EnerSys (ENS) 2009 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the fourth quarter 2009 EnerSys earnings conference call. My name is Francine, and I will be your coordinator for today. At this time all participants are in listen-only mode. We will be facilitating a question and answer session towards the end of this conference. (Operator Instructions) I would like to turn the presentation over to your host for today's call, Mr. John Craig, Chairman, President and CEO. Please proceed.

Thank you, Francine. Good morning, and thank you for joining us for our conference call. During this call we will be discussing our results for the fourth quarter and full year of fiscal 2009. And we will be commenting on the general state of our business. But before we start I will ask Mike Philion, our Chief Financial Officer, to cover information regarding forward-looking statements. Mike.

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 upon 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. Our forward-looking statements are based on management's current view regarding future events and operating performance and are applicable only as of the dates of such statements.

For a list of the factors which could affect our future results including our earnings estimates see forward-looking statements included in item seven, management's discussion and analysis of financial condition and results of operations, as set forth in our annual report on Form 10K for the year ended March 31st, 2009, which was filed with the US SEC yesterday. In addition we will be also presenting certain non-GAAP financial measures. For an explanation of the differences between comparable GAAP financial information and the non-GAAP information please see our company's form 8K which includes our press release dated June 1st, 2009, which is located on our website at www.EnerSys.com. Now let me turn the call back to you, John.

Thanks, Mike. On this call we will be discussing the adverse impact the global recession has had on the company, but more important we will also be discussing the unique opportunities this recession has created for us to improve the long-term performance of EnerSys. So first I'll get the bad news out of the way. This is not new news, since you all know that our quarterly revenue has been declining since the peak of last summer. Earnings were strong through our third fiscal quarter of fiscal 2009 in which we reported an adjusted diluted earnings per share of $0.63. It then declined to $0.36 in our recent March quarter and we expect another decline to a range of $0.13 to $0.17 in this coming June quarter.

The first piece of good news is that we're becoming more confident that we have or soon will see the bottom of this recession. After many months of declining orders our order flow since January has been relatively flat, even though at a much lower rate than any of us would like to see. Orders have been running approximately 40% lower than comparable prior year levels. Obviously we can't be certain of the direction from here, but more economists seem to be calling for recovery later this year and yesterday's manufacturing index report coming in at 42.8%, the highest level reported since last September was a good sign. In the meantime we have stockpiled cash to over $160 million, reduced our leverage and successfully refinanced our debt with no significant maturities until 2014. We have a lot of liquidity and flexibility for our operations. This helps fund the restructuring spending that we will improve our operations and provide the best products and services to our customers. It will also help in our ongoing quest to acquire other companies.

We anticipate having some significant -- specific acquisition announcements in the near future as we have a tremendous level of activity currently underway. While revenue declined sequentially in each of the last three quarters we're able to increase our gross profit margin by approximately 400 basis points to 23% over this period, as we continue to make meaningful progress in achieving the 25% target we established last year. The reduction in revenue obviously adversely impacts our ability to reach our 25% target, thus I'm very pleased with the improvements we have made thus far. Our ability to achieve increase in gross profit in the face of significant decline in the global economic activity was in large part due to the cost reduction actions that we have taken on a continual basis. With a double digit growth we have experienced for several years and the 13 acquisitions completed since the MBO in 2000, we have had limited opportunities to fully integrate many of our operations. This recession has given us the opportunity to implement many of these plans.

I won't take the time now to go through the details of the restructuring programs, but I would like to summarize the results. The major restructuring programs that we started with our acquisition of Energia in fiscal 2008 will have a cash cost of approximately $35 million, with expected annual savings of at least $32 million when they're fully implemented later this fiscal year. These savings are equivalent to approximately $0.46 of earnings per share and this is obviously a very strong return on investment. We're very fortunate to have the manufacturing capability and experience and the cash to successfully implement these important programs that will so benefit the company in the future.

I'm often asked if most of our cost saving programs have been implemented and my answer is always no. Our employees continually have new ideas on reducing cost and improving efficiencies while staying focused on the outstanding customer service and leading products that we have. I can assure you we will never stop working on this. The really good news in all of this is that when we enter the recovery period we will have a considerably lower cost basis than we have today. During this recession we will not reduce our emphasis on customer service. We are the leaders in our industry and we recognize the importance of maintaining and improving our customer focus during these difficult times. More than ever we will provide our customers with excellent service and we will continue to develop innovative products to meet their needs at the right value.

At this time we're also carefully evaluating the potential of seeking government grants and incentives for the development of advanced technologies for energy storage. We will certainly be focused on programs that we believe will be commercially feasible and will ultimately be profitable for EnerSys. In summary, during this recession we will continue to reduce our costs, emphasize our focus on taking care of our customers, enhance our financial strength, and look for acquisition opportunities with good value. We know the future of stored energy market is very bright, with increasing demands for power. We believe history will repeat itself with substantial pent-up demand being built during this recession and it will be released when the global economy improves. As a leader in our industry we are confident in our ability to enhance our position. We will continue taking the appropriate actions to be certain that, as I said in our February 5th call, we will exit this recession a stronger company than we entered this recession. Now I'd like to turn the discussion over to Mike Philion for further information on the results and our earnings guidance for the next quarter. Mike?

Thanks again, John. Our fourth quarter net sales decreased 32% over the prior year to $393 million. On a business segment basis net sales in the reserve power business decreased 20% to $202 million while our motive power business decreased 42% to $192 million. The fourth quarter decrease includes approximately 19% due to lower volume, 8% from weaker foreign currency translation and 5% due to pricing. The challenging global macroeconomic conditions have been the most pronounced in our European operations as evidenced by the 46% decline in that region's fiscal 2009 fourth quarter sales. Our Americas region fourth quarter sales declined 16% compared to the prior year while our Asia business experienced a decline of 12%. Net sales for our fiscal 2009 full year decreased 3% over the prior year to just under $2 billion.

On a business segment basis net sales in the reserve power business increased 6% to $934 million, while our motive power business decreased 9% to just over $1 billion. The 2009 decrease includes approximately 7% due to base volume, 1% from weaker foreign currency translation partially offset by a 5% increase from pricing recovery. On a regional basis our European operations net sales declined 12% in fiscal 2009 while the Asia and Americas region experienced growth of 16% and 7% respectively. And further we believe we have maintained our industry leading global market share at 29% during calendar year 2008.

Now a few comments about our as adjusted consolidated earnings performance. As you know we utilize certain non-GAAP measures in annualizing our company's operating performance specifically excluding highlighted items. Accordingly my following comments concerning operating earnings and my later comments concerning diluted earnings per share exclude all relevant highlighted items. Please refer to our company's form 8K which includes our press release dated June 1st for details concerning these highlighted items. Our fourth quarter as adjusted consolidated operating earnings were $31 million or a decrease of 21% in comparison to the prior year with the operating margin increasing 110 basis points to 7.8%. This margin expansion was achieved in spite of lower sales of approximately $190 million in the quarter as the positive margin impacts from cost reduction initiatives and lower commodity costs net of pricing were evident. Our full year fiscal 2009 as adjusted consolidated operate earnings were $157 million or an increase of 18% in comparison to the prior year with the operating margin increasing 150 basis points to 8%. The increase in full year earnings was primarily due to pricing recovery and cost saving actions offset by higher commodity cost and reduced organic sales volume.

Now several comments concerning our diluted earnings per share. As adjusted diluted net earnings per share were $0.36 in the fourth quarter versus $0.42 in the prior year or a decrease of 14%. The main drivers to our fourth quarter earnings were the significant reduction in net sales partially offset by lower commodity costs net of pricing and cost savings programs. For the full fiscal 2009 year as adjusted diluted net earnings per share were a record $1.98 versus $1.42 in the prior year for an increase of 39%. The key influence on our earnings for the fiscal 2009 year were: sequentially declining sales volumes, volatile and falling lead costs, coupled with pricing recovery actions and our ongoing cost reduction initiatives.

A cornerstone of our strategy remains to continuously lower all costs. As John mentioned earlier our cost reduction initiatives are both dynamic and very successful. Let me share with you some of the specific actions underway that will deliver the expected $32 million in annualized savings from our current restructuring programs. We have closed our Italian plant, downsized five plants in Europe and one in the Americas, reorganized our Americas and European sales organizations, and reduced general and administrative positions. In total, these actions will permanently reduce approximately 650 staff positions when fully implemented later in fiscal 2010. Many of these actions were identified and planned in earlier years, but could not be implemented until recently. While this recession has certainly been severe it has also provided the unique opportunity to dramatically lower our costs for the future.

Now some brief comments about our financial position and cash flow results. In short, our performance continues to be very strong with growing liquidity, secure and favorable debt facilities and a strong capital position as illustrated by the following five points. First, cash flow from operations for the fiscal 2009 year were a record $219 million and for the fourth quarter $93 million. Second, $163 million is on hand in cash and short-term investments as of March 31st, 2009, compared to $105 million at the beginning of the fourth quarter and $21 million at the beginning of fiscal 2009. Third, over $200 million remains undrawn from our revolving credit lines. Fourth, our leverage ratio was 1.3 times and our net debt to total capitalization ratio was 31% as of March 31st, 2009. And fifth, we expect our cash flow during fiscal 2010 to remain strong.

Capital expenditures were $57 million for the fiscal year 2009 and are expected to be approximately $45 million in fiscal 2010. Our planned capital spending in fiscal 2010 will continue to focus heavily on productivity improvements, cost savings projects, completion of the expansion of our thin plate pure lead capacity, and the introduction of new products. Our book effective rate was approximately 31% in fiscal year 2009 and is expected to be in the 30% range for fiscal 2010. As John touched upon earlier, we remain very active in evaluating and pursuing potential acquisitions around the globe. Within the past three months we have seen a noticeable increase in attractive opportunities as potential sellers are increasingly being pressured by both the severity of the recession and very tough credit markets.

Sell-side valuation expectations appear to be moving downward to more rational levels. Our strong capital position and liquidity remain a meaningful competitive advantage for EnerSys. We anticipate completing some transactions during the next 180 days. As we look ahead, we expect to generate diluted net earnings per share of between $0.13 and $0.17 in our first quarter of fiscal 2010 which excludes the expected $0.09 per share charge from our restructuring programs. This is identical to the guidance included in our May 13th press release.

Our anticipated first quarter earnings will be driven by three primary factors. First, a sequential quarterly reduction in first quarter revenue, primarily from declining organic volumes and lead based pricing. Second, a sequential quarterly reduction in commodity cost. And third, the ongoing benefits from our cost reduction activities. In closing, we are convinced then when economic growth resumes, EnerSys will be even stronger and better positioned. I remain highly confident in our company's future. Now John, let me take the call back to you.

Thanks, Mike. With that we'd like to open the lines for questions.

Thank you. (Operator Instructions) Our first question comes from the line of John Franzreb of Sidoti, please proceed.

Good morning, gentlemen.

Hi, John.

John, I want to make sure I heard this properly. You said your orders continue to be down 40% in the quarter. Is that true, are we seeing a stabilization of that order pattern, could you just clarify that?

Yes. What I said was since January our order intake has been flat and when you compare it to the high rate that we were running last year it's down approximately 40%.

Okay. Are we seeing a stabilization in that number.

Yes, we are. It's stabilized. Since January if you take the period January of this year through today and you compare it to the same period last year two things come out of that. One, the absolute number is down about 40%. But two, it is flat since January. Our order daily order intake is flat since January.

Okay. And the European sales number down 46% in the fourth quarter, how does that look motive versus reserve and what are your current customers telling you in Europe in those two markets?

Let me talk globally on that first John, because it applies what's happening globally applies specifically -- it's the same thing in Europe. The motive power market when you look at Industrial Truck Association data beginning this year since January it's down 42%. Globally motive power is being hurt bad. And when you look at Europe it's down worse than the United States. Asia is down in motive power also.

So what we're seeing in motive power specifically in Europe as I said it's not a pretty picture. What we're hearing is that it's the truck manufacturers are projecting it will continue to remain down for some time. I think the report that came out yesterday with the ISM even though that applies to the United States, one of the articles I read it said that similar reports in Asia, in Europe are indicating that manufacturing it starting to pick up in those regions. But specifically what we're hearing from our customers right now it's going to stay down for awhile.

Okay. And one last question, you couldn't help but notice in your prepared remarks at least three or four references to acquisitions. Can you prioritize what you're looking for in an acquisition, is it a new technology, is it a geographic purchase, or is it something else, can you just talk about what you're targeting in your acquisition strategy?

It's none of the above. It's enhanced performance of the company, return on investment for our shareholders. It's all of the above, whether it's a different technology or if it's geographic expansion or if it's another lead asset battery company, we're interested in all of them, John. And what we're looking for is a good return on investment for our shareholders.

Okay. How do you measure that return on investment?

Well, I look at that return on investment when we put our motive together that over a five year period we're hoping to hit an IRR of 25%.

Okay, great, thanks a lot, guys.

Our next question comes from the line of Corey Tobin of William Blair & Company, please proceed.

Hi, good morning, and congratulations on some [pressure] margins here in the quarter.

Thank you.

Let me start with a housekeeping question if I could. Can you please provide us with the price volume foreign exchange growth metrics by reserves versus motive for the quarter.

Well, for the quarter, broadly and I'm just going to talk unit volume, because I think the other trend pricing and FX are pretty clear. But to repeat, the volume component of our Q4, we were down 19% comparing to the prior year fourth quarter. When you look at the segments motive in terms of unit volumes was down 30% and reserve was down 5%. So again no surprise there as John covered clearly the motive power market is being hit very hard. Regionally again no particular surprises. Europe's unit volume both segments is down a little under 30%, 27%. We believe the Americas is down about 11%. And Asia is showing some growth, they're positive 7%. So, we view these as very consistent with what we would characterize as the macro conditions that we have been experiencing in our markets for broadly the last six plus months.

And so just to make sure I heard you right in the quarter Asia was up 7% from a volume perspective.

Correct.

Shifting gears going to cost structure for a second, the price of lead moved obviously quite a bit here. Can you just give us some recent levels as to how we should think about the components of cost of goods sold, specifically I guess in the quarter what was lead as a percentage of total cost of goods sold?

About 30%.

About 30%. And of the remaining 70% do you have a feeling for the split between fixed cost and variable cost?

Well, in total Corey, our fixed cost and this is looking at all cost of sales remains about a third. So broadly and clearly that's what we're attacking is our fix cost base, but it's still roughly a third of our total cost of goods.

And when you take a look at the fixed cost portion of it, then the other portion labor, I'm going to focus just on those two. In moving the manufacturing, take Italy as an example, to Bulgaria, we're taking down not only labor cost but we're also taking out 650 jobs, part of the 650 jobs total, those 650 will not come back. Our total employment is down over 1,700 right now from the peak. But the 650, we're looking at those from the standpoint as volumes come back those jobs will not come back. Obviously when production picks back up we will be adding production people. But the fixed cost to Mike's point is what we're really focusing on cutting.

Okay. Great. So just to sort of wrap it up, 30% from lead, 33% of the fixed costs, that means there's another roughly what 35% to 40% that's more of a variable type cost of goods sold?

Well, you have got material in there and you have got labor.

Okay. And then as we look at gross margins from here on out, obviously a great ramp last year, is the 23% number that we posted last quarter, would you steer us toward thinking of that as a floor going forward, or is there still some degree of variability coming around that depending on the quarter, how much could that vary from quarter to quarter?

Well, I'm confident in the cost savings initiatives that we have taking place, that they are going to drive margins up. The one that I think is downside the offset to it is going to be the volume side. I'll state it a different way. If our volumes would have been as high as they were last year at this period of time we would have blown through 25% quite easily. But the big problem is going to be when the -- if the volume goes down further than what this quarter was the sales, and you can see our earnings are down, so we're projecting this quarter that the volume is going to be down in the first quarter compared to fourth quarter it is going to be tougher to reach 25% target.

When you look at these volumes in our fourth quarter being down as much as they were and you think that we went up 400 basis points during that period of time, I'm pretty impressed with that. I think our guys did one heck of a job in really getting the cost and cuttings things down. There's not a lot we can do about the recession. There's very little we can do about it. We haven't lost market share at all, but we have done a great job improving our margins by really cutting the cost and managing pricing.

Great, thanks.

Our next question comes from the line of Paul Clegg of Jefferies, please proceed.

Hey, good morning, guys, thanks for taking my question.

Good morning, Paul.

I just wanted to kind of hit on the same point that Corey was talking about. But you covered the impact of the quarter from the different segments and geographies in terms of their impact on volumes, but I was hoping we could get a sense of the trends on orders, specifically geographically and what you're seeing there by segment and by geography. Are orders flat across the board as you look at the last couple months versus last year, or are there bright spots in there where you're maybe seeing Asian reserves picking up and other areas where you're seeing orders declining still year over year?

With the exception of Asia, let me talk about the western world first. They are flat. Europe is down more than the US market currently. Asia is actually picking up and we're starting to see some really nice orders come in with that. There's a lot of quote activity. I mentioned in the last phone call that the Chinese have announced a $41 billion investment in buildout for the 3G. We estimate that's going to be about $500 million in batteries. We are just seeing the beginning of that at this phase. I think there's a lot more to go on that. But Europe is clearly down further than the US.

So if Asia is picking up and Europe's down I guess what I'm trying to figure out is Europe still declining in terms of orders.

No.

So everything at this point in the different segments has actually flattened out even.

Exactly. The decline that we talked about since January if you go across the board, it's level, everything is level on reserve power and on motive power with the exception of Asia reserve power and that's because of China. It's up.

Okay. But if Asia reserve is up, then -- okay, so that's the only place where you're seeing things are not flat, they're actually up in terms of order flows.

That's correct.

Okay. Got you. I'm with you now. Then on the pricing in the current environment, as you look sort of month to month picture in June say versus May and May versus April, are you seeing any significant changes incompetent tore behavior are they remaining rational?

It's remaining rational. It's very rational. In fact I would anticipate with lead going up that we may actually see a little bit of price increasing taking place in the market.

Okay, interesting. And your reserve operating segment margins and profit were obviously very strong on year over year basis particularly when you consider the macro climate. I'm trying to determine where on the income statement you're seeing the biggest drivers of that. Is it more within the segment, is it more gross margin oriented through the reduction in manufacturing overhead, or how much of that I guess on a year over year improvement basis for the reserve segment is driven by operating expense reductions that are allocated to reserve?

It's mainly because of operating, as you said earlier the operating cost reductions, the cost savings we put in place. Let's go back to about a year and a half ago when motive power was running significantly better than reserve power. I was asked the question, what are you going to do about reserve power? I made the statement at that time that motive power used to be less than our reserve and what we did was made major investments in our motive power to improve it. And we did a great job with that. We got motive power margins up higher than reserve. A year ago I said we're going to invest in cost reduce, and really clean up the operation further on the reserve power, which we have done. We're starting to see the benefits of those come through. But the other factor that gets into it is that motive power volumes have gone down considerably. The motive power market globally on -- whether it is on electric or gas fork trucks globally has been devastated. I mean it is way down.

I mentioned 42% earlier on electric, on gas fork trucks it's down something like 49%. The fork truck industry is just gone on hold, it's half of what it used to be. Now, the good news to that, if you go back and look over a 35 year period which we have done, every time you see the motive power market drop off, every time there's a recession like this, what we end up seeing is demand for our products come back strong double digits. And we're fully anticipating that's going to happen now. These batteries that are not being used in the fork trucks today, they're going to go bad. It would be like parking your car in your garage and letting it set. If you don't charge it and keep maintenance what will happen is the battery goes bad. We find a lot of users don't take care of the batly during these down times and it will come back strong.

And just to compliment, Paul, most of these savings are clearly in the gross profit arena, cost of goods. Clearly that's where the majority of our costs are and that continues to be where our primary focus in cost reduction will remain just by the simple calculus. That doesn't mean we aren't looking to save money in selling and G&A, but it's just that proportions will continue to be heavily focused in the gross profit arena.

And to reemphasize on the SG&A side we talked about earlier we have quite a number of head so the 650 that are coming out a number of those are coming out of the SG&A area. As an example we had order points in many locations in Europe, in a lot of back office operation. We are in the process of consolidating those operations to Bielsko-Biala, Poland. And that will eliminate quite a few different people or jobs.

Okay, thanks, that's super helpful. If I can slide in one quick one. Any update on Chinese telecom bidding and visibility on when could you have visibility on you being able to get some of that market share orders start to flow there?

As we said earlier our orders are picking up right now. In part I believe it's because we're starting to see the beginning of it. I think it's got a long ways to go, but I'm real pleased with our operation in China, our Asian operation is performing the best it has in quite a while. We have made a lot of changes in our Asia business and things are moving along fairly well over there.

Okay, great, thanks very much guys.

Our next question comes from the line of Dan Whang of B. Riley & Co, please proceed.

Hi, yes, guys, good morning.

Hi, Dan.

My question was regarding the reserve business. Obviously that's performing much more better than the motive side, reserve volume down about 5%. Could you talk about what exactly driving that relative performance investment in next generation 3G triple play focus? And is that relative performance sustainable as you see the trend starting down?

Yes, Dan, I think you heard me say in the past that it's my belief in the telecom industry you're not going to see CapEx spending totally dry up. The reason I believe that is its such a competitive business if the telecom do not continue to invest in themselves in my opinion they will cease to exist. In other words the competitors will knock them out of the business. So they are going to continue to invest and they're doing that. That being said it's not at the same rate as it was a year ago. So I think the whole industry has slowed up a little bit on investment, but they still are investing higher rate than motive power for example. UPS I think the banking industry has hurt that because I think data centers have slowed up although they're still spending. We're hearing from a couple of our late major OEMs that their quote activity is up considerably. So I think you've got a different market dynamics taking place in the reserve power business as opposed to motive power business. The manufacturing and distribution end of things on motive power is taking a big slowup.

Got it, great. And just moving over to -- I was reading through your K, and your current lead contracts that are in place, I think it was sequentially down the amount of hedge that you had on contracts on the December quarter. So I mean I know lead prices have moved up a little bit, $0.70 type of range from $0.50. Could you show your current views on the commodity cost management strategy I guess particularly on lead?

Sure. When you go back look at your December 2008 number we were at approximately 11% of our 12 month requirements and as you alluded to in the K we're presently at 7% in March. Since then we're currently at 10%. We're approximately at the same point we were in December. Now a little bit about the strategy on this thing. When you look at the hedges that we did this last year, we hedged three to four months out. When we look at hedging we say at the time that we're taking orders and we look at our backlog and say we want to cover that period of time because we have a pretty good idea what the price is, we have a pretty good idea, we know where the cost of lead is, so we will go ahead and lock that in. So during that period of time we feel pretty comfortable with what we have.

The concern is if you're looking six months or a year out in this volatile market, I'm very nervous about hedging that far out with any substantial volume. If you take a look at this last year, if we wouldn't have hedged at all, not at all, even though we knew what the price was, if I compare our lead hedge to what the [LME] was on those given days, we would have saved $54 million. Our hedges cost us $54 million this last year. Now, I'm okay, I wish we hadn't had those hedges, but I think we had certainty at the time we placed those hedges because as I said earlier it was in backlog and we knew the pricing. My big fear is getting out long on the market, going out and locking in at $0.75 a pound which it is today or $0.74 a pound today, let's say we lock in 25% or 30% of our requirements and all of a sudden lead drops down to $0.40 a pound. What would happen our competitors would be able to lower the price to the customers, assuming that they had LME pricing on lead at that time, it could be devastating. It's very high risk to us.

So this volatile market, our view on it has been go short on it, because we demonstrate we have the ability to pass it along in pricing when it goes up. But also when lead goes down the customer comes back and wants price reduction. 35% of our sales globally is on automatic pass-throughs, so it's how we manage the other 65%.

Right. Okay, great. That's very helpful. I think jumping over to your CapEx plan, I think you said you continue to plan allocating some of the CapEx towards the lead expansion, and I think the last time you commented on that you were expecting some of that additional capacity to come online to the latter part of this year. Can you talk about how that's progressing and the demand for template products?

Yes. The demand for template products is still there, it's still strong. We have capacity in place right now to support the markets, because the markets are down. If I didn't believe that we would see a turnaround in the markets in the next 12 to 24 months we would have pulled that investment off the table. But I really believe that the demand, the interest in the product continues to remain very strong, and I think we are continuing ahead with that investment, because by the time we get that implemented hopefully we will see volume start to come back. And if they're not back at that point in time they will be somewhere in the near future.

Great, thank you very much.

Our next question comes from the line of Richard Baxter of Ardour Capital, please proceed.

Great, thank you very much. Question I guess on the remaining restructuring charges in 2010, are you going to look to accelerate those towards the first half or just flat through the year?

Well, the restructuring charges will be more front-half loaded than second half. You can't be precise because the majority of those deal with severance related obligations where the timing is a little less certain. But clearly charges will be front-half loaded and savings will be back-half loaded as the obvious it takes time for particularly the severance-related benefits to start to flow through.

Okay, thank you. And I guess one last, on I guess pricing competition what you're seeing in the motive versus reserve markets, I mean generally things get tight during a recession, so I was wondering what you're seeing there.

They're fairly rational. We're not seeing major changes at all. My personal belief on that is many of our competitors are losing money today. And that being the case, there's no advantage for them to cut the prices. We are profitable, we're doing well, we have cash, we obviously could go out and cut prices, but we're not going to do that. We are the leaders in the industry and we're going to act like leaders, we're going to do whatever we can to keep our prices at a reasonable level. I don't think it's unreasonable to try to make 10% at the operating earnings line, I don't think we're gouging the markets or anything like that. I think we have got to do everything we can to hold pricing. So far the markets have been rational and allowed used to it.

Thanks. Then I guess the last is I guess on the motive, come back from the market, generally motive is sometimes lagged a little bit from GDP, you're thinking because of the lack of investment there it might be more concurrent with GDP growth if and when that comes?

Actually historically we know this about motive. Motive tends to go into recession earlier than the general economy and it comes out quicker. And we expect that trend, Richard, to play out this time as well. So we would believe that the precursor of an improving world, we should see orders in motive accelerate earlier than the general economy.

Great, thanks.

Our next question comes from the line of Mike Gallo of CL King, please proceed.

Hi, good morning. My question is with lead pricing starting to tick up in the last couple weeks, whether that's lead to any increase in inquiries given as customers start to look at the potential if they wait three, six or nine months that the cost of the products may be increasing if lead pricing has bottomed and continues to move higher. Thank you.

I don't believe so. I don't think that customers follow it as closely. I'm sure there's some, but I think that would be the exception instead of the rule.

And then just question as you look at Asia, obviously it's the strongest area right now. I was wondering if you had any additional plans how you look to address that market obviously given the anticipated increase in battery spend over there. Would it make sense to have more or to have more of a manufacturing presence over there, would you look to do that via acquisition, or just how do you look to address that potential market, the $500 million battery spend in the next couple years? Thank you.

Well, a couple points on that. We have three manufacturing plants in China today. At one point I don't know the employment level today, but it's probably in the 900 range to the 1,000 range total in Asia. We manufacture both reserve power and motive power. We have the capability of converting the motive power products to reserve power. So what we have been doing when we see high surges in volume we will actually manufacture motive power products as going into countries like Australia, we will now manufacture those products in Poland and ship them over as opposed to manufacturing in China and ship them over, the reason for doing that is we create extra capacity to support the growth you're referring to. So we have like I said three plants there today, quite a good base.

But that being said I would like very much to buy a larger battery company in China today. And it's one that we're searching for. We have been unsuccessful to date but we have talked acquisitions or some about acquisitions on this phone call that's clearly an area we're looking at for additional acquisitions.

Helpful context, thanks.

Our next question comes from Jesse Pichel of Piper Jaffray. Please proceed.

Hi, this is [Elaine Quay] for Jesse, thanks for taking my question. I was wondering you mentioned the come back in demand on the motive power side of things, and I was wondering is this something that would we would expect to see sort of a linear trend, or is there some seasonality we would expect to see in the coming next few quarters?

It's not going to be a seasonality thing. There really, there isn't much of a seasonality to motive power. What is going to bring it back will be when the demand for distribution and manufacturing takes place, when we start to see a rise in those areas we will see it come back. I used to be a former plant manager years ago, and whenever we had cutbacks we would look at whatever we could do to save money at that time. An example of it, I can recall, we had three fork trucks, we went from three shifts to two shifts, we would take the battery out of the third fork truck to run the other two. I'm sure people are doing that today. I know other plant managers out there they know what I'm talking about, you cut back as much as you can on those things. But all of a sudden when things pick back up again, then you start to make those expenditures. And I fully anticipate it will come back again.

Okay, great. Could you give us a little more color about the thin plate plant ramp, and when you'd begin to expect to see some impact there to the financial statements and whether that's more likely to benefit motive or reserve segments?

It's going to benefit the reserve segments to start with. And when that comes back is going to be tied to the economy. Today we have the capacity to support the demand. Just to back up a little bit, when we announced we were going to make that investment in our Warrensburg, Missouri plant and Newport, Wales plant to increase capacity of thin plate lead, that's because we did not have the capacity to support customer demand working seven days a week, 24 hours a day. Markets being down, the recession being what it is, we have the capacity to support customer demand today. We don't need the added capacity right now. We're going to continue to put it in place, because we know or believe strongly that the markets will come back, and when they do we want to be in a position that we can support that growth.

Okay, great. And just lastly, could you describe if you have seen any changes in sort of end market demand or trends since your announcement from a few weeks ago? You mentioned seeing orders flattening out I'm wondering if things have changed very much in the last month or so.

Nothing has fundamentally changed. I think it's pretty much consistent. It's more hearsay type things, what we're hearing from customers, and some orders are picking up. The ISM report yesterday was a sign, we're seeing some signs, but there's nothing I would say that fundamentally changes anything in our guidance.

Okay, great, thanks so much.

Our next question comes from the line of William Bremer of Maxim Group, please proceed.

Good morning, gentlemen.

Good morning.

A lot of good color on a lot of points. Could you possibly give us a little clarity on fiscal 2010 in terms of just an overall geographic revenue type mix as we're seeing Asia start to pick up here?

Well, Bill, I wish we knew more, obviously, but certainly I think the pattern that we have experienced the last six months we expect to see going into the first half of 2010. Specifically we believe the Asia market and business will be the strongest of the three. We believe Europe will continue to be the weakest and America's sort of in between. So we really don't see anything that's fundamentally going to change that pattern in terms of the relative mix by region or within segments. So, clearly we hope that we start to see the precursors of demand pick up, but as John's commented we really don't see anything that would indicate that it's near term. But clearly we're prepared whichever direction it goes we are prepared and we will adjust accordingly.

And then just housekeeping question in terms of an overall tax rate, did I hear correctly low 30%s?

You heard 30% range. So, take 30% plus or minus and that's where we expect to be. So no demonstrative change change is expected although we do believe there will be a modest improvement with our crystal ball as hazy as it may be. And the key always becomes, and I'll put aside a lot of complexity, it's a simple as the relative profitability in the three regions of the world we operate. And unfortunately in one sense the Americas regions year term has been on a proportionate basis more profitable and that is the highest tax rate of anywhere in the world we operate. So that mix can shift a little, but in short we see it coming down modestly.

Okay, great, thank you, gentlemen.

Our next question comes from the line of Dana Walker of Kalmar Investments, please proceed.

Good morning. Could you comment on how the ugly reduction in volume in Europe is affecting the providers in the European market?

Providers?

Well, the other manufacturers.

Meaning our customers or competitors?

Your competitors.

I can't tell you specifically because I don't know. I can only go on hearsay with it and what we're hearing from customers. But my assumption is it's affecting the same as it's affecting us.

Do you find though whatever [reentrenchment] they might feel necessary to take is more destructive to their ability to serve the customer than you? I'm wondering if you expect to come out the other end a stronger player in Europe than you were going in.

Absolutely we will come out a stronger player, there's no question about that. And the reason we're doing that, and when you look at the $35 million restructuring we talked about earlier, and as we said in our opening comments, most of that's going into Europe. We're addressing our cost structure big time in Europe in that business. As an example shutting down the [montoka] plant which is an expensive proposition to do. But our competitors, specific in details what they're doing on it, I really can't comment on that.

Any feel -- you've talked about how motive demand is broadly down, do you have a sense for how that affects you with new batteries versus replacement batteries, serving new lift trucks versus replacement demand within the existing fleet?

It's hard for us to get that data specifically by region. But what our belief is that on a percentage basis that our orders today are more for replacement than they are for new trucks.

John, one final question, and it relates to pass-throughs. You have tried to adjust your mix so that you have less pass-through responsibility to customers. How do you feel about those decisions today and how do you expect it to affect you?

Well, we're at 35% approximate on automatic pass-throughs. I would rather in most cases I would rather deal on each point of sale and negotiate price, that's just my personal belief on it. But having a mix that's approximately a third that's automatic pass through does add a little more certainty where you're going with things. It basically comes back to one philosophy, be easy to do business with. And be flexible enough that what your customers want you're willing to take and do it as long as it's a reasonable deal for both entities. And that's what we have done. We can work with customers on pass-throughs based on a lot of different ways, we can do it at negotiate the price at point of sale, it picks up market share by being easy to do business with, and that's our philosophy with it.

Good luck.

Thank you.

(Operator Instructions) Our next question comes from the line of John Franzreb of Sidoti, please proceed.

John, you just rereferenced that $35 million in cost savings and the $32 million in annual and $0.46 of profits to the per share line. Is that based on the current revenue stream or do you need an uptick in volume to hit those targets?

Yes. First off just for clarity it's a $35 million investment. $32 million annual savings to $0.46. Mike?

Right.

Yes, John, let's call it it's in the zip code of revenue range that we anticipate coming at us over the next 12 months, so those numbers are reflective of where we believe the business will largely operate.

Okay. So that's based on recovery or some type of recovery revenue outlook.

Yes, sure, it's based on our assessment of where we think revenue will likely be over the coming 12-month period.

And by the way I'll add to that that we are being very practical or pragmatic in our forecast. We're not projecting, I said earlier that what economists are saying more we will see a turn around late 2009, we are not projecting that. Okay? The ISM report yesterday, we're not projecting we will see a pickup. We think it's going to be relatively low. The other thing is the $32 million, when you look at the savings with it, I talked about the number of fixed heads that are coming out that will not come back, it's a larger portion on this one than you'd typically see in a program this size.

Fair enough. Thanks, John. And based on the guidance for the June quarter, does that assume that motive is going to remain profitable, or the volume -- is the volume degradation enough that it's not going to be contributors to P&L?

John, we would expect both segments will remain profitable so clearly there is more acute pressure on motive as you've highlighted, but no, we don't foresee a fact pattern where either of the segments would not be profitable.

It's going to be -- and I agree with what Mike says wholeheartedly. But we're also anticipating the sales on motive power is going to continue to remain dismal in the near future. We're not looking and counting on a big pickup in volume in the motive power. Now the beauty of it is if we're wrong on that and it does pick up, we are going to be in very, very good shape. But we're going to plan it conservatively. We are going to plan our volumes to be low, we're not going to plan that we're going to see a major turnaround take place any time soon, and we will weather through this thing quite nicely.

Our focus is on when we come out. We can't predict when we can come out of it or when we will come back out of it, when the volumes will come back. So our focus on it is fix the issues we can right now. Get the cost base down as low as possible. We're doing things today we couldn't have done a year ago when we were growing at double-digit rates.

Okay, thanks a lot, John.

And there are no further questions in the queue.

Okay. Well, let me summarize it by saying this, obviously the short term everyone knows we're in a recession and everyone knows that things all companies in the manufacturing base as far as I know are experiencing similar type things. This to me though is an extremely exciting period. Over the last five or since we did the IPO in 2000, we have acquired 13 companies. Acquiring 13 companies and trying to put those companies together, we have been able to run them and run them quite well. We have had double-digit growth almost every year since 2000.

Now we have got a slow up. Now we have the time to go back and take care of things that needed to be integrated to be one company. And I'm supremely excited where we're going with this. The short term, yes, it's an issue. The longer term and I'm a longer term investor in this company and I'm very excited about where we have got it going. So with that, everyone, have a good day and thank you for calling in.

Thank you for your participation in today's conference. This concludes the presentation, you may now disconnect. Have a good day.