艾默生電氣 (EMR) 2016 Q4 法說會逐字稿

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Emerson's investor conference call.

(Operator Instructions)

The conference is being recorded today, November 1, 2016. Emerson's commentary and responses to your questions may contain forward-looking statements, including the Company's outlook for the remainder of the year. Information on factors that could cause actual effects to vary materially from those discussed today is available at Emerson's most recent Annual Report on Form 10-K as filed with the SEC. I'd now like to turn the conference over to our host, Craig Rossman, Director of Investor Relations at Emerson.

Please go ahead, sir.

Thank you, William.

I'm joined today by David Farr, Chairman and Chief Executive Officer of Emerson, and Frank Dellaquila, Executive Vice President and Chief Financial Officer. Today's call will summarize Emerson's fourth-quarter and FY16 results. A conference call slide presentation will accompany my comments and is available on Emerson's web site. A replay of this conference call and slide presentation will be available on the website for the next 90 days.

In the fourth quarter, results for the Network Power, Leroy-Somer and Control Techniques businesses were reported in Discontinued Operations. Considering this and to aid in comparisons to prior quarters, we have provided results both on a continuing operations basis and on an adjusted basis, which includes these discontinued operations and excludes such items as separation costs for consistency.

A further explanation of the reporting formats can be found on slide 2. Detailed bridges can also be found in the appendix to this presentation. Please turn to slide 3 for a summary of the fiscal year results.

Fiscal year sales of $20.2 billion decreased 9% versus the prior year, with underlying sales down 6%. The fiscal year results reflected a more challenging economic environment than we expected as we entered the year, as the Company has faced difficult conditions in its key served markets for seven consecutive quarters.

Within our industrial businesses, the most significant factors have been the impact of on energy-related customer spending from persistently low oil and gas prices, as well as weak general industrial and emerging market spending. Across our other businesses, we did find bright spots related to generally more favorable market conditions in US construction; data center spending, particularly cloud-based and co-location customers; telecommunications infrastructure; and global air conditioning and refrigeration.

Adjusted earnings per share decreased 6% to $2.98. As a result of the continuation of difficult [product] conditions restructuring spending totaled $112 million for the fiscal year, exceeding our previous guidance of $90 million to $100 million. The completion of the actions also positions us for what we expect to be a challenging 2017.

Finally, solid earnings conversion and improved trade working capital performance resulted in strong operating cash flow generation of $2.9 billion, or $3.1 billion, which was 15.1% of sales excluding $179 million in separation costs.

Turning to slide 4. Net sales of $5.5 billion were down 6%, with underlying sales down 5% in the quarter. Served market conditions in the fourth quarter remain generally consistent to previous quarters, with weak oil and gas and general industrial spending outweighing favorable data center, telecommunications, air conditioning and refrigeration spend. Adjusted earnings per share of $0.96 increased 3%. For the quarter, working capital improvement drove operating cash flow generation of $957 million.

Turning to slide 5. Favorable materials, cost containment, restructuring benefits and solid operational execution led to gross profit of 41.7%, which was up 100 basis points, and EBIT margin of 16.8%, up 60 basis points versus the prior year.

Turning to slide 6. The continuation of a low-growth environment lead to underlying sales decreases in all geographies for the fiscal year. Fourth-quarter underlying sales were generally representative of the full year, but improved in some regions such as Asia, China, and the United States.

Turning to slide 7. Total segment margin was up 140 basis points to 17.1%, primarily driven by benefits from restructuring actions and operational execution. Capital spending was held to $169 million, equal to the prior year.

Turning to Slide 8. Process Management sales decreased 11%, as spending levels in energy related markets remain low for both capital and operational expenditures, while power and life sciences customers continue to provide growth opportunities. Restructuring spending in the quarter was $54 million, slightly above the prior year.

Segment margin decreased 280 basis points, primarily due to volume deleverage, partially offset by savings from restructuring actions. The Automation businesses will remain under pressure through the majority of FY17, with the possibility of orders recovery in the second half, assuming stability in oil and gas prices.

Turning to slide 9. Industrial Automation sales decreased 7%, resulting from a continuation of low levels of spending in upstream oil and gas and weak, but slightly improving conditions in general industrial markets. Segment margin increased 190 basis points to 16.3% primarily due to business mix, benefits from restructuring actions, and lower restructuring spend in the quarter.

The divestitures of the Leroy-Somer and Control Techniques businesses remain on track to close by the end of the calendar year. Looking ahead to 2017, general industrial markets will remain challenging, with slightly improving conditions as the year progresses.

Turning to slide 10. Network Power underlying sales were flat in the quarter, supported by favorable demand in power products, thermal management and service. Strong growth in North America was lead by cloud-based and co-location data center customers, as well as telecommunication spending by mobile and broadband providers.

Segment margin improved 650 basis points to 13.1% benefiting from favorable mix, savings from restructuring actions, and gross profit improvement programs. The Network Power divestiture also remains on track for completion by the end of the calendar year.

Turning to slide 11. Climate Technology sales increased 6%, driven by strong growth in US residential and commercial air conditioning, as well as refrigeration and residential air conditioning markets in China. Segment margin increased 320 basis points to 21.1%, primarily due to volume leverage, savings from restructuring actions and material cost containment, partially offset by lower pricing. The 2017 outlook for global demand in air conditioning and refrigeration markets supports our expectation for low-single-digit growth for our climate businesses.

Turning to slide 12. Commercial & Residential Solutions underlying sales were equal to the prior year as growth in food waste disposers and wet/dry vacuums offset declines in other businesses. Segment margin improved 370 basis points to 25.9% from the benefits of restructuring actions and the impact of the InterMetro divestiture. Favorable conditions in US construction markets are expected to support our outlook for low-single-digit growth in FY17.

Turning to slide 13. FY16 was more difficult than we had expected, impacted by a significant and unprecedentedly long global industrial downturn that we expect to continue into 2017. Our Automation business will remain under pressure from these market headwinds, while our Commercial businesses will benefit from favorable conditions in global air conditioning and refrigeration, and from construction markets in the United States and Asia.

Considering these factors we provide the following guidance for FY17. Net and underlying sales will be down 1% to 3%, with the Automation Solutions platform down 4% to 7%, and the Commercial & Residential Solutions platform up 2% to 4%. The Automation Solutions platform will be comprised of our current Process Management segment and the remaining businesses from the Industrial Automation segment. While the Commercial & Residential Solutions platform will be comprised of the businesses within our current Climate Technology and Commercial & Residential Solutions segments.

Earnings per share are expected to be in the range of $2.35 to $2.50, which compares to earnings per share on a continuing basis and excluding divestiture gains of $2.45 in 2016 and $2.81 in 2015. The 2017 EPS guidance also excludes any impact from the pending acquisition of Pentair's valves and controls business.

And now I'll turn it over to Mr. David Farr.

Thank you very much, Craig.

In case you guys don't realize, Craig is rooting for Cleveland Indians tonight to win and take the World Series, so he's not totally paying attention right now. He's focused on the Cleveland Indians.

I want to thank everybody for joining us today. Again, it's a good way to finish a very challenging global industrial world. It was not an easy year, but a very challenging year, nonetheless. I think we continue to execute and get our position in the right condition for better growth in the future.

I want to thank all of the employees, the corporate leaders, the OC members who support our effort this year. We got a lot done in a very tough global business environment, which has been challenging for us for the last two years.

With a good finish on the FY16 in the fourth quarter, even though sales were down, margins were close to record levels from last year. We had strong cash flow; we had good conversion. In the quarter we also announced the cash sale for Network Power, cash sale for Leroy-Somer CT, generating over $5.2 billion of cash and an agreement to purchase the Pentair valves and control business for $3.15 billion.

As Craig mentioned, most likely we'll get the divestiture done by the end of this quarter. We clearly are driving trying to get the valves and control business closed by end of this quarter, but we still have to get global government approvals on that acquisition. We're moving forward with that. That acquisition is uniquely strategic to us relative to our end markets, our solutions package and our ability to really integrate that and fit it well within our broad global customer offering. So we're very excited about the opportunity there to generate future growth, earnings, and cash flow.

We executed for the second year on restructuring. The restructuring number was down from the prior year because we had very high levels of restructuring in FY15, but still over $100 million of restructuring throughout the year in 2016; and the savings are flowing through.

We nearly maintained a 17% operating profit this year, despite sales being down 9%, which is quite a major task given the big drop off that we saw in the automation solutions business. We had strong cash flow again this year, better than last year when you take out the costs of doing the repositioning, excellent conversion. So we're exiting the year with two strategic divestitures, one unique strategic acquisition, a strong balance sheet, good cash position. We have a very good vision of where we see things unfolding here for the next 12 months.

You now have the new GAAP P&L and balance sheet for Emerson. I'm sure you'll have a lot of questions about it. We will supply five years of history in the end report. We'll also give you a very good 2014 too and I think three-year details, and give you a chance to start to understand the new Emerson. Also, we'll start giving out the sales and orders relative to our two platforms, the Automation Solutions and then also the Commercial Residential Solutions.

So we'll start giving some information. Craig has the information. He will start feeding it out to you. We'll get more to you as we go forward here in the 10-K, and then also we'll give more as we report our first quarter in FY17.

We made a decision to give you a little bit more insight into what we see for next year, given what the new Company's structure, what the new P&L looks like, what the new balance sheet looks like. Right now, we see underlying sales down 1% to 3%, with Automation Solutions being still in a challenging mode, down 4% to 7%, which will be the third year in a row that Automation Solutions is down. Our Commercial Residential business has turned the corner and has grown. We expect that will continue to grow 2 % to 4% next year. Both will deliver solid margins, operating margins, and both will be better.

Restructuring around the Automation Solutions will continue, but at little lower level, excluding our integration of Pentair valves & control. Some minor restructuring going on underneath the Commercial Residential Solutions. Primarily, we're making significant increase in investments in the infrastructure to create best-cost locations to create a more efficient structure within the new Commercial Residential underneath Bob Sharp and Jim Lindemann, a lot of integration work going on there.

Then eventually, when we get clearance from the governments, we'll get integration work under Pentair valves & control, we're ready to go. We already have our day one through six-month plans ready to implement and are working very, very hard on it. So a lot underway relative to our execution around this acquisition. So we feel good about how we finished the year, feel good about how we are going into our position relative to our repositioning effort.

With the EPS, it's all about how do we maintain or have a slight increase in EPS next year. We gave you the range of $2.35 to $2.50. We're very much focused: can we deliver some moderate, low-single, negative-single growth in underlying sales and execute better margins and deliver a little bit better earnings per share. We're very much focused on running this business now that we have the repositioning effort underway.

It's been a tough market. There's not a lot of growth out there. It's a challenging market, but we know where we have to go. From our perspective from the management team, we've downsized around the world both in the operating units and also the corporate units. We have a very solid team ready to execute around our plan for 2017 and 2018 and beyond.

Restructuring, our cost position is in pretty good shape right now. There's always more restructuring to do, but we've got the majority of the big heavy lifting behind us when you exclude the Pentair valves & control. We've really got our position, from our perspective, in good shape.

We're very much focused on trying to again bring in some additional acquisitions in 2017. From the two repositioning and acquisition, we'll end up with over $4.5 billion of cash positioned in the right place to invest. So we'll continue to look on it at the small bolt on strategic-type acquisitions to rebuild our base, as we've talked about, back to $20 billion within this five-year time period. Getting our operating cash flow back to over $3.2 billion, which will allow us to drive modest increase in dividends and get that free cash flow to dividend pay out ratio back under 50%.

We've showed that plan. We did that in the Morgan Stanley conference a couple weeks ago or a couple months ago. We are on course to make sure we execute around that vision, so that's what we are all about.

I want to thank the organization for the work they've done the last 12 months. We have changed a lot in Emerson in the last 12 months. From the change in the businesses, from the restructuring, to delivering very solid earnings in cash in a very challenging year, to improving our cost structure, to making a big acquisition. Hopefully, it will get finalized at the end of the calendar year, and then moving forward in a new Company.

Yes, it's a smaller Company. It's a very profitable Company, but a Company that's well-positioned, I think, to grow and recover as the global investments start happening again.

So I like where we are right now. We had a good session with the Board today, talking about how we wrapped up the year and where we are going to go forward. I think we're in really good shape.

We have a very, very difficult first quarter. We had a very good first quarter last year. The Automation Solutions business is looking at probably down 10% sales in the first quarter.

If you have been watching their orders for the last six or eight months, their orders have been down around the 10%, 12%, 13% range. They have to get through that, and so we have a very difficult first quarter from Automation Solutions. We know that and we're built for that. We'll try to get more restructuring done, but that's the facts at this point in time. That's built into our forecast, and the year will get better as we go forward.

Clearly, we've got to get through the next two or three months here, finish the divestitures, make the acquisition and then move forward with the new Company.

So with that I'll open up the door and windows and the phone lines and let people talk. Ask any questions you want. No one gave me the questions ahead of time. I tried to call CNN, but unfortunately they didn't return my phone call.

So I don't have the questions ahead of time. And Craig was so focused on reading the damn box score from the baseball game, which they lost the other night, that he didn't give me any questions either. So with that we'll open up the phone lines and take questions. Thank you.

(Operator Instructions)

The first question comes from Julian Mitchell with Credit Suisse.

Hi, good afternoon.

You didn't send me the question did you Julian?

No, not intentionally. That's for sure. On the guidance of sort of margins to be I think up in both platforms in 2017, maybe just give some color on what the incremental savings are this year in your continuing business and also maybe expand a little bit on the restructuring spend? As you said it was about $96 million continuing last year, is it sort of more like $60 million, $70 million this year?

It's going to be on the incremental savings standpoint, the numbers we laid out and we have those we laid them out, let me give you -- we'll have to give you the numbers, Julian before we get off this call here, but we laid out again exact numbers that restructuring saves. I don't have it on a piece of paper in front of me, but I can give a delta year to year. On the restructuring number that we're going to spend around $50 million in the core Company and somewhere between $50 million to $70 million once we start getting the Values & Controls business and approval and integrated. So go ahead, Frank.

So built into the plan next year is about $100 million, this year I should say of OP savings. A lot is carryover from actions already taken and we have as Dave said about $50 million of new spend in the plan and given the timing and the nature of the actions we'll see about half of that flow through in the year.

Great thank you and just on the top line. So your continuing sales organic guidance is a decline of about 2% at the mid point. The orders on a continuing basis are falling in September about 8% to 9% organically. Maybe just give us health around when you think those orders may level out and particularly in that Process Automation piece?

The key here Julian is Automation Solutions. Clearly right now as we look at early stage of October they were slightly better in orders in October. Automation Solutions were pretty much in line to what they were last month that we put out there. I mean, sorry Commercial Residential Solutions, apologize. I mean right now we're not saying, we are saying late third quarter we'll start seeing positive Automation Solutions and so they will start bottoming out and coming up in the new calendar year.

That will be the key issue to watch and from our perspective right now we are hoping to have obviously positive Automation Solution orders by that number above the line by the time we get out of this year and that's where the bet is right now. That's how everything is laying out basically from our customers and initial reaction. So that's the $15 billion question right there is where does that number turn up? Right now we're saying it's going to start getting better in early calendar year of 2017, but will not go positive until late on the Automation Solutions standpoint until late 2017.

Is that true of the sort of the MRO piece within Process?

Yes. MRO has got to lead us up. Small projects what we'd call brown field projects, additions into a current facility, they will come but that will come later. We've got to start seeing some turnaround.

We're starting to see some early indication right now in some of the international markets. The market we have not seen stabilize right now is North America and so that's the marketplace that we have to see that stability and we have to see them starting to spend some MRO in this North America market. How long can they keep deferring that?

I think we will not get clarity until that first calendar quarter from our major investors as they finish out their fiscal year as they see their cost structure. So that's why I think the first fiscal quarter, which is the fourth calendar quarter will be very difficult because I think our customer base will be tight with cash and be concerned. So that's where I see it right now, Julian.

Great, thank you.

You're welcome. Take care.

Our next questioner today is Andrew Kaplowitz with Citigroup.

Hello, Andrew.

Hi Dave, good afternoon.

Good afternoon, my friend.

So China, I mean it looks like it turned a bit for you in the quarter especially in climate markets. Did you see an end to inventory destocking in climate or did conditions just simply get better there and what are you seeing for 2017 in China?

There is not one, I mean China is a big country, big market. Clearly what we see right now are some of the investments around the environment, some of the investments around energy efficiency. We're seeing the climate technology investments or the Automation Solution, I mean Commercial Residential Solutions those markets are picking back up for us. They've continued early on in this fiscal first quarter so we see that market turn.

Now obviously after being down real negative for awhile you get a nice bounce and that's where we are. So we are expecting moderate growth in China in our Commercial Residential Solutions business for 2017. Our orders in Automation Solutions have stabilized in China. Again, you keep in mind the markets we serve in China not necessarily in the big oil and gas new fields and things like that we're looking at the efficiency, we're looking at power plants, we're looking at programs to help incremental capacity and save energy and things like that.

Those markets are actually starting to solidify in China so we are costly optimistic about China that we will see low single-digit positive growth in 2017. Now ask me that question in February and I might give you a different answer, but right now that's what we are seeing based on our indication of orders the last couple months and our customers. So I feel good about that.

The other market I feel good about will be Europe. If you look at the new Emerson the Automation Solutions and Commercial Residential, our Europe grew last year and I think we'll grow again this year. Those are the two positive markets. Then it gets real short after that.

That's helpful Dave. Look, you've obviously done a lot of restructuring the last couple of years. You've done a great job of holding margin as you said, at some point as you know, you start cutting into the bone of this so how much more low hanging fruit do you have if markets don't improve, how much more can you hold margin? You've got that again for 2017 where you have declining sales and looks like you're going to hold margins again, can you talk about that Dave?

Yes I can talk about that. Let's break it down in two pieces and I'll give you a total perspective from a CEO industry perspective okay? On the Commercial Residential Solutions Bob Sharp and Jim Lindemann laid out plans, they are integrating these businesses today and we see some opportunities in between the creases to say to improve plant efficiency, plant cost, distribution things like that.

So we see the ability to basically get the point out of cost structure and improve profitability by a point over the next couple years get, some working capital out. Take that money invest it and try to continue to grow that business but also let some of that money flow through. So there we are looking at my merging, putting the business together some inefficiencies that we have today by separate business by it putting together. But once that's done we've got to grow because the cost structure will be very, very good.

On Automation Solutions standpoint we probably have $40 million to $50 million of the core Company left and then you've got some very, very difficult issues there. You're starting to go after things you don't want to go after could jeopardize the future technology innovation and the value base of this Company. The acquisition of Pentair Valves & Controls gives us a chance to do to go after even more.

That's why we are looking at $50 million to $75 million in the first year depending on when we get this done on the restructuring and there's potential we will do even more than that in the next two years. So the acquisition of Pentair Valves & Control gives us a chance to refresh opportunities for us, to integrate again a much larger business. You take the $7 billion Automation Solutions business today you add $1.6 billion in there you have a chance to do things.

Now if the economy doesn't grow and we continue to struggle for growth hence you're going to continue to see acquisitions. That's why you're seeing acquisitions. US companies have been going through a lot of restructuring, taking costs out. We're running at pretty high levels of profitability for the level of sales we have and hence that's why you're seeing acquisitions.

That's why you're going to see that continue I think in the short-term unless there's some kind of growth in 2017, which I don't see at this point in time. So if this thing keeps going and gets sloppy then we're going to have to add to our acquisition pool and that's why we're going to be looking at an additional $3 billion to $4 billion of acquisitions over the next two to three years to continue to feed our chance to reposition and restructure and drive topline growth through acquisition. Because the core economic growth we do not see coming through the next couple years. That's what this CEO sees from the cost perspective and growth perspective.

That's great, Dave. Thanks very much.

You're welcome.

Our next questioner today is Nigel Coe from Morgan Stanley.

Hi Dave, how is it going?

Not too bad.

I did send my questions to Craig. He's lying. He's got them.

He's working that box court, Nigel, you know that right? He's got some voodoo baby down there he's playing around down there trying to make sure they win tonight.

Oh, I'm sure, all's fair in love and war. So Automation Solutions down 4% to 7%. Obviously, how do we think about the legacy Industrial Automation flat this quarter, you've got components of that segment performing very well. Process so I'm assuming would be below the 4% to 7%. So how do we think about the various moving pieces within that portfolio and then Process Controls obviously comes in as an acquisition line but is it down 4% to 7% the same for that portfolio or was that a bit later cycle?

No. Nigel, think about the chart that we showed you that I gave you when we did the Pentair Valves & Control chart with the $260 billion mark we broke down in three pieces, you had the process, you had the hybrid and then you had the discrete. You think about -- you remember that chart we handed out? The Process side will be worse than negative 4% to 7% and our hybrid/discrete business will basically be flat growth next year and therefore that's how we get the 4% to 7% combined okay?

We're looking at the marketplace that $206 billion marketplace that we showed you when we did the Valves & Control acquisition. The Process piece will be down more than 4% to 7% and the other hybrid piece will be flat or slightly up maybe 1%, 0% plus or minus 1% and that's why the Process business will be a little bit more negative than we said the 4% to 7%, to your point.

Okay and the Pentair portfolio, does that come in at a similar kind of organic decline as the Emerson Process business?

I think as I said when we did the acquisition, I had a little bit more pessimistic view of what that business is going to look like for the next 12 months to 18 months. One their order pace has not very good. Secondly there's going to be a lot of disruption and integration work going on think that will negatively impact this business for 12 months to18 months.

Once it comes on board it will be the same growth rate as the overall Process business, but I think as you look at 2017 and 2018 I think they are a little bit less than the underlying what we call Process Automation business. And we're going to be creating that problem ourselves probably.

And then a quick one Dave. The comments on the acquisitions are obviously very interesting. You made it very clear that you're done with the portfolio disposals, one more coming up. But looking at the tools market there's been a fair amount of consolidation talk in the tools market. You've got a great plumbing tools business, high multiples are getting paid. Does that make you rethink about your portfolio as maybe perhaps one or two more sales to accelerate your acquisitions into Automation?

No, I think within our tool business base right now there's some good leverage across the other core Automation and Solutions business. There's good leverage so if there's no strategic leverage between the Commercial Residential Automation Solutions we will get out of that business, but right now the portfolio is remaining other than one storage business there's some good leverage and leverage of channel, leverage of technologies, leverage of things we can do we will stay pat.

Understood thanks, Dave.

You're welcome take care, Nigel.

Our next questioner today is Stephen Winoker from Bernstein.

Thanks, good afternoon guys.

Good afternoon, Steve.

Just maybe starting you talked about margins up in 2017. You just walked through the restructuring side of that story but maybe you complete that bridge in terms of how you're thinking about it assuming you do get that 1% to 3% low organic growth what about price versus cost? Material cost, what about other productivity, what about other puts and takes that gets you to stay positive next year?

You want me to give you all of the answers?

Well Dave, it simplifies everybody's life right now.

You know me I'll give you my interpretation and give you what I feel okay, Steve?

Yes.

I'll give you the best feel I have at this point in time. I fundamentally believe right now we are about as close as we've been for awhile relative to the price cost pressures. Pricing as you know has been basically flat for us, I think last year, last two years basically slightly up slightly down 0.1, 0.2, now we've been able to offset that with stronger net material inflation.

What I see coming into us right now either this quarter or next quarter is our price cost ratio pressures are going to build. So we're factoring into higher cost reduction efforts within the Company because I wouldn't be surprised if we do not go red for one or two quarters on our price cost ratios in 2017. I've told people at the Fed this same issue. There is inflation brewing relative to specific skill set.

Material deflation is slowing down, it's not starting to come up and our pricing capability is not that strong right now because there's plenty of capacity out there and there's not a lot of demand. So the pressure is building on this whole price cost scenario so what we're building in right now in our plan is basically to stay neutral. Because I think if you let it run its course we're going to be slightly red on a price cost situation.

We have to increase our cost reductions and it's going to be primarily on cost structure. Productivity will be tough, we'll probably 1% or 2% next year in productivity. We're better than the US economy, but there's not a lot of growth out there. So it's extremely hard to get a lot more productivity without some additional growth so right now we're having to ramp up our cost reductions around our discretionary things and keep the place kind of tight so that's how I see it unfolding next year.

We're going to get -- we've got the savings from the restructuring we did last year early this year, but in order to hold our margin and improve our profitability next year we're going to have to come up with more stronger discretionary cost savings because I think price cost will be working against us. That's my call. I'm sure you have not heard that from anybody, but that's my call.

No and since you're being so generous answering questions let me ask you one more here. Which is in this one, you didn't need to get it in advance because we ask it every time. So you talk about Pentair Valves & Control --

Are you telling me you gave me this question ahead of time?

I'm telling you we ask you the same question over and over again.

Okay.

So Pentair Valves & Controls, you talk about it being uniquely strategic to generate future growth for the Company. Clearly, there are a lot of people, a lot of people in the market who are having more skepticism about understanding that. Since you've had more time with this is there anything in there that you can point to that provides a little more encouragement to you and maybe to investors that this is something that people should appreciate more than they do?

We've now had the opportunity to talk to our customer base about this. I mean the most strategic opportunity for us is that we can get them into a lot bigger customers that they couldn't get into themselves. We can get them out to large projects, which we win, which they never won because they don't have the control system or the whole package. We can now offer much a larger service package. We can service a whole host of our product for our customers so now we can be this core service organization for them.

The leverage across the total portfolio. Now people all they want to do is think about that's a dumb valve then that's a very narrow thinking. You think that's not that strategic but what we are talking about is when we go out and bid for projects, when we go out for the type of packages we get with our large global customer base, we now will be able to offer a much larger solution both in up front and service and tie that technology together.

So we see a lot more growth synergies from that leverage of our organization in a global basis than a person who only thinks about a valve company standalone operation and I think in five years people will look back and say you did get a lot more growth than we thought you would. But that's what I see right now.

Fantastic. Thanks, Dave good luck.

Take care Steve.

Our next questioner today is Gautam Khanna from Cowen & Company.

Yes, thanks good afternoon guys.

Good afternoon.

So a couple questions. First, I just wanted to maybe better understand the comment on lower pricing at Climate Tech in the quarter. Was this just surcharge related linked to material cost or was it actual incremental price pressure or something we should be concerned about?

No, it was incremental price pressure. Again it relates back to again we talked about this before most of the OEMs are on some type of contractual matrix type pricing. So as commodities go up or down pricing is adjusted so in this environment when commodities are low pricing goes down to match that. So there's a bit of a lag occasionally but that's what the impact is.

Okay and then just following Nigel's question about the split at the remaining Industrial Automation business. Can you remind us of how much of the remaining business is linked kind of directly to oil and gas, if I recall it was pretty small? It was something like 10%, something like that.

It's pretty small. I would say by the way, when we report a new segment it's going to be one. It going to call Automation Solutions. You're going to get one number, Automation Solutions. So all of you guys thinking right now we gave you a chart relative to our total Process business, Automation Solutions, hybrid and discreet.

You may want to learn those numbers because that's how we are talking about this business Automation Solutions. So I was being nice to whoever asked that question but from my perspective we are looking at one Company as being integrated, period.

Understood but in the split in terms of the growth rates, I guess the point is at the legacy remain Co Industrial Automation business most of that is not linked to the same market, the legacy process?

Well, there's some crossovers, there's some crossovers and they sell the chemical business, yes, they sell the hybrid space, the pharmaceuticals so there are crossover spaces there. And so you have to, so that if you think about those businesses they go across both the process, they do go across hybrid, and the go across the discrete.

And that's why we gave the chart so you could see how that breaks down across those three entities and some of those businesses do a small piece, small piece will go into the core Process marketplace. But it's a small piece of that. It's not going to wag the tail as you say.

Understood and just below the line could you calibrate us on items like corporate expense this year, what we should put in there for buybacks this year, and maybe any other moving pieces below the line?

Yes, I think the corporate number, I mean, I'm just talking about corporate no I don't have a number. The corporate number we'll give it to you later, I don't have it. We're still going through this. Let's get through all of the closers and stuff like that and divestitures as we get into the year so we'll give you a better feel in February at the investors conference. You dial in about $500 million of share repurchase. We'll have some pension headwind this year. Interest rate did go down if you didn't notice, it went down so we'll have what?

$40 million to $50 million.

$40 million to $50 million headwind for us as a corporation. Those are the two issues there. Currency right now is neutral and so the two headwinds for us are really going to be that and then we'll see how things settle down from a corporate standpoint once we get the divestitures and acquisitions done and we'll give that number to you in February.

Thanks a lot guys, good luck.

You're welcome, take care.

Our next questioner today is Robert McCarthy from Stifel.

Good afternoon, everyone. How you doing today?

How you doing Rob? You got those kids their Emerson stock yet I hope?

We're levering up. Hope the SEC isn't listening, but in any event.

I'm just kidding, Rob. Earnings is earnings, but cash is cash, okay? So from that standpoint could you talk Dave about your cadence for operating cash and free ash flow generation over the next couple of years and kind of given what you're planning for a difficult environment can you give investors some confidence that the dividend remains sacrosanct in the context of this transitional period? Do I need to like break my left leg, rip it off and give it to you or something or my right leg? So go back seriously and by the way I was being facetious people on the phone listening I did not tell Rob to buy stock for his kids. Those people -- since the SEC has no humor.

For 2017 there's two numbers you need to think about for 2017 and this is driven into our heads across the organization. $2.5 billion operating cash flow and $2 billion free cash flow. And a number pretty tight to our modeling and we're going to manage according as the organization is talking about it. So if we can beat it, we can beat it but that put us at 62% of dividend to free cash flow cover, okay?

Then as we move into 2018 and 2019, we're not assuming any big break out or anything like that, but we're trying to get back into adding about $100 million of cash to $150 million of operating cash flow per year. Now our plan is to continue to keep the dividend going up modestly as I told the people, $0.02. We'll have share repurchase around $500 million per year that allows us to basically keep the dividend actual payments flat or slightly down and so we'll see as we get into right now, 2020, 2021 we'll be back down towards that 50% level.

If we do not make anymore additional acquisitions that's what's going to happen. If we make additional acquisitions on top of Pentair, our game plan is to get that number back, our operating cash flow back up to $3.2 billion, spending around $600 million of capital that gets us back into the high 40% free cash flow to dividends from that perspective. So our model right now says that we'll continue to make acquisitions.

We'll continue to integrate them, generate cash flow. We'll continue to buy stock back and continue to increase our dividend modestly. So that's what we are looking at right now and our model looks at do we do nothing other than Pentair and if it does we'll get closer to 50%. If we do additional add deals who we want to do we'll get back under 50% in the next five years.

Just as a follow-up obviously Julian asked a line in the sand question for Automation Solutions in terms of the order trends, the cadence for the year, but usually, kind of how you layout the year is basically you guide fiscal 1Q and then get a peak into next year kind of for your full year guidance. You've given us the full year guidance now given all of the puts and takes.

I guess looking at kind of known and unknowns going into February, Dave, what are the three or four key things that you want to come in hat in hand in February to have a better sense of the macro variables so you can have a better sense of whether you can actually grow earnings next year? What are the kind of three or four things we should be looking for given your increased line of sight February versus now?

The number one issue, the number two issue and one, two and three will be the trend line of Process or Automation Solutions orders, in particular, North America orders. We need that chart, we need that line coming up like I thought it was going to do last year and I made the call and I was wrong. We need that line coming up towards that flat line that zero line and that's number one, two and three. So I haven't totally mapped it out yet, I want to see how the next couple months.

Right now when a lot of things happen as we close out our fiscal year first couple months are tough with our customer base so I want to see what happens here October, November, December and January in order pace. That will give me a clear idea of how much has flushed through the system and then we need to see the trend line coming up. If we do not see a pretty good slope of the orders in particular in North America, then we'll have a hard, hard time growing earnings next year but that's the top couple issues right there.

The second issue will be from our perspective or the third or fourth issue will be I'm watching the Commercial Residential and Asia. If Asia continues to grow for us in the Commercial Residential because I think we'll see a pretty good transition of growth in North America. I think we will still see pretty good growth there, if Asia continues to grow for us in Commercial Residential Solutions, then I'll feel good about that segment holding up throughout 2017. So that'll be the key thing I'm watching for those guys and the clearly a]Automation Solutions order trending line up and the lines pointing toward hitting that cross point some time late in our FY17 and that's what we will be watching like a hawk.

[Don Brazil], signing off.

Okay that's good. That's really good.

Our next question today comes from Jeff Sprague with Vertical Research Partners.

Hi, Jeff.

How is it going Dave?

Okay, pretty good.

Good, good. Two questions. The first one just back to Process and just trying to kind of figure out the secret decoder ring here for what the turn might look like. Are you seeing MRO turning in other regions outside the US so is there something to glean from the pace of activity in other areas that give us a little bit of road map to think about how the North American US market could play out?

I don't think the other markets have anything to do with North America. MRO in Europe, MRO in Asia Pacific has been decent, trending. Europe has been positive and Asia Pacific is starting to trend the right way. They don't really drive North America. That's the wild card we've got to watch.

When we start saying North America Automation Solutions so get the phrase right there Automation Solutions trending the right way that is going to be the key phrase for us. If you don't see us saying that when we're really going to start struggling and we will not be able to deliver what we laid out in that range there this year. But I really believe it will.

I was thinking a hand off from CapEx to MRO and how that played out in other areas.

It's a different game plan here. North America, the way that the multinationals can do because they have a lot more control in North America they cut here deeper and it's just the way it is. When you think about labor and restructuring there's always more in North America because we have a lot more flexibility that's the same thing here. So around MRO, there's no decoder rings relative to USA, relative to what happens in Europe, what happens in Latin America or what happens in Asia Pacific it's a whole different game okay?

Okay and then on the M&A side, Dave, do you see a relatively active pipeline or are there chunky things that you might do? There's a big water asset that's for sale, filtration asset for sale now for example.

We never got into that business because there was a good reason for it so I'll pass on that one. A lot of hype around water and filtration. No, I think there are opportunities out there. I think you're going to see opportunities for us emerge and I think we have capabilities that will emerge as we get into the new calendar year.

We're highly focused right now on trying to get all approvals when you think about we've got two major divestitures and a major acquisition under way. There are a massive number of approvals we have to get around the world on three of those capabilities. So right now we got our tools down and there are opportunities out there we're working them but we'll really gear back up once we get all of these approvals done. I wouldn't worry about that.

Are there any particular snags on those approvals that you're seeing?

No just takes time.

All right thank you.

Takes time and I mean, have you heard of any approvals flying through quickly?

Our next question today comes from John Inch with Deutsche Bank.

Thank you. Good afternoon everyone.

Good afternoon, John.

Hi, Dave. Going back to the trajectory of Process turning in the second half of FY17--

Automation solutions. I will not be using the word Process, see the chart Automation Solutions, John.

Yes, I've got it.

Two platforms Automation Solutions and Commercial Residential Solutions.

I've got the chart in front of me.

Okay. Automation Solutions. Okay.

So going back to the trajectory of Automation Solutions, the line crossing in orders and the results in the second half of 2017 per what you're aspiring, is there a threshold level of oil prices that you think have to sustain itself or maybe move to a certain level to kind of get the customers you've been talking with to stimulate it here or no?

It's stability here. It's stability in between the mid 40s up to the mid 50s right now. They just need to see where they are. Our customer base needs to see where they are from a cash flow standpoint a cost structure standpoint. This industry our end customer in this industry has been going through a lot of restructuring for the last 18 months. So they are trying to get stabilized like we are trying to get stabilized.

So I think the key issue for me, John is stability and we see a little bit of stability though it's drifted back down again in the oil side. But I mean the key thing for us to see stability around that not some high level mark and I think that way these guys can plan their cash flow, they can plan their capital allocation from a dividend stand, or share -- whatever they are trying to do and then allocate back to capital. And I'm hoping that we'll see more capital reallocate back to MRO, versus some finishing off projects like they had last year. Okay?

So is there a way to then drill down into ultimately the reasons that you feel going back to February when we thought things would turn and they ultimately didn't, why is it things are going to turn in the second half of 2017? Is it just because we've been in a downturn for much longer or you actually are seeing more stability or obviously the comparison issues I get, but you're talking more on the fundamental side? So I'm just trying to get back to what the other drivers?

Wait a second, John you have to go back and think about where the price of oil was. It was trending it was in the 50s and then they made a call it was going to go into the 20s and it went down into 30. And our customer base did a quick evaluation in the spring/summer about Oh, my God how do I protect my capital structure, how do I protect all of these things with much lower oil price. So they cut capital much deeper than they said originally.

They told us in January/February we get the early indications from them so that's what happened there. Now we go forward here, now we're here sitting late in the year, sitting here in the November time period, oil pricing and the gas prices have been stabilizing here for several months and the trend line has been a little bit better.

It does go up and down, they have got a year behind them relative to their whole capital structure some of the big projects had to get done. They cut really heavily on the day-to-day spending and I think you're going to see that stability in the pricing if it stays that way within a range then you'll see more money go back into the day-to-day capital and that's the difference.

Perfectly clear. Dave your sounding reasonably constructive on the European markets and I know you're a Steward of geopolitical events. Are you not, a couple of companies have called out European softening even of late. Are you not a little bit concerned about Brexit now actually moving forward possibly causing a European improvement scenario to fizzle?

If you listened to me talk the last couple times I said Europe is weaker. I said Europe will grow. We grew this year, I think it will grow less in 2017 than it did in 2016.

Okay.

But I've been openly been telling people and if anyone hears me talk, they've heard me say Europe has definitely weakened Europe has definitely grown. The Euro is weaker so that again is going to help our European operation the Euro went back down into the $1.09 to $1.10 and if it gets back up into $1.15 it will make it tougher. But it's definitely going to weaken and I think the hoopla around Brexit is hoopla. So I think from my perspective Europe will grow next year but it won't be as much growth as this year.

And lastly China, do you feel that China in terms of the levels it's achieved is it sustainable because some are concerned is this just a function of Chinese stimulus that then goes away? Sounds like you've got more conviction in the China market right now.

I think based on what we're seeing in order pattern, based on customer inputs, based on what we've started seeing the last couple months, as I said earlier I think China will grow low single-digit, from 0% to 3%. And that's where I see it right now and if someone asked me the question a couple calls back about in February, what would make you feel better relative to your forecast I think that's China, Asia Pacific is the number two thing I'd say. After one, two and three were our Automation Solutions orders but China order pace and sales pace will be the number two thing in that case.

Low single-digits seems like a pretty reasonable hurdle. Thank you much.

Thank you very much John.

Our next questioner today is Deane Dray from RBC.

Good afternoon, Dave.

Good afternoon, Dean.

Could we go back to your free cash flow targets for 2017? Looks like you've got a $500 million CapEx plan embedded in that, that looks like it's up 12% year-over-year but I'm not sure --

No, it's not. We did $523 million last year, John. Or sorry, Deane.

No I meant for looking for 2016 I'm not sure that's a comparable number. It looks like the $447 million number.

Oh, $447 million is the new Emerson. We'll be flat basically on a comparable basis there. We have an obligation. We still own -- accounting we had to disc ops but we still own the businesses so I'm actually still getting cash and I'm having to spend money.

Contrary to what the county told me I still own the businesses and still have the deed of control. Yes they have been discontinued operations, but I'll get the cash and we will get we have capital spending obligations. So it's going to be around $500 million next year with that from that perspective okay?

Where is that money being spent if you had just big buckets how would you describe that?

Incrementally the biggest pockets is we are freeing up capital to go into the Commercial Residential Solutions business relative to the whole efficiency thing that I was talking about earlier. So we basically have several new facilities being built in best cost locations. We're relaying out some facilities, we're going to consolidate facilities so of that core business $50 million will go to discontinued operations business around that number. And then we'll have $450 million going to the Emerson remaining businesses and a big chunk is going into that work around the Jim Lindemann and Bob Sharp are doing relative to the Commercial Residential organization.

We also have some capacity going into our compressor business in some best cost locations and then the other big chunks there's nothing big in Automation Solutions from the standpoint of it just restructuring and when you do restructuring and you do plant moves and stuff like that you have to spend capital. So that's where the big chunks are, Deane.

So you did not get the memo that everyone got that everyone is supposed to be cutting CapEx next year?

We cut it pretty hard the last 18 months and we actually generate pretty good cash flow too Deane. You didn't get that memo?

No it's fabulous cash flow. I just think it's impressive that you're adding capacity in this environment and that's a pretty bullish sign.

Well the key issue Deane and you and I have talked about this if we do not add spend money you will not get productivity and that's one of the signs is a nasty loop right now people in industry, if you do not spend you will not drive productivity. And that's where we are spending money. And we are growing some of our businesses and so they need capacity.

Exactly. Thank you.

Thank you very much, Deane.

Our next question today comes from Rich Kwas from Wells Fargo Securities.

Good afternoon, everyone.

Good afternoon Rich. Are you rooting for the Indians or are you rooting for the Cubs?

My friend Mr. Rossman I know has got a vested interest in this.

That's why I didn't get any of the questions because he's working a line score again.

I know he's e-mailing Francona as we speak, I'm sure.

Rich, it's all about dedication. I had a ticket for tonight's game let me just tell you that.

Rich do you have any kleenex because I'm out of kleenex here.

Two quick ones. On Commercial Residential Solutions. A number of building product companies have kind of had squishy numbers, outlooks for particularly as it relates to more of the residential side of things here going into year-end.

Just curious, the order growth was decent in September on a trailing three-quarter basis. Seems like maybe you saw something different but curious underlying particularly in North American market how you characterize the state of the market right now in terms of order momentum and what you're seeing as you go into year-end right now?

It really breaks down in different segments but clearly, inventories within on what I'd call our air conditioning both Commercial and the Residential channel is pretty tight right now. They had late heat so that channel has gotten pretty tight. So some work going on there so I would expect us to have a good first fiscal quarter there as they get the channel to where they need it, Rich. The other thing going on right now is there's a lot of changes relative to the efficiencies, to the refrigerants and new products coming out from our customer base.

So there's a lot of work being done that which is driving some incremental growth for us. We're seeing that both inefficiency stuff going on in China, we see that across Asia and we're seeing that in Europe. So any time you start seeing a lot of changes and some of the new target come out relative to the HSCs and the efficiencies, we get a benefit from that a little bit earlier than most people because they have to build up ahead of time. So we've seen a decent pattern of growth and then our housing businesses has held up t reasonably well but it's definitely stalled where it was. The growth rates definitely stalled.

And then a couple of our businesses within the Commercial Residential Solutions business actually get benefit from what I'd call environmental problems like flooding and bad weather and stuff like that and there's been some across North America here the last couple of months. So things have gone our way there for a change and so I think Bob and his team got a great cost structure right now through all of the restructuring so they are driving very good margins. They've got a couple environmental things in the trends going their way so hopeful they make hay for this quarter because who knows what's going to happen next quarter there. So that's where we are right now.

And does the Global Summit a few weeks ago with the changes of the Montreal Protocol, does that have any tangible benefit in next couple of years or is that more out toward the beginning of next decade?

In Europe and US we review that with the Board today in fact. US and Europe is definitely the next two years we'll start seeing some benefit there. The good thing about it was is they now come down on they've agreed to certain standards and certain targets. So now our customer base, including us, can work a solutions to get there and so that's a good sign.

That will help us and as you know one of the reasons we Helix investment the last couple years in Dayton, is because we know we are going to have to help drive some of these solutions and that will help us late 2017 but more 2018 and 2019. The Asia ones if you look at the standards they are still out another 10 years. So our gut right there will stay with old technologies, it should just drive the older technologies not the newer technologies, but that definitely helps us because it's getting them set into the right direction for us.

Okay and then on Valves & Controls with the portfolio there from an intelligence standpoint you talked about this earlier in the call. You did a pervasive sensing acquisition I think late to early October and I know that's an area of focus for you. How quickly can you increase the intelligence in the Valves & Controls portfolio?

It will take us two to three years to really have an impact but there's a lot of things around their actuation stuff, there's a lot of things around some of the safety in the Crosby area. There are areas that we can bring in some technology which we have which we could port over to them. So there's a lot of things you have -- standards you have to meet and pass so it's going to take two to three years but within this planning cycle we'll start getting some from benefit from that.

Okay thank you, I'll pass it on.

Take care, Rich.

Our next questioner today is Steve Tusa from JPMorgan.

Hi, good afternoon.

Good afternoon, Steve.

Can you less another 10 factors you're going to watch for next years trend line order rate?

10 factors? I don't have that many.

I'm just kidding.

I know you're kidding. You could get me in trouble with the SEC if I give you 10 factors.

On the free cash flow, so I guess if CapEx is not adjusting out the disc ops how much of the free cash flow is coming from the disc ops? And then I assume that basically whatever cash you're going to lose there for the year forward would be replaced by the solid cash accretion you're getting from Pentair which I think is around $100 million to start for this year, is that the right equation?

Yes, I think to cut it simple Frank and I, because first of all we don't own Pentair Valves & Control, as you well know.

Yes.

I think we're going to be slightly North when you push and shove everything back and forth, slightly North of $2.5 billion with Pentair. I think we can hold capital $500 million with Pentair type stuff in there. With pluses and minuses across the whole Company. So there's not much cash flow coming from the companies we're selling in the stub period but we do have capital spending obligations.

So I think overall I feel good that we will meet or slightly exceed the $2.5 billion operating cash flow. I have a lot of control over capital as you can imagine so the $2 billion next year is a number that we've got locked in stone and I've told the Board we will be monitoring that on a monthly basis and we'll be keeping the Board informed. And therefore we'll keep you guys informed because that's a very important number to us. We want to make the 62% dividend to free cash flow ratio the worst that we see in my tenure and then we will start driving that back down in 2019.

Okay and then just on Process, how much of that do you think is you mentioned North America MRO, et cetera, how much of that do you think is kind of pulled along with the chain of US land rig count? I don't know how you maybe you don't classify it that way but obviously that's an area that people are a lot more optimistic on for next year. How much of the variable is that in kind of the trends in the automation process automation, the Industrial Automation?

Automation Solutions.

Automation Solutions, sorry.

Steve I think for me the way our business mix up because we're not really down well stuff, we have some stuff but that's not really going to drive our sales. What you really want to watch for us is the stability around the pricing of oil and the pricing of gas and within this range in the $45 to $55 range for oil and the equivalent level to gas. That is that number is very, very important to my customer base.

Rig count is more down the road for us and that means overall health of the industry that will help us too. But in the near term if I'm thinking 2017, stability in the price of oil and gas is pretty important relative to what I see our end customers will spend. And when they do their capital allocation, Steve, from based on okay I have to spend this much money for share repurchase, this much for dividend, this much for capital, how much do I have left over, that's how they are going to be calculating. And I think that those are the numbers I'm watching right now and that stability is critical to me.

Congrats on the good execution and that cash in obviously a pretty choppy and volatile year. So kudos to you guys for the execution there.

Thank you very much, Steve, all the best to you.

(Operator Instructions) Our next questioner today is Eli Lustgarten from Longbow Securities.

Good afternoon. Thanks for waiting.

Good afternoon Eli. I was just thinking about cutting you off so you're lucky.

I wouldn't get my line in that you set up an Indian summer with the 80 degrees.

If it wasn't you're a St. Louis boy I probably would have cut you off, but go Cards. Oh, we're not in the World Series are we? Shoot.

Two quick questions. One, with all of the changes below the line is there any structural change with what the tax rate is going to look like for the Company?

No. If I was a good guy I'd put 31% down next year.

But the structure doesn't change okay.

No. Eli, I'm going to be honest with you, we will have some benefits as we go forward here in the probably the first six months or maybe the first quarter on some things that we are going to get benefits for. So that might drive the tax rate down as real cash coming back for us but the underlying tax rate, 31% a good number.

Really the structure I'm looking at. I'm looking at all the first half in Process or excuse me Automation Solutions --

All right, Eli.

Okay, real question, can we, how tough will holding profitability in that sector in fourth quarter level given the declines that we're looking at? It's going to be a tail of two halves, first half tough and hope you get bailed out in the second half, how tough is holding the profitability in the first half in Automation Solutions as we go through it?

Ain't going to happen. It going to come down the first half. Restructuring we've got more restructuring, Mike Train got a lot more restructuring done in the last three or four months in Automation Solutions. As you know, our restructuring number went up, but his volume is going to be down 10% in the first quarter. And Mike is a good business leader but he can't work miracles. So it's going to come down and then we should start seeing that come back up as we move into the second quarter.

So we're all hands-on deck in the first quarter right now because Automation Solutions has a very difficult -- the order pattern has been weak for awhile and we know that the mix is not going to be good. So Bob's businesses are trying hard as possible but that Automation Solution is a tough number so I think that's going to be the big issue for us. We're going to be definitely very weak in the first quarter in profitability and we'll start coming back. Because the restructuring is getting done it's just the volume's dropping so hard in this first quarter.

But you should still be a double digit team kind of number I suspect?

Yes. He's talking about margins Frank. Yes.

Yes, operating flexibility.

It will still be better than most people making Automation Solutions, but it's not an Emerson standard.

Yes.

And they have got restructuring done so the savings are flowing through but it's going to be definitely second half because of the way that sales will flow for that business anyway.

Thank you very much.

You take care. All the best, Eli, we'll see you around town, okay friend? And with that we're going to wrap it up. I'll thank everybody, appreciate a couple jokes here and there and sorry if I picked on you too much Rossman, but you've been so enamored with those Cleveland Indians I haven't gotten a lot of Q&A out of you lately.

So thank you everybody, take care. We'll see everybody around and we'll definitely see everybody in February at our investors conference. Take care now. Bye.

The conference has now concluded. Thank you all for attending today's presentation. You may now disconnect your lines.