Basler Aktiengesellschaft (BSL) Earnings Call Transcript & Summary

Yes. Good afternoon again. Warm welcome to Basler's Annual Report 2019 Conference Call. I hope that everybody of you is healthy during this crazy corona times and I'm happy to run you through our last year's financial figures today. So the today's presentation is structured as follows: First, I would like to give you an executive summary; second, I give you more insights regarding the financials; third, I will talk about the share performance and our dividend proposal; and last but not least, I would like to give you an outlook for this year before we come to the Q&A session. Let's start with the executive summary on Slide 3. The market environment was very weak last year. The German industry for vision components, billings and bookings were weak. So billings were minus 7%; bookings, minus 10%. Normally, the market is growing on average at approximately 5% to 7%. We saw a declining business in CapEx goods, especially for electronics and automotive. It was an ambiguous picture, because there were continuous growth in medical and logistics applications on the other side. In this environment, the Basler performance was good and better than the market. Our bookings and billings went up 8%, and we gained market share. However, these market share gains were mainly achieved by our acquisitions we did in 2018 and '19. We fulfilled our guidance. We made significant progress regarding the integration of Silicon Software and our China distribution business. We made good progress in our journey to become a full range provider of vision components, and we've seen that the earnings were reduced due to a larger organization in sales, marketing and R&D. The next slide, Slide 4, gives you a deeper insight into the staff development and to the organizational increase that I mentioned. The organization has been increased by approximately 200 full-time equivalents to approximately 850 full-time equivalents by end of the year worldwide. The main expansion was in sales, marketing and R&D, so we talk about investments into the future. Both functions make approximately 60% of the company. The hires in admin were also mainly related to sales because here, we also increased staff due to the acquisition in China where we had sales, marketing and admin functions, where we added those functions. So 24% of the personnel works in R&D. This meant R&D spending of approximately EUR 23 million last year and an R&D quota of approximately 14%. Based on this high R&D investment, we launched numerous new technologies, platforms and products, as you can see on Slide 5. We launched multiple new ace cameras, medical -- the medical line, new sensors, new interfaces. We introduced a totally new Basler ace platform, the ace 2 in a basic and a pro version as well as a totally new platform for the upper mainstream market, the product name is boost. We also launched new embedded vision kits based on Qualcomm and NXP processor technologies. We further penetrated the 3D market with a second-generation 3D ToF camera, so-called blaze; and we expanded our vision toolbox: lenses, lighting, frame grabbers, cables, and they were all flanked by adviser tools on our website to guide our customers. All in all, as mentioned before, we made big steps forward in our journey from a camera manufacturer to a full line range provider of vision components. Having this said, I would like to close the executive summary chapter and continue with the financials, starting with the bookings and billings trend on Slide 7. Quarterly bookings and billings were relatively flat over the course of the year at around EUR 40 million per quarter. We have seen no demand spikes like in the past for the first half year because we were lacking investments in the consumer electronics CapEx industry. In Q4, we have seen first signs of structural market recovery with approximately EUR 5 million higher bookings than billings, as you can see on the slide. In total, we achieved EUR 160 million in sales. The regional breakdown can be seen on Slide 8. Compared to the previous year, the picture has not changed drastically, but the acquisition in China has even created a higher revenue share of Asia with 55%. Due to the reason that Silicon Software products has majority of the business in Europe, the relation between EMEA and the U.S. also shifted a bit in favor towards Europe. As you can see here, Americas, 14% on the slide; 31% EMEA; 55% sales share in Asia. I'm leaving the top line and coming to the development of the gross profit and gross margin development. Excluding an extraordinary effect in selling existing stocks in China, the gross margin has been relatively stable at around 51% with slight improvements towards the end of the year. In general, the price pressure was surprisingly low for a declining market, and the gross margin reductions from 2018 to '19 have been major -- mainly driven by a lower utilization rate of production and purchasing. Gross profits have been relatively stable between EUR 20 million to EUR 20 million (sic) [ EUR 21 million ] a quarter, as you can see also on the slide here on Page 9. These gross contributions led to the earnings that you can see on the following slide, Slide 10. Earnings and earnings margins improved over the course of the quarters to a level around 10% to 12%. Q3 was even higher at 14% because of higher revenues and gross profits and lower personnel costs due to vacation season. More vacations have been taken than accrued for. With regard to the profitability, we have made steps into the right direction toward our steering point of at least 12% earnings before tax margin. As a summary, you can see all important P&L KPIs of 2019 versus previous year on Slide 11. In comparison to 2018, the operational leverage of the organization can be clearly seen. The additional personnel costs of 200 more full-time equivalents led to a lower profitability, as you can see in the grid here. I go briefly through the numbers. As mentioned before, 8%, bookings and billings up. So then the gross profit margin, 50.6%. We have, as mentioned, lower utilization rate in 2019. Special China effects eating up some older stocks. These were the main effects. The EBITDA, EUR 30 million, so minus 17%, was stronger than EBIT and EBT result as you can see. This was mainly because the EBITDA was buffered by a higher capitalization rate on R&D investments or spending. EBIT and EBT, so EUR 17 million, minus 31%; and EBT, EUR 16.9 million, also minus 31%. Net income, EUR 12.9 million, so minus 24%. It is because of a lower corporate tax rate and also some tax benefits for the past that we accrued. We have -- we see a lower decline on the net income compared to the earnings before tax. Earnings per share, 27% down. So they are even a little bit further down than the net income because we sold treasury shares beginning of the year and have therefore more shares in the market. Let's have a look to the cash flow development, starting on Slide 12. Also, the free cash flow improved over the course of the year. As usual, Q1 was negatively impacted by increasing working capital due to sales increase from Q4 2018 to Q1 2019. And Q2 was highly impacted by the acquisition of the business from our Chinese distributor. A normal operational investment level would be around EUR 5 million, as you can see also for Q3 and Q4. Even though we had a negative free cash flow of minus EUR 9.7 million, as you can see on the next slide, Slide 13, our overall cash balance has increased from EUR 31.8 million to EUR 35.1 million, mainly because of the reason that we have sold treasury shares beginning of 2019 for an amount of almost EUR 21 million. So this solid cash position of EUR 35.1 million gives us stability in the uncertain corona times that we are in today. Slide 14 and 15 presents our overall balance sheet by end of 2019. The overall sum of the balance sheet increased by 30% from EUR 139 million to EUR 181.2 million. This was mainly driven by, on the one side, a higher capitalization rate and R&D capitalization, which you can see in the intangible assets increase, 23%. We developed, as I mentioned, 2 new platforms. And you can see the capitalization effect in the balance sheet here. On the buildings, land and finance lease, we had a change to IFRS 16, so this had also certain effects on our balance sheet. We also acquired a piece of land close to our -- or next to our land or building here for potential future expansions. And also, on the goodwill -- or not also, this is the strongest effect actually, what you can see, and the main increase here comes from our transaction in China. On the liability side on the next page, Page 15, you see a significant equity increase due to the sale of the treasury shares. The equity ratio went up from 54% to 56%. We had no mentionable change in our long-term debt. And what you see in the short-term or current financial debts, the increase is mainly driven by earn-outs, potential earn-outs for the 2 acquisitions, Silicon Software and also for the China acquisition. I would like to close the financial sector and have a look together with you on our -- or the Basler stock performance of the last year on Slide 17. Over the course of the year, the stock price increased approximately 40% and has, therefore, as you can see here, beaten the TecDAX. The drop in late summer and the rise later in autumn and winter reflected the signs of a recovery of the markets and also the improvement of our profitability as well as our stability in our guidance that we have given beginning of the year. With regard to the dividend payment, we would like to deviate for 2019 from our general guideline. You can see this on Slide 18. Due to the high risks and uncertainties of the corona crisis, we will propose to pay out 20% of the earnings after tax to our shareholders. This would mean a dividend of EUR 0.26. We hope that our shareholders understand and support this precautionary measure to be properly prepare us in case the corona crisis will be long and painful. This brings me finally to the outlook starting on Page 20. It's some sort of a shame. We assumed a market recovery until beginning of March, but the coronavirus outbreak and its pandemic spreading has dramatically changed the situation. In the light of this new picture, we expect/hope continuous improvement in China within the second quarter. We expect a sharp decline in Europe and also Americas during the second quarter. And as long-term recession risks are high, we cannot give any predictions beyond the second quarter currently. However, we would like to give you guidance and transparency for the first 6 months, and you can see this guidance or this guidance on Slide 21. For the first 6 months 2020, we guide a revenue corridor of EUR 70 million to EUR 78 million and an earnings before tax margin corridor of 6% to 10%. In addition, we see the necessity to adjust our midterm guidance by 1 year so that we expect to achieve sales of EUR 250 million earliest by 2023. We are absolutely confident that all major market drivers for vision are intact. This motivates us to continue our growth strategy even in uncertain macroeconomic times and crazy corona times that we are seeing at the moment. Having this said, I will come to the end of this presentation, opening the Q&A section. And I thank you very much for your attention, and please stay healthy.