Weakness in Emerging Markets Impacts Agfa Q2 Results
MORTSEL, BELGIUM—August 27, 2014—Christian Reinaudo, president and CEO of the Agfa-Gevaert Group, commented on the company's second quarter 2014 results:
“Our top line reflects the adverse currency effects and the continuously depressed economic conditions in certain parts of the world, including most emerging markets. In these tough circumstances, we continued to progress on our main goals. Continuing to work towards our target of delivering a double digit recurring EBITDA percentage, we further improved the gross profit margin. Furthermore, efficiency programs, targeted actions to limit the restructuring costs and positive raw material effects allowed us to post a strong net profit. Cash flow generation also continued to be strong, leading to a further decrease in net financial debt. These elements will remain our main focus points in the second half of the year. Meanwhile, we will also focus on controlling the top line evolution."
Agfa-Gevaert Group - second quarter 2014
The Agfa-Gevaert Group’s revenue declined by 11.1 percent compared to the second quarter of 2013. On a currency comparable basis, the decline amounted to 8.3 percent. The weakness in most of the emerging markets and the unstable political situation in certain regions impacted the Group’s top line. Agfa HealthCare’s Imaging IT Solutions division suffered from the uncertain investment climate in the US healthcare sector. The business group’s Direct Radiography business posted very strong sales growth. The hardcopy business and the Healthcare Information Solutions division also performed well.
The Group made good progress in improving the gross profit margin to 31.8 percent of revenue, versus 28.8 percent in the second quarter of 2013 and 29.3 percent in the first quarter of 2014. The Group’s efficiency programs and positive raw material effects were the main drivers behind this evolution.
As a percentage of revenue, Selling and General Administration expenses amounted to 19.2 percent.
R&D expenses amounted to 37 million Euro, versus 36 million Euro in last year’s second quarter.
Recurring EBITDA (the sum of Graphics, HealthCare, Specialty Products and the unallocated portion) and recurring EBIT improved to 9.7 percent and 7.1 percent of revenue respectively.
Due to targeted actions, restructuring and non-recurring items were limited to an expense of 2 million Euro. In the second quarter of 2013, these items resulted in an income of 31 million Euro, as the Group booked the effects of the closure of the post-retirement medical plan in the USA.
The net finance costs amounted to 13 million Euro, versus 21 million Euro in the second quarter of 2013. Tax expenses amounted to 3 million Euro, versus 23 million Euro in the second quarter of 2013, when a one-off deferred (non cash) tax expense related to the closure of the post-retirement medical plan in the USA was booked.
Although last year’s figures were positively influenced by the before mentioned targeted benefit actions, the Group succeeded in improving its net profit to 28 million Euro.
Financial position and cash flow
- At the end of the quarter, total assets were 2,573 million Euro, compared to 2,568 million Euro at the end of 2013.
- Inventories amounted to 561 million Euro (107 days), versus 648 million Euro (108 days) in the second quarter of 2013. Trade receivables (minus deferred revenue and advanced payments from customers) amounted to 399 million Euro (55 days), versus 452 million Euro (56 days) in the second quarter of 2013, and trade payables were 241 million Euro (46 days), versus 259 million Euro (43 days).
- Net financial debt amounted to 176 million Euro, versus 299 million Euro at the end of last year’s second quarter, and 217 million Euro at the end of 2013.
- Net cash from operating activities amounted to 32 million Euro.
Agfa Graphics - second quarter 2014
Agfa Graphics’ revenue decreased by 10.8 percent to 339 million Euro. Excluding currency related effects, the decline amounted to 8.7 percent. The business group’s top line was impacted by the weakness in most of the emerging markets. In the prepress segment, the decline of the analog business continued, while the digital computer-to-plate (CtP) business continued to suffer from competitive pressure. In spite of the weak investment climate, the inkjet segment booked a profitable volume increase, driven by the success of recently released wide-format printing solutions. Also in inkjet, the revenue contribution of inks for industrial applications is starting to grow, as they are being used by an increasing number of system integrators, OEM customers and other manufacturing specialists.
Agfa Graphics’ gross profit margin improved from 25.5 percent in the second quarter of 2013 to 29.5 percent. In addition to the positive raw material effects, the business group was able to improve its profitability through targeted efficiency programs and cost saving measures. As a result, recurring EBITDA reached 28.9 million Euro (8.5 percent of revenue). Recurring EBIT improved by almost 70 percent to 21.5 million Euro (6.3 percent of revenue).
In the field of mobile publishing, Agfa Graphics presented further developments of its Eversify mobile publishing software at the World Newspaper Conference in Turin (Italy). Eversify automates the workflow for publishing newspaper content on a wide variety of mobile devices, such as tablets and smartphones. One of the new features allows publishers to promote multiple titles via a single app.
In the newspaper segment of the prepress market, important contracts were signed with – among other companies—Al Ghad (Jordan), Imprensa Oficial do Estado do Rio de Janeiro (Brazil), and Asahi Shimbun (Japan). Asahi Shimbun—one of the world’s largest newspaper companies—decided to start using Agfa Graphics’ chemistry-free Azura printing plates for part of its production.
Still in Japan, major contracts were signed with the commercial printing companies Nishikawa and Harata Printing. Also in the commercial segment, the Sungwon Adpia company—the largest Web-to-print company in Korea—signed a new agreement for Azura printing plates. In Argentina, the Multiposter company will install an extensive prepress solution from Agfa Graphics for the production of billboards. The deal also includes a four-year contract for Azura plates.
In the field of inkjet, Agfa Graphics was presented three awards by the European Digital Press Association (EDP) at the FESPA Digital trade event in Munich. The EDP Awards praise the best products of the year introduced in the European market. Agfa Graphics won the award for the Asanti workflow solution for the Sign & Display market, the Jeti Titan HS wide-format printer and the Altamira LM ink technology. In May, Agfa Graphics introduced a redesigned version of its Anapurna M2050 hybrid wide-format inkjet printer. Fully commercially available in the third quarter of 2014, the Anapurna M2050i will achieve a productivity increase of up to 75 percent compared to its predecessor.
Furthermore, the Anapurna and Jeti printer ranges continued to convince customers all over the world. Introduced in the second quarter of 2013, the dedicated Asanti workflow software for the sign & display markets is often named by customers as an important competitive advantage of Agfa Graphics’ wide-format engines.
Phase 3 Marketing & Communications became the first US customer for Agfa Graphics’ new high-speed Jeti Titan HS printing system. Other examples of companies installing machines from the Jeti Titan range are XL Media Group (Uganda and Angola), Bestia Gráfica (Argentina), and Kseroplast-Plus (Poland). The Anapurna M2500 system also continued to find its way to new markets, including Saudi Arabia, United Arab Emirates, Nigeria, Turkey and Russia.
At the first InPrint trade show (organized in Hannover, Germany), Agfa Graphics demonstrated how inkjet technology can enable businesses to integrate print into their industrial manufacturing lines. In this field, Agfa Graphics’ strengths lie in the development of UV inkjet ink formulations for specific applications and in a profound knowledge of the integration of all elements in an industrial inkjet printing process.
Agfa HealthCare - second quarter 2014
Agfa HealthCare’s revenue decreased by 10.5 percent. On a currency comparable basis, the decrease amounted to 6.4 percent. A major adverse element was the economic weakness in most of the emerging markets. This particularly affected sales of the Imaging segment’s traditional film products. In the segment’s digital radiography business (consisting of Computed Radiography, Direct Radiography and the hardcopy business), the DR product range posted very strong sales growth. The hardcopy business also performed well. In the IT segment, the Healthcare Information Solutions division performed well, whereas Imaging IT Solutions continued to suffer from the challenging conditions in the US healthcare market.
Agfa HealthCare’s gross profit margin improved significantly from 34.7 percent of revenue to 37.6 percent. Targeted efficiency programs (e.g. in the field of service efficiency and procurement) and favorable raw material effects more than counterbalanced the adverse currency and mix effects. Recurring EBITDA reached 32.3 million Euro (or 12.3 percent of revenue). Recurring EBIT improved strongly to 23.5 million Euro (or 8.9 percent of revenue).
For Agfa HealthCare, a major highlight in the second quarter was winning Premier Inc.’s Supplier Legacy Award for operational excellence. With the award, Premier recognizes the business group’s expertise in enterprise and departmental imaging IT. Premier is a leading healthcare improvement company uniting an alliance of approximately 3,000 US hospitals and 110,000 other care providers.
Also in the field of Imaging IT Solutions, Agfa HealthCare debuted its ICIS Mobile and Web Capture technology at the Society for Imaging Informatics in Medicine (SIIM) meeting in Long Beach, California. The solution enables physicians and patients to securely upload medical images from a mobile device to an electronic health record. The technology builds on Agfa HealthCare’s ICIS (Imaging Clinical Information System) platform. In the US, Agfa HealthCare will unite its ICIS solution with Hyland’s OnBase content management solution. By connecting patient medical records and medical images within the Electronic Health Record (EHR), the joint solution provides all authorized persons across the hospital enterprise with real-time access to a patient’s full medical history.
In Brazil, FIDI (Imaging Diagnosis Research and Study Institute) will install the first Agfa HealthCare Global Remote Incident Prevention (GRIP) solution in Latin America. The FIDI foundation administers 57 radiology units in hospitals, laboratories and other care centers. The GRIP system will continuously monitor Agfa HealthCare’s RIS/PACS and teleradiology solutions used by FIDI to prevent incidents before they occur.
In the field of Imaging, Agfa HealthCare won an important tender for Direct Imaging (DR) systems in India. The business group will supply 29 DX-D 600 units to care centers in the state of West Bengal. Also in India, Agfa HealthCare will install 4 DX-M Computed Radiography (CR) solutions at PBM Hospital in Bikaneer, Rajasthan. The Ministry of Health of the Kingdom of Saudi Arabia will implement three Agfa HealthCare DR solutions in three of its hospitals: the Rafha Central Hospital in Arar, the Maternity and Children’s hospital in Gassim, and the Maternity and Children’s hospital in Dammam. The Canadian St. Marys Hospital Site of Huron Perth Healthcare Alliance (HPHA) will install a fully motorized DX-D 600 DR unit. In the UK, Agfa HealthCare successfully implemented three of its DX-D 30C Retrofit solutions at North Tees and Hartlepool NHS Foundation Trust. With the solution, hospitals are able to upgrade existing CR-based imaging equipment to wireless DR.
Agfa HealthCare’s imaging technology is also used by veterinary clinics around the world. In May, the business group announced that it is a technical sponsor of the Mobile Horse Vet Clinic for the annual Longines Global Champions Tour 2014, running from 24 April to 15 November. Agfa HealthCare’s solutions will be used to screen the horses participating in the prestigious showjumping series.
Agfa Specialty Products - second quarter 2014
Mainly due to the lower silver price, Agfa Specialty Products’ revenue decreased to 49 million Euro. Agfa Specialty Products’ future-oriented businesses (mainly Synaps Synthetic Paper and Orgacon Electronic Materials), as well as the Printed Circuit Board business performed well.
The business group’s recurring EBITDA amounted to 3.3 million Euro (6.7 percent of revenue) and recurring EBIT to 2.2 million Euro (4.5 percent of revenue).