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

Ladies and gentlemen, welcome to the Agfa Second 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 thank you for attending our conference. I am sitting today with Fiona Lam, our CFO, and the rest of the executive team. And before I walk you through the results, I would just like to come back to the transition we are having today with Fiona Lam, who is going to leave the group by the end of the month, and the announcement of our new CFO, Declan Guerin. So I just want to publicly thank Fiona for the 2 years she has spent with Agfa, having an excellent impact and helping me in steering the transformation of the group. This is the last call that Fiona is going to do today with you. And there will be no vacancy because in November we will have our new CFO in place, since Declan will be starting 1st of October. So thank you, Fiona. Turning to the results. As you've seen, pretty resilient results, but a lot of moving parts, actually. If I start with the 3 growth engines of Agfa, I can start with HealthCare IT. Very good commercial momentum, very good order intake, excellent move to the cloud, a lot of net new cloud customers. But as I repeat every time, there is an impact of this cloud transformation, and that's the delay of revenue and margin recognition. And as you can see, the SaaS transformation of the business is accelerating because our order intake was 50% cloud-based during the quarter. But the message is also we are winning in the market. 54% of our order intake is with net new customers, meaning we are winning share, and we are able to win this share against the market leaders. DPS is back to growth for the semester after a 25 year that was a year of, we call it consolidation. We are back to double-digit growth, and that's very good, so it's very positive. And last, of course, the membrane is having, I would say, a very difficult year. The hydrogen membrane, it is a trough. We are part of a trough today where actually we are very confident to see a very sizable rebound in '27. But in '26, we are in a situation where our customers have already what they need in terms of membranes in inventory, and therefore it is a bit of a lost year for ZIRFON. But we remain extremely confident going forward about the growth potential for ZIRFON, and that will start materializing as soon as '27. So that's the state of the 3 growth engines. The resilience of the results is also to be credited to imaging and chemicals. Film in volume decline environment has been able to actually generate positive results. This is a reflection of the huge restructuring effort we have undertaken now for a 1.5-year that places us ahead of the curve today and is more than enough to compensate today the volume decline. And we are able to do that in a very turbulent environment, especially with the huge volatility on silver prices. We are able to navigate the market to increase prices to customers as well. It's a very positive thing for the group. And DR is, I would rate it as stable. So overall, quite, I believe, a good performance given the market backdrop. I will turn now to Fiona to walk you through the numbers.

Thank you, Pascal. So in terms of the numbers, a solid quarter like Pascal has said. The Film and Chemicals, Imaging and Chemicals, the silver impact on the revenue offsetting more than the volume impact. So you see plus 2.6% growth excluding currency. We are specifically pleased with 11% growth on DPS, although still not sufficiently offsetting the decline of Green Hydrogen Solutions because of soft market condition this year. But like Pascal said, the rebound we are expecting in 2027 in Green Hydrogen Solutions. We are also very pleased with HealthCare IT in terms of the transformation, the order intake, the recurrent revenue. So the quality of HealthCare IT revenue has been improved on track, even though we see a minus 9.5% decline in the second quarter on HealthCare IT in the current revenue, which is anticipated, because we also know last year we had a very strong HealthCare IT own license sale in the first half of year. So seasonality of HealthCare IT last year in the first half of the year was very strong, and we anticipate on HealthCare IT second half of the year would be basically offsetting that negative trend. If we look at EBITDA, I think we could say it's really a solid performance on the EBITDA. We see the step up of Film and Chemicals on the saving program that have adjusted our cost base for the decline. So we are able to step up from EUR 4 million to EUR 9 million. For Industrial Solutions, also there and also Green Hydrogen Solutions, a very small decline based a big cost on the top line, but the good cost control has been able to maintain a reasonable adjusted EBITDA level. And HealthCare IT is actually better than our internal expectation, even though you see a decline. We anticipated it, this cloud transition, we anticipated strong last first half year. So all in all, we are happy with the Q2 adjusted EBITDA because it is a very solid performance. Here you see also the bridge basically it confirms earlier we said HealthCare IT and Industrial Solutions were because of the top line decline. Imaging and Chemicals, the saving programs, were able to contribute so that the volume decline is offset on the gross profit. And then we have all the good work being done within Agfa on adjusting the costs and their savings are delivered and stabilizing our Q2 EBITDA as such. On free cash flow, so even though we, Q2, still consume EUR 10 million negative free cash flow, it is well managed. It's better than expectation internally because we actually have a large quarter of cash out for the expected transformation program, restructuring program which we have announced last year. So it is anticipated a large cash out this quarter. We have, of course, the normal pension. So if we look at that, all in all, our working capital has been managed very well, and also our provision, et cetera. Without, let's say, the impact of silver, it would be much better. But we managed to offset quite a lot of this negative impact internally. So a minus EUR 10 million cash flow is a good outcome for Q2. And that's, you can also see the evolution of our debt. If you see the net financial debt, basically in Q2, of course, it has been stepped up from EUR 58 million to EUR 74 million because of the net negative free cash flow. But we also know, like I earlier said, it is better than expectation. So we have now end of Q2, we draw EUR 130 million of facility out of the EUR 180 million. It's also provided at the end our Q2 covenants tests have sufficient headroom. You see liquidity headroom is sufficient compared to the minimum of EUR 30 million. Leverage ratio is stable at 1.4, and interest cover is also well managed and adjusted EBITDA governance is at EUR 52 million versus EUR 30 million. This is basically thanks to all the efforts and the business in the working capital improvements and also the better EBITDA as first half of the year. So if you look at the numbers, we just highlighted in the graph, the Q2 numbers here is worth also to have a quick look on the first half of the year. So first half of the year, we delivered actually EUR 10 million more adjusted EBITDA compared to last year because as you know, and still record, for one we have a stronger adjusted EBITDA in Q1 and Q2 is stable. So we ended with EUR 10 million more adjusted EBITDA compared to last year. And on net results, you see even there we are worse than last year. Just wanted to remind, last year in the adjustment and restructuring expenses, we had the AgfaPhoto that was being booked in June of last year, EUR 38 million. It was not cash being received, but it was booked in the P&L last year under the non-recurrence in 2025. Also, the net finance cost was another EUR 7 million because of AgfaPhoto that was being booked as well in last year. So all in all, you see without AgfaPhoto, our net results improvement step up is equivalent to what we have stepped up in adjusted EBITDA to be aware. Free cash flow is the same as what we have earlier said, minus EUR 10 million free cash flow. But also for the first 6 months, we are at minus EUR 52 million in total, and that's offsetting. Remember the first half year we have EUR 45 million silver impact of purchasing silvers for the stock ramp-up of our net working capital for that, and we were able to offset quite a large part of this and maintain a step up compared to last year of minus EUR 30 million to minus EUR 52 million. So that effect is quite largely managed from Agfa. Thank you for the transition to HealthCare IT, now for Pascal.

Thank you, Fiona. Healthcare IT, so clearly if I look at the P&L, 2 reasons as explained already why we are below last year per seasonality of last year. We still have more, I would say, project revenue and license very clearly on the transition to the cloud is the explanation of what we are seeing today. But I want to insist this transition is going well. And as you have seen, the order intake is increasing by 28%. I hope that I'm sure that we will break the EUR 200 million mark for the year, last 5 months. So cloud-based order intake more than tripled, which is showing really that this transition is accelerating. So cloud deals have represented 50% of our orders. What I want to insist on as well is it's done with net new customers, meaning we are winning new logos in the market, which shows that our offer is appreciated and extremely competitive, of course. And that really this momentum is really accelerating quarter-after-quarter. So overall, even if the P&L is not yet delivering this transformation, I mean, we are in the way of growth and profitable growth in HealthCare IT, and the order intake is really the best leading indicator we can use to describe our business. Overall, I -- again show the same slide that shows the impact of changing from license revenue to subscription model. As you see, it has a significant impact on the sales, and also, therefore, the profit with a totally different model spread over time. Then the number of, we've already commented this number, so I'm not going to dwell on it too much. But again, nothing is broken with HealthCare IT. On the contrary, we have good momentum in the market, and we are expecting also the second part of the year to be as normal. The fourth quarter will be the highest quarter. This is the seasonality of this business, and it will happen again this year. So now let me turn to Industrial Solutions. Here a contrast, I would say very good with the Digital Printing Solutions. After a year '25 where the growth was somehow subdued, we are now growing again, double-digit the business. And really what we are pleased to see is we are growing in the high-end market, in the high-end part of our offering. We chose excellent traction today, and of course, the consumables are part of this growth with sales of ink increasing across the board 10% as well. We do, for our high-end offering, receive a lot of customer recognition and actually awards. And we are not forgetting also to continue to build our offer in packaging. This time it's a collaboration with the software area to make sure we can offer the best full solution to our customers in the packaging segment. So overall, DPS returned to growth and good prospect going forward. Very different story for Green Hydrogen Solutions. '26 is pretty much a trough for last year. But there are things advancing very well in the background. First, the REDIII implementation is taking place now after some delays. We are seeing projects being FID'd in Europe, which we didn't see for some time actually. And we have an excellent momentum in Asia. We have our first sales in China, while still modest, of course, but that's a start. And we are also doing extremely well in India. So the message is, yes, short-term, '26 is not a good year for ZIRFON or the green hydrogen membrane. We already look at '27 with great confidence that we are going to rebound in the market. And we are also very happy to see that in the meantime, we are growing the recognition of the performance of the membrane, and especially in Asia, which are our priorities in terms of commercial development today. Turning to the sales, to make a long story short, what you see here is a DPS that is up and a membrane that is down. So overall, indeed, the membrane has an impact on the segment in spite of the good performance of DPS. Imaging and Chemicals. Well, where I'm really happy is the fact that somehow we have turned a corner in film. We were suffering from a significant volume decline in film, while we were putting in place our restructuring efforts. So now these restructuring efforts are going full steam. Savings are in place, not only in the operations but also in our go-to market. And we have turned the corner, and we are now in a position to claw back some of the profitability of film. And we are also doing that in a market backdrop that is not easy with the volatility of silver price. So although the volumes continue to decline in film, we are seeing an improved profitability. DR, well, Q2 was not a very good quarter for DR, but I would say that profit-wise, we are on par with last year. So nothing really to worry about. We have put together a renewed strategic roadmap for the business, which we are confident will provide the ability to grow top and bottom line in this business. So overall, here maybe I will show the P&L because the P&L is showing actually the cost efforts that we have made in Imaging and Chemicals with gross profit up in spite of decreased volume. So as you can see as well, our OpEx decreased, which is extremely significant and is a result of the efforts I referred to. Outlook, well, for HealthCare IT, we are seeing the rest of the year to continue with our momentum in terms of order intake. Same momentum, I would say, and profitability will be in line with last year's in the context of this cloud transition. Industrial H2 will be the same with DPS well oriented and ZIRFON still subdued. Again, we're not expecting any rebound in '26, but in '27 for ZIRFON. And we do have some visibility of the project and the customer orders. In Imaging and Chemicals, we will for the full year restore somehow profitability of film. It's going to be better than last year. Again, the trend will continue to adjust our cost to what we see in the market and will continue to be very proactive in terms of silver-based pricing. Cash flow for the year is expected to be more negative. We explained it. We don't have an AgfaPhoto this year, and we still have significant cash out related to the transformation and the restructurings that we are having for the company. But again, I want to repeat, even if the quarter results are today largely due to the good performance of film, nothing is broken with our growth engines. HealthCare IT is winning in the market, it's winning orders. DPS is growing, and ZIRFON is going to rebound. So nothing is broken, and we confirm the ability of the group to pursue its transformation. I will stop here and open for questions for the analysts and the press.

[Operator Instructions] The first question is coming from Alexander Craeymeersch from Kepler Cheuvreux.

So the first one would be on the transformation cash outs. So when you announced the transformation program in 2024, you indicated that it would be self-funding, but of course, now we already see a EUR 30 million cash out by H1 related to this restructuring program. So what has changed versus that original assumption? And how much additional cash out should we now expect from this program going forward? The second question would be on AgfaPhoto. So you mentioned that the Frankfurt Higher Regional Court decided to annul the ICC award that remits the case back to the tribunal. So I mean, as an analyst, it's difficult to see the downside risk from here. Could you actually be required to pay that EUR 45 million back? Or are you already required to give it back? That would be my second question. Then the third question would be on HealthCare IT. I think when looking at peers, we see that there is also increasing investments in AI-related functionality, and I was wondering how much product development is required for the HealthCare IT, specifically the cloud, to remain competitive midterm, and how much we should pencil in a sort of R&D budget for these features.

Thank you, Alexander. On the first question on the cash transformation, well, yes, I mean, it is self-funding. I mean, today we have a recurring level of savings of more than EUR 60 million from the program, and that corresponds more or less, I would say, to the cost of the implementation. So yes, things are self-funding in this way, so to speak. You want to add something, Fiona?

Yes, maybe just to add, of course, you see in the free cash flow, cash out of this amount per quarter, and the savings are in the operating expenses, where you also see the improved EBITDA, where you also see how much lower operating expenses you can see in our P&L...

Yes.

...delivering. And plus, of course, each quarter seasonality is different because your cash out sometimes you see a different quarter while your savings are ramping up. So you see, like Pascal said, the annualized saving is EUR 61 million, and you see those cash out, of course, you see different time phases. So you will never be excessively each quarter balancing each other, of course.

Absolutely.

That's actually quite clear. So does that mean or imply that the full year costs cash out is also around EUR 60 million?

On the Moonshot program, you can say that. Yes, it is different timing, different year. Some last year, some this year, some next year. Moonshot program, but we also have other programs.

What we call Moonshot is a restructuring of Mortsel operations actually.