Weaker than expected trading environment in Q2 – Business Groups to become operationally independent as of January 1, 2006 – Share-buy back program initiated

Agfa-Gevaert today announces that the trading environment of the second quarter, although better than during the first three months of 2005, remained weaker than expected. Sales are expected to be around 440 million Euros in Graphic Systems and around 355 million Euros in HealthCare.

The slower than anticipated sales, continuous high raw material costs and higher than expected price erosion, in particular in HealthCare, will also affect profitability of the second quarter. The operating profit of the two business groups is expected to be higher than in the first quarter, but significantly below last year’s.

Consistent with the trend of the last years, Agfa expects very strong sales in the second half of 2005, and especially a very strong last quarter in HealthCare. In addition, the effect of the recently launched initiatives to curb price erosion will gradually increase and production and operating costs will be reduced by an estimated 40 million Euro compared to the first six months of the year. As a result, Agfa expects that 2005 sales will grow year over year in both business groups while second half profits will not completely offset the shortfall of the first half of 2005.

“2005 is a transition year for both businesses. We are focusing on diminishing price erosion, reducing costs and leveraging the acquisitions made. Starting in 2006 we expect the first beneficial effects of industrial inkjet, the new growth platform for Graphic Systems, to become apparent. In HealthCare, the recently made IT acquisitions are already yielding the first synergies and will contribute significantly to the operating profit as of 2006.
We are driving an important portfolio and technology shift in both our business groups. On a quarter to quarter basis, the growth of our digital businesses will not perfectly compensate the decline of the traditional imaging products. However, the fundamentals of the business remain strong and we are convinced that we have the right portfolio, technologies and distribution channels to successfully manage the transition to digital,” said Marc Olivié, Agfa’s President and Chief Executive Officer.

Agfa also announces that the project to make both business groups operationally independent is advancing well so that its implementation will be pulled forward from the originally planned date of early 2007 to January 1, 2006. By that date, the two business groups will each have full control over their income statement and balance sheet.

In addition, after having received the authorization from the shareholders to buy back up to 10 percent of the shares, the Board of Directors has approved the execution of a first tranche of this program and to buy back up to 3 percent of the outstanding shares.