Agfa-Gevaert NV ($AGFB)

Ladies and gentlemen, welcome to the Agfa First Quarter 2026 Results Conference Call. [Operator Instructions] Now I will hand the conference over to Pascal Juery, CEO. Please go ahead, sir.

Good morning, everyone, and welcome to the Agfa call. I'm sitting here in Mortsel with Fiona Lam, our CFO; Viviane Dictus, Head of Investor Relations; and the executive team of Agfa. 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 outlook. So first, highlights, well, clearly, Q1 for me is a robust performance in [ positive ] top line coming from pricing film area and volume impact in Digital Printing, the rest of the group being slightly below last year. Strong EBITDA increase year-on-year. Last year was a relatively weak quarter for us. It reflects our ability to implement efficiently our saving 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 film activities. As you know, we've been seeing a tremendous increase of silver, I would say, since 1.5 years with price having almost quadrupled in the same period. And these results show our ability to navigate these market circumstances with efficiency. Saving programs that we have launched last year, I'm happy to report we are now in annualized savings of EUR 57 million. If you remember, we talked about the plan of EUR 50 million first, and we launched at the end of last year, another plan for an extra EUR 25 million. 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 this is also what you see during the first quarter of the year. Silver, of course, had an impact, specific impact on the cash for a very simple reason. When we buy silver, you have an approximately 5 to 6 months cash cycle before you recover it in terms of cash from your customers. The P&L impact is faster, but the cash impact of course, is -- takes a lot longer and it has of course, a tremendous impact on the cash of the group, and especially for the working capital, more than EUR 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. HealthCare IT, I would say, transformation to SaaS on track. However, as we repeatedly said, the 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 a 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 on 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 at least. 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 3 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, that 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% growth top line for the first quarter. So it shows that what we've seen during Q4 is being 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 through a trough during the '26. And last but not least, Imaging and Chemicals with our business, as you see, a significant increase in adjusted EBITDA due to savings and what we did around silver And we also discuss, of course, DR, where here I would say things are -- 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 without currency impact is actually better. Like Pascal already mentioned earlier, the group actually posted a 1.7% comparable sales growth because of the higher silver prices. You also see on a comparable basis, actually the Industrial Solutions also has a growth even though GHS was soft but DPS was stepping up in that context. HealthCare IT on a comparable basis is roughly 5% down without currency because of actually if you recall last year, the first half of year of HealthCare IT was extremely strong. And this year it will be in the normal seasonality. We still expect a full year of HealthCare IT, which lead to a certain growth. If you look at adjusted EBITDA, a step-up of EUR 10 million for Q1 driven again by Imaging and Chemicals, largely related to the savings program now that we have larger savings program kicking in now starting this year. Step by step, you see that as well. And the ability, of course, to pass through the silver impact to the market so that we don't have any negative impact in our P&L on the film parts. For Industrial Solutions, you also see a step-up, although the step-up could have been larger if we don't have the headwind of GHS. But all in all, you see the step-up driven by DPS on this. HealthCare IT, I already mentioned, is a seasonality of Q1. Q1 last year and Q2 last year was very strong. And so with the good cost control, et cetera, they still are delivering good decent numbers on bottom line. Corporate is more or less in line than what we expected, the seasonality as well. Thank you. Next slide. If you look at the bridge, it says about the EUR 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 rate has 0 impact. And then you see the gross profit of HealthCare IT driven by a strong first quarter last year, and this is a bit down and you see also the step-up of Imaging and Chemicals on the gross profit because of the saving programs and the silver pass-through ability. All in all, also the Agfa team delivers, I think, a resilience continuous cost control. And you see also R&D, SG&A, continue to contribute with significant tight cost control that also contributed to the results. So it's been a decent, good solid quarter. On free cash flow, I must say I'm pretty happy with this result, even though we see a first quarter of minus EUR 42 million free cash flow. Bear in mind that there's a EUR 41 million silver impact with the resilience of all the efforts which is continuously on working capital improvement, it really delivers. We have been already in the last, I think, 6 quarters improvements of working capital and this can counterbalance the silver impact that we have for this year, for this quarter. CapEx is expected and also provision and 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 0 at breakeven level, which is significant to be able to fund the pension and all the transformation programs in this case. If we look at the next slide on the net debt, financial debt evolution, we are also evolving right. Of course, you see in Q1, normally, it's always a step-up because we need to build the working capital time line again. But despite the silver, you see the working capital time line is still significantly lower for all business units. And therefore, we, at the end, we step up by -- from EUR 21 million to EUR 58 million. If you look at actually on the revolving credit facility, we draw in Q1 EUR 129 million of the EUR 180 million. For Q1, there's only one applicable governance, that's the liquidity headroom, and that is at EUR 120 million of the minimum of EUR 30 million. As for the reference of all the other ratios, it's not applicable in Q1 but applicable as all from half year testing. We actually have also a good headroom there. Leverage, you can see, is 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 EBITDA, we actually step up the headroom compared to end of Q4, now to EUR 51.6 million with the good EBITDA result. In terms of numbers, I think I don't need to repeat it once again. You have seen them the same as in the first two slides on this one. Maybe just next slide for the...

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

Yes. It's also same as in the bridge where it shows R&D, SG&A significantly down, and you can see it here, basically EUR 8 million down. That's a conversion of the graph, you see them. Next slide would be good to just shortly discuss because we didn't show them in the graph. You see the net result at the end is also still a negative EUR 12 million, but it's a step-up of -- compared to last year of EUR 8 million. And that has to do with the better operational adjusted EBITDA performance, although we have adjustment restructuring expenses which is higher for this quarter and in line with net financing cost expectation and taxes is a bit positive as well.

Thanks a lot -- no, free cash flow, sorry. We already showed it in the graph.

Yes, free cash flow we already discussed in the graph so it's exactly the same you have seen.

So let me turn now to the business, HealthCare IT. Well, as already said, indeed, the cloud transition continues. That's going to be lasting for the next year I would say. Again, I repeat more lumpiness in the order intake for 2 reasons, larger contract, very long-term contracts. It's not unusual right now that we sign 7, 8 or 10-year contracts with our customers. So larger amount and larger customers as well. Our net new customer size is significantly higher than the average of the installed base. So indeed, we shouldn't be looking at these results 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%, net new customers 18%. And as you see recurring business, 1/3 compared to project business, 2/3. So it was, again, kind of a soft order intake quarter, 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 #1 in 3 out of 4 categories. So we are #1. I show this slide -- I've been showing this slide again and again and again so that we really try to explain that 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 embedded growth. So it's all good news for us. Now the numbers, minus 10% is unadjusted by currency. Adjusted by currency, it's minus 5%, a little bit less than minus 5% actually, but with recurring increasing 5% and project revenue decreasing more, of course. So in terms of EBITDA, quarter-to-quarter, well, again, it can be a bit lumpy. Last year, we recognized significant number of licensees. So project business model, not this year, but we confirmed the overall guidance for HealthCare IT 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 quarter -- second semester than first semester. Last year it was a little bit more balanced. 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 for us. So a number of machines is one thing, but what's important as well is the size of the machine you're selling, and for us, also the ink 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 DPS 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 a bit the market introduction. In, for ZIRFON, for the Green Hydrogen membrane, this is the area where we have announced already that '26 was going to be a trough 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 in 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 decision, we are a lot more confident for '27 where we're 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 a retraction of the sales in the membranes in '26. Overall, when you look, and this is a new reporting, when you look at the way it works for DPS, it's a bit like in other businesses, meaning the second part of the year is much stronger 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 how this market works. We install about 40% of the equipment of the year in the fourth quarter. This is the way this market works. Okay, so these are -- this is a 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're also in control of our pricing and overall product management, which means today, even in a context where we have to face significant variation in silver price, we were able to stay on course and restore the profitability of the film. So that is -- that is for me extremely positive in a context where the film 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 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. 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 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. And 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 in March. However, when I go in further details, there are a bit of changes, I would say. HealthCare IT, no change. 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 digits percent versus last year. Actually, this should be the first year where we will have more than EUR 200 million in order intake. That's a bit what we -- bit what we had in mind, which is we are breaking record after record actually. Industrial Solutions, then there is a change. I mean, 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 improve volumes short term. 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 a bit different. And I also want to stress that what we are going through with ZIRFON in '26, we're 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 I'm going to stop here and take the questions of the analysts and the press, if any.

[Operator Instructions] And the first question comes from the line of Alexander Craeymeersch of Kepler Cheuvreux.

Alexander from Kepler Cheuvreux here. First one would be on the Imaging and Chemicals. I see the adjusted EBITDA rose there from EUR 2.6 million to EUR 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?

Okay. So I can start and you will complement, Fiona, if that's okay. Well, I think the savings are there, and they will continue to amplify. 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 -- 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 and even be amplified. For silver, the way it goes through the P&L is first with some revaluation of inventory and increased selling price. So you've got these 2 impacts and the negative impact of silver in the production cost. So -- but overall, we are not splitting. You want to -- Fiona?

Yes, maybe the answer to your question is if you look at full year basis, in principle, you do not expect silver really have an input because we pass through the silver impact to the customer top line and bottom line. There is a timing impact because in Q1, 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 cutoff in the end of December.

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

Okay. Can you hear me better now?

Yes, that's better.

Yes. So I was saying on silver, if you look at a full year basis, you should anticipate normally we are not earning more profit bottom line on silver because we are passing 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 timing 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 3 to 6 months. So that means basically in Q1, we have a large impact because the inventory were still from end of last year. Q2, you still have some impact because it depends on products, some are conversion cycle 3 months, some are 6 months. So on a 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 largely in Q1. The rest of the improvement is on the saving program. Of course, you also know in the saving program, also a part of that got counterbalanced by the film decline as well. So we will have a good Q1, Q2. Second half of the year, there would be also holiday seasons of summer holiday, lower factory output, also Christmas lower factory output. So you always see also in the past years, second half of the year on the Film and Chemicals is always a bit slower in profit on that regard, even though you have normally a high seasonality 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 Q1 and Q2.

Don't multiply the first quarter number by [ 4 ], Alexander, basically.

Yes, it's -- Okay. It would be handy, of course, and a bit providing a bit more comfort into the increase in profitability if you see that split between the silver timing 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 the 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 2 comments?

No. Well, as I said, don't look quarter-by-quarter, please, because it's, as I said, it's lumpy. 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 significantly -- are significant when you are -- when we are landing like almost a EUR 30 million contract, that's -- this is the order intake of the first quarter. 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 contract. Actually, I would even say today in the U.S., 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 contracts. And we have extremely little today 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 SaaS transition. But again, I repeat, at the end of the year, we will be growing the order intake, and I expect the 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 always a 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 it from a longer period. But I think the key message here is, first, we are winning in the cloud. We are winning contracts today against Sectra and Visage in the cloud. Historically, the 2 fast 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 new -- net new customers. We increase always the recurring sales. And as I told you now it's almost close to 70%. It was 50% 3, 4 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 installed base. So all this is very positive. What is not positive is the fact that the business model being changed. It's a significant delay before it hits the P&L because an order intake that we take in SaaS normally typically it's at least 9 to 12 months implementation time. That's why. Sorry for my long answer, but...

No, that's clear. And maybe if I can do -- yes, maybe one small follow-up in that respect. And this can hopefully not sound a bit too punchy, but it's basically that the cloud is supposed to be a higher-margin business. So I'm following 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 lumpy. 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, I don't. So I -- thanks for the question, and I think it's a good opportunity to clarify. Yes, cloud margins are -- will be higher than project margins. However, we are just at the beginning. Remember that for the time being, we have 8 customers on the cloud, okay, more or less. And we had actually 4, I think, or 5 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 are 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, okay? But we are doing that, and we are already seeing significant improvement 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 20 -- we will have less than 15 customers on the cloud, and it will continue to build up. So we will -- 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 -- any other...

And the next question comes from the line of Guy Sips of KBC Securities.

I want to concentrate on Green Hydrogen Solutions. So what make 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 ZIRFON? And so what is your penetration?

Okay. I will start and maybe I will pass the mic to my colleague, Jorge Tomas, who is in-charge. But hydrogen projects are very visible. These are -- these are hundreds of millions in terms of amount, sometimes billions of investments. And if you -- 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 '27, we are going to build it again. Jorge, what do you -- what can you say actually to explain this?

Well, if you look at the pipeline of projects in recent announcements of FID, final investment decisions of larger projects in Europe as well as if you look at the recent auctions of new capacity that have been successful, you will see quite -- you will see one, an acceleration of projects coming to FID and going forward, particularly in regions such as Spain, but a bit across all over Europe. For 2027, and I cannot exactly explain which of the projects we are engaged with, but that would be also revealing confidential information from our clients. 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 a 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 projects. 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, REDIII, 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 last time.

Just a question on this -- the project in Spain that you were mentioning, is that the [ MUF ] project that thyssenkrupp did win recently?

Well, you know that thyssenkrupp is historically a client of us. You know that they have like MUF.

So you can connect the dots.

You can, but I will not confirm that.

Okay.

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

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

Thanks a lot. Okay. So in a nutshell, again, confirmed outlook. But as you've seen with an asset -- well, with Film, Imaging and Chemicals better than what we expected even a few months ago. ZIRFON, more difficult, but short term. The rest of the business, DPS on track and HealthCare IT on track. And overall, I hope that message that I want to give you is the restructuring and savings 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.