Canon Inc (CAJ) 2008 Q1 法說會逐字稿

I would like to hand over the conference to Mr. van Iperen. Go ahead please, sir.

Thank you. Good morning, ladies and gentlemen. Welcome to this conference call, also on behalf of Mr. Jan van den Belt, the CFO of Oce, and Mr. Carlo Schaeken, Vice President Investor Relations. Today's call will be supported by a number of slides, which are displayed on our website.

Let's first take a look at the agenda. Next slide, please. Mr. van den Belt will explain the financial results. Then, I will present the results per strategic business unit, followed by the progress we realized with the execution of our strategic plan and the conclusions. We will conclude this conference call with a questions-and-answers session. But first I'll start with a summary of Q1. Next slide.

Total revenues grew in the first quarter by 1.8% organically, when we exclude, of course, the declining Fax business. This growth was driven by non-recurring revenues. We increased our sales in the first quarter by 6%. Fujifilm and Fuji Xerox, who sell Oce printers on OEM basis, contributed to this growth as well, whilst our other partner, Konica Minolta, is still in a start-up phase, but this is according to plan.

The strongest growth was realized in Asia. We had good results in Europe, but in the United States we felt the influence of the credit crisis. Especially in the financial sector, we saw less very high volume continuous feed machines. And, as you know, we have a strong position in this sector.

The second effect of this economic development is that our recurring revenues grew by only 0.3% and this is caused by declining print volumes in the banking sector and in the construction market in the U.S. As a result of that, we had less revenues from maintenance, toners and printing media. On the other side, the recurring revenues coming from Business Services grew organically by 6%, which brings us to the total of 0.3%.

The EBIT for the first quarter was strongly influenced by one-time effects. We have sold in the beginning of January a software company called Oce Document Technologies, which resulted in an extra profit. On the other hand, we had restructuring expenses. When we exclude for these incidentals, our EBIT declined with 18% to EUR17.5m.

As you know, Oce has started one year ago with the implementation of our strategic plan 2007/2010 and already in 2007 this resulted to a substantially better strategic position. In 2008, we are continuing with this implementation. The three pillars of the plan are strengthening our distribution power, building our competitive product portfolio and improving our business processes. We will continue to invest in distribution power and product development. Our partners play a very important role in these, in both these actions as well.

Talking about the business processes, the third pillar, because of the economic uncertainties, we have to reduce our costs more aggressively, and we will do so. We have increased the savings for 2008 from originally EUR50m to EUR80m. We will save in out-of-pocket expenses and create more efficiency in all functions of our Company. Next slide, please.

Mr. van den Belt will take over now and lead you through the Group financial results. Slide six.

Good morning, ladies and gentlemen. When talking about financial results, you will hear three issues coming back all the time. First of all, the strong euro or the weak U.S. dollar, which had an important influence on our results. Secondly, the sale of ODT, which took place in early January 2008, and this resulted in a one-off profit, but also in lowered revenues in 2008. And finally, the decline of the Fax business, which impacted on revenues.

So if we look at the revenues in the first quarter of 2008, these were 3.7% down on 2007 at EUR702m. Organically, that is excluding exchange rate effects, total revenues grew 1.3% and, excluding the declining Fax business, by 1.8%. There was a difference between the development of non-recurring revenues, which grew by almost 6%, 5.9%, and the recurring revenues, which fell by 0.5%. If we correct the recurring revenues for the Fax business, there was a small increase of 0.3%.

Non-recurring revenues, that is the sale of machines and software, increased both in DDS and in WFPS. In the latter, in WFPS, the autonomous increase was almost 10%. Both in color and black and white, the sales of products increased. This was the case for both Oce and for OEM products. The exception were the sales of very high volume continuous feed machines which declined as a result of the worldwide situation in the financial sector.

Recurring revenues showed a varied picture. In Oce Business Services, revenues grew autonomously by 6.1%. In WFPS, the impact of the slowdown in the architects, engineering and construction market in the U.S.A. was clearly felt, leading to a decline in recurring revenues. In Display Graphics, however, recurring revenues increased very fast and, on balance, recurring revenues in WFPS were stable. In DDS, there was a decline of recurring revenues, 1.7% excluding Fax, because print volumes in banks and in the construction sector, and the latter in particular in the United States, led to lower revenues from maintenance, toner and media. Next slide, please.

Looking at the main other items of the profit and loss account, we see that the gross margin as a percentage of revenues declined from 39.4% to 38.5%. That is a reduction of 0.9 percentage points. And the reason is, to a large extent, a mix effect. And of that mix effect, 0.2% is due to the sale of ODT, and ODT had higher margins than the average gross margins for Oce.

Operating expenses. As a percentage of revenues, operating expenses went down from 36.5% to 34%. That is a drop of 2.5 percentage points. Now, that is a very good decline, but it was -- operating expenses include the profit on the sale of ODT, that was almost EUR20m, but also restructuring costs of EUR5.2m. These were largely made in the United States.

Now, if one excludes the net one-off benefit of these two factors, the profit on the sale of ODT and the restructuring costs, the reduction in the relative gross margin is from 36.5% to 36.1% in 2008, a reduction of 0.4 percentage points. In absolute terms, that is excluding the exchange rate effect and incidentals, operating expenses have been kept constant at the level of 2007.

The operating profit or EBIT, that increased due to the mentioned incidental items, and this will be the topic of the next slide. Net income, the same applies for net income and earnings per share. These were positively affected by the incidental items. And finally, net capital employed declined versus the first quarter 2007 by more than 10%. And excluding incidentals, the return on capital employed was at 7.2% versus 5.5% in the first quarter of 2007. Next slide, please.

Because of the incidental or one-off items, it's better to look at the normalized results. The EBIT in absolute terms increased by EUR10.8m or over 50%. The increase is due to incidental items, the already-mentioned profit on the sale of ODT, EUR19.8m, and the reorganization expenses of EUR5.2m, which, as mentioned, were to a large extent in the United States, these reorganization expenses.

Corrected for these incidental items, normalized operating income declined by EUR3.8m or 18%. I would like to emphasis that this fall is largely the result of exchange rate effects, that is to say the translation and the net transaction results. Apart from the one-off items or incidental items, there are further special items to be mentioned. The R&D capitalization was EUR1.3m higher than last year and the cost of share-based payments was EUR0.6m higher. Next slide, please.

We come to the cash flow statement and to start with the end result, the free cash flow was EUR109m negative versus minus EUR53m in Q1 2007. Now, a few items are important to mention here. First of all, that the free cash flow in the first quarter is always negative due to substantial payments of accrued expenses, and we're talking here about holiday pay, social security payments, bonuses and commissions.

The explanation, however, of the larger outflow in 2008 compared to 2007 is mainly in working capital, as defined on the bottom of this slide. It is inventories plus trade receivables plus finance lease debtors minus trade payables. The items of working capital which had most impacts were, first of all, finance lease debtors. In 2007, there was a cash inflow because of a EUR17m decline in finance lease debtors on Oce's own balance sheet. This year, there was an increase in finance lease debtors of EUR7m, largely reflecting increased equipment sales. The net impact of finance lease debtors compared to 2007 is therefore minus EUR24m.

As will be shown in the next slide, the other item which caused a larger outflow than in 2007 was creditors, accounts payable. The net difference in cash outflows in accounts payable between the two years was EUR28m and this was purely the result of a large increase in accounts payable in the fourth quarter of 2007. Now, if you take these two items, finance lease debtors and accounts payable, these explain for EUR52m of the higher cash out in 2008 compared to 2007.

Another item which may catch the eye is the outflow of EUR11m in acquisitions and divestments. This relates mainly to the sale of ODT. Now, all individual assets and liabilities which were sold are included in the corresponding headings of the cash flow statement. And in addition to the operational assets and liabilities, we also transferred to the purchaser of ODT the full pensions obligation of about EUR13m. This amount was deducted from the acquisition price and they are shown in the cash flow statement as a payment of pensions obligations under the heading acquisitions and divestments. As we have clearly stated in the press release, we are confident that the free cash flow for the full year 2008 will be clearly positive. Next slide, please.

We come to the ratios. That's the last slide on the financials. As far as the ratios are concerned, I would like to concentrate on those which are, at this stage, the most important ones, but let me once again start with the conclusion. The ratios show a strong balance sheet with upward potential in working capital. Of the ratios, the first one, net debt [is] over EBITDA at 1.7, is below our safety range of 2 to 2.5, which shows that there is a tremendous potential for weathering fluctuations in our cash flow.

Equity over assets, that's [solvability], when we acquired Imagistics, we acquired EUR800m in assets without increase in equity. That was in 2005. Our prediction then was that, in 2008, we would be back at the desired level of 30%, and that's exactly what we have now achieved. Interest-bearing debt over interest-bearing debt plus equity, the gearing, our target is to be below 50% and we are and have been there since 2006.

Stocks over revenue, we are here comparing the end of Q1 with the year end ratios for other years and, at the end of the year, as you know, stocks are always lower. Even though stocks are coming down as a percentage of revenues, there is scope for further improvement here. Our target is to end the year at around 10%. Accounts receivable over revenues, the same observation as with stocks over revenue on year-end versus quarter-end results. But here, you can say that we are clearly making very good progress and more will be made.

Accounts payable, well, this is an important one because here you see one of the main reasons for the relatively high cash outflow in the first quarter of 2008. As a percentage of revenues, accounts payable fell by 1.3 percentage points. Here, we can clearly structurally recover some of the outflows we saw in Q1 2008 and emphasis is strongly on this item in our corporate improvement plans, which we refer to in our press release.

And finally, return on capital employed. Well, I've already discussed it before. The numbers you see here are excluding incidentals, so the 7.2%, and that compares to 5.5% in the first quarter 2007. If you include the incidentals, return on capital employed was 8%. Next slide, please.

At this point, I would like to hand back to Mr. van Iperen.

Thank you, Jan. We will now continue with a review of the three business units, Digital Document Systems, Oce Business Services and, of course, Wide Format Printing Systems. Let's first take a look at DDS. Next slide.

These are the results for Digital Document Systems. As you know, we have created a dedicated SBU Business Services, on which we will report separately. So DDS, from now on, consists of the printing activities in the small format markets, A3 and A4 printing. The non-recurring revenues of DDS grew by 3.8% organically. When we exclude the influence of the declining Fax business, the recurring revenues declined with 1.7%. The EBIT has been supported by the divestment of Oce Document Technologies. If we exclude this effect, EBIT is unchanged compared to last year.

Let's now take a closer look at the underlying developments in the first quarter on the next slide. As I said, non-recurring revenues grew with 3.8%. That is driven by successful sales of our cutsheet printers. We sold more very high volume cutsheet printers in the print room environment. It's the Oce VarioPrint 6250 family. But we also increased our sales of OEM products as well, in the office market and in the color market. So this product portfolio, based on a balanced mix of Oce-manufactured products and partner products, works. This growth in sales proves that we are on the right track.

Also, the recurring revenues generated on our very high volume machines and color printers, so the recurring revenues on cutsheet printers, are growing. The sales of very high volume continuous feed printers, however, has been hurt, we have said it before, by the credit crisis. We see a reluctance to invest in the financial sector, not only in the U.S., but worldwide. And we have also seen that this has an impact on the recurring revenues in continuous feed printing.

The sale of Oce Document Technologies has resulted in less recurring revenues compared to last year. It's fully clear that the EBIT has to be supported by lower costs and a large part of the total of EUR80m savings mentioned earlier will be in DDS. This concludes the review of DDS.

Please, the next slide on Oce Business Services. Here, you see the growth in revenues is organically 6% and this has been realized by a number of bigger customers, mainly in Europe. Most important ones are financial sector and the medical sector. We launched a number of newly-developed productized services like fleet management, record management and new versions of eDiscovery for legal services.

When you look at the EBIT of OBS, this has been influenced by three factors. In the first place, we had reorganization costs to increase the operational efficiency. Secondly, we had an increase of R&D costs to develop, together with customers, by the way, new high-margin services. And thirdly, start-up costs to investments in improving the operations at new, big customers. All in all, we are convinced that the dedicated set-up of Business Services, with its specific key success factors, will drive this business in terms of growth and profitability which brings me to the third SBU, Wide Format Printing Systems, on slide 15. WFPS had a good quarter in terms of sales. We were able to grow our non-recurring revenues with almost 10%. Recurring revenues were flat compared to last year. The EBIT of WFPS has been influenced by higher R&D investments in color, start-up costs for the ramp-up of manufacturing of the new color technology and also here some reorganization expenses.

When we continue to slide 16, we will see the underlying business developments in the first quarter. Next slide. Also in the first quarter of 2008, we increased our market share in Wide Format. We clearly outperformed the market in Technical Documentation and in Display Graphics.

The growth in Technical Documentation has been realized by our own sales force, but also through our partners, in all three regions of the world, so including the United States. Customers continue to invest, despite a decline in especially the construction market in the U.S., because of two major trends. One is the ongoing decentralization of print volumes and the second one is the transition from black and white to color. In Display Graphics, both Oce and Fujifilm, our partner, continue to successfully sell the Arizona 250 GT.

I talked already about this construction market in the U.S. This also resulted in a decline of lower print volumes and that, of course, has impacted the recurring revenues in Technical Documentation as well as the sales of print media by imaging suppliers. On the other side, the recurring revenues in Display Graphics showed good growth due to the increased installed base of Arizona 250s. As a result, total recurring revenues for WFPS were stable. Also here, the EBIT development will be supported by the EUR80m savings program.

This concludes the review of the business units. Next slide, please. I'd like to give you now an update on the progress we realized with the execution of our strategic plan. Also in this section, I will discuss the three business units. For each business unit, the strategic actions support the strengthening of our distribution power and the increase of the competitiveness of our product portfolio. These are two of our strategic thrusts. I will also review the actions regarding our third strategic thrust, being operational excellence.

Let's start with Digital Document Systems on slide 18. These are the strategic actions for DDS. I only would like to mention a few highlights here. We continue to invest in sales representatives in the office market in Europe and in the graphic arts market worldwide. We are reducing costs in every other sector of the Company, but we invest in these markets where we see good growth opportunities.

Let me also spend some words on our cooperation with Konica Minolta. Konica Minolta has in the meantime launched their version of the Oce VarioPrint 6250 on the ON DEMAND fair in U.S.A. and in their own organization. They are on track with their rollout plan. Oce has now the full Konica Minolta portfolio available for worldwide sales. And thirdly, we are implementing the cooperation with Konica Minolta in product development of high-volume cutsheet printers.

Another action, the outsourcing of manufacturing to Asia, is on track. By the end of this year, we will have moved 80% of the production value from Venlo to low-cost countries. Next slide, please.

In Oce Business Services, also a few highlights. In the outsourcing market, we see an increasing demand for international contracts covering U.S. and Europe for global customers. And with this new setup, this global SBU Business Services, we strengthen our distribution power also to serve those clients. The second remark is that we invest approximately 1% of our OBS revenues in the development of new productized services. By the way, we develop those services together with our customers and, in this way, we aim for growth in higher added-value services with higher margins. Next slide.

In the strategic action list of Wide Format Printing Systems, I'd like to mention our focus on the growth in the Asian markets. We are hiring there more sales representatives for our direct sales force and, at the same time, we are leveraging our cooperation with Fujifilm and Fuji Xerox. In R&D, we put a lot of emphasis on the development of new color products, based on our own new color technology and also on third-party technology, as well for TDS as also for DGS.

So far, this brief review of the strategic business units. Now we have a look at the third strategic thrust of our plan. Next slide. We already communicated to you in January the objective for our corporate excellence projects in, for instance, logistics, procurement of non-product-related items. As mentioned before, we have decided to save EUR30m extra on the EUR50m we have already in the plan, due to the economic developments.

These additional savings will be realized by, on one side, aggressive reduction of out-of-pocket expenses and, on the other side, efficiency measures in all functions of the Company, so that the revised objective of savings for 2008 becomes EUR80m. We have a strong belief that this is absolutely necessary in the present circumstances and we can and we will realize this. Next slide.

This brings me to the conclusions of our presentation, which you see on slide 23. We will continue with the execution of our strategic plan. That means that we continue to expand our distribution power, together with our partners, Konica Minolta, Fuji Xerox and Fujifilm. We will continue to invest in the development of new products, in which also partners will play an important role. Last but not least, we have added EUR30m extra savings to our corporate excellence plan, so in total EUR80m to support the EBIT development in these uncertain economic circumstances.

Now, ladies and gentlemen, this concludes our introduction. Let's start now with the questions-and-answers session. Next slide, please. Hello?

(OPERATOR INSTRUCTIONS). The first question is from Mr. Sven Weier, UBS. Go ahead, sir.

Yes, morning, gentlemen. Four questions, please. First one is could you give us some details on your exposure to the financial industry and construction in terms of your revenue split and maybe also to other end markets. I think that would be quite helpful.

The second question I have is on recurring revenue. I was quite surprised that you were mentioning already some weakness there in financials and construction, given that these revenues are supposed to be relatively resilient, even in difficult economic times.

Third question is in January you've been mentioning that your U.S. sales guys have been extremely bullish for the outlook for 2008, so I was just wondering what they have to say now.

And the fourth question is just looking into Q2 in terms of your non-recurring revenues, in Q1 you had 6% organic growth, but you also had quite easy comps. The comps are getting much tougher now, so could you rule out that there could be even a negative organic growth rate on the non-recurring revenues? Thank you.

Good morning, Sven. Let's start with question one. You asked details on the size of the financial sector and the construction sector. The financial sector is approximately 30% of our production printing revenues and it's 20% of our sales. In the construction sector, and then we talk explicitly about the United States, the income from the construction sector in TDS is roughly 60% in the U.S. I don't have now, because I was prepared on those two questions, the -- let's say the percentages for all end markets that we serve. Perhaps that's something for later. But these two we have prepared.

Can you just remind me of the latter? 60% of your U.S. business construction is [listed]?

Yes, that's correct.

Okay. Why is that so high? That sounds extremely high, to be honest.

No, I must say that Oce has traditionally a very strong position in that market segment.

Yes. Hasn't that come down because of Imagistics, or --?

No, this is Wide Format. I'm talking only about Wide Format.

You're just -- okay. Understood.

I said 60% of TDS, so --.

Of TDS, okay.

Yes, within Wide Format.

Okay. Understood.

That's one.

Do you mind if I step in for one second?

Sure.

As Mr. Iperen said, the exposure to the [financial sector] it's 30%, in fact, of our production printing and he said that it's 20% of revenues --.

Sales.

Sales, yes. That is production printing is 20%. So it's 30% of 20%.

Yes.

Okay, thank you.

Then, the second question you had was on the development of recurring revenues. You know the recurring revenues in the financial sector or, let's say, the print volume in the financial sector, there are a few trends going on. You know that in terms of e-banking and these kind of things, the classical transaction printing is declining anyhow, under the influence of technology.

But what we see normally is that banks and also the commercial printers who serve the banks use their printers for direct mailings. So in addition to the normal statements that you get in a lesser frequency, they print more direct mailings to their customers. And in difficult economic circumstances, it is clear that these mailing expenses are being cut and that explains why this print volume in the financial sector is coming down in these circumstances.

In the construction market, we see something -- remarkably, we see that customers, as well the construction firms itself, but also the reprographic industry who serves a lot of those construction companies, continue to buy new machines, mainly color. But you also see that there has been less printing going on in this construction market. And that is, especially for Oce, absolutely no surprise. We know already for years and years that a decline in printing volume in Wide Format is a strong indicator for economic developments.

Then, you had a third question about the U.S. management. Let me remind you the statement of U.S. management was made on January 10 and the statement of U.S. management on January 10 was we don't see a slowdown yet, and that is true. We have seen that, under the circumstances of continuing negative information on the economy in the United States during the quarter, we saw the deterioration kick in in the course of January and in February. And that is, let's say, the mismatch between the statement or the, let's say, the impression that is about that statement and reality.

The fourth question, can you repeat that for us, please, Sven?

Well, I just -- just looking back at last year, I think the comps in terms of non-recurring growth were quite easy, because last year I think you had a decline in non-recurring in the first quarter and now you're confronted with huge increases that you had last year. So I was wondering, if you have to compare going forward against these tough comps, is there a possibility that non-recurring revenues might even decline organically next quarter, given the weakness that you're seeing on the economic side?

Well, it's purely speculation. We don't give an outlook for the rest of the year and that includes what will happen to the non-recurring revenues. But we are, on the other side, also realistic, and that is why we decided to increase our savings program for the remainder of the year.

Okay. And maybe one last follow-up, please. The cost saving, the EUR30m, is that a run rate and it's going to be fully effective next year? And what is the sort of restructuring cost that we should be penciling in?

Well, it -- the program is starting -- has been started recently, so it is EUR30m to be realized in 2008. On a full-year basis, it is EUR50m. And the restructuring costs will be around EUR20m.

Okay. Thank you.

All right.

Next question, Mr. Peter Olofsen, Kepler Equities. Go ahead, sir.

A couple of questions, first on working capital. Do you still expect to free up some EUR75m from a reduction in working capital in 2008? Then, on Wide Format Printing, I understand that profitability was somewhat hit by the ramp-up of new systems based on the new color technology. Could you maybe quantify the impact and should we also expect this to impact profitability in the upcoming quarters?

And then, a third question on DDS, the very high volume printing. You referred to the credit crisis and the postponed purchasing. To what extent are competitive factors also playing a role here?

All right. I will start with the last question and then I will give the first two questions to Mr. van den Belt. We see, in the total market for very high volume continuous feed printing, the slowdown. We see that not only Oce is suffering from those, let's say, reluctant customers, but also the other vendors. We don't lose sales cycles for that reason, so there's no difference or no reason in finding increased competition whatsoever. It is purely reluctance in the investment climate. Jan?

Well, if we talk about working capital, yes, we are very much on track, in fact, in reducing the working capital by EUR75m. In particular, in the accounts receivable area, you can also see, in fact, in the ratios that we're doing, we're doing very well there and we'll continue to do well. Accounts payable will -- during the year will improve.

Stocks is an item which we are -- as far as the underlying trend's concerned, we are reducing stocks, but of course with the various partnerships that we do have there is an impact on stocks and it is -- normally, it's not an impact which is negative in the sense that the stocks come down. It usually is a slightly upward pressure, in fact, on stocks, but we're working very, very hard to contain that element as well. So yes, we're sticking to the EUR75m reduction in working capital.

As far as WFPS is concerned, the ramp-up costs, in fact, they were quite considerable. I think that, net, if you take, in fact, the costs that were made less the capitalization, because quite some part of that cost, of course, is capitalized as well, you're talking here about EUR1.5m, EUR2m. That's, yes, in this quarter.

And will we also see these costs returning in the coming quarters?

Well, there will be some, in fact, in the second quarter and maybe still some in the third quarter, but then it will have gone.

Okay.

That's it.

Next question, Mr. Stefaan Genoe, Petercam. Go ahead, sir.

Yes, good morning. Stefaan Genoe, Petercam. I've got a follow-on question on a remark that was made regarding the financial and construction sector. If I'm right, I think you indicated that the equipment sales are still growing in these two segments, or -- and it's mainly the population related revenues that are declining. Is that the case?

No, sorry, Stefaan. It's different per sector. In the financial sector, we see a very strong reluctance of customers, so they don't buy machines, and the print volume is declining. So in the financial sector, it's both. And to be perfectly clear, that is not just the United States, but also in Europe the case. In the construction sector in the U.S., but also in Europe -- but that's a different story -- customers continue to buy machines, especially color machines, so they make the switch in technology, but you see that the print volume is under pressure because of the economic developments.

Okay. And given the deteriorating environment in these two sectors, how does this translate in your order book? Are you seeing more weaknesses in equipment intake in the order book, or --?

Well, of course, if you sell less, you also have smaller orders, indeed. So it's not so that, let's say, the financial institutions say we postpone by one month, or something like that. They postpone for an unknown period.

Okay. And is this something -- because in mid-January you will still -- you were still quite optimistic at the analysts' meeting and then you also had already some visibility on the upcoming weeks afterwards. Is this something which really deteriorated in, I would say, the last couple of weeks of your quarter?

Absolutely. By the way, at January 14, I knew the -- let's say the sale of December.

Yes.

I didn't know the sale of January, of course, so -- but you're right. During the quarter, starting in January and going further in February, this, let's say, delay of investment decisions has increased.

Okay.

May I add something to this?

Sure.

The -- when we talked mid-January, the one thing where you do have visibility, in fact, is on the non-recurring revenues, that's the order book. And on the recurring revenues, the print volume is something that is normally invoiced, in fact, at the end of months, but in particular end of quarters and even some six-monthly. So the visibility on that, in fact, at that point, was clearly far less than on the equipment. And as you've seen in the quarter, the equipment sales did, in fact, go up. We did have positive growth in equipment sales.

Yes, okay. Okay. Regarding equipment or in general, I would say, in the U.S., given the more difficult circumstances, how do you -- how is the competition behaving? Is there more price pressure being witnessed in the U.S.?

Well, the -- we have seen in a report of one of the -- one of the analysts has listed a number of comments of, let's say, peers in our industry, EFI, IKON, Canon, Konica Minolta and then, of course, you know this very well, Konica Heidelberger Druck, Pitney Bowes, Neopost. And all those companies have reported slow sales in the U.S. in the first quarter of the year.

Yes. And this does translate in a more competitive environment also, or --?

Well, the competitiveness is unchanged. There is always very strong competition in relation to functionality and price. That is not really the biggest difference. The biggest difference is in the reluctance of the customers itself.

Yes, okay. Okay. And then a last question on the dollar. You were quite well hedged until, say, three quarters of this financial year. Could you update us on the dollar hedging currently and at what point in time it becomes -- it actually becomes less favorable?

Yes, we are -- as far as the dollar hedging is concerned, we continue to be hedged for 80% of our what we call transaction exposure. That's the cash flows, so the mismatch, in fact, the dollar inflow that we do have, and that hedging, that continues.

But of course there has been quite a substantial swing, in fact, a negative impact on the dollar. The dollar has weakened quite considerably. So on the 20% you do get an impact. And of course there is also translation exposure. Having -- making profits in the U.S. translated in euros, that doesn't help.

We have basically hedged ourselves for the next 12 months at a rate of 139.5. So we are still well below the present market rates but it's -- it does have an impact, the difference between what we've hedged at and the actual rate. It does have an impact on the 20%. And that's fairly strong.

The second thing that has happened, in fact, in this quarter which didn't happen in previous quarters is that the pound, pound sterling has in fact weakened quite considerably and there has been a 10% decline or even more than 10% decline of the pound as well. And of course the U.K. for us is an important country and our exposure there has been hedged for 80% as well. But on the 20% it isn't hedged you do get the impact. And that has in fact played quite strongly in this quarter as well. So it is -- whilst in previous quarters we just had in fact the dollar effect, the pound effect was noticeable this quarter.

Okay. And if I remember well, I believe you were still relatively favorably hedged, I would say, for some three quarters of the year, indicating that the third quarter of the year there might be an unfavorable jump in your hedging position or --?

No, it's -- we are hedging 12 months ahead. So basically you can -- in September 2008 we are hedged against the exchange rate of September 2007 and of course the exchange rate, you've seen what happened to the dollar last year, and that is a reflection of exactly of our hedging positions during the year. So during the year the exchange rate that we've hedged at becomes less favorable, that's correct.

Okay. And do you witness more severe competition in Europe from your dollar-based competitors?

No. Everybody is producing in the same arena at this point in time. That is in the Far East. With the exception of continuous feeds which is produced in Japan or in Germany roughly. So that doesn't make much of a difference.

Okay. Thank you.

All right.

Next question, Mr. [Edward Donoghue], [One Investments]. Go ahead, sir. Mr. Donoghue, go ahead please. Mr. Donoghue, the line is open. Next question, Mrs [Elsa Roche], Goldman Sachs. Go ahead ma'am.

Can you hear me?

Yes.

Okay. I have a question about slide number 20. No, actually -- yes 21 actually. It's about your savings program. I was wondering if you could give us the split between all those bullet points, what they account for, the EUR50m and the EUR30m?

For the EUR50m and the EUR30m?

And the EUR30m, yes. If you could give us a split?

Let us get quickly for you --.

(Inaudible) do you want to get the split?

The original split for the 50 that was being communicated in January. We are looking for that. And the split of the savings on the EUR30m is roughly EUR15m in out-of-pocket expenses and EUR15m in personnel costs. Yes.

Yes. And for the EUR50m?

Yes, I have it in the meantime.

Okay.

The reduction of the supply chain costs, target will be EUR28m in supply chain costs for 2008. EUR18m for the non-product-related procurements.

Okay.

And the reduction of working capital which is, in total, EUR75m lower than in 2007 it will result in EUR3m to EUR4m less costs in terms of interest, etc.

I'm sorry, could you repeat the number please?

Yes. The last one? Well, we reduced our working capital by EUR75m in the year 2008 compared to 2007 and that will result in lower cost of interest around EUR3m to EUR4m.

Okay. Thank you. And I just have another question. You were talking earlier about the EUR80m being a run rate or not. And I was wondering if you could repeat what you were saying because you were saying that full year based you were saving EUR50m. Is that correct?

No. The total program, so the EUR50m and the EUR30m are both applicable for the year 2008.

Okay.

And what I said is the additional program, the EUR30m, is based on a yearly run rate of EUR50m savings.

Okay.

And that will not be fully in the year 2008.

Okay. Well, thank you very much.

All right.

Next question. Mr. Sven Weier, UBS. Go ahead, sir.

Yes, thank you. Two follow-up please. The first one is on your finance receivables, the increase of EUR7m, does that indicate anything in terms of that you have to finance your customers more or is it meaningless?

And the second question I had was just regarding your net debt EBITDA covenants. Is that EBITDA before restructuring and including one-off income or how is that defined? Thank you.

Yes, these are very direct questions. The finance receivables, we're talking here about finance lease debtors, the EUR7m increase. And that is the result of, in fact, increased business to a large extent. And there is also an element in the United States we've kept slightly more on our own balance sheet and that refers to the six 250 machines which are machines which do have a strong second life possibility. And we're still keeping those on our own balance sheet for the time being. So that -- but the real reflection of the EUR7m increase in finance lease debtor receivables is, in fact, increased business. So that's one thing.

As a percentage in fact of the total lease portfolio we have actually increased the amount which we have outsourced to third parties. So it is not that we are keeping, in general, more on our balance sheet, we're trying to get more off our balance sheet in fact there. And it's -- we're now over 70% of our total leased portfolio is outsourced. That's the first thing.

The second thing, net debt/EBITDA. The EBITDA that you see there, net debt/EBITDA is including, in fact, the profits on the sale of ODT and in fact the restructuring expenses. So it's including the special factors. If you exclude -- that, by the way, is the way that the banks will calculate the ratio and for that reason we've kept it that way. If you exclude those you will still come to 1.7% because if you do it including it's 1.67, and if you exclude it it's 1.73 or 1.74. So you're still in the same ratio, 1.7.

And that's going to be the same also with the EUR20m charge you have on [cost]?

Well of course we'll include those as well. We do it in exactly the same way, Sven. And the banks will insist on that as well.

Okay. Thank you.

Mr. Edward Donoghue, One Investment. Go ahead sir.

Good morning gentlemen.

Morning.

Hi. Sorry about that earlier. Technological Neanderthal. I just want a degree of clarification with regard to the deterioration in the various end markets. January 14 you were bullish, especially with regard to a specific question regarding the gross margin. And then you stated that it would be stable for the full year. Where are we going to stand with that now, bearing in mind that I would have thought you would have known that you had the disposal of the (technical difficulty) and the impact that would have had on the gross margin when you made that statement in response to the question. So where should we look for gross margin guidance going forward now?

The other one is with regard to the deterioration in the U.S. market, okay at the moment we're seeing the construction sector holding up with regard to sales. Is there any kind of data within your history that shows that you see a slowdown in the recurring income which is then followed by X time factor on the non-recurring income so we start to see machine sales slow? Because there is data coming out showing that there is a severe cutback by architects in the U.S. and I would have thought that at the moment the commercial construction sector in the U.S. is starting to roll over fairly aggressively as well. So those are a couple of questions there.

And then coming back to with regard to an impact on the second quarter, you had drupa which is positive in one hand but potentially negative in another in that it falls right at the very end of your second quarter. Are you seeing and could you try and quantify the delay effect that you're already seeing from clients with regard to the drupa impact? Those are to start with.

Okay. Well, let me see whether I have got all your questions rightly. The first one, I really would like to repeat my answer on the statement that we have bullish for 2008. That is not correct. We have said that we were very positive about the results of 2007 and we also have said that we did not see at January 14 a slowdown.

Yes, but gentlemen, bear in mind you have a six-week visibility, it would seem a little bit surprising that you had such a sharp deterioration in the following six weeks. And if I look at my notes and the transcript from the call, I would argue that you didn't actively disagree with the positive tone that people were putting on the questions.

Yes, I repeated literally that we never give an outlook for a whole year.

No, I agree with that and no-one was expecting that, but you didn't actually -- with a specific question regarding the gross margin, would it be flat '08 on '07 and the answer was yes, it would be.

Let me just on the gross margin, once again, if we -- if you look back over time we have been -- we have clearly been able to maintain our gross margin as a percentage of revenues within a certain range and the ranges in fact. And I still feel that what has happened this quarter it is within that range.

This quarter we've had some really special factors. First of all we had the sale of ODT, and we knew that, but the impact of that is 0.2% but that is not something to worry about. We had very good growth in business services. Business services, in fact, has a lower gross margin but not a lower EBIT margin. So that is -- that's one thing. We had, in fact, the display graphics which grew very much, lower gross margin, good EBIT margin. OEM products which grew more than, in fact, the overall growth. That has an impact on your gross margin. And we had -- and of course, and probably the most important one, the continuous feed machines. We didn't see a decline. Those had a very good margin.

All these factors that I've mentioned here will not necessarily have a negative impact in the medium term and certainly not in the long term. So I still do not see great reasons for a structural decline in our gross margin.

Okay, but -- okay, all right, I'll take that as given. But for this year, is it fair to say that it would be very tough for you guys to have a gross margin equal to that that you reported in the last financial year, as of the statement you made on January 14?

Well I'm sticking to the statement I started off with. We will definitely work hard at maintaining our gross margin over the period. That includes 2008. The only thing that I would like to warn you for, we have restated our gross margins for (inaudible).

I know. I've made that adjustment myself. Yes.

Okay. Yes.

The other one is just a point you just made then and it goes back to the comment in the presentation. You're making a strong push into the Asiatic markets where there is good end demand. If I'm correct that is [partnership relationship] led. Will that actually have a structural impact though with regard to the gross margin, as you just stated that on the OEMs that you actually will see a lower gross margin?

Could you repeat the question because part of it fell away from your phone?

Okay, sorry. On the -- you are pushing hard into the Asiatic region because of the good end demand. But that is led by a partnership relationship, that is not 100% exclusive Oce. Therefore part of the gross margin is being given (technical difficulty). Does that mean you will actually have a negative mix effect with regard to the gross margin structurally?

Yes, you're right. If you sell via partners you miss part of the gross margin. You know that you also don't have the selling costs then by yourself. So at the bottom line it's a good operation anyhow. To have some feeling for how much that would impact these years, we have, at this point in time, around 7% of our revenues coming out of those regions. And within that 7% it's only 25% to 30% on sales on non-recurring revenues. So the impact on the total business volume will be very, very limited.

Okay. Fair enough. If we move on then onto the impact or potential impact of drupa. Are you actually seeing that now?

We see and others have also communicated that already. We see that some customers are waiting for the introductions that will be shown on drupa. So there are certainly in the graphic arts market customers reluctant or waiting on the new introductions. That's for sure.

Okay. If I take that comment and then I feed it into your very detailed consensus sheets that you kindly provide for the investment community, if I look at that I can see that people -- the market is expecting a 4% organic growth for Q2. Now looking at your order book and bearing in mind the volatility that that has, and I recognize that, are we -- is the market being maybe too aggressive with regard to an organic growth expectations for Q2?

We don't give any comment forward-looking, sir. What we do is --.

But you can give a qualitative --.

No.

Well you did on Jan 14. But okay, let's move on. If you then look with regard to your cost savings, if I look to the first quarter you had cost savings of EUR10m but about 60% of that leeched away. Is there a potential that you're going to see at least 50% of the anticipated additional EUR30m being leeched away as well?

Jan?

Yes, well what we've always stated that that is an important addition, that the EUR80m that we give, that is -- we do not take it -- that is not an impact of EUR80m on your -- directly on your bottom line. It is -- some of it is eaten away by growth. Some of it's eaten away by inflation. That's it. But if we had not in fact saved those EUR80m your result would definitely have been EUR80m less. But don't say 80m net profit is in the bag because of the cost savings.

This is in fact -- we've -- as we've often stated we've got a wage bill of EUR1.3b. At 3% inflation that is EUR40m to start off with in our cost increases. Now the savings that we're making is to try and take away those effects. If you grow, your variable costs will grow with growth. The savings are to actually neutralize those increases. That's what we're trying to do. We're trying to, as we discussed with our gross margin, we're trying to maintain our relative gross margin and we're trying to contain our operating expenses and cost of goods sold. That's why we make those savings.

Okay. And just a couple of short other questions then. On the new contracts you talk about in the OBS unit, what has the pricing effect been on those? And basically the drag effect, because I'm presuming it's a degree of hockey stick here, with regard to the quarters going forward before they start contributing?

No. Those contracts are already contributing to the revenues and the 6% growth was driven by those contracts.

No, that I understand. But I was wondering the contribution of the EBIT because you tend to find in those contracts, if I remember historically, you have a degree of [cost] before they start feeding through?

Yes.

And also what is the pricing that you had to accept those contracts at relative to previous times?

Pricing is -- was acceptable, was comparable to other contracts so there were no extreme rebates or anything needed for that.

Good.

The pressure on the margin is due to start-up costs which you have when you take such a big contract. And normally those start-up costs will fade away within a period of six to nine months.

Excellent. Okay. And finally, just with regard to -- I think it was something you said with regard to the -- in the presentation. The construction sector in the U.S. was slowing. If -- and I think you mentioned something -- by implication it sounded as if there could be an impact in Europe as well. Are you seeing any slowing in Europe at all on the client base ex the financial services sector?

Well, we see the same as you can see. It's commonly known that in Spain the construction sector is suffering as well. But that has more to do with the internal Spain issues, I think, than the general development. For the rest of Europe we don't see a slowdown.

And if you look generally across your --?

At this point I don't make a statement for -- knowing your questions, I don't make forward statements here.

No, no, I'm not trying to trick you. That's not the case. But if you look across your other industrial sectors, are you seeing any softening in any way from Europe?

And back to a question earlier said about the competition, what -- how are the competitors reacting? You talk -- you quoted, I think it was from the ABN Amro report, all the anecdotal evidence of people finding things tough. But you have a situation when everybody's finding it tough you invariably lack market discipline at some point by some player. Are you starting to see that? And what is the price deflation element you're seeing now on equipment?

We didn't see that in the first quarter.

Would you anticipate that or is that something you think people are more responsible this time round?

That's -- I cannot predict that. That's forward-looking and we didn't see it in the first quarter.

Okay. Well I think I've taken enough of your time and thanks a lot for those.

Thank you.

Next question, Mr. Felix Oberdorfer of Fortis Bank. Go ahead sir.

Good morning. Just a few questions. Maybe starting off with a clarification question. You indicated your exposure to the financial sector, just to get it right, 40% of production printing which is 20% of sales means 6% of overall sales. Is this indeed 6% of Group sales? Or did you mean U.S. sales or maybe non-recurring sales? Maybe just to get that right.

And a second question would be could you just indicate what actually the net EBIT impact has been from the weaker currencies in Q1?

And then the third question would be could you confirm the dividend proposal you have made in January you are going to propose in the AGM this month, given the fact that the dividend proposal, which was a raise in '08 versus payment in '07, was also partly reflecting the increased confidence you expressed, if I remember correctly? Just confirmation on that. Thank you.

Yes, the impact of the financial sector was 6% of Group sales. Yes, we are going to continue to make this dividend proposal to the shareholders' meeting. And Mr. van den Belt will tell you the impact of the weaker currency on the results.

If you compare the result of the first quarter 2007 with the first quarter of 2008 then the impact was about EUR3.5m. And you have to take into account that as far as hedges are concerned the impact of the hedge, if you compare two years, is the net impact. So it's the hedge, in fact the hedge results in 2007 versus the hedge result 2008.

Okay. Thank you very much.

Next question. Mr. Wim Gille, ABN Amro. Go ahead, sir.

Yes, good morning. Wim Gille, ABN. A couple of questions. First on the current trading conditions and the order book. You already stated that you saw the trading conditions weakening throughout -- towards the end of the quarter. Can you state a bit about what your feeling is with respect to the current trading conditions in April. Is it going from bad to worse or are we bottoming out?

And also on the order book, can you give us a bit of a feeling on where your order book stands versus the order book that you had in -- at the end of Q1 '07? That's my first question.

Yes. Well talking about the trading conditions, we didn't see an improvement yet. But that doesn't say anything about our outlook for the revenues in the second quarter. It's a general statement about the trading conditions.

And does it mean that it is bottoming out at the end of the quarter? Or do you see still a continuous worsening of the trend as you witnessed it throughout the first quarter?

I think it is comparable to the end of the first quarter. What I also would like to state is that if you look at the sales in the first quarter we still grew with 6% despite these circumstances.

Okay. And how does your order book compare to the end of the first quarter '07?

Comparable.

Is that comparable as in flat or --?

Flat. Yes. That's comparable for me.

Okay. With respect to the gross margin, maybe a bit of a follow-up question. Of course we had a 90 basis point decline year over year due to mix effect. Would it be a sensible thing for me to put in a 90 basis point decline for the full year as well?

Mr. van den Belt?

Well, Wim, that's really up to you. I'm sorry to be so evasive on that but we had the question from Mr. Donoghue where I basically stated that our aim is still over time to maintain a relative gross margin. And we had clearly a mix effect and I've mentioned the factors there.

If, for instance, the confidence were to return to the financial sector and continuous feed machines start growing quite fast again, that will have a very strong positive impact on the gross margin. That's contributed quite heavily in fact to the decline in fact on the gross margin compared to last year in this quarter. Some factors. But you know, once again don't overestimate the impact. But yes we are growing very much in display graphics and there is a lower gross margin. We're growing fast in business services. There is a lower gross margin. But on the EBIT margin it doesn't have an impact. It's just because in those two sectors the cost of goods sold are in fact larger than in other parts of our business.

So, once again, I'm not making, in fact, a forecast for the rest of the year, but over time our aim is to maintain a relative gross margin at the levels that we've been seeing in the past five years. And we've managed to do it in the past five years. Price pressure, mix changes, whatever came, it's -- we've managed to do it.

And as we've said before, there are also positive elements in fact which work towards -- in time towards your gross margin. For instance color, the increase and the growth in color, color having higher gross margins. The fact that we come with new products. The fact that efficiency increases, in particular in the area of service. So there are positive stimuli to our gross margin as well. So I stick to what I started off saying. We will maintain, we are very much striving to maintain our gross margin at levels we've had over the past five years in the coming years.

Okay. And then with respect to ODT. Can you give us a bit of a feeling on what the revenues per quarter for ODT were in 2007? Estimate the impact of the sale of ODT?

It's around EUR6m per quarter.

And that's relatively stable?

Yes.

And it used to be in DDS?

Yes. It used to be in DDS and in recurring revenues.

Okay so it's EUR6m per quarter. And it's all recurring?

Most of it's recurring, yes. A very big bulk.

Yes, 90%.

Okay. And then with respect to the drupa Fair. We've seen a couple of statements already from competitors and a couple of rumors of new machines coming up. How do you feel towards drupa? What should we expect from drupa? And would it be fair to say that the overall financials might improve after drupa?

In the past we have seen that. You know that as well. But given the uncertain economic circumstances we don't put any expectations there for ourselves. We stick to the realistic view that we have to reduce our costs extra to support bottom line.

Okay. Looking at these cost savings of around about EUR80m, you already indicated that, in general, you have round about 3% cost inflation which would equate to roughly EUR40m. If I take the EUR80m, neck off EUR40m in cost savings -- in cost inflation and I take off maybe 90 basis points decline in the gross margin, your EBIT for the full year should end up roughly at the same level as you ended up with in 2007. Am I forgetting anything in this equation?

Well the -- first of all the -- your calculation is not quite correct because you've only taken the wage costs, EUR1.3b. Of course we have other costs as well, cost of goods sold. And these could increase or decrease by -- with inflation but also of course with the revenues, with your sales. So it's not completely correct what you've done.

The second thing is the statement on 90 basis point decline in gross margin, that is your assumption. It's not an assumption that we necessarily will agree to.

Okay.

If revenues do increase, for instance you will get in fact a rise in costs as well. So it is dependent -- the cost increases are dependent on revenues as well.

Okay. Okay, thank you very much.

Next question. Mr. Peter Olofsen of Kepler Equities. Go ahead, sir.

Yes. I had a question regarding display graphics. You refer to excellent growth in non-recurring sales here. Could you maybe quantify what you mean by excellent? And related to this, if I understand correctly, display graphics is largely exposed to marketing and advertising markets. In your view how cyclical is this business and if the share of display graphics in the total mix increases how does this impact your visibility?

It is -- I think there are certain segments in the display graphics market which are cyclical. That is true. I'm trying to get your first question. Non-recurring, yes?

In round terms if you talk about in general, first of all, let me make a statement that DGS is just under 4% of our total sales.

Yes, indeed.

And for that reason we have with the Arizona 250 GT we've been growing quite fast. I'm not going to give you the exact percentage but it is many 10s of percents in fact that we've been growing.

Yes.

But of course it's still a very small business. And it's going to grow, it's going to be a much more important part of our business in time. But don't, for the time being, overstate the impact of that. One of the things that I told you in the presentation that we made earlier that recurring -- to give the example of the recurring revenues in TDS it declined slightly but in DGS they increased very, very fast. But as a net result the recurring revenues were stable.

And that gives, in fact, the impact, the relative impact of DGS and WFPS. So -- but once again it's a growth market, it's a very important growth market and it will, over time, become an ever-increasing part of our business.

In Q1 the total revenues of display graphics were EUR26m.

And how does the visibility you have in this segment compare to the visibility you have in other segments?

That is comparable. Hello?

Next question. Mrs Lucy Cottrell, Independent Minds. Go ahead, ma'am.

Good morning. I've got seven questions. I'll try and keep them brief. Do you want them all at once or one by one?

One by one, please.

Okay. The first one is the nicest one really. Start nice. With the wide format start-up costs, I just wanted to clarify we are talking here about the solid ink cobalt machine are we?

Yes.

Good. And we'll be able to see that at drupa will we?

Yes you will. Yes.

Excellent. The second one, the out-of-pocket intrigued me. Obviously we all roughly know what that means. But I wonder if you'd just give me a little bit more detail about the sort of costs which previously I could claim on the Company if I'm an employee which you've now stopped people claiming?

Yes. Well out-of-pocket expenses, the normal issues like travel expenses, like advertising expenses, like the hiring of consultants, hiring external people, all these kind of things.

Okay. And do you think that potentially, if we have to prepare ourselves for a much more difficult economic time and all the worst case scenarios emerge, do you think in this area, out-of-pocket expenses, there's much more room on top of that? Or is this just a first step?

That is, of course, a bit speculative. What we do is we maintain the implementation of our strategic plan. And what we did is in selecting the out-of-pocket expenses which we will not spend this year is trying not to hurt, let's say, everything we are doing in terms of distribution power and product development. So that is, at this point in time, the case. If the sky falls down there are different scenarios, of course, but that's not applicable today.

Okay. My third question is about accounts payable. Obviously you talked about having a big outflow there. Was that simply that all those got paid on December 3 rather than November 28? Was it a timing difference?

No, no Lucy. The -- we are obviously putting a heck of a lot of emphasis in the organization on working capital reduction. And the -- as we stated in fact during the presentation of the fourth quarter, our very high free cash flow positive, in fact, in the last quarter were to some extent determined by a lot of pressure, in fact, on working capital reductions. And of course you see that only, by the way, in accounts payable, you see some of that back in the first quarter. And that's a one-off effect.

Okay. The fourth question, quite a simple one. You talked a little bit about pounds sterling and how now you're seeing some currency effect from the U.K. [Especially] from the annual report we can see in terms of sales what your exposure is. Without being too specific, would you say that the profitability of the U.K. operation is roughly in line with that of the Group? Or is it a less profitable area? So what would the currency effect be for example at the EBIT line?

Well you have to -- like all -- the way that we look at operating companies, basically the integral profits is the profit in fact that you make in the country and of course the profit you make in your supply centers. And as far as that's concerned the U.K. is well in line with the rest of Europe.

Okay. Okay, understood. Then a question just about your budget. When you do your internal budgets, I'm not talking about the future here, but when you do your internal budgets obviously the full-year budget and the long-term budget are very important, the quarterly budgets less so. But I guess you also feel Supervisory Board have to give some sort of idea of quarterly budget. When you actually came and looked at the figures at the end of the first quarter was there, in just the first quarter figures, much difference versus what you budgeted?

Well it was at least below budget. And the biggest difference was in the United States. And of course we make budgets per quarter even per month and not just for the Supervisory Board, but also for ourselves.

Okay. And if we look at the U.S., I'm afraid I'm going to come back to the question that you've been asked several times, you know everybody accepts that when any management in this kind of economic environment is asked a question about what do you see now, sometimes what you see now and what you see in two months time is different. So we all understand that, we hear that from every company.

Yes.

On the other side, the impression I had, and this may be my mistake, was that certainly within the cutsheet environment you were quite optimistic that the sheer quality of your product range, and I'm thinking for example here about your ability with the 6000 series to really make some headway, would mean that in a reasonably weak market you might still buck the trends. And so I think that you conveyed, firstly -- you conveyed two sentiments about the U.S. Firstly we haven't seen it yet in our business. And the second thing that you conveyed was we're very optimistic about our own performance whatever the market.

Now I know that some of the comments you've made about the United States also relate to the continuous feed business and they relate to the TDS business. So could you answer just in relation to the first quarter, just in relation to, if you like, the Imagistics and office business and particularly the high-end cutsheet, how has that done? Has that done as well as ['six-pack'] thought you would or --?

We realized on a Group level our budget in cutsheet printing.

Okay.

Based on 6000s, like you rightly say, and also based on OEM sales from third-party products.

And in terms of how you confront -- how you manage the U.S. business, excluding the plans you already have to cut costs across the organization, clearly your TDS business in the United States over the cycle is very strong. Your continuous feed business is very strong. So these are good businesses with a cyclical element. Are you cautious about how much you try and cut back in those two sectors, simply because you don't want to destroy a very good long-term business just by accepting inevitable economic effect because your problems have mainly been in the cutsheet side? So do you have a tough restructuring plan for those areas, or are you simply saying look, we just have to accept we will get some softening because these are economically sensitive businesses?

I agree with you that the TDS business and the continuous feed business over the time has been very strong businesses. And especially those two businesses are now hurt by the economic circumstances in the United States. What I already tried to convey in this call is that, despite this headwind, we have decided to maintain our strategic plan. That means we are not going to cut cost in sales. And that goes also for continuous feed and for wide format.

So what we do is we are going to cut costs in all other functions in the organization across the board, so not just in those two but across the board, through all the businesses that we have in terms of back-office, in terms of service, in terms of logistics, everything. We keep in place the sales organizations in the three businesses.

And Mr. van Iperen when you go and you see the various different Op Cos.

Yes.

I think if I worked at (inaudible) I would say to you, look mate, over the cycle we make you very, very good money. And we have a very strong market position. We're having to subsidize those geezers in cutsheet who may, for whatever reason, maybe because you've got a big organization and a niche product, without being too specific, clearly, in terms of return on sales, have done less well over the last cycle. To -- is there a resentment within the organization that everybody takes the pain for really one bit of -- the biggest bit of one division?

No.

Say in wide format, don't they say get lost, you know, look at our numbers?

Absolutely not, Lucy. Absolutely not. We are acting as one company and everybody is helping in these circumstances where they can. There's no issue whatsoever.

Okay. And my final question, and I think it's the most important one, is about, I think you've got it on slide 18, which is obviously this very important arrangement with Konica Minolta. And I'm particularly interested in the R&D side of it because obviously we all understand, and it's very straightforward the cross-selling, but in terms of R&D normally if, for a particular niche, and I'm particularly thinking of very high end of cutsheet, you get two big guys together and they throw their resources and they make technology choices. At some point, and it's not on day one, you get some savings because you make a choice and you share the burden. Have you made any commitments to Konica Minolta that you will continue to pay the same -- make available the same kind of budget or are you doing it on a sort of 'suck it and see' basis.

We didn't make commitments in terms of budgets. What we do is we agree on who is going to develop which product lines. That's what we do. And we talk on a regular basis about the cooperation in the development of those product lines.

So, theoretically, if you're trying to manage your business in a more harsh economic environment, and were you hypothetically to make a choice that office color was going to really use the very good technology Konica Minolta's already got, that would save you some potential spending of time to build your own within Oce. And that's why it's such a good idea that you cooperate. Is the R&D budget sacred even if the ship has to go down?

No, there's no budget sacred. And what we do is we adjust the budget and the programs of the R&Ds to the cooperation. We don't develop, let's say, the same products in both companies.

Okay. Thank you very much.

Okay.

Mr. Sven Weier, UBS. Go ahead, sir.

Yes. Sorry gentlemen to bother you again on drupa, but if I remember correctly, if we go back in the past, I think you've always said that, compared to Heidelberg, which always said there is investment shyness because of drupa, you said well this does not really have a meaningful influence. And even Heidelberg has recently said, well, we're trying to smooth that impact. And the shortfall in orders that they saw recently is, realistically seen, not because of drupa. So I just see a risk that if people are asking these questions, obviously people are hopeful that there could be a boost caused by drupa.

Would you agree with Heidelberg that people are not explicitly holding back orders because of drupa, because you guys had a lot of new product launches before drupa, so people don't have to wait for drupa, actually, before seeing your new products?

That's exactly -- that was exactly the purpose of that exhibition in the beginning of December, Sven.

I think that we also have to remind that even if customers tend to wait until they have seen what's being displayed on drupa, that still doesn't make any forecast or view on whether they are increasing their investments in the second half of the year because there are playing so many other factors a role today in these economic uncertainties that also we don't make any comment on that as well.

I think that given the fact that in the graphic arts sector, the usage of digital printers is increasing, that is softening that effect that also Heidelberg is stating. In the past, when it was only offset presses in that market which you bought for 10 or even 15 years, it was clearly visible. But now customers have the choice between digital solutions and offset solutions. So yes, you're right. The reluctance is not as sharp in the offset market specifically than 10 years ago.

And just on the trade show cost, if I remember correctly, for you guys that was not extremely meaningful, right, compared to --?

In December you mean?

No, the trade show costs for drupa, is that somehow meaningful in the quarter or is it --?

No because --.

Negligible?

We decided that we will not have our own open-house exhibition in the same year as drupa takes place. So it doesn't have an extra effect.

Okay. Thanks again.

Okay.

Mr. Edward Donoghue, One Investment. Go ahead, sir.

Gentlemen, to try and bring this on an upbeat note, could you actually just -- one small question. Input costs first, are you seeing anything changing there?

Input cost, you mean raw materials?

Raw materials, yes. If you look at your budgeting that you would have made, and again going back to the full-year presentation, because you've responded very aggressively with regards to finding additional cost savings. Has that been a reflection of sudden changes within other parts of the budgeting apart from sales?

No.

So there's no meaningful deterioration with regard to input costs there?

Not at this point in time.

Where you see an impact of course is on transport.

Yes, of course.

And things like that. That clearly increases. But once again we're trying to -- the whole logistics program that we are executing is to try and -- is exactly to beat that sort of cost. And this is a very good example in fact, where Mr. Gille asked the question on the savings, whether you can actually just take the labor cost savings and take that effect only. Transport costs, fuel costs are typically one of those items which do have an impact on your -- on the inflation and on the cost inflation. And that's why we take the measures to counteract those increases.

Okay. And can you then just talk a little bit about the positives that are out there because the meeting has been maybe a little bit one-sided. Can you talk a little bit more on the way you are seeing positive developments?

And also then, finally, maybe what your concerns are? And you can take them whichever way you want.

I think that we should take away from this meeting as a positive element that we were able to grow our printer sales, despite the circumstances there's 6% in the first quarter. And that we were able to grow that sales as well from our own products as the products from our partners. And that we realized that sales by our own sales force and by the sales force of the partners, meaning that strategy, which we have designed for distribution power on competitive products, works out.

Talking about worries is a bit difficult. I would say we look at the realistic view at what is going on in the market. And for that reason we will take extra cost measures to support our bottom line.

A final comment or question, just on the OpEx line, should one be using what we've seen in the first quarter as a sort of an approximate run rate going forward? Can you give a little bit of guidance there?

Well, once again, you should be careful with the operating expense for the first quarter because we had the profit of the --.

No, I'm stripping that out. So if we --.

Take the profit out, and if you strip out in fact the --.

You've basically got about EUR258m.

Yes. Well then it's -- that is, if you take those out, and you take the exchange rate effects out, because we've obviously in the OpEx been helped by the strong euro.

Yes.

The OpEx in fact it does help. If you take these effects out, we have done what we said that we were going to do. We have contained our operating expenses. They are not higher than the, taking out special factors and inflation, than they were in the first quarter 2007.

Okay. Thank you very much.

Okay.

[Mr. Reinhard Bicker], (Inaudible). Go ahead, sir.

Sorry, thank you. Firstly a bookkeeping question, the EUR5m or EUR5.2m reorganization charge you took, can you give us a breakdown by SBU? And I suppose going forward we can expect roughly EUR5m charge for the coming quarters as well. Will that breakdown be the same in the coming quarters?

And another question is on accounts payable again. And I understand there was some delayed payments from Q4 to Q1, but Q1, also against Q1 '08 I still see [EUR90m] drop. So I was wondering has there been any change in payment conditions and, if so, has that had any effect on your gross margins?

Let me start with the restructuring costs in the first quarter. The EUR5.2m was divided over Oce Business Services, EUR0.7m, DDS EUR3.3m and WFPS EUR1.2m. The additional restructuring cost, well, we are at this point in time in the further implementation and working out of the plan, so it's too early to elaborate on whether the same relation will be for this future plan.

Okay. But you are going to charge roughly EUR5m per quarter in the coming quarters or --?

It depends on how the, let's say, the phasing of the whole restructuring will take place.

Okay.

We have said it's EUR20m extra in this year. When it exactly takes place over the quarters it's too early to tell.

Okay.

Well if you look at your trade creditors, between 2007, the end of the first quarter 2007 and the first quarter of 2008, they actually went up. The trade creditors did go up. They went up by EUR14m. And that is in fact also taking into account trade creditors in other currencies. So they went -- in real terms they went up more than that. If you take it as a percentage of revenues, in the first quarter 2007 it was 6.4% of revenues, in the first quarter of 2008, 6.9% of revenues.

So we are, in fact, increasing our accounts payable. And that means, in fact, that our payment terms of course that we do take longer term, we have not overall yet increased in our payment period, but we see in the industry that that is taking place, in fact in a number of cases. And we're obviously considering that as well.

And that has had no effects on your gross margins?

No.

Okay. Thank you.

Mr. Rambocus, Kempen. Go ahead, sir.

Good morning gentlemen. One question left from my side. Mr. van Iperen you've been around with Oce since the late seventies, if I'm correct. How would you judge the current environment without making a forward-looking statement? Are you sort of worried by the recent trends?

And maybe can you come back on what you stated on Europe, it was a question Mr. Donoghue asked on Europe, outside the construction sector in Spain. Is there any sign of slowdown in Europe at all? Thank you.

It's difficult to look back almost 30 years in one second, Mr. Rambocus, but I have seen more of this kind of difficult times in the past. And, as I recall, we have ever always been able to get out of those situations. And I expect that that will happen this time as well. We are very convinced that we will, by realizing our plans, improve the profitability of Oce to the ROCE of 13% in 2010.

Talking about Europe, apart from Spain, and apart from the financial sector in Europe, we don't see a slowdown yet.

Okay. Thank you very much.

Okay.

Mr. Wim Gille, ABN Amro. Go ahead sir.

Final question. Can you give us perhaps a bit of a tax guidance because, if I calculated correctly, it's roughly 10% for the first quarter. How should I look at it for the full year?

Well the -- I think that for the full year there were quite a few factors playing, in fact, in the first quarter to come to that 10%. We expect that for the year it will, special circumstances left behind, I can't foresee that yet, but I don't think we're going to get much higher than this.

You're not going to get much higher than 10%? Thank you.

There are no further questions at this moment sir.

All right. Ladies and gentlemen, thank you very much for your participation to this call. If you have follow-up questions, please contact Mr. Carlo Schaeken, our Vice President of Investor Relations. Again, thank you very much and good bye.