Earnings Call: Q3 2018

Nov 7, 2018

Slides

Today's conference is being recorded. If you have any objections, you may disconnect at this time. May I now introduce your speaker for today, Christian Rinaldo, CEO of Alpha. Please go ahead. Thank you, operator. Good morning, everyone. So we are going to report on the Q3 results of the company. I must say as an introduction that this quarter has been somewhat disappointing in terms of numbers, but I would give more, of course, colors on the results because they are very contrasted in the quarter. Secondly, in terms of activity for this the management team and the company, the quarter has been very active in terms of consummation of the company. And I must say that today, we have basically finished the split of the company, what I call the technical split, but I will come back to that later. So moving to the Slide 2 of this presentation. We see a top line, which is deteriorating in the quarter by 9.1%, 7.9% excluding currency exchange rates and even 4.8% if you exclude the decisions we have taken to rationalize business, in particular in the Graphics business, the stock of our Packaging business in the U. S. But even that, the minus 4.8% is not a good result in terms of growth. In terms of gross profit, we see a gross margin which is 1% below the one of last year, very similar to what we see on the year to date. There is a mix effect on that. The Healthcare margin reduced reasonably well, but I will come back to that later. The main problem is the gross margin of the Graphics business, which is suffering from 2 things. 1, the cost of aluminum start now to kick in because we have a delay in the cost of aluminum in our numbers. And secondly, the mix of business we do in prepress, which is more and more moving to countries where the prices are low, like China and other countries of this type, which is on the one side reinforcing our strategy to and giving good reasons for the deal we have signed with Lucky in the quarter, which is going to help us in this domain. On the other side, in spite of the fact that we see less to some extent, no deterioration anymore of the unit price per square meter in a given customer, in a given country, the mix is shifting to places where the prices and therefore the gross margin is lower at the same time that the aluminum is increasing. But it's no news. We know that well. I would say this is reasonably under control. We all suffer from that, including our competitors. And the deal we have signed with Lucky is going to help a lot. By the way, this is also a reason why we have decided, not in the quarter 3, but we have announced that at the end of October to close another factory in an expensive place, which is the U. S. And we have decided to close our factory in Bransberg. On the line of SG and A, you see obviously when the top line declined that way and when by the way, the dollar start to be more expensive as well as some currency, we see of course that the SG and A, in spite of the fact that we are reducing the total value in euro in terms of percentage of sales, we see that we continue to struggle to keep it close to 20%, which is the target of the company. We're now at 21.4% in the quarter, 21.5% in the year to date numbers. But you will see also when you look at the next slide, the restructuring cost that we are taking actions, in particular in the cost of SG and A to further reduce our cost. The R and D is developed the right way. We try to keep it more or less constant, slightly down in places where we can. We continue to do a very thorough arbitrage in terms of the places and the projects where we spend money. We need to catch up. We know that on some plates, in particular, the direct on press plates for graphics. We still have a program of R and D, which is rather massive in the IT side of the business. We still have a significant program in R and D on the Doctor business and on the inkjet. So the R and D expenses are, I would say, well under control and in line with what we want to do. The result of that is that the EBITDA level at 6.5% in the quarter is obviously somewhat disappointing, 2.4 points below last year. We are now at 1.1% below last year. And it's clear now that we will be this year around 8% in terms of EBITDA on sales as opposed to the 9.1% of last year. So basically, we are, as I said, since the beginning of the year, not performing as well as last year, but now the gap is clearly 1% or more, close to 8% in average. Moving to Slide 3, the numbers below EBIT. So we see, of course, on the line of restructuring and nonrecurring that we have an increase of our restructuring costs in the quarter, €15,000,000 in the quarter, €28,000,000 year to date. Part of that is obviously the cost of the project of transformation, which is in terms of nonrecurring weighing on our cost. But also we have started now, as I said, a deep restructuring of our businesses in some place where we suffer. This is the case in the service business in the U. S. For Healthcare IT. This is the case of the model of distribution and selling for graphics in Europe. So we have done significant projects in terms of consummation. This has a cost, but of course, we will recover that in the improvement of the SG and A level in the quarters to come. On the non operating reserve plan, we see minus €11,000,000 which is slightly above what it was last year. We see a slight increase in the year to date. It's of course because we have we spend a bit of cash, I would say, for different things. I will come back to that with the level of the debt. This has a cost in terms of interest because we drew more on our facilities. For the rest, there is nothing significant to report. The taxes are 0 in the quarter, but that's fluctuations. And the net result is at minus €5,000,000 which is one of the rare quarters that we have delivered in the last 5 or 6 years with a negative number. Hopefully, this is an exception in this quarter, which is due to a significant amount of restructuring in particular. On Slide 4, you see the level of the debt, which stays in the level which is acceptable of course in terms of ratio to EBITDA. The increase in the quarter from 55% to 99% is due in particular to 2 things. One, we have done a settlement, now final settlement and a little acquisition, as you know, with Hipaxa, which has crossed a little bit of money. And also we have continued to develop the plan to secure and derisk our pensions, in particular in the U. S, where we have anticipated on, I would say, restructuring of the plan where we're going to sell both assets and liabilities as we have done several times. And of course, we have we needed to finance a little bit the gap and this has a cost of €22,000,000 in the quarter, which is, of course, a cash out. But for the good cause, I would say, securing and derisking our pension plan in the U. S. Again, in this transformation that we are currently doing, we need to think of all the stakeholders and the pensions the pension plans are part of it. As I said several times, the cash outflow in these pension plans in terms of recurring cash, we fund the pension plans and the cash we spend for the German pensions are constant. But we want also to have a plan, which is over time derisking completely the gap of the pension plans. On Slide 5, we see the working capital with a massive increase of our inventories in particular in this quarter but also from the beginning of the year. Part of that is the normal seasonal pattern of inventories because you know that in Q4, we stopped manufacturing in some of our factories and therefore, we reduced the level of inventories. But there are also some elements of increase of inventories, which are linked to the transformation of the business. I'll give an example. The closure of a factory like we have in announced at the end of October in Braunschburg means that we need to reroute some of our aluminum, some of our plates. We need to change the supply chain between, in particular, the factory in Wiesbaden and the rest of the factories. Therefore, this has a cost, which is, of course, not a permanent cost, but this will be over time recuperated. The same, these emission channels in China for the hardcopy film where we have eliminated now completely one layer of distribution brings us to a different model where we need to ensure the delivery to more distributors through our sales organization. And this has also, I would say, an element of increase of the inventories. So that's, again, something which is partly seasonal and partly due to the transformation we are doing. Again, I don't think there is anything to worry about, but the result is that in the quarter, when you look at the picture of the quarter and the year of transformation that 2018 is, we have an increase, in particular, the ratio of working capital to sales is now up to 29%. On the Slide 6, I think I commented most of the figures which are given on this slide. And I move now to the Slide 8 with the Graphics business. So as I said, our numbers are very contrasted. So I skip the Slide 8, which is giving the traditional pattern of business. You see that there is a good stability. The increase of our engine business this quarter, which is significant because we are above 9%, between 9% 10% is a bit masked by the fact that we accumulate now 3 quarters in this chart, but basically the results are contrasted, as I said, good results in InJet. We have we see in particular a the low the low start of the year seems to pick up now in the Q3. Moving to Slide 9, looking at the sales. This I would like to comment because it seems like that the 9.6% drop of the business of graphics is not good news. Excluding currency, it's very similar because the currency impact in the quarter is not big. But in the GAAP, you have €16,000,000 to €17,000,000 which are due to the decision to stop the business in the packaging business in the U. S. And if you correct these numbers by this decision, you get a business of Graphics, which is down 3.8%. So could be perceived as a little bit of arrogant, but this is the result which is showing an improvement in terms of evolution of the decline of Graphics. So what we see now on the market is 3 things: 1, our engine business has performed well in the quarter 2, the price stabilization, which is good news But 3, of course, the shift to the emerging markets of most of the volumes, which are, of course, weighing on the gross margin that we see on the second line, where we lose 2.2 percent of sales of gross margin on sales in the quarter and even more on the year to date. SG and A, same comment, good control in terms of value, but of course, difficulty to follow the pace of the decline of the business. Again, there are things which are progressing progressively, as I said. We spent the restructuring plan to reorganize the way we sell in Europe. This is something which is going to bring some savings, and we will see that hopefully in the quarters to come, including the next quarter. EBITDA, 3.1 percent of sales compared to 5% last year. Here, we are at minus 3% compared to last year in the year to date numbers. Slide 10. I commented already the first part just on the business highlights. Of course, you understand what we do in prepared. I said very long time ago and this is one of our sub projects in the transformation, we have to resist in our traditional businesses to buy time to develop the rest of the business. And resisting now provisional business, I think there is a very good proof point of what we what it means for us. This transformation of the Offset business, what is it? First of all, the market is moving to places where we need to fight on the cost base. So that's the decision to move as much as we can part of our manufacturer and part of our alliances into China. 2nd, there is too there are too many players on this market. There is a need for consolidation, in particular in China. There are today something like 8 or 10 players, which 2 or 3 are significant, the other ones are small. But this, of course, weighs on the market situation. Lucky is the biggest one. Lucky and Agfa has a very similar culture in terms of manufacturer quality of plates and the like. And we thought that on both sides, it was a good idea to have an alliance. This alliance at this stage is dealing with the Chinese market. And as we said in the press release when we announced the deal, it's bound to be a larger alliance over time, including technology manufacturing capability. 2nd step, there are 4 players locally, 1 U. S, 1 Brazilian, 1 Indian, 1 Spanish, which are small players suffering in terms of capability to resist on the technology side. And therefore, we believe these players have a massive interest to be sheltered by a bigger player that we have done with the PYPAXA. And I must say that we are very happy with the way this transaction, which is now closed, it was not closed at the end of September, but now it's closed. We are very happy with the way this acquisition is integrated now in our strategy of dual brand in Agfa with on the one side the high end, which is selling value, which is selling services, which is selling software to our customers. And on the other side, the battle on cost for customers which are willing to have plates at the lowest cost possible. And thirdly, this linked to the overall repartition of our production capabilities. As you know, we manufacture significant amount of square meters every year. We have a massive factory in Germany. We have other factories in China, in France, in the UK, in Brazil and in the U. S. We have decided to stop the factory in the U. S, which was costing which is the most expensive of the factories. And therefore, the delivery to the U. S. Will be provided from the factories, which are located outside of that, including, of course, from Germany. So that's, I think, a significant example of what we mean by resisting in our traditional markets. And this is also an element, which is making me reasonably confident that the 10% target of EBITDA on sales that I keep announcing for the medium term will be achievable because that will contribute to this improvement of EBITDA. 2nd, we've launched a new plate, Violet Chemistry Free, which is the Avatar V ZV. This plate is one of the plates we are going to launch in the next 2 or 3, 4 quarters to really build our technology advantage in some domains and catch up in the places where we have maybe not the best product in the world. And finally, the Tauro 3 meter 30, which was long expected by the market is now clearly on the market. We sell it well. We have got multiple orders in the quarter. It start to pick up in the quarter's numbers, and I hope that this machine will be one of our leading product in the quarters to come. Moving to Healthcare and the Page 12. The pie chart shows slight moves. Basically, we see a slight increase compared to the first half in terms of hardcopy in spite of the bad comparison of HOP Copy this quarter to last year. But last year, we had a little bit of extra sale because we were changing the distributors and we had new distributor to whom we sold. So basically the hubcap is slightly increasing even if the results of this quarter are massively damaged by the comparison with the quarter 3 of last year. We see the CRDR business and the radiology classic radiology going slightly down. In particular, in the quarter Doctor performed well, but CR has been declining in the quarter. And the IT business is continuing its progression. We are now at 50% on the year to date sales in IT, and we see a slight recovery, a good performance of the HCIS and a slight recovery, in particular, in Europe of our Imaging IT business, while the U. S. Is still in, I would say, in a recovery mode after a strong sale in 2016, 'seventeen. As I said several times, we have been suffering in terms of execution, but we are taking actions now. Liqtest is running a program for improvement in this domain, which is starting to bear fruit, and hopefully, it will develop even further in 2019. Therefore, the Imaging IT solution should go back to the normal trend, which is a growth of, let's say, 4%, 5% over time. This is the transformation we see clearly picking up now outside of the U. S. But not yet in the U. S. Slide 13. The sales of the quarter are down 6%. But as I said, this is massively due to the hardcopy film, where we still have a tail of reorganization of our business, which is, of course, when you compare year on year, we are not yet completely out of the woods. Q3 last year was pretty good in terms of sale of hardcopy film. This year is not good. And therefore, the difference between the two is pretty significant. But again, on the IT side, which is the key focus we have, the results of the quarter are good. The gross profit stays more or less constant, which in itself is not good news because the IT business going up and the gross margin of the IT business being above the average, normally we should see an improvement on gross margin. But of course, the fact that we sell less hardcopy fill, in particular in China, which is a good product in terms of gross margin, is weighing a little bit on the gross margin of the quarter. SG and A, the same comment for the rest. We are year to date at the level of last year. In the quarter, we are obviously a bit above, but we cannot react to a decline of sales as we have seen in the quarter for SG and A. The rest is fine. R and D is under control. And the results in terms of EBITDA suffer, of course, from the lack of sales in the half Capi film. We are down to 10%. On the yearly year to date basis, we are around 11%. So I would say the gap here is not as significant as it is for the group and certainly not as significant as it is for the Graphics business. Moving to Slide 14. Most of the comments have been done already in the business highlights. I think we need to insist on the new MusicCast workstation. MusicCast, this is our image processor, which is probably the best software in terms of image processing in an x-ray system. And we have launched a new workstation. We have a good acceptance of the market of our last Doctor equipment, which is the Doctor 800, which is a full fledged Doctor equipped with dynamic fluoroscopy radiology. So this is a product which is bigger than the average of our products. And we have signed an agreement with Scotia Hospitals, the Adventist, for 3 facilities, which is a landmark the evolution of our business in the U. S. And finally, we have a very successful go live in Enterprise Imaging with the radiology to go live in Enterprise Imaging with the radiology department of Princess Alexander Hospital. Back again to this imaging IT, I believe that if we take a little bit of distance now, we have been very successful in terms of strategy. We have launched a product which is completely transforming the way we look at images in the hospital. This product strategy has been well accepted very early by large hospitals in the U. S. We have delivered some of them pretty well. Some of them we didn't understand early enough that the architecture of the network itself of the hospital was critical. We are recovering on that. We are working on it. And in Europe, we've started a bit later. And of course, the execution in Europe is far smoother than in the U. S. So back again here, we acknowledge that we have made maybe not the best execution possible, but we are recovering clearly as we speak and for the years to come. Moving to Slide 16, Specialty Products. Here the numbers seem to be disappointing, but they are largely explained by the fact that silver is pretty cheap these days. We have silver which is in the range of $15 per troy ounce. And as you know, we have a certain number of our contacts which are indexed on the cost of silver, which have been good news at the moment. Silver was very expensive. It's obviously less good news when silver is lower. And of course, when you sell silver at a price which is lower, you have an impact on your sales, which is basically €5,000,000 a bit less. This is the roundings, but we have something which is at 9% compared to last year. But you see that the gross margin and the rest of the costs are not suffering so much. There's an impact on the EBITDA because some of the costs are fixed, but there's nothing to worry about. And you see that on the year to date basis, the EBITDA of this group is still improving by 2 points from 9.8% of sales to 11.7%. The good news, which is shown on Page 17, is that our growth engines in this domain, at least some of them, which are the Orgacon, electronic materials and the synthetic paper are still performing very well. We see a little bit of softness in the market of PCB films this quarter. We've seen here and there that the announcements of the big customers, we've seen Apple announcements. So there is a little bit of softness in this market. Hopefully, this is not a massive decline, but we observed that, of course, in the sale of our PCB fields. That's basically the comment for Specialty Products and for the group. So as a summary, we are well conscious that we deliver numbers which are disappointing in the quarter. Some of this disappointment is coming from the massive transformation we are doing, which have an impact on a lot of parameters, which are going, of course, to be more aligned starting from next year. I stick to the 10% EBITDA on sales, which will be supported by, in particular, the improvement of our IT business and the very strong strategy that we are building on the Offset business. We are still reflecting in our transformation program on the strategy for the other 2 big businesses, which will be the ink and the specialty business on one side and the radiology business on the other side. The transformation of the company in terms of technical split is finished. There is a little bit of support to be given, but the 1st January, we will be ready to start with a new organization, which will be announced internally in December. The reflection on our budget and strategic plan is underway. The budget will be presented to the Board as every year in December. And as I said, when I present the numbers of the quarter 4 early March, we'll be ready to give you a full picture of the strategy we want to deploy business by business to make sure that we have a good understanding of the way we are going to track and recover from the 8% EBITDA on sales of this year to 10% in average. So that's what I wanted to let you know. The floor is now open for questions. Thank you. We will now begin the question and answer session. First question is from Guy Sykes of KBC Securities. Your line is now open. Yes, good morning. I have total 5 questions. I will start with the first three. First question is, is there any impact of the recent acquisitions or announced acquisitions in the results, so especially from the Chinese joint venture, could be some impact in the Q3? Is there any and how much? 2nd is on the raw mats. I'm estimating a €7,800,000 negative impact of the raw mats, most of it not of nearly everything aluminum? Is it a good estimate? And or is it even was it even higher in the quarter? And a third question also perhaps on the numbers is on the restructuring charges. Is €15,000,000 of the 3rd quarter a good indication also for the 4th quarter? Thank you. Good morning, Guy. Acquisition of Ipaxa and deal with Lucky, honestly, I'm not fully aware of the numbers. On the Q3, there is minor impact, if any. In Q4, we should have normally the sale of the normal quarter of the Ipaxa. Normally, the sales of Ipaxta should be in the range of $30,000,000 full year. Therefore, in the quarter, I would assume that I'm sorry because Stephane has the room. He's engaged in another meeting. But I would bet that the order of magnitude on the top line should be in the range of €6,000,000 to €8,000,000 in the quarter 4, but I will confirm that to make sure that we have a good indication. As far as Lucky is concerned, there is no impact on the quarter 3, no impact on the quarter 4. The results the impact will come later. For the raw materials, again, we have a model, which is the one we have given, a delay of 6 to 9 months on the aluminum cost and the delay of 3 to 4 months on the silver. Silver, as you know, is very marginal now, slightly positive impact. Aluminum has a negative impact. Your number is a bit on the high side. And the restructuring charges for Q3, as I said, we have a strong reorganization of our program of sales in Europe, which is, of course, a significant one. We have the cost of the reorganization. On the Q4 restructuring, of course, we will have the full charge of the closure of Blundsberg, which will be a significant number. For the rest, I there's no big problem that I'm aware of. But of course, Q4 will be a big quarter in terms of restructuring charge. Okay. And then two questions on Healthcare IT. Can you elaborate a little bit on the problems you have in your U. S. Businesses because and are you taking actions in your distribution channel? And the second question is, I'm not sure if you're going to give the exact numbers, but can you give us some indication of, let's say, the relative margins of the HIS SYS division versus the Imaging IT division, so the PEX, which of the 2 has the highest margins? Thank you. Okay. I'll start with the second question. It's just one because I will not give any number. Indication, I think we have been very clear. First of all, your patience is will be rewarded in a few months now because there will be a different way to report to the market and the IT call that we're going to call for Healthcare, by the way, will be fully reported. And therefore, there will be a good understanding of the profitability of the IT business as such. You know because I made it very clear in public that the HSYS business is more profitable than the Imaging IT And this for two reasons. 1, because this market is very focused and we have a strong position in particular in the German speaking countries in Europe and the position in France is improving. While in the Enterprise Imaging because of the history of Agfa, we have by essence a global business because we serve customers in basically half the hospital of the year of the world. And therefore, all the customers in any place which are moving from the traditional technologies to the IT are asking Agfa as one of their potential suppliers. So the business is less focused than it is on the Hisis. So that's basically what I can comment at this stage. For the FSKI IT Imaging business in the U. S, I think it's I will not be totally transparent because I don't want to give too many indications to people which are my competitors more than the analysts. But basically, what has happened is what I said in a few minutes ago, we had we created a new wording, Enterprise Imaging, which is now taken by everyone. It's the wording. It's trademark that Agfa launched. It means that we have been the first one to think of the Imaging IT as a platform which is enabling all the images of the hospital to be archived, stored, treated, managed as a single on a single platform. This was tremendously attractive to, in particular, the large hospitals, university hospitals, in particular, in the U. S, which have been the first movers. The difficulty we had is that we have been very successful. And as always, when you are successful early, your platform is not totally safe and stable. Your people are not totally trained. And therefore, you may you expose yourself to some execution problems that we had in a few places, honestly, not a lot. And this has cost us some disorganization. This has cost us probably a little bit of an image on the market that we were not exceeding well. So we are rebuilding the plan completely. We are building what we call reference sites, and we are in strong discussions with some very important hospitals today establish the AXA platform as a reference to demonstrate to other customers. That's what we are doing. This will take a little bit of time. I'm sure that by 2019, we will see the results and 2020 will be back to a normal situation. In Europe, the situation has been different because European hospitals have been a little bit slower to adopt this evolution. And therefore, the execution of our contracts has been smoother and that's what we see. We have now already reference sites, which are existing in the European market. So that's the situation. And of course, this has a cost because you need to recruit people, you need to find people in services. This is not a distribution problem. This is more a service organization. This has a cost in terms of realigning the release of the different software that you have delivered over time. So this is a normal business. This is a normal IT situation. And if you compare, of course, to the Histories business where these difficulties we had then, 5 years ago or 6 years ago when all this was spaghettic plate and now all this is very stable. So we have a very strong business, which is progressing steadily, in particular, in Germany and France. So I'm not worried. It's just difficulties that we have in these kind of things. And if you look at the pattern of evolution of some of our competitors, some of them went through a very difficult period and they have recovered very well. So that's the situation. Okay. Sorry to come back to my first question on the impact of the acquisitions. Is the deal with Ipaxa already closed? Because in the press release, you stated that we announced our intention to acquire the previous solution of the Spanish Ipasta company? That's the past year for Q3 and the closure has been done recently, yesterday or the day before or whatever. It's very recent. So that's just the word on it. The deal is closed. Okay. Thank you. That's it for me. Thank you. Thank you. Next question is from Stephane Jonneaut of Degroofs. Your line is now open. Yes, thank you. Stephane Jeannot, Degroof Petercam. On the Healthcare IT, I will not ask you the margin, but can you give us some you mentioned the Orbis platform in Germany and France is doing and performing very well. You also mentioned that sales have grown, I think, double digit was mentioned in the press release and the order book is very strong. Can you give us a bit of an update on the importance of the different geographic areas for the Healthcare IT business. Where you would be where you are, I would say, in terms of life cycle and the margin in these different areas. I assume you've got a much higher margin in Germany than in the other regions. Margin in some regions might be impacted by the investments in the growth and rollout without going into detail in the margin. Can you give us some more color there where we are in the different lifespans for the different regions? And how important are the different regions in, I would say, in Yes. Good morning, Stefan. So again, in a nutshell, the IT business of Agfa, it's €500,000,000 of sales, of which roughly €200,000,000 are in the hospital systems and €300,000,000 in the Imaging IT, roughly, yes, it's plus or minus €10,000,000 In the €200,000,000 of hospital systems, a large majority is in the dark business because in Germany, we have a massive market share, difficult to express because it depends on the installed base, it depends on the new acquisitions or whatever, but the market share is somewhere around 1 third of the market or something like that. So this is the position we have in Germany. In France, we have this is the 2nd bigger market. In France, we have a position, of course, with Orbis itself, which is the software we have delivered to several university hospitals, including, of course, the five groups, which are in the Aperche P, plus Toulouse, plus Nice. So we have a significant position. But we have also in France a heritage of an acquisition done in 2,006, 2007. We have also an administrative system, which is also bringing some revenue. So the French business in terms of pure Orbi is very small compared to the German market, but because we have also other products that we sell in France, including the LIS, for example, which is part of this, the laboratory systems, we have a business in France, which is just a bit bigger than the pure Orbis business. Then the rest is marginal. Brazil is very small. We speak about a few 1,000,000 a year. And the UK, we have 1 pilot hospital, but it's a pretty small one. So what I would say is that basically for Orbis, the German market is probably I don't have the number exactly, but it's probably more than half. It's 60%, 70%, 65%, well, between 60% 70% probably of the numbers. The French market is basically the rest and a very small part in Brazil and the U. K. And the position we have in Germany where we have, 1st of all, a strong reputation, we deliver well. 2nd, we upsell new applications on an installed base, which is now for some of the hospitals, a very long and loyal customers. We have something like whatever 900 hospitals, which are working on always. It gives us a possibility, of course, to upsell and to have a very good recurrent business. So the margin in Germany on this is pretty strong. In France, it's a different situation because in France, as you know, we have been struggling to establish the position. We are not yet the leader in this market. I believe we are probably the number 2 in terms of sales for ERPs, therefore, EMR. But we are in a developing mode. So the business is profitable, but not yet at a decent level, I would say, compared to what it is in Germany. For the Enterprise Imaging, then the situation is a little bit different. The biggest market is in the U. S, but we still have, of course, a significant business in the rest of the world. Basically, what I would say is that you have I'll say 12% to 15% of the market, which is outside of the mature markets, so emerging markets, Latin America, ASPAC, etcetera. You have a business in the U. S, which is in this business, probably half of it is roughly and the rest is in Europe. So but here the situation is a little bit different because you have on the one side, you have our traditional customers, which are still working on our impacts platform, where the business is just a service business, recurring business of maintenance. And then we have this massive acquisition of new customers that we have done in particular in the U. S. In 2016 2017, where we have to some extent not executed well. But this is a business which is going to really bounce, I would say, including new acquisitions of customers that we start to perceive in a slight move up of our order book in the quarter 3 and quarter 4. But that's basically it. So the margin on this business benefits from the fact that it is a global business, and therefore we have a single release for all the countries of the world at least as a target when the platform is stable. On the other side, we have a structure of management, a structure of service, a structure of development of product, a structure of go to market, which is heavy compared to the very light structure that we have in Germany and France for all this. So the margin, the EBITDA, even when the business is more mature, will be lower in percentage of sales than the margin we could expect from the EMR business. And in both cases, because of the investments we are doing in France in our business, because of the explanations I was giving on the imaging enterprise imaging platform, we are below the level of the best performers in the world. Then you have everything. Everything I will comment with more numbers in the Q1. Okay. Okay, thanks. That's good refreshing. One follow-up in the hardcopy business. You indicate it was a weak quarter. How did you see the market as such evolve in the quarter? This was the weakness due to internal issues, mainly this change in distribution in China? Or is also do you see changes in the market as such? So it's difficult to speak about the market in Q3 because we don't have yet the full picture of the numbers that are communicated by the international agency. But the feeling we have is that the market in China is existing well. In the rest of the world, it's slightly declining. But overall, this market is still a market which is, I think, globally declining, but not that much. So therefore, if we decline, it's a problem of Agfa. Now where is the problem of Agfa coming? In the quarter, there is a specific one, which is that last year in Q3, we in boarded a new distributor to whom we sold significant volume because they had to build stocks to be able to distribute to the rest of China. And therefore, the quarter three numbers, if you look back at them, last year you had a sort of peak for 1 quarter compared to the normal trend. This is what we suffer from in terms of comparison year on year. Second thing is that we have been a bit slow in the transformation of our business into delayering the distribution channels in China. And this we have paid that means we have paid it through a loss of market share. But this loss of market share is not today. The loss of market share has been accumulated a little bit in 20 15, 2016, 2017, and this is why we have reacted and corrected it. Is this loss of market share big? The answer is yes, it is significant. Is it irreversible? The answer is probably not for a large part of it. The good news is that the price the selling price of Agfa to the distributors is, of course, benefiting from the fact that we have 1 distribution layer less at least. And therefore, the whole balance of this is that even if we don't recover totally the volume that we had in the past in a market which is mainly going to start to decline, Thanks to the price increase that we are able to perform. We should be better off in terms of those sales and gross margin when this is completely behind us. And when it is going to be behind us totally in terms of contractual terms, it is now behind us because we have settled with the 2 bigger distributors we had in China up until the beginning of this year. And when is this completely going to be in a steady mode? It will be starting from the Q3 next year, 1st July next year. Until then, we have a transition between the previous distributors and us as part of the subdistribution network. So that's the picture. Okay. Thank you. Very clear. Thank you. No additional questions in queue at this time. No additional questions in queue at this time, speakers. Okay. I think that there are no more questions. Therefore, it's time to close the call. I thank everybody for attending and listening. Thank you for the questions. I give you an appointment for early March next year now for the full year results and probably an interesting presentation. Thank you. Bye bye. Excuse me, Mr. Ronaldo. We actually have a question this afternoon. Would you like to take the question? Who is that? It's Stigian Demester of ING. Would you like to take the question? Yes. Thank you. Your line is now open. Yes, apologies. Stijn Investor, ING, asking a question for Ilham Triste. Two questions from my part. One is on net debt, which has crept up during the quarter. Obviously, one factor there is the working capital. Where do you see net debt at year end? And should we see a working capital release in the 4th quarter? Secondly, on that topic on at what net debt level on net debt EBITDA do you feel comfortable with? And then a second question on AUC. Have you been in touch with them in the meantime? And any comments on their intention? Thank you. Thank you. So on the net debt, as I said, the increase in this quarter is, as you said, partially due to the working capital increase. It's due to the fact that we have financed partly the GAAP in our U. S. Pension fund for €22,000,000 And it is due to the settlements that we have finalized and in particular in the field in China. So overall, this explains most of the increase of the debt. You see that the net result is not good. The cash flow, operational cash flow because of the low EBITDA is, of course, not strong. So this increase of cash outflow has explained the increase of debt. Are we comfortable with €99,000,000 of debt today? The answer is no because my target was clearly to stay as close as possible from the 0 and the financial debt because we have the pension debt. We don't want to increase the leverage on the company, certainly not at the moment when the EBITDA is going down to 8%. So on the other side, it's clear that this company needs to change completely the pattern. We've been basically working until the end of 2016 to strengthen the company. I said very clearly that I will use the years 2017, 2018 and to some extent a bit of 2019 to reorganize completely the business. This has a cost, cost of restructuring, cost of inventory for a period of time because we need to reorganize the supply chain and the go to market. Do I feel comfortable compared to my target of 0? The answer is no. Compared to the leverage of EBITDA with debt of on EBITDA of 50%, I think we are more than happy with these kind of things. But my target is not to stay at €100,000,000 of debt, except for good reasons of restructuring of the business that I consider as an investment as opposed to a drag of cash over time. So acquisition of Ipaxa will be fully in the cost of this quarter 4. The settlement in China has been done. The financing of the pension fund is part of at the moderate level is part of the strategy to derisk the pension issues. And the restructuring of the business has to be done. So therefore, for a period of time, it goes with a slight increase of our debt. But honestly, I prefer today investing in this kind of restructuring on businesses that we master well with a good return on investment as we believe we will have on the offset business as opposed to spending money in fancy acquisitions or whatever that we are going maybe to master a bit less. About RSA, I mean, RSA is the biggest shareholder of Aflac publicly because they have crossed the threshold of 10%, and to my knowledge, they are the only one. Are we in discussion with them? I would say yes, as we are with any of our big shareholders. Are they getting information on the company which are not public? The answer is no. Vivienne Victus is in contact with the RCA as she is with any of the big shareholders or the analysts which are asking questions and investors. I would say at this stage, there is nothing more that I can say on the relationship with RCA. Of course, over time, we need to find a way to engage correctly between the biggest shareholder of AXA and the management of AXA. That's the way I see the picture. Okay. Thank you very much. You're welcome. No additional questions. Those are the last questions. And we'd like to close the call now and say bye bye to everyone. Thank you. And that concludes today's conference. Thank you all for your participation. You may now disconnect.