Good morning ladies and gentlemen,
May I also warmly welcome you to the Océ press conference for the presentation of the provisional annual results for 2003.
Overall, it has not been an easy year for the following reasons:
- Because of the cautious investment climate, sales of machines were lower than in the preceding year;
- The strong decline in the dollar led to lower revenues and income for our subsidiaries in the USA, which account for 40% of total Océ revenues.
But on the other hand there are a number of positive aspects to report:
- The restructuring that was initiated in 2001 has been completed successfully and according to plan;
- The reduction of personnel and the proportion of low volume machines in the market have been achieved according to plan, and have led to substantial cost reductions;
- We have introduced a number of new products which are selling
- That meant the decrease of total revenues in the fourth quarter came practically to a halt, and sales of machines increased by 3.1% on an autonomous basis.
This result is a positive signal for 2004; but it is still too premature to connect a conclusion to this already now.
Now I would like to give you some more information about the financial results and operational matters.
Let's start with the financial results.
- Total revenues amounted to almost 2.8 billion euro; a decline of 12.8% compared with 2002.
On an autonomous basis, revenues declined by 5.1%, while exchange rates and the sale of our subsidiary company in South Africa were responsible for a negative effect totalling 7.7%.
In the first half year there was a strong decline in revenues. This was virtually halted in the fourth quarter.
- The gross margin decreased by 12.3%, to almost 1.2 billion euro. The autonomous decline was 4.6%.
- The operating expenses, before impairment charges, declined by 7.9%.
The autonomous decline was 1.7%.
This decline is the result of the savings generated by the restructuring.
- The operating income, before impairment charges, amounted to 150 million euro.
This is a decline of 33.6% compared with 2002.
- Thanks to lower financing costs and a lower taxation charge, net income, before impairment charges, declined by less than the operating income, amounting to more than 82 million euro. This is 27.1% lower than in 2002.
- Finally the net income per share before impairment charges: this declined by 27.6% compared with 2002, amounting to 94 euro cents.
As a consequense of the exeptional value decline of fixed assets (impairment) of Practical Print Solutions in the UK and Océ Display Graphic Systems in the USA a net amount of 25.2 million euro before income taxes has been charged.
That completes the explanation of the financial results.
Now I would like to look in more detail at Océ's operational activities in the market segments.
In the market segments I will start with the Strategic Business Unit Digital Document Systems (DDS), which operates in the office and printing markets. In these markets Océ supplies small format printers and digital copiers with speeds varying from 45 to 158 pages per minute.
Océ also supplies continuous feed printers with speeds of between 100 and 1200 pages per minute.
Applications in the office market are: office documents and transaction documents such as bank statements, insurance policies and energy bills.
In the printing market, these printers are increasingly being used as alternatives for offset printing presses. The importance of the Océ CPS700 colour printer is increasing in both the office and printing markets. In 2004 we will introduce the next generation of this Océ colour technology.
Revenues of DDS declined by 11.5% to 1,907 million euro. Of this decline, 4% was autonomous while 7.5% was accounted for by exchange-rate effects. Sales of machines and software during the year were down by 9.6%. As a result of this, service revenues declined by 2% on an autonomous basis.
We have listened carefully to the wishes of our customers, and as a result we have developed a number of new products which have been enthusiastically received by the market.
Thanks to major efforts by our sales companies, this has already been translated into an autonomous increase of 8% in sales of new machines and software in the fourth quarter.
However the lower operating expenses were unable to provide sufficient compensation for the lower revenues and gross margin.
This meant that the operating income of DDS declined by 36.2% to 83 million euro. The relative margin remained at the same level.
The Strategic Business Unit Wide Format Printing Systems (WFPS) supplies products and services for the management and printing of wide format documents in the technical and display graphics market.
Total revenues of WFPS declined by 15.5% to 862 million euro.
Of this decline, 7.5% was autonomous, while -8% was caused by exchange-rate effects.
The WFPS market is sensitive to fluctuations in the economic cycle, and customer purchases of machines and software were down by more than 10%. As a result, service revenues were also down by 6% on an autonomous basis.
Despite the continuing economic downturn, we were able to maintain our market share.
The first colour printer developed by Océ for the technical market has proved to be a good match for customer requirements. Thanks partly to the success of this printer, the decline in sales was brought to a halt in the fourth quarter.
Operating income declined by 30.2% to 67 million euro. Also here the lower operational costs were unable to compensate for the decline in the gross margin. However the relative margin on sales and services in this market segment was maintained at a good level.
To summarise, both Strategic Business Units were faced with a cautious investment climate in 2003. In the second half of the year, and especially in the fourth quarter, we were able to turn around the declining trend.
It is still too soon to talk about a structural recovery, but we can regard this as a positive signal for 2004.
That completes my explanation of operational matters in the Strategic Business Units.
Ladies and gentlemen, that brings me to the results of the restructuring project that we implemented during 2002 and 2003.
This project has been completed successfully and according to plan.
The new market-oriented organisational structure has now been operational for one year, and is starting to show its first results. Océ is now able to offer its customers in each market segment an optimal combination of products (hardware and software) and services, matching the requirements of each specific segment.
The reduction in job numbers that formed part of the restructuring has also been completed. In total, employment has been reduced by 1450 jobs worldwide. This is 350 more than was originally planned.
As a result, a saving of 60 million euro in personnel costs was achieved in 2003, compared with 2001.
The phasing-out of the low volume machines in our international markets (with the exception of the Netherlands) was also completed according to plan. By now 74% of the planned reduction has been achieved, and the remainder will be phased-out at the end of 2004. The corresponding cost savings for 2003, compared with 2001, are 15 million euro.
As may be known Océ has decided to outsource its lease portfolio. Existing and new lease contracts will be transferred from Océ to specialist leasing companies, which will also handle the financing and administrative processes.
Océ is and remains the 'customer-facing brand', through the use of the Océ logo, the Océ sales force and the Océ service organisation.
The improvement of the financial offering increases the commercial opportunities for Océ, and the proceeds of the transfer provide extra opportunities for investment in our core activities.
The separation of the commercial and financial activities creates a significantly increased transparency of the results of Océ
Last but not least, the substantial shortening of the balance will significantly improve the returns on total assets and on shareholders' equity.
Good progress is being made in the outsourcing of the leasing portfolio, with a total value of 100 million euro transferred in 2003. The transfer of the leasing portfolio to third parties is expected to be largely completed by the end of 2004.
That completes this review of the financial and operational activities at Océ for the year 2003.
Ladies and gentlemen, Océ set itself ambitious targets a few years ago, both financial and commercial.
In the financial area, Océ aims for a Return on Assets (RoA) of 12% and a Return on Equity (RoE) of 18%.
In 2003 the RoA was 5.7% and the RoE 11.1%, both before impairment of fixed assets.
In commercial terms, Océ aims for a top 3 position in the selected strategic market segments.
At present we already hold these positions in the wide format market and in high volume transaction printing. In the other segments we are among the top 5.
Briefly summarised, the planned actions to achieve these targets are:
- Investing in marketing programmes and strengthening of the sales organisations. Through these measures Océ aims to achieve new growth in revenues and income, on the basis of the strongly renewed product range.
- Further increasing the budgets for technology and product development.
Spearheads of the innovation programme are high volume printing, colour and software.
- Transfer of part of the production of machines from Venlo to low-labour-cost countries. This will enable us to reduce substantially the cost prices of specific product lines.
- Further outsourcing of the lease portfolio. This will create extra financial opportunities for investments in autonomous and external growth. In this respect we are thinking of acquisitions of profitable companies or units in the growth markets.
As you can see, despite the difficult economic conditions in the last few years Océ is sticking to its original goals.
The management and the employees of Océ have every confidence that we will be able to achieve our long-term targets.
In recent years we have achieved a great deal in the areas of commercial organisation and technological innovation.
The planned investments in sales and innovation will enable us to strengthen our competitive position further.
Ladies and gentlemen, to conclude my presentation, that brings me to the prospects for 2004.
Economic conditions have improved slightly in recent months. This has partly led to an improvement in sales of printing systems.
As yet, however, it is too early to see whether this improvement will continue. The result for 2004 will also be affected by exchange rate of the euro, especially in terms of the pressure that this has on prices and the currency translation effects.
In view of these uncertain factors it is not possible to give a reliable forecast for the net income for the 2004 financial year. Océ is convinced that it will be in a position to benefit optimally from its new market focused organisation structure, the printing systems that were launched in 2003 and the company's dedicated efforts to reduce costs and working capital requirements. | 
