Mortsel - Agfa-Gevaert today commented on its results in 2019.
KEY STRATEGIC HIGHLIGHTS
Sale of part of Agfa HealthCare's IT business
The sale of part of Agfa HealthCare's IT activities to Dedalus Holding S.p.A. is well on track. The parties received all regulatory approvals and all employee consultation requirements have been met. Both parties aim to close the transaction in the course of the second quarter of 2020. The business that is to be sold consists of the Healthcare Information Solutions and Integrated Care activities, as well as the Imaging IT activities to the extent that these activities are tightly integrated into the Healthcare Information Solutions activities. This is the case mainly in the DACH region, France and Brazil.
'The sale of this business will be a major step in our transformation process. Going forward, Agfa HealthCare will focus on Imaging IT Solutions. Based on our flagship Enterprise Imaging platform and the IMPAX solutions, we will continue to deliver superior value to our Imaging IT customers. Imaging IT Solutions performed well in 2019, positively contributing to our profitability growth. Furthermore, the proceeds of the sale will allow us to further execute the strategies of our other divisions, to address long term liabilities and to reward our shareholders,' said Pascal Juery, President and CEO of the Agfa-Gevaert Group.
Strategic portfolio and business orientation decisions
In 2019, the Digital Print & Chemicals division decided to terminate its inkjet media reseller activities in the United States. The termination of these low-margin activities will allow the division to fully focus on selling its own inkjet solutions in the highly competitive US market. To allow correct comparison, the 2018 and 2019 numbers in this document have been restated, excluding the inkjet media reseller activities in the USA.
The HealthCare IT division decided to strengthen the focus of the Imaging IT Solutions on certain core customer segments and geographies and to wind down these solutions from certain less sustainable geographies and market segments. This decision already had a positive impact on the division's profitability in 2019.
Measures to tackle challenges in offset industry
Headwinds related to the printing industry incited Agfa to take a more cautious stand towards its future offset activities and to book an impairment loss of 66.7 million Euro.
The Offset Solutions division operates in a market that is characterized by multiple challenges, including a strong decline in demand for analog prepress technology, decreasing newspaper and commercial print volumes, price pressure caused by intense competition and high aluminum costs.
As a large part of the division's printing plates are manufactured in China, the recent corona virus outbreak is also likely to have an impact on the business. The supply chain in China is disrupted and the outbreak is also delaying the further implementation of the offset alliance with Lucky HuaGuang Graphics. This alliance was signed in 2018 and further implemented in 2019. It is an industrial partnership aimed at optimizing Agfa's manufacturing footprint competitiveness. Furthermore, it also includes the implementation of a common sales platform for the Chinese market.
One of the main priorities of the Agfa-Gevaert Group is to implement a comprehensive plan to improve the profitability of the Offset Solutions division.
FINANCIAL HIGHLIGHTS
In 2019, the Agfa-Gevaert Group generated strong cash flows and a dedicated program allowed it to substantially decrease the working capital. As a result, the net financial debt decreased by 38 million Euro, in spite of the implementation of pension de-risking measures.
Both the Radiology Solutions division and the HealthCare IT division delivered profitable growth. Excluding the fading of the positive effects of the alliance with Siegwerk, the core businesses of the Digital Print & Chemicals division were also able to substantially improve their profitability. As a result, the Agfa-Gevaert Group recorded a gross profit increase and a stable adjusted EBITDA in spite of the deteriorated conditions in the offset markets.
'As newly appointed CEO, I am happy to see that the Agfa-Gevaert Group was able to generate strong cash flows and that all divisions but Offset Solutions delivered underlying profit growth. In the next quarters, we will focus on our actions to tackle the offset headwinds and on facilitating our growth engines to realize their full potential,' said Pascal Juery, President and CEO of the Agfa-Gevaert Group.
Statement on IFRS 16 and 2018 restated profit and loss numbers
Several factors influence the way the Agfa-Gevaert Group reports its financial results as from the first quarter of 2019.
The activities of the Agfa-Gevaert Group have been regrouped into four divisions. To allow for a more accurate assessment of the business performances, some costs of corporate functions at Group level are no longer attributed to the business divisions. For 2019, these costs amounted to 17 million Euro (2018: 14 million Euro). These costs are now grouped under Corporate Services. To allow comparison, the 2018 profit and loss numbers have been restated.
As from 2019, the Agfa-Gevaert Group has adopted the IFRS 16 accounting rules.
In 2019, the Group terminated its inkjet media reseller activities in the USA. To allow correct comparison, the 2018 and 2019 numbers have been restated.
Based on the solid performances of the growth engines and the hardcopy product line, the Agfa-Gevaert Group's top line grew by 2.2%. As from the second half of the year, the consolidation of the sales coming from the offset alliance with Lucky HuaGuang Graphics also started to show in the Group's top line.
The Group's gross profit grew from 710 million Euro (32.4% of revenue) in 2018 to 729 million Euro (32.6% of revenue).
Selling and General Administration expenses remained almost stable at 461 million Euro (20.6% of revenue).
R&D expenses amounted to 148 million Euro, versus 141 million Euro in 2018.
Excluding the effects of IFRS 16, adjusted EBITDA remained stable at 180 million Euro (8.1% of revenue). Adjusted EBIT reached 124 million Euro (5.5% of revenue), versus 128 million Euro (5.8% of revenue) in 2018.
Restructuring and non-recurring items (including IFRS 16) resulted in an expense of 112 million Euro, versus an expense of 66 million Euro in 2018. This amount includes an impairment loss of 66.7 million Euro that was booked to reflect the evolution of the offset industry.
The net finance costs (including IFRS 16) amounted to 38 million Euro.
Income tax expenses (including IFRS 16) amounted to 28 million Euro, versus 34 million Euro in 2018.
As a result of the elements mentioned above, the Agfa-Gevaert Group posted a net result of minus 48 million Euro (including IFRS 16).
Financial position and cash flow (including IFRS 16)
At the end of 2019, total assets were 2,294 million Euro (comprising right-of-use assets compliant with the new accounting standard on leases: 110 million Euro at the end of 2019), compared to 2,367 million Euro at the end of 2018.
Trade working capital moved from 653 million Euro (29% of sales) at the end of 2018 to 579 million Euro (26% of sales) at the end of 2019 (excluding restatement for termination of inkjet media reseller activities in the USA).
Net financial debt amounted to 219 million Euro (or 106 million Euro excluding the impact of IFRS 16), versus 144 million Euro at the end of 2018.
Net cash from operating activities amounted to 123 million Euro.
The HealthCare IT division's top line increased by 3.0%. Throughout the year, the Healthcare Information Solutions business continuously recorded solid top line growth, confirming its leading position in the German speaking countries of Europe and in France. For the Imaging IT Solutions business, the division focuses on generating 'quality turnover' in selected geographies and segments to further improve profitability. In spite of the decision to wind down the Imaging IT Solutions from certain less sustainable markets and segments, this business' top line remained stable versus the previous year.
The gross profit margin improved strongly from 44.2% of revenue in 2018 to 46.6%. Significant service efficiency improvements, strong software sales and the decision to refocus the Imaging IT Solutions business had a positive effect on profitability. Excluding the effects of IFRS 16, adjusted EBITDA increased from 48.7 million Euro (9.9% of revenue) in 2018 to 63.2 million Euro (12.5% of revenue). Adjusted EBIT reached 48.6 million Euro (9.6% of revenue), versus 34.4 million Euro (7.0% of revenue) in the previous year.
Radiology Solutions - full year 2019
In the Radiology Solutions division, the top line growth of the hardcopy and Direct Radiography ranges was partly counterbalanced by the market-driven decline in Computed Radiography sales. Clearly benefiting from the reorganization of the distribution channels in China, the hardcopy business posted double-digit revenue growth. The top line growth of the innovative Direct Radiography solutions range was also based on increased service revenues.
Partly due to improved service efficiencies and the effects of the reorganization of the hardcopy distribution channels, the division's gross profit margin increased from 34.7% of revenue in 2018 to 37.4%. Excluding the effects of IFRS 16, adjusted EBITDA increased from 72.7 million Euro (14.1% of revenue) in 2018 to 88.5 million Euro (16.5% of revenue). Adjusted EBIT reached 72.0 million Euro (13.4% of revenue), versus 59.8 million Euro (11.6% of revenue) in the previous year.
Digital Print & Chemicals - full year 2019
Based on the strong performance of its core businesses, the Digital Print & Chemicals division's top line increased by 5.5%.
In inkjet, the ink product ranges posted volume and revenue growth. Large-format equipment sales were also up, based on the success of high-end systems such as the Jeti Tauro H3300 LED.
In the Industrial Films and Foils segment, the Synaps Synthetic Paper range performed well, as Agfa's paper range is being distributed in an increasing number of geographies. The Electronic Print segment's Orgacon Electronic Materials range also reported good sales figures. Furthermore, the division is making progress in a number of promising new business areas. For instance, the rise of the hydrogen economy is leading to an increased interest in Agfa's membranes for alkaline water electrolysis.
The division's gross profit margin improved from 27.7% of revenue in 2018 to 28.4%. Excluding the effects of IFRS 16, the division's adjusted EBITDA reached 29.3 million Euro (8.2% of revenue), versus 34.0 million Euro (10.1% of revenue) in 2018. Adjusted EBIT amounted to 22.3 million Euro (6.3% of revenue), versus 28.1 million Euro (8.4% of revenue). As the main effect of the strategic alliance for UV digital packaging inks with Siegwerk Druckfarben has come to an end, the 2019 adjusted EBITDA margin was negatively influenced. Excluding this effect, the adjusted EBITDA margin would have increased substantially.
Offset Solutions - full year 2019
The Offset Solutions division's revenue remained almost stable at 843 million Euro. Mid 2019, the consolidation of the sales coming from the alliance with Lucky HuaGuang Graphics started to show in the division's top line.
The Offset Solutions division is active in structurally declining markets. The offset industry is marked by the strong decline in demand for analog prepress technology and decreasing newspaper and commercial print volumes. The division also continues to face price pressure, caused by intense competition, as well as high aluminum costs. Going forward, new challenges such as the corona virus outbreak could also affect the division's results. The developments in the offset industry explain the booking of an impairment loss by the Group in the fourth quarter.
The Offset Solutions division's gross profit margin decreased from 26.1% of revenue in 2018 to 22.9%. Part of the decrease was due to the dilutive effect related to the consolidation of the sales coming from the Lucky alliance. In addition, adverse product and regional mix effects, increased idle time due to overcapacity and high aluminum costs also impacted the gross profit margin. Excluding the effects of IFRS 16, adjusted EBITDA amounted to 16.5 million Euro (2.0% of revenue), versus 41.0 million Euro (4.8% of revenue) in 2018 and adjusted EBIT amounted to minus 1.4 million Euro (minus 0.2% of revenue), versus 19.7 million Euro (2.3% of revenue).
Corporate Services - full year 2019
To allow for a more accurate assessment of the business performances, costs of corporate functions at Group level are grouped under Corporate Services.
The increase in costs related to Corporate Services versus 2018 is mainly due to the creation of the new Innovation Office.
Contact:
Tel: +32 (0) 3 444 71 24
Email: viviane.dictus@agfa.com
AGFA-GEVAERT NV 
