Agfa-Gevaert NV

Hello, and welcome to the ACFA Q3 2023 results. My name is George. I'll be your coordinator for today's event. Please note this conference is being recorded, and for the duration of the call, your line has been listed in only mode. However, you will have the opportunity to ask questions towards the end of the presentation. This can be done by pressing star one on your telephone keypad. If you require assistance at any point, please press star zero, and you will be connected to an operator. I'd like to hand the call over to your host today, So it's Mr. Pascal Jouery, CEO, to begin today's conference. Please go ahead, sir.

Thank you very much, and good morning, everyone. Thanks for being with us for the announcement of the Q3 2023 results of ACFA. I'm sitting here in Morsel with my colleagues of the Executive Committee, our CFO, Dirk De Man, who will take part of the presentation, and also Vivian Dictus in charge of investor relations. So Q3 results in a nutshell. First, it's absolutely in line with our plan and guidance. Second, this is a positive cash flow quarter after the cash outflow of the first half, which, by the way, was more than half due to the offset divestment. Third, we have EBITDA growth from our growth engine. which is higher than the challenges we are seeing in the film and legacy businesses of the company. And four, currency has a huge impact on our activities since we are a group mainly producing in Europe and exporting in Asia and having also a significant part of our business in North America. So it's weighing off the group top line and more importantly, on the bottom line. So all in all, results in line, positive cash flow, EBITDA growth in the right areas, and currency being a negative factor for the company. If I go to our businesses now, healthcare IT had, I would say, a good quarter, significant improvement in profitability, stemming from a good mix. Although the top line was not great, what we did sell in the quarter and recognize in the quarter was of a high quality and as well a good control of our cost to serve. DPC, Zirton continues to grow significantly and the news is it's now contributing to profitability. So we have a positive trend EBITDA from Zircon. Of course, in terms of cash, it's still an investment area, and we still strongly invest, of course, to prepare our future. But it is profitable, and that's it. Also, profitability improvement in digital print. We do have sales of equipment, which is a bit subdued, of course, in the current climate. But the good news is... When we look at the mix of our equipment, we are selling more high-end equipment than, I would say, mid-range equipment, and the in-business is doing very well. In DPC, we have also firm activities, and that's under pressure. We mainly expose in China in electronics, which is not today a very favorable market. So, healthcare IT and DPC, I would say healthcare IT... Good improvement, GPC in line. However, radiology was a bit subdued this quarter. DR still improved profitability, but the market is soft for the top line. And the medical field continues to be impacted from the centralized procurement practices in China. That's not new. It's continuing and I would say. We are also, of course, impacted by the currency with a very weak R&D. So overall, EBITDA for the quarter at 17 million, a clear improvement from last year, a clear improvement from Q2, positive free cash flow. That's according to what we told you a few months ago. We are delivering on this promise and still a net growth. a net loss due to the current transformation of the company that is continuing. So if we look at the P&L, I would like to stress that indeed sales are below last year with the current impact. However, when you remove the current impact, we are still a bit ahead of last year, right? In gross profit, you will notice that indeed we are improving the percentage of our gross profit. It's a very contrasting situation across businesses, but we do have pricing power in our gross businesses. SG&A is fully under control. This is a result that you see here of all the actions that were taken in the past three years to transform the company. And it shows in terms of cost containment and the ability to really control our expenses. R&D is below Lester. I want to stress that the only place where we did significantly cuts on R&D by changing a bit the way we address the market is in DR, in direct radiography. The rest of the R&D effort of the group has been kept, it's a constant, as it's really our license to operate in this market. We continue to have significant restructuring and non-recurring. However, I would stress that you see probably the number is below last year because we are coming at the end, I would say, of the major plans. So we have now a continuous impact in terms of cash, but P&L is less than it was before. So I think that has been already commented. I will now turn to you, Dirk, to comment on the cash and the working capital, the working capital first.

Yes, thank you, Pascal. So basically, as you can see, we continue to make significant progress in terms of working capital in line with our plans to primarily reduce inventories. So versus last year, we are $36 million below average In inventories, even though trade receivables are a bit up and trade payables a bit down, we still have close to 30 million of trade working capital improvements. So that means that we are about four percentage points below last year and, again, one percentage point below previous quarter. Obviously, we'll continue to work through that in the fourth quarter and get further the inventories down. If we move to the cash flow, so indeed a $5 million positive free cash flow, so supported by the results and the freeing up of trade working capital, the normal capex spending provisions and other versus last quarter where we paid out a lot of employee benefits is positive. Also, income taxes are this quarter positive, leading to an adjusted free cash flow of around $34 million. with pensions at minus 12 and restructuring and non-recurring items at minus 17, which, as Pascal already mentioned, is still a high number, but that number is clearly coming down as also the P&L charges are being reduced in the overall program. So on the next slide, basically our net cash position is stable versus previous quarter at 14 million. The cash flow, we do expect to be substantially better next year. And the key elements of that, we do expect the offset proceeds to come in in 24. Also, some subsidies for the Zirphone investment. And we want to continue to work on improving working capital. But also, restructuring and non-recurring, as I already mentioned, should be lowered. We do have sufficient liquidity with our revolving credit facilities. And obviously, we will continue to focus heavily on cash generation, both in the business and on the expense side. Back to you, Pascal.