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Océ reports net loss of € 23 million in Q4

Wednesday, January 13, 2010

Press release from the issuing company

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

'Our revenues continued to decline in the fourth quarter as customers remained uncertain about the economic situation and sustained their efforts to reduce costs. Towards the end of the year, we saw some bottoming out in the sales of continuous feed systems in the United States.

We are on track with the implementation of our action program related to job reductions and saving out-of-pocket expenses. Although we have spent a significant amount on restructuring, we improved our cash flow by further reducing inventories and trade receivables. Our net debt developed positively for the third consecutive quarter.

In 2010, we anticipate that the markets will remain challenging. In order to further strengthen our competitive position and drive sales under difficult market conditions, we will continue to introduce innovative products.

The fourth quarter was marked by the important announcement of Canon's intended recommended offer for Océ, which is aimed at creating the global leader in the consolidating printing industry. In the meantime, the transaction process is on track and all relevant anti-trust approvals have been obtained.'


Markets remained challenging

Despite some positive macro economic developments towards the end of 2009, a broad range of market sectors remained challenging. The purchasing behavior of customers continued to be impacted by the uncertain economic outlook. In addition, customers continued to experience financing to be tight or only available at higher interest rates.

As in the first three quarters of 2009 the continued decline of key market sectors affected the digital printing industry strongly. Customers are looking for increased cash flow and reduced costs and as a result equipment sales and print volumes remained under pressure. In addition, customers continued to reduce the use of color where not business critical, for instance in the office environment.

Document management services continued to grow, as companies continue to seek outsourcing of their document related activities.

Océ revenues declined due to market developments

Following these market developments, Océ revenues showed an organic decline of 11%. Océ believes the company improved its position in key markets as its revenue developments outperform the reported industry average. Océ strengthened its competitive position through new innovative products such as the printing systems of the Océ JetStream and Océ VarioPrint series.

Actions delivered results

Our action program is well on track but could only partly mitigate the effects of the revenue decline, as reflected in the above table. The net debt amounted to € 435 million. Net debt declined by € 146 million compared to the end of the fourth quarter of 2008; about half of this decline was due to foreign currency exchange rate developments.

In the fourth quarter Océ realized a cost reduction of € 44 million. The total cost reduction achieved in 2009 is € 154 million versus a target of € 124 million. All savings are exclusive of inflation and restructuring.

In the fourth quarter Océ realized a headcount reduction of 380 FTEs. The total headcount reduction achieved in 2009 is 1,550 FTEs. Océ also realized in the fourth quarter € 54 million in balance sheet reductions, bringing the full year total to € 207 million versus a target of € 100 million. Excluding the effect of the lower businessactivity levels, total reductions amounted to € 86 million.

Major announcement: combination with Canon

On Monday 16 November 2009 Canon and Océ announced that they had reached conditional agreement to combine their printing activities through a recommended public cash offer. This is an important milestone in the history of Océ, as the joint aim is to create the overall No. 1 presence in the printing industry. Joining forces with Canon is of key strategic importance to Océ. In the meantime all relevant anti-trust approvals have been obtained.

Océ Group results fourth quarter 2009


Total revenues in the fourth quarter amounted to € 683 million, a decrease of 15%. The organic decrease was 11% compared to the fourth quarter of 2008.

The share of color in Océ total revenues continued to grow and now accounts for 34%, up from 28% at the end of the fourth quarter 2008.

Non-recurring revenues amounted to € 217 million, a decrease of 21%. The organic decline was 18%.

Recurring revenues amounted to € 466 million, a decrease of 12%. The organic decline was 7%.

Headcount restructuring costs were € 27 million.

As announced in the first quarter report of financial year 2009, capitalization of R&D costs is aligned with the start of investments in product industrialization, which is earlier in the R&D process than previously. This resulted in € 6 million lower costs in the fourth quarter.

Océ impaired intangible assets related to favorable supply contracts with certain OEM suppliers for an amount of € 2 million. In the same period last year Océ impaired certain internally developed software for the amount of € 3 million.

In total, the impact of normalization items amounted to € 23 million of which € 12 million relate to gross margin (2008: € 6 million) and € 11 million relate to operating expenses (2008: € 6 million).

Gross margin and operating income

In the fourth quarter of 2009 normalized gross margin was 38.6% (2008: 35.6%).

The year on year increase was the result of three elements. First, compared to the fourth quarter of 2008, the changes in foreign currency exchange rates caused a positive hedge variance of € 10 million, leading to a gross margin increase of 1.3 percentage points. Second, the difference in business mix at group level, mainly due to the growth of OBS, resulted in a gross margin decline of 0.5 percentage points (OBS is a services business with a different margin profile). Third, the business development resulted in a gross margin increase of 2.2 percentage points. This is the net effect of several factors, amongst others manufacturing and service cost reductions, mix effects within the business units and a number of incidental items in the fourth quarter of 2008.

Normalized operating expenses amounted to 36.3% (2008: 32.1%). The increase was the result of the strong revenue decline which was partly mitigated by cost savings actions. In constant currencies operating expenses declined by € 2 million. The savings were partly offset by higher charges from share-based compensation and an increase of inventory provisions for certain older product lines.

On balance, normalized operating income amounted to € 16 million (2008: € 28 million). Operating income amounted to –€ 7 million (2008: € 16 million).

Finance expenses and net income

Finance expenses (net) amounted to € 4 million (2008: € 19 million).

The taxation charge to net income amounted to € 12 million (2008: € 3 million contribution to net income). Taxation is affected mainly by the full year effect of refraining from capitalization of tax losses in Germany.

On balance, net income amounted to –€ 23 million (2008: € 1 million).

Océ Group provisional results 2009

Total revenues decreased by 9% due to the challenging market circumstances. Excluding foreign currency exchange rate effects, revenues decreased organically by 10%, which Océ believes was significantly better than the reported industry average.

Non-recurring revenues decreased organically by 18%. Recurring revenues decreased organically by 6%.

The normalized gross margin was 37.4% (2008: 38.2%). The decrease was mainly due to the growth of OBS, which resulted in a gross margin decline of 0.7 percentage points. The action program and mix effects within the businesses compensated the price and volume declines.

Normalized operating expenses as a percentage of revenues amounted to 36.5% (2008: 35.4%). The increase was the result of the revenue decline which was partly mitigated by cost savings actions. In constant currencies normalized operating expenses declined by € 68 million. Normalized operating income amounted to € 25 million (2008: € 82 million).

Finance expenses (net) amounted to € 37 million (2008: € 48 million).

Taxation contributed for € 3 million to net income (2008: € 5 million contribution to net income).

On balance, net income amounted to –€ 47 million (2008: € 4 million).

Balance sheet and RoCE

The balance sheet total was € 2,207 million, compared to € 2,549 million at the end of the fourth quarter of 2008.

Net Capital Employed was € 992 million, compared to € 1,243 million at the end of the fourth quarter of 2008. In relation to normalized operating income, RoCE amounted to 1.6% (2008: 5.3%).

Free cash flow and financial covenants

Free cash flow in 2009 increased to € 82 million (2008: € 19 million) mainly due to reduction in inventories and trade and other receivables. Cash flow from operating activities improved to € 176 million (2008: € 122 million).

The cash flow from investing activities was –€ 94 million (2008: –€ 103 million).

At the end of 2009 the net debt/EBITDA ratio amounted to 1.9 (financial covenants maximum of 3.5) and EBITDA/interest (net) ratio amounted to 6.4 (financial covenants minimum of 3.5).

SBU provisional results fourth quarter

Digital Document Systems (DDS)

Markets continued to be challenging in virtually all regions.

Revenues in DDS amounted to € 381 million. Organically, revenues declined by 12%. The share of color was 29% of revenues (2008: 23%).

Non-recurring revenues amounted to € 146 million. Organically, revenues declined by 17%. As a result of the decline in multiple market sectors, equipment sales in Office, Printroom as well as black & white continuous feed systems were lower compared to the fourth quarter of 2008. DDS showed good sales in TransPromo and Graphic Arts through the Océ JetStream and Océ ColorStream continuous feed color printers.

Recurring revenues amounted to € 235 million. Organically, revenues declined by 8%. The market deterioration resulted in lower print volumes and subsequently lower revenues in Office and black & white continuous feed. The production cutsheet revenue growth slowed down.

Normalized operating income amounted to –€ 1 million (2008: € 1 million).

Wide Format Printing Systems (WFPS)

The construction and manufacturing market sectors declined. The climate in the display graphics market deteriorated further.

Revenues in WFPS amounted to € 187 million. Organically, revenues declined by 17%. The share of color increased to 47% (2008: 41%).

Non-recurring revenues amounted to € 71 million. Organically, revenues declined by 21%.

Recurring revenues amounted to € 116 million. Organically, recurring revenues declined by 14%. The main driver was the decline in print volumes in market sectors served by Technical Document Systems and Imaging Supplies.

Imaging Supplies revenue declined organically by 22% mainly due to lower print volumes.

Normalized operating income amounted to € 12 million (2008: € 21 million) and was impacted by the strong decline in market demand.

Océ Business Services (OBS)

The document outsourcing market continued to encounter two distinct drivers. On the one hand, organizations are showing an increasing interest to outsource document related processes and activities. On the other hand, business at existing customers is experiencing declining activity levels in many market segments.

Revenues in OBS amounted to € 115 million. Organically, revenues increased by 5%. Revenue growth in Europe continued to be strong. Revenues in the United States were under pressure; this was compensated by cost reductions.

In a number of areas OBS reduced the number of direct personnel to adjust for the business contraction at customers. To further reduce costs OBS also reduced indirect personnel. As a result, OBS incurred restructuring costs of € 3 million.

Normalized operating income amounted to € 5 million (2008: € 6 million).

Creating the global leader in the printing industry

On Monday 16 November 2009 Canon and Océ announced that they had reached conditional agreement to combine their printing activities through a fully self-funded, recommended public cash offer by Canon for all the outstanding ordinary shares of Océ.

The offer price of € 8.60 per outstanding ordinary share of Océ represents a premium of 70% over the closing share price of Friday 13 November 2009 and 137% to the average closing price of Océ's shares over the last 12 months.

Canon and Océ will be able to build upon each other's strong history and proven track record of innovation and customer servicing and will create a strong joint enterprise capable of long term successes. The combination will capitalize on an excellent complementary fit in product mix, channel mix, R&D, and business lines resulting in an outstanding client offer spanning the entire printing industry.

Océ remains a separate legal entity as a Canon division, headquartered in Venlo (the Netherlands); within this division, the Océ brand name is to be maintained and applied in all relevant markets. Océ continues to lead its R&D and manufacturing. The Management Board and key management will remain in place. Employees will become part of the industry leader. Océ and Canon do not expect that there shall be any material negative consequences as a result of the recommended offer for the existing employment level of Océ, excluding already announced personnel reductions.

The Management and Supervisory Boards of Océ fully and unanimously support and will recommend the intended offer.

Holders of the depository receipts for Océ's cumulative preference shares (approximately 19% of the total share capital) agreed to sell their interests to Canon; large shareholder Bestinver Gestion, SGIIC S.A. (approximately 9.5% of the outstanding ordinary shares) has provided an irrevocable undertaking to tender.

Canon has acquired about 25% of the outstanding ordinary shares since 16 November 2009 and received approval from all relevant anti-trust authorities. More details are available on our website www.investor.oce.com.

Dividend for 2009

Océ proposes to shareholders that no dividend will be declared over 2009.

22 April 2010: General Meeting of Shareholders The Annual General Meeting of Shareholders will be held on 22 April 2010 in Venlo. The agenda for the meeting will be published on 22 March 2010. The annual report will be available online on 3 February 2010 on our website www.investor.oce.com

The annual report 2009 will only be available in printed form after written request to Océ N.V., P.O. Box 101, 5900 MA Venlo, the Netherlands, attention Carlo Schaeken, Vice President Investor Relations.


In 2010 the market circumstances are expected to remain challenging and continue to impact the printing industry. In order to mitigate this effect, Océ will remain focused on cash and will continue with the cost-cutting and balance sheet reduction programs.

In addition Océ will continue to introduce innovative products for all market segments to further strengthen its competitive position and drive sales under the difficult market conditions.

Canon and Océ will continue their progress to create the best combination in the printing industry. Senior management of both companies continue to work side by side to ensure the offer process runs as smoothly as possible.




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