Barco N.V.

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

Pleased to welcome you to this conference call, indeed, on the results of the full year 2019. Today with me our CEO, Mr.

Jan De Witte; our CFO, Mrs. Ann Desender.

And both Jan and Ann will present and provides extra insights on the full year results. And we will do so following the full year '19 earnings presentation.

Presentation has been made available on our investor portal on barco.com, earlier this morning. We assume you have found the deliverable in order to kindly follow the sequence of the meeting.

In case you have trouble finding or downloading the presentation, please send me a short e-mail. I think that's it for the introduction.

And let's kick it off here. Jan, the floor is yours.

Thank you, Carl, for the intro, and welcome into the New Year to all of you. As always, we'll give you a view on what we have in scope for 2020 later in this presentation.

But let's start with a look back to 2019. [Technical Difficulty] We delivered, once more, solid profitability improvement with growth this time and continue to make great progress in building a more efficient and competitive culture and capabilities in Barco.

And then secondly, it's great to see all of this translated in numbers. That's the best and also the easiest way to tell that story.

If you look at these numbers on Page 3, [Technical Difficulty] much across all of our segments and divisions, while further building up and building out our order book. EBITDA margin up 2 percentage points to 14.1%.

I think that's the third year in a row where we delivered a major step-up. And in 2019, we also are starting to see the positive effects of operating leverage in those financials, again, here across all divisions.

And then all of this translates to a net income that ended up 27% up year-over-year. And free cash flow, up 40% versus last year.

And with that, I'm going to hand it to Ann to take us [Technical Difficulty].

Slide 4, giving you some more of the same figures, I would say, in comparison with previous year, all of the KPIs scoring in the comparison on the green, you could say. Top line, both orders and sales, strong growth, ending also an order book at 300-plus, which is €60 million year-over-year.

This order growth, strong order growth we see in all of the 3 divisions and all the 3 regions. Sales up, excluding FX impact, 6.4%.

So the currency is counting for about 3 percentage points. EBITDA up to 14.1%, so mainly this year, coming from an operating leverage on this top line growth.

If you look to OpEx on sales, it improved to 2 percentage points year-over-year. This is not after we have executed on the fit-to-lead and redeployed bigger part of this investment.

Looking to the free cash flow, so landing at €89 million, up €25 million. And net income, taking you in a minute a little further to that.

But also there is up of €20 million. Going on further and a little more insights on the top line.

And this is the region. You see this on Slide 5 [Technical Difficulty] the FX, but also excluding those very nice figures and very nice growth, primarily, one growth, actually, I would say, both in the Americas and EMEA is Cinema.

If we look within Entertainment, to the other sellers of V&H, where there was a more soft first half, we also there see a very nice recovery and growth back in the second semester. If we look to ClickShare or corporate here indicated continuing on the momentum of double-digit growth, both in the 2 areas.

And if we then look to healthcare growth, very nice uptake there. This is actually across the 2 business segments.

On EMEA, orders and sales up 6% and 9%. If you look there for division, it's about, it's a little bit the same, or which we can this year, or indications as well as, per division as well as for the Americas.

Asia Pacific, good for 24% of our top line. Here, the year-over-year orders are in line with sales, but have a nice uptake in orders.

So we have orders to start 2020. China, the big updates and yielding the results from our in country for countries on healthcare, very nice uptake in sales.

On the other hand, where we saw some more softness in China was on control rooms, in particular, on the second half. Corporate and our ClickShare solution, they are also getting some rebound and also building there some first nice results.

APAC region, so excluding China, if you could say so, was more impacted to different countries by more economical, political slowdown with elections in the different countries. And in that sense, that has shown a little more softer growth.

Moving further to Slide [Technical Difficulty]. We, EBIT at 1.5 percentage points.

So depreciation and amortization is a little bit higher than last year. So this actually really have to do with the impact of the new accounting standards on leasing.

For the rest, no nonrecurring results neither this year or last year. So in that sense, operating results nicely flowing down to the bottom line.

Effective tax rate, we could keep at same percentage, in line with previous years, 18%. And the noncontrolling interest, the last indication here for minus 1.2%, I would say, is a minority interest on the result in Cinionic, with that landing at a net income of €95 million, up €20 million year-over-year and earnings per share of 7.65%.

Ending next to the P&L on a couple of words on the cash flow and our balance sheet. So a solid free cash flow generated of €89 million.

This is 8.2% on sales. Another nice uptake year-over-year.

The gross operating cash flow landing at €140 million. So compared to our EBITDA, this is net after the payout of the restructuring, which we announced in December in 2018 and executed paid out in 2019.

Net working capital controlled. It is increased compared to last year so that's controlled to 3% on sales.

Inventory turns, a little lower than the year before. This is primarily related to the new launches of products, which we did.

And in that sense, some inventory buildup there to handle, while the order book and timing delivers on the different orders. If you look to the average payment terms, our customers or the payment terms from our customers are shorter than the payment terms towards our suppliers, which our procurement guys could negotiate so that's helping well out on the cash flow.

With that landing on the return on capital employed of 25%, up 2 percentage points year-over-year. The very last figure is on the balance sheet, net cash.

The net cash direct available, excluding the cash in Cinionic, our joint ventures, landing at €250 million, which is flat year over year. This is, the plus, of course, and the equation is the free cash flow.

But then has also paid out the dividend, of course. And that the investment in Caresyntax & Unilumin 2%, which we acquired at the end of 2019.

And the KPI net cash also plays the impact of the new accounting standards on leasing. So with that, I finish on the P&L and the cash flow and give the words back to Jan to give some more flavor on the divisional results.

So thank you, Ann. So yes, we'll go into the divisional results.

I'll just keep it at the high level, hit some key messages. And I trust that later on, we'll go deeper into the Q&A based on what, where you want to go.

So we're on Page 10 in the document, Entertainment. Key message here, two Cinema renewal, I mean, clearly confirmed in 2019.

We saw that beginning at the second half of '18, but definitely 2019, the volume picked up, the big deals picked up here. And then second, venues and hospitalities and back into solid growth in the second half.

From a market perspective, in Cinema. First, this is a market that is still further expanding opportunities in China, India, APAC and Latin America for new builds, although we expect this expansion to slow down over the next years.

But then, of course, what's clearly picking up is the renewal opportunity in EMEA and U.S. And I think you've seen us communicate the last year some very exciting, big strategic deals.

All of them laser technology. That clearly is becoming the technology in the market.

And clearly, embarked with our Series 4 platform. We're confirming and affirming our technology leadership in the laser-based Cinema projection.

In the ProAv & Events market, it's a market where we also see that conversion towards laser that plays to Barco's strength. We've been able to expand our ProAv & Events' customer base.

We're focused on capturing share with a solid product portfolio in new verticals in the ProAv market. For example, there's a lot sharper focus on what we call themed entertainment market, MZIA theme parks are also expanding the portfolio with a new compact laser projector for the rental market as well for the fixed markets, that's the UDM platform that we started manufacturing at very end of last year and that is coming to market in the first half.

Also in the simulation market, we see that market itself growing and you see Barco expanding our customer base in this project type market. All of that together led to solid double-digit growth, solid build-out of the order book and EBITDA margin increasing to 9.5%, showing solid improvement and also reflecting the operating leverage, the scalability we have in the Entertainment division.

If you go to Page 11, Enterprise. [Technical Difficulty] primarily.

And then control rooms progressing well on its turnaround path. In terms of the corporate, the wireless presentation market, it's still a market where we see double-digit growth, but also some signs of maturing.

We as Barco continued, top line-wise, a solid double-digit growth track. We continue investing in go-to-market into regions where, we're not as penetrated as we should, that's China, that's Japan, and other countries in Asia Pacific.

And, I would say, even in the Americas, we're not fully penetrated yet. In terms of the large video wall market, which is the broader control rooms.

This is the market, where the rear projection cube, the legacy technology is further slowly declining, is also consolidating in that market and is being replaced by LCD and LED technologies. In both cases, with the new technology investments that we've done over the past few years, we're capturing share and our position in that market well, as well in control room share, but also outside of control rooms with triple play, as we call it.

We're one of the few players who can provide both RPC as well as LCD as well as LED. In terms of financials, in control rooms, from a P&L perspective, the P&L grew or grew further, but also importantly, moved above breakeven with improved gross profit margin and reduced operating expenses.

And then corporate with ClickShare continued its strong performance, while we invested along the way in new category like the ClickShare Conference. Page 12, on Healthcare.

[Technical Difficulty] China. The diagnostic market remains a stable, traditional market, growing single digits, with, of course, in China and accelerated growth above the global average.

In the surgical market, there, the digital transformation is becoming the norm. We're seeing competitors, but also partners starting to push this digital opportunity.

As Barco, we're positioned well in both diagnostics and modality. We've seen solid growth in North America, Western Europe.

Yes, and very strong double-digit in China. On the surgical side, with the Nexxis 2.0 platform, we're able to expand and deepening our sales reach in the surgery market globally.

Solid growth across-the-board. As I said, also with EBITDA margin further increasing to €13.5 million.

That's mainly driven by operating leverage on higher sales, but also a significant continuous investment in growth initiatives, some of the incubator, new products that we have as well as China. So I'll leave it here for the division view in 2019 highlights.

And let's shift gears and took a look at 2020 [Technical Difficulty] that enabled Barco to become more of an outcomes business. On Page 14, outlook for the year.

For the year and assuming currencies remain at '19 average levels, we expect mid-plus single-digit top line growth. At Capital Markets Day, we defined mid-plus as 5% to 8% range, with a further improvement in EBITDA margin aiming towards 15%.

This outlook already takes into consideration anticipated softer demand in the China Entertainment market in 2020. And that's as a result of the coronavirus outbreak.

It also assumes that factory and logistics restrictions and hiccups are largely lifted and resolved by the end February, early March period, which is in process as we speak. And as always, it's a bit of case for Barco that our second half is typically stronger than the first half.

I would say, this year, 2020, especially with the timing of the coronavirus, with also the launch of the ClickShare Conference and some effects on how partners and customers restock, we expect the full year growth to be somewhat more pronounced in the second half as compared to the first half of 2020. On Page 15, we've added one specific page on the corona, the COVID-19 virus to give you a bit of a feel on what it means for Barco and, more importantly, what are we doing about it.

If you look at our people and our operations in China, we're tracking each employee since three weeks now. We're managing when people can get back to work.

None of our employees, and there's more than 330 in China, are infected as at this moment. We do have five of our employees that are held up in the Hubei province, as a result of the province guarantee.

Our factories, and we have factories in the Beijing area as well as in the Shanghai/Suzhou area. Our factories are resuming operations this week.

Our factories around Beijing, restarted on last Monday. Our factories in the Shanghai and Suzhou area restarted yesterday.

We seem to have a 90-plus percent show up of people, which seems to be on a comparative basis, very, very positive. We have shipped in sufficient personal protective materials and supporting measures in place to also ensure that our employees can maintain, operate in a safe working environment.

In terms of our supply chain, we do like, I would say, most technology companies in the world see supply interruptions and logistics interruptions out of Asia. With the current projection and the current progress we see, we think that's going to be normalized largely over the next 3 weeks.

You have the typical stuttering and sputtering of supply chains that start up. So we're going with our suppliers through the motions of that.

These delays have not affected our factories yet. But again, depending on how startups and ramp-ups go over the next two months, we may see some deliveries for some specific products.

And we're, again, tracking that very closely, adjusting production schedules and so on accordingly. In terms of what it means for our commercial activities and the outlook, first, we do expect -- and that's calculated into the outlook.

But we do expect an impact on the China Entertainment market investments, whether you're a Cinema or MZIA theme parks. The first quarter in China is going to be a bad quarter for our customers.

So, those revenue losses that they suffer, we assume that it will reflect in some lower sales of projection in China. We do not expect a significant impact in Healthcare and Enterprise segments in China.

So, the China hit -- and what we're counting on is mainly an entertainment hit not the other divisions. In terms of our international business, we do not expect material impacts for the 2020 outlook.

And what we do expect maybe some delayed deliveries, possibly slipping from first quarter into second quarter, maybe third quarter. Yes, again, more delays that, as I said before, it could influence this first half, second half balance a bit.

[Technical Difficulty] part of our objective to generate consistent dividend growth for shareholders, our Board will propose to our general assembly to increase our dividend from 2.3 to 2.65, that's a 15% increase. And it's consistent with our aim to keep up a payout ratio between the 30%, 40% range for the dividend.

And then in addition, in order to enhance accessibility to the Barco's share, we also will propose to the general assembly a 7-for-1 stock split with a target date for trading on June 1, 2020. [Technical Difficulty] few more pages.

So, when you recap on where we are with Barco at a strategic level, over the past three years, we've laid out and follows a clear strategy to innovate for impact focus on performance, working to offer outcome-based solutions; and going for sustainable impact. All of this with the ambition to be and remain a clear leader in our industry.

And over 2019, we also added focus to embed these strategic vectors into a rejuvenated culture. If you look at this along a time line, we've now clearly moved in what we started calling Chapter 2.

The Chapter 1, over the past few years, was mainly about bringing focus and performance to Barco, stepping up our competitiveness, but also our financial performance. We're now well into the start of Chapter 2, a chapter where we accelerate growth, while growing in an efficient way and continuing to keep up that leverage and competitiveness, while having the leadership and financial capacity to further build out capabilities in the business, specifically then in hardware, software and services.

And as such, we're building the capabilities and prepare to be a great outcomes and solutions business in the Chapter 3. And we're then talking '23 and beyond, but that will allow us to continue delivering growth and margin accretion through a mix of hardware, software and services.

So we're well on track to execute on what we communicated at the Capital Markets Day in the month of May of last year, growing over the next years at mid-plus single digits, while further improving our EBITDA margin towards the upper end of the 14% to 17% range, where we see the 14%, mainly as a bottom in case of a tough environment. [Technical Difficulty] the growth acceleration potential that is working to strengthen our regional capabilities and the empowerment of our commercial regions, while capturing the share with a strong set of new products in our portfolio, several that are being launched early in the first quarter of the year.

The second, expanding. Continue to expand in China.

For China capabilities, we're further building out our footprint with Healthcare in China. But also, we'll step up our footprint and commercial, R&D and manufacturing capabilities in the control rooms and the V&H area.

We continue investing in, what we call, outcomes capabilities. This is about developing further marketing and product management skills, broadening our software and digital business capabilities, while stepping up our services excellence.

Okay? And then the fourth driver, what we call, locking-in innovation and performance.

Yes. This is about a culture rejuvenation and investing, continuing investing in the talent to prepare our organization for the future.

We're also focused on improving, accelerating leaning our innovation and incubation rhythms, while, of course, operating with sustainability of our products and business model in mind. And so with that, we're at the end of the prepared presentation.

I'm going to hand it back to you, Carl.

Yes. Thank you, Ann and Jan.

I think that was very clear. But in case there are questions, we can now move to the Q&A section.

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

So over to the operator.

Yes, very good results, congratulation for that. I have one question on ClickShare.

You were indicating a kind of G-curve effect after the launch of the Conference product. Can you elaborate a little bit on that?

And yes, can you also, do you already see some indications on that after the launch last week?

You said, he said, G-curve, which...

Slower growth in...

I would call it freezing of the market. So we, the past two weeks and definitely this weekend, as you see, we're announcing this ClickShare Conference, which we do position as a different category.

This is about conferencing, not just wireless presentation, it does, however, have a wireless presentation capability. You're not going to have in the same room, a ClickShare Conference and a ClickShare wireless presentation.

And so the fact that the ClickShare Conference also includes wireless presentation functionality, we expect, will create questions with customers, shall I just invest in wireless presentation or with the meeting room I have, do I invest in ClickShare Conference, do I invest in more video or sound bar equipment. And it's that customers making up their minds that we expect, in the first quarter, may lead to some longer decision times at customers.

In terms of, have we seen that yet? Not yet.

We've definitely seen some very good preorders on Conference, but it's a bit early to really assess in how far are we freezing the market.

And the second question is on the replacement cycling picture. When can we expect there the first replacement units to come available for you?

Hello?

Guy, you hear us?

Yes.

Okay. Guy, the technical problem, yes, it's not clear what happened on this call.

We're -- did you get the question or the answer?

Nothing at all, to be honest. So, for the second question, the first question was okay.

Okay. So you heard me till the end?

Yes, of the first question. Yes.

Okay.

Okay. So, open for your second question then Guy.

Yes. And that was on the replacement.

Do you already see some replacement units for ClickShare? And when do you expect that to kick in?

Yes. It's a fair question.

I mean, we are 7 years in the market with ClickShare. And we do have a trade-in program available on ClickShare.

But it's also fair to say that the number of units coming back as per today quite limited. So we have the program in place, but to see more material volumes.

It's probably going to take a year or 2 to really start seeing that kicking in.

Yes. It's also going to require, Guy, us to trigger the channel to go after replacement, while at the same time, going after ClickShare Conference.

Could you break down guidance per division? And second question, can you give a bit more color on working capital movements?

Kris, I'll take that one. So on the guidance on the group level, repeating, so mid-plus-single-digit growth for the year and with an EBITDA increase up to 1 percentage point, so going after or towards -- climbing up towards the 15%.

On a divisional level, on top line, actually, on all of the division, we give the same guidance for mid-plus-single digits. If there would be any kind of order of biggest to slow so to speak, biggest growth is expected in Entertainment and then followed by Enterprise and followed by Healthcare.

But all of the 3 in the mid-plus-single-digit range. If you look to the EBITDA margin, so where we landed for the group was 13% and now guiding towards 15% for next year.

On the divisional level, Entertainment, we see there a further uptick in EBITDA margin coming from the top line and operating leverage effect. And to Enterprise and Healthcare, we expect the EBITDA to land in the range of total or more close to the margin of this year, both were already at a higher margin.

And there, we considerably start up into investments into particular growth initiatives. And that's why we invest kind of the extra EBITDA margin coming from the top line increases in particular domain.

I hope this answers your question.

Yes. Yes.

Fine. And maybe the second question, could you maybe give a bit more color on working capital movements?

Working capital. So we landed at 3% of sales net working capital for this year.

And I would say more in that range or from 3% to 5% maximum working capital. So we do, on particular bigger contracts, allow some longer payment terms.

So that's one that on inventories actually should keep that and we can do better on the terms there. So take a range, I would say, 3% to 5% maximum net working capital on sales.

And perhaps, in addition, on the movement on 2019 compared to 2018.

So the, we landed at 3% coming from not a whole percentage point actually. And the year before, the increase was primarily coming from the additional inventories linked to new launches of products.

And then with some transfers of production from, between factories, actually, we also have some higher inventories primarily in the second half. But as we continue to uptake and our sales actually have different new launches, new products certainly control this working capital and inventory turns, likewise.

But we will expect or we do expect some further increase in that.

First question is actually on the Entertainment. And then, I think, more Digital Cinema because order intake in the year was, I would say, very, very strong.

What are you seeing? And I still, you stressed in the press release that it still excludes the big framework contract.

So could you talk a bit more on the momentum? And what kind of growth Digital Cinema can do in 2020?

And how it will ramp up [indiscernible] after that? And my second question is, you hopefully had now 2 big new product lines.

First, the Digital Cinema to Series 4 and in ClickShare now to conference. You, in the past, said that you've been working on, also on all product categories and all that you're working on new platforms and trying to improve stuff.

Is that something that's also going to happen in the near term? Or is that more like a longer-term upgrade cycle of your current products?

Okay. So Marc, on the first question and some color on this, the good order intake in Entertainment.

So that is coming from, by the way, both Cinema, definitely the strongest contributor here, but also the Venue & Hospitality space registered a good uptake in orders. More specifically on Cinema EBIT, you may note that we're not including those huge master frame agreements that we have signed up with, for instance, Cineworld and with IMAX with Cinemark.

But we only book in order intake as well as in order book the core of orders. So typically, the orders that are submitted for the next coming quarter max for the next coming 2 quarters.

So to that extent, we're not inflating the order intake numbers with those frame agreements. So we believe that the nice order intake numbers gives a bit of feeling with the good evolution and the good prospects that we see here in Cinema and in the Entertainment division as a whole.

Sorry, can I quickly ask a little bit of clarification. So does it imply that what you're seeing today is in line with what you earlier expected?

Or is it, is the adoption quicker than you earlier expected?

It is in line with our expectations. We, already in 2018, we said that 2019 was expected to kind of mark the beginning of the real replacement rate in volume.

And I think with the results of '19 in hand now, we can show the impact of that replacement rate now both in sales as well as in order intake. So yes, it's in line with what we had in mind, yes.

So over, perhaps, then to the second question, and Jan will take that?

Yes. So Marc, I understand the question on what's, in terms of new product introduction, where are we.

You're right. We have a significant focus on ensuring that across our different business segments, we have a steady stream of new products.

I think the ClickShare conference has been very visible. I think the Series 4, too, in its launch nine months ago.

The next one coming in the Series 2 is what we call the B series. That's a higher lumen version of that.

But then if you go within Entertainment to the Venues & Hospitality, we're launching, bringing to market the UDM, which is in the same family as the UDX. It's a laser projector for Venues & Hospitality, both in rental and the fixed market.

We're also bringing our new image processing propositions for the Venues & Hospitality market. In our Enterprise business, again, you have the ClickShare conference.

But if you then look at the control room activity that will bring to market a first and new LED offering for the control room market. We launched a month ago the UniSee 500, which is a lower mid-price point for the UniSee.

And we brought out every quarter upgrades of our up space software, workflow software for control rooms. And then in Healthcare care, at RSNA last December, we launched a broad series of new products for our diagnostic area.

A new Coronis 4 MP and 6 MP, a specific offering for remote displays. When the radiologists want to work from home, give them Barco quality at a different price point.

The QAWeb connected quality management software. And then an upgrade of the Coronis Uniti and the new color.

I know it's a long list, but what I'm trying to convey is that across the business, we now have a steady stream of, at the minimum, annual lease depending on the big fares, in some cases, quarterly, where we have a product portfolio that keeps evolving and keeps us giving the opportunities to enter different verticals within the market or even different categories.

Okay. So, if I understand that correctly, then -- so yes, we had a big year of new product introductions, that's -- looking forward, that's not going to be exceptional, that's going to be the new trend?

Yes. If I compare to -- let's say, I feel very good with December, January with all the new stuff that we bring into market, right?

That's also when I'm standing in front of our sales people, yes, that's what that sales people are excited. It's definitely a step-up, at least, in my history versus what's our normal rate.

And I would consider that, going forward, that becomes the normal rate of renewal and intensity of staying ahead of competition.

First question, Ann, you mentioned in -- on the margin evolution for this year for Enterprise about similar margin compared to last year. Control rooms is roughly breakeven, slightly positive.

I would expect in control rooms margin improvement this year on the new product software solutions rollout. Does it imply that for the ClickShare you modeling some margin pressure for this year?

Or do we really need to move to this outcome-based solutions also in control rooms to get the margin up there, not this year, but perhaps in 2 or 3 years? And then second question on Healthcare.

Could you elaborate a bit on the strategy implementation of Healthcare in China? How you're approaching the market?

How you are selling the products, distributor networks, et cetera?

Okay. Stefaan, I'm going to will take the first part or the first question.

Yes. In regards to your first question, then it's -- in particular, on how do we see the evolution in 2020 of the EBITDA margin of Enterprise and how we split that out, and control rooms being at breakeven this year, and then corporate.

On control rooms, indeed, happy after a couple of years of intense work to be finally at above EBITDA breakeven point there. For 2015, yes, we want to increase that.

But that's not yet -- so that was not yet towards the 10%, more to the 5% EBITDA margin actually. So, to do a further uptake there and also towards more average levels of quarterly margins, actually, we need to have more nominal outspoken, more material nominal amounts on software-related sales.

Where we do work on and have some new launches in the second half of '19, which is really a true beginning of that, but it will take some more time to really reflect that materially into the figures. And as to corporate, I would not call it really price pressure.

It's really a conscious decision to reinvest also in new incubators and learning experience our reconnect offering there and the market penetration is just one example there. So it's, yes, it's a decision to reinvest in any particular growth initiatives.

And with that, also get actual, that's why we land at the guidance of an EBITDA margin staying in the area of 20% to 21% for Enterprise, which we already have mentioned.

Jan, you take the second question.

Yes. So Healthcare in China, you have to consider 2 types of markets.

The first market is the modality markets. This is where Barco sells into the big medtech OEMs, the big and the less big.

We're talking here the traditional Siemens, Philips, GEs, but also the big United Imaging, big Chinese company. And then in the studio area, there's another 100 other players.

That's also the reason why we set up shop in the studio area. And then parallel to that, you have the diagnostic imaging sell into primarily hospitals.

That is a market primarily going over a distributor network, where we, as Barco, also have people in different sales offices to manage distributors to create preference with the hospitals. But the diagnostic is a distributor sale.

The modality sale is a direct sale but to medtech OEMs.

Okay. And in terms of operating room possibilities in the Chinese market?

Yes. Yes.

It's a good one. Operating room, again, 2 ways of selling.

In China, the strongest channel is the one going through OR integrators. These are integrators that take-home a operating room, newbuilds or refurbishment projects.

So we work through them with our Nexxis technology. We're also, with some of the medtechs, building in our Nexxis technology into their medical devices, endoscopics, robotics, yes, and that's a second or a secondary path to market in China, which I would say is with the upside down, if I compare that to Americas.

In the Americas, the primary route to market for Nexxis is the design in with endoscopic players. Secondary is through system integrators.

I have two questions from my side. First of all, we saw last week partnership announcement with Logitech.

I was wondering, can we see further partnership announcement? And do you have some other in the pipeline?

Are you working towards there in terms of rapidly speeding up ClickShare conference? That's my first question.

Okay. Thank you, Christophe.

So on partnerships, first of all, ClickShare conference, we're going to use our conventional partners as we have them for ClickShare present. So the distributors and the established channels that we have will be reused, of course, to push also ClickShare conference towards end users and corporate.

But in addition, we believe that ClickShare conference is indeed the perfect product to sell as a kind of package together with video peripherals, speaker peripherals. So that's an area where Logitech has a great view of the market.

And so it is, for us, quite a nice collaboration agreement with Logitech. So yes, we're, it's not, by the way, that's not exclusive on both sides.

And we are further looking into expanding those kind of partnership into the market. Jan, do you have any addition?

Yes, maybe one addition on, with relation to China because, like Carl said, why Logitech? Well, Logitech is the big mammoth in type of peripherals.

They're also strong in China. However, in China, we are also looking at the China equivalent of the Logitech-type players as a bundled way to, of going to market.

Okay. And last question was, like many other companies having operations in China, you also point out potential delay or impact from corona.

But I was wondering how good is the visibility that, by the end of February, supply or operations will be back at normalized levels.

Yes. So we're tracking on a daily basis with our supplier factories, okay?

So like we track our own factories on when and how they're starting up, watch the show-up rate of people at a factory, and so we see all of our suppliers this week getting back in action. Some are at 70%.

People show up, as I said, for Barco, we're at 90%. So for some reason, we're better off or we're managing better.

But there's a close management of where they go. And then second close management of the transportation, right?

And I would say, today, I see transportation as the bigger area of stuttering because there is some capacity that has disappeared from the market with some of the commercial flights going down. So we're working together with our logistics companies for alternative routes and so on.

And every day, we find new solutions. But it's going to be a process of two, three weeks of realigning logistics in the supply chain.

In itself, that's not a rocket science. That's just daily hard work and agile work.

And a bit of recovery as well.

Two questions for me as well. Firstly, just on the gross margin, we saw that was down 260 basis points.

And I think we probably expected that to be up. I mean you obviously called out these quality issues related to product ramp-ups and factory transfers.

Just wondered if you could give more details there, whether those issues have been solved? And what it implies for the gross margin next year?

Because obviously, that 9 million down in EBITDA that you mentioned in the bridge that could have made joy EBITDA margin being significantly higher than it actually was. And then my second question is just on the Coded 19 virus.

You obviously included your expected impact in the guidance. But if we exclude that, what would the guidance have been if it didn't exist?

Okay. We'll start with the gross margin question.

Ann, you'll take that?

Yes, I'll take that because it's a bit of an operational answer. So, at first, we did expect, in the year, some pressure on gross margin, mainly from, we said, mix and price.

I think it turned out it was less mix and price, but it was, I would say, material impact from cost of quality. What's happened, and this is linked to the factory here in Kortrijk.

Last year and specifically in the second half, we had a very significant ramp-up of activity linked to the Series 4 Cinema projection. At the same time, we were doing the last transfers of -- for the clients from Fredrikstad into this factory.

And at the same time, we were also preparing for the launch of the UDM projector, which is now in the market. And on top of all of that, we saw volumes in units increase more than double digits.

So, we definitely put the factory here under pressure, which results in new people on board that are -- also have to go through the learning curve, goes through supply chain that needs to ramp up, and also, as often happens, ends up in the lower yields, lower first-pass yields and investment in rework. What I described here is the months of, I would say, August till November.

We're pretty much over that hump at this point in time. So we do not expect that to be a factor in 2020.

Okay. Good.

So should we think that you should get that 9 million plus back in 2020? Your gross margin can go back to more like the 40% plus it was in the past?

We might expect for the 2020 to be gross margins more than in line with the full year 2019. So in that sense, a little bit more cautious there and not really thinking that, that will be the major effect.

But also, the guidance actually -- in line with the guidance we gave at the Capital Markets Day, if we look longer out towards 2022. So, in that sense, and that might then be on some price pressure also, call it, volume discounts linked to bigger contract, some product mix effects that we might have.

We are not counting that will come again from cost of quality and on the cost of quality and overall yield improvement. That's for sure.

We want to get back at better levels than it was in the second half of 2019. So, that's for sure.

The EBITDA margin uptake in the next year-on-year will primarily come from operating leverage on top line growth. That's actually...

And then, Jan, on the second question of Trion on what would the outlook have been without coronavirus outbreak?

Yes. I think if we would not have corona, and essentially, it's the impact on the Cinema market or the Entertainment market in China, in that case, I think we definitely would have felt strong on the high end of that mid- plus, say, high 8%, 9% type growth.

Congrats for result again. Just a quick question on the medical business.

Can you update on the potential ramp-up and acceleration from 2020 or after? I'm more thinking about all the partnership we've been signing with different player in the industry that should probably help to penetrate or to accelerate your penetration within the surgical business.

And thinking about Demetra, especially after the FDA approval, what kind of expectations can we get for H2? And the last one is, I'm surprised there was no question this time on M&A.

Can you consider something in, within the medical business? This is probably overlooked.

That is probably one of the most [indiscernible]. And I'm just wondering what the long-term strategy you aim to make this business more net-type business than that's today?

Yes, Sebastian, and thank you for the question. So yes, Healthcare and in surgical, you're right to point at a number of partnerships and expanding the partnerships we have in this segment.

Actually, we remain positive to very positive on surgical and continues to be a growth engine in the Healthcare. Actually this is a good growth engine in 2019 and expected to remain one of the strongest growth drivers for 2020 and beyond.

And actually making further inroads with a number of partners, getting more of their business and being built-in into their technology. So yes, we remain really positive on that part of the business in Healthcare.

And so in the mix of surgical plus diagnostics and modality, that's also where we then end up to a mid plus growth figures going forward into 2020. Jan, a couple of words on Demetra, perhaps?

Yes. So I mean, tough question, Sebastian.

I mean, the reason why we're in the mid rates, first, because we believe it's an accessible market of €100 million or more. If not, we probably would not invest in it.

That's a liberty to threshold when you look at incubators, yes, to really go for them. Now how exactly that market is going to play out very much depends on, is this going to be a technology only for the dermatologists, the specialists, or can it also become a tool that general practitioners will have in their practice.

I mean, clearly, we're trying to make it a tool also for the general practitioners. That's where the quality artificial intelligence aspect comes in play.

And that's where 2020, we're investing into two important elements. One is building out our go-to-market with a significant focus on the Americas because that is a big market, and at the same time, we're now bringing out, on a quarterly basis, AI capabilities, some that also will go through an FDA certification, which is important to make it accessible to a wider GP population.

Again, it's a bit of a long answer. Like any incubator, we definitely have high ambitions, but I think the next two years will, the data points will show what type of curve we'll be able to build.

And then, Jan, on his last question on M&A.

Yes, M&A and then specifically, Healthcare. The answer is yes, right?

I think you're right. The medtech area is, well, it's a broad area, many different companies.

We are, like in other divisions, we're looking at different complementaries either technology or volume acquisitions. And that's part of our, let's say, normal process of looking now.

I'm going to add to what I continue to add. We're going to be rational and restraint in M&A.

We're not going to jump to do anything too quickly, but we're definitely looking. And yes, medtech is an interesting area for us.

Just on the guidance, you said 8% to 9% without coronavirus. Would it have had any impact on the margin outlook?

Ann, take this question.

The short answer is no. Understand that going towards the 15% climbing up from the 14% today, that's the range where we really want growth for us.

So no, not material focus impact.

Okay. And then just a second question, just on ClickShare conference.

I was lucky enough to see it yesterday at ISE. And one of the things that strikes me is that the pricing is quite a bit higher than the stand-alone ClickShare.

And obviously, you expense your development costs. And I'm guessing the hardware impact in a conferencing unit is fairly low.

So I would have thought that the margin on the conference product would be quite a bit higher than on the stand-alone. Obviously, we have to make our assumptions on what proportion of your units would be with the conference versus without.

But are you being sort of overly conservative in when you talk about corporate margins, sorry, Enterprise margins being flat given this and also control rooms should have a better margin?

Well, I'll kick it off first and then Jan can speak to add-on. So first of all, ClickShare conference in detail comes in at slightly higher price level compared to ClickShare present.

Now for the year 2020 and take into account, we only start shipping by the end of the first quarter. So we are indeed today on the cautious side in projecting the volumes that we will ship over the next couple of months.

So we will get smarter in the next coming months how the growth curve on the ClickShare conference will develop. And then on the margin profile for ClickShare, Ann, are you willing to add to that?

And coming back to the question earlier asked by [indiscernible] on Enterprise actually. Within Enterprise, where we guide for a flattish margin or a margin in the range of 20% to 21% which it was also in 2019.

The extra margin, which we make in going forward and also to impart on ClickShare actually, we reinvest in growth initiatives and this one actually is the amount of exploration of the go-to-market investments for a reconnect. Meanwhile, working steadily on the road map.

If you work all the long list of -- that Jan indicated of new products, which we -- on our road map constantly work on and bring out launch, we want to keep ahead in this leadership on technology, and that's why we also continue to invest 11% R&D, for instance, but also -- making sure that also on our go-to-market investments. We keep on investing and there to the tune of 13% on certain marketing costs on sales.

So, it's all that combined. So, call it only conscious, I would say, not.

You do know that we are ambitious but at the same time, keep our feet on the front always. And as we get smarter during the years, for sure, we are going to have a more fine-tuned guidance as soon as we can.

One last question from my side is, are there still thoughts on building production facilities or just as you did with the Healthcare division that you bought, that you have built a production facility in China? And -- so how should we look then for 2020 in terms of R&D expenses in terms -- related to sales and CapEx?

I see that Jan is eager to take your question.

It's a short answer. The answer is yes, right?

I indicated within the Venues & Hospitalities projection part, there's quite a lot more opportunity in China. Same logic.

We need to innovate R&D for China and have the agility. So, yes, we're looking to build.

In terms of CapEx expenses that's not dramatically going to change the typical rhythm annual CapEx that we build out. So that's, frankly, over the past couple of years, we've every year have built or rebuilt factories, added automated warehouses.

So we're on a good rhythm of building infrastructure, which, for the next couple of years, we're going to continue doing.

Be more concrete the CapEx guidance actually, that's for the year to come between 20 million, 25 million, which is in the range of the previous years.

Okay. Well, I think we can conclude this analyst call and the Q&A session.

Just one more thing. Perhaps some of you already noticed that we also released our 2019 annual report this morning.

So the company reports full sustainability report as well and the financial statement, also available on our investor portal. I would say, a happy reading.

If it's not today, over the weekend or even later. Let me thank you all for participating in this call.

Thank you, Ann and Jan as well, for the useful insights. And should you have any more questions coming up, you can, of course, always reach out to me.

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