Profit driven down by price pressure, exchange rates and cost
Regulated information
Third Quarter 2008 financial highlights1 on the basis of continuing operations2 :
- The order book at the end of September 2008 amounted to euro 344.6 million compared to euro 332.6 million in 2Q08 and euro 346.8 million in 3Q07. Order intake totaled euro 182.0 million, down 11% compared to the same period in 2007. At constant currencies decline would have been 7%.
- Sales amounted to euro 179.6 million, an increase of 4%. Top line growth would have been 9% excluding currency evolution, 4% generated by High End Systems, acquired in June 2008 and 5% organic growth.
- Gross profit declined by 11% to euro 58.9 million from euro 66.1 million the previous year.
- EBIT before restructuring declined to euro minus 1.7 million from euro 8.0 million the year before. Restructuring cost was euro 3.2 million. Currency impact was euro 1.7 million. After restructuring EBIT was euro minus 4.9 million.
- EBITDA before restructuring was euro 13.7 million, a margin of 7.6%. In 3Q07 EBITDA was euro 22.1 million, a margin of 12.8%.
- Net income was euro 32.6 million, up 285% from euro 8.5 million in 3Q07. Net income for 3Q08 includes the proceeds from the sale of BarcoVision to Itema Group and of the Maritime Safety & Surveillance activity to Thales.
- Net earnings per share were euro 2.73 compared to euro 0.7 for the same period the previous year.
- The implementation of the 30 million cost reduction plan is on track with a net reduction in headcount of 133 compared to end June.
Third Quarter 2008 financial highlights on the basis of reported results*:
* Including BarcoVision
Kortrijk, Belgium, 22 October 2008 – Barco n.v. (NYSE Euronext: BAR; Reuters: BARBt.BR; Bloomberg: BAR BB) today announced results for the three-month period ended September 30, 2008.
Commenting on the 3Q08 results Barco CEO, Martin De Prycker, said: “Despite good sales growth margins were under pressure. The negative impact of exchange rates, growing competitive pressure in markets with reduced demand and sell-off of slow-moving inventory drove EBIT down euro 9.7 million before restructuring compared to the third quarter of 2007. At present our fixed cost structure is too high as we anticipated further growth in business. In light of the deteriorating global economic environment, we set up a euro 30 million cost reduction plan in July which will yield first results already in the fourth quarter of 2008. Net reduction in headcount end September was 133 compared to end June. Restructuring charges amounted to euro 3.2 million in the third quarter. We expect the total restructuring cost for 2008 to be around euro 20 million, of which euro 4.8 million has already been taken in the first nine months of 2008.” Mr de Prycker added: “In the third quarter we were able to grow sales by 4%. At constant currencies sales growth would have been 9%, 4% of which was generated by High End Systems, acquired last June and 5% was organic growth. The orderbook at the end of the quarter was around the same level as the year before but up 4% compared to the second quarter of 2008.”
Mr de Prycker also said that working capital reduction actions have already yielded euro 10 million compared to the end of the second quarter. “DSO was 10% lower than the same quarter last year and inventory turns improved compared to the previous quarter.”
About full year earnings Mr De Prycker stated: “The order book remains solid. Nevertheless the uncertainty with our customers is high in some of our markets such as the events market. Because of this and contrary to our previous guidance, we are no longer confident that EBIT for the second half of the year will be above the first half EBIT.”
Referring to the divestiture of BarcoVision Mr De Prycker declared that this deal was closed on 30 September. He added:” It was our intention to return euro 70 million of the cash we received for this divestiture to the shareholders before the end of the first quarter of 2009. Given the current turmoil and liquidity risks in the financial markets we have decided not to go ahead with this capital reduction.”
CONSOLIDATED RESULTS FOR THE QUARTER Sales & Orders Sales for the quarter increased by 4% to euro 179.6 million compared to 3Q07, despite the decline of the USD versus the euro of more than 9% year-on-year. Excluding currency impact the increase would have been 9%, 4% of which was generated by High End Systems, acquired in June 2008 and 5% was organic growth. The Media & Entertainment division performed well, helped by the sales of High End Systems. Sales in Medical Imaging and in Other Markets were flat compared to the same period of 2007, while sales decreased in the Security & Monitoring division.
After currency impact order intake was 11% lower than in 3Q07. Orders for the latter quarter however, included one large order in Medical Imaging. There is also a clear negative impact of the current economic uncertainty, which causes customers to delay or cut capital investments.
Sales to Europe, Middle East and Africa (EMEA) represented 53% of consolidated sales. Sales in the whole of the EMEA region, driven by a strong growth in Western Europe, grew 8% year-on-year, including currency impact. In the Americas sales declined by 1% and represented 31% of total sales for the quarter. The Asia Pacific region realized 3% less sales than in the same period the year before and represented 16% of total sales.
The book-to-bill ratio was 1.01 compared with 1.18 for 3Q07.
Order book progress
Gross Profit & Margin
Gross profit decreased by 11% to euro 58.9 million from euro 66.1 million in 3Q07. Reasons were the negative impact of exchange rates, the product mix, price pressure and sell-off of slow moving inventory.
Operating Result (EBIT) EBIT before restructuring declined to euro minus 1.7 million from euro 8.0 million the year before. After restructuring cost of euro 3.2 million EBIT declined to euro minus 4.9 million. Currency impact amounted to euro 1.7 million. EBIT margin was minus 2.7% versus 4.6% the previous year.
As a percentage of sales, research & development expenses increased year-on-year from 10.4% to 11.5% of sales. Sales & marketing costs increased from 15.5% to 16.1% of sales. General & administration costs decreased from 7.0% of sales to 6.7%.
Other operating results were euro 0.9 million compared to euro minus 1.1 million in 3Q07.
Income Taxes Income taxes decreased from euro minus 1.1 million to euro 2.8 million year-on-year.
Net Income Net income for the quarter increased from euro 8.5 million in 3Q07 to euro 32.6 million in 3Q08. Net income for 3Q08 includes the proceeds from the sale of BarcoVision to Itema Group and of the Maritime Safety & Surveillance activity to Thales. Net margin in 3Q08 was 18.1% versus 4.9% the year before.
Net earnings per share (EPS) for the quarter were euro 2.73, up from euro 0.70 in 3Q07. Fully diluted net earnings per share were euro 2.57, compared to euro 0.67 in the same period the year before.
DIVISIONAL RESULTS FOR THE QUARTER
Media & Entertainment Division Sales at the Media & Entertainment division increased by 12.3% year-on-year. At constant currencies growth would have been 17%. The greater part of the sales growth was realized by High End Systems, acquired in June 2008.
Orders increased year-on-year by 23.3%, supported by a significant improvement in order-intake in the media and digital cinema markets. Also in the events market orders increased, thanks to new LED products and High End Systems.
At the end of 3Q08 the order book totaled euro 68.5 million.
EBIT margin was 0.1% versus 5.7% the year before, caused by selling off slow moving inventory and competitive pressure in markets with reduced demand.
Security & Monitoring Division Sales decreased by 7.4%. At constant currencies decrease would have been 4%.
Order intake showed a marginal decline, although the traffic & surveillance market performed strongly. The Asia Pacific region continued to grow in 3Q08.
At the end of 3Q08 the order book totaled euro 130.9 million.
EBIT margin was minus 3.4% versus 3.9% in 3Q07, due to lower sales.
Medical Imaging Division Sales in the Medical Imaging division decreased by 1.3 % after currency impact. At constant currencies sales would have grown by 5%. Sales of the Coronis Fusion 6 MP wide-screen diagnostic color display system were ramping up but this was offset by lower sales in the mammography market. This decrease was caused by customers depleting stocks.
Order intake for the Medical Imaging division was much lower than the year before, but in 3Q07 the division booked a large one time order.
At the end of 3Q08 the order book totaled euro 40.2 million.
EBIT margin was 8.5% compared to 9.3% in the same period of the year before.
Other markets
Sales in Other Markets increased by 1.9% after currency impact. The increase would have amounted to 8% at constant currencies and was driven by growth in the avionics market. Sales in the simulation and presentation markets decreased in 3Q08 compared to the same period the year before.
Order intake was strong in the simulation market, but weak in the presentation and the avionics markets.
At the end of 3Q08 the order book of euro 108.0 million was strong, in the simulation and avionics markets combined.
EBIT margin was minus 9.0%, down from minus 2.4% in 3Q07, as lower gross profit could not offset the high investments in product development for the simulation and avionics markets.
To save cost all activities related to presentation projectors are being merged with the events projector business. For the same purpose simulation and avionics will be brought together in one division.
BALANCE SHEETAt the end of September 2008 Barco had a net financial debt position of euro 65.6 million, compared to a net debt position of euro 108.4 million at 30 June 2008. At 31 December 2007 the net debt position was euro 53.4 million.
On 30 September 2008 accounts receivable were euro 171.6 million, compared to euro 179.8 million at the end of June 2008 and euro 202.4 million at 31 December 2007.
Inventory at the end of 3Q08 was at euro 221.6 million versus euro 223.6 million on 30 June 2008 and euro 204.0 million at 31 December 2007.
Trade payables on 30 September 2008 were euro 64.8 million. On 30 June 2008 they were euro 74.9 million and euro 87.3 million at 31 December 2007.
Net working capital at the end of 3Q08 was euro 251.2 million, compared to euro 236.4 million at the end of 2Q08. On 31 December 2007 net working capital was euro 230.7 million.
Capex for 3Q08 was euro 2.4 million excluding capitalized R & D cost.
In 3Q08 Barco did not buy back any of its own shares
3 .
OUTLOOK FOR FULL YEAR 2008
The following statements are forward looking and actual results may differ materially.
The euro 30 million cost reduction plan set up in July 2008 is yielding first results with a net reduction in headcount of 133 at the end of 3Q08 compared to three months before. Restructuring charges in the first 9 months of the year amounted to euro 4.8 million. The total restructuring cost for 2008 is expected to be around euro 20 million. Contrary to previous guidance, management is no longer confident that EBIT for 2H08 will be above 1H08 EBIT, given the uncertainty with customers in some of the markets Barco is active in.
CONFERENCE CALL
Barco will hold a conference call with investors and analysts on 22 October, 2008, starting at 4.30 p.m. CET (10.30 a.m. EST), to discuss the results for the quarter. The call will be hosted by Martin De Prycker, CEO, Dirk De Man, CFO and JP Tanghe, IRO.
An audio cast of this conference call will be available on the Company’s website
www.barco.com before 8.00 p.m. CET (2.00 p.m. EST).
About Barco
Barco, a global technology company, designs and develops visualization products for a variety of professional markets. Barco has its own facilities for Sales & Marketing, Customer Support, R&D and Manufacturing in Europe, North America and Asia Pacific.
Barco is active in more than 90 countries with approximately 3600 employees worldwide.
The company is listed on NYSE Euronext Brussels (BAR).
For more information and the full report “9 months ended 30 September 2008”, please visit the Company’s website at www.barco.com
For more information, please contact
JP
Tanghe
Senior Advisor to the CEO
Barco nv
Telephone
+32 56/26 23 22
jp.tanghe@barco.com
