Interim / Quarterly Report • Aug 25, 2011
Interim / Quarterly Report
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Océ develops and supplies digital printing systems, software and services for the production, reproduction, distribution and management of documents, in color and black & white, in small format and in wide format, for professional users in offices, educational institutions, industry, construction, architectural firms, advertising and the graphic arts market. Océ is the only European producer of printing systems and a leading supplier of these systems worldwide.
The product offerings comprise printers, copiers, scanners, software, services, imaging supplies, services for systems integration and outsourcing of document management activities and leasing of printing systems. The broad and very complete product portfolio consists of products developed by the company itself for wide format and for the (very) high volume segments of small format and products of Canon, supplemented by selected machines from Original Equipment Manufacturers. Océ supplies its equipment as part of total solutions, ranging from the provision of initial advice through to the maintenance of the systems. Océ's reputation is founded on productivity and reliability, ease of use and a favorable 'total cost of ownership'. Océ is commercially active in approximately 100 countries; in more than 30 of these it has its own sales and service organization. In Europe, the United States, Canada and Singapore Océ has research and manufacturing facilities.
Océ is active in the entire value chain of printing systems: from development via manufacturing, sales, services and maintenance to the provision of business services and financing. The commercial organization is coordinated by three Strategic Business Units: Digital Document Systems (small format), Wide Format Printing Systems (wide format) and Océ Business Services.
In a number of countries and market segments in which Océ itself does not have a sufficiently large market presence, part of the product range is made available via specialized distributors. Through its own Research & Development (R&D) Océ itself develops its basic technologies and the majority of its product concepts.
The direct feedback of customer experiences serves as an important source of inspiration for new products. In the Océ business model cooperation with partners plays a major role in all sorts of fields. These partnerships cover such areas as R&D, manufacturing, sales (OEM), distribution and financing. Sustainability is a constantly present factor in the conduct of Océ business.
In 2010 Océ joined the Canon Group of Companies with headquarters in Tokyo, Japan, to create the global leader in the printing industry. This compelling combination merges a 130-year heritage of Océ customer-driven innovation with the vast technical resources of Canon to form the industry's broadest choice of hardware, software and workflow solutions. Canon develops, manufactures and markets a growing line-up of copying machines, printers, cameras, optical products and industrial equipment that meet a diverse range of customer needs. Canon is a Fortune Global 500 company and one of the world's best known brands. The Canon Group comprises over 197,000 people worldwide. Global net sales in 2010 were more than \$ 45 billion.
For more information visit www.canon.com.
The publicly listed holding company of the Océ Group is Océ N.V. The issued share capital amounts to around € 53.7 million, divided into € 43.7 million ordinary shares and € 10 million financing preference shares with a nominal value of € 0.50 each. The ordinary shares of Océ are listed on the stock exchange in Amsterdam (NYSE Euronext).
Canon Inc. holds directly or via its subsidiaries approximately 90% of the shares of Océ.
| 2011 | 2010* | x € million | ||
|---|---|---|---|---|
| Total revenues | 1,263.5 | 1,322.9 | ||
| Change on first half of previous year (%) | - 4.5 | - 0.5 | ||
| Change, organic (%) Non-recurring (%) |
- 3.8 - 8.4 |
- 2.0 1.6 |
||
| Recurring (%) | - 2.0 | - 3.3 | ||
| Gross margin** | 788,1 | 817.7 | ||
| Normalized gross margin | 788.7 | 834.1 | ||
| As % of total revenues | 62.4 | 61.8 | ||
| Normalized as % of total revenues | 62.4 | 63.0 | ||
| Operating expenses | 803.8 | 830.4 | ||
| Normalized operating expenses | 791.5 | 799,2 | ||
| As % of total revenues | 63.6 | 62.8 | ||
| Normalized operating expenses as % of total revenues | 62.6 | 60.4 | ||
| Operating income (loss) (EBIT) | - 15.7 | - 12.7 | ||
| Normalized operating income (loss) (EBIT) | - 2.8 | 34.9 | ||
| As % of total revenues | - 1.2 | - 1.0 | ||
| Normalized as % of total revenues | - 0.2 | 2.6 | ||
| Net income (loss) | - 20.5 | - 97.8 | ||
| Net income (loss) attributable to shareholders | - 21.5 | - 98.8 | ||
| As % of total revenues | - 1.6 | - 7.4 | ||
| Balance sheet total | 2,055.2 | 2,332.8 | ||
| Equity attributable to shareholders | 397.3 | 565.0 | ||
| Equity | 429.4 | 599.3 | ||
| Equity as % of balance sheet total (solvency ratio) | 20.9 | 25.7 | ||
| Net Capital Employed | 1,094.3 | 1,255.9 | ||
| Return on Capital Employed (RoCE) | - 5.0 | - 3.1 | ||
| Normalized Return on Capital Employed (NRoCE) | 2.5 | 4.1 | ||
| Free cash flow (cash flow before financing activities) | - 71.8 | - 56.6 | ||
| Normalized free cash flow | - 75.0 | - 5.8 | ||
| Number of employees (in full-time equivalents) | 20,028 | 20,900 | employees | |
| Number of € 0.50 ordinary shares | ||||
| Average number outstanding | 84,890,786 | 84,889,813 | shares | |
| Per € 0.50 ordinary share | ||||
| Net income (loss) attributable to shareholders (basic) | - 0.27 | - 1.18 | euro | |
| Net income (loss) attributable to shareholders (diluted) | - 0.27 | - 1.18 | euro | |
| Equity attributable to shareholders | 4.01 | 5.99 | euro |
* The comparative figures consist of the period January 2010 until June 2010.
** As of financial year 2011, the gross margin definition has been changed to align with financial reporting of Canon. The main change relates to the cost of service personnel which previously was recorded under cost of sales and is now included in operating expenses.
Revenues In the first half of 2011 total revenues amounted to € 1,263.5 million (30 June 2010: € 1,322.9 million), a decrease of 4.5% compared to the same period of 2010. Excluding exchange rates effects, the decrease was 3.8%. Non-recurring revenues decreased organically by 8.4% to € 334.0 million, reflecting developments at DDS. Recurring revenues decreased organically by 2.0% to € 929.5 million.
Gross margin As of financial year 2011, the gross margin definition has been changed to align with the financial reporting of Canon. The main change relates to the cost of service personnel which previously was recorded under cost of sales and is now included in operating expenses.
The normalized gross margin was 62.4% (30 June 2010: 63.0%). Gross margin percentage declined due to WFPS as a consequence of the change in product mix.
Operating expenses Normalized operating expenses amounted to 62.6% (30 June 2010: 60.4%). The R&D costs increased by € 16.0 million compared to last year, mainly due to lower capitalization. Total cost however declined by € 7.7 million compared to last year due to stringent cost control.
Operating income Operating income amounted to - € 15.7 million (30 June 2010: - € 12.7 million). Normalized operating income was - € 2.8 million (30 June 2010: € 34.9 million). The normalization items related to integration and restructuring amounted to € 12.9 million (30 June 2010: € 47.6 million).
Finance expenses Finance expenses (net) amounted to € 10.3 million (30 June 2010: € 56.3 million including Canon related one-off items of € 40.1 million). The interest expense decreased to € 8.7 million (30 June 2010: € 13.9 million).
Net income (loss) Net loss for the six months ended 30 June 2011 amounted to - € 20.5 million (30 June 2010: - € 97.8 million).
Normalized free cash flow amounted to - € 75.0 million (30 June 2010: - € 5.8 million). The decrease in normalized operating income from € 34.9 million in 2010 to - € 2.8 million in 2011 is the main reason for the difference. The 2011 cash flow was further affected by outflows in liabilities and receivables.
Digital Document Systems (DDS) Revenues in DDS decreased by 8.3% to € 672.8 million (30 June 2010: € 733.5 million). On an organic basis revenues decreased by 7.4%. Non-recurring revenues amounted to € 197.3 million (30 June 2010: € 237.1 million), an organic decrease of 16.3%. Cutsheet revenues were affected by changes in the product portfolio, which slowed the pace of new sales. Océ was also hit by supply chain issues as a consequence of the Great East Japan Earthquake. In the first half year 2011 the continuous feed printer sales continued the positive sales trend. Océ closed a number of big contracts for continuous feed systems and workflow automation. Recurring revenues amounted to € 475.5 million (30 June 2010: € 496.4 million), an organic decrease of 3.1%.
Wide Format Printing Systems (WFPS) Revenues in WFPS amounted to € 361.1 million (30 June 2010: € 357.3 million), an organic increase of 0.7%. Revenues for construction and engineering purposes were impacted by the decline in the construction market in de USA and Europe. In the first half year 2011 Océ introduced an innovative wide format printer, the Océ ColorWave 600 Poster Printer, built with Océ CrystalPoint imaging technology, targeting the international screen printing markets. To further strengthen its color portfolio for the wide format Graphics Arts market, Océ launched the Océ Arizona 360 GT flatbed printing systems. Customer deliveries started in the second quarter and will accelerate in the second half of the year. Non-recurring revenues amounted to € 136.7 million (30 June 2010: € 128.2 million). Organically, non-recurring revenues increased by 6.3%. Recurring revenues amounted to € 224.4 million (30 June 2010: € 229.1 million), an organic decrease of 2.4%.
Océ Business Services (OBS) Revenues in OBS amounted to € 229.6 million (30 June 2010: € 232.1 million), an organic increase of 0.7%. In Europe revenues were impacted by restructuring of inefficient sites, but also significant new contracts were signed in several countries. In the US, Océ gained new customers and created growth with innovative digital documentation services.
Hans Kerkhoven stepped down as member of the Board of Executive Directors and Chief Financial Officer of Océ N.V. on 19 April 2011. Rokus van Iperen, alongside his duties as Océ CEO, temporarily assumed the position of CFO, effective the same date, until a successor has been appointed.
| as % | first quarter 2011 | second quarter 2011 | first half year 2011 | |
|---|---|---|---|---|
| Digital Document Systems |
recurring non-recurring total |
- 3.8 - 9.9 - 5.8 |
- 2.4 - 22.8 - 9.0 |
- 3.1 - 16.3 - 7.4 |
| Wide Format Printing Systems |
recurring non-recurring total |
- 3.6 3.9 - 1.0 |
- 1.3 8.3 2.3 |
- 2.4 6.3 0.7 |
| Océ Business Services |
recurring non-recurring total |
0.4 - 0.4 |
0.8 - 0.8 |
0.7 - 0.7 |
| Total | recurring non-recurring total |
- 2.7 - 5.2 - 3.4 |
- 1.4 - 11.5 - 4.2 |
- 2.0 - 8.4 - 3.8 |
Steps were taken along the road of full cooperation and integration. The preparation and implementation of the integration of Océ into the Canon Group is being executed according to plan.
In June 2011 Canon and Océ combined their printing operations in Switzerland. Canon Europa N.V., a 100% subsidiary of Canon Inc., has purchased 100% of the share capital in Océ (Schweiz) A.G. from Océ N.V. Océ (Schweiz) A.G. accounted for 3-4% of overall Océ revenues. The transaction price amounted to € 15.9 million.
Also in June 2011 Canon and Océ combined their printing operations in Japan. Canon Marketing Japan Inc., a company in which Canon Inc. holds the majority of the voting rights, has purchased 100% of the share capital in Océ-Japan Corporation from Océ N.V. Océ-Japan Corporation accounted for less than 1% of overall Océ revenues. The transaction price amounted to € 9.4 million.
Both combinations comprised related party transactions, which were executed at arm's length. The transactions are fully in line with Canon's stated intention to adhere to prevailing Dutch corporate governance standards. The transactions have been approved by the Océ Board of Executive Directors and the independent members of the Océ Supervisory Board. These decisions took the interests of all stakeholders into account. In this context, ING Corporate Finance has rendered a fairness opinion confirming that, from a financial perspective, the prices are fair to Océ and its shareholders.
Revenues from sale of Canon products by Océ slightly increased in the second quarter. The sales staff of Canon also signed an increasing number of orders relating to Océ systems. During the second quarter, the training of the Océ sales force in selling small format Canon printers was completed. In May 2011, Océ participated in Canon Expo Shanghai, which hosted 35,000 visitors. During the event, Océ exhibited wide
format and production printing systems for customers and leads across China and other Asian countries.
Following the successful joint development and demonstration in Europe and the United States, customers of both Canon and Océ show strong interest in the imagePRESS C7010VPS series. Customers benefit from the combination of Canon image quality and productivity, as well as the processing power of Océ PRISMAsync workflow. Later this year, other jointly development products will also be launched.
Pages 42 and 43 of the Annual Report 2010 contain a summary of the risk assessment that was carried out in 2010 by Océ. The assessment concerns the identification of the principal risks, which were subdivided into five groups.
The following three groups of risks related to the three strategic pillars:
The two additional groups of principal risks were:
In our view, the nature and potential impact of the risks as mentioned in the 2010 Annual Report will not be materially different for the second half of 2011.
We will continue to monitor the principal risks closely and manage our response through a combination of control measures and actions as new risks may emerge and current risks may change in the second half of 2011.
In the second half of 2011, Océ will implement a series of measures to address the ongoing challenging conditions. Three types of actions have been put in place and are being executed vigorously to support business in the second half of this year.
In the first place, Océ is ramping up production of new products introduced recently and well received in the market. Océ has strongly intensified marketing and sales efforts to increase revenues.
Océ has put a stringent cost control program in place to improve the bottom line.
Océ will further leverage the benefits of the combination with Canon, in sales, business processes and cost efficiencies.
Major related party transactions are disclosed in note (17) to the Consolidated Interim Financial Statements.
The content of this Interim Financial Report has not been audited or reviewed by our auditor Ernst & Young Accountants LLP.
The Board of Executive Directors confirms that to the best of its knowledge the Consolidated Interim Financial Statements for the half year ended 30 June 2011, which have been prepared in accordance with IAS 34 'Interim Financial Reporting', give a true and fair view of the assets, liabilities, financial position and profit or loss of Océ N.V. and its consolidated companies, and the Interim Directors' Report includes a fair review of the information required pursuant to section 5:25d, subsections 8 and 9 of the Dutch Act on Financial Supervision (Wet op het financieel toezicht).
Venlo, 25 August 2011
Board of Executive Directors R.L. van Iperen, chairman A.H. Schaaf
Jan Hol, Senior Vice President Corporate Communications Phone +31 77 359 2000, e-mail [email protected]
Free cash flow: the cash flow before financing activities.
Net Capital Employed: total assets excluding cash and cash equivalents, less non-interest bearing liabilities adjusted for derivatives.
Non-recurring revenues: revenues from the sale of machines, software and professional services. Normalization: adjustments related to integration and restructuring.
Organic growth: the development of the results after adjustments for exchange rate effects and the impact of substantial acquisitions or disposals. Recurring revenues: revenues from service, inks, toners, media, rentals, interest and business services. RoCE: Return on Capital Employed: operating income on an annual basis (last 4 quarters) after normalized taxes (20%) as a percentage of average Net Capital Employed.
Consolidated Interim Financial Statements
| The figures ( ) refer to the notes | 2011 | 2010* |
|---|---|---|
| 1,263,510 | 1,322,906 | |
| Cost of sales | - 475,388 | - 505,208 |
| 788,122 | 817,698 | |
| Operating expenses** | - 803,836 | - 830,378 |
| - 15,714 | - 12,680 | |
| Finance expenses (8) Finance income (8) Share in income of associates |
- 11,342 1,041 3,086 |
- 59,305 3,034 123 |
| - 22,929 | - 68,828 | |
| Income taxes (9) | 2,393 | - 28,996 |
| - 20,536 | - 97,824 | |
| Shareholders Minority interest |
- 21,531 995 |
- 98,824 1,000 |
| - 20,536 | - 97,824 | |
| Basic | - 0.27 | - 1.18 - 1.18 |
| Diluted | - 0.27 |
* The comparative figures consist of the period January 2010 until June 2010. Reference is made to note 1.
** As of financial year 2011, the gross margin definition has been changed to align with financial reporting of Canon. The main change relates to the cost of service personnel which previously was recorded under cost of sales and is now included in operating expenses.
| x € 1,000 | 2011 | 2010 |
|---|---|---|
| Net loss | - 20,536 | - 97,824 |
| Cash flow hedges (net of taxes) Currency translation differences |
447 - 42,205 |
3,856 98,346 |
| Other comprehensive income (loss) | - 41,758 | 102,202 |
| Total comprehensive income (loss) | - 62,294 | 4,378 |
| Comprehensive income (loss) attributable to: | ||
| Shareholders | - 63,289 | 3,378 |
| Minority interest | 995 | 1,000 |
| - 62,294 | 4,378 |
| x € 1,000 | Assets | 30 June | 31 December |
|---|---|---|---|
| 2011 | 2010 | ||
| Non-current assets | Intangible assets (10) | 540,997 | 569,639 |
| Property, plant and equipment (11) | 283,050 | 297,422 | |
| Rental equipment | 70,107 | 76,491 | |
| Associates | 3,559 | 2,869 | |
| Derivative financial instruments (12) | 3 | 60 | |
| Trade and other receivables | 148,069 | 180,649 | |
| Deferred income tax assets | 102,799 | 99,039 | |
| Available-for-sale financial assets | 7,600 | 7,995 | |
| 1,156,184 | 1,234,164 | ||
| Current assets | Inventories (13) | 289,394 | 294,095 |
| Derivative financial instruments (12) | 5,636 | 6,449 | |
| Trade and other receivables | 530,909 | 541,567 | |
| Current income tax receivables | 12,460 | 9,258 | |
| Cash and cash equivalents | 60,577 | 56,155 | |
| 898,976 | 907,524 |
Total 2,055,160 2,141,688
| x € 1,000 | Equity and Liabilities | 30 June | 31 December |
|---|---|---|---|
| 2011 | 2010 | ||
| Equity | Share capital | 53,669 | 53,669 |
| Share premium | 512,026 | 512,026 | |
| Other reserves | - 47,171 | - 13,565 | |
| Retained earnings | - 99,682 | 69,622 | |
| Net income (loss) attributable to shareholders | -21,531 | -166,972 | |
| Equity attributable to shareholders | 397,311 | 454,780 | |
| Minority interest | 32,072 | 33,358 | |
| 429,383 | 488,138 | ||
| Non-current | Borrowings (14) | 5,086 | 6,996 |
| liabilities | Retirement benefit obligations | 359,568 | 368,445 |
| Trade and other liabilities | - | - | |
| Deferred income tax liabilities | 14,757 | 12,632 | |
| Provisions for other liabilities and charges (15) | 36,119 | 43,203 | |
| 415,530 | 431,276 | ||
| Current liabilities | Borrowings (14) | 721,647 | 657,535 |
| Derivative financial instruments (12) | 4,436 | 4,928 | |
| Trade and other liabilities | 461,891 | 533,244 | |
| Current income tax liabilities | 5,024 | 9,447 | |
| Provisions for other liabilities and charges (15) | 17,249 | 17,120 | |
| 1,210,247 | 1,222,274 |
Total 2,055,160 2,141,688
| x € 1,000 | Equity attributable to shareholders | ||||||
|---|---|---|---|---|---|---|---|
| share capital |
share premium |
other reserves |
retained earnings |
net income (loss) attributable to shareholders |
minority interest |
total equity | |
| Balance at 1 January 2010 | 53,669 | 512,026 | - 69,237 | 119,169 | - 53,499 | 33,331 | 595,459 |
| Net income (loss) | - | - | - | - | - 98,824 | 1,000 | - 97,824 |
| Other comprehensive income (loss) | - | - | 102,202 | - | - | - | 102,202 |
| Total comprehensive income (loss) | - | - | 102,202 | - | - 98,824 | 1,000 | 4,378 |
| Share-based compensation: | |||||||
| ⏐ value of employee services | - | - | - | - 230 | - | - | - 230 |
| ⏐ proceeds from shares reissued | - | - | 255 | - 111 | - | - | 144 |
| Movement in legal reserve | - | - | 18,298 | - 18,298 | - | - | - |
| Appropriation of net income | - | - | - | - 48,929 | 48,929 | - | - |
| Dividend | - | - | - | - 425 | - | - | - 425 |
| Balance at 30 June 2010 | 53,669 | 512,026 | 51,518 | 51,176 | - 103,394 | 34,331 | 599,326 |
| Net income (loss) | - | - | - | - | - 63,578 | 1,063 | - 62,515 |
| Other comprehensive income (loss) | - | - | - 44,520 | - | - | - | - 44,520 |
| Total comprehensive income (loss) | - | - | - 44,520 | - | - 63,578 | 1,063 | - 107,035 |
| Share-based compensation: | |||||||
| ⏐ value of employee services | - | - | - | 18 | - | - | 18 |
| ⏐ proceeds from shares reissued | - | - | - 9 | 1 | - | - | - 8 |
| Movement in legal reserve | - | - | - 20,554 | 20,554 | - | - | - |
| Dividend | - | - | - | - 2,127 | - | - 2,036 | - 4,163 |
| Balance at 31 December 2010 | 53,669 | 512,026 | - 13,565 | 69,622 | - 166,972 | 33,358 | 488,138 |
| share capital |
share premium |
other reserves |
retained earnings |
net income (loss) attributable to shareholders |
minority interest |
total equity |
|
|---|---|---|---|---|---|---|---|
| Balance at 1 January 2011 | 53,669 | 512,026 | - 13,565 | 69,622 | - 166,972 | 33,358 | 488,138 |
| Net income (loss) | - | - | - | - | - 21,531 | 995 | - 20,536 |
| Other comprehensive income (loss) | - | - | - 41,758 | - | - | - | - 41,758 |
| Total comprehensive income (loss) | - | - | - 41,758 | - | - 21,531 | 995 | - 62,294 |
| Share-based compensation: | |||||||
| ⏐ proceeds from shares reissued | - | - | - | - 82 | - | - | - 82 |
| Capital decrease | - | - | - | - | - | - 2,281 | - 2,281 |
| Movement in legal reserve | - | - | 8,152 | - 8,152 | - | - | - |
| Appropriation of net income | - | - | - | - 166,972 | 166,972 | - | - |
| Dividend* | - | - | - | 5,902 | - | - | 5,902 |
| Balance at 30 June 2011 | 53,669 | 512,026 | - 47,171 | - 99,682 | - 21,531 | 32,072 | 429,383 |
* The amount of € 5,902 relates to the reclassification of preference dividend from liabilities to equity.
| x € 1,000 | 2011 | 2010 |
|---|---|---|
| Operating loss | - 15,714 | - 12,680 |
| Adjustments for: | ||
| Depreciation, amortization and impairment | 77,628 | 109,461 |
| Share-based compensation | - | - 4,862 |
| Result on divestments, disposals | - 7,659 | - |
| Unrealized gains/losses on financial instruments/other | - 2,167 | 1,497 |
| Changes in: | ||
| Retirement benefit obligations | 1,771 | 426 |
| Provisions for other liabilities and charges | - 6,453 | - 14,587 |
| Rental equipment | - 20,618 | - 23,819 |
| Inventories | - 5,377 | - 5,521 |
| Trade and other receivables | - 29,734 | 2,354 |
| Trade and other liabilities | - 28,245 | - 14,362 |
| Operating cash flows: | ||
| Interest received | 1,411 | 1,173 |
| Interest paid | - 8,951 | - 50,976 |
| Income taxes | - 13,455 | 1,378 |
| Cash flow from operating activities | - 57,563 | - 10,518 |
| Investment in intangible assets | - 27,864 | - 37,796 |
| Investment in property, plant and equipment | - 21,596 | - 17,232 |
| Divestment of intangible assets | 218 | - |
| Divestment of property, plant and equipment | 2,895 | 757 |
| Payments/receipts regarding other non-current assets | 660 | 100 |
| Capital increase/decrease in associates | 2,396 | - 1 |
| Dividend from associates | - | 58 |
| Sale of finance lease portfolio | 2,831 | 8,004 |
| Sale of subsidiaries (net of cash) | 26,233 | - |
| Cash flow from investing activities | - 14,227 | - 46,110 |
| x € 1,000 | 2011 | 2010 |
|---|---|---|
| Proceeds from borrowings | 82,300 | 627,880 |
| Repayments of borrowings | - 1,878 | - 592,078 |
| Repurchase of/proceeds from treasury shares | - 81 | 144 |
| Capital decrease/dividend minority interest | - 2,281 | - |
| Cash flow from financing activities | 78,060 | 35,946 |
| Currency translation differences | - 1,848 | 6,740 |
| Change in cash and cash equivalents | 4,422 | - 13,942 |
| Cash and cash equivalents at start of financial year | 56,155 | 79,489 |
| Cash and cash equivalents at end of reporting period | 60,577 | 65,547 |
By approval of the amendment to the Articles of Association by the annual meeting of shareholders on 22 April 2010, the financial year of Océ N.V. has changed and starts as of 2011 and onwards on 1 January and ends on 31 December. The comparative half-year figures 2010 consist of the period 1 January 2010 until 30 June 2010. The half-year figures in the Interim Financial Report 2010 consisted of the period December 2009 until May 2010.
The Consolidated Interim Financial Statements for the six months ended 30 June 2011 have been authorized for issue by both the Board of Supervisory Directors and the Board of Executive Directors on 25 August 2011.
The Consolidated Interim Financial Statements have not been audited or reviewed by an external auditor.
The Consolidated Interim Financial Statements for the six months ended 30 June 2011 have been prepared in accordance with IAS 34 'Interim Financial Reporting' and do not include all the information and disclosures required in the Annual Financial Statements. The Consolidated Interim Financial Statements should be read in conjunction with the Consolidated Financial Statements for the year ended 31 December 2010, which have been prepared in accordance with IFRS, as adopted by the European Union.
Except as described under note (4) the accounting policies applied are consistent with those followed in the Consolidated Financial Statements for the year ended 31 December 2010, as described in those Consolidated Financial Statements.
As of financial year 2011, the gross margin definition has been changed to align with financial reporting of Canon. The main change relates to the cost of service personnel which previously was recorded under cost of sales and is now included in operating expenses.
Standards, amendments, revisions and interpretations effective to Océ in 2011:
IFRS 7 (Amendments) 'Financial Instruments: Disclosure (issued 7 October 2010)' The amendments to IFRS 7 are applicable as of 1 July 2011. The amendments will allow users of financial statements to improve their understanding of transfer transactions of financial assets (for example, securitizations), including understanding the possible effects of any risks that may remain with the entity that transferred the assets. The amendments also require additional disclosures if a disproportionate amount of transfer transactions are undertaken around the end of a reporting period. The amendments broadly align the relevant disclosure requirements of International Financial Reporting Standards (IFRSs) and US generally accepted accounting principles (GAAP). Océ is currently investigating the impact of the amendments on the full year consolidated financial statements.
IFRIC 14 (Amendment) 'Prepayment of a Minimum Funding Requirement' The amendment to IFRIC 14 is applicable for annual periods beginning on or after 1 January 2011. The amendment applies in the circumstances when an entity is subject to minimum funding requirements and makes an early payment of contributions to cover those requirements. The amendment permits such an entity to treat the benefit of such an early payment as an asset. IFRIC 14 did not have a significant impact on the interim consolidated financial statements.
Standards, amendments, revisions and interpretations not relevant to Océ:
IFRIC 19 'Extinguishing Financial Liabilities with Equity Instruments' IFRIC 19 is applicable for annual periods beginning on or after 1 July 2010. IFRIC 19 clarifies the requirements of IFRS when an entity renegotiates the terms of a financial liability with its creditor and the creditor agrees to accept the entity's shares or other equity instruments to settle the financial liability fully or partially.
Océ did not renegotiate the term of a financial liability with its creditor and have the creditor agree to accept the entity's shares or other equity instruments to settle the financial liability fully or partially, therefore IFRIC 19 is not relevant to Océ.
IAS 24 (Revision) 'Related Party Disclosures' IAS 24 (Revised) is applicable for annual periods beginning on or after 1 January 2011. The revised standard simplifies the disclosure requirements for government-related entities by providing a partial exemption for government-related entities and clarifies the definition of a related party. Océ is not a government-related entity, therefore the revision of IAS 24 is not relevant to Océ.
IFRS 2 (Amendment) 'Group Cash-settled Share-based Payment Transactions' The amendments to IFRS 2 are applicable for annual periods beginning on or after I January 2010. The amendments to IFRS 2 clarify the accounting for group cash-settled share-based payments transactions. Océ has cancelled all share-based payments transactions in 2010 as a result of the acquisition by Canon. Therefore the revision of IAS 24 is not relevant to Océ.
Issues' The amendment to IAS 32 is applicable for annual periods beginning on or after 1 February 2010. The amendment to IAS 32 addresses the accounting for rights issues (rights, options or warrants) that are denominated in a currency other than the functional currency of the issuer. The amendment requires that, provided certain conditions are met, such rights issues are classified as equity regardless of the currency in which the exercise price is denominated. Océ did not issue any rights. Therefore the amendment to IAS 32 is not relevant to Océ.
| average exchange rate of 1 euro | exchange rate of 1 euro at the balance sheet dates | ||||||
|---|---|---|---|---|---|---|---|
| during the six months ended | |||||||
| 30 June 2011 | 30 June 2010 | 30 June 2011 | 31 December 2010 | 30 June 2010 | |||
| Pound sterling | 0.87 | 0.87 | 0.90 | 0.86 | 0.81 | ||
| US dollar | 1.40 | 1.35 | 1.45 | 1.34 | 1.22 | ||
| Australian dollar | 1.36 | 1.50 | 1.35 | 1.31 | 1.42 | ||
| Swiss franc | 1.21 | 1.44 | 1.21 | 1.25 | 1.33 | ||
| Japanese yen | 112.34 | 123.25 | 116.57 | 108.73 | 108.64 |
Business segmentation of the selected income statement lines for the six months ended 30 June 2011 (2010: 30 June) is disclosed in the table below:
| x € million | Digital Document Systems |
Wide Format Printing Systems |
Océ Business Services |
total | ||||
|---|---|---|---|---|---|---|---|---|
| 2011 | 2010 | 2011 | 2010 | 2011 | 2010 | 2011 | 2010 | |
| Total revenues | 673 | 734 | 361 | 357 | 230 | 232 | 1,264 | 1,323 |
| Operating income | - 29 | - 43 | 5 | 20 | 8 | 10 | - 16 | - 13 |
Geographical information of total revenues for the six months ended 30 June is disclosed in the table below:
| X € million | 2011 | 2010 |
|---|---|---|
| United States | 428 | 462 |
| Germany | 133 | 141 |
| The Netherlands | 132 | 146 |
| France | 89 | 97 |
| United Kingdom | 84 | 87 |
| Rest of Europe | 244 | 251 |
| Countries outside Europe | ||
| and the United States | 154 | 139 |
| Total | 1,264 | 1,323 |
Research and development expenses amounted to € 85.1 million in the first half of 2011 (30 June 2010: € 69.1 million). In 'Research and development expenses' an amount of € 15.1 million was recognized regarding amortization of capitalized development expenses. During the six months ended 30 June 2011 an amount of € 26.1 million of development expenditure was capitalized.
| 2011 | |
|---|---|
| x € 1,000 | |
| Interest expenses | - 8,722 |
| Foreign exchange results on | |
| financing activities (net) | - 2,296 |
| Unwinding of discounts of provisions | - 164 |
| Other finance expenses | - 160 |
| Finance expenses | - 11,342 |
| Finance income | 1,041 |
| Total | - 10,301 |
In the first half of 2011 taxation amounted to € 2.4 million (30 June 2010: - € 29.0 million). The effective tax rate was 10.4% (30 June 2010: 17.8% excluding Canon related tax one-off items).
During the six months period ended 30 June 2011 expenditure in intangible assets amounted to € 27.9 million of which € 26.3 million related to internally generated technology and software. Amortization of intangible assets amounted to € 26.9 million in the first half year of 2011 of which € 18.0 million related
to internally generated technology and software. The carrying amount of internally generated technology and software amounted to € 165.2 million as at 30 June 2011 (31 December 2010: € 157.1 million).
Goodwill decreased by € 25.9 million due to exchange rate differences. This decrease is recognized directly in equity in the reserve for currency translation differences.
| x € 1,000 | |
|---|---|
| At 1 January 2011 | 297,422 |
| Expenditure | 21,596 |
| Divestments | - 2,875 |
| Sale of subsidiaries | - 1,747 |
| Depreciation | - 27,494 |
| Exchange differences | - 3,852 |
| At 30 June 2011 | 283,050 |
During the six months ended 30 June 2011 expenditure in Property, plant and equipment amounted to € 21.6 million and mainly related to investments in other equipment (€ 6.4 million) and production equipment (€ 14.1 million).
| x € 1,000 | 30 June 2011 | 31 December 2010 | ||
|---|---|---|---|---|
| assets | liabilities | assets | liabilities | |
| Interest rate swaps | - | - | - | - |
| Foreign exchange contracts | - | - | - | - |
| Cap on financing preference shares | 3 | - | 60 | - |
| Non-current | 3 | - | 60 | - |
| Foreign exchange contracts | 5,512 | 4,436 | 6,417 | 4,867 |
| Embedded derivatives | 124 | - | 32 | 61 |
| Current | 5,636 | 4,436 | 6,449 | 4,928 |
| Total | 5,639 | 4,436 | 6,509 | 4,928 |
| x € 1,000 | 30 June 2011 | 31 December 2010 | |
|---|---|---|---|
| Raw and other materials | 39,537 | 39,719 | |
| Semi-finished products and spare parts | 91,631 | 61,779 | |
| Finished products and trade inventories | 158,226 | 192,597 | |
| Total | 289,394 | 294,095 |
| x € 1,000 | 30 June 2011 | 31 December 2010 | |
|---|---|---|---|
| Other loans Finance lease obligations |
644 4,442 |
- 6,996 |
|
| Non-current | 5,086 | 6,996 | |
| Canon Euro loan* | 440,000 | 410,000 | |
| Canon USD loans* | 207,039 | 224,484 | |
| Bank overdrafts | 5,884 | 3,894 | |
| Other loans | 65,283 | 15,000 | |
| Finance lease obligations | 3,441 | 4,157 | |
| Current | 721,647 | 657,535 | |
| Total | 726,733 | 664,531 |
The carrying amount of the borrowings is denominated in the following currencies:
| x € 1,000 | 30 June 2011 | 31 December 2010 | |
|---|---|---|---|
| Euro | 510,463 | 427,762 | |
| US dollar | 215,592 | 235,153 | |
| Other | 678 | 1,616 | |
| Total | 726,733 | 664,531 |
* Reference is made to the related party transactions on page 25.
| x € 1,000 | other long | employee | restructuring | other | total |
|---|---|---|---|---|---|
| term | termination | ||||
| employee | benefits | ||||
| benefits | |||||
| At 1 January 2011 | 26,757 | 7,667 | 8,414 | 17,485 | 60,323 |
| Addition charged to income statement Unused amounts reversed to income |
1,426 | 1,319 | 9,742 | 262 | 12,749 |
| statement | - 670 | - | - 363 | - 3,227 | - 4,260 |
| Sale of subsidiaries | - | - | - | - 195 | - 195 |
| Used | - 1,191 | - 3,470 | - 8,372 | - 2,073 | - 15,106 |
| Unwinding of discount | 164 | - | - | - | 164 |
| Exchange differences | - 52 | - | - 89 | - 166 | - 307 |
| At 30 June 2011 | 26,434 | 5,516 | 9,332 | 12,086 | 53,368 |
| Current | 1,856 | 3,764 | 7,669 | 3,960 | 17,249 |
| Non-current | 24,578 | 1,752 | 1,663 | 8,126 | 36,119 |
| Total | 26,434 | 5,516 | 9,332 | 12,086 | 53,368 |
In the first half of 2011 no dividend was paid (first half year of 2010: nil).
Except as described below, there were no material changes in the nature, scale or scope of related party transactions in the first half of 2011 compared with the disclosures made in the Consolidated Financial Statements for the year ended 31 December 2010. All related party transactions described below are executed at arm's length.
The total credit facility amounts to € 670 million of which € 647 million has been drawn as at 30 June 2011. The credit facility is unsecured and has no financial covenants or commitment fees.
Océ sold in June 2011 Océ-Schweiz and Océ-Japan to Canon group companies. Océ received in total € 25.3 million for the shares of these companies and realized a book profit of € 7.6 million on these transactions.
Hans Kerkhoven has terminated his employment on 19 April 2011. Mr. Kerkhoven has received a severance payment of € 1.0 million. Reference is made to page 103 of the Annual Report 2010.
In the first half of 2011 there were no material changes to the Group's commitments and contingent liabilities from those disclosed in the Consolidated Financial Statements for the year ended 31 December 2010.
There were no events after the balance sheet date which are relevant to the Consolidated Interim Financial Statements.
(of 5% or more) As at 30 June 2011 the following notifications of substantial shareholdings in Océ N.V. have been made:
The above overview is based on the AFM notifications and registration only and does not necessarily represent that actual holding of these shareholders as changes within the limits of thresholds do not need to be notified to the AFM*. For current status, please consult the AFM reference system on their website www.afm.nl/registers.
* On 20 March 2010 Canon Inc. and Océ N.V. stated in a joint press release that Canon Inc. holds 73,934,429 ordinary shares in Océ N.V. On this date, the total number of shares held by Canon Inc. (including Océ's convertible financing preference shares) represent 87.51% of the total issued share capital of Océ N.V. Currently Canon holds approximately 90% of the Océ shares.
This Interim Financial Report contains information as referred to in article 5:59 in conjunction with article 5:53 of the Dutch Act on Financial Supervision (Wet op het financieel toezicht).
Forward-looking Statements, which can form a part of this report refer to future events and may be expressed in a variety of ways, such as 'expects', 'projects', 'anticipates', 'intends' or other similar words ("Forward-looking Statements").
Océ N.V. ("Océ") has based these Forward-looking Statements on its current expectations and projections about future events. Océ's expectations and projections may change and Océ's actual results, performance or achievements could differ significantly from the results expressed in or implied by these forward-looking statements due to possible risks and uncertainties and other important factors which are neither manageable nor foreseeable by Océ and some of which are beyond Océ's control.
When considering these Forward-looking Statements, you should bear in mind these risks, uncertainties and other important factors described in this report or in Océ's other annual or periodic filings.
For a non-limitative discussion of the risks, uncertainties and other factors that may affect Océ's actual results, performance or achievements, we refer you to the Annual Report and any other publications issued by Océ.
In view of these uncertainties no certainty can be given about Océ's future results or financial position. We advise you to treat Océ's Forward-looking Statements with caution, as they speak only as of the date on which the statements are made. Océ is under no obligation to update or revise publicly any Forwardlooking Statement, whether as a result of new information, future events or otherwise, except as may be required under applicable (securities) legislation.
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