Agfa-Gevaert (Euronext:AGFB) Q2 2026 Earnings Call

0:00 Ladies and gentlemen, welcome to the Agfa Second Quarter twenty twenty six Results Conference Call. For the first part of the conference call, the participants will be in listen only mode. During the questions and answer session, participants are able to ask questions by dialing pound key 5 on their telephone keypad. Now I will hand the conference over to Pascal Jure, CEO. Please go ahead, sir. Good morning, everyone, and thank you for attending our conference.

0:32 I'm sitting today with Fiona Lam, our CFO, and the rest of the executive team. And before I walk you through the results, I just like to come back to the transition we are having today with Fiona Lam who's gonna leave the group by the end of the month and the announcement of our new CFO, Declan Gera. So I just want to publicly thank Fiona for the two 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 gonna do today with you.

1:18 And there will be no vacancy because in November, we'll we'll have our new CFO in place since Declan will be starting October 1. 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 three growth engines of Agfa, I can start with health care 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.

2:06 And as you can see, the SaaS transformation of the business is accelerating because our order intake were 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 twenty five 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 The hydrogen membrane is a trough, a part of a trough today where, actually, we are very confident to see a very sizable rebound in '27.

3:07 But in '26, we are we are in a situation where our customers have already what they need in terms of membranes in inventory. And therefore, it's a bit of a lost year for Ziophone, but we remain extremely confident going forward about the growth potential for Ziophone and that will start materializing as soon as '27. So that's the state of the three growth engines. The resilience of the results is also to be credited to imaging and clinicals. Film in volume decline environment

3:48 has been able to actually generate positive results. This is a reflection of the huge restructuring effort we have undertaken now for a year and a half that places us ahead of the curve today. And it's more than enough to compensate today the volume decline. And we are able to do that in a very turbulent environment, especially with the the huge volatility on silver prices. We are able to navigate the market to increase prices to customers as well. So it's a very positive thing for for the group. And the r is, I would say, stable.

4:36 So overall, quite, I believe, a good performance given the market the market backdrop. I will turn now to Charlotte to walk you through the numbers. Thank you, Pascal. So in terms of the numbers, a solid quarter like Pascal have said, The chemical, chemical, imaging, chemical, the silver impact on the revenue are offsetting more than the volume impact. So you see plus 2.6% growth is in currency. We are specifically pleased with 11% growth on EPS, 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 cardigan solutions.

5:36 And also we are also very pleased with health care IT in terms of the transformation, the order intake, the recurrent revenue, so the quality of health care IT revenue has been improved on track even though we see a minus 9.5% decline in the second quarter on health IT in the current revenue, which is anticipated because we also know last year, we had a very, very strong health IT on license sale in the first half of year. So seasonality of health IT last year in the first half of the year was very strong and we anticipate on Health Care IT second half of the year, we 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 Filament Chemicals on the saving program that have adjusted our base cost base for the decline. So we are able to step up from 4,000,000 to 9,000,000.

6:42 For Industrial Solutions, also there and also bring Hydrogen Solutions, a very small decline based a big cost of the top line, but the good cost control has been able to maintain a reasonable adjusted EBITA level. And health care IT is actually better than our internal expectation even though you see a decline. We anticipated this this cloud transition. We anticipated strong last first half year. So all in all, we are happy with the Q2 adjusted EBITA because it's a very solid performance.

7:22 Here, you see also the bridge. Basically, it confirms earlier we set healthcare IT and industrial solution where because of the top line decline, Imaging and chemical, the saving programs were able to contribute so that the volume decline is offset on the gross profit. And then we have all the work being done within Agfa on adjusting the costs and debt savings are delivered and stabilizing our Q2 EBITDA as such. On free cash flow, so even though we Q2 still consume a $10,000,000 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 a strong cash flow in the half have a cash

8:27 20. And And Without, have 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 $10,000,000 cash flow is a good outcome for Q2.

8:50 And that's you can also see the evolution of our debt. If you see the net financial debt basically in q two, of course, it has been stepped up from 58,000,000 to 74,000,000 because of the net negative free cash flow. But we also know, like I earlier said, it's it is better than expectation. So I we have now end of q two, withdraw 113,000,000 of facility out of the 118,000,000. It's also provided at the end our q two governance tests have sufficient headroom. You see liquidity headroom is sufficient compared to the minimum of 30,000,000.

9:35 Leverage ratio is at stable at 1.4, and interest cover is also well managed and adjusted EBITDA governance is at 52 versus 30,000,000. 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 deliver actually $10,000,000 more adjusted EBITDA compared to last year because as you know and still recall Q1 will be stronger adjusted EBITDA in Q1 and Q2 is stable.

10:23 So we ended with $10,000,000 more adjusted EBITDA compared to last year.

10:33 And on net results, you see even there, we are working last year. Just wanted to remind last year in adjustment and restructuring expenses, we had the AFGVFFOTO that was being booked in June of last year, 38,000,000. It was not cash being received, but it was booked in the P and L last year under the nonrecurrence in 2025. Also, the net finance cost was another $7,000,000 because of Agfa-Gevaert NV was being booked as well in last year. So all in all, you see without Agfa-Gevaert our net result improvement step up is equivalent to what we have stepped up in adjusted EBITA to be aware.

11:23 Free cash flow is the same as what we have earlier set, minus CHF 10,000,000 free cash flow. But also for the first six months, we are at minus CHF 52,000,000 in total, and that's offsetting. Remember, the first half year, we have CHF 45,000,000 silver impact of purchasing silvers for the stock ramp up of our networking 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 30 to minus 52. So that's fact, is quite largely managed from up up. Thank you for I'll pass it to Healthcare IT for Pascal. Thank you, Fiona.

12:10 Health care IT, so clearly, if I look at the p and l, two reasons as explained already why we are below last year. We have more, I would say, project revenue and license very clearly on the transition to the cloud. The other explanation of of what we are seeing today. But I want to insist, though, this condition is going well. And as you've seen, the order intake is increasing by 28%. I hope that I'm sure that we will break the 200,000,000 mark for the year. That's. So cloud based order intake more than tripled, which is showing really that this transition is accelerating.

13:01 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 and l is not yet delivering, you know, this this transformation, I mean, we are in the way of growth and profitable growth in health care IT.

13:46 And the order intake is really the best leading indicator we can use to describe our business. Overall, 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, but also therefore the profit with a totally different model spread over time.

14:25 Then the number of we've already commented this number also. I'm not gonna dwell on it too much. But again, nothing is broken with us guarantee. 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. You know, the first quarter will be the highest quarter. This the seasonality of this business, and it will happen again this year. So now let me turn to industrial solutions. And here, a contrast of, I would say, very, very good with digital printing solutions. After a year twenty five where the growth was somewhat subdued, we are now growing again double digit the business.

15:15 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. 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, we receive a lot of customer recognition and actually rewards. And we are not forgetting also to continue to build our offer in packaging. This time, it's a collaboration software area to make sure we can offer the best full solution to our customers in the packaging segment.

16:09 So overall, DPS returned to growth and good prospect going forward. Very different story for Clean Energy Solution. '26 is pretty much a trap for last year, there are things advancing very well in the background. First, the h three implementation is taking place now after some delays. We are seeing projects being FID ed in Europe, which we didn't

16:46 see for some time, actually. And we have an excellent momentum in Asia. We have our first sales in China. We are still modest, of course, but we can start. And we are also doing extremely well in in India. So the message is, yes, short term '26 is not a good year for Zircon for the brain hydrogen membrane, but we already look at '27 with great confidence that we are gonna 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 main brand, but especially in Asia, which are our priorities in terms of commercial development today.

17:42 Turning to the sales. To make a long story short, what you see here is a GPS that is up and the membrane that is down. So overall, indeed, the membrane has an impact on the segment in spite of the good performance of DPS.

18:04 Imaging and chemicals. Well, where I'm really happy is the fact that somehow we have turned the 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.

18:27 Our 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 the film. And we are also doing that in the 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. Doctor, well, q two was not a very good quarter for Doctor, but I would say that profit wise profit wise were on pounds last year. So nothing nothing really to worry about.

19:14 We have put together a renewed strategic road map for the business, which we are confident will provide the ability to grow top and bottom line in this business. So overall, maybe I will I will show the P and L because the p and l is showing actually the cost efforts that we have made in imaging and chemicals with a gross profit up in spite of decreased volume. So and as you can see as well, our OpEx decreased, which is extremely significant and is a result of the efforts I reached out to.

20:06 Outlook. Well, for health care 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 s two will be the same with DPS well oriented, and therefore, we're still still subdued. Again, we're not expecting a new rebound in '26, but in '27 for Zircon. And we do have some visibility of the project and the customer orders. In imaging and chemical, we will, for the full year, restore somehow profitability of field. It's gonna be better than last year.

21:02 Again, same trend will continue to adjust our cost to what we see in the market, and we'll continue to be very proactive in terms of silver silver base pricing. Cash flow for the year is expected to be more negative. We trained it. We don't have an Agfa- photo this year, and we still have significant cash out related to the transformation restructuring that we are having for the company. But again, I want to repeat, if the quarter results are today

21:40 largely due to the good performance of field, Nothing is broken with our with our growth engines. ICR IT is winning in the market. It's winning orders. GPS is growing, and Zircon is going to rebound. So nothing is broken, and we confirm the ability of the group to pursue its transformation.

22:06 I will stop here and open for questions for the analysts and the press. The first question is coming from Alexander Kremerich from Kepler Cheuvreux. Your line is now open. Please go ahead.

22:37 Hey, good morning. Thank you for taking my questions. So the first one would be on the transformation cash out. 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 €30,000,000 cash out by H1

22:59 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? Second question would be on Agfa- Photo. So

23:18 mentioned that the Frankfurt High 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.

23:35 Could you actually be required to pay that EUR 45,000,000 back? Or are you already required to give it back? That would be my second question. Then the third question would be on the Health Care IT. I think when looking at peers, we see that there's 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?

24:09 And how much we should pencil in a sort of R and D budget for these features? Thank you. Thank you, Alexander. On the first question on the cash transformation, well, yes. I mean, it is self funding. I mean, today, have a recurring level of savings of more than 60,000,000 from the program, and that that corresponds more or less, I would say, to the cost of implementation. So, yes, things are self funding in this this way, so to speak. You want to add something, Kiera? Yeah. 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 and L delivering.

25:06 And plus, of course, each quarter seasonality is different because your cash out sometimes you see a different quarter while you are saving are ramping up. So you see, like, as Scott said, the annualized saving is 61,000,000, and you see those cash out, of course, is in different time phases. So you would never be accessing each quarter balance with each other. Absolutely. Thank you. That's actually that's actually quite clear. So does that mean or imply that then the full year cost cash out is also around 60,000,000? On the Moonshot program, you can say that. But it's different timing, different years, some last year, some this year, some next year moonshot program that we are What we call moonshot is a restructuring of Marsal operations, actually.

25:58 So our internal project name, and indeed, that's one to one, so to speak. Agfa- photo. In terms of Agfa- photo, let me explain the situation. What happened recently when when in Germany when you have the result of an arbitrage, you have the possibility to go for an enrollment process that is not based on the subject matter but on the process itself. And that's what happened to in a in a in a Frankfurt court. And so the judgment is not about the subject matter. It's about the process and actually the the the right of the defense in in respect. So first, we have made an appeal of this judgment for which we are awaiting the outcome.

26:54 Then if the judgment is sustained, it means it will go back to arbitrage, but not for the full arbitration, just on the specific issue that was pointed by the court related to the right of the defense. So we are not starting again. And point number four, no. We keep the money. We keep the money. There is no no impact at all on the money. I would like to remind everyone that we have we have prevailed in two arbitration of the subject matter. So whatever the decision of the appeal, we are extremely confident so that it will be the case for the the the the small well, the part that we will have to to to review in the arbitration.

27:48 So no, we are keeping the catch. Point number three, Telstra IT, and thanks very much for the question, Alexander. It's an excellent question. First, I would like to remind everyone that we are investing a significant amount of R and D in the business. And we have over time increased significantly our efforts in R and D because today it's close to 40,000,000 out of the business, so that is about 240,000,000. Then AI is not only an investment. It has a return. And for instance, today we are using AI, you know, coding activities.

28:34 And here, you have an immediate benefit because you are increasing productivity by 30 to 50% depending on what you do on AI. So actually, it's not a cost, it's a boost for us. Indeed, we are integrating we always have integrated AI for many years in the diagnosis part, in the solution part, in the imaging image generation part. We have already solutions that are commercial today in AI. And the third impact where we are using AI is actually on what we call the workflow orchestration because remember, we are not selling only a software. We are selling a full solution. Well, we are managing the workflow of the radiologist from the time it takes an appointment to the time the image is being stored and archived.

29:28 Managing this workflow is leveraged today by AI. So don't believe that we need a specific more budget for AI. We are using our current r and d resources to actually invest in this in this solutions. And I gave you three areas where AI has an impact, and I repeat it. In the coding itself by going faster and doing more for the same resources. AI solutions to help the clinician to make a diagnosis. And three, automation of the workflow also to gain productivity and capacity at the end of the day of in a world where we are resource constrained for radiologists.

30:23 So AI is totally embedded in everything that we are doing in healthcare IT. And actually for us, it's a great opportunity to develop our products for the benefits of clinicians and patients. Okay. Thank you. And maybe if I can just ask a small follow-up on that. Does the cloud also allow for third party applications to be integrated? Yes. We are providing, as I said, a full solution model in which we have our own, of course, softwares, but we also integrate third party softwares.

31:15 So the answer is yes. Yes, absolutely. Okay. Thank you. The next question is coming from Guy Sips from KBC Securities. Your line is now open. Please go ahead. Thank you. I have one question that I already highlighted in my morning or to this morning. The new Director, Richtercutt and the new CFO have both carve out history. Could this lead the way for health care IT? Well, you you you you're right. But they also have a history in corporation as well. I think, called the cat with the CFO of, for instance, which was not a car.

32:07 And I think Declan has experience as well in very good corporate names like Rolls Royce and whatnot. So it's not but the fact that indeed they have an experience and background in PE is a plus for me and is a plus, I think, for the team because we are going through a transformation. Yes. Well, we might look at the strategic options. Of course, we are always looking at strategic options. Okay? So I think it's a very good observation from your from you indeed. But but they are not only PE. They are broader than that, most of them. Maybe to comment, as August And then speak to my question.

32:58 Could this lead the way for health care IT? I'm not gonna comment on that. I mean, clearly, the first priority we have for ACI IT today is to succeed the cloud condition. Okay? Now if the question is why do we keep an IT business with an industrial business, it's a legitimate question. But for the time being, I think we have been the right shareholder and investor for SA IT given given our track record in the past years on the business transformation. And, this is our first priority. And, clearly, it's build up the value of this business. Thank you. Fiona, wanted to add something? Yeah.

33:43 I just wanted to add based on the eyes of CFO to your question, Agfa, we Agfa, we just need a all one comprehensive CFO who is good in finance, corporate finance, but also good in transformation with strategic optionality. And and that is where a a good competence CFO Absolutely. And by the way yourself, you have both an experience in corporate and in PE backed companies. So that's I think it's part of being a well rounded CFO, as you say very well. Okay. Thank you. Thank you.

34:33 There are no further questions at this time. So I hand the conference back to Pascal Joeri, CEO, for any closing remarks. Well, thanks a lot. Thanks a lot. So again, we are as you see, we are we we have addressed the film situation, I think, quite efficiently, and that shows today in our results. So in the meantime, I want to repeat my message. Nothing is nothing is broken with the growth engines on the contrary. I mean, the commercial momentum that we are seeing for IT, we have never seen that before, gaining so many new customers, large contracts, and very interesting contracts. DPS is in gross mode, and here, the name of the game for us is only to accelerate this growth.

35:23 And Zhiyafun is not having a good year, but stay tuned. It's gonna change very rapidly in '27, and the technology is confirmed to be the the top class of the reference technology for for membranes in the agrogenic world. So so clearly, we are extremely confident about what we are doing. So thanks very much, and speak to you now in November, I guess. This concludes today's call. Thank you for your participation. You may now disconnect.