Barco meets 4Q03 sales and EBITA expectations and proposes to increase dividend to euro 2 per share
Fourth Quarter 2003 Financial Highlights :
- Sales at euro 174.7 million, in line with management’s expectations of euro 173-183 million, a 10.4% year-over-year decline. At constant exchange rates, sales decreased by only 3%.
- EBITA margin improved to 15%, from 14.3% in 4Q02. EBITA was euro 26.2 million, a 6.4% year-over-year decline.
- Total negative impact of currency fluctuations in EBITA was euro 7 million.
- Net income up 7.8% to euro 18.7 million, from euro 17.4 million.
- Current earnings per share of euro 1.83 versus euro 1.78.
- Net earnings per share increased to euro 1.52, from euro 1.40 in 4Q02.
- Fully diluted earnings per share up to euro 1.42, from euro 1.32 the prior year.
Barco CEO, Martin De Prycker, commented: “We met our sales and EBITA expectations for the quarter, despite the ongoing depreciation of the USD. The pick-up in order levels that started in September continued into the quarter, with orders growing by 19% year on year. EBITA for the quarter declined 6.4%, with EBITA margin improving to 15% from 14.3% in 4Q02. Excluding the impact of the 19% depreciation of the US dollar, sales would have declined by only 3% and added an additional euro 7 million to EBITA. The impact of total negative currency fluctuations in EBITA for the full year accounts for over euro 20 million.”
“During 2003 we continued to focus our company, positioning Barco as a worldwide leader in B2B visualization & display solutions. We exited Esko-Graphics, and divested dotrix and Machine Vision. Through the acquisition of Trans-Lux West in the U.S. and Leyard in China, we have created a solid growth platform for our Media operation. At the same time, increased manufacturing in China will provide for higher natural currency hedging.”
“Continued focus on reducing inventories resulted in an additional year-over-year improvement of 12%. We expect to see further results as we go on reducing the number of components in 2004.
“This year, we will continue to focus R&D efforts on our core competencies. In addition, we will further strengthen our sales and marketing efforts in regions with strong growing economies, such as North America and Asia. Last month we opened an office in Canada and acquired Folsom Research, Inc. in the US, a leader in the Events market, demonstrating our commitment to this market.”
“On the cost side, we expect some significant savings. Further streamlining of manufacturing operations will result in annual cost savings of euro 2.5 million starting in 2005. The gradual roll out of CRM software, which should result in better planning in 2004, and the simultaneous implementation of new ERP software is expected to bring additional savings during 2005.”
“As a result of these initiatives and the pick-up in orders we are seeing today, for the first quarter of 2004 we are expecting sales of between euro 147 and 155 million. This means a year-over-year growth on average of 6% at constant exchange rates. We further expect to achieve EBITA in the range of euro 13 to 17 million, assuming the value of the US dollar and related currencies does not further weaken relative to the euro,” Mr. De Prycker concluded.
CONSOLIDATED RESULTS FOR THE QUARTER
Sales and Orders
Sales for the quarter were euro 174.7 million, in the mid-range of management’s expectations of euro 173-183 million, and 10.4% year on year decline. The 6.4% increase in sales at BarcoProjection was more than offset by declines of 16% at BarcoView (mainly reflecting a particularly large delivery of ATC panels in 4Q02), 35.7% at Barco Manufacturing Services and 45.7% at BarcoVision. Excluding the impact of the divestiture of Machine Vision, sales at BarcoVision would have declined by 36%.
At a constant US dollar exchange rate, sales would have declined by 3% year on year.
Sales to Europe, Middle East and Africa represented 51.5% of consolidated sales, while 30.2% of sales were realized in the Americas and 18.3% in Asia Pacific.
Orders for the quarter were euro 188.5 million, an increase of 19% in nominal terms and 26 % excluding the impact of the 19% depreciation in the US dollar and related currencies against the euro.
The book-to-bill ratio (orders divided by sales) was 1.08, compared with 0.82 for 4Q02 and 1.01 for 3Q03. This reflects a larger order book for 2004, particularly in Media & Entertainment, Simulation and Avionics.
Gross Profit & Margin
Gross profit decreased year on year by 11.5% to euro 78.7 million. Gross margin was 45% compared with 45.6% in the year-ago quarter. On a sequential basis, gross margin improved by 2.6%, from 42.4% in 3Q03, despite strong pricing pressure, particularly in media, and the continued weakness in the USD. The sequential improvement in gross margin reflects higher sales and capacity utilization and a better product mix.
Operating Results before Interest, Tax and Amortization of Consolidation Goodwill and provisions for restructuring (EBITA)
EBITA decreased 6.4% year on year to euro 26.2 million, in line with management’s expectations of euro 23-29 million. Excluding currency fluctuations, EBITA would have been approximately euro 7 million higher.
EBITA margin, however, improved to 15% from 14.3% in 4Q03. This improvement principally reflects other operating income, net of euro 0.1 million, compared with an expense of euro 5.1 million in 4Q03, mainly due to a reduction in provisions.
General & administration expenses as a percentage of sales declined year on year by 0.4% to 5.8%. Sales and marketing spending, however, increased to 14.8% of sales from 13.2% in 4Q02, reflecting higher sales coverage. Sales coverage increased in North America and Asia further as a result of the acquisitions of Trans-Lux West in the USA and of Leyard in China.
Provision for restructuring
The decision was made to further streamline the manufacturing operations by consolidating the division Manufacturing Services in two plants, one in Belgium and one in the Czech Republic. A provision of euro 2.5 million was made for this restructuring.
Other non-operating expense
Other non-operating expense consists of loss on loans to and participation in Esko- Graphics, partially compensated by a profit on the divestment of dotrix. Combined with the fiscal impact of approximately euro 8.7 million, the result of the exit of the graphics business is around zero. No further important impact is to be expected in the following years.
Income Taxes
During the quarter the company booked a non-current tax income of approximately euro 8.7 million, as a result of booking the losses from the exit of Esko-Graphics, following an agreement with Kirkbi A/S on December 23, 2003. This results in a tax income of euro 5.3 million compared to a tax cost of euro 6.3 million for 4Q03.
Current earnings per share
Current earnings (earnings before provisions for restructuring, non-operating income, goodwill amortization and tax impact related to the above) per share for the quarter increased to euro 1.83 from euro 1.78 for 4Q02.
Net Income
Net income for the quarter rose by 7.8% to euro 18.7 million from euro 17.4 million for 4Q02. Net margin for the quarter improved year on year to 10.7% from 8.9%.
Net income includes the provision for the one-time restructuring at Barco Manufacturing Services of euro 2.5 million, as well as other non-operating income expenses of euro 9.1 million resulting from the losses of the exit of Esko-Graphics and from the revenue of the sale of dotrix. At the same time, net income was positively impacted by a tax income of euro 5.3 million.
Net earnings per ordinary share (EPS) improved year on year to euro 1.52, from euro 1.40 in 4Q02. Fully diluted net earnings per share were euro 1.42, compared with euro 1.32.
DIVISIONAL RESULTS FOR THE QUARTER
BarcoProjection
On January, 1, 2004 BarcoProjection was split into three separate divisions: Media & Entertainment, Control Rooms and Presentation & Simulation. These three divisions will report at the same level as Barco’s other divisions. Results for 1Q04 onwards will therefore include financial and operational data for these new divisions as well.
Sales increased by 6.4% year-on-year, with continued strong sales to the US and European Media markets. Events showed strong sales worldwide. Control Rooms had good sales in all segments, particularly in Traffic & Surveillance. Sales at Control Rooms recorded ongoing growth in China, India and Korea as well as a recovery in Europe. At Presentation, system sales were good, while Simulation saw a partial recovery of civil aviation sales in 4Q03.
The book-to-bill ratio was 1.15, driven by strong orders across the board. Media & Entertainment recorded a book-to-bill ratio of 1.2 driven by successes in Digital Cinema, Media and Events. This was achieved despite strong price pressures in the US and China as a result of the overall depreciation of the US dollar. Orders at Control Rooms remained strong, with a book-to-bill ratio of 1.06 for the quarter. The 1.2 book-to-bill ratio at Presentation & Simulation was driven by high orders in Simulation and Entertainment.
Gross profit margin improved to 44% despite pricing pressures, driven by higher sales volumes. EBITA margin rose to 15.7%, from 5.4% in 3Q03 and 11.9% in 4Q02, reflecting higher sales volumes and ongoing cost controls.
Gross profit margin at Media & Entertainment was 9%, below Barco’s long-term target as a result of heavy investments to expand capacity in China and grow sales in the US and China, and of R&D to further reduce product cost and launch new media, events and digital cinema products. EBITA at Control Rooms and Presentation & Simulation remained high at 22% and 19%, respectively.
New products introduced during the quarter include Barco’s ILite I-3, a 3mm ultra-high resolution LED wall for media applications; streaming video functionality in display controllers, and a tracking device for enhanced virtual reality.
BarcoView
Sales at BarcoView declined 16% year on year, reflecting a particularly large delivery of Air Traffic Control displays in 4Q02. Continued sequential growth in sales volumes to the Medical Imaging market, further strengthened Barco’s market leadership. Sales for the quarter were robust in Avionics, while deliveries at Air Traffic Control and Defense & Security were strong compared to 3Q03, but below 4Q02 levels. High demand for LCD panels requires Barco to constantly monitor deliveries. To mitigate the risk of delays in deliveries, Barco has diversified its supplier base of LCD panels.
The book to bill ratio for the quarter was 1, with growth in orders in Defense & Security and Medical and a very substantial growth in Avionics.
Results for the quarter recorded a sequential improvement as measured by gross profit margins and EBITA margin. Gross profit margin increased to 49%, from 45% in 3Q03, while EBITA margin improved to 18.9% from 10.5%.
Year on year, EBITA margin declined by 1.3%.
During the quarter Barco introduced the RGB recorder for Defense & Security applications.
BarcoVision
Sales at BarcoVision declined year on year by 45.7%. Results for 4Q03 exclude sales and orders of Machine Vision, the Company’s former food sorting business unit as it was divested and deconsolidated as of July 31, 2003. Results for 4Q02, however, include sales of euro 3.7 million and EBITA of euro 0.4 million for Machine Vision.
Sales volumes to the textile market remained weak, reflecting the down-cycle, which is expected to continue well into 2004. However, since ITMA 2003, the cutting edge show for the global textile machinery industry, which took place last November, commercial interest in new Barco products has increased. In fact, in 2003 and the first months of 2004, Barco received several volume orders of Cyclops, its on-loom inspection system.
Gross profit margin for the quarter remained stable at 43%, with EBITA margin at 7.6% from 12.4% in 3Q03 and 16.5% in 4Q02 as a result of low sales volumes.
Barco Manufacturing Services
Sales and orders for the quarter were weaker year on year.
Gross profit margin declined gradually over the preceding quarters from 34% in 1Q03 to 31% in 4Q03.
This division was restructured during the quarter, which resulted in a euro 2.5 million charge. This charge is comparable to the annual savings to be realized beginning 2005. In 4Q03, EBITA was 3% negative, as indirect manufacturing costs were not yet fully aligned with manufacturing volumes.
CONSOLIDATED RESULTS FOR FISCAL YEAR 2003
Fiscal year 2003 Financial Highlights:
· Sales at euro 628.9 million, a 6% year-over-year decline. At constant exchange rates, sales would have increased by 2%.
· EBITA margin improved to 11%, from 10.6% in 2002. EBITA was euro 69.1 million before restructuring of euro 2.5 million, a 3% year-over-year decline.
· Total negative impact of currency fluctuations in EBITA was over euro 20 million.
· Net income up 163% to euro 46.6 million, from euro 17.7 million.
· Current earnings per share of euro 4.42 versus euro 4.39 in 2002.
· Net earnings per share increased to euro 3.77, from euro 1.43.
· Fully diluted earnings per share up to euro 3.54, from euro 1.35 the prior year.
Sales and Orders
Sales declined 6% to euro 628.9 million. This was primarily the result of declines of 7.9% at BarcoProjection, 19.9% at BarcoVision and 21.3% at Barco Manufacturing Services, which more than offset the 9.7% increase at BarcoView.
Excluding currency fluctuations, sales would have increased 2%.
Orders decreased by 3% in 2003 compared to 2002. Excluding currency fluctuations orders would have grown by 5%. The growth in orders at BarcoProjection by 8% offset the decline at the other divisions to a large extent. For the whole of Barco the three first quarters showed a decline year-over-year, whereas the fourth quarter saw an increase of 19%. The book-to-bill over 2003 was 1.05 versus 1.02 in 2002.
Gross Profit & Margin
Gross profit declined 6.3% year on year to euro 277.9 million, from euro 296.5 million. Gross margin declined by 0.1% to 44.2% during the same period.
Operating Results Before Interest, Taxes and Amortization of Consolidation Goodwill and provisions for restructuring (EBITA)
EBITA declined by 3% to euro 69.1 million, from euro 71.2 million in 2002. Excluding currency fluctuations, EBITA would have improved to approximately euro 90 million.
However, EBITA margin improved to 11% from 10.6% a year ago. This improvement principally reflects other operating income, net, of euro 5.4 million, compared with an expense of euro 7.4 million in 4Q03, mainly due to provisions.
General & administration expenses, as a percentage of sales, remained relatively stable at 7.2%. Sales & marketing expenses, however, increased year on year to 15.9% from 14.6% reflecting higher sales coverage. Sales coverage increased in North America and Asia further as a result of the acquisitions of Trans-Lux West in the USA and of Leyard in China. R&D increased by 0.3% to 10.9%.
In 2003 release of old provisions exceeded the amount of newly booked provisions by euro 2.2 million. Cost of goods sold however, includes major warranty expenses provided for in 2002.
Provision for restructuring
The decision was made to further streamline the manufacturing operations by consolidating the division Manufacturing Services in two plants, one in Belgium and one in the Czech Republic. A provision of euro 2.5 million was made for this restructuring.
Other non-operating expense
Other non-operating expense consists of loss on loans to and participation in Esko- Graphics, partially compensated by a profit on the divestment of dotrix. Combined with the fiscal impact of approximately euro 8.7 million, the result of the exit of the graphics business is around zero. No further important impact is to be expected in the following years.
Income Taxes
Income taxes declined to euro 6.7 million from euro 18.1 million year on year as a result of a tax income of approximately euro 8.7 million, resulting from booking the losses from the exit of Esko-Graphics.
Current Earnings per Share
Current Earnings (earnings before provisions for restructuring, non-operating income, goodwill amortization and tax impact related to the above) per Share for the year were at euro 4.42, compared with euro 4.39 in 2002.
Net Income
Net income improved to euro 46.6 million, from euro 17.7 million in 2002. Net earnings per ordinary share (EPS) increased to euro 3.77, from euro 1.43. Fully diluted net earnings per share were euro 3.54, compared with euro 1.35 in the prior year.
Capital Expenditures (CAPEX)
Capex for the year was euro 18.7 million.
OUTLOOK FOR 1Q04
The following statements are forward looking and actual results may differ materially.
For the first quarter of 2004, Barco expects sales of between euro 147-155 million, or on average 6% year on year growth at constant exchange rates.
Assuming the value of the US dollar and related currencies does not further weaken relative to the euro, the company expects to achieve EBITA in the range of euro 13-17 million.
DIVIDEND POLICY
An increase in the dividend, to euro 2 per share, from euro 1.92 per share last year will be proposed by the Board of Directors at the Ordinary Shareholders’ meeting to take place on May 12, 2004.
CONFERENCE CALL
Barco will host a conference call with investors and analysts on February 19, 2004, starting at 4.30 p.m. Brussels Time (10.30 a.m. EST), to discuss the results for the quarter. The call will be hosted by the Mr. Martin De Prycker, Chief Executive Officer of Barco, Mr. Antoon Van Petegem, Chief Financial Officer and JP Tanghe, President Corporate Communication and Investor Relations.
An audiocast of this conference call will be available on the Company’s website www.barco.com at 10 p.m. Brussels time (4 p.m. EST).
ABOUT BARCO
Barco is headquartered in Kortrijk, Belgium, with a network of subsidiaries, distributors and agents in almost 100 countries. Barco focuses on three key areas: large screen visualization, display solutions for life-critical applications, and systems for visual inspection.
Barco’s ordinary shares are listed on the Brussels/Euronext stock exchange. Share information may be accessed on Bloomberg under the symbol BAR BB and on Reuters under BARBt.BR. Barco is a BEL 20 and a Next 150 company.
For more information and the full report “3 and 12 month period ended December 31, 2003”, please visit the Company’s website at www.barco.com
The accounting information taken up in this press release has not been reviewed by the statutory auditor.
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