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* Total revenues € 700.1 million [-1.5% organically, excluding fax] * Normalized operating income € 16.8 million [2007: € 21.2 million] * One-off items of € 28.0 million lead to operating income of - € 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 € 80 million savings in 2008 and an additional € 50 million savings in 2009. Year to date we reduced costs by € 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 [- € 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 € 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.'
Summary results of third quarter 2008* Key figures Third quarter Nine months In million € / as % 2008 2007 ^ 2008 2007 ^ Total revenues 700.1 753.5 -7.1% 2,107.0 2,259.8 -6.8% Normalized operating 16.8 21.2 -20.7% 54.5 72.1 -24.4% income** One-off items -28.0 - - -24.4 -0.7 - Operating income [EBIT] -11.2 21.2 - 30.1 71.4 -57.9% Normalized net income** 1.7 12.6 -86.3% 20.6 43.6 -52.7% 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.
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 € 16.8 million [2007: € 21.2 million], including a negative currency exchange impact of € 6 million. One-off items amounted to €28.0 million of which € 10.2 million restructuring charges; the remainder related to the sale of the loss making coating business of Arkwright, being a € 4.6 million book loss and the realization of € 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 € 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 € 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 € 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 € 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 € 80 million in 2008 and by an additional € 50 million in 2009. Year to date Océ achieved € 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 € 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 € 4.6 million and the realization of € 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 € 28.0 million of which € 4.6 million impacted gross margin and € 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.
[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.
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 € 3.9 million [2007: € 3.6 million].
On balance, normalized operating income amounted to € 16.8 million [2007: € 21.2 million]. The strong euro caused a negative currency exchange impact of € 6 million. Operating income amounted to - € 11.2 million [2007: € 21.2 million].
Financial expenses and net income Financial expenses [net] amounted to € 11.3 million [2007: € 10.1 million].
Taxation was € 1.3 million [2007: € 1.3 million contribution to net income].
On balance, normalized net income was € 1.7 million [2007: € 12.6 million].
Balance sheet, RoCE and cash flow The balance sheet total was € 2,378 million, compared with € 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 € 1,292 million, compared to € 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 - € 17 million [2007: € 23 million]. Cash flow from operating activities, - € 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, - € 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.
For further information: Investor Relations: Carlo Schaeken, Vice President Investor Relations Phone +31 77 359 2240, e-mail investor@oce.com
Press: Jan Hol, Senior Vice President Corporate Communications Phone +31 77 359 2000, e-mail jan.hol@oce.com
