Release Date: August 28, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Agfa-Gevaert NV (AFGVF, Financial) reported a solid Q2 with significant improvements in order intake, particularly in HealthCare IT, which saw its highest ever order intake.
- The company launched a EUR50 million productivity program aimed at significantly reducing costs in film-related activities, which is expected to enhance competitiveness.
- DPC (Digital Print & Chemicals) showed strong performance with an 8% growth in the quarter, driven by increased volume and productivity improvements.
- The company achieved a positive net profit for the quarter, partly due to reduced restructuring and nonrecurring expenses.
- Agfa-Gevaert NV (AFGVF) is making significant strides in its cloud transition, with 40% of Q2 deals being cloud-based, indicating a successful shift in business model.
Negative Points
- The CFO, Dirk De Man, remains absent due to medical reasons, which could impact financial oversight and decision-making.
- Radiology Solutions continue to face volume weakness, particularly in film-related areas, which is expected to persist in the coming quarters.
- The company experienced significant cash outflow due to higher-than-expected working capital buildup, although this is expected to normalize by year-end.
- HealthCare IT sales were below last year, primarily due to a rapid decrease in hardware sales as customers transition to the cloud.
- The final settlement of the offset business has been delayed, with the expert report now expected in September, which could impact cash flow timing.
Q & A Highlights
Q: On radiology, you mentioned that trends will continue, but actually you resulted up quite a lot quarter-on-quarter. Just wondering what you exactly mean in the sense that do we have -- have we reached now the trough? And do you mean that the level of profitability that we see in Q2 that we can expect this to remain in H2? Or do we mean that volumes are going to continue to decline and that we have not yet seen the trough in this area?
A: Well, thank you. On radiology, Q1 was a bit impacted not only by market issues, but quality issues also that we had, which is why the Q1 where, I told you, was not kind of a repeat quarter. This being said, Q2 was a rather good rebound for us in radiology. Going forward, it's not a question of the chart. It's not a cycle. We monitor the market evolution. And we know that the direction of travel in a number of markets is a market decrease. It's not new, anyway. Now the question is the ramp-up and how it does. Then on top of that, which is a bit more complex analyze for us is the kind of inventory valuation part. But let me be clear, it's not a cycle. It will continue to go down over the next quarter and the pressure will remain absolutely the same. But again, Q1 was an outlier because we had more issues unrelated to the volume but (technical difficulty) so to speak. So that's for radiology.
Q: On DPC, you mentioned that now you had a good quarter, but basically, I think the story almost remains the same around inks and ZIRFON. So I'm just wondering what happened in one quarter that is suddenly supported? And then yes, is this level of profitability in DPC now driven by CapEx for us? Or is it driven by CapEx (technical difficulty)?
A: For DPC, you want to comment on -- just before, (technical difficulty) will comment. I just -- I mean DPC, No I think we had a very good Q4 in DPC last year, but it was -- the problem in DPC we have, it's a bit lumpy quarter by quarter, right? But here, what is different? (technical difficulty) what is different is large, the (technical difficulty) development, the margin not different. That's different, okay? And that's very stable, okay? What is also different is the equipment -- the sales are continuing to grow, and that's a good stabilizing factor even in the first half, equipment sales were not that great for us, okay? So it shows the resilience and the way forward. Now will DPC be more regular? That's exactly what I believe so, but you will still continue to see quite early valuation in DPCs. Half of the DPC is still film. And here, we have a little bit more of variation on the P&L on the film on the shown part.
Q: On the subsidies from Europe. I think there were some subsidies on Europe related to the hydrogen project. I'm just wondering if you could give us an update on the timeline on when can we expect (technical difficulty)?
A: Subsidy -- the European subsidy for ZIRFON, so that's an EUR11 million-ish subsidy. We had EUR2 million of that this year. The next milestone is about an EUR8 million milestone. That's the big one, and that should normally happen in the course of next year. But it's also something we do not have fully under our control. And so we have a timeline to respect. We have a lot of things to deliver to Europe. Our plant will be ready. But then of course, there is a certain time, and this is months that the European Commission has to review this and come back to the questions. So okay, we will -- we target for next year, but we don't have it fully under control. And then the last million is actually over years after that in (technical difficulty).
Q: On the EUR15 million productivity (technical difficulty) transformation plan. You told us that you would get more permission at the moment about the 3Q results, but I'm going to make a one-shot anyway. Can you give some color, is it back-end loaded or [completely]? Are the cost -- yes, are there already cost [sold] in 2024? And is it only at a material level? So -- and is it a coincidence that we had EUR50 million that (technical difficulty) or close to your investment in (technical difficulty)? How should I see this?
A: Now on the EUR50 million program, no, it's absolutely unrelated to the amount of investment on ZIRFON. Absolutely not. It's not. It's what we believe is achievable in terms of reducing our cost base, and that's a significant reduction of the cost base, if you look at it with this amount. Is it front-end or back-end loaded? I'm sorry. But for the time being, I can tell you, yes, there will be a significant impact already in '25. But some of the measures that we are taking will take time to implement. So it's a bit too early to answer your question. But I can tell you, impact in '25 will already be significant, but we'll give more guidance a bit on how we see the things are developing in this area. And to be clear, we are leaving no stone unturned. (technical difficulty) capitalization, we are looking at operational experience, we are looking at maintenance reorganization, we are looking at operating the plant very differently from what we do today and reorganizing in the old labor setup of (technical difficulty). So it's quite a complemented program, and we are touching a number of (technical difficulty). To your point, are there any costs already associated with this program? I would say, very little. The one cost that I can mention is the fact that we are doing with this program with the help of a consulting firm. But I would qualify the investment is quite modest or extremely modest (technical difficulty) the potential reward.
Q: On HealthCare IT. You were mentioning that you were on -- on one side, it was indicated that your having a -- sorry, a EUR10 million capitalization of project on top of your R&D investments. Can you give some more color on that one?
A: Capitalization of projects in HealthCare IT, we are accelerating this transition to the cloud. And therefore, it's a very specific program in which we have -- we have actually -- we are relying on external contractors. It's well identified, and that's really to a company on our cloud transformation. That's really what it's all about, okay? And I think we are right to do it when I see today the market moving that quickly to the cloud.
Q: On [Aurelius] and you were saying that a significant part of EUR30 million, is that
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
