Hello, and welcome to the Agfa Full Year Results 2020 Call. My name is Rinkel, and I will be your coordinator for today’s event. Please note, this conference is being recorded. [Operator Instructions] I will now hand you over to your host, Pascal Juery, CEO, to begin today’s conference. Thank you.

Thank you very much, operator, and hello, everyone. It’s good to have you on the phone today to review the Agfa results. Well, of course, I don’t need to explain that 2020 was a year disrupted by the pandemic. But the first message to you is in this pandemic, we tried to do three things: first, addressing the short-term challenges, managing our cost base and our capital and mainly our working capital; second, we continue to transform the company, and we made significant changes in the portfolio, the balance sheet and in the way we operate the group; and third, we have kept investing in our growth engines. We have a clear growth path for a number of our activities. And while we are addressing the challenges in specific areas of our business, we keep investing in our growth engines. Let me now walk you through a bit more in the key highlights of the year. First, needless to say, the key event was the closing of the sale of the HealthCare IT activities. Pandemic was already in full swing, and – but we could deliver on it. And this enabled us to start working on fixing our balance sheet, namely funding our pension and derisking actions and repayment of our financial debt. More to come – more details to come in the course of the presentation today. The highlight is the success in Imaging IT. We doubled the adjusted EBITDA in a year. As we know, we have a midterm growth strategic road map. We’re happy to say that, if anything, we are a bit ahead of our plan in this area. And we successfully increased our margin. And we have, I believe, an excellent outcome on this business for Agfa. Third, we still had good performance in some specific areas in the company portfolio, including Direct Radiography, who delivered double-digit growth. Inkjet consumables, so this is really inks mainly, that worked out quite well. And we are ending up the year on a very positive note on this area. And our Specialty Chemical business, who is already at the end of the year 2020, well ahead of last year. This being said, we were also impacted strongly in other parts of our portfolio, strong impact on offset, on the printing equipment for inkjet, where basically the market dried up during a few months in 2020. And the film-related activities, either medical or industrial markets, have been difficult in terms of volume due to the COVID impact. We’ve seen a recovery for most of these activities in the second half of the year, but we are not yet at pre-COVID level, to be clear. I think one of the success of the year is we’ve been successful in adapting our cost base relatively quickly to what we’ve seen in the environment. If I take SG&A and R&D, we were able to decrease our cost base by €70 million. For SG&A itself, we were able to maintain the percentage of SG&A at the same level as last year in spite of the steep decrease in the activity. Out of the €70 million, the majority, about 55% of it, is temporary measures or related to the activity level. But 45% comes from structural actions that we have taken in order to simplify the way we manage the group. So we will continue to work on that in the years to come. We are on a path of transformation in the way we operate the group in its shared services. And we expect to continue delivering year-on-year benefits on this front. Working capital. Well, we operate in markets where we have long supply chains for a variety of reasons. One of the reasons being some of our markets are quite fast from where we produce. But also, we have an OEM activity in some of the business portfolio. That means we have long supply chain. So it took us a bit of time to adjust the working capital according to the reality of the business, but we did it, €100 million reduction in working capital during the year. We end up as a percentage of sales that is lower than last year. So very significant progress in this area. We made structural progress in the way we manage receivables and inventory. In this context, which is quite contrasted, of course, we have decided to launch a €50 million share buyback program. Please take it as a sign of confidence in our midterm perspective. That’s very clear. And we believe that following the achievement of the HealthCare IT divestment, we needed to think about our shareholders. And on top of this €50 million share buyback, I’m sure you’ve seen also that we are canceling 4.1 million shares that we are currently holding as treasury shares for an amount of about €15 million. And last but not least, we have renewed our revolving credit facility to maintain, of course, the liquidity of the group. Although we have plenty of cash today on the balance sheet, we believe it’s always a good thing to have access to this instrument. So these are really the highlights of the year. In Q4, now if I’m more specific, the developments in Q4, what do we see? The headline is strong improvement in Digital Print & Chemicals and the return to positive adjusted EBITDA for Offset Solutions. We had two quarters that were extremely difficult for Offset. And in Q4, we could get back to positive EBITDA. Self-help measures, for sure, and as well as a bit better volume environment. However, I would say the more negative news come from the medical film. We use normally to have very strong Q4 in terms of volumes and especially in our main market in China, stocking for Chinese New Year. But there is a new procurement process in place. So that deterred our dealers to make too much inventory. And therefore, we suffered a bit from this during Q4. And last but not least, but you’ve seen that the working capital reduction came very much in Q4. We took specific production adjustment action. And as I said, this is also long supply chain. So we have – this is why it came a few months after the dip in the market. But that’s a structural reduction that we are making. I’m going to skip the sale and go to the P&L. So you’ve seen for the year, 13.5% decline in our sales to €1.7 billion. Already in Q4, as you can see, the impact is less, but not close to pre- COVID level. Gross profit, we maintained pretty much our gross profit percentage, however, on a much lower volume, which we partly mitigate through our SG&A action and R&D reduction. And in R&D, let me tell you that most of the decrease comes from Offset. We have kept our investment in R&D in other activities. So of course, a significant hit on EBITDA because we couldn’t mitigate the full impact of the reduction of the volume. If we turn to the next slide, coming from a €36 million EBIT for the year, we do have quite a lot of restructuring this year, mainly two items: the shutdown of Leeds, Pont-a-Marcq who now done, but that, of course, is reflected in the 2020 accounts as well as the announced restructuring of our German manufacturing footprint in Radiography that has yet to be implemented, but that has been provided for. And therefore, that brings us to a negative net result on continuing activity and, of course, a strongly positive profit when taking into account the [indiscernible] divestment. I’m going to turn now to Dirk De Man, our CFO, who will walk you through a few slides related to cash, pension and working capital debt.

Yes. Thank you, Pascal. So indeed, positive cash flow for the year. So indeed, a very tough year on the business and the business results, but still a lot of mitigating actions able to limit the damage, let’s say, to the bottom line. Outstanding performance on working capital, overall, €84 million of cash generated. We improved on all fronts, so the receivables management, the payables management and in Q4, especially the inventory improvements. And we’ll go back to more details a little later. CapEx was well under control. We limited the investments to the necessary and the growth-related investments, so that was a lower number than in previous years. So overall, leading to an adjusted free cash flow of €123 million, which was sufficient to fund both the pension, regular pension contributions and the restructuring and nonrecurring items. So overall, a €15 million positive for the year. And on top of that, we invested part of the proceeds in derisking our pensions in the amount of €218 million, and I will get back to that point a bit later as well. Now this is the free cash flow. Obviously, this excludes all the proceeds from the HealthCare IT divestiture. And so the total net cash flow was about €690 million positive. On the net financial debt, it’s actually a net financial cash slide. So since Q2 2020, we’re in a net cash position. And basically, that has been evolving over the quarters, mainly affected by the investments in pension derisking. So if you would exclude that part, we actually generated about €37 million of extra cash in Q3 and Q4 in the COVID period. If we move to the next page, on the pensions, we’re well on track to deliver what we discussed. In the previous conversations we had, our objective was to achieve about €250 million in 2020. We ended up doing a bit less. And I just wanted to explain quickly the reason, it’s because in one of our less material pension plans in Sweden, we actually saw the opportunity to completely eliminate that, so completely derisk it from our balance sheet. And in terms of process, it’s taking us a bit more time. So that will be executed in the first half of 2021. So it’s basically a deferral and a bit of a diversion from basically the Belgian plant where we will do a bit less. Because here, we can actually totally eliminate about €16 million of pension liabilities in Sweden. For the rest, I think the slide is pretty identical to what we have showed you in the past quarters. It’s just a reminder that we are doing what we’re planning to do and that the balance of the budget that we have foreseen for this will be actually executed in 2021. If we move to the working capital, I think Pascal highlighted already the key achievements there. But let me just highlight, indeed, Q4 on inventory management, we made at last a lot of progress. It was very tough to adjust our supply chains to the drastically reduced demand in the COVID period. And it took us a bit of time, but we achieved those results in Q4 and we were very pleased with that. If you look at the days on hand in terms of inventory, we actually are very close back to the pre-COVID period so I think we did a pretty good job. On receivables, obviously, receivables go down when sales are going down. But the key achievement here, you can see in the days of sales outstanding where we actually reduced it from 58 to 52 in a year where, obviously, credit management was not easy. So we focused a lot on the reduction of overdues. Had very close contact with our customers. And that was the result, obviously, of a lot of follow-up by our organizations. But even in days payable, we did a good job. We managed to improve it 2 days to 59 days of payables outstanding. And that is remarkable in a year where, obviously, we had to reduce our supply chain massively to achieve those inventory reductions. So again, I think I’m – I can say we did a good job at delivering that kind of an improvement in terms of days. So net, we reduced the working capital with 1% of sales versus the end of last year.

Thanks a lot, Dirk, for very good results. I’m very pleased with the results for our working capital, indeed. Now let’s go quickly to the business division to give you color. For – here on HealthCare IT, I think we really need to concentrate on the full year. The quarter for this business is not representative as we have a sizable part of our revenues, which are project based. And it’s fair to say that Q4 is generally a weak quarter anyway seasonally, and we had a bit of a weaker quarter here. But the achievement stands really for the year. We have made tremendous progress in the profitability of our business, and that’s really structural for us. So in the way we implement our projects, we implement our services, we gain efficiency. And we had very robust sales, especially in North America, which is our main market. So North America business development is extremely positive. We were impacted by COVID. The access to hospital was not certainly easy, and in some cases, we had to do projects totally remotely, which we could do, by the way. But we believe the outlook for the business is extremely positive. I remind you, we are implementing a new technology platform now for a few years. And now we are getting, I would say, to cruising speed. And we are doing that quite efficiently, I would say. As you know, in this year, it was not about increasing revenue. It was the reserve. It was about focusing in a disciplined way in specific types of projects, specific customer typology, specific geographies. And I must say, we have executed according to the plan. And therefore, we have not – so to speak, we are not chasing any project. We are chasing the right projects for Agfa here. What I can also tell you on a positive note is we’ve seen an acceleration of the order intake during the year. We ended up the year in terms of order intake much higher than in the beginning of the year. And the order book is at a very healthy level. So again, I repeat, we are absolutely on track to reach profitability targets of high teens EBITDA for this business. Now Radiology Solution. Radiology Solution, a bit of a contrasted story here. After the beginning of the year where the medical film market was quite resilient, we’ve seen a strong impact of COVID volume-wise. The reason being that hospitals were only busy with COVID, and therefore, a lot less activity happened at the hospitals and we are suffering from this. And I would say it started more in Q3 and in Q4 in this business. Reversely, India, we’re making progress, we are gaining share and we generate a double-digit growth. This being said, the film business is still today much more significant than our other business. And this is why you see here, of course, a year where we are declining sales and EBITDA in radiology. So this is the story. I told you the development that we have is – we have a bit more price and volume pressure coming from our main market, which is China. And we are taking all the mitigating action that we need to take in this area. Going into 2021, I expect a similar trend, DR Growth and more challenges in the film area. DPC. Here, of course, impacted. And I told you the main areas of impact for DPC are really the equipment, the printing equipment in this COVID crisis as well as we have a film business that is exposed to oil and gas and aerospace, and we’ve seen also, of course, an impact in this area. Steady improvement during the year. And actually, we ended up the year on a quite positive note on our business. And I’ll go immediately to the comment. Inks. We are very happy about inks business and development, and we are going to – we are growing and very confident about the growth. That’s just the printing equipment that was an issue in 2020. What we’ve seen from September is a recovery of the sales pipeline for our equipment, but more in the mid- to high segment and not yet on the lower segment of the business. So that’s still the part that lags behind. However, we – digital printing is a growth market. It’s here to stay. We have a lot of initiatives in this market. On the equipment side, we actually launched yesterday the largest-ever printing equipment that we have launched in the market. The more productive, the faster, the more automated, so we have high expectations for this launch. And we are now really the commercial activity in the segments we have been developing in the last year for industrial flooring and leather and as well soon, packaging are really taking off. So overall, I’m expecting good growth in this application. Film and foil impacted by COVID because it’s oil and gas and aerospace. We’ve seen an improvement, but not yet a return to pre-COVID. But I would say it’s going to be a gradual recovery with these markets. And the specialty chemical market is very well positioned for growth. Our exposure is Asia. Our exposure is electronics, the electrification of cars. And soon, as I told you already, we are seeing the very good possibility for membranes, for green hydrogen production. We – the sales pipeline, the project pipeline is very healthy. It does not yet today contribute really to the business. But it might come very, very soon, I would say. So overall, DPC, confident. Offset Solution. Well, as you know, it was a very difficult year for Offset, first, because it was the activity that was also extremely impacted by the situation. And actually, if you look at the minus 16%, more or less, a decrease, we were – it’s also very contrasted. Of course, in Asia, through our JV and our activity, our sales platform is lucky. We did very well. In fact, on the top line, actually, it recovered very well. The recovery was a lot more subdued in the rest of the world. So very difficult bottom line in this context. There is another capacity in the market. We are addressing it upfront. We had two quarters of negative EBITDA, but I’m happy to say that now we are back in positive territory due to the self-help measures we have taken. So here, we will continue to work on our cost base. The shutdown of Pont-a-Marcq and Leeds, the two European units we shut down last year, that’s over. Now we’re going to see the full impact in 2021. And as you know, we have announced a stand-alone structure for this activity. This being said, the challenges are not over, not totally over for Offset. And that leads me to give you a bit of an outlook. We are seeing continuing impact of COVID-19 for the first month. It’s no surprise. I mean the lockdowns are still in place in a number of countries. So that’s – we’re not expecting a back to normal situation in some of our businesses. The second point is we are seeing inflationary pressure. That’s raw materials, that’s metals, but that’s also shipping costs that we are working on, we are working on to mitigate. But that’s also a new development in – since a few months. So we’re not expecting an improvement during the first part of the year, but we expect the improvement to be rather back-ended in the year. We expect all divisions to progress versus 2020 with the notable exception of radiology. It will not progress in the year. However, for the medium term, I repeat my strong confidence that we are in businesses that are going to be oriented positively for us. If anything, Imaging IT growth should definitely come midterm. And DPC, I’m also extremely favorable. For radiology, more contrasted. And for Offset, as you know, it’s a different story, where we are more focused on, I would say, restoring profitability than generating growth in this business. So that’s a bit what I wanted to share with you, and I would like to leave time for questions. So in summary, in an extremely complex year, we have kept our focus on the transformation of the group while addressing the short-term challenges and having a very disciplined approach into allocating resources to our growth businesses. With that, I would like to give you the opportunity to ask questions. And yes, we have more details in the pensions, if need be. If – we have a couple of slides, we can show more in the pension. I’m already trying that to our dear friends in the analysts, if you need it. So operator, can you please open for questions?

[Operator Instructions] And the first question comes from the line of Guy Sips from KBC Securities.

Yes. Good results. I have four questions and they are all related to timing, meaning you were discussing increased price and volume for medical film. When do you see that recovering in 2021 already? Or should we incorporate in our model that it would be somewhat later? Also, can you give us a little bit more color on the intention to organize the Offset Solutions activities into a stand- alone legal entity and you see that as a first step? What could be the next steps? Third question is related to ZIRFON membranes. You were saying very soon. Yes, is that already something that we can expect some positive contribution in 2021? And in what magnitude can we expect something from ZIRFON? And the last question is related to, yes, can you give us some quantitative guidance for the restructuring and nonrecurring costs for 2021?

Thanks a lot, Guy, and all very good questions indeed. Film in China, too soon to say because the situation is not, I would say, stable. Actually, it’s a process by which provinces are in charge of the procurement. And therefore, there are still a lot of question marks. I would expect to have a clearer view, I would say, by midyear on this. So it’s a different way of procuring the film. Not sure right now I’m in a position to tell you exactly how it’s going to pan out. But we are managing the situation, of course, very closely. Offset stand-alone, well, yes, indeed, we are – well, the first priority for Offset is to restore profitability and we continue to have a number of cost initiatives in order to achieve this goal. However, regarding the stand-alone, what does it mean? It means that we are ready to look at potential strategic options. That’s what it means for us. So it’s, of course, way too soon to discuss about these potential options. But I sincerely believe that in a declining market as we see it today, there probably – there is a need for industry recommendation of some kind of sort. And we believe that we are one of the few players in this market and we are ready to contemplate it. But again, too soon to say, too soon comment further on that. ZIRFON, the short answer, yes, I personally expect that we will start having an impact during 2021. We – let’s say, we have in our pipeline specific projects who could actually propel ZIRFON to the size of, I would say, a real business. So the short answer is, yes, I would expect it to happen during this year. To your question number four, on restructuring, Dirk, you want to take it, please?

Yes. It’s a good question, and I think it’s not necessarily easy to answer it. But if you’re asking for a range, I would say it’s between €15 million and 30 million, which basically means it’s a lot less than what we have this year. One, for sure, because we are not planning any industrial reorganizations. I think we have announced all the plans that we had recently. The key thing next year will be the effort that we’ll do in creating the stand- alone organization for Offset. And as you may remember from the former carve-out work that we did on the HealthCare IT business, this is a cost mainly related also to IT system’s carve- out and separation. I would estimate that to be in the mid-teens in terms of costs. And then there’s ongoing transformation costs that may come on top. So as I was saying, it’s probably not going to be below €15 million, butbut it certainly is not going to exceed €30 million.

We have a next question coming from the line of Maxime Stranart from ING Bank.

Yes. So two questions from my side. First of all, you were referring to the trust you have in the targets you have on the midterm. Will you at some point in time communicate those targets with the market? And then secondly, on the share buyback program and on the capital allocation efficiency, I would say. While looking at the price, at the valuation multiples you’re currently trading and given rather ambitious consensus, if you look at a 20% EBITDA CAGR over the next two years, how should we understand that you decide to proceed with that share buyback now? Is it due to a lack of possibilities to invest in other projects or other companies?

Yes. Sure. Okay. So first, on the midterm guidance, I prefer to wait a bit until we’re really out of this situation of COVID before expressing a midterm guidance. But I’m thinking about, indeed, organizing an event somewhere during Q3 maybe in order to not only share our guidance, but probably explain a little bit more about the plan and the activities. So you’ll have to bear with me for a few months, Maxime. It’s not going to be immediate. And I don’t believe it’s – we can do that right now. This being said, and that’s a link to your next question regarding the share buyback, we – if we do a share buyback, it means we are confident going forward as well. So why do we do it? Clearly, because following the successful divestment of HealthCare IT, we always say that we were looking at three kind of proceeds for the cash we obtained: first, reinvest in pension and deleverage the company, that’s for sure; looking at investment possibilities within the group; and rewarding shareholders. As you can see, the amount of the share buyback that we have announced is quite modest compared to the cash we have on hand and the proceeds for HealthCare IT. But we believe it was the right time to do it because we believe that even if we don’t have yet, we are not totally yet out of the pandemic crisis. We see a back to normal getting probably, I would say, in the second half, soon in place. So this is the reason we do it. That’s also a signal. I mean we want to run the company for value. And we want to – we need to think of our shareholders. I think it’s been a number of years since Agfa could not reward its shareholders. I think it’s more than 13 years. And I think it’s – I wouldn’t say it’s long overdue, but I think it’s normal at some time also to be able to reward shareholders when we can do it. It doesn’t mean that we do not have any growth project or investment project, not at all. We are – we do have ideas and plans for the future for the growth of our activities. But for the time being, the first step is organic. We have everything that we have in place in terms of innovation and resources to grow the business organically. So we believe this is why it’s – now is the time and we can do it.

Noted. Just maybe another question that just got in my mind. Looking at the working capital as a percentage of sales, of course, a positive development this year with a decrease of 1%. Where do you see this stand again over the medium term? Because, well, looking at free cash flow right now, we can see that the clear bulk was basically generated by the positive development in working capital.

Well, for sure, we will continue to work on it. We will continue to optimize it. I personally believe there is still room for improvement in the way we are managing our working capital. We made a step in 2020. We will try and make another step in 2021 in terms of, indeed, the percentage of sales.

We have a next question coming from the line of Kris Kippers from Degroof Petercam.

Firstly, a question quickly on Offset. Coming back to, indeed, the situation is, of course, a market where sales are facing difficulties. You’ve got overcapacity. And you now clearly flag the fact, indeed, there is some inflation coming up in raw mats and logistics. Given the fact that there’s overcapacity, what is your – what are your options for pricing this to the market in these circumstances? And what is the delay that we should anticipate?

Good. Excellent question. Yes, indeed, I say there is overcapacity. But also, it’s an industry where today, I would say, the whole industry is in the red now. So I think there is no choice. And when we are talking about shipping costs or currencies or raw materials, these are the same for all players in the market. So therefore, yes, the way we’re going to mitigate and are mitigating is through price actions, indeed. And we expect to be in a position to be successful in this drive to increase prices, even in a situation where I do recognize that indeed there is still more capacity in the market. But at the same time, nobody is making money in this market. We have to do it, and we’ll do it.

Of course. Of course. Understood. And then a question on Radiology. Could you view the – if you look at the comments, it’s a bit different directions. But could you share with us some indication of profitability between the segments that you have in Radiology? Could you shed some light on that?

When you look at – let me say that the film business is by far the largest profit contributor in this division. That’s the fair comment that I could make.

Okay. Then just a last question, a bit coming back to the question of Maxime slightly. But if you look at your cash position, the fact that you now spent €40 million on the share buyback, it’s still, of course, a very healthy situation. Is the current situation with COVID with some of your peers or interesting smaller players, could it be an ideal moment to shift gear more rapidly strategically and use that cash also for add-on M&A?

My priority is, first, to grow organically. And we have still a lot to deliver in our various businesses, and that’s clearly the name of the game. Now from what you say, we are not ruling that out. Not ruling out if there is something smart to do in bolt-on M&A to accelerate growth, but this is not the first priority. The first priority is to grow organically and to improve the profitability of the group. But indeed, the fact that we have cash, indeed, creates opportunities.

Yes. Operator We currently have one more questions in the queue. [Operator Instructions] Our next question comes from the line of Guy Sips.

Yes. I have one additional question on Slide 20. In line on the cash – sorry, the cost and the cash outflow from the pensions, the €218 million for 2020, that includes the €218 million extra funding from the pensions. So the remaining, can you break that down between above and below EBIT, please?

Yes. Guy, I’m not sure if I missed it fully. But if you break it down, our normal cash-out is probably the question that you’re asking. In 2020, it was €75 million. And we project that to be €75 million this year and €75 million next year.

And the one below EBIT, I think I heard from Dirk De Man handy, but it’s basically you need to eliminate the pension cost in EBIT.

Yes. Operator. We currently have no more questions in the queue. [Operator Instructions]

So maybe not expecting any more question from – yes, so is there no more question? Thanks a lot for attending our conference. And of course, Viviane is also here to answer more follow-up questions if you need. So again, contrasted result for 2020. But as you’ve seen, the commitment towards both on short term and midterm and confidence also on the outlook for the overall group in what is still today quite a volatile and uncertain environment. So – but confidence medium term on what we want to achieve and the way we’re going to do it. So thanks a lot, everyone. Thank you. Have a good day. Bye, bye.

Thank you for joining today’s call. You may now disconnect your lines. Hosts, please stay on the line and await further instructions. Thank you.