Slide 2: Summary of 2006
2006 was a year of ups and downs. The Strategic Business Unit Wide Format Printing Systems showed an excellent performance, with increases in both revenues and income over 2005, which was itself a strong year.
The situation was different in the Strategic Business Unit Digital Document Systems.
DDS currently consists of 4 units:
- Corporate Printing
- Commercial Printing
- Business Services
- Océ Imagistics
Business Services and Océ Imagistics both performed well.
But the results of the Corporate Printing and Commercial Printing Business Groups were below our targets. That meant the total profitability of DDS was too low.
We achieved a better performance than expected in the fourth quarter, which resulted in an operating income for the whole year of 102 million Euro.
The recurring revenues, by which we mean sales of services and supplies, showed an increase for the first time since 2002. That is a very important factor for the profitability of Océ, because the recurring revenues account for around 70% of our total revenues and are generated by multi-year contracts.
We have completed the integration of Imagistics in the Océ Group a year earlier than planned.
Océ North America Inc., in which all the printer activities of Océ in the USA are integrated, started its operations on 1 December 2006.
The planned commercial and cost synergies between Océ and Imagistics have been amply achieved.
Through this acquisition we have significantly strengthened our positions in the US and UK markets.
Also should be mentioned the successful introduction of a number of new products.
The most important introductions are the Océ VarioPrint 6250 for the highvolume market in DDS and the Océ Arizona 250 GT in the Display Graphics market.
Now I would like to look at the financial results and the operational activities.
Starting with the financial results.
Slide 3: Financial results 2006
The total revenues increased by more than 16% in 2006 to 3.1 billion Euro.
These revenues consist of the sales of printing systems and revenues from services, supplies and media.
The sales of printing systems increased by almost 15%, while the revenues from services, supplies and media increased by more than 16%.
We achieved these creditable increases virtually entirely through the integration of Imagistics.
Excluding Imagistics and exchange-rate effects, the total revenues remained at almost the same level, with a plus of 0.3% compared with 2005.
Excluding Imagistics again, the sales of printing systems declined by 0.9%, while the revenues from services increased by 0.8%.
The relative gross margin was 42.1% of the revenues, which is slightly higher than the 2005 figure.
This increased margin was also the result of the acquisition of Imagistics.
Excluding Imagistics, the relative gross margin remained almost the same, at –0.3% compared with 2005.
This is good news, because we are succeeding in maintaining the relative gross margin despite in some cases strong pressure on prices in the market. This is for a number of reasons.
- First of all we sold more of our own machines. That means a better coverage of the fixed costs of the production facilities.
- Secondly the mix was more favourable. That means we sold a relatively large number of machines with higher margins.
- The cost prices of the machines and modules were significantly lower because we now source almost half of the original production value in Venlo from low-cost countries.
To summarise: we were able to compensate for the pressure on prices in the market by a favourable volume/product mix and lower cost prices.
For a good comparison of the operational expenses in 2005 and 2006, we have to correct these for a number of exceptional costs and for Imagistics.
The costs in 2005 were favourably influenced by the release of pension provisions, which were significantly higher than the provision for restructuring and integration costs.
In 2006 there was a – much smaller – release of pension provisions, and also a lower provision for restructuring costs.
After correction for these exceptional items, the costs remained at the same level as in 2005.
We compensated for organic cost increases such as those due to inflation and higher wage costs by working more efficiently.
We discontinued 500 jobs in Europe and 300 in the USA.
In 2006 we were able to capitalise more R&D costs, for example because we introduced more new products than in 2005.
This obviously also had a positive effect on the overall cost development.
The operating income was 102 million Euro. This is 9% lower than in 2005, but here again the exceptional items which I have just referred to played an important role.
Slide 4:Normalised operating income
To provide a better insight into the real business development we have introduced a normalised operating income, which is corrected for the exceptional items. This normalised operating income increased by 46%, from 77 million Euro in 2005 to 113 million Euro in 2006.
Slide 5: (= 3) Financial results for 2006
The net income declined by 31% to more than 55 million Euro.
The earnings per share were 63 Euro cents.
That concludes the explanation of the financial results.
Now I would like to continue with the operational situation in the market segments in which Océ
is active.
Slide 6: Digital Document Systems 2006 (1)
Starting with the Strategic Business Unit Digital Document Systems, which serves the office market and the graphics market.
Océ offers a complete range of printers, copiers, software and services to support all the document production and document management activities of our customers.
The product range consists of a balanced mix of printers developed by ourselves, as well as printers from third parties.
Océ itself develops printers and digital copiers with speeds from 55 to 250 pages per minute.
As well as that, Océ supplies continuous feed printers with speeds between 100 and 1200 pages per minute.
In addition, we offer carefully selected and thoroughly tested ‘best of breed’ copiers and printers which we source from other manufacturers.
We ensure that the Océ printers and those from third parties can be applied as a single solution for customers, thanks to integrated workflow software and competent IT services.
In the office market, which we call Corporate Printing, the printers are used for the production of office documents and transaction documents such as bank statements, insurance policies and bills. For example in the UK all driving licences are printed on our printers, in Switzerland all
banks use our printers, and in the future the tax papers received by residents of the Netherlands will be produced by Océ printers.
In the graphics market, digital printers are increasingly being used alongside offset printing presses. Digital printers have clear advantages for small print runs which can be produced to order – in other words ‘printing on demand’.
In addition, digital printers enable printed materials to be personalised.
The revenues in DDS increased by 21%. During the year we achieved 19% higher revenues from the sale of new printing systems.
This growth is due entirely to the acquisition of Imagistics. Without Imagistics, revenues would have declined by approximately 4.5%.
This is because we were not competitive enough in 2006 in some product families.
As well as that, we were faced with delays in deliveries in the summer period.
Since then we have solved these problems, and the sales of new printing systems increased again in the fourth quarter.
Revenues from maintenance and services increased by 22% compared with 2005. This growth, too, was achieved entirely by the acquisition of Imagistics. Without Imagistics the service revenues were virtually stable relative to 2005, which means a 3-year decline has been brought to a halt.
In itself that is good news, but we are not there yet by a long way. The numbers of machines at customers are still too low in relation to the size of our service organisation.
In the past years we have of course adapted the number of technicians to the level of machines population but at the same time optimised the customer-related service level. The current size will be maintained.
Our service organisation has been rated as the best in the industry for the second year running by the renowned Bertl institute, and that is something which we like to continue.
The challenge for the coming years is therefore to increase our installed base of machines in the market!
Slide 7: Digital Document Systems 2006 (2)
The trend in the outsourcing of document management and document production is continuing unabated.
Océ provides these services to our customers, and has a strong position in this area.
The revenues of Business Services increased by 5% in 2006 relative to 2005.
In the USA we acquired CaseData, a company that specialises in providing document management services for the legal sector. CaseData had revenues of approximately 14 million dollars in 2006. Not a huge amount, but the expertise and experience of CaseData will enable
us to further extend our Business Services activities to markets with strong growth.
As I already said, we introduced the Océ VP6250 in 2006. This is a high volume production printer which can print 250 double-sided pages per minute.
The print quality and accuracy of registration are of a unique high level.
These machines will be used by large corporations, government authorities and printing companies.
We have now, as planned, installed the first of these printing systems at customers’ sites.
They are unanimously enthusiastic about the quality, productivity and reliability of the machine.
We are currently continuing with the production ramp-up of these systems.
Slide 8: Océ Imagistics
As I already said in my introduction, the integration of Imagistics has been successful.
The past year confirmed that we can increase our business with major customers by offering a complete range of copiers and printers together with the corresponding software and services.
We have succeeded in integrating the sales force of Imagistics, which before the acquisition sold only low and midvolume machines, with the Océ sales force which specialises in high volume Océ systems. The service organisations of the two companies have now also been fully
integrated.
We also intend to roll-out this Océ Imagistics model, which is now being applied successfully in the USA and the UK, to the most important European countries in 2007.
The Océ Imagistics model means:
- We complement the Océ product range with carefully selected and thoroughly tested products from third parties.
- We are creating a combined sales organisation to sell our entire product range.
- We are building a service organisation that provides excellent maintenance services for our complete product range.
In this way we are substantially increasing our sales power, which will enable us to install more machines in the market.
Slide 9: Wide Format Printing Systems 2006
The Strategic Business Unit Wide Format Printing Systems supplies products and services for the management and production of wide format documents in the technical and graphics markets.
In these markets Océ supplies printers, scanners, digital copiers and software with speeds ranging from around 0.5 to 12 A0 prints 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.
The total revenues in WFPS increased by 5% compared with 2005.
Revenues from the sale of new printing systems increased by more than 7%.
We were able to achieve this increase in revenues through successful sales of both our new color printers and our renewed black & white product range.
Revenues from maintenance contracts, inks and media increased by more than 3% and form a sound basis for profitability in the coming years.
That completes the explanation of the financial results and operational activities for 2006.
This brings me to the year 2007.
Slide 10: Strategic triplet
We have initiated a number of actions that are intended to lead to a strong improvement in the performance of Océ.
I would like to describe these to you.
It is clear that we must increase our rate of growth.
Especially in Digital Document Systems, growth of the number of machines installed at customers is vital for the improvement of profitability.
To achieve this growth, we are continuing with our strategic triplet of actions:
- Increasing distribution power
- Strengthening the product range, and
- Optimising the business processes
Slide 11: Digital Document Systems strategy
In the implementation, new elements are being added in DDS to increase profitability. The numbers of machines installed at customers, in particular, must be increased drastically.
In the USA we will achieve that by further growth of Océ North America, the integrated printer company including Océ Imagistics.
In view of the positive experience in the USA, we will also roll-out the Océ Imagistics model further in Europe.
We are already following this approach in the UK. The most important European countries will be added in 2007.
Wherever possible we will accelerate this process by focused, smaller local acquisitions.
Business Services will be able to continue its growth thanks to our improved range of services in a rapidly developing market.
In Europe, the product range will also consist of a mix of products developed by ourselves and sourced from third parties.
More than in the past, our own R&D will concentrate on the development of high volume and color printers.
As well as that, we will increase our collaboration with technology partners.
In this way we will be able to significantly increase our innovative strength, and create more business, at the same level of R&D investment.
We are completing our product range with carefully selected and thoroughly tested third-party products which have to meet the high standards that we set.
This will enable us to offer the best-in-class products in the industry in each speed and volume category.
Slide 12: Wide Format Printing Systems strategy
For WFPS, Asia will be an important growth market. We therefore intend to extend our sales channels, both direct and indirect, in this region.
In addition, we are investing in the extension of our commercial activities in the Display Graphics market, which is developing rapidly and offers attractive growth opportunities.
In WFPS too, we will complement our own development activities with technology and modules sourced from partners.
We will also complete our product range with the best systems from other manufacturers.
Slide 13: Optimisation of business processes
The transfer of a large part of the production of machines to Central Europe and Asia will be continued. The aim is that in 2008 we will source approximately 80% of the production value of the machines developed in Venlo from those countries.
The resulting loss of jobs in Venlo will be dealt with by natural movements and transfers.
As well as that, we will devote a lot of attention to optimising our business processes. We intend to reduce our operational costs and optimise our working capital by introducing uniform business processes, supported by a single, worldwide IT system.
In addition, we will in this way create a more efficient organisation, which will be able to serve our customers more quickly and more effectively.
Ladies and gentlemen, the profitability of Océ is too low.
The Executive Board is determined to improve that. We are convinced that the implementation of the plans that I have presented will lead to that improvement in profitability.
To recapitulate: all these actions are focused on growth of the business and on optimisation of costs and working capital.
The key points for 2007 are:
- Growth of DDS through Océ Imagistics in the USA and rolling-out of the Océ Imagistics model in Europe.
- Growth through Business Services and Display Graphics in rapidly developing markets.
- Growth through new products such as the Océ VarioPrint 6250 and the Océ Arizona 250 GT.
- Strengthening of the product range through more collaboration in R&D and outsourcing of production.
- Optimisation of the business processes.
This is how we intend to achieve our commercial and financial targets in the period up to 2010.
That concludes my presentation.
* Non-literal text of the presentation by Mr. R.L. van Iperen at the Océ N.V. press conference on 15 January 2007. Please check against delivery – only the delivered version is valid.
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