Highlights:
-- First quarter revenues grew organically by 1.3%; excluding fax by 1.8%
-- Revenues from sales of printers up organically by 5.9%, partly thanks to partnerships
-- Recurring revenues lag behind because of economic situation in US
-- Gross margin decreases to 38.5% (2007: 39.4%)
-- Operating income is Euro 32.1 million, excluding one-off items Euro 17.5 million
-- Extra cost reduction of Euro 50 million to Euro 80 million in 2008
Comments by Rokus van Iperen, Chairman of the Board of Executive Directors:
'In the first quarter two significant developments occurred:
First, revenues from the sale of printers increased organically by 6%, partly due to our successful partnerships. On the back of this good sales performance, Oce has gained market share in wide format, color and high volume cutsheet printing. Especially in Asia we achieved excellent growth, whilst sales also increased in Europe.
Second, we felt the effects of recent economic developments. Especially in the financial sector, the purchase of new very high volume printers was postponed. Oce traditionally holds a strong position in this sector. There was also a decrease in printing volume at banks and in the construction sector, particularly in the United States, which meant that revenues from maintenance, toner and media lagged behind those of the previous year.
In 2007 Oce successfully started the implementation of the Strategic Plan 2007-2010. We are continuing to invest in expanding our distribution power and developing competitive products. In addition we are intensifying the co-operation with our partners both in distribution and in product development. Due to the economic uncertainty additional measures are being taken to reduce costs further. The aim for total 2008 is to realize an extra cost reduction of Euro 30 million to a total of Euro 80 million.'
Oce sells more printers despite lower than expected demand in some sub-markets Results first quarter 2008* Key figures First quarter In million Euro / as % 2008 2007 Total revenues 702.2 729.2 -3.7% EBITDA 77.8 71.6 8.7% Operating income (EBIT) 32.1 21.3 50.6% Net income 21.3 12.2 74.7% In Euro per share EBITDA 0.92 0.85 7.7% Net income attributable to holders of ordinary shares 0.24 0.13 80.4% * The figures in this report are unaudited.
Key figures per Strategic Business Unit
In million Euro / as % DDS OBS WFPS Total
Revenues 393.2 105.1 203.9 702.2
Organic growth in revenues -1.0% 6.1% 3.4% 1.3%
Organic growth in non-recurring
revenues 3.8% n/a 9.9% 5.9%
Organic growth in recurring revenues,
excluding fax
-1.7% 6.1% 0.1% 0.3%
Operating income 16.0 2.7 13.4 32.1
Normalized operating income* -0.6 3.4 14.7 17.5
* adjusted for one-off items
Summary of first quarter 2008
Oce's revenues grew organically in the first quarter by 1.3% (excluding fax: 1.8%). There was a difference between the 5.9% growth in sales of printing systems (non-recurring revenues) and the stable revenues from services, toner and media (recurring revenues), excluding the fax activities.
The organic growth in revenues was not evenly spread between the Strategic Business Units (SBUs). The revenues of OBS (6.1%) and WFPS (3.4%) increased. The revenues of DDS were down by 1.0%. Excluding the sale of Oce Document Technologies (ODT), which took place in January 2008, the revenues of DDS were stable. Economic developments in the United States slowed down the growth in revenues.
Operating income increased to Euro 32.1 million, including a contribution of Euro 14.6 million from one-off items (balance of reorganization costs and the sale of ODT). The same items also had a positive effect on net income, which increased to Euro 21.3 million.
The euro increased against the US dollar (11%) and against the pound sterling (10%) in comparison with the first quarter of 2007. This had a negative impact on operating income but a positive effect on Capital Employed. The Return on Capital Employed (RoCE), excluding one-off items, increased to 7.2% (2007: 5.5%).
First quarter In million Euro 2008 2007 Operating income 32.1 21.3 Reorganization costs 5.2 - Sales of ODT -19.8 - ----------------------------------------------------------- Normalized operating income* 17.5 21.3 Capitalised R&D costs (net) 6.8 5.5 Costs of share-based compensation -1.3 -0.7 * adjusted for one-off items
Financial expenses (net) amounted to Euro 8.6 million (2007: Euro 10.0 million). The decrease was due to a lower net debt position, partly as a result of exchange rate effects.
Taxation amounted to Euro 2.3 million (2007: -Euro 0.8 million).
On balance, net income increased to Euro 21.3 million (2007: Euro 12.2 million).
Earnings per ordinary share for net income attributable to shareholders increased to Euro 0.24 per share (2007: Euro 0.13).
Results Oce Group
Oce revenues grew organically by 1.3%
Total revenues in the first quarter amounted to Euro 702.2 million. On an organic basis the growth was 1.3% (-3.7% including exchange rate effects). The share of color increased to 22% of total revenues (2007: 16%).
Non-recurring revenues grew organically by 5.9% (including exchange rate effects by 1.6%).
Recurring revenues, excluding fax, remained organically virtually the same (0.3%; including fax -0.5%). If the decrease in the fax activities and exchange rate effects are included, recurring revenues were down by 5.6%.
The gross margin amounted to 38.5% (2007: 39.4%)(1). In the first quarter of 2008 the relative gross margin was depressed by the sale of ODT, the product mix and exchange rate effects.
Operating expenses decreased by 2.5 percentage points to 34.0% of revenues, partly because of a one-off net income item (balance of reorganization costs, mainly in the United States, and the proceeds from the sale of ODT). Excluding this net income item, operating expenses decreased to 36.1% of revenues (2007: 36.5%).
On balance, operating income increased to Euro 32.1 million (2007: Euro 21.3 million). Normalized operating income was Euro 17.5 million.
Balance sheet total decreases
By comparison with the first quarter of 2007, the balance sheet total at the end of the first quarter of 2008 decreased to Euro 2,368 million (2007: Euro 2,567 million) as a result of exchange rate effects, an organic reduction in trade accounts receivable and the sale of fixed assets.
The net debt/EBITDA ratio amounted to 1.7 (2007: 2.3) and is therefore much better than the sought-after bandwidth of 2-2.5. Net Capital Employed at the end of the first quarter was Euro 1,258 million (2007: Euro 1,405 million).
RoCE increases to 8.0%
Thanks to the increase in operating income and the decrease in Net Capital Employed, the RoCE increased to 8.0% (2007: 5.5%). In relation to normalized operating income, the RoCE amounted to 7.2%.
Cash flow influenced by seasonally related payments
Free cash flow in the first quarter amounted to -Euro 109 million (2007: -Euro 53 million).
Cash flow from operating activities in the first quarter amounted to -Euro 65 million (2007: -Euro 19 million). The difference compared to 2007 is the consequence of an increase in lease receivables, a one-off taxation inflow in 2007 and the decrease in trade receivables and other liabilities. The cash flow is also influenced by substantial, seasonally related payments that take place in the first quarter. Cash flow from investing activities was Euro 44 million negative (2007: -Euro 34 million). Free cash flow for 2008 as a whole is expected to be positive again.
(1) In the 2008 and 2007 figures the logistics costs from distribution center to customer are fully included in the gross margin (see press release dated January 14, 2008, page 11).
Results of SBUs
DDS revenues decline
Revenues in Digital Document Systems (DDS) amounted to Euro 393.2 million. This is exclusive of the revenues of OBS, which was converted into a separate SBU with effect from December 1, 2007. On an organic basis revenues decreased by 1.0%. Excluding the sale of ODT and fax, revenues increased by 0.8%. The share of color increased to 18% of revenues (2007: 14%).
Non-recurring revenues rose organically by 3.8%. DDS achieved this increase mainly through growth in the office environment in both Europe and the United States and higher sales of the Oce VarioPrint 6000 series and the color printers. As a result of recent developments in the financial sector sales of very high volume printers in particular showed a sharp decline in this market segment.
In the first quarter the recurring revenues, excluding fax, decreased organically by 1.7% compared to the first quarter of 2007 (including fax -3.1%). The decrease was mainly attributable to the sale of ODT and declining revenues from very high volume printing in the financial sector.
The share in recurring revenues of black-and-white cutsheet printers, specifically the Oce VarioPrint 6000 series, and of the color printers increased further. This will have a growing influence on total recurring revenues in the forthcoming quarters.
Operating income amounted to Euro 16.0 million (2007: -Euro 1.0 million) due in part to a one-off income item (balance of reorganization costs and the sale of ODT). Excluding this one-off income item the operating income amounted to -Euro 0.6 million.
OBS revenues grow organically by 6.1%
Revenues in Oce Business Services (OBS) amounted to Euro 105.1 million. On an organic basis the growth was 6.1%. This growth was achieved because OBS acquired, mainly in Europe, a number of major new customers. For example OBS has taken over the central printing department from an important company in the financial sector. In addition OBS started providing document related services such as scanning, printing and print management in a number of leading hospitals.
Operating income amounted to Euro 2.7 million (2007: Euro 4.2 million). The decrease was attributable in part to reorganization costs.
WFPS revenues grow organically by 3.4%
Revenues in the Strategic Business Unit Wide Format Printing Systems (WFPS) amounted to Euro 203.9 million. The growth on an organic basis was 3.4%. The share of color increased to 31% of revenues (2007: 25%).
Non-recurring revenues increased organically by 9.9% thanks to excellent sales in the display graphics market, both in Europe and in the United States.
Sales in the technical documentation market were good, also in the United States. This good sales performance is due in part to the fact that our customers are switching over from black-and-white machines to our successful color printers.
Recurring revenues were stable. That was mainly the result of lower printing volumes in the American technical documentation market and fewer deliveries by Imaging Supplies. Against this, there was an increase in recurring revenues generated by the population of Oce Arizona 250 GT machines.
Operating income amounted to Euro 13.4 million (2007: Euro 18.1 million). The decrease was due to reorganization costs, higher expenditure on R&D and the costs of the production ramp up of printing systems with the new color technology.
Strategy
The Oce strategy is focused on three key thrusts: expanding the distribution power, offering competitive products and improving the business processes.
Digital Document Systems
In DDS, distribution strength is being enhanced through the partnership with Konica Minolta. The additional sales of the Oce VarioPrint 6000 series are progressing according to plan in this start-up phase. During the course of 2008 deliveries via this partner are expected to expand further.
The competitive strength of the DDS product portfolio is based on a balanced mix of the company's own printers and third-party products, such as the complete range of Konica Minolta which is offered by Oce world-wide.
In December 2007 Oce introduced various new very high volume printing systems. They include the Oce VarioStream 8000 series, aimed at transaction and book printing, and the Oce JetStream 1100/2200, for applications in direct marketing activities. The first of these machines were sold in the first quarter. The new printers will also be on show in May 2008 at the Drupa, the world's biggest trade fair for the printing industry sector, which takes place every four years.
Oce Business Services
By operating as a separate Strategic Business Unit, OBS will be in a position to serve the market for document management services with greater focus and energy. The distribution power will be further boosted via a further internationalization of the services and by increasing the number of OBS sales staff. The OBS portfolio will be expanded by adding new services.
Wide Format Printing Systems
WFPS has enhanced its distributive strength through the partnership with Fuji Xerox in Asia. At the moment 20% of Oce's revenues from wide format printers for technical documentation offices is generated in Asia and other countries outside Europe and the US. Because of the strong growth of the Asian economies and the successful sales of the Oce TCS color systems via Fuji Xerox, this share is expected to grow further.
Oce is growing strongly in display graphics, also thanks to sales of the Oce Arizona 250 GT via the Fujifilm partnership. This growth is expected to continue.
Improvement of business processes
Oce is improving its business processes via a number of centrally co-ordinated projects. In the first quarter of 2008 Oce realized cost savings of Euro 10 million compared to 2007.
This program is aimed at achieving a saving of Euro 50 million in 2008. We have also identified additional improvement possibilities via increased efficiency throughout the company and the reduction of out of pocket expenses. This is why Oce has meanwhile initiated measures which, excluding restructuring costs, will yield an additional saving of Euro 30 million in 2008. The total amount of cost savings for 2008 is expected to be Euro 80 million. These cost savings are exclusive of volume effects and inflation.
April 23, 2008: General Meeting of Shareholders
The annual meeting of shareholders will be held on April 23, 2008 in Venlo. The registration date for this meeting is April 16, 2008. The agenda and the registration procedure have been posted on-line on our website www.investor.oce.com.
Outlook
The Strategic Plan 2007-2010 is being executed further. This implies that, together with partners, we will further increase the strength of our sales organization and product portfolio. Because of the uncertain development of the world economy, extra actions are taken aimed at additional cost reduction to realize total savings of Euro 80 million in 2008.
Board of Executive Directors Oce N.V. April 3, 2008
Keys to terminology:
Organic growth: the development of the results after adjustment for exchange rate effects and large sales and acquisitions.
RoCE Return on Capital Employed: operating income for the year, after normalized taxes (20%) as % of Net Capital Employed (total assets excluding cash and cash equivalents, minus non-interest bearing liabilities corrected for derivatives).
Wide Format printing: wide format printing (larger than A3).
The full report can be downloaded at the international website http://www.oce.com/en/Investor/QR/2008-Q1.htm
About Oce
Oce N.V. is a leading international provider of digital document management technology and services. The company's solutions are based on Oce's advanced software applications that deliver documents and data over internal networks and the Internet to printing devices and archives -- locally and around the world. Supporting the workflow solutions are Oce digital printers and scanners, considered the most reliable and productive in the world. Oce also offers a wide range of display graphics, consulting and outsourcing solutions.
Oce employs around 24,000 people, with 2007 revenues of approximately $4.6 billion, operates in more than 90 countries and maintains research and manufacturing centers in the Netherlands, the United States, Canada, Germany, France, Belgium, the Czech Republic, Romania and Singapore. Oce North America is headquartered in Trumbull, CT, with additional business units in Chicago, IL; New York City; Boca Raton, FL; Salt Lake City, UT; Coventry, RI; and Vancouver, BC. North American revenues represented approximately half of Oce's worldwide business in 2007, and employment is currently 11,000. For more information about Oce, visit www.oceusa.com. Outside the U.S., consult www.oce.com.
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