Aptargroup Inc (ATR) 2002 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to AptarGroup's 2002 second quarter results conference call. At this time, all participants are in a listen-only mode. Later we will conduct a question and answer session. Introducing today's conference is Mr. Ralph Poltermann, Vice President and Treasurer of AptarGroup. Please go ahead sir.

Good morning everyone. Before we begin, I would like to point out that the discussion to follow includes some forward-looking comments, and that actual results or outcomes could differ materially from those projected or contained in the forward-looking statements. To review important factors that could cause actual results to differ materially from those projected or contained in the forward-looking statements, please refer to AptarGroup's SEC filings.

The information in this conference call is relevant on the date of this live call. Although the company will post a replay of this conference call on its Website as a service to those investors who are not able to listen today, the information contained in the replay will be dated, and should be used for background information only. The company undertakes no obligation to update material changes in forward-looking information contained therein.

Our speakers for today are Mr. Carl Siebel, President and Chief Executive Officer of AptarGroup, and Mr. Stephen Hagge, Executive Vice President and Chief Financial Officer. I would now like to turn the conference over to Mr. Siebel.

Ladies and gentlemen, good morning. This is Carl Siebel. I will briefly discuss the quarter and outlook before turning it over to Steve Hagge, who will provide more detailed information about our .

In yesterday's release, we had reported earnings per share that were in line with our prior guidance. Compared to the second quarter of last year, sales for the fragrance cosmetic market decreased. Sales for the pharmaceutical market showed a strong increase. Sales for the household and food market improved. And sales for the personal care market were flat.

The continued weak demand from the fragrance cosmetic market, increasing competition, especially in the low-end of the fragrance and the personal care market and increased insurance costs were a drag on earnings for the quarter.

The adverse effect of these on the bottom line was partially offset by successes from our cost-savings efforts as well as lower interest expense.

Earlier in the quarter we have issued a press release announcing an exclusive license agreement with relating to the application of one our systems for intranasal delivery of their vaccines. We are receiving annual fees under the first commercial sale as well as milestone payments. This announcement is significant is in the sense that it presents a new revenue stream for us.

Regarding our other new business. We've been awarded some very interesting new products. For our food market, our closure will be used on inverted ketchup products, being introduced by both Heinz and , the two leading ketchup brands in the United States.

In the personal care market, is launching a deodorant body spray targeted at young males age 12 to 24 years in the U.S. in August using our aerosol valve and customized valve accessory. The product has been a success in more than 60 countries to date. It will be aggressively advertised and we have seen in the press, cost estimates of the marketing campaign for this product ranging from $50 to $90 million.

And the use of our meter-dose aerosol valve for concentrated air fresheners continues to grow. See, SC Johnson launched its second home air freshener product using our meter-dose valve and other air fresheners project are also underway.

Taking a look ahead. In the high-end of the fragrance cosmetic market, we are gaining an increasing share of new product launches. Our fragrance customers continue to express optimism about the prospects for this market in the long term. However, it is extremely difficult to predict the timing of the recovery in this market. To date we have not seen a significant increase in order levels and as a result, we expect fragrance cosmetic sales in the near term to continue to be weak.

In the pharmaceutical market we expect a positive trend that began in the second half of 2001 to continue, but the increase over prior year is not expected to be as high as that experienced in the first half of this year.

We continued to expect sales of our products of the other markets to increase over the prior year. Mainly due to the continued softness in the fragrance cosmetic market, at this time we expect earnings per share for the third quarter to be in the range of 47 to 52 cents per share, excluding the strategic initiative charges.

Looking further ahead, as I've previously mentioned, it is extremely difficult to predict the timing of the recovery in the fragrance cosmetic market. In light of this uncertainty, we pare back our comparable earnings growth estimate for the year from double-digit to single digits.

Steve will now review our financial results.

cm: Thanks and good morning everyone. I'll review the financial information and then and I will be happy to answer any of your questions.

For the quarter, core sales decreased approximately one percent from the prior year, while our reported sales increased approximately one percent due to the weaker dollar. Looking at our core sales, take each of the markets for the quarter.

In the pharmaceutical market, we were up in low double digits. Sales to our fragrance/cosmetic market was down in the mid teen area. Personal care was basically flat for us in the quarter, while household was up mid single digits. Food was up low single digits and our other non-packaging sales were in the area of about a half a million dollars in the quarter.

Excluding non-reoccurring charges, our quarterly operating margin decreased 13 percent versus 14.4 percent last year. We recorded goodwill amortization of approximately $900,000 in the second quarter of last year. Whereas there was no goodwill amortization recorded this year under the new accounting rules.

Adjusting for the elimination of goodwill amortization, the comparable operating margin for the second quarter was 14.8 percent. Partially offsetting the adverse affect of the lower operating income on our bottom line, was lower interest expense. Reporting earnings per share for the quarter were 48 cents, compared to 41 cents per share reported last year.

Excluding non reoccurring charges, EPS for the quarter was 50 cents per share versus 54 per share last year or 56 cents per share on a comparable basis after adjusting for two cents per share for the elimination of the goodwill amortization. Non-reoccurring charges recorded in the second quarter of this year related to our strategic initiative, for which we recorded a pretax charge of approximately 1.3 million.

The after tax impact of these charges on earnings per share for the quarter was two cents per share. From a geographic standpoint, compared to the prior year's sales in Europe, were about flat. Where U.S. sales increased slightly.

Sales to customers by European operations represented 52 percent of net sales in the quarter, versus 53 percent last year. And sales to customers by our U.S. operations accounted for 40 percent of sales in the quarter, versus 39 percent of sales last year. Excluding non-reoccurring charges, operating income in Europe decreased while the U.S. was flat.

European operations represented 67 percent of total operating income in the quarter, compared to 65 percent last year. While our U.S. operations represented 41 percent of total operating income, versus 38 percent in the prior year. The reconciling difference between the European and U.S. operating income - the total operating income before charges, is income from other foreign operations, corporate expenses and inter-geographic consolidation eliminations.

I'd like to point out that the prior year operating income by geographic area includes approximately $550,000 of goodwill amortization in Europe, and approximately $350,00 of goodwill amortization in the U.S. Earnings from our dispensing segment were adversely affected by the softness from demand in the fragrance/cosmetic market, as Carl talked about earlier. While our earnings from the SeaquistPerfect segment improved over the prior year due to increased sales and continued cost savings.

From a balance sheet standpoint, our return on equity was approximately 12 percent and our net debt to net capital is approximately 26 percent at the end of the quarter. Capital expenditures for the quarter were approximately 23 million, bringing our year to date total to approximately 43 million.

Now looking at our first six months operations, core sales decreased approximately two percent from the prior year, while sales as reported decreased about three percent. Reported earnings per share were 84 cents per share versus 91 cents per share reported last year. Excluding non-reoccurring charges, EPS was 94 cents per share versus 104 last year, or 109 per share on a comparable basis after adjusting for five cents per share for the elimination of the goodwill amortization.

Non-reoccurring charges recorded in the first six months of the current year include our strategic initiative, as well as the patent dispute settlement, which was included in our 10-Q filing for the first quarter of 2002, whereas the unusual charges recorded to the prior year related only to the strategic initiative. Looking forward, total cash outlays in 2002 for capital expenditures are expected to be in the area of about $80 million, with depreciation and amortization to be in the area of $75 million.

At this point Carl and I would be glad to take any of your questions.

Thank you. If you would like to ask a question, please press star one on your touchtone phone, and you'll be announced prior to asking your question. Once again, if you would like to ask a question, please press star one on your touchtone phone at this time. And our first question comes from from William Blair. You may go ahead.

Good morning. Can you elaborate a little bit on your strategic initiative? It looks as though that may be cumulatively exceeding the levels that you had originally announced.

, this is Steve. What we've done is we were able to expand the number of people we were able to take out of the operation during the quarter. That increased it somewhat over our original estimate of around ten million to the 11 million where it sits today, and which is basically where we think it will end up. That $1 million additional expenditure will generate additional savings of over $1 million on an annual basis going forward. Which brings our estimated savings from this initiative to now $6 million plus on a go forward basis, with some of that occurring at the end of 2002, but the bulk of it being in 2003.

But you do see that as coming to an end at this point?

AT this point, our expectations is that, you know, we could see another $100,000, but basically the project in terms of expenses is complete.

And with respect to your capital expenditures, that was a little higher than I had thought. Are you, was I assuming incorrectly, or are you accelerating some investment there?

No, I think it's somewhat related to timing, and also I'd point out that you're now starting to get some of the euro as it goes up, you're also getting some higher translation coming into that number. So the spread between depreciation and amortization continues to be about $5 million, which is what we had expected at the beginning of the year.

And can you talk about what, with respect to top line growth, what core business growth was versus currency?

Yes. Core business coming back in for the quarter, our core sales decreased about one percent, whereas our reported sales increased approximately, increased approximately one, so the difference is due to the weaker dollar.

Thank you.

Thank you, and our next question comes from with Salomon Smith Barney. You may go ahead sir.

Thanks. Hey guys, good morning.

Good morning .

First question Steve, I might have missed it if you'd said it. Was there a transaction benefit or a negative impact from currency?

It's basically pretty neutral. I think we had a small negative coming through, but it was in the area of $100 to $200,000 so it was not significant in terms of the net between translation and transaction.

OK. Could that get progressively worse Steve because of the dollar getting worse over the course of the quarter, or will it be neutralized by the additional domestic capacity?

I think you're going to see two things, I think , I guess, you're right as the euro has increased, we're going to see an increase in the reported top-line sales, you know, on a comparative basis in the second half. We don't think that will have a material impact on operating income due to the, as you said the transaction impact. We will get some offset from increased sales or increased production here in the United States, but that's balanced a little bit because of the strategic initiative. We're still bringing in core pumps now from Europe. So that tends to balance off a little bit .

I mean, so Steve, just to summarize then, would we be, should we expect a greater transaction negative in the next two quarters than what you had in the first quarter.

Yes.

Second quarter, excuse me.

You would expect a bigger negative transaction and then you would also expect a bigger translation, positive.

OK. I'll circle back on that point in a minute. In terms of fragrance and cosmetic, in the first quarter, Carl, you had mentioned you had seen a very strong pickup in the low to mid end market. And then there was really no mention of it in the formal remarks or in the press release. Can you update us in terms of what happened there? It seems like just given the lack of discussion, that it's slowed down.

, I don't remember having said a very strong increase in the first quarter in the low end. We saw some pickup in the low end, in the first quarter, and we have seen, if you look at the evolution of our sales fourth quarter 2001, first quarter 2002, second quarter 2002, we have seen consequential improvement of the sale. And our lack of sales or lack of increase or rather our decrease is mainly in the high end of the market. In the high end of the market we've been down double digits. We continue to be down double digit in the second quarter. And as I have said, we had hoped that beginning in June, July, we would see a pickup in orders, which frankly we haven't seen up to this point. Talking to our customers, their biggest problem seems to be that they have themselves, no, very little handle on the inventory of the very long chain between them and the final consumer. So if you look at the large perfume houses, they have, they have wholesalers between them. They have the retail. They have the duty-free stores and so on, and they tell us that their biggest, as I said, their biggest problem is they have no idea how much is in the chain.

On the positive side in the perfume cosmetic business, we have a very continued very strong activity of new product launches. We have a very high proportion of those product launches assured for ourselves. About 30 percent of our business traditionally has been with in the new product launches, 70 percent is the recurring business, and the visibly, our customers are very hesitant to stock up again, or they are still de-stocking in the recurrent business.

So we have a very good activity in the, in all new product launches. We have a very good market share there, but at this point, since we don't see the recurring business coming, we do not have - we have not seen, and don't see at this point the hope for recovery in the - especially in the high-end of the fragrance market.

OK. One last question and I'll turn it over to the other guys. Can your customers tell at all or do they share with you when the sale has been trending? Has it been getting better point of sale ... don't know either?

Well, no. The issue is again that they do not have that idea of what is really sold to the consumer and what is taken out of inventory or put into inventory in the supply chain. So I'm afraid that they do not have a very clear picture of the final sales to the consumer.

OK guys. I'll be back. Thanks.

And our next question comes from with Lehman Brothers. You may go ahead.

Hi. Good morning guys.

Morning .

Good morning.

It seems like a lot of the consumer product guides are reporting some pretty good volume numbers, but your personal care business is still relatively weak. Can you help us reconcile the difference?

I mean, is it pricing pressure driven or some market share loss or something like that?

In our personal care business we have been - we have our business in the United States over the last period has been somewhat weak. And however in Europe, the business has been very good for us.

We think that the reason of the weakness in this specific our business, is due to lack of new product launches and is due to lack of efforts of the side of the marketers to diversify. That seems to be changing. You may have noticed the announcement of the unit level of a major new product launch with a male deodorant, which will be coming out to the shelves in August.

And we are supplying this. This is the first major big advertising dollars supported introduction of new products in this market and competitors of unit level are following now. Which - so we think that there is a change. We hope there is a change in the trend, and we will be seeing or continue to see improvement there for also our personal care business.

Not only in that area, we also see some new product launches. That is an aerosol valve using our specialty actuators and accessories. Giving us also very interesting margins. And we see that also some new product launches in other areas, and we see continued very good activity of new product launches in the personal care market in Europe.

I think also, , what we're seeing is expectations going forward are continuing to increase. Which I think is reflecting right now, some of the order in flow given some of the optimism we're seeing in some of the consumer products companies.

OK. Say market share is pretty much intact then?

The market share is pretty much intact, with the exception of the area of the aerosol valve business. Where we made a conscious decision last year to evaluate the profitability by customer. We went out and made - let a major increase in the aerosol valve business, because of the lack of profitability of that business.

We eliminated some customers and we have consciously given up some market share, which will - which is showing in our figures in 2002, of business which was not profitable and we're replacing it by new business now. Which may be in volume, not at high as the business which we have given up, but will be much, much higher in percentage of margin on that business. So that's also the reason why in our perfect dispensing system we see a considerable improvement in the results in 2002.

OK. And one last question. In your comments in the press release, you were a little bit more cautious in terms of the outlook for the pharma business in the second half of '02. Is there a specific basis for the, for this outlook?

Well the main, the main reason is that U.S., if you look at the evolution of our sales in 2001, we were ramping up second quarter, third quarter, fourth quarter, the fourth quarter if I remember right was the highest in 2001. So the comparisons get more difficult. So we still see very good growth in the pharmaceutical business, and we have a lot of very exciting projects, I remind you also of the, of our press release about the Wyeth contract, which we have been able to show, so we continue to be very optimistic about that business, and we continue to enjoy very high market share. And a lot of new projects going forward.

I think in that, in that side also , really our projections for the year, which was double-digit growth in the pharmaceutical, we're still intact with. So we haven't changed, you know, our estimate of where our growth in that market will be.

OK. Good to hear. Thank you very much guys.

Thank you. Our next question comes from with Fiduciary Management. You may go ahead.

HI. I'm sitting in for this morning. Good morning.

Good morning.

Steve can you, just a basic question here. What earnings number are you basing your new guidance off of with all the accounting changes, as well as the, you know, charges in FASB, things of last year? Can you just discuss what that, what that basis is for your guidance?

Yes.

And I'll just ask another one, and just sit back and listen. But can you just give us a little bit of color where the cap ex is primarily going to on the numbers you talked about? Thanks.

OK. First of all, on the guidance. The guidance from last year, what we've tried to do is we have stripped out, out of last year's numbers the strategic initiative, and then we have added back the goodwill number, which gives a base line earnings per share of $1.70, $1.87 per share last year. So that's a $1.78 excluding the strategic initiative. Goodwill was about nine cents a share, so if you add that, that's what we're considering our base line going into 2002. So that's when we'd say we're going to be growing single-digit, it'll be over that number.

So over the $1.87?

That's correct.

OK.

And then secondly, if you look at where the cap ex is going, today it's pretty well split through the markets. Our largest section this year will be probably in our pharmaceutical sector as we've added some capacity in that over the last 12 months. Then you have your kind of normal replacement, and the other big area for us are new projects.

And again, forgive me for the ignorance, or forgive, but I'm just, is pharmaceutical really U.S., or Europe or a combination of both?

Combination of both. We're, you know, again, our pharmaceutical business is, we're doing a significant amount in Europe, but we're also expanding our pharmaceutical base here in the United States.

Essentially as you know, the on a worldwide comparison, the U.S. market is by far the largest consumer of pharmaceutical product in the world. So while a lot of the business we are doing is shipped to European customers, like GlaxoSmithKline and so on, they ship, they sell a very high proportion of their products to the U.S. markets. So it is safe to assume that a very, that a very high proportion of our sales ends up as final products at least in the U.S.

Thank you.

Thanks.

Thank you. Our next question comes from with . You may go ahead.

Yes, if you could just explore a little further the pharmaceutical outlook for the second half of this year and you're saying, I think, it will be up, but the growth rate will decelerate from the first half?

And then also just go into a little bit more detail on the fragrance and cosmetics. You said it was down mid-teens in the second quarter and you were talking about 30 percent being new products and 70 percent recurring, just like a general idea of kind of the movement in those two pieces, if recurring was down 30 percent and new products were flat, or you know, just some flavor to it.

Our total sales fragrance cosmetic to the high end was down double digit, and that was essentially caused by lack of recurrent sales, so products, which our customers had launched in the preceding years and where you would normally hope to get consequential sales then, repeat sales on these products. So most or all of our downturn in sales came from the 70 percent of recurrent portion or our business, and here's remember again, I'm talking of the high end of the market. I'm not talking the low end of the market.

And the other side, in terms of the 30 percent being the new product launches and so on, that part we have continued to grow in effect over the last years and also continue to grow this year.

OK, so it's primarily the recurring business your customers in effect whittling down inventories in the channel, best they can tell or you can tell.

Absolutely. That's exactly right.

And how much is pricing affected the trend in that business?

Well in effect, in the, on side, on the high end of the business, we have been able to do selective price increases, even in this weak environment, we are able to do that. However, in the low end with capacity being free there, and with us competing there with privately held companies who tend to react much faster when they are potentially when they have underutilized capacities, the price pressure was higher and there we're not able to increase prices and we had some price decreases there.

OK, and then the pharmaceutical side where you had kind of low-teen growth, low double-digit growth this quarter, and you're saying growth in the second half will be positive, but at a reduced rate of growth.

Right.

If you can provide any color on pipeline and timing for new product instructions there and pricing environment as well.

That is very difficult except if you have contracts or is you have business, which has been assured. We have some major contracts, which will come into fruition in 2003 and going forward. So there is, there is very good reason for our optimism looking forward in that business.

In the longer term, as you know, if you now look at products, which go into clinical trials and so on, it is extremely difficult to make any kind of predictions. The only thing I can say is that the number of projects we are having with our customers and the pipeline of new product development, which we have, has never been higher. So we continue to see a sustained growth and good growth in the pharmaceutical business for the years to come

And contract is one example of the future potential.

When do you anticipate that turning into revenue?

Well we are in effect, getting income out of this because we have given exclusivity for the life of the patent if it is not cancelled, under the terms of the agreement.

So we get a constant income flow just for the exclusivity per year, and then we will get milestone payments for the development work. So again, there we will get income for the years to come out of that, even if that product is not yet coming to the market. And they're not sure eventually we will be the exclusive supplier of all systems for that product.

And it is very, very significant in terms it's a major entry for us into the very promising vaccine market.

OK. Great. Thank you very much.

Thank you. Our next question comes from with LJR Great Lakes Review. You may go ahead.

Good morning. A few questions, if I may. One on the receivables, versus a year ago the receivables were off slightly but it looked like they had quite a move from the end of the year.

Is that a seasonal build up or any comment on that increase?

Well the biggest thing, , is if you go from the end of the year. What we've seen is, you know, at the end of the year what we saw was a slow down in our overall sales.

So that our year-end accounts receivable was lower reflecting that lower in the fourth quarter. The other thing, though, that I think it's important to note is the foreign currency side. Since we still have about 60 percent of our business abroad, with the Euro moving up, a good deal of the increase that you're seeing also over the end of the year is currency based.

I see. Secondly, you referred, or Carl did, earlier to a competition in the low priced sector. Is there any particular competitor or a group of them that have come out with new designs or is it strictly on a price basis?

It's essentially or is exclusively on a price basis. We have not seen anything, well there's a new product to which we have lost market share below and of the perfume,cosmetic markets. And we have, as you know, we have initiated one or two years ago the strategic initiative which will have a significant reduction in the costs of manufacturing of these products.

And even with lower prices as they presently exist, we will have very good margins in that business.

And if I may, two others. I don't think I heard any comment on the beverage market. Any news there?

We continue to be very satisfied with the progress we are making. Our very first customer in Germany, who started out two or three years with one product in one region and a volume in the area of five million units.

Then increased to 10 million units and has now been able to increase penetration of his market in all of Germany, which he had not had ever before. And he's pulled by his customers to use our closure, and we have just signed with him a three-year agreement with considerably higher volumes per year guaranteed.

And he is increasing initially, it was just on water. Now he is also using it on other drinks, soft drinks, fruit drinks and so on. So he - continued to advertise our closure as the advantage for the consumer and he makes a - he has a major T.V. advertising campaign going and always highlighting the advantage of our dispensing system.

So that's, in Germany we have a major, we have a major product launch. In England we have a major product launch with San Pellegrino, which is a Nestle division. In Italy, we have one in France, we have one in Korea.

So we have now starting to see that products rolling out in all parts of the world. And we think that this will initiate additional business. So we're quite happy with the, with the, with the, with the water area, and then I'd like to add that we see the same thing now happening worldwide in the food business. Our simply squeeze closure has been just recently selected by the two number one and number two ketchup manufacturers in the United States, by Heinz and by Hunts. Hunts is already out on the shelves. Heinz will hit the market in August.

And on their major, on their number one ketchups, with an inverted bottle, they advertise the advantages of our dispensing system. We think this could have a major impact on the market, but already the volumes which we will get out of those two market leaders in ketchup, will be quite interesting.

And last, we're obviously pleased on the Wyeth contract, and the prospect of that recurring stream of income. Are there other contracts out there that could be of comparable significance to you? That you're working on, or is this considered an exception?

No. I mean, it is a first in the size, it is a first because it gets us into the vaccine market. But there are other potentials, but naturally we're not at liberty to disclose anything like this at this point, but there could be others in the future.

Thank you.

Thank you. And we do have a follow-up question from with Salomon Smith Barney. You may go ahead sir.

Hey guys. It's getting late, so I'll try to ask these quickly. First of all, Steve, the depreciation declined sequentially versus the first quarter if I looked at it correctly. Was that mostly currency or was that related to the strategic initiative, you know, and having a lower asset base to do depreciation on?

It was primarily the second part of that. It was more the strategic initiative charges .

OK. Second question, in terms of European margins where, you know, you continue to see declines year on year, would it be safe to say that you're not going to have an up margin this year in Europe until the high end fragrance busyness comes back?

I think that's realistic. I think if, you know, while we're, while we're down year to year on the European margins, we're seeing some improvement from the first quarter. We hope we can continue that, but I think it's realistic to say on full-year basis it will be difficult to get margins back unless we get some, unless we get some movement in the fragrance cosmetic market.

OK. Now on that score, just to be clear, have you been pleased with the number of new product launches in the high end area this year in fragrance and cosmetic? Or is it still the store where you're working on a number of projects, it's never been more, but you still haven't taken, the customer's haven't taken those into the market?

Well I guess the good news is that in effect we have taken, the customer's have now taken them to the markets.

OK.

And we have, we have not only maintained, we believe that we have even again increased our share of the market of new product launches.

Carl, do you think you're still north of 40?

Oh yes.

Per share.

Much, much north of that.

OK. That's pretty darn good. All right. In terms of low end though, I was looking back at my notes, low to mid end, and maybe I misheard what you were saying back in April, but the comment was you were seeing a broad increase in the low to mid end area fragrance ...

Yes.

... and cosmetic.

Yes.

Did that continue, or did that slow down?

No, that slowed down, that was specifically in the -- we saw this improvement in the U.S. markets at that time, and the month of June was slower again.

OK.

So we still see improvements, but it is not broad-based enough. But again, our -- our biggest downfall is in the high end of the market.

OK.

Do you -- are you satisfied with the amount of new product in the high end vis a vis the holiday selling season, from what you can see right now?

The number -- the number of new product launches, which we have been working on and which we are supplying now is higher than in preceding year. It's even higher, as we can judge ...

OK.

... than in the top years of '91, '92, beginning.

Last question and I'll let you guys go. , what's the update, there? When will you be really commercial?

is on schedule, and the only uncertainty which we have there, and that is not new, we knew that from the beginning, is that we need validation by the FDA, we need that -- the customers who then -- by the customers, in close cooperation with the FDA, and that is very difficult to control by the customers, and naturally, by ourselves. So we have equipment in there, the factory is done, the rooms are done, the equipment is there. We are also -- we also have moved our perfumery pump equipment there, but when it really starts to ship, to produce, out of there -- to ship to the customers, we don't know yet. And up to that time, we will be -- continue to ship from Europe.

But I think right now, , we're still anticipating -- I mean, we're pretty much on schedule, and we'd anticipate those approvals from our customers for those pharmaceutical products to occur either kind of late third, early fourth quarter of this year. Because it's also in their -- in their best interest to also get it approved just as soon as possible.

They are extremely interested, naturally, in the local production.

Is that the same schedule you were always using? I thought it was more of a third quarter you would have been done by -- done with the approvals by then. Has it been pushed back at all, ?

You know, I don't think -- not materially, you know, we may be a month or so off, , but it's not -- not significantly that I remember. So we may have been hopeful we would have got it done early, but frankly, the projection when I've gone back and we -- and I looked at this about two weeks ago, we may be 30 days off, but we're not -- you know, we're pretty much still on target.

OK, I mean -- the customers, why would they want to wait -- validating, wouldn't they want to be shipped out of ?

It's not that they want to wait, it is that they have to make reports which go back to the FDA ...

Fair enough.

... and so on.

But in the mean time, you'll be carrying, sort of, two layers of expense until you can move the production to ?

Right.

OK, guys, thanks. Good luck on the quarter.

Thank you very much.

Thank you. Once again, if you would like to ask a question, please press star, one, on your touch tone phone at this time. And at this time, I am showing no further questions.

I would like to thank everybody for participating in our today's call. Thank you to everybody and goodbye.

Thank you, that concludes today's conference call, you may disconnect at this time.