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.

Now, thank you, Fiona. Now, let me turn to healthcare IT. So, what are the key messages? As you've seen, strong performance for the first half. We're happy because the geographical mix is very good. We grow where we want to grow, meaning in North America. And our successful transition to the cloud continues with several customers that we started in Q2. So overall, very good first half PML, growth versus last year. And here we just want to give you the real nominal growth, you know, adjusted for currency impacts we see. And the recurring revenue, which is important to us, has never been that high for us, 58% of our total Q2 revenue. 12 months holding order intake, more or less stable versus last year. Again, I want to stress order intake can be lumpy by a quarter. Indeed, we are just replacing the strongest quarter ever by a quarter that is a lot more, I would say, normal. But I can tell you that knowing what we have coming for Q3 and Q4, we will continue the overall growth. And as we said, mid to high team growth for the full year. And I'm also happy to say that we continue to win new logos, new customers. It was about 20% during Q2. It will be probably even a lot more for the rest of the year and Q3. So really, we are pleased with where we are. The trend we are seeing right now is the order. You've seen in Q2, cloud was very small in order intake. But if you take last 12 months, it was close to 30%. And if anything, for the second half, this percentage will increase significantly. Cloud will represent a much higher share of our order intake. And I would like to remind you that we are sitting in the top three in the class ranking for all categories and regions we compete in. We are always in the top three. And as you know, we have a number of best-in-class awards. So just looking at the numbers, that's pretty much what I described already. And I'm also pleased to see that the gross margins continue to increase year over year. So overall, very happy with the situation in health care IT. DBC, a bit of a different story. DPS, as you know, it's a business that is growing, normally should be growing at 10% to 12% per year. It has been on track record for the past year. The first half of the year was very different. The growth almost came to an halt. The reason is actually mainly the equipment market, in fact, that was impacted, not especially by the tariff discussion, although it was part of it, but it kind of rose a lot of investment decisions by our customers. We have seen towards the end of the first half an increase in our order taking, which And we believe that our S2, therefore, will be rather good. But the overall growth we were expecting for the year is probably a bit challenging. If nothing is broken in this market. Just to tell you that we are continuing to bring innovation to market and this is also the reason why even in the subject market we are not seeing any decrease so far across the line. And also a very good news for us is actually the sign-off of our first speedset single pass printer. It took us approximately nine months to go to this point at our first customer, Delta Group, in the UK. So we are very pleased with this progress. And of course, it's a strong message for the overall market in this area. Now we have a printer that works well commercially. Green hydrogen, well, the overall environment of green hydrogen has been rather more than subdued, I would say. We have seen cancellations, delays. So this is an area for which we are not expecting any growth for 2025, and we believe we will see probably the trough of the market pretty soon. Not everything is frozen in this market. Actually, we still have a lot of dynamism in regions like China and India. There's a lot of projects in probably the Middle East. But it's fair to say that in North America, for the time being, things have been a bit frozen by the changes, I would say, in the regulations introduced by the new administration. And as well as in Europe, where the development actually today is delayed. But overall, it means we are standing our own, but we cannot rely on our membrane to provide significant growth right now. So if you look at the numbers, you see with an explaining that for the time being, our growth engines actually have a very subdued performance in terms of top line. while film is increasing, but that's mainly the reflection of higher price, not really higher volume. The EBDA close to last year, actually, if you take the first step, it's almost in line with last year. So we continue, really, nothing is broken with the strategy. We're continuing what we're doing in EPS. We are successful with our market launches and And we have a lot of opportunities going forward. Okay, let me turn to radiology solutions, which is, of course, today the main issue in our results. So, strong decline of the medical field market. Let me just exemplify it for you. I think the market has been divided by two in a couple of years, actually. And it means 25% or between 25% and 30% of the global market did disappear. very quickly due to digital application enforcement in China. That's what we are going through. So it goes very fast. So indeed, it's a loading issue for our path where we are actually decreasing very quickly, but the reason of decrease of You know, we have mainly age-related measures that we have been implementing, and it goes through a calendar. And so we are evacuating fixed costs as fast as we can, but it cannot go as fast as what we are seeing in the market. I'd like to remind everyone also that having signed the social agreement only in January, actually all this program could be implemented only from March or so here. still just the beginning, and we have a lot more to come. For instance, the shutdown of Bouchy Park will be effective only in Q3, actually. So we have things in place. This being said, given the situation, we have launched a new additional program in restructuring to further the efforts in terms of revising the footprint mainly today in Marseille, but also looking at our go-to-market strategy, where we're going to go a lot more from a market-driven approach to an asset-driven approach, and therefore a more, I would say, mean and mean and global management of the field of business. That's really what we're going to implement. So if you look at the numbers, you see the very strong impact today of what we are going through in the field. Outlook. I think our outlook is probably we have a bit. I would say goes well. really happy where the business is going. The order intake momentum will continue. I see a new positive development. The only thing that I would mention is the second half will be a lot more cloud projects rather than on-premise projects. And as you know, when this is the case, it tends to delay, it delays the recognition of the revenue and spreading the overall recognition of the margin. But overall, I would say that all the evolution is very positive. We are gaining, as I told you, new logos, especially in North America. It's very positive. Digital print and kinkos, we probably have a more subdued view of the growth that we had before starting this year. We thought we would be able to continue the DPS growth. That was not the case in the first half. We are still looking at growth in this area, but probably not to the tune that we were doing before. As I told you, we are not expecting any growth for the membrane, given the situation in green hydrogen. Not coming back to radiology, I think I've said it. We expect the current trend to continue. And again, the only response we have is really our cost and restructuring program that is in place. Last but not least, of course, for full year 2025, we're expecting a positive net cash flow at the group level. Of course, the cash we received for AXA Photo is helping a lot. We also believe that we'll be in a position to have resolved the DORM use situation by year end. I will now turn to really what we are doing in terms of new structure. So we have announced today that we are reviewing our structure and actually it does two things. First, we will have three segments, two growth segments and one mature segment, which will improve the readability of our results and especially the read across our strategic drive. Two segments for growth because one is IT and one is industrial, I would say. And a mature segment with imaging and pinning calls, which used to be, if you want, the radiology segment, The part which is on top of that, we have regrouped all industrial firm and clinical activities in the same business, so to speak. So, improvement of the readability of the results, but also, and more importantly, regrouping firm and clinical in a single organization, given the challenges that we are facing, we absolutely need to run the business a lot more in an asset-driven manner actually, and to have an end-to-end strong leadership to drive the restructuring that has been discussed. This is really, for me, the key takeaways for the new organization structure. In terms of people, I think it's pretty much, as you see, a continuity because healthcare IT, of course, is led by Natalie McCormick. Industrial solutions is led by Vincent Willer. and I take over the imaging and clinical path. So, quite a continuity, but a different setup, in fact. So, in a nutshell, what's the takeaways is, SKIT and the strategies implemented, everything goes quite well. DPC temporary slowdown of the growth, I would say, for market reasons and not performance of export, because if anything, I think we're doing quite well compared to market. And a film situation that calls for a lot more, for additional restructuring and cost takeouts, etc. to come back to restore the overall profitability of the value chain, which is our intent. I'm going to stop here and take the analyst questions operator.

Thank you. As a reminder, if you would like to ask questions on today's call, please press star 1 on your telephone keypad. We take our first questions from Alexander Krimish from Kepler Chevro. Your line is open. Please go ahead.

Hello, Alexander from Kepler Chevro here. Thank you for taking my questions. It's nice to see that you're catching up in healthcare IT. I'm just wondering how much more top line can you still process on the short term with the same employees? And considering the growth you're foreseeing, do you plan to have some new employees in this area? And also on this topic, do you foresee that the current margins are sustainable going forward? Thank you. I'll take them one by one. Thank you.

So on healthcare IT... You know, we are not only, we are growing, we have new logos, but we are also in a way in a change of model by which we go for traditional on-premise projects to cloud-based and cloud-enabled projects. So to your question, do we need a lot more people to ensure the growth and can we ensure a good top-line growth? A couple of considerations. Do we need more people? I don't think so. because actually the SaaS delivery is more efficient than the traditional model. So I wouldn't believe we need to add more people. On the contrary, we need to go through this transition. On the top-line growth, what we need to look at in this growth is really the growth of recurring revenue. This is really the sign, the KPI, if you want, of growth. a transformation to a subscription model versus a project model. And as I said, the fact that we are going to more cloud projects will have a deflationary impact on the top line at some time. Why? Because again, the project is not invoiced in the same way. It's invoiced over five years instead of being invoiced 80% during the year of implementation. So that will have an impact on the growth rate, but it's a transition period, and again, we are transforming project revenue into subscription revenue, which is a lot more stable, you have a lot more upside, you benefit from the growth and whatnot. But overall, that's... the top line growth will be impacted by this move to the cloud. And the delivery system of the cloud means we can probably absorb a double-digit order intake growth without adding a lot of resources.

Thank you. Then second question would be, that this was going to be back-end loaded.

So I'm just wondering if there are any subsidy numbers in the first half of this year.

Subsidy numbers? No, no, no. No, no, we do not. We do not. We will, on the Zirphan plant, the second phase of the subsidy will be received only when we demonstrate a full industrial production, which we are doing right now, by the way. We're working on that. So we're expecting this cash inflow of subsidies to be in rather at the end of the year. We have not received it in the first half.

Okay. And then the last question would be, it's basically on the PNL, on page 10 on the report. You mentioned the profit from continuing operations of 31 million corresponding to an EPS of continued operations of 20 euro cents. quite a lot of course, but could you clarify how much of this relates to Agfa Photo and maybe that it's a case that dates back to 2004 and maybe what was the reasoning to include this in the continuing operations because I don't see it as continuing.

Agfa Photo itself in the adjustment restructuring is 38 million and the net finance cost is 7 million, so a total of 45. Why is it not in the discontinued operation? Because we actually have it, accounting-wise, accounted for non-recurrent. So you can see it as in the part of the non-recurrent. Also, of course, the legal fee, because the 45 million is actually the compensation of all the fees, the expense that AFA have encountered in the last... I don't know how many years before my time, those were also in the normal business. It's been never classified as a discontinued operation.

So it's for consistency reasons. We incur many years legal expenses that were all in non-recurring but in continued operation. Now that we are getting reimbursed for these fees, it's also non-recurring, of course, but continuing operation. That's the logic, Alexander.

Okay.

Thank you very much. And again, to your point on healthcare IT, I should add, you know, where I'm really happy today, that today we are winning deals, including versus Sectral. That's also, I would say, new for us, to win new logos versus Sectral as well. So that's also what gives us a lot of confidence.

Congratulations with that.

Thank you. We are now taking our next questions from Laura Roba from DeGroove Petrochem. Your line is open. Please go ahead.

Thank you. Good morning, and thank you for taking my questions. First of all, on H2, we know that H2 is usually better than H1 at ACFA. How do you look at that this year? Can we foresee any improvements in DPC and also in healthcare IT? You mentioned that In H2, there will be more subscription revenue models. So does it mean that we should expect a more subdued revenue growth? Then a second question. So still on healthcare IT, you mentioned the transition from the project to the subscription model. How long do you think this transition will take? Do you have any visibility on this? And then the last one on radiology and the program to adjust the cost base. So the first saving will materialize in H2. Can you give us an order of magnitude, please? Thank you.

Okay. So on the H2, well, thank you, Laura, for the question today. On H2, it's a normal seasonality pattern. Typically, I would like to remind you that last year, more than 40% of the yearly EBITDA was in Q4. And that's also, you know, we kind of installed more than 40% of printing equipment in Q4 as well. And that's the same in DR. So along, actually, almost all and healthcare IT, of course, it's always a stronger quarter. So this is the way the business is designed, and it will be no different this year. So yes, the S2 will be a lot stronger than S1, and the normal, I would say, seasonality will apply. That's what we are seeing, and this is exactly what we have in our plan and forecast. So that I confirm. Regarding your question on SaaS model, yeah, I mean, the P&L delivery will depend how many cloud projects we will install in S2 versus on-prem projects. And yes, depending on this mix, that will have an impact on the short-term P&L of the business as well. And what we are seeing today is we had a first half where we did a relatively good number of on-prem traditional projects, where we see S2, where we have a lot more, I would say, cloud SaaS projects. So mechanically, do we expect a little bit more subdued in S2 projects? That might be the case due to this impact, but it's not really, it's not going to be a super material. What goes against us as well is the currency, because we are pretty much more and more dollar business in LCRIT and that translates into less euros. But again, and overall, I'm very positive about this development. And even if there is a short-term impact and or on the top line for healthcare IT, it's still a very positive development. And your third question was about, sorry? It was about the cost-based adjustment on readers.

And your question more precisely is how much are we... Yeah, could you give an order of magnitude of what we can expect in H2O?

What we can expect in H2 regarding the recurring savings of our project? Well, we have not commented so much on the calendarization, but we will. You know, all this is cumulative and every month we are making more progress to evacuate costs. So the overall impact on the second half is probably going to be around, I would say, 10 million, I would say, something like that. Okay. Thank you. Okay. Thank you very much, Laura.

Thank you. As a reminder, if you would like to ask a question, please signal by pressing star 1 on your telephone keypad.

It appears there are no further questions. Thank you.

I would like to turn the conference back to Pascal Thierry for any additional or closing remarks. Please go ahead, sir.

Thank you, operator. Thank you, everyone, for attending this call. Again, I repeat, growth engines, healthcare IT performing very well, DPS for the time being a bit impacted by market conditions but should recover soon. quite well, actually. And there's a question mark on the hydrogen project. Again, it's a question of time. And in the meantime, we are taking all necessary measures to address the situation in film. And as you've seen, we are also paying a lot of attention to our cash management, and especially the management of working capital, but not only in order to make sure that we keep our liquidity level. So thanks very much, everyone. Thank you.

Thank you for joining today's call. You may now disconnect.