Headquartered near Munich, Germany, Alphaform is a leading contract manufacturer and industrial service provider of complex and sophisticated components using 3D printing. Alphaform is listed on the Frankfurt Exchange (ATF) and also trades on the U.S. OTC market (AFRMF).
Dr. Thomas Vetter is the CEO of Alphaform AG and holds a doctorate in electrical engineering from the Technical University of Darmstadt. Before joining Alphaform AG, Dr. Vetter was Managing Director at Carl Schenck AG, General Manager at Rieter Automotive Systems, and a board member for Sarna Automotive Europe. He was also General Manager at Johnson Controls automotive division where he was responsible for business development, strategic planning and advanced sales for all Daimler Chrysler related business activities in Europe, Asia, South Africa and South America. Dr. Vetter has been the CEO of Alphaform AG since January, 2008.
G. Anderson: Thank you Dr. Vetter for participating in this interview. Can you provide a general overview of Alphaform AG, including when the company was founded, the services Alphaform provides, geographic locations of your major customers, current employee count, total outstanding shares, etc?
Dr. Vetter: Alphaform is a leading industrial 3D printing service provider in Europe. As a spin-off from EOS in 1996, the company is a know-how carrier for all important industrial 3D printing technologies, from stereolithography (SL), laser sintering (LS) with both plastics and metal, polyjet and voxeljet as well as colour-printing through to succession processing like castings, CNC machining, injection moulding, metal coating or painting. We have business contacts into thousands of R&D departments and primarily serve the automotive, medical technologies, electronics and aerospace markets. Currently Alphaform employs approximately 240 people across five locations in Germany, the UK and Finland and has 5.850.000 outstanding shares.
G. Anderson: What are the competitive advantages of Alphaform AG over other 3D printing or additive manufacturing service providers?
Dr. Vetter: Taking the early EOS days into account, we are among the companies involved at the first hour of the industrial 3D printing market. We have more than 20 years of application and technology experience and know our customers’ needs and technology limits. With our broad range of application and material knowledge we support our customers from the very first steps of their design ideas to the production of prototypes and even to the series production of their products. We are a recognized supplier of orthopedic implants with an international customer base, offering both conventional production technologies and 3D printing of titanium implants — whatever provides the most economic solution. As one of only a few players in our industry we know the ways of rapid prototyping AND volume production. With our engineering skills we are well positioned to successfully participate in the shift from prototyping to series production in our industry.
G. Anderson: In 2012 Alphaform reported .10 euros/share in earnings, (.14/share USD), and revenue of 27.1 million euros ($37.7 million USD) and is currently expected to release Q4 and 2013 financials on March 28.
Revenues in the third quarter of 2013 were the second highest in recent history and cash flow from operations was positive. However, Alphaform has guided for an overall net loss in earnings for 2013. Can you discuss the factors that caused the anticipated loss for 2013?
Dr. Vetter: 2013 was indeed very disappointing. After our turn-around in 2012 with black figures, we definitely had the goal to outdo the turnover and the earnings of that year. But instead of that we went into the red. There are two main reasons for that.
First, our medical subsidiary MediMet had significant problems in a management transition process (a classic PMI problem). The founder of MediMet retired from the operating business in 2012. After the departure of the founder we unfortunately haven’t had the right cast in the management. This especially impacted the distribution activities of MediMet, unsettled our customers and that resulted in a drop of orders. We solved these problems in the 3rd quarter of last year and have been enjoying growing order intakes since then.
Second, the production costs in our core business, 3D printing, were too high. The reason for that is that we were only able to meet the rapidly increasing customer requirements – especially their delivery time requirements – by operating our machines cost-inefficiently. This is a direct result of our reluctance to invest in recent years and the very rapid technological progress in our industry.
In addition the medical technology market in general was weaker than expected. And finally we had to deal with customers’ price pressure in the automotive segment during the first half of the year.
As a consequence we had a negative result in our operating businesses and we made substantial one off non-cash write-downs in both divisions in 2013, in the case of MediMet especially by correcting the corporate book value and for the 3DP core business by considering the technological level of equipment and inventories.
G. Anderson: In February of this year Alphaform announced a realignment of the business and the successful completion of a capital raise at 3.40 euros/share ($ 4.73 USD/share) to be used in the realignment.
Can you discuss the realignment plans and how these changes might influence revenue/earnings growth for the company after completion?
Dr. Vetter: The realignment is based on three pillars: First, we expand our target customer groups. Second, we extend the technology and third, we broaden our distribution channels. Technologically, we will focus on the cradle of Alphaform: 3D printing. Keeping prototyping in mind, we want to make greater use of the opportunities in our market for direct part production. The keywords here are small-scale production and product engineering for 3DP – “design for rapid”. We should also benefit from technical trends. A detailed analysis of the manufacturing cost parameters is expecting unit cost improvements of about 60% within the next 5 years and of another 30% within the next 10 years. These reductions should – and I’m sure they will – significantly boost the market for additive manufacturing.
With regard to customer groups, we have a strong footprint in medical orthopedics, in particular for metal applications. Now we will extend our exposure to aerospace and mechanical engineering – in particular related to light weight solutions. In our plastics business we are currently very much focused on 3D printing for the automotive sector. That’s our core market and we know it very well. But the aerospace sector, the special vehicle & mechanical engineering sector offer many applications for plastic components that are produced in small quantities, too, which are ideal for additive manufacturing. Therefore we want to increase our business and enter these markets.
Part of the new alignment is also www.Artshapes.de through which we sell 3D printed high level art on the Internet. We started that website in December 2013. Above all Artshapes.de is a pilot scheme, too. We want to figure out to what extent we can use the Internet as an additional distribution channel for our services. Based on our experiences with Artshapes, we want to increase our web based activities and implement more web applications. And finally, we will expand our management capacities, especially in the areas of sales and technology.
G. Anderson: In the Alphaform Q3 financial release it was reported that demand for 3D printing services was increasing and that pricing was improving. Have you seen that trend continuing so far this year?
Dr. Vetter: Based on the experience and analysis of last year’s problems we have established a detailed restructuring plan, which is very much focused on process improvements but also on business growth. The first months of the year show already improvements of revenues compared to 2012 and even compared to our plans – and this as well on cost level. In addition analysts estimate an increasing economic dynamic during the course of the year. This typically keeps the market prices for our services on a healthy level. We have had increasing demands since several months and operate in some of our units close to capacity limits. Our realignment plan also includes capacity expansions in order to meet these demands.
G. Anderson: In February a research analyst at Close Brothers Seydler Research AG estimated a return to positive earnings by Alphaform in 2015 of .15 euros/share, or approximately .21/share USD. However, 2014 looks to be a year focused on the restructuring and realignment of the company. Considering your realignment plans and the current business climate in Europe, do you believe Alphaform has potential to show positive earnings during some quarter this year?
Dr. Vetter: Please understand that we don’t publish forecast of individual quarterly results. Overall we are convinced that the implementation of our restructuring plan will lead Alphaform back into the black. At the same time we must be aware that the realignment also costs money. We therefore expect that Alphaform will do considerably better this year than in 2013 and that the restructuring efforts and respective costs should decline during the course of 2014. But we don’t think that we’ll already come out of the red this year. We are going through continuous changes and improvement processes and plan to show positive earnings in 2015.
G. Anderson: There are several articles predicting an IPO of at least one 3D printing service provider this year, which could shift some focus onto other publicly-traded service providers like Alphaform AG.
Due to recent U.S. investor interest in Alphaform AG, trading in the company’s shares began on the OTC market under ticker “AFRMF” as an unsponsored ADR (American Depository Receipt). Is management considering upgrading to a bank-sponsored ADR as a means to increase confidence and trading from U.S. investors?
Dr. Vetter: In February 2014 Alphaform has successfully executed a small capital rise; it was oversubscribed several times of which we however could not take advantage according to German stock corporation law. If we want to achieve our goals and raise the growth potential of our business, we will need further capital measures. We are aware of the growing interest of U.S. investors in our company and the different valuation of technology stocks on both sides of the Atlantic. It is not in the interest of Alphaform’s management that our stock is traded OTC under an unsponsored ADR. We have never supported that, but unfortunately we can’t control it. Therefore we are evaluating an appropriate response to this development, which could also include the upgrade to a bank-sponsored ADR.
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