Pascal Juéry, the CEO, to begin today's conference. Thank you.
Very well. I'm sitting in Mortsel, with Dirk De Man, our CFO, Viviane Dictus, our investor relation head, as well as the executive committee of Agfa. Welcome to this conference. Let me start by saying that, as you know, Agfa is a company in full transformation. Before I dive into the 2022 results, I would like to remind everyone what has been achieved in terms of strategic roadmap for Agfa in 2022. First, portfolio. 2022 was a year where we announced the divestiture of Offset, which is still due to close in the first week of April. It's a year where divesting Offset, we are investing in digital printing with the acquisition of Inca. That was concluded at the end of the first semester 2022.
In terms of portfolio, we have also made a decision that we are announcing officially today that we are gonna invest in an industrial facility to produce ZIRFON, our low carbon hydrogen membrane, in our site in Mortsel, Belgium. Quite illustrative of the strategy of the company, invest in growth-oriented areas of digital printing and the membrane for the energy transition. At the same time, this transformation was also done in terms of operating model. In 2022, we executed the IT outsourcing, partnering with Atos. We have also implemented a global business service model, which is a blend of actually automation of processes, externalization in some cases, and offshoring of some of the activities.
At the same time, in terms of transformation, we have also refreshed a number of top talent in the group. Namely, and she's here today with us, in HealthCare IT, where the head of HealthCare IT will comment on the business later in the presentation. We have also changed more than half, I would say, of the global leadership team and rebalanced really the presence in the U.S., which is a key target market for us in this activity. We have not done only that. We have also refreshed, I would say our business management lines in DPC, rather at the end of the year. We made also a key change in the management of our direct radiography business in the Q4 of 2022.
Quite a heavy transformation year. By the way, you're gonna see some of the consequences of that in our accounts. Dirk De Man will explain to us what all this is creating. On the strategic agenda, I would say rather a full year in 2022 and a good execution of the strategic roadmap that I have explained, I believe. This being said, we have done that in a very complex environment, and this is where I turn now to results itself, and indeed a difficult business year overall for the company, mainly for three reasons, I would say.
The first reason is, of course, we've been hit with an inflation that was actually increasing a lot faster than what we could ourselves, actually, reflect in our pricing to our customers. There is a lagging impact of this cost inflation that is very visible in our results, and I would say especially in DPC, but not only. That's also partly the case for radiology. The second part is, the total sales of Agfa was about 20% going to China. China in 2022 was not a very good story. The reason being, twofold.
In fact, a specific COVID situation whereby in nine months of the year, about 25% of the Chinese population was under, I would say, COVID lockdowns, which had in turn a huge impact on the volume business. Of course, and that's not only for radiology, but that's also impacting DPC, where we have markets in China for industrial inks, for electronics chemicals, for instance. Last but not least, we've seen also the first impact of a softer demand in some of our markets, and that's especially the case for Offset. We've seen a second half in terms of volumes that were specifically well below our expectations and due to this economic, I would say, softer demand in some of the markets.
Overall, quite a contrast between a strategic agenda that is, I believe, fully delivered and where we are making progress in repositioning the group in growth-oriented segments and a difficult business year for 2022. If we look at it in more details, what does it mean? Overall for the group, it means our EBITDA decreased by 9%, versus 2021. As you will see, with quite contrasted performance between businesses. Business by business, key comments. HealthCare IT, I think the world is really momentum. As I told you, it was a year of change for us. Changing the management team and replacing it in the U.S. is now done.
I'm happy to say that, while doing that, we were also able to impact very positively the leading indicators of the business. You will see it, everything is in green. Order intake increase, the mix of order intake, top line growth for the first time, recurring revenue. The only thing is we had to reinvest post-COVID in a bit of resources, whether it is on R&D or commercial area. It did not translate in 2022, therefore, in the monetization of this growth, but it will in 2023. DPC. DPC is probably the business that suffered the most, especially in the second half of the year. We are gonna come back in more details.
The good news is, overall, the business itself and the demand is going quite well, except in some specific areas where we are exposed to China and specific markets. The big story is, we have not been able to increase prices fast enough in DPC to face the very strong cost inflation. All price increases are now in place, and we're gonna discuss the outlook, and it's being done. What we have done as well, in this context is we have streamlined the DPC operations, and we announced a restructuring actually of DPC with about 50 FTEs being impacted in different parts of the company.
We also had impacting the performance of DPC, I would say things that are actually rather positive for our future. Meaning we had higher costs than expected for ZIRFON as we were ramping up production. You have extra costs. We did this ramp up during Q4, and we are continuing to do it during Q1. Short-term, it was indeed a bit costly. Inca did not. We made the conscious choice to start selling Inca machines with our inks, meaning we didn't have any Inca machine being sold during the Q4. The first ones will happen during Q1 with our inks.
The reason being, you know, as you know, we are looking for the full solution model in Inca, therefore it's also hitting us in Q4. We have a bit of one-offs, including industrial inefficiencies that we suffered in Mortsel in Q4 that amplified, I would say, the situation in DPC. The message I would like to pass immediately is that what you've seen in Q4 is not a running rate, we are going to see already in Q1 a very, very material improvement in DPC from all this action. I want to stress that I remain very positive because Inca, as I say, we are selling, as I speak, our first machines with our inks. And things are looking good here.
ZIRFON membranes, one number, I mean, we are going to make more ZIRFON in the Q1 2023 that we did in the full year 2022. That is taking off very rapidly, and I remain positive. Radiology had a very difficult year. Really China is most of the story as far as film is concerned. Just a number. A typical printer printing on our film is consuming about 10 boxes of film every month. In 2022, this number went down between 6.5 and 7 boxes. Reflecting what I told you on the COVID lockdown impact. I am happy to tell you that, starting Q1, January and February, we are back to normal. We are back to 9.5 boxes of film for printer per month.
The usage of the printer and the consumption is actually getting back to normal in China. Volume was part of the reason. We still have margin pressure in China. The reason is pretty simple. We just cannot increase selling price of film in China as the value-based procurement process is still being deployed, although it was a bit on halt in 2022, but no price increase is possible. We are increasing prices in non-China markets for film, which represents about, roughly speaking, 50% of the volume, but do not have the possibility to do so in China.
In DR, I think it was a year where we have improved our position in 2022, and as well, we have streamlined our operations. We have announced very stringent cost measures in this area, including the shutdown of our office, our head office in Munich, and a significant reduction in our operations. Offset, last but not least, a very good turnaround after a couple of years of very hard work by the team, working on the rationalization of cost to serve and our assets. At the same time, having a very resolute price increase policy means Offset was back on track in 2022.
The only comment I would make is the end of the year was very soft in terms of volumes, huh. We've seen the volumes in Offset, mainly in the commercial printing area, going down starting in July. That accelerated actually in Q4 and especially in Europe, huh. This being said, we believe there was also a lot of destocking being happening in this business, and we expect also a gradual recovery in this sector, maybe at the end of Q1 or certainly Q2. I think we see the first signs today at the end of Q1 of a volume recovery. Overall quite an eventful business year.
I will turn to you, Dirk, to comment a bit the impact on our accounts of the portfolio moves and this business.
Indeed. Thank you, Pascal. Indeed, there are quite some large accounting impacts that we need to discuss. First, expectation is the closing the first week of April, and some of you might expect that we would have already accounted for Offset as an asset held for sale. The key thing is that the criteria at year-end were not yet met, and that's really related, and I think I talked about that previously as well, due to the carve-out that we need to do in U.S., Canada, and North America. Which is really about carving it out and implementing new systems to run those new entities. That will be completed by the end of the quarter, and then subsequently we will do the closing in Q1.
Not booking it as asset held for sale, doesn't mean there aren't any accounting consequences that we take, and those accounting consequences will be taken in two steps. According to IFRS, we needed to at year-end, already impair the non-current assets, and that we took for EUR 41 million. In addition, we also had to impair deferred tax assets, which are indeed not gonna be recoverable anymore, some transaction closing costs in the amount of EUR 13 million. At the end of Q1, the criteria will be met, and we will account for it as asset held for sale. We expect we'll need to do the full remaining impairment that we think will range between EUR 45 million and EUR 60 million.
The range has more to do with the amount of working capital 'cause some of it will be compensated from a cash point of view, but that depends on the levels. Obviously, other criteria will play like exchange rates and those kind of things. That's a, quite a big impact that we had to take. Second, radiology, as you've seen from the year results, the performance went down quite substantially. Therefore, in the impairment testing, which by the way, was also done with higher weighted average cost of capital due to interest rates rising, indicated that we had to impair the intangibles on the books for radiology. These are old acquisition-related intangibles. We impaired actually all the goodwill and some small customer list amounts, in the amount of EUR 73 million.
Finally, the deconsolidation of Offset from our tax unities, as well as the lower performance of radiology, also have consequences in regards to tax, where we took an impairment for deferred tax assets that, in the end, it's off the books, it's a non-cash charge. Doesn't mean that those tax credits can't be recovered, but from a IFRS point of view, it would take too long to recover them, therefore, we had to impair them. The normal cash expenses would normally, and I'm talking P&L now, only, would have been around EUR 15 million. So we booked about EUR 27 million extra than normal.
From a cash point of view, we had some cash charges for tax around 15, which is actually about EUR 5 million higher than we would have had if we did not have the carve-out efforts for Offset. There was about the deconsolidation and splitting up entities due to Offset. For 2023, just as a heads-up, we expect them to be below EUR 10 million. These are all non-cash charges and do not affect the cash tax charges. Back to Pascal.
Indeed, quite an impact on of course, the portfolio transformation. If we turn to the P&L, I'm not gonna stress, I think we already told the story, but indeed for the year, minus 9% EBITDA. A Q4 that was a bit below as well. But you can see that in terms of gross profit, we are already recovering part of the margin overall at Agfa level.
Of course, if you look at the rest of the P&L impacted by all the elements that Dirk has presented, we are of course presenting a significant loss reflecting the changes in the portfolio and the radiology impairment. That I'm gonna skip because I guess we already commented almost everything. The only thing that probably we need to comment on this slide is there is also a positive impact of in the net pension liability. Dirk, if you want to.
Yeah, I will comment later in the slide.
Okay. You will comment. Let's turn to cash flow, maybe.
Yep. Free cash flow, let's look at Q4. We obviously we had some lower EBITDA, but also in terms of trade working capital, we probably recovered a bit less than we would have liked. There was a less release versus the year before. In terms of CapEx, we spent a bit more. We have been decreasing CapEx over the past periods quite a bit. What is happening is also for extending the capacity on the existing ZIRFON line. We are investing to speed up production and to be able to produce more. That's a key explanation for those. In terms of income taxes, Q4 was much higher than normal.
That's due to the deconsolidation of Offset and the carve-out activities that we had to take, leading to an adjusted free cash flow of EUR 31 million. Pensions at EUR 8 million below last year and in line with expectations, but also a heavy quarter in terms of restructuring and non-recurring, basically supporting all the initiatives. As you know, the extra announcements came in also regarding restructuring in radiology, primarily in Germany and also in DPC to reduce the costs. Free cash flow is slightly negative, if we then turn to the next page, obviously, there you can see the bad performance in terms of trade working capital.
Over the year, and I will come to working capital later, working capital has increased quite a bit, driven by a lot of things, mainly inflation and cost increases in efficiency in the supply chain. That's really something we need to work on. In 2023, that will be a key priority to try to get that down. CapEx for the year at EUR 33 million. Again, as I said, a bit higher maybe than last year, but not too much. Obviously, as we announced also the investment in the ZIRFON plant, that will increase in 2023. Income tax is at EUR 15 million. As I mentioned, EUR 5 million you can relate to Offset, EUR 10 million would be the regular.
I think next year we can count on less than EUR 10 million in terms of income tax cash flow. Pensions at EUR 39 million, in line with expectations, obviously restructuring and non-recurring items, very heavy cash cost in 2022. All the programs are coming into execution. Some of that is still related to, for instance, the previous year, the programs that we executed then. It's a very high cost over the year, leading to an overall free cash flow of minus EUR 127 million. If we look at the net cash position, obviously the impact there is bigger than the free cash flow. Just to remind that for the Inca acquisition, we had a cash out of around EUR 48 million.
There was also the share buyback that we executed in 2022 for about EUR 21 million. There was also quite an important exchange impact on that financial debt of about EUR 13 million. Meaning this is the cash that is not held in EUR across the globe. Finally, as part of the structuring for Offset, we also had to reduce the cash balances in the Offset entities and repatriate cash. Some of that was in the JV. There is about EUR 10 million of dividends that were paid out to the JV partner as part of the repatriation of the cash.
If we then move to working capital, as you can see, the Q4, we saw a decent reduction, let's say, from 31% of sales to 28%, but insufficient to get back to the performance of 2021, which was at 26%. overall, EUR 73 million higher working capital overall. As you can see, the key effect there is in inventories. Inventories obviously also include Inca. At year-end, roughly around EUR 20 million of Inca inventories, which were part of the acquisition. They are not part of the cash flow that I presented earlier. That's already a good chunk. Operationally, we did have EUR 49 million of increases.
In trade receivables, we remained more or less flat also in terms of days, despite the fact that there was quite an increase in contract assets in HealthCare IT. In HealthCare IT, as we sell to the to the U.S. government, the Department of Defense primarily, that means also that their billing cycle looks a bit different than with normal companies. These assets remain a bit longer in assets, contract assets, which then turn into receivables, which then turn into cash. That's actually a good thing that we have been able to achieve all those nice contracts with the U.S. Department of Defense.
On the other hand, it does create some delay in collection over time in turning those into cash. Payables, yeah, obviously they are reducing in terms of days, but that's also part of the efforts that we try to reduce the inventories at year-end. As Pascal mentioned, some soft demand did not allow us to reduce as much as we wanted to.
No, I think we missed, working capital for Offset and HealthCare IT.
Yeah
Actually, mainly. For HealthCare IT, it's due to the billing cycle of government, so it's really a temporary issue. Although we are increasing share in this part of the market, and we are very successful actually in this part of the market. Offset is due to the steeper than expected end of the year volume decrease and something we are gonna recover through the closing as well. Next, let's turn to HealthCare IT. I thought it was a good idea for Nathalie. Newcomer now more than a bit over one year now.
Yeah.
To explain a bit how she sees our business, because 2022 was again a transition year. As I said, management has changed. A lot of changes were made during the year by Nathalie.
Thank you, Pascal. Good morning. 2022, as I came on board at the very beginning, was really one objective, was really about reignite growth within HealthCare IT globally, with a key objective in the U.S. market being our largest market, but also our largest potential as we move forward over the years. You know, as we ended the year in 2022, clearly delivered some top line, healthy, positive indicators as we're looking at the future. We grew our order intake drastically by exactly 18% year-over-year above my expectations. We grew our sales by 4% year-over-year. Most of all, as we are in healthcare and the software industry, customer satisfaction is key.
Creating customer stickiness and satisfaction in the long term is a very important indicator as we move forward. Our customer satisfaction returned to normal in some cases and very positive in some others. We repositioned Agfa HealthCare among the top performance in the industry by the end of the year, as we were recognized by KLAS, which is the key organization in this industry. Unfortunately, our top line growth did not yet translate into some EBITDA growth. With that said, we knew 2022 was a year of transition. We made some investment towards growth. We invested in innovation.
We invested in acquiring expertise and talent, we also invested in stabilizing our customer base, which was critical, as I said, as we move forward. We grew our footprint within some key customers. Dirk mentioned the U.S. government, the Department of Defense. This is what we qualify as a top quality customer in the U.S. Very high loyalty, regularly invest in. That was a target of ours, and we accomplished that target. As far as we look at this past year, we generated the right positive growth, but most of all the right momentum as we enter in 2023. As we move forward, the one key objective this year is execution.
Execution on the large volume of orders that we brought in 2022, and with that, delivering profitable growth and, you know, targeting to reach the high-teen EBITDA over the next few years.
Of transition, but I would say a really a year where all leading indicators are in green and we are really preparing and executing on a profitable growth strategy. And I'm very encouraged by the direction of the business. Radiology, a bit of a different story. As we said, a very difficult year, especially for film in China. The good thing is in Q4, we were turning a bit this corner. As you see, this is the Q1 of the year where we were above actually last year. And also, if you look at the gross profit, we start seeing also some of the price actions we can have in this market
This being said, although I expect for 2023 volumes to be back in track in China, we will still have the same pressure on margins in China. The situation has not changed. If anything, there will be probably a resume the VBP approach in China. Therefore, I expect a positive outlook for volume, but I remain very cautious on margin. We have price increase initiatives in all geographies but China in film that we are currently deploying with for the timing, I would say pretty good success.
DR improved in 2022, and especially we had a very good second half of the year, and we expect this trend of improvement to continue over 2023. Overall, overall radiology, I would say, what to expect in 2023 is probably overall stability, with China still weighing but being made up by some progress elsewhere. DPC, again the most complex business by nature, and here the Q4 results are showing you that indeed, as inflation was building up during the year and as you know, in Belgium, we also have a specific item, which is a salary indexation, that's impacting us very much, as we have, I would say 40% of global headcount in Belgium.
That reflects the inability that we had to increase price fast enough in order to make up for discussed inflation. As I told you, the Q4 results are also impacted by specific one-offs that further impact our results. For us, we already reacted on two fronts for DPC. Actually, we didn't wait for the Q4 results to react at the end of November, so we announced a restructuring of the business, and we also announced for implementation in Q1 price increases between 10% and 30% in virtually approximately all the product ranges of DPC. I don't think there is a single exception. This is being executed during Q1.
I would say most of the execution is going well, as far as I can see, although we still have a few question marks on some business line. However, when we look at digital print, what we are seeing right now is, I think a confirmation that, you know, when I was looking at offset activity going down during the second half, that was not the case for digital printing and, for instance, selling inks in digital printing, we didn't see any weakening demand actually in this area, which confirms, you know, the right positioning of this technology within the printing market. Inca, as I told you, we hold on to
We held on a bit to sell the machines because we want to sell it with our inks. Actually, that's what we are gonna do right now, and we are still very exciting by the prospect and really 2023 will be the year where we're gonna materialize this synergy. The other fun take off, I'm not, I think I'm not, I've said it already. I think, what is amazing is also the number of customers that actually working or testing our membrane over 100 today. We are actually scrambling right now to follow demand.
We are implementing another increase in our finishing capability, meaning the cutting and the packaging of the membrane, which is a very delicate part because it's a very fragile product. Everything that we see in ZIRFON, although we were a bit conservative in our business, is actually better than what we expect. As I told you, we'll make more in Q1 than we did during the full year of 2022. This will be the year where it starts being a real business. We have announced this investment in a new plant. It's gonna be ready for the second half of 2025. Of course, the time to build is quite significant, as you would expect.
We want to position ourselves in the market to make sure that we can meet the demand. When you look at the capacity that is expected for electrolyzers today, and this is a figure that is still evolving positively almost every year. We need to be there for our customers, and that's what we are doing with this investment. This being said, again, we after a very dismal second half of 2022, I think 2023, we'll see a very clear recovery for DPC, mainly coming from pricing, our cost actions and our commercial progress in growth areas like the Inca product range and the ZIRFON membrane. That's really for me, the story here. Offset Solutions.
Well, Offset Solutions, very good year, but a poor, Q4. Very good year. You can see it, we were successful to increase profitability of the business, mainly I would say restoring profitability through pricing, but also very stringent cost control, as you can see in SG&A. Actually, very, very well under control as well, as for R&D in an inflation environment. Q4 was just impacted by the higher decrease of demand than expected. Actually, just to give you a figure, in Europe, we had more than 20% decrease in demand in Q4, which was a bit more than expected and reflects also some inventory reduction in the supply chain.
Well, this being said, as you know, the focus right now. However, the good thing that I need to stress is in this volume decrease environment, price discipline was absolutely maintained, huh, there is no price leakage coming from this volume environment.
The only price adjustment that were made was reflecting the price of aluminum, which went down a bit. Apart from that, discipline remained in the market, absolutely intact. I think today our focus is really the closing of the closing of the business, and we are of course, that's the main focus of the team to deliver this closing and establish the right relationships, future relationships, 'cause we'll continue as Agfa to supply a significant number of consumables to Offset business. If I look at the outlook, and I probably already discussed about it, what we expect is a recovery in the year 2023 versus 2022. I think 2022, we did a lot strategically, huh?
Doing everything that we did was also quite a heavy workload for everyone. I think 2023, it's about execution, and it's about really execution of the business, from price increase to working capital management. We do expect a recovery. HealthCare IT double-digit growth in EBITDA is expected, and we've got everything that it takes to generate it with the very dynamic order intake as you've seen on a very solid order book. Radiology, I say stability because indeed, I'm a bit cautious about the China evolution, which is not totally clear at this stage. We expect again a recovery on volume, but still pressure on margins.
We will continue to progress also in our DR activity in 2023. The continuity of what we've seen in the second half of 2022. DPC is the main area of focus. We are expecting to restore the profitability. We want to be absolutely back. Again, it's based on everything that I described already, on pricing, cost actions, Inca and ZIRFON. Pension, Dirk?
Pension, yeah, indeed. As you can see, the pension net liabilities decreased quite substantially. Part of that we already took in the first half, that continued on the trend. As you can see, obligations almost decreased with half a billion, also the assets went down with EUR 320 million. The reason why the assets went down is because most of the funded plans are hedged against the liabilities, therefore they move to net reduce the volatility of the pensions. That means the big effect is really coming from the unfunded plan in Germany. Where does this come from? Basically, discount rates, that's the primary reason. In 2021, the discount rate, the blended average discount rate was 1.44%. In 2022, it was 4.33%.
That's a very big increase in discount rates. Very positive effect on the net liabilities in the pensions. If we move to the next slide, I'll show you the P&L and the cash flow. In terms of pension costs in EBIT, as discount rates are increasing, your service cost in the P&L is decreasing. As you can see in 2022 that was EUR 5 million, and we do expect that to continue in 2023 with another EUR 4 million. On the other hand, the interest cost that we need to take into the financial charges is increasing in line with the increase in the discount rate.
In 2022, that was a EUR 1 million increase, but for next year, and that will then have the full effect of the increase in discount rate, it is expected to be EUR 11 million. Now, although negative for the P&L from the cash outflow point of view, we continue on the trend that we communicated. In 2022, it was EUR 55 million from a total cash point of view on the material countries. In 2023, including offset, it would have been around EUR 54 million, so decreasing another EUR 1 million. We already showed you the number, how it will be excluding offset. There will be another reduction of EUR 3 million from cash point of view on the pensions. That's quite a drop versus the, let's say, the EUR 64 million in 2021.
The cash charges are drastically decreasing and will continue to decrease, over time. Back to you, Pascal.
Very good, I'm gonna end up with sustainability. We're not forgetting sustainability. It's absolutely embedded in everything that we do. First, CO2 emission reduction project. Well, we already did, and every year we are doing specific projects to do CO2 reduction. We have started, we are starting in 2023, actually a roadmap for the Mortsel site to start decarbonizing the site and decreasing our gas consumption at the site. We will be investing in new energy producing devices, electricity powered on Mortsel. That should allow us in 2024 to have a first step in decrease our emissions by 15%, huh? Which is quite sizable. The objective that we have is to reduce our CO2 footprint by 2% according to the Paris Agreement.
On people, we have started a DEI initiative during 2022 that is now in place. We will further it during 2023 with specific actions. We have created different employee resource groups working on different topics of DEI. We have our objective also to increase the number of women in the workforce of Agfa. We are already hiring a lot more women than currently we have in the company. We missed our target of 37%, which was a bit ambitious maybe for 2022, but today we are hiring at the rate of about 33% women, where we have about less than 25% women today in the company. We are making progress, huh.
Sustainability, we have also brought sustainability at the level of the executive committee because Gunther Koch, sitting in this room, is in charge of sustainability today. We have confirmed our rating with EcoVadis, which is for the time being, at the bronze level, but we have increased our performance year on year, and we will continue to do so. We have also introduced a concept of actually it's not a no-hold-back concept, it's a progress in terms of sustainability concept. Meaning, we will not put in any solution in the market that does not bring a specific progress in the sustainability area.
That's a commitment that we are making. No innovation project is being started without being checked on this metric of sustainability. I'm gonna of course take your question, but let me just wrap it up. 2022 was a very, very heavy year in terms of implementing the strategic agenda of the group, whether it's portfolio, operating model, and people and culture. 2022 was a very difficult year in terms of market with China and cost inflation, really the main challenges.
We have put in place all the corrective actions already, I would say in Q4 of 2022, in order to make sure we can recover DPC, but also we will see a specific growth in our target areas in ZIRFON and in digital printing. HealthCare IT as also is showing for me a very good promise in terms of being able to get profitable growth for the years to come with everything that we have put in place. I'm gonna stop here and of course take all the questions you might have, maybe starting with the room, Vivian.
Yes, yes.
Thank you.
Yes.
Thank you. Guy Sips, KBC Securities. You were hinting for price increases only later in China. Can you give us some timing? What quarter would you expect that? I'm talking on film. Yeah, also for in radiology, you said that you expect overall stability, so no Revit margin improvement yet. Is that compared to the Q4 or compared to the full year 2022 numbers that we saw? That's my first.
Well, film radiology, to be clear, I'm not expecting any price increase in China. I'm expecting price increases in China in DPC, in some other areas, we are doing that, actually. In film, in radiology film in China, I'm very clear, no price increase is possible at this stage. That will not happen. What will happen is, we believe, is a recovery on the volume, we will continue to have price pressure in China. I want to be very clear. The price increases in film radiology is in all geographies but China. It's being implemented in all geographies but China. That I want to be clear. When I talk about stability today, I'm talking about the overall level of the overall level of the year.
I'm not expecting any improvement due to this uncertainty in China. This is one factor. Did I address everything? No? Maybe not.
Yes. The second question is on the investments that you're planning to make in ZIRFON.
Yes.
Can you give us, quantify us a little bit the CapEx numbers. Yeah, what will be the total amount that you will spend until 2025, and what will be the impact in 2023 already?
In three years, so it's basically it's gonna be spread over three years. The amount that we can say, it's around EUR 40 million. Okay? In three years. Should you divide it by three? Maybe not, phasing will be probably, I would expect for me that the, the main cash out year might be 2024, actually, not 2023, given the fact that we are starting during the year in 2023. I don't have any precise guidance on, on this.
Yeah. Maybe to answer that, indeed, in 2023 and 2024, the CapEx levels will increase. I would say in 2023, it would go somewhere in the mid-forties for total Agfa and the year after, around the mid-fifties. For the whole group. We do expect it to come down quite substantially the years after.
Yeah.
This is really a two-year boost.
Two-year boost, yeah.
The years after, it would probably be more in the twenties, so
Let me add as well that we are currently applying for European subsidies for this investment. We have actually two files that we are building. One is already, by the way, filed, I think
Yes
or being filed. Therefore, we don't. Of course, these numbers do not take into account these potential subsidies. What can we expect in terms of subsidies? It's a little bit unclear, but that could be a significant portion of the investment. Typically, it's about 25% to 30% of the investment that is potentially available in terms of subsidies.
One more, sorry.
Yes.
Yeah, okay. Perfect. Kris Kippers for Degroof Petercam. Two questions from my side. Firstly, coming back on the lag and price increases. I think we've heard indeed that you have raised prices consistently. However, I get the impression that there is a lag between, I don't know whether it's timing only or is it also just a difficult estimate of what your real cost increase is. I mean, I'm just wondering, how can price increases still now be an issue given the fact that we have all these data and that you're often a leader in your segments, or is it something specifically?
No. I frankly speaking, it's a bit like we were at the same time last year for Offset. It's just a question of the implementation is coming at the end of contract and is coming in. You will see partly in Q1, and it will continue in Q2. It's just a phasing issue. There is nothing else than a phasing issue. I think we know pretty well where we are in terms of cost, but it's just a phasing issue.
Remember that in some of the things that we do, we have also a natural lag, because basically, as I said, when you take an order for equipment, you will deliver it and recognize it probably three to six months after typically. Therefore, if you increase the price now you have a natural lag. Inflation has been building up consistently during 2022. Most of our contracts are yearly contracts. Does require, I would say a specific specific deadline. I repeat, everything is. Everything. Most of the price increase are already in today, announced and executed. Vincent, you want to give some color on this?
Does my microphone work? Yes.
It will.
Thank you. That's totally correct, Pascal. I think one element is the sales cycle. There is indeed for certain products, the sales cycle is a bit longer than for other products. There's a bit of a lag there. It's the fact of continuous increases that we have to push, of course, to the market, and that will now be for 2023 also to be done to a higher level than in 2022.
Okay, thank you. A second question relates to HealthCare IT, whereby we are, of course, very hopeful for the future, and we've now heard indeed already a couple of times next year will be good. I'm just wondering, how do I match the improvements on Department of Defense on the investments that have been made with, let's say, if you look now at the guidance, whereby you see that, yes, there will be growth, but there will be only, I would say, a double-digit EBITDA increase? Is that a prudent guidance, or is it just that it will also take time and we should see more effect in H2 than, for example, in H1? How should I see that? Thank you.
Well, Thank you. Thank you, Kris. First, to be fair, I always said last year that 2022 was going to be a transition year for HealthCare IT. The reason was very simple, with everything that we changed, I could not expect, you know, otherwise, and we needed to redo. Very clearly our priority is the U.S. and to be successful in the U.S. Now we are set up to be successful in the U.S. We were not at the beginning of 2022. That, that I can very firmly say it. On the guidance, when we say double-digit profitability increase, is it conservative? I don't know. I don't think so. It is, but that's what we are currently seeing.
I think really what we did in 2022 was absolutely necessary. We had two steps in this HealthCare IT story. The first step was to restore profitability. The second step was to create profitable growth. Restoring profitability was done, but I didn't have anything in place in order to create profitable growth. Now we have. Now we have all leading indicators that are pointing to profitable growth. I mean, that's the first time ever that we have such an order intake increase. I think 18% order intake increase, and it's not only with the government, by the way. It's across the board.
Every region.
It's all regions.
All.
All regions, by the way, that are showing this dynamism. We are creating this momentum and that was a momentum that we didn't have before, I would say. What is also very positive, as we said, is the customer satisfaction. It's a very dynamic market, and the word of mouth in this market is very strong. Let's face it, we had a track record that was a bit difficult coming from the past, as we brought technology that was a bit advanced and didn't probably deliver as smoothly. All this is behind us. We have issued a very successful release of our Enterprise Imaging system during 2022 that gives now satisfaction. We have turned this corner. We are turning this corner.
These corners, one after another, and therefore my confidence. I always said in 2022, there was nothing really to expect in terms of bottom line growth in HealthCare IT, given the changes that we were going to make and the reinvestment.
Yeah.
For instance, let me be very clear, we have also changed, I would say the strategic roadmap of the product. We are investing now to have cloud-enabled solution, to have web streaming for our products. We are looking at adding also new features.
technologies
new technologies, I would say, in our features. We have a very clear roadmap, which we didn't have before. Having the team, most of the team today placed in the U.S., which is where the action is also helping us a lot to move faster into the right areas of growth. Nathalie, did I. Anything?
Nothing to add.
None of it.
Yeah, no, absolutely.
Okay, thank you. I leave the floor to yours.
Hi. Good morning. Maxime Stranart, ING. Three questions actually on my side. First of all, again, looking at Agfa HealthCare here, I'm sorry for that, Nathalie.
No worries.
Do you see any project being postponed or, like, delayed with, like, inflation climbing up and the budget of governments basically shrinking? Secondly, on ZIRFON, Pascal, you mentioned that you expect the sales in Q1 2023 in line with what you did in the full year of 2022. Quantify what this represent in terms of value. Finally, consensus. As I said, EBIT is at EUR 36 million, excluding offsets. You did roughly EUR 13 million to 14 million this year, give or take. How do you feel about this consensus for 2023? That would be all for me. Thank you.
HealthCare IT, please.
Yeah. without getting too technical, our AGFA HealthCare solution that we sell to hospitals and health system
Mm-hmm
support and deliver productivity and profitability to those hospitals and health system. If you look across the world, the number one challenge that hospital and health systems are facing is cost, staffing shortage, and lack of expertise. We come in with our solution, we provide this flexibility, we enable them to reduce growth, to increase productivity and increase profitability. In year of a project paused or postponed, on the contrary, we have seen a lot of the project being accelerated. Our solution, you know, with many deals on the table, among others, for hospital and health system being prioritized and accelerated. I think that's one of the factor behind, you know, the momentum and the dynamic of the order intake growth in 2022. It's not going away.
It's just, you know, the challenge that they are facing, it's just going to keep going. Where is our confidence? In the, in the momentum.
Yeah. We are part of the story of for HealthCare IT. We are investment to be more productive. From what I've seen, I was also last week, by the way, in ECR, which is a radiology congress in Vienna, and I was at RSNA.
Mm-hmm
with Nathalie and the team, end of November in the U.S. Frankly speaking, I think there is also momentum in the market demand.
Mm-hmm.
I think a lot of players are looking at upgrading, so to speak, in this area.
Yeah.
I think it's positive. ZIRFON sales. Well, ZIRFON sales in 2023 will be difficult to say, but I can give a number. I think EUR 20 million to 25 million. Our budget was more EUR 20 million, and what we see today is more EUR 25 million, I would say. But we can still have. We have visibility on ZIRFON now because people are, players are placing orders quite in advance. Given the fact that it's a long supply chain, right, Vincent? We have visibility, and I would say today, we have most of our budget already in POs. We believe there will be an upside. The start of the year was also stronger than expected. Fair enough. You want to add too?
Absolutely. We see, I mean, last year the growth started and the explosive growth really continues this year, driven by all the many projects in the markets, and also the ramp-up of capacities of electrolyzer producers, which is really happening this year and next year.
By the way, that does not yet include the prospects of the U.S. market. As you know, the IRA, done by the Congress and Biden, is pouring billions and billions in this area. For the time being, that was a geography that was not really super active in green hydrogen, but it becomes to be the case. If anything, it's gonna open up a lot of opportunities because with these subsidies, green hydrogen is super competitive in the U.S. There will be a lot of activity also over there, which for the time being is not in our business plan at all, actually.
Mm-hmm.
EBIT, what you say is ballpark, right? That's our expectation for 2023, yes. Ballpark. Yes.
Very clear. Thank you for that.
Another question from my side. If you would look at 2022, would it be possible to give us some ballpark ideas of the negative effects of, on one hand, cost inflation, on second hand, China and the demand effects? Is that something you could share or is it tough to estimate?
It's a bit tough and it's a bit slicing and dicing. I believe, and I think it's quite visible from our P&L. I think the first factor for radiology is China.
Okay.
The first factor for DPC is cost inflation. The one-offs, yes, it's probably around the one-offs, in DPC that probably order of magnitude EUR 5 million for the year, you know. That's hitting our P&L. Most of it is cost inflation.
Okay. If you look at the future with the cash generation within Agfa coming back on the, on the pension, is there something else you could update us on, for the coming years besides 2023 in the sense of how are the plans, fading out? Is it the same structure as you provided us?
The pension?
Yes. On the pension side a year ago.
Yeah. Yeah.
There's nothing as old
There's no change to that. This is really based on expected cash, calculated by the specialists. We continue to expect the same trend as we communicated before. Yeah.
Okay. Clear.
In terms of cash also to be clear, in 2023, we will still have a bit higher CapEx as you understand.
Mm-hmm.
Less restructuring, but still the end of the restructuring drive, you know, induced by all our programs. That's gonna be really the last significant year in 2023 for this. Ben?
Yes. Thank you. Ben, I have a detailed question. You were very clear that film prices can be increased in China, everywhere but China, but it wasn't very clear to me on why that is. Why is it impossible to increase film prices in China?
Okay. There is a, to make a long story short, the government, the Chinese government is putting a lot of pressure on healthcare, on healthcare costs, actually, and have introduced a process of so-called value-based procurement process that is being deployed province by province. Which has resulted historically on price decreases in the China market. Today, the market situation is such in China that it's not possible to increase price. Indeed. I'm, again, very clear about it. Therefore, to be clear as well, I think you know, China is about 50% of the market, like China is always 50% of a global market, typically. And the industry needs to pivot.
The prices in China used to be the best in the world, actually. The industry now needs to pivot, and we need to make it up through increasing our margins everywhere else but China. That's what we are doing with our price increases.
Coming back to the restructuring costs, can you quantify that a little bit for 2023? In what amount?
Yeah.
Did I hear Pascal right, that he said that 2023 will be one of the last years with high restructuring costs?
At this level, yes, we will continue to have restructuring costs along the line.
Yeah.
That's for sure.
I would expect for 2023 to be in the thirties, in the low thirties.
Divided by two compared to this year, yea? That's what
Yeah. This year was 72, I think.
Yeah.
More than divided by two. Any other question? Yes, questions on the- Vivian, please, Yes, no. Operator? Operator, can you open for question online if we have?
Yes, we do. We do.
Oh, okay.
You take our question from Alexander at Capital Group.
Okay. Okay, Alexander. That's what, I was thinking about you, Alexander, of course.
Yes. Hello, Pascal. Alexander here from Capital Group. I have a couple of questions.
Yes
left. Most of them have been asked by my colleagues. Just wondering, you're talking about Offset like it's a continuing business, and obviously it's gonna be divested by Q1. You say that the target of working cap is 26% of sales, including Offset. How much can we expect in terms of decrease and percentage of sales when the Offset is divested? I'll take that as the first question.
Yeah. Well, actually, this is a reverse. Offset tends to have a lower working capital on sales than the rest of the business because the supply chain is a bit different, I would say. Actually, when Offset will be divested, I would expect a higher percentage on sale, and of course, a much lower absolute number for working capital. I'm not sure it's easy for us to
Yeah. We need to calculate. I think we haven't done the exercise.
We can follow up on that, Alexander. Okay.
What we absolutely want is to reduce the working capital, excluding Offset.
Yeah
that's a program that we'll be working on, in 2023.
Okay.
And, and yes
And then
yes
Yes
let me be clear, you know. We own the business until the first week of April. As long as we own the business, we take care of the business. It's not an ongoing business for me, but I want to make sure that everything is okay.
Okay.
Yeah.
Yeah, go ahead.
No, no, go ahead. Please, please.
Yeah. I was just wondering, Maxime just asked the EUR 30 million of EBIT for 2023. If you say stabilization in radiology and improvement in HealthCare IT, and then also an improvement, significant improvement in DPC, that doesn't add up, right? You would quickly arrive to a higher number. I was just wondering what's the rationale then we need to take to arrive there?
I said ballpark is okay, this number.
Yeah.
I can. Well, we know what the objective is. Actually, it's a bit higher than that indeed, for us. We don't give a precise guidance at this stage as well.
Okay. Okay. That's clear. Wait here, I'm just going through my questions here. Yeah, maybe one question. I mean, there was a lot of talk about some building developments that possibly happening at one of your sites. Is there any possibility that some of the properties will be divested in 2023?
Frankly speaking, what we are focusing on right now in our campus is to have a more rational occupation of the buildings, which will lead us actually to concentrate our presence to a smaller number of buildings, and therefore emptying a couple of buildings in the campus. However, we have yet to define, I would say, a kind of real estate end game for us, and I'm not expecting in 2023 that we would be already selling some of our property in Mortsel. However, indeed, it's an open subject for me. The first phase, again, is to rationalize the presence on site.
Okay. maybe as a last question, if I may ask, what's the price elasticity now for DPC? Because if you say, "Okay, we wanna increase our prices again in Q1," but the demand is already softening, what do you think the effect will be there on your volumes then?
Well, your question needs to be addressed in a much more granular basis. I can tell you already in things like inks or services, no impact. More or less. I think the price volume elasticity, we need to pay attention for it, but we need to look at specific product ranges. For instance, our synthetic paper, SYNAPS, we have been increasing prices already 3x or 4 x. We are now testing the limit of the affordability of the paper. We will adjust, you know, line by line. The only, I would say, difficult, the most difficult area for us to increase prices in DPC is PCB films in China. That's probably the most complex area.
All other areas, for the time being, the price increases are going pretty good. Vincent, what you
That's correct. Maybe also to the question of the softening demand. Actually, we have indeed seen on some of our markets last year that there was a softer demand, but for most of the year. So the electronics markets with PCB film and part of our ORGACON business, the other markets have been growing, and we continue to see that growing, be it on the digital print, with our captive solutions, be it in ZIRFON, be it in also the synthetic paper. Those are markets that we have seen growing and would continue to grow.
Vincent could you maybe, if possible, obviously, give us some insights on that maybe later in terms of what's the growth patterns in separate areas, disaggregated?
Oh, we can by ZIRFON three figures.
Mm-hmm.
digital printing, you're talking, you're talking probably, between five and 10, in terms of growth. SYNAPS and ORGACON, that's typically also double-digit growth. but not, not for ORGACON this year due to the. Normally this is a growth potential for these products, right?
Well, we have to also there be maybe a bit more granular. For instance would lead us to too much detail here, but ORGACON goes into
Yeah. Okay.
polymer capacitors, hybrid cars that grows 10%, but then the other part goes into anti-static applications for electronics, and that actually has been lower all of last year. It's, we need to be a bit.
Okay
more granular there.
But, but overall
Right
You've got. Overall, to your question regarding price volume, our current analysis is actually any volume we might lose in increasing price will be much more, will be winning much more on increasing price than retaining volume. We are doing this kind of price volume analysis, and it's very positive actually when we look at it.
Okay. Okay. Thank you very much, and I have an idea.
All right. Thank you, Alexander.
Sorry, last question from my side on ZIRFON.
Yes.
ZIRFON is now growing times three on a year-over-year basis for a few years.
Mm-hmm.
Yeah. Let's say work in Excel for the next few years, also times three.
Oh.
How many?
That's actually it's been more 4x than 3x for the time being, by the way. Now can you take it further every year? Well, it's not at some stage it's not gonna be doing that. Okay? What's your, what's your take on it, Vincent?
No, last year we did 3x. This year we should do more than 4x. Of course, you cannot continue to do 4x for the next 5 to 10 years, and that would be just impossible. But there is, I mean, the growth will be much more than double digits for the foreseeable future. Also linked to, again, the, both the hydrogen projects which are announced and. We will actually follow the growth of the electrolyzer producers. I think there is a bigger bottleneck if you want to address all of that growth. Europe has huge ambitions. U.S. now as well. The biggest bottleneck will not be with us. We will actually be able to follow the market growth.
I think there will be more bottleneck in the electrolyzer manufacturers who also have to build their plants to be able to build all this capacity.
All right. Again, I think we. Thanks a lot for attending the meeting. I think, indeed, again, I repeat, we have a very precise plan, you know. 2022 was about strategy delivery. 2023, it's about business delivery and execution of our program. That's really the way we are today focused. With one priority as well is cash management for the company in 2023. That's very clear. I want to repeat that. I remain a firm believer that the strategy that we are pursuing and the growth engines we are promoting are the right ones. It's been confirmed, even in this difficult business environment, we it's been confirmed in all these areas. Thanks a lot. Thank you very much.
Thank you all. Ladies and gentlemen, this concludes today's call. Thank you for your participation. Stay safe. You may now disconnect.