Océ reports recovery in some markets

Monday, April 05, 2010

Press release from the issuing company

Highlights first quarter:
- Some markets showed signs of recovery
- Revenues € 614 million (-5% organically)
- Operating income € 7 million
- Free cash flow - € 64 million
- Net loss € 5 million
- Canon transaction closed successfully
- Priority on cross-selling opportunities with Canon

Comments by Rokus van Iperen, Chairman of the Board of Executive Directors:
‘Although our revenues were still declining in first quarter 2010, the decrease was less significant than in each of the three previous quarters. Some of our key markets are showing signs of either stabilizing or even picking up.

Europe remained very weak in all segments but customers in the United States and Asia appeared to gain confidence and cautiously started buying again. Our cost savings program continued to be well on track but could only partly mitigate the effects of the revenue decline.

Between January and March 2010, a total of 85% outstanding Océ common shares were acquired by Canon, enabling this compelling combination to close successfully. Our priority and focus in the short term is cross-selling of Canon products in Océ channels and vice versa. Integration activities will be carefully considered, taking the current shareholding structure into account.’

Highlights
Some markets showed signs of recovery; printing industry decline bottomed out Some markets showed signs of recovery. For example, the corporate markets including the Financial Services segment improved. Other markets, like the  construction sector and the Graphic Arts market remained weak.

As in 2009 the markets continued to impact the printing industry. The decline in the industry bottomed out, mainly driven by growth in sales of low-end equipment. Sales of other equipment continued to be impacted by the lower activity levels in key market sectors compared to the first
quarter of 2009.

Document management services slowed down as existing business showed lower customer activity levels in many sectors. In addition new contracts were delayed and smaller, as customers chose to use the available free internal capacity.

Océ revenues declined in line with printing industry development
Following these market developments, Océ revenues showed an organic decline of 5% versus the first quarter of 2009. This decline bottomed out compared to the organic revenue decline in the third and fourth quarter of 2009 which amounted to 12% and 11% respectively. Océ believes the company holds strong positions in key markets based on innovative products such as the printing systems of the Océ JetStream®, the Océ VarioPrint® and the Océ ColorWave® series.

Savings program
Our action program continued to be well on track but could only partly mitigate the effects of the revenue decline, as reflected in the above table. In the first quarter Océ realized a cost reduction of € 17 million, exclusive of inflation and restructuring cost. In the first quarter Océ realized a headcount reduction of 310 FTEs compared to the fourth quarter 2009.

Combination Canon and Océ
On 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 transaction closed successfully on 9 March 2010.

The first meeting of the Supervisory Board in its new composition as well as the first meeting of the Integration Steering Committee have taken place. Also the cross-selling between Canon and Océ has been initiated.

With these actions, Canon and Océ successfully took the first steps in their aim to create the overall No. 1 presence in the printing industry.

In order to continue to support our customers a new agreement with Konica Minolta was concluded.

Océ Group results first quarter 2010

Revenues
Total revenues in the first quarter amounted to € 614 million, a decrease of 7%. The organic decrease was 5% compared to the first quarter of 2009.

The share of color in Océ total revenues continued to grow and now accounts for 30%, up from 27% at the end of the first quarter 2009.

Non-recurring revenues amounted to € 161 million, a decrease of 5%. The organic decline was 4%.

Recurring revenues amounted to € 453 million, a decrease of 7%. The organic decline was 6%.

The normalization items have been aligned with the definitions of the bank covenants. The table below provides an overview of these normalization items and shows that reported operating income and normalized income are equal.

Gross margin and operating income
In the first quarter of 2010 normalized gross margin was 37.9% (2009: 39.3%).

The year on year decrease in gross margin was the result of three elements. First, compared to the first quarter of 2009, the changes in foreign currency exchange rates caused a positive hedge variance of € 1 million, leading to a gross margin increase of 0.2 percentage points. Second, the difference in business mix at group level, mainly due to a larger share of OBS in total revenues, resulted in a gross margin decline of 0.2 percentage points (OBS is a services business with a different margin profile). Third, the business development resulted in a gross margin decrease of 1.4 percentage points. This is mainly caused by lower utilization of the supply centers, due to the € 44 million lower revenues, as well as mix effects within the business units.

Normalized operating expenses amounted to 36.7% (2009: 34.7%). The increase was the result of the strong revenue decline versus first quarter 2009, as well as incidentals in the first quarter of 2009, partly mitigated by the savings program. In constant currencies, operating expenses were stable.

On balance, normalized operating income amounted to € 7 million (2009: € 30 million).

Operating income amounted to € 7 million (2009: € 30 million).

Finance expenses and net income
Finance expenses (net) amounted to € 11 million (2009: € 13 million).

The taxation charge to net income amounted to € 1 million (2009: € 4 million).

On balance, net income amounted to –€ 5 million (2009: € 15 million).

Balance sheet and RoCE
The balance sheet total was € 2,314 million, compared to € 2,568 million at the end of the first quarter of 2009.

Net Capital Employed was € 1,133 million, compared to € 1,340 million at the end of the first quarter of 2009. In relation to normalized operating income, RoCE amounted to 1.0% (2009: 5.1%).

Free cash flow and financial covenants Free cash flow in the first quarter 2010 remained unchanged at –€ 64 million. This was the net effect of a lower operating income, an increase in inventories and trade and other receivables and a reduction in trade and other liabilities. Cash flow from operating activities changed slightly to –€ 40 million (2009: –€ 38 million). The cash flow from investing activities was –€ 24 million (2009: –€ 26 million).

At the end of the first quarter 2010, the net debt/EBITDA ratio amounted to 2.7 (financial covenants maximum of 3.5) and EBITDA/interest (net) amounted to 5.6 (financial covenants minimum of 3.5).

SBU results first quarter

Digital Document Systems (DDS)
Compared to the last quarters of 2009, the decline in the markets served by DDS bottomed out. However, year on year the markets showed lower activity levels resulting in € 25 million revenue decline. As a result revenues in DDS amounted to € 344 million. Organically, revenues declined by 5%. The share of color was 25% of revenues (2009: 22%).

Non-recurring revenues amounted to € 106 million. Organically, revenues declined by 1%.

As a result of the decline in multiple market sectors, equipment sales in Printroom as well as black & white continuous feed systems were lower compared to the first quarter of 2009. DDS showed good sales in Office as well as TransPromo and Graphic Arts through the continuous feed color printers.

Recurring revenues amounted to € 238 million. Organically, revenues declined by 6%. 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 (2009: € 16 million) and was impacted by the lower market demand.

Wide Format Printing Systems (WFPS)
Compared to the last quarters of 2009 the decline in the markets served by WFPS also bottomed out. However, year on year the market showed lower activity levels especially in Construction and Manufacturing resulting in € 16 million revenue decline. As a result revenues in WFPS amounted to € 159 million. Organically, revenues declined by 9%. The share of color increased to 45% (2009: 41%).

Non-recurring revenues amounted to € 55 million. Organically, revenues declined by 8%.

Recurring revenues amounted to € 104 million. Organically, recurring revenues declined by 9% due to the decline in print volumes in market sectorsserved by Technical Document Systems and Imaging Supplies. Imaging Supplies revenue declined organically by 13% mainly due to lower print volumes.

Normalized operating income amounted to € 3 million (2009: € 11 million) impacted by the lower market demand mainly for technical documentation systems.

Océ Business Services (OBS)
The document outsourcing market declined as business at existing customers is experiencing declining activity levels in many market segments and organizations, which delayed or reduced the outsourcing of document related processes.

Revenues in OBS amounted to € 111 million. Organically, revenues remained unchanged. Revenue growth in Europe continued although at a lower pace. Revenues in the United States continued to remain under pressure.

OBS is taking actions to maximize existing opportunities and further reduce cost.

Normalized operating income amounted to € 3 million (2009: € 3 million).

22 April 2010: General Meeting of Shareholders
The Annual General Meeting of Shareholders will be held on 22 April 2010 in Venlo.

Outlook
In 2010 the market circumstances are expected to remain challenging and continue to impact the printing industry. In the first quarter of 2010 some markets show sign of recovery and the printing industry decline bottomed out.

Customers are expected to invest in systems and services that directly add value to their business. Therefore Océ will continue to introduce innovations for all market segments.

Canon and Océ will continue to work towards creating the best combination in the printing industry.

As a consequence of the change of control, substantial one-off items will be recorded in the second quarter results of 2010. These will include costs and interest charges in connection with the refinancing by Canon Inc..

Forward-looking statements
This report contains information as referred in article 5:59 jo. 5:53 of the Dutch Financial Supervision Act (Wet op het financieel toezicht).

Forward-looking statements, which can form a part of this report refer to future events and may be expressed in a variety of ways, such as 'expects’, 'projects', 'anticipates', 'intends' or other similar words (“Forward-looking statements”).

Océ N.V. (“Océ”) has based these forward-looking statements on its current expectations and projections about future events. Océ’s expectations and projections may change and Océ’s actual results, performance or achievements could differ significantly from the results expressed in or implied by these forward-looking statements due to possible risks and uncertainties and other important factors which are neither manageable nor foreseeable by Océ and some of which are beyond Océ’s control.

When considering these forward-looking statements, you should bear in mind these risks, uncertainties and other important factors described in this report or in Océ’s other annual or periodic filings.

For a non-limitative discussion of the risks, uncertainties and other factors that may affect Océ’s actual results, performance or achievements, we refer you to the annual report and any other publications issued by Océ.

In view of these uncertainties no certainty can be given about Océ’s future results or financial position. We advise you to treat Océ’s forward-looking statements with caution, as they speak only as of the date on which the statements are made. Océ is under no obligation to update or revise publicly any forward-looking statement, whether as a result of new information, future events or otherwise, except as may be required under applicable (securities) legislation.

 

 

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