Barco N.V.

Good morning, ladies and gentlemen. I'm Carl Vanden Bussche, Head of Investor Relations for Barco.

Pleased to welcome you this morning to the conference call on the earnings results of the full year 2018. Today, with me are CEO, Mr.

Jan De Witte; our CFO, Mrs. Ann Desender, and both Jan and Ann will present you in a minute the full year results and provide some extra insights and color.

To do so in a structured manner, we will start by using the full year 2018 earnings presentation. Presentation is available on our investor portal, on barco.com since earlier this morning.

So we may assume you found the deliverable in order to follow the sequence of the meeting. In case you would have trouble finding or downloading the presentation, please send me a short e-mail, and we'll solve that.

Following the presentation, we also foresee some time for Q&A, and I think that's it for the introduction. So we'll kick it off here, and I'll take the first two slides of the presentation.

So the theme for this year, the theme also for this year's annual report is Shape and as we walk through the presentation, you will get a better understanding of the Shape theme with respect to topics, such as our organization, our capabilities and our offering. And then on Slide 2, first on preliminary notes, which I would like to emphasize is actually the first topic, the pro forma comparison.

So in order to work with comparable data for 2018 versus 2017, the 2017 data for orders, sales and order book have been restated as if the deconsolidation of the Barco-China Film Group joint venture had taken place on July the 1st of 2017. Remember, the deconsolidation took place out of the second semester of 2018.

So this way, we are comparing on order sales and order book apples with apples. Remind, however, gross profit, EBITDA and EBIT and everything below has not been restated, not even the margins associated to those metrics as the impact is essentially not material.

Jan, I think with this, we are all shaped to dive into the real content. So the floor is yours.

Good. Thank you, Carl, for the intro.

Welcome to the New Year to all of you on the phone. I'm going to give you a view what we have in mind for 2019 in this presentation, but I'm going to start, of course, with a look back at 2018.

And overall, we look back to 2018 feeling good and that's primarily because we were able to execute well on pretty much all initiatives we aimed for. We succeeded in driving the turnarounds we envisioned.

And again, the rolled up numbers that I think reflects well all the efforts and progress. And as such, we ended up delivering a second consecutive year of solid margin expansion.

Yes, although the growth for the full year ended flattish, like we expected, we saw the top line growth return in the second half, as we have been aiming for throughout the year, okay? And this was driven by momentum gained with the pickup of deals, new and replacement deals in Cinema in Americas and EMEA, also the control room growth turnaround globally and starts to kick in significantly in the second half, while the other business units in the portfolio kept up their solid growth momentum.

EBITDA showed nice growth on this flat top line. Yes, and EBITDA margin took a further step up with more than 2 points to 12.1%, well on track towards our 2020 target.

Throughout the year, we kept building out Barco's capabilities. There has been focus over the past two years to drive and build the capability of Barco working towards a more healthy and more resilient platform for future profitable growth.

We're going to continue this in 2019 as we execute on the fit-to-lead project that we initiated last November. If you flip to Page 4 with a similar look at the P&L.

If you look at the orders line, which shows a negative order growth, we landed order book 6% up year-over-year at the end of 2018. So we start 2019 with a healthy book.

Over 2018, we saw good momentum driven by EMEA, APAC, Greater China except for the Cinema in China and the flattish America due to significant foreign exchange headwinds and a number of business choices we took in U.S. On sales, like I said, flat growth year-over-year.

If you compensate – if you correct for the foreign exchange, it's a 3.4% growth for the year. Yes, but more significantly is the pickup of the growth in the second half, and it's – 2018 is really a story of two half years, where in the first half we saw a decline and the second half, with return to growth at group level.

Thanks to the growth coming back in Cinema outside of China, Control Rooms returning to growth, while ClickShare, Venues & Hospitality and surgery kept on their solid growth rhythm, okay? All of that offsetting the negative growth that we saw and expected for Cinema in China.

On the gross margin, we continued to see the benefits of our efforts on value engineering in specific and focused-to-perform initiatives in general with gross margin increasing across all of our divisions. While the fit-to-lead project that we started in November is essentially the start of a new chapter in terms of organizational efficiency and effectiveness where we expect to see benefits over the next several years.

Further improvement in operational efficiencies are also visible in how the working capital moved and the cash performance, and again, it's great to see all of these efforts drop down into solid progress on our net income and free cash flow. If we move to Page 5, where we show the year categorized in two semesters.

And like I said, in terms of growth, 2018 was truly a year of two halves. The second half, you see the growth reflected, driven again by momentum in Cinema Control Rooms turnaround, while in the second half the FX headwind, the currency headwind was lower than in the first half.

On the EBITDA margin, we saw further improvement of the EBITDA margin in the second half. Now we always see a second half that's a bit stronger in EBITDA margin, although this time we also added the improved profitability of the Control Rooms to that picture and further benefits from our focus to perform initiatives.

Joint group's EBITDA and EBITDA margin, despite some further step up in OpEx in the second half, which reflected the sustained investing in R&D, we're doing specifically in entertainment, but also in go-to-market, remember our investments we're doing in China and further channel build-outs across the globe. If we move to Page 6 and take more regional look at the top line.

Starting with the Americas, here over the year, the growth was massed by significant foreign exchange headwinds and also a – in fact a number of remaining pivot decisions, the decisions that we made end of 2017 and early 2018, essentially, decisions where we decided to stop some elements of the portfolio. We saw a good order book and sales build up in Cinema in the second half in the Americas as did we see good growth in the second half in Control Rooms, Incorporates, our ClickShare products.

For EMEA, we see solid momentum across the board with the turnaround in Control Rooms and Cinema visible in the second half, adding to the great momentum we had in ClickShare as well as in Healthcare with Surgical & Mortality, okay? And then Asia, I think what definitely stood out and was expected in Asia is the decline of Cinema in China and that's related to the shifting towards the tertiary and the quarterly cities there, which offsets an otherwise fairly good growth momentum in Venues & Hospitalities and Control Rooms in China as well as good momentum with ClickShare and Control Rooms in Asia Pacific, the countries in Asia outside of China.

We do expect the Cinema in China decline to bottom out in 2019, while we continue to invest in our go-to-market and manufacturing in China. We started with Healthcare in 2018, saw great progress, but there is more than Healthcare in our performance.

So our "in China for China" initiative will continue to broaden across the spectrum. So for on 2018 growth, I'm going to hand it to Ann to take us deeper into the P&L and profitability.

Good morning on behalf of myself as well. Flipping over to Slide 7, where we review the usual EBITDA walk and nice to report here the uptake of 9.9% EBITDA last year to in 2018 an EBITDA of 12%.

Like always, we include and exclude in years the impact of currencies, which we put in the first bar, so to say, had a negative impact on the results of 2018 to the tune of EUR 5 million coming from the dollars and the Chinese yuan. Excluding impacts of currency or calculating our figures all in constant currency, you see a pickup in sales to the tune of 3.4%, an uptake in gross profit margins and with this extra gross profit, we were able to invest in a couple of selective areas where we did allow an increase in costs, R&D, in particular to be ready with the new Cinema platform for the second phase and being really in the read as of the beginning there.

And then for sales and marketing, selective areas where we put also already show the return on investments, and particular on ClickShare, and then also the investments which we did in China, in particular, for Healthcare as well as in the two incubators in Healthcare as well. In the bar, others EUR 5 million has included here.

Now as of the second semester, our share in the net result of BarcoCFG. So our 49% in this net income, this is little lower than EUR 3 million included in the EUR 5 million presented here.

So with that, we land at an EBITDA of EUR 124.5 million, 12% margin on sales. Flipping over to Slide 8 where we speak from EBITDA to net earnings with a little bit more detail.

So EBITDA improvement as indicated. Depreciations and amortization stayed in line with the previous years.

If we look to the nonrecurring, we had nonrecurring gain, meaning the gain which we realized on the sale of the 9% sales in BarcoCFG, and could offset actually the nonrecurring costs related to the restructuring of the fit-to-lead program, which we announced end of 2018. Remember last year, we had quite some nonrecurring impairments, primarily related to the vital decisions we took in 2017 relating to the stopping of a couple of activities or divestments, R&A, Escape, X2O and then also the restructuring costs we at that time had to take for the relocation plan for the manufacturing activities from Norway to Belgium.

With that, we land at an EBIT of 8.7% on sales, which is an improvement of almost 5 percentage points compared to the year before. Interest income from higher income taxes at 17.7% effective tax rate.

The higher effective tax rate last year was included in nonrecurring, call it, correction related to the taxes on deferred tax assets, which we had on the balance sheet in respect of the changed tax laws at that moment, both in Belgium and the U.S. With that, we land at a net income of EUR 75 million, which is threefold of the year before.

Likewise, evolution, of course, on the earnings per share landing at almost EUR 6 compared to EUR 2 in 2017. Some more words and details on the cash flow and our balance sheet.

We see a continued improvement in our return on capital employed as well as keeping our healthy balance sheet. ROCE ending at 23%, which is 4% increase compared to last year.

It's actually the second year in a row that we were able to increase or improve this ROCE with 4 percentage points. Free cash flow, we landed at EUR 63 million compared to the EUR 40 million in 2017.

Thanks to the step-up in our EBITDA, gross operating cash flows and keeping our net working capital well under control. Net working capital ended at 0.2% of sales.

If we look to a couple of the KPIs underneath, DSO landed at 52 days, 3% better – three days better than the year before. Inventory turns landed at 3.8%, 5% improvement compared to the previous year, and DPO stayed stable at 59 days.

Looking to our net cash. Net cash direct available is our reported cash, excluding the net cash in Cinionic, which we, of course, also fully consolidate ends at EUR 247 million, if we compare this to the year before.

This is an uptake of EUR 37 million. The uptake is the net of the cash inflows from the free cash flow, from the proceeds of the sale of the 9% shares with dividend income, which we have from our joint venture BarcoCFG and then the cash outflows from dividend payments we did in the first half of last year.

Moving it back to Jan, getting some more shaping around the divisional update.

Thank you, Ann. Again, we move to the divisions on Page 11, starting with Entertainment.

And I'm just going to hit a couple of points of trust that in the Q&A that we're going to come back to more depth where you'd like it. But if you look at Entertainment 2018, which has a key theme has been that we kept our investment up in Cinema.

You heard us talk in the past few years of we're in between the first wave of digitalization and the replacement waves. At the same time, we saw negative growth in China, with the moving of the market there.

Despite this, we resolutely has chosen – have chosen to keep up the investment in technology, which puts Barco in, I'd say, pole position, with new leisure platform, at the time where we see in the Western world the replacement wave gets in motion. It also puts us in a good position for the emerging markets, China, India, APAC, LATAM, where today, we have a very strong portfolio, both laser and lamp projectors to take part in some of the new builds of that market.

Now that choice to keep our investment at a high-level is the main driver, while our EBITDA margin for Entertainment has pretty much remained flat. We've driven further value engineering benefits in Entertainment, but, again, the step up in our R&D has kept our EBITDA rate flat.

We strong we will reap the benefits from that investment decision over the next couple of years, as we see the replacement wave pickup, as we expect over the next few years to gradually see more contracts land in the Cinema market. At the same time in the PROAV & Events market, and Events & Hospitalities, it's clear that the laser technology and projection is flowing now into that market, yes.

Again, the pole position that Barco has and the accumulated experience with laser technologies puts us in a very strong position there, which also has been a driver of good performance of our PROAV & Events business unit over 2018. In terms of main highlights on the business, let me pick two.

The first on Cinionic. Yes, separate solutions entity focused on not just selling projectors, but also helping our customers in Cinema, building out their premium opportunities.

Cinionic is now fully commercially, operationally up and running since the fourth quarter, and it's further strengthening Barco's capability to be starting in the pole position in this renewal wave in Cinema. And then the last point, focus to perform.

You will remember that last year, early 2018, we decided to relocate our projection manufacturing site from Fredrikstad in Norway to Kortrijk, here in Belgium. That's a project that was planned in three phases.

We have executed two of the three, and we will execute the third phase of that in the first half of 2019, okay? That again, structurally puts us in a strong position to continue driving great quality but also productivity on our projection products.

If you flip to Page 12. Page 12 on enterprise.

Yes, two main messages here. One, sustained profitable growth, strong growth for corporates and then is the ClickShare projects and its derivatives.

But as well the turnaround in our control rooms. It has been a drag on the business for the past several years.

With the launching of the LCD proposition, Barco, again, has a solid growth driver in our product portfolio together with sustained good performance on the rear projection cube, where Barco is one of the few remaining players in the consolidating market, delivering this high-end rear projection cube Control Rooms solutions. We're now in a situation where within our enterprise, our corporates is a bit more than half of the division.

Our Control Rooms is the other half. Both are growing and both are contributing to significant EBITDA growth in our enterprise division.

And again, reflecting the ClickShare successes and global burden – and the health that control room is now getting in the division. In terms of business updates, again, let me take two.

We're further continuing to build our go-to-market for ClickShare. You've heard me say that last year and during the year.

The channel estimates we've done in places like Japan, already in 2018, are showing the return on that investment. We're not at the end yet of building our commercial footprint for the ClickShare portfolio.

And then again, we're focused to perform, let me remind you, one decision that we took in enterprise earlier in the year, which is to stop our X2O activity in Montréal. This has had some impact on the Americas' number.

That's what I referred to before. We've made some pivot decisions on several, essentially – had primarily an impact on our top line in the Americas.

Page 13, on Healthcare and strong momentum in Surgical. Yes, we definitely see within Healthcare the operating room, the surgical area going into a digitization movement, Barco, together with Sony and Eizo are the ones delivering the networking capability for the digital visualization in those spaces.

Very well positioned there with a strong product that delivered for Barco very strong growth, very strong position in 2018. Yes, in terms of diagnostics, the major study markets in terms of Barco, was a flattish year and that's mainly driven by the foreign exchange impact in U.S.

U.S. is a very important market for us in diagnostics.

But if you look at order book, if you look at position we have with great new products, we're definitely the market leader in diagnostics. And then on the Modality side.

Modality is in a transition where we are – we've gone into new OEMs. We saw first results of that in 2018, but that result should be really visible over the next couple of years.

And then, last point in country for country. We invested last year in R&D and manufacturing.

The plant is up and running, is winning local deals to deliver to Chinese healthcare OEMs. Yes, so with that, we took to invest in the market where we had significant penetration opportunity and it's a bet that's playing out as we hoped.

Like I said earlier, Healthcare is not the only division where we have opportunities in China, and we'll continue to look into the Venues & Hospitalities and the Control Rooms spaces to also strengthen our local footprint in China. Now maybe shift gears and look a bit forward to 2019.

And first on Page 15, with dividend decision. Given the 2018 results and the cash performance, and our objective to generate consistent dividend growth for our shareholders, our Board of Directors will propose to the general assembly to increase the dividend from EUR 2.1 to EUR 2.3 per share to be paid out in 2019.

From a strategy perspective, on Page 16, we're going to continue on the path that we took 2.5 years ago, but of course, as we progress, some of the attention and some of the focus areas are shifting. And Barco is a company that is traditionally led by innovation, and we're going to continue to do that.

That's also demonstrated by the fact that, that we have continued our R&D investments. But we will augment our technology innovation with deeper customer and market insights in order to augment the return on investment of that significant R&D investment that we're doing.

Second vector, focus to perform. We've added that since end 2016.

And we've moved the bar in terms of performance targets and drove both focus and business efficiency and going to continue to deliver on focus to perform. We're going to continue to deliver on our commercial and business objectives with focus and efficiency, while leveraging the size and the scale and the capabilities of OneBarco.

Same for services. We continue to build our services and software capacity and capabilities to be able to become and deliver outcome-based solutions and SaaS business models to our customers and partners.

And as such, we are aiming to build repeatable revenue streams for Barco. And then last, but not least, we're stepping up our attention to sustainability and that's essentially because we believe that executing a strategy with respect for people, planet and communities goes hand-in-hand with building a resilient and valuable business for our shareholders and our employees.

If you flip to Page 17, like each year, we're focusing our energies in the business around a few initiatives, initiatives that we've building out our growth foundation and technology and our organization. We selected four key areas for 2019.

Starting with delivering on fit to lead. The project we launched in November with the aim to enhance our business agility, our business efficiency as well as our build out our capability to be hardware to software plus service business.

We're going to continue to empower our regions, strengthen their services and commercial execution, and their channel management capabilities as well as stepping up our focus on investing in foundational technologies and innovation effectiveness in Barco, okay? Further strengthen our capability to lead by innovation.

While continuing to build out our China capabilities, like I said, we've made a major step up in healthcare that has grown the confidence that we know how to do this, and we're looking now at the next parts in the portfolio to strengthen our China capability. And so with that, it's a little bit how we're going to roll in 2019.

I'm going to finish on Page 18, with the outlook. Assuming global economic environment that remains reasonably stable and currencies in the 2018 average levels, we expect to see mid-single-digit top line growth in 2019 and continued EBITDA and EBITDA margin growth, okay?

We definitely have a good past two years in terms of improving our EBITDA margin, and we're going to continue to execute towards our 2020 objectives, although it's obvious that we're targeting the higher end of the 12% to 14% range at this point in time. For 2019, targeting to add between 1 and 1.5 point to debt EBITDA margin.

Yes, that's driven by some volume leverage effect as well as ongoing efficiency gains, cost efficiencies. But also, would include the impact of the mandatory IFRS accounting standard adjustments around leasing, okay, which would give us EUR 5 million plus good guide, but that's primarily an accounting change.

At the same time, we remain cautious with our assumptions in terms of gross margin accretion. From experience, we know that pickup of the Cinema wave will come up with big orders, big orders with volume discounts.

So we're building some of that in our assumptions as well as some mix effects, like in ClickShare, where we're launching a video room solution, which is a ClickShare solution for small meeting rooms that will come at a lower price point. And of course, we're going to continue to invest in our growth initiatives in our sales and marketing and manufacturing footprint, okay?

So all of that together, yes, we will still deliver a, we believe, a solid margin improvement. So that brings us to the end of the presentation part of this call.

Again, we're definitely happy with the momentum we created with Barco over the past two years. We've made big steps forward, I believe, in creating a more resilient and healthy platform for future and sustained profitable growth.

At the same time, we also know we have more work ahead of us to become that sustainable profitable growth company. And to that end, in 2019, we're going to continue to implement the changes which started specifically with the fit-to-lead program in November, aiming to build capabilities to build business efficiencies, while resuming top line growth across our business segments, for which the second half of 2018 has given a good indicator on the momentum that we've gained.

So with that, I'm going to hand it back to Carl to moderate the Q&A.

Thank you, Jan and Ann. We will now move to question-and-answer session.

And operator will tell you in a minute how it works. [Operator Instructions] Back to the operator now.

Yes, thank you. Firstly, on your mid-single-digit organic growth target.

Could you split it up between the divisions, especially given taking into account the comment you made that you're seeing the Digital Cinema market bottoming out at over the course of 2018? And had strong order intake throughout, I think, the last couple of years in Healthcare?

And the second question is on the EBITDA margin improvement. You've already gave some details at the end of the year comments, talking about the higher end of 12% to 14% range.

If I look to the fit-to-lead announcement at the end of the year, that was, I think, EUR 20 million efficiency gain and then the extra EUR 5 million from accounting, that already would be significant step up versus 2018. Is there anything that I'm missing that would say that the offset – that would offset those two gains, especially also in the Entertainment, I'm also wondering if there's still some cost to escape in 2018?

Thank you.

Thank you, Marc for your question. I'll take your first question.

First question, so on the top line – so coming to the mid-single-digit sales growth on group level, bring that down division by division. On Entertainment, we're targeting a low- to mid-single digits growth, with Cinema on a low single-digit track and V&H also, let's say, modest expectations, low- to mid-single digits, and we believe that are feasible targets, while observing the market dynamics.

Enterprise as such is expected to deliver mid- to high-single-digit growth pattern with the continued double-digit growth track for ClickShare expected. While the turnarounds in Control Rooms in the second half gives us confidence that we can also deliver a mid-single-digit growth continuation.

Healthcare, we remain, let's say, smart, cautious on healthcare evolutions. Low single-digit growth is what we pencil in.

And diagnostic stable and we expect to see some more growth in the surgical segment. Altogether that brings us then to indeed, a target of mid-single-digit growth for the group on a pro forma.

So we repeat that on a pro forma comparison basis, of course. For the second question, I'll move the floor to Ann.

Good morning, Marc. On the EBITDA improvement, yes, you hint rightly so to the impact of the fit to lead, which we announced, mind, this spreads over 2018, 2019 and 2020.

This is – so in part already to a lesser extent in 2018 results. It is not only in R&D, so in the OpEx, so to call R&D, sales and marketing, G&A also in part included in the gross margin.

So it's more, call it, split around the years and the different impact on the line. Where we are more cautious and like Jan also indicated, in 2019 outlook is on the gross margin.

Two-folds meaning the volume discount, we currently own or – and that we are also prepared if needed on the – and what we saw on the bigger deals in Cinema. We also saw that at the beginning of the second wave, primarily where we are in the market of U.S., where you have really the biggest screens comes with biggest contracts, which is positive, while the margin might have some negative impact percentage wise on owned.

And then also in ClickShare, where we first see some negative mix impact. And this with the launch of the Huddle, new ClickShare's offering, which comes at a lower price.

So in volumes, yes, we do see the increase and very nicely so as it was in the last year, but on the margin that's where gross margin – that's where we are more cautious. And that's why, we on the uptake and EBITDA lands at an extra 1, 1.5 percentage points compared to 2018.

Does that answer your question, Marc?

Yes, just one follow-up then on that part. So I understand that – the moving parts, but also may be looking back in history, I think the last two years, you guided for around 100 basis points improvement at the beginning of the year.

You ended up, obviously, significantly higher than that both years. Was that significantly higher number?

Was that driven – that for example, the marketing, ClickShare was much stronger than you initially thought at the year-end that that was high-margin business? Or is there also that conservatism in the beginning of the year in that estimate?

Okay. Ann will take your question.

Yes. Looking two years back, so the first step-up actually, is primarily the impact and still also in 2018 compared to 2017, 2017 compared to 2016 quite had an impact of the discontinuation of activities, call it a focus to perform choices we made on our portfolio, the divestment of stopping of a couple of activities to the tune where lands and how fast you can execute can have quite an impact on the percentage improvement, which lands – and in years.

In 2019, and particular in the second half, our gross margin came higher than expected, which we are, of course, glad too. The ClickShare, yes, was a good driver in that, but not overpriced on that point actually.

What was clearly a success was the turnaround in Control Rooms. And that comes with better gross profit margins.

And this year, lands or falls to the bottom line actually. So that's where we could really land on better than we initially could have hoped for so to speak.

And then, if a big one in Healthcare would really outperform over the years that's the business unit, Surgery. So the operating room.

So there, pickup in sales landed really nice deals. And it'll also have its impact actually in 2019, comes with higher margins.

So it's a positive mix effect. You will have seen, if you look to the gross margins, all the three divisions, it's a pickup in all of the three divisions.

So positive mix effect there. And – so compared to we have, call it, nice surprise, surprise may be a big word, but certainly falling in the right direction and helping to the total better results in all of the three divisions, yes.

One actually that's helping out. I didn't answer on the smaller question which you had before on Escape.

We didn't have any cost in 2018 anymore on Escape.

Okay. Thank you.

I’ll queue again.

Thank you, Marc. We'll move to the next person in line.

Yes. Good morning, everybody.

First question is actually on capital allocation. As you have mentioned very strong cash generation during this year, also very strong cash balance, should we expect any changes to capital allocation really?

For example, start considering M&A, again, going forward? That's the first question.

And then the second question is actually on the fit to lead program. I recall that during the press release or in your press release, you were also mentioning gross savings that will be reinvested.

Can you give us a little bit more color on the magnitude of those gross savings and in which projects this will be reinvested? Thank you.

Okay, the first question will be addressed by Jan.

So question on capital allocation. Let me first say that we've never – not thought about M&A, what we said it would all first focus on making ourselves ready to do that.

Like we said before, we're very much aware of the capital we have on the books. And we think we can put that to good use, part of it over 2018, we used as to set up Cinionic, but we are looking to further use the capital whether it's for investing in our factories, like we've done in China, like we've invested here in the factory in Kortrijk.

Yes, but at the same time we are looking into inorganic opportunities that are in the bolt-on type opportunities that complement our current strategy either from an access to technology or from building value-added capability around our current divisions. So that's bit of a longer answer to say, look M&A is definitely what we look at, but again, like I repeated couple of times before, we're not in a rush to do anything stupid with the cash we have.

We – focus was, let's make sure that the fitness of Barco is solid. So we have the management capability, the management's attention to if and when we would do an M&A move, yes, we can really bring that to good end-to-end, make it accretive to the business.

And then the second question on fit to lead savings and reinvestments, Ann.

On the reinvestments, it's not too indifferent on other areas as we actually have already announced or talked to before. So we keep on investing in innovation and R&D.

Last year, to the tune of 12% on our top line and with the growth in top line it is not as we tend to increase the percentage, but it is not that we're going drastically lower there, it is indeed a choice for and what we have proven. I believe in the last two years, is having a more rigorous process internally, if we do start on incubators, on growth initiatives that we have, more and more rigorous renew processes on the interim milestones within the company whether something works or not can have a positive impact on the business, and so in that sense some earlier stopping of things might happen.

So that's what we call the redeployment then of the resources and making the choices. If I make one particular, for instance, and in the Control Rooms, and in the ClickShare business or this year, it was an ODM activity, which we have, which we saw was decreasing, was asking for more R&D where we then decided, no we stop, we discontinue, and we focused on our own targets we're having for ClickShare.

So that is one. Investment areas for sure stay like we indicated regional wise in China.

So in 2018, started the R&D and manufacturing plant in Suzhou, but further increase in investments regional wise in China is certainly one of the redeployment areas. So it will be an R&D, it will be in sales and marketing, particular go-to-markets, which we want to address from a more regional coverage point of view or from an in-depth channel point of view.

I would add, in terms of capabilities, there's significant redeployment into more software capability for Barco that's where we're hiring. As you see each of our division has more and broader software opportunities and at the same time we are also continuing to invest in several incubator businesses whether it's in healthcare, whether it's in our enterprise business, whether it's in entertainment, okay.

So we're definitely with some of the redeployment stepping up our focus on what I'd call horizon three opportunities, things that may deliver revenues in three to five years from now.

Thank you, Jan and Ann. Thank you, Matthias for the questions.

Let's move on to the next person in line.

Yes, thank you, good morning. Stefaan Genoe, Degroof Petercam.

On the control in this business, could indicate us what has been the profitability switch in the second half versus the first half on the higher volume sold out in the second half? And do you see, from this – as this second half still being hampered by the lack of sufficient capacity to deliver products, so should we see further improvement in 2019?

And then, second question, on the ClickShare product, could you update a little bit on competitive environment and the strategic moves you could take in 2019? Thank you.

All right. Thank you, Stefaan.

Ann, will take your first question.

Indeed. During 2018, on UniSee, we ramped up our capacity, in our production facility in Taiwan.

We are not yet at the maximum output there, have seen a steady increase in the volumes of outputs likewise also on the yield, showing there steady progress. But, yes, confirms that there is still a step up to make there, to get to the 90% and 90% plus yield, moving towards that.

So on the second half, it's certainly a big step forward. The first half, again, yes, we do foresee some further increases in output and making sure that's all of these orders, which we have in the different regions and which are the regions as output for that we can deliver there.

Perhaps as a small followup, in terms of – if we look there was a major market improvement in H2 versus H1 I think in 2018. What I quickly give is a rough indication about the EBITDA delta we had to H2 versus H1 in Control Rooms?

Thanks for the questions Stefaan but we don't disclose EBITDA for subsegments, but as you may have noticed also in the comments from Ann, so we're happy with the evolutions and that was positive again for Control Rooms, as indicated specifically we don't disclose further than that.

Okay, second question, Jan will take it.

Yes, on ClickShare, right, and the growth, we just take a couple as I mentioned. The first one which I alluded to when we went through the presentation is that, we are not at the end yet of building out our commercial footprint for ClickShare.

Couple of years back it was primarily Europe and U.S., although even there we built out our channel capabilities. We've invested last year in places like Japan, like China to have feet on the grounds.

And in each of these markets we're essentially the first one going in and creating this new wireless presentation opportunities. And so over 2019, we'll continue to invest in the channel both call it mature markets and in new markets.

At the same time, from a product development perspective, we're broadening the portfolio. The huddle room, a wireless presentation for small meeting rooms where three, four people sit together, it's a significant segment within the market, definitely in the Americas and also coming to Europe.

So we're launching at ICE this week our huddle room proposition. At the same time, we're building out the functionality of what a ClickShare can do in terms of collaborating, in terms of touchscreen capability.

And then third, we're building out the linkages into the ecosystem, right, and that's where partnerships, interoperability capabilities with other players like Logitech to be able to bundle our ClickShare capability with their, let's say, hard and software that's present in meeting rooms. Okay.

So those are our two, three actions that I'd call short-to medium term actions. In parallel, we continue to invest significantly in the next product generations that, although in the direction of collaboration more than the basic wireless – wireless presentation.

Okay. So those are our product investments to be launched, maybe two years from now.

But in the meantime, we're going to see steady growth by building out a footprint and building out our current product capabilities and making sure that Barco becomes a de facto player within a meeting room ecosystem.

Thank you.

Thank you Stefaan. We can move to the next person in line.

Thanks. Firstly, on working capital, you are mentioning improvements in the presentation, but if I look at the cash flow it's still EUR 25 million outflow over the year.

What is your expectation there going forward?

Okay, good, will you take this question, Ann?

You have seen an improvement on the lines of inventories on AR and AP with negative and free cash flow consists from what we call order working capital and is primarily the lower advances on customer contracts, mind that in 2018 we are no longer consolidating BarcoCFG. The bigger account or call it advances on customer contracts or in Cinema and were also in Cinema in China.

So that's the biggest impact, why? If you indeed look to the free cash flow, this has a negative impact on the free cash flow of 2017 and 2018.

We land with our net working capital at 0.2% of sales, where last year it was even negative. So in that sense, you could say, that's good than last year, but I think 0.2% on sales is still a very good benchmark.

And actually, within our businesses or if we look longer-term so to speak, we always take the guidance we should at least always stay below the 5% of EBITDA, but I don't denounce that I want to go just to 5% now in year-end 2019, certainly not, but on a longer-term that's a little bit where the reference is. Internally, yes, we are working on all of the different aspects, so keeping our DSO under control, improving our turns where we can, looking at all of the different divisions and business units we're positive, but on working capital, yes, we are quite satisfied, in all honesty, with 0.2% on working capital on sales which we had.

That's clear guys. I fully agree that it's a good number, but it is also fair to assume that if any than in the coming years should probably you have some outflow coming from working capital?

If there is an increase in the top line and we do not improve our KPI, so to speak, this will be an outflow and then free cash flow on that, yes. But it will also bring us higher not only on the line of net working capital it should bring us more accretion in EBITDA.

So in that sense, we do foresee to improve our free cash flows or at least keep it at the same level as we do this year. Mind in 2019, on free cash flow we also have to pay the outflows from the restructuring program.

So that's quite a material amount for 2019.

Okay, it's clear. And then one other question on the free cash flow statement.

You have a payment for short-term investments, is that like money market funds or anything else?

What we had parked there actually and disappears after 1st of January is the contributions in the capital of the Chinese shareholders, sort of 45% in Barco's – in Cinionic sorry, it has been on our bank account in December, the effective control – change in control is effective as of the 1st of January 2019. So accounting wise that's where we have to park these amounts actually, but moving into earnings, that's an accounting amendment.

Okay, that sounds good. Then maybe one other on the Digital Cinema.

You are talking about also maybe that larger contracts in U.S. is that really you're seeing that market there has been improvements for years that's now really kicking off that replacement in the U.S.?

Well, I'll take the first part of the question and the Jan will then take over, but so – on the contract that we say referenced in the press release and in the presentation, it's not only the U.S. it's both the Americas and Europe there is contract with Cineworld, there is a contract with Kinepolis, other parties as well, so within Digital first, renewal programs where we are actually replacing generation one projectors from lamp to essentially laser solutions.

Jan?

So the answer is, yes. We do see the first replacement orders land, we see at this point very active tender activity and that's in the ramp up towards CinemaCon in early April.

So it's clear that all the main players have their tenders out, are scouting in the market, and it is also why that we are coming out with our new platform right now. The uncertainty that I think all of us still have is how are these big deals going to be spread, okay.

Our assumption is that the big houses will make their fixes, but will land orders, not all at once, but more spread out over the next couple of years. And that uncertainty – translates into uncertainty on how steep will this acceleration in CinemaCon.

What Carl has indicated is our assumption at this point of time, which is a careful assumption on the top line.

Thank you.

All right.

Good morning, I am Christophe Beghin, Kempen. I have two questions.

First one is on ClickShare. Can you share with us the volume growth exactly or the numbers sold or units sold in 2018.

Second question is also regarding ClickShare, what is the main reason that you shift also or are you seeing some seasonalities in ClickShare like collaboration systems, et cetera, is it to compete more with existing bigger collaboration system players or are you striving to end up with a kind of embedded solution for meeting rooms in collaborations with Logitech and then third question is from Cinema, do you see that existing Cinema exhibitors change for instance their cinema – Sony installed base to Barco installed base in the replacement orders?

Okay. Good morning Christophe, thank you for the questions.

I'll start on the first one. So on ClickShare, I admit it, I think it's good to make a difference between the growth in sales and the growth in volume.

While we do not disclose all the details, what we can share with you is that the growth in sales was double-digit between 10% and 20%, whereas the growth in volume was actually beyond 20%. So as Jan indicated before in the presentation, there is – in the breakdown of solutions there is a bigger share being sold under smaller solutions at a lower price point.

So as a result, higher volumes as well. So that gives you some indication on the volumes.

Another indication is then the fact that we also shared with the market that somewhere – November, December, we passed that threshold of having more than 500,000 meeting rooms equipped with ClickShare, so that's a nice step up from 350,000 at the end of 2017. So that's a bit – some insights on ClickShare in 2018.

On the collaboration, Jan?

On the ClickShare I think the question was why didn't you built more functionality and the short answer is, because we can. With ClickShare, we have brought simplicity in the meeting room, okay.

That ClickShare dongle, which I think you also see, we are protecting the intellectual property and defending that, that dongle has a very precious user interface that makes things in the meeting room simple. And so we have the opportunity to use that interface to make other things simple in the meeting room, like potentially start up your Skype session in a more easy way, allow people in different meeting rooms to share, okay.

So those developments are, I would say, natural extensions of what the ClickShare simplicity can bring. And it's our, let's say, Barco's position and almost right to use the fact that we brought that simplicity in to broaden the value add and that we can bring with it and of course monetize that value-add.

The more that you go broader the more you have to realize you are in an ecosystem with other players, and so we are positioning ourselves as an agnostic technology that can partner with other software and hardware players in the meeting rooms.

Okay. And I'll start on the third question.

So on the renewal programs in Cinema, and your question on Sony projectors, so, essentially whether it is a valid observation is a factor, the first replacement programs are indeed to renew projectors that are end of life, be it from a technical point of view as well as from an economical point of view. So really projectors that start to become 9, 10, 11 years old.

And as Sony was one of the brands to be first in the digitization wave – in the first digitization wave, that's one opportunity to renew the projectors, so yes, but it's not exclusive for Sony. It can be first generation Barco projectors as well.

Okay, thank you.

Yes, we are ready for the next question.

Yes, good morning. I got two questions.

First is on entertainment, and you are hinting for new investment in next generation laser projection technology. Can you elaborate a little bit on that what kind of investments these are and what kind of new generation are you hinting at?

And the second question is also in Entertainment, on Venues & Hospitality. You're indicating that this is 40% of total Entertainment sales, that's close to EUR 180 million, and which should be a year-on-year decline, what's the reason for this decline?

Thank you.

Okay. The first question will be addressed by Jan, next generation laser platform.

I think you can check the numbers, but first there is not decline in Venues & Hospitality. Carl you can try to give more on that.

So on entertainment cinema investments, what we're bringing out, as we speak, the new cinema platform that has RGB laser technology inside, which complements our laser – laser technology. This positions Barco as a player that has the full breadth of laser technologies in the market.

And that depends on price points, contrasts, lumens that you want, which choice you're going to make, but it has been our intent to really be able to be the partner of the cinema house to make sure that for the different cinema rooms they have, they have the appropriate projector. It's also projector that we launched that has been built with new modularity inside and remote connectivity, which for future service purposes and connectivity is a platform that we can further build on for the future.

Besides that, as we've communicated already last year, we're working on next generation of laser technology, which is called Light Steering, which further improves the efficiency of the light output of a projector, enable higher contrast, okay, I'm getting very technical here, but both in terms of being at the pole position, having the technology for today as well as already thinking about the next better technology for tomorrow, we have decided over the past two years to keep up the investment on both horizons.

Guy, maybe on the second part of your question, on V&H, I don't think we expect to a decline in V&H be it in 2018 compared to 2017 or our projections for 2019 to 2018. Can you clarify a bit your question?

So, yes, on the 20% hospitality, so it's 40% of the total of EUR 447 million, so that's EUR 180 million this year. And yes, if I look at just the numbers this last year, it was less than – a lower number, so just a question – my question is, there is no year-over-year guidance, there is no decline in Venue & Hospitality?

So I'll explain you the evolution 2017 to 2018, guidance for 2019 is indeed a no decline. We really guide for a modest mid to – or low to mid-single-digit growth for Venues & Hospitality in 2019.

Now on 2018, did you remark?

On 2018 versus 2017 V&H in total has a flat top line, the pro HDX lens part has an increase and then the simulation part has a decreased simulation, was hampered by delays in projects, that's the line on the one side [indiscernible] again and then also in the U.S. a couple of contracts more than government or government-related who as we saw shifted, where we now see a pick up, again, for sure in funnel and in orders at the very end of last year and a pickup in 2019 actually.

So that's there to come back and was more call a declining affect.

I hope that clarifies Venues & Hospitality. We are ready for the next question.

I have got two. Firstly, just on China, you talk a lot about the Chinese Cinema business that's been declining because of this move into the Tier 3 and Tier 4 cities.

And you also talk about your sort of investment into local production, R&D, et cetera also for this China, in China strategy. I just wondered if you could comment on generally your Chinese business particularly outside of cinema, obviously with this all sort of global trade war tensions, if you have seen or expect to see any impacts or weakness there?

And then my second question was just on the Cinema as a deal, we sort of touched on it on previous questions. But we did see these announcements last year for Kinepolis and Cineworld, and we have not really seen any other announcements since then and I think we and perhaps you guys did also expect to make announcements, now is that just because your partners don't want it to be announced or you haven't signed that big deals or is there anything else we should take into the fact that we have not seen those announcements and then also on that cinema, if you could just give a view on when the deals that you have signed whether they are more Barco renewals or are you seeing good market share gains that would be useful?

Thank you, Trion. The China question will be addressed by Jan.

So China, outside of Cinema, the way we look as Barco is that whether we talk healthcare, whether we talk the Venues & Hospitalities part, whether you talk Control Rooms, we have significant penetration opportunity, and we are moving from being a company that imports stuff into China to try to sell typically in the high end of the market to be a local player that can't play in the high and the mid end of the market, okay. So that's essentially our – in China, for China play.

With healthcare, last year, we have taken a big step to build a factory within driving distance of the major healthcare OEMs, both Chinese and international. At this point in time, we are building further projector manufacturing capability, in China to be a stronger local player and perceived local player in the Venues & Hospitalities market.

Also with Control Rooms and some of the Smart City activity, we feel there's opportunity both with good hardware, but also with the software opportunities to build share in that market where, again, we are building out our go-to-market footprint for Control Rooms in China. And then in terms of ClickShare, we went last year into China with ClickShare, we're learning how it – what it takes to build out a channel in China, it is different than what we do in Japan, it is different than what we do in Europe.

So there again, we know we need to think and act local to take market. In terms of trade wars and so on, it's not a big factor and knock on wood that things don't shift, but the factor being, in China for China, almost by definition isolates us from some of the intra-country talks or defensive measures.

From an export perspective, we do manufacture ClickShares with a subcontractor in China, however, the ClickShare product is excluded from the long list of things that fall within the current trade war list. Of course, we keep a very close eye on how things may evolve and let's say, we have a plan B and plan C windup out of the drawer, is that ever would be, I would believe.

On your second question, Trion, so indeed we had the public announcements from Kinepolis and the Cineworld for almost 1,000 renewal projectors, we're shipping as we speak on those programs. And actually, what we saw happening in the second half and what we expect to see in 2019 and beyond is a gradual steady increase in the volumes, not necessarily driven by huge trading agreements, like the ones we announced, but by more best kind of orders, sometimes smaller volumes, also better dynamics that we have seen over the last couple of months, so sometimes for 50 projectors here, 100 projectors there.

Also sometimes with parties that do not want to disclose the new contract. So that's also the reason, but essentially what we can share is that we have seen the pickup in the sales growth in both the North America and the European region and that gives us confidence in the evolution that we see.

Maybe just as a follow-up on those two questions. Firstly, in China, it is interesting to know about your sort of strategy there, but could you comment on whether you're seeing any sort of macro-related weakness, any sort of slowdowns in decision-making from customers or caution there or anything like that.

And then in the Cinema, could you comment on when you do win these renewal deals, are they typically renewing your own projectors or competitor projectors?

Okay. Jan will take...

First, China, so short answer is, no, not really, right. Like you I read the newspapers, but then I – in how our customers behave, I do not yet see any big slowdown, okay.

There is bouts of where you feel like you had the cash is a bit short but that typically gets results quickly, okay. At the end of the day, whether China grows 7%, 6%, 5%, 4% for the Barco opportunity that doesn't make much difference, right?

It's all about can we move our market penetration from low single-digit percentage to double-digit percentages in the markets by being local.

And on the Cinema?

Yes, on the – whether its replacing our own, so as we said before, yes, renewing is – can be all kinds of brands. It can be let's say the current competitors and even older brands which are no longer in the market, essentially the third generation of projectors that includes Sony, Christie also Barco projectors.

So it's not one-on-one Barco replacements for sure not, the opportunity is much bigger than that.

So what you're saying is you have, I mean, obviously there's a much bigger lineup of projectors than your competitors with this round, I am trying to understand if you think you could see an increase in your market share as a result of the renewal wave, if you have that feeling that is happening already?

Yes, but in Digital, so it's one of the strategic objectives also behind the product of Cinionic to make sure that in that renewal play that we have a strong or preferably stronger market share than what we took in the first digitization race.

Okay, perfect thank you.

Thank you Trion. We still have time for one question.

Yes, thank you. I got a follow-up on Digital Cinema.

Your margin remained stable in the year despite lower sales, we should have low single-digit sales growth probably this year, which should create some positive operating leverage on the margin, but on the other hand, you indicated there might be some volume discounts in Cinema to be made this year, if we look at the EBIT margin in Digital Cinema we're below the two other units, and I assume the targets are quite somewhat higher going forward, could you indicate what you see as the main drivers to get this margin to a more average of the group level again apart from the slightly higher volumes we should see this year?

Ann will take your questions, Stefaan.

Rightly, so indicated there, Stefaan, so we could keep our EBITDA margin in line with last year despite a drop in top line, but it is lower than the other two decisions. We foresee a higher margin in the coming years, also targeting on that already in 2019.

Coming from top line increase, somewhat cautious indeed on the gross margin. But in the last two years, we've quite heavily invested in R&D in particular to be ready for the new platform.

So there we will have some lowering in R&D costs in particular, which stand as being positive on an upside so to speak on the EBITDA margin.

Okay thank you.

So I think we can conclude the Q&A session here. Also, pleased to announce in the meanwhile the Annual Report 2018, the full Annual Report 2018 became available and online, available on the investor portal.

So some nice reading is there on the website. So let me thank you all for participating in the call.

Should there be any more questions coming up you can, of course, always reach out to me. Thank you also Jan and Ann for your insights.

Thank you, and have a nice day. Bye-bye.