Enviri Corp (NVRI) 2006 Q3 法說會逐字稿

At this time, I would like to welcome everyone to the Harsco Corporation third-quarter earnings conference call. All lines have been placed on mute to avoid any background noise. After the speakers' remarks, there will be a question-and-answer period. (OPERATOR INSTRUCTIONS) Also, this telephone conference presentation and accompanying webcast made on behalf of Harsco Corporation are subject to copyright by Harsco Corporation, and all rights are reserved. Harsco Corporation will be recording this teleconference. No other recordings or redistributions of this telephone conference by any other party are permitted without the express written consent of Harsco Corporation. Your participation indicates your agreement.

I would now like to introduce Mr. Derek Hathaway, Chairman and CEO of Harsco Corporation. Mr. Hathaway, you may begin the call.

Yes, thank you, very much, Meredith. Good afternoon, ladies and gentlemen. It is a pleasure to welcome you to this conference call to report to you the third-quarter earnings performance of the Company.

I would like to introduce to you Kenneth Julian, who is our Director Corporate Communications; Eugene Truett, who is V.P. Investor Relations, with responsibilities in treasury, also, particularly credit; Mark Kimmel, our Senior Counsel; and Sal Fazzolari, our President and Chief Financial Officer. Before we move any further, Mark, would you care to read to us the Safe Harbor statement, please?

Thank you, Derek. Good afternoon, everyone. As we do before all of our earnings conferences, I would like to remind you that our discussions with you today are likely to contain forward-looking statements. These statements will likely relate to future operations, results, expectations, and other aspects of the future performance of our business. While these statements are based on our best information available today, it is possible that future results will differ materially from what we speak to you about today.

Possible reasons for these differences are many. The most common are listed in our filings with the Securities and Exchange Commission and discussed there. We invite you to review this information at your convenience.

I would also like to remind you that replays and other information related to this call is available at our website, www.Harsco.com. You can also access telephone replays of this conference call by accessing the phone number listed in today's press release. Derek?

Thank you very much, Mark. As reported this morning, we achieved another record quarterly performance. Particularly pleasing are the strong results posted by all three of our key growth platforms. That is Mill Services, Access Services, and Engineered Products and Services.

The main growth engine of our Harsco business, the Access and Mill Services businesses, again set new records for sales and operating income. In addition, both segments reported improved operating margins in the third quarter compared with last year.

There were some important achievements in the third quarter and nine months performance that we would like to highlight for you. Overall sales of the Company in the third quarter grew a very healthy 26%. Strong internal growth contributed 8%; while acquisitions, net of divestitures, contributed 15%. The remaining 3% was the result of positive foreign currency translation.

Similarly, sales of the Company for the nine months of the year grew by a strong 23%. Again, strong organic growth contributed 9%, while acquisitions contributed 14%. Foreign currency translation accounted for less than 1%.

For the third quarter and the nine months, the services businesses accounted for approximately 74% of total sales, a record also for the first nine months of the year. International sales accounted for approximately 62% of total sales, also a record.

Our cash flow from operations in the third quarter remained strong and allowed us to make discretionary cash contributions of $9.4 million to our UK pension plan. Without the discretionary pension contributions of $9.4 million to our UK pension plan -- without the discretionary pension contribution, cash flow from operations would have increased by approximately 6% in the third quarter compared with last year's third quarter, which was a record.

We are also pleased by the contributions of our Huennebeck and Brambles acquisitions. Both investments continue to be accretive to earnings. Noteworthy for the quarter is the 140 basis point improvement in overall Harsco operating margins to 11.4% from 10% last year. This has been and continues to be a primary management objective.

Our overall strong performance continues to validate our growth strategy that is based on constructing a balanced global portfolio of mainly industrial services businesses. Sal Fazzolari will now give you more details on our performance, and then we will take your questions followed by closing comments.

I would make one request of you, and that is that you listen carefully to our comments, particularly the technical differences between quarter four '05 and quarter four '06. Thanks, Sal.

Thank you, Derek. Good afternoon, ladies and gentlemen. It is good to be here with you again today. I would like to start off, talk a little bit about the quarter as well as the nine months, and just comment on some very important aspects of the performance.

First of all, through the first nine months we generated $279 million in cash flow from operations. That is an increase of 20% over last year. This means that in order for us to achieve our 2006 cash flow goal of a record -- and I will remind you, it was $400 million -- we will need to generate $121 million in cash flow in the fourth quarter.

As many of you know, historically we do generate substantially more cash in the fourth quarter than any other quarter. Thus, we are confident that our fourth-quarter goal of $121 million is achievable.

We also realized $11 million in asset sales for the nine months. This, again, gives us confidence that we will achieve our 2006 asset sales target of $15 million.

Consistent with our growth initiatives, as we have discussed with you over the years, we have invested a record $256 million in CapEx during the first nine months of 2006. This is an increase of approximately 23% over last year's nine months. Of that amount, approximately 44% was invested in what we call growth projects. That is principally, again, in our three primary growth platforms, as Derek mentioned earlier. The remaining $143 million was invested in what we call maintenance CapEx. That is the amount of capital necessary to sustain the current revenue stream.

Thus, our cash flow from operations less maintenance CapEx, or so-called free cash flow, was $136 million for the nine months.

Finally, we achieved an improvement in the third quarter in the debt-to-capital ratio. Our debt-to-cap ratio improved to 47.5% -- we are quite pleased with that -- from 50.4% at December 31, '05. That is an improvement or a decrease, if you will, of 290 basis points.

In summary, we are very pleased with the excellent nine months performance. Sales are up 23%; income from continuing operations up 37%; EPS up 37%; cash flow from operations up 20%. Probably one of the most important, as Derek articulated earlier, is we are quite proud of the 120 basis point improvement in operating margins. We have worked very, very hard at this over the last couple of years, particularly.

Even more important is the operating margins for the nine months have improved 30 basis points in Mill Services; 270 basis points at Access Services; and 190 basis points in Engineered Products and Services. So again, a very, very good story there.

This notable growth was achieved with good balance between organic investments and bolt-on acquisitions. We will talk a little bit more about that later.

Now let's turn briefly to the third-quarter performance of each business group. As Derek stated in his opening remarks, our three main platforms did perform extremely well, with higher operating income and improved margins.

Starting with Mill Services, Mill Services' revenues grew by a healthy 36% in the third quarter compared with last year, while operating income grew by 62%, and margins by 170 basis points. As we stated in the press release, the Mill Services growth in the third quarter was well balanced between organic as well as acquisitions.

The improved performance of the group is due to a lot of hard work. Our ongoing focus on Six Sigma process optimization initiatives continues to have a positive effect on lowering our costs -- or at least in some cases, controlling our costs, as well as improving service delivery to our customers.

We are also benefiting from our targeted EVA-based investment strategy that is focused on selective geographic expansion, higher technology services, and key customers. We expect this strong performance to continue in the fourth quarter of this year as well as into 2007.

The industry outlook for global steel, I'm sure you know, continues to be favorable. As we have stated previously, this business platform has very positive characteristics that provide long-term, strategic growth opportunities to us. With our global footprint and our growing portfolio of technology-based services, we believe we are well positioned in a marketplace to benefit from favorable global steel production.

The third-quarter performance of the Access Services business was again broad-based. All three divisions -- SGB, Patent, and Huennebeck -- continued to make a strong contribution to the improvement in revenues, operating income, and margin expansion.

Strong revenue, operating, and margin growth was achieved in the third quarter. Margins improved by 200 basis points to 12.7% from 10.7% last year. This is now the 10th consecutive quarter that margins have improved in Access Services. It is certainly one of the best quarterly performances for this segment.

The Access Services growth in the third quarter, just as with Mill Services, was also well balanced between organic growth and acquisitions. Operating income and margins were positively affected in the third quarter of 2006 due to a positive net $2.5 million pretax income resulting principally from a gain on disposal of assets. Last year's third quarter also benefited by a $1.6 million pretax gain on the disposal of assets. Without these asset gains, margins were 11.8% in 2006, and that is still an improvement of 200 basis points over 2005.

We expect the strong operating performance to continue in the fourth quarter of this year as well as into 2007. Please recall that the fourth quarter of 2005 contained a $3.6 million pretax gain from the sale of the Youngman manufacturing business in the UK.

The industry outlook globally for nonresidential construction and industrial maintenance in our key markets, for the remainder of this year as well as next year, continues to be very favorable. We expect a strong market, coupled with targeted investments throughout the globe, should continue to provide the momentum to move our Access Services business forward.

Finally, we expect to achieve a major milestone in 2006 in our Access Services business. The business should surpass the $1 billion revenue mark this year. This is an important achievement considering that just six and a half years ago, prior to the SGB and Huennebeck acquisitions, this business was doing about $150 million in revenues.

Moving on to the Engineered Products and Services, this group again posted another record performance in the quarter, with all business units achieving improved results. Strong end markets contributed to the excellent performance. Third-quarter margins improved by 300 basis points to 17%, the highest in the Company, from 14% last year. This is the best-ever third-quarter performance for this group, with every business unit achieving higher operating income.

All businesses, other then HTT, also achieved higher revenues. Although sales for HTT were down slightly due to the strategic repositioning of the business to more services, as we have been telling you all along, margins more importantly have improved.

While the outlook for this group continues to be favorable, we do expect that the fourth quarter of 2006 performance will be lower than the record fourth quarter of 2005 due principally to three items. These include the timing of orders and deliveries at HTT; the positive effect that Hurricane Katrina had on IKG's performance in 2005's fourth quarter; and generally higher commodity costs today versus last year.

HTT's results continue to be better balanced as the business model migrates more to services. However, on a comparative basis, results will be lower in the fourth quarter of 2006 due to the timing of orders and deliveries of the services.

Last year's fourth-quarter results at IKG benefited greatly from higher sales due to Hurricane Katrina. While we continue to support a broad number of Katrina-related reconstruction projects, the surge of last year's fourth quarter is not expected to be repeated in the fourth quarter of this year.

Finally, compared with last year, higher commodity costs, particularly steel, are expected to have a negative effect on operating results, mostly at IKG.

Our final group, the Gas Technologies segment’s performance declined over last year's third quarter, due principally to reorganization charges of approximately $4.4 million. Operating margins declined to 2.2% for the third quarter from 5.3% last year. Without the reorganization charges, margins were 6.4% in the third quarter, 110 basis points higher than last year.

We continue to believe that this group's performance will improve. The new management team is positively affecting the business and moving it forward. The recent reorganization actions should put this business on a more solid footing.

In addition, strong backlogs with better pricing across many product lines, and the expected strong performance from the two largest business units in this segment, further underpin our expectations for improved results in the future.

In closing, I would like to comment on our expected performance for 2006. 2006 is unfolding extremely well for Harsco, and much as we had anticipated, with strong performances from Mill Services, Access Services, and Engineered Products and Services. These three groups underpin another year of double-digit growth.

Gas Technologies continues to make slow but incremental progress as our turnaround efforts begin to take hold.

Our excellent performance through the first nine months give us confidence to again raise our earnings guidance for 2006 from a previous range of $4.32 to $4.42 per share, to a new range of $4.49 to $4.51. The midpoint of this guidance reflects an increase of 21% over 2005.

As we stated in the press release, 2005's results benefited from a onetime tax benefit of $0.15 per share that occurred in the fourth quarter. Without this onetime tax benefit, the midpoint of our full-year guidance reflects a 26% increase in earnings per share in 2006 over 2005.

I would add also like to further remind you that last year's fourth quarter also included a $3.6 million pretax gain from the sale of the Youngman manufacturing business. Without nonrecurring items that have been previously reported -- for example, the onetime tax benefit and the Youngman gain -- fourth quarter of 2006 EPS is expected to be above last year's fourth quarter.

This is being driven by the continuing strong performance of both Mill Services and Access Services. Their performance should more than offset the lower expected performance of the Engineered Products and Services group.

Finally, by any measure, our 2006 performance will be a significant accomplishment in and another milestone in Harsco's continuing long-term growth. That completes my comments, Derek.

Well, thank you, Sal. Even I feel good about that. We will now take your questions if we may, please. If there are any.

(OPERATOR INSTRUCTIONS) James Gentile with BB&T Capital Markets.

Derek, I have a philosophical question for you with regard to MultiServ. The combination of Arcelor-Mittal and the potential combination of Tata and Corus, among your largest roster of customers, seem to be transforming the global steel industry.

How is this -- how are we to look at the combinations of these large steel powerhouses and its effect on MultiServ's ability to gain appropriately priced long-term contracts?

I think as far as we are concerned, you should look upon that as favorably as you -- your view of the Company should not change. In this respect, that before Mittal merged with Arcelor, each of those companies independently contracted with us in many mills around the world to provide their services.

So that their mills, geographically differently positioned, they also have long-term arrangements with us. When they merged, those long-term arrangements continue. Of course, Mittal know us well, and they are a fine company. Arcelor know us well and they too are a fine company. Well-managed and clearly demonstrating they are powerhouses in the steel industry.

Our negotiations, frankly, although there is no doubt that they are supported by central purchasing people who need to know what goes on, these negotiations go on locally in the countries. We are not at all discouraged, but rather encouraged, by the fact that with the central overriding oversight of the various purchasing efforts of these companies, and well-managed sites internationally, we don't see any discomfort in that.

As for the Corus-Tata deal, which you mentioned specifically, Tata as you know are a private company in India. We had lots of experience with the steel authority of India Ltd. previously. We don't do any work with Tata in their Indian operations. But clearly we do at the old British Steel and Hoogovens, when they got together to form Corus. That relationship, frankly, has gotten stronger rather than weaker. The merger in no way discouraged them.

So as they get bigger, they don't mind us getting bigger. They know we are the premier supplier of these mill services around the world. They know that our ability to operate our business in a mom-and-pop shop way in terms of price competitiveness and the provision of the services makes us competitive. They also know that these long-term contracts we have with them, where we bring to them technology, which Sal has emphasized, the ability to produce for them a dollar value proposition, which is helpful to them and certainly enables them to make their steel more competitively.

It deals with their environmental issues, many of which are created on-site, and our technologies deal with those. We have processes, obviously, which we offer to them which enable them to not only produce efficiently and less costly, but also enable them to add value to the proposition. They can sell their steel more expensively if we have something to do in certain of the processes.

So we are confident in our ability to continue to serve these people. It is a two-way relationship. They put a great deal of trust in us to remain competitive. Their security, of course, is in the long-term pricing that we enter; and we have to watch our costs carefully.

As you know, there has been a slow but inexorable increase in our costs, not our prices, but in control of our costs. We continue to extract greater profitability out of this business over the long term because of the leverage we get.

As the business grows, that leverage, and the economy of scale, and the control of our fixed expense in our administration, and the growth of our revenues, and the control of our variables -- each of those will, we believe, continue to enable us to at least maintain our margins in this business and still serve the companies that we serve.

So we think our business model here is excellent for our customers. Because they are keen purchasers, but we are also excellent suppliers of these services. They get a marvelous dollar value, and we make money and create value for them and for our stockholders.

We like this model, obviously. We have invested a lot of money. And these mergers do not discourage us at all, but rather they encourage us. That is probably more than you expected to hear, but it does give me an opportunity to expand for those people who may not be so well versed in why we are in this business. That may have helped a little, I hope.

Sure. Sal, with regard to the CapEx, it seems to me that Q4 may come in a little light from a CapEx number with regard to your longer-term -- with regard to your 2006 CapEx guidance. Are we still looking for $300-ish million in CapEx?

We are. As you saw for the nine months, we were at $256 million, roughly.

(multiple speakers) So we are on point to kind of exceed that?

Yes, I think we will exceed that at the rate we are going now. Again, I think that ratio of about 45%, roughly, in growth investment will hold for the remainder. That has been consistent with last year, if I remember (multiple speakers). So that is a good number to use.

Great. Then looking out over the next couple of years, when do you expect -- do you expect to maintain this $300 million level? Or is there going to be an inflection point through '08?

Analytically, you know, we are growing. So (multiple speakers) as we continue to grow the amount of maintenance CapEx will continue to go up, to sustain that base of revenues. Okay? So keep that in mind.

Then because we do generate a lot of free cash, if you will, after maintenance CapEx, there is no better place in our view to put it than in growth. Right now if you look at our Mill Services and our Access Services businesses, we see a lot of opportunities in the next two, three, four, five years. So there's going to be plenty of places to put the money.

Great. So your bias for free cash flow is certainly for the growth CapEx lever versus perhaps debt repayment or share repurchase?

Our debt, first, we do keep a very close eye on debt. As you well know, we have always been very responsible there and so forth. We are right now 47.5%, debt to cap. That is not bad considering the amount of money we are investing in the business, that is actually pretty good.

Certainly, I am just wondering if I can raise my '08 free cash flow number to $250 million. That is all. Take care. Thanks.

Jeffrey Hammond with KeyBanc Capital Markets.

Derek, Sal, I listened very closely to your good explanation on Engineered Products. That is helpful.

But what I wanted to better understand is just, from a magnitude standpoint, how much are we looking at in terms of a year on year decline?

Then how should I think about the margin mix given that, I guess, with Track coming off year-on-year and being lower margin? Does that have an impact of enhancing the margins, or should we look at margins down as well?

I think the margins will be down, slightly, yes, because of the impact that you're going to see there. But suffice it to say it is a pretty sizable decline. We are expecting 20-plus-% decline in operating income of the Group.

Okay, so if I assume a little bit lower margins, you get maybe a slightly lower decline in the revenue than the 20%?

Right, right.

Okay, okay. That's helpful. Diesel costs have been a big headwind in Mill for sometime; and you have been calling those out. Has that started to reverse at all?

No, actually in the fourth quarter, we didn't even mention it. It was still negative a couple million dollars.

Third quarter still negative a couple million?

Yes. It takes, you know, six months to really start having any effect. Given the number -- you saw, it is up to what? $62 today. I mean, the fuel prices are so volatile that it would have to be at a lower level for a long -- for a sustained period of time to have any kind of significant effect.

Great. Then, in terms of -- our steel analyst has been talking about some planned shutdowns moving into the fourth quarter. You mentioned in your prepared remarks continued strength in Mill into the fourth quarter and '07. I just wanted to understand how you are thinking about those announced shutdowns.

Well, we factor that in all the time. If you historically look back -- and granted they are a little more disciplined now, a little more methodical about it, because the people that run these steel mills now are very professional people, very competent people.

But having said all that, if you look back historically, we have always accounted for and expected those events to occur. We factor that into our guidance and so forth. So we always expect outages. Again, it plays to the strength of the services and the geography and which customer you are at. So where you invest this money is very critical in this business.

Okay. Then I guess finally, and maybe going back to Engineered Products, phenomenal margins in that. You said up 300 basis points. Was there any --? You said all of them were up, but was there one really key driver or a couple businesses? Or were they all up similar magnitude?

It was one of those times where you, quote unquote, you hit on all cylinders. We hit on all cylinders here. Every single business just was maxed out production-wise. They did very well.

Okay, thanks for your help, guys.

Curtis Woodworth with JPMorgan.

Congratulations on a nice quarter. As you look across all your business segments, and you have had very nice margin recovery going back the last few years, where do you see the areas where you have most opportunity to improve margins in the Company going forward?

The principal engines of growth, as I mentioned in my opening comments, are still going to be on Mill Services and our Access equipment groups. That, as I have said to you, will be a function of the top-line growth, the fixed cost base control, and the delivery of the services.

It is an economy of scale business. We believe that the bigger it gets in a controlled way, then the more opportunity there is for margin improvement. As Sal has said, it is also -- these two areas are the two main areas for investment opportunity too.

So that is where we see the continuing growth of our business. But to understand that, please try to understand the business model. There are plenty of people out there that are Harsco wannabes. They think they are competitors of ours, when in fact they are not. Their financial performance is not the same as ours, because they are not conducting business in the same way, although they profess to be when they market themselves.

So look at the model, look at the success, look at our strategic objectives, and that will give you a clue as to what we are confident presently that these businesses have legs.

Okay. In terms of the economies of scale in the businesses, if you look at the Mill Services business and the utilization rates in the steel industry for the last week hit the lowest point since August of '05, at around 83%. If utilization rates in steel were to go down, do you feel that other areas of the business you could offset that and still get margin improvement?

I will respond this way, that certainly I think you may have been looking at the U.S. utilization rates.

Right.

For the reasons that Mr. Hammond kindly pointed out, where there are one or two fluctuations here; and production, perhaps control, through real professional management of the steel mills. But I would remind you that we are 20% in the USA and 80% outside of the USA. We are a world player. We are in 160 steel mills around the world.

Our risks against this kind volatility are very minimal. We are spread in terms of the minimum kind of investment level. What we try to do in the way we strategize is to spread the risk against the very questions that you have in your mind.

Because clearly, if you can think about it, it is our job to have thought about them a long time ago, and to recognize what the vulnerabilities are, and to strategize and build a business -- which obviously, no one can build a business that is totally immune to all of the vicissitudes of life. But certainly, I think we can try to understand where the risks are and on behalf of our stockholders mitigate against those risks.

So that is what we try to do. The geographical diversity, the multiplicity of customers, the fact that we offer so many services -- which in fact, if a mill stopped production for a while, a number of those services which are not directly production-related, but may be related to the maintenance of the mill whilst the shutdown is taking place. Invoices are still going out.

The services we offer are wide. The customer base is wide. The geographical base is wide. Therefore, as Sal has said, we kind of factor those things into our thinking when we make public pronouncements as far as the future is concerned.

Okay, great. Then on Gas Technologies, if you exclude the charge you had very good margin improvement. How close are you to getting that business to where you want it to be? When you do reach that point, is that a business you think you might look to divest?

You know, as I have said publicly in the last couple of years, I have gone around, met many of you face-to-face, if not all of you. We clearly -- I get a D -- if we get an A+ for much of what we do, I get a D for this one.

Because certainly I became very impatient with the progress that we made up until about nine months ago, and we are making on this. You're aware that I made very serious management changes and got very much involved personally.

Before we consider the future of this company -- so I am not prepared to go public on divestitures or whatever -- I need to be satisfied that we are doing the best for our stockholders in the existing situation. I can assure you that I personally am trying to do that.

Management changes, product rationalizations, cost reduction efforts are all beginning to work. Charging what we deserve to be paid for what we do in a highly competitive market. All of these are featuring presently in our efforts to produce a better business.

We are in the incipient stages of reaping some of the rewards of that. I believe that as we go, certainly into 2007, the prospects for a better year, which of course will certainly support the overall EPS targets for 2007, and underpin that. They look encouraging to me.

(multiple speakers) That is where I'm at. I have tried to be very frank with you. Disappointed personally, disappointed for the Company, but certainly working very, very hard now to get some shorter-term results from there.

Okay. One final question on the Access business this quarter. Sequentially the revenues were up about $9 million; but the margins were down sequentially about 180 basis points if you take out the $2.5 million pre-tax gain. Can you just address that? Was it a mix issue, a cost issue, or just a tough comp?

It is just a mix. Don't forget, too, in Europe the month of August there is considerable slowdown. So you have got all kind -- there's all kind of factors. It is nothing systemic or anything like that.

That is why it is very important in this business that the year-over-year comps are more important than the sequential comps. Okay? That is how you have got to view this business.

Second quarter is clearly the best quarter for this business, bar none, because that is when the best weather, the best everything. You don't have all the holidays, you don't have the weather, you don't have this, you don't have that. It is by far the best quarter for a lot of reasons.

So you’ve really got to look at it a year-over-year, not sequentially. It is one of those businesses that (multiple speakers).

If sales were up sequentially, (indiscernible) third quarter would be better? Or are you saying that the mix of business is much different in the third quarter owing to the weather? That is what I'm trying to figure out.

There is a difference in mix of business when certain types of industrial maintenance, for example, takes place, a certain type of formwork takes place, and so forth.

Yes, okay. Great, thank you.

Yvonne Varano with Jefferies.

You talked about backlogs and pricing in the Gas Technologies side. I was just wondering if you could give a little more color whether that is in specific products, and whether that has been raw material driven on the pricing side. Just a little more color there.

You know, we are into five different businesses in our Gas Technologies business. We have SCI on the West Coast. We have American Welding & Tank. SCI is a specialist business, supplying gas containers for high-tech stuff.

We have American Welding & Tank, which is as you know a manufacturer and a refurbisher of new propane tanks, and refurbisher and service business for exchange tanks.

We have our cylinder business, high-pressure cylinders. We have Sherwood Valve Company; and I guess that is it. I think I have mentioned all of the component parts. And our cryogenics business -- I'm sorry, I am reminded by Ken Julian -- our cryogenics business.

The weakness of the Gas group has been the Sherwood valve business and to a lesser degree SCI, special tank business. SCI, for reasons of research and development, where we continue to pump money into researching products for the future. Obviously, we expense that money and that is it.

But more focused is our SCI business -- our Sherwood valve business, excuse me, where certainly a dependency upon brass and the commodity prices, a previous dependency on products that were high-volume, and also brass and no-margin products really affected the performance of that company and therefore the performance of that division as a whole.

Cylinders, propane, and cryogenics all have very full order books and are doing very well. SCI, mediocre. Valves, not at all well. That is where we are focusing our attention.

A modest upturn in the fortunes of the valve division of that group will in fact be a tremendous boost. Given the proportionality, a tremendous boost to 2007 performance. That is where we are working, and I hope that helps you in your evaluation.

Yvonne, the propane and the cryogenics business account for about 60% of the revenues of that. That is really the driver or future driver of that business. They are by far the two most stable businesses and less prone to commodity risks and so forth, although steel is always a factor with these two businesses.

The backlog, particularly in cryogenics, is at all-time record levels right now. They are going to have a very good 2007.

The propane business is the steadiest business. If you look at that business for the last 20 years, it has pretty much worked within a certain band and so forth. So they are both very good businesses. We have good management there, and they will perform very well.

As Derek said, we are overcoming the problems in and valves and composites and to a lesser extent in cylinders, and so forth. So we are very optimistic about the changes we made and about the backlogs, which do have much better pricing in many regards and so forth.

On the cryogenic tanks, you said that is at record levels. What is driving that up?

Just global industrial gas demand. I mean, you know, it is global. This is the only global business we have in the Gas group. We have operations in Asia, Europe, U.S., it is well balanced. And it is Air Products. It is Praxair, Air Liquide, BOC, you name it, it is all the large gas companies, and that is where the demand is coming from.

On the valve side, I thought at one point that we had an inventory issue there.

No, there has never been an inventory issue. It is really like Derek said. It has been the commodity nature of the -- particularly brass has just been all over the place. It has played havoc with the numbers, with the margins.

Okay.

The charge which we referred to in this quarter, I would remind you, a $4.6 million charge, and we still had a very good quarter, as you can see. The $4.6 million charge is very much an indication of my and our determination to sort this out.

Somebody has asked earlier about I guess keeping Gas Technologies as a business in the Harsco portfolio. I know you answered that. But just wondering if, when you look at Gas and some of these underperforming businesses, whether we could see you continue to review the underperformance and see some divestitures of just parts of that business.

Well, I think that is a rhetorical question. I am taking that as a piece of advice, not a question, which obviously we will consider. Thank you.

Thank you.

Thank you. We really appreciate your interest, obviously. And grateful for stockholders' and analysts' views about what we do. That is one of the benefits of this kind of dialog, and the benefits of the conference call to us. We don't underestimate the fact that not only are we giving, but we are receiving, too.

(OPERATOR INSTRUCTIONS) At this time, there are no further questions.

Okay. Well, thank you. I think enough has really been said about 2006. We clearly as a senior management team are focusing ourselves on 2007 now and continuing strong end markets, demand thereof, coupled with the benefits of our global portfolio of businesses. It really does underpin our confidence for a strong 2007.

I want to take a moment to thank those of you on today's call who have followed closely our successful transformation of our business over the years; and who have shared our enthusiasm for Harsco's gathering momentum as we execute our strategies.

I think the consistency of our quarter-by-quarter progress should serve as evidence of the way in which we continue to deliberately and patiently build a Company possessing the intrinsic qualities and characteristics which encourage investment.

Our expanding geographic footprint, now 45 countries strong and comprising an appropriate blend of established major markets, as well as emerging sectors, gives Harsco an unusual degree of operating balance between domestic and international interests and markets.

We are dependent on no one central bank, economy, or currency, for our activities, thus affording Harsco a high degree of financial stability as well as flexibility. Our substantial cash flows enable us to maintain a strong and healthy balance sheet, adequate for the needs and obligations of our continuing growth, while also providing immediate and consistent dividend rewards to our stockholders.

Through our relationship with the leading market players in the major industries we serve, we have sought and earned a greater involvement in better margin service activities, while securing a predictable and stable platform of long-term revenue generation.

Through our successful execution of these strategies, we are wrestling to the ground the issue of cyclicality, which does disrupt more concentrated and geographically limited businesses.

In each of our more than 400 operating locations worldwide, we seek to invest on the ground to create modern, well-run businesses that are conducted with integrity and fairness, and which bring meaningful value and contribution to the local and national economies in which we operate, as well as to our stockholders.

I encourage you to consider joining us for our annual investor conference in New York City on December 8, where the senior managers of Harsco's global businesses will give a detailed assessment of our growth opportunities and our future strategies, within the context that I just outlined. Our President and CFO, Sal Fazzolari, will discuss the financial underpinnings that continue to support Harsco's strategic growth initiatives.

In the meantime, we look forward to seeing you, or talking to you at least, directly through our regular investor relations program, or to seeing you in December. If not, we look forward to talking with you again soon after the start of the new year, to report in detail the record 2006 accomplishments which we are excitedly very happy about.

Thank you very much for your attention today. If we can expand with you on any of these items, I'm sure you will not hesitate to be in touch with us. From all of us to all of you, thank you again.

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