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Basler AG

Quarterly Report Nov 13, 2014

45_10-q_2014-11-13_a37b397f-6ddf-47ed-8440-00b85fd20c0b.pdf

Quarterly Report

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Key Figures

01/01/ -
09/30/2013
01/01/ -
09/30/2014
Changes to
previous
07/01/ -
09/30/2013
07/01/ -
09/30/2014
Changes to
previous
in € m* year year
Sales revenues 49.1 60.7 24 % 16.9 21.7 28 %
Incoming orders 51.1 61.0 19 % 17.8 20.1 13 %
Gross results 24.2 31.1 29 % 7.9 11.0 39 %
Gross profit margin 49.3 % 51.2 % 2 Pp. 46.7 % 50.7 % 4 Pp.
Full costs for research and
development
6.7 8.1 21 % 2.3 2.6 13 %
Research and development
ratio
13.6 % 13.3 % 0 Pp. 13.6 % 12.0 % -2 Pp.
EBITDA 10.9 15.0 38 % 4.0 5.5 38 %
EBIT 6.5 11.0 69 % 2.3 4.3 87 %
EBT 5.9 9.8 66 % 2.1 3.9 86 %
Net income 4.1 7.4 80 % 1.4 3.0 114 %
Weighted average number
of shares
3,292,743 3,228,052 -2 % 3,267,885 3,216,680 -2 %
Result per share (€) 1.24 2.30 85 % 0.42 0.92 119 %
Cash flow from operating
activities
7.3 10.7 47 % 5 5.3 6 %
Cash flow from investing
activities
-4.2 -5.6 33 % -1.7 -1.9 12 %
Free cash flow 3.1 5.1 65 % 3.3 3.4 3 %
12/31/2012 12/31/2013 09/30/14 Changes to
previous
in € m* year
Total assets 58.5 63.3 73.8 17 %
Long-term assets 34.5 35.6 37.1 4 %
Equity 29.6 32.5 37.5 15 %
Liabilities 28.9 30.8 36.3 18 %
Equity ratio 50.6 % 51.3 % 50.8 % -1 Pp.
Net cash 3.5 3.7 4.0 8 %
Working Capital 12 13.7 18.7 36 %
Number of employees for
the fiscal year (full time
equivalents) 290 325 385 18 %
Share price (XETRA) in € 13.79 29.00 41.26 42 %
Number of shares in
circulation
3,325,664 3,238,184 3,208,054 -1 %
Market capitalization 45.9 93.9 132.4 41 %

*unless otherwise stated

OVERVIEW OF THE FIRST NINE MONTHS:

  • Incoming orders: € 61.0 million (previous year: € 51.1 million, +19 %)
  • Sales: € 60.7 million (previous year: € 49.1 million, +24 %)
  • EBIT: € 11.0 million (previous year: € 6.5 million, +69 %)
  • Earnings before taxes (EBT): € 9.8 million (previous year: € 5.9 million, +66 %)
  • Free cash flow: € 5.1 million (previous year: € 3.1 million, +65 %)
  • Operating cash flow: € 10.7 million (previous year: € 7.3 million, +47 %)
  • Sales guidance increased / Profit guidance narrowed: Sales € 77 – 79 million (formerly € 73 – 76 million) EBT-margin 13 – 14 % (formerly 12 – 14 %)

Dear Ladies and Gentlemen,

In the third quarter of 2014, Basler AG again achieved convincing results and seamlessly continued its positive results of the first six months.

The still restrained economic environment had no negative impact on the development of incoming orders, sales, and the results of the reporting period, which are clearly above the values of the previous year. As in the first two quarters of the current fiscal year, during the entire reporting period Basler AG achieved a distinctly stronger growth in sales than the average growth rate expected by the German image processing components market. According to the German Engineering Federation (Verband Deutscher Maschinen- und anlagenbau, VDMA), sales of the German manufacturers for image processing components increased by 10 % in the first half-year of 2014, whereas the sales of Basler AG increased by 24 % in the same reporting period. This better-than-plan business development particularly is due to large-scale investments of the Asian electronic industry.

Thus, the management board of Basler AG increased already in mid-October the sales forecast for the fiscal year 2014 from previously € 73 – 76 million to € 77 – 79 million. Furthermore, the profit forecast for the current fiscal year was narrowed, so that the management board now expects a pre-tax return rate of 13 – 14 % (formerly 12 – 14 %). Basler AG successfully continues the implementation of the planned growth strategy and steadily approaches its planned mid-term sales target of € 100 million.

GROUP INFORMATION

Incoming orders, sales, and gross profit

The group's incoming orders amounted to € 61.0 million in the first nine months (previous year: € 51.1 million, +19 %). The main reasons for incoming orders above plan are increased investments by the Chinese electronic industry.

The group's sales amounted to € 60.7 million in the first nine months (previous year: € 49.1 million, +24 %). So far, 42 % of the sales are related to the Asian markets (previous year: 41 %), 39 % to Europe (previous year: 36 %), and 19 % to North America (previous year: 23 %).

As in the previous two quarters of the current fiscal year, in the reporting period, the group's gross profit developed slightly better than in the previous year, due to an improved product mix and to economies of scale in production and material management. Within the result, the gross margin increased by almost 2 percentage points to 51.2 % in the first nine months (previous year: 49.3 %).

Costs

The considerable investments in the expansion of all functional areas and subsidiaries in order to develop future growth continued in the third quarter. The expense for sales and marketing was € 9.9 million (previous year: € 8.4 million; +18 %). This increase is mainly due to the expansion of the global sales organization and also to the expansion of the marketing organization for opening up new areas of application.

The general administrative expenses amounted to € 7.6 million (previous year: € 5.8 million, +31 %). Besides an increase in personnel costs and increased infrastructure costs, these are particularly affected by provisions for success bonuses caused by over achievement of corporate goals.

The full cost of research and development (R&D) amounted to € 8.1 million and therefore increased by 21 % compared to the previous year's value of € 6.7 million. The R&D ratio amounted to 13.3 % in the first nine months of 2014 and remained at about the level of the previous year (13.6 %).

Result

In the first nine months of the current fiscal year, Basler AG generated group's earnings before taxes (EBT) of € 9.8 million. This result is 66 % above the EBT of € 5.9 million that were generated in the comparison period of the previous year.

The pre-tax return margin amounted to 16 % (previous year: 12 %) and therefore was above the corridor of 13 - 14 %, predicted for fiscal year 2014. Despite this margin above the forecasted corridor, for the remainder of the fiscal year 2014, the management board expects the business to develop within the forecasted corridors because of seasonally lower sales in the fourth quarter and timely increasing structural costs by scaling effects within the organization. The group's earnings before interest and taxes (EBIT) amounted to € 11.0 million (previous year: € 6.5 million, +69 %). This corresponds to an EBIT margin of 18 % (previous year: 13 %).

The very positive profit situation results from the combined effects of sales being above plan, a higher gross margin due to fixed costs degressions, the product mix as well as of economies of scale due to a disproportionate expansion of the organization.

Business development

In the first nine months, Basler AG successfully implemented and exceeded its planned growth in incoming orders, sales, and profit. The growth of sales of +24 % is clearly above the average growth rate expected by the German manufacturers of image processing components. For the first half-year, the German Engineering Federation (Verband Deutscher Maschinen und -anlagenbau, VDMA) expects a sales growth of 10 % for this industry. Also the incoming orders in the first nine months of the current fiscal year are clearly above the previous year's level (+19 %).

The new production facility which was opened in Asia in the beginning of July 2014 had a successful start. So in the elapsed third quarter, Asian customers were supplied by this new production facility for the first time.

Regarding the product portfolio, ace cameras with Gigabit Ethernet interface are still the company's strongest growth drivers. Sales of ace cameras with USB3.0 interface launched to the market in 2013 are continuously increasing. In the third quarter of the fiscal year 2014, the product range of this platform was expanded by further ace camera models with high performance sensors. This platform now covers the whole range of sensor classes available on the market. Furthermore, at the VISION, the leading International Trade Fair for machine vision, taking place in Stuttgart from November 4 to 6, 2014, the company has presented for the first time a new product series named "dart" covering the lower price / performance segment (entry level). This new product series with USB 3.0 interface addresses a number of new markets still using analogue technology today.

Additionally, for the first time, Basler presented lenses developed in cooperation with Fujifilm. This addition to the product portfolio creates another added value for the customers. The portfolio of lenses is best suited to Basler cameras and offers a unique price / performance ratio.

Employees

The number of employees (FTE) for the Basler group on the reporting date was 385 (previous year: 330, +17 %). The regional allocation is as follows:

  • Headquarters in Ahrensburg: 323 (previous year: 284)
  • Subsidiary in USA: 21 (previous year: 16)
  • Subsidiary in Taiwan: 12 (previous year: 8)
  • Subsidiary in Singapore: 22 (previous year: 15)
  • Representative offices in Korea, China, and Japan: 7 (previous year: 7)

Cash flow, liquid assets, equity, and net cash position

The operating cash flow amounted to € 10.7 million in the reporting period (previous year: € 7.3 million, +47 %). After deduction of the investing cash flow, a free cash flow amounted to € 5.1 million (previous year: € 3.1 million €, +65 %). Thus, Basler AG was again able to finance its growth from its own resources.

At the end of the reporting period, liquid assets amounted to € 12.3 million and were thus 27 % above the figure at the beginning of fiscal year 2014 (€ 9.7 million).

The equity amounted to € 37.5 million at the end of the reporting period (December 31, 2013: € 32.5 million; +15 %). The net cash position amounted to € 4.0 million at the reporting date (December 31, 2013: € 3.7 million, + 8 %).

Basler share

The Basler share opened at a price of € 36.88 in the beginning of the third quarter of 2014 and reached a level of almost € 40.00 in the month of July. In August 2014, the share price clearly exceeded the threshold of € 40.00 briefly rising to approximately € 43.00. In September the share settled at a price of € 41.26 at the end of the reporting period.

The average daily trade volume of the reporting period was approximately 2,500 units (previous year: 3,041 units; -18 %).

At the end of the third quarter of 2014, the market capitalization of Basler AG amounted to € 132.4 million (December 31, 2013: € 93.9 million, +41 %). The number of own shares amounted to 291,946 units at the reporting date. This corresponds to about 8.3 % of the total number of shares. The shareholders' meeting authorized the management board to buy back up to 10 % of the total number of shares (see below).

After having carried out four share buyback programs, the management board informed the Basler shareholders on June 30, 2014, that the Basler AG will buy back bearer shares with an equivalent value of up to a maximum of € 3.5 million via the stock market in order to make full use of the resolution of the shareholders' meeting of June 4, 2014, authorizing the company to buy back up to a total of 10 % of own shares. Based on the resolution of the shareholders' meeting of June 4, 2014, Basler AG is authorized to buy back own shares in the amount of a total of up to 10 % of the share capital existing at the time the resolution was adopted or, in the event that this amount is less, of the share capital of the Basler AG existing at the time of the exercise of the authorization. The authorization is approved until June 3, 2019. The shares can be used for all purposes provided for in the authorization of the shareholders' meeting of June 4, 2014. The management board of Basler AG wishes to make use of the favorable valuation level in order to expand the stake bought back in the past years to the authorized 10 %. The buyback programs are carried out through a credit institution that decides upon the time for the individual buyback independently of Basler AG and according to Commission Regulation (EC) No 2273/2003 of December 22, 2003.

As of September 30, 2014, the management board and the supervisory board held the following shares:

09/30/2014
Number of
shares (Units)
09/30/2013
Number of
shares (Units)
Management board
Dr. Dietmar Ley 144,358 144,358
John P. Jennings 5,500 5,500
Arndt Bake 700 700
Hardy Mehl 321 n.a.
Supervisory board
Norbert Basler 1,816,891 1,816,891
Prof. Dr. Eckart
Kottkamp - -
Konrad Ellegast 1,280 -

The shares held by Hardy Mehl were bought in September 2012. Since January 1, 2014, Hardy Mehl belongs to the management board of Basler AG.

Corporate Governance - declaration of compliance according to Section 161 AktG

The management board and the supervisory board declare that in the current fiscal year 2014 Basler AG complied with the recommendations for conduct as amended on May 13, 2013 by the "Government Commission of the German Corporate Governance Code" (hereinafter called "code") with the following exceptions:

Clause 3.8, Paragraph 3 - D&O Insurance Deductible for the Supervisory Board

Clause 3.8, paragraph 3, of the code sets forth that an appropriate deductible should be stipulated when the company takes out a D&O insurance policy for the supervisory board. The D&O insurance coverage for the management board comprises a deductible according to statutory provisions. However, the insurance policy does not provide for a deductible for the members of the supervisory board. The management board and the supervisory board are convinced that responsible action is a self-evident obligation for all members of the company's executive bodies. Therefore, a deductible for the members of the supervisory board is not necessary.

Clause 5.3 - Establishment of committees within the Supervisory Board

The supervisory board does not establish any committees. The supervisory board of Basler AG comprises three persons. This configuration ensures efficient work in all matters of the supervisory board, especially as the generally accepted minimum size for a committee is a membership of three.

Clause 5.4.1 - Composition of the Supervisory Board

For nominations to the general meeting, the supervisory board will also in the future continue to align itself to all necessary legal requirements and will emphasize the candidates' professional and personal qualifications independent of gender. Consideration will also be given to the international activities of the company, to potential conflicts of interest, and to diversity. Basler AG does not state specific pertinent goals in these areas.

Clause 6.3 – Share Ownership of Members of the Management Board and the Supervisory Board

With regard to the share ownership, the management board and the supervisory board declare pursuant to clause 6.3: The total share ownership of all members of the management board and the supervisory board exceeds 1 % of the total of shares issued by the company and is as follows:

As of the reporting date, the members of the management board and the supervisory board held the numbers of shares as shown above in this report under "Basler share".

The declaration of compliance with the code and the constantly updated related compliance can be accessed on the Basler website's Investors area (www.baslerweb.com/investors). If you have any questions regarding the corporate governance code please contact the compliance officer of Basler AG Dr. Dietmar Ley (CEO), Tel. +49 4102 - 463 100, [email protected]

Outlook

Similar to the first six months of the fiscal year 2014, the third quarter of 2014 went better for Basler AG than planned. After a successful start of the new fiscal year along the budget planning, the first nine months developed above plan. The necessary steps in order to implement the planned growth were largely made. An unexpected strong Asia business led to a bigger sales growth than expected at the beginning of the year. Due to the growth rates partially above market level we assume to have gained additional market shares.

For the remainder of the fiscal year we assume a slowdown due to seasonal effects. Furthermore, we anticipate moderate macroeconomic and geopolitical conditions. Despite these circumstances, we confirm our increased guidance of mid-October for fiscal year 2014.

SELECTED EXPLANATORY NOTES

Principles and methods

As already the consolidated annual financial statements as of December 31, 2013, these consolidated interim financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as valid and mandatorily applicable on the reporting date. In particular, application has been made of the interim financial reporting requirements set out in IAS 34. The present quarterly report was neither reviewed by an auditor nor reviewed in accordance with § 317 of the Handelsgesetzbuch (HGB, German Commercial Code).

All interim financial statements of companies included in the consolidated interim financial statements were prepared according to uniform accounting and valuation principles that were also applied for the preparation of the consolidated financial statements as of December 31, 2013.

There have been no changes to the group of consolidated companies compared to the consolidated annual financial statements as of December 31, 2013.

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 annual 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

(CEO) (CCO)

Arndt Bake Hardy Mehl

(CMO) (CFO/COO)

Consolidated Profit and Loss Statement

Group's annual balance sheet according to IFRS for the fiscal year from January 1, 2014 to September 30, 2014

in € k 01/01/ -
09/30/2014
01/01/ -
09/30/2013
07/01/ -
09/30/2014
07/01/ -
09/30/2013
Sales revenues 60,701 49,121 21,703 16,906
Cost of sales -29,593 -24,882 -10,655 -8,961
- of which depreciations on
capitalized developments
2,501 -2,824 4,293 -1,145
Gross profit on sales 31,108 24,239 11,048 7,945
Other operating income 1,663 1,065 756 353
Sales and marketing costs -9,940 -8,429 -3,597 -2,773
General administration costs -7,595 -5,828 -2,476 -1,841
Research and development -3,806 -3,900 -1,244 -1,135
Other expenses -472 -642 -192 -213
Operating result 10,958 6,505 4,295 2,336
Financial income 21 499 5 84
Financial expenses -1,167 -1,057 -356 -369
Financial result -1,146 -558 -351 -285
Earnings before tax 9,812 5,947 3,944 2,051
Income tax -2,393 -1,874 -982 -688
Group's period surplus 7,419 4,073 2,962 1,363
of which are allocated to
shareholders of the parent company 7,419 4,073 2,962 1,363
non-controlling shareholders 0 0 0 0
Average number of shares 3,228,052 3,292,743 3,216,680 3,267,885
Earnings per share diluted / undiluted (€) 2.30 1.24 0.92 0.42

Consolidated Statement of Comprehensive Income

in € k 01/01/ -
09/30/2014
01/01/ -
09/30/2013
Group's period surplus 7,419 4,073
Result from differences due to currency conversion,
directly recorded in equity
235 -40
Surplus / net loss from cash flow hedges 0 168
Total result, through profit or loss 235 128
Total result 7,654 4,201
of which are allocated to
shareholders of the parent company 7,654 4,201
non-controlling shareholders 0 0

Consolidated Cash Flow Statement

in € k 01/01/ -
09/30/2014
01/01/ -
09/30/2013
07/01/ -
09/30/2014
07/01/ -
09/30/2013
Operating activities
Group's period surplus 7,419 4,073 2,962 1,363
Increase (+) / decrease (-) in deferred taxes 1,361 1,041 548 209
Payout / incoming payments for interest 1,144 1,137 364 375
Depreciation of fixed assets 4,046 4,355 1,220 1,663
Change in capital resources without affecting payment 235 130 210 -50
Increase (+) / decrease (-) in accruals 1,103 185 786 475
Profit (-) / loss (+) from asset disposals -12 -4 0 0
Increase (-) / decrease (+) in reserves -3,683 -3,004 -1,293 -2,064
Increase (+) / decrease (-) in advances from demand -183 265 -87 274
Increase (-) / decrease (+) in accounts receivable -3,031 -1,485 -15 639
Increase (-) / decrease (+) in other assets 294 535 157 1,373
Increase (+) / decrease (-) in accounts payable 1,890 790 418 812
Increase (+) / decrease (-) in other liabilities 113 -721 79 -50
Net cash provided by operating activities 10,696 7,297 5,349 5,019
Investing activities
Payout for investments in fixed assets -5,727 -4,211 -1,943 -1,730
Incoming payments for asset disposals 171 4 2 0
Net cash provided by investing activities -5,556 -4,207 -1,941 -1,730
Financing activities
Payout for amortisation of bank loans -300 -1,825 -100 -700
Payout for amortisation of finance lease -987 -926 -332 -311
Incoming payment for borrowings from banks 2,533 3,210 0 0
Interest payout -1,145 -1,137 -365 -374
Payout for own shares -1,120 -1,002 -905 0
Dividends paid -1,519 -982 0 0
Net cash provided by financing activities -2,538 -2,662 -1,702 -1,385
Change in liquid funds 2,602 428 1,706 1,904
Funds at the beginning of the period 9,665 8,197 10,561 6,721
Funds at the end of the period 12,267 8,625 12,267 8,625
Composition of liquid funds at the end of the period
Cash in bank and cash in hand 12,267 8,625 12,267 8,625
Payout for taxes 266 346 -8 346

Group Balance Sheet

in € k 09/30/2014 12/31/2013
Assets
A. Long-term assets
I. Intangible assets 16,379 14,516
II. Fixed assets 4,480 4,295
III. Buildings and land in finance lease 16,181 16,700
IV. Other financial assets 5 5
V. Deferred tax assets 59 44
37,104 35,560
B. Short-term assets
I. Inventories 13,279 9,595
II. Receivables from deliveries and services and from production orders 9,909 6,878
III. Other short-term financial assets 457 217
IV. Other short-term assets 496 944
V. Claim for tax refunds 298 392
VI. Cash in bank and cash in hand 12,267 9,665
36,706 27,691
73,810 63,251

Group Balance Sheet

in € k 09/30/2014 12/31/2013
Liabilities
A. Equity
I. Subscribed capital 3,208 3,238
II. Capital reserves 0 0
III. Retained earnings including group's earnings 34,186 29,376
IV. Other components of equity 81 -154
37,475 32,460
B. Long-term debt
I. Long-term liabilities
1. Long-term liabilities to banks 7,451 5,599
2. Other financial liabilities 8 8
3. Liabilities from finance lease 11,870 12,859
II. Non-current provisions 515 515
III. Deferred tax liabilities 2,569 1,193
22,413 20,174
C. Short-term debt
I. Other financial liabilities 2,102 1,540
II. Short-term accrual liabilities 4,106 3,201
III. Short-term other liabilities
1. Liabilities from deliveries and services 3,022 1,132
2. Other short-term financial liabilities 2,105 2,355
3. Liabilities from finance lease 2,153 2,151
IV. Current tax liablilities 434 238
13,922 10,617
73,810 63,251

Consolidated Statement of Changes in Equity

Group's annual balance sheet according to IFRS for the fiscal year from January 1, 2014 to September 30, 2014

Other components of equity
in € k Subscribed
capital
Capital
reserve
Retained
earnings
incl. group's
earnings
Differences
due to
currency
conversion
Reserves
for cash
flow
hedges
Sum of other
components
of equity
Total
Shareholders' equity
as of 01/01/2013
3,326 0 26,498 -71 -168 -239 29,585
Total result 4,073 -40 168 128 4,201
Share buyback -58 -944 0 -1,002
Dividend payment* -982 0 -982
Shareholders' equity
as of 09/30/2013
3,268 0 28,645 -111 0 -111 31,802
Total result 1,489 -43 0 -43 1,446
Share buyback -30 0 -758 0 -788
Shareholders' equity
as of 12/31/2013
3,238 0 29,376 -154 0 -154 32,460
Total result 7,419 235 0 235 7,654
Share buyback -30 0 -1,090 0 -1,120
Dividend payment** 0 0 -1,519 0 -1,519
Shareholders' equity
as of 09/30/2014
3,208 0 34,186 81 0 81 37,475

* 0.30 € per share

** 0.47 € per share

Events 2014

Finance Events

Date Venue
11/25-26/2014 Deutsches Eigenkapitalforum 2014
(German equity forum)
Frankfurt am Main, Germany

Shows and Conferences

Date Venue
11/04-06/2014 Vision Stuttgart Stuttgart, Germany
11/19-20/2014 All-over-IP Expo 2014 Moscow, Russia
11/19-22/2014 Metalex Thailand Bangkok, Thailand
12/03-05/2014 International Technical Exhibition on Image
Technology and Equipment
Yokohama, Japan

BASLER AG An der Strusbek 60-62 22926 Ahrensburg Tel. +49 4102 463 0 Fax +49 4102 463 109

baslerweb.com

BASLER, INC. 855 Springdale Drive, Suite 203 Exton, PA 19341 Tel. +1 610 280 0171 Fax +1 610 280 7608

BASLER ASIA PTE. LTD. 35 Marsiling Industrial Estate Road 3 Singapore 739257 Tel. +65 6367 1355 Fax +65 6367 1255 [email protected]

BASLER VISION TECHNOLOGIES

TAIWAN INC. Hsinchu County 30268 Taiwan/R.O.C. Fax +886 3 5583956

BASLER KOREA REPRESENTATIVE OFFICE Tel. +82 707 1363 114 Fax +82 707 0162 705

BASLER CHINA (SHANGHAI) REPRESENTATIVE OFFICE Fax +86 21 6230 0251

BASLER CHINA (SHENZHEN)

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