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Oce Announces Provisional Q4 and '05 Financial Results: Commercial Operating Income Triples

Press release from the issuing company

CHICAGO, Jan. 16 -- Chairman Rokus van Iperen: 'The flywheel is turning the right way again'. 'Oce turned the corner on the second half of 2005', said Rokus van Iperen. 'The flywheel of revenues from services and media is now turning the right way again. The robust increase of 66% in operating income from commercial activities is an excellent performance. In the United States, the integration of Imagistics is proceeding as planned and we are now in a good position to further improve the way we serve our markets. Oce today is clearly better than last year. We have a wider range of products and services, our distributive strength in the United States and Europe has been substantially boosted and we will launch attractive new products that will further strengthen our market position.' The recently announced acquisition of Imagistics International Inc. will strengthen our distribution power in the USA, enabling us to achieve one of our most important strategic goals. We expect the operating income from commercial activities in 2005 to be significantly higher than the 2004 result." Fourth quarter 2005: favourable increase in revenues and income Total revenues in the fourth quarter of 2005 developed favorably and increased by 8.9%. The acquisition of Imagistics International Inc., which has been consolidated as from November 1, 2005, contributed 5.3% to that increase. Exchange rate effects resulted in a 2.2% increase in revenues. On an organic basis, the increase in revenues amounted to 1.4% (excluding lease effects: 3.1%). Revenues from printing systems (excluding lease effects) continue to develop positively and booked an organic increase of 6.5%. Revenues from services and media were up by 1.4%, thanks in part to Business Services which made a clear contribution to the growth in revenues. Following a number of tough quarters, this business group has successfully returned to growth. Revenues from servicing contracts remained stable. The book profit on the sale of the lease portfolio amounted in the fourth quarter to euro 1.5 million (2004: euro 10.1 million). The gross margin decreased by 1.4% to 39.3%. This decrease was mainly attributable to lower revenues from leases (-1.1%). The volume/mix effect amounted to -0.2% and the hedging effect was -0.1%. Operating expenses, excluding exceptional items, decreased from 36.6% to 35.1% as a percentage of revenues. As a result of further cost savings this development will continue. Oce has concluded a new collective wage agreement with the trade unions and employee representative bodies in the Netherlands. One of the agreements reached as part of this collective bargaining process is that pension benefits will be based on a "career average earnings" system. As a result, an amount of euro 68.3 million will be released from the provision for pensions. In the fourth quarter Oce announced its intention to achieve a further reduction in costs. In Europe this will mean the discontinuation of around 500 jobs. In the United States measures have also been taken to boost profitability. In part, these will be implemented in parallel with the realization of the synergy effects resulting from the integration of Imagistics. To cover these measures in Europe and the US, a total provision of euro 33.1 million was set aside in 2005. In 2006 a further provision will be made of around euro 15 million. Oce expects that these measures to boost the profitability will generate some euro 35 million in the form of synergy and cost savings in 2006. Operating income amounted to euro 68.0 million (2004: euro 29.1 million). After adjustment for the release from the pension provision and non-recurring items of euro 35.2 million, operating income increased to euro 32.8 million (2004: euro 29.1 million). Operating income from commercial activities increased from euro 9.5 million in 2004 to euro 27.0 million. The contribution by Imagistics in 2005 to Oce's operating income was not material. Interest charges increased to euro 7.2 million due to the costs of financing the acquisition of Imagistics International Inc. In the next few months the bridging loan that was used to pay for the acquisition will be converted into a long-term financing arrangement. The tax charge amounted to 16.7%. The tax charge includes the R&D tax credit of euro 4.8 million. Without this tax credit, the tax charge would have amounted to 24.6%. Net income amounted to euro 50.3 million (2004: euro 25.4 million). Net income per ordinary share outstanding was euro 0.60 (2004: euro 0.29). Fourth quarter 2005: good results for Digital Document Systems In Digital Document Systems (DDS), revenues in the fourth quarter increased by 10.4% to euro 534.3 million (2004: euro 484.1 million). On an organic basis revenues were 0.7% higher (excluding lease effects 2.7%). Exchange rate and acquisition effects led to an increase in revenues by 2.1% and 7.6% respectively. Revenues from printing systems, after excluding lease effects, increased organically by 6.7%. All of the growth in sales was achieved on the basis of products that Oce launched in the past two years. In March 2006 several important new products will be launched during the Oce Open House even. These are expected to generate new impulses for sales. Revenues from services increased organically by 0.8% compared to 2004 (excluding lease effects). The development of revenues from services has stabilized due to the fact that the increase in maintenance contracts for digital machines now largely compensates for the decreased servicing work on analogue copiers. However, in view of the large number of new placements in 2005, revenues from services are expected to increase in 2006. Color is becoming increasingly important in DDS. In 2005 the Oce CPS 800/900 booked the strongest growth in sales compared to all other product lines. The number of color machines installed on customer premises has meanwhile increased to such an extent that revenues from servicing contracts for color machines form a solid basis for the recovery in revenues from service. Outsourcing of document management activities is still an important trend in the market. It helped Business Services to achieve growth again in the fourth quarter. The operating income of DDS (before exceptional items) amounted to euro 16.8 million (2004: euro 10.5 million). DDS closed the 2005 financial year with a strong fourth quarter performance. Fourth quarter 2005: strong performance by Wide Format Printing Systems In Wide Format Printing Systems (WFPS) revenues increased by 5.5% to euro 230.1 million (2004: euro 218.1 million). The organic increase in revenues was 2.8% (excluding lease effects: 3.9%). Exchange rate effects contributed 2.7% to the revenues increase. Revenues from new printing systems were up by 6.0% (excluding lease effects). In the technical documents market Oce is achieving growth with both black- and-white and color systems. Sales of color printers in the graphics market has shown a strong increase. In 2006 Oce will be adding several new color printers to its range in response to the trend towards the increasing use of color in the wide format market. Revenues from services and media, excluding lease effects, were up by 2.8%. Revenues from maintenance contracts and sales of toner and ink cartridges made a strong contribution to the growth in total income. Operating income before exceptional items was euro 16.0 million (2004: euro 18.6 million). This decrease is attributable in full to lower revenues from leases. WFPS therefore performed excellently during the quarter and during the full year. Provisional results 2005 financial year Total revenues in 2005 were 0.9% higher at euro 2,677.3 million (2004: euro 2,652.5 million). This increase was achieved as a result of the acquisition of Imagistics International Inc. (1.4%). Exchange rate effects reduced revenues by 0.4%. Excluding lease effects, revenues increased on an organic basis by 2.1%. Revenues from new printing systems increased by 10.5% but revenues from services and media were 1.1% lower (excluding lease effects). The gross margin was 40.0% (2004: 41.6%). Of the decrease in the margin, 1.4% was attributable to lower lease revenues. Operating expenses, excluding exceptional items, amounted to 37.2% (2004: 37.4%) as a percentage of revenues. Operating income was euro 110.1 million (2004: euro 110.4 million). Excluding the book profit of euro 4.7 million on the sale of the lease portfolio, operating income from commercial activities increased by 66% to euro 51.6 million (2004: euro 31.0 million). Operating income from financial activities amounted to euro 18.6 million (2004: euro 48.4 million). Net income increased by 1% to euro 78.8 million (2004: euro 78.1 million), while the tax charge amounted to 12.7% (2004: 13.2%). Net income per ordinary share was euro 0.92 (2004: euro 0.89). Integration of Imagistics International Inc. proceeding as planned The acquisition of Imagistics offers Oce a unique opportunity to penetrate the office and printroom market in America. As from January 1, 2006 the combination operating under the name Oce Imagistics Inc. has been offering a wider range of products and services to existing and new customers. The revenues of Oce in the US have now grown to $ 1.7 billion and therefore account for around 43% Oce's total revenues. The Oce-Imagistics combination has given Oce an excellent basic position to achieve a strong development in our biggest market: the United States. In the months of November and December many task groups concentrated on working out the details of the integration plans in the commercial and financial areas. The integration is proceeding as planned, and we are confident that the plans drawn up so far will enable the anticipated cost savings and synergy benefits of euro 15 million to be achieved in 2006. Relocation of manufacturing on schedule The relocation of machine manufacturing from the Netherlands to Asia is progressing as planned. The reduction in manufacturing costs is being achieved without Oce having to compromise on its high quality standards. Of the original Venlo production value, 20% was manufactured in Asia and Central Europe in 2005. In 2006 this percentage will increase to 50%. Revenues growth results in bigger lease portfolio Because of the growth in revenues, the total lease portfolio (for own account and outsourced) of Oce is increasing. At the end of 2005 financial lease receivables on the balance sheet amounted to euro 343 million. This is 38% of the total lease portfolio of Oce. The remainder of the portfolio (62%) has been placed with third parties. At the end of 2004, that percentage was 55%. The further sale of leases to Oce's lease partners will bring a further decrease in lease receivables on the Oce balance sheet during the course of 2006. The balance sheet total amounted to euro 2,819 million at the end of the financial year. At the end of the 2004 financial year the balance sheet total was euro 2,233 million. The increase in the balance sheet total resulted from the acquisition of the assets of Imagistics amounting to a total of euro 767 million. The intangible assets acquired with the Imagistics purchase amounted to euro 498 million. This item includes goodwill of euro 345.6 million. The other components in the intangible assets are items: i.e. brand name euro 7.0 million, customers and contracts euro 123.4 million and software euro 21.8 million. In 2006 depreciation on these intangible assets will amount to euro 16.6 million (euro 1 = $ 1.20). Excluding Imagistics, the balance sheet total amounted to euro 2,052 million. Free cash flow was euro 508 million negative. Excluding the acquisition of Imagistics, free cash flow was euro 124 million positive. Net debt increased from euro 168 million at the 2004 year end to euro 753 million. The solvency ratio was 29.0% (2004: 33.7%). Dividend proposal 2005: euro 0.58 per ordinary share Oce will propose to shareholders a dividend for the 2005 financial year amounting to euro 0.58 per ordinary share of euro 0.50 nominal. If this proposal is adopted, the final dividend per ordinary share for 2005 will amount to euro 0.43 in cash. The interim dividend for 2005 amounted to euro 0.15 per ordinary share. April 20, 2006: General Meeting of Shareholders The Annual General Meeting of Shareholders will be held in Venlo on April 20, 2006. The agenda for the meeting will be published on March 23, 2006. The annual report will be available online as from February 1, 2006 on http://www.investor.oce.com . Prospects for 2006 The Board of Executive Directors takes the view that it is too early to give a forecast for 2006. However, we do expect that the results will be favorably influenced by the increase in revenues, both on an organic basis and as a result of the acquisition of Imagistics. Savings yielded through the integration of Imagistics and the restructuring operations in Europe and the United States will lead to a gradual reduction in operating expenses during the year. These will be offset by extra investments in R&D, amortization on intangible assets and lower revenues from leases.

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