Business News

Agfa-Gevaert reports fourth quarter results

Wednesday 27. February 2008 - Sales of 864 million Euro, negatively impacted by strong Euro and economic slowdown in the USA

EBIT of 59 million Euro, affected by high raw material costs, strong Euro and lower sales
Net financial debt 131 million Euro lower than end of September, driven by a substantial working capital reduction
Graphics able to keep prepress margin stable
First generation inkjet portfolio ready for market introduction
Double-digit margin in HealthCare
Cost savings plan on track
Full year 2007 net profit of 42 million Euro, fourth quarter net loss of 27 million Euro
Proposal not to pay dividend for 2007

Agfa-Gevaert today announced its fourth quarter results. High raw material costs continued to weigh on the Group’s results and sales were affected by the strong Euro and the economic slowdown in the USA. During the fourth quarter, Agfa-Gevaert succeeded to substantially reduce its working capital and net financial debt. Sales amounted to 864 million Euro. Recurring EBIT was 59 million Euro and the net loss amounted to 27 million Euro.

Agfa-Gevaert Group – fourth quarter
Euro millions Q4 2006 Q4 2007 % change
Net Sales 927 864 -6.8%
Gross Profit (*) 342 291 -14.9%
% of sales 36.9% 33.7%
Recurring EBITDA (*) 117 92 -21.4%
% of sales 12.6% 10.6%
Recurring EBIT (*) 80 59 -26.3%
% of sales 8.6% 6.8%
Operating result (42) 26
Net result (consolidated comp.) (25) (27)
Net operating cash flow (6) 137
(*) before restructuring and non-recurring items.
Group sales in local currency decreased 3.2 percent to 864 million Euro (6.8 percent including currency effects).

Compared to the fourth quarter of 2006, the costs for aluminum – used exclusively in Graphics for the production of printing plates – were again 8 million Euro higher. The price of silver – used in all business groups – remained at very high levels.

The recurring gross profit margin decreased from 36.9 percent in the fourth quarter of 2006 to 33.7 percent, mainly because of higher raw material costs, lower sales and adverse mix effects, which were partially offset by improved production efficiencies. Furthermore, the gross profit margin was affected by non-cash costs related to the production slowdown in order to substantially reduce inventories.

Since Agfa-Gevaert announced its savings plan in August 2006, a net reduction of the Group’s work force by approximately 1,100 full time equivalents to approximately 13,400 employees was recorded. The Group succeeded in bringing down the Sales- and General Administration costs by 9.6 percent. SG&A expenses represented 22.8 percent of sales in the fourth quarter. Additional measures are taken to further lower these costs.

R&D expenses remained stable at 50 million Euro. The main focus continued to be on industrial inkjet printing in Graphics and software solutions in HealthCare.

The Group’s recurring EBITDA (the sum of Graphics, HealthCare, Specialty Products and the unallocated segment) amounted to 92 million Euro, versus 117 million Euro in the fourth quarter of 2006. Recurring EBIT decreased 26.3 percent from 80 million Euro to 59 million Euro. Restructuring costs and non-recurring items amounted to 33 million Euro, versus 122 million Euro in 2006.

The non-operating result was minus 18 million Euro and a net loss of 27 million Euro was recorded.

Balance sheet and cash flow
– At the end of 2007, total assets were 3,559 million Euro, compared to 3,832 million Euro at the end of 2006.
– In the fourth quarter, significant progress was recorded in reducing working capital. Mainly due to targeted actions in Graphics, inventories decreased to 578 million Euro (or 97 days), compared to 624 million Euro (107 days) in December 2006 and 692 million Euro (117 days) in September 2007. Trade receivables stood at 861 million Euro, or 90 days. Trade payables amounted to 275 million Euro, or 46 days, reflecting the Group’s efforts to lower spending at all levels and the reduction of purchases of raw materials in order to align the production to the goal of reducing inventories.
– Compared to the end of the third quarter of 2007, net financial debt decreased by 131 million Euro to 721 million Euro.
– Net operating cash flow amounted to 137 million Euro in the fourth quarter and 108 million Euro for the full year.

Agfa Graphics – fourth quarter
Euro millions Q4 2006 Q4 2007 % change
Net Sales 444 416 -6.3%
Recurring EBITDA (*) 33.7 29.5 -12.5%
% of sales 7.6% 7.1%
Recurring EBIT (*) 17.7 14.5 -18.1%
% of sales 4.0% 3.5%
(*) before restructuring and non-recurring items.
Graphics’ sales amounted to 416 million Euro, a decrease of 2.8 percent in local currency (6.3 percent including currency effects). Sales were impacted by the strong Euro, the economic slowdown in the USA and the accelerated decline in the analog computer-to-film segment.

The recurring EBITDA margin amounted to 7.1 percent of sales and the recurring EBIT margin decreased from 4.0 percent of sales to 3.5 percent. Graphics significantly lowered its working capital, which negatively affected the EBIT margin in the short term, but enabled the business group to generate substantial cash during the quarter.

The prepress segment performed well and succeeded in keeping its EBIT margin stable at approximately 7 percent, in spite of 8 million Euro higher aluminum costs and the impact of the inventory reduction program. The strict implementation of the savings plan and the shift from analog technology to more profitable digital computer-to-plate systems explain these favorable results. On the other hand, the industrial inkjet segment continued to face high start-up losses, as the R&D efforts were intensified to finalize the development of the 1st generation of products.

At Ifra, the trade event for news publishers held in Vienna (Austria) in October, Agfa Graphics demonstrated the next generation of its violet photopolymer printing plate technology. The :N92v printing plate for newspaper and commercial printing applications succeeds the market-leading :N91v plate, with improved run length and higher quality. Also at Ifra, Agfa Graphics demonstrated the latest version of its workflow system for newspaper production, :Arkitex 6.0, as well as the new tool :Arkitex Portal, which provides a single screen overview of the entire newspaper workflow. Axel Springer AG, Germany’s largest newspaper publishing company, decided to use Agfa Graphics’ screening technology :Sublima across all its printing sites in Germany. The software is designed to substantially improve print quality without any additional efforts. In Thailand, The Post Publishing Public Company installed 2 :Polaris Computer-to-Plate systems and :Sublima technology. The company publishes The Bangkok Post, the largest English newspaper in Thailand, and the Thai-language The Post Today.

In the commercial printing market segment, Agfa Graphics signed a partnership with Technique Group, which allows Agfa to combine its :Delano project management system and :ApogeeX workflow software range with Technique’s information system. The integrated solution offers customers complete job automation and control, from job creation to delivery of the final project. In November, Agfa Graphics announced the installation of the 1,000th :ApogeeX workflow system in North America.

In industrial inkjet, ITNH and Gazillion Digital Solutions have joined the growing list of US dealers representing Agfa Graphics’ :Anapurna range of wide-format printers. Sign printer Sign-A-Rama in Escondido (California) purchased an :Anapurna XL², the flagship of the wide-format range. The company is part of the Sign-A-Rama franchise, which has 600 stores in 25 countries.

Agfa HealthCare – fourth quarter
Euro millions Q4 2006 Q4 2007 % change
Net Sales 425 374 -12.0%
Recurring EBITDA (*) 80.3 54.9 -31.6%
% of sales 18.9% 14.7%
Recurring EBIT (*) 60.3 38.9 -35.5%
% of sales 14.2% 10.4%
(*) before restructuring and non-recurring items.
After the low performance of the previous quarter, HealthCare’s results improved significantly. Sales were higher than in the third quarter in 2007 and a double-digit margin was reached. Compared to the fourth quarter in 2006, HealthCare’s sales decreased 8.1 percent at stable exchange rates (12.0 percent including currency effects), mainly due to the market driven fall in classic film and hardcopy.

SG&A costs decreased considerably, partially offsetting the weaker sales and adverse mix and currency effects. The recurring EBITDA margin stood at 14.7 percent of sales. Recurring EBIT amounted to 38.9 million Euro, or 10.4 percent of sales.

In the field of imaging, Agfa HealthCare introduced its Drystar Axys tabletop hardcopy printer to the United States market. The system is designed to print images from various modalities and it is the only tabletop hardcopy printer that meets the stringent US mammography requirements. In Canada, Agfa HealthCare received the official authorization to offer certain CR digitizers for mammography applications.

In November, HealthCare announced the renewal of its contract with Premier, allowing Agfa to offer Picture Archiving and Communication Systems (PACS), Radiology Information Systems (RIS) and reporting systems to the more than 1,700 member hospitals of this US purchasing alliance. At the annual meeting of the Radiological Society of North America, Agfa HealthCare showcased the latest version of the market-leading Imaging Informatics IMPAX suite, which can address the most simple to the most complex workflows in imaging departments.

In the fourth quarter, Agfa HealthCare also reported various commercial successes for its ORBIS hospital and clinical IT solutions. With the German Hospitalgesellschaft Jade-Weser GmbH an agreement was signed for the introduction of ORBIS throughout the entire hospital group. Also in Germany, the KMG Kliniken AG Bad Wilsnack private hospital group decided to expand ORBIS to all six of its care centers. In France, Italy and Belgium, Agfa HealthCare continued its successful deployment of ORBIS in several key institutions. In the emerging e-health segment, where collaboration between healthcare providers is crucial for the quality of care, HealthCare reported over 8,000 General Practitioners in France to be connected to its collaborative result distribution platform. Together they administrate, transmit and track hundreds of thousands of laboratory results and reports on a monthly basis.

Agfa Specialty Products – fourth quarter
Euro millions Q4 2006 Q4 2007 % change
Net Sales 58 74 27.6%
Recurring EBITDA (*) 5.6 9.2
64.3%
% of sales 9.7% 12.4%
Recurring EBIT (*) 4.6 7.2 56.5%
% of sales 7.9% 9.7%
(*) before restructuring and non-recurring items.
Agfa Specialty Products’ sales increased 30.0 percent (27.6 percent including currency effects) from 58 million Euro in the fourth quarter of 2006 to 74 million Euro. Sales were driven by important high volume contracts in the fields of Specialty Foils and Components and Security and Identification, such as the contract for a complete subsystem for the production of the Moroccan ID cards. The recurring EBITDA margin amounted to 12.4 percent of sales. Recurring EBIT increased to 7.2 million Euro, or 9.7 percent of sales.

In the fourth quarter, Agfa Specialty Products concluded two contracts for its conductive organic Orgacon products. The Norwegian company Thin Film Electronics will use Agfa’s tailor-made Orgacon printing inks for the production of printed memories and the Swedish company PaperDisplay will use Orgacon products for manufacturing low cost information displays printed on paper. Furthermore, a range of films for use in security cameras and speed cameras was launched, based on Agfa’s aerial photography films.

Full year results
Agfa-Gevaert Group – full year
Euro millions 2006 2007 % change
Net Sales 3,401 3,283 -3.5%
Gross Profit (*) 1,299 1,158 -10.9%
% of sales 38.2% 35.3%
Recurring EBITDA (*) 408 340 -16.7%
% of sales 12.0% 10.4%
Recurring EBIT (*) 256 197 -23.0%
% of sales 7.5% 6.0%
Operating result 65 125 92.3%
Net result (consolidated comp.) 15 42 x2.8
Net operating cash flow 107 108 0.9%
(*) before restructuring and non-recurring items.
– Excluding currency effects, Group sales decreased 0.5 percent.
– The Group’s recurring gross profit margin decreased from 38.2 percent in 2006 to 35.3 percent, mainly because of the impact of raw materials costs, which were 84 million Euro higher than in 2006.
– The Group’s recurring EBIT decreased 23.0 percent to 197 million Euro.
– The Group Group posted a net profit of 42 million Euro or 34 Eurocents per share, compared to 15 million Euro or 12 Eurocents per share in 2006.

Agfa Graphics – full year
Euro millions 2006 2007 % change
Net Sales 1,712 1,617 -5.6%
Recurring EBITDA (*) 140.6 123.6 -12.1%
% of sales 8.2% 7.6%
Recurring EBIT (*) 72.6 60.6 -16.5%
% of sales 4.2% 3.8%
(*) before restructuring and non-recurring items.

Excluding currency effects, sales decreased 2.7 percent (5.6 percent including currency effects) to 1,617 million Euro. Due to the evolution of the raw material costs, which were 69 million Euro higher than in 2006, and the investments for industrial inkjet, recurring EBITDA was 123.6 million Euro, or 7.6 percent of sales. Recurring EBIT decreased 16.5 percent to 60.6 million Euro. Due to the strict implementation of cost savings and increased production efficiencies, the prepress segment was able to almost completely offset the substantially higher raw material costs. The inkjet segment, on the other hand, continued to face high start-up losses.

Agfa HealthCare – full year
Euro millions 2006 2007 % change
Net Sales 1,452 1,392 -4.1%
Recurring EBITDA (*) 239.4 179.6 -25.0%
% of sales 16.5% 12.9%
Recurring EBIT (*) 161.4 105.6 -34.6%
% of sales 11.1% 7.6%
(*) before restructuring and non-recurring items.
Excluding currency effects, sales decreased 0.8 percent (4.1 percent including currency effects) to 1,392 million Euro. Recurring EBITDA reached 179.6 million Euro, or 12.9 percent of sales. Recurring EBIT decreased 34.6 percent to 105.6 million Euro.

Agfa Specialty Products – full year
Euro millions 2006 2007 % change
Net Sales 237 274 15.6%
Recurring EBITDA (*) 45.3 41.2 -9.1%
% of sales 19.1% 15.0%
Recurring EBIT (*) 39.3 35.2 -10.4%
% of sales 16.6% 12.9%
(*) before restructuring and non-recurring items.
Excluding currency effects, sales grew 17.3 percent (15.6 percent including currency effects) to 274 million Euro. The recurring EBITDA margin was 15.0 percent of sales and the EBIT margin amounted to 12.9 percent of sales.

Dividend
The Board of Directors, while confident in the strategy of the Group, considers that the dividend policy should reflect the performance of the year and therefore will propose to the Annual General Meeting of Shareholders of April 29, 2008, not to pay a dividend for 2007.

Outlook
The Agfa-Gevaert Group will continue to focus on cash generation and on improving the operational performance of its businesses. Taking into account the current economic climate, Agfa-Gevaert expects stable sales in 2008 (at constant exchange rates), with digital and IT solutions offsetting the market-driven decline of the traditional products. The Group’s profitability will however again be affected by the raw material costs, should these remain at the same high levels as recorded in the first months of the year.

Agfa Graphics expects stable prepress sales (at constant exchange rates) in 2008, as the growth in digital printing plates should offset the decline in analog prepress. By strictly implementing the cost saving measures, Graphics aims to offset the further rising raw material costs. After the extensive improvement and testing programs of the last months, the technical problems in the inkjet segment have been overcome and the first generation inkjet product portfolio is now ready for market introduction. The target is to reach a market share of 10 percent in 2010 in the relevant industrial inkjet market. Agfa is taking adequate measures to reduce the losses and reach break-even in the course of 2009.

In 2008, the sales growth of HealthCare’s digital technology will not fully offset the decline in the traditional film and print business. Agfa HealthCare will focus on implementing the savings plans and additional measures to bring down SG&A costs in order to gradually increase profitability to double digit levels. PACS and CR are expected to grow substantially, especially in emerging markets, as the radiology and imaging workflows are becoming digital. In Enterprise Solutions, Agfa HealthCare introduced its ORBIS systems in a number of strategically important countries, which are expected to deliver significant growth.

Specialty Products, will further strengthen its position as a consolidator within the industry through cost leadership and operational excellence in film manufacturing and will continue to develop innovative products for new growth areas.

In the actual challenging market conditions, Agfa’s first priority is the operational improvement of the businesses. The Board of Directors confirms its commitment to a phased demerger but continues to examine all strategic options in the course of 2008.