July 17, 2024 Today at 08:03
After a lousy first half year, technology group Barco is cutting both the target margin and the turnover forecast. Management is preaching calm as usual. Investors are sending the stock remarkably higher by almost 9 percent.
It had been clear for a while that Barco would not pop the champagne following the first half of the year. The Kortrijk technology group already issued a stern warning this spring with the message that it did not expect growth until the second half of the year instead of the second quarter. In response, analysts set the bar for the first six months of the year particularly low.
But Barco also failed to achieve these targets. Turnover fell even more sharply than feared, by 17 percent to 435 million euros. Orders were also lower than expected. Barco recorded 463.3 million euros in new orders for the first half of the year, a decrease of 14 percent compared to the previous year. Analysts had expected 470 million euros.
Barco saw sales decline in all three divisions – Enterprise, Healthcare and Entertainment (see Table)In the first two, the company refers to a reduction in customer inventories, while in the last one it refers to the postponement of investments “due to weak film content and in anticipation of our upcoming product launches.”
Co-CEOs An Steegen and Charles Beauduin do point out in a short commentary that in the second quarter there were already some signs of improvement visible here and there compared to the dramatic first quarter. But that ‘recovery’ is less pronounced than analysts had hoped.
ClickShare
The shrinkage in the top line leaves clear traces lower down on the profit and loss account. While analysts expected a drop in operating profit before depreciation (EBITDA) to 40 million, the reality is even worse. EBITDA clocked in at almost half lower at 35.2 million euros.
-79%
DECREASE IN PROFIT CONTRIBUTION OF ENTERPRISE BRANCH
With an EBITDA of EUR 4.8 million, the profit contribution of the Enterprise division fell by 79 percent.
This meant that Barco achieved a margin of only 8.1 percent in the first half of the year, 4.4 percentage points less than in the same period last year. The figure is miles away from the (so far) targeted profit margin of 14 percent for the whole of 2024.
This is largely due to the poor performance of the Enterprise division, which houses Barco’s most profitable product – the ClickShare meeting tool. A sharply declining turnover there translates into an EBITDA of only 4.8 million euros, compared to more than 22 million euros a year earlier. That is good for a margin of barely 4.2 percent. Barco cites the inventory build-up that customers did at the end of last year as an explanation. These customers anticipated a ‘change in the partner conditions’. That effect should gradually fade away, although visibility remains low.
Month in the forecast
After those weak six months, Barco is cutting its forecast for the entire year. It is being adjusted to a margin of ’11 percent to 13 percent’. At the turnover level, Barco is now talking regarding ‘growth in the second half of the year’, while previously it was talking regarding stable turnover for the entire year. Only from 2025 onwards will there be growth in annual turnover once more.
While visibility remains low, we have reasons to look forward to a very different second half of the year.
An Steegen and Charles Beauduin
Co-CEO’s Barco
The co-CEOs – the duo’s job ends in September when Beauduin becomes chairman – point out that the second half of the year will be ‘very different’. ‘Customer inventory levels are returning to normal and market conditions for Entertainment are improving. In addition, we are on track to launch a large number of new products across all divisions, which we expect will contribute to both revenue and profitability.’
The fact that a quantified turnover forecast is not forthcoming is due to the Enterprise division. Visibility there is too limited to speak of sufficient growth to compensate for the poor first half year, as was the case for the other two divisions, it was said in an analyst meeting following the figures.
Rate overhaul
Despite the poor half-year figures, management sounded resolute regarding the long-term course during that meeting. ‘The process we started three years ago, which should give us the foundations for sustainable growth, remains intact,’ Steegen told analysts. ‘But our strategy takes time. We have launched important new products and opened new factories that will make us more cost-efficient. We are convinced that we have the ingredients for future growth. So we remain committed to executing those plans.’
We remain confident that we have the ingredients for future growth.
The positive tone may have drowned out the negative figures. During the conference call, Barco shares rose from the red to a solid price gain. Analysts are scratching their heads over the reason for this recovery, even though the share has already fallen sharply in recent months. Nothing was presented in the meeting that might explain the sudden positive outlook of investors, according to various analysts. ‘Perhaps some investors think that the bottom has really been reached now’, says one analyst.
