Earnings Release • Apr 26, 2011
Earnings Release
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January 2011 – March 2011
P.O. Box 101, 5900 MA Venlo, the Netherlands, phone +31 77 359 22 40 Trade register Limburg number 12002283 For more information on Océ, visit the company's website: www.investor.oce.com
'Océ had a challenging first quarter as revenues decreased due to a decline in two market segments. Cutsheet revenues were impacted by weaker printroom sales and portfolio changes. Technical documentation revenues were affected by the ongoing crisis in construction markets. We have addressed these revenue developments by strengthening our support for sales companies and by stringent cost control.
Océ achieved favorable revenue development in two other market segments. In continuous feed printing, Océ boosted its market leadership due to continued revenue growth, benefiting from printer sales of particularly the Océ JetStream series. In display graphics printing, sales grew due to the highly successful Océ Arizona series. In business services, revenue development was stable.'
| Key figures | First quarter* | ||
|---|---|---|---|
| In million € | 2011 | 2010 | ∆ |
| Total revenues | 638 | 647 | – 9 |
| Normalized operating income** | 5 | 15 | – 10 |
| Normalization items | – 9 | – 40 | 31 |
| Operating income (EBIT) | – 4 | – 25 | 21 |
| Net income | – 6 | – 87 | 81 |
| Normalized free cash flow | – 59 | 11 | – 70 |
* These first quarter figures cover the period January – March for both years.
** Excluding Canon-related one-off items and restructuring costs.
As announced previously, Océ has aligned its financial reporting with that of Canon, consequently starting the new financial year on 1 January 2011. To facilitate transparency and comparison, the figures presented in this release relate to the period January - March 2011 and the corresponding prior year period.
Total revenues declined by – 1% to € 638 million, due to lower revenues in DDS and TDS.
Organically, revenues declined – 3%.
The share of color grew to 38% of revenues (2010: 30%).
Non-recurring revenues declined by – 3% to € 172 million. The organic decrease was – 5%, mainly from lower cutsheet and TDS sales. Non-recurring revenues grew in continuous feed and display graphics.
Recurring revenues decreased by – 1% to € 466 million. The organic decline was – 3%, due to DDS and WFPS. Revenues for OBS were stable.
As of the 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 now is included in operating expenses.
In the first quarter of 2011, normalized gross margin was 62.6% (2010: 63.1%). Gross margin mainly declined due to WFPS € – 4 million (– 0.6% point) as a consequence of a change in the sales mix from TDS to DGS. Gross margin improved due to better OBS margins (+ 0.2% point) and decreased (– 0.2% point) due to mix change within DDS and lower factory utilization.
Normalized operating expenses amounted to 61.9% of revenues (2010: 60.9%). However total costs of € 394 million were in line with the same quarter of 2010, with business savings of € 5 million and foreign exchange impact of € – 6 million.
Total R&D cost increased € 6.6 million versus the same period last year, mainly due to lower capitalization.
On balance, normalized operating income amounted to € 5 million (2010: € 15 million).
Operating income amounted to € – 4 million (2010: € – 25 million), including € 9 million one-off items (2010: € 40 million).
As a result of the refinancing of Océ's debt by Canon, interest costs decreased compared to last year. Finance expenses (net) amounted to € – 6 million (2010: € – 13 million, excluding Canon related one-off items).
On balance, net income was € – 6 million. In 2010 net income amounted to € – 87 million, including significant Canon related one-off items on operating income, financial expenses and taxes.
Earnings per ordinary share for net income attributable to shareholders was € – 0.08 (2010: € – 1.04).
The balance sheet total was € 2,100 million (ultimo 2010: € 2,142 million) at the end of the first quarter of 2011. Net Capital Employed was € 1,118 million (2010: € 1,095 million). In relation to normalized operating income, RoCE amounted to 4.4% (2010: 5.2%).
Free cash flow in the first quarter of 2011 was € – 71 million (2010: € – 10 million) mainly due to outflow in liabilities (€ 39 million), receivables (€ 15 million) and rentals (€ 11 million) versus improvements last year in all working capital areas.
Océ continued to offer to customers worldwide a broad range of Canon office products, including the imagePRESS and imageRUNNER series. Similarly, Canon continued to offer to customers worldwide the Océ PRISMA®prepare software and the Océ VarioPrint® 6000 Line. In the quarter, Canon
dealers started to purchase the first of these systems in the US. The special "Canon Camp" continued into the first quarter, in which the Océ sales force was trained to sell the Canon product portfolio. At the end of the three-month period, approximately 1,500 Océ sales and service representatives had taken part in this training and information program. At various trade fairs in India, Korea, Dubai and China, Canon announced that it would be selling Océ products throughout these regions.
The first digital production press jointly developed by Canon and Océ went to market during the first quarter. On 22 March 2011, during tradeshows in Barcelona and Washington, D.C., the Canon imagePRESS C7010VPS was launched. This digital press combines the image quality and productivity of Canon hardware and the processing power of Océ PRISMA®sync workflow. This launch signified an important milestone in the combination as it is living proof of the joint R&D opportunities to offer customers access to the leading technology in the industry. Other jointly developed products will be introduced later this year.
Further steps were taken to prepare the way for cooperation and integration. Employees from Canon and Océ were involved on a daily basis during this quarter in capturing the benefits of the cooperation in teams ranging from Sales & Services, Research & Development, Manufacturing & Logistics to Information Systems, Intellectual Property and Finance & Administration.
| In million € / as % | DDS | WFPS | OBS | Total |
|---|---|---|---|---|
| Revenues | 346 | 175 | 117 | 638 |
| Organic development in revenues | – 6% | – 1% | + 0% | – 3% |
| Non-recurring revenues | 108 | 64 | – | 172 |
| Organic development in non-recurring revenues |
– 10% | 4% | – | – 5% |
| Recurring revenues | 238 | 111 | 117 | 466 |
| Organic development in recurring revenues | – 4% | – 4% | + 0% | – 3% |
| Normalized operating income* | – 2 | 1 | 6 | 5 |
* Excluding Canon-related one-off items and restructuring costs.
This paragraph provides an overview of developments in the Strategic Business Units for the period January – March 2011.
Continuous feed printer sales sustained their strong sales trend. According to independent industry analysts, Océ expanded its leading market position in continuous feed color (inkjet and toner) in the combined Western Europe and United States markets to 30% and in black & white to 47% in 2010. As of early 2011, Océ prepared the first installation of its latest innovation, the highproductivity inkjet continuous feed color printing system Océ ColorStream 3500. Launching customer is the French print provider CORUS, headquartered in Lyon. Annually, CORUS is printing over 50 million color pages.
The strategic alliance with manroland progressed according to plan. The agreement covers the joint development, marketing, sales and service of digital printing technology for the international offset markets. In the quarter, Océ and manroland jointly presented
the alliance during trade meetings in Russia and Germany.
In the quarter, Océ signed a new worldwide multi-year contract with GDF Suez, covering over 20 countries. Under this contract, Océ will deliver over 9,000 plotters and multi functional printers. The global business of this contract is potentially valued at € 55 million.
Revenues in DDS amounted to € 346 million. Organically, revenues declined by – 6%. The share of color was 32% of revenues (2010: 25%).
Non-recurring revenues amounted to € 108 million. Organically, revenues decreased by – 10%, especially due to decline in cutsheet sales. Reasons for the decline are the transition of the product portfolio, but also the lower sales of (Very) High Volume printers to printrooms. Continuous feed printer sales were strong in the US.
Recurring revenues amounted to € 238 million. Organically, revenues declined by – 4%. Both Europe and the US showed declines.
Normalized operating income declined to € – 2 million (2010: € 2 million), due to the lower cutsheet sales. It was also impacted by lower factory utilization in Venlo. Utilization of the Poing plant in Germany improved due to encouraging continuous feed printer sales.
Wide Format Printing Systems (WFPS)
Compared to the first quarter of 2010, WFPS printer sales showed some recovery, mainly driven by increased sales of display graphic systems. Printer sales for construction and engineering purposes were impacted by challenging market circumstances. In the US, Océ expanded its wide format dealer network, benefiting from a change in the competitive environment.
In the quarter, Océ introduced an innovative wide format printer, the Océ ColorWave 600 Poster Printer, built with Océ CrystalPoint imaging technology, targetting the international screen printing markets.
Revenues in WFPS amounted to € 175 million. Organically, revenues declined by – 1%. The share of color increased to 53% (2010: 45%).
Non-recurring revenues amounted to € 64 million. Organically, revenues increased by 4%. Growth was driven by both North America and Europe.
Recurring revenues amounted to € 111 million. Organically, recurring revenues declined by – 4% mainly due to decreasing click volumes on technical documentation systems.
Normalized operating income decreased to € 1 million (2010: € 8 million), reflecting the decline in recurring revenues.
Revenues in OBS amounted to € 117 million. Organically, revenues were stable. In the US, Océ gained new customers and created growth with innovative digital documentation services, compensating the decline in mail services, leading to an overall organic growth. In Europe revenues were impacted by declining print volumes and restructuring of inefficient sites, while OBS expanded its activities in Belgium, France and Scandinavia.
Normalized operating income improved to € 6 million (2010: € 5 million), due to higher gross margins and tight cost control.
Océ aims to improve the business by focusing on growth of revenues, profits and cash. Océ intends to grow the business by strengthening its position in mature markets, expanding in growth markets like graphic arts and document services and boosting cross selling with Canon. Jointly with Canon, Océ will expand its activities in growth markets like China and India. Océ will enlarge its product portfolio, amongst others by introducing innovative printing systems, jointly developed with Canon. Also, Océ will continue to prepare for the integration with Canon.
Board of Executive Directors Océ N.V. 26 April 2011
For further information: Jan Hol, Senior Vice President Communications, Phone +31 77 359 2000 E-mail [email protected]
Non-recurring revenues: revenues from the sale of machines, software and related services.
Normalization: adjustments to reported operating income of Canon-related one-off items and restructuring costs.
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).
| First quarter | First quarter | |
|---|---|---|
| In million € | 2011 | 2010 |
| Total revenues | 637.6 | 646.8 |
| Cost of sales | – 238.9 | – 255.3 |
| Gross margin | 398.7 | 391.5 |
| Operating expenses | – 403.2 | – 416.5 |
| Operating income | – 4.5 | – 25.0 |
| Financial expenses | – 5.8 | – 35.0 |
| Financial income | 0.2 | 0.7 |
| Share in income of associates | 0.1 | 0.1 |
| Income before income taxes | – 10.0 | – 59.2 |
| Income taxes | 3.9 | – 27.8 |
| Net income | – 6.1 | – 87.0 |
| Net income attributable to: | ||
| Shareholders | – 6.6 | – 87.5 |
| Minority interest | 0.5 | 0.5 |
| – 6.1 | – 87.0 | |
| Free cash flow | – 70.5 | – 10.0 |
| Average number of ordinary shares outstanding (x 1,000) | 84,891 | 84,888 |
| Earnings per ordinary share for net income attributable to shareholders in € |
||
| Basic | – 0.08 | – 1.04 |
| End of first quarter | End of financial year | ||
|---|---|---|---|
| 2011 | 2010 | ||
| In million € | |||
| Assets | |||
| Non-current assets | Intangible assets | 548 | 570 |
| Property, plant and equipment | 293 | 297 | |
| Rental equipment | 73 | 76 | |
| Associates | 3 | 3 | |
| Derivative financial instruments | – | – | |
| Trade and other receivables | 177 | 181 | |
| Deferred income tax assets | 105 | 99 | |
| Available-for-sale financial assets | 8 | 8 | |
| 1,207 | 1,234 | ||
| Current assets | Inventories | 293 | 294 |
| Derivative financial instruments | 6 | 7 | |
| Trade and other receivables | 531 | 542 | |
| Current income tax receivables | 9 | 9 | |
| Cash and cash equivalents | 54 | 56 | |
| 893 | 908 | ||
| Total | 2,100 | 2,142 | |
| Equity and Liabilities | |||
| Equity | Share capital | 54 | 54 |
| Share premium | 512 | 512 | |
| Other reserves | – 41 | – 14 | |
| Retained earnings | – 102 | 70 | |
| Net income attributable to shareholders | – 7 | – 167 | |
| Equity attributable to shareholders | 416 | 455 | |
| Minority interest | 32 | 33 | |
| 448 | 488 | ||
| Non-current liabilities | Borrowings | 6 | 7 |
| Derivative financial instruments | – | – | |
| Retirement benefit obligations | 368 | 368 | |
| Trade and other liabilities | – | – | |
| Deferred income tax liabilities | 15 | 13 | |
| Provisions for other liabilities and charges | 38 | 43 | |
| 427 | 431 | ||
| 658 | |||
| Current liabilities | Borrowings | 717 | 5 |
| Derivative financial instruments | 7 | ||
| Trade and other liabilities | 479 | 533 10 |
|
| Current income tax liabilities | 7 15 |
17 | |
| Provisions for other liabilities and charges | 1,225 | 1,223 | |
| Total | 2,100 | 2,142 |
| In million € | First quarter 2011 | Financial year 2010 |
|---|---|---|
| Balance at 1 January 2011 / 1 December 2009 | 455 | 544 |
| Net income attributable to shareholders | – 7 | – 167 |
| Dividend | – 1 | – 3 |
| Share-based compensation | – | 1 |
| Purchase of treasury shares | – | – |
| Cash flow hedges | – | 7 |
| Currency translation differences | – 31 | 73 |
| Balance at 31 March 2011 / 31 December 2010 | 416 | 455 |
| First quarter 2011 | |
|---|---|
| As percentage | |
| Non-recurring revenues | |
| Digital Document Systems | – 9.9% |
| Océ Business Services | – |
| Wide Format Printing Systems | 3.9% |
| Total | – 5.2% |
| Recurring revenues | |
| Digital Document Systems | – 3.8% |
| Océ Business Services | 0.4% |
| Wide Format Printing Systems | – 3.6% |
| Total | – 2.7% |
| Total revenues | |
| Digital Document Systems | – 5.8% |
| Océ Business Services | 0.4% |
| Wide Format Printing Systems | – 1.0% |
| Total | – 3.4% |
| First quarter 2011 | First quarter 2010 | |
|---|---|---|
| In million € | ||
| Operating income Adjustments for: |
– 4 | – 25 |
| Depreciation, amortization and impairment | 39 | 67 |
| Share-based compensation | – | – |
| Result on divestments, disposals | – | – |
| Unrealized gains/losses on financial instruments / Other | – 2 | 7 |
| Changes in: | ||
| Retirement benefit obligations | – | 6 |
| Provision for other liabilities and charges | – 7 | – 14 |
| Rental equipment | – 11 | – 13 |
| Inventories | – 5 – 15 |
8 9 |
| Trade and other receivables | – 32 | – 13 |
| Trade and other liabilities Operating cash flows: |
||
| Interest received | – | 1 |
| Interest paid | – 4 | – 26 |
| Income taxes | – 4 | 12 |
| Cash flow from operating activities | – 45 | 19 |
| Investment in intangible assets | – 14 | – 22 |
| Investment in property, plant and equipment | – 14 | – 10 |
| Divestment of intangible assets | – | – |
| Divestment of property, plant and equipment | 2 | 1 |
| Payments/receipts regarding other non-current assets | – | – |
| Capital increase/decrease in associates | – | – |
| Dividend from associates | – | – |
| Sale of finance lease portfolio Sale of subsidiaries (net of cash) |
– – |
2 – |
| Acquisitions (net of cash) | – | – |
| Cash flow from investing activities | – 26 | – 29 |
| Free cash flow | – 71 | – 10 |
| Proceeds from borrowings | 73 | 179 |
| Repayments of borrowings | – 1 | – 249 |
| Dividend paid to shareholders | – | – |
| Repurchase of/proceeds from treasury shares | – | – |
| Capital decrease/dividend paid to minority interest | – 2 | – |
| Cash flow from financing activities | 70 | – 70 |
| Currency translation differences | – 1 | 7 |
| Changes in cash and cash equivalents | – 2 | – 73 |
| Cash and cash equivalents at start of financial year | 56 | 79 |
| Cash and cash equivalents at end of reporting period | 54 | 6 |
Océ innovative by nature 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, 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 customerdriven 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.
This report contains information as referred in article 5:59 jo. 5:53 of the Dutch Financial Supervision Act (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 forwardlooking 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
forward-looking statement, whether as a result of new information, future events or otherwise, except as may be required under applicable (securities) legislation.
Océ enables its customers to manage their documents efficiently and effectively by offering innovative print and document management products and services for professional environments.
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