Agfa-Gevaert NV

Hello and welcome to the AFCA All Year 2024 Results Conference Call. Please note this call is being recorded and 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 of the call. This can be done by pressing star 1 on your telephone keypad to register your question. If you require assistance at any point, please press star 0 and you will be connected to an operator. I will now hand you over to your host, Mr. Pascal Jouet, CEO, to begin today's conference. Thank you.

Thank you very much, operator, and good morning and welcome to everyone attending the call. I'm sitting here in Motsul with our CFO, Fiona Lam, my colleagues from the Executive Committee, and Viviane Dictus in charge of Investment Relations. And we are going to walk you through, Fiona and I, our Q4 and year-end results before opening to questions, first in the room and then to the analysts and the press on the phone. So let me start by saying, well, to make a long story short, I think Q4 and also 24 is showing actually record results for the three growth engines of the group, healthcare IT, digital printing solutions, and Zerfen, all had record years and record Q4 quarter where we've seen an acceleration of the growth. And I would like to note that, indeed, we are a company with a strong seasonality because we are generating 43% of our EBITDA in Q4, actually. And that stems from the business seasonality, especially in healthcare IT, and also in the businesses where we have equipment cells involved, like DPS, digital printing, but also, in fact, DR in radiology. So Q4 is of critical importance, and I believe you've seen that we did a record Q4 for all the growth engines. At the same time, we're also addressing the challenge of the other part of the company. I was reading this morning in the data you know, a tale of two companies. And, well, we are one company, but with distinct, indeed, activities. And the film decline has accelerated in 24. We have put in place a transformation program to address this state of the market that is now ready for implementation, and I'm going to come back with more details on this. So, overall, overall, Healthcare IT had a record Q4 and a fantastic year where we launched our cloud solutions successfully and where customer satisfaction and order intake are the best, I would say, testimony to our growth, our successful, profitable growth strategy in the business. DPS also had a very good year, boosted by the growth engines of DPS and their partners. Radiology, of course, was strongly impacted by the decline, especially that we've seen in the medical field market. DR is still growing and growing very nicely, digital radiography, but cannot make up for the decrease in the field. So that's a bit the key messages I would like to convey for the year. Now, if I turn to numbers and look at the sales, well, Q4 a nice growth compared to last year, but again, a tale of contrast, where we've seen significant still decrease in radiology during the quarter, and an 8% growth in healthcare IT and 15% growth in DPC. If you look at the full year, it's pretty much the same trend, except that in fact Q4 has shown an acceleration of the growth, But the trend is still there, a significant decrease of our film activity, offset by a significant increase in VPC. The decrease for the full year of healthcare IT stands really from lower margin businesses, mainly hardware, and is testimony to the market moving partially to the cloud, in fact. So meaning our customers, some customers, stopped buying hardware in anticipation of their move to the cloud, and it has a short term But if I look at EBITDA, again, same as sales. For the full year, you've seen very nice growth of DPC and LCIP, and a steep decrease for radiology. If you look at Q4, the trend is even amplified, actually. In fact, most of the growth has been accelerating for our growth engine for the year. One comment, the radiology situation on the film is being addressed through our transformation program. However, getting in place such a program means that there was almost a very limited impact in 24. The impact will really start in 25. So we are bearing the weight of this decrease fully in 24. Thank you. Now, if I take a step back and look at the past five years, which is, I think, extremely important for a company like us in cool transformation, you see the direction of travel. You see the tale of, yeah, I mean, the film business, but here it's not only the film business, but our chemical business and our VR business has started this gray bar as well. You see a decrease, 3% decrease in CAGR average in the past five years, while our growth engines are growing 9% in the same period, and I would tend to tell you that actually the growth has only accelerated in the past two years. If you look at EBITDA, you see the same story of the transformation of the company. In 2020, most of the profitability of the group was related to the film. It has decreased significantly in the past five years, while we were growing actually the growth engines. And again, these five years are not equally creative, of course. We've seen an acceleration of this trend in the past couple of years as we have put in place all the elements of success for the growth engines in the earlier years of the plan. Now we can start seeing some of these benefits. I also want to jump immediately on the transformation program for the film. Let me tell you, it's not only a cost-cutting exercise that we are doing in this transformation program. We are also changing the way we work. We are setting up our operational excellence projects, and we are considerably changing the way we operate the plants. The good news is we have a social plan signed and agreed with, with our social partners, and I have to say it's also testimony of the ability we have to work in full partnership with all stakeholders. We did it without any conflict or any day of strike, which was not given, given the size of what we are undertaking in this program. We confirmed the 50 million plus recurring cost savings impact. It will start kicking in in a significant way in the certain parts of the year. The time to implement, we are just starting actually now to implement. I confirmed it's a cash-accretive program. Restructuring costs, we told you that we were estimating about 50 million. In fact, it is 32 in our PML. a little bit more in terms of cash, 37. As you see, the expected cash out is pretty well spread out for the next year, which is also one of the reasons we can use such activities for the program. So very pleased with the plan. We are now in implementation phase, and we'll give you regular updates of where we are. I'm going to turn to you, Shona, to comment the P&L.

In terms of the P&R, the numbers, sales and top line and bottom line, Pascal, of course, already highlighted quite a lot. You have heard them already now. Thanks to the growth engines step up in both top line and bottom line, you see largely compensating actually the fixed cost coverage losses we have in radiology. So you see our gross profit is relatively stable. So that's good to see that we have been able to keep our gross profit percentage at stable like the year before, even though we have lost quite some volumes on the top line on the total year level. And also, with the good cost control of our operating expenses, basically, with inflation, we were able to reduce it to $2 million, kept the full years also quite stable. So you see we post a decent, let's say, adjusted EBITDA level for 2024, the top line that we have lost, of course. cannot avoid that the volume impact still has certain bottom line EBIT impact as well. If you go from the adjusted EBIT to the operating result before tax, there we have quite a significant amount of adjustments on restructuring and one-off non-recurrent business. This is expected. Largely, the 65 million in Q4 We made it like Pascal said, 32 million to the restructuring which we were planning, expected. It's actually good news because it's lower than what we originally thought of. It's a cash-out item. We also know already in advance with the acceleration of radiology, we would have to re-evaluate the impairment of the fixed assets of radiology, which is not a cash-out item, but we know we need to do that for our balance sheet. So we have impaired radiology largely, all the dedicated assets, 24 million euros need to fall. Those are the biggest items of the postings of the $65 million EQ4. Plus, of course, we also still have some smaller ones like Germany. We managed to actually announce to close down the site in the radiology areas as well. So we also booked a $5 million closure of that site for Germany and some other, et cetera. The financing cost is quite stable. We have been quite stable compared to last year. There's no major accidents or expectations. We are not going up or going down. So it's quite a relative statement. That led to our net financial results still with a loss of 75 million. On the free cash flow, Q4, like Iveta, was the 43% of the year. Free cash flow for Q4 at AFA is also extremely good. You see we have 35 million positive free cash flow, largely driven by good positive EBITDA results, but also significant reduction of our networking capital in Q4. So that has led to a positive free cash flow of 35 million. Unfortunately, if you look at the full years, we are still at minus 46 million. We have a good reduction in Q4 on the working capital, but compared to 2023, we still are slightly higher than what we were in 2023. So we have a build-up working capital of 18 million. Some of them are also related, of course, in the Q4 higher sales that you led to a higher advance receivable. Good thing is that a big part of this consumption of the cash is the conscious planning on the CARPEX investment for the growth of the future. So you see... In the year, we still have planned $45 million investment. A large part of that, of course, is also the SIPOM investment on the site here in Vauxhall. And then we have, of course, continued to invest in the IT infrastructure, some of the energy sustainability investments as well on the energy side. So you see we have still quite a large capex investment which will invest for the future of the business. And we have also a positive contribution on the provision of 16 million, which is linked largely to our strategy going forward for our AXA finance strategy, which used to have in the past financed, let's say, low-wage customers. It's acting like a leasing company for our customers. this strategy do not fit our current strategy anymore. So we actually would amortize and try to phase out this strategy. So in the coming years, it would have positive impact actually in the coming years, every year in this magnitude of amount. If that's all the rest are stably like what we have expected, pension costs of 44 million, which is every year, roughly at this number, every year we're reducing these five to three million euros of spent on the cash out on the pension side, et cetera. And then we have the restructuring adjustment, the cash flow of 21 million on those. So that led to minus 46 million of 3 million. And that also means we have now a net financial debt end in position of 37 million. The leverage is still very, very healthy. It's 0.7 versus a maximum governance of 3. also on the interest of governments of certain countries versus the minimum of five. One good news also to mention is on the pension status. So you see we have here you see the material countries of the material five countries overall have reduced by 51 million. At the group level, total have been reduced by 53 million at the end of 2024, meaning we have actually a good reduction of 51 million on the SSI of our pension versus our liability, and therefore the net pension reduction is reduced by 51 million on the material countries.