Hello, welcome to the Agfa-Gevaert Q1 2023 results conference call. Please note this call is being recorded. For the duration of the call, your lines will be on listen only. However, you will have the opportunity to ask questions at the end. This can be done by pressing star one on your telephone keypad. I will now hand you over to Pascal Juéry, CEO, to begin today's conference. Please go ahead.
Thank you very much. Good morning, everyone. I'm sitting here in Mortsel with the executive committee team and Viviane Dictus in charge of investment relation. We're gonna walk you through the Q1 results for Agfa. Of course, it's a quarter. We're also going to explain the treatment of the divestment of Offset and its impact on the group. If I first turn to the business, rather a good start of the year for the group overall. Let me start with HealthCare IT. Let me start by reminding everyone that HealthCare IT is a business that is 50% project-based, that therefore, we have quite some variation in terms of level of activity, mix, and project implementation quarter by quarter.
Indeed, after a very strong Q4, the Q1 activity was of course more subdued, but it doesn't mean that there is a change whatsoever in our business. Two things. First, we continue to have a very, very dynamic order intake with 25% increase over the last 12 months. This order intake is also has a good mix, meaning the high-value part of what we do is over-represented in this growth. There is nothing broken here. On the contrary, we continue to have momentum in the market. Short term, it's fair to say that yes, I mean, we're impacted by cost inflation, but also by the mix of projects so that we've been implementing in Q1.
I'll come back to that in the outlook, but I want to stress again that 50% of this business is a project-based business, and therefore, variation quarter to quarter, and especially this year, first semester will be a lot weaker than the second semester, which was already, by the way, the pattern last year, kind of. DPC, very pleased with the strong recovery of the business, basically firing on all cylinders, price, cost actions, and as well, volume growth in our targets, in our growth engines, and especially Zirfon and digital printing. I'll come back to that. Radiology Solutions, a rather stable first quarter. In radiology, the first quarter is always a weak quarter. On the base of a very strong Q4 quarter in 2022.
Here, I would say film volumes are quite okay. We've seen the end consumption in China going back to normal now for some time and staying at the, at the same level. However, we still have margin pressure in China coming from the inability to increase price, specifically in China. DR actually has been delivering quite well for the quarter, positive trends in sales and profitability. Overall, in the new perimeter of the group and EBITDA of EUR 13 million, net results very much impacted by, of course, the impact of the Offset divestiture. We'll come back to that in more detail.
First, I would like to hand over to Dirk De Man, our CFO, who will walk you through, basically with the completion of the sale of Offset, is impacting the group.
Thank you. Thank you, Pascal, and good morning, everyone. Indeed, we completed the sale successfully on April 4th, so the closing of the transaction. Obviously, that has quite some impact on our reporting. We are now grouping the activity in a new division called Contractor Operations and Services, former Offset. For short, we'll just call it CONOPS as an acronym. As of Q2, the CONOPS division will represent all the agreements that we have with the external party, and the rebranding of Offset is ECO3. The turnover in that division will be the supply agreements with obviously the cost of goods related to that, to those products.
We'll also have a number of support services that will be accounted for as other income, and the costs related to those services will be covered in the different GMA lines. As the transaction closed to in Q2, we are already reflecting the as if situation previously. In Q1, we reflect the financials as if it was already in place. Also the comparative period of Q1 last year has been represented accordingly. There is, however, one key difference to show is that in the stranded costs related to offsets, they have been treated differently in the two years. In the Q1 2022, the stranded costs are reported under CONOPS, and then, as of Q1 2023 and going forward, these are already absorbed by the three remaining business divisions.
As Pascal already said, the impact of the offset sale resulted in the remaining impairment on the offset assets, which came in at EUR 47 million, which was at the lower end of the range we gave at the Q4 results. We do expect the cash impact of the offset transaction to be around EUR 28 million, spread over Q2, being the proceeds, and Q3, the closing balance sheets. The number is a bit higher as you may recall. There is the base price, but there's also the variance in working capital, and the increase to EUR 28 million is related to the working capital that was built up. Back to you, Pascal.
Thank you very much, Dirk. If we look at the P&L real quickly, you see top line growth, and it's mainly coming from DPC, and to a lesser extent by HealthCare IT, radiology being more or less flat, I would say. Very happy to see gross profit increasing significantly, both in absolute terms, but also in margin. Really reflecting the emphasis we have on pricing and lot of price increase initiatives has been implemented across the businesses. Also very pleased in the context of extremely strong inflation by the performances in SG&A due to our transformation program. Not only we can eliminate the impact on inflation, but even go a bit further in terms of cost reduction.
What you see in R&D is really the reflect of scope, actually the Inca integration. Apart from that, R&D remains flat, I would say, at the group level. Overall an adjusted EBITDA that is rather favorable versus last year. If I turn to net result, well, what's influencing really the net result, two things. We continue to have a lot of restructuring effort and a bit of non-recurring impact as well, and indeed the offset by the structure as already explained. Overall, happy with the top line for DPC and what I like very much in the top line is it's really the area we want to grow that are growing.
I'm really happy to report that we have sold during the quarter our first Onset machines, meaning Inca inherited with Agfa inks, it took us nine months actually to do that. Believe me, nine months to develop and sell commercially a new set of inks is a pretty good performance actually. Zirfon membranes, I will come back to that as well, but very strong quarter that will continue throughout the year, but really it's taking off. For HealthCare IT, as I said, activity of order intake is high. Revenue has increased. It's more price impact than probably volume impact. Nevertheless, a bit more subdued performance in the bottom line. I think we are gonna see a year in which HealthCare IT EBITDA will improve quarter by quarter.
To Q4, just like last year, will be the strong quarter of the year. Overall, I would say, very reassured also specifically by the fact that we could turn around DPC through our actions, swiftly, back to profit and gross margin. I'm gonna turn back to you, Dirk, to comment on the cash flow.
Yes. In terms of the cash flow, you can see as is usual, the seasonal build of working capital, and then I will get back to that later. CapEx pretty much in line with last year. Pensions is maybe a bit higher than we would expect, but that's mainly related to the timing of some pension payments, which normally fall into Q2, but this year fell into Q1, mainly for practical reasons, not having to buy and sell assets in a very short period of time. Overall, our guidance for the year remains the same. As well as then, restructuring at a relatively high level of EUR 11 million.
There again, for the year, the P&L guidance on non-recurring and restructuring remains at the level which we communicated before, let's say around EUR 35 million. Leading to a negative net cash flow of EUR 39 million. If we switch to the next slide, as you can see on the net cash position, the impact is actually higher. There's two elements I would like to highlight. One is that in the context of the transaction, we were repatriating cash in line with the agreements with the buyer. That included cash also in the joint venture, for which obviously when we dividend back, we need to dividend also to the joint venture partner. That was a material impact. As well as the results of the assets held for sale.
As I mentioned, the working capital also increased in Q1, and that also had a negative impact on the net cash flow. Obviously, the working capital is being, as I said before, recuperated in the cash proceeds that we expect at a later point in time. Let's maybe move to the working capital and indeed, the working capital increased versus Q4, but also versus Q1 last year. The key culprit sits in inventories. Now, I have to remind you also that last year we did not yet have Inca included. That represents about EUR 16 million of the EUR 26 million of increase in inventories. You can see now that also on the days on hand for inventory, we're seeing a decreasing trend.
DSO, while increasing in absolutes, also decreased in days, showing that that is mainly related to the growth that we're seeing. On the other hand, trade payables, that's a negative impact in terms of days where obviously we're working on spend reduction, which is also reflecting an inventory reduction, which is reflecting on the DPO. Overall, versus last year, we're at the same % of sales. At least, we were able to undo some of the increases that we have seen across last year. As it was a question last time, this is actually representing the three divisions added. Before restatement, it would have been around 28% last year, and that went up to 33% restated for the three divisions.
It does not yet include any working capital related to the Contractor Operations division, as we will only find out in the coming months how that working capital evolved, and it was hard to simulate on a historical basis. It only includes the three divisions. That's basically it. Back to you, Pascal.
Thank you. HealthCare IT. Let me switch to HealthCare IT. Sales, as you see, slightly up versus last year. Gross profit impacted by the mix of projects we have implemented during Q1. It was less favorable, I would say. SG&A increased, reflecting just the cost of inflation and investment made in 2022. R&D online. EBITDA below last year, but again, I repeat, it's a business that you need to look at for the full year, and you will have variation quarter on quarter. This year, as I said, it's gonna be building up during the year. Happy with the order book. Actually, you see our own software part in the order book is increasing even faster. This is good news because this is really what's driving the profitability of the business.
We landed actually what we call a net new contract in the first quarter. Meaning actually we have now a contract with a new hospital chain in the U.S., mainly across Dakota, Wisconsin, significant hospital chain. This is the largest what we call net new contract that we have won over the past year. Very significant event for us. One thing also I need to explain is indeed our order book is growing very nicely, but the portion of the order book that is managed services is growing. What is managed services?
It means, we have actually a multi-year contract instead of a one-off implementation contract plus SMA, plus maintenance. Actually, we are spreading revenues over more years. These are very profitable contracts, but that also tend to delay a bit the implementation of the order, given the nature of this contract. This is good news because it's actually a sticky business that is more recurring, but short term, of course, it's hurting us a bit compared to taking all the projects in one shot. When we will be moving more and more to cloud solutions, we'll certainly adopt the SaaS model. Managed services, you could argue, is a bit in between. It's already spreading the revenues later.
Personally, I think it's good news for the business. Overall, I'm not changing the overall guidance about the potential of the business. Remember that, we changed, I would say the vast majority of the leadership team, last year. We still have a lot of new people in this leadership team, and I sound very confident about our ability to deliver our strategic roadmap. Radiology Solutions. Rather flattish, with VR increasing a bit, film relatively stable, and our CR business declining. Rather flattish also in terms of EBITDA, but you see that the gross profit also here is influenced by price actions that we have taken across the business, with the exception of China.
Basically, there are good improvement in profitability. Medical film, okay in volume, still pressure in margins from China. Self-help measures are also helping us dealing with the situation. Now let me turn to DPC. DPC clearly had a very complex and bad performance during the second semester of 2022. I was personally confident that indeed we could recover quite quickly on this front, and I think this quarter demonstrates it quite well. Actually, DPC is the most dynamic in terms of top line. Of course, you've got the Inca impact in this top line. Even without the Inca impact, that would still have been a double-digit growth for the business. Strong recovery, also strong growth of gross profit, absolute terms, but also margin.
SG&A, I would say here again, you see you have the impact of Inca. So that's why we see a division also increasing SG&A, but certainly not in percent of sales. Same comment for R&D. This is the impact of the Inca acquisition. Adjusted EBITDA is strongly up and clearly, I would say everything has been contributing. Digital print, we, you know, it's a strong validation for us even in a subdued economic environment. Our ink sales continue to grow very nicely, meaning people continue to print digitally very, very, very much. First, 3 Onset, which is the Inca brand, actually has been sold in the first quarter, so we are pretty pleased with that.
More importantly, we are also getting ready to start the ink swap with the install base. Actually, we are finalizing today the testing, the very extensive testing of our inks at an existing customer. That means that we will soon, when I say soon, we are already starting to do that actually, to swap the existing base of Onset to Actua inks, which is also a reservoir for us of ink business. Industrial inkjet is not yet recovered, but it's showing, I would say, signs of life. It was a tough market for us in the second half of last year in view of the energy crisis. People stopped doing home improvement. It's a bit back, I would say, although still a way to go.
Even the volumes for OEM inks are starting to pick up as well. Overall well-oriented, I would say. Zirfon, we sold more in Q1 than in the full year 2022. We almost did in a quarter two years of sales, 2021 and 2022. We are really happy. I want to stress that for the time being, it's still a product for which we are in a full industrial development, and therefore, it does not contribute yet to the EBITDA of the group. It soon will, I believe. First, we are spending a lot of resources to get it right for customers and the market.
Second, given the very strong quality constraints that we are setting ourselves for the time being, we still have a weak productivity in our industrial operation. All this will increase, and it will contribute, but I want to stress it. We've got the top line of the Zirfon, but unfortunately, today, not yet contributing to the bottom line. For me, it's good news because it means, yeah, we have a huge potential to unleash here. This being said, not everything is easy. Electronics industry continue to be very subdued. Everything that's related to PCB and exposed mainly to China is still impacted by the current economic environment.
PCB plants in China are operating at a low rate of utilization that reflects on our business. In this context, we had price increase actions pretty much everywhere that has been building up during the quarter and for which we expect a higher impact in Q2 than in Q1. Actually, we did some cost reduction as well. Combined with the growth, we have restored profitability. I want to stress as well that we have been setting, structuring the business also, by adding some talents to the group.
The way we are structuring DPC today is along a business unit on digital printing solutions, business unit on energy transition, meaning the Zirfon membrane and mainly of course, a business unit on the rest of the business, which is industrial film and foil and print solutions. CONOPS, the new division.
Yes. These are the numbers of the CONOPS division. As already explained, the supply agreement and the support services. As of Q2, it will be the real reflection of the relationship with ECO3. In Q1, we already reflect the financials as if the agreements were already in place, and we also represented the Q1 period for 2022.
As said, the turnover represents the supply agreements and the income related to the support services and is in other income. The key point here, as you can see year-over-year, that sales went down, which is reflecting activity differences in the Offset Solutions. You can see the adjusted EBITA going up, and this is related to the fact that in 2022 we are reflecting the stranded costs as part of CONOPS. In 2023, these have been absorbed by the other three divisions. On the left-hand side, you can see the numbers for Q1. The EUR 4.8 million is part of the CONOPS P&L that you see. The EUR 2.5 million in Q1 is absorbed by the three divisions.
Each time when you look at the divisional results, these are including those stranded costs, primarily to DPC and Radiology, to a lesser extent also in HealthCare IT. For the year 2022, these stranded costs were amounting to EUR 14.1 million. That means that it's decreasing quarter-on-quarter. But also in 2023, the total is expected to be around EUR 7 million, also decreasing a bit during the year. This is basically a division that you can expect to have an adjusted EBIT of around 0 since it's really a supply agreement with the buyer of the business and not necessarily designed to make profit.
Thank you very much. Let me turn now to the outlook. We gave an outlook back in March. We said clearly that we were expecting a recovery in profitability in 2023. We stand by this statement today. No change. HealthCare IT, we are probably a bit more cautious in the way to express it because we've seen indeed more uncertainty regarding the timing of the order book execution. And a bit of pressure on costs so that we are taking action on by the way, as I speak. We are expecting a weaker first half of the year and indeed the business will pick up quarter after quarter. Indeed there is an uncertainty regarding the delivery of the order book.
As I said, it's a business, so that is project based today. Even if now we sell more and more managed services which are more recurring, still mainly this and that explains the variation. No change on Radiology Solutions and no change on DPC. We just demonstrated that we are able to do it, and I will say, we are probably as are more assured today with this view than we were even a couple of months ago, I would say. That's a bit in a nutshell for the group.
We are continuing all the actions we are having, meaning implementing our transformation program on the cost side, meaning implementing price increase actions and here and there, I would say fine-tuning in cost management for the group. The overall view is unchanged for the group for 2023. Just a word on sustainability. We continue to develop our action plan in the various areas we have chosen to engage on. I would say today that our main focus is safety. We still have a performance that I believe is not up to par with the industry standard. Actually, I should say the industry best in class practices. So it's an area for us of really highlight and priority.
We are making progress on our diversity, equity, inclusion drive. We have now employee resourcing, employee resource group in place, delivering already some ideas and initiatives. We have more initiatives also in the field of CO2 reduction. We indeed are investing in electric boiler and heat pumps in our Belgian site in order to reduce our footprint, as well as looking at expanding our PV footprint as well. I want to stress again that sustainability is indeed part of our priorities and the way we drive our business. I'm gonna stop here and of course take the questions of our of the analysts.
Thank you. Ladies and gentlemen, as a reminder, if you would like to ask a question on today's call, please press star one on your telephone keypad. That is star one for your questions today. Our first question comes from Guy Sips of KBC Securities. Please go ahead.
Yes, thank you. three questions from my side. First is on the, yeah, the Inca ink swap potential. Can you remind us the install base, and do you have some targets or how many, yeah, do you want to swap before the end of the year or in two, three years' time? Do you expect 20%, 30% of the install base to swap to Agfa inks, or is that, yeah, too optimistic? Is there any impact on working capital as these inks are quite expensive? It's the first question.
Thank you. You have more questions that you want to list, or shall we answer first this one?
It's up to you.
Oh, it's as you want.
Okay. On radiology, the question is, you're hinting that in China, that volumes are recovering, but there is still margin pressure. Are there any actions taken, and what's the current situation in China? Do you see any improvement? The last question is on CONOPS. Can you give us some more color on, is this the first quarter? Is that a good guidance for or is there any seasonality? I mean, on the volumes and also on the margins, I think you already indicated that expecting a zero margin every quarter is best guess, or is that wrong? Thank you.
Okay. First, thank you very much, Guy. Vincent, I'm gonna turn to you for ink swap. Timing, potential size of the price.
Sure. Without getting into too many details, I would say there's somewhere between 150 and 200 installed printers that are kind of an addressable market for us, if you want. Now this is a multi-year program. It's not something that we expect to do, of course, in the next 6 months. We have a very clear plan for ourselves, based on our own sales of new machines to also our already existing customers, then also addressing customers that are users of existing inks, and to swap them to our inks.
It's, I would say it's in the next 3 to 5 years, we do plan to be able to switch, probably not 100%, because not all these customers are also using the same ink types and so on. Some are very specific users, but the majority of those inks should be addressable for our ink sets.
Over 50%
Yes.
Of the installed base is off target?
Yes.
Right. Good. Let me turn, maybe, Dirk to you to CONOPS on.
Yeah, on CONOPS, I think the obvious problem is that we have no direct visibility on the evolution of the ECO3 business. Yeah, I would say it's a representative quarter in line with what a normal Q1 is. Obviously the support services will change over time as we hand over. Not a major impact in the first year. Turnover will go with the primarily the same business that ECO3 will be doing with the external market. It's hard to give guidance, but I think the key thing is that bottom line wise, it should be nothing to around a zero.
Okay. Regarding radiology for China. I said the volumes are back, no issue there. The volume-based procurement practice of the Chinese government has resumed. Actually, we are right in the middle of one which is multi-provinces. However, I want to stress that we have a much better understanding of the marketplace in China and situation on this VBP. Remember that during the past 3 years we could not get to China, but we have been now to China, myself, and with the head of the Radiology film business. We know how to play in this VBP. We believe we are positioned now to not only maintain our market share, but probably even benefit a bit from it.
Overall, we are not expecting any deterioration, and especially certainly not versus the assumption we have in our own budget. Things are being deployed as planned. In the meantime, in radiology, as you've seen, we have taken a significant restructuring effort, actually, that we announced end of November, to address, of course, the challenges we have on the margins, given the inability to control price in China. We are taking action also everywhere, including by the way, in China, in our cost to serve, to reflect on this, on this situation.
Last question from my side. During the full year conference call.
Yep.
You were guiding for 37 EBIT for 2023. Is that the number that you can reiterate?
I'm not sure we gave a specific number, but the number you quote is perfectly in line with what we have in mind, I would say.
Okay, thank you.
Thank you. We now move on to our next question, which comes from Maxime Stranart of ING Bank. Please go ahead.
Hi, good morning. Three questions on my end as well. First of all, looking at DPC, which experienced a strong performance over the first quarter. Could you shed some light on what was the pricing impact, the volume, and the scope impact? That would be helpful. Thank you. Secondly, looking at Agfa HealthCare and the guidance you provided, as you mentioned in the call, you look more cautious on the EBITDA growth. Could you
Again, explain what you mean by delayed growth compared to the guidance you previously stated of the double-digit ADA growth in 2023. Finally, looking at working cap, 33% of sales, if I understand correctly, now that offset is out, where do you see this going, over the medium term? That will be all for me. Thank you.
Right. Thank you very much. Well, on DPC, Maxim, it's a bit difficult to slice and dice. We do have an impact from everything, clearly pricing. On top of that, as I said, it was done, it's still being done today. we had, the impact is building up over the months, and as built up in the quarter, will continue to have an impact in Q2. Volumes is positive almost everywhere except in what is related to PCB and some areas of industrial markets as well. all the rest is contributing very positively to volume. The most important for us, being inks and Anapurna, in terms of volume growth.
It's a bit difficult to slice and dice given the complexity of the activity. Clearly it's volume and price and also some action on the cost that works well in the DPC today. Regarding healthcare, what we mean by that is, you know, we have an order book, and we look at the way this order book is going to be deployed in the next quarter, with which projects will go live, will be implemented and whatnot. This is the way we look at our business. The world is not perfect, and we are pretty much also depending on our customers, on customer readiness for implementation. That's what we are seeing right now.
We are seeing some delays in implementation of the order book, which means we are slightly more cautious indeed on the delivery. It's a fine line. That's why we are saying what we are saying. When we look at this, meaning, you know, by the end of March, by the way, our order book was actually a lot higher than last year, as we took a lot of orders that of course were not implemented. That's what we mean, that's what we mean by that.
I stress again the fact that, the increase of the order book reflects also an increase in our managed services, part, which means again that we are instead of invoicing in one go a big project, we, invoice on a multi-year contract along the line of contract. That also has an impact. Frankly speaking, the success we had in managed services, is probably a bit higher than what we expected, actually in this area, which again is good news for Unetele. You want to add anything to that or?
I want to concur. It's actually that the volume came three times higher than expected. It's a good trend in the long term, but it means lower revenue depletion.
It's more a slower revenue recognition over the next.
Yeah.
Over the next months. Again, I repeat, We're still in good shape in HealthCare IT. Your third question regarding working capital. There I think we can say, post offset indeed, the working capital % of sales offset is somewhat lower, can you comment on that maybe?
Yeah, indeed. As I said before, it's a 5 percentage points difference if you take Offset out. I think looking forward, we are working on programs to reduce working capital is a key priority. The focus is really on inventory, and we do see opportunities. Some of it may come quicker, some of it may take a lot more time to implement. It's not a short term, but rather a midterm project. We do see opportunity, and I think it could be in the range of 10% or 15%, but we still need to firm up exactly how that timeline will work and which kind of projects we will be able to implement at which point in time. There is opportunity plan to reduce the inventory levels first again.
No, indeed. I want to stress that as you know, we had a transformation program that is quite, that is quite important. We were doing things, we couldn't do everything at the same time. We took care of a lot of things. You see today, by the way, the result in the management of SG&A of the company. Right now the one major project that we are opening, that we have actually opened for 2023 is a structural working capital project on which we are working on. We shall be in a position, probably the next results announcement to be a little bit precise, more precise, hopefully about what we want to achieve. The order of magnitude that you heard from there is the right one.
Okay. Thank you for that. If I may, just coming back on Agfa HealthCare. I just see the BD guidance for the full year.
Well, I told you, I'm not gonna give more details today.
Yeah. Perfect. Thank you for your answers, and have a nice day.
Thank you, Maxim.
Thank you. Up next, we have Laura Roba of Degroof Petercam. Please go ahead.
Good morning. Two questions from my side. First, a question on Zirfon. As I understand, it starts to contribute to top line, my question would be, when would you expect it to start contributing to bottom line? A question on HealthCare IT as well. Could you elaborate a bit on the evolution of the growth margin and how confident are you that you will see an improvement quarter by quarter there as well? Thank you.
Okay, thanks. Zirfon, indeed, Laura, very good question. No, seriously, I expect Zirfon to be positive in this year. Again, let's remember that we started kinda industrial operations for Zirfon in actually Q4 last year, that's really when we did it. We are still, we have 6 months behind us. We are making a lot of improvement, a lot of changes all the time. That's really, you know, that's really in full development swing industrially. We know where we're going, and I will expect Zirfon contribution to the bottom line to be slightly positive this year, but nothing spectacular yet.
We know we have improvement, that are planned, you know, in the existing industrial operation, but it takes a bit of time to implement. Every time you make modification in your hardware, it takes a bit of time. I'm very confident going forward. we are also at a point where we are learning, you know, we are extra cautious on the quality of the membrane. I would say without a joke that everything is being looked at through a magnifying glass, in order to make sure that our membranes are absolutely flawless. we are doing all this work, you know, that is very costly, but that is work, that will enable us then to have an automatic quality control through cameras and things like that.
We are doing all this work up front, which is why we are not yet, contributing to bottom line. Again, it's gonna turn quickly. The question of, HealthCare IT, the gross margin is influenced basically by what you sell in the quarter. We are selling a full solution to customers, so it could start if our customers are requesting it hardware, but also our own software, third-party software that are embedded in our, in our offer, as well as our services. And all these components have a different margin points. You would easily understand that when we sell hardware, we don't have a margin of 70%. We have a much lower margin, which is still pretty decent, but it's a much lower margin.
When we sell our own IP, then the margin is 100%, basically. When we sell third-party software, you will have a different price point. Your maintenance services or your implementation services will be priced also differently. All this is making actually the mix, and this is the reason why you can have fluctuations quarter-on-quarter, especially in an inflation environment. Nathalie, if you want to give a bit more color, you're welcome.
Yeah. You know, we mentioned, the cost increase, that create the fluctuation depending on the mix. There are variables, based on what is being executed within a given quarter, that results into the gross margin being impacted favorably or not.
Today, indeed, we are in a cost inflation environment. We are implementing today projects that have been sold a year or a year and a half ago as well. When you sell a project, you fix your price. Again, you are saying it's a bit of a delay of inflation, but it does not reflect an inability to price. It just reflects, you know, that again, this is a market that was set in a way that was set actually for a non-inflation world. Now we are in an inflationary environment, but it's a bit of a time adjustment as well that we need to have in this. I hope it clarifies, Laura.
Yes, it's very clear. Thank you.
Thank you. Our last question for today comes from Alexander Craeymeersch of Kepler Cheuvreux. Please go ahead.
Hello. Just wondering on healthcare, how much was the order book percentually in Q1 last year versus EUR 245 million you had on a full year base in revenue? Second question would be, given the central procurement in China, where I remember you recently had some local success in terms of project wins, could you just give us some insights into your development in project wins at the national level? Then the third question would be how we can now expect working cap to move over the rest of the year, given that the inventories have increased again in the first quarter. Thank you.
Thank you, Alexander. First on, HealthCare IT.
Yes. The other question.
I'm not sure we fully got the question actually, Alexander. Maybe if I can ask you to precise the question just to make sure we are giving you the answer you need.
Well, I'm trying to quantify a bit the number of the order book in an absolute level. I mean, the order book is up so much percent, 35%. I was just wondering how much is it in an absolute level? That's why I was asking for the order book, how much it was percentually in Q1 versus the full year.
In absolute level, the order book. Okay. first, we have not communicated absolute numbers on the order book. What we are communicating here is really the order intake of the last 12 months versus the last 12 months. Okay?
Mm-hmm.
This is what is up 25%. Okay? That's order intake for the quarter. Order intake is a flux, is a flow. Order book is an inventory, okay, is a stock. The order book, actually also for the first quarter has increased quite significantly, reflecting exactly what we say. Meaning we have a bit of a delay of an implementation in the order book. Okay? That's what I would I want to convey to you. The order book has not increased by 25%, but it has increased double digit versus the end of the year. Okay? Again, order intake is a flow. This is what we take as new orders in the quarter.
Order book is our stock of orders that we have yet to deliver. Okay? I hope it clarifies.
Okay. On the order book, where you are standing right now?
Order book, we are standing at the end of March, double-digit more than the end of the year, actually. We have chosen to communicate on order intake, which is a key leading indicator, which is again, the flux, the number of order we take in the quarter, in the quarter that we compare to last 12 months. Where are we this year versus the last 12 months on a rolling basis? Okay? We give also, the second number we give is actually the, what we call the highest value component of the order book, which is own software. Here we say the overall order intake for the quarter, sorry, for the quarter order intake +25%, own IP +35%, reflecting the quality of the order intake. Okay? Nathalie, do you have anything to add?
your second question regarding working capital quarterly.
Yeah, I would continue to say that we'll see the similar seasonality that we see as before, which means usually in Q1, there's a strong buildup that continues over Q2 through Q2, and then eases off in the second half of the year, getting to the lowest point in Q4.
Yeah. We are emptying, I would say, the inventory on some key products by the end of the year. You have absolutely a seasonal pickup in during the first half and a decrease during the second half of the year. This is, this year will be probably different. What we are trying to do is actually to make the increase a lot less than the year before, but we still have an increase in Q1. It's absolutely unavoidable for us. That was it or have I forgotten something, Alexander, I think?
Yes. I understand.
You were asking about China, right?
That's right, yes.
China, as I said, we have learned how to play the game of the VBP. We indeed had the first success on tender this year, but it was relatively minor. It was for us a kind of a good test. The real story is actually there is right now a VBP process on five provinces that have regrouped together, and this is really where we are expecting right now the results. I cannot tell you more at this point.
Okay. At national level, you cannot give us any more?
No, I cannot tell you. I don't see anything that would be different that we have planned for. There are things in.
What is the plan for?
Happening right now. I don't have yet the outcome.
What did you plan for?
Sorry?
What did you plan for? You mean the guidance?
No, we stay with the same thing we stayed all along, meaning radiology will be stable for the year.
Okay. If you win this tender on national level, you will be increasing that guidance?
I'm not sure I got the reasoning, Alexander. If we win, it doesn't mean we need necessary to win more volume in this tender, and it's not a winner takes all kind of tender. It's basically an allocation of volumes in provinces. I'm not expecting, well, I would not be expecting a significant share shift in this area. No.
Okay.
I think it's gonna be pretty stable. Okay?
All right. Thank you.
Any other question?
At this time, we have no further questions in the queue. I'd like to hand back over to you for any additional or closing remarks.
Thank you very much. Thank you very much. Thank you very much for all being here. I repeat, start of the year, indeed, that shows a strong rebound of DPC Radiology, which is pretty much in line with our expectations and HealthCare IT implementation that is a bit more complex. Again, I want to stress that nothing is broken and that, on the contrary, we continue to make inroads actually in the market, showing that our product and technology are well suited. No worry there. Again, HealthCare IT is a project business. You can have very different results quarter to quarter.
This being said, the more we will go to managed services and tomorrow probably to a subscription model as well, the less this will be lumpy. That's a transition that will be taking a lot of years, of course. Thanks very much for your attention, and speak to you soon. Thank you.
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