Magna International Inc (MGA) 2002 Q4 法說會逐字稿

Good morning ladies and gentlemen. Welcome to the Decoma International Inc. discussion of results for the fourth quarter and year end of 2002. At this time, all participates have been placed in a listen only mode. Following the presentation, we will conduct a question and answer session. Instructions will be provided at that time for you to queue up questions. If anyone has any difficulties hearing the conference, please press star, zero for operator assistance at any time. I would like to remind everyone that this call is being recorded. I would now like to turn it over to Mr. Randy Smallbone, Executive Vice President of Finance and Chief Financial Officer. Please go ahead sir.

Good morning everyone. Welcome to the Decoma fourth quarter and year end conference call. I hope everyone has had a chance to review our news release from yesterday. With me this morning is Alan Power, President and Chief Executive Officer; he is out of the office today but will be available for the formal part of the call. Al will start with a discussion of key accomplishments for 2002 and the current industry environment. Then I will take you through highlights of our financial results and outlook for 2003. Al will then return to discuss our priorities for the current year followed by the question and answer period.

Before we begin, we wish to remind everyone that today’s remarks and our response to your questions may include forward looking statements within the meaning’ and interpretation of applicable securities legislation. Such statements involve risks and uncertainties that may cause anticipated events and actual results to be materially different from those either expressed or implied during this call. These factors include specific risks relating to the auto industry including price concessions and cost absorption, reliance on major OEM customers, production volume and product mix, excess OEM production amounts, currency exposure, environmental matter, new facility launch risks, trade and labor relations, energy prices, changes in the competitive environment in which Decoma operates and government and regulatory policies amongst others. In this respect, we refer our listeners to the company’s MG&A for year end and fourth quarter attached to press release issued yesterday and its other public filings with the Ontario Securities Commission and the SEC. I’ll now turn the call over to Al.

Thanks Randy and good morning.

Fiscal 2002 was another excellent year for Decoma during which we retained our sales and earnings momentum and posted strong financial results. We achieved these results despite a number of industry challenges including continued pressure to provide price concessions to OEMs and general softening in our markets later in the year.

Highlights for 2002 include broadening of our customer base by customers and geographically including further inroads with new domestics in North America. Introduction of award winning products and technology including automated running boards we supply for Lincoln navigator. Increased content per vehicle in both North America and Europe. Continuing operational improvements at key facilities in North America and strategic investment at our new facility in Europe to support our future sales growth and the ground breaking of new Decostar mold and paint facility near Atlanta to support the growing manufacturing output of OEM customers in this region.

From an industry perspective, 2002 retail vehicle sales remain much stronger than originally anticipated. In North America, production volume increased 5% to approximately 16.5m vehicles the third highest year ever. In Europe, production declined to 16.2m vehicles. Throughout the year OEM incentives continue to bring consumers into the show room. However to offset OEM continue to look the supply base for concessions. While pricing pressure remains a reality to all suppliers including Decoma, our continued focus on invasion operating efficiencies and process improvements put us in a much stronger position than many of our competitors to meet these demands and grow both sales and the earnings this past year.

In 2002, our North American operations continued to reap the benefits of new programs and improved processes implemented over the past several years resulting in strong gains in sales and content per vehicle. Sales and contact growth were driven by higher production volumes in our top five platforms and full year contribution from our auto system acquisition 2002. We also secure a number of new take over contracts including content for the Cadillac Escalade and Denali SUV. In Europe, we continue to focus on the strategic realignment of our operations with a particular emphasis on under performing facilities, such as Merplas. Our emphasis throughout Europe is to improve operating efficiencies and implement many practices already rolled out in North America. In particular, we reduced operating losses at Merplas for the year while focusing efforts on securing incremental business to fill this plants production capacity.

Looking ahead to 2003, our outlook will continue to be impacted by market conditions includes excess OEM capacity, production cutbacks and OEM price concessions. Indeed, we believe there has never been more of a [inaudible] competitive time in our industry. We anticipate the follows from these various market pressures will result in further industry consolidation. Decoma is in strong approximate position to be one of the consolidators and make further gains in market share versus our competitors.

Last month, we announced our bid to purchase the fascia manufacturing and certain other assets from Pegaform(ph) France. This deal remains subject to on going negotiations and a variety of regulator considerations and we hope to be in a position to update you on progress in these matters soon. I’ll now turn the call over to Randy who the take you through financial results for 2002 and guidance for 2003.

Thanks. By now most of you have had know opportunity to look at our news release and MD&A.

I'll start with over view of results for the fourth quarter but focus my discussion on the full year after which I will outline forward guidance for 2003. Total sales for fourth quarter was 13% to $528.2m compared to $466.4m for the same period last year. These results reflect higher content per vehicle and a modest increase in production volume in North America and slightly lower content per vehicle on production volume in Europe but in line with our outlook. On segmented basis, North America production sales grew 14% to $350m in the fourth quarter. These result 13% increase in content per vehicle to $90 compared to $80 in fourth quarter 2001. European production sales excludingMerplas, increased 5% to $117.2m, however, content per vehicle decline 3% to $30 compared to $31 in fourth quarter of 2001. The reduction reflects reduced volume on certain service part programs with Ford and the Jaguar X400 at our Merplas facility as well as lower combined sales measured in Euros at our facilities in Germany and Belgium.

Taking a looking at bottom line, net income increase 17% to $23.1m or $.25 per fully diluted share. This compares to net income of $19.8m or $.20 per diluted share for same period last year. Total sales for full year grew 13% to $2.0567b versus 1.8159b in 2001. These results are in line with guidance issue with third quarter results on November 5th. Sales growing reflect the strong perform of our North American operation and modest gains in European operation. North American production rose 18% to $1.3915b compared to $1.1804b in 2001. These results reflect 12% increase per content per vehicle to $85 in 2002 compared to $76 last year. European production sales, including Merplas, increased 3% to $457.1m in 2002 compared to $445.8m last year. Production sales at Merplas increased 22% to $34.7. Total European production with Merplas increased 4% to $491.8m in 2002 compared to $474.2m last year. These results reflect a 3% increase in content per vehicle to $30 in 2002 compared to $29.

Gross margins as percentage of total sales increased modestly to 20.6% in 2002 compared to 20.1% in 2001. Gross margins were positively impacted by contribution from new take over programs. Programs launched during or subsequent to 2001 as well as the company's on going continuous improvement program. Gross margins were offset by cost support future European sales growth as well as lower production volume on certain hi content programs in North America. Going forward, we see gross margins declining slightly in 2003 with impact of new facility start ups that will expensed at start up and the increase in front-end module program. In terms of expenses, SG&A costs were up 19% to $137.9m in 2002 compared to $115.7m in 2001. Now this increase reflects a variety of facts including addition expense from the auto systems acquisition, additional cost associated with the Merplas and UK sales and marketing effort and new management and program costs else where in Europe as well as the $1.8m write off for certain fixed assets that were taken out of production this year.

Total operating income for the year increased 23% to $173.7 compared to $141.3m for 2001. Now adjusted to eliminate impact of goodwill amortization of $3.9m in 2001, and the deferred preproduction expenditure write-off of $8.3m this year operating next was up 25% to $182m in 2002 compared to $145.2m last year. Net income for 2002 increased 35% to $93m from $68.7m last year. This increase partially reflects the strong performance of company's North American operations and lower interest costs and partly offset by increase in company’s effective tax rate this year. Diluted earnings for per share increased 27% to $1.03 in 2002 compared to $.81 last year. During 2002, the weighted number of class A and class B shares outstanding grew 7.7m to 98.3m and increase of 8.5 year over year. Our BS remains strong with $82m in cash or cash equivalents as of December 31, 2002.

Looking forward to 2003, we see several challenges on the horizon due to certain industry environments. However, we believe we are in strong position to weather this uncertainty. Looking at the full year, we are basing our outlook on North American light vehicle production of approximately16m units or 2% lower than 2002. We assumed European light vehicle production volumes of 16.2m units which is essentially flat with last year. On the sales front, we expect modest growth with 2003 sales to rank from 2.05b to 2.2b. We expect content per vehicle will remain consistent with this year compared to 2002 as new major launches will come on board in 2004. For 2003, we expect content per vehicle will be in the range of $80 to $85. We anticipate much stronger content growth in Europe where we expect content per vehicle to be in the range of $35 to $40. Now these content per vehicle numbers exclude any acquisitions pending or otherwise. Approved capital expenditures for 2003 will be $195m. Significant expenditures include Belplas painting facility in Belgium and our recently announced Decostar(ph) facility in the southern US. Our diluted share for 2003 is in the rage of $.84 to $1.01.

In summary, we see 2003 as a transitional year with modest growth and sales and somewhat reduced [inaudible]. Sales and content growth will be influenced by lower production volume and a higher number of new program launches with traditional slow ramp curves in 2003. Earnings will be influenced primarily by investment in new facilities and reduced production volume on high Decoma content vehicle. However, as I mentioned previously, Decoma is in a solid position to weather current market conditions and uncertainty. We have a strong BS with access additional capital to pursue our growth objectives including selective acquisitions which will the set the stage for continued anticipated sales. Content and earnings growth over the years. Now back to Al to discuss key priorities for 2003.

Now that we provided our guidance for the year, I'd like to discussed strategic priorities for 2003.

Given the current industry environment, one of our chief priorities in 2003 is to reduce or delay or eliminate any non-essential capital expenditures in the current fiscal year. To insure that we meet the targets we have outlined today, we plan to closely monitor all capital expenditures for equipment upgrades and negotiate delayed payment terms with equipment suppliers where possible. We will focus on minimizing start up costs for new facilities in Belgium and Georgia where we are scheduled for launch in early and mid 20004 respectively. While we have made significant operating improvements in some of the underperforming divisions in Europe, we recognize there is still considerable work to be done. We will continue to monitor these divisions in 2003 to insure that we direct the proper capital and human resources necessary to execute our turn around plans. Our primarily goal is to eliminate operating variances and ensure that each of our underperforming divisions demonstrates significant year over year improvement. The current environment also provides opportunities for us to pursue select acquisitions that allow us to further diversify our product offering and customer base.

Finally, we will continue to pursue an aggressive strategy to diverse our product and customer mix. On the production side, we plan to increase R&D spending on key new products such as TPV sealing systems which offer significant long term growth potential. We will also invest in composite parts such as lift gaits, tail gaits and running boards for SUVs which are more durable, light weight and offer greater style flexibility than existing materials. On a customer side, our objectives are to significantly increase our business with Asian OEMs and diversify European customer base. We are very encouraged by the progress we are making with the Asian OEMs which are showing a much greater willingness to outsource components than in the past. To maximize our opportunities with these OEMs, we have increased our presence in Asian through key management, sales and engineer hires who are working hard to pursue alliances with Asian suppliers and leverage our existing relationships with Asian OEMs in both North America and Europe. We are already working cooperatively with several Japanese suppliers on new technologies for back door modules which would open new markets for us with Asian OEMs some new domestics. On the European customer front, our recently announced bid for Pegaform, if successful would result in the addition of two premier OEM customers to our European custom base.

In summary, 2002 was another excellent year for Decoma, while our industry faces challenges in 2003, our market and financial positions are strong. Our prospects to win new business via take over contracts and select acquisitions are solid. We are optimistic for continued anticipated growth in sales, content and earnings over the next several years. The substantial investments we are making in 2003 are required to accommodate future sales growth in 2004 and beyond. That concludes our formal remarks, I mentioned at the start of the call I am traveling today and will not be available for Q and A, however, Randy will be pleased answer questions at this time. Thank you for your support in 2002 and I look forward to working with you in 2003.

Operator I'd like to open the call for questions.

Thank you one moment please. Ladies and gentlemen, we will now conduct a question and answer session. If have you a question press star followed by one on your touchtone phone. You will hear a three tone prompt acknowledging your request. Your questions will be pulled in the order they are received. If you would like to decline from the polling process, please press star followed by two. Please make sure you lift the handset if you are using a speakerphone before pressing any keys. One moment please for your first question.

Your first question from Justin Wu from Griffiths, McBurney & Partners go ahead sir.

Good morning a few questions. First on SG&A, you guys booked $1.8m charge in there is what related to Pulmatel(ph).

No it's related to two pieces. One relates to a chrome line in Mexican facility that we looked at moving into Europe but it cost prohibitive to do it so we wrote that off and other another is foaming carousel which is Belfast facility with expansion of paint line. We have to take those out of commission so we wrote them off.

So going back to Pulmatel, you guys are running two facilities and transitioning to one has that been completed.

We are still in the of moving programs from the old facilities to the Pulmatel facility.

Should we –

We anticipate that to be fully completed by end of first quarter.

Should we expect some kind of write down relating to that facility.

No.

Okay second question is I was wondering if you could go through key product launches in North America and Europe this year and when they launch, in which quarter.

One of the largest programs we would be launching in 2003 is the Chrysler LX program, which certainly we factored that into our annual guidance. With the L X, there's going to be about four months worth of down time for the Brimley(ph) assembly plant and then a relatively slow launch as they bring on the various models in the later part of ’03 and into ’04. Of course, the other issue is the sales on the existing LH program as it nears the end of its life. The other major programs are the, in North America is the free star, which is the conversion of the WindStar program, the new WindStar. That's coming up in the summer months. In Europe, the major programs launching are the transit van, which has a relatively slow launch curve. The VW Passant program, which is for Belfast and the latter part of ’03 and ’04 is the launch of the Mercedes-Benz A class program.

The Passant at launch is in Q2.

No, its near the end of the Europe -- end of 2003.

Ok and just on the free star, is there incremental content there.

There is some incremental content.

And just my last question is on your guidance, I guess implied within your earning guidance assuming a pretty severe hit on gross margin. Could you categorize where for us where margins are going as we proceed through the quarters of year.

We're not giving guidance on the specific gross margins for ’03 or beyond. But some of the impact of gross margin on a macro level would certainly be the front end module particularly in Europe where we have a lot of purchase components which could compress the gross margin. The other thing is that we talked before, we have elected to expense all of our preproduction start up cost for our facilities, in the past we would have capitalized it. So that has impact on compressing our gross margin.

Thank you.

Thanks.

Next question from J.P. Benson from CIBC World Markets. Please go ahead.

Hi JP.

Good morning. The fourth quarter North American content per vehicle, pretty strong number especially when you look at what some of your top programs did from a production stand point in the quarter. Can you comment on where the strength came from.

Primarily a mix in the further quarter of our business. As you are all award the Ford Explorer was extremely strong in the fourth quarter and also for us the mix within the Explorer was on the higher line vehicle and also there was the launch of the new Lincoln Aviator which came in the fourth quarter which is a hi contented vehicle. It was just a general mix of the higher line/higher content vehicles that we have that we sold in the fourth quarter.

Okay. I was surprised given the minivan would have been a drag in some other programs.

Although it's a hi sales program for us, the content is relatively on the lower side compared to something like the Aviator or an Escalade.

Fair enough. And on the Capex, you talked about the two biggest chunks Belfast and Decostar, but it seems like to get to $195m there have going to be a lot of smaller chunks as well.

With the other facilities opening up.

Poland.

Polish facility, there's module tech, there is a number of assembly and sequence operations that we’re setting up in Europe to supply to VW and a portion Mercedes-Benz.

Decostar you said, I think $77m in total.

That's correct and the majority of spending happens in 2003.

So 75% or 80% of that gets spent.

Pretty much so and with Belfast, primarily all the Capex with Belfast is in 03.

Can you remind me of that total.

Including land, the building and the paint line it's up ward of $35m.

That's all for me thanks.

Your next question from John Novak of TD Newcast.

Randy, can you talk about SG&A in Q4; it was a large incremental jump from Q3. What was in that.

Some of it, of course, there is the $1.8m write off of certain fixed assets; results of some exchange adjustments in the fourth quarter and the other thing is the profit participators within the company from the system general managers up, there profit participation bonuses are booked into SG&A. And then other additional marketing cost from the future programs we're developing for North America on the specialty vehicle side of the business. There was the [inaudible] show in November and additional sales and marketing effort in Europe.

What is the run rate for SG&A going forward on quarterly basis? Is this the new level.

No, it peaked up in the fourth quarter. But we like to see is our SG&A around 6.5%.

Okay. And what happened with the large reduction in inventory in Q4 and will we see this reverse in working capital become a drag in Q1.

The biggest change is working capital some of the tooling that was sold in the fourth quarter. Primarily in Europe, we use a lot of tooling off the books.

Okay.

Normally production inventory raw materials, work in progress and finished goods is relatively stable because we [inaudible] adjusting time system and we have relatively constraint spaces within our facilities. The tooling fluctuates quite a bit.

And why did interest expense decrease during the fourth quarter.

Certainly some of it was that interest rates remain low and we generate a lot of cash. We have about $85m in cash on the BS and in 2002, I think we paid bank debt down my about $129m.

Okay.

So 2002 is extremely strong for Decoma from a cash flow stand point.

What was the amount of new business booked in Q4 and all of 2002 and what were some of the more significant wins.

I don’t have that information available but I can get back to you on it.

Can you give a sense of estimated start up cost for Belplas and Atlanta facility.

For the Belplas facility the approved program cost it's about $10m. And the Belfast facility is probably $5m.

Decostar is $10m and Belfast $5m.

About $5m.

Okay.

And those obviously have been factored into our numbers.

Those are pretax numbers Randy.

Yes.

Great thank you very much.

Your next question comes from Peter Skolar(ph) from [inaudible].

Peter.

Hi. Those launch cost numbers you just responded to John about the $10m in Decoplast and the $5m in Belplas. Is that all 2003 or is that the total launch?

Most of the majority in 2003 but some in 2004.

Okay, I wanted to ask you about your North American -- you're showing no North American content growth. You must have some programs ramping is that there is off sets with LH being down as well as price adjustments.

Certainly in the industry right now -- to get ahead of the give backs you got to go 3%. And if you look at -- there is a big fluctuation in some of the mix in our business in ’03. I mentioned the LH and there is a number of other programs that we think are going to be down from a content standpoint. Certainly, we had a good year on the Explorer business with the higher content on the vehicles and higher line. One of the assumption we’ve made is the lower lines of the Explorer will sell more in 2003 and we’ll be saturated on the hi end.

Okay.

Really we focused on the mix of our business in 2003 again, we obviously look at the economy might be in 2003 and what vehicles they sell, higher content versus lower contented.

I understand. The other question I wanted to ask you on Decostar, what are the main program that are going in there. I believe it's Mercedes work.

The main program is the Mercedes-Benz M class and the new tall car, which is code named GST right now.

Okay and so for example where would Mercedes now be getting there fascias for their M class production.

From one of our competitors who is going out of the fascia business.

I understand. Just on Merplas, what is going to be the salvation there? I guess Jag has to get their volumes up.

Certainly the volumes haven't lived up to our expectation of what Ford gave up for planning volume. Our understanding on the Jaguar X400 [inaudible] Jaguar is trying to find the right balance as far as the volume and demand for that vehicle. Certainly the salvation would be to sell more Jaguar X400s but also additional program would certainly help for that facility. Now the Sybex(ph) facility is full and of course the -- we got the BMW Mini which has sold extremely well. [Inaudible] 75% increase in the volume that we thought we were going to have on that vehicle.

Okay. That's all I have thanks.

Thanks Peter.

Your next question from David Tyerman from Scotia Capital Markets.

Hi Randy. Few questions. North American [inaudible] in Q4 looked like they were quite high my calculations 19.1% EBITDA, which is way up year over year and I may be the record ever. Is this sustainable, is there anything unusual in there?

No, there was nothing unusual in the fourth quarter other than the visit positive mix for us.

Okay so should I read that assuming more normal mix seems to be what you're saying for next year that perhaps we squeeze back a bit.

Yep.

Fair enough. Going back to Peter's question on Merplas. –As you say, you need new programs, you are trying to work on -- and what have you. Is there anything out there you can see on the horizon.

There is a number of opportunities in the UK. There's the General Motors [inaudible]-- which is being supplied by one of our competitors that is in financial difficulty. Certainly with the pending -- hopefully successful acquisition of Peguform(ph) gives us better access to Peugot. Peugot has a high volume assembly plant in the UK and that is certainly something we are interested in. And then again it's looking at where we think the BMW Mini and some other programs are going to go and talking about moving business into Merplas. So it sounds like there is opportunity but contingent on development is a fair way of looking at it.

That's correct.

So probably nothing short term. And on the Sybex, you mentioned it's full and the Mini is doing well. And I think you have out sourcing some stuff you are considering possibly bringing in to Merplas. Is still on the table?

Yes.

And where would that all stand? Would it make much difference short them.

You know it's not -- everything is going to make a bit of difference. Certainly we have a lot of fixed cost there as you add incremental programs there is cost absorption. And you are well aware -- especially with the fascia painting lines. When you are painting a hundred fascias an hour or a thousand fascias an hour the essential fix costs or step variable costs are the same to heat those ovens up to get the air systems going and the robots going. That's the volume in that facility.

Right. Just continuing in Europe, the numbers you gave John sounds like the vast majority of margins next year or this year is start ups and Belplas obviously part of it, you got a bunch of others ….

Then again we taken more conservative approach to expense all of our start ups and launches as opposed to capitalizing which we did in the past.

Right. If you took all of them like Modultec and Perma bill and other sequencing facilities, how much is this all total in the year roughly.

Something I'm not at liberty to disclose right now.

Okay just in a broad context, when I look at start up costs and I’m thinking of front end module impact and I’m looking at the impact on some other things that you may be able to improve like the efficiency at the two continental plants and so on,net, net out of all of this, are you looking at quite a large swing a large swing in possible improvement here in ’03 to ’04.

More as you get into ’04..

That's what I mean.

More in ’04. As the programs are launched, we continue to strengthen the management team in Europe with additional operating people and strong production skills.

Okay and the timing when you would expect to be begin to see some of this improvement is it late ’03 or early ’04.

I'm not at liberty to give guidance on that because we given forward guidance past ’03.

Fair enough. One last question on the European margin. Long term when you look at this, is there and reason why they can't reach North American levels?

Well, there's number of issues, not just pertaining to the [inaudible]; it's industry wide. You know there are cost of labor is substantially higher in Europe compared to North America with all of the social programs in place by the various European governments. Certainly, the objective of the company to get these plants and whatever -- the plants we have currently to world class standards. There are a number of things we're looking at to try to improve the margins in Europe.

When you mention the labor costs are higher presumably everyone is paying them? Does that not show up in the bid prices or is just the market a lot more competitive over there so it's not possible to recover all of that.

To a degree the market is a lot more competitive especially on the fascia side of the market share it’s a lot more fragmented than North America. We currently have about 39% market share in North America but only 10% in Europe and the European book of business is path rather fragmented.

So as long as it's fragments -- its a bit more challenging. I am trying to interpret what Al said, am I correct in interpreting that you have inside track on this.

We are note at liberty to say anything about Pegaform. The bid we have made is in the hands of the French Receivership Court and we can't -- we're not a liberty to say.

Okay so stay tuned. Do you have a sense of the timeframe where that's playing out.

We were expecting the courts to come back to us and basically in mid March.

And on the North America margins, what prospects should we be thinking about there somewhat lower if you were [inaudible] are you see anything particular correction necessary margins in the next year.

No, other than -- one of the issues is the start up of the LX program and the launch curve on the L X program.

Okay meaning you could have launch costs.

There could be launch costs which -- actually the bigger issue is any delays in the LX program. But from our stand point but from the customer stand point.

Right.

They obviously have a focus on the quality that was vehicle and the question on how deep the launch is going to be.

Right what tooling sales are you looking for in ’03.

Probably in the range of $125m to $150m.

And tax rates.

We haven't disclosed our tax rate.

Okay and any suggestions to stay with where you are.

Pretty much so.

Okay couple last questions. What is the status of negotiations with Daihmler(ph) on the ending of PT Cruiser production in Europe.

They have ended the PT production in Europe.

Yeah but you're negotiate with them regarding that.

We're not at liberty to discuss where we are with the customers.

Okay. And take over business, any thoughts on prospects there.

There's always -- changing environment in our economy and there are lots of opportunities for takeover. Obviously, we try to get whatever we can and focus on some of our competitors.

Thanks.

Your next question comes from Macmurray Whale(ph) from National Bank Financial. Please go ahead.

Good morning. I was just wondering if you could talk about the [inaudible] how does it compare? Did it look like Merplas when you went there -- what should be --

Unfortunately, I'm not at liberty to disclose anything on the Pegaform operation at this point. It's in the hands of the French Court and we wouldn't want to say anything at this time that would be premature and wouldn't want to say anything to jeopardize our bid with the French Court right now.

Makes sense. The other question is do you expect the debt that is due this year all to be rolled over.

You're talking about the debt due -- or other revolver.

The debt to Megna(ph).

The debt to Megna. We sit down on quarterly basis and negotiate that with Megna. Certainly, you can never expect, maybe an expectation that Megan may want that money back but again we're giving them the market rate and they're quite satisfied to sit down each quarter.

Thanks.

Your next question comes from John Novak from TD Newcast.

Hi. Can you review why the operating losses in Europe excluding Merplas were so severe in the quarter.

A lot of it is we have a new facilities we're starting up and new program launches. There is the [inaudible] the Modultec facility, the Belplas facility, the multitude of new programs and new facilities starting up in Europe and we expensed everything incurred. And certainly the volume.

Wasn't that happening all year.

As you get closer to some of these programs -- getting ready for production is more cost near the end.

But it seem its held together throughout the year and all of a sudden the bottom dropped out.

Not necessarily it's just how everything is timed.

Can you give us awe sense of what you pretax start up costs were for all of fiscal 2002.

I haven't got that at my finger tips; we haven’t disclosed that but we'll look into.

Thanks.

Your next question from J.P. Benson from CIBC World Markets.

Hi Randy. You guys have a good window on order book going out a couple of years. Can you talk about beyond 2003 what you guys have launching in North America. I guess you have the Atlantis start to kick in ’04. Just sort of an over view of what launch activity we can expect in ’04.

Certainly as you mentioned the Mercedes-Benz program continues as the LX program, -- I'm trying to think of some of the other higher runners. Those are the major ones, JP. And of course continuation of existing business.

And you got a bid of incremental stuff on the F series, do you not.

Small term related work.

Okay that's all. Thanks.

We have a follow up question from David Tyerman from Scotia Capital Markets.

Two last questions Randy. On the Capex, how much for ’03 is that deferral pick up from ‘02.

Actually very little.

Okay so it's all pretty much new stuff. Is there potential for deferrals out of that number, $195m or should we pretty much count on that.

I would count on the $195m. It's early in the year on to be able to say the $195m carried into ’04.

And then on the Decostar, what percentage of the capacity is being sold today.

Its about 60% to 70% of the capacity has been sold.

And you say in the press release that it starts in ’04. When would first start up be.

In the early part of ’04. I think it's January for four.

Really.

But then you have to look at the ramp. We have to bring on the M class first then the GST.

That was going to be my next question. Is this ramp a fairly long process.

Its kind of relatively long. The GST is new vehicle for Mercedes and traditionally Mercedes obviously wants to make sure the quality is there in their vehicles.

You are going to get some revenue out of the thing next year and margin effect but probably more in ’05 really.

Yeah.

Great.

Thanks.

Ladies and gentlemen, if there are any additional questions at this time, press the star followed by one.

You have a follow up question from John Novak of TD Newcast.

You just okay looking at your fiscal ’03 EPS guidance, does the low end of the range, does that assume the full impact of start up cost of the amount that you gave and with a higher end range suggesting reduced start up costs over what you indicated.

No what we talked about as far as the start up cost is the mid point of the range not the low end of the range. The low end is more to do with mix and other items that are beyond our control.

Great. Thanks.

Okay.

Your next question from Mark Perum(ph) of RBC Capital Markets.

I'm calling on behalf the Nick Morton. I’m just asking about the Merplas facility, you gave, in your results that results were suddenly improve in ’03 over -- ’02 over ’03. Do have you any guidance for’03.

We're not giving guidance on that facility in ’03.

Okay.

Operator is that the end of the calls.

There are no further question at there time.

Thank you very much for listening to the call and your questions. We look forward to very exciting 2003 on the back of an excellent 2002 that we just completed. Thanks everybody and we'll be in touch you with as the year progresses.

Ladies and gentlemen this concludes the conference call for today. Thank you for participating. Please disconnect your lines.