Aptargroup Inc (ATR) 2003 Q4 法說會逐字稿

Welcome to the AptarGroup's 2003 fourth quarter and year-end results conference call. [OPERATOR INSTRUCTIONS]

Introducing today's call is Mr. Ralph Poltermann, Vice President and Treasurer of AptarGroup. Sir, please go ahead.

Good morning everyone. Before we begin, I would like to point out that the discussion that 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 replay of this conference call on its Web site as the 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.Steve Hagge, Executive Vice President and Chief Financial Officer. I would now like to turn the conference over to Mr. Siebel.

Thank you very much Ralph. 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 results.

In yesterday's release, we reported record fourth quarter and annual earnings. I'm pleased to report that for the first time, sales for the year surpassed the $1 billion mark. Overall, sales increase due to higher unit volume, custom tooling sales and the impact of the weaker dollar on the translation of foreign sales.

Now, looking at the markets excluding foreign currency translation effects, sales to the personal care, pharmaceutical and food beverage markets increased. Our household sales were flat and our fragrance cosmetic sales decreased from the prior year. We achieved record fourth quarter operating income.

As we've seen throughout 2003, the higher cost of imports to the US continues to offset the favorable impact of the weaker dollar on the translation of foreign denominated results. This adversely affected operating income as a percentage of sales.

I would like now to spend a couple of minutes talking about developments in several of our markets.

First, in the food and beverage markets. Simply Squeeze has been introduced on Gatorade in Mexico. Our Silicon valve will be incorporated in the spouted pouch package for the energy beverage in the US and we are also receiving increased orders and interests for water applications.

Moving to the pharmaceutical market.

Our patented preservative free pump systems are gaining acceptance and we're seeing increased activity from generic manufacturers in preparation for medications coming off patent from the standpoint that if they are using the same dispensing system as the patented product, regulated approval is expected to be faster than using a new system.

In the fragrance cosmetic market, we are seeing increased interest in our unique systems for the sample market. And the use of pumps for lotion and creams is also growing. In the personal care market, we continue to see increase in product differentiation and customization.

Turning to our outlook for the first quarter of 2004, we expect that the sales to the fragrance market will remain relatively flat. However, we believe that increases from demand in our other markets we serve will offset any slowness we see in the fragrance market. We anticipate the diluted EPS for the first quarter 2004 will equal or slightly exceed the 53 cents per share recorded in the first quarter of 2003. Despite what appears to be a slow start to '04, we are cautiously optimistic on the year as a whole.

Steve will now review the financial results.

Thanks, Carl and good morning, everyone. I will review the financial information and then Carl and I will be happy to answer any of your questions.

Looking at the fourth quarter. Our reported sales increased approximately 19%, for sales excluding impact of foreign currency translation grew by approximately 7% from the prior year. Our custom tooling sales increased approximately $8 million over 2002.

Looking at sales to each of the markets for the quarter excluding changes in foreign currency rates, in the personal care market, we were up in the upper teen area. Pharmaceutical, we were up in the low teen area. Food, up in the low teens. Household was about flat and our fragrance cosmetic market was down mid-single digits.

Cost of sales as a percent of sales during the quarter was higher than what we had reported in the prior year. This percentage was adversely affected by the higher cost of imports into the US. The increase in tooling sales, which bears a margin less than our normal product sales and continued price competition.

SG&A and depreciation and amortization as a percentage of sales improved due to better leveraging of our fixed cost in the quarter and we also benefited from the lower tax rate in the quarter primarily due to increased R&D credits. And bottom line, we reported record fourth quarter earnings of 54 cents per share.

From a geographic basis, sales to customers by a European operation represented approximately 62% of net sales in the quarter versus 58% last year. And sales to customers by US operations accounted for 29% of sales in the quarter, versus 33% of sales last year.

The increase in European percentage is largely due to the stronger euro compared to the prior year. Excluding changes in exchange rates, the dispensing system segment sales increased by approximately 5% and the Seaquist perfect sales increased approximately 14%.

Our cash flow from operations for the quarter was approximately 29 million versus almost 43 million in the prior year. The decrease primarily reflects increased contribution to our pension plan worldwide and our increased inventory in the quarter in preparation for 2004 as well as some increase due to expected increases in raw material cost in the first part of 2004.

Our Capex in the quarter were approximately $21 million, down compared to the $27 million we spent in 2002. Cash flow from operations less the Capex for the quarter was 8 million in 2003 versus 16 million in 2002.

From a balance sheet perspective, our return on average equity was approximately 11% and our net debt to net capital was approximately 7%. During the quarter, we purchased approximately 50,000 shares of our stock at average price of around $36 per share. This brings our total number of shares repurchased since inception to 1.4 million out of the total of 3 million with an average cost of slightly under $27 per share.

Now taking a look at all of 2003.

Reported sales increased approximately 20% whereas sales excluding the impact of foreign currency translation grew approximately 9% from the prior year. Our tooling sales increased in 2003 by approximately $29 million over the prior year.

Looking at the preliminary breakdown of sales by product and market, the percentage of sales by product is as follows.

Pumps are 58% compared to 60% in 2002; our dispensing closures are approximately 23% up a percent from last year; aerosol valves represent 14% of our sales down a percent from last year; and other which includes the tooling represents 5% of our sales, an increase from 3% a year ago.

The percentage of sales by market change modestly. They are personal care represents 33% up a percent from last year. Fragrance cosmetic represents approximately 28%, down a percent. Pharmaceutical is 24 compared to 23 a year ago, household is 8% compared to 9 a year ago and our food, beverage and other represents 7%, which is comparable to last year's level.

Year-to-date, we recorded annual record EPS of $2.16, or $2.18 without acquired research and development charge, which we recorded in the third quarter versus a reported EPS of $1.82 per share last year or $1.92 on a comparable basis. This represents a 19% increase in reported earnings and a 14% increase excluding unusual items.

Our cash flow from operations was approximately 140 million versus a 154 million in the prior year and the cash flow from operation was affected by the same items that I talked about in my review of the fourth quarter.

Our Capex for the year were approximately 77 million compared to about 90 million in the prior year, bringing our cash flow from operations less capital expenditure to approximately 63 million compared to 65 million in 2002.

Looking forward to 2004, our total cash outlays for Capex in 2004 are expected to be in the area of $90 million, which is what we expect depreciation and amortization to be and I'd like to point out that both of these amounts may change depending on what happens to exchange rates as we go through the year. The tax rate for 2004 is expected to be in the area of 31% to 32%.

I want to also point out that the quarterly rate in 2004 may vary depending on when certain prior-year R&D credits are realized.

At this time, Carl and I will be glad to answer any of the participants' questions.

Thank you, sir. [OPERATOR INSTRUCTIONS] Our first question comes from George Staples with Banc of America Securities. You may ask your question.

Thanks. Hi, everybody, good morning. Two questions to start, Carl, back in the third quarter as I recall, you had mentioned you were - concern wasn't your word, but you were looking at potentially some pharmaceutical customer de-stocking in the fourth quarter. You put up excellent revenue growth in fourth quarter in that area. I was wondering if that in fact happened and you were still able to grow above that work, did de-stocking did not occur?

And then secondly, what do you figure the impact of currency and tooling was in terms of your margin? Another way, what kind of margin expansion did you see fourth quarter versus fourth quarter adjusting for those items? Thanks.

I may answer the first question and may be Steve could answer the second question.

Fine.

On the first question, effectively, what we had foreseen for the fourth quarter concerning the de-stocking of this one major account that has effectively happened. There was no change to that. However, we had additional business, which was not expected by other customers, which more than offset the effect of the de-stocking at this one account.

That continued into 2004?

The same is continuing in the first quarter of 2004, the same customer continues to de-stock.

OK.

George, on currency side we in the quarter, we are estimating that the tooling has an impact of about 3 to 4/10th of a percent on the operating margin and that the currency impact is about a percent. So all in, its probably 1-3 to 1-4, 1-5 percentage negative impact on operating margin percentage.

OK, thanks Steve. What did currency actually help you by in EPS terms in the quarter or what did it detract by?

It actually would have detracted as it has done all year, it has been a relatively small, its about between under a $1 million net impact negative per quarter over the four quarters throughout the year. So, it is an area of 3 to 4 million negative and between translation-transaction.

OK, so that is net of translation and transaction?

That is correct.

OK. Excellent. Two last questions. What is your biggest concern going into the quarter? Obviously, fragrance and cosmetic still a little bit slow. You have tough comps but have got apparently pretty good momentum in your other businesses. Yet you are only projecting modestly increased earnings or flat earnings quarter on quarter? And then what's the driver of the somewhat lower tax rate for '04, is it the R&D tax credit? Thanks.

Well George, effectively as you said in the fragrance business we see a soft situation at this point. At the same time, however our customers are quite optimistic for the year, so overall we believe that for the total year the fragrance business should be doing fine and also you have to see that within the same customer base there is the cosmetic creams, which have better gross than the pure fragrance business.

And at the same time the first, in the first quarter we believe that our other markets will be doing fine. So in general, our biggest problem as you have seen, again, and with our forecast for the fourth quarter is our visibility. It is extremely difficult to make these forecasts and we have an order book, which is always and that is true already since one or two years now, which make it's more and more tough to make correct forecasts for us. So we are trying to do as good as we can with the forecast we are giving but we find it difficult.

I understand and Steve on tax rate?

On the tax rate you are right, George. The biggest driver for us we have got it's going to be R&D side and it's coming both in the US and out of Europe particularly out of France. The other positive for us that we see coming in 2002 is that we were looking to go back and immense some of our US returns for some additional R&D credits, which could amount to anywhere from 750,000 to a million 5 depending on when we calculate those numbers, which we effect the positively impact the rates next year.

OK. Thanks.

Thank you. And our next question comes from Timothy Burns with Cranial Capital. You may ask your question.

Hi. Steve, one question I had for you. Did you have the, your breakout of R&D spending for the year yet?

What do you mean by market segment or by -

No, no, no, just a total amount. I know it usually shows up in the K or the annual. But I think - I don't see it in the handout and I'm just trying to get a gauge as to where -- are your spending levels increasing?

They're going to be increasing. I'm guessing it's around 3.5% this year. I don't have the number right in front of me and it will going up a little bit also in 2004 as we continue to spend in the pharmaceutical area particularly in some of the dry powder applications that we're working on. So, right now I'm guessing it's between 3% and 4%.

OK. Second question is how do you guys manage this whole pharmaceutical you know new drug delivery system business? I mean it's really an active and engaging portfolio experience because you know you just don't know, do you, which products are going to win, when it's going to be allowed into the market so on and so forth? I mean do you guys have a dynamic process internally that kind of manages the risk for those product lines?

Yes. We certainly have, Timothy. We are trying naturally to make the best possible estimates of the chance of opportunities, but as you pointed out correctly it is a higher risk side. And the only thing which we have going for us is that we have a very strong market share. We have a very strong position with our customers.

And we have now 20 years experience in the business as we have also long-term management, we have the same people in many areas with the customers in the field and especially also our technical people of research and development people and so on.

So, based on all of that we have a third-link system you may call it. And we have regular assessments of the projects we are working on. We're trying -- we have always more projects we could potentially take and in order to keep cost inline and to be reasonable, we try to read out those which we think have a small percentage of chance.

But on the other hand, we have to take certain risks and as you know we have invested also in long-term new technologies like the electronic device technology with our Microflow investment some years ago.

Those kinds of investments we naturally hope to pay off, but the investment in research and development in the area of the pharmaceutical side is much longer-term than for example the fragrance business and it has higher risk element as you correctly pointed out.

Yes, it's you know because one of your competitors it's well known who is less balanced I mean it seems like they spent and spend way ahead of you know the realization of the project work and it you know it's has had a very detrimental effect on their financial survival so just kind of curious. Steve, what are you going to do with those 165 million in cash?

I mean we're looking right now -

Real estate in Crystal Lake is that good?

Well, we go downtown Chicago.

We continue I mean we continue to do it is that point I would continue to buy stock. We are taking a look at and the board continues to evaluate stock re-purchase. We are also reviewing our dividend policies. The key function with it has been really our focus has been on availability of acquisitions and at right now if the right acquisition comes back we are well placed to be able to do it.

Is it in the right place to get quickly or is it kind of an not repatriatable place? Or do you know what you are doing, I assume?

Well, we have got today I mean the majority of our cash sits abroad. So, depending on where the acquisition would be could be advantageous given where the currency is. But we will repatriate, we are looking probably to repatriate after $30 million this year from overseas operations. So again we'll be trying to do better on the re-balancing side.

OK. And you guys are just not comfortable providing any like sales earnings, EPS guidance for the full year at this juncture, is that right?

You know again from what Carl's had said I think we continue to be cautiously optimistic. But it's really difficult to come back and go on a full year basis. And the other key side is that when you do that for us we have to start anticipating where foreign currency goes.

Yes.

And that right now is still a tough guess.

Yes, you could go to a casino and make a lot of money yourself. So, OK.

Or lose a lot.

Exactly. Thanks, guys.

And you are welcome.

Thank you. Our next question comes from Greg Halter with LJR Great Lakes Review. You may ask your question. Mr. Halter your line is open.

Hello, guys. I know in the past you have talked about price pressure and so forth. Have you seen any intensification in that regard?

Yes indeed. Our business has always been competitive. It hasn't changed. Price pressure has always been there. Price pressure when certain products and that is inevitable become close to commodities price pressure is there and our strategy has been in to innovation, to continue to present new opportunities for our customers to roll and with that balance the price pressure.

What has happened maybe in the recent years in addition is that we have seen some Asian competitors coming in - Asian competitors taking potentially business from our customers by finished products being produced in Asia and finished products being brought into for example the US and they have also some cases where we've seen Asian competitors offering products pumps or dispensing systems to our customers.

But in general, we are confident that based on our competitive advantage being innovation and that being successful quite a few examples that we will be able to more than offset the negative impact on the pricing pressure.

OK. And on a year-over-year basis on the tooling sale side, how much were tooling sales up and which particular markets are they still for pharmaceutical and personal care market?

Yes, the - there are up about 29 million I think between the two years. And again 2003 was probably going to be somewhat of an aberration. We don't expect that same type of increase in 2004. The biggest market for us coming into that would be pharmaceutical, which we had a couple major products hit as well as the personal care market. And we had one project I think in the household market. But the two biggest would have been pharmaceutical and personal care.

OK. You made mention about pension costs earlier in the call. Can you quantify that in dollar terms on your income statement or income statement impact or balance sheet?

Well, first let me give the income statement impact. We have got an expense of around $5 million this year and pension in 2003 compared to about 3.9 last year. So, an increase of $1.1.

Going forward, we would expect that to be in the area of about $5.7 million in 2004. From a balance sheet standpoint, we funded approximately $9 million into the pension plan in 2003 and what we did is we made a special contribution at the end of 2003, which fully funded our US plan and has helped us avoid the PBGC premiums going into the future.

So we don't anticipate any major cash contributions in 2004 that should be more than million to million and a half dollars.

OK. And on the insurance cost, do you still think the increase that you had maybe a year or so ago?

Well, we stopped seeing the huge increases unfortunately the rates have not come back down. So we would expect more moderate increases in 2004 than we saw in 2003.

OK and finally your revolver I think matures in November of '04?

Correct.

I would presume you are working on renegotiating that. Would there be any difference in the size of that you can see at this point?

Right now we are looking at -- probably moving the revolver up to the $150 million area and we would anticipate terms and conditions to be similar to what we've had in the past. And we would anticipate that being completed during the first quarter.

OK. Great. Thank you.

Thank you. [OPERATOR INSTRUCTIONS] Our next question comes from Bob McDorman with Investment Counselors of Maryland. You may ask your question.

Two quick questions. Number one on the capital spending of $90 million quite looks to be fair amount of capital spent over the last three years. Could you put some color on that? Is that for maintenance Capex, new products, new factories or how does that break down gross versus just maintenance?

Approximately 30% of our capital we spend is on new products and additional 30% is on maintenance and we have historically used about 25% for capacity expansion of new facilities. Again if you look at 2003, for the year just ended we spent around $77 million in Capex with depreciation and amortization around 85. So we've actually come down in our spending over the last couple of years and next year we would anticipate pretty much again spending in D&A.

And the fragrance business given the recovery and the economy and the travel picked up and better et cetera, would you say that market would be stronger than it is now?

Bob, we have sold off, you could call it conflicting signals. On one side, as I mention, our order portfolio has a very short visibility. Customers are used, as there is enough capacity and they can change and come up with orders on a very short-term basis. We have seen this in the fourth quarter.

One of the reasons why we came out better for the fourth quarter than we had expected, beginning of October was that we got surprising short-term orders in November and first even still into beginning of December, which we hadn't seen in the past, which also points out to the fact that most likely there has been no major inventory build as it had happened in 2001.

And we think that the order that the inventory levels and our customers are pretty much down to a minimum. And now we had a good January, however the orders, which we had in our books are short-term as has been all of the last year. But when we talk to the customers they are reporting seems to be that for several customers, major customers, the Christmas business went very well.

Also, they have a lot of new product activity, new projects which we are working on. We have quite large number of new very exciting products in the pipeline and especially in the fragrance and cosmetic business, especially in the cosmetic business where you have treatment creams and high-end products. There is better growth than in the fragrance business.

So, overall for 2004, we are cautiously optimistic and our customers give us more positive than negative signals at this point. So, I agree with you, the economies are picking up definitely in the US. It seems to be also coming in Europe. There is good growth in Asia. There is good growth in Eastern Europe. So all this should contribute to a reasonable year in fragrance cosmetics for Aptar Group in 2004.

Thanks.

Thank you. And our next question comes from Jason Rodgers with LJR Great Lakes Review. You may ask your question.

They have been answered. Thanks.

Thank you. We have an additional question from Timothy Burns with Cranial Capital. You may ask your question.

Thank you. Carl, I forgot to go through this list of new product introductions and it sounds like your efforts in food and beverage are begin to pay off. Could you give us little more color, I think the Gatorade I kind of understand. What about the rest?

Yeah, the Gatorade may also have impact beyond the business in Mexico. In general we see a continued increase in the interest in our Simply Squeeze silicon valve system. It's -- it will for example be introduced in the US in an Energy beverage pouch. This will be the first U.S.-produced spouted pouch in the market. It could be used and this kind of package could be used in also in syrups and ice cream toppings.

We continue to have increased interest for closures for the still-water market both in US and in Europe. The push-pull closure that has been the standard as dispensing system on these kinds of products for many, many years may be replaced partly. There has been an incident with such a push-pull closure coming apart and being swallowed by a child. There has been a product recall.

So, customers essentially are looking for different systems and there is an increased interest for both valved and un valved dispensing closures for spilled beverages and sports drinks. So that's going to certainly help us for the future.

So is -- food and beverage always thought to be kind of high volume, lower margin monster for you. You're still early on in your development of it. Sounds like it is going pretty well. But is it? And are you guys glad you are here knocking heads?

We certainly thank you very much for calling us this way. We certainly like it. We certainly think it's a great potential and as you said, while the expectation is that it's lower margin business but essentially we get comparable or better margins than we get on other closure products there. So because we have patented intellectual property wide there, we have know-how accumulated now over the years.

We are also one of the leading suppliers worldwide of hinged closures and again there is a lot of technology in this kind of product, so overall, visibly for improved performance of dispensing system also in this market the customers are willing to pay a certain margin and certain premium other than one might think. See, as the same way also is sauces.

We have sort of a category change, see in the US and in Europe where our silicon valve has landed itself to move the market from upright to inverted dispensing. On sauces, ketchups, honey, things like this. And that's really a broad movement and its helping our product there.

So in total, in the area of the Simply Squeeze systems and dispensing systems in the food and beverage market yes, we are quite happy that we are there. We have double-digit growth, as you have seen. We see this going forward into the next years. The market itself of these products, spill beverages and sports drinks and so on is growing itself double digit on pretty big volume. So in total that should be a growth continue to be a very good gross market with good margins for us.

So this is pack of new products, how does it rate as you look back historically? I mean is it upper quartile in terms of opportunity?

Yes, I would say so.

OK. Good. Steve, one last question. The funding of the pension plan, I probably missed this or screwed it up, but you said you funded the plan to the 9 million throughout '04 and then made a year-end contribution. Was that a big contribution or modest one?

No, the 9 million included the year-end contribution and as the year-end was around 7 million.

OK, got you. And China and this whole -- you know, prehistoric wage subsidized energy and what I call extreme purchasing by a lot of your clients, it doesn't worry you guys in terms of the need to have to move facilities or in other words there is enough value being created that you can hold your ground?

Well, I mean the reason why already in 1992 we decided to move to China was our expectation that number one, there would be a major market for the future developing and number two, that this would be a manufacturing base for certain of our products for ourselves.

So, it was a very difficult introduction. We made a Greenfield operation. I think we are very successful now. I believe it will be a major important asset for the future and the profitability of AptarGroup going forward. They are now -- what is interesting to see still two or three years ago, Japanese customers would not even look at buying out of a Chinese production facility.

We're seeing now even in the pharmaceutical business that we can successfully sell products for use of our Chinese operation in the pharmaceutical. We have clean room there. We have the facility, which is able also to work to the highest quality standards possible and we have customers from Japan. So it's really become a base for our number one, to serve our customers in the region.

Number two, to make certain products for our facilities in the U.S. and in Europe, number three, to produce also for the region. So, yes, there is a challenge from new competition in Asia but the important thing is that we are ourselves there and we are competitive with them. We have patented products. We are the innovator, which helps that also. And being there gives us enough antennas to observe our competition and see what is happening.

Yeah, this is kind of a very important question to me. I mean, there is one school of thought that says we need to ring fence, you know, Europe, the United States, and other countries that are suffering from this new low-cost competition.

But there are others that say, "Listen, it is a global market place, globalization can be bad, but the good companies have that antenna that you are talking about and can source raw materials, components, assembly, technology all over the world and bundle it and still create value. I mean, is that the model, Carl?

Yes, the second part is the model we need to be able to do that. We are now already able which seems to be impossible 10 years ago. We are able even to make molds and even assembly equipment at much, much lower cost not only for our operation over there, but also for our operations in US and Europe and successfully that use, this is one way of reducing our Capex and that's also very often it is faster, which is also important, so speed to market is helped by having this capability in Asia.

So, in total, I don't think that anybody will be able to stop globalization. In order to be long-term competitors and maintain your margins, you have to be there. That is what we decided in the early '90s has cost us a lot of effort, time, management, money and everything but it's paying off.

Got you. Well, get that energy drink pouch out here. We are going to need it to stay up to follow all this stuff.

We'll try hard.

Thanks.

You're welcome.

Thank you. And our next question comes from Mike Hamilton with RBC Dain Rauscher. You may ask your question.

Good morning.

Good morning.

I was hoping you could give some feel of the relative flow of the pipeline out of the tooling. Obviously, we ran 29 million in incremental tooling off of a very low base in 2002 and good deal of that is yet to flow. How should we think about that?

You are right. Naturally, you expect to get additional business out of those investments by the customers. It is already a big advantage that we didn't have to take the capital risk for that part of the business and the potential future business.

Now, it's not a guarantee that very often these kinds of investments are made by the pharmaceutical industry and because of the uncertainties of the approval process, for example and also naturally the success. It is not guaranteed that even if a customer has invested $10 million into a project like this in terms of equipment that he will ever come to the market.

So, in order to make a forecast here it is extremely difficult. I wouldn't like to venture and to make any kind of direct connection between these. The only statement I would make is that if you have this kind of investment by the customers, your hope and potential for the future should be bigger. There is no guarantee.

I would assume that the - in order of risk that the pharmaceuticals are the most difficult to ascertain and once you get into areas like food and beverage, if their tooling it is pretty likely something will roll out of it? Is that accurate or -

Yeah, that is absolutely accurate. Now, however, in those cases, for example when you mention the food and beverage business. In that business, we are selling our standard products. We are not very often selling a custom product. And if we sell our standard product, then it is our own investment and doesn't show up in the tooling sales.

So what you're saying there is very heavy piece of the $29 million is in pharmaceutical?

I would say so, right, Steve?

It is really pharmaceutical and personal care. In my going back years, in the personal care area, again you have a higher likelihood that thing will go to market. But what you have, when it goes to market, sometimes the expectation of the customer, how successful it is in the market may be the issue. So again it is extremely difficult for us to predict.

OK. Thanks.

Thank you. And at this time, I'm showing no further questions. I would like to turn the meeting back to Mr. Steve for any closing remarks.

Thank you very much. Ladies and gentlemen, so I'd like to thank everybody for participating in our call today. Thank you and goodbye.