Agfa-Gavaert's (AFGVF) CEO Christian Reinaudo on Q4 2017 Results - Earnings Call Transcript

Agfa-Gavaert NV (OTCPK:AFGVF) Q4 2017 Earnings Conference Call March 7, 2018 5:00 AM ET

Executives

Christian Reinaudo – Chief Executive Officer and Executive Director

Luc Delagaye – President-Agfa Materials

Analysts

Guy Sips – KBC Securities

Stefaan Genoe – Degroff Petercam

Operator

Welcome and thank you for standing by. [Operator Instructions] Today's call is being recorded. [Operator Instructions] May I introduce your speaker for today, Christian Reinaudo. Please go ahead.

Christian Reinaudo

Thank you, operator. Good morning everyone. So we are going to present this morning the Q4 2017 and the full year 2017 results. Maybe before I start with the numbers, I'll let you read the disclaimer. Before I start with the numbers, let me first give you the big picture of where we stand. As you remember, in 2016, we delivered on the two big targets we have set up for the company a few years before, and we delivered the 10% EBITDA on sales ratio and we lowered the debt to zero, even slightly positive cash position.

And as I said to you, we have – based on this strengthened situation, we have initiated a phase of trying to tackle the two other issues we still have in the company, which is the top line decline and the complexity of the company. In 2017, results are, of course, to be read in this context and the ones of 2018 will also have to be read in this context. So this massive transformation we are doing, which is conducting to a transformation of the structure of the company, of course, is a transition period, which is aiming at creating a company which will be growing and in a simplified structure later on. That's why, and I said that upfront, in spite of the results of 2017 and the anticipated situation of 2018, I stick to the target of delivering a 10% EBITDA, in average, in the years to come.

So if we now concentrate for a minute on the figures of 2017, and I will first address the quarter four and then will speak about the full year. On the quarter four, I would say the quarter was significantly stronger than the previous quarters. And the reason for that is because we had, after several quarters of, I would not say, difficulties, but after setting up the situation for HealthCare, we have a quarter which is strong in terms of IT, in particular in the Imaging IT. And we have a quarter which is normalized, I would not say strong, but normalized, in terms of hardcopy film after the changes we have organized in our distribution channels in China. Therefore, the quarter four is flattish if you exclude the currency exchange rates and, of course, it's different from the previous quarters of the year.

By the way, on the full year, we have a 2.9% decline, excluding currency exchange rates. You see that the currency are weighing for 0.8 point on the top line. The 2.9%, of course, is negative. But if you have to compare it to the results of the year before, which was minus 3.5% and the year before which was minus 5.5%, excluding currency. So I stick to what I said in my previous calls and in my roadshows, the top line of this company is still poised to decline for another year or two; but over time, what we are preparing is the growth of the top line.

On the gross profit issue, there are, here, different between the quarter four, where the margin – the gross margin has been maintained more or less at constant percentage of sales compared to the full year, where we have lost 0.5 point, which explain – which is explained by the weight of the raw materials to a large extent.

On the SG&A line, as you know, the target is to stick to this 20% ratio of sales. We have slightly slipped to 20.3% on the full year basis, Q4 is better than last year. But we stick to this target of maintaining the SG&A structure as close as possible from the 20% of sales. The R&D expenses are flattish in the quarter and somewhat flattish, slightly up, on the full year, still in line with the strategy of the company to keep the products and innovation at the top level of our parameters of growth.

The result of that is the EBIT at EUR56 million in the quarter is 8% below what it was last year. And the EBITDA at EUR70 million is 10.9% of the sales, below last year by 8%. On a full year basis, the EBITDA is at 9.1%, so I think it's more or less in line with the expectations of the analysts. Again, you have to compare it with the 10.4% of last year. As I said, the one of – the EBITDA of 2018 cannot be above the one of 2017. But I repeat what I said, on the longer term – medium term and longer term, the target of the company stays the same, to deliver an EBITDA on sales ratio of 10%.

Below EBIT, I think no major comments to make with the exception of one on the tax line. So restructuring and nonrecurring, we have EUR31 million expense on the full year, EUR17 million in the quarter. I would say that a large part of restructuring comes from HealthCare, which has significantly organized – reorganized the structure, investing in services, as we said, in IT; but also, restructuring the business in other parts. The nonoperating result at minus EUR39 million is in line with the guidance. The pension in these numbers represent something like EUR25 million, and the rest is other different items.

The profit before tax, therefore, lies at EUR98 million. And the taxes, EUR53 million in the full year, EUR31 million in the quarter. The major effect on the quarter is the EUR25 million rounding that we have from the tax regulation changes, both in Belgium of course, or the major of it – major part of it, and in the U.S. So in fact, it is not a cash issue, but it's just a P&L impact.

The net result of the company full year – so, of course, the quarter four, because of that, I cannot sing my normal song that this is another quarter where we have a positive net result. But on the full year basis, the net result is at EUR45 million. If you restated it by the EUR25 million of extra taxes that we have this year, it would've been in the range of EUR70 million, which I would say is somewhat normal year in spite of all the transformations that we are conducting on this company.

The debt – as you can see, the debt fluctuates during the year around zero, plus or minus EUR20 million or EUR30 million. We finished the year at EUR18 million compared to the minus EUR18 million of last year. That means the non – the cash flow has been negative by EUR36 million. A large part of it, not to say all of it, is due to the working capital – right, Stefaan, the working capital management.

And as you will see on the next slide, I'm now on Slide 6, the receivables have increased. And overall, the working capital, which was last year at about 24% of our sales, has increased to 26%. There are some one-off effects. If we have questions on that, we can come back to that later on. But it's a cash flow issue and most of the cash flow increase of the company is due to this one. Of course, the EBITDA, which is about EUR40 million compared to last year, below last year, has another impact.

To summarize this first part of the presentation, in Q4, therefore, we have, of course, the weight of the – the strength of the euro. But on a comparable basis, the business has been reasonably stable. And this is due to the strong performance of most of our growth engines, not to say all of them. Inkjet has performed very well with a double-digit growth. In the quarter, the IT business of HealthCare has also performed strongly. I would say our hospital systems, and I will come back to that later, has performed very well during the whole year. And the Imaging IT business has performed very strongly in Q4, which I hope figures an evolution – positive evolution of the revenues of this business unit, because the backlog in the order book is very strong.

We have a negative impact of raw materials, as most of you have noticed. And of course, this weighs on the gross profit margin of the company. The rest has been commented.

If I move now to the business group analysis, and starting with Graphics. So the traditional pie chart shows that we have an improvement of the inkjet software and service part at 23%, a decline of the analog prepress. But I would say all the guidance we gave in terms of evolution of the top line in the different domains is still the same. So we continue to have decline of analog prepress business in the range of 15% to 20%. Inkjet is delivering a good 10% increase. And the prepress business, we will come back to that in a few minutes.

So numbers. Top line, you see quarter is the same as the full year in terms of top line evolution, minus 4.4% excluding currency exchange rates. The main effect in the quarter compared to the full year is the impact of raw materials now in the quarter four, which is leading us to lose 1.5 point of gross margin in the quarter. On the full year basis, it's half of it, 0.8 point. Of course, the aluminum evolution, as you may know, is not going to help in the next quarters.

SG&A. Graphics does a good job in terms of keeping the SG&A level close to 20% in the quarter, but we are slightly slipping – sliding in the full year results at 21%. So there are, obviously, some actions to be taken here that I will comment later in the year as we deliver on that line. R&D constant recurring EBITDA, consequence of all these kind of things is at 6.6% in the quarter, 6.4% on the full year basis.

And maybe just a comment on the top line of Graphics. So as I said, inkjet is performing pretty well. We have, I would say, a strong momentum in terms of both equipment ink and other things. On the prepress side, you know that we have a decline of the top line, which is now for several years, which has two big components, one is the price pressure, the other one is the volume. What we start to see – and this is probably due to the fact that aluminum is going to be more expensive, we start to see a price pressure which is a little bit easing. I'm not very enthusiastic yet about that, but at least we see a few things.

On our side, we have launched a program, as I commented already, to sell more value than just the cost and the price. So this program start to pick up also. We have, I would say, a significant amount of at least the top customers, which have clearly understood that there are other things in the portfolio that we deliver, other things than just the plates that we deliver. But of course, on the volume side, we still have the same pressure, pressure coming from both the market structure, but also coming from the fact that the Chinese competitors are grabbing a significant part of the growth in their territory, which is mainly China and the countries around China and Asia.

The main drivers behind these numbers, I think I commented most of the things already. Again, satisfaction on the inkjet side. Same parameters and the same kind of issue, except the price pressure maybe slightly lower on the prepress side. A few business highlights. We have several remarkable inkjet wins on which, if you have questions, Stefaan can comment a bit more. We continue to deliver on Apogee, our key software for prepress. We have released two new – we have launched two new releases. And we have, again, a significant win with PrintSphere on the cloud-based that are sharing an automation service. So this is just to highlight a few things on the quarter.

If I move to HealthCare, I'm now on Slide 13. The pie chart of HealthCare shows, if you compare it to the previous quarters, a progressive normalization of our hardcopy business. The classic radiology screen film is continuing to decline. The CR/Modalities resists, that means that we are still able to somewhat compensate, with the DR business, the negative evolution of CR. I would say compared to expectations, DR delivered a little bit less, so that's something we are addressing, while CR is performing well.

So overall, this business unit performs in a reasonable way. And the IT business, of course, is increasing proportionately to the rest of the group. But you can see also that it's not noticeable that the hospital systems are progressing even faster than the Imaging IT in 2017.

Moving to the numbers. Strong quarter in Q4, we commented that already. We saw growth of 3.7%, excluding currency exchange rates. On a full year basis, of course, I'm not really satisfied with the minus 3% of HealthCare. But you remember that we have lost because of the transformation in China. And because of the management of stocks by the dealers, by ourselves, we have lost a significant amount of top line in 2017, and therefore, it explains the vast majority of this result on a full year basis.

The gross profit is strong in Q4, reasonable on the full year. Again, we need to deliver on the Imaging IT side. As I said and I commented in the press release, we have invested, in 2017, in our resources for installing the system because we have a strong order intake, strong order book. Therefore, we need to be equipped in terms of training the people to install and later on maintain the systems that we have. Hopefully, we'll have installed very quickly now. So there is an investment, which is going hopefully to pay off.

SG&A, I commented that, so the results are okay. R&D, same comment as I did for the whole group. The recurring EBITDA in the quarter at 16% is obviously a stability and the success of installations in large hospitals. And UMass in Massachusetts, it's an important hospital, with complexity for images. And since we've – we went live with this system there, the performance of the platform is very strong. So it reassures me in a way that both our people are able to install it properly, that we have learned the lessons of moving from the little box into the large enterprise imaging system.

And then finally, the platform is stable enough to give satisfaction to large hospitals. So it previews I hope, the breakthrough that we are expecting in 2018 from the IT – Imaging IT business unit. Specialty Products, strong year another one, growth of the top line by 9%; growth of the EBITDA by 9% to EUR18 million. The rest is basically in line with everything that I have said so far.

Gross margin, which is still around 24%, 25%. And SG&A level in the range of 12%. And then R&D, which is kept at a level of a few, I would say, EUR8 million to maximum EUR10 million in a year. Last year, we spent EUR8 million. This year – the year before, it was EUR6 million. A little bit of fluctuations due to the support we received from different supporting organizations, in particular in Belgium. But overall, the efforts we do in R&D is basically constant. I would say, strong performance of Specialty, still the same domains that I now call growth engines also, because they are significant in size.

The PCB business, which is mainly a film business but are doing well in terms of both the market situation and the extra positioning. The Synaps, the synthetic paper, where you may have seen that we launched a new synthetic paper which is foldable. Because one of the issues of the Synaps, it was that it was difficult to fold. Now we can fold it completely with new applications. And we have, of course, the Specialty Chemicals business, which the major one is the Orgacon Electronic Materials, which is a conductive transparent material, which is performing well also. So this business – sorry, engines – growth engines, are performing

Maybe two slides, very quickly, on the pensions because there is no major comment, I believe. The first one is about the balance sheet situation. So the fund status – or the unfunded status, I would say, has improved by about EUR100 million, which is the result of obligation in asset valuations. But overall, we will have EUR100 million less on liabilities on the pension – on the balance sheet.

The other views of both the P&L and the cash flow, I would say, are totally in line with what we told you for some time already. And the cash flow is under control. It is EUR69 million in the year 2017. We estimate it to be in the same range at EUR73 million in 2018. And the P&L impact would be also in the same range, we expect EUR44 million, of which EUR21 million in the EBITDA and EUR23 million EBIT.

That's about it. Open now for questions.

Question-and-Answer Session

Operator

Thank you. We will now begin the question-and-answer session of today’s conference. [Operator Instructions]

Guy Sips

Perhaps the first question – this is Guy Sips, KBC Securities. You mentioned that in the HealthCare that China had a significant impact on – or a significant amount in full year 2017. So the China reorganization, is that nearly all of the 3.3% decline that we saw?

Christian Reinaudo

Yes, I don't want to give specific numbers because, I mean, we gave a lot of details already. But look at the pie chart and you will have an idea for what is the impact of the hardcopy film in China. The rest of the business has been performing according to the normal way of performance in the group.

Guy Sips

Second question is on the guidance of the EBITDA, which will be lower in 2018 than in 2017 due to the four, yes, measurements that you will take. Can you highlight a little bit on that? And the new alliance in – that you announced last week, does that fit so that – I mentioned the UV digital packaging alliance with Siegwerk. Does that fit into that? Or is that something totally different?

Christian Reinaudo

Let me give you – maybe I will answer the question, but let me give you again the big picture. We said in the press release that we have initiated a set number of actions to streamline the company, to organize the company and to prepare it for growth. Of course, the main one is the split. So the split, as you can imagine and we will be a little bit clearer during the year, will have a cost, at least at one-off cost.

The second, we have reorganized the business in China, as you know. So this has weighted on the results of 2017. The expectations is that we should start to recover in 2018, so that goes in the other way, in the other direction. Then we have taken initiatives to make sure that we will deliver the portfolio and the backlog we have secured in the Imaging IT. So in 2017, we invested in it, and I expect 2018 to go in the good direction in terms of results.

On the other side, we still are – there's still a domain, a large domain of the group that we have, of course, restructured over time, but in which we are taking actions now to re-streamline the business, the prepress. In this business, as you know, we have or we had a significant business of reseller of plates, in particular in the U.S. due to the acquisition of Pitman in 2010. This business we kept it, but I mean, we believe it brings some kind of focus to the group and the organization in the U.S., where they have to concentrate more on the inkjet business, which is really a strong business in the U.S., and on the prepress.

Therefore, we decided to stop the reselling of these plates and that will have a negative impact on the top line. If you want to know the number, because you will ask me anyway, it will be in the range of EUR60 million. We expect the impact on the EBITDA not to be too big. Because this business was a reseller business, therefore, the EBITDA was not that big. And if we restructure it properly, we expect this to not have a major impact on the EBITDA. But you have to take into account, and that's why I'm very cautious on the EBITDA of 2018 – first of all, we are organizing the company.

So this kind of issues have an impact immediately. Afterwards, we recover, because we reorganized. Second, there will be an impact due to the currency because the euro is pretty strong in this year. And there will be an impact of raw materials. It's too early today to guide you on that. What I'm just saying today is that you should not expect an EBITDA which will be bigger, higher than what we have delivered in 2017. Therefore, I will try to be a little bit more accurate during the year, in particular after Q1 when we have a better view of the way this kind of things are evolving. But at this stage, it will be premature to give you a quantified guidance, okay?

Again, it's not a catastrophe in terms of evolution of the company. I'm very confident that everything we do is building an Agfa which will be pretty strong. And I stick to this target of 10%. And it's more than a target, it's a – it's always difficult to speak about commitment, but for me, it's the directions we are taking. But for 2018, we must be careful. Sorry not to be more quantified at this stage, but I prefer that guiding you on wrong numbers.

Stefaan Genoe

Stefaan Genoe, Degroff Petercam. Question on the investments you mentioned in the press release, of course, or which I shall read, I think, as growth investments. Because if we talk about stop preselling of plates in the U.S., it's not really a growth investment. The split in HealthCare, I can see the dynamics it can create, but it's not – I don't see the direct revenue link.

If we talk about investments in the future, and I think it's crucial for Agfa to get more top line growth and dynamics, are there also, I would say, a couple of millions or tens of millions located to recruitment on product development, perhaps small add-on technology acquisitions to increase your portfolio to a bit – keep on reshuffling the product portfolio of the group?

Christian Reinaudo

Yes. There are several questions in your question. The – okay, the external growth of the company, with the exception of maybe a few small things, is not the right time to do it at the time we are preparing the split. So therefore, don't expect to have massive acquisitions being announced in the next 12 months or six months. On the other side, I want to come back to what you said. And I think the result of our inkjet business, you remember that in 2013, 2014, we took very brave decisions to stop products. We've stopped Dotrix. We stopped the Impress. We have stopped things.

So at that moment, of course, the top line of inkjet declined and the focus was, you remember that, to build a business unit which was profitable. Since then, of course, the top line has been growing, and therefore, we are far above the level where we were at this time. So what we are doing, in essence, in these two years is these kinds of things. So we – I prefer to have a top line which is lower, I would say, due to one-off decisions, but cleaner, healthier to make sure that on this solid base, you can create growth, okay.

So that's basically what this team here is doing. So we are basically executing the plan I mentioned to you some – a year ago or year and a half years ago based on four pillars. The first one is build the resistance on the traditional business. Because even if these businesses are not very sexy in the long-term, because they are in structural decline, they are still important for the cash flow of this company, for the balance sheet, of course, and this kind of thing.

So in this domain, there are mainly two activities. One, the hardcopy field for HealthCare, it is behind us, it's done. And then there is the prepress business, which is to be built and to be continued. The second pillar is boost the activity and the speed of growth of our growth engines. So growth engines, I put aside for a minute the Specialty Products, the three big growth engines other than that: the IT business of Agfa HealthCare. This one is clearly part of the game of the split; the second is the inkjet business.

And inkjet, Stefaan is working pretty well on three dimensions. One, the equipment we have today. Make sure that this equipment are solid, quality, performing, more profitable. Second, the ink business – and I forgot to answer your question about that, but I will come back to that. And three, the evolution of the business towards other domains than the sign & display business where we are today.

And these other domains will be in the industrial printing, I said that several times. And we've done a job this year to identify the two domains where we believe the company is equipped for moving into the industrial printing. This is the flooring domains. And this is the level in this kind of stuff. So in these two domains, we are investing. When is it going to pay off? It will take probably another year or two before we – you see that in the numbers. But for sure, we are on the right track in terms of strategy.

And the third growth engine, this is the DR business. The DR business, we have had a first phase of development, where we were looking for growth. And as you know, this business unit was not profitable. In the last two years, we have decided to reflect on the business to make sure this business can continue to grow, probably not at three digit, as it was growing in the past five years, I would say, but continue to grow with a double-digit growth, but profitably. That's the second pillar. And of course, this is in the core of our growth strategy.

The third pillar, and it is, for the time being, a little bit on hold, I would say, because of the split, this is the acquisition targets. So I'm not excluding the possibility to make a few moves here and there, but it will not a massive evolution. I will leave it to ITCo when they are in a different format, okay?

And the fourth one is the cultural change, the training of our people to adapt the company to a different culture of growth as opposed to just cost-cutting and restructuring. This is mainly driven by the program we have launched for both our service people and our salespeople of value selling. And this is, I would say, organized, different manners of course, in all the business units of the company.

So based on that, we believe – we strongly believe, that the company will be, again, completely reorganized along the lines of product business units, which will be more healthy. And therefore, the growth will come. But in French, we say, we shouldn't put the [indiscernible] that means we need first to finalize this transformation to grow. And of course, we do that on the basis of a company which is far stronger than it was a few years ago.

Your question that I didn't answer, Siegwerk. You should not over-analyze this. It just shows one thing. It shows that we have, in house, a certain number of IP, which are of interest for some players in the world. And every time it makes more sense for Agfa to deliver this IP through a company which is more better equipped than us in terms of distribution, as opposed to us, this is the kind of things we will promote. And this is a typical example.

So Siegwerk is one of the big players. Siegwerk has to develop in the digital printing, digital inks. We have a product which is pretty strong. And again, it's a niche. We speak about digital UV durable digital UV durable-for-packaging ink. So it's not the whole portfolio of inks of Agfa. But in this niche, where we believe that Siegwerk is well-equipped in terms of distribution compared to us, we somewhat monetized, I would say. The fact that we have a strong know-how and a strong base.

And so Siegwerk has found in Agfa a strong IP, and we have found in Siegwerk a strong network for distributing the products better than what we could have done ourselves. That's it. But it's a niche. It's an announcement which was significant enough to be announced, but that's it.

Stefaan Genoe

You mentioned…

Christian Reinaudo

Operator, we have a question in the room here.

Stefaan Genoe

You mentioned the low profitability in CR/DR in recent years. Could you give some more color on what is the main reason for that and the measures to improve profitability?

Christian Reinaudo

No. I mean, the reason for that is, first of all, you have balance between the declining CR business and the growing DR business. Of course, we are trading off a position of Agfa which is one of the big players in the CR business as opposed to a rather small player in DR yet, because, we started, as you know, a bit later than some of our major competitors. And therefore, we are still subcritical in terms of size of DR compared to the size of CR.

So it has several impact. The first impact is that the top line is complicated to grow at this stage because of the relative weight of both parts of the equation. It's – therefore, the DR business itself is not profitable because it is subcritical in size. The good news, that the CR business is still profitable enough to have a business which is okay, but that's what we need to work on.

So – and this is what Luc and his team are doing. And they need to find a way to balance the right parameters between a portfolio which is both, of course, serving well the customers; but on this side, I believe, we have the full portfolio that the customer need. We have launched Dynamic DR, the so-called 100, some weeks ago. We have the full portfolio of products from mobile units to retrofit. The retrofit is when you just change the cassette of the CR via a flat panel of DR. We have the – all the equipment related to ceiling mounted, wall mounted, et cetera. So we have a strong portfolio of products.

We are still a bit subcritical in size because the business is not at the level of some of our major competitors; and therefore, we need to understand where is the right position in terms of pricing, in terms of service pricing, in terms of equipment pricing, in terms of hunting for growth as opposed to profitability – traditional problems of activities, which are, just to some extent, starting.

If we were a startup, it would be a very successful startup because from 0 to, whatever, close to $100 million today in five years or six years, it's a fantastic result. But now we need to move to the maturity phase of the DR business and hopefully transformation of CR into DR should help. And it's still a fragmented market. That means there is still room for emerging and significant player in this field.

Stefaan Genoe

On the hardcopy, with the reorganization that has taken place in 2017, what's been the – if we look at the profitability, I'd say, it's of course hard to compare different raw materials also, et cetera. But if you compare profitability in hardcopy 2016 and, I would say, at the end of 2017 on a yearly running basis, how has profitability evolved in the hardcopy?

Christian Reinaudo

2017 is still a bit early. But 2018, clearly, the profitability is better. The reorganization that we are doing in China is aiming at, as you understand, give shorter access to the final market, which are the hospitals for Agfa. Therefore, we eliminate intermediate layers of distribution, the essence of what we have done. And of course, I expect from that, that even if the volume might be a bit lower and the cost base will be a bit higher because we have our own sales force in some activities, in some parts of the continent of China on the other side, and we set up the price which is closer to the market price.

Therefore, the margin, overall, should be improved. That's the target. It's too early to say how much yet because we are just finishing the reorganization without a clear target. And the overall balance, the volume/ price/margin is going to be better than it was in 2016.

Stefaan Genoe

We were bound to old contracts in 2017.

Christian Reinaudo

Yes, that's a fair comment. This is a significant part of the first pillar, resist, because the hardcopy is important.

Stefaan Genoe

It sounds suited. In China, how far are you in targeting other cities in Tier 1? Are you already on Tier 3? Or is it still Tier 2?

Christian Reinaudo

You mean for the hospitals?

Stefaan Genoe

Yes.

Christian Reinaudo

Luc, do you want to take this question?

Luc Delagaye

So the China market has evolved over the last number of years from, what I would call, the East Coast to the West. That's one direction. Secondly, the market has indeed moved from, call it, the top-tier hospitals to basically the lower-tier hospitals. And it's precisely the reason why we felt that we needed stronger understanding of that market province per province, and therefore, indeed, a better penetration and grip on what was happening locally. And that's the process that we have undertaken and that we are still in the process of rolling out there.

Stefaan Genoe

I think during the presentation you said you would come back on digital prepress and growth.

Christian Reinaudo

So that's what I did when I spoke about the different components of the top line: price pressure, volume, et cetera.

Stefaan Genoe

Okay, okay.

Christian Reinaudo

Okay. So just to conclude then if there is no more questions, I just want to reiterate what I said. So take 2017 and 2018 as a transition period, where we have very clear ideas of what we want to do. We will guide you as much as we can during the year in terms of cost of the projects, split project, et cetera. But at this stage, I'm still cautious.

We are more and more confident, I would say, in the fact that what we are doing now is something that we had to do. Unfortunately, it will not be – it was not possible to do it earlier because the company was not strong enough, now it is stronger. And I'm, I would say, reasonably confident, as I said, on the fact that the target of 10% EBITDA on sales is a target which is reasonable on the medium term for the company, but don't expect 2018 to be at this level. Thank you.

Operator, on our side, we can close the call.

Operator

And that concludes today's conference. Thank you all for your participation. You may now disconnect.

Christian Reinaudo

Thank you.