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Oce Reports Q3 Loss After Impairment Charges, Revenue Falls by 11.8%

Press release from the issuing company

October 13, 2003 -- Oce posted a EUR 5.6 million net loss in the third quarter compared with a EUR 21.0 million profit last year. The company took a EUR 18.3 million impairment charge for its acquisition of Practical Print Solutions, a print procurement unit and its display graphics operations. - Net income from normal activities amounts to EUR 52.8 million. - Net income after deduction of EUR 18.3 million impairment costs amounts to EUR 34.5 million. - Free cash flow amounts to EUR 120 million. - Plans to transfer assembly activities to Eastern Europe and China are being developed further. - Net income for fiscal year 2003, before exceptional items, is expected to reach approximately EUR 70 million. - Declining trend in revenues is becoming less pronounced. Results third quarter 2003 In the third quarter revenues declined by 11.8% compared with 2002 to EUR 653.1 million. The autonomous decline in revenues amounted to 4.9%. Due to exchange rate effects revenues decreased by 6.7%. The decline in revenues is therefore less than in the second quarter of 2003 when the autonomous revenues decline amounted to more than 7%. The Strategic Business Unit Digital Document Systems was even able to show a substantially lower decline in autonomous revenues of 3.2%, compared with the first two quarters of 2003. In the Strategic Business Unit Wide Format Printing Systems the autonomous revenues decline of 8.3% was marginally lower than in the previous quarter. The gross margin remained stable compared with 2002 (41.5%). Partly due to restructuring operating expenses decreased by 6.5%; on an autonomous basis the decrease was 1.1%. Net income before exceptional items amounted to EUR 12.7 million (-39.6%). An amount of EUR 18.3 million relating to impairment costs has been charged to the third quarter for Practical Print Solutions and Océ Display Graphics Systems. Practical Print Solutions, whose activities include print procurement, was acquired in November 2001. This new activity for Océ has not generated the expected income and growth. It has therefore been decided to charge nearly all of the capitalised goodwill to income. Part of the assets of the business group Display Graphics, which includes the Imaging Division acquired from Gretag, had to be impaired for accounting reasons. The strategic significance of the decision to retain a presence in and to expand further in this potential growth segment remains undiminished. The total value of this business group is greater than the total book value as shown on the balance sheet. Impairment is a non-cash item and has therefore no influence on the available cash flow. Results nine months 2003: declining trend in revenues is becoming less pronounced. Revenues amounted to EUR 2,022.3 million, which was 14.5% lower than for the same period of the previous year. Exchange rate effects and the sale of the subsidiary in South Africa resulted in a decline in revenues of 7.9%. The autonomous decrease in revenues was 6.6%. Of this decline in revenues 2% was caused by the strategic decision to withdraw from activities in the low-volume segment in most countries. During the first six months of 2003 the autonomous decline was 7.4%. Although this trend is encouraging, customers remain reluctant to take investment decisions in relation to new printing systems. No significant change in customers'purchasing behaviour can yet be observed. The gross margin increased by 0.3% to 41.5% compared with 2002. This increase was the net result of a positive currency hedging result (0.7%) and a negative volume/mix effect (-0.4%). The most important elements of the volume/mix effect are lower lease revenues and reduced margins in the United States. Operating expenses decreased by 9.7%, of which over 3% was autonomous. Operating expenses remain under control as a result of the restructuring measures and the ongoing focus on the development of costs. EBITDA amounted to EUR 231.5 million, which was 24.3% lower than in the corresponding period of 2002. Operating income (EBIT) before exceptional items declined by 34.9% to EUR 101.5 million. Financial expense (net) decreased further to EUR 23.4 million (-44.6% compared with 2002). The tax charge increased to 34.1% as a result of the impairment costs. These are partly deductible against corporation tax. Net income before exceptional items amounted to EUR 52.8 million against EUR 34.5 million after exceptional items. Net income per ordinary share outstanding before exceptional items amounted to EUR 0.60 (2002: EUR 0.86) and after exceptional items to EUR 0.38. Discussions have been started with the works council and trade unions about the intention to transfer the assembly of modules to Eastern Europe and of the fully developed wide format printing systems to China during 2004. Depending on the outcome of these discussions it is expected that a social plan will be worked out during the fourth quarter. A provision will then be made for the related redundancy costs. With the outsourcing of the lease activities good progress was made in aligning the administrative systems of Océ and those of the lease partner. The objective of transferring virtually the entire lease portfolio before end-2004 remains unchanged. During the third quarter Océ paid an additional EUR 17.5 million into the Dutch pension fund. This payment has been charged to the pension provisions. At the end of the third quarter of 2003 the coverage ratio of liabilities of the Dutch pension fund amounted to 106%. Results by Strategic Business Unit In Digital Document Systems (DDS) revenues amounted to EUR 1,392.5 million. Revenues declined by 13.6%, of which 5.9% autonomous. Non-recurring revenues (machine sales and revenues from software and professional services) declined autonomously by 16.3%. Recurring revenues (service, rentals, consumables and interest lease income) declined autonomously by 2.7%. During the first six months this was 2.3%. The autonomous increase in the revenues of Facility Services amounted to 2.3%. The decline in growth is attributable to the intensified focus on the profitability of contracts. The operating income of DDS amounted to EUR 63.8 million (2002: EUR 90.6 million). Wide Format Printing Systems (WFPS) revenues were EUR 629.8 million. Of the 16.4% decline in revenues, 8.0% was autonomous. Non-recurring revenues declined by 12.6% (first six months 2003: -12.7%); recurring revenues declined by 6.2% (first six months 2003: -6,0%). The operating income of WFPS amounted to EUR 37.7 million (2002: EUR 65.4 million). Prospects The decline in revenues, in particular in the sale of new systems, is becoming less pronounced. Although this trend appears to be continuing in the fourth quarter, it is still too early to determine whether the recovery is structural. The investment climate shows no real improvement and customers continue to postpone their investment decisions. The strong euro relative to the dollar will continue to have a negative influence on revenues and income in the fourth quarter. The net result for 2003 before exceptional items is expected to be around EUR 70 million. For the full results: http://www.oce.com/en/Investor/Quarterly+reports/2003-Q3.htm