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.