Enviri Corp (NVRI) 2007 Q2 法說會逐字稿

Good afternoon. My name is Latonya, and I will be your conference facilitator. At this time I would like to welcome everyone to the Harsco Corporation second quarter release 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 session. (OPERATOR INSTRUCTIONS). Also, this telephone conference presentation and accompanying webcast made on behalf of Harsco Corporation are subject to copyright by Harsco Corporation. All rights are reserved. Harsco Corporation will be recording this teleconference. No other recording or redistribution of this telephone conference made by any other parties 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 your conference.

Thank you, Latonya. Good afternoon, ladies and gentlemen, and welcome to this second quarter conference call. With me today are Ken Julian who is our Director of Communications; Gene Truett, Vice President of Investor Relations. Today we have with us also for the first time Steve Schnoor who is our Corporate Controller; Mark Kimmel, who is our Chief Legal Counsel and Corporate Secretary; and Sal Fazzolari who is our President and Chief Financial Officer and Treasurer. Before we begin, Mark, would you read to us the Safe Harbor statement please?

Thank you Derek and good afternoon everyone. Let me just take a moment to remind you that our comments today, including our responses to your questions, are likely to contain forward-looking statements. These statements relate to the future of our business and may address our operations, results, economic expectations and other aspects of or factors affecting our business. Our statements made today are based on the best information currently available to us. Future results could differ materially from what we tell you today.

Possible reasons for these differences from our statements today may be because of the occurrence of one or more factors which we list and discuss in the periodic filings which we make with the Securities and Exchange Commission. We invite you to review this information at your convenience. I also would like to remind you that replays of and information relating to this call are available at Harsco's website, www.harsco.com. You can also access telephone replays of this call by dialing the numbers provided in this morning's press release.

Thank you, Mark. As reported this morning, we achieved another record quarterly performance. That concluded a strong and well-balanced first-half with diluted earnings per share from continuing operations up some 42%. Before I turn the call over to Sal to give you more details on our second quarter and in anticipation of a question later, I would like to provide an update on the status of the divestiture of our Gas Technologies segment.

When we started the divestiture process, I had three objectives. One was to find the right home for the business. Two, at an appropriate price. And three, to complete the transaction in the third quarter. And I still remain optimistic that this can all be accomplished. Fortunately the stronger operating performance of the Gas Technologies segment has shown substantial year-over-year improvement, and it has certainly helped the process along.

Sal, would you now give more details on the performance of the continuing operations for the second quarter? And after that we're going to take questions, and followed by any appropriate closing comments. Thank you, Sal.

Thank you, Derek. Again good afternoon, everyone. It is certainly a pleasure to be here with you today. We are obviously pleased with our second quarter performance, which included record sales, income, diluted earnings per share and record operating margins. For the first six months of 2007 we are particularly pleased with our EVA improvement, as well as our return on capital improvement. In fact, the return on invested capital for the six months improved by approximately 180 basis points, and EVA is substantially ahead of our target, and we are, of course, well on our way to another strong year of EVA improvement and further value creation for our shareholders.

Now let's examine the second quarter results a bit more closely. Overall the second quarter operating margin for the Company was a record 14.4%. That is 180 basis point improvement over last year's 12.6%. Even without the asset gain of $3.2 million in the Minerals and Rail Technologies group, overall margins for the Company would have still been 14%, which of course is a record. And 140 basis point improvement overall.

Margin improvement, as you well know, has been and continues to be one of our primary objectives. As we have stated in previous conference calls, the continuing overall strong performance of the Company is underpinned, we believe, by a well-constructed and well-balanced global portfolio of mainly industrial services businesses. We believe that the second quarter performance manifests this especially well, and we will comment a little bit more on this later.

Sales for the second quarter, grew by a healthy 24%. What is very pleasing about this is that organic growth contributed a solid 10%, while acquisitions net of divestitures also contributed approximately 10% and foreign currency translation accounted for the difference. As I said, we're very pleased with the organic growth, and the fact that each, the balance between organic growth and acquisitions. This again speaks to what we've been saying and have said earlier, as well, that we can grow and continue to grow both organically and with acquisitions. So it is the balance factor.

For the quarter our industrial services portfolio accounted for over 85% of total sales while international sales accounted for almost 70% of total sales. Moving on to cash flow, cash flow from operations for the second quarter, very healthy, a record as a matter-of-fact, $155 million. And this compares well with the $114 million last year which is an improvement of about 35%. We do remain confident of hitting our cash flow target, which I remind you for 2007 is $445 million.

As I stated earlier, a particularly pleasing aspect of our second quarter performance was the operating balance that we achieved in our three business platforms. Excluding the small asset gain that I mentioned earlier, operating income for the Company in the second quarter was around $133 million. Access Services contributed 37% of the total operating income excluding this gain, while Minerals and Rail Technologies contributed 36% with the remaining percent coming from Mill Services.

We are obviously quite pleased with this balance because, again, it validates our strategies for developing a well diversified and well-balanced global portfolio of businesses. Consistent with our growth initiatives, we invested a record $201 million in capital, or CapEx, in the first half of the year. This is an increase of approximately 21% over last year's $167 million. Importantly, almost half of this capital, or about $97 million, was invested in growth initiatives. With the remaining CapEx, of course allocated to sustaining the current revenue stream. A point of interest, approximately 75% of that growth capital or about $73, $74 million, was allocated to our fast growing Access Services business. And that is a significant shift but it is also consistent with what we've been saying about the opportunities and the growth prospects in this business.

Our debt to capital ratio decreased by 220 basis points during the quarter to 50.4% from 52.6% on March 31, 2007. So with our expected free cash flow for the year augmented by the anticipated proceeds from the sale of our Gas Technologies business, we expect our debt to cap ratio for the year to moderate while at the same time we are confident that we will be able to continue funding our global growth initiatives. Again in a balanced way from both acquisitions as well as organic projects.

Let's briefly examine the second quarter performance of each business unit, or each segment starting with Access Services. We do continue to be particularly encouraged by, again, the balance and strong operating results of our global Access Services business, which again set new records for sales, operating income and margins. The second quarter performance was broadbased as it has been consistently in the past quarters and above already strong expectations for the quarter. We were especially pleased with the excellent 20% organic growth of this business in the second quarter.

Operating margins in Access improved by 10 basis points to a record 13.7%, and the industry outlook for nonresidential construction, infrastructure build and industrial maintenance in many of our key global markets continue to be very favorable. Also, as you well know, we're very committed to expanding this business across the globe. We view the Access Services business certainly as an excellent vehicle for sustained growth over the long-term.

Moving onto the Mill Services business, the Mill Services business performed, we believe, relatively well in the second quarter considering the negative effect of higher maintenance costs, lower steel production in North America and poor weather conditions in the UK. Also, higher administrative costs were incurred as part of our enterprise-wide business optimization initiative. As part of that initiative we are investing in upgrading technology, people and facilities to better position the business for the future. That is, hence, optimizing the business. It is important to note, however, that the main drivers to those lower quarterly results for Mill Services were the production outages and the unusually high maintenance costs, and some of these maintenance costs were incurred due to timing issues.

We remain optimistic that the Mill Services business will gradually improve during the second half of the year. Furthermore, we should see this business return to its more historical growth performance in 2008. The expected improvement in 2008 is underpinned by our continued focus on again, business optimization initiatives; improved production, steel production that is, at certain key locations throughout the world, particularly North America; lower year-over-year maintenance costs; and the startup of new contracts.

The Minerals and Rail Technologies group has, as I'm sure you've seen from the press release this morning, posted an outstanding second quarter led by Excell Minerals and Harsco Track Technologies. HTT actually, led by its growing contract services business, posted a record quarterly operating income growth of approximately 58%. HTT, Reed Minerals and IKG all posted record second quarter operating margins, which made a significant contribution to the second quarter results. Again, as we repeated a couple times here this morning, this afternoon I should say, included in this year's results was a $3.2 million pretax gain from the sale of an asset. Without this gain the second quarter operating income for the group was still up about 115%, and margins of 23.1% would have been up some 860 basis points over last year.

We stated, as you may recall, during the first quarter conference call that we expected that Excell Minerals would make a further and growing contribution to the group's results in the second quarter. Excell's second quarter performance did just that. In fact, their actual results significantly exceeded our expectations. The excellent second quarter performance of Excell is attributable to several factors. These include volume, strong volumes or record volumes, however you want to characterize it due to extremely strong customer demand for Excell's high-value materials. Favorable market prices were also a factor.

During the entire quarter Excell's major processing locations operated at maximum capacity. That is, they were running essentially for the entire quarter at 24/7 which is highly unusual for any operation. While this second quarter performance is unlikely to be repeated in the future, we expect Excell's performance in the third and fourth quarters to return to more normal activity and profitability and still be solidly accretive to earnings. Both the short and long-term outlook for the Minerals and Rail Technologies group is favorable, and we expect year-over-year improvement in sales, income and margins during the second half of 2007.

As we stated in the January and April conference calls, the announced divestiture of Gas Technologies would not be dilutive to earnings in 2007 for several reasons including, as you may recall, we stated a positive outlook for our global Access Services business, as well as we expected accretive results from the Excell Minerals acquisition. Obviously both of those have come true.

Based on our continuing strong markets and our encouraging global growth opportunities that we see, we are again for the second time this year, raising our EPS guidance from continuing operations for 2007 from a range of $2.69 to $2.74 to a new range of $2.90 to $2.95. Using a midpoint of guidance, this represents a year-over-year improvement in diluted earnings per share of 32%. I think this is very important, that this will be the fourth consecutive year of significant EPS growth for the Company. In fact, close to the 30% range for the four years.

Our outlook for the third quarter of 2007 from continuing operations is for another record quarter. Diluted earnings per share from continuing operations are forecasted to be in a range of $0.78 to $0.80 compared with $0.64 in the third quarter of 2006. This will represent an increase of about 22% to 25%.

I would like to make one final point now before I turn the call back over to Derek. Just to repeat what I think Derek has been saying I think almost every quarter now, and that is that you have a management team here that is well focused on executing its strategic objectives in a disciplined way with the goal, of course, of value creation for our shareholders over the long-term. I thank you for your attention.

Thank you, Sal. We will now be happy to take any questions that you may have regarding the aforementioned comments.

(OPERATOR INSTRUCTIONS) Jeff Hammond, KeyBanc Capital.

I just wanted to drill down into the new segment reporting, Rail and Minerals Technologies. And obviously a number of moving pieces there and exceptional performance from a couple of businesses. But I guess I just wanted to understand on a go forward basis, if you kind of normalize some of the business performance out, how we should think about profitability, margin performance in that business going forward? Because even if you exclude the gain you were north of 20% and I think this segment -- if you look on a historical basis was never really higher than kind of mid, high teens.

Well, Jeff, you have three major dynamics going on there. First of all, of course, Excell, as we said tends to be a little higher margins than our traditional Mill Services business, so you have that factor. Number two, HTT, as Derek has repeatedly said for I know for years, we've been working very hard on changing the business model there: more to services, more globalization and so forth. That is starting to manifest itself now in the numbers. That is going to be a driving force going forward. The third thing is we've been also quietly changing the business model of Reed Minerals, and that is starting to show some effects on the margins, as well. Then you add in IKG, which continues to outperform from both the margin and income standpoint. Air-X-Changers is doing the same thing, and what you have there is really a recipe for higher margins and higher income.

So if the historical run rate was kind of low double-digits, and we assume that maybe the 23% is too high, what is a reasonable run rate?

23% is definitely too high because of the factors we said about some of the unusual, particularly the quarter that Excell had, is not likely to be repeated. I would think certainly it's going to be in the teens, and it certainly would probably be in the high teens, but we don't know. It's sort of like what we said on Access Services. We are not sure exactly where the margins are going to finally end up. I think we've been saying that publicly; well the same thing I think would apply here. This business is still unfolding, developing, growing, expanding and the full impact of the work Derek has been doing on HTT and some of the other businesses, we still don't know. The good news is we certainly do believe they are going to move up from historical positions.

And as you've kind of rolled Excell in and kind of cross fertilized their customer base within yours, what is the timing for when you really start to see maybe some revenue synergies of bringing that business in? Is that starting to show through immediately, or does that take a little bit more time?

No, Jeff, it is in the early stages of integration. And as Sal has said in his comments, 24 by 7 for the quarter on a stand-alone basis, doing as well as it has done in the early stages of this acquisition, then there is more focus on pleasing the customer and getting the material out. And with those kind of activities there is a lesson you will appreciate, there is a less urgent need to start to extract synergies when, in fact, things are going well. Of course those synergies will be taken care of over time as we see them becoming necessary.

And the reason for not including it in our Mill Services operations but more closely aligning it to other minerals activities that we have is that we will just wait and see how this performs before we make any judgment, long-term judgment as to where the suitable home might be. Suffice it to say that we are very happy with the acquisition and the way that it is performing presently. And with what we know, not what we feel, but what we know about the business and about that group, it's orderbook status long-term, its positions in the marketplace, the optimization programs that are taking place, we certainly see a continuation of businesses that do enjoy the kind of margins which are necessary to continue to reinvest in those activities.

But the word I think is optimization here. The reason why the margins are up as well is that everybody in these divisions is working very, very, very hard to contain costs. There is always a great temptation, of course, when revenues expand and earnings start to develop, to take the new -- to take the Company to a new stage of administrative expense. Well, that to us is probably not the best way. Let's maximize and optimize. Let's stretch. Let's cope with production and management resources and then see where that takes us before we make -- take any further steps to increase our expenses. So I think the people in those divisions need to be thanked and congratulated for what they do and how they are doing it. And they are setting a great example, I think, in terms of what makes a successful business and what actually does produce margins.

Final question. Sal, how should we think about CapEx on a full-year basis and the split between growth and maintenance?

That's easy, Jeff. It looks like right now that we probably will be right around $400 million for the year, and roughly 50/50 because there are still a lot of opportunities in all the businesses as we redeploy -- and we can tell from the backlog of orders and those kind of things. So it will probably be roughly $400 million.

And remind me the original expectation.

I think the original expectation was about -- originally it was about $325 (million), I think, and then we upped it to about $350 (million); but now it looks like it is going to be closer to the $400 (million) mark.

Okay.

Probably about $190 (million) going to growth, roughly.

Thanks so much, guys.

Curt Woodworth, JPMorgan.

A couple questions on the Mills business. You look at the margin performance this quarter, can you help us isolate what you would view to be kind of the onetime nature of negative impact on the margin side? And in terms of some of the investments that you are making in terms of upgrading technology, personnel, is that -- should we view that as somewhat of a sustaining cost issue? And how do you see margins trending in the back half of the year?

The maintenance margins were, in view of the problems of production caused by some degree of flooding and one or two closures which were brought forward by one or two of the (mills) and they closed the production lines for maintenance themselves earlier than was normally anticipated. It is normally a July, August, or September deal. They brought it forward to quarter two because of their own requirements and circumstances. We did the same, and so I guess some of the maintenance expense that we would normally expect in quarter three and quarter four was brought forward to quarter two. So that was -- but that's insignificant in the whole context of the Mill Services group.

There was a special consideration for our withdrawal from a country where reserves were required, a planned exit, something that I asked to be done about 2.5 years ago in a country which has been in the headlines recently, south of our border, a little further south of Mexico. And we took a decision to move out 2.5 years ago, and there was a final closure exit expense there in excess of what we had already reserved for, which is obviously non-recurring.

And finally, there was a matter of a slightly more sensitive nature which I don't want to talk about amounting to about a couple million dollars where we invested and expensed in the future. That is how I would put it. It was an investment which we took but we decided to expense the amounts. So there is a total there of about maybe $3.5 million in let's say kind of one-off items, which would I think lead you to believe that we are not concerned at all about the historic margins, the present margins and the future margin potential of the Mill Services business.

In terms of the guidance for the second half of the year in Mills you said that you are going to see some improvement year-over-year and I assume that is both on top line and on an EBIT basis.

Yes, you are going to see some gradual improvement, as I said in my comments. You will see some gradual improvement in EBIT and some gradual improvement in margins between the first half and the second half. There are still some minor outages in production as you've read in the paper and so forth in certain countries in July and so forth. Certainly yes, we do expect to see a year-over-year improvement, particularly first-half, second-half comparison. We believe based on the things we are working on right now, both from an optimization standpoint as well as new contracts, sorting out some of these contracts as Derek mentioned and so forth, we think the combination of all these things will position the business much, much better for next year. And you should see the business return to more the high 10's, 11% margin range. Again, as we continuously repeat but I think its important to repeat, that this business is not going to be a 15% margin business. So, but certainly 11% is very achievable.

And then in terms of some of the new contract wins and the service penetration, how should we think about organic growth capability and Mill Services outside of steel production growth? If steel production stays kind of flat in the near-term, do you feel like kind of the other organic drivers could get you to kind of a mid single digit growth number?

The key there really is customer and geography. So we are focusing in on the right customers and the right geography because again, it is the balanced portfolio. If production is down on one end, you want to be where the production is going up at the other end. There are always countries that are producing more than other regions. So the trick here is to have investments in the right customer and the right geography, and that is where we are focusing in right now. Some of the new contract announcements you will see hopefully over the next twelve months, say, will give you a clue as to where some of the places we are focusing in on to improve the margins. But more importantly, to even out this production issue and as well as give us better, less cyclicality, if you will.

That makes sense. And one final question on Access. Can you -- I know it is less material in terms of the mix, but in the North American market can you talk about any change in demand trends you are seeing and pricing?

Again, we can only talk positively about our own experiences. We are gaining we know for a fact, we are gaining market share. We've introduced new products, which are being very successful. Our Canadian operations are strong. US operations have very considerably improved their performance due to management changes, management improvement, margin improvement, improved rental income. There has just been an all-around improvement in that business from almost every measure that you can make.

And I can't point to any one, single attribution of the success there but the numbers are very, very pleasing and encouraging. But in the context of things, the size of the market and what others are doing, it is not so much the, as it were the top line increase, but management's ability to focus on the profitable, the more profitable areas of our business, and distinguish ourselves from the competition. On a competitive basis if you look at their numbers as opposed to ours.

Yvonne Varano, Jefferies & Co.

Sal, I was wondering if you can break out what percentage of revenues Track Technologies was in the quarter and other segments of Minerals and Rail Technologies.

We typically don't -- historically we've said HTT accounts for roughly half the revenues. I can give you the specific breakdown, if you want -- if you bear with me here a second. But certainly, they have always been a considerable driver of revenues in that group.

While Sal is looking for that number, you know, Yvonne, we have enough problems with our segment reporting and the competition that produces, and the disclosure we are into. Try and help us by not asking for a breakdown now of the segments. I mean, that is one -- we are at a serious disadvantage, I can assure you. Sal looks like he is going to do you a courtesy of a reply.

Yes, it is around $65 million, say, for the quarter out of the $200 plus million that we reported. So you can see it has dropped a little bit, of course, because with the introduction of Excell.

Right, but that is why I was asking because you've always said that, but now we have Excell in there, so I was just looking for a good base number. And you said the operating income was up 58% for Track in the quarter versus a year ago? I just want to clarify I heard that right.

Yes, they had record, of course you know record margins for the quarter, everything.

And when do we expect to see some of the China order filter through in the Track Technologies numbers?

The earliest middle of '08.

Middle of '08.

The earliest. First delivery.

No. They will be earlier than that. They will be earlier and I expect some deliveries beginning in maybe the end of the first quarter.

End of 1Q '08?

In '08, yes.

And in the Access side -- I know you mentioned the US as a market is being stronger. Can you be a little more specific on which areas of non residential you are seeing the strength?

It is across the board. We do all three things. We do industrial services. We do formwork for concrete. We do everything, and it is pretty even across the board. It depends on which part of the country.

But are you seeing it in hotels and lodging or is it general industrial?

It's everything. It's industrial. Remember our profile is about 30% industrial, about 70% nonresidential construction. And the nonresidential construction includes all of the things you talked about plus airports, stadiums, you name it.

I didn't know if there was a particular area of strength. And lastly, I know we had this very strong quarter for Excell. Can you help me better understand the market dynamics behind the record volumes and what might change there going forward?

The first thing, again, it is highly unusual to have a business literally run every single day in the quarter 24 by 7. That alone will give you incredible leverage as well as pricing and so forth. So that is certainly very unusual in our experience. We've never had a business run at that level. And that was driven by market demand and like Derek said, we are trying to satisfy our customer needs. Some of that was a little bit of a backlog from the first quarter. Remember we bought the business February '01, so there was some of those issues associated with that.

So just like everything came together in that quarter and we don't -- we certainly don't expect that to continue. In fact, we've seen a little bit of a -- already a slowdown is expected in July, which again, because you can't keep running that 24 by 7 indefinitely.

Is there any seasonality to that business?

Seasonality? No. It is -- no, no more than anything else that you would see in the Mill Services. If you get real severe bad weather it is certainly going to affect, like it affects any business.

Great. Thanks very much.

Scott Blumenthal, Emerald Advisers.

Good afternoon, gentlemen. Congratulations. Sal or Derek, you mentioned, and there has been a lot of discussion about Excell and operating at 24/7. Even though you haven't really done any cross-selling with your current operations, when you do finally get to that point, it sounds like you are going to need some extra capacity. Is some of this CapEx in anticipation of that with Excell, or have you already started with that?

We have already started with that, yes, and we have projects which we are in the process of consummating or have just recently consummated to expand the business. One of the things that Sal has been talking about to our senior managers is the principle of scalability. And that is exactly what we're doing here. This is -- as our access equipment business is a scaleable business, both domestically and internationally, our access business has scalability; in other words, the opportunities. Our market share is small. The opportunities are worldwide.

Excell is identified as having those very similar characteristics. And as in our Mill Services business and our Access Services business, if we can find the money to invest, then these are investable propositions. And that will happen with Excell. We are very fortunate, of course, in that it is generating and has generated in the last several months, revenues and cash, and it is a reinvestment program.

That is what attracted us to Excell to begin with, was that we saw a business that was principally -- they had a little bit international, but we a saw business that could be scaled considerably across the globe with the right investment. And it will be capital intensive, just like all of our businesses are, and certainly we have that in mind.

But what Excell does, to our knowledge no one else does to the degree that they do it. So it's really a matter of picking the right projects throughout the globe. As Derek said, we've already embarked on a few projects and hopefully, you will see some announcements on that later in the year. You should hopefully see more of those next year as we start to take this business more global.

I guess I am kind of at a disadvantage never having been at yet -- that is a hint for you, Gene -- at an Excell facility. But how easily expandable are they? Can you put on incremental capacity in current facilities, or are you going to have to go out and build new things?

Certainly we do have to build facilities. No question about it. One thing you still have the contracts. The characteristic with Mill Services is you have the long-term contracts. You have the CapEx. It is in the metals industry but it is in a broader metals industry. Because they service, they can service any metals producer versus MultiServ tend to focus more on the steel guys although they do some aluminum, some copper as well. But Excell really can participate in any metals market. But again, you do need that investment, and the startup of that investment.

My only qualifier is please don't become impatient with us on that aspect. I think we are doing a reasonable job. We have shown considerable growth in this Company these past several years, and it is one of the basic reasons for our present optimism. I have been asked many, many times in private phone calls and publicly, meetings such as these, well you are doing well. Does this have legs?

Well, Sal's answer to your question is indicative of the fact that we do have legs, and the legs are based upon the opportunities that we see. And our willingness to continue to invest. We have refocused this business, as you are aware, and that will continue to go on. And we will continue to make wise and sensible value-creating investments in those areas and opportunities that we see. This has legs, and one is reluctant to compare ourselves to other companies, but we are not what I would call as yet a mature company in long established markets with little growth opportunity.

In the last several years we have come out of the closet as it were, in terms of the darkness of reorganization. And all of that good stuff. We have identified where we ought to be. We have clearly enunciated strategies year in and year out. And as Sal has said, we are executing those strategies. And we are doing it patiently and sensibly. And what you are seeing is a combination of increasing revenues, growing margins, higher cash flows, better earnings and a Company that has a good, long-term future and a very solid long-term future.

I for one, Derek, I don't ever have remembered having been negatively surprised by you since I have been covering the Company. So I do appreciate all of your efforts. May I ask one question about the Track Technologies? Do you -- and you don't have to give me the exact number, Sal, but can you give me kind of a percentage increase, year-over-year in your Track Technologies backlog, without giving away all of your secrets there?

Well the backlog (multiple speakers).

Infinity, because of the China backlog, you know, and there is more to come here. I mean it is infinity really.

You can't even compare it to the past because of all these orders.

This is not meant to be a flippant remark, but we all we got to do is make money there; looking for orders is not a problem. We have to make money there, and that is the challenge and of course we are well equipped to do that. So the backlog is there, and the opportunities are there. All of our management team know exactly what the job is there. A profitable outcome from a very solid backlog.

Just like we are seeing on the Access side, the world is waking up to the need to spend money on infrastructure and what better infrastructure than rail and construction and industrial maintenance? And that is why that business is really starting to pick up.

Very good. Thank you very much.

Jeff Hammond, KeyBanc Capital Market.

Hi, gentlemen. It looks like you did a small acquisition in the quarter. Can you talk about that and where it falls?

Are you talking you about the Performix acquisition for MultiServ? It is a specialty additive business. It is proprietary technology. Again, it helps the mill make a better steel upfront. Instead of fixing problems at the back end, what Performix does is create these additives that go into the making of the steel. And hence it enhances the steelmaking process and the output is you get better quality steel. That is simple terms, but that is basically what they do.

And that would have closed in 2Q? Yes, I did have that in my --.

Yes, they only did about $29 million last year, in '06, was their revenue. So it is a small acquisition.

And speaking of acquisitions, can you just talk about the pipeline and your appetite given spending additional dollars already on the growth CapEx side?

The organic opportunities are so significant at the moment, and of course we are, first of all there are opportunities, so that is a fact. The question as far as we are concerned is, are they the right opportunities in the present state of play? And what are the organic opportunities? And we believe that our organic opportunities presently and the investment levels, place no real sense of urgency on us to go out and to pick up any more challenges. It has been an exciting year or two, and it would be true to say that we are more than pleased with the acquisitions that we have made. And their scalability and the contributions that they are making.

And we continue to look at opportunities on a consistent basis. But no panic and no rush. I believe that in a couple of months time our balance sheet will be as strong as ever it was. As Sal has said, debt to capitalization will be in a sweet spot. We will have accomplished the major goal that I set for us last November, December if you recall, Jeff, at the analyst meeting in New York, when I said our big challenge was to divest ourselves of the Gas Technologies group, and still show considerable growth in the continuing operations side.

And I think the first quarter's results and the second quarter results, they are adequate testimony to the fact that that principal objective has been accomplished. And $0.98 with the discontinued operations, $0.91 without them. And it is $0.91 compared to $0.60-odd last year. So that objective has been accomplished. There is plenty of mileage left in what we do. No urgency out there. Money is not burning a hole in our pockets. The deal will have to be right, and we are feeling just quietly cautious and confident about the medium to long-term future of this business presently.

Thanks for the color, Derek.

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

Thank you very much. I don't think I need to add anything to what has been said. Those questions, they always are good, and we thank the participants. We have a fine group of analysts that follow us and the majority of the questions come from analysts. They do understand what we are about, the quality of the work we believe is very, very good, and I want to thank you all. It certainly gives us an opportunity, as you can see, to explain the wider goals and aims and objectives of the Company and to discuss with you some of the detail. So I propose not to say any more. But to say thank you, and we look forward to another exciting quarter at Harsco and look forward to discussing things with you in October.

Thank you again, ladies and gentlemen. Thank you.

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