CHICAGO, Jan. 17 -- Oce N.V. -- Commenting on the third quarter results, Rokus van Iperen, chairman of the Board of executive Directors of Oce N.V., said: "The strategy that was formulated in 2002 is bearing its first fruits. The increase in machine sales during the past year is a direct consequence of the investments in product development and sales. Particularly the products that Oce launched in 2003 and 2004 are selling well. Revenues from maintenance and service, which are currently still lagging behind, are recovering later than expected."
Provisional results fourth quarter 2004
Revenues decreased in the fourth quarter by 6.0%, of which 3.3% was due to exchange rate effects. The organic decrease in revenues was 2.7%. As a result of the sale of the lease portfolio interest revenues from lease contracts were euro 10.8 million lower. The book profit on the sale amounted to euro 10.1 million. Non-recurring revenues were up by 8.8% (excluding the sale of lease contracts: 6.9%). Sales of printing systems continue to develop positively. Recurring revenues decreased on an organic basis by 7.5% (excluding the sale of lease contracts: -5.9%). The decrease is attributable to lower interest proceeds from lease contracts and reduced revenues from maintenance contracts. Because of the continuing price pressure in the market, revenues from sales of paper were also lower. The gross margin decreased by 2.8% to 40.7%. Of this decrease, 0.9% was due to a lower hedging result than in the fourth quarter of 2003. The volume/mix effect amounted to 1.9%. Operating expenses decreased by 7.8%. On an organic basis the decrease was 5.5%. Operating income amounted to euro 29.1 million (-37.2%). Interest charges decreased by 48.8% to euro 3.6 million due to a decrease in the net debt position. The tax charge includes the release of provisions of euro 1.4 million. This release results from the definitive settlement of tax risks to which the provisions related. Net income amounted to euro 25.4 million (2003: euro 27.0 million). Net income per ordinary share outstanding was euro 0.29 (2003: euro 0.31).
Provisional fourth quarter results by Strategic Business Unit
In Digital Document Systems (DDS) revenues in the fourth quarter were euro 484.1 million (2003: euro 514.5 million). On an organic basis revenues decreased by 2.7% compared to the fourth quarter of 2003. Exchange rate effects depressed revenues by 3.3%. Non-recurring revenues showed an organic increase of 12.4% (excluding the sale of lease contracts: 9.6%). The growth in sales of printing systems continued to move ahead well. This was mainly due to the success of machines that were introduced in the past two years. Recurring revenues decreased organically by 8.6% (excluding the sale of lease contracts: 7.0%). This decrease was caused by lower interest proceeds and reduced revenues from maintenance contracts. The lower interest proceeds were attributable to the disposal of the lease portfolio. The reduced revenues from maintenance contracts are the result of the withdrawal of about 25,000 low volume machines from the office market. In addition, the number of analogue copiers installed in the market is showing a strong decline. Recurring revenues were likewise affected in the fourth quarter by the flat development of revenues within Oce Business Services. This resulted from the loss of a substantial contract which Oce decided to discontinue rather than allow this to impact on its income targets. In all of the preceding quarters of the past year revenues within this business group had shown a clear increase. The operating income of the DDS Strategic Business Unit amounted to euro 10.5 million (2003: euro 17.0 million).
Revenues in Wide Format Printing Systems (WFPS) were euro 218.1 million (2003: euro 232.4 million). On an organic basis revenues were 2.6% lower, with exchange rate effects causing a decline of 3.5%. Non-recurring revenues increased by 1.9% on an organic basis (excluding the sale of lease contracts: 1.9%). This growth in revenues was principally booked by colour printers, both in the design engineering and in the printing industry market. Recurring revenues decreased organically by 4.9% (excluding the sale of lease contracts: -3.3%). In addition to the decrease in interest revenues from leases, this decline is due to lower revenues from sales of supplies. Operating income amounted to euro 18.6 million (2003: euro 29.4 million).
Provisional results 2004 financial year
Total revenues amounted to euro 2,652.5 million (2003: euro 2,769.3 million). The 4.2% decrease in revenues was entirely due to the impact of exchange rate changes. On an organic basis revenues were the same as in the previous year. Total revenues comprise an amount of euro 30.9 million in the form of a book profit on the sale of lease contracts. This sale meant that the interest revenues from financial leases were reduced by euro 29.4 million. Non-recurring revenues increased on an organic basis by 10.6% (excluding the sale of the lease contracts: 7.0%), whilst recurring revenues decreased organically by 3.6% (excluding the sale of lease contracts: 2.7%). The gross margin was 41.6%, a decrease of 0.5% on the 2003 financial year. Operating expenses decreased on a organic basis by 1.6%. Operating income amounted to euro 110.4 million, which was almost 12% lower than in 2003. The decrease was attributable in full to exchange rate effects. Organically, operating income increased by 19%. Interest charges decreased by 40.8% to euro 18.1 million. The tax charge amounted to 13.2%. Excluding the release of the tax provision of euro 7.0 million, the tax charge worked out at 20.8%. Net income rose by 27.0% to euro 78.1 million. Net income per ordinary share outstanding was euro 0.89 (2003: euro 0.69).
Outsourcing of lease activities
The outsourcing of the lease-activities progressed well in the fourth quarter. During the quarter contracts to the value of euro 107 million within the existing lease portfolio were sold to the company's lease partners. The book profit on this sale amounted to euro 10.1 million. The level of the lease receivables on the balance sheet at the end of the financial year amounted to euro 403 million. A further package of euro 175 million is expected to be sold in 2005, which will leave a portfolio with a value of approximately euro 225 million on the balance sheet.
Outsourcing of manufacturing
The outsourcing of part of the manufacturing activities from Venlo to Central Europe and Asia is progressing entirely according to plan. The quality, the cost reduction and the supply chain performance are in line with the set targets. Cooperation with the partners handling the outsourced manufacturing activities is constructive. In the 2005 financial year 20% of Venlo's original manufacturing output will originate from these countries. The related reduction in personnel numbers in Venlo has largely been completed. Experiences to date strengthen the view that Oce must continue along its chosen route. Apart from the lower manufacturing costs that have now been achieved, an additional advantage is that products that are sourced in Asia are paid for in dollars, which reduces Oce's dollar-sensitivity.
Balance sheet and cash flow
The balance sheet total amounted to euro 2,233 million, a decrease of euro 188 million compared to the balance sheet at the end of the 2003 financial year. The main factors that caused a decrease in the assets position were lease receivables (- euro 400 million), trade accounts receivable (- euro 50 million) and an increase in liquid funds (euro 257 million) and in other working capital (euro 5 million). Shareholders' equity at the end of 2004 was equal to that at the 2003 year end. During the year there was a mainly dollar-related negative translation result of euro 26 million. Interest-bearing loans decreased by euro 68 million to euro 481 million. Net debt fell from euro 494 million to euro 168 million. The solvency ratio amounted to 33.7% (2003: 31.0%). Total free cash flow was euro 370 million.
A proposal will be made to shareholders that the dividend for the 2004 financial year be maintained at euro 0.58 per ordinary share of euro 0.50 nominal. If this proposal is adopted, the final dividend per ordinary share for 2004 will amount to euro 0.43 in cash. The interim dividend for 2004 amounted to euro 0.15 per ordinary share.
General Meeting of Shareholders
The Annual General Meeting of Shareholders will be held on April 15, 2005. The agenda for the meeting will be published on March 15, 2005. The annual report will be published on-line on our website on February 1, 2005 and will become available in printed form on February 18, 2005.
Oce will invest further in raising its distributive strength in 2005. Supported by the new range, sales of printing systems will show continued growth. This will lead to a turn around in the recurring revenues, which is expected to take place during the course of 2005. Operating income from commercial activities, excluding the book profit on the sale of the lease portfolio, is expected to be higher than in 2004, provided however that the dollar does not fall further in value against the euro. As a result of the lower revenues from leases, net income will be below that of 2004.
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