Agfa-Gevaert NV

Ladies and gentlemen, welcome to the AGFA First Stepwater 2026 results conference call. For the first part of the conference call, the participants will be in listen-only mode. During the questions and answers session, participants are able to ask questions by dialing pound key 5 on their telephone keypad. Now, I will hand the conference over to Pascal Furet, CEO. Please, go ahead, sir.

Good morning, everyone, and welcome to the ACFA call. I'm sitting here in Marseille with Fiona Lam, our CFO, Vivien Dictus, Head of Investor Relations, and the executive team of ACFA. So, first quarter. Let me move the slide. So, I'm going to briefly give the highlights, then pass on the mic to Fiona for the financial review. I will do the business review and the outlooks. So, first highlight, clearly, Q1 for me is a robust performance in positive supply coming from price in the area and volume impact in digital printing. The rest of the group being slightly below last year. strong EBDA increase year on year. You know last year was a relatively weak quarter for us. It reflects our ability to implement efficiently our selling programs. You will see it throughout this presentation. And as well, the ability to pass on the silver price impact to our customers in the firm activities. As you know, we've been We've been seeing a tremendous increase of silver, I would say, since a year and a half, with price having almost quadrupled in the same period. And these results show our ability to navigate these market circumstances with efficiency. Save programs that we have launched last year, I'm happy to report we are now in annualized savings of 57 million. If you remember, we talked about the plan of 50 million first, and we launched at the end of last year another plan for an extra 25. So we are right on track, and as we started to see in Q4, actually the impact of the cost measures are now coming to the P&L, and also what you see during the first quarter of the year. Silver, of course, had an impact, a specific impact on the cash for a very simple reason. When we buy silver, you have an approximately five to six months cash cycle before you recover it in terms of cash from your customers. The PLL impact is faster, but the cash impact, of course, takes a lot longer and it has, of course, a tremendous impact on the cash of the group and especially through the working capital. More than 40 million worth of silver price impact during the first quarter that we will start to recover over the year. But the overall impact of silver cash during the year will be negative. Now, business by business highlights. Health care IT, I would say, transformation to SaaS on track. However, as we repeatedly said, orders are larger in SaaS. We are also addressing just larger customers. And therefore, the contract and the order intake is a bit Lumpy, meaning you can have significant variation quarter on quarter, and this is the case. We have in Q1, I would say, a quarter that is soft in terms of order intake, while we are expecting in Q2, and we know that because we have already signed the number of deals, we are expecting for Q2 a very strong order intake quarter. So the last 12 months decrease that you see at the end of Q1, does not change the overall picture of the guidance that we have, that at the end of the year we will be again increasing order intake to the highest level ever and probably high single digits. The good news also that we are seeing is in this context, Our recurring revenue increased by 5% now and now amounts to 67% of total Q1 revenue. This is a number that three years ago was barely above 50%. And it shows also the transition of the business to a recurring business. The total top line still decreased due to the fact of the change of model as we explained several times. the short-term impact of the move to a subscription model rather than a project model. Industrial solutions, I would say good DPS and very subdued green hydrogen business. Good DPS because we are back at 10% gross supply for the first quarter. So it shows that what we've seen during Q4 has been confirmed. However, a very soft situation for green hydrogen and 26 is probably going to be a lot softer than we even forecasted, actually. And we are already seeing shaping up 27 that will be kind of back to normal, but we are really going to a trough during the 26. And last but not least, imaging and telecoms with our business, as you see, a significant increase in adjusted EDA due to savings and what we did around silver. And we also discussed, of course, DR. We are here with pettings. Our top line is increasing. We are deploying our plan as scheduled. So overall, in a volatile environment, we have been able to navigate all the market conditions successfully, and we are also confirming the drive, the impact of our cost savings measure. I'm going to turn now to Fiona, who will walk you through the financials.

Thank you, Pascal. This slide summarizes the growth, which Pascal actually just highlighted on top line and bottom line. On the top line, you see here the nominal sales growth compared to comparable sales growth. The current impact is actually better, like Pascal already mentioned earlier. The group actually post a 1.7% comparable sales growth because of the higher silver prices. You also see on a comparable basis, actually, the industrial solution also has a growth, even though GHS was soft, but ETS was stepping up in that context. Healthcare IT, on a comparable basis, is roughly 5% down with our currency because of, actually, if you recall last year, the first half of the year of healthcare IT was extremely And this year, it will be in the normal seasonality. We still expect the full year of healthcare IT will lead to a certain growth. If you look at, I guess, EBITDA is a step up of €10 million for Q1, driven again by emerging chemicals, largely related to the savings program, now that we have a larger savings program taking in now, starting this year. step-by-step, you see that as well, and the ability, of course, to pass through the superimpact to the market so that we don't have any negative impact in our P&L on the sell-on path. For industrial solution, you also see a step-up, although the step-up could have been larger if we don't have the headwind of GFS, but all in all, it's a step-up driven by EPS. Healthcare here, I already mentioned, is a systemality of Q1. Q1 last year and Q2 last year was very strong. And so with the good controls, control, et cetera, they still are delivering a good, decent number of online. Corporate is more less in line than what we expected, the systemality as well. Thank you. Next slide. If you look at the bridge, he says about the 10 million earlier slide that we have seen, you see here exchange rates on bottom line. Luckily, we have a very diverse geographic spread. And so you see all the business at the end on the bottom line, exchange rates has zero impact. And then you see the gross profits of healthcare IT driven by the strong first quarter last year. And this is a bit down and you see also the step up on the gross profit because of the saving programs and the safer pass-through ability. Also, the APA team in the first, I think, again, still has continuous cost control. And you see also R&D, SG&A continue to contribute. They've had significant high cost control that also contributed to the results. So it's been, I think, a decent group so far. Free cash flow, I must say I'm pretty happy with this result. Even though you see a first quarter of minus 42 million free cash flow, bear in mind that there's a 41 million silver impact. With the resilience of all the efforts, which is continuously on working capital improvements, it really delivers. We have been already in the last I think six quarters improvement of working capital, and this can counterbalance the silver impact that we have for this quarter. Caprice is expected, and also provision of others. We continue to monetize the customer lease portfolios as well. So all in all, if you look at without silver impact, actually free cash flow would have been zero at break-even level, which is significance, you'll be able to fund the pension and all the transformation programs in this case. If we look at the next slide on the late debt, financial debt evolution, we are also evolving right. Of course, you see in Q1, globally, it's always a step up because we need to build the working capital timeline again. But despite the silver, you see the working capital timeline is still significantly lower for all business units, and therefore we have stepped up by from 21 to 58 million. If you look at, actually, on the revolving credit facility, we draw into 129 million out of the 18 million. For Q1, there's only one applicable governance, that's the liquidity headroom, and that is at 120 million of the minimum of 30. As for the reference of all the other ratios, it's not applicable in Q1, but applicable from half-year testing. We actually have also a good term room there, and leverage, you can see it at basically Q1 of 1.1, half-year in Q2 should be at 3 as well, and year-end 2.75. Interest cover is at 12.5, and in the time, In terms of numbers, I think I don't need to repeat. Once again, we have seen them the same as in the first two slides on this one. Maybe just next slide.

I think we should still look at operational expenses, a significant impact on delivering our results.

It is a famous bridge resource, R&D, S&A. significantly down, and you can see it here, basically $8 million down is that conversion of the graph. Next slide would be good to just shortly discuss, because we didn't show them in the graph. You see the next result at the end is also still a negative $12 million, but it's a step up compared to last year of $8 million, and that has to do with the better operation, I guess, the EPCOT performance Although we have adjustment with special expenses, which is higher for this quarter, and in line with net financing costs, expectation, and test is a bit positive.

Thanks a lot. I have a quick question, though, sorry.

You already showed it in the graph.

So let me turn now to the business, healthcare IT. As already said, indeed, the cost transition continues. That's going to be lasting for the next years, I would say. Again, I repeat, more lumpiness in the order intake for two reasons. Larger contracts, very long-term contracts. It's not unusual right now that we sign seven, eight, or ten-year contracts with our customers. So, larger amounts and larger customers as well. Our net new customer size is significantly higher than the average of this whole base. So, indeed, we shouldn't be looking at this result quarter by quarter, but as a more long-term area. And I'm not bothered, as I told you, by the minus 10% at the end of Q1. Actually, it's going to be Significantly above at the end of Q2, and that we already know because the deals are already landed. So Q1, cloud deals relatively modest this quarter, 12%. Let new customers, 18%. And as you see, recurring business, one-third compared to project business, two-thirds. So it was, again, kind of a soft order intake factor, but the journey to the cloud continues. And I'd like to remind everyone that we are gaining net new customers due to the fact that we are sitting on top of the customer satisfaction charts of the industry today, meaning, I'm going to be very clear, in customer satisfaction today in North America, which is the core market for us, we are number one in three out of four categories. So we are number one. I've been showing this slide again and again and again so that we really try to explain the top-line decrease that we are seeing today as we are gaining customers purely mechanically due to the fact that project order intake is decreasing and SaaS order intake is decreasing. And you see here the revenue model that explains a bit what it does to our P&L. But again, going to the cloud means business that is recurring, that is sticky, where we can do some upsell, and we have unmet growth. So it's all good news for us. Now the numbers. Minus 10% is unadjusted by currency. Adjusted by currency is minus 5, or it could be less than minus 5, actually. But with recurring increasing 5% and project revenue decreasing more, of course. So in terms of EVDA, quarter to quarter, again, it can be a bit lumpy. Last year, we recognized a significant number of licenses, so project business model, not this year, but we confirmed the overall guidance for SRIP for the year, nonetheless. So overall, I would say the transformation goes on as planned. And again, the difference of quarter is not really relevant. This year, we're going to have a stronger second semester than first semester. Last year, it was a little bit more balanced. In industrial solutions, DPS, as I said, the good news of DPS is we were challenged a bit in terms of growth during the year 25. It improved in Q4, and Q1 is also showing a 10% top-line growth corrected for currency. We have an order book that is building, and the mix is actually towards the more powerful machines. So the number of machines is one thing, but what's important as well is the size of the machine you're selling and for us, so the in-consumption. And we are selling, I would say, our top-range machines very well today. We continue to, of course, upgrade our product range as we see fit. The only caveat I would put on the DTS business is the packaging market is very slow to develop, whereby we confirm that really digital is the avenue to go. The current state of the packaging market slows down the building market in production. For Zircon, for the clean aerogine membrane, this is the area where we announced already that 26 was going to be a trap for us. There is momentum in Asia, but that does not make up for the delays in Europe. Actually, you know, the red directive, the renewable energy directive is just being implemented member states in Europe. And this is absolutely necessary to get the regulatory support we need to further develop projects in Europe. And it has been done with a bit of a delay. Meaning, in fact, today for 26 deliveries, it's going to be a very low year for us. However, when we look at the pipeline and the number of projects reaching final investment decisions, We are a lot more confident for 2027 where we are going to see this rebound and the implementation of the Directive will also help us very much. We have also clearly addressed the emerging markets like India and China with our membranes. We are successful in India. We are working in China and we hope that somehow we will also make inroads in this market. But this is the one area that will, I would say, not work for us in 26. If you look at the numbers, again, this number on the left, minus 1.9 is nominal. If you remove currency, it's plus 2.7. But as you know, a strong contrast with double-digit growth in DPS and and a refraction of the cells in the membranes in 26. Overall, when you look, and this is a new reporting, when you look at the way it works for this year, it's a bit like in other businesses, meaning the second part of the year is much longer than the first part of the year, and the highest quarter of the year is in Q4. So it's not unusual for us to make negative EBITDA at the beginning of the year and a lot of EBITDA at the end of the year. This is a bit of how this market works. We install about 40% of the equipment of the year in the first quarter. This is the way this market works. Okay, so this is the P&L, I'm not coming back to that, and I'm going to turn now to Imaging and Chemicals. So really here on the film, again, the message here, we are in control. We are in control of our savings plan, we deliver fully what we announced, and we are also in control of pricing and overall product management. Which means today, even in a context where we have to face significant variation in silver price, we are able to stay on course and restore the profitability of the field. So that is for me extremely positive, in a context where the field market continues to decrease. But at a pace that is probably a little bit less than what we've seen in the past couple of years with China going down. So overall, in control. DR, solid start of the year. Last year was a bit of a surprising year for us with a very depressed end market, but we are seeing this market again back in growth mode. And we are also seeing that in the order intake that we have. And so we are staying on course on this year. So if you see, it's a bit spectacular, but coming from a very low point. If you remember, most of the year, last year, was actually negative for medical film. Now we have restored the profitability in the current context. The top line is really the story of lower volumes, but better prices, in fact. So when we... When we look at the P&L, you can also see the step-up in gross profit, which reflects also the improvement of manufacturing costs and the operational costs under control. This is really the name of the game for this business. Now, if I turn to the outlook, I think, broadly speaking, I would say that the global outlook for the group has not changed since we presented it However, when I go in further details, there are a bit of changes, I would say. We continue to say we are going to deliver the year as planned, and we continue to say yes, we are going to see order intake growing at high single-digit percent versus last year. Actually, this should be the first year where we will have more than 200 million in order bit what we had in mind, which is a groundbreaking record after record, actually. Industrial solutions, then there is a change. Our view on DPS has not changed, but the view we have on the membrane has been downgraded with what we see now. There is no possibility to to improve volumes shorter. And imaging and chemicals, if anything, our view is more optimistic regarding the year on film and chemicals on the basis of what we are seeing today in the market and our ability both to control our costs and our prices to customers. Meaning overall for the group, we are not changing, so to speak, the outlook, but the mix will be a bit different. And I also want to stress that what we are going through with Zircon in 26, we are already seeing 27 shaping up as a significant rebound of the activity. In terms of cash flow, no change as well. Clearly, the silver price has put even more pressure on us, I would say, to manage very well our liquidity and cash, which is what we are doing, as you see, is a very good mastery of the working capital. We'll continue to do this, but we know that due to silver and due to the cost of the transformation, we will be consuming cash, I would say, during the year 26. I think, you know, I'm going to stop here and take the questions of the analysts and the press to finish.

Thank you very much. This is a reminder. If you wish to ask a question, please dial pound key 5 on your telephone keypad to enter the queue. And the first question comes from the line of Alexander Kremir of Kepner Chevron. Please go ahead.

Thank you for taking my questions. First one would be on the imaging and chemicals. I see the adjusted EBITDA rose there from 2.6 million to 12.8 million, helped by savings and silver related timing benefits The question is now how structural are the savings and timings benefits because I assume that silver is quite a significant portion of this. So how should I look at the repeatability of this uplift towards Q2 and basically for the remainder of the year? Thank you.

Okay. So I can start and you will complement, Shannon. That's okay. Well, I think the savings are there and you will... So clearly it's a positive.

Sorry. How much of the increase is related to savings and how much is related to silver?

We're not breaking down everything in the numbers, but clearly you see that the savings have stepped up, have started to step up very much in Q4. And that we are continuing to implement our plan in Q1. So we are not splitting the overall impact of savings and silver. But again, savings will stay an even difference aside. For silver, the way it goes through the P&L is first with some revaluation of inventory and increase the selling price. So you've got these two impacts and the negative impact of silver in the production cost. So overall, we're not splitting.

You want to... The answer to your question is if you look at year basis in principle you do not expect super really have an input because it comes through the signal impacts to the customer top line and bottom line there is a timely impact because each one like now for example of course we still have stock which were at lower cost of stock there's a timing because you have a year end cut off

Sorry, could you maybe get a bit closer to the microphone, because I'm having a struggle to understand Fiona.

Can you hear me better now?

Yes, that's better, thank you.

Yes, so I was saying on silver, if you look at a full year basis, you should anticipate normally you are not earning more profit bottom line on silver because you are talking through the silver impact to customer top line and bottom line and also cost. So that means they level each other out. You have a climbing impact, a positive result normally in Q1 because of course we are still in a, you have a cash conversion cycle, a throughput time of three to six months. So that means basically Q1 we have a lot of impact because we were still from end of last year Tier 2, you still have some impact because it depends on products. Some are conversion-type with three months, some are six months. So on full-year basis, you still have, because you have a cut-off calendar at the end of the year, you have some silver impact in 2026 on the full year as well, as what is already reflected a lot from Tier 1. The rest of the improvement is on the saving program. Of course, you also know in the saving program, there are also a part of that got counterbalanced by the felony crime as well. So we will have a good Q1, Q2, second half of the year. There would be also holiday seasons, all summer holiday, lower factory output, also Christmas, lower factory output. So you always see, also in the past years, The second half of the year on the fellow mechanical is always a bit slower in profit. On that regard, even though you have normally a high suitability in Q4. So looking at that, we would have a step up on the full year outlook. You can expect compared to last year, but it's not as amplified as the one in Q4.

Don't multiply the first quarter number by four, Alexander.

Thank you for that. It would be handy of course and a bit providing a bit more comfort into the increase in profitability if we see that split between the silver timing and And then, of course, the savings, because I think the savings are structural. Of course, the silver timing is a bit less structural, but thank you for that. And maybe if I have a bit of questions on healthcare IT, because I think this is a beautiful business, but you mentioned the shift to the cloud is a reason for the decline in sales. but I was looking at the slides of last year, and if you look there to the order intake, you actually notice that the cloud deals have declined as a percentage of the order intake, and recurring business has also declined as a percentage of the order intake. So how do I square the two comments? Thank you.

No, well, as I said, don't look quarter by quarter, please, because it's, as I said, it's lumpy. You know, it was in Q4, I think cloud order intake was more than 50%. In Q1... It was very low. In Q2, it's going to be very strong, up to the roof. So why? Because it depends on the contract. The contracts are significant when you are lending almost a 30 million contract. This is the order intake of the first parcel. And if we have such a contract in Q2 plus other contracts, it totally changes the mix. So really, please, don't look at it quarter to quarter. You need to draw a line. And when you do that on a longer period, you see a continuous increase of the share of the cloud contracts. Actually, I will even say today in the US, which is, as you know, the core market and more than 60% of the global market, all the contracts, virtually all the contracts that we are taking now are cloud-based. And we have extremely little project order intake in the U.S. The market has really shifted. You have still project orders in the rest of the world, which is probably less advanced in terms of start transition. But again, I repeat, at the end of the year, we will be growing the order intake. And I expect a share of cloud order intake for the full year. will continue to grow as a proportion. And all this is driven by net new customers. There is only the correlation. We have a relatively soft Q1 order intake, and you see net new customers, 20%. This number in Q2 is going to be extremely different. So that's why we need to really look at this from a longer period. But I think the key message here is, first, We are winning in the cloud. We are winning contracts today even against Sectra and Usage in the cloud. Historically, the two fact movers and leaders of the cloud solution in the medical imaging market. So, not only we are competing, but we start to win. We win net new customers. We increase always the recurring sales, and as I told you now, it's almost close to 70%. It was 50% 24 years ago. And we are, by moving to the cloud and getting new customers, we are addressing larger customers as well than the average of our install base. So all this is very important. not positive is the fact that the business model is being changed. It's a significant delay before it hits the PML. Because an order intake that we take in SAS, normally, typically, it's at least nine to 12 months implementation time. That's why. Sorry for my own answer, but

No, that's clear and maybe if I can do maybe one small follow-up in that respect and this can hopefully not sound a bit too punchy but it's It's basically that the cloud is supposed to be a higher margin business, so I'm struggling from a bit of an outsider. If everything is going to cloud and the mix is improving towards cloud, why the EBIT is declining, I understand it's slumpy, but in the end, if cloud should bring a sort of positive mix effect, and right now it seems from an outsider's perspective that Cloud is working at a negative EBIT, so how much cloud business do you need on a recurring basis as a percentage of sales to turn that into positive territory?

No, so thanks for the question, and I think it's a good opportunity to clarify. Yes, cloud margins will be higher than project margins. However, we are just at the beginning. Remember that for the same thing, we have eight customers on the cloud, more or less. And we had actually four, I think, or five at the end of 25. So we are just at the start, meaning it's not yet, not everything is fully optimized in terms of cost, okay, Alexander? Meaning we know where we're going in terms of margins, But as we start, we don't have the full efficiency yet, and it's going to be like going down the experience curve. But we are doing that, and we are already seeing significant improvements in our margins. So don't, for the time being, being still in a launch phase. At the end of 26, we will have less than 50. less than 15 customers on the cloud, and it will continue to build up. So we are becoming there more and more efficient. So it takes time, but I confirm indeed that it's a business proposition where margins are extremely high. But not at the beginning. You need to have your head.

Thank you for that clarification. That's all for me. Thanks.

Any other... And the next question comes from the line of Guy Sips of KBC Securities. Please go ahead.

Yes, thank you. I want to concentrate on green hydrogen solutions. So what makes you say that in Europe the market sentiment began to improve in Europe was one of the items on your slides and you mentioned several large projects reached financial investment decision. How many of these projects are now dedicated or will choose Zirphon and so what is your penetration? Thank you.

Okay, I will start and maybe I will pass the mic to my colleague Georges Thomas who is in charge. You know, hydrogen projects are very visible. These are hundreds of millions in terms of amounts, sometimes billions of investments. And for this, we are a small part of it, as you know, as a membrane, but we have a good pipeline visibility. So what makes us think that in 2027 we are going to build it again? George, what can you say actually to explain this?

Well, if you look at the pipeline of projects in recent announcements of the FID final investment decisions of larger projects in Europe, as well as if you look at the recent auctions of the new capacity that have been successful, you will see quite an acceleration of projects coming to FID and going forward. particularly in regions such as Spain, but a bit across all over Europe. For 2037, and I cannot exactly explain which of the projects we are engaged in, but that would be also revealing confidential information for Mark, right? What I can confirm is that the good number, and I would say the large majority of projects that are flagged for water alkaline electrolysis, which is the technology where we play, have been seized or have been run by our direct clients. And I can also confirm that these direct clients have started discussions with us on commercial terms for the supply of these. So we see good indications that, indeed, 2027 will be a rebound as we start to supply these projects. Further than that, towards the longer-term future, if you are also aware, in terms of the national deployment of the Renewable Energy Directive, RET 3, you will see that the pace at which the national governments are now deploying or implementing this directive into local legislation is increasing and the perspectives are that finally Europe is picking up speed and taking back lost time.

Just a question on this project in Spain that you were mentioning. Is that the MOVE project that ThyssenKrupp did win recently?

Well, you know that ThyssenKrupp is historically a client of us. You know that they have a MOVE. So you can connect them up. But I will not confirm that. Okay.

No, no, it's based on real projects. Okay.

Thank you very much. At this point, there are no more questions, and I hand the conference back to Pascal Giray for any closing remarks.

Thanks a lot. Okay, so in a nutshell, again, confirmed outlook, but as you've seen with, well, with film, imaging and chemicals better than what we expected even a few months ago. There are some more difficult but short-term. The rest of the business, DPS on track and LCRIT on track. And overall, I hope that the message that I want to give you is the restructuring and saving the plan that we have put in place is now deployed and starting to have its full effect. And you can see it in the results. And it shows also, and I want to insist on that, our ability to really navigate the market conditions of silver very efficiently in such a volatile context. And, of course, I want to stress also the drive we have to make sure we are managing our cash, liquidity, and, for instance, working capital in this context also quite tightly, I would say. So the market context is what it is, but in this market context, we believe we can indeed deliver the outlook we presented to you. Thanks a lot for your time and attention.

This concludes today's call. Thank you for your participation. You may now disconnect.