Highlights of the third quarter:
- Total revenues Euro 700.1 million (-1.5% organically, excluding fax)
- Normalized operating income Euro 16.8 million (2007: Euro 21.2 million)
- One-off items of Euro 28.0 million lead to operating income of - Euro 11.2 million
- Cost reduction program on track
- Color increases to 26% of revenues (2007: 20%)
Comments by Rokus van Iperen, Chairman of the Board of Executive Directors:
"The current turmoil in the world economy continues to put pressure on our revenues and margins. We are meeting this challenge by providing new, value adding products and services for our customers, enhancing operational excellence and continuously cutting costs aggressively. Our cost reduction program will achieve Euro 80 million savings in 2008 and an additional Euro 50 million savings in 2009. Year to date we reduced costs by Euro 59 million.
In the third quarter we continued to grow our revenues in the office, print room, display graphics and business services segments. This is a result of our consistent strategy to strengthen our product portfolio and cooperate with partners.
The financial services and construction markets are experiencing well publicized challenges. These developments are significantly impacting revenues from our continuous feed printers and technical document systems, the main cause of our decline in profitability.
Over the quarter, we have achieved rapid growth in color. We sold several multi-million euro Océ JetStream printers and many other color systems, including the recently launched Océ ColorWave 600.
The normalized operating income in the third quarter is positive. Due to one-off items the reported operating income is negative (- Euro 11.2 million).
In the current economic turmoil we refrain from giving an outlook for our full year income. We did however start the fourth quarter of 2008 with an order backlog comparable with last year. Continued cost savings are expected to amount to Euro 21 million in the fourth quarter. Supported by a strong focus on improving all working capital elements and by the anticipated sale of finance lease receivables, we expect a positive free cash flow for the 2008 full year."
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Océ: normalized operating income in third quarter of Euro 16.8 |
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Summary results of third quarter 2008* |
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Key figures |
Third quarter |
Nine months |
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|
In million Euro / as % |
2008 |
2007 | 2008 | 2007 | ||||||||
| Total revenues | 700.1 | 753.5 | -7.1% | 2,107.0 | 2,259.8 | -6.8% | ||||||
|
Normalized operating income** |
16.8 |
21.2 |
-20.7% |
54.5 |
72.1 |
-24.4% |
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| One-off items | -28.0 | - | - | -24.4 | -0.7 | - | ||||||
| Operating income (EBIT) | -11.2 | 21.2 | - | 30.1 | 71.4 | -57.9% | ||||||
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Normalized net income ** |
1.7 |
12.6 |
-86.3% |
20.6 |
43.6 |
-52.7% |
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| Net income | -23.7 | 12.6 | - | 3.0 | 43.1 | -93.0% | ||||||
| * The figures in this report are unaudited. | ||||||||||||
| ** Adjusted for one-off items, representing continuing business. | ||||||||||||
| Key figures per Strategic Business Unit | ||||||||
| In million Euro / as % | DDS | OBS | WFPS | Total | ||||
|
Revenues |
395.7 |
101.1 |
203.3 |
700.1 |
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Organic growth in revenues, excl. fax |
-1.7% |
5.9% |
-4.5% |
-1.5% |
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Non-recurring revenues |
144.8 |
- |
74.7 |
219.5 |
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Organic growth in non-recurring revenues |
-2.0% |
- |
-3.9% |
-2.7% |
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Recurring revenues |
250.9 |
101.1 |
128.6 |
480.6 |
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Organic growth in recurring revenues, excl. fax |
-1.5% |
5.9% |
-4.8% |
-0.9% |
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| Normalized operating income* | 1.6 | 0.8 | 14.4 | 16.8 | ||||
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One-off items |
-8.3 |
-0.1 |
-19.6 |
-28.0 |
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Operating income |
-6.7 |
0.7 |
-5.2 |
-11.2 |
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* Adjusted for one-off items, representing continuing business. One-off items comprise restructuring charges and for WFPS also Euro 17.8 million related to the sale of Arkwright. |
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Summary of third quarter 2008
Total revenues decreased organically by 1.5% if the non-core fax business is excluded. Non-recurring revenues, sales of printing systems and software, decreased 2.7%, due to continuing adverse conditions in the financial services and the construction sector. Recurring revenues excluding fax decreased 0.9%. During 2008 Océ acquired Intersoft whilst Arkwright and Océ Document Technologies were divested. Excluding these transactions recurring revenues were stable. Recurring revenues include services as well as sales of toners, inks and media, and represent some 70% of total revenues. An increasing part, currently 26%, of our total revenues relates to color.
Normalized operating income, representing the continuing business, amounted to Euro 16.8 million (2007: Euro 21.2 million), including a negative currency exchange impact of Euro 6 million. One-off items amounted to Euro 28.0 million of which Euro 10.2 million were restructuring charges; the remainder related to the sale of the loss making coating business of Arkwright, being a Euro 4.6 million book loss and the realization of Euro 13.2 million currency translation differences. Under IFRS, translation results on equity in subsidiaries denominated in non-euro currencies are recognized directly in Equity under the heading ‘Currency Translation Differences’. Upon disposal of the subsidiary the accumulated translation results are realized via the Income Statement. This IFRS accounting rule has no impact on Equity or cash flow.
In Digital Document Systems (DDS) revenues generated by continuous feed systems declined as a consequence of the continued turmoil in the financial markets. DDS increased its revenues in cutsheet printing, driven by continued growth in the office and print room segment. As a result DDS improved its normalized operating income.
Océ Business Services (OBS) continued its revenue growth. Normalized operating income decreased, driven by continued investments at large new contracts as well as the slowdown of litigation services activities in the US.
The slowdown in the construction sector impacted revenues in Technical Document Systems and Imaging Supplies. Wide Format Printing Systems (WFPS) grew its revenues in the display graphics markets due to the success of its product portfolio. Normalized operating income declined as a result of lower revenues and start-up costs of the Océ ColorWave 600.
We started the fourth quarter of 2008 with an order backlog comparable with last year. Continued cost savings are expected to amount to Euro 21 million in the fourth quarter. Supported by a strong focus on improving all working capital elements and by the anticipated sale of finance lease receivables, we expect a positive free cash flow for the 2008 full year.
Results Océ Group
Exchange rate effects
As an internationally operating company, Océ generates approximately 60% of its revenues outside the euro zone and is therefore exposed to fluctuations in exchange rates, especially the US dollar (USD) and the Pound sterling (GBP). In the third quarter the very strong euro, which rose against the USD by 10.9% and the GBP by 14.8%, impacted the financial results. Océ acts to reduce exchange rate exposures amongst others via exchange rate hedges, relocating manufacturing activities and increased procurement in non-euro currencies.
Revenues
Total revenues in the third quarter amounted to Euro 700.1 million, a decrease of 7.1%.
Excluding exchange rate effects and the non-core fax business, revenues decreased organically by 1.5%.
Our share of color continues to grow and now accounts for 26% of revenues, up from 20% in the same period last year. The focus of our new product introductions is to continue to bring more color products to market in all of our business segments. Over the past year Océ launched the full color Océ JetStream series and Océ ColorStream 10000 continuous feed printers, the Océ ColorWave 600 and Océ Arizona 200 GT wide format printers, the Océ CS 650/620 cutsheet printers and various other color products serving the office market. Océ expects that color will continue to grow at a rapid pace and will become a much larger part of the revenue stream going forward.
Non-recurring revenues amounted to Euro 219.5 million, decreasing by 7.2%. The adverse conditions in the financial services and the construction sector impacted sales, resulting in an organic revenue decrease of 2.7%, compared to the very strong third quarter of 2007 (in which non-recurring revenues rose 17.9%).
Recurring revenues amounted to Euro 480.6 million, decreasing by 7.0%. Excluding fax, organic recurring revenues decreased 0.9%. Excluding the acquisitions and divestments, the recurring revenues were stable.
One-off items due to restructuring and Arkwright divestment
Océ has an ongoing operational excellence program to improve business processes which will enhance customer service, shorten equipment delivery times and reduce costs. In 2008, in response to the weak economic situation, Océ accelerated the cost savings program in order to improve profitability. The operational excellence objective is to reduce expenses by Euro 80 million in 2008 and by an additional Euro 50 million in 2009. Year to date Océ achieved Euro 59 million savings. The total program includes a reduction of 950 job positions of which year-to-date 560 have been realized. In the third quarter some 280 positions were eliminated whilst Euro 10.2 million in restructuring expenses were incurred.
In the third quarter Océ sold the loss making coating related activities of Arkwright in the US. The sale resulted in a book loss of Euro 4.6 million and the realization of Euro 13.2 million currency translation differences. Under IFRS, translation results on equity in subsidiaries denominated in non-euro currencies are recognized directly in Equity under the heading ‘Currency Translation Differences’.
Upon disposal of the subsidiary the accumulated translation results are realized via the Income Statement. This IFRS accounting rule has no impact on Equity or cash flow.
In total, one-off items amounted to Euro 28.0 million of which Euro 4.6 million impacted gross margin and Euro 23.4 million impacted operating expenses.
Gross margin and operating income
Normalized gross margin, excluding one-off items, was 38.1% (2007: 39.1%1). Volume/mix effects and exchange rate effects caused a decline of 0.8% point. The sale of Océ Document Technologies and Arkwright accounted for a decline of 0.2% point.
Normalized operating expenses amounted to 35.7% (2007: 36.3%). This decrease was realized by vigorous execution of the operational excellence program. Net capitalized R&D costs amounted to Euro 3.9 million (2007: Euro 3.6 million).
On balance, normalized operating income amounted to Euro 16.8 million (2007: Euro 21.2 million). The strong euro caused a negative currency exchange impact of Euro 6 million. Operating income amounted to – Euro 11.2 million (2007: Euro 21.2 million).
Financial expenses and net income
Financial expenses (net) amounted to Euro 11.3 million (2007: Euro 10.1 million).
Taxation was Euro 1.3 million (2007: Euro 1.3 million contribution to net income).
On balance, normalized net income was Euro 1.7 million (2007: Euro 12.6 million).
Balance sheet, RoCE and cash flow
The balance sheet total was Euro 2,378 million, compared with Euro 2,573 million at the end of the third quarter of 2007. The year-on-year change was mainly attributable to a reduction in accounts receivable, lower cash balances, the sale of fixed assets and exchange rate effects.
The net debt/EBITDA ratio amounted to 2.3 which is within the aspired bandwidth of 2.0 to 2.5 and well below the maximum in the loan covenants.
Net Capital Employed was Euro 1,292 million, compared to Euro 1,371 million at the end of the third quarter of 2007. In relation to normalized operating income, RoCE amounted to 6.6% (2007: 6.8%).
Free cash flow in the third quarter was – Euro 17 million (2007: Euro 23 million). Cash flow from operating activities, – Euro 6 million, was adversely affected by higher finance lease receivables, reflecting the situation in the financial markets, and lower accounts payable. The cash flow from investing activities, – Euro 11 million, reflected higher expenditures both in intangible assets and Property, plant and equipment.
Océ has taken action to improve the free cash flow including an increased focus on inventories, accounts receivable and accounts payable. Océ also intensified its action to reduce out-of-pocket expenses and reduce the finance lease receivables.
Results of SBUs
Digital Document Systems (DDS)
Revenues in DDS amounted to Euro 395.7 million. Organically and excluding fax, revenues decreased by 1.7%. DDS grew its revenues in cutsheet systems. The revenue related to continuous feed systems declined following mainly the developments in the financial services sector.
The share of color increased to 23% of revenues (2007: 17%).
Non-recurring revenues amounted to Euro144.8 million. Revenues decreased organically by 2.0%. Excluding the divestment of Océ Document Technologies non-recurring revenues declined 0.7%, compared to the very strong third quarter of 2007 (in which non-recurring revenues rose 16.5%). DDS increased the sales of cutsheet equipment. The sales of continuous feed systems decreased as a result of a decline in the worldwide market.
The growth in cutsheet was achieved through our expanded distribution power and the competitive office product portfolio sourced via our strategic alliance with Konica Minolta. In the productive cutsheet segment DDS again increased its installed base for both color and Océ VarioPrint 6xxx equipment. In the third quarter DDS introduced the Océ VarioPrint 1105 and the Océ VarioPrint 4000, which will fuel further growth in cutsheet printing.
Worldwide the market for continuous feed systems declined in 2008, reflecting ongoing developments in the financial sector. As a result, DDS placements in the third quarter declined compared to the same period of the previous year. DDS has a highly professional and appreciated sales and service force organization and a competitive product portfolio for continuous feed systems. DDS maintained its market share and increased its installed base of continuous feed systems. DDS is confident of maintaining its strong position thanks to our continuous feed order book as well as the new successful full color portfolio. This portfolio consists of the Océ VarioStream 9240, the Océ ColorStream 10000 and the Océ JetStream series for which DDS booked several substantial orders in the third quarter.
Recurring revenues amounted to Euro 250.9 million. In the third quarter organic recurring revenues, excluding fax, decreased by 1.5%. DDS grew its volume of invoiced prints both for black-and-white and color prints. As a result the recurring revenues related to cutsheet equipment increased in the quarter.
Recurring revenues related to continuous feed systems decreased due to declining print levels, mainly following developments in the financial services sector.
Normalized operating income amounted to Euro 1.6 million (2007: – Euro 4.0 million). DDS achieved this improvement by growing its business in the office segment and productive cutsheet printing.
Océ Business Services (OBS)
Revenues in OBS amounted to Euro 101.1 million. Organic growth was again strong with 5.9%. OBS shows consistent growth as the trend to outsource document management activities continues.
Hertz Corp. has selected Océ Business Services to provide global document process outsourcing services. Océ will provide a range of services that span the document lifecycle (creation through disposal) to help Hertz achieve its efficiency enhancement goals, for example by changing the manual document management process into an electronic flow. This assignment is a five year multi-million dollar international contract encompassing North America and Europe, and the OBS operations center in the Philippines.
Normalized operating income amounted to Euro 0.8 million (2007: Euro 3.2 million). The growth of OBS requires continued customer start-up investments. Furthermore the slowdown of litigation services activities in the US negatively impacted profitability. OBS has taken actions to restore profitability including a change in management structure and focus on business growth at existing customers.
Wide Format Printing Systems (WFPS)
Revenues in WFPS amounted to Euro 203.3 million. On an organic basis the revenue decrease was 4.5%. The share of color increased to 34% of revenues significantly higher than the 28% in the third quarter of last year.
Non-recurring revenues amounted to Euro 74.7 million. The organic decrease was 3.9%. Excluding the acquisition of Intersoft the decline was 7.1% compared to the very strong third quarter of 2007 (in which non-recurring revenues rose 20.8%). This decline was caused by lower equipment sales in Technical Document Systems following the slowdown in the construction sector. WFPS continued to ramp up the production of the new, much demanded, Océ ColorWave 600. As announced earlier the Océ ColorWave 600 contribution to 2008 revenues will be limited.
In the display graphics market WFPS grew its equipment sales as a result of its enhanced product portfolio, e.g. the new Océ Arizona Roll Media option and the initial sales of the new Océ Arizona 200 GT. The Océ Arizona 250 GT continued to sell well.
Recurring revenues amounted to Euro 128.6 million. The organic decrease was 4.8%. Excluding the acquisition of Intersoft and the divestment of Arkwright the decline was 3.0%, caused mainly by lower print volumes in the construction market. WFPS grew its revenues in the display graphics segment. On balance revenues relating to the installed base were in line with the third quarter of 2007 and the decline in recurring revenues was mainly attributable to lower media (especially wide format paper) sales in Imaging Supplies.
Normalized operating income was Euro 14.4 million (2007: Euro 22.0 million). The decline was mainly caused by lower revenues and start-up costs of the Océ ColorWave 600.
Interim dividend
For 2008 Océ will pay an interim dividend of Euro 0.15 per ordinary share outstanding (2007: Euro 0.15). The ex-dividend date is October 2, 2008. The interim dividend will be payable in cash from October 21, 2008. The proposal with respect to the final dividend will be announced in January together with the provisional results for the full financial year 2008.
Outlook
In the current economic turmoil we refrain from giving an outlook for our full year income. We did however start the fourth quarter of 2008 with an order backlog comparable with last year. Continued cost savings are expected to amount to Euro 21 million in the fourth quarter. Supported by a strong focus on improving all working capital elements and by the anticipated sale of finance lease receivables, we expect a positive free cash flow for the 2008 full year.
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Board of Executive Directors Océ N.V. |
| October 1, 2008 |
Keys to terminology:
Non-recurring revenues: revenues from the sale of machines, software and professional services.
Organic growth: the development of the results after adjustment for exchange rate effects and the impact of substantial acquisitions or disposals.
Recurring revenues: revenues from services, inks, toners, media, rentals, interest and business services.
RoCE: Return on Capital Employed: operating income on an annual basis after normalized taxes (20%) as a percentage of average Net Capital Employed (total assets excluding cash and cash equivalents, less non-interest bearing liabilities adjusted for derivatives.)
Wide Format printing: wide format printing (bigger than A3).
The full report can be downloaded at the international website http://www.oce.com/en/Investor/QR/2008-Q3.htm.
About Océ
Océ N.V. is a leading international provider of digital document management technology and services. The company’s solutions are based on Océ’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 Océ digital printers and scanners, considered the most reliable and productive in the world. Océ also offers a wide range of display graphics, consulting and outsourcing solutions.
Océ 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. Océ North America is headquartered in Trumbull, CT, with additional business units in Chicago, IL; New York City; Boca Raton, FL; Salt Lake City, UT and Vancouver, BC. North American revenues represented approximately half of Océ’s worldwide business in 2007, and employment is currently 11,000. For more information about Océ, visit www.oceusa.com. Outside the U.S., consult www.oce.com.
1 In 2008 and in the comparative figures for 2007 the transportation costs from distribution center to customer are fully included in the gross margin.
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Océ N.V.
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President, Investor Relations
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