Hello, welcome to the Agfa-Gevaert half year 2023 results call. My name is Laura, and I will be your coordinator for today's event. Please note, this call is being recorded, and 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 of the call. This can be done by pressing star one on your telephone keypad to raise for your question. If you require assistance at any point, please press star zero and you will be connected to an operator. I will now hand you over to your host, Pascal Juéry, the CEO, to begin today's conference. Thank you.
Thank you very much, operator. Good morning, everyone, and welcome to Agfa's conference for Q2 results. I'm sitting here in Marseille with Agfa executive team, and of course, our CFO, Dirk De Man, and our investor relationship person, Viviane Dictus. First, I would like to remind everyone that the story of Agfa is a story of a company in full transformation, and that the transformation is in progress. About 50% of the group activity is with film, a mature to declining activity, whereby the other 50% of the activity is operating in the market, so that we believe represent the future of the company, and are offering significant growth opportunities.
It's still very much a company in full transformation, and this set of results is showing that very clearly why. First, and I would say this is a positive of this result, when I look at the growth engine of the company, they are all very positive top line, and in an economic environment that is not very supportive, in fact. When I look at HealthCare IT, we are growing 6% for the semester, 8% for the second quarter, and that's actually also having a negative currency impact, by the way. For digital printing services, and remember that DPC is a growth engine, but in fact, half of DPC is in the, in the industrial film, so in legacy activity, that are declining.
Digital printing, if you look at digital printing, we are growing the business 25% in the semester with the Inca acquisition. If I remove the impact of the Inca acquisition, we would be growing 5% in a market that is quite actually overall depressed, if you look at the offset printing, the flexo market. I would say this 5% organic without Inca, the good news, where it contrasted as well, and equipment sales would be below last year due to the economic environment in the first half, but the consumables will be strongly higher than last year, 8-10% for things like inks. Third growth engine, Zirfon. My Zirfon, I'm gonna give a. I'm not gonna give a percentage, it doesn't make sense.
Actually, we are multiplying by 4 the activity of Zirfon compared to last year, as you know. Although during the first half, it was not actually producing results, on the contrary, we were spending money to develop it industrially, it will produce results during the second half of the year. DPC is indeed a bit dragged by the traditional activities, and that's what you see in these results, which are not as good as the first quarter. Actually, 2 reasons for that. The first reason is, the traditional film activity are mainly, in fact, exposed to China, which today is not good news, let's say, in terms of market perspective, in 2 areas, the level of demand, of course, but also the inability to price in the Chinese market. I'm very clear about it, it's complex.
The second point that has been impacting DPC is we have suffered manufacturing inefficiencies that led us to actually write off inventory. If I remove this impact, actually, DPC is, is, is really on track in terms of growth, and what you've seen in the second quarter will be corrected in Q3 and Q4. We do have top line pressure on the other activities, and you will see it in radiographics. We have pressure in the market and in the margins, and also here, we, we, we find back China as the main exposure where we have these issues. So, so that's very clear that it's a very contrasted evolution.
As you know, the transformation of the group is to replace the legacy activities with the growth activities. Sometimes, the name of the game is to grow faster and to generate faster growth from the growth engine that we are losing out, so to speak, on the legacy activity. This quarter was a quarter where it was a bit more difficult to do it for us than the previous quarter, but I think during the second half, we'll, we'll get back to this, to this rhythm. I want to stress as well that currency has been adverse to us as well, the dollar and especially the RMB, for us, given the size of our Chinese exposure, so it works again, against us.
If I look at, remove the impact of the currency, the story on the bottom line is also a bit different. Now the outlook. As I said, DPC will continue its advance, so no doubt. I, I, I think, you know, a number of things happened at the end of Q2 that give me, give the team, I believe, confidence going forward. First, we are starting the interest swaps, we were not in a position to do that during the first quarter. We are just starting to implement this strategy in swaps, meaning we are addressing the with our in, on, on with success for the time being. As I said, Zirfon, we have made progress on productivity.
Zirfon was a true drag during S1 , it will be a positive factor during S2 , because we have already made some progress. Are we at the end of the progress? Absolutely not. No, absolutely not. Now I can firmly say, yes, Zirfon will contribute positively. Radiology will be stable. In fact, more, more stable to where we are today. We still, we still have the pressure from China, that's not gonna go away. The good news in this area, it's not so much margin related, it's not so much volume related in China. We are not seeing a decrease of the volume of the market. We are seeing a pressure on the margins with pricing in China due to the procurement activities in China.
The market does not really disappear. We expect stable radiology with film declining, and we are making progress on the bottom line. HealthCare IT, HealthCare IT, well, the good news is, you know, the story of HealthCare IT was first to restore profitability, which we did, which we did 2 years ago. In fact, but now we're in a phase where we start generating some growth. It's only the second year, actually, in a row, that we generate growth. However, this growth does not yet fully transpire to the PNL. The growth is more on the project side, while we, we, we still have a bit of a challenge in the service revenue part, where we are hit by two things.
Actually, inflation that is difficult to reflect on selling price due to the nature and the structure of our contract, but we are working on that. The second part is, the growth that we have been generating now for, I would say a year and a half, has yet to fully translate into service recurring revenues. There is always a bit of a lag, and in some specific cases, there could be a larger lag, especially when we make contracts with the Department of Defense in the U.S. I think more important for me to repeat, if we are growing in the market, it's because we are growing our presence. We have new, net new customers. These net new customers are not yet contributing to service revenue, but they will.
I want to stress it again today, meaning that on the outlook, we, we, we still say, yeah, we will. Overall, S2 is gonna be a lot stronger than S1. We've got also a seasonality impact, whereby we make most of actually our profit in HealthCare IT in Q4, that has been the case in the past years, it will still be the case today. That's the overall comment I wanted to make very quickly. Of course, I'm not gonna dwell so much on this slide and the next, because you see that. Sorry, I'm the wrong speaker.
You see that, it translates, you know, after 6 months with moderate growth, but, in fact, a significant growth in the growth engine and a decline in the, in the same traditional activity. Where the second quarter was not as favorable as the first, we are below last year. For the first 6 months, we are above last year, and I expect this year to be, to be better actually than last year. That will restore a bit our profitability. First, there are still a lot of restructuring and non-recurring, less than last year. We start to, this is coming, I would say, not to an end, but it's gonna decrease.
We gave you a guidance, I think, and we stick to this guidance, today, EUR 35 million for the year, indeed. Therefore, the cost of transformation is still going on, and you see some of the benefit of it. If you look at SG&A, are totally under control, in a high inflation context. It's part of the work we do on productivity and, and that is also fueling fueling the transformation of the group. I'm gonna now turn to you, Dirk, to present the cash elements.
Yeah. Let's start talking about trade working capital. Just to be clear, this is the sum of the 3 divisions, so it does not include contract or operations, because it's very hard to make comparisons versus last year. So the key thing here is that we're seeing significant, significant progress versus last year in terms of the reduction of inventories. So versus last year, we reduced 21, and as you know, usually in Q1, Q2, there is a buildup. That's the seasonality of Agfa. This time, also, if you compare versus Q1, we're actually decreasing. That, that translates into a serious reduction of inventory days, also, 23 days. We can start seeing the results of some of our efforts.
It's the start, because we are eliminating excess inventories from the past, so we're not yet at the level where we want to perform, but it's a good start in terms of our program to reduce the inventory. If you look at the bottom line, percent of sales, working capital... We ended up in Q2 at the same level, 32% as Q4, and Q4 usually is our lowest percentage of the year. I think the question came last time in terms of what does it mean with contractor operations, so that percentage would be 33%. In terms of where we are targeting to end up at the end of the year, is at 30%.
We do still will reduce the working capital through the second half here, and we're targeting to end up around 30% for the end of the year. If we then move to the next slide, the free cash flow. The free cash flow is quite negative at -EUR 45. There's a couple of elements to highlight. First, trade working capital, despite the progress in the three core divisions, this is really the effect of the externalization of our relationship with the former Offset division. Basically, the receivables that used to be intercompany, neutral to the company, now became external receivables, and that's really the explanation of the increase.
CapEx is slightly higher than last year and is driven by the investment program of Zirfon, as well as some investments regarding energy efficiency. Provisions and other are traditionally higher in the second quarter, because the core element there is the payouts of the employee benefits that traditionally happens in the second quarter. Income taxes were slightly positive, so there was a money received in terms of taxes. In terms of pensions, I'm not sure if you remember, but in the first quarter we had a slightly higher amount because we paid a bit some of it a bit earlier in March, rather than April. Here we see the other side of it, a bit lower in the second quarter, but year to date, it's in line with expectations and guidance.
Restructuring and non-recurring a bit lower than in Q1, significantly lower than last year, but still a significant amount in the quarter. If we then move to the next slide in terms of net financial debt, we still are in the net cash position at EUR 14 million, but obviously decreasing quite significantly versus the previous quarter, driven by all the investment programs.
Maybe you could comment here that we are expecting a second half that is cash positive?
The prediction is in the second half to be cash positive. Obviously, another point that still needs to be settled is the proceeds of the transaction with Offset. I think previously we said Q2, Q3, in terms of timing. It looks right now that it will be more Q4, Q1. We are progressing and discussing, but it's taking a bit more time than we originally anticipated.
We have also the subsidy that we are due to apply for. We successfully passed and it's also an element of cash that might influence a bit 2023, but more 2024, I guess.
Yeah. Okay.
Okay, LKIT. LKIT, indeed, the good news for us is we continue to grow, and we continue to add customers. We are, we are in a situation where we are adding customers, and we are adding customers, now for, I would say, over a year. However, it doesn't yet translate fully to the PNL for the reasons I, I was explaining. First, some cost inflation in the service recurring revenue that cannot be immediately passed through to customers. This bit of a lack of the growth translating into recurring revenue as well. What I want to stress here is we still have a very, I think, very healthy business.
If I look ahead, the order, the healthy order book, which is actually increasing over Q2, 11% growth in the rolling order intake versus last year. It's still, we are still very firmly in growth territory here, and these are the leading indicators that say, "Okay, in a few months it will translate into sales, and then later into service revenue." In sales, so the top line for the Q2, 8% versus last year. However, we are dragged by this higher-than-expected cost inflation and the fact that indeed, when we look at the development of our sales mix, it's a bit unfavorable. I want to stress that Q2 was better than Q1.
Q3 is gonna be better, and Q4 is gonna represent, just like the past couple of years, and we say the, the vast, yeah, the largest quarter by far, and it will represent an outsized percentage of the yearly EBITDA of the business. If you turn to Radiology Solutions, very different story here. Radiology Solutions, it's mainly the, the, the largest business is our film sales. DR represent a smaller part of the business, and here the dynamics is clearly a dynamic of negative dynamics, with negative top line growth, mainly coming from price, actually, then putting pressure on our margins. As you've seen, therefore, a very subdued activity for radiology.
Here, the main part of the story is really the continuing pressure that we have in China, huh? That's not gonna stop, the VBP process is not yet fully implemented in China, so we, we, we expect to be facing difficulties going forward as well. On DR, we continue to make progress, but the progress of DR is not sufficient to offset the decline in film. We have taken action in terms of adapting the cost to serve, and we will continue to do so as we see fit. Therefore, you see the result is a gross margin that is a bit under pressure and an EBITDA that is below last year.
DPC, DPC is more complex 'cause it's a EUR 400 million business, I could say that roughly speaking, half of it is in traditional activities, and half of it in growth activities. I gave you some color already on the growth engine, especially digital printing. Now, if you look at the overall growth of the division on 6 months, you know, 13%, I told you that for digital printing it was 25%. You can understand easily what is the pressure on the legacy part of the business. We, we, we, we see, we see here, as I said, difficulties in the market.
This being said, we have taken the price action, we have for the first half, I think, restored the profitability, because we are better than last year in terms of EBITDA generation. This, I would say, low Q2 quarter, we're not expecting to repeat in Q3 and Q4, actually, we believe that we will be back to a better performance. Good news on digital printing, as I told you, our ink business is doing well, even in the context of the whole context, where in a lot of other printing areas, actually it's more a decline than growth in this business.
I think it validates the choice we have made to be a pure player in digital printing, which is really the growth area in the printing world, even in a kind of a recession-like environment. We have started to sell several now Onset printers with Agfa inks that worked very well. We have now our ink set that is ready for in- what we in swaps, meaning we are starting to replace the non-Agfa inks at the Onset install base, and we are doing that successfully for our customers.
The next very exciting thing that's coming up is, we are preparing for next year, I would say the first phase of the launch of the SpeedSet 1060, which is a single path packaging printer, which, which, is changing a bit the game for us in terms of productivity and market access. I was myself with the team beginning of July to for the soft, I would say, not opening, but the first run of this machine after months of trial, and it's very impressive to see the speed and productivity that this machine can offer. Actually, it's times what exists today in the market in terms of productivity.
It's, it's really, we believe, a game changer, and we'll, we'll, we'll have a 1st customer event at the end of the year to present the product. In 2024, we'll be a 1st year where we work with probably the beta customers to launch a product. On Zirfon, we are happy with where we are. We are more than 100 active customers now, and it's growing almost every month. However, let's face it, the top 3 represent the vast majority of the sales today. We have, we, we, we, we, we clearly have seen our customers investing a lot in capacity of electrolyzer, number of projects that been announced are, are in construction.
The good news we have also is that, actually, we have been selected for Innovation Fund from grant. It doesn't mean that everything is signed off, but normally, I mean, it's just for us to follow the process to get the subsidy, which is a good illustration of the value that our technology offers. It represents about 25% of the estimated investment on the site for this subsidy, so it's not, it's quite, it's quite attractive. Last but not least, it's not on the bullet point, but as I told you, the productivity is improving. Don't forget that we started producing industrially, really on a regular basis, just from in the fourth quarter of 2022.
In a few months, we already made significant progress in productivity, and the clear message that instead of being a drag, the phone is gonna start contributing actually to the results of the division. That's for the growth engine, but the rest of the activity is under pressure. Strong weakness in the electronics industry, where most of our sales are actually in China. We see no improvement whatsoever on the, in the situation, in this area, and we are under pressure for both volume and price. We have been successful to put price increases, every, in every market, but in electronics in China, actually.
That's why, and as I said, we have a weaker quarter based on, specific one-off, specific, I would say, stock write-off, because we had to destroy, bad quality products during the quarter, and that impacted very much, our activity this quarter. CONOPS, maybe I turn back to you.
Yeah, thank you, Pascal. Basically, a bit of a repetition of what we explained also last time. Contract operations is representing the supply towards, the former Offset. In the, in the GMA and other income, it's more about the transition services and long-term support agreements that are included in there. Last year is a construction, it was the same in, in Q1, since we were still having Offset as part of Agfa. And the key point to note is last year, we were representing it in line with IFRS rules differently than the reality of this year, because we do have stranded costs related to the disposal, and last year they are included in the CONOPS division.
In 2023, those stranded costs are allocated to the division, so they are part and absorbed in the divisional performance. On the left-hand side, you can see that the stranded cost comparison, Q2 versus last year. The EUR 3.4 million is included in the numbers of CONOPS. The EUR 2 million of 2023 is included in the divisional results. That partially explains some of the performance comparison versus last year. Back to you, Pascal.
Yeah, just a word of conclusion. Again, the story of transformation is is ongoing, and the name of the game for us is to make sure that our growth engine can outperform, I would say, so to speak, the decline that we see in other activities. That, that, that, that's really what it's about. We do that in a context where currency is actually has turned against us, due to our exposure to China and also the global company, largely exposed to the U.S. dollar as well.
We are doing that at a time where we are shrinking the group as well. Indeed, as pointed out by Dirk, we are we are busy eliminating, I would say, what we call the stranded cost of selling 40% of the group. We are doing that. In spite of that, I mean, we, we, I'm, I'm really encouraged by the fact that, yeah, I mean, growth engines are working top line. We made the right choices in terms of where we wanted to play, digital printing, Zirfon and even HCIT. I mean, we are all growing the market very, very clearly here. It, it, it really works. We have yet to indeed, fill our shoes that we need to translate in the bottom line.
As I told you, Zirfon was a drag, it's gonna be a beneficial. We have this, this a bit of a lag, impact in HCIT, where that we need to work on, and we are actively working on. Indeed, we are not, we are not, we have not yet fully turned the corner in this, in this aspect. On the cash side, it's a, it's a major area of focus for us, so, as you see, we are very active to take steps to improve our working capital management, and we expect on this basis to be able to generate positive cash for I2. As well, we have yet to receive the, the offset proceeds and the Zirfon subsidy.
That's, that's where we are today. I'm gonna stop here, of course, and take your questions. I think the first question is you, Keith.
Yes.
We have the. For those in the phone, we, all the analysts are in the room. They will ask questions.
Yes, yes, excuse me. Excuse please.
Yeah.
I have four questions. First is on Zirfon, and you stated before that it will be a multi-year investment. On the subsidy, will that be back-end loaded or, yeah, what is the timing of that? I use the EUR 40 million investment in Zirfon line, is that a good benchmark for this 25% of EUR 40 million?
It's a good benchmark.
It's a good benchmark.
It's a good benchmark. Now to the first-- Okay, go, go with your question, go ahead, sir.
The second question is related to the digital print. Sometimes my wife asks me to bring several bananas and some potatoes, so you, you, and then it's for me difficult to get the amounts. You stated several, that you sold several printers with Agfa inks and some ink swaps. Can you be a little bit more-more precise on that? The third question is related to... yeah, the business you sold last year, right? Yeah, the money is now a little bit delayed. How should we see that money coming in? Yeah, is there a penalty for that, and is that money at risk, or how should we see that? Is there any guarantees related to that? Last question is related to the pensions there.
Last year, same meeting, you gave an update on the mid-year update, which is unusual on the pension. A few weeks after, we had the Offset Solutions view, of course there was no link between the two. Today, the first half, the interest rate rise is even much higher than we saw last year, in the first half. Can you give us an update on the situation over there? Thank you.
Thank you very much, Guy. First, timing of the subsidy, Vincent will.
Sure, I can take that one. Timing of the subsidy, first of all, we're, we're following a codified process, let's say, by European Commission, and so we're following the grant process, of course. The exact amounts and exact timings are still subject to that process, that's all. For all the players that are, are now, receiving... We're going to the next step, let's say. We're one out of kind of 49 companies that can receive the, the grants, that can go to the next stage. Personally, we don't have an exact date yet, but with what we know, we expect it to be maybe 1/3 frontload to 2/3 endload. It is indeed a multi-year... you, you should see the investment over two and a half years.
Okay, on DPS, Guy basically wants to understand how many Onsets have we sold, how many ink swaps have we done, and...
So the, um-
Still modest, in fact.
Yes, modest, but actually growing, nicely. In the first half of the year, we had, 4 Onsets in our sales numbers. We expect for the second half of the year, that to be closely to double that amount. That is new printers that all go in with our inks. We also are doing ink swaps, at customers buying new printers or as customers who need, that already have existing printers, or as customers actually not buying new printers, but just being interested in swapping their inks. That is ongoing. I would say we probably have now about 3-4, that have switched, and we are working on multiple, ongoing swaps.
It's quite a long process, ink swaps, it takes how, how long?
It takes... You, you basically, you have to start with an audit to make sure that the machine, based on how they have been handled by the current user, is, is still in okay shape to do an ink swap. It's, it's a multi-week process, not a multi-month, but it's a multi-week process. We have a dedicated team doing that, actually across the globe. We have strong interest, both mainly Europe and North America, to do these swaps. The, the feedback we receive from our customers is actually very, very positive.
Okay, so see, you got all the numbers, actually. Offset, what can you say?
Yeah, offset, the key point is it's progressing slower than we expected. This has to do with practical things. I'd rather not comment too much. I mean, this, this is two parties discussing. We need to complete the financial audit of the closing balance sheet, then we'll have potentially some discussions with the, the other party, but I'll prefer not to make any comments.
Can you confirm that the money is not at risk?
I can confirm that the money is not at risk, yeah.
The money is not at risk, but it's just a normal discussion on specific points. Nothing more to say than that.
No
... at this point. Please.
Just to maybe then pick up on Guy's question. So the EUR 28 million that was initially planned-
Yeah
... from cash in.
Yeah.
Is still EUR 28 million, that is not up for discussion, because, I mean, we have seen-
Yeah
... even in Belgium, in the, in the recent months, some new discussion on valuations. Valuation is not a discussion point at all in these.
Valuation is not a discussion point at all.
Okay.
No.
Thank you.
Okay. Pensions? We have not done an update...
Pensions, I mean, we did it exceptionally because we had to reflect a number of things. We are not doing that standard. Last year, we did it, this year we did not, and I think you can use the, the usual sensitivities to, to think about the impact. We will do the update at the end of the year, and obviously, if discount rates are higher, we should expect an impact on the pensions valuation.
Can you remind us a little bit on the?
Sensitivity?
... sensitivity?
Well, yeah, I think maybe Vivian, you can.
About, 25 basis points is about EUR 70 million, in both, ways, up and down, on the liability.
Maybe a question from my side. I'm not sure if you hear me in the call?
Please, Laura.
Laura Roba, from Degroof Petercam. Sure!
We, we hear you well.
Great. I will start with 2 questions. The first one on HealthCare IT. With the Inca now acquired-
should be slightly down versus 2022. How does that impact the initial guidance of the in the vita, which was initially planned for this year? What is the delay there now? Then a question on DPC. Could you elaborate a bit on the manufacturing inefficiencies? How confident are you that this will not impact H2? Thank you.
Okay. On HealthCare IT, I, I, I don't think, you know, it, it, it doesn't, it doesn't change anything to the story for me. It's just, it takes a bit more time to get there. Now we need also to look at, to look at the market trends in HealthCare IT. And the market trend is we see more and more consolidation of those people, you know, services, of the health services, in which what we do has an impact on. And also we are seeing more and more, and especially in North America, a trend to go to the cloud, to cloud-based solutions.
We believe we are extremely well placed to serve this market need, because basically what we provide with our Enterprise Imaging system is scalability, and we have demonstrated over the years. In terms of cloud, we are readying ourselves to be able to service, to provide our customers, this. So to make a long story short, you know, I, I sincerely believe we are well-placed. We are one of the few players well-placed to capture this market growth, and we start doing that. Therefore, I see I maintain the same midterm objective for us.
Alexandre Craeymeersch. On Inca, you mentioned that the SpeedSet is going according to plan. Maybe could you remind us what the plan there was again, and when it will be launched specifically?
Yep.
The second question is also on that, because you mentioned that the SpeedSet is going according to plan, but print engine is then not going to plan. I think it was also going to be launched in 2024.
Which print engine, sorry?
Print engine, the one that is going to sixty-
Ah, the BHS. Yeah, yeah. Okay.
Yeah.
That, that which is a different...
Yeah.
Yeah. Yeah.
I'm just wondering, okay, can we then conclude that that one is going to be in a bit delayed? Then, yeah, maybe, you know, on DPC also, I think we, we went during that first, but in the Q1 call, you mentioned that you were very pleased with the strong recovery and that you were, that you were firing up on all cylinders, and that was mid-May. Maybe could we just come back on that statement today, and why Q2 was a bit disappointing? Is the visibility really that low that we leading into this, like, how should we see the outlook on profit recovery in Q2? Maybe a final question.
You, you're talking DPC or DP-?
DPC.
Digital printing?
DPC.
Okay.
Maybe a final question for Natalie. In healthcare, we've seen your colleagues, like sector gain momentum and, and growing some market share, and also the market growing in size. Considering that these customers will be, yeah, lost for multiple years, just wondering what the, the main worry is for clients that they are going to colleagues of yours instead of Agfa, and what hinders them to sign with Agfa?
Okay, maybe let's start with SpeedSet and, and, and the engine, because.
Yeah. No, no problem. The first question, Alexander, on, on SpeedSet, the plan was and still is. Actually, in the plan, we didn't specify that end of this year there will be a customer unveiling a few months, which will happen. The plan was and still is for next year, in 2024, to have first beta unit sitting at the customer. Which means as of 2025, beta phase is not a 1-month phase, right? It takes, of course, some time, but you will have first commercial sales of the product in 2025. That was actually also the plan. On the print engine that we developed together with or for BHS, it's absolutely not, not in line with the plan.
The only reason we don't communicate on it, is because, you know, SpeedSet is an Agfa product and an Agfa launch. The print engine is a partner project, and it's actually BHS bringing it to market. That's something we, we cannot and do not want to communicate on, on our own, so to speak. For the moment, there's nothing to say, but everything is also going according to plan.
Can we say that, we already installed one print engine at BHS facility, or it's?
Decided we cannot. Where did you find it? No, the,
it's,
Yeah.
Moving.
Which is, indeed, also according to plan, is that there's a first printer that is already sitting there for several years as a customer, and there's a first beta unit, which will go to a customer, but which is now in the at our partner, BHS, for the testing as per planned.
We're talking 2 different printers here.
No, we're.
I.
No, we're talking the... What do you mean 2 different printers?
I'm sorry, we're talking here, so you say first printer was sitting at the customers and the beta is now at BHS.
The printer, the BHS printer, yes. There was a first printer for which we make the print engine, that is already at a customer, Schumacher, since several years. I think now three years in the meantime, so that was even prior to our acquisition. That's the alpha unit, as we call it. There was a lot of changes, upgrades, and so on, made to come to the first beta unit, which should be the one that goes commercial. The first beta unit is now fully assembled and running for tests at BTS, before it opens to a customer, and that should happen in the course of next year. These are printers that are very large, and they are the size of a corrugator.
They are the price of a corrugator, order of magnitude. This is a full production halt just for this machine. These are machines also that take several months to install.
Okay, that is clarified. Clearly, to the current, where I was saying, digital printing goes fine for us, and we are progressing in digital printing. The ink plan is actually exactly online with what we did at the time we made the acquisition. We are really executing according to plan, I would say. As for IT, I think your question is more about competitive situation, you know. Where are we? You mentioned Sectra, which is indeed, the peer that is a comparable peer in the market, that doesn't have the legacy that we have, huh? They came at a different stage.
The main difference between Sectra and us, is we still have a lot of, I, I would say, legacy, systems, you know, PACS and RIS , that we have to deal with, which Sectra doesn't have. They, they only have the equivalent of what we call our Enterprise Imaging, system, huh? This being said, can you comment on Sectra? You need to speak in the mic, Nathalie.
Mm-hmm. Yeah, I will speak in the mic. Yeah, Sectra is a competitor by all means. However, our... On the North America market, and I specify North America, we operate on different market segments. By definition, yes, we're competitors. By presence, we tend to operate in different market segments. Sectra is in the smaller to medium, and we're more the medium to large. I think they're trying to set the risk, right, of the competition.
Mm-hmm.
We have similar solutions, different history. We are carrying a legacy they don't. And so with that, you know, that, that kind of balances out.
But-
when, when we are on the market.
I would like to stress, there are probably 12 companies.
Exactly.
that are playing in this market, okay? Sectra is a winner, but there is not only one winner. We are also becoming a winner in this market. It's not like a winner takes all.
Yeah
... strategy. As Nathalie explained, we have slightly different positioning in the market, meaning our solution is not suited for some type of customers, so it's up to us to engage in the right project for us.
Yeah.
We have a lot of respect for our competition. I actually, we consider Indeed Sectra to be part of the top, probably in the top three, in the market. We aspire to be part of this top three, and I think we are, if we are not already in it, we are not far from it.
Yeah, I think it's, it's fair to say that on the larger segment, the larger customers, we are the leader in North America. They, well, Sectra is not. On the smaller segment, Sectra would be the leader, but we are not wanting to compete and we're not getting into the lower, because our solution is directed towards large enterprise customers.
As I said, you know, the market does consolidate in this in this area. It does consolidate on the private side, on the public side.
Yes.
I mean, more and more we see. Why? This is a way to get productivity out of the system, you know, running, and then to have your resource management as well, well thought out, you know. It's a plus, which is a reason why, you know, we see actually active investment in the field, even in the market is not growing 10% earlier. We see a lot of interest in renewing the technology and we are, we are, we are there.
Yeah. Our customer face the same challenge in terms of inflation, so productivity, cost effectiveness, cost reduction are the primary driver, and especially the ones that are very large, where they can, create economy of scale. This is our sweet spot for XL enterprise machine, very large.
Well, I would also say, for IT, remember that we have, we have now, a North American-based executive team, for which the added seniority of the site people is probably less than 3 years. We have a new team in place. Already we are seeing momentum in the top line, and we need also to give a bit of time to the team to establish, to establish, well in this, in this activity. It was indeed a bold move to do what we did, by, by moving the global leadership of the business in North America, which is absolutely a thing to do.
We, and I think Nathalie has been hitting the ground running clearly, but we still have a new team that we need to integrate and to execute the strategy. I'm glad to say that for the time being, we've been able to do that without any disruption to our business, because it's, it's... In a way, it could have been the case. All right. Any other questions? Laura?
Oh, yeah, sorry. I wasn't here. Maybe one more question. I think one day it was said that... I mean, last time you said that customers perceived them were 50, now they're 100. I think the run rate, the aim that was, I think, EUR 100 million, if I recall, for 2025. Is that number now a bit higher, maybe? In turnover.
Yes, you said so.
... We have more than 100 active customers, that's completely correct. As Pascal is saying today, it's a handful of customers that are making up that the vast amount of our sales. I think the number of important customers for us will certainly increase in the next couple of years, but this will not be, and we will more, have more than 100, for sure. But the actually big customers, the big electrolyzer players out there in the market, I think you will still be able to count them on two hands, to be honest. Those will be our most important customers. That will be the case between now and 2030, probably.
In our cases, I think our outlook for Zirfon is still in line with what we said or expected a year ago.
What we're watching is the velocity of, actually FID, on the hydrogen project.
Mm-hmm.
That's what, the pipeline is huge. Our customers are very busy, building capacity as we speak, yeah? For instance, John Cockerill will start their plans, in Europe.
This year, next year.
End of this year, yeah, probably. Example, there are lots of companies investing in capacity. We are there for, for them, with our, with our capacity, the, the key question mark is this, the, the ramp up. Is it going to be a steep ramp up? Is it going to be a, a, more subdued ramp up? Our visibility is probably already for 2024. Further, I would say it's difficult to have a visibility, a precise visibility. We, we, we indeed, see very good prospects. The good news is, yeah, I mean, it's a good, it's a good leverage. I mean, as soon as you've got volume, it's the left slide to the bottom line.
You see it on Zirfon that it will be profitable in the second half of the year?
Yes.
On what level, on the EBITDA or already on the EBIT level?
EBITDA and EBIT, I think yes, we'll be. Don't forget that we still do cash negative on Zirfon because we are building the new plants.
With subsidies, on part.
Subsidies do not cover everything, we still gonna be investing cash in Zirfon, but yes, it's gonna be positive EBITDA, probably. Yeah.
Okay. To now, what is already invested in Zirfon?
Oh, the, the historic investment of Zirfon, what are you talking about? R&D, industrial? I, I, I, I, I, I think in the past, in the past 3 years, we probably invested, I would say close to EUR 10 million.
It's, I think it's, it's a number more than ... I mean, it's more than 15 years of R&D and, the private lines that are in the meantime, also the bottlenecks upgraded and so on. I think indeed over, but you have to look over more than 15 years, there's more than 10 million.
Yeah, but of course, but in the last three, I mean, to develop what we have today to sustain the market for the next two years, it's probably about 10, I would say. 8-10, you know, which is, which is, a small industrial unit, in fact, that we have.
Laura?
Yes, just coming back on my second question, I'm not sure you answered on the DPC and the manufacturing?
Oh, yeah, yeah. No, absolutely, Laura, you're right. Sorry, I apologize. I apologize. No, what happened? You want to explain maybe what, what happened, Laurent, on, what, what, what's happening or?
Sure. Well, there was 2 effects in Q2. One was related also to our inventory programs that we're running, and to make sure that we reduce inventories wherever possible, and which actually clean up, where we go much more in detail and take out stocks that are obsolete or that are perhaps not fully correct. There was actually probably half of our impacts were stock corrections that we had to make. Where we still expect a little bit of a tail in Q3, Q4, but actually the main cleanups have happened in Q2. There was also impact from bad production, let's say, which of course the teams are attacking. These are very specific in every product line, but there are 2 or 3 product lines where we have quality issues.
Don't wanna go too technical here, but can assure you that with our operation teams, we are taking the necessary actions there to put that, to put things right.
Yeah, indeed, we have a huge drive to work on working capital and therefore the reduction of inventory, so we are, how can I say, leaving no stone unturned on this to make sure that, that, what we have in inventory is sellable, has value.
Correct.
Which we do. Any other? Alexander, you still have...
If I may just ask one more question on the working capital...
Yes.
specifically. I think Dirk, you mentioned that there's some working cap outflows, and mainly related to the divested division. Just wondering, will some of that be stick- sticking to, to the remaining business or not?
Yes, what you see is the impact, we had EUR 0, we go to a receivable of about EUR 13.
It's a one-time impact.
It's a one-time impact. It's not gonna increase.
By analyzing those receivables, and then it will vary on its own over time.
That's not very much.
Well, yeah.
All right. Well, Maxim is on the phone if he wants to ask question, he's welcome.
Sure, thank you. We'll now take our question from Maxime at ING. Your line is open, please go ahead.
... Hi, good morning, Maxime Stranart from ING. Two questions on my end, if I may. First of all, looking at HealthCare IT, obviously the guidance has changed quite materially since the full year 2022. It's a bit difficult to track what has happened there, so any info you could provide on, well, I'm not sure the certainty you have on this guidance, but how can we expect this guidance to materialize while the 2 previous didn't? Secondly, looking at Radiology, I think you mentioned the press release that Direct Radiography was also impacted by some volume pressure. Any additional info you could provide on that? Thank you.
On again, on HealthCare IT, indeed, we are saying now that we are gonna be close to last year because we have also a currency impact. Most of our business in is a US dollar impact, so that plays also a role in what we are saying today. As I said, what, what as I would say the growth is coming a bit under our ambition, although it's significant, it's coming a bit under our ambition. As I said, we have a lag in transforming this project revenue into service recurring revenue, and we have the specific inflation issue in service revenue. This is really the three areas that I can mention on HealthCare IT. And for radiology, I'm not sure about the question.
DR, no, DR, yeah, sorry. On DR, yes, we have been growing the top line of DR on a regular basis this past year. Right now, we are a bit where this growth has stalled, and actually we are a bit below last year in terms of sales of goods. I think it's coming mainly from Europe and a kind of a subdued market, where hospitals are under pressure, financial pressure, and the renewal of the X-ray equipment is probably a bit, a bit more delayed. Well, it's not. Is it major? The answer is not.
It's not major. Yes, I mean, I could do with top-line growth in DR specifically to help the business, but that's, for the timing, that's not the case. We don't grow it anymore. It will come back, I'm quite confident, but we have a few quarters where we are a bit subdued on the top line, yeah.
If I may circle back on this one, do you have any view on when this growth may come back, or like, is it like too soon to tell?
For, for the timing, you know, the way we look at our business, especially for goods, is, we look at our funnel and our order intake. For the time being, the leading indicators have been improving a bit lately, but, I cannot yet be sure that we're gonna be back in positive growth, in Q3. I think it's gonna take, it might take a bit more time.
Brilliant. Thank you for your answer.
Thank you. Okay, thank you very much. Time to conclude this conference. Sorry for the 10-minute delay at the start due to technical difficulties outside of our control, I'm afraid. Thanks very much for attending this meeting. Have a good day.
Thank you. Ladies and gentlemen, this concludes today's call. Thank you for your participation. Stay safe. You may now disconnect.