Earnings Release • Jul 22, 2015
Earnings Release
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Kortrijk, Belgium, 22 July 2015 – Today Barco (Nyse/Euronext: BAR; Reuters: BARBt.BR; Bloomberg: BAR BB) announced results for the six month period ended 30 June 2015.
"Building on a strong first quarter and helped by favourable currency translations, Barco's first semester marks a return to robust sales growth and encouraging profitability," said Eric Van Zele, president and CEO. "Successful growth initiatives in networking and collaboration, particularly ClickShare, and increased digital cinema sales in China, fueled the sales gains over last year."
"Each of the divisions delivered increases in sales and in adjusted EBITDA margins. The Entertainment division sustained its leadership position in digital cinema while the Healthcare division continued to drive growth from IP-based operating room solutions. The Enterprise division continued to generate strong growth in the Corporate segment with ClickShare, while Control Rooms sales stabilized and with profitability improvements under consideration."
The following statements are forward looking and actual results may differ materially.
Assuming foreign exchange rates remain at current levels, management expects to grow sales for the year in the high single digit range.
Adjusted EBITDA, including planned growth initiatives, will improve moderately year-on-year.
1 Adjusted EBITDA is EBITDA minus capitalized development costs and before restructuring. See remarks on reporting methodology on page 2.
2 EBITDA: Had the company continued to capitalize product development expenses, EBITDA margin for 1H15 would have been approximately 12.8% compared to 10.1% for 1H14.
3 EBIT: Had the company continued to capitalize product development expenses, EBIT margin would have been approximately 6.2% compared to 2.9% for 1H14. See remarks on reporting methodology on page 2.
I. Capitalization methodology of development expenses
In light of shortened product life cycles and rapidly evolving technologies, the Board of Directors of Barco has decided to adopt a more conservative capitalization methodology. The Board believes that this decision will better align the Company's financial statements with its business realities and enhance transparency of its reported results.
Therefore, effective 1 January 2015, Barco will no longer capitalize product development expenses. Outstanding capitalized product development expenses will be amortized in accordance with the Company's current amortization policies.
Beginning with this 1H15 report, management will present "Adjusted EBITDA" defined as earnings before taxes, interest expense, depreciations and amortizations less capitalized product development expenses for prior periods.
Please see the comments in the financial report detailing the rationale behind the modification of capitalization methodology of development expenses.
II. Barco organizational structure 2015 and results from continuing operations Barco completed the divestiture of its Defense & Aerospace business on 31 January 2015.
To facilitate year-on-year trend analysis, the financial highlights reported above and the consolidated results show financials for the first half of 2014 and 2015 on a continuing basis and exclude the Defense and Aerospace contributions.
Following the divestiture of D&A and effective 1 January 2015, Barco streamlined its organization into three divisions: Entertainment, Enterprise, and Healthcare:
Barco NV President Kennedypark 35 8500 Kortrijk, Belgium
Order intake was 522.5 million euro, an increase of 15.9% compared to last year driven by increases in each division and each region.
The order book at the end of the first semester of 2015 was 333.7 million euro, down from 356.0 million euro a year earlier and up from 302.2 million euro at the end of 2014.
| Order Book | |||||
|---|---|---|---|---|---|
| (in millions of euros) | 1H15 | 2H14 | 1H144 | 2H13 | 1H13 |
| Order book | 333.1 | 302.2 | 356.2 | 334.5 | 330.7 |
| Order Intake | |||||
| (in millions of euros) | 1H15 | 2H14 | 1H14 | 2H13 | 1H13 |
| Order Intake | 522.5 | 418.3 | 451.0 | 496.7 | 497.0 |
| 1H15 | 1H14 | Change | |
|---|---|---|---|
| The Americas | 37% | 33% | +28% |
| EMEA | 33% | 35% | +8% |
| APAC | 31% | 32% | +12% |
First semester sales were strong on group level and for each division. Growth was driven by good deliveries in the American and APAC regions.
| (in millions of euros) | 1H15 | 2H14 | 1H14 | 2H13 | 1H13 |
|---|---|---|---|---|---|
| Sales | 506.2 | 474.3 | 434.1 | 481.6 | 526.9 |
| 1H15 | 1H14 | Change | |
|---|---|---|---|
| The Americas | 37% | 37% | +16% |
| EMEA | 31% | 36% | -0% |
| APAC | 32% | 27% | +40% |
4 Order Book 1H14 still includes Orthogon-order book for 13.1 million euro.
Gross profit margin increased to 35.4% for the first half of 2015 compared to 33.3% for the first half of 2014.
Driven in part by currency translations, total operational cash expenses were 147.6 million euro compared to 131.9 million euro a year earlier. As a percentage of sales, total indirect cash expenses were 29.2% compared to 30.4% for the first half of 2014.
capitalized development expenses of 23.3 million euro, reported R&D expenses amounted to 70.4 million euro or 13.9% of sales.
Adjusted EBITDA was 40.5 million euro, compared to 22.3 million euro for the prior year first semester.
Adjusted EBITDA margin was 8.0% versus 5.1% for the first half of 2014. By division, Adjusted EBITDA and adjusted EBITDA margin is as follows:
| 1H15 | Sales | Adjusted EBITDA |
Adjusted EBITDA % |
|---|---|---|---|
| Entertainment | 264.4 | 27.5 | 10.4% |
| Enterprise | 138.9 | 2.7 | 1.9% |
| Healthcare | 104.7 | 10.3 | 9.9% |
| Intra-group eliminations | (1.8) | ||
| Group | 506.2 | 40.5 | 8.0% |
EBIT on the continuing basis – and impacted by the cessation of capitalization of development expenses - was 7.5 million euro or 1.5 % of sales. For the first half of last year EBIT was 12.7 million euro or 2.9% of sales.
In the first half of 2015 taxes were 1.5 million euro for an effective tax rate of 20.0%, compared to 2.1 million euro in the first half of 2014, or an effective tax rate of 18.0%.
Net income from continuing operations was 5.4 million euro or 1.1% of sales compared to 9.6 million euro for the first half of 2014 or 2.2% of sales.
Net income attributable to the equity holders was 46.4 million euro, including net income from discontinued operations of 46.3 million euro, booked in connection with divestiture of Defense and Aerospace, compared to 8.5 million euro for the first half in 2014.
Net earnings per ordinary share (EPS) for the first semester were 3.86 euro, compared to 0.69 euro in 1H14. Fully diluted net earnings per share were 3.76 euro, compared to 0.68 euro last year.
Barco had a net financial cash position of 187.7 million euro, compared to 41.0 million euro on 30 June 2014 and 63.4 million euro on 31 December 2014.
The increase reflects inflow from a positive free cash flow and the proceeds from the divestiture of the Defense & Aerospace business, partially offset by uses of cash including dividend payments of 19.4 million euro and an investment of 12.1 million euro for the acquisition of ADVAN.
Free cash flow for the first half of 2015 was 14.5 million euro compared to a negative 14.5 million euro for the first half of 2014.
Barco generated 38.2 million euro in gross operating cash flow versus 46.8 million euro for the same period in 2014 while working capital increased with 10.2 million euro due to higher trade receivables and lower trade payables. Inventory levels decreased.
Net working capital balance was 5.1% of sales on an annualized base versus 4.9% of sales for 2014.
Page 5 of 13
Capital expenditure, excluding capitalized development, was 18.1 million euro, compared to 10.7 million euro for the same period last year.
Capitalized expenditure for 2015 will increase mainly driven by the investment in the One Campus program.
The One Campus program is an investment in new headquarters for Barco, bringing together nearly the entire Belgian Barco community on one campus. Total capital expenditure is expected to be approximately 50 million euro over 2014, 2015 and 2016. This investment will be partially offset by the sale of premises in Kortrijk to Esterline, in connection with the divestiture of the Defense & Aerospace business, and by the sale of the site in Kuurne. Depreciation on the investment will begin 1 January 2016 and continue for 20 years.
Capitalized development expenses were at 49.2 million euro down from 71.4 million euro at the end of 2014.
Due to the Board's decision regarding Barco's capitalization methodology, future development expenses will no longer be capitalized and the outstanding capitalized development asset will be further amortized over 2015 and 2016.
Page 6 of 13
Barco NV President Kennedypark 35 8500 Kortrijk, Belgium
| (in millions of euros) | 1H15 | 2H14 | 1H14 | Change vs 1H14 |
|---|---|---|---|---|
| Orders | 297.0 | 195.5 | 235.7 | +26.0% |
| Sales | 264.4 | 232.0 | 227.7 | +16.2% |
| Adjusted EBITDA | 27.5 | 11.6 | 22.7 | +21.1% |
| Adjusted EBITDA margin |
10.4% | 5.0% | 10.0% |
The Entertainment division delivered top-line increases in both the Cinema and Venues & Hospitality segments with Cinema accounting for 65% of orders and sales compared to 60% for the same period last year.
Barco generated sales growth for Digital Cinema on the strength of an uptick in wins in China and the deployment of projects in Brazil, resulting in increased market share. In addition the company completed installations of high-end laser technology solutions, bringing the total to more than 25 installations worldwide; delivered laser-based solutions under the IMAX program; and launched the E-series projector to address customer needs in the lower-end rural and e-cinema end-markets that are converting to digital cinema.
In the Venues and Hospitality segment the growth was fueled by launches and increasing sales of new image processing solutions while the projection business held its ground. This activity is investing in expanding its footprint in the fixed install market and is integrating and repositioning the former LiveDots (LED) venture.
The division continued to deliver healthy profitability with both adjusted EBITDA and adjusted EBITDA margin higher than in the first semester of last year.
| (in millions of euros) | 1H15 | 2H14 | 1H14 | Change vs 1H14 |
|---|---|---|---|---|
| Orders | 135.2 | 129.3 | 126.2 | +7.1% |
| Sales | 138.9 | 144.4 | 115.4 | +20.4% |
| Adjusted EBITDA | 2.7 | 14.2 | (5.5) | N/M |
| Adjusted EBITDA margin |
1.9% | 9.9% | (4.8%) |
The Enterprise division delivered improved results compared to last years' first semester with the Corporate segment contributing strong sales and profitability gains while Control Rooms sales stabilized. Adjusted EBITDA turned positive relative to the same period last year. Based on a thorough assessment of the Control Room segment's business model and market opportunities, Barco is now considering initiatives including rationalizing the product portfolio
Page 7 of 13
to improve profitability in line with the standard set for each of the company's business segments.
As a result of continued success of ClickShare, the Corporate segment accounted for approximately 45% of the division's order intake and sales, compared to 38% last year. While sales of corporate projectors remained slow, demand picked up after successfully launching the laser phosphor projector.
The Control Rooms segment continued to expand its portfolio of networking and connectivity software solutions while selling a balanced mix of LCD and rear-projection based solutions.
| (in millions of euros) | 1H15 | 2H14 | 1H14 | Change vs 1H14 |
|---|---|---|---|---|
| Orders | 90.8 | 93.2 | 87.8 | +3.4% |
| Sales | 104.7 | 98.2 | 88.4 | +18.4% |
| Adjusted EBITDA | 10.3 | 8.4 | 1.9 | +442.0% |
| Adjusted EBITDA margin |
9.9% | 8.6% | 2.1% |
The Healthcare division sustained its market leadership position in the diagnostic and modality imaging segment while continuing to build its digital operating room business, expanding the network of channel partners and deploying systems in Europe and North America, and entering new geographies in the APAC region, including Japan, Australia and China. As of the end of the first semester, Barco had reached an important milestone of installing digital solutions in 500 operating rooms in Europe.
On 15 June 2015 Barco closed the acquisition of ADVAN, which is intended to strengthen the Healthcare division's position in the modality and surgical imaging segment particularly in North America. Barco will consolidate the results of ADVAN as of 1 July 2015.
The division posted improved profitability as a result of higher sales, gross profit margin improvements and cost saving actions taken in 2014.
In addition, investments in establishing a distribution network in China have begun to yield results with the division receiving initial orders during the first semester and interest in the newly launched UNITI model has begun to translate into concrete orders from key accounts.
Barco will host a conference call with investors and analysts on 22 July 2015 at 9:00 a.m. CET (3:00 am EST), to discuss the results of the first half 2015. Eric Van Zele, CEO, Carl Peeters, CFO and Carl Vanden Bussche, IRO, will host the call.
An audio cast of this conference call will be available on the Company's website www.barco.com by 12:30 p.m. Brussels time (6:30 a.m. EST).
Barco, a global technology company, designs and develops networked visualization products for the Entertainment, Enterprise and Healthcare markets. Barco has its own facilities for Sales & Marketing, Customer Support, R&D and Manufacturing in Europe, North America and APAC. Barco (NYSE Euronext Brussels: BAR) is active in more than 90 countries with 3.300 employees worldwide. Barco posted sales of 1.051 billion euro in 2014.
For more information and the Half Year report 2015, please visit the Company's website at www.barco.com
© Copyright 2015 by Barco
For more information, please contact:
Carl Vanden Bussche, VP Investor Relations +32 56 26 23 22 or [email protected]
www.barco.com
| Income Statement (Continuing business) | 2015 1st half |
2014 1st half |
|---|---|---|
| (in thousands of euros) | ||
| Net sales | 506,167 | 434,073 |
| Cost of goods sold | -326,863 | -289,616 |
| Gross profit | 179,304 | 144,457 |
| Research and development expenses | -70,354 | -44,169 |
| Sales and marketing expenses | -77,127 | -66,164 |
| General and administration expenses | -23,404 | -21,372 |
| Other operating income (expense) - net | -967 | -35 |
| EBIT | 7,453 | 12,717 |
| Interest income | 2,313 | 765 |
| Interest expense | -2,191 | -1,762 |
| Other non-operating income (expense) - net | 11 | 9 |
| Income before taxes | 7,587 | 11,730 |
| Income taxes | -1,517 | -2,111 |
| Result after taxes | 6,070 | 9,619 |
| Share in the result of joint ventures and associates | -681 | 29 |
| Net income from continuing operations | 5,388 | 9,648 |
| Net income from discontinued operations | 46,295 | 1,359 |
| Net income | 51,683 | 11,007 |
| Net income attributable to non-controlling interest | 5,247 | 2,520 |
| Net income attributable to the equity holder of the parent | 46,436 | 8,488 |
| Net income (continuing) attributable to the equity holder of the parent |
141 | 7,129 |
| Net income (discontinued) attributable to the equity holder of the parent |
46,295 | 1,359 |
| Earnings per share (in euros) | 3.86 | 0.69 |
| Diluted earnings per share (in euros) | 3.76 | 0.68 |
| Earnings (continuing) per share (in euro) | 0.01 | 0.58 |
| Diluted earnings (continuing) per share (in euro) | 0.01 | 0.57 |
| Selected Financial Ratios | 2015 1st half |
2014 1st half |
|---|---|---|
| Adjusted EBITDA | 40,509 | 22,270 |
| Adjusted EBITDA on sales | 8.0% | 5.1% |
| EBIT on sales | 1.5% | 2.9% |
| Total debt to equity | 14.8% | 14.3% |
| Balance sheet (Continuing business) | 30 June 2015 | 31 Dec 2014 |
| (in thousands of euro) | ||
| ASSETS | ||
| Goodwill | 144,375 | 143,774 |
| Capitalized development cost | 49,235 | 71,351 |
| Other intangible assets | 56,417 | 55,926 |
| Land and buildings | 21,073 | 21,315 |
| Other tangible assets | 56,771 | 44,597 |
| Investments | 25,591 | 14,360 |
| Deferred tax assets | 70,449 | 68,219 |
| Other non-current assets | 28,903 | 15,736 |
| Non-current assets | 452,814 | 435,278 |
| Inventory | 179,270 | 185,631 |
| Trade debtors | 193,378 | 170,486 |
| Other amounts receivable | 18,398 | 18,940 |
| Cash and cash equivalents | 263,026 | 145,340 |
| Prepaid expenses and accrued income | 7,717 | 8,948 |
| Assets from discontinued operations | 0 | 110,761 |
| Current assets | 661,789 | 640,106 |
| Total Assets | 1,114,603 | 1,075,384 |
| EQUITY AND LIABILITIES | ||
| Equity attributable to equityholders of the parent | 629,300 | 587,415 |
| Non-controlling interest | 9,964 | 7,146 |
| Equity | 639,263 | 594,561 |
| Long-term debts | 82,539 | 57,737 |
| Deferred tax liabilities | 5,794 | 6,830 |
| Other long-term liabilities | 2,842 | 0 |
| Non-current liabilities | 91,175 | 64,567 |
| Current portion of long-term debts | 8,586 | 7,130 |
| Short-term debts | 2,218 | 19,253 |
| Trade payables | 111,005 | 109,091 |
| Advances received on customers | 98,140 | 107,544 |
| Tax payables | 16,843 | 15,171 |
| Employee benefit liabilities | 47,983 | 44,759 |
| Other current liabilities | 18,268 | 5,204 |
| Accrued charges and deferred income | 42,798 | 33,390 |
| Provisions | 38,324 | 40,148 |
| Liabilities from discontinued operations | 0 | 34,567 |
| Current liabilities | 384,165 | 416,257 |
| Total Equity and Liabilities | 1,114,603 | 1,075,384 |
| Barco NV | |
|---|---|
| President Kennedypark 35 | |
| Page 11 of 13 | 8500 Kortrijk, Belgium |
| Cash flow statement (Continued business) | 2015 1st half |
2014 1st half |
|---|---|---|
| (in thousands of euros) | ||
| Cash flow from operating activities | ||
| EBIT | 7,453 | 12,717 |
| Gain on sale Orthogon | -1,406 | 0 |
| Amortization capitalized development cost | 23,290 | 24,356 |
| Depreciation of tangible and intangible fixed assets | 9,765 | 9,679 |
| Gain/(Loss) on tangible fixed assets | -190 | 21 |
| Share options recognized as cost | 656 | 634 |
| Share in the profit/(loss) of joint ventures and associates | -681 | 29 |
| Discontinued operations : cash flow from operating activities | -5,260 | 8,118 |
| Gross operating cash flow | 33,628 | 55,555 |
| Changes in trade receivables | -15,550 | 9,192 |
| Changes in inventory | 12,488 | -20,371 |
| Changes in trade payables | -6,515 | 4,534 |
| Other changes in net working capital | -626 | -19,509 |
| Discontinued operations: change in net working capital | 13,334 | 4,549 |
| Change in net working capital | 3,131 | -21,604 |
| Net operating cash flow | 36,759 | 33,951 |
| Interest received | 2,313 | 765 |
| Interest paid | -2,191 | -1,762 |
| Income taxes | -7,913 | -3,774 |
| Discontinued operations: income taxes and interest received/(paid) | -7,542 | -418 |
| Cash flow from operating activities | 21,426 | 28,762 |
| Cash flow from investing activities | ||
| Expenditure on product development | 0 | -24,482 |
| Purchases of tangible and intangible fixed assets | -6,052 | -9,644 |
| Proceeds on disposals of tangible and intangible fixed assets | 295 | 4,058 |
| Acquisition of Group companies, net of acquired cash | 0 | -20,340 |
| Disposal of group companies, net of disposed cash | 152,974 | 0 |
| Other investing activities | -23,540 | 0 |
| Dividend distributed to non-controlling interest | -3,019 | -1,728 |
| Discontinued operations: cash flow from investing activities Cash flow from investing activities (including acquisitions and |
-887 | -6,165 |
| divestments) | 119,772 | -58,300 |
| Cash flow from financing activities | ||
| Dividends paid | -19,364 | -18,410 |
| Capital increase/(decrease) | -262 | -741 |
| (Acquisition)/sale of own shares | -1,570 | -1,543 |
| Proceeds from (+), payments (-) of long-term liabilities | 7,618 | -88 |
| Proceeds from (+), payments (-) of short-term liabilities | -20,134 | -14,160 |
| Cash flow from financing activities | -33,712 | -34,943 |
| Net increase/(decrease) in cash and cash equivalents | 107,486 | -64,481 |
| Cash and cash equivalents at beginning of period | 145,340 | 156,545 |
| Cash and cash equivalents (CTA) | 10,200 | 374 |
| Cash and cash equivalents at end of period | 263,026 | 92,438 |
| Order Book | ||||||
|---|---|---|---|---|---|---|
| (in millions of euros) | 2Q15 | 1Q15 | 4Q14 | 3Q14 | 2Q145 | 1Q14 |
| Order book | 333.1 | 339.7 | 302.2 | 344.2 | 356.0 | 345.4 |
| Order Intake | ||||||
| (in millions of euros) | 2Q15 | 1Q15 | 4Q14 | 3Q14 | 2Q14 | 1Q14 |
| Order Intake | 276.9 | 254.6 | 203.1 | 215.3 | 225.8 | 225.2 |
| Sales | ||||||
| (in millions of euro) | 2Q15 | 2Q14 | Change | |||
| Entertainment | 129.5 | 113.7 | +13.9% | |||
| Enterprise | 80.0 | 64.4 | +24.2% | |||
| Healthcare | 56.9 | 43.9 | +29.6% | |||
| Intra-group eliminations | (1.9) | 1.2 | ||||
| Group | 264.6 | 223.3 | +18.5% |
5 Order Book 2Q14 (and before) still includes Orthogon-order book for 13.1 million euro.
Barco NV President Kennedypark 35 8500 Kortrijk, Belgium
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