Middleby Corp (MIDD) 2011 Q2 法說會逐字稿

Thank you for joining us today for the Middleby Corporation Second Quarter Conference Call. With us today from management are Selim Bassoul, Chief Executive Officer, and Tim FitzGerald, Chief Financial Officer. We will begin today's call with comments from Management and then open the lines for questions and answers. Instructions on how to get into the queue will be given at that time. Now, I'd like to turn the call over to Mr. Fitzgerald for opening remarks. Please go ahead, Sir.

Okay. Thanks, Russ, and good morning. During the second quarter we were pleased to announce the acquisitions of Beech, a leading manufacturer of hearth bake ovens with approximate annual revenues of $10 million and Lincat PLC, a leading UK manufacturer of a broad line of commercial cooking and restaurant equipment with approximate annual revenues of $50 million. These acquisitions were completed on April 12 and May 27, respectively and the results of these operations are included in the financial statements from the acquisition date.

Subsequent to the end of the quarter, the Company completed the acquisitions of Danfotech, Maurer-Atmos, and Auto-Bake, 3 leading manufacturers of equipment for the food processing industry with approximate combined annual revenues of $45 million. The results of these operations were not included in the second quarter financial results and will be reflected in the third quarter from the date of acquisition.

Net sales in the 2011 second quarter of $210.9 million, increased 21.6% from $173.4 million in the second quarter of 2010. The second quarter results included the impact from the Perfect Fry, Cozzini, Beech, and Lincat acquisitions. Sales growth from these acquisitions accounted for $20.5 million of the increase during the quarter. Excluding the impact of these acquisition, sales increased 9.8% over the prior year quarter. This increase reflects an 11.3% increase in sales at our commercial food service group and a 1.8% decline in sales at our food processing group. The decline in sales at the food processing group reflects the anticipated slowing in sales after a robust 2010.

While order rates remain substantially lower in the first half of the year, customer quoting activity remains high and early in the third quarter we have closed several large orders that should benefit the latter part of the year. However, due the longer lead team on larger projects, below order rates in the first half will result in the lower third quarter revenues. We remain positive on the outlook for the food processing platform. Continuing growth in global demand for processed food is driving investment activities at our customers and developing markets and a strong pipeline of business and are actively working on numerous substantial projects. However, the timing of order placement is uncertain and will continue to result in some variability on a quarter-to-quarter basis at this business segment.

At the Commercial Foodservice Group, we saw continuing strength in order activity throughout quarter. We continue to realize strong sales growth in emerging markets resulting from higher demand levels and increased sales and penetration as result investments we made in our international selling organization. International sales for Commercial Foodservice in the quarter continued to grow above 20% organically with growth in all regions. Domestically, although new restaurant openings continued to remain weak. We continued momentum with chain account is they retro fit their kitchens to drive operating efficiency and support new menu initiatives.

Gross profit increased to $85.3 million from $69.4 million, while the gross margin rate increased from 40% to 40.5%. The gross margin rate reflects the benefit of favorable products mix and efficiency gains from plant consolidations offset in part by increased material costs which rose in comparison to the prior year quarter. Material costs which rose sharply in the first half have leveled off and we have partially offset these higher cost with price increases instituted during the year.

Selling and distribution expenses during the quarter amounted to $21.6 million as compared to $19 million in the prior year second quarter. Selling expenses in the second quarter included approximately $3 million of costs associated with the recent acquisitions of Cozzini, Beech, and Lincat which were not reflected in the prior year quarter and excluding the incremental costs from those acquisitions, selling and distribution expenses were relatively consistent with the prior year. General administrative expenses amounted to $28.5 million as compared to $20.7 million in the prior year second quarter. The second quarter expenses in comparison to the prior year quarter included $3 million attributed to the recent acquisitions of Cozzini, Beech, and Lincat. This includes $1.3 million of non-cash amortization related to the acquisitions that is expected to decline by approximately $800,000 in future quarters as this expense is typically the highest in the first quarter after acquisition.

Second quarter expenses also included increased costs associated with transaction expenses for the recent acquisition activities. They are approximately $1.5 million higher than in the prior year. General and administrative expenses also included an increase of $1.1 million related to non-cash stock based compensation. Net interest expense and deferred financing costs amounted to $2.1 million in the second quarter compared to $2.2 million in the prior year quarter and were relatively consistent reflecting lower interest rates on higher debt balances. Other non-operating expenses of $1.6 million included a nonrecurring loss of $500,000 and the sale of a idle manufacturing facility that was exited in connection with manufacturing consolidation. And also a nonrecurring unrealized foreign exchange loss of $1.1 million in connection with the funding of the Lincat acquisition.

Net earnings per share rose from $0.96 to $1.06 per share during the quarter. The acquisition of Lincat had dilutive impact to earnings of approximately $0.09 per share during the quarter due to higher amortization and the initial quarter of acquisition and the under-realized exchange loss associated with the funding of the acquisition. We anticipated this acquisition will be accretive in the second half of the year. In addition to the nonrecurring loss in the sales in exited manufacturing facility impacted that earnings by approximately $0.02 per share.

Cash flows generated from operating activities were strong during the quarter and the amounted to approximately $39.3 million. And we anticipate we'll continue to generate strong positive cash flow for the remainder of the year consistent with prior years. Non-cashed expenses added back in calculating the operating cash flows for the quarter included depreciation and amortization of $5.3 million as compared to $3.9 million in the prior year quarter and non cash share-based compensation costs of $5.3 million in current year quarter compared to $4.2 million in the prior year quarter.

The Company utilized cash flows to fund the acquisition activities of Beech and Lincat in the amount of approximately $95.8 million. And the Company also utilized $1.5 million to fund capital expenditures related to production equipment and facility enhancements. Debt at the end of the quarter, amounted to $309.4 million reflecting the increased borrowings resulting from the second quarter acquisitions. During the quarter, the Company also exercised an option under its existing credit agreement to increase the facility size by approximately $100 million to $600 million. Other terms under this credit facility which matures in December of 2012 remain unchanged.

Russ, that's all for the prepared commentary. Could you please open the call to questions.

(Operator Instructions) Gary Farber, CL King. Go ahead, Gary.

Yes. Just a couple of questions, can you talk about what the balance sheet looks like after all the deals you've announced after the quarter closed?

Well, when you say what the balance sheet looks like, obviously, we'll have some additional debt to fund the acquisitions. We haven't announced the purchase price but you can assume that they're in the one-time sales nature. That would go up by approximately that amount and that will get allocated between some inventory receivables and some intangibles. The allocation would probably be similar to other transactions although we're in the process of going through our purchase accounting evaluation. We haven't finalized yet, balance sheet accounting at this point.

So then how is the back half there looks for acquisition? Would you expect to continue this pace or things you said a moderate?

The pipeline continues to remain strong. We've kind of signaled that we felt good about the acquisition environment. And we continue to -- obviously, we've closed 5 deals in about a quarter. So that rate is a little bit higher than what we've done in the past. Might not be quite at that rate. But we still have pretty strong pipeline of acquisitions that we expect to continue to build out both platforms.

So the lastly, can you speak to the integration of these acquisitions over what time frame would you expect the margins to begin to ramp out of these acquisitions?

Well, they're all a little bit different. We're working on integrating all of them. In the case of Lincat and Auto-Bake, they're operating at pretty strong margins. Lincat was a public company and you could see they were at a 20% plus EBITDA margin. That was pretty good while some of the other ones are lagging and we're working on bringing those up. But typically, we'll have significant improvement in the first 6 to 9 months, kind of moving into next year, I would anticipate that most of these transactions would be approaching EBITDA margins.

Okay. Thanks.

Jamie Sullivan, RBC Capital Markets. Go ahead, Jamie.

Wondering if you could talk about a little bit about some the casual dining rollouts. Have you started to see somewhat of a benefit in the second quarter from those that we've talked about for a while? Or are those still to come?

Jamie, I can address that. I think at this moment we continue working with many of the chains, specifically as a casual dining chain. In fact, it's more than one right now who are testing our product to redesign the kitchen layout to reduce labor and space. In that case, the test out there and specifically, one chain has been the first to approach us. We are now literally well into over 40 installations that have gone extremely well. Both of us monitoring the performance of literally our equipment, the menu consistency, and ability to train the staff on cooking that product the menu consistently well at the highest speed and with less than 1 person in that specific chain of the kitchen including that equipment. So we are still basically moving forward and it's a major change of what our technology allows the restaurant to do. Let me summarize what that does. Our concept of basically specifically cooking and casual dining allows to reduce the space of that kitchen, take at least 1 person out of that kitchen, reduce the cooking time for 90% of the menu items from an average of 18 minutes to 10 minutes, and provide a consistency and quality of cooking that is equal to what used to be or even better.

Okay. That's helpful. Thanks. One other one I wanted to ask. On the international side, Tim, just wondering what's the percentage of the total business now you're getting from international customers? And is there heavier exposure in one of the segments versus the other?

Well, total international sales for the quarter was about 25%. So that's increasing which I think was about 20% a year ago. And that doesn't reflect all the recent acquisitions. That will continue to drive higher over time. You've got, you know, a stronger presence in Europe, but Asia and Latin America, the emerging markets are growing faster.

Is it kind of an equal breakdown in both segments around 25%? Or is that --

25% total of all the sales. Europe probably represents close to half of -- Europe and Middle East half of that 25%. And then Asia is kind of the second largest and Latin America is still smaller.

Jamie, let me answer that question also a little bit more specific. Our growth emerging markets where we are, a leading player in China, in India, Latin America [food] chain. We see that today to grow. We are almost around 5% of our sales coming from those markets. We see our goals with in the next five years to be about 15% of our sales. The reason there if you have a unique global infrastructure and a service network in those emerging markets that is one of the top global infrastructure in the cooking side of the business. We have also engineered products specifically for India, in China, and Latin America working with our local and regional chains there and now we are doing a strong inroads in the Middle East where we have captured 2 new chains, local chains in Italy and product-to-product (inaudible) that we have Tandoori oven, samosa fries, rice steamer, pizza oven, and [Gil's] broiler which are brand new products for those chains in the Middle East. Of course, we have also local manufacturing in China, Philippines, Italy, UK, Denmark, and Australia to basically focus to help those local chains with specific tailoring of products specifically to the local market.

Thanks a lot. I'll get back in queue.

Thank you.

Tony Brenner, Roth Capital Partners. Go ahead, Tony.

Thank you. I have 2 questions. First of all, regarding the rollout of the kitchen retro fit for those at least traditionally 3 casual dining chains. As I recall, Selim, earlier the discussion was that the rollout for these beyond the test phase would commence by the third quarter. Is this 40 store installation a rollout? Or is that still part of a testing? And when might the rollout for the other 2 chains begin?

Tony, literally I think that the specific chain we're talking about is over a thousand stores. Our understanding is literally I would like to refer back to them because they are [republic] trace company and I wanted to make sure I don't say something that contradicts what they are. I think they are having -- could you believe almost the same time we are. Today so I need to be careful what I say. I think at this moment may defer to them because they are the customer. My understanding is that the tests have gone extremely well and they are committed to the concept. I think that we have had some glitches at the beginning and though we work with them to make sure that the glitches go away. And I understand that during the last 20 stores that we've had, it's gone perfect.

It's not only the equipment we're talking about, Tony. The question is that's happening here and I have to give credit to that specific chain because we are putting the installation on someday evening and by Monday at the noon, the conversion is taking place. Literally, Sunday, we have all team to help that team and had never in my literally work in this industry I've seen a conversion be done so quickly. So I give them full credit and is [deferent] by them from the top where we are coming in with our team, going on Sunday evening after close of business, and we are by noon opening up the store. By noon, conversion is completed.

Let me tell you what's happening in that conversion. Basically, they have already gotten what I call the bricks and mortar of change. We have already done that. We are coming in, installing the equipment, taking all the equipment out, bring the new equipment in. We are training their people on using the new equipment. We are basically putting all the electrical and gas connections in the middle of that kitchen because it's an automated system. And we are prepping the food, helping prep the food so that by noon on Monday we're going. And so far, the last 1 or 22 stores have been with no glitches whatsoever. So I assume we're going to see more and more coming. I cannot tell you specifically what's going to happen. But we're very excited because we're changing the way people are going to be cooking on the segment.

I think that I look at it and saying so far it has been not a rollout that they have a thousand unit. We've done only 40. No, its not a rollout. Is it going to happen? So far, the last 22 units have been prepared. It met expectations and I will defer to them to hopefully tell us that they are pleased with us. And then we'll get the full order. At this moment I will refer back to that chain, which is getting today. The conference call today, this morning. And I'm sure they might say more than I can say.

Okay. The other 2 chains are not that advanced for I take it?

No, they are not that advanced. We are waiting for this one. Because we're not prepared to go full scale on the other chain as you well know given the requirement of the food chain level where fully committed. We have a full team that does nothing that go -- as you imagine we started that process literally in June. And we have been almost doing almost 2 stores per week, well 2 stores every Sunday. We have team going around the country. And we're fully committed to that first chain. They were the first to come work with us from that concept and we'll give them the full attention.

My second question, Selim, has to do with the food processing business. For the past several years since you've entered that business. It's been almost entirely a domestic business. Now you've just made 2 acquisitions that are overseas. I'm wondering if that reflects an increase demand by international food companies or does it herald the beginning of an increase international marketing effort by Middleby to address those companies and if so will you have to gear up marketing effort to do that?

I would like to answer that question to say, first, the international market is now literally coming on pretty strong. It's starting to emerge they are [cooking] what I call and they [pre frozen] cooked through and we're seeing it in emerging markets. We are seeing customer like Carrefour and Costco and all those major supermarket chains around the world asking for more freezer space. Food processing companies are following that need. We are seeing a major need in emerging markets for food processing companies. And in fact, that's one of the reasons we started buying food processing companies overseas to meet those needs.

In addition, our marketing efforts internationally started similar to what you've done on the food service side. In 1999, we were the first, literally the first to open the way we've done in China. We penetrated China with a full sales and service office before anybody else. And at operation lost money in the first 2 years of its existence. And 3 years before that, we were the first to have a plant in a emerging markets like the Philippines. Today, we are investing heavily in our infrastructure overseas and food processing because the demand will be there. Yes, there's going to be for cost marketing costs up to end of (inaudible). And we believe that the future similar to the way today, [MWW] that would be worldwide, it's generating significant growth for us and will continue generating (inaudible) and direct chain side internationally and generating a lot of EBITDA margin to us. We believe in the next 3 years that our international expansion both in acquiring companies and expanding our marketing there. And I think you're right, Tony. It's going to cost us most probably I would say from SG&A, $2 million to add to that infrastructure. This year or next year because we're building that infrastructure very high. That's where the demand is.

Very good. Thank you.

Thank you.

(Operator Instructions)Peter Lisnic, Robert W. Baird. Go ahead, Peter.

I guess, Tim, I want to make sure I heard this right. For Food Service third quarter you said down, I would assume that's organic, correct?

Right. Yes, with acquisition we'll be up. But -- Yes. Food processing. That's --

Food processing. Sorry about that.

Commercial Food Service we expect that will continue to be up. Food processing which is more lumpy, the order rate had been slow. Not the activity rate. We've been very busy projects but closing orders have been slow. Coming in to the quarter, we had a lower backlog. That will impact the revenues. That backlog we are seeing is being rebuilt. During the quarter we had some orders -- they are [longer] type projects. So we would anticipate that revenues would be down in the third quarter.

Okay.

More substantially than what they were the first and second.

Okay. Thanks. That's helpful. Selim, if you could -- given all the market volatility that we've seen over the past few weeks or month or whatever has been, can you maybe talk about the tone of business, what you're hearing from your customers and then just kind of what the outlook is maybe for industry growth for the rest of this year and next year and where you'll be sitting in regards to that spectrum of growth?

Peter, I wish I could forecast how company may act since the event of last week. I can specific that last week spooked everybody. And I think I'm talking specifically about last week's downgrade of the federal debt. Up to that time, our orders have been very strong. As we continue to [close] the monitory development in this economy and financial markets, we are cautious. I can tell you -- we're very cautious but optimistic about the balance of 2011 and 2012. We are staying focused on the factors we can control.

Let me tell you a little bit about my talk to several CEOs of [preston] chains concept since last week. I talked to a CEO who runs a 500 chain stores and he told me, Selim, I have a business. I have to run. I have 500 stores whether the government is in chaos or the economy is going to falter a little bit. I have to figure out a way to grow. He said, you know, figured out that I need to get customers to come into my stores. What does that mean? It means I have to figure out maybe how to get value meal, how to go get the mid-range chain. He wants to go back to the lower end to offer some discounts and some deals. He's using social media.

I talked to another CEO of a thousand plus chain. And he [appeared] to me says, Selim, you know what customers in our segment have been cost conscious since 2008. Nothing changed since last week. We've been preparing for that. He said, Selim, let me share with you when I look at somebody like Subway was able to offer a foot long for $5, Domino's, Pizza Hut, and Papa John's in the pizza segment being to offer a $10 pizza and make money on that. He said I need to figure out a way to figure out my productivity. And he said, Selim, that's you as a manufacturer has a the role to play. You have to introduce for me flexible concepts to be able to convert my restaurant and menu so I can go ¶ Let me give you some statistics. Since 2008, they were approximately over 100,000 restaurants closed between 2008 and 2010, which represent roughly 15% over [restaurants]. A few of that operates or all be washed out. Today whoever is in business are trying to figure out a way to get going. Now, other thing that I can tell you I've heard from another CEO of another chain over the last week is one of the things that they see optimism in the second half. They see that food prices are starting to cool off a little bit for them which allows them to increase there margin and investment back in the stores. And that should be a good driver for us in second half of 2011.

As I see my segment, yes, I going to have basically we have concern about the consumer, yes. All our chain customers reacting to it by getting people in their stores? Yes. Are we going to be able to help them? Yes. And I'm going to give you some numbers and some statistics. Chain restaurant sales have grown in the first half of 2011 around 5% versus 1.5% inflation adjusted in the first half of 2010. Definitely, 2011 is a much better on comp sales to most of our restaurant chains in the first half of 2011. And part of it is not because unemployment has gone down. It's not because fuel prices have gone down. It's not because we have had most of the stimulus has ended. It's because our operators have figured out a way to continue attracting people into their stores. And as I mentioned prior, we are working several chains on streamlining the productivity.

For example, we are now currently -- in addition to cause dining chain that we are working with, we are working with several [QSR] and cash casual chain who are accepting our equipment to streamline productivity and ensure menu consistency. They want to be able to offer a menu item at lunch as a certain time, at a certain price, and they want to be to do it for (inaudible) nationally and we're testing equipment that allows us to do that. Of course, many of these core customers are chains that are less elastic demand as much as fast cash and casual diners than private restaurants. I cannot tell you that [in short independent] high end restaurants -- I don't know what the income is going to be and the outcome. Most probably businesses will cut back on eating out. People will not go out to spending $200 celebrating. That's our core business is mostly 60% of our business is what I call mid-to-low range priced chains. And we believe that consumers will continue trading down to the customers we serve.

Okay. That is great detail. So is it safe to say that you haven't seen those customers really pull the throttle back and say instead of buying new equipment we'll fix the things we have. You've not seen a spike in parts orders for example to give you evidence that maybe people are pulling back a bit on CapEx?

I can tell you that as Tim mentioned in his prepared comments, our orders were very, very strong going into basically August.

Pete, the events of last week are so recent, so it's hard to have any impact. But we're not expecting that. The drivers of our customers are not -- they're broader in nature and we don't expect that they're going to have that type of reaction.

I don't want to -- I think there's not a feel -- there's not a Wall Street manager -- there's not an analyst -- it's does not matter what happened last week. I want to reinforce that we are going to control what we can control. And we have a lot of initiatives that I will address in my prepared comment at the end of the Q&A that address specifically why Middleby will most continue doing performing well in the next I would say year. In the next 4 years I put on an objective which including this year would be 5 years. By 2016 I had an objective that says that it will double our revenue and increase our EBITDA in the mid-20s. And I am very committed to that as we go forward is what we have going for us, both on the food processing and on the food service.

Okay. Tim, I'm sorry I may have missed this. I have a little trouble getting on the Q&A. Can you just clarify it sounded like the commodity cost headwinds for the second half of the year sound like could be sort of neutral? Is that right what I think about it?

Yes. I think that's right.

All right. Thanks again for your time.

Thank you.

Jason Rogers, Great Lakes Review. Go ahead, Jason.

Looking at share repurchases, were there any in the quarter? And then what are your thoughts on share repurchases with the stock at its current level?

There was not any share repurchases during the quarter. And I think that's something we evaluate with the Board along with any other capital allocation decision we've had share repurchases in the past opportunistically. We are limited underneath our credit agreement from doing anything that is very material but from time to time, that's something that we'll look at.

Okay. Tim, what is the expectations this year for CapEx, DNA, and the tax rate?

CapEx we've always guided to the 1% to 2% of sales. It's climbing as our revenues are climbing and we've been kind of attract with 1% of sales in the first half so that will continue going forward. The amortization is a little bit different to give you a guidance on right now just because of the latest acquisition we've done. We haven't done all the purchase accounting evaluations. Clearly, that will all have an impact on what amortization is. As I mentioned, it's a little bit higher in this quarter because of -- about $800,000 because amortization. So it's $5.3 million in the second quarter, is about $800,000 of that which is associated with Lincat and Beech, that's first quarter amortization of some of the short-term intangibles. So that comes back down but then we are add on amortization with Danfotech, Maurer, and Auto-Bake. I would think we'd be in the $5 million to $6 million range a quarter. But that is a moving target right now.

Tax rate we were at 38%. Historically, outside of one-time adjustments which we did have some last year that were favorable. We've been in the 38% to 40% range. We would expect that it'll continue in that range with some of the international business that we're acquiring that may help our tax rate longer term. So we might move down to the bottom into that range so that's how I would any about it. And as a reminder, we got NOLs -- to the benefit of that does not reflect in our tax rate. But we're realizing a benefit of over $6 million annually on the NOLs.

Thank you.

Okay. Thank you, ladies and gentlemen. That's all the time we have for Q&A. I'd now like to turn it back to company management for closing remarks.

I'd like to thank everybody who are on the call today. And I want to also say that as we continue to closely monitor development in the economy, financial markets and we are cautious but optimistic about the balance of 2011 and 2012. We are staying focused on those factors we can control. First, let me touch this, eating out is not a going away, not in fact. As I mentioned during the Q&A and spoke to several CEOs whether it's a chain of 50 stores or a chain of 500 or a chain of a thousand, they are figuring out a way to bring customers into their stores. Whether they are using social media, whether they are using equipment like ours to increase that productivity, and reduce the cost; they are figuring out a way to work with people like us. Literally what makes unique things for Middleby is that we are leading brands worldwide. Many of those chains are looking overseas where Middleby place a big help for some to take the concept and help them grow overseas. One of 3 restaurants choose Middleby brand equipment.60% of our sales come from chains and we are number 1 or number 2 in every product category we served.

We have patented technology from (inaudible) technology which is growing pretty fast for us. We have over now 500 energy star rated products. Just to remind everybody on the call, the government continues to issue a rebate if you buy in certain ZIP codes, if buy Energy Star appliance including commercial. I'm talking to restaurants and that does not expire until the end of this year. We're seeing a lot of customers or restaurants when they buy, they're taking advantage of that rebate. Just as an example in certain parts of California, a convection oven could up to $3500 to the end user they can get up to $1500 rebate. So people are taking advantage of that and we are very well positioned for this. Our after sales service is a must. And chain [in the past] to global brand with self service such as Middleby. We are definitely on cooking one of the most energy efficient company in the world. We've received many, many awards. And we continue generating a strong cash flow.

Our low CapEx will remain at less than 3% of sales. We generate not only $100 million of net cash flow. It will be slightly higher this year. And if you think about cash flow per share is around $6 per cash flow per share. We continue growing and we will double our sales in 5 years by 2016. Our EBITDA as a percent of sales would be greater than 23% by 2016, and we will continue successful and continue consolidation of plans and operational improvement. Our new products that have been introduced in the last 3 years carry 5% to 10% higher gross margin profit. Today our extended gross margin around 40%. The new product will take it up between 45% to 50%. Our new products we present today around 17% of our total sales and we expect that the new product by 2016 to represent double that amount.

Our pipeline of new products will help us compete in a difficult environment. Specifically, each of our products help companies lower costs and increase margins. We have a pay-back of less than 24 months on most of our products which is a key area of focus in a challenge environment. In 2011, TurboChef will introduce a new product that will enter the steel market and opportunity of rank $40 million in the next few years. Our CTX, Middleby Marshall and Carter-Hoffman is working today with the casual dinning to introduce an operation that allows them to reduce their food print and their labor by at least 1 person. Our Ventos technology and Ventos kitchen is growing very fast as well as CookTek and Perfect Fry. Our french fry technology which is (inaudible) is going to basically become -- which is coming online in the fourth quarter of this year will reduce the calories from fat of fried food by up to 35%, will reduce oil usage by 30%, and gas consumption by 15%. Our Hydrovection and Combi-oven is going pretty fast which is (inaudible) and those businesses will grow a double digit growth starting the second half of this year globally. We continue to see inroads with introduction of Hydrovection the and the gas [companies] at Uno.

Our emerging markets growth was continued with today in emerging market have less than 5% of our sales. We'll continue growing that the sales double digit in the next few years. We have a unique global infrastructure and service network. As I mentioned, our [engineering] product to India, China, Middle East, and Latin America are uniquely positioned and as we continue adding local manufacturing now in Australia was acquisition of Beech oven has helped us compete more in southeast Asia. Our position pipeline continues to be strong and our acquisition have been very accretive. We are very proud of the acquisition this year of Beech, Lincat, Maurer, and Auto-Bake, and Danfo. Both on the food processing as well as the food service, we continue acquiring unique brand with leadership position.

To summarize, we have a business plan that allows us to consolidate plan and increase operational improvement. We expect to roll out to continue in the balance of 2011 and 2012. Our international growth will continue and our acquisition of accretive and our margin improvement from new product and product enhancement will continue to help us reach the target of 2016 of mid-20% EBITDA sales target. This completes my prepared comments and thank you to everybody and I hope you can have continued great summer.

Thank you, ladies and gentlemen. That concludes this conference.