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Agfa Reports 2002 Earnings: Profits Rise Despite Economic Climate

Friday, March 07, 2003

Press release from the issuing company

Mortsel, Belgium - 6 March, 2003 - For Agfa-Gevaert 2002 was characterised, on the one hand, by the persisting weakness of the world-wide economy and the strength of the Euro, which both affected revenues, and, on the other hand, by the substantial improvement of the company's financial performance. The operating result and net profit increased significantly, while working capital and net financial debt were sharply reduced. The further improvement of the quality of some of Agfa's products and services and the beneficial impact of the Horizon plan are the main reasons for this substantial progress. Agfa's turnover amounted to 4,683 mio Euros, a decrease of 4.6 percent which was limited to 2.8 percent excluding the sales of digital cameras and scanners, discontinued at the beginning of 2002. The main reasons for this decline were the continuing weakness of the overall economy and the strength of the Euro, primarily in the second half of the year. The transition towards digital imaging continued. In 2002, the turnover of Agfa's 'new digital solutions' rose again by 24.7 percent. Technical Imaging's turnover remained practically stable at 1,822 mio Euros, while sales in Graphic Systems (-4.1 percent) and Consumer Imaging (-12.5 percent including CDI and -5.2 percent excluding CDI) posted a decrease as these activities are more sensitive to the business cycle. Technical Imaging's share of total Group sales grew from 37.1 percent in 2001 to 38.9 percent in 2002, and thus for the first time exceeded that of Graphic Systems which amounted to 38.7 percent at the end of 2002 (2001: 38.5 percent). Finally, Consumer Imaging accounted for 22.4 percent (2001: 24.4 percent) of total Group turnover. Although all regions were affected by the weak economic conditions, turnover in Latin America (4.0 percent of total revenues) fell back significantly more than elsewhere, a consequence of the generally poor economic situation in this area combined with the negative influence of exchange rates. In spite of the dollar depreciation, turnover in Europe (-5.6 percent) slipped more than the 3.9 percent drop in the NAFTA region. This is explained by the particular weakness of the European photo market due to low travel and reduced holidays while Consumer Imaging was able to post strong sales in North America. Sales in the rest of the world rose by 1.1 percent and reached 17.6 percent of the total. In this difficult context, Agfa was able to sharply boost its productivity thanks to the further improvement in the quality of products and services and to the beneficial impact of the Horizon Plan. This plan was launched in 2001 and aims at cost savings of approximately 550 million Euros per year from 2004, through -among other items- a reduction of 4,000 full time equivalents. The plan runs until the end of 2003 and covers all the business groups, shared services and administrative departments. Its implementation is fully on track as is illustrated by the fact that at end 2002, staff levels were reduced by 2,911 FTE's. The gross profit margin increased substantially from 36.5 percent in 2001 to 42.2 percent in 2002, while sales and general administration costs were lowered by 7.9 percent. The operating result before restructuring costs and non-recurrent items consequently rose sharply from 260 million Euros in 2001 to 471 million Euros in 2002. The return on sales amounted to 10.1 percent (previous year 5.3 percent), which is comparable with the outstanding year 2000. The total restructuring costs associated with the Horizon plan amounted to 550 million Euros. Of this sum, 440 million Euros were already booked in 2001, while the remaining 110 were charged on 2002. During the year, 6 million Euros of additional restructuring charges were booked for non-Horizon projects. On the other hand, non-recurring income for a total of 38 million Euros was realised mainly thanks to the sale of some real estate. The operating result after restructuring costs and non-recurring items therefore reached 393 million Euros (previous year -264 million Euros) Financial charges were substantially reduced and the non-operating result consequently amounted to minus 97 million Euros compared to minus 120 million Euros in 2001. Income before taxes rose to 296 million Euros. After deduction of taxes, minority interests and the share of results of associated companies, a net result of 194 million Euros was achieved in 2002 (previous year: -288 million Euros). Earnings per share amounted to 1.39 Euro, against minus 2.06 Euros in 2001. In view of these results, it will be proposed to the General Meeting of Shareholders of 29th April, 2003 to pay, on 30th April, 2003 a gross dividend per share of 50 Eurocents compared to 23 Eurocents the previous year. Business segments In 2002, Graphic Systems achieved a turnover of 1,813 mio Euros, a decrease of 4.1 percent, which illustrates the continuing sluggish demand for both consumables and investment goods in the graphic industry markets. However, the shift from computer-to-film to computer-to-plate continued rapidly and Agfa was able to increase its turnover in digital printing plates and computer-to-plate equipment with more than 20 percent. Agfa estimates that more than 20 percent of the market has now made the transition and expects the high growth in computer-to-plate to continue in the coming years. To meet with the very strong demand for digital printing plates, Agfa is investing heavily in a new production plant in Wuxi (China) which will be operational in the second half of 2003 and will serve the Asian market. Improved operational efficiency and the beneficial impact of the Horizon Plan caused the operating results before restructuring charges and non-recurring items to increase from 79.7 mio Euros to 149.9 mio Euros. Return on sales thus reached 8.3 percent against 4.2 percent in 2001. Sales of Consumer Imaging decreased 12.5 percent. Excluding the sales of digital cameras and scanners, discontinued at the beginning of 2002, the drop was limited to 5.2 percent and is explained by the effects of the business cycle and the accelerating transition from analogue to digital imaging. Film and finishing sales suffered seriously from the weak global economy, especially in Europe, where the frequency and duration of holiday trips decreased considerably. Turnover of Lab Equipment, on the other hand, showed significant progress as Agfa introduced its digital minilab d-lab.2 in 2002, which met with great success. Agfa also launched a digital net printer for the professional market and concluded an OEM agreement with Kodak on the delivery of laser printers and paper processors. Sales of Lab Equipment are expected to remain buoyant in the coming years as by the end of 2003 the d-lab.1, the smallest version of the digital minilab and the digital wholesale lab will be introduced. Mainly thanks to the positive impact of the Horizon plan, Consumer Imaging's operating result before restructuring costs improved from minus 12.1 mio Euros to 30.9 mio Euros. Return on sales stands at 2.9 percent. Technical Imaging is made up of HealthCare, Non-Destructive Testing and Industrial Imaging. Its sales and results are mainly determined by HealthCare, by far the largest Business Group in this segment. Technical Imaging posted sales of 1,822 mio Euros (1,823 mio in 2001), and an operating result before restructuring and non-recurring items of 289.9 mio Euros against 192.8 mio Euros in the previous year. Return on sales amounted to 15.9 percent. HealthCare recorded sales of 1,491 million Euros in 2002 (2001: 1,498 million Euros). The strength of the Euro is responsible for this small decline, as 43.3 percent of sales originate from the Nafta region. Digitisation continued unabatedly: while revenues of x-ray film slipped, a strong increase was recorded for digital systems. Conform with this market trend, Agfa acquired the Canadian company Mitra in the beginning of the year, which played an important role in the development and success of IMPAX, Agfa's digital network for hospitals, and closed its x-ray film manufacturing plant in Brevard, USA at the end of November. In December, Agfa concluded an agreement with Siemens Medical Solutions, according to which it will supply computed radiography systems, dry hardcopy printers and film processing systems and extended its computed radiography agreement with GE Medical Systems for three more years. Sales of Non-Destructive Testing showed a moderate increase and were affected by the slowdown in the energy and aviation sectors and by the take-over in 2001 of Seifert and Pantak, both active in industrial x-ray equipment. Early 2003, it was announced that this business group will be sold to GE Aircraft Engines, after receipt of regulatory approvals. Turnover in Industrial Imaging remained stable, primarily thanks to the strong performance of Cinefilm which compensated the declines in Micrography and Document Systems and Specialty Foils and Components. Q4 results During the last quarter, turnover amounted to 1,184 mio Euros and the operating result before restructuring costs and non-recurring items totalled 101 mio Euros. In comparison with the last quarter of 2001, these figures show the same progress as for the year as a whole. However, the results of the last quarter of 2002 lag compared to those of the previous nine months. This was mainly due to several one-off elements, which occurred during the closure of the financial year. Amongst these were a number of revaluations of inventories and costs, the introduction of a stricter policy with respect to provisioning bad debts, production stops at year-end and the revaluation of purchases of raw materials. Working Capital At year-end, inventories stood at 948 mio Euros and trade receivables at 959 mio Euros. This is a reduction with respectively 107 and 166 mio Euros compared to the previous year. Partly due to the decline of the dollar, the increased target to diminish working capital by 750 mio Euros compared to June 2001 is thus already exceeded. Nevertheless, Agfa will in the coming years continue to strive for a further reduction of working capital. Cash flow Gross operating cash flow increased from 226 million Euros to 482 million Euros and all the business groups contributed to this positive trend. The net operating cash flow, which also takes account of the changes in working capital stood at 611 million Euros, compared to 738 million Euros in the previous year. 0utlook Looking ahead, the economic and political perspectives are still clouded by many uncertainties. In view of these circumstances, which are completely beyond Agfa's control, it would be unwise to make specific promises for 2003. On the other hand, Agfa will continue to benefit from the positive effects of its Horizon Plan, which will again deliver substantial savings.




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