Agfa-Gevaert NV

Hello and welcome to the ACFA Q3 2025 results conference call hosted by Pascal Jouery, CEO, and Fiona Lam, CFO. Please note this conference is being recorded and that for the duration of the call, your lines will be on listen only. However, you will have the opportunity to ask questions after the presentation. This can be done by pressing star 1 on your telephone keypad to register your questions. If you require assistance at any point, please press star zero and you'll be connected to an operator. I will now hand you over to Pascal Jouery to begin today's conference. Thank you.

Good morning, everyone, and thank you for attending our call. I'm sitting here in Morsel with indeed Fiona Lam and Vivian Dictus for investor relations and some of the executive team. So what are the headlines of Q3? Well, first, a very difficult situation for medical film with a very strong decrease that calls for more cost actions from our side, which we are taking, and I will explain in more details. But that's the main highlight for the results of this quarter. Point number two, healthcare IT, actually the good news is we are seeing an accelerated shift to the cloud and to SaaS business model. The flip side is it's impacting our short-term results, and I will explain why and how this is the case. But overall, this is good news because in doing so, we continue to see a very good dynamic of order intake and mainly We are able to win net new customers in healthcare IT. And three, DPC is, I would say, slightly above last year overall. So here I would say rather steady performance in a market backdrop that is not fully favorable. Pleased with the cash flow performance. performance of the group Q3, and it's not only about Agfa Photo, it's also due to the fact that we are managing working capital and other cash components in a very efficient way, I would say. So these are really the highlights of the performance of the group. Now, if I turn into more details, you see that the impact of the medical film and also healthcare IT with this switch, rapid switch to a SaaS business model. So the impact on the top line is quite significant, minus 4.7% at equal currency. The only business delivering top-line growth is digital printing, but I would say the top-line growth is subdued and actually more price-driven than volume-driven today, and mainly in the industrial film area rather than with the gross engines. Very good cost control overall in this context. However, not enough to make up for the impact of the film decrease. Positive cash flow, 21 million in the quarter. So it's, as I said, of course, due to the AXA photo settlement, but not only. We are also very vigilant in our working capital management, and that provides also significant benefits. And if you look at the cash flow performance after nine months, you can see a very significant improvement versus last year. So now, a little bit more details on each of the business. Healthcare IT, here, you know, we had the first six months of where we had quite a significant number of projects, traditional, I would say, business, and that reflected on quite a strong performance on the PML delivery. Q3 and probably Q4, it's a very different story because the share of SAS contracts in order intake is increasing significantly, and it means that the project order book is decreasing while the recurring order book is increasing very much. it has a short-term impact of the transition that I will try to explain later in the presentation on very practical terms. But the good news is that our 12-month rolling order intake is increasing again, actually plus 6%, and we are expecting, by the way, this trend to continue and amplify during Q4, and we'll end up the year with double-digit increase. The top line decrease is clearly due to this revenue model change, while at the same time our recurring revenue is growing by 5%, including currency. That also is a good way to illustrate the underlying transition. Currency is important for health care IT because, as you would remember, about two-thirds of our business are in North America and therefore dollar denominated. So it's a translation impact here that we're seeing. But therefore, it translated to a weaker EBITDA for the quarter. DPC, as I said, step up in revenue, profitability slightly up, but we are operating in difficult market conditions, to be fair. So the 5% top line growth is mainly driven by specialty films, the reason being actually it reflects the price increase we have achieved following the specialty silver price increase. However, the performances of green hydrogen solutions and digital printing solutions are more influenced by softer market conditions. In Zirphan, we see very little growth over last year. We continue to make progress in terms of productivity, and especially it will be even more the case with our new plant. And in DPS, we are operating in a more difficult market context, actually, especially in North America for equipment, where we have seen a significant slowdown. So these two businesses are, I would say, more impacted by the current market conditions. Radiology is where we see the most significant decline. Our revenue is declining by 20%. Actually, what happens is the China market is disappearing quite fast. Today, this market that used to represent about 45% of our total volumes has been divided by three in the course of two years, and the trend will continue until... the fast disappearance of the market that might be as fast as the end of 2026. So actually what we are seeing here is a bit of a race between taking the corresponding costs out of the business and the market decline. And for the time being, we are behind because it's not possible in the current social agreement to, I would say, go as fast as we need. So what we are doing is, I will detail actually in the next slide, what are we doing to face the situation. We had a three-year program and a 15 million cost decrease program. Actually, we are bringing it forward, meaning we are accelerating the program, things that we plan to do in 26. Actually, we start doing it in 24-25, and we are going to try and condense the program in a short-term timeframe in order to have the maximum impact in 26. But not only that, we are launching an additional program of 25 million. related also to manufacturing activities. So it means we are expanding the current 50 million program for manufacturing, but we are also touching a new area. We are going to adjust our go-to-market for film, and that will also be a significant cost-out program indeed that is actually ready to go. We are starting the discussion with our social partners and we will start implementing as soon as we can. We have also implemented some short-term cost saving measures across the group for which the benefit will mainly be seen in Q4 to make sure that we mitigate the current results group. And we have also launched an initiative to right-side the overall group organization. I cannot communicate any details for the time being with you, but we are actively working on resetting the group cross-base to the right level and the new situation that we are seeing in the field. And last but not least, as already communicated, we are working on the potential redevelopment as part of the site in Mortsel. We have actually started a discussion to have a brownfield covenant. As you know, we have a campus in Marseille that is probably quite oversized for our needs, and we are trying to look at the possibility to monetize part of it. So we are not staying idle in view of the current situation that we are seeing in the field. We are addressing this at first. and we already have a lot of programs in place, but we are also working on more in order to secure the profitability of the company. Now, if I turn to numbers, you will see the impact of, which is, by the way, not currently corrected here, You see the strong impact of the decrease of the radiology business here, 20%. You see also the decrease in the SKIT top line, but here, again, we are winning shares, but the transition to cloud means our bottom line is impacted, and the growth in DPC, slight growth in DPC. And you see on the right-hand side the corresponding effect on our bottom line. Less top line for healthcare IT is translating also to less bottom line. Stability plus for DPC and radiology results that are still very negative, hence the actions that were taken. If you look at, we show this slide, you know, with our mature businesses and our growth engines, I would say what we are seeing here for the first time is we have a negative performance of the growth engines, mainly due, in fact, to LKIT and the situation that I explained. And for the first time in many quarters, actually, we have a bit of a setback in terms of growth these gross energy businesses. But again, I insist, it's not the case that we are losing share. Actually, absolutely not. We are doing extremely well in NCRIT. Most of what you see here is the impact of this cloud transition that I'm going to detail in a few numbers for you. I'm going to turn now to Fiona to walk you through more numbers. Fiona.

Thank you, Pascal. Like Pascal already said, Q3 adjusted EBITDA ended at 5 million, which is 10 million down versus last year. And you see also the exact numbers coming from the bridge, which was declining medical film across profit audience radiology has a negative impact of 7 million and also temporary impact of healthcare IT due to cloud and SaaS transition. So that also in Q3 has a $4 million lower gross profit. Unfortunately, there's also unfavorable exchange rate impact. So you see also exchange rate unfavorable impact of $2 million. Good part of the cost control, like Pascal earlier also mentioned, we control the cost pretty well. And there you see offsetting part of these downsides from the market. And that led to $10 million lower appetite in Q3. Yes. On the other hand, we look at free cash flow of Q3, which is a positive of 21 million, despite a low adjusted EBITDA of 5 million. That, of course, has been helped largely by the Alpha Photos income, which is in Q3. On the other hand, we also have a lower CAPES investment Sorry, working capital improvements. This is worth to see also Q3. Working capital improved by $16 million. And you will later on also see the working capital improvements significantly contributing to the group's free cash flow in the first nine months as well. CapEx is slightly higher than last year. We know we have still other investments which were paid in Q3. Provision others are seasonalities. You will not see any increase or decrease too much. It's stable. If you look at the nine months, this is just quarterly seasonality. The rest is quite stable, like pension and restructuring is quite stable compared to last. Next slide's related to the debt evolution. You see Q3, we reduced the net financial debt to either 16 by 20 million with the cash in of Alpha Photo. The rest of the debts, also the pension debts, slightly decreased in line with expectations. And if you look at the... syndicated loan withdrawal of 119 million versus the total facility of 118 million has been quite roughly stable on syndicated loan withdrawal. Applicable governance test for Q3 is the minimum liquidity of 13 million. There we have in Q3 2025, 126 million on the minimum liquidity. The rest of the governance are only for reference, so we also share with you the references of the ratios, but they are not applicable for testing until the end, which is the leverage ratio, the interest coverage ratio, and the adjusted EBITDA is grew up as 16. This is not the ratio for your reference. Next slide is a bit more on the numbers, which you can see now the P&L Q3. Growth was minus 7%, but here today it's minus 4%. That has been helped by the first half of the year strong healthcare IT. Q3, like we just said, the cloud transition is very, very evident, visible, and therefore we also see how IT did not grow in Q3. Before year, until first nine months, it's minus 4%. Forced profits, slightly decreased because of the mix. as we have the industrial film are the main growth areas this year, and then the first half year of IT, but of course because of the loading and the mix of growth, you see a slight drop of growth profit percentage. What is good, that you also see the first nine months operating expenses with the top line reduced, the good cost control has delivered and maintained the percentage at 30%, even with top line or lower top line. That led to, yesterday, adjusted YPTA of 19 million versus last year. If we look at the next slide, which shows the net results, thanks to the help of basically aqua photo, both on 38 million in adjusted interest rate expenses, and also the interest income in net finance costs, which lowers it. So you see a net result for the period of 20 million improvement compared to last year for the first nine months. Also to mention about, have a look at the free cash flow in the first nine months, despite Our adjusted EBITDA has been lower for the first nine months by 19 million. You clearly see here we improved the free cash flow for the first nine months by 72 million, even though it's still minus nine, but this improvement is enormous. So it's not only because of our total 38 million cash in in this free cash flow, but it also has 51 million improvement in net worth in capital in the first nine months. Part of that, of course, in the networking capital improvements, you can anticipate because you are doing lower volumes and lower turnover. On the other hand, a part of that is also really structural improvements because we also see between 2% to 3% improvements to sales on the networking capital, primarily driven by inventory controls, etc. And we also compared to last year, on the first nine months, we spent less on topics. Therefore, you see in total 72 million step up And this is quite important, of course, in relation to our free cash flow position.