cannot disclose that. It's a good percentage, but we cannot give the numbers on the distribution of order intake between different product lines in bio. That said, it has been significant.

[Operator]

Next question Is from Michael Kuhn of Deutsche Bank.

[Michael Kuhn, analyst]

Just one clarification. First, you mentioned during your prepared remarks, the share of orders to be delivered in 2026. Could you please repeat that number? I didn't get it.

[Prisca Havranek-Kosicek, executive]

I meant -- I think -- thank you for the question. I think what you meant is how much revenue we turn into revenue -- so how much of our backlog we turn into revenue for 2025, right? I just was thrown off because I think you said 2026. So if you mean 2025, current year, we expect 60% of our backlog, 6-0, to turn into revenue for this year. I hope that, that clarifies the question, but maybe I...

[Michael Kuhn, analyst]

That is exactly what I was looking for. Then similar to the previous question, I guess, if you don't disclose the order share for defense, I guess you won't say anything on the sales share as well?

[Stefan Traeger, executive]

That's correct?

[Prisca Havranek-Kosicek, executive]

Well, I think what we have said in the past that -- I can give you a '24 number, right? And then you can maybe assume that this is growing. Well, actually, that's what we've said. So in '24, we were around about at 30 -- sorry, at 3% of our revenue. So of total revenue of the group, right?

So from that basis, I would expect continuous growth, both obviously in revenue and then mentioned by the order intake. I can't really specify how much growth, but I would say we'll grow from this base on in '25. And as it looks, I would say, also probably beyond that.

[Michael Kuhn, analyst]

Understood. I think the 3% is already quite helpful. Then on semi again, I think many had the impression that your big customer was in the kind of destocking mode over the past few quarters. Would you agree with that? And is that destocking now coming to an end and they're, let's say, moving into a little more stable trading environment again, knowing that there is a lot of uncertainties.

[Stefan Traeger, executive]

The first part of the question is easy to answer. Yes, I would agree with that. The second part of the question is harder to answer. I mean, at some point, it has -- I don't think it should come to an end. And we do see second quarter order intake in semi being better than first quarter, significantly better and also better than the fourth quarter 2024.

Now that's something that I stress again, semi order intake in the second quarter, although being below second quarter 2024 is higher than the fourth quarter 2024. So that's -- actually, that's pretty significant. I do think it looks like it with all the risks and strings attached that we did throughout the whole call.

[Michael Kuhn, analyst]

Okay. That was very clear. And then last one. You mentioned a couple of times that you, let's say, expect and probably need some pickup in demand and order momentum in the second half. Now we are almost halfway through Q3. Is that what you have already seen, let's say, early in H2? Or is that something still to materialize and there is no positive early signs yet?

[Stefan Traeger, executive]

Let's maybe say the first few days of the second half look pretty good, but it's really too -- I really don't want to give any sort of guidance on Q3 at this point with all the uncertainties. But the first few days that we had thus far, you can call it the first half of the third quarter, if you want. But those have been pretty good, yes.

[Operator]

The next question is from Malte Schaumann of Warburg Research.

[Malte Schaumann, analyst]

First question is on the gross margin. I mean that dropped by 200 basis points against the previous first half last year. I mean we have seen product mix effects, U.S. tariffs underloading in some operations. So how much of that do you expect to catch up in the second half of the year? I mean you mentioned the improvement in product mix, probably [ semi ] business comes back stronger. So after 30.1%, I mean, we have to deduct the Dresden extra costs. So how much will the gross margin be down comparison to last year, 100 basis points, would that be a reasonable assumption? Maybe you can elaborate on that a bit.

[Prisca Havranek-Kosicek, executive]

Thank you for the question, Malte. What I can tell you is, I can give you more color on the ups and downs in the margin. I won't be able to guide you on the exact margin for the full year. But what I can tell you is, obviously, the mix impacts acceleration of the top line and the mix impact from particularly the semi business are a tailwind on the gross margin in the second half of the year. So that will help us. What we will see stronger than we saw in H1 is U.S. dollar impact that we have partially hedged, but we will see the translation impact. And then what we will also see is, of course, the full impact of our base scenario, at least that's what we think of the tariffs. So that would basically go against that.

And then always keep in mind that our inflation or labor cost is not necessarily starting in the beginning of the year, but there are usually in Q2 increases of collective agreements. So that is also a headwind on the gross margin. So those are the, I would say, factors that will influence the gross margin in the second half of the year.

[Malte Schaumann, analyst]

Sure. But you do expect that improving product mix should somewhat offset or more than offset the headwinds you would see in the second half of the year in comparison to H1?

[Prisca Havranek-Kosicek, executive]

I would say as a stronger business dynamic, obviously will also help for the expansion in the gross margin.

[Malte Schaumann, analyst]

Okay. Then on bio specifically, I mean, you mentioned that one should not expect above 20% margins in the second half of the year. I think that's clear. But we have seen margins coming down to almost [ 18% ] in Q2. So is that kind of a reasonable level at similar sales, let's say, 15% to 20% margins going forward? Would that be a number that would fit to your expectations?

[Prisca Havranek-Kosicek, executive]

Yes. Malte, thank you for the question. And you're right, as we have expected. We had a substantial, let's say, deceleration of the margin in Q2 versus Q1. But I also mentioned in Q1, that this is a very exceptional quarter. And we do anticipate overall for the SBU and increase in margin in this year. So -- but not at the levels we've seen in the first half. Now in between this range, obviously, we should land. And I'm confident that there will be an improvement in the margin for the full year.

[Malte Schaumann, analyst]

Okay. Then on Prodomax, do you see -- get any indications from your customers that visibility remains kind of subdued, customers do have really proceed with their projects. Anything that changes in the pipeline? Or is it more or less the same situation as 3 months ago.

[Stefan Traeger, executive]

Malte, there are some changes actually in the pipeline, which have not yet materialized in order intake. There is -- the pipeline has become very weak in the first quarter, as we discussed at the end of the last earnings call and in between. But at the moment, there is some talk that we've reached the bottom. The noise between the U.S. and Canada has sort of turned down a bit at the moment. And in particular, then it turns out that probably most of the product from Prodomax are actually what's called [indiscernible]. And if that holds, then that could be -- that would make them much easier. So there's the old agreement from the first Trump presidency between Canada and Mexico and the U.S. And if that -- and it seems to be case that this might stay in place, and it might be that Prodomax actually falls under that agreement, which helps the [indiscernible] actually. There's a lot of ifs and buts in my answer. So at the moment, it looks a bit better than 3 months ago, but it hasn't materialized in order commitments at this point.

[Malte Schaumann, analyst]

Okay. Would you expect that to materialize before year-end? Or is that something that is rather than to be expected next year, early next year?

[Stefan Traeger, executive]

It is really, really hard to tell. In terms of order intake, I would hope at least. In terms of net sales, I mean, that does depend. And obviously, there's -- in these large projects, there's quite a time delay between order intake and sales. So Prodomax for the rest of the year in terms of sales, I wouldn't see things getting significantly better in terms of order intake, it might, and that helps for 2026.

[Operator]

Next question is from Craig Abbott of Kepler Cheuvreux.

[Craig Abbott, analyst]

Real quick. I just wanted to follow up on the earlier discussion regarding the tariff impact. A couple of quick questions there to follow up. I just want to make sure I understood it correctly, you're expecting around 50 basis points for the remainder of this year. And therefore, I assume, of course, that that's included in your revised guidance. But I think you said not necessarily on a full year basis. So my first add-on to that would be, well, I mean, should we like double that on a full year basis? Or how should we understand that? That would be my first question. I got 2 more, I think, related to that, please.

[Prisca Havranek-Kosicek, executive]

Yes. Thank you, Craig, for the question. Sure. Now I can only give you our assumptions, right? And our base case for this year, as I said, yes, you are fully correct for 50 basis points on this year. Now as you know, some of the tariff effect started in Q2. Some of them are only impacting in Q3 onwards. So it's very hard to get an accurate number there. So I would say, ballpark, I think you have a good working assumption if you double that impact. But that's a very crude way of assessing it. As I said, what we are doing is, as you know, it's super complex. So we are basically updating and refining our models as we go. And -- but that's the best assumption I can give you today.

[Craig Abbott, analyst]

Okay. I understand. Could you maybe just elaborate a little bit on which business exactly are most impacted? And then finally, just a follow-up again to the earlier discussion, I understand production-wise, I mean, no plans at this stage. But I mean, what kind of countermeasures could potentially be at your disposal for looking out to 2026?

[Stefan Traeger, executive]

I mean, the biggest impact, I think we have on MPS really, that where we -- yes. And any sort of countermeasures, we don't have any particular plans at this point given that with all the uncertainty, I mean we would need to -- at the end of the day, the calculation between the cost to move something and all the implications that it has versus the cost of whatever the tariffs end up being. So therefore, at this point, we don't have any concrete tangible plans that we can spell out to move any production into the U.S. We have production...

[Craig Abbott, analyst]

No, I was thinking more of like pricing measures or...

[Stefan Traeger, executive]

Well, that depends really because it depends on the contracts. In some contracts, frankly, our customers have to bear it anyways. We don't bear it, it's for the Americans to deal with it. In parts of the business where we are the importer, then we have to deal with it. And then we will have to think what we do about it. But it's not as if all our products we are importing. Often, it's actually our customers.

And yes, it's in the first cut, at least it's their problem. It might, in the long run, make our business a bit more sort of -- yes, more expensive for our customers. But often, our customers come to us because we have solutions that nobody else has. And that's -- yes, full stop.

[Craig Abbott, analyst]

Well, that was going to be my final question related to all that was how you see this potentially impacting or not impacting your competitive positioning there.

[Stefan Traeger, executive]

Yes. Here again, it depends on the part. I mean in the product lines where we have strong competitors in the United States, and we cannot and do not want to produce in the United States that could have an impact.

But in many of our businesses, we sell either to -- I mean, the European partners anyways or again, we have often technology positions where at least at this point, we don't -- we're real sole suppliers. So we have at least a very strong position in terms of our capacities and capabilities, where our customers are -- look, you see me struggling with answering because it's -- what do I know? But overall, I would think that I don't see that much of an impact, I think, at this point. But again, with all the disclaimers attached to it.

[Operator]

[Operator Instructions] There seems no questions to be incoming. So with that, I'm closing the Q&A session for now and handing the floor back over to the host.

[Stefan Traeger, executive]

Okay. Thank you very much for all your questions, and thank you very much for being with us today. As we said earlier, first half being quite a challenge. Second quarter being somewhat better in terms of dynamics. It doesn't make for a good first half in any way, shape or form. The first half has been a challenge, and we'll have to see what the second half is going to bring. There are increasing risks or risks have been -- have increased. It's probably the better way of putting it. Uncertainties have been increased. But there are also chances. And the balance of that, we, in the long run, have a strong business. That's probably more importantly, the more important part. We do believe in our business. We have a good balance sheet. We have good people. We have good technologies. And we're pretty sure that the second half will be better than the first. And anything beyond that, we'll have to see. Thank you very much for being with us today.