Barco Nv

Good morning, ladies and gentlemen. Welcome to this conference call for Barco's first half results for 2024. My name is Willem Fransul. I'm here in the room with our co-CEOs, Charles Baudouin and Ann Stegen, and also with our CFO, Anne Sender. Anne Stegen and Anne Sender will take us through the presentation of the results this morning. And this presentation is also available on our investment portal on the website. After the presentation, there will be time for questions. I would now like to give the word to Om to take us through the slides.

All right. Thank you, Willem. And good morning, everybody. I'm going to start with a summary of our first semester results. For sales, we landed at 434.5 million, which is about 16.6% lower than last year. We do see sales significantly picking up already in the second quarter, especially in the Americas, where we actually see for the second quarter year-over-year sales growth. Order book is at record high, 533 million, and that includes already orders for new product launches that are still going to come in the second half of this year. Book-to-bill, more than one. And also eco-labeled, so revenue coming from eco-labeled products increased with four percentage points to 64% of the total revenue. EBDA landed at 35 million, which is 8.1% of sales and 4.4% lower than the first half of last year. Gross profit margin was pretty resilient. So we actually saw improvements in healthcare and entertainment. but that was offsetted with a decline in enterprise because of the lower click-sharing sales. OPEX is under control. R&D, we kept on investing to support, of course, new product introductions for the second half of the year. Free cash flow landed about 15 million. That is a step up of more than 38 million since last year, and the net income is at 9 million. Now, the outlook for the full year, we expect to resume growth in the second half. Although the visibility remains challenging, we expect growth for the second half over the second half of last year in sales. And we also expect a strong recovery of our EBDA for the second half of the year, which is now expected to land for the full year between 11% and 13%. So we started the year slow. We had a slow first quarter, but we see significant improvements in orders and sales for the second quarter. As I mentioned already, especially for the Americas, where we for the first half are flat in sales compared to last year. And we see the growth in the second quarter. This growth is mainly driven by our diagnostic imaging business unit, where we see solid performance and also strong demands for premium portfolio. We see also in the first quarter, we saw softer demand in entertainment, but that demand has been picking up in the second quarter. And also order and sales for our control rooms, driven, of course, by the geopolitics, but also by the need for security and data insights, has been growing year over year and quarter over quarter. EMEA remains weaker, so the investment client, customers delaying actually their investments, also the decision-making from lead to order, from order to sales, is slower in EMEA. We also had, for our meeting experience, higher than usual inventories in the channel at the beginning of 2014. And of course, because the market is still in decline and we're growing actually in line with the market, but it took us longer to destock that inventory in the channels. Cinema sales was also weaker in EMEA. That again had to do with the Hollywood strikes and a limited movie slate, which we expect to pick up again towards the end of the year and especially also next year. And also for EMEA, we see growth in control rooms and also an increasing share of software in our portfolio there. APAC was down 13%. We also see pickup in orders for the second quarter in APAC. China remains flat and we see actually stronger demands in cinema already. Now, we had also a very high comparison basis, especially for entertainment compared to last year. So that's also a reason why APEC sales is a little bit lower for the first semester. And also worth to mention is that with our strategic transformation in control rooms, we abandoned several countries' markets in APEC, including China. And that is also basically impacts a little bit our results for APEC.

I'll hand it over to Anna. Thank you. All these figures roll up here to the group figures on the figures as such. So orders landing in the second quarter at 243 million and sales 238.6 million, which is compared to the first quarter, 10% up on orders and sales was up 22%, second quarter versus first quarter. So to speak, let's call it the dip and the softness in the first quarter has picked up again and is largely improved. Orders above sales, which means that we have been able to build up our order book to the tune of 38 million and a half, including in there also indeed pre-orders for new product launches, which will be shipped in the second semester. The visualization of our EBITDA versus last year. So last year was at 12.5% EBITDA margin. First semester this year at 8.5%. Needless to say that the biggest impact is coming from lower volumes, lower sales. Cross-profit margin has been quite resilient. The negative impact is linked to lower sales in enterprise and in particular in click share. where we have high margins. When you look to the gross profit margin in both entertainment and in healthcare, there we see an uptake. So all of the better product mix, more and more software, also the actions which we have done throughout the years With going to China, the focused factories are really yielding results. We have been containing our OPEX. If you compare OPEX first semester versus last year, this is down 6 million. This is despite, or I would say, we did not cut on R&D investment. with a clear eye on the new product introductions, which are upcoming. Where it is coming from, it's really a whole set of cost-contained measures. The control rooms reset last year, clearly has its impact now. And then across, I would say, attrition, which has done not-or-had-count actions. which has done the offsets with organizational efficiencies. If we look to the total headcount mid of the year compared to the beginning of the year, then we are 170 people less direct, indirect, and direct people, indirect people, 120 people less. So landing with that at an 8.1% EBITDA margin. Taking it to net income on slide seven, starting from the EBITDA of 35 million, depreciations are higher than last year, as expected, including in there also depreciations on cinema as a service deals, which we are having. Restructuring costs 7.8 million, including the last phase of the strategic review and research started last year on control rooms. including the closure of the Changping factory, which was already at the beginning of the year, and then numerous diverse actions, but also positive impact, including integration of Synionic into our Barco activities, where we now have again 100%. Interest and taxes, interest positive. Taxes, 18% last year, lower number on a lower EBITDA figure, of course. and then landing to an income of 9 million euros. Moving over to free cash flow, like Anne indicated in the summary, landed positive on the first half, rounded to 15 million, which is a considerable step up compared to the first semester last year. and the main step-up is linked really to the lower working capital. Gross operating cash flow, 30 million, which is EBITDA minus restructuring cost. CapEx, we kept at 19 million, which is quite in line with last year, where we had 21 million. Two bigger items included in there, cinema as a service contracts, which is good for 6 million. Manufacturing footprint, we opened the WUSHI, factory in China, included in their 5.6 million, and then more recurring profits included. The working capital has been reduced compared to the beginning of the year, 9 million, compared to over a year ago, 37 million rounded, though despite, in all honesty, quite still a lot of opportunities to further decrease that, and particularly into the inventories. We saw this declining or decreasing as of the second quarter, but it really remains a focus area to further go down with the improved top line in the second semester. Roche landed at 11% net cash at 173 million rounded, which is 70 million lower at the beginning of the year, included in there, of course, the free cash flow and then the down dividend share buyback and then the buyout of the minority investor into synonyms. Moving over to the sustainability KPIs and picking out two here. First, equilabelled revenues, so 64% compared to 60% in the first semester last year. So a further progress over there is being set. The measures and the definition becoming more stringent every year. Now also including software and service revenues. So if we would restate or compare apples to apples, then actually we would be at 70%. But anyhow, it is what it is. So the new definition, 64%. And we remain our target for next year to go to 75%. including this more called stringent definition. Driven across BUs and across the different divisions uptake, if you take out two which have a really positive impact, then it's within diagnostic imaging and then within cinema in particular. The new product introductions coming in the second semester will also, they are all equal labeled. So in that sense, we'll take the progress further. And looking to the natural motor score of our customers, where every year we have a deep survey twice per year with more and more replies, with more and more, I would say, substance to it. We do a lot also with the results and any of the comments which we get to really work on any comments of the tractors, you could say so. And with that, actually quite pleased with the further progress on our results. landing to a net promoter score of 52 this year, four points up versus the year before. The largest improvement, so we see it really across the regions, but the largest uptakes are in meeting experience and in DI, diagnostic imaging, and it's also really driven by better points on or even better points on after sales and service. And with that, I hand it back over to you, Anne, with some more color on the different divisions.

Yeah, okay. Let me start with healthcare. So in healthcare, orders and sales declined 12% and 11% respectively. We did see, of course, an improvement already in the second quarter in order and sales. Gross profit margin really did improve about three percentage points, and that was due to a better product mix, but also due to the fact of cost efficiencies now that we actually could transfer all our medical displays as planned to our studio factory. EBDA dropped from 10% last year, first half of last year, to 8.8% last semester. and that was mainly due to a decreased top line. So when we go to diagnostic imaging, very healthy market dynamics in diagnostic imaging, resulting actually in a robust business performance, especially in the Americas, again, where we saw in the second quarter year-over-year growth, and there is definitely also there the strong demand for our premium solutions. As I mentioned, and it's definitely also valid for diagnostic imaging, the ramp-up of our product factories in Suzhou are really yielding now these gross profit gains and we see the effect actually in diagnostic imaging. We also in June launched our home reading radiology portfolio of displays. This is basically a brand new set of home reading radiology displays. They have multimedia. They have also secure connectivity with the infrastructure of the hospital to guarantee the same quality at home as in the hospital. They are also adapted for the ergonomics of the radiologists at home. So this was a highly anticipated new product with already quite some pre-orders and it's doing well actually in order intake at this moment. In the entire portfolio of the AI, we see also more and more software entering in our portfolio, also basically including AI assist features that help actually the doctors in their diagnosis. And also the momentum in digital pathology continues to grow. And also throughout the rest of the year and next year, we will bring additional displays for pathology on the market, but also software platforms, workflows that make the life of the pathologists and actually the lab assistants preparing the samples in pathology towards the pathologists actually make it more easy. So that is also a software platform that we are launching next year. For surgical and modality, there we see actually the first indications from our customers that they are getting back to normal inventories. We did suffer from that actually last year and also the first semester. We also see that software is gaining actually in the portfolio mix of surgical and modality. Also here, of course, the ramp up in studio is definitely benefiting also our modality business. We are more cost-effective and cost-competitive with ramping the products there. And also towards, for instance, our Japanese customers that at this moment do benefit from weak yen. This is actually for us a very, very good step up in being cost competitive in modality. Also for surgical modality, we continue to invest in this software-enabled visualization that goes along with a new Nexus platform that we're rolling out now. but also smart displays. And the smart displays, you have to see, they include all your senses, from voice, eye tracking, touch, just to make the life of the surgeon in the operating room more easy. And there, we basically are launching a new flagship smart display product portfolio in the first half of next year, which is called Brilliant Assistant. When we go to enterprise, so in enterprise, we saw a decline in orders and sale of about 22%. We did see sales grow with about 33% in the second quarter there. Gross profit was affected with 6.4%, EBDA with 11.5% EBDA margin compared to last year. And that is mainly due to the lower mix of click share in the sales portfolio. So when we go a little bit deeper into meeting experience, meeting experience and the video conferencing market remains slow. It's at a single digit decline. Barcodes, sales, sell out is actually in line with that single digit decline. But we suffered in the first half of this year with an unusual high stock that was taken in at the end of last year through our distributors. That had to do with changing channel programs and partner programs that we introduced in January of this year. And we see also some increased competition in EMEA from more price sensitive, sometimes also Chinese competitors. The click share bar. This is basically a video conferencing bar where we included click shares. It's very compact. It's a plug and play. It's actually designed for low and mid size meeting rooms. We've launched that actually in the first half and it's doing very well. And it's really successfully introduced and it's selling well. And last but not least, our R&D teams are now preparing our next generation AI enabled platform, which will be compatible and will be certified with the Microsoft standards. And that is due on the market by mid next year. Control rooms in general, the market is really being boosted by this need for more security and need for more data analytics. We see in our control room business, after the transformation that we introduced last year, actually growth in both orders and sales for the first semester and also a positive contribution to our EBDA. The momentum around our platform, our software platform, our new platform, which is called Barcode Control, is really building up and we did a major release like two weeks ago. with a major set of additional features. And we expect actually others to continue to grow actually throughout the second half of the year. For the future, Barco Control is actually our software platform where we will start adding applications, specific customized workflows, collaborations, applications for our verticals. And this is basically a very nice way also to increase the software offerings from our control room business. And then on entertainment. So in general, entertainment orders 10% down, sales 16% down, but again, sales picking up in the second quarter, especially for cinema and especially in the Americas. Gross profit was pretty much flat, but we also basically had a good product mix there. EBDA was down from 12% to 9.9% again due to a lower top line. For cinemas, we saw demand delays, investment delays from the exhibitors in the first semester due to a limited movie slate. That movie slate again is picking up towards the end of the year and definitely towards next year. We see then the orders and the sales recovering in the second quarter, as I mentioned already. Also, cinema as a service continues to grow and actually it's part of our revenue. But as you know, it is, of course, recurring revenue, which is good, but it's also spread out over multiple years. We officially launched now our new HDR light steering projector. This is very well received by the market. And towards the fourth quarter, we're launching an official commercial pilot program with a selected set of exhibitors in the US. For immersive experience, order intake really improved towards the second quarter, anticipating, of course, multiple new product introductions in the second half of the year. We also basically started production in our Wuxi plant in China on time. This is today geared towards the mid-end projection. It will also help us actually in cost efficiency for our mid-end projection portfolio. And again, here, in light of also Japanese competitors that we have in the IX market, this will give us actually advantage or at least help us to position ourselves generate a competitive position for us against our Japanese competitors who benefit from this weak yen at this moment. So, multiple new product introductions in iX. The i600, that is our mid-end projector, very compact projector, actually geared towards all our fixed install vertical markets. High-performance, but also very energy-efficient and also cost-efficient, was launched now, actually, in May, and is also doing well, picking up orders. Then we have two more to come for IX. One is our flagship 3DLP QDX projector, so that is for the events-based. And then our highly anticipated event master, so the switcher, the image processing tool. This is a follow-up from our market leader encore tool. And this one basically is getting to the market at the beginning of Q4. So then for the outlook, as I mentioned before, although visibility remains challenging, But we expect the top line in the second half to grow compared to the second half of last year. We expect a significant step up in EBDA. And for the full year, we expect the EBDA to land between 11% and 13%. And to summarize, I would like to basically get back to actually our plans, our plan that we've rolled out like three years ago. the fundamentals, how we see sustainable growth for Barco. We have been executing due diligently on each of these pillars. And it takes time. It takes time to introduce new products into market. It takes time to ramp up FABs and transfer portfolios to new FABs. But we are steadily improving. And this basically gives us confidence that we have the right ingredients for future growth. New product introductions, they're coming, more next year even. We basically transferred our products to Suzhou. We opened a new factory in Wuxi. NPS, like Ann mentioned, we basically focus on the customer and the customer satisfaction has been gradually improving thanks to all the actions that we have put in place. And of course, we have heart for sustainability. We were even recognized by Times Magazine in the top 500 most sustainable companies in the world, and that was out of a selection of 5,000. So we're committed to continue to execute on this strategy, and we are confident that that will basically help us for our future growth.

Thank you very much. And on for this presentation, I think we are ready now to move to Q&A. So if you have a question, you can raise the virtual hands in the Teams module. And it's the hand at the top with the word raise below. And I would ask to please ask maximum two questions at a time. And if you have more questions, you can queue again. I will unmute you one by one to raise your questions. So you can unmute yourself and ask your question.

We can't hear you.

Matthias, can you unmute yourself?

He is unmuted.

We can't hear you. Matthias? Matthias, we cannot hear you.

Okay, maybe try somebody else just to see if you can hear us.

You are muted on your side. I will move over to Mark first, maybe, and then we'll come back to you. Mark Hesseling from ING, can you ask your question?

Yes, can you hear me?

Yes, that's good.

Yes, yeah, OK. So first question is actually on your guidance range for the ABA between 11 and 13%. And it's quite a big range given for the for the second half year, and I can imagine that especially click share is really important for where you end up in that in that range. Is that true? If the click share, indeed, you see it successfully in the second half of the year, you might end up towards the higher end of that range. If it continues to be a bit slow, you could end up at the lower end of the range. Is that the right way to think about it?

It's a combination. Click share and the mix, for sure, has a bigger impact. but overall also the rate of growth above last year anyhow makes a difference. So in that sense, growing versus second semester of last year requires 100 million more sales compared to the first semester, for which we have reviewed the order book, the funnel, etc., to underpin. This is across all divisions. Needless to say, the margin of click share or the weight of click share also has a bigger impact. Yes, correct. For ClickShare on its own, we have the destocking effect now behind us. So that's why we also saw the pickup and sell second quarter versus first quarter. The markets, we gradually, while the sellout was still below last year, so a single digit lower, we do see a gradual improvement there. But in how fast this will further improve, yeah, that there is variability. Yes.

But I guess it's fair to say that your visibility on the other categories is quite good, given that it's predominantly a backlog business. And for ClickShare, it's by nature a little bit less visible, right?

By nature, that's correct. Because it's a lot of book and text. Yes, correct.

Okay, great. And then the second, you've refrained a little bit from giving a full year revenue guidance, but you did say it's going to grow in the second half of the year. Maybe what kind of magnitude? I could give a bit more idea. And also, previously you always said that all the categories would be relatively similar, all of them more or less flat year over year. So on which of those three categories did it change?

It's too early to say, and that's based on the visibility indeed, to say how big the growth will be. And in that sense, that's indeed why we can say we frame from a full year guidance on the top line, and otherwise it would be arranged. Where we do see growth year over year, in particular as entertainment and in healthcare, the down which we had in enterprise, we do not have the visibility for today to say that that will be fully compensated in the second stage. Yes, correct.

Okay, clear. Thank you.

Thank you. Mathias, can you try again? Unmute yourself, please.

I can try. Can you hear me now?

We can hear you.

Okay, sorry for that double mute. Apologies if I asked the same question, but maybe just on the guidance and on click share, I see you guide also for growth in meeting experience. Could you elaborate a little bit on what's going to drive that growth in H2 with a market that is down, I would say, still single digit? What gives you the confidence you can grow in H2 in enterprise or in meeting experience?

With the old guys for growth in enterprise in the second semester. So in that sense, that we will see and It's primarily into entertainment. It will be an important pickup versus the first half.

Yeah, that's right.

What we have added is that we have destocking in the first half.

Yes, and that is now behind us, that destocking. So now again, growing in line with the market. The market is expected from the market reports to pick up in the second half. But we have also, of course, short-term actions on our sales force, our go-to market, to sharpen actually our sales in the second half of the year on ClickShare.

Okay, just to clarify, because the press release speaks about growth and meeting experience, that's sequential growth, that's not necessarily year-over-year growth.

Yeah, that is semester-over-semester, yeah.

Okay, second question done is on capital allocation. I believe you have been always in the market for targets and certain of these processes were running. Could you maybe give us an update if how these processes are evolving and also given the share price if capital returns to the form of buyback are maybe on the agenda?

So we always manage our capital expenses there. So we have basically our capital investments in the factories. We have also our cinema as a service program. But yes, indeed, we are actively looking at potential targets. That remains the same as what we've mentioned before. We continue to talk. It always takes two to tango. And we do our exercise very diligently to make sure that we choose the right target which is really a strategic fit for Barco. And yes, at this moment, there is no new update around that topic.

And share buyback, is that any way on the agenda?

We will continue to be extremely disciplined in our capital allocation.

And we say to the market that if we don't find the right targets, we will proceed to return it to the shareholders.

Okay. If I may just do a short follow-up. You spoke about CAPEX. What can we expect for the second half of the year?

In line with the first semester. Yes.

Okay. Thank you. Thank you, Matthias. Chris Kippers from De Groot Peterkamp, you're next. You can unmute yourself before asking a question.

Indeed, yes. Good morning. Can you hear me? Yes, we can. Perfect. I was, earlier Nicole was kicked out when the Q&A started. Just wanted to ask my question still. I don't know whether to ask in this way, but looking at the guidance for the full year, we understand the movements in the top line, but What did you take into account to arrive at the new range of the margin, 11% to 20%? Meaning, divisionally, what is the mix you take into account, given, of course, the heavy impact of click share, of course, in the mix? Thanks.

We came to a higher stop line in the second semester, and that's across all divisions versus the first semester. We, including click share also there, we do see a further improvement versus the first semester of our gross profit margin, not only because of also more click share and the mix, you could say, but across the different divisions, which you've seen us already in the first semester, also even last year. despite, I would say, pressure on the top line, we continue to improve on our gross profit margins across the division. Mixed and also through, of course, our transfers to the factories in China. Correct. And yeah, we did a lot of actions on our OPEX and we will not let that go, you would say, until any further extra top line growth is back at the level where we want it. So it's operating leverage then on that end.

Yes, I know, of course, but yeah, I should do those details. My second question would be, if you look at the second half, if you look at the amazing launches you've got across the segments, I know it's difficult to quantify, but To what extent has this been a hindrance in H1? And to what extent do you see now in the order intake a massive return of that? Because indeed, people were awaiting, I presume the Nexus one was one every seven years and there were other examples of that. So could you give some more detail on that? Thanks.

Yeah, you're right. So I would say the new product introductions, they're highly anticipated by our customers to the extent that, for instance, in immersive experiences, you could say maybe the slower demand in the first semester had to do with the stalling of our customers anticipating these new releases in the second half. So also in diagnostic imaging, three orders that are already there on this home reading display or on the flagship new mammography display that indicates that customers have been waiting for these products. So they are on time. So we are actually, it's... full focus to make sure that we launch them all on time but it's fair to say that they're highly anticipated and that of course we expect also in what onset in the growth semester over semester that this will contribute to our second semester performance.

Okay, thank you. And if I may, just the last one, just on the working capital question for Anne, the 17.2% remains quite steep. You mentioned inventory levels. To what extent do you have visibility to have this number going down back to what, 10%, 12% we saw previously?

That is to go fully linked also with the higher sales and the second quarter. but also with the Toro reviews and monthly follow-up with all of the businesses actually, which we are doing. So yeah, it's a combination of out, I would say selling, but also a combination on where you get it in. More strict processes also on the inflow, last time buys, the height of last time buys, et cetera. And so it's actions across. So in that sense, but yeah, far and foremost, higher sales really of the main lever. But the goal is still to drive, to the 12%. Also end of life, et cetera, management, et cetera, which we are working on.

Okay. Thank you, Chris. Next question is for Stefano Tofano from ABN AMRO.

Hello, good morning.

Can you hear me?

Yes, good morning. Yes, hello, everybody. So two questions. One, maybe more specific on meeting experience. You mentioned obviously the channel inventory reduction, but also increased competition in MIA. Maybe you can elaborate a little bit more on that. And then I have another question.

Yeah, so just maybe to place again why we had such an unusual high inventory in the beginning of the year. We launched at the end of last year a new channel program that had many reasons why we did that. First of all, we took services on the ClickShare portfolio back in-house. Secondly, with the launch of the video bar, we basically have now an open channel approach. That means that the resellers do not have to be certified by us anymore. And also we had different terms actually with our distributors. And that made actually that our partners actually did a larger than usual buy-in at the end of last year. So that was the reason for the higher than usual inventory. Now, our anticipation at the end of last year was that this video conferencing market was going to pick up again this year. And that took longer than expected. And then we said in April, the first quarter, it was a negative decline. The second quarter was still a negative decline, but gradually improving. And now, again, the expectations for the second half is that it's going to go back into a positive growth model. So that is actually the reason for our unusual high stop. The increased competition, it's mainly in EMEA. There are some Chinese competitors today. And that has also, of course, to do, I think, with the situation in China that some of these competitors, they now actually move to the EMEA market. They are offering video conferencing solutions at extremely low prices. But that is, are they similar solutions? They are quite new in the market. So I think it still has, the verdict is still out there. if they are highly performing like our Glickshare family. So that's one thing that needs to be seen and time will show that. They are, of course, also working very much on margins too, towards the channels. So that is one of the things that we need to address. But at the other hand, we continue to invest in our click share, also in features that basically make our click share performance, but also the security, for instance, of the click share product, much more robust. And we believe that that is still a big advantage of our click share family. And then, of course, there is the new platform that we're launching next year, which has a completely new architecture that we will bring to the market in the second quarter.

Yes, thank you. So in the second question you already mentioned, and I know this is a little bit difficult because it depends on how your new products introductions will do, but given the mix effects and the continuous improvements of the operational footprint, what kind of gross margin improvements can we still expect? What is the room there? I know you cannot give obviously a specific number, but perhaps maybe a range or an indication.

I think at this moment it's hard to give really concrete numbers, but with these actions, this is one of our major efforts. We truly believe that our gross margin, that we still have quite a lot of opportunity there to improve on our gross profit margin. With both what you mentioned as well, the cost efficiency efforts that we're doing on our hardware in China, but also having more and more software, AI assist features,

in our portfolio the two of them will give us leverage yes thank you okay thank you stefano um other questions from the room i see no hands raised at this point in time so if you have a question please raise your hand in the teams module Okay, if there are no further questions, then we can close the session. We would like to thank you for your attention and goodbye.

Thank you. Thank you.