Thank you for standing by and welcome to Q1 2020 Earnings Call. At this time, all participants are in a listen-only mode. After the presentation, we will conduct a question-and-answer session. [Operator Instructions] Today's call is being recorded. [Operator Instructions] Now we'll turn the meeting over to your host, Pascal Juery, CEO of Agfa Group. Please go ahead.

Thank you, operator. Hello, everyone. Happy to be here in Mortsel with the executive team of Agfa to present the Q1 2020 results. My first remarks, of course, as we are living through extraordinary times, I hope that each of you and your loved ones are doing okay and staying safe and healthy during these times. Well, let me walk you through a bit the Q1 results of Agfa starting with the key highlights of the period for the group. First, as you know, we have announced a little bit over a week now that we have indeed closed the sale of part Agfa HealthCare IT business. So the sale to the Dedalus Group successfully closed at an enterprise value of €975 million. I would like to remind you as well that we sold only part of the HealthCare IT business and we are retaining the Imaging IT software business and that this business is not only being retained by the group, but it's a key source of future value creation for Agfa-Gevaert. And by the way the Q1 results on this part of the business is really showing promising results. Overall, the first quarter was already impacted by the COVID-19 crisis on various fronts. We have significant business in China in the health care area as well as in the printing market. And we've seen already in March a significant slowdown of some of the activities in the printing market. In spite of this, as you've seen, we have been able to produce what I would call a solid set of results. We have improved our gross margins and we have controlled our costs trying to adapt the level of cost to the level of demand we're experiencing in the market. Overall, I would say that the HealthCare part of the business which is the Radiology Solutions and the HealthCare IT have shown resilience and we believe this will be the case going forward. Even if these activities are not immune to the current crisis they will remain resilient. However, we've seen specific segments of the printing industry being significantly impacted by the COVID-19 namely everything related to the commercial printing market while I would say newspapers as well as packaging printing has been less impacted or if not at all for the packaging segment. In this time, what's extremely important for the group is to focus on cash generation. And here I'm also happy to report a pretty good performance in the Q1 time. Clearly, we have continued to optimize our working capital and that has created the conditions for significant cash generation during Q1. And at the end of the day, our debt has been lower than at the end of last year. Typically Q1 is a quarter where you would see working capital going up. And I believe we are continuing on our drive to improve it, while making sure that we kept inventory at the right level and adapting to the level of the demand we are seeing in the market. So these are really the key takeaways for me of the results. If I move a bit to the figures you've seen that our top-line has been decreasing by 4.4% overall, which is a limited decline mostly related to the slowdown in the printing markets. Gross margins as a percent of sales has increased. This is clearly a focus to quality turnover to quality activity for Agfa. At the same time, we've been able to decrease significantly our SG&A trying to make as much as possible our cost variable and adaptive to the level of activity. R&D, I say even. And I would like also to make a statement here that, while we are cost conscious and we are taking all cost-containment measure during this time R&D is about building the future Agfa and this is not an area where we are willing to cut resources. So all-in-all an EBITDA that is on the face of it slightly below last year. However, when you retreat for the lasting effect of the alliance with Siegwerk, EBITDA is as a matter of fact in line with last year. So overall, I would say, quite resilient and solid results in the face of an unprecedented demand crisis. If you -- if we go to net results, I would say, positive net results for the quarter. Now main drivers behind the figures. Clearly, as I told you we've been very diligent not only managing our cost base, but also managing the working capital we need to operate the business. I already discussed the fact that we had -- we've seen resilience in some activities and challenges in other activities. But overall, we are actually making sure that we can preserve our cash that we can manage our costs according to the market situation. If I look at the debt level, it is the fourth quarter in a row where we've been able to decrease the debt coming from the cash flow generation and the action on working capital. Working capital, 23% of sales we are coming last year from a level of 29% of sales. Needless to say we have worked on all the elements from receivables, payables, and the level of inventory to make it happen. We believe we still have a potential to improve this working capital going further and we'll keep our focus in doing that. I will now move to HealthCare IT business and provide you with a little bit color -- or a little bit more color on this -- on the results. This Q1 results this is the last time you will see a significant impact on the activity we have just sold. So, looking forward, of course, the results we are going to report will be limited to the Imaging IT part of the business. But overall the activity for HealthCare IT as you can see have been quite favorable during the first quarter not on the topline. Our focus was more on providing quality sales and working on our mix meaning selling a lot more IT software and a little bit less hardware just to give you an illustration, meaning that we were able to continue to increase our margins and overall a very nice growth of the business. The message I would like to give you immediately is that the part of the business we retain the Imaging IT system has been a significant contributor to this improvement. And actually we've seen a very nice development in Q1 for this specific business. So, overall HealthCare IT, very solid. Looking forward for this business we believe this is a resilient business. The only impact we could see from the current situation is potential delays in implementation in some projects we have currently in our books. The reason being as hospitals are really being focused on the COVID-19 crisis, we could see potential delays for implementation. But we believe that this will be limited and it doesn't change the view we have for the business on the mid and long-term. So, that's for HealthCare IT a source of strength. And clearly looking forward at value creation journey on the part of the business we are retaining. Then if we look at Radiology Solutions, another very resilient business during the quarter with the level of sales equal to the one of last year. Within the division, you've got bit of a different dynamics. Our hardcopy sales were -- was impacted by the Chinese crisis. China is the most important market for the film business of Agfa. This has already recovered, but has left a bit of a dent in the sales of the first quarter. On the CR and DR business which are more equipment business as you know, equipment and software business, actually we've seen pretty good development especially on the top and bottom line for the DR business which is probably the activity of the group that is a bit boosted by the current situation. We are seeing strong demand for DR mobile units in the market and we are benefiting, of course, of this quite positive impact. So, overall very resilient business. EBITDA almost in line with last year in spite of the slowdown in China for the film business. If I move to Digital Print & Chemicals, this is a business that has been significantly impacted by the COVID-19 crisis. Well, this is a business where again we've got different components. The resilient part of the business is the Chemical part which has been very resilient and solid. After a bit of a dip at the beginning of the year due to the situation in Asia, we've seen demand coming back and overall performing at a very good level. The real impacted area of -- for this business is related to the Print -- to the Digital Print. And here as I told you the commercial printing business which represents most of the activity in this area for Agfa has been significantly impacted. And this is a market where we sell both equipment software and ink. So, clearly, the ink has been impacted of course by the fact that there were less printing volumes, but this decrease is manageable. What has been more impacted is the equipment of large-format printers. Of course, in this current environment, there is very little investment in production, equipment as you would imagine. And therefore, this is -- we've seen, I would say, almost a hard stop to the equipment sales. Overall, we feel confident in growing further on this. When the rebound will happen we believe this is still an area where we have a number of initiatives in the market innovation initiatives, addressing new market segments in Digital Printing. Leather and Industrial printing are showing good signs of promise and already signs of revival in this current environment. And we will also come up with specific initiatives for new product launches. So overall, its dip will be impacted in the next quarter, but we still remain very confident going forward on this business. The last business of the group is also the largest Offset Solutions. Well, as you know, we already operate in challenged market demand. This is a business that has been suffering, I would say, secular slowdown and decrease in market demand. This has accelerated during this crisis. And as you can see, the top line is significantly below what it was last year. However, in this current environment, we've been extremely diligent to make sure we could adapt our cost base as well as our production capacity to the new level of demand, which means that when you look back -- when you look at the EBITDA, the overall impact has been almost eliminated from the top line sales. However, going forward, this is an area where we're going to continue to see weaknesses. As you know, it's been an area of market decrease for already many years. We believe that the current crisis will only accelerate this decrease, and we do not count on a real significant rebound going forward. And therefore, we work on taking the necessary steps to adapt our activity to the market situation. So overall, that's where we are. Again, a solid set of results given the circumstances. Good cost and cash management for the company. As you've seen, we refrain from providing a guidance at this stage. We had not done so, and we don't do normally so. And in the current circumstances, we just believe this is not realistic to provide you with guidance. The reason being the situation still develops almost week-after-week. As the lockdown is being eased in some markets, it's still unclear about the pace of the recovery and the rebound. And of course, what is not clear, again, is we've seen some relapses in some of the Asian countries that have started this crisis. And therefore, it's impossible for us to give you a clear picture how's the year to come. However, what I want to repeat is what's important for us is to be ready according to any scenario that will present to us. And we feel confident that we can continue doing what you've seen during the first quarter, meaning mitigate any impact of the demand crisis through cost containment and management of our resources. While we do that, we will continue to invest in our growth businesses. We believe that, no matter the length and the depth of the current situation, there will be a rebound and there will be a situation where the economy will pick up again, and we believe this is the time also to get ready for it. So we are a bit ambidextrous here. We are making sure we are controlling our costs, but we are not -- we keep investing in areas of growth. Last, as you know, with the divestment to Dedalus, we today have a significant amount of cash. And I know, of course, that the question that everybody has is what are you going to do with this cash? Well, I will repeat what we said at the time of the closing of the sale, meaning at this point in time, indeed, the priority is to invest in our businesses and to address the long-term liabilities, and especially the pension situation of the company. On this, I can tell you that you will see already some steps being taken during Q2 and that we will devote significant amount of resources to start addressing the pension situation of the group. That's what I would like to share with you at this time. I'm going to stop here, and I suggest operator that we move to the questions. Thank you.

Absolutely. Let’s now begin the question-and-answer session. [Operator Instructions] Our first question is from the line of Guy. Your line is now open. Go ahead please.

Yes. Good morning and congratulations for the very good first quarter. I have a question on the HealthCare IT on the remaining part of the HealthCare IT. You gave some comments in the press release on the HealthCare IT but can you try to quantify that a little bit where, let's say without COVID-19 would you have seen the margins? And what is the impact of COVID-19 on the remaining part of the HealthCare IT? Can you give us a little bit of guidance on that part because for the moment we are a little bit in the dark as you could see. And the second question is on your last remark on the use of proceeds of the €975 million. You were indicating that you will take some steps for in the pensions but at what moment in time could we expect let's say a more profound plan of the use of proceeds and more specific return of some of the cash to the shareholders? Thank you.

Okay. On your first question on Imaging IT business, we've seen an impact already of COVID-19 not yet not in the first quarter. As I commented, we might see an impact during Q2 in terms of implementation delay – potential implementation delay of some IT projects at some hospitals. But again, if it is so, it's going to be a delay. So we might have a bit of a weakness in the activity in Q2. In terms – so that's for the impact on COVID. In terms of margin, we always guided that the starting point for us in this market – in this activity was mid-single-digit EBITDA. I'm happy to report that after Q1 and for the rest of the year you will see this EBITDA level steadily increase. And the first result of the execution of the focused strategy is really showing some good promise. You won't have a long time to wait anyway because pretty soon it's going to be reported as a separate division. So you will see for yourself. What I want to stress is really we strongly believe that by managing the business differently which we have started already a few months ago we are confident that we will bring up the level of margin of this business, as I said to a solid double-digit and probably high double-digit number. So that's on the IT business. On the proceeds, well I understand – please understand, we are also living under circumstances that we had not foreseen. We don't really know the development of the economic scenario following the COVID-19 crisis. So first I would say that closing the sale of the business is of course a very positive event that gives Agfa, well I would say, a lot of cash and that will enable us to take care of our long-term liability. On the plan regarding pension, you will see already concrete actions during Q2. So expect to see it already in Q2. In order to have comprehensive view on what we will do with the cash, we will wait until we have clarity clearly on the economic development and the scenario. Well, that's really what I want to share with you. We have that in mind. Again we have three priorities. The pension situation, which we are addressing. We are already planning to address and you won't have to wait for long to see it concretely. The reinvestment here as I did mention during the March call, we are working on a comprehensive plan also to look at our options regarding the Offset business of Agfa. We probably have some actions to take to restore the profitability of the business in this changing market. Could have we – e said that we will consider it, but we believe that now the time – priority is really on the first two actions.

Okay. And I have a third question if I'm allowed on the Offset Solutions business. Do you already see some improvements there in Asia, as COVID-19 was there striking mostly in the first quarter or is it still too soon?

The short answer is yes, but it's not back to normal situation. I think we are not seeing I would say the level of demand pre-crisis. You're quite right to say that, of course Asia has been a bit in advance in terms of the crisis and it's already past it. We have seen a rebound in the activity but again not to the level of pre-crisis. The reason being also in the value chain we operate that part of the output for China is indeed the rest of the world. They are net exporters of such goods.

And perhaps the last one if I'm allowed. Every cloud has a silver lining. So can you benefit from COVID-19 especially in your Radiology Solutions business? Is there some uptick as well?

As I said in our Direct Radiography business, we benefit indeed from an increased demand in mobile equipment, but that comes also at the expense of larger investment in radiology rooms. So we need to be careful with that kind of statement. Mobile equipments are very much in demand right now, because it's a very convenient tool in hospitals as you don't have to move patients you just move the machine, which is extremely simple to operate. So that's a positive. And indeed this is -- we've seen as I indicated the boom for the time being in our order intake and order book that we are yet to materialize into our sales during the next quarters and we are making sure that the supply chain is really up to it. And then as I said overall, Radiology is resilient. Overall, Imaging IT is also resilient. And these are activities where mid-term, we believe will have tailwinds due to the situation.

And a very last question. As from what moment on will you -- the divestment of the part you sell to Dedalus, at what moment in time will you report separately? Will it be as from the start of the second quarter?

Yes, absolutely. And, therefore, you'll have all the transparency you need for the Imaging IT business. And you will see that indeed, it has the potential to be a key lever of value creation for the group.

But also for the historic data we have to wait until the announcement of the second quarter results or can we have it earlier?

I'm sorry but you have to wait a bit.

Okay, thank you.

Thank you.

Thank you. Our next question is from the line of Maxime. Your line is now open.

Hi, good morning. So I have two questions. So the first one was on the accelerated decline of Offset, whilst you were mentioning that the newspaper market hasn't been impacted too much by the COVID-19 outbreak. So could you shed some light on what has driven this acceleration in decline of top line in Offset? And secondly on the cash flow side, so if you look at it you have a cash flow from operating activities of €63 million over the quarter on a normalized basis. If we exclude the positive impact of the working capital management and well the expected loss in the disposal of Agfa HealthCare, we basically have cash flow from operating activities that is really negative. Can you share your view on this and how this will improve going forward? Thank you.

Okay. On the accelerated decline on Offset, what we are seeing also during this time is that due to the situation, I think there is an accelerated digitalization of the economy and the activities. That's what we are seeing in different segments. So more and more online, of course, and less and less printed material. And we believe that this is a trend that is a long-term trend in the industry and this is what we mean by that. Again you have basically three segments in Offset, newspapers and magazines, which normally are resilient. But the number of pages and the advertising in these media are suffering from the crisis. And also I would say a lot of people discover after the lockdown or during the lockdown that they can read their paper online. So clearly that's a trend that will continue. Commercial printing, which is a lot related to advertising and print advertising and here again I think the habits are a bit changing. And the lockdown has shown that the online sales and online advertising are probably taking share. And the third segment is packaging, and this one is very favorable segment I would say, which shows clearly still growth in this area. So that's a bit what we are seeing in the Offset market. It doesn't change the trend. The trend was always there. But it's fair to say that the pace of the decline has somehow accelerated, which we need to take into account going forward in the way we are going to look at our business. Regarding the cash flow slide [ph], I'm not sure I got the full understanding of your question. I understand that what you're looking at if I understand well is the level where the cash flow generated by the business apart from the working capital impact. Am I correct Maxime?

Yes it is. Basically if you look at €63 million…

Sorry, we cannot hear you very well.

My apologies I guess it's my line. I will try to move a bit. So basically if you look at those €63 million you generated on the first quarter that you remove the positive impact of the working capital and that then you remove the contribution of well Agfa HealthCare that you will divest, my view is that operating cash flow will turn negative as of the second quarter. Is it something fair to assume? And if yes how do you plan to improve those levels going forward?

No, I understand. Okay I understand. Thank you. It's -- so I'm going to rephrase. What you're saying is we had strong cash flow, but if you remove the impact of working capital as well as the contribution from the HealthCare IT business that we are selling we would have been in negative cash flow territory. Okay. I understand your point. Clearly I'm not -- well first the working capital improvement we are not at the end of it. We still have avenues to continue to optimize the working capital level. And I cannot really commit yet today to what is the right level in terms of percent of sales. We need to operate the company, but I know for a fact that we are not yet at the end of the road for the improvement. Second following the sale to Dedalus, we are also eliminating some cost related to it. And therefore we will continue to manage our cost base actively in order to make up for the lost of course business in this area. But this being – but however what worries me is not really the generation, I would say of cash flow for Q2 or Q3. What worries me is more the level of demand overall and the impact on our top line of course. This is really what we are watching at -- what we are watching. And again, I repeat that we continue to take cost-containment measures that we have not implemented during Q1, but has been implemented since the beginning of Q2 in order to mitigate the impact. For instance, we operate today with work time reduction across different activities and teams in specific regions including by the way sales and services activities. We have also cut back the activity of some of our production plants. Some of them are totally shut down right now. And we are using the temporary unemployment schemes available to us in various countries. And when they are not totally shut down some plants are partially shut down or operate on a part-time basis and here again we are able to shed cost. So what I'm saying is that, the cost containment that you've seen in Q1 will be further amplified in Q2 in all activities of the group and therefore will help to mitigate the weakness of the business as we see it.

Okay. Perfect. Just if I may a small follow-up question. So on the SG&A side, what -- could you basically quantify what was driven by the COVID-19 outbreak and what was structural improvement in the cost structure? Thank you.

I'm not going to go there. I think you need to look at it globally. We indeed had actions in place before COVID-19. We have amplified these actions. We came up with new areas of action. And we still, as I speak work on more actions to come. We leave no stone unturned in this area. However, what I would like to state is on the SG&A, everything that we do for the time being of course is – well, two things. We have temporary cost out that is really related to the level of activity and more structural action. However if you want to take real structural action, it means relooking at the group operating model and cost base and share structures. And that if we start doing that we need to come up with a plan that will have an impact probably not in 2020, but in 2021. And that's what you don't see today in the figures of course.

Perfect. Thank you and have a nice day.

You too.

Thank you. Our next question is from the line of Jon Koch [ph]. Go ahead please.

Okay. I would like to know if a dividend will be paid back to the shareholders?

Sorry I'm not sure I got it. You would like to know?

If a dividend will be paid back to the shareholders for the year 2019 or in 2020 based on the final close of the IT business?

Yes. Thank you. As I indicated at this point of time, the proceeds of the sale of the HealthCare IT business will be dedicated to addressing long-term liabilities and namely the pension situation of the group as well as being invested in our business. And I said in the current circumstances, we are living through in terms of economic context this is our two priorities. So this is a subject -- I say, this is a subject that we'll probably be revisiting later when we'll have more visibility on our business.

Thanks.

Thank you. Our next question is from the line of Luc [ph]. Your line is now open.

[Indiscernible] Can you hear me?

Yes.

I have a few questions. And I understand that this is difficult to give guidance for the whole year, but I wonder if it would be possible like several other companies have done to give an indication of the fallback in activity in some of the most hit segments like fallback in sales or in volumes in the month of April, if you could give a little bit of color on that? And then linked to that also the improvement that you might be seeing in China as they were first to go into the crisis and they are getting out now do you see an improvement in activities in China? And then last question is on the use of the proceeds. I understand that, you want to do some investments to improve the operations of the company. What is first on your list to use the proceeds in that way? Where will you invest? And what kind of investment could that be?

Okay. So on the guidance indeed it's a bit difficult and we operate in different markets. So it's – I need to be quite granular, if I want to give you an idea. But let me try and address your point. So Imaging IT business the name of the game is not the top line. This is really a bottom line play but nevertheless very little impact from the activity. So – but again, this is not an area where we are promising anyway top line growth. We are promising bottom line growth in this area. Radiology the film business, I would say resilient not impacted so nothing specific. Equipment indeed are growing during the crisis. In the printing market, actually we have various situations. I already indicated that the chemical part of the business was not affected so far by the crisis. What is affected is probably the expected growth. We were expecting this business to grow significantly and the growth that we are seeing in this business is less – much less than what we expected. In the printing market as I said, there are different segments. You could argue that one of the commercial printing – in the Commercial Printing segment, which represents a part of the printing business the decline in the market is very strong in double digits. I would say, it depends of course on the geography but it's really double digits. Same in the Digital Printing market, where you have the market of consumables namely inks that is also impacted by double digits. Well, the market for large equipment as I told you is even more impacted. I wouldn't say, it's a market that is at a standstill today but compared to our normal level of activity, we are at a fraction. However, it's a relatively minor part of the overall DPC business. I don't want to give you the wrong impression. So basically you've got the full – very different set of impact, but I would say for the impacted part of our business, you're talking strong double digit decrease in the end market. Does it give you more color?

Yeah. So strong double-digit impact that is for month of April or could that be for the whole quarter or even longer?

No. I'm talking for the second quarter for sure. And then the third quarter, today our current scenario means there will be some kind of demand improvement. But frankly speaking, I don't have a crystal ball and I cannot tell you what it will be. We are monitoring the situation almost I would say day by day or week by week, I would say. So it's too soon to say. And again when I say double-digit impact I'm not talking about the total business; I'm talking about specific segments in the printing market. But yes a very significant impact.

So for the whole business it will be less or even much less? We're talking about single-digit decline?

No. Well, listen we are not giving guidance at this level right now. I understand, you want to understand, but the situation still develops as we speak. So it wouldn't be – again it's impossible for me to give more precise guidance on that. Again, I repeat HealthCare resilient Printing impacted. So look at the two businesses we have. You have all our figures and you can look at it. But I cannot give you more details at this point. Regarding improvement in China, again, things have improved in China. We are I would say back to normal situation in Radiology back to normal situation in Chemicals. And as we said in the Offset Printing market, it has rebounded, but not to the original pre-crisis level. So that gives you I guess a good idea of where we are. Regarding the use of proceeds, I think, I can repeat again what I said, but – I can repeat it once more. But again, addressing long-term liabilities, reinvesting in the company and the first need I would say is to restore the profitability of the Offset business. This is really the priority for us. And clearly we might need a bit of cash in order to do that.

But can you be a little bit more specific in where you will invest for Offset profitability that's quite vague. Will you...

No, not for the time being. As I said, we are working on a plan. You will probably see in the following weeks, the first signs of this drive, but do not expect us to come with a comprehensive plan that we can communicate publicly, before I would say at least Q4.

And would that be autonomous initiatives or are you talking about or thinking about doing acquisitions?

I'm talking only about self-help measures about restoring the profitability of the Agfa business.

Okay. That's clear. Thank you.

Thank you. Our next question is from the line of Christian. Christian, your line is now open.

Yes. Thank you for taking my questions. Can everyone hear me fine?

Yes.

Perfect.

Christian, where are you -- you're from which company which...?

Lake Street Capital Partners based in Zug in Switzerland.

Okay. Okay. Thank you.

So I mean you have your Annual General Meeting today and you also have the Extraordinary General Meeting today, if I understand correctly because it did not receive the necessary quorum on April 29. And agenda item number one of the Extraordinary General Meeting is to get the approval to purchase back up to 20% of the shares of Agfa. So that obviously is no coincidence. And the question is absence -- in absence of COVID-19 clouding the economic outlook and sort of making a guidance for the business complicated in absence of this, would it have been the target to pursue a significant share buyback with the proceeds of the sale of HealthCare IT?

Well listen, I'll leave it to you. The reality is we do have the COVID-19 crisis and the reality is what I've already explained.

Okay. Thank you.

Thank you. At this time speakers I'm not seeing any questions on queue. [Operator Instructions] End of Q&A:

All right. Thanks a lot to all attending. Again, stay safe and healthy in this time. And again, I repeat my main messages. Clearly, we are doing everything we can to contain any impact on the COVID-19 measures cost containment and cash preservation. We -- with the sale of the HealthCare IT business, we now have the resources to address long-term liabilities and to reinvest in our business if need be. And you will have to bear with us indeed in terms of providing a guidance to the market as well as more precise information about our strategy going forward. But thanks a lot to everyone for attending today's meeting. Thank you very much.

Thank you. That concludes today's conference. Thank you everyone for joining. You may now disconnect.