Agfa-Gevaert NV

Pascal Joueri, the CEO, to begin today's conference. Thank you.

Well, I'm sitting in Mortson with Dirk de Man, our CFO, Vivian Dictus, our investor relations head, as well as the executive committee of ACFA. So welcome to this conference. Well, let me start by... saying that, as you know, ACFA is a company in full transformation. And before I dive into the 22 results, I would like to remind everyone what has been achieved in terms of strategic roadmap for ACFA in 22. First, portfolio. 22 was a year where we announced the divestiture of offset, which is still due to close in the first week of April. It's a year where divesting offset, we are investing in digital printing with the acquisition of Inca. That was concluded right at the end of the first semester, semester 22. And in terms of portfolio, we have also made a decision that we are announcing officially today that we are going to invest in an industrial facility to produce Xirphon, our low-carbon hydrogen membrane. in our site in Morsul, Belgium. So, quite illustrative of the strategy of the company, invest in growth-oriented areas of digital printing and the membrane for the energy transition. At the same time, this transformation was also done in terms of operating model. In 22, we executed the IT outsourcing, partnering with ATOS. We have also implemented a global business service model, which is a blend of actually automation of processes, externalization in some cases, and offshoring of some of the activities. And at the same time, in terms of transformation, we have also refreshed a number of top talent in the group. Namely, and she's here today with us in Healthcare IT, where the head of Healthcare IT will comment on this. on the business later in the presentation, but we have also changed more than half, I would say, of the global leadership team and rebalanced really the presence in the U.S., which is a key target market for us in this activity. But we have not done only that. We have also refreshed, I would say, our business management lines in DPC rather at the end of the year. And we made also a key change in the management of our direct radiography business. in the fourth quarter of 22. So quite a heavy transformation year. And by the way, you're going to see some of the consequences of that in our accounts. The gentleman will explain to us what all this is creating. So, on the strategic agenda, I would say rather a full year in 2022 and a good execution of the strategic roadmap that I have explained, I believe. This being said, we have done that in a very complex environment, and this is where I turn now to results itself. and indeed a difficult business year overall for the company, mainly for three reasons, I would say. The first reason is, of course, we've been hit with an inflation that was... actually increasing a lot faster than what we could ourselves actually reflect in our pricing to our customers. So there is a lagging impact of this cost inflation that is very visible in our results, and I would say especially in DPC, but not only. That's also partly the case for radiology. The second part is... The total sales of ACFA was about 20% going to China, and China in 2022 was not a very good story. The reason being twofold. In fact, a specific COVID situation whereby in nine months of the year, about 25% of the Chinese population died. was under, I would say, COVID lockdowns, which had in turn a huge impact on the volume business. Of course, China, and that's not only for radiology, but that's also impacting DPC, where we have markets in China for industrial inks, for electronics, chemicals, for instance. And last but not least, we've seen also the first impact of softer demand in some of our markets. And that's especially the case for offset. We've seen a second half in terms of volumes that were specifically well below our expectations. And due to this economic, I would say, softer demand in some of the markets. So overall, quite good. Quite a contrast between a strategic agenda that is, I believe, fully delivered and where we are making progress in repositioning the group in growth-oriented segments and a difficult business year for 2022. So if we look at it in more details... What does it mean? Overall, for the group, it means our EBITDA decreased by 9% versus 21%, but as you will see, with quite contrasted performance between businesses. Business by business, key comments. L-scale IT, I think the world is really momentum-driven. As I told you, it was a year of change for us. Changing the management team and replacing it in the U.S. is now done. I'm happy to say that while doing that, we were also able to impact very positively the leading indicators of the business. You will see it, but everything is in green. Order intake increase, the mix of order intake, top line growth for the first time, recurring revenue. The only thing is we had to reinvest post-COVID in a bit of resources, whether it is an R&D or commercial area. And it did not translate in 2022, therefore, in the monetization of this growth, but it will in 2023. DPC is probably the business that suffered the most, especially in the second half of the year. We're going to come back in more details. The good news is overall the business itself and the demand is going quite well, except in some specific areas where we are exposed to China and specific markets. But the big story is we have not been able to increase prices fast enough in DPC to face the very strong cost inflation. All price increases are now in place and we're going to discuss the outlook and it's being done. What we have done as well in this context is we have streamlined the DPC operations and we announced a restructuring actually of DPC with about 50 FTEs being impacted in different parts of the company. But we also had, impacting the performance of DPC, I would say, things that are actually rather positive for our future, meaning we had a higher cost than expected for Xerphone as we were ramping up production. You have extra costs, and we did this ramp up during Q4, and we are continuing to do it during Q1. But short term, it was indeed a bit costly. Inca did not, we made the conscious choice to start selling Inca machines with our inks, meaning we didn't have any Inca machine being sold during the Q4. And the first ones will happen during Q1 with our inks. And the reason being, you know, as you know, we are looking for the full solution model in Inca, and therefore it's also hitting us in Q4. And we have a bit of one-offs, including industrial inefficiencies that we suffered in Morsol in Q4, that amplified, I would say, the situation in DPC. So the message I would like to pass immediately is that what you've seen in Q4 is not a running rate, and we're going to see already in Q1 a very material improvement in DPC from all this action. And I want to stress that I remain very positive because INCA, as I say, we are selling, as I speak, our first machines with our inks. And things are looking good here. And earphone membranes, one number. I mean, we are going to make more earphones in the Q1 23 that we did in the full year 22. So that's taking off very rapidly, and I remain positive. Radiology had a very difficult year. Really, China is most of the story as far as film is concerned. Just a number. A typical printer printing on our film is consuming about 10 boxes of film every month. In 22, this number went down between 6.5 and 7 boxes, reflecting what I told you on the COVID lockdown impact. I'm happy to tell you that starting Q1, January and February, we are back to normal. We are back to 9.5 boxes of film for printer per month. So the usage of the printer and the consumption is actually getting back to normal in China. Volume was part of the reason. We still have margin pressure in China. The reason is pretty simple. We just cannot increase selling price of film in China as the value-based procurement process is still being deployed, although it was a bit on hold in 2022. But no price increase is possible. So we are increasing prices in non-China markets for film, which represents about, roughly speaking, 50% of the volume, but do not have the possibility to do so in China. In DR, I think it was a year where we have improved our position in 2022. And as well, we have streamlined our operations. We have announced very stringent cost measures in this area, including the shutdown of our head office in Munich and a significant reduction in our operations. Offset, last but not least, a very good turnaround after a couple of years of very hard work by the team working on rationalization of cost to serve and our assets. And at the same time, having a very resolute price increase policy means offset was back and track in 2022. The only comment I would make is the end of the year was very soft in terms of volumes. We've seen the volumes in offset mainly in the commercial printing area going down starting in July. But that accelerated actually in Q4 and especially in Europe. This being said, we believe there was also a lot of destocking happening in this business. And we expect also a gradual recovery in this sector, maybe at the end of Q1 or certainly Q2. I think we see the first signs today at the end of Q1 of a volume recovery. So overall, quite an eventful business year. I will turn to you, Dirk, to comment a bit the impact on our accounts of the portfolio moves and this business.

Indeed. Thank you, Pascal. So indeed, there are quite some large accounting impacts that we need to discuss. So first, expectation is the closing the first week of April. And some of you might expect that we would have already accounted for offset as an asset held for sale. The key thing is that the criteria at the event were not yet met. And that's really related, and I think I talked about that previously as well, due to the carve-out that we need to do in U.S., Canada and North America, which is really about carving it out and implementing new systems to run those new entities. And that will be completed by the end of the quarter, and then subsequently we will do the closing in Q1. Now, not booking it as asset held for sale doesn't mean that there aren't any accounting consequences that we take. and those accounting consequences will be taken in two steps. So according to IFRS, we needed to, at year end, already impair the non-current assets, and that we took for 41 million. In addition, we also had to impair deferred tax assets, which are indeed not going to be recoverable anymore, some transaction closing costs in the amount of 13 million. Then at the end of Q1, the criteria will be met and we will account for it as asset held for sale. And then we expect then we'll need to do the full remaining impairment that we think will range between 45 and 60 million. The range has more to do with the amount of working capital because some of it will be compensated from a cash point of view. But that depends on the levels. Obviously, other criteria will play like exchange rates and those kind of things. So that's quite a big impact that we had to take. Second, radiology, as you've seen from the year results, the performance went down quite substantially. And therefore, in the impairment testing, which, by the way, was also done with higher weighted average cost of capital due to interest rates rising, indicated that we had to impair the intangibles on the books for radiology. These are old acquisition-related intangibles, so we impaired actually all the goodwill and some small customer list amounts in the amount of $73 million. And then finally, the deconsolidation of offset from our tax unities, as well as the lower performance of radiology, also have consequences in regards to tax, where we took an impairment for deferred tax assets that, in the end, it's off the books. It's a non-cash charge. It doesn't mean that those tax credits can't be recovered. But from an IFRS point of view, it would take too long to recover them. Therefore, we had to impair them. The normal cash expenses would normally, and I'm talking P&L now, only would have been around $15 million. So we booked about $27 million extra than normal. From a cash point of view, we had some cash charges for tax around $15 million. which is actually about 5 million higher than we would have had if we did not have the carve-out efforts for offset. So it was about the deconsolidation and splitting up entities due to offset. For 23, just as a heads up, we expect them to be below 10 million. So these are all non-cash charges and do not affect the cash tax charges. And back to Pascal.

So indeed, quite an impact on, of course, the portfolio transformation. If we turn to the P&L, I'm not going to stress, I think we already... told the story, but indeed for the year, minus 9% EBITDA. AQ4, that was a bit below as well. But you can see that in terms of gross profit, we're already recovering part of the margin overall at ACFA level. And of course, if you look at... the rest of the P&L impacted by all the elements that Dirk has presented. We are, of course, presenting a significant loss reflecting the changes in the portfolio and the radiology impairment. So that I'm going to skip because I guess we already commented almost everything. The only thing that probably we need to comment on this slide is there is also a positive impact of the net pension liability, Dirk, if you want to.

Yeah, I will comment later in the slide.

Okay, you will comment. Let's turn to cash flow, maybe?

Yeah. So free cash flow, let's look at Q4. We obviously we had some lower EBITDA, but also in terms of trade working capital, we probably recovered a bit less than we would have liked. So there was a less release versus the year before. Also in terms of capex, we spent a bit more. We have been decreasing capex over the past periods quite a bit. Now, what is happening is also for extending the capacity on the existing Zirphan line. We are investing to speed up production and to be able to produce more. So that's a key explanation for those. In terms of income taxes, so Q4 was much higher than normal. That's due to the deconsolidation of offset and the carve-out activities that we had to take. leading to an adjusted free cash flow of 31 million, pensions at 8 million below last year and in line with expectations, but also a heavy quarter in terms of restructuring and non-recurring, basically supporting all the initiatives. But as you know, the extra announcements came in also regarding restructuring in radiology, primarily in Germany, and also in DPC to reduce the costs. So free cash flow is slightly negative, but if we then turn to the next page, obviously there you can see the bad performance in terms of trade working capital. So over the year, and I will come to working capital later, working capital has increased quite a bit, driven by a lot of things, mainly inflation and cost increases in efficiency in the supply chain. But that's really something we need to work on. And in 2023, that will be a key priority to try to get that down. CapEx for the year at 2023, again, as I said, a bit higher maybe than last year, but not too much. Obviously, as we announced also, the investment in the Zirphon plant, that will increase in 2023. Income taxes at 15, as I mentioned, 5 you can relate to offset, 10 would be the regular, and I think next year we can count on less than 10 in terms of income tax cash flow. Pensions at 39, in line with expectations, but then obviously restructuring and non-recurring items, very heavy cash cost in 2022. All the programs are coming into execution. Some of that is still related to, for instance, the previous year, the programs that we executed then. But it's a very high cost over the year, leading to an overall free cash flow of minus 127%. So if we then look at the net cash position, obviously the impact there is bigger than the free cash flow. And so just to remind that for the Inca acquisition, we had a cash out of around 48 million. There was also the share buyback that we executed in 2022 for about 21 million. There was also quite an important exchange impact on that financial debt of about 13. So meaning this is the cash that is not held in euro across the globe. And then finally, as part of the structuring for offsets, we also had to reduce the cash balances in the offset entities and repatriate cash. And some of that was in the JV. And so there is about 10 million of dividends that were paid out to the JV partner as part of the repatriation of the cash. So if we then move to working capital, as you can see, the Q4, we saw A decent reduction, let's say, from 31% of sales to 28%, but insufficient to get back to the performance of 2021, which was at 26%. So overall, 73 million higher working capital overall. And as you can see, the key effect there is in inventories. Inventories obviously also include Inca. So at the end, roughly around 20 million of Inca inventories, which were part of the acquisition. They are not part of the cash flow that I presented earlier. So that's already a good chunk, but operationally we did have 49 million of increases. In trade receivables, we remained more or less flat also in terms of days, despite the fact that there was quite an increase in contract assets in healthcare IT. So in healthcare IT, as we sell to the U.S. government, the Department of Defense primarily, That means also that their billing cycle looks a bit different than with normal companies, so these assets remain a bit longer in contract assets, which then turn into receivables, which then turn into cash. It's actually a good thing that we have been able to achieve all those nice contracts with the U.S. Department of Defense. On the other hand, it does create some delay in collection over time in turning those into cash. And then payables, yeah, obviously they are reducing in terms of days, but that's also part of the efforts that we try to reduce the inventories at year end. But as Pascal mentioned, some soft demand did not allow us to reduce as much as we wanted to.

No, I think we missed working capital for offset and actually mainly. For IT, it's due to the billing cycle of government. So it's really a temporary issue. Although we are increasing share in this part of the market. We are very successful, actually, in this part of the market. And offset is due to the steeper than expected end of the year volume decrease. And it's something we are going to recover through the closing as well. Next, let's turn to Health Care IT. And I thought it was a good idea for Nathalie as a newcomer, a newcomer now, a bit over one year now, but to explain a bit how she sees our business. Because 22 was, again, a transition year. As I said, management has changed. A lot of changes were made during the year by Nathalie. Nathalie?

Thank you, Pascal. Good morning. So 2022, as I came on board at the very beginning, was really one objective was really to about reignite growth within health IT globally with a clear objective in the U.S. market being our largest market. market, but also our largest potential as we move forward over the years. You know, as we ended the year in 2022, clearly delivered some top line, healthy, positive indicators as we're looking at the future. We grew our order intake drastically by exactly 18% year over year. above my expectations. We grew our sales by 4% year over year, but most of all, as we are in healthcare and the software industry, customer satisfaction is key. Creating customer stickiness and satisfaction in the long term is a very important indicator as we move forward. So our customer satisfaction returned to normal in some cases and very positive in some others. And we repositioned Agfa Healthcare among the top performance in the industry by the end of the year as we were recognized by CLAS, which is the key organization in this industry. Unfortunately, our top-line growth did not yet translate into some EBITDA growth. With that said, we knew 2022 was a year of transition. We made some investment towards growth. We invested in innovation. We invested in acquiring expertise and talent. But we also invested in stabilizing our customer base, which was critical, as I said, as we move forward. We grew our footprint within some key customers. Dirk mentioned the U.S. government, the Department of Defense. This is what we qualify as a top-quality customer in the U.S., very high loyalty, regularly invest in. So that was a target of ours, and we accomplished that target. So as far as we look at this past year, we generated the right positive growth, but most of all, the right momentum as we enter in 2023. As we move forward, the one key objective this year is execution. So execution on the large volume of orders that we brought in 2022. And with that, delivering profitable growth. and, you know, targeting to reach the high-teen EBITDA over the next few years.

All right, so a year of transition, but I would say really a year where all leading indicators are in green and we are really preparing and executing on a profitable growth strategy, and I'm very encouraged by the direction of the business. Radiology, a bit of a different story. So as we said, a very difficult year, especially for film in China. The good thing is in Q4, we were turning a bit this corner. As you see, this is the first quarter of the year where we were above actually last year. And also, if you look at the growth of profit, we start seeing also some of the price actions we can have in this market. This being said, although I expect for 23 volumes to be back in track in China, we will still have the same pressure on margins in China. The situation has not changed. And if anything, there will be probably a resume... resumed VBP approach in China. And therefore, I expect a positive outlook for volume, but I remain very cautious on margin. We have price increase initiatives in all geographies but China in film that we are currently deploying with, for the time being, I would say pretty good success. DR improved in 2022, and especially we had a very good second half of the year, and we expect this trend of improvement to continue over 2023. So overall radiology, I would say what to expect in 2023 is probably overall stability, with China still weighing but being made up by some progress elsewhere. Well, DPC, again, the most complex business by nature. And here, the Q4 results are showing you that, indeed, as inflation was building up during the year, and as you know, in Belgium, we also have a specific item, which is a salary indexation that's impacting us very much, as we have, I would say, 40% of global inflation. global headcount in Belgium. And so that reflects the inability that we had to increase price fast enough in order to make up for this cost inflation. And as I told you, the Q4 results are also impacted by specific one-offs that further impact our results. So for us, we already reacted on two fronts for DPC. Actually, we didn't wait for the Q4 results to react at the end of November. So we announced a restructuring of the business and we also announced for implementation in Q1 price increases between 10% and 30% in virtually approximately all the product ranges of DPC. I don't think there is a single exception. And this is being executed during Q1. I would say most of the execution is going well as far as I can see, although we still have a few question marks on some business lines. However, when we look at digital print, what we are seeing right now is, I think, confirmation that when I was looking at offset activity going down during the second half, that was not the case for digital printing. And for instance, selling inks in digital printing, we didn't see any weakening demand actually in this area, which confirms the right positioning of this technology within the printing market. Inca, as I told you, we hold on a bit to sell the machines because we want to sell it with our inks. Actually, that's what we're going to do right now. And we're still very excited by the prospect. And really, 2023 will be the year where we're going to materialize this synergy. Zero phone takeoff. I think I've said it already. I think what is amazing is also the number of customers that are actually working or testing our membrane over 100 today. We are actually scrambling right now to follow demand. We are implementing another increase in our finishing capability, meaning the cutting and the packaging of the membrane, which is a very delicate part because it's a very fragile product. And everything that we see in Zierfan, although we were a bit conservative in our business, is actually better than what we expect. And as I told you, we'll make more in Q1 that we did during the full year 22. So this will be the year where it starts being a real business. We have announced this investment in a new plant. It's going to be ready for the second half of 2025. Of course, the time to build is quite significant, as you would expect, and we want to position ourselves in the market to make sure that we can meet the demand. When you look at the capacity that is expected for electrolyzers And this is a figure that is still evolving positively almost every year. We need to be there for our customers. And that's what we are doing with this investment. This being said, again, we, after a very dismal second half of 2022, I think 2023, will see a very clear recovery for DPC. mainly coming from pricing, our cost actions, and our commercial progress in gross areas like the Inca product range and the Zirphone membrane. That's really, for me, the story here. Offset solutions. Offset solutions, very good year, but a poor fourth quarter. A very good year, you can see it. We were successful to increase profitability of the business, mainly, I would say, restoring profitability through pricing, but also very stringent cost control, as you can see in SG&A, actually very well under control, as well as for R&D in an inflation environment. Q4 was just impacted by the Higher decrease of demand than expected. Actually, just to give you a figure, in Europe, we had more than 20% decrease in demand in Q4, which was a bit more than expected and reflects also some inventory reduction in the supply chain. Well, this being said, as you know, the focus right now, however, the good thing that I need to stress is in this volume decrease environment, price discipline was absolutely maintained and there is no price leakage coming from this volume environment. The only price adjustment that were made was reflecting the price of aluminum, which went down a bit. But apart from that, discipline remained in the market absolutely intact. But I think today our focus is really the closing of the business. And we are, of course, that's the main focus of the team, to deliver this closing and to and establish the right relationships, future relationships, because we'll continue as ACFA to supply a significant number of consumables to offset business. So if I look at the outlook, and I probably already discussed about it, what we expect is a recovery in the year 23 versus 22. I think 22, we did a lot strategically. Doing everything that we did was also quite a heavy workload for everyone. I think 23, it's about execution. And it's about really execution of the business from price increase to working capital management. We do expect a recovery. LSKIT double digit growth in EBITDA is expected and we've got everything that it takes to generate it with the very dynamic order intake as you've seen on a very solid order book. Radiology, I say stability because indeed I'm a bit cautious about the China evolution, which is not totally clear at this stage. We expect, again, a recovery in volume, but still pressure on margins. But we will continue to progress also in our DR activity in 2023. The continuity of what we've seen in the second half of 2022. And DPC is the main area of focus. We are expecting to restore the profitability. We want to be absolutely back. And again, it's based on everything that I described already. Pricing, cost actions, Inca and Zerfone.

Pension, yeah, indeed. So as you can see, the pension net liabilities decreased quite substantially. Part of that we already took in the first half, but that continued on the trend. As you can see, obligations almost decreased with half a billion. but also the assets went down with 320 million. The reason why the assets went down is because most of the funded plans are hedged against the liabilities and therefore they move to net reduce the volatility of the pensions. That means the big effect is really coming from the unfunded plan in Germany. So where does this come from? Basically discount rates. That's the primary reason. In 2021, the discount rate, the blended average discount rate was 144. In 2022, it was 4.33. So that's a very big increase in discount rates. And yeah, so very positive effect on the net liabilities in the pensions. If we move to the next slide, I'll show you the P&L and the cash flow. So in terms of pension costs in EBIT, as discount rates are increasing, your service costs in the P&L is decreasing. And as you can see in 2022, that was 5 million. And we do expect that to continue in 2023 with another 4 million. On the other hand, the interest costs that we need to take into the financial charges is increasing in line with the increase in the discount rates. So in 2022, that was a million increase. But for next year, and that will then have the full effect of the increase in discount rate, it is expected to be 11 million. Now, although negative for the P&L from the cash outflow point of view, we continue on the trend that we communicated. So in 2022, it was $55 million from a total cash point of view on the material countries. In 2023, including offset, it would have been around $54 million, so decreasing another million. But we already showed you the number of how it will be excluding offset. So there will be another reduction of $3 million from cash point of view on the pensions. And so that's quite a drop versus, let's say, the $64 million in 2021. So the cash charges are drastically decreasing and will continue to decrease over time. Back to you, Pascal.

Very good. And I'm going to end up with sustainability. We're not forgetting sustainability. It's absolutely embedded in everything that we do. First, CO2 emission reduction projects. We already did, and every year we are doing specific projects to do CO2 reduction, but we have started, we are starting in 2023, actually a roadmap for the Mortsul site to start decarbonizing the site and decreasing our gas consumption at the site. So we will be investing in new energy-producing devices, electricity-powered, on Morzell that should allow us in 2024 to have a first step in the decrease of our emissions by 15%, which is quite sizable. The objective that we have is to reduce our CO2 footprint by 2% according to the Paris Agreement. On people, we have started a DEI initiative during 2022 that is now in place, and we will further it during 2023 with specific actions. We have created different employee resource groups working on different topics of DEI. We have our objective also to increase the number of women in the workforce of ACFA. We are already hiring a lot more women than currently we have in the company. We missed our target of 37%, which was a bit ambitious, maybe for 22%. But today we are hiring at the rate of about 33% women, where we have about less than 25% women today in the company. So we are making progress. And sustainability, we have also brought sustainability at the level of the executive committee, because Gunther Koch, sitting in this room, is in charge of sustainability today. And we have confirmed our rating with EcoVadis, which is for the timing at the bronze level. But we have increased our performance year on year, and we will continue to do so. We have also introduced a concept of – actually, it's not a no-throwback concept. It's a progress concept. In terms of sustainability concept, meaning we will not put in any solution in the market that does not bring a specific progress in the sustainability area. That's a commitment that we are making and no innovation project is being started without being checked on this metric of sustainability. So I'm going to, of course, take your question, but let me just wrap it up. So 22 was a very, very heavy year in terms of implementing the strategic agenda of the group, whether it's portfolio, operating model and people and culture. 22 was a very difficult year in terms of market with China and cost inflation, really the main challenges there. We have put in place all the corrective actions already, I would say, in Q4 of 2022 in order to make sure we can recover DPC, but also we will see a specific solution. growth in our target areas in zirphone and in digital printing. And healthcare IT has also is showing for me a very good promise in terms of being able to get profitable growth for the years to come with everything that we have put in place. I'm going to stop here and of course take all the questions you might have, maybe starting with the room, Viviane.

Thank you. You were hinting for price increases only later in China. Can you give us some timing? What quarter would you expect? I'm talking on film. Also, in radiology, you said that you expect overall stability, so no rebate margin improvement yet, but is that compared to the fourth quarter or compared to the full year 22 numbers that we saw. That's my first.

Well, film radiology, to be clear, I'm not expecting any price increase in China. I'm expecting price increases in China in DPC, in some other areas, and we are doing that, actually. But in film, in radiology film in China, I am very clear, no price increase is possible at this stage. That will not happen. What will happen is, we believe, is a recovery on the volume, but we will continue to have price pressure in China. I want to be very clear. The price increases in film radiology is in all geographies but China. And it's being implemented in all geographies but China. That I want to be clear. And when I talk about stability today, I'm talking about the overall level of the year. I'm not expecting any improvement due to this uncertainty in China. This is one factor. Did I address everything? No? Maybe not?

Yes. The second question is on the investments that you are planning to make in ZIRF Fund. Can you give us, quantify us a little bit the capex number so you also, yeah, what will be the total amount that you will spend until 2025 and what will be the impact in 2023 already?

In three years, so it's basically it's going to be spread over three years and the amount that we can say it's around 40 million. Okay. in three years. Now, should you divide it by three? Maybe not. Phasing will be probably, I would expect for me that the main cash out here might be 24, actually not 23, given the fact that we were starting during the year in 23. But I don't have any precise guidance on this.

Yeah, but maybe to answer that, indeed, in 2023 and 2024, the capex levels will increase. And I would say in 2023, it would go somewhere in the mid-40s for total AXA. and the year after around the mid 50s for the whole group we do expect it to come down quite substantially the years after so there's really a two-year boost and the years after it would probably be more in the 20s so let me add as well that we are currently applying for european subsidies for this investment we have actually two files that we are

that we are building, and one is already, by the way, filed, I think, or being filed. And of course, these numbers do not take into account these potential subsidies. What can we expect in terms of subsidies? It's a little bit unclear, but that could be a significant portion of the investment. Typically, it's about 25, 30% of the investment that is potentially available in terms of subsidies.

Yes. Okay, perfect. Two questions from my side. Firstly, coming back on the lack in price increases, I think we've heard indeed that you have raised prices consistently. However, I get the impression that there is a lag between, I don't know whether it's timing only or is it also just a difficult estimate of what your real cost increase is. I mean, I'm just wondering... How can price increases still now be an issue given the fact that we have all these data and that you're often a leader in your segments, or is it something specifically?

No. Frankly speaking, it's a bit like we were at the same time last year for offset. It's just a question of the implementation is coming at the end of contracts and is coming in – You will see partly in Q1 and it will continue in Q2. It's just a phasing issue. There is nothing else than a phasing issue. I think we know pretty well where we are in terms of cost, but it's just a phasing issue. And remember that in some of the things that we do, we have also a natural lag because basically... As I said, when you take an order for equipment, you will deliver it and recognize it probably three to six months after, typically. And therefore, if you increase the price now, you have a natural lag. Inflation has been building up consistently during 22. Most of our contracts are yearly contracts and does require, I would say, a specific deadline. But I repeat, everything is... Most of the price increases are already in today, announced and executed. Vincent, you want to give some color on this?

Does my microphone work?

It will.

Thank you. So that's totally correct, Pascal. I think one element is the sales cycle. So there is indeed for certain products, the sales cycle is a bit longer than for other products. So there's a bit of a lag there. And it's the fact of continuous increases that we have to push, of course, to the market. And that will now be for 23 also be done to a higher level than in 22.

Okay, thank you. And then a second question relates to healthcare IT, whereby we are, of course, very hopeful for the future, and we've now heard it already a couple of times, next year will be good. I'm just wondering, how do I match the improvements on Department of Defense on the investments that have been made with, let's say, if you look now at the guidance, whereby you see that, yes, there will be growth, but there will be only, I would say, a double-digit EVDA increase. Is that a prudent guidance, or is it just that it will also take time and we should see more effect on H2 than, for example, on H1? How should I see that?

Thank you. Well, thank you. Thank you, Chris. First, to be fair, I always said last year that 2022 was going to be a transition year for healthcare IT. And the reason was very simple. With everything that we changed, I could not expect, you know, otherwise. And we needed to redo... very clearly our priority is the U.S. and to be successful in the U.S. Now we are set up to be successful in the U.S. We were not at the beginning of 22. So that I can very firmly say it. On the guidance, when we say double-digit profitability increase, is it conservative? I don't know. I don't think so. It is, but that's what we're currently seeing. I think really what we did in 22 was absolutely necessary. We had two steps in this health care IT story. The first step was to restore profitability. The second step was to create profitable growth. Restoring profitability was done, but I didn't have anything in place in order to create profitable growth. And now we have. And now we have all leading indicators that are pointing to profitable growth. I mean, that's the first time ever that we have such an order intake increase. Having 18% order intake increase, and it's not only with the government, by the way. It's across the board, and it's all regions, all regions, by the way, that are showing this dynamism. So we are creating this momentum, and that was a momentum that we didn't have before, I would say. What is also very positive, as we said, is the customer satisfaction. It's a very dynamic market, and the word of mouth in this market is very, very strong. And let's face it, we had a track record that was a bit difficult coming from the past as we brought technology that was a bit advanced and didn't probably deliver as smoothly. All this is behind us. We have issued a very successful release of our enterprise imaging system during 22 that gives now satisfaction. And so we have turned this corner. So we are turning this corner. These corners, one after another, and therefore my confidence. But I always said in 22, there was nothing really to expect in terms of bottom line growth in LSKIT, given the changes that we were going to make and the reinvestment. And for instance, let me be very clear. We have also changed, I would say, the strategic roadmap of the product. We are investing now to have cloud-enabled solution, to have web streaming for our products. And we are looking at adding also new features, new ologies, I would say, in our features. And we have a very clear roadmap, which we didn't have before. And having... Having the team, most of the team today placed in the U.S., which is where the action is, is also helping us a lot to move faster into the right areas of growth. Nathalie, did I add anything?

Nothing to add.

No, no, but I'm trying to.

No, absolutely.

Okay, thank you. I'll leave the floor to you, Alice.

Hi, good morning, Maxime Strenard, ING. Three questions actually on my side. First of all, again, looking at Agfa Health here, I'm sorry for that, Nathalie. Do you see any project being postponed or delayed with inflation climbing up and the budget of governments basically shrinking? That would be the first one. Secondly, on Zerphone, Pascal, you mentioned that you expect the sales in Q1 2023 to be in line with what you did in the full year of 2022. Can you quantify what this represents in terms of value? And finally, consensus, I just said EBIT is at 36 million, excluding offsets. You did roughly 13 to 14 million this year, give or take. How do you feel about this consensus for 2023? That would be all for me. Thank you.

Yeah, so without getting too technical, our AgFi healthcare solution that we sell to hospitals and health systems support and deliver productivity and profitability to those hospitals and health systems. And if you look across the world, the number one challenge that hospitals and health systems are facing is cost, staffing shortage, and lack of expertise. We come in with our solution. We provide this flexibility. We enable them to reduce growth to increase productivity and increase profitability. So, in view of a project posed or postponed, on the contrary, we have seen a lot of the project being accelerated. Our solution, you know, with many deals on the table, among others, for hospital and health system being prioritized and accelerated. And I think that's one of the factors behind, you know, the momentum and the dynamic of the order intake growth in 2022. And it's not going away. It's just, you know, the challenge that they are facing, it's just going to keep going. So where is our confidence in the momentum?

Yeah, we're part of the story for Health Care IT. We're an investment to be more productive. And from what I've seen, and I was also last week, by the way, in ECR, which is a radiology congress in Vienna, and I was at RSNA with Nathalie and the team end of November in the US. Frankly speaking, I think there is also momentum in the market demand. I think a lot of players are looking at upgrading, so to speak, in this area. So I think it's positive. Zirphone sales in 2023 will be difficult to say, but I can give a number, I think 20 to 25 million. And our budget was more 20 and what we see today is more 25, I would say. But we can still have we have visibility on their phone because people are players are placing orders quite in advance. And given the fact that it's a it's a long supply chain right now. So we have visibility. And I would say today we have most of our budget already in P.O.'s. And we believe there will be an upside. And the start of the year was also positive. stronger than expected. Fair enough? You want to add too?

Absolutely. We see, I mean, last year the growth started and the explosive growth really continues this year, driven by all the many projects in the markets and also the ramp up of capacities of electrolyzer producers, which is really happening this year and next year.

And by the way, that does not yet include the prospects of the U.S. market. As you know, the IRA by done by the Congress and Biden is pouring billions and billions in this area. For the time being, that was a geography that was not really super active in green hydrogen, but it becomes to be the case. And if anything, it's going to open up a lot of opportunities because with these subsidies, green hydrogen is super competitive in the US. So there will be a lot of activity also over there, which for the time being is not in our business plan at all, actually. And then EBIT, what you say is a ballpark, right? That's our expectation for 23 years. Ballpark. Yes.

Very clear. Thank you for that. Another question from my side. If you would look at 2022, would it be possible to give us some ballpark ideas of the negative effects of, on the one hand, cost inflation, on the second hand, China, and the demand effects? Is that something you could... share or is it tough to ask them?

It's a bit tough and it's a bit slicing and dicing, I believe. And I think it's quite visible from our P&L. I think the first factor for radiology is China. The first factor for DPC is cost inflation. The one-offs, yes, it's probably around the one-offs in DPC. That's probably order of magnitude 5 million for the year. You know, that's hitting our P&L. But most of it is cost inflation.

Okay, and then if you look at the future with the cash generation coming back on the pension, is there something else you could update us on for the coming years besides 2023 in the sense of how are the plans fading out? Is it the same structure as you provided us? The pension? Yes, on the pension side a year ago? Yeah. There's nothing as old?

There's no change to that. So this is really based on expected cash calculated by the – by the specialists and we continue to expect the same trend as we communicated before.

Yeah. Okay, clear.

So in terms of cash, also, to be clear, in 2023, we will still have a bit higher capex, as you understand, less restructuring, but still the end of the restructuring drive induced by all our programs. But that's going to be really the last significant year in 2023 for this. Ben?

I have a detailed question. You were very clear that film prices can be increased in China, everywhere but China, but it wasn't very clear to me on why that is, why is it impossible to increase film prices in China?

Okay, there is a, to make a long story short, the government, the Chinese government is putting a lot of pressure on healthcare costs. actually, and have introduced a process of so-called value-based procurement process that is being deployed province by province, which has resulted historically on price decreases in the China market. So today, the market situation is such in China that it's not possible to increase price. And I'm again very clear about it. And therefore, to be clear as well, I think you know China is about 50% of the market, like China is always 50% of the global market typically. And the industry needs to pivot. The prices in China used to be the best in the world. Actually, the industry now needs to pivot and we need to make it up through increasing our margins everywhere else but China. And that's what we are doing with our price increases.

Coming back to the restructuring costs, can you quantify that a little bit for 2023? In what amount? And I hear Pascal write that he said that 2023 will be one of the last years with high restructuring costs.

At this level, yes. But we will continue to have restructuring costs along the line.

That's for sure. But I would expect for 2023 to be in the 30s, in the low 30s. So divided by two.

compared to this year?

Yeah, this year was 72.

So more than Levi by two. Any other question?

that we... Viviane, please.

Operator, can you open for questions online? If we have... Yes, we do. We do.

We will take our question from Alexander at Kepler.

Okay, Alexander. I was thinking about you, Alexander, of course.

Yes, hello, Pascal. So, yes, Alexander here from Kepler. Okay. Just one, I have a couple of questions left. Most of them have been asked by my colleagues. But just wondering, so you're talking about offset like it's a continuing business and obviously it's going to be divested by Q1. And you say that the target of working cap is 26% of sales, including offset. But how much can we expect in terms of decrease in percentage of sales when the offset is divested? I'll take that as the first question.

Yeah, well, actually, this is a reverse. Offset tends to have a lower working capital on sales than the rest of the business because the supply chain is a bit different, I would say. So actually, when offset will be divested, I would expect a higher percentage on sale and, of course, a much lower absolute number for working capital. But I'm not sure it's easy for us.

Yeah, we need to calculate. I think we haven't done the exercise.

We can follow up on that, Alexander.

What we absolutely want is to reduce the working capital, excluding offsets. So that's a program that we'll be working on in 2023.

Okay.

And, yes, let me be clear, you know, we own the business until the first week of April. So as long as we own the business, we take care of the business. But it's not an ongoing business for me, but I want to make sure that everything is okay. Okay.

Then, yeah, go ahead.

No, no, go ahead. Please, please.

So I was just wondering, so Maxime just asked the 30 million of EBIT. for 2023. But if you say stabilization in radiology, an improvement in healthcare IT, and then also an improvement, significant improvement in TPC, that doesn't add up, right? You would quickly arrive to a higher number. So I was just wondering what's the rationale that we need to take to arrive there?

I said ballpark is okay, this number. I can, well, we know what the objective is. Actually, it's a bit higher than that indeed for us. We don't give a precise guidance at this stage as well.

Okay. Okay. That's a little... Wait, I'm just going through my questions here. Yeah, maybe one question. I mean, there was a lot of talk about some building developments that may be possibly happening at one of your sites. Is there any possibility that some of the properties will be divested in 2023?

Frankly speaking, what we are focusing on right now in our campus is to have a more rational occupation of the buildings, which will lead us actually to concentrate our presence to a smaller number of buildings and therefore emptying a couple of buildings in the campus. However, we have yet to define, I would say, a kind of real estate end game for us. And I'm not expecting in 2023 that we would be already selling some of our property in Mortsal. However, indeed, it's an open subject for me. But the first phase, again, is to rationalize the presence on site.

Okay. And maybe as a last question, if I may ask, what's the priceless decision now for DPC? Because if you say, okay, we want to increase our prices again in Q1, but the demand is already softening, what do you think the effect will be there on your volumes then?

Well, it has to be, your question needs to be addressed in a much more granular basis. I can tell you already in things like inks or services, no impact, more or less. I think the price volume elasticity, we need to pay attention for it, but we need to look at specific product ranges. For instance, our synthetic paper synapse, we have been increasing prices already three or four times. We are now testing the limit of the affordability of the paper. So we will adjust line by line. The only, I would say, difficult, the most difficult area for us to increase prices in DPC is PCB films in China. That's probably the most complex area. All other areas, for the time being, the price increases are going pretty good. Vincent, what do you think?

That's correct. And maybe also to the question of the softening demand. Actually, we have indeed seen on some of our markets last year that there was a softer demand, but for most of the year. And so the electronics markets with PCB film and part of our Oracle business, the other markets have been growing and we continue to see that growing, be it on the digital print with our captive solutions, be it in Zirphon, be it in also the synthetic paper. Those are markets that we have seen growing and would continue to grow.

Professor, could you maybe, if possible, obviously, give us some insights on that, maybe later, in terms of what's the growth patterns in separate areas, disaggregated?

We can, by earphone, three figures. Digital printing, you're talking probably between 5 and 10, in terms of growth. Then Synapse and OrgaCon, that's typically also double digit growth.

but not not uh not for agacon this year due to the uh but normally this is a growth potential for these products so right well we have to also there be maybe a bit more granular and forces would lead us to too much detail here but oragon goes into polymer capacitors hybrid cars that grows 10 but then the other part goes into anti-static applications for electronics and that actually has been lower all of last year so it's we need to be a bit more granular there

But overall, to your question regarding price volume, our current analysis is actually any volume we might lose in increasing price will be winning much more on increasing price than retaining volume. So we are doing this kind of price volume analysis, and it's very positive, actually, when we look at it. Okay.

Okay, thank you very much, and have a nice day.

Thank you, Alexander.

Sorry, last question from my side on Zirphon. Yes. So Zirphon is now going times three on a year-by-year basis for a few years. Can we, yeah, let's say work in Excel for the next few years also times three?

Oh, that's – but actually it's been more times four than times three for the time being, by the way. Now can you take it further every year? Well, it's not – no, at some stage it's not going to be doing that, okay? What's your take on it, Vincent?

Last year, we did times three. This year, we should do more than times four. Of course, you cannot continue to do times four for the next five to ten years, and that would be just impossible. But there is... I mean, the growth will be... much more than double digits for the foreseeable future. And also linked to, again, both the hydrogen projects which are announced and a lot of... We will actually follow the growth of the electrolyzer producers. I think there is a bigger bottleneck if you want to address all of that growth. Europe has huge ambitions. US now as well. The biggest bottleneck will not be with us. We will actually be able to follow the market growth. I think there will be more bottleneck in the electrolyzer manufacturers who also have to build their plants to be able to build all this capacity.

All right. So again, thanks a lot for attending the meeting. I think, indeed, again, I repeat, we have a very precise plan. 22 was about strategy delivery. 23, it's about business delivery and execution of our program. That's really the way we are today focused. And with one priority as well is cash management for the company in 23. That's very clear. I want to repeat that. And I remain a firm believer that the strategy that we are pursuing and the growth engines we are promoting are the right ones. And it's been confirmed even in this difficult business environment. It's been confirmed in all these areas. So thanks a lot. Thank you very much.

Thank you all. Ladies and gentlemen, this concludes today's call. Thank you for your participation. Stay safe. You may now disconnect.