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Oce Fourth quarter better than expected

Tuesday, January 16, 2007

Press release from the issuing company

Jan. 15, 2007 -- Oce N.V. reported Q4 earnings - Comments by CEO Rokus van Iperen: "The Strategic Business Unit Wide Format Printing Systems delivered good results in the fourth quarter and for 2006 as a whole. The Strategic Business Unit Digital Document Systems booked a slightly better result in the fourth quarter, but its performance for the full year was lower than expected. This was attributable in particular to delivery and product issues which have been almost fully solved. The integration of Imagistics was successfully completed ahead of schedule and the anticipated synergies have been achieved. "Our three strategic thrusts continue to be: increasing our distributive strength, ongoing innovation of our product range and optimizing our business processes. Within Digital Document Systems the successful Imagistics model will also be implemented in Europe so as to improve profitability. In addition our product range will consist of a well balanced mix of our own printing systems and printers sourced from third parties. In developing our own products we will focus on high volume and wide format printers." Fourth quarter: better than expected Total revenues in the fourth quarter increased by 8.8% to EUR 832.1 million. Excluding exchange rate effects the increase amounted to 11.4%. Non-recurring revenues increased by 9.9% (excluding exchange rate effects the increase was 11.7%). Recurring revenues were 8.3% higher (up 11.2% excluding exchange rate effects). In the table on page 9 we give an indication of the development of total revenues after adjustment for the effects of the Imagistics acquisition and exchange rates. The gross margin increased by 1.8% from 40.7% to 42.5%. The increase is the result of volume mix effects (0.8%). Hedge results contributed 1.0% to the increase in the gross margin. Operating expenses were lower as a result of the restructuring operation initiated in 2005. Additionally, exchange rate effects had a positive impact on the development of expenses. During the quarter EUR 13 million was capitalized on R&D costs. This is EUR 5 million higher than in the third quarter, specifically because of the introduction of the Oce VarioPrint 6250. As a result, relatively higher than normal development costs were incurred in the fourth quarter. Operating income decreased from EUR 70.6 million to EUR 43.8 million. Normalized operating income increased from EUR 35.4 million in the fourth quarter of 2005 to EUR 48.7 million in the fourth quarter of 2006. Financing expenses in the fourth quarter amounted to EUR 12.9 million. Taxes were EUR 4.2 million. Net income amounted to EUR 26.7 million (2005: EUR 52.1 million). Net income per ordinary share outstanding amounted to EUR 0.28. Revenues in the Strategic Business Unit Digital Document Systems (DDS) grew by 12.0% to EUR 598.5 million. This increase was primarily due to the acquisition of Imagistics (approx. 14%). Exchange rate effects were 2.5% negative. Non-recurring revenues increased by 13.3%. After adjustment for exchange rate effects (-1.7%) and acquisition effects non-recurring revenues increased by approx. 1.5%. This increase has to be compared with what was also a very strong fourth quarter in 2005. Recurring revenues increased by 11.4%. After taking into account the revenues that resulted from the acquisition of Imagistics and the effects of exchange rates (-2.9%) recurring revenues remained stable compared to the fourth quarter of 2005. The trend in recurring revenues excluding currency effects shows an improvement on a year-on-year basis (2006: - 0.5%; 2005: -3.8%). The operating income (EBIT) of DDS amounted to EUR 20.1 million (2005: EUR 40.5 million). Normalized EBIT was EUR 25.2 million (2005: EUR 19.0 million). The integration of Oce Imagistics within Oce North America has been completed. Imagistics delivered a solid financial performance. The business synergies of EUR 5 million planned for 2006 have been realized. The cost savings achieved during 2006 amounted to EUR 12 million, which was higher than anticipated. Strategic Business Unit Wide Format Printing Systems: another strong quarter In the Strategic Business Unit Wide Format Printing Systems (WFPS) revenues grew by 1.5% to EUR 233.6 million. Excluding exchange rate effects, revenues were 4.0% higher. Non-recurring revenues increased by 2.4% (excluding exchange rate effects, by 4.4%). This increase in revenues was due in particular to our success in selling color machines and the ongoing updating of our innovative black and white printers. Recurring revenues also developed well and increased by 1.0% (excluding exchange rate effects, by 3.4%). Revenues from service contracts, toner and ink as well as total revenues in the Imaging Supplies business group showed healthy growth. Operating income amounted to EUR 23.7 million (2005: EUR 30.1 million). The normalized operating income increased from EUR 16.4 million to EUR 23.5 million. Thanks to successful black and white and color products Oce has succeeded in gaining market share in Technical Document Systems. Particularly in the color market the Oce TCS300 and Oce TCS500 have been very successful. Provisional results 2006 financial year Total revenues in 2006 increased by 16.2%. Excluding acquisition and exchange rate effects the increase was 0.3%. Non-recurring revenues were up by 14.9%. This growth in revenues was due entirely to the acquisition of Imagistics. Recurring revenues increased by 16.7%. Excluding acquisition effects (15.6%) and exchange rate effects the increase amounted to 0.8%. The gross margin amounted to 42.1% (2005: 41.5%). This margin increase resulted from the acquisition of Imagistics. Operating expense as a percentage of total revenues amounted to 38.8%. During 2006 a total amount of EUR 25 million net was capitalized on R&D costs. With effect from December 1, 2005 the gross margin and operating expenses of Oce Imagistics have been reported in line with those of the Oce Group. The operating income for the year 2006 was EUR 102.2 million (2005: EUR 112.5 million). EBITDA amounted to EUR 306.1 million, an increase of 19.1% compared to 2005 (EUR 257.0 million). Net income went down from EUR 82.2 million to EUR 57.1 million. Net income per ordinary share amounted to EUR 0.63 (2005: EUR 0.93). Strategy 2007-2010 Oce offers customers a complete spectrum of innovative products and services consisting of a well balanced mix of products it has developed itself and high quality products sourced from third parties. Our direct sales and service organization, together with carefully selected distributors, ensure that service to each customer is optimal. The strategy is focused on value creation through growth. The three strategic thrusts aimed at achieving profitable growth are: distributive strength, competitive products and the optimization of business processes. Oce has various operational excellence projects for the optimization and harmonization of business processes as well as the supporting of ICT and the optimization of working capital. The aim of these projects is a cost reduction of EUR 75 million to EUR 100 million compared to the cost level in 2006. Digital Document Systems To improve the competitive position of DDS the concept of the balanced product mix will be fine-tuned further in the years ahead. More than in the past, third-party (OEM) products will be included in the range. This model is already being applied in the United States by Oce Imagistics and will also be rolled out in Europe during 2007. In this way Oce will be able to offer the customer the best possible product range. Partly thanks to the use of open architecture software developed by the company itself and marketed under the PRISMA brand, the fleet of installed printers will link up seamlessly with the customer's document requirements and will be constantly brought into line with the evolving needs. Our integrated workflow software is also compatible with OEM systems and those of our competitors. In combination with the increase in our distributive strength, this strategy will lead to the required growth in the fleet of installed machines and the related improvement in the degree of capacity utilization of the service organization, particularly for the Corporate and Commercial Printing Systems business groups. Oce Business Services will further strengthen this model by offering an integrated concept that will guarantee that the customer is provided with the best possible service in the area of documents and document management. Wide Format Printing Systems In WFPS the distributive strength will be further boosted by expanding both the direct and the indirect sales channels in Asia. In WFPS, too, the balanced product mix concept will be applied, specifically in Display Graphics. Financial objectives The financial objectives for the 2007-2010 period are an average organic revenues growth of at least 5% per year, maintaining the level of the relative gross margin and a Return on Capital Employed (RoCE) of at least 13% by 2010. Balance sheet and cash flow The balance sheet total at the end of 2006 amounted to EUR 2,652 million. Due to exchange rate changes and a reduction of the working capital, total assets decreased by EUR 195 million compared to the 2005 year end. Net Capital Employed (excluding cash) was EUR 161 million lower at the end of 2006 compared to the end of 2005. The development of the balance sheet has made a substantial contribution to free cash flow, which amounted to EUR 127 million in the fourth quarter and EUR 119 million for the full year. Proposed dividend for 2006: EUR 0.58 per ordinary share Oce proposes to shareholders that the dividend for 2006 be maintained at EUR 0.58 per ordinary share of EUR 0.50 nominal. If this proposal is accepted, the final dividend per ordinary share for 2006 will amount to EUR 0.43 in cash. The interim dividend for 2006 amounted to EUR 0.15 per ordinary share. Outlook 2007 We will continue to implement our strategy of expanding distribution strength, launching innovative new products and optimizing our business processes. We are convinced that this strategy will enable us to create significant value for our customers, employees and shareholders. At the moment the Board of Executive Directors is not making a prediction of the 2007 full year results.




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