Barco NV (BAR) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the conference call on the results of Barco. I am pleased to introduce you Mr. Jan De Witte, CEO; Madam Ann Desender, CFO; and Mr. Carl Vanden Bussche, IRO. [Operator Instructions] As a reminder, this conference call is being recorded. Sir, please go ahead with your meeting.

Thank you, Clotilde. And good morning, ladies and gentlemen. I am Carl Vanden Bussche, Head of Investor Relations for Barco. I'm pleased to welcome you to this conference call on the results of the first half '21. And today with me in our office, our Chairman, Mr. Charles Beauduin; our CEO; Mr. Jan De Witte; and our CFO, Mrs. Ann Desender. Ann and Jan will first walk us through the half year results, provide some extra color on how the growth opportunities are evolving and how we navigate the current and next quarters to come. Our Chairman, Mr. Charles Beauduin, will also offer some extra comments on the leadership changes as announced last Friday. We will do -- we will follow the sequence of the first half earnings presentation, so -- which is available on our Investor portal since early this morning. And I assume most of you will have found that presentation. Following the presentation, we foresee some time for Q&A as well. And I'll keep it to that for the introduction, and so let's kick it off here. Jan, the floor is yours.

Thank you, Carl, for the introduction. And as indicated, we're happy to be joined by Charles Beauduin, our Chairman, to, of course, get some -- a bit more color around the leadership change release or the communication that went out on Friday evening. We're going to reserve some time after Ann and I go through the presentation. So before that, I would say first things first, let's go to the first semester '21 results and numbers. Let's go to, I think it's Page 5 in the documents, Exec Summary. Barco's first half results are marked by strong order intake, significantly above what we saw in the first half last year and the second half last year, reflecting the market activity that we see resuming, picking up again in our different end markets. We already saw the first signs of this in the first quarter, but this momentum further built up over the second quarters, with order growing in all of our regions. It has led to an increase in our order book by EUR 110 million versus the start of the year and bringing our book now to record levels above pre-COVID levels. In China, our sales are now also back to pre-COVID levels, while in the other regions, we see some time lag between orders coming in and sales being realized. This was mainly still driven by continued lockdowns in several geographies, which induced project delays or slower back-to-office movements, both of which impact mainly our enterprise businesses. And to a lesser extent, supply constraints also induced some delays for a couple of products. We've seen our gross margin start to recover, 2.7 points up versus the second half of last year, though not yet at first half '20 levels as mix and some higher variable costs, like in transportation, still weight on the first half. We continue to keep our costs in check and saw the result of a number of structural actions that we activated last year, results in an indirect cost below second half '20 levels while keeping focus on key new product developments and innovation projects. Overall, our EBITDA margin further saw a solid step up versus the second half of last year, 4 points up and now at 7.5% EBITDA margin with a positive net income. We also delivered solid free cash flow generation with good reduction of underlying working capital as our finished goods started to move while payments remain in control. If we turn now to a bit more the regional dynamic on Page 6, we get the following picture. We see all regions show positive orders growth compared to the same period last year. Also to remind that the first half last year was a semester with still a strong first quarter and a weakening second quarter, especially in China as COVID set in at that time. In terms of sales, given the different timing of start and subsiding of COVID, we see positive year-over-year sales growth in APAC already, and that's mainly driven by China, while in Europe and Americas, we are still in the 10% range below last year in terms of sales. In the Americas, we see now the cinema industry reopened since May. Box office is picking up, and our customers, the exhibitors are repairing their balance sheet. Well, they still aim to start reinvesting near the end of the year as we assumed before. We see momentum pickup in ProAV, especially in fixed installs. We are talking here about digital immersive art installations, museum, theme parks. And that's a trend that we see across the globe. ClickShare, here, the sellout has seen a step-up or a step-by-step pickup over the second quarter as U.S. corporates now start to return to office in earnest and our channel further strengthens. The dynamic in control rooms is picking up, too, in the Americas. And then Healthcare in the Americas keeps going with solid order growth as investments in hospitals are resuming. In EMEA, we see the same dynamic in Healthcare. Hospitals are resuming their investment plans in diagnostic and surgical. In Enterprise and specifically ClickShare, we have felt the impact of the third wave lockdowns in several big Europe countries, specifically in the second quarter. But then also, we saw a clear reacceleration in June as major European countries started to unlock after good progress in their vaccination schemes. And then in Entertainment in EMEA. Again, Latin America, a very good pickup in ProAV, especially in fixed installs while cinema exhibitors reopened and are working to get box office back and their balance sheet replenished. In APAC, starting with China, clearly, here, we are leaving COVID, I would say, largely behind us with progress across the board and where our local capabilities put in a strong position to capture the market rebounds. APAC outside of China, here, it's still very much an on-off dynamic with many countries going in intermittent lockdowns. And this keeps most of our segments from really picking up with a clear recovery trend. So, so far, the regional dynamics view, I'm going to come back later with more business unit view and a look forward. But let me here hand it to Ann Desender to take us into the numbers.

Good morning. Moving over to Slide 7 in which we give you the key figures compared to the first half last year, but also compared to the second half of -- semester of last year where we indeed have the 2 quarters of impact or the full impact of COVID. What is overview and, in particular, the green colors type of the movements is that we have the worst cycle behind, which was the second semester of last year. Good recovery on orders and order book, whether you compare it to the first or second half last year, and this we see in the different divisions and in different regions. If we then see to the sales conversion, this is still impacted by COVID constraints as well as some component shortages. If we see the sales figures, first semester this year versus the first semester last year, then we are at minus 10%. If we exclude currency impact, it's a minus 6%. We landed our order book at EUR 391 million, which is an additional EUR 110 million order book build up since the beginning of the year. Good start for the second semester of this year. Gross profit margins, we are kind of halfway, we could say, in the sense that improved back versus the dip in the second semester last year with 2.7 percentage points, but not yet at the level of the first half last year. The effect that we did sell more cinema already versus the second semester of last year as well as ClickShare has helped our gross margin back up as well as what we saw in the second semester last year were more what we call cost of quality-related costs, which is typically inventory write-offs and higher warranty costs, which we improved on both back and more recovery times as we are, with that landing at an EBITDA of 7.5%. Free cash flow, I'll come back to that. But we started -- we got to a peak in working capital at the mid of last year, really after 1 COVID quarter. We can say, start to work on that in the second semester last year, but then continued further in this first semester irrespective of meanwhile having component shortages, which we have to, yes, type of fight for like other companies do, but did manage quite well in this second semester. Net income landing at EUR 2.5 million. Moving over to Slide 8, same figures, visual the operational results, EBITDA first half this year compared to the second half last year. So how did we get out of type of the dip, I will call it, in the second semester last year. Currencies didn't really play if you compare it to the second semester of last year. Sales started to increase. It's primarily the orders and order book, which are a big up, the sales conversion will be more than towards the second semester of this year. But gross margins really started to pick up, and we did further cost containment along the company within gross profit margin and also indirect costs. And with that, landing at 7.5% or EUR 27 million EBITDA. Moving over to Slide 9, the income lines between EBITDA result and net income. Also here, we compare it versus the first half of last year as well as the second half of last year. So restored the EBITDA back to the 7.5% in the reference versus the second half of last year, improved it with around EUR 15 million. Between EBITDA and net income, depreciations are some lower compared to last year. Impairments, we still have some restructuring costs in the first semester of this year related to diverse cost resets, which we further did, but the main impacts we had and have taken already last year. EBIT EUR 23 million better than the first semester of last year. Taxes at an 18%, which is in line with the first semester of last year and then landing at this EUR 2.5 million, EUR 17 million better than the second semester of last year, not yet at the level where we want to be. Moving over to Slide 10 with an overview of the cash flow and balance sheet or net cash. Free cash flow, EUR 35 million. Operating cash flow at EUR 21 million. This is net after payouts relating to layoffs restructuring to the tune of EUR 4.8 million. We reduced our working capital in the first semester this year with EUR 29 million, and now our net working capital is back at 8.3% of sales. This will further improve certainly compared to where we were at the peak a year ago when we started really having the hit type of, and then we primarily in cinema agreed with customers to give them payment plans. Meanwhile, a year further, we have seen and reported on this at the end of the year and at the end of the first quarter, a good progress. We have not gotten any customers which in the end could not pay. Payment plans were diligently followed up and followed by the customers. So in that sense, good news there. So further improvements still to do, but well on our way. Inventory versus the beginning of the year are flat, but this is a different mix in the sense that we sell all of the finished goods, which we kind of have. Raw materials did pick up in the sense that, yes, and call it the fight for components that we are doing what we can to secure and managing this well our components. Turns are still low at 2.1, the further where we do have still too much of finished goods is in the cinema business that, that will improve as cinema business picks up again. These are not old projectors or, in that sense, do not have a risk to the balance sheet or the profit and loss. Payables increased if you look to the figures of the free cash flow, which we reported, and this is linked with the increased raw material purchases. The average days in which we pay our suppliers, it's not that we did any delays over there. This is 46 days, which is quite well in balance with the DSOs in effect. We stepped up back our CapEx and CapEx investments, the increase, which you see year-over-year, is linked to the new Healthcare factory in Suzhou, China. With that, we are landing our net cash at EUR 263 million, up versus the beginning of the year with EUR 70 million. Included in there free cash flow deducted of dividends, which was a contained one in fact because it was an optional dividend and about half of the shareholders decided to reinvest in the company. And we did sell a minority investment position which has costs -- or which has resulted in an increase in the net cash. Next to our financial KPI, happy to also again report on the progress with respect to our nonfinancial KPIs and listed here on Slide 11 two of those in the area of planets or we highlight here, the percentage of turnover, which we do with products which have an ECO label. ECO label within Barco means that it has an A or minimum A+ ecoscore. We are now -- the percentage of sales is now at 33% with the new product introductions over the last 2 years, which we have -- which we were able to do with products in this category. We are well set to get and move towards our target, which is 70% by -- to reach by the end of 2023. At the right-hand side, we pick and mentioned here within communities the Net Promoter Score, which we started to measure quarterly. And it's not only about measuring it, but also making sure that we pick up all of the recommendations, which we find in those with our customers. Net Promoter Score at the midyear was at 48 points. The target is to get to a minimum of 50 percentage points. With that, I'm pleased to hand it over again to Jan who will give more color on the divisional results.

Thank you, Ann. And let's start with Entertainment, and starting with cinema. So as I said before, we saw a strong recovery for China already, and we saw it in the first quarter, and that continued over the second quarter also in terms of our technology shipments into the Chinese market. In the rest of the world, we saw cinemas start to reopen again mid-second quarter with movie slates being released and blockbusters starting to behave like blockbusters in terms of drawing spectators to the cinemas. As expected, the replacement projects as well as new deployments still remain at a low level at this point in Americas and Europe as exhibitors repair their balance sheet, though the indication remains that near the end of the year, this will unlock again, and we also do not see any order cancellations in cinema. In addition, cinema starts operating again, we do see our service revenues come back. One overall trend that we like very much is the observation that premium cinema is getting its fair or rather unfair share of the box office, which plays into the strength and capability of Barco. In Venues and Hospitality, we see first live events, either entertainment events or business conferences being planned now as of the third quarter, driving positive sentiment for investment pickup later in the year. In ProAV fixed installations, we see a clear step-up in investments in digital art immersive experiences, museums and theme parks. These are the earlier COVID-proof type of entertainment opportunities that opened early in the post-COVID cycle. We see this across the globe and also in China, which is already above 2019 at this point. We have built over the past years a solid portfolio and market access towards these segments and are enjoying the fruits of that investment at this point in time. For simulation here again, strong order book, but still some projects delayed in execution as a result of primarily COVID lockdowns in some of those emerging countries. So if you take Entertainment overall, we see Venues and Hospitality in China going strong and other segments, including China, picking up near the end of the year. We have added to this page the bar chart graph showing orders and sales, demonstrating the quarter-to-quarter dynamic that we see in Entertainment. Also, at the divisional level, you see a solid step-up in EBITDA margin versus the first half of '20 despite volume still being lower than the first half last year. If we move to Enterprise on Page 13. We see for Control Rooms solid order intake, again in EMEA and Americas where we are winning share with our expanded value proposition, both in terms of hardware and software and upgrade offerings. The challenge over the first half remains the conversion from orders to sales, where still several project implementations got delayed because even the site was not ready or accessible for the solution integrators or other supplies beyond Barco technology were shipping late. For corporate, mainly ClickShare, here each quarter further proves the correlation between back-to-office movement and the pickup of ClickShare sales. On a divisional level, you see the gradual resumption of the quarter-to-quarter growth in orders and revenues, but still a lower year-over-year EBITDA margin, mainly caused by mix. If you move to Page 14, we'll go a little bit deeper in ClickShare. The wins that we see with big Fortune 1000 and midsized corporates further confirmed that, over the second quarter, the product market fit of our ClickShare portfolio. For ClickShare Conference, we continue to expand the channel as well as a number of technology alliance partners. In terms of market and return-to-office, different entities, different service -- surveys wants to return over the third quarter or September after vacation in Europe and U.S. Also, out of these surveys, it's clear that IT and facility managers increasingly indicate having video collaboration investments on top of their list. The graph on the right shows the sellout pre-COVID during 2020 and now 2021. Okay, sellout is the sales of ClickShare from our resellers to end users and customers. Where you see once more the correlation with the lockdowns in the European and Americas market primarily, you also see for 2021, the June pickup as Europe started to unlock and corporates in the U.S. started their back-to-office drives. ClickShare Conference grows also faster than ClickShare Present as expected and is now 40% of the volume, up from 26%, 6 months ago. If we then move to Healthcare. Here, for diagnostic imaging, we've seen intensified demand from our OEM customers as they step up production for modalities and diagnostic imaging solutions in North America and EMEA. Here, we also expanded the portfolio with displays for digital pathology, a new category that we launched. Collaboration-enabled displays and software solutions to manage display installed base for hospitals. For surgical, here, we see the market for digital integrated operating rooms further expand or the penetration of digitization in operating rooms is further increasing. This plays to our Nexxis software offering. Here, we are further expanding the partner base, both from a channel, an integrator as well as from an OEM partner perspective while further expanding the portfolio with software offerings like Nexxis Live, a solution that enables hybrid collaboration in and around the operating room. Overall, and the graph maybe show this best, we see the strong quarter-to-quarter progress on orders and sales again across all regions that where China is showing strength with our In China for China strategy and where, at this point, we are already in the start-up of our new factory in Suzhou, a new Healthcare factory in Suzhou. The EBITDA margin for Healthcare is still below the first half of last year, but this is mainly driven by the investment step-up we did in new products and the investment in the China factory and some inflation on components and freight cost. So thus far, the update on business and market dynamics, we saw that for the first semester, let's now look forward to the second half, the second semester. On Page 17, I think some of you may remember this slide from previous calls, giving a high-level view on how and when we see full recovery across our different divisions. At the start of the year, we indicated that we expected Healthcare to grow in '21 compared to '19, Enterprise recovering to '19 levels during the year '21 and Entertainment only start to get to 2019 levels over '22. I would say, today, these projections are still largely correct with some pluses and minuses. For Healthcare, we're on track with these assumptions. The market is steadily coming back to 2019 and beyond levels over this year. Hospitals are getting back to normal on their investment plans while catching up delayed procedures in surgery and diagnostic. For Enterprise, we are on a recovery track. But here, the cautiousness at the beginning of the year that we had with regard to potential new COVID waves has proven to be warranted, definitely in Europe and large parts of Asia beyond China, which makes -- or which made that some of the revenue shifted from second quarter to second half. For Entertainment, cinema is on track, meaning good momentum in China and in the Western world, cinemas reopening with blockbusters being released and the expectation that pickup in shipments of projectors would come in late '21. For ProAV, Venues and Hospitalities, we see a more positive dynamic than assumed. And this linked to the fixed installed markets where we see strong pickup in investments in new venues in Asia as well as Europe and U.S. And so with that, we can go to a short outlook update on Page 18. Looking ahead to the remainder of 2021, the 2 main uncertainties we are planning and managing around. The first is the steadiness of the economic recovery where we expect to see our markets further progress in their unlocking and resumption of volume. And then second, there are the factors that impact the orders to sales conversion speeds. The first one is the back-to-office movements linked to the unlocking of the COVID restrictions. Here, we assume further progress in EMEA and U.S. with China already unlocked. But the rest of APAC, yes, we expect still to be in a start-stop mode over the next several months. Then there is the impact of component shortages in supply chain. That risk was already there in the first semester, but we managed that down to a limited impact. We do see some more risk in the second half, specifically in the third quarter, though we believe we can retire a large part of it as we continue to execute on our daily war-room work with suppliers, with brokers, our supply chain as well as our design engineers designing in alternative components. So with that in mind, and based on our very solid order book, we are confident that we will see sales for the full year show a marked increase versus last year and with the full year EBITDA margin higher than the EBITDA margin that we saw for the first semester of '21, as the business maintains its focus on operational execution while leveraging our investments in the markets and portfolio to strengthen our position. So with that, we are at the end of the financial updates in the PowerPoint. And as I indicated at the start, I'm going to now hand it to Charles Beauduin, our Chairman, to talk to the organizational announcements that went out last Friday evening. After that, Carl will open it for Q&A.

Thank you, Jan. First of all, I would like to thank Jan for the great work he has done at Barco. From a very loose organization when he came in, he structured, streamlined, organized and developed the organization. It's been a pleasure to work with him, and I think all of us will have great memories and draw great inspirations on everything he has done for Barco. The Board has decided that it was time for new challenges or to face the new challenges. And Barco has, at the same time, its biggest opportunity and its greatest challenge in technology. We need to accelerate on R&D and innovation. And therefore, Barco like ASML, the greatest European tech success and a lot of other tech companies, will move from a single CEO to co-CEOs. An Steegen and myself will have the honor to lead the company. Aside the focus on technology, we will also accelerate the internationalization and put much more emphasis on developing different business units to serve our customers better and grow Barco. The results that we have seen today, our first indication on where the company can go, we believe very strongly in the future of the company and in the possibilities that we can develop together in the company.

Thank you, Charles. So with that, I'm going to hand it back to Carl to start and manage the Q&A.

Yes. Thank you, Charles. Thank you, Jan. Thank you, Ann. We will indeed now open to the Q&A session. The operator will also tell you how that works. First of all, 2 householding topics. We do have a hard stop at 10:25. So we will have to keep it to that. [Operator Instructions] Over to the operator.

[Operator Instructions] We have one first question from Mr. Matthias Maenhaut from Kepler Cheuvreux.

Two questions from my end. First question is actually on the leadership transition. As Charles has mentioned, rightly there will be a focus on internationalization and technology. But what can we expect in terms of M&A? Will there be an approach? Will there be an intensification of M&A efforts? That would be my first question. And then secondly, a question maybe on the financial guidance. You speak about the marked increase and the full year EBITDA margin that will be higher than the first semester. How should we read this from a quantitative perspective? And do we need to see sales up double digit? And will the EBITDA margin be close to 10%? Or how should we interpret this?

First question, Charles, was for you, I think, on the leadership transition and perhaps more focused on M&A.

Well, I think what the team and the Board really aim for is accelerate investments in R&D in order to basically be able to grow and expand the company. The -- therefore, also, that we have attracted the top technologist as co-CEO. On specifically the M&A structure or the M&A, for the moment, the -- I think there are no concrete plans. But of course, we always look on the radar. We do have the cash if an opportunity presents itself to act. So maybe I'll pass to Ann on the sort of...

I'll take the second question. So yes, thank you for the question, Matthias. So on the outlook statement and the market increase, so it is clear that visibility is gradually improving. But there are still uncertainties as we move into the third and the fourth quarter in terms of back-to-office speed, also the impact of some supply chain disruptions. But taking these assumptions into a reasonable way into our guidance, we believe with market increase that top line should be beyond light or modest. So without really putting explicit percentage points to what we mean with market increase, so it should be beyond the trivial increase clearly. So both on top line and EBITDA, we believe that the consensus today is now within that range of the market increase and the EBITDA improvement. And so we will further update you with the next quarter results on how we are moving towards that target. So thank you for kicking off the Q&A. We'll hand it over to the next.

So we have a next question from Mr. Christophe Beghin from Kempen.

My first question is actually on ClickShare. Can you simply explain me if the volumes of units sold of ClickShare in the first half of 2021 is higher or lower compared to 2021 second half?

Okay. Perhaps, Christophe, I'll take this one as well. And I'm not going to talk exact amount, so you can definitely reach out to me after the call.

Yes, yes.

So the numbers that we indicate where we talk about installed base where we talk about percentage point, it's clearly -- they're clearly just to indicate a trend, always also rounding numbers. And so just 2 words of explanation. If we talk total installed base, that is a rounding based on ClickShare installed in meeting rooms, so close to sell-out data. In the current case, the number shared is a very conservative data point. And then if we talk about the split between the subsegment ClickShare Conference and ClickShare Present, that is then based on actually the sell-in data and on sales, of course, not units sold. So there may be sometimes temporary discrepancies between the sell-in and the sell-out, but that typically shows a good conversion as we move on. So we can definitely take that a little deep later today.

Okay. But I'm still a bit puzzled simply on the EBITDA result of H1 on Enterprise. It's, of course, very interesting to know whether Control Rooms was EBITDA positive or not. And also on the presentation on Slide 14, you give a short image on the evolution of the units and we see a drop after March. Is that explained by the prolongment of work-from-home trends? Or -- and do you expect that maybe to come back in June, July until September?

Maybe on that one, so the drop after March in that red line is Germany going back into lockdown, several Nordic countries going into lockdown. France remained quite strong. And then the U.K. at that point was weak. What you see in June is Germany and Nordics coming back. France continued to do well, and U.K. starting to pick up. So that's what I said before. If you clock the -- let's say, the different movements in Europe with lockdowns, you get a very clean correlation with the sell-out trend.

On the EBITDA, we do not disclose the exact numbers. But Control Rooms was close, but not at breakeven level.

Next question is from Mr. Marc Hesselink from ING.

Also on the leadership change, you mentioned, I think, a few things, to accelerate R&D investments and [ to set up ] different business units. Should we read that this is going to be a change of strategy from [ business ]? Or you are going to invest more in the coming years and also the different business units? What do you mean with that comment? Could you please share a little bit more?

The transition phase is ongoing. Jan is fully CEO till the first of September, and we will have a press or an analyst moment in October, together with the co-CEOs. And I think at that point, we will be better in position to answer this question.

Thank you, Marc, you still have credit for 1 more question.

Yes, can I ask the next question?

Yes.

Firstly, still a bit of a follow-up on that one because then I would still like to understand why this was the moment to make that change? Is it -- are there -- maybe because of COVID, so many new opportunities that you really have to accelerate your strategic thinking on this one? I understand if it's more -- or just to understand a bit better why now.

To answer your question, there is no link with the results. It's purely due to calendar timing that the 2 press releases went out together. There is absolutely no link between them. The Board has had a lot of discussions on how and where to go. And out of these discussions came in the end, the decision to have a leadership change. This is going in a positive way, which we want all involved to see the opportunities and to see that it's a way forward for the company.

Next question is from Mr. Kris Kippers from the Degroof Petercam.

First one, back on ClickShare. Now that we've been working in the office for about -- not in the office for about 15 months and the return has been quite slow, how can you make sure that when the offices do reopen that indeed corporates do go for ClickShare versus competition? Can you still -- are you still comfortable that the current offering is sufficiently advancing for corporates? And then my second question would be on the component side. To what extent could you mitigate the component risk? You've already mentioned the ASML evolution, of course. And clearly, there is a shortage in the entire sector. But can you differ from one component to the other? Or how is the stock level? Could you share some light with us on that? Because it might also be, of course, a hindering of growth in the second half. Or is that not an issue?

Yes. Thank you, Kris. Good questions.

I'll take both. Maybe the first one on ClickShare. It's one reason why we referred to the Fortune 1000 customers, I mean, big ones and midsize. At the end of the day, what they buy and how they look is the best confirmation for is ClickShare Conference, ClickShare Present is that providing the right solution for them at the right cost and the right flexibility that they need in terms of this complex ecosystem where agnosticity is a very important factor for the future. So yes, we -- I mean quarter-by-quarter, I mean, we see fantastic deals, big deals, big corporates, smaller deals. The other factor is the channel. I keep close touch with the channel. And my question is still, yes, I mean, do you guys feel you can make good money with this product? And as long as I see the fire in their eyes, I think that's a good sign for the potential of ClickShare. But of course, ClickShare Conference, that is a product requires a hybrid operation and requires people or a part of the people to be back into office, which are surveys and also the channel indicate would now be happening at earnest over the summer and definitely as of September. In terms of your question on components, I said before of the first half, that risk for us there, we've managed very well through it. In fact, in the fourth quarter last year, we already saw this coming and have upped a number of our components. At the same time, we are managing this risk on a daily basis. We're working with our suppliers in helping them to find new components. We're working with brokers to buy components from places where we typically do not buy them. We help our supply chain to swap sometimes components between some of our suppliers. And then we're very active with our R&D managers to redesign in either new components or older components, okay? What we see is that sometimes a new version of a component is not available anymore, but 2 versions older is still available in the market with brokers and is fully operational into our printed circuit boards, okay? So I mean that's the -- let's say, that's the hard work, the hard daily work that's going on every day. It is a work of 2 steps forward, 1 step backward every day. We assume that we're going to continue doing that definitely over the rest of the year, maybe into next year. To give you a little bit of feel, when we look back at the first half, we estimate the impact on our top line of component shortage at around EUR 5 million in top line shortage. So a bigger risk that we brought down to a relatively benign impact on the sales. For the second half, we assume a bigger risk, although we step up or continue to step our actions. At this point, bigger means in the EUR 25 million impact range as compared to the first half.

We have our next question from Mr. Matthias Maenhaut from Kepler Cheuvreux.

Hello, Matthias?

Hello. Yes. Sorry, I was on mute. So a follow-up question on the CEO succession. Historically, we've been talking here that despite COVID impact, the company would again, in the midterm, revert to the margin bracket that was provided at the last Capital Markets Day being 15% to 17% adjusted EBITDA margin. We now hear the need to invest additionally in R&D. So I was wondering, can we still think midterm, the company will revert to that adjusted EBITDA margin? Or is that target actually now being reviewed and will be updated in October?

Charles, that's a question for you.

At the moment, the target is still valid. The -- we want to focus much more on the effectiveness of R&D than actually on spending money for spending money.

Maybe add one thing to that. So as Charles said, it's 14% to 17%, not 15% to 17%. That's in the detail. We did link it to '22, okay, which...

Initially.