Business News

Agfa-Gevaert reports third quarter results – Regulated information

Monday 03. November 2008 - Sales at 741 million Euro - Decrease of 6.0 percent (1.7 percent excluding currency effects) Effects of economic slowdown becoming more visible S G&A costs 14.9 percent lower versus last year’s third quarter Recurring EBIT at 27 million Euro versus 25 million Euro in third quarter of 2007 Strong impact of raw material costs and one-off elements Net financial debt at 723 million Euro versus 852 million Euro in the third quarter of 2007

Agfa-Gevaert today announced its third quarter results. Including currency effects, Group sales declined 6.0 percent to 741 million Euro. Excluding currency effects, the decline was limited to 1.7 percent. The effects of the deteriorating economic conditions became more visible, both in Agfa Graphics and Agfa HealthCare. Agfa Specialty Products’ sales were driven by high-volume contracts with customers in the imaging industry. Aside from the above-mentioned economic slowdown, the Group’s gross margin was impacted by the high raw material costs, one-off elements and adverse mix effects. Thanks to a considerable reduction of the Selling and General Administration costs, recurring EBIT increased from 25 million Euro in the third quarter of 2007 to 27 million Euro. The Group’s net result amounted to minus 13 million Euro.

Agfa-Gevaert Group – third quarter
Euro millions Q3 2007 Q3 2008 % change
Net Sales 788 741 -6.0%
Gross Profit 261 224 -14.2%
% of sales 33.1% 30.2%
Recurring EBITDA (*) 65 55 -15.4%
% of sales 8.3% 7.4%
Recurring EBIT (*) 25 27 8.0%
% of sales 3.2% 3.6%
Operating result 7 19 171.4%
Net result (consolidated comp.) (14) (13)
Net operating cash flow (46) 24
(*) before restructuring and non-recurring items.
Excluding currency effects, Group sales decreased 1.7 percent to 741 million Euro. Including currency effects, a decrease of 6.0 percent was recorded.
In addition to the impact from the raw material costs (which were 19 million Euro higher than in the third quarter of 2007), one-off elements and adverse mix effects also impacted the Group’s results. Gross profit amounted to 224 million Euro (30.2 percent of sales), compared to 261 million Euro (33.1 percent of sales) in the third quarter of 2007.
Compared to last year’s third quarter, Agfa-Gevaert was able to further reduce its Selling and General Administration costs by 27 million Euro (22 million Euro excluding currency effects). These expenses represented 20.8 percent of sales, compared to 23.0 percent in the third quarter of 2007 and 22.0 percent in the second quarter of 2008. The Group will continue to focus on improving its efficiency and on reducing its costs in all business groups.
The Group’s recurring EBITDA (the sum of Graphics, HealthCare, Specialty Products and the unallocated portion) amounted to 55 million Euro, versus 65 million Euro in the third quarter of 2007. Recurring EBIT increased from 25 million Euro to 27 million Euro.
Restructuring costs and non-recurring items were 8 million Euro, versus 18 million Euro in the third quarter of 2007.
The non-operating result was minus 24 million Euro and the net result amounted to minus 13 million Euro.
Balance sheet and cash flow
– At the end of September 2008, total assets were 3,465 million Euro, compared to 3,559 million Euro at the end of December 2007.
– Inventories were 633 million Euro (or 108 days), compared to 692 million Euro (117 days) in September 2007. Trade receivables amounted to 792 million Euro, or 96 days and trade payables were 253 million Euro, or 43 days.
– Net financial debt was 723 million Euro at the end of September 2008, compared to 737 million Euro at the end of June 2008, and 852 million Euro at the end of September 2007.
– Net operating cash flow amounted to 24 million Euro in the third quarter and 9 million Euro after 9 months.
Agfa Graphics – third quarter
Euro millions Q3 2007 Q3 2008 % change
Net Sales 400 377 -5.8%
Recurring EBITDA (*) 29.4 28.6 -2.7%
% of sales 7.4% 7.6%
Recurring EBIT (*) 13.4 15.6 16.4%
% of sales 3.4% 4.1%
(*) before restructuring and non-recurring items.
Agfa Graphics posted a minor sales decrease of 1.2 percent (excluding currency effects). Including currency effects, a decrease of 5.8 percent was recorded. This decrease was due to the effects of the economic slowdown and the price pressure related to it, as well as to certain adverse one-off effects. The market-driven decline in the analog computer-to-film segment continued, whereas the digital computer-to-plate (CtP) segment continued its growth. Mainly because of deliveries resulting from deals closed at the drupa trade fair, the industrial inkjet segment’s sales were higher than in the previous quarters.
Agfa Graphics’ plan to reduce its R&D expenditures is on track and the business group also succeeded in accelerating the reduction of its Selling and General Administration costs. These costs now represent 20.2 percent of sales, versus 21.5 percent in the third quarter of 2007. These efforts compensated for the adverse effects of the economic slowdown and the high raw material costs. As a result, recurring EBITDA increased to 28.6 million Euro (or 7.6 percent of sales) and recurring EBIT increased to 15.6 million Euro (or 4.1 percent of sales).
In the United States, the number of major daily newspapers using Agfa Graphics’ computer-to-plate technology in their prepress production locations continues to grow. For instance, the Chicago Sun-Times recently purchased 9 :Advantage CLS CtP systems, along with :Arkitex workflow components. Owned by the Sun-Times Media Group, The Chicago Sun-Times is one of the nation’s leading newspapers. In Brazil, Agfa Graphics closed a deal with O Globo, one of the country’s most important newspapers. The deal includes 5 :Polaris CtP systems, the complete :Arkitex workflow software and a three-year printing plate contract.
Howitt, one of the largest integrated marketing support and print providers in the United Kingdom, has invested in Agfa Graphics’ :Delano Webapproval project management system. The system allows Howitt’s customers to access digital page proofs processed through the company’s prepress department, speeding up the approval process.
In the field of industrial inkjet, PriscoDigital has joined the list of distributors for Agfa Graphics’ wide-format inkjet printers and consumables. PriscoDigital offers the full line of :Anapurna systems across the United States. This range includes the new :Anapurna XLS, which is designed to provide photographic quality at high production speeds.
Agfa HealthCare – third quarter
Euro millions Q3 2007 Q3 2008 % change
Net Sales 319 291 -8.8%
Recurring EBITDA (*) 29.4 21.0 -28.6%
% of sales 9.2% 7.2%
Recurring EBIT (*) 6.4 7.0 9.4%
% of sales 2.0% 2.4%
(*) before restructuring and non-recurring items.
Excluding currency effects, sales decreased 4.2 percent to 291 million Euro, which is slightly less pronounced than in the previous quarters. Including currency effects, the decrease amounted to 8.8 percent. As some hospitals are postponing their investments, the economic slowdown is weighing on the business group’s sales figures, mainly on IT sales. The strong Euro also continued to affect HealthCare’s competitive position in North America and the UK. In Imaging, the traditional film segment continued its market-driven decline, whereas the hardcopy segment performed well in the third quarter. When comparing the Imaging IT sales figures (Radiology Information Systems-Picture Archiving and Communication Systems – RIS/PACS) with those of last year’s third quarter, it should be taken into account that a significant part of the revenues from the important contract with the British NHS organisation was booked in 2007.
Agfa HealthCare was able to further reduce its SG&A expenses by 18.2 percent compared to the third quarter of 2007, but further efforts will be implemented to bring these costs to a more competitive level. On top of the weaker sales, the business group’s profitability was affected by the high silver costs, as approximately half of HealthCare’s sales still comes from film products. Recurring EBITDA amounted to 21.0 million Euro (or 7.2 percent of sales). Recurring EBIT was 7.0 million Euro, or 2.4 percent of sales.
In the third quarter, the business group continued to strengthen its management team with the signing of Dr. Volker Wetekam as its new Executive Vice President for its global HealthCare IT division.
In imaging, Premier Purchasing Partners awarded Agfa HealthCare a new three-year contract for film and medical imagers. The contract allows Agfa HealthCare to provide diagnostic film, media and medical imagers to Premier’s 2,000 member hospitals and 53,000 other healthcare sites in the United States.
Agfa HealthCare again expanded its RIS/PACS solutions with additional features. The business group signed an agreement to integrate Meridian Technique’s OrthoView tool into its IMPAX for Orthopaedics solution. OrthoView is a leading digital planning solution, allowing orthopaedic surgeons to pre-operatively plan surgical procedures on-screen.
In the field of enterprise-wide IT, the Assistance Publique – Hôpitaux de Paris (APHP) hospital network selected Agfa HealthCare as its partner for one of the largest European health information projects to date. Supported by a consortium of companies, Agfa HealthCare will install its leading Clinical Information System, ORBIS, at the network’s 37 hospitals. The first effects on HealthCare’s sales should become visible in the course of 2009. Given APHP’s strong reputation and the complexity and scope of the project, this contract could become a key lever for future success in healthcare IT.
Agfa Specialty Products – third quarter
Euro millions Q3 2007 Q3 2008 % change
Net Sales 69 73 5.8%
Recurring EBITDA (*) 8.3 6.2
-25.3%
% of sales 12.0% 8.5%
Recurring EBIT (*) 7.3 5.2 -28.8%
% of sales 10.6% 7.1%
(*) before restructuring and non-recurring items.
Agfa Specialty Products’ sales increased 7.2 percent (5.8 percent including currency effects) to 73 million Euro. Continuing the trend of the first half of the year, sales were driven by high-volume film contracts with customers in the imaging industry. These contracts more than offset the declining trend in some of the traditional products. Cine film, the most important traditional film product in Specialty Products’ portfolio, performed markedly better than in the previous quarters.
Specialty Products is on track with its efforts to reduce its operational costs in line with the evolution in its traditional markets. However, the business group’s profitability was affected by mix effects, the impact of the silver price, inventory write-downs and the fierce competition in the declining traditional markets. As a result, the recurring EBITDA margin amounted to 8.5 percent of sales and the recurring EBIT margin amounted to 7.1 percent of sales.
In the third quarter, Agfa chose Igepa Belux as the exclusive dealer for its SYNAPS polyester-based synthetic paper in Belgium and Luxembourg. Earlier this year, SYNAPS was introduced to the market at drupa, the largest trade fair for the printing and media industry.
Results after nine months
Agfa-Gevaert Group – year to date
Euro millions 9m 2007 9m 2008 % change
Net Sales 2,419 2,271 -6.1%
Gross Profit 867 734 -15.3%
% of sales 35.8% 32.3%
Recurring EBITDA (*) 248 193 -22.2%
% of sales 10.3% 8.5%
Recurring EBIT (*) 138 106 -23.2%
% of sales 5.7% 4.7%
Operating result 99 82 -17.2%
Net result (consolidated comp.) 69 –
Net operating cash flow (29) 9
(*) before restructuring and non-recurring items.
– Excluding currency effects, Group sales decreased 1.3 percent.
– Affected by the sales decline, the high raw material costs and adverse mix effects, the Group’s recurring gross profit margin decreased from 35.8 percent in the first nine months of 2007 to 32.3 percent.
– Compared to the same period in 2007, the Group reduced its Selling and General Administration costs by 13.7 percent, or 78 million Euro (60 million Euro excluding currency effects).
– The Group’s recurring EBIT decreased 23.2 percent to 106 million Euro.
Agfa Graphics – year to date
Euro millions 9m 2007 9m 2008 % change
Net Sales 1,201 1,140 -5.1%
Recurring EBITDA (*) 94.1 85.5 -9.1%
% of sales 7.8% 7.5%
Recurring EBIT (*) 46.1 46.5 0.9%
% of sales 3.8% 4.1%
(*) before restructuring and non-recurring items.

Excluding currency effects, sales decreased 0.1 percent to 1,140 million Euro. The business group’s efforts to reduce its operational costs allowed it to offset the effects of the high raw material costs and the economic slowdown. Recurring EBITDA amounted to 85.5 million Euro, or 7.5 percent of sales. Recurring EBIT increased 0.9 percent to 46.5 million Euro, or 4.1 percent of sales.
Agfa HealthCare – year to date
Euro millions 9m 2007 9m 2008 % change
Net Sales 1,018 898 -11.8%
Recurring EBITDA (*) 124.7 87.7 -29.7%
% of sales 12.3% 9.8%
Recurring EBIT (*) 66.7 43.7 -34.5%
% of sales 6.6% 4.9%
(*) before restructuring and non-recurring items.
Excluding currency effects, sales decreased 6.8 percent (11.8 percent including currency effects) to 898 million Euro. Selling and General Administration costs decreased by 19.3 percent from 280 million Euro in the first nine months of 2007 to 226 million Euro. Recurring EBITDA amounted to 87.7 million Euro, or 9.8 percent of sales. Recurring EBIT decreased 34.5 percent to 43.7 million Euro.
Agfa Specialty Products – year to date
Euro millions 9m 2007 9m 2008 % change
Net Sales 200 233 16.5%
Recurring EBITDA (*) 32.0 20.9 -34.7%
% of sales 16.0% 9.0%
Recurring EBIT (*) 28.0 16.9 -39.6%
% of sales 14.0% 7.3%
(*) before restructuring and non-recurring items.
Excluding currency effects, sales grew 18.3 percent (16.5 percent including currency effects) to 233 million Euro. The recurring EBITDA margin was 9.0 percent of sales and the EBIT margin amounted to 7.3 percent of sales.
Outlook
The spreading economic slowdown is affecting Agfa-Gevaert’s businesses, mainly in the field of investment goods. As the further evolution of the economic climate is highly uncertain, it is impossible to offer a clear outlook for the months to come. The first positive impact of the recent trends on the exchange markets and of the declining silver and aluminum prices might become visible as from the beginning of 2009.
In Graphics, the effects of the slowdown are becoming increasingly visible. Excluding currency effects, sales still showed modest growth in the first quarter and were almost stable in the second quarter. In line with the economic trend, a slight decrease was booked in the third quarter. The prepress segment will continue to be characterized by the accelerating decline in analog prepress and by growth in the innovative digital prepress activities. The industrial inkjet segment is expected to continue to grow, although the growth rate could be negatively affected by the economic slowdown. Graphics will continue to focus on cost reduction initiatives to tackle the challenges in its markets.
In the traditional film business of HealthCare’s Imaging segment, the present trend is expected to continue. In IT, the effects of the economic slowdown are beginning to show. On the other hand, the business group expects to book the first revenues of the major IT deal with the Assistance Publique – Hôpitaux de Paris hospital network in the course of 2009. The business group will protect its profitability by further reducing its operational costs.
Specialty Products intends to further strengthen its position as a leading supplier within the industry through contracts for large volumes of film. To compensate for the market-driven decline for some of its traditional products, the business group is focussing on promising growth markets with new products such as the SYNAPS synthetic paper and the Zirfon Perl membranes.
The Agfa-Gevaert Group is on track with its measures to reduce its Selling and General Administration costs by 100 million Euro (approximately 75 million Euro excluding currency effects) by the end of 2008. Furthermore, the Group recently disclosed details about an additional cost savings plan, which was announced on the occasion of the publication of the second quarter results. On top of the 2008 savings, the plan targets a reduction of the Group’s operational costs by 120 million Euro by the end of 2010. This amount mainly concerns a reduction of the Selling and General Administration costs. Next to this amount, additional cost reduction measures are being taken to safeguard the Group’s gross margins in view of the most recent economic trends.