Despite supply chain issues, Agfa announces stable Q3 sales

Belgium-headquartered Agfa has commented on its results in the third quarter of 2021. 

“In the third quarter, we made good progress with several important steps in Agfa’s transformation process. At the end of October, we announced the intention to partner with Atos for our internal IT activities. By doing so, we will invest in a future-proof IT environment in a socially responsible way,” stated a release by the company.

The company saw a “decent recovery” of market demand for most of its activities, but on the other hand all divisions somehow suffered from the surging cost inflation and supply chain issues.

“Due to successful price actions for our film products and printing plates, as well as strict cost management, our margins remained at a decent level compared to last year,” Pascal Juery, president and CEO of the Agfa-Gevaert Group said. “We also managed to keep our working capital stable as a percentage of sales. Going forward, we will continue to adapt our prices to the situation on the raw material markets and cost management will remain one of our top priorities.”

Supported by successful price increase actions and volume increases, both the Digital Print and Chemicals division and the Offset Solutions division significantly improved their top line compared to the Covid-impacted third quarter of 2020, Agfa stated in the release. As price actions allowed the company to partly mitigate cost inflation, its gross profit margin remained almost stable at 26.8% of revenue.

As the company’s broad cost reduction programme continues to bear fruit, selling and general administration expenses were 12% below the level of the third quarter of 2019. R&D expenses decreased from EUR 25 million in the third quarter of 2020 to EUR 22 million.

Adjusted EBITDA increased from EUR 16 million (3.9% of revenue) in the third quarter of 2020 to EUR 21 million (4.9% of revenue).

In spite of supply chain issues and high raw material prices, trade working capital remained almost stable as a percentage of sales (27% of sales). In absolute numbers, trade working capital evolved from EUR 462 million at the end of 2020 to EUR 477 million at the end of September 2021.

The Digital Print and Chemicals division continued to recover from the Covid-19 impact, which is reflected in the strong top line growth versus the third quarter of 2020. Furthermore, price increases have been implemented in almost all business areas to tackle the increasing raw material, packaging and freight costs. The company expects to see only partial impacts of these price increases in 2021. Further price increases will be communicated in the near future.

On the one hand, profitability of the sign and display part of the business improved considerably, but on the other hand high cost inflation had a strong impact on the margins of the film products. Mainly impacted by higher silver costs and logistic challenges, the division’s gross profit margin decreased to 24.5% of revenue (27.1% in the third quarter of 2020).

The adjusted EBITDA margin evolved from 6.2% of revenue (EUR 4.3 million in absolute figures) in the third quarter of 2020 to 4.7% (EUR 3.8 million in absolute figures). Adjusted EBIT reached EUR 0.9 million (1.1% of revenue) in the third quarter of 2021 versus EUR 1.7 million (2.5% of revenue) in the third quarter of 2020.

In the digital print segment, the gradual come-back of trade events clearly improved market dynamics. The sign and display business booked strong top- and bottom-line growth. The ink product ranges for sign & display applications continued to perform well, exceeding pre-Covid levels.

Despite industry-wide logistics challenges, the wide-format printing equipment business continued to recover from the strong Covid-19 impact. Agfa’s recently introduced Jeti Tauro H3300 UHS LED system – the fastest Jeti Tauro printing system to date – continued to convince printers all over the world of its many advantages. With the system, Agfa won a prestigious Pinnacle Product Award from Printing United Alliance.

The sales of inks for industrial applications continued to grow strongly, partly due to the solutions for new digital printing applications, such as laminate floorings, furniture panels and leather decoration.

As a key sustainability investment, Agfa recently took into service its new manufacturing plant for water-based inkjet inks. The new facility enables Agfa to be a key supplier of such inks for a wide range of novel applications. In the third quarter, leading décor paper printing company Interprint (Germany) expanded its product range by deploying Agfa’s water-based pigmented inkjet ink set.

Agfa’s range of products for the production of printed circuit boards was hit by cost inflation. High silver costs were only partially offset by price increase actions.

The specialty chemicals range of the division is well-positioned for future growth with products and solutions that target specific promising markets. Agfa’s Orgacon conductive materials, for instance, are used in hybrid and electric car technology. This business recorded solid revenue growth in the third quarter and volumes are back to pre-Covid levels.

Agfa’s specialty film and foil products are mostly used in industries that have been hit by the Covid-19 pandemic, including aviation, the oil and gas industry and the printing industry. In some of these areas, the pandemic continues to have a strong impact on film volumes. Despite temporary supply chain issues, sales figures for the SYNAPS range of synthetic papers picked up strongly, based on the recovery of the relevant printing markets and on the success of certain new applications.

Excluding currency effects, the Offset Solutions division’s top line improved by 13% compared to the third quarter of 2020, which was heavily impacted by the Covid situation. Apart from the partial recovery of the offset markets, the revenue increase was also fuelled by price increases that have been implemented to tackle the raw material, packaging and freight cost inflation. Despite this revenue increase, the division did not return to pre-Covid levels.

Although affected by mix effects and cost inflation, the Offset Solutions division’s gross profit margin improved from 17% of revenue in the third quarter of 2020 to 19.3%. Targeted actions to improve the division’s profitability resulted in substantially lower selling, general and administrative expenses.

A further cost inflation impact is expected in the coming months, mitigated by pricing actions when the contractual situation allows for it.

To improve profitability and to address the decline in market demand, Agfa is reviewing its offset business model, simplifying its organization and streamlining its product offering.

In March, Agfa unveiled a global programme of price increases for its offset printing plates to address the increasing raw material, packaging and freight costs. The first wave of price increases has been successfully implemented. A second wave has been announced in July and a third one in October. The division is also looking into ways to adapt the revenue model for certain services it provides to its customers.

In January 2021, Agfa expressed the intention to organise the Offset Solutions activities into a stand-alone legal entity structure and organization within the Agfa-Gevaert Group. The implementation of this project is proceeding according to plan.