Agfa-Gevaert reports first quarter results

Agfa-Gevaert today announced its first quarter results. Group sales amounted to 753 million Euro. In local currency, sales remained stable despite the continuous impact of the strong Euro, which affected the Group’s competitive position, especially in the healthcare markets. Agfa-Gevaert again succeeded in substantially lowering its Sales and General Administration costs. The Group’s results continued to be impacted by the evolution of the silver price, which reached record levels in the course of the first quarter. Recurring EBIT was 41 million Euro and the net profit amounted to 10 million Euro.

• Total sales stable in local currency
• Graphics: 1.5 percent sales growth in local currency with EBIT margin of 7 percent in prepress
• HealthCare: sales decrease due to market decline in imaging and to new PACS release
• Specialty Products: continuous sales increase
• 10 million Euro impact of higher raw material costs
• 14 percent reduction of Sales and General Administration costs
• EBIT of 41 million Euro and net result of 10 million Euro
• Seasonal increase in working capital largely avoided

Agfa-Gevaert Group – first quarter

(*) before restructuring and non-recurring items.

In local currency, Group sales increased 0.1 percent to 753 million Euro. Including currency effects, a decrease of 4.2 percent was recorded.

Raw material costs continued to have a strong impact on Agfa-Gevaert’s results. Compared to last year’s first quarter, the costs for silver – used in all business groups for their film products – were up 10 million Euro. In the first quarter of 2008, the average silver price was 18 USD per troyounce, with peaks at 21 USD. In the same period of 2007, the average price was 13 USD per troyounce. In view of the sharply increased volatility of the silver market, the Group has started forward-buying procedures for silver during the first quarter. As a result of the hedging policy for aluminum, no impact was recorded for that raw material.

The gross profit margin was 34.3 percent of sales, which is slightly higher than that of the fourth quarter of 2007 (33.7 percent of sales). The decrease compared to last year’s first quarter (38.4 percent) is the result of the higher silver costs, lower sales for HealthCare’s PACS software and the limited impact of the inventory build-up.

As a result of its continued focus on cost reduction, the Agfa-Gevaert Group was able to further decrease its Sales and General Administration costs by 13.5 percent compared to last year’s first quarter. These expenses represented 22.1 percent of sales in the first quarter of 2008, versus 24.4 percent in the first quarter of 2007 and 22.8 percent in the fourth quarter of 2007. Agfa-Gevaert will continue its efforts to further lower these costs in all business groups.

The Group’s recurring EBITDA (the sum of Graphics, HealthCare, Specialty Products and the unallocated segment) amounted to 71 million Euro, versus 94 million Euro in the first quarter of 2007. Recurring EBIT decreased 29.3 percent from 58 million Euro to 41 million Euro. In addition to the elements mentioned above, it should also be taken into consideration that in the first quarter of 2007, a one-off benefit of 3.5 million Euro was recorded in the unallocated segment, reflecting changes in the retiree medical plan in France.

Restructuring costs and non-recurring items were 5 million Euro, versus 8 million Euro in the first quarter of 2007.

The non-operating result was minus 21 million Euro and the net profit amounted to 10 million Euro.

Balance sheet and cash flow

– At the end of March 2008, total assets were 3,521 million Euro, compared to 3,559 million Euro at the end of December 2007.

– The continued focus on working capital allowed the Group to avoid a seasonal increase in the first quarter. Inventories decreased to 605 million Euro (or 101 days), compared to 705 million Euro (121 days) in March 2007. Trade receivables stood at 839 million Euro, or 100 days. Trade payables amounted to 274 million Euro, or 46 days.

– Compared to the end of 2007, net financial debt decreased to 703 million Euro.

– Net operating cash flow amounted to 19 million Euro.

Agfa Graphics – first quarter

(*)  before restructuring and non-recurring items.

Agfa Graphics was able to report good first quarter results. Sales were 378 million Euro, an increase of 1.5 percent in local currency, but a decrease of 3.1 percent including currency effects. The growth in digital computer-to-plate (CtP) technology more than offset the combined effect of the economic slowdown in the USA and the market-driven decline in the analog computer-to-film segment.

Despite the strong impact of the high silver costs, Graphics succeeded in maintaining the EBIT margin of its prepress segment at around 7 percent and in stabilizing its overall margins. The technical issues with the industrial inkjet systems have been overcome and the first generation of the inkjet portfolio has been introduced to the market. Although Graphics started to cut back on the R&D expenditures for industrial inkjet in March, the start-up losses for this segment amounted to approximately 10 million Euro in the first quarter. As a result, the recurring EBITDA margin reached 8.3 percent of sales and the recurring EBIT margin remained stable at 4.6 percent of sales. In the fourth quarter of 2007, the EBIT margin was 3.5 percent of sales. The main reasons for these positive results are the continued focus on cost reduction and the shift from computer-to-film technology to more profitable innovative computer-to-plate systems.

In the first quarter, the Tribune Company confirmed Agfa Graphics as its CtP provider of choice with the purchase of 3 additional platesetters for the Hartford Courant newspaper. The third-largest newspaper publisher in the US now uses Agfa Graphics’ workflow software, platesetters and printing plates in the majority of its newspaper sites. Also in the field of CtP equipment, Agfa Graphics announced that it plans to close down its platesetter factory in Wilmington, USA, as part of the strategy to improve its operational efficiency and its position in this highly competitive market. After the closure, Agfa Graphics will continue to distribute total CtP solutions to its customers.

During the international drupa trade fair (Düsseldorf, Germany – May 29-June 11), a number of important additions to Agfa Graphics’ prepress portfolio will be on display. For example, Graphics made an upgrade to its environmentally friendly :Azura thermal printing plate. The new :Azura TS offers higher throughput and sharper contrast. The :Azura plates use Agfa’s ThermoFuse technology, which physically bonds images to the plate without any chemical processing. More than 2,000 printing businesses worldwide have already made the move to ThermoFuse printing plates. Graphics will also introduce :Avalon N, its new range of thermal platesetters, as well as :Apogee Suite, its new comprehensive workflow solution that integrates all content, project management, prepress and production functions.

In industrial inkjet, Agfa Graphics announced that it will debut 3 new additions to its portfolio of printers at drupa 2008. One of the new systems is the :Anapurna XLS, a large-format printer designed to provide photographic quality at high-production speeds.

Agfa HealthCare – first quarter

(*) before restructuring and non-recurring items.

In local currency, Agfa HealthCare’s sales decreased 7.5 percent (12.0 percent including currency effects) to 294 million Euro. The market for traditional X-ray film continued to decline in volume. Sales of hardcopy film are stabilizing at a volume level slightly up compared to last year, but this was offset by price erosion due to currency effects. The strong Euro also led to price erosion and a weaker competitive position for the Computed Radiography (CR) systems. In the Picture Archiving and Communication Systems (PACS) segment, software sales were lower in anticipation of the launch of the next release of IMPAX. The further roll-out of the ORBIS system is running according to plan. For the whole of the IT segment (PACS, Cardiology and Hospital and Clinical IT), the book-to-bill ratio was 1.7.

The intensified focus on cost reduction allowed HealthCare to lower its SG&A expenses by almost 20 percent, but the results were affected by the weaker sales and adverse mix effects. Furthermore, the non-cash costs in R&D were 2.5 million Euro higher due to lower capitalisation and increased depreciation. The very high silver price also weighed on HealthCare’s profitability, as approximately half of the business group’s sales still comes from film products. The recurring EBITDA margin amounted to 11.0 percent of sales. Recurring EBIT was 17.2 million Euro, or 5.9 percent of sales.

In imaging, the Austrian St. Pölten hospital ordered 4 DX-Si X-ray systems. Combined with the DX-S, Agfa HealthCare’s most advanced CR system and the NX workstation, the versatile DX-Si solution can handle a very comprehensive range of X-ray exams. Recently, the University Clinical Center of Giessen and Marburg (Germany) and the Friedrich Schiller University in Jena (Germany) both conducted a study to evaluate the performance of the DX-S system in pediatrics. Both studies concluded that the system allows an X-ray dose reduction by up to 50 percent, without reducing the diagnostic quality.

An important PACS agreement was signed with CETIR Grup Mèdic (CGM), one of Spain’s leading private radiology providers. The group consists of the headquarters just outside Barcelona and 20 satellite sites. In Canada, where Agfa HealthCare already has a leading position, the province of New Brunswick selected HealthCare for the creation of a Diagnostic Imaging Repository for consolidating images and radiology reports into a central system. In the province of Ontario, HealthCare will team up with Teranet, a leading provider of information products, to implement the systems needed to centrally store digital patient images and reports of 33 hospital sites.

In enterprise-wide IT, the three acute care clinics of the important Märkische Kliniken GmbH hospital group (southern Westphalia, Germany) have started to replace their existing hospital software with Agfa’s ORBIS Hospital Information System. Agfa HealthCare’s ORBIS development site in the US, Sampson Regional Medical Center (Clinton, North Carolina) recently completed the first phase of its test. Partnering with the French Capgemini company, Agfa HealthCare is also in the running for the Assistance publique et Hôpitaux de Paris contract for the creation of an IT solution to centralize all patient data of 38 hospitals in Paris (France).

Agfa Specialty Products – first quarter

(*) before restructuring and non-recurring items.

Driven by Specialty Foils, Non-Destructive Testing and Security and Identification, Agfa Specialty Products’ sales increased 32.5 percent (30.7 percent including currency effects) from 62 million Euro in the first quarter of 2007 to 81 million Euro. The recurring EBITDA margin amounted to 9.8 percent of sales and the recurring EBIT margin decreased to 8.5 percent of sales due to negative mix effects, the high silver costs and a number of one-off elements, including negative variances resulting from the production slowdown to reduce inventories.

In March, Agfa announced the launch of SYNAPS, a newly developed, polyester-based synthetic paper for the printing industry. The material is noted for its exceptionally fast drying time and its resistance to water, tearing, and UV light, which allows it to be used in outdoor environments. SYNAPS will be made available immediately after the drupa trade show (Düsseldorf, Germany – May 29-June 11).

Update on corporate strategy

The Board of Directors is convinced that under the current circumstances, improving the operational performance of the businesses should remain the top priority. Furthermore, all business groups will continue to invest strongly in strengthening their technology leadership in their respective markets. Following a thorough evaluation, the Board of Directors concluded that a demerger in 3 independent companies – as originally planned – no longer is a realistic scenario. The Board is examining a number of alternative options to reinforce the market position of the business groups and create shareholder value.

Outlook

Taking into account the economic slowdown in the USA and the uncertain economic situation in Europe, Agfa Graphics continues to expect stable sales (at constant exchange rates) in 2008.

In 2008, the sales growth of HealthCare’s digital technology will not fully offset the decline in the traditional film and print business. The new release of IMPAX will become available in the course of the second quarter and will begin to positively impact sales in the second half of the year. Agfa HealthCare will focus on implementing the savings plans.

Specialty Products intends to further strengthen its position as a consolidator within the industry through cost leadership and operational efficiency in film manufacturing.

Click here for Agfa’s consolidated statements of income. 

Click here for Agfa’s consolidated balance sheet. 

Click here for Agfa’s cash flow statement.