Agfa results hit by pandemic effects

Richard Stuart-Turner
Wednesday, August 26, 2020

Agfa has reported declining revenue and gross profit in Q2 2020 but said cost containment measures have mitigated the impact of Covid-19 on the profitability of its printing activities.

Agfa's revenue was down by 20.2% year-on-year in Q2
Agfa's revenue was down by 20.2% year-on-year in Q2

The Belgian manufacturer recorded sales of €397m (£356m) in the second quarter, down 20.2% on Q2 2019 – excluding the effects of the sale of part of Agfa HealthCare’s IT activities in May, with first-half sales standing at €832m, down 13.2% year-on-year.

The firm's gross profit, before restructuring and non-recurring items, fell by 24.2% to €120m in Q2, with first-half gross profit down by 14% to €255m.

Adjusted EBITDA was down by 35.5% to €31m in Q2, and represented 7.9% of revenue, down from 9.7% of revenue in Q2 2019. For the first-half, EBITDA fell by 28% to €55m, and represented 6.7% of revenue, down from 8% of revenue for the first-half of 2019.

The group attributed its top-line decrease to the the structural decline of the offset markets and the effects of the pandemic, which have caused a decrease in advertising and commercial activities leading to lower print volumes and a lower demand for printing plates.

It said that restructuring and non-recurring items resulted in an expense of €47m, compared with an expense of €10m in Q2 2019, mainly due to the intended closure of its printing plate factories in Leeds and Pont-à-Marcq, France.

By division in Q2, Offset Solutions revenue fell by 25.1% to €155m and sales in the Digital Print and Chemicals division fell by 29% to €67m.

Radiology Solutions saw a revenue drop of 16.2% to €113m, but there were more positive results in HealthCare IT, which saw sales rise by 1.2% to €62m. This division now includes the Imaging IT solutions business, which was not included in the aforementioned May sale.

Agfa said it is reviewing its offset business model, simplifying its organisation and streamlining its product offering. The company said it also estimates that the current pricing levels in the industry are not sustainable and that it is looking into ways to adapt the earning model for certain services it provides to its customers.

In digital print, Agfa said Covid-19 heavily impacted its large-format printing equipment business in Q2, after the market had come “almost to a standstill towards the end of the first quarter”.

However, the group said it is preparing various new product releases in order to be ready for the post-pandemic market rebound.

Due to the proceeds from the sale of part of its HealthCare IT activities for almost €1bn, the group's net financial debt evolved from €219m at the end of 2019 to a positive net cash position of €677m.

Around €350m of the proceeds of the sale will be used to increase the funding ratio of Agfa's funded pension plans in Belgium, the UK and the US, as well as to implement “de-risking actions”. The group said this will significantly decrease the future pension cash-outs and accounting volatility.

The rest of the proceeds of the sale will be used “to secure the future of the company and to further execute the strategies of its divisions”.

In a call to analysts shortly after the results were released this morning (26 August), Pascal Juéry, president and chief executive of the Agfa-Gevaert Group, said: “Q2 results obviously are quite contrasted for the group. Our healthcare related activities have performed extremely well in Q2 while the printing and graphics related activities have suffered from the Covid-19 pandemic.

“The name of the game for us has been to do some cost containment measures as much as we could to mitigate the impact, and I would say I believe we did that with some success.

“Offset was already a structurally challenged part of the business portfolio and Covid-19 only compounded this situation. We have already been taking steps to address structurally the profitability of this business.

“Digital print and chemicals was impacted short-term but I want to reaffirm immediately that we are extremely confident going forward of the growth potential of the division past the pandemic.”

Agfa-Gevaert’s share price fell by around 7% to €3.58 in early trading following the publication of the results this morning and was down slightly further to €3.51 at the time of writing.

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