Christian Reinaudo - President and Chief Executive Officer Kris Hoornaert - Chief Financial Officer

Guy Sips - KBC Securities Emmanuel Carlier - ING Financial Markets

Good morning, everyone. We’re here to comment the numbers of our Q2. So if we move to the Slide 2. We see that figures which are given on the left hand side for the Q2, comparing Q2 2016 to 2015 and on the right hand side of the slide you have the first half of the year. So if I just comment line by line. The first line the topline is I would say the one which is probably disappointing for some of you. We see that we have 4% decline in the second quarter which is in line with what we have in the first half. So basically we are excluding currency exchange rates, we are in the mode of declining 4%. I would comment that a bit later, but there are different things to look at it. First of all our growth engines have performed well during the quarter in particular the IT HealthCare business has performed pretty strong. On the other side and I would not hide that we have a bit disappointing traditional businesses in the emerging markets for the reasons that we have commented several times already which is that the economy in these countries are not performing well. If I just make a quick zoom on one of the businesses which is obviously important for this issue is the plate business for Graphics. In this domain we see that we have a little bit of increase in volumes so it's improving a bit, but of course the price pressure continues. If I move to the second line which is the gross profit we see that we have an improvement which is significant, which is obviously due to our efficiency programs which are not performing full speed, but also as far as one of the raw materials concerned aluminum we are supported by aluminum decline of price this year compared to last year. SG&A performed reasonably well I mean we keep our cost under control we are about 20% of the sales in the quarter two, 20.5% in the first half. So we see that we have a bit of difficulties to keep the percentage as the same level as last year but in terms of numbers euros we continue to streamline the organization. On the - nothing more to comment, we have spent €70 million in the first half of the year, two times 35 which is slightly below what we did last year. But in a nutshell the R&D efforts of the company stays constant in terms of spending. The recurring EBITDA because of all these numbers start out at €78 million which is 12.1% for our sales and improvement of 1.7% compared to the Q2 last year and if you look at the first half we have improved by 1.3% the EBITDA which makes of course myself reasonably confident under 10% target that we have set for ourselves will be met in 2016. If I move to Slide 3, the comment the numbers below EBIT, restructuring and non-recurring you’ll see that in the quarter we have a positive event which is due to the fact that we have you know that we have closed the factory in Korea last year and this year we've been asked to sell the assets some of the assets in particular the land and the buildings and therefore we got some return on it and there is no major restructuring in the quarter. So that's why we have a plus €10 million in the quarter resulting in plus 6 if you take into account the minus four of the first quarter for the first half. The operating results then stand out at €74 million; the non-operating result is in the opposite direction that means we have a minus €21 million this quarter compared to minus €14 million in the equivalent quarter of last year. Kris will comment that if you have questions this is very technical about evaluation of our assets and mothballing of Venezuela activities. So we can comment that. The profit before taxes therefore is at €53 million in the quarter, €75 million in the first half. The tax is minus €13 million this quarter and here also Kris will comment if there is no change in terms of cash or taxes, but there are some violations that Kris would be more able to comment than I am. And the net result for the quarter is at €40 million of which two are for the non-controlling interest of the partner and the JV in China and 50 for the first half of which for the partner. The Slide 4, shows as always the situation of our net financial debt, you see that we have basically kept it constant in the first half of the year, it was €58 million in the end of last year and €52 million at the end of the first half. The seasonality of the cash flow normally should drive us to a lower level of debt at the end of the year, but at this stage this is where we stand. This is obviously partially due to the Slide 5 and the good behavior of our working capital. Obviously the fact that our topline is declining is helping us in terms of working cap, but if you look at the numbers in days you will see that also for inventories, trade receivables, and payables we have improved the [indiscernible] situation in number of days of sales. On Slide 6, I believe most of it has been commented already. So I will immediately skip to the Slide 8, to comment the Graphics business. Traditional pie chart you see that there is no major change compared to last year. The Analog Prepress being the film surprisingly resist reasonably well. You have seen that one of our competitors announced in the quarter that they will stop the manufacture of films for graphics and of course we might benefit of this in particular in the future. Inkjet Software Service is at 22% and Digital Prepress at 68%. The numbers for Graphics, so Graphics suffers the same way as the whole group in terms of topline, a bit more because we are at minus 6% in sales compared to the minus 4% of the group that I presented a few minutes ago. Graphics shows of course a strong improvement in the gross profit at 31.2% on the quarter and 30.1% in the first half showing a clear improvement compared to the performance of last year. I must say that of course aluminum price reduction plays a role in this improvement of gross profit, but also the efficiency of operational set up of Graphics is paying off. The SG&A are well under control, 21% for the first half exactly the same as last year resulting in minus €9 million of spending this year compared to the first half of last year. R&D same comments as for the group, we keep it constant because we believe we continue to have to invest in particular in the new technologies of plates and in inkjet. And recurring EBITDA is at €28.9 million this year compared to €20 million last year, an improvement of more than 3 points in EBITDA in the quarter and an improvement of 2.3 points in the first half of the year. So good performance in the EBITDA, if you compare to our competitors you will see that Graphics continues to be in the lead in terms of profitability. If I comment on Slide 10, the key drivers behind these figures. First of all for inkjet I would say drupa was a success, a strong success I would say because we appeared clearly compared to four years ago as a strong player now in inkjet. Unfortunately for if I miss so the orders came during drupa so they didn't come before so the sales will come later and not during the quarter two because drupa was at the beginning of June. As I said in my initial comments the volume trend on Digital Prepress segment continue to improve, but the business continues to suffer from the competitive pressure. Competitive pressure which is coming from the battle between the three big players, but also from the Chinese players. The gross profit I mentioned it a bit, business highlights maybe Stefaan will comment a bit more about drupa if you want. We have introduced a new Anapurna I like improved and we have of course new software and equipment in prepress which are well perceived by the market. So in a nutshell for the business itself and no worry about the position of Agfa in the market. Strong positioning in inkjet which is now clearly showing up in particular drupa. Prepress we maintain our positions, but obviously the market is not good and if you look by the way the numbers of our competitors you will understand that we are not the only one in this situation. If I move to HealthCare, I would say a bit more positive on HealthCare. First of all the pie chart, so if you look at the HealthCare IT, we maintained 45% of sales that is we are very close now to the half of the size of the group and we will see over time this further developing. The hardcopy film, last year we had this reorganization of channels and management of inventory in some countries. You might remember that I think it was 27% of the sales in the first quarter is now heading up to 28% and progressively we will come back to a level which would be normal if the position of Agfa in the hardcopy maintains the market share which should be somewhere between 29% and 30% at the end of the year, which is of course different from the 32% where we were I believe last year at the same period of time. And obviously this is an impact if you compare year-on-year at the topline. And this will disappear in Q4 because you remember that last year we took major decisions in Q4 and Q1 this year and of course Q4 this year we expect it to be normal that were a bit more confident on the slowdown right of the Company’s topline compared to the first half in the second half of the year. The CR modality is at 20% so we continue to see the same pattern with the DR business which is quarter-after-quarter improving the situation of a CR market which is declining. And here again if you read the comments of our competitors you will see that everybody suffers from the CR decline, but the DR business is compensating and we stay at 20% of the sales of HealthCare in this first half. And on the IT business, the main comment should be that we continue to register big orders, in terms of [ITS] that means it's more and more obvious that the product range we offer with our new enterprise imaging suite and solutions is really leading in this market. We continue to build strong backlog and through order book. And therefore the growth rates that we have seen so far I believe will continue for the rest of the year and probably next year and the years to come. HCIS which is basically around ORBIS, but not only about ORBIS it's also the document management and this kind of things shows us strong performance mainly of course in Germany, Austria, Switzerland but also in France now where the renewal of the contract with has been very positive. And we have signed for the first quarter a contract in the UK, in Derby which is also a good sign of getting a foot into the UK market. So the news are reasonably good on this side. If I comment the numbers on Slide 13, you see that the topline of the group HealthCare has been declining by 2% excluding exchange rates which is rather similar in the first half of the year. Of course in the first half we are less exposed to currency exchange rates in the profile of the business of HealthCare. You see that the gap is 3.8% in the quarter two where it is only 1% if you look at the full first half of the year. As I said we suffer in these numbers from the decline of the film business which has been of course still registered in the first half and hopefully we will have less if not no impact of the decline of film in the second half of the year in particular in Q4. Gross profit improves. Of course here we don't have any support from raw material because the similar effect is rather limited and therefore this improvement of two points let's say both in the quarter and in the first half is really due to the improvement of the efficiency of the group particularly in the service domain, but also in the secure of our business when it comes from IT. SG&A under control at around 20% slightly sliding so we need to be very careful on that, but in euros we keep it at a decent level. R&D same comment as for the rest of the group and the resulting EBITDA is €43.9 million, 15.8% of sales so slightly improving in percentage, but declining in value and you see that for the first half basically it's constant in value and improving by half a point in terms of percentage of sales. So in a nutshell strong performance of our IT business and the last ripples of the film transformation that we’ve done last year and at the beginning of this year. I think I commented most of these elements, bullet points. We will come back to the business highlights if you want to a bit later, but I commented most of it. There would be probably questions about our business in defense in the U.S. I will tackle that at this time. There will be maybe questions about sensor so Luc will help me for these different things. If I move to Specialty on the Slide 16, you see that we have a good performance in the quarter because the sales stays more or less constant if you eliminate the roundings is even less than that the declines were basically we are almost flat in the quarter declining 5.6% on the first half if you compare to last year excluding currency exchange rates. The gross profit resists reasonably well here at 26% for the first half and 27.7% for the quarter. SG&A, R&D nothing new and the EBITDA is at 14.7% which is a strong performance for this kind of business, €6.9 million, €8.9 million in the first half at 10%. So no major comment on this slide again we insist on the fact because we - they are too small to show them but we have also growth engines in this Specialty Products group. In particular the Synthetic Paper of Synaps which is showing a significant growth and now become sizable even if it is still a small business, the PCB business which is resisting pretty well and even growing in our case as well as the Orgacon Electronic Materials. That's basically for the group and the comments on the numbers and the business. So in a nutshell of course we have to continue to work on our topline. We need to work organically because there are still efforts to be done. I mentioned several times acquisitions, but it's complex process acquisitions we must be careful in the context of the economy where there are lot of uncertainties in the emerging markets any acquisition for consolidation has to be evaluated very carefully and the acquisition for growth are expensive therefore we must be very careful, okay. And for the rest I mean all the lines dealing with cost of the company and therefore resulting in a strong EBITDA developing according to plan if not slightly better. Thank you. I am ready now to take questions. I think we take questions from the room first and if there are any questions from the external audience we'll take them later. Q - Guy Sips: Guy Sips, KBC Securities. I have two questions first question is for Kris has do with non-operating result and the impact Venezuela what happened over there and what will be the impact going forward. And the second question is more on the strategy you are now reaching the 10% target or Re-EBITDA margin. When do you see time to set new targets and new goals for yourself and for the company going forward and on what kind of levels would you expect to do that is that again on the topline or on the Re-EBITDA margin or on the Re-EBIT what kind of targets do you see - can you give us going forward?

Okay. I’ll take first and second question. I don't think it's time to set up targets now for 2017 even if some of you are keen of commenting 2017 already. First of all because we are in the process of our budgeting system and if I just take a bit of distance with the tactical situation of the Company where are today we are in situation where we have basically no debt left, financial debt. We still have this burden of pension liabilities and we have achieved let’s say this way the 10% target EBITDA that we thought was the right target for the company. By the way at the time we set the target of three of 10% the sales were supposed to be higher than they are today. Therefore, we have also worked on the below EBIT numbers to make sure we secure in total. The right set of numbers to be in the rather stable and safe situation in terms of delivering cash flow and positive result of the company so this is achieved. Now as you rightly say based on that we need to build the next step, next step has to concentrate on the topline, because we cannot continue to have the company which is going to lose between 50 and 60 million every year or 70 or 80 of topline because even if we still have ideas about how to adjust to secure the company in terms of cost. There will come a time when we will be short of ideas and therefore we will have an issue. So we have started the process of reflection and of course the budget for 2017 will be the [indiscernible] that the right time to finalize these kind of things by the end of the year. But it's clear that we need both or not additional businesses and on our growth engines organically to find a way to further improve, maybe playing a little bit with the strong cost situation that we have achieved to fight a little bit more if needed for some positions in the domains where we believe we are in the right positions in terms of products. I have big hopes that our new plates that we can introduce over time will be repositioning Agfa even better position in prepress. I'm sure that the IT offering that we have today will further develop in terms of positioning of Agfa both on the HIS path, but also on the Enterprise Imaging side. We are working as you know on other integrated care, other domains where normally we should be able to start to see progressively small revenues coming out of this kind of thing. So this is for me, the next target will be clearly on making sure we find a solution to these topline erosion organically first and if needed with the right targeted acquisitions. Question - maybe Kris the first question.

Yes, on the non-operating result the increase of about €7 million is entirely due to the mothballing of our graphics operations in Venezuela. Doing business with a legal entity in Venezuela is today almost impossible because of the political situation over there. It's impossible to get your cash out of the country. So we have decided to give the Company adornment status so we mothball the operations and what does that mean? So we have their assets, assets in foreign currency, and those assets every quarter you have exchanged currency translation adjustments positive or negative over the last 10 or 15 year that we are there they were negative and they were parked in our equity on the balance sheet. What has happened is because mothballing operation you need to put them into the P&L. So it's only a transfer from one equity class to another equity class. So there is no cash impact and there is no equity impact. It's a bit the same that we had also in quarter four with Argentina and another operation, it’s exactly the same, so it has no cash impact.

Emmanuel Carlier, ING. Two questions, first of all do we see a loop for more asset sales that we have done in this quarter or that just because we have close down plants? And secondly on Graphics, the topline that was a little bit weaker in the second quarter is that because of drupa or people wait a little bit for orders or is it more because in the Digital Prepress business people are little bit more competitive in pricing? Thank you.

Selling of assets I mean there is no plan, there is nothing, things could happen, but they will happen as we go if needed. Now for Graphics, clearly drupa has probably played a role which is hopefully positive for the future, but negative for the quarter. As I said the volumes are not that much the concern, the concern is more on the price pressure. As the price pressure increase or not in the quarter I will not say not significantly, but the price pressure is not easing, so that’s what we see. And by the way if you look at the numbers of the competitors that you can access to, you will see that everybody suffers from this competition, which is now match at four, I would say again at four the traditional three big players and the Chinese ink I would say to different Chinese players. So the situation is not really transforming itself quarter after quarter. We’ve seen patterns which are protecting us in the most mature markets and we see there is a struggle in the countries where the patterns are not strong and there is a battle there. Hopefully, the fact that the aluminum is cheap help us to compensate for part of it in terms of profitability, but in terms of topline it's visible.

[Question Inaudible]

No we’ll not be too specific on that, but basically it's always the same - first of all it's done focus too much on Chinese, it's a global situation which is competitive because the papers business is an important business for both [Kodak-Agfa] and therefore we maintain the positions. I think of course the fact that the aluminum is cheaper than it was last year probably participate to that because we all focus on the bottom line more than the rest and therefore we have a little bit of [indiscernible] I would say because of the cost of aluminum. The place where the competition is the most activities basically everywhere where the market is dynamic, so China is definitely a place for battle because the market is still dynamic there and Europe is a battle of course because the European market is the biggest one in terms of size, but I would say it's a global state of mind I would say that we all try to maintain positions and to - you had on top of that the fact that our customers for some of them are struggling also and it's not good news for you. So these guys are also putting pressure on all of us and because this is a market which - where there are still a significant number of players not fully consolidated. It's normal that you have this kind of perspective, but I would say nothing is new, this has been the same basically for - as long as I remember as CEO of this Company we have seen this kind of price pressure on the plates as you know the margin is still reasonable. Therefore as long as the margin is reasonable in their perspective of the cost of raw materials which is the major part of the cost is what it is. It's likely that there will be an easing of this competition. And we fight for that. We are well equipped.

[Question Inaudible]

Yes. Clearly in 2011 as you know we've started this program of improving on four pillars of our efficiency and these bear fruit because without this program, without the procurement efficiency, without the factory because Stefaan and his team have done a tremendous job, we have closed two factories in this period as you know one in Italy, one in Korea. So we have reduced the manufacturing capability of the Company in terms of cost, but not in terms of volume because we have improved the yield than we have improved the overall situation. So with the current set up we have we can manufacture the same volume as we were able to manufacture with two more factories some years ago. In the meantime, we have been more selective in particular and then plates to select the digital plates where the margins are bit better than the other that's the reasoning behind the closure of the factory in Italy. You see that in terms of cash flow the closure of Banwol in Korea has been and I would say a positive event for us. So we have done a good job. And my concern is that today, my concern is we need to make sure that we continue first of all to optimize our structure. We have done a few good things like moving the contacts centers in Poland and the like. That are still some things that we can do. Go to market [model] if I can still be a little bit organized and improve base on the situation that we face. The concern is more I mean the [stupidity] of this kind of situation where you have a market which is globally slightly declining, but more or less flattish and in terms of volume and in fact there is strong battle in terms of price that nobody asked us to do, because the added value that we bring with our plates to our customers is in the range of 3% to 5% depending on the size, number of plates they use in this kind of thing. So this is not a situation which is reasonable I would say, but that's the situation. And I don't think we are the worst equipped for this battle. Strong patents, strong technology, significant amount of spending in R&D to make sure that we continue to propose plates which are more and more ecofriendly, more and more adopted to the needs of the customers in terms of their own cost of ownership. So we will see. There will be in the end some consolidation in this game.

Okay. Thank you. And in HealthCare we see quite a significant gross margin improvement in Q2 year-on-year, you indicated mainly due to the efficiency measures rather than raw material impact. What have been these efficiency improvements because you also I think you faced some headwinds from the lower percentage of high margin hardcopy business in your sales or is there also quite some impact on the software solutions which have been doing very well? Could you indicate a bit at what margins are these growth engines in software running within the HealthCare business?

No I mean back again to what we said long-term ago four pillars procurement, efficiency of factories, efficiency of services and product consolidation. So if I adopt that to HealthCare IT procurement we have improved, but I will not say that it is the place where most of the procurement efforts are coming into the IT HealthCare because a lot of the software and little bit material. But still we have improved the way we recruit local people for deploying equipment we have improved the cost of our IT hardware supply and scale affect. Efficiency of our factories in this case there is no factories so it's more the two other once services and product consolidation. So services as you know we have a service force deployed in the world and we have done the first phase and there are services organization to improve the cost compared to the delivery. We are now moving into a second phase of improvement where we adjust a little bit of the organization to make sure that we have a part of our service organization in particular the tactical part which is in the country close to customers which is even closer to the sales force and to the customers. In order that we can start to use the service organization as a sort of pre-sale equipment or in [indiscernible] because nobody knows more than the service people the customer needs for the future evolution of their own solutions and this brings fruit. And finally the product consolidation so in this case it's two things. It's a continuous streamlining of the number of code streams of which we work and in this domain Luc and his team have done a fantastic job where basically we are progressively consolidating everything on same kind of solutions including the Enterprise Imaging which is not only high energy but putting everything in terms of imaging on the same kind of solutions and the same applies to all of this where you know that we have consolidation which has been largely done. But it's also the [indiscernible] offer in particular we have now more because we are better. We have more solutions which are what we call our own IP that means our own software as opposed to buy software from third-parties that we integrate into our solutions. Now we have a complete set of solutions. And of course this leads to improvement of the cost margin.

If I understand those items well it should be structural also for the coming quarters.

Yes.

Okay. And then perhaps a final question you mentioned at the beginning that you might have to fight a little more in some positions. Does this indicate that the 10% EBITDA margin for 2017 is not a real or a necessary target or such?

It's too early to mention that, my personal view is that I'm pretty open to that. Is that the 10% target should be maintained in 2017. We'll see when they have done the budget, but what I'm saying is that I've put a lot of pressure in the last five years to improve the EBITDA. I think we need to shift a little bit. The key focus of the Company to improving the positions in terms of topline and if we have to be arbitrage from time to time in a given country, in a given bid, in a given customer between the two because we have reached a level where I believe we have a very decent not only numbers, but the mentality of people is okay, that everybody has been organized, our tools have been organized to make sure that we deliver this level of EBITDA. So we are there now, so we are not going to drop the ball. But okay, pressure has been strong on that, let's maybe make sure that we use this not to continue to move from 10 to 11 to 12 to whatever, but more to make sure we improve the situation of the topline. This is all the exercise we're going to do in the budget operation.

Okay. Thank you.

You are welcome.

[Indiscernible] you said in the end maybe you need some new ideas to our growth organically. Does that mean you're going to put more R&D in the coming years?

No, I mean, I believe that the amount of money we spend in R&D in total for this Company, which is somewhere between €140 million, €145 million a year is well dimensioned compared to our business. Of course, if you look at the way we spend this and if you look back where we were five years ago, where we are today and probably where we will be in five years, so now you have a permanent evolution. In the past few years we have spent a lot to rebuild, for example an IT offer. We have spent a lot to build geo offer in the next years. I assumed that we have to spend a bit less in terms of percentage of effort in the domains where we have now the product portfolio which is addressing the market needs. Of course, we need to continue to improve the products we deliver to the market. We need to continue to put new applications, new services for customers and the like, but basic effort to create something has been done. On the other side, there are other domains where we may have to spend more than what I am saying. We need to have new ideas. We need to be I mean permanently adapt the way we develop our new products to the needs of our customers. And not only to the needs of our customers, but to the place where we have to grab positions and even regionally it could be the case. There are some countries which are for example continuously going to be in a depressed situation in terms of economy. We may think of maybe spending a bit less for these kind of needs as opposed to focus more on the places where the growth is here. If you look at the North American business today it's better. If you look at Europe, it’s better now in lot of countries. So I think we should maybe reorganize a little bit our spending, but it's high level what I'm saying here. We should reorganize a little bit what the way we spend the money in R&D to make sure we satisfy these markets first because there are hanging fruits that we can capture faster.

Just a final question on the [Pentagon] contract, can you elaborate a little bit on that and from what moment on can we - or what will be the impact?

So I’ll leave this to Luc just to comment because on the process not on the content. On the process I mean there was a flow in the process because we've been informed too late by the DoD that they will put something on their site. It was for Agfa not a big event because this is a frame agreement that we had already for 10 years or eight years which is just renewed. The amount of money is big, but if you divide by 10 years and if you consider that it is the maximum they can spend with us in the framework of a budget that Department of Ministry is getting the authorization to spend. There is nothing new I would say for us, but of course the number of accumulate for 10 years is big and therefore the fact that we were not able to anticipate with our press release, the fact that this was coming to the public made a bit of big noise around that where normally you shouldn't have perceived that. Now to comment on the U.S. business I think it's good news anywhere.

Well, this is good news because it's the continuation of a good successful relationship with the U.S. government. Yes, we contract with the defense logistics agency, but actually it is with different armed forces, it is with the Veterans Administration and it even has repercussions on certain NATO sides also in Europe as you've seen. So it’s the fourth consecutive contract. And this contract in terms of maximum value is significantly increased versus the previous value, previous the impacts three contract maximum value was 600. Now when we talk let's say closer to $800 million. And what it really does it allows the government to indeed purchase from us and the government agreeing all the different agencies and for their HealthCare needs and specifically their imaging IT needs to satisfy HealthCare. So it's positive, it's rather positive, but that impacts for contract will also be let say allocated to other companies and they will also get a certain maximum value. We're the first once and others will follow because they will of course not only purchase from us. So it is a continuation of a very good relationship where we satisfy their needs and where again our new enterprise imaging platform of course is very well positioned to - let's say to satisfy their needs even better than we were able to do service. So let me put it that way. But it is what you make out of it. It’s an award. Agencies can purchase from us so we now have to indeed gain the individual orders on an ongoing basis. We have by the way a dedicated military team. We've had that for years both on the sales side on the services side. We also have dedicated development in terms of security and privacy and very important there. That of course benefits the entire portfolio because if you - and satisfy the government in terms of its security needs you're very far along the road for anybody else, so positive.

It shows that the duty in the U.S. in the four components of marines, army, air forces and with [indiscernible] are strong - could be customer of Agfa and that we have all the [indiscernible] to deliver to these kinds of customers which is good.

Okay. I don't know if we have any question from the outside, probably not. So if you have no questions left in the room, we're going to close the call now. Thank you for your attention. See you in three months.