Agfa published better-than-expected 4Q results in terms of sales and REBIT, although higher restructurings depressed EBIT and net income. Net debt came down substantially.
4Q sales came in flat y/y at € 805m, vs. our € 788m and the € 772m CSS forecast. The good sales performance drives a better gross result (27% margin or € 218m, vs. the € 202m we expected) and as a result REBIT ends up at € 43m, down 43% y/y but much better than the € 22m we expected and the € 20m CSS. Restructurings are higher than expected (€ 55m in 4Q alone, vs. the € 17m we expected and the € 29m expected by CSS, and bringing FY restructurings to € 93m vs. the € 30/35m normal yearly run rate). Hence the € 12m operational loss is worse than expected (€ 5m positive KBCS, € 9m loss exp by CSS) and the same thing goes for the net result (€ 43m negative, vs. € 33m positive a year ago and compared to the € 16m/€ 34m losses expected by us and CSS).
Looking by division, both GS and HC outperform at sales and profit levels. 4Q sales in GS are down 2.6% y/y € 418m, vs. the € 403m/€ 400m KBCS/CSS forecast. REBIT ends up at € 12.4m (3% margin and down 64%), compared to the € 5m forecasted by us and CSS. HC shows a very good saes performance, with 5% y/y growth to € 333m vs. the € 315m/€ 304m expected by us and CSS. REBIT falls 9% y/y to € 31.5m (9.5% margin), vs. the € 16m we and CSS were forecasting. SPperforms below exp, with sales down 10% to € 54m (KBCS/CSS: € 71m/€ 68m) and zero REBIT (€ 3m/€ 1m KBCS/CSS).
Net debt came down to € 267m from € 339m in 3Q mainly on the back of lower working capital (€ 90m inflow from lower inventories) and this shouldtake away fears about possible breaches of debt covenants.
Unsurprisingly, Agfa does not provide clear guidance, but states that assuming stable raw mats prices, the company will continue to restore operational efficiency in order to achieve double-digit recurring EBITDA margins in the mid to long term.
Our view & conclusion:
4Q profits are down substantially due to higher silver prices but the impact from the recession on the top line seems more limited than expected in both GS and HC, and as a consequence results are not as weak as feared. The higher restructuring charges show that Agfa continues to take steps to deal with its structural challenges including the declining film market. Visibility on 2012 remains limited due to macro weakness and high (and volatile) silver prices.
We will most probably up our 2012 forecasts and we will re-evaluate our Hold rating on Agfa then