CFO Studio Magazine, Fall 2011

 Agfa Graphics CFO Gunther Mertens is a driving force in the switch from analog to digital – and in his company’s growth.

WHILE OTHER COMPANIES tighten their proverbial belts and hunker down to brave the rocky international economic storm, Agfa Graphics USA has embraced change and continues to position itself for growth.

Agfa is a multinational imaging company in the graphic arts and healthcare industries, headquartered near the city of Antwerp, Belgium, with revenues of $4 billion in 2010. At the helm of Agfa Graphics USA’s financial efforts is Gunther Mertens, vice president and CFO of the company’s North American graphics business. After joining the company in 1999, Mertens took the lead in the areas of strategic financial management and mergers and acquisitions, and is one of the driving forces behind the company’s move from a traditional analog graphics arts company to one that has led the digital revolution in the United States.

How did Agfa manage the transition from analog to digital?

Gunther Mertens: to be able to fund the innovation and acquisitions, it was important that the company manage the technology cycles well. For example, in graphics, the evolution from film to offset plates to inkjet could only be achieved by investing heavily in the development of the next cycle while still benefiting from the cash flows of the previous cycle.

Also, Agfa divested of non-core businesses like its nondestructive testing business, which was sold to GE, and its typeface business, monotype, which was sold to a private equity investor. We were able to raise $750 million with these two divestitures. This money was invested in the acquisition of and partnerships with digital companies.

What was the turning point in Agfa’s digital evolution, and what has Agfa Graphics done recently to build on that growth?

In 2004, Agfa spun off its consumer film business, ultimately shedding its image as a film company. Despite the fact that, at that point, less than five percent of its business was derived from selling film to consumers, the company was still perceived as a film photography company in many ways.

Moving forward, in 2010, Agfa acquired Canada-based Gandi innovations, which enabled us to significantly increase our presence in large format inkjet printing. Now we have an even more complete product portfolio, ranging from entry-level to very high-end inkjet printing systems.

Last year, Agfa also acquired the Pitman Company in Totowa, N.J. This company is the biggest nationwide distributor of graphic arts products in the U.S., and the acquisition doubled the size of Agfa’s Graphics business here. It allowed us to become more prominently present in a market like packaging with a comprehensive product portfolio. We have our own products and that of a wide range of world-class manufacturers that we are now partnered with, including HP, Epson, 3m, and DuPont. It was also a unique opportunity to further grow in industrial inkjet, where we were able to expand significantly the relevant market and product offerings to our customers.

“To fund the innovation and
acquisitions, it was important

to manage the technology cycles

as well.”

Looking back, how did Agfa’s vision for “going digital” differ from the competition?

Some of our competitors extended their imaging technology into consumer electronics and encountered severe competition from existing manufacturers and the brutal profit margins of a business where prices seem to be in a perpetual freefall. You have to pick your battles and niches and understand the competitive landscape. Agfa realized early on, for example, that it should not try competing in desktop printing as that market was taken already and one can only compete by slashing ink prices. The other problem competitors encountered stemmed from predicting the descent curve for traditional film products.

Some companies placed their hopes on the boom in emerging markets. But sales of traditional products for the world as a whole were declining and in the emerging markets, the old technology was often skipped entirely.

What is the outlook for your company?

Agfa Graphics has positioned itself for future growth in the graphic communications industry. Through savvy investments and acquisitions, our company holds a unique leadership position among its competition. In certain market segments, competition comes obviously from electronic alternatives to print such as the internet, mobile communication devices, and e-readers; and printed media will unavoidably decline in those segments. However, print will continue to occupy a leading position in the graphic communications industry and in segments like packaging and the sign market, print is still growing. Graphic communications customers increasingly expect fast turnarounds, short runs, and personalization. Such options are available with digital printing and Agfa Graphics provides the broadest and most innovative product portfolio that meets the customers’ needs.

After the acquisition of Pitman last year, Agfa Graphics has an unmatched national distribution network and is able to supply products to print service providers within 24 hours so they can meet the demands of their customers.

Important dates in Agfa’s history:

Agfa was established in 1867.

In 1936, Agfa revolutionized the world of color photography with a film product called Agfacolor, which was ahead of the competition and had 278 patents.

In 1971, Agfa introduced the first European copier based on xerographic technology.

In 1981, as a result of speculation on the silver market, Agfa took a capital investment from Bayer, and became a 100 percent subsidiary of Bayer.

Agfa realized the need to invest in digital technology and decided to become a leading company in imaging technology as well as the consumer photo market.

In 1982, Agfa acquired the U.S.-based Compugraphic Corporation and entered the graphics market, becoming a worldwide leader for computer-controlled photographic typesetting machines.

In 1996 and 1997, Agfa acquired the printing plate and proofing divisions of DuPont and Hoechst Celanese and rose to the forefront of the graphic arts industry.

In 1999, with the acquisition of sterling diagnostic imaging, Agfa added conventional medical imaging to its U.S. portfolio, building on the successful market position it already had in Europe.

Enter Mertens. in 1999, Agfa was rapidly becoming a technology company and no longer fit into Bayer’s chemical-focused strategy. That same year, Agfa became a public company on the Brussels stock exchange (now euronext), and set out to fully transition from analog to digital technologies.