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Agfa Reports Q3 Results, Stable sales, Positive pricing impact in Graphics

Friday, November 17, 2006

Press release from the issuing company

November 16, 2006 - Agfa today announced its third quarter results. Group sales grew 1.0 percent compared to the third quarter of 2005, with flat sales in Graphics (on a comparable basis), a modest increase in HealthCare and double-digit growth in Specialty Products. Although raw materials costs continued to rise, all business groups were able to improve their EBIT-margins (before restructuring and non-recurring items) compared to last year. Marc Olivie, Agfa's President and CEO, stated: "Our business groups continue to be very successful in assisting their respective clients in the conversion from analog to digital and IT solutions. Due to the ongoing shift to more profitable digital technologies, we were again able to improve the margins of our businesses compared to last year, and this despite the impact of high raw material costs." Sales grew 1.0 percent compared to the third quarter of 2005, mainly as a result of targeted price increases and strong performances in the field of digital solutions in all business groups. This more than compensated the ongoing decline in the traditional film-related businesses. Due to improved production and service efficiencies, the Group's gross profit margin grew to 36.9 percent from 34.3 percent in the third quarter of 2005, despite the significant increase of raw material costs. Sales and general administration costs (excluding non-recurring items) amounted to 24.5 percent of sales, compared to 24.2 percent in the third quarter of 2005. Measures to bring down these costs are being discussed with the social partners or are already being implemented as part of the Group's plan to reduce total costs by approximately 250 million Euro by 2008. R&D expenses decreased slightly to 46 million Euro. Supporting the business groups' growth strategies, the Group's R&D focus continues to be on industrial inkjet printing, as well as on healthcare IT and software solutions. Recurring EBIT grew 18.4 percent compared to the third quarter of 2005, amounting to 45 million Euro. The EBIT-margin improved from 4.8 percent to 5.6 percent of sales. Restructuring and non-recurring items amounted to 33 million Euro, as the Group started to implement the first part of its cost savings plan. The non-operating result amounted to minus 20 million Euro. The net loss amounted to 8 million Euro, or minus 6 Eurocents per share, versus 108 million Euro or minus 85 Eurocents per share in the third quarter of 2005. Balance sheet and cash flow - At the end of September 2006, total assets were 3,826 million Euro, compared to 3,982 million Euro at the end of 2005. - Days of inventories amounted to 118 at the end of September 2006, versus 116 days at the end of September 2005. Days of trade receivables were 91, versus 92 at the end of September 2005. Trade payables reached 65 days at the end of September, better than the target of 55 days. - Net financial debt decreased by 27 million Euro over the quarter to 726 million Euro at the end of September. - Net operating cash flow amounted to 43 million Euro in the third quarter. For the first nine months of the year, Agfa generated a strong net operating cash flow of 113 million Euro, which is significantly better than last year. Agfa Graphics - third quarter In the beginning of 2006, certain niche products, such as film for Identification and Security, Aerial Photography, Phototooling and Advanced Materials were transferred from Graphics to Specialty Products. On a comparable basis, Graphics' sales remained virtually unchanged. The continuous double-digit growth of digital printing plates and the increasing impact of the pricing initiatives were offset by adverse currency effects and the discontinuation of some unprofitable business of analog printing consumables. The EBITDA-margin (before restructuring and non-recurring items) amounted to 8.3 percent of sales, compared to 7.9 percent last year. Although high silver and aluminum costs continued to have a major impact, recurring EBIT grew 24.6 percent to 16.7 million Euro and the EBIT-margin improved to 4.1 percent of sales versus 3.2 percent in the third quarter of 2005. The main drivers were pricing measures, improved production efficiencies, and the accelerated shift to higher margin digital solutions. In prepress, Agfa Graphics added the :Avalon SF Thermal platesetter to its computer-to-plate (CtP) range. The solution uses Agfa's own high definition optical system to bring a new level of quality, flexibility and reliability to printers with smaller press formats. Furthermore, Graphics launched an addition to its :Arkitex production software. The solution optimizes ink utilization in newspaper printing, offering printers the opportunity to offset the increase in ink prices by reducing ink volumes needed. A number of important contracts confirmed Graphics' market leader position for newspaper CtP technology and software. In North America and Latin America, Agfa is playing a major part in the shift to digital CtP technology, as numerous newspapers have recently purchased the company's popular :Advantage violet-laser platesetter and :Arkitex software. At IfraExpo, an annual event for the newspaper industry held in Amsterdam, Graphics signed contracts for 20 complete digital violet CtP lines with major European newspaper publishers, such as WAZ (Germany), Wegener Groep (the Netherlands) and La Nueva España (Editorial Prensa Iberica) (Spain). In the field of industrial inkjet, the entry model of the :Anapurna XL wide format printer for indoor and outdoor signs and displays was introduced in Australia at the Visual Impact Image Expo. With its :Grand Sherpa Universal range of large format printers, Graphics reached a milestone in Latin America, where it now has 50 installations, bringing the worldwide total of installed :Grand Sherpa Universal systems to more than 500. Update on cost savings plan In August, Agfa announced its plan to reduce costs annually by 250 million Euro by 2008. As a result of the savings initiatives, almost 2,000 functions worldwide could become redundant. In a number of countries, the plan is already in the implementation phase. In Germany, measures were taken to increase efficiency in the production of CR (Computed Radiography) devices, while in the US various initiatives were launched to reduce SG&A costs in Graphics. In Belgium, where the cost savings plan could impact 945 functions, the information and consultation procedures with the social partners are ongoing in the Mortsel site. Outlook Agfa-Gevaert feels confident about the fourth quarter, which should be solid despite continued high raw material costs. Sales and results will benefit from seasonal effects in HealthCare and from the further increasing impact of pricing initiatives in Graphics. Although the implementation of the cost savings plan has started, negotiations are still continuing in a number of major countries. The plan will therefore only have a marginal impact in the fourth quarter, while substantial effects will occur in 2007 and 2008. On the other hand a significant part of the restructuring charges is expected to be booked in the fourth quarter, which will heavily influence the Group's net result. "We are continuing to work with the social partners in the different countries to achieve the required cost savings. The proposed measures will enable us to continue investing in new business areas and to grow in our highly competitive markets," said Marc Olivie, Agfa's President and CEO.




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