Bystronic AG (BYS) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, for this short press release announcement about this acquisition of the business unit, Tools for Material Processing, from the company Coherent Inc. And with that, I would go to the next slide. I think for any dial-ins for the teleconference or to ask questions, just take a moment or take a picture of the 3 numbers. Perfect. I think disclaimer, just take a few seconds to read it. You know how it works. Okay. Perfect. So we have signed tonight an agreement to acquire, in our eyes, a well-established global leader in laser technology. The company headquarters is located in Munich as well as manufacturing and engineering. It counts around 400 people, I would say, round about 300 or 280 of them in Germany. Company is present in 15 countries all around the globe. We have a quite wide global customer base with above 600 customers. But it's very important to say as well, they work very strongly with key accounts, with big key accounts, so returning customers. They do round about USD 100 million business. So please consider that I'm talking about U.S. dollars because we are making everything in the transaction and so on in U.S. dollars. Important to say that Rofin is a very strong brand from the past. So we always see the Coherent but what we were interested in is really this Rofin business and I will explain later on why it is important. One remark on the sales, please. The fiscal year of these guys are from July to June. So this USD 100 million is just from the past year. With that, we can go to the to the next slide. What is this company doing? They are -- or what is the, let's say, the strategic rationale behind, is we are expanding into adjacent application, right? They do systems for cutting, welding and marking, which might look a little bit different. But at the end, it's more or less the same technology we are using at Bystronic. So especially one example, they cut stents, right, in very low number of millimeters and we cut tubes with a range up to 350 millimeter but at the end, it's a tube cutting with laser, with a 3D technology, with a CAD-to-CAM software and so on. They have even dedicated system. It's not a big portion out of the business, very small business with manual welders but they have a huge business as well with laser subsystems, which is a very important one. I might remind that when they call about subsystems, you could even think about spare parts of Bystronic because a cutting head, a laser cutting head is for Rofin or for this acquisition laser subsystem, whether this is a scanner or whether this is a surface treatment or whatever. With that, we go to the next slide. I think for us, again, the attractiveness is to enter in new markets. Bystronic is not participating nor in the medical device nor in the semiconductor market. We do believe that it is -- these are 2 very attractive markets. Medical devices here in cutting, stents, catheters, hypotubes, right? These are all tube cutting, marking, implants, dental aligners and with welding, as example, guidewires, right? Semiconductor, especially in the surface treatment, or surface processing for the wafer marking, wafer dicing, wafer planarization and some others. We are, of course, even in general manufacturing, here, especially marking -- by the way, we are already using -- we learned this during the process, laser marking subsystems from Coherent for some of our Bystronic products. I mean, cutting, you can cut shoes, watch industry and so on. I would say, very interesting as well in this general manufacturing is welding. And this is very much related to automotive but only for batteries for electric vehicles. So battery welding is a quite good and stable market where we still see some growth opportunity as well. Then cleaning with the laser scanners or even called ablation process, you can clean or change surface like de-isolation, foil cutting, which is again used in the battery -- lithium-ion battery manufacturing. With that we go to the next slide, please. So it's a very attractive growth market. We have identified independently, I have to say, a total addressable market of USD 4.2 billion. Market growth, the CAGR from 2024 to 2030 shows a CAGR from 4% to 5%. Indeed, we see a moderate growth rate in Europe but a very strong growth rate in America and in Taiwan, where we have a quite good presence. So what are our market shares? They might look small with 3% to 4% but I can tell you there's only one competitor having a double-digit number. And I would say round about 50% of these companies are headquartered in Europe. So I think that with that, Bystronic will be a key player in the medical devices because everybody is round about 3% -- at this 3% to 4% market share. I think that together, we can definitively increase this market share. We go to the next slide. Yes. I mean, the strategic fit and rationale. I think I talked to a lot of you. It was always our goal to find adjacent business, right? And it fits perfectly with Bystronic. We can leverage our know-how of laser technology in different fields. Again, we talked in the past always only about cutting. Now we're talking about marking, surface treatment, welding, which is very important for us even to further develop our core products, which we have in Bystronic. I do see that complementing economic cycles. If I should say what is the weakness or the trait of Bystronic, I would say, single market, single company. So I do believe that the strong diversification will help to strengthen our business and to create the necessary resilience for the future to not be only connected to one cycle, right? What is strong at this company as well is they work very much with larger OEM customers. So they have companies like Stryker, huge key accounts business, which you can plan for the future. It's really something very, very positive. And then, of course, different end markets. I think this is the key for us to make the -- or let's say, the main driver to make this decision to enter new attractive growth markets. Of course, even semiconductor had a difficult time over the last few years. We see that it's picking up again. I do believe that this will further grow. And then as you know, Bystronic is strong in sheet metal and in sheet metal and in sheet metal. So -- but there are other materials like polymers, like glass, ceramic, silicon and organic materials and you name it, where Bystronic just doesn't have the capabilities and the know-how to enter. And this gives us a huge potential to even think about to further enter in new additional markets, which we don't know today with our technology and our capability. With that, we are already coming to the -- next slide, why we do believe that this is a good fit. And honestly, we are asking ourself always, are we the better owner? Yes, we are. We write down that we have a similar DNA. I can tell you, I'm sitting now here in this company, having the town halls and so on. I can tell you we have exactly the same DNA. We are a machine builder. Coherent is a great, fantastic company but they have a different focus. They want to have growth rate year-over-year by 100%. This is not possible in the machine business, right? We are down to earth from the size of the company, from the understanding how to leverage the market, how to build machines, how long it takes to develop a machine, I think we just have exactly the same DNA. And if you see these machines, I can tell you, we believe that at Bystronic, we could build this machine by tomorrow in one of our entities but vice versa as well. So what is really important for us, it's really to extend Bystronic's reach to other attractive growth markets. And by the combination of the know-hows of these 2 companies, I'm quite sure we can even find new markets we don't even know today. As I mentioned before, Rofin is a strong brand. We are going to use it, right? That's why we are going to name the business Bystronic Rofin. You will see it even later on. We will offer a variety of applications and not only for metal, as I mentioned before but for all types of material. We have a very similar history. And yes, we are both a global player with decades of experience, good market access, strong brand and we have very low-hanging fruits when it comes to synergies like in procurement. We have identified 80% of the material Coherent or new Bystronic Rofin is buying are the same like Bystronic buys as well. And you can imagine by the buying power, we just have different discount levels and we can leverage this savings from day 1. Further, I firmly believe that we can benefit from each other when it comes to 3D. And in all R&D, when I'm talking about 3D, as you know, we are very much focusing on tube, which are macro tubes, if you want. There, we are missing some of the skills in-house of 3D cutting of tubes, and this company has it, right? Of course, again, we are talking about different sizes but at the end, technology is the same. So I see huge benefits from the R&D side as well. Next, so how the integration will work out like? So we will establish a new GmbH here in Gilching, close to Munich. It will be named Bystronic Rofin GmbH. It will become a own business unit reporting directly to me. Why? Because at the end, it is a partially carve-out, especially outside of Germany. I want to make sure that the business runs stable and before we start to do crazy things. It is a high potential company. That's why I want just to make sure that we keep the drive. And the production remains in Munich and sales and service operates continuously as usual all over the world. We just had the town hall this morning here in Gilching. And with the Asians online, we will have town halls in the afternoon, with the Americas just to ensure that everything keeps ongoing. So yes, we don't see any risk on this one. Of course, we'll integrate support functions such as the usual ones, HR, IT, finance, legal, tax and so on, you name it. That's for sure, something where we have some synergies, leverage as well. We are present in all the countries, this Bystronic Rofin unit is. So I think we can cover most of them. We will bring them to our IT system, to our SAP system but I think we can even support when it comes to our central functions and leverage here even some synergies as well. So I think on R&D, I already talked about and the closing is expected within the next few months. We have some regulatory things to fix but we have even some very clear closing conditions, which we want to have fulfilled. And yes, I think within the next few months, we will be able to close it. So with that, I think we're already coming to the end. If we go to the next slide, we are already on the Q&A and I'm happy to answer your questions.

[Operator Instructions] The first question comes from Sauter Torsten from Kepler Cheuvreux.

I hope you can hear me well. I have actually 2 questions. Firstly, I would like to understand a little bit the production footprint of Rofin, the target. Is it just one consolidated site? And how does that compare to competitors, right? I mean, considering tariffs, for example? And maybe would that open up future plans for relocating some of the production and opening something in other locations where Bystronic is present? And then if I may, my follow-up would be, I was surprised to see a relatively low market share in a growing world market for Rofin. Could you elaborate a little bit about the competitive field? Why is the market so atomized? Who are the main competitors? And what are the USPs that you see in Rofin to succeed here?

Okay. Thank you, Torsten. Two very long questions. I try to cover everything. So let me start. I mean, we consolidated and this happened over the last few months, the manufacturing footprint to Munich. So basically, today, the products, they are all coming out of Munich. It is different when it comes to service. So we have even spares all round the world. So basically, the service is locally. But when it comes to the new machine supply, it is out of Munich as per today. And of course, you already brought it to the point. It's not only because of the tariffs but it's even because of delivery times and so on. Bystronic has the right footprint to just produce wherever it is necessary, right? I mean we want to grow with this business. It's clear that as we are doing a localization in the U.S. right now for the Bystronic business, especially because of the tariffs, this would be a possibility for this Rofin product as well. And as I told you, we are not manufacturing. It is an assembly. This is purely assembly, of course, with a lot of engineered parts. So with that said, we can easily localize whenever it's necessary. We have already some plans even for new products, which we see for the Asian market, which we don't see for the U.S. market, which today, it would be very difficult to sell it out of Germany just for the price competitiveness. But if we could produce it in China for China, we could do it. So these are all opportunities we have. And we have already identified some of the products. We have even identified some products which have been phased out over the last few years, which might be an opportunity to enter in some lower entry market. So here, I see a huge advantage by bringing these 2 companies together in the future. That's when it comes to manufacturing. I hope this was good for the first question or an answer to the first question. The second one, it's a very good one because we try to understand it as well. I can tell you and I think I already told it to most of you that I made an active search, Rofin, this business unit was the biggest company I found on the market, which we would have a chance to buy. All the others were quite smaller, right? The biggest competitor with the biggest market share, you can -- you will already know it. It's TRUMPF having the double digits, right, in market shares in this fields. And then all the others you know AMADA is there with a 2%, 3%. We will be there with a 2%, 3%. And now it comes. If you take out the ASML business of TRUMPF, I think they would drop to 2% to 3% as well. So I cannot tell you why they are not bigger companies. I don't know whether there's not the right focus. We will definitely put the right focus on it.

The next question comes from Remo Rosenau from Helvetische Bank.

Yes. So Coherent is the seller. Could you tell us a little bit the history of the company? I mean, at some point, Coherent did buy it, I guess. How long was it in possession of Coherent? And why did they want to sell it now? Is there a profitability issue? Is it a turnaround case? Or what was kind of the motivation behind the selling?

That's a fantastic question, even the way you raise it because there is a history. There's really a history. I know Rofin personally quite long. I think when I started as a software engineer in 2004, my first laser I had to install and start up was a Rofin laser. So Rofin as a company, Rofin-Sinar, I would say, was one of the leading laser source producer in the world, if not the leader before TRUMPF, especially on the CO2 laser. So they were quite big and I think it was a much bigger acquisition at that time. And Coherent is a part manufacturer. Coherent is interested in laser source producing, in chip producing, in resonator production and so on and so on and so on. So they acquired Rofin. And in this Rofin group, there was a kind of a Rofin machine tool pumping. And this Rofin machine tool is exactly this company which we are buying now, right? But they bought Rofin as a group. They focused on the parts business on this very profitable business. And honestly, they did not really take care about this machine business unit, how they call it today, right? And as you have maybe heard, so it was 2016, Coherent acquired Rofin and 2 or 3 years ago, II-VI, a company II-VI acquired Coherent but they renamed II-VI, which is a much bigger company to Coherent. So it's a very long story. And last year, a new CEO joined, I would love to have his salary. You should check it up. He just put the focus now on AI. Okay. So whatever has a growth rate between 50% and 60%, they will keep and they refocus only on this one. And I can tell you, Coherent in this new setup is growing year-over-year, I think, by 65%, 67% and machine business is not on their focus. So simple it is. And that's why I think we made a great deal at the end. Of course, I mean, there are some challenges as usual, when you buy a company and when you have some carve-out topics. But long story short, we as Bystronic, and that's why I was emphasizing so much on the DNA, we as Bystronic, we are the much better owner. Just straightforward.

Okay. But is the company profitable?

Yes, so.

Okay. And I mean, barely or nicely.

Nicely.

Okay. And then about this carve-out, I mean, we've seen carve-outs with other companies. And then usually, you have -- you get some corporate services from the old owner for a certain time but then you have to do them yourself. And then quite often, suddenly, a lot of costs came out. How is the deal here?

It's clear. I mean, at the end, we have an equity deal. It's clear what it comes over. You're right. We have some TSAs, this so-called transfer service agreement. We will have some costs. I'm not allowed to disclose details about the deal. But again, we have a very nice agreement so that we can really mitigate huge costs. On the other hand, you know how it is, the first year will be impacted a little bit by higher costs because we have to implement our ERP system. We have to bring them to our IT system. I mean, even on the finance, the accounting side. But trust me, we prepared everything in detail. So the whole integration plan is already done. I know that it's early by signing but I wanted to be sure to understand what will be the impact. And when it comes to the profitability, coming back to what you said, of course, it will be impacted the first year or the first fiscal year due to the changes. But this is something we took in consideration. It's in there. I think we even have a kind of a risk margin for things we don't know today. But in overall, we plan already to be profitable in the first year. That's definitely the target, although we have additional costs. So from that point of view, yes, I think we are well prepared and we have the right people supporting. And last but not least, we have a fantastic relationship with Coherent. Please remind that we are a customer of Coherent as well. So parts of our machines and even key parts of our Bystronic machines are produced by Coherent. And with that said, I think with the TSAs we have in place, which we agreed this night, we are quite safe and we were even able to find agreements, which will be a kind of a parachute in case we will have higher costs. So I think, yes, we have quite a good setup and well prepared.