Agfa-Gevaert NV

Hello and welcome to the ACTFLA Q3 2022 Results Conference. My name is George and I'll be your coordinator for today's event. Please note this conference is being recorded and for the duration of the call, your lines will be in listen mode. However, analysts and the press will have the opportunity to ask questions at the end of the call. This can be done by pressing star 1 on an example keypad to register a question. If you require assistance at any point, please press star 0. and you will be credited to an operator. And I then call our host today, Mr. Pascal Jouery, CEO, to begin this conference. Thank you.

Thank you very much, operator, and good morning and hello to everyone in the call. Welcome to this result session. I'm sitting in a room with ACFA CFO, Dirk De Man, with Vivian Dictus, Head of Investor Relations, and the executive team that stands ready to answer your questions. So let me first start by a word of context that I believe can describe and explain a bit the set of results we are presenting today. First, inflation is still at a peak in our P&L. Although we are seeing some release in some of the markets, from freight to chemicals or metals, We are still not seeing that in the P&L. And therefore, pricing today is lagging versus the inflation that we are seeing, and that shows very much in these results. Second part, we have a specific impact from China. China represents globally for Agfa a little bit over 20% of global sales. So it's one of our major markets, and especially for radiology. And we are impacted by the situation in China in terms of COVID lockdowns and economic slowdown. It's difficult to distinguish between the two. Just some statistics I'd like to share with you. It's not really publicized, but at the end of October, and it's still the case today, you've got approximately 250 million people in China still impacted by some constraints, restraints, COVID lockdowns, representing 25% of the GDP. So needless to say, it has a tremendous impact on some of our activities, and not only radiology, by the way, DPC is also impacted. Third element of context, we start seeing some signs of demand weakness in some geographies, and mainly in non-healthcare markets. We are seeing that offset is a good example for that. We have a negative volume quarter due to this . So that's a bit, the three elements of context that I would like to stress before starting to discuss ACTA performance. So indeed, if we look at the total group, EBITDA is increasing versus last year, but as you've seen, we've very contrasted performance. Let me start with healthcare IT. I'm gonna detail it of course later, but I would say here all the indicators are green. Strong organic growth, strong order intake, good profitability, good mix, and preparing for a Q4 that will be stronger than Q3. So here I'm very pleased with the development of the strategy and the roadmap. Digital print and clinicals, clearly a different story, a very, very disappointing set of results, I have to say. Also contrasted, as you know, DPC is a mixed bag of different activities. Some of them are really the engines of growth and that digital printing and here we see still very good momentum. We have, I would say, a good business development, even for the timing. Of course, the fund does not contribute to the results. Actually, it contributes a lot more to the cost. We are spending a lot of money to develop industrially, as I speak. But overall, we've seen demand weakness in some activities in DPC. DPC is also quite impacted by China. Some of the markets, like electronics and technology, And PCDs are really centered in China, and we suffered also from the lockdown. And EPC is also suffering, I would say, from a lag in implementing price increases. It doesn't mean that we're not implementing price increases. It means it takes a very long time to hit the P&L. Remember, it was a similar situation in the last year before we started to see the full impact. Radiology, well, clearly the story is around COVID lockdown here. We thought, you know, that we were going to see a rebound in Q3, but the situation has not changed. Is there an issue with the sound? Oh, yeah, sorry. I didn't change the slide. Indeed. Indeed. So we have seen the impact of lockdowns in China. We thought it was going to be better in Q3. It was not. It was a lot less publicized because it was not about big COVID lockdowns in Shanghai that made the headlines. But as I shared with you, you know, these statistics, actually it's spread out in China and it continues. I'm not going to – I'm going to say right now that for the time being, you have no signs, of course, of – policy change, and therefore, we are expecting COVID lockdown to continue as they are during Q4, even if Q4 for radiology will be higher, but mainly for seasonality reasons and also the timing of some export contacts. But we are not saying that the situation will change. Offset solutions. a quarter that is also in the continuity of the previous quarters in terms of profitability, but with a different profile. Actually, we have less volumes, and I would say good margins. So it's price over volume strategy. It works. You can see it in the bottom line, but indeed, for the first time, we've seen the first impact of an economic slowdown, mainly in Europe. So what are we doing? Actually, we are preparing some additional measures to address what we see today as challenges specifically in DPC and in radiology solution. So we have a plan that actually is almost ready and will be presented pretty soon within the group in order to quickly get back to our level of ambition in these two divisions. And also addressing, of course, the fact that offset will soon not be part of the perimeter of the group. And I take the opportunity to repeat that we are expecting to close the offset transaction. I read in an analyst report this morning that there might be a question mark. There is no question mark. Actually, the buyer is very keen to do the closing as soon as possible, but we have a technical point that we need to solve in North America related to IT systems that is really the critical path to the closing. But I repeat, there is no back close. There is no uncertainty. And if anything, the buyer is keen to close on a timely basis. So, let me now. Quickly comment the numbers. So if you look at Q3, modest growth in terms of top line, but very contrasting. Growth in DPC, growth in LKIT, double-digit growth in LKIT, by the way, corrected from currency. But in fact, decreasing top line for offset and decreasing top line for radiology. When you look at the overall equation of the group in terms of margin, you say, well, basically, it's about stable margin activity level at least compared to last year. But here, that's where we have a strong contrast with offset and LCIT doing better than last year. and DPC and radiology doing less well than Esquire. So very contrasted set of results, and I'm going to come back to that. Below EBIT, you still see the cost of the transformation of the group. As you know, we are in full swing in terms of IT transition, as well as the creation of our global business service organization. So this is reflecting in, I would say, below the EBIT in the non-recurring and restructuring line. So contrasted indeed, very, very different situation, business by business. We are still going in DPC and healthcare IT, but DPC for the time being both doesn't translate in the bottom line. I said it, we are impacted by the lockdowns in China. It has an impact on the consumption of film of about 20% for us, and China is our first market. So it has a tremendous impact on the overall film activity. And I'm going to come back to that and detail to you a bit more and disclose to you a bit more numbers regarding especially the forward looking indicators like order intake. Well, gross margin increase at the group level, no issue, but again, a very contrasted situation. We are, we have a situation where price increases have been done and completed totally not yet, where it's still a lot of work in progress, both in radiology and in DPC. We are committed to do it, and we are putting more actions, but it's fair to say that the difficulty for us is to keep up with the pace of inflation, And now the inflation that we are seeing is more about salary inflation and especially the Belgian situation with the indexation that makes it quickly to the P&L and makes it a bit difficult for us to reflect this in our prices on a timely basis. So if I now turn to the cash performance, I will leave it to our CFO, Dirk, to comment these numbers.

Yes, thank you, Pascal. So for Q3, as you can see, the adjusted free cash flow was positive at 20 million, sufficient to cover the pensions, but there was also a heavy restructuring and non-recurring quarter. So with a free cash flow netting to minus 11. Now, if you look at the trade working capital, although you will see that working capital still increased in Q3 in the latest slide, but there was no net cash impact, actually slightly positive. The capex was maybe a bit higher than what we would normally see, and that's basically driven by the fact that we were doing some front spending buying CO2 certificates that actually will be covering the year 2023. And so, accounting-wise, these are capitalized and then consumed as we are using the CO2 certificates. And then maybe the last comment to make, restructuring and non-recurring, which is really demonstrating the fact that some of our transformation projects are ongoing in full swing, and particularly the ICS transformation and the finance transformation, which basically means a lot of costs are also related to, let's say, the knowledge transfer, the shadowing, in order to transfer the internal activities to the outsourced teams. Now, another note I would like to make in the quarter, and we do not have a separate slide for that, but in Q3, we managed to further de-risk the UK pension plan. And that's with most of the remaining liabilities. And that was done through another buy-in transaction. And we were able to do that without any cash contributions. So this is actually similar to the operation we did some time ago. And this time we saw a market opportunity with all conditions pointing in the right direction. We took advantage of it and actually it was a good thing because that window of opportunity closed very fast when the UK financial markets went into turmoil. So we're really happy to have been able to perform this transaction. And this means that almost all of the UK pension plan is now fully de-listed. If we move to the next slide, just the year to date, and obviously the key comment there is that our trade working capital is still quite heavily weighing on the cash flow of the year. And this is a big increase. We were hoping to see already some improvement in Q3, but that trend hasn't turned yet. But we do predict that there will be a working capital reduction in the fourth quarter, although not fully to last year's level. And I will get back to that when we talk working capital. On the next slide, you can see the net cash position. So there is, again, a slight decrease. And maybe also a reminder that in the previous quarter in Q2, we also completed the transaction regarding Inca. And then moving to the working capital. So it remains at a high level also in Q3. And that's driven basically by all the factors we already discussed in previous quarters impacting the inventories. So this includes inflation for an exchange. supply chain and logistics issues. And as Pascal mentioned before, added to that, we also started seeing economic demand slowdowns in certain markets, but especially in China and in Europe, which basically means that demand was a bit less than predicted, and therefore inventories stayed at a high level. On the other hand, we made good progress on trade receivables. Trade payables are remaining at a good level. So, overall, the impact is limited, but obviously, our expectation was to see that coming down already in Q3. Now, we do think inventory levels will, and we know inventory levels will go down in Q4, but we do not expect networking capital to be at the same level as previously. And the two key reasons for that already are higher exchange rates, which obviously creates a higher cost on the balance sheet, but also the Inca acquisition, which in Q3 was around 20 million of extra working capital that was added already in June, but it's still there and is a part of the comparison versus last year. Now, I'll hand back to Pascal to discuss. Thank you.

Thank you very much, Dirk. And indeed, a strong inflow of working capital should be expected, but certainly not to the level of last year for the reasons you explained. Okay, let me turn first to healthcare. So, healthcare, as you see, very pleased by the results. Good organic growth. I told you at the beginning, I told you that for this year, our objective was to have a positive organic growth for the business. I can say that it's going to happen, and Q4 will be will be also a strong quarter and even stronger in terms of bottom line. The mix of what we are doing is quite good overall. And overall, I think the team is executing quite well the strategic roadmap. We have now, I would say, strengthened the team in North America. If you remember, a year ago, this business was mainly run from Europe. Today, it is run from North America, and I would say half of the leadership team is now based in North America and in the U.S., where the main opportunity is. If I want to give you more color regarding the results, I'm going to more discuss, in fact, the forward-looking indicator, which is order intake. We are following the order intake based on the last 12 months basis. And the order intake of the last 12 months has increased by 16% versus the previous period, which shows you already that this is a forward-looking indicator that we will be growing, actually, this business. It stands at a level of 122 million today. That's quite a high number and gives us visibility for the next period. But it's not only the increase. It's also the quality of the order intake. And, in fact, when I look at the quality of the order intake, we are looking at our high-value streams. And the high-value streams is basically our own IT software as well as managed services. And when I look at the quality of this, it represented a year ago less than 30% of the total order intake. And in 22, at least the last 12 months, actually, it does represent almost 40%. So it's not only the volume of order intake that is increasing, it's the quality of order intake also that is increasing. So it gives us confidence going forward regarding the evolution of the business. So overall, for Q4, we are expecting actually our best quarter of the year. We are in the middle of the quarter, and for the time being, the execution is okay and on track. So that's a pretty positive message. Radiology solution is a different message. Actually, it's rather an issue for us. You see corrective from currency or cells are below last year. This is strongly influenced by the film business. And within the film business, really the performance in China has already discussed. And we are also challenged in terms of margins. We have no possibility to increase price of film in China. Let me be clear about that. And this is what reflects also here. We are doing price increase in all other geographies, but I think we have more to do, and we will continue to do price increase during the course of 23 to restore our margins. We had quite an okay quarter for DR. We retrieved a top line growth double digit. In fact, in a market that is still a bit volatile. So overall, clearly for us, the key is China and pricing in this activity. DPC. DPC is complex. As I said, and we tried to give you more details about what businesses within BPC we thought was really the growth businesses, mainly everything that relates to environmental conditions, but also some key chemicals going to, I would say, electronics and or electric vehicle. as well as digital printing, but overall we have still in DPC a number of more mature businesses related to non-medical films. So very contrasted performance of these businesses. Still growing top line. We are still growing this business top line, but the issue is we have some some of our activities which have suffered from a slowdown, and we're also lagging in terms of price increase implementation, and that reflects very strongly in the margin. Don't look too much at gross profit and SG&A. Actually, the INCA integration, sorry, has messed up a bit. the numbers between gross profit and SG&A. So SG&A is overstated and gross profit is also overstated, therefore. But the main point that we are working on in DPC is to put together stronger price increases as we see inflation hitting us quite significantly. This being said, there are also good things happening in DPC. We have actually signed the first contract for in-car machines. We have a couple of contracts that are already signed. We are on track also in the development of the next machine, which is a single-pass packaging printer, but that's not going to be impacting before a couple of years. But we are fully on track with the industrial development as I speak. So, overall, I would say the Inca acquisition proceeds as planned. We are confirming, you know, the potential we've seen at the time of the acquisition and probably have even a slightly improved view, especially on the existing prison range of Inca. This being said, there is also a bit shorter because we have decided actually to take over the sale of the machines from Fuji a bit early, which is costing us a bit short term because we are not able to, because there is a lag between order taking and revenue recognition, but at the same time, we have chosen to do that because we are going to be able to plug our own inks in this machine, and that's also another good news. We have now an ink set that is approved, And therefore, we're on track to deliver the plan as discussed. Zircon is also very dynamic. Of course, we are proud to have won an innovation award, you know, by the essential association in Belgium for latest technology. It's a good external recognition, but more important than that, we have a lot of customers trusting us. And I can confirm that this is a business that in 23 will be multiple times what it is in 22. But here again, we are in a situation where we spend a lot of cash actually developing this production and this product, you know, as I speak. So for the time being, the contribution is very negative to the results in 22 and hopefully will turn positive next year actually. We are seeing the impact of the weaker economic environment, Europe and Asia. Some of our businesses for electronics in DPC is really in Asia, and we are not immune to the economic environment and also the COVID lockdown. So I would say even within DPC, quite contrasted, we are taking action, not only price action, but we are also looking at refocusing some of our key activities within DPC, and I expect that we're going to turn the ship pretty soon. Might be too soon for Q4, but all the actions we're preparing should definitely impact Q3, 23, sorry. Offset solutions, slight, well, the same story as the previous quarter. Now you see that level of pricing is established. However, you see that the bottom, the top line has turned negative excluding currency. We have a positive impact in price and we have a negative impact in volume. It's partly, of course, our own willingness to drop volumes which are not profitable, but there is an element also of economic slowdown that we are seeing in China and in Europe. That's pretty clear. So you see the impact of the price increase. We gained four points of gross margin. We have HGNA under control and adjusted a bit there for a lot stronger than in previous quarter. We don't see any change in trend for the fourth quarter. I think we are going to continue in this area. So, in a nutshell, how do we look at the next quarter and the outlook? Well, two businesses will do better. LKIT, strongest quarter of the year, is expected. Radiology also will do better than Q3. However, I stress again, the situation of the COVID lockdown is still not resolved. So it's more a seasonal effect than an export contract, but the underlying trend of the consumption in China is not changing for the time being. So that's the two businesses that are expected to do better sequentially, quarter on quarter. I insist on that. Offset will continue its course, and DPC, DPC will remain complex in Q4 even if we're going to be sequentially hopefully improving the results. So that's what I want to stress. Just one word on sustainability. I think it's important as well. For the timing, we are on track with most of our objectives for sustainability in terms of personal safety. We are on track for reduction year on year. We are not fully on track in the hiring of women. We are still lagging behind our ambition level. Maybe we are too ambitious given the mix of The mix of industries we work with, but indeed that's probably something that we need to look at. We have started a DEI policy, actually, diversity, equality, inclusion policy. It's been kicked off in the group through employee resource group approach. In terms of CO2 projects, we are implementing CO2 reduction projects this year, and I believe we're on track to reach our objective, which is an absolute reduction according to the Paris Agreement. And I would say we have restarted our ECOVADIS assessment. We did it for the first time last year. We had a bronze medal. We have specific improvements in this year. The idea is to improve year on year, but that's a specific goal at that time for the company. So we have a sustainability roadmap. It's extremely important for us as well to be positioned in the right way for all our stakeholders, and we are very active in this. I'm going to stop here. Time for questions, and I will be happy with the team to answer any questions you might have.

Thank you much, sir. As a reminder, if you're an analyst or a member of the press, you can ask questions by pressing star 1 on your telephone keypad. If your question has been answered, you may remove yourself from the queue by pressing star 2. So once again, please press star 1. First question today is coming from Alexander Cremier calling from . Please go ahead. Your line is open.

Hi. Good morning. So I have a couple of questions. First, you mentioned that customers are postponing their investment in industrial and decor printers. Could you just give us a feel on how long you expect them to postpone these and how long this was in previous cycles? Then the second question would be, so you mentioned that the first question, contracts for income machines are entering. When are these expected to deliver revenue for ACFA? Because you mentioned a year. But if I remember, for the ACFA machines, that's a little bit less normally. And also in that extent, what type of margins do you expect on these? And then if you could just remind us on how much your wages are of the cost and how much and when these wages are going to be indexed forward. And then maybe a final question just on the offset solution segment. If there is no uncertainty on the divestment, I'm just wondering why you did not post offset solutions under the IFRS 5 minutes. Thank you.

Okay. Very good. All right. So thanks very much, Alexander, for your question. So customers for decor printing, I would turn to Vincent to answer the question.

Sure. Thank you, Pascal. So on that question, I think it's different region per region. We clearly see that Europe, which is an important market where currently and you see the decor printers themselves or the construction companies themselves are seeing a slowdown there in demand and people spending. When people spend now in construction, it is about insulating. It is about making energy transition and solar panels and so on. And for the moment, not in decor. So for Europe, clearly, we see a slowdown. Difficult to say how long this is going to take, but personally, I don't expect that for Europe to be much better in 2023. That being said, outside of Europe, we still see good traction, and I'm pretty confident that there the demand will continue. It will not be not impacted by a recession, but there is actually continuing demand there. So I think for decor printing, it's also for you to understand very different situation versus, for instance, the other Inca machines that are addressing an existing market. And there, indeed, coming to your second question on the onset machines, we have our first contracts which are now coming in and which should hit the P&L in Q1, maybe even, but we want to be prudent on that, maybe even because it's with logistics and where we already are in the year. There could be already some hitting end of this year, but it will be as of Q1 next year.

Margins on onset, you want to?

I don't think we have, I would say, a habit of disclosing specific margins on specific equipment. All I can say is that on the onset, the margin is higher than what we have on our existing or previous portfolio, let's say.

Yeah, absolutely. I think that's a good answer. It's a higher margin that we have on our portfolio. And also remember that our business model is to make our money through service and ink, which actually will kick in with these sales. Yeah, and indeed, on decor, be careful because it's a new market. It's a market entry and people are switching to digital. And basically, they're telling us right now, in the current market context it's not that urgent for me to switch and to do that. And I'm sure you're reading the press and you've seen that Unilin has decided to shut down their plant actually in Belgium for a few weeks for lack of demand actually. So that's the kind of environment in which we operate unfortunately. However, on the solution itself, I mean, it's recognized by the market, and I think we have extremely good prospects actually when the market will reopen. Correct.

I think it's fair to say there as well, and we launched our European machine there, let's say, just before the summer at the moment that actually the recession slowdown was starting. We had actually very good response indeed from our customers who have been testing the solution, who are very happy with the quality. and I'm pretty sure that this is going to come back with a vengeance when indeed the demand starts. The products have actually already been proposed also in the shops to final customers. So digital printing has in terms of roadmap already been adopted now by our customers, but very clearly for the moment the demand is down. So it is very different versus maybe two or three years ago when people were thinking of going there. Now they have made that switch, but they don't want to invest now because of the economic situation.

Good. On offset, indeed, you're talking about an IFRS technical point. And actually, to make a long story short, we don't meet the conditions to do that yet because we have this problem. this point that we need to resolve in the U.S. related to the IT system.

So maybe just to reiterate, IFRS 5 is applicable when the business is ready for sale in its current condition. And so at this point in time, we're not meeting those conditions. There is the carve-out in North America, which is mainly an IT-driven project that we need to finalize. There is also the structure under the offset company, entrepreneur company, is not yet completed. So that means the subsidiaries still need to be moved sometimes from one legal entity to another. It's not a big deal, but it still needs to happen on certain entities. And then finally, we also have in this whole carve-out, which is quite complex, a lot of transfer of personnel that actually is going into two directions. So that also needs to be completed over the next weeks and months. And so, I do think we may be meeting those conditions by year-end. But yeah, we need to confirm that all the conditions are met for also to have the accounting treatment accordingly. And of course, we do this in close consultation with our auditor KPMG to make sure that we follow all the right rules.

But again, it does not... mean that the deal will not go through. These are technicalities that mean indeed that we cannot do that for the time being. But as I said, the deal is going through. And we are working in, I would say, in good collaboration with the buyer.

Okay, thank you. And wages?

Wages, no, it's not for getting the wages. So it's a bit difficult to, how can I say, it's a bit difficult to answer your question globally because it's pretty much, it depends business by business.

Maybe for Belgium alone then.

Sorry?

For Belgium alone then.

Ah, for Belgium alone. Let me answer in a different way if you allow me. A typical year of salary inflation for ACFA would be 12 to 14 million a year, more or less, globally, okay? Salary inflation. This year, it's going to be north of 20, actually, with Belgium making the most of the difference, actually. So this is what we are seeing because Belgium is the first country for us in terms of employment. So that's what I can tell you. Now, the share of wages is very different business to business. In healthcare IT, all our costs are wages almost, vast majority. We are talking about people. And then it's business by business. We have different needs. I would say the businesses that are using a lot of SG&A, people SG&A, are typically DPC more than the film business. for instance. Thank you. But at least you have a global view on the impact of indexation of Belgium, which is fast and which is extremely difficult to reflect as fast in our selling prices. We're going to get there again, but it's going to take a bit of time.

Does that answer your question, sir? Yes. Thank you much, sir. We'll now go to Mr. Guy or Guy Sips calling from KDC Securities. Please go ahead.

Yes, good morning. I have two questions. First one is on the non-recurring costs. Can you give us some more clarification on the amounts and the timing of them? The second one, yes, sir.

Yeah, I think, Guy, the line is very bad, but I think you're asking about the non-recurring and restructuring costs for the year. So I think our previous guidance was around 60 to 65. I think our new guidance will probably be in the north of 70, let's say 70 to 75. And that will be mainly driven by the fact that we probably need to do some more actions regarding the divisions that Pascal was mentioning before.

Okay. Second question is on sort of to clarify that also in the fourth quarter, in the full year, 2022, you will not report offset solutions as business to sell. It will be reported as it is today.

No, my expectation is that we will in Q4. Okay. To be confirmed.

Okay, thank you. Can you also give some more clarifications? So the offset deal on the working capital, so the working capital as a total will come down, but as a percentage of sales will go up. Can you give us some more granularity on that?

Not on the top of my head, no. So we may need to do some follow-up on that.

We can do some follow-up. We can do some follow-up with Lydian on that, of course. Okay. But I can tell you that in Q3, actually offset inventory increased due to two factors. We've seen a volume decrease that was higher than was projected, and also we were preparing for a withbed and shutdown. So offset was a negative performer in terms of inventory development during Q3. We expect to get it back under control in Q4, and for the numbers, Vivian will tell you.

Yeah, if we need to give a rough number, it would be around 200 million.

Yeah, thank you. And I have two other questions from our side. One is on the dynamics in hard copy film in China. Is it because of postponement of health treatments, or is it that inventory is going down in the pipeline, Or is the combination of both? Or how is it? What are the dynamics?

No, it's purely people cannot go to hospitals. We are not seeing changes in the demand pattern for film. And by the way, not only in China, but in any of our major markets, we are not seeing any change of pattern of the usage of hard copy film. But in China, it's purely because people cannot go to get treatment, cannot go to hospitals. Pretty mechanical impact.

And do you expect some catch-up later on, or is it just... No, what is lost is lost.

I don't think people... No, no, I have to be realistic. What is lost is lost. That you might have some pent-up demand, you know, maybe, but I'm not counting on it, frankly speaking. You know, people will not... So what is lost as an exam is lost and will not come back.

Last question is can you comment on the recent M&A activity in healthcare IT in the U.S.? So we saw UnitedHealthcare acquiring Change Healthcare. What are the impacts for AXA in that field?

What is the impact for AXA of the UnitedChange Healthcare merger? None. Absolutely no change. In fact, Change indeed has a business operating in the same space, but United did not. So there is no change in the competitive landscape, so to speak. The only thing that I can comment is Change is now publishing their numbers for medical IT business, which is useful for us as a benchmark. Of course, but if, apart from that, there is no change.

So, just stick to your ambition of high team EBITDA margins in healthcare IT in a few years' time.

Yeah. Still confident about it. No, no. Frankly speaking, we told you this year it's a consolidation year. Don't expect a huge EBITDA increase, but we wanted to turn the tide on really the top-line growth. And we did a management transition, as you know, that was quite important. And we wanted to find back the momentum in the market. And I think this is being delivered. Actually, the level of EBITDA will be quite similar, probably not identical, but similar to the one of last year. We have turned the tide on the top line. The order intake is well-oriented, and the management team is in place. And so, no, no, we have achieved everything that we wanted to achieve. And indeed, I confirm that we will continue our profitable growth strategy. And what gives me confidence is the fact that we continue to make progress in implementing our enterprise imaging solutions. We are solving, I would say, more and more the the issues we might have at the beginning of the development of the product. We are getting better at implementing. So, no, very bullish in a way.

Okay. Thank you, Philippe. Thank you, Commission.

Thank you, my sir. We'll now take questions from Maxime Stranard coming from ING Bank. Please go ahead.

Hi, thank you, and I hope you can hear me well. A couple of questions on my side as well. To start with, on ACFA health care, so looking at the consensus standing at 20 million, you're at 10 over the first nine months of the year. You expect a strong quarter in the fourth quarter, but I would like to hear a bit more about how you feel about this consensus and if it's reachable over the last three months of the year. That would be my first one.

We feel good.

Okay, perfect. Pretty clear on that one. Secondly, you mentioned that the incapability of AXA to increase prices in China. Could you... share a bit more what would be the impact compared to, let's say, the traditional year pre-COVID, let's say 2019, for like the sake of comparison, or does this translate in terms of margin and sales, if possible?

So I want to make sure I understood your question. You want to understand the impact and to quantify the impact on China?

Yes, exactly.

Okay. That's a good question, of course, but if you ask me to go back to 2019, I cannot do that from the top of my head. I would have to look at it over the past three years. But the impact on China, China is about 40% of ourselves in art copy films. So actually, you know, just to give you the impact of this year, I mean, if we have the film is decreasing, the volume of the film is globally decreasing by 10%, meaning, in fact, it decreases by 20% in China. Well, you can look at the impact by looking at the margins that we have on this product. If I lose 10% of myself, I'm losing 35% of this 10%, you know, in terms of profit, and that's a volume impact. And on top of that, you have a price impact in China that's coming from two elements. First, the provinces that have gone through the VBP are now operating at a lower price than the average of the market. And that probably represents today about 20% of our volumes. And you have the impact that the fact that the cost to make film has increased tremendously with cannot increase price in China. And therefore, we've seen margin compression in this area that was a bit eased by the strength of the renminbi. So overall, extremely complex, Maxim. But to make a long story short, I would say that the vast majority of the impact on the EBITDA of radiology indeed comes from China.

Perfect. Very clear. Thank you for the clarification. And finally, looking at offset, still a strong quarter, but if we compare with the second quarter of 2022, I don't think sales, but margin at EBIT level dropping by roughly 80 days this point. How do you see that evolving, let's say, for the fourth quarter of 2022 and 2023 as well, waiting for the closing of the deal? Thank you for that, and it would be all for me.

Okay, 2022, I think, will be online with Q3. Maybe, Luc, you want to add – so you expect a Q4 that is similar to Q3, right?

Q4 will be similar with Q3. You know that we are taking some actions to reduce working capital, but that's the only impact, additional impact, so quite a line. And for 2023, we are still in the whole exercise of this, so it's too early.

We are finalizing, I would say, our so-called budget discussions. Although 23, it's probably not going to be a full act fire, that's for sure. But it's a bit too soon to share that with you at this point. But Q4, similar.

Perfect. Thank you for your answers and have a nice day.

Thank you, Maxime.

Thank you, sir. The next question is coming from Chris from DP. Please go ahead.

Yes, good morning. A couple of questions still from my side. Firstly, if you look at the comments you've made, logically regarding, indeed, the cost impacts you're suffering from, to what extent the extra measures you are taking, to what extent can they be rolled out rapidly, and what would be the implied cost effect of that going forward. I think it will be certainly only visible as from, let's say, Q2 next year or something. And that's my first question. I'll put the other ones afterwards. Thank you.

No, no, good question, Chris. But obviously, you know, I've not announced anything internally, but just the principle that we were working on it and give an early warning, I would say that we needed to make some adjustments. So it's a bit difficult right now to share any impact with you. But you're right, I mean, if we do things, it will be gradual. It will be starting from very early, actually, from the beginning of the year, but some of the actions will only kick in probably in July. So the ramp up of all the impact will take one semester, so to speak. This being said, in terms of impact and improvement that we want to see in our businesses, and I'm not talking about the social impact. I think you are talking about the magnitude of, you know, tens of million euros between low tens. I'm not saying it's – but that's what we are looking at here. That's what we are looking at in terms of actions.

Okay, very clear. And then, of course, just a quick question on Zircon, also on the cost base, to be sure, because it's a ramp-up business, of course, but just to have an idea, what is the amount of money you're putting in the numbers currently and how much does it weigh on the segment in itself, or is it just minimal as a total?

When you say how much money do we put, you mean how much do we spend to ramp it up? To be fair, you know, we're spending... We're spending more than the sales actually today in terms of technical resources and capex. We're spending opex and capex right now. We're spending capex in order to strengthen, I would say, the industrial capability of the existing line. And this is already a few millions. And we are spending opex because, of course, we are babysitting and we are still spending R&D, development, engineer's time in order to further improve and scale up our process. So when I look at the total we are spending in Zirphan, it's quite high. Next year is going to be different. I think we will continue spending, but it's probably going to be more to build the next unit, in fact. And also the level of business of Zirphan next year will be very different. We are talking, we are seeing today at least as a business multiplied by four or five in 23 compared to 24. So I would expect their fund to start making a contribution, I would say. But we will still spend a lot of money to develop their fund.

Okay, very clear. And then just a housekeeping question from my side, also checking on the segments. You feel quite comfortable in both radiology and healthcare for Q4. Does it imply that we could land for both divisions combined, for example, not too far off from the Q4 level we witnessed last year, which was about 20 million for both, or is that too aggressive?

Thank you. No, no, no, no. What you say is not out of reach.

Okay. It goes for my questions. Thank you.

Thank you much, sir. As we have no further questions at this time, I'd like to call back over to Mr. Pascal Jouery for any additional or closing remarks. Thank you.

Thanks a lot, everyone. Thanks a lot. I appreciate your presence with us today, and talk to you soon. Bye-bye.

Thank you much, sir. Ladies and gentlemen, I would like to conclude today's call. Thank you for your attendance. Have a good day.