藝康 (ECL) 2007 Q4 法說會逐字稿

Welcome to the Ecolab fourth quarter 2007 Earnings Release conference call. At this time, all participants are in a listen-only mode. After the presentation we will conduct a question and answer session. (OPERATOR INSTRUCTIONS) This call is being recorded. If you have any objections, you may disconnect at this time.

Now I would like to turn the call over to Mr. Michael Monahan, Vice President External Relations.

Thank you. Hello everyone, and thanks for joining us. This Webcast teleconference includes estimates of future performance. These are forward-looking statements and actual results could differ materially from those projected. Some of the factors that the could cause actual results to differ are described in the section of our Form 10-K under Item 1a Risk Factors, and in our fourth quarter earnings release. A copy of our earnings release is available on Ecolab's website at Ecolab.Com/Investor.

Starting with some highlights from the quarter, reported fourth quarter 2007 EPS increased 32%, reaching $0.45. Excluding special gains and charges, and discrete tax benefits, earnings rose 18% to $0.40, hitting the top end of our forecasted range. We enjoy continued solid sales trends from our U.S. Institutional, Test, K, Food & Beverage, and Healthcare businesses. International also showed good sales gains, as Latin America and Asia Pacific rose double digits, while Europe reported modest growth.

We finished the year with EBITDA reaching almost $1 billion. It was a solid year of growth and important business development, as we continued to develop strong results, while building for future growth. We expect another good year in 2008 as continued strong sales efforts, productivity and efficiency gains, pricing and cost savings drive growth, while acquisitions accelerate top line, and create additional future opportunities. We will use some of this strength in 2008 to make critical investments in our Europe and Asia Pacific businesses to build future growth.

For the full year we look for pro forma diluted earnings per share, which exclude special gains and charges and discrete tax items, to be in the $1.84 to $1.88 range. These results will include about $0.02 of dilution from the Microtek and Ecovation acquisitions. Pro forma earnings excluding that dilution are expected to rise 12% to 14%, to $1.86 to $1.90 per share.

For the first quarter, we expect pro forma EPS in the $0.37 to $0.39 range. These results will include about $0.01 of dilution from acquisitions. Excluding that dilution, earnings per share are expected to increase 9 to 14%, to the $0.38 to $0.40 per share range. In summary we believe our business trends remain solid. We continue to expect yet another superior performance for Ecolab, and believe that we are making the right investments to sustain attractive growth for the future.

Turning to the details, Ecolab's reported consolidated sales for the fourth quarter rose 13%. Looking at the components, volume and mix were up 5%, pricing was up 2%, currency added 5%, and the impact of acquisitions was 1%. Sales for U.S. Cleaning & Sanitizing operations increased 11%. Excluding the Microtek acquisition, sales rose 8%. Institutional sales rose 7%, showing good results. The division compared against a very strong period last year, when sales rose an exceptional 14%, as we brought on significant business from a competitor.

Fourth quarter 2007 sales growth continued to be healthy, into the various end market segments including Restaurant, Healthcare, Lodging, and Travel, as we effectively leveraged our customer demand for premium results, and energy and cost reduction, with our legendary premium service, aggressive sales, new products, and increasing solutions per account to drive growth.

We continue to make investments in new products, programs, and the salesforce training and technology, to help drive better service, and increased customer solutions. The Apex rollout continues to go as planned, adding to growth in our market differentiation, as it provides superior results, and demonstrable cost savings to customers. The reaction by customers to this award-winning product has been excellent. We believe the fundamental outlook for institutional remains solid.

Basic restaurant traffic trends as reported through November, are similar to those we have experienced over the past couple of years. Though that may change with the softening economy, we believe our opportunities to grow within our customers operations continues to be very attractive. Further, hospitality remains solid.

In 2008 Institutional will leverage its broad customer base, unit expansion by the chains, increased customer needs for solutions at effectively reduced costs and improved results, and aggressive sales efforts, to drive further superior growth in market share gains. We look for continued good growth from Institutional once again in 2008.

Kay's fourth quarter sales grew 9%. QSR's underlying business remains healthy, with good ongoing demand from major, existing, and new fast-food chain accounts. Food retail business also showed good growth. New products and programs like the introduction of solids for QSR, along with customer wins, continue to bolster Kay's results. We expect these to help drive continued strong gains in the first quarter for Kay.

Textile Care sales rose 5%, as sales growth for the the division returned to more trend line rates of growth, following annualization of last year's significant account wins. Textile Care added new plans from existing customers, continue to drive new product solutions, and broaden its markets. We believe these initiatives will enable Textile Care to continue to produce further growth and better customer solutions.

Reported fourth quarter sales for the Healthcare division more than doubled, reflecting impact of the Microtek acquisition in November. Excluding the impact of the acquisition, Healthcare sales rose a very strong 16%. Organic sales growth reflected continued solid end market demand for our infection control products, and expanded penetration within our existing base of group purchasing organizations and Healthcare purchasing systems. Our waterless, anti-bacterial, and non-medicated skin care products showed continued double-digit growth.

As previously announced, we completed the acquisition of Microtek Medical in November 2007. The integration is growing very well, and Microtek sales continue to show strong growth. Further, we have begun our efforts to cross-sell our products, and leverage Microtek's very strong operating room expertise. Looking ahead, first quarter 2008, Healthcare sales should show continued good sales growth, and be bolstered by the addition of Microtek.

Food and Beverage delivered a solid fourth quarter performance with sales up 9%, lead by strong performances in the Meat & Poultry, Food, Beverage and Agri segments. The Meat & Poultry business enjoyed a robust quarter, reflecting significant customer gains. Corporate account wins, better pricing, and new products have contributed to dairy plan sales growth.

The Food & Beverage businesses also saw strong growth, reflecting new account sales, and the strength of our corporate account relationships. We expect continued good sales trends in the first quarter of 2008, as we focus on new account acquisitions, and continue the expansion of our anti-microbial platform.

As detailed in our release last week, we acquired Ecovation, a leading provider of affluent water treatment and renewable energy solutions, primarily for the Food and Beverage manufacturing industry in the U.S., Including the dairy, beverage, and meat and poultry producers. We are very excited by the potential it offers. Ecovation will help our customers effectively deal with increasingly difficult affluent treatment issues, as well as use our technology to help turn some of that waste back into energy that can be used by the plants in their operations.

Ecovation is a rapidly growing company. Further it will built on our existing expertise and engineering work that we have long performed, in developing clean in place systems for our Food and Beverage plant customers. 2007 sales for Ecovation were approximately $50 million, having grown 10-fold since 2005. 2008 sales are expected to exceed $100 million.

The U.S. Food and Beverage market alone for these waste solutions is estimated to exceed $4 billion, with fragmented competition providing us lots of opportunity for future growth. We expect this acquisition to be dilutive by up to $0.01 per share in 2008, due in part to profit on projects in process going to the balance sheet, similar to inventory step-up in other acquisitions. We look for Ecovation to show a rapid growth and attractive profitability, as we further develop its potential over the coming years.

Water Care sales declined slightly in the fourth quarter. Gains in cooling, water treatment, as well as filtration, were offset by a lower sugar and waste water application sales. We expect a continued focus on leveraging our circle the customer strategy, particularly within Food and Beverage, to deliver sales improvement in the coming year.

Vehicle Care sales decreased 1%. Results were impacted by unfavorable weather in November and December, which offset better pricing and sales of our new Rain-X and Solid Power products. Vehicle Care expects new account gains in its existing markets, along with new market opportunities and investments in its salesforce to yield good sales growth in the first quarter of 2008.

Sales for U.S. Other Services increased 10% in the fourth quarter. Pest Elimination sales continued to show good growth rising 11%. New account activity was driven by good corporate account gains, while non-contract service growth also contributed to the quarter. We continue to develop our programs to target specific market needs that provide better circle the customer penetration, and better growth opportunities. We expect Pest Elimination to show similar good growth in the first quarter.

GCS sales increased 8%, showing continuing good sales momentum. Sales to corporate accounts are developing well, and the sales pipeline continues to look attractive. The new business systems are fully online, and we are now working through the systems stabilization and optimization phase of the implementation. We are already seeing benefits of the new system through better business transparency, which has helped our business decision-making. The new systems give us improved transparency into customer account profitability.

As part of the improved analysis we identified and completed a contract change in the quarter that will improve contract profitability for 2008 and beyond. We incurred a charge to revise that contract. Adjusting for that contract charge, and the systems stabilization and optimization costs, GCS profitability improved over the third quarter and last year. Productivity is improving on the new systems, and we expect significant gains as our people continue to build experience with new productivity tools.

We expect continued good sales growth in the first quarter 2008 and the year, with improving profitability as 2008 progress. Measured in fixed currencies, international sales increased 5%, but when measured in dollars, reported international sales increased 16%. Europe, Middle East and Africa sales rose 2% in the fourth quarter at fixed currency rates, excluding acquisitions and divestitures, fixed currency sales rose 3%. When measured in dollars, EMEA sales increased 14%. Europe's Institutional sales were flat.

Good performances in developing countries in the East as well as the West, were offset by slow sales in France and Germany. Flat consumption in Catering accounts for manufacturers, and declines in Janitorial also impacted sales. Institutional launched Wash n' Walk in the fourth quarter, and we expect it to help drive sales in 2008.

In addition we have brought some talent as well as selling programs from the U.S. Institutional division to Europe, to help improve sales execution. These actions along with the fundamental sales training we have under way, and our technology improvements, are expected to help improve growth as they take hold. Foot & Beverage sales showed a strong gain benefiting from good product growth in equipment sales. Healthcare sales also showed good growth, as infection control and cleaning room products both performed well.

Textile Care Reported moderate gains in the fourth quarter, while the Europe Pest Business had lower sales. Decline in Pest in Europe primarily reflects the sale of our U.K. Property Services businesses in the third quarter, but also includes the elimination of a couple of larger but low margin contracts in the U.K.

Looking forward, we are beginning to see improvements in key metrics, including service delivery in the U.K., and new contract sales growth in France. As an update on our work to improve Europe's performance, the business information systems development work continues to move ahead, and is in the build stage. Multi-phase rollout will begin in Summer 2008. We have also began rolling out training, metrics, and technology upgrades for the salesforce, focused on our key countries.

While these improvements will take time to implement, they are critical to the fundamental development we need to make to achieve better growth in Europe. We are also getting our new regional headquarters prepared, and expect to make the major staffing relocations this Summer, as we build a pan-European operating structure. While a cost to 2008, we remain confident these actions as they are implemented will lead to higher sales and profit growth, and a more effective business model. We look for Europe's first quarter of fixed currency sales to show modest growth, but look for better results in the coming quarters and years, as the actions we are implementing take hold.

Asia Pacific sales grew 10% in fixed currencies. Excluding the acquisitions, sales increased 8% as growth in East Asia, China, Australia, and New Zealand, drove results. When reported in U.S. dollars, sales increased 20%.

From a divisional perspective, Institutional strong sales gains were driven by new products, including the launch of a new wear washing platform in Japan, and by growth in the Market Guard program for retail stores. We achieved important account wins in casinos, catering, hotels and restaurants, as well as the food retail markets.

Food & Beverage sales also enjoyed strong growth lead by East Asia, Japan, and New Zealand. Both the beverage and brewing sectors continue to show good growth in Asia. The Food & Beverage division benefited from increased product penetration and account gains.

Asia Pacific expects continued strong sales growth in the first quarter. Fourth quarter sales for Ecolab's Canadian operations were up 6% in fixed currency, and rose 21% when measured in U.S. dollars. Institutional sales were strong benefiting from corporate account gains, accelerated street growth, and new products. Food and Beverage sales also improved while Healthcare, Pest Elimination, and Vehicle Care each grew double digits.

Latin America reported an outstanding performance, with sales rising a very strong 13% and fixed exchange rates. When measured in U.S. dollars, sales rose 19%. Sales were excellent throughout the region, as all divisions rose double-digits. Institutional growth was driven by new account gains, increased product penetration through the 360 degrees of protection program, as well as continued success with global and regional accounts.

Food and Beverage sales reflected strong demand in the beverage and brewing markets, as well as the benefits of new accounts. Pest Elimination continued its outstanding performance throughout Latin America. Overall, we expect healthy growth trends to continue in Latin America. We expect Latin America sales to show another double-digit gain in the first quarter.

Turning to the expense side of the Income Statement, fourth quarter gross margins decreased 20 basis points to 50.2%. Excluding the impact of Microtek, gross margins would have been slightly favorable. Improved U.S. margins driven by sales leverage, pricing, and cost savings initiatives, were offset by lower margins in the international segment, principally in Europe, where pricing gains were more than offset by higher delivered product costs, and an unfavorable business mix.

SG&A expenses were 38.7% of sales, 30 basis points below last year. The SG&A ratio reflected leverage from our healthy organic sales growth, that more than offset investments in business systems inefficiency, R&D, and Information Technology.

Turning to the segment profits, operating income for U.S. Cleaning & Sanitizing increased 29%, driven by the higher sales and improved cost efficiencies, and the resulting strong operating leverage, which more than offset investments in the business.

Operating income for U.S. Other Services decreased 5%, continued profit gains of Pest Elimination were offset by systems deployment, and stabilization and optimization costs in GCS, and a charge to exit an unprofitable customer contract. International fixed currency operating income was off slightly declining 1%.

Latin America and Canada showed strong increases. Asia Pacific profits were off due to infrastructure investments in Japan and China. Europe's operating income was down as sales growth was offset by higher delivered product costs, and unfavorable product mix.

Corporate segment includes special gains and charges, which are also reported separately on the Income Statement. Special gains and charges for the fourth quarter included gains from a previously announced sale of a business in the U.K. of $5 million, and the sale of a minority investment in a U.S. business of $6 million. Special gains and charges also included non-recurring costs, related to relocation of the workforce to the new regional headquarters in Zurich.

In addition to special gains and charges, the corporate segment included investments in the development of business systems, and investments we are making to optimize our business structure, as part of our ongoing efforts to improve our efficiency and returns. These investments partially offset the special gains and charges resulting in a $300,000 gain to the corporate segment in the quarter.

Ecolab's fourth quarter consolidated tax rate was 29.7%, down from last year's reported 34.9%. Excluding discrete tax benefits from audit settlements of approximately $0.02 per share, and the tax impact of business divestments, the adjusted effective income tax rate for the fourth quarter 2007 was 34.3%. The decrease in the adjusted fourth quarter effective tax rate was due primarily to U.S. Tax legislation, international tax rate reductions, and tax planning efforts.

The net of this performance is that reported diluted net income per share for the fourth quarter was $0.45, up 32% over the $0.34 earned a year ago. Pro forma earnings were up 18% to $0.40, when adjusted for the discrete tax benefit and special gains and charges.

Turning to the Balance Sheet, Ecolab's total debt to total capital was 34% at December 31, compared with 39% reported a year ago, when we prefunded some Euro debt. Adjusting for that pre-funding, the comparable prior year ratio was 29%. Our net debt at year-end 2007 was 31%. Following last week's acquisition of Ecovation, our total debt to total capital rose to 39%, with net debt at 36%. Depreciation & Amortization for the quarter was $76 million , and capital spending for the quarter was $85 million. As you may have seen last week, we issued $250 million of 7-year notes due in 2015, with a 4.875% coupon, to pay down commercial paper, and for general corporate purposes.

That is a review of the fourth quarter. In summary, Ecolab delivered yet another strong quarter, our performance was a result of continued strong growth, lead by our U.S. and Latin America businesses, showing the strength and balance of our global business model. We also continued to use that strength to make ongoing investments in our sales and service force, and double-digit investments in our R&D, Information Technology, and other key areas to sustain our future growth.

Looking ahead to our guidance for 2008, we begin by cautioning these statements are based on current expectations. These statements are forward-looking, and actual results may differ materially. These statements do not include the potential impact of additional business acquisitions, divestitures, higher than anticipated raw material price increases, or other material events, that the may occur after date of this webcast. This business outlook section should be considered in conjunction with the information on Risk Factors in our Press Release, and our Form 10-K, which lists Risk Factors that may cause results to differ.

In 2008, we expect another good year with solid sales growth, continued strong sales efforts, productivity and efficiency increases, pricing, and cost savings, while acquisitions accelerate our top line in future opportunity. For the full year, we looked for pro forma, diluted earnings per share, which excludes special gains and charges and discrete tax items to be in the $1.84 to $1.88 range.

These expected pro forma earnings include approximately $0.02 of dilution from Microtek and Ecovation, putting pro forma earnings excluding dilution, up 12 to 14% to $1.86 to $1.90 for the year. Please note these are pro forma numbers which exclude special gains and charges and discrete tax items that we presently expect, to net to a range of $0.00 to a positive $0.03 per share in 2008. This Income Statement line will include the sale of a plant in Europe that is expected to close later this year ,as well as costs associated with the establishment of our European headquarters, and move to Zurich.

We think 2008 could be summed up as a year in which we continue to drive strong base business performance, which enabled us to undertake the heavy investment under way in Europe, to lay the foundation for improved top line growth, start the new systems rollout, and establish a regional headquarters in Zurich, Switzerland. It will also be a year in which we integrate two recently acquired businesses, that will create exciting new growth opportunities for Ecolab.

In the first quarter, we look for U.S. operations to show continued solid momentum. New products like the ongoing rollout of Apex, our new wear washing platform that provides unparalleled performance in energy and cost savings for our customers, as well as the first solids for QSR, new on-premise laundry products in the U.S. and Europe, and a new floor care line, will provide further differentiation and opportunity, and will help drive results. We look for international sales to again be lead by strong growth from Latin America and Asia Pacific, as they offset moderate gains from Europe. We believe this will result in overall good fixed currency international sales growth.

First quarter gross margin should be around 50%, and reflect the impact of acquisitions. Selling, General & Administrative expenses are expected to come in around 39% of sales. Net interest expense should be around $16 million, reflecting additional cost of debt associated with the Microtek and Ecovation acquisition. We expect the effective tax rate in the quarter will be about 32 to 33%. Overall, currency translation is expected to benefit first quarter earnings.

Finally a reminder that the two recent acquisitions will be about $0.01 per share dilutive in the first quarter. As a result, we expect pro forma diluted earnings per share for the first quarter, excluding special gains and charges, to be in the $0.37 to $0.39 range, compared with the $0.35 earned a year ago. Pro forma earnings excluding the impact of dilution should increase 9 to 14%, to $0.38 to $0.40 per share in the first quarter.

Looking to the remaining quarters, we expect the sales and operating profit improvement in our U.S. Cleaning & Sanitizing, U.S. Other Services, and the international reporting segments, will show progressively better year-on-year improvement through 2008. We expect good organic sales growth from our ongoing U.S. Cleaning & Sanitizing businesses, along with profit improvement, to more than offset dilution from the Microtek and Ecovation acquisitions, but the impact of that initial acquisition dilution may slow otherwise strong reported U.S. Cleaning & Sanitizing profit growth.

U.S. Other Services should show strong gains for the year, as GCS improvement benefits this segment. International segment operating income is expected to show modest first half growth improving in the second half.

Overall, we believe good growth from our operations, along with improvement in our tax rate, will yield an increasingly attractive year-on-year EPS gain, driving yet another successful year at Ecolab. Also please note the estimated effective tax rate discussed, and its effects on reported EPS, does not reflect the impact of discrete events that, if and when they occur are recognized in the appropriate period.

And now here is Doug Baker to make a few

Good afternoon. Sorry, microphone challenge here. I just wanted to offer a couple of comments, and then we will open up for Q&A.

First of all my perspective was '07 was a very good year for us. The business and team performed exceptionally well. We beat all three of our financial objectives, and as Mike just went through, we nailed EPS up over 16%, return on beginning equity was over our 25% target, and we remain an investment grade balance sheet. We also probably most importantly leave '07 with a very solid position.

Our new business initiatives and our new innovations particularly Apex, wear washing, dry-x, lubricants, and F&B, are perfectly positioned, particularly for the environment that we are dealing with moving into 2008. In a nutshell, the equation here is, we can drive and focus on total cost reduction for our customers, and we ask them to give us $0.20 to $0.30, so that they can save $1.50 on water and energy, and this is a very appealing pitch right now, given the high energy costs and the overall softness.

Also, the Microtek and Ecovation acquisitions I believe are great businesses. We love their positions and we love the fact they are in the Healthcare, and also in the sustainability market, these are the right markets to be in. We also have a better handle on our business than we ever had before. I think we have got a great handle on what our strengths are, what our opportunities are, what our weaknesses are, and what our threats are.

Now moving to 08, our assumption all along has been that 2008 would bring tougher market conditions. The bad news is it looks like our assumption was right, the good news is our business is as well-positioned as it can be. We have got segment geographic diversification, we have got solid underlying momentum, we have got the right new product and new businesses, particularly given the time, we have got solid momentum in a number of our businesses, and the team is focused on the environment and the challenge ahead.

We are also continuing to invest in the long term. Europe transformation is well under way, and we love the end, or the pot of gold that we see. Asia Management infrastructure bets are in place, and are already starting to bear fruit. Additionally, we are heavying up on the corporate account sales side, because we see great opportunities here, particularly in this market.

So we are confident, and I would also say appropriately wary of the market. We expect what I would call an unusual year, and we are prepared to meet it. So as we head forward, we have got I believe the right plans. We are moving, we view this as a market that is going to have some potholes that we will navigate around, but just as importantly, there is going to be some unique opportunities, that we also want to capitalize on, given our strength, our team, and our market position, frankly, we expect to capitalize and gain share, as we move on throughout the year.

So those are my thoughts on '07 and '08, and with that I will open it up to questions.

Thank you. (OPERATOR INSTRUCTIONS) Our first question today comes from Mike Harrison with First Analysis.

Hi, good afternoon, gentlemen.

Hello.

Doug, regarding the Ecovation acquisition, can you talk about how that equipment oriented business fits into Ecolab's overall more service-oriented business model, and maybe what changes you are planning to make in the way you go to your Food & Beverage customers with this new product offering?

Yes, Mike, I guess I would characterize it as principally an engineering business, backed by a really strong intellectual property portfolio. And a little backdrop, a key part of our F&B offering has alway been in plant engineering, is how we put in cleaning and plate systems, and it has been central to us building the position that we have had over the years. Ecovation is principally engineering, albeit it has got also a construction component, but that has been completely outsourced from Ecovation, and we continue to view that as an outsource option as we move forward.

So how are we going to restructure? There is not a great deal of restructure. Ecovation, all of the folks that stayed with us are very excited about the possibilities. We have got great penetration into the markets that they are offering as best suited for, so really what the we are is on the gas, getting after and talking to customers about the opportunities that Ecovation Technology represents, in terms of driving savings for them. It could bring huge water savings, renewable energy savings, et cetera, for food plants.

Okay, and then can you talk a little bit about your expectations for raw material cost inflation in '08, and obviously, Europe is an area of concern, when it comes to keeping pace with pricing, but any other geographies or divisions, where you are concerned about your ability to keep pace with the higher costs to serve?

Yes, we estimate that raw materials in aggregate the are going to increase 2 to 3 points, so that is the level of inflation we are going to have. Europe, here is what I would say. Europe is probably the place that is usually going to be under the most pressure. We will catch up over time via pricing and cost savings, but you may not catch up in any one quarter as these things roll through. But we have seen this before in Asia, Latin America, and North America, and we are confident in our ability to recover and recapture these cost increases over time.

All right, thanks very much.

Our next question comes from Michel Morin with Merrill Lynch. Your line is open.

Hi, good afternoon, guys, this is Dan [Fazuka] on behalf of Michel.

Hi, Dan.

Just a couple questions, first on Vehicle Care, could you give a little bit more color what happened there? I think if I look back to the last conference call, you had expected some decent growth there, so this looks like it was a bit of a disappointment, was that weather related, or is there something else going on there?

Yes, Dan, the business, we continue to increase the percentage of car washes served, and those metrics continue to move in the right direction. I mean, what we attribute it to is a bad weather pattern in the 13 weeks. From an operating income and all of the rest, it was a very positive quarter for that business.

And then you have made, obviously been making some efficiency investments over the last few quarters or so, and any traction that you are seeing there, anything you can share with us in terms of anecdotal evidence?

Probably the best evidence is if you look at the underlying business we continue to expand operating income margin and pro forma I think went up another 10 basis points, probably the third or fourth year in a row that we have expanded total margin, while making really significant investments in the business, so I guess I would point to the macro picture as the best indicator.

Okay, and then just a follow-up to the earlier question on raw material costs. Did you mention how much that was up year-over-year in the fourth quarter, and for the full year?

It is kind of flat for the quarter.

For the year. You know, it had regional differences. It was basically flat for the year, up in Europe on the year, and up in the second half versus first half.

Okay, and then just looking forward, obviously it is a tough environment in '08, and potentially beyond that. Any thoughts as to your room or appetite for cutting the R&D budget, if you need to reduce costs in that type of environment?

Yes, Dan, here is what I would say. I mean, that is not where we would go. I think the investments we made in innovation pay out handsomely, and we can't put innovation on a yo-yo, up and down.

We clearly are going to have, and have already put in place very tight expense controls and the rest, because it is important that we protect our investments in these times, just as we did when we had raws moving against us dramatically in '05, we continue to invest and deliver, right?

We are doing a lot the of the same things right now, but we are looking at reprioritizing some projects that bring short-term benefit given the changing raw market, et cetera. So we are doing all of the things that I think you would expect us to do, which is make sure we are doing the smart things in the short-term, but protecting the long term investments.

Okay, thanks very much, guys.

Our next question comes from Chris Shaw with UBS.

Hi, good afternoon.

Hi, Chris.

I guess firstly, the margins in Cleaning & Sanitizing in the fourth quarter were up about 200 basis points. Was there anything last year that affected that, or is it just really that this strikes you as good performance?

Well I think that was actually good performance out of them. If you remember last year we were benefiting from the volume gains out of JohnsonDiversey when Institutional was up 14%, so we have got good leverage out of the business. I think you look at the other divisions within Cleaning & Sanitizing, they are also doing better than last year, so I think it was overall the broader volume and better performance across the board for C&S.

I apologize. Did you say what kind of pricing you got? I missed that.

Yes, we said that consolidated was rounded up to 2%.

Oh, okay. And then just asking I guess the underlying markets there really aren't, don't seem that much worse than the U.S. So exactly do you have a feeling as to why sales are sort of strong there right now? I know you are taking some actions it looks like. Do the Europeans just not fall for the hard Ecolab sell, and the shiny white coats, or do you have any ideas exactly?

Well, I think actually the white coats originally came from Europe.

Oh, really?

No, here is what I would say. I think as we, if you go back what we have talked about in Europe is, we do not believe our sales execution has been as sharp in Europe. I will say it has gotten better. We are also making sure that we expand and have adequate what I will call sales fire power in Europe. We had I think the wrong mix of folks focused on service, and too few folks focused on bringing in new business, and we have been moving that needle.

There was an improvement in '07 organic sales rate in Europe versus '06, and we plan to continue driving that. So I don't believe, the numbers we see out of Europe are not the numbers that we are planning on delivering over the long haul.

Thanks, and just quickly, when does Ecovation close the deal?

Last week.

Oh, it did, okay, sorry. Thanks.

Yes.

Our next question comes from John Roberts with Buckingham Research.

Good afternoon, guys.

Hi, John.

Could you characterize your acquisition pipeline right now? You closed on two, they look like they are going to be pretty good long term with short-term dilution. Do you have other things near term?

Yes, John, this is always, I guess if you went back a year ago, after a few lean years of acquisition activity, we said we expected the '07 pipe to bear fruit, because we saw a change in the market particularly in the mid-year. Yes, I mean, I think we are still, we like the opportunities that we have. We are going to continue to be choiceful, make sure that these are opportunities that have significant upside, and we like the price. Pricing is, the market has definitely changed probably to the benefit of the strategic, but it is not like stuff is out there for free.

Okay, and then on GCS, have they completed their customer review with the new systems, or is this the beginning of a process that is the first one that popped out as they were getting into this?

Yes, I would say I would characterize, will there be other customer situations? I am not going to say there won't be anything else, as we go through the GCS story. I don't expect there is going to be anything of this size.

Okay, thank you.

Our next question comes from Gary Bisbee with Lehman Brothers.

Hi, guys, good afternoon.

Hi, Gary.

Following up on that last one, can you tell us what the size of that charge for the customer elimination at GCS was?

It was 0.5 million.

Okay, and then what, are you willing to share what the loss at the GCS business was this quarter, and then are you still on-track with your thought that you might have sort of a $12 million delta from '07 to 08, if that business continues to scale, in terms of profitability?

Yes. The the total loss was a little under $6 million for GCS in the quarter, and remember that included as we said the charge in the contract, as well as the stabilization optimization costs, but we continue to expect GCS will have improving profitability as we go through the year, and as we go forward into future years. So it is not going to be exactly a straight line, but for this year, we are expecting a delta of about $0.03 or so.

Okay, and you said early on in your remarks, Mike, critical investments in Europe and Asia Pacific, and I think you later mentioned maybe technology and salesforce training. Is there anything more you are willing to share about what those investments are?

For Europe?

Yes, I think you said Europe and Asia Pacific.

Well I think we have been through the Europe investments, which include the salesforce training, the technology, we are rolling out laptops, and will be rolling those out this year in Europe, and also, metrics have started to rollout in Europe as well, and those things are very critical as Doug said, trying to improve the sales effectiveness, and in China and Japan, we have been bringing in some headcount as well, to try to strengthen the management team on the marketing side of the business.

Okay.

Do you have another question, Gary?

Yes, definitely. Pro forma excluding the the dilution from the acquisitions you are guiding for 12 to 14% earnings growth, and in recent quarters and at your Investor Day and what not, you sort of talked about 15% being the target. Is the difference there just your taking into account the fact that the U.S. and probably global economies will be somewhat weaker, or is there anything else that really is driving that difference? I guess I am trying to gauge how conservative this may be, relative to restaurant sales in the U.S. weakening, and other economic factors. Thanks a lot.

Well, really, it is because we delivered 16 the last two years, so we figured we were overdue.

(laughter)

I am just kidding. You know, I think 15% is absolutely our target, and I think we have also said that it's not a governor, there is not a ceiling on it, and it is not an absolute floor, and so what we are trying to represent with our estimate looking out for the year is, 1) we have got transformation projects, we have got the some very exciting acquisitions, and you have got some unstable markets, right? So those are the probably the best reasons that it is 12 to 14.

Okay, thanks.

Our next question comes from Laurence Alexander with Jefferies. Your line is open.

Good afternoon.

Hi, Laurence.

I guess first of all I just wanted to make sure I heard that right. It sounds as if your pricing outpaced raw materials for the year by about 2%? Is that about right?

Not far off.

Okay. And then I guess --

That was for 2007, right?

Yes.

Yes.

And then for, digging into on the Kay side, what the are you seeing in terms of QSR demand in January/February, and what is the outlook, what is sort of the trends in terms of account wins in that market?

Yes, I will go on the back half. Here is what I would say. We expect a very strong year in our QSR business in 2008, and it is principally driven, which is what you have got to do in the business in total, it is driven by account wins.

And when you have got softer markets like this, we go on share campaigns because we can't control absolutely how many people walk into a restaurant, how many people check into a hotel, but what the we can control is how many restaurants and hotels buy from us, and Kay has been on very aggressive new business campaigns, and very successful ones, and we expect to have a very good year this year.

And then when you look at the Ecovation acquisition, how much do you expect growth is coming out of dairy versus related end markets? I know the prior management team was targeting sort of the ethanol industry as a next leg for their technology.

Yes, and we see 60% of the growth coming out of the dairy market, where you know, it fits well and it's got, we have got high penetration.

And can any of that technology then be applied eventually to your traditional lodging or restaurant market?

We don't have a definitive answer there. We are obviously looking at it. There is a whole separate product line, that really isn't as capital intensive, and more designed for smaller applications, and so we are looking at just that but clearly, it is going to lead us to an understanding of how to improve the sustainability offering we have in Foodservice ultimately as well.

Okay, and then one last quick one if I may, can you give the outlook over the next couple of years, say two or three years, for whether there is any surges in CapEx, IT, or salesforce training, that might be sort of a little bit lumpy over the next two or three years?

Nothing we can think of, Lawrence.

I think the history of our capital spend is probably a good guide.

Okay, thank you.

Thank you.

Our next question comes from P.J. Juvekar with Citigroup.

Good afternoon.

Hi, P.J.

I have a question on Healthcare. Do you guys need to make more acquisitions to round out your portfolio, and what do you need to become the national provider in Healthcare?

Well, was that do we, was that a question, or did you say we need to?

What do you need to do? Do you need more acquisitions?

You know, P.J., what I would say is we are looking for additional acquisitions, but we don't need them to succeed. I think if an acquisition presents itself that is going to accelerate our ability to realize our vision, we will capitalize on it. But now given we believe we have got the scale, and also the offering we need to go push and drive this.

You know, at your Analyst Day, you talked about having a suite of products where you can go in and sanitize an operating room. Do you feel that you have that suite of products today?

You know, we have got much more of it in hand than not in hand, and we have a couple of products that we would like to add. We have the technology, and we will work on the registrations, and if an acquisition presents itself to accelerate that, we would go that route too. But I don't think it would be fair to say that without an acquisition, we can't get there.

Okay. And what are your sales in Healthcare today? And where do you see them going let's say by 2010?

Well, in the U.S. they are around 300 following the acquisition. And it is about 175 to 200 in Europe.

So where do you see them in three years? You talked about $1 billion, making it a $1 billion business, but in near term three years what do you see?

Well, we expect to be growing these businesses double digit organically, and we also expect that we will end up adding some acquisitions down the road.

Okay.

The double-digit organic growth does not depend on buying more businesses.

Okay. And one more sort of question on strategic issues. This Ecovation acquisition is mostly in Food & Beverage and water treatment. Do you have any ambition to get into a broader water treatment area outside of just F&B?

You know, we have a small water treatment business now. Our focus in this area is F&B, and really a subset of what I think the traditional market calls the middle market.

Okay.

We are not interested chasing power plants.

Okay. All right, thank you.

Our next question comes from Bruce Simpson with William Blair & Company. Your line is open.

Hi, guys.

Hi, Bruce.

Just a nut and bolt here, Mike, can you give us the full year, or quarterly, operating cash flow and CapEx number again, please?

Yes, the cash from ops was 254, depreciation was 76, and CapEx was 85.

Okay. And then focusing on GCS for a minute I think you said the operating loss in the quarter was about 6 million?

Just under.

What does that make it for the full year?

Let's put it at 18 or 19.

Okay, so you talked about delta of perhaps $0.03 in earnings for 2008 over 2007, which I guess is kind of on the order of $12 million or something, so would it be safe to say that you are thinking that GCS still loses money on the operating profit line in '08, but at a rate of half or less than what it lost in '07?

Well, I mean, 18 minus 12 would be 6, and is about the numbers we're talking about, and importantly, it would be the run rate in the second half.

Okay, and so as you exit the year here, I mean, how did that division live up to your expectation? Did you expect to still be putting this much into it, and having it kind of exit the year with the largest quarterly loss of the year, or is it heavier IT investment that you had anticipated? Where do you see kind of the development of that business relative to one year ago?

Yes, I mean, Bruce, in a short sentence, we were not planning nor pleased with how we ended up performing in GCS for the year. If you break out the quarter, certainly there were incremental one-time impacts moving from the four systems to the one. The one is up and running and starting to provide us the transparency we hoped for, but it was more expensive, and a bit more painful than we had hoped for. So no, we are not pleased with how GCS performed last year. They were off the plan, and they were also off our expectations.

Okay, so given all that, kind of lack of visibility in the business, what gives you confidence that you are going to be able to cut it's loss in 2/3 in the upcoming year? Is it because you have got the four to one system in the rear view mirror now, or is it, are you beginning to show a little bit better sales growth rate, so that you expect a little bit more leverage, or other cost savings?

You know, here is what I would say. We clearly have turned the top line on GCS, which ultimately is the key to driving this business of profitability, and even during the second half, when we are going through the heavy systems integration, we continue to see tech productivity move the right way. We now have transparency into the business.

The system is up and running, and to make it clear, you can see where the rocks are, on a much clearer, so when you look at this delta next year, one of the important things is obviously the costs of system integration are behind us. And they aren't going to be foreseen in 2008, so with that said we will have to keep driving the core metrics. If customer satisfaction of 96%, we measure it after every call, the highest we have in the Company, we have got growing top line, improved productivity, and now we have got to get after some of the potholes that we have seen more clearly as a result of the system.

Okay, my last thing is you have got a very aggressive growth rate bundled into Ecovation. How does it go from 50 to $100 million in sales and what is the longer term opportunity, how big of a business can that be for you?

First I think we said in the release, it chases an opportunity we equate to 4 billion, so this is a sizeable opportunity in front of us. And we have got tremendous penetration in the most attractive market, right, existing relationships. We have got a lot of know-how of the operation, and can probably best dimensionalize for them what kind of savings this technology can represent for the customer.

It is a fairly long selling pipeline, so we have got transparency into what is on the books but not yet installed, so it is a lot easier for us to predict in some cases than other businesses.

Also, it is a big ticket item, Bruce. I mean, the typical plan is somewhere in the $3 million range, so it adds up quick.

Okay, there is some economic sensitivity in there that you could have in jeopardy as the year goes on, if we have a slowdown?

You can't say no to any economic jeopardy in any business, I suppose. We've looked at this, the principal market, the Food & Beverage customers, typically have a fairly steady flow of Capital expenditures.

They aren't hit economically like some of the other industries, or nearly as cyclical, plus what I would say is this has got a very attractive return profile, and given the increased energy costs, and the pressure on water, I think that is going to more than offset the economic uncertainty.

The other thing I would add Bruce, as we mentioned, it is a $4 billion market, we are still very early in this, so you have got a lot of room within the market at this point too.

Okay, thanks.

Our next question comes from Jeff Zekauskas with JPMorgan.

Hi, good afternoon.

Hi, Jeff.

You spoke of your Asian spending being something, or the increase in Asian spending which nicked the international margins. Is that to develop an infrastructure in China in advance of the Olympics, and how much more did you spend this quarter than you did in the previous year quarter?

Jeff, as we said earlier, it is primarily revolved around additional people, in terms of management and marketing people, some ex pats that we brought over to strengthen the management teams in both Japan and China.

We are also doing some infrastructure stuff but it's not related necessarily to the Olympics, as much as it is to set ourselves for the next stage of growth for China. We have grown rapidly over the last 5 to 10 years there, and it is time for us to build a better infrastructure for growth going forward.

In general, how much more are you spending in Asia, than you were in the previous year? How much more do you plan to spend next year?

I don't have the number in front of me, Jeff. It is several million dollars though in additional cost just for the headcount. We have also got the infrastructure projects, I just don't have the number in front of me on that.

Jeff, I would just say we look, we are bullish on China and Asia in general over the long haul as an emerging market, and we want to make sure that we continue to have the management team in place to see our way to leadership share. So I think it is a smart investment in total for the Corporation. It is not a sizeable investment but certainly it will impact the business a size of China and Asia in total.

Secondly, in your international operations, is Europe more than half of international, or less than half of international now?

Yes, Europe represents a third of our total sales, it is about 2/3 of our international sales.

2/3 of international. So, if Europe is 2/3, okay, that is fine, Europe is 2/3 of international. In terms of the headquarters that you are building, I think in Switzerland, do you get any tax benefits from that, and headquartering in Switzerland? Or is that where you are already?

No. We really haven't previously had what I would call a headquarter in Europe. We are establishing one in Zurich, and the reasons for this are a couple. What we are doing in Europe is basically building the model that we execute elsewhere, which is we want our business teams focused on sales, growth, innovation, and taking care of customers. And we will run across the region, major functions like product supply, R&D, finance, and the like.

This is exactly how we are set up in North America, and also set up in sub regions in other parts of the world, so that is what the we are establishing. The reason we are doing it is it is a better business model, and we know that it promotes growth.

Secondarily, we are establishing it where there are other benefits, and we do expect there to be tax benefits down the road, likely too.

There is all this controversy now about whether the U.S. is in recession, or not in recession. You look at so many different markets, how does the economy seem to you? Does it seem to be in recession or not, and are you seeing signs of softness in your business, or how is your business now, different than what it was say three months ago ?

Jeff, there is not, these things don't move in real jagged steps, so our observation probably isn't that much different than anybody else's. Clearly the U.S. has got probably the early depression-like conditions in housing, and housing-related products. Some other markets are probably being affected, and you could read the consumer spending and everything else. We rarely see a one-to-one correlation, never have in the past in our business, and frankly don't expect to going forward.

I guess lastly, is South America bigger than Asia for you, or is Asia bigger than South America?

Asia is bigger. It is about twice as big.

Okay, thank you very much.

Our next question comes from Dmitry Silversteyn with Longbow Research.

Good morning. Well good afternoon I should say. A couple of questions. First of all, as you look at what is likely to happen in the U.S, whether we get into a recession or not, I think consumer spending probably will be down a little bit. I think we have talked in the past about the fact that you don't really see a drop-off necessarily in number of times people are dining out, but they do tend to move down-market in tougher times.

To the extent that your QSR business, your Kay business is a little bit lower margin than the institutional business, do you expect to see a negative mix component, if in fact we do see tougher economic conditions, and people tend to go to McDonald's more than they do Applebees?

We have been through this previously. The Kay business is a very profitable business on an operating income level. There are different structures within these businesses, but as people trade, and they don't eat on a plate, we would rather have everybody eat on a plate that needs to be washed obviously, but I guess back to your original point. Here is what we are driving towards.

The best way to offset these times we have learned it in the past, is to be on a major offensive in terms of getting new customers, which is exactly what we are doing. So when there was a question earlier about if QSR look soft or QSR will be strong, all we know is we are going to drive in every one of these segments, to increase our share of restaurants, hotels, hospitals, and nursing homes. It is the only sure way to offset what might happen, which might be a slowdown.

Okay. Thanks, Doug. And then the second question on GCS, going back to the $6 million loss or so in the quarter which was a little bit, not a little bit but significantly higher than perhaps we were expecting for the quarter, and it sounds like you only expect to get about a $12 million delta next year, so you will still end the year at a loss. Are you still on target to get to breakeven by the fourth quarter, and is it just that the losses between now and the fourth quarter are steeper, or do you expect to come out of 2008 still with this being a money losing operation?

Yes, what we are talking about are plan numbers which we intend to hit, and by and large we are successful hitting them, so with that said if we hit those numbers, that would indicate that you would be leaving the year at roughly a breakeven position.

So that is still your intention is to basically enter 2009 with this being a profitable business, and getting more profitable?

Yes.

And then the follow-up question on that, you have made all of this investments, you have put in new systems and you're trying to find national accounts, so things should be going better now, and you should see significant improvement. How long is your patience so to speak, or is there a timetable for this business to start surprising you on the positive side, rather than the negative side, or are you at the point now where you are pretty sure this is a keeper, and it is just a matter of tweaking the business model may be a little further, to get it to perform solidly as the rest of your businesses?

Yes, I will give you two sentences I guess. We believe in this business. It chases a big market in our sweet spot, and with that said, we are also business people, and we don't have patience that runs on into infinity. So if there is a time as we have said before where we do not believe in the long term profitability of this business, like all others, we won't keep it.

Okay, Doug and then final question on Ecovation. As you go from 50 million to 100 million in revenues this year, and hopefully sustain double-digit growth in that business going forward, what should we see on the margin impact, where are the margins now roughly, and over the time period do you expect them to get to the corporate average, assuming they are below corporate average currently?

Well, the margins when we bought the business were pretty comparable to our, as you get intangible amortization drops it down, but we think within the next three or four years, we will see them at Ecolab levels.

And in three or four years this would be presumably a 150 to $ 200 million business? But if it is not it is going to be an insignificant improvement then?

Exactly.

Okay. Thank you very much, guys.

Our next question comes from John McNulty with Credit Suisse.

Yes, good afternoon, just a few quick questions. On the Microtek business, were the sales up roughly the same as what the your overall business was? Were they better, were they worse?

Microtek sales continue to grow in the upper single digits for the period that the we have had them, which is only 45 days, so it has been pretty much in-line with their history. We think that obviously we will get better growth from that, as we are able to develop cross-selling and other things with them.

Okay, you had also said earlier, I guess to one of the other questions, that the Healthcare business was roughly 300 U.S. and 150 to 200 in Europe. Does that include all the hospitalesque-type Healthcare applications, or is it strictly infection control?

John, if I said 300 I was mistaken. I meant 200 in the U.S., and about 175 or so in Europe. If we look at total Ecolab sales to the Healthcare market, it is obviously much bigger. It is around 15% of sales but as you know that includes Pest Elimination, wear washing, et cetera.

Okay, great and then with regard to Europe, and the work that you are putting in there, at what point do you think we should be seeing the typical Ecolab-type revenue growth out of that area? Is it something we can start to look to upper single digits in 2009, or is this an even longer fix than that?

You know, John, I mean we talk, we take North America and we break it a apart into different divisions. If you look at Europe and we are running six divisions there, we have got divisions which are producing Ecolab-like results right now. We have got regions that are double digit.

Really what the Europe boils down to, is we have got to get Germany and France, particularly in Institutional, moving in the right direction. If you take those out, the business has grown 6-plus percent for the year.

Okay, when do you think maybe a better question then is, when do you think those countries can be at more Ecolab-type growth rates?

It would take a couple of years to get those guys up. But I think importantly, the rest of the business has responded in the last couple of years. We weren't growing 6% outside of those countries, so we are pushing this thing. We expect and we are very confident we will see sales continue to tick up in Europe over the next two to three years.

Okay, and then just one quick question on the tax rate. It looks like you're looking for a 100 to 200 basis point improvement on the tax rate. What is driving that and what should we think about, in terms of the tax rate going forward? Is this kind of as low as it gets? Should you keep creeping lower? How should we think about that?

Well, we are getting benefits from the tax planning efforts that we have done. Generally regarding our Company, in terms of structures, and the way we organize the business, number 2, is we are also getting benefits currently from lower rates internationally, in specifically for example, the German U.S. Treaty, and then third, as we go forward we expect to get additional benefits among them, from the move to Zurich, as well as additional efforts we will take in our tax planning areas.

Okay, great. Thanks a lot.

Thank you.

Our next question comes from [Jonathan Grassy] with Longbow Research.

All of my questions have been answered, thank you. Thank you.

Thank you. Our final question comes from Rosemarie Morbelli with Ingalls Snyder.

Good afternoon and thank you for taking my call. Back on the Ecovation, you talked about getting the profitability to Ecolab level over the next two or three years. Given the fact that you have a lot of construction which you are going to outsource, are we to expect gross margin to lower your overall gross margin, but then you make it up at the operating income level?

Yes, Rosemarie, this is Doug. Absolutely. The business and this is how this business has been run to date, so this isn't a change in their business model, but absolutely, and generally the way we compare businesses is at operating income margin level, because there are such different structures in the P&L.

And that is true for Microtek as well, that same situation where the gross margins are lower, but the operating margin potential is certainly as good as Ecolab.

So when you look at the first quarter gross margin of 49 to 50%, we don't really have the full impact of those two acquisitions in the first quarter. I mean, we should but it is not that much lower than what you had in the fourth quarter.

Is that a gross, that is a gross margin question, correct?

Yes, correct.

You have got the full impact of Microtek, and you have got two months of Ecovation.

Okay, so going forward, for the balance of the year, your gross margin actually most likely will decline versus that of the first quarter, and then your is SG&A will decline as well, in order to show some operating margin improvement. Am I looking at this properly?

Well, you have got some step-up going on within Microtek, which is temporarily impacting gross profit during the period, which goes away, and in Ecovation, the equivalent step-up falls into SG&A, so it artificially inflates SG&A during the first quarter period, and that too abates over time.

But it also goes back to as we have said before, why we focus on operating income, because as we enter into businesses which have different models that can produce OI, you may have differences in what the gross margins and SG&A will have, so as we bring these businesses which traditionally have had lower growth, lower SG&A, but good operating margins, you will have an impact on the gross margin SG&A of Ecolab going forward.

Okay, any particular competition on the Ecovation side? What are you dealing with, mainly existing municipalities, I mean, treating the affluent, or can you give us a better feel as to the environment in which you are operating?

It is pretty fragmented. I mean, there is one small competitor that competes with, it is probably Held I believe, that competes with Ecovation. Otherwise you are looking at these big pools that they use, aerobic pools, so it is a pretty fragmented competition.

Okay, and if I understood properly, you are going in there, and you are going to build your own cesspool, so to speak, and they will benefit from a lower cost of operating it, and savings in energy by reusing the spent water? Where is the energy savings?

Well, we would not call it the a cesspool. We call it an affluent treatment facility.

Yes, that is much nicer.

Yes it is, and it's a contained facility on the site in which the wastewater enters, and through a series of pipes and filtration, the wastewater is cleaned, and the waste itself is separated, and that waste can be turned into energy, such that a plant can actually reduce its energy usage by 30% by using that the actual waste that comes off of the site, so I think that cesspool is not anywhere near an accurate statement. It is much more sophisticated than that, and the cost savings benefits are much more attractive.

Okay, that is helpful. And on the Microtek side, are you making progress in dealing with insurances and other entities, I mean helping them look at hospital acquired infection? Is that something that, if my understanding is correct, you were expecting major issues coming from this which would help your selling those products by eliminating them? This is not very clear, but--

Yes, there are two things. One, I guess our expectation was the reimbursement process in the States, as well as in Europe, would continue to evolve to the point where hospitals are reimbursed by procedure, versus for stays they get a fixed amount, and that is in fact what is occurring. We figure that is going to be one of the keys long term, because if you end up contracting an infection on premesis, the hospital is going to bear the cost of the additional days in the hospital, which gives them a direct economic incentive to get after this, and that is the direction that the market is moving in.

From a Microtek standpoint, we are actually in a health infection standpoint, we are in trial with several large and very well-known hospital groups, developing our thesis, if you will, and our clinical data, so that we can go out more broadly.

And how long do you think it will take for you to have enough data that you can go to every hospital in the country, and really push those product lines through?

One I would say, we are already pushing them, alright? We are growing this business at double-digits, and we are pushing it quite aggressively, and we plan to continue to do that. We aren't precluded from pushing it right now. The data frankly is just important, so that the hospital actually tops the whole portfolio, as opposed to selected pieces, so what we are trying to do is make sure that we do the homework so we can go after this in a very aggressive way.

So you don't think that after you have done the homework, and demonstrated that while they are not getting reimbursed for this infection, and that infection and so on, you would certainly in one particular year see an enormous strength?

Unfortunately, that is not the way our business works. I mean, a lot of people consider double-digit enormous, I guess it depends on your industry. We are going to keep driving this. So we would expect to be building this over a several year period. We wouldn't expect 30% in the hospitals in any one year to flip to us.

Lastly if I may, could you give us more details on the changing mix in Europe? It seems as though it has deteriorated.

Mix has deteriorated?

Well, you said that one of the reason why the margin declined in Europe, had to do with a negative mix, and I was wondering what you were selling less of, which had a higher margin than the rest?

The mix comment on Europe was really related to equipment sales on behalf of F&B. It is usually a good sign, because you are putting equipment in new accounts, and generally equipment goes in before the soap starts flowing.

Okay. Thanks for clarifying that. Thank you.

There are no additional questions at this time.

Well, thank you, everyone for your attendance today, and we wish you well. Take good care.

Thank you for joining today's conference. That does conclude the call at this time. You may disconnect.