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On 11th March, Agfa-Gevaert Group published consolidated financials for its Q4 2019 and full-year 2019 results. These show that the Group returned to top-line revenue growth during 2019, following a significant revenue contract during 2018 (circa -8%). Group nominal sales revenue reached €599 million during Q4 2019, compared with €587 million in Q4 2018, an increase of +2.1% year-on-year. This resulted in full-year nominal sales revenue of €2,239 million, compared with €2,191 million, an increase of +2.2% year-on-year. On a comparable basis, when excluding the impact of currency movements, sales revenue increased by +0.8% for full-year 2019.
Agfa now reports its financial results by four operational segments: ‘Offset Solutions‘, ‘Radiology Solutions‘, ‘Healthcare IT‘ and ‘Digital Print & Chemicals’. All of these business segments contributed toward profitable sales growth during 2019, excluding Offset Solutions, which continued to experience declines both in terms of top-line sales revenue as well as underlying profitability.
The Offset Solutions segment
The recent deterioration in results from this segment is the continuation of a longer-term trend which Agfa shares with some of its major competitors within the commercial printing sector. In recent periods, this segment has faced challenges with top-line revenue growth due to customers shifting toward lower-cost competitors as well as challenges with profit margins, in part, due to the price of commodities such as aluminium. Due to these unfavourable market dynamics, during 2019 Agfa continued to cease unprofitable commercial activities, such as its reseller activities within the United States. Furthermore, during 2018 Agfa entered into a strategic partnership with Lucky HuaGuang Graphics in order to divest elements of the Offset Solutions business within China. This partnership is expected to deliver both some top-line growth and margin improvement in the coming periods.
The Radiology Solutions segment
The radiology solutions segment encompasses the imaging activities of Agfa’s former healthcare business which includes a portfolio of direct radiography (DR) and computed radiography (CR) imaging solutions as well as it’s industry-leading proprietary image processing solution, MUSICA. It also encompasses a portfolio of diagnostic printing and film-based X-ray solutions or “hardcopy” solutions. The latest financial results show that sales revenue from radiology solutions continued to grow during the fourth quarter, although at a slower pace, resulting in higher sales for the year. The nominal sales revenue reached €153 million during Q4 2019, compared with €150 million in Q4 2018, an increase of approximately +1.8% year-on-year. This took 2019 full-year nominal sales revenue to €536 million, compared with €514 million in 2018, an increase of +4.2% year-on-year. On a comparable basis, when excluding the impact of currency movements, sales revenue increased by +3.2% for full-year 2019.
The sales growth during 2019 was driven predominately by higher sales revenue from hardcopy and DR solutions as well as favourable currency movements. This growth was partially offset by declines from CR and film solutions. The growth from hardcopy solutions was notably strong from customers based in China, enabled by Agfa’s shift to a more direct sales and distribution model as the company has recruited its own sales team covering mainland China. During the Q4 earnings call, Pascal Juéry CEO commented: “the DR business performed well in terms of top-line growth but this segment has been struggling with profitability”. The CR business declined, along with film solutions, as these are being progressively replaced by fully digitalised options. Latin America was a notably week market for film solutions during 2019.
The Healthcare IT segment
The Healthcare IT segment performed well during 2019 both in terms of top-line sales revenue growth as well as underlying profitability. On January 29th, Agfa announced that it will be proceeding with the sale of its Healthcare IT business to Dedalus Holding S.p.A during Q2 2020. This includes its hospital IT, integrated care as well as selected parts of the imaging IT business across the DACH region, France and Brazil. In terms of the retained healthcare IT business, Agfa is refocusing on specific markets with a higher IT maturity or with significant geographical expansion plans. This is alongside reprioritising its focus on specific customer segments. During the Q4 earnings call, Agfa commented on the likely performance of this retained business. The company indicated that it will not be targeting top-line sales growth and it will be more focused on improving profitability. Investors can expect stable to low-single-digit sales growth along with a mid-single-digit EBITDA margin. The profitability of the retained business is significantly lower than the divested business, although Agfa will be focused on improving this to a comparable level in the coming periods.
Nominal versus comparable revenue
The Agfa-Gevaert Group is exposed to exchange rate volatility, particularly involving the U.S. dollar and the Euro. In terms of absolute values, a weaker euro is generally favourable for its business and a stronger euro is in principle unfavourable. Throughout 2019, the dynamics of the currency movements have had a significantly positive impact on the Group’s top-line revenue.
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