Hello, and welcome to the Agfa Q3 2021 Results Call. [Operator Instructions] I would now like to hand over to our host, Pascal Juery, CEO, to begin the call. Thank you.

Thank you very much, and hello, everybody, and welcome to the Agfa Third Quarter Results Call. I'm sitting today in Mortsel with Dirk De Man, our CFO, and the executive team of Agfa. So to start, I think Q3 results, 2 numbers, plus 7% top line versus last year, plus 35% EBITDA versus last year. However, sequentially, it's a lower quarter than Q2, as announced during the communication on Q2. And we've seen indeed margin pressure from cost inflation and also lost opportunities from supply chain issues. So overall, a decent top line recovery for all businesses, but HealthCare IT, and I will come back specifically to this point, that were a bit hindered by the cost inflation that has been building up in the P&L. So the cost inflation is not new, but it's been hitting the P&L due to the length of the supply chain we operate in rather in Q3 and will continue in Q4. At the same time, we have seen supply chain issues who have hindered somehow the business, resulting in lost opportunities. And you will see quite a contrasted performance between the different businesses. We continue to very strictly manage our cost, which helps also mitigate partly the impact of the margin erosion from the cost inflation. And more specifically, I would also exemplify the continuous focus on this area by the recent announcement that we've made regarding our IT reorganization, where we have announced our intent to partner with Atos. So the name of the game being not only to review the IT architecture of the group and make it future ready but also to be more productive and improve our efficiencies, including in terms of cost. That's a good illustration that we are continuing to improve the operating model of the group. And the IT announcement is a breakthrough announcement that exemplifies all the work we are doing in this area. Cost inflation, but price actions are in place. We have been reasonably able to maintain our level of margins during Q3, and that's precisely due to a number of price actions we have taken in various parts of the business. I'll come back to that. The only difficulty that I could mention is, in fact, that price actions take a bit longer to implement in some areas of our business where we have existing contract commitments, but we do not foresee any difficulty going forward in passing on the cost inflation. It's just a time lag impact. Working capital in this context is remaining at the same level in terms of percentage of sales at 27%, which is, for me, a great achievement given the fact that indeed the inventory valuation is getting higher and supply chain issues mean we have more than normal goods in transit or goods waiting to be shipped all over the place. So overall, not a bad result. Now if I show you the numbers, as I said, 7% top line growth in Q3. You see gross profit, 26.8%. That's slightly below the 9 months average and below last year. This is the visible impact of the cost inflation we are seeing. And SG&A, well under control. I would say that to make -- to make a long story short that we were able to maintain the level of savings we achieved in 2020. In 2020, part of it was a temporary measure, but we were able to replace it with more structural measures and costs are well under control, and that's an area of focus continuously for us. R&D is in line with last year, what you see is just a quarter-on-quarter valuation. And EBITDA, plus 35%, EBIT indeed at €6 million. If I go down the P&L, we still have continuous restructuring initiatives, as you know, in various areas. And this quarter is no exception. So we end the quarter with a net negative profit of €5 million. If I go a little bit more into details before jumping into the divisional results. DPC and Offset significant improvement of the top line, volume and price impact. Radiology Solutions, the film -- as film prices have been increased with some geographical exception. The DR top line is lower than in Q3. That's the other area in the group where we have a top line that is quite significantly below last year. First, last year, on Q3, there was a bit of a boom, especially in mobile equipment to face the COVID crisis. We are not seeing that anymore this year. And I would say the market overall for DR is a lot more subdued. And we believe, indeed, the overall market for this digital radiography has been negative this year. HealthCare IT, we do have a very good order book, but Q3 has been hit just by the implementation delays of some projects. As I already explained, it is -- we have a significant part of our revenue, a little bit less than 50% is dependent on project implementation. We have specific milestone to recognize sales. And actually, a few projects have slipped over from Q3 to Q4, which explains the situation in Q3. Basically, the projects are not lost, they're going to be back in Q4, and therefore, we're expecting a much stronger Q4 in this area. All divisions are facing supply chain issues to different extent, of course, as well as some shortages, especially in electronic component, and that's also impacting more or less, I would say, all divisions. And I will come back to that when speaking specifically about each of the business. As I said, gross profit margin is under control in spite of the strong inflation. And clearly, we have a price increased strategy. I think Offset is a perfect illustration. We are about to implement our third price increase of the year to make sure we make up for the concentration. I'm going to turn to Dirk to comment the cash slide and the working capital.

Thank you, Pascal. So free cash flow of Q3, I think there the -- overall, we had a higher adjusted EBITDA versus last year, but we did have quite an increase in working capital, and I will get back to that later. All the other elements are within expectations with an adjusted free cash flow of 7. Fundamentally, as you know, we are not doing any extra funding for the pensions anymore. So we concluded that program in Q2. And so you can see maybe on the next slide, the year-to-date numbers. So overall, an adjusted free cash flow of €50 million, sufficient to cover the regular pension. But as you can see also, we have invested year-to-date €129 million in our pension program. Maybe a quick point to make for the analysts. So in terms of the tax cash out forecasts, we expect it to be around €10 million for the year. On the -- yes, sorry, on the overall cash position. So it's still very strong. We're close to €400 million. And for your information, obviously, that includes the year-to-date pension investment of €129 million in the first 2 quarters. But also around €21 million year-to-date in terms of share buyback. So for the quarter itself, that was around €12 million. And maybe quick through working capital. So as Pascal was mentioning, we were able to maintain a stable percent of sales, which we think is a good performance considering, let's say, first of all, the raw material inflation that obviously turns up also in your inventories. And in addition, the slowing down of the supply chain, both inbound and outbound to our customers, which also makes the overall inventory levels higher than we would normally have. But overall, if you compare to last year, inventories are only up 1 day, I would say this is actually limited. In terms of trade receivables, we're actually flat despite the higher turnover and so therefore, a reduction in days. And in terms of DPO, we have quite an increase overall also €65 million improvement in DPO. So net -- we reduced the overall net working capital of €63 million versus Q3 last year. In Q4, as we would normally expect to see, we expect a run-down of inventory, so we assume a positive fourth quarter in regards to working capital.

Thank you very much, Dirk. Now let me walk you through the divisional results. HealthCare IT, as I said, clearly a weak quarter on the revenue side and on the EBITDA side. And I think there is only one reason, as I already explained, this is a delay in some project implementation, mainly, I would say, in North America. I was saying, all divisions are a bit also impacted by supply chain issues. So maybe -- maybe it's less obvious for HealthCare IT, but we do have some impact due to the fact that when we implement our project, we need also hardware which typically either are sourced by our customers or in some cases, directly sourced by Agfa. In both cases, I mean, it proved to be an issue, indeed, getting servers, network equipment, even sometimes pieces becomes a bit difficult, and therefore, has also a role to play in some of the implementation delays we have seen. However, order book remains at a very healthy level, meaning significantly above last year by the end of September. So we are in good shape and nothing is broken at all here. And Q4, you're going to see a much better Q4, a much stronger Q4 than you are seeing in Q3. And I would say, overall, overall, HealthCare IT will continue to deliver progress in terms of EBITDA for the full year, which is not the case after 9 years, so that gives you a bit -- the story. As I said, sales recognition is very precise. We have to hit milestone to have validated the milestones with some of our customers. It can slip by a few weeks, sometimes, and everything will be caught back in Q4. That's for HealthCare. Radiology. The Radiology Solution, when you look at the top line, actually, it's only slightly below last year. And in fact, practically all of the deviation is coming from the DR market, the direct Radiology market, where as I explained, we are seeing a kind of a backlash post-COVID and very subdued market. The film and CR are, by and large, in line with last year in this area. Impact on EBITDA, a bit, but remaining very profitable. We are seeing also a very stable situation in the market. There is a very stable situation, notably in China. Radiology, if you remember, we had a very weak first quarter that Q2 and Q3 have been a lot better, and we expect this trend to continue. DR, as I said, decreased top line and therefore also impact on the bottom line. We expect also for DR kind of a rebound in the fourth quarter. That's for Radiology. Digital Print & Chemicals, well, very strong rebound from last year. If you remember, DPC and Offsets were the most, of course, impacted by the COVID crisis. So we are seeing a good evolution. It doesn't mean that all businesses are back to pre-COVID level, and I'll come back to that in a minute. But overall, it's very well oriented where we're suffering a bit is on margins, actually more, by the way, on the film business that we are in the industrial film business we have in DPC, where we're suffering a bit more in margin. And this is also an area where we have supply chain issues that prevent us from shipping some of the goods to our customers. So overall, an EBITDA almost in line with last year, but that could have been a lot better if we were able to ship our customers, which proves to be a bit difficult. I think what you -- what I want also to stress is all our future-oriented activities in DPC are well oriented. Actually, Inkjet does very well our Orgacon conductive materials, our Zirfon membranes, everything is well oriented, and we are still very bullish on these activities. Inkjet, I mean, ink are well above pre-COVID-19 level. So that's a very good thing. And equipment, this is where we're having the issues. We are indeed impacted by supply chain. We have an order book actually that is increasing quarter after quarter that we cannot deliver fully. For instance, we expect the order book at the end of the year to be 2/3 above last year's level. The reason is very simple, difficult to ship, difficult to source some of the components and that makes up for this delay, where the market demand is dynamic and the launch of our latest initiatives have been very successful actually in the market. High cost inflation also on the film. We are working that out, but it's going to take a bit more time to work it out. So overall, a quarter that for DPC that is slightly below last year, but it doesn't change our view at all on the potential of the division. Offset Solutions. Here again, a very strong top line growth due to the fact that indeed, not only we are recovering some volume, but also we are increasing prices. So that has also an impact on -- of course, on the top line. We are not yet in terms of volume at pre-COVID level. We are still about 9% below pre-COVID level in terms of volumes. Here, I would say, we are busy increasing prices to make up. This is a division that is the most impacted by cost inflation, and we are very busy increasing pricing. We are successful in our initiatives so far. And I think it will be the case anyway. However, it's just a question of timing. We are expecting having a significant impact, but starting in Q1 '22 for the contracts that are in place. I would say that, therefore, Q4 is still going to be a difficult quarter for Offset due to this kind of delay in the cost hitting the P&L. Again, we operate in a long supply chain market. And therefore, Q4 will be impacted by this cost inflation even more than Q3. I repeat, I'm confident of our ability to recover all of it but there is just a time delay in this recovery. In spite of that, you can see that Offset is doing a lot better than last year. And that already apart from the price actions, we are also managing our cost in a very efficient way, I would say, in this business. Overall, outlook as I said, upturn in performance for HealthCare IT in Q4. That's going to be a much better quarter than Q3. In the other divisions, more subdued performance expected. As I already explained, the inflation impacting the P&L is going to be stronger in Q4 than in Q3. So I expect this to impact indeed most notably Offset, but not only the other businesses. Radiology, we have probably lower sales than in Q4 last year. The reason being typically that was a business in which Q4 was the strongest quarter of the year. But this pattern has somehow changed in the current market conditions. And I would say that our dealers are not keen to keep inventory at the end of the year. So that's going to be a different pattern with sales that are not going to see a bump as we were used to see in the past years. And therefore, that leads us to say that the group EBITDA is likely to be below the Q4 level of last year. We will continue to work on cost management program. We will continue to indeed try to decrease the needed working capital to operate the company, and we will continue to increase prices as needed in order to recover our margin. Now if we take a step back, a bit. Today, I would say with the exception of Radiology, I believe that all businesses will be in a position to deliver higher results than in 2020, in spite of the cost inflation. And on Radiology is significantly below, but the gap is not increasing, I would say, significantly. So that's what I wanted to share with you in terms of economic results. I want also to touch on sustainability. And I want to stress that we are stepping up our efforts in sustainability in 3 dimensions. The first dimension is really people oriented, I would say, well-being and health and development of people. We have a lot of activities regarding our safety products. We have the ambition to reduce significantly the number of incident, accidents at our company. And we have a number of behavior-based actions at the moment. We are also increasing our focus on diversity and inclusion. And as you noticed, a few months back, we have welcomed a CHRO to our organization, Gunther Koch, he's going to lead this effort in the next months and years. Second point, we want to make sure that every product that we put in the market is assessed in terms of sustainability, and we want to innovate in a sustainable basis. So we have now put in place -- we are putting in place, actually, the right assessment in order to make sure we do so. At the same time, we are also being assessed currently by a third-party provider, EcoVadis, to understand where we are in terms of sustainability practices, and we use it as a benchmark tool in order to I would say, define the areas where we are going to need to make -- continue our efforts going forward. And third, we are working on the footprint. We have a number of initiatives in order to reduce our CO2 emissions. Agfa is not a very large CO2 emitter as such. However, we have a role to play as well, and we want to play our part in meeting the objectives of the Paris Agreement. And this week is the week of the COP 26, and certainly, at our level, we absolutely want and need to contribute. So overall, I would say that Q3 shows different trends, recovery in the top line, a challenge in the cost inflation, and I would say, a different kind of a delay in the HealthCare IT implementation of projects. But overall, I confirm the overall direction of the group with the growth potential of HealthCare IT and DPC, the ability for Radiology to provide significant, I would say, cash generation for the group and Offset our efforts to restore profitability in a complex environment, but where we could still in this complex environment, considerably improve the results of the business. I'm going to stop there and take any questions you have. The analysts, I'm sure, will ask the questions.

[Operator Instructions] Our first question comes from the line of Kris Kippers from Degroof Petercam.

Can you hear me?

Yes, Kris, very well.

Two questions from my side. Firstly, looking at the price increases you've done now in this quarter. I know you've got contracts, of course, which are not always provides the flexibility to open them up. But to what extent do you need to step them up? And what is the reaction of competition today? I mean, are they also being quite stringent on that? Is it full-fledged? Or is it a quite fierce market over there? And that's across the board.

Across the board, situation is a bit different. But let's take Offset because Offset is the largest area in terms of price increase. So we already have increased. We have made already 2 price increases. And so far, I can say these price increases have been accepted by our customers. We are now preparing for the third one, which will be even probably more significant than the other ones. And I believe that there is overall an acceptance rate. I'm not saying that customers welcome that we increase prices, especially as the increase is starting to be very significant. You're talking double-digit increase here. But overall, this is well understood by the market. And the main driver for Offset being aluminum pricing, this is more or less a pass-through for our customers because aluminum is not consumed in the process. And I can also say that Agfa has been clearly leading the price increase on its own. But we have seen tangible signs that our competition is following, I would say, is following these price increases. So we don't expect to be an outlier on increasing prices. I mean the cost inflation we are seeing is pretty much global. It's mainly -- it's a global phenomenon. From aluminum, chemicals, packaging and freight and everybody is impacted the same way. And as you know, the starting point of the industry meant that we didn't have a lot of I would say, reserve in order to absorb this cost impact. Overall, you have areas also like in ink when we increase price, I mean, it's painless and it goes very smoothly, I would say. In some other areas of films, it proved to be more difficult depending on where you are geographically. And I would say China is the area where probably we have the most difficulty today to increase prices. But overall, I think we're on our way to recover the cost inflation, and we increase prices everywhere we can do -- we can do it. Now the time lag. Most of the contracts are yearly contracts when we have contracts. Some of them are multiyear contracts, which is why we are expecting the rate of implementation of the price increase and especially in Offset to be much higher in the first quarter of '22, of course. And here again, we successfully discuss with customers having longer contracts. And I think we are getting to terms in order to find the right outcome for them and for us. So that's on -- did it cover your question, Kris?

Yes. It's quite clear. And then secondly, a question more on the working capital. We again see a very nice improvement in the third quarter. It does seem indeed that Q4 should see another support by the inventory rundown. So it does imply that the improvements you're installing are quite sticky. So there's no real squeeze that you're doing to improve the cash position currently or something that's really restructuring -- sorry, recurring.

No, not at all. No, there is no squeeze. What we want to do is to really progress in our ability to manage the business with less working capital. And when we are improving, I would say, the overdue level, you would understand that it’s not window dressing. It’s real actions when we are decreasing the number of days of DSO. Behind that, you have specific changes of payment terms and conditions. In terms of inventory, we have a long supply chain. We still have some improvement to make. So indeed, what we are doing is trying to operate the business at a much reduced rate of working capital.

Our next question comes from the line of Maxime Stranart from ING Bank.

I hope you can hear me well. Two questions on my side as well. First of all, looking at the nonrecurring expenses, if I recall correctly, you guided for an amount of roughly €25 million to €30 million for the full year. We already are at minus 5%. Is it something that remain unchanged? And secondly, a bit of a focus on the medical films and the trends you see there. You mentioned that you see some change in pattern in -- well, order, especially for the fourth quarter. Is it linked to a change in China, I would assume. So if you could shed some light on what's happening over there as I understand it's a rather important market for medical terms.

Yes. Indeed, Maxime. Let me turn to Dirk to answer your question on nonrecurring.

Yes. On nonrecurring restructuring combined, we are actually reiterating our guidance. So actually, we're probably going to be somewhere in the middle of that range that we gave you before. And the key reason, obviously, as you noted, the year-to-date number is still lower. The key reason is in the fourth quarter, and that's pending the finalization of our contracts with Atos. We will be taking some restructuring items related to the transfer of the people to the Atos company as well as some restructuring in other regions, and we will be forced to recognize those in the fourth quarter.

Thank you, Dirk, very clear. For China medical film, I would say the new process, value-based procurement process in China has hit us very much in Q1. But actually, Q2 and Q3 have seen a recovery and including today, we are seeing -- we are starting to see a better market share in China. So we are going back. The lack of bump in Q4, actually, I think it's more -- it doesn't have anything to do with China, but it's more generally speaking. I think the practice is being changed. We are living in a volatile world. I believe in terms of demand, on cost and so on. And today, we have less -- the practice was to try and finish the year very strongly, I would say, and some of our distributors were kind of doing some prebuy. That's not the case anymore. We are not seeing this trend anymore. But there is nothing broken in the demand itself. And the situation in China from -- to enroute to us is very stable.

Very clear. If I may, maybe just a follow up on medical films and what you do expect for the next year, assuming still some price inflation over the first half of 2022?

Well, when – maybe let me clarify. When I say – when we made the comment, we expect the cost inflation and supply chain issues to continue in ‘22, in the first semester of ‘22. We are not saying that we expect the price to continue to increase. We are saying that the situation at a very high level of raw materials, energy, shipping and so on will continue, but not necessarily further increase. I want to clarify this comment as well. I think it’s important. Now regarding what you’re asking me for medical film. I think it’s too soon. We are – right now, I’m not breaking any secret, but discussing our budget for ‘22 with the team. I think it’s a bit premature. The only thing that I can confirm is, so far, we are not seeing any change in patterns, okay? That’s what I can share with you at this stage.

Our next question comes from the line of Guy Sips from KBC Securities.

Most of my questions are already answered, but I have 2 questions. First is on CapEx. Can you give us some more color on what number we can expect there for the full year and on CapEx allocation? And the second is more general on the Atos transaction, what is the reasoning behind that? Why this transaction, why now? What -- yes, can you give us some more color on that transaction, please?

Of course, we can. Dirk will do that.

Yes. So on CapEx, I don't expect any outliers versus the year-to-date spending. I think we're a bit on the low end of our spending versus what we had anticipated but there will not be any major shift in the fourth quarter. Regarding the Atos contracts, so in terms of the key background, as Pascal was already mentioning, One of the core things is that Agfa will need to upgrade its infrastructure future proof it in terms of software and hardware in the coming years. And so one of the ways to do that with excellence and say, in terms also of risk management, we thought it was a good plan to introduce a partner to help us with that. Overall, I think the idea is to also have a broader access to innovation through a partner. And at the same time, we are able to transfer the largest part of our organization to this partner, which will also allow us to follow the, let's say, the efficiency of a program that an external partner can provide us in terms of costs. So overall, I think it's a combination of cost management, of innovation and transformation of our IT platforms, which is basically long overdue because I think we've been living with an old structure for the last 15 years, and it was about time that we tackle that issue.

Absolutely. Absolutely. If I may add, we want to simplify the IT infrastructure, which will have significant benefit on the way we run our operations and is also an enabler for us to do more things in improving further the operating model of the group and especially getting more efficient in the way we run the group in terms of supporting functions. So it’s one brick in the overall transformation program of the group, but that’s a key break because it’s going to enable a lot of other actions.

We do now have a follow-up question from the line of Maxime Stranart.

Yes. Again, two questions on my side. First of all, you confirmed that the carve-out of Offset Solutions should be well finalized by April this year. Could you shed some light on what are the costs you're expecting on that regard? And secondly, obviously, the third quarter of 2021 impacted by a couple of price increases. Could you provide us with a rough breakdown of what was the price versus the volume impact? That would be all for me.

All right. On the carve-out, I want to make sure I understand correctly your question. Are you asking the cost of doing the carve-out?

Yes, that's correct.

Yes. Actually, we do not give particular guidance on what the costs are of the carve out. There's a lot of costs involved, including the setting up of new legal entities in splitting of ICS systems, et cetera, et cetera. But it's included in our guidance around the nonrecurring and restructuring.

Okay. And the second question, I want to make sure, I'm not sure I got it. So Maxime, if you could -- yes, kind of repeat it to make sure I got it right.

Sure. No problem. So looking at the third quarter of this year, would it be possible for you to provide us with a breakdown of what was the price impact in the top line growth basically versus the volume impact, obviously.

Well, I’m afraid I’m not able to do that. I will have to go to a level of granularity that is probably not practical. But if your question is, do we already see a price impact in Q3? The answer is yes. Yes, we see it, but we need a lot more price impact in the next quarter. And that’s in place basically. But in Q3, we see some, but not by far, not yet the full impact.

There are no further questions in the queue. So I'd like to hand back to Pascal, if I may.

Thanks a lot for attending the call. So as you see, a pretty complex third quarter indeed. Fourth quarter, again, that will continue – where we will continue to focus on price, cost management and where we will see a very good rebound in HealthCare IT to cap off the year. And again, I repeat that our confidence going forward in the growth of DPC and HealthCare IT is confirmed. We have a stable situation in front of us as far as we can see in Radiology. And in Offset, we will continue to restore profitability. And here, the main action is indeed price management as well as continuing to decrease our cost to operate. So thanks a lot for your attendance. Thank you for your attention. Have a good day. Thank you.

Thank you very much, everybody, for joining today's conference call. You may now disconnect your lines, and we wish you a pleasant afternoon.