Mettler-Toledo International Inc (MTD) 2007 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to our fourth quarter 2007 Mettler-Toledo International earnings conference call. My name is Molly, and I will be your audio coordinator for today. After the speakers remarks there will be a question and answer session. (OPERATOR INSTRUCTIONS) I would now like to turn our presentation over to your hostess for today's call, Ms. Mary Finnegan. Please proceed ma'am.

Thank you, Molly. Good afternoon. I am Mary Finnegan, Treasurer, and responsible for Investor Relations at Mettler-Toledo, and I'm happy to welcome you to the call. I am joined by Robert Spoerry, Olivier Filliol, and Bill Donnelly. I will start by covering some administrative matters, and then turn the call to Robert.

Now for the administrative matters, first, this call is being webcast and is available for replay on our website at www.mt.com. 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 nonGAAP financial measures. More detailed information with respect to the use of and differences between the nonGAAP financial measures and the most directly comparable GAAP measure is provided in the press release. I will now turn the call to Robert.

Thank you, Mary. Good evening, and welcome to the call. I will start by summarizing the highlights of our fourth quarter results, and then Bill will provide details on our financial results and our guidance for the quarter and the year. Following Bill, I will provide additional comments on the quarter and then both Olivier and myself will comment on the initiatives. We will have time for Q&A at the end.

I will begin with the highlights of the fourth quarter of 2007. We are very pleased with the excellent finish to the year. All key financial metrics were well above flat year. Local currency sales increased 8% which has been much better than expected against a strong sales growth of the fourth quarter of 2006. We saw great growth across-the-board in lab and industrial products. Favorable market conditions and great execution drove the 23% increase in operating profit. Adjusted EPS was up 30% with the benefit of our share repurchase program. We see strong results, we are raising our guidance for this year for 2008. This guidance reflects an increasing cost view from ourselves on the economy. Bill will cover guidance in more detail in addition to our financial highlights. Now let me turn it over to Bill.

Thanks, Robert, and hello, everybody. As you heard from Robert we had a great quarter and are very pleased with the results. Let me start with adjusted earnings per share which came in at $1.73, a 30% increase over the prior year amount of $1.33. In both years, adjusted earnings per share excludes purchased intangible amortization expense. On the last page of our press release we have a table that outlines adjusted earnings per share.

Turning to sales, sales were $532.8 million in the quarter, an increase of 8% in local currency. On a U.S. dollar basis, sales were up 15% in the quarter which includes a 7% currency benefit. We have mentioned this before, but it's worth highlighting again, that although we do have a benefit on the top line due to currency fluctuations, it is the local currency sales growth that drives our operating profit growth. This is because we are relatively naturally hedged with our nondollar sales approximating on nondollar costs. The weak dollar had an immaterial impact on earnings. For the full year, local currency sales increased by 8%.

Breaking down sales by geographic destination, and all of these percentages are in local currency, Europe increased by 7% in the quarter with strong growth in laboratory instruments while industrial was solid with particularly strong growth in product inspection. For the year, sales in Europe were up by 6%. Sales growth in the Americas increased by 4% in the quarter with good growth in most laboratory product lines particularly given the strong quarter we had in 2006. Industrial in the Americas was up nicely with particularly strong growth in product inspection while our core industrial business was flat against a strong quarter in 2006. For the year, sales in the Americas increased by 6%. Sales in Asia/rest of world increased by 20% in the quarter. For the year, sales in the region increased by 16%.

Now let's look at sales by product area. We had 10% growth in laboratory products in the quarter with most product lines except for AutoChem which on a comparable basis was down slightly. For the full year laboratory sales increased by 7%. Industrial sales grew by 9% in the quarter with solid growth in core industrial products and strong growth in product inspection. For the full year industrial sales increased by 10%. Finally retail increased by 2% in the quarter and they were up 3% for the full year. I've kept my remarks here brief, as Robert will provide some additional insight on sales by product line shortly.

Now, let's turn to gross margins. We finished the quarter at 50.8% which is an -- is up 30 basis points from the prior year. We benefited from sales volume leveraging our fixed production cost which were partly offset by higher raw material cost, in particular, steel prices as well as some mix. R&D amounted to 200 -- sorry, $25.9 million or 4.9% of sales, an increase of 12% in local currency reflecting increase investment in new product development. SG&A was $143.9 million, an increase of 5% in local currency. We continue to invest in market-related initiatives and expanded our salesforce in Asia. These expenditures were partly offset by the benefit of restructuring actions taken in the second half of last year.

The net sum of all of these items resulted in strong operating income. Adjusted operating income increased 23% to $95.4 million from $77.5 million a year ago. Our operating margins improved by 110 basis points over the prior year. We're certainly pleased with this growth and continued margin improvement. For the full year, operating income increased 22% to $274.7 million, reflecting a 110 basis point margin improvement.

Let me now continue down the rest of the P&L. Amortization was $3 million in the quarter, interest expense was $6 million. In 2007, we had $200,000 of other income as compared to 2006 when we had $1.4 million of other income, consisting principally of interest income on excess cash balances, which we have since reduced to fund our share repurchase program. Our tax rate in the quarter was 27% and we remain comfortable with that rate going forward. During the quarter we repurchased 674,000 shares of stock for a total of $75.5 million. For the year, we repurchased 3.4 million shares or $324.6 million at an average price of $95.88. Fully diluted shares for the quarter were 36.9 million and at the end of the year were 36.6 million. During the year we reduced our weighted average shares outstanding via the share repurchase program by 7%.

Finally, earnings per share on a reported basis was $1.72 in the quarter as compared to $1.31 in the fourth quarter of 2006. Adjusted earnings per share was $1.73 per -- in the quarter, which is a 30% increase over the prior year amount of $1.33. On a full year basis, adjusted earnings per share was $4.74, a 27% increase over the prior year amount of $3.72.

Now, turning to cash flow. In the quarter, cash flow from operations amounted to $59.1 million versus $51.9 million last year. Free cash flow which is after CapEx was $43.6 million as compared to $41.4 million last year. Cash flow per share was $1.18 versus $1.04 in the prior year Q4. For the year, cash flow per share was $5.18, an increase of 22% over the prior year amount of $4.24. We continue to make nice advancements in working capital. We had a one day improvement in DSO, which was at 47 days on our last three-month basis. We're pleased with that level. On a last 12-month basis, ITO also increased ending the year at 5.4 times as compared to five times in 2006 -- 5.0 times. That covers the quarter, now let me give a word on guidance.

Our normal sales guidance is in the range of 4% to 6%. In the first quarter of 2008, we expect sales to come in at the mid-to-high end of that range. This should translate into adjusted earnings per share growth of $0.96 to $0.98 per share, or a growth rate of between 20% to 23% over the prior year quarter. Now, for the full year of 2008, given the current volatility and uncertainty in the economy, forecasting has become increasingly difficult. We're building our plans assuming sales come in at the lower half of our 4% to 6% guidance range. Assuming this sales level, we should deliver adjusted earnings per share in the range of $5.30 to $5.45, or 12% to 15% growth rate. This is an increase over our previous guidance of between $0.13 to $0.18. Of course, it is early in the year and we'll adjust our plans as conditions play out. Okay, that's it for my side, and I'd now like to give the call back to Robert.

Thank you, Bill. As Bill just mentioned, we are raising our guidance for 2008, but we will watch the economy very closely to see how conditions do develop. Now, let me make sure that you understood our results for 2007 with some additional comments. Let's start with our lab group which as you have heard had sales growth of 7% in the last year. Our balances and analytical instruments had excellent growth. Driven by new product launches and the benefit of Spinnaker marketing initiatives. I am very pleased with our pipette of business which will turn to growth in the United States and continue its strong growth Internationally. [Real time] analytics had another year of double digit growth, also driven by new product launches and Spinnaker-related initiatives.

With respect to AutoChem, with our renewed focus on reaction engineering and real time analytics, we will be optimistic for better growth in this year. Overall, we are quite pleased with our lab performance in 2007. Industrial also had an excellent year with total sales growth of 10%. We have double digit growth in product inspection as we benefited from the heightened concerns over food safety. With our growth product offering and extensive service capability, we're in a good position to capitalize on these opportunities. Our core industrial business was also up solidly, driven in part by strong growth in emerging markets, while we also had good growth in Europe.

As we look to 2008, there's a couple of factors impacting growth. First, product inspection that will have tough comparison after their great performance in 2007. Second, we do expect some impact from the weakening U.S. economy on our core industrial business. Finally, food retailing came in as expected with low single digit growth for the full year. As you know, this was on top of two years of very strong growth. We expect the good start to retail in 2008 as we run an important large order which will be in installation and shipping shortly in the next couple of weeks. That is all on the comments for the business.

I will now turn to an update on our strategic initiative. Execution of our strategic initiative along with favorable market conditions drove our strong 2007 financial performance. We made great progress with our Spinnaker initiatives, our growth initiative in emerging markets a and our many new product launches and our effort to drive margin expansion despite inflationary pressure. Olivier will provide commentary on Spinnaker, but let me make additional comments on our auto gross initiative.

Emerging markets now represent approximately 25% of our total sales and have been showing excellent growth in these markets during 2007. China is the anchor for our reemerging market strategy and Russia, India, southeastern Asia, eastern Europe have also been important contributors. We anticipate strong demand from these regions for many years as their economy continues to evolve and develop. Our growth product offering can meet their demands not only on their basic infrastructure needs, but also on their increasing need for more sophisticated quality control instrumentation. We maintain strong leadership position in these markets and continue to place high management attention on these operations and drive for growth. In 2007, we expanded our manufacturing capacity with new plant in China to serve the emerging markets in our global networks. This site provides needed capacity expansion to meet our growing needs and allows us to continue to maintain our cost leadership position in our global market.

Turning to new product launches, we have many in 2007 which we have discussed with you over the last year. Among them are new (inaudible) instrument products with significant improved productivity and sensitivity, a new intelligent management sensor concept with protective capabilities and process analytics, a pipette that combines manual and electronic technology and a new x-ray instrument to target the safety concerns in the food industry. All new products come to market with tangible payback propositions for the customers.

Now, on the cost side. In 2007 we saw increasing inflationary pressure from certain raw material categories. Despite these pressures, we were able to improve operating margins by 110 basis points. Several factors contributed to this. First, we benefited from our procurement initiative aimed at low cost country servicing and supply consolidation. Second, we pushed through incremental price increases on many products especially those with increasing raw material prices. And finally, we continue to make progress in overall productivity improvement. We will continue to closely monitor cost particularly given the current economic environment.

With 2007, we also marked 10 years as a public Company. During this period on a compounded annual growth rate, sales increased 7% with approximately 2% coming from acquisitions. During the same time, our EPS growth was 20% compounded over all of the years. Underlining this success has been the continuation of our business strategy. While our initiatives supporting these strategies change constantly, our core strategies have remained intact. Successful execution is the key to our financial performance and we are very confident in our ability to continue on this path. Now, let me turn it over to Olivier to speak on more detail on future initiatives and in particular on Spinnaker, and also give you some concluding comments about the year ahead of us.

Thank you, Robert, and hello, everyone. You have heard us talk about Spinnaker for some time now. It's not really a project, but rather a companywide focus on growth, through excellence in sales and marketing. When we initiated Spinnaker, it was centered on segment marketing which involved identifying and prioritizing industry segments. For each segment we invest resources to gain expertise and application specific knowledge, and knowledge is then applied to how we market, sell, and develop our products. We showcase our understanding to customers, we publish industry specific newsletters highlighting key customer challenges and describing how our product helped customers overcome these challenges.

Let me summarize a significant and broad-based segment marketing efforts have become within Mettler-Toledo. In 2007 we published 46 segment newsletters for 23 different industries, and this was across our lab, industrial product inspection as well as the process analytics business. In general, we published these newsletters twice per year. They are distributed to approximately 800,000 customers, which means that in 2007 we sent out 1.7 million newsletters copies. One final item, these newsletters were available in the minimum of 10 languages with some available in up to 18 different languages. Obviously, a huge effort throughout the organization. These newsletters as well as auto industry specific literature that we develop have been a component of our marketing efforts and our lead generation programs.

In addition to our industry-focused marketing efforts, we are also investing additional resources to increase our leads. For example, we are using telemarketing resources to qualify leads and thereby increase salesforce productivity. We're also using the internet to better market our products and services. This includes investments in search engine marketing and email campaigns. We enjoyed significant increases in leads in each of the last few years and will continue to use these and other techniques to drive further leads growth, which of course is the basis for future revenue growth.

As I said before, Spinnaker is an evolving program and we're now expanding it with an initiative on salesforce productivity. In 2007, we conducted detailed workshops throughout the world to focus on improving the productivity of activities surrounding the sales process. As a result, we are focused on sharing best practices throughout the organization, providing more information tools to our sales team, improving territory management and launching a global training program for our salesforce on products and application know-how, value selling, and pricing. We expect to start seeing the benefits of this initiative in 2008 and believe we can see solid increases in salesforce productivity in the coming years. I will continue to update you on Spinnaker and our other strategic initiatives on future calls.

We had an excellent year in 2007, and we are well positioned as we begin 2008. In addition to Spinnaker, we expect benefit from new product launches, demand in emerging markets and continued focus on costs. While we have increased our guidance, we have tried to take into account increasing economic uncertainty. You heard Bill say that we are forecasting sales growth to be at the lower half of our guidance range in 2008, while we expect earnings per share growth to be in the 12% to 15% range. We anticipate a solid start to the year, but have made some allowance for weak market conditions later in 2008. As in the past, we will carefully watch our cost structure and will make adjustments if we see the quarters evolve unfavorable. Whatever market conditions do develop in the short term, we remain highly confident about the strength of our franchise in the long term. That concludes our prepared remarks. And now I would like to ask the Operator to open the line for questions.

(OPERATOR INSTRUCTIONS) Your first question comes from Peter Lawson with Thomas Weisel Partners.

I wonder if you could just talk through the strengths you've seen in Asia by end market, by customers, business lines, etc. And do you think you have all of the infrastructure in place to capture that growth for the next 12 months?

We had an excellent finish as you just pointed in Asia last year. The reason for that, I think is many fold, maybe one key point to that the is if we have given a lot of manage am attention to Asia, in particular China last year. And we spend a lot of time with the Chinese team to develop strategy, to exploit all of these opportunities. And we have increased significantly our headcount in that part of the world, while maintaining head count in the western part of the world, just pretty much flat. And frankly, just all of this energy and that has made our dividends, and I think we'll continue to pay dividends in the coming year or in this year. In terms of the sectors, the industrial business was very robust with very solid growth, but also on the lab side we see more and more customs making in research facilities and pulling the demand for our laboratory product offerings, and also the retail sector has been doing very well, so we saw it's very broad based.

Packaging inspection had great growth from a very small base in China, but we have made huge investments in the course of last year to get ready for that opportunity, setting up local manufacturing, setting up local sales and service organizations, and also local engineering teams. So, having said all of that, we are very pleased with the finish we had, but we certainly want to continue to build on that. And maybe I also want to highlight here all of the markets together today account for 25% of our company revenue which is very significantly different than what it used to be. And makes us also confident that if you look into the future, the bigger the growing market, the more helpful for the company is overall.

Thank you, that was really helpful. And you mentioned the concerns for the industrial business in 2008. Is that something you're seeing in Q1, or is it from the order flows, or is it just more of a conservative nature amongst this sort of appearing of uncertainty?

I guess it's probably the latter. If we look I guess the guidance we just provided indicates we have not yet seen softness overall in our business. In fact that's -- we're looking for a very solid start to the year. If you look in the details of our numbers, we expect to get off to a good start, and want to be cautious to see what happens later in the year and to build our business plans accordingly.

How much of the industrial business is in the U.S.?

While Bill is looking for the numbers let me maybe just describe it. I mean, clearly, our industrial business in particular more because all of the businesses in these emerging markets. China, as you all know, is over proportionally biased towards our industrial business, but I think Bill and Mary are just getting ready to give you a number for that.

So our industrial business in total is around 42% of sales and the U.S. piece of that is approximately 1/3 and about half of that is coming from either service products or what I would call areas in the industrial sector that wouldn't be so necessarily susceptible to slowdown. For example, product inspection and a few other areas that tended to be more resilient serving the food and pharma markets.

Thank you, Bill. I wonder if you could just kind of finish off the break out of the different divisions. So you said 42% for sales. What was lab and what was retail?

In the quarter, lab was 46% and retail was 12%.

Okay, thank you so much.

You're welcome.

Your next question comes from Peter MacDonald with Wall Street Access.

Hi. Thanks for taking the question. First just how large a business is product inspection, and kind of what's been driving the strength? Is it new products, is it regulations, is it emerging markets?

It's a little over a over $1 million. It's been growing in part due to concerns around food safety. It's been growing in part due to increasing consumption of packaged goods in emerging market countries, and I think it's largely grown because the guys in that group are executing really well, both in terms of sales and marketing as well as product development.

And also new technology like the x-ray technology which for quite a while, was more a technology to only look at, but we didn't really embrace it, but in the recent two years, x-ray became very, very accepted technology, and we see excellent growth in that business while also the metal detection too. That's still to say I want to reinforce that point that there are major opportunities in this business in the Asian part of the world. And roughly 70% of that business is addressing the food market. And of course, food correlates to population that most of the population is in Asia and they're changing their eating habits and they are eating more packaged goods, we'll see great opportunities for the Company.

Okay, and then in terms of price increases? How much did you get through last year?

If we kind of weighed across, I would say the effective realized number was in the 100 basis point range, but if we count kind of ones that we did more due to like raw material price increases particularly in some of our products that have heavy steel count, it would be a higher number than that.

Okay.

If you also take a lot of investment to further improve the pricing on our product to maybe see what's driving as well the organization you may want to comment on that.

I mentioned during the call before, within Spinnaker, we do invest quite in training and we did actually many workshops with our salesforce to improve the awareness of the importance of reducing discount, also with our customers, and getting really the optimal price, and we have certainly seen benefit already last year and we continue to race this awareness with all our sales organizations around the world for this year.

Aside from that, we also are doing much more value-based selling, many new product launches that will be launched together with pay backs calculated for those products. And more and more we talk to our R&D teams, when we do initiate R&D project that we actually -- before we even start working on it have to start from the customer, because ultimately the customer is going to spend money on our products and we want to offer them a value and the value is a payback. So all that together I think helps us to defend our pricing to price increases, and also have higher margins at the end of the day.

Okay, great. And then one final question. CapEx level in '08? What are you expecting?

$40 million or so, and a little bit that depends on exchange rate, but at the least sitting here today we would say in the $40 million range.

Great. Thanks a lot.

You're welcome.

Your next question comes from Rob Mason with Robert W. Baird.

Yes. Just a couple of things. When you think about the guidance for the year, the local currency growth of 4% to 6%, could you break that down by geography, or how you think that would shake out among your three main geographies?

Okay. We -- so first, we don't see that there would be such an impact in terms of Asia/rest of world. Of course, it could come a little bit later. China of course exports a lot to the United States, but Asia/rest of world should grow something north of 10%. And then in terms of the Americas, we think that that would be -- we're assuming a low single digit kind of number and something a little bit better than that in Europe.

Okay. Now has there been any change in that thought process from when you initially issued guidance?

Well, we issued guidance maybe three months ago. I would say that certainly there's been a lot about the U.S. economy in the news then, so we're probably a little bit more concerned about that, even if we aren't living it immediately, but on the other hand, we also had really a strong finish in the year in emerging markets in part driven by the investments we had made earlier in the year.

Okay.

And let me just reiterate that, we had a great finish to the year I think as we start the new year we are optimistic for the first quarter, and we start with a great backlog, and you'll see that our guidance for the first quarter is a very solid guidance. With that said, we haven't really seen reduced momentum at this point in time, but as everybody is talking about slowing down in the economy at least we are building our model based on that.

Okay. Okay. Fair. And then maybe as a follow-up, just to the extent the guidance range has expanded, I think it was $0.10 and now it's $0.15, and of course you shaded the sales growth towards the lower half, but what accounts for the wider EPS range?

I guess just a general feeling that there's probably more volatility or uncertainty any out there, and that would be the primary answer.

Okay. Just in the context of your primary expenses or investments, R&D growth at 12%, you mentioned that was directed towards new products. Is that a rate of growth that we should anticipate holding for '08?

No. No. I think we'll return to a more traditional number in line with sales growth.

Okay, all right thank you.

It's driven by project activity and sometimes you have tooling or whatever costs.

Okay. Thanks, Robert.

Yes. Bye.

Your next question comes from John Groberg with Merrill Lynch.

Hi, good evening. Congratulations on a great quarter. You guys are becoming the high growth tools company out there.

Thank you. We'll try hard to keep that name up.

Just I have three questions. One, maybe Bill, if you could explain on the cash flow in the quarter, for the year it looks like you're working capital other, the change in working capital, other was fairly similar to '06, but you had a pretty big step up around $41 million. And it looks like you ate it up in cash and the last quarter here and was just curious what was driving that.

A piece of it was inventory related. At the end of '06, frankly, we really took down our inventory levels, just maybe the way things kind of timed out, we -- you guys kind of can see we had a pretty good drop within the fourth quarter a year ago. And then in the fourth quarter this year, we actually had -- we were not able to get the product completely out the door. I think Robert is referring to high backlog levels and that high backlog level has translated to higher inventory levels. And then a second thing is of course the growth rate was quite high in the fourth quarter including high sales in emerging market countries. On average, the customer in China pays somewhat slower than a customer in the United States or Germany. Collection rates are still good. I don't want to imply anything more there, but just the general terms tend to be a little slower.

Okay, great. Thanks. And then can you -- maybe, Robert, this is for you, given if you look back the last time and appreciate the conservative nature you guys have just given the uncertainty out there at least in the U.S., and potentially the global kind of industrial markets. And just curious how you feel you are positioned relative to the last time this happened, when you went to kind of the only time you really haven't grown kind of in that 2002 time frame. Maybe you can just discuss how you think the firm is better positioned to withstand a slowdown should it occur.

Maybe let's go back the last 10 years and let's look at the growth rate we had over those 10 years. The local currency adjusted over the last 10 years we grew 7%, 2% acquisition, 5% organic. The worse year we had was a modest single digit growth. I guess around 1% or so, maybe. And that was of course during the tough time of recession, and as I'm saying that number I'm pulling out the one-time effect I have from retail which was a very particular circumstances with the Euro change over. And frankly, has little to do with the economy as such. At that time, our situation was much different in many ways. First of all, the amount of business we had in emerging markets was much smaller. Today, as I said before, in the emerging markets we have 25% of our revenue and even if of it gets tough economic the weakness of the U.S. over in other parts of the world I'm optimistic we can grow more than 10% in that part of the world. And as I said before, we have done so many things over the last year to really accelerate growth in these markets. And so the limitation is more, there's many opportunities to resources with that than anything else. That's one big change.

And then the second big change is, I think, the programs which Olivier has been driving so hard under the umbrella of Spinnaker the sales and marketing programs, we frankly haven't anything in place at that time. Today this is much different and this action, as Olivier gave you, some very impressive numbers on this. And I can tell you that the penetration which was very strong in the last three years, continues to be strong. And for me that's actually one of the leading indicators we have. Lead generation tells us a little bit about the business, not just in the next couple of weeks and months but a little later in the year. So far so good, but that the made us give you that guidance for the start into this year.

Great. So I was going to follow-up with a question, Olivier, but maybe just one follow-up on kind of the outlook here globally. What makes you most concerned -- I was in China I was there and saw a lot of what was going on and visited some companies. And I'm just curious, what -- is there anything that makes you concerned given you have become a fairly significant emerging market company with 25% of your sales there? What could maybe derail that outside? It sounds like a U.S. slowdown, you don't think -- it could slow it down but not derail it. Is there anything else that makes you nervous in those countries?

Let's put this in perspective. Out of the 25%, 10% is China, I think, so there are many other around the eastern European countries, Southeast Asia, India, Russia, and so fourth and they have all their reasons for growth. What concerns China, since it's the biggest part, I don't think there is anything which really to hold us back. As I said earlier in the call, we spent so much time as a management team to really help and work together with our Chinese team, that they have lots of growth strategies and the momentum we are seeing is actually excellent, and all of the extra resources and initiatives we have to keep us going, we are not seeing in that sense clouds on the horizon at least short term.

Okay. And then Olivier, could you just maybe quantify, you mentioned this idea of the significant number of increase in leads and then they're also higher quality leads, and I don't know if you know the company overall, if you have a specific example for within a division. But could you just quantify a little bit more, the percentage increase in leads that you're seeing with these initiatives you've talked about, the newsletters, the search engines and e-mail campaigns, and what metrics you look at to indicate that they're higher quality leads? And just how I guess how you quantify the -- kind of the salesforce effectiveness in cost savings you're getting from these initiatives?

Okay. We -- actually, we really started this lead initiative early 2005, and that's also the time when we started to build [dashboards] to track the growth and I would say first, it's difficult to say because when you start to track it, you have a base data collection problem. And so over the last few quarters, we got certainly more accurate in tracking that, but if I take an average over the last two years or so, I would say a 30% leads growth is a good average that we could observe around the world. This is worldwide, and coming from many different sources.

In terms of leads quality, it's just something that we track, not in every country but more and more in countries, and we track that in terms of leads conversion. We are checking how many of the leads are then converted in actual deals, and that's also a quality number for us and helps us also to allocate the resources in the right way, and when I say resources I mean mainly marketing spending. And for example, are we spending more money in telemarketing or more money on search engine marketing. Yes. I think that's probably the key highlight that I can give you on lead generation. And, obviously, we continue to track that also now where the economy becomes a little bit more uncertain, this can help us to be an early indicator, but when we see something would slow down, we can take extra corrective measures, so this works actually quite well for us to manage the growth.

And just what's been the improvement in leads conversion? You talked about 30% average lead growth as the leads conversion. Do you have any quantifiable number there as to how that's improved? Or has it stayed fairly stable, but you just have 30% more leads? I'm curious of the quality of the leads.

Let me phrase it that way. The quality of the leads and the conversion rate -- let me say, the quality of the leads did not drop even that we have very significant growth. The leads conversion itself is going slightly up, but it's not these dramatic steps that we would see. I think what we would rather see is that even that we drove the leads by 30%, we maintain or slightly increase the leads conversion, but don't look at that we certainly make, we would move from 20% leads conversion to 30% leads conversion. That's not really the key lever today.

Good, perfect. Thanks.

You're welcome.

Your next question comes from Derik de Bruin with UBS.

Hi, this is Dan in for Derek today. I was just wondering whether you guys might be able to give us your thoughts on the particularly cautious outlook for the Americas or U.S. specifically. I know that within industrials there are areas that are strong, but maybe for some of the other businesses whether there are parts where you're more optimistic for improvement or rebound than others.

In terms of U.S. outlook, probably we made already our comments on the industrial sector. The retail sector is also a little closer to the consumer market, and therefore we also are cautious on that side. We're concerned with the lab business, I think it's a very different pattern. We have seen very steady growth in our lab business. Our lab business is a replacement business. We have a lot of new products also coming here, this year, which we will get the replacement of those products. And I think what we have seen in one of the key industries for our laboratory products is the pharma biotech industry, we have seen very steady situations since the drop from 2003 to a low R&D CapEx levels, things have been very steady and you don't see a dramatic change there. And therefore, connecting with growth rates in the lab business.

Okay, great. With respect to industrials overall, I know that last quarter you said you were seeing a pretty healthy backlog. Do you see yourself getting to a point near the near term where you are just fully booked for the year and you've sort of maxed out the capacity maybe earlier than you thought?

Well, we wish so.

Olivier needs to work on that conversion rate a little more.

Just to put everything in perspective, we think that we have six or seven weeks of backlog and we have built last year a nice backlog and in addition to the previous year, and that makes us confident for the start of this year but it's not going to take us far into the year.

Okay. One more topical question. I was wondering whether the weather situation in China, you could see that having any impact on business?

We would expect short term, some impact in terms of being able to ship and install our products, but at least medium term, we don't have any signals yet that this would have an impact. We also don't see any signals that our customers would change their buying behavior, but short term, yes, some shipping challenges.

But that will be washed out for the quarter in case things don't continue for too long.

Okay, thank you.

Welcome.

Your next question comes from Tyco Peterson with JPMorgan.

Hi, this is Sanjay in for Tyco today. A lot of my questions have been answered. Just one quick question, given your many successful product launches in the past year, could you speak to what your R&D priorities are looking to 2008, and any particular areas that you look to focus on?

Thanks for the question. It's not easy to answer, because usually here on the call we have lots of competition, and I'm not announcing business color competition that way, but you can assume we have as usual a constant flow of new products across all of our product range. And we'll certainly keep you informed as we go through the different quarters, but our R&D pipeline and our innovation capability remain (inaudible).

Okay, thank you.

You're welcome.

Thank you. Your next question comes from Jon Wood with Banc of America Securities.

Okay, thanks. Robert or Bill, for the AutoChem operation, does the outsourcing trend in pharma manufacturing represent a meaningful driver to that business in your view, or will we need to see a pick up in new drug approvals before that operation really takes off?

Well, that operation hasn't taken off because we need to restructure it and reposition it. What the originally seemed to be a business offering technologies across the discovery process and as you may recall we started that during technology wave, end of 2000 to 2001. In those years, we felt we (inaudible) had all those different solutions and in the meantime we repositioned the business and really set our core strength with real time analytics, and reaction engineering. And that's a very strong position we have, and on that base we want to grow, and I think we'll have very solid growth absent from those outsourcing trends that you were just mentioning. I think those outsourcing trends certainly will help us well.

Okay, and --

Jon, maybe I want to adhere, you recall that part of the restructuring of the business was also a spin-off of one of the businesses, the [SFC] business which we just sold given the new provision to really go on to that franchise.

Yes. And that was like a $10 million hit this year?

Yes, exactly.

Correct.

How big is the AutoChem business now on an annual basis?

High $50 millions, low $60 millions.

Okay. And then the small business tax stimulus legislation making its way through Congress, could that be a catalyst for your U.S. operation? I mean, are small businesses even a meaningful part of the mix in the U.S.,or is that not a driver in your view?

Probably not so significant, but it wouldn't hurt either. But not so significant.

Is there a rule of thumb that you can give us of what proportion of your sales, is it less than 10% coming from a real small business?

I would guess it's even smaller. I would be surprised if it was 5%.

Okay. All right, thanks a lot.

You're welcome.

(OPERATOR INSTRUCTIONS) Your next question comes from Vivek Khanna with [Civic].

Hi, good evening. I had a question in terms of the growth in China. Could you just comment on what it was in the quarter? And then I had another question, in terms of the backlog, did you build unusually high backlog this quarter because you had, you were just out of capacity in terms of shipping? Maybe you can comment on that. Thanks.

So first the growth rate in China was in the mid 20%.

Wow.

In terms of shipping, yes, we finished the year with a record high level of backlog, and that was partly driven by good order flow at the end of the year and the longer lead time products that in part, as you implied, driven by full factories. Some of the lab products in particular had full factories.

Right.

And that's why we are guiding you to a good start into the year.

Right. So -- and then just wanted to check in on so your guidance for next year on the margin, what are you expecting in terms of EBIT margin expansion next year? Like if your revenue is it like something like 40 to 50 or is it less than that, basis points?

I think on a constant currency basis, it's in that kind of range.

And then interest expense is this a good run rate or should it go down with the reduction in interest rates?

I think it's -- yes, there's probably some opportunity for it to go down a little bit. We're probably a little bit more dollar borrowed today as opposed to the Swiss franc, which is slightly higher rate, but I don't think that's a bad number.

Okay. Okay. Great, thank you.

Yes

Welcome.

Your next question comes from [Dianne Wyner] with GE Asset Management.

Hi, there. Can you hear me?

Yes, if you could speak louder that would be helpful.

Okay. I'm sorry I'm on a cell phone.

We hear you now.

Okay. I wanted to get back to your industrial (inaudible -- technical difficulties) as it relates to Europe. Could you characterize that or quantify it like you did for the U.S.? What percentage of your industrial business is in Europe, and the next step, how much of that is more in the service area or the area that's probably not quite as cyclical?

Sure. Our industrial business again in total is 42%, 43% of sales. Our European business is of a similar make-up. Within Europe, we have a good size service business and a good size service business and a good size PI business. I guess probably I would give similar percentages that the service piece and the product inspection piece, which would be less than sensitive, probably combined represent close to half of that business.

For the total Company I think service is around 25% and industrial is a little more probably more around 30%.

Okay. Thanks.

There are no further questions. And I will turn the call back over to Mettler-Toledo.

Yes. I'd like to thank you very much for joining us tonight. As you could hear from our call, we're really happy how we finished 2007, and also are quite optimistic on how we're going to start into the year. I want to also mention here on the call that as we conclude today's conversation that we'll plan an Investor Day tentatively so far, but we're targeting Thursday, June 12th,Thursday, June 12th. It will be a day we start at 9:00 AM and meeting will carry through lunch time. We are still finalizing everything, but as soon as that is all in place, we will of course let you be informed and send you out an invitation. We'll use that location to show you some new products and technologies, so back to an answer which came up on that call. Also, Olivier will make a more expansive presentation on his strategic brands and how he wants to take the Company forward. So it will be a great opportunity for you to meet Olivier personally. Again, thank you very much for joining us today, and wish you all the best. Bye-bye.

Thank you, bye.

This concludes today's conference call. You may now disconnect.