Barco Nv

Good morning, ladies and gentlemen. Welcome to this conference call on Barco's full year results for 2023. My name is Willem-Francois. I'm heading investor relations, and today with me in the room are Charlotte Boudoin and Anstegen, our co-CEOs, and Anders Senders, the CFO. We are publishing our annual results today under the headline, Solid Profitability Improvement with Stable Top Line. Anstegen and Anders Senders will take us through the presentation this morning. And this presentation is also available on the portal on our website. After the presentation, there will be room for Q&A. And I would now like to give the word to Anstine to kick it off with the presentation.

Thank you, Willem. Good morning, everybody. So I'll start with a summary of the group results for the full year 2023. So top line sales, we came in at 1 billion 50 million, which is in line with last year. We saw double-digit growth in entertainment, but our healthcare division was lagging, mainly because of the unusual high inventories at our customers. Book2Build remains positive, so we basically entered this year with a very solid order book of about 500 million, and 65% of our total revenue came from eco-label products, which is up from 50% last year. In EBDA margin, we landed at 13.6% of sales, which is 1.6 percentage points up compared to last year. And in the second half of 23, our EBDA margin was 14.6%. So we had a record high gross profit margin that mainly came from a very favorable product mix, but also, of course, an ease in our supply chain and focus actions when it came to the OPEX control. But of course, we continue to invest in our core initiatives throughout the year. Then our net income landed at 80 million, free cash flow at 38 million, and that is net after 11 million restructuring costs. And as I said before, we continue to invest in our core initiatives. So we stepped up in CAPEX executing on our strategy. We definitely work on inventory reduction and that these are efforts and work that is still going on in 24. Net cash we landed at 241 million. Now I hand it over to Anne for the financial details.

Thank you and good morning from my end. Starting with the comparison on the key figures compared to 2022. So in the comparison you see and I'm happy to see a lot of green in there overall. So orders and sales landing at the same level as the year before. Gross profit is the main up, 2.8 percentage points higher. EBITDA, 1.6 percentage points higher. Free cash flow higher. Net income, 5 million higher. And with that, earnings per share, 6% higher. And going in more detail in the following slides on the different figures. Starting to give a little bit of more insight on the different semesters, first, second, and then through here. And maybe zooming in on this second semester over here. So landed with about 10 billion more cells than the first half. Gross profit, and this is really where throughout the year you hear the saying on steady improvement across the year, throughout the year, and has been confirmed. So with a step up to 42.6% gross margin for the second half. And this is throughout the different business units, actually, but with the main uptake into entertainment. OPEX control being confirmed here with the second semester OPEX not higher or even lower than the first semester and with that then landing at an EBITDA margin of 14.6%.

Maybe one

I'll go back one, two, and you will see later on in the overviews of different divisions on the EBITDA uptake of the second semester, that the most important uptake was noted in enterprise compared to the first semester. Looking into the dynamics of the different regions, Looking at the pie, I would say you can see that EMEA and Americas are now equal in size into our global sales and accounting for 40% each of our group top line and then APEC for 20%. The regional dynamics, it's between minus 4% and plus 4% growth year over year. with quite some different dynamics, of course, and the different divisions. So entertainment landing at double-digit growth, 15%. This is a growth in all of the three regions. Healthcare is growing both business units and EMEA, but has seen a lower top line in the Americas. Enterprise landing at minus 4%, holding quite well, actually, despite the challenging market situation, which we have seen rising in particular as of the second quarter. The difference is there, or I would say, or compared to the year before, or equal in EMEA and into the Americas. And then looking to APAC, yeah, you heard a lot about China last year. If we exclude China from APAC, then this region has really performed very, very strong, and as such, for all our three divisions, and as such, landing APAC at minus 4% compared to the years before. usual graph on EBITDA, but there it's more the visual. You could say that the big winners and the whole year and hard work behind is this gross profit margin uptake. So with that landing at 142 million of EBITDA, the net of gross profit up and then contained in OPEX increases. offsetting partly and in the second half fully actually the inflation with cost efficiencies and then having higher spend which you will see in the details more has been limited to or extra investments to entertain it. The little bit more detail on that income starting from EBITDA so you'll see that depreciations 4 million higher than the year before. This is linked to the cinema-as-a-service projectors. Restructuring costs, 10.8 million, includes 9.5 lay-off costs, which embraces actually diverse organisational efficiencies. And we booked a 1.3 million impairment on inventories related to stopped activities. Our effective tax rate is being reconfirmed at 18%, and we also hold it there for the next year, you can say, despite the upcoming pillar 2. So with that, net income landing at 80 million, or 6.7%. So more details on the free cash flow. Free cash flow landing at 38 million. Looking at our net operating cash flow landing at above 100 million, which is about 70 million higher compared to the year before, primarily coming from the improved EBITDA results. Working capital is still too high at 16.6%. And the main work at hand there is inventories. We had higher trade receivables, which is linked to the year-end peak sales, so that is cash that is coming out now after the year-end. We had lower trade payables, which now temporarily has an impact on our free cash flow. This is linked to lower component purchases. Inventory started to go down primarily into components and raw materials, not yet into finished goods. So that's the clear focus for the next months to come. CapEx almost doubled actually to 45 million, which is as explained before and is fully in line with our strategy, includes the investments into our new factories, includes cinema as a service. So with that cash landing at 241 million, which is 23 million lower than the year before, free cash flow of course comes on top. But this is also net after dividend of last year, 14 million. And the start of our share buyback, which so far has had an impact on the net cash of 8 million. Next to our financials, we further progressed on our non-financial metrics. We made very nice steps on our planet-related KPIs as well on the other KPIs. Here we pick out three. So the further reduction of our carbon emissions on operations compared to our baseline 2015, we now reduced our footprint with more than half. We stepped up the revenues of our eco-labeled products with another 15% compared to 22%, which is really all of our new product introductions being eco-labeled, actually, and so gradually We further improve on that. The customer natural motor score landing at 48, which is again 4% higher compared to the year before, and worked on all of the different recommendations, actually, which we get through these both surveys and with that study improving on that aspect. We have published not only our figures via the press release this morning, but also our annual report is coming out. So check it out. Very nice updates. And so with that, a little bit more colors on the divisions and I'll give it back to you.

Yeah. Okay. A little bit more detail on our divisions, starting with health care. So in health care, we saw a decline in orders and sales sales. about 16% since last, since 22. We did see the gross profit going up with two percentage points, mainly again, because of a favorable mix, but also ease of the supply chain costs. That of course, London EBDA down one and a half percentage points because of the top line, the reduced top line, of course. Now for diagnostic imaging, as you know, we are a leader in diagnostic imaging. These have always been very healthy markets for Barco. and also the markets remained healthy in 23. But we saw an unusual high inventories at our customers in the diagnostics markets. Why was that? Because in the second half of 22, when the supply shortages really eased out and were solved, We got an over demand actually in orders because everybody was anticipating a second shortage wave. That didn't happen. So our customers are ending up with higher inventories, which they're building off now. Now for diagnostic imaging, we saw a solid growth in the EMEA region driven by radiology and pathology. We also saw growth in APAC, except in China. where we are, of course, dealing with the local governments and the budgets, the low budgets of the local governments, but also the anti-bribery measures that are being taken in the medical sector in China. That said, we are investing and continuing to invest in our core initiatives. So one of those is focused factories, as you know. So this is basically where we have a limited set of products in a very highly operational environment, so with high throughputs and very cost efficient. For healthcare, Sujo is our volume manufacturing and we completed actually the full ramp up of our Sujo factoring and that is already starting to yield the first improvements on gross profit coming from cost reduction on our products. We also continue to invest in innovation and in new products, and that is as well in hardware as in software for diagnostic imaging. So in hardware, we have our 8MP home reading display for radiology. We also have this year coming out our new flagship for mammography. And we have more actually. These are the most important new displays that we're bringing out. On top of that, within diagnostic imaging, we also have a software platform. You can see this as a management system for IT managers within hospitals. This is a way with very intuitive workflows so that they can manage actually their fleet, their install base, and also the calibration of these displays that guarantees actually a good performance over the lifetime. of the displays. So this is a very important software platform. It is also an, it has external portals, so it's open system. So we can attach very easily software, third party, our own software to it. And last December we announced actually a first collaboration with DeepLook where we basically have now a software application. It's AI based that can basically distinguish dense breast tissue versus cancer. So, and this is actually for us also a migration more into software from diagnostics point of view. Surgical market, surgical modality, that's of course, as you know, driven by digitalization of the operating rooms. Here, of course, we had challenges with high inventories too. We also faced out a very large contract in the US and because of the high inventories in the channels, we're building up a nice funnel to basically replace that large contract. But where we had anticipated we could do this in one year, because of the hive entries, it's taking longer. Then for our product portfolio and the investments we're doing there, we have our Nexus platform. So that is basically our network in the operating rooms, our proprietary network. We saw definitely a lot of momentum on that platform, especially also in EMEA. For new investments, we definitely are looking at more features on our Nexus platform and also entering this year into the mid-segment operating room markets. Those are more basic versions of our Nexus, so we come up with a mid-segment Nexus solution. From a display perspective, we are definitely working on the next technologies when it comes to panels. but also more disruptive technologies where we basically start working on interactive displays. So voice steered, eye tracking, haptic, gesture, touch. That is definitely something that will help the surgeon in the operating room. And then, of course, also 3D displays, which is definitely something for surgical robots. And again, here, Succio is very important. The volume of manufacturing that we do there, especially to protect our gross margin in modalities. Next one. So then going to enterprise. So in enterprise, we saw a solid orders coming in throughout 23 and sales landed about minus 4%. Now for our click shares, our meeting room experience, we were pretty much in line with 22, which was in very challenging market conditions, especially like on sets in second quarter, second half of 23. Corporates are rethinking what they're going to do with their office space. Where in 22, we saw an uptick, of course, in there were more video solutions needed because people came back from work and there were not enough rooms with video conferencing capabilities. So basically that was all in the first wave. Now, yeah, corporates see that the office space is too large and they're rethinking this. Now on the midterm, this outlook will be that people, hybrid is there to stay. But people will come back to the office to have meetings, while for individual work, they will stay at home. And in that sense, we think on the mid-term that the office space will actually be more meeting rooms. And since by far not all meeting rooms are equipped with video conferencing equipment, we definitely see a growth here. But ClickShare did very well. So actually, we grew market share in the agnostic space in 2023. And that is definitely, again, in this market environment was definitely a very important element. Towards the future, what is our strategy on click share? Basically expanding in the agnostic space or further growing in the wireless space. Of course, taking also market share in the traditional wired rooms and also finding a strategic path in the in-room systems. And you will hear more about that in the course of 24. And on top of that, of course, we're also expanding our portfolio in ClickShare with different form factors. We were at ISC, that is the AV biggest trade show last week in Barcelona, where we launched our ClickShare bar. It's basically a ClickShare equipment where we add audio and video capability. And this is really geared towards mid and small meeting rooms. So it's extremely easy in install. You just one cable, you connect the monitor with the bar and it's very easy in install. This was very well received last week. And this is then also on the market right now. Then for large video walls, we saw actually a very solid order increase throughout the year. Sales was slower in the first part of the year, but then definitely ramped up towards the second half of the year, but actually a record high in the fourth quarter. Then for our video walls and for our large video walls, control rooms, as you know, we transformed our strategy last year. The trend in the control rooms is that the operator will become centric and that the workflow that you generate and create for the operator is actually the central piece of what you need to offer. That needs to be flexible. So that's why we basically have now brought on the market Barco Control, which is our new software platform, was launched in April last year. Very well received. We see first sales also coming up there. And this is basically now the center of what we're going to do in our control room business unit. Meanwhile, we still have a very up-to-date hardware portfolio in control rooms. We have, of course, our LED portfolio, but we also launched our very latest LCD solution, Uni-C2, in the third quarter of 2023, which is also extremely well received in the market. But for the future, more focus on software. And I think when you look then at the EBDA for large video walls, where in the first half we were still negative, we definitely basically made up for that in the second half, where we turned positive. And for here, we're close to breaking even. And then in entertainment, so entertainment is basically building on the momentum that we've seen in the second half of 2022. So sales growth 15%. And overall, of course, also a tremendous step up in gross profit because all the supply chain restrictions that we had eased out and that leading also into like a big step up in EBITDA to 12.5%. In cinema, building on the lamp to laser projector replacement wave, continue to build on that one. Lamp projectors are getting end of life. And of course, with laser projectors, we are offering a much more cost-efficient solution to the exhibitors. Also, our cinema as a service, we continue to roll this out, and that is ramping up our recurring revenue in cinema. At the end of last year, we announced the integration of our Simionic sales activities back into Barco, and that integration process is running smoothly. And then, of course, for new product introductions in cinema, this is the year that we roll out our laser light steering projector, This one basically got already a lot of good reviews from the ecosystem. This is 10x more contrast. It's 1.6 better in efficiency compared to even a laser projector. And next to the light steering projector, we're also bringing out a new media server. Media Server is the play-out tool for the movie on the projector, which is a completely integrated media server. So for exhibitors, they can basically streamline all their operations in this media server. And it is also future-proof for new formats, immersive sound, HDR. So this will also come to market this year. Last but not least, immersive experience. So also here, we saw growth, mainly in EMEA and in the Middle East. China not, because of course the lower budget of the local governments and still high inventories in the channels, so we did not see growth in China for immersive experience. For all the different verticals that we are in, all verticals did grow and especially also our simulation business line. Here, for the new introductions that we're doing, we launched last week in Barcelona at ISE our mid-end projector, the i600. You can call it the Swiss knife for all mid-end projectors. It's a 4K projector. It has high performance. It is really lighter, and it is very affordable in price. So this one was, again, very well received. It's a house-built 1DLP projector. And on top of that, we will also bring to the market a new flagship 3DLP projector. This is an 8K projector for the large events. From image processing perspective, last week we brought to market our Encore 3, which is our high-end switchers for events, double the bandwidth of the one that we have currently on the market, and again, very well received at IAZ last week. Also here, focused factories is very important. So we are basically ramping up our bushy factory. This will be a projector-based, fully automated factory where these mid-end projectors will be the first one that we ramp up by second quarter of this year. And then just as a summary, so Barco, we're a technology company, and if you see the common trends through all our business units for the future, then I think it's summarized in this page. So first of all, at Barco, we change paradigms when it comes to visualization, which means towards the future, more interactive displays, 3D displays for that interactivity. That's one of the things that you will see on the roadmaps coming in. Data, as you know, big data, very important. At Barco, with our connected network solutions, we already, of course, help in handling and making use of the data because we give easy ways to visualize the data. But the future is, of course, to start working with the data and doing data analytics, adding AI algorithms to the data between the source, so the camera, the input, and the output displayed. So in many of our roadmaps, you will see an edge compute, GPU compute coming in to basically deal with this real-time compute. And this will be then our platform to expand our offering also with AI software. And of course, everything that Barco do is always excelling in quality. It's of course in the hardware, in the image, but in the software, it's also in the whole workflow solutions that we offer. And of course, Sustainability is the heart and core of what we do and in every activity we embed that. And with that, we can come to the outlook. So if you see the investments in 24 that will help us for future growth, it's all about new product introductions. We had already a few that we launched, but there are many more coming. Focused factories, this will help to protect our growth margins. getting closer to the end customers to basically create even more opportunities for us in the markets. And of course, the spirit at Barcourt is one of winning culture. And we care. We care about our people. We care about our planet. We care about our communities. And that's all captured in our sustainability charter. And then for the outlook for 24, so macroeconomic and market condition remain uncertain. The visibility there is not where it needs to be. We are assuming that throughout 24, we see a return to normalized inventory levels at our customer base. And of course, as I said, we plan multiple new product launches over the course of the year. So that's why for 24, more in a cautious way, We basically expect top line for year to be in line with 23, with a gradual year over year increase as of the second quarter. And for 25, we expect to resume a top line growth on a full year basis. For APDA margin, we expect further improvements and be above 14% for the full year 24. And then before we go to the closing, a last word on our dividends. So the Board of Directors will propose to the General Assembly to distribute a gross dividend of 0.48 euro per share, which is up 0.04 euro versus last year's dividends. And with this, I hand it back to Rob.

Thank you for this presentation. We're indeed ready to move into a Q&A. I would like, if you have a question, to raise your hand virtually. At the top of the screen, there is a button called Raise. I will take you in the right order. Please, maximum two questions at a time. If you have more, you can always queue again. Alternatively, you can also post your questions in the chat with the preferences to raise your hand. And I will start the questions with analyst Matthias Mamhout. Matthias, you can now unmute yourself and ask your question.

Yes, hello. Good morning. Congratulations with the results. Two then from my end. Maybe firstly, on the guidance, could you maybe elaborate a little bit what we should expect in terms of the different divisions? And also, I heard about visibility. Would you say visibility has further worsened or it's actually improving at this stage? And then a second question is maybe in terms of capital allocation. If I recall previous calls, there seems to be some mna that is currently being considered is this still the case how are those files proceeding and i know it's always difficult to comment on any future targets i would say but if you could give us some flavor on what we can just expect in which terms of is it is it in line with the present divisions i would say if it's something completely different will there be significant synergies and that are my questions at this stage thank you

Okay, maybe start on the outlook question. So there are not that over the full year, there are not that many differences throughout the three divisions, actually. If I say over the full year, actually, and this is primarily because of the, I would say, the reopening or softening, I would say, of the macroeconomics that comes for most of all, primarily enterprise and healthcare then. The new product introduction throughout the year is also in the different divisions. If you look more towards the start of the year and then the divisions which will have to deal with more, I would say, building down inventory levels and that will have an impact in the beginning of the year. This is then primarily into enterprise with respect to click share actually and into healthcare, that in particular. But with respect to gross profit margins, capturing further product mix improvements, focused factories improvements, this is yielding the different divisions actually.

On capitalization, the first thing to understand is that we continue to invest in recurring revenue and in focused factories. Next to that, yes, we are considering a few M&A deals. That is correct. But we will approach it in a very disciplined way. We are not in a hurry. We want to make sure that we are prudent and careful with the shareholders' money.

Back to that.

Okay, thank you. If I may, just one short follow-up. You do not reiterate the margin guidance bracket in the guidance, 14 to 18%. Do we need to read something in there or not necessarily?

No, no, certainly not. This is focused on, so we are not changing that range for the years to come, but particularly on 24, you say, okay, it's above 14%. Yeah, no, nothing more to be looked into it.

Thank you, Mathias, for those questions. Thank you. Chris Kippers is next. Chris, you can unmute yourself and you have the word.

Yes, good morning. Thank you for taking my questions. I'll raise two of them indeed. Firstly, if you, one moment, I had a list here. If you look at cinema as a service, 25% in 23, to what extent is this the impact of one big player doing this or how should we see this evolving? And also, are you now considering to search for external financing solutions on that or will you do this on the Barco level still? And then second question, you indeed presented the click share bar, a nice add-on feature. The question is, how do your partners actually react to that in the sense that are they shocked by this or is it just a first step and you would do other things as well and you communicated beforehand with them? What was their reaction actually on that? Thank you.

So should I start? So cinema as a service, so indeed 25%, as you know, there is one large contract there. That's the AMC contract. We're talking about 3,500 units. But we see more deals and more discussions coming in there also. So we basically are growing our recurring revenue when it comes to cinema as a service. Will we finance that over time all by ourselves? That is not what we're going to do. And we will handle that case by case, actually. Yeah. And then for the Glitcher bar, so very well received. So if you look at the ecosystem last week, for instance, so we had our distributors and our resellers and also our end customers there, very well received because it really targets a particular mid segment, mid and low end meeting rooms kind of segment. So in that sense, it was really an addition to the portfolio that they have today. For our alliance partners, where of course we bring now also a video bar to the market, actually the whole agreement there is that it is an extension of the click share portfolio. So we bring another click share form factor to the market, which has then also audio and video capability. So in that sense, it is positioned in a way that it is enabling video conferencing with the features on it. So in general, there was a common understanding also from our alliance partners that we will basically have a solution on the market.

For more, we have also announced that we are open to licensing deals so that for which we did one last year, there could be others following.

Yeah, so this was the licensing with. As you're well aware of, this is an older way that we actually can expand our click share into the market. So, in the end, we want picture as broad as possible embedded in the meeting in the meeting environments. And that was another way that we indeed did that.

Yes. Yeah. And I fully understand. But given the fact that your product portfolio becomes wider and given the press release also mentioning some launches in 2024, I can imagine that suddenly the product portfolio gets to such an extent wider that some partners would say, why would we team up with Barco in the end?

No, no, that was not the case. Actually, it was more in a constructive way that you basically say, ah, that maybe also opens possibilities towards the future for their portfolio. So in that sense, no, it was definitely not perceived.

We should not read too much into it.

No, no.

Okay, thank you. I'll leave the floor to the others. Thank you.

Thank you, Chris, for those questions. He steps, you're next, and you can unmute yourself before you ask me a question.

yes thank you also two questions from my side um you were indicating that the working capital with 16.6 of sales is still too high what is a kind of an internal target that you're aiming at and then in healthcare you were yeah focusing on on the phase out of this uh large contract in the us can you quantify that a little bit and and how do you how will you tackle this going forward thank you

The first one I'll answer short. The target is to go to 12% and better. And lower.

And for the large contract. So yes, this was an unusually large. I think we mentioned last year already in the order of like 25 million. That was just end of life of the product of that customer. And then phasing in and getting into the design cycle of their new product is one of the things that takes time in Surgical. And what happened also with this customer is that they still had some of these old systems in stock. So they actually could postpone this new system actually a little bit longer in time. So that's what happened there. For us, it means that we need to make sure that our pipeline, that we are early on in the design cycles of all these OEM partners that we have. We have good leads there with this particular partner because this is not the only program that we run with this particular OEM partner. So we have a lot of leads in the funnel. The only thing is now a little bit like when do they start with the contracts? Because they're still building off their inventories. That's actually the thing. So we see this definitely improving over the course of 24. So these inventories will come down. Visibility on the market, it's not completely clear, but we see signs, of course, that the stock is going to build on and that the healthcare sector is getting healthier. And in that sense, yeah, we believe that our customers will build off their stock and then we can basically convert those leads into actual contracts.

And this, let's say, positive news is also already taken into account in your stable 2024 top line outlook? Yes.

Because again, the design cycles in surgical, they take typically longer than one year. So this is just very long design cycles. So this will start kicking in at 24, but it will also be for 25 and 26. That's the nature of that business.

Thank you, Giseps. Next question is for Stefano Tofano from Evianomero. Stefano, you can unmute yourself and ask your question.

Yes, good morning, everybody. I have quite a few questions, but we'll restrict, try to be short. The first one is on the guidance. I did not understand your comment about the cadence of the guidance of flag year-on-year, but you were saying something about improving year-on-years of Q2 and for the rest of the year. If you can maybe just explain a little bit more. I did not quite get that. The second question is on the large video walls. Obviously, quite good improvement over the second half. Maybe something on what we can expect going forward, H1 this year, and also in terms of the cadence there of the profitability throughout the year, if you can say something on that. And maybe a very quick one on accounting-wise, the 4 million extra depreciation. from cinema as a service. What can we, how do we have to see that for the full year 2024? I don't know if you can maybe say something on that.

Okay, perfect. Thank you for the questions. I'll start with the first one maybe. So on the full year guidance sales in line and then gradually picking up sales increase as of the second quarter means that we do see in the first quarter still lower sales compared to a high comparison basis for the first quarter of 2023. That's actually what it means, first quarter of 2023, where we were growing year over year at that moment 20%. And if you look to the different years, it has been also a record high first quarter. So that is a comparison basis. This is also because of, I would say, market conditions, which we see gradually improving, but we're not getting in. And that's an impact of those inventories being built off So that's where we are more cautious on this first quarter. The new product introductions, which are being launched over the course of the year, will in particular start to increase or have a positive impact on our orders as of the second quarter and then sales as of the second semester. So this is the cadence over the year. I hope that clarifies, Stefano.

On large video walls, We are engineering a massive change where we go from a hardware-centric additional persons unit to a software-driven decision. It's been driven by the demand of the market to go for higher security. So we expect, we have seen how the change is In a positive direction, it is healthy on margins and healthy on improvements. This will continue over the next few years. We expect, this is the reason why we don't decide to divest this division, because we believe it has potential.

Yep. Yep. Maybe to compliment on the last question then, so increase in depreciations for 24, a couple of million higher. So far, not guiding for more. And it really depends on how many new deals on Cinematous Purpose that actually do land. So in that sense, as soon as there are, I would say, tangible more, then we'll give more specific guidance or change our guidance accordingly in that sense. But not as big increase as we had it in 2023 of 4 million. compared to 22 to be foreseen in this year.

Thank you. Thank you. Mark Hesseling from ING, you're next.

Yes, thank you. First question is actually on the moving parts for the increase in the margin in 24. Quite clearly you have to address the gross margin issues. I just want to check if that is the reason why you expect it to be to be up year over year and maybe talk a bit about how that goes on the on the different divisions. And my second question is on the.

Yes, you're breaking up.

Yeah, you're back Mark. Second question, repeat your second question.

Yes, OK, so yeah, sorry sorry. Okay, the second question is free cash flow. Looking at it year over year, I think you will have slightly better profitability, so that's a positive. I think the working capital will be better towards the end of the year. Can you maybe quantify a bit if you talk about going towards that 12%, how much can you achieve in the coming year? And then secondly, or thirdly, the capex. What do you expect as a capex level, also taking into account what you said on cinema as a service?

So maybe on margins first? Yes. So on the gross margins, so I think the improvements that we saw in 23, favorable product mix. So Charles just said it. So moving more into software, there's definitely waste in our gross margin. That's definitely one element. that the supply chain, the high PPVs that we had to pay actually when there were shortages, those disappeared too. So that definitely gave us a boost in gross margin. Also entertainment, of course, top line doing so well. That has also helped us in stepping up to gross margin there. We plan to continue to step this up over the next years. Of course, this supply chain shortage and the high PPVs we had to pay Those are now out of the system. We don't necessarily see the component costs coming down further. But what we are now definitely are going to leverage towards the future is our investments in focus factories. And the fact that we are going to protect actually our gross margins by actually the improvements we can make through our manufacturing, our automation that we have there, our local sourcing of components. So this is basically the actions that we put in place to continue to work on our gross margin.

Towards the outlook of your, you're looking at the uptake for improvement of EBITDA margins for next year then actually. I would say healthcare because of the reasons which you mentioned indeed to step up above that 10% EBITDA margin which was close but not being surpassed. And then the other divisions holding to the strong performance which we have seen over and improvements over and the EBITDA which was there in 23 and in particular in the second semester. yielding further from the decisions taken also in large video walls. So in that sense, that's... Second question. Free cash flow. Free cash flow. What was the question? Ah, okay. So further improvement on the EBITDA margin, as you can calculate. The working capital going towards 12%. Cash flow, capex, we keep in line with around 55 million, 50-55 million for this year. And then tax rate will be steady compared to where we had it now. So if you all calculate that, then we should get to, I'll call it, towards 10% of free cash flow on sales, actually.

Okay, so do you think that going to 12, you can achieve that in one year from 16 to 12?

That's what we are going for internally, yes. We're stepping up now. Yeah, but... Not, not, it will be throughout the years.

Okay, clear, thanks. Thank you, Mark, for those questions. We have Matthias again with additional questions.

Yeah, sorry, two follow-ups. Good morning, two follow-ups. cinema is all of the services revenue and it's not exclusively cinema as a service. And if so, cinema as a service, could you maybe elaborate a little bit on sales contribution and EBITDA contribution for the business? That would be my first. And then the second question would be actually on Cineonic. You've opted to buy out the minorities entirely. I've seen that it has not been taken into account in the free cash flow statement, so it's not yet closed. What should we expect in terms of cash layout for next year for this? Is previous transactions a good benchmark? And what can we expect from this integration? Overall, I would say, maybe following also on Mark, savings next to large video walls what's the flexibility there are there any initiatives being prepared what if sales would go maybe softer than expected or macroeconomic developments would be softer than expected is there any self-help potential or planning that's presently being studied

Yeah, so on the cinema as a service included into this 25%, actually, yeah, you can say we had it at between 20, 22, 23% a year before, so the uptake is actually relating to cinema as a service, right? If your question is on the EBITDA impact, then actually when you see the increase of our depreciations versus last year, that is actually, I would say, the particular help you can say on EBITDA. I also have to say that, and you also know that, that it is looking for these more recurring revenues very well. Temporary then, or in the first year, it does have an impact. You can say that negatively. on your top line. So if we would have recorded it all at capex sales instead of the recurring, which we of course prefer the recurring, then our top line would have been more than 35 million higher. So that's that. On the first on the buying the shares back and then the capital decrease that will follow, that's not going through the free cash flow, but directly into net cash because it's not cash. So that's that indeed still to come and will be in this first quarter. As to the integration opportunities and synergies, yes, there are. And that's part also of the OPEX improvements which we are seeing and taking also into the guidance of, and I did not mention it before, so it's a valid one. to add on there.

But in general, we're actually integrating now sales into the business unit cinema within Barco. This is what we have done when we started two and a half years ago in all our other business units, that you put products, R&D and sales together in one business unit, depending on which market they're serving. And that is basically to accelerate the go-to-market, to accelerate the connection with the end customers, And this is here now again, you bring sales closer to product supply and R&D. And we see definitely also improvements there towards the end customers in the end.

Did we cover all of your two questions?

I guess. I guess. Thank you. Okay. Thank you, Mathias.

Chris, you also had other questions?

yes good morning uh small question still from my side um firstly just on healthcare just to check uh regarding the fraud cases in china what is the actual situation because i might have missed it but where are we right now or do you see there's an end coming to it and would indeed the rebound be quite sharp that's my first question and secondly if you look at the factory moves you've done in 2023 and you've taken those costs i would say more as a recurring operation of course but what would have been the hindrance on an mbda in that level in 2023 in the numbers Thank you.

Okay.

On the anti-bribery, actually, I think we did a full diligence there of the case. And the anti-bribery actions.

Oh, yeah, and in healthcare.

Yes. For the moment, this is the central government of China doing. We have no impact on that. Still going on. What they say is that they could relent This year, as you know, a lot of things are not clear because China, new measures are announced after 2022. 2022 is tomorrow.

Yeah. Yeah. Okay. And then on the impact of the focus factories, right? So Chris, is when you do the moves of what we have done over the course of this year actually, from Europe, the production towards China, for Suzhou in particular, It had some double costs in the second half of 22 and the beginning of 23, actually. But that has now been taken out. I would say that the double costs with respect to healthcare are not there. You will have seen that despite the lower top line in healthcare, that gross profit margins for healthcare over 23 improved. And that's one of the reasons also helping out there.

It's also by the reason that the inventory is too high. We had doubled up in order to be able to move.

Yes, because as long as you transfer, you have to do that.

Yes, because we also will naturally decline.

So you're still cycling in relatively easy comedy in the start of the year on that side a little bit. Yes. More or less.

Not convinced. No, no, no. It's not convinced. The question is not clear. Can you repeat it?

No, because you said you still had some impact at the start of 2023 with the move, double costs. So that means you have a bit of an easy comparison base starting of the year this year. That's my question. And the first semester.

And the first semester.

Yes.

We said that we would improve parties for the full year. Yes.

Yeah. But you're right. Sometimes.

Yeah.

Yeah.

Thank you. Mark, you also had some other questions.

Yes, thanks. First, actually on China in general, I think that was one of the areas that disappointed in 23. I think visibility is still low, especially now, just what you just said, ahead of Chinese New Year. What are your assumptions in the full year guidance on China?

cautious, I will say, but also assumed that in 23, actually, yeah, call it, we reached a little bit the bottom, I would say, so the only way is applying.

Yeah, but we have been, we have pointed this last year, so we are careful for this year.

Yes, we are. Yes, we are.

So we're cautious in the targets.

We do not further see.

No, we think we have that that if we reach the bottom now, that there are some signs of relief like books office is coming. But then again, there are also inventories in the channels there too. So same as we've seen it in the rest of the world. So we need to be cautious also because they need to build off their inventories too. So in that sense, yeah, we need to see it all coming together. Anti-bribery, hopefully by the second half of this year also we see a release, but we're not sure. We don't know. So... Hence the cautiousness.

OK, clear then. Maybe talk a bit more on on on click share. I think you just said that the inventories are still relatively high levels. You are launching a new product. What are you expecting for the full year? I think if you said sort of flat for all the divisions, then enterprise you still have to be facing out of the old hardware part of the of the large video wall. So that sort of implies that that click share should grow. Yeah, maybe maybe you can say a bit more and.

It's the same answer actually as we gave before on a group level there so so so. on a full year confirming on large individuals. Indeed, that has an impact on your top line, but for the better of the EBITDA margin. And then in the first semester will be impacted by customers lowering their inventories. So that will certainly have an impact on the first quarters. The new products which we introduced are primarily being shipped as of the second quarter. So in that sense, a gradual improvement as of the second quarter and growth. But that is then more, I would say, further kicking in as of the third quarter to get them flatten and first growth as of a full years. On enterprise level.

OK, OK, clear and then squeezing maybe the last one a bit like what Matias earlier asked also on if you read something into the beyond 24 you say back to growth in full year 25 previous guys was always high single digit growth. Is that can you? Can you immediately achieve that? Or do you then need to sort of build a period to go back to that high single digit growth? As soon as we have more visibility, we will be more clear.

And we learned to be cautious over last year. So in that sense, at this moment, we're not doing... I would say bold statements in respect to the percentage. The focus is really executing, grasping every opportunity and building up further, I would say, the momentum to be able to confirm the percentage as such.

Okay, great. Thanks.

It's clear. Thank you. Thank you, Mark. I have no other questions at the moment, so we'll call to the room. If you have any other questions, you can now raise your hand.

I see no hands.

There's also no questions in the chat, so we can close the session. I would like to thank you all for your attention today and for your questions. I would also like to invite you to visit our webpage where our new annual report is live since this morning with a lot more details of all the divisions. And we would like to close the session here. Thank you very much.

Thank you.