(ATR) 2006 Q2 法說會逐字稿

Welcome to AptarGroup's 2006 second quarter results conference call. [OPERATOR INSTRUCTIONS]

Introducing today's conference call is Mr. Ralph Poltermann, Vice President and Treasurer of AptarGroup.

Please go ahead, sir.

Thank you.

Before we begin, I would like to point out the discussion that follows 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 factor 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, 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.

Participating on this call today are Carl Siebel, President and Chief Executive Officer of AptarGroup;

Peter Pfeiffer, Vice Chairman of the Company; and Steve Hagge, Executive Vice President and Chief Financial Officer.

I would now like to turn the conference over to Mr.Siebel.

Thank you, Ralph.

Good morning, ladies and gentlemen.

This is Carl Siebel.

I will briefly discuss the quarter and the outlook before turning it over to Steve Hagge, who will provide more detailed information about our results.

Overall, we reported an increase in sales for the quarter.

Looking at the sales by segment.

In the beauty and home segment, sales from acquisitions and increased demand from the fragrance cosmetic market offset lower sales to the household market, particularly of aerosol valves.

The closure segment sales increased primarily due to acquisitions and resin task flows.

Pharma segment sales increased despite a decrease in custom tooling from the prior year's level.

Changes in the exchange rate had minimal impact on second quarter result sales.

Operationally, we had a strong quarter and reported record operating income even after considering the negative impact of recording stock option expenses beginning this year and incurring higher quality compliance cost in the pharma segment.

When comparing our results between the two years, we need to consider a couple of items.

We recorded a negative net impact from stock option expense of $0.04 per share in the current year's quarter.

And in the prior year, we recorded a $0.09 per share positive effect from reduced taxes on government grants in Italy and R&D tax credits received in the United States.

These items combined amount to a difference of $0.13 per share.

Looking forward, excluding changes in the exchange rates, we expect sales in each of our segments to increase in the third quarter of 2006 over the prior year.

Diluted earnings per share for the third quarter which includes the negative impact of $0.04 per share relating to stock option expense are expected to be in the range of $0.74 to $0.79 per share where it was $0.69 per share last year.

Excluding the stock options, that means we will be up between 13 and 20%.

Lastly, as our long-term shareholders know, we are committed to enhancing shareholder value.

I am pleased to report that we increased our dividend rate by 10% and we also increased our share repurchase authorization by 2 million shares.

I would like to mention that even after increasing the dividend rate and the share repurchase authorization, our strong balance sheet is still well positioned to allow us to take advantage of strategic opportunities in the future.

I'd like now to turn it over to Steve who will provide more detailed information about our results.

Thanks, Carl, good morning, everyone.

I'll review our financial highlights and then Carl, Peter, and I will be happy to answer your questions.

Looking at the quarter, reported sales increased approximately 12%.

And as Carl mentioned, changes in exchange rates had minimal impact.

Acquisitions in the quarter accounted for approximately 7% of the 12% increase in sales.

Sales of custom tooling decreased approximately 3 million in the quarter from the previous year to approximately 10 million and the majority of this decline is coming out of our pharma segment.

Excluding changes in exchange rates, our beauty and home segment sales increased 18%, mainly comprised of a 29% increase in sales to the fragrance cosmetic market, a 13% increase in sales to the personal care market.

And while our sales to the household market declined.

Excluding changes in exchange rates our closures segment sales increased 7%, mainly due to a 6% increase in sales to the personal care market, an 8% sales increase in the food market and a 9% sales increase in the household market.

Again, excluding changes in exchange rate, pharma segment sales increased 4%, higher product sales exceeded the decrease in custom tooling I previously mentioned.

We started recording costs related to stock options on the face of our income statement in the first quarter of this year.

This change had a negative impact on pretax earnings of approximately $2.1 million, which was mostly included in the SG&A line of our income statement.

And as Carl mentioned, this represented approximately $0.04 per share on our bottom line.

I'd also like to remind you that there were some unusual tax-related items recorded in the second quarter of the prior year.

Last year, we reached an agreement with the IRS regarding tax refunds we filed relating to research and development expenditures incurred from 2000 to 2002.

Our benefit that we received was a tax benefit of 1.2 million in the second quarter of last year.

Also last year, we accepted the Italian government's offer of reduced taxes on government grants which resulted in the reduction of approximately $2 million in deferred taxes which was previously provided for relating to these grants.

This combined with the R&D credits I just mentioned above, contributed approximately $0.09 per share to the earnings per share a year ago.

Bottom line we reported earnings per share of $0.77 per share compared to $0.81 per share in the prior year.

Excluding the 2005 impact of the taxes I talked about above, and the 2006 stock options, our earnings per share were up approximately 13% on a year to year basis.

From a geographic standpoint, sales to customers by our European operations represented 61% of net sales this year, versus 60% of sales last year, while sales to customers by our U.S. operations accounted for 30% of sales this year versus 31% a year ago.

Free cash flow defined as cash flow from operations less capital expenditures for the quarter was approximately $16 million versus $17 million in the year ago.

In the second quarter of 2006, we intentionally built inventory, primarily plastic resin, as a precaution for the upcoming hurricane season in the United States.

Our cash flow from operations for the quarter was approximately 46 million, compared to 41 million a year ago.

And our capital expenditures in the quarter were approximately 30 million compared to 24 million in 2005.

We spent approximately $18 million to repurchase roughly 346,000 shares during the quarter at an average cost of a little over $52.25 per share.

We had an outstanding authorization at the end of the quarter to repurchase almost 700,000 shares and as Carl mentioned, the Board approved an increase in the share repurchase authorization by an additional 2 million shares.

The mix of debt between fixed and floating rates at the end of the quarter is approximately 43% to 57%.

Again, fixed to floating.

The average interest rate is approximately 5.6%.

And finally, our net debt to net capital at the end of the quarter is 14%.

Now, briefly looking at the first six months, reported sales increased approximately 11% and the impact to changes in foreign currency rates on sales for the year was a negative 2%.

Tooling sales for the first six months increased $4 million from the prior year with the majority of this increase related to sales to the food and our fragrance cosmetic markets.

Acquisitions accounted for approximately $51 million of the increase in sales during the first six months.

And again as I mentioned for the second quarter, we had started recording expenses related to stock options on the face of our income statement at the beginning of the year.

This change had a negative impact on our pretax earnings of $9.2 million for the first 6 months on a bottom line basis of $0.17 per share.

Looking forward, total cash outlays for capital expenditures in 2006 are expected to be similar to depreciation and amortization.

We estimate that the amounts to be in the area of $110 million depending on the exchange rates.

Looking at the third quarter, as Carl mentioned, we expect stock option expense will have a negative impact on the third quarter results by approximately $0.04 per share.

This is based on projected pretax expense of approximately $2.1 million and the majority of this will be recorded in our selling, research and development administrative expense line on our income statement.

And lastly, the effective tax rate for 2006 is expected to be in the area of 31 to 32%.

At this time, Carl, Peter, and I would be glad to answer any of your questions.

We're able to take questions now.

Thank you. [OPERATOR INSTRUCTIONS] And our first question comes from George Staphos from Banc of America.

Good morning, good afternoon.

I guess first question I had, could you remind us or give us a little bit of color, how much do you think acquisitions represented of operating profit in the quarter, and if you would, if you could answer a little bit on that front, let us know how that was spread across the segments?

The total was about $2.5 million on the operating income.

The majority of that was in the beauty and home segment, only about 330,000 or so was in our closure segment, George.

Okay, thanks, Steve.

Now, could you then give us a little bit more color in terms of why the segments closures and pharma were down in EBIT, even with what appear to be pretty strong volume growth?

Well, let me take the closure side now and let Peter talk a little bit on the pharmaceutical.

I think the closures, there's a couple issues.

Number one, we're going up against some fairly strong comps from last year, but also some very strong results in the first quarter.

If you recall, closures was up almost 28% on our first quarter operating income year to year.

And we knew that pace was not going to continue.

Got you.

Through the second quarter, we're up a also over 10% on a 6-month basis with closures, which is pretty much in line with our expectation.

Secondly, in our U.S. results, we are seeing -- we were seeing a softening of sales to the Procter & Gambles, Unilevers of the world and again, they're telling us that's coming from some of the Wal-Mart impact in terms of some of the inventory reduction.

So we saw some of that also in the quarter.

Was the run rate stabilizing by the time you got out of the quarter, Steve?

Was it continuing to worsen?

Or was it improving as we head into the third quarter?

I think it stabilized from what we can see and again it's difficult to predict where it's going to finish in the third, but at least it had stabilized and our expectation is in the second half of the year, we'll see it move back up.

Got you.

I'll turn it maybe to Peter and he can talk a little bit on the pharma side.

Thanks.

Hi, George.

Hi, Peter, how are you?

I'm doing fine.

The pharma results were mainly influenced in the second quarter by the higher requirements for quality compliance triggered by our customers themselves seeing higher requirements from the FDA.

This effected basically higher personnel costs to introduce this new requirement and also some higher threat rates within the pharma division.

Could you quantify it at all, Peter?

We estimate, it's difficult to quantify, but we estimate that the cost is about $1 million in the quarter.

Okay.

All right, guys, I'll turn it over, I'll be back.

Thank you.

Our next question comes from Ghansham Panjabi from Wachovia Securities.

Can you just sort of comment on the resin environment right now?

What trends you saw in the first quarter, what was different in the second, and what you expect for the second half of the year?

I can deal with a little bit on the U.S. side and I'll touch a little bit on the European.

Certainly in the first quarter, we saw increasing -- first of all, the resin dropped in January and February and started to move back up March, April.

During -- I think on a whole we were probably down slightly at the end of the first quarter in resin from year-end pricing.

That continued to move up in the second quarter and we're now slightly above, I think, year-end pricing.

In North America.

We expect that right now and again, some of this is largely dependent on what happens with oil pricing in the Middle East.

But right now, that would be stabilizing to potentially coming down as we go to the third.

Our resin prices have probably trended somewhat up in Europe also in the second quarter, maybe not to the same degree as the U.S.

But they didn't have the same volatility going down in the first.

Okay, that's true.

Any benefit in the quarter from generic Exubera?

There was no effect on the generic.

We are seeing the generic sales starting in June.

They were starting in June.

We are having some nice orders for the third and the fourth quarter.

Let me come back, too, Ghansham, just to clarify that.

Because, what we're seeing is generics on the Flonase products, there is really no generics on Exubera.

Exubera is the insulin product with Pfizer.

Great, thanks so much.

Our next question comes from Chris Manuel from KeyBanc.

Good morning, gentlemen.

Good morning, Chris.

A couple questions for you.

First of all, can you talk a little bit about how some of your new products did in the quarter, particularly your sampling system?

Has that started to pick up well and where are you at with the capacity standpoint there?

Ghansham, on the sampling side, we believe we're quite successful.

We have introduced a new small sampling pump last year, which we mentioned in the past and we have been sold out from the beginning of the industrialization.

We have increased the capacity step by step and we're still at this point, we're sold out for the year and essentially even with the capacity coming on stream by the end of the year, we see us being sold out also for the next year.

So this is a very, very successful product introduction.

You may think also of our UltraFlex sample which can be inserted into magazines.

This sees now growing interest also for other ways of utilization.

For example, it is now -- will now come to the market by one of the major marketers worldwide in the perfume industry to be distributed, handed out, either an airport or potentially in the stores.

We see a very fast-growing interest there.

We believe that really was a sampling business now with several new product introductions which we did in the past, that we will become a major player there.

Where we have been only a distant second over the last 10 years.

Our bag on valve system continues to create tremendous interest.

Also including the EP Spray acquisition, we are sold out.

We have been able to sign major contracts with major marketers for the coming years.

The -- specifically the sun tan application has hit very, very strong consumer interest.

Again, there, we have been able to move very fast in bringing this product, to be industrialized also in our U.S. operations.

And we're increasing already again capacity there.

So the bag on valve system and the EP acquisition which is supporting that is a very big success.

We also continued to see, if I look at the closure segment, we continue to see interest and growing sales in the food and in the beverage segment.

We have a major product introduction in the beverage segment in China, with our Simply Squeeze valve system there.

Our largest customer in Europe is talking about doubling the capacity and also financing the necessary investments involved for that.

So overall, we have on several fronts, we have very successful introductions, specifically in the food and beverage sector and the closure business as well as in our beauty and home segment.

Okay.

Very, very good.

And, Peter, if I could ask you very quickly about the pharma segment just to follow-on from George's question.

And that's, I think growth was down a bit in the quarter.

Do you anticipate that that rate picks up in the back half of the year to more historic levels, number one?

And then, number two, the higher quality compliance costs that you cited of about $1 million, is that expected to become now an ongoing thing or is that a more of a one-time issue for a quarter or two?

How do you see that playing out?

Let me answer first the second question.

We are seeing the $1 million as a one-time issue.

Some of -- there might be a little bit higher costs related to the best personnel cost but this will be mitigated in the course of this year.

The first question was related to new products?

Related to volume that was up about 4%, but below your more historic levels of let's say 5 to 10.

I was just wondering if we should be able to get back to more normalized growth rates the back half of the year, either through new products or through expansion of existing.

We are seeing for the third quarter a slight increase in sales.

Long-term, we have some new products on stream, but this as you know in the pharmaceutical field, takes time.

It will not be valid for the third or fourth quarter in this year.

One of the other things I think, Chris, too, to point out, what that we were up 14% in the pharma segment in the first quarter.

When you take currency out of play.

And we were up against a tough comp in the second quarter because of the tooling sales which we had talked about at the end of the first.

So that's also added a negative impact on the comparison.

Okay.

Thank you, gentlemen.

I'm jump back in the queue.

And our next question comes from Jason Rodgers from Great Lakes Review.

For your CapEx for '06, the 110 million estimate, do you have a breakout of what maintenance CapEx is, versus funds for expansion?

Well again, we've talked I think in the past, Jason, it's difficult to just break out maintenance because when we replaced, for example, a molding press for ours, we not only just replace it in kind, but generally we give increased efficiencies and more throughput.

We've estimated that our maintenance capital is in the area of around 35% on an ongoing basis as a general, just we need to replace older things as they come to the end of their useful life.

Okay.

And do you have an early estimate for '07 CapEx?

At this point, we haven't gone through our budgeting process yet.

Okay.

I know that accounts receivable was up a little bit greater than sales.

Just wondering if there's anything going on there?

The biggest issue for us is we had a very strong June.

And it's really a carryover from the strong June that we had.

So there has been no deterioration in terms of our agings, but it just reflects the timing of when the sales took place in the quarter.

And finally, in the food area, that was -- the growth area was a little bit less than what we've been accustomed to.

Is that mainly the Wal-Mart effects?

I was just wondering if there's anything happening with Simply Squeeze that would cause those numbers to trail a little bit.

Again, we had a very strong first quarter, we were up a little over 30% in the food market and our closure segment if the first.

We were up around 8 in the second.

So it's -- on a year to date basis, we're still up to 20.

So we think it's really more of a timing issue versus any fundamental changes in the market.

We still continue to be very bullish about both the food and the beverage market in the closure segment as we go forward.

All right.

Thank you.

And our next question comes from Greg Halter from Great Lakes Review.

Hi, guys.

We're in different locations.

Congratulations on the very fine quarter.

I had a question for you regarding Rexam they've made some announcements, I think, about being a little more aggressive possibly in the cosmetics and pharmaceutical areas.

And wonder what kind of impact you're either seeing or may expect to see from Rexam?

Naturally, we sort of would hesitate to comment on anything concerning our competitors.

If we look at our business and our view, especially in the fragrance business, we have had very strong rolls this year.

We are, as I mentioned before, we're gaining market share most likely in the sampling business.

We have introduced new products which were not "me too".

And which are really opening more opportunities.

One of our most successful products there will most likely -- for the utilization of pumps, because it is a very economical product which we brought to the market and since our customers here in this business are calculating in cost per consumer contact.

And it evolves into what you call the total advertising budget.

If they can get more consumer contacts with the same kind of money, this is a major advantage for them.

So we are very, very successful and very satisfied with our market share and our improvement in our sales and sales growth in the sampling business.

And the acceptance of our new product introductions and also the acquisition of the Company in southern France which produces accessories around the pump for the high-end perfumerie market is now very successful.

The coordination and the combination of our pump and valve technologies and our market share there with the added service which we get with the added development capabilities now offering decoration and accessories, again have secured us additional business.

So we believe at this point that our position in the fragrance market is rather improving than deteriorating.

Okay, I appreciate that.

Another one on the competitor with the Calmar sale to MeadWestvaco, just wonder if you could comment on any early changes you're seeing in the Calmar business if can you do so?

No.

We did not see up to now any major change at all with that.

I guess it's also very, very recent and as we know, that any acquisition is an issue of integration and to align the mother and the daughter company and to come to grips with the strategies to follow and so on, I do not expect an immediate impact, whether positive or negative, on us, of this acquisition at this time.

Okay, thank you very much.

And our next question comes from Tyler Lankton from JP Morgan.

Good morning.

Just a quick question.

I know you mentioned that the destocking initiatives at Wal-Mart affected the closures segment a little bit.

Has that hit the beauty and home segment yet?

Was there an impact in this quarter?

Or do you see anything in future quarters?

Well, I think we did see it in the beauty and home segment.

Again, the major focus to this was in our U.S. operations and what we saw the biggest was in our sales of aerosol valves to the household market.

Okay.

So we did see it in both sections, both closures and beauty and home.

In terms of acquisitions obviously 2005 was a really good year.

I'm wondering what you're seeing out there now, any good opportunities?

Yes.

We continue to evaluate opportunities.

We have some interesting opportunities we're following up at this point.

Nothing specifically I could comment on today.

But there are, this industry is still very split.

And there are opportunities.

We'll continue based on our strategy of concentrating on our markets and looking at opportunities which give us new technologies, new products or entrance to new markets, and as I said in this respect, we still see potential for us in the future.

Okay, great.

Thanks a lot.

We have a follow-up question from George Staphos from Banc of America Securities.

Thanks, hi, guys.

First a housekeeping question.

The drop in corporate sequentially from the first quarter is that largely the step down in FAS 123 expense, Steve?

Correct.

Okay.

That's almost the full issue.

Okay.

Got it.

Now, the other thing -- the other question I had was more of a longer-term question.

I know it's come up from time to time, looking back at our model, I think gross margins basically peaked in 1998 for Aptar, return on equity right around the same time.

What have been, despite all the new product launches and acquisitions and investments and certainly the Company still has very, very high margins and returns, there's been a secular downdraft.

What do you believe are the primary reasons for that?

And what can change it going forward or perhaps it can't change.

Well, let me take a couple out to focus it back to Carl maybe to give you some of the broader ways on movement.

There's been a couple of things since that period that you mentioned, one of which is tooling sales.

I think if you take a look at tooling sales, George, from that period of time, we've gone up almost $15 million a year in tooling sales which have relatively no margin or very small margins from our standpoint.

That's probably a reduction of between 50 and 70 basis points off the gross profit line.

That's been one element.

The second over the last -- in the more recent terms, we have seen an escalation in the raw materials side.

On the raw materials side frankly, what we've been able to do is pass through those costs but we haven't been able to pass through the margin on the raw material side.

Right.

We've been able to recoup it.

And the third event is a bit on the currency side.

If I go back to that period, the currency was closer to 1 to 1 and at one point the dollar was 0.8 as it compared to 1.25.

Since we are a net importer still on the currency, there has been a margin shift down into the margin side.

So those combinations together, it's been a competitive environment.

So that's kind of the fourth factor that we have seen some competition, we're comfortable on new products of that moving up over time.

And maybe I'll let Carl talk about the future look to that.

But one question, Steve, before we turn it over.

If I look at tooling sales, I look at the raw materials, which is a passthrough currency, while I would understand why that would have an effect on margin, would it have a same effect on return on equity?

Because, for example, if you're passing it through, you're still keeping the same dollar profit or would there be an effect?

I don't think it's as much on the equity, but again, if you look at our leverage basis, we're still barely -- well, we're underlevered by any stretch.

So that return on equity, our equity side is much higher relative to what we have got with our competition.

We're trying to balance that with doing the stock repurchase to dividends, et cetera, to try to be balancing that side.

But it's an area we continue to focus on.

But that's one of the other reasons it hasn't moved as much.

Maybe, George, I could add a few thoughts to that.

As you know, the margins we are making between the three segments are different.

The highest segment is the pharmaceutical, the highest margin segment is the pharmaceutical segment.

We have been able to improve our margins in some areas, like we've been able to improve our margins on the last two years in the consumer and cosmetic and also in what we -- in the aerosol side and on the personal care side.

So that's a positive.

We have, however the one thing which, if you take the total margin, beyond what Steve explained, the growth in the pharmaceutical market over the last couple of years has been considerably less than our success and growth in the other segments.

Now, that means in effect naturally, if you have sort of a flatness in the sector with the highest margin, then naturally the total mix will result in an overall lower margin.

Then you will naturally ask why do I see, what is the reason for the relative reduction of the sales in the pharmaceutical business?

And over the last years, there have been very few new chemical entities introduced to the market in our segment, dispensing systems, in the pharmaceutical business.

Our existing products have grown correctly.

But we did not get the step-ups which we had been getting in the '90s in the pharmaceutical business.

Now, we expect this to resume going forward.

We have never had as many new products in introduction as we presently see.

And we believe that starting next year, we'll see first improvements and first new product introductions using our dispensing system.

So we think that we will resume growth based on new product introduction of our customers and also our very strong innovation.

At the same time, we also have increased over the last years our R&D efforts.

And all this together, naturally, is naturally, this is an investment up front in the future, all this together we believe that we will also see improvement in sales growth going forward in the pharmaceutical business.

Last quick one.

If we look at the other segments, then, which have been growing more quickly, I would expect that since the life cycles on products in those markets tend to be shorter, quicker, impact to market, that return on capital might actually improve if those businesses were growing more quickly.

Are you saying that's not true?

And so, if you continue to see more sluggish sales in pharmaceutical over time, your return on equity would likely continue to come down?

No.

We believe that our return on equity would at least stay or go up.

Even if the other products grow more quickly?

Yes.

Even if they come back.

Part of that, too, on the other products, George, you do get some -- we want to make sure that we are requiring, it tends to be a ramp-up until we get back to our return side.

But right now, all the acquisitions we've got are at or exceeding our cost to capital -- on the new ones because that also an impact on that return number.

And naturally, you are right that the life cycle of new products in the fragrance business or in general in the beauty and home segment and in the closure segment is shorter.

But we are also having a constant flow of new products, enhancements of existing products and basic new product introductions that we naturally need and that's what we've been doing in the past and we believe we'll continue to be able to do to have not just one blockbuster and then 10 years nothing, but really all over half the Company organized such and motivated such, which is the main thing, to be able to come out with a constant flow of new products, which is necessary in the shorter life cycle environment of the beauty and home in the closure business.

Okay.

Thanks very much, guys.

Appreciate the time.

Thanks, George.

Thank you, George.

And our next question comes from Chris Manuel from KeyBanc.

Good morning again, gentlemen.

Good morning.

Or good afternoon, I guess in Europe.

One quick question for you.

And that has to do with MBS and how that's coming along.

I know that was another acquisition that was primarily in Europe.

Have you begun to expand it to North America as well?

We have -- we are planning to expand it in South America and in North America also.

But first in South America.

And we are very satisfied, Chris, with the evolution of this business.

The business is above budget, but the main thing is really that our strategy of taking advantage of a combination of a decoration and accessories with our existing product lines, this way enhancing our product offering in total, will be very helpful for our overall performance and has been already giving us several additional projects in the high-end perfumerie business.

And we definitely -- we have already started organizing the same kind of service worldwide, not necessarily always by producing locally, but by doing the design work in Europe and then producing in Europe and shipping to the other areas.

When we gain -- and that has always been our strategy, when we gain enough market share, then we will promote -- move to the next step and also consider investments in manufacturing in the other regions.

Okay.

And then one other question on restructuring.

From the initiative that you had announced, were there any benefits that you received thus far this year or can you update us on timing on when you think you may have some contribution from that?

Well, this strategy will -- the new strategy will have a certainly more long-term effect, because what we are striving for is a better alignment between our -- a utilization of our resources, both in terms of capital and also human resources.

And by this better alignment, improve the service to our customers.

And that, we are moving forward at least at the pace we had expected.

We are also better coordinating on the sales side between our segments and within our segments.

And this way is again improving the service to the customers and hopefully, being able with the same kind of investment, to turn out more new products and more different new products.

But specifically, Chris, too, back to your point on the structuring we talked about in France.

That cost will also come back.

Right now we're pretty much on budget with that.

We had benefits of that around 350,000 or so in the quarter and some expenses of around about $400,000 in the quarter.

So we expect to see that now turning positive in the second half of this year on a comparison to last year.

Okay.

Could you remind us again what you do anticipate in total savings, and as those flow through?

I think we are -- basically we're anticipating that the cost of this was going to be--.

7.5 million.

Over a three-year period, and we expect annual savings around 3 to 3.5.

Okay.

Thank you very much, gentlemen.

Our next question comes from Mike Hamilton from RBC Dain.

Good morning.

Good morning, Mike.

I was wondering if you could -- just one detail question and then a more general.

On the detail, what are your thoughts on D&A going forward?

I think if you look at it today, we're roughly 55 million, Mike, through the first half.

And again, as you know, that's pretty dependent on where currency is.

But if currencies would stay at the same rate, we would expect D&A to be in that $55 million range by the end of the year and pretty close to where we're going to be spending for total CapEx.

On the bigger picture, you've laid in some exquisite new technologies here.

You're harvesting them.

As we look out over the next two or three years, where do you see your real focus?

Well, Mike, the real focus, that's why we've organized the Company by markets, is on those three key markets being the pharmaceutical business, the beauty and home business, and the closure business.

And we have -- we have organized management teams for each of those segments which will concentrate on the activities in these segments.

One certainly, if we look at the beauty and home segment, we believe that one area where we will see considerable focus and growth and maybe also more investment, will be in the developing markets.

And the developing markets, the growth potential is double digit.

And here I'm talking about Asia, as well, South America, Eastern Europe and specifically Russia.

By the way, our closures operation in Russia is very successful.

We have already increased the business much more than we had in our initial five-year plan, when we decided to make that investment.

Our profitability is also above our expectations.

So the growth is very good in this area, so the developing markets and Eastern Europe and Russia specifically we see over the next years, higher growth than in the United States and in Europe, our traditional markets.

The other area, certainly, is the introduction of new products in the pharmaceutical business.

Any specific areas of technology exploitation that aren't in evidence in what you've talked about today?

There is a new technology which we will introduce in the powder dispensing in the pharmaceutical area which is a very fast-growing market today.

We are, as you know, developing a new product in this field.

And we are expecting this to be shown to the market within this year.

But once again, I have to forewarn you, to introduce a new technology in the pharmaceutical area takes time.

It takes between 5 to 10 years to get these products to the market.

Thank you and congratulations.

Thank you very much.

[OPERATOR INSTRUCTIONS] We have a follow-up question from Jason Rodgers from Great Lakes Review.

Just wondering if you could provide the breakdown of the different segments excluding acquisitions, the growth in the quarter?

Excluding acquisitions?

Right.

You did it earlier, excluding exchange rates, I believe.

Excluding acquisitions for the beauty and home?

Right, within that segment personal care, fragrance, cosmetics.

Within each one, okay.

Personal care excluding acquisitions in the beauty and home side were up 7%; fragrance cosmetic were up 12%; household would be down 28%; and that gives you a total basically of fragrance up around 6.

In the closure segment, we were up excluding acquisitions, we were down slightly in personal care; we were up 9% in the household; 8% in food; and up in total around 7.

And again in pharma, there was no acquisitions in for that.

Again, just to comment on the household side in the beauty and home, part of that decline is business that we decided to walk away from a year ago due to the margin constraints in that business.

Okay.

Thank you.

I am showing no further questions in queue.

I'd like to turn the call back over to our speakers.

I would like to thank everybody for participating in our call today.

So thank you very much and good-bye, gentlemen.