Report for the ﬁnancial year December 1, 1997 to...

Report for the financial year

December 1, 1997

to November 30, 1998

Océ ..

.. Box 101, 5900 Venlo, the Netherlands

Océ enables people to share information by offering products

and services for the reproduction, presentation, distribution and

management of documents.

This is a complete English translation of the official annual report published in Dutch. Certain financial/technical

terms have been translated in line with American usage.

We trust it will give a clear presentation of the Company’s operations and results, although some of the terminology

is that required by Dutch law or usage rather than that used in other countries.

Only the Dutch text is legally binding.

The letters represent the Dutch guilder.

De Nederlandse uitgave van dit jaarverslag wordt u op aanvraag gaarne toegezonden.

4 Océ Profile

6 Report of the Board of Supervisory Directors

9 Key figures

Report of the Board of Executive Directors

10 Main outlines

13 Dividend

13 Prospects

15 Strategic outlook

17 Risks and risk management

21 Financial review

24 Industrial and financial activities

26 Use of funds and finance

31 Océ Engineering Systems

33 Océ Office Systems

35 Océ Printing Systems

37 Océ Imaging Supplies

39 Financial leases

40 Research & Development ()

41 Safety, Health and the Environment

42 Manufacturing and Logistics

44 Personnel & Organisation

Financial Statements

49 Consolidated Statements of Operations

50 Consolidated Balance Sheets

52 Consolidated Statements of Cash Flow

54 Summary of Significant Accounting Principles

58 Notes to the Consolidated Statements of Operations

60 Notes to the Consolidated Balance Sheets

70 Company Balance Sheets

70 Company Statements of Operations

72 Notes to the Company Balance Sheets and the Company Statements of Operations

Other information

75 Net income appropriation

76 Authorised capital

78 United States generally accepted accounting principles ( )

81 Auditors’ report

Miscellaneous

82 Directors Central Services

83 Principal companies and their chief executives

85 Supplementary information for shareholders

88 Océ 1989 - 1998

90 List of terms and abbreviations

Contents

Océ Profile

Océ offers people and organisations the resources they need to share information.

Those resources comprise a broad range of products and services for the repro-

duction, presentation, distribution and management of documents. This range

consists of high-quality printing and copying systems, application software,

consumables and imaging supplies. Océ largely develops, produces and markets

these products itself. In addition, some of the products are selectively supplied via

third parties. Océ also offers a total package of services comprising the related

maintenance and financing. Another Océ activity involves the provision of com-

plete services for the management of document flows (Facility Services).

In 1998 the Océ Group achieved total revenues of over 6 billion. World-

wide the Company employs almost 21,000 people in Océ operating companies in

about 30 countries.

Océ seeks to occupy a leading position on its markets world-wide by supplying

state-of-the-art products characterised by their high quality, reliability, productivity,

durability, ease of use and environmental friendliness.

Right from the design stage allowance is made for the maximum possible re-use

of components and materials. This not only yields substantial cost savings but also

minimises the environmental impact.

Each year the Company invests some 6% of its total revenues in Research &

Development. Océ’s technology base is also strengthened via systematic cooperation

– even in the development phase – with suppliers, co-developers and, to an in-

creasing extent, with strategic partners.

Since most of the sales and service activities are handled by the Group’s own

operating companies, Océ can provide the customer with professional support in a

one-on-one relationship. This also gives Océ access to the most up-to-date market

information. The Company is therefore always able to respond effectively to market

needs by supplying a well-balanced range of products and services.

The head office of the Océ Group is located in Venlo, the Netherlands.

The greater part of the research, production and international marketing activities

are also concentrated in Venlo, within the central operating company Océ-

Technologies .. The Océ Group also has its own research centres and manufac-

turing facilities in Germany, France and the United States. The – publicly listed –

holding company of the Group is Océ ..

Further details about share listings and the Océ share can be found on

pages 85 to 87.

4

Océ Profile

Board of Supervisory Directors H.B. van Liemt, chairmanM. Ververs, vice-chairman L.J.M. Berndsen

P. Bouw

J.V.H. Pennings

F.J. de Wit

Board of Executive Directors J.C.M. Hovers, chairmanJ.F. Dix

R.L. van Iperen

H.J.A.F. Meertens

G.B. Pelizzari

Staff Director/Company J.M.M. van der Velden

Secretary

Financial year The Company’s financial year runs from December 1 to November 30.

Articles of Association The present Articles of Association were confirmed by a notarial deed dated

April 27, 1998. Océ .. is an international holding company within the meaning

of Article 153, para. 3b, Book 2 of the Dutch Civil Code.

Registered office and The Company has its registered office in Venlo, the Netherlands, and is registered

Commercial Registry in the Commercial Registry in Venlo under No. 12002283.

Head office The head office is at St. Urbanusweg 43, Venlo, the Netherlands.

Postal address: .. Box 101, 5900 Venlo, the Netherlands.

Telephone (+31) 77-359 2222, fax (+31) 77-354 4700.

Océ on Internet: http://www.oce.com.

For general information about Océ: tel. (+31) 77-359 3029.

5

Report of the Board of Supervisory Directors

To the Annual General Meeting of Shareholders of Océ N.V., Venlo

Annual accounts We present to you the Financial Statements for 1998 as drawn up by the Board of

Executive Directors. These Financial Statements have been examined by and

discussed with the auditors PricewaterhouseCoopers .. in close cooperation with

Océ’s Internal Audit Department. In respect of these Financial Statements the

auditors have issued an unqualified opinion which is set out on page 81. We propose

to you that these Financial Statements, as adopted by us, together with the dividend

proposal contained therein, be approved.

Supervision In 1998 our Board met five times. Besides discussing the general development of

the business, we reviewed a number of other important aspects, including the

Company’s strategy, its product development programmes and its financing policy.

We also talked about the consequences of a proposal by the Board of Executive

Directors to realign the Company’s organisation structure, with the specific aim of

giving Océ a stronger customer focus. The intention is to structure Océ’s activities

in such a way that, by linking up precisely with the various customer categories, the

organisation can continue to respond alertly to the trends and needs that exist in

the market. Recommendations were also made for boosting the effectiveness of the

Company’s research and development efforts.

Our Board also held regular discussions about the acquisitions policy and the

risks the Company faces in its operations. We also reviewed the Executive Board’s

evaluation of the findings relating to the structure of the internal management and

control systems designed to provide reliable information about the conduct of the

business.

Corporate Governance During the past year we again exchanged ideas on the subject of Corporate

Governance. This was prompted in part by the publication at the end of November

of the report by the Monitoring Committee. Last year several other reports were

published on the same subject. A detailed exchange of views took place with

shareholders at the Annual General Meeting in April 1998.

6

Report of the Board of Supervisory Directors

Following on from these events, further attention was paid to effective Corporate

Governance. We subscribe to the view of the Peters Committee and the Monitoring

Committee that transparency and accountability are the most important elements

for effective governance, also in an international context. Transparency and

accountability are also the basic principles underpinning our active investor

relations policy whose aim is to keep our shareholders as fully informed as possible.

Though greater attention is advocated for the international aspects in the

relationship between Corporate Governance and Performance, we would note that

this has long been the practice in our Company.

We are confident that, overall, we act in conformity with the recommendations

and that any departures from them are justified in our situation.

We were pleased to see the favourable developments experienced by Océ in 1998

and we are satisfied with the results the Company has booked. Océ, as a European

business, has built a world-class position and a momentum that will provide further

support for future growth. However, a close watch needs to be kept on develop-

ments in the main competitor businesses, where changes were recently initiated

which may have an impact on Océ’s markets.

We look forward with confidence to developments in the new financial year.

Our thanks go the Board of Executive Directors and to all Océ em-ployees for the

contribution they made to Océ’s success during the year under review.

February 17, 1999

H.B. van Liemt, chairman

7

The profile and the information about Supervisory Directors as recommended by the Peters Committee is available

on request from the Company’s head office.

9

Océ, the digital problem

solver. Software is the

golden key for leading-

edge added value.

Key figures

1998 1997 1998 1997

Total revenues 6,065.8 5,439.6 2,752.5 2,468.4

Increase on previous year (%) 11.5 30.3

Gross margin 2,578.6 2,278.3 1,170.1 1,033.9

As % of total revenues 42.5 41.9

Operating income 540.4 441.3 245.2 200.2



As % of average balance sheet total 9.6 8.8

Net income 284.4 236.7 129.0 107.4



As % of average shareholders’ equity 18.1 16.5

Cash flow 661.9 582.7 300.3 264.4

Dividend (including preference dividend) 98.6 82.8 44.8 37.6

Depreciation 377.5 346.0 171.3 157.0

Net capital expenditure 440.2 366.1 199.8 166.1

in guilders in euro

Per N LG 1 ordinary share Basic earnings 3.37 2.86 1.52 1.30

Cash flow 7.98 7.19 3.62 3.26

Shareholders’ equity 17.83 17.55 8.09 7.96

Dividend 1.10 0.93 0.50 0.42

Diluted earnings per N LG 1 ordinary share 3.30 2.78 1.50 1.26

Share pricesYear’s highest 90.20 66.35 40.93 30.11

Year’s lowest 40.70 45.00 18.47 20.42

Year end 67.20 56.63 30.49 25.70

Number of N LG 1 ordinary sharesAverage number outstanding 81,954,636 79,913,360 shares

Increase upon conversion/options 2,128,605 2,996,952

Number of employees at November 30 20,978 17,754 employees

› million pro forma

› € million


Main outlines

Océ’s net income for the 1998 financial year was excellent, showing an increase of

20%. The strategic policy decisions combined with the acquisitions of recent years

have clearly given the company’s operations a broader and stronger basis. During

the year under review autonomous growth was comparable to that achieved in

1997. The further spread in income sources, notably income from service, software

and system consultancy, the broader customer base and the supply of new product/

market combinations have boosted the stability of revenue and income. Revenues

growth was further reinforced somewhat by slightly positive net exchange rate

effects in 1998.

Total revenues increased by 12% to 6,066 million. Of this increase, auto-

nomous growth accounted for 7%; the effect of exchange rates was 1%.

Acquisitions contributed 4% to the growth in revenues.

Operating income went up by 22% to 540 million. The increase was

attributable to effective cost control and, in particular, to strongly increased sales of

higher-margin digital products.

Net income worked out at 284 million, which was 20% higher than in

1997. Cash flow went up by 14% to 662 million.

On a per share basis, basic earnings rose by 18% to 3.37 (1997: 2.86),

cash flow by 11% to 7.98 (1997: 7.19) and shareholders’ equity by 2% to

17.83 (1997: 17.55).

Expenditure on Research & Development increased by 36 million to

342 million. This is equivalent to 5.6% of total revenues (1997: 306 million,

or 5.6%). Gross capital expenditure on ‘Property, plant and equipment’ amounted

to 249 million (1997: 248 million). Depreciation and disposals worked

out at 242 million (1997: 215 million).

The markets in which Océ operates are currently subject to major changes.

Digital products are in ever greater demand because of their versatility and high

productivity. Digital machines are also being increasingly used in networks and are

thus replacing stand-alone equipment. This latter development is partly due to the

need of customers to gain tighter control over their document flows. About one-

half of Océ’s revenues are already generated via digital products.

Printing and copying in colour, applications closely linked to digitisation, are

also developing strongly, though not at the same speed in all markets. In the office

environment and in the high volume printing market the level of interest is high.

The more widespread use of colour in documents is in itself creating further demand.

In the market for display graphics (billboards and other large format colour appli-

cations) the possibilities that digitisation offers are as yet being applied only on a

modest scale.

Océ is also benefiting from the strong technology base that it built up in the

pre-digitisation period. The quality of the present machines, the organic photo-

conductors, the unrivalled CopyPress system and the ergonomic machine layout all

date from that period. The ‘transition’ from analogue to digital therefore reflects a

logical ongoing development in Océ’s technological know-how, resulting in the

present high standard of digital quality.

10

?

Engineering Systems Océ’s revenues in the Engineering Systems market increased by 6% to 1,700

million. Autonomous growth provided 5% of this increase, whilst 1% stemmed

from exchange rate effects.

Demand for digital printers/copiers continued at a high level, with growing

numbers of placements of the Océ 9400, 9700 and 9800. Regular market shipments

of the Océ 9600 mid-volume digital printer/copier will commence in the first half of

1999. The machine will be equipped with an advanced ‘next generation’ controller.

The growth in the number of machines installed in the market is also bringing

higher income from service. Digital machines and the related software meanwhile

represent 85% of the value of new placements in the large format market.

In the analogue segment of the market the low volume ‘eco’-copier, the Océ 7050,

remains very much in demand as a stand-alone machine. Despite the declining ana-

logue market, placements of this user-friendly machine are still growing in number.

The increase in digitisation has brought strong growth in the volume of system

software. Several of these software applications do not relate directly to the

presentation of documents but offer storage and retrieval functions that are highly

appreciated by users. Cooperation with partners and the input of Groupware

Technology Inc., the American software company that was acquired in 1998, have

resulted in strong growth in the number of applications.

Office Systems In the Office Systems market Océ’s revenues increased by 19% to 2,833

million. Autonomous growth contributed 9% to this increase. The contribution

made by acquisitions likewise amounted to 9%. Exchange rates had a positive effect

of 1% on revenues. The strong autonomous growth resulted chiefly from the great

success of the Océ 3165 digital printer/copier, whose high productivity and copying

quality have fast made it very popular. This success represents a decisive milestone

on the road towards a digital office environment. In the declining analogue market,

too, Océ was able to strengthen its position with the Océ 3045 and the Océ 3100,

machines which serve the medium and very high volume segments respectively.

The number of machines leaving the manufacturing facilities in Venlo reached a

record level and production numbers of the Océ 3165 were even more than double

the previous year’s figure. Towards the end of the year a start was made on regular

market shipments of the Océ 3055 (a higher speed version of the Océ 3045) and

the Océ 3155 (an adapted version of the Océ 3165).

Océ also booked strong growth in the market for colour printing and copying.

A growing proportion of the revenues in the Office Systems market is accounted for

by an activity that was initiated only a few years ago: Facility Services. Over that brief

period Océ has built a solid market position, particularly since the acquisition at the

end of 1997 of Archer Management Services in the , which had a successful year.

Océ’s Facility Services, which initially involved Océ handling the customer’s in-

house copying activities, meanwhile comprise a great number of different func-

tions, ranging from repro services to postal department operations.

Printing Systems In the Printing Systems market Océ’s revenues went up in 1998 by 5% to 1,533

million. The share of autonomous growth amounted to 4%. Exchange rates had a

positive effect of 1% on revenues.

During the year under review Océ again confirmed its leadership in the high

volume printing market. Océ also gained share in the medium volume segment of

the network printing market. In the Print on Demand segment of the printing and

publishing market Océ achieved a major breakthrough.

11



Océ is very successful in the market for big machines for high speed processing of

continuous-feed paper. At the end of 1998 the fastest system to date was intro-

duced: the Océ 1060 , with an output of 1,060 pages per minute.

The change-over to paper without a perforated edge brings customers a substantial

saving on finishing costs.

An important new market for Océ is formed by the printing industry. In the

Print on Demand segment modern, high speed printers can perform the work of a

small offset press. The print quality (600 dpi) is high enough to make this an

acceptable alternative in the printing industry. By introducing several fast printers

Océ has created a good basic position in this market. Océ supplies a large number

of its customers in this market with complete systems which include such features

as integrated (book-)binding functions. The cooperation with Agfa in the area of

colour has also strengthened Océ’s position in the highly promising Print on

Demand market.

Imaging Supplies In the Imaging Supplies market Océ’s revenues increased in 1998 by 3% to 928

million. In the traditional engineering market Océ booked a further increase in

sales of supplies for use on its own installed population of machines. In the sharply

declining diazo market Océ succeeded in maintaining margins, partly through

ongoing cost reduction programmes. In the market Océ is gaining share, not

only in supplies for Océ systems but also in supplies for third-party equipment.

The growing, but in absolute terms still limited, sales of machines in the market

for display graphics also resulted in a limited growth in sales of the related supplies.

Océ is excellently equipped to supply business graphics materials. The range that it

markets includes numerous variants of small format paper for colour copying and

printing, coloured paper and films for office applications. For this market the

company uses the products developed and produced by its American subsidiary

Arkwright. Sales of these materials, like sales of plain paper, increased further

during the year under review. Centralisation of production and a further stream-

lining of logistics brought greater efficiency.

United States With revenues of 2.3 billion, the Océ operation in the United States has

reached a size that gives the business high visibility, also in the markets where it still

occupies a relatively modest position. Océ meanwhile can count a large number of

Fortune Top 100 businesses amongst its customers. Océ’s revenues in the United

States account for 37% of total revenues (as compared to over 32% in 1997). The

company expanded its market share further in the principal sub-markets in 1998

thanks to the success of the broad range of digital printers and copiers. Particularly

the Océ 3165 played an important role in this success. The intention is to achieve

further substantial growth in these markets so that Océ can build a position of

sufficient size and momentum in this environment, which is the world pace-setter

as regards digital solutions.

During the year under review Océ considerably strengthened its United States

organisation via a further integration of its activities, some of which had joined the

business via acquisitions. Thanks to the combined marketing approach and a

continual exchange of information about customer accounts, the Océ organisation

there has taken on an extra dimension.

12


Dividend

We propose to distribute over the 1998 financial year a dividend of 1.10

(50 eurocents) (1997: 0.93) per ordinary share of 1 nominal. This divi-

dend involves an amount of 90.8 million (1997: 74.9 million). If the

General Meeting of Shareholders adopts this proposal the final dividend will

amount to 0.77 (35 eurocents); the interim dividend amounted to 0.33.

It is proposed to make the final dividend available, at the option of shareholders,

either fully in cash or fully in ordinary shares to be charged to the (tax-free) paid-in

capital or, if desired, to the net income over 1998.

The dividend in shares will be determined on 28 April 1999 (after close of

trading on the Amsterdam Stock Exchange) and will be subject to a discount of at

most 5% as compared to the cash dividend. The newly issued shares will be entitled

to dividend as from 1st December 1998.

The pay-out ratio of approximately 32.8% (1997: 32.7%) is in line with our

target of a two-thirds net income retention, which is the level we consider necessary

for a healthy and balanced financing of our expansion.

Prospects

We expect continued success for our range of digital products, supported by several

new machine launches and software releases that meet clear market needs. Although

Océ can hardly be described as a business that is affected by economic cycles, the

lower growth rate of the economies in large parts of the world may also impact on

our company. We may possibly also experience some slowdown in revenues growth

as a result of a restructuring operation that has been set in motion at our partner in

the United States. In recent years, however, Océ’s own direct sales organisation in

the United States has been strongly expanded, bringing a substantial broadening of

our commercial base in that country. To ensure that the consequences of a possible

slowdown in revenue growth can be countered in good time, we have meanwhile

put a number of measures in place to achieve tighter cost control.

Employee numbers will increase slightly in 1999, mainly because of an expansion

in capacity and in sales and service staff.

Capital expenditure on fixed assets and rental copying equipment will increase

in 1999. Cash flow (net income plus depreciation) is expected to be almost

sufficient to finance this capital expenditure.

Also in 1999, barring unforeseen circumstances, we expect results to grow.

13


Strategic outlook

Changing role As the scope of its operations steadily becomes broader and deeper, Océ is devel-

oping more and more into a supplier of complete solutions for the management of

document flows. The company increasingly combines its own strong and broad

technology base with its partners’ products (mostly software). Océ’s role is therefore

more that of a supplier of ‘total concepts’ rather than just of machines. This means

that the quality and functionality of the machines, combined with access to and an

understanding of the customer’s document flow processes, are the key success factors.

In its customer approach Océ is moving away from a ‘transaction orientation’ and

focusing more and more on entering into long term relationships, which offer

various sales moments in the form of new releases, upgrades and replacements.

An additional aspect is that the ongoing digitisation of the equipment is in-

creasingly blurring the distinction between copying and printing. As a consequence,

two markets are converging which until a few years ago were completely separate:

the market for traditional, analogue reproduction and the market for digital Infor-

mation Technology. The reasons for adopting a separate market approach therefore

no longer apply. The customer is in fact interested more than anything in a com-

plete, and cost-effective, management of his document flows.

The customer’s changing requirements and his need for full-service document

processing has therefore been decisive for the direction in which Océ is developing.

Recently the Océ Mission Statement was reformulated to reflect this: Océ enablespeople to share information by offering products and services for the reproduction,presentation, distribution and management of documents.

New customer categories Although it is generally the customer environment that provides the impulses for

and markets product development, in some cases it is also the technologically advanced nature

of the systems themselves that triggers the development of new applications.

This is particularly true in the Print on Demand segment, where the high speed

printer can produce updated or personalised information on paper quickly and

with a high quality. Print on Demand is thus entering the domain of the printing

industry, a market segment with which Océ had no direct link. Entering this market,

which is not an easy market to serve, is especially attractive because of its size and

rapid growth.

Another growth market for Océ is that for display graphics. This relates to large

format, small run colour prints which are mainly used as displays. With a supply

that comprises inkjet printers and a range of paper and plastic carrier materials, Océ

believes it is capable of building up a position in this fast growing market.

Organisation The Océ organisation has in recent years been adapted several times to bring it into

line with the requirements of markets in which changes are occurring in ever more

rapid succession. In view of the pace and extent of the current changes an adaptation

of the organisation is needed once again. This is geared to an improved interaction

between strategic planning, product development, marketing, sales, support and

service. At the beginning of December 1998 the Board of Executive Directors

decided to introduce an organisation model in which the guiding principle will no

longer be the products that are used but a subdivision based on customer appli-

cation categories.

The new organisation will be grouped around three application areas in

Printing: wide format systems, office document systems and high volume

production systems. The existing business units (Engineering Systems, Office

15

Office Systems:

document flows in

big print-runs digitally

controlled and

distributed.


Systems and Printing Systems) will be replaced by Strategic Business Units ( s),

namely Wide Format Printing Systems, Document Printing Systems and Pro-

duction Printing Systems. These s each comprise two application-oriented

Business Groups (one focusing on existing applications and one on new ones).

In this way the national organisations can also be given targeted support via a more

integrated customer approach in their sales and service activities.

Geographical ambition Océ’s biggest operations by far are to be found in Europe and the United States,

with Europe generating 57% and the United States 37% of total revenues in 1998.

Partly thanks to the strengthened organisation structure and the intensive market

approach we expect to achieve considerable further growth in the United States in

the years ahead in both the printing and the copying market. The United States has

in fact become a second home market for Océ. In the countries outside Europe and

the United States Océ will concentrate principally on its existing operations and

distributorships. Given the overall market situation in the Asian countries and

South America growth there in the near future will be limited.

Market objectives In the Engineering Systems market Océ aims to maintain its position as market

leader and, where possible, to expand that position further on the basis of its strong

range of digital systems. In addition, the company wants to build a strong presence

in new growth markets, such as that for display graphics.

In the Office Systems market Océ’s objective is to further expand its good basic

position in digital printers and copiers by offering new machines for the various

volume segments, both for black-and-white and for colour. The growth in copying

volume will in future stem mainly from digital systems. However, because of the

good performances of the Océ 3045, the Océ 3055 and the Océ 3100, Océ will also

be able to strengthen its position even further in the analogue segment.

In the Printing Systems market Océ intends to reconfirm and expand its market

leadership. Océ will extend its Company Wide Printing concept further by offering

versatile printers for the medium volume. In the high and very high volume

segment the company intends to strengthen its position further in the electronic

printing market and particularly in the Print on Demand market, a growth market

in which Océ is rapidly gaining expertise. Highlight colour and full colour are

important aspects in this market.

In the Imaging Supplies market Océ will focus on expanding its sales volume by

strengthening its position in speciality, wide format materials (e.g. display graphics)

and in speciality materials for small format colour applications (e.g. business

graphics). Océ will also concentrate on raising the sales of supplies for Océ machines

installed in the market by stimulating close cooperation between the sales staff of its

local operating companies.

In the fast growing Facility Services market the company aims to expand further.

The broad range of products and services, notably for the medium, high and very

high volume segments, gives Océ an excellent launch-pad to realise this aim.

Yield objective Océ continues to devote high priority to enhancing the overall profitability of the

business, both through autonomous growth and, where opportune, through

acquisitions, as well as via improved efficiencies and by accelerating the circulation

rate of total assets. Océ seeks to improve the return on total assets from 9.6% in

1998 (8.8% in 1997) to 12%, to be achieved within a few years.

16

Risks and risk management

General Océ is confronted with the commercial and technological risks of a company which

specialises in the development, manufacture, sale and servicing of technologically

advanced products and systems on a world-wide scale.

Océ’s broad technology base, the markets on which the company operates and

its links, mostly on a long term basis, with highly diverse customer categories ensure

that the risks are evenly spread. The revenue from rentals, leases, service and sup-

plies, the diversified customer base and the wide geographical spread of operations

help to create stability in the total revenue flow.

Markets On the Engineering Systems market the demand for Océ products is generally

related to the level of economic activity and more specifically to the investment

climate. Structural growth in this market is estimated at 2% per annum. For a

number of years a shift has been taking place from coated diazo paper to plain paper

copying and, in recent years, from analogue to digital printing/copying systems.

Océ has responded to these developments with a broad series of digital machines

whose functionality is constantly adapted to meet the evolving needs of the market.

A new, and promising market for display graphics is also developing.

By contrast, the Office Systems market, which is many times bigger than that for

Engineering Systems, is much less dependent on the level of economic activity.

Generally speaking, growth in the market for printing/copying is estimated at about

3% per year. The market for (black-and-white) analogue copying is shrinking,

whilst the market for digital black-and-white and colour printing/copying is growing

strongly: Océ is outpacing that market growth. In this market the company con-

centrates mainly on the medium and high volume segments for (digital) printers/

copiers and offers a competitive range of machines for both black-and-white and

colour printing/copying.

The market for Printing Systems in the medium to high volume (30-99 ppm) is

growing by some 20% each year. The very high volume printing market (>100 ppm)

is growing annually by some 4 to 5% in the segment and by around 30% in

the Print on Demand segment. In the market for medium and high volume cut-

sheet printers and in that for (very) high volume continuous-feed printers Océ

offers a complete and highly competitive range. These printers also have excellent

prospects in the Print on Demand segment.

Position Océ has a leading market position in Engineering Systems world-wide.

In the European market for Office Systems Océ is a prominent player in the

medium and very high volume segments. In the American market the company’s

share in these segments, though provisionally still small, is growing fast.

In Europe Océ is the market leader for high volume printers. Océ is also a major

force in this market in the United States. In the medium volume segment of the

Printing Systems market Océ has meanwhile built up a good position in Europe.

Océ seeks to strengthen its position in Europe and to expand its activities in

other geographical markets, specifically in the American market.

17


18


Technology The extensive investments made by Océ in in recent years are increasingly

bearing fruit in the form of self-developed core technologies, products based on these

and a series of market-driven innovations in the areas of applications, operating

concepts, and improved environmental and safety features.

These core technologies encompass a number of unique components and

processes for a new generation of black-and-white printers/copiers as well as for full

colour printers/copiers. Océ also holds a leading position in continuous-feed

printing technology.

Product development activities are steered by the Business Units, which ensures

the closest possible contact with the market. Since service and sales staff are given

an input in product development at an early stage, the learning curve is short.

Exchange rates Océ achieves its revenues all over the world, with particular emphasis on Europe

and the United States, but a considerable proportion of its costs are incurred in

Dutch guilders, German marks and French francs. Océ also has costs denominated

in Japanese yen for the purchase of product sub-assemblies and complete machines

in Japan to supplement its range. As regards the revenues from service activities, the

foreign exchange risk is limited because most of the costs, consisting of the payroll

expenses of the service technicians, are in local currency. The introduction of the

euro as from January 1, 1999 has substantially reduced the company’s foreign ex-

change risk and that risk will now mainly be limited only to the dollar, the

pound Sterling and the Japanese yen.

The competitive market for printers and copiers makes it difficult to pass on

price increases to the market.The adverse effects of exchange rate fluctuations over the

long term are offset as much as possible by increasing the efficiency of operations, by

conducting buying activities as much as possible in those currency areas in which the

revenues are also achieved (‘matching principle’) and by raising the added value of the

products. In addition, endeavours are made to offset the short-term consequences

of foreign exchange fluctuations via an active currencies management policy.

Océ applies a central foreign exchange management system and a selective foreign

currency policy aimed at effective control over the company’s commercial and net

asset exposures in various currencies. For this purpose Océ makes use of a number

of financial instruments, particularly forward foreign exchange contracts. The

policy and the plans based on it are implemented in close consultation with the

Board of Executive Directors.

Introduction of the euro Since 1997 Océ has been making thorough preparations for the introduction of the

euro. As from January 1, 1999 the organisation has been in a position to conclude

contracts in euros. That same date also saw the completion of a conversion program

which the operating companies can use to adapt their accounting system rapidly if

the country in which they are established decides to switch over to the new

currency.

In general Océ is ready to use the euro as a currency in any form whatever.

In this report, in line with the regulations, the figures are still primarily reported in

guilders. With effect from the first quarter of the 1999 financial year Océ will

report its results in euros.

18

Interest rates Most of the interest income is provided by financial leases. Financial lease contracts

usually comprise a fixed interest which corresponds to the rates charged by external

leasing businesses. These contracts are mainly financed by interest-bearing capital

whose interest rate is generally fixed in line with the duration of the contracts

(‘matching principle’).

The interest rate policy is largely executed centrally at corporate level through

the use of financial instruments. Implementation of this policy likewise takes place

in close consultation with the Board of Executive Directors.

Millennium The millennium problem has been the subject of Océ’s attention for quite some

time. Both in the central organisation and in the national organisations all software

incorporated in the hardware and software products marketed by Océ and in the

computer applications used within the business has been tested and, where

necessary, replaced or modified. Océ has initiated various Year 2000 compliance

programmes to achieve this, all of which are expected to be finalised in mid-1999.

The four programmes differentiated by Océ are as follows:

– Océ’s own products, both hardware and software,

– corporate business applications (including invoicing, contract handling, logistics,

service and financial accounting systems) and local business applications (including

personnel systems),

– hardware and software for information supply, and

– embedded software, not involved in the information supply function.

As far as the corporate business applications and information supply software

are concerned, the process is simplified to some extent in that Océ applies a

modern, company-wide information system (Océ Common Systems).

Since the end of 1997 a Millennium Steering Group has been coordinating all

millennium compliance aspects of the products released by Océ (including bought-

in products). All products, both new ones and those already placed with customers,

are tested by a working group in accordance with a defined test procedure based on

an Océ Technical Standard. This standard imposes stricter criteria than those set by

the British Standards Institute.

To demonstrate that equipment is millennium proof Océ uses the following

definition:

– correct handling of dates prior to and after January 1, 2000,

– recognition of the year 2000 as a leap year,

– correct handling of logical dates that are used in non-date-related functions.

Reporting on the progress of the programmes takes place each quarter. Almost

all parts of the business are currently on schedule.

To provide a rapid response to questions from users, Océ has meanwhile opened

a special ‘Year 2000’ section on its Internet site: http://www.oce.com.


19

21


Financial review

Total revenues In 1998 total revenues rose by 12% to 6,066 million. Autonomous revenue

growth amounted to 7%, with the share of analogue products in revenues

(including Imaging Supplies) decreasing to 52% (1997: 57%), whilst that of digital

products climbed to 48% (1997: 43%). Acquisitions and exchange rates had a

positive effect on revenues of 4% and 1% respectively.

Earnings from net sales increased by 15% to 3,628 million. Earnings from

rentals and service went up by 6% to 2,240 million. Interest income from

financial leases rose by some 22% to 198 million.

The growth in revenues was largely attributable to the following factors:

– strongly increased sales of and service income from digital copiers and printers;

– the contribution to revenues resulting from the acquisition of Archer Management

Services;

– net positive exchange rate effects.

As a proportion of total revenues, revenues from rentals and service plus interest

income from financial leases amounted to 40% (1997: 42%).

Development of revenues In the Engineering Systems market revenues increased by 6% to 1,700

by market million. Revenues in the Office Systems market went up by 19% to 2,833

million; excluding acquisitions, the increase amounted to 10%. In Printing

Systems, revenues increased by 5% to 1,533 million.

Gross margin The gross margin generally increased more strongly than total revenues. As a per-

centage of total revenues the gross margin increased to 42.5% (1997: 41.9%). The

principal reasons for this development are:

– higher margins on digital printers/copiers which offset the continued pressure on

the margins for analogue copiers including the related supplies;

– a further productivity increase in machine manufacturing, partly as a result of the

substantially higher production volumes.

The average interest realised on the lease portfolio amounted to 10.5% (1997:

10.8%). In the financial lease contracts the interest percentage is fixed for the entire

duration of the contracts.

Printing Systems:

personalised software

creates versatile and

variable Print on

Demand publications.


Operating income Operating income increased by 22.5% to 540 million (1997: 441

million). This is equivalent to 8.9% of total revenues (1997: 8.1%) and

corresponds to 9.6% of the average balance sheets total (1997: 8.8%). The increase

in operating income was attributable not only to autonomous growth and

acquisitions but also to the fact that costs increased more slowly than the growth in

total revenues.

22

Development of 1998 1997

total revenues bybusiness unit total revenues as % total revenues as %

› million › million

Engineering Systems 1,700 28 1,610 29

Office Systems 2,833 47 2,376 44

Printing Systems 1,533 25 1,454 27

Total 6,066 100 5,440 100

Total revenues 1998 1997

by geographical areas › million as % › million as %

Germany 845 14 873 16

France 471 8 454 8

United Kingdom 456 7 454 8

Netherlands 441 7 419 8

Rest of Europa 1,249 21 1,128 21

United States 2,244 37 1,742 32

Rest of the world 360 6 370 7

Total 6,066 100 5,440 100

Operating income

› million

600

480

360

240

120

0

94 95 96 97 98

6500

5200

3900

2600

1300

0

Total revenues

› million

94 95 96 97 98

23


Research & Development (R&D) Spending on increased to 342 million, or 5.6% of total revenues (1997:

306 million, or 5.6%). As a result of the success of the new machines and the

resultant liability to repay development credits, an amount of 33 million

(1997: 29 million) was added to expenditure to cover the negative

balance of government grants in 1998. This, combined with the expansion of the

organisation, meant that on balance the expenses in the Consolidated

Statements of Operations increased by 12% to 375 million, which is equiva-

lent to 6.2% of total revenues (1997: 335 million and 6.2%).

General administrative and The general administrative and selling expenses increased by 10.7% from 1,502

selling expenses million in 1997 to 1,663 million and thus grew less than the increase in total

revenues. Expressed as a percentage of total revenues these expenses decreased to

27.4% (1997: 27.6%).

Financial expense (net) Financial expense (net) – balance of interest paid and other interest received –, went

up from 117 million in 1997 to 134 million in 1998. On the basis of an

average interest rate of 5.6% (1997: 5.6%), the average interest-bearing capital

increased by 289 million. This is mainly due to the financing of acquisitions

and the increase in the rental population and in financial lease receivables.

The interest income from financial leases amounted to 198 million in

1998 (1997: 163 million).

Income taxes The average taxation charge amounted to 29.0% (1997: 25.3%). The higher tax

charge is mainly due to the ending of the entitlement to claim fiscal loss

compensation.

Net income Net income increased by 20.1% to 284.4 million. This corresponds to 18.1%

of the average shareholders’ equity (1997: 236.7 million and 16.5%).

As a percentage of total revenues, net income amounted to 4.7% (1997: 4.4%).

The net income attributable to ordinary shareholders, i.e. after deduction of the

dividend on the financing preference shares, increased by 20.8% to 276.6

million. Basic earnings per share, calculated on the basis of the weighted average

number of ordinary shares outstanding, increased by 17.8% to 3.37 (1997:

2.86).

Research & Development

› million

expenditure

costs

400

320

240

160

80

0

94 95 96 97 98

10

8

6

4

2

0

Operating income as % of

total revenues

94 95 96 97 98


Industrial and financial activities

Océ is a combination of industrial and financial activities, each with their own in-

come profile and balance sheet characteristics.

In assessing the financial position of the Company as a whole, a distinction must

be made between these two types of activities. As indicated below, the assessment

criteria for both activities differ widely.

The revenue from financial activities is formed by the interest from financial

leases. The costs comprise the costs of financing the lease portfolio and the selling

and administrative expenses. Where the financial activities are financed from

interest-bearing capital, it has been assumed that this has been done fully on a fixed-

interest basis.

The costs of financing are then allocated on the basis of the average amount of

fixed interest-bearing capital. The selling and administrative expenses, including

provisions for doubtful debtors, are allocated as far as possible on the basis of origin.

The cost level that is applied corresponds to that of other ‘captive’ lease companies

with similar activities. After expiry of the lease contracts the machines, provided

they have not been written off in full, are transferred to the industrial activities at

their residual book value.

For the financing structure of the financial activities a ratio of 0.15 between the

equity and the balance sheet total is applied. This ratio is derived from ‘captive’

companies in the financial services industry which publish their own Financial

Statements. It is seen as an extremely solid ratio. Under this method the remaining

part of the equity is allocated to the industrial activities.

The table on the next page gives a breakdown of the salient financial figures for the

two company activities. As can be seen from that breakdown, both the industrial

and the financial activities have good profitability and solid balance sheet ratios.

Particularly the profitability of the industrial activities has clearly improved. In the

case of the financial activities the average interest from financial leases decreased

slightly as a result of market interest rates. The yield (net income as a percentage of

the average equity) increased.

24

25


1998 1997 › million

IndustrialRevenues 5,868 5,277

Gross margin 2,381 2,115

Operating income 399 323

Financial expense (net) 38 32

Result before taxation 361 291

Income taxes 105 74

Result after taxation 256 217

Net income 252 212

Shareholders’ equity 1,286 1,261

Minority interest 89 90

Group equity 1,375 1,351

Interest-bearing liabilities 601 647

Provisions and other liabilities 1,707 1,603

Balance sheet total 3,683 3,601

RatiosOperating income as % of

average balance sheet total 11.0 9.4

Net income as % of

average shareholders’ equity 19.8 17.7

Shareholders’ equity as % of

balance sheet total 34.9 35.0

FinancialInterest from financial leases 198 163

Selling and general administrative expenses 57 45


Result before taxation 45 33

Income taxes 13 8

Result after taxation 32 25

Shareholders’ equity 314 280

Interest-bearing liabilities 1,776 1,585

Balance sheet total 2,090 1,865

RatiosInterest from financial leases

as % of average balance sheet total 10.0 10.3

Net income as % of average

shareholders’ equity 10.9 10.3

Shareholders’ equity as %

of balance sheet total 15.0 15.0

Rental copying equipment and After several years in which there was a move away from rentals and towards finan-

financial lease receivables cial leases, both rentals and financial leases have been on the increase since 1996.

The book value of rental copying equipment increased by 47 million to

530 million (an increase of 10%). The capitalised value of financial lease

receivables (including short term amounts receivable) went up from 1,776

million in 1997 to 2,000 million (an increase of 13%). The aggregate value of

rental copying equipment and financial lease receivables increased by 12% and

represented 43.8% of the balance sheet total (1997: 41.3%).

The balance sheet value of rental copying equipment is calculated on the basis

of the all-in costs, less depreciation. Financial lease receivables are valued at the net

present value of the contracted lease instalments plus the residual value. Both these

valuations give only a partial reflection of the economic significance of the

population of machines installed on rental and on lease. A better assessment can be

obtained by comparing the balance sheet value of rental copying equipment and

financial lease receivables with their economic value, which consists of the cash

inflows expected to be generated on a contract basis.

26


Use of funds and finance

Gross capital expenditure In 1998 Océ’s gross capital expenditure on ‘Property, plant and equipment’

amounted to 249 million (1997: 248 million). This mainly relates to

investments in machines, plant and equipment for the production of machines and

the related supplies. An amount of 242 million (1997: 215 million) was

released from depreciation and disposals.

Geographical 1998 1997

spread of assets› million as % › million as %

Germany 1,044 18 1,037 19

Netherlands 1,006 17 906 17

United Kingdom 516 9 457 8

France 449 8 438 8

Rest of Europa 942 16 1,001 18

United States 1,588 28 1,395 26

Rest of the world 228 4 232 4

Total 5,773 100 5,466 100

Rentals and leases

› million

rental copying equipment

financial lease receivables

(including short-term

financial leases)

3000

2400

1800

1200

6o0

0

94 95 96 97 98


As the above table shows, the population of rented and leased machines and the

related service contracts generate a gross cash flow which is about 1.9 times (1997: 2.0

times) higher than their balance sheet valuation. The average remaining duration of

the lease contracts is about three years and that of the rental contracts is about one-

and-a-half years. The contractual revenue from rentals, service and financial leases

forms a stable basis for the future. The rental copying equipment and financial lease

receivables also have a high liquidity value.

The cash flows generated by rentals, financial leases and service also contribute

to the company’s financial strength.To illustrate this, the table on page 28 shows the

relationship between the cash flows expected to arise from the rental, financial lease

and service contracts existing at balance sheet date and the total interest-bearing

capital. The contractual cash flows have been reduced for this purpose by sub-

tracting the relevant cash outflows. The latter consist of the estimated service costs

and financial expenses that have to be incurred during the subsistence of the rental

and financial lease contracts. Calculated on this basis, the net resultant cash flow

from rentals, financial leases and service exceeds the total interest-bearing capital by

29% (1997 year end: 28%).

Interest-bearing capital At the 1998 year end the interest-bearing capital amounted to 2,377 million.

Of this amount, 1,894 million (80%) had been taken out over the long term.

27

1998 1997 › million

Contractual cash inflows from:Rental contracts 996 972

Financial leases and the related

service contracts 3,844 3,475

Total 4,840 4,447

Balance sheet value of:Rental copying equipment 530 483

Financial lease receivables 2,000 1,776

Total 2,530 2,259

Contractual cash inflows

› million

rental contracts

financial leases

and related

service contracts

5000

4000

3000

2000

10o0

0

94 95 96 97 98


Group equity Group equity increased to 1,688 million (1997: 1,631 million). This

increase was the result of earnings retained (+ 186 million), foreign currency

translations (– 48 million), optional stock dividend (+ 45 million),

conversion of debentures (+ 32 million), goodwill paid upon acquisitions

(– 153 million), issue of ordinary shares (+ 36 million), repurchase of

shares (– 30 million) and other movements (– 11 million).

Group equity as a percentage of the balance sheet total amounted to 29.3%

(1997: 29.8%); including the convertible subordinated guilder debenture loan,

whose conversion price is lower than the share price, this ratio amounted to 29.7%

in 1998 (1997: 30.9%). The ratio between interest-bearing borrowings and Group

equity was 141:100 (137:100 in 1997).

The shareholders’ equity per ordinary share, calculated on the basis of the

number of shares outstanding, amounted to 17.83 at the end of the financial

year (1997 year end: 17.55).

Cash flow The cash flow (net income attributable to holders of ordinary shares, plus deprecia-

tion) amounted to 654 million and was therefore 79 million higher than

in 1997. Expressed as a percentage of the interest-bearing capital the cash flow

amounted to 28% (1997: 26%). Cash flow per ordinary share, calculated on the

28

1998 1997 › f miljoen

Contractual cash inflows from:Rental contracts 996 972

Financial leases and the related

service contracts 3,844 3,475

Total 4,840 4,447

Expected cash outflows from:Operational cash flows 1,573 1,428


Total 1,785 1,590

Expected net cash flows 3,055 2,857

Interest-bearing capital 2,377 2,232

Excess as a % 29 28

Cash flow and basic

earnings per share

amounts in guilders

per ordinary share of

1

cash flow per share

basic earnings per share

10

8

6

4

2

0

94 95 96 97 98

Dividend per share

amounts in guilders

per ordinary share of

1

1.25

1.00

0.75

0.50

0.25

0

94 95 96 97 98


29

basis of the weighted average number of shares outstanding, rose by 11% to

7.98 (1997: 7.19).

The cash flow calculated on this basis does not take account of the financial

lease repayments; these increased in 1998 by 31% to 626 million (1997:

479 million). If these financial lease repayments had been added to the cash flow, it

would have increased in 1998 by 21% to 1,280 million (1997: 1,054

million).

As can be seen from the above table, the cash flow calculated on this basis was

sufficient in 1998 to finance about 92% (1997: about 78%) of the net investments

in property, plant and equipment, rental copying equipment and new financial

lease receivables.

When comparing the cash flow with the investments a proper assessment is again

served by making a distinction between the industrial and the financial activities.

The cash flow from industrial activities amounted to 622 million (1997:

550 million). The aggregate of the (net) investments in property, plant and

equipment and in rental copying equipment amounted to 440 million (1997:

366 million). The cash flow therefore exceeded the investments by 182

million or 41% (1997: 184 million or 50%).

In the financial activities the cash flow, which comprises net income and finan-

cial lease repayments, amounted to 658 million (1997: 504 million).

The investments in new financial lease receivables amounted to 951 million

(1997: 855 million, excluding the acquisition of the lease portfolio in the

United States). The investments in the financial activities therefore exceeded the

cash flow by 293 million (1997: 351 million).

Credit facilities At the end of the financial year a total of 1,025 million of unused credit

facilities were available to the Océ Group, part of which is available under stand-by

credit contracts.

1998 1997 › million

Investments in:Property, plant and equipment (net) 192 191

Rental copying equipment (net) 248 175

New financial lease receivables 951 986

Total 1,391 1,352

Investments

› million

1500

1200

900

600

300

0

94 95 96 97 98


Océ Engineering Systems

In 1998 Océ maintained its leading position in the market for Engineering Systems

(large format printing and copying). Revenues, including service and supplies, in-

creased by about 6% to 1,700 million (1997: 1,610 million), more or less

keeping pace with the growing market. Of the increase in revenues, autonomous

growth represented 5%, whilst favourable exchange rate effects contributed 1%.

Profitability increased further, especially due to the growing share of the digital

products, the Océ 9800, Océ 9700 and Océ 9400, which are also generating a stable

flow of revenues from service, supplies and software upgrades.

In 1999 the development of revenues and net income will be further boosted

by the start of regular market shipments of the Océ 9600 digital printer/copier

which is also equipped with the advanced ‘next generation’ controller. The Océ

9600 is specifically targeted at the mid-volume segment where the machine will

meet a great need.

The development of Océ’s own new inkjet equipment for the colour segment is

progressing well. The technology developed as part of this project is ground-

breaking, which also implies that the exact progress of the development is difficult

to predict.

The share of diazo in revenues has declined further to around 10%. However,

Océ’s relative position in the diazo market (now only supplies and service) is ex-

cellent, thanks in part to efficiency measures taken to reduce costs systematically in

line with decreasing volumes.

Market Both in Europe and in the United States demand for digital copiers/printers

remained at a sustained high level. Placements of the Océ 9400 and Océ 9800

increased even further. In Europe Océ accounts for 75% of all placements of digital

wide format printers/copiers. In the United States this amounts to 60%.

Given the slight share of the Asian countries in Océ’s revenues, the economic

circumstances there had hardly any effect on revenues and net income.

The cooperation with Shacoh in Japan progressed well. To meet the specific

requirements of the Japanese market, Océ will be introducing machines in a fully

Japanese version there in 1999.

Analogue Analogue copiers still have an important role to play in providing extra capacity

alongside machines in networked environments. Besides, there is a continuing need

for reliable machines in smaller offices and decentralised locations. The total popu-

lation of diazo and analogue plain paper machines in the market is meanwhile

declining. However, the low volume ‘eco’-copier, the Océ 7050, continues to be

popular, as was evidenced by the further increase in the number of placements in

1998. Its high user-friendliness and short warming-up time still form the basis for a

highly competitive market position.

31

Engineering Systems:

Large format output for

optimal visualisation

and documentation of

plans for a grand design.


Digital Since the introduction in 1993 of the first digital printer/copier/plotter (the Océ

9500), Océ has taken a lead in the wide format market. That lead was further

strengthened with the launch of the Océ 9800 and the Océ 9400. The share of sales

accounted for by the number of placements in the digital segment of Engineering

Systems has meanwhile climbed to 85%. These machines have a very wide range of

applications. Fitted with finishing equipment and software applications, they serve

as multi-functional production units which scan, print and copy and in many cases

also play a central role in archiving. Because of the quality and advanced features of

the Océ 9600, which is due for launch in 1999, Océ expects to strengthen its

position further in this market.

Apart from excellent quality equipment, the availability of good software appli-

cations is of essential importance in this market now that the machines are to an

increasing extent operating within networks. A growing proportion of sales there-

fore consists of software applications and upgrades. During the year under review

Océ put the Reprodesk and Repro-Exec software applications on the market.

These are programs for controlling and managing document flows. In order to offer

solutions at the same high speed as the growth in the market’s demand for new

applications, Océ works closely together with partners that have a proven track

record in various specialised fields. In mid-1998 Océ acquired Groupware

Technology Inc. in the United States, a software developer which had already been

developing applications for Océ for some time in the area of archiving systems for

the large format market. A number of other applications that allow the equipment

to operate in conjunction with systems such as Autocad and Intergraph have also

given Océ a good link-up with this increasingly versatile market.

Océ has a strong direct sales and service organisation. This provides Océ with

good access to end-users, enabling it to anticipate market needs and translate them

into customised hardware and software solutions.

The potentially interesting market for display graphics (large format colour

prints that are mostly used for advertising purposes) is developing more slowly than

expected. Despite selling in much greater numbers, the Océ 5350 inkjet plotter for

graphics applications, which was introduced in 1997, still lagged behind sales

expectations.

Océ continues to invest in developing its own inkjet technology, focused on

higher speeds and sharper resolutions. In the high volume segment Océ seeks to

achieve a leading position.

32

The traditional appli-

cations for large format

printing and copying

have been maintained

but the quality has been

strongly improved and

countless new digital

facilities, such as

archiving, have been

added.


Océ Office Systems

In the market for Office Systems Océ’s revenues, including service and supplies,

increased by 19% to 2,833 million (1997: 2,376 million). Autonomous

growth amounted to 9%, acquisitions contributed 9% and 1% was accounted for

by positive exchange rate effects. The relatively strong autonomous growth also

resulted in an increase in net income. This was mainly attributable to the enormous

demand for the Océ 3165 digital printer/copier and, towards the end of the year,

for the Océ 3155 as well. As demand for analogue machines continued to be high,

the manufacturing facilities in Venlo experienced a record year, producing the

biggest number of machines ever.

Océ therefore grew faster than the market, especially in the United States. The

Océ 3165 digital printer/copier (once again voted Machine of the Year) had a major

share in that growth, but Océ’s position in this market was also strengthened

further by the undiminished interest for its analogue machines, the strong growth

in colour and the successful expansion of its Facility Services activities.

The shift from analogue to digital can also be clearly seen in the Office Systems

market, as can the shift in attention away from the machine itself and towards

complete solutions in digital environments. In the declining analogue market Océ

strengthened its position. The increased durability of the machines has brought a

further reduction in service costs. That durability is reflected, for example, by the

fact that the number of service employees only increased slightly, despite the growth

in machine numbers and a 12% increase in copying volume.

Market In the European markets of most importance for Océ the upward line continued

unabated.

In the United States Océ was able to increase its market share strongly via its

own direct sales organisation and via its distributor Ikon, which operates through-

out the . The improved market position, particularly in the high and very high

volume segments, was achieved thanks to the performances of Océ machines. Their

productivity and strong technology continue to be convincing arguments in this

market. The strengthened structure and greater customer focus of the sales organi-

sation also made a substantial contribution to the market success.

The adverse economic developments in Asia and Eastern Europe are hardly

affecting Océ’s results in the market for Office Systems. The company’s activities in

Asia are relatively small. Revenue figures in Central and Eastern Europe are

satisfactory, with the exception of exports to Russia.

33

The convenience in use

of Océ equipment is

legendary. Originals of

varying shapes and

quality can be effortlessly

copied in any required

numbers on a wide

variety of carrier

materials.


Analogue In a shrinking analogue market Océ succeeded in booking a further increase of 7% in

copying volume. The Océ 3045 and Océ 3055, primarily intended for the medium

volume, have acquired a solid position thanks to their reliable technology. Their

market share has increased further, in Europe as well as in the United States. Both

machines received awards from authoritative American trade journals during the past

year. The Océ 3045 was even chosen as the Editor’s Choice of Better Buys for Businessfor the third successive year. The Océ 3055, which was introduced in 1998, is based

on the same technology as the Océ 3045 but is faster and quieter and has a lower

energy consumption. In view of the great interest shown nowadays for the environ-

ment and health and safety factors, these are properties that are highly appreciated.

In the very high volume segments, too, Océ steadily reinforced its market

position. The Océ 3100 (100 cpm), launched in 1998, proved a worthy successor

to the successful Océ 2600. Ikon and Océ- were able to expand their market

shares in the United States.

Digital The share of digital products in Océ’s revenue in this market is now around 21%

(1997: 10%). This has also brought changes in the composition of the sales organi-

sation. To give customers the most effective advice possible, software and colour

specialists have meanwhile been added to all sales teams and service teams.

The digital Océ 3165 (to be supplemented this year by the Océ 3155, an

adapted version of the Océ 3165) was well received by the market. The Océ 3165

uses ImageLogic, a system developed by Océ which was initially only incorporated

in large format machines and which guarantees prints of a constantly high quality.

Since some two-thirds of the population of these machines now operate in networks,

Océ has built an effective presence in professional digital environments. As one of

the few suppliers operating world-wide, Océ is in a good position to serve the needs

of multinationals. Usage data have meanwhile shown that the Océ 3165 also finds

wide application as a printer.

The Océ 3165 and the Océ 3155 are increasingly also being used in the printing

industry. In this relatively new market for Océ both machines and printers

(with their much higher capacity) are supplied. In central repro environments Océ

sells more and more complete printing and copying solutions combined with soft-

ware applications and service. These solutions give customers integrated control

over their overall printing and copying processes.

In the market for colour printing and copying Océ has made good progress,

particularly by integrating its own, well-trained colour specialists in the sales and

service teams and by offering a broad range of speciality supplies. As a result of this

overall approach Océ succeeded in growing faster than the market.

34

The boundaries between

copying and printing

have been swept away

for good in Océ’s digital

printers/copiers. Once

included in a network,

the easy-to-operate

corridor copier proves to

be a versatile multi-user

printer/copier/scanner

offering numerous

special features.

As part of a successful cooperation agreement with Canon, Océ also offers a range of

colour copiers. Work on the development of Océ’s own colour copier is going well.

Good progress was achieved on bringing its all-in quality and operational reliability

to the required standard and also on preparations for its production start-up.

Facility Services In the period of a few years Océ’s activities in the area of Facility Services have

grown enormously. In Europe substantial autonomous growth has been achieved

and, following the acquisition of Archer Management Services at the end of 1997,

these activities have also expanded further in the United States. An estimated 60%

of the revenue in Facility Services relates to income from prints and copies pro-

duced by Océ on the customer’s premises, whilst the remainder stems from related

activities such as postal department operations. The additional revenues were

chiefly booked with customers to whom Océ had previously not been supplying

printing and copying services.

Océ Printing Systems

The business unit Océ Printing Systems, which combines the production, sale and

service of printers for both the medium volume and the high volume, again had a

very successful year, recording a further increase in revenue and net income.

In Europe and the United States there was a slight gain in market shares. Printing

Systems grew by 5%, achieving revenues of 1,533 million (1997: 1,454

million). Autonomous growth amounted to 4% and exchange rate effects

contributed 1% to the increase in revenue. Measures taken to improve efficiency

helped bring a further reduction in service costs.

Market In the market for high volume printing on continuous-feed paper Océ maintained

its leading position.

In the Print on Demand market and in the medium volume Océ gained share.

The Print on Demand market, which is fast growing in importance, offers Océ

good opportunities in both the medium and the high volume segment. Since the

printing industry traditionally uses complete configurations for this application,

including binding and finishing equipment, Océ has opted to supply strongly

customer-focused, integrated solutions which also incorporate third-party

equipment and applications.

Océ is well prepared to meet the need for centralised and decentralised(distributed) printing in large companies thanks to its Company Wide Printing

concept. This concept, developed several years ago, involves the use of networks of

mainly medium volume printers whose software applications allow them to

35


The printer is taking

over more and more of

the tasks of a small offset

press. The benefits are

that changes are possible

until the very last

minute and that it is

never necessary to print

more than the required

numbers.

perform various tasks. To a growing extent the concept is being successfully applied

in larger business corporations, most of which already have an installed network.

Demand for the recently launched Océ 158 cut-sheet printer, with a speed

of 158 pages per minute, has been growing steadily. In 1999 this will be joined by

the Océ 110 , with a speed of 110 pages per minute. These high volume

machines have a modular construction and can be modified in line with the

customer’s specifications. Via upgrades they can be adapted to keep pace with the

fast-moving developments in the various production environments.

In 1998, in response to the growing market demand for application software,

Océ acquired participations in two businesses: InterFace Connection (Munich) and

Siemens Software .. (Namur, Belgium), active in the field of Print on Demand,

distributed printing, and archive and workflow management systems.

New products At the end of last year Océ presented the fastest system in its range, the Océ

1060 , which has a speed of 1,060 pages per minute. The machine will be

brought to market early in 1999. Also at the end of last year the Océ (-

) 8090 was introduced. This machine, with an output of 700 pages

per minute, features a print quality of 600 dpi to meet the needs of printing

industry customers for a higher resolution.

With its Océ () 200 , Océ has long been supplying a

continuous-feed printer with optional highlight colour. In 1998 Océ launched a

cut-sheet printer that combines speed with highlight colour: the Océ 158 .

Another new launch was the Océ 88, a mid-volume continuous-feed printer,

consisting of a bought-in engine and an Océ-developed controller. Its special

feature is image fixing via a flash fusing system. As the heat it generates is very

limited, the machine can also process heat-sensitive paper and plastic materials.

Deliveries of these machines were well under way in 1998.

All Océ’s continuous-feed printers are now being fitted as standard for the

transport of paper without edge perforation. This also brings savings in paper and

enables printing across the full paper width. Paper costs and the need for finishing

operations are thus substantially reduced. A further benefit is that a broader range

of paper grades can be used.

Another strength of Océ’s high volume printing equipment is that it can run

under all common printer languages, which makes it easy for customers to

incorporate Océ equipment in their specific environment. With the development

of the printer language, Océ now offers full compatibility with the most

important third-party equipment.

36


Fast, error-free and with

a high print quality,

Océ’s high speed printers

produce hundreds of

thousands of impeccable

prints each day anew.

Every print is a unique

document that radiates

the quality image of the

sender.


Print on Demand The product range for Print on Demand was strongly expanded during the year

under review, with the result that Océ meanwhile occupies a prominent position as

a supplier in this market. The new Océ printer family is speci-

fically targeted at this market. The systems supplied by Océ are principally used in

the printing industry for job production print solutions. For example, user in-

structions for mobile telephones, kitchen appliances and many other products are

produced ‘just in time’, with updated contents where required. The publishing

industry, too, is increasingly using digital print solutions to produce small to very

small print runs of, say, books, training manuals and loose-leaf publications.

Apart from the print quality (600 dpi), clear success factors in the Print on

Demand market are the individual system solutions, offering the customer complete

configurations that can also encompass finishing, binding and scanner functions

and can fit seamlessly in existing system environments. Of the revenues in this

market, less than half is generated by the machines; the greater part stems from

software applications, consultancy and service. To supplement the range for this

market, Océ has entered into a long term, world-wide partnership with Agfa to co-

market Agfa’s Chromapress, a high volume, full colour production system. The

cooperation in the areas of sales, service and development should bring a strong

improvement in the market position of both businesses.

Organisation At the beginning of 1998 the national organisation structure and reporting lines of

the business unit were brought fully into line with the existing structure within Océ.

As a consequence, the Printing Systems sales and service organisation in Germany

has been amalgamated with the sales and service organisations for Engineering

Systems and Office Systems of Océ-Deutschland in Mülheim.

Océ Imaging Supplies

In the market for Imaging Supplies Océ’s revenues, including those of Arkwright,

increased in 1998 by 3% to 928 million (1997: 904 million). These

revenues form part of the revenues of the Engineering Systems, Office Systems and

Printing Systems business units.

During the year the main focus was on improving the result via more accurately

targeted sales efforts, a rationalisation of the product range and a reduction of the

cost base. The year under review brought a hefty volume increase for large format

plain paper grades and inkjet papers but, due to continuing price decreases, this

volume growth was not reflected to the same extent in money terms. In these seg-

ments, where Océ operates with very low cost prices, a further reduction in

distribution costs should lead to an improvement in the result.

37

The quality of the

printing and copying

process is reflected in the

print itself. Océ’s broad

range of imaging

supplies guarantees

perfect interaction

between machine and

carrier material.


Sales of supplies for display graphics grew strongly but lagged slightly behind

expectations. This was, however, in line with what were likewise lower than ex-

pected sales of machines for that market.

Ever since the period when diazo was still the most common technology, Océ

has had a very strong presence in the market for wide format carrier materials. In

the space of ten years, however, the character of the market has changed completely.

Following the introduction of plain paper copiers in this sector, which resulted in

the disappearance of most of the diazo market, the traditionally high average

margin on supplies came under pressure. Various actions, including the creation of

the special Imaging Supplies unit and the targeted development of new materials

plus the implementation of a number of cost reduction measures, have helped to

change this situation. At the moment, therefore, Océ is one of the major suppliers

of both smaller and larger format materials for copying and printing equipment

and occupies a prominent position in speciality materials. Particularly for display

graphics, business graphics and colour copying Océ has built a broad and very high

quality range of supplies.

Market Last year Océ succeeded in further enhancing its presence in the Imaging Supplies

market. A particularly valuable contribution was made by the increased synergy

between the Imaging Supplies unit and the other Business Units which handle the

sale of machines. Apart from its direct sales, Océ also works with third-party

distributors in its bigger national organisations. The improvement in the result was

principally attributable to cost reductions brought by the further automation and

concentration of European production facilities, mainly in our supplies

manufacturing units in Venlo and Châteauroux (France).

Considerable savings on logistics costs are being achieved by contracting out the

relevant activities to specialised businesses. For 1999 a plan has meanwhile been

drawn up for a further substantial reduction of the logistics costs for Imaging

Supplies, including packaging materials. Part of the production in the United States

was also centralised last year within one organisation, Arkwright Inc.

Large format Sales of large format paper for use on the Océ machines installed in the market grew

further in1998.For example,Océnowsupplies virtually100%of thepaper require-

ments for theOcé9800. Inaddition,Océ isbooking good progress specifically in the

inkjet market with supplies of materials for third-party equipment installedon the

premisesof Océcustomers.This is partly the result of the targeted sales efforts, but it

is also attributable to the good quality of Océ’s own coated paper and films.This has

helped make Océ the biggest supplier of inkjet papers in Europe at the moment.

Small format In the smaller formats Océ is recording much success with its speciality materials

for business graphics. The greatly increased penetration of colour printers in office

environments has created a high demand for speciality paper, coated paper and

various film materials for overhead projection.

Arkwright The wealth of know-how that has been built up within Océ’s American subsidiary

Arkwright, especially in coating techniques for a wide spectrum of carrier materials,

provides Océ with an excellent entry into this high-tech market. The quality and

stability of the materials produced by Arkwright is universally acknowledged.

As a result, the business has built up a strong position as supplier for various

international brands.

38


Financial leases

Océ primarily uses financial leases as an important commercial instrument.

Financial leases form an integral part of Océ’s product offerings and enable Océ to

provide the customer with a package consisting of service, supplies and financing.

This ‘one-stop shopping’ concept has many advantages both for the customer

and for Océ and often results in preferred supplier status for the entire duration of

the contract. Such an arrangement provides Océ with a constant flow of profitable

revenue from interest payments, maintenance and supplies.

The financial lease contracts which Océ offers reveal a wide variety and great

flexibility and are tailored to each customer’s specific needs and cash flow.

Océ’s strength lies in the combination of leasing and possibilities for remarketing.

The company operates remanufacturing and remodelling programmes which ex-

tend the technical and economic lifetime of its machines. As a result Océ can keep

its machines on the market for longer periods, both via contract extension and via

placement with other customers.

The duration of the financial leases is virtually identical to the depreciation

period for the machines they relate to. The risk in respect of their residual value is

therefore lower than in the case of rental contracts, which have a shorter duration.

At the moment when the financial lease contract is signed, the selling price of the

machine is recorded as sales in the form of the discounted value of the financial

lease. During the subsistence of the contract the service income and the interest

received are booked to revenue. In the case of rentals the rental instalments are in-

cluded in revenue for the reporting period in which they fall due.

The debtors risk is slight thanks to the spread of customers across many

customer categories in many countries and thanks to the close relationship that

exists with customers via the provision of technical service, but also because Océ

can realise the value of the machines when they are placed back on the market.

In 1998 47% (1997: 45%) of all direct sales of machines were based on finan-

cial leases. In Office Systems this percentage was considerably higher and in

Engineering Systems and Printing Systems it was considerably lower.

Interest from financial leases went up by 22% to 198 million (1997:

163 million). The book value of financial lease receivables increased by 13% to

2,000 million, representing 35% of the total invested capital at the 1998 year

end (1997 year end: 32%).

In view of the average interest rate of 10.5% (1997: 10.8%) achieved on the

lease portfolio, financial leasing makes a good contribution to the result.

The decrease in the interest percentage is a consequence of the lower interest rates.

The return on financial leases is attractive, representing 10.9% (1997: 10.3%) of

average shareholders’ equity.

39

Océ’s is one of the

technology leaders in

Europe. In the cradle of

the current success

research efforts focus on

the building blocks for

excellence in the next

millennium.


Research & Development (R&D)

Mega-trends such as colour, digitisation and the environment and several specific

areas that Océ concentrates on (wide format, very high volume) mean that Océ’s

covers a broad-ranging and complex field. With its expansion into digital

technologies Océ has made major research efforts in recent years, culminating in a

number of machines that have been decisive for the market position that the

company now holds. Océ currently has over 1,600 employees (about 8% of

total workforce), spread over a number of research facilities in various countries.

Each year Océ invests around 6% of its revenue in Research & Development. This

figure does not include the development efforts focused on manufacturing

operations and on penetrating new markets.

Cooperation After digital machines have been launched, their development – unlike that of ana-

logue machines – is basically never completely finalised. Digital machines contain a

great deal of embedded software and also use a number of software applications that

are regularly updated and upgraded. For this means that it is not a matter of

developing successive models of a machine but more of working to supply a constant

succession of major and smaller software releases. In many cases those new releases

are also installed on the customer’s existing equipment to give it greater function-

ality. This is the reason why works in intensive cooperation with external

specialists, for example with software developers, to devise new products. To guar-

antee that the right products are brought to market with sufficient speed, the

organisation has been realigned with effect from 1999.

Océ is also represented in the relevant centres of expertise, including the Dutch

‘Top-Class Technology Institutes’ for polymers and telematics. This is important

for structuring projects aimed at broadening the company’s technology base and at

shortening project lead times. It also reinforces the profile of Océ’s on the

labour market.

Organisation Océ’s largely consists of young people who feel attracted by the leading-edge

nature of the research work but also by the open structure and by working together

in multidisciplinary teams. To meet the great need for trained software developers,

Océ launched its own training programme in 1997. All those who took part in that

programme are meanwhile working within the business. A new group of partici-

pants started on the programme last year. Because of this and other initiatives Océ

continues to fulfil the high standards that are required to ensure constant growth.

40

In 1998 some 250 new employees strengthened the ranks of the organisation.

In addition, Océ acquired the American software developer Groupware Technology

Inc. and took a participation in the Belgian company, Siemens Software ..,

a Siemens-Nixdorf activity which specialises in the development of application

software.

Cooperation between the various establishments within Océ (in the

Netherlands, France, Germany and the United States) is gradually becoming

smoother, despite the sometimes wide differences in culture between the various

countries. As each department also has its own specific characteristics and skills,

little overlap exists. Where possible, knowledge about new products and tech-

nologies is combined within joint projects.

Last year in Venlo moved into a new building which combines an

inspirational working environment with ultra-modern equipment. Vibration-free,

acoustic rooms in the new premises also enable highly specialised research to be

carried out in-house.

Emphasis on practicality In the development of new machines has traditionally given strong priority to

their practicality and convenience of use. Océ has developed a highly identifiable

approach to achieve this, with an emphasis on the ‘human interface’. By contrast

with an often overwhelming and therefore confusing array of possibilities offered

by many machines, especially because of the use of digital technologies, Océ has

kept faith with simplicity. This benefits the operational deployment of the machines

in the workplace. Océ aims to provide customers with maximum support on the

basis of its thorough knowledge of the process. The hardware and its use form the

basic starting point, whilst digital information technology provides an excellent

auxiliary resource. Océ seeks to achieve completely open structures and optimum

connectivity with the main suppliers of specialised software. The great success now

enjoyed by Océ products ensures that those suppliers themselves are also interested

in guaranteeing that their software will link up with Océ equipment.

Safety, Health and the Environment

Safety, health and the environment are important factors in all Océ’s activities.

The company focuses on the protection of people (employees, customers and others)

and on the protection of the environment (water, soil, air and raw materials) and

seeks to achieve constant improvements in these areas. Océ does this by reducing

structural risks in the areas of product safety and the environment to an acceptable

level.The entire chain of activities (designing products and processes, manufacturing,

marketing, maintenance, recovery, re-use) is carried out in line with the legal

regulations and the standards set by seals of approval. On top of these come the

additional requirements set by Océ itself. In this way Océ keeps ahead of develop-

ments in society in ideas about product safety and the environment.

Océ carries the internationally recognised / and safety seals of ap-

proval on all its products. It also checks the safety of all related supplies and prevents

avoidable environmental impact by using environmentally friendly materials and

by reducing waste to an absolute minimum.

41



This approach is based on a number of eco-themes formulated by Océ in the areas

of energy, noise and re-use of paper. These include promoting paper savings via full

speed duplex printing, avoiding substances that are environmentally harmful and

preventing waste by ensuring the most effective re-use of machines, components

and materials. As regards standards for office equipment Océ complies with the

requirements set by the environmental seals of approval Energy Star (United States)

and Der blaue Engel (Germany).

To ensure that the life cycle of products complies fully with the ‘cradle-to-

cradle’ principle, a product safety and environmental care system is being developed

in which all tasks, responsibilities and agreements are laid down as well as further

steps for improvement. This links up with the 14000 certified environmental

care system that has been in place in the production facilities in Venlo for the past

few years. Océ participates in various national and international safety and environ-

mental bodies and contributes in this way to the establishment of internationally

recognised standards.

An Océ brochure on the corporate safety, health and environmental policy is

available on request.

Manufacturing and Logistics

The greatly increased demand for Océ machines has made heavy demands on the

manufacturing facilities and, as a consequence, on the internal and external logistics

operations. Although production of some successful series was virtually doubled,

this did not present any insurmountable obstacles. All manufacturing facilities

delivered impressive performances. To cope with the extra workload Océ deployed

many temporary staff.

Machines The high level of activities served as a good litmus test for the new form of supply

logistics. These services are now performed by third parties who supply most of the

components to the production line on a ‘just-in-time’ basis. During the year under

review a start was also made on supplies based on the ‘pull’ principle. This means

that production decides on the call-off of components on the basis of actual, instead

of planned usage, bringing an even further reduction in intermediate stocks. In the

manufacture of the machines the specific wishes of customers are more and more

often being taken into account on the production line itself. This ‘customised’ pro-

duction sets different requirements for the manufacturing organisation and also

makes the logistics system increasingly important. Océ is now investigating whether

configurations to customer specifications can be introduced in more locations.

A pilot study will shortly be started in the United States.

42

At the end of their

economic liftetime some

90% of Océ machines

return to the factory for

recycling. Many compo-

nents still show no signs

of wear-and-tear after

many years of usage and

are re-used in new or

reconditioned machines.

In close cooperation

with specialised logistics

services providers, Océ

delivers the requested

supplies and components

to the customer promptly.

This guarantees an un-

interrupted production

process.


43

In view of the strong increase in production, the subject of quality control received

extra attention. As part of the efforts to achieve all-in quality assurance, quality

checks on the production lines have been stepped up and several activities have also

been initiated to give a further stimulus to employee commitment and motivation.

For some time a pilot project has been under way with the ultimate goal of giving

assembly line operatives greater independence in their work as well as greater

responsibility for achieving production targets and safeguarding a constant, high

quality.

Components and materials The increased production of machines also had its influence on the production of

the components and materials which for strategic reasons are exclusively manu-

factured by Océ itself. Production of photoconductors was strongly boosted to

meet the needs of both manufacturing and service operations. The high precision

and strictly controlled conditions needed for the production of an Organic Photo

Conductor () mean that further upscaling is not a simple matter. This led to

modifications in the processing methods and resulted in substantial investments in

equipment in the plant, which came on stream in 1996. Besides, due to the

increase in the copying volume on older machines, photoconductors based on zinc

oxide are still in full production. Output of the toner plant has more than doubled

over the past four years. Given the current level of demand, further adaptions are

urgently needed. A further expansion of the plant is also scheduled for 1999.

Recycling For quite some time Océ has been focusing on the re-use of (components from)

machines returned from the market. In Europe around 90% of all machines are re-

turned and are then stripped down, cleaned and taken apart in the special recycling

plant. Each machine contains a large quantity of usable parts and components

which are indistinguishable from new ones and can therefore be re-used in new and

reconditioned machines. Even in the design stage of new machines makes

allowance for the use of recycled parts and complete components. Partly as a result

of this, the recycling plant has become one of the biggest suppliers of the Océ

production units.

Purchasing & Logistics During 1998 a major step forward was taken towards the centralisation of the

European distribution logistics for the three flows of goods: supplies, machines and

components. Océ now delivers directly to the customer, in close cooperation with

logistics service providers who have been offering activities of this type for quite

some time. This brings a substantial improvement in inventories turn rates, leading

to further savings in storage and handling costs.

During the year under review Océ decided to change its strategy in the area of

purchasing. The company intends to reduce the number of suppliers and also aims

to buy in more sub-assembly units. Océ will be guided in these efforts by the overall

quality of the suppliers in terms of engineering capacity, core competencies, the role

that the suppliers can play in creating greater added value and their potential to

support Océ in future developments.

Personnel & Organisation

Recruitment, training and labour mobility were the principal themes in Océ’s

human resources activities in 1998. Océ has a good reputation as an employer, which

means that in most disciplines there are no problems in recruiting qualified

personnel. For the same reason staff turnover is not high: less than 4% in Venlo;

and in Poing (Germany) even less than 2%.

Just like other businesses, however, Océ is confronted with a shortage of ex-

perienced Information Technology specialists. Océ’s 1997 initiative to set up its

own training programme has provided a partial solution for this.

The number of Océ employees has grown strongly to almost 21,000, chiefly as a

result of the acquisition of Archer Management Services.

Education and Training To make optimum use of the capacity required for education and training, this

need is increasingly being met on a ‘need-to-know’ basis in which employees or

senior staff can to a large extent compile their own training programme. Much use

is made of computer-based training in which employees can put together their own

study package and learn at their own pace. Especially for employees in the national

organisations this is a time-saving solution. Employees are also encouraged in

various ways to take part in these training courses in their own time. Océ’s own

international training centre, the , is – as always – in charge of the implemen-

tation of both the classical and the computer-based training courses. The more

general training courses that are not specifically Océ-related are also contracted out

to specialised training institutes. These represent a substantial share of the total, as

increasing attention has been devoted in recent years to the training of management

skills and the skills needed for the more consultancy-focused role that many Océ

employees fulfil in their contacts with customers.

Mobility The programme started several years ago to encourage mobility within middle and

senior management is being vigorously continued. In Venlo alone the programme is

already applicable to just under 300 people.

44


A healthy working

climate, attention for

employees and

challenging career

prospects: the

cornerstones of a

creative and productive

Océ organisation.

Distribution of 1998 1997

employees bygeographical areas number as % number as %

Netherlands 4,155 20 4,015 23

Germany 3,110 15 3,021 17

France 1,578 8 1,549 9

United Kingdom 1,239 6 1,330 7

Rest of Europe 3,449 16 3,303 19

United States 6,369 30 3,418 19

Rest of the world 1,078 5 1,118 6

Total 20,978 100 17,754 100

Distribution of 1998 1997

employees bytypes of work number as % number as %

Research &

Development 1,614 8 1,527 9

Manufacturing and

Logistics 3,878 19 3,996 22

Facility Services 3,237 15 453 3

Sales 4,885 23 4,608 26

Service 5,415 26 5,312 30

Accounting and

other staff 1,949 9 1,858 10

Total 20,978 100 17,754 100


One of the most conspicuous changes in recent years has been the enormous in-

crease in the scale of Océ’s business operations. This can be seen in the big numbers

of machines produced each day, in the breadth and depth of the product range, in

the enormous number of customers served by the company and – as an end-result –

in the incredible numbers of square metres of paper that pass through Océ

machines every day. All these are a multiple of what they were ten years ago.

But during the same period the number of employees has not even doubled.

Despite this growth and despite the pressure that the bigger scale of the business

has brought for the organisation, the care and attention devoted to each and every

product has remained constant. Neither Océ’s products and services nor the way

the company interacts with its customers and suppliers contain any reflection of the

wholesale approach that the increased production volume might be expected to

bring.

45

Only a short while ago the editors of the magazine Better Buys for Business stated

in the jury report in which they gave the Océ 3045 the accolade of Editor’s Choicefor the third consecutive year: ‘The Océ 3045 is, above all, a classic Océ’. That short

sentence reflects a whole world of appreciation that is directly attributable to the

dedication of Océ people – both inside and outside the business. For that dedi-

cation we would like once more to express our appreciation and gratitude.

Venlo, February 17, 1999

The Board of Executive Directors:

J.C.M. Hovers, chairmanJ.F. Dix

R.L. van Iperen

H.J.A.F. Meertens

G.B. Pelizzari

46


1998 1997 1998 1997

Net sales 3,627,714 3,156,430 1,646,185 1,432,326

Rentals and service 2,240,084 2,120,401 1,016,506 962,196

Interest from financial leases 198,011 162,723 89,853 73,840

Total revenues 6,065,809 5,439,554 2,752,544 2,468,362

Cost of sales 2,015,160 1,759,876 914,440 798,597

Cost of rentals and service 1,472,093 1,401,331 668,007 635,896

3,487,253 3,161,207 1,582,447 1,434,493

Gross margin 2,578,556 2,278,347 1,170,097 1,033,869

Selling expenses 1,368,587 1,227,589 621,038 557,056

Research and development expenses 374,878 334,642 170,112 151,854

General and administrative expenses 294,739 274,837 133,747 124,715

2,038,204 1,837,068 924,897 833,625

Operating income 540,352 441,279 245,200 200,244

Financial expense (net) 134,467 117,395 61,018 53,272

Income before income taxes, equity in income of unconsolidated companies and minority interest 405,885 323,884 184,182 146,972

Income taxes 117,780 81,813 53,446 37,125

Income before equity in incomeof unconsolidated companies and minority interest 288,105 242,071 130,736 109,847

Equity in income of

unconsolidated companies 1,807 247 820 112

Income before minority interest 289,912 242,318 131,556 109,959

Minority interest in net income of

subsidiaries 5,525 5,618 2,507 2,549

Net income 284,387 236,700 129,049 107,410

Dividend preference shares 7,825 7,825 3,551 3,551

Net income attributable to holders of ordinary shares 276,562 228,875 125,498 103,859

49

Consolidated Statements of Operations

› 1,000 pro forma

› € 1,000

Assets 1998 1997 1998 1997

Tangible fixed assets Property, plant and equipment 982,350 997,535 445,771 452,662

Rental copying equipment 530,410 483,464 240,690 219,386

Investment grants –95 –212 –43 –96

1,512,665 1,480,787 686,418 671,952

Financial fixed assets Unconsolidated companies 8,066 8,187 3,660 3,715

Financial lease receivables 1,223,371 1,150,273 555,141 521,971

Other long term assets 47,377 42,482 21,499 19,277

1,278,814 1,200,942 580,300 544,963

Current assets Inventories 806,436 798,802 365,945 362,481

Accounts receivable 2,077,858 1,887,274 942,891 856,408

Prepaid expenses 57,336 36,119 26,018 16,390

Cash and cash equivalents 40,315 61,914 18,294 28,095

2,981,945 2,784,109 1,353,148 1,263,374

Total assets 5,773,424 5,465,838 2,619,866 2,480,289

50

after net income appropriation Consolidated Balance SheetsNovember 30

› 1,000 pro forma

› € 1,000

Liabilities 1998 1997 1998 1997

Group equity Ordinary shares 83,173 80,686 37,742 36,614

Priority shares 3 3 1 1

Financing preference shares 20,000 20,000 9,076 9,076

Paid-in capital 1,115,098 1,049,601 506,009 476,288

Revaluation reserve 82,105 99,100 37,258 44,969

Legal reserve 3,260 2,234 1,479 1,014

Other reserves 296,010 289,182 134,324 131,225

Total shareholders’ equity 1,599,649 1,540,806 725,889 699,187

Minority interest 88,820 90,054 40,305 40,865

1,688,469 1,630,860 766,194 740,052

Long term liabilities (provisions) 469,627 502,925 213,107 228,217

Long term debt 1,893,505 1,650,345 859,235 748,894

Current liabilities Short term debt 483,661 582,057 219,476 264,126

Other liabilities 663,715 567,353 301,181 257,454

Accrued liabilities 478,384 430,682 217,081 195,435

Deferred income 96,063 101,616 43,592 46,111

1,721,823 1,681,708 781,330 763,126

Total liabilities 5,773,424 5,465,838 2,619,866 2,480,289

51

Consolidated Balance Sheets November 30 › 1,000 pro forma

› € 1,000

1998 1997 1998 1997

Cash flow from operating Net income 284,387 236,700 129,049 107,410

activities Adjustments to reconcile net income to

cash flow generated by operating activities:

Depreciation 377,506 345,969 171,305 156,994

Net change in rental copying equipment –248,325 –175,247 –112,685 –79,524

Financial lease receivables –110,922 –168,835 –50,334 –76,614

Equity in income of

unconsolidated companies –1,150 351 –522 159

Increase in long term liabilities

(provisions) –44,579 71,333 –20,229 32,370

Net change in other working

capital accounts* –87,906 –157,122 –39,890 –71,299

Total cash flow from operating activities 169,011 153,149 76,694 69,496

Cash flow from investing Capital expenditure:

activities Additions to property, plant and

equipment –249,111 –248,078 –113,042 –112,573

Other investments –4,673 –2,634 –2,120 –1,195

Proceeds from sale of property,

plant and equipment 57,207 57,182 25,959 25,948

Investment grants received – 13 – 6

Released investment grants related

to property, plant and equipment –117 –220 –53 –100

Acquisition of unconsolidated companies –2,251 – –1,021 –

Proceeds from disposition of

unconsolidated companies 3,095 – 1,404 –

Movement from unconsolidated companies

to consolidated companies – 28,486 – 12,926

Aquisition net asset value 14,196 –228,399 6,442 –103,643

Goodwill –153,030 –69,969 –69,442 –31,750

Increase (decrease) in minority interest –1,234 3,421 –560 1,552

Total cash flow from investingactivities –335,918 –460,198 –152,433 –208,829

52

Consolidated Statements of Cash Flow

* See page 53 for the specification of Net change in other working capital accounts.

› 1,000 pro forma

› € 1,000

1998 1997 1998 1997

Cash flow from financing Long term debt:

activities Proceeds from long term debt 375,469 515,448 170,381 233,900

Repayment of long term debt –93,226 –86,640 –42,304 –39,315

Borrowings and current portion

of long term debts –98,593 –43,827 –44,740 –19,888

Conversion of convertible bonds into

share capital –31,913 –20,206 –14,482 –9,169

Converted into share capital 31,913 20,206 14,482 9,169

Issue of new shares 36,071 – 16,368 –

Repurchase of shares –30,012 –4,857 –13,619 –2,204

Dividends paid –99,627 –65,630 –45,209 –29,782

Optional dividend 52,855 27,267 23,985 12,373

Effect of exchange rate changes 530 –38,577 240 –17,505

Total cash flow from financing activities 143,467 303,184 65,102 137,579

Changes in cash and cash equivalents –23,440 –3,865 –10,637 –1,754

Specification of Net change in other working capital accounts:Inventories 4,093 24,682 1,857 11,200

Accounts receivable (excl. financial leases) –39,991 –128,123 –18,147 –58,140

Financial leases –150,389 –147,071 –68,243 –66,738

Prepaid expenses –20,684 –4,172 –9,386 –1,893

Trade accounts payable 28,137 40,787 12,768 18,508

Income taxes 36,152 25,392 16,405 11,522

Value added taxes, social

security and other taxes payable 13,883 –18,040 6,300 –8,186

Pension liabilities –2,367 2,543 –1,074 1,154

Other liabilities 12,183 –22,410 5,528 –10,169

Accrued liabilities 36,630 38,511 16,622 17,476

Deferred income –5,553 30,779 –2,520 13,967

Balance –87,906 –157,122 –39,890 –71,299

53

Consolidated Statements of Cash Flow › 1,000 pro forma

› € 1,000

Introduction

The following summary of significant accounting principles is intended as a guide

in interpreting the financial statements. There has been no change in the

accounting principles since the previous financial year.

The stated euro amounts are pro forma and are calculated using the fixed rate as

at December 31, 1998 of 1 euro = 2.20371.

The Group’s financial year commences on December 1 and closes on November 30 of thesubsequent year.

Principles of consolidation

The consolidated financial statements combine the financial data for Océ .. and its

subsidiaries. The financial data of subsidiaries are fully consolidated; the minority

interest is stated separately. A company is considered to be a subsidiary if Océ

directly or indirectly holds a majority controlling interest in it.

The financial data of a company joining the Océ Group in the course of a

financial year are consolidated from the date of the Group’s entitlement to that

company’s results.

If the value of the acquisition exceeds the net asset value based on our accounting

principles, the difference, being the goodwill paid, is charged upon acquisition to

the Shareholders’ equity.

The principal companies affiliated to the Group are listed on pages 83 and 84 of

this report. A number of affiliated companies of minor importance have been

omitted by virtue of the provisions of Article 379, para. 2c, Book 2 of the Dutch

Civil Code.

Balance sheet items of foreign subsidiaries are translated into Dutch guilders.

As the opening assets and movements in assets during the year are recalculated on

the basis of the closing exchange rate at the end of the reporting period, differences

arise as compared to the calculation based on the exchange rate used for the

previous period. Such differences are charged against or added to the Shareholders’

equity (under Accumulated translation adjustment).

Statement of operations items of foreign subsidiaries are translated into Dutch

guilders at the average exchange rate during the reporting period. The result cal-

culated on this basis differs from that calculated on the basis of the closing exchange

rate for the reporting period. This difference is debited or credited directly to the

Shareholders’ equity (under Accumulated translation adjustment).

Consolidated Statements of Operations

Revenues These are the proceeds from the sale of goods and services to third parties, excluding

turnover taxes. Receipts from sales also include the receipts from the financial

leasing contracts concluded during the financial year. Interest income arising from

these contracts is included under total revenues.

Receipts from rental and service contracts for equipment are included in

revenues as far as they relate to the reporting period. Where rental and service

contracts have been invoiced in advance, the relevant amounts are shown in the

balance sheet under ‘Deferred income’.

54

Summary of Significant Accounting Principles

Costs Consumption of raw materials and other cost items, except depreciation on buildings

and production facilities, are based on historic cost.

Depreciation on fixed production assets is charged at a fixed percentage of the

lower of the replacement value or the value to the business (current value) of the

relevant asset. Depreciation on rental copying equipment is charged at a fixed

percentage of the all-in cost. Government grants relating to property, plant, equip-

ment and rental copying equipment are deducted from the depreciation costs of the

aforementioned items.

Provisions are set aside for risks connected with business operations.

Research and development Expenditure on research and development, including purchased know-how, is

expenses charged directly to income.

Development credits and subsidies Development credits received from the government are subject to a contingent repay-

ment liability. This contingent liability, to which a contractual mark-up is applied

each year, is not included in the balance sheet. According as the relevant projects

prove successful, the liability ceases to be contingent in nature and a real liability

arises. A provision to cover these liabilities is set up in the year in which the liability

arises. The actual repayments fall due pro rata to the revenues achieved on the

relevant product. These repayments are charged to the provision for development

credits. Each year the balance of credits received and the repayment liabilities that

have arisen in respect of successful products are included in the results under

‘Research and development expenses’.

Subsidies received from the government are included in the statement of

operations as an income item in the year of the entitlement thereto.

Financial expense (net) Besides interest received and interest paid, also expenses relating to raising of loan

capital are included. The effect of interest rate instruments and interest on loans are

also included under this heading.

Income tax Income tax is calculated on the commercial results at the rates applicable in

the various countries. This method implies that provisions are made for deferred

income taxes. The entitlement to loss compensation is taken into consideration in

so far as there is a reasonable expectation that it can be realised. Allowance is made

for non-offsettable dividend withholding tax at the moment of dividend distri-

bution by an affiliated company.

55


Consolidated Balance Sheets

Assets and liabilities are included at face values, unless stated otherwise.

Foreign currencies Receivables and payables denominated in a foreign currency are translated into

local currency at the exchange rate ruling at year end. In so far as the exchange

results include results on forward exchange contracts relating to the positions of

subsidiaries, they are recorded under Shareholders’ equity. The other differences are

taken to the statement of operations, with the results on forward foreign exchange

contracts being included pro rata to the cash flow income.

Property, plant and equipment Property, plant and equipment are valued at the lower of the replacement value or the

value to the business (current value). In determining the replacement value, the

nature and location of the assets involved are taken into consideration. Adjustments

to replacement value are credited or debited directly to Shareholders’ equity

(Revaluation reserve) after deducting deferred taxes. Deferred taxes are not taken

into account regarding adjustments to replacement value of land.

Rental copying equipment These are valued at the all-in cost.

Unconsolidated companies These are included at the attributable net asset value, calculated where possible on

the basis of the valuation principles applied in these Financial Statements and

taking into account the specific risks connected with the company’s nature and

location.

Financial lease receivables These comprise the long-term receivables and residual values in respect of financial

lease contracts. They are valued at the present value of the contracted receivables.

Other long term assets These comprise assets that are not immediately realisable, such as mortgage debtors,

cash advances and guarantee deposits. They are valued at expected realisable value.

Inventories Purchased inventories are valued at purchase price by the First-in-First-out method.

Inventories of finished and semi-finished products and spare parts are valued at

manufacturing cost inclusive of a surcharge for indirect costs related to the manu-

facturing, no interest being charged. The risk of obsolescence is allowed for. Results

on transactions between consolidated companies are eliminated.

Accounts receivable Accounts receivable (trade debtors, financial leases, other debtors) and amounts

receivable from unconsolidated companies are shown at face value less an allowance

for bad and doubtful accounts.

Prepaid expenses These are shown at face value.

Cash and cash equivalents This item is valued at face value and includes unrestricted cash and short term

deposits with a maturity of less than three months.

Minority interest The minority interest in subsidiary companies are included at their net asset value

determined in accordance with the valuation principles used in these financial

statements.

56


Long term liabilities The provision for deferred income taxes is calculated on the differences between

(provisions) valuation of assets and liabilities for commercial and tax purposes, based on the

effective rate of income tax in the various countries and is stated at face value.

Claims in respect of loss compensation are deducted from this provision.

The self insurance franchise provision relates to uninsured potential future losses

that have not yet occured.

The provision for retirement benefits and severance payments relates to the

commitments, determined on an actuarial basis, which are not covered by separate

pension or redundancy funds, as well as to other non-activity schemes. The

provision for non-activity schemes relates to employees who have opted to make

use of such a scheme.

The reorganisation provision also includes amounts for the integration of printing

activities.

Other long term liabilities (provisions) among others relate to (legal)

proceedings and guarantee commitments.

All provisions are long term in nature.

Long term debt These include loans available for longer than one year. Loan amounts due within

one year are included under ‘Current liabilities’.

Current liabilities These commitments comprise liabilities falling due within one year.

Commitments and contingent These are commitments and contingent liabilities arising from contracts, mostly

liabilities not stated in the of more than one year (leasing contracts, rental contracts, capital expenditure

balance sheet commitments, repayable development credits, financial instruments, etc.).

Consolidated Statements of Cash Flow

The figures in this statement are derived from the movements in the Consolidated

Balance Sheets. In the event of a major acquisition, however, the acquired net asset

value is shown separately. The movement in the portions of long term debt falling

due within one year is shown under ‘Long term debt: repayment of long term debt’.

57


Total revenues 1998 1997 › 1,000

Total revenues 6,065,809 5,439,554

Geographical distribution Germany 14 16 percentages

France 8 8

United Kingdom 7 8

Netherlands 7 8

Rest of Europe 21 21

United States 37 32

Rest of the world 6 7

100 100

Distribution by industry Engineering Systems 28 29 percentages

segment Office Systems 47 44

Printing Systems 25 27

100 100

Exchange rates of a average rate in guilders balance sheet rate in guilders

number of currenciesof importance to Océ 1998 1997 1998 1997

German mark (100) 112.72 112.51 112.74 112.69

French franc (100) 33.63 33.40 33.63 33.67

Pound sterling (1) 3.30 3.17 3.16 3.34

American dollar (1) 1.99 1.93 1.92 1.99

Australian dollar (1) 1.25 1.46 1.21 1.36

Japanese yen (10,000) 151.63 160.69 156.00 155.85

Costs & Expenses 1998 1997 › 1,000

Depreciation Property, plant and equipment 184,342 157,948

Rental copying equipment 193,164 188,021

377,506 345,969

Payroll expenses Wages and salaries 1,817,650 1,551,595

Social security 376,681 294,966

Pensions 83,429 67,251

2,277,760 1,913,812

The remuneration, including pension scheme contributions, of the present members of the Board of

Executive Directors for the 1998 financial year amounted to 5,332,243 (1997: 3,624,545) and

that of former Executive Board members amounted to nil (1997: nil).

Under the Océ Stock Option Plan (see page 76) 182,000 options were granted to the members of the

Board of Executive Directors (1997: 100,000 units). At the end of the financial year the members of the

Board of Executive Directors held no ordinary shares in Océ (1997: nil) and no rights to shares (1997: nil)

58

Notes to the Consolidated Statements of Operations

from the 1994 issue of convertible bonds and the 112,000 options listed on the Options Exchange.

The remuneration for the 1998 financial year of the present and former members of the Board of

Supervisory Directors amounted to 410,563 (1997: 357,880). At the end of the financial year

the members of the Board of Supervisory Directors held 2,814 ordinary shares in Océ (1997: nil) and no

rights to shares (1997: nil) from the 1994 issue of convertible bonds and from options listed on the

Options Exchange.

1998 1997 › 1,000

Research and development Total expenditure on research

and development 341,947 306,131

Subsidies received and net

development credits repayable 32,931 28,511

374,878 334,642

Financial expense (net) Interest and similar income items –10,071 –8,839

Interest charges and similar expenses 141,542 123,765

Other financial expenses 2,996 2,469

134,467 117,395

Income taxes A reconciliation of the Dutch statutory income tax rate to the effective income tax

rate is set forth below:

Dutch statutory tax rate 35.0 35.0 percentages

Non-deductible expenses 1.6 1.1

Foreign tax rate deviating from the

Dutch tax rate 3.2 3.2

Tax credits –6.7 –6.5

Utilisation of carry forward losses – –3.9

Other –4.1 –3.6

Effective income tax rate 29.0 25.3

Employees by category 1998 1997 employees

Research and development 1,614 1,527

Manufacturing and logistics 3,878 3,996

Facility Services 3,237 453

Sales 4,885 4,608

Service 5,415 5,312

Accounting and other staff 1,949 1,858

Number of employees at November 30 20,978 17,754

Average number of employees 19,366 17,124

59

Notes to the Consolidated Statements of Operations

Tangible fixed assets

Property, plant and equipment property production other fixed under fixed assets not total ›

and plant machines assets construction in production 1,000

and prepayments process

At November 30, 1997

Replacement value 791,824 729,589 594,143 46,813 8,809 2,171,178

Accumulated depreciation 282,920 504,792 382,366 – 3,565 1,173,643

Book value 508,904 224,797 211,777 46,813 5,244 997,535

Movements in book valueExpenditure 25,463 66,060 148,417 7,661 1,510 249,111

Divestments 20,891 337 29,485 6,402 92 57,207

Net expenditure 4,572 65,723 118,932 1,259 1,418 191,904

Acquisition of companies – 2,475 991 – – 3,466

Depreciation –18,951 –67,826 –96,045 – –1,520 –184,342

Revaluation –14,974 –1,487 – – – –16,461

Foreign currency translations –4,992 –2,165 –2,375 –221 1 –9,752

At November 30, 1998 474,559 221,517 233,280 47,851 5,143 982,350

Replacement value 776,011 774,009 668,825 47,851 10,090 2,276,786

Accumulated depreciation 301,452 552,492 435,545 – 4,947 1,294,436

Book value 474,559 221,517 233,280 47,851 5,143 982,350

Revaluation included in book value amounts to 27.8 million.

The estimated useful lives of the various classes of fixed assets are as follows:

– property and plant: 20 to 50 years;

– production machines: 8 or 10 years;

– equipment: 3 to 10 years;

– vehicles: 4 or 5 years.

Property, plant and equipment contains an amount of 28.9 million for

financial leases (1997: 29.3 million).

Depreciation on property, plant and equipment on the basis of historic cost

amounts to 183 million (1997: 155 million).

60

Notes to the Consolidated Balance Sheets

1998 1997 › 1,000

Rental copying equipment At November 30, 1997/1996

Cost 1,102,697 943,934

Accumulated depreciation 619,233 496,670

Book value 483,464 447,264

Movements in book valueInstalled on rental 370,508 347,687

Divestments –122,183 –172,439

Acquisition of companies – 29,355

Depreciation –193,164 –188,021

Foreign currency translations –8,215 19,618

At November 30 530,410 483,464

Cost 1,176,487 1,102,697

Accumulated depreciation 646,077 619,233

Book value 530,410 483,464

The estimated useful life of the various types of machines ranges from 3 to 5 years.

61


Financial fixed assets 1998 1997 › 1,000

Unconsolidated companies Book value at November 30, 1997/1996 8,187 36,584

Changes due toEquity in income 1,807 247

Increase in/acquisition of companies 2,251 –

Divestments –3,095 –

Decrease resulting from addition to

consolidated companies – –28,486

Distributions received –657 –613

Foreign currency translations –427 455

Book value at November 30 8,066 8,187

Financial lease receivables Lease amounts receivable at November 30,

1997/1996 1,414,894 969,817

New lease amounts receivable 950,828 854,579

Acquisition of unconsolidated companies

and acquisition of lease portfolio – 131,008

To current lease amounts receivable –776,460 –626,071


Lease amounts receivable at November 30 1,551,438 1,414,894

Residual values 91,607 104,902

Unearned income –419,674 –369,523

At November 30 1,223,371 1,150,273

Other long term assets Book value at November 30,

1997/1996 42,482 38,963

New amounts receivable 6,210 7,550

Repayments –1,263 –4,256



62


Current assets 1998 1997 › 1,000

Inventories Raw and other materials 70,011 70,940

Semi-finished products and spare parts 332,700 357,199

Finished products and trade stock 403,725 370,663

Total 806,436 798,802

Accounts receivable Trade accounts receivable 1,162,139 1,167,148

Discounted trade bills –1,522 –2,052

Lease receivables 776,460 626,071

Other 140,781 96,107

Total 2,077,858 1,887,274

Cash and cash equivalents Cash and bank balances 36,283 60,392

Time deposits 4,032 1,522

Total 40,315 61,914

63


Group equity 1998 1997 › 1,000

Authorised capital* Ordinary shares 145,000 145,000

Priority shares 3 3

Financing preference shares 30,000 30,000

Protective preference shares 175,000 175,000

Total 350,003 350,003

Paid up share capital Ordinary sharesAmount at November 30, 1997/1996 80,686 79,364

Conversion of convertible loans 1,323 837

Share issue 622 –

Stock dividend 542 485

Amount at November 30 83,173 80,686

Number at November 30, 1997/1996 80,686,176 79,363,780 shares

Conversion of convertible loans 1,322,959 837,276

Share issue 621,916 –

Stock dividend 542,199 485,120

Number at November 30 83,173,250 80,686,176

Priority sharesAmount at November 30, 1998/1997 3 3

Number at November 30 30 30 shares

Financing preference sharesAmount at November 30, 1998/1997 20,000 20,000

Number at November 30 20,000,000 20,000,000 shares

Paid-in capital Amount at November 30, 1997/1996 1,049,601 1,030,717

Conversion of convertible loans 30,590 19,369

Issue of ordinary shares 35,449 –

Stock dividend –542 –485

Amount at November 30** 1,115,098 1,049,601

64


* For further information about the authorised capital see page 76.

** If distributed in the form of shares, this amount is available to shareholders without attracting Dutch income tax.

1998 1997 › 1,000

Revaluation reserve At November 30, 1997/1996 99,100 100,918

Revaluation of property, plant and

equipment less deferred tax liability –16,461 –1,818

Tax rate change –534 –

At November 30 82,105 99,100

Legal reserve Reserve for non-distributed income of unconsolidated companiesAt November 30, 1997/1996 2,234 6,995

From/To Retained earnings 1,026 –4,761

At November 30 3,260 2,234

Other reserves Accumulated translation adjustmentAt November 30, 1997/1996 –174,489 –255,101


At November 30 –222,212 –174,489

Retained earningsAt November 30, 1997/1996 463,671 352,559

To/From legal reserve –1,026 4,761

Added from net income 185,764 153,910

Goodwill –153,030 –69,969

Repurchase of shares –5,957 –4,857

Settlement of optional stock dividend

previous year 7,623 –4,458

Optional stock dividend (estimated) 45,232 31,725

At November 30 542,277 463,671

Repurchased shares relating to the Stock Option PlanAt November 30, 1997/1996 – –

Repurchased –24,055 –

At November 30 –24,055 –

Number at November 30 449,840 – shares

Total Other reserves 296,010 289,182

Minority interest At November 30, 1997/1996 90,054 86,633

Capital distribution / contribution –6,796 –2,595

Share in income 5,525 5,618

Foreign currency translations 37 398

At November 30 88,820 90,054

65


Long term liabilities (provisions) 1998 1997 › 1,000

Provision for deferred At November 30, 1997/1996 38,427 11,217

income taxesMovements due toAcquisition of companies –12,387 –3,358

Differences between income for

commercial and tax purposes –6,659 37,025

Revaluation of property, plant and equipment – –2,832

Foreign currency translations 2,699 –3,625

At November 30 22,080 38,427

The composition of the provision for deferred income taxes is as follows

Leasing 270,701 269,905

expenses –91,252 –84,545

Other fixed assets –34,875 –46,681

Current assets –100,985 –107,672

Long term liabilities (provisions) 515 2,741

Current liabilities –22,024 4,679

Total 22,080 38,427

Other provisions Self insurance franchise 8,000 8,000

Retirement benefits and severance payments 311,839 288,635

Development credits 12,749 59,288

Reorganisation provision 70,213 69,890

Other provisions 44,746 38,685

At November 30 447,547 464,498

Total long term liabilities (provisions) 469,627 502,925

Long term debt 1998 1997 › 1,000

Convertible subordinated guilder

debenture bonds 26,292 56,672

Convertible guilder debenture

bond to Company personnel 11,871 8,136

Loans 1,841,580 1,570,119

Capitalised lease obligations 13,762 15,418

Total 1,893,505 1,650,345

66


Convertible subordinated Principal conditions of these 7-year bonds are:

guilder debenture bonds – final maturing date June 15, 2001;

– annual interest 4.75%, payable June 15;

– earlier redemption in whole or part is permitted under certain conditions as from

June 15, 1998;

– the bonds are convertible into ordinary shares until June 15, 2001 at the

stipulated conversion price of 23.70 per 1 ordinary share;

– the conversion price will be adjusted (inter alia) in case of a rights issue below market

price with pre-emptive rights for existing shareholders and if a share distribution is

made out of reserves or in the form of a dividend.

The Trustee: Amsterdamsch Trustee’s Kantoor ..,

Fred. Roeskestraat 123, 1076 Amsterdam.

Convertible guilder debenture The average conversion price is 54.09 (1997: 40.44).

bond to Company personnel

Loans principal amount average interest rate redemption amounts due after

amounts › 1,000 at November 30 (%) more than five years

Guilder

debenture loan 300,000 6.25 2007 300,000

Guilder

debenture loan 250,000 6.38 2006 250,000

Guilder

debenture loan 200,000 6.50 2001 –

Guilders 128,000 8.32 2002 –

Guilders 30,000 7.20 2003 –

Guilders 50,000 6.84 2005 50,000

Guilders 170,000 5.88 2006 170,000

Guilders 50,000 4.70 2004 10,000

Guilders 10,000 5.84 2013 10,000

American dollars 96,000 6.00 2000 –

American dollars 53,086 5.88 2001/2003 –

German marks 62,571 3.71 2002/2004 11,274

French francs 79,031 4.31 2002/2004 33,630

French francs 50,445 3.75 2003 –

British pounds 72,611 7.49 2003/2004 24,625

Spanish pesetas 11,510 4.97 2004 11,510

Swiss francs 53,372 1.42 2002 –

Swiss francs 102,364 1.47 2001/2004 54,740

Norwegian crowns 24,252 5.86 2001/2004 16,408

Swedish crowns 26,180 4.72 2001/2004 14,941

Other 22,158 4.63 2001/2004 2,965

Total 1,841,580 5.72 960,093

The fixed interest rates of the guilder (debenture) loans have been fully swapped

into variable interest rates.

67


Current liabilities 1998 1997 › 1,000

Short term debt Borrowings under bank lines of credit 97,004 127,655

Current portion of long term debt 48,031 83,058

Short term borrowings 338,626 371,344

Total 483,661 582,057

Other liabilities Trade accounts payable 317,668 291,370

Notes payable 26,156 14,940

Income taxes 45,790 9,638

Value added taxes, social security

and other taxes payable 100,857 86,974

Pension liabilities 2,984 5,351

Dividend 39,722 40,726

Other 130,538 118,354

Total 663,715 567,353

Accrued liabilities Salary expenses and payroll taxes 266,996 224,404

Other 211,388 206,278

Total 478,384 430,682

Financial instruments

Financial instruments are used to hedge against the financial risks that are inherent

to the Group’s underlying commercial activities. For an explanation of the foreign

exchange and interest management policy, see pages 18 and 19 of the Report of the

Board of Executive Directors.

Foreign exchange risks The policy for the management of foreign exchange risks is aimed at protecting the

operating income and participations held in foreign currencies. Forward foreign

exchange contracts have been entered into to control these foreign exchange risks.

The contract value and the result of forward foreign exchange contracts at balance

sheet date were as follows (in millions):

– in respect of cash flows: 680 and 13 (1997: 962 and –25);

– in respect of participations: 760 and 11 (1997: 1,054 and –14).

Interest risks Interest rate instruments are used to achieve the desired risk profile in terms of fixed

and variable interest exposures. A central objective of the policy is to prevent a mis-

match between the portfolio of rentals and leases and financing of the Group.

Efforts are made to achieve a ratio of about 80% between the above fixed-interest

assets and liabilities. At balance sheet date the contract value/notional principal

amount and the market value of interest rate instruments were as follows (in millions):

– interest rate swap contracts: 2,548 and 126 (1997: 2,314 and 117);

– interest rate cap contract: 57.6 and 0.1 (1997: 59.6 and 0.4);

– interest/foreignexchange swap: 4.6 and –0.1(1997: 15.0 and –0.6).

Credit risks Credit risks are reduced by doing business solely with financial institutions which

have a high credit rating, with fixed limits being applicable to each institution.

68


Commitments and contingent liabilities 1998 1997 › million

not stated in the balance sheets

Collateral security Collateral security for liabilities 1.0 1.2

Contingent liabilities Guarantee commitments 8.4 9.1

Government development credits 127.5 167.5

Guarantee commitments include guarantees given in respect of import duties and

loans from third parties.

Other commitments Repurchase commitments of 18.2 million (1997: 15.4 million) exist on

the lease contracts with third parties. As a result of these commitments the

machines can be sold again upon their return. The estimated market value upon

return is higher than the repurchase commitment.

Total contracted lease commitments amount to 388 million

(1997: 309 million). The instalments which become due in 1999 amount to

115 million (1998: 90 million). Other commitments, such as buying

contracts etc., have been entered into solely as part of normal business operations.

Recourse liabilities in respect of bills discounted amount to 1.5 million

(1997: 2.1 million).

Litigation Since November 1996 Océ and Siemens have been involved in a lawsuit brought

before a court in Florida relating to alleged infringement of antitrust regulations.

Océ is contesting this complaint vigorously. Together with its advisers Océ takes

the view that a strong defence exists against all claims. Océ feels there is no reason to

assume that the claims will entail any risk to the financial position of the Océ Group.

69


70

Assets 1998 1997 › 1,000

Financial fixed assets Consolidated companies 1,399,961 1,170,725

Amounts receivable from consolidated

companies 1,655,342 1,963,568

Unconsolidated companies 6,954 8,128

Other long term assets 25 25

3,062,282 3,142,446

Current assets Amounts receivable from consolidated

companies 487,891 365,196

Other amounts receivable 7,898 2,472

Cash and cash equivalents 70 22,334

495,859 390,002

Total assets 3,558,141 3,532,448

after net income appropriation Océ .. / Balance Sheets November 30

1998 1997 › 1,000

Income of consolidated companies 280,257 227,940

Other net income 4,130 8,760

Net income 284,387 236,700

Océ .. / Statements of Operations

71

Liabilities 1998 1997 › 1,000

Shareholders’ equity Ordinary shares 83,173 80,686

Priority shares 3 3

Financing preference shares 20,000 20,000

Paid-in capital 1,115,098 1,049,601

Revaluation reserve 82,105 99,100

Legal reserve 3,260 2,234

Other reserves 296,010 289,182

1,599,649 1,540,806

Long term debt Amounts payable to consolidated

companies 41,527 41,527

Long term liabilities 1,425,980 1,342,183

1,467,507 1,383,710

Current liabilities Amounts payable to consolidated

companies 168,190 224,768

Short term debt 194,180 295,295

Other liabilities 90,482 39,245

Accrued liabilities 38,133 48,624

490,985 607,932

Total liabilities 3,558,141 3,532,448

Océ .. / Balance Sheets November 30

72

Océ .. / Notes to the Balance Sheets and the Statements of Operations


The accounting principles are the same as those used for the consolidated financial

statements. The Statements of Operations have been drawn up in accordance with

the provisions of Article 402, Book 2, of the Dutch Civil Code.

Financial fixed assets 1998 1997 › 1,000

Affiliated companies For a list of companies affiliated to the Group in the Netherlands and elsewhere see

pages 83 and 84. Affiliated companies are valued pro rata to the net asset value held.

Consolidated companies Book value at November 30, 1997/1996 1,170,725 847,719

Changes due toEquity in income 280,257 227,940

Capital increase 275,344 152,130

Capital decrease –34,088 –

Revaluation of property, plant and

equipment –16,995 –1,818

Dividends received –90,607 –84,661


Goodwill –153,030 –70,267

Book value at November 30 1,399,961 1,170,725

Amounts receivable from At November 30, 1997/1996 1,963,568 1,741,239

consolidated companies Prepayments 259,720 461,688

Repayments –523,321 –316,093


At November 30 1,655,342 1,963,568

Unconsolidated companies Book value at November 30, 1997/1996 8,128 36,077

Changes due toEquity in income 1,807 670

Acquisition of companies 1,183 –

Divestments –3,080 –

Decrease resulting from transfer to

consolidated companies – –28,486

Distributions received –657 –613



Current assets 1998 1997 › 1,000

Cash and cash equivalents Cash and bank balances 70 22,334

Shareholders’ equity

For specifications, see pages 64 and 65.

Long term debt 1998 1997 › 1,000

Long term liabilities Convertible subordinated guilder

debenture bonds 26,292 56,672

Convertible guilder debenture bond to

Company personnel 11,871 8,136

Loans 1,387,817 1,277,375

Total 1,425,980 1,342,183

The principal details of the convertible subordinated guilder debenture bonds are

stated on page 67. The average conversion price of the convertible guilder

debenture bond to Company personnel is 54.09 (1997: 40.44).

Loans principal amount average interest rate redemption amounts due after

amounts › 1,000 at November 30 (%) more than five years

Guilder

debenture loan 300,000 6.25 2007 300,000

Guilder

debenture loan 250,000 6.38 2006 250,000

Guilder

debenture loan 200,000 6.50 2001 –

Guilders 128,000 8.32 2002 –

Guilders 30,000 7.20 2003 –

Guilders 50,000 6.84 2005 50,000

Guilders 170,000 5.88 2006 170,000

Guilders 50,000 4.70 2004 10,000

Guilders 10,000 5.84 2013 10,000

American dollars 96,000 6.00 2000 –

French francs 50,445 3.75 2003 –

Swiss francs 53,372 1.42 2002 –

Total 1,387,817 6.14 790,000

The fixed interest rates of the guilder (debenture) loans have been fully swapped

into variable interest rates.

73


Current liabilities 1998 1997 › 1,000

Short term debt Borrowings under bank lines of credit 129,516 165,641

Current portion of long term debt 13 77,352

Short term borrowings 64,651 52,302

Total 194,180 295,295

Other liabilities Income taxes 43,245 –5,650

Dividend 39,722 40,726

Other 7,515 4,169

Total 90,482 39,245

Commitments and contingent liabilities 1998 1997 › million

not stated in the balance sheets

Contingent liabilities Government development credits 127.5 167.5

Other commitments Bank guarantees to group companies 338.0 276.1

Guarantees to group companies 87.9 105.5

For an explanation of the financial instruments see page 68.

74


75

Other information

Net income appropriation 1998 1997 › 1,000

Preference dividend 7,825 7,825

Cash dividend:Dividend 90,798 74,965

Optional stock dividend (estimated) –45,232 –31,725

45,566 43,240

Added to Retained earnings:From net income 185,764 153,910

Optional stock dividend (estimated) 45,232 31,725

230,996 185,635

Total net income 284,387 236,700

Upon adoption of this proposed net income appropriation, the dividend for the

1998 financial year will be: 4.00 per priority share of 100, 0.39

(rounded) per financing preference share of 1 and 1.10 per ordinary share

of 1.

The final dividend per ordinary share for the 1998 financial year will be 0.77,

as a payment of 0.33 per ordinary share was made on November 6, 1998 on

account of the expected dividend.

It is proposed to make the final dividend available optionally either fully in cash,

or fully in shares, charged to the tax-free paid-in capital reserve or, if desired,

charged to the net income of 1998. This proposed net income appropriation is in

conformity with Article 36 of the Company’s Articles of Association.

Extract from the Articles of The rules for net income appropriation as laid down in the Articles of Association can –

Association relating to net where of relevance at the present time – be summarised as follows (for literal text see

income appropriation Article 36 of the Articles of Association):

Where possible, the following dividends shall be distributed in turn from the

net income: first, on the protective preference shares: a percentage of the paid-up

amount equal to the renewal rate of interest plus 1.5%; then on the financing

preference shares: 6.26% of the paid-up amount including share premium, which

percentage shall be adapted on December 1, 2004 and subsequently each time eight

years thereafter; then on the priority shares: 4% and then on the ordinary shares:

5%, of the nominal value.

Subsequently, of the net income then remaining, as much shall be reserved as

may be deemed necessary by the Executive Board, subject to approval of the

Supervisory Board.

In so far as the net income has not been set aside in the form of reserves, it shall

be at the disposal of the holders of ordinary shares.

76

Other information

Authorised capital

Priority shares All priority shares are issued. They are held by Foundation Fort Ginkel, Venlo, the

directors of which are: H.B. van Liemt (chairman), J.C.M. Hovers and M. Ververs.

The Articles of Association grant certain rights to the holders of priority shares,

including the following:

– they determine the number of members of the Supervisory and Executive Boards;

– they draw up a binding nomination list for shareholders for the appointment of

Supervisory and Executive Directors;

– alteration of the Articles of Association is possible only if proposed by them;

– their approval is required for the issue of shares as yet not issued.

In any one year not more than 120 may be distributed on all the priority

shares together. The Board of Executive Directors of Océ .. and the directors of

Foundation Fort Ginkel are jointly of the opinion that, as regards the exercise of the

voting rights attaching to the priority shares, Foundation Fort Ginkel has complied

with the requirements set in respect hereof in Appendix X to the Securities

Regulations of the Amsterdam Exchanges ..

Ordinary shares To encourage the long term achievement of the Company’s objectives, Océ

operates a Océ Stock Option Plan under which option rights to ordinary shares in

Océ are granted to directors and certain senior company executives.

During the financial year an aggregate of 872,500 option rights were granted to

a total of 180 participants for the Océ Stock Option Plan 1999. For participants in

the Netherlands the options have a duration of six years, whilst the duration for

participants in other countries amounts to five years.

Participants in the Océ Stock Option Plan are expected to abide by a code of

conduct. This code stipulates that, where the duration of the options amounts to

five years, they will not exercise option rights within two years after grant and,

where the duration of the options amounts to six years, they will not exercise within

three years after grant.

The exercise price is equal to the opening price quoted for the Océ share on the

Amsterdam Exchanges () on the day of grant and amounts to 67 for

participants outside the Netherlands. Participants domiciled in the Netherlands

may choose, at the moment of grant, between an exercise price of 67,

73.70, 80.40 or 90.65. To cover the income tax payable by Dutch

participants upon grant of the options, loans have been provided which are repaid

upon exercise.

Participation in the Océ Stock Option Plan is subject to regulations aimed at

preventing the misuse of inside information. Participants are prohibited from

trading in Océ options on the Options Exchange and from disposing of or

pledging the options that have been granted.

At November 30, 1998 an aggregate of 1,813,500 option rights to ordinary

shares were outstanding at an average exercise price of 64.69.

The remaining duration of these options is 4.6 years on average.

The Company’s policy is to buy in the shares required for implementation of

the Océ Stock Option Plan.

The following table contains information about the share options outstanding

at November 30, 1998.

Preference shares Since 1979 the Company has been under the irrevocable obligation to issue

protective preference shares to the Lodewijk Foundation, Venlo, on the latter’s first

request. As to the nominal value of the said issue, the Company’s obligation has

since February 1997 related to at most an amount equal to the total nominal value

of the ordinary and financing preference shares of the Company issued at the time

of the request. The directors of the Lodewijk Foundation are: O. Hattink

(chairman), J.J.C. Alberdingk Thijm, J.M.M. Maeijer, Th. Quené, H.B. van Liemt

and J.C.M. Hovers.

The Board of Executive Directors of Océ .. and the directors of the Lodewijk

Foundation are jointly of the opinion that, as regards the independence of the

directors of the Lodewijk Foundation, the relevant requirements set in respect hereof

in Appendix X to the Securities Regulations of the Amsterdam Exchanges .. have

been complied with.

During 1996 20,000,000 financing preference shares were placed with the

Foundation ‘Stichting Administratiekantoor Preferente Aandelen Océ’ in return for

the issue to a number of institutional investors of registered depositary receipts with

limited cancellability. The directors of this Foundation are H. de Ruiter

(chairman), S. Bergsma, J.M. Boll, L. Traas and D.M.N. van Wensveen.

77

Other information

issued issued number of options exercise price exercised number option forfeited outstanding at expiration date

in guilders of options November 30, 1998

1994 624,000 18.30 606,800 2,000 15,200 Nov. 29, 1999

1995 676,000 23.00 655,000 – 21,000 Nov. 30, 2000

1996 806,400 46.40 682,600 – 123,800 Nov. 25, 2001

1997 807,000 54.80 26,000 – 781,000 Nov. 28, 2002

1998 872,500 67.00-90.65 – – 872,500 Nov. 29, 2003/04

3,785,900 1,970,400 2,000 1,813,500

United States generally accepted accounting principles (US GAAP)

Net income and shareholders’ Océ’s consolidated financial statements are drawn up on the basis of the accounting

equity based on United States principles applied in the Netherlands, which differ in a number of respects from

accounting principles United States generally accepted accounting principles ( ). The statements

below give an approximate indication of the effect that application of

would have on net income, earnings per share and shareholders’ equity. This

information will be presented in more detail in the Form 20- report which will be

submitted to the Securities and Exchange Commission and which will be available

on request at the end of May.

Net income and shareholders’ equity 1998 1997 › 1,000

under U S G A A P

Net income as reported in the

Consolidated Statements of Operations 284,387 236,700

U S G A A P adjustmentsBusiness combinations –44,520 –41,813

Reorganisation costs –16,000 –12,000

Depreciation 1,842 2,948

Deferred income taxes 15,901 14,426

Use of tax-deductible goodwill –17,300 –

Net income under 224,310 200,261

Earnings per ordinary share of N LG 1 nominal under U S G A A P

Based on average number of shares

outstanding (basic) 2.64 2.41 guilders

Based on increase upon

conversion/options (diluted) 2.59 2.34 guilders

Shareholders’ equity as reported in the

Consolidated Balance Sheets 1,599,649 1,540,806

U S G A A P adjustmentsBusiness combinations 766,738 823,325


Revaluation of property, plant and equipment –18,119 –48,700

Self insurance franchise 8,000 8,000

Final dividend 39,722 40,726


Deferred income taxes on above adjustments –256,899 –240,525

Shareholders’ equity under 2,215,710 2,195,875

78

Other information

Under the Consolidated Balance Sheets items set out below would be:

Balance sheets items under U S G A A P 1998 1997 › 1,000

Intangible assets (net) 766,738 823,325

Property, plant and equipment (net) 964,231 948,835

Long term liabilitiesProvision for deferred income taxes 278,978 278,952

Self insurance franchise – –


Other long term liabilities (provisions) 29,386 38,685

Current liabilitiesDividend – –


The main differences between the accounting principles applied by Océ

(Dutch ) and are summarised below:

Business combinationsGoodwill paid is charged by Océ directly to shareholders’ equity in the year of

acquisition. Under goodwill is capitalized as intangible fixed assets and

then amortized on a straight-line basis over a period of 20 to 40 years.

Reorganisation provision In the case of an acquisition, a provision is made for future integration costs.

Under the formation of this provision is subject to more stringent criteria.

For this reason the provision is not recognised in . Consequently, the

integration costs incurred during the financial year are charged directly to the

Statements of Operations.

Revaluation of property, plant and equipmentAs described on page 56 of the financial statements property, plant and equipment

are valued at the lower of replacement value or the value to the business. Under

such fixed assets are valued at their original cost. As a result, the higher

depreciation costs are adjusted to allow for this.

Self insurance franchise Under a provision for self insurance is not permitted.

Dividends not declaredThe final dividend on ordinary shares that is submitted to the shareholders’

meeting for approval is included under ‘Current liabilities’ in the financial state-

ments. Under this amount should be classified under shareholders’ equity

until the moment when the net income appropriation has been approved by the

shareholders.

79

Other information

Use of tax-deductible goodwillIn a previous acquisition a provision was made for the capitalised claims in respect

of deferred taxation.

Under these claims have to be netted against the goodwill included,

upon realisation.

Signatures to the financial statements and other information set out on pages 49 to 80:

February 17, 1999

The Supervisory Directors: The Executive Directors:H.B. van Liemt J.C.M. Hovers

L.J.M. Berndsen J.F. Dix

P. Bouw R.L. van Iperen

J.V.H. Pennings H.J.A.F. Meertens

M. Ververs G.B. Pelizzari

F.J. de Wit

80

Other information

Auditors’ report

Introduction We have audited the financial statements as included in the annual report for the

year ended November 30, 1998 of Océ .., Venlo.These financial statements are

the responsibility of the company’s management. Our responsibility is to express an

opinion on these financial statements based on our audit.

Scope We conducted our audit in accordance with auditing standards generally accepted in

the Netherlands. Those standards require that we plan and perform the audit to ob-

tain reasonable assurance about whether the financial statements are free of material

misstatement. An audit includes examining, on a test basis, evidence supporting the

amounts and disclosures in the financial statements. An audit also includes assessing

the accounting principles used and significant estimates made by management, as

well as evaluating the overall financial statement presentation. We believe that our

audit provides a reasonable basis for our opinion.

Opinion In our opinion, the financial statements give a true and fair view of the financial

position of the company as of November 30, 1998 and of the result for the year then

ended in accordance with accounting principles generally accepted in the Netherlands

and comply with the financial reporting requirements included in Part 9, Book 2 of

the Dutch Civil Code.

Eindhoven, February 12, 1999

PricewaterhouseCoopers ..

81

Other information

82

Business Units

Engineering Systems G. Kraaijeveld

Office Systems A.A.J. van Driel

Printing Systems E. Spaett

Imaging Supplies H.J.A.F. Meertens

Corporate Staff

Secretariat of the Company, J.M.M. van der Velden

Legal Affairs

Corporate Personnel and P.H.G.M. Creemers

Organisation

Finance and Administration C.F. Lindenhovius

Central Operating Company Venlo

Venlo Executive Committee J.C.A. Vercoulen, chairmanN.J. Koole

Manufacturing and Logistics N.J. Koole

Research and Development J.C.A. Vercoulen

R. Teer

February 1999 Directors Central Services

See also page 5.

83

Europe

Belgium Océ-Belgium ../.. P.J.J.G. Nabuurs Brussels (2)729.4811

Océ-Interservices ../.. P.J.J.G. Nabuurs Brussels (2)729.4116

Denmark Océ-Danmark .. F.O. Nilsen Copenhagen (43)29.7000

Germany Océ-Holding Deutschland J.F. Dix, E. Spaett Mülheim/Ruhr (208)48450

G.m.b.H.

Océ-Deutschland G.m.b.H. J.F. Dix Mülheim/Ruhr (208)48450

Océ Printing Systems G.m.b.H. E. Spaett, P. Feldweg Poing (8121)72.4031

and L. Bockholts

France Océ-France .. A. Gimenez Noisy-le-Grand (1)4592.5000

Océ-Industries .. J.L. Desriac Créteil (1)4980.6500

Hungary Océ-Hungária Kft. J.P. Pelé Budapest (1)1236.1040

Ireland Océ-Ireland Limited R. Thompson Dublin (1)403.9100

Italy Océ-Italia S.p.A. L. Iannuzzi Milan (02)927.261

Netherlands Océ-Technologies .. J.C.A. Vercoulen Venlo (77)359.2222

Océ-Nederland .. J.J. Kwaak ’s-Hertogenbosch (73)6815.815

Arkwright Europe .. J.R. Marciano Venlo (77)382.5315

Norway Océ-Norge .. O. Fondevik Oslo 2202.7000

Austria Océ-Österreich Ges.m.b.H. G. Schennet Vienna (1)865.3610

Poland Océ-Poland Limited, Sp. z z.o. M. Kozlowski Warsaw (2)2846.7429

Portugal Océ-Lima Mayer .. Th. de Lima Mayer Lisbon (1)412.5700

Spain Océ-España .. A. Aznar de Argumosa Barcelona (3)484.4800

Czech Republic Océ-Czech republic s.r.o. J. de Vries Prague (2)440.10111

United Kingdom Océ () Limited M.J. Cornish Loughton (181)508.5544

Sweden Océ Svenska .. N.R. Gabriel Stockholm (8)703.4000

Switzerland Océ (Schweiz) .. H. Würges Glattbrugg (1)829.1111

North America

United States Océ- Holding Inc. G.B. Pelizzari Chicago, (773)714.8500

Océ- Inc. G.B. Pelizzari Chicago, (773)714.8500

Océ Printing Systems , Inc. H.W. Krause Boca Raton, (561)997.3100

Arkwright Inc. J.R. Marciano Fiskeville, (401)821.1000

Archer Management S. Katz New York, (212)502.2100

Services Inc.

Océ Groupware D. Bower Cleveland, (216)687.9970

Technology, Inc.

Canada Océ-Canada Inc. S. Goodall Toronto (416)224.5600

February 1999 Principal companies and their chief executives*

* Where holdings are less than 95% of the equity, capital percentages are stated. A list of affiliated companies is

available for public inspection at the Commercial Registry, Venlo, in conformity with the provisions of Article 379,

Book 2, of the Dutch Civil Code.

Far East

Hong Kong Océ (Hong Kong China) Ltd. N.W. Kooij Hong Kong 2577.6064

China Océ Office Equipment N.W. Kooij Beijing (10)6422.1622

(Beijing) Co., Ltd.

Singapore Océ (Far East) Pte. Ltd. N. Klitsie Singapore (8)46.2381

Malaysia Océ Systems R. Goh Petaling Jaya (3)758.4088

(Malaysia) Sdn. Bhd.

Singapore Océ (Singapore) Pte. Ltd. N. Klitsie Singapore (8)46.2381

Taiwan Océ (Taiwan) Ltd. Ch. Yeh Taipei (2)2651.6516

Thailand Océ (Thailand) Ltd. S. Santhidej Bangkok (2)260.7133

Other countries

Australia Océ-Australia Limited P.A. Duijser Scoresby (3)9730.3333

Brazil Océ-Brasil Comércio e S. Notermans São Paulo (11)835.8444

Indústria Ltda.

South Africa Océ Printing Systems T. Venediger Johannesburg (11)488.9118

(South Africa) (Pty.) Ltd.

Direct Export

Netherlands Océ Direct Export W.J. Verheijen Venlo (77)359.2222

Lease companies

Australia Océ-Australia Finance Pty. Ltd. P.A. Duijser Scoresby (3)9730.3333

Germany Océ-Deutschland A. Hütter Mülheim/Ruhr (208)48450

Leasing G.m.b.H.

France Océ-France Financement .. M. Haranger Saint-Cloud (1)4592.5055

Spain Océ-Renting .. E. de Sus Barcelona (3)484.4800

United Kingdom Océ () Finance Limited I. Paskins Loughton (181)508.5544

United States Océ-Credit Corporation S. Schulein Purchase, (914)694.1116

Minority holdings

Belgium Siemens Software .. 40%

Cyprus Heliozid Océ-Reprographics 25%

(Cyprus) Ltd.

Germany InterFace Connection G.m.b.H. 11%

Hungary Szenzor Számítóközpont Kft. 34%

Singapore Datapost Pte. Ltd. 30%

84

Principal companies and their chief executives

85

Quarterly results (net income) 1998 1997

› million › € million % increase on › million › € million % increase on

previous year previous year

First quarter 55.5 25.2 25 44.3 20.1 62

Second quarter 73.0 33.1 24 58.8 26.7 43

Third quarter 59.4 26.9 18 50.5 22.9 30

Fourth quarter 96.5 43.8 16 83.1 37.7 34

Year 284.4 129.0 20 236.7 107.4 40

Quarterly results (basic earnings 1998 1997

per ordinary share, calculated on the basis of the weighted average in guilders in euro % increase on in guilders in euro % increase on

number of shares outstanding) previous year previous year

First quarter 0.66 0.30 24 0.53 0.24 27

Second quarter 0.86 0.39 20 0.71 0.32 23

Third quarter 0.69 0.31 14 0.61 0.28 28

Fourth quarter 1.15 0.52 14 1.01 0.46 33

Year 3.37 1.52 18 2.86 1.30 26

Distribution of ordinary shares 1998 1997

as % at end of financial year (approximate indication based private institutional total private institutional total

on information provided by banks) Netherlands 26 32 58 22 33 55

United Kingdom – 11 11 – 16 16

Belgium / Luxemburg 1 10 11 1 9 10

United States 1 8 9 1 9 10

Other 1 10 11 1 8 9

Total 29 71 100 25 75 100

Supplementary information for shareholders

Investor Relations Océ has been actively engaged in Investor Relations since the early 1980s.

At first this chiefly involved seeking active contact with investors in the relevant

main financial centres in the world. As had already been the custom for years,

meetings were again organised in 1998 for (institutional) investors in Amsterdam,

London, New York, Edinburgh, Frankfurt/Main, Zürich and Geneva. In recent

years growing numbers of analysts and managers of major institutional investors

visit companies to see what is going on for themselves. Dozens of visits of this type

to Océ take place each year.

Océ also receives regular requests from brokers and banks to give a presentation

about Océ at meetings and seminars they have organised for investors. Wherever

possible, Océ complies with these requests, which often offer an excellent

opportunity to meet new and different categories of investors. Last year, for

example, two presentations were given at a seminar in New York organised by one

Dutch and one American broker.

Last year Océ also began giving extensive explanatory comments following

publication of its half-yearly results. For this purpose meetings were held with

analysts in Amsterdam and London, both of which were well attended. This

initiative will be continued.

Stock exchange listings Océ ordinary shares are listed on the stock exchanges in Amsterdam, Düsseldorf

and Frankfurt/Main and on the electronic stock exchange (). in Switzerland.

They are traded in the United States as American Depositary Receipts ( s): via

(over the counter). Options to Océ shares are traded on Amsterdam

Exchanges .. The Océ share is included in the main Index in Amsterdam.

Capital and shares The authorised capital amounts to 350,003,000. At 30th November 1998 the

issued and fully paid capital amounted to 103,176,250 nominal, divided into

83,173,250 (ordinary shares), ,000,000 (financing preference shares)

and 3,000 (priority shares). The ordinary and financing preference shares have

a nominal value of 1.

86


Share price development

index Dec. 1,1993 = 100

Océ

700

550

400

250

100

year’s highest

year’s lowest

22.38

14.95

94

24.75

18.63

95

49.45

23.90

96

66.35

45.00

97

90.20

40.70

98

Number of shares The number of ordinary shares outstanding at the end of the 1998 financial year was

83,173,250. Compared to the 1997 year end this is an increase of 2,487,074 share

units as a result of conversion of convertible (personnel) bonds, issue of ordinary

shares and distribution of stock dividends.The weighted average number of shares

outstanding in 1998 is: 81,954,636. The increase in the number of outstanding

ordinary shares on a diluted basis is 2,128,605 share units. This latter calculation is

based on the method that is (inter)nationally prescribed.

At the 1998 year end 20,000,000 depositary receipts with limited cancellability

for financing preference shares were outstanding at, inter alia, Rabobank

Nederland, Preferent Fonds .. and the Nationale Investeringsbank .. These

carry a dividend of 6.26% up to December 1, 2004.

Calculation basic earnings The calculation of the basic earnings and cash flow per ordinary share of 1

per share nominal is based on the net income available for holders of ordinary shares and on

the weighted average number of shares outstanding. Equity per ordinary share of

1 nominal is calculated on the basis of the number of shares outstanding at the

end of the financial year. For this purpose the equity has been reduced by the

amount of 125 million that was brought in by the holders of preference shares.

Substantial Shareholdings On the basis of the Substantial Shareholdings Notification Act () which was

Notification Act introduced in the Netherlands in 1992 and which requires, inter alia, that share-

holders must publish holdings of more than 5% of the ordinary outstanding shares,

the following shareholder is known: Internationale Nederlanden Groep: 6.33%

(notification February 28, 1992).

Important publication dates April 8, 1999 meeting of shareholders and 1st quarter results 1999;

(subject to modification) July 8, 1999 2nd quarter results / 1st half year 1999;

October 7, 1999 3rd quarter results / nine months 1999;

January 7, 2000 provisional results for 1999;

February 2, 2000 4th quarter and 1999 full year results;

February 2000 publication of 1999 annual report.

87


Market trading Océ share

1998 on the Amsterdam

Stock Exchange

numbers (› thousand)

1600

1280

960

640

320

0

12/97 2/98 4/98 6/98 8/98 10/98

Consolidated Statements 1998 1997 1996 1995 1994 1993 1992 1991 1990 1989

of Operations

Total revenues 6,066 5,440 4,174 2,932 2,770 2,626 2,737 2,623 2,358 2,156

Operating income 540 441 319 222 186 165 199 220 187 168

Net income 284 237 169 108 90 62 87 101 86 85

Key figuresTotal revenues

Increase/decrease (%) 12 30 42 6 6 –4 4 11 9 14

Expenditure on research and

development 342 306 245 186 186 186 189 182 173 146

As % of total revenues 5.6 5.6 5.9 6.3 6.7 7.1 6.9 7.0 7.3 6.8

Operating income


As % of average balance

sheet total 9.6 8.8 8.0 7.0 6.3 5.8 7.1 8.5 7.9 7.7

Net income


As % of average

shareholders’ equity 18.1 16.5 14.2 10.3 8.9 6.3 9.1 10.7 9.2 9.6

Net income retained 186 154 106 67 54 26 52 66 55 55

As % of net income 67.2 67.3 64.1 62.3 59.3 42.1 59.0 65.9 64.6 64.5

Payroll expenses 2,278 1,914 1,519 1,060 1,010 1,003 1,021 970 894 811


Number of employees 20,978 17,754 16,495 12,633 11,718 11,666 12,262 12,354 11,416 11,117

Per N L G 1 ordinary share (amounts in guilders)*

Basic earnings 3.37 2.86 2.27 1.66 1.40 0.98 1.39 1.66 1.42 1.45

Diluted earnings 3.30 2.78 2.11 1.55 1.37 0.96 1.39 1.60 1.36 1.35

Cash flow 7.98 7.19 6.19 5.40 5.18 4.93 6.06 6.53 5.87 5.55

Shareholders’ equity 17.83 17.55 15.25 16.17 15.92 15.58 15.23 15.47 15.62 15.14

Dividend 1.10 0.93 0.75 0.63 0.56 0.56 0.56 0.56 0.50 0.50

Average number of

ordinary shares outstanding

(› thousand)* 81,955 79,913 73,136 65,224 64,680 63,696 62,720 60,744 60,332 58,628

Increase upon conversion/

options (› thousand)* 2,129 2,997 6,452 7,740 3,292 1,840 420 3,392 3,780 5,456

Share price (in guilders)*

Year’s highest 90.20 66.35 49.45 24.75 22.38 15.10 20.00 16.25 15.93 16.88

Year’s lowest 40.70 45.00 23.90 18.63 14.95 9.65 9.05 8.38 8.93 12.80

Year end 67.20 56.63 47.00 24.75 19.23 15.10 9.70 15.50 9.00 14.90

88

year ended November 30 Océ 1989-1998amounts › million

* Figures restated because of a ‘four-for-one’ split of the ordinary and financing preference shares of 4 nominal

into shares of 1 nominal.

Consolidated 1998 1997 1996 1995 1994 1993 1992 1991 1990 1989

Balance Sheets

AssetsTangible fixed assets 1,512 1,481 1,319 926 899 909 947 1,016 1,003 975

Financial fixed assets 1,279 1,201 841 724 631 555 461 329 270 212

Fixed assets 2,791 2,682 2,160 1,650 1,530 1,465 1,408 1,345 1,273 1,187

Current assets 2,982 2,784 2,458 1,699 1,492 1,412 1,427 1,410 1,141 1,148

Total 5,773 5,466 4,618 3,349 3,022 2,877 2,835 2,754 2,414 2,334

LiabilitiesGroup equity 1,688 1,631 1,422 1,056 1,038 998 969 953 949 915

Long term liabilities (provisions) 470 503 419 264 257 263 263 258 239 194

Long term debt 1,894 1,650 1,203 1,039 625 680 689 364 353 391

Current liabilities 1,721 1,682 1,574 990 1,102 935 914 1,181 872 835

Total 5,773 5,466 4,618 3,349 3,022 2,877 2,835 2,754 2,414 2,334

Key figuresProperty, plant and equipment 982 998 872 563 558 559 582 612 585 558

Net expenditure 192 191 164 117 111 84 90 111 119 98

Depreciation 184 158 129 100 105 110 108 101 91 81

Rental copying equipment 530 483 447 364 350 366 387 437 465 482

Net expenditure 248 175 213 168 126 122 146 167 160 175

Depreciation 193 188 158 143 139 141 185 195 178 160

Financial lease receivables

(incl. short term financial leases) 2,000 1,776 1,244 998 917 794 641 475 299 228

As % of balance sheet total 35 32 27 30 30 28 23 17 12 10

Inventories 806 799 792 566 445 433 457 469 388 360

As % of total revenue 13 15 18 19 16 16 17 18 16 17

Trade accounts receivable 1,162 1,167 986 658 565 530 563 582 533 534

As % of total revenue 19 21 22 22 20 20 21 22 23 25

Ratio of current assets to

current liabilities 1.7 1.7 1.6 1.7 1.4 1.5 1.6 1.2 1.3 1.4

Group equity as % of

balance sheet total 29 30 31 32 34 35 34 35 39 39

89

Océ 1989-1998

90

Analogue In relation to copiers: producing a copy with the aid of

a photo-lens in a stand-alone machine; here it means

the opposite of digital (see below).

Business Graphics Materials (supplies) for making high quality colour

prints, especially on transparent film for presentations

(see also Display Graphics).

Business Unit A part of the business organisation which serves a

specifically defined market and has responsibility for

managing the development and marketing (sales and

service) of the products destined for that market.

Computer Aided Design.

‘Captive’ lease Lease company with which fixed contracts have been

company concluded.

Coating Applying a special (mostly chemical) layer to paper or

polyester.

Company Wide Connecting up the various specific printing environ-

Printing concept ments which exist within a company via a network

with different configurations.

Computer-based training Training and education in which the computer plays a

central role as a teaching aid.

Consumables Materials which are used (consumed) during copying

or printing.

Contiuous-feed paper Technology in which fanfold paper is fed from a roll

into the printer.

Controller In relation to printer systems: an electronic device

which converts input data into a format which can be

understood by the printer.

CopyPress system System used to produce copies with offset quality by

‘pressing’ the toner into the paper.

Core competences The key areas of know-how and skills of the supplier

with whom a contract is concluded.

cpm Denotes the speed in copies per minute.

Customised manufacture Manufacture of machines in which the customer’s

specific wishes are taken into account on the

production line itself.

Cut sheet Loose sheets of paper which are fed into a printer (as

opposite to fanfold or roll feeding).

Diazo Abbreviation of the word diazonium; a chemical

compound which is coated onto paper so that images

can then be developed on the paper after exposure to

light; a process formerly known as dyeline printing.

Digital In relation to copiers and printers: producing a copy or

print by means of laser or exposure, in a machine

which can be linked up to a network; used here as the

opposite to analogue (see above).

Digitisation The conversion of information into digital codes.

Display Graphics Application area for large format prints, e.g. on

posters, banners and billboards (see also Wide Format

Short Run).

dpi Dots per inch, also known as resolution or print

quality: describes the amount of detail that is visibly

reproduced on a print or copy.

Eco-copier Copying machine designed on the basis of durability

and environmental friendliness.

Electronic printing Market for high to very high volume print-runs.

market

Embedded software Sofware required to control the basic function of a

machine.

Engine Complete driver and controller unit for a (copying)

machine.

Engineering Systems (Previously known as Design Engineering systems.)

Used by Océ to describe machines and supplies for

copying, printing and plotting of large format docu-

ments (up to 0 format).

Facility Services Where the supplier of certain products handles the

work involved in the use of those products; specifically

in those cases where Océ produces copies and prints on

a customer’s premises at that customer’s request.

Fanfold printer High volume printer for processing fanfold

(continuous) forms.

Full colour Also abbreviated as: fc. Image reproduced with the

same colours as the original.

Human interface The development of machines specifically focused on

practicality, simplicity and ease of use.

ImageLogic Specific imaging software/hardware that allows a digital

Océ printer/copier to make optimum-quality prints or

copies of documents containing any combination of

text, graphics and photos, without loss of speed.

Imaging supplies Materials which are used (mainly as information

carriers) in copying, printing and plotting, such as

paper, films, labels, etc.

Inkjet Specific printing technology in which fine droplets of

ink are used to build up the printed image.

Inkjet papers Paper qualities suitable for use in printers based on

inkjet technology.

Inkjet plotters Plotting machines in which the final drawing is trans-

ferred to paper by fine droplets of ink.

Inkjet printer Printer which transfers the final image to paper by

means of very fine droplets of ink.

Interfaces Systems which allow various digital sources and

functions, especially computers, to communicate with

each other.

training Training which mainly concentrates on teaching the

latest developments in information technology.

Job Printing The work done by a business which specialises in

making copies and prints for third parties.

printer language Laser Conditioned Data Stream: printer language used

in specific environments.

List of terms and abbreviations

91

List of terms and abbreviations

Matching principles Buying in goods as much as possible in the same areas

in which the sales are also achieved.

Materials management The management and control of flows of machines,

spare parts and supplies for specific product groups or

products.

Need-to-know basis The level of knowledge required by employees to

perform their own specific job effectively.

supplier Original Equipment Manufacturer: producer who

supplies goods to customers who then market these

under their own brand.

Office Systems Used by Océ to mean: the market for copying and

printing in offices, s, environments, etc.

(includes both machines and supplies).

One-stop-shopping Buying in as many products and services as possible

from one single supplier, such as copiers, printers,

system software, service support as well as their

financing.

Organic Photo Conductor.

Pay-out / pay-out ratio The proportion of the net income that is distributed in

the form of dividend.

Plain paper Ordinary (untreated) paper.

Plotting Analogue or digital printing of a design (usually a

technical drawing) which has been generated using

systems.

ppc Plain paper copying.

ppm Prints per minute: used to denote the speed of a

machine’s output.

Printing The (repeated) production by a printer of an original

document based on data stored in a digital memory.

Printing Systems Used by Océ to describe the market for printer

systems.

Print on Demand Specific printer application: producing small print-

runs as and when required; this eliminates the need to

carry high stocks of documents on paper.

Pull principle Principle applied in managing the stocks of production

components so that components are called off on the

basis of actual usage.

Remanufacturing Replacing the required parts and making the required

adjustments to settings so that the machine will operate

as new when placed in the market again.

Remodelling Adding a different functionality to an existing

machine.

Research and Development.

Resolution (See dpi.)

Scanning Digital reading of an image which is then stored in

digital form in a memory.

Server System which organises and controls the ‘traffic’

between computers and their printer(s).

Stand-alone A copier or printer which is not coupled up to a

network.

Swap(s) Interest rate hedging instrument used to change the

type of interest rate (fixed or variable) attached to a

loan. Also used as a verb: to swap.

Toner (Ink) powder used in copiers and printers to transfer

the image to paper by means of high pressure and heat.

American accounting principles (United States

Generally Accepted Accounting Principles).

Volume segments Internationally accepted industrial standard for

classifying the copying and printing markets into

segments on the basis of the number of copies or prints

produced per machine per month.

Workflow management Systems developed to organise and manage projects.

systems

©1999 Océ ..

Colophon Design/dtp

Baer Cornet , Venlo

Illustrations

Geert Setola, Oirsbeek

Photography

Egon Notermans (Zebra Fotostudio’s), Venlo

Text consultants

Jonkergouw & Van den Akker

Financial Communication Consultants, Amsterdam

Translation

Alan Hemingway, Rijsoord

Lithography and printing

Drukkerij Lecturis .., Eindhoven

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