Basler Aktiengesellschaft (BSL) Earnings Call Transcript

Hello, everyone, to the Basler earnings call for the first 6 months. We wait for another 30 seconds or 1 minute that everyone is on board and then we start. So it looks like everyone is on board. Again, warm welcome to the first 6 months earnings report of 2025. Warm welcome from Ines and myself. We're going to go through the presentation together today as last time. And before we start the presentation, we have to, yes, read or at least hint you to our legal disclaimer that all the content we are giving today are based on views and assumptions made by the management using information available at this point in time. So, these are also forward-looking statements by nature, and they are subject to significant known and unknowns and risks and uncertainties. Yes, the presentation today, and we are happy to present you a good momentum, a positive momentum. We will start with an executive summary. So, I will sum the situation up. Innis then will dig deeper into the financials, giving you a quick glance at our share development, and then I take over again for the outlook. And hopefully, we have at the end of the call, a lively Q&A session, and we are happy to answer all your questions. Starting with the executive summary and with the market environment we have seen in the first half year 2025. To put it in a nutshell, the market situation was still not stellar, even though it was a bit better than the industry expected it. For the German industry that exports worldwide, bookings were down by minus 4% and billings were up by 9%. So, what you can see is billings are high-single digit. So, that was better than expected. But in the, let's say, last month of the first half year, the booking situation went down so that we see bookings much weaker than billings and that there is, at the moment, not a significant positive momentum in the industry, but we come to our situation later. If we look a bit deeper, especially, yes, all verticals despite semicon, advanced nodes and everything that is artificial intelligence related and also besides logistics and warehouse automation, all markets and verticals seem to be quite down. Also, when you look at the industrial PMIs in the advanced nations that we sell to where high-tech machinery is being developed and produced, the PMIs are around 50, sometimes a bit lower, sometimes a bit higher. But in general, still a relatively slow situation from a market perspective. There was also one significant flock or especially in the EV battery, there were high hopes in the whole industry that capacities will be built up. In electric vehicle battery production, the yield is pretty low. So, you need a lot of yield management, which also means a lot of vision technology can help. And these high hopes are dashed due to the slow demand and falling demand of EV battery, overcapacity, changes in policy also that lead at the moment to the situation that many of those projects are stopped or even canceled. What is a much better situation than the years before are the inventory levels at clients. They reached normal levels. So we really see that demand. There is no muted effect due to high inventory levels at client side. From the competition situation, I mean, with the -- especially Chinese and Asian competition in China and Asia Pacific and this slow market situation, the intensity was pretty high in the first month -- first half year in 2025. And yes, we talked a lot about it in the last call. The newspaper is still full of it. The unclear U.S. tariff situation and geopolitical uncertainties pulled back CapEx decisions. And this means for our clients that their business is unsecured and also muted because 99% of our clients are CapEx machine or CapEx device makers that integrate our vision technology into their machines or devices. What came on top in the second quarter of this year was especially a significant FX headwind due to the depreciation of or devaluation of U.S. dollar, Chinese yuan, Japanese yen and Korean won against the euro. And we will talk later about this. This definitely had a quite an impact at our P&L as well. Yes, how have we done in this market environment? And also here in a nutshell, we outperformed the market by far. Bookings up 22%, billings up 20%. As explained in our last call for the Q1, we participated or benefited from larger orders in the fourth quarter that we carried over and built in the first quarter and shipped. But the good momentum in order entry continued, I mean, the sound order entry in the first months of the year. And actually, in the later months of this first half year, we also had increasing bookings that at the end led to a situation that the second quarter in billings and book-to-bill ratio is significantly above 1, which also gives us a good momentum for the third quarter. Strongest regions in the whole first half year, U.S. and China outperforming significantly the rest of Asia and also the European market. The gross profit margin improved by 0.7 percent points to 47.2% However, we had quite some negative effects, especially in the second quarter due to FX. Yes, we lowered our breakeven point already with all the initiatives last year and the cost saving programs and went into the year with the breakeven point of EUR 180 million. However, due to the change in FX, this breakeven point is, at the moment, more in the range of EUR 190 million. But all in all, we are pleased to give also not only the revenue and bookings growth here, but also to report that we are back in the black numbers with a pre-tax result of almost EUR 8 million and an EBT margin of 7%. Looking at the team structure and size, I mean, due to the cost saving programs compared to mid of last year, we more or less reduced by 60 FTEs over the course of the last 12 months. The distribution have not changed much. There are slight deviations, but we also have some allocation changes here from a function perspective. So more or less, you can say distribution is kept stable, but we are 60 people less or 60 FTEs less on board compared to the mid of last year. The increase in sales and the reduction in staff have caused a situation where we are back in the R&D quotas where, by and large, we want to be around 13% coming from a relatively high number of 15.5%. So also 13% is high. We are, let's say, still on the gas pedal regarding investments into new products. We don't have a specific or launch specific new products in the second quarter, but in all these areas, mainstream product systems, performance product systems, 3D technologies and also new on board also the line scan systems. We all invested in that and especially also invested further heavily in our pylon software development kit where all our products are based on, and this is the design kit or the development kit for our clients with which the client can combine all the hardware he gets from us and also connects our hardware and integrates our hardware into the specific system or device. To give you some highlights what we have done, I mean, we were on multiple exhibition shows over the course of the first half year. One of the recent shows was the automatica in Munich, one of the big automation shows of the world. We are presenting here technologies, vision technologies all around robot guidance and also certain in logistics and also in the production space. So, we position ourselves here as a solution provider, so combining different components into a solution, for example, robot guidance. Another interesting topic we brought with us today is from our innovation department. In our innovation department, we are, at the moment, working on new concepts, how our clients can virtually test our products because typically, our clients test hardware before or during their development project. And one of -- this is quite a heavy effort, and it's also -- yes, takes some time to get hardware to install hardware, test it and then maybe change it again. So, we are working on virtualizing this based on NVIDIA Omniverse space. And we were also on NVIDIA's global tech conference in Paris, demonstrating this, and you see some pictures how this looks like. Below in the picture, you see a virtual scenery. So actually, all our products become virtualized. The customer is setting up the scenery, and then the customer can virtually exchange and test different products in the virtual space and then acquire all the hardware that is a good fit. So, this is definitely a time saving for the client. This is all pretty new stuff, but we want to also showcase some of the topics we do for the longer run. Yes, all these pays in our strategy to move step-by-step from a camera company in the factory automation space to really become one of the largest full-range provider in the computer vision space, addressing multiple vertical markets and offering multiple components and also combine those components to a reconfigured or bundled solution. Yes, I hope this has given you some glance from the executive standpoint, and I will continue and hand over to Ines for the financials.

Thank you, Hardy, and happy to present the financials to you. So here on the first page, we are continuing the view where you can see the sales distribution by region. I think following up on the second page that we presented to you, right? So, you see the trend of an increase in Americas and Asia. So, this is, in the distribution, driven by the major projects and also really the strong development that we are seeing in these 2 regions. So, jumping to my favorite picture so far, I would say, here is the bookings and the billings. You might recall that in the last quarter, we indicated that our bookings of the EUR 52.1 million might be indicative of the revenue that we are expecting in Q2. Now looking at the outcome, we think it was really indicative. So now taking a look at the picture we had for Q2 is really that EUR 61.2 million in the bookings, so which is a momentum of 26% above what we really had last year. So the 22% you saw on the first page was for the first half year in comparison. At this time, we have to say the EUR 61 million, we don't hold really indicative for the next quarter, but we are definitely pretty pleased on the performance of the bookings. This is again driven also by larger projects in China and Americas, which will help us in the usually weaker quarter of Q3. So, holding against weaker bookings, but also usually lower turns in the third quarter of the year. So overall, bookings and billings, good performance and according to our plan. So then jumping from the top line to the gross profit margin. I think this might be even more interesting. I like the EBIT picture even more or even better. What do we see here? So, you see that in euros, of course, the gross margin declined and also our gross profit margin declined. So, that has majorly 3 components this time. So, we have about a EUR 7 million decrease in comparison or lower revenues in comparison to Q1. So, we have a volume impact here. But on top of that volume impact, currently, the currency effects are hurting us. So, that started in the last month of Q1, but we didn't have a really big push in Q1. So, we had a nearly EUR 2 million effect from currency in Q2, which hurt us in the revenue, of course, but also had a push-through to the gross profit. We have some natural hedges and hedges in place, but it's still not a full natural hedge in there due to our structure. And you also can see the impact of the tariff. Since Q2, we are pushing the tariffs over to our customers, but we had a little bit of a delay in the push, implementing the project. So, we are currently for this Q2, we were running at a negative impact of around EUR 400,000. For the future, the push is in place. So, we are basically plus/minus 0 here in the effect, but we have to keep in mind that pushing that tariff has a positive impact, so to speak, to the revenue, but a 0 impact to the gross margin and the EBIT also having a negative percentage to the gross margin in percent and the EBIT in percent. So same picture here. I think also last time here, we were -- yes, we were already indicating that the 10.1% of Q1 was a very good performance of that quarter, driven by the volume and not so much impacted by the FX. So what you can see here is really the push through mainly from the gross margin. So, we are losing from the volume. This is one angle, but also you have the push-through in the effect from the FX rate and also from the tariff in here. So, this mainly explains what you're seeing. We are running good on our operative costs. So, a little bit of a positive upside in here. But of course, the picture looks way lower than Q1 due to the volume and those 2 effects. It's not really surprising to us, but it's, of course, lower than Q1. So for us, it's continuing our driving the top line and taking care of our cost position that we have. Here you have the usual overview. This is H1 this year against H2. I think you heard us talking about it now. So, you see the positive ratio of order entry against sales. You see the increase in the gross margin overall. So, we are 47.2%. We wanted to be at nearly 50%, and we did calculations of what would have happened if we wouldn't have had the exchange rate impact. And we think we would have been close a little bit under 50%. So pass is there. And of course, we want to highlight the EBITDA because our EBT is impacted by a lot of depreciation currently, so no cash flow impacted here and the EBT margin of 7%, which is trending into the right direction from our point of view. So then jumping from the bottom line of the P&L to the free cash flow picture. So here, a different picture at least from the OCF for Q2. So, what do we see here and where do we get help from? So of course, we had a positive period result, but we are also having a lot of help from the working capital. So, we are collecting our receivables. Our inventory drives down according to plan. We had a little increase in the liabilities from our suppliers, but that was initiated. So overall, good performance on the OCF. The ICF is also according to plan. And the free cash flow, you might recognize that OCF and ICF here are not adding up to the free cash flow picture because you see that in the tables that we are also issuing. So, here is a EUR 500,000-ish missing from an exchange rate impact that we have to show separately. But these are the major impacts and the cash impact on the cash account is not displayed here, but going into the free cash flow. So, that drives us to this picture, which displays again the free cash flow and our cash position and also the cash at the end of the period. Here you also have the cash flow from financing. So, we are returning our debt positions and reducing the debt position accordingly. So, this is how despite the positive cash flow, we see the cash going down, positively impacted, of course, by the performance and overall in the direction where we currently want to see it. So overall picture, cash at the end of the period, nearly EUR 19 million and liabilities to banks being down to a little bit below EUR 50 million. Okay. Jumping now. Sorry for that. So, our shareholder structure, I think we are going to show the picture again, right? So, no major changes here, with Norbert Basler holding again at 53% and our free float at 28%. So, really no major deviations to last time. But major deviation to last time when we showed the picture of our share performance, which is quite positive. I think today, we closed at the EUR 13, but we were coming from EUR 6.09 at the beginning of the year, and we closed the quarter with EUR 12.32. And we bet the index by the way as well. So, we just expected it here as well.

Okay. This brings us already to the outlook. I guess, one of the most interesting parts of the presentation also for you and talking a bit about the environment we expect for the second half year and about the specific topic of U.S. imports. I mean, things are volatile, as we all know. They can change every day. But we want to bring across again our philosophy that there are certain things that we are able to influence. On the left-hand side here to bring you up to speed, we roughly deliver from the German factories into and export into the U.S. roughly a value of EUR 30 million on an annual base. Certainly, this is depending on product mix and also local demand. And then our U.S. entity is selling this to our clients. And on these transfer prices, obviously, we are paying tariffs. So we -- as Ines mentioned, we have installed a system that is passing through the tariffs, exactly the tariffs that we are more or less exactly what we are paying. So, we don't earn money on it, but we do it in a very transparent way and our clients, and thanks to our clients on that side here are willing to take it. And we also believe now with the increase in tariffs from 10% to 15% as it looks like at the moment, our clients will behave the same way. So the impact on our side is limited. However, during Q2, as we have had a time delay in implementing this in our systems end-to-end worldwide, we lost some money on the way. This is approximately EUR 500,000, a little bit less actually in Q2, but maybe when we have to shift to the other tariffs, there will be always a small delay. But in general, we can pass it through, and we think the impact will be limited. But there are also aspects in the second half of the year that is not under control, not under full control at least. The one element is the demand itself. And when we looked in the beginning of the call into the picture of the European industry with negative bookings trend, so there might be a slowdown in the market, even though we see a good momentum in our books outperforming the market. And definitely, we are also facing strong headwinds regarding U.S. dollar and Asian currencies that cost us quite some gross profit, a couple of percent points actually. So, what as an environment do we expect overall? So, we believe in line with trade associations that the market that has grown in the first half year might on an annual base be more making a sideway move. We also do not expect in the current macroeconomic situation that the purchase manager indices will change a lot. So they, to our perspective, most likely will wobble around the 50. Trade and geopolitical conflicts continue, and this will mute further the investment climate, as mentioned also when we look back into the first half of the year. We expect also in our assumptions now that currencies stay that weak on the U.S. dollar side and Asian currencies. If this would change dramatically, then also this will be a benefit to us. But at the moment, we calculate with these weak foreign currencies against the euro. We also assume that the intensity of competition will stay or even rise because in this market situation where there is just limited number of projects, everyone is fighting about these projects. We also have good indication that larger project business in the logistics and also semicon AI-related applications in China and in the U.S. will give us additional opportunities, most likely in the second half of the year. I mean we need to win those projects, but at least we see signs that they will be there. And all in all, please bear with us. The visibility and predictability is very low at the moment. Customers order very last minute. We have typically 2 to 3 weeks delivery time. This means for us, we have visibility of 1 or 2 months max into the future. So for us, this is flying -- yes, not flying blind, but flying in a foggy landscape. Yes. And taking all this together, looking at the first half year performance, looking at the good order momentum end of Q2 and also considering this market -- more difficult market landscape or continuing difficult market landscape, we are convinced that we can be better than our original guidance. And therefore, we increased our guidance for the full year from revenue in the corridor of EUR 202 million to EUR 215 million. Formally, we guided EUR 186 million to EUR 198 million, so substantial increase. And on the earnings margin, we formally guided 0% to 5%. We go up from 2% to 6%. This might be a little bit less than you would have expected with such a revenue, but this is mainly driven by the -- or mainly caused by the headwinds of FX. Yes, this forecast for 2025 gives us good momentum and also makes us confident with our midterm plan to get the company back to a 15% compound annual growth rate, by and large, get it back to a sound profitability of at least 12% earnings margins and realize, by and large, EUR 275 million in 2028 with a strong cash conversion rate of 70%. Here also, I mean, the assumptions have not changed. We need next year a better market environment. Even though this year, we are most likely really able to outperform the market by far. We also for this midterm plan, we need a better market landscape. We are now the third year in a row in a difficult market. So, there is high hopes that at least next year, the market will start to recover. And another aspect is we need to remain access to the China market. I mean, after our revenues went down a couple of years ago, we stabilized the revenue in China. Now, China is even growing faster than other regions. So also here, this market needs to be an element in order to realize these goals. Yes. Having this said and given you this outlook, we are ready for Q&A session. Our colleague and operator here, Manuela will open the call. You can either use the chat function. Manuela will help to read through it, or you can raise your hand and make yourself available and then you can ask your question directly. So, happy to answer your questions now.

Yes. So, first question comes from Lasse.

I would have 2 questions and then maybe a third at the end of this time. Order intake in the second quarter was pretty strong again. Could you just talk a little bit about where that's coming from? You mentioned logistics was good. I think one of your U.S. peers also started talking about consumer electronics starting to improve. Those geographic shifts in production seem to be slowly coming through. So if you could just talk a little bit more about the verticals, that would be very interesting. And then the second question I would have is, with the new guidance, it implies that at least on the top line, you're going to be somewhat weaker than in the first 6 months of the year. Just off the back of -- Q2 orders were obviously very good. And I think I read somewhere that the exit rate out of Q2 into Q3 on orders was also pretty good. So, I'm just wondering, give some color on how much conservatism you're kind of baking into potentially, I guess, Q4 being a lot weaker than all the other quarters.

Thank you, Lasse, for your questions. Yes, from the order intake perspective, to give some or shed some light on the Q2, there were -- I mean, basically, there was a stable momentum in all regions. But what we have seen again in the second quarter were projects in the logistics space in the U.S., also projects in -- regarding AI production machineries. So it's mainly semicon/electronics in China. We also have seen some orders in EMEA happening in the second half. So there was in Europe, also a slight positive momentum, but in Asia Pacific, so rest of Asia outside China, the situation is still difficult. A bit better situation in Japan, actually in semicon, but in Korea, also Taiwan, still pretty difficult situation. Yes. With regard to the question, guidance second half and yes, obviously, it's a bit weaker from top line, what we plan. There are mainly 2 reasons. The one is the low visibility, and we also want to be a bit careful. I mean, we know where we come from the last years. And the other topic is besides the low visibility, we are also talking about project opportunities. And if these projects, larger projects come or not come, this can make quite a difference. So, this makes us at the moment a bit cautious, even though there is definitely a good momentum in the second quarter order entry and also the July was also not too bad from an order entry standpoint. given the situation also that normally the third quarter seasonality is low. But definitely, you are right. We are a bit careful for the second half of the year here, but there are reasons why. And let's get some more transparency into the second half because for fourth quarter at the moment, for example, we are still, yes, too far away to judge on it. Other questions?

Next question is coming from Robert.

Can you hear me now?

Yes.

Perfect. So just a follow-up on what Lasse said, especially when looking at the second half. I mean, I know we're not in normal times. But in normal times, I remember you used to have a more semi-Asia heavy H1 and less semi comparatively in the second half. And since China semi was driving H1, are you kind of afraid that this driver might not be sufficiently compensated for by like European industrial as it has been in the past? Or would you say that like the semi space is so much focused on very specific larger projects that the seasonality doesn't really apply at the moment?

More questions or this is mainly the question?

No, my questions are kind of disconnected at this time. So, maybe we'll just take it one at a time.

Okay. Maybe then let's start first reply to this and then we go further. The situation that you referred to is especially for the smartphone and tablet industry. This typically, you are absolutely correct, is the high season is in Q1, Q2 and then the production equipment is getting installed for the Christmas business. This business -- so the smartphone industry is still relatively weak. So, there is this seasonality you won't see this year too much because simply the business is still relatively low. What we talk here is mainly about semicon AI-related topics. And there is no Christmas season in this because these produced boards like the Blackwell boards, for example, from NVIDIA. They go typically into server farms. So, there is no special season for this. And this is why you see those projects over the -- most likely over the whole course of the year without such a significant seasonality that we typically know, and I think we will see it again once the smartphone industry is picking up again.

Okay. Perfect. My next question would be on like tariffs and FX a bit. So, one thing I remember is that one major customer -- sorry, one major competitor has its production facilities in Canada. Considering that the tariffs now in Canada, I mean, they might be temporarily -- no one knows these days, but this should be kind of positive. Is this also sparking some interest from U.S. customers? Or are they still laying low, so you don't see any potential shift in market share? And also, when I look at the U.S. market, especially now not only because of tariffs, but also because of the currency headwinds we've seen, are you still trying to serve at least the more commodifiable cameras from Singapore? Have you increased this? Or is this still something you are thinking about implementing somewhere along the line?

Yes. So most likely, when the spread between Singapore and Europe will stay at around 5% points in tariffs. And these tariffs, as mentioned earlier, they are only based on transfer prices, so not on the end price for the customer in most of the cases, not in all, but in most of the cases, then the investment to bring significant amount of the value supply chain through Singapore -- from Singapore to U.S. most likely does not make sense. It will stay for us most likely a backup solution or maybe kind of a hybrid, but not a significant change. This might change and we are ready for it and prepare further about it if the spread is getting higher. But yes, this is the situation with our supply chain. With regard to competition, so at the moment, as we are, especially against our North American competitors that act in Canada or the U.S., we are typically well positioned in terms of pricing. This is very different from Asian competition, especially China. So here, the price difference, even though they might have, in some cases, an advantage due to tariffs is not that large so that we do not fear mentionable impact on our market share.

Okay. Perfect. And my last question would be on working capital. We've seen quite an improvement in inventory turnover. So that's great. But I was -- just to give me an idea overall where you are now and where you see like what improvements you might see and if we can expect them in the second half of the year? Or is working capital at the moment not like at the center of your concern?