Agfa-Gevaert NV

Hello and welcome to the ACFA Q1 2023 results conference call. Please note, this call is being recorded. For the duration of the call, your lines will be on listen only. However, you will have the opportunity to ask questions at the end. This can be done by pressing star 1 on your telephone keypad. I will now hand you over to Pascal Jouery, CEO, to begin today's conference. Please go ahead.

Thank you very much and good morning, everyone. I'm sitting here in with the executive committee team and Vivian Dictus in charge of investment relation. So we're going to walk you through the Q1 results for AXA. Of course, it's a quarter. We're also going to explain the treatment of the divestment of SET and its impact on the group. But if I first turn to the business, rather a good start of the year for the group overall. Let me start with healthcare IT, and let me start by reminding everyone that healthcare IT is a business that is 50% project-based, that therefore we have quite... some variation in terms of level of activity, mix and project implementation quarter by quarter. So indeed, after a very strong Q4, the Q1 activity was of course more subdued, but it doesn't mean that there is a change whatsoever in our business. Two things. First, we continue to have a very, very dynamic order intake with 25% increase over the last 12 months. And this order intake is also at a good mix, meaning the high value part of what we do is overrepresented in this growth. So there is nothing broken here. On the contrary, we continue to have momentum in the markets. Short term, it's fair to say that yes, I mean, we're impacted by cost inflation, but also by the mix of projects that we've been implementing in Q1. I'll come back to that in the outlook, but I want to stress again that 50% of this business is a project-based business, and therefore, variation quarter to quarter, and especially this year, first semester will be a lot weaker than the second semester. which was already, by the way, the pattern last year, kind of. DPC, very pleased with the strong recovery of the business, basically firing on all cylinders, price, cost actions, and as well, volume growth in our target, in our growth engines, and especially Zircon and digital printing. I'll come back to that. Radiology solution, a rather stable first quarter. In radiology, the first quarter is always a weak quarter, also on the base of a very strong Q4 quarter in 2022. Here, I would say film volumes are quite okay. We've seen the end consumption in China going back to normal now for some time and staying at the at the same level. However, we still have margin pressure in China coming from the inability to increase price, specifically in China. DR actually has been delivering quite well for the quarter, positive trends in sales and profitability. So overall, in the new perimeter of the group, an EBITDA of 13 million euros. Net results very much impacted by, of course, the impact of the offset divestiture. We'll come back to that in more detail. But first, I would like to hand over to Dirk De Man, our CFO, who will walk you through basically what the completion of the sale of offset is impacting the group. Thank you.

Thank you, Pascal, and good morning, everyone. So, indeed, we completed the sale successfully on April 4th, so the closing of the transaction. Now, obviously, that has quite some impact on our reporting, so we are now grouping the activity in a new division called Contractor Operations and Services Form Offset. For short, we'll just call it CONOPS as an acronym. And as of Q2, the CONOPS division will represent all the agreements that we have with the external party and the rebranding of offset is ECO3. The turnover in that division will be the supply agreements with obviously the cost of goods related to those products. But we'll also have a number of support services that will be accounted for as other incomes. and the costs related to those services will be covered in the different GMA lines. Now, as the transaction closed in Q2, we are already reflecting the as-if situation previously. So in Q1, we reflect the financials as if it was already in place, and also the comparative period of Q1 last year has been represented accordingly. There is, however, one key difference to show is that in the stranded costs related to offsets, they have been treated differently in the two years. In the Q1-22, the stranded costs are reported under CONOPS, and then as of Q1-23 and going forward, these are already absorbed by the three remaining business divisions. As Pascal already said, the impact of the offset sale resulted in the remaining impairment on the offset assets, which came in at 47 million, which was at the lower end of the range we gave at the Q4 results. And we do expect the cash impact of the offset transaction to be around 28 million, spread over Q2, being the proceeds, and Q3, the closing balance sheets, and The number is a bit higher, as you may recall, so there is the base price, but there's also the variance in working capital, and the increase to 28 million is related to the working capital that was built up.

Back to you, Pascal. Thank you very much, Dirk. So if we look at the P&L real quickly, you see top-line growth, and it's mainly coming from DPC and to a lesser extent by LCAIT. radiology being more or less flat, I would say. Very happy to see gross profit increasing significantly, both in absolute terms but also in margin, reflecting the emphasis we have on pricing, and a lot of price increase initiatives have been implemented across the businesses. Also very pleased in the context of extremely strong inflation by the performance in SG&A, Due to our transformation program, not only we can eliminate the impact on inflation, but even go a bit further in terms of cost reduction. What you see in R&D is really the reflect of scope, actually the INCA integration. Apart from that, R&D remains flat, I would say, at the group level. So overall, an adjusted EBITDA that is rather favorable versus last year. If I turn to net result, well, what's influencing really the net result? Two things. We continue to have a lot of restructuring, restructuring efforts and a bit of non-recurring impact as well. And indeed, the offset divestiture as already explained. So overall, happy with the top line for DPC. And what I like very much in the top line, it's really the area we want to grow that are growing. I'm really happy to report that we have sold during the quarter our first onset machines, meaning Inca inherited with AXA inks. It took us nine months actually to do that. Believe me, nine months to develop and sell commercially a new set of organs is a pretty good performance actually. Xerophon membranes, we'll come back to that as well, but very strong quarter that will continue throughout the year, but really it's taking off. For SKIT, as I said, activity of order intake is high. Revenue has increased. It's more price impact than probably volume impact. Nevertheless, a bit more subdued performance in the bottom line. I think we are going to see a year in which SKIT EBBA will improve quarter by quarter. And Q4, just like last year, will be. the strong partner of the year. So overall, I would say very reassured also specifically by the fact that we could turn around GPCs for our actions swiftly back to profit and gross motive. I'm going to turn back to you, Dirk, to comment on the cash flow.

Yes, so in terms of the cash flow, you can see, as is usual, the seasonal build of working capital, and I will get back to that later. CapEx is pretty much in line with last year. Pensions is maybe a bit higher than we would expect, but that's mainly related to the timing of some pension payments. which normally fall into Q2, but this year fell into Q1, mainly for practical reasons, not having to buy and sell assets in a very short period of time. So overall, our guidance for the year remains the same, as well as then restructuring at a relatively high level of 11 million. But there again, for the year, the P&L guidance on non-recurring and restructuring remains at the level which we communicated before, let's say around 35 million. So leading to a negative net cash flow of 39 million. And if we switch to the next slide, as you can see on the net cash position, the impact is actually higher. And there's two elements I would like to highlight. One is that in the context of the transaction, we were repatriating cash in line with the agreements with the buyer. That included cash also in the joint venture, for which obviously when we dividend back, we need to dividend also to the joint venture partner. So that was a material impact. As well as the results of the assets held for sale. As I mentioned, the working capital also increased in Q1. And that also had a negative impact on the net cash flow. So... Obviously, the working capital is being, as I said before, recuperated in the cash proceeds that we expect at a later point in time. So let's maybe move to the working capital. And indeed, the working capital increased versus Q4, but also versus Q1 last year. The key culprit sits in inventories. Now, I have to remind you also that last year we did not yet have Inca included, that represents about 16 of the 26 million of increase in inventories. So you can see now that also on the days on hand for inventory, we're seeing a decrease in trends. DSO, while increasing in absolute, also decreased in days. So showing that this is mainly related to the growth that we're seeing. And on the other hand, trade payable, that's a negative impact in terms of base, where obviously we're working on spend reduction, which is also reflecting, and inventory reduction, which is reflecting on the DPO. Overall, versus last year, we're at the same percent of sales, so at least we tried, we were able to undo some of the increases that we have seen across last year. And as it was a question last time, this is actually representing the three divisions added. So before restatement, it would have been around 28 last year, and that went up to 33 restated for the three divisions. It does not yet include any working capital related to the contractor operations division. as we will only find out in the coming months how that working capital evolved, and it was hard to simulate on a historical basis. So it only includes the three divisions. So that's basically it.

Back to you, Pascal. Thank you. slightly up versus last year. Gross profit impacted by the mix of projects we have implemented during Q1. It was less favorable, I would say. SG&A increased, reflecting just the cost of inflation and investment made in 2022. R&D online, so BDA below last year, but again, I will say it's a business that you need to look at for the full year and you will have variation quarter on the first year and this year as I said it's going to be building up during the year so happy with the order book actually you see your own software part in the order book is increasing even faster and this is good news because this is really what's driving the profitability of the business we landed actually the what we call a net new contract in the first quarter. So meaning actually we have now a contract with a new hospital chain in the U.S. across Dakota which contains significant hospital chain. This is the largest what we call net new contract that we have won over the past year. over the past year. So very significant event for us. One thing also I need to explain is indeed our order book is growing very nicely, but the portion of the order book that is managed services is growing. What is managed services? It means we have actually a multi-year contract instead of one year contract. implementation contract plus SMA. Actually, we are spreading revenues over more years. These are very profitable contracts that also tend to delay a bit the implementation of the order given the nature of this contract. This is good news because it's actually a sticky business that is more recurrent But short term, of course, it's hurting us a bit compared to taking all the projects in one shot. When we will be moving more and more to cloud solutions, we'll certainly adopt the SaaS model. Managed services, you could argue, is a bit in between. It's already spraying the revenues later. Personally, I think it's good news for the business. So overall, I'm not changing the overall guidance about the potential of the business. Remember that we changed, I would say, the vast majority of the leadership team last year. We still have a lot of new people in this leadership team, and I still stand very confident about our ability to deliver our strategic roadmap. Radiology solution, so rather flattish with VR increasing a bit, film relatively stable, and our CR business declining. Rather flattish also in terms of EBITDA, but you see that the gross profit also here is influenced by price actions that we have taken across the business. with the exception of China. So, basically, there are good improvements in profitability, medical film, cocaine volumes, still pressure in margins from China, and self-help measures are also helping us dealing with the situation. Now, let me turn to DPC. DPC clearly had... very complex and bad performance during the second semester of 22. I was personally confident that indeed we could recover quite quickly on this front, and I think this quarter demonstrates it quite well. uh actually dpc is the most dynamic in terms of top line of course you've got the impact in this top line but even without the impact that would still have been a double digit growth for the business strong recovery also strong growth of gross profit absolute terms but also margin SGMA, I would say here again, you see you have the impact of Inca. So that's why we see a division also increasing SGMA, but certainly not in percent of sales. Same comment for R&D. This is the impact of the Inca acquisition. Adjusted EBITDA is strongly up. And clearly, I would say everything has been contributing. Digital print, we, you know, it's a strong validation for us, even in a subdued economic environment, our ink sales continue to grow very nicely. People continue to print digitally very much. First, three on set, which is the Inca brand, actually has been sold in the first quarter, so we are pretty pleased with that. More importantly, we are also getting ready to start ink swap with the install base. Actually, we are finalizing today the testing, the very extensive testing of our inks at an existing customer. And that means that we will soon, when I say soon, we are already starting to do that actually. to swap the existing days of onset to Acta-Inks, which is also a reservoir for us of ink business. Industrial inkjet is not yet recovered, but it's showing, I would say, signs of life. It was a tough market for us in the second half of last year in view of the energy crisis People stopped doing home improvement. It's a bit back, I would say, although still a way to go. And even the volumes for OEM inks are starting to pick up as well. So overall, well-oriented. Zirphone, we sold more into one in the full year 22. We almost did in a quarter two years of sales, 21 and 22. So we are really, really happy. But I want to stress that for the time being, it's still a product for which we are in full industrial development. And therefore, it does not contribute yet to the EBITDA of the group. It soon will, I believe. But first, we are spending a lot of resources to get it right for customers and the market. And second... given the very strong quality constraints that we are setting ourselves for the time being. We still have a weak productivity in our industrial operation. All this will increase and it will contribute, but I want to stress it. We've got the top line of the iPhone, but unfortunately today not yet contributing to the bottom line. And for me, it's good news because it means, yes, we have huge potential to unleash here. This being said, not everything is easy. Electronics industry continues to be very subdued. Everything that's related to PCB and exposed mainly to China is still impacted by the current economic environment. PCB plants in China are operating at a low rate of utilization. That reflects on our business. In this context, we have price increase actions pretty much everywhere that has been building up during the quarter and for which we expect a higher impact in 2022 than in 2021. Actually, we did some cost reduction as well and combined with the growth, we have restored profitability. i want to stress as well that we have been setting structuring the business also by adding some talents to the group and and the way we are structuring the pc today is along a business unit on digital printing solutions business units on energy transition meaning the zircon membrane and mainly, of course, and a business unit and the rest of the business, which is industrial film and foil and print solutions. So that's for the PC. CONOPS, the new division.

So these are the numbers of the CONOPS division. So as already explained, the supply agreement and the support services. And as of Q2, it will be the real reflection of the relationship with ECO3. In Q1, we already reflect the financials as if the agreements were already in place. And we also represented the Q1 period for 2022. As said, the turnover represents the supply agreements and the income related to the support services is an other income. The key point here, as you can see here on here, that sales went down, which is reflecting activity differences in the offset division. But you can see the adjusted EBITDA going up. And this is related to the fact that in 2022, we are reflecting the stranded costs as part of CONOPS. And in 2023, these have been absorbed by the other three divisions. On the left-hand side, you can see the numbers for Q1. So the 4.8 is part of the CONOPS P&L that you see. The 2.5 million in Q1 is absorbed by the three divisions. So each time when you look at the divisional results, these are including those stranded costs. primarily to DPC and radiology to a lesser extent also in healthcare IT. For the year 22, these stranded costs were amounting to 14.1 million. So that means that it's decreasing quarter on quarter, but also in 23, the total is expected to be around 7 million. So also decreasing a bit during the year. So this is basically a division that you can expect to have an adjusted EBIT of around zero since it's really a supply agreement with the buyer of the business and not necessarily designed to make profit.

Thank you very much. So let me turn now to the outlook. We get an outlook back in March. We said clearly that we were expecting a recovery in profitability in 2023. We stand by this statement today. No change. LCAIT were probably a bit more cautious in the way to express it because we've seen indeed more uncertainty regarding the timing of the order book execution. and a bit of pressure on costs that we are taking action on, by the way, as I speak. So we are expecting a weaker first half of the year, and indeed the business will pick up quarter after quarter. So indeed there is an uncertainty regarding the delivery of the order book. As I said, it's a business that is project-based today. Even if now we sell more and more managed services, which are more recurring, still mainly this, and that explains the variation. No change on radiology solutions, and no change on DPC. We just demonstrated that we were able to do it, and I would say we probably are more assured today with this view than we were within a couple of months ago, I would say. So that's a bit in a nutshell for the group. We are continuing all the actions we're having, meaning implementing our transformation program on the cost side, meaning implementing price increase actions, and here and there, I would say fine-tuning in cost management for the group. The overall view is unchanged for the group for 2023. Just a word on sustainability. We continue to develop our action plan in the various areas we have chosen to engage on. I would say today that our main focus is safety. We still have a performance that I believe is not up to par with the industry standard and actually, I should say, the industry-based in-class practices, so it's It's an area for us of really highlight and priority. We are making progress on our diversity, equality, inclusion drive. We have now employee resource group in place delivering already some ideas and initiatives. And we have more initiatives also in the field of CO2 reduction. We indeed are investing in electric boiler and heat pumps in our Belgian site in order to reduce our footprint as well as looking at expanding our PV footprint as well. So I want to stress again that sustainability is indeed part of our priorities and the way we drive our business. I'm going to stop here and of course take the questions of the analysts.

Thank you. Ladies and gentlemen, as a reminder, if you would like to ask a question on today's call, please press star 1 on your telephone keypad. That is star 1 for your questions today. And our first question comes from Guy Sitz of KBC Securities. Please go ahead.

Yes, thank you. Three questions from my side. First is on the INCA ink swap potential. So can you remind us the install base and do you have some targets or how many, yeah, do you want to swap before the end of the year or in two, three years time? Is it, do you expect 20, 30% of the install base to swap to Agfa inks or is that too optimistic? And is there any impact on working capital as these inks are quite expensive? First question.

Secondly, you have more questions that you want to list or shall we answer first this one?

It's up to you. Okay, so on radiology, the question is you're hinting that in China, yeah, that volumes are recovering, but there is still margin pressure. Are there any actions taken and what's the current situation in China? Do you see any improvements? And then the last question is on CONOPSEC. Can you give us some more color on, yeah, if it's the first quarter, is that a good guidance for, or is there any seasonality, I mean, on the volumes? And also, yeah, on the margins, I think you already indicated that expecting a zero margin every quarter is the best guess, or is that wrong? Thank you.

Okay. So first, thank you very much, Guy. Vincent, I'm going to turn to you for InkSwap. So timing, potential, size of the prize.

Sure. Without getting into too many details, but I would say there's somewhere between 150 and 200 installed printers that are kind of an addressable market for us, if you want. Now, this is a multi-year program. It's not something that we expect to do, of course, in the next six months. But we have a very clear plan for ourselves based on our own sales of new machines to also our already existing customers and then also addressing customers that are users of existing inks and to swap them to our inks. So I would say it's in the next three to five years we do plan to be able to switch. Probably not 100% because not all these customers are also... using the same ink types and so on. Some are very specific uses, but the majority of those inks should be addressable for our ink set.

So over 50% of the installed base is our target. Yes. Right. Good. Let me turn maybe, Dirk, to you to CONOPS.

Yeah, on CONOPS, I think, The obvious problem is that we have no direct visibility on the evolution of the Eco3 business. But yeah, I would say it's a representative quarter in line with what a normal Q1 is. And obviously the support services will change over time as we hand over, but not a major impact in the first year. And turnover will go with the primarily the film business that Equal 3 will be doing with the external market. So it's hard to give guidance, but I think the key thing is that bottom line-wise, it should be netting to around zero.

Okay. Regarding radiology for China, so I said the volumes are back, no issue there. The volume-based procurement practice of the Chinese government has resumed. Actually, we are right in the middle of one which is multi-provinces. However, I want to stress that we have a much better understanding of the marketplace in China and the situation of this BDP. Remember that during the past three years, we could not get to China, but we have been now to China myself and with the head of the radiology film business. We know how to play in this BDP. We believe we are positioned now to... not only maintain our market share, but probably even benefit a bit from it. So overall, we're not expecting any deterioration, and especially certainly not versus the assumption we have in our own budget. Things are being deployed as planned. In the meantime, in radiology, as you've seen, we have taken significant restructuring efforts, actually, that we announced end of November. to address, of course, the challenges we have on the margin given the inability to control price in China. So we are taking action also everywhere, including, by the way, in China in our customer service to reflect on this situation.

Last question from my side.

During the full year conference call, you were guiding for 37 rebates for 2023. Is that a number that you can reiterate?

I'm not sure we gave a specific number, but the number is perfectly in line with what we have in mind, I would say.

Okay, thank you.

Thank you. And we now move on to our next question, which comes from Maxime Stranard of ING Bank. Please go ahead.

Hi, good morning. Three questions on my end as well. First of all, looking at the P&C, which experienced a strong performance over the first quarter, would you shed some light on what was the pricing impact, the volume and the scope impact that would be helpful? Thank you. Secondly, looking at IFA Healthcare and the guidance you provided, as you mentioned in the call, you look more cautious on the EBDA growth. Could you again explain what you mean by delayed growth compared to the guidance you previously stated of the double-digit EBDA growth in 2023? And finally, looking at working cap, 33% of sales, if I understand correctly, now that offset is out. Where do you see this going over the medium term? That would be all for me. Thank you.

Thank you very much. On DPC, Maxime, it's a bit difficult to slice and dice. We do have an impact from everything, clearly pricing. On top of that, as I said, it's still being done today. We had the impact is building up over the months and has built up in the quarter, will continue to have an impact in Q2. Volumes is positive almost everywhere except what is related to PCB and some areas of industrial markets as well. But all the rest is contributing very positively to volume. the most important for us being INX and their fund in terms of volume growth. So it's a bit difficult to slice and dice given the complexity of the activity, but clearly it's volume and price and also some action on the cost that works well in the EPC today. Regarding health care, what we mean by that is, you know, we have an order book and we look at the way this order book is going to be deployed in the next quarter with which projects will go live, will be implemented and whatnot. And this is the way we look at our business. But the world is not perfect and we are pretty much also depending on our customers, on customer readiness for implementation. And that's what we are seeing right now. We are seeing some delays in implementation of the order book, which means we are slightly more cautious indeed on the delivery. And it's a fine line. And that's why we are saying what we are saying, because when we look at this, meaning, you know, by the end of March, by the way, our order book was actually a lot higher than last year. as we took a lot of orders that, of course, were not implemented. So that's what we mean by that. And I stress again the fact that the increase of the order book reflects also an increase in our managed services part, which means, again, that instead of invoicing in one go a big project, we invoice on a multi-year contract along the life of the contract. And that also has an impact. And frankly speaking, the success we have in managed services is probably a bit higher than what we expected. actually in this area, which again is good news for you. Nathalie, you want to add anything to that?

No, I want to concur. It's actually that the volume came three times higher than expected, so it's a good trend in the long term, but it means lower revenue depression.

So it's more a slower revenue recognition over the next month, but again, I repeat... Nothing is still in good shape in health care IT. And then your third question regarding working capital. I think we can say post-offset, indeed, the working capital percentage offset is somewhat lower. Can you comment on that?

Yeah, indeed. So, as I said before, it's a five percentage point difference that you take offset out. I think looking forward, we are working on programs to reduce working capital as a key priority. The focus is really on inventory. And we do see opportunities. Some of it may come quicker. Some of it may take a lot more time to implement. So it's not a short-term, but rather a mid-term project. But we do see opportunity, and I think it could be in the range of... 10 or 15%, but we still need to firm up exactly how that timeline will work and which kind of projects we will be able to implement at which point in time. But there is opportunity to plan to reduce the inventory levels first today.

No, indeed. I want to stress that, as you know, we had a transformation program that is quite important, and we are doing things we cannot do We couldn't do everything at the same time, so we took care of a lot of things. And you see today, by the way, the results in the management of SG&A, of the company. But right now, the one major project that we are opening, that we have actually opened for 2023, is a structural working capital project on which we are working on. So we shall be in opposition probably the next results announcement to be a little bit more precise hopefully about what we want to achieve, but the order of magnitude that you heard from there is the right one.

Okay, thanks for that. If I may, just coming back on Agfa Healthcare and what does it mean for the, I just see the BDA guidance for the full year.

Yeah, well, I told you I'm not going to give more details today.

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

Thank you, Maxime.

Thank you. And up next, we have Laura Robar of DeGroof Petercam. Please go ahead.

Good morning. Two questions from my side. First, a question on ZIRF funds. So as I understand, it starts to contribute to top line. And then my question would be, when would you expect it to start contributing to bottom line? And then a question on healthcare IT as well. Could you elaborate a bit on the evolution of the gross margin and how confident are you that you will see an improvement quarter by quarter there as well? Thank you.

Okay, thanks. Zirphon, indeed Laura, very good question. No, seriously, I expect Zirphon to be positive in this year. But again, let's remember that we started kind of industrial operations for Zirphon in actually Q4 last year. That's really when we did it. We have six months behind us. We are making a lot of improvement, a lot of changes all the time. That's really in full development swing industrially. We know where we're going, and I would expect Zerfone's contribution to the bottom line to be slightly positive this year, but nothing spectacular yet. We have improvements that are planned in the existing industrial operations, but it takes a bit of time to implement. Every time you make modifications in your hardware, it takes a bit of time. But I'm very confident going forward. We are also at the point where we are learning, you know, we are extra cautious on the quality of the membrane, I would say, without a joke that everything is being looked at through a magnifying glass in order to make sure that our membranes are absolutely flawless. So we are doing all this work, you know, that is very costly, but that is work that will enable us then to have an automatic quality control through cameras and things like that. But we are doing all this work upfront, which is why we are not yet contributing to bottom line. But again, it's going to turn quickly. But the question of L-scale IT, the gross margin is influenced basically by what you sell in the quarter, right? We are selling a full solution to customers. So it could start if our customers are requesting it hardware, but also our own software, third-party software that are embedded in our offer, as well as our services. And all these components have a different margin point. You would easily understand that when we sell hardware, we don't have a margin of 70%. We have a much lower margin, which is still pretty decent, but it's a much lower margin. When we sell our own IP, then the margin is 100%, basically. When we sell third-party software, you will have a different price point. Then your maintenance services or your implementation services will be priced also differently. So all this is making actually the mix. And this is the reason why you can have fluctuations quarter on quarter, especially in an inflation environment. But Natalie, if you want to give a bit more color, you're welcome.

Yeah. And, you know, we mentioned the cost increase and that creates the fluctuation depending on the mix. So there are variables. And based on what is being executed within a given quarter, that results into the gross margin being impacted favorably or not. Okay.

And today, indeed, we are in a cost inflation environment. We are implementing today projects that have been sold a year, year and a half ago as well. And when you sell a project, you fix your price. So, again, you are seeing a bit of a delay of inflation, but it does not reflect an inability to price. It just reflects, you know, that... Again, this is a market that was set in a way that was set actually for a non-inflationary world. Now we are in an inflationary environment, but it's a bit of a time adjustment as well that we need to have in this. I hope it clarifies, Laura.

Yes, it's very clear. Thank you.

Thank you. And our last question for today comes from Alexander Kremish of Kepler Schaffer. Please go ahead.

Yes, hello. Hello, just wondering on healthcare, how much was the order book percentually in Q1 last year versus 245 million euros you had on a full year base in revenue? A second question would be, given the central procurement in China, where I remember you recently had some local success in terms of Project Wind, could you just give us some insights into your development in Project Wind at the national level? And then the third question would be, how we can now expect working cap to move over the rest of the year, given that the inventories have increased again in the first quarter? Thank you.

Okay. So, thank you, Alexander. So, first on health care IT. I'm not sure we fully got the question, actually, Alexander. Maybe if I can ask you to precise the question. Just to make sure we are giving you the answer you need.

Well, I'm trying to quantify a bit the number of the order book in an absolute level. I mean, the order book is up so much percent, 35%. But I was just wondering how much is it in an absolute level. And that's why I was asking for the order book, how much it was percentually in Q1 market versus the whole year.

In absolute level, the order book. Okay. First, we have not communicated absolute numbers on the order book. What we are communicating here is really the order intake of the last 12 months versus the last 12 months. And this is what is up 25%. That's not the order. Then that's order intake for the quarter. Order intake is a flux, is a flow. Order book is an inventory, is a stock. And the order book actually also for the first quarter has increased quite significantly, reflecting exactly what we say, meaning we have a bit of a delay of an implementation in the order book. That's what I want to convey to you. And the order book has not increased by 25%, but it has increased double digit versus the end of the year. But again, order intake is a flow. This is what we take as new orders in the quarter. Order book is our stock of orders that we have yet to deliver. I hope it clarifies.

OK. So on the order book, where are we standing right now?

Order book, we are standing at the end of March. double digit more than the end of the year, actually. But we have chosen to communicate on order intake, which is a key leading indicator, which is, again, the flux, the number of order we take in the quarter that we compare to last 12 months. Where are we this year versus the last 12 months on a rolling basis. And we give also, the second number we give is actually what we call the highest value component of the order book, which is own software. And here we say the overall order intake for the quarter, sorry, for the quarter order intake plus 25%, own IP plus 35%, reflecting the quality of the order intake. Okay? Nathalie, do you have anything to add? Your second question regarding working capital quarterly.

Yeah, I would continue to say that we'll see this similar seasonality that we see as before, which means usually in Q1, there's a strong buildup that continues over Q2 and then eases off in the second half of the year, getting to the lowest point in Q4.

Yeah, we are emptying, I would say, the inventory on some key products by the end of the year. So you have absolutely a seasonal pickup during the first half and a decrease during the second half of the year. And this year will be probably different. What we're trying to do is actually to make the increase a lot less than the year before, but we still have an increase in Q1. It's absolutely unavoidable for us. That was... Or have I forgotten something, Alexander, I think? You were asking about China, right?

That's right, yes.

China, as I said, we have learned how to play the game of the VVP. we indeed had the first success on tender this year, but it was relatively minor, but it was for us a kind of a good test. The real story is actually there is right now a VVT process on five provinces that have regrouped together, and this is really where we where we are expecting right now the results. I cannot tell you more at this point.

Okay, so at the level you cannot give us any more... No, I cannot tell you.

I don't see anything that would be different that we have planned for, but there are things happening right now. I don't have yet the outcome.

What did you plan for?

Sorry?

What is the plan for? You mean the guidance?

No, we stay with the same thing we said all along, meaning radiology will be stable for the year.

Okay, so if you win the standard on national level, you will be increasing the guidance.

I'm not sure I got the reasoning, Alexander. If we win, it doesn't mean we need necessarily to win more volume in this tender. And it's not a winner-takes-all kind of tender. It's basically an allocation of volumes in provinces. And I'm not expecting, well, I would not be expecting a significant share shift in this area. Nope. I think it's going to be pretty stable. Okay? All right. Thank you. Any other questions?

At this time, we have no further questions in the queue, so I'd like to hand back over to you for any additional or closing remarks.

No, no. Thank you very much. Thank you very much. Thank you very much for all being here. I repeat, start of the year... Indeed, that shows a strong rebound of DPC, radiology, which is pretty much in line with our expectations, and healthcare IT implementation that is a bit more complex. But again, I want to stress that nothing is broken and that, on the contrary, we continue to make inroads, actually, in the market, showing that our product and technology are well-suited. So... No worry there. And again, healthcare IT is a project business. You can have very different results quarter to quarter. This being said, the more we will go to managed services and tomorrow probably to a subscription model as well, the less this will be lumpy. But that's a transition that will be taking a lot of years, of course. So thanks very much for your attention.

speak to you soon thank you thank you for joining today's call and you may now disconnect