Celestica Inc (CLS) 2003 Q4 法說會逐字稿

Good morning ladies and gentlemen.

Thank you for standing by.

Welcome to the Celestica Fourth Quarter and Year-end Financial Results Conference Call.

At this time, all participants are in a listen-only mode.

Following the presentation, we will conduct a question and answer session.

Instructions will be provided at that time for you to queue up the questions.

If anyone has any difficulties hearing the conference, please press star zero for operator assistance at any time.

I'd like to remind everyone that this conference call is being recorded on Thursday, January 29, 2004 at 8:30 am Eastern Standard Time.

I will now turn the conference over to Mr. Paul Carpino, Investor Relations for Celestica.

Please go ahead sir.

Great.

Thank you Connie.

Good morning everyone and thank you for joining us on Celestica's fourth quarter 2003 conference call.

On our call today, we have Stephen Delaney, the company's newly appointed CEO;

Marv MaGee, President and Chief Operating Officer; and Tony Puppi, Executive Vice President and Chief Financial Officer.

Before we begin the call, let me express to you that any statements that are made today, which may be forward-looking and not historical facts may involve risks and uncertainties, which could cause actual results to differ materially from those expressed in the forward-looking statements.

We will refer to certain non-GAAP financial measures during our presentation.

The corresponding GAAP information and reconciliation to the non-GAAP measures is included in our press release, which is available at celestica.com.

I'll now turn the call over to our Chief Financial Officer, Tony Puppi.

Thanks Paul.

As you saw last night, we decided to move up the timing of our fourth quarter results and conference call to coincide with the announcement of Eugene Polistuk's decision to retire as Chairman and CEO of Celestica.

As you all know, Eugene was the founder and visionary of the company.

From the time the company was established in 1994 as the standalone subsidiary of IBM, through the Onix management led by out of Celestica in 1996, through Celestica's successful IPO, through the unprecedented growth and build cycle, and then navigating through the downturn in technology, Eugene has left a significant positive impact and foundation for Celestica and the overall EMS industry.

On behalf of all employees at Celestica, I would like to thank him for his values based leadership, his mentorship, his complete confidence in and care for our people and customers, and for his conviction that really anything is possible.

We wish him happiness and health in his well-earned retirement.

And looking forward, we are extremely pleased with the appointment of Stephen Delaney as the new CEO, and Steve has the complete confidence and commitment of the management team.

Congratulations.

For the fourth quarter, revenue was $1.915b compared to $1.912b in the fourth quarter of 2002 and up 17% sequentially from the third quarter.

This quarter's revenue also represented the first quarter in 10, where we saw year-over-year improvement.

While the year-to-year increase is minor, we believe it is significant in marking stronger end markets and organic topline momentum for the company.

Along with the very strong sequential growth, we made important progress with respect to diversification.

Only two customers, IBM and Lucent represented over 10% of our revenues.

While customers that were not over 10% this quarter are well over 10% in the third quarter also continued to grow.

While the top 10 customers grew 8% sequentially, they now represent 68% of total revenues versus 73% in the third quarter.

And please recall that our top 10 represented 78% at the beginning of the year.

Importantly, the non-top 10 customers also continue to show impressive growth, showing a sequential increase of 41% from the third quarter and up 71% since the first quarter of this year.

Revenue growth was strong in all regions on a sequential basis.

Sales in the Americas grew 11% consistent with historical seasonal performance and represented 41% of total sales.

Asia grew a robust 22% reflective of new customers and ramps and now represents 39% of revenues.

Europe grew at 23% reflective of stronger server end markets and ramping programs and it represented 20% of revenue.

End market revenue segmentation for the quarter was as follows.

Enterprise communication was 26%, telecom was 23%, servers represented 22%, storage 14%, and workstations PC was 6%.

Our other category consisting of industrial, military, medical, automotive, and consumer businesses was 9% of revenues for this quarter and has grown organically over 40% since the first quarter of this year.

Net loss on a GAAP basis for the fourth quarter was $165m or a loss of $0.80 per share compared to a net loss of $435m or $1.90 per share for the same period last year.

Included in the loss for the quarter was $106m pretax charge associated with the non-cash impairment of long-lived assets and the company's previously announced restructuring activities.

Total restructuring for the quarter was about $24m and for the year amounted to approximately $95m.

The company wrote-off $35m of deferred taxes associated with losses in Europe.

This drove our tax expense of $41.3m despite the pretax GAAP loss of $124m in the quarter.

The company also started expensing options this quarter in accordance with Canadian GAAP, which resulted in an additional non-cash expense of $300,000.

Adjusted net loss defined as net loss before amortization of intangible assets gains or losses on the repurchase of shares and debt, integration cost related to acquisitions, option expense and other charges net of tax, was a loss of $4m or a loss of $0.04 per share for the fourth quarter of 2003, compared to an adjusted net earnings of $39m or $0.15 per share for the same period last year.

In terms of operating profitability, our operating margins remained slightly below breakeven.

The revenues increased robustly quarter-to-quarter.

Operating margin leverage was offset temporarily by ramping new programs and sequential pricing effects.

Also affecting profitability in the quarter were increased costs associated with the 64-bit business and higher SG&A expenses, which were largely related to activities supporting the company's growth.

R&D decreased to $6.7m compared to the third quarter.

Total start-up losses in our product business, largely the 64-bit server and workstations, represented a loss of $0.05 per share in the quarter.

We believe the investments here are strategic and we expect to see some solid improvement as 64-bit adoption rates increase.

Let me step you through our operating performance by geography starting with our European operation.

In Europe, we reduced our operating losses by another 24%, with an operating loss of $15.8m in the quarter as a result of the restructuring programs we continue to implement.

Margins in the Americas declined sequentially and expectedly based on mix of pricing and also due to start-up losses in our reference design activities that I mentioned earlier.

Asia margins showed sequential improvement in the fourth quarter, up over 30 basis points due to increased revenue.

The region continues to benefit from new wins and transferred programs.

Moving to the balance sheet: Balance sheet remained strong and we continued to preserve a highly conservative capital structure.

Net to cap was a healthy 18%, the best among tier-one EMS providers and cash was just over $1b in the quarter or ending the quarter.

During the quarter, we spent $9m to repurchase 600,000 shares and $16m in liens repurchases.

For the year, we used $270m to repurchase 20.6m shares and $224m for the repurchase of liens.

We continue to be opportunistic in any UV purchase activity, while balancing our need to support growth.

During the downturn, we are the only tier one provider reducing both the share count and reducing debt obligations.

And this activity should provide leverage for our shareholders as our business recovers.

In total, since the third quarter of 2002, Celestica has spent $768m to buyback stock and retire debt.

Cash cycle defined as inventory days plus receivable days phase of trade payables including accruals crept up three days to ten days in the quarter due to the timing of inventory purchases in the quarter.

While inventory turns improved to 7.7 times, up from 7.3 times in the third quarter, our inventory inflows were earlier in the quarter in order to ensure we had the supply chain flexibility to respond to increased customer demand.

In addition, we are impacted by increased inventories to support strong sales momentum into the first quarter of 2004.

Our cash flow from operations was a negative $73m in the quarter.

Our receivable sales program grew from $313m in the third quarter to $359m in the fourth.

Overall Capex was $89m as we finished constructing and fitting up our new building in [Inaudible] , China and this capital number also included $37m associated with the purchase of a building that was previously leased.

Capacity used utilization increased to between 55% and 60% through the quarter.

Let me now move to our first quarter 2002 guidance.

End markets appeared to have strengthened with continued stability and demand.

On the topline, we are expecting revenues to be in the range of $1.75b to $1.95b.

Though there is seasonal impact, it is less pronounced than previous years due to improving demand and continued ramping of new programs reflected of our strong organic momentum.

On the bottom line, we see adjusted earnings per share in the range of a breakeven level to a loss of $0.08 per share.

This EPS guidance accounts for the seasonally driven declines in revenues and higher effective costs attributed to a prolonged weakness in the US dollar.

These are offset by lower losses in the Reference Design business, continued benefits from restructuring, and improved efficiencies as program ramps mature and become more profitable.

The company also plans on taking additional $10m to $15m in restructuring charges in the quarter.

In regards to our MSL acquisition, we expect the transaction to close later this quarter, and you should note that our guidance excludes any benefits or impacts from that transaction.

We expect to provide these impacts when we announce our first quarter results in April.

In summary, we're entering this year with a higher level of confidence than we've had since the downturn began three years ago.

We fared pretty well for the first two years, actually growing modestly in 2001 and maintaining industry leading margins for most of 2002.

However, as we all know, 2003 was a very difficult year for Celestica and also for some of our largest customers.

Topline is clearly getting a traction, and we fully expect the profitability will improve throughout the year.

Increased volumes and higher utilization factors have stabilized pricing, and restructuring benefits should continue to add to our operating profitability.

Our footprint has transitioned, many plans have changed with products and services they are delivering.

Most of our high-volume products are now being built at low-cost sites, and today 70% of our production facilities are in low-cost geographies.

In summary, organic growth is accelerating based on new customers, new wins, better end market diversity, and better demand from IT and Telecom infrastructure customers.

Our EPS is still lagging, we'll benefit from improving demand, leverage from our previous restructuring, fewer transfer activities, maturing programs, and other actions.

As business recovers, our EPS should also benefit from the 23m shares or 11% of our shares outstanding that we have repurchased over time.

Our balance sheet remains strong, and as a result of major reductions in debt and a solid cash cycle.

And we feel very excited about our merger with MSL, which is expected to close later this quarter.

Let me now turn it over to Steve Delaney, before we open it up for questions.

Thanks Tony and good morning everyone.

Since most of you haven't met me before, I thought I would give you a little background.

I've been with Celestica since 2002, most recently as President of the America's operations.

Prior to joining Celestica, I ran Vistion Automotive Systems, largest business called Interior and Exterior Systems and held a variety of executive and operational roles in Allied Signals' electronic systems business, Ford's electronics division, and IBM's telecommunications business.

As you can see, I've only been with Celestica about two and a half years, nearly all of my experience has been in general and operational management in electronics related businesses.

I share Tony's views on a more positive view for our company in 2004, as demand improves.

We've undergone massive transitioning of our manufacturing network, as demand from several of our largest customers significantly fell off last year.

This year, we will get traction from those changes.

I speak with many customers and in general they are ...........AUDIO NOT AVAILABLE (DISCONNECTED TILL 4:08)

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One moment please for your first question.

Your first question comes from Joseph Wolf from Banc of America.

Please go ahead, sir.

Thank you.

About a year ago, you talked about the restructuring efforts and there were three issues, there were inventory issues, the acceptance of severance packages layoffs and the program shift.

Could you walk us through where those are a year later, what the most critical issues are for the company facing 2004 as you drive towards operating leverage?

In terms of -- very difficult actually to compare fourth quarter of 2003 to that of the prior year just because as you know 2003 saw a significant change in demand, particularly at the high end as you know for us and in particular the higher cost geographies.

So, we have had throughout the year the need to continue to adjust the manufacturing network that we have had.

And so, moving programs around the world, particularly the low cost geographies, trying to optimize the sites that we have had has continued and we have had to kind of increase the pace at which we have done it throughout the year.

So, we continue to execute on restructuring programs we announced in 2002 and then announced further restructuring.

I think, just given some of our expectations on the restructuring we've got and expect to do in the first quarter as I mentioned, it's a lot lower where the transfer activities are subsiding quite rapidly.

The ramp ups of the transferred programs in low cost geographies have gone very well, but we're still not getting the profitability from them that we know we can get.

So, those efficiency factors will improve just on the basis of more stability.

I think, those are all the key drivers in the business that I think are giving us more optimism in terms of the operating margin leverage, but we continue to need improvement on the cost side and particularly focus on the efficiencies in managing our growth and ensuring that our program ramps with new customers which we've experienced an abundance of over the last couple of quarters here, that we get the experience curve behind us as quickly as possible and leverage that to the bottom line.

And I think that that is certainly the commitment that all of us have is to start seeing that leverage threads form in the bottom line and we think we've got a lot of momentum in that regard.

Just one quick follow-on, the R&D number seems to be moving around a little bit, are some of the R&D programs now producing revenues and have shifted to the gross margin level or are you taking a pretty proactive approach to what the appropriate level of R&D spend is?

Well, the R&D did not change that much.

I mean, you built programs and then you try to sell them, and so we are more focused probably on the sales engine of previously established product and reference design, so, obviously we are going to curtail development expense when we can.

So, I think it is just a fine tuning as we look forward.

We have booked revenue in the quarter, but I'll tell you it's minor.

Although, we do have commitments going forward and we expect as I alluded to in the go-forward guidance and improvement in the profitability there.

Thank you.

You are welcome.

Your next question comes from Steven B. Fox from Merrill Lynch, please go ahead.

Hi, good morning.

A question on the change in CEO.

Given Eugene's tenure at Celestica, why is it not more of an orderly transition going on here?

And in reference to the comment in the press release about a search being done, what's your timing on that?

And I guess, what [Inaudible] any permanent CEO and lastly, is Mr. Crandall the permanent Chairman at this point?

Let me start with the last one.

Mr. Crandall is the permanent Chairman of the Board.

In terms of the decision in terms of the transition, Eugene would have loved to have an earlier retirement cycle but felt compelled to ensure that his stewardship was

there in evidence throughout the restructuring and transition of the business.

And he found it appropriate given the momentum we had at this time to execute those plans.

It is Steve here, I agree with Tony's comments.

Additionally, I think you should know that the Board expressed their confidence in me when asked me to take this role.

Nevertheless, they are responsible to ensure that the most qualified person is selected for this job.

And they elected to do that.

They did a through search to accomplish that.

I respect that course of action.

But frankly I am intending on being in that position in the end.

In the meantime the Board pledged their full support to me in this role.

I appreciate those comments.

And then if I could just ask one question on operations. [Inaudible] will start ramping in November.

Can you sort of talk about what you are doing there now, where utilization rates are, where you are expecting to be in a quarter or two?

There are a couple of points to your question I guess.

If you look at utilization rates, it is certainly consistent with the revenue momentum there, we are seeing improvement, generally I categorize our worldwide utilization rates in the 55% to 60% range.

So, steady improvement.

Specifically you mentioned Suzhou, but specifically when you look at the lower cost regions in the world, lot of the business is in printed circuit board assemblies, cost performance type of products.

And I think as Tony had mentioned in his comments that the transfers have gone quite well.

And the business ramps that we see in those low cost regions are quite encouraging.

Thank you.

Your next question comes from Tom Astle from National Bank Financial, please go ahead.

Yes.

Good morning, just following up on the Asian question.

You mentioned capacity and manufacturing capacity is 70% is based there now, I guess that was in low cost geographies.

Can you give us an idea of how much revenue that was coming from those geographies at this point?

I think we had disclosed in the press release we've got Asia at about --

As more folks [Inaudible] low cost geographies, I don't know how you classify that.

Added to the Asia number, you should probably add another 250 plus million.

And just looking at the trend on profitability in Americas, you made this comment on that it's been down sort of four quarters in a row.

Bit more detail than what you mentioned in the beginning.

In terms of utilization factors?

No, Just on the profitability.

The operating margin in the Americas segment.

In the Americas segment, we've had an increase in volume that should have driven leverage on a sequential basis and as I alluded to in the call, we had a mix and price impact that we did expect in the quarter.

In addition, you should know that our profitability in the Americas are affected by the server business, which I alluded to was $0.05 per share.

How many are product mix this year?

And the product mix is just an evolution of where the mix of that are higher value and the - probably the lower end of the market doing better than others.

Okay.

Thank you.

Welcome.

Your next question comes from Michael Morris from Smith Barney.

Please go ahead.

Yes.

Thank you, good morning.

At the beginning of the remarks you talked about Celestica's history as a public company and how you reformed.

One of the ways in which Celestica and you competitors grew was acquiring facilities from customers and in some cases at premiums to book value.

As those supply agreements have lapsed, can you comment on the impact on your P&L?

And can you comment whether that impact is ongoing or pretty much behind Celestica right now?

Well, I would tell you very clearly those are all behind us.

But certainly, as the whole industry realizes, for the last three years regardless of what supply agreements you've got in place, had been pretty hard on everybody.

So, we have been impacted as some of those agreements have expired and it was pretty meaningful if you look at it in aggregate over that period of time.

But if we hadn't done those deals, I would suspect that the pressures that we would gotten were about the same, and that's where we are right know.

So, we don't expect, don't anticipate any further issues in that regard.

Okay.

And then secondly, Anthony, could you update us on your views on your overall restructuring effort?

In the past you've talked about the sort of the magnitude of cost that you expected, and I wondered if your views on that have changed at all in the last three months?

In terms of our overall, benefits from the restructuring?

Benefits and if you anticipate taking further restructuring charges over and above what you previously advised.

In terms of our forward guidance, I highlighted the $10m to $15m we expect in the first quarter.

Right now, I think it would be very premature and speculative on our part to forecast anymore.

We're always in the process of fine tuning.

What we can't do, and I said this in the last call is comprise what we believe is an inflection point in the market from our customers perspective and we must be there to execute as seamlessly as possible, and that's been our job one.

Okay?

Overall, you know, obviously we had to take multiple restructuring actions.

None of that is ever pleasant.

But we have the resolve to make the adjustments to our cost structure to better balance.

So, in terms of

[Gap In Audio] that your cost, your footprint is still a little expensive and you're facing market pricing and as a result your gross margins are going to be below your peers for the next little while.

Okay, let me try to kind of characterize margins in the first quarter at general levels.

Clearly, if you look at the mid point of the guidance again, because that's all I can really do is give you the range based on what we are thinking and point to the mid point.

That would imply some degree of volume erosion, which would obviously impact our operating leverage negatively.

In the first quarter, as I also highlighted, our exchange management, foreign exchange management will leave us with about $5m in FX impacts that we didn't cover in terms of hedges just given the prolonged US dollar weakening.

So, that has an impact.

So, I think those two things drive on the downside any margin pressure, but offsetting that, we've got the dynamics of programs maturing and those ramping programs having higher profitabilities continued restructuring, we do expect lower server losses because the volumes that we anticipated in the quarter, and that kind of rounds out things.

So, I would say imbalanced, we're looking at roughly the same level of operating income, if you will, pretax margins somewhat down just given the volume decline.

I appreciate that answer, Tony Just let me dig a little bit further and try to understand your margins versus your peers though.

Even after we look at all of this stuff, I understand some of your peers don't have the effects issue, but it's you know, $5m doesn't reconcile your margins with your peers.

Is this high cost, the relatively high cost footprint versus your peers and maybe it's a strategic reason you are doing that, you know, get closer to your customer (Audio Gap) whatever.

Is that?

What we have tried to do is manage you know, quite extensive series of transitions in our business.

We are not done and so, that's not reflected even in the operating leverage.

We have had many new customers that we have added.

You know, we have added another eight in the quarter.

So, over the last 18 months, it's a significant number in market segments that are different and in particularly, as we ramp those programs over the last few quarters, you know, we have got our (Audio Gap).

(Audio gap) I am not new to the company and I know my way around, so to speak.

I'm pretty intense operational guy.

Your next question comes from Dennis dos Santos from First Associate Investments.

Please go ahead.

Thanks. (Audio GAP)

Your next question comes Matt Diren from (AUDIO GAP).

taking on new programs, that are may be low margin instead of just walking away from some of these fields, I'm just trying to get a sense of how aggressive you plan to be going forward to fill capacity versus looking towards profitability?

Well, let me just talk a little bit about the dynamics in pricing, a lot of our arrangements are sort of forward-looking in the sense of committing to price reductions for our customers and certainly that was something we'd expected in the fourth quarter.

What I am pleased to say, is just given the market dynamics, how capacity utilization is improving for the industry everywhere, how demand is doing that up and also our end markets look stronger.

We've seen a very clear marked pricing improvement in the industry, and that's favorable for everybody, by the way.

And as we look forward, I think that's going to be less of a factor, in fact I am very confident, that it is going to be a less a factor, it is always, our industry is in the cost reduction business right?

And we have always delivered those cost reductions at good times and in bad, but I just believe that things will be a lot more orderly, stable, and better for everyone involved going forward.

In terms of being aggressive, that was clearly a factor when capacity utilization levels were low everywhere, and so that's something that has subsided and we've always priced programs with the return on capital in mind.

And wouldn't short change investors in that regard or sales.

Okay, and then just a question concerning MSL, which you haven't closed on yet, but your own restructuring looks like it is getting close to completed yet, you obviously have a big hand integrating MSL.

So, is there a sort a plan in place on that integration and any concerns about the tractions from your core business in your core restructuring given what's in hand with MSL?

Steve here.

We've had quite a lot of practice at integration, we've done over 30 over the past several years.

So, I don't believe that there is a distraction factor that is going to inhibit our business in any way.

And yes, the integration plans are underway between the companies.

Okay.

Thank you.

Your next question comes from Steve Savas from Goldman Sachs, please go ahead.

Sure, good morning.

I just wanted to focus a little bit on SG&A.

I know you've made some comments a little bit on kind of what would seem like an awfully high level of SG&A sequentially, just wanted a little more clarification.

Is the roughly $7m or $8m increase sequentially?

That clearly can't be all related to the ODM side or the reference design side of the business, kind of, what was driving that, is that an unusual level?

Can we expect that to start going down because I thought that was the direction we'd start moving in terms restructuring?

Well, clearly the reference design businesses had an impact there.

I would also say that our sales expense growth there given the market opportunities that we see in the sectors we want to participate have grown.

And looking a little bit forward, I don't see a big change in the first as we continue to invest in those growth areas, but clearly the opportunity and our focus is on leveraging that cost with what we believe is an opportunity to reduce those levels beyond the first quarter.

Okay.

And then if we think about that on a long-term basis, I'm talking very fuzzy, not a specific quarter or anything.

What would be your SG&A goal, is it to be at roughly 2.5%, in the mid 2's as a percentage of revenues, just up a 3%, get it down at 2%, can you give us some rough idea, 12, 18, 36 months out, something like that?

I think we continue to be focused on what we believe is a model of about 2%, maybe a little higher given our mix of lets say more of a product business as we go through time, but that is certainly as we modeled out and as we look at our business as we understand when we complete our SAP rollouts and as we leverage that overall cost base going forward, growth in markets and growth in our performance, that 2% or 2% plus of it is certainly possible.

So, that's where we will continue to be headed.

I still believe that the operating margin bottom line whether you call it gross margin or including the SG&A, we are looking for operating margins that are clearly possible of 6%, 5% to 6% depending again on the mix of our product businesses.

We remain very committed to those scores.

Thank you.

Thank you.

Your next question comes from Chris Whitmore from Deutsche Bank.

Please go ahead.

Thank you.

Good morning.

Hoping to get a little more color regarding the working capital management and the flow of inventory turns.

If you look back over the past few years, Q4 usually has a nice cash flow a quarter for the company as inventories or day's inventories are worked down.

Can you talk a little bit more about why we did not see better cash flow from ops in the quarter?

Whit, it's alluded to, as a quarter was going on, we brought in parts and components earlier in the quarter to respond to customer demands and also to ensure, you know, had squared sets (ph) and certainly could deliver the flexibility that our customers wanted and needed, and in addition to as we, as the quarter unfolded, the first quarter started strengthening, and therefore that increased what we otherwise would have experienced in prior years in the fourth quarter in terms of inventory.

Nonetheless, again with the lot of the activity we have got program ramps and our expectation that they would stabilize in the first and second quarter, we continue to believe and focus on improving that inventory turn level.

So, I think those are the primary factors.

Tony, is there an inventory return target we should be thinking about over the next say, four to six quarters?

Well, we kind of, believe very strongly that we have got detailed roadmaps that get to at least nine turns in the course of 2004, but when you fundamentally look at, you know, the supply chain and inventory parameters that we got, I continue to believe that, you know, 12 to 15 turns is something we should expect from ourselves.

And just lastly on the cost structure.

Here you are operating at roughly, you know, breakeven to slight losses.

Why aren't we being or why aren't you being more aggressive, reducing your cost structure to get profitability up here in the near term.

Is it based around your views on end market demand or what?

Can you help give us a little color on why you are not being more aggressive taking out cost?

Quite simply, because we are not focused on just short-term improvement, and so our view is that the end markets are improving.

Our momentum in growth in organic programs is clear, and we will be focused first and foremost on execution as that happens and we'll continue to rebalance and our cost structure to drive profitability after that.

Oaky.

But it will come and, but we are not managing for the next quarter.

And just lastly.

Do you think there is something structural regarding your cost structure versus the rest of the industry, given your footprint or some of the legacy assets you may have acquired back in the boom?

Is there something structural in your manufacturing footprint versus the rest of the industry that would suggest, you know, lower long-term gross margins or operating margins, and that's it.

Thanks.

It's Marv here.

I think if you look at the transition that we talked about, we have - through the past couple of years made a significant shift in how the company is structured.

As Tony mentioned there, the momentum that we see with largely are infrastructure companies does have ongoing requirements in some of the higher cost geographies.

So, the trick for us in the near term is balancing those restoring commands from our customers, but by and large we've made pretty dramatic changes in our company's footprint.

So, it would encourage you to look at how our assets are distributed, because they are quite different then where they were two years ago.

Your next question comes from Todd Coupland from CIBC World Markets.

Please go ahead.

Hi, good morning everyone.

I'll just talk to the working capital management.

Would you expect that you will burn cash in the first quarter as well, and if so could you just give us a rough idea on what that might be?

Hi Todd, they were targeting to keep their cash balance roughly in the area that it is today.

Okay.

And secondly, in terms of the ODM losses, I think you said it impacted you $0.05 in the quarter, would you suggest that we fly those losses to the Americas side of your EBIT segmentation?

Yes.

And you did mention that you thought it was going to go down, can you give us what is the magnitude and what that might get to in the first quarter?

We can't give that level of specificity, suffice it to saying that, I think the improvement will be pretty strong.

And you mentioned that, it was in part due to ramping programs, so should we imply from that that you have had 64 bids, design wins and now you are starting to see some revenue ramp from that?

That's correct.

Okay, great, thanks a lot.

Your next question comes from Thomas Hopkins from Bear Stearns, please go ahead.

All my questions have been answered, thank you.

Your next question comes from Thomas Dinges from J.P.

Morgan Chase.

Please go ahead.

Hi, just a couple of house keeping items for you Tony.

With the reversal of deferred taxes, that you had this quarter based on losses that you've experienced over the time period here, an expectation for a continued loss at least at the midpoint this next quarter, do we expect to see any further write off of deferred taxes in the next quarter, and then I have a follow-up?

No, we do not foresee further deferred tax write-offs.

And then secondly just, can you remind us what the authorization is on the stock buyback and what the expectation is for your activity in the next quarter or two in regards to the stock buyback and also in regards to the alliance?

Thank you

In terms of alliance, we've authorization for additional $126m, and in terms of our normal course issuer bid we've got the flexibility to repurchase an additional 13m shares.

Your next question comes from Susan Streeter from Sprott Securities.

Please go ahead.

Thank you, good morning.

Just a quick question, actually the restructuring charges that you are talking about for the first quarter, can you give us a sense of where those charges at, headcount reductions, or closures, and in what geography?

That would be all of the above.

Actually it will be across the Board in terms of - primarily headcount reductions, but it will be both in the Americas and in Europe.

Okay thank you., that's it.

Your next question comes from David Miller from Tradition Asiel.

Please go ahead.

Good morning.

Just with the proxy for Manufacture Services Limited going out yesterday morning.

Have you been in touch with the top shareholder, which will be Credit Suisse First Boston or the management team in MSL since their change in CEO?

There has been discussions, yes.

And, I mean, I guess.

Is there any, just got to run its course now for the votes to happen, there is nothing that can be done?

There is no concern in any way.

Okay.

Thank you very much.

Operator, we will take one more question please.

Your next question comes from Keith Dunne from RBC Capital.

Please go ahead.

Thanks for the one more question.

I actually have three issues I want to look into.

One is the foreign exchange impact, you mentioned it was an impact in the fourth quarter and I believe you qualified $5m in the first quarter.

Does that presume that the fourth quarter was less and what is the prognosis as we go in to latter parts of '04 if currency says flat right now?

That's the first area please.

In terms of the fourth quarter there was virtually no impact on currencies as we were fully hedged.

As you know, we have an average, sort of an averaging hedging program that over time if there is a prolonged change to that spot rig, we could get impacted.

So, the further out you go, we also have the ability to adjust our cost base.

So, in the first quarter we feel comfortable with the number that we gave you.

Looking forward we still have the ability to mitigate some of that, but again we've seen a pretty substantive increase in currencies such as the Euro and the Canadian dollar relative to the US.

And if that prolongs itself and without any other adjustment in cost, there would be an increase just through the nature of our hedging program as it bleeds off.

And so without any changes in your hedge plans, I'm hearing as $5m will grow as the year progresses.

And if we do not change any of our cost in those currencies, which are strong that is correct.

It will grow.

Okay.

And it's premature to give any view of that.

Second question has to do with the recent announcement with Nortel and the competitor.

Can you talk about, would that have made sense for Celestica, why and why not, will be the rational for both please?

Well, we don't discuss any particular programs in any particular customers.

And I will try one last one.

A few of your competitors have talked in rought terms, you know, what the topline and bottom line might look out for the year.

I understand it's difficult but would you care to give any very broad brushes on what that might look like?

Well, I think just very generally we expect growth, and we expect the momentum that you are seeing in the fourth quarter, in the first quarter, which is implied, to continue through the year.

We all know the end markets are, but we believe the end markets are not just stabilizing, but improving.

So, we expect to benefit from that and all the programs that we are engaged with and win it.

And the last housekeeping question, percent of sales.

I don't think I heard that, the top five, and it sounds like the tax rate is not going to change going forward, those were my last two, please?

Now, at a later point, we believe we will restore our tax rates to what we have been averaging prior to, sort of a, cumulative losses we have been experiencing in Europe.

So, very specifically on a GAAP basis, we feel good that the 17% tax rate is sustainable here in the not too distant future and a cash tax rate of about 14%.

I will keep 50% for (Audio Gap)