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Basler AG

Quarterly Report May 10, 2019

45_10-q_2019-05-10_0baf23db-680b-4ab5-80cf-715dba0832ed.pdf

Quarterly Report

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3-MONTH REPORT 2019

Key Figures

Changes
to previous
in € m* QI 2017 QI 2018 QI 2019 year
Sales revenues 36.3 44.9 39.3 -13 %
Incoming orders 60.4 46.1 42.0 -9 %
Gross results 18.0 22.7 18.1 -20 %
Gross profit margin 49.6 % 50.6 % 46.1 % -4.5 Pp.
Full costs for research
and development 4.0 4.5 6.1 36 %
Research and
development ratio 11.0 % 10.0 % 15.5 % 5.5 Pp.
EBITDA 10.0 14.0 6.0 -57 %
EBIT 8.0 10.8 3.2 -70 %
EBT 7.9 10.8 3.1 -71 %
Net income 5.7 8.1 1.5 -82%
Weighted average
number of shares 3,226,407 3,209,620 3,223,562 0 %
Result per share (€) 1.78 2.52 0.45 -82 %
Cash flow from operating
activities 4.2 -1.1 -0.9 -18 %
Cash flow from investing
activities -2.5 -3.1 -5.3 71 %
Free Cash flow 1.7 -4.2 -6.2 48 %
in € m* 12/31/2017 12/31/2018 03/31/19 Changes
to previous
year
Total assets 117.7 139.0 175.0 26 %
Long-term assets 45.9 63.5 73.2 15 %
Equity 65.6 75.5 98.2 30 %
Liabilities 52.1 63.5 76.8 21 %
Equity ratio 55.7 % 54.3 % 56.1 % 1.8 Pp.
Net cash 25.0 8.0 26.5 231 %
Working Capital 19.8 31.4 36.5 16 %
Number of employees for
the fiscal year (full time
equivalents) 504 610 790 30 %
Share price (XETRA) in € 195.05 124.00 150.00 21 %
Number of shares in
circulation 3,211,136 3,205,719 3,335,919 4 %
Market capitalization 626.3 397.5 500.4 26 %
*unless otherwise stated

OVERVIEW OF THE FIRST THREE MONTHS:

¼ Sales: Euro 39.3 million (previous year: Euro 44.9 million, -13 %) ¼ EBITDA: Euro 6.0 million (previous year: Euro 14.0 million, -57 %) ¼ EBT: Euro 3.1 million (previous year: Euro 10.8 million, -71 %) ¼ Net result: Euro 1.5 million (previous year: Euro 8.1 million, -82 %) ¼ Operating cash flow: Euro -0.9 million (previous year: Euro -1.1 million, -18 %)

  • ¼ Incoming orders: Euro 42.0 million (previous year: Euro 46.1 million, -9 %)

  • ¼ Cash flow from investing activities: Euro -5.3 million (previous year: Euro -3.1 million, +71 %)

¼ Free cash flow: Euro -6.2 million (previous year: Euro -4.2 million, +48 %)

Dear Ladies and Gentlemen,

In a market environment much weaker than in the previous year, the Basler group closed the first three months of 2019 along its planning. The expected downswing – particularly in the months of January and February – was even slightly stronger than assumed at the end of 2018. However, the positive first quarter's book-tobill ratio indicates a stabilization of the situation in the second quarter. Adding up incoming orders, sales, and result as well as the EBT return, these are below the very strong previous year's quarter. Especially in the area of investment goods for the semiconductor and electronics industry, the current economic downturn is clearly noticeable. Despite the weaker market situation, we continue to pursue our investment plans in order to continuously increase our competitiveness and sustainably gain market shares in existing markets as well as open up new application fields. Thus, in the past months, we continued to implement growth relevant measures in development, production, and sales without major restrictions. We see the computer vision market's long-term growth to be unbroken, however, quickly affected by the currently weaker market phase, but not sustainably endangered. We significantly increased the company's technology expertise, the product portfolio as well as the market presence due to the important acquisitions of Mycable GmbH and Silicon Software GmbH as well as the takeover of the business of our Chinese distribution partner (MVLZ) on January 1, 2019. In the current financial year, we particularly focus on the successful integration of over 250 new colleagues that strengthened us through organic and inorganic measures in the past 12 months.

BUSINESS DEVELOPMENT

In a market environment that is cooling down compared to the previous year, the Basler group developed along its sales and profitability forecast in the first three months of 2019. Even though sales at -13 % and incoming orders at -9 % were declining, a slight stabilization of the market situation became apparent due to a positive book-to-bill ratio in the first quarter. Moreover, it is important to note that the first quarter's sales of 2018 were on a record level.

-9 % Order entry to previous year

Keyfact

-13 % Sales revenues to previous year

Keyfact

INTERIM MANAGEMENT REPORT INCLUDING ESSENTIAL SUPPLEMENTARY DISCLOSURES OF THE ANNUAL FINANCIAL STATEMENT OF DECEMBER 31, 2018

Report on profit, finance, and asset situation

Sales and incoming orders, costs of service provision

Compared to the first quarter of 2018, the strongest quarterly sales in the company's history, sales decreased by 13 % to Euro 39.3 million (previous year: Euro 44.9 million). Due to the reasons mentioned above, incoming orders decreased by -9 % to Euro 42.0 million (previous year: Euro 46.1 million). In total, the accumulated incoming orders and sales in the first three months are slightly weaker than originally planned, however, they are within the forecasted corridors.

For the last five quarters (in € million)

REVENUE SPLIT BY REGIONS

*as of March 31, 2019

As at the end of March 2019, the VDMA (Verband Deutscher Maschinen- und Anlagenbau, German Engineering Federation) reported a sales decline of 13 % for the German manufacturers of image processing components. According to VDMA, incoming orders in the industry decreased by 13 % in the same period of time.

Product Launches

In the past months, the portfolio of the successful ace camera series was extended by various models. These new models are based on high quality and modern CMOS image sensors of the Sony Pregius-line which, in the medium term, will substitute older camera models with discontinued CCD Sensors of Sony. In the first quarter, Basler started the series production of the Basler MED ace camera series which was especially developed for the medical & life science area. Unique features address particular requirements of the investment goods markets for medical technology and life sciences. Furthermore, Basler's new DIN EN ISO 13485:2016 certification offers conformity to internationally accepted quality standards in the medical industry.

After the successful introduction of the embedded vision kits that are based on the Qualcomm Snapdragon 820, Basler expanded its product range by kits based on NXPs i.MX8- processor family. Basler initially presented its new embedded vision kits at the "Embedded World" - exhibition that took place in Nuremberg in February and at the Hanover Fair in April. Live demos of a retail deep learning application solution demonstrated the possibilities of embedded vision solutions.

Outlook

So far, the fiscal year 2019 has been weak, however, for the Basler group according to expectations and along the forecast communicated to the capital market. Due to the March and April incoming orders, the management expects a slight seasonal upturn in the following two quarters. However, in total, the economic outlook is dominated by a high uncertainty and the investment goods markets for semiconductor and electronics are clearly declining. Even though the current macroeconomic conditions have dampening effects and the risks of a recession are increasing, in principle, the management is positive about the future. Major growth drivers such as automation, image processing in new application fields outside the factory as well as the networking of intelligent machines and products (Industry 4.0 / IOT) continue to be characterized by a long-term stable growth trend. The management confirms the forecast for the full financial year. According to this forecast, the group's sales 2019 will be within a corridor of Euro 160 – 180 million at a pre-tax return margin of 7 – 11 %. The company will continue to go ahead with the implementation of the profitable growth strategy in the upcoming months.

EARNINGS BEFORE TAX

The period surplus amounted to Euro 1.5 million and thus was 82 % below the previous year's value of Euro 8.1 million. The result per share (diluted/undiluted) amounted to Euro 0.45 (previous year: Euro 2.52).

Asset Situation

The increase of the long-term assets is mainly due to the capitalization of the leasing contracts for the building according to IFRS 16 (initial application January 1, 2019). The transaction in China is not yet visible in the asset situation, since it is not yet completed. This is expected to be made in the upcoming quarter, subject to all necessary official approvals. After payment, the acquired assets will be shown in the financial reporting (asset exchange).

Regarding the short-term asset situation, particularly the inventories increased due to the acquisition of Silicon Software and the acquisition of the inventories of the Chinese distribution partner MVLZ as well as due to the weak market situation.

Development Equity

Equity amounted to Euro 98.2 million (December 31, 2018: Euro 75.5 million), thus the equity ratio was 56.1 % on March 31, 2019, compared to 54.3 % on December 31, 2018. The increase of the capital reserve is due to the sale of own shares to 7-Industries B. V. at the end of the first quarter. Please also see page 12 "Share buyback program".

Cash Flow and Liquidity

The operating cash flow amounted to Euro -0.9 million (previous year: Euro -1.1 million). In addition to the reduction of the result, it was negatively affected by an increase of working capital. The increase in working capital is mainly due to the

The gross margin of 46.1 % (previous year: 50.6 %) reached a low level. This is mainly due to three reasons. First, due to low utilization degressive effects were lower regarding fixed costs for material, production as well as R&D depreciations. Second, there was a one-time effect in the first quarter due to the takeover of stocks from the acquired distribution business. of approximately 2.5 percentage points. Third, due to the acquisition of the distribution business in China, the sales share of low-margin products increased in line with the strategy. In the area of camera sales prices, there were no major changes. In absolute terms, the gross result amounted to Euro 18.1 million (previous year: Euro 22.7 million). Already for the next quarter, the management assumes a significant increase of the gross margin due to an improved degression of fixed costs and the lack of the mentioned above special effect.

GROSS PROFIT

Development of Gross Margin (in € million)

Gross Margin incl. development depreciation Gross Margin excl. development depreciation

Compared to the record result of the first quarter of 2018, the lower gross profit of the first quarter of 2019 had to bear an organically and inorganically grown organization as well as its associated personnel and material costs. The strategic investments in the personnel increase, particularly in R&D as well as marketing and sales, however, led to a decrease of the pre-tax result amounting to Euro 3.1 million (previous year: Euro 10.8 million, -71 %), due to the currently weak market. The pre-tax return rate of approximately 8 % was below the long-term target of >12 %. However, it is within the guidance for the full financial year of 7 – 11 % anticipating a temporarily weak market. Compared to the fourth quarter of 2018, the pre-tax result as well as the pre-tax return rate considerably increased again.

-71 % EBT compared

Keyfact

Significant transactions with related parties (entities and individuals)

There are no significant changes compared to the information provided in the consolidated financial statements as of December 31, 2018.

OPPORTUNITIES AND RISKS REPORT

Regarding significant opportunities and risks of the probable development of the company, we refer to the opportunities and risks described in the group management report as of December 31, 2018. Meanwhile, no significant changes occurred. Existing risks are continuously monitored and countermeasures are initiated. As in the previous year, major risks are the procurement market for certain electronic components as well as macroeconomic changes. Furthermore, the focus is on the successful integration of the Silicon Software acquisition and the successful start of Basler China.

NOTES TO THE INTERIM STATEMENT ACCORDING TO IFRS

The interim statement of Basler was prepared according to the International Financial Reporting Standards (IFRS) as applicable within the European Union (EU), the interpretations of the International Financial Reporting Interpretations Committee (IFRIC), as well as the Standing Interpretations Committee (SIC). The interim statement was prepared according to the provision of the IAS 34.

The interim statement as of March 31, 2019, has not been audited. The same accounting and valuation methods are applied as in the consolidated financial statements as of December 31, 2018. For significant changes of the consolidated balance sheet, the consolidated income statement as well as the consolidated cash flow statement, we refer to the report on the profit, finance and asset situation.

On January 1, 2019, IFRS 16 was initially applied. As explained in the annual report 2018, within the initial application, all building leasing agreements were balanced as economic ownership including 98 % of the total volume of all leasing contracts.

In the cash flow statement Euro 7.1 million were netted as capitalization of assets and a liability is recognized for lease payments and shown under "Changes from finance lease" in the cash flow from financing activities. The interest costs from finance lease amounted to Euro 100 thousand in the first quarter.

takeover of the MVLZ inventories. The cash flow from investing activities amounted to Euro -5.3 million (previous year: Euro -3.1 million). In total, the free cash flow decreased to Euro -6.2 million (previous year: Euro -4.2 million).

Since the beginning of the year, liquid assets increased to Euro 47.45 million. This is particularly due to the sale of own shares in an amount of Euro 20.8 million. This cash situation enables the group to finance its long-term oriented growth strategy independently of macroeconomic risks. On March 31, 2019. net liquidity amounts to Euro 26.5 million.

FREE CASH FLOW

For the last five Quarters (in € million)

Events after the end of the interim reporting period

On January 1, 2019, the business of our Chinese distribution partner (MVLZ) was transferred to the newly established joint venture Basler China. Please refer to the explanations given in the annual report 2018 on this subject.

Employees

On the reporting date March 31, 2019, the Basler group employed 790 (previous year: 552) employees (full-time equivalents). The significant increase compared to the previous year's quarter is mainly due to the acquisition of Silicon Software GmbH in July 2018 as well as the transfer of the MVLZ employees to Basler China on January 1, 2019 and continues to focus on the future growth plan of the group.

Free Cashflow

Shareholdings Management

03/31/2018
Number of shares
03/31/2019
Number of shares
Supervisory Board
Norbert Basler - -
Prof. Dr. Eckart Kottkamp - -
Horst W. Garbrecht - -
Prof. Dr. Mirja Steinkamp - -
Dorothea Brandes (from 05/07/2018) - -
Dr. Marco Grimm (from 05/07/2018) - -
Management Board
Dr. Dietmar Ley 125,794 125,794
John P. Jennings 5,500 4,500
Arndt Bake 700 700
Hardy Mehl 1,000 1,200

Share buyback program

The management board and the supervisory board of Basler AG decided on April 21, 2016, to buy back additional own shares. On September 17, 2018, the company informed the capital market to once again buy back own shares. This buyback program was closed on March 29, 2019. On the same day, the company sold 3.72 % (130,200 pieces) of its one shares to 7-Industries B.V. at a price of Euro 160.00 per piece. At the reporting date on March 31, 2019, the Basler group holds almost 4.7 % (164,081 pieces) of its own shares.

GERMAN CORPORATE GOVERNANCE CODE

The current declaration of the management board and the supervisory board pursuant to § 161 of the German Stock Corporation Act (AktG) regarding the German Corporate Governance Code was made continually available to the shareholders on the company's website at www.baslerweb.com/Investoren/Corporate-Governance.

DECLARATION OF THE LEGAL REPRESENTATIVES

We affirm to the best of our knowledge that the interim consolidated financial statements, in accordance with the accounting principles applicable to interim reporting, provide a true and fair view of the group's asset, financial, and earnings situation and that the group's interim management report represents a true and fair picture of the course of business, including the operating result, and the group's financial situation as well as describing the essential opportunities and risks concomitant with the expected development of the group during the remainder of the fiscal year.

The management board

Dr. Dietmar Ley John P. Jennings Arndt Bake Hardy Mehl CEO CCO CMO CFO/COO

BASLER IN THE CAPITAL MARKET

SHARE PRICE DEVELOPMENT

BASLER (Xetra) vs. TecDax 2018/01/01-2019/04/01

Shareholder structure

The share capital of Basler AG remained unchanged at Euro 3.5 million at the end of the quarter on March 31, 2019, divided into 3.5 million of no-par-value bearer shares.

The shareholder structure changed in the first quarter. 7-Industries Holding B. V. announced at the end of March to hold over 5 % of the shares of Basler AG. On March 31, 2019, the shareholder structure was as follows:

Basler Share TDXP Index

Consolidated Profit and Loss Statement

Group´s annual balance sheet according to IFRS for the fiscal year from January 1, 2019 to March 31, 2019

in € k 01/01/
- 03/31/2018
01/01/
- 03/31/2019
Sales revenues 44,932 39,339
Currency earnings -178 242
Cost of sales -22,074 -21,494
- of which depreciations on capitalized
developments -1,762 -1,633
Gross profit on sales 22,680 18,087
Other operating income 86 77
Sales and marketing costs -5,331 -7,811
General administration costs -3,337 -3,799
Research and development -2,983 -3,148
Other expenses -318 -221
Operating result 10,797 3,185
Financial income 48 83
Financial expenses -90 -213
Financial result -42 -130
Earnings before tax 10,755 3,055
Income tax -2,660 -1,593
Group´s period surplus 8,095 1,462
of which are allocated to
shareholders of the parent company 8,095 1,462
non-controlling shareholders 0 0
Average number of shares 3,209,620 3,223,562
Earnings per share diluted / undiluted (€) 2.52 0.45

Consolidated Statement of Comprehensive Income

Group´s annual balance sheet according to IFRS for the fiscal year from January 1, 2019 to March 31, 2019

in € k 01/01/
- 03/31/2018
01/01/
- 03/31/2019
Group's period surplus 8,095 1,462
Result from differences due to currency
conversion, directly recorded in equity
-72 347
Adjustment Finance Lease w/o income effect
/ IFRS 15
0 0
Total result, through profit or loss -72 347
Total result 8,023 1,809
of which are allocated to
shareholders of the parent company 8,023 1,809
non-controlling shareholders 0 0

Consolidated Cash Flow Statement

Group´s annual balance sheet according to IFRS for the fiscal year from January 1, 2019 to March 31, 2019

in € k 01/01/
- 03/31/2018
01/01/
- 03/31/2019
Operating activities
Group's period surplus 8,095 1,462
Increase (+) / decrease (-) in deferred taxes -99 123
Payout/ incoming payments for interest 102 200
Depreciation of fixed assets 2,711 3,000
Change in capital resources without affecting payment -72 347
Increase (+) / decrease (-) in accruals 1,163 -257
Profit (-) / loss (+) from asset disposals 0 0
Increase (-) / decrease (+) in reserves -229 -5,378
Increase (+) / decrease (-) in advances from demand -1,467 181
Increase (-) / decrease (+) in accounts receivable -11,527 -3,608
Increase (-) / decrease (+) in other assets 181 -1,624
Increase (+) / decrease (-) in accounts payable 710 3,758
Increase (+) / decrease (-) in other liabilities -649 935
Net cash provided by operating activities -1,081 -861
Investing activities
Payout for investments in fixed assets -3,105 -5,289
Incoming payments for asset disposals 19 0
Expenses for acquisitions less cash acquired 0 0
Net cash provided by investing activities -3,086 -5,289
Financing activities
Payout for amortisation of bank loans -156 -156
Payout for amortisation of finance lease -556 -687
Incoming payment for borrowings from banks 0 1,994
Interest payout -102 -200
Incoming payment for sale of own shares 0 20,822
Payout for own shares 0 0
Dividends paid 0 0
Net cash provided by financing activities -814 21,773
Change in liquid funds -4,981 15,623
Funds at the beginning of the period 36,025 31,830
Funds at the end of the period 31,044 47,453
Composition of liquid funds at the end of the period
Cash in bank and cash in hand 31,044 47,453
Payout for taxes* -1,052 -1,291
* Change in disclosure: payouts shown with a negative sign
in € k 12/31/2018 03/31/2019
Liabilities
A. Equity
I. Subscribed capital 3,206 3,336
II. Capital reserves 5,286 22,070
III. Retained earnings including group's earnings 66,541 71,911
IV. Other components of equity 492 839
75,525 98,156
B. Long-term debt
I. Long-term liabilities
1. Long-term liabilities to banks 17,723 16,963
2. Other financial liabilities 4,840 4,876
3. Liabilities from finance lease 8,454 13,714
II. Non-current provisions 1,153 1,153
III. Deferred tax liabilities 7,933 8,407
40,103 45,113
C. Short-term debt
138,954 174,950
23,326 31,681
IV. Current tax liabilities 2,757 2,651
3. Liabilities from finance lease 1,805 2,981
2. Other short-term financial liabilities 5,209 6,314
1. Liabilities from deliveries and services 7,391 11,149
III. Short-term other liabilities
II. Short-term accrual liabilities 4,391 4,239
I. Other financial liabilities 1,773 4,347
C. Short-term debt
40,103 45,113
III. Deferred tax liabilities 7,933 8,407
II. Non-current provisions 1,153 1,153
3. Liabilities from finance lease 8,454 13,714
2. Other financial liabilities 4,840 4,876
1. Long-term liabilities to banks 17,723 16,963
I. Long-term liabilities
B. Long-term debt 75,525 98,156
IV. Other components of equity 492 839
III. Retained earnings including group's earnings 66,541 71,911
II. Capital reserves 5,286 22,070
  • III. Short-term other liabilities

Group Balance Sheet

Group´s annual balance sheet according to IFRS for the fiscal year from January 1, 2019 to March 31, 2019

in € k 12/31/2018 03/31/2019
Assets
A. Long-term assets
I. Intangible assets 28,100 29,886
II. Fixed assets 10,562 11,124
III. Buildings and land in finance lease 11,971 19,041
IV. Goodwill 12,740 12,740
V. Other financial assets 5 5
VI. Deferred tax assets 72 422
63,450 73,218
B. Short-term assets
I. Inventories 21,033 26,411
II. Receivables from deliveries and services and from
production orders 18,247 21,855
III. Other short-term financial assets 1,714 2,005
IV. Other short-term assets 1,682 2,232
V. Claim for tax refunds 998 1,776
VI. Cash in bank and cash in hand 31,830 47,453
75,504 101,732
138,954 174,950

Consolidated Statement of Changes in Equity

Group´s annual balance sheet according to IFRS for the fiscal year from January 1, 2019 to March 31, 2019

Other components of equity
Retained Differen Reserves
Sub earnings ces due to for cash Sum of other
scribed Capital incl. group's currency flow components of
in € k capital reserve earnings conversion hedges equity Total
Shareholders´ equity
as of 01/01/2018
3,211 3,119 59,028 272 0 272 65,630
Total result 0 8,095 -72 -72 8,023
Share salesback 0 0
Share buyback 0 0 0
Shareholders´equity
as of 03/31/2018
3,211 3,119 67,123 200 0 200 73,653
Total result 0 8,703 292 292 8,995
Share salesback 15 2,167 466 2,648
Share buyback -20 -3,264 -3,284
Dividend
outpayment* -6,487 -6,487
Shareholders´equity
as of 12/31/2018 3,206 5,286 66,541 492 0 492 75,525
Total result 0 1,462 347 347 1,809
Share salesback 130 16,784 3,908 20,822
Share buyback 0 0
Shareholders´equity
as of 03/31/2019
3,336 22,070 71,911 839 0 839 98,156

* 2,02 € per share

EVENTS 2019

IR-Events

Date Event Venue
05/16/2019 Shareholders' meeting 2019 Hamburg, Germany
08/07/2019 Publication 6-month report 2019 Ahrensburg, Germany
11/05/2019 Publication 9-month report 2019 Ahrensburg, Germany
Deutsches Eigenkapitalforum 2019
11/25/2019-11/27/2019 (Germany equity forum) Frankfurt/Main, Germany

Shows and Conferences

Date Event Venue
05/20/2019-05/23/2019 Embedded Vision Summit Santa Clara, USA
05/20/2019-05/23/2019 NI Week Austin, USA
06/16/2019-06/21/2019 CVPR Long Beach, USA
08/2019 Vision China Beijing China
10/10/2019-10/12/2019 Vision China Shenzhen, China
11/18/2019-11/21/2019 COMPAMED / MEDICA 2019 Düsseldorf, Germany

BASLER AG

An der Strusbek 60-62 22926 Ahrensburg Germany Tel. +49 4102 463 0 Fax +49 4102 463 109 [email protected]

baslerweb.com

BASLER, INC.

855 Springdale Drive, Suite 203 Exton, PA 19341 USA Tel. +1 610 280 0171 Fax +1 610 280 7608 [email protected]

BASLER ASIA PTE. LTD.

35 Marsiling Industrial Estate Road 3 #05-06 Singapore 739257 Tel. +65 6367 1355 Fax +65 6367 1255 [email protected]

BASLER VISION TECHNOLOGIES TAIWAN INC.

No. 21, Sianjheng 8th St. Jhubei City, Hsinchu County 30268 Taiwan/R.O.C. Tel. +886 3 558 3955 Fax +886 3 558 3956 [email protected]

BASLER VISION TECHNOLOGY (BEIJING) CO., LTD.

N2nd Floor, Building No.5, Dongsheng International Pioneer Park, No.1 Yongtaizhuang NorthRoad, Haidian District, Beijing Tel. +86-010-51262828 Fax +86-010-62800520 [email protected]

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