Slide 2: Summary 2005 excluding Imagistics
The last time we spoke, around a year ago, service incomes had declined strongly and the dollar was weak. The result was a strong setback in profits.
But there was one bright spot: in 2004 the sales of new printing systems had increased again for the first time in three years. And that gave us hope for the future.
What we had to do in 2005 was clear: sell so many systems that the service incomes would again increase. And it worked!
We have sold a significantly higher number of systems, and as a result we have turned the declining trend in service incomes around.
The flywheel of revenues from service and media is now turning the right way again. That has had a positive effect on the results.
For example the total revenues increased by 2% on an organic basis.
The operating income from our commercial activities even increased by 66% compared with 2004.
Based on our own strengths, and by sticking to our strategic spearhead areas - increasing sales and innovation - we have succeeded in once again finding the way upwards!
Slide 3: Summary 2005 including Imagistics
The second big news item of 2005 was of course the acquisition of the US Company Imagistics International Inc.
The integration of Imagistics in the Océ Group is proceedings as
planned.
The Océ-Imagistics combination has given us an excellent basic position to archieve a strong development in the United States.
On balance, 2005 was a year in which we achieved a great deal.
Now I would like to go through the financial results and the operational activities.
Let's start with the financial results.
Slide 4: Financial results 2005
As you know, Océ has now sold two-thirds of the lease portfolio.
In some places this gives a distorted impression of the underlying business developments. In talking about the revenues, margin and commercial result, I will discuss the results excluding the effects of the leasing activities.
- Total revenues increased by 2% in 2005 on an organic basis excluding leasing activities.
This increase was achieved because we sold significantly more printing systems than in 2004. With an increase of 10.5%, Océ has one of the highest growth rates in our industry!
Revenues from service and media showed a recovery during the year with an increase of 1.4% in the fourth quarter.
- The gross margin, and here again this is excluding the leasing activities, was 39.1% of revenues, which is virtually the same as the figure for last year. We have been able to maintain the margin by compensating for the pressure on prices in the market through lower cost prices of our products.
We achieved those lower cost prices by transferring part of the manufacturing to countries with lower labour costs.
As well as that, the increased numbers of machines allowed us to achieve a better utilisation of production capacity.
- The operating expenses as a percentage of revenues remained at the same level in 2005.
Ladies and gentlemen,
The result for 2005 includes several large exceptional items.
Before I can explain the development of the operating income and the net income, I'd like first to look at these exceptional items.
First of all: the pension costs.
We have concluded a new collective wage agreement with the trade unions and employee representative bodies in the Netherlands. One of the agreements reached as part of this collective bargaining process is that pension benefits will be based on an "career average earnings" system instead of a "career final earnings" system. As a result an amount of 68 million euro will be released from the pension provisions on the balance sheet.
Secondly, we have included provisions for restructuring costs in Europe and America.
We already announced in November that we intended to reduce costs further. That will mean a reduction of employment levels in Europe by approximately 500 jobs.
The integration of Océ with Imagistics in the USA is being combined with additional cost-reducing measures in the other US operating companies. These will involve a total of approximately 250 jobs.
The provisions for the costs of these restructurings are a total of 48 million euro. Of this, 33 million euro has been charged to the result for 2005.
The remaining 15 million euro will be charged in 2006.
We expect to be able to make total cost savings of 50 million euro, of which approximately 35 million euro will be implemented gradually in 2006, and the remaining 15 million in 2007.
- Taking these exceptional items into account, the operating income for the year was 110 million euro, which is at the same level as in 2004.
- The net income increased by 1% to almost 80 million euro.
- The earnings per share figure was 92 euro cent.
- Finally, the operating income from commercial activities.
This is the operating income excluding exceptional items, and excluding the results of the leasing activities.
In fact this figure is the best indicator for the development of the business.
The operating income from commercial activities increased by 66%, from 31 million euro in 2004 to 51.6 million euro in 2005.
This robust increase shows that Océ has clearly recovered in the second half of 2005, and is now once again moving in the right direction!
That completes the explanation of the financial results.
Now I would like to look in more detail at the operational activities in the various market segments in which Océ operates.
Slide 5: Digital Document Systems 2005
Starting with the Strategic Business Unit Digital Document Systems, which serves the office and graphics markets.
Océ offers a complete range of printers, copiers, software and services to support all our customers' document production and document management activities.
We develop and produce printers and digital copiers with speeds ranging from 45 to 158 pages per minute.
In addition, Océ supplies continuous feed printers with speeds of between 100 and 1200 pages per minute.
Although black & white printing and copying still account for by far the largest share of the market, the importance of colour is increasing rapidly. Océ is responding to that trend by offering a wide range of colour copiers and printers. This range consists of machines we have developed in-house, completed by externally sourced products.
Successful deployment of these printers at our customers' sites is achieved using best-in-class output-management software and professional IT services.
In the office market, our printers are used for tasks like printing office documents and transaction documents such as bank statements, insurance policies and invoices.
For example, the majority of the health insurance policies sent out in the Netherlands at the end of last year were printed on Océ printers. So you can well imagine that we regard the increased competition in the healthcare sector as a positive factor.
In the graphics market, digital printers are increasingly being used alongside offset printing presses.
Digital printers have significant advantages for small runs, which can be printed as and when they are needed; in other words 'printing on demand'.
As well as that, digital printers also make personalised printing possible.
Revenues in DDS increased by 1,4% on an organic basis.
During the year we achieved an increase of more than 10% in the sales of new printing systems. This growth is attributable to the substantial investments we have made in marketing and sales, and to the competitive strength of our product range.
The development of earnings from servicing has more or less stabilised, because the increased numbers of maintenance contracts for digital machines have largely compensated for the decline in maintenance of analogue copiers.
In addition, Business Services has succeeded in returning to growth in the fourth quarter after a year of declining revenues.
Slide 6: Wide Format Printing Systems 2005
The Strategic Business Unit Wide Format Printing Systems supplies products and services for the management and printing of wide format documents in the technical and graphics markets.
In these markets, Océ supplies printers, scanners and digital copiers with speeds ranging from around 0.5 to 12 A0 sheets per minute.
Just to explain what that means in practice: 1 A0 sheet is approximately 1 square metre of paper.
Typical applications are technical drawings, design drawings and advertising posters.
As well as black & white printing, the use of colour in the technical documentation market is increasing rapidly. The application of digital colour printers in the graphics market is becoming increasingly important.
Here too, Océ is responding to this trend by offering a complete portfolio of colour printers and scanners, some of them developed in-house, completed by externally sourced products.
For the wide format printers too, these are optimally integrated in customers' total document flows by means of excellent output management software and professional IT services.
Revenues in WFPS increased by 3.6% compared with 2004.
The revenues from the sales of new printing systems increased by more than 10%. In the technical market we were able to increase sales of both black & white and colour machines.
Sales of colour machines in the graphics market increased strongly.
Revenues from maintenance contracts and media for the full year 2005 increased compared with the preceding year.
The increase was greater in the second half of the year, reaching more than 5% in the fourth quarter.
To summarise, both Strategic Business Units achieved significantly better results in 2005.
The efforts that we have made in sales and innovation are clearly starting to show results.
Slide 7: Océ-Imagistics
Ladies and gentlemen, that brings me to the integration of Imagistics International Inc., the company that we acquired at the end of October to strengthen our position in the United States.
As you know, a very important element of our strategic agenda was the sale of the lease portfolio, allowing us to invest the proceeds from that sale in the core business of Océ.
The acquisition of Imagistics means we have achieved that aim.
By integrating the office activities of Océ-USA with Imagistics, we are creating a very strong point of departure.
Océ-Imagistics has a sales force of approximately 1000 people, and a service organisation with 1500 technicians.
This organisation can offer the US market a total service with a range of competitive products developed in-house, completed by a strong range of products from third parties.
Slide 8: Océ-Imagistics supporting accounts coast-to-coast
We now gain direct access to more than 6000 major customers with whom we can create additional business, both with our DDS products and with Business Services.
We now have a truly nationwide coverage in the United States.
This gives us a strong position among the major US customers, many of whom have locations across the entire country.
We started with the integration process in November.
This is making excellent progress, and the plans that we have drawn up give me confidence that we will achieve the expected synergy benefits with a value of 15 million euro in 2006.
Through the acquisition of Imagistics, Océ has revenues in the United States of more than 1.7 billion dollars.
That completes the explanation of the financial results and operational activities for 2005.
Océ has made the turnaround in the second half of the year. Business has now significantly improved after three difficult years. That is the result of focused hard work on the strategic spearhead areas, which we defined three years ago:
- Despite the strong pressure on profits, we have continuously invested in marketing, sales and R&D.
As a result, our sales power has significantly increased and we now have a highly competitive product range.
- We have sold the leasing business, enabling us to invest the proceeds in our core activities.
- The acquisition of Imagistics is the result of a careful process of finding the right candidate.
- We have kept our costs and working capital under tight control.
- And not least, despite all the pressure and far-reaching measures, we have been able to maintain the social cohesion in our company.
We are now at the beginning of a new period of growth in both revenues and income. The race is not yet over, there is still a lot to be done, but we have a good position on the starting grid. Now I would like to look at the future.
Ladies and gentlemen,
It is clear that we have to achieve further growth. That means growth is right at the top of our strategic agenda. To achieve that growth, we are continuing to focus on our three strategic pillars:
Slide 9: Strategic pillars
- Distribution power
- Innovation
- Cost control
Slide 10: Strategic agenda 2006
More specifically, our action plan for the coming years is as follows:
- Right at the top is of course the integration of Imagistics.
Océ-Imagistics offers us a unique opportunity to break through in the office and printroom market in the United States.
We have made a good start with the integration, but it will still demand a great deal of attention in the coming two years from the US management as well as many group functions in Venlo.
- The focus in Europe and Asia is also on growth. We will make further investments in expanding the sales force. In addition, money will be allocated to investments in marketing and product promotion programmes. The sales force is now working at full speed and will get further momentum from the introduction of a number of important new products.
- But however good your sales force is, they can only succeed if they have excellent products to offer. And that's what we now have.
To make sure that we also have competitive products in the future, the R&D budget for 2006 has been increased by 15 million euro compared with 2005.
The focus in our development programmes will be on colour, but the black & white programme and software development will also continue undiminished.
- The transfer of a large part of the manufacturing of machines to Central Europe and Asia will be continued. To support this action, our presence in Asia, in the Océ Asia Technology Center, will be further extended.
The target of reducing our cost prices by at least 30% has proved to be achievable without making any concessions to the high Océ quality levels.
- A great deal of attention will be paid to controlling the operating expenses and working capital.
The implementation of the restructuring in Europe and the USA, as announced earlier, is part of this programme.
But that's not all.
We are working continuously to achieve 'Operational Excellence', in which major cost areas such as logistics, IT and general purchasing are receiving high levels of attention.
Ladies and gentlemen,
Océ has achieved a great deal in 2005.
We have succeeded in significantly strengthening our position in the United States. We have achieved strong growth in the sale of new systems and revenues from maintenance, services and media are again growing.
We are determined to continue on this path in 2006.
Slide 11: Prospects for 2006
That brings me to the prospects for 2006.
The Board of Executive Directors takes the view that it is too early to give a forecast for 2006.
However, we do expect that the results will be favourably influenced by the increase in revenues, both on an organic basis and as a result of the acquisition of Imagistics.
Savings yielded through the integration of Imagistics and the restructuring operations in Europe and the United States will lead to a gradual reduction in operating expenses during the year.
These will be offset by extra investments in R&D, amortisation on intangible assets and lower revenues from leases.
That concludes my explanation of the results for 2005. | 
