Good afternoon, ladies and gentlemen. Welcome to the YanOptik conference call regarding the acquisition of TriOptik. Let me now turn the floor over to your host, Doctor. Stefan Tregga.
Thank you very much and a very warm welcome from our end to all of you on the telephone. Ladies and gentlemen, with me on the call is Sanjita Schumacher, our CFO and we have our Investor Relations department on the call as well. Before I get started, I'd like to draw your attention to the forward looking statement in the presentation on Page 2. I'm not going to read it out to you, but you can find our forward looking disclaimer on Page 2 of the presentation. We're really pleased to be able to announce and ENOPTIC has acquired Trioptix.
With that acquisition, we make a very important step forward on our promise and our strategy to stand for more innovation in photonics applications. Imagine your baby is born. What do you do? You take out your mobile phone and you take a picture. It's probably one of the most important pictures you take.
So quality matters. Imagine you need to be linked to your loved ones. Especially in these days, we are relying on mobile devices to communicate with each other. What's really important is the quality of the image that you get with your mobile devices. Imagine virtual reality.
Imagine you use glasses and goggles to display things in front of you. What's really important is actually the quality of the optics in those devices, in those mobile devices used for virtual and artificial reality and for the communication with data. All of that uses optics. And these optics are ever smaller. Yet, the quality of these optics is ever more important.
The quality needs to be tested. Quality needs to be proven. Quality needs to be assured. During and after the production process. And TriOptics, the products of TriOptics are the global gold standard for test and measurement, for quality assurance, for proving of quality of optics for mobile devices.
And we see acquisition of TriOptics, CNOptics makes an important leap into that growth market and future market. You follow me on Page 8 of the presentation. We have scripted the strategic rationale of the transaction. With this transaction, we significantly strengthened our capabilities to participate in very dynamic trends, and that is the trends of ever more digitization of our world. We all look into ever more mobile devices.
We all look into ever more cameras that we carry with us. We all look and utilize and use evermore optics on mobile devices. And that is certainly a trend that's going on since quite a while. And if anything, has seen a tremendous tailwind in the marketplace driven by the COVID-nineteen pandemic. It's the acquisition of 3optix.
We become a leading provider of optical measurement and manufacturing systems globally. We strengthened Genoptix technical skills in key strategic applications, in particular digital imaging and high end optics and advanced manufacturing. We have improved market positions and we have ever more internationalization. Trioptix comes with a very good footprint in Asian marketplaces. Inoptix can leverage the footprint that we have in the North American market with a highly complementary fit across geographies, technologies and the deep end markets.
We see value equation right from the get go. Trioptix will help Genoptix as a group to get even more growth. In the last 4 years, TriOptics managed to grow by about 17% on average over the last 4 years, and it's a highly profitable company. The EBITDA margin of Trioptix is at around 27%. The acquisition is expected to be earnings and cash free flow accretive in the 1st year after closing already, of course, depending on the closing certain closing times and conditions, it might even be this year already.
We expect to realize significant synergies due to the expansion of addressable markets and complementary sales channels. And we will continue to focus on our financial strengths. It's debt financing that we are using without tapping into the strategic liquidity reserves that we have and which we talked about a number of times in our earnings call. Please do follow me on Page 9 of the presentation where you can find a quick snapshot and overview of the TriOptik. TriOptik has been established and founded in 1991 by a founder, Mr.
Eugen Dumitrescu. Very, very importantly, the founder will actually stay with us and stay with the company. TriOptics has been able to achieve around €80,000,000 of sales in 2019, and I already mentioned, with very healthy profit margins. Pyruptics employs about 400 associates, many of them in Hamburg, Germany, Wehle, which is close to Hamburg here in Germany. And TriOptics has sales and service subsidiaries around the globe.
You see the revenue mix by region. You see that a large part of TriOptics is actually going to customers located in Asia. No wonder many of those mobile devices are actually produced in Asia and in the Asian region. On Page number 10, you can see a bit sort of more about the portfolio that TrafficLink comes with. More than 50% of Draftkicks sales are attributable to machines for image quality, which are used for testing of image quality of lenses for miniature objectives.
And I already mentioned smartphones, laptops, tablet PCs, cars, cameras and certain other ever more booming applications. And I'd also like to add to that the potential that we do see in virtual augmented reality in glasses and goggles. Astex has a business in active alignment and assembly, in which automated volume production and packaging of optical sensors and systems for such cameras and for LiDAR components are of importance. And about onethree of FerOptics is optical metrology for optics manufacturing, eventually automatically centering certain optical products, lenses and objectives and then sealing and mounting those parts together. On Page 11, you see a quick snapshot of how we fit together.
In the value chain of optical production, you find a number of steps. It all starts with being able to test and measure quality. That's where it really, really starts. And that is where the strengths of TriOptics lie. Inoptic already had a business in there.
We have had in the past or rather we do have up until now already, a small beginning of a business in this arena out of our Florida facility. And with traffic together, we're significantly strengthening our footprint in this segment or in this part of the value chain. It's followed by producing of optical subsystems and some components where we have our strengths really as well as in photonics enabled devices. That's a stronghold of us. So you can immediately see where the synergies are and how we fit together almost perfectly.
It's almost like hand in glove in terms of how we fit together from market and product perspective. However, nevertheless, if you go to Page 12, you also see how we fit together from a geographic presence. Genoptix is present in many markets. We have production sites and sales facilities really around the globe. Trioptix sells a lot to Asian markets, which is, quite frankly, one of our weak points.
We are Genoptix, in particularly strong in Europe and in America, and TriOptics is particularly strong in Asia. And we certainly intend to leverage our respective strengths in our sales channels. Bringing TriOptics products more into the Americas and TriOptics will help us to be better represented in the Asian marketplaces. You'll see on Page 13 what the acquisition means for our revenue mix by region and by markets. As I already mentioned, with that acquisition, the combined entity in optics and trioptics on a pro form a basis all show about 16% of its sales in Asia and Pacific already.
And of course, about 25% in Germany and 28% in the rest of Europe and 27% in America. So we'll significantly strengthen our presence in the growth engine of the world in Asia. You'll also see on this page our revenue mix by end markets, and you see that Health Care and Life Science are becoming a bit more important. Semiconductor still is important, that's for sure. And you see a new application area, if you want, popping up or end market popping up in whatever yellow.
And that's mobile phone and virtual reality. This is where Genoptix has been, but not very strongly. But TriOptix really has its stronghold in there in, as I said earlier, products to ensure the quality of optics for mobile devices. So clearly, a very synergistic and complementary product portfolio and market portfolio. And with that, I would like to hand over to Hans Dieter, who is going to talk you through the synergies that we do see and the details of the financing of the transaction.
Mansita, over to you.
Yes. Thank you very much, Stefan. Please follow me on the next page, Page 14. And here, you see the substantial synergies we think we will achieve. We will have a value accretive parts from 3 ks optics already in year number 1 due to substantial organic growth potential and multiple synergies, as Stephan has already explained.
With the accretive combination, we will create a significant shareholder value we strongly believe. In figures, we think that we can realize more than €15,000,000 long term organic revenue over the next years, potential due to the cross selling effects and several synergies and the cross selling effects, Stefan already mentioned. We have, with the acquisition of 3 Optics, more structural growth drivers. We have an improved customer access. We will have efficiency gains in the account and the customer coverage.
And we will have, as already presented to you, a broader geographical mix. Please follow me then on the next Page, number 15, where we have prepared for you some information concerning the financing of the transaction. And the core base was obviously our very sound financial situation, our strong balance sheet. Stefan and I have explained throughout the last years to all of you. And we will leverage now our balance sheet a little bit more.
You can see that the transaction, as such, we will have a multiple based on the 2021 estimated EBITDA of 10.4%. As already mentioned, we expect the acquisition to be already aggressive to EBITDA margin growth and earnings from year 1 on. Obviously, it's depending how much the impact will be in 2020. 2020 already is depending when closing will happen because this is the date of the closing. We can consolidate the company.
So the date of the consolidation is important. And then, of course, we have some purchase price allocation impacts. But we think that from the 1st year on, this will be accretive. In the first step, we will acquire 75%, and we'll have a residual 25% until the end of 2021. And that's, by the way, also the time how long Mr.
Dimitrescu will join us. Then the financing, The next part in the slide, we have €300,000,000 fully committed term loan with very effective conditions from our long lasting partner, the Landesbank Baden Wurttemberg in Stuttgart. We have talked to them very intensively, and they have already committed and signed the €300,000,000 The financing with this debt is very important for us because we will have still available our strategic liquidity reserve. As Stephan already mentioned, today, it's even more than the €200,000,000 here, but at least we will have €200,000,000 more available. We made an simulation based on Q1 2020 figures, which are published.
And with the last 12 months EBITDA. And at this time, we would have a combined net debt of minus €220,000,000 and a net leverage of €1,800,000,000 in the last 12 months EBITDA, which is very fine for us, using, as I already mentioned, much more than in the past, the leverage effect. The outlook is that we think we can close the acquisition in the first quarter of this year, 2020, but it's obviously subject to customary closing conditions. The group, the combined group and ENOptics, we will generate positive free cash flow in 2020 despite of the coronavirus pandemic impacts we have at the Optik. And we will retain significant financial flexibility, as I already mentioned to you.
This is the reason why we took the bridge financing. Continue, we will have a focus on a strong balance sheet quality with high liquidity and free cash flow generation is very important. Cash matters more than ever, and we are very confident that we will deliver good and strong figures, including 3 optics in the months years to come. And then I'd like to hand over again to Stefan, who will go with you through the last slide. Stefan?
Yes. Thank you, Hans Peter. And let me underscore something that Hans Peter already Seitan mentioned. We will take over 75% in the first step. There is a residual 25%, which is due and there are certain earn out or is linked to certain earn out criterias to do with continued sales growth and profitability of the TriOptics Group.
And let me just say that there is a high incentive for the former and had and driving force behind TriOptix, Oregon Dimitrescu, to make sure that together with us, TriOptix is even more successful going forward. In closing, with this acquisition, we clearly drive forward our photonic growth story. We have promised that. And we're promised to transform Genoptic from a diversified into a conglomerate, an industrial conglomerate into a more focused technology group, focused around our core competencies in optics and photonics. And we promised to invest into our stronghold in optics and photonics.
And this continued investment in organic growth and attractive external opportunities is what we always said is part of our equity story. The acquisition of 3Optics is consistent with our strategy and our strategic objectives and our mission to become the leading light in the application of photonics. We leverage our core competencies in photonics. We'll step up our R and D work, and we'll make another step towards building a truly global enterprise. We'll accelerate growth, and we'll definitely expand the profitability and cash flow of the Genoptix Group overall Razzetta acquisition.
We are very, very, very excited about this. We are really, really glad that we can announce this today. Again, it's a very important step into our strategic journey, delivering on our promises. And with that said, I'd like to thank all of you for participation on such short notice. We always can only give the long notice to these calls, but thank you for joining anyways.
And we're certainly more than happy to receive any questions you might have.
The first question is from Maisai Schouman of Warburg Research.
Yes. Good afternoon, gentlemen. First, congratulation on the deal. It sounds good. First question is on the future growth rate.
I mean, the company had a pretty strong growth rate in the past year, probably also base effects. What do you see as potential growth contributions for the next 2, 3, 4 years? Is it able to kind of continue the 15% to 20% growth? Or is it kind of double digit to 10% to 15%? What's your view on that front?
Yes. Thanks for that question. Very important one, obviously. We believe that the growth contribution or the contribution to growth will come from their existing from the existing product portfolios of Traptics. Obviously, in the field of mobile devices, there will be, we believe, we're very certain, there will be growth also coming from certain optics based products in the automotive industry, as to say, mobile phones and optical devices.
And I think the most inspiring growth contribution, I think, could come and hopefully will come from the end markets around artificial and virtual reality. There are ever more projects out there. Large companies now actually trying to get into this. And again, if you think about virtual reality glasses and the like, there's the quality of the optics is very, very important for the variability of these devices. So we believe that could be and should be an important growth driver.
It is, of course, a market in its early days, which needs an inflection point, but we are convinced that, that's a growth server. So we see growth across all different all application areas for the next few years. Some of them based on the products existing already and some of them based on new developments, which we believe are very, very exciting. Look, I mean, obviously, it's very hard at the moment to the second part of your question. So how is it a moment to judge, in particular, this year and the years to come with the corona pandemic.
What I will say is that up until now, TriOptics has been quite resilient versus the impact of the economic downturn. And we believe that already this year, our optics will have a very good year. And there should be growth, of course, in the years to come. But at this moment, we really don't want to specify that in hard numbers. We now have just signing or we just have signed an SCA and a contract.
And we now need to, of course, look a bit closer under the hood of the company before we can give you any sort of detailed numbers there. But it's certainly going to be a growth driver, a growth engine for the rest of the group. So we believe that it will be above group average in terms of growth.
Yes. That's fair enough. Thanks. And then could you share a number of market share, what's the market share in a global perspective from Trioptix and their business?
I think that depends on the application. But in image quality for mobile mid neutral objective lenses, they're the gold standard and they're number 1 in this area.
Yes. Okay. So that's for the largest part of their business.
Yes.
And then the sales synergy you expect, the €15,000,000 in the long term, could you provide an example of what you see as a potential for new applications or new products with the combined offering could result in additional sales?
Yes. We see product synergies, but also channel synergies. I mean, we do have small business in this arena, again, out of our Florida facility. It's in its infancy and small sort of it's pretty small at the moment, more engineering for certain customers. And we can use that technology injected into TriOptics.
As a matter of fact, we contemplate actually building a combined business unit in the Light and Optics division, which will be called Test and Measurement. So we intend to combine our business in there, which is by far not as big as Draptics. And together, we believe that we can address the customers better from a technology perspective as well as and that's probably the even bigger effect from a channel and customer access perspective. Again, we have very strong organization in North America. With our Florida facility, with Hansel, Alabama, of course, our applications laboratory in the Bay Area.
And trioptics is pretty strong in Asia, where actually many of the things are produced. So often you see things designed in the U. S. And produced in China or Taiwan or places in Asia. And we believe that we can link ourselves into design process fairly early and then help in the quality assurance and the production process, that will be a good growth driver.
Yes. Good. My last question
is regarding the price. We agreed 10x EBITDA next year for 400% of the company, right?
Correct.
Yes. Okay. Thanks.
The next question is from Richard Schram of HSBC.
Yes, good afternoon gentlemen. I would be interested in the further split of the sales of trioptics in Asia? What is behind the 68% here? How much is China, for example, or Korea, Japan? Could you give a bit more insight here?
And also, you mentioned the customer structure that there are obviously some major customers in the consumer electronics segment. So could you also shed a bit more light on how this structure is split up a bit? Of course, I do not expect any names, but maybe a bit more to the individual end markets here. Thank you.
Yes. Richard, it's great that you're saying you do not expect any names. It's the names you would expect. And in terms of split between the various countries in Asia, please do understand that at this moment, we can't go into those details specifically. However, we can disclose that TriOptics works together with local partners.
There are partners in joint ventures in most Asian markets. Trioptix has a representation in China via a joint venture as well as we have a representation there via our own organization. TriOptics has joint ventures also in Taiwan, in Japan and other places where we are either present or not present, certainly underrepresented. And combining those strengths is a certain part certainly a part of the synergy effect that we hope that we'll be able to leverage or we are convinced that we will be able to leverage.
Okay. And then concerning the yes, let's say, product or project pipeline you buy with Trioptix. You have already indicated a bit what products and segments you expect to develop here in future? And especially does this company have also kind of frame contracts where you have a certain reliability that there will be a certain customer relation be based on in the next, let's say, 2 years or so? Or is it more a business which is pretty short term as we could expect from consumer electronics as usually the visibility in the segment is not so long?
Again, we have just signed a contract and we're now between signing and closing. So we have to be a bit more we intend to sign a contract between signing and closing. So we have to be a bit sort of careful. Company is not ours at the moment. Of course, we have done our due diligence, but we have to wait until we can sort of look into this in more detail once we are on the other side of certain closing conditions in the
contracts. Okay. Thank you.
I really don't want to touch the question, but we've got to be a bit careful in how we operate here and what we communicate at this moment. We can only, at the moment, we know what we know from the data rooms, but obviously, we have to be in the business before we can actually really go into these details.
Yes. I understand. Thanks.
The next question is from Peter Hotehneicher of Baader Bank in Munich.
Yes, hello gentlemen. Can you please comment you mentioned that growth has been strong and very reliable and ongoing in recent years. Was this also the case with regard to profitability and the margin? So this 27% EBITDA margin, what is the level which has already been seen in recent years? Or is it more or less fluctuating?
Yes. Mean, the question obviously is whether the yes, whether there's lipstick on the pig. No, TriOptics always have been a very profitable company throughout the years. We know each other by the way, we know each other very well fairly well from the marketplace already. So we always respected TriOptics and the management of TriOptics, the technology of TriOptics.
We always respected them very well. It's a very strong brand, and it always had been a very healthy, very profitable company. Of course, there is fluctuation as in any other company. But as far as I can remember, Triadpix has been always financially very sound.
And with regard to competition, are there any listed competitors? And what can you say about the margin in the industry? Is it at a similar level? Or is TriOptics here absolutely is the top of the range?
I believe it's the top of the range. It really is the gold standard as far as I can tell, and I think I know this market fairly well. But to me, in this particular segment, in this particular application of yes, in particular, in providing and ensuring quality for during and after the production process for optics, for mobile devices, trioptics is really the legal standard.
And with regard to competition, can you give us here some names and also some listed ones?
I don't actually think so. The question is, at what point does a producer of optics for mobile devices try to build those test equipments themselves, right? I mean, at what point would they say, look, we don't actually purchase your test equipment, but we produce it we design and produce it ourselves so that it's in the line we can use our own. However, often, it's actually not the producer that decides that, but the one that designs the mobile device that actually tells the supply chain what to use. And so the end market manufacturer has actually the power through the supply chain.
So the relationship there is very important. I don't think there was a particular listed other competitor. Might be wrong. Please, I'm really trying to from the top of my mind here, but I don't know any.
And with regard to the margin, I know you cannot go into the details, but you mentioned an EBITDA margin of 27%. If I transfer it into EBIT, is it closer to 24%, 25% or down to 20%? Only to have an understanding?
Yes. We need to look into that. But the in the details, it's reported anyways, I think, in the Bundesen cycle in Germany. But I'll need to say, I think the amount of depreciation and amortization of TriOptics in the past has not been really very high. I see that I don't know if you have the number in front of you, but I think the spread and the difference between
EBITDA and EBIT is not very high.
Not very high.
That we can see. They are very profitable Also in the earnings to come, meaning EBIT and even EBT, they are very profitable. They are and they will be.
Yes. Just really quickly back to the question about competitors. If any, I was just thinking Zygo could be maybe a competitor
for their with their interferometry devices or something.
I think that's Tyler option. Zygo would be some of the competitors that one could look into in trying to understand the products a bit better?
I should look it up. I think they have been both acquired by Amatek or such a company.
Amatek, yes.
Okay. Yes. Thank you.
The next question is from Michael Jungheinz of Commerzbank.
Yes, good day. Thanks for taking my question. I've got just a short question here. Can you a little bit explain why sales grew flattish between from 2018 to 2019? So I remember that you mentioned here that the Trioptix achieved the sales of EUR 18,000,000 in 2019.
So if I compare it to the 2018 level, it was rather flattish. Is this correct? And could you then shed a little bit more light on why the sales growth was quite flattish here?
I think in 2019, there was growth. But I think in 2019, Draptics prepared for some new products and invested in new products as far as I know. But I don't quite know where why you think that it has been so flattish in 2019. We have seen growth in 2019 as well. Triadix has seen growth in 2019.
I don't know. And Peter, do you have any more information about that?
I'll just look into the results coming from the German commercial chamber here and they said they achieved a sales of EUR 82,000,000 in 2018, right? And you said they achieved €18,000,000 in 2019, which means like, I could say, a flattish sales development here compared to 2018. So this was the reason why I wanted to know a little bit more about why sales was why sales grew flattish here in 2019 compared to 2018 here?
Right. Yes, again, as I say, they invested into growth and with new products. Can I add their first explanation?
Yes. So just a quick follow-up here. It could be like there were some headwinds in a couple of the regional markets cost. They achieved like the accounted for around 70% to 75 percent of the sales here came from Asia, from the region there. Were there some headwinds in the market in 2018 or like sorry, like in 2019, which caused the sales to grow flattish here?
I think in reality, the 2018 number has been somewhat skewed by a huge ramp up with certain mobile phone device manufacturer. So you got to or one has to be a bit careful comparing or just taking 2018 to 2019, but looking to the longer trends. 2018 has been, I think, particularly strong. And you have this this is pretty typical in this market that sometimes you have sales that slip into 1 year and come back out of the year. So 2018 has been very high growth has seen very high growth rates driven by a search in relation with a certain mobile phone provider.
And that, of course, makes the comparison between 2018 2019 a bit challenging. Also, yes, I think that's the main reason.
Okay. My last question here, Are you able to give us some names here about these customers in the mobile phone area where they are?
Unfortunately not. I think we all use mobile phones from a lot of providers and they owned the supply chain. But unfortunately, we are not allowed to disclose any customer names at this point.
The next question is from Richard Schwann of HSBC.
So just a quick clarification. This growth rate over the last 4 years for plastics, that's all organic, the 17%, right? So they have not made any acquisitions in that period?
Correct.
Yes. Okay. Just to clarify this. Thanks.
There are currently no further questions in the queue.
Okay. Well, then thank you very much again for dialing in on such short notice. Again, in some way, we are really, really excited about this. There's a lot of synergies in the top line driven by products, by technology, products by applications driven by applications driven by the channel synergies, it does bring us a huge step forward in our strategic journey towards becoming a focused technology group, focused around our core competencies in optics and photonics, huge leap forward in our strategic quest here. It actually shows what photonics can do for all of us.
I mean, if you think about it, you think the applications and how cool and how exciting all this, it's a very important step our mission to become a leading light and dewy application of photonics. And Torports being a making the world a better place with the power of photonics. With that, again, thank you very much and bye bye for