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OCE N.V. Results Third Quarter and Nine Months 2002

Press release from the issuing company

OCE NV Reports Fiscal Third Quarter and Nine Months Operating Results VENLO, Netherlands, Oct. 4 -Oce N.V. (Nasdaq: OCENY), one of the world's leading companies in the area of document management, today announced operating results for the fiscal third quarter and nine months, ended August 31, 2002. -- Net income for third quarter and nine months same as in 2001. Oce maintains net income expectation for 2002 financial year -- Autonomous revenues down by 2.5% due to lower machine sales -- Operating expenses show autonomous decrease; working capital further reduced -- Cash flow before financing activities (free cash flow) for 9 months positive EUR 208 million -- Restructuring is on schedule -- Outsourcing of lease portfolio: agreement reached in principle on European lease portfolio -- Interim dividend maintained at EUR 0.15 Results third quarter 2002 During the quarter revenues decreased to EUR 740 million. On an autonomous basis, i.e. after exchange rate and acquisition effects, the decrease amounted to 3%. Particularly in PPS there was a marked decline in revenues (- 8% on an autonomous basis), whilst revenues in WFPS showed an autonomous increase (+ 2%). For all Strategic Business Units together machine sales were down, though revenues from software and services increased. The gross margin amounted to 41.5%, which was higher than in the previous year (2001: 39.5%). Operating expenses were lower than in the previous year, even before adjustment for the costs of acquired companies. This is the result of stringent cost control and the effects of the restructuring operation. Despite this, however, operating income amounted to EUR 44.3 million, 9% lower than in 2001.  Net income was EUR 21.0 million, which was virtually the same as in 2001 (EUR 21.2 million). Results nine months 2002 Revenues amounted to EUR 2,365 million, almost the same as in the previous year (2001: EUR 2,376 million). On an autonomous basis revenues decreased by 2.5%. Exchange rate effects had a negative impact (- 1%) and acquisition effects were positive (+ 3%). In all Business Units the autonomous decrease in revenues was about 2.5%. The situation in WFPS improved during the year; in PPS and DPS it did not. The gross margin increased by 0.8% to 41.2%. Despite the weakening of the dollar in the third quarter the positive exchange rate effect in the first 9 months worked out at 1.3%. A negative impact of 0.5% stemmed from volume/mix effects. Apart from the influence of the growing contribution from Facility Services (lower gross margin, but also lower operating expenses) the effect of the lower degree of utilisation in manufacturing units is also making itself strongly felt. Operating expenses increased in absolute terms. However, after adjustment for the effects of acquisitions (operating expenses in the acquired companies and the amortisation of goodwill) and exchange rate effects, they revealed a decrease. Operating income was down by 4% on the corresponding period of 2001. EBITDA amounted to EUR 306 million, unchanged as compared to 2001. Financial expense (net) was 19% lower than in 2001; this was due to a reduced level of borrowings and lower interest rates. Tax charges increased by 1.8% to 32.8%. On balance the net income of EUR 74.7 million was slightly higher than in 2001 (EUR 74.4 million). Net income per outstanding ordinary share of EUR 0.50 nominal amounted to EUR 0.86 (2001:  EUR 0.84). The restructuring operation is proceeding on schedule. As already mentioned in the previous quarterly report, the targeted savings of EUR 35 million will be achieved in 2002. The savings realised in the first 9 months amounted to EUR 25 million.  As part of the restructuring operation personnel numbers have been reduced by 596, which is equivalent to 55% of the target set for the end of 2003. Of the planned reduction in analogue low-volume machines, 35% of the final target of EUR 50 million at the 2004 year end has already been achieved. An agreement in principle was recently reached with the vendor lease partner on the outsourcing of the European lease portfolio (excluding Scandinavia). This agreement will be implemented during the fourth quarter. Results Strategic Business Units The sluggish growth of the economy, plus the resultant decline in the willingness to invest, is making itself felt throughout all Strategic Business Units.  Machine sales in the first 9 months were 17% down on 2001 for all Business Units combined. Increased revenues from software and services largely compensated for this decrease, but not entirely. In Document Printing Systems (DPS) revenues fell to EUR 1,107 million, an autonomous decrease of 2%. Machine sales were 13% lower than in the preceding year. The growth in revenues from Facility Services is in line with expectations (+ 21%, of which 17% autonomous). In the United States in particular revenues are continuing to develop very favourably. The operating income of DPS before R&D expenditure was EUR 92 million (2001: EUR 93 million), whilst the assets of DPS amounted to EUR 1,576 million (2001: EUR 1,724 million). Revenues in Production Printing Systems (PPS) were EUR 565 million, 4% lower than in the previous year. On an autonomous basis revenues were down by 3% compared to 2001; sales of machines were 25% lower than in 2001. Mainly thanks to revenues from software and services, operating income before R&D expenditure increased to EUR 109 million (2001: EUR 108 million). PPS assets amounted to EUR 560 million (2001: EUR 629 million). For Wide Format Printing Systems (WFPS) revenues over the first 9 months were EUR 693 million, 4% higher than in 2001. On an autonomous basis revenues decreased by 2.5% due to a decline during the first six months of the year. In the third quarter of 2002 revenues showed an autonomous increase of 2%, which reflects an upward trend for the year, also in terms of machine sales.  The integration of the companies that were acquired in December 2001 in Display Graphics continues to progress well. However, after depreciation of goodwill and integration costs, the contribution of the acquired businesses in WFPS is still negative. Operating income of WFPS before R&D expenditure remained stable at EUR 110 million (2001: EUR 110 million). Assets of WFPS amounted to EUR 786 million (2001: EUR 750 million). Geographical spread of operations Revenues in North America remained about the same, accounting for 43% of the total, whilst Europe's contribution to total revenues amounted to 51%. Operating income of operating companies in the United States and the Netherlands continues to develop favourably, and Germany and France are performing better than in 2001. These improved results were achieved thanks to better margins and lower operating expenses in the operating companies. Under-utilisation of manufacturing capacity in the Dutch and German units has depressed the overall operating income. Balance sheet and cash flow Total assets decreased further to EUR 2,922 million. This is EUR 181 million lower than in the third quarter of 2001. This decrease is the result of an autonomous reduction of EUR 190 million, exchange rate effects (a reduction of EUR 85 million), whilst the consolidation of acquired businesses led to an increase in assets (EUR 94 million). The reduction of inventories (EUR 67 million) is continuing further. The decrease in trade accounts and lease debtor receivables (EUR 63 million) is satisfactory. Long term lease debtors were EUR 93 million lower. Loans amounted to EUR 979 million, which was EUR 197 million lower than in 2001. The cash flow before financing activities but after acquisitions (free cash flow) worked out at EUR 208 million positive. Profitability During the first 9 months of 2002 the Return on Assets was 7.1% and the Return on Equity 11.1%. Interim dividend In respect of the 2002 financial year an unchanged interim dividend of EUR 0.15 will be distributed. The interim dividend will be made available entirely in cash and will become available for payment as from October 23, 2002. Prospects If economic circumstances remain unchanged, sales of machines will not pick up; in software and services however, there will be a continuing increase. In view of this and as a consequence of cost control we maintain the expectation we published at the end of the second quarter as regards net income. This is expected to be higher than the net income for 2001.  As regards operating income, we expect this to be at about the same level as in 2001.