賽默飛世爾科技 (TMO) 2007 Q4 法說會逐字稿

Good morning, ladies and gentlemen.

Welcome to the Thermo Fisher Scientific, Inc.

fourth quarter 2007 earnings conference call.

I would like to introduce our moderator for the call, Mr.

Kenneth Apicerno, Vice President of Investor Relations.

You may begin the call.

Good morning and thank you for joining us.

On the call today, we have Marijn Dekkers, our President and Chief Executive Officer, Marc Casper, Executive Vice President, and Peter Wilver, our Chief Financial Officer.

Please be aware that this call is being webcast live and will be archived on our website, www.thermofisher.com until March 7, 2008.

To reach the replay of the call on our website, click on "Investors" then "Webcasts and Presentations".

Please also be aware that a copy of the press release setting forth our fourth quarter 2007 earnings and future expectations is available in the Investors section of our website under the heading "Quarterly Results".

I would like to begin the call by reading the safe harbor statement.

Various remarks that we may make about the company's future expectations, plans and prospects constitute forward-looking statements for purposes of the safe harbor provisions under the Private Securities Litigation Reform Act of 1995.

Actual results may differ materially from those indicated by these forward-looking statements and as a result, important factors, including those discussed in the company's form 10-Q, for the quarter ended September 29, 2007, under the caption "Risk Factors" which is on file with the Securities and Exchange Commission and available in the Investor section of our website under "SEC Filings".

We also may make forward-looking statements about the benefits of the merger of Thermo Electron and fisher scientific, including statements about future financial and operating results, the new company's plans, object objectives, expectations and intentions and other statements that are not historical facts.

While we may elect to update forward-looking statements at some point in the future, we specifically disclaim any obligation to do so, even if your estimates change and, therefore, you should not rely on these forward-looking statements as representing our views as of any date subsequent to today.

During the call, we'll refer to certain financial measures not prepared in accordance with generally accepted accounting principles or GAAP.

A reconciliation of the non-GAAP financial measures used on this call for the most directionally comparable GAAP measures is available in the press release setting fourth our forth quarter 2007 earnings and future expectations, and in the table accompanying such releases in the Investors section of our website, www.thermofisher.com, under the heading "Quarterly Results".

Related information is also available in the Investors section of our website under the heading "Webcasts and Presentations".

With that, I would now like to turn the call over to Marijn.

Thank you, Ken.

Good morning, everyone.

Thank you for joining us today for the review of our fourth quarter 2007 and the full-year.

I am sure you have seen our press release.

It was another terrific quarter and that led to a very successful year for us, our first full year at Thermo Fisher Scientific, Inc.

Let me get right to the financial highlights for both areas.

For one last time, I am going to compare our 2007 revenue and operating performance, except EPS, to 2006 pro forma results as if Thermo and Fisher have been combined for all of 2006.

For the fourth quarter, revenues grew 12% to a record $2.62 billion.

Adjusted EPS was also a record for the quarter, increasing 33% to $0.76.

Adjusted operating income for the quarter rose 27% and we also had another excellent quarter of adjusted operating margin expansion, up 200 basis points to 17.2%.

And I remember when we really begin to run this company as a unified operating company back in 2001, our operating margins were not even 10%.

So, I'm very pleased with the terrific progress we have been able to make consistently improving our profitability.

And we're able to do this by fully leveraging our top-line growth, including driving price by capturing synergies from the merger with Fisher and we slightly exceeded our synergy targets in 2007.

We're continuously improving our productivity through our company-wide practical process improvement program called PPI, and we're constantly reviewing our product lines to weed out those with less potential in favor of strong products that will contribute to growth.

So, our strong finish in Q4 led to excellent performance for the full year.

Revenues for 2007 grew 10% to a record $9.75 billion.

Adjusted EPS rose 39% to a record $2.65, even better than we expected.

Adjusted operating income increased 25%.

Our adjusted operating margin for the year expanded by 210 basis points to 16.8% and we also generated over $1.3 billion of free cash flow.

So, very strong results for 2007, we're firing on all cylinders.

I would like to make a quick comment here on our overall strategy for managing the company so you understand what drives the business decisions we make.

Basically, we look at four key financial metrics.

We look at top-line growth, which includes organic growth complemented by strategic acquisition, we look at operating margins and our overall goal is to expand our margins by an average of 100 basis points every year.

We look at earnings per share and free cash flow.

And the point I want to stress is that we factor in all of these metrics while we work to fully leverage our capabilities and that really require requires a balanced approach to managing the company.

So, could we do more in any single one of those four metrics?

For instance, could we drive top-line growth harder or just be focused on margin expansion?

Absolutely.

But we're not doing that because we believe that our ability to strike a balance is what will leverage the capabilities of this company most often, and, obviously, that balance is focused specifically on creating shareholder value.

Now, on to the balance sheet.

We ended 2007 with a very strong balance sheet and even more important for using our cash wisely.

We made a number of accretive acquisitions that added about $240 million in revenue.

These acquisitions give us opportunities to create value by providing complementary technology or new commercial capabilities or by allowing us to expand globally or really any combination of these three.

We continue to believe that the highly fragmented life and laboratory sciences industry continues to hold opportunities for acquisition, and we will explore those that are complementary to our business.

During the year 2007, we also used about $900 million of our cash to repurchase our stock.

So, if you add it all up, it's really been an incredible year.

Not only did we have exceptional financial performance, but we achieved it while successfully integrating an acquisition with $6 billion in revenues.

Let me tell you it's taken a tremendous amount of effort by all of our employees and we think that they should all be proud of our results.

Through the merger, Thermo Fisher Scientific is redefining what it means to be an industry leader.

I'm confident we have what it takes to sustain our growth with our unique combination of size and breadth, our continuous innovation and our relentless commitment to serving our customers.

There is no question that with $9.7 billion of revenue, we are big.

And that alone doesn't define an industry leader.

It's how you leverage your size and portfolio breadth that matters.

How do you use it to serve your customers better?

Enabling our customers to achieve their goals drives everything we do at Thermo Fisher Scientific, from product development to our global sales strategy.

In 2007, we laid the groundwork for future growth by making major investments in these areas.

For instance, we spent $240 million in R&D to fuel a continuous stream of new product launches and workload solutions under our Thermo Scientific brand.

These broad applications for our leading technologies in mass spectrometry, elemental analysis, spectroscopy, bioreagents, RNAI technologies, just to name a few.

I have sworn to not give anything away but I know we will have a very exciting lineup of new product introduction at PITTCON next month to kick off another strong year of technology innovation.

Our ongoing commitment to technology development complemented by strategic acquisitions will allow us to strengthen our balanced portfolio of hardware, software and consumables.

Consumables now make up about half of hour product mix with instrumentation about a third and the rest being software and services.

We also continue to leverage the tremendous excess we have through our customer channel.

Take our Fisher catalog, for example.

We are using the catalogs to give our existing customers more choices when they need to make a purchase, and we are introducing new channels targeted to specific growth markets.

The great example is our new research catalogs in China, which will be coming out very soon.

So, let me make a few comments on the market.

Across the company, we have great momentum going into 2008 and plenty of opportunities to build on the progress we made last year.

We are hearing a lot about economic headwinds in the United States, particularly tied to industrial markets.

However, we are not seeing any shift at this point that would have major impact on our businesses, especially for the first half of the year where we have the most visibility.

The Life Sciences market continues to serve us well, especially biotech startups are very strong; and we're also working to leverage our portfolio of products and services to meet the emerging needs of our key big pharma customers and the CROs to whom they are outsourcing more and more of their work.

Environmental markets in the U.S.

have remained robust and new regulations coming into play, and we're starting to see increased attention to the environment in other parts of the world as well, such as China and expect a benefit from that going forward.

In the global industrial markets, we haven't seen any significant decline in demand.

And some are still quite strong, such as minerals and oil and gas.

In summary, you know we have a balanced portfolio and we serve a range of end markets.

We believe this combination will make us less vulnerable to a slowdown in any one industry.

So, with a comment on the guidance before I hand it over to Pete.

Looking ahead to 2008, we expect adjusted EPS to be in the range of $3.05 to $3.15.

This would lead to adjusted EPS growth of 15% to 19% over our strong performance in 2007.

We expect to achieve 2008 revenues of $10.5 to $10.6 billion, resulting in 8 to 9% revenue growth over our 2007 results.

And with that, I will turn the call over to our CFO, Pete Wilver for more details on the financials and the assumptions that were effected into our guidance for 2008.

Pete.

Thanks, Marijn.

Good morning, everyone.

As we did the last quarter -- and for the last time, as Marijn said -- to provide better year-over-year comparisons, the 2006 revenue and adjusted operating income numbers, as well as the working capital metrics that I will discuss with you today will be presented on a pro forma adjusted basis as if Thermo and Fisher had been combined in all of 2006.

Comparisons below the line items such as interest, taxes, share count and earnings per share will be discussed on an adjusted bases as reported.

We had another strong quarter with 33% growth in our adjusted earnings per share to $0.76 compared to $0.57 in Q4 last year.

Full-year adjusted EPS was $2.65, up 39% versus $1.91 last year and up $0.20 from the high-end of the original guidance of $2.35 to $2.45 that we gave at the beginning of the year.

GAAP earnings per share in Q4 were $0.54, up from $0.08 in the prior-year's quarter, primarily as a result of increased earning earnings from the merger and lower merger-related charges, improved operating performance and a lower tax rate, partially offset by higher acquisition intangibles and amortization.

Our press release contains a detailed reconciliation between GAAP and adjusted EPS.

Revenues in Q4 increased 12% year-over-year to $2.62 billion, and we achieved full-year revenues of $9.75 billion for 10% growth over our 2006 pro forma revenues of $8.87 billion.

Organic revenue in the quarter was 6%, excluding favorable currency translation of 4% and acquisitions, net of divestitures of 2% other than the Fisher merger.

Organic revenue growth for the full-year was also 6%.

Booking in the quarter will equal to revenues and exceeded revenues by slightly more than 1% for the full-year.

In the analytical technology segment, revenues rose 14% on a reported basis and 7% organically.

In the quarter, we saw strong growth across all of our major markets, including Life Sciences, healthcare and industrial.

In addition to market strength, our new product introductions continue to be a new key growth driver, specifically in our mass spectrometry, elemental analysis and environmental product lines.

For the full year, analytical technologies grew 14% on a reported basis and 7.5% organ organically.

In the laboratory products and services segment, revenues for the quarter increased over 10% on a reported basis and 6% organically.

We saw a growth across most of our major market segments with continued strength and biopharma outsourcing services, as well as our research and health care catalog businesses.

This was partially offset by continued top-line weakness and our safety catalog and laboratory workstation businesses.

For the full-year, revenues in laboratory products and services grew 7% on a reported basis and 5% organically.

Moving on to, by geography, we saw organic growth across all of our major regions, except in Europe which was down slightly against particularly strong growth in the year-ago quarter.

North America grew at slightly above the company average and Asia-Pacific and the rest of the world grew at more than double the company average.

For the full-year, growth was slightly more balanced with North America growing at the company average, Europe slightly below the company average and Asia-Pacific and the rest of the world in the low double digits.

Our Q4 adjusted operating income increased 27% year-over-year to 452 million.

Adjusted operating margin was 17.2%, up 200 basis points from 15.2% in the year-ago quarter on a pro forma basis.

Stock compensation expense was 12 million in Q4, as compared to 18 million on the procedure year on a pro forma basis, contributing 20 basis points to the year-over-year margin expansion in the quarter.

The balance of the margin expansion came from pull-through on our incremental organic revenues, including increased prices and the impact on our integration, sourcing and productivity initiatives.

For the full-year, adjusted operating margin expanded by 210 basis points to 16.8%, compared to 14.7% in the prior-year on a pro forma basis.

Stock compensation expense was $51 million in 2007, as compared to $75 million in the prior year on a pro forma basis, which, again, contributed 20 basis points to the year-over-year margin expansion for the year.

Analytical technologies Q4 adjusted operating income increased by 34% year-over-year and adjusted operating margin was 21%, up 310 basis points versus 17.9% last year.

For the full-year, analytical technologies adjusted operating margin expanded 260 basis points to 19.8%.

Laboratory products and services, Q4 adjusted operating income increased by 19% and adjusted operating margin increased by 100 basis points to 13.4% as compared to 12.4% in the prior year.

For the full-year, laboratory products and services adjusted operating margin expanded 140 basis points to 13.6%.

Adjusted gross margin was 40.9% in Q4, up 140 basis points from 39.5% in the year-ago quarter on a pro forma basis, primarily as a result of price increase nets of inflation, volume leverage and the impact of our sourcing and productivity initiatives.

For the full-year adjusted gross margin was 40.8%, up 120 basis points from 39.6% in the prior year on a pro forma basis.

Adjusted SG&A was 21.3% of revenue in Q4, down 60 basis points from 21.9% in the year- ago quarter on a pro forma basis, primarily as a result of volume leverage, integration synergies and lower stock compensation expense.

For the full-year, adjusted SG&A percent of revenue improved 80 basis points to 21.5%.

R&D expense was 2.3% of revenue in Q4, down 20 basis points from a year-ago quarter on a pro form forma basis.

For the full-year, R&D expense was 2.4%, down 10 basis points from the prior year.

Moving on to below the line items, adjusted net interest expense of $23 million in Q4, up $4 million from the prior year as reported, primarily as a result of the merger.

Other income of $2 million was up $1 million from the prior year and primarily as a result of joint venture income.

Our adjusted tax rate for the full-year was 24%, down slightly from our 24.6% full-year estimate at the end of Q3 and which resulted in a comparatively low Q4 adjusted tax rate of 22.5%.

The 2007 Q4 rate is down over 4% from the prior year, primarily as a result of tax planning structures that we implemented during the year, many of which were facilitated by the merger.

The decrease of 0.6% from our previous full-year forecast was driven primarily by an increase on our ability to utilize foreign tax credits and a shift in our international income to lower tax rate jurisdiction.

Average diluted shares were 441 million for the quarter, down 6 million from Q3, reflecting the benefit of the share buyback program that we initiated in Q3 and continued into Q4.

For the full-year, average diluted shares were 444 million.

Average diluted shares for both the quarter and full year were up significantly from the prior year and the results of the merger.

During the quarter, we used $358 million to repurchase 6.3 million shares.

This brings total buybacks for the year to $898 million and 16.4 million shares.

In terms of balance sheet performance, we ended the quarter with $650 million in cash and investments, down $196 million from Q3, primarily as a result of the share repurchases and acquisitions, partially offset by our strong operating free cash flow.

Our debt was essentially flat with the prior quarter at $2.2 billion.

Accounts receivable days sales outstanding was 50 days, down 4 days from a prior year on the pro forma basis and inventory days supply was 68 days, down 6 days from the prior year on a pro forma basis.

But excluding the increase that resulted in both years from the purchase accounting inventory stepup, inventory days supply was down three days.

The improvement and working capital metrics this quarter after several quarters of flat performance was a result of continued focus on cash cycle process improvements and best practice sharing across the company.

Full year cash flow from continuing operations was $1.50 billion.

After deducting net capital expenditures of $156 million, full year free cash flow from continuing operations was $1.34 billion.

In summary, we finished the year on a strong note and delivered solid performance for the full year across all our key metrics.

With top line growth of 10%, margin expansion of 210 basis points, free cash flow of over $1.3 billion, which is 14% more than our adjusted net income, and adjusted earnings per share growth of 39%.

So we've really delivered a strong, but balanced financial performance -- quite a feat given the scale and complexity of the merger that we undertook just over a year ago.

So moving on to our future guidance, we expect our strong operational performance to continue in 2008.

Specifically, we're initiating a 2008 revenue guidance range of $10.5 billion to $10.6 billion, which assumes no additional acquisitions or divestitures and current foreign exchange rates.

This range represents an 8% to 9% number over our 2007 revenues of $9.75 billion.

In terms of adjusted earnings per share, we're initiating a 2008 guidance range of $3.05 to $3.15 which represents a 15% to 19% growth over our 2007 adjusted EPS of $2.65.

This guidance assumes we will complete the remaining $100 million of our share buy buyback authorization in 2008, and that our tax rate will be in the range of 24%.

It doesn't include any other significant assumptions with regard to future acquisitions, share buybacks, or other uses of our capital, with the exception of scheduled debt repayment.

We also expect to see an increase in our stock compensation expense of about $0.03 per share, as compared to 2007.

With that, I will turn the call over to the operator for Q&A.

(OPERATOR INSTRUCTIONS)

Our first question comes from Ross Muken from Deutsche Bank.

Hopefully you can hear me okay.

We hear you.

In terms of -- leading into the quarter, investors had a lot of concern around the organic growth rate, a lot of trepidation of the overall performance of the business, obviously, you know, very strong quarter.

Marijn, you commented on some of the other metrics that are key and important (inaudible).

Is there any change from sort of what we saw heading into '07, throughout '07 now under your first pro forma year in the company and end-market demand in any of the key segments as we head into '08?

And then secondarily, now you that had the business, you know, for a year as well, how would you character characterize the visibility and the capital equipment exposure, you know, that you had in the old Thermo business and the new Thermo Fisher Scientific business?

Okay, yeah, good morning, Ross.

You know, your first question about when we were here a year ago and we were looking at the markets, vis-a-vis how we're looking at the markets right now now, I would say as I mentioned in my comments that anything that is life sciences or healthcare related is really very similar to a year ago and there is really not any significant change.

I would say that from an industrial and environmental point of view, there is, today, more emphasis and more demand in the areas of food quality, microbiology, you know, a lot of stuff happened in 2007 with respect to the concern along the food chain.

So I would say definitely it's stronger and then, of course, as I mentioned to, you know, maybe the commodity materials will market will at some point get weaker, even though we have not seen any sign signs of that in our demands from those customers at this point.

Go ahead.

And on the visibility side?

The visibility, we are now 50% consumables and as I mentioned about a third instrumentation, hardware and the rest of it is services in software; and typically the backlog you have in consumables is shorter than on the instrument side.

Because it's more of a getting the order and ship it relatively quickly while instrument businesses tend to carry a little bit longer of a backlog.

So, in terms of months-out visibility, I would say the overall company has less visibility, three, four, five months down the road than Thermo Electron used to have.

As we look to the emerging markets, there is a big (inaudible) into the coupling of growth that even if there is a U.S.

slowdown, particularly they won't be effects in China and some of the other markets.

Have you seen anything that has given you an indication the Chinese market is slowing to any degree, changing its growth trajectory and on top of that, how do you anticipate the demand in the different markets as we head into the Olympics this summer?

We have not seen any slowdown in places like China and India, actually.

The numbers were terrific in both countries.

I believe that they're a little different.

China is more heavily weighed, typically to the infrastructure buildup, you know, more of a demand to, you know, for building and commodity materials are particularly high in demand and environmental demands are high there and also, more and more academic and Life Sciences of demand.

India's very life sciences and healthcare focused.

A lot of the CROs are building laboratories in India more and more clinical trials are going to be done for India and so I would say that China is more infrastructure buildup first and second Life Sciences and India is heavily on life sciences in terms of growth and I, I can see the growth very easily continuing because, quite honestly, you know, some of the growth that China and India are experiencing are transition growth from the U.S.

to those countries.

If we don't do a clinical trial here anymore but do it in India, the clinical trial still gets done.

The U.S.

may decelerate in growth, but India picks it up and there are a lot of examples of that growth and pharma companies putting up labs in China or India and also on the industrial side.

So, it's, you know, it's not necessarily true that decelerated growth in the U.S.

will come with decelerated growth in Asia, in my opinion.

Our next question comes from Quintin Lai from Robert W.

Baird & Company.

Good morning.

Congratulations on a nice quarter, nice year.

Thank you.

As you commented that you don't see any change in life sciences, could you kind of decouple your consumables and instrument business?

Because during the earnings season we heard some instrument manufacturers talk about that some large pharma companies have had some lumpy cycles, especially with year-end spend.

What did you see in Q4 your business and what are your expectations in '08?

We don't really, you know, see any sort of significant shifts, Quintin.

Very similar patterns through the third quarter and the second quarter and the year-over-year on the pharma side.

So, I can not really second-know the comments that perhaps were made by some of our peers.

And in 2008, the trend of pharma taking some things to CROs, how do you see that impacting your business?

Actually, that is positive because whenever a pharma company decides not to do an experiment in the lab anymore and outsourced it to a CRO, the CRO now has to set themselves up to do that experiment and invariably, that leads to an accelerated turnover of equipment.

An accelerated replacement cycle.

So, I actually think that some of the strength in the life sciences market is the result of this outsourcing of pharmas to CROs.

My second question here.

Pete, in 2007, could you give us an idea of what the impact of divestitures were on growth?

And then in your 2008 expectations, you know, how much of the divestitures from 2007 affecting '08?

And as a followup to that, anything we need to watch out for an Easter falling in Q1 for Q1 modeling purposes?

Okay -- a lot of questions.

Sorry.

2007 divestitures was pretty minimal impact on our top-line.

It was very limited.

We had a couple of joint ventures that moved out of our fully-consolidated reporting and into a joint venture income reporting, but it was fairly insignificant.

I have missed the middle question.

In 2008, any expectations, any divestitures that occurred in '07 that would be impacted into '08?

No.

Again, very minimal impact.

Those the joint ventures that went out at the middle of the year but they, you know, less than a 1% impact for the year-over-year reported growth.

Obviously, we would exclude those from any kind of organic comparisons.

And then with respect to Easter, because now, your business is consumables now?

Fifty percent of your business is consumables?

The way our calendar works out, Q1 is going to be a little bit lighter or a year-over-year comparison basis, because of the way the Easter holiday falls.

It won't affect the full-year but we will see an impact, negative impact in Q1 and a, we'll get it back, basically in Q4 is the way the days will fall out.

And that is the significant impact compared to the old Thermo where we had a capital and equipment business.

But now, as Marijn said, we're 50% consumables, that does have an impact on the year-over-year growth.

Thank you.

Yes..

Our next question comes from Peter Lawson from Thomas Weisel Partners.

You talked about the strength in the environmental business.

How big is that business for and you how fast is it growing and where do you see that growth?

Well, we have sort of two set sets of environmental businesses.

One that is serving environmental laboratory and so instrumentation and consumables and software that ends up in a laboratory setting for water quality or for other types of environmental studies.

And then another part, and this is the fastest-growing part, is the part where we have air quality monitoring in the real world.

So, you know, instrumentation that is attached to the smokestack and is monitoring all of the gases and other stuff that comes out, particulates, mercury that comes out of the smoke stack.

And that particular part of the environmental instruments is growing extremely fast.

I think our overall exposure to environmental is probably 7, 8% of our revenues, so $700 to $800 million.

But this particular part of environmental monitoring on smoke stack is growing very rapidly, driven by some very good new products that we introduced to address new legislation into the United States, particularly around the monitoring of mercury emissions.

And then moving on to the diagnostic business, last quarter you seemed to very excited about the idea of convergences between the diagnostics and life sciences industry.

How fast has that business grown for you and where were you see seeing the growth?

Well, in general, we have a specialty diagnostics sort of capability that is about, you know, $1 billion or so in revenue and the growth there is particularly in two areas and one of them is in anatomical pathology where we have seen a very, very nice organic growth number in 2007.

So this is anatomical pathology similar to businesses like Ventana, they have the same space and just, that is being acquired by Roche.

And the other area is microbiology, and microbiology is basically detecting bacterial infection, bacterial contamination both from a life sciences point of view and from a food chain point of view.

And needless to say with everything that is going on in bacterial infections in hospitals, what is going on in the food supply, those businesses are seeing very nice growth as well.

Okay, thank you.

And finally, Peter, can you explain to me the lower tax rates in the quarter, looks moderately lower and looks like seasonal elements in that tax rate.

Where does that come from and is that expected next year as well?

No, there is no seasonal element to it.

Basically at the end of Q3, we had a full-year forecast of 24.6%.

At the end of the year, we ended at 24%, so that that 0.6% has to get adjusted in the current quarter.

So, it's simply going from, reducing our full-year estimate by 0.6% and that was driven by additional usage of foreign tax credit, as well as the shift in our income to some lower tax jurisdictions in our international businesses.

What is the guidance of '08 for tax?

24%.

Okay.

Thank you so much.

Yes.

Thank you.

Our next question comes from Tony Butler from Lehman Brothers.

Marijn, a couple of questions.

Number 1, is when you think of the analytical instrument business, can you perhaps dive a little deeper into the notion of what seems to be selling best now?

Is it mass spec?

Is it areas of equipment and elemental analysis?

Is it molecular spectroscopy?

And is there any shift among the analytical instruments subsegments that seems to be meriting, you know, greater demand?

And the second question earlier revolves around your Asia/rest of world business where, I assume to recall roughly 10% of the total globe -- is it growing such that you can see it being 12 or 13% at the end of '08.

Is that how one should think about it, or is it still relatively small within a grand scheme of the total business?

Thank you.

Okay, Hi, Tony.

In analytical instruments what, are we seeing?

You know, we are participating in a number of areas, of course, mass spectrometry is a very big area for us.

That is growing gangbusters, very much driven by, you know, the slew of new product technologies that we have been bringing out over the last two years.

And I would particularly highlight the orbitrap technology there.

And then your question about other areas like the spectroscopy, another strong area is elemental analysis and that goes really back to an industrial, more industrial customer base that has a need for quality control with elemental analysis in the lab.

And that is, you know, a very, very strong area for us right now in '07 and it looks to be, as I mentioned, no slowdowns at this point for '08.

Molecular spectroscopy is more in the middle, you know, can go both ways, more life sciences and more industrial and it is, you know, growing less past the mass spectrometry and elemental at this point.

Does that answer the question?

Yes, it does and it's very helpful.

Thank you.

Okay.

And then Asia, yes.

We are, obviously, growing faster in Asia, particularly China and India than the overall average of the company.

When you say 12% to 13% on a billion, then we have to come up with $200 million to $300 million of extra sales over there in a year and that sounds a little aggressive.

So, I do believe, I haven't done the math, but, you know, we're around 11% now in Asia and can probably increase by a percent or so and in '08 just because we pick up more share there as the fastest growing part of the world and that would be the $100 million extra and that would grow at 10% vis-a-vis the company in the mid-single digits.

I think that we'll pick up about a percent a year extra in Asia over the next few years unless we do acquisitions there, of course, and then it would be accelerated.

Very helpful, Marijn.

Thank you.

Okay, thank you, Tony.

The next question is from Tycho Peterson from J.P.

Morgan.

Hi, this is [Sun Gi] in for Tycho Peterson today.

Just building on the previous question, the question about the mass spec business.

Some customers have mentioned seeing increasing competition in the lower end of the market, particularly in terms of increasing price pressure, pricing pressures.

Could you comment on kind of Thermo's, I guess, competitive position.

I know you said scoring gangbusters, where, what the target markets are as far as kind of your outlook for 2008 in the space.

I want to accentuate a little on it.

In terms of mass spec, this is Marc Casper speaking, we have good success across our range of products.

The hybrid products, the Orbitrap has continued to be strong and we're seeing very significant growth in our triple quad product line as well.

And that has given us good strength both at the higher and lower price points and you have seen momentum geographically, North America, Asia, Europe all having good growth.

While mass spec is certainly a very competitive market, our reputation as the, certainly the technology and innovation leader and continuing to bring out a slew of new products has positioned us very well in the mass spectrometry market.

Okay.

And as for your 2008 revenue guidance, could you comment on kind of the underlying for the acquisition impact and that acquisition impact in 2007 and as well as what your current assumptions are for the currency exchange rate?

Yeah, the impact of acquisitions is a little more than 1%.

And the foreign exchange impact is 1.5% at the current rates.

Thank you.

Our next question comes from Jon Wood for Banc of America Securities.

Thank you.

Did you provide operating cash flow guidance for '08?

I might have missed it.

I'm sorry.

No, I didn't provide a number for operating cash flow guidance guidance.

Can you you do it?

Can I or will I?

Will you?

We had a very strong year in 2007, as I said.

We generated $1.34 billion of operating cash flow.

Honestly, I think in 2008, that will be a tough number to match, so I would say we're looking at a number of around $1.2 billion as what my expectation is.

That may get better as we go through the year, but that is where I start at.

Okay, and CapEx, does it grow any in 2008?

Yeah, CapEx is actually go going to go up a little bit in 2008.

We had 100, a little more than $150 million in 2007.

I expect that number to be more like $250 million in 2008.

Okay.

Great.

Thanks.

And then can you give us an update into the integration or consolidation opportunities and the Fisher legacy manufacturing businesses, the Apogens, the Pro-Bios -- just wondering if you have encountered or discovered any more opportunity versus your initial look into those business businesses a year ago or so.

Is there a potential for a little bit deeper of a cut, you know, going forward?

This is Marijn.

No, there isn't.

We are on track with the synergies as we mentioned and we really knew the business very well.

We spent a half a year between the announcement and the closing back in 2006 very tightly working with legacy Fisher management, visiting all the sites and doing business reviews.

So overlaying with the Thermo capabilities, we have a very good, I think, assessment on what the synergies were going to be and where they were going to come from and I would say within 95% correct on our assumptions, so it's a lot of work that's happening across the company, rationalizing some of these facilities.

2008 will be a key year in doing that but I wouldn't say there is upside in that.

Okay, great.

If I can sneak one in.

The Fisher healthcare, is the health care part of your business.

Any material change there in ' '08.

Thanks.

Do you mean the healthcare catalog or in general, the diagnostic area.

Just the clinical lab part of the business.

Both manufacturing and distribution.

Okay, catalog.

So no, I think we believe the demand there will continue to be good.

It was good in 2007 and we believe that that will continue to be quite robust and there is no real indications going into this new year that things in the market will be significantly different.

Thank you.

Thank you, Jon.

Our next question comes from Derik De Bruin from UBS.

Good morning.

Good morning, Derik.

You know, during your analyst day last May, you had talked about 2009 and operating margin targets somewhere in the 19% to 20% range.

Two questions.

Are you still comfortable with that and, I guess, can you just give us color on what the mix is in terms of growth margin expansion and operating cost because what is going into driving that.

I get a lot of these questions from clients, just trying to factor out what's going in.

Make sure they're very good questions.

[ Laughter ]

So, Derik, if you look over 2007, our EBITDA margin is close to 17% so our goal is to extend our operating margins by 100 basis points a year on average and we believe that we can do that in the next number of years so that 19% to 20% that we're talking about for '09 is certainly within reach.

Okay.

It doesn't help to come off 200 basis points a year, obviously, in 2007.

I forgot your second question.

I just -- the contributions, productivity gains, gross margin expansion, etc.

Oh, yes.

Yes.

I think typically we sort of think about top-line growth add adding about half of our margin expansion and the other half coming from, you know, key productivity activities.

That include PPI sourcing, some restructuring.

So it's sort of a 50/50 balance of increased profitability.

Yes.

You know, the safety business has been a drag for awhile.

I guess is it on a short leash and could you potentially divest it?

We're not going to divest it.

There are two pieces to the safety business.

One is a, the core business which is actually doing quite well and this is providing, you know, safety supplies to laboratories, in particular, people who work in laboratories and want to protect themselves.

So, that is very much in line with our overall research market catalog and completely integrated from a supply chain point of view.

So, there is no way we could divest it.

The other piece of it is a piece that is specifically focused on the fire and preparedness market.

So this is everything that has to do with homeland security, first responders, equipping themselves with safety devices in case there is, you know, a calamity happening.

And that is the part that is really rapidly decreasing in size.

Obviously, it peaked, you know, a few years after 9/11 and then in the last few years, it has come down significantly.

And though it's not really that big a part of that overall business, maybe only 25%, the decline there is so significant that it drags down that whole division.

And, you know, it is a market that we are serving.

We're serving it with the same capability and infrastructure as we're serving the lab market.

So, you cannot slice that out and say let's divest it.

It is what it is.

It's a very, very up-and-down business and, you know, demands for that business, I hope it didn't happen, they could spike again and would be some -- could be some type of terrorist event unanticipated in the United States.

So, it is what it is.

We are living through it.

I think the year-over-year comparisons are getting easier on it that last year as well and I was wrong last year, but we believe that to be true this year.

Okay.

That is very helpful.

I guess with that business, if I recall from the -- was that more of the fact that appropriate funds were never spent or just less investment in overall preparedness these days?

I think in general there was a spike in investments.

When the Iraq war started to cost more and more money, I think there was a, sort of a reduced ability to spend truly on homeland security, which is really here in the homeland.

Right.

And I saw the budget proposal proposals again, the spike for homeland security and so maybe, maybe there will be a re-equilibration, but who knows what is going to happen with the new politics in Washington pretty soon.

I am not really -- it's an integral part of the business and has its ups and downs.

We'll take it the way it comes.

Great.

I'll get back in the queue.

Thank you.

I'm showing no further questions at this time.

Okay.

I just want to say a few things, then, in closing.

I think you have heard from our enthusiasm that we're very happy with how 2007 finished up for us.

We continue our track record of strong financial performance and we successfully integrated what was really a major acquisition that we believe is transforming our industry and we are defining what it means to be a leader in this space and with our unique position, we are able to capitalize on the opportunities that we have.

Very focused on creating value for our customers, our share shareholders and employees.

So thank you very much for all of your support of Thermo Fisher and we're looking forward to updating you on the first quarter of '08 in three months.

Thank you very much.

Ladies and gentleman, this does conclude your program.

You may now disconnect.

Everyone have a great day.