Comments by Rokus van Iperen, Chairman of the Board of Executive Directors: 'Due to market developments, our revenues declined in the third quarter of 2009. The European markets weakened further compared with the first half of the year. Nevertheless, we performed better than the printing industry average, where revenues declined by 19% over the first half of 2009. We strengthened our competitive position by launching a range of new systems and services during the recent industry trade show Print 09 in Chicago.

In the third quarter of 2009 color revenues in the office market were under pressure, as customers implemented cost reduction programs. At the same time, in the wide format and graphic arts markets color revenues increased considerably, thanks to customers implementing new color products, such as the Océ ColorWave, Océ Arizona and Océ JetStream printers.

Outsourcing of document management services continued to grow, as companies looked to improve efficiency and cut costs.  

We have achieved good progress in implementing our cost-cutting program. The headcount reduction is on-track, as a consequence of which we faced substantial restructuring costs in the third quarter.

For the fourth quarter we anticipate markets will remain challenging, although we are noticing early indications of bottoming out in some US markets. In the current economic climate we will continue to cut costs aggressively, in order to regain profitability. Our stringent cost-cutting programs, innovative product portfolio and distribution strengths will help to weather the economic storm.'

Highlights
Markets remained challenging
A broad range of market sectors remained challenging in the third quarter of 2009.  The markets in Europe experienced further decline.

As in the first half of 2009 the continued decline of key market sectors affected the digital printing industry and its performance. Customers are
looking for increased cash flow and reduced costs and as a result equipment sales environment remained weak and print volumes were still under pressure throughout the print industry. In addition customers are looking to decrease the use of color where not business critical, for instance in the office environment.

Document management services continued to grow, as companies continue to seek outsourcing of their document related activities.  

Océ revenues decline due to market developments
Following these market developments, Océ revenues showed an organic decline of 12%. Océ believes the company improved its position in key markets as its revenue developments outperform the reported industry average. Océ further strengthened its competitive position due to innovative products such as the new members of the Océ JetStream and Océ VarioPrint series.

Our actions deliver results. Océ made good progress on the actions. In the
third quarter Océ realized a cost reduction of € 38 million. The total cost reduction achieved year to date is € 110 million. The full year 2009
target amounts to € 124 million. All savings are exclusive of inflation and restructuring costs.  In the third quarter Océ realized a headcount
reduction of 508 FTEs. The total headcount reduction achieved year to date is 1170 FTEs, ahead of target.

Océ also realized year to date € 153 million balance sheet reductions. The 2009 full year target amounts to € 100 million. Excluding the 1 According to financial covenants. reductions amounted to € 72 million.

Océ Group results third quarter 2009 Revenues
Total revenues in the third quarter amounted to € 631 million, a decrease of 10%. The organic decrease was 12% compared with the third quarter
of 2008.

The share of color in Océ total revenues continues to grow and now accounts for 31%, up from 26% over the same period last year.

Non-recurring revenues amounted to € 172 million, a decrease of 22%. The organic decline was 23%.

Recurring revenues amounted to € 459 million, a decrease of 5%. The organic decline was 7%.

In the third quarter of 2008 Océ realized a book loss and a charge from currency translation differences of in total € 18 million as a result of the divestment of Arkwright in the US.

As part of the aforementioned headcount reduction Océ incurred € 32 million in restructuring costs in the third quarter of 2009.

As announced in the first quarter report, from financial year 2009, capitalization of R&D costs is aligned with the start of investments in product
industrialization, which is earlier in the R&D process than previously. This resulted in € 6 million lower costs in the third quarter.

In total, the impact of normalization amounted to net € 26 million of which € 14 million relate to gross margin (2008: € 5 million) and € 12 million relate to operating expenses (2008: € 23 million).

Gross margin and operating income
In the third quarter of 2009 normalized gross margin was 36.8% (2008: 38.1%). Compared with the normalized gross margin of 35.5% in the second quarter of 2009, an improvement of 1.3 percentage point was achieved.

The year on year decline was the result of three elements. First, compared to the third quarter of 2008, the changes in currency exchange rates caused a negative hedge variance of € 4 million, leading to a gross margin decline of 0.6 percentage point.  Second, the difference in business mix at group level, mainly due to the growth of OBS, resulted in a gross margin decline of 0.9 percentage point (OBS is a services business with a different margin profile). Third, the business development resulted in a gross margin increase of 0.2 percentage point, which is the net effect of several factors.

Normalized operating expenses amounted to 36.6% (2008: 35.7%). In constant currencies operating expenses declined by € 23 million.

On balance, normalized operating income amounted to € 1 million (2008: € 17 million). Compared to the normalized operating income in the second quarter of 2009, an improvement of € 16 million was achieved.

Operating income amounted to – € 25 million (2008: – € 11 million).

Finance expenses and net income
Finance expenses (net) amounted to € 14 million (2008: € 11 million).
Taxation was € 14 million (2008: – € 1 million).  On balance, net income amounted – € 25 million (2008: – € 24 million).

Balance sheet and RoCE
The balance sheet total was € 2,397 million, compared to € 2,378 million at the end of the third quarter of 2008.

Net Capital Employed was € 1,171 million, compared to € 1,292 million at the end of the third quarter of 2008. In relation to normalized operating income, RoCE amounted to 2.3% (2008: 6.6%).

Free cash flow and financial covenants
Free cash flow in the third quarter increased to € 19 million (2008: – € 17 million) due to improvements in inventories and trade and other receivables. Cash flow from operating activities improved to € 47 million (2008: € 11 million).  The cash flow from investing activities was – € 28 million (2008: – € 28 million).

The net debt/EBITDA ratio amounted to 2.5 (financial covenants maximum of 3.5) and EBITDA/interest (net) ratio amounted to 5.3 (financial covenants minimum of 3.5).

SBU results third quarter 2009
Digital Document Systems (DDS)  
Markets declined in multiple sectors, especially in Europe. Although still weak, some US markets showed early indications that they might have bottomed out.

Revenues in DDS amounted to € 354 million.
Organically, revenues declined by 13%. The share of color was 24% of revenues (2008: 23%). Growth was held back by customers looking to decrease the use of color where not business critical.

Non-recurring revenues amounted to € 116 million.
Organically, revenues declined by 22%.  As a result of the decline in multiple market sectors equipment sales in Office, Printroom as well as black & white continuous feed systems were lower compared to the third quarter of 2008. DDS showed good sales in TransPromo and Graphic Arts through the Océ JetStream and Océ ColorStream continuous feed color printers.

Recurring revenues amounted to € 238 million.
Organically, revenues declined by 7%. 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. DDS grew its revenues in continuous feed color.

Normalized operating income amounted to – € 6 million (2008: € 2 million).

Wide Format Printing Systems (WFPS)
The construction and manufacturing market sectors declined, especially in Europe. The climate in the display graphics market deteriorated further.

Revenues in WFPS amounted to € 166 million.
Organically, revenues declined by 19%. The share of color increased to 48% (2008: 34%).

Non-recurring revenues amounted to € 56 million.
Organically, revenues declined by 25%, mainly due to significantly lower equipment sales in Technical Document Systems as a result of the decline in the construction and manufacturing market sectors. The US business benefitted from the rollout of the successful Océ PlotWave 300.

Recurring revenues amounted to € 110 million.
Organically, recurring revenues declined by 16%.  The main driver was the decline in print volumes in market sectors served by Technical Document Systems and Imaging Supplies.

Imaging Supplies revenue declined organically by 28%; one third of this decline was due to the divestment of Arkwright and two third was mainly due to lower print volumes.

Thanks to the success of the Océ Arizona series WFPS increased the revenues in Display Graphics Systems, despite the deteriorated market climate.  Normalized operating income was € 5 million (2008: € 14 million) and was impacted by the strong decline in market demand for Technical Document Systems equipment as well as print volumes.

Océ Business Services (OBS)
The document outsourcing market continued to encounter two distinct drivers. On the one hand, organizations are showing an increasing willingness to outsource document related processes and activities. On the other hand, business at existing customers is experiencing declining activity levels in many market segments.

Revenues in OBS amounted to € 111 million.
Organically, revenues increased by 7%. Revenue growth in Europe continued to be strong.

In a number of areas OBS reduced the number of direct personnel to adjust for the business contraction at customers. To further reduce costs OBS also reduced indirect personnel. As a result, OBS incurred restructuring costs of € 3 million.

Normalized operating income amounted to € 2 million (2008: € 1 million). The improvement in operating income is the result of effective cost management.

Outlook
For the fourth quarter 2009 we anticipate markets to remain challenging although we note some early indications of bottoming out in some US markets.  We anticipate our cost cutting measures to mitigate the impact of the expected revenue decline and support our key financial parameters as in the third quarter.