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Article Excerpt
OPERATOR: As you will all have seen the results have been put on the website our time this morning. You will certainly have the opportunity to look into them. We are glad that you can join us.
As always I have with me Mr. De Prycker who is our CEO and Mr. De Man, our CFO. The meeting will start with Martin going through the presentation that you have found on the website this morning. And afterwards, there will of course be ample time for questions. Martin, the floor is yours.
MARTIN DE PRYCKER, CEO, BARCO: Thank-you Jean Pierre. So, good afternoon, good morning. For my part, I will guide you quickly through presentation, because I am sure you have been able to read them. And I will highlight the most important sectors. So, on page two you can definitely see that on the sale side, the growth was, I would say, reasonably okay -- 4% growth at real currencies, 9% growth at constant currencies. Now that 9% growth at constant currencies is 4% composed of the acquisition of High End Systems, and 5% which was organic growth. Now the growth has been the difference between the different divisions and you will definitely see it in one of the next charts.
On the order side, there is an 11% decline in orders purchased last year. But if you look at the absolute numbers, it's still, I will call it a moderate number, seeing the economic uncertainty, EUR182 million is not that bad. But the decline is definitely there and it is mainly due because we had a very big order in the Medical Imaging Group in the third quarter last year, which has not happened this year. And we are now discussing with the same customer to try to book a comparable or somewhat smaller order in the fourth quarter.
So, in this case, it's the fact that the customer has almost, I would say, consumed all it's order which he has put in the third quarter last year. And now is discussing new prolongation of that order again. But, nevertheless, I have to say there is uncertainty and that means that the orders globally are definitely are also uncertain.
Profitability has been, I would say, very bad in this quarter. So, the results of the third quarter, with that respect, are very disappointing. I have to say there is a negative situation of -EUR1.7 million in terms of profitability, which is EUR9.7 million lower than last year. There are two main reasons -- the lower gross margin, and I will come back to that, and on the other hand the increase on the operating costs, which I will explain in a minute.
We said that we would reduce our working capital inventory and receivables with EUR40 million. We have already received some first results in the second quarter, mainly in receivables. We now have realized another EUR10 million, which I think in receivables is quite good, and in inventory not quite good enough -- I will come back to that later as well.
And you know that we have announced a cost reduction plan in July. The first steps have been taken by reducing some stock in July. A third reduction has happened in the course of September. And of course, a third step is planned to happen in the month of November/December time frame. And we believe that already some first results on the cost side will become visible in the fourth quarter.
Now looking at the operational results, you can see that we are having orders of EUR182 million versus EUR204 million last year. The order books still remain pretty good, EUR344 million so that means that looking forward, especially the fourth quarter of this year, we have already [wiped] some orders in. So, that gives us [somewhat of course] more confident for the fourth quarter. But of course, in these uncertain times, confident is of course, far less than what it should be.
On the same side, sales have been growing, like I said, to EUR179.6 million. But profitability has strongly declined. On top of it we have that restructuring cost. I think that you know that we plan to reduce our resources, and at the third quarter we have booked already EUR3.2 million restructuring cost. The result is that now profitability is now -EUR4.9 million as a final EBIT.
When you look at the results of the quarters, you can see that profitability is still somewhat higher than [one] so, with that respect, that's good news. But obviously on the other hand, you can see that the orders and sales, when you look at it over the last 12 months are at a cross-point. So, that indeed means that we are now, at this moment, gradually starting to [eat] over the last twelve months on our order book. So, our order book has remained practically the same as it was twelve months ago, which you have seen already in the previous chart.
Obviously, looking at the profitability, this is the first quarter in seven years that we have a negative quarter, which is of course, not good at all. But again, looking forward a bit, you see that our fourth quarter typically is a good fourth quarter. And looking at our order book on that side, we are I would say, somewhat more optimistic with respect to the results we are now showing you in the third quarter results.
Looking at that more detailed, you can see that the 4% is a mixture of pluses and minuses. And these mean that the statement has seen strong growth. In real currencies, this is entirely caused by acquisition, but in constant currencies, there is still growth organically. Medical is flat on a real currency basis, but still growing at constant currencies. Open markets are flat as well, but at constant currencies showing a nice growth. But security and monitoring has shown a significant decline, as to say, in sales.
When you look at it on a regional basis, there is western Europe still in a growth mode, North America a flat or slightly lower, and Asia is 3% lower than last year.
The big issue here is that we are not evolving in the right direction with our gross profit. We are now at EUR58.9 million, which is low, EUR6 million or EUR7 million lower than last year's. And there are four reasons for that.
One reason is the fact that we are still having to count on a negative exchange rate, in fact, selling a lot in dollars means that every time that you make less gross profit margin. I count that this is good for about a little bit more than 1%.
Our product mix was not good. That means we have been selling a lot more products from media and entertainment, as you see, because that was strongly growing. And a lot less in security and monitoring, because that was in decline. And you know that typically our gross profit in media and entertainment is always lower than our gross profit in security and monitoring. There has also been some price pressure.
Globally, I would say, product mix is more than 2% points. Price pressure is a little bit off 1% point. And then there is a sell-off of slow moving inventory. We have been looking at our inventory, working out special actions to get them out of the inventory, and obviously we are selling them at very low gross margins. And this is also good for, I would say, about 1 percentage point in terms of less gross profit.
The operating losses are still increasing. Well, there are mainly two reasons for it. First of all, the intrinsic reason is that we were counting on the growth when we started the year, so that means we still have too much cost in our fixed cost basis. That's why we started already in July to bring the cost down, but the effect is not yet visible today.
On top of it, we've seen that the inflation, especially in Belgium, was pretty high, and salary increases were happening in July because of the automatic coupling of the salary with the inflation. So, that was a 4.5% increase of all these salaries in the month of July. So, this is of course, a big increase.
And on top of it, the costs of High End Systems have been added to it, because this was not there yet. And that's also a significant increase versus last year. The result is that profitability is now at a minus1.7%. To a certain extent also, negatively influenced by the dollar for about 1.7%.
Looking at the different divisions, you can see that media and entertainment still shows a significant increase, but like I've said, 12%, like I said before, mainly because of the High End Systems acquisition. There is also some organic growth, so the remainder, the 5% is organic growth, but unfortunately, this was eaten away by the currency mix.
Unfortunately, this division has done not well in terms of profitability. You see, despite the growth in sales, profitability has dropped significantly, and I will come back to that later.
Security and monitoring, on the other hand, has seen a significant decline. And obviously, that has cost, because of the fixed cost, are still remaining at the same level or slightly increasing versus last year in that division. Profitability has immediately dropped significantly.
Medical imaging, a slight drop in sales....
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