Welcome and thank you for standing by. At this time, all participants will be in listen-only mode until the question and answer session of today's conference. If it is that time to ask a question, please press star followed by number 1 on your phone and record your name at the prompt. 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 Reinaudo, CEO of Agfa. Please go ahead.
Thank you, operator. Good morning, everyone. 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 will give more, of course, colors on the results because they are very contrasted in the quarter. Secondly, in terms of activity for the management team and for the company, the quarter has been very active in terms of transformation of the company. 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. Moving to slide two 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 the business, in particular in the graphics business, the stop of our packaging business in the U.S. 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 mixed effect on that. The healthcare margin resists reasonably well, I will come back to that later. The main problem is the gross margin of the graphics business, which is suffering from two things.
One, the cost of aluminum start now to kick in, because you know we have a delay in the cost of aluminum in our numbers. 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 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 or 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.
That is 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 three, 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 Branchburg.
On the line of SG&A, you see obviously when a top line decline that way and when, by the way, the U.S. dollar start to be more expensive as well as some currency, we see, of course, that the SG&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 are now at 21.4% in the quarter, 21.5% in the year-to-date numbers. 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&A, to further reduce our cost. The R&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&D, which is rather massive in the IT side of the business. We still have a significant program in R&D on the DR business and on the inkjet. The R&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. 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. 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. In moving to slide three, the numbers below a bit. We see, of course, on the line restructuring and non-recurring, that we have an increase of our restructuring cost in the quarter, EUR 15 million in the quarter, EUR 28 million year-to-date. Part of that is obviously the cost of the project of transformation, which is in terms of non-recurring weighing on our cost.
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. We have done significant projects in terms of transformation. This has a cost, but of course, we will recover that in the improvement of the G&A level in the quarters to come. On the non-operating result line, we see minus EUR 11 million, which is slightly above what it was last year. We see a slight increase in the year-to-date. This, of course, because 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 draw more on our facilities. For the rest, there is nothing significant to report. The taxes are zero in the quarter, but that's the fluctuations, and the net result is at minus EUR 5 million, which is one of the rare quarters that we have delivered in the last five or six 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 four, you see the level of the debt, which stays in a level which is acceptable, of course, in terms of ratio to EBITDA. The increase in the quarter from EUR 55 to EUR 99 is due in particular to two things.
One, we have done a settlement, now final settlement, and a little acquisition, as you know, with Ipagsa, which has cost a little bit of money. Also we have continued to develop the plan to secure and de-risk our pensions, in particular in the U.S., where we have anticipated on, I would say, the restructuring of the plan, where we're going to sell both assets and liabilities as we have done several times. Of course, we needed to finance a little bit the gap, and this has a cost of EUR 22 million in the quarter, which is, of course, a cash out, but for the good cause, I would say, securing and de-risking 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 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. We want also to have a plan which is over time, de-risking completely the gap of the pension plans. On slide five, 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 stop manufacturing in some of our factories and therefore we reduce the level of inventories. There are also some elements of increase of inventories which are linked to the transformation of the business. I give an example.
The closure of a factory like we have announced at the end of October in Branchburg, means that we need to reroute some of our aluminum, some of our plates. We need to rechange the supply chain between, in particular, the factory in Wiesbaden and the rest of the factories. This has a cost, which is, of course, not a permanent cost, but this will be over time recuperated. The same distribution 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. This has also, I would say, an element of increase of the inventories. That's, again, something which is partly seasonal and partly due to the transformation we are doing.
I don't think there is anything to worry about, 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 of the ratio of working capital to sales, which is now up to 29%. On slide six, I think I commented most of the figures which are given on this slide, and I move now to slide eight with the graphics business. As I said, our numbers are very contrasted. I skip slide eight, which is giving the traditional pattern of business. You see that there is a good stability.
The increase of our inkjet business this quarter, which is significant because we are above 9%, between 9 and 10, is a bit masked by the fact that we accumulate now three quarters in this chart. Basically, the results are contrasted, as I said. Good results in inkjet. We see in particular a good acceptance by the market of our new Tauro 3.3 meter LED machine, which is good news. Therefore, the low start of the year seems to pick up now in the third quarter. Moving to slide nine, looking at the sales. This I would like to comment, because seen 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.
In the gap, you have EUR 16 million-EUR 17 million, which are due to the decision to stop the business in the packaging business in the U.S. If you correct these numbers by this decision, you get a business of Graphics, which is down 3.8%. Could be perceived as a little bit of arrogant, this is the results, which is showing an improvement in terms of evolution of the decline of Graphics. What we see now on the market is three things. One, our Inkjet business has performed well in the quarter. Two, the price stabilization, which is good news.
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% of cost margin on sales in the quarter, and even more on the year-to-date. SG&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 kicking progressively, as I said. We spend 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% of sales compared to 5% last year. Here we are at -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 prepress. I said very long time ago, and this is one of our sub-project in the transformation. We have to resist in our traditional businesses to buy time to develop the rest of the business. Resisting our traditional business, I think there is a very good proof point of 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. That's the decision to move as much as we can, part of our manufacture and part of our alliances into China. Second, there are too many players on this market. There is a need for consolidation, in particular in China.
There are today something like eight or 10 players, which two or three are significant, the other ones are small. This, of course, weighs on the market situation. Lucky is the biggest one. Lucky and Agfa have a very similar culture in terms of manufacture quality of plates and the like. 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. 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. Second step, there are four players locally, one U.S., one Brazilian, one Indian, one Spanish, which are small players suffering in terms of capability to resist on the technology side.
Therefore, we believe these players have a massive interest to be sheltered by a bigger player. That we have done with Ipagsa, 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. On the other side, the battle on cost for customers, which are willing to have plates at the lowest cost possible. Thirdly, this link to the overall reputation of our production capabilities. As you know, we manufacture a significant amount of square meters every year. We have a massive factory in Germany.
We have other factories in China, in France, in the U.K., in Brazil, and in the U.S. We have decided to stop the factory in the U.S., which was 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. That, I think, a significant example of what we mean by resisting in our traditional markets. 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. Second, we've launched a new plate, Violet Chemistry Free, which is the Avatar ZV.
This plate is one of the plates we are going to launch on the market in the next two or three, four quarters to rebuild our technology advantage in some domains and catch up in the places where we have maybe not the best product in the world. Finally, the Tauro 3 meter 30, which was long expected by the market, is now clearly on the market, and 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 hardcopy 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 a new distributor to whom we sold. Basically, the hardcopy is slightly increasing, even if the results of this quarter are massively damaged by the comparison with the quarter three of last year. We see the CR/DR business and the classic radiology going slightly down. In particular, in the quarter, DR performed well, but CR has been declining in the quarter. The HealthCare IT business is continuing its progression. We are now at 50% on the year-to-date sales in IT.
We see a good performance of the HIS and a slight recovery, in particular, in Europe of our imaging IT business, while the U.S. is still in a recovery mode after a strong sale in 2016, 2017. As I said several times, we have been suffering in terms of execution, but we are taking actions now. Luc Thijs 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% or 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%. As I said, it 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 it's not good. Therefore, the difference between the two is pretty significant. 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.
Of course, the fact that we sell less hardcopy film, 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&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&A. The rest is fine. R&D is under control, and the results in terms of EBITDA suffer, of course, from the lack of sales in the hardcopy film. We are down to 10%. On the year-to-date basis, we are around 11%. 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 MUSICA workstation. MUSICA, this is our image processor, which is probably the best software in terms of image processing in an X-ray system. We have launched a new workstation. We have a good acceptance of the market of our last DR equipment, which is the DR 800, which is a full-fledged DR equipped with dynamic fluoroscopy radiology. This is a product that is bigger than the average of our products. We have signed an agreement with Froedtert Hospital, AdventHealth, for three facilities, which is a landmark in the evolution of our business in the U.S. Finally, we have a very successful go live in Enterprise Imaging with the radiology department of Princess Alexandra 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 that 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. In Europe, we've started a bit later. Of course, the execution in Europe is far smoother than in the U.S. 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 in 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. As you know, we have a certain number of our contracts, which are indexed on the cost of silver, which have been good news at the moment. Silver was very expensive. It is obviously less good news when silver is lower. Of course, when you sell silver at a price that is lower, you have an impact on your sales, which is basically EUR 5 million, a bit less. This is the roundings, but we are something which is at 9% compared to last year. You see that the gross margin and the rest of the costs are not suffering so much.
There is an impact on the EBITDA because some of the costs are fixed. There is nothing to worry about, you see that on the year-to-date basis, the EBITDA of this group is still improving by two 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 have seen a little bit of softness in the market of PCB films this quarter. We have seen here and there that there are announcements of the big customers. We have seen Apple announcements. 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 films.
That is basically the comment for specialty products and for the group. 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 has 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 two 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, the 1st of 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. As I said, when I present the numbers of the quarter four, early March, we will 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. That is 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. If you would like to ask a question, please press star followed by the number one on your phone and record your name clearly when prompted. To cancel your request, you may also press star followed by the number two. One moment please, as we wait for questions. First question is queued. It's from Guy Sips of KBC Securities. Your line's now open.
Yes, good morning. I have a total of five questions. I will start with the first three. First question is there any impact of the recent acquisitions or announced acquisitions in the results, so especially from the Chinese joint venture? There could be some impact in the third quarter. Is there any, and how much? Second is on the raw mat. I'm estimating a EUR 7.8 million negative impact of the raw mats, most of it, not of nearly everything aluminum. Is it a good estimate and/or was it even higher in the quarter? A third question, also perhaps on the numbers, is on the restructuring charges. Is the EUR 15 million of the third quarter a good indication also for the fourth quarter? Thank you.
Good morning, Guy. Acquisition of Ipagsa 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 Ipagsa. Normally, the sales of Ipagsa should be in the range of EUR 30 million full year. Therefore, in the quarter, I'm sorry because Stephane has left the room. He's engaged in another meeting. I would bet that the order of magnitude on the top line should be in the range of EUR 6 million-EUR 8 million in the quarter four. 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 three, no impact on the quarter four. 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 6-9 months on the aluminum cost and a delay of 3-4 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. 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 Branchburg, which will be a significant number. For the rest, there's no big program that I'm aware of. Of course, Q4 will be a big quarter in terms of restructuring charge.
Now two questions on healthcare IT. Can you elaborate a little bit on the problems you have in your U.S. businesses, and are you taking actions in your distribution channel? 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, CIS division versus the imaging IT division, so the PACS. Which of the two has the highest margins? Thank you.
I start with the second question. It's the easiest one because I will not give any number. Indication, I think we have been very clear. First of all, your patience will be rewarded in a few months now, because there will be a different way to report to the market and the IT co that we're going to call Agfa 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 and public, that the HIS, CIS business is more profitable than the imaging IT, and this for two reasons. One, because this margin 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 world. 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. The business is less focused than it is on the HIS, CIS. That's basically what I can comment on this stage. For the healthcare IT imaging business in the U.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. Basically what has happened is what I said a few minutes ago. We created a new wording, Enterprise Imaging, which is now taken by everyone. It's a wording, it's a 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 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 expose yourself to some execution problems that we had in a few places, honestly, not a lot. This has cost us some disorganization. This has cost us probably a little bit of an image on the market that we were not executing well. We are rebuilding the plan completely.
We are building what we call reference sites, we are in strong discussions with some very important hospitals today to establish the Agfa 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, 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. Therefore, the execution of our contracts has been smoother, that's what we see. We have now already reference sites which are existing in the European market. That's the situation. Of course, this has a cost because you need to recruit people, you need to train 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. This is a normal business. This is a normal IT situation. If you compare, of course, to the HIS, CIS business, where these difficulties we had then, but 5 years ago or 6 years ago, when ORBIS was a spaghetti plate, now ORBIS is very stable. We have a very strong business, which is progressing steadily, in particular in Germany and France. I'm not worried. It's just difficulties that we have in these kind of things. If you look at the pattern of evolution of some of our competitors, some of them went through a very gold period now are in trouble. Some of them have been in a difficult period, they have recovered very well. That's the situation.
Okay. Sorry to come back to my first question on the impact of the acquisitions. Is the deal with Ipagsa already closed? Because in the press release, you stated that we announced our intention to acquire the prepress solution of the Spanish Ipagsa company.
That's the press release for Q3. The closure has been done recently, yesterday or the day before or whenever.
Okay.
It's very recent.
Okay.
That's just the one. The deal is closed.
Okay. Thank you. That's it for me. Thank you.
Thank you. Next question is from Guy Sips of Degroof. Your line is now open.
Yes. Thank you. Guy Sips, 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 performing very well. You also mentioned that sales have grown, I think double-digits 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? And where you are, I would say, in terms of lifecycle and the margin in these different areas. I assume you have 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 lifecycles for the different regions and how important are the different regions in.
Good morning, Guy Sips. Again, in a nutshell, the IT business of Agfa, it is half a billion EUR of sales. Of which roughly, I think EUR 200 million are in the hospital systems and EUR 300 million in the Imaging IT, roughly. It is plus or minus EUR 10 million. In the EUR 200 million of hospital systems, a large majority is in the DACH business. You know, in Germany we have a massive market share. Difficult to express because it depends on the install base, it depends on the new acquisitions or whatever, but the market share is somewhere around 1/3 of the market or something like that. This is the position we have in Germany. In France, this is the second 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 AP-HP, plus Toulouse, plus Nice. We have a significant position. We have also in France, a heritage of an acquisition done in 2006, 2007. We have also an administrative system, which is also bringing some revenue. The French business in terms of pure ORBIS is very small compared to the German market. 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. The rest is marginal. Brazil is very small. We speak about a few EUR million a year.
The U.K., we have one pilot hospital, it's a pretty small one. 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. Between 60% and 70% probably of the numbers. The French market is basically the rest, and a very small part in Brazil and the U.K. The position we have in Germany, where we have, first of all, a strong reputation. We deliver well. Second, we upsell new applications on an install base, which is now for some of the hospitals, very long and loyal customers. We have something like whatever, 900 hospitals, which are working on ORBIS. It gives us a possibility, of course, to upsell and to have a very good recurrent business.
The margin in Germany on ORBIS 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 two in terms of sales for EMR. We are in a developing mode. 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, 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. What I would say is that you have 12%-15% of the market, which is outside of the mature market, so emerging markets, Latin America, APAC, et cetera.
You have a business in the U.S., which is in this business, probably half of it, roughly, and the rest is in Europe. 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 IMPAX platform, where the business is just a service business, a recurring business of maintenance. We have this massive acquisition of new customers that we have done, in particular in the U.S. in 2016 and 2017, where we have, to some extent, not executed well. 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. That's basically it.
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 our base. 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.
In both cases, because of the investment we are doing in France in our base and because of the explanations I was giving on the Enterprise Imaging platform, we are below the level of the best performers in the world. You have everything. Everything I will comment with more numbers in the first quarter.
Okay. I think that's a 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? Was the weakness due to internal issues, mainly this change in distribution in China? Or do you see changes in the market as such?
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. The feeling we have is that the market in China is resisting well. The rest of the world, it's slightly declining. Overall, this market is still a market which is, I think, globally declining, but not that much. Therefore, if we decline, it's a problem of Agfa. Where is the problem of Agfa coming? In the quarter, there is a specific one, which is that last year in Q3, we onboarded a new distributor to whom we sold a significant volume because they had to build stocks to be able to distribute to the rest of China.
Therefore, the quarter 3 numbers, if you look back at them, last year, you had a sort of peak for one quarter compared to the normal trend. This is what we suffer from in terms of comparison year-over-year. Second thing is that we have been a bit slow in the transformation of our business into delayering the distribution channels in China, this we have paid. That means we have paid it through a loss of market share. This loss of market share is not today. The loss of market share has been accumulated a little bit in 2015, 2016, 2017, 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 selling price of Agfa to the distributors is, of course, benefiting from the fact that we have one distribution layer less, at least. 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 maybe going to start to decline, thanks to the price increase that we are able to perform, we should be better off in terms of both sales and gross margin when this is completely behind us. When is this going to be behind us totally? In terms of contractual terms, it is now behind us because we have settled with the two bigger distributors we had in China up until the beginning of this year. When is this completely going to be in a steady mode?
It will be starting from the third quarter next year, 1st of July next year. Until then, we have a transition between the previous distributors and us, a part of the sub-distribution network. That's the picture.
Okay. Thank you. Very clear.
Thank you. No additional questions in queue at this time. As a reminder to our participants, if you would like to ask a question, please press star followed by the number 1 on your phone and record your name clearly when prompted. 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. Reinaudo.
Yep.
We actually have a question just dropped in. Would you like to take the question?
Who is that?
It's Stijn Demeester of ING. Would you like to take the question?
Yeah.
Thank you. Your line is now open.
Yes, apologies. Stijn Demeester, ING, asking a question for Gillian Trist. Two questions for 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? Should we see a working capital release in the fourth quarter? On that topic, at what net debt level on net debt EBITDA do you feel comfortable with? Then a second question on AOC. Have you been in touch with them in the meantime, and any comment on their intentions? Thank you.
Thank you. 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 gap in our U.S. pension fund for EUR 22 million, and it is due to the settlements that we have finalized and in particular in the film in China. 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. This increase of cash outflow has explained the increase of debt. Are we comfortable with EUR 99 million of debt today?
The answer is no, because my target was clearly to stay as close as possible from the zero and the financial debt because we have the pension debt, and we don't want to increase the leverage on the company, certainly not at the moment when the EBITDA is going down to 8%. 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. These are the costs, cost of restructuring, the 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 zero? The answer is no.
Compared to the leverage of EBITDA with debt of an EBITDA of 50%, I think we are more than happy with these kind of things. My target is not to stay at EUR 100 million of debt except for good reasons of restructuring the business that I consider as an investment as opposed to a drag of cash over time. Acquisition of Ipagsa will be fully in the cost of this quarter four. The settlement in China has been done. The financing of the pension fund, at the moderate level, is part of the strategy to de-risk the pension issues. The restructuring of the business has to be done. Therefore, for a period of time, it goes with a slight increase of our debt.
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 AOC is the biggest shareholder of Agfa 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. Viviane Dictus is in contact with AOC 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 AOC. Of course, over time, we need to find a way to engage correctly between the biggest shareholder of Agfa and the management of Agfa. That's the way I see the picture.
Okay. Thank you very much.
You're welcome.
No additional questions.
I think that was the last questions, I would like to close the call now and say bye-bye to everyone.
Thank you. That concludes today's conference. Thank you all for your participation. You may now disconnect.