Océ publishes 3rd quarter 2010 results

Recurring revenues increased 4% to € 476 million. The organic decline was 2%, in line with the second quarter.

The action program is almost fully implemented. The increase of the operating income was partly the result of the cost savings program. In the third quarter, Océ reduced costs by € 7 million, exclusive of inflation and restructuring cost. Year to date, Océ also reduced headcount by 890 FTEs compared to fourth quarter of 2009 (460 FTE’s up to the second quarter).

In the third quarter of 2010, normalized gross margin was 38.1 percent (2009: 36.6%). The increase was the result of several factors. Compared to the third quarter of 2009 the changes in currency exchange rates caused a negative hedge variance of € –0.4 million, leading to a gross margin decrease of 0.1% point. The gross margin increase for DDS and WFPS in total amounted to 1.1% points, mainly due to better utilization of the factories in Venlo and Poing and the aforementioned action program.

OBS gross margin increased by 0.3%, mainly due to changes in the business mix. The remaining 0.2% improvement was the result of a group mix effect. Normalized operating expenses amounted to 35.7% of revenues (2009: 35.9%), due to the impact of the action program. Net R&D capitalization amounted to € 5 million, which is € 9 million lower compared to the third quarter of 2009 (€ 14 million). On balance, normalized operating income amounted to € 16 million (2009: € 5 million). Operating income amounted to € 13 million (2009: € –25 million).

Finance expenses (net) amounted to € –5 million (2009: € –14 million). As a result of the refinancing of Océ’s debt by Canon, the finance expenses decreased compared to last year. On balance, net income was € 6 million (2009: € –25 million). Earnings per ordinary share for net income attributable to shareholders was € 0.05 (2009: € –0.31).

The balance sheet total was € 2,332 million (2009: € 2,397 million). Net Capital Employed was € 1,179 million (2009: € 1,171 million). In relation to normalized operating income, RoCE amounted to 4.1 % (2009: 2.9%). The afore- mentioned balance sheet and Net Capital Employed amounts include the Canon related one-off items.

Free cash flow in the quarter decreased to € –9 million (2009: € 19 million), due to lower free cash flow from temporarily higher inventories and trade and other receivables, partly compensated by higher free cash flow from creditors.

As already announced in the first quarter earnings release, Océ anticipated substantial one-off items as a consequence of the change of control following completion of the Canon offer on March 9, 2010. In the second quarter of 2010, Océ reported € 103 million one-off items due to the Canon transaction. Therefore, the nine months net income including these one-off items is € –95 million. In the third quarter, Océ incurred a € 3 million one-off item, impacting operating expenses.

The priorities for 2010 regarding the combination Canon and Océ encompass capturing cross-selling opportunities, co-operation in technology and product development and preparing the integration.

In the third quarter, Océ continued to prepare the introduction of Canon hardware and software products. Océ is training sales and service forces on Canon products and is preparing marketing plans and distribution.

In the small format business, implementation started during the quarter. Amongst others, Océ now sells Canon imagePRESS C 7000, Canon imageRUNNER ADVANCE 8000 and Canon imagePROGRAF printers as well as Canon printers connected to Océ PRISMA software.

In the meantime, Océ customers in the US and Europe started buying Canon office and production printers through the Océ sales channel, at the same time ensuring support of the Océ service technicians for maintenance of Canon’s equipment.

For the wide format business, a joint project has started to determine the cross sales opportunities in which both Canon and Océ can deliver a stronger product portfolio to their customers. Canon will also sell selected Océ high volume products in certain of their markets and channels.

In the fourth quarter, Océ is participating in Canon Expo; a global technology event, being held in New York, Paris, Tokyo and Shanghai (spring 2011), highlighting major innovations in printing and document management, amongst others.

Revenues in DDS amounted to € 375 million. Organically, revenues remained stable. The share ocolor increased to 30% of revenues (2009: 24%) driven by Océ’s production color continuous feed systems.

Based on recently issued 2009 product placement data by industry analyst firm InfoTrends, Océ continues to lead the continuous feed market in the US and Western Europe with a 26% share, including inkjet and toner-based technologies. During 2010, Océ received a significant number of orders in this segment, also for its new Océ JetStream 1000 printing system.

The Océ JetStream 1000 is perfectly suited for transaction, direct mail, TransPromo, digital book and manual printing and produces 1010 A4 duplex pages per minute.

In the office segment, Océ and Canon have jointly designed a go to market strategy. In the US, Océ has started selling Canon office printers. Prior to year- end, Océ will offer Canon office printers to all its customers worldwide.

Recurring revenues amounted to € 249 million. Organically, revenues declined by 2%. This was due to lower print volumes and subsequently lower revenues in office and black & white continuous feed. DDS grew its revenues in production cutsheet and continuous feed color.

Normalized operating income improved to € 3 million (2009: € –3 million), due to cost savings and better utilization in the Venlo and Poing factories.

Compared to the third quarter of 2009 the WFPS revenues recovered, mainly driven by revenue development of Technical Document Systems in the US and Asia. Non-recurring revenues recovered while recurring revenues were lagging behind due to volume and price decline.

Revenues in WFPS amounted to € 180 million. Organically, revenues were in line with the prior year. The share of color increased to 50% (2009: 45%), mainly as a result of the newly-introduced Océ ColorWave 300 and Océ CS2400 color systems for the technical documentation market.

To further strengthen its color portfolio for the wide format graphics market, Océ started selling its high- speed Océ Arizona 550 XT flatbed printer which has double the speed of the Océ Arizona 350 XT system.

Non-recurring revenues amounted to € 67 million. Organically, revenues increased by 12%. Growth occurred in almost all markets, with highest growth in Asia.

Recurring revenues amounted to € 113 million. Organically, recurring revenues declined by 3%.

Normalized operating income was € 9 million (2009: € 6 million) thanks to cost savings and better utilization of the Venlo factory.

Revenues in OBS amounted to € 114 million. Organically, revenues decreased by 2%. Revenue growth in Europe continued. The US is facing a decline in the traditional mail business, which was partly compensated through growth in other services.

Normalized operating income improved to € 4 million (2009: € 2 million), due to improved gross margins and tight operational expense management.

Customers will remain cost conscious amidst ongoing economic uncertainty. Nevertheless, they are expected to invest in systems and services that directly add value to their business. Therefore Océ will continue to introduce innovations for all its market segments.

Canon and Océ will continue to work towards creating the best combination in the printing industry. The priorities for 2010 remain unchanged and encompass capturing cross-selling opportunities, cooperation in technology and product development and preparing integration.

Océ’s fourth quarter 2010 will consist of four months as Océ will align financial reporting with Canon’s, consequently starting its new fiscal year at January 1, 2011. Results on fourth quarter and full year 2010 will be disclosed by the end of January 2011.