Barco Nv

Good morning, ladies and gentlemen. I'm Karel van den Bussen, Head of Investor Relations at Barco. We welcome you to this conference call on the results of the second quarter of the year and the half-year results 2022. Today with me, and calling in from remote, Mr. Charles Baudouin, Co-CEO of Barco, and here on stage, Mrs. Anne de Sender, CFO of Barco. Both Charles and Ann will now walk us through the half-year results update. Under the heading, second quarter results exceed second quarter of 19 pre-pandemic level, boosting first half sales with 29% and moving to an EBITDA margin of 9.8%. Ann and Charles will provide some extra colors using the earnings presentation, which is available on the investor portal since early this morning. And that's it for the introduction. We'll come from slide three onwards, the exact summary. Charles, the floor is yours.

Thank you, Carl. And to all attendees, welcome. Thank you for joining. The first half of 2022 is now behind us. It has been an unstable and hectic period with international political struggles, ongoing component shortages and occasional outbursts of the virus we have come to know too well. But how well did Barco sail in these challenging waters? The answer is simple, very well. We see a 29% sales growth compared to the first half of 2021 and even 8% above the second half of that year. This strong growth was fueled by an exceptional performance in the second quarter and by double-digit sales growth across all business units and regions. This despite more than 40 million euro impact from supply shortages. Also, the order intake continued to grow, building up to an order book of 538 million euro. The ABDA margin went up 2.3 percentage points compared to the first half 2021, and even 2.7% versus second half 2021, amounting to 9.8%. This was fueled by a gross profit margin of almost 38%, three percentage points up with the second half of last year. and mainly reflecting a favorable product mix. There is a negative free cash flow, mainly due to higher inventory in response to the supply chain constraints and higher receivables based on a surge in sales towards the end of the quarter.

Thank you Charles. As Charles just said, we continue to have a strong order intake, indicating recovering worldwide demand. With an order book of 538 million, we are up 37% year-on-year and up 10% compared to the end of the year 21. I can therefore indicate what we said after the full year 21 presentation. Our order book is at an all-time high level. Also sales performed strongly with a 29% growth year-on-year. Nice to see double-digit growth in all three divisions. We are pleased with a remarkable EBITDA recovery as we have seen it in the first half. This was fuelled by more favourable product mix in combination with improvement actions on cost of goods. The recovery of the profitability was mainly driven by pre-pandemic performance levels in the healthcare and in the meeting experience business units. Apart from the indicated free cash flow decrease, we see a solid improvement in all key figures versus last year. With respect to free cash flow, we do expect to see a turnaround in the second half, but I'll come back on this topic later on. If we now take a closer look at the second quarter of 2022, we can conclude that it has been the best quarter since the COVID pandemic started and that we are getting close and beyond pre-pandemic performance levels. Compared to the second quarter of 2021, we can see an uptake of 11% in orders and a really strong 37% increase in sales. If we compare to the previous quarter, we see a solid 6% growth in orders and 29% step-up in sales. Looking at the sales per divisions, we have an excellent double-digit growth on all fronts, both compared to the previous quarter and year on year. Especially the entertainment and enterprise divisions, the markets that were challenged the most during the pandemic, performed excellent, but also the healthcare sales reached an all-time high semester. In summary, we can say that the second quarter of 2022 has gone beyond the pre-COVID pandemic levels and boosted the overall sales for the first half of the year.

Thank you Anne for your explanation. Let's now look at an overview of the 2021 results per region. There is also positive news coming from the regions. The Americas registered a solid 30% growth in orders and a really strong 40% increase in sales. We saw some first large incoming orders after a pause of almost three years from large exhibitors to upgrade the installed base to laser technology. Also, strong demand for pro-AV solutions boosted orders and sales in the entertainment division. The back-to-the-office trend resulted in a good rebound of orders and sales for ClickShare. The increasing demand for digital operating rooms fuels the growth for healthcare. We see similar but slightly less outspoken results in EMEA. Growth was adjusted in all divisions with really strong results for ClickShare orders and sales upon the return to the office. Cinema sales could have been more if it was not for the component shortages. Only exception is Asia Pacific region, where the orders went down 27%. The decrease is mainly due to China, where the continued lockdowns cause temporary headwinds for a local entertainment activity. The rest of the region signals a healthy recovery with accelerating order intake. Same story for the enterprise division. Good performance in the rest of APAC on both click share and large video boards. But still slow in China. For healthcare, on the other hand, we see solid order growth in the complete region and led by China. Back to Ann now. to show the EBITDA margin in a waterfall table.

Thank you, Charles. The EBITDA margin in the first semester shows a rise of 2.3 percentage points compared to the first half of 2021. Reading from left to right, you can see how our EBITDA improvement was generated. The main contributor comes from the growth in sales, which shows an increase of 29% year-over-year, and excluding the positive tailwind from currencies, still a solid 22%. Product mix and focused efforts yielded into increase in gross profit margins, despite the continued pressure from the component market and high transportation costs. Finally, we see a balanced increase in investments in our product portfolio, this to defend and extend our market shares. Looking to our three divisions, you can see that both healthcare and enterprise performed really well and reconnected to pre-pandemic profitability levels. The EBITDA of entertainment is not yet where we want it to be, impacted primarily from supply shortages, which we luckily see turning since June. The net income is back to positive, amounting to €22 million. The year-over-year improvement in EBITDA level is maintained as well on the net earnings level. Depreciations and amortizations are essentially stable, and there were no restructuring costs in the first half of 2022. The effective tax rate remained at 18%. A temporary increase in working capital resulted in a negative free cash flow of 28 million. Working capital is now at 13% of sales, up from the 6% at the year-end 21. Linked to supply constraints, we have temporarily higher inventories of both raw materials and semi-finished goods, this to secure the second semester deliveries. The higher receivables at mid-year are linked to the surge in sales at the end of the second quarter, which also explains the higher DSO amounting to 68 days. The net cash amounts to 234 million down from 310 at the year-end 21. The decrease is mainly due to the free cash flow, the cash outflow related to the 25% shares acquired in Synionic and dividend payments in the second quarter. Let's now move over to our sustainability parameters, which are divided in three pillars, planet, people and communities. Starting with our ECO scoring performance, we see that in the first half of 2022, 38% of products sold have an ECO label A or better, which is an improvement of 11 percentage points year over year. This increase is expected to accelerate in the coming semesters as most of our new releases are eco-labeled products. Looking at communities, we see our customer NPS score has dropped 3 points compared to the first half of last year and 2 points versus the second semester of last year. The main reasons for this decline are mainly associated with delivery issues and immersive experience and general pre and after sales service. We are addressing both points and our target is to get closer or beyond an NPS scoring of 50 by the end of this year. We expect to see lead time shortening and becoming more reliable in the coming semester. Regarding pre- and post-sales, we are in the process of rolling out a new digital CRM tool, enhancing the support to our customers. Back to Charles now, who will give more color on the performance of the business units.

Thank you, Anne, for the deep dive in your results. We will now take a look at how our divisions performed during the last semester. As was already made clear in the overall results, entertainment showed a good uptake in orders, with sales increased with 23% year over year, but conversion is still somewhat slow due to supply chain constraints. The second quarter of the year delivered a positive book-to-bill results, This for the sixth consecutive quarter, boosting the order book for the division. The division booked a negative EBITDA due to both lower gross profits, reflecting the impact of the component shortages, which was more pronounced in the first half of 2022, and increased investments in R&D and sales to further strengthen the value proposition and accelerate certain growth initiatives. We are confident to turn around this performance and deliver a positive full-year EBITDA on the back of more sales growth, driving operating leverage and initiatives to alleviate component shortages. The cinema industry truly rebounded now with re-openings, many highly anticipated movie releases, and positive box office trends. The one exception, however, is China, where the COVID lockdowns forced the cinema to temporarily close, which results in a softer result. For the rest of the world, we see continued investment, with important upgrade programs starting to begin from large exhibitors, including AMC, IMAX, and PVR, and new build programs in selected regions. Moving over to the immersive experience segment, where we see a steady resumption of activity. This is mainly fueled by a good demand for fixed installations, including museums, theme parks, and projection mapping. Sales conversion, however, is impacted by the shortage of components, although the second quarter was already better than the first. The results for the event sub-segment were still soft, but we saw some first signals of recovery. We expect to see investment starting to come back as of the second semester. The simulation subsegment, we can look back on a successful first half of 2022, with sales growth on the back of a strong order book and contracts with reference customers. The numbers for the enterprise division show a strong top-line growth, with orders up 24% and sales up 43%. The very strong second quarter even shows a 70% year-on-year growth. Also, profitability recovered with EBITDA back to 18%, which is 13 base points up from a year ago. The improved product mix was the engine behind this growth. For the meeting experience segment, Back-to-the-office momentum in Europe and the Americas is now a reality. Coupled with an increased adoption of hybrid meetings with wireless conferencing, this leads to a strong recovery of sales for the meeting experience division. Sales in the second quarter of 2022 even exceeded sales of the same quarter in 2019. ClickShare is now installed in more than 1 million meeting rooms. The ClickShare conference solution accounts for more than half of the sales volume in the first half of 2022, confirming the good market fit for this solution. Reconnect has become an established brand as the business schools, with reference customers, and we are now exploring additional growth avenues to scale beyond the traditional market of business schools. The large video world segment shows a solid growth with a strong second quarter led by projects in the Americas and the EMEA region. A value proposition based on both visualization hardware and software clearly strengthens our competitive position. And also, the service proposition is driving growth. However, we still face delays requested by turnkey project integrators. Logistics costs cause temporary headwinds and push the profitability down. For the healthcare division, the normalization of hospital budget allocations and catch-up of postponed projects result in continued strong order intake. the division can now look back upon an all-time high semester sales. The EBITDA margin is back to 13%. For the diagnostic segment, there was a solid growth in sales, mainly in the Americas and EMEA. Our portfolio was further renewed and expanded with connected displays and remote fleet optimization solutions. Dimitra, a growth initiative in the domain of digital dermatology, entered into a joint venture with Gnosko, a Swedish healthcare skater. This joint venture will focus on innovative, high-quality skin imaging solution and is bringing together more expertise, stronger go-to-market capabilities and go-to-market channels. In surgical and modality, we really see that the market of digital and integrated operating rooms is growing. We further expanded the group of strategic partners we work with. This is also reflected in a very solid order intake and sales growth. China activities, where we also finished a new factory, which is in full operations now, are accelerated in orders and sales. mainly in the modality segment. So, that was it for our 2021 results. It's time to look forward to the future now and how we see Barco evolving along this year. It's time to look forward to the future now and how we see Barco evolving along this year. What we have seen in the numbers over the first half of 2022 is that Barco is truly turning the page of the pandemic. The recovering demand for our products in combination with strong market positions boosted sales in the second quarter and start to exceed pre-pandemic levels. For the second half of the year, assuming continued improvements in the orders to sale conversion, we expect that the sales for 2022 will increase approximately 25% compared to 2021. Our EBITDA margin for the full year is expected to land between 10 and 12%. Sample rising, we can look back upon a positive first half of 2022. Despite some severe challenges, including the worldwide component shortages and the COVID lockdowns in China, we are truly pleased to present figures that are at par with pre-pandemic times. I would really like to thank all employees for this great achievement.

Thank you, Charles. Thank you, Anne. We are now ready to move to the Q&A session. I'd like to repeat our householding rule, max two questions at a time. In case you have more, please queue again. Next, we also may refer to some of the strategic longer-term questions to our Capital Markets Day, which will take place on the 8th of September, so in six weeks from now. And we certainly hope to welcome many of you, and if possible, in person. Okay, now over to the questions. We're ready to take the first question. Okay. We have a first question in the spotlight section of WeConnect. Matthias Manhout, the floor is yours.

Yeah. Good morning. Can you hear me?

We do. We do hear you well.

Yeah, good morning. Thank you for taking my question. So two to start with, specifically on entertainment. As you rightly said out, the performance or the margin has been somewhat impacted in the first half on component shortages, but also on value proposition investments and growth initiatives. Could you maybe elaborate on the relative importance of both elements and maybe elaborate a little bit on the component shortages? Is this merely an impact of sales conversion, or do these component shortages are mitigated at a very high cost? That is my first question. And also, if you can elaborate on these value proposition investments and growth initiatives. That would be a follow-up on that. And then a second question is more on entertainment and a midterm margin outlook. How should we assess that? You recently had the light as a service first contract. Could you maybe elaborate also on how that is taken into account in the order book?

Yeah. Okay. Clear questions. Thank you, Matthias. Anne, are you okay to take the first part of the section?

I'll kick it off and then I let Charles jump in. Good morning to you all again. And thank you for the question, Matthias. With respect to entertainment, if you look at what we call the base business before investments and growth initiatives, then they are at a positive EBITDA level. This is extra investments, which is in particular in light steering, which then indeed have some impact. The investments, to your specific question, there are about 5 million in the first half, so that's the impact. The supply shortages which we indicated still having an impact on our top line on group level of about 40 million is primarily in the entertainment division. We do see this turning and this as of June so this is then I would say good news for the second half of the year actually. We do have had broker cost and we did broker some but we largely worked on redesigns actually in that sense, and waited for the supply to be available, and in that sense that we don't overdo it. But yet, I would say all of the activities commercially, product portfolio-wise, I call it translated NPNL, I would say, in the right costs, or at full speed, and then with the top lines already nicely growing, But the extras will quite do a lot on the EBITDA bottom line performance. So that's then to be turned around and pushed up in the second semester. Charles, if you want to elaborate a little bit or maybe give some extra clear on light steering? Yeah.

Well, some extra color by steering is actually we invite you for Capital Markets Day, where we will give you a full demonstration of the capabilities of the system and actually why we believe this is a really important step in the entertainment business. To complement on the first half, don't forget for entertainment also that we had a very negative impact from the lockdowns in China, which also weighted on the two crucial months of April and May in China, especially the whole region of Shanghai. On your question of light as a service, this order has been announced, but it has not yet been executed because we did not yet deliver. So there is no impact on the accounts of the first half. They will be accounted in the second half with the first deliveries, as we indicated in our presentation. And they are as a service income, not as a capex income. So, yeah.

That's a complete answer. Thank you, Charles. Thank you, Anne. And I see we have another one, another analyst ready for a question. Christophe, good morning. Yes, good morning. Do you hear me? We do hear you loud and clear.

Okay, great. I have a question on the guidance, if I may. So you're guiding for 25% sales growth over the full year. Can you explain, do you already include some ethics tailwinds here?

Okay, so that's the first part of your question, I assume.

Yeah, and if it is yes or no, do you then take into consideration the full sales growth reported of H1 or the Yeah, sales growth excluding ethics of H1. That's my first question.

Let's maybe take them one by one. So we make an outlook, and so it's the first time we make the full year outlook for 2022 now. We do indeed start with what we have accomplished in the first half and do take it from here in our assumption as stable currencies.

Okay, thank you. That's clear. The second question is, can you elaborate a bit more on profitability within the enterprise division? So on the split, I know you don't report on a subdivision level, but can you elaborate?

Yeah, okay. So for the enterprise division, Ann, are you willing to give a bit of color?

For the enterprise division, our large video walls business was close to break-even EBITDA level. So with that, you can calculate the performance on solid performance and very strong actually on meeting experience, our click-share business.

One of the reasons we highlight on, indeed, the light negative results is the higher transport and logistics costs. And with control rooms, there is quite a bit of transport to be done. But, okay, it's something to pay attention to going forward and to see improvements.

But the negative impact was rather limited.

Correct.

Okay, thank you.

Perhaps I'll just check here in the room whether we have a question in the chat.

It's a follow-up question on the AMC deal. Is there a reflection on the AMC deal in the order intake? From Matthias.

Not yet. That's not yet included. That will be as of the second half as we get the call of orders actually and the moment that we confirm that we can deliver and plan to deliver. So this will go hand in hand. So these are on top of the reported order book.

And keep in mind our disciplined and conservative order intake process. I see the next candidate for a question in our spotlight. Chris, good morning.

Good morning, Carl. Are you ready for your question? We do. We do hear you. Perfect. Thank you for taking my questions. First question would be on the second quarter, a very strong sales uplift following, of course, the nice order book now translating into sales on most activities. What I was wondering in this quarter, how is the sales evolution throughout the quarter, and could you confirm indeed that this is driven by major markets reopening? For example, we had some hiccups seen, witnessed earlier today. In the German market, which is quite slow, also the U.S. with quite some big corporates having that situation. So some granularity on that would be quite helpful. That's my first question. Thank you.

Okay. I see Ann nodding.

I'll take that with pleasure. Thank you, Chris, for your question. Over the quarters, it is clear that June has been the strongest month, and this is actually not because of, because during the months, and actually now since many months after each other, we do see the different markets reopening, and this being reflected in our orders and growth in order books. The fact that June was a higher month was really securing supply and then getting to deliveries, actually. That's why we took in raw materials, semi-finished products to the extent which we could, and then also complete to finished goods as much as possible. When I do my explanation, this is now primarily on entertainment, the impact actually on both healthcare and enterprise. This was more gradual over the months.

Charles, anything you'd like to add?

Well, I think one element also is the availability of components, which became better towards the end of the quarter. But to underline, even though we had a strong sales uplift, order books still grow in the second quarter.

Maybe to add to your question, Chris, on the different countries, there's actually only one country anymore, I would say, that's lacking, and this is China, with the impact that it had on the COVID lockdowns. So as to Germany, US actually, as we do see the resumption of activities, also the back to office in the different regions, they are all on, I would say, for our business on full speed of recoveries and beyond. Thank you.

With that, Chris, we are ready for your second question.

Yes. My second question would be linked to the guidance. Following this very strong H1 update and also with the order book, indeed, as you indicate, evolving positively, how should we read that guidance as also a guidance whereby you take into account two things. Firstly, I presume quite some impact still from the component shortages, and could you get some granularity on the level you've taken into account? And secondly, I presume there's also some prudence generally included with the economic circumstances. Is that correct? Thank you.

Mm-hmm. Yeah, well, thank you for the question, and an important one, I believe. Perhaps I'll take the first part, and feel free, Charles and Anne, to jump in. So, yeah, we do take into account the constraints as we see them, as we manage them today. Do we expect to see some improvements compared to what we faced in the first half? Yes. but to come step by step. So we are not anticipating a situation where all will be gone and over with still within this year. So we're not assuming such a context.

I can only confirm. And actually, Chris, most of the answers were already in your question, so in that sense... But we can confirm, yes. Still, supply shortages are primarily the biggest impact still on the third quarter. But, yeah, steady steps are being made primarily because of the redesigns, which we also did. But you don't know, yeah, what news... than pop-up, because that has been the case over the last year actually as well.

It's still a very fluid situation.

Okay, thank you very much.

Let's see whether we have a next attendee in the spotlight.

Yes, I do. Hi, good morning, Sebastian. Hi, good morning, Carl. Hello, Anne. Hello, Charles. Congratulations. Just two questions on my side. I found myself a few margin guidance relatively conservative. Now, that means that there is limited upside on the margin H2 versus H1 for enterprise and healthcare, and the main driver will be entertainment. Because if I look at H1 margin, two divisions are already filed both in the overall guidance. That's the first question. And the second one is capital allocation. Any update, acquisition, given some of the assets basically are today cheaper than they were six months ago? And what about consideration for share buyback? Thanks a lot.

Okay, yeah, two very different questions. So on margin guidance for the first half, Anne, are you willing to take that one?

Oh, yes, of course. As you have seen in the presentation, the EBITDA levels of both enterprise and healthcare are already at what we call pre-pandemic performance levels. So in that, yeah, well balanced. And the purpose is to do that steady and not to lose there, I would say. But we do still invest primarily also in product portfolio there. On entertainment, yeah, the purpose is for sure to get above water and higher. And with that, that will bring year over year, a full year EBITDA between 10% and 12%. which is then better than the almost 10% which we had in the first half. So whether that will be conservative or realistic, we go for realism here. It's an ambitious, realistic target. And as we go over this third quarter and then fourth quarter, wherever we would see more and better news, you will be the first one, you all.

In a symmetric way, of course, all together. Charles, anything to add on the first part?

No, I think it's the best guess or the best analysis that we make at the moment, considering all the constraints we have faced. Yeah, yeah. Maybe I'll take up the second part. Yeah, exactly. Thank you. So on capital allocation, as I indicated already before, it is a concern of the board. It's a concern also of management. that we optimize capital allocation but we still feel that we have large opportunities within the business and that we want to keep these let's say opportunities for as well inorganic growth as organic growth in the we see still quite a lot of opportunities on those so We ask you for a little bit more patience.

Good, obviously a good answer, Sebastian. Thank you very much. Yeah, okay, good. Just check whether there are any questions in the chat. So, yeah, you can raise questions or by raising your hand or by putting a question, typing a question in the chat section. So far, no questions in the chat, but we have another question from Christophe in our spotlight section.

Yes, I have a question to Charles on China. So we have seen recurring good results posted in the healthcare division. In the press release, I see that it's driven by strong order and intensified long-term demand in America's division. Can you explain a bit? You have been reiterating it's a big positive to have local presence, production, local sales force. Is that not yet contributing because of the lockdown? Is it not yet to that extent contributing because you need to ramp up the whole organization? Can you explain a bit more about that?

Charles, the floor is yours.

Christophe, there are two different things that we need to distinguish on healthcare in China. One is that we have established a production unit there to produce for a large part of the world out of the new Suzhou plant that we have opened. This is not what we report. What we report is basically the sales of products in the Chinese market And there we are strongly growing together with actually the Chinese medtech companies. But we come from a relatively low level. This means that it doesn't make a huge impact on the overall division. And so you have to distinguish between those two. On the production side, we are confident that this will strongly reinforce our position worldwide.

Okay, thank you. Okay. So it seems like we're almost through the questions. That's then also reading between the lines that we addressed most of the questions in the press release during the presentation and in this interactive Q&A session. Yeah, I'm not going to stretch it if there is no further questions. Well then, just let me thank you for your participation. Thank you for the good questions as well. We have one last question. Okay, Trion, I interrupt my concluding note and give you the floor for what are two questions. Go ahead, Trion.

Sorry, can you hear me?

We do.

Good, good. I apologize for interrupting you, Carl. Good morning to everyone. Just actually one question. I had two, and it was basically a follow-up on Sebastian's on the guidance. I mean, and Sebastian was talking about the margin guidance, which does look conservative, obviously. the bottom end of that guidance is essentially in line with H1. And I think you've only ever sort of had a margin in the second half, which is lower than the first half in 2020. And clearly we all know what happened in 2020. So I wonder if you would elaborate a bit more on is that just you being conservative or is there something strange going on in H2 versus H1? That's sort of question number one. And then the second question would just be on the top line in a similar vein. You know, you've talked quite strongly about the Q2 sales being above the 2019 level. But the guidance sort of implies that H2 will be below the 2019 level. Again, is that just sort of being a bit conservative given the environment or is there something we should be aware of?

Thank you for the questions, Trien. Am?

Thank you, Trien. First, on the guidance on the EBITDA level and with all what happened during the last years, actually, what all is happening around us in the world. A little bit of, call it, imprudence is at its place. It's clear when we give a guidance that we do shoot towards the 12th and not towards the 10th. But in that sense, we keep it with our feet on the ground, and it is month by month, actually. As to the sales, there's also, yeah, mind that the 2019 second semester was largely higher than the first one. So in that sense, a comparison basis becomes a stronger one. So that does play. But yeah, all in all, and now the summer months do come with our order book, and it's not that... So we will for sure do largely better than last year. But in that sense, that's why we are getting towards the 25%.

Maybe if I can try and... There is nothing strange going on, but we don't know for sure what the availability of components will be, so we prefer to keep on a careful, measured guidance.

Very clear. Thank you very much.

Okay, good.

Do another try, Carlo.

Yeah, we'll just wait for a couple of seconds if there is another question coming in. No more in the chat, no? No more in the spotlight? Okay, then I'll try to close for a second time. So thank you for your participation. Thank you for the questions. Please note, we are still available today and the remainder of this week. We will be roadshowing both in person and virtually. And then actually we also move on a summer break as of the end of the week. So with this, I also want just to refer once again to our Capital Markets Day, so planned for the 8th of September. So for sure you'll get some more insights on a number of questions and strategic updates. And so with that, thank you for joining and hope to see you soon. Bye-bye.