MATELAN Research - ISRA VISION AG

ISRA VISION In-Depth Report
Low capital intensity
High net working capital
needs
Driving NWC further
down could unlock
additional value
- 31 -
WORKING CAPITAL IS THE MAIN BALANCE SHEET LEVER
The anticipated balance sheet development is geared in essence to past ratios.
Tangible assets only grow moderately as ISRA, being a software company,
needs little equipment to pursue the business. The growth of intangible assets
is linked to capitalized development, which usually accounts for 12% of net
sales and grows accordingly (ex depreciation).
Working capital has been a critical issue for ISRA for quite some time. The
following table shows that at the end of the financial year 2009/10 ISRA had
83% of the sales achieved in this year bound in working capital. This is
materially higher than all of the competitors listed here. We find that while
payable days outstanding even look very favourable and inventory turnover is
still acceptable, it is in particular outstanding receivables that is spoiling the
picture.
Comparison of net working capital
ISRA AVT Basler Viscom Cognex Perceptron Elexis Orbotech
Sales 64.8 39.7 51.0 40.0 290.7 52.1 136.7 529.4
Inventories 14.1 5.9 7.4 10.2 22.7 6.6 23.1 112.8
Inventory turnover 79.5 54.5 53.2 92.7 28.5 45.9 61.7 77.8
Trade Receivables 46.9 5.7 7.0 12.2 45.9 16.7 22.7 153.5
Days outstanding 263.8 52.4 49.8 110.8 57.6 117.2 60.7 105.9
Trade Payables 7.1 1.4 1.3 1.7 7.2 3.7 11.6 26.5
Days outstanding 39.7 12.7 9.4 15.3 9.0 26.2 30.9 18.3
Net Working Capital 53.9 10.2 13.1 20.6 61.5 19.5 34.3 239.8
% of sales 83.2% 25.8% 25.7% 51.6% 21.1% 37.5% 25.1% 45.3%
Source: Company reports of last financial year, in local currency (m)
The following chart illustrates that debtor days have in fact reached a new
high in the year 2009/10. Based on the improvements visible in 9M 10/11
and management’s intensified efforts to improve cash management we
already expect some improvement of all ratios in the current fiscal year.
Going forward, we stick to our conservative approach by assuming stable
debtor days and only marginal improvements in the other ratios. If the
company continues to drive down net working capital, and the competitor
analysis shows the leeway there is, this could unlock material value for the
company.
Development of key working capital ratios
250
200
150
100
50
0
2004/05
2005/06
2006/07
2007/08
Source: MATELAN Research, in days
2008/09
2009/10
2010/11e
2011/12e
2012/13e
2013/14e
Debtor days Stock turn Creditor days
2014/15e