Agfa-Gevaert NV

Hello and welcome to the Up for Half Year 2023 results call. My name is Laura and I will be your coordinator for today's event. Please note this call is being recorded and for the duration of the call your lines will be unlisteningly. However, you will have the opportunity to ask questions at the end of the call. This can be done by pressing star 1 on your telephone keypad to register your questions. If you require assistance at any point, please press star zero and you will be connected to an operator. I will now hand you over to your host, Pascal Duery, the CEO, to begin today's conference. Thank you.

Thank you very much, operator. Good morning, everyone, and welcome to AXA's conference for Q2 results. I'm sitting here in Morsel with AXA executive team and, of course, our CFO, Dergaman, and our investor relationship coordinator, First, I would like to remind everyone that the story of AXA is the story of a company in full transformation and that the transformation is in progress. About 50% of the group activity is with film, a mature to declining activity, whereby the other 50% of the activity is with film. is operating in markets that we believe represent the future of the company and are offering significant growth opportunities. So it's still very much a company in full transformation, and this set of results is showing that very clearly. Why? Because first, I would say this is a positive of these results. When I look at the growth engine of the company, they are all very positive top line, and in an economic environment that is not – very supportive, in fact. When I look at healthcare IT, we are growing 6% for the semester, 8% for the second quarter, and that's actually also having a negative currency impact, by the way. For digital printing services, and remember that DPC is a growth engine, but in fact, half of DPC is in the industrial field, so in legacy activity that are declining. So digital printing, if you look at digital printing, we are growing the business 25% in the semester with the in-car acquisition. If I remove the impact of the in-car acquisition, we would be growing 5% in a market that is quite actually overall depressed. If you look at the offset printing, the flexo markets. And I would say this 5% organic without Inca, the good news, well, it's contrasted as well. And equipment sales would be below last year due to the economic environment in the first half. But the consumables will be strongly higher than last year, 8% to 10% for things like inks. Third growth engine, Zirphone. By Zirphone, I'm not going to give a percentage. It doesn't make sense. Actually, we are multiplying by four. the activity of Zircon compared to last year, as you know. And although during the first half it was not actually producing results, on the contrary, we were spending money to develop it in Australia, it will produce results during the second half of the year. So DPC is indeed a bit dragged by the traditional activities, and that's what you see in these results, which are not as good as the first quarter. Actually, two reasons for that. The first reason is traditional film activities are mainly, in fact, exposed to China, which today is not good news, let's say in terms of market perspective, in two areas, the level of demand, but also the inability to price in the Chinese market. I'm very clear about it. It's complex. And the second point that has been impacting DPC is we have suffered the manufacturing inefficiencies that led us to actually write off inventory. If I remove these impacts, actually DPC is really on track in terms of growth. And what you've seen in the second quarter will be corrected in Q3 and Q4. We do have top line pressure on the other activities. And you will see it in radiography. We have pressure in the market and in the margins. And also here we find that China has the main exposure where we have these issues. So that's very clear that it's a very contrasted evolution. And as you know, the transformation of the group is to replace the legacy activities with the growth activities. Sometimes the name of the game is to grow faster and to generate faster growth from the growth engines that we are losing out, so to speak, on the legacy activities. This quarter was a quarter where it was a bit more difficult to do it for us than the previous quarter. But I think during the second half, we'll get back to this reason. I want to stress as well that currency has been adverse to us as well. The dollar and especially the RMB for us, given the size of our Chinese exposure. So it works against us. And if I look at the impact of the currency, the story on the bottom line is also a bit different. Now the outlook. As I said, DPC will continue its progress, no doubt. I think, you know, a number of things happened at the end of Q2 that gives me the team, I believe, confidence going forward. First, we are starting in swaps. We were not in a position to do that during the first quarter. We are just starting to implement the strategy in SWAT, meaning we are addressing the Inca base with our inks and with success for the time being. As I said, Zircon has made progress on productivity. Zircon was still a drag during S1. It will be a positive factor during S2 because we have already made some progress. Are we at the end of the progress? Absolutely not. Absolutely not. But now I can firmly say, yes, Zircon will contribute positively. Radiology will be stable. In fact, more stable to where we are today. We still have the pressure from China. That's not going to go away. But the good news in this area, it's not so much margin related. It's not so much volume related in China. We are not seeing a decrease of the volume of the market. We are seeing a pressure on the margins with pricing in China due to the procurement activities in China. The market does not really disappear. So we expect stable radiology with film declining and VR making progress on the bottom line. Well, the good news is, you know, the story of LSKIT was first to restore profitability, which we did a couple of years ago, in fact, but now we're in a phase where we start generating some growth. It's only the second year, actually, in a row that we generate growth. This growth does not get fully transpired to the PLL. The growth is more on the project side, while we still have a bit of a challenge in the service revenue part, where we are hit by two things. Actually, inflation that is difficult to reflect on selling price due to the nature and the structure of our contract, but we are working on that. And the second part is... The growth that we have been generating now for, I would say, a year and a half has yet to fully translate into service recurring revenues. There is always a bit of a lag. And in some specific case, there could be a larger lag, especially when we make contracts with the Department of Defense in the U.S. So I think it's important for me to repeat, if we are growing in the market, it's because we are growing our presence. We have new, net new customers. These net new customers are not yet contributing to service for the new, but they will. So, I want to stress it again today, meaning that on the outlook, we still say, yeah, overall, S2 is going to be a lot stronger than S1. We've got also a seasonability impact, whereby we make most of our Actually, our profit in ICICI is too far. It has been the case in the past few years. It will still be the case today. So, that's the overall comment I wanted to make very quickly. Therefore, I'm not going to dwell so much on this slide and the next. As you see that – sorry, that's the wrong speaker. You see that – it translates, you know, after six months with modest growth, but in fact, the significant growth in the growth engine and the decline in the film traditional activity, and where the second quarter was not as favorable as the first, we were below last year, for the first six months, we were above last year, and I expect us to be better, actually, than last year, that we restore a bit our First, there are still a lot of restructuring and bond recurring, less than last year. We start to, this is coming, we say, not to an end, but it's going to decrease. We gave you a guidance, I think, and we stick to this guidance today, 35 million for the year, indeed. And therefore, the cost of transformation is still going on. You see some of the benefits of it. If you look at SGMA, totally under control in a high inflation context. It's part of the effort we do on productivity, and that is also fueling the transformation of the group. I'm going to now turn to you, Dirk, to present the cash elements.

Yeah, so let's start talking about trade working capital. And just to be clear, this is the sum of the three divisions, so it does not include contractor operations because it's very hard to make comparisons versus last year. And so the key thing here is that we're seeing significant progress versus last year in terms of the reduction of inventories. And so versus last year, we reduced 21. And as you know, usually in Q1, Q2, there is a buildup. That's the seasonality of AXA. This time, also if you compare versus Q1, we're actually decreasing. And that translates into a serious reduction of inventory days also, 23 days. So we can start seeing the results of some of our efforts. It's the start because we are eliminating excess inventories from the past. So we're not yet at the level where we want to perform. But it's a good start in terms of our program to reduce the inventories. So if you look at the bottom line percent of sales working capital, So we ended up in Q2 at the same level, 32% as Q4. And Q4 usually is our lowest percentage of the year. I think the question came last time in terms of what does it mean with contractor operations? So that percentage would be 33%. In terms of where we are targeting to end up at the end of the year is at 30%. So we do still will... reduce the working capital through the second half year when we're targeting to end up around 30% for the end of the year. So if we then move to the next slide, the free cash flow, so the free cash flow is quite negative at minus 45. There's a couple of elements to highlight. First, trade working capital, despite the progress in the three core divisions, this is really the effect of the externalization of our relationship with the former offset division. So basically, the receivables that used to be intercompany, so neutral for the company, now became external receivables, and that's really the explanation of the increase. CapEx is slightly higher than last year, and it was driven by the investment program of Sifon, as well as some investments regarding energy efficiency. Provisions and other are traditionally higher in the second quarter because the core element there is the payout of the employee benefits that traditionally happens in the second quarter. Income taxes were slightly positive, so there was money received in terms of taxes. And in terms of pensions, I'm not sure if you remember, but in the first quarter, we had a slightly higher amount because we paid some of it a bit earlier in March rather than April. So here we see the other side of it a bit lower in the second quarter. But year-to-date, it's in line with expectations and guidance. Restructuring and non-recurring a bit lower than in Q1, significantly lower than last year. but still a significant amount in the quarter. So if we then move to the next slide in terms of net financial debt, so we still are in the net cash position at 14 million, but obviously decreasing quite significantly versus the previous quarter driven by all the investment programs.

Maybe you could comment here that we are expecting a second half that is cash

Yeah, so the prediction is in the second half to be cash positive. Obviously, another point that still needs to be settled is the proceeds of the transaction with Offset. I think previously we said Q2, Q3. In terms of timing, it looks right now that it will be more Q4, Q1. We are progressing and discussing, but it's taking a bit more time than the original end.

And we have also the sub-DD that we are due to apply for in their fund. We successfully passed on that. It's also an element of cash that might influence a bit 23, but more 24, I guess. Yeah. Okay. Okay, LCA IT. So LCA IT, indeed, the good news for us is we continue to grow, and we continue to add customers, right? We are in a situation where we are adding customers, and we are adding customers now for, I would say, over a year. However, it doesn't yet translate fully to the P&L for the reasons I was explaining. First, some cost inflation in the service recurring revenue that cannot be immediately passed through to customers, and this bit of a lag of the growth translating into recurring revenue as well. But what I want to stress here is we still have a very, I think, very healthy business. If I look ahead, the order, the healthy order book, which is actually increasing over Q2, 11% growth in the rolling order intake versus last year. So it's still, we are still very firmly in growth territory here. And these are the leading indicators that say, okay, in a few months, it will translate into sales and then later into service revenue. In sales, so the top line for the Q2, 8% versus last year. However, we are dragged by this higher than expected cost inflation and the fact that, indeed, when we look at the development of our sales mix, it's a bit unfavorable. I want to stress that Q2 was better than Q1. Q3 is going to be better, and Q4 is going to represent, just like the past couple of years, I would say, the largest quarter by far, and it will represent an outsized percentage of the yearly EBITDA of the business. If you turn to radiology solution, so very different story here. Radiology solution is mainly the largest business of film sales. VR represents a smaller part of the business. And here the dynamics is clearly a negative dynamics with negative top-line growth. mainly coming from price, actually, then putting pressure on our margins. And as you've seen, therefore, a very subdued activity for radiology. Here, the main part of the story is really the continuing pressure that we have in China that's not going to stop. The VVP process is not yet fully implemented in China, so we we expect to be facing these difficulties going forward as well. On DR, we continue to make progress, but the progress of DR is not sufficient to offset the decline in film. So we have taken action in terms of adapting the cost to serve, and we will continue to do so as we see fit. And therefore, you see the result is a gross margin that is a bit under pressure and EBITDA that is below last year. DPC, so DPC is more complex because it's a 400 million business and I could say that roughly speaking, half of it is in traditional activities and half of it in gross activities. So I gave you some color already on the growth engine, especially digital printing. Now if you look at the overall growth of the division on six months, you know, 13%. I told you that for digital printing it was 25%. So you can understand easily what is the pressure on the legacy part of the business. We see here, as I said, difficulties in the market. This being said, we have taken the price action. We have, for the first half, I think, restored the profitability because we are better than last year in terms of EDBA generation. And this, I would say, low Q2 quarter, we're not expecting to repeat in Q3 and Q4. Actually, we believe that we will be back to a better performance. So good news on digital printing. As I told you, our in-business is doing well, even in the context of the whole context where in a lot of other printing areas, actually it's more a decline than growth in this business. I think it validates the choice we have made to be a pure player in digital printing, which is really the growth area in the printing world, even in a kind of a recession-like environment. We have started to sell several now onset printers with AXA inks that work very well. We have now our ink set that is ready for what we call ink swaps, meaning we are starting to replace non-AXA inks at the onset install base, and we are doing that successfully for our customers. And the next very exciting thing that's coming up is we are preparing for next year, I would say, the first phase of the launch of the Speedset 1060, which is a single-pass packaging printer, which is changing a bit the game for us in terms of productivity and market access. I was myself with the team beginning of July to – for the soft, I would say, not opening, but the first run of this machine after months of trial, and it's very impressive to see the speed and productivity that this machine can offer. Actually, it's times what exists today in the market in terms of productivity. So it's really, we believe, a game changer, and we'll We'll have a first customer event at the end of the year to present the product. On 24, we'll be a first year where we'll work with probably beta customers to launch a product. On Zircon, we are happy with where we are. We are more than 100 active customers now, and it's growing almost every month. However, let's face it, the top three represent the vast majority of the sales today. We clearly have seen our customers investing a lot in capacity of electrolyzers. A number of projects have been announced are in construction. And the good news we have also is that actually we have been selected for a European Innovation Fund grant. It doesn't mean that everything is signed off, but normally, I mean, it's just for us to follow the process to get this subsidy, which is a good illustration of the value that our technology offers. It represents about 25% of the estimated investment on the side for this subsidy, so it's quite attractive. Last but not least, it's not on the bullet point, but as I told you, the productivity is improving. Don't forget that we started producing industrially really on a regular basis in the fourth quarter of 2022. In a few months, we already made significant progress in productivity and the clear message that instead of being a drag, the fund is going to start contributing to the results of the division. That's for the gross engine, but the rest of the activity is under pressure. Strong weakness in the electronics industry, where most of our cells are actually in China. We see no improvement whatsoever in the situation in this area, and we are under pressure for both volume and price. We have been successful to put price increases every market, but in electronics in China, actually. So that's why, and as I said, we have a weaker quarter based on specific one-off, specific, as you say, stock write-off, because we had to destroy bad quality products during the quarter, and that's impacted very much our activity this quarter. Maybe I turn back to you.

Thank you, Pascal. So basically, a bit of a repetition of what we explained also last time. So contractor operations is representing the supply towards Pico 3, the former offsets. In the top line and the cost of goods, it's really about the film and the chemicals. In the G&A and other income, it's more about the transition services and long-term support agreements that are included in there. So last year is a construction. It was the same in Q1, since we were still having offset as part of ASHA. The key point to note is last year, we were representing it in line with IFRS rules differently than the reality of this year, because we do have stranded costs related to the disposal. And last year, they are included in the common division. In 2023, those stranded costs are allocated to the division. So they are part and absorbed in the divisional performance. So, and on the left-hand side, you can see that the stranded cost comparison Q2 versus last year. So, the 3.4 is included in the numbers of CONOPS. The 2 million of 23 is included in the divisional results. So, and that partially explains some of the performance comparison first. Back to you, Pascal.

Yeah, just a word of conclusion. Again, the story of transformation is ongoing, and the name of the game for us is to make sure that our gross engine can outperform, I would say, so to speak, the decline that we see in other activities. That's really what it's about. We do that in a context where currencies actually has turned against us due to our exposure to China and also a very global company largely exposed to the U.S. dollar as well. We are doing that at a time where we have shrunk the group as well and indeed, as pointed out by Dirk, we are busy eliminating, I would say, what we call the splendid cost of selling 40% of the group. So we are doing that. In spite of that, I mean, I'm really encouraged by the fact that, yeah, I mean, gross engines are working. Top line, we made the right choices in terms of where we wanted to play. Digital printing, Zircon, and even LCIIT. I mean, we are all growing the market very, very clearly here. So it really works. We have yet to indeed fill a few issues that we need to translate in the bottom line. As I told you, if your phone was a drag, it's going to be beneficial. We have this bit of a lag impact in healthcare IT that we need to work on and we are actively working on. And indeed, we have not yet fully turned the corner in this aspect. On the cash side, it's a major area of focus for us. So as you see, we are very active to take steps to improve our working capital management, and we expect on this basis to be able to generate positive cash for IS2. And as well, we have yet to receive the offset proceeds and the zero-concepts. So that's where we are today. I'm going to stop here, of course, and take your questions. And I think the first question is you, Guy. We have, for those in the phone, the analysts are in the room and they will ask questions.

So this is... I have four questions. First is on Zirphon. You stated before that it will be a multi-year investment. So on the subsidy, will that be back-end loaded or... Yeah, how will, what is the timing of that? And I use the $40 million investment in Zipf online, so is that a good benchmark for this, 25% of $40 million?

It's a good benchmark. It's a good benchmark. It's a good benchmark. Now to the first, okay, go with your question.

The second question is... related to the digital print. Sometimes my wife asked me to bring several bananas and some potatoes, and then it's going to be difficult to get the amounts. You stated several, that you sold several printers with Agfa ink and some ink swaps, so can you be a little bit more precise on that? And the third question is related to the business you sold last year, and the money is now a little bit delayed. How should we see that money coming in? Is there a penalty for that, and is that money at risk, or how should we see that? Is there any guarantees related to that? And the last question is related to the pensions there. Last year, same meeting, you gave an update on the mid-year update, which is unusual on the pension. And a few weeks after, we had the offset solution. So, of course, there was no link between the two. But today, the first half, the interest rate rises even much higher than we saw last year in the first half. So can you give us an update on the situation over there? Thank you.

Thank you very much, Guy. So first, timing of the subsidy. Vincent, will you?

Sure, I can take that one. So timing of the subsidy, first of all, we're following a codified process, let's say, by the European Commission. So we're following the grant process, of course. The exact amounts and exact timings are still subject to that process. So for all the players that are now receiving or going to the next step, let's say, we're one out of 49 companies that are received the grants that can go to the next stage. Personally, we don't have an exact date yet, but with what we know, we expect it to be maybe one-third front-loaded, two-thirds end-loaded. It is indeed a multi-year. You should see the investment over two and a half years.

Okay, on DPS, so Guy basically wants to understand how many onsets have we sold, how many swaps have we done.

Still modest, in fact. Yes, modest, but actually growing nicely. So in the first half of the year, we had four onsets in our sales numbers. We expect for the second half of the year to be closer to double that amount. And that is new printers that all go in with our inks. We also are doing ink swaps at customers buying new printers or at customers that already have existing printers or at customers actually not buying new printers but just being interested in swapping their ink. That is ongoing. I would say we probably have now about three to four that have switched, and we are working on multiple ongoing swaps.

But it's quite a long process, ink swaps. It takes a long time.

It takes, basically you have to start with an audit to make sure that the machine, based on how they have been handled by the current user, is still in okay shape to do an ink swap. But it's a multi-week process, not a multi-month, but it's a multi-week process. So we have a dedicated team doing that, actually across the globe. So we have strong interest for mainly Europe and North America to do these swaps and the feedback we receive from our customers is actually very, very possible.

Okay. So, see, you got all the numbers. Offset, what can we say?

The key point is it's progressing slower than we expected. This has to do with practical things. but I'd rather not comment too much. I mean, this is two parties discussing. We need to complete the financial audit of the closing balance sheet, and then we'll have potentially some discussions with the other party, but I prefer not to make any comments. But can you confirm that the money is not at risk? I can confirm that the money is not at risk, yes.

The money is not at risk, but it's just a normal discussion on specific points. Nothing more to say than that at this point.

Please. Just to maybe then pick up on his question. So the 28 million that was initially planned from cash in is still 28 million. That is not up for discussion because, I mean, we have seen in Belgium in the recent months some discussion on valuations. Valuation is not a discussion point at all in these. Valuation is not a discussion point at all.

No. Okay. Pensions?

We did it exceptionally because we had to reflect a number of things. We are not doing that standard last year. We did it this year. We did not. And I think you can use the usual sensitivities to think about the impacts. But we will do the update at the end of the year. And obviously, if the discount rates are higher, we should expect an impact on the pensions valuation.

Do you remind us a little bit on the sensitivities?

Well, I think maybe, Viviane, you can... About 25 basis points is about 70 million euros, right? in both ways up and down on the liability.

Maybe a question from my side, and I'm not sure if we hear me in the call.

Please, Laura.

We hear you well.

Great. I will start with two questions. The first one on healthcare IT. So with the EBITDA now expected to be slightly down versus 2022, how does that impact the initial guidance of the in EBITDA, which was initially planned for this year, but so what is the delay there now? And then a question on DPC. Could you elaborate a bit on these manufacturing inefficiencies and how confident are you that this will not impact H2?

Okay, on health care IT, first, I don't think, you know, it doesn't change anything to the story for me. It's just it takes a bit more time to get there. Now we need also to look at the market trends in health care IT. And the market trends is we see more and more consolidation of those people – you know, services or health services in which what we do has an impact. And also we are seeing more and more, and especially in North America, a trend to go to the cloud, to cloud-based solutions. We believe we are extremely well-placed to serve this market need because basically what we provide with our enterprise imaging system is scalability. and we have demonstrated over the years. In terms of cloud, we are readying ourselves to be able to service, to provide our customers this. So, to make a long story short, you know, I sincerely believe we are well placed, we are one of the few players well placed to capture this market growth and we start doing that. And therefore, I see, I maintain the same mid-term objective for us.

So on Inca, you mentioned that the speed set is going according to plan. Maybe could you remind us what the plan there was again and when it will be launched specifically? Yep. And then the second question is also on that, because you mentioned that the speed set is going according to plan, but print engine is then not going to plan? Because I think it was also going to be launched in 2024?

Which print engine, sorry? Print engine, the one that is going to 60... Ah, the VHS, yeah, yeah.

Okay, which is a different... Yeah, yeah. So I'm just wondering, like, okay, can we then conclude that that one is going to be a bit delayed? And then, yeah, maybe... You know, on DPC also, in the Q1 call, you mentioned that you were very pleased with the strong recovery and that you were firing up on all cylinders, and that was mid-set, mid-made. So maybe could we just come back on the statement today and why Q2 was a bit disappointing? And is the visibility really that low that we're getting into this? Like, how should we see the outlook on profit recovery in Q2? And maybe a final question.

You're talking DPC or digital printing?

DPC. Okay. And then maybe a final question for Nathalie. So in healthcare, we've seen your colleagues, like Seqfra, gain momentum and growing some market share and also the market growing in size. So considering that these customers will be lost for multiple years, so just wondering what's the main reason Worry is for clients that they are going to colleagues of yours and what hinders them to sign.

Okay, maybe let's start with Speedset and the engine.

No problem. So the first question, Alexander, on Speedset, the plan was and still is, actually in the plan we didn't specify that end of this year there will be a customer unveiling, if you want, which will happen. The plan was and still is for next year in 2024 to have first beta unit sitting at the customer, which means as of 2025, we will – beta phase is not a one-month phase. It takes, of course, some time, but you will have first commercial sales of the product in 2025. And that was actually also the plan. On the print engine that we developed together with or for BHS – absolutely not in line with the plan. The only reason we don't communicate on it is because, you know, Speedtest is an AXA product and an AXA launch. The print engine is a partner project and it's actually DHS bringing it to market. And so that's something we cannot and don't want to communicate on our own, so to speak. So for the moment, there's nothing to say, but everything is also going according to plan.

Can we say that we already installed one print engine at DHS facility or it's...

I already said it. Where did you find it? No, the… It's moving. Which is indeed also according to plan is that we have – there's a first printer that is already sitting there for several years at the customer, and there's a first beta unit which will go to a customer, but which is now indeed at our partner, VHS, for the testing as per plan.

We're talking two different printers here now. No, we're talking the – what do you mean two different printers? I'm sorry, we're talking here. So you say first printer was sitting at the customers, and now it's BHS.

The printer, the BHS printer, yes, there was a first printer for which we make the print engine that is already at a customer, Schumacher, since several years. I think now three years in the meantime. So that was even prior to our acquisition. That's the alpha unit, as we call it. There was a lot of changes, upgrades and so on, made to come to the first beta unit, which should be the one that goes commercial. And that first beta unit is now fully assembled and running for tests at VHS. Before it will go to a customer, and that should happen in the course of next year. These are printers that are very large, and they are the size of a corrugator. They are the price of a corrugator, order of magnitude, so this is a full production hall, just for this machine. So these are machines also that take several months to install.

Okay, does it clarify? And clearly, to the comment where I was saying, digital printing goes fine for us. And we are progressing in digital printing. And the Inca plan is actually exactly in line with what we did at the time we made the acquisition. So we are really executing according to plan. I would say. So I think your question is more about competitive situation, you know. Where are we? You mentioned Sectra, which is indeed the peer that is a comparable peer in the market that doesn't have the legacy that we have. They came at a different stage. So the main difference between Sectra and us is we still have a lot of, I would say, legacy systems, you know, backs and backs, right? that we have to deal with, which SECRA doesn't have. They only have the equivalent of what we call our enterprise imaging system. This being said, can you comment on SECRA? You need to speak in the mic, Nathalie.

Yeah, and I will speak in the mic. So, yeah, SECRA is a competitor by all means. However, on the North America market, and I specify North America, we operate on a different market segment, So by definition, yes, we're competitors. By presence, we tend to operate in different market sectors, in the smaller to medium and more the medium to large. So I think they're trying to sense the risk, right, of the competition. So we have a similar solution, different history. We are carrying a legacy they don't. And so it does, you know, that kind of balance us out when we are on the market.

I would like to stress, there are probably 12 companies that are playing in this market, okay? Sectra is a winner. But there is not only one winner. We are also becoming a winner in this market. And it's not like a winner-takes-all strategy. As Nathalie explained, we have slightly different positioning in the market, meaning our solution is more suited for some type of customers. So it's up to us to engage in the right project for us.

Yeah.

So we have a lot of respect for our competition. Actually, we consider Enid TechTrack to be part of the top, probably in the top three in the market. but we aspire to be part of the top three, and I think if we are not already in it, we are not far from it.

Yeah, and I think it's fair to say that on the larger segment, the larger customers, we are the leader in North America. The sector is not. On the smaller segment, sector would be the leader, but we are not wanting to compete and we're not getting into the lower because our solution is directed towards large enterprises.

And as I said, you know, the market does consolidate in this area. It does consolidate on the private side, on the public side. And more and more we see why. So this is a way to get productivity out of the system, you know, running, and then to have your resource management as well well thought out, you know. So it's a plus, which is a reason why, you know, we see actually active investment in the field. Even if the market is not growing 10% per year, we see a lot of interest in renewing the technology, and we are there.

Yeah, our customers face the same challenge in terms of inflation. So productivity, cost effectiveness, cost reduction are the primary drivers, and especially the ones that are very large, where they can create economies of scale. So this is our sweet spot for actual enterprise imaging. It's very large.

I would also say, remember that we have now a North American-based executive team for which the seniority, the added seniority of the side people is probably less than three years. So we have a new team in place. Already we are seeing momentum in the top line. We need also to give a bit of time to the team to establish a to establish well in this activity. It was indeed a bold move to do what we did by moving the global leadership of the business in North America, which is absolutely a thing to do. We, and I think Nathalie has been hitting the ground running, clearly, but we still have a new team that we need to integrate and to execute the strategy. I'm glad to say that for the time being, we've been able to do that without any disruption to our business, because it's, in a way, it could have been a case. All right. Any other questions?

Laura? Maybe then, oh, yeah, sorry. I wasn't here. So maybe one more question. I think one day there was said that, I mean, last time you said that customers perceived from over 50, now they're over 100. I think the run rate aimed at was, I think, 100 million, if I recall, for 2025. Is that number now a bit higher?

We have more than 100 active customers. That's completely correct. As Pascal is saying today, it's a handful of customers that are making up the vast amount of our sales. I think the number of important customers for us will certainly increase in the next couple of years, and we will have more than 100 for sure. But the actually big customers, the big electrolyzer players out there in the market, I think you will still be able to count them in two hands, to be honest. And those will be our most important customers. And so that will be the case between now and 2030, probably. So in our case, I think our outlook for Zircon is still in line with what we said or expected a year ago.

What we're watching is the velocity of actually FIDs on the hydrogen project. That's what the pipeline is huge. Our customers are very busy building capacity as we speak. For instance, John Cochrane will start their plant in Europe probably. Example. But there are lots of companies investing in capacity. We are there for them with our capacity, but the key question mark is the ramp-up. Is it going to be a steep ramp-up? Is it going to be a more subdued ramp-up? Our visibility is probably already for 24, but further, I would say, it's difficult to have a precise visibility, but we indeed see very good prospects. And the good news is Yeah, I mean, it's a good leverage. As soon as you've got volume, it's going to fly to the bottom line.

And you said on ZIRF fund that it will be profitable in the second half of the year. Yes. On what level? On the EBITDA or already on the EBIT level?

EBITDA and EBIT, I think, yes, will be. But don't forget that we still be cash negative on ZIRF fund because we are building new plants. With subsidies. Yeah, but subsidies do not cover everything. So we're still going to be investing cash in Zerfone, but yes, it's going to be positive.

To now, what is already invested in Zerfone?

Oh, the historic investment of Zerfone. What are you talking about? R&D, industrial? I think in the past... In the past three years, we've probably invested, I would say, close to 10 million.

I think it's a number more than that. I mean, it's more than 15 years of R&D and the pilot lines that are, in the meantime, also the bottlenecks upgraded and so on. So I think, indeed, over – but you have to look over more than 15 years. There's more than 10 million.

Yeah, but, of course, but in the last three, I mean, to develop what we have today to sustain the market for the next two years, it's probably about 10, I would say. 8 to 10, you know, which is a small industrial unit, in fact, that we have. Laura?

Yes, just coming back on my second question, I'm not sure you answered on the DPC and the manufacturing.

Oh, yeah, yeah, no, absolutely, Laura, you're right. Sorry, I apologize. I apologize. No, what happened, you want to explain maybe what happened, Vincent, what's happening?

Sure, well, there was two effects in Q2. One was related also to our inventory programs that we're running to make sure that we reduce inventories wherever possible. And it's actually cleanups where we go much more in detail and take out stocks that are obsolete or that are perhaps not fully correct. So there was actually probably half of our impacts were stock corrections that we had to make and where we still expect a little bit of a sale in Q3, Q4, but actually the main cleanups that happened in Q2. But there was also impacts from bad production, let's say. which, of course, the teams are tackling. These are very specific in every product line, but there are two or three product lines where we have quality issues. I don't want to go too technical here, but I can assure you that with our operation teams, we are taking the necessary actions there to put things right.

Yeah, and indeed, we have a huge drive to work on working capital and, therefore, the action of inventory. So we are, how can I say it? leaving no stone unturned on this to make sure that what we have in the inventory is sellable as value, which we do. Any other?

Alexander, you still have a... If I may just ask one more question on the working capital specifically. I think you mentioned that there's some working cap outflows that are mainly related to the divested provisions. Just wondering, will some of that be sticky to the remaining business or not?

Yes. What you see is the impact. We had zero. We go to a receivable of about 13.

It's a one-time impact. It's not going to increase. By externalizing those receivables, and then it will vary on its own over time.

That's not very much.

Well, yeah.

Oh, indeed. All right. Well, Maxime is on the phone. If he wants to ask questions, he's welcome.

Sure. Thank you. We'll now take our questions from Maxime at ING. Your line is open. Please go ahead.

Hi. Good morning. Maxime Schreiner from ING. So two questions on my end, if I may. First of all, looking at healthcare IT, obviously the guidance has changed quite maturely since the full year 2022. It's a bit difficult to track what has happened there, so any info you could provide on, well, I'm not going to say the certainty you have on this guidance, but how can we expect this guidance to materialize while the two previous didn't? And secondly, looking at radiology, I think you mentioned in the press release that direct radiography was also impacted by some volume pressure. Any additional info you could provide on that?

Thank you. Again, on L-scale IT, indeed, we are saying now that we are going to be close to last year because we have also a currency impact. Most of our business is a U.S. dollar impact, so that plays also a role in what we are saying today. And as I said, what has... I would say the growth is coming a bit under our mission, although it's significant, it's coming a bit under our mission. And as I said, we have a lag in transforming this project revenue into service recurring revenue. And we have this specific inflation issue in service revenue. This is really the three areas that I can mention on healthcare IT. And for radiology, I'm not sure about the question. DR, no, DR, yeah, sorry, on DR, yes, we have been growing the top line of DR on a regular basis these past years, and right now we are a bit, this growth has stalled, and actually we are a bit below last year in terms of sales of goods. I think it's coming mainly from Europe and a kind of a subdued market where hospitals are under pressure, financial pressure, and the renewal of the X-ray equipment is probably a bit more delayed. Well, is it major? The answer is not. It's not major, but, yes, I mean, I could do with – I mean – I could do with top-line growth in DR specifically to help the business, but for the timing, that's not the case. We don't grow it anymore. It will come back. I'm quite confident. But we have a few quarters where we are a bit subdued on the top-line in DR. If I may circle back on this one, do you have any view on when this growth

may come back, or is it too soon to tell?

For the timing, the way we look at our business, especially for goods, we look at our funnel and our order intake. For the timing, the leading indicators have been improving a bit lately, but I cannot yet be sure that we're going to be back in positive growth in Q3. I think it might take a bit more time.

Brilliant. Thank you for your answer. Thank you.

Okay. Thank you very much. Then time to conclude this conference. Sorry for the 10-minute delay at the start due to technical difficulties outside of our control, I'm afraid. And thanks very much for attending this meeting. Have a good day.

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