Mettler-Toledo International Inc (MTD) 2003 Q1 法說會逐字稿

Good afternoon ladies and gentlemen and welcome to the Mettler-Toledo first quarter earnings conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. The instructions will be given 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 involves risk and uncertainties that could cause actual events or results to differ materially from those expressed or implied. For further information concerning the issues that could materially affect the financial performance related to forward looking statements, please refer to Mettler-Toledo's quarterly earnings releases, annual report and periodic filings with the Securities and Exchange Commission. This call is open to the public and is being carried simultaneously on the company's website. I'd now like to turn the call over to the moderator Robert Spoerry, Chairman, President and Chief Executive Officer. Please go ahead sir.

Thank you. Good afternoon everybody and I'd like to welcome you to the Mettler-Toledo's conference call. I'm Robert Spoerry, the Chairman and CEO of Mettler-Toledo and I'd like to thank you for taking the time and joining us today.

With me in Switzerland is Dennis Braun, our Chief Financial Officer; Mary Finnegan, who is our Treasurer and panel of Investor Relation is joining us from Columbus. This call is being webcast and is also available for replay on our website www.mt.com. A copy of the press release we showed this afternoon is also available on our website.

On today's call, I would first like to give you a short summary on the quarter then Dennis will go over the financial in detail. After that, I would like to provide an update on several initiatives. We will then open the line for question.

Now, first, let me make some summary comments on the quarter. I am very pleased that we achieved the consensus EPS for the quarter of $0.37. Sales in the quarter increased 7% in US dollars. We had some increase of 9% due to currency and 2% decline in local currency. Although I'm not happy with the decline in sales, this was as expected.

We had the final quarter in which we faced the impact of the Euro conversion in our food retailing business. If we exclude European food retailing, sales in local currency would have increased by 1%. There's an output [Inaudible] comparison behind us. Operating profit also came in on plan, and we again improved nicely our cash flow versus the prior year. Finally, we made further progress on our cost restructuring programs, in particular, finalizing an agreement with the French Unions, which will allow us to close the facility at the end of June. Also cost reduction initiatives are on track, and that's a result we will achieve the significant and permanent reduction in our cost base. We will cover all these points in more detail throughout the course of this call. Let me now turn over to Dennis, who will be talking and taking you through the financial results for the quarter in detail.

Thanks Robert and good afternoon to everyone. As Robert mentioned, we achieved consensus estimated of $0.37 in the quarter, which is based on 45.3m shares outstanding. This compares to $0.41 last year. On a reported basis, EPS was $0.29 per share; this includes the final charge related to our second quarter 2002 restructuring program and incorporates the final settlement with the French unions.

Sales amounted to $291.8m in the quarter. As Robert mentioned this represents a 7% increase in US dollars, which consists of a 9% increase due to currency and a 2% decline in local currency sales. The local currency sales decline is in line with what we expected when we last spoke due principally to the European food retail, which was down more than 30%. This is the last quarter in which we faced the impact of the Euro conversions related sales.

As I think most of you know we had a sizable increase in our European food retailing as grocery stores changed their requirement and software to be able to handle the introduction of the Euro currency in 2002. We had some final benefits from the Euro conversion in the first quarter of last year, which impacted the comparison this year. As Robert mentioned, without the impact of our European food retailing sales, sales would have been up 1% in the quarter.

I will now discuss the sales by geographic region in more detail. All of these numbers are without the benefit of currency. Sales in Europe on a local currency basis were down 6% in the quarter, but would have been up 1% if we exclude European food retail impact, which I just mentioned.

In Americas, total sales were down 2%, relatively solid result in industrial were offset by some weakness in laboratory and food retailing. Sales in Asia were up 12% in the quarter. Very strong results in China were offset by somewhat continued weakness in Japan. The Asia growth was pervasive across almost all product groups.

Now let me cover sales by business area. Again these analysis exclude the benefit of currency. Starting with lab, our lab business was slightly negative in the quarter, modestly below what we expected. Process analytics and analytical instruments had a solid quarter, but drug discovery was down relative to strong comparisons in Q1, 2002. Industrial did better than expected with growth in the low to mid-single digit range. Our core industrial business showed growth for the second consecutive quarter. Packaging also had another good quarter of results. Retail was down in the 20% range due to the Euro conversion sales mentioned earlier. As expected our US retail business was down also.

Gross margins were flat with last year at 45.8%. Included in this margin is negative currency of about 90 basis points. R&D amount to $18.5m, which is a 1% decline from the prior year in local currency. For the remainder of the year, we would expect R&D to be relatively flat with the prior year on a local currency basis. This would result in R&D as a percentage of sales to be in the 5.5% to 6% range for the full year on a local currency basis.

SG&A amounted to $84.8m or 29.1% of sales, which represents an increase of 12% in US dollars. Currency accounts for 10% of this increase with acquisitions primarily accounting for the rest. Adjusted operating income before restructuring charge came in as expected at $30.4m as compared to $32.6m last year. Our margins on a reported basis were 10.4%. If we adjust for currency, that is if we put our margins on the same currency basis as last year our margins were 11.6% compared with the prior year level of 11.9%. It maybe we are clarifying the impact of currency on our operating process and operating profit margins.

We are relatively naturally hedged in terms of currency at the operating profit level in absolute dollars. Therefore, although our top line increased by 9% due to currency, we had no benefit at the operating profit line. Our margins, however dropped as we took our naturally hedged US dollar operating profit and divided it through by the higher sales due to the currency benefit.

With the Euro at its current strong level, we will likely face this again in Q2 if not for the whole year. Continuing down the income statement, amortization amounted to $2.8m and interest expense was $3.9m. Our tax rate remained at 30% in the quarter.

Included in our net earnings in the quarter, is an after tax charge of $3.8m related to the final settlement with the unions for the closing of our facility in France. As we mentioned in our last quarter's conference call, when we took the restructuring charge in the second quarter of 2002, we could only accrue for the legal minimum amount we will require to pay. Therefore, it was necessary to take an incremental charge reflecting the union agreement reached. This charge includes severance as well as social cost related to the terminated employees. The nature of these social costs are actually somewhat surprising. They includes such items as relocation cost, jobs searchincentives, and future employer salary equalizations. I am happy to say that this ardious process is now over and we will close the French facility by June 30th. This result in the EPS on a comparable basis of $0.37 for the quarter versus $0.41 last year. As I mentioned earlier, on a reported basis that is including the final restructuring charge for France. Our EPS was $0.29.

The first quarter is seasonally are lowest for cash flow generation. Free cash flow, which we define as after taxes, working capital, capital expenditures, and before restructuring payments, and acquisitions amounted to $6.4m as compared to $4m last year. I want to highlight a couple of movements. First, CAPEX is down by $4.6m as we had reining building investment in last year's amount. This decrease was more than offset by a $10.8m increase in tax payments in the quarter. DSO was strong at 53 days, which is well below our target of 60. ITO was 3.3 times, a slight slow down primarily due to the preparation with the plant closures and new product launches.

Finally, we spent $2.3m on restructuring payments during the quarter. Last twelve months, EBITDA amounted to $188.7m and net debt was $277.9m. This results in very strong credits statistics of net debt to EBITDA of 1.5 times and interest coverage of 11.7 times.

One additional point I want to mention concerning our balance sheet. You will notice next quarter that our debt will be classified as short-term. Our debt consists principally of a bank facility, which matures in May 2004. We entered into this facility at the time of our IPO and it carries attractive pricing relative to current market rates. Therefore, we do not want to refinance any earlier than necessary. As a result, we intend to have a new deal in place by the first quarter of 2004. Given our solid balance sheet and cash flow generation capabilities, we envision no trouble entering into a new deal. That's all from my side and I'll now turn it back over to Robert.

Thanks Dennis. I want to cover four topics before we open the lines for discussion. First I will make some brief remarks on our outlook. Next I want to cover our transportation and logistics business in more detail. Also I want to provide you an update on our restructuring and discuss [inaudible] who joined us just recently as head of our laboratory business.

First, with respect to the current market. As mentioned earlier, we are pleased to have met our financial targets for the quarter. Furthermore to challenging comparison in our European food retailing business our now behind us. We are cautious in our outlook given the uncertainty in the global economy. Yet our business in Asia continues to gain momentum and our service business due to our regulatory compliance offering continues to drag growth.

Further more, we continue to execute our growth initiatives including launching many new products during the second half of 2002 and rolling out our market management tools throughout the organization to obtain more transparency in our customer base and last but not the least, we are working on achieving savings in our global procurement effort. These efforts will continue to strengthen our franchise during this challenging economic times.

I will now turn to our Transportation and Logistic business, which continues to recognize solid growth. This business provides automatic data capture system that encompass in motion identification, dimensioning and [Inaudible] . The traditional customers in these market has been the airfreight carriers such as Fedex, TNP, and DHL. Over the last 12 months the market has aroused and we are seeing an increasing demand from ground carriers. The demands for ground freight has increased as companies have become more cost conscious and ground transport has become more reliable. Consolidation in the ground market is under way, particularly in Europe, its entity such as Duestche post buying up regional carriers. The principle benefit to ground carriers is the same as to air carriers that is revenue recovery for an accurate information on the size or the dimension of the parcel.

Corporate customers of the freight carriers typically record the weight for the parcel correctly, however they tent to underestimate the size of a parcel. Therefore, there is a sizable payback as carriers are able to recover lost revenues, which of course directly benefit the carriers from line. Typically, the cost of assistant can be recooped in a very short period of time through revenue recovery. Ground carriers will also benefit from better fleet utilization and the generation of the comprehensive data on the customer shipping patent. We have several solid orders in this business currently in these market that is 10 times the size of the airfreight market, we feel the solid growth dynamics will continue.

I want to provide an update of our cost restruction program. Overall we are well on track and we are really pleased to have reached an agreement with the French Unions, that will allow us to proceed and close the facility by the end of June. Our facility in South Carolina will close by the end of September. The production from both of these facilities will be transferred or is already transferred to China where we recently opened a new manufacturing facility.

At the end of 2002, or at the end of last year, approximately 11% of our sales came from products manufactured in China and we see that approaching 20% in the next 12 to 18 months. We typically saved 35% on manufacturing cost in China versus in Europe or the US. We've filled up the necessary infrastructure in terms of both facilities and personnel capabilities and currently have a very sizeable engineering team in China to design new products. And so we're on track to achieve the $15 to $20m of cost savings objective that we laid out to you in the second quarter of last year. In addition to the $6m recognized already last year, we should recognize $7m to $8m this year, as most coming in the second half of the year as these plants are shut down. The remainder will come in year 2004.

The Asia market itself continues to be strong. Gross area driven by local market growth and demand from multi national firms that are increasing their operation in Asia. Our global presence is a key advantage as these customers want the same quality level of service as they have throughout the whole world. There is an extensive sales and service network throughout Asia, which gives us a strong presence throughout that region. We also have a very strong product pipeline of new products targeted to meet the demands of these local markets but that's [Inaudible] to be export to the European and to US markets for low-end entry level markets.

Product launches in 2003 include entry level balances and opposed to Mettler-Toledo brand name and the [Inaudible] under second brand name All Out (ph). We will also launch a new generation of ph meter, and in the industrial and retail field, we are also launching a wide range of instruments targeted to this cost concious market. The last topic I will cover is a new addition to our management team. Beat Luthi joined us just recently as head of the lab division. Beat has a history with Mettler-Toledo, he worked for us for almost 10 years in the mid 1980s through the mid 1990s. He left to become a CEO of a Swiss Technology Company. Beat is in engineering and he has a PhD in Informatics. He brings a wealth of international, technical, marketing and M&A experience to Mettler-Toledo. We welcome him back and I would also like to take the opportunity to thank my colleagues William Donnelly, you know him well from his past function as a CFO and also Olivier Filliol, who has assumed additional responsibilities reaching the lab division while the search was underway. You will have a chance to meet Beat later this year when we hold our Investor Day. We are targeting Monday, July 28th and we will host it in New York City. In addition to meeting Beat, we will also demonstrate some of the new laboratory product that we will start to introduce in the second half of this year. I think you will find today, highly informative and we will, it will diverse time you would invest. That is it from our side. I now would like to ask the operator to open the lines for questions.

Certainly, ladies and gentlemen, if you wish to ask a question, please press the one key on your touchtone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. Once again, if you would like to ask a question, please press the one on your touchtone phone. Our first question comes from Michael Yee , please go ahead.

Hey guys, how are you?

Hello, how are you?

Good, great quarter. Looking forward, at your balance sheet and I know that you guys have the data upgrade, what does the [span-Inaudible] of debt kind of look like going through '03 and kind of your outlook on acquisition?

I am sorry. What was the question on the again? Could you repeat it?

Yeah, looking forward in the 2003 what is the kind of outlook on the payment on debt, as well as the acquisition outlook given your significant free cash flow?

Yeah, we estimate; we are going to generate kind of in a $100m range in free cash flow and clearly we would look for acquisitions in that space but in lieu of that we would use that to pay down our debt balance on a regular basis as we did last year.

Okay is it kind of continuing trend?

Yes.

And then also looking at the retail side of things given that your [Inaudible] at the end of this quarter, the previous quarter. What is the kind of feedback they are with their current trends?

I need to give you two answers on that. US retail business last year as you may recall was very strong and we had some, you know, really extraordinary protecting that. We have not built that into our plan this year to repeat and therefore our expectations for the US retail business or US business in US will be flat or even slightly down. The European retail business, a very different story. In Q1 last year we still had this conversion in fact to the Euro and therefore we had a significant drop as Dennis explained before, actually a drop in the range of 30% but now going forward I'm pretty sure you will see growth rate in Europe, growth rate in the mid-to-higher single digit range. For the full year we expect that after the weak quarter, inclusive of the weak quarter of Q1 probably European retail sales are going to be down in a low mid-single digit number. So retailing total will be slightly down in total worldwide both for the US and the European business.

Great and I guess the last question is. Can we look at the end markets industry-wise and then [Inaudible] has there been any kind of change in the trend over the last quarter? What's going to be the feedback there?

Actually that's a very appropriate question. I think what we have seen on the industrial side is quite encouraging. Dennis gave you the number on that business had a nice gross in the first quarter. Especially, order intake is encouraging. I have been saying in the previous quarter that we have seen a bottoming out of industrial business and started to see pick-up in the order intake that has continued in Q1, and the outlook is pretty positive in that business for the rest of the year. The same applies to our process on analytics business. It applies also to our packaging business. The situation however, is a little different on the lab side.

In the lab side, Dennis did mention that we had a slight decline in our business. It was slightly more than what we expected in Q1. The decline was primarily due to decline in our Autochem business. You may recall that our Autochem business actually had done surprisingly well given the softness in this market we had [as well-Inaudible] throughout the whole of last year excellent growth. The comparison in Q1of this year versus last year was very difficult comparison and recently has been affected in that business to some extent by difficult comparison. But at the same time, you know, this is a business which is heavily backend weighted in terms of seasonality. Q4 is very much the decisive quarter.

We will say that the Autochem business probably is going to be in the mid-single digit growth number for the full year. It maybe slightly different than what we would have expected before, slightly less in that field but certainly the industrial side doing better.

Great, thanks.

You're welcome.

We have a question from DarrylPardy. Please go ahead.

How are you doingguys!

Hi Darryl, how are you?

Yes. You are talking about the European food retailing business and the comps served year-over-year. But there were significant investments made in '00 and '01 are these -- are you expecting that sort of buying patterns to return to normal this year or its just a matter of the year-over-year comps getting easier.

I think primarily the later part of your question, comparison are getting much easier, when I gave -- you know maybe I was [asking-Inaudible] for the full year, we certainly do not assume it's going to jump back to the normal level it used to be but it's going to grow from a much easier comparison. And you know, this is maybe also well supported by orders we have. We have booked some solid orders for the full year and you know that gives us that confidence.

And could you just give us an idea of what happened in the other or what sales were in the other lab businesses balances and [Inaudible] instruments.

Dennis you want to do that?

Yes. Okay, so balance is down slightly and as Robert said Autochem down against difficult comps in the double-digit range. The process business up kind of mid-single digit range and the pipettes business basically flat.

Okay. And Analytical Instruments?

Analytical Instruments.

Analytical instruments, up mid-single digit.

Okay.

May be just some extra comments on the comments Dennis just made in terms of gains from the market. The pipettes business has been really affected by the slow down in the biotech sector. You certainly realize that this sector has been hit hard. At the same time we have been able to compensate that may be slow down by the increase in the International business. Actually the European business has gone very nicely in the first quarter and we feel quite confident that we can achieve our significant growth targets for the full year, in this uncovered market for Raime.

Could you give me your growth targets for the European business or for the pipette business as a whole?

Yeah. Primarily Europe, but for the pipettes business as a whole, we are kind of targeting a mid-single digit type of number.

Okay, Great thanks guys.

You are welcome.

You have a question from Chris Shibutani's line. Please go ahead.

Yes, thank you. Could you comment a little bit about the service business? The service accrued sale products and how that is progressing. What kind of demand you anticipate there?

Yeah. Service side did quite well in the first quarter. After very strong performance last year,you know, you certainly recall, actually we had a high double-digit growth number last year. When I think quite well in the first quarter, service business was somehow affected in the first quarter, I felt by European retail business a lot of product has been just sold last year and of course are still under warranty and therefore you don't have that much service business for those products. But when I then look at the other product groups, for example like in lab. In lab service we had a significant double-digit growth number. And that's exactly back to your question, you know that's were we posted regulatory compliant services. So it is going well.

With those customers, do you tend to have some degree of an annuity? What is sort of the recurring rate of service, is it typically more of an individual purchase of a software product or can you give us a sense of your visibility on the sustainability of certain buying patterns within the service offering?

Yes we can. I mean, it is a [Inaudible-offering] we have as you may recall. The base of it is maintenance contract, that is the yearly contract which is running across, and then at the time of the installation, we do sell them certification, validation, qualification, service package. That is usually then valid for some time, but very often customers would like to have requalification, maybe not on a yearly basis, but maybe every two or three years. This will depend on how they change their workflow, their processes. In case they make changes to that, they actually need the requalification of the equipment. So, in other words, as well as that part certain reoccurring revenue string. But the way I see it right now, these regulatory compliance services are a tremendous opportunity.

Our biggest challenge right now is to cope with the demand in that field. We have for example in the US just put on in the field 8 dedicated sales service consultants, and they do nothing else than visit key accounts and sell them these programs, and we have a very hard time to just catch up with all the subsequent work. There is a lot of work to be done and ultimately not only in the lab, but as well in the manufacturing environment. We have seen many of the big former companies being heavily fined by FDA because of not adhering to some of the manufacturing practices and of course in that sense they are in a certain way an insurance premium to these companies, very moderate amount of [three digit million -Inaudible] penalties.

If I could shift gears, are you seeing any impact related to SARS? You have a presence in China. You also have market opportunities. Is SARS creating any disruption or opportunity for you?

Very appropriate question. First of all, we had a great performance in Q1 in China. Actually we on a good roll for this quarter as well. Now, of course what is happening right now in China, with all this travel restriction, it is a challenge. For example, our people do not have that easy access to customers.

We cannot totally [Inaudible] so far, but we believe a lot of the business [Inaudible] can be contacted in different ways using for example more telephones and e-mails and so forth. So, in that sense we don't see the biggest risk in terms of losing business opportunity right now. The bigger risk we might have is the transfer of our manufacturing volumes from Spartanburg to China where we had been very much on track with everything so far and a lot of the equipment being installed, but of course more equipment needing to be installed and always we price this as well. So, people traveling and training the local guys know how to transfer until force.

So far, no crisis arose out of our Chinese team. They have contingency plans shaped up. They feel the asset is under control, but it could maybe somehow delay certain projects. It 's impossible yet to quantify it. I think it all depends on the evolution of the situation.

If you could estimate, you talked about a new product flow in the second half for the year for a bunch of the different divisions. Some of that you've described as coming such as low cost manufacturing and low price point markets in China. In theory, what is the potential portion of new products in the second half of the year that might be at risk if we were to paint say, a worse case scenario and there were delays or disruptions because of problems in China?

Actually you know, these low-end products have already been mostly launched. That's not my worry. It's more kind of time absorbing, the manufacturing volume from the Spartanburg plant. That's the bigger worrisome part. In terms of volume, we still need to push over there. That might be something on an allied base of $10-15 million or so.

Thank you, that's helpful.

Our next question comes from Paul Knight. Please go ahead.

Hi! Good afternoon this is Tim Long here. I just want to clarify an issue. For the European retail and sales, we have that negative 130% impact on your growth rate. Would the total sale which grow 1% or just the European sale?

Yeah, the European sales were down over 30%, but the total retail was down over 20%.

Okay. So, you are and it's been that to, suppose if you exclude that negative 30% increase from European food retailing sales, then the total company's sales would increase 10%.

1% for the overall quarter.

Okay, how much does that position contribute to growth for this quarter?

Nothing organic.

Too organic.

Hmm, what's that?

It's all organic.

All organic.

It's nothing material.

Okay, and how did SofTechnic and also Rainin do for this quarter?

I think we covered Rainin before, Rainin had top comparison to last year where they had actually -- still a very strong quarter. Dennis had mentioned before Rainin was flat and you know, it was mix story and US declining to Biotech and in the European markets, they go nicely. Dennis SofTechnic.

Yeah, SofTechnic, no material revenue for the quarter as a lot of the IT companies are experiencing now. There is some softness in that market with people deferring some IT expenditures. So, the good news is we haven't lost any accounts there, it's just better deferal the decision-making process.

I think [Inaudible] you know, you guys pick out big projects and then it seems to look ` it's a small company`.

Thank you.

You're welcome.

You have a question from Richard Eastman. Please go ahead.

Yeah, a couple of things. One is just go back for a second to the service revenue. Is it still running at about 20% of sales?

Yeah, a little bit more, kind of 21% range, Rick.

And the growth for the year then we've got may be some mixed messages perhaps the food retail is up, but is this a business that grows 5% to 10% this year.

Certainly, our expectation.

Okay and then, also I want to just explore for a second, I'm getting a sense that may be the revenue growth for this year that perhaps during the first quarter, internally the thought process may have shifted a bit towards relying more on the industrial market for total growth this year given that lab has slowed has slowed down some. So is that a fair assessment, or have you adjusted growth rates internally at all for the year based on what you seen in the first quarter.

No, I think the overall growth targets remain the same, but you are right probably the industrial businesses are somehow better while the lab business might have some more challenges.

Okay, and then just may be one last thought. There's always some influences in Asia this time of the year, I mean, you know, a lot of it especially Japan kind of operates on a March fiscal year end. So, you see some budget flushing in the first quarter. We've got the SARS issue. Did we have an easy comparison in Asia in the first quarter of last year?

No, not at all actually.

So, the kind of growth we saw in this first quarter, we could sustain going forward?

You know the growth is mainly driven from China, South-East Asia, we put Russia in the Asian numbers as well Russia had very good numbers as well. Leaving SARS aside I think, the China momentum is incredible I mean, if I look at our project pipeline they're, very, very encouraging. We discussed the potential impact of SARS before I don't think it is going to be a long lasting impact, you know in my point of view as always in this circumstances it is over blown up by the media's, like Anthrax in 2001, it took away with days and weeks passing but, may be short-term not so easy to cope with. But, then at the same time, when I talked to our Chinese colleagues they already have alternatives to still be in contact with customers and get done what needs to be done.

Okay. And just one last big picture question. When I look at the business, your business sequentially as we have seen in past years, there is a fairly seasonal, -- significant seasonal jump in the business from Q1 to Q2. Do you have visibility this year on that same jump because, again there is the softness in the lab causes you to pause the food retail business in the US being slow. How do you feel about the sequential growth that you would normally see this year?

May be, you know to put things in perspective, I mean we did expect, actually that the lab business will be slightly down in the first quarter and you know to perform as of now, our efficiency is very close to that expectations.

Okay.

It is just very slightly below. Again the US food retailing, we did expect it to be below previous year because, we knew in the previous year we had a very strong project or lap. Now, in terms of the visibility, I mean we do have solid process in the organization we can input brought them up week-by-week outlooks for the month and the quarter of course, it is not guaranteed, but certainly we have the certain experience on how good these numbers are and how much you can use them. I think, what we see right now is that the outlooks would confirm the expectations, the consensus expectation of the street.

Okay, Thank you.

You're welcome.

We have a question from Scott Wilkins, please go ahead.

Yes, Robert just to get little more granular on the outlook, I think you talked to before about kind of threeish, fourish percent organic growth, are you still sticking by that target for the year?

Uh, Dennis.

Yeah, that's our target still, Scott.

And just sort of how it unfolds in Q2 versus the back half. Should we see the actual growth in Q2 at this point, I know it is hard to call. What are you thinking?

Yeah, we are projecting level currency growth towards a low end of that 3% or 4% range.

Okay, and just with the lab business, is this, you talked about some comparison issues, you also kind of talked about market condition. Do you expect growth to improve through the year, or should we think about it really being flattish for the entire year?

We do certainly expect the lab business to contribute growth in coming quarters. The reason for that is, first of all this difficult comparison we had [Inaudible] in Q1, we don't think it's going to repeat itself in Q2, just based on the data we have and to project list. And turning the later part of the year, certainly the new products which we have mentioned at different occasions, start to impact the flow of the business performance of the lab division.

Just in terms of what you are seeing from a budgetary stand-point. With your customers, is there reason at this point to be more cautious or was is it more of a comparision issue?

I think the framework is pretty much the same as we had last year. It certainly did not get worse, with maybe the exception of the Biotech industry and again that is a small piece of our business being affected by that, that's mainly piper business.

And then just on the profitability swing, if I recall that the lab business is more profitable than the industrial business and if you do are you seeing a little bit of a trade-off there in growth profile. How do you manage that on the bottom-line?

First of all the profitability difference between the lab and the industrial business is not very significant. The industrial business has done a lot of restructuring in the recent years and we are still benefiting from further restructuring like shutting down Spartanburg and [Inaudible]. So, again this mix shift is not going to have too much an impact. Then of course in general we have very strict cost discipline in our company.

Just to add to that, there is greater penetration in service side of the industrial business, currently and that has generally higher margins, so that, that helps the industrial margins overall.

Okay, great and just last question on the industrial business. You know, you talked about sort of backlog trends there, at least you did last quarter, could you comment exiting the first quarter?

Same story. Backlog is quite healthy as we go into the next quarter.

Okay, Thank you.

You're welcome.

If there are any additional questions please press the one at this time. We do have question from Michael Yee. Please go ahead.

Hi, guys, once, just another quick question. When you are looking at the industrial business kind of drilling down there looking at transportand logistics and standard versus heavy, what are the kinds of trends there and in the quarter? And then knowing that this business was strong, what was really kind of driving that was it? Was it general pickup in the economy or were there new products driving that growth? What was going on there?

Okay, couple of answers on that, first of all the business was strong across all the product lines, you mentioned. If I look at it geographically, we had very solid growth in the US, very strong growth in Asia and a slight or mid-single digit decline in Europe. Well, I need to say the amount on outlook actually is the, had good growth across all the regions.

So, that's may be then more towards the Q2, we should have the very solid industrial business in Q2 as all in Europe. Both has been driving that performance, one part is easier comparison that business has too many quarters of decline.

Number two, certainly, some projects, it finally has been decided upon, especially in the transportation and logistics business some nice orders. But that's all into farm industry, some big projects, which were delayed and delayed has been finally released. These are typically high-end solutions in the field I explained before. Where companies when they improve their quality information systems just to make dam sure that they have good manufacturing practices. And that's the field where we see a lot of opportunities. Then there are some new regulations for explosion-proof products, mainly in the chemical industry, but that's also in the farm industry. These new regulations do mandate as well as certain new products. That's helpful as well.

Great.

There are no additional question at this time. Please continue.

Okay, that seems to be no further questions. I would like to thank you very much for attending this conference call and I wish you nice evening. Bye everybody.

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