May 19, 2009

Date
05.19.2009
Vara Research GmbH
Schweizer Straße 13
60594 Frankfurt am Main
www.vararesearch.de
Binder+Co AG
Bucking the trend with innovations
Recommendation: Buy
Target price: € 15.90
We recommend buying the stock because, in our view, the bad news
in the mechanical engineering sector has bottomed out. Due to its
high percentage of recurring sales, Binder represents an interesting
opportunity to bet on a recovery in the mechanical engineering
sector. In addition, the company has many new products in the
pipeline. Dependence on the rather early-cyclical mining industry also
speaks in favor of a quick recovery. Not least due to the regular
dividend payments (basic dividend €0.32) the price has declined
26.5% since the end of 2007, which is half that of the ATX (-56%).
Investment Highlights
Binder+Co AG
ISIN:
AT000BINDER3
Price (05.18.09):
€ 9.40
Market
M€ 35.3
capitalization
Free Float
29.6%
Financial calendar
05.19.09
08.18.09
11.17.09
Q1 figures
6m figures
9m figures
Shareholder structure
AvW Group
Albona Foundation
H. Liaunig Foundation
Grosso Holding
29.2%
14.0%
14.0%
13.2%
•
With its Bivitec series, Binder is the market leader in fine screen
technology, a niche within the processing tech. sector. The fine
screen sector is Binder's hobby horse, and the products are protected by patent extensions related to the optimizations achieved in
many years of experience. The company successfully invests in
niche markets. The three segments of processing, environmental
and packaging technology have high technological entry barriers.
In 2008, the EBIT-margin ran to 10% with sales of M€73.5.
•
Binder has a stable core business thanks to recurring service and
replacement parts sales. The share of sales is about 20%, with
higher-than-average EBIT margins. Even in the event that no plant
sales are made, we expect Binder will be able to break even.
•
Binder has new products in its pipeline. The sorting plant Clarity
Plus, in particular, has strong growth potential in the mid-term.
Binder is the tech. leader in the sorting plant segment. Clarity Plus
distinguishes itself with the possibility to sort out heat-resistant
glass in addition to color and ceramic, stones and porcelain, a
critical added value compared to conventional solutions.
•
The average investment volume per machine is only €100,000 to
€150,000, which means that possible financing bottlenecks only
play a minor role for customers.
•
CEE is the strategically most important growth region. Recycling
rates there are still low compared to Western Europe. In addition,
the construction industry might offer interesting growth perspectives over the long term. Distribution partnerships with leading
companies in the construction industry, such as Lafarge, Heidelberg
Cement or Strabag, will help to penetrate the markets.
•
For ‘09, Binder expects sales and EBIT to be at the ‘08 level. Risks:
1) financial bottlenecks in CEE companies, 2) general econ. environment, 3) globally active competitors such as Metso and Sandvik.
Share performance
10,25
10,00
9,75
9,50
9,25
9,00
8,75
8,50
11.08
12.08
01.09
02.09
03.09
04.09
05.09
Quelle: OnVista
Michael Vara
+49 (0)69 – 66 36 80 71
[email protected]
André Silvério Marques
+49 (0)69 – 61 99 33 30
[email protected]
*
Key figures
Sales
Net
result
EPS
P/E
ratio
EV/
sales
EV/
EBIT
EBIT
margin
2007
53.4
3.6
0.97
12.1
0.8
9.0
9.2
28.0
2008
73.4
5.3
1.42
8.1
0.6
6.1
9.8
33.5
2009e
69.4
4.5
1.21
7.8
0.4
5.3
8.5
24.2
2010e
71.6
4.8
1.29
7.3
0.4
5.0
8.7
22.7
2011e
76.3
5.9
1.57
ROE
6.0
0.4
4.1
9.9
23.9
Source: Binder+Co AG / Vara Research GmbH
Valuation
Financials
Binder complies with
IFRS;
quarterly reporting
Clear group structure,
the corporation
generates
the main share of
earnings
Strong balance sheet
allows for selfgenerated growth
Receivables
conservatively
assessed;
low capital commitment
and high profitability
enabled a ROE in 2008
of 33.5%
Intangible assets
contain no goodwill and
are to be classified as
sustainable
Binder+Co AG complies with the accounting guidelines contained
in the International Financial Reporting Standards (IRFS) and
issues quarterly reports as a mid-market company on the
regulated market of the Vienna Stock Exchange. The financial year
ends on December 31.
The Binder Group consists of two legal units, Binder+Co AG and
the subsidiary Statec Binder GmbH, both of them headquartered in
Gleisdorf. As a result, the group has a clear group structure.
Binder holds a 50.7% stake in its subsidiary, Statec Binder. The
stake has been fully consolidated since October 1, 2008. Presently,
the corporation generates the lion’s share of sales and earnings.
At the end of December 2008, the balance sheet showed no bank
liabilities and €5.0 million in cash assets. With an equity ratio of
38.4%, the group is solidly financed and a self-generated
expansion of operational activities is possible. Assuming a 30%
minimum equity ratio, the company could take on new debt of
roughly €13 million. The authorized capital is currently €1.875
million, which corresponds to half of the current share capital.
With the current prices, that opens up an additional financial
margin of roughly €19 million. Including a capital increase, that
would mean that takeovers of as much as some €36 million could
be financed. In addition, the company owns property and buildings
valued at €8.2 million that could possibly be applied in order to
finance takeovers.
As is common when it comes to the value of mechanical
engineering, trade accounts receivable, with €21.4 million,
represented the largest balance sheet item in 2008. They imply
rather high average payment periods of 106 days. After an
adjustment of €0.631 million, which is to be classified as a
precautionary measure, we assess the current balance sheet
receivables as sustainable. Along with inventories (€3.9 million)
the gross working capital at the end of 2008 was €25.3 million. In
terms of inventories, roughly €3.1 million are ascribable to raw
materials and supplies and €0.8 million to finished goods. The raw
materials and supplies consist primarily of steel, components for
the Clarity Plus series and polyurethane pellets. Taking into
consideration the accounts payable for supplies as well as deposits
totaling €9.8 million, the net working capital was €15.5 million and
thus only about 21.2% of the sales achieved. The average
payment periods for the trade accounts payable were 43 days.
With fixed assets of approx. €10.0 million, which includes buildings
and property worth €8.2 million, the capital required for
operations was approx. €25.5 million, or about 34.7% of sales.
The low capital commitment coupled with high profitability led to a
ROCE of 25% for 2008; the ROE was even 33.5%
The intangible assets of €2.3 million include capitalized
development costs of €1.5 million, which have increased steadily
over the past couple of years due to the development of the
Clarity Plus and Principac products. The development costs are
written off over a period of five years. The annual depreciations in
2008 amounted to €0.127 million. We assess the intangible assets
as sustainable. The balance sheet does not contain any goodwill.
2
Short-term provisions
for order fulfillment are
an important component
in terms of the margin
trend
After restructuring and
completion of new
products, sales have
been rising sharply
since 2007
Incoming orders declined
for the first time in Q4;
2009 sales and earnings
expected to be slightly
lower than 2008, Q1
figures should confirm our
expectations
The cost structure has
undergone a structural
change…
…falling gross margins
have been more than
offset by falling
personnel expenses
The niche strategy
pursued by Binder might
generate 8% - 10%
EBIT margins
The liabilities side of the balance sheet is characterized by large
provisions totaling €17.4 million, or 37.1% of the balance sheet
total. Long-term provisions for turnaround of €3.1 million, along
with the short-term provisions for order fulfillment of €7.2 million,
make up the largest items within the reserves category. Shortterm provisions for order fulfillment were set up for the estimated
payment liabilities for suppliers/partners whose projects had
already been completed, yet whose invoices still remained
outstanding at the end of the year.
After focusing on the core activities in 2004, the company has
recorded a strong upswing starting in 2007. While the processing
technology segment grew by 13% and 34% in 2007 and 2008,
respectively, the environmental technology segment posted strong
growth measuring 16% in 2007 and 87% in 2008 following the
completion of the Clarity Plus product series. The third segment,
packaging technology, increased sales by 76% in 2007. Due to the
small base, growth here is very heavily dependent on individual
large orders. Consequently, in 2008, sales were down 12%.
In 2008, the company posted incoming orders of €85.3 million
with sales of €73.4 million. Orders on hand totaled €33 million. We
assess the risk of order cancellations or delays as being low. As a
result, already half of the 2008 sales volume is guaranteed. With
the exception of the processing technology segment, incoming
orders in Q4 declined for the first time, which means we anticipate
group sales and earnings in 2009 to be slightly lower than in 2008.
For Q1, we expect a robust development and thus confirmation of
our expectations for 2009. In the short term, there should be
growth due to the still high amount of orders on hand, particularly
in the processing technology segment. Packaging technology
should also be able to make gains starting from a low level. The
EBIT margins for the segment might increase in 2009 as the result
of cost synergies, particularly in the area of research and
development. Environmental technology will most likely not be
able to reach the 2008 level. However, over the mid-term, we rate
the segments as the most important drivers of growth because a
structural demand from Eastern Europe can be served there.
With the increased weighting of the environmental technology
segment, along with rising prices for steel, the material expenses
saw a higher-than-average increase compared to sales. In 2008,
the gross margin was 46.2%. Assuming stable final prices with
falling steel prices, as well as further higher-than-average growth
for the environmental technology segment, we anticipate slightly
increasing gross margins over the coming years.
Binder has absorbed the significantly lower gross margins with a
greatly reduced personnel cost ratio. After a 30% personnel cost
ratio from 2004 to 2006, the rate fell in 2007 to 26.3% and by a
further 4.2 percentage points in 2008 to 22.1%. Contrary to
earlier plans, the number of employees is not to be increased in
the current year. Rather, the number is to be maintained at the
2008 level, which means that we can expect the personnel cost
ratio to remain steady in 2009.
To maintain the sales dynamic of the past years, the company
plans to continue intensive investments in research and
development. Additional strain on margins might come about as
the result of developing a distribution network in Central and
Eastern Europe. The 2008 figures were encumbered by additional
expenses which resulted from the fact that the company was
forced to employ expensive outside help or not very well organized
solutions owing to the high demand. The falling prices of steel
could lead to an easing of the burden in terms of material
3
expenses. All in all, we think that management will be able to
easily control the business of Binder in such a way that a
sustainable EBIT margin of at least 8% to 10% can be generated
over the cycle.
4
Peer group valuation
Fair value:
€15.90 per share
Peer group is made up
of major players in the
relevant markets…
…and small- and midcaps with comparable
business models
Analysts’ consensus
assumes things will
bottom out in 2010
Market prices the peer
group at the level of
2004/2005, the early
phase of the cycle
Binder is fundamentally
undervalued
We came up with the fair value for Binder using a Free-cash-flow
model and a peer group analysis. Balancing the two approaches
we arrived at a fair value per share of €15.90.
None of the companies in the peer group is directly comparable
with Binder, which is primarily active in niche markets. A peer
group comparison proves to be difficult due to the size of the
company and the absence of listed competitors. We selected four
internationally active mechanical engineering companies, Andritz
(Austria), Atlas Copco (Sweden), Metso (Finland) and Sandvik
(Sweden), because they do business in the same sectors as Binder
and with similar products. However, all of them are significantly
larger and active in mass markets. Therefore, they are more
dependent on the mechanical engineering cycle than Binder is. On
the other hand, their percentage of recurring sales from service
and spare parts – more than 40% in some cases – is even higher
than Binder’s.
In addition, we included three small- and mid-cap companies in
the peer group valuation, elexis (Germany), KSB (Germany) and
SMT Scharf (Germany), which are more comparable to Binder in
terms of size. KSB, as a producer of pumps, serves building
services engineering, industrial technology and water technology
as well as the energy, mining and construction sector. The
relatively small machines with high requirement for service and
spare parts are comparable to the Binder machines. SMT Scharf
compares with Binder as a result of its market-leading position in
transport technology for mining. And Elexis focuses on technology
niches for industrial applications. The company is a specialist for
sensor-bases measurements in mechanical engineering for the
steel and plastics industry. As part of that, the technology that the
company has developed itself is a unique selling point in the
market and is comparable with Binder's sorting technology.
The analysts assume that profits for the companies in the peer
group will decline by 50% on average from 2008 to 2010. The
consensus among the analysts does not anticipate a rapid
recovery of the mechanical engineering sector. It is the opinion of
the analysts that things will bottom out in 2010. Whereas a
decline in earnings is still expected in 2009 for all of the peer
group companies, the analysts anticipate that four of the total of
seven companies will experience an improvement in earnings in
2010.
Even the market valuation does not appear to expect a scenario of
rapid recovery. Rather, it currently prices the companies at a
2004/2005 level, the early phase of the last supercycle. If we have
reached bottom in terms of bad news, then, in our opinion, there
is a certain upwards potential for the sector.
In spite of our conservative sales and earnings estimates for 2009,
Binder achieves profitability that is above the industry average.
The high profitability is only possible given Binder’s rather small
size by focusing consistently on niche markets, in which market
and technology leadership can be claimed. Even the Equity-ratio of
38.4% is above the industry average. Nevertheless, Binder can
generate a high return on equity. Therefore, fundamentally we see
no reason to discount the value compared to the peer group
companies. We attribute the discount in value to the low liquidity
of the share as well as Binder's as yet inactive capital market
communication to date.
5
Peer group analysis:
€12.25 per share in
spite of 25% liquidity
discount
We also incorporated a 25% liquidity discount into our valuation
and came up with a fair value of €12.25 per share. If we were to
limit the peer group to the small- and mid-cap companies (without
taking into account Metso, Sandvik and Atlas Copco), then a
market valuation of €11.00 per share would result. Even then,
Binder would still be undervalued by 17%.
6
Table 1: Peer group valuation
elexis
MCap
(in M€)
P/E ratio
(2010e)
EV/Sales
(2010e)
EV/EBITDA
(2010e)
EV/EBIT
(2010e)
77,4
10,4
0,51
4,25
5,37
SMT Scharf
38,0
6,8
0,52
3,25
3,89
Metso
1.860,4
18,5
0,66
8,53
14,39
Andritz
1.471,6
13,7
0,39
5,35
7,33
Sandvik
6.549,9
19,5
1,34
9,50
14,32
KSB
510,2
11,2
0,43
5,59
7,81
Atlas Copco
8.246,6
16,0
1,76
10,41
12,79
Average
2.679,1
13,7
0,80
6,70
9,42
Binder
35,3
Implied fair value in €
7,3
0,43
4,10
5,01
17,67
16,39
14,63
16,68
Liquidity deduction
25,0%
Fair value per share in €
12,26
Date: 05.18.2009; Source: Vara Research GmbH / JCF
Table 2: Peer group analysis, key figures
elexis
EBITDA
margin
(2009e)
9,8%
EBIT
margin
(2009e)
7,4%
Net
margin
(2009e)
3,7%
Equity
ratio
(2008)
51,3%
SMT Scharf
15,8%
13,1%
10,8%
43,8%
21,7%
ROE
(2008)
19,5%
Metso
8,4%
5,7%
0,7%
26,2%
27,0%
Andritz
7,1%
5,4%
3,7%
17,6%
26,2%
Sandvik
10,3%
5,2%
1,8%
34,5%
21,0%
KSB
9,4%
7,1%
2,1%
36,9%
11,9%
Atlas Copco
17,3%
13,9%
6,2%
31,3%
29,6%
Average
11,2%
8,3%
4,1%
34,5%
22,4%
Binder
10,4%
8,5%
6,5%
38,4%
33,5%
Date: 05.18.2009; Source: Vara Research GmbH / JCF
Table 3: Peer group analysis, growth (CAGR 2007-2010e)
Sales
EBITDA
EBIT
EPS
elexis
-3,5%
-14,7%
-17,7%
-21,0%
SMT Scharf
-1,3%
-2,9%
-4,0%
-2,4%
Metso
-11,2%
-22,5%
-29,8%
-35,9%
Andritz
-4,3%
-5,9%
-8,8%
-7,3%
Sandvik
-3,0%
-14,1%
-20,1%
-27,0%
KSB
-0,6%
-8,2%
-11,5%
-15,2%
Atlas Copco
-0,5%
-8,6%
-10,6%
-9,1%
Average
-3,5%
-11,0%
-14,7%
-16,8%
Binder
10,2%
6,2%
8,2%
9,9%
Date: 05.18.2009; Source: Vara Research GmbH / JCF
7
Free-cash-flow valuation
Free-cash-flow analysis:
Fair value of €19.55 per
share
In the following Free-cash-flow (FCF) valuation we assumed a beta
of 2.0 as well as a risk premium of 5%. The beta estimate involves
an ex-ante evaluation. Due to the strong cyclical nature of
mechanical engineering, we made the beta correspondingly high.
With a borrowed capital interest rate of 5% and add-on interest of
200 basis points for Binder, we came up with WACC after taxes of
10.2% with the current capital structure. In our valuation,
following a phase of slight decline or stagnation between 2009 and
2011, we anticipate medium-term growth of 6.2% as of 2011 until
2013. Starting in 2014, we estimated a sustainable growth rate of
1%. Our FCF valuation is based on deliberately conservative
estimates. The packaging technology segment, in particular,
proceeding from the small basis, could see stronger growth than
that assumed by us in the model. That also applies, in part, to the
processing and environmental technology segments. Even with
this cautious valuation, the FCF model delivers a fair value per
share of €19.55.
8
Table 4: Cash-flow valuation
Sales
EBITDA
EBITDA-margin
EBIT
EBIT-margin
Taxes
+ Depreciation/amortisation
- Capex
- Change in working capital
Operating cash flows
Discountfactor
value of operating cash flows today
Cum. value of operating cashflows
Present value of the terminal value
Company value
- Net debt
- Minorities
Market value
Fair value per share in €
Upside/ downside potencial in %.
WACC
Long term growth rate
2009e
69.4
7.2
10.4%
5.9
8.5%
1.5
1.3
2.3
-1.0
4.4
0.9
4.0
34.7
32.8
67.5
-6.5
0.8
73.3
19.54
107.9%
10.1%
1.0%
2010e
71.6
7.6
10.6%
6.2
8.7%
1.5
1.4
2.4
0.5
3.1
0.8
2.6
2011e
76.3
9.0
11.8%
7.5
9.9%
1.9
1.5
1.8
1.1
4.2
0.7
3.1
2012e
81.5
10.9
13.3%
9.3
11.4%
2.3
1.6
1.7
1.2
5.6
0.7
3.8
2013e
85.8
11.4
13.3%
9.8
11.4%
2.4
1.7
1.8
1.0
6.2
0.6
3.8
2014e
90.4
12.0
13.3%
10.3
11.4%
2.5
1.7
1.9
1.1
6.5
0.6
3.6
2015e
93.7
12.5
13.3%
10.7
11.4%
2.7
1.8
1.8
0.5
7.5
0.5
3.8
2016e
97.1
12.9
13.3%
11.1
11.4%
2.8
1.9
1.9
0.5
7.8
0.5
3.6
2017e
100.6
13.4
13.3%
11.5
11.4%
2.9
1.9
2.0
0.5
8.1
0.4
3.4
2018e
102.6
12.9
12.6%
10.9
10.6%
2.7
2.0
2.0
0.3
7.9
0.4
3.0
Source: Vara Research GmbH
9
SWOT analysis
♦
Strengths
♦
Market leader in niche markets. Binder is the market leader in
the field of flip-flow screens and glass sorting systems.
♦
The focus of sales is on profitable stand-alone machines with
good service and spare parts business (20% of sales).
♦
Across the cycle, Binder generates 8% - 10% margins and
stable free cash flow, which can be distributed.
♦
The company is diversified in terms of geography and sectors.
♦
Strong balance sheet. Binder has a high amount of liquid
funds, sustainable intangible assets and no bank liabilities.
♦
Experienced management with a strong degree of company
loyalty.
♦
Weaknesses
♦
Affected by the cyclical nature of the mechanical engineering
sector. In spite of niches, Binder cannot escape from the cycle
entirely.
♦
Niches as markets limit the growth potential.
♦
Small corporate size. The company has a market capitalization
of €35 million.
♦
No distribution branches of its own outside of Austria. The
company is present outside of Austria, particularly via key
account partnerships, trade representatives and dealers as well
as licensees.
♦
Competition from large corporations. Even if Binder occupies a
niche, large players are active in neighboring main markets.
♦
Opportunities
♦
The financial crisis has possibly reached its climax; the bottom
has been reached in terms of the order situation.
♦
Well positioned in the growth region of Central and Eastern
Europe.
♦
Launch of new products.
♦
Expansion of existing products to new fields of application.
♦
Through a joint venture in the packaging business a high
degree of profitability is possible.
♦
Risks
♦
Economic activity continues to worsen, the bottom has not yet
been reached in terms of incoming orders.
♦
Orders cancellations or failure to pay on the part of customers.
♦
Structural financial problems in Eastern Europe.
♦
Dependency on employees. The loss of key employees could
lead to major problems for Binder.
♦
Development of steel prices.
♦
Political
influence
in
the
recycling
market.
10
Company profile
Binder is an
internationally active
mechanical engineering
firm with plants for bulk
goods of all types
Binder+Co AG (Binder), founded in 1894 and headquartered in
Gleisdorf near Graz (Styria/Austria), is an internationally active
specialist for machines and entire plants for screening, sorting,
processing and packaging of bulk goods of all types, such as waste
glass, coal or sand. The company’s home, Styria, is historically a
center for iron mining and the iron-processing industry, whereby
Binder's roots lie in mining. The company is a global market leader
in flip-flow screens with its Bivitec series and in glass sorting with
its Clarity series.
In 2008, Binder and its 252 employees generated sales of €73.45
million, which represents an increase of 37.4% over the previous
year. The EBIT was around €7.20 million and thus increased
above-average by 47.2%. The EBIT margin was 9.8%.
Table 5: Company history
Year
1894
1926
1954
1960
1971
1978
1989
1991
1999
2006
2007
2008
Event
Ludwig Binder founds the company in Graz. The
focus of the company’s strategy is on iron
structures.
Dr. Alois Sernetz, the son-in-law of the founder,
assumes control of the company's management.
Binder develops the successful vibration system for
screening machines.
Binder moves into the newly built production site in
Gleisdorf, where the first processing plants for
industrial minerals for the construction industry are
built.
The company is integrated into the voestalpine
Group. The first entire plants in the area of
industrial minerals are manufactured and marketed
worldwide.
Binder develops its first packaging plant for freeflowing bulk goods.
The first recycling machines for waste glass are
produced.
The company is reprivatized as part of the Auricon
Beteiligungs AG.
Binder is spun off as an independent corporation in
the Waagner-Biro AG group.
Quoted in the unregulated, third market of the
Vienna Stock Exchange.
Included in the newly created mid-market segment,
relisted in the regulated, over-the-counter market.
Complete withdrawal from the Wagner Biro Group;
Stratec Binder GmbH joint venture formed with the
Stratec Gesamtanlagenbau GmbH.
Source: Binder+Co AG
Binder has a straightforward and clear group
structure
Binder has a straight-forward and clear group structure. While the
processing and environmental technology segments are part of the
parent company, the packaging technology segment was
incorporated with into Statec Gesamtanlagentechnik GmbH in a
joint venture in 2008. Binder holds a 50.7% stake in Statec Binder
GmbH, which means that it is fully consolidated. Both companies
are based in Gleisdorf. Statec Gesamtanlagentechnik GmbH and
its sister company BT Wolfgang Binder were founded in 1997 by a
11
former Binder engineer. While Statec covers packaging
technology, BT Wolfgang Binder is active as a competitor in the
processing technology and environmental technology segments
(with a focus on the plastics and paper industries).
Figure 1: Binder+Co AG organizational chart
Source: Binder+Co AG
Proprietary production
takes place in Gleisdorf
Sales are characterized
by less cyclical, more
profitable stand-alone
machines
20% of recurring sales
from service and spare
parts
The company’s production activities are limited to Gleisdorf. The
current production capacity is sufficient to perform 240,000 work
hours per year (in 2008, 210,000 were performed). In addition, if
required, there is the option to outsource as many as 120,000
hours. Currently, approx. 40% of parts are bought externally, with
the steel building components making up the main portion, around
50%.
Binder produces both modular stand-alone machines (as much as
€0.5 million in sales volume) as well as entire plants. In this
respect, the stand-alone machines, which have higher margins and
are less cyclical due to the recurring sales of spare parts, make up
about half of sales. Steel requirements are fairly high in the
system business segment, which means that the spare parts
business carries significantly less weight. The average lifespan of a
machine is more than 10 years.
The stand-alone machines are classic razor-and-blade products
with a high portion of wearing parts. The screening machines are a
good example: The heavy bulk goods lead to wearing of the
screens, which have to be replaced at regular intervals. The high
percentage of stand-alone machines means that the service and
spare parts business makes up roughly 20% of sales. These
recurring sales generate a higher-than-average EBIT margin. We
estimate the EBIT to be roughly €3.0 million, or 40% of the overall
EBIT. This implies a 7% EBIT margin for new plants. On this basis,
the management expects to break-even, even in the event that no
new machines are sold. However, that applies only if the current
machines are actually used. The percentage of capital-intensive
and cyclical project business is low, so that the working capital
makes up only about 12% to 15% of overall sales. Because
project business entails bigger investments, we expect the
percentage of sales from stand-alone machines will increase
during difficult times.
12
Figure 2: Sales from service and spare parts (2008)
Packaging
Technology
10%
Processing
Technology
60%
Environm ental
Technology
30%
Source: Binder+Co AG
For customers, standalone machines
represent smaller
investments without a
need for financing
Synergies between
segments lie in common
process engineering
Balanced sector
diversification with a
focus on mining and
recycling
We estimate the average price of a machine to be roughly
€100,000 to €150,000. Therefore, the price lies within the lower
investment range. Generally speaking, the investment sum is not
associated with outside financing, which means that the credit
crunch will not seriously limit demand. The delivery time is six to
eight weeks; as much as 12 weeks for packaging plants.
Therefore, the risk of cancellations here is lower than for large
plants. The Bivitec screening machines include sophisticated
engineering, which makes for efficient production that is easily
scheduled. Binder has long-standing patent rights and patent
extensions for its main products, Bivitec and Clarity.
The machines, for the most part, are standardized, but often also
have customer-specific components. There are many synergies
between the individual segments. The process engineering knowhow for processing of a wide range of bulk goods is required both
in the processing technology as well as in the environmental
technology segment.
The relatively small investment amounts required for the machines
have led to balanced diversification among customers. The
construction and recycling industries represent the most important
customers in this regard. Binder also tries to control projects in
such a way that no one project accounts for more than 5% of
overall sales.
13
Figure 3: Percentage of sales according to sector (2008)
Source: Binder+Co AG
Process and
environmental
technology make up the
main business
The company generates just under half of its sales with its original
business, processing technology, followed by environmental
technology (38.5%). The latter has grown a great deal in the past
couple of years and has developed into a second main pillar.
Packaging technology has not yet reached critical mass. In 2008,
it generated just under 16% of sales. Binder is hoping to reach
critical mass by integrating activities into a joint venture with
Statec Gesamtanlagentechnik GmbH. Therefore, the company has
three pillars, each one representing a different technology niche.
Figure 4: Percentage of sales according to segments (2008)
Packaging
Technology
16%
Processing
Technology
46%
Environm ental
Technology
38%
Source: Binder+Co AG
Processing technology
serves as a cash cow
In the processing technology segment, Binder develops and
produces machines for the screening, classifying, drying or cooling
of bulk materials such as ores, stones or sand for the building
14
material and mining industries. Screening is an essential basic
operation in mechanical process engineering. Process know-how
protected by patents and global distribution possibilities are the
critical factors of success in this segment. Binder has access to
global markets via deep-rooted distribution partnerships.
Comparably strong cash flows are generated on the basis of the
seasoned products.
For us, the process excellence (e.g. throughput, purity, output),
the price, the high cost of resources (e.g. energy consumption,
maintenance intensity, spare parts requirements) as well as the
delivery period are significant factors of success for screening
technology. The Bivitec screening machine represents the star
product in the processing technology segment. In this regard,
Binder is the market leader in the flip-flow technology segment
(roughly 40% market share). Competition in this segment is
characterized by only a few market participants, such as Hein &
Lehmann or IFE, due to the still low market volume (€30 million).
The Bivitec product also has the potential to grow beyond the
niche. The barriers to entry are comparatively high due to the
required process know-how and the patents.
The environmental
technology segment
grew the most in 2008
and lives on innovation
Packaging technology
integrated into a joint
venture with Statec in
order to improve the
competitive position
Western Europe is the
core market, Central
and Eastern Europe
show the strongest
growth
Environmental technology was the strongest driver of growth in
2008, growing to €28.26 million, which represents an 87%
increase in sales. Segment EBIT almost quadrupled from €1.09
million to €3.61 million (EBIT margin 12.8%). Innovations for
improving machine productivity play a central role in this segment.
In particular, the Clarity series of glass-sorting machines for the
glass and recycling industry were in high demand. Currently, they
represent the highest-performing sorters on the market. The
“sorting of heat-resistant glass” function is a unique selling point.
The sorting of shards on the basis of color and heat resistance has
not yet been solved to the satisfaction of the waste glass industry,
which means that efficient sorting represents a clear added value
for glass producers. In general, Binder also offers customers in
this segment – as well as in the processing technology segment –
any kind of machine for sorting, classifying, drying or cooling that
is required prior to the sorting of glass shards. The greatest
demand for this is in Europe. In this regard, Eastern Europe is the
most promising future market. Binder has a market share in
excess of 50% when it comes to sorting machines. The main
competitors in this segment are Mogensen (Allgeier Group,
Germany) and S+S (Germany).
All activities of Binder related to packaging technology have been
bundled in Statec Binder GmbH, the joint venture with Statec
Gesamtanlagentechnik GmbH. With this joint venture Binder hopes
to achieve the critical mass necessary to significantly increase
profitability. Synergies can be expected both in the area of
distribution as well as in the area of product development. By
offering solutions for open pre-manufactured bags, Binder is also
active in a niche market here. The open pre-manufactured bags
filling systems offer highly tear-resistant bags, which are more
suitable for transport. Statec Binder has a market share of around
25% in this segment. The main competitors in this segment are
Haver & Boecker (Germany) and Moeller & Devicon (Bosch;
Germany).
Binder generates just under 90% of its sales abroad. The broad
network of distribution partners which has emerged over the years
with the help of the unique selling points, the sound quality and a
high reliability have enabled the development of a global presence.
Direct marketing primarily takes place in the core markets of the
DACH (Germany, Austria, Switzerland) region. The bulk of sales
are generated in Europe. While Western Europe provides Binder
15
with a stable cash flow, the main growth area is Central and
Eastern Europe. Thus, Russia and Poland have a high demand for
recycling plants. Here, sales grew by 125.5% to €18.5 million in
2008. To guarantee further growth, the distribution structures
should be developed even further in the region. In 2008, Central
and Eastern Europe accounted for 25.2% of sales. In the
Asia/Australia region, sales fell by 21.2% in 2008 down to €8.1
million, after nearly tripling in 2007 to €10.3 million. With a strong
market position in fine-screening technology, Binder managed to
position itself in Asian countries such as India and Korea. In
future, Binder is planning to gain a stronger foothold in China via
distribution partners.
Figure 5: Percentage of sales according to regions (2008)
Source: Binder+Co AG
Board members
Rosegger (MA) and Dr.
Grabner have been
working for Binder for
over 15 years
Management has a long history with the company and
correspondingly has quite a lot of experience. Jörg Rosegger, M.A.
(1966), Binder+Co AG board member, is responsible for the
group’s sales and marketing, and is the CEO of the Statec Binder
subsidiary. After graduating in business management, Rosegger
joined Binder+Co AG as an assistant to the executive board and as
head of marketing. As a member of the Binder+Co AG
management board, Dr. Karl Grabner is responsible for the areas
of technology, production, finance and public and investor
relations. After completing his studies in mechanical engineering
and his subsequent PhD, Dr. Grabner joined Binder AG in 1991
where he was responsible for project development and sales until
1999. In 2000, he was appointed to the board of directors. The
board members’ commitment to the company is also documented
by the shares they hold in Binder: Dr. Grabner holds 85,000
shares and Mr. Rosegger 50,000. Compensation for board
members includes both fixed as well as variable components. The
variable compensation portion is dependent on the company’s
operating profit. In 2008, board members received a total of €0.4
million, with approx. 25% of that being variable compensation.
16
Friendly large
shareholders own a
good 70% of shares
The chairman of the Supervisory Board is Dr. Erhard F. Grossnigg.
He represents grosso holding GmbH, which has a 14% stake in
Binder. Mr. Grossnigg is an experienced Austrian investor with a
proven track record of all-round success. The deputy chairman of
the Supervisory Board is Dr. Kurt Berger. Other members of the
Supervisory Board include the investors Dr. Wolfgang Auer von
Welsbach, principal shareholder with 29.2%; Herbert W. Liaunig,
whose foundation holds a 14% stake in Binder; as well as Dr.
Gerhard Heldmann. In addition to the above-named members of
the Supervisory Board, shareholders also include the Albona
Private Foundation (14%). The free float is currently 29.6%.
Figure 6: Shareholder structure
Source: Binder+Co AG
Solid finances enable a
sustainable policy of
dividends
With a 2008 equity ratio of 38.4% and no financial liabilities, the
company boasts a strong balance sheet. In 2008, free cash flow
(FCF) of €10.7 million (14.6% of FCF yield) was generated.
Consequently, the company has a solid basis for the sustainable
payment of dividends. Binder plans to pay out a regular basic
dividend amounting to €0.32. For 2008, payment of an additional
special dividend of €0.32 is planned. In addition, management
was authorized at the Shareholders Meeting to buy back as much
as 10% of its treasury stock (375,000 shares). Since July 2007,
the share has been traded in the mid-market segment of the
Vienna Stock Exchange in regulated trading.
17
Strategy
Binder successfully
pursues a niche
strategy…
…in which technological
leadership can be
achieved
Global distribution
successful due to access
via key accounts
The infrastructural need
of emerging markets
offers considerable
sales potential Over the
medium term
Growth strategy rests
on four pillars
1) Distribution to be
expanded in Eastern
Europe; Asia via key
accounts
Binder focuses exclusively on niche markets with sales volumes
too low to be of interest to globally active large corporations. At
the same time, high technological barriers to entry must be
present in order to guarantee the market position over the long
term. The technology is often protected by long-standing patents
and patent extensions. Even if replicas of the machines can be
made in principle, only the process know-how developed on the
basis of many years of experience ensures customers the optimal
customization of the standard model of the machines.
In terms of screening technology, Binder specializes in flip-flow
screens for fine-screening, which currently has a sales volume of
roughly €30 million, which is insufficient for large corporations in
the market. The corresponding market niches are often served by
only a few providers. For instance, Binder shares three-quarters of
the flip-flow screen market with Hein & Lehmann. In terms of
recycling, the focus is on technically demanding sorting plants.
Binder is currently the only provider of combined infrared and UVsupported sorting technology for the simultaneous sorting of heatresistant glass and CSP (ceramics, stones, porcelain) and sorting
by color. In terms of packaging technology, Binder is one of the
few providers for open pre-manufactured bag filling systems,
which are used to fill transport-secure bags (tear- and cutresistant).
As the result of successful partnerships with companies that are
leaders in the building materials sectors, such as Lafarge,
Heidelbergcement or Strabag, Binder has been very successful in
the past in gaining global access to the corresponding industries.
In doing so, the company focuses on projects for which it is
possible to achieve a share of value added of at least 60%.
Binder’s main focus lies with the sale of stand-alone machines that
are less susceptible to investment cycles than complete plants and
enable a stable and high margin on the basis of high maintenance
sales.
Investments in infrastructure in emerging markets, particularly in
Central and Eastern Europe, offer considerable potential for Binder
Over the medium term. In the EU, members are in part legally
required to fulfill certain recycling rates, which means that in the
coming years there will be a structural demand here for
environmental technology. However, due to the crisis, financing
will pose a challenge in those markets over the short term, even
for Binder.
To achieve further profitable growth, Binder has a four-prong
strategy: 1) focused market growth, 2) product development, 3)
optimization of internal processes, 4) acquisitions.
In line with market potential, further growth is to be achieved
particularly in Central and Eastern Europe and in Asia. To that end,
the distribution structures in Bulgaria, Russia, Ukraine and Belarus
are to be developed further. In India and Korea, the strong market
position in screening technology is to be developed further by
expanding to other sectors such as the iron and steel industry. In
terms of packaging technology, the focus is to be on key accounts.
2) New products are
being developed
To defend the strong market position, existing products should be
further developed and new products developed on an ongoing
basis. The roll-out of additional new products is already scheduled
for the first half of 2009. Thus, the company is developing sorters
18
3) Internal processes
improve the quality of
the results
4) Acquisitions are
conceivable in order to
acquire technologies
for paper and plastics and a new module for bag production is
being developed in the packaging technology segment. Binder is
also increasingly developing its machines as modular assemblies in
order to afford customers maximum flexibility of use and
adjustment to production capacities. At the same time, the
company benefits from economies of scale in production as the
result of standardization. Available know-how and references
should also help to market existing products in related sectors as
well.
To improve the quality of results, internal processes are to be
optimized further. In addition to the internal supply chain
optimization carried out for the most part in 2008, additional
standard processes are to be automated and fixed costs savings
achieved. The development of a key account management system
is scheduled in the mid term.
Growth through acquisitions represents the fourth pillar. An
acquisition should sensibly enhance the company’s own
distribution network and/or the product range. For instance,
Binder currently only has one crushing technology in the
processing technology segment. The product portfolio there could
be expanded by an experienced provider. There is a large number
of medium-size companies in the market that could be potential
targets. Binder is contemplating companies with sales of €20
million to €50 million.
19
Market environment
Mechanical engineering
emerges from a long
growth cycle…
…and falls sharply in
2009
Overall environment will
become more difficult
because incoming
orders…
…are retreating on a
broad basis
According to information from the German Engineering Federation
(VDMA—Verband des deutschen Maschinenbaus), the global
market volume for machines grew by 3% in 2008 to €1.58 trillion.
The cycle that started in 2003 was one of longest boom cycles in
the history of the industry, which was marked by steadily
increasing capacity utilization until 2007. The cycle was driven, in
particular, by strong demand from emerging markets. At the end
of 2007, the machine producers, often mid-size companies, still
reported a very high degree of capacity utilization in excess of
92.0%. According to the VDMA, the historical average capacity
utilization is around 86.5%. The high degree of utilization was
reflected in an average backlog of orders of 6.3 months. Based on
the still high amount of orders in hand, 2008 sales reached a
record level.
Due to the rapidly deteriorating global economic situation starting
in the second half of 2008 and the associated drop in incoming
orders, utilization fell to 78.3% towards the end of 2008.
Consequently, the VDMA significantly lowered its 2009 forecast of
the value-based production growth for machines. The current
estimate (as of April 2009) forecasts a 10% to 20% decline this
year. Global sales are expected to fall by about 10%.
In addition to special machines such as packaging and sorting
plants, the construction and construction material and the mining
industry (including iron/steel) and general process engineering (in
particular chemicals and petrochemicals) are the most important
end segments for Binder. The most important regional sales
markets for the construction and construction material industry as
well as the mining industry are Europe and the US. In recent
years, East and Southeast Asia has grown in significance and
meanwhile represents the third-largest market. However, since
the end of 2008 at the latest, the economic downturn in the
processing industry has been noticeable in all regions and areas,
marked by a strong decline in incoming orders.
In terms of the construction and construction material industry,
global 2008 sales grew once more by about 5.8% to €81.0 billion
due to the processing of existing orders. However, a 10% drop in
sales is expected for 2009 as a result of the high double-digit
decline in incoming orders. In the mining industry, 2008 sales
dropped by 3.3% to €23.0 billion. When considering 2008 as a
whole, the mining industry was able to achieve double-digit
growth in incoming orders, driven by the slightly more stable
demand in the BRIC countries. In November and December,
incoming orders fell there as well by roughly 40%. Process
engineering sales in 2008 rose 10% to €24.5 billion. In February
2009, however, incoming orders dropped by more than 50%.
Table 6: Market volumes of sales markets
Sales market
Construction and
construction
material industry
Mining industry
Process engineering
2008
Compared to 2007
€81.0 billion
+5.8%
€23.0 billion
-3.3%
€24.5 billion
+10%
Source: VDMA
20
Binder is affected by the
crisis to a lesser degree
due to special machines
In our view, Binder is likely to be affected by the current crisis to a
lesser degree, since about half of it sales are generated from
special machines, such as sorters and packaging plants. The
percentage of cyclical standard machines or large projects is
beneath the industry average. In addition, in most cases the low
investment volume is unlikely to constitute a financing bottleneck
for customers. Also, the company is in the process of launching
two still young, but already market-proven technologies in the
area of sorting plants and packaging technology.
Processing technology
Table 7: Sales & earnings trend for processing technology
2007
2008
2009E
2010E
2011E
Order income
25.81
48.11
38.49
38.49
46.19
Sales
24.98
33.48
36.15
34.34
35.37
EBIT
EBIT margin
3.59
3.38
3.65
3.46
3.89
14.4%
10.1%
10.1%
10.1%
11.0%
Source: Company information / Vara Research GmbH
Screening technology represents an established product that
generates stable and high cash-flows and margins over the cycle
of 10% to 14%. The volume of recurring sales depends largely on
the product mix. The portion of sales in the service and spare
parts segments is, in part, higher than 50% for crushers. Because
Binder currently only has hammer mills in the crusher technology
segment, a strategic acquisition to expand the product portfolio
would be interesting. The sales figures demonstrate that while
Binder only started participating in the upswing to a greater
degree from 2007 onwards, it was able to profit a very high
volume of incoming orders until 2008. A temporary overload in
2008 prevented an optimal processing of orders and led to higher
production expenses and to a decline in the operating margin. For
2009 and 2010, we anticipate that processing technology will be
able to grow further due to the niche positioning. We believe that
Binder will be affected by the downturn in mechanical engineering
to a lesser extent due to its strong market position in the flip-flow
screen segment. Incoming orders are likely to remain
comparatively robust, yet with a focus on stand-alone machines.
Construction and mining
are the principal
markets for processing
technology
Binder is the market
leader in the niche
The largest sales market for processing technology by a large
margin is the construction and construction material industry,
making up 70% of sales, followed by the mining industry
(including iron/steel) with 25%. Even in the fourth quarter of
2008, Binder was able to post a 21% increase in incoming orders.
Beginning with the first quarter of 2009, we expect a significantly
lower number of incoming orders compared to the previous year
due to the weaker economic situation. The sales markets for
processing technology mentioned above are mass markets that
are heavily fragmented.
The market for processing technology is characterized by a large
number of medium-size companies, such as Haver & Boecker
(Germany), posch (Germany) or RubbleMaster (USA), and large
corporations such as Metso/ Svedala (Finland) or Sandvik
(Sweden). To date, Chinese/Taiwanese companies still play a
minor role. In terms of processing technology, Binder offers
solutions for screening, damp-processing and drying. However,
21
the company boasts the strongest market position in the finescreening technology market niche. The company is the leader
here with the Bivitec product series, with a market share for new
orders in recent years of some 40%. Further main competitors are
Hein & Lehmann and IFE. We view the highly developed process
know-how as a barrier to market entry for new players.
Figure 7: Market share for flip-flow screens based on new orders
Others
10%
IFE
15%
Binder
40%
Hein &
Lehmann
35%
Source: Binder+Co AG
Products are sold in
seasoned, diversified
markets
The machines are marketed to numerous sectors the world over.
The focus in this regard is on the construction and mining
industries. In terms of screening and other processing machines,
this involves tried-and-tested technologies. We estimate the risk of
substitution of machines to be correspondingly low. Obtaining the
essential components (steel, polyurethane for the screens, electric
motors and other drive sections such as cardan shaft or V-belts)
from suppliers does not pose an unusual risk.
Table 8: Market forces in processing technology
Market force
Assessment
Intensity of competition
Medium
Barriers to entry
High
Risk of substitution
Low
Supplier power
Medium
Buyer power
Medium
Source: Vara Research GmbH
Binder machines are
required in mining
ranging from raw
material mining to
further processing
A large part of processing technology is required directly in
mining. After extracting the raw material it is usually crushed and
separated from waste products and then transported to other
processing sites (e.g. for steel production, glassworks) in as pure a
state as possible. If required, the material is damp-processed,
cooled or dried prior to processing. The initial crushing of the large
pieces is typically done using a crusher. The crusher reduces the
raw material to its maximum permissible size. After that, it can
22
then be separated further into various grades using a screening
machine. Binder offers hammer mills, equipment for drying, damp
processing or cooling, as well as screening machines. The
screening machines represent the key product, because they often
serve as the door opener with the customer when it comes to
selling other machines (e.g. for crushing).
Figure 8: Value chain for the processing of raw materials
Source: Vara Research GmbH
With its patent for
Bivitec, Binder is the
market leader for flipflow screens
Depending on the material to be processed, screening machines
require various vibrating techniques in order to guarantee the
highest possible screening quality. In this regard, Binder offers
linear vibrating screens, circular vibrating screens, resonance
screens and flip-flow screens. Depending on the material to be
processed, various screening machines are required in the
different sectors. In the case of flip-flow screens, the company is
the market leader with its Bivitec product. Flip-flow screens allow
for the efficient screening of goods with a high level of moisture
(e.g. loamy sand), petalled (e.g. plastic chips) or matted material
(e.g. peat) and are used in the fine-screening area. With
conventional linear or circular vibrating screens, these materials
clog or cling to the screening mats. Higher acceleration values,
along with the combined double vibrating movement of two
screening mats, act on the material like a centrifuge and prevent
clinging or clogging. For large providers like Metso/Svedala,
Thyssen Krupp or Sandvik, the tension screens represent a niche
product for fine screening that is not served due to the low market
volume. Although the Bivitec patent has expired, every product
enhancement has been protected by patents. The machines are
marketed via the company’s own sales organization as well as by
partner companies with whom a long-standing cooperation
generally exists.
23
Environmental technology
Table 9: Sales & earnings trend for environmental technology
2007
2008
2009E
2010E
2011E
Order income
15.74
29.13
20.39
24.47
28.14
Sales
15.11
28.26
19.78
21.76
23.94
EBIT
EBIT margin
1.09
3.61
1.58
1.96
2.63
7.2%
12.8%
8.0%
9.0%
11.0%
Source: Company information / Vara Research GmbH
Environmental
technology is becoming
the second mainstay
Binder offers sorters
and processing
machines in this area
Glass producers predict
a drop in sales
…and recyclers are
facing considerable
pressure to consolidate
Environmental technology has not yet reached maturity and
currently generates margins ranging between 7% and 13% over
the cycle. The more mature processing technology market
segment, on the other hand, generates EBIT margins of 10% to
14% over the cycle. These margins should also be possible for the
special machines. Growth increased significantly following the
market launch of the newly developed technology, UV-supported
sorting of heat-resistant glass, in 2007. As the only provider of the
technology, Binder has the potential Over the medium term to
grow as the result of market share gains, even during a difficult
market situation. For 2009, however, we expect sales to fall 30%
compared to 2008 due to the crisis-related reticence to place large
orders. The operating result is likely to fall disproportionately
owing to the marketing and development costs, which means that
we forecast an 8% EBIT margin in 2009. In this regard, it must be
taken into account that the sales fluctuations can be
correspondingly high due to Binder's small size. If a few new
projects are added or fail to materialize, then the impact on
segment sales is correspondingly strong. We assess the decline in
sales to be temporary. Beginning in 2010, we expect sales to
recover by some 10% with a higher-than-average earnings trend.
In the area of environmental technology, Binder’s technological
solutions in the area of processing and sorting, particularly in the
glass and recycling industries, are in demand. Here, Binder’s most
important customers include waste glass processors (glass
recyclers) and glass producers (glassworks). In addition to
processing plants (crushers, screening machines, etc.), which are
generally in demand among recyclers, Binder offers glassworks
sorting plants for waste glass.
Since the economic downturn starting mid 2008, demand for
industrial glass (e.g. in the construction, automobile, electronics
industries) has been falling. In addition, more and more plastic is
being used as a substitute product in the container glass industry,
a key sales market. As a result of lower demand for glass,
glassworks are having to adjust their capacities. However, in
2008, the german glass industry could still increase revenues by
1.3% to €9.4 billion.
The glass producers’ market is centered around a few glassworks
with a corresponding bargaining power in terms of suppliers.
Short-term contracts (a month to one quarter) are usually
concluded with the glass recyclers. Germany’s “Duale Systeme”
waste-management enterprises, as suppliers of recyclers, also
have a strong market position, and bind recyclers to fixed prices in
the form of long-term contracts. Thus, given falling primary raw
material prices, the price pressure for waste glass cannot be
passed on directly to the “Duale Systeme” enterprises by
24
recyclers. In addition, during the previous boom years,
overcapacities in the recycling industry in Western Europe reached
more than 30% in some cases. Parallel to falling demand in the
glass industry, subsidized markets such as France or Ireland are
pushing down the market price for glass shards. The result is a
consolidation among glass recyclers in Western Europe, which in
some cases are heavily fragmented. Recently, recyclers have been
taken over by glassworks in order to process and sort waste glass
themselves because recyclers are crucial for the quality of glass
produced from waste glass.
Specialists and general
contractors serve the
glass producers
The market for glass-sorting machines is served both by providers
of fully-integrated production lines for glass recycling (turnkey),
such as Lahti Precision (Finland) or KRS (Germany) as well as by
providers specializing in sorting such as Binder, Mogensen
(Germany), MSS (US) or S+S Inspection (UK). The specialists
distinguish themselves by having the best technology in the
process stage being served. Binder dominates the market for
sorting plants with a 60% share. The most important sales market
for Binder’s environmental technology is Europe.
Figure 9: Environmental technology segment – sales by regions
South-Af rica
20%
Australia
10%
North
America
10%
Central- &
Eastern
Europe
10%
Western
Europe
50%
Source: Binder+Co AG
Clarity is the market
leader with a strong
unique position
We divide the machines offered in the environmental technology
segment into two categories. In addition to the tried-and-tested
processing technology, Binder supplies glassworks with Clarity
series glass sorters. The Clarity sorters are the market leader and
have a decisive competitive advantage with the double sorting
system. In addition to sorting by color and the separation of
ceramics, stones and porcelain (CSP), heat-resistant glass can
also be sorted out at the same time. The machines have a color
camera (RGB) and a UV camera as well as evaluation software
that simultaneously photographs and analyzes the glass shards.
The process was devised in cooperation with the Fraunhofer
Institute and is continually further developed. The technology is
protected by patents. The main patent runs until 2022. The Clarity
sorters represented genuine added value for the glass companies
because the purity of the glass mixture can be increased
significantly. Systems are offered for three sorting widths: 700
mm, 1000 mm and 1400 mm.
25
Table 10: Clarity sorter models
Parameter
Model 1
Model 2
Model 3
Sorter width
700 mm
1000 mm
1400 mm
Throughput
6 t/h
10 t/h
12 t/h
Particle size
Particle size
HR
3-50 mm
3-50 mm
3-50 mm
8-50 mm
8-50 mm
8-50 mm
Source: Binder+Co AG
S+S offers X-ray-based
sorting technologyproblematic when it
comes to integrated
production
Market driven by
machine efficiency
Among the competitors, to date, only S+S offers an integrated
solution for the simultaneous sorting of heat-resistant glass. It is
based on X-ray technology and therefore poses an important
disadvantage for glass production. Due to high safety requirements, X-ray-based sorting must take place in an insulated,
radiation-proof room. Consequently, integration into glass
producers’ product lines is only possible to a limited extent.
In terms of sorting machines, productivity (throughput and sorting
quality) can be further improved with innovation, which means
that a certain risk exists here that more efficient technology may
serve as a substitute. We view Binder here as the technology
leader and therefore the strongest player in the market. Binder’s
new Clarity series currently has the highest level of productivity in
the market. We regard the technology and the associated patents
to constitute barriers to entry. The risk of substitution for the
processing machines also offered in the environmental technology
segment is low, however, similar to the processing technology
segment.
Table 11: Market forces in environmental technology
Market force
Assessment
Intensity of competition
Low
Barriers to entry
High
Risk of substitution
High
Supplier power
Medium
Buyer power
Medium
Source: Vara Research GmbH
Market shifts possible in
terms of customers
Productivity is significantly influenced by sorting software and
sorting sensors (UV and RGB cameras) as well as the effectors
(blowing devices). Currently, the effectors form the greatest
bottleneck when it comes to increasing productivity further. In
principle, the cameras can be purchased from several suppliers.
The software was developed in cooperation with the Fraunhofer
Institut and is appropriately protected. The other components can
be purchased from a large number of companies and therefore do
not represent any special purchase risk. Machine suppliers such as
Binder are currently profiting from a broad customer base in the
fragmented glass-recycling sector in Europe. There is the danger
that the “Duale Systeme” enterprises will exclude the recyclers in
the future and process the waste glass themselves and supply it to
the glass producers. Consequently, the customer base for machine
suppliers would be reduced and their bargaining power would be
weakened in terms of customers.
26
By using waste glass,
the glass industry can
lower its production
costs considerably
Generally speaking, waste glass is collected by waste-disposal
companies and delivered to a national “Duales System” enterprise
(e.g. Grüner Punkt). The waste glass is stored there and then
separated, roughly from metal and foreign objects. Usually it is
then taken to recyclers, who further process the glass, i.e. crush it
into small pieces and screen it. The recyclers then deliver the
waste glass shards to glassworks, which separate the waste glass
in a more refined process by means of an optical sorter. Before
the glass is melted down with the raw material mixture and used
again in glass production, it undergoes a final inspection. In
receptacle glass production, the mixture can be as much as 60%
waste glass for white glass; with green glass it can even be as
much as 90%. For industrial sheet glass, roughly 40% waste glass
can be used. The glass producers thereby save on the primary raw
material and reduce the amount of energy required for melting
due to the glass shards’ lower melting point. Using 10% waste
glass reduces the overall melting temperature by roughly 3%.
Therefore, the central challenge in the recycling process is posed
by the sorting out of foreign objects and the sorting by color that
is as pure as possible. The most important success factors for
sorting machines include sorting quality, throughput, price and the
volume of equipment costs.
Figure 10: Value chain for glass recycling
Source: Vara Research GmbH
Accumulated structural
demand in Southern and
Eastern Europe offers
strong growth potential
Over the medium term
Even if the waste glass industry experiences strong consolidation
and production cuts in 2009, which would lead to less demand for
machines in the short term, we regard the mid-term growth trend
as intact. The regions in Eastern Europe and Southern Europe still
offer considerable potential for growth due to the low recycling
rates, which in some cases are under 50% (e.g. Greece, Poland or
Hungary), because the EU stipulates a minimum rate of 60% for
member states by 2012. By comparison, recycling rates in Central
and Northern Europe are already around 80% to 95% (e.g.
Sweden, Austria or Germany). Consequently, we expect that the
sector will remain the most important driver of growth for Binder.
Due to the sorters’ wide range of possible applications, other
recycling markets, such as plastics and even the construction
industry, offer additional potential for Binder's sorting machines.
27
Packaging technology
Table 12: Sales & earnings trend for packaging technology
2007
2008
2009E
2010E
2011E
Order income
15.94
8.01
11.21
14.58
16.76
Sales
13.35
11.71
13.47
15.49
17.04
EBIT
EBIT margin
0.21
0.21
0.67
0.77
1.02
1.6%
1.8%
5.0%
5.0%
6.0%
Source: Company information / Vara Research GmbH
Joint venture should
increase profitability
Packaging market
generally less cyclical,
zero growth expected in
2009
In spite of growing demand, the margin in the packaging
technology segment has fallen sharply since 2006. 2007 and 2008
were characterized by strong price pressure, because the joint
venture partners Statec and Binder offered comparable solutions
in the market. Through the joint venture with Statec, price
pressure should decline and it should at the same time also be
possible to significantly reduce research and development costs.
In packaging technology segment, we therefore expect a brisk
improvement in margin to 5%. To generate sustainable, doubledigit margins, sales of the new Principac model will have to be
increased to between €20 million and €30 million, which we deem
possible Over the medium term due to the stronger joint market
position in this niche market.
The most important markets for packaging machines are
foodstuffs (44%), pharmaceuticals and cosmetics (20%) and
beverages (20%). The most important sales markets are Europe
and the US. In recent years, demand from emerging markets,
such as Russia and China, has been increasingly gaining in
importance. In 2008, the global market for packaging machines
grew by a further 5% to €23.2 billion. However, a 20% drop in
orders in the fourth quarter in this mechanical engineering
segment, which is otherwise not very cyclical, indicates a weaker
trend for this segment as well in 2009. Assuming that there will be
a recovery during the course of 2009, the VDMA’s department for
foodstuffs and packaging technology assumes there will be zero
growth in 2009.
28
Figure 11: Sector sales percentages – packaging technology
Pharmaceuticals &
Cosmetics
20%
Beverages
20%
Others
16%
Food
44%
Source: VDMA
Principal markets for
packaging technology
dominated by large
corporations
Binder is active in the
niche market for tearand cut-resistant special
bags
With Principac, Statec
Binder is placing an
efficient open premanufactured bag
packaging system on
the market
The market for packaging technology is dominated by a few large
corporations, such as Bosch or Siemens, with correspondingly
strong market positions and by many specialized medium-size
companies, such as Binder or Haver & Boecker. Customers
generally include large corporations (such as Inbev, Bayer or
Nestle) that have a corresponding bargaining power. The intensity
of competition is comparatively high. At the same time, companies
must differentiate themselves by means of their packaging
technology’s productivity (throughput and quality). The trend is
towards fully-integrated, modularly designed packaging lines that
achieve the highest possible production flexibility and, at the same
time, high throughputs.
In this segment as well, Binder is active in a niche market. The
company offers an open pre-manufactured bags filling application
for special packages, for which tear- and cut-resistant is of key
importance. This applies to niche applications, such as feed and
fertilizer, building materials or minerals. The throughput here of
1200 bags per hour is comparatively low, which is why the
technology is not used for mass applications for food stuffs and
pharmaceuticals. Nevertheless, the niche market has become very
competitive recently. Previously, the joint venture partner Statec
Gesamtanlagentechnik GmbH was a direct competitor of Binder
and offered a comparable product in the market. In this
environment, the companies have decided to combine forces in a
joint venture called Statec Binder. Statec has a market share of
10% and Binder has about 15%. Besides Statec, the most
important competitors are Haver & Boecker (Germany) and
Moeller & Devicon (Bosch; Germany). We regard the technology
and the associated patents to constitute barriers to entry.
Statec Binder’s specializes in the open pre-manufactured bags
filling technology, which involves filling prefabricated bags made of
paper, plastic film or fabric with feed, fertilizer or salts. For the
bags to be transportable, they must be particularly tear- and cutresistant. In addition, a high throughput, low maintenance times
and a low rate of rejects represent the key criteria of success in
that market. The new Statec Binder product, Principac, is
29
extremely competitive due to its throughput, which is as much as
30% higher compared to its predecessor. Just like sorting
technology, packaging technology is not yet fully mature, and
there is scope for further increasing productivity. Therefore, in
terms of packaging technology there is a risk of substitution for
tear- and cut-resistant bags for players in the market.
The expansion of the
technology portfolio to
FFS is only possible via
acquisition
Over the medium term, FFS (form-fill-seal) technology could also
be of interest for Statec Binder. This technology allows for even
higher throughputs compared to the open pre-manufactured bags
filling technology, with the bags being comparably sturdy. As a
result, the joint venture would be broadly positioned in a way that
is similar to its competitors Haver & Boecker or Moeller & Devicon.
However, the technology is strongly protected by patents,
meaning that acquisition would be the only way to appropriately
expand the technology portfolio. Smaller acquisition targets are
available in the market.
Table 13: Market forces in packaging technology
Market force
Assessment
Intensity of competition
High
Barriers to entry
Medium
Risk of substitution
High
Supplier power
Low
Buyer power
Medium
Source: Vara Research GmbH
Supplier risk is low for
packaging technology
In terms of suppliers, there is no significant risk. The machines do
not contain any critical components and generally speaking can be
purchased from several suppliers. In terms of the packaging
systems, the process and the design of the systems are critical for
productivity. The customers are generally large corporations.
Machine manufacturers such as Statec Binder are currently
profiting from the fact that demand from new customers in
emerging markets is reducing the purchaser's risk.
30
Profit and Loss Account
(in €m)
Sales revenues
Change in finished goods and work in
progress
Other own cost capitalized
Other operating income
Total performance
Cost of material
Gross profit
Personnel expenses
Other operating expenses/income
EBITDA
Depreciation/amortisation
EBIT
Financial result
2007
2008
2009e
2010e
2011e
53.44
73.45
69.40
71.59
76.35
-0.17
0.29
0.27
0.28
0.30
0.54
0.29
0.27
0.28
0.30
0.78
1.09
1.02
1.05
1.11
54.58
75.11
70.97
73.20
78.06
-26.08
-41.21
-39.69
-40.78
-42.53
28.50
33.90
31.27
32.42
35.53
-14.06
-16.23
-15.44
-15.95
-17.02
-8.13
-9.08
-8.61
-8.90
-9.50
6.31
8.59
7.23
7.57
9.01
-1.42
-1.39
-1.32
-1.37
-1.47
4.89
7.20
5.90
6.20
7.55
-0.07
-0.03
0.25
0.32
0.40
Non operating result before taxes
0.00
0.00
0.00
0.00
0.00
Pre tax result
4.82
7.17
6.15
6.52
7.95
Non operating result after taxes
0.00
0.00
0.00
0.00
0.00
Taxes
-1.20
-1.78
-1.52
-1.62
-1.97
Minority interest
0.00
-0.09
-0.09
-0.09
-0.09
Net result
3.63
5.31
4.54
4.82
5.89
Adjustments
0.00
0.00
0.00
0.00
0.00
Adjusted net result
3.63
5.31
4.54
4.82
5.89
Average number of shares
3.75
3.75
3.75
3.75
3.75
EPS
0.97
1.42
1.21
1.29
1.57
Adjusted EPS
0.97
1.42
1.21
1.29
1.57
DPS
0.00
0.64
0.55
0.58
0.71
Source: Binder+Co AG / Vara Research GmbH
31
Balance of Accounts
(in €m)
Long term assets
2007
2008
2009e
2010e
2011e
13.74
14.45
15.47
16.49
16.85
Intangible assets
2.08
2.28
2.28
2.28
2.28
Tangible assets
9.50
10.04
11.06
12.08
12.44
Financial assets
Current assets
2.16
2.13
2.13
2.13
2.13
18.17
32.44
33.15
35.31
39.42
Inventories
2.54
3.88
3.67
3.78
4.04
Receivables
14.89
23.52
22.22
22.92
24.45
0.74
5.04
7.26
8.60
10.93
Cash and securities
Other assets
0.00
0.00
0.00
0.00
0.00
Total assets
31.91
46.89
48.62
51.79
56.26
Equity
14.19
18.00
20.23
23.08
26.88
Reserves
14.19
17.29
19.43
22.20
25.91
Minorities
0.00
0.71
0.80
0.88
0.97
Provisions
11.57
17.42
17.45
17.49
17.53
Liabilities
4.89
9.76
9.23
9.52
10.15
Interest bearing liabilities
0.50
0.00
0.00
0.00
0.00
Non interest bearing liabilities
4.39
9.76
9.23
9.52
10.15
Other liabilities
1.25
1.71
1.71
1.71
1.71
31.91
46.89
48.62
51.79
56.26
Total equity and liabilities
Source: Binder+Co AG / Vara Research GmbH
Cash-Flow Statement
(in €m)
Net cash provided by operating
activites
Net cash used in investing
activities
Net cash provided by financing
activities
Change in cash and securities
Cash and securities at the end of
the period
2007
2008
2009e
2010e
2011e
3.20
8.27
6.96
5.79
6.34
-1.06
-2.10
-2.34
-2.39
-1.83
-2.20
-2.40
-2.40
-2.05
-2.18
-0.06
3.77
2.22
1.34
2.33
0.74
5.04
7.26
8.60
10.93
Source: Binder+Co AG / Vara Research GmbH
32
Key Figures
2007
2008
2009e
2010e
2011e
EV/Sales
0.82
0.60
0.45
0.43
0.41
EV/EBITDA
6.98
5.12
4.30
4.10
3.45
Valuation ratios
EV/EBIT
9.01
6.11
5.26
5.01
4.12
P/E reported
12.15
8.12
7.76
7.31
5.98
P/E clean
12.15
8.12
7.76
7.31
5.98
PCPS
5.63
3.36
5.97
5.66
4.77
Price-to-book
3.10
2.49
1.81
1.59
1.36
Gross margin
53.3%
46.2%
45.1%
45.3%
46.5%
EBITDA margin
Profitability ratios
11.8%
11.7%
10.4%
10.6%
11.8%
EBIT margin
9.2%
9.8%
8.5%
8.7%
9.9%
Pre tax margin
9.0%
9.8%
8.9%
9.1%
10.4%
Net margin
6.8%
7.2%
6.5%
6.7%
7.7%
ROE
28.0%
33.5%
24.2%
22.7%
23.9%
ROCE
19.8%
25.0%
18.4%
18.8%
21.9%
Sales/employees (in € `000)
250.9
315.9
298.5
307.9
328.4
Gross profit/employees (in € `000)
133.8
145.8
134.5
139.5
0.0
17.0
22.8
19.5
20.7
25.3
213
233
233
233
233
44.5%
38.4%
41.6%
44.6%
47.8%
Gearing
3.5%
-24.2%
-32.3%
-33.9%
-37.7%
Dividend yield
0.0%
5.6%
5.8%
6.2%
7.6%
Cash-flow per share
2.09
3.42
1.57
1.66
1.97
Free-cash-flow per share
1.64
2.85
0.95
1.02
1.49
2.7%
1.9%
1.9%
1.9%
1.9%
Produktivity ratios
Net result/employees (in € `000)
Number of employees
Financial ratios
Equity ratio
Cash-flow ratios
Other ratios
Depreciation/sales
Capex/sales
Tax rate
3.1%
3.4%
3.4%
3.3%
2.4%
24.8%
24.8%
24.8%
24.8%
24.8%
Source: Binder+Co AG / Vara Research GmbH
33
A. Disclosures in accordance with § 34 b WpHG (German Securities Trading Act),
Finanzanalyseverordnung (FinAnV) (Ordinance on the Analysis of Financial
Instruments):
I. Disclosures on authorship, responsible company, regulatory authority:
Company responsible for the publication: Vara Research GmbH
Authors of this financial analysis: André Silvério Marques, Analyst and
Michael Vara, Analyst and Managing Director of Vara Research GmbH
Vara Research GmbH is subject to regulation through the Federal Financial
Supervisory Authority (BaFin).
Previous financial analyses:
Company
Date
Rating
Target price
II. Additional disclosures:
1.
Information sources:
Material sources of information for preparing this document are publications in
domestic and foreign media such as information services (including but not
limited to Reuters, VWD, Bloomberg, DPA –AFX), business press (including but
not limited to Börsenzeitung, Handelsblatt, Frankfurter Allgemeine Zeitung,
Financial Times), professional publications, published statistics, rating agencies as
well as publications of the analysed issuers.
Furthermore, discussions were held with the Management for the purpose of
preparing the company study. The analysis was provided to the issuer prior to
going to press; no changes were made afterwards, however.
2.
Summary of the valuation principles and methods used in preparation of
the analysis:
Vara Research GmbH uses a 3-level absolute share rating system. The ratings
pertain to a time horizon of up to 12 months.
BUY: the expected price trend of the share amounts to at least +15%. NEUTRAL:
The expected price trend lies between -15% and +15%. SELL: The expected price
trend amounts to more than -15%.
The following valuation methods are used when valuing companies: Multiplier
models (price/earnings, price/cash flow, price/book value, EV/revenues, EV/EBIT,
EV/EBITA, EV/EBITDA), peer group comparisons, historical valuation approaches,
discounting models (DCF, DDM), break-up value approaches or asset valuation
approaches. The valuation models are dependent upon macroeconomic measures
such as interest, currencies, raw materials and assumptions concerning the
economy. In addition, market moods influence the valuation of companies.
Furthermore, the approaches are based on expectations that can change quickly
and without warning, according to industry-specific developments. As a result, the
results of the valuation and target prices derived from the models can change
correspondingly. The results of the valuation are based on a period of 12 months.
They are, however, subject to market conditions and represent a snapshot. They
can be reached more quickly or more slowly or be revised upwards or downwards.
3.
Date of initial publication of the financial analysis:
4.
Date and time of the prices of financial instruments disclosed therein:
5.
Updates:
(19/05/2009)
(Price on 18/05/2009)
We have currently not yet set a fixed date to provide a precise update of this
analysis. Vara Research GmbH reserves the right to update the analysis
unannounced.
34
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The success of Vara Research GmbH is based on direct and/or indirect payments
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financial analysis
Do not hold any material investments in the issuer. Employees of
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Serve neither the issuer (by placing buy or sell orders in a market)
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result of these misstatements.
35