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Oce Announces Q2 Results, New Printing System Sales Up 2.5%

Press release from the issuing company

CHICAGO, July 7 -- Commenting on the second quarter results, Rokus van Iperen, chairman of the Board of executive Directors of Oce N.V., said: "Despite the limited growth in sales of printing systems during the second quarter, we expect to be on course again at the end of 2005. The strong demand for colour printers and high-production black-and-white printers will lead to continuing growth in the second half of the year which will also bring a recovery in revenues from service. We are maintaining our profit forecast: operating income from commercial activities will increase compared to 2004." Results second quarter 2005 Revenues decreased by 6.1% in the second quarter of 2005. This decrease was largely caused by exchange rate effects (-2.0%) and lower revenues following the sale of the lease portfolio (-2.9%). Non-recurring revenues decreased by 3.7%. This decline was caused by currency translation effects (-1.5%), the sale of the lease portfolio (-4.7%) and an organic increase in sales of printing systems of 2.5%. The book profit on the sale of the lease portfolio amounted to euro 1.3 million in the second quarter (2004: euro 10.5 million). Recurring revenues showed an organic decrease of 4.8%. Of this decrease in recurring revenues, 2.0% was attributable to lower revenues from service and 0.5% to a decrease in the revenues generated by Business Services. Revenues from media remained at the same level. Because of the reduced revenues from leases, recurring revenues decreased by 2.3%. The gross margin decreased by 2.8%, from 43.0% to 40.2%. Of this decrease, 1.7% was caused by lower revenues from leases, 0.1% by the results on hedging transactions and 1.0% by volume-mix effects. Operating expenses were reduced by 4.3% on an organic basis. Of this decline, 1.3% was caused by a release from the provision for bad debts. In the next six months attention will continue to be focused on operational efficiency and on investments aimed at strengthening the company's distribution systems. Operating income amounted to euro 13.6 million (2004: euro 34.2 million). Of this euro 20.6 million decrease in operating income, euro 20.5 million was caused by the sale of the lease portfolio and euro 2.1 million was due to exchange rate effects. The decrease in the gross margin, after adjustment for leases, was offset in full by the lower operating expenses. Financial expense (net) was reduced by 24.6% from euro 4.8 million to euro 3.6 million thanks to a lower level of debt and a slight increase in interest rates. Income taxes made a positive contribution of euro 1.0 million to net income, one of the reasons being that allowance was made during the quarter for the R&D credits that can be offset against taxable income in 2005. In Digital Document Systems (DDS) revenues in the second quarter were euro 432.1 million (2004: euro 470.0 million). Organically, the decrease in revenues amounted to 6.1%. The effect of exchange rates was 1.9%. After adjustment for the sale of the lease portfolio, non-recurring revenues decreased by 0.5%. Recurring revenues were 6.2% lower on an organic basis in the second quarter. This is the same as the decrease in the first quarter of 2005. Revenues from maintenance contracts showed an organic decrease of 2.7%. The operating income of DDS in the second quarter amounted to euro 0.1 million (2004: euro 18.0 million). Demand for the Oce CPS800 and the Oce CPS900 colour printers has shown rapid growth. In addition, the recently launched high-production black-and- white printers have proved to be highly successful sellers. In Business Services profitability is increasing, notably in the United States. When entering into new contracts much attention is focused on services that provide higher added value. In Wide Format Printing Systems revenues amounted to euro 208.3 million (2004: euro 212.2 million). Revenues were 0.3% higher on an organic basis, though exchange rate effects reduced revenues by 2.1%. Non-recurring revenues achieved an organic increase of 5.4% whilst recurring revenues were 1.8% lower on an organic basis. Revenues from maintenance contracts and media decreased organically by 0.5%. Operating income amounted to euro 13.5 million (2004: euro 16.2 million). Sales of the Oce TCS400, a multi-functional colour printer for the design engineering market, continue to progress well. It is clear that, by offering this product, Oce is effectively meeting the growing needs of customers in this market for colour printing capabilities. In Display Graphics, thanks to the introduction of a new range of products, we are experiencing a strong increase in machine sales. Results first six months 2005 Revenues decreased by 3.2% in the first six months of 2005. After elimination of exchange rate effects, the decrease in revenues amounted to 1.3%. Non-recurring revenues grew organically by 12.4%, excluding the profit on the sale of lease contracts. The sale of the lease portfolio generated a book profit of euro 2.8 million (2004: euro 12.7 million). Recurring revenues decreased on an organic basis by 4.9%. Interest income from leases was euro 21.7 million lower than in the first six months of 2004. The gross margin went down by 2.4% to 40.3%. Of this decrease, 0.4% was caused by hedging transaction results, 1.4% by the sale of the leases and 0.6% by volume-mix effects. Operating expenses were reduced by 0.9% on an organic basis. Operating income amounted to euro 28.5 million (2004: euro 64.6 million). Net income was euro 19.7 million (2004: euro 38.6 million), a decrease of 49.0%. Net income per ordinary share outstanding amounted to euro 0.22 (2004: euro 0.44). Outsourcing of lease activities The lease receivables shown on the balance sheet at the end of the first six months of 2005 amounted to euro 349 million (first six months of 2004: euro 646 million). The sale of the lease portfolio will, especially outside Europe, be temporarily slowed down. As a result, the lease portfolio as included on the balance sheet is expected to be around euro 300 million at the end of 2005. Relocation of machine manufacturing The relocation of machine manufacturing from the Netherlands to Asia is making good progress. The Oce TDS100, a printer for the design engineering market, is meanwhile being manufactured in full in Malaysia and is being shipped to customers from that country. Of the original Venlo manufacturing volume, 20% will be produced in low-wage countries in 2005. A start has now been made on the further relocation of activities, with the result that by the end of 2006 50% of the original Venlo manufacturing volume will be sourced from elsewhere. Balance sheet and cash flow The balance sheet total at the end of the second quarter amounted to euro 2,154 million, a decrease of euro 189 million compared to the end of the second quarter of 2004. The principal reasons for the decrease in the balance sheet total were the lower level of lease receivables (euro 297 million) and an increase in liquid funds (euro 110 million). Net debt amounted to euro 229 million. Total free cash flow in the second quarter amounted to euro 34.9 million. The solvency ratio was 35%, which is well above the minimum of 30% that Oce has set itself as a target. Corporate Sustainability Report In mid-June Oce published its Sustainability Report 2004. In this report Oce gives account of its approach to sustainable business practices and explains the goals that the company has set for further improving sustainable business practices in the future. The report has been prepared in accordance with the recommendations of Global Reporting Initiative (GRI), which allows Oce's performances in the area of sustainability to be measured on the basis of the GRI performance indicators. Prospects In view of the strongly increased demand for colour printing systems in particular, we are positive about prospects for the second six months of 2005 and we expect that the sale of printing systems will again increase more strongly as compared to the second quarter. We are also maintaining our forecast that the downward trend in recurring revenues will be reversed in the next 6 months. Oce maintains its previous expectation that operating income from commercial activities, excluding the book profit on the sale of the lease portfolio, will be higher than in 2004 (euro 31 million). Because of the reduced revenues from leases, net income will work out lower than in 2004.