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Océ Quarterly Revenue Drops 6.3%, Posts Profit

Friday, April 03, 2009

Press release from the issuing company

Comments by Rokus van Iperen, Chairman of the Board of Executive Directors:

‘Our first quarter performance has been encouraging, especially given today’s economic turbulence. We have been able to mitigate the impact of the economic downturn and the declining markets due to our business model, timely launched cost reduction programs and balance sheet improvements.

Océ has strengthened its competitive position in key segments of business services, display graphics, color continuous feed printing and cutsheet production printing. Color revenues, generating better margins, grew to 27% of total revenues.

We persisted with our strategy of continuously introducing innovative printing systems such as the Océ Arizona 350 XT and the Océ JetStream 2800, positioning our customers for profitable growth.

Despite these positive developments, we anticipate market conditions in 2009 will be even more challenging than in 2008. An additional round of cost cutting measures in supply centers and operating companies is therefore inevitable, supporting our profitability during ongoing turbulent economic conditions.’

Printing industry The economy deteriorated further in the first quarter of 2009. This resulted in a strong decline in a broad range of market sectors except for the relatively resilient sectors Government, Health Care, Education and Utilities.

As in the fourth quarter of 2008 the continued decline of key market sectors affected the digital printing industry. Decisions to replace existing equipment were often postponed. Investments in new applications, which transfer print volume from analog presses to digital printers, were reduced in pace. Print volumes were under pressure in all segments except for the new applications. The outsourcing of document management services continued to grow. Océ mitigated the impact of the declining market sectors in several ways. First, Océ’s business model reduced the impact of the deteriorating market sectors, through our recurring revenue stream and in addition through our broad customer base covering various markets and geographies. Second, by Océ’s strong distribution power and competitive products. Océ improved its competitive position in new segments such as graphic arts and display graphics through consistent application of its strategy. The execution of the action program to reduce costs is ahead of schedule. Océ Group results first quarter 2009


Total revenues in the first quarter amounted to € 658.0 million, a decrease of 6.3%. The organic decrease was 8.2% compared to the first quarter of 2008.

Our share of color continues to grow and now accounts for 27% of revenues, up from 22% in the same period last year. Océ expects that color will continue to grow at a rapid pace and will become an increasingly significant part of the revenue stream, generating better margins.

Non-recurring revenues amounted to € 169.1 million, a decrease of 14.8%. The organic decline was 15.9%.

Recurring revenues amounted to € 488.9 million, a decrease of 3.0%. The organic decrease was 5.2% mainly due to a 26% decline in Imaging Supplies sales. The recurring revenues from maintenance services and toner/ink which relate to the machine population decreased organically by 5.5% due to a lower print volume demand in the markets.

Océ Business Services grew its revenues organically by 6.4%.

Operational Excellence

One of the three pillars in Océ’s strategy is a continuous improvement of business processes under the Operational Excellence program. The Operational Excellence program enables Océ to reduce its cost base in order to support profitability. The 2009 action program will reduce costs by € 80 million in addition to the € 80 million savings realized in 2008. In the first quarter of 2009, a total of € 34 million in savings were realized. The execution of our restructuring effort went according to plan.

In the first quarter, headcount was reduced by 413 FTEs. At the end of the first quarter we had reduced our headcount by 1253 FTEs in the 2008/2009 program (target was 1200 FTEs).

Additional actions executed are worldwide salary and hire freezes, stringent control on out of pocket expenses, delayed investments in IT as well as property, plant and equipment, temporary shut down of some manufacturing lines and continued short time working in Venlo and Poing.

The Operational Excellence program also includes € 100 million cash to be generated by balance sheet reductions in the area of real estate, inventories, finance lease receivables and trade receivables. In the first quarter of 2009 a total of € 40 million in balance sheet reductions was realized mainly due to lower business activity levels.

To mitigate further market deterioration, additional costs savings have been defined. These contain further phased restructuring in Poing, including an additional 250 FTE reduction. Additionally we prepare cost reduction plans for the operating companies and supply centers. All cost savings will be implemented in a careful and structured manner and cover all countries and disciplines.

All savings referred to above are exclusive of volume effects, inflation and restructuring costs.

In the first quarter Océ realized a one-off gain of € 1.7 million related to the divestment of Arkwright. In the same period last year Océ realized a one-off gain of € 19.8 million related to the divestment of Océ Document Technologies (ODT).

As part of the aforementioned Operational Excellence program Océ incurred some € 5.0 million in restructuring costs in the first quarter. Another element in the Operational Excellence program is the improvement of the logistical processes amongst others via Direct Replenishment of spare parts. This enables Océ to centralize stocks related to spare parts. The centralized inventory requires less provision for obsolescence and as a result part of the provision was released, resulting in a one-off gain of € 4.4 million.

Océ allocates significant resources in R&D to further improve the competitiveness of its product portfolio. The research and development process consists of well defined phases. As of 2009, the start of capitalization is matched with the start of investments in product industrialization, which is earlier in the R&D process than before. This resulted in less costs of € 5.7 million in the quarter.

In total, one-off items amounted to net € 6.8 margin and € 5.1 million impacted operating expenses.

Gross margin and operating income

In the first quarter of 2009 normalized gross margin, excluding one-off items, was 38.9% (2008: 39.2%). The slight decline was the result of changes in foreign currency exchange rates and hedge results. The strengthened competitive position as well as the benefits from the ongoing Operational Excellence program are important elements in maintaining the relative gross margin. The gross margin recovered from the low level (35.6%) in the fourth quarter of 2008.

Normalized operating expenses amounted to 35.4% (2008: 36.7%). This decrease was realized by execution of the Operational Excellence program.

On balance, normalized operating income amounted to € 22.8 million (2008: € 17.5 million). The changes in foreign currency exchange rates caused a negative impact of – € 0.9 million. Operating income amounted to € 29.6 million (2008: € 32.1 million).

Financial expenses and net income

Financial expenses (net) amounted to € 12.6 million (2008: € 8.6 million). On balance, net income was € 15.3 million (2008: € 21.3 million).

Earnings per ordinary share for net income attributable to shareholders was € 0.17 (2008: € 0.24).

Balance sheet, RoCE and cash flow

The balance sheet total was € 2,568 million, compared to € 2,368 million at the end of the first quarter of 2008. The year-on-year increase was mainly attributable to foreign currency exchange rate effects.

The retirement benefit obligations in the balance sheet amounted to € 389 million (2008 first quarter: € 398 million). The estimated coverage ratio of the Océ Netherlands Pension Fund amounted to 79.5%, based on local pension accounting, at year-end 2008. Effective January 1, 2009, the related pensions will not be index-linked and the pension premium was raised. For financial year 2009, Océ is not required to make any additional contributions to the Océ Netherlands Pension Fund. More information will be provided following endorsement and approval of the recovery plan by the Dutch Central Bank.

Net Capital Employed was € 1,340 million, compared to € 1,256 million at the end of the first quarter of 2008. In relation to normalized operating income, RoCE amounted to 5.5% (2008: 7.2%).

Free cash flow in the first quarter was – € 64 million (2008: – € 109 million). The improvement of € 45 million compared to 2008 was mainly due to improvement in working capital. Cash flow from operating activities, was – € 38 million (2008: – € 85 million). The cash flow from investing activities was – € 26 million. Excluding the aforementioned one-off gain of € 5.7 million relating to R&D, the cash flow from investing activities decreased to – € 20 million (2008: – € 24 million) due to lower capital expenditures.

The net debt/EBITDA ratio1 amounted to 2.96 (loan covenants maximum of 3.0). The EBITDA/ Interest (net) ratio amounted to 5.3 (loan covenants minimum of 4.0).

Various drivers will help Océ to continue to operate within the covenants. First, the cash flow of Océ traditionally is weak in the first quarter and positive in the second quarter. Second, the free cash flow improved by € 45 million compared to the first million gains of which € 1.7 million impacted gross quarter of 2008. Further actions will be taken in the remainder of 2009. Third, EBITDA amounted to € 76.3 million which is in line with the first quarter of 2008 and an improvement versus the last three quarters of 2008, mainly due to strengthened competitive position and the benefits of the Operational Excellence program.

SBUs results first quarter

Digital Document Systems (DDS)

Revenues in DDS amounted to € 368.8 million. Organically, revenues declined by 8.6%. The share of color increased to 22% of revenues (2008: 18%). Non-recurring revenues amounted to € 108.9 million. Organically, revenues declined by 14.9%. As a result of the decline in multiple market sectors equipment sales in Office, Printroom as well as black & white continuous feed systems decreased strongly compared to the first quarter of 2008.

DDS continued its successful entrance in TransPromo and graphic arts by selling multiple Océ JetStream and Océ ColorStream continuous feed color printers. In the fourth quarter of 2008 this resulted already in a third market position in placements shares.

In the first quarter, DDS introduced the Océ JetStream 500 and 1000 which will enable a wider range of customers to make the transition from offset to high speed digital printing. DDS also introduced the Océ JetStream 2800, offering the broadest print width currently available and running at 130 meters/minute. The Océ JetStream 2800 is the fastest wide format digital color continuous feed system in the industry.

Recurring revenues amounted to € 259.9 million. Organically, revenues declined by 5.7%. The market deterioration resulted in lower print volumes except for TransPromo and graphic arts.

Normalized operating income amounted to € 10.0 million (2008: – € 0.6 million). The improvement was realized through our partnerships and cost reduction actions.

Wide Format Printing Systems (WFPS)

Revenues in WFPS amounted to € 174.8 million. Organically, revenues declined by 14.9%. The share of color increased to 41% (2008: 31%).

Non-recurring revenues amounted to € 60.2 million. Organically, revenues declined by 17.6%. This decline was caused by significantly lower equipment sales in Technical Document Systems following the slowdown in the Construction as well as the Manufacturing sector. Sales of the Océ ColorWave 600 and Very Low Volume color equipment increased.

The deteriorating Advertising market caused a slowdown of equipment sales in the Display Graphics market.

In the first quarter, WFPS introduced the Océ Arizona 350 XT. This new model is twice as large as the successful Océ Arizona 350 GT introduced in the previous quarter, and will enable customers to address a larger part of the Display Graphics market currently printing on analog presses.

Recurring revenues amounted to € 114.6 million. Organically, recurring revenues declined by 13.4%. Population related revenues, being maintenance services and toner/ink related to the machine in field basis, declined organically by 3.9%. While the population related revenues in Technical Document Systems declined, Display Graphics grew its population related revenues.

The main driver in the decline of recurring revenues was Imaging Supplies, whose revenues declined by 26% due to the divestment of Arkwright as well as lower customer print volumes.

Normalized operating income was € 9.8 million (2008: € 14.7 million) and was impacted by the strong decline in market demand for Technical Document Systems equipment, reduced black & white print volumes and lower imaging supplies demand. The Operational Excellence program partly mitigated these effects.

Océ Business Services (OBS)

Revenues in OBS amounted to € 114.4 million. Organically, revenues increased by 6.4%. OBS shows consistent growth as the trend to outsource document management activities continues. Revenue growth in Europe was strong, despite the economic slowdown, and the number of sales cycles increased. Revenues in the United States are picking up and expected to grow in the remainder of the year.

Normalized operating income amounted to € 3.0 million (2008: € 3.4 million). Operating income was impacted by lower relative gross margin due to lower (print) volumes mitigated by the Operational Excellence program.

Strategic actions

In 2009 the Strategic Business Units will again be taking further major steps in two main pillars of Océ’s strategy: distribution power and competitive products.

To further strengthen distribution power, the Strategic Business Units will focus the sales force on relatively resilient market sectors and applications, expand sales via current strategic partners and continue to explore new partnerships in continuous feed as well as wide format.

WFPS will increase sales of the Océ Arizona 350 XT and will launch a new single footprint system. DDS has expanded the Océ JetStream family and is ramping up sales of the new continuous feed color systems.

April 23, 2009: General Meeting of Shareholders The annual general meeting of shareholders will be held on April 23, 2009 in Venlo. The registration date for this meeting is April 2, 2009. The agenda and the registration procedure have been posted on our website www.investor.oce.com.


Océ mitigated the impact of the declining market sectors in several ways. First, via the Océ business model with recurring revenues and broad customer base. Second, by Océ’s strong distribution power and competitive products. Third, through Océ’s action plan to reduce costs and generate cash by balance sheet reductions.

Océ anticipates a further deterioration of the market sectors in 2009 and has therefore taken additional actions. Océ continues to strengthen its distribution power and product competitiveness. In addition, Océ expands the Operational Excellence program to further reduce costs and to improve cost flexibility of manufacturing as well as to improve cash flow through balance sheet reductions.




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