EnerSys (ENS) 2005 Q3 法說會逐字稿

Welcome to the Q3 2005 EnerSys earnings conference call. My name is Carlo, and I will be your coordinator for today’s presentation. (OPERATOR INSTRUCTIONS) It is now my pleasure to turn the presentation over to your host for today’s call, Mr. John Craig, Chairman, President and Chief Executive Officer of EnerSys. Please proceed, sir.

Thank you, Carlo. Good morning and thank you for joining our third quarter conference call. During this call, we will be reporting on the results of our third quarter of fiscal year 2005, which is the period from October 4th to January 2nd. And we will also give a brief overview of our announced acquisition of the FIAMM motive power business.

Our diluted net earnings per share in our third quarter were 14 cents, as compared to 22 cents per share on a pro forma basis during the same period last year. This earnings per share result is consistent with our previous guidance of between 14 to 18 cents per share.

I would now ask that Mike Philion, our Chief Financial Officer, cover the forward-looking information statements.

Thank you, John, and good morning to everyone. As a reminder, we will be presenting certain forward-looking statements on this call that are based on management’s current expectations, and are subject to uncertainties and changes in circumstances. Our actual results may differ materially from the forward-looking statements for a number of reasons.

For a list of the factors which could affect our future results, including our earnings estimates, see item two, management’s discussion and analysis of financial condition and results of operations including forward-looking statements set forth in our quarterly report on Form 10-Q for the quarter ending January 2nd, 2005, which was filed with the US Securities and Exchange Commission.

In addition, we will also be presenting certain pro forma, or non-GAAP financial information. For an explanation of the differences between the comparable GAAP financial information and the non-GAAP information, please see our third quarter earnings release or our third quarter 10-Q, which are located on our website at www.EnerSys.com.

Now let me turn it back to you, John.

Thank you, Mike. I’m pleased to report that EnerSys sales for the third quarter of our fiscal year 2005, were $273.7 million, which is an 8 percent increase over the same period last year.

Our third quarter and year-to-date sales results showed positive growth, both in our Reserve Power and our Motive Power business units, and positive growth in the three geographical regions where we sell our products and services.

Our steady, improving sales growth reflects our continued efforts to drive market share, and is consistent with the current global economic recovery. We are particularly pleased by the continued growth in our Asian business, with net sales increasing 14 percent and 39 percent respectively, compared to the third quarter and the first nine months of the prior year.

Also, our Motive Power business continues to be very strong, with net sales increasing 15 percent and 19 percent respectively, compared to the third quarter and first nine months of last year.

As you know, commodity costs have increased significantly over the past year. And our commodity costs continue to be a key challenge for us. As previously reported to you, we have initiated a series of price increases during fiscal year ‘05 in an effort to recover these increased costs.

We realized a modest benefit during our third quarter from these price increases, with the overall pricing environment remaining difficult but stable, due to the highly competitive nature of our current markets.

Turning to the Company’s earnings, our third quarter diluted net earnings per share were 14 cents, compared to 22 cents for the same period in the prior year. As we noted in our last quarterly call, temporary manufacturing inefficiencies, which we have since corrected, and increased commodity costs, have adversely affected our earnings in the third quarter.

Additionally, our nine months of fiscal year 2005 pro forma diluted net earnings per share were 60 cents, compared to the 53 cents for the same period in the prior year, or an increase of 13 percent. Our nine-month fiscal 2005 earnings growth is primarily attributed to our strong growth in top line volume, and the continued success of our ongoing cost reduction initiatives, partly offset by higher commodity costs.

For the fourth quarter of our fiscal year, ‘05 year, we expect diluted net earnings per share of between 18 to 22 cents. And accordingly, full-year earnings guidance on a pro forma basis, of 78 cents to 82 cents per share.

Expected decrease in fiscal 2005 full-year earnings, compared to our prior guidance of 85 to 90 cents per share, is primarily due to the following factors. First, we expect commodity costs will be modestly higher than those anticipated previously. And second, our Company, along with our industry, has not been as successful as anticipated in selling price recovery to offset the higher commodity costs.

Within the fourth quarter of fiscal year ‘05, we expect these higher commodity costs and lightning (ph) selling price increases to be partially offset by our successful cost savings programs. As you know, we remain highly focused on aggressively pursuing a comprehensive variety of cost reductions throughout our global business, and remain committed to this critical strategy.

Let me spend a moment on our ongoing efforts to grow our business from acquisitions. As you may recall, we have four areas of focus in our acquisition strategy. First, within our core lead acid business, such as the FIAMM acquisition we announced yesterday.

Second is for global expansion, such as the Australian Motive Power acquisition, which we announced last quarter. Third is vertical integration, such as the Czech Motive Power trade acquisition we also announced last quarter. And fourth is new technologies.

We remain very active and focused on this important element of our growth strategy. Yesterday we announced that we have reached an agreement in principle to acquire the motive power business of FIAMM. This business, based primarily in Europe, had 2004 revenue of approximately 70 million Euros, or $90 million. Hence, an attractive complement to our core lead acid business.

We are particularly pleased with how this transaction will further solidify EnerSys as a leading global motive power battery manufacturer, and we anticipate closing this transaction in the first quarter of fiscal year ‘06. We firmly believe that we have the right products, the right people, and a sound strategy to successfully grow our global business.

With that, Mike Philion will provide more details regarding our financial performance in the third quarter.

The results of our third fiscal quarter and first nine months of fiscal 2005, were in fact solid. For the third quarter of fiscal 2005, our net sales of $273.7 million increased 8.1 percent over the comparable period last year. This brings our first nine months of fiscal 2005 net sales to $798.3 million, which is a 15.1 percent increase over the prior year.

Both of our business segments and all three of our regions experienced increases in net sales for both the third quarter and the first nine months of fiscal 2005, over the prior year comparable periods.

On a business segment basis, when comparing the third quarter of fiscal 2005 to the prior year, Reserve Power net sales, which were 47 percent of sales, increased 1 percent to $128.3 million, while Motive Power net sales, which were 53 percent of sales, increased 15.1 percent to $145.4 million.

Additionally, on a business segment basis, when comparing the first nine months of fiscal 2005 to the prior year, Reserve Power net sales, which were 48 percent of sales, increased 11.2 percent, to $382.4 million, while Motive Power net sales, which were 52 percent of sales, increased 18.9 percent, to $415.9 million.

Now a few comments about our consolidated operating earnings and two business segments operating earnings performance. As you know, we utilize certain non-GAAP measures in analyzing our operating performance on both a consolidated and a business segment basis, specifically excluding special charges and giving certain pro forma effects (ph) to our IPO.

Accordingly, my following comments concerning operating earnings, excludes a fiscal 2005, $6 million non-operating special charge associated with our IPO. And excludes several operating and non-operating fiscal 2004 special charges, totaling $33.5 million, primarily associated with our March 2002 acquisition of the ESG business.

Please refer to our press release and third quarter of fiscal 2005 10-Q for more details concerning these special charges.

Third quarter fiscal 2005 consolidated operating earnings of $16.9 million, decreased 19.9 percent in comparison to the prior year, with a decrease of 210 basis points in operating earnings margin to 6.2 percent. The decline in operating margin is primarily attributed to higher raw material costs and temporary manufacturing inefficiencies as John referenced earlier.

For the first nine months of fiscal 2005, consolidated operating earnings increased 16 percent over the prior year to $59.4 million, with operating margins holding at 7.4 percent in both periods. Our fiscal 2005 nine-month results are particularly solid when considering the historically high commodity costs.

On a business segment basis, when comparing the third quarter of fiscal 2005 to the prior year, Reserve Power operating earnings decreased 30.5 percent, to $8.9 million, while the operating margin decreased 320 basis points, to 6.9 percent. Motive Power operating earnings decreased 3.6 percent to $8 million, and the operating margin decreased 110 basis points to 5.5 percent.

The decrease in operating earnings margins in both segments was primarily attributable to higher raw material costs and the temporary manufacturing inefficiencies as previously described. Additionally, on a business segment basis, when comparing the first nine months of fiscal 2005 to the prior year, Reserve Power operating earnings increased 13.6 percent, to $30.1 million, while the operating margin increased 20 basis points, to 7.9 percent.

Motive Power operating earnings increased 18.6 percent, to $29.3 million, while the operating margin decreased 10 basis points to 7 percent.

Consolidated net earnings for the third quarter of fiscal 2005, were $6.8 million, compared to a loss of $10.4 million in the prior year. This increase is primarily attributable to the fiscal 2004 special charges of $33.5 million, which is equivalent to $1.80 per share. Diluted net earnings per common share were 14 cents in the third quarter of fiscal 2005, compared to a loss of $1.47 in the comparable period of fiscal 2004.

After giving pro forma effect to the IPO, as if it occurred at the beginning of fiscal 2004, and excluding the special charges in fiscal 2004, pro forma diluted earnings per share were 14 cents in the third quarter of fiscal 2005, compared to 22 cents in the prior year, or a 36 percent decrease.

This decrease was primarily attributable to higher commodity costs, unfavorable manufacturing costs as we previously discussed, unfavorable foreign currency losses, partially offset by higher sales volume and a moderate increase in selling prices.

Consolidated net earnings for the first nine months of fiscal 2005 were $22.2 million, compared to $4.1 million in the prior year. Diluted net earnings per share were 42 cents, compared to a loss of $1.19 in the prior year.

Again, after giving pro forma effect to the IPO, and excluding all special charges, pro forma diluted net earnings per share were 60 cents for the first nine months of fiscal 2005, compared to 53 cents in the prior year, or a 13 percent increase.

As John mentioned in his earlier comments, this strong growth in 2005 pro forma diluted earnings per share is primarily attributable to strong growth in top line volume and continued savings from our cost reduction initiatives, partially offset by higher raw material costs.

Please refer to both our press release and third quarter of fiscal 2005 10-Q for more details concerning this pro forma earnings information.

The increasing cost of our raw materials remains a significant challenge for both our industry and us. We continue to closely monitor lead and all other commodity costs, but do not expect any meaningful reduction from their current high levels for the balance of this fiscal year and into early fiscal 2006.

Now a few comments about our first nine months of fiscal 2005 financial position and cash flow results. Primary working capital, which we define as accounts receivable plus inventory, minus accounts payable, was $287.7 million at the end of our third fiscal quarter of 2005, and as a percentage of the annualized trailing three-month net sales was 26.3 percent.

This is moderately higher than the levels reported at the end of our second quarter of fiscal 2005 of $272.8 million and 26.1 percent respectively.

Additionally, primary working capital levels have increased since the beginning of our fiscal 2005 year, by approximately $37 million. This increase in invested working capital was primarily caused by stronger European foreign exchange rate, approximately a $20 million impact, and a moderate increase in accounts receivable from slower collections primarily attributable to our European business.

We continue to focus attention on closely managing our primary working capital levels, and expect improvements to be achieved by the end of fiscal 2005.

Capital expenditures were $23.4 million for the first nine months of fiscal 2005, compared to $17.6 million in the comparable period of fiscal 2004. Our capital spending continues to focus heavily on the reduction of cost and increases in efficiency in our global manufacturing locations. We expect capital spending for our fiscal 2005 year to approximate $30 million.

As John covered in his opening remarks, we expect to generate diluted net earnings per share of between 18 cents and 22 cents in our fourth quarter of fiscal 2005.

This increase from our earnings per share results in our third quarter of 2005, is primarily attributed to improved manufacturing cost performance of approximately 7 cents per share, additional selling price increases and sales mix improvements of approximately 2 cents, partially offset by higher raw material costs and Sarbanes-Oxley compliance cost of 3 cents per share.

We anticipate pro forma diluted net earnings per share of between 78 cents and 82 cents for our 2005 fiscal year, compared to the prior year’s 78 cents per share.

In my closing remarks, I certainly share John’s resolve and confidence in our business strategy and its future prospects. Now, John, let me turn it back to you.

Thank you, Mike. In closing, I’m pleased with the performance of EnerSys when you take into account the unusually challenging current business environment, dominated by commodity costs which are extraordinarily high today when you compare it to historical levels. We continue to believe that these historically high costs will eventually return to more normal levels, and we will also be able to realize price increases.

In spite of these difficult business conditions, one positive opportunity persists, namely attractive acquisition opportunities. There are more available today. Certainly the FIAMM motive power acquisition is a prime example of this unique situation. And I will add that we are highly focused on several other potential acquisition opportunities that would also be complimentary to our business strategy.

In closing, we remain steadfast in our confidence about our global business future prospects as a leader in our industry. I want to thank you for your interest in EnerSys, and I would now like to open the line for any questions you may have.

Thank you, sir. (OPERATOR INSTRUCTIONS) Ed Litman, with William Blair.

Good morning, guys. It’s actually Bill Benton. Sorry I didn’t have the eight-digit code, so I had to come in as Ed. A few questions. First on the price side. I guess your largest competitor indicated in their conference call -- they were actually indicating maybe some surprise that they’ve been able to capture, I think they said 65 to 70 percent of some of the commodity cost increases. I was wondering if you could help explain your view of it versus what they’re talking about.

Sure, Bill. When you read through the announcement of the competitor and how they were measuring that, it said “in the quarter,” the lead price increase within the quarter, they were able to capture between 65 to 70 percent. What we do is we look at it on an annual basis, the price recovery as compared to prior year.

When we measure it in the quarter and look at it, and we did go back and look at this measurement, our actual price recovery of lead within the quarter as they measured it, was 71 percent. So we’re right in line when you measure it apples to apples. But again, I think the way that we view it is what was lead a year ago, and compare it to today.

I would also add, a lot of the price recovery that we got in the quarter were price initiatives that we actually went out with three, four, five months ago, which actually started to hit within the quarter.

Okay. And then in terms of the manufacturing deficiencies you were talking about, on your forward guidance you’re suggesting that it will help you sequentially by about 7 cents. And I assume then it cost you about 7 cents this quarter? Can you tell me exactly -- if you could offer a little more detail around what that is, and where that is reported on the income statement?

Sure. When you look at our manufacturing variance, we use a classic (indiscernible) system, meaning that the manufacturing variances that took place approximately two and a half months ago, actually hit our P&L two and a half months later.

The third quarter manufacturing variance that we really got hit with was really caused in the months of July and August. Those hit our third quarter numbers. The reason for those is that we were running high in some inventory in Europe. We in essence, took our manufacturing locations down to bring inventory back in line during the summer months.

I also mentioned in the last conference call, that we had some military sales that were pushed out from one quarter to the next, which also impacted manufacturing variances. That was an unfavorable manufacturing variance that took place that hit us in the third quarter. Our manufacturing variance is going hit our fourth quarter. It’s already completed. We have seen the turn around. It’s already done.

Okay. So those are all in the gross margin by then, obviously. You are not talking about any sort of cost that would be hitting the SG&A line as well?

No. They are all in the gross profit line as you stated.

Okay, and so you are capitalizing then, the manufacturing variances from prior quarters, and then just flushing them through the income statement as the inventory gets released?

That is correct. There is just one follow up. You asked about the certainty of the 7-cent negative effect and positive, and you are absolutely right. It is in symmetry. So it is an exact match.

Okay. And then a question and answer period wouldn’t be complete without a more full discussion on net costs. Could you give your updated costs? It sounds like you have become a little more -- you’re viewing it maybe lasting longer at these higher levels.

And then if you could just offer some statistics in terms of what percentage of your lead price is hedged. Specifically, what your lead price was this quarter that ran through the income statement? What is the price in the inventory right now that will be running through your income statement next quarter?

Okay, I’ll take up the first part of it, Mike, if you could take at what’s going through the inventory portion of it. I will give where we see the lead going and then Mike will pick up the other part of it.

Looking at where we see lead going, right now we are forward-bought through our first quarter of this next fiscal year, at approximately equivalent to 47% of our lead projected requirements, at a price of right around 34 cents. Current LME yesterday was about 43, so we are in a favorable position looking forward on that.

Where do we think lead is going? We are not led projectors or analysts, but we can only read the same information that the public can read. There are several reports out that have come to a conclusion or a forecast that says that lead will stay in the 40-cent per pound range through the first part of the year, lowering down in the last half of this calendar year, looking at an average of about 38 cents a pound.

That -- what I’m quoting from is the analysis that was actually done by Reuters, and they took the survey of 25 different analysts. And the mean price for the year was at 38.8. Mike, do you want to pick up the next portion of it?

Sure. I would be happy to, John. Bill, just to refresh your memory, our first two quarters of fiscal 2005, the lead cost that hit our P&L, call it 34 cents on average for the first half. What hit Q3 was approximately 37 cents, and what will hit Q4 is again about 37 cents, so no measurable change, really. Reasonably stable, but clearly the spot price, as John spoke to, is above that.

As just a little more clarity, and complementing John, we watch lead every day as you know. The forward curve still suggests lead 12 months out, down 4 to 5 cents, and that’s been pretty constant. The issue, as John spoke to, is the expected fall-off is continuing to go a bit further.

Okay, and just to clarify, I think, John, you said you forward-bought 47 percent of your requirements through the first quarter at 34 cents?

Yes, that is forward-bought, plus our tolling that we have. That is total. That is a total number. The actual forward bought is a little less than that, but I am adding tolling in there also.

Okay, so you’ve got 53 percent to figure out I guess, in either the forward markets, or (multiple speakers) --?

That is correct.

Through the first quarter then.

That’s correct.

Dan Whang, with Lehman Brothers.

Good morning, how are you? I was hoping that you could provide a little bit more detail on what’s going on in terms of the different segments, Motive and Reserve. Obviously, Motive’s seeing some strong trends, but a little bit more detail on what’s going on. In the Reserve market, some of the consolidation that’s going on in the Telecomm industry, do you think that’s going to have some impact near-term?

Yes, the Reserve Power business has not seen the growth this year that our Motive Power business is seeing, both from a top line standpoint, and the pricing side also. We are experiencing some fairly decent price recovery in the Motive Power side worldwide. Reserve Power, that is not the case. It’s a very tough market.

As far as consolidation in the industry, typically what would happen with that is, usually we do supply or sell directly to some telecomms, but we also sell a lot more to equipment providers. So we have good relationships with all equipment providers, but that would be our biggest entry to the market. So the consolidation will impact us, depending on which is the preferred equipment provider.

Also, typically what happens though in these, whenever there’s a consolidation or a merger like this, typically CapEx will slow up for a period of time, and what will take place after that is that the gates will open up and we will see a lot of sales taking place.

What we are looking at telecomm spending thing year in the US is strictly (ph) going to be single digits. It’s not going to be a big number. Now, the major telecomm providers that we are seeing that are merging together, I would emphasize we think that it is going to be just impacting our US business right now -- primarily our US business right now, and will have less impact on European business, and virtually no impact on our Asian business.

Okay, and also if you can walk us through what is going on by the different geographies in general, US, Europe, and Asia, that would be helpful as well.

Well, as we mentioned in the Asian market, we are seeing some very nice growth take place. In the Americas portion of the business, we are up. Europe is flat right now.

And what’s your outlook going up for those different segments?

Well, we have it in our guidance that we have given. It’s reflected in the guidance that we have given for the next quarter here.

Okay, and finally, I’ll jump over to your announcement about the acquisition of the FIAMMs motive business. Could you disclose any details about that purchase price, what sort of multiples you paid for, and what you expect the synergies are?

Dan, that’s a subject I’d love to talk about, because we are extraordinarily and extremely excited about this particular acquisition. But as you read in the announcement, we reached an agreement in principle, and the usual and customary actions on these things is that the seller and buyer have to be -- agree with everything that is communicated. So really at this point, we are somewhat restricted to what we can communicate. We have to hold it to what is really out in the press release.

Mike, I would like to add something to that.

Dan, certainly to John’s point, this is a very important transaction, and it’s a very nice business. We’re proud to be in this position. Certainly when we get to the next milestone of a definitive agreement, which certainly, we would expect in the near term, we will have a follow-up press release. And all those normal details will be provided as quickly as we can possibly do it.

Understood, thank you.

Craig Irwin, with First Albany.

Just to touch on the FIAMM Motive Power business, I don’t know if you can confirm this for me, but one of the things I’ve heard from people in industry is they have roughly a 40 percent share of the Motive Power market in Italy. Is that roughly accurate or is that something you can confirm?

Again, I can’t really go into a lot of details on this particular one, Craig, but I will say that they are a very large provider in Italy. And as I said earlier, that the majority of their business is in Europe, but yes, it is very large concentration in Italy.

Okay, fantastic. Now, I just wanted to understand the dynamics of the way lead flows through the P&L a little bit better. For example, say if you were to buy, hypothetically, 35 cents in one quarter, but the prior quarter you bought at 30 cents, which price would you see flowing through that current quarter? Would it be the prior quarter’s roughly 30 cents, or would it be the actual buy in the quarter of roughly 35?

Craig, it is as you described it. It’s the prior quarter. And not to confuse the issue, but it’s basically simple matching. The cost of the raw material is matched with the sale of the product, so yes, you have it exactly correct. As John mentioned earlier, our sales -- or our inventory turn is about every two and a half months, roughly, so that’s the simplicity of it.

Okay, very straight forward there. Than I was just wondering if you could give a little more details on price increases put in during the quarter, and rough estimates of how much you achieved on those particular increases.

Craig, one point, and then John can comment. There were no appreciable new announcements in the quarter, as you know. There’s the lag affect between announcing and when recovery starts. So the realization of the modest increases in Q3 really reflects a series of actions that occurred throughout the year.

John, I’m going by now, where there’s maybe three different price increases over the last, I’m going to say, broadly, nine months.

Yes, there’s actually a few more than that. But we take it by geographical location. We’ve had some fairly decent recovery in North America, specifically in the Motive Power area, and Motive Power in Europe, we’ve also had recovery.

We have had a little recovery in Reserve Power in North America, but where it really has been weak has been Europe Reserve Power. We have gone to the market with price increases in Europe, and to my knowledge, we have not seen any other competitors go to the market with pricing in European Reserve Power marketplace.

Asia, which was very surprising, we actually did see a very modest increase in pricing in the quarter. And the good news with that, as mentioned in prior meetings, the pricing was very tough in Asia. It looks to me like it has hit bottom, or close to it.

Okay, so then if we can talk a little bit more about the Reserve Power business, I understand there are some pretty sizable contracts on the table right now, particularly from the Telecomm guys out there related to some of the M&A and capital plans of these different companies. Now, is this likely to impact pricing positively only in North America, or is this likely to have a sort of spill over effect to other geographies?

That is a good question, and I’m not sure we really know the answer to that one. There are a number of large contracts out there as you’ve stated, and we are very familiar with those, since we are voting most, if not all of them.

The spill over that will take place in the rest of the world, these acquisitions, or these mergers that we are looking at right now, as I mentioned earlier, are primarily US-based. So, it really is going to be the equipment providers that are really worldwide providers, that they're the ones I think are really going to see the impact of that.

Okay. I understand there’s actually European providers on the equipment for the first big contract.

You’re right on that. You’re right on that part of it that there -- There are providers in Europe that are also quoting the deals here, and they’re also in Asia too, by the way. We are seeing a major one come in from Asia.

We have a follow up question from Bill Benton.

Could you maybe quantify exactly what percentage of your sales growth on year-over-year basis was pricing in the Motive and Reserve segment? Maybe it was down in Reserve, I don’t know.

In Reserve, is it virtually no price increase, very little to none. Motive -- (multiple speakers) (inaudible) --.

Yes, Bill, as we’ve said (inaudible), and I would say that probably the impact of pricing on top line is in the 1 percent range. And this is consistent with what we would expect. It is not a huge amount of price recovery, very consistent with history as well as general expectations.

Okay, so that’s 1 percent of the 8 percent, so maybe 2 percent of the 15 percent in Motive?

Yes, it’s a little closer to 2% in Motive. The 1 I quoted was sort of broadly.

Okay, and then I know Asia was strong year-over-year. It was down a little bit sequentially. Is there some lumpiness there? Or, could you talk about some of the dynamics going on there?

Again, one of the things that -- again, to refresh everyone’s memory, our third quarter last year was really the first real jump in volume. Our first two quarters were rather flat, and the economic recovery really started to kick in, in the third quarter. So it’s a combination, Bill, that the comp is a much higher comp.

Going to China, China, there is always a little lumpiness, but it’s a very strong market. Our positions are very good, and we’re very pleased with both the near term and the outlook for that part of our business.

Okay, and then I think you had mentioned currency losses at the bottom line? Could you quantify -- maybe I missed it. Did you guys get the currency losses?

No, I didn’t give a specific number, but I’d be happy to, Bill. Within the quarter, and this is compared on a sequential basis as well, we had about a 3 cent a share change on a sequential basis. The currency loss is a little over $1 million. Now, it’s nothing to be alarmed about. When you look at it on a year-to-date basis, it’s a $300,000 cost. And what we see, as you know -- we’re fundamentally, from a business model, naturally hedged.

The euro has just been extraordinarily spiky. It was at 136, 137, at the end of December, 128. So you get some volatility month to month, quarter to quarter that candidly over quarters and a year, it neutralizes. So it’s not something we get overly concerned about. In fact, we would expect if the Euro stays where it has been in the first quarter, we would expect some of the loss in Q3 would likely reverse. But clearly, we have a hard enough time figuring out lag and currencies as something also that we don’t spend a lot of time worrying about it.

Yes, more secondary.

(OPERATOR INSTRUCTIONS) Sir, we have no further questions at this time.

Okay, well again, we appreciate everyone calling in today, and the interest in EnerSys, and everyone have a good day.

Thank you.

Ladies and gentlemen, we thank you for your participation in today’s conference. This concludes your presentation, and you may now disconnect.