Agfa Gevaert NV

05/11/2021 | Press release | Distributed by Public on 05/10/2021 23:47

Agfa-Gevaert in Q1 2021: ongoing volume recovery, good performance by HealthCare IT and Digital Print & Chemicals – regulated information

  • Solid margin performance by the HealthCare IT and Digital Print & Chemicals divisions

  • Ongoing volume recovery in most business areas

  • Volume and price pressure for medical film, recovery expected in next quarters

  • Strict cost reduction programs continued

  • Price increase programs launched to counter significant inflationary pressure

  • Disciplined working capital management continued

  • Positive free cash flow before extra pension funding

Mortsel (Belgium), May 11, 2021 - Agfa-Gevaert today commented on its results in the first quarter of 2021.

'In the seasonally weaker first quarter, the growth engines in the HealthCare IT and Digital Print & Chemicals divisions reported solid margin performances, which were offset by volume declines for some of our traditional products, as well as inflationary pressure. The Radiology Solutions division faced volume and price pressure for its medical film products due to the introduction of new centralized procurement practices in China. For the rest of the year, we expect the division's volumes and margins to recover substantially versus the exceptionally weak first quarter.

Our disciplined working capital management and our broad cost reduction program continued to be successful. Additionally, several divisions announced price increase programs, which will allow us - when they will be in full effect - to mitigate the impact of raw material, packaging and freight cost inflation on our profitability.

In these first months of the year, we saw encouraging business developments for most of our activities. We expect the business momentum to continue in the second quarter,' said Pascal Juéry, President and CEO of the Agfa-Gevaert Group.

Pension de-risking measures

As mentioned previously, Agfa plans to spend about 350 million Euro of the proceeds of the sale of part of the HealthCare IT activities to increase the funding ratio of the funded pension plans in Belgium, the UK and the USA, as well as to implement pension de-risking actions. Agfa is well on track with this plan. The total amount contributed in 2020 was around 218 million Euro. In the first quarter of 2021, 16 million Euro was used for an annuity purchase in relation to the liabilities of the Swedish pension plan. In April, 103 million Euro was contributed to the UK pension plan to support an annuity purchase (buy-in), which was successfully placed. The whole pension program is expected to be completed in the second quarter of 2021.

Share buyback program

March 10, the Agfa-Gevaert Group announced a share buyback program with a volume of up to 50 million Euro. The program allows shareholders to benefit from the sale of part of the HealthCare IT activities and shows the Group's confidence in its ongoing transformation process. The program was launched April 1. Every week, the Group issues a press release on the status of the program. During the first month of the program, the Group bought 686,118 shares for a total amount of 2.8 million Euro.

Revolving credit facility

In the first quarter of 2021, Agfa-Gevaert NV has closed a new three year multi-currency revolving credit facility of 230 million Euro. This new revolving credit facility will be used for general corporate purposes.

Statement on re-presented profit and loss numbers

In May 2020, the Group closed the sale of part of its HealthCare IT activities. The Q1 numbers of 2020 have been re-presented.

Agfa-Gevaert Group - Q1 2021

in million Euro Q1 2021 Q1 2020

re-presented

% change

(excl.
FX effects)

Revenue 396 435 -9.0% (-6.2%)
Gross profit (*) 117 135 -13.7%
% of revenue 29.5% 31.1%
Adjusted EBITDA (*) 15 24 -36.3%
% of revenue 3.9% 5.5%
Adjusted EBIT (*) (1) 7
% of revenue -0.1% 1.7%

(*) before restructuring and non-recurring items

Compared to the first quarter of 2020 when the impact of COVID-19 was still limited, the Agfa-Gevaert Group's top line decreased by 6.2% (excluding currency effects). As expected, inflationary pressure added to the impact of the pandemic. Other adverse elements were the structural market decline in the offset printing industry and the new centralized procurement practices for medical film in China. The HealthCare IT division and several growth engines of the Digital Print & Chemicals division continued to perform well.

Partly due to currency effects, mix effects and raw material, packaging and freight cost inflation, the Group's gross profit margin slightly decreased from 31.1% of revenue in the first quarter of 2020 to 29.5%. The HealthCare IT division's strategy to target high-value revenue streams continued to pay off and the Digital Print & Chemicals division considerably improved its margins. Measures taken to restore the profitability of the Offset Solutions division were insufficient to eliminate adverse currency effects and increased costs. The Radiology Solutions division's profitability suffered from the decrease in medical film volumes. In the course of the quarter, several divisions announced price increase programs to tackle inflationary pressure.

Selling and General Administration expenses were reduced by almost 8% versus the first quarter of 2020 based on the ongoing broad cost reduction program, as well as temporary measures.

R&D expenses remained stable at 25 million Euro.

Adjusted EBITDA decreased from 24 million Euro (5.5% of revenue) in the first quarter of 2020 to 15 million Euro (3.9% of revenue). Adjusted EBIT fell to minus 1 million Euro, from 7 million Euro in the first quarter of 2020.

Restructuring and non-recurring items resulted in an expense of 1 million Euro, versus an expense of 2 million Euro in the first quarter of 2020.

The net finance costs amounted to 0 million Euro.

Income tax expenses amounted to 4 million Euro, versus 2 million Euro in the first quarter of 2020.

As a result of the elements mentioned above, the Agfa-Gevaert Group posted a net loss of 6 million Euro.

Financial position and cash flow

  • Net financial debt evolved from a net cash position of 502 million Euro at the end of 2020 to a net cash position of 500 million Euro.
  • Trade working capital decreased from 462 million Euro (27% of sales) at the end of 2020 to 449 million Euro (27% of sales) at the end of March 2021.
  • The Group generated a positive free cash flow before extra funding of the pensions of 16 million Euro.

Outlook
Following the seasonally weaker first quarter, the Agfa-Gevaert Group expects the business volume recovery to continue in the course of the year. The performance improvement of the HealthCare IT and Digital Print & Chemicals divisions is expected to be confirmed. Although an improvement is also expected for Offset Solutions, this division will continue to suffer from inflationary pressure and the structural decline of the offset industry. The Radiology Solutions division will take measures to mitigate the effects of the medical film volume decline. The Group expects that in the coming quarters, volumes and margins in the Radiology Solutions division will recover substantially compared to the exceptionally weak first quarter.

The Group will continue to implement its broad cost reduction programs. Furthermore, the Group expects that the continuation of its price increase programs will be needed to mitigate the effects of the ongoing cost inflation.

HealthCare IT - Q1 2021

in million Euro Q1 2021 Q1 2020
re-presented 		% change

(excl.
FX effects)

Revenue 55 55 -1.0% (3.6%)
Adjusted EBITDA (*) 6.5 4.7 37.7%
% of revenue 11.8% 8.5%
Adjusted EBIT (*) 4.1 2.0 107.2%
% of revenue 7.4% 3.5%

(*) before restructuring and non-recurring items

Excluding currency effects, the HealthCare IT division's top line improved by 3.6% due to the revenue recognition from certain high-level Imaging IT projects. In recent months, the division reported important go-lives of its Enterprise Imaging platform in the Middle-East (e.g. King Abdulla Medical City and King Faisal Specialist Hospital in the Kingdom of Saudi Arabia) and in Europe. At Leeds Teaching Hospitals NHS Trust in the UK, the Enterprise Imaging solution will serve as a unified platform that will help maximize the Trust's productivity and allow for collaboration with neighboring Trusts.

The total order backlog remains at a healthy level, covering more than a full year of total revenues.

Recently, a KLAS Research 2021 Enterprise Imaging Performance Report named Agfa as one of the vendors that is the most ready for future Enterprise Imaging adopters. The report positions Agfa among the Enterprise Imaging solutions providers scoring best at offering strategic guidance in the form of governance, change management, and long-term vision.

Agfa's strategy to target customer segments and geographies for which its Enterprise Imaging solution is best fit and to prioritize higher value revenue streams translates into a continuous improvement of gross profit margins. Mainly driven by improved license sales and by improved service efficiencies related to the further maturing of the service organization and product offering, the gross profit margin reached 45.5% of revenue, versus 43.4% in the first quarter of 2020. Adjusted EBITDA improved from 4.7 million Euro in the first quarter of 2020 to 6.5 million Euro (11.8% of revenue). In addition to the elements mentioned above, this was also due to an increased level of remote sales and service activities and temporary COVID-19-related cost measures. Adjusted EBIT improved strongly to 4.1 million Euro (7.4% of revenue), from 2.0 million Euro (3.5% of revenue) in the first quarter of 2020.

Ultimately, the division's strategy will also allow it to reach the targeted growth of EBITDA: starting from a mid-single-digit percentage in 2019 to percentages in the high-teens over the next years.

Radiology Solutions - Q1 2021

in million Euro Q1 2021 Q1 2020 % change

(excl.
FX effects)

Revenue 99 118 -16.3% (-13.6%)
Adjusted EBITDA (*) 7.2 16.4 -56.1%
% of revenue 7.3% 13.9%
Adjusted EBIT (*) 1.5 10.1 -84.9%
% of revenue 1.5% 8.5%

(*) before restructuring and non-recurring items

Overall, the Radiology Solutions division saw an exceptionally slow first quarter.

Excluding adverse currency effects, the top line of Agfa's Direct Radiography business decreased slightly compared to the exceptionally strong first quarter of 2020, when hospitals began to speed up their investments in mobile DR solutions to cope with the unfolding COVID-19 pandemic. Agfa's innovative mobile DR solutions are a strong asset in the fight against COVID-19, as they can be used to perform high-quality bed-side X-ray examinations, even in intensive care units.

Partly market driven and partly due to diminishing effects related to COVID-19, the top line of the Computed Radiography range declined. Agfa continued to manage the CR range to keep the profit margins at a decent level. In order to improve its competitiveness, Agfa is adjusting its CR equipment production capacity to the declining market trend.

The medical film volumes were still impacted by COVID in Latin America and India. In China, the business is facing increased price and volume pressure due to new centralized procurement practices.

The division's gross profit margin decreased from 38.2% of revenue in the first quarter of 2020 to 32.1%, mainly due to volume decreases in medical film and CR, product/mix effects in DR and high raw material costs. The division's adjusted EBITDA margin amounted to 7.3% of revenue, versus 13.9% in the first quarter of 2020. In absolute figures, adjusted EBITDA reached 7.2 million Euro (16.4 million Euro in the first quarter of 2020). Adjusted EBIT amounted to 1.5 million Euro (1.5% of revenue), versus 10.1 million Euro (8.5% of revenue) in the previous year.

Via its #CountOnUs initiative, Agfa has already supported thousands of healthcare providers to deal with the extraordinary pressure being placed on staff and resources by the COVID-19 pandemic. The program is continuing and adapting as the needs of the healthcare sector evolve in response to the pandemic. Chest imaging plays a key role in triage and diagnosis for the coronavirus. Agfa is offering hospitals a free MUSICA Chest+ software plug-in for nine months. More than 400 hospitals have already benefited from this opportunity.

Digital Print & Chemicals - Q1 2021

in million Euro Q1 2021 Q1 2020 % change

(excl.
FX effects)

Revenue 73 74 -1.9% (-0.4%)
Adjusted EBITDA (*) 5.2 3.5 49.0%
% of revenue 7.2% 4.7%
Adjusted EBIT (*) 2.3 0.9 161.9%
% of revenue 3.2% 1.2%

(*) before restructuring and non-recurring items

As the Digital Print & Chemicals division continued to recover from the COVID-19 impact, its top line was almost stable compared to the first quarter of 2020 (excluding currency effects). In spite of increasing silver costs, the gross profit margin improved from 29.5% of revenue in the first quarter of 2020 to 31.1% of revenue. The adjusted EBITDA margin evolved from 4.7% of revenue (3.5 million Euro in absolute figures) in the first quarter of 2020 to 7.2% (5.2 million Euro in absolute figures). Adjusted EBIT more than doubled from 0.9 million Euro (1.2% of revenue) to 2.3 million Euro (3.2% of revenue).

In the field of digital print, the ink product ranges for sign & display applications continued to perform well. The large-format printing equipment business started to recover from the strong COVID-19 impact. Sales were still significantly lower than in the first quarter of 2020, but the order book for this business is growing. Agfa continues to invest in its innovative product portfolio in order to be ready for the post-COVID market rebound. In the first quarter, the division introduced the fastest Jeti Tauro inkjet printer to date, targeting the high end of the sign & display market.

The sales of inks for industrial applications continued to grow strongly, partly due to the solutions for new digital printing applications, such as laminate floorings and leather.

Volumes of the division's film and foil products continued to recover, be it at different paces. These products are mostly used in industries that have been hit by the COVID-19 pandemic, including aeronautics, the oil and gas industry and the printing industry. Sales figures for the SYNAPS range of synthetic papers are expected to pick up strongly in the coming quarters.

Agfa's range of products for the production of printed circuit boards performed well in the first quarter. In March, the company announced global price increases to tackle the increase in silver costs.

The specialty chemicals range of the division is well-positioned for future growth with products and solutions that target specific promising markets. Agfa's Orgacon conductive materials, for instance, are used in hybrid and electric car technology. This business recorded solid revenue growth in the first quarter. The company's range of Zirfon membranes for advanced alkaline electrolysis is setting a new efficiency standard in the production of green hydrogen. A recent study by the Fraunhofer Institute using Agfa's Zirfon separator membranes confirms that the alkaline electrolysis technology is the most cost efficient hydrogen production system to date. Agfa is currently negotiating supply agreements for its membranes within the framework of several large green hydrogen projects. If they materialize, these agreements could lead to a substantial volume increase in the coming years.

Offset Solutions - Q1 2021

in million Euro Q1 2021 Q1 2020 % change

(excl.
FX effects)

Revenue 169 187 -9.7% (-6.8%)
Adjusted EBITDA (*) 1.6 3.7 -56.8%
% of revenue 1.0% 2.0%
Adjusted EBIT (*) (3.2) (1.4)
% of revenue -1.9% -0.7%

(*) before restructuring and non-recurring items

Excluding currency effects, revenue decreased by 6.8% to 169 million Euro, which is markedly less than in de previous quarters. On top, the first quarter of 2020 was largely unaffected by the COVID situation. In spite of this upward trend, the division continues to struggle with the impact of COVID-19 - including adverse price/mix effects - and the structural decline of the offset markets.

Affected by mix effects and cost inflation, the Offset Solutions division's gross profit margin decreased from 23.6% of revenue in the first quarter of 2020 to 22.2%. In the fourth quarter of 2020, the gross profit margin was at 20.6% of revenue, which shows that the measures taken to restore the profitability of this division are beginning to kick in. Adjusted EBITDA amounted to 1.6 million Euro (1.0% of revenue) versus 3.7 million Euro (2.0% of revenue) in the first quarter of 2020. Adjusted EBIT amounted to minus 3.2 million Euro (minus 1.9% of revenue), compared to minus 1.4 million Euro (minus 0.7% of revenue) in the first quarter of 2020.

To improve profitability and to address the decline in market demand, Agfa is reviewing its offset business model, simplifying its organization and streamlining its product offering. In March, Agfa unveiled a global program of price increases for its offset printing plates to address the increasing raw material, packaging and freight costs. It is also looking into ways to adapt the revenue model for certain services it provides to its customers.

On the cost side, Agfa reorganized its printing plate manufacturing capacity. The operations in the printing plate factories in Pont-à-Marcq (France) and Leeds (UK) were terminated at the end of 2020.

In January 2021, Agfa expressed the intention to organize the Offset Solutions activities into a stand-alone legal entity structure and organization within the Agfa-Gevaert Group.

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. Frank Aranzana, 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.

Contact:

Viviane Dictus
Director Corporate Communication
Septestraat 27
2640 Mortsel - Belgium
T +32 (0) 3 444 71 24
E [email protected]

Johan Jacobs
Corporate Press Relations Manager
T +32 (0) 3 444 80 15
E [email protected]

Click here for Agfa's consolidated statements.