Agfa-Gevaert NV (AFGVF) CEO Christian Reinaudo on Full Year 2018 Results - Earnings Call Transcript

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About: Agfa-Gevaert NV (AFGVF)
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Earning Call Audio

Agfa-Gevaert NV (OTC:AFGVF) Full Year 2018 Earnings Conference Call March 13, 2019 5:00 AM ET

Company Participants

Christian Reinaudo – Chief Executive Officer

Dirk De Man – Chief Financial Officer

Conference Call Participants

Guy Sips – KBC Securities

Maxime Stranart – ING Bank

Stefaan Genoe – Petercam

Operator

Welcome to full year 2018 earnings call. [Operator Instructions] This call is being recorded. If you have any objections, you may disconnect at this time. May I introduce your speaker for today, Christian Reinaudo, CEO of Agfa. Please go ahead.

Christian Reinaudo

Thank you, operator. Good morning, everyone. We’ll review together to comment the result of Agfa for the fourth quarter of 2018. And of course, I will give you the full picture of the full year 2018. But maybe before we start to comment the numbers, I would like to give the flavor of where we stand after an intensive year of hard work at Agfa, and I believe that it is worth to understand the numbers, that we go first through a quick session to understand the – what are we doing.

As I said in November, I will give some colors on where we go. So it depends, of course, the kind of colors you were expecting. It can be a bit rosy as opposed to red or green, but I believe we have a lot to say. First of all, in 2018, we did this job of splitting technically the company into two units, two entities: one that we call Agfa HealthCare now which is, in fact, the former HealthCare IT business of Agfa; and the rest, we call it Agfa, the rest being, of course, the non-IT part of imaging, but also, the former Graphics business and the former Specialty business group. The idea of this split, as I said several times, is to give some kind of independence to the two units to help them to develop partnerships and make sure they can grow independently.

Secondly, we’ve tried to simplify the structure of the group. So not only we have created these two entities, but within Agfa, we have created three divisions which are more aligned than before on the technology and solutions because we believe this will be the access for establishing future partnership. And the best example that I will comment later on is the alliance with Lucky. So basically, the three divisions will be the Offset Solutions division, which is basically going to be the former prepress business of Graphics. There will be the Radiology Solutions division, which is the former imaging; and there will be a new division, which we call Digital Print & Chemicals, which will be the addition of the former inkjet business and the Specialty business. Why?

Because we believe that there are certain number of synergies that we can deliver, in particular, the technology based on the chemicals and the inks in particular, in this division. So it means that starting from next quarter, that means the 14th of May, I will report the company numbers along these lines. You will have therefore four segments of reporting, which will be: the Offset, the Radiology, the Digital Print & Chemicals and the IT.

The third important step that we have achieved in 2018 was this strategic alliance with – in the offset industry with Lucky. We disclosed the essence of this transaction a few months ago, which is about a pretty wide scope: dealing with the go-to-market, dealing with the technology and dealing with manufacturing. The essence of it is to – it’s a restructure of the offset business. And I believe that the way we have structured this partnership with Lucky, with a joint venture between them and us to deal with the domestic market in China, the idea that the cost of manufacture will be lower because we have access to some capacity in their factories; and the fact that we have transferred some technology to make sure we keep the advantage of the quality of Agfa in this transaction makes sense.

And as we said when we announced this transaction, there will be a further expansion of the scope over time. And we are, as we speak, starting to discuss with Lucky on this expansion. The next important thing I believe we have done in 2018 has been to refocus on our core businesses in some of our businesses. The first example is obviously, and this is the one which has the biggest impact on our numbers, the fact that we have decided to stop reselling the plates, in particular for the flexo business in the U.S., which has an impact of roughly €60 million in our top line in 2018.

And this is, of course, a refocus on the printing of information, where we are definitely better and good at, because we have the full integration of their solutions as opposed to diversifying the offset business in different places. And the second example I would like to give, which is less visible probably, is a certain number of decisions we have taken, in particular in the Imaging IT, to refocus the business – or at least to remove from our business some markets where the business was either too small or not growing enough to deliver, I would say, strong results in the future.

So therefore, there are some markets today we won, China, for example, where we decided to stop the business and to keep the maintenance of the existing projects but not to further develop the business, in order that we can focus the energy on the markets where we have a significant differentiation to establish and to maintain. So if I come back to the offset restructuring. The alliance with Lucky is obviously an important part, but you may have seen, of course, that we have done a lot – a few other things. In particular, we have acquired in the Spanish company Ipagsa, which is part of this strategy of reestablishing a go-to-market which serves different types of customers, customers which are more buying at price as opposed to customers which are more buying solutions and services from Agfa.

Ipagsa was a company which was pretty good at selling in the first category, and therefore, the integration of Ipagsa gives us some capabilities in terms of skills and access to other Chinese manufacturers to make sure we can develop this differentiation of access to markets. And the third element, of course, of this offset restructuring has been the closure of Branchburg. As I said several times, we suffer today in our margins and in our overall price evolution from the shift of the market towards the Asia and the low-cost countries, I would say. And of course, of the markets in more mature markets, the prices are declining. The volumes are declining. Therefore, we are taking the steps that we need to keep the position of Agfa in this evolution of the market.

Next point is the reorganization of our hardcopy distribution channels in China which is finished. It’s over. It’s done. So now we have our own sales organization dealing with a network of distribution, which is far broader than the one we had before. Of course, we start to recover. I hope the numbers of Q1 would show some recovery, and we execute the plan as it was. So the good news, that the margin – the selling price, because we have eliminated at least one layer, if not two, of distribution will be better. We have lost in this battle, as you know, some positions on the markets that we intend to recover.

And finally, on a different point of view, we have also executed the first part of the two-year plan that Dirk De Man, our CFO, is conducting, which is about de-risking the pension scheme of Agfa, in particular in the U.S. and in the UK, trying to progressively adapt the assets and the liabilities in terms of duration and the like to reduce the risk and to make this funding gap almost totally derisked over time. So these are, in fact, important elements I think we need to mention to understand the numbers of the full year because, in particular, we will comment later on the debt of the company and the net result of the company, which is negative. But without this kind of investments, and I call that investments, the results would have been clearly far better.

But we think that we can afford now, based on the reasonable strength of this company, we can afford to reinvest to prepare the future of Agfa. So as I said, the new structure will be based on the four divisions. In a nutshell, the strategy of the four divisions will be dictated and conducted by the same reflection, which is that Agfa acts a bit like a small conglomerate. And in each of our businesses, whether they are growing or whether they are declining because the markets are mature, the size of our company today is sometimes a bit subscale. So therefore, we need to grow. We need to find a way to develop the businesses.

And the best way to develop the business is, we believe, is to establish partnerships with other players, which has a double effect: first of all, a kind of consolidation of the markets; and secondly, a broader base to amortize the cost of distribution but also the cost of restructuring development. That’s – typical example is what we have done with Lucky in the Offset Solutions division. So we intend to do the same, to some extent, on the Radiology business over time, in particular in our DR business, which is a bit subscale.

Digital Print & Chemicals, it’s another story because we believe we have, in the different domains, the technology to develop the business by itself. There could be some of these businesses where we may have to – also, to partner to extend the reach of our business, but this division is poised for growth based on our own technology. And finally, HealthCare IT. Of course, in the two domains of the hospital systems and in the domains of Imaging IT, it is poised for growth. The growth is clearly demonstrated on the hospital systems, where we will see we have a growth of close to double digit in 2018 with a systematic improvement of our EBITDA, you will see that later, and of our top line in the last three, four years, with a strong position in DACH in Germany and the German-speaking countries of Europe; but also, growing position in France, where the contracts with the hospitals in Paris is now developed very smoothly. So we believe this division is in a very strong position today.

And on the Imaging IT part. As you know, we’ve had a little bit of problems in the execution in the U.S. in 2017 and 2018. But the good news, that – because we have postponed the introduction of the new platform in Europe and the rest of the world, there, it works well. Therefore, we continue to work hard on the U.S. situation to restore the credibility which has been a little bit eroded for Agfa in this market, but also, to further develop the business. And I must tell you that in the last three to six months, we had a significantly smoother installation and relationship with our customers in the U.S. So this is basically the element of the strategy that we are going to develop, and that, progressively, we will explain more and more in this kind of discussions.

What are the next steps? Because this is basically what we have done. The next step, the first one is, of course, that we’re going to do something – a transaction on the IT business. The Board of Directors of yesterday has decided that we will be appointing JP Morgan as financial adviser. I say we will be appointing because we’ve not finalized yet the conditions in which we are going to work together, but JP Morgan is selected. And the work will be, in the next two to three months, to clarify the scope and the timing of the operation. It will be dealing with IT and it will be prepared with JP Morgan.

The second future step is the extension, because it works well, of the alliance with Lucky. So we’ll extend the scope of what we do with Lucky, probably going beyond the borders of the Greater China. And this extension of partnership will be still dealing with the three elements of R&D and technology, manufacturing and distribution channels. As I said, it’s clearly our intention, but I cannot be very precise today, to take similar steps in the other businesses than the Offset, in particular in the Radiology business. So that’s a domain where I hope we’ll be able to communicate a bit more precisely about the strategy in the next quarters.

And finally, we have launched a program, which is aiming at further streamlining our operations. The reorganization of Agfa in two units had, of course, the main target to enable these two units to grow and to find partnerships, but the other target was clearly to simplify the structure of the group. We have set up an organization in sales in the different regions which is common within Agfa and to all the activities, the three divisions of Offset, Radiology and Digital Print & Chemicals. So we expect this organization will drive further savings. There will be a further streamlining of our processes, simplification of the operation, and we have designed a plan to execute on this further streamlining.

Of course, doing that, you spend money. The split of the company has created some dis-synergies in terms of IT support, for example. We have to hire some consultants to help us in the definition of the strategy. You know that we have established a plan that we call FitCo for the IT business to improve significantly the profitability and the efficiency of the division. So there are some effects of the split, slight effect, which are also dealing with, for example, the tax situation of the group. So all that has a cost.

On top of that when you restructure like we have done, by closing a factory in the U.S. because you need to readapt your manufacturing scheme and your supply chain to the new market conditions, of course, you also spend money to do that. And this is what I call an investment because, of course, we will not do that if we didn’t have a clear return on investment based on the lower cost of manufacture and the proximity to our growing customers, in particular, in Asia. So this has a cost, and you see that, of course, in the net result of the company.

Now commenting pretty quickly on the P&L of the year. If I may, I will comment mainly the full year results because the quarter four is very well in line with the rest of the year, we could say, unfortunately or naturally. So the top line has been declining by 8%. But excluding currency exchange rates because, of course, we suffered from the – at least in the beginning of the year, from the weakness of the dollar compared to last year, the drop of the top line is 5% – 5.3%. And you further exclude from that the decisions we have taken to stop some businesses, in particular the reselling of the core plates in the U.S., then the drop comes down to 3.2% or 3.4%.

So in line with what we did in 2017 compared to 2016. Are we happy with that? The answer is obviously no. Is it a disaster? The answer is also no. And I cannot fully commit yet, but I think it’s close to the end of the story of the decline of the top line of Agfa. That means, in 2019, we should be in a better position. The gross profit dropped basically by 120 basis points, influenced by different things. Of course, the cost of aluminum has some impact. I will not say it’s a massive impact because our hedging strategy has protected us a little bit, but we have an impact of aluminum and other raw materials, by the way.

The results were an impact on the gross margin due to the mix of products and the regional sales. As we said several times, in particular in offset, when the market growth in countries where we are facing the hard competition of the Chinese manufacturers, obviously, the margins are eroded. In spite of the fact that our value selling program, which is a program in which we insist in front of our customers on the value Agfa brings with the software and the services, this program has worked reasonably well. But of course, it works well in markets which are somewhat declining, like Western Europe or the U.S. So the gross margin has eroded, but I will not qualify that as a major problem at this stage for the company. The SG&A in the context of a declining top line is, of course, complicated to maintain.

And to some extent, it has driven part of the reflection we had on the new organization, because we believe that the structure we give to our business, in particular the regional setup, should help reducing the cost of SG&A. And as I said, we have a program in place to further limit the cost over time.

The R& D stays roughly constant, and it will stay like that because we need to continue to develop our business. The other operating items, which are showing up at plus €90 million this year, is a mixed bag of different things. But in this, you find also the part of the royalties we get from Siegwerk, where we’ve – as you know, we have announced the transaction on the ink. It was more than a year ago. And there are some, of course, positive effect on the P&L here. So you can associate that to the ink business of Agfa.

The results of these comments is that the EBITDA at the end of the year is €179 million, exactly at 8%, which was the guidance I gave in November; 1.1 point below the level of last year and 2.4 points below the level of 2016. We expect 2019 to be in the same order of magnitude, probably not lower. Below EBIT, massive restructuring investment.

Of course, in the quarter four, you find in the €37 million a significant part of restructuring, which is the cost of the closure of the Branchburg factory. Non-operating results, which is the sum of the interests of the debt and the pension, is in line with the guidance and the same level as last year. And the taxes are €34 million, as I said, have some impact due to the reorganization of the legal units of the group.

The net result is at minus €15 million. But as you see, our joint venture in China performs well because, here, the net result is positive by €9 million for the minority interest. Therefore, the net result of the JV is twice as big as that. So that’s basically the comments on the numbers. To give a more positive note on the top line in particular.

Yes, of course, the erosion of the top line is due to the different parameters that you know pretty well: the decline of the analog business, the shift to countries where the prices are lower in offset, the decline of the film business and a few other things. But there are some very satisfactory elements, in particular the very strong growth of our HCIS business, very – I mean, very strong growth, profitable.

Another element of satisfaction is that our DR business, in spite of the difficulties we still have due to our position and our size, is growing in 2018, once again. And there are significant numbers of products within the Specialty Products group which have been performing pretty well also. The debt, I also already commented, of course. But you need to take into account that in – this increase in 2018, the vast majority of that is due to decisions we have made to invest in the future of the company: acquisitions; settlement of the problems in distribution in China; the decision to invest in the pension plan, in particular in the U.S., to de-risk the plan; plus a few other things which are linked to the reorganization of the group in terms of supply chain and increase of inventory which are, for a large part of them, kind of one-offs, transitory.

But some of them are more linked to the new business model that we put in place; the closure of Branchburg which is, of course, destabilizing for a period of time the overall supply chain because we need to supply in the U. S. from other factories than the factory in the U.S. So all this kind of things are elements which are creating some kind of turmoil on the debt.

We believe that we can afford that in the current position because the debt at the beginning of the year was close to zero. But of course, these are investments more than expenses or loss of cash due to the bad results of the company. The working capital in itself.

You’re used to this format now. So the numbers of Q4 2017 have been restated following the new rules. You see that we have a significant increase of our inventories, and again, this is largely due to the reorganization of the group, which is leading to an increase of our days of inventory on hand of 12 days. The receivables are performing in line with the business, so we keep the number of days roughly constant; and the payables are going in the right direction in terms of days of payment. But of course, the ratio of working capital on sales is not satisfactory.

So this is another point of attention for 2019. We have somewhat eased a little bit the working capital to help the business to develop, but we need, in 2019, to come back to the very cautious management of our inventories and receivables.

And there is also, here, a plan and clear targets, which have been given to the different parts of the organization to achieve a significantly better result in 2019. And I hope we can deliver some positive cash flow from the working cap in 2019. So that’s a long introduction of the group, but I think it was probably good to wrap up a little bit everything we have done in 2018 and the consequence of these actions on our numbers in the year 2018.

For Graphics, as you see, the pie chart doesn’t change a lot. In a global declining business, we see that the inkjet, software and service part is slightly going up year-on-year. Surprisingly, the analog prepress, this is very well. And the reason for that is because we’re basically now almost the only one manufacturing film in the world for the graphics industry.

So we are resisting pretty well in this domain, and this business is, both cash and P&L-wise, a profitable business. The numbers of Graphics are very similar in Q4 to where they were during the year, so basically, minus 10% excluding currency exchange rates. But you have to deduct from that roughly 5% – or a bit more than 5%, which is due to the stop of reselling products in the U.S. So in fact, the net debt in terms of top line of Graphics is more in the range of 5%.

The gross profit of Graphics, of course, is basically the place where the gross profit of the company goes down. You see that we have almost three points. There is a convergence of everything. So you have the convergence of aluminum costs. You have the convergence of the shift to countries where the margins are lower, and you have the convergence of the shift of products within the – and the price competition within the business. The consequence of the drop of top line is obviously that it’s complicated for Graphics to keep the SG&A constant at the level of 20%, 21% that we are aiming for.

And this is why in the plan of cost reduction that I was talking about, this division, offset, has to contribute a lot because we need to restore a better position in terms of SG&A. The research and development is constant, and the recurring EBITDA at €40 million is what it is. But if you compare to our peers, it’s not that bad. I commented most of this chart already. Maybe on the business highlights. We have signed an important contract which is a five-year contract for the offset with News Corp in Australia. We have received an award for the Best Printing Plates Supplier in Brazil.

And more importantly to some extent, the new Jeti Tauro – I mean, new for what, almost a year now, which is a large machine, 3.3 meters wide and high-speed machine, this equipment is very well accepted by the market. So the price point and the structure of the machines and the service it can deliver and the speed the like are very well positioned. So we have a significant success in order intake with this machine, which gives us some hope that 2019 will be a reasonable year for the inkjet business. HealthCare pie chart.

What to comment, here, it’s the opposite of Graphics. The classic radiology is basically disappearing, giving place to the hardcopy, and of course, to the IT solutions. Hardcopy would progressively recover. We are 27% on the year. The traditional value of this part of the pie chart was more 29%, 30%, so we’ll see how progressively this part will be taking the normal position.

The CR/DR business, with the decline of CR and the growth of DR, is kept constant at about 20% of the sales of HealthCare; and the IT business is roughly half of the group in 2018, with a significant increase, as you can see here, on the hospital part compared to the Imaging IT Solutions. We used to be 1/3-2/3, and we are now – sorry, we used to be 1/4-2/4. We are now at 1/3-2/3.

The numbers of HealthCare. So very constant behavior in Q4 compared to the rest of the year, minus 1% excluding currency exchange rates. I’m not happy because I would have loved to see a growth because HealthCare is normally supposed to grow. And the reason for this decline is that we have still to recover in China, and therefore, the normal position of the business in Radiology Solutions in China is not yet proven in 2018.

So hopefully, this number of top line evolution will be better in 2019. The gross profit is not so much eroded in HealthCare. Of course, we suffered a bit from the volume loss, in particular, in imaging. But overall, the prices and the positions and the margins and the evolution of cost compared to prices is in the right direction for IT, for sure, and for the rest of the group. SG&A, around 21%, a little bit of decline in terms of pure value by €seven million; ratio-to-sales is a bit more complicated to keep.

The R&D effort is roughly constant €90 million compared to €93 million the year before. And the EBITDA is at 12%, which is obviously suffering, once again, from the situation of – in 2018 of the film business in China. Highlights of the quarter. We have signed an agreement of distribution in China, which was – I mean, in itself, it’s not a big event.

But it’s an event which was signed in front of the two prime ministers, so that’s a contract which received some visibility. We rolled out Enterprise Imaging in cardiology now, in particular in Australia, in a pretty big contract. And we have been successfully going live with the Enterprise Imaging in the Zuckerberg San Francisco General Hospitals, which has some visibility because of the ownership of this hospital.

For Specialty Products, the numbers are pretty similar to what we had before. So you see a quarter four where we have a slight increase, both excluding and including exchange rates, because the dollar is playing in the right direction here – no, in the wrong direction but no major impact. And in the full year, excluding currency exchange rates, we have a little increase of top line. Let’s say the business stayed flat in 2018, in spite of the fact that receivers are being cheaper and being part of our business with non-destructive testing with General Electric.

It had some kind of growth in actual terms of volume. The gross profit goes in the right direction. The cost of OpEx is going in the right direction. And the EBITDA at 12% is now – I think it’s a record of the last 10 years at least for the EBITDA of Specialty. So this business, small, develops well. And again, we believe it can serve as a sort of anchor in terms of business model, in terms of the way we do the business in [indiscernible] for the little sister inkjet business. I commented this slide. Maybe two slides. Do I risk the comments or do you do it, Dirk?

Dirk De Man

I can risk. Okay. So this slide, you are used to it because I think it’s the third time or fourth time we present it. It gives, from bottom to the top, the asset evolution. So our assets were damaged in the fourth quarter for reasons that you know, probably, which is the disaster on the equity market. But it has recovered in the meantime. But that was the picture at the end of the year. The good news is that on the other side, the obligations have also reduced and further reduced compared to the asset.

This is due to different things, among which, of course, the interest rates increase, which has contributed in the IFRS standards to improve the position here. And therefore, the funded status – I call it the unfunded status, in fact, has reduced by €77 million for the four material countries. You should add, on top of that, the non-material countries that we have reduced from close to €1.1 billion to €one billion.

So that’s a significant impact, I would say. In terms of the other way to look at the pension issue, and still for the four material countries. In terms of pension costs, you see that we are reasonably constant in 2018 and 2017. The estimation for 2019 is to stay here, so very stable compared to last year. And in terms of cash outflow, the level that we normally state is €70 million. And you see here the effect of the two-year program that we have decided to de-risk the plans, so we are basically injecting some cash in the plans, €98 million in 2018.

And we plan to have a cash outflow of €106 million in 2019. But this increase of cash outflow is only due to decisions we are taking to de-risk the plans. There’s not a shift in terms of cash outflow in the normal evolution of our pension plans. That’s it.

So thank you for your attention. Just to wrap it very quickly and summarize. So year 2018, that, we could have done probably a bit better in different circumstances; heavily impacted by the rather relative strength of euro for a large part of the year compared to the other currencies; impacted by the increase of some raw materials, including aluminum; impacted by the evolution of our businesses towards low-cost and low-margin countries, in particular, in offset; a year where we have done a huge amount of things which are preparing, I think, very well the future of this company.

Of course, we hope that we can start to harvest a little bit in 2019, probably more in 2020 and 2021. And we have invested in the business because we believe both businesses, Agfa HealthCare and Agfa, would be able to grow in the very near future. And therefore, more optimistic that the number seems to show. Thank you.

Christian Reinaudo

I think we can move to the questions in the room first, and then we will open the microphones to the external audience. Guy?

Question-and-Answer Session

Q - Guy Sips

Guy Sips, KBC Securities. I have three questions. First question is on your EBITDA guidance. That would be stable year-on-year, although we can expect some tailwind from raw materials in 2019. So aren’t you rather prudent on that side? And normally, you are hinting or guiding for 10% revenue margin over the cycle or in the longer run. You are not repeating that. Is there a reason for that? Or it’s just that…

Christian Reinaudo

Maybe I you can answer your first question. Let’s move step-by-step because we have time, and I think it’s worth that we’ll spend some time on the results. So on the EBITDA, medium-term, I stick to what we said before. That means – and honestly, we have, as you know, a permanent process in this company to review the numbers over the next five years. And I stick to what I said. So in the current perimeter of the group, 10% is the target of the company.

As I said a few minutes ago, for 2019, of course, the EBITDA will be not at 10%. But I hope it will stay at least at the level of last year. Let’s say it this way. now going forward, we are starting to reflect on that. The perimeter of the group will change. Therefore, it will be more and more complicated, maybe for you and probably for me, to continue to monitor this kind of EBITDA based on the perimeter, which is going to become obsolete over time. So we are reflecting on the way to better guide.

You will see, in May, the EBITDA of four businesses as opposed to the previous three. The way we reorganize, we’ll give you the possibility to deduct by additions and subtractions, an even more fine understanding of the EBITDA, okay? And we may have some discussions on this basis later on during the year. But there is nothing new in terms of evolution of the profitability of the business. Nothing is going against our plans to change the guidance. So I stick to my 10% on the medium term.

Guy Sips

Second question is on HealthCare IT. So can you give us an indication of the margins for the two divisions in HealthCare IT and how that is evolving? And how is – what is the competitive position in that area?

Christian Reinaudo

That – there are things I can repeat, things that I can a bit clarify. There are two different models within the IT business of Agfa: one is the hospital systems, one is the Imaging IT. In both case, we are, I believe, technologically and market-wise, well positioned to deliver a profitability which has to be at the level of our peers. In the HCIS business, the hospital systems, we are there already. We have a track record. We have a significant growth of the top line in the last three, four years.

We have a consistent evolution. We have very good forecasting internally. And to a large extent, we somewhat over-deliver. We have a very strong position in Germany, which makes us significantly profitable in Germany; and we have a position in France which is still building up, but I would say significantly improving, in particular, in 2018. You may have seen that we have signed a new contract in the year 2018 with a large university hospital in Nice.

As I said, the renewal of the contract with AP-HP went very smoothly in the last four years. So we – next year, we have to rediscuss with AP-HP for the further extension. But the relationships are pretty good. The rollout is done to a large extent. So that’s a position which is pretty strong. By the way, in this division, you also have some other activities like the document management that we report into this division, which is also performing pretty well. So this part of the business, take it in line with what the other ones are doing.

The Imaging IT business, it’s a little bit different. Imaging IT, you have – as I said, you have a business which is, first of all, very different in nature. That means it’s a global business, and we are addressing it as a global payer. It’s a business which is, globally, for any supplier in the world, less profitable even if you are very good compared to the EMR business, with the exception of a few players which are very localized, which are able to develop a profitability which is probably above the average.

But you cannot expect from this business, on the longer term, the same kind of EBITDA as you can expect from the hospital systems. Having said so, in this domain, because we have been precursors in the evolution of the platform and because we didn’t execute well in the U.S., we are still suffering in terms of profitability compared to expectations. And Luc Thijs is personally in charge of the business as we speak because the previous leader has left.

And we have a plan which is starting to develop, which is going to take into account everything, not only the stability of the platforms, which is now more or less achieved, but also, the process of R&D and the release delivery; the process of having reference sites in the different countries of the world – main markets to make sure we have customers which are playing the role of advocates of our products and our solutions, which is going with the service organization and the service efficiency, which is going with the partnerships where we need to have partnerships to include in our solutions.

So all that is underway. As you may know, we have worked with an external consultant on that to further strengthen our capabilities. And this brand is, as we speak, is being developed. So 2018 was not a good year for IITS. 2019 should be better. In 2020, I hope we’ll be back to where we should be. So that’s the plan for this IT business. So the numbers – global numbers for IT, you will get it on the 14th of May, finally. And as I said, we have appointed or we will appoint soon JP Morgan to work on the scope and the timing of that transaction, and of course, we will have to deliver a bit more information by this time.

Guy Sips

And the last question is on board level. Is there – can we expect some changes there?

Christian Reinaudo

First of all, I am not mandated to discuss that. There will be, as you know, it’s public, some board members which are going to come to an end of their mandate in May. We are going to propose a certain number of changes, and hopefully, the shareholders will follow. And therefore, the board will be slightly different after the 14th of May compared to before the 14th of May. You will read with a lot of attention our annual report when we issue it sometime in April.

Maxime Stranart

So Maxime Stranart, ING Bank. So I had a question on sales. So you mentioned broadly flat sales for 2019. Could you, like, explain some more, like, where the growth will come from?

Christian Reinaudo

Sorry, I was still reflecting on my answer to Guy. May you restart your question?

Maxime Stranart

So basically, you mentioned broadly flat sales 2019. Do you – like, can you give us, like, more information from where those sales will come from?

Christian Reinaudo

No, this is not what I said. I said that I hope that 2019, the pattern of decline will be different and better. But in 2019, this alliance with Lucky might have an impact on the top line, more on the top line than the bottom line initially. So I think we will have to check precisely when we go the influence of this kind of things. So what I hope is that, excluding other elements, the top line of the group will continue to decline but slower than in 2019 – in 2018, okay?

But with the consequences of what we are doing with Lucky, depending on the finalization of some agreements, we may have a consolidation of top line which could be better. That’s why I’m pretty cautious on this kind of things. My attention is more driven by the bottom line than the top line. The businesses which have to grow, and I was pretty transparent in the – a few minutes ago, the one which is not delivering yet the growth I expect is the HealthCare business.

But in particular, it was due to the fact that we have reformed our go-to-market in China for the film. So if you look at the IT business, I don’t want to paraphrase what I said. The part of hospital system is growing even better than we expected. The part of IT – Imaging IT, I hope it will start to grow better than in the past – in the year to come. And for the rest, there is no major disappointment in terms of top line evolution.

Stefaan Genoe

Stefaan Genoe of Petercam. A follow-up on a lot of – on the previous questions on the guidance for this year. I understand that the plates business in Graphics is a key focus in 2019, and it’s also important, of course, in terms of sales and to get improved profitability in 2019. You already closed the factory also in the U.S. That should almost, by nature, imply profit growth or improvement in profitability from that unit, if the inkjets remains positive, HealthCare continues to grow. So I then – I would like to repeat a previous question. Should we – what am I missing not to see the profit growth in 2019?

Christian Reinaudo

The structural profitability of offset is still to be demonstrated. I mean, the – there are positive evolution hopefully because of the alliances we are building, in particular, also, the acquisition of Ipagsa, which is a profitable business. But the underlying trends, being the increase of fight with the Chinese competitors – I’m not talking about, to some extent, not that much talking about Lucky, but there are other players in China. The shift to countries where the prices are lower and the impact of aluminum steel in 2019 for Agfa, because of our hedging policy, this going in the wrong direction.

So whether or not this will be compensated by the positive effect of what we are building with Lucky, 2019, it’s probably too early to say. 2020, 2021, I am far more optimistic. But 2019, we are still in the edge, okay? For the IT business, no way, no doubt. That means both the former imaging, which is the Radiology Solutions division now, and the IT should grow their top line – their bottom line, okay?

And for inkjet and Specialty, I would say the numbers are pretty small at this stage. The Specialty, you know it. But growing the EBITDA of Specialty beyond the 12% will become more and more of a challenge. So the growth of EBITDA is not going to come a lot, I believe, from this division in the short term. So HealthCare will develop EBITDA; and offset, to be validated.

Stefaan Genoe

Okay. Another question on HealthCare. You mentioned several times, in DR, you’re lacking some size and critical mass, if I understand well. Recently, a couple of weeks ago, Onex decided to sell its health care business – part of the health care business to Philips.

Christian Reinaudo

The IT, yes?

Stefaan Genoe

Yes, apart of it. They still have the DR, if I’m – Carestream still has got the DR business. Is that something where we could see potential for partnerships or anything like that?

Christian Reinaudo

At this stage, as I said, we are not advanced enough. I will certainly not comment on a potential partner specifically before anything is signed. But there are indeed a certain number of – in fact, if you look at the DR market in the world, you have three categories of suppliers. You have the three big names: GE, Philips, Siemens, which are probably sharing something like 44%, 45% market share globally.

Then you have the three players which are very similar to Agfa, but started pretty early compared to Agfa in the DR markets. So I name Konica Minolta, Fuji and Carestream. These ones are more sharing roughly half of the first three ones. And then you have a huge number of small players in which I still rank Agfa in terms of market share while, normally, we should be belonging to the second tier, second category.

And the mission of Agfa is clearly to move to the second tier. So the way to do that could still be organic because we are progressing in terms of top line. Should we invest a bit more in the go-to-market or not? That’s part of the reflections we have. And it could be maybe by indeed a consolidation in the market, whether we consolidate with one of the Tier two or what, that’s something which has to be defined. That’s why I saying we are relatively clear now on the strategy for IT and the strategy for Offset, but we still need to work on the strategy of our Radiology Solutions.

Stefaan Genoe

Okay, thank you. And then on HealthCare IT, if I understood well, during your presentation, you indicated that in HealthCare IT, with Germany, very profitable; France, improving a lot in 2018. Overall margins, and I think the group – the margin for Agfa HealthCare is around 9% to 10%, are similar among the different businesses in HealthCare?

Christian Reinaudo

Stefaan, wait for the 14th of May. You tried.

Stefaan Genoe

It was too obvious. I’m sorry.

Christian Reinaudo

I thank you for your questions.

Stefaan Genoe

Okay. And then last question, on the pension cost. We’ve had higher cash outs in 2018, 2019. Will this reduce the cash outs 2020 and beyond? Or what cash outflow should we look for 2020 and beyond?

Dirk De Man

It think it should go back to normalized level. So what we’re basically doing is de-risking the pension plans, which means a reduction of both the liabilities and the assets. Another thing that we’re doing, which is more about de-risking in the long term is – especially in the U.S., we’re looking at it right now, is duration matching. So making sure that the investments and the liabilities are better matched in terms of duration, which means that, let’s say, the share of equity in the investment portfolio would reduce in favor of long-term investment tools. So those things don’t require funding.

So it’s only the de-risking where, for instance, people get a payout of their future pension or that we get rid of the annuities through third parties. By nature of the funding requirements of those pension funds, we need to do a top-up so that the funding ratio remains at a required level, and that’s why we have in 2018 and in 2019 these cash outs. But those are not recurring.

So then we would drop again. So it’s about €35 million next – in 2019. It was about €25 million in 2018. So in total, about €60 million, which are non-recurring because we do these de-risking exercises. Now that doesn’t exclude that in the future, we may again want to do these programs. We have done them in the past and we may do them in the future as well. But at least, these things are exactly the things that we’re planning in the coming years.

Stefaan Genoe

Okay. Thank you.

Christian Reinaudo

Any other question? So no question from the room. Operator, do you have any question outside of the room here?

Operator

Speaker, there are no questions in queue at this time. [Operator Instructions] There are no questions in queue at this time. [Operator Instructions] We show no question at this time.

Christian Reinaudo

Okay, which is not a surprise because all the analysts tracking the company are in the room here. So I would like to thank everyone for attending this call. I give you a new appointment on the 14th of May, which will be, hopefully, a good discussion again. Thank you.

Operator

The concludes today’s conference. Thank you for your participation. You may now disconnect.