Mettler-Toledo International Inc (MTD) 2002 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Mettler-Toledo fourth quarter 2002 conference call. At this time, all participants are in a listen-only mode. Later we will conduct a question and answer session, and instructions will follow at that time.

As a reminder, this conference call is being recorded.

The company would like to remind you that statements made during the conference call which are not historical facts, may be considered forward-looking statements. Forward-looking statements involve risks and uncertainties that could cause actual events or results to differ materially from those expressed or implied. For further information concerning issues that could materially affect financial performance related to forward-looking statements, please refer to Mettler-Toledo's quarterly earnings releases, a.m. report, and periodic filings with the Securities and Exchange Commission. I would now like to introduce your host for today's conference, Mr. Robert Spoerry, CEO of Mettler-Toledo. Mr. Spoerry, you may begin.

Welcome, everybody, to the Mettler-Toledo conference call. I am Robert Spoerry, the chairman and CEO of Mettler-Toledo, and I'd like to thank you for joining us today. With me in New York today are Dennis Braun, our Chief Financial Officer, and Mary Finnegan, who is our Treasurer and also handles investor relations.

This call is being Webcast, and is available for replay on our Web site, www.mt.com. A copy of the press release we issued this afternoon is also available on our Web site.

On today's call, I would like first to give you a short summary on the quarter. Then Dennis will go over the financials in detail, and give you an outlook also on 2003. After that, I would like to give you some further comments on our 2002 performance and also an outlook for 2003. And finally, we will open the lines for your questions.

Now, first, let me make some summary comments on the quarter. I am very pleased that we achieved EPS of 69 cents, which exceeds consensus estimates by 1 cent. Sales in the quarter increased 1% in local currency, with an additional 5% benefit due to currency, resulting in U.S. dollar sales growth of 6%.I want to break down our sales number in a little more detail. If you exclude acquisitions, local currency sales were down 1%. However, if you exclude the impact of our European food retailing due to the completion of our Europe conversion in 2001, our base business was up 6%, quite better than what we had anticipated when we spoke last to you. Furthermore, the retail Europe conversion comparison will be behind us by the second quarter of this year.

In Q4, we had very strong performance in drug discovery, packaging, U.S. retail, and also solid performance in our industrial business. Operating profit came in slightly ahead of plan, and our cash flow was really excellent. We will cover all these points in much more detail throughout the course of this call.

First, Dennis will now begin talking to you about the financial results of the first quarter in detail.

Thanks, Robert, and good afternoon to everyone. As Robert mentioned, EPS amounted to 69 cents per share in the quarter, and is based on 45.3 million shares outstanding. This compares to the consensus estimates of 68 cents per share. If you adjust last year for the new goodwill accounting rule, EPS was 73 cents. On a reported basis, EPS was flat with last year. The fourth quarter is our strongest sales quarter, and our sales number was better than expected, amounting to 337.3 million for the quarter, representing a 1% increase in local currency, and a 6% increase in U.S. dollars.

As Robert mentioned, if we adjust for acquisitions, our base business was down 1%. However, if you take out the one-time impact of the euro conversions on retailing, our business was actually up 6% relative to Q4 2001. To expound on these trends in more granularity, I will start by discussing sales by geographic region. All these numbers are without the benefit of currency or acquisitions. Sales in Europe on a local currency basis were down 11% in the quarter. However, if we exclude the impact of European food retailing, growth was 6%. The comparable sales growth in Q3 was flat.

In the Americas, total sales were up 10%, and excluding acquisitions, the business was up 5%. This compares to a 2% growth in Q3 on a comparable basis. Drug discovery, packaging, and food retailing were particularly strong performers. Sales in Asia were up 15% in the quarter, up sequentially from 8% in Q3. Japan's growth was moderate, but in almost all other locations, growth was strong.

Now let me cover sales by business area. Again, all these numbers are without acquisitions and in local currency. Starting with lab, our lab business was solid, with growth in the quarter in the mid-single digit range. This was driven by drug discovery, which had growth in the very strong double-digit range. As we discussed last quarter, we launched a significant number of new products late in Q3. Initial customer response is strong, as demonstrated by these numbers. Process analytics also performed well, with sales up double digits. Industrial did better than expected, with growth in the mid-single-digit range, with growth in every region, and particular strength in Asia. Our core industrial business showed growth for the first time in six quarters. Packaging did very well, with double-digit growth. Retail was down almost 30%, slightly better than we thought. We had strong double-digit growth in North America and Asia. However, Europe, as expected, dropped significantly due to significant demand in the prior year related to the euro conversion.

After Q1 2003, the detrimental impact of the euro comparisons will be behind us.

Moving to gross margins, gross margins were 47% versus 48% last year. Of this decline, approximately 70 basis points is due to currency. R&D amounted to 18.7 million, which is a 4% decline from the prior year in local currency. This was expected, as we have completed numerous projects with the buildup of our product pipeline.

Year-to-date, R&D was up 5% in local currency, and going forward we would expect these expenditures to remain as a percentage of sales in the 5 to 6 percent range. SG&A amounted to 88.5 million or 26.3% of sales, which represents an increase of 12% in U.S. dollars, which is mostly due to currency and the impact of acquisitions. Based on January's results, I am confident that our costs are under control.

EBITDA, or earnings before interest, taxes, and amortization, amounted to 51.4 million versus 55.5 million. This translates into a margin of 15.2% versus 17.4% last year. Approximately 90 basis points of this differential is due to currency. Of this, 80 basis points is simply due to our higher U.S. dollar reported sales. In other words, as we mentioned last quarter, our U.S. dollar sales are inflated by the weak U.S. dollar exchange rates. As a result, our margin percentage fell simply because we were taking our naturally hedged U.S. dollar operating profit and dividing it by higher U.S. dollar sales amount. The remainder of this differential is due to the product mix and higher SG&A expenses that I mentioned a few moments ago.

On a full-year basis, adjusted for currency, our margins were 14.4% or flat with last year. Going forward, we anticipate that operating margins on a constant currency basis will increase 50 to a hundred basis points per year. Continuing down the income statement, amortization amounted to 2.9 million, and interest expense was 4.0 million. Our tax rate remained at 30% in the quarter. This results in EPS of 69 cents for the quarter versus 73 cents last year on a comparable basis, after adjusting last year for the new accounting standard on goodwill.

We are extremely pleased with our cash flow in the quarter and for the full year. In the fourth quarter, free cash flow - which we define as after taxes, working capital, capital expenditures, but before restructuring payments and acquisitions -- amounted to 34 million, modestly below last year. We also made an extra contribution to our U.S. pension plan of 19 million. If we add back this 19 million extra payment, free cash flow was up 48% in the quarter.

On a full-year basis, cash flow amounted to 95.2 million, a 16% increase over the prior year. We achieved this increase after making the extra $19 million pension payment, and while maintaining cap ex at a solid level comparable to the prior year. We saw improvements in working capital, with DSO down 3.4 days to 52.6 days at year-end. Inventory turns slowed slightly in preparation of the new product launches. We spent 4.1 million on restructuring payments during the quarter, and 11.1 million in the year. EBITDA in 2002 amounted to 190.5 million, and net debt was 281.2 million. This results in very strong credit statistics of net debt to EBITDA of 1.5 times, and interest coverage of 11.5 times. I thought I would give you also a brief update on the status of our restructuring programs.

In general, they are on plan and advancing well. We expect to begin manufacturing in our new Chinese facility later this month. This facility will absorb the production from the plants we are closing in Spartanburg, South Carolina and in France. In South Carolina, things are well on plan, but as you may have expected, France is not so straightforward. The government labor official recently approved our social plan, after we made some amendments beyond the legal requirement. We also need union agreement. Periodic strikes are affecting the business in France. These disruptions are in line with our expectations entering the process, and in the short-term are an impediment to our business. We anticipate that periodic work disruptions will continue until the facility is finally closed by the end of Q2.

In the second quarter, restructuring reserve, in accordance with U.S. GAAP, we were only permitted to accrue the minimum contractual payment required by French law. Given the amendments and ongoing negotiations with the unions, we will incur costs beyond the reserve taken. It's not a big amount relative to the overall restructuring charge taken in Q2 2002.

One additional item I thought I would mention is the status of our pension programs, as that is a topic which attracts a lot of attention today. This is not an item of concern for us, but I wanted to cover a couple key points for transparency. First, you will see in our SEC filings that our U.S. pension plan is underfunded by approximately 23 million. As I mentioned last quarter, we froze the plan in April, thereby eliminating ongoing service costs. We also reduced our assumed rate of return to 8.5 percent, and our discount rate to 7 percent, to be more conservative. Total contributions to the U.S. plan in 2002 were 21.6 million, including the aforementioned extra payment of 19 million which we made at the end of the year. As a result of this, we have no major required contributions in the next two years.

Outside the U.S., our major pension plans are in Switzerland, which is overfunded, and Germany has frozen plans which are basically a pay-as-you-go system. There are no assets, but the liability is recognized on our books and we pay out on a yearly basis. We expect consolidated pension and post-retirement expense to be relatively flat in 2003 versus 2002.I think you can see that we took determined actions in 2002 to reduce our pension exposure and to close some of the funding gap we had in the U.S.

Before I turn it over to Robert, I want to comment on 2003 guidance. Based on today's assessment, we believe the current consensus estimates in the $2.35 range is achievable. This EPS estimate is premised upon sales growth in local currency in the three to four percent range. This projection is below our historical organic growth of 6 to 8 percent that we have demonstrated prior to 2002. As you can see, we are not expecting a normal global economy for 2003. We anticipate that results will be stronger in the second half of 2003 than the first. There are principally four factors driving this trend.

First is the current economic uncertainty. Second, in the first quarter we still faced the remaining impact of the euro retail conversions due to those late converters to the euro. By the second quarter, that -- this is behind us.

Third, the cost savings from the two major plant closings will not start until the second half of the year. And fourth, the strikes in France, where we have about 10% of our sales, will impact Q1 and, to a lesser extent, Q2. As a result of the above trends and our current assessment, we believe that the current Q1 consensus is somewhat high, and should be in the range of 35 to 40 cents. Again, to reiterate, based on today's assessment, we believe the current consensus estimates for 2003 in the $2.35 per share range is achievable.

That's it for my side and I'll now turn it back to Robert.

Okay. Thanks, Dennis. I will begin my comments now with an overview on 2002, and then provide more insight into how we see the business environment this year. Looking back at 2002, we can say that the economic environment was very difficult. This led to decreased investment activities by our customers.

In addition, we faced a steeper than expected decline in our European food retailing business following the completion of the euro conversion in 2001. Of course this is a one-time effect which after Q1 of this year will be completely behind us.

As a result, sales in 2002, without the benefit of acquisition or currency, declines 4%. As mentioned before, if you take out the impact of European food retailing, the base business actually grew, in local currency, 1%. Given that our lab business was impacted by slower growth in R&D spending and our industrial business was impacted by the decline in manufacturing output, leading to reduced capital investment, these results are solid.

Although the external environment was tough, we made measurable progress in several key areas. First, we continued to grow investment into R&D. Over the last three years, R&D was decreased at an average of 9% per annum. We are convinced that these strategic investments, even in less than ideal times, will assure Mettler-Toledo to further grow and expand its market leadership. I think our performance in titration in 2002 helps to illustrate this point.

At the end of 2001, we introduced a series of new titrators that helped to automate many of the processes surrounding titration. These titrators are supported by our LabX software that provides enhanced analysis and is compliant with the federal regulation requirement requiring traceability of electronic data and signature, also known as 21 CFR part 11.

Over the last 18 months, pharma customers have heightened there their focus on this regulation as they move from paper record to electronic data management. Titration was up double digit in 2002, as we were able to offer these complete solutions. Solutions that incorporate state-of-the-art instruments with robotics and software and, of course, with all these regulatory compliant services for our customers. This is just one example that I wanted to highlight that demonstrates the impact of technology leadership.

Second, we have successfully expanded our service business from one centered on calibration, repair and maintenance to one driven by regulatory compliance and other value-added services. This business did well in 2002 as pharma companies have become increasingly concerned about the potential and magnitude of FDA fines. We have a unique offering to our pharma customers in assuming that our instruments are used in compliance with FDA regulation and we can provide these services regardless of the customer's location throughout the world.

Third, we took direct actions to permanently eliminate from our operating structure, given the weaker than expected economic environment. Among several initiatives is the aforementioned closing of two manufacturing sites. The production from both these facilities will be transferred primarily to China by the fourth quarter of this year. As we have told you, we expect to eliminate 15 million to 20 million of cost from the business. We sell saw about 6 million of these savings in 2001 with another 7 million to 8 million expected in 2003 and the remainder next year in 2004.

Fourth, sales in Asia were strong, reaching 10% growth for the year. While Japan's growth was very moderate, all other regions recorded strong growth rates driven to a degree by the many new products we have introduced for this region and also by our customers making significant capital investments into that part of the world. As part of our strategy to build China as our low-cost manufacturing center, we are investing more R&D into product development for this area. These products are being developed for the local markets and also for export back to the United States and Europe. We just completed a new factory in China which will provide additional manufacturing capacity.

Finally, additional accomplishments in 2002 include the solid performance by (inaudible), which is well on target with our initial expectations. Demand for their proprietary LTS pipettes continue to be strong, and now essentially equals traditional pipette sales. This, in turn, (inaudible) sales as only proprietary Rainin tips can be used on LTS pipettes. We established a sales and service network and infrastructure necessary for Rainin in its European expansion efforts. European sales were up significantly in 2002, and we believe the strong growth will continue into the coming years.

My final comments from 2002 is on cash flow, which was up 16% despite the one-time pension payment Dennis mentioned before. I also want to highlight that we maintained cap ex at a very solid level, on par with the previous year. As Dennis mentioned, we are very pleased at the improvement in our DSO, particularly given the weak economy. We still see room for improvements in our inventory.

Now, turning to our outlook for this year, we have not built a significant economic recovery. Nevertheless, we are optimistic about the state of our own franchise. First, we have built a 2003 plan that provides for earnings growth with very little economic recovery and, therefore, our planned top-line growth is only moderate. We remain convinced that our sales growth under normal economic conditions, without currency or acquisitions, is in the range of 6 to 8 percent. We have demonstrated this with our results in the many past years.

However, we did not want to count on this economic recovery in 2003, and in order to grow our earnings and meet our targets. You have seen from Dennis discussions earlier that our laboratory business continues to do well despite slower growth in R&D spending by our pharma customers. On the industrial side, we suffered from declining manufacturing sector for many quarters, but it appears that we have bottomed out. With respect to the food retailing business, we have put the most difficult comparisons behind us, but we still have one -- we still had some benefit in Q1 last year to the late converters in Europe.

Taking all these factors together, we believe our top-line growth assumption in the range of 3 percent to 4 percent is achievable in this year. We expect the second half to be stronger than the first half. Many of the key areas I just covered will also be the drivers for our growth in 2003. Namely, our extremely strong product pipeline, the expansion of our service offering, the European expansion with Rainin, and further growth opportunities in Asia.

And let me just touch on each of them very briefly. First we enter 2003 with a very robust product pipeline. On the drug discovery side, you heard earlier that we had a strong fourth quarter, driven by many new products launched. I know many of you have asked us why our business is not being impacted as others in these areas. Two key reasons are behind that. First, our numerous new product launches, which reflect our shift in product development strategy from one focused on highly automated instruments to those targeted on the beverage chemist.

Second, our focused (inaudible) drug discovery. More than half of our drug discovery business is in (inaudible) which is after a target has been identified and optimal processes for manufacturing of the chemistry are being developed. Pharma customers can see strong paybacks in this area through faster time to market and increased yields. Many of the new product launches in later part of 2002 were just focused in this area. One example is our automated will be reactor. It has multiple smaller vessels to allow for numerous parallel reactions. We have expanded the in situ analysis capabilities to monitor chemical reactions. We also introduced a PC-based (inaudible) software which incorporates the data, archives it, and supports the analysis. We can further automate these systems through robotics.

Finally, it is a modular concept which helps chemists to get started with easier to use tools and they can be expanded over time. Much of our drug discovery sales this year will be again generated from products released in the last 12 months. Besides drug discovery, we have many other significant new products in the lab area in 2003. We expect service to continue to be a very solid growth area for us in 2003. Although demand for our regulatory compliance services was high in 2002, we anticipate it to be even stronger this year.

Furthermore, we will roll out a recently piloted program for criticality assessment. This program, which has met with very strong receptions by our customers, allows our service personnel to assess the criticality of our customers' instruments in use, be it in the lab or in the manufacturing process. We analyze the criticality with respect to compliance, up time, and quality control. And then a tailored offering is formulated based on this assessment.

For example, instruments are identified as most critical and are given the highest service attention, and in parallel, when necessary, we will propose a structure program for replacing the instrument in use to reduce the total cost of ownership. Finally, Asia will continue to be an engine for growth this year. We will launch several new products for this market, including anew generation of cost-effective balances and new packaging products tailored to this market. The production transfer from France and U.S. will be completed before the end of the third quarter, as we fully develop China as our low-cost manufacturing base. These are the highlights for 2003, but I think that you can see that we are very optimistic on several fronts.

To conclude, I want to reiterate several points that I have made this afternoon. First, we are cautious about the external environment we face, especially in the first half of this year. But we are solidly optimistic about our internal initiatives to enhance our franchise. I am convinced that although 2002 was a challenging, we are stronger than last year and we're gaining momentum every year. We have maintained, if not grown, our market leadership position. We have an excellent product pipeline, as many growth initiatives such as Asia, service and training, and we have undertaken a fundamental -- fundamental steps to improve our cost structure. We are confident that measures are in place to grow earnings in 2003, even if the economy should not grow much.

That is it, from our side. Before we open for questions, I want to cover some investor relation matters. Some investor relation matters. We are not planning a formal event at PCOM (ph) this year, as we have done in the past. The reason is that we want to organize an investor day later in the year. At the investor day, we will provide an update on our initiatives, and demonstrate many of the new products which will be launched throughout the year. We are tentatively planning this event in the week of July 28th -- July 28th. Mary will be contacting you shortly to get your input on location preference, and then we will be back with more firm information on this event. Although we won't have an official program at PCOM, Dennis and Mary will be there for a couple of days, and they can help organize both -- a booth tour for those who want to see our existing product range. It is best to get in contact with Mary if you are interested.

That is it from our side, and I now would like to ask the operator to open the lines for questions.

Thank you. If you have a question at this time, please press the 1 key on your touch-tone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the pound key.

Our first question comes from Cheri Walker of Deutsche Bank.

Hi, good evening.

Hi, Cheri.

Hi, Cheri.

Hi. Can you first just some housekeeping things. What was cash flow from operations and cap ex?

Yeah. Cash flow from operations for the year, 95.2 million. Cap ex, 33.2.

Great. Thanks.

And that includes the $19 million pension payment.

Okay.

Cheri, and then for the -- yeah, for the quarter, 33 -- or 34 million, and 7.9 million in cap ex.

Okay.

Both of those also including the 19 million.

Great. And when we look at the fourth -- the first quarter guidance, what sort of revenue growth should we think about? You're talking 3% to 4% for the year. Would that be below 3%?

Yeah, absolutely. I think we're -- we're thinking flat to slightly down.

Okay.

And that's because of the last time negative impact of the European retail business.

Okay. So most of that will be in that ...

It will not be as bad in -- as in previous quarter, but we will still have negative impact to some extent in the first quarter.

All right. And then how should we think about gross margin? From the -- earlier this year, it looked like it had been up year over year, slightly down mostly due to currency this quarter. Should we expect that to continue to improve next year, or be flat?

Yeah, I think we'll see improvements in the margins, especially as we get later into the year, because the plant closings will give us a benefit on the margin line as we move those products to China at lower cost.

Is that both growth and SG&A? Or mainly SG&A?

It's primarily gross margin. A little bit of SG&A.

Okay. And then just finally, can you talk a little bit about the life science environment in the quarter? Did you see a slowdown with life science researchers in Rainin that some of the other companies have reported?

You have certainly heard that we had a very strong lab business in Q4. You know, frankly, if I look at costs, everything, we did well, from balances to analytical instruments. And particularly in AutoCAD. In AutoCAD we had a very strong quarter. You realize that we entered Q4 with a strong backlog, but Q4 sales were way up above last year, with very solid double-digit growth number.

Great. Thank you.

Thank you.

Thank you. And our next question comes from Scott Jones of AG Edwards.

Good afternoon. First question, I just wanted to verify, Dennis, could you say again what your local currency organic growth rate was in the December quarter?

Yeah. Local currency organic was down negative 1.

Okay. And the -- the flat to slightly down for Q1, is that a local currency organic forecast or is that including currency?

No, that's local currency organic.

Okay. Good. And then my -- I -- my question is, with regards to Q1, on the top line, is there any -- are there any areas where you're seeing some weakness right now, or projecting some weakness, or is it mostly a function of the continued tough retail comps?

This comment is very true. That's where we are still hurt negatively affected. I think you have seen if you pull out this one-time effect, actually our performance in Q4 organic sales growth was very solid, and unfortunately, we'll have one more difficult comparison to go through.

Terrific. And finally, one more for -- for Dennis, and that is: Have you done any work or projected what you expect for free cash flow for 2003?

Yeah. We're targeting kind of 100 million to 105 million.

Terrific. Thank you.

You're welcome.

Thank you. And our next question comes from Richard Eastman of Robert W. Baird.

Hi. Just a couple questions. One of them is, could you just talk a little bit about where Rainin finished the year in dollars? I'm just curious -- and maybe the growth rate there in '03, what kind of incremental dollars of revenue should we look for out of the Rainin business? As you move it over into Europe.

Yeah. Rainin when we bought them, was about 75 million. They're kind of in the $80 million range now, and we're expecting kind of high single digit growth for them on the top line.

Okay. Okay.

And a lot of that growth will also come from the international business. I mentioned before that the European business was up significantly. Actually it was up 60%.

Wow. Okay.

And, you know, that's of course off a small base, but last year we had to put in a lot of energy recruiting the salespeople, putting in the service infrastructure, IT systems, applicable sticks. That's all in place and, you know, we have seen how it took off in the course of the later part of the year. I'm quite optimistic for this year.

Okay. And then a second question I have is sales related. We talked to the '03 guidance of plus 3 to 4 percent local currency, and I can worry about weighting these, but can you give me a sense for '03 what you're looking for in the three major product categories? So, you know, is lab -- lab up 5 to 6, industrial (inaudible) can you just give us a thought there?

Yeah, I'd be happy to give you some color on that. We're expecting lab to be fairly strong, mid to high single digit growth. On industrial, we're saying kind of low single digit growth, and in retail, just some slight growth there because we're -- we're digging ourselves out of the hole after the first quarter European retail.

Okay. Those are all local currency?

Yes.

Okay. And then just lastly, on China, what percentage of your sales currently are produced -- product is produced in China?

Last year, it was a number like 11 to 12%.

Okay.

And by the end of the year, it's going to be between 15 and 20%. And if I just may say here a few words, I was just 10 days ago in China for the opening of the new plant. We made the decision to move to China in June, late June, and you see the timing. You know, within six months, a new factory being built up. What's going on in China is phenomenal. There is an incredible momentum there, and the cost savings we get out of it is, as well, what we have been telling you many times in the past, as we are now deep in the project, we are deeply convinced we're going to get the typical 35, 40% cost reduction on the manufacturing costs for these products.

Wow. Okay.

And, you know, it is fascinating to observe the dynamics of the local Chinese market. A lot of manufacturing is moved over there. When you fly over there, you meet a lot of business people just doing the same. And of course that's good news for our local business in China. It had gone very good last year and the outlook for this year remains strong.

So the incremental margin in that product, if we can take 30 to 40% out of it, would be, you know, 50 to 60% kind of gross margin, if you were to model that?

Well, you know, kind of -- Dennis did say before that our cost profit margin will improve in the course of the year, and that's, of course, the result of this movement to China.

Okay. Very good. Thank you.

Yes.

Thank you. Our next question comes from Paul Knight of Thomas Weisel.

Hi, Robert.

Hi, Paul.

Could you give us a little color on how the Rainin business is doing and, you know, your expansion progress into the new markets?

Rainin has altogether good year with, you know, mid to high single digit growth last year as Dennis mentioned before. Operating profits have grown very nicely due to, you know, they selling more and more of their proprietary products, this LTS tips and pipettes, which, of course, have better margins. And I'm very optimistic on the outlook for Rainin for reasons I just mentioned before. Rainin has such a strong position in the North American market, but has, of course, still a lot of territory to conquer globally, and with this unique technology and our existing sales and service infrastructure, we can just exploit these opportunities. So a lot of the growth will come, of course, from the international side. Rainin has seen, you know, in December a little slowdown due to less pharma spending and biotech spending, but indication in January are well on track again.

Thank you very much.

You're welcome.

Our next question comes from Scott Wilkin of SG Cowen.

Thank you. Hey, just a question on the acquisitions. I would have expected a little more contribution there. I'm not sure what I'm missing. Could you maybe just provide actual sales breakout, Dennis, for both Rainin and the other acquisition in the quarter?

Yeah. Basically, yeah, the acquisitions contributed 2% to the revenue growth in the quarter.

Okay. And I know -- I can't remember the name of the other one that you've done.

That would be Softechnics (ph).

Softechnics. It's a retail software company based in Texas. As you may recall, you know, that was a small company in the range of, you know, yearly sales of $6 million, $7 million in sales.

Got it. And where currency rates stand today, what are you thinking FX could add to revenue growth in Q1 and perhaps for the year?

Yeah. In Q1, it's (inaudible) to be fairly strong, maybe in the kind of 3 percent to 4 percent range.

Okay.

And if you can predict what it is for the full year, we'd like your input.

All right. Hey, just looking at your sales guidance for Q1, you know, U.S. did finish strong, European retail while it's still stuff it does get some better. I'm just wondering, are you seeing anything in your order book in January on the industrial side that's making you cautious? Because, you know, it sounds like things, at least in this quarter, improved for you. I'm just struggling a little bit with why you're still -- you're still cautious then. Is there anything in January that is indicating that to you?

Maybe -- I mean, first of all, bookings in Q4 were strong. We have actually built a slight backlog, or increased the backlog relative to the previous year. I mentioned before the industrial business actually, to my current assessment, has bottomed out. As well in that business, bookings-esque (ph) ahead of billings. The reason why, you know, we guide you to that number in sales in Q1 has really much to do with the European retail business, as explained before. Certainly as well, it has to do with the current uncertainty in the economy, and of course, you know, (inaudible) is always a big growth driver but (inaudible) that's just the (inaudible) these products are much more driving sales growth in the later part of the year as at that point in time customers spent the money. I'm sure many other instrument companies have given you similar messages. That's just the nature of that type of business.

Okay. And Dennis, just in terms of why the cost savings don't kick in till the second half, could you help out a little bit there? And just quantify, perhaps, the French impact in the first half?

Yeah. Basically, we're going to close down the Spartanburg facility in -- towards the end of the second quarter, maybe even into the third quarter, and the (inaudible) facility in France, again, towards the end of the second quarter, so we're really not going to see the savings coming from those until the second half of the year.

Okay. And how much was -- do you anticipate the disruption in France costing you?

Yeah. That's kind of a tough one. They're about 10% of our business, and it is a distraction in France right now for our marketing organization there.

Probably it's going to cost us a few million dollars in sales in Q1.

Okay. Great. Thank you.

Again, if you have a question at this time, please press the 1 key on your touch-tone telephone.

Our next question comes from Chris Shibutani of JP Morgan.

Thank you. Could you remind us if there -- in the retailing side of the business -- is any seasonality coming off of, you know, a couple of kind of seismic influences be it either euro or Y2K. What is the baseline revenue trend for that business on a quarterly basis?

First of all, there is not much seasonality here. I think you used the right words before. It's more driven by, you know, kind of (inaudible) being it Y2K, being it euro. But in general, you know, kind of our business pattern in a year is dominated by project activities. So in case there's a big project released at Wal-Mart or Albertson's or (inaudible) or so on, you know, we might have a very strong quarter or so, so that's the key driver. In that sense, it's probably very hard to give you a standard seasonality.

Okay. For the lab business, could you just remind me what you think your approximate mix of the instruments versus consumables and perhaps what portion of the revenues the services contributing, kind of on a percentage basis and where those -- that mix -- is it trending in any particular direction?

Yes. Okay. What's kind of the recurring business in the lab?

Correct.

The consumables -- consumables we have pipettes, then we have consumables around, you know, our electrochemistry, (inaudible), electrodes, and so forth, and then of course the recurring business is service. If I add these all together, the recurring business in the lab is probably 30, 32%, in that range. That part is increasing as pipettes are getting more important in the overall mix, and as our service business grows faster than the product business, for reasons I explained before. This new service offering in the field of regulatory compliance services or asset management, value-added services in general.

In the service side of the business, service XXL and some of the software products seem like they -- you know, you're quite optimistic. They've been reasonably strong, as well as an improvement in '03. What ...

I'm very optimistic on this. I can give you anecdotal ...

What's driving that, sort of -- I guess sort of strength in the market? Is there also some factor of some sort of competitive advantage or opportunity you have there? I'm not quite clear, when we sort of anniversary when that seems to have kicked in and what is driving your optimism for '03?

Yeah, it's both of what you said. You know, it's our own strength, but it's as well the market trends and let me explain that briefly. I'm sure you have heard, you know, that many big pharma companies have had heavy signs from fines from the FDA and these fines have been anything from $100 million to $500 million. Pharma companies want to spend that money not towards the FDA, but much more in improving their internal processes, and that means, of course, that they have to heighten their standards, and here is our opportunity.

Now, we have built up a SWAT team who has that particular knowledge, and can go in at the customer site and, you know, the customer typically will give us a total asset list and they will walk with, for example, the quality manager to that facility (inaudible) and assess the equipment in use. We will check how important is it so that the customer has a great yield in manufacturing, or how important is that instrument, so that you have the right quality data in your research. Or how important is that instrument that we are compliant.

And based on that, we set the priority for this equipment and come forward with a value based pricing, and I can tell you we have had customers after we did it at one site, they're now going to roll it out to many other sites. It's an incredible differentiator we have. Hardly anybody can offer these type of services because they don't have the specific know-how you need to have, for example, for the equipment qualification and so forth. And, you know, what's making me so optimistic we really started that program in the course of last year. We have had -- last year -- one guy who could really offer these type of services in North America. Today we have 10 of these days and we have many of them, as well, in why you were.

So, you know, we are gaining momentum here. At the same time, there is a big market demand against it.

Sounds like a good opportunity, but could you sort of maybe give some sense for the scale of that business, and, you know, what kind of revenue contribution it is, you know, in total revenue backdrop?

Yeah. Let me say that way. You know, service as you certainly recall is more than 20% of our sales, and service had, you know, significant operating profit growth last year. You know, very high single digit -- double digit. And sales grew as well, high single digit in service. So ...

Thank you.

... you know, we are really continued optimistic on that front, yeah.

Great. That's helpful.

It's a very stable business.

Thank you very much.

You're welcome.

Our next question comes from Paul Cigaran (ph) of OMT Capital.

Yes. I was just wondering what the increase in the other current assets and then other non-current assets was.

Yeah. Those are some increases in our deferred tax assets.

Okay. Thanks.

Our next question comes from Vivak Tehan (ph) of Argus Partners.

Hi. I just had a question. Can you give us the organic growth rate without acquisitions for Europe, North America, and Asia?

Yes.

Just a second. We have it.

Hold on a second.

And our next question comes from Darryl Party (ph) of Merrill Lynch.

You want to hold on for a second and let me answer that?

Hold on one second, guys. So, yeah, organic in Europe, negative 11.

Pull out the retail impact there.

... plus 6.

So without the European retail impact, Europe was up 6%.

Yeah. Americas plus 5. And plus 10 including Rainin. And Asia, plus 15.

Hey, guys, how you doing?

Good, Darryl. How are you?

Hi, Darryl.

Okay. Thanks. Could you tell -- packaging was quite strong this quarter. Could you talk about what the drivers were for that -- where you're seeing growth?

In packaging?

Yes.

I think it's partly due to internal improvements. We have made a lot of efforts to get closer to our channel and have much better channel management. I think that was a key driver. Then, you know, we have certainly easier comparison in that business as well. And then lastly, you know, Asia, we did tell you in the past Asia is a growth opportunity and we continue to see that.

Okay. Great. And could you give us an update with respect to Softechnics on where you're at with integrating their platform with yours, from a technology standpoint?

Actually, very soon there will be a big exhibition called market techniques, and at that occasion, we'll actually launch the new combined product, and we are very excited about these combined capabilities. It will help us greatly to differentiate versus competition. Nobody else can offer that type of solution as we do. To give you an illustration of that, with the combined software capability, we can, for example, offer modules for computer automated ordering, so in case, you know, products which have been selling well in the store and these data having been captured through our scale and networks of scales, feedback the information to a computer automatically to the supplier so that the supplier can, you know, restock in the store and the store is not out of stock.

These type of solutions help our customers to minimize inventory and through that, of course, free up cash. And we have good software models to stimulate and so that makes a great value proposition to our customer.

Sounds good. And, you know, there's -- I think there's one other selling point, too, with the Softechnics acquisition was that there's little overlap in the customer base or that some of the stronger customers at Mettler were not necessarily strong customers at Softechnics and vice versa. Is that -- have you made any progress in cross-selling products.

Well, they are -- you know, their products are purely software while ours, of course, are hardware and software. And their software is totally complementary with ours, as I just mentioned.

In terms of, you know, using their relationship with some customers, we clearly have seen that, and we have come back into some accounts where we had not easy access. Very often, you know, the Softechnics people have great access to the IT officer and, you know, that's the future of our business, and that contact and that access is very valuable.

Okay. Great. Thanks.

You're welcome.

Again, if you have a question at this time, please press the 1 key on your touch-tone telephone.

I am showing a follow-up question from Scott Wilkin of SG Cowen.

Just a housekeeping question here. Exactly how much was the European retail business down in the quarter? You gave that number out last quarter. And then if you could give the growth rate for the business overall, that would be helpful too.

Yeah. So European retail for the quarter, Scott, was down 55%.

Okay. So that worsened a little bit. Okay. And then what was it worldwide?

For retail?

Yeah, for retail. Just retail.

Down almost 30.

Down almost 30. Okay.

But the U.S. piece did very well and had, you know, more than double digit growth.

Okay. U.S. was double digits. Okay. And just the lab business, you said that was -- I think you said mid to upper single digit, correct, for the ...

Yes.

And could you talk about the geographies there?

Yeah. We've grown pervasively across all the geographies, yeah.

Okay. And so Europe has bounced back nicely?

Yeah.

Yes.

Germany is no longer an issue?

As well as the industrial business, we have seen actually improvements in every region.

Got it.

And of course Asia was always strong.

Okay. Thank you very much.

You're welcome.

I am showing no further questions at this time. You may continue with any closing remarks.

Yeah. Okay. We'd like to thank you very much for your attendance. I hope you have a good evening. Bye, everybody.

Ladies and gentlemen, this concludes today's conference. Thank you for your participation. You may disconnect at this time.