Agfa-Gevaert Group’s EBITDA increases by 22% year-on-year in an extraordinary inflationary context

Agfa-Gevaert today commented this week on its results in the first quarter of 2022.

“We are living in a time of extraordinary inflation, geopolitical uncertainties and in particular the Russia-Ukraine conflict, unseen volatility in our supply chains and continuing COVID effects, particularly in China,” said Pascal Juéry, President and CEO of the Agfa-Gevaert Group.

“All input costs from raw materials, energy, packaging, transportation and salaries continue to increase materially and supply chain disruptions are strongly impacting our activities. In this complex inflationary context, we are able to maintain margins through pricing and cost management actions. Driven by the strong performance of the Offset Solutions division, we significantly improved our recurring EBITDA, which shows that our pricing strategy and strict cost management are paying off. Furthermore, we again took major steps in our transformation program in recent months.

“The measures we have taken recently with regard to our internal IT services and our internal financial services are examples of how we are simplifying our operating model. Only a few weeks ago, we announced our plans to acquire Inca Digital Printers. This investment will strengthen our position in the high-speed wide-format market as a whole and specifically in the promising packaging segment.

Digital printing is a profitable growth engine for us with a tremendous potential that will be further accelerated by the addition of Inca,” he concluded.

Agfa-Gevaert Group – Q1 2022

(*)         before restructuring and non-recurring items

The Group’s top line increased by 7.2%, mainly driven by the Digital Print & Chemicals and Offset Solutions divisions. Successful price increase actions and volume increases allowed both the Digital Print & Chemicals division and the Offset Solutions division to significantly improve their top line compared to the first quarter of 2021.

As price actions allowed the Group to partly mitigate cost inflation, its gross profit margin remained almost stable at 29.0% of revenue.

R&D expenses decreased from 25 million Euro in the first quarter of 2021 to 24 million Euro. Despite extended inflationary pressure and supply chain issues, adjusted EBITDA increased from 15 million Euro (3.9% of revenue) in the first quarter of 2021 to 19 million Euro (4.4% of revenue). Adjusted EBIT reached 4 million Euro, versus minus 1 million Euro in the first quarter of 2021.

Restructuring and non-recurring items resulted in an expense of 9 million Euro, versus an expense of 1 million Euro in the first quarter of 2021. This increase reflects investments in various transformation projects, including the organization of the Offset Solutions activities into a stand-alone legal entity structure and the partnership with Atos for Agfa’s internal IT activities.

The net finance income amounted to 2 million Euro. Income tax expenses amounted to 3 million Euro versus 4 million Euro in the first quarter of 2021.

As a result of the elements mentioned above, the Agfa-Gevaert Group posted a net loss of 7 million Euro.

Financial position and cash flow

• Net financial debt (including IFRS 16) evolved from a net cash position of 325 million Euro at the end of 2021 to a net cash position of 262 million

Euro.

• Due to supply chain issues, seasonal effects, currency effects and high raw material prices, trade working capital increased from 26% at the end

of 2021 to 28% at the end of March 2022. In absolute numbers, trade working capital evolved from 449 million Euro at the end of 2021 to 507

million Euro.

• The Group generated a free cash flow of minus 54 million Euro.

Outlook

The Agfa-Gevaert Group expects the full impact of cost inflation in the second quarter, which will also be affected by the uncertain geopolitical situation and the COVID-related lockdowns in China. Additional price actions are being taken to tackle cost inflation. Assuming that the uncertainty in most markets will not deteriorate, the second half of the year is expected to be better thanks to additional pricing actions coming into effect.

Overall, the Agfa-Gevaert Group continues to focus on working capital improvements and cost management. The ongoing transformation actions are

expected to bring more agility and to further simplify the operations of the Group. They will also allow the Group to further reduce its costs from 2023

onwards.

Digital Print & Chemicals – Q1 2022

(*)         before restructuring and non-recurring items

The Digital Print & Chemicals division’s top line grew substantially versus the first quarter of 2021. Price increases have been implemented in almost all business areas to tackle the increasing raw material, packaging, energy and freight costs. The full impact of these price increases will become visible in the second half of the year. Further price increases will be communicated in the near future.

Mainly impacted by strong cost inflation, logistic challenges and mix effects, the division’s gross profit margin decreased slightly to 30.4% of revenue (31.1% in the first quarter of 2021). The adjusted EBITDA margin evolved from 7.2% of revenue (5.2 million Euro in absolute figures) in the first quarter

of 2021 to 5.2% (4.1 million Euro in absolute figures). Adjusted EBIT reached 1.5 million Euro (1.9% of revenue) in the first quarter of 2022 versus 2.3 million Euro (3.2% of revenue) in the first quarter of 2021.

In the field of digital print, the sign & display business continued its upwards trend, both in terms of top line and bottom line. The ink product ranges for sign & display applications continued to perform well, clearly exceeding pre-COVID levels. In spite of industry-wide logistic challenges, the wide-format printing equipment business continued to recover from the strong COVID-19 impact.

In January, the European Digital Press Association rewarded no less than three Agfa innovations introduced in 2021: the Jeti Tauro H3300 UHS LED hybrid large-format printing press, the InterioJet water-based décor paper printing press for laminate surfaces, and the Alussa leather printing system.

In April, Agfa announced its intention to acquire Inca Digital Printers, a UK based leading developer and manufacturer of advanced high-speed printing and production technologies for sign and display applications as well as for the rapidly growing digital printing market for packaging.

The specialty chemicals range of the division is well-positioned for future growth with products and solutions that target specific promising markets. Agfa’s Orgacon conductive materials, for instance, are used in hybrid and electric car technology. In spite of the COVID impact (mainly in China), this business continued to grow and volumes are back to pre-COVID levels.

The company’s range of Zirfon membranes for advanced alkaline electrolysis is setting a new efficiency standard in the production of green hydrogen; and is being recognized by customers and experts as the industry reference. In March, Agfa announced that it will supply a significant volume of its Zirfon separator membranes to Thyssenkrupp Nucera within the framework of a number of large-scale hydrogen projects. This confirms Agfa’s position as technology leader in this field.

Agfa’s range of products for the production of printed circuit boards was hit by cost inflation. High silver costs were only partially offset by price increase actions.

Agfa’s specialty film and foil products are mostly used in industries that have been hit by the COVID-19 pandemic, including aviation, the oil and gas industry and the printing industry. In some of these areas, the demand has not recovered to pre-pandemic levels yet. Sales figures for the Synaps range of synthetic papers grew strongly, based on the recovery of the relevant printing markets and on the success of certain new applications. All Synaps XM (Xerographic Matt) papers now include an agent which antagonizes the settlement and growth of bacteria and viruses on its surface. This new version of Synaps XM was launched in November 2021.

Offset Solutions – Q1 2022

(*)         before restructuring and non-recurring items

The Offset Solutions division’s top line improved by 11.6% compared to the first quarter of 2021. The revenue increase is fueled by successful price increases that have been implemented to tackle the raw material, packaging and freight cost inflation.

Although affected by cost inflation, the Offset Solutions division’s gross profit margin improved from 22.2% of revenue in the first quarter of 2021 to 23.1% due to the implemented price adjustments.

Targeted actions to improve the division’s profitability resulted in lower selling, general and administration expenses as a percentage of revenue. Adjusted EBITDA improved strongly to 7.9 million Euro (4.2% of revenue) versus 1.6 million Euro (1.0% of revenue) in the first quarter of 2021.

Adjusted EBIT amounted to 3.4 million Euro (1.8% of revenue), compared to minus 3.2 million Euro (minus 1.9% of revenue) in the first quarter of 2021.

It is expected that cost inflation will continue to impact the business in the months to come. Pricing actions will mitigate this impact. The most recent wave of price increases has come into effect in May 2022.

To improve profitability and address the decline in market demand, Agfa is reviewing its offset business model, simplifying its organisation and streamlining its product offering.

Agfa expressed the intention to organise the Offset Solutions activities into a stand-alone legal entity structure and organisation within the Agfa-Gevaert Group. The implementation of this project is proceeding according to plan.