Earnings Release • Jul 22, 2011
Earnings Release
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Océ uarterly eport 2011/2 Q r
April 2011 – June 2011
Océ N.V.
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
'Revenues continued to decrease in the challenging second quarter due to several circumstances.
The construction markets in the USA and Europe showed an even further decline compared to last year. This had an impact on the development of the total results of Wide Format Printing Systems.
The revenues in cutsheet printing 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.
Three types of actions were put in place and are being executed vigorously to support our business in the second half of this year.
In the first place we are ramping up production of new products introduced recently and well received in the market.
We have strongly intensified our marketing and sales efforts to increase revenues. And we have put a stringent cost control program in place to improve the bottom line.
We have combined the sales and service operations of Canon and Océ in Switzerland and Japan. The preparation and implementation of the integration of Océ into the Canon Group is being executed according to plan.'
| Key figures* | Second quarter** | Six months | ||||
|---|---|---|---|---|---|---|
| In million € | 2011 | 2010 | ∆ | 2011 | 2010 | ∆ |
| Total revenues | 626 | 676 | – 50 | 1,264 | 1,323 | – 59 |
| Normalized operating income*** | – 7 | 20 | – 27 | – 3 | 35 | – 38 |
| Normalization items | – 4 | – 8 | 4 | – 13 | – 48 | 35 |
| Operating income (EBIT) | – 11 | 12 | – 23 | – 16 | – 13 | – 3 |
| Net income | – 14 | – 11 | – 3 | – 21 | – 98 | 77 |
| Normalized free cash flow*** | – 16 | – 17 | 1 | – 75 | – 6 | – 69 |
* The figures in this report are unaudited.
** These second quarter figures cover the period April – June for both years.
*** Excluding normalization items.
Total revenues declined organically by – 4% to € 626 million (including currency effects revenues declined by – 7%).
Non-recurring revenues declined organically by – 12% to € 162 million, reflecting developments at DDS.
Recurring revenues decreased organically by – 1% to € 464 million. This revenue development improved compared to previous quarters.
In the second quarter of 2011, normalized gross margin was 62.3% (2010: 63.0%). Gross margin declined due to WFPS (– 1.0% point) as a consequence of a change in product mix.
Normalized operating expenses amounted to 63.5% of revenues (2010: 60.0%). Total R&D cost increased € 5 million versus the same period last year, mainly due to lower capitalization. Compared to the same quarter of 2010, total costs declined by € 8 million to € 397 million.
On balance, normalized operating income amounted to € – 7 million (2010: € 20 million).
Operating income amounted to € – 11 million (2010: € 12 million), including € – 4 million normalization items (2010: € – 8 million). The normalization items relate to integration and restructuring.
Finance expenses (net) and net income Finance expenses (net) amounted to € – 5 million (2010: € – 22 million, including Canon related one-off items).
On balance, net income was € – 14 million (2010: € – 11 million, including Canon related one-off items).
Earnings per ordinary share for net income attributable to shareholders was € – 0.18 (2010: € – 0.14).
Normalized free cash flow in the second quarter of 2011 was € – 16 million (2010: € – 17 million). Despite the decline in normalized operating income, normalized free cash flow was equal to last year.
Revenues from the sale of Canon products by Océ slightly increased in the second quarter. The sales staff of Canon also signed an increasing number of orders for Océ systems. During the 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 showed 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-developed products will also be launched.
Steps were taken in the second quarter along the road to full cooperation and integration. The printing operations of Canon and Océ in Japan were combined, as were those of Canon and Océ in Switzerland. The sales companies involved are better positioned to enhance revenues and offer their products and services to a broader customer base. The preparation and implementation of the integration of Océ into the Canon Group is being executed according to plan.
| In million € / as % | DDS | WFPS | OBS | Total |
|---|---|---|---|---|
| Revenues | 327 | 186 | 113 | 626 |
| Organic development in revenues | – 9% | 2% | 1% | – 4% |
| Non-recurring revenues | 89 | 73 | 162 | |
| Organic development in non-recurring revenues |
– 23% | 8% | – 12% | |
| Recurring revenues | 238 | 113 | 113 | 464 |
| Organic development in recurring revenues | – 2% | – 1% | 1% | – 1% |
| Normalized operating income* | – 17 | 5 | 5 | – 7 |
* Excluding normalization items.
This section provides an overview of developments in the Strategic Business Units for the period April – June 2011.
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.
Continuous feed printer sales were impacted by the timing of several projects and the time needed to ramp up the manufacturing of the new Océ ColorStream 3500 system.
In the second quarter, Océ closed a number of big contracts for continuous feed systems and workflow automation with US retailer Wal-Mart, publisher Stroma (UK), US book printing company Lightning Source Inc. and Australian direct marketing company Salmat, among others.
In the quarter, Océ and manroland detailed their strategic alliance at a Production Printing Summit held at Océ's technology center in Germany. This alliance facilitates the joint
development, marketing, sales and service of digital printing technology for the international offset markets.
Revenues in DDS amounted to € 327 million. Organically, revenues declined by – 9%. Non-recurring revenues declined sharply to € 89 million, organically by – 23%. Recurring revenues amounted to € 238 million. Organically, revenues declined by – 2%.
Normalized operating income amounted to € – 17 million (2010: € 1 million).
The construction markets in the USA and Europe showed an even further decline compared to last year. This had an impact on the development of the total results of WFPS. Printer sales in WFPS developed positively driven by targeted action plans, strengthening the competitive position of the Océ sales companies.
Display Graphics Systems maintained its revenue growth. In the quarter the Océ Arizona 360 GT and XT flatbed printing system was launched at the annual Fespa trade fair, held this year in Hamburg in May. Customer
deliveries started in the second quarter and will accelerate in the second half of the year.
Revenues in WFPS amounted to € 186 million. Organically, revenues increased by 2%. Non-recurring revenues amounted to € 73 million. Organically, revenues rose by 8%. Recurring revenues amounted to € 113 million. Organically, revenues declined by –1%.
Normalized operating income amounted to € 5 million (2010: € 13 million).
In the quarter, OBS continued to grow revenues in higher value-added services like records management, litigation support and business process outsourcing. These increasingly substitute commodity services and therefore generate higher margins.
OBS was recently, for the fifth consecutive year, named in the International Association of Outsourcing Professionals' Global Outsourcing 100 list. Customers are increasingly consulting this list to partner with service providers who have achieved solid outsourcing results.
In Europe, OBS won a significant contract with the UK subsidiary of the international insurance company AEGON. In Spain, OBS signed a new contract with leading household appliance provider Bosch Siemens. Throughout Europe, OBS registered a growing customer demand for its value-added services.
Revenues at OBS amounted to € 113 million. Organically, revenues increased by 1%. Normalized operating income amounted to € 5 million (2010: € 6 million).
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. And 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.
On 25 August 2011, the Océ interim financial report for the six months ended 30 June 2011 will be published.
On 31 August 2011, at 11.00 CET, an analyst call and audio webcast will be held related to the publication of the Océ second quarter results and interim financial report 2011.
Board of Executive Directors Océ N.V. 22 July 2011
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.
| Second quarter | First six months | |||
|---|---|---|---|---|
| In million € | 2011 | 2010 | 2011 | 2010 |
| Total revenues | 625.9 | 676.1 | 1,263.5 | 1,322.9 |
| Cost of sales | – 236.4 | – 249.9 | – 475.4 | – 505.2 |
| Gross margin* | 389.5 | 426.2 | 788.1 | 817.7 |
| Operating expenses | – 400.7 | – 413.9 | – 803.8 | – 830.4 |
| Operating income | – 11.2 | 12.3 | – 15.7 | – 12.7 |
| Financial expenses | – 5.6 | – 24.4 | – 11.3 | – 59.3 |
| Financial income | 0.8 | 2.3 | 1.0 | 3.1 |
| Share in income of associates | 3.0 | 0.1 | 3.1 | 0.1 |
| Income before income taxes | – 13.0 | – 9.7 | – 22.9 | – 68.8 |
| Income taxes | – 1.5 | – 1.1 | 2.4 | – 29.0 |
| Net income | – 14.5 | – 10.8 | – 20.5 | – 97.8 |
| Net income attributable to: | ||||
| Shareholders | – 15.0 | – 11.4 | – 21.5 | – 98.8 |
| Minority interest | 0.5 | 0.6 | 1.0 | 1.0 |
| – 14.5 | – 10.8 | – 20.5 | – 97.8 | |
| Free cash flow | – 1.3 | – 48.0 | – 71.8 | – 56.6 |
| Average number of ordinary shares outstanding (x 1,000) | 84,891 | 84,891 | 84,891 | 84,890 |
| Earnings per ordinary share for net income attributable to shareholders in € |
||||
| Basic | – 0.18 | – 0.14 | – 0.27 | – 1.18 |
* 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.
| End of second | End of financial year | ||
|---|---|---|---|
| quarter 2011 | 2010 | ||
| In million € | |||
| Assets | |||
| Non-current assets | Intangible assets | 541 | 570 |
| Property, plant and equipment | 283 70 |
297 76 |
|
| Rental equipment | 3 | 3 | |
| Associates | – | – | |
| Derivative financial instruments | 148 | 181 | |
| Trade and other receivables | 103 | 99 | |
| Deferred income tax assets | 8 | 8 | |
| Available-for-sale financial assets | 1,156 | 1,234 | |
| Current assets | Inventories | 289 | 294 |
| Derivative financial instruments | 6 | 7 | |
| Trade and other receivables | 531 | 542 | |
| Current income tax receivables | 12 | 9 | |
| Cash and cash equivalents | 61 | 56 | |
| 899 | 908 | ||
| Total | 2,055 | 2,142 | |
| Equity and Liabilities | |||
| Equity | Share capital | 54 | 54 |
| Share premium | 512 | 512 | |
| Other reserves | – 47 | – 14 | |
| Retained earnings | – 100 | 70 | |
| Net income attributable to shareholders | – 22 | – 167 | |
| Equity attributable to shareholders | 397 | 455 | |
| Minority interest | 32 | 33 | |
| 429 | 488 | ||
| Non-current liabilities | Borrowings | 7 | |
| Derivative financial instruments | 5 – |
– | |
| Retirement benefit obligations | 360 | 368 | |
| Trade and other liabilities | – | – | |
| Deferred income tax liabilities | 15 | 13 | |
| Provisions for other liabilities and charges | 36 | 43 | |
| 416 | 431 | ||
| Current liabilities | Borrowings | 722 | 658 |
| Derivative financial instruments | 4 | 5 | |
| Trade and other liabilities | 462 | 533 | |
| Current income tax liabilities | 5 | 10 | |
| Provisions for other liabilities and charges | 17 1,210 |
17 1,223 |
|
| Total | 2,055 | 2,142 |
| In million € | First six months 2011 | Financial year 2010 |
|---|---|---|
| Balance at 1 January 2011 / 1 December 2009 | 455 | 544 |
| Net income attributable to shareholders | – 22 | – 167 |
| Dividend | 6 | – 3 |
| Share-based compensation | – | 1 |
| Purchase of treasury shares | – | – |
| Cash flow hedges | – | 7 |
| Currency translation differences | – 42 | 73 |
| Balance at 30 June 2011 / 31 December 2010 | 397 | 455 |
| Second quarter 2011 | First six months 2011 | |
|---|---|---|
| As percentage | ||
| Non-recurring revenues | ||
| Digital Document Systems | – 22.8 | – 16.3 |
| Océ Business Services | – | – |
| Wide Format Printing Systems | 8.3 | 6.3 |
| Total | – 11.5 | – 8.4 |
| Recurring revenues | ||
| Digital Document Systems | – 2.4 | – 3.1 |
| Océ Business Services | 0.8 | 0.7 |
| Wide Format Printing Systems | – 1.3 | – 2.4 |
| Total | – 1.4 | – 2.0 |
| Total revenues | ||
| Digital Document Systems | – 9.0 | – 7.4 |
| Océ Business Services | 0.8 | 0.7 |
| Wide Format Printing Systems | 2.3 | 0.7 |
| Total | – 4.2 | – 3.8 |
| First six months 2011 | First six months 2010 | |
|---|---|---|
| In million € | ||
| Operating income Adjustments for: |
– 16 | – 13 |
| Depreciation, amortization and impairment | 78 | 110 |
| Share-based compensation | – | – 5 |
| Result on divestments, disposals | – 8 | – |
| Unrealized gains/losses on financial instruments / Other | – 2 | 2 |
| Changes in: | ||
| Retirement benefit obligations | 2 | – |
| Provision for other liabilities and charges | – 7 | – 14 |
| Rental equipment | – 21 | – 24 |
| Inventories | – 5 | – 5 |
| Trade and other receivables | – 30 | 2 |
| Trade and other liabilities | – 28 | – 14 |
| Operating cash flows: | 1 | 1 |
| Interest received Interest paid |
– 9 | – 51 |
| Income taxes | – 13 | 1 |
| Cash flow from operating activities | – 58 | – 10 |
| Investment in intangible assets | – 28 | – 38 |
| Investment in property, plant and equipment | – 21 | – 17 |
| Divestment of intangible assets | – | – |
| Divestment of property, plant and equipment | 3 | 1 |
| Payments/receipts regarding other non-current assets | 1 | – |
| Capital increase/decrease in associates | 2 | – |
| Dividend from associates | – | – |
| Sale of finance lease portfolio | 3 | 8 |
| Sale of subsidiaries (net of cash) Acquisitions (net of cash) |
26 – |
– – |
| Cash flow from investing activities | – 14 | – 46 |
| Free cash flow | – 72 | – 56 |
| Proceeds from borrowings | 82 | 628 |
| Repayments of borrowings | – 2 | – 592 |
| Dividend paid to shareholders | – | – |
| Repurchase of/proceeds from treasury shares | – | – |
| Capital decrease/dividend paid to minority interest | – 2 | – |
| Cash flow from financing activities | 78 | 36 |
| Currency translation differences | – 1 | 6 |
| Changes in cash and cash equivalents | 5 | – 14 |
| Cash and cash equivalents at start of financial year | 56 | 79 |
| Cash and cash equivalents at end of reporting period | 61 | 65 |
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 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.
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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