Mettler-Toledo International Inc (MTD) 2011 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to our fourth quarter 2011 Mettler-Toledo International earnings conference call. My name is Shawn, and I will be your audio coordinator for today. All lines have been placed on mute to prevent any background noise. 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, Ms. Mary Finnegan. Please proceed, ma'am.

Thanks, Shawn, and good day, everyone. I am Mary Finnegan, Treasurer and responsible for Investor Relations at Mettler Toledo. I'm happy to welcome you to the call. I am joined by Olivier Filliol, our CEO, and Bill Donnelly, our Chief Financial Officer. I want to cover just a couple administrative matters. This call is being webcast and is available for replay on our website at www.mt.com. A copy of the press release and the presentation that we will refer to on today's call is also available on our website. Let me summarize the Safe Harbor language, which is outlined on page 1 of the presentation.

Statements in this presentation which are not historical facts constitute forward-looking statements within the meaning of the US Securities Act of 1933 and the US Securities Exchange Act of 1934. These statements involve risks, uncertainties, and other factors that may cause our actual results, levels of activity, performance or achievements, to be materially different from those expressed or implied by any forward-looking statements. For a discussion of these risks and uncertainties, please see the discussion in our most recent Form 8-K.

All of the forward-looking statements are qualified in their entirety by a reference to the factors discussed under the caption, Factors Affecting Our Future Operating Results, and in the Business and Management Discussion and Analysis of Financial Condition and Results of Operations section of our Form 10-K. 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 8-K. Let me now turn the call over to Olivier.

Thank you, Mary, and good evening, everyone. I am pleased to welcome you to the call. I will start with a summary of the quarter, and then Bill will provide details on our financial results and our updated guidance. I will then discuss our end markets and outlook for 2012. As always, we will have time for Q&A at the end.

We are very pleased with the results for the fourth quarter. The highlights for the quarter are on page 2 of the presentation. Local currency sales growth of 8% was very strong, better than expected in almost all regions. Asia, in particular, China continues to be very robust. Despite challenging currency headwinds, we achieved a 5% increase in adjusted operating profit. Adjusted EPS was up 13% in the quarter, as the impact of the lower effective tax rate helped to offset negative currency headwinds. We are pleased with the lower tax rate, which we will further comment on in a moment.

We are very pleased with our full year results, with local currency sales up 13%, operating profit up 13%, and adjusted EPS up 20%. These exceptional results for the full year were driven by healthy end markets and diligent execution. The lower tax rate for the full year did not completely offset currency headwinds. While we are cautious for 2012, given the uncertainty in the economy, we believe we can continue to grow. We are well-positioned to grow faster than our underlying markets and capture share. Let me turn it to Bill to provide more details on the fourth quarter results as well as guidance.

Thanks, Olivier, and hello, everybody. Let me start with additional details on sales, which were $648.4 million in the quarter, an increase of 8% in local currency, a level -- as Olivier already said, we are pleased with. On a US dollar basis, sales increased by 9% in the quarter, which included a positive 1% impact from currency. Turning to page 3 of our presentation, we outlined sales by geography. In the quarter, local currency sales increased by 6% in Europe, 5% in the Americas, 16% in Asia/ Rest of World. Net acquisitions had no impact on our overall sales level, but did add 1% to Europe sales growth in the quarter.

The next slide shows our full year local currency sales growth which amounted to 13%. For the year, sales increased by 11% in Europe, 9% in the Americas, and 20% in Asia/ Rest of World. Acquisitions contributed 1% to overall sales growth for the year and 1% to Europe's growth. On slide number 5 of the presentation, we outline our sales by product area for the quarter. Laboratory sales increased by 5%, industrial sales increased by 14%, and food retailing increase by 2%. Acquisitions contributed 3% to industrial growth in the quarter, while divestitures reduced food retailing by 5% in the quarter. The next slide provides our full year results. Laboratory sales increased by 9%, industrial was up 19%, and food retailing was up 1%. For the year, acquisitions increased industrial sales by 3% and divestitures reduced food retailing sales by 6%.

Now turning to slide number 7 of the presentation, we show the P&L. Let me walk you through the key items. Gross margin's profit margins were 53.4% in the quarter, consistent with the prior year. We benefited from pricing in the quarter. However, offsetting this was higher raw material cost and currency headwinds. R&D amounted to $30.1 million, an increase of 9% in local currency. SG&A amounted to $184.4 million, an increase of 10% in local currency. The increase was attributable to higher sales and marketing investments, particularly in emerging markets. As we mentioned last quarter, we had incremental costs associated with the go live of Blue Ocean in China.

Adjusted operating income amounted to $131.7 million, which represents a 5% increase over the prior year amount of $125.3 million. Without the impact of currency, largely the Swiss franc strengthening versus the euro, our operating profit would have increased by 8% in the quarter. Our operating margins amounted to $20.3 million -- sorry 20.3%. Without the impact of currencies, our operating margins were down slightly, 10 basis points from the record levels of Q4 2010. A couple of final comments on the P&L, amortization amounted to $5.1 million. Interest expense was $5.9 million, and our fully diluted shares were $32.4 million.

Now, let me make some comments on taxes. We lowered our effective tax rate for the fourth quarter and full year 2011 to 24%. This is the result of some tax planning strategies resulting in a more favorable country income mix. Going forward for the medium term, based on our assumption of foreign tax credit utilization, we would expect slightly higher rate than what we achieved in 2011, specifically 24.5%, so a slight increase. We would expect our cash tax rate to remain in the 20% range. That is for cash flow purposes.

Turning back to the quarter, our adjusted EPS was $2.88, a 13% increase over the prior year amount of $2.56. We estimate that currency headwinds reduced earnings per share growth by approximately 3%, while the benefit of the lower tax rate increased EPS by 3%. On a reported basis, earnings per share were $2.91 for the quarter. As outlined to you last quarter, we have taken some cost reduction actions and incurred some restructuring cost in the quarter amounting to $0.07. We also refinanced our bank facility and entered into a new agreement, which will provide us ample financing flexibility for the next five years.

We thought it was prudent at this time to lock in our financing, given the level of uncertainty in credit markets due to the European sovereign debt situation. We incurred $0.01 of debt extinguishment cost with the refinancing. We also added discrete tax item of $0.14, representing the benefit of the lower effective tax rate of 24% as it related to the first three quarters of the year. Then finally, we had $0.03 of purchase intangible amortization in the quarter.

Okay. On the next slide we summarized our full year results. You can see that 2011 was an exceptional year for us. Local currency sales grew 13%. Adjusted operating income increased 13%, and adjusted earnings per share grew 20%. We estimate currency headwinds reduced adjusted EPS by 6%, while the benefit of the lower tax rate increased EPS by 3%. We are very pleased with this results, and we think this reflects strong momentum in our markets and very good execution.

Now let me turn to cash flow. In the quarter, free cash flow amounted to $77.9 million, as compared to $35.6 million in the prior year, a significant increase. DSO amounted to 40 days, while our inventory turns on an LTM basis was 4.2 times. While we are pleased with our cash flow generation in the quarter, our full year amount of $203.8 million was slightly below our target. The two principal factors were higher levels of CapEx and higher inventory levels.

Both of these relate to our Blue Ocean program. First, CapEx was higher than expected, principally due to the strengthening of the Swiss franc, as most of our Blue Ocean expenditures take place centrally in Switzerland. Second, we reached a critical milestone in 2011 with the go live of the rest of our Swiss operations and all of our Chinese operations. These implementations went very well, but given the magnitude of operations impacted, we felt it appropriate to carry additional buffer stock in inventory to ensure no disruption to our customers. We expect to work these inventories down over the course of this year, although we will hold some buffer stock for our US go live, which is planned for Q4. As we look to 2012, we would expect cash flow to grow by something in the 15% range.

Now, let me turn to guidance. I will start with some general comments, and then get into specifics. First, our business momentum is good. You can see it in our sales growth in the quarter, which was better than expected. We are particularly pleased with the growth, that the growth was so broad-based, and we can continue to grow faster than the underlying markets. Second, while we are quite pleased with the strength of our business, we also know that we are not immune to economic weakness. We are alert to further weaknesses in our market, but to date, have not seen signs of a downturn. As we discussed last quarter, we have planned some savings initiatives to combat market weakness, and would deploy additional programs if a recession impacted Europe or the globe. With that as a backdrop, let me provide some details.

For the full year 2012, we expect local currency sales growth to be in the range of 5% to 7%. Currency will impact us a little in the first part of the year, assuming current exchange rates remain in place, particularly the Swiss franc/ euro -- and I'm referring, of course, to earnings per share here. For the full year, we would expect the currency to have a modest impact on EPS. As mentioned earlier, we have assumed an effective tax rate of 24.5% for the full year. This will reduce EPS growth compared to last year by approximately 1% for the full year. We expect adjusted EPS to be in the range of $9.20 to $9.50, which represents a growth of approximately 10% to 14%.

For the first quarter, we would expect local currency sales growth to be in the range of 5% to 6 %, with adjusted EPS in the range of $1.59 to $1.63, a growth rate of 10% to 12%. Our adjusted EPS guidance for the first quarter and full year is before nonrecurring charges. In conjunction with some of these restructuring activities I described, we may incur additional charges but cannot estimate them at this time. One final comment, many of you asked us about the foreign exchange impact we expect on sales. If I use rates today, for Q1 we are estimating a negative impact of about 1.5% on sales and for the full year of about 2%. Okay. That covers my comments on guidance, and I now want to turn it back to Olivier.

Thank you, Bill. Let me start with summary comments on business conditions. We are pleased with the solid 5% sales growth in laboratory in the quarter, particularly given the exceptional sales level in the prior year period when organic sales were up 15%. On electrical instruments, automated chemistry and process analytics had particularly good results, while pipettes had their strongest quarter for the year. For 2011, labs sales increased 9%, which reflects the benefit of our Spinnaker marketing program and our strong product offering. We feel very good about our competitive position and believe we have strengthened it over the last few years.

Industrial had excellent growth in the fourth quarter and for the full year. In core industrial, we had good market conditions as we benefited throughout 2011 from pent-up demand in the Americas and Europe. Core industrial growth in Asia, particularly China, continues to exceed our expectations. As a reminder, our industrial market is more heavily weighted toward emerging markets, particularly China. In fact, China represents approximate one-third of our total core industrial business.

Product inspection also did very well in the quarter and for the full year. Our solid leadership position, comprehensive product offering, and the favorable market dynamics are driving these very strong results for product inspection. Finally, our food retailing was up mid single-digit in the quarter and full year on an organic basis. We have discussed in the past, we continue to focus this business on operating profit growth rather than sales growth.

In terms of sales by geography, both the Americas and Europe had solid growth in the quarter and excellent growth for the full year. Market conditions remained solid in both areas, but are better in North America versus Europe, which is impacted by a greater level of uncertainty, given the debt issues of this region. In Asia/ Rest of World, particularly China, growth has exceeded expectations. I am particularly proud of the Chinese team that achieved this result, despite going live with the Blue Ocean implementation. We expect good growth in 2012, but do not anticipate the same level of growth we have seen over the last two years. That provides some context on how we view our business today.

Let me also provide some overall context to 2012. We have exceptional growth in 2011, driven by healthy end markets and solid execution. Our end markets were surprisingly strong in 2011, given the uncertainty in financial markets. As we sit here today, there is more uncertainty in the economy versus last year, and as compared to the last time we spoke. We recognize this and remain alert for signs of a downturn. While we remain cautious on the economy, we feel positive about our growth prospects for 2012. We expect solid growth. However, it will be lower than what we have achieved in 2011, given the uncertainty in the market, tougher comparisons, and we no longer have the benefit of pent-up demand from the 2009 downturn. We believe we will continue to grow faster than our underlying markets and continue to capture share.

The investments we are making to achieve this growth center around sales and marketing and emerging markets. Let me provide some more insight into these two areas. We continue to take our Spinnaker marketing programs to the next level. We are currently on the third evolution of Spinnaker marketing and recently identified a new round of ideas for enhancing sales and marketing excellence. These best practices include tools to identify and penetrate the most promising target accounts, strategies to better manage and accelerate project pipelines, processes to manage telesales and increase cross-selling.

By sharing ideas, tools, and training throughout the organization, I am convinced we are continuing to move our sales and marketing effort to a higher levels of excellence. At the same time, we are also adding salespeople. A program we refer internally as our field-[toolable] program. We have not added this many front-end people in some time. Given the strength of our lead generation efforts and database expansion, we felt that leads per sales person in some areas were getting beyond optimal, and believe it is an opportune time to invest for more share gain. We acknowledge we are making this investment at a time of some market uncertainty, but we are convinced that this can lead to further share gains in our key product categories and targeted segments.

In emerging markets, we are also expanding our field personnel, particularly in second-tier cities. In China for example, we currently have 2 main locations and 36 regional offices throughout the country. We are now expanding into second-tier cities. These are cities with populations between 5 million and 7 million, so quite large in and of themselves. We expect to open 8 to 10 new branches over the coming years. We have relied more on [villas] in this region and are now moving to expand our direct presence beyond the traditional coastal markets.

We are also expanding product portfolio for emerging markets, particularly in the area such as product inspection. We see great potential in this product line as these economies further develop, and packaged foods become more commonplace, and concerns about food safety remain. Field [Turbo] and Spinnaker marketing programs are key driving forces behind this investment in emerging markets. While China continues to be our largest emerging market, we continue to expand our product lines in Brazil, most recently with our product inspection offering. We are also making direct investments in Turkey, Vietnam, and Indonesia, given the strong potential in these regions. Our investments in Spinnaker and emerging markets will continue to help us capture share in the near-term and further strengthen our franchise. On the pricing front, we continue to invest in training and supports to our sales organization. We have a very analytical approach to our pricing initiatives and want to ensure that our sales force has the right knowledge and tools to articulate it to customers.

It will be another important year for our Blue Ocean program. I'm very pleased with our accomplishment in 2011, particularly the go live in China, given the importance of the organization to us. We are already starting to see the Blue Ocean benefit in China of having more transparency on our supply chain. We are also seeing improved invested capital performance. In the near-term, our Chinese operations expect further improvement in inventory management, procurement, and pricing by leveraging the improved tool. It is also worth mentioning the Blue Ocean system provides a better platform to enable growth in fast-growing markets, such as China, as compared to our former fragmented heterogeneous IT environment.

We also continue to put greater focus on investment in training and management development. Over the last few years, we have expanded our Kaizen activities beyond manufacturing to people-intensive business processes in the organization. In addition to gains in productivity and customer satisfaction, we see significant benefit in employee engagement. Our employees at all levels of the Company want to help make our business stronger, and our Kaizen program gives them the opportunity.

In summary, we are very pleased with our exceptional 2011 results and the strength of our franchise. We believe our competitive position is strong, and we can continue to outdistance ourselves from our competition. We have the growth strategy, management team, and focus on execution to continue our strong track record. We remain confident in our initiatives and ability to execute, but remain very cautious about the economic environment. That concludes our prepared remarks. I would like to ask the operator to open the lines for questions.

(Operator Instructions) Your first question comes from the line of Paul Knight, CLSA. Your line is now open.

Hi, Bill, could you go over the margins a little bit in terms of the impact that you are seeing on it?

Just to be clear Paul, I guess you're asking me about gross profit margin?

Well, margin year-over-year, EBITA.

EBITA okay. We had concurrency headwinds, and if you adjust for currency headwind, they were relatively flat in terms of operating margins. That was something we pointed to a little bit on the last call when we said we had some -- expected to have some Blue Ocean excess costs in the quarter. We went live in China. And then as well, we also made a few investments in terms of front-end topics in the fourth quarter, especially in emerging markets. With regard to gross profit margin, we in the quarter, had good price increases. Actually, our price increases, as I think we mentioned to you guys on a previous call, we started to push through some extra price increases in the middle of the year, so a midyear price increase. So we did have some acceleration. We did get more than 200 BPs of price increases during the course of 2011. That was one of the better items. We did have some material cost increases, but the impact of that on gross profit margin was less than the benefits that we had of price increases. In terms of currency, the currency for the full year brought down margins by about 1%, and about 25 BPs in the quarter.

And then lastly, Olivier, could you highlight some of the industrial products that are key behind this growth we are seeing in that product area?

When we talk about industrial, we have about 30% coming from core industrial and 15% coming from product inspection. Core industrial is skewed towards emerging markets, particularly China. We had tremendous growth in these areas, but we actually also experienced a very solid growth for core industrial in Europe, as well as in America. So it was broad-based across all the regions. In the west, meaning Europe and Americas, we certainly had still some pent-up effect that was helping us. But I would say also the end-user industries were in a solid stage with good momentum.

When we talk about product inspection here, experienced very good growth, excellent growth also in the west. This has been ongoing for quite a while. It is not dependent on pent-up demand. I think that very solid growth is coming from an excellent market position. We are clearly the leader in terms of market share, in terms of having an excellent sales and service network, having it leading products. And what certainly also plays in product inspection, you still have good growth in the market that comes from expanded demand. And not all product lines are today already equipped with all of the necessary product inspection technology. We have also new technologies like x-ray vision inspection that have accelerated growth. So slightly different drivers for the growth, core industrial 30% of our business and product inspection 15%.

Your next question comes from the line of Jon Wood from Jefferies. Your line is open.

So, Olivier you talked about some sales and marketing headcount additions in your prepared remarks. Can you go into a bit more detail in terms of the magnitude there? And I am specifically interested geographically and how you are thinking about headcount adds there.

Yes. It is a program that we started last summer. What we did is we analyzed where we had growth opportunities across the globe. When we look at business lines, we focused on the business lines with the best profitability. And then we looked across the globe, analyzed different territories, looked at how many leads we were generating by salespeople in the different territories, looked at penetration and so on. It was very targeted. But at the end of the day, most of the addition came into emerging markets, and were driven also by the underlying market growth that we see in these countries like Brazil, India, China, also Eastern Europe, were all good examples where we added people. When it comes to the west, we added also people, but then it was a very targeted to business lines where we have very good global momentum and good profitability, for example, process analytics, product inspection, but also quite simple analytical instruments like titration, where we felt we could gain extra market share by having additional field people.

Round figures, we added in the course of this year -- last year we added about 800 people. More than 500 were in emerging markets, about 400 of the 500 were in China. And as Olivier said, the Western adds were very technical in nature, key product categories, some IT guys because of Blue Ocean, and some R&D guys in a couple critical areas.

Okay. Great. Bill, when I look at the local currency, incremental margins this quarter, they look to be about 20% or so. How much was extraneous in Blue Ocean and some of the, you mentioned, front-end investments? I'm not really sure what that means, but I'd love some color on that.

Okay. So, in terms of Blue Ocean related topics. If we pulled out -- we have extra people in back office areas, things like that, and most of those people are actually, or for many of those people will be pulled out even by the time you see our first-quarter numbers. But the impact was, I think you'd push to high 20%s, almost 30% just for Blue Ocean. And then some of the front-end people that Olivier is talking about that we added. These sales guys, it usually takes about four quarters for them to get productive. I guess maybe putting that additional amount in, you are talking a number of incremental margins and local product, constant currency basis, somewhere in the low to mid 30%s, I guess.

Okay. Great. Did you guys give the China growth? If not, would you? And also talk about if your expectation there for 2012 has changed at all.

Our expectation, I maybe start with that, our expectations have not changed. We grew by 20% in the fourth quarter. That was the most modest growth of 2011, as we had guided you guys to. We do expect the overall growth rate for emerging markets to be, let's call it low double-digit rates, somewhere between 10% and 15%, with maybe China being a little higher than the group on average. We are guessing, in particular the Eastern European guys are probably going to have more modest growth next year because of we expect lower growth in Europe as well, and they will be impacted by that.

Jon, we have China, we have now eight quarters in a row where we have growth of more than 20%. You have heard me saying that now for quite a while, we do not expect that we can just maintain these growth rates. Also for last quarter, I did not expect that China would again reach these growth rate, was very very happy about that result. But ultimately, China will deliver more mid-teens growth, and we had exceptional circumstances. And I would also say that the GDP forecast for China are a little bit more modest than what the actual results were for 2011. So I think different reasons why the forecast that Bill was sharing before reflects really our thinking of today.

Your next question comes from Jon Groberg from Macquarie Capital. Your line is open.

Great. Thanks a million for the questions. Bill, would you mind on the free cash flow, I know you went through it in some detail, but obviously one of the weaker conversion years that you have had. Can you maybe just talk a little bit in more detail about exactly what happened there and what you would expect from a conversion standpoint in 2012?

Okay. So, we would expect free cash flow for 2012 to be in the range of, let's say at the low end, probably $225 million, and maybe if things went a little better than expected, it could reach close to $250 million. But I think that's the range, as you know, sometimes timing on cash flow can be a little bit more fluctuating than let's say earnings, frankly. Now, in terms of the conversion rate, I think our conversion rate as we look at it was like 78%. I think that if I look out over the next couple of years, I think our conversion rate will improve from that level. I think that in 2011, we certainly continued to invest in inventory in an effort to reduce risk associated with Blue Ocean go lives.

To give you a feeling, over the last 18 months or so, about 50% of our manufacturing now, maybe even 60% is up on Blue Ocean. And you guys have heard of many companies that have struggled with SAP or similar work or implementations, and one of our things was Mettler does -- we have sticky customers. And we are reluctant to give any excuse for them to try other people's products. And we felt that that was a prudent investment. And in the details within what I can see in the fourth quarter, I can see already, for example, our inventory levels in China starting to reduce. So, I think the working capital impacts that we saw in 2011 will certainly improve in terms of 2012.

Now, with our investments in Blue Ocean, we certainly are going to have more CapEx than amortization and depreciation for the next couple years. I think that's just the nature of the build up of that program. We are certainly doing it because we believe we can extract value from this investment. So, but the nature of these type of projects is maybe the payback is a little bit slower. So at some point, we are going to cross over the hill, and our conversion rate should move north of 100, but to be honest, we have at least three more years to get that project up to that level of completion where we can expect that.

In terms of maybe the last topic would be tax rates, we have provided guidance here based on 24.5% tax rate. I think that could be a tax rate now for the next few years. Our cash tax rate should be in the area of, let's say 20% or so, over the medium term, maybe slightly up or slightly down depending on the year, but that's what I would estimate at the mid term. So conversion rates will improve, but I think the only thing maybe that won't be as good is this ratio of CapEx to depreciation and amortization.

Okay, great. That's very helpful. Following up on that, it seemed like your were a little bit lower in the fourth quarter than they have as well. Was any of it tied to some of the investment that was going there from a cash standpoint, or any other reason why the buybacks slowed?

We target our free cash flow plus option proceeds. You are correct, Jon, that we had a little bit less. I think that was a, we were truing up a little bit, and frankly, we took down inventory faster in the fourth quarter than I had projected. So, you can assume that we are buying towards that free cash flow level plus the option proceeds for 2012.

That was going to be my next question, thanks. Olivier, if I can, one last one, would you mind talking -- one of the things that continues to mystify a lot of people, given everything that we hear out of Europe is that business there still seems to be doing pretty well. Can you maybe talk about some of the different geographies and what you are seeing in Europe currently over the last couple months?

Yes. When you are reading the newspapers in the last two or three quarters, you definitely could get depressed. And repeatedly I was mentioning on these calls that we didn't see this in our numbers. Q4 was definitely another such example where we had very good results. Nevertheless, I don't want to pretend that we are immune to what is going there. I ultimately think that we are going to see lower growth rates. This is certainly also reflected in our guidance, that we expect low single-digit growth out of Europe. What's also important to say, Europe represents about 37% of our revenue, but if I look at the weakest counties like Italy, Spain, Portugal, Ireland, and Greece, these countries together represent only about 5% of our sales. That's certainly one of the reasons why our growth rates have been still reasonable last year, and why I'm not that concerned for this year. But I am certainly going to expect that the Americas will do better than Europe for us.

Maybe one other interesting thing that you might see, I was just looking at our forecast by country for Q1, and as Olivier mentioned, we are looking at flat, low single-digit growth in Europe is built into our guidance. It's tough to see really much of a pattern. On the one hand, Spain looks like it will do okay in the first quarter, while Italy looks relatively weaker. Germany versus Austria, there is not necessarily, I think on average, we are going to have certainly less growth in Europe in the first part of 2012 than what we saw here in the fourth quarter. But it's tough to pick a pattern as it relates to maybe this famous PIIGS countries versus Northern Europe at this stage.

Your next question comes from Tycho Peterson, JPMorgan. Your line is now open.

Just wondering relative to your commentary coming out of the third quarter where you saw the biggest delta in the fourth quarter relative to your own expectations. Was it all Asia and industrial, or were there other pockets of strength that you hadn't really anticipated?

I think we were positively surprised across the globe. I would say we were mostly positively surprised about the December results. We were, when we entered the quarter, we had seen that October was actually strong. We felt good about November, but December we were nervous because we knew that the previous year we had an exceptional result. We had a lot of budget flush benefit, and we were not so sure how this would turn out in Q4 this year. So, that was actually a positive surprise. It was more the month than the businesses. Again, all the regions, actually, outperformed, and I would say all businesses more or less outperformed our expectations.

And then you had talked in the third quarter about the replacement cycle in the US and Europe. Does that still have legs? You still seeing that pick up?

I would phrase it maybe differently. What we were talking about was that we saw some pent-up demand, I think at the beginning of the year. We still benefited from that. The recycle business, it seems to be quite a stable one. I am not seeing a particular change in the pattern there.

And then as we think about Blue Ocean, you have gone live in China now, how do we think about starting to see some of the benefits? You mentioned inventory management, procurement, and pricing. Do we start to see some of those benefits be captured in the first half of the year?

I think in the details, we get to see some in a place like China. The hard part for you guys is, of course, we are still in the half-pregnant stage of the project with go-live costs in our US operations, and then in 13 in our German operations. Those are the two final really big roll-ins we have. After that it goes into smaller countries with less upfront cost on them, and I think then you will start to see. We would point already to some benefits in certain areas that we started to see here in the fourth quarter. We definitely expect some in our existing operations in Switzerland and China in 2012, but probably from, at the level you guys see the numbers, we will see some masking because of startup costs in the US and Germany.

Lastly, on the cost piece, you've talked about trying to move cost out of Switzerland. Can you remind us how you are thinking about that process over the next couple years, and where you hope to be eventually?

As mentioned, we want to look at -- the Swiss franc has become an expensive currency over the last couple years. We are looking at what, in terms of our supplier base, many of our lab suppliers our Swiss franc base. We are moving over the next couple years away from some of them and trying to reduce that cost. That could be over a several-year period, let's say $3 million to $5 million in terms of savings. There are certain functions we think we can do more cost effectively outside of that, some of the lower value functions that we perform. And that one, we could get maybe again, $3 million to $5 million this year in that area and more than that over the medium term. I think the point there is we want to be, depending on how the growth environment evolves, anytime you have those transition costs I think -- or transition activities, there is some operational risk associated with it. We are careful on how we're dealing with that, particularly if volumes continue to be at the levels that we have seen recently. We expect them to moderate so we'll be able to implement it over the original plan. And if things got worse, we could accelerate some of those as well.

Your next question comes from Isaac Ro, Goldman Sachs. Your line is now open.

On the business specifics, wondering if you can comment on that pipettes business this quarter. How do you feel about the performance there? And then maybe if we look at the full year, would you care to offer some growth, a ballpark on how product inspection did for the year?

Sure. In terms of our product inspection business, we grew organically that business in the mid teens. As mentioned, we were quite happy with that. The growth rate was a little bit less in the fourth quarter as comps started to get up, but that is a business now that has put up in '10 and '11, mid teens type of growth rates, so we are quite pleased with that, organically. On top of that, we have made some good growth from acquisitions. In terms of the pipette business, I am happy to report that we did, and this is something that we had expected and told you guys about, we did see the best growth of the year here in the fourth quarter. I wish some of that had been maybe in our US franchise, but I think it is expected with NIH funding. Government spending, that was not as good of growth as we would like to see in the US, but we did have our modest growth for the full year, and almost just short of mid single digits in terms of fourth-quarter growth for pipettes.

Great. For India, I know you guys have had some changes in management there recently. Maybe an update on the performance there and what some of your key goals are for 2012 in that region?

So, we had some changes in management early last year. We have the new team complete, and I'm very happy how that is evolving. Actually, the person is, -- or the gentlemen actually that we have is (inaudible) focused on building up a long-term oriented franchise. Great work on people development, working on customer satisfaction, building up the region, going very very well. In terms of results, we have very good results in India. I think some of the stuff that is investing and focusing on will take more time to fully materialize, but actually the growth, we're beyond 20%. Bill, do you have the numbers?

It grew, India grew for us more than 20%, between 20% and 25% for the full year, a little bit less in the fourth quarter, again, reflecting I think the global economic cycle, but we are happy with the growth rate there overall. That's now a couple years in a row of the mid 20%s growth rates, so we are quite pleased.

Your next question comes from the line of Richard Eastman, Robert W. Baird. Your line is open.

Olivier, could you mention again, from a pricing perspective, what you are expecting for '12? Do we stay at two points of price capture?

Let's quickly talk about 2011. We had the 2011 the normal annual price increase. And then we did the second one midyear. And, of course, the midyear price increase will also benefit us into 2012. And then, we executed more normalized January price increase that is in the order of magnitude that we had in previous years.

And so we will still benefit from the midyear '11. And then we bump prices a little bit here again in '12, January '12. And does that result in maybe 1 point of price capture or 2 potentially for '12?

I think we'd like to get to two by the end of the year. I think that to put that up again on top of this one might be a bit of a stretch target, but we certainly will get more than 150.

Okay. I wanted to circle back for a second, given what we have seen with the China PMI hovering at least above 50%, and certainly what we have seen out of Euro-zone is dropping well below 50%. All of that really has occurred late in the year, fourth quarter-ish of '11. So when I look at those PMIs and I look at the industrial business, I would think the industrial business would lag. Your industrial business would lag, that would be typical. So as you gave LC growth guidance for '12, you picked up the low end 1 point, it's marginal. But did you move, are there any expectations within the three major geographies that have moved around? You referenced Europe, plus low single digits. Is that down and Asia, rest of the world up a little bit to offset, or are we waiting and seeing what occurs here?

I maybe give you a couple of numbers. So of course we gave guidance, as you correctly said, in November last year. It is interesting I happen to have global PMI numbers in front of me. And if I look at the US, the US has gone from, in November, 52.7% to 53.9% and then 54.1% now is the January number. China has gone from 49% in November to 50.3 in December to 50.5% in January. Even the euro zone went from 46.4% to 46.9% to 48.8%. So I think that a positive comment would be maybe PMI is the last few months starting to do a little bit better. And as we mentioned to you, we think that there is some, certainty we ourselves track manufacturing GDP in there before PMI tends to be a good indicator from it. At the same time, Rick, we are on the same page that the businesses is not immune to economic downturns. We do tend to be a little late cycle. If I compare our guidance right now, we probably feel a little worse about Europe, and maybe a little bit better about the rest of the world.

Okay. All right. And then, I had a question on the product inspection business, given the gains you have seen there, that is the one business where it is probably easiest to at least identify an extension of the product line inorganically, at least x-ray, but also on the vision side. When you see business coming in the door today, are you seeing a benefit competitively from being able to deliver a seamless system, everything from check weighing all the way through to vision? And if so, are you seeing your order size there improve because of that?

Clearly, a value to our customer base to have the combination of the different technologies. And it is a value to the customer from different angles. It can be user interface; it can be seamless integration of the material handling part. But I would say in most, and more important, it's probably the sales relationship and marketing topics, and having a trusted partner over the long-term. It is not so often that the customer is buying all the technologies at the same time. So, that's actually the reason why I would not pretend that the average transaction value is going up in a very significant way, just because we are adding the technology. But the synergy is still very much here, and we clearly benefit, from a competitive standpoint, to have all these different technologies.

Now I want also maybe to stress a point here that there are limits to how many new technologies we would add to this portfolio. And we feel that with the additional vision inspection, we have now one that is -- that we added at the right time. It is an emerging technology, but it is also maturing in terms of the applications that we have in the market. It's not that we are eager to add that many new additional technologies to the franchise in the coming years.

One other thing I might add to what Olivier said is that this is a service-intensive business. These guys don't want their lines down. They need their inspection technologies up and running. And a big benefit to our customers is we have huge advantages in particularly western markets about the number of service technicians, the density of our service technicians. And therefore, they're tying to service as compared to competition, especially if you talk broadly. Of course its possible for competitors to locate a service technician in highly dense areas. But if you think about the food industry, which is a large part of product inspection, as you know, Rick, it is relatively well spread out. And we have a real advantage there by having so much of a larger business that we can get service technicians there are much closer. And our service technicians know the products quite well.

Your next question comes from Derik De Bruin from Banc of America, Merrill Lynch. Your line is now open.

A lot of my questions have been answered, so I'm just going to do a couple of odds and ends here. So, it has been about a year since they put the Food Safety Modernization Act into play, and I think people were certainly expecting to see a little bit of a boost to companies that sell into that market, the food inspection market. And I guess, here we are a year into it, have you actually seen any tailwinds that you can actually attribute to this new legislation?

We have an indirect benefit. What's important, the legislation does not specify that our type of instruments needs to be used. But, the legislation defines, or makes it even more costly if a producer needs to do a product recall. So there is an increased awareness for the benefit of doing end-of-line packaging controls, and that benefit we clearly see. That's one of the reasons why the underlying market dynamics for us, product inspection remains very favorable. And I would not just -- we [choose] to focus that on the US market. We are clearly seeing also that this regulation and this awareness for food inspection is a global phenomenon.

I love the fact that you refer to 20% growth as moderating in China. Forgive me if this has been asked, but what is your target for the number -- for the percentage of sales that you are going to be manufacturing in emerging market locations? Do you have [a word] that's currently where your target is like that? And I guess what is the implied cost savings, given that, I think in the old days, you said you got, maybe a 35% savings if you move something from Switzerland to the emerging markets. Clearly there has been wage inflation stuff. What is the

There are two numbers of relevance here. The first one is how much we produce, in particular in our case it's China. Today it is 30% of our worldwide product sales that we produce in China. And the second number that is of relevance is how much of our sourcing is done in low-cost countries. This is today roughly 40%. I definitely expect both numbers to go up. Now, the first number will go up because we continue to sell -- increase our sales in emerging markets. When we sell to emerging markets, more of the products are sourced from China than what is the case in the Western market. So from that fact, the percentage will go up. We do still have product transfers to China, but we are talking, I would say a little bit less big numbers than we had in the past. We have one that is still taking effect in product inspection area, where we have a product transfer going on, but it's again, less than what we have seen in the past. Where I'm getting to is, I expect every year, maybe a few points where that's going to go up.

When it comes to the sourcing, there I would say 2012 should experience again a step up. We talked about Switzerland where we are trying to find a more suppliers outside of the Swiss franc. A part of that is going to go to low-cost countries.

I'd maybe add one thing. We probably would say the next few years, the bigger impact is we think we can get even more productive than in China. And I would put that too in three areas. We were running three different factory -- eight different factory or pieces in China until we went on Blue Ocean. Now we're on a single platform. That has allowed us to consolidate our supply chain activities in areas like procurement. We are a lot more focused on lead topics in China, so we really think our Chinese operations over the next couple years are going to make a big step forward in their productivity level, which on a China scale I think a few of you have visited our Chinese plants, they are not your typical Chinese plants. They were already quite modern in that sense. But we think we can make another breakthrough there in terms of productivity levels, and that might be a bigger impact than what we do in terms of transfer over the next couple years.

Your next question comes from Dan Arias from UBS. Your line is now open.

Two quick ones, Bill or Olivier, following up on the question on pipettes, back in August, you talked about improving the position of the [reigning] business outside the US, I guess where your share is not as high as it is in the US. Is that something that you think could impact the growth rate of the lab business in the near term?

It's certainly not a negative. I'm not sure if that base is big enough to move the needle in a meaningful way. Just to give you a feeling, certainly our growth rates in the pipette business was better outside the United States than it was inside the United States. And we would expect that to continue. But in terms of moving the needle for the whole lab business, that wouldn't be meaningful.

Okay. And then just quickly on M&A, at this point, how are you viewing the role of inorganic growth in '12? And are you seeing any assets at this point that are interesting for you guys?

It's going to be very similar to what you have seen us doing in the last two, three years. We continue to be very focused on bolt-on acquisitions, where we have good synergies and where it is close to our core business. We have a systematic screening approach. We have always on our radar a couple of dozen companies that we are observing. We always hope one or the other becomes available, and we stay very disciplined about what we are going to offer for the opportunities. Yes, I think the pipeline looks similar as it did in the last two or three years, and let's hope that one or the other will materialize.

Your next question comes from Sung Ji Nam from Cantor Fitzgerald. Your line is now open.

Thank you. I just had one question, for the lab business, particularly in the emerging markets, I think you had previously talked about potentially the lab business really driving the growth there longer term given that in the emerging markets, especially in China, (inaudible) the business is weighted toward the industrial side of things. Do you expect any of that to play out in the near term? And particularly given that you are expanding into some of the second-tier cities in China as well? Thank you.

I think the strategy is still very valid, and I do expect that this is going to happen. I think what we had last year, we had such good growth in our industrial business that the mix did not change toward lab. But that was really because industrial business did exceptionally well. But ultimately, the fundamental drivers are more favorable for our lab business. The number of scientists joining the workforce is one of these macro trends that is very, very favorable for us. And I do expect that the lab business will ultimately outperform the industrial business. But of course when we have this opportunity like last year to enjoy this great growth in industrial, we take it.

I think we certainly saw it in 2011that the lab business grew faster than the core industrial business. And then the other one we often talk about with long-term growth prospects is our product inspection business in emerging markets. And that also had a faster growth rate than the core industrial business in that part of the world. Again, off a small base like lab, but those -- the pattern that you described at the beginning of your question I think we expect to carry forward.

Your last question comes from Greg Halter from Great Lakes Review. Your line is now open.

I'm wondering if you could break out your business between products and then service parts as a percentage of sales, and what they may have been up, each may have been up either for the quarter or for the year?

Okay. Our product business and service business, you can imagine when we have a little bit outsized growth, Greg, that usually means that the product business is growing faster. So for the full year, our product business grew mid teens, while our service business grew more mid single digits. In the fourth quarter, the growth rate for service was stable with what we saw the first three quarters of the year. So the mid single-digit growth rate in the product business grew more like 9 percent. In terms of organic versus total, I would -- just knowing the businesses that are on the acquisition side, they are very product focused too. So probably the delta is even little small. So you would away most of the acquisition, in fact, for the product business.

And the service parts, is that still about one-third of the total?

Service and consumables are, because the product grew so fast, they're 27% of the total. I think that's down from like 29% last year.

All right. If you could comment on, you spoke about India a little earlier with the growth there. If you could do the same with Brazil, and maybe give a range of the size of each of those businesses for Mettler-Toledo.

Brazil and India are both, I'm looking at Olivier, I think they're both about $40 million.

They are both less than, they are in the 2% range of our total revenue.

In terms of the growth rate for Brazil, sorry I'm looking at my sheet here. Brazil grew north of 20% for the year for us.

We talked about India also being at 20% plus, actually both countries about 20% plus. Both countries are about the same order of magnitude in terms of size. I think the difference that we have is in India, we have the full product portfolio. We have a very good network of regional offices. When it comes to Brazil, we started with a strong nucleus a couple of years ago in process analytics, and then added different product lines over the years. One of the last product lines that we added to Brazil was actually last year, was product inspection. The previous year, we added the Rainin business, so it has some expansion activities in Brazil that is different to India. But again, very good growth momentum, strong teams in both countries, and actually really happy also with the sizes that there are and a good base to grow further.

I double-checked my numbers, so Brazil is a little more than 40% -- sorry, India is a little more than 40%, and Brazil is a little less than 40%.

Okay. Your capital spending was up about $25 million, obviously Blue Ocean had an impact there. Two things, wondering, number one, how much Blue Ocean was of the total, and then also, how much FX may have impacted that CapEx number?

The full year impact on CapEx I think is like $10 million, $12 million. The impact of -- in a typical year for us, IT spend usually represents about 50% of the total.

50?

50% yes. That's not just Blue Ocean, but the total IT spend.

What are your expectations for 2012 given your currency comments as well, in terms of spending?

In terms of CapEx spending?

Yes.

It will be a little less than what we spent in 2011 at today's exchange rates.

So like $95 million area?

Let's say between $90 million and $95 million probably.

One last one for you, and maybe you mentioned this, but how many shares did you repurchase in the quarter or maybe for the full year?

For the full year, we repurchased 1.285 million.

There are no further questions. I turn the call back over to the presenters.

Thank you, Shawn. And thank you, everyone for joining us tonight. As always, if you have any questions, please don't hesitate to give us a call. Goodnight.