Agfa-Gevaert NV (AGFB) Earnings Call Transcript & Summary

Hello, and welcome to the Agfa Half Year 2023 Results Call. My name is Laura, and I will be coordinator for today's event. Please note, this call is being recorded and for the duration of the call, your lines will be on listen only. [Operator Instructions] I will now hand you over to your host, Pascal Juery, the CEO, to begin today's conference. Thank you.

Thank you very much, operator. Good morning, everyone, and welcome to Agfa's conference for Q2 results. I'm sitting here in Mortsel with Agfa executive team and of course, our CFO, Dirk De Man; and our Investor Relationship person, Viviane Dictus. So First, I would like to remind everyone that the story of Agfa is a story of a company in full transformation and that the transformation is in progress. About 50% of the group activity is with film mature to declining activity whereby the other 50% of the activity is operating in a market that we believe represent the future of the company and are offering significant growth opportunity. So it's still very much a company in full transformation, and this set of results is showing that very clearly why. Because first, I would say this is a positive of this result. When I look at the growth engine of the company, they are all very positive top line and in an economic environment that is not very supportive, in fact. When I look at HealthCare IT, we are growing 6% for the semester, 8% for the second quarter, and that's actually also having a negative currency impact by the way. For digital printing services, and remember that DPC is a growth engine, but in fact, half of the DPC in the industrial film, so in legacy activity that are declining. So digital printing, if you look at digital printing, we are growing the business 25% in the semester with the Inca acquisition. If I remove the impact of the Inca acquisition, we would be growing 5% in a market that is quite actually overall depressed. If you look at the offset printing the Flexo market, and I would say this 5% organic without Inca. The good news where it contracted as well, and equipment sales would be below last year due to the economic environment in the first half, but the consumables will be strongly higher than last year, 8% to 10% for things like inks. Third growth engine, ZIRFON. On ZIRFON, I'm not going to give a percentage. It doesn't make sense. Actually, we are multiplying by 4 the activity of their fund compared to last year. As you know, and although during the first half, it was not actually producing results. On the contrary, we were spending money to develop it in [indiscernible]. It will produce results during the second half of the year. So DPC is indeed a bit dragged by the traditional activities, and that's what you see in these results, which are not as good as the first quarter. Actually 2 reasons for that. The first reason is the traditional film activity are mainly, in fact, exposed to China, which today is not good news, let's say, in terms of market perspective in 2 areas, the level of demand, of course, but also the inability to price in the Chinese market and very clear about it, it's complex. And the second point that has been impacting DPC is we have suffered manufacturing inefficiencies that led us to actually write off inventory. If I remove this impact, actually, DPC is really on track in terms of growth. And what you've seen in the second quarter will be corrected in Q3 and Q4. We do have top line pressure on the other activities. And you will see it in radiology. We have pressure in the market and in the margins. And also here, we find that China as the main exposure where we have these issues. So that's very clear that, it's a very complex evolution. And as you know, the transformation of the group is to replace the legacy activities with the growth activities. Sometimes, we -- the name of the game is to grow faster and to generate faster growth from the growth engine that we are moving out to speak on the legacy activity. This quarter was a quarter where it was a bit more difficult to do for us than the previous quarter. But I think during the second half, we'll get back to this reason. I want to stress as well that currency has been adverse, as well. The dollar and especially the RMB for us, given the size of our Chinese exposure. So it works against us and if I look at -- remove the impact of the currency, the story on the bottom line is also a bit different. Now the outlook. As I said, DPC will continue its progess. So no doubt, I think a number of things happened at the end of Q2, that the team is confident going forward. First, we are starting with ink swaps. We were not in a position to do that during the first quarter. We are just starting to implement this strategy, ink swaps meaning we are addressing the [indiscernible] things with success for the time being. As I said, ZIRFON made progress on productivity. ZIRFON was still a drag during H1. It will be a positive factor during H2 because we have already made some progress. Are we at the end of the progress, absolutely not. But now I can surely say, yes, their fund will contribute positively. Radiology will be stable, in fact, more stable to where we are today. We still have the pressure from China that's not going to go away. But the good news in this area, it's not so much margin related. It's not so much volume related in China. We are not seeing a decrease of the volume of the market, we are seeing pressure on the margins with pricing in China due to the procurement activities in China. The market does not really disappear. So we expect stable radiology is still declining, and we are making progress on the bottom line. HealthCare IT, well, the good news is the story of HealthCare IT was first to restore profitability, which we did a couple of years ago. In fact, but now we're in a phase where we start generating some growth, is only the second year actually in a row that will generate growth. However, this growth does not get fully transpired to the P&L. The growth is more on the project side, while we still have a bit of a challenge in the service revenue part, where we are hit by 2 things. Actually, inflation that is difficult to reflect on selling price due to the nature of the structure of our contract but we are working on that. And the second part is the growth that we have been generating now for, I would say, 1.5 years, has yet to fully translate into service recurring revenues. There is always a bit of a lag, in some specific cases, there could be a larger lag, especially when we made contracts with the Department of Defense in the U.S. So I think more important for me to repeat, if we are growing in the market, it's because we are growing our presence. We have new -- net new customers. These net new customers are not yet contributing to service revenue, but they will. So I want to stress it again today, meaning that -- on the outlook, we still say, yes, we -- overall, H2 is going to be a lot stronger than H1, but also at a seasonality impact, whereby you make most of actually our profit in HealthCare IT in Q4, what has been the case in the past 2 years, it will still be the case. So that's the overall comment I wanted to make very quickly, not going to dwell so much on this slide and the next slide as you see that -- sorry, got the wrong picture. You see that it translates first 6 months with modest growth, but in fact, the significant growth in the growth engine and the decline in the film traditional activity. And while the second quarter was not as favorable as the third, we were below last year. For the first 6 months, we are above last year, and I expect H2 to be better actually than last year. This will restore a bit of profitability. But there are still a lot of restructuring and nonrecurring less than last year. We will start to [indiscernible] not to an end, but it's going to decrease. We gave you a guidance. I think can we stick to this guidance today, EUR 35 million for the year. Indeed, and therefore, the cost of transformation is still going on. We see some of the benefits of it -- if you look at SG&A, totally under control in a high inflation context, it's part of what we do on productivity and that is also fueling the transformation of the group. I'm going to now turn to you, Dirk, to present the cash elements.

So let's start talking about trade working capital. And just to be clear, this is the sum of the 3 divisions. So it does not include contractor operations because it's very hard to make comparisons versus last year. And so if you think here is that we're seeing significant progress versus last year in terms of the reduction of inventories. And so versus last year, we reduced 21% -- and as you know, usually in Q1, Q2, there is a buildup, that's the seasonality of Agfa. This time also, if you compare versus Q1, we're actually decreasing, and that translates into a serious reduction of inventory days also, 23 days. So we can start seeing the results of some of our efforts. It's to start because we are eliminating excess inventories from the past. So we're not yet at the level where we want to perform. But it's a good start in terms of our program to reduce the inventories. So if you look at the bottom line percent of sales, working capital, so we ended up in Q2 at the same level, 32% as Q4, and Q4 usually is our lowest percentage of the year. I think the question came last time in terms of what does it mean with contractor operations, so that percentage would be 33% in terms of where we are targeting to end up at the end of the year is at 30%. So we do still will reduce the working capital through the second half year and we're targeting to end up around 30% for the end of the year. So if we then move to the next slide, the free cash flow. So the free cash flow is quite negative at minus EUR 45 million. There's a couple of elements to highlight. First, trade working capital, despite the progress in the 3 core divisions, this is really the effect of the externalization of our relationship with the former Offset division. So basically, the receivables that used to be intercompany or neutral for the company now became external receivables, and that's really the explanation of the increase. CapEx is slightly higher than last year, and it was driven by the investment program of [indiscernible] as well as some investments regarding energy efficiency. Provisions and other are traditionally higher in the second quarter because the core element there is the payout of the employee benefits that traditionally happens in the second quarter. Income taxes were slightly positive. So there was a money received in terms of taxes. And in terms of pensions, I'm not sure if you remember, but in the first quarter, we had a slightly higher amount because we stayed a bit -- some of it a bit earlier in March rather than April. So here, we see the other side of it, a bit lower in the second quarter. But year-to-date, it's in line with expectations and guidance. Restructuring and nonrecurring a bit lower than in Q1, significantly lower than last year, but still a significant amount in the quarter. So if we then move to the next slide in terms of net financial debt, so we still are in a net cash position at EUR 14 million, but obviously, decreasing quite significantly versus the previous quarter, driven by all the investment programs.

Maybe you could comment here that we are expecting a second half that is cash positive.

So the prediction is in the second half to be cash positive. Obviously, another point that still needs to be settled is with the proceeds of the transaction of that offset. I think previously, we said Q2, Q3, in terms of signing, it looks right now that it will be more Q4, Q1. We are progressing and discussing, but it's taking a bit more time than we originally anticipated.

And we have also the subsidy that we are due to apply for [indiscernible] we successfully passed on that's also an element of cash that might influence a bit '23, but more '24 I guess.

Yes.

Okay. HealthCare IT. So HealthCare IT, indeed, the good news for us is we continue to grow, and we continue to add customers. We're in a situation where we are adding customers, and we are adding customers now for, I would say, over a year. However, it doesn't yet translate fully to the P&L for the reasons I was explaining. First, some cost inflation in the service recurring revenue that cannot be immediately passed through to customers and this bit of a lag of the growth from [indiscernible] into recurring revenue as well. But what I want to stress here is we still have a very, I think, very healthy business. If I look ahead, the order -- the healthy order book, which is actually increasing in Q2, 11% growth in the rolling order intake versus last year. So it's still -- we are still very strongly in growth territory here and these are the leading indicators that say, okay, in a few months, it will translate into sales and then later into service revenue. In sales, so the top line for the Q2, 8% versus last year. However, we are dragged by this higher-than-expected cost inflation and the fact that indeed, when we look at the development of our sales mix, it's a bit unfavorable. I want to stress that Q2 was better than Q1. Q3 is going to be better and Q4 it's going to represent just like the past couple of years and you say the best, the largest quarter by far and it will represent an outsized percentage of the yearly EBITDA of the business. If you turn to Radiology Solutions. So a very different story here. Our Radiology Solutions is mainly the largest business is our film sales. They represent a smaller part of the business. And here, the dynamics is clearly a dynamic of negative dynamics with negative top line growth mainly coming from price actually than putting pressure on our margins. And as you've seen, therefore, a very subdued activity for radiology. Here, the main part of the story is really the continuing pressure that we have in China that's not going to stop. The DDP process is not yet fully implemented in China. So we expect to be facing these difficulties going forward as well. India, we continue to make progress, but the progress of BR is not sufficient to offset the decline in film. So we have taken action in terms of adapting the cost to serve, and we will continue to do so as we see fit, and therefore, you see the result is a gross margin that is a bit under pressure and EBITDA that is below last year. DPC. So DPC is more complex because it's a EUR 400 million business, and I could say that roughly speaking, half of this is in additional activities and half of it in growth activities. So I gave you some color already on the growth engine, especially digital printing. Now if you look at the overall growth of the division on 6 months, 13%, I told you that for digital printing, it was 25%. So you can understand easily what is the pressure on the legacy part of the business. We see here, as I said, difficulties in the market. This being said, we have taken the price action. We have, for the first half, I think we saw the profitability because we are better than last year in terms of EBITDA generation and this, I would say, low Q2 quarter. So I'm not expecting to repeat in Q3 and Q4. Actually, we believe that we will be back to a better performance. So good news on digital printing. As I told you, our ink business is doing well, even in a context -- overall context where in a lot of other thinking areas actually more decline than growth in this business. I think it validates the choices we have made to be a pure player in digital inking, which is really the growth area in the printing world, even in the kind of the recession like environment. We have started to sell several now printers with Agfa ink that worked very well. We have now our inkset that is ready for what we call ink swaps, meaning we are starting to replace non-Agfa inks at the onset install base, and we are doing that successfully for our customers. And the next very exciting thing that's coming up is we are preparing for next year, I would say, the first phase of the launch of the SpeedSet 1060 which is a single pass packaging printer, which is changing a bit the game for us in terms of productivity and market access. I was myself with the team beginning of July to -- for the soft, I would say, not opening, but the first run of this machine after months of trial. It's very impressive to see the speed and productivity that this machine can offer actually, it's time what exists today in the market in terms of productivity. So it's really, we believe, the game changer, and we'll have the first customer event at the end of the year to present the product, and '24 will be a first year where we'll work with probably beta customers to launch a product. On the ZIRFON, we are happy with where we are. We are more than 100 active customers now and growing almost every month. However, let's face it, the first 3 represents the vast majority of the sales today. We have -- we clearly have seen our customers investing a lot in capacity of electrolyzer, a number of projects that we announced are in construction, and the good news we have also is that actually, we have been selected for European innovation from Grant. It doesn't mean that everything is signed off. But normally, I mean, it's just for us to follow the process to get the subsidy, which is a good illustration of the value that technology offers. It represents about 25% of the estimated investment on the side for this subsidy, so it's quite attractive. Last but not least, it's not on the bullet point, but as I told you, the productivity is improving. Don't forget that we started producing industrially really on a regular basis just in the fourth quarter of '22. In a few months, we already made significant progress in productivity and the pure message, so that instead of being a drag their funds start contributing actually to the results of the division. That's for the growth engine, but the rest of the activity is under pressure. Strong weakness in the electronics industry, where most of our sales are actually in China. We see no improvement whatsoever in the situation in this area and we are under pressure for both volume and price. We have been successful to keep price increases every -- in every market, but in electronics in China actually. So that's why, and as I said, we have a weaker quarter based on specific one-off, specific stock write-off we had to destroy that quality product during the quarter, and that's impacted very much our activity this quarter. [indiscernible] Maybe I can back to you?

Yes. Thank you, Pascal. So basically, a bit of a repetition of what we explained also last time. So contractor operations is representing the supply towards ECO3, to form our offsets. In the top line and the cost of goods, it's really about the film and the chemicals in the G&A and the other income. It's more about the transition services and long-term support agreements that are included in there. So last year is the construction, was the same in Q1 since we were still having offset as part of Agfa. The key point to note is last year, we were representing it in line with IFRS differently than the reality of this year because we do have stranded costs related to the disposal. And last year, they are included in the comps division. In 2023, those stranded costs are allocated to the division. So they are part and absorbed in the divisional performance. So -- and on the left-hand side, you can see that the stranded cost comparison Q2 versus last year. So the EUR 3.4 million is included in the numbers of comps with EUR 2 million of '23 is included in the divisional results. So -- and that partially explains some of the performance comparison versus last year. Back to you, Pascal.

Yes. Just a word of conclusion. Again, the story of transformation is ongoing. And the name of the game for us is to make sure that our growth engine can outperform, I mean say, so to speak, the decline that we see in other activities. That's really what it's about. We do that in a context where currency actually has turned against us due to our exposure to China and also a very global company, largely exposed to the U.S. dollar as well. We are doing that at a time where we are showing the group as well. And indeed, as pointed out by Dirk, we are busy eliminating, I would say, what we call the stranded cost of selling 40% of the group. But -- so we are doing that. In spite of that, I mean we -- I'm really encouraged by the fact that, yes, I mean, growth engines are working top line, we made the right choices in terms of where we wanted to play, digital printing, ZIRFON and even HealthCare IT. I mean we are outgrowing the market very, very clearly here. So it really works. We have yet to release the issues that we need to translate in the bottom line. As I told you, ZIRFON was a drag. It's going to be beneficial. We have this a bit of a lag impact in HealthCare IT here, that we need to work on and we are actively working on. And indeed, we have not yet fully turned the corner in this aspect. On the cash side, it's a major area of focus for us. So as you see, we are very active to take steps to improve our working capital management, and we expect on this basis to be able to generate positive cash for H2, as well, we have yet to receive the offset proceeds and [indiscernible]. So that's where we are today. I'm going to stop here, of course, and take your questions.

And I think the first question is Guy Sips. We had our -- for those in the phone, we -- the analysts are in the room and they will ask questions. So Guy Sips.

Yes. I have 4 questions. First is on ZIRFON. You stated before that it will be a multiyear investment. So on the subsidy, will that be back-end loaded? Or yes, how will -- what is the timing of that? And you used EUR 40 million investment in ZIRFON line. So -- is that a good benchmark for this 25% of EUR 40 million?

It's a good benchmark. Now to the first -- okay, go with your question, we'll answer.

The second question is related to the digital print. That's sometimes my wife asks me to bring several bananas and some potatoes. So -- and then it will be difficult to guess the amount. You stated several that you sold several printers with Agfa ink and some ink swaps. So can you be a little bit more precise on that? And third question is related to yes, the business you sold last year, right. So -- and the money is now a little bit delayed. How should we see that money coming in? And is there a penalty for that? And is that money at risk? Or how should we see that? Is there any guarantees related to that? And last question is related to the pension last year same meeting. You gave an update on the midyear update, which is unusual on the pension. And on a few weeks after we had the offset solutions view. So -- of course, there was no link between the 2. But today, the first half, the interest rate rise is very much higher than we saw last year in the first half. So can you give us an update on the situation over there?

Thank you very much, Guy. So first, timing of the subsidy, thats on Wille.

Sure. I can take that one. So timing of the subsidy, first of all, we're following a codified process, let's say, by the European Commission. So we are following the grand process, of course. The exact amount and exact timing are still subject to that process. For all the players that are now receiving -- we're going to the next step let's say, we're 1 out of 49 companies that received the grant that can go to the next stage. Personally, we don't have an exact date yet with what we know, we expect it to be maybe 1/3 from front-loaded, 2/3 [indiscernible]. It is indeed a multiyear. You should see the investment over 2.5 years.

Okay. On GPS, so Guy basically wants to understand how many inksets that we sold, how many ink swaps have we done and...

So the...

Been modest, in fact.

Yes, modest but actually growing nicely. So in the first half of the year, we had 4 onsets in our sales numbers. We expect for the second half of the year that to be closer to double that amount. And that is new printers that all go in with our ink. We also are doing ink swaps at customers buying new printers, for customers that already have existing printers, for our customers actually not buying new prints, but just being interested in swapping their inks. And that is ongoing. I would say we probably have now about 3 to 4 that have switched, and we are working on multiple growing spots.

But it's quite a long process, ink swaps. It takes how long?

It takes -- basically, you have to start with an audit to make sure that the machine based on how they have been handled by the current user is still in okay shape to do an ink swap, but it's a multi-week growth, not a multi-month, but it's a multi-week process. So we have a dedicated team doing that actually across the globe. So we have strong interest mainly Europe and North America to do these swaps. And the feedback we receive from our customers is actually very, very positive.

Okay. So see, you got all the numbers which is offset...

The key point is it's progressing slower than we expected. This has to do with practical things, but I'd rather not comment too much. I mean, this is 2 parties discussing. We need to complete the financial audit of the closing balance sheet. And then we'll have potentially some discussions with the other party, but I'll prefer not to make any comments.

But can you confirm that the money is not at risk?

I can confirm that the money is not at risk.

So the money is not at risk, but it's just a normal discussion on specific points, nothing more to say than that at this point.

Just to maybe then pick up on this question. It showed the EUR 28 million that was initially planned on cash in is still EUR 28 million. That is not up for discussion because I mean, we have seen in Belgium in the recent months, some rediscussion of valuations. Valuation is not discussion point at all in these...

Valuation is not a discussion point at all.

Okay. Okay. Pensions?

We have not done in...

On pensions, I mean, we did it exceptionally because we had to reflect a number of things. We are not doing that standard. Last year we did it, this year we did not. And I think you can use the usual sensitivities to think about the impact, but we will do the update at the end of the year. And obviously, the discount rates are higher you should expect an impact on the pension valuation.

Can you remind us a little bit on the liability?

We, I think maybe, Viviane, you can...

25 basis points is about EUR 70 million, in both ways up and down on the liability.

Maybe a question from my side, and I'm not sure if you hear me on the call.

Please Laura.

Laura Roba, Banque Degroof Petercam.

We hear you well.

Great. I will start with 2 questions. The first one on HealthCare IT. So with the EBITDA now expected to be slightly down versus 2022? How does that impact the initial guidance of the Baltic group in EBITDA, which was initially planned for this year, but what is the delay there now? And then a question on DPC. Could you elaborate a bit on the manufacturing inefficiencies and how confident are you that this will not impact H2?

Okay. On HealthCare IT, first, I don't think -- it doesn't change anything to the story for me. It just it takes a bit more time to get there. Now we need also to look at the market trends in HealthCare IT and the market trend is we see more and more consolidation of hospital services or the health care disease in which what we do has an impact. And also, we are seeing more and more, especially in North America, the trend to go to the cloud, to cloud-based solutions. We believe we are extremely well placed to serve this market need because basically, what we provide with our enterprise imaging system is the scalability, and we have demonstrated over the years. In terms of cloud, we are readying ourselves to be able to service -- to provide our customers this service. So to make a long story short, I sincerely believe we are well placed. We are one of the few players well placed to capture this market growth and we start doing that and therefore, I see -- I maintain the same midterm objective for us.

So Alexander Craeymeersch from Kepler Cheuvreux. So on Inca, you mentioned that the SpeedSet is going according to plan. But maybe could you remind us what the plan there was again and when it will be launched specifically? And then the second question is also on that because you mentioned that SpeedSet is going according to plan but print engine is not going to plan. But I think it was also going to be launched in 2024?

Which print engine, sorry.

Print engine, the one which is going to 60...

The BHS yes. Okay. which is a different...

So I'm just wondering like, okay, is that -- can we then confuse that, that one is going to be a bit delayed? And then maybe on the sales during the first -- in the Q1 call, you mentioned that you were very pleased with the strong recovery that you were firing up on all cylinders, and that was mid-May. So maybe could we just come back on the statement today and why Q2 was a bit disappointing? And is the visibility really that low that we're leading into this, like how should we see the outlook on profit over? And maybe a final question...

You're talking DPC or Digital Printing ?

DPC.

Okay.

And then maybe a final question for Nathalie. So in healthcare, we see your colleagues like Sectra have gained momentum and growing some market share. And also that market growing in size. So considering that these customers will be lost for multiple years. So just wondering what the main worry is for clients that they are going to colleagues of yours instead of Agfa and what [indiscernible]

Okay maybe we can start with SpeedSet and the engine because...

No, no problem. So the first question, Alexander, on SpeedSet, the plan was and still is -- actually in the plan, we didn't specify that end of this year, there will be a customer unveiling [indiscernible], which will happen. The plan was and still is for next year in '24 to have first beta unit sitting at the customer. Which means that of '25, we will beta phase is not a 1-month phase. It takes a portion time, but you will have first commercial sales of the public in 2025, and that was actually also the plan. On the print engine that we developed together with -- for BHS, it's absolutely not in line with the plan. The only reason we don't communicate on it is because SpeedSet is an Agfa product and Agfa launch. The print engine is a partner project, and it's actually BHS, bringing it to market. And so that's something we cannot do and want to communicate on our own, so to speak. So for the moment, there is nothing to say, but [indiscernible] is also going according to plan.

Can we say that we already installed one print engine at BHS facility? Or I already said it...

Which is indeed also according to plan is that we have -- there's a first printer that is already sitting there for several years at the customer. And there's a first beta unit, which will go to a customer, but which is now in the -- at our partner BHS for further testing as per plan.

We're talking 2 different printers here, we're talking. We're talking the...

What do you mean 2 different printers?

I'm sorry, we're talking here you say first printer was sitting at the customers -- and there is now the VHS.

The printer, the VHS printer. There was a first printer for which we make the print engine that is already at a customer Schumacher in several years. I think now 3 years in the [indiscernible]. So that was even prior to our acquisition. And that's the alpha unit, as we call it. There was a lot of changes, upgrades that we have made to come to the beta data unit, which should be the one that goes commercial. And that first beta unit is now fully assembled and running for tests at BHS, before it opens to a customer, and that should happen in the course of next year. These are printers that are very large and they are the size of the corrugator. They are the price of a corrugator, order of magnitude. So they -- this is a full production hall just for this machine. So these are machines also that takes several months to install.

Okay. Does it clarify? And clearly, to the comment we were saying digital printing goes fine for us, and we are progressing in digital printing. And the Inca plan is actually exactly on line with what we did at the time we made the acquisition. So we are really executing according to plan, I would say. HealthCare IT. So I think your question is more about competitive situation. Where are we? You mentioned Sectra, which is indeed the peer that is comparable peer in the market that doesn't have the legacy that we have. They came at a different stage. So the main difference between Sectra and us is we still have a lot of, I would say, legacy system backing that we have to deal with, which Sectra doesn't have. They only have the equivalent of what we call our enterprise engine system. This being said, can you comment on the Sectra, you need to speak in the mike.

Yes, and I will speak in the mike. So yes, Sectra is a competitor by all means. However, our -- on the North American market, and I specify North America -- the -- we operate on different market segments. So by definition, yet we're competitors, by presence we tend to operate in different market segments. Sectra is in the smaller to medium and we are more the medium to large. So I think they're trying to sell the risks, right, of the competition. So we have a similar solution, different history. We are carrying a legacy they don't. And so with that kind of balances out when we are in the market?

I would like to stress there are probably 12 companies that are playing in this market, okay? Sectra is a winner but there is not only one winner. We are also becoming a winner in this market. And it's not like a winner takes all strategy. As Nati explained, we have slightly different positioning in the market, meaning our solution is more suited for some type of customers. So it's up to us to engage in the right project for us. So we have a lot of respect for our competition. actually, we consider indeed Sectra to be part of the top, probably in the top 3 in the market, but we aspire to be part of this top 3 and I think if we are not already in it, we are not far from it.

Yes. And I think it's fair to say that on the larger segment, the larger customers, we are the leader in North America, the -- Sectra is not. On the small segment, Sectra would be the leader, but we are not wanting to compete and we're not getting into the lower. Our solution is directed towards large enterprise system.

And as I said, the market does consolidate in this area. It does consolidate on the private side, on the public side. I mean more and more, we see why? Because this is a way to get productivity out of the system running and then to have your resource management as well thought out. So it's a plus, which is the reason why we see actually active investment in the field, even in the market is not growing 10% a year. We see a lot of interest in renewing the technology and we are there.

Yes. Our customers face the same challenge in terms of inflation. So productivity, cost protectiveness, cost reduction or the summary driver and especially the ones that are very large where they can create a [indiscernible]. So this is our sweet spot for Agfa enterprise [indiscernible] very large.

Well, I would also say for HealthCare IT, remember that we have now a North American-based executive team for which the seniority, the average seniority of the site is probably less than 3 years. So we have a new team in place. So already, we are seeing momentum in the top line. We need also to give a bit of time to the team to establish well in this activity. . It was indeed a bold move to do what we did by moving the global leadership of the business in North America, which is absolutely a thing to do. We -- and I think that idea has been hitting the ground running, clearly, but we still have a new team that we need to integrate and to execute the strategy. I'm glad to say that for the time being, we have been able to do that without any disruption to our business because it's -- in a way, it could have been at least. All right. Any other question?

So maybe one more question. I think one day, that was said that, I mean, last time, you said that customers [indiscernible] I think the run rate aimed at was, I think, EUR 100 million, if I recall for 2025. Is that number now a bit high maybe?

We have more than 100 exit customers. That's completely correct. As Pascal is saying today, it's a handful of customers that are making up that the vast amount of our sales. I think the number of important customers for us will certainly increase in the next couple of years, but it will not be -- and we will have more than 100 for sure, but the actually big customers, the big electrolyzer players out there in the market, I think you will still be able to count on 2 hands to be honest. And those will be our most important customers. And so that will be the case between now and 2030, probably. So in our case, I think our outlook for ZIRFON is still in line with what we said or expected a year ago.

But what we are watching is the velocity of actually FIDs on the hydrogen project. That's what the pipeline is huge. Our customers are very busy building capacity as we speak. For instance, John Concrete will start their plans in Europe kind of this year, probably. Example, but there are lots of companies investing in capacity. We are there for them with our capacity. But the key question mark, is the ramp-up. Is it going to be a steep ramp-up? Is it going to be a more subdued ramp-up. Our visibility is probably already for '24. But further, I would say, it's difficult to have visibility -- a precise visibility, but we indeed see a very good perspective. And the good news is, yes, I mean, it's a good leverage. As soon as you've got volume, it's the last flight on the bottom line.

And you still consider it will be profitable in the second half of the year. On what level? On the EBITDA or already on the EBIT level?

EBITDA and EBIT, I think, yes, will be, but don't forget that we still be cash negative on the fund because we are building the new plants. Subsidies, yes, but subsidies would not cover everything. So we're still going to be investing cash in the sun. But yes, it's going to be positively probably.

To now what is already invested in ZIRFON?

The historic investment of ZIRFON. What are you talking about, R&D, industrial? I think in the past 3 years, we've probably invested, I would say, close to EUR 10 million.

I think it's a number of more than -- I mean it's more than 15 years of R&D and the pilot lines that are, in the meantime, also debottleneck upgraded and so on. So I think indeed over -- but you have to look over more than 15 years, there's more than EUR 10 million.

Yes. But of course, but in the last 3, I mean, to develop what we have today to sustain the market for the next 2 years is probably about EUR 10 million, I would say. EUR 8 million to EUR 10 million, which is a small industrial unit impact that we have. Laura?

Yes. Just coming back on my second question. I'm not sure you answered on the DPC and manufacturing.

No, absolutely, Laura, you're right. Sorry. I apologize, I apologize. Now what happened? You want to explain maybe what happened also, what's happening or...

Sure. But there was 2 effects in Q2. One was related also to our inventory programs that we're running to make sure that we reduce inventories wherever possible and which actually cleanups where we go much more in detail and take out stocks that are obsolete or that are perhaps not fully correct. So there was actually -- probably half of our impacts were stock corrections that we had to make and where we still expect a little bit of a sale in Q3, Q4, but actually the main premiums that happened in Q2. But there was also impact from that production, let's say, which, of course, the teams are tracking. These are very specific in every product line that we have 2 or 3 product lines where we have quality issues. Don't want to go too technical here, but I can assure you that with our operations teams, we are taking the necessary actions there to put that -- to put things right.

Yes. And indeed, we have a huge drive to work on working capital and therefore, reduction of inventory. So we are -- how can I say, leaving no stone unturned on this to make sure that what we have in inventory is saleable as value which we do. Any other, Alexander, you still have a...

If I may just ask one more question on the working capital basically. I think, as you mentioned that there's some working capital outflows that are mainly related to the divested division. Just wondering, will some of that be sticky to the remaining business or not?

But yes, what you see is the impact we had 0, we go to a receivable of about EUR 13 million -- it's a onetime impact. It's not going to increase.

[indiscernible] those receivables and then it will vary on its own over time.

That's not very much.

Well yeah.

All right. Well. Maxime is on the phone, if you want to ask questions, is welcome.

Sure, we'll now take your question from Maxime at ING.

Maxime Stranart from ING. So 2 questions on my end, if I may. First of all, looking at HealthCare IT, obviously, the guidance has changed quite materially since the full year 2022. It's a bit difficult to track what has happened there. So any info you could provide on, well, I missed the certainty you have on this guidance, but how can we expect this guidance to materialize as the 2 previous didn't? And secondly, looking at radiology. I think you mentioned in the press release that direct radiography was also impacted by some volume pressure, any additional info you could provide on that?

On -- again, on HealthCare IT, indeed, we are saying now that we are going to be close to last year because we have also a currency impact. Most of our business is the U.S. dollar impact. So that plays also a role in what we are saying today. And as I said, what I would say the growth is coming a bit under our ambition, although it's significant. It's coming a bit under our ambition. And as I said, we have a lag in transforming this project revenue into service recurring revenue, and we have specific inflation issue in service revenues. This is really the 3 areas that I can mention on HealthCare IT. And for Radiology, not sure about the question. Yes. Sorry, on DR, yes, we have been growing the top line of DR on a regular basis this past year. And right now, we are a bit -- this growth has stalled. And actually, we are a bit below last year in terms of sales of goods. I think it's coming mainly from Europe and a kind of a subdued market where hospitals are under pressure, financial pressure, and there is a renewal of the Agfa equipment is probably a bit more delayed. Well, it's not -- is it major? The answer is not. It's not major. But yes, I mean I could do with -- I mean I could do with top line growth in DR specifically to help the business, but that's -- but for the time being, that's not the case. We don't grow it anymore. It will come back. I'm quite confident, but we have a few quarters where we are a bit subdued on the top line in India.

If I may circle back on this one, do you have any view on when this growth may come back? Or is it like too to soon to tell?

For the time being, the way we look at our business, especially for goods is we have a good -- we look at our funnel and our order intake for the time being, the leading indicators have been improving a bit lately. But I cannot yet be sure that we are going to be back in positive growth in Q3. I don't -- I think it's going to take -- it may take a bit more time.

Brilliant. Thank you for your answer.

Thank you. Okay. Thank you very much. And time to conclude this conference. Sorry for the 10-minute delay at the start due to technical difficulties outside of our control, I am afraid, and thanks very much for attending this meeting. Have a good day.

Thank you, ladies and gentlemen. This concludes today's call. Thank you for your participation. Stay safe. You may now disconnect.