Agfa Annual report 1999

2 Letter from the Chairman3 Interview with the Chief Executive Officer6 Our strategy8 Group Overview

10 Management Report16 Graphic Systems20 Technical Imaging24 Consumer Imaging28 Board of management30 Corporate governance33 Financial statements

33 Independent Auditors’ Report34 Consolidated Statements of Income35 Consolidated Balance sheets36 Consolidated Statements of

Shareholders’ Equity37 Consolidated Cash Flow Statements38 Notes to the Consolidated Financial

Statements

Contents

Published by:Agfa-Gevaert N.V.Septestraat 27B-2640 Mortsel, Belgium

Contact:Corporate CommunicationsMortsel, BelgiumPhone: +32 3 444 8001Fax +32 3 444 7485http://www.agfa.com

AGFA and Agfa rhombus are registered trademarks of Agfa-Gevaert AG.Iomega is a registered trademark, and Clik! is a trademark of Iomega Corporation.

Perception and reality are not always identical;today, it’s the same with Agfa. Everyone knows usas a leading photo and film specialist.

Yet, our main business is in creating innovativesolutions for our customers across the graphic and photographic industry and the medical imaging market. It is important that people understand this, and change the way they think of us.We have embarked on a major advertisinginitiative to change perception.

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Agfa is one of the best known brands in the world.We have been seen as a film business, but whatgives our business its competitive advantage isproviding innovative solutions through new imagingtechnologies across a range of selected growthmarkets.We develop analog and digital systemsolutions for pre-press and printing, consumerimaging, medical and industrial radiography,micrographic systems and motion pictures.There are great opportunities for us within thesemarkets, and we are committed to building an even more dominant global brand.

Key figures in Euro million 1999 1998*

Net sales 4,731 4,362

Operating result before restructuring 364 340

Return on sales before restructuring 7.7% 7.8%

Operating result 91 291

Income before income tax 18 215

Net result 14 140

*Pro forma

Employees* (31.12.1999) 21,872 21,670

*Full time equivalents excluding 586 persons leaving first quarter 2000

Dear stockholders and friends of the company, Agfa-GevaertN.V. was launched on the stock market on June 1, 1999. Sincethat time, 70 million of the total of 140 million company shareshave been traded on the stock exchanges in Brussels andFrankfurt/Main. The stock market launch of Agfa-Gevaert N.V.was the largest in Belgium’s history and one of the largest in Germany.

It is now our pleasure to present you with the first Annual Report of the Group since the stock market launch. The company has been able to expand its sales substantially,greatly improving its operating result before restructuringexpenses and investing enormous amounts in restructuringmeasures. Sterling Diagnostic Imaging represented a majoracquisition in the high-returns field of Medical Imaging,simultaneously enabling Agfa to strengthen its position in thedigitally-oriented markets of the future.

The Board of Directors supervised and advised the Board of Management within the framework of the statutoryregulations. Agfa-Gevaert is on the right track and we areconvinced that the company will be able to convert thechallenges of the future into valuable opportunities.

While the membership of the Board of Directors of Agfa-Gevaert N.V. has remained unchanged since the Annual General Meeting on April 26, 1999, Lic. Albert Aps and Dipl.-Ing. Werner Seufert retired from the Board ofManagement after many years of successful work. AndréBergen, Dr. Edgar Hommelsheim and Wout Van der Kooij wereappointed as new members of the Board of Management with effect from January 1, 2000.

As intended at the time of the stock market launch, we will propose to the Annual General Meeting that a dividend per share of 1.5% of the issue price be declared, i.e. Euro 0.33 per share.

Hermann J. Strenger

Chairman of the Board of Directors

Letter from the Chairman of the Board

Standing from left to right: Prof. Dr. ir. André Oosterlinck, Ferdinand Chaffart,Klaus-Peter Müller, Werner Wenning, Dr. Klaus Seeger, Dr. Ludo Verhoeven. Seated from left to right: Hermann J. Strenger, Chairman, Dr. h.c. André Leysen, vice Chairman.

When Agfa-Gevaert N.V. went on the stock market, one of the goals the Group set for itself was to continue to developAgfa as an innovative, dynamic and highly profitable companyand to create lasting corporate value. This program is certainlymore than one year’s job. But, so far, how did things go in1999? Did the company reach its targets?

We not only reached our targets for 1999, we clearly surpassedthem. Last year, we also laid the foundations for achieving ourmedium and longer-term goals as well.

Let me illustrate that by way of a few key figures: in 1999,our sales totaled Euro 4.7 billion. That is an increase of 8.5%. If we look just at continuing operations – meaning if we adjustthe previous year’s figures to eliminate the Copying Systemsbusiness unit which has since been sold – the growth rate is as great as 11.6%. This increase is equivalent to more than Euro 500 million. The acquisition of Sterling Diagnostic Imagingcompleted in mid-year and the growth in almost all our ongoingbusiness activities contributed more or less equally to thisdevelopment.

How did Agfa develop in the primarily digital markets of the future?

We were able to expand our sales by roughly 39% in thissector. We also successfully turned our technological leadershipinto sales growth, particularly in connection with the so-called new digital solutions, such as Computer-to-Plate, digital printing,digital radiography, digital medical networks, desktop publishingproducts and digitally oriented laboratory equipment. With atotal of Euro 775 million, this business now contributes morethan 16% to the total sales of the Group, compared to just 13%the year before.

An interview withDr. Klaus Seeger, Chief Executive Officer

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Has the company also made progress in terms of profit?

Yes, and we’re again ahead of our plans in this respect. We were able to improve the operating result beforerestructuring by 6.9% to Euro 364 million. At the same time – as already stated at the time of the stock market launch – we invested substantially in restructuring, acceptingthe fact that consequently we would only be able to show avery small profit for the year in 1999. It must be said, despitethe fact that we decided to spend more than intended onrestructuring, the net result of Euro 14 million now achieved islikewise better than planned.

How high was spending on restructuring. What are the keyareas and what are the objectives?

We see restructuring as a central investment in significantly and lastingly improving our earning power and corporate value.We consistently implemented these measures. When businessdevelopments turned out better than planned we decided toincrease the funds for these measures to Euro 273 million(including non recurring expenses) instead of the planned Euro250 million. The key items in this context were activities relatedto the integration of Sterling and the transfer of production fromNeu-Isenburg to headquarters in Mortsel. However, we alsomade substantial investments in improving our efficiency inmany other sectors. The first signs of success of thesemeasures are already reflected in the 1999 results. But aboveall, we already expect to benefit greatly from these restructuringefforts in 2000, as well as in the subsequent years.

Let’s take a look at the acquisitions. Examples strengtheningAgfa’s position in 1999 included Misomex, the US-basedcompany adding technological competence in the field ofComputer-to-Plate. Agfa also established a joint venture with theCanadian software house Mitra Inc. in order to promote andexpand the activities in the field of medical networks.

However, the main focus was on Sterling Diagnostic Imaging,Agfa’s third major acquisition within a short period of time. What is the strategic importance of this acquisition for Agfa’s business?

There are at least four points to be mentioned in this context.First, with an annual sales volume of a good Euro 500 million,the Sterling acquisition means that our share of the worldmarket for medical imaging has risen from 20% to more than 30%.

Second, the Sterling acquisition means a shift in our portfolioin favor of our most profitable business segment. After all, theTechnical Imaging business segment, which is dominated byMedical Imaging, has become the second largest businesssegment in the Group, accounting for roughly 31% of our salesin the fourth quarter of 1999, as opposed to 22% the yearbefore. The major relevance of this shift in the portfoliobecomes apparent if you consider that the return on sales ofTechnical Imaging is more than twice as high as that of theother two business segments.

Third, Sterling’s business is concentrated in the NorthAmerican market. Thanks to Sterling, we have been able toalmost triple our share of the X-ray film market in the USA. At the same time, we were also able to expand our customerbase, not only for analog systems, but also for our digitalsystems. And, fourth: the Sterling acquisition has markedlyincreased the NAFTA share of our worldwide business to acurrent figure of roughly 30%, as compared to 26% theprevious year. We are thus benefiting more than ever beforefrom the dynamism of the largest growth market in the world.

Nothing is growing as fast as activities relating to the Internet.Is Agfa also active in this sector?

Of course! The Internet holds enormous opportunities for the future, as it offers not only a virtually unlimited amount of information, but also the possibility of handling business

1999 sales Euro million

4,731

processes faster and more cheaply than ever before. Today, for example, we use the World Wide Web technology in Medical Imaging to connect hospitals with our IMPAXnetworks. “AGFAnet”, the virtual marketplace of ConsumerImaging encompasses various online services, e.g. theconsumer can send a digital image to a photo lab to be printed on photographic paper or design a personalized“ArtCard” which will be printed. And we use the Internet as part of our remote diagnosis service for our systems in thegraphic industry. We intend to further expand our e-commerceactivities. This item is right at the top of our list of priorities.In March 2000 we took a step in this direction: we became one of the first European companies to join the world’s firstconsortium for global technology marketing on the Internet.Here we joined a consortium that includes leading companieslike Boeing, DuPont, Ford, Honeywell, Procter & Gamble, Philips and Siemens. This global marketplace for technologicalintellectual property was created by yet2.com Inc., an Internetcompany based in Cambridge, Mass./USA.

At the time of the stock market launch, it was said that morethan 50% of the Group’s sales were attributable to fields inwhich Agfa is the No. 1 on the world market. Is that still true?

Yes indeed! We are No. 1 in analog and digital prepresssystems, as we are in industrial radiography, lab equipment for wholesale finishing, such as high-speed photo printers anddigital networks for medical applications. And we’re No. 2 in the world in the overall market for Medical Imaging – only justbehind the No. 1 and well ahead of the No. 3. In other words:we’re No. 1 or No. 2 in the world market with roughly 75% of our sales. And we exploit our strengths in traditional businessin order to develop the markets of the future with innovativesystems – in the medical world, just as much as in the prepresssector or in Consumer Imaging.

On what do the innovations focus?

Mainly on digital solutions encompassing software, hardwareand consumables. In the Medical Imaging sector, for example,we have presented a host of new developments in digitalnetworks. Workflow management and our Thermostar printingplates played a major role in Graphic Systems, while Consumer

Imaging has come up with new scanners, our DIMAX high-speed photo printer, and – presented in spring 2000 – the newdigital minilab. These innovative products have helped us expandour position as a leading supplier in the respective markets.

However, the general public is mainly familiar with Agfa as aproducer of photographic films.

That’s true. Agfa’s brand-label film is by far the most familiarproduct among consumers. However, it only contributes roughly5% to the Group’s total sales. Our aim is to communicateAgfa’s “hidden strengths” in the mainly digital worlds to thegeneral public more clearly than in the past. An informationcampaign launched in Belgium and Germany at the beginning of 2000 is intended to put this plan on a firm footing. And theinitial reactions show that our efforts are being successful.

But the share price hasn’t been satisfactory so far. Will that change?

I’m very optimistic. After all, you must remember that Agfa-Gevaert has only been on the stock market for six months.Consequently, we don’t really have a history yet. Our successfulperformance in 1999 was the first step towards winning theconfidence of our shareholders – we did what we promised todo at the time of the stock market launch, and we even did itbetter. I think this will also be reflected in the share price in theforeseeable future.

What is the strategy for the future?

The imaging market is, and will remain, one of the largestgrowth markets with great opportunities. We intend to exploitthese opportunities, particularly by driving our system approachby powering the digital building block: workflow management,equipment and the respective consumables will provide bettersolutions to the benefit of the customer and will ultimatelyexpand our leading position further resulting in betterprofitability and value creation for the company. After all, we have very extensive know-how, the necessary materialresources and – above all – excellent people.

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Growth of sales in 1999

Operating result before restructuring and non-recurring income/expenses 1999 Euro million

Our fundamental goal is todeliver profitable growth.This will be achieved bycreating new innovativesolutions for our customers.We have the right peoplein place to constantly push

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the boundaries of newimaging technologies andthe essential strengths todevelop these into newbusiness opportunities.The following pages explain in greater detail

how we are investing in those areas which

will maximise the value of our business...

Graphic Systems

Group Overview

41%of Agfa sales

1999 Sales: 1.945 billion Euro

The Graphic Systems business group supplies a wide range ofelectronic and photographic prepress solutions for the graphicindustry. Including the Digital Printing unit, the businesssegment accounts for over 41% of Agfa sales.

Products:Films and papers, printing plates, processing equipment andcolour proofing systems, type and image processing softwares,raster image processors, workflow management systems,scanners, laser image setters for output on film or plate.

World No. 1 for pre-press systems; over 40% of the world’sprinted media is produced using Agfa products.

Agfa now has a new structure since 1999.Its day-to-day operations are performed by amatrix of three business segments comprisingfive Business Groups and four Regional SalesOrganisations.This structure better reflects theneeds of our customers.

Agfa’s global sales organisation is grouped to serve four main areas: Europe, NAFTA,Latin America and Far East.The Direct Exportdepartment works with the remaining countries in Africa, the Middle East and Eastern Europe.

The headquarters are located in Mortsel,Belgium and the research and developmentand production operations are mainly based in Belgium, Germany and the USA.

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Technical Imaging Consumer Imaging

An international sales organisation

1. Europe2. NAFTA (USA/Canada/Mexico)3. Latin America4. Asia/Australia/Africa

29%of Agfa sales

1999 sales: 1.352 billion Euro

30%of Agfa sales

1999 sales: 1.434 billion Euro

3 business groups: Medical imaging, Non-destructive testing,industrial imaging.

Medical Imaging

The Medical Imaging business group supplies both conventionalX-ray equipment and an innovative range of diagnostic and communication tools that includes computed radiography and digital network solutions.Non-Destructive Testing (NDT)

The NDT business group is a world leader in supplying filmsystems that check the structure and tolerance of materialswithout physical sampling. NDT projects range from aircraft and pipelines to the restoration of paintings.Industrial Imaging

The Industrial Imaging business group combines three smallspecialised divisions: Micrographic and Document SystemsMotion Picture Film Specialty Foils and Components

Products:Consumables, software and equipment for conventional X-ray systems, computed radiography, hardcopy systems, Picture Archiving & Communication Systems (PACS), Systems for industrial radiography.

World leader in digital networks for medical imaging World leader in industrial radiography

The Consumer Imaging business group supplies photographicand desktop publishing products for the consumer market.Digital and analog technologies are both represented in a widerange of products, giving Agfa a key role in the taking,processing and manipulation of photographs. 3 business units:film and finishing; laboratory equipment; desktop publishing.

Products:Films, photographic papers, chemicals, equipment forwholesale finishing labs and minilabs, desktop scanners, digital cameras, Inkjet paper.

World leader in high-speed printers for wholesale photofinishing and private label film. Over 50% of the world’swholesale photo finishing labs use Agfa products.

Overview In the year of its stock market launch, Agfa-Gevaert substantially surpassed its sales and profit targets. The Group achieved sales of Euro 4,731 million in 1999(previous year, pro forma consolidated financial statements:Euro 4,362 million), this being equivalent to growth of 8.5% in total and of 11.6% in ongoing business (i.e. adjusted for the sale of the Copying Systems business unit in the previousyear). In addition, the company was able to improve itsoperating result before restructuring expenses by 6.9% to Euro 364 million (previous year pro forma: Euro 340 million).

Sales development Two main factors contributed to the sales growth. The first of these is the successful acquisition andintegration of Sterling Diagnostic Imaging, while the second isthe strong growth in the field of so-called new digital solutions,such as Computer-to-Plate and digital printing, digitalradiography, digital networks for medical applications, desktoppublishing products and digitally-oriented laboratory equipment.The company achieved total sales of Euro 775 million in thesesectors, this representing sales growth of 39%. The proportionof total sales accounted for by digital solutions thus rose from13% to 16%.

Sterling Diagnostic Imaging of Greenville, South Carolina,USA, was acquired in May 1999. This major acquisitioncontributed around Euro 285 million to the sales of the Group in 1999 over the months after that date.

All three business segments (Graphic Systems, ConsumerImaging and Technical Imaging) were able to expand theirbusiness, and sales in all regions (Europe, NAFTA, LatinAmerica, Asia/Africa/Australia) were also above the previousyear’s figures. The volumes sold rose by 11.9% (includingSterling). On a Group basis, prices in local currency declined

by 3.2%. At the same time, the change in exchange rates –particularly the de facto revaluation of the US dollar in relation to the Euro – led to a sales increase of 2.5%.

Result The result before restructuring costs and non-recurringexpenses amounts to Euro 364 million (previous year pro forma: Euro 340 million), while the operating result after restructuringexpenses totals Euro 91 million (previous year: Euro 291 million).

We spent Euro 273 million on restructuring measures andnon-recurring expenses in 1999 (previous year: Euro 49 million).The restructuring measures are mainly related to the closure ofour production facility in Neu-Isenburg and the integration ofSterling Diagnostic Imaging. Significant restructuring measureswere also implemented in other sectors of the Group, forinstance at Agfa-Gevaert N.V., Mortsel, and Agfa-Gevaert AG,Leverkusen. We regard these measures as a key investment in significantly and lastingly improving our earning power andcorporate value.

The non-operating result produces a negative balance of Euro 73 million (previous year: Euro 76 million), while theincome before taxes amounts to Euro 18 million (previous year:Euro 215 million) and the income after taxes to Euro 11 million(previous year: Euro 141 million). Including the minority interestsand results of associated companies, the Group recorded a net result of Euro 14 million (previous year: Euro 140 million,pro forma consolidated financial statements).

Development in the regions Agfa has split its sales activitiesinto four sales regions: Europe, NAFTA, Latin America and theFar East. While the corresponding regional organizations arealready in place for Europe and NAFTA, those for Latin Americaand the Far East are still being established.

Management Report

Sales Euro million

1999

1998*

4,731

4,362

Net result Euro million

1999

1998*

14

140

*Pro forma Restructuring charges and non-recurring income/expenses (Euro 273 million, 1998: Euro 49 million)

With a figure of Euro 2.5 billion, the European Regionaccounted for roughly 53% of Agfa’s worldwide sales. Saleswere 3.1% above those of the previous year, or 7.7% afteradjustment for the copier business, which was sold in 1998 and had operated almost exclusively in Europe. In the Euro area, where we do about 36% of our worldwide business, our sales increased by 5.2%.

The NAFTA region achieved sales of Euro 1.3 billion and thus contributed 28% (previous year: 25%) to the worldwidebusiness of the Agfa-Gevaert Group. The Sterling acquisitiongreatly increased the significance of this region to Agfa’s globalbusiness. If the fourth quarter of 1998 is compared with thefourth quarter of 1999, NAFTA increased from 26% to 31% of worldwide Group sales. Our growth in NAFTA totaled 22% in 1999.

Latin America is only slowly recovering from its difficultoverall economic situation. With a total of roughly Euro 200million (excluding Mexico) sales were at the previous year’slevel. The share of worldwide sales amounted to 4.3%.

The development of our business in Asia/Africa/Australiacontinued to be highly satisfying. We achieved total sales ofEuro 701 million there, this representing a 9.7% rise comparedto the previous year.

Development in the business segments Sales and operatingresults before restructuring rose in all three business segments.

There has been a major shift in emphasis within thebusiness segments owing to three factors: the acquisition ofSterling, the transfer of the Desktop Publishing business unitfrom Graphic Systems to the Consumer Imaging businesssegment and the divestment of the Copying Systems businessunit in mid-1998. This becomes particularly evident whencomparing the shares of total sales in the fourth quarter 1999with those of the fourth quarter of 1998. For instance, the share

of sales attributable to Graphic Systems declined from 47% to40%. Consumer Imaging dropped back from 31% to 29%,while the share of sales attributable to the Technical Imagingbusiness segment, which is dominated by Medical Imaging,rose from 22% to 31%. This also substantially strengthens ourportfolio, as indicated by the fact that the return on sales ofTechnical Imaging is more than twice that of the other twobusiness segments.

Graphic Systems, our largest business segment, achieved sales of Euro 1,945 million in 1999. In ongoing business – thatis adjusted for the portfolio changes (the Desktop Publishingbusiness unit was transferred to Consumer Imaging in 1999 and the Copying Systems was sold in 1998) – this means anincrease of 3.1%. At Euro 122 million, the operating resultbefore restructuring is 5.1% down on the previous year’s figuredue to the launch of a new generation of equipment and theoperating losses of our Neu-Isenburg plant. The return on salesremained with 6.3% virtually at the previous year’s level.

Roughly Euro 126 million were invested in restructuringmeasures in this business segment in 1999. These measuresprimarily involved the closure of the Neu-Isenburg factory, which used to manufacture graphic films. The production hasnow been transferred to the main site in Mortsel. Owing to thevery high restructuring expenses the operating result amountedto a loss of Euro 4 million.

This business segment is dominated by the Prepressbusiness unit, which encompasses photographic and electronicprepress systems, as well as printing plates. Its sales rose by a total of about 3%. We were able to expand our printing platesbusiness far more strongly – by 9%. Our growth in theComputer-to-Plate (CtP) sector, a market of the future, totaled45%. Nine out of ten newspapers printed by the CtP processuse digital printing plates from Agfa, the world market leader.

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1999Sales by region 1999

Europe 53%

NAFTA 28%

Latin America 4%

Asia/Africa/Australia 15%Share of sales by business segment 1999

Graphic Systems 41%

Technical Imaging 29%

Consumer Imaging 30%

The Digital Printing business unit achieved sales of Euro 68 million, this representing an increase of more than 13%. In order to achieve the greatest possible synergistic effects in marketing, development and production, we signed a “Memorandum of Understanding” with Xeikon N.V. ofMortsel/Belgium in January 2000, the aim of which is totransfer the entire digital printing business from Agfa to Xeikon.In return, in addition to a cash payment, Agfa’s holding in Xeikonis to be increased from 20.2% up to a maximum of 25.5%.

The Technical Imaging business segment recorded salesamounting to Euro 1,352 million, representing an increase of 37.7%. This growth is mainly attributable to the Sterlingacquisition. However, even when adjusted to take this intoaccount, the result is still very pleasing with an increase of 9%. This business segment demonstrated its earning powerwith an operating result before restructuring of Euro 180 million,equivalent to a return on sales of 13%. Without Sterling thereturn on sales is 17%. This is because the expansion of salesresulting from this acquisition has not yet led to a correspondingcontribution to the result, as the restructuring measures will nottake effect until later. The restructuring measures in the contextof the integration of Sterling amount to Euro 129 million.Accordingly the result after restructuring is Euro 51 million.

Technical Imaging continues to be dominated by the MedicalImaging business group which generates more than 80% ofsales in this business segment. The Medical Imaging businessgroup was able to achieve excellent growth of 11% whenadjusted for Sterling. Including Sterling, the growth rate is 49%.

The Non-Destructive Testing business group is still sufferingfrom poor business conditions in the aerospace and pipelinesectors. Accordingly, its sales declined by 6.7%. However,Agfa’s clear market leadership in this field is not jeopardized in any way.

Sales in the Industrial Imaging business group rose by 7.6%.This growth is primarily attributable to very good motion picturefilm business. We also expanded our Specialty Foils andComponents business, but had to accept declining sales inMicrographic Systems in line with the general market trend. The profit situation in both Non-Destructive Testing andIndustrial Imaging continues to be highly satisfactory.

Consumer Imaging achieved global sales of Euro 1,434 millionin 1999. This is equivalent to an increase of 4.6% whencalculated on comparable terms (i.e. including the DTP businessunit in 1998). The result before restructuring rose by 59.7% toEuro 62 million. The return on sales improved from 2.8 to 4.3%.Euro 18 million was spent on restructuring measures. Theoperating result rose to Euro 44 million.

The situation in the individual business units varies widely:Laboratory Equipment was able to increase its sales by morethan 20%. High-speed printers for both wholesale finishinglaboratories and minilabs made decisive contributions to thisgrowth. The Film and Finishing (i.e. photographic papers andchemicals) business unit was not quite able to match itsprevious year’s sales owing to the expiry of a limited-term major contract. On the other hand, the operating result in thisbusiness was greatly improved. The “photographic products”business units (Film/Finishing and Laboratory Equipment) thus achieved their best result in years.

Sales of the Desktop Publishing business unit, whichprimarily involves the digital camera and scanner product lines, rose by almost 30%. Agfa sold more than 1.2 million DTP-scanners in 1999 (previous year 670,000), furtherconsolidating the company’s position as one of the largestscanner suppliers in the world market.

Management Report continued

Graphic Systems*

1999 Euro million Change

Net sales 1,945 3.1%**

Operating result before restructuring 122 -5.1%

Return on sales before restructuring 6.3%

Technical Imaging

1999 Euro million Change

Net sales 1,352 37.7%

Operating result before restructuring 180 3.9%

Return on sales before restructuring 13.3%

* Adapted structure, i.e. DTP included in Consumer Imaging also for 1998** Ongoing business, i.e. non-including Copying Systems (divested 1998)

Liquidity and capital resources Gross cash flow decreased by Euro 83 million to Euro 300 million due to restructuringexpenses incurred in 1999.

Summary cash flow statements1999 1998

(Euro million) (Euro million)

Cash and cash equivalents at beginning of year 194 243

Gross cash flow 300 383

Changes in working capital 77 88

Net cash provided by operating activities 377 471

Net cash used in investing activities (541) (202)

Net cash provided by/(used in) financing activities 97 (311)

Change in cash and cash equivalentsdue to business activities (67) (42)

Change in cash and cash equivalents due to exchange rate movements 3 (7)

Marketable securities and other instruments 1

Cash and cash equivalents at end of year 130 194

The main reason for the increase in net cash used in investingactivities from Euro 202 million in 1998 to Euro 541 million in1999 is cash outflows from acquisitions.

Asset and capital structure

Balance sheet structurePro forma

1999 1998(Euro million) (Euro million)

Assets

Noncurrent assets 1,441 993

Inventories 1,214 1,167

Receivables 1,875 1,546

Cash and cash equivalents 150 195

Deferred charges/taxes 174 125

Equity and liabilities

Shareholders’ equity 1,443 1,373

Liabilities for post-employment benefits 736 660

Other provisions 604 312

Financial obligations 1,241 1,073

Remaining liabilities 830 608

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1999Consumer Imaging*

1999 Euro million Change

Net sales 1,434 4.6%

Operating result before restructuring 62 59.7%

Return on sales before restructuring 4.3%

* Adapted structure, i.e. DTP included in Consumer Imaging also for 1998

Noncurrent assets rose from Euro 993 million to Euro 1,441 million, mainly due to the acquisition of Sterling.

Pro forma1999 1998

Noncurrent assets

Total assets29.7% 24.7%

Depreciation

Capital expenditures103.7% 97.2%

Current assets rose by 11.4% to Euro 3,264 million.Pro forma

1999 1998

Net sales

Inventories3.9% 3.7%

Net sales

Trade accounts receivable3.4% 3.9%

Shareholders’ equity grew by Euro 70 million (5.1%) to Euro1,443 million.

Pro forma1999 1998

Shareholders’ equity

Total assets29.7% 34.1%

Shareholders’ equity

Noncurrent assets100.1% 138.3%

The liabilities, amounting to Euro 3,411 million, are made up of provisions of Euro 1,340 million, remainingfinancial liabilities of Euro 1,241 million and other liabilities of Euro 830 million.

The high ratio of provisions to total liabilities (39.3%) is due to the post-employment benefits commitments of Euro 736 million. The other provisions amounting to Euro 604 million involve other restructuring relatedcommitments and provisions for tax, environmental protection and trade accounts payable.

Earnings performancePro forma

1999 1998(Euro million) (Euro million)

Operating result pre restructuring and non recurring expenses 364 340

Income before income taxes 18 215

Income taxes (7) (74)

Net result 14 140

Income before taxes and net results are significantly belowprevious year due to the major restructuring expenses.

The charges for restructuring and non recurringincome/expenses amount to Euro 273 million (previous year Euro 49 million).

Summary statement of incomePro forma

1999 1998(Euro million) (Euro million)

Operating result 91 291

Non-operating result (73) (76)

Income before income taxes 18 215

Net result 14 140

Acquisitions/capital expenditures On May 14,1999 weacquired Sterling Diagnostic Imaging Holding Corporation ofGreenville, South Carolina/USA for Euro 347 million. Capitalexpenditures amounted to Euro 243 million (previous year Euro 217 million).

Management Report continued

Research and development Research and developmentexpenditures in 1999 rose by 6% to Euro 241 million (previousyear Euro 226 million). The focus of our R&D activities, whichwe mainly conduct in Belgium, Germany and USA, is upon thedigital technologies of the future, comprising hardware, softwareand the corresponding consumables. The linking of our systemsto the Internet also plays a very important role in this context.

Personnel Expressed in full-time jobs, we employed in the consolidated companies of the Group at the end of 1999 a permanent staff of 21,872 (previous year 21,670).About 2,000 people joined us as a result of Sterling and smalleracquisitions, although we cut back approximately 1,800 jobs inthe meantime. About 600 of which will be leaving the Grouponly in the first quarter of 2000, as the period of notice extendsinto the year 2000. The corresponding expenditure has alreadybeen taken into account in the result for 1999.

Outlook We are convinced that the imaging market willcontinue to grow at an above-average rate in the future.Furthermore, economic research institutes forecast favorableeconomic development: dynamic growth is expected tocontinue in the USA, Europe is performing well and the Far East shows signs of upturn.

We have an excellent market position worldwide in manysectors, we can offer leading technological products and have a very well-known brand name behind us. The year 1999 wascharacterized by important steps for future growth, preparingthe way for an improvement in our profitability and therefore anincrease in corporate value. We will continue in this wayincluding further restructuring measures, the cost of which weestimate to be Euro 140 million in year 2000. To summarize, we are very optimistic about the future development of theAgfa-Gevaert Group.

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Graphic Systems

Research and development expenses 1999 Euro million

"Our competitive advantage lies in our coreexpertise, not just in photochemistry, but also in electronics, optics and software.This allows usto concurrently engineer and optimally integratesystems that result in highly automated andhigh-performance solutions. Because of this,we are well positioned to take advantage of the increased industry demand for systems that raise overall productivity."Walter Van Leuven General Manager, Graphic Systems Business Group

Sales Euro million

1999

1998

1,945

2,009*

Operating result before restructuring Euro million

1999

1998

122

129*

*DTP not included

Overview With its analog and digital systems, GraphicSystems, the largest business segment of the Agfa-GevaertGroup, Graphic Systems, is the world market leader in thegrowth segment of prepress systems: more than 40% of allprinted matter in the world is produced with the help ofproducts and systems from this business segment.

In 1999, the Graphic Systems business segment comprisedthe Prepress Systems and Digital Printing Systems businessunits. Sales totaled Euro 1.945 million. Well over 90% of the sales of this business segment are attributable to thePrepress business unit, that encompasses three productgroups: Photographic Prepress (particularly graphic films),Electronic Prepress (hardware and software) and Offset PrintingSystems (printing plates). In the previous year, this businesssegment also included the Desktop Publishing business unit – which was integrated into the Consumer Imagingbusiness segment as of January 1, 1999 – and the CopyingSystems business unit, which was sold in mid-year 1998. If theprevious year's sales are adjusted for these two business units,the figures for 1999 show sales growth of 3.1%. At Euro 122million, the operating result before restructuring is 5% belowthe figure for the previous year as a result of start up andmarketing costs for a new generation of equipment as well as the losses of our New-Isenburg plant before closure.

Well positioned The printing market continues to grow. One example is the magazine market, where more and morespecial-interest publications are being produced: in Germanyalone, more than 800 new magazines appeared on the marketin 1998/99. The vast majority of printed matter is produced bythe "Computer-to-Film" process. This means that the print pagescompiled on the computer are output on film in a laser imager.The film then serves as the original for producing the printingplate. While business with the recorder films used in this

workflow is still growing, there is a continuing decline in themarket for films used in manual processes.

Very strong growth is evident in the "Computer-to-Plate"sector, where the computer directly controls a platesetter. As this process eliminates one production step, namely filmexposure, the time taken up to production of the printing plate is correspondingly shorter. Computer-to-Plate is thus atechnology of the future that very many newspapers are alreadyusing today. For instance, every daily paper in Belgium isproduced using Computer-to-Plate systems from Agfa. With itsprinting plates and equipment, Agfa is recording overall growthof 45% in this market worldwide: 9 out of 10 newspapersproduced by the Computer-to-Plate process use digital printingplates from Agfa. New product launches in this sector were thePolaris 200 platesetter and the N91 photopolymer printing plate.

Computer-to-Plate is also fueling growth in commercialprinting. In this context, particularly strong growth is beingachieved by systems in which the printing plates are "exposed"thermally. With its "Galileo" Computer-to-Plate platesetter and its "Thermostar" printing plates, Agfa commands an excellentposition in this market. This is also true with regard to workflowmanagement software, which already plays a decisive role, andwill do so even more in the future, both in newspaper printingand commercial printing.

Market trends in prepress The future of the prepress industrywill be much enhanced by the fundamental shift in a printingindustry that is moving away from a model of craft productionand towards a process of automation. This change is beingdriven by the shift to digital production workflows. The industryis in the midst of significant retooling and re-engineering toimprove productivity. While new digital modules wereincreasingly introduced into the production environment in thelast decade, innovation today largely concentrates on the

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individual components in the workflow. We are now mainlyfocusing on process-driven innovations that eliminate thevarious "islands" of automation that have formed within design,prepress and printing functions. Agfa is well placed to capitalizeon the shift to digital workflows and to deliver process-orientedsolutions to the prepress and printing community.

Award-winning Agfa technology Our "Agfa Apogee" WorkflowManagement System, which has won numerous covetedindustry awards, is among the fastest-growing systems of the Graphic Systems business segment. The innovative PDF – based Production System (Portable Document Format)has now been adopted by more than 2,000 prepress andprinting organizations around the world. Apogee Series 2 is an enhanced version of the original system, including variousadditional features. In particular the Apogee Create softwareprogram, launched in 1999, establishes a collaborative, high-productivity link between creative and production teams. By drawing together the activities of designers and productionstaff in this way, Apogee streamlines the process of moving

files among key partners in the workflow. In 1999, Apogee was awarded the Graphic Arts Technology Foundation IntertecAward for innovation.

System support via the Internet Agfa is also taking aninnovative approach with regard to service systems. With the "Odyssey Remote Support System", we have given themarket the first remote product service and support terminal.The system is used for remote diagnostic or upgrade supportfor imagesetters and platesetters, Chromapress digital printingsystems and other devices. Odyssey goes beyond conventionalremote customer support systems by allowing servicetechnicians to conduct upgrades and diagnostics via theInternet. With Odyssey, support engineers can remotely accessany device on the customer's network with the samecommunications connection. Agfa Support Center technicianscan also remotely load new software to any connected product.These features greatly reduce the need for on-site service calls,saving the customer time and money. Odyssey features aportable video camera and makes use of full-duplex audio andvideo for AV troubleshooting and video conferencing.

Graphic Systems continued

Film for production of printed

circuit boards. A niche market

for Agfa, which is number one

in the world.

Strong growth in the "computer to plate" sector

The Polaris system is a platesetter for newspapers

enabling greater efficiency at high-volume newspaper

operations: it shortens the time between the editorial

close and press start by the management workflow in

the final production stages and will change the

newspaper industry dramatically.

Other new products Additional new products launched in 1999included four large-format inkjet printers in the "AgfaJet Sherpa"and "AgfaJet Montana" families. Apart from producing posters,etc., these printers are also used to produce digital proofs,meaning that they serve to output a proof on Agfa inkjetmaterial before the film or the printing plate is exposed.

Other new products that came out on the market includedthe AgfaScan T5000 Plus and the AgfaScan XY-15, two high-endflatbed color scanners that further strengthened Agfa's positionin this market segment.

Above and beyond these sectors, Agfa is also active invarious niche markets, including films for aerial photography orfilms for manufacturing printed circuit boards. Agfa is No. 1 inthe world market in this field. The same applies to anotherhighly specialized niche market, namely that for font software:the American Monotype company was acquired in the previousyear, making Agfa No. 1 in this market. What was already themost comprehensive range of fonts in the world was expandedin 1999, with the result that the font collection now includesmore than 7,000 fonts.

Strong growth in digital printing This year, we are againrecording double-digit growth in digital printing systems, whichwe market under the system name "Agfa Chromapress". Various new products were also launched in this sector. Thecomplete "Chromapress" systems include the printing engine,the toners and the software. Up to now, Agfa developed andproduced the toners and software, while the printing engineswere bought in from the Xeikon company. For its part, Xeikon ison the market with the same engines and toners, but differentfront-end software. In order to achieve the greatest possiblesynergistic effects in marketing, as well as in the developmentand production of the individual components of the overallsystem, Agfa and Xeikon signed a "Memorandum ofUnderstanding" in January 2000, the aim of which is to transferall Chromapress business from Agfa to Xeikon. In return, inaddition to a cash payment, Agfa's holding in Xeikon N.V. is tobe increased from 20.2% up to 25.5%.

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Workflow management systems

The Apogee system is a PDF-based high-end

production workflow system for prepress

and publishing environments. It is designed

to incorporate all prepress processing

components and thus to streamline the

process of moving files among key partners

in the workflow.

“The Medical Imaging business group continuesto develop its core strengths of film, hardcopy and digital solutions with product line extensions,technology breakthroughs, and acquisitions.The acquisition of Sterling Diagnostic Imaging inMay 1999 has provided us with a greatly expanded,easily accessible film customer base that is ready for the transition to our leading digitaltechnologies.”John M. Glass General Manager, Medical Imaging Business Group

Research and development expenses 1999 Euro million

Technical Imaging

Sales Euro million

1999

1998

1,352

982

Operating result before restructuring Euro million

1999

1998

180

172

Overview More than 80% of sales in the Technical Imagingbusiness segment are attributable to the Medical Imagingbusiness group. Also included in this business segment are the Non-Destructive Testing (NDT) and Industrial Imagingbusiness groups, the latter comprising the Motion Picture,Micrographic and Document Systems, and Specialty Foils and Components business units. At Euro 1.352 million, sales in 1999 were 37.7% higher than in the previous year. This isprimarily a result of the acquisition of Sterling DiagnosticImaging in Greenville, South Carolina, USA in May 1999.However, even when adjusted for this effect, Technical Imagingremains the fastest-growing business segment of the AgfaGroup with sales growth of 9%. The operating result beforerestructuring of Euro 180 million also makes it the businesssegment with the highest return on sales.

Medical Imaging The Medical Imaging business groupachieved sales of Euro 1.128 billion in 1999. The 49% increasewas due not only to the Sterling acquisition, but also to substantial organic growth of 11% in the existing businesses.Owing to the market situation, business in the classical X-rayfield grew only slightly, with Agfa maintaining its strong positionin the film business with roughly 2% volume growth. Werecorded increases of more than 20% in the digital marketsegments, i.e. hardcopy, computer radiography and digitalnetworks. The range of products in the hardcopy (HC) segmentencompasses systems for the output of digital image data bothon film (“wet HC”) and on other media (“dry HC”). Growth inthe dry hardcopy segment was partly attributable to the accessto major American group purchasing organizations madepossible by the Sterling acquisition, and to expansion of thedistribution channels.

We achieved the greatest growth in the digital sector withdigital “IMPAX” networks for communication and archivingwith/of patient images and data (“PACS” = Picture Archiving &

Communication Systems) and in computed radiography. We have maintained our competitive lead by making majorinvestments in technologies and joint ventures. With more than 400 “IMPAX” installations in state, private and publichospitals throughout the world, Agfa is the market leader inPACS systems with a market share of 11%. The field ofcomputed radiography, which had already been growing steadilyand in which we are active with our “Agfa Diagnostic Center(ADC)” systems, also recorded particularly strong growth in 1999, this primarily being attributable to new marketingagreements and the enthusiastic acceptance of PACS systemsin the market.

Market trends Healthcare is becoming increasingly information-oriented. As a result of efforts to reduce costs, increaseefficiency and enhance patient care, radiological examinationsare now considered to be an integral part of the patientinformation flow. Leading Medical Imaging companies like Agfa-Gevaert are providing the necessary technologies totransform a film-based (analog) radiology department into adigital-based radiology department. A digital-based radiologydepartment is better able to manage the radiology process asan information flow, thus providing the necessary increase inefficiency and improvements in patient care. This transition from analog to digital is very similar to other markets for Agfaproducts, such as graphics.

The preeminent worldwide market position of Agfa in both film and digital technologies provides a large customerbase for future digital technology business growth. Thanks toproduct lines extended by both R&D and acquisition activities,Agfa now offers a complete analog and digital productassortment. So, no matter where a customer is in their journeyfrom analog to digital technology, Agfa offers a highlycompetitive solution.

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New products and services Through internal development,acquisition, joint ventures and alliances, Agfa added a number of new key products to its film and digital product portfolio in1999. In mammography, Agfa introduced a new film/screensystem with greater clarity and detail, allowing radiologists todetect even finer microcalcifications than with othermammography film/screen systems. In hardcopy, Agfaintroduced a higher resolution dry printer suitable for thegrowing Digital Mammography and Computed/DigitalRadiography markets. In PACS, several new “Agfa IMPAX”products were launched relating to software, voice activation,entry-level PACS systems and Web capability. We alsointroduced service and support products that address thechanging needs of radiology. Examples include decentralized,network-controlled repair and preventive maintenance of digitalsystems via modem, and comprehensive consulting servicesthat ensure optimum utilization of digital systems in hospitals.

New alliances In 1999, a joint venture with Mitra Inc., aCanadian software company, created IMPAX Technology Inc.This new company produces fully engineered software productsbased on Agfa’s successful IMPAX platform.

Other alliances in the IMPAX business area also open upadditional distribution channels for PACS, such as Toshiba

Medical Systems and Acuson Corporation, as well as additionalcapabilities, such as Talk Technology, for voice-activated dictationcapability. These additional channels and capabilities areimportant elements of the Agfa strategy of establishing IMPAXas the industry standard for PACS technologies, incorporatingboth internal expertise and external competencies.

Other 1999 distribution channel expansions included a privatelabel agreement with General Electric for ADC computedradiography products. This agreement allows Agfa to capitalizeon GE’s numerous worldwide connections.

Outlook As the movement towards digital-based radiologydepartments gathers momentum, we can expect the ratio ofanalog and digital products sales to change. Agfa is wellpositioned to manage this shift profitably with its full range offilm and digital products and a large customer base seekingproducts and consultancy for its progression towards digitaltechnology. Any concerns that the shift from traditionallyprofitable film systems to digital products may involve somefinancial disadvantages are dispelled by Agfa’s experience in the Scandinavian market, which is currently split evenlybetween digital and analog products and is highly profitable.

Technical Imaging continued

Use of software in scoliosis

radiography.

The unique Agfa ADC computed

radiography technology makes it

possible to produce a full-body

image for examining a scoliosis

patient. Scoliosis is a condition

involving lateral curvature of the

spine, making it necessary to

X-ray the whole of the spine

and represent it as a continuous

image. Agfa software connects

the three separate images in one

digital image.

Non-Destructive Testing Despite a 6.7% decline in sales in 1999, the development of our NDT business remains asuccess story: between 1993 and 1998, the average annualgrowth was 14%, while total sales rose by 90% in a marketthat grew by 30%.

The most important fields of application of our NDT systemsare pipeline construction and the aerospace industry: the safetyof roughly 80% of all the passenger aircraft in the world is tested using NDT systems from Agfa. The decline in sales is a result of the weaker economic situation in these markets.

“Agfa Structurix DR (Direct Radiography)” was launched as a new product. Instead of a film, a selenium receptor is used to convert the X-rays directly into electrons, thus allowingelectronic optimization of the image in the computer. The mainfield of application of this system is aircraft engine testing.

Industrial Imaging Sales in the Industrial Imaging businessgroup rose by 7.6%, mainly as a result of highly successfulbusiness in the Motion Picture business unit. Agfa supplies themotion picture film market with negative sound film and thefilms on which the copies for the individual movie theaters are printed.

The Micrographic and Document Systems business unit has successfully completed its transformation into an all-aroundsupplier for both analog and digital document management: in addition to the “classical” route of storing documents onmicrofilm, which is still the safest method for long-termarchiving, Agfa also offers a number of systems such as thoseused, for instance, to digitize documents, store them on CD-ROM or load them into networks. Strong growth has beenachieved by the digital “AiiS” (Agfa integrated image Server”)systems, which are capable of storing and managing a widevariety of host print data flows and converting them intostandardized image formats, so that they are available forsystem-independent processing and storage. In total, the salesof this business unit dropped slightly due to the decline in theuse of microfilm for short-term storage.

In contrast, strong growth was recorded by the SpecialtyFoils and Components business unit, which is characterized by constantly opening up new fields of application. For example,the new products added in 1999 included transparent,conductive films for electroluminescence lamps and spacers for LCD (Liquid Crystal Displays).

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IMPAX system

Market leader with its IMPAX system,

Agfa has significant growth potential

in medical imaging equipment

with the development of computer

systems, which enable a radiologist

to archive, display and manage the

information stored in network

hospitals.

Aircraft safety checks use Agfa NDT systems

At every stage, from initial wax pattern injection

through to final assembly of the clusters, Howmet,

the worldleading casting company in aircraft engines,

maintains quality by stringent inspection techniques

including X-ray inspection.The inspection of castings

demands a meticulous follow-up of all production

parameters. All castings receive an X-ray number

and a technical paper on which all exposure details

are kept.The radiographic facility provides three

Gamma rooms with customised carousel line-up,

two X-ray rooms and two automatic X-ray machines.

The most frequently used film type is Agfa Structurix.

The exclusively used “receptors” are Structurix film

and RADView selenium for respectively analog and

digital direct radiography.

Micrographic systems

Europe’s sole manufacturer of

microfilm, Agfa performed well in

this niche market in 1999.

Motion picture business

Print film is a growing

segment of the motion

industry and 1999 was a

vigorous year for Agfa.

Consumer Imaging“Photography is turning into communication inimages.The classical route of exposure on film and output on photographic paper is increasinglybeing supplemented by the high-growth digitalworld. Agfa has already held a leading position inthis sector for a long time – for instance withdigital solutions for the printing industry ormedical imaging technologies. Agfa’s broadlybased know-how in the world of digitaltechnology also benefits Consumer Imaging – forexample in connection with image processing orin relation to the Internet, which not only opensup new dimensions in communication, but alsopermits a host of image-related services.With ourcomplete range of analog and digital products,together with our Internet activities, which weplan to constantly expand, we see ourselves asbeing optimally equipped for the future.”Georges Brys General Manager, Consumer Imaging Business Group

Research and development expenses 1999 Euro million Sales Euro million

1999

1998

1,434

1,371*

Operating result before restructuring Euro million

1999

1998

62

39*

*DTP included

Following a relatively weak start in fiscal 1999, the ConsumerImaging business segment was able to steadily enhance itsperformance and, in particular, greatly improve its operatingresult. In 1999, the segment achieved total sales of Euro 1.434 million, this being 4.6% more than in the previous year.The operating result before restructuring rose by 60% to Euro 62 million. The segment encompasses three businessunits: Film and Finishing (i.e. photographic papers andchemicals), Laboratory Equipment, and Desktop Publishing(DTP) main product lines are digital cameras, scanners and small-format inkjet materials. DTP was assigned to the Consumer Imaging segment at the start of 1999. The previous-year’s figures given here have been adjusted to reflect the structure existing in 1999.

Heading for growth with APS and single-use cameras

Photographic films are by far the most familiar Agfa product. In terms of numbers, the “Agfacolor HDC Plus” 35 mm colornegative film is the Group’s best-selling product – and wasvoted Europe’s best color film 1998/1999 by the Technical ImagePress Association (TIPA), the international association ofphotography journalists. In addition, Agfa is the leading supplierof Private Label films. The film market is growing byapproximately 5% (in terms of volume).

Double-digit growth is being recorded in the field of single-use cameras, where Agfa has the “Agfa LeBox Go!” for 35 mmphotography and the “Agfa Easy” for the APS system. APS(Advanced Photo System) was introduced worldwide by virtuallythe entire industry in 1996. After a sluggish start, this systemhas since become generally accepted and is also enjoyingsubstantial growth rates at Agfa. Agfa is represented in the APSsector with its “Futura” films and cameras. Our range ofcameras was expanded by the “Agfa Futura Zoom” in 1999. Like the other film/camera systems, APS uses a silver halide

film, but has a number of features that make photographyeasier and more flexible.

The largest single product of the segment is color negativepaper. The volume of business is only slightly below theprevious year’s level and this was largely due to the expiry of a single major deal, something which has been balanced byexpanding sales in other quarters. We launched “AgfacolorProfessional Laser Paper” onto the market in 1999 as a special-purpose paper for ultra-fast laser exposure.

The photographic chemicals business is continuing todevelop well as regards products for both wholesale finishersand minilabs. New, odor-neutralized chemicals for processing inminilabs came onto the market in 1999.

The Film and Finishing business unit succeeded in greatlyimproving its efficiency, a fact reflected in the operating result.However, owing to the expiry of a major contract for paper atthe end of the previous year, the sales of this business unitwere just less than 3% below the previous year’s figure.

The fact that silver halide photography still has substantialtechnological potential is confirmed in basic research beingconducted by French scientists in collaboration with Agfa.Laboratory experiments were successful in achieving a majorincrease in the efficiency of the elementary photographicprocess, and thus in the photosensitivity of a photographicmaterial. Further work is required in order to establish whetheror how these research results can be implemented in industrial-scale production. Agfa has the patent on the process.

Laboratory equipment performing well The LaboratoryEquipment business unit was able to expand its sales by 21%.This positive trend applies to both the wholesale finishingequipment and the minilab segments. The focus in wholesalefinishing equipment is on the Agfa MSP DIMAX high-speedprinter, which has been very well received on the market.

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In conjunction with Total Film Scanning, the digital imageprocessing feature integrated in this machine (DIMAX = DigitalMasking Exposure) produces a print quality that was previouslyimpossible to achieve in wholesale finishing laboratories – theDIMAX outputs 20,000 prints per hour.

In December 1999, CeWe Color, Europe’s largest independentphotofinisher, placed a major order for Agfa wholesale finishingequipment. With an order value of Euro 14 million, it is thebiggest single contract for wholesale finishing equipment in thehistory of Agfa. The contract centers on the Agfa MSP DIMAXand will be included in the sales for the year 2000.

Owing to its excellent print quality, the DIMAX also offersphoto dealers and laboratories a perfect opportunity for creatinga premium line. Agfa supports marketing activities of this kindby its partners and offers an appropriately packaged DIMAXfilm. Agfa was also able to record double-digit growth in theminilab segment, where a major order was likewise received at the end of the year. The British MINIT Group and Agfa havesigned an agreement concerning long-term cooperation in theminilab sector (equipment, paper and chemicals).

Today, almost one Agfa minilab in three is sold under themotto “The Best of Two Worlds”. This means that the minilabs

are also equipped with a “Digital Print Unit” (DPU) from Agfa,which makes it possible not only to develop films and print them on photographic paper, but also to process digital imagesand output them on photographic paper. The original images can come from a variety of sources (i.e. digital camera, scannedimages, data file). These can also be sent to the DPU via the internet.

This offer is supplemented by the “Agfa Pixtasy” systems,which are also used in minilab shops. They make it possible, forexample, to create greeting cards, retouch images or produceportrait photos in different formats in a single operation.

Desktop Publishing growing fastest With a roughly 29%increase in sales, the Desktop Publishing business unit is the fastest-growing member of this business segment. We have made very good progress with both digital camerasand scanners. Agfa sold 670,000 scanners in 1998 and morethan 1.2 million in 1999. Agfa’s comprehensive range ofscanners for both “SOHO” (small office/home office) andprofessional users makes it one of the leading suppliers. The ePhoto CL30 megapixel cameras for novices and theePhoto CL50 as the high-end model for professionals and

Consumer Imaging continued

The story of DIMAX

Agfa presented a pioneering new digital minilab in February 2000: the

“d-lab.3”. It is another addition to the successful history of technological

milestones set by Agfa’s laboratory equipment, starting with the Multi-

Scanning Printer (MSP) in 1984. Among other things, its “Total Film

Scanning” (TFS) eliminated the need to pre-sort the films by grades and

set a new standard for the quality of wholesale laboratory prints. In

1986, Agfa presented the “CRT Printer”, the world’s first truly digital

scanner printer.The MSP DIMAX has been on the market since 1998,

combining for the first time the extensive options of digital imaging

with the speed of analog printing. Shortly afterwards, the system was

supplemented by the High Speed Index Print (HIT) system which uses a

“Digital Micromirror Device” (DMD) for the first time in the laboratory

world. Following the MSP, the Agfa MSP DIMAX is now the most

frequently sold high-speed printer in the world.

serious amateurs were joined on the market by the ePhotoCL30 Clik!. This camera is the first digital camera with theIomega Clik! drive available on the market and can store up to 360 images. The Agfa SnapScan 1212u was the first SOHOscanner in the world to have a USB (Universal Serial Bus) port. Various other models were launched to expand the family of SnapScan scanners, and the DuoScan T2500 and DuoScan T1200 were added to the line of mid-rangescanners. The “heart” of the scanner is the software, whichAgfa develops itself. The new products included “ScanWise”,which greatly simplifies the scanning of documents and photos,and makes the use of a scanner comparable to operating acopier or a fax machine. The range of small-format inkjet paperswas expanded.

Internet services/AGFAnet AGFAnet, the Internet platform of Agfa’s Consumer Imaging business segment, was launched on the web in early 1999. Above all, it is intended to be a“marketplace” for our customers in the trade, giving them thechance to market their products and services there. One veryimportant service offered by the AGFAnet is the opportunity to send images from digital cameras or scanned images to

a laboratory via the Internet, in order to have them printed onphotographic paper. The web-based services operated by Agfaitself include “Agfa artcards”, which were launched in Germanyat the beginning of 2000. They give people the chance to usethe Internet to order individually designed greeting cards andhave them printed. We are convinced that the number of web-based services willincrease enormously, both on Agfa’s part and on the part of itscustomers. Consequently, it is Agfa’s aim to provide theseservices together with its customers.

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The Duoscan T2500 scanner

In the mid-range market, Agfa

expands its range of flatbed

scanners to meet the demands of

the professional users in terms of

high quality image capture.

The ePhoto CL30 Clik!™ digital camera

Agfa launched the ePhoto CL30 Clik!™ in the USA in

September - a high-performing, USB-compatible digital

camera offering a built-in Iomega® Clik!™ drive which

can store up to 360 high-resolution pictures.The

combination of megapixel quality and affordable, easy-

to-use 40MB disks makes the CL30 Clik! digital camera

ideal for all types of digital camera users.

Board of management

Mr.Wout Van der Kooij

Spokesperson for Consumer ImagingAfter attending photographic college and studying economics he began hiscareer in 1966 at Agfa-Gevaert in theNetherlands in the Consumer Imagingbusiness. He switched to Agfa-GevaertAG in 1978 where he held variousfunctions and then moved to Varta AGwhere he was appointed to the Board ofManagement in 1990. He was appointedto the Board of Management as ofJanuary 1, 2000 and he is Chairman ofthe Board Committee for Marketing.

Dipl.-Ing. Friedrich Hujer

Spokesperson for Graphic SystemsHe studied electrotechnical engineering.Since 1968 he has held various positionsin the Laboratory Equipment businessunit of the Agfa Group. He was appointedto the Board of Management in 1994. Heis Chairman of the Board Committee forResearch & Development and Productionof Equipment and Software.

Dr. Klaus Seeger

Chief Executive OfficerHe studied chemistry and has heldvarious positions within the Bayer Groupin the USA and in Germany. Member ofthe Board of Management and of theBoard of Directors of the Agfa Group asof September 1997. Chairman of theBoard of Management since January 1,1998. He is Chairman of the BoardCommittee for Corporate Coordination.

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Mr. André Bergen

Chief Financial Officer He studied economics and has heldvarious positions in several banks;Kredietbank, Chemical Bank, theGenerale Bank where he was appointedto the Board of Management in 1993. He was also Chairman of the Board ofDirectors of General Belgian Bank inHong Kong until October 1999. Memberof the Board of Management sinceJanuary 1, 2000.

Dr. Ludo Verhoeven

Vice Chairman of the Board of Management Spokesperson for Technical Imaging He studied chemistry and has heldvarious positions in the Agfa Group since1973 in Belgium, the USA and Germany.He is a member of the Board ofManagement and Board of Directorssince 1997. He is Chairman of the BoardCommittee for Production Technology andEnvironment.

Dr. Edgar Hommelsheim

Chief Administration OfficerHe studied law in Germany and in theUSA. In 1987, he joined the legal affairsdepartment of Bayer AG. He switched to Agfa in 1995 where he took on the position of senior legal officer of the Group three years later. He wasappointed Secretary of the Board ofDirectors in 1999. Member of the Boardof Management since January 1, 2000.

Composition of Board of Directors In 1999 the composition of the Board of Directors of Agfa-Gevaert N.V. was radically changedas a result of the flotation of the company. On April 26, 1999, all members, listed below, resigned their positions on the Board of Directors.

Dr. h.c. André Leysen, Chairman Ferdinand Suykens

Dr. Pol Bamelis, Vice Chairman Friedrich Hujer

Dr. Etienne De Wolf Dr. Klaus Schmidt-Menschner

Dr. Klaus Gerlach Albert Aps

Jan Huyghebaert Dr. Ludo Verhoeven

Dr. Udo Oels Werner Wenning

René Peeters Dr. Klaus Seeger

Werner Seufert

The General Meeting of April 26, 1999 then appointed the following persons as directors of the company for a period of six years. All appointments will terminate with immediate effect following the Annual General Meeting which will approve the annualaccounts for the 2004 financial year. The table below lists the names of the current members of the Board of Directors and theirmain activity or profession:Name Chief activity or profession

Hermann Josef Strenger, Chairman Chairman of the Supervisory Board of Bayer AG, Leverkusen

Dr h.c. André Leysen, Vice Chairman Chairman of Gevaert N.V., Mortsel

Ferdinand Chaffart Member of the Board of Directors of Gevaert N.V., Mortsel

Klaus-Peter Müller, independent director Member of the Board of Management of Commerzbank AG, Frankfurt am Main

Prof Dr ir André Oosterlinck, independent director Rector, University of Leuven

Dr Klaus Seeger Chairman of the Board of Management and C.E.O. Agfa-Gevaert N.V., Mortsel

Dr Ludo Verhoeven Vice Chairman of the Board of Management Agfa-Gevaert N.V., Mortsel

Werner Wenning Member of the Board of Management of Bayer AG, Leverkusen

The Board of Directors currently consists of eight members. The change from 15 members to eight took place as a result of arestructuring exercise with a view to the flotation. Two members, Messrs Strenger and Wenning, were appointed on therecommendation of Bayer AG, whilst the other main shareholder, Gevaert N.V., is represented on the Board of Directors of thecompany by Messrs Leysen and Chaffart. Messrs Seeger and Verhoeven are directors who, as members of the Board of Management, are charged with the day-to-day management of the company; finally, Messrs Müller and Oosterlinck, as directors,are considered as being independent of the main shareholders and the management.

The Board of Directors, according to the articles of association, is made up of at least six members, shareholders and non-shareholders, appointed for a maximum period of six years. Their appointments are renewable.

There is no formal procedure for the appointment of non-executive members of the Board of Directors, but the Board of Directors proposes candidates on the basis of criteria which they set with regard to integrity and experience in the field of management and/or academic achievement. Nor do the articles of association contain any age-limit rules for the Board of Directors.

Corporate Governance

Auditor The auditor for Agfa-Gevaert N.V. is Klynveld, Peat Marwick, Goerdeler represented by K.M. Van Oostveldt.His appointment expires when the Annual General Meeting of 2001 is held.

How the Board of Directors works In accordance with the articles of association, the Board of Directors meets as often as theinterests of the company so require, as well as when two of the directors wish to convene such a meeting. In 1999 there wereseven meetings.

The Board of Directors is primarily concerned with matters of exceptional economic and strategic importance, the initiation ofnew activities and discontinuation of existing activities, the formation and dissolution of subsidiaries, decisions regarding labourrelations within the company and, in broad terms, the taking of decisions regarding general and strategic policy of the company.Occasional items will, of course, be included on the agenda which relate to specific cases. Likewise, in drawing up the agenda,account is taken of the budgets and financing of the group which are set and evaluated by the Board at periodic intervals.

In accordance with the articles of association, valid consultation and resolutions can only ensue when a majority of directors is present. If this condition is not satisfied, a minimum of two directors are required to be present or represented when a newmeeting is convened with the same agenda before resolutions can be rendered legitimate.

Resolutions of the Board are passed by absolute majority; in the event of an equality of votes, the proposal is rejected.The articles of association likewise make provision for the possibility of resolutions of the Board of Directors to be taken by

ballot, taking into account the relevant legal requirements. In its meeting of April 26, 1999, the Board of Directors made a decision to set up a Board of Management charged with

implementing company policy and strategy as set by the Board of Directors. As a result, the Board of Management was given an extensive range of powers with regard to the day-to-day running of the business.

The Board of Directors also agreed that the Board of Management should regularly submit a report to the Board of Directorsregarding its specific activities in order for the Board of Directors to oversee and co-ordinate its activities.

Although there is no formal procedure for the provision of internal information to experts or engaging their services by directors,directors do exercise their right to information on an ad hoc basis.

The Board of Management informs the Board of Directors concerning the progress of activities within the subsidiary companiesand participating interests. The Board of Management reports on this matter on the basis of information received from theCorporate Subsidiary Administration department by the member of the Board of Management responsible for the said matter.

The Board of Directors does not observe any regulations with respect to carrying out a directorship.

Remuneration of directors At the Annual Meeting of April 26, 1999, a decision was taken to set the general remuneration of thedirectors as follows:

(i) a fixed sum of Euro 275,000 per annum and

(ii) a variable sum per annum in proportion to the sum of the dividend per share as determined by the Annual Meeting in questionin accordance with the following regulation:

per band of Euro 0.05 dividend per share which exceeds the first band of Euro 0.15 dividend per share, the directors will receiveremuneration of Euro 16,000, i.e. Euro 2,000 per director.

The total number of shares owned by all members of the Board of Directors amounts to 19,000.The remuneration of the Board of Directors for 1999 amounted to Euro 249,812.

Committees set up by the Board of Directors Remuneration committee: in its meeting of April 26, 1999, the Board of Directorstook a decision to set up a remuneration committee consisting of two members, Messrs Strenger and Leysen. The remunerationcommittee puts proposals to the Board of Directors regarding appropriate remunerations for the Board of Management.

Audit committee: In view of the limited size of the Board of Directors and its desire not to take on any specialist roles, a decisionwas also taken on April 26, 1999 not to set up an audit committee for the time being but to have the complete Board of Directorsperform the tasks as performed by an audit committee.

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Board of Management Day-to-day management will be transferred to the Board of Management set up on April 26, 1999 andconsisting of the following members:

K. Seeger, Chairman W. SeufertL. VerhoevenA. ApsF. Hujer

Following the resignation of Messrs Seufert and Aps and the appointment of Messrs A. Bergen, E.Hommelsheim and W. Van der Kooij, the management executive, as of January 1, 2000, is made up of the following members:

K. Seeger, ChairmanL. Verhoeven, Vice-chairman A. BergenE. HommelsheimF. HujerW. Van der Kooij

An extensive range of powers was transferred to the Board of Management by the Board of Directors with regard to day-to-daymanagement as well as a number of other specific powers.

In principle, the Board of Management meets once every two weeks.The general gross remuneration paid to members of the Board of Management in 1999 was Euro 2,636,097.With respect to the members of the Board of Management, there were a number of outstanding warrants equal to 117,000

(including former members). The strike price of these warrants is Euro 22 and the strike period runs from January 1, 2003 toNovember 10, 2005.

The total number of shares owned by all members of the Board of Management (excluding the Chairman and the Vice-Chairman, who are Members of the Board of Directors and whose holdings are included in the total number given above withrespect to the Board of Directors) amounts to 5,000.

Policy with respect to allocation of profits As regards the proposals to the Annual General Meeting concerning the allocationand payment of profits, the Board of Directors will take into account various prevailing factors, including the financial situation ofthe company, operating results, current and anticipated need for liquid assets and expansion plans.

Major shareholders As of December 31, 1999 Bayer AG indirectly owned 30% and Gevaert Group 24.9% of outstanding shares ofthe company. Until May 10, 2000, the Gevaert Group has an option to purchase from the Bayer Group up to 10% of outstandingshares of the company.

Corporate Governance continued

To the Board of Directors and the Shareholders of Agfa-Gevaert N.V.

We have audited the accompanying consolidated balance sheet of Agfa-Gevaert N.V. as of December 31, 1999, and the relatedconsolidated statements of income, shareholders’ equity and cash flows for the year then ended. These financial statements arethe responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements basedon our audits. The pro forma consolidated financial statements of the Company as of December 31, 1998, were audited by anotherauditor whose report dated March 31, 1999, expressed an unqualified opinion on those statements, with an additional commentand reference to the Company’s disclosure in respect of the assumptions used to prepare the afore-mentioned 1998 pro formaconsolidated financial statements.

We conducted our audits in accordance with International Standards on Auditing as promulgated by the International Federation ofAccountants. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financialstatements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts anddisclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimatesmade by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides areasonable basis for our opinion.

The 1998 pro forma consolidated financial statements were prepared as if all Agfa-Gevaert entities were already subsidiaries of the same parent company Agfa-Gevaert N.V. as from January 1, 1998 onwards. As explained in note 1(b), note 2 and note 17,seven of the entities were acquired in January 1999 and the major German entities Agfa-Gevaert AG and Agfa DeutschlandVertriebsgesellschaft GmbH & Cie were acquired at the end of 1998. The assumed financing of the acquisition of the above-mentioned entities was replaced by actual financial obligations at the end of 1998 (German entities) and in January 1999 (sevenformer Agfa divisions of Bayer companies). The 1999 cash flow statement has been prepared under the assumption that all entitiesincluded in the 1998 pro forma consolidated financial statements were acquired prior to January 1, 1999 and as a result the relatedfunds raised during 1999 are not disclosed as cash flows occurring in 1999.

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Agfa-GevaertNV as of December 31, 1999 and of the results of its operations and its cash flows for the year then ended in accordance withInternational Accounting Standards as promulgated by the International Standards Committee and with the regulations of theSeventh Directive.

Mortsel, March 22, 2000

Klynveld Peat Marwick Goerdeler, Reviseurs d’Entreprisesrepresented by

K. M. Van Oostveldt

Agfa-Gevaert Group Independent Auditors’ Report

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Pro forma1999 1998

Note (Euro million) (Euro million)

Net sales 3 4,731 4,362

Cost of goods sold (2,930) (2,699)

Gross profit 1,801 1,663

Selling expenses (934) (926)

Research and development expenses 3 (241) (226)

General administration expenses (253) (241)

Other operating income 5 144 102

Other operating expenses 6 (426) (81)

Operating result 91 291

Income from investments in affiliated companies – net 1

Interest income (expense) – net 7 (36) (36)

Other non-operating income (expense) – net 8 (37) (41)

Non operating result (73) (76)

Income before income taxes 18 215

Income taxes 9 (7) (74)

Net income of consolidated companies 11 141

Minority interest (1)

Share of results of associated companies 3

Net result of the accounting period 14 140

Pro forma1999 1998

Note (Euro) (Euro)

Basic earnings per share 26 0.1 1

Diluted earnings per share 26 0.1 1

Agfa-Gevaert Group Consolidated Statements of Income

Pro formaDecember 31, December 31,

1999 1998Note (Euro million) (Euro million)

Assets

Non-current assets 1,441 993

Intangible assets 11 276 60

Property, plant and equipment 12 1,069 841

Investments 13 96 92

Current assets 3,264 2,952

Inventories 14 1,214 1,167

Trade receivables 1,382 1,130

Other receivables and other assets 15 493 416

Cash and cash equivalents 16 150 195

Deferred charges 25 44

Deferred taxes 9 149 81

Total assets 4,854 4,026

Equity and liabilities

Shareholders’ equity 17 1,439 1,365

Capital stock of Agfa-Gevaert N.V. 140 133

Share premium of Agfa-Gevaert N.V. 107 107

Retained earnings 1,156 1,068

Net income 14 140

Translation differences 22 (83)

Minority interest 4 8

Non-current liabilities 1,492 746

Liabilities for post-employment benefits 18 736 660

Liabilities for personnel commitments 56 44

Financial obligations more than one year 19 700 42

Current liabilities 1,804 1,845

Financial obligations less than one year 19 541 1,031

Trade payables 245 206

Miscellaneous liabilities 20 377 299

Liabilities for personnel commitments 124 90

Provisions 21 424 178

Deferred income 93 41

Deferred taxes 9 115 62

Total equity and liabilities 4,854 4,026

Agfa-Gevaert Group Consolidated Balance Sheets

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Capital Share Agfa-Gevaertstock of premium of Group

Agfa-Gevaert Agfa-Gevaert Retained Net Translation shareholders’ MinorityN.V. N.V. earnings income differences equity interest Total

(Euro million) (Euro million) (Euro million) (Euro million) (Euro million) (Euro million) (Euro million) (Euro million)

December 31, 1998 (pro forma) 133 107 1,068 140 (83) 1,365 8 1,373

Changes in shareholders’ equity

resulting from capital contributions

and dividend payments

Capitalization of reserves 7 – (7) – – – – –

Dividend payments – – (20) – – (20) – (20)

Other changes in shareholders’ equity

not recognized in income

Transition from pro forma equityas of December 31, 1998 to equityas of January 1, 1999 – – (19) – (4) (23) – (23)

IAS 19 (revised 1998) transition amount, net of tax – – (5) – – (5) – (5)

Translation differences – – – – 109 109 – 109

Other – – (1) – – (1) (4) (5)

Changes in shareholders’ equity

recognized in income

Allocation to retained earnings – – 140 (140) – – – –

Income after taxes for the period

January 1 till December 31, 1999 – – – 14 – 14 – 14

December 31, 1999 140 107 1,156 14 22 1,439 4 1,443

Agfa-Gevaert Group Consolidated Statements of Shareholders’ Equity

Pro forma1999 1998

Note (Euro million) (Euro million)

Cash and cash equivalents at beginning of year 194 243

Operating result 91 291

Income taxes currently payable (63) (66)

Depreciation and amortization 252 211

Change in long-term provisions 21 (55)

Gains (losses) on retirements of noncurrent assets 12 (1) 2

Gross cash provided by operating activities 300 383

Changes in inventories 104 (13)

Decrease/(increase) in trade accounts receivable (109) 39

Increase/(decrease) in trade accounts payable 3 10

Change in short-term provisions 184

Change in other working capital (105) 52

Net cash provided by operating activities 377 471

Cash outflows for additions in intangible assets 11 (67)

Cash outflows for additions to property, plant and equipment 12 (176) (221)

Cash inflows from sales of property, plant and equipment 12 50 108

Cash outflows from equity and debt instruments (37) (29)

Cash outflows from acquisitions 4 (335) (106)

Interest and dividends received 24 46

Net cash used in investing activities (541) (202)

Capital contributions – 1

Dividend payments to shareholders 17 (20) (75)

Issuances of debt 288 70

Retirements of debt (45) (207)

Interest paid (46) (78)

Other financial outflows (80) (22)

Net cash provided by/(used in) financing activities 97 (311)

Change in cash and cash equivalents due to business activities (67) (42)

Change in cash and cash equivalents due to exchange rate movements 3 (7)

Cash and cash equivalents at end of year 16 130 194

Agfa-Gevaert Group Consolidated Statements of Cash Flows

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1. Significant accounting policies

(a) Statement of compliance Agfa-Gevaert N.V. (“the Company”) is a company domiciled in Belgium. The consolidated financialstatements of the Company for the year ended December 31, 1999 comprise the Company and its subsidiaries (together referredto as the “Group”) and the Group’s interests in associated entities. The consolidated financial statements were authorized for issueby the Board of Directors on March 22, 2000. The consolidated financial statements have been prepared in accordance with theaccounting standards issued by the International Accounting Standards Committee (IASC) and interpretations issued by theStanding Interpretations Committee of the IASC as in effect at the closing date. They comply, in all material aspects, with theEuropean Union’s Directives on consolidation of financial statements. This application by the Company of IASC-standards has beenapproved by the Banking and Finance Commission on July 6, 1999.

(b) Basis of preparation The consolidated financial statements are presented in Euro, rounded to the nearest million.The consolidated financial statements are prepared on the historical cost basis. The accounting policies have been consistently applied by Group enterprises and are consistent with those used to compile

the pro forma information for the previous year except for the 1999 adoption of IAS 19 (revised 1998) “Employee Benefits”.Restatement of the comparative figures for the afore-mentioned change was impracticable. The comparative figures for 1998 werederived from the pro forma consolidated financial statements included in the prospectus issued on May 14, 1999 when Bayer AGpublicly sold 50% of its shareholding in the Company. These comparatives are included for information purposes only. As a result of a number of assumptions used in their preparation, the closing balance sheet as of December 31, 1998 differs from the openingbalance sheet as of January 1, 1999. The reconciliation is shown in note 17. Due to the use of pro forma accounts for the prior yearcomparatives, in some cases it has not been possible to provide the same level of detailed information for both periods.

Restatement of the 1998 pro forma figures on the face of the balance sheet is made for the current and non-current liabilities forwhich a separate disclosure is given.

(c) Consolidation principles

(i) Subsidiaries Subsidiaries are those enterprises controlled by the Company. Control exists when the Company has the power,directly or indirectly, to govern the financial and operating policies of an enterprise so as to obtain benefits from its activities. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control effectivelycommences until the date that control effectively ceases.

(ii) Associates Associates are those enterprises in which the Group has significant influence, but not control, over the financial andoperating policies. The consolidated financial statements include the Group’s share of the total recognized gains and losses ofassociates on an equity accounting basis, from the date that significant influence effectively commences until the date thatsignificant influence effectively ceases.

(iii) Transactions eliminated on consolidation All intra-group balances and transactions, including unrealized gains arising on intra-group transactions, are eliminated in preparing the consolidated financial statements. Unrealized gains arising fromtransactions with associated entities are eliminated to the extent of the Group’s interest in the enterprise. Unrealized gainsresulting from transactions with associates are eliminated against the investment in the associate. Unrealized losses are eliminatedin the same way as unrealized gains except that they are only eliminated to the extent that there is no evidence of impairment.

(d) Foreign currency

(i) Foreign currency transactions In the individual Group companies, transactions in foreign currencies are translated at theexchange rate at the date of the transaction. Foreign currency monetary assets and liabilities are translated at the exchange rate ruling at the balance sheet date. Resulting foreign exchange differences arising on translation are recognized in the incomestatement for the year. Non-monetary assets and liabilities denominated in foreign currency, which are stated at historical cost, aretranslated at the foreign exchange rate ruling at the date of the transaction.

Notes to the Consolidated Financial Statements

1. Significant accounting policies continued

(ii) Financial statements of foreign operations The Group’s foreign operations are not considered an integral part of the Company’soperations. Accordingly, the assets and liabilities of foreign operations, including goodwill and fair value adjustments arising onconsolidation, are translated at the foreign exchange rate ruling at the balance sheet date, while revenue and expenses of foreignoperations are translated at the average foreign exchange rate for the year. Resulting foreign exchange differences are recognizeddirectly in equity.

The financial statements of foreign operations in hyperinflationary economies are remeasured into the reporting currency (US Dollar or Euro) as if it was the operation’s functional currency. As a result, nonmonetary assets, liabilities and related incomestatement accounts are remeasured using historical rates in order to produce the same result in terms of the reporting currencythat would have occurred if the underlying transaction was initially recorded in this currency.

(e) Derivative financial instruments and hedging The Group uses derivative financial instruments to manage its exposures to foreign exchange and interest rate risks arising from operational, financing and investment activities. In accordance with itstreasury policy, the Group does not currently hold or issue derivatives for trading purposes. The derivatives used for hedgingpurposes are accounted for in the same way as the hedged item. As a result, offsetting gains and losses are reported in theincome statement in the same period.

(i) Hedging of foreign exchange exposure Gains and losses from foreign currency derivative instruments used to hedge anticipatedfuture currency transactions are deferred until the forecasted transaction occurs. Where the hedged item is an asset or liabilityoutstanding at the balance sheet date, the exchange adjustment to the derivative is matched with the exchange adjustment to thehedged item. Exchange rate adjustments to loans denominated in foreign currency and to derivatives hedging the net investmentin foreign operations are recognized directly in equity.

(ii) Hedging of interest rate exposure The Group considers interest rate derivative instruments to be hedges of debt obligations andrecognizes the interest differential to be paid or received under agreements as adjustments to interest expenses over the lives ofthe contracts.

(f) Segment reporting Segment reporting is based on two segment reporting formats. The primary reporting format representsthree businesses – Consumer Imaging, Graphic Systems and Technical Imaging – reflecting the Group’s management structure. The secondary reporting format represents the Group’s four geographical markets.

Segment results include revenue and expenses directly attributable to a segment and the relevant portion of revenue andexpenses that can be allocated on a reasonable basis to a segment.

Segment assets and liabilities comprise those operating assets and liabilities that are directly attributable to the segment or canbe allocated to the segment on a reasonable basis.

Segment assets and liabilities do not include income tax items.

(g) Intangible assets

(i) Goodwill Goodwill arising on an acquisition represents the excess of the cost of the acquisition over the fair value of the netidentifiable assets acquired. Goodwill is stated at cost less accumulated amortization. In respect of associates, the carrying amountof goodwill is included in the carrying amount of the investment in the associate.

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1. Significant accounting policies continued

(g) Intangible assets continued(ii) Research and development Research costs incurred with the aim of gaining new scientific or technical knowledge andunderstanding are recognized as an expense in the income statement in the period in which they are incurred.

Development costs should be recognized as an expense in the period in which they are incurred unless the criteria for assetrecognition are met. These criteria are not met.

(iii) Other intangible assets Other intangible assets which are acquired by the Group are stated at cost less accumulatedamortization.

(iv) Amortization Amortization is charged to the income statement on a straight-line basis over the estimated useful lives ofintangible assets. Goodwill is amortized from the date of initial recognition; other intangible assets are amortized from the date theasset is available for use. The estimated useful lives are as follows:

Goodwill 5 to 20 years

Multi hospital group contracts 4 years

Computer software maximum 4 years

(h) Property, plant and equipment

(i) Owned assets Items of property, plant and equipment are stated at purchase price or production cost less accumulateddepreciation.

The production cost of self-constructed assets includes the direct cost of materials, direct manufacturing expenses, appropriateallocations of material and manufacturing overheads, and an appropriate share of the depreciation and write-downs of assets usedin construction. It includes the share of expenses for company pension plans and discretionary employee benefits that areattributable to construction. Borrowing costs are not capitalized.

Expenses for the repair of property, plant and equipment are usually charged against income when incurred. They are, however,capitalized when they increase the future economic benefits embodied in the item of property plant and equipment.

Property, plant and equipment is depreciated on a straight-line basis over the estimated useful life of the item, except where thedeclining-balance basis is more appropriate in light of the actual utilization pattern. Land is not depreciated.

Notes to the Consolidated Financial Statements continued

1. Significant accounting policies continued

(h) Property, plant and equipment continuedThe estimated useful lives of the respective asset categories are as follows:

Buildings 20 to 50 years

Outdoor infrastructure 10 to 20 years

Plant installations 6 to 20 years

Machinery and equipment 6 to 12 years

Laboratory and research facilities 3 to 5 years

Vehicles 4 to 8 years

Computer equipment 3 to 5 years

Furniture and fixtures 4 to 10 years

(ii) Leased assets Leases of plant and equipment under which the Group assumes substantially all the risks and rewards incidentalto ownership (finance leases), are shown in the balance sheet as an asset and liability and are stated at an amount equal to thepresent value of the minimum lease payments at the inception of the lease.

Capitalized leased assets are depreciated in accordance with the depreciation policy noted above. The depreciation period is theestimated useful life of the asset, or the lease term if shorter. Lease liabilities are reduced by repayments of principal, whilst thefinancial charge component of the lease payment is charged directly to income.

(i) Investments Investments classified as non-current assets comprise participations in companies in which the Group has no control.

Where the Group holds, directly or indirectly, more than 20% of the voting power and/or exercises significant influence over thefinancial and operating policies, the investments are referred to as associated entities. Investments in associated entities areaccounted for using the equity method.

Other long-term investments comprise participations in companies in which the Group neither holds, directly or indirectly, 20% or more of the voting powers nor exercises significant influence. The investments are carried at cost less any amounts writtenoff to recognize other than temporary declines in the value of the investment. On disposal of an investment, the differencebetween the net disposal proceeds and the carrying amount is charged or credited to income.

Investments classified as current assets are carried at the lower of cost or market value.

(j) Inventories Raw materials, supplies and goods purchased for resale are valued at purchase cost. Work in progress and finishedgoods are valued at the cost of production. The cost of production comprises the direct cost of materials, direct manufacturingexpenses, appropriate allocations of material and manufacturing overheads, and an appropriate share of the depreciation and write-downs of assets used for production. It includes the share of expenses for company pension plans and discretionaryemployee benefits that are attributable to production. Administrative costs are included where they are attributable to production.

Inventories are valued using the weighted-average cost method.If the purchase or production cost is higher than the net realizable value, inventories are written down to net realizable value.

Net realizable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion andselling expenses.

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1. Significant accounting policies continued

(k) Trade and other receivables Trade and other receivables are stated at their nominal value, less write-downs for any amountsexpected to be irrecoverable.

At the inception of the lease, receivables under finance leases are stated at the present value of the future net lease payments.The receivables are continually reduced during the lease term by the portion of the lease payments that represents the redemptionof the principal.

(l) Cash and cash equivalents Cash and cash equivalents comprise cash balances and call deposits.

(m) Share capital

(i) Repurchase of share capital When share capital recognized as equity is repurchased, the amount of the consideration paid,including directly attributable costs, is recognized as a change in equity. Repurchased shares are classified as treasury shares andpresented as a deduction from total equity.

(ii) Dividends Dividends are recognized as liabilities in the period in which they are declared.

(n) Interest-bearing borrowings Interest-bearing borrowings are recognized initially at cost, net of any transaction costs incurred.Subsequent to initial recognition, interest-bearing borrowings are stated at their amortized cost with any difference between costand redemption value being recognized in the income statement over the period of the borrowings.

When borrowings are repurchased or settled before maturity, any difference between the amount repaid and the carryingamount is recognized immediately in the income statement.

(o) Income taxes Income tax on the profit or loss for the year comprises current and deferred tax. Income tax is recognized in theincome statement except to the extent that it relates to items recognized directly to equity, in which case it is recognized in equity.

Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantially enacted atthe balance sheet date, and any adjustment to tax payable in respect of previous years.

Deferred tax is calculated using the balance sheet liability method, providing for temporary differences between the carryingamount of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The followingtemporary differences are not provided for: goodwill not deductible for tax purposes and the initial recognition of assets or liabilitiesthat affect neither accounting nor taxable profit. The amount of deferred tax provided is based on the expected manner ofrealization or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantially enacted at thebalance sheet date. Furthermore, deferred tax liabilities associated with investments in subsidiaries are not recognized as theGroup is able to control the timing of the reversal of the temporary differences and does not expect the temporary differences toreverse in the foreseeable future.

A deferred tax asset is recognized only to the extent that it is probable that future taxable profits will be available against whichthe unused tax losses and credits can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable thatthe related tax benefit will be realized.

Notes to the Consolidated Financial Statements continued

1. Significant accounting policies continued

(p) Employee benefits

(i) Post employment benefits Post employment benefits comprise pensions, post employment life insurance and medical care.The majority of the Group’s employees are eligible for retirement benefits under defined contribution and defined benefit plans

provided through separate funds, insurance plans or unfunded arrangements.

(1) Defined contribution plans:Contributions to defined contribution pension plans are recognized as an expense in the income statement as incurred.

(2) Defined benefit plans:For defined benefit plans, the amount recognized in the balance sheet is determined as the present value of the defined benefitobligation adjusted for the unrecognized actuarial gains and losses and less any past service costs not yet recognized and the fairvalue of any plan assets. Where the calculation results in a net surplus the recognized asset does not exceed the net total of anyunrecognized actuarial losses and past service costs and the present value of any future refunds from the plan or reductions infuture contributions to the plan.

The recognition of actuarial gains and losses is determined separately for each defined benefit plan. To the extent that the netcumulative unrecognized gain or loss exceeds 10% of the greater of the present value of the defined benefit obligation and the fairvalue of plan assets, that excess is recognized in income over the expected average remaining working lives of the employeesparticipating in that plan. Otherwise, the actuarial gain or loss is not recognized.

Past service costs are recognized as an expense on a straight-line basis over the average period until the benefits becomevested. To the extent that the benefits are already vested following the introduction of, or changes to, a defined benefit plan, pastservice costs are recognized as an expense immediately.

The present value of the defined benefit obligations and the related service costs are calculated by a qualified actuary using theprojected unit credit method. The discount rate used is the yield at balance sheet date on high quality corporate bonds that havematurity dates approximating the terms of the Group’s obligations. The amount charged to the income statement consists ofcurrent service cost, interest cost, the expected return on any plan assets and actuarial gains and losses.

Pre-retirement pensions are treated as termination benefit. This means that the costs are recognized when individuals agree toterminate their employment under these programmes.

(ii) Other long-term employee benefits The Group’s net obligation in respect of long-term employee benefits, other than pensionplans, post employment life insurance and medical care, is the amount of future benefit that employees have earned in return fortheir service in current and prior periods. The obligation is calculated using the projected unit credit method and is discounted to itspresent value and the fair value of any related assets is deducted. The discount rate used is the yield at balance sheet date on highquality corporate bonds that have maturity dates approximating the terms of the Group’s obligations.

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1. Significant accounting policies continued

(q) Provisions Provisions are recognized in the balance sheet when a Group company has a present obligation (legal orconstructive) as a result of a past event; it is probable that an outflow of resources embodying economic benefits will be requiredto settle the obligation and a reliable estimate can be made of the amount of the obligation.

The amount recognized as a provision is the best estimate of the expenditure required to settle the present obligation at the balance sheet date.

A provision for restructuring is recognized when the Group has approved a detailed and formal restructuring plan, and therestructuring has either commenced or has been announced publicly. Costs relating to the ongoing activities of the Group are notprovided for.

In accordance with the Group’s published environmental policy and applicable legal requirements, a provision for site restorationin respect of contaminated land is recognized when the land is contaminated.

(r) Trade and other payables Trade and other payables are stated at cost.

(s) Revenue For the sale of goods, revenue is recognized in the income statement when the significant risks and rewards ofownership have been transferred to the buyer.

Revenue is recognized when there are no significant uncertainties regarding the recovery of the consideration, the associatedcosts or the possible return of goods.

Royalties and rentals are included in revenue and recognized when it is probable that the economic benefits associated with thetransaction will flow to the Group and can be measured reliably. The income is recognized on an accrual basis in accordance withthe substance of the relevant agreement.

(t) Expenses

(i) Interest income (expense) Interest payable on borrowings, interest receivable on funds invested and dividend income arerecognized under the caption “Interest income (expense)”. Foreign exchange gains and losses are shown under “Interest income(expense)” and respectively “Other operating income” and “Other operating expenses” whereas foreign exchange gains andlosses on hedging instruments are shown under “Non-operating income (expense)”.

Interest income is recognized in the income statement as it accrues, taking into account the effective yield on the asset.Dividend income is recognized in the income statement on the date that the dividend is declared.

All interest and other costs incurred in connection with borrowings are expensed as incurred as part of net financing costs. The interest expense component of finance lease payments is recognized in the income statement using the effective interest rate method.

(ii) Operating lease payments Payments made under operating leases are recognized in the income statement on a straight-linebasis over the term of the lease.

Lease incentives received are recognized in the income statement as an integral part of the total lease payments made.

2. Companies consolidated

The 1999 financial statements of the Group include the Company and 55 consolidated subsidiaries controlled by the Company (note 28).

Agfa-Gevaert Investment Fund N.V., Agfa Wuxi Film Production Company, Agfa Malaysia Sdn. BHD, Monotype Typography Group(Corp. & Ltd.), Cea Aktiebolag (Sweden), Cea Gmbh (Germany), Agfa Europa N.V. Mechelen and Agfa Europe S.A. Geneva areincluded for the first time in the consolidation as from January 1, 1999 onwards.

Excluded from consolidation in 1999 are 21 subsidiaries that in aggregate are of minor importance to the net worth, financialposition and earnings of the Group. The subsidiaries excluded from the consolidation account on an aggregate level for less than 1% of Group sales.

Notes to the Consolidated Financial Statements continued

2. Companies consolidated continued

Acquisition of former Agfa Divisions which were already included in the 1998 pro forma accounts On January 1, 1999, the business activities of the following divisions were separated from their original Bayer parent companies and transferred to thefollowing Agfa legal entities:

from Bayer Corporation, United States to Agfa Corporation, United States

from Bayer Inc., Canada to Agfa Inc., Canada

from Bayer de Mexico S.A. de C.V. to Agfa de Mexico S.A. de C.V.

from Bayer Hungaria Kft. to Agfa Hungaria Kft.

from Bayer s.r.o. Prague to Agfa s.r.o. Prague

from Bayer Pte. Ltd. (Singapore) to Agfa Singapore Pte. Ltd.

from Bayer (Pty.) Ltd., South Africa to Agfa Print (Pty.) Ltd., S. Africa

In the beginning of 1999, Agfa-Gevaert N.V. acquired the newly established companies as well as the Agfa business transferred toAgfa Print (Pty.) Ltd., S. Africa from the Bayer Group Companies concerned.

The transfer of the net assets from the former Agfa Divisions to the above mentioned companies is accounted for as if thetransaction took place between two unrelated parties.

The assets and liabilities of these former Agfa Divisions were, on a pro forma basis, already included in the comparative financialstatements of the Agfa-Gevaert Group as of December 31, 1998.

Acquisitions 1999 On May 14, 1999, Agfa Corporation wholly acquired Sterling Diagnostic Imaging Holding Corporation for Euro 347 million. Sterling Diagnostic Imaging Holding Corporation is the parent of Sterling Diagnostic Imaging Inc., a worldwideactive manufacturer and seller of diagnostic imaging products comprising conventional x-ray and non-conventional (digital)applications.

On June 1, 1999, Agfa-Gevaert N.V. wholly acquired Agfa New Zealand for Euro 3 million.

3. Segment reporting

Segment reporting is based on two segment reporting formats. The primary reporting format represents three businesses –Consumer Imaging, Graphic Systems and Technical Imaging – reflecting the Group’s management structure. The secondaryreporting format represents the Group’s four geographical markets.

The three business segments comprise the following activities:

• The Consumer Imaging business group develops, produces and supplies color negative, slide and black-and-white films, single-use “films with lens” cameras and a multi-use camera for the new Advanced Photo Systems. Other products embracephotographic paper, photochemicals, laboratory equipment, digital cameras and scanners.

• The Graphic Systems business group’s products range from scanners and laser imagesetters to printing plates and the“Chromapress” color system for digital printing.

• The products of the Technical Imaging business group for medical diagnostics include x-ray films, the Agfa “Impax” network forhandling the dispatching and archiving of diagnostic images and data. Other fields of activity are nondestructive material testing,micrography and motion-picture film for big-screen and television productions.

Key data for business segments and geographical regions have been calculated as follows:

• Return on sales is the ratio of operating result to external sales.

• Gross operating cash flow is the excess of cash receipts over cash disbursements before any application of funds.

• Segment capital expenditure is the total cost incurred during the period to acquire segment assets that are expected to be used for more than one period.

• Segment result is segment revenue minus segment expenses excluding administrative expenses.

• EBIT: Operating result before non-recurring income/expense and before restructuring expenses.

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3. Segment reporting continued

Key data by business segment and regionPro forma Pro forma

1999 1998 1999 1998(Euro million) (Euro million) (Euro million) (Euro million)

Business Segments Consumer Imaging

Net sales (external) 1,434 1,207

Change 18.8% (7.4)%

Operating result 44 33

Return on sales 3.1% 2.7%

EBIT 62

Segment result 106

Segment assets 1,180

Segment liabilities 665

Gross cash flow 102 70

Capital expenditure 53 48

Amortization and depreciation 77 66

Other non cash expenses 51

R&D expenses 85 77

Number of employees at year end (full heads) 5,463 5,268

Regions Europe North America

Net sales (external) – by market 2,503 2,428 1,286 1,062

Net sales (external) – by point of origin 2,736 2,691 1,278 1,045

Change 1.7% 9.9% 22.3% 6.5%

Segment assets 2,364 1,264

Segment liabilities 1,432 472

Operating result 166 217 (114) 45

Return on sales 6.1% 8.1% (8.9)% 4.3%

Capital expenditures 110 173 115 33

Amortization and depreciation 158 165 76 34

R&D expenses 196 195 45 30

Number of employees at year end (full heads) 16,126 16,804 4,650 3,213

Notes to the Consolidated Financial Statements continued

Pro forma Pro forma Pro forma1999 1998 1999 1998 1999 1998

(Euro million) (Euro million) (Euro million) (Euro million) (Euro million) (Euro million)

Graphic Systems Technical Imaging Agfa-Gevaert Group

1,945 2,173 1,352 982 4,731 4,362

(10.5)% 13.4% 37.7% 8.7% 8.5% 5.8%

(4) 93 51 165 91 291

(0.2)% 4.3% 3.8% 16.8% 1.9% 6.7%

122 180 364

115 123 344

1,534 1,431 4,145

697 611 1,973

99 156 99 157 300 383

114 116 76 53 243 217

95 101 80 44 252 211

80 89 220

87 93 69 56 241 226

9,535 10,933 7,856 5,652 22,854 21,853

Latin America Asia/Africa/Australia Agfa-Gevaert Group

241 233 701 639 4,731 4,362

204 196 513 430 4,731 4,362

4.1% 3.7% 19.3% (14.9)% 8.5% 5.8%

185 332 4,145

20 49 1,973

19 8 20 21 91 291

9.3% 4.1% 3.9% 4.9% 1.9% 6.7%

5 4 13 7 243 217

7 6 11 6 252 211

– – – 1 241 226

646 678 1,432 1,158 22,854 21,853

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3. Segment reporting continuedReconciliation of segment assets and liabilities with balance sheet total and reconciliation of segment result with total result of the Group.

Consumer Graphic TechnicalImaging Systems Imaging Unallocated Consolidated

(Euro million) (Euro million) (Euro million) (Euro million) (Euro million)

Segment result 106 115 123 344

General administration expenses (253) (253)

Interest expenses (36) (36)

Other non-operating expenses (37) (37)

Income tax expense (7) (7)

Share of result of associated companies 3 3

Net result of the accounting period 14

Segment assets 1,180 1,534 1,431 4,145

Investments 96 96

Receivables under finance leases 266 266

Cash and cash equivalents 150 150

Deferred tax assets 149 149

Other unallocated receivables 48 48

Total assets 4,854

Segment liabilities 665 697 611 1,973

Financial obligations 1.241 1.241

Deferred tax liabilities 115 115

Shareholders’ Equity 1.443 1.443

Other unallocated liabilities 82 82

Total liabilities 4,854

Notes to the Consolidated Financial Statements continued

4. Cash flow statements

Impact of 1998 pro-forma accounts The acquisition of the net assets of the former Agfa Divisions as well as the financing of thatacquisition through financial debt are not presented as a ‘cash outflow for acquisitions 1999’ and an ‘increase of debt 1999’respectively.

Both acquired net assets and financial debt were already included on a pro forma (fictitious) basis in the comparative financialstatements as of December 31, 1998 (see note 2).

Effect of acquisitions and disposals The acquisitions of Sterling Diagnostic Imaging and Agfa New Zealand had the followingeffect on the Groups’ assets and liabilities:

(Euro million)

Intangible assets 29

Property, plant and equipment 226

Inventories 89

Trade receivables 60

Other receivables 10

Cash and cash equivalents 15

Provisions (63)

Trade accounts payable (31)

Other liabilities (130)

205

Goodwill on acquisition 145

Consideration paid 350

Cash acquired (15)

Net cash outflow 335

5. Other operating incomePro forma*

1999 1998(Euro million) (Euro million)

Rental income 9

Reversal of unutilized provisions 7 8

Gains on the retirements of fixed assets 6 4

Exchange gains 74 30

Royalties 3

Lease income 22 20

Insurance income 22

Disposal copying systems 9

Other income 23 9

Total 144 102

*The comparative figures for 1998 are those reported last year, without restatement. Those figures are not always presented onthe same level of detail as the 1999 figures.

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6. Other operating expensesPro forma*

1999 1998(Euro million) (Euro million)

Rent 5 7

Provisions 6

Restructuring expenses 259

Exchange losses 59 34

Write-downs of receivables 23 22

Amortization of goodwill 13 1

Loss of retirement of fixed assets 5 6

Refund of prior years’ subsidies (Maribel) 6

Property taxes Agfa-Gevaert NV 4

SAP expenses 15

Other expenses 31 11

Total 426 81

*The comparative figures for 1998 are those reported last year, without restatement. Those figures are not always presented on thesame level of detail as the 1999 figures.

7. Interest income (expense)Pro forma

1999 1998(Euro million) (Euro million)

Income from other securities and loans included in investments 4 3

Other interest and similar income 20 33

Interest and similar expenses (60) (72)

Total (36) (36)

8. Other non-operating income (expense)Pro forma

1999 1998(Euro million) (Euro million)

Write-downs of investments and marketable securities (–) (2)

Interest portion of interest bearing provisions (37) (41)

Exchange losses (35) (2)

Income from hedging transactions 34 (1)

Miscellaneous non-operating expenses (4) (4)

Miscellaneous non-operating income 5 9

Total (37) (41)

The interest portion of interest-bearing provisions primarily comprises the allocation of interest on provisions for personnelcommitments, for pensions and for other post-employment benefits.

Notes to the Consolidated Financial Statements continued

9. Income taxes

Recognized in the income statementPro Forma

1999 1998(Euro million) (Euro million)

Current tax expense 63 77

Deferred tax income (56) (3)

Total income tax expense in income statement 7 74

Relationship between tax expense and accounting profitBasis for tax Tax expense/ computation tax income

1999 Summary (Euro million) (Euro million) Tax rate

Accounting profit before tax as reported by the different Group Companies 151

Consolidation entries regarding intercompany dividends and gains/losses on the sale of investments (48)

Accounting profit after consolidation entries 103 (42) 40.78%

Consolidation adjustments (85) 35 41.18%

Accounting profit before tax 18 (7) 38.89%

Beforeconsolidation Consolidation Afteradjustments adjustments adjustments

Reconciliation of effective tax rate (Euro million) (Euro million) (Euro million)

Accounting profit after consolidation entries 103 (85) 18

Theoretical income tax expense 36 (35) 1

Theoretical tax rate 34.95%

Additional tax due to non-tax deductible expenses

Tax benefits lost due to restructuring of Sterling Diagnostic Imaging 9 9

Additional tax assessments 9 9

Other non-tax deductible expenses 19 19

Tax savings resulting from tax-free income and tax credits

Impact special tax status (coördination center e.o.) (10) (10)

Tax credit resulting from investment deduction (5) (5)

Other tax incentives (4) (4)

Tax savings resulting from utilization of tax losses (7) (7)

Tax effect regarding other differences between accounting and taxable profit (5) (5)

Actual income tax expense 42 (35) 7

Effective tax rate 38.89%

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9. Income taxes continuedPro forma

19981998 Pro forma (Euro million)

Theoretical income tax expense 96

Tax savings resulting from tax free income (7)

Additional tax expense due to non-tax deductible expenses 3

Other tax effects (18)

Actual income tax expense 74

Effective tax rate 34.4%

Deferred tax credit recognized directly in equity

1999 As a result of the first year adoption of IAS 19 (revised 1998) an amount of Euro 7 million has been credited directly to equity.

Deferred tax assets and liabilities Deferred tax assets and liabilities are attributable to the following items:Assets Liabilities Net

December 31, December 31, December 31,1999 1999 1999

(Euro million) (Euro million) (Euro million)

Intangible assets 38 23 15

Property, plant and equipment 2 143 (141)

Investments 1 4 (3)

Inventories 77 20 57

Receivables 10 6 4

Other current assets 3 11 (8)

Provisions 70 5 65

Employee benefit plans* 37 14 23

Other liabilities 17 5 12

Deferred tax assets and liabilities related to temporary differences 255 231 24

Loss carry-forwards 63 63

Tax exempted reserves 53 (53)

Deferred tax assets/liabilities 318 284 34

Set off of tax (169) (169) –

Net tax assets/liabilities 149 115 34

*The tax assets with regard to Employee Benefit Plans include an amount of Euro 7 million credited to equity and relating to thetransition amount of IAS 19 (revised 1998).

Notes to the Consolidated Financial Statements continued

10. Personnel expenses

Personnel expenses in 1999 amount to Euro 1,413 million compared to Euro 1,338 million in 1998. The breakdown of personnelexpenses is as follows:

Pro forma1999 1998

(Euro million) (Euro million)

Wages and salaries 1,083 1,036

Social expenses 330 302

The average number of employees in equivalent heads1999 amounted to 22,576 (1998: 22,368). Classified per corporate function,this average can be presented as follows:

Pro forma*1999 1998

Marketing 6,791 7,249

Manufacturing/Engineering 9.461

Technology 10,602

R&D 1,877 1,846

Administration 4,447 2,671

22,576 22,368

*The comparative figures for 1998 are those included in last year’s pro forma’s prepared for the June 1999 IPO, withoutrestatement. Those figures are not always presented on the same level of detail as the 1999 figures.

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11. Intangible assets

The movement in intangible assets during 1999 can be presented as follows: Acquired

concessions,industrial

property rights, Advancesimilar rights payments

assets and to acquirelicenses Acquired intangible

thereunder goodwill assets Total

(Euro million) (Euro million) (Euro million) (Euro million)

Gross carrying amount December 31, 1998 (pro forma) 61 19 20 100

Exchange differences 10 21 31

Changes in companies consolidated 5 5

Acquisitions (Sterling Diagnostic Imaging, Agfa New Zealand) 29 145 174

Change in fair value allocation former Agfa divisions 80 80

Capital expenditures 57 10 67

Retirements (7) (7)

Transfers (20) (20)

Gross carrying amount December 31, 1999 150 280 – 430

Accumulated amortization and write-downs December 31, 1998 (pro forma) 33 7 – 40

Exchange differences 3 12 15

Changes in companies consolidated

Amortization and write-downs during the year 27 18 45

Change in fair value allocation former Agfa divisions 61 61

Retirements (7) (7)

Accumulated amortization and write-downs December 31, 1999 56 98 – 154

Net carrying amount December 31, 1998 (pro forma) 28 12 20 60

Net carrying amount December 31, 1999 94 182 – 276

During 1999, the Group fully acquired Sterling Diagnostic Imaging Holding Corporation. The recognized goodwill which amounts toEuro 145 million is being amortized over 15 years.

As a result of the effective acquisition of seven Agfa divisions from Bayer subsidiaries some fair value restatements wererequired of balances included on a pro forma basis in the 1998 accounts. The net effect of those restatements is shown in note 17.

Exchange differences arise from translating opening and closing values of foreign companies’ figures at the respective exchange rates.

Notes to the Consolidated Financial Statements continued

12. Property, plant and equipmentConstruction

in progressFurniture, and advance

Land, Machinery fixtures payments toBuildings and and technical and other vendors and infrastructure equipment equipment contractors Total

(Euro million) (Euro million) (Euro million) (Euro million) (Euro million)

Gross carrying amount December 31, 1998 (pro forma) 688 1,953 385 35 3,061

Exchange differences 27 47 22 3 99

Changes in companies consolidated 3 8 1 12

Acquisitions (Sterling Diagnostic Imaging, Agfa New Zealand) 23 167 28 8 226

Capital expenditures 24 71 76 5 176

Retirements (39) (56) (65) (1) (161)

Transfers 1 17 5 (3) 20

Gross carrying amount December 31, 1999 727 2,207 452 47 3,433

Accumulated depreciation and write-downs

December 31, 1998 (pro forma) 393 1,559 268 – 2,220

Exchange differences 9 24 13 46

Changes in companies consolidated 1 1 1 3

Depreciation and write-downs during the year 28 123 56 207

Retirements (21) (54) (37) (112)

Accumulated depreciation and write-downs

December 31, 1999 (pro forma) 410 1,653 301 – 2,364

Net carrying amount December 31, 1998 (pro forma) 295 394 117 35 841

Net carrying amount December 31, 1999 317 554 151 47 1,069

Exchange differences arise from translating opening and closing values of foreign companies’ figures at the respective exchange rates.

The Group leases production equipment under a number of finance lease agreements. At the end of the lease term the Grouphas the option to purchase the equipment at a beneficial price. As of December 31, 1999 the net carrying amount of fixed assetsheld under finance leases amounted to Euro 27 million. The leased equipment secures lease obligations (note 19). Leasepayments do not include contingent rent.

The Group, as lessor, included assets subject to operating leases in its balance sheet under the caption “Other Equipment”. The depreciation of these leased assets is consistent with the Group‘s normal depreciation policy. At the end of December 1999,the tangible fixed assets subject to operating leases have a total net carrying value of Euro 8 million. The gross carrying amount ofthese assets amounts to Euro 14 million as of December 31, 1999. The future minimum lease income under non-cancellableoperating leases is presented in note 23.

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13. Investments

LoansInvestments in other affiliated companies to other

Investments Loans to Associated Other affiliated Otherin subsidiaries subsidiaries companies companies companies securities Other loans Total

(Euro million) (Euro million) (Euro million) (Euro million) (Euro million) (Euro million) (Euro million) (Euro million)

Gross carrying amount

December 31, 1998 (pro forma) 20 3 6 1 25 14 25 94

Exchange differences 2 2 4

Changes in companies consolidated (15) (15)

Other additions/equity pick-up* 1 13 2 7 8 31

Retirements (3) (1) (3) (8) (15)

Transfers 2 (2) –

Gross carrying amount December 31, 1999 6 – 19 1 26 22 25 99

Accumulated write-downs December 31, 1998

(pro forma) – – – – – 2 – 2

Exchange differences 1 1

Changes in companies consolidated

Write-downs

Retirements

Accumulated write-downs December 31, 1999 – – – – – 3 – 3

Net carrying amount 1998 (pro forma) 20 3 6 1 25 12 25 92

Net carrying amount 1999 6 – 19 1 26 19 25 96

* including equity pick-up 1999 for an amount of Euro 3 million

14. InventoriesPro Forma

1999 1998(Euro million) (Euro million)

Raw materials and supplies 187 134

Work in process, finished goods and goods purchased for resale 1,019 1,026

Advance payments 8 7

Total 1,214 1,167

Write-downs on inventories amounted to Euro 8 million during 1999.

The cost of inventories recognized as an expense in the income statement was as follows:

1999

(Euro million)

Cost of raw materials, supplies and goods purchased for resale 1,483

Cost of services purchased 39

Total 1,522

Notes to the Consolidated Financial Statements continued

15.Other receivables and other assetsPro forma

1999 1998(Euro million) (Euro million)

Claims for tax refunds 44 30

Short-term loans receivable 6 58

Accrued interest on loans receivable 16 11

Receivables under finance leases 266 190

Other 161 127

Total 493 416

Lease agreements in which the other party, as lessee, is to be regarded as the economic owner of the leased assets (financeleases) give rise to accounts receivable in the amount of the discounted future lease payments. These receivables amount to Euro 266 million as of December 31, 1999 and will bear interest income until their maturity dates of Euro 51 million. The leasepayments are due as follows:

1999 1998 (Pro forma)

Total Notional Total Notionalfuture Unearned amount future Unearned amount

payments interest receivable payments interest receivable(Euro million) (Euro million) (Euro million) (Euro million) (Euro million) (Euro million)

Not later than one year 112 23 89 81 5 76

Between one and five years 205 28 177 122 8 114

Later than five years – –

Total 317 51 266 203 13 190

16. Cash and cash equivalents

The reconciliation of Cash and cash equivalents with its corresponding balance sheet items can be presented as follows:Pro forma

1999 1998(Euro million) (Euro million)

Marketable securities and other instruments 1

Accounts receivable under cash management agreements 53

Cash on hand, demand deposits and checks 150 141

Total Cash and cash equivalents as reported in the balance sheet 150 195

Accounts receivable under cash management agreements (reported in the balance sheet as ”other receivables“) 5

Liabilities under cash management agreements (reported in the balance sheet as ”miscellaneous liabilities“) (25)

Marketable Securities and other instruments (1)

Total Cash and cash equivalents as reported in the Cash Flow Statement 130 194

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17. Shareholders’ equity

The various components of shareholders’ equity and the changes therein from December 31, 1998 to December 31, 1999 areshown in the Consolidated Statements of Shareholders’ Equity on page 36.

Capital stock The issued capital of the Company as of December 31, 1999 amounts to Euro 140 million, represented by140,000,000 fully paid ordinary shares without par value.

Effect of adopting IAS 19 (revised 1998) ‘Employee benefits’ The effect of the adoption of IAS 19 (revised 1998) ‘Employeebenefits’ (see note 18) amounts to Euro 5 million, net of tax.

Effect of transition from pro forma equity as of December 31, 1998 to opening equity as of January 1, 1999 The 1998comparatives were determined on a pro forma basis using a number of assumptions to combine Agfa-Gevaert N.V. and itssubsidiaries with Agfa divisions of Bayer AG subsidiaries which were acquired by the Group in the beginning of 1999. In addition, some existing arrangements between Agfa and Bayer group companies, such as the profit and loss transfer agreementfor tax purposes in Germany, were ended during 1999 resulting in final settlement based on December 31, 1998 balances.

The impact of the above on the January 1, 1999 balance sheet is as follows:

(Euro million)

Impact of the change from combination to consolidation of the Agfa divisions (1999) 16

Impact on deferred tax position of change from combined to consolidated accounts (53)

Impact of change in the number of companies included in the consolidation (e.g. equity method Xeikon and full consolidation of Agfa-Gevaert Investment Fund N.V.) when compared with the pro forma accounts 14

Total (23)

Minority interest The change in minority interest (December 31, 1999: Euro 4 million, December 31, 1998: Euro 8 million) ismainly due to the acquisition of the residual outstanding shares (37.2%) of Printing Technologies Ltd. Australia from Hoechst.

Dividends At March 22, 2000 a dividend of Euro 46.2 million (Euro 0.33 per ordinary share) has been recommended by the Boardof Directors, but has not been approved by the General Assembly of Shareholders of Agfa-Gevaert N.V. and is therefore notprovided for.

Notes to the Consolidated Financial Statements continued

18. Employee benefits

A. Liabilities for post-employment and long-term benefit plans Agfa-Gevaert Group companies maintain retirement benefitsand/or post-retirement medical benefits in most countries in which the Group operates. These plans generally cover all employeesand generally provide benefits that are related to an employee’s remuneration and years of service. These benefits are accountedfor under IAS 19 (revised 1998) and are treated as post-employment benefit plans.

At December 31, 1999, the total net liability (defined benefit obligation less fair value of assets) for the Group’s post-employmentand long-term benefit plans amounted to Euro 736 million, comprised as follows:

1999

(Euro million)

Net liability for material countries 558

Net liability for termination benefits 147

Net liability for non-material countries 31

Total net liability 736

The principle for determining the Group’s material countries is based on the amount of their IAS 19 pension expense. Materialcountries represent more than 90% of the Group’s total IAS 19 pension expense.

The net liability for termination benefits is the liability recognized on the balance sheet for the employees who have terminatedunder the Group’s termination benefit plans.

Impact of Transition to IAS 19 (revised 1998) The Group transitioned to IAS 19 (revised 1998) from the previous version of IAS 19,effective January 1, 1999.

The net transition obligation recognized by the Group at January 1, 1999 amounted to Euro 12 million. The Group recognized thisliability immediately against equity.

1999

Other post-

employment

Retirement and long-term

benefit plans benefit plans Total

(Euro million) (Euro million) (Euro million)

Defined benefit obligation under IAS 19 (revised 1998) 1,030 36 1,066

Fair value of plan assets 579 – 579

Unrecognized non-vested past service cost under IAS 19 (revised) – – –

Net liability recognized under previous accounting policy 442 33 475

Net transition liability 9 3 12

Defined contribution plans In the case of defined contribution plans, Agfa-Gevaert companies pay contributions to publicly orprivately administered pension funds or insurance contracts. Once the contributions have been paid, the Group Companies have nofurther payment obligation. The regular contributions constitute an expense for the year in which they are due. In 1999, the totalexpense for the Group’s material countries amounted to Euro 15 million.

In Germany, employees of Agfa-Gevaert AG and of Agfa Deutschland Vertriebsgesellschaft mbH & Cie are members of the BayerPensionskasse. Subsequent to the IPO, the Bayer Pensionskasse became a defined contribution plan for Agfa employees.

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18. Employee benefits continued

Defined benefit plans For the defined benefit plans, the total expense for 1999 for the Group’s material countries amounted to Euro 40 million:

1999

Other post-

employment

Retirement and long-term

plans benefit plans Total

(Euro million) (Euro million) (Euro million)

Service cost, exclusive of employee contributions 41 4 45

Interest cost 79 6 85

Expected return on assets (64) – (64)

Recognised past service cost (9) (9) (18)

Amortization of unrecognized (gain)/losses – (6) (6)

(Gain)/Losses on settlements or curtailments (3) 1 (2)

Net periodic pension cost 44 (4) 40

The change in net liability during 1999 is set out in the table below.1999

Other post-

employment

Retirement and long-term

plans benefit plans Total

(Euro million) (Euro million) (Euro million)

Net liability recognized at January 1 442 33 475

Recognition of net transition liability at January 1 9 3 12

Acquisition of Agfa Corporation (US) on January 4 8 32 40

Acquisition of Sterling Diagnostics on May 14 15 32 47

Net periodic pension cost 44 (4) 40

Actual employer contributions (60) (1) (61)

Currency effects: charge or (credit) (2) 7 5

Net liability recognized at December 31 456 102 558

At December 31, 1999, the total defined benefit obligation for the Group’s material countries amounted to Euro 1,497 million. Of this amount, Euro 861 million related to wholly or partly funded plans and Euro 636 million to unfunded plans.

Notes to the Consolidated Financial Statements continued

18. Employee benefits continuedThe defined benefit obligation, plan assets and funded status for the Group’s material countries are shown below.

1999

Other post-

employment

Retirement and long-term

plans benefit plans Total

(Euro million) (Euro million) (Euro million)

Change in defined benefit obligation

Defined benefit obligation at January 1 1,030 36 1,066

Acquisition of Agfa Corporation (US) on January 4 188 32 220

Acquisition of Sterling Diagnostics on May 14 128 32 160

Service cost, exclusive of employee contributions 41 4 45

Actual employee contributions 2 – 2

Interest cost 79 6 85

Actual benefit payments (72) (1) (73)

Past service cost (11) (16) (27)

Actuarial (gains)/losses (34) (11) (45)

Currency effects: charge or (credit) 57 7 64

Defined benefit obligation at December 31 1,408 89 1,497

Change in plan assets

Fair value of assets at January 1 579 – 579

Acquisition of Agfa Corporation (US) on January 4 180 – 180

Acquisition of Sterling Diagnostics on May 14 113 – 113

Actual employer contributions 60 1 61

Actual employee contributions 2 – 2

Actual return on assets 39 – 39

Actual benefit payments (72) (1) (73)

Currency effects: (charge) or credit 61 – 61

Fair value of assets at December 31 962 – 962

Funded status at December 31

Funded status (446) (89) (535)

Unrecognized net (gain) or loss* (8) (6) (14)

Unrecognized past service cost (2) (7) (9)

Net (liability) (456) (102) (558)

*At December 31, 1999 there is an unrecognized gain relative to the defined post – employment benefit plans of Euro 14 million.Under IAS 19 revised this gain will be amortized over the future years by using the 10% “corridor“ approach.

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18. Employee benefits continued

Principal actuarial assumptions at balance sheet date (weighted averages)January 1, December 31,

1999 1999

Discount rate 5.7% 6.3%

Expected return on plan assets 7.0% 7.8%

Future salary increases 3.1% 3.9%

Future pension increases 1.9% 2.1%

Discount rate, salary increases and cost-of-living increases have been weighted by defined benefit obligation. Expected return onplan assets has been weighted by fair value of plan assets.

B. Equity compensation benefits At November 10, 1999 the Group established a stock warrant plan (the Long-Term IncentivePlan – tranche no.1) for Directors and key managers. “One” warrant gives the holder the right to subscribe to “one” new ordinaryshare of the Company. In total 581,100 warrants were issued and allocated to the beneficiaries of the plan. Each beneficiary wasentitled to receive 13 warrants for each share in the Company which he/she has purchased and deposited as the Initial Investment.The warrants were offered free of charge for shares of the Initial Investment acquired at Euro 22 per share (or higher). For an InitialInvestment lower than Euro 22 per share a price equal to 1⁄13 of the positive difference between Euro 22 per share and the priceeffectively paid per share had to be paid. In accordance with the program, the warrants are only exercisable as of January 1, 2003until November 10, 2005, after which date they become null and void. The exercise price of the warrants is equal to Euro 22.

19. Financial liabilities1999

(Euro million)

Non-current liabilities 700

Revolving multi currency credit facility1 550

Unsecured bank facilities2 124

Finance lease liabilities3 26

Current liabilities 541

Commercial paper program 171

Unsecured bank facility 368

Finance lease liabilities 21Revolving multi-currency committed unsecured credit facilities

In the course of 1999, the Company negotiated revolving multicurrency committed credit facilities for periods of three, five andseven years for a total notional amount of Euro 1,090 million.

Notes to the Consolidated Financial Statements continued

19. Financial liabilities continuedThe split up over the relevant periods is the following:

Notional Outstanding

amount amount

(Euro million) (Euro million) Currency Interest rate Maturity date

Three year 430 95 Euro 3.16% – 3.63% 5-2002

Five year 395 210 Euro 2.83% – 3.65% 5-2004

Seven year 265 245 Euro 2.83% – 3.63% 5-2006

Total 1,090 550 Euro

In general, drawdowns under these lines are made for periods from one month up to one year. Interest rates are fixed over longerperiods by using financial derivatives. These loan facilities are unsecured

2Unsecured bank loans

Outstandingamount

(Euro million) Currency Interest rate Maturity date

Long-term facilities 46 JPY 2.08% – 3.15% Fixed 31-07-02

69 USD 7.5% Floating 10-01-00*

6 SEK 4.9% Floating Revolving

1 EUR 5.25% Fixed Revolving*

2 CHF 2.99% Floating 02-01-03

Total long-term facilities 124

*Subsequently included in revolving multi-currency credit facilities.Outstanding

amount Weighted(Euro million) Currency average rate Maturity Date

Short-term facilities 264 Multi-currency 5.17% Fixed 01-04-00

104 Multi-currency 5.41% Floating 12-05-00

Total short-term facilities 368

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19. Financial liabilities continued

3Finance lease liabilities Lease agreements in which the Group is a lessee, give rise to financial liabilities in the balance sheet,equal at the inception of the lease to the fair value of the leased property or, if lower, at the present value of the minimum leasepayments. These liabilities amount to Euro 28 million as of December 31, 1999 and will bear interest until maturity date of Euro 34 million.

The financial liabilities are payable as follows: 1999

Total Interest Notional

future receivable amount

payment unexpired outstanding

(Euro million) (Euro million) (Euro million)

Not later than one year 5 3 2

Between one and five years 24 11 13

Later than five years 33 20 13

Total 62 34 28

The notional amounts to be paid under the lease agreements are fixed.

20. Miscellaneous liabilities

Miscellaneous liabilities can be presented as follows: Pro forma

1999 1998(Euro million) (Euro million)

Payroll liabilities 38 22

Tax liabilities 55 50

Liabilities for social expenses 45 44

Accrued interest on liabilities 14 4

Advance payments received – 11

Liabilities from the acceptance of drafts 1 1

Other miscellaneous liabilities 224 167

Total 377 299

Tax liabilities include not only Group Companies’ own tax liabilities, but also taxes withheld on behalf of third parties.Liabilities for social expenses include, in particular, social insurance contributions that had not been paid over at closing date. Other miscellaneous liabilities comprise numerous individual items such as guarantees, commissions to customers, liabilities

under cash management, etc.

Notes to the Consolidated Financial Statements continued

21. Provisions

The Group’s total provisions can be specified as follows:Environmental Trade-related Taxes Other Total

(Euro million) (Euro million) (Euro million) (Euro million) (Euro million)

Provisions as at January 1, 1999 7 96 13 62 178

Provisions made during the year 8 98 28 140 274

Provisions due to acquisition Sterling Diagnostic Imaging – 48 15 – 63

Provisions used during the year (1) (55) (11) (30) (97)

Provisions reversed during the year – (4) (1) (14) (19)

Translation differences 1 15 2 7 25

Provisions as at December 31, 1999 15 198 46 165 424

The Group is subject to numerous environmental requirements in the various countries in which it operates, including thosegoverning air and wastewater emissions, the management of hazardous materials and spill prevention and cleanup. In order tocomply with applicable standards and regulations, the Group has made significant expenditures and set up provisions. Provisionsfor environmental protection relate to future relandscaping, landfill modernization and the remediation of land contaminated by pastindustrial operations.

Provisions for trade-related commitments include subsequent payments to customers relating to goods and services purchasedin the accounting period, such as customer bonuses or rebates, warranty liabilities, agents’ commissions and impending oranticipated losses on purchase or sales contracts.

Other provisions for liabilities primarily relate to provisions set up for restructuring expenses. The Group is currentlyimplementing restructuring measures, including plant closings and workforce reductions, and is considering future restructuringmeasures in order to lower production costs, improve efficiency of its facilities and cope with the demand of a changing market. Todate the Group has announced the closing of its plant in Neu-Isenburg, (Germany) and workforce reductions relating to more than1,000 employees. For these restructurings the Group has set up a provision as well as for the restructuring expenses relating to the Sterling integration. Other provisions moreover include provisions for litigation, claims and negative outcome of commitments.

22. Derivative financial instruments

Exposure to currency, interest rate and credit risk arises in the normal course of the Group’s business. Derivative financialinstruments are used to reduce the exposure to fluctuations in foreign exchange rates and interest rates. While these are subject to the risk of market rates changing subsequent to acquisition, such changes are generally offset by opposite effects on the itemsbeing hedged.

Foreign currency risk Currency risk is the risk that the value of a financial instrument will fluctuate due to changes in foreignexchange rates.

The Group incurs foreign currency risk on sales, purchases and borrowings that are denominated in a currency other than Euro.The currencies giving rise to this risk are primarily US Dollars and Pounds Sterling.

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22. Derivative financial instruments continued

Recognized assets and liabilities Exposure to foreign currency risk arises mainly when receivables and payables are denominated ina currency other than the Company’s local currency.

Such risks may be naturally hedged, as when a receivable in a given currency is matched by one or more payables having thesame amount, and having an equivalent term, in the same currency. They may also be hedged by using derivative financialinstruments.

As of December 31, 1999 the Group was exposed to the following foreign currency risk: Assets Liabilities

(Euro million) (Euro million)

Foreign currency risk 506 192

Natural hedges (99) (99)

Hedging through derivative financial instruments (259) (27)

Residual unhedged currency risk 148 66

Where currency risks are entered into through intragroup loans, these are fully hedged either naturally or through derivativefinancial instruments.

Currency risks arising from financial commitments are fully hedged. The instruments used are mainly currency swaps, interestand principal currency swaps and forward exchange contracts.

Anticipated future transactions Derivative financial instruments are used to hedge recognized as well as anticipated transactions. In order to hedge its foreign currency risk in Pounds Sterling and US Dollars on future sales, Agfa Gevaert AG has entered intoforward exchange contracts and option contracts. These transactions will cover the foreign currency risk on anticipated turnoverover the coming five months. As per December 31, 1999 hedges on anticipated transactions amounted to Euro 124 million.

Hedge of net investment in foreign subsidiary The Group utilizes forward exchange contracts and US Dollars denominated bankloans in order to (partially) hedge the foreign currency exposure of the Group’s net investment in its subsidiary in the United States (Agfa Corporation).

December 31,

1999

(Euro million)

USD denominated bank loans 65

Forward exchange contracts 435

Total 500

A foreign exchange difference of Euro 9 million was recognized on this hedge, which was recorded as a reversal of recognizedtranslation gains on the net US investment over the same period.

Interest rate risk Interest rate risk is the risk that the value of a financial instrument will fluctuate due to changes in market interestrates. In view of the interest rate rise, the interest rate risk of the Group as of December 31, 1999, was managed via interest rateswaps and interest rate options having a total notional amount of Euro 753 million. Part of this interest rate risk was hedged bycapped constant maturity swaps amounting to Euro 280 million (notional amount).

Notes to the Consolidated Financial Statements continued

22. Derivative financial instruments continued

Capped constant maturity swap The Company engaged in a number of capped CMS agreements for a total amount of Euro 280 million whereby these individual underlying contracts have a duration of five years.

The CMS agreements are structured in a way whereby the Company is paying a fixed five years swap rate, each three months.In return, the Company receives the three months Euribor plus a number of basispoints. These basispoints are not distributed, but have been used to buy caps on the underlying CMS’. The cap is valid for a period of five years.

Levels of the caps are:

Euro 100 million 5.35%

Euro 50 million 5.37%

Euro 40 million 5.34%

Euro 90 million 5.43%

Credit risk Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation and cause the other partyto incur a financial loss.

The Group does not require collateral in respect of financial assets. Management has a credit policy in place and the exposure tocredit risk is monitored on an ongoing basis. Credit evaluations are performed on all customers requiring credit over a certain amount.

Investments are allowed only in liquid securities and only with counterparties that have a credit rating equal to or better than theGroup. Transactions involving derivative financial instruments are only allowed with counterparties that have high credit ratings.

At balance sheet date there were no significant concentrations of credit risk. Since we do not conclude master nettingagreements with our customers, the total amount in assets represent the maximum exposure to credit risk. With respect toderivative financial instruments, credit risk exposure is Euro 44 million, this amount being the total of the positive fair values of derivatives that give rise to claims against other parties to the instruments. It represents the losses that could result from non-performance of contractual obligations by these parties. We minimize this risk by imposing a limit on the volume of business in derivative financial instruments transacted with individual parties.

Fair values Market risk is the risk that the value of a financial instrument will fluctuate as a result of changes in market prices. The fair values are the current market values (quoted market prices or calculated based on estimation techniques) of

the derivative financial instruments, disregarding any opposite movements in the value of the respective hedged transactions. The fair values of the interest rate forwards are calculated based on market prices or contracts of similar term.

The fair values indicate the accrued gains and losses to be recognized when the hedged item affects the income statement. The computation of the fair value does not consider the offsetting change in the value of the item being hedged. The fair values of existing interest rate and currency swaps represent the amount that the Group would have to pay or would receive if thecontract were terminated at the balance sheet date.

The notional amounts indicate the volume of the outstanding derivatives at the balance sheet date and therefore do not reflectthe Group’s exposure of risks from such transactions.

The notional and contractual amounts and respective fair values of derivative financial instruments are as follows:Notional or

contractual amount Fair value

December 31, December 31,December 31, 1998 December 31, 1998

1999 Pro forma 1999 Pro forma(Euro million) (Euro million) (Euro million) (Euro million)

Forward exchange contracts 861 305 (25) (0.1)

Currency options 152 79 (2) (0.9)

Currency swaps 964 102 (21) 0.3

Interest rate hedging instruments 753 223 (1) 10.7

Total (49) 10.0

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23. Operating leases

Leases as lessee Minimum lease payments under non-cancellable operating leases can be specified as follows: 1999

(Euro million)

Not later than one year 24

Between one and five years 41

Later than five years 25

Total 90

Leases as lessor The Group leases out some property under operating leases (reference note 12). Non-cancellable operating leaserentals are as follows:

1999

(Euro million)

Not later than one year 3

Between one and five years 5

Later than five years –

Total 8

24. Commitments and contingenciesPro forma

1999 1998(Euro million) (Euro million)

Issuance and endorsement of bills 35 32

Guarantees 6 29

Warranties 23 4

Total 64 65

Total purchase commitments in connection with major capital expenditure projects for which the respective contracts have alreadybeen awarded or orders placed amount to Euro 27 million as per December 31, 1999.

Notes to the Consolidated Financial Statements continued

25. Related party transactions

Transactions with Directors and members of the Board of Management The remuneration of the Board of Management for1999 amounted to Euro 2,636,097. Emoluments to retired members of the Board of Management and their dependents amountedto Euro 1,407,559.

The remuneration of the Board of Directors amounted to Euro 249,812.As of December 31, 1999 there were no loans outstanding to members of the Board of Management nor to members of the

Board of Directors.

Other related party transactions In the course of 1999, purchases from the associated company, Xeikon NV, amounted to 0.66%of the Group’s cost of goods sold, whilst goods sold to Xeikon NV amounted to 0.25% of the Group’s net sales. The Groupreceives royalties on its turnover with Xeikon NV. Transactions with associates are priced at arm’s length.

26. Earnings per share

Basic earnings per share The calculation of basic earnings per share is based on the net profit attributable to ordinaryshareholders of Euro 14 million (1998: Euro 140 million) and a weighted average number of ordinary shares outstanding during1999 of 140,000,000 (1998: 140,000,000 – restated).

Pro Forma1999 1998

(Euro) (Euro)

Basic earnings per share 0.1 1

Diluted earnings per share When calculating diluted earnings per share the weighted average number of shares is adjusted for the effects of all dilutive potential ordinary shares. Under the stock warrant plan for Directors and key managers, 581,100warrants were issued with an exercise price of Euro 22 per share (see note 18).

The average fair value of one ordinary share during 1999 has been Euro 19.14 per share. The warrants are not dilutive since theaverage fair value of one ordinary share is less than the issue price for one ordinary share under the warrant program.

27. Events subsequent to the balance sheet date

On January 27, 2000 Agfa-Gevaert NV and Xeikon NV signed a Memorandum of Understanding, in which a transfer of Agfa’s DigitalPrinting Systems business (DPS) to Xeikon is intended to be effected. The transfer includes all activities related to the Research and Development, the manufacturing, the marketing and sales of tonerand toner-based digital printing equipment.

In the course of 1999, the DPS division of the Group realized a turnover of Euro 68 million. Assets to be transferred to XeikonNV comprise the land, buildings and equipment of the toner plant in “Heultje” and the equipment of the R&D and Salesdepartment.

Xeikon NV will pay for this transaction in shares, whereby the participation of Agfa in Xeikon is limited to 25.5%. In case that the25.5% limit should be exceeded, the exceeding part of the value will be paid in cash.

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28. Group companies

The ultimate parent of the Group is Agfa-Gevaert N.V., Mortsel/Belgium. The Company is the parent company for the followingsignificant subsidiaries:

Investments in subsidiaries and other companies Agfa-Gevaert Group December 31, 1999

Consolidated companiesName of the company Location Effective interest %

Agfa België N.V. Kontich/Belgium 100

Agfa Corporation Ridgefield Park/United States 100

Agfa de Mexico S.A. de C.V. Mexico D.F./Mexico 99.80

Agfa Deutschland Vertriebsgesellschaft GmbH & Cie Leverkusen/Germany 100

Agfa Finance N.V. Brussels/Belgium 48.31*

Agfa Finance Pty. Ltd. Nunawading/Australia 100

Agfa Finance S.A. Rueil-Malmaison/France 100

Agfa Hong Kong Ltd. Hong Kong/PR China 100

Agfa Hungaria Kft. Budapest/Hungaria 100

Agfa Inc. Toronto/Canada 100

Agfa Industries Korea Ltd. Ansan-si/South Korea 100

Agfa Korea Ltd. Seoul/South Korea 100

Agfa Limited Dublin/Ireland 100

Agfa Print Pty. Ltd. Isando/Rep. of South Africa 100

Agfa s.r.o. Prague/Czech Republic 100

Agfa Singapore Pte. Ltd. Singapore 100

Agfa Sp. z.o.o. Warsaw/Poland 100

Agfa-Gevaert A/S Glostrup/Denmark 100

Agfa-Gevaert AB Kista/Sweden 100

Agfa-Gevaert AEBE Athens/Greece 100

Agfa-Gevaert AG Dübendorf/Switzerland 99.12

Agfa-Gevaert AG Leverkusen/Germany 99.99

Agfa-Gevaert Argentina S.A. Buenos Aires/Argentina 99.99

Agfa-Gevaert A/S Hagan/Norway 100

Agfa-Gevaert B.V. Rijswijk/Netherlands 100

Agfa-Gevaert de Venezuela S.A. Caracas/Venezuela 100

Agfa-Gevaert do Brasil Ltda. Sao Paulo/Brazil 100

Agfa-Gevaert Gesellschaft m.b.H. Vienna/Austria 100

Agfa-Gevaert International N.V. Mortsel/Belgium 100

Agfa-Gevaert Japan, Ltd. Tokyo/Japan 95

Agfa-Gevaert Limited Brentford/United Kingdom 100

Agfa-Gevaert Limited Nunawading/Australia 100

*Under uniform control of Agfa-Gevaert N.V.

Notes to the Consolidated Financial Statements continued

28. Group companies continued

Investments in subsidiaries and other companies Agfa–Gevaert Group December 31, 1999

Consolidated companiesName of the company Location Effective interest %

Agfa-Gevaert Ltda. Santiago de Chile/Chile 100

Agfa-Gevaert S.A. Rueil-Malmaison/France 100

Agfa-Gevaert S.p.a. Milan/Italy 100

Agfa-Gevaert, Lda. Linda-a-Velha/Portugal 100

Agfa-Gevaert, S.A. Barcelona/Spain 99.98

Agfa-Gevaert Investment Fund N.V. Mortsel/Belgium 100

Agfa-Gevaert New Zealand Ltd. Auckland/New Zealand 100

Agfa Wuxi Film Production Company Ltd. Wuxi/PR China 99

Agfa Malaysia Sdn. BHD Kuala Lumpur/Malaysia 99.99

Agfa Finance Spa Milan/Italy 100

Agfa Europa N.V. Mechelen/Belgium 100

Agfa Europe S.A. Geneva/Switzerland 100

CEA Aktiebolag Strängnäs/Sweden 100

CEA GmbH Hamburg/Germany 100

Fotoindustria S.p.a. Garbagnate/Italy 92

Luithagen N.V. Mortsel/Belgium 99.99

Monotype Typography, Inc Elk Grove Village/United States 100

Monotype Typography, Ltd Surrey/United Kingdom 100

OY Agfa-Gevaert AB Espoo/Finland 100

Printing Technologies (NZ) Limited Auckland/New Zealand 100

Printing Technologies Ltd Blackburn/Australia 100

Sterling Diagnostic Imaging Inc. Greenville/United States 100

Sterling Diagnostic Imaging Holding Corp. Greenville/United States 100

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28. Group companies continued

Subsidiaries not included in the consolidated financial statements December 31, 1999Name of the company Location Effective interest %

Agfa Argentina S.A.C.I. i.L. Buenos Aires/Argentina 100

Agfa Graphics Ltd. Ramat Siv/Petach Tikva/Israel 100

Agfa Laborgeräte GmbH Gera/Germany 100

Agfa OZASOL S.r.l. Pero/Italy 100

Agfa-Gevaert Iran S.S.K. Teheran/Iran 76

Agfa-Gevaert Unterstützungskasse GmbH Leverkusen/Germany 100

Agfa-Gevaert Colombia Ltda Santa Fé de Bogota/Colombia 99.99

Agfa Moscow Moscow/Russia 100

CAWO Photochemische Fabrik GmbH Schrobenhausen/Germany 100

Compusat S.r.l. Milan/Italy 100

GST Grafic Service Team Verwaltungs GmbH Leverkusen/Germany 100

GST Grafic-Service-Team GmbH & Co. Leverkusen/Germany 100

Mortselse Immobilienvennootschap N.V. Mortsel/Belgium 100

PaperStudio Inc. Chicago/United States 100

Shanghai Agfa Imaging Products Co., Ltd. Shanghai/PR China 100

Krypton Grundstücksverwaltungsgesellschaft mbH&Co Mainz/Germany 100

Impax Solutions Inc Toronto/Canada 100

Agfa Taiwan co. Ltd Taipei/Taiwan 100

Cea America Corporation Las Vegas/United States 100

Agfa Deutschland vertriebs-Verwaltungsgesellschaft mbH Leverkusen/Germany 100

Agfa Typography Limited Dun Laoghaire/Ireland 100

Associated companies December 31, 1999Name of the company Location Effective interest %

FotoWire Development S.A. Geneva/Switzerland 22

Idoc N.V. Brussels/Belgium 33.33

Mitsui & Co Graphic System Ltd. Tokyo/Japan 20

Xeikon N.V. Mortsel/Belgium 20.20

Notes to the Consolidated Financial Statements continued

The Banking and Finance Commission allowed Agfa-Gevaert N.V. on April 18, 2000 to use this annual report as reference document every time it makes a publicoffer to the public in the framework of Title II of the Royal Decree nr. 185 of 9 July 1935, by means of the shelf registration, procedure and this until it publishes itsnext annual report.

In the framework of this procedure, a transaction note must be joined to the annual report. The annual report and the transaction note constitute together theprospectus as defined by article 29 of the Royal Decree nr. 185 of 9 July 1935.

This prospectus must be approved by the Banking and Finance Commission in accordance with article 29ter, § 1, section 1 of the Royal Decree nr. 185 of 9 July 1935.

Statutory Accounts Agfa-Gevaert N.V.

Balance Sheet

December 31, December 31,1999 1998

(Euro million) (Euro million)

Assets

II. Intangible assets 124 86

III. Tangible assets 74 70

IV. Financial assets 1.924 1.050

VI. Stocks and contracts in progress 250 258

VII. Amounts receivable within one year 405 175

VIII. Investments 35 73

IX. Cash at bank and in hand 0 4

X. Deferred charges and accrued income 3 9

2.815 1.725

Liabilities

I. Capital 140 133

II. Share premium account 107 107

IV. Reserves 768 705

V. Profit carried forward 182 182

VI. Investments grants 1 0

1.198 1.127

VII. Provisions for liabilities and charges 108 110

VIII. Amounts payable after more than one year 70 5

IX. Amounts payable within one year 1.370 471

X. Accrued charges and deferred income 69 12

2.815 1.725

Statutory Accounts Agfa-Gevaert N.V.(in short form and in accordance with Belgian accounting standards)

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Statutory Accounts Agfa-Gevaert N.V. continued(in short form and in accordance with Belgian accounting standards)

Statutory Accounts Agfa-Gevaert N.V.

Income statement1999 1998

(Euro million) (Euro million)

I. Operating income

A. Turnover 1.682 1.507

B. Increase (+); decrease (–) in stocks of finished goods, work and contracts in progress 5 –4

C. Own construction capitalised 104 95

D. Other operating income 51 42

Total operating income 1.842 1.640

II. Operating charges

A. Raw materials, consumables and goods for resale

1. Purchases 929 864

2. Increase (–); decrease (+) in stocks 13 –17

B. Services and other goods 233 188

C. Remuneration, social security costs and pensions 393 370

D. Depreciation of and other amounts written off formation expenses, intangible and tangible fixed assets 146 135

F. Increase (+); decrease (–) in provisions for liabilities and charges 10 –13

G. Other operating charges 13 8

Totale operating charges 1.737 1.535

III. Operating profit 105 105

IV. Financial income 115 96

V. Financial charges –79 –59

VI. Profit on ordinary activities before taxes 141 142

VII. Extraordinary income 14 17

IX. Profit for the period before taxes 155 159

X. Income taxes –38 –44

XI. Profit for the period 117 115

XIII. Profit for the period available for appropriation 117 115

– to legal reserve –1 0

– to other reserves –70 –20

– dividends –46 –95

The independent auditor KPMG, bedrijfsrevisor/reviseur d’entreprise, represented by K.M. Van Oostveldt, has approved thestatutory annual accounts without any qualification.

The Agfa-Gevaert N.V. combines in its operations both holding and industrial activities.

Shareholder information

Number of shares outstanding 140,000,000First day of listing 1 June 1999Market capitalisation on 31.12.1999 2,961 EUR m

Listing Brussels and Frankfurt Stock ExchangeReuters ticker AGFAt.BR / AGEG.DEBloomberg ticker AGF BB / AGE GRDatastream B:AGF

Bayer AG: 30%

Free float: 45.1%

Gevaert Group: 24.9%

Share price Evolution Agfa share price against BEL-20

JulyJune August September October November December0

5

10

15

20

BEL-20Agfa

0

800

1600

2400

3200

Average volume of shares traded: 181,172

Year end price: 21.15 euros Year’s high: 22.19 euros Year’s low: 17.10 euros

BEL-20 Agfa

Shareholder structure as of December 31, 1999 Share information

in EURO 1999 1998*EPS pre restructuring/non-recurring expenses 1.31 1.16EPS post restructuring/non-recurring expenses 0.10 1.00CFPS 2.14 2.73Gross dividend 0.33 n.a.*Pro forma

Annual General MeetingPayment of dividend 1999First quarter 2000 resultsHalf year 2000 resultsThird quarter 2000 resultsFull year 2000 resultsAnnual General Meeting

25 April 200011 May 2000Week commencing 22 May 2000Week commencing 21 August 2000Week commencing 20 November 2000March 200124 April 2001

Financial calendar

Investor Relations DepartmentSeptestraat 272640 MortselBelgiumTel: +32 3 444 5901Fax: +32 3 444 5902investor.relations.ir@belgium.agfa.com

Shareholder queries

www.agfa.com