• Imaging IT business substantially improved its profitability, Radiology Solutions division showed overall margin resilience
  • Cost containment measures mitigated the COVID-19 impact on the profitability of the printing activities
  • Sale of part of HealthCare IT successfully closed in May, 2020 at an enterprise value of 975 million Euro, resulting in a significant excess cash position
  • Part of the proceeds of the sale will be used to substantially increase the funding ratio of the funded pension plans

Mortsel (Belgium), August 26, 2020 - Agfa-Gevaert today commented on its results in the second quarter of 2020.

'The COVID-19 pandemic continued to impact our results and the way we operate. I am very proud of our teams who are going out of their way to continue supplying and supporting our customers in these tough conditions. An excellent example is the delivery of a comprehensive Enterprise Imaging solution to the leading AdventHealth care organization in Florida. In spite of all COVID-19 challenges, our teams made sure the solution could go live as planned.
We continue to rigorously control our working capital levels, capital expenditure, and costs to mitigate as much as possible the impact of the pandemic on our cash flow and bottom-line result. The restructuring of the offset business has started with the announcement of the project to reduce our European manufacturing footprint.
I also want to re-affirm our confidence that our COVID-19 resilient healthcare businesses are well positioned for future growth and that our digital printing and chemical businesses have a strong innovation-led growth potential, while they are today deeply impacted by the pandemic,' said Pascal Juéry, President and CEO of the Agfa-Gevaert Group.

Use of the proceeds of the sale of part of the HealthCare IT activities

Around 350 million Euro of the proceeds of the sale will be used to increase the funding ratio of the funded pension plans in Belgium, the UK and the USA as well as to implement de-risking actions. This will significantly decrease the future pension cash-outs and accounting volatility. Given the uncertainty of the current economic context, at this point in time the Agfa-Gevaert Group chooses to use the rest of the proceeds of the sale to secure the future of the company and to further execute the strategies of its divisions.

Statement on re-presented profit and loss numbers

As from 2019, the Agfa-Gevaert Group has adopted the IFRS 16 accounting rules. The tables below present the profit and loss numbers including the impact of IFRS 16.
In August 2019, the Group terminated its inkjet media reseller activities in the USA. To allow correct comparison, the Q2 and H1 2019 numbers have been re-presented. In May 2020, the Group closed the sale of part of its HealthCare IT activities. The Q2 and H1 numbers of 2019 and 2020 have been re-presented.

Agfa-Gevaert Group - Q2 2020

in million Euro Q2 2020 Q2 2019
Re-presented
% change
(excl. FX effects)
Revenue 397 497 -20.2% (-20.1%)
Gross profit (*) 120 158 -24.2%
% of revenue 30.2% 31.8%
Adjusted EBITDA (*) 31 48 -35.5%
% of revenue 7.9% 9.7%
Adjusted EBIT (*) 16 29 -46.2%
% of revenue 3.9% 5.8%

(*) before restructuring and non-recurring items

The sale of part of Agfa HealthCare's IT activities was successfully concluded in May. Excluding the effects of this sale, the Agfa-Gevaert Group's revenue decreased by 20.2%. The COVID-19 pandemic, the issues in the offset printing industry and the refocus on higher margin activities in several business areas had a strong impact on the Group's top line.

The Group's gross profit margin amounted to 30.2% of revenue, versus 31.8% in the second quarter of 2019. The gross profit margin improvements of the HealthCare IT and Radiology Solutions divisions were counterbalanced by the COVID-19 impact on the printing industry.

Selling and General Administration expenses were reduced by 20.7% versus last year through the ongoing broad cost containment program.

R&D expenses decreased from 24 million Euro in the second quarter of 2019 to 21 million Euro.

Adjusted EBITDA decreased from 48 million Euro (9.7% of revenue) in the second quarter of 2019 to 31 million Euro (7.9% of revenue). Adjusted EBIT reached 16 million Euro (3.9% of revenue), versus 29 million Euro (5.8% of revenue) in the second quarter of 2019.

Mainly due to the intended closure of the printing plate factories in Leeds and Pont-à-Marcq, restructuring and non-recurring items resulted in an expense of 47 million Euro, versus an expense of 10 million Euro in the second quarter of 2019.

The net finance costs amounted to 9 million Euro.

Income tax expenses amounted to 5 million Euro, versus 3 million Euro in the second quarter of 2019.

Including the proceeds of the sale of part of the HealthCare IT activities, the Agfa-Gevaert Group posted a net profit of 668 million Euro.

Financial position and cash flow

  • Due to the proceeds of the sale over part of the HealthCare IT activities, net financial debt evolved from 219 million Euro at the end of 2019 to a net cash position of 677 million Euro.
  • As the COVID-19 pandemic impacted inventories and working capital, the strong cash flow generation that was recorded in the first quarter was not repeated in the second quarter. In the second quarter, net cash from operating activities amounted to minus 68 million Euro.
  • Impacted by COVID-19, trade working capital evolved from 579 million Euro (26% of sales) at the end of 2019 to 539 million Euro (29% of sales) at the end of June 2020.

Outlook

The COVID-19 pandemic continues to cause a lot of uncertainty in the Agfa-Gevaert Group's industries. Mainly in the printing industry, a significant COVID-19 impact is still to be expected in the coming quarters.

In the third quarter, the activity level is expected to grow gradually, but the pace of recovery is expected to remain very subdued. Furthermore, margins will be impacted by increased idle time at production facilities and the fact that the Group will benefit less from government measures - including temporary unemployment schemes - than in the previous quarters.

Following a weak third quarter, the Agfa-Gevaert Group expects to see more momentum in the fourth quarter, on the assumption that the current business environment will not deteriorate again.

Today's situation does not allow the Group to assess a quantified impact of the COVID-19 pandemic on its 2020 financial performance and to provide a full year outlook for 2020.

In the medium term, most activities of the Group will fully recover from the disruption caused by COVID-19 and even benefit from post-COVID opportunities and market developments. Mainly the activities in the offset industry will continue to feel a negative impact in the medium term.

HealthCare IT - Q2 2020

in million Euro Q2 2020 Q2 2019
Re-presented
% change
(excl. FX effects)
Revenue 62 61 +1.2% (+0.7%)
Adjusted EBITDA (*) 10.5 4.0 161.2%
% of revenue 17.0% 6.6%
Adjusted EBIT (*) 8.4 1.5 478.9%
% of revenue 13.6% 2.4%

(*) before restructuring and non-recurring items

Part of the division's activities were sold early May 2020. The state-of-the-art Imaging IT solutions business was not included in the sale and continues to be a key business for the HealthCare IT division and for the Agfa-Gevaert Group. This business posted a 1.2% revenue increase in the second quarter.

Agfa's Imaging IT solutions are a comprehensive answer to the mission-critical needs of care providers to manage all medical images. While COVID-19 temporarily influences the company's relevant markets, the outlook for value creation in the Imaging IT solutions business remains strongly positive.

The renewed strategic focus of the company on selected markets, and on its own software and services, has led to good results in the first half of the year and an excellent second quarter. Robust project revenues in North America, and especially the delivery of Enterprise Imaging solutions to the AdventHealth group in Florida, positively influenced the results of the business.

The gross profit margin of the Imaging IT solutions business continued to evolve positively in the first half of the year and excelled in the second quarter of 2020 (49.3% of revenue versus 40.1% of revenue in the second quarter of 2019) thanks to a high content of own licenses and the strong utilization of service resources. Combined with a conservative approach to operational expenses in view of COVID-19, this leads to a higher than average EBITDA of 17.0% in the quarter (versus 6.6% in the second quarter of 2019) and a marked improvement in the first half of the year.

Agfa's strategy in Imaging IT solutions is targeting customer segments and geographies for which its Enterprise Imaging solution is best fit: care providers with a high IT maturity that want to complement their Electronic Health Record with a scalable image management platform, allowing them to expand in terms of patient volumes and service lines. In addition, the company is prioritizing higher value revenue streams, in particular its own software and related implementation and support services. Finally, the company is adopting a new deployment and support methodology, aiming at stronger customer enablement.

This strategy translates into a continuous improvement of gross margins and ultimately into the targeted growth of EBITDA: starting from a mid-single-digit percentage in 2019 to high teen percentages over the next years. In the short term, total revenues are still negatively influenced, as less desirable revenue streams are being abandoned or wound down. The growth of targeted revenue streams (own software and total services) increased with 4% in the first half of the year versus the equivalent period of previous year.

More than 55% of the Imaging IT solutions business consists of recurring revenues, the majority of which is support & maintenance. Enterprise Imaging projects can vary significantly in size, however. This can lead to fluctuations between quarters, for a large portion of revenues and margins are realized when projects reach key milestones. Given this reality, studying trends is more meaningful than merely evaluating the performance on the basis of an individual quarter.

The percentage of own license software and total services in the revenue mix remains strong at over 80%. The total order backlog remains at a healthy level, covering more than a full year of total revenues.

The impact of COVID-19 on care providers is leading to significantly more uncertainty than normal. Depending on customer priorities in addressing the COVID-19 challenge, certain project deliveries are being delayed and certain investments and procurement decisions are being postponed. Other projects, however, progress faster than planned. In view of the evolution of the spread of the virus, uncertainty is unlikely to abate in the second half of the year.

During the pandemic, specific configurations of Agfa's Enterprise Imaging solution have supported existing customers in triaging, reporting, remote consultation, multidisciplinary case discussions and clinicians working from home. A number of project go-lives have been executed remotely.

Radiology Solutions - Q2 2020

in million Euro Q2 2020
Q2 2019
% change
(excl. FX effects)
Revenue 113 135 -16.2% (-16.0%)
Adjusted EBITDA (*) 23.8 24.2 -2.0%
% of revenue 21.1% 18.0%
Adjusted EBIT (*) 17.7 17.7 -0.3%
% of revenue 15.6% 13.2%

(*) before restructuring and non-recurring items

In a Direct Radiography market that is disrupted by the COVID-19 pandemic, Agfa succeeded in gaining market share with its mobile DR solutions and in considerably improving the profitability of its DR product range. Agfa's new mobile DR 100s system is quickly finding its way to healthcare organizations all over the world. As it can be used to perform high-quality bed-side X-ray examinations, the system is a valuable tool in the fight against COVID-19.

The top line of the Computed Radiography range continued to decline. This is partly market-driven and partly due to COVID-19 related effects, as many private practices in India, Latin America and other geographies are postponing their investments in CR equipment. Agfa's management decisions in this declining business are aimed at generating high profit margins.

Except for the activities in China, the hardcopy product range's top line continued to be impacted by COVID-19. Due to the outbreak, hospital visits not related to COVID-19 were postponed, resulting in a lower demand for hardcopy film.

As improved service efficiencies in DR and efficient distribution channel management in hardcopy compensated for the volume decline, the division's gross profit margin increased from 38.2% of revenue in the second quarter of 2019 to 38.8%. The division's adjusted EBITDA margin improved from 18.0% of revenue in the second quarter of 2019 to 21.1% of revenue. In absolute figures, adjusted EBITDA reached 23.8 million Euro (24.2 million Euro in the second quarter of 2019). Adjusted EBIT amounted to 17.7 million Euro (15.6% of revenue), versus 17.7 million Euro (13.2% of revenue) in the previous year.

During the COVID-19 pandemic, Radiology Solutions' main focus is to ensure business continuity and to make sure that customers can continue to count on the knowhow of the service teams. The division is helping hospitals all over the world - including those in hard-hit countries such as India and Brazil - to fight COVID with successful and fast installations of CR and DR equipment. Furthermore, the division supports hospitals all over the world with extra services, such as free software tools that help them to get faster and more accurate X-ray images. Examples on how Agfa and its employees support care providers in their battle against COVID-19 can be found in the dedicated #CountOnUs section of the division's website.

Digital Print & Chemicals - Q2 2020

in million Euro Q2 2020 Q2 2019
Re-presented
% change
(excl. FX effects)
Revenue 67 94 -29.0% (-29.1%)
Adjusted EBITDA (*) 3.6 12.5 -71.0%
% of revenue 5.4% 13.2%
Adjusted EBIT (*) 1.0 9.6 -89.1%
% of revenue 1.6% 10.2%

(*) before restructuring and non-recurring items

In August 2019, the Group terminated its inkjet media reseller activities in the USA. To allow correct comparison, the Q2 2019 numbers have been re-presented.

The division's gross profit margin amounted to 26.2% of revenue, versus 31.3% in the second quarter of 2019. The fade-out of the effects of the strategic alliance for UV digital packaging inks with Siegwerk Druckfarben had a 1.3 million Euro impact on the division's results. Together with COVID-19 related effects, this resulted in a decrease of the division's adjusted EBITDA from 12.5 million Euro (13.2% of revenue) in the second quarter of 2019 to 3.6 million Euro (5.4% of revenue). Adjusted EBIT amounted to 1.0 million Euro (1.6% of revenue), versus 9.6 million Euro (10.2% of revenue).

In the field of digital print, COVID-19 heavily impacted the large-format printing equipment business in the second quarter. The market came almost to a standstill towards the end of the first quarter, as many companies have become reluctant to invest in new printing machines. However, Agfa is preparing various new product releases in order to be ready for the post-COVID market rebound.

Ink sales continued to grow sequentially. Agfa recently commercially launched solutions for new digital printing applications, such as laminate floorings and leather. Solutions for other new applications (e.g. in the field of packaging) are being developed. In this view, Agfa invests in a new manufacturing plant for water-based inkjet inks. The new facility will enable Agfa to be a key supplier of such inks for a wide range of novel applications.

Volumes of the division's range of films and foils decreased, as these products are mostly used in industries that have been hit by the COVID-19 pandemic, including aeronautics and the oil and gas industry.

The specialty chemicals range of the division is well-positioned for future growth with products and solutions that target specific promising markets. For instance, Agfa has developed Orgacon conductive materials that can be used in hybrid and electric car technology. With its Zirfon Perl membranes, the company is in a good position to benefit from the rise of the hydrogen economy. Agfa's membranes are an essential part of electrolysis technologies for hydrogen production.

Offset Solutions - Q2 2020

in million Euro Q2 2020 Q2 2019 % change

(excl. FX effects)

Revenue 155 207 -25.1% (-24.7%)
Adjusted EBITDA (*) (2.8) 11.3
% of revenue (1.8%) 5.5%
Adjusted EBIT (*) (7.6) 3.8
% of revenue (4.9%) 1.9%

(*) before restructuring and non-recurring items

The Offset Solutions division's revenue decreased by 25.1% to 155 million Euro. As expected, the COVID-19 pandemic had a very strong impact in the second quarter on top of the structural decline of the offset markets. The pandemic causes a decrease in advertising and commercial activities, leading to lower print volumes and a lower demand for printing plates.

The Offset Solutions division's gross profit margin decreased from 25.4% of revenue in the second quarter of 2019 to 18.2%. Adjusted EBITDA amounted to minus 2.8 million Euro (minus 1.8% of revenue) versus 11.3 million Euro (5.5% of revenue) in the second quarter of 2019. Adjusted EBIT amounted to minus 7.6 million Euro (minus 4.9% of revenue), compared to 3.8 million Euro (1.9% of revenue) in the second quarter of 2019.

To improve profitability and to address the significant decline in market demand, Agfa is reviewing its offset business model, simplifying its organization and streamlining its product offering. The company also estimates that the current pricing levels in the industry are not sustainable. It is looking into ways to adapt the earning model for certain services it provides to its customers.

Furthermore, Agfa is reorganizing its printing plate manufacturing capacity. In June, the company announced its intention to close its printing plate factories in Pont-à-Marcq (France) and Leeds (United Kingdom). The closure would be implemented at the end of the prevailing information & consultation procedures in both countries.

In spite of the issues in the industry, Agfa shows its commitment to its offset customers by providing them with solutions that help them to improve their productivity, reduce their ecological footprint and lower their costs. In the second quarter, Agfa organized a six-day virtual event featuring sessions to support printing companies worldwide through the current business challenges and help them plan for the future.

Results after six months

Agfa-Gevaert Group - year to date

in million Euro H1 2020
Re-presented
H1 2019
Re-presented
% change
(excl. FX effects)
Revenue 832 958 -13.2% (-13.5%)
Gross profit (*) 255 296 -14.0%
% of revenue 30.7% 30.9%
Adjusted EBITDA (*) 55 77 -28.0%
% of revenue 6.7% 8.0%
Adjusted EBIT (*) 23 39 -40.9%
% of revenue 2.7% 4.0%

(*) before restructuring and non-recurring items

HealthCare IT - year to date

in million Euro H1 2020
Re-presented
H1 2019
Re-presented
% change
(excl. FX effects)
Revenue 117 120 -2.6% (-3.5%)
Adjusted EBITDA (*) 15.2 4.8 218.6%
% of revenue 13.0% 4.0%
Adjusted EBIT (*) 10.4 (0.4)
% of revenue 8.8% (0.4%)

(*) before restructuring and non-recurring items

Radiology Solutions - year to date

in million Euro H1 2020 H1 2019
% change

(excl. FX effects)

Revenue 231 251 -8.1% (-8.4%)
Adjusted EBITDA (*) 40.1 41.4 -3.0%
% of revenue 17.4% 16.5%
Adjusted EBIT (*) 27.7 29.2 -4.9%
% of revenue 12.0% 11.6%

(*) before restructuring and non-recurring items

Digital Print & Chemicals - year to date

in million Euro H1 2020 H1 2019
Re-presented
% change
(excl. FX effects)
Revenue 141 181 -21.9% (-22.1%)
Adjusted EBITDA (*) 7.1 23.9 -70.1%
% of revenue 5.1% 13.2%
Adjusted EBIT (*) 1.9 18.1 -89.3%
% of revenue 1.4% 10.0%

(*) before restructuring and non-recurring items

Offset Solutions - year to date

in million Euro H1 2020 H1 2019 % change
(excl. FX effects)
Revenue 342 406 -15.7% (-15.8%)
Adjusted EBITDA (*) 0.9 15.2 -93.9%
% of revenue 0.3% 3.8%
Adjusted EBIT (*) (9.0) 0.2
% of revenue (2.6%) 0.1%

(*) before restructuring and non-recurring items

End of message

Management Certification of Financial Statements and Quarterly Report

This statement is made in order to comply with new European transparency regulation enforced by the Belgian Royal Decree of November 14, 2007 and in effect as of 2008.
'The Board of Directors and the Executive Committee of Agfa-Gevaert NV, represented by Mr. Klaus Röhrig, Chairman of the Board of Directors, Mr. Pascal Juéry, President and CEO, and Mr. Dirk De Man, CFO, jointly certify that, to the best of their knowledge, the consolidated financial statements included in the report and based on the relevant accounting standards, fairly present in all material respects the financial condition and results of Agfa-Gevaert NV, including its consolidated subsidiaries. Based on our knowledge, the report includes all information that is required to be included in such document and does not omit to state all necessary material facts.'

Statement of risk

This statement is made in order to comply with new European transparency regulation enforced by the Belgian Royal Decree of November 14, 2007 and in effect as of 2008.
'As with any company, Agfa is continually confronted with - but not exclusively - a number of market and competition risks or more specific risks related to the cost of raw materials, product liability, environmental matters, proprietary technology or litigation.'
Key risk management data is provided in the annual report available on www.agfa.com.

Click here for Agfa's consolidated statements and the 2019 re-presented HealthCare IT results.

Click here for the Condensed Interim Financial Statements as of June 30, 2019.

Contact:

Viviane Dictus
Director Corporate Communication
Septestraat 27
2640 Mortsel - Belgium
T +32 (0) 3 444 71 24
E viviane.dictus@agfa.com

Johan Jacobs
Corporate Press Relations Manager
T +32 (0)3/444 80 15
E johan.jacobs@agfa.com

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Agfa Gevaert NV published this content on 26 August 2020 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 26 August 2020 07:21:20 UTC