Regulated information - Inside information
1H20 topline reflects economic slowdown; cost containment measures mitigated impact on profitability
Kortrijk, Belgium, 16 July 2020, 07:30 am – Today Barco (Euronext: BAR; Reuters: BARBt.BR; Bloomberg: BAR BB) announced results for the six month period ended 30 June 2020.
First half 2020 financial highlights
- Incoming orders at 398.7 million euro (-25%)
- Orderbook at 317.2 million euro, in line with year-end 2019
- Sales at 407.2 million euro (-18%)
- EBITDA of 40.7 million euro (-26.9 million euro) or 10% of sales (-3.6 ppts)
- Net income at 10.4 million euro (-32.7 million euro), including 8.1 million euro restructuring charges and impairments
Group topline - evolution month-by-month shows signs of recovery as of June
Barco's first half sales and incoming orders were significantly below last year due to the impact of covid-19 on business activities in both the Entertainment and the Enterprise divisions. This was partially offset by continued high-single digit growth in the Healthcare division. The economic impacts related to covid-19 became apparent in the latter half of March, were most severe in April and May and lessened over the month of June as government lock-down restrictions began to be lifted across our geographic markets.
Division topline performance – varied impact and recovery dynamics as of June
The Entertainment division experienced a push-out of cinema replacement cycle projects as a result of the pandemic; within Venues and Hospitality the demand for event projectors saw a significant drop, while Simulation remained stable and ProAV (fixed installs) showed signs of recovery on a region by region basis as countries emerged from lock-downs as of May.
Enterprise reported weaker results for the first semester in both the Corporate and Control Rooms segments. Following a promising launch of ClickShare Conference in late January, Corporate saw demand weaken significantly in April and May as companies around the world complied with lock-down requirements. As a result of early back-to-office activity in June, business began to gradually pick up towards the end of the second quarter.
The Control Rooms segment reported softer results for the first semester mainly due to project delays, although it demonstrated signs of improvement in the latter half of the semester, resulting in a better second quarter relative to the first quarter.
The Healthcare division continued to deliver solid topline growth fueled by sustained demand in diagnostic imaging. Surgical reported low single digit growth as hospitals postponed elective surgeries during the first half.
Protecting profitability with impactful cost containment actions
In response to the decline of revenues and to mitigate the adverse impacts of the pandemic on profitability, Barco managed to reduce indirect costs by 15% versus last year through a broad cost containment program.
Gross profit margin was 1.1 percentage points lower year-over-year reflecting higher transportation costs and mix effects.
EBITDA margin for the first half was 10% of sales, 3.6 percentage points below last year.
Navigating the crisis and leveraging our resilient platform
The company responded well to the challenges associated with covid-19 and leveraged its organizational effectiveness and agility to move forward:
- Barco pro-actively leveraged lessons learned in China in January, protecting its employees' safety and well-being: Hygiene protocols were implemented in accordance with public health guidelines, production configurations were adjusted, and remote working protocols were implemented.
- The company took early cost containment actions particularly in discretionary spending, aligned the activity levels with market realities and pushed out selected R&D projects, while protecting strategic investment priorities.
- As part of a product-cost improvement opportunity, the company will begin outsourcing the UniSee LCM component production in the second half of the year and therefore is closing its Taiwan factory.
- While the company's end-to-end supply chain continued to operate without major disruptions, working capital peaked at the end of the second quarter, mainly due to high incoming goods inventories and lower accounts payables, primarily in Entertainment and Enterprise.
- The company leveraged the heightened need for remote collaboration solutions to push digital connectivity solutions such as ClickShare Conference and weConnect in Enterprise and Synergi and remote Diagnostic displays in Healthcare while using the slowdown in demand to accelerate training programs with partners and resellers.
Quote of the CEO, Jan De Witte
"Covid-19's impact on financial results for the first half of the year played out largely as anticipated - albeit with a slightly weaker Q2-topline - with significantly weaker end-market demand in Cinema, Events and Enterprise and continued healthy demand in Healthcare. June showed the first signs of recovery in Enterprise, which we are now further fostering."
"During this extraordinary time, our priority has been on supporting our employees, customers, and partners, and on ensuring business continuity," said Jan De Witte, CEO of Barco. "The agility that has been built in our organization enabled us to respond in a timely manner and adjust activity and cost levels to the significant decline in sales, protecting gross profit margin and mitigating impact on indirect expenses, while sharpening the commercial focus on new remote collaboration solutions."
"While we reported a very weak second quarter, I'm pleased by the dedication and fortitude demonstrated by the team. With its end market demand fundamentals intact but delayed, solid orderbook, strong balance sheet and resilient business model, I am confident that Barco is capable of absorbing the business uncertainties ahead and remains well positioned for future profitable growth as economic activity gradually resumes."
Outlook 2020 – current
The following statements are forward looking and actual results may differ materially.
2020: No formal outlook but sharing segment insights
Management withdrew its full year 2020 outlook when it issued its 1Q trading update and since the pace of recovery in our markets -and in particular the shape of recovery and risk and impact of repeat lock-downs- remains uncertain it is not able to reinstate guidance for 2020 at this time.
Management expects that the second quarter will be the weakest quarter of the year and expects steady quarter-over-quarter improvement during the second half of the year albeit with different dynamics across the portfolio:
The Cinema and Events (Venues and Hospitality) segments expect quarter 3 performance in pace with quarter 2 followed by a modest improvement quarter-over-quarter in the fourth quarter.
ProAV (Venues & Hospitality) segment and Enterprise are expected to show a steady recovery quarter-over-quarter in the third and fourth quarter.
Healthcare expects turnover in the second half of the year to exceed the first half.
Based on management's current assessment of the quarterly progression for 2020, the company is planning to develop a 2021 budget with a cost base no higher than 2019 group level.