Mettler-Toledo International Inc (MTD) 2005 Q4 法說會逐字稿

Good day and welcome, ladies and gentlemen, to the fourth-quarter 2006 Mettler-Toledo International conference call. My name is Audrey and I will be your conference coordinator for today. At this time all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of this conference. (OPERATOR INSTRUCTIONS). As a reminder, ladies and gentlemen, this conference is being recorded for replay purposes. I would now like to turn the presentation over to Ms. Mary Finnegan. Please proceed, Ma'am.

Thanks, Audrey. Good morning, everyone. I am Mary Finnegan, Treasurer and responsible for Investor Relations at Metter-Toledo, and I want to welcome you to the call this morning. I'm joined by Robert Spoerry, our Chairman and CEO, and Bill Donnelly, our Chief Financial Officer. I will start by covering some administrative matters and then turn the call to Robert who will provide you highlights of the quarter. Bill will then cover the financials in detail and Robert will provide commentary on our outlook and business. Of course we'll have time for Q&A at the end.

Now for the administrative matters. First, this call is being webcast and is available for replay on our website. A copy of the press release we issued today is also available on our website. You should be aware that statements on this call which are not historical facts may be considered forward-looking statements for purposes of the Safe Harbor provision under the Private Securities Litigation Reform Act of 1995.

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 performance related to forward-looking statements, please refer to our filings with the SEC. We undertake no responsibility to release any revisions to forward-looking statements as a result of subsequent events or developments.

One other item, on today's call we may use non-GAAP financial measures. More detailed information with respect to the use of and differences between the non-GAAP financial measures and the most directly comparable GAAP measures is provided in the press release. I'll now turn the call to Robert.

Thanks, Mary. Good morning, everybody. I want to thank you for joining us today on this call. We are very pleased with the strong finish we had in 2005 as evidenced by our Q4 results. Sales growth in local currency was 7% and was driven by robust demand for our laboratory products, continued growth in China and another strong quarter in food retailing. We are very pleased with our gross margin expansion and the solid increase in operating profit recognized in the quarter.

Our EPS growth was again excellent and we are pleased to have achieved a 20% growth in EPS for the full year 2005. Although we remain cautious on the global economy, with the strong results we had in Q4 we are revising and increasing our targets for this year 2006. We will explain this in more detail later on the call. Let me now turn it over to Bill who will take you through the financial results.

Thanks, Robert, and good morning, everyone. As Robert mentioned, we had another great quarter of operating performance and ended the year on a strong note. In fact, this is our strongest quarter ever. Earnings per share was $1.04 versus $0.81 last year which includes $0.02 of investigation cost. Excluding this item earnings per share grew 25% in the quarter. EPS for the full year, excluding onetime items in both periods, increased 20%. Our press release contains details on the onetime items.

Now let me go into some additional details starting with sales. Sales in the quarter were 411.2 million, an increase of 7% in local currency. For the first time in quite a while we had a negative currency impact to our sales number reducing growth by 4% which then resulted in sales growth in reported dollars of 3%.

I think it's worth covering in a little detail the impact of currencies to our financials. As you know, it is local currency sales growth which is the most important driver to our operating profit performance. Although we're impacted on the sales line due to the strengthening or weakening of the dollar, because we are relatively naturally hedged, the impact at the operating profit line tends to be negligible.

Another way to explain this is that our non-dollar costs equate to our non-dollar revenues and therefore the currency effects on sales do not fall through to operating profit. Our natural hedge is not perfect by each currency; we do have an exposure between the Swiss franc and the euro. Should the Swiss franc strengthen against the euro that would hurt us, while if it weakens against the euro it helps us. Historically these currencies have traded in a relatively narrow band.

I would expect that the currency will drag on the sales line in 2006, but I'm not expecting anything material at the operating profit level given current levels of the Swiss franc/euro. I realize that I've covered the currency impact in the past, but I thought it was worth going over again now that there is a negative impact to the top line and we may have some new people on the phone today.

Now let me go into more details on sales first by geography and then by business area. All comparisons are versus the fourth quarter of 2004 and all growth is in local currency. I'll start with sales by geographic destination. Sales growth in the Americas was up 12%, one of the strongest rates we've seen in a number of years. Our laboratory and food retailing businesses were the principal drivers of growth this quarter. Growth in laboratory products was broad based with most productlines showing nice growth. While Q4 last year was somewhat lackluster for lab in the Americas, this year's performance was excellent.

Retail was up strong double-digits in the quarter; for the full year we had a growth of 7% in the Americas. Sales growth in Europe was up 2%; our laboratory products had strong growth despite a strong quarter a year ago. Retail had another quarter of double-digit sales growth while our industrial business was down. For the full year sales growth in local currency was 3% in Europe. Sales growth in Asia/Rest of the World increased 9% in local currency; China had another good quarter with 19% sales growth. The other regions also had growth with the exception of Japan which was down. Industrial growth was particularly strong in this region. For the full year local currency growth in Asia was 9%.

Turning from geography to products, let may start with our laboratory products which had their strongest quarter of the year with local currency sales growth of 9% in the quarter which brought us to a 5% growth for the full year. Balances had solid growth in Q4 while analytical instruments were up double-digits. Pipettes increased nicely with our continued expansion overseas; AutoChem had mid single-digit growth; process analytics had a great quarter with double-digit sales growth.

Moving to industrial. Sales in our industrial businesses were up 1% in the quarter and 5% for the full year. For the quarter our standard industrial business was up mid single-digits driven by strong growth in China. Our transport and logistics business was up in the quarter but, unlike Q3, was not a key contributor to the overall industrial growth. Product inspection was down; weak spending by food companies in Europe and the Americas combined with our intro of a new portfolio, product portfolio and transition to new technologies dampened sales in the quarter. We expect to see improved performance in product inspection as 2006 progresses.

Finally, food retailing was up 22% in the quarter. We had strong sales growth in the second half of the year as compared to a weaker first half of the year in food retailing. For the year in total food retailing grew by 8% and, as I mentioned on the last call, we generally expect medium term sales growth for food retailing to be in the 4 to 8% range.

Now let me move down the rest of the P&L. We're pleased with our gross margin level of 50.6% as compared to 49.7% last year. Principal contributors to this gross margin expansion are -- volume, further benefits from cross rationalization programs to reduce overhead as well as procurement and redesign efforts to reduce product costs. We also continued to benefit from realized price increases.

R&D amounted to $20.8 million or 5.1% of sales. This represents a 1% local currency decline. As mentioned last quarter, we are making a conscious effort to redirect R&D to our Spinnaker initiatives which are aimed at improving our sales growth. Although this was true in the second half of 2005, we have recently identified some additional R&D projects that we're initiating and I expect increased R&D investment in 2006.

SG&A was 118.5 million and was 1% higher than the prior year in dollar terms. In local currency terms it increased by 6% which excludes the impact of the investigation that we had last year. Included in the fourth quarter is increased expense associated with variable comp and costs associated with option exercises. The net sum of these results in adjusting operating income gives us $68.8 million or 16.7% of sales as compared to $60.1 million or 15.1% of sales in the prior year. The prior year amounts I noted exclude the investigation related costs. We're very pleased with this 14% operating profit growth and the related margin improvement achieved in the quarter.

Now continuing down the rest of the P&L, amortization was $2.8 million and interest expense was $3.6 million. This gave us a net income of $44.2 million and an earnings per share of $1.04. This represents a 25% increase over the prior year and excludes the investigation-related costs of the prior year. For the full year earnings per share was $2.94 which does not include $0.42 of charges. These charges consist of the onetime $0.30 charge on the intangible write-offs and legal costs associated with pipette litigation and a $0.12 charge for nonrecurring tax items associated with earnings repatriation under the American Jobs Creation Act. Excluding the onetime items in both periods earnings per share grew by 20% this year.

Now turning to cash flow, we're pleased with the solid finish to the year and that we exceeded our full-year targets for cash flow. In the quarter net cash from operations was $59.5 million as compared to $44.1 million in the previous year. This represents a 10% increase if we exclude from last year's numbers a $10 million voluntary pension payment. We saw further improvements in DSO which was at 48 days at the end of the year versus 51 at the end of 2004. We also saw steady improvement in IPO which finished the year at 4.9. For the full year net cash from operations was $177.1 million and free cash flow was $148 million. We're happy with both of these levels.

Let me cover now our share repurchase program. During the quarter we purchased 1 million shares of stock for a total of $57.8 million. For the full year we purchased 3.2 million shares or $164.5 million. Our repurchases in 2005 represent 7% of our outstanding shares. We intend to continue to use our free cash flow for share repurchases as we believe it's an excellent way to return value to shareholders. Our capital structure remains strong. At the end of the quarter we had net debt of $125.6 million versus a last 12 month EBITDA of 232.7 million which gave us a net debt to EBITDA ratio of 0.5 times.

As I mentioned on the last call, we closed a new bank facility in the quarter which provides for $450 million of capacity over the next five years. With our strong balance sheet and excellent cash flow generation we have ample financial flexibility to repurchase shares as well as to pursue acquisitions.

Let me now update you on our guidance for 2006. We continue to feel positive but are realistic that there are reasons to be cautious on the economy including the impact of rising oil prices and the sustainability of the European recovery. We will closely monitor the economy and adjust our plans as necessary. Assuming an economic environment similar to today, we continue to believe that local currency sales growth in the 4 to 6% range is achievable. There may be some variability between the quarters, but we believe a target of 5% is realistic for the year.

We now believe that a 5% local currency sales growth would result in adjusted earnings per share of $3.30 to $3.35 for the year. This compares to earnings per share in the range of $3.20 to $3.25 that we communicated after last quarter. In addition to the stronger than expected finish to 2005, we plan to invest a little more in R&D this year than we had expected previously. This spending relates to a number of exciting product opportunities we recently identified which hopefully will provide strong growth for the future. Of course all guidance being provided does not include the impact on our stock-based compensation programs which we will expense this year per the guidelines of FAS 123R. We estimate that the full-year impact of this expense to be $0.13 for 2006.

Now in terms of the first quarter we expect sales growth to be in the 5 to 5.5% range which would result in an EPS in the range of $0.54 to $0.57 per share. At the midpoint of the range that's an 18% growth rate. Again, this range does not include FAS 123R expense which we would estimate at $0.03 for the first quarter. We will provide additional quarterly guidance on the next call, but I will point out that due to the strong second half of 2005 I would expect EPS growth to be stronger in the first half of 2006 versus the second half. Okay, that's it for my side and I'd now like to turn it back to Robert.

Thanks, Bill. I will start by providing commentary on 2005 and the increased outlook for this year before I discuss our initiatives to drive growth and profitability in 2006. Last year we generated in local currency a sales growth of 5%. As Bill mentioned, we continue to feel comfortable with a similar growth level for what you saw in last year and that is local currency growth in the 4 to 6% range.

In terms of geographic breakdown we would expect growth in Europe and the Americas to be in the 3 to 5% range. In Europe we saw trends to improve during the course of the year and expect these trends to continue. In the Americas we do not expect our transport and logistics and food retailing business to be as strong as in 2005, but expect solid growth in our laboratory products, also our other industrial productlines. In Asia we would expect growth in the 10% range with solid performance across the board.

Let me add some insights by business area. I will start with lab. In 2005 we had solid growth across most of our productlines as a result of the many new products we have launched. We have a number of new product launches again this year and would expect similar customer level investment as we had last year. Overall we expect growth in the 5 to 6% range for the laboratory business, a little better than what we saw last year.

In our industrial instruments we would expect sales growth in the 4 to 5% range. We had unusually high growth in transportation and logistics business in 2005 which we do not expect to repeat, although we do expect solid growth in the other industrial productlines this year. Product inspection growth was more modest in 2005 and with the benefits of the full-year run rate on the numerous new product launches we would expect improved growth in the packaging inspection business in this year. Taken together we would expect similar growth rates for industrial in 2006 as we saw last year.

Finally, in food retailing, this business has a little more volatility than our other businesses. In 2005 we ended the year with 8% sales growth which is at the high-end of the 4 to 8% range we expect from this business. Our strong performance in 2005 was driven by the solid execution of our strategic initiatives. Let me highlight these initiatives which I believe position us for continued growth in 2006 and beyond.

I will begun with Project Spinnaker which is now firmly rooted in our organization. In fact we have seen benefits in our 2005 results. The aim of this initiative is to increase our sales growth rate, enhance sales productivity and gain market share through excellence in sales, service and marketing. Spinnaker's growth rate initiatives with many components. We started to implement in late 2004 and will have new ideas for execution over the coming years.

On the last call I spoke on our progress in segment marketing and regeneration. Today I would like to comment on the area of pricing. It began by analyzing our pricing down to the customer and sales (indiscernible) level. With this additional transparency we identified opportunities to adjust our pricing to find the right balance between volume and price as well as additional opportunities to improve our realized prices by changing certain processes.

The first processes to be changed were to provide our sales force with additional training on value selling. For example, we developed Internet-based tutorials and toolkits to help them better communicate and sell value for our products to the customer. The second process change is to implement a structured and rigorous process control around discounting. We have rolled out both of these changes to some parts of the organization and we will continue to roll out over the course of the year.

We believe pricing continues to help our gross and margin expansion. We expect more progress also this year. Furthermore, we have raised list prices substantially across all products effective beginning of January. We estimate we will realize a net increase of approximately 1% across the Group. In our laboratory and industrial offering we expect a somewhat higher realization. Our retail business, however, continues to face a challenging pricing environment and our expectation in that business is that we will not realize price increases for this year.

Next I would like to give you an update on service. In 2005 service grew a little less than our product sales. In recent years service has been able to grow faster than product sales and we expect to see continued growth in the years to come. As you know, service is also quite profitable with margins above the product business. With this background of high growth rates and high margins we are implementing a series of initiatives which should help us to capture the opportunities in service.

Now I want to explain how we intend to capture these opportunities. It starts with clearly defining the service products we want to sell. Over the last year we have made a conscious effort to integrate the development of our service products into the product development process. When we launch a new product we want to ensure we are launching also a related service offering. Hand in hand with this approach is the development of marketing brochures and communication documents that articulate the scope and value of our service offering.

These service marketing tools help our salespeople to affectively sell our service offering upfront with the product sales. We clearly recognize that the best time to sell a service contract is at the time of the product sale and we are now better equipped than ever to do this. Also in the service area we are unbundling our calibration offering in order to be more price competitive in the standard maintenance segment.

Calibration has always been a core service offering and customers are now looking for additional calibration services to meet various regulatory and quality standards. As calibration becomes more value added we are separating it from our standard offering in order to more effectively market and price this offering. This also ensures that our standard maintenance offering remains price competitive. In summary, with our global network in which our customers can obtain uniform services throughout the world, we believe we are strongly positioned to capture opportunities in this market.

The third strategic area is the one focused on the emerging markets and our strategies (indiscernible) on China in which we have been operating for 18 years. We had another year of solid growth in 2005 and in 2006 we estimate that China will become our second largest end-user market. We see continued strong growth opportunities as Western customers shift manufacturing to this region and domestic companies grow with the local needs as well as positive opportunities from the exports.

To better accommodate for this growth we are making important organizational changes. Mainly [breaking] up our current Chinese organization into a new marketing organization and a separate producing organization. This is the same organizational concept we have a place in the Americas and in Europe. The marketing organization can focus their initiatives on capturing more opportunities by expanding our regional coverage in China and implementing many of the Spinnaker's proven practices namely in the area of segment marketing and regeneration.

Our producing organization on the other side can further enhance our cost competitiveness, quality orientation also improve our product development efforts. As we mentioned last quarter, we will begin to replace the oldest of our three facilities with an expanded one, nearly doubling the capacity of the existing site. We believe these changes will enhance our already strong market share and further -- and provide us further manufacturing efficiency thus allowing us to continue our excellent track record in this region.

The fourth strategic focus area is the one of technology leadership and in 2005 we continued to reinforce this leadership with a broad range of new offerings, particularly in the balance and product inspection business. We have a solid pipeline as we enter this year as evidenced by the upcoming launch of a high-capacity microbalance that has the ability to weigh with unprecedented accuracy various types of fine substances or chemicals. There is no comparable product on the market with this type of accuracy and it allows customer to (indiscernible) more samples directly in the container thereby reducing losses and improving productivity without sacrificing accuracy.

Another lab innovation soon to the launched is a high-speed system to calibrate single and multi-channel pipettes, the only compact industry of its kind in the market. 20 times faster than conventional balances for calibration, this instrument and its use of (indiscernible) software speeds up a time-consuming process by allowing the calibration of all channels of a pipette being calibrated at once and guaranteed precision and accuracy of the pipette being assured. Pipette manufacturers, service providers and pharmaceutical and biotech companies can increase productivity, optimize service and minimize support costs and gain more secure results to meet their ISO requirements. These are only two examples of new launches, we have many other introductions in the course of this year and our pipeline is quite strong.

Our fifth strategic initiative is that we're working diligently to improve our cost structure in a sustainable way. On the procurement front we have been able to offset commodity related increases with savings in other areas. We continue to consolidate our supplier base and are increasing sourcing components from low-cost countries. Although our supply chain has great complexity, we have been able to increase our inventory productivity. As you heard from Bill, we had further improvements in our IPO in the fourth quarter and also for the entire year. So this initiative as well as several others we believe we can gain cost efficiency and improve our working capital productivity.

In addition to our strategic initiatives our financial strength gives us excellent position for the future. We believe our sales growth, operating leverage and earnings growth are a big advantage for us. Given that we don't have significant capital requirements our cash flow when combined with our strong balance sheet provides us with excellent ability to repurchase the shares. As Bill stated, during 2005 we repurchased 3.2 million shares or 7% of our outstanding shares. We will continue to use our free cash flow for share repurchases as we believe it's an excellent way to return value to shareholders. Our balance sheet is strong and provides us also with ample capacity for acquisitions.

That is all that I did want to cover with you. And I would like to have the operator to open the line for questions.

(OPERATOR INSTRUCTIONS). Paul Knight, Thomas Weisel Partners.

Hi, Robert. Could you talk about the 12% North America and the 9% Asian growth? Was Japan slow in the quarter or was the U.S. just really good? What's kind of going on with the dynamics of those two markets?

In the U.S. we had a very good performance in Q4 and in Asia, China had very solid growth. I think, Bill, you need to back me up here, Japan -- Japan was slightly down. But really the main growth in China or the growth in Asia came from China.

China in total grew 19% in the quarter. What's going on in Japan? You're not the only firm that said Japan was lighter. It is their budget year or what?

I think some changes were made by how they are spending the money. Typically the fiscal year for many companies ends in March. So you typically have end of March a big spike. Last year, however, the law was changed and so many companies have also changed their spending patterns which leads to a better start into the new year after March, but somehow reduced spending a little later in the year. I think in general Japan is okay in terms of the economy and the overall investments cycle I think is more just a change in the pattern in last year.

And then lastly, why do think your transportation scale business is going to be slower growth this year than '05?

'05 was extraordinarily strong. We had really very, very strong growth driven by some big projects and these projects are just more volatile. You may have one or two more this year and then one or two less next year and that's just the way it is. But the fundamentals are still very solid off of that market.

Okay, thank you.

Jennifer [Follis], JPMorgan.

Good morning. I have two questions actually. The first is in Asia outside of China and Japan if you could give a little more color on how other areas are impacting the business? And secondly, what areas for M&A do you see as good opportunities in 2006?

Maybe I'll handle the growth in other parts of the world. We would generally look at two main categories -- there would be Southeast Asia, we had nice growth in Southeast Asia both for the quarter and for the year. And then India is another important and growing market for us. We invested a lot in distribution in the fourth quarter and we saw good growth coming out of India.

In terms of -- so those would be the Asian pieces. We also have in the Asia/Rest of World number lumped some of the Eastern European countries and we had good growth in Russia as well as some of the other countries in that area this year.

In terms of M&A, adjusting our growth trends, our main area of focus will be for laboratory products, just expanding our product offerings. Then also in process analytics where we will be interested to expand the parameters we offer to the market today (indiscernible) packaging expansion -- packaging inspection. You could also imagine further capabilities for controlling certain quality attributes in packaged goods.

In terms of the acquisition pipeline, maybe also a few comments here. In the last two years we have been really launching this Project Spinnaker with a key objective of maximizing the organic growth. I think we see very good evidence that that program works. In that sense we believe also organic growth is something which provides a fast return for the investment of shareholders and therefore takes a lot of focus for just on the organic growth. That does not mean that we are [excluding] acquisitions for our future -- not at all. But of course it tells us that we are not dependent on acquisitions. We have a very good organic growth already without having to pursue acquisitions.

In terms of current activities, of course, as usual we announce matters when they are ready to be announced.

Okay. Thank you.

Derik de Bruin, UBS.

Good morning. Good quarter. Mettler's fourth-quarter gross margin tends to be seasonally higher. And certainly the 50.6% margin -- I believe that's a record gross margin for the Company. I guess how can we look at the margin expansion going forward and how much more room is there to go and how do we start looking at the run rate of the Company?

First, your analysis is correct because the fourth quarter has just more sales dollars in it. And with the variable contribution on our product business in particular you see always the highest gross margin percentage in the fourth quarter. If you look, we nicely expanded gross margins for the full year and we were pleased with that, just a reminder, about 70 basis points or so over the course of the full year. And we're always targeting trying to reduce on the cost side, so the elements of that are in particular China manufacturing.

If I look out to 2006 and beyond, we are introducing a number of new Chinese manufactured products for (indiscernible) the industrial side for next year and see more opportunity down the road so that will be a plus on the material cost side. As well we continue, as Robert spent some time on the call today, focusing on doing a better and better job on the pricing side and generally we think pricing will be a positive factor for us.

So at this point in time we talk often about this 50 to 100 basis points operating profit margin improvement that we kind of give ourselves as a target for every year. And we continue to think that gross margins will play an important role in that and at this point are kind of looking at our margins and getting scared of them, let me say it this way.

Okay. And I guess is there any -- I mean, when you're increasing the R&D in '06, is there any one specific area that is of key interest to you in increasing the focus or is it (inaudible) based?

Not being too specific, but this increased R&D spending will be mainly for laboratory products.

Okay. Now are you looking at expanding your analytical instrument offering going into other areas -- spectrometry or something like that? Would you consider developing that -- those products or sticking with the Thermo analysis and along those lines?

What you have seen in the past, that of course our laboratory product portfolio has grown over the years either through in-house R&D or adding technologies and products through acquisitions. If we enter a new field we always enter it with the objective of coming out a leader in that market and we have seen proof of marketshare correlating to return on sales. So in that sense we are not entering into segments where others are very strong and the market positions are well taken. And maybe some of those productlines you just mentioned before probably are well taken position and it would make much sense for us to try to compete with some of the big guys there.

Great, thank you very much.

Mike Hamilton, RBC Dain Rauscher.

I would like to follow-up on your thoughts on margin here near term. We go back in the last few years and transition from fourth quarter to first quarter we've obviously got volume but we've obviously had some things in line of cost rationalization, plant moves, etc. How are you feeling on the normalyzed progression -- make it easy, take that operating margin from fourth quarter to first quarter given what you're looking at?

Okay, so we have maybe on the gross profit margin line, if you were to look at the first quarter of last year we had 48.3% and that compares to what we just finished at 51.2%. Or sorry, 50.6%, and so we would expect in the course of 2006 to expand our operating -- or our gross profit margins contributing to the overall operating profit margin in the expansion at least 25 basis points, hopefully a little bit more.

And in the first quarter it would let's say be in that range, although there's -- a little bit depends on the mix of products, I would highlight that. We did finish with some more backlog on the retail side, but if retail comes in about let's say our normal level, somewhere between 4 and 8% I would expect we'd be able to get 25 basis points, hopefully maybe a little more on the gross profit margin line in the first quarter.

Anything in the last couple quarters that has been unusual in terms of costs? In other words, are you incurring anything on the cleanup of getting facilities moved and related?

No, probably the -- in the third quarter we had a higher mix of project industrial business and retail business which probably dampened the margin a little bit. And in the fourth quarter, because we had such a strong margin from laboratory products, that grew up quite well on the gross profit line. If you were to look on the operating profit line, there was certainly -- the way we timed our variable, the way variable comp works or how we record variable comp -- because we had a strong finish to the year the fourth quarter had a disproportionate amount of variable comp expense. And there were some option exercises associated with expiring options and, of course, there are some social costs on those going through the P&L, but those would be the main items, Mike.

Thanks. Tax rate outlook on '06?

At this point in time we see no reason to change what's been our 30% rate recently. But like always, we're trying to do good on the rate or improve the rate but as well focus on cash taxes as well.

And if anything the Asian growth putting a bias downward on that? On the overall tax rate?

Just to maybe be clear with your comment, I think that as China has lower tax rates, you're correct, Mike, today and with China growing in theory that works. We also tend to think that the tax rate in China will grow in the coming year. So there will probably be some offsetting affects there. It will stay lower than the U.S. rate, but we do expect rates to increase in China in the coming years.

Fair enough. How about CapEx outlook at this stage?

We're building a new plant in China, we talked about that a little bit last quarter, so I think we're going to have it grow into the high 30s for this year.

Thank you very much and congratulations.

(OPERATOR INSTRUCTIONS). Richard Eastman, Robert W. Baird.

Could you just give a little bit of commentary around the industrial business in Europe in the fourth quarter? Was that a tough comp or one might have expected it to be up a little bit?

There are a couple things going on there. So first, maybe I'll cover three pieces. One would be that in a relatively small product sector some standard industrial scales that we sell into like paint companies, that business was down in the fourth quarter. We had some project business on the P&L side that was a difficult comparison in the fourth quarter. And then spending with the food companies, you guys I mean have seen it a lot with Kraft in the United States, but Unilever is going through some similar experiences in Europe in terms of branded products. And on the product inspection piece of the business we saw reduced spending with food companies.

Then while we're really pleased with the new product portfolio on the product inspection side, we introduced a new metal detector, a new check weigher and a couple of new x-ray machines. Sometimes you do get into product portfolio transition issues. We saw that a little bit. And as well we think some customers are kind of contemplating the impact of X-ray on their business. To a certain extent X-ray -- or in certain applications X-ray can do some of the things that metal detectors and check weighers do, particularly metal detectors. And we think some customers are kind of evaluating what that means to them and that's maybe hesitating on some of the spending in addition to the concerns that I already described with that food. Product inspection is about a 70% food market.

Okay. And then would you mind just giving the percentage of sales in the quarter that came from the three business segments?

Laboratory was 46%; industrial, that's the base industrial as well as the product inspection was 40%; and retail was 14%.

Okay, excellent. And then last thought -- Bill, could you just help us for one second with how do you see your net interest expense or income number playing out for '06 with the debt and cash position as it was at year-end?

Okay. If I look out to the full year and, just a reminder to people, when we implemented the dividend reinvestment act we borrowed in Europe and we're depositing cash that will be used to fund our share repurchase program for the next couple years. And I would estimate an interest expense for 2006 approaching 19 million and other income line, which is principally interest income, in the 5 million, maybe a little bit more area for the full year. And that's -- we built in a little bit the current yield curve there.

Okay. And then -- that'll be fine. Great, thank you.

Darryl Pardi, Merrill Lynch.

How much of the revenue growth in Q4 in 2005 was from pricing?

We would estimate between 75 and 100 basis points, but I wouldn't back that out to make a pure volume calculation because, of course, there are so many different productlines within the Group.

Alternatively are you arriving at that saying your net effective price increases across the portfolio were 75 to 100 basis points?

Correct. So price increases minus discounts.

Okay. The laboratory business in North America you mentioned was strong and you mentioned it was strong across the product portfolio. But were there any one or two customer groups that were particularly strong or do you see strength across the served markets?

Both growth rate across the productlines and also the industry segments we serve.

Okay. China is -- you forecast to be the second-largest market next year. What percentage of sales was it in '05?

Just to maybe talk in number terms, it was -- China was for the full year 8%.

And Germany is about 10, is that correct?

Well, Germany is actually -- Germany customers are actually a little bit less. If you look -- if I pull out the impact of the Germany OEMs and what they export out of the country it comes to be a little bit less. I think to get to 10% you have to include German OEMs and their exports around the world.

Okay.

As you know, there are a lot of big German engineering companies.

And as you enter '06, what percentage of sales are being manufactured in China?

It's got to be 18% or so.

And as you add capacity where do you think that will get to over the next two to three years?

That target building is in facility. We -- industrial and retail products are going to be at capacity. We should have new premises up and running in April '07 and we'll double the capacity for the industrial and retail businesses.

Okay. I guess an alternative way to ask the question is how quickly do you think you'll fill that capacity?

It's hard to say, but based on past growth we had we believe it's going to be sufficient for the next five to ten years. But it's also building and designing in such a way that it can be easily expanded in case we need it earlier.

Okay, thanks.

[Vadit Khanna], Argus Partners.

Good morning. I just had a question on the pricing increases for '06. Are you saying, Robert, that that's pretty similar to what you're seeing in '05 and it's not unusual because of the 1% increase? Or is there something unusual that's allowing you to get this pricing?

I think we'll do a little better than in past years. And we said two things -- we have certainly made a much bigger effort to have all the price increases in place by 1st of January this year. And then internally we're doing a better job of the managed discounts of salespeople and discounting behavior. So I think the net realized number is going to be slightly better than in the past.

Okay. And then I just had a question on the lab business -- the strength in the lab business. Are you seeing that just as an upgrade cycle or is it just new lab construction or what's driving the --?

Our business is mainly a replacement business. And I think of the many new products we have is of course always a trigger to the replacement cycle. And we have really an excellent offering of new products on the lab side which, frankly, I hope is also going to help us this year because it always takes a while until you have fully launched a productline and every customer knows about it.

Right. And then just my last question on Europe. It seemed like a lot of your other peers seemed to have had stronger European results and I'm just wondering if you've seen any improvement as you've gone into '06 or is it pretty similar?

Our European improvement I don't think was much different from what it was here in general. Of course we have a few big projects which may -- in P&L for example, 2004 really strong in Q4 and made a difficult comparison. But our European business I think is greatly improving. We have seen an uptick last year and we will continue an uptick this year.

We're assuming a 3 to 5% growth, we talked about, which would be more than what we achieved this year.

And that confidence is based on what, Bill? The improvement for '06, is that just because you've seen some order activity or what's causing that?

Just quoting activity, lead generation -- these are all indicators.

New products and various other new initiatives.

Okay, great. Congratulations on a great quarter.

Thank you very much.

[Herb Tanner], [Tanner] Capital.

Good morning, gentlemen. Bill, thank you for a superb quarter. Could you give us a little more color on Spinnaker as it relates, A, to the increase in lab business and, B, in addition to a cost reduction capability, is it generating leads?

Yes. The primary objective of Project Spinnaker is to improve of the organic growth of the Company. Of course at the end of today I want to be totally transparent. There are many, many things affecting the organic growth of the Company. For example, of course the economy and the industry cycle, but then also new product launches and of course our own sales and marketing program. So if you were to ask me how much Spinnaker -- how much is new product that's going to be a difficult question for me to answer. But there are other ways I can check the effectiveness of Project Spinnaker. And you asked about lead generation.

Lead generation is actually way of year on year. We probably had 40 to 50% more leads last year than the previous year and we want to do the same this year again. But then also maybe to a another part of your question, yes, Spinnaker also has productivity improvement elements. In the past, for example, we (indiscernible) those leads to salespeople. Today, in most market organizations we have several marketing departments which do prequalify leads and so that makes the salespeople use leads in a much more effective way and freeing them up from a lot of calling and letting them have o more time in front of customers.

So there is a lot of good evidence that really Project Spinnaker is working well. And maybe a soft factor which I would not want to underestimate, it aligns all the Company's objectives behind one common target. And it aligns all the (indiscernible) business lines, product lines, market organizations in the very same direction and I think that adds long-term a very tremendous positive benefit for the Company.

We're seeing it currently aren't we?

We certainly have seen benefits of that in 2005. Spinnaker, as I have said many times in the past, is also [churning]. We are working on selected topics at this point in time, but we have an inventory of ideas which we will activate at the right point in time, mainly once we are really (indiscernible) of those first ideas and it's time to move on to the next one. But we of course want to do this in a very controlled manner.

Thank you very much and continued good fortune. I appreciate it.

This does conclude our Q&A session. I would now like to turn it over to Mettler-Toledo's managers for closing remarks.

I'd like to thank you again for joining us this morning. As you certainly feel from our comments, we are very pleased with our performance in the fourth quarter and also the entire year 2005. I think we have a realistic outlook for the coming year, we are cautiously optimistic on the markets and we believe that we can continue to grow the Company.

Our foundation for the future continues to be rooted in the hallmarks of our franchise, a franchise which can be described by market leadership, global presence, a diversified customer base and also product portfolio, leading technology and the culture of delivering the highest quality products and services around the globe. I think with continued focus on execution we will be well-positioned for growth this year and beyond in the future. Again, thanks a lot for joining us this morning and we wish you a very pleasant day. Bye, everybody.

Ladies and gentlemen, this does conclude your presentation. At this time you may disconnect and have a wonderful day.