Christian Reinaudo - President & CEO

Stefaan Genoe - Degroof Petercam Guy Sips - KBC Securities

Good morning, everyone. We're here to discuss the results of our Second Quarter in 2017. On this Slide Number 2, you see the set of numbers of the quarter and the first half of 2017. You may see that the two quarters Q1 and Q2 are somewhat similar, showing a decline of our topline of about 4.5%, excluding currency exchange rates. This topline decline is obviously not a good result as such, but it is completely due to one single business basically same as in Q1, which is linked to the reorganization of distribution channels in China and therefore we're selling less films than we used to sell in the past. As I said, this is a transition year. This is part of our growth program to resist better in our traditional businesses and things will be back to hopefully normal and the result of this transformation will be efficient in 2018. So, if you restate somewhat the numbers of the quarter and the first half, assuming a normal business, a nominal business in [Agfa division], you'll see that the rest of the numbers are perfectly in line with what we have announced, in particular the performance of what we call our growth engines is in most of them -- for most of them the one in line, in particular Inkjet has performed well in the quarter. Our IT business in Africa and particular the hospital systems have performed well and now their business has been growing and you've seen also in the numbers if you've already seen them in the press release that the specialty group has performed well. So again, the same comment as I did last year 2017 after the huge program of strengthening of the company we have done in the past five years ending last year was the EBITDA and the debt that you know. 2017 is a transition year where we have to take actions to put things right in some domains. So besides what they are, the gross profit is slightly down, but this is due to the fact that we have of course the reorganization in China, but also due to some extent to the raw material effect because both aluminum and silver are more expensive this year than they were last year. The rest of the costs I would say are under control. You see that both the SG&A and the R&D are very stable, of course in particular for healthcare and knowing that we have in front of us significant backlog increase in IT, we have to invest. So, we have invested in the service people to make sure we can deliver the backlog we have accumulated and this is somewhat reflected in the numbers of the cost. The EBITDA in the quarter sets is at €60 million which is €18 million less than last year and for the first half, €99 million, but as I quoted in the press release, we stick to our target, which is in the years to come in average to deliver a 10% -- around 10% EBITDA. Last year it was 10.4%. This year it's obvious that it will be probably below 10%, but in average we stick to what we said. Below EBIT, the numbers are well in line also with what we guided for. So, the restructuring and non-recurring at minus 2% in the quarter, minus 5% in the first half, nothing specific to report in terms of restructuring this year. The non-operating result at minus 8%, minus 20% for the first half reflects of course two things. First of all, the fact that interest rates being low, the cost of the pension that is limited in the P&L and the financial debt interests are limited also, the taxes at minus €10 million are again in line with what we expect. You know that there are plus and minuses every quarter on this line and the net result at €27 million is once again profitable. I think we have delivered now 15 quarters positive net result. You may see that the distribution of this net result is slightly different in particular with a noncontrolling interest. The debt has increased. It was positive cash at the end of Q1 €37 million positive is now a debt of €27 million. Large part of that is due to the seasonality I would say of our cash flows and you will see on the next chart, now on Chart 5 that the working capital has increased and this is one of the main reasons for the debt has increased to €27 million. So, to summarize the main drivers behind these figures, again good performance of the growth engines in the quarter two. Topline impacted by this reorganization in China and net profit of €27 million and the net financial debt of €27 million. Moving to the analysis by business group low on Page 6 you see the graphics pie chart. So of course, on this pie chart, you see that the path of Inkjet Software Service is growing now to 24%. The Analog Prepress, which is mainly a film business stays at 10% and as you know we've now in the market a position which is a good position because most of our competitors have dropped the ball and on the Prepress business that means basically the plates and the equipment related to Prepress at 66%. Numbers, I'd say for graphics, my comments which are that the quarter has been completely in line with expectations. I would say it's even more true for graphics. If you split the graphics business in two parts, the prepress business on the one side, we know it's somewhat declining under the pressure of both volume drop and sudden price erosion. On top of that we have a decline of the gross margin because of the raw materials, but the inkjet performs well. Therefore, you get to a number which is probably not very far from what you could expect in the current situation of the graphics topline. The rest of the numbers are I think not a surprise and the EBITDA sets itself at 22.9% for the quarter, 42.8% for the first half. I would say again compared this to the announcement of our results and you will see that we resist pretty well on this business. The main drivers in inkjet maybe we can focus a little bit more. There are two big elements of satisfaction. First one is that the Anapurna range, which is I would say the lower end of our products is performing very well in the quarter as well as the ink segment of the business forward from a printing but also for industrial applications. Another element of satisfaction is that the plates, the new plates we have introduced to the market based on chemistry-free solutions, continue to perform well, but of course we continue to face this competitive pressure in the offset market and therefore the revenue are declining by 3.7% in the quarter. Gross profit I mentioned that already. Business highlights, maybe it's important to notice that we have introduced last year -- in the second part of last year a new LED solution set. LED replace the UV traditional lamps. We have lower consumption. We have a better set of solutions and this is part of the success of our Anapurna range and we're now introducing the LED version of our Jeti machines starting with a Tauro machine, which is the high end of the product offer. That also an element of good hope for the future evolution of our inkjet business. Moving to healthcare; this is the pie chart that you are used to, to see and obviously you see that healthcare is part of 25% is you've heard me saying that before is below what it should be, the market being what it is. Numbers of the market are well known. Our share -- market share being what it is. Normally his number should be higher. If you were to restate that, you would see that the CR/Modality business behave as we expected. That means, DR growth compensates for decline of CR. Overall, we have a modality business which is pretty stable. And the IT business is continuing to grow because it grows of course as opposed to the rest of the business, which is not growing and therefore the IT part in the group would be more in the range of 46%, 47%, getting closer and closer to half of the business, the business group revenues. Numbers, the comment I made exactly visible on this table. The topline is declining by 6.2% excluding currency exchange rates, 4.7% in special numbers. The gross profit suffers a little bit, but again you have to take into account that we have a sort of schizophrenia here because on the one side we have this issue of hardcopy film in China, where we reorganize the distribution channels. On the other side, we have to invest significantly as I said in the service organization, the people to install and to set up the projects we have been able to secure that we have in the order book for both enterprise imaging and the ORBIS suite in the hospitals. So, this is somewhat damaging the gross profit of the group. The rest of the cost SG&A and R&D are in line with what we -- that you probably expected, what we guide for. EBITDA 32.1%, obviously again suffers from the lack of film in China. Summary of the main drivers, the DR growth engines performed well as well as the HealthCare Information Solutions in particular for hospitals. The Imaging IT Solutions range, we've seen a little bit of a slowdown in the quarter, but the order book continues to get up and I explained that already several times but I repeat it again. This enterprise imaging solutions set we offer, which is now not limited to cardiology, but which is really part of the big IT systems in the hospitals for everything which is about image leads to bigger contracts, more sophisticated contracts, more integrated systems in the IT solutions of the hospitals, and therefore it's a bit longer to implement. It's not only longer for on the Agfa side. It’s sometimes longer on the customer side because they have to take actions. They have to implement things which are more complicated than just putting impacts on the cardiology system and this is why we see a little bit of a delay honestly in the implementation of this kind of things. But we are very confident that the backlog will be delivered and at the end of the day, the business unit will perform according to what we have guided for, that means a growth in the range of single digit -- mid single-digit numbers. Business highlights; you see on this -- on this three bullet points that two of them are dealing with certification and process I would say. Process on the one side in the information security, which is very critical. We have seen in the past month a few events where hacking -- hackers were putting some healthcare organizations under pressure and we are very happy to have been recertified for the Information Security Management Systems. And the third bullet is also related to our processes and the processes that our customers are able to set up to put in place. Thanks to the quality of our solutions like ORBIS in the case of Germany and you see that the inheriting in this clinic has been the first one in Germany to achieve this level VI out of VII in the EMRAM classification. So, what does it mean? It means that, thanks to our solutions, our customers are able to deliver a quality of care and a process which is optimized. And the second bullet is about the new version of our Integrated Care Suite. The Integrated Care is not very visible. It's a small business for the time being, but as you know we believe that's the trend the healthcare business will go. Specialty Products, it's all about satisfaction in this group. The topline is growing and it’s growing for the second quarter. So, the first half is showing a 10% growth. The profit, gross profit is well in line with expectations. The costs are under control and the EBITDA are 12.4% in the quarter and 9.8% in the first half is very decent. Again, this is due to the success of our little, but significant growth engines within this business group. Synaps Synthetic Paper and the Orgacon Electronic Materials, but also, we see the Printed Circuit Board business delivering well as well as some other classic film product. So overall, a good level of satisfaction for the results of this group. In the business highlights, two things. You know that we are in the security business and we have been successfully delivering the voting cards to the parliament of Malta and more importantly probably we launched what we call UNIQOAT. which is the very next generation of our back panel, backfill for solar panels. And both the technology and the quality, the specifications of this products in particular, the high level of activity which is enhancing the yield of the solar panel, gives us some hope that this UNIQOAT will be as successful in the years to come. Sorry, I keep going backwards. A few minutes now on the second press release of the day to make sure that we have a good understanding of what it means. I don't repeat again the press release, but basically what is it about? It's about the decision that we've taken and the Board has asked us yesterday by the way in the Board Meeting of yesterday to study in depth the organization of our healthcare IT activities into standalone legal entity, a secure organization, but within the Agfa-Gavaert. You know and I said that already. In the past, I really believe we are now in the development of the strategy of Agfa entering in 2017 into a new phase of our development. Backwards in the last five years, we have secured most of the elements of the financials of this group with one exception which is the topline. We have decided to seriously launch a certain number of activities related to the growth of the business. And I said to you already, we have articulated that along four lines for sub projects, related to different set of actions. The first one is for our traditional businesses to be able to resist better the decline and to some extent what we do in China, reorganizing our distribution network is linked to this. So, it's painfully in the transition year of 2017, but it will give fruit in 2018 and the years after. The second domain is to boost even faster, the growth engines of the business that we have developed essentially organically by our R&D in the last years, and to boost it to go even faster. And what we announced today in terms of this study for IT is part of that because it should give the two parts of the group of the IT on the one side and the main activities of the group on the other side. An opportunity to develop in their own scheme I would say, one being IT, the other one being more related to film and chemistry. And this is part of what you want to do in terms of growth. The third pillar of this growth program is about targeted acquisitions. But as you see we have not announced anything significant. We are very cautious not to spend the money. So, we want to have acquisitions which are both clever in terms of alignment with our strategy, but also profitable. And the fourth element is huge plan, a huge effort we are doing internally, in particular to what our sales organization, but not only also the service people to make sure we have training of the customer facing people to deliver more value to them. And to create more value out of what we have developed and the portfolio of patents that we have. So, there are four pillars and everything we do this year, again as a transition because it's a first year we set this kind of actions, has an impact hopefully in the future on this too. And what we have announced in terms of study for realigning the healthcare activities along a single organization within the group, is linked to this will to boost the growth of the IT business, which is as we said today, performing well. And we believe as a counter part that the rest of the group, which has a DNA, which is more traditional DNA and the chemistry and other things, we're better equipped also when we have done this kind of things. But again, this is a study. We are at the beginning of the process. We really want to go in depth in the systems, in the organization and the processes. So, we will keep you informed when it is needed, when there are significant progress, when the Board takes decisions if any in the future, when we give some recommendations. But I wanted to explain a little bit where it comes from and how it fits in our global strategy for development. That's it. So, we can open the floor to questions, in the room of course, Stefaan, microphone. Q - Stefaan Genoe: Yes. Thank you. First question of course on the separate announcement. You indicated to us a question from the Board. Could you also indicate to what extent it was a demand from that of the business -- from out of the business? That's my first question. And second question on the hardcopy, do I understand the press release well before you indicated it would be an impact on the first and the second quarter and that the impact will be more also in the second half of this year that we should see on the results? And then I had a third question which was -- yes, in a separate legal entity, does this also indicate that there will be an allocation of the pension deficit among the two structures? That's it.

Okay. So, question one and three are related to the same topic. So first it's a decision -- it's a request from the Board because this kind of decision which is dealing with the structure of the company comes from the Board, but there is a good alignment between what the Board is asking us and what the management believes we have to do. So, there is no discrepancy in the approach of this study. For the third question and the pensions, things are really premature with other studies. So, we will see what this means. I don't anticipate a lot of things in terms of pensions for IT, but it's a study and I don't want to go into details at this stage. For the hardcopy film, you're partially right. I believe that we have done most of the difficult part and the first two quarters I've seen this in organization being really starting to be put in place. I hope the first -- the second part of the year will be more in line with what we normally deliver, but I would not commit for that yet because it's still works in progress.

Okay. Thank you.

It's Guy Sips, KBC Securities. Two questions, first one is on spinout or the spinoff, would that be in timing -- would your timing be the same if there was no CompuGroup deal or no deal last year. So, in what way did the CompuGroup affect the timing of this? And the second question is related to the raw mat impacts in the second quarter. I think silver had a negative -- as well as aluminum had quite a negative effect of €2.5 million and a little bit about €3 million. Can you confirm these numbers and what do we expect for the remainder of the year?

I'll quickly tackle this question. We've revisited the -- we have taken your shoot as we do every quarter with the guidance we give, that means the three to four months delay on this [sever] and the amount of [sever] that you know and the impact of whatever €3.5 million per year for the [tri] and the same for aluminum looking at the spot with the time difference -- time lag of six to nine month. Of course, six to nine month might give different things, but okay that's part of your job. I would say you should be okay with the numbers that we have -- the real impact. About your question about CompuGroup, things are completely disconnected. First of all, CompuGroup, it was a year ago, and we are not taking decisions or we are not looking at things that we have to do in Agfa based on this kind of events. CompuGroup we have stopped discussing together because it was a common decision because we could not find an agreement. But the decision to study what we have to do with IT is complete independent from CompuGroup, on the fact CompuGroup. Now, looking at the business is of course partnership for IT or partnership under any kind of format for the rest of the Group of different interlocutor. So, that's part of the reason why we want to study that. But it is completely independent from the CompuGroup discussions of last year.

Perhaps a follow-up question on the hard copy. Hardcopy declining sales of course with the high margin contribution from the hardcopy had its impact on profitability. Should we also see in the second half and next year profitability recover or do we also partially have to face a new revenue breakdown and just a lower contribution, topline contribution also from hardcopy, partially in the second half of course, but mainly, my question is mainly related to 2018.

It’s very early to speak about 2018. As I said and I would like to insist on this message, nothing is new or nothing is bad in the quarter in the performance of Agfa these days. Everything we want to do, we do it at this stage. The reorganization of our channels in China is part of what we -- part of our duties. We need to do that. The market is changing. The positioning of the different competitors might be different. By the way, it's really limited to China now. That means the rest of the world performs well in terms of hardcopy. So, Latin America comes back to what the normal situation would be etcetera. So, it gives some comfort to us that everything we are doing in this domain, that we know pretty well is going in the right direction. And we believe we need to go through this period of complexity because when you touch your distribution channels, it's a bit complicated exercise. But I'm convinced I would say that after the exercise is over and after we have a new system the performance will be as it was before, even better and more adapted to the evolution of the market prices, market volumes, market competition. So, the only question and the doubt I have as you understand is, is it finished now? Is it going to continue for a little bit in quarter three and four, but okay, it should be finished by the end of the of the year, this exercise. In terms of margin, part of the gross margin delta that you see this quarter, again, it's linked to some investment we are doing because the -- again I don’t want to paraphrase what I said before. But the IT business is really there and we need to reinforce our crew to make sure we help our customers, we support our customers to implement to make the changes they need to do, to make sure that the complex systems we are bringing now both for imaging and hospital systems are well implemented.

As a follow-up on that perhaps, if like in this case a separation of the HealthCare IT is being considered. I wouldn’t -- I would imagine that you would do that if you have I would say a business that is sufficiently profitable to further develop given the current still growth investments in HealthCare IT. Of course, if you want, you can give the details on the margin, but I don't think we’re going to get it. But I understood HealthCare IT given these growth investments today is still at a low profitability? Is that…

Look, this is part of the study. All these kind of things have to be taken into account. When you do these kind of big study, you have to look at everything. You have to look at your organization. You have to look at your processes. You have to look at your IT systems. You have to look at your business. You have to look at the set of numbers, you have to clearly understand what it means. You mentioned the pensions, there are plenty of things like that. That's why it's an important request that the Board is asking us to do. That means a study like that is not something you do in two weeks. It's not about the creation of a business group or about the business division. It's really about structurally understanding where would set -- where would be a standard on the IT business in Agfa.

Thank you.

I have two questions on China. How much sales did you lose there and could you give more details on the changes you are putting in place there and will be a blueprint for other countries in the future maybe? And then on the separation efforts rights provided 10 years ago to reorganize the net activities didn't work out then, why will it break out now and how long will the study take?

So, the question of sharing out, we'll not commit more because this is business as it even in questions that you're asking and I think you will understand that I'm already saying a lot about the reorganization on the study that we are starting. First of all, everything we did 10-12 years ago, 12 years is an eternity in our business. So, in the IT business at this stage was not where it is today. So, dispute which was considered at the time was more speed adapted by segment of business, healthcare, graphics and specialty as you know. Things have changed. Part of this business has disappeared or reduced considerably. Part of them have been growing far more. There was basically knowing yet this time there was an IT business, which was not organized and not profitable what it is today. So, it's a completely different picture and I would not do any comparison with what was decided at this time. What we believe today is that it makes sense within Agfa to have on the one side an IT business. On the other side of the business which is more driven by our competences in chemistry and these kinds of things. And today we have two businesses which are combined together and the lack of focus on this two big DNAs, or big activities of Agfa, we believe limits our capability to grow, to establish partnerships, to develop the businesses. That's the driver behind this study, but again it's a study, so don't ask me conclusions of the studies, not if that's a study, it's a decision.

One other element that is totally different from 10 years ago.

And that is totally different. By the way the pensions also unfortunately, the structure of the debt is totally different and the profitability of the group is different in terms of future related businesses.

The timing -- the timing obviously did you say what is that exactly?

The Board is not asking at this stage any deadline. The Board is asking us to do a very sole analysis and not to mix any potential problem issue, but the timing of course will come. The question of by when will come? It will not be a 10-year study. But it's important that we organize ourself. We have a good project team and we set up things in the right way. We look at the different aspects which are not only financials, but there are plenty of other aspects and we're going to do that seriously. We'll put a real team behind that of course. It's not something that we do when we have time, but I'm totally unable to give you a timing at this stage.

Another question on that spinout scenario study, why is that a good step for the rest of the group?

I'll tell you why, because the rest of the group today somewhat suffers from the fact that we have this lack of focus and internally and you perceive that may be in our communication, the fact that the IT business is positioned to grow now, drives a lot of attention out of this additional businesses. And we believe that if you separate the two in terms of even legal entities, in terms of reporting systems and this kind of things, you may end up with a better focus on the businesses and don't forget that in the rest of the group as you say, there are very good businesses to develop. And more than -- many more than we thought if you look at the specialty business group results and compare that to the equivalent businesses of the company, you see that we are doing a very decent job in this and this is not done because we have whatever, but we have been working very intelligently I believe on the cost structure of the factory at Mortsel, we have people which are very dedicated. We have a patent portfolio, which is huge and we have I would say a good recognition in this domain and I believe that focusing even more on this kind of businesses in domains like the new plates and domains like the Synaps and the Orgacon, in DR in Inkjet and the ink business outside of Inkjet even, Inkjet outside of the wide format printing, but growing more into the industrial partnerships, that will be a way to improve the business of this what I call the rest of Agfa in this case. But today we are somewhat limited in this kind of discussions because Agfa is perceived as sort of strange animal with IT and the like. So, let's put things, let's focus on the two activities which are in terms of technology, in terms of what I call the DNA of the company and then we believe it will be better, but we need to understand how to do that. That's why we do a study. But I like the question because it's really about the two parts of the group. It's not about IT and sometimes what I read really in the press it's focused of the IT, back on the group. No, this is not the problem. Agfa is a company which is large and we have really good businesses, not only in IT, but also in the rest of the company and we believe that if we are able to focus better the organization and the management on this two after decent study, we should end up with a better positioning of both activities. Any other question? If there is no more questions, I think we can close the call and meeting. Thank you.