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Global Graphics Reports Lower Sales For 2Q, Says 3Q Will Not Be Much Better

Press release from the issuing company

Pompey, France July 26, 2001 - The Company is amortizing purchased goodwill and purchased intangibles at a fast pace, over periods principally ranging between 3 to 5 years, resulting in significant amortization expenses in the periods following acquisitions. Total amortization for the second quarter was Euro 4.2 million, for both unallocated goodwill and intangible assets (excluding the effect of deferred tax on it). Comments on profitability for the Company and each operating division mentioned in this press release are excluding the impact of these amortization expenses on results. EBITA is defined as Earnings Before Interest, Tax and intangibles Amortization. Current net income is pro forma income computed by adding back to the reported net income amortization expenses for intangible assets and unallocated goodwill, net of deferred tax impact on these, when applicable, as well as one-off costs. Total sales were Euro 21.4 million, slightly below sales of Q2 2000, which were Euro 22.3 million. Current earnings per share for this quarter were €0.07, versus €0.13 per share in Q2 2000. Hardware sales were Euro 13.6 million, versus Euro 16.6 million in Q2 2000. Printing software sales reached Euro 6.4 million, versus Euro 5.5 million in Q2 2000. Xanalys had revenues of Euro 1.4 million for this quarter, versus Euro 0.2 million in Q2 2000, and reported a current net loss of Euro 0.1 million (or €0.01 per share) for the second quarter 2001. Comments by division Hardware Hardware sales dropped sequentially to Euro 13.6 million because of sharply lower orders from the OEM customers. The decline is general in litho as well as flexo plate processing equipment. Although the sharpest decline was in the US, orders in Europe also dropped. Both regions together account for more than 90% of sales. Because costs except for material costs are essentially fixed, the division posted a current net loss for the quarter of Euro 1.0 million, or a loss per share of €0.10. The efficiency and cost improvement programs, started in January of this year, have been accelerated and total division manpower was reduced by 72 people since the beginning of the current year, from 557 at January 1 to 485 at June 30. The majority of the reductions were achieved in April/May 2001 in both the US and the UK; therefore the full benefits (over Euro 1.8 million annualized) will accrue as from the third quarter. Total restructuring costs incurred during the quarter were Euro 330k, and were fully included in operating costs. Further reductions are contemplated in Q3 and Q4, to bring total manpower to below 450, the cost of which will be significantly higher than in the first half of the year. Most of the manpower reductions will be of a permanent nature, even when sales pick up again to previous levels, thereby assuring that both profitability and flexibility is considerably improved compared to 2000 and the first half of 2001. Printing Software Revenues in the second quarter were Euro 6.4 million, lower than in Q1 2001 but still 16% better than in Q2 2000. On a constant customer portfolio basis, sales declined versus last year. Due to the significant number of new contracts obtained during the past 12 months, new product launches and the acquisition of Jaws in August 2000, revenues grew despite the depressed market conditions. EBITA was 35.2 %, lower than in previous quarters due to increased R & D and operating expenses. Gross profit in Software, before amortization of purchased intangible assets, is 96.0%, which means that any increase/decrease in revenues has a major impact on EBITA levels since expenses are predominantly fixed costs. Xanalys Xanalys had revenues in the quarter of Euro 1.4 million, and a small current loss of Euro 0.1 million. Commenting on the outlook, Johan Volckaerts, Chairman and CEO said: " We do not expect an improvement in Q3 in revenues for both the Hardware and Software divisions. The last quarter of the year is traditionally the strongest, because in Hardware the pipeline fills in September after the holidays and in Software there are many contract renewals in that period. Until then, it remains almost impossible to predict what the market trends are."

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