Good afternoon, ladies and gentlemen. Welcome to the Jenoptik conference call regarding the acquisition of Trioptics. At this time, all participants have been placed on a listen-only mode. The floor will be open for questions following the presentation. Let me now turn the floor over to your host, Dr Stefan Traeger.
Thank you very much, a very warm welcome from our end to all of you on the telephone. Ladies and gentlemen, with me in the call is Hans-Dieter 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 and presentation on page two. I'm not going to read it out to you, but you can find our forward-looking disclaimer on page two of the presentation. We are really pleased to be able to announce that Jenoptik has acquired Trioptics. 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. The quality needs to be proven. Quality needs to be assured during and after the production process.
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. With the acquisition of Trioptics, Jenoptik makes an important leap into that growth market and future market. If you follow me on page eight of the presentation, we have described the strategic rationale of the transaction. With this transaction, we significantly strengthen 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 ever more optics on mobile devices.
That is certainly a trend that's going on since quite a while, and it, if anything, has seen a tremendous tailwind in the marketplace driven by the COVID-19 pandemic. With the acquisition of Trioptics, we become a leading provider of optical measurement and manufacturing systems globally. We strengthen Jenoptik's 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. Trioptics comes with a very good footprint in Asian marketplaces. Jenoptik can leverage the footprint that we have in the North American market. With a highly complementary fit across geographies, technologies, and indeed end markets. We see value creation right from the get-go. Trioptics will help Jenoptik as a group to get even more growth.
In the last four years, Trioptics managed to grow by about 17% on average over the last four years. It's a highly profitable company. The EBITDA margin of Trioptics is at around 27%. The acquisition is expected to be earnings and free cash flow accretive the first year after closing already. Of course, depending on the 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. We will continue to focus on our financial strengths. The step 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 nine of the presentation, where you can find this quick snapshot and overview of the Trioptics.
Trioptics has been established and founded in 1991 by a founder, Mr. Eugen Dumitrescu. Very importantly, the founder will actually stay with us and stay with the company. Trioptics has been able to achieve around EUR 80 million of sales in 2019. I already mentioned with very healthy profit margins. Trioptics employs about 400 associates, many of them in Hamburg, Germany, Wedel, which is close to Hamburg here in Germany. 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 more about the portfolio that Trioptics comes with.
More than 50% of Trioptics sales are attributable to machines for image quality, which are used for testing of image quality of lenses for miniature objectives. I already mentioned smartphones, laptops, tablet PCs, cars, cameras, and certain other more booming applications. I'd also like to add to that the potential that we do see in virtual augmented reality in glasses and goggles. Trioptics 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 important. About a third of Trioptics is optical metrology for optics manufacturing. Essentially, 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 starts, that is where the strengths of Trioptics lie. Jenoptik 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. With Trioptics 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 components where we have our strengths really, as well as in photonics-enabled devices. That's a stronghold of us. You can immediately see where the synergies are and how we fit together almost perfectly. It's almost like hand and glove in terms of how we fit together from market and product perspective.
However, nevertheless, if you go to page number 12, you also see how we fit together from a geographic presence. Jenoptik is present in many markets. We have production sites and sales facilities really around the globe. Trioptics sells a lot to Asian markets, which is, quite frankly, one of our weak points. We are, Jenoptik, in particular, is 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. 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, Jenoptik and Trioptics, on a pro forma basis, will show about 16% of its sales in Asia and Pacific already. Of course, about 25% in Germany and 28% in the rest of Europe, and 27% in America. 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 healthcare and life science are becoming a bit more important. Semiconductor still is important, that's for sure. You see a new application area, if you want, popping up or an end market popping up in whatever yellow, and that's mobile phone and virtual reality. This is where Jenoptik has been, but not very strongly.
Trioptics really has its stronghold in there, in, as I said earlier, products to ensure the quality of optics for mobile devices. Clearly, a very synergistic and complementary product portfolio and market portfolio. 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. Hans-Dieter, over to you.
Yeah. Thank you very much, Stefan. Please follow me on the next page number 14. Here you see the substantial synergies we think we will achieve. We will have a very accretive part from Trioptics already in year number one due to substantial organic growth potential and multiple synergies, as Stefan 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 EUR 50 million 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 Trioptics, more structural growth drivers. We have an improved customer access. We will have efficiency gains in the account, in the customer coverage, and we will have, as already presented to you, a broader geographical mix.
Please follow me on the next page number 15, where we have prepared for you some information concerning the financing of the transaction. 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 accretive to EBITDA margin growth and earnings from year one on. Obviously, it's depending how much the impact will be in 2020 already. It's depending when closing will happen because with the date of the closing we can consolidate the company, so the date of the consolidation is important.
Of course, we have some purchase price allocation impacts. We think that from the first 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. That's, by the way, also the time how long Mr. Dumitrescu will join us. The financing, the next part in the slide. We have EUR 300 million fully committed term loan with very attractive conditions from our long-lasting partner, the Landesbank Baden-Württemberg in Stuttgart. We have talked to them very intensively, and they have already committed and signed the EUR 300 million. The financing with this debt is very important for us because we will have still available our strategic liquidity reserve, as Stefan already mentioned. Today, even more than the EUR 200 million here, but at least we will have EUR 200 million more available.
We made a simulation based on Q1 2020 figures, which are published, and with the last 12 months EBITDA. At this time, we would have a combined net debt of minus EUR 220 million and a net leverage of 1.8 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 Jenoptik, we will generate positive free cash flow in 2020 despite of the coronavirus pandemic impacts we have at Jenoptik. 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 sound 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 he will deliver good and strong figures including Trioptics in the months and years to come. Then I'd like to hand over again to Stefan, who will go with you through the last slide. Stefan.
Yeah, thank you, Hans- Dieter. Let me underscore something that Hans- Dieter already said and mentioned. We will take over 75% in the first step, and there is a residual 25% is linked to certain earn-out criteria to do with continued sales growth and profitability of the Trioptics Group. Allow me to say that there is a high incentive for the former and head and driving force behind Trioptics, Eugen Dumitrescu, to make sure that together with us, Trioptics is even more successful going forward. In closing, with this acquisition, we clearly drive forward our photonic growth story. We've promised that, and we're promised to transform Jenoptik from a diversified into an industrial conglomerate, into a more focused technology group, focused around our core competencies in optics and photonics. We've promised to invest into our stronghold in optics and photonics.
This continued investment in organic growth and attractive external opportunities is what we always said is part of our equity story. The acquisition of Trioptics 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&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 Jenoptik Group overall with that acquisition. We are very excited about this. We are really glad that we can announce this today. Again, it's a very important step into our strategic journey, delivering on all promises. With that said, I'd like to thank all of you for participation on such short notice.
We've always given the wrong notice to these calls, but thank you for joining anyway. We're certainly more than happy to receive any questions you might have.
Ladies and gentlemen, if you would like to ask a question, please press nine and star on your telephone keypad. If you would like to withdraw your question, press nine and star a second time. The first question is from Malte Schaumann of Warburg Research.
Yeah. Good afternoon, gentlemen. First, congratulations 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 years, probably also base effects. What do you see as potential growth contributions for the next three, four years? Is it able to kind of continue the 15%-20% growth, or is it kind of salvage it to 10%-15%? What's your view on that front?
Yeah. Thanks for that question. Very important one, obviously. We believe that the growth contribution or the contribution to growth will come from the existing product portfolios of Trioptics. In the field of mobile devices, we believe, we're fairly certain there will be growth also coming from certain optics-based products in the automotive industry. As I say, mobile phones and optical devices. I think the most inspiring growth contribution, I think it 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. Again, if you think about virtual reality glasses and the like, the quality of the optics is very important for the variability of these devices. 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. We are convinced that that's a growth driver. We see growth across all application areas for the next few years. Some of them based on the products that are existing already, and some of them based on new developments, which we believe are very exciting. Look, I mean, obviously it's very hard at the moment to judge a particular this year and the years to come with the coronavirus pandemic, what I will say is that up until now, Trioptics has been quite resilient versus the impact of the economic downturn. We believe that already this year, Trioptics will have a very good year. There should be growth, of course, in the years to come.
At this moment, we really don't want to specify that in hard numbers. We just have signed an SPA and a contract. 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. It's certainly going to be a growth driver, a growth engine for the rest of the group. We believe that it will be above group average in terms of growth.
Yeah. That's fair enough. Thanks. Could you share a number of market share, both of the market share from a global perspective from Trioptics and their business?
I think that depends on the application, but in image quality for mobile miniature objective lenses, they're the gold standard, and they're number one in this area.
Yeah. Okay. That's for the largest part of their business.
Yeah.
The sales synergy you expect, the EUR 50 million in the long term. Could you provide an example of what you see as a potential for new applications or new products where the combined offering could result in additional sales?
Yeah. We see product synergies but also channel synergies. We do have a small business in this arena, again, out of our Florida facility. It's in its infancy and it's pretty small at the moment. More engineering for certain customers. We can use that technology, inject it into Trioptics. As a matter of fact, we contemplate actually building a combined business unit in the Light & Optics division, which will be called Test and Measurement. We intend to combine our business in there, which is by far not as big as Trioptics. 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 a very strong organization in North America with our Florida facility, with Huntsville, Alabama, of course, our applications laboratory in the Bay Area. Trioptics is pretty strong in Asia, where actually many of the things are produced. Often you see things designed in the U.S. and produced in China or Taiwan or places in Asia. 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.
Yeah. Good. My last question is regarding the price. We agreed 10 times EBITDA next year is for full 100% the company, right?
Correct.
Yeah. Okay, thanks.
The next question is from Richard Schramm of HSBC.
Okay, good afternoon, gentlemen. I would be interested in the further split of the sales of Trioptics in Asia. What is behind this 68% here? How much is China, for example, or Korea, Japan? Could you give a bit more insight here? Also, you mentioned the customer structure, that there are obviously some major customers in the consumer electronics segment. Could you also shed a bit more light in 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.
Yeah, Richard, it's great that you're saying you do not expect any names. That's the names you would expect. 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. Trioptics 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. Combining those strengths is certainly a part of the synergy effects that we hope that we'll be able to leverage, or we are convinced that we will be able to leverage.
Okay. Concerning the, let's say, product or project pipeline you buy with Trioptics. You have already indicated a bit what products or segments you expect to develop here in future. Especially, does this company have also 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, two years or so? 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?
We have just signed a contract, and we're now between signing and closing. We intend to sign a contract, but we are between signing and closing. We have to be a bit careful. The company is not ours at the moment. Of course, we have done our due diligence. We have to wait until we can 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 dodge the question, but we got to be a bit careful in how we operate here, what we communicate at this moment. We can only, 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.
Yeah, I understand. Thanks.
Please press nine and star now if you would like to ask a question. The next question is from Peter Rothenaicher 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? This 27% EBITDA margin, was it a level which has already been seen in recent years, or is it more or less fluctuating?
Yeah. The question obviously is, where are those leaps they're going to pick? No, Trioptics always have been a very profitable company, throughout the years. By the way, we know each other very well, fairly well from the marketplace already. 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, Trioptics has been always financially very sound.
With regard to competition, are there any listed competitors? What can you say about the margin in the industry? Is it at a similar level, or is Trioptics here absolutely 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. To me, in this particular segment, in this particular application in particular in providing and ensuring quality during and after the production process for optics, for mobile devices, Trioptics is really the gold standard.
With regard to competition, can you give us here some names and 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? At what point would they say, "Look, we don't actually purchase your test equipment, but we design and produce it ourselves so that it's in the line, we can use our own." 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. The end market manufacturer has actually the power through the supply chain. The relationship there is very important. I don't think there is a particular listed other competitor. I might be wrong, please. I'm really trying to from top of my mind here, but I don't know any.
With regard to the margin, I know you cannot go into the details. 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.
Yeah. We need to look into that. In the details, it's reported anyways, I think, in the Bundesanzeiger in Germany. Only to say, I think the amount of depreciation and amortization of Trioptics in the past has not been really very high. Schumacher, 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. In the earnings to come, meaning EBIT and even EBT, they are very profitable.
Yeah.
They are, and they will be.
Yeah. Just really quickly back to the question about competitors. If any, I was just thinking, Zygo could be maybe a competitor with their interferometry devices or something. I think that Taylor Hobson, Zygo would be some of the competitors that one could look into in trying to understand the products a bit better.
I've looked it up. I think they have been both acquired by Ametek or such a company.
Ametek.
Ametek, yes.
Okay. Yeah. Thank you.
Please press nine and star now if you would like to ask a question. The next question is from Michael Junghans 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 from 2018 to 2019? I remember that you mentioned here that the Trioptics achieved the sales of EUR 80 million in 2019. If I compare it to the 2018 level, it was rather flattish. Is this correct? 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, Trioptics prepared for some new products and invested in new products. As far as I know, I don't quite know why you think that it has been so flattish in 2019. We have seen growth in 2019 as well, or Trioptics has seen growth in 2019 as well. I don't know. Hans Schumacher, do you have any more information about that?
I just looked into the results coming from the German Chamber of Commerce here, and they said they achieved the sales of EUR 82 million in 2018, right? You said they achieved EUR 80 million in 2019. That means like a, you could say, a flattish sales development here compared to 2018. That was the reason why I wanted to know a little bit more about why sales grew flattish here in 2019 compared to 2018. Yeah.
Right. Yeah, again, as I say, they invested into growth and with new products. That's the sort of the explanation.
Yeah. Just a quick follow-up here. Clearly, there were some headwinds in a couple of the regional markets, plus they accounted for around 70%-75% of the sales here came from Asia, from the region there. Were there some headwinds in the market in 2018? 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. One has to be a bit careful comparing or just taking 2018 to 2019, but look into the longer trends. 2018 has been, I think, particularly strong. This is pretty typical in this market, that sometimes you have sales that slip into one year and come back out of a year. 2018 has seen very high growth rates driven by a surge in relation with a certain mobile phone provider. That, of course, makes the comparison between 2018 and 2019 a bit challenging also. Yeah, 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. They own the supply chain. Unfortunately, we are not allowed to disclose any customer names at this point.
Yeah, sure. Okay. Yeah. Thank you so much. Okay.
Okay.
The next question is from Richard Schramm of HSBC.
Just a quick clarification, this growth rate over the last four years for products, that's all organic, this 17%, right? They have not made any acquisitions in that period?
Correct.
Yeah.
Okay. Just to clarify this. Thanks.
There are currently no further questions in the queue.
Well, thank you very much again for dialing in on such short notice. In summary, we are 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 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. A huge leap forward in our strategic quest here. It actually shows what photonics can do for all of us. If you think about it, if you think the applications and how cool and how exciting all this, it's a very important step towards our mission to become a leading light in the application of photonics, and towards making the world a better place with the power of photonics.
With that said, again, thank you very much, and bye for now.