Basler Aktiengesellschaft (BSL) Earnings Call Transcript & Summary

Good afternoon and a very warm welcome to our earnings call 2020. I'm Hardy, Chief Financial Officer and Chief Operating Officer of Basler. And I'm pleased to present you today sound results and also a good outlook for this year. Yes as always, the presentation is structured by first of all, an executive summary; followed by financials; then some words about our share and dividend proposal; and last but not least, an outlook for this year. I'm starting the presentation on Slide 3 with the executive summary. So the market environment wasn't stellar in 2020. The pandemic caused the market decline. Billings in our industry declined by 7% and bookings by 10%. The automotive industry and general machinery was highly affected by COVID-19, whereas we saw a solid growth in CapEx goods and good demand for semicon, electronics and in some medical verticals as well as logistics. The consolidation trend was ongoing. So the intensity of competition has also increased in the year 2020. Our performance in this environment was clearly above the market. Bookings were up 9% and billings up 5%. We had strong earnings and cash flows, we come later to this. We increased our guidance, and at the end of the day, achieved at the upper end -- or at the upper end of the increased guidance. This was mainly -- this success was mainly based on our vertical market diversification that enabled us to outperform the industry. We also made good strategic progress in our journey to become a full-range provider for vision components. 2020 was a tough and busy year due to the pandemic. However, the impact of COVID-19 for Basler was limited, and I'm referring now to the Slide 4. We had highest priority on employees' health, and we were successful with that. We had only one mild corona case in the whole worldwide Basler team that we know of. We are very happy to say that. And the team, the Basel team did a great job to keep up the operations in these pandemic and crazy times as well as push forward our important strategic projects. And I just wanted to name a few here. For example, we started a building project that you also can see on the slide on the lower left. We will expand our headquarters and enable us to carry approximately 350 more employees or have -- for office space for 350 more employees at our headquarters here. The move in is planned for 2020, and the construction work has begun last year. On top of this, we also worked on a totally new, let's say, ERP structure. We kicked off an SAP HANA project. We are currently working with the older SAP R3 system. And we are currently implementing S/4HANA. The project has started mid- of last year, and our aim is to finish this project roughly by end of this year. And on top of this, for sure, we had -- we invested a lot in new product developments. So R&D ran at full throttle with 14% from sales. And some of the outcomes you see on the next slide, Slide 5, just to name the highlights here, there were much more initiatives and product launch, but had on the upper left, the new boost platform connected with the frame grabber. So we are selling here image acquisition devices, no longer just the camera itself. It's a joint work of the camera teams and also the team for the frame grabbers that are working in Mannheim, so the formerly Silicon Software team. On the upper right, you see as an example the new embedded kit, where we connected our cameras or vision modules with NXP processors and embedded our core IP into the NXP processors. On the lower right, our blockbuster products, so the mainstream products. ace, we launched ace 2 in basic version and pro version. We integrated various sensors and offered different interfaces. And on the lower left here, you see the new blaze product. This is the next generation time-of-flight camera, so a 3D device. It's more -- also more than a camera. It carries also lighting internally, also processing, so it's more a vision device than a pure-play camera. And in the center, the fifth item here on this chart you see that we also brought out new releases of our pylon driver. For those of you who are not too much familiar with it, pylon is our software development kit that enables our customers to connect different vision hardware and create a solution as fast as possible. So this is our, let's say, value promise here that in case the customer uses pylon, he comes faster to the solution and saving R&D dollars and time. With many of these new product introduction and also the exploration into other applications outside the factory domain, we have made further steps in our journey from a camera manufacturer for factory automation to a computer vision full-range provider. And this journey is illustrated on Slide 6. There is no big news in it, but I just want to emphasize that also in the corona year, we have not only kept the profit and loss sheet not only under control, but even grew the profit and loss sheet. We also made good strategic progress on this with regard to this journey, and this is what we are happy to announce. The staff and the team size was more or less stable in 2020 and the functional split also did not change much. And this you can see on Slide 7. We stopped hires in the beginning of the year due to the COVID-19 uncertainties, but we worked with full capacity over the course of the year and had no reduction in work time. So no short work, nothing. So the organization was really concentrated and with high productivity even under the COVID circumstances. From an organizational size point of view, the number of employees currently fit roughly to our strategic earnings guidance. So for those of you who know us longer, know that we are try -- that we try to grow the company with 15% compound annual growth rate top line and keep the earnings -- the pretax margin roughly at around 12%. This is where we ended up end of last year, so we are now seeing us in a situation where the organizational sites -- size fits more or less to the revenue stream that we are able to achieve. So this brings me directly to the next section, the financials, and we start with bookings and billings on Slide 9. We started and ended the year with strong bookings of roughly EUR 53 million a quarter and had weaker periods in Q2, Q3. The quarterly revenues were strong, with approximately EUR 45 million level in Q1 and Q2 and weaker revenues around EUR 40 million in the second half of the year, so in Q3, Q4. Both strong booking quarters, Q1 and Q4 were mainly driven, as mentioned earlier, by semicon, electronics, logistics and some medical verticals, for example lab automation, but mainly semicon, electronics and logistics. The strong momentum and order backlog by the year-end is worth to mention. If you have a look on the Slide 9 here, in Q4 we had a EUR 53 million in bookings and EUR 41 million in billings. So this has given us quite some tailwind at the end of the year, and we had a good start into 2021. So the next slide, Slide 10, shows the regional distribution of our business. In total, we achieved EUR 170.5 million in sales. The regional distribution shifted even further to Asia due to the semicon and electronics upswing. And we shipped approximately 56% of our products to Asia, 29% to EMEA region, and 15% to North America. Moving further down the profit and loss structure, I'm coming to our gross profit margin -- or gross profit and the gross profit margin on Slide 11. The gross profit and gross profit margins were stronger in the first half due to higher revenues and better utilization rates in the first half of the last year. In general, gross margins were on a high level, between 51% and 53%. The dip in Q4 below 51% was caused by a combination of low utilization, bonus payments and currency effects as well as inventory write-offs at the year-end. We expect gross margins to swing back above 50% within this year. If we go further down the P&L structure on Slide 12, you can see the quarterly development of our pretax profits and pretax margins. Q1 to Q3, we were -- were very strong quarters with quarterly profits around EUR 6 million. So you see here, Q1 EUR 6.3 million, and then EUR 6.6 million in Q2, and then going down to EUR 5.3 million in Q3. Q4 was significantly weaker because of a variety of effects. I'd like to mention those. It's one effect was a EUR 1.5 million bonus package for our employees for the outstanding contribution of COVID times, and approximately also EUR 1 million depreciation of intangible assets due to internal impairment test results. So this in combination with the weaker revenue stream in Q4 compared to Q1, Q2, we ended up with EUR 2.3 million in profit, in pretax profit and a single-digit margin, pretax margin of 5.6%, mainly caused by those special and extraordinary effects that I mentioned. Slide 13 summarizes the main P&L KPIs and compares it to the previous year, and I'm running quickly through the grid on Slide 13. In order entry, EUR 181.6 million, so this is 9% better than previous year. EUR 170.5 million in sales, 5% increase. Gross profit increased by 1.4 percent points to 52%. EBITDA, EUR 34.6 million, so 15% above previous year. And then earnings were -- so EBIT of 18% plus, so EUR 21 million. And the earnings before tax, EUR 20.4 million, 21%. EBT margin also increased by 1.5 percent points to 12%. This is what I mentioned earlier on exactly on our strategic path where we wanted the company to be. Net income, EUR 15.1 million, 17% plus. And earnings per share, 17% plus, EUR 1.51 per share. So coming now on Slide 14 to the development of our free cash flow. What you see on this slide is the free cash flow, the operating cash flow, and the investing cash flow over the course of the last 8 quarters. The cash flow in general was strong last year. We started with a slightly negative free cash flow in the first quarter due to the increase in revenue and increase in accounts receivables. But then in the Q2, Q3, Q4, we have positive free cash flow quarters. And in Q2, it's also worth to mention that the investing cash flow of minus EUR 9.7 million, there was an extraordinary effect in it, an earnout payment for our -- so the final payment, earnout payment for our M&A transaction in China 2 years ago. So this was approximately EUR 5 million earnout payments. So that in general we look at an investing cash flow per quarter of approximately the run rate is approximately EUR 4 million to EUR 5 million per quarter. So driven by this strong cash flow and further loans, our cash account increased over the course of 2020 quite significantly. And this is shown on Slide 15. You can see that we started the year with EUR 35.2 million. And strong operational cash flow of EUR 37.3 million. And then cash flow from investments, minus EUR 23.3 million, also carrying here the earnout payments for the M&A transaction. The investments in the previous year were higher, especially due to the acquisition, the main payment for the acquisitions last year. And then the free cash flow, EUR 14 million positive, and then a slightly negative financing cash flow. And by end of the year, we were -- our cash account were at approximately EUR 48 million. So on the next 2 slides 16 and 17, you see the balance sheet. There is no significant change in the balance sheet. The total sum grew proportionately with the revenue, so 5% increase of the balance sheet. We talked already about the larger increase in cash. And also what you see on the liabilities side is that the equity overproportionately increased, which also means that our equity quota raised over the course of 2020. So having this said, I'm coming to the end of the financial section and going now to the section 3, the share, starting just with a quick glance on the share development. We had a share development pretty close to the TecDax development over the course of the year until late autumn. And then beginning of November, the Basler share took off compared to the TecDax; and by year-end also beat the development against the Tecdax with approximately let's say 20 -- well 130% here, so 30% plus by end of the year. So -- but at the moment, as you obviously know, there was also quite a strong momentum since then, and the share price picked up significantly. With regard to the dividend, we also want to let our shareholders participate in this very special corona year with a good development on the top line, unexpectedly good development especially in the light of the COVID situation, and also participate in the extraordinary savings we had due to the limitations in travels and in events. And this is why we propose, or we will propose, to the main shareholders' meeting an extraordinary high dividend with a share -- with a payout of 38% from earnings after tax. Normally, we pay around 30%. This is our guideline. Last -- or for 2019, we paid out 20%. And we are now proposing 38%, which would mean EUR 0.58 per share. So this brings me already to the final section, the outlook, starting with Slide 22. For 2021, we expect positive bookings momentum -- the positive bookings momentum to continue. We also expect, again strong demand from semicon, electronics, logistics, and lab automation. We also believe or assume that there will be a recover (sic) in other verticals in the second half of the year, hopefully when the vaccination is making progress and the mood is getting better. And then also the other industries, general automation industry hopefully will pick up. We definitely see strong demand for the first half of the year in Asia. And we expect also in North America and Europe better recovery in the second half of this year. All in all, we see a bumpy supply situation due to COVID-19 and significant shortages in increasing lead times for semiconductor chips. So this definitely is creating uncertainties. This is creating high workload on the purchasing teams and on the production and operations team. And we expect at least, let's say, the first 3 quarters to be a bumpy road on the operations side. So under these assumptions, we project a double-digit growth and a sound profitability for 2021. Our revenue guidance is EUR 190 million to EUR 210 million. Our earnings margin -- or earnings before tax margin guidance is depending on this revenue stream between 12% margin and 14% margin. We will also restart to hire and further scale the organization due to these assumptions here and due to this outlook, in order to support not only this year but our midterm plan that you can see on the next and the last slide, 24. This plan is kept stable. Under 2023, we want to grow the company to a revenue level of EUR 250 million. We want to keep the company at around an earnings margin level of around 12%. And we also want to do this with a strong cash conversion rate of 70%. And this brings me to the end of my presentation. I thank you very much for your attention, and I'm opening up the Q&A session.