Agfa-Gevaert NV

Hello and welcome to the Agfa Group Q2 2025 results call. Please note this call is being recorded and for the duration of the call, your lines will be on listened 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, Pascal Duery, CEO, to begin today's conference. Please go ahead.

Thank you very much, and good morning to everyone, and thank you for attending. I'm here in the room with our CFO, Fiona Lam, with our Investment Relations Director, Vivian Dictus, and members of the Executive Committee, and we're going to walk you through the set of the results for Q2 and the first half of the year. I think first message is on the business. As you've seen, very contrasted situation between our three businesses, our three main businesses. I mean, a strong healthcare IT, and I'll come back to that, but the P&L delivery was very good, and we only have positive things to say going forward for healthcare IT. DPC, disappointing growth, actually a lack of growth, especially in our growth engines area. There is a trough in the market regarding green hydrogen projects. And digital printing equipment sales were impacted by the market context, but nothing is broken. And if anything, we continue to progress in our markets. And, of course, regarding the film activity, we have seen, I would say, a faster decline of the medical film market, faster than anticipated. And immediately, I can tell you that this will call for additional restructuring and efforts, not only in product supply, but also in our go-to-market. This is something that we have started, but we will come back with more details in November in the Q3 call. Okay. So that's for the business. Two events, two very positive events also for the company, I believe. First is the resolution of AXA Photo, a long-standing case that was resolved in June. So you see the P&L impact today, and you will see the cash impact in Q3, but very positive, as well as the agreement signed on the revolving credit facility for the next three years. So these are Also positive news. And third, I will also explain to you how we are going to realign the organization of the group. I think for two reasons. First, we want to have better readability of our results by reporting on growth segments and mature segments. And also, and more importantly, to have a fully integrated management of all film and chemical activities related to the current situation we are facing in the market that will end a better management of the overall value chain. Last but not least, I would like to remind you that, as usual, we are a seasonal business and that the second half of the year is always stronger than the first one and 25 will be no different. If you remember, I mean, we... do a significant portion share of the EBITDA of the year during the Q4. It's going to be exactly the same during 2025. I think that's why everybody also needs to keep that in mind. This is the way our markets are really working. So if I go back to this slide and give a little bit more color on everything that I said. First, healthcare IT. Strong P&L delivery on the first half of the year, which is not common. Typically, it's more the second half. This year was a bit different. We continue to successfully transition to the cloud. And where I'm also very pleased is behind these very good numbers, actually, That's the performance of North America. North America is our target market, our first priority in terms of market, and we are growing and making progress in this region, and that's exactly what we want to do for this strategy. On order intake, Q2 last year was a record quarter. It was 60 million order intake, actually, representing... almost 40% of the total year. In Q2 this year, it was not as good, but order intake is a bit lumpy. So on a 12-month holding, we are stable. But in fact, we are very confident to end the year with high team, I would say, growth in order intake. So we keep the momentum and we keep adding new customers to our line. Topline growth, as you see here, it's interesting to see the impact of the currency. More than, I would say, about two-thirds of our margin comes from North America. It's dollar-denominated. The first part of the year was positive for us, important in euro. The second part of the first half was strongly negative. And that's what you see here, meaning the growth is a bit understated due to this currency. DPC. Some top-line growth, but not in the growth engine. I would say more in specialty fields than chemical business and more price-oriented than volume-oriented, I would say. While green hydrogen solution and DPS had, I would say, stable performance over last year, the overall market is, of course, a lot softer. So EBITDA, approximately the same as last year, especially when you look at the first half, the full first half, it's online as last year, and as you can see, we're still expecting growth. Audiology, well, the decline of the vehicle market is faster than what everybody could expect. It's mainly in China, which represents more than half, well, represented, more than half of the global market. It has also been implemented in other countries in Asia, like Vietnam. So it's a very fast decline. And the thing is, the reason of decline is too fast for us to be able to evacuate at the same reason. As you know, we have our 50 million program, which is in full swing. And we are implementing this, but all the cost measures are spread over the next month or until actually the end of 26. And therefore, we have a bit of a time lag where we are. That's point number one. And most of the initiatives that we are taking will accelerate during S2, as already decided. This being said, given the current market situation, we will do additional infrastructure, of course, as I said. continuously in the product supply and we are already working on a plan that will come to you with a lot more details in November, but also on the go-to-market. Well, we're going to review our setup here. Now, if I turn to the numbers, so you see overall pretty stable sales, but very different dynamics according to the business as usual. EVDS strongly retreating versus last year due to the situation in film, especially medical film. If I look at, this is a slide that we are showing right now, is the evolution of our mature business and the evolution of our growth engine. Well, I would say strong decline of our film, of course, as you know, and the growth of our future-oriented business has been a bit more seductive. for the reasons I explained on the market environment, especially for the EPS. The BDA, we continue to make progress, of course, overall in the growth engine, but the impact of the film, and especially the medical film, is taking its toll on the overall business results. Now, I'm going to turn to Fiona to comment on the bridge, Fiona.

Thank you, Pascal. As Pascal already mentioned, our adjusted EBITDA has been impacted by radiology. So you see we are 9 million lower versus last year Q2. This is primarily contributed, as you can see, gross profit of radiology is down by 13 million because of volumes and loadings of the factory. GPC, since the growth engine is not really contributing the growth, this quarter, and therefore also together with the good performance in healthcare IT, we're not able to offset this accelerated decline of the film. On the other hand, you also see a good level of cost control. It contributed a small few millions into the activity. So that all in all helps us, and we will continue this good high cost control as well throughout the year. If you look at free cash flow, Q2 is a small minus 3 million negative free cash flow. This is a very good improvement, actually. You don't see it from this graph compared to last year, Q2, because it's 37 million better than last year, Q2. Also, for the first half year, it's 45 million better than the first half of 2024, compared to this year, 2025. and 2024 first half. These tests, these big improvements, mind it, it's not related to APA photo because as Pascal said, the cash in is in July, so it's not in the first half of the year results. The improvement in our cash flow is mainly linked to very good trending working capital and control of working capital. We have a lot of initiatives running and improving our working capital to the right level of the business and also provision others related to lease receivable build-on and we are collecting those monies. Having the back in this cash flow, we're still investing in our future growth. We have invested $80 million more in topics in the Q2. With this, basically, I could say we are quite happy with the free cash flow development and evolution in the first half of the year, and I expect the second half of the year it will be improving further. Next slide, giving a perspective on our net financial debt or the total debt, which is still relatively high because, as we know, the pension debt is very high. It is evolving, of course. In the last many quarters, we are still consuming cash, as you know, even though we have been improving it significantly versus last year. you see we are still negative on the total net cash flow perspective. So you see the net financial debt excluding IFRS 16, excluding pension debt, are increasing. As normally in Q1 and Q2, we always consume cash. In Q3 and Q4, we start to actually improving as well. So the net financial debt normally trends down at the end of the year. For the pension, you also see actually a continuously trend of improvements, so it's coming down steadily quarter over quarter. Worth already mentioned by Pascal, a three-year revolving credit facility has been renewed and signed, 1st of August, $218 million. This is a three-year maturity until August 1st of 2028. Thanks for all the financial institutions' support and confidence in our strategy of AFA for the next years to come. Just to explain a little bit also to all of you about the governance of the new revolving credit facility. You see, we have four governance which would be applicable as of Q3 onwards. We also would, of course, disclose the transparency of all financial indicators. The new governance which remains the same as the previous facility is the leverage and the interest cover. The definition of the leverage is net financial debt divided over our adjusted IPTA. These are all calculated excluding IFRS 16. In fact, it's also calculated on a rolling past 12 months. Interest cover is just interest over net interest expense. Again, the same definition applies. They are both tested half-year, and you see basically the government's level on leverage is at mid-year 3, and at year-end it's 2.75, and year-end would slightly decrease according to our strategic planning for the future, so going to 2.6 at 2026 and 2.4 at 2027. The interest cover minimum stays at 5%. Then there are two additional governance being added. One is adjusted minimum EBITDA excluded after 16 on a rolling basis. And it's also tested half year and the minimum is 13 million. We also have a minimum liquidity being the cash and cash equivalent plus the headrooms which we have under our facility agreements. So this is tested quarterly. This is the only one which will be tested quarterly, and the minimum is 13 million. In terms of numbers, you see the numbers were already explained on sales and bottom line. What you can also see a bit here is the gross profit of greater expenses. The gross profit decreased because of, of course, the lower volumes has large impact on our loadings. and the fixed cost coverage. And so that's mainly because of the top line degrees of medical films. And then we have a mix also in EDPC in terms of, let's say, the growth engines and industrial films. So those mix has a different profitability mix for the group. Next slide. If you look at our net result, we were benefited from the APA photo. So the P&L impact of the APA photo, you see them in adjusted investment expenses, which is 38 million euros. So that helped our results to a positive of 13 million compared to last year of 5.