Barco reports solid growth of 8.9% at good margins
Third Quarter 2004 Financial Highlights :
• Sales at euro 158.1 million, at the higher end of management’s expectations of euro 150-160 million, and 8.9% up year on year. At constant exchange rates, sales increased 12%.
• EBITA up 32.4%, to euro 13.3 million, at the higher end of the range of euro 10 to 15 million anticipated by management. EBITA margin at 8.4% compared with 6.9% in 3Q03.
• Net income at euro 8.7 million, up 30.4% from 3Q03.
• Current earnings per share (operating result before amortization of consolidation goodwill plus interest income/expense divided by the average number of shares outstanding) were at euro 0.88 versus 0.61 the year before.
• Net earnings per share of euro 0.71, compared with euro 0.54 in 3Q03.
• Fully diluted earnings per share of euro 0.67, from euro 0.51 in the same period last year.
Barco CEO, Martin De Prycker, commented: “Sales in this quarter were in the higher part of the range anticipated by management. The growth of almost 9% compared to the same period in 2003 is based on growth in all divisions of Barco, with the exception of BarcoVision that saw a decline in sales. We also met our EBITA target and realized a growth in EBITA of 32.4%. Excluding currency fluctuations, EBITA would have increased by 36.6%. Other operating revenue increased by euro 2 million, with a positive impact of a Flemish Government incentive for personnel growth and infrastructure investments, and a negative impact of financial difficulties of customers of the Media & Entertainment division.
Looking at the first nine months of the year in review, sales and EBITA increased by 5.4% and 10.5% respectively. EBITA margin increased to 9.9% from 9.4% the year before.”
Regarding the outlook for the year, Mr. De Prycker, said: “The order book continued to grow during the third quarter. This was the 7th consecutive quarter during which orders exceeded sales, which offers positive prospects for the future. As a result, we are expecting sales for the fourth quarter to range between euro 182 to 192 million, while EBITA is anticipated in the range of euro 24 to 29 million. Assuming growth at the middle of these ranges for the fourth quarter, sales would increase year on year by 7% and EBITA by 1%.” Based on the same assumption, sales for the full year 2004 would grow by approximately 6% and EBITA by approximately 7%.
“Our natural hedging position versus the US dollar and related currencies has further increased to 80% in 3Q04, thanks to the US acquisitions made in 2003 and 2004 and the growth of our manufacturing activity in China.”
Mr De Prycker also added that with the divestment of the Home Cinema activity in September, Barco is now fully focused on professional visualization markets.
CONSOLIDATED RESULTS FOR THE QUARTER
Sales & Orders
Sales for the quarter increased by 8.9% year on year to euro 158.1 million, at the higher end of management’s expectations of euro 150-160 million for the quarter. Except for BarcoVision that saw a decline of 12.5%, sales increased at all divisions: +2.5% at BarcoView, +11.7% at Presentation & Simulation, +20.8% at Media & Entertainment and +39.6% at Control Rooms.
If the US dollar exchange rate had remained unchanged year on year, sales would have grown by 12%.
Sales to Europe, Middle East and Africa represented 52% of consolidated sales, while 33% of sales were realized in the Americas and 15% in Asia Pacific. In the first half of 2004 Asia Pacific stood for almost 20% of total sales. The 15% of the third quarter illustrate a temporary dip in shipments while orders continue to do as well as in the first half of the year.
Orders increased by 8.1% to euro 158.9 million, from euro 147.1 million in the year ago period. Excluding the impact of the devaluation of the US dollar against the euro, orders would have risen by 11.5%.
As in 3Q03 the book-to-bill ratio was 1.01, compared with 1.04 for 2Q04.
Book-to-Bill Ratio
Gross Profit & Margin
Gross profit increased 6.9% to euro 65.8 million from euro 61.6 million in 3Q03. Gross margin declined on a sequential basis from 44.1% in 2Q04 to 41.6% in 3Q04. In 3Q03 gross margin was at 42.4%. The decline is mainly due to the lower margins at the Control Rooms division, which had supply shortages and some quality issues with new product introductions, as well as some very large projects with lower gross margins. Also the Presentation & Simulation division saw its gross margin decrease due to price pressure and more sales of pre-packed solutions.
Operating Results before Amortization of Consolidation Goodwill (EBITA)
Operating results before amortization of consolidation goodwill (EBITA) increased by 32.4%, to euro 13.3 million, or 8.4% of sales. This compares to euro 10.1 million, or 6.9% of sales for 3Q03.
Without currency fluctuations EBITA would have been euro 0.5 million higher.
General & administration expenses as a percentage of sales decreased year on year from 8% to 7.6%. Research and development expenses also decreased: from 11.8% of sales in the same quarter of the previous year to 10.6%. Sales and marketing costs however, increased from 16.9% to 17.4% of sales.
Other operating income was euro 3.8 million, euro 2 million higher than 3Q03, mainly coming from the abovementioned Flemish Government incentives.
Income Taxes
Income taxes remained relatively stable with euro 2.7 million versus euro 2.8 million the year before. In percentage however, there was a noticeable decrease to 20,1% in the third quarter of 2004 versus 28.0% the year before.
Current earnings per share (operating result before amortization of consolidation goodwill plus interest income/expense divided by the weighted average number of shares outstanding) for the quarter were at euro 0.88 versus euro 0.61 the year before.
Net Income
Net income for the quarter improved year on year by 30.4% to euro 8.7 million, or a net margin of 5.5%, from euro 6.7 million for 3Q03, or a net margin of 4.6%. Net earnings per ordinary share (EPS) for the quarter improved to euro 0.71 from euro 0.54 in 3Q03. Fully diluted net earnings per share were euro 0.67, compared to euro 0.51 in the year ago period.
Capital Expenditures (CAPEX)
Capex for the quarter was euro 4.6 million, including the construction and expansion of buildings. Year to date capex is euro 17.4 million.
Acquisitions
The acquisition of Voxar, closed during the third quarter of 2004, was consolidated starting 16 September 2004. The impact on 3Q04 figures was marginal.
CONSOLIDATED RESULTS FOR THE NINE MONTHS
Sales
Sales increased by 5.4% year on year to euro 478.9 million. This was primarily the result of sales growth of 36.9% and 41.7% at Barco Control Rooms and Barco Media & Entertainment, respectively. Sales at Barco Presentation & Simulation increased by 2.1% while BarcoView’s sales remained stable. Sales at BarcoVision declined 30.1%, reflecting the continued low of the textile cycle. Machine Vision, which was divested in July 2003, was still included in the results of the first half of 2003.
At constant exchange rates, consolidated sales for the first nine months of the year would have risen by 9.5% year on year.
Gross Profit & Margin
Gross profit increased by 4.1% year on year to euro 207.4 million, from euro 199.2 million. Gross margin slightly decreased from 43.9% to 43.3%. This decrease is mainly due to changes in the product mix.
Operating Results before Amortization of Consolidation Goodwill (EBITA)
Operating results before amortization of consolidation goodwill increased by 10.5% year on year to euro 47.4 million. EBITA margin grew to 9.9% of sales versus 9.4% the year before.
General & administration expenses, as a percentage of sales, declined from 7.8% to 7.5%. Research & Development expenses decreased to 10.2% of sales from 11.4% in the first nine months of 2003. Sales & marketing costs however, increased from 16.4% to 16.9%.
Other operating income increased from euro 5.4 million to euro 5.9 million.
Income Taxes
Income taxes decreased year on year to euro 11.1 million from euro 12.0 million.
Current earnings per share (operating result before amortization of consolidation goodwill plus interest income/expense divided by the weighted average number of shares outstanding) increased to euro 3.03 versus euro 2.59 for the first nine months of 2003.
Net Income
Net income improved year on year to euro 31.4 million, from euro 27.8 million in the same period of 2003, an increase of 13 %. Net earnings per ordinary share (EPS) improved to euro 2.56 from euro 2.25. Fully diluted net earnings per share for the first nine months of the year were euro 2.40 compared with euro 2.11 in the year ago period.
OUTLOOK FOR 4Q04
Management expects sales for 4Q04 to range between euro 182 and 192 million. Assuming sales at the middle of the range, this represents a 7% year on year growth.
Management expects EBITA in the range of euro 24 to 29 million. Assuming EBITA growth at the middle of the range, this represents an increase of 1.3%.
Current earnings per share are expected to range between euro 1.50 and euro 1.80. This outlook assumes no further decline of the dollar beyond 1.25.
DIVISIONAL RESULTS FOR THE QUARTER
BarcoView
Sales at BarcoView rose 2.5% year on year, with continued strong sales growth of 33% in the Medical market reaffirming Barco’s market leadership. Deliveries in Defense & Security were lower than the year before while Traffic Management had sales on the same level as in the third quarter of 2003.
The book-to-bill ratio for BarcoView for the quarter was at 0.94 with orders in Defense & Security weaker than the year before. Orders remained at high levels in Medical (up 32%) and there was an increase in orders for Traffic Management,
Gross profit margin was at 45% just as the year before. Sequentially however, there was a decrease from 47.4% in the second quarter of 2004, due to pressure on gross margins in the medical market. EBITA margin improved to 16.0 %, from 10.5% in 3Q03 and 13.6% in 2Q04, thanks to the good gross profit margin and one-time items.
Several new products were introduced during the quarter, including a color LCD screen for the medical market.
Barco Media & Entertainment
Sales grew 20.8% quarter on quarter. The Media market did very well and so did the Events market with a clear contribution by growing European and Asian sales of Folsom products (Folsom was acquired in January 2004). Sales in Digital Cinema illustrate a further penetration of the new digital technology in cinema theaters.
The book-to-bill ratio for the division increased to 1.19 from 1.02 in 2Q04. Orders for Media were strong worldwide. The same applies to Events, including Folsom. Digital Cinema received good orders in Asia and Europe, but there are indications that the big start of the digitalization of USA cinema theaters will be delayed by six months.
Gross profit margin was at 34%, versus 37.9% in 2Q04, due to the high volume of sales in the Media market, with lower gross profit margin. EBITA margin decreased sequentially from 6.5% in 2Q04 to 1.8 % in 3Q04, due to investments in Media and Digital Cinema. In 3Q03 EBITA margin was – 2.3%. Good sales in Media brought this business unit close to break-even, which is a good indication for the future. Provisions of euro 1.6 million for customers in financial difficulties reduced profit for the division quarter on quarter.
The third quarter saw the introduction of the SLM 9 K lumen for the Events market.
Barco Presentation & Simulation
The division saw its sales increase by 11.7% year on year, with an improvement in the Presentation market of 15% versus 3Q03, illustrating the first positive results of the new networked solutions. Simulation had strong sales including a mini-dome simulator display system at Lockheed Martin.
Order intake in Presentation was flat compared to 3Q03, but grew versus 1Q04 and 2Q04. In the Simulation market orders were slightly lower than in the same period last year. Book-to-bill for the division was 0.93.
Gross profit margin declined from 51% in 3Q03 and 48.2% in 2Q04 to 45% due to the product mix, price pressure in Presentation and delivery of some lower margin projects in Simulation. Consequently there was also a decrease in EBITA margin to 7.1% versus 12.8% in 2Q04. In 3Q03 EBITA margin was 10.1%.
A new family of Galaxy 3 chip DLP projectors with unique stereoscopic, color matching and warping features was introduced during the quarter.
Barco Control Rooms
In 3Q04 sales grew by 39.6% year on year, driven by sales growth in all of its markets, in particular in Traffic & Surveillance, but also by growing interest in Process Control. Strong inroads were made into Security applications in the USA and Europe. This was highlighted by the contract with the US Coast Guard worth USD 23 million over the next four years.
Order intake continues on the levels of the first half of 2004, with book-to-bill at 0.9.
Gross profit margin at 42% is lower than 3Q03 and 2Q04, due to quality issues and sole supplier deliveries, as well as to some very large projects with lower gross margins. EBITA margin decreased to 8.3% versus 12.6% for 3Q03 and 14.4% in 2Q04.
Besides new versions of wall management software, also a display system with SXGA+ resolution and a projector oriented at the retrofit market were introduced during the third quarter.
BarcoVision
Sales at BarcoVision declined 12.5%, in line with the ongoing low in the cycle of the textile market.
The book-to-bill ratio of 1.08 may be a first indication of the end of the downturn in the textile cycle, although the WTO decision on textile exports still delays investment decisions.
Gross profit margin remained stable at 45%. EBITA margin at 8.3% was lower than usual in BarcoVision, due to low sales volumes, but it still reflects efficient cost control at this division.
SHARE BUY-BACK PROGRAM
As approved at the Extraordinary General Shareholders’ meeting held on 1 June, 2004, Barco has established a share buy-back program to offset the dilution caused by its share option programs and acquisitions. At 30 September 2004, Barco had bought back 218,176 shares. 95,928 of the total of 218,176 shares had already been bought back by Barco in 2003 for a total of euro 5.0 million. In the first nine months of 2004 Barco already spent euro 8.4 million on its share buy-back program. 32,152 shares however, were used as a partial payment for the Voxar acquisition.
CONFERENCE CALL
Barco will hold a conference call with investors and analysts on 27 October, 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 Company’s CEO, Mr. Martin De Prycker, Mr. Antoon Van Petegem, Chief Financial Officer and J.P. 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 7.30 p.m. Brussels time (1.30 p.m. EST).
ABOUT BARCO
Barco is an international imaging technology company headquartered in Kortrijk, Belgium, that is active worldwide and has its own facilities for Sales & Marketing, Customer Support, R&D and Manufacturing in Europe, North America and Asia Pacific. Barco provides visualization and display solutions for professional markets. Barco designs and develops solutions for large screen visualization, display solutions for life-critical applications, and systems for visual inspection. For fiscal year 2003, Barco posted net sales of euro 628.9 million, with EBITA margin of 11%.
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 “9 months ended 30 September, 2004”, 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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