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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.
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.
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.
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.
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%.
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.
[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%].
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