Template for HA Research Notes - ISRA VISION AG

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ISRA Vision ISRA Vision –industry segment demand and positioning Customer Industry 2010/11E Trend ISRA Vision - market position Metals #1, dominant market share Glass Plastics #1 Automotive Paper #1, dominant market share, #1 in automotive glass #1, unique position with broad portfolio of 35 applications among top 3, #1 in specialty paper (treasury notes) with dominant share Print among top 3 or 4 Source: company data, Hauck & Aufhäuser New applications such as pharma drive additional growth In pharmaceutical industry, new coding regulations with respect to packaging are driving the need for vision systems. It is only one example for growth driven by new applications for machine vision systems. Growth rates of up to 20% in this segment look plausible, offering room for additional growth. Sharply rising camera performance and pixel processing power enable faster inspection processes Additionally, technological advances in the field of cameras and PCs are driving growth. For example, camera pixel resolution has increased 6-fold and camera bandwidth 10-fold within the last four years. At the same time, computer graphic cards also became more powerful, increasing their pixel processing capacities 10-fold, from 14,000 to 140,000 lines per second equivalent to a capacity of 640 MByte per second. This enables substantially faster inspection processes and hence triggers new investments or upgrades. For example, in steel production, at a speed of 1,200 meter per minute (translating into 72 Km/h or 45 mph) defect sizes of 150-200 µm can be recognised. In plastics, a web inspection speed of up to 3,000 m/min and a resolution of up to 10 µm can be achieved. Underlying growth driving customers’ need to increase quality and cut costsM Automation in manufacturing helps customers, which are typically industrial engineering companies in the metals, glass, plastics, automotive, paper or print industries, to solve two key problems: (1) to cut costs and (2) increase the product quality by reducing the number of defects. As such, industrial automation helps the customers to sustain their competitive edge. 8 Hauck & Aufhäuser Institutional Research
ISRA Vision Reasons to invest in automation and robots include • Cost reduction (wages, training, health costs, heating, lighting etc) • Improve product quality (accuracy and repeatability of tedious tasks) • Improve working environment quality for employees • Increase output • Increase flexibility in manufacturing • Increase yield and reduce waste • Increase safety standards • Facilitate access to qualified labour • Reduce working capital due to lower inventory and work in progress • Reduce requirements for space in manufacturing Mmoreover, machine vision systems produce quality data to maximise yieldM Machine vision systems generate quality data that customers are using to maximise revenues by pricing the finished products according to their quality level. That way, for example, a steel producer is able to identify different sheet steel qualities which can then be sold at different price levels to maximise the yield. For example, in automotive, lower steel quality grades can be sold to mass producers while higher qualities are sold to German premium brands. Mresulting in short payback periods for a new system The payback period for a machine vision systems as part of an automised production systems is typically below 6 months, according to the company. It is driven by substantial cost savings on labour, increased throughput and reduced waste, as well as quality improvements. Moreover, compared to the total costs of a manufacturing cell or a complete production system, the costs of a machine vision system account for typically only a fraction of total costs while the value add in the process is significant. Growth is supported by low market penetration levels The market for machine vision technology is underpenetrated as only c. 15-20% of the potential applications are using machine vision to date, according to the company. Other industry sources estimate that only 10% of the potentially addressable market for machine vision technology is yet penetrated, mainly because some sectors have easier tasks to perform than others and certain industries including automotive and electronics were able to adopt automation technologies earlier than others. The ratio of robots-to-employees in the automotive industry is 8x higher compared to other industries, according to KUKA AG, highlighting the room for growth. Moreover, certain sectors such as the footwear and clothing industries which are using floppy materials that require sewing did not have access to appropriate automation technology in the past and therefore shifted production to low-cost regions. Positive track record of generating profitable growth ISRA Vision’s track record of generating profitable growth is excellent (15% CAGR sales 2001-2010, always generated 2-digit EBIT margins). The company generated 2-digit EBIT margins even during crisis years while the long-term average EBIT margin (arithmetic mean 1998/99 – 2009/10) is 15%, while average EBITDA margins stood at 23%. 9 Hauck & Aufhäuser Institutional Research
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