Agfa-Gevaert NV

Good morning to all. I hope you can hear me well. If it is not the case, please react through the chat or any other way. We want to make sure you have a good time. listening condition on the call. So good morning to you. I'm Pascal Jury, the CEO of ACFA. I'm sitting here with Derek Doman, our CFO and the rest of the executive team who will be here to answer any detailed questions after the presentation and as well with our investment relations team. So I'm very pleased to have the opportunity to walk you through the first half results and the Q2 results of ACFA. And let me get started by saying, you know, that in a very volatile environment and an environment marked by inflation, we have quite a contrasted set of results across the group portfolio. And I'm going to try and comment and give you more color about where we stand on the various activities of the group. So first, positive, I would say, top-line growth driven by DPC and offset solutions, but very different nature of growth. DPC is all about volume, growth, 20% growth in Q2. Offset solutions is exclusively about pricing growth. So the growth of DPC is fueled by the price increase and the volumes are slightly actually below last year. Second comment, although LKIT has a first half that is below last year, we are still expecting a full year in line with what we communicated to do, meaning top line growth for the year. And a bottom line, roughly in line with last year. As you know, part of our business is really related to project implementation. And we have a good visibility on the implementation of projects during the year. And we know that actually Q3 and then especially Q4 will be stronger quarters. What gives us also a lot of confidence going forward is the order intake. During the first six months, the order intake of the business has increased by 20%, which is, I believe, a very good performance in line with our expectations. And therefore, we are pleased with the development in the healthcare IT business. We still have also a very strong order book. Then, three, I mean, the performance of the quarter for radiology has been impacted by a lot of events. First, as you're aware, the COVID lockdown situation in China has decreased, we believe, the consumption of film in the end market by about 20% during Q2. So we were not immune to this. And on top of that, we have some seasonal impact of COVID Export contracts that did not materialize in Q2 but will materialize in the next month. So a very weak quarter of radiology that of course is weighing a bit on the results of the group. So, total EBITDA 32 million euros, better than Q1, but much lower than last year. On top of that, we are going through the normal uptake in working capital. As you know, most of our production is more done in the first half and we use the second half to, I would say, adjust the production according to the level of the business. So that is a normal uptick, but that was amplified by three, four different events. And Dirk will walk us through, but supply chain issues is still creating more inventory than needed. The cost inflation is mechanically increasing, of course, the working capital. We have Inca Digital working capital on top because we have closed the business and on top of that we have a specific situation also in healthcare IT where we have a lot of contract assets due to the nature of our contracts. Some of it are with the government and I would say the billing process is a bit different for government. But again this will be corrected during the second half of the year. Good news also is positive impact of net pension liability and I will let Dirk walk you through this part. Last but not least, we made an acquisition as you know during Q2 in CARS. We are pleased to say that we have completed the first phase of integration, and that one of the key areas of synergies, meaning being able to plug AXA inks in the Inka printing engines, is well on track, because we are about to present in the commercial show in the U.S., in a few weeks actually an Inca machine with an ACFA set of ink. It's a bit ahead of our schedule I have to say and we are pleased about it. So if we turn to numbers Overall, top-line growth, but as you've seen, a lot of contrast between different businesses. At the gross profit level, we are still able to increase in absolute terms, but in fact, when it comes to EBITDA, we see that we are not able to, across the board, reflect the increase of SG&A. And when I look at SG&A, let me tell you that what has been increasing the most is selling expenses and not G&A expenses. G&A expenses are totally under control, even in an inflation context, due to the transformation programs we are undertaking in the company. So that gives an EBITDA of slightly below 7% and an EBIT of 16 million. If I go down the P&L, the main characteristics, as explained, as you know very well, as a company still in full transformation, we have a very heavy, I would say, restructuring and non-recurring set of expenses that relates to the various... transformation projects that are ongoing, the IT transition to an external partner, the finance reorganization, the standalone of the offset division. So that reflects this part and therefore that leads us to a negative net profit. This I already covered during my introduction, so I will now turn to Dirk to discuss the free cash flow performance of ACFA.

Yes, thank you Pascal. So overall the free cash flow was negative with 59 million, and as you can see from the bridge, one of the key impacts is the impact from the increase of trade working capital, and I will come back to that point in a couple of slides. CAPEX is at a normal level while provisions are actually also a seasonal effect as with many companies in Q2 there is a large payout of employee benefits and that includes incentives related to the previous year vacation pay and all those kind of things so that's quite a normal increase and that has actually reversed during the other quarters of the year where we're basically accruing for those things So income tax is at a normal level, pensions also at a normal level, so we do not have any extraordinary de-risking actions anymore. And then finally restructuring and non-recurring items are at quite a high level, and this is basically the cash execution of the many projects that we have also announced in the past. So that includes the CR restructuring that we're doing in Germany and the ongoing transformation programs regarding the standalone of offset and the other operating model projects that we're executing. So if you move to the next slide, that brings us to the overall net cash position. So in addition to the normal free cash flow and normal operating activities, we obviously also closed the Inca transaction in Q2, which was around $48 million. We also finalized our share buyback program that was around 13 million. And we also did transfer some pension liabilities of our ICS people that transferred to our outsourcing partner, which obviously also had to compensate it on a cash basis. So in total, the net cash position was reduced with about 141 million. If we then move to the next slide, working capital at 31%. So that's a very high percentage and not a result we're happy with. Now, one key thing to mention is that this includes the assets of Inca, which we acquired. Obviously, we do not have the past 12-month sales in the base, so therefore that increases the percentage. In total, that's roughly around $16 million impacting the working capital. But overall, as you can see, even excluding that, inventories are up substantially. This is the normal seasonal growth. Now, last year, we did not have that, and that was rather the exception. So this year we're back to a normal seasonal growth. But as Pascal mentioned, it's amplified by the many things that we've discussed already at length, including obviously all the inflationary pressures are translating into the inventories. But also the supply chain is slowed down in a sense that. It takes longer to transport, meaning that there is a lot more inventory in transit, but also we may have, and DPC, for instance, is an example of that, where we are left with unfinished equipment because we're waiting for certain components to come in, and that obviously also delays sometimes the execution of the delivery and installation to our customers. Now, obviously, it will continue to be a key focus area for the rest of the year. And as usual, we will work very hard at reducing the working capital through the rest of the year.

Maybe a word on healthcare IT?