AGFA-GEVAERT NV Major steps in the Agfa-Gevaert Group's transformation process
- Internal split-up into Agfa HealthCare and Agfa within the Agfa-Gevaert Group
- New, simplified divisional structure
- Strategic alliance in the offset industry
- Refocus on core businesses
- Reorganization of hardcopy distribution channels in China
- Further pension de-risking
Financial results
- Strong volume growth in HealthCare Information Solutions, Direct Radiography and a number of businesses of Agfa Specialty Products
- Top line decline of 3.2% excluding currency effects and portfolio rationalizations
- Recurring EBITDA at 8% of revenue, in line with guidance
- Net loss and increase in net financial debt largely due to transformation investments
Mortsel (Belgium), March 13, 2019 - Agfa-Gevaert today commented on its achievements in 2018.
MAJOR STEPS IN THE AGFA-GEVAERT GROUP'S TRANSFORMATION PROCESS
"In 2018, we have taken major steps to transform our Group, resulting in the separation of the HealthCare IT business (renamed Agfa HealthCare) from the rest of the activities (renamed Agfa). The new Agfa HealthCare now has the means and the independence it needs to be a leader in its markets and to further build its already strong IT portfolio. Furthermore, the impact of the steps we have taken to drive the consolidation of the offset industry, should not be underestimated. The alliance with Lucky and the acquisition of Ipagsa have far-reaching consequences for our activities, and even for the offset industry as a whole. We are now looking into various options to strengthen the other activities of Agfa. It is our goal to secure the future of both Agfa HealthCare and Agfa, giving them the power and the means to pursue profitable growth," said Christian Reinaudo, President and CEO of the Agfa-Gevaert Group.
Split-up into Agfa HealthCare and Agfa within the Agfa-Gevaert Group
The internal technical split-up of the Group in two parts was successfully concluded. January 1, 2019, two new entities emerged within the Agfa-Gevaert Group: Agfa HealthCare and Agfa. The new Agfa HealthCare groups all IT related activities of the former Agfa HealthCare business group. The new Agfa includes the activities of the former Agfa Graphics and Agfa Specialty Products business groups, as well as the Imaging activities of the former Agfa HealthCare business group. This split-up gives both entities the independence to seek partnerships and to take the necessary strategic steps to pursue future profitable growth.
New, simplified divisional structure
The activities of the newly created Agfa have been regrouped into three divisions: Offset Solutions (the prepress business of the former Agfa Graphics business group), Digital Print & Chemicals (the inkjet business of the former Agfa Graphics business group and the activities of the former Agfa Specialty Products business group) and Radiology Solutions (the imaging activities of the former Agfa HealthCare business group). This simplified divisional structure is technology and solutions based and will allow Agfa to seek future partnerships. As from the first quarter of 2019, the Agfa-Gevaert Group's financial reporting will be based on this new Group structure.
Strategic alliance in the offset industry
Several major steps have been taken to realize the Agfa-Gevaert Group's ambition to drive the consolidation of the offset industry. Firstly, Agfa entered into an important strategic prepress alliance with the Chinese company Lucky HuaGuang Graphics Co. Ltd. This alliance should allow both companies to realize growth through the optimization of their respective strengths in the fields of manufacturing, technology and distribution of graphic prepress products and services. It is an important step in the further development of Agfa's strategy to offer its offset customers more choice and to strengthen its global presence in this market segment in a profitable way. Secondly, the prepress business of the Spanish printing plate supplier Ipagsa Industrial S.L. was acquired. It is expected that in 2019, this acquisition will already contribute to Agfa's top line with a strong EBITDA percentage. Thirdly, the closure of the printing plate factory in Branchburg, New Jersey (USA) was a further step in the strategic plan to optimize the global production capacity and supply chain for printing plates.
Refocus on core businesses
Major decisions have been taken to streamline the portfolios of the two entities. The discontinuation of certain less profitable activities will allow them to strengthen the focus on their core businesses. Among other things, in the field of offset, it was decided to discontinue certain prepress-related reseller activities in the United States. In the field of healthcare IT, it was decided to refocus the Imaging IT Solutions business on core geographies, leaving certain less important countries where the margins for this business were not sustainable.
Reorganization of hardcopy distribution channels in China
The Agfa-Gevaert Group finalized the reorganization of the hardcopy distribution channels in China, eliminating several steps in the supply chain. Initially, the reorganization had a considerable impact on this business' top line, but the effects have started to fade over the past few quarters.
Further pension de-risking
The Agfa-Gevaert Group took several measures to reduce the risks related to pension liabilities. The Group has put in place a two-year program consisting of several pension de-risking initiatives in the US and the UK.
Future steps
After a strategic options review, the Board of Directors of the Agfa-Gevaert Group has decided to further extend the independence of Agfa HealthCare. In this respect, the Board will be appointing J.P. Morgan as financial advisor. Further details on scope and timing will be communicated in due course.
In the field of offset, the alliance with Lucky HuaGuang Graphics Co. Ltd. will be extended, as both companies will explore additional options to intensify their collaboration in R&D, manufacturing and distribution.
Strategic steps similar to the ones taken in the offset business, will be examined for the other businesses of Agfa.
Projects will be launched to further streamline the various businesses of the Agfa-Gevaert Group, aiming at reducing operational costs and improving profitability.
FINANCIAL RESULTS
"Overall, our 2018 results are in line with our guidance. The top line was influenced by measures to streamline our product portfolios. Furthermore, we have invested heavily in the future of our Group. If we would exclude the investments related to the transformation process, we would have posted a positive net result, said Christian Reinaudo, President and CEO of the Agfa-Gevaert Group. "This is the last time that we will comment on the results of the former Agfa Graphics, Agfa HealthCare and Agfa Specialty Products business groups. As from next quarter, our financial reporting will be based on our new Group structure."
Agfa-Gevaert Group - full year 2018
| in million Euro | 2017 | 2018 | % change (excl. FX effects) |
| Revenue | 2,443 | 2,247 | -8.0% (-5.3%) |
| Gross profit (*) | 814 | 722 | -11.3% |
| % of revenue | 33.3% | 32.1% | |
| Recurring EBITDA (*) | 222 | 179 | -19.4% |
| % of revenue | 9.1% | 8.0% | |
| Recurring EBIT (*) | 169 | 125 | -26.4% |
| % of revenue | 6.9% | 5.5% | |
| Result from operating activities | 138 | 59 | |
| Result for the period | 45 | (15) | |
| Net cash from (used in) operating activities | 39 | (44) |
(*) before restructuring and non-recurring items
The Agfa-Gevaert Group's full year top line evolution was strongly impacted by the discontinuation of certain prepress-related reseller activities in the United States and by currency effects. Excluding these elements, the Group's revenue decline amounted to 3.2%. Several growth engines - including Agfa HealthCare's HealthCare Information Solutions and Direct Radiography systems, as well as several activities of Agfa Specialty Products - posted top line growth.
Mainly due to adverse product/mix effects and high aluminum costs, the Group's gross profit margin decreased to 32.1% of revenue.
Selling and General Administration expenses decreased from 496 million Euro in 2017 to 476 million Euro (21.2% of revenue).
R&D expenses amounted to 141 million Euro, or 6.3% of revenue. The Group continues to invest in innovation to remain or become the technology leader in its key markets.
Recurring EBITDA reached 8.0% of revenue, versus 9.1% in 2017. Recurring EBIT reached 5.5% of revenue.
Mainly due to investments related to the transformation of the Agfa-Gevaert Group, including the closure of the printing plate factory in Branchburg (USA), restructuring and non-recurring items resulted in an expense of 66 million Euro, versus an expense of 31 million Euro in the previous year.
The net finance costs remained stable at 39 million Euro.
Income tax expenses amounted to 34 million Euro, versus 53 million Euro in 2017.
As a result of the elements mentioned above, the Agfa-Gevaert Group posted a net loss of 15 million Euro. Excluding the investments related to the transformation process, the net result would have been positive.
Financial position and cash flow
- At the end of 2018, total assets were 2,367 million Euro, compared to 2,233 million Euro at the end of 2017.
- Trade working capital moved from 644 million Euro (26% of sales) at the end of 2017 to 653 million Euro (29% of sales) at the end of 2018.
- Net financial debt amounted to 144 million Euro, versus 18 million Euro at the end of 2017. The increase is largely due to the investments related to the transformation of the company and to the closure of the printing plate factory in Branchburg.
- Net cash from operating activities amounted to minus 44 million Euro.
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Source: Agfa-Gevaert via Globenewswire
