Agfa-Gevaert NV

I will now hand you over to your host, Pascal Jouery, CEO, to begin today's conference. Thank you.

Thank you very much, and good morning, everyone. I'm sitting today in the room with Vivian Dictus, the head of industrial relations at ACFA and the executive committee team. For your information, our CFO, Dirk de Man, is still absent due to medical reasons, but And we're not expecting him to be back in the next month. So we'll give you more information as soon as we can. I wanted to say that. So therefore, I'm going to walk you through today the Q2 results, of course. Key message, I think it was a solid quarter for us after a Q1 that was a little bit subdued, as you know. And three very positive events. First, healthcare IT, we are demonstrating this quarter a clear transition to the cloud journey and a significant increase in order intake. The P&L delivery was okay and it's showing the fact that we can continue to improve our margins. But really for me, the highlight of the quarter is the order intake, which was the highest ever. It's cloud, it's net new customers, and it's a very dynamic order intake. So that's strong positive. DPC also was very positive for the quarter and more here in the delivery side. And I want to stress that it's across the board. Zirphan was up significantly, up in volume, but also I would say we're still making progress in our productivities. We're improving also the way we make Zirphan, and that reflects also on our margins, of course. And also DPS had good growth in the quarter, 8%, but more importantly in the ink side, which is exactly what we are. trying to do. So we're pleased with the delivery of EPC. So very positive impact. I think the third item that I believe is very positive is we're launching a $50 million productivity program for the film-related activities. Why do I believe it's positive? Because we have confirmed the potential to significantly rebase our cost setup. It's confirmed. I'm not yet in a position to give you all details regarding this plan that will be done at the next results call. Today, I can show you that we have the potential to significantly change the competitiveness of our operations for film, which is mainly in Belgium, but not only, by the way. The two other points, you know, that I would say we are working on is the fact that if we launch this productivity plan for mortal and the field-related operations globally, it's also because we are seeing a volume weakness in the field area in radiology. So that's something that we have seen already since the beginning of the year that has a bit improved in Q2, but that will remain for the next quarter, right? So that's why it's also important for us to have this transformation program to mitigate what we are seeing here. Another point is the cash outflow of the quarter was still significant on the strength of the working capital buildup, which is, frankly speaking, a bit higher compared to our expectations. But this being said, it's temporary. It's seasonal. And just like last year, we're going to get back to normal by the end of the year. So it's... It's a seasonal impact. I think point number five, and I'm going to come back to that a bit later. We had a significant milestone for the Aurelius settlement in payment, final payments of the offset business. We've been trying for the first half of the month to get the expert nominated, the expert that will define the final price. It's done. After a bit of difficulty, this is done. Therefore, the process is, so to speak, back on track. We're expecting a report by the expert in September that should trigger a cash payment in Q4. So, yes, it was probably too late. It was probably later than I expected, but it is happening, actually. The outlook for the rest of the year is pretty much what we are seeing this quarter. I still expect a good drive of healthcare IT and VPC. I'd like to remind ourselves also that we have a seasonality and the control, again, will be the strongest quarter of the year, very clearly. This is the way the markets work, and it's also the way our own dynamics in, for instance, in VPS works, right? Yes, ideal, for instance, is really taking place in the second half, not the third half. And for radiology, we continue to see what we've seen already, meaning a weakness in this area. So it's not anecdotal, but I want also to point out that we have a positive net profit during the quarter that's also reflecting the fact that we have less restructuring and non-recurring. These programs are coming more or less to an end, and although we are launching a new transformation program, therefore we will continue to have a restructuring effort. We expect also that this transformation program will have some positive cash elements that will make up for any restructuring in the United States in this program. So if I look at the numbers, The cells are pretty flat for the quarter, but it's a flat overall with very two distinct trends. The weakness of radiology, you can see it. Within radiology, film is decreasing a bit more, and DR is actually growing, but it's decreasing overall. You can see the dynamic of DPC, 8% on the quarter. I think it's a good and solid growth. And healthcare IT is below last year. I think for two reasons. The first one is we are seeing, and that's totally in phase with what we are seeing in terms of cloud development. The fact that our hardware sales are decreasing rapidly. That's really an external sign that our customers are moving to the cloud. Therefore, they stopped buying the bit imagined hardware. And also, that's reflective, I would say, of the cycle. We had a bit, the order group was a bit lower. And the ordering phase that we have today will show the next quarter that we had a bit of a lower delivery, P&L delivery. This is a combination of the same. Overall, so stable, but as you see, very different dynamics between these. In terms of EBITDA, in spite of this bit quicker sales in SKIT, you can see that we manage very well our P&L. Efficiency, cost efficiency, increasing margin, and therefore, it has no bearing, it has no bearing, this decreased sales on our profits To be noted also that the cells, part of the cells that are decreasing are the less margin producing cells. DPC, no need to exemplify, that reflects the growth of DPS and Xerfone. And Xerfone is volume, but it's also the fact that we're making progress in making Xerfone. We are also improving our margin here. Remember, their fund is a relatively young product. We are not yet at the end of the road in terms of productivity. Radiology, we limited, I think, given what we see in the market, we limited the damage, but it's below last year. In fact, that's a trend that will continue for the next quarter. We're not expecting a bounce back for radiology. what we're expecting is to make it up with our self-help transformation program. Now, if I turn to the P&L, ourselves already commented on it, gross profit, well, you see a significant improvement versus last year in both absolute terms, but also relative terms, reflecting the number of actions we are making, but also a better mix. Let's face it, we have a better mix in the business. Operational expenses well under control, below last year. We continue to develop our productivity programs and we're able to do more than just offsetting cost inflation. So that reflects in positive EBITDA and EBIT for the quarter. If I turn to the lower part of the P&L, You see that indeed, as I was mentioning, less restructuring and more recurring, which is also normal. We've been doing a lot of transformation programs in the company in the past years. We still are today continuing to deploy it, and therefore, indeed, we're still spending cash in this area, but much less we have initiated significant new programs. And as I said, we'll guide specifically on the transformation programs when we issue two, three results. But again, I repeat, we do have also some positive cash impact involved in this program, while we will also have this factor. So non-operating results, it's mainly financial results. And therefore, at the end of the day, well, for the first time in quite a number of clusters, I guess we have a positive net profit. Working capital, working capital, you know, we always have a build-up, actually, during the first half. I said it a number of times. Look at 23 patterns. It's always the peak working capital for the business, and then it decreases quite significantly during the second half. We're expecting a similar pattern this year. No change, and we expect to be at the same level as last year in terms of percent of sales. To be noted that in this number, what's not helping us are two things. Indeed, the fact that shipping routes are disrupted now for many, many months, and it means more product in the water, on the water, not in, on the water. Of course, and as well, the silver price means our inventory is a bit more costly. So free cash flow has been negative on the strength of two things. Of this significant capital, working capital outflow for the quarter, which was probably also a bit higher than expected for us. but for specific reasons, as I told you. CAPEX is a kind of a peak CAPEX. We are in the full swing of building reserve fund plans. So it's representative of a high CAPEX environment. And pension this quarter actually was higher. But in fact, if you take six months, it's absolutely in line with the guidance, which explains the cash outflow of this quarter. Now, if I turn to business, I already commented on the sales of SKIT. I think really, again, the news of the quarter is more about the order intake, which is basically double the previous quarter, to be clear, than anything else. To be noted, given the nature of the contract we're taking and the move to cloud, it's a larger contract. It takes a bit longer to be written and contracted, especially as it's a transition to the cloud. And therefore, the order is a quarter by quarter will ease and will be lumpy. It's not, we're not the only one. Everybody operating in this same pattern. We have a lumpy order intake. What's important is also the last, the comparison to last 12 months. And we are plus 42% versus last 12 months. And we expect to finish up the year. But again, the... The big news here is the cloud transformation train has left our station, and we are very successful today in this area. I'd like to remind you that this year, last year at this time, we had no cloud solution. And today, which represents already a significant portion of what we do. So we are, I think it's a good sign for us. What is reflected on the right-hand side of the slide is a good management of the PML. In spite of lower sales, we had more profitable sales, actually, and a better management of overall efficiency and cost. So kudos to the team. If you look at the numbers, so lower sales, but same gross profit, 3% more margin. Operational expenses well under control. It's not because you are in a growing business that you shouldn't take care of your operational expenses. And that also reflects on your efficiencies. And therefore, it's a good quarter for SAP IT. The main command is really, our business is changing. 40% of the deals in Q2 are cloud-based. For the first half, it's about a third. So this is happening. Net new customers, 35% of our ordering time. It does reflect the fact that we have momentum in the market. We are winning new accounts and significant ones. Project business is now 60% of our business. It was 90 plus percent last year, right? Here it's 60% with recurring business, 42% for the quarter. So you see the nature of the business is changing. When we say recurring, it's a kind of pay-as-you-go model. I'm not using the word SaaS because SaaS is one of the ways we can do it for you. And for the time being, we do assess the numbers, but it will develop further in the next quarter. But here is the shift. And the good news is we are part of the shift, we are in the market, and we have success in order. I think that's really the highlight of the quarter. Good example is one of the contracts we landed this year. Alliance Medico, which is UK-based. 120 sites. We won this contract. This is the largest contract we won during the quarter. So that's a good example of that. And cloud, by the way, is not only in the US, but it is in the UK. And that's a cloud. Okay, so... I continue, as we told you, to invest in this transition to go a bit faster with a specific innovation program that is underway. So that's where we are. This being said, the transition to cloud has also a consequence. The revenue recognition timing and the margin recognition timing will be spread over time. So the net consequence is the short term. You will see less growth, so to speak, revenue and margin. We'll probably try to give a lot more guidance on that when probably at the end of the year. But that is the impact whereby a project, you know, we recognize most of the revenue in one go and then we have an SMS. A recurring contract is higher in value, is higher in margin, but is spread out over a certain number of times. But that gives also great visibility on the business, these long-term contracts. So this transition has really started now. For DPC, as I was saying, you know, a dynamic quarter plus 8% actually. 62% increase in year funds. I know it might be surprising to you because you hear in the newspapers that the green hydrogen market does not develop as fast as probably the ambitions were. Yes, but it's still happening. Not as fast, but this is still happening and we have a global footprint and we are pretty much the reference in this market. Therefore, we have growth. 60% growth is not the yearly growth. I always say, and I repeat, the yearly growth will be around 30%, okay? But I want also to make clear, you know, we are, of course, we are very close to our big customers and we look at their announcements. But when you need to realize that we never took their announcements in our plans, we always were a lot more conservative, okay? So when we said, when we communicated about our prospects, it was taken into account the fact that we never believed what our customer told us, in fact, and that we were a lot more cautious. So there is no negative performance in their fund and everything is well. BPS, sales growth of 8%. What I like is the fact that, you know, during the first quarter, months, we kind of renewed a very important part of our portfolio. So it's always very delicate when you do that. And I can tell you today with a bit of confidence that it's a success. We are seeing good momentum in order in the part we are doing. We are seeing the EFI collaboration develop as we planned. But most of it is, of course, in the second half, as we told you. And when you look at... So that works. Overall, the equipment sales in the first half were not great, I would say, due to all these conditions. But when I look at the Q3 and Q4, I'm very confident that we're going to get where we need to be. Inks, 24% growth. I mean, that reflects also the success of our strategy, right? like to remind you that we are always being upmarket with machines consuming more ink, but also we are very successful with the ink at swaps. And, you know, out of these both, ink at swaps is probably already a third of it. So, it is working, this strategy. Therefore, it completed, indeed, in a strong quarter for DPC. Indeed. And when we talk about improved manufacturing efficiency, most of it is here. So it's the future. If you look at the P&L here, what is, I think, very interesting in terms of the transformation of DTC is the gross profit from 2014 to 32. Okay, it's a good quarter, okay? But that shows the direction of travel and the fact that, indeed, DPS and Zerfonds, when you have INX and Zerfonds increasing, these are good margin projects, as it should be. Operational expenses are also under control, although you see here it's an investment area, and indeed we have invested a bit, especially in Zerfonds, to help save the growth of Zerfonds. I'm not going to repeat what I already said. The only thing that I would add on this slide is really the fact that as we speak, and I have pictures in my computer of a speed set being installed at Delta. It's almost done. It will be installed when I look at it, and it will be started by the end of September. This is the goal. In the meantime, clearly, we have a lot of what I would call very hot prospects, people who are ready to close to conclusion in terms of speed sets. So in 2.4, we'll be in a position to have our first running customer in place for speed sets. That's it. That's a very important milestone for us because, as you know, this represents the entry in packaging and, therefore, represents a significant growth area for us. In the meantime, we continue to be recognized. That's very good with some of the new products that we are putting to market. I'm not repeating about Speedset or CAR because I just mentioned it. But also on our new range of products, low-to-mid-end equipment. So overall, very positive for DPS. Green hydrogen solutions, well, sales increased 60% this quarter, because we are comparing ourselves with the first quarter, with the second quarter of last year. But again, for the year, it's more 30% than we were expecting in terms of growth, so nothing is broken with the economy. The market development, of course, was slower for a number of reasons. First, all regulatory, the rules of the game were not clear for the people having to make final investment decisions. And in some cases, by the way, in some countries, it's still not fully defined. So that delayed a bit. Some of the FIDs are fully aware of that. But again, we never took it to the bank. We were extremely cautious in the way we were planning for the fund. And therefore today we are not surprised by the announcement being made in the market. We already had it in our forecast. This being said, we are also seeing some problems. FIDs are increasing since a few months. And we remain confident that it is going to happen. And in the meantime... we are continuing to do manufacturing efficiency improvements. So, Zircon is already, indeed, a profitable product. This being said, it's still a very cash-negative aspect because we are investing in the plant. So, let's also remind everyone that. But, again, we know about the lull in the market, but we are seeing today the early signs, we are seeing already, for example, few months, the early signs of the positive developments. Radiology is a totally different story for radiology. So negative cells evolution, the only thing that grows in radiology is VR, and it's mid-single digits, which is kind of okay-ish when I look at the market. But a lot of challenges in film, in film and CR, where CR is declining technology, but in film and And on top of that, as you know, we have totally reorganized our go-to-market in China, and it has an impact when you do that. I mean, we have disciplined differently in our distribution channels, and we are also changing some practices. So it has an impact on us, but there is also a market impact as well, a volume decrease in film. So that is translated, of course, by profitability, which is negatively impacted by all that. And although we tried to, as you can see, the gross profit is almost online last year. So that you can see it in the P&L, less sales, less gross profit. We make it up partly with operational expense, but we cannot compensate the full impact of volume. So I repeat, this is also why we are launching this transformation program to significantly reduce our cost savings in the field-related activities. So I'm not going to repeat all this. The only thing that I want to add is the way we do DR today. We believe it's as much an AI play than it is actually a modality play. All our innovation is really directed to offering customers software-powered solutions, and most of them AI-based, in order to differentiate our products. Codops, nothing really to report. I will skip it here. And I'm coming to the outlook. The outlook is pretty much a continuation of what we are seeing, actually. We confirm the growth and also further progress in DPC and healthcare IT. Healthcare IT with the caveat of the impact of the cloud transition, right? But overall, all this goes in the right direction for the future. Radiology solution, we're not expecting any improvement in the market in the next quarter. We are very clear. And the necessity for us to deliver a cost reduction plan to make it up. Working capital, back to normal by the end of the year. All the actions are already in place and are shifting, so that is already, by the way, delivered. And as I told you, the last and final payment for the offset disposal is progress. I mean, it took time, but finally the expert has been appointed, and therefore the process is, as you said, back in the tracks. So, of course, I'll give you more news as soon as we have a view on that. Because I fully understand it's a material amount of cash for us. It's about 30 million. By the way, the full 30 million are not in this book. A part of it is already fully agreed. But a significant part is being... is being discussed. We expect, as I told you, the expert to give the report by the end of September. Just a word on sustainability. We continue to make progress in terms of CO2 footprint and we are committing to an objective of reduction that is aligned with the Fit for 55 package. And we are also joining a science-based target initiative, meaning we will continue this drive in a very committed way, I would say. is also something that is dear to my heart, and we are making specific progress in the area with now very concrete initiatives for our employees. Gender balance, we have an objective, you know, to basically increase the percentage of females in our workforce, and for the time being, we are doing well. We are hiring at a much higher rate than the current and we continue this program. And I would say for us, the next subject is really the compliance with CSRB. CSRB is a new, as you know, a new reporting guidelines, which supposed to be a bit very comprehensive and very, I would say, very complete. And that's really what we are working on today. in terms of sustainability or roadmap. So I'm going to stop here and I will take the questions. I suggest we take the questions from the room where we have the analysts and the press. And from the web, I will take any questions from the press. Alexander. If you can speak in the microphone so that everyone can hear you. Good morning.

Alexander Krimish from Kepler-Chevreux. So just on radiology, you mentioned that trends will continue, but actually your results are up quite a lot, quarter on quarter. Just wondering what you exactly mean in the sense that have we reached now the drop? And do you mean that the level of profitability that we see in Q2 that we can expect is to remain in H2? Or do we mean that volumes are going to continue to decline and that we have not yet seen the growth in this area? And then the second question would be on DPC. So DPC was under pressure for many quarters. And you mentioned that now you have a good quarter. But basically, I think the story almost remains the same, which is around Inks and Zirphon. So I'm just wondering what happened in one quarter here. That is certainly so positive. And then, yeah, is this level of profitability in DPC now driven by CapEx orders, or is it driven by CapEx orders? So then maybe the last question would be on the subsidies from Europe. I think there were some subsidies on Europe related to the hydrogen project. I'm just wondering if you could give us an update on the timeline on one of the expected subsidies directly.