Basler AG

XETRA:BSL

Earnings Call Transcript 2020-Q1

[Hardy Mehl, CFO, COO & Member of Management Board]

Yes. Hello, a warm welcome, and good afternoon to Basler's conference Q1 call. It is my pleasure today to present you very good numbers and also instill confidence for our half -- first half year guidance in these turbulent times. I will start today's presentation with the executive summary, followed by a deeper insight into our financials, and then thirdly, to talk a bit about the share, very briefly. And then, last but not least, give you an outlook for the first half year and also into our midterm guidance.Let's start with the executive summary on Slide 3, with some upfront information regarding the coronavirus impact to Basler and to our markets.Our way to put highest priority on employees' health has been successful. So no infection within the Basler team as of today, and this makes us pretty proud and we are really happy about this. The team did a great job to work under these circumstances and is highly motivated to continue operations.We have been able to continue all operations and successfully service the customer with rapid adjustments of our shift models and production processes as well as immediate transfer to home office.Shutdowns temporarily affected incoming orders and supply situation. However, China recovered pretty fast during March. Europe, Americas and rest of Asia slowed down in the last weeks due to this lockdown. Our lead times of some products increased, but in general, the situation -- the delivery situation is good. We also used the good times within Q1 to prepare the company for potential second row effects. So we put in place scenario plans. We did already cost savings or we initiated cost savings. We stopped hires. We drew open innovation loans on KFW, where we had already the permission, but we haven't approved them so far. And we made the decision to reduce our dividend payout or the payout ratio to 20% as a precautionary measure.So now let's shed some light on the market environment versus Basler's performance on Slide 4.The market environment was pretty weak. Germany's industry for vision components, the billings were up 2% and the bookings were up 3%. However, the overall surrounding for the machine builders, the vision machines, so the overall vision industry, shrank by single digits. So we have seen increasing business against that. And we have seen increasing business and CapEx goods for semicon and electronics. We also see continuing growth in medical and logistics application. And then we see that the automotive industry remains weak, and is additionally -- seems to be additionally affected by the COVID-19 circumstance.Our performance against this, pretty strong. Bookings up 26%, actually the second-highest bookings in the history of Basler for a quarter. Our billings were up 11%, and both parameters were realized purely organic compared to the last 2 years where we had always an inorganic portion in our numbers. We doubled our earnings after tax due to high gross margins and economies of scale of the overall organization. Our regional and vertical market diversification helped us to grow the business within the corona times. Our 2 production sites and supply chain supported our competitiveness operationally, and we have been able to deliver, overall, over the full Q1, where some of our competitors were forced to shut down production. We also introduced new products, primarily via our strong digital [ marketing ] campaigns.And you can see this on Slide 5, the highlights. We launched mainly products around the ace. We also launched a new version of the pylon software that connects different products that we offer, and it's a design suite that helps the customer to easily integrate our products. We also upgraded the MED ace line with special dust protection. And this is pretty interesting because this goes at the moment together with an increasing demand of lab automation where these cameras are targeted for. We also did quite some innovation on the embedded side and connected our products to the NXP processor product. And we also increased and continue to increase our toolbox in order to foster our journey from a camera manufacturer to a vision toolbox company.In the light of the corona risks, we slowed down the hiring process, as mentioned, over the course of Q1. As you can see on Slide 6, we hired 16 new full-time equivalents within Q1. And we ended the quarter with 806, so 806 full-time equivalents, from -- of which 60% of the employees are working in sales, marketing and R&D, which means the majority of the company is working on the future and not on the present of the company. So this gives us great potential and is -- still, even though we slowed down the hiring, a high investment into the future of the company.Let's zoom further into our financials for the first quarter, beginning with the bookings and billings on Slide 8.The bookings have picked up in Q4, and already in Q4 and in Q1, especially due to increasing market activities in the field of semicon and electronics, plus continuing growth in the field of medical and life sciences and logistics.You see the numbers here. Bookings, EUR 53 million; and billings, EUR 44 million for the first quarter of 2020. In reference to the bookings and billings of the last year's quarters, you see this illustrates here the increase. The unusual difference of bookings and billings in the first quarter are mainly driven by a frame order that we will deliver over the course of the next quarters and also by our moderately increased lead times for certain products due to shortages in the supply chain because of corona.Besides the severe shutdown in China, during February, our business in Asia remained strong, with over 50%, as you can see on the next slide, which is Slide 9. The Asia business was also for -- fostered by the uplift in semicon and electronics and by our strong local presence. So the investments we did in the last years, and especially also the investment we did last year in the distribution business in China, really pays off at this point in time.As guided, the special effects of the last year on our gross margins, due to the MVLZ China acquisition no longer hitting our P&L.As you can see on the gross profit figures on Slide 10 here, the -- we have with 52.6% points a very -- a pretty strong and also a pretty stable gross margin achieved over the course of the last 2 quarters already.With the EUR 23 million in total in gross profits generated and the current organization, we enabled the company to leverage expenses and to achieve a 14.4% earnings before tax margin, which is absolutely in line with our long-term guidance to be at least at 12% with our earnings before tax margin, as you can see here on Slide 11.On the next page, I would like to summarize the main profit and loss KPIs in comparison to Q1 of the previous year. Order entry, as mentioned, almost EUR 53 million, plus 26%; sales, EUR 43.7 million, plus 11%; gross profit, strong, 2.5 percentage points up compared to last year's Q1 with 52.6%; earnings before -- or EBITDA, EUR 9.5 million, so up 58%, and you see here the leverage effect; earnings before interest and tax, EUR 6.4 million, which is 100% plus compared to the quarter 1 of 2019, and here, the leverage effect is clearly seen; net income, EUR 4.7 million, 213% above the Q1 2019. There are also some special tax accruals included here. So this is not the new norm. It's kind of the comparison -- is not an apple-to-apple comparison.Let's change the perspective over to the cash flow of our -- and have a look to our free cash flow in Q1. This time, we have no M&A effects included. You see it here on Slide 13. Despite the strong earnings, the operational cash flow was EUR 2 million, mainly because of the increase of accounts receivables caused by growing revenues. So it's kind of a time lag until we see these results also in the cash flow. In total, this led to a slightly negative free cash flow for the moment, and we expect the cash in the coming quarters after the accounts receivables are paid.To summarize the liquidity and cash flow in Q1, please have a look to Slide 14. On the left side, you see, in the grids, that we started the period with EUR 35.2 million in cash account; then our cash flow from operations, EUR 2 million; cash flow from investments, minus EUR 3.9 million, so relatively normal cash flow from investments without any M&A extraordinary effects; free cash flow in total, as mentioned, minus EUR 1.9 million; and then the cash flow from finance, EUR 5.1 million, due to the effect that we pulled in innovation loans from KFW. So we total -- in total, we ended the period with roughly EUR 38 million cash account, which means what -- that you can see on the right side, an operative net cash of approximately 13%. So this sound cash account gives us financial stability in case we would need to weather a potential corona storm.Now let's have a quick glance to our share development of the Basler's stock. This is shown on Slide 16 and 17.On 16 -- on Slide 16, it becomes visible that our shares suffered clearly from the corona impact, so no surprise. We made just a move with the corona with the TecDAX in this corona situation. However, our rebound was weaker. Let's see what the coming months will bring us.Slide 17 is the remainder. I mentioned this earlier also on the annual report call that we -- as Board and our Supervisory Board decided to propose, on the shareholders meeting, a reduction in dividend payment to 20% as a precautionary measure to potential COVID impacts. We have the shareholders' meeting by end of this month and expect that there will be a vote for it and an understanding as well.This brings me to the last part of my presentation, the short and midterm outlook, starting on Slide 19.We experienced a high demand in the first quarter. However, the potential second row effects of COVID-19 for our industry are uncertain and the visibility is low. For the second quarter, we expect that the demand for semicon and electronics, medical and logistics remain good as there is either a technology push or even a higher demand due to coronavirus for these sectors. We also expect China to continuously further recover. We expect declining business in Europe and Americas due to the -- as an effect of the lockdowns. And we see continuing risks in our supply chain due to the restrictions in COVID-19. So far, we were absolutely able to manage this out, but the risks are still around. So -- and we need to consider this in our guidance.Considering all these effects and all these risks, we confirm our guidance for the first half year at the upper end. We are pretty confident for the first 6 months to achieve revenues around EUR 78 million at an earnings before tax margin between 9% to 10%. Further, we have no change in our midterm guidance for 2023. Our goal is to increase revenue to EUR 250 million by then at a sound pretax margin of at least 12%.With this outlook, I will close my presentation, and thank you for your attention. And we will open the Q&A session now.