Perrigo Company PLC (PRGO) 2011 Q2 法說會逐字稿

Good morning. My name is Maria, and I will be your conference operator today. At this time I would like to welcome everyone to the Perrigo fiscal 2011 second quarter results conference call. 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).

Thank you. Mr. Shannon, you may begin your conference.

Thank you very much, Maria. Welcome to Perrigo's second quarter 2011 earnings conference call. I hope that you all had a chance to review our press release which we issued earlier this morning. A copy of the press release is available on our website, www.perrigo.com. Also on our website is a slide presentation for this call.

Before we proceed with the call, I would like to remind everyone that the Safe Harbor language contained in the press release also pertains to this conference call. Certain statements in this call are forward looking statements within the meaning of section 21E of the Securities Exchange Act of 1934 , as amended, and are subject to the Safe Harbor created thereby. Please see the cautionary note regarding forward-looking statements on page one of the Company's Form 10-K for the year ended June 26, 2010.

I would now like to turn the call over to Perrigo ' chairman and CEO, Joe Papa.

Thank you, Art and welcome everyone to Perrigos' second quarter fiscal 2011 earnings conference call. Joining me today is Judy Brown, Executive Vice President and Chief Financial Officer. For our agenda today I'll provide a brief perspective on the quarter.

Next Judy will walk through the detailed financials and the increase in our fiscal 2011 guidance. Then I will give you an update on our new product portfolio, our recent announcement of the acquisition of Paddock Laboratories, and comments on the second half of the year. Also, I will give you an update regarding the progress to resolve the FDA warning letter at our Allegan, Michigan site. This will be followed by an opportunity for Q&A.

Now, let's discuss the quarter. We had a record second quarter net sales of approximately $718 million, up 23% over last year, plus record adjusted operating income up 39% from last year. In addition, our consolidated adjusted operating margin from continuing operation was a record 20.2%, driven primarily by strong gross margin expansion, and increased operating expense leverage. And you can see slide three for the summary results.

Our Consumer Healthcare unit had an all-time record second quarter sales of $430 million. It was up 3% from Q2 fiscal year '10, despite a strong Q2 in fiscal year '10 comparison from the early H1N1 driven flu season last year. The performance was primarily driven by $17 million in new product sales and the acquisition of Orion. The continued recalls of national brand analgesics have helped our business, but production constraints from last summer, especially during July, August and September 2010, left us unable to build sufficient inventory to meet all of the demand for the current seasonal cough/cold products.

Our OTC business is performing well, but growth in quarter two fiscal year 2011 was limited by the processing improvements we took to remediate the issue raised in the FDA warning letter, limiting our manufacturing throughput. I talked about this last quarter, and so I don't want to be redundant, but this is a short-term pressure. Current production units are now back at fiscal year '10 output levels, and we expect more normalized production levels to continue.

Looking at slide 4 the overall OTC consumer market was relatively flat versus last year, with national brands down over 4%. But, store brands gained nearly 14% on the strength of new product launches, national brand recalls and increased market share. The analgesic category was obviously impacted by recalls at a branded OTC competitor. However, all of the individual store brand categories were up. Please note that this data represents the last 52 weeks of IRI activity.

Our RX business segment had another very strong quarter, as it continued to execute ahead of our expectations. RX net sales of approximately $98 million increased 72%, and adjusted operating income grew 70% versus last year. The strength came from new product sales of $31 million, led by the authorized generic of Aldara , the generic version of Xyzal, and the generic version Evequin, along with increased sales in the RX-based business. The Nutritional segment which includes infant formulas, vitamin and mineral supplements, and oral electrolyte solutions, exceeded our expectation due to a strong performance in the infant formula business. Net sales in Nutritionals in the second quarter were $133 million, with adjusted operating income of $26 million.

PBM sales continue to surpass our original expectation from the announcement of our acquisition in March of 2010. The net sales were helped by a branded competitor's national recall of infant formula. The brand was able to get back in the market within weeks, however we were able to gain shelf space and additional sales.

It is too early to determine how much of the additional market share we will be able to retain, but we are very pleased with the consumer response to our infant formula. We are also pleased to announce that during the quarter we received clearance to market and distribute lactose-free infant formula in Canada. The total infant formula business is growing in Canada, and we expect strong sales for the lactose free product there.

Our API segment continues to perform well, driven by strong European sales of Temozolomide during the quarter. API sales of $40 million in the quarter were up 14% versus fiscal year 2010. These results allow us to raise our expected guidance for fiscal year '11 from $3.60 to $3.75, to our new guidance range of $3.75 to $3.90.

I'm sure we will all have plenty of questions about our updated fiscal 2011 guidance and our market share gains, but first let me turn it over to Judy to talk through the additional details.

Thank you, Joe. Good morning, anyone. As you just heard, we have a strong quarter. On a consolidated basis, our results have outperformed our expectations, and therefore I'll be providing revised earnings guidance for the remainder of the year in few minutes. But first, I'll give you a brief review of our fiscal 2011 quarter results. I'd like to remind you that my comments today are focused exclusively on results from continuing operations.

As you can see on slide five, we had strong year-over-year growth this quarter on a consolidated basis. The net sales strength was driven primarily by the acquisitions of PBM and Orion, which added approximately $93 million, and consolidated new product sales of $63 million. That growth was partially offset by decreases in sales of certain existing products which I'll explain in more detail in a few minutes.

This top-line net sales performance translated to both expansions in gross profit and gross margin. Operating margin expanded even further due to operating expense leverage. On slide six, you'll see at that we have excluded two items, including deal-related amortization from our analysis of the adjusted operating basis financials for the second quarter of fiscal 2011, and two items from the second quarter of fiscal 2010. You may view the reconciliation from the reported GAAP numbers to our adjusted non- GAAP numbers in the appendices to this slide presentation and our press release.

Now I'll take you through the rest of the financial analysis based on adjusting results from continuing operations. On slide seven you can see we had strong year-over-year growth and adjusted consolidated gross profit, driven primarily by the acquisition of PBM, new product sales in both RX and EPI, and record sales of analgesics in our Consumer Healthcare business.

The higher relative margin mix of those products also drove adjusted gross margin expansion. This is despite the margin pressure related to the structure of our partnership with the authorized generic of Aldara, in which we recognize all of the sales, but keep only a percentage of the profits. Also, please note that our adjusted gross margin includes the effect of additional investments in quality related to the FDA warning letter remediation activities.

Our performance this quarter translated into a record $1.05 adjusted diluted earnings per share from continuing operations.

Now let's move onto the business segments. Looking to slide eight and our Consumer Healthcare segment first. Net sales growth was driven by a $24 million increase in existing product sales, primarily in analgesics and smoking cessation, approximately $10 million in new product sales, and approximately $7 million from the acquisition of Orion.

That growth was offset by a $27 million year-over-year decline in existing product sales primarily in the cough/cold, gastrointestinal, and contract manufacturing categories. You may recall that the cough/cold category had an enormous surge in demand in the second fiscal quarter last year as the impact of the H1N1 outbreak was felt in the October/November time frame, whereas this year's flu season started later. However, overall our core base business is performing well despite the through-put pressures in manufacturing and we continue to experience record demand for our products.

The decline in adjusted gross profit was largely due to increased investments in spending related to quality control, assurance and supervision, as well as some inventory rework. At the same time, consumer healthcare experienced lower manufacturing efficiencies due to production process redesign activities which were actively underway in the quarter.

However, those costs were partially offset by a positive impact from higher growth profit new product sales and the acquisition of Orion. Those increased investments in quality control related processes, combined with higher investments in R&D and consumer research, resulted in the year-over-year decline in adjusted operating margin in consumer healthcare you see here.

On slide nine you can see that our new Nutritional segment had a strong quarter, benefiting from retail demand for our infant nutrition products, and one-time gains resulting from challenges at a competitor in infant formula. The new PBM business was the main driver of the net sales increase, adding $86 million to the segment in the quarter. The new sales were partially offset by a year-over-year decrease in net sales of vitamins, mineral and dietary supplement products, as we continue our efforts around SKU rationalization.

The adjusted gross margin improvement was driven by both the acquisition of PBM, and by year-over-year improvements in the margins in VMS.

On slide 10 you can see that our RX business continues along the strong growth trajectory we have seen over the last several quarters. Net sales growth was driven by new product sales, primarily the generic versions of Aldara, [EVAclean], and the recently launched Xyzal. Adjusted gross profit for the quarter was strong compared to last year due to the success of new product sales as well as the improvements in pricing.

You will notice, however, a decrease in the adjusted gross margin, attributed mainly to the financial structure of our authorized generic partnership with Graceway Pharmaceuticals for Imiquimod Cream, the generic version of Aldara.

Next, looking at the API segment on slide 11. The 14% net sales growth was driven by new product sales of Temozolomide in Europe, which were enhanced due to a product recall and continued inability to ship products from the only other generic supplier for this product. European Temozolomide sales were also the main driver of the expansion in adjusted gross margin. This, combined with decreased expenses following the sale of our former German operation, helped drive the relative increase in adjusted operating margin this quarter.

Now some quick highlights on the balance sheet. Excluding cash and current investments, working capital from continuing operations was $448 million at the end of the quarter, up from $343 million at this time last year. The increase was primarily related to the acquisitions of PBM and Orion, timing of sales in the quarter, and inventory supplies on hand. Cash flow from operations for the second quarter was a strong $129 million.

As of December 25, 2010, total current and long-term debt on the face of the balance sheet was $891 million. This is down from $1.34 billion at the end of fiscal 2010, primarily as a result of the closeout of the $400 million back-to-back loan which had been in place since 2005. Excluding cash and cash equivalents, our net debt to total capital at the end of our second quarter fiscal 2011 was 36.6%. This quarter we also paid approximately $6.5 million in dividends, or $0.07 per share.

Now I'd like to discuss our updated earnings outlook for fiscal 2011. As a reminder, our earnings outlook is based on adjusted financials from continuing operations which exclude deal related amortization, as well as certain acquisition related charges.

First looking to our consolidated projections on slide 12. For fiscal 2011, we are now estimating adjusted diluted earnings per share from continuing operations to be between $3.75 and $3.90. An increase of 24% to 29% compared to fiscal 2010's $3.03.

Looking to our segments, we continue to anticipate strong demand for our products in our consumer healthcare segment. However given the throughput pressures we experienced in the first half of the fiscal year we expect revenue growth to be at the lower end of the 7% to 9% range we had projected in November. However, please note this excludes any contribution from the potential launch of Fexofenadine, the generic version of Allegra.

This growth rate includes an assumption that the competitive dynamics created by challenges faced by a large branded competitor, continue through our third fiscal quarter. That said, we continue to expect full-year fiscal 2011 adjusted gross margins in Consumer Healthcare to be between 32% and 33%, and adjusted operating margins to be between 18% and 19%.

In our new Nutritional segment, we reiterate our previous guidance and expect sales to be nearly double that of fiscal 2010 full-year sales, and expect fiscal 2011 adjusted gross margin of between 34% and 36%, and adjusted operating margin of between 18% and 19%.

In RX, we are now expecting top-line growth of over 35% compared to fiscal 2010, driven primarily by strong new products. We expect RX adjusted gross margin to be in a range of 47% and 49%, and adjusted operating margin to be in a range of 35% to 37% given the first half fiscal year performance and our outlook for the second half.

In our API segment, we now expect a slight increase in top-line sales compared to fiscal 2010, due primarily to strong European sales of Temozolomide and our expectation for this products dynamics in the second half of this fiscal year. We continue to expect API adjusted gross margin to be in the range of 44% to 46%, and due to productivity improvements we now expect adjusted operating margin to be in a range of 24% to 26%.

Summing everything up back at the consolidated P&L level at slide 13. We continue to estimate that consolidated net sales growth will be in a range of 20% to 23% over fiscal 2010. We anticipate this increase will be driven by acquisitions, new product sales of over $180 million, and growth in our base business. We now estimate adjusted consolidated gross margin will be between 35% and 36%, which includes incremental costs related to our efforts to resolve the FDA warning letter. This then translates into an expected adjusted consolidated operating margin range of between 19% and 20%.

Lastly, note that we are now using an effective worldwide tax rate from continuing operations of approximately 27%, down from our previous expectations due to changes in some statutory tax rates and timing of tax planning initiatives. This consolidated guidance assumes a mid-fiscal fourth quarter close of the Paddock acquisition. As we noted on January 20, the timing of this transaction's closing is dependent upon regulatory approval. While we do not expect the review process to be prolonged, we have modeled our expectations prudently and assumed Paddock results will contribute only minimally to adjusted operating earnings in 2011.

In total, this brings us to an estimate of adjusted diluted earnings per share from continuing operations of between $3.75 and $3.90. We continue to expect cash flow from operations to be between $350 million and $380 million for the full-year fiscal 2011. We are focused on execution during our fiscal third and fourth quarter. At the same time, we are looking forward to a successful close of the Paddock acquisition, and preparing our teams for that integration. The next months will be busy, but ones which we feel will further solidify our foundation for continued growth.

And now let me turn it back to Joe.

Thanks, Judy. Now that Judy has given you all the details from the quarter, I'd like to talk about our increased earnings guidance and how we came to that expected range. We had a very strong first half of the year. Record quarter two adjusted operating margin of 20.2% and record earnings along with continued strong demand for our products in almost every segment, give me the confidence to raise our forecasted earnings guidance. And just to reiterate, this new guidance does not include any contribution from the RX to OTC switch for Allegra.

Now, let me talk about the Allegra launch timing. Our partner is working very hard to obtain necessary approvals. While it is impossible to predict when it will obtain those approvals, we expect to launch this product time between March and the end of May. In other words, while we expect some contributions in fiscal 2011, the bulk of the contributions will come in fiscal 2012 and beyond.

Halfway through fiscal year 2011 we've been very busy. Just 12 days ago we announced the acquisition of the assets of Paddock Laboratories. We are very excited about this transaction. Acquiring Paddock Labs meets all of our deal criteria.

First we expect it to be accretive to return on invested capital in fiscal 2013, our second full-year of ownership. Additionally, we expect it to be accretive to both GAAP and adjusted operating earnings in the first full fiscal year 2012. Looking forward, the Company's organic growth will continue with plans to bring more than 50 new products to the market this fiscal year, adding more than $180 million in new product sales.

You see slide 14 for OTC expected new launches during fiscal year '11. Our generic RX segment continues to outperform driven by base business growth and strong new product introductions as indicated on slide number 15. And strong European sales of Temozolomide continue to drive our API segment. Quality continues to be our highest priority at Perrigo. The FDA is appropriately, continually raising quality standards globally to ensure highest product safety for patients. We are investing the necessary resources in making the incremental investments in quality to go beyond the FDA's expectations.

We plan to get the warning letter remediated as expeditiously as possible and look forward to the FDA's re-inspection of our Allegan facility in the new future. When the FDA arrives in Allegan, Michigan for the re-inspection we will issue a simple announcement to inform everyone. While we do not normally issue a release on FDA inspections, we want to keep you informed regarding the status of this issue. Once the issue is resolved, we will be even stronger than before.

We are optimistic and excited about our future. We are working together with our retailers to meet the demand from consumers for all of our products. Perrigo is the right Company, at the right time, in the right place to meet the world's growing needs for quality, affordable healthcare products. Now let's open up those lines Operator to take our questions. Operator?

Thank you. (Operator instructions).

Thank you.

(Operator Instructions)

Our first question comes from the line of Frank Pinkerton of Suntrust. Please pose your question.

Hi, great, can you hear me?

Yes, we can.

Thanks for taking the question. First, you mentioned at the end on for timing on -- or potentially upcoming timing for review of the Allegan facility. Can you break down, or give us any color on costs that might have been incurred in the last quarter, and one of those may be one time preparatory versus ongoing costs to think about the operating profitability of the Consumer Health division.

Sure. I'll start. Judy you may want to add to this as well. As we look at this, we stated previously that we expected that the cost to continually invest in this area was going to be somewhere in that $10 million to $15 million range.

However, in a given quarter it probably is -- and that included both the expense for increased quality oversight, as well as consultants, as well as some capital. As we look forward to the quarter, the range was somewhere in that $5 million type of activity in terms of the range of the opportunity that what we invested in quality. Judy, I do not know if there is anything further that you want to comment on.

Just in general, we were looking at it from an effect on gross margin potential. Approximately, I'd say overall the impact of the remediation activities and what has been going on has been about a 400 basis point change in adjusted gross margin in consumer healthcare. But on an ongoing basis if you are thinking about modeling the impact into the consumer healthcare dollar spend, you are looking at ongoing costs somewhere in the $5 million to $7 million range on an ongoing basis just in terms of additional head count and folks who have been hired and some additional process steps that just cost some more dollars on a go-forward basis.

Okay, great. Can you give any more color as we look at the nutritional business. If my math is correct, you cut somewhere around $14 million of sales on the vitamin side and you said through discontinuing some product lines. What is the overall plan there. It seems that PBM is doing great and the rest of that business might be lagging. Can you give us any other guideline on the other businesses there in Nutrition?

Sure. We continue to always look at our business to assess the growth opportunities and the opportunity for continued operating margin. What we stated back -- going back a year-plus ago was, that there were some places there where we needed to discontinue products because they did not generate sufficient margin opportunities for us. And indeed we did that. And that was some of the products that Judy mentioned in terms of our discontinuation.

As we look to the future we'll always continue to evaluate our opportunities across all of our businesses. I think you know we use a return on invested capital model to continually look at, does the product fit strategically and does it also fit from a financial return on invested capital? We do believe that this opportunity to continue to build a nutritional business with the core being the infant formula, but also the opportunities in vitamin and mineral supplements helps us a couple of different ways. Not just simply from the sales to the retail customers but on a couple of other areas in terms of procurement of raw materials, et cetera. So, right now it continues to be an important part of our business but one that we continue to reevaluate.

Okay, John, final question, one for you. You're kind of sitting on top of the organization looking down at all of the different silos in the business. As investors, one of the things that we always try to determine is, what is each of the businesses appropriately valued. I think a lot of people see Perrigo as a consumer company, but if you look at as a percentage of sales or percentage of profits definitely things like generic pharmaceuticals have been playing a bigger role.

Can you talk to us about when you look at these different segments, how you think of allocating capital and more importantly, how you think of the business and sustainability of these businesses and should one be favored over the other once we get past, say, the Paddock acquisition and move into 2012? Thank you.

It's a great question. Certainly as we look at the business, and I have looked at this now going on for -- oh it has been a little over four years that I've been a part of it. First and foremost, Perrigo is a consumer healthcare store brand private label company. With the acquisition of course with the infant formula business that added even more business that we have that falls under what I would call store brand private label consumer healthcare business. So, first and foremost that is -- with 80% plus of our business, that is where our origin exists and where we are most consistently applying resources and capital.

However, in areas like the RX business, we saw significant activity that fit with us strategically when we looked at Paddle, I'm sorry Paddle was our name for it -- Paddock Laboratories was the product acquisition that we talked about. We found a specific target that fit with us in terms of what we referred to as -- as specialty niche generic opportunities. One where we're going after what we would call extended topicals, or also they had controlled substances that fits so well with what we were trying to do and it was a chance to add some critical mass to our RX business.

But I would be clear in saying that our core business still is consumer healthcare store brand private label driven, where we can seek to find opportunities that fit our strategy and also pass a return on investment capital hurdle. We will look to add those. But the majority of our goals for future growth are looking at adjacent categories in the consumer healthcare business, and also geographic expansion of consumer healthcare are really the two areas that we're going to focus the majority of our efforts in capital for the future.

RX is a great business. We're very proud of what the team has accomplished and we will look to opportunistically look for opportunities there, but our focus is consumer healthcare.

Thank you.

Our next question comes from the line of Jon Andersen of William Blair. Please pose your question.

Good morning, thanks, everyone.

Good morning, Jon.

Good morning. I was wondering, Joe, if you could talk a little bit more about the Sanofi approval to switch Allegra OTC. Are there any evidence that they may have filed for indications that could prevent you from launching? And then second if you could talk a little bit about the size of that opportunity, whether you expect the competition on the store brand side and expectations for cannibalization.

Okay, Jon. Good questions. First, Sanofi's Allegra approval to move from prescription to OTC, as we stated, occurred approximately -- I think it was about 10 days ago or eight days ago now. Do we see -- I see no indication that they have gotten -- received approvals for anything that would give them an exclusivity at this time.

However, I really would refer that question directly to Sanofi. It is not something that we have access to the FDA interaction with Sanofi.That is something that Sanofi would have to comment on. But from what we've seen, it would look very similar to the approval of Zyrtec or Cetirizine, which the entire product category was shifted over and therefore there was no -- no opportunity for exclusivity or no additional three-year exclusivity that was granted.

So at this time, we don't see any basis for exclusivity but I would have to refer the question over to Sanofi relative to what their interaction with FDA. On the opportunity, it's a challenge right now. It's really going to depend on what Sanofi prices the product at. We have some indications but we have no final pricing.

Number two, it depends on the amount of resources that Sanofi puts behind this product. We do think that Sanofi will do a good job with this, based on what we've seen from their team in terms of the excitement for their acquisition of Chatham Laboratories which allows them to go forward in this. But I think it would be premature for us to make any comments about the investment they'll make to grow this business.

The product itself, if I can just comment from the product point of view, I will say that I believe that the product portfolio or Allegra portfolio of products of both the Allegra D as well as the Allegra single entity, are very good products. They have a good combination of effectiveness, but also non-sedating. And so I think that the product category fits and could allow it to be one of the best OTC non-sedating antihistamines. But I think right now we have to wait for a little more data, and therefore that is why we did not put it into our guidance at this time.

We do think though that we can have the product to the market sometime in that -- I would call March to May time frame. But at this point it is up in the air exactly timing. We are excited about it. We think it could be a great product. We just have to wait to get more data and details on what the plans are from Sanofi.

Okay. I think last time we spoke you'd indicated that because of a recall by a competitor that you were the only kind of Temozolomide supplier in Europe. Can you give an update in terms of the status of that product from Europe, and what's kind of reflected in your guidance?

Yeah. Judy made a few comments on this but let me just try to reiterate some of the comments. Indeed, you are absolutely correct we are the only competitor with a Temozolomide product in Europe. We are selling that product through several generic companies that we work with or partner with. That product is currently being sold. The competitive product that was in the market had to be recalled from the market and at this time they have not re-entered into the market.

Our expectations, as Judy always talks about how we look to model, we try to take an incremental approach to our modeling. We do not make an assumption that they will be out forever, we simply look at our guidance range includes a positive impact of Tema, but we did not say that they are going to be out forever. We do expect them to return to the market. So, at this point we do it on a sequential quarterly basis to continue to look at what the opportunity is for competition in the marketplace.

But, right now we are out there by ourselves and we have been out there by ourselves for approximately -- I guess it's going on five, six months now.

Great, thanks. One last question, maybe a broader question. With the acquisition of PBM, the pending acquisition of Paddock, the remediation efforts going on, can you just comment on kind of the organization's capacity to continue to execute this well in light of kind of the multiple integration activities ahead of you?

I feel very fortunate. I have a great team of individuals at Perrigo. There are 8,000 plus people around the world that are all dedicated to trying to focus on quality, affordable healthcare products. I think it is the execution of this team that allows us to continue to look to improve our position on quality, affordable healthcare. I think one example of that is just our record quarter two adjusted operating margin moving up to 20.2%, I think just gives you an example of the ability of the team to continue to execute. And so we feel very, very good about the execution.

I do very much believe that we pick some great acquisition targets. I think that the PBF team, from the first day I met with Paul Manning, previous head of PBM, I was convinced that they had a very similar view and vision for the future of trying to improve the offerings on quality products. And that goes back now a couple of years, but I think it is just a good example of acquiring a company and doing the due diligence on deciding that this is a company that can fit very well with the Perrigo business.

So I feel that we've been very fortunate, and I very much want to welcome the Paddock team into our business because they also -- as we looked at their focus on where they are going after what I would call more specialty niche generic opportunities, it also fit very well. So feel very good about the execution and the team is adjusting very well to try to continue to do the operational things that are required for any operational issues that we face. Judy you may want to add some comments.

Certainly, thank you. And just to add to what Joe was saying in terms of the multiple integration activities, as well as warning letter remediation work. It is very clear that this is a very busy team right now, and to Joe's point, a great team and an extremely practical -- I say the practical only Western team that is -- become very good, very fast at prioritizing well, making sure that we hit the right issues first, and go after the work at hand. And the other piece that is important to note just to quell any concerns that -- you know there are too many things going on at once, the reality is the acquisitions that we have been doing have been complimentary in nature.

Every acquisition and integration is complicated but these are not as complicated as they could be as we are not in a mode of closing plants, closing locations, we're adding these new entities to our businesses, we're doing back office integration which we're good at, and able to move forward pretty quickly. So much less complication than can be seen in many other transactions that are frequently announced in our space.

Okay, thanks very much.

Thank you, Jon.

Our next question comes from the line of Gregg Gilbert of Bank of America Merrill Lynch. Please pose your question.

Thank you. Just a few. First a follow up on Allegra, Joe, are you excluding it from guidance simply because you do not know the date of launch or are there variables other than the exact timing within the quarter that led you to exclude it?

No, Greg it is really primarily that there are some variables that I don't have. I don't have the exact day of the launch, I believe that Sanofi will launch in March, but we've got to get through some FDA process conversions of moving the product from prescription to OTC. I feel very fortunate that our partner has the approval, of course, for the RX version, we just have to switch it over to OTC. So, that's number one.

Number two, it would be very challenging to put a number out there without knowing exactly what the plans are for Sanofi in terms of how much they plan to spend behind it and grow the business, because that is an important driver of success. The team from -- that launched Zyrtec, the [JJ team] did a phenomenal job launching Zyrtec and it obviously ended up being a very significant opportunity somewhere in the $500 million to $600 million in the branded sales range. And that gives you a big opportunity to go after store brand.

I don't know what Sanofi's plans are right now. I believe they will put significant effort behind it based on their acquisition of Chatham, but I really can't make any more comments on what Sanofi's plans are. It would inappropriate for me to make further comment on that.

So we're excited. We think it's a -- what I said, a mid-March to May type of launch, but until we get more details, until we work through the questions of getting the FDA switch from RX to OTC, we just felt it would be inappropriate to put a specific number on the table at this time.

Okay. Joe I forgot to ask you on the last call about in the Paddock deal, whether you can quantify the Desi products sales and profits, and how you are treating those going forward.

Just repeat the -- oh, Desi products. Greg what we do is we took a look at the Desi products, we took a look at where we were with the Desi products, and we put -- as we do with new products, we put what we call a risk probability on those Desi products and how we would asses them for the future. And really that's probably all I can say about them specifically. But we are aware that there are some Desi products there. We do believe that some of those products have an important medical need, and therefore we put some assessment on them relative to their situation in the marketplace. That is probably about as far as I can go with the answer on that particular question.

Okay, and then lastly for Judy, I have a consumer gross margin question. I think that you gave us the ingredients to answer this, but I'm trying to figure out what the -- if we held product mix constant, which of course is an artificial way to look at it, how your gross margin for consumer margin would look after you get through all of the FDA re-inspections and remediation, et cetera. Are we going to be better off, worse off and where does that $5 million to $7 million come in specifically? What is that relative to or added on top of?

Great question because clearly after the last quarter, and folks are looking at year-over-year comps saying, "is this the new run range? What are you guys looking at going forward?". As we built our expectations for the second half of the year, when we kept our range of 32% to 33% gross margin in that business for the full year, you would assume that there is improvement in that gross margin on a go-forward basis and the remainder of the year.

I made the comment that there was pressure because of the introduction of those costs, lower throughput relatively year-over-year in some of our processes. However, that $5 million to $7 million on an annualized basis, we don't expect to have a significant impact on the gross margins going forward because there will also be continued savings in procurement. We expect there to be some better throughput -- I'll call it we've made the investment in prevention and detection to avoid some of the costs that came through to gross margin on a go-forward basis in terms of scrapping, rework, et cetera.

So on a go-forward, those things should begin to net each other out to a great extent, so that on a go-forward basis, for all intents and purposes, you could assume that those net out.

Okay.

So looking at that, we're coming off of a run rate of 32% to 33% in adjusted gross margin in consumer healthcare this year in our current guidance. And then next year's margins we'll talk about obviously in August when we give more detailed guidance for next fiscal year will be primarily be driven off of new products, expansion in base business, product mix in that base business, et cetera.

All right. If I could stick one last strategic one in, can you give us an update on your international expansion activities and should we think of this in two chunks, one is driven by the formula business and the other is just overall store brand legacy Perrigo stuff. Can you frame that for us and provide any updates on progress you've made? Thanks.

Sure. Good question, Gregg. We continue to make progress, and really the focus depends on the geography. In the example of Asia, we believe that there is a significant opportunity for infant formula. We are moving forward with that. We are already shipping some infant formula there.

But we do think that there's more opportunities that we're seeking not just in China but other countries throughout Asia. That's I guess certainly a focus on our infant formula. Clearly though, there are other countries that make sense for infant formula. We think there are some countries in the Middle East. We think there are some countries in Europe that all make sense for the opportunity and of course in Latin America and South America.

And so what we're trying to do is take an approach on infant formula, predominantly in the more rapidly growing countries around the world is where we're -- and where the highest birth rate is. On the European side, really our focus there is more what I would call an organic approach. We are seeking product approval. We have slotting -- we have taken the appropriate regulatory slotting processes to get our products approved and we are taking steps to get products approved throughout Europe. And that would be an important organic effort that we have.

We still are seeking the appropriate commercial go-to market strategy, that could be either through a partnership opportunity and/or trying to build incremental on the ground resources in Europe. But those are the things we continue to look at for what makes most sense for what I would call more the legacy Perrigo products in Europe.

The final comment that I would make is that we certainly as we look to the expansions we've done over the last four years, with incremental resources in Mexico, incremental resources in England , and then the acquisition of the business of Orion business in Australia. I think that they provide an excellent foothold for us to continue to grow our business around the world and those are the things we'll continue to look at for the infant formula side, as well as for the more legacy Perrigo consumer healthcare store brand private label.

Final -- one other comment I want to make before I finish, Gregg, I want to make sure there is no doubt in anyone's mind we are very much excited about Allegra, and we do view this as an excellent opportunity for us. I don't want anyone to misunderstand my comments, I just simply don't have access to the FDA Sanofi records.

However, there is no basis for us to believe that there should be an exclusivity based on the fact they are moving the entire product that is RX into the OTC category. So there should be -- the indications should be the same, so therefore we don't expect to see any exclusivity for the Allegra product. So I just want to make sure that I clarify

Thank you.

Our next question comes from the line of Louise Chen of Collins Stewart. Please pose your question.

Hi, just a few questions here. The first question I have is on your Aldara opportunity. Can you talk about how you are going to maintain gross profit dollars as more competitors enter the market? And then, for Xyzal, can you talk about if the competitors don't get the carve out, could this be a long tailed opportunity for Perrigo? And then I just have one other follow-up.

Sure. Let me say a couple of things on the Aldara first. I remind you when we first launched the authorized generic of Aldara it was at more what I would call traditional authorized generic margin. Then we switched over to the Perrigo, vertically integrated raw material, which obviously adds to our margin structure and our partners margin structure. Finally as time elapsed we will get an incremental gross margin opportunity with Aldara.

The issue that I cannot predict is the number of players that come into the market. We do expect incremental players sometime in the next several months, but I don't want to make any specific comments about individual product gross margin other than, what I think mostly I would say is that, A; it has helped by vertical integration, and then B; the gross margin structure that we have with our partner changes over time and that will improve for greater gross margin. So I do feel that we have some upside there, just depends on the number of players that show up in the Aldara market.

Xyzal is an interesting case sitting in front of the FDA at this time. We don't know how to put a -- other than to simply put a probability waiting on when other competitors will come into the business and that's what we've done, we tend to be conservative in believing that they will be coming in the near future. If they do not show up, it is an upsize to our guidance but I think, as you know, we try to be conservative in our guidance and always look out a quarter at a time relative to our assumptions. And as with all new products, that is how we treated Xyzal.

Okay, just the last question here is on the potential RX to OTC switches that could happen over the next several years such as Nexium or maybe Prevacid. Could you give us an update of opportunities that you think are coming? And maybe any new categories that pharma companies will be bringing OTC.

Sure. Well, there's a lot that we've talked about, obviously a lot of it is the Proton pump inhibitors. We know, of course, next year we have an opportunity to launch a store brand of Prevacid. We know that there is an opportunity for the Zegerid as well, that will be launches in the near future. Beyond that, really it is the rest of the Proton pumps, it's the Nexium , it's the Protonix, it's the Aciphex, all of which we think are candidates to go from prescription to OTC. And certainly seeing the success of Prilosec OTC, I think that many of the branded companies will be very motivated to consider to move their products to OTC.

Additional categories though that we see beyond the Proton pump inhibitor, obviously will be the remaining portion of the non-sedating antihistamines. So Clarinex, as an example, will be next year. Also, we're going to obviously do the Allegra which will start this year, but those would be the other ones that are critical.

Final area, which I think falls more into the category of new opportunities in what I would call RX to OTC switch, would be more of the products that are, at the current time, labeled as topical non-steroidal anti-inflammatory drugs like a Voltaren gel or Voltaren flector patch, are other candidates that we would think would be candidates to move from a prescription to an OTC at some point in the future. I think that those would probably be the major candidates. We also talked somewhat -- there is a possibility for what I would call a topical anti-inflammatory drugs like, more of a steroidal cream and things like that. Some of those can move very similar to the hydrocortisone that has moved, but those would be the primary

Thank you.

Our next question come from the line of Linda Bolton-Weiser of Caris. Please pose your question.

Hi, I was just thinking about, in terms of the longer term perspective. I mean your operating margin is -- you've done a terrific job, it has reached -- it is going to be 19% and 20% this year, I think that Procter & Gamble is 21%, so you are almost there. How should we think about in the very long term, I mean it doesn't seem likely to me that you're going to have as much margin expansion in the next five years as you have in the last five years. But maybe, yes, so can you talk about the potential really going out a long time for margins?

Well, I think you said it, we've been able to move the operating margin from what was 9% in 2007, to something like 8% last year and this year. Of course, we've got a 19% -- a 20.2% adjusted operating margin and so we feel very good about the ability to continue to grow our operating margin.

I think that with what we've done with new products, I think what we've done with what we call bolt-on acquisitions like a PVM, like the Paddock Labs, are all part of that and will help us for the future. I do not want anyone to simply say well four years from now we'll just add another 9% to this number. I do not think that is appropriate. I do think we can raise it beyond the 20%. I do think that we can get into the low to mid 20%. But I don't want anyone just simply adding another 9% say four years from now.

Judy, do you have anything that you want to add to that comment?

Part of the focus when we go through our strategic planning, and looking at acquisition opportunities as well and looking at the final opportunities, as you noted rightly so, in the last several years, as we looked at transactions, we were able to also increase our return to investors because we had gone after ROIC accretive acquisitions that also had operating and gross margins that were able to average us up. And as we look at opportunities going forward, we try to focus on those that will help us in that averaging up. So that is a nice positive, not only the new products that we have in our future, we're trying to look at ways to average up through bringing new businesses and new product categories to our overall portfolio. So to Joe's point, to be able to say we've picked up nine points on the bottom line in the last four years and so we'll just be able to extrapolate that forward, that would be a stretch. But know that that's part of the overall strategic planning and as we look at improving on ROIC we almost have to do that in order to continue to raise the bar on our own return on invested capital.

Great. And can I just ask a little question on your store brand, Zyrtec. We had detected some price declines at the shelf at Wal-Mart, but not really at any other retailers. Can you just comment on if that is a Wal-Mart anomaly or is there starting to be some pricing pressure from other competitors on that product.

No. I do not want to make a comment on any specific customer, we don't see any real pricing pressure there. I think that is a pretty stable market. Perrigo still has over 80% plus market share, which is exactly actually what we had been stating for the past several years now, we've had plus 80% plus share and so no major changes in that product category.

And our gross margin in that category has continued to be very stable.

Great. Thanks very much.

Thank you, Linda.

Our next question comes from the line of Elliott Wilbur of Needham. Please pose your question.

Yes, maybe just a quick follow-up question for Judy with regard to your earlier comments on the tax rate. Can you just maybe, provide a little bit more color on what was behind the reduction, whether it be a shift in income geographically, or is there something else and how should we think about that in terms of extrapolating the expected new rate to out years. And then also last quarter you guys talked about roughly a $20 million to $25 million backlog that was pending at the end of the quarter. I'm just wondering sort of how that played out this period and whether or not there was any sort of backlog at the end of the quarter that might benefit the second half? Thanks.

Sure. Thanks, Elliott. I'll take the tax question first. So as you know, and you are seeing the journal every day, there is ongoing discussion in the US about what we should do about the corporate tax rate.

The Israeli Knesset decided to take that bull by the horns and move faster along that process, and just announced a dramatic reduction in the corporate tax rate in Israel. We were able to take that new announcement into consideration as we looked at our forecasted tax rate for the remainder of the year. And the fact that we have a presence in Israel and benefit from obviously those low rates will flow through our deferrals and the remainder earnings before tax for the remainder of this year and we think that that will obviously is going to continue forward in the out years.

How that will affect the overall rate on a go-forward basis depends of course on product mix. But the fact that they've dropped their rates precipitously, I believe it's by 2015 the rate is down to mid-single digits on corporate returns for companies that export out of Israel, that would be a very good, positive effect for us overall on a go-forward and to the extent that we have more earnings before tax out of Israel, the more it will benefit the rate.

There are some other tax planning initiatives that we will have completed before the end of the fiscal year that have also benefited the rate, and some of those will continue on a go-forward basis as well. So feeling comfortable in that 27% rate and some of these will have positive benefit on a go-forward basis.

I think the second part of the question on the backlog and indeed, yes, there was some backlog at the end of Q1. There is some backlog at the end of Q2. I would say it a little differently though.

What happened to us is in the absence of being able to manufacture as much as we would have liked in the July, August and September we did not pre-bill some of the inventory that we normally would bill for cough cold flu season during that time period. And as a result of that, we just did not have all of the product we need and indeed, what it does to a company like Perrigo it reduces the amount of promotions we do and we promote to our retailers and when we reduce our promotions, then there is a natural decline.

I can tell you though, that based on output that has occurred during the current quarter, our current quarter of output is up. It is up versus quarter one sequentially, our manufacturing output is up approximately 24% versus where it was in quarter one. That gives us the belief that we can go back in, reinitiate promotional activities, those are the displays, end caps, things that we do with our retailers and allow us to continue to go back to a more rapid growth cycle based on what we're doing. So that is what we've done, we've re-initiated promotions and we are re-initiating activity, not so much the backlog but the incremental promotions and end cap displays that we were able to do to give us the confidence to believe that we can go back forth and continue to grow the business back at the rate to -- more similar to what we're seeing on IRI numbers. Next question? Operator, is there any other questions?

Our next question comes from the line of David Buck of Buckingham Research. Please pose your question.

Question, just a couple of quick ones left. For consumer health, I guess in the guidance you mentioned third quarter is when you are assuming that your competitor comes back to normal conditions, but they said on their call that would be more second half. And so I'm just wondering why you would still be assuming that it is not until -- or it is basically back to normal in the third quarter.

Secondly if we look at consumer health, if I strip out Orion, it looks like you grew it about 1.1% or so, or 1.3% year-to-year. But the cough/cold season was down versus a year ago. Can you give us a sense of what the normalized growth rate for consumer health would have been with a normal cough/cold? And then just a couple of quick ones, PBM looks like a run rate of about $350 million, which I believe is higher than previously expected. Can you talk about how sustainable the quarter might be and then tax rate for Judy, why wouldn't we just take down the 12 and 13 tax rate by 200 basis points? Thanks.

Okay. A couple of good questions. Let me just try to clarify a couple of comments though relative to your comments. On the CHC side, the competitor -- the branding competitor has stated they would be back in the market sometime middle of the year, we agree with that.

What we said we would only go to the end of our third Q, which is the end of third Q for us, David, is around March 31st, thereabouts. And so what we feel is appropriate is to go after this on an one quarter at a time basis, rather than just say, okay, it is -- you know it is going to be six months and then having to find out, well, it was only five months or four and a half months, it just -- it just creates a better metric for us just to say that we'll extend it by one quarter and then we'll take a look at it in another -- a quarter from now is the best way to look at it. We always try to be somewhat conservative in our numbers. It just is a -- we think it is a better way to approach the business.

On the second question, you are absolutely right, the cough/cold season last year driven by H1N1 was one of the comments that I made. It was a very strong, very early season H1N1.

This year is a much more of a traditional season. It is much more of a season that occurs really starting in December -- so end of November, early December is really when it started. So we see a much different dynamic than we did last year or was a September/October season as it would relate to quarterly numbers. That's how we -- Judy and I have tried to characterize the shift last year. We're coming off of a very strong Q2 in fiscal year 2010 and so it was a tough comparison for us, no doubt, but we still continued to find a way to grow, even in that tough comparison.

On a comment about PBM. PBM has outperformed our expectations. We're delighted with the team, they've done an just an outstanding job with the business. PBM continues to perform ahead of our expectations, I wouldn't go to that number. I think the number you had was $350 million. I would say that certainly we think it will exceed the $300 million, but I do not want to get too far down that pathway.

No question, the performance of the most recent quarter was exceptionally strong. No disagreement with you on that. I just think that we tried to moderate the good news for that relative to PBM. And so, Judy, I think tax rate was your question.

Sure. And just one last comment on Joe's remarks regarding consumer healthcare normalized sales growth run rate. We are not wavering from the previous comments we've made about a compound annual growth over any three years in CHC being mid-single digits.

You had the anomalies this year, year-to-date, fiscal year ended -- six months ended December because of the through-put comments we've been talking about with respect to trying to meet strong demand for our products, while at the same time having lower through-put. So we have not waivered from that 4% to 6% growth rate range that we've given on consumer healthcare in the past.

With respect to the effective tax rate, you asked should we just lower our effective tax rate 200 bps to 300 bps. I don't know what you're lowering that from, so I'm not going to comment on the decrease of 200 to 300 . But continuing at a rate in that 27% to 29%, we're approximately where we are right now would be very reasonable, again, given the impact of the recent change in the Israeli tax laws. There are expectations out there that are not built into any of our numbers yet, that there may be some changes in the US rate overall, but for the moment, still staying in that mid, high-20%s as a tax rate would be a reasonable

And just to clarify on that, would that be with Paddock Labs for the tax rate that's the same range, 27% to 29%?

I have not finalized all of the calculations of how that is going to flow through. Obviously you've got -- that is going to be a bad guy against the tax rate, because that's all US, and that's about 35% average tax rate there. Longer term as we integrate their products and long-term development into our portfolio, we have opportunity there, we believe, to begin averaging down the rate on that business.

But, again, if we're -- if you're staying in a 28% range on a go-forward in your modeling still in the future that would still be reasonable even including Paddock.

Right, thank you.

Our next question comes from the line of Randall Stanicky of Goldman Sachs. Please post your question.

Great. Can you guys here me?

Yes.

Yes, Randall, how are you?

Great, thanks. Just one big picture question for you, Joe. As we look at the -- the mid-cap product space, we're seeing a lot of diversification across products, types of products and geographies you guys seem to be participating in that as well. So, as you think about -- putting your CEO hat on -- when you think about the next three to five years -- the next three years -- how do you think about the percents of your business as international, and if you could give us the percent that's international today. And then, how do you think about the split from a gross profit perspective across your core consumer business versus the generic API and possibly other.

Sure. A couple of good questions there. First and foremost I have to say we're continuing to focus on quality affordable healthcare, that is our goal, our mission of what we're going to focus on continue to be a leader in quality affordable healthcare products, and certainly is measured by tablets out the door. By design, that means somewhere in the range of 80% plus of our business will be in what I call consumer healthcare businesses, whether it is our OTC business or also our vitamin and mineral and infant formula business, which we call now the nutritional business.

The majority of our business will be in those categories of what we would call a store brand private label business. Relative to -- that will continue to be our focus. Relative to the question of international, ballpark somewhere around 80% of our sales today are US-based sales. That number we do think will continue to grow.

However we do foresee the opportunity outside the United States over the next several years to grow more quickly than the US business. So, if the US business is 80% today, five years from now it may be somewhere in the 75%, 70% range is the kind of growth that we're looking for internationally.

We do see some significant growth opportunities outside the United States, both on the infant formula side and as well as on the ability to take our products, the products that we have approved, we have the methods developed, we have the manufacturing capabilities in the United States, we can bring those products into rest of Europe and also Asia for infant formula as examples. So the goal of keeping the 80% is certainly going to be one because of the growth -- the faster growth outside the United States. We probably get that to the somewhere in the 70% to 75% range for the future predominantly because of the faster growth outside of the United States.

Got it. Just following on that, Judy, you guys have done a great job, obviously, driving accretion from some of your recent deals. It sounds like, if I'm just extrapolating Joe's comments, that your deal focus going forward is going to be not on the generic side but more on the consumer or other side. At 2.5 times levered on an EBITDA basis, debt to EBITDA, how much flexibility do you have Should we expect to see potentially similarly large sided deals like the last couple?

Great question. We did not publish our new debt to EBITDA calculation as of December 25, within the appendices to this press release just because we weren't really talking about leverage ratios specifically on the prepared remarks. But suffice it to say that, in the process of having another quarters worth of earnings, including PBM, behind us our leverage ratio has dropped quite a bit even in this last quarter. And by the time we're -- we expect to close on the Paddock acquisition, we expect to be down closer to two times levered as outlined in the appendix in the January 20th press release using the same type of calculations. So we see our leverage coming down pretty well, giving us sufficient capacity but to the point raised in an earlier question, the bandwidth financially is there.

We've kept a conservative, stable balance sheet. We have capacity in our bank groups, in our private placement groups. We believe if the market stays pretty stable, so we have capacity there, but really as we think about transactions going forward, one of the practical matters that we'll be addressing as a group is thinking in terms of integration process. Making sure that we are giving the appropriate attention and timing to getting the deals that we've recently done integrated into the Perrigo family. And then looking outward, looking at new opportunities on a go forward basis the financial metrics with those, to your point of does that exclude us from looking at generics in the future, it does not.

As Joe noted strategically, our first priority and imperative is expanding the core business of the consumer healthcare, both in adjacent categories, with new products, geographically. But as we've done, we've continued to look at generic assets and/or generic businesses where we can add to our portfolio and we believe drive both ROIC and EPS accretion , and margin accretion as well. So, we do not preclude ourselves from looking at those. We would not probably jump immediately back into the market with a very, very large transaction. But we think that over the next quarter, we'll be able to establish enough dry powder to be looking at acquisitions in the

It sounds like you have the financial and personnel bandwidth to continue to go after -- call it north of $500 million size transactions?

Yes. And it's nice to be able to say that we are now at a place with our balance sheet where a transaction of that size can be assumed quickly into the organization, but also from a balance sheet perspective can be paid down quickly and of that size does not really move the needle as much as it would have five years ago.

Great, thanks, guys.

Thank you, Randall. I think that we have time for one more question Operator.

Our final question come from the line of Steven Tepper of Harel Finance. Please pose your question.

Hi, good morning, I would like you, if you could elaborate regarding additional OTC projects. You spoke about Allegra and what's a potential regarding Mucinex and plan B. If you could discuss those two products?

Sure. Let me just back up a little bit. We do think Allegra is a great opportunity for us. It's just simply a question of what the number will be this year, and the timing aspect for -- more importantly it's a great fiscal year 2012 opportunity for us. On the Mucinex product, there is some issues relative to the regulatory landscape for the product, and the legal landscape.

On the legal landscape side, the issue predominately is a question of we won the summary judgment level and then got sent back to the court. So now we await another litigation. We are also obviously waiting for the final approval of the product. That is pending the situation that we have at our Allegan, Michigan location. We look forward to getting these wrapped up.

As to whether or not we would launch at risk, I think that's an unknown question at this point in time. But I remind everyone that we have Mucinex in at a very low probability for fiscal year '11 and very late in the quarter, the fourth quarter of fiscal '11 and so it is really a de minimis number for us this year.

The second comment that I would offer -- sorry, another product. What was the other product that you mentioned?

The plan B.

Plan B is a good opportunity. We will get that product launched. It's a little bit different, because it is not necessarily an OTC product, it is more what I would call a behind the counter product because of the utilization of the product. But that product will get launched this year, this fiscal year and we'll see what it will do.

We always put a probability waiting on any new product launches and so just not knowing exactly how any new product will do, we always put probability waiting on it but we are excited about it.

Beyond that I think the other products that are in our plans clearly, you know that we have the opportunity to launch a Nasacort product late this year. That is an exciting RX product, approximately $250 million to $300 million product, that we're going to launch with our partner Teva on that product. Very exciting for us on the RX side.

And then of course we've got the continued success of the products that we have previously launched on the OTC side. Those are products like Polyethylene Glycol, the generic of MiraLax, the generic version of [Avitor], the generic version of Monistat-1, all products we've launched in the last 12 months that are exciting for us for continued growth as they'll continue to ramp up.

And beyond that, we've also launched Aleve liquid gels and we have some opportunities in the coated gum are for Nicotine. So we're very excited about the future and think it could be a very good future growth continuing our track record. And, by the way, if we can continue to show the numbers we do on the adjusted operating margin of the 20.2% , we believe that will really help continue to drive shareholder value for our

Thanks.

Thank you. Operator, that concludes our call. I would like to thank everyone for their continued interest in Perrigo. And we look forward to talking to you in another quarter relative to our next quarter. Thank you very much, everyone. Have a great day.

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