WD-40 Co (WDFC) 2004 Q4 法說會逐字稿

Good day and welcome to the WD-40 Company Fourth Quarter 2004 Earnings Release Conference Call.

Today's conference is being recorded.

At this time I would like to turn the conference over to the VP of Corporate and Investor Relations for WD-40 Company, Ms. Maria Mitchell.

Please go ahead.

Thank you.

Good afternoon and thank you for joining us for our fourth quarter earnings call for fiscal 2004.

Today we're pleased to have Garry Ridge, President and CEO, and Michael Irwin, Executive Vice President and CFO.

This conference call contains forward-looking statements concerning WD-40 Company's outlook for sales, earnings, dividends, and other financial results.

These statements are based on an assessment of a variety of factors, contingencies, and uncertainties considered relevant by WD-40 Company.

Forward-looking statements involve risks and uncertainties which may cause actual results to differ materially from forward-looking statements, including impact of promotional programs, impact of new product introductions and line extensions, and the uncertainty of market conditions both in the United States and internationally.

The Company's expectations, beliefs, and projections are expressed in good faith and believed by the Company to have a reasonable basis.

But there can be no assurance that the Company's expectations, beliefs, or projections will be achieved or accomplished.

The risks and uncertainties are detailed from time-to-time in reports filed by WD-40 Company with the SEC, including Forms 8-K, 10-Q, 10-K, and readers are urged to carefully review these and other documents and to stay up-to-date with our most recent Company developments provided in the Investor Relations section of our website at www.wd40.com.

During today’s call Gary will review a presentation on the Company’s four year goals.

Please log in to wd40.com on the investor relations site to access this presentation.

Please also note our first quarter fiscal 2005 quarterly earnings conference call is schedule to take place on January 6, 2005 at 2 PM Pacific Time.

At this time I would like to turn the call over to Garry Ridge.

Thank you, Maria and good day from San Diego where it’s a little different today because its raining which is something unusual for us to enjoy.

While we did not meet all that goals for the year we have made significant progress in our plans to develop our people, develop new product, change your processes, and review our promotions.

The evidence of this progress will be seen in the coming years.

We expect to see sales and earnings growth in all our trading blocks in fiscal 2005.

WD-40 Company’s goals for the coming four years were posted on the website at WD-40.com today and will be available for 30 days and will later be incorporated into our regular investor presentation.

WD-40 has the -- Company has also added additional, historical, financial information to this news release and to the call to show return on invested capital, ROIC.

I invite you to go to the investor relation site as I talk about the content.

Let's look at fiscal year 2005.

In fiscal year 2005 the Company expects an increase in net sales of 13.4% over fiscal 2004.We expect a sales growth of 8% in our lubricants business.

The growth in lubricants will come from the continued development of the WD-40 brand outside the U.S particularly in Europe and Asia and the positive impact of the 3-IN-ONE Professional program globally.

We expect to see a 25% increase in our house hold products.

This growth will come from the full year impact of the 1001 brand in the U.K.

The impact of a full year of sales of the new products launched during 2004 which includes two new 2000 Flushes in bowl toilet cleaners and the new Oxy-orange, and Oxy-citrus bathroom cleaners.

We also expect to see global growth in the Carpet Fresh brand as it was introduced in to Asia and Japan and continues to gain market share in Australia under the No Vac brand.

You can in our presentation on your website actually review these products.

We see flat sales in our hand cleaners segment a lot of professional strategy which rolls out at the beginning of Q2 will help stabilize the Lava brand.

You can also review those products on the presentation in the website.

Investment in global advertising and promotion expenses for the year is expected to be in the 8.5-10.5% of net sales.

The company expects net income to increase 5.5% in 2005 to 27 million achieving earnings per shares of a $1.62 for the year based on an estimated 16.7 million shares outstanding.

Now there is something important to share, we have variety of new products and product innovations in the pipeline that will come to market at various times during the year.

We will update our guidance when we can estimate the impact these products will have on the year during the year.

We have been focusing on expanding the distribution of our household products and are pleased to report that we recently introduced the 2000 Flushes Blue Plus Bleach and our Carpet Fresh, No Vac pet products into a major national [hardware retailer] in the United States.

Also what is startling is that in the first half of that fiscal year you will see a new 2000 Flushes Clip-On in more mass retailer stores in United States.

We also have released two new X-14 products in the last few months.

Now to review the year passed I would like to hand over to Mike Irwin, who will cover that in more detail.

Thank you Garry.

Total fourth quarter $71.7 million down 2.3% in Q4 last year, fiscal year sales were $242.5 million up 1.8% over last year.

Lubricant sales, which include WD-40 and 3-IN-ONE, for the fourth quarter were $46.5 million, up 2.2% from Q4 last year.

We had strong growth in Asia, U.K., Germany, and Middle East in our lubricant business and lubricant sales for the year were $157.9 million, up 8.9% over last year.

Hand cleaner sales, which include Lava and Solvol brands, were $1.9 million in the quarter, down 11.6% from a year ago and full fiscal year hand cleaner sales were $6.6 million down a 11.9% versus a year ago.

Household products which include 2000 Flushes, Carpet Fresh, X-14, Spot Shot, and 1001 fourth quarter sales were $23.2 million down 9.5% compared to the same quarter last year. 1001 contributed $2.2 million in Q4 sales.

And for the year household product sales was $77.9 million up 8.9% compared to last year. 1001 contributed $3.2 million in sales during the fiscal year.

Household product sales in fiscal 2004 were down compared to the prior fiscal year due to declines in the U.S. partially offset by substantial growth in Canada, Australia, and Europe.

The decrease in the U.S. reflected a variety of competitive factors within and among our household products categories.

The Carpet Fresh sales declined primarily as a result of customers allocating shelf space to other categories in place of Rug and Room Deodorizes.

Although Carpet Fresh sales declined due to these distribution losses, Carpet Fresh as a brand has increased dollar segment in the dollar market share in the grocery segment.

Competitive product introductions hurt sales of the X-14 brand and the Company has repositioned the X-14 Mildew product highlighting a proven claim that X-14 prevents mildew re-growth.

The 2000 Flushes X-14 Automatic Toilet Bowl Cleaners were down for the fiscal year due to intensified new product introductions from competitors into the manual toilet bowl cleaning segment in additions sliding fees paid to secured distributions for the 2000 Flushes Clip-On products recorded as offset to sales and are expected to continue as the Company gains distribution.

The company continues to address the challenges and opportunities that exist within the competitive environments of the household products categories through product and promotional innovation.

Overall our innovations touched almost every one of our brands during fiscal 2004 and those included on a by-brand basis for 2000 Flushes Clip-On product with fragrance, Clip-On product with bleach; under the Carpet Fresh brand we introduced the spray [to] cap on No Vac.

We introduced new sizes, we introduced five new fragrances, we introduced a Carpet Fresh Professional line as well as Carpet Fresh No Vac in Australia.

Under the X-14 brand we introduced the mildew prevention claim that I have always spoken about, in new size, and the X-14 Orange aerosol which is the only Orange aerosol bathroom cleaner in the market.

Under the Spot Shot brand we introduced a professional line, new sizes in a Bonus Can and under the 1001 brand, which we acquired in April, we introduced the 1001 Carpet Fresh No Vac with 3 fragrances in the UK as well the 1001 Spot Shot spot/stain remover in the UK as well.

Those products are currently in stores in the UK.

Under the 3-IN-ONE brand we extended the extended 3-IN-ONE Pro line with the continued US introduction of the high performance lubricant cleaner degreaser, the engine starter.

We also introduced 3-IN-ONE professional penetrant, silicone, white lithium grease into Canada, France and the UK.

And WD-40 as well was also touched by innovation this year with the introduction of the WD-40 Big Blast can, which is a [way to] applying product to large areas.

We also introduced the WD-40 shades can into Asia as a way to further differentiate the real products from counterfeits.

These product introductions were completed at various times through the year.

As a result, we did not see the full year impact in FY04.

Moving on to our geographic segments, which is the way we run our business, Americas Q4 sales were $46.2 million, down 15.7% against last year.

Growth in Canada was offset by declines in the quarter in the US and in Latin America.

For the year, Americas sales were $166.1 million, down by 6.9% compared to last year.

Canada sales grew by 20.1% while Latin America sales where flat with last year, annual U.S. sales declined by 8.9%.

Foreign exchange impact on Canada sales was $1.1 million.

And moving on to Asia-Pacific, the fourth quarter sales there was $7.2 million, up by 62.1%.

Australia achieved strong growth in household products with overall Q4 sales up by 26.2%.

Asia Q4 sales were up by 73.5% due to lubricant growth.

For the year, Asia-Pacific sales where $18.6 million, up 29.2% with strong growth in both regions.

Foreign exchange impact on Australia sales were $900,000.

Europe fourth quarter sales where $18.3 million, up 29.5 % versus a year ago, Q4 sales without 1001 were $16.1 million, up 14.2%.

For the year, Europe sales were $57.7 million, up 27.6% compared to the same period last year.

And full year Europe sales without 1001 were $54.5 million, up 20.6% with sales growth in the U.K., Russia, France, Germany, Spain, Italy, Eastern Europe and the Middle East.

Foreign exchange impact on Europe sales was $6.4 million and without 1001 which was acquired in April 2004, the foreign exchange impact on Europe sales would have been $6 million.

Gross profit was $125.5 million or 51.8% of sales in fiscal 2004, compared to $122.2 million or 51.3% of sales in the prior fiscal year. 0.5% increase in gross margin percentage is due to the effect of U.S. price increase and other supply chain savings offset by increased advertising and promotional discounts and product mix.

The increase in pricing of certain products in the U.S. added 1.2% gross margin percentage compared to the prior year period.

The overall impact of A&P discount on gross margin percentage, which include things like coupon redemption, slotting, display allowance, product advertising and other promotional activity was 3.7% in fiscal 2004 compared to 3.6% in a prior fiscal year.

Net changes in product mix and other supply chain costs resulted in a 0.6% decrease in gross margin percentage.

The timing of certain promotional activities and shifts in some product mix may continue to cause significant fluctuation in gross margin from period to period.

Selling, general, and administrate expenses for fiscal 2004 increased to $58.3 million, up from $54.1 million for the prior fiscal year.

Increase in G&A -- SG&A is attributable to a number of items including $2.1 million increase due to exchange rates, a $1 million increased due to professional fees, primarily for added legal and accounting related to regulatory compliance, a $1 million net increase in employee costs including salary increases and added staffing in Europe compared to the prior year, $900,000 increase in freight costs, $200,000 in higher insurance, $300,000 connected to the 50th anniversary of the Company, 300,000 increase in investor relations activities and about 300,000 in a variety of other office overhead items.

Those were partially offset by a $1.7 million decrease in bonus costs as well as the $200,000 decrease in commission associated with the decline in sales and the grocery trade channel.

As a percentage of sales, SG&A increased to 24% in fiscal 2004 compared to 22.7% in 2003.

A&P expenses increased to $21.5 million in 2004, up from $17.4 million for the prior year and as a percent of sales increased to 8.9% compared to 7.3% last year.

The increase is mainly due to additional TV advertising, product demonstration, coupons and print media.

As a percent of sales, A&P expense may fluctuate period to period based on type of marketing activities employed by the Company, as the cost of certain activities are required to be recorded as reduction to sales, while others remain in A&P expense.

Investment in global A&P for 2005 is expected to be in a range of 8.5-10.5% of net sales.

Operating income for the quarter was $15.3 million compared to 17.7 in Q4 last year and for the year operating income was $45.4 million compared to $49.8 million last year.

Amortization expense in the quarter is a result of the 1001 acquisition, a portion of the purchase price has been allocated to customer base acquired, which is being amortized over the expected life of the assessment relationships.

Net interest expense in the quarter was $1.5 million, down $96,000 compared to the prior quarter.

Full year interest expense was $6.4 million versus $6.7 million last year.

Provision for income taxes were 34% as it was in the past two fiscal years, this reflects an adjustment to the current year tax rate from the previous 33.5% in the third quarter, associated with the change in the projected annual tax rate due to tax benefits expected from foreign tax planning in the fourth quarter.

The Company was unable to achieve the projected tax benefits in the current year.

We expect a slightly higher tax rate in fiscal 2005.

Net income in the quarter was $8.9 million compared to $10.3 in the quarter last year, and on a diluted per share basis earning were 53 cents compared to 61.

For the year, net income was $25.6 million compared to $28.6 million last year, which relates to an earning per diluted share of 1.50 compared to a $1.71.

Diluted shares outstanding have increased to 17.1 million shares for the year compared to 16.8 million shares for the prior year.

Regarding the dividend, on October 6th, the Board of Directors of WD-40 company declared a regular quarterly dividend of 20 cents per share payable on October 29th to shareholders of record on October 18, 2004.

Based upon today's closing price of $29.27, the annualized dividend yield will be 2.7%.

About our balance sheet at August 31, 2004, cash and cash equivalents were $29.4 million, down from $42 million at the beginning of the fiscal year.

The drop in cash balance partially reflects the following significant items.

The $10 million principal repayment on our debt, the 1001 brand acquisition for approximately $11.6 million, the share repurchase program that we completed in Q4 during which we repurchased 535,000 shares at a total cost of $15 million.

That program is now complete.

We also paid dividends totaling $13.6 million during the year.

Accounts receivables declined due to a lower level of fourth quarter 2004 sales compared to the prior year quarter as well as timing of sales within the quarter.

The $11.3 million combined increase in goodwill and another intangibles is primarily related to the 1001 acquisition.

Inventories rose to $6.3 million, up from $4.7 million at the beginning of the year.

This reflects the impact of the 1001 acquisition in the flow of our business.

Current inventory levels were in line with what we would expect.

Along with other measures, we believe that the quality of business performance can also be illustrated by return on invested capital, our calculation for ROIC is as follows -- net operating profit after-tax divided by average total asset less other cash minus non-interesting-bearing liabilities and you can see that calculation on the attachments to the press release on our website.

The [quarter link] for the FY04 ROIC for the Company was 17%, our long-term goal is grow is to return on invested capital.

And that's all for now, we will be filling our 10-K tomorrow and I'll pass it back to Garry Ridge.

Thanks, Mike.

As we came to the end of this fiscal year, we set to take off the 2005 with innovations and new products across all our brands.

Our lubricant brand is strong with growth coming from our continued market development of WD-40 brand in Europe and Asia and the global impact of our 3-IN-ONE pro strategy.

Continuing innovation in packaging and product will also help our lubricant business.

Our household brands have new products in line extension that entered the market progressively during the year and particularly in Q4 of 2003 -- 2004.

Our Lava Pro strategy will stabilize the brand and strengthen our position in the hand cleaner category.

We will be now happy to take any questions.

If you do have a questions for our presenter, please signal at this time by pressing "*" "1" on your touchtone telephones.

If you are on a speakerphone, please make sure your mute function has been turned off to allow your signal to reach our equipment.

Again that is "*" " 1" and we will pause for just one moment.

Our first question will come from Jeffrey Zekauskas with J P Morgan.

Hi, good afternoon.

Hi, Jeff, hello.

Hi.

You went through a long litany of statistics, Mike, and I think I was -- I couldn’t tell whether you covered sort of currency price in volume for the company as a whole during the quarter and I guess also by individual product line.

So I you would imagine it’s mostly WD-40.

We did not cover the currency impact by brand or the price impact.

The price impact on this we've discussed is -- was a U.S. event [multiple speakers] WD-40.

We did cover currency impacts by geography, but not by brand.

What was the total currency impact in the quarter by geography then?

You know, I am sorry, what I did cover was the currency impact for the year, but not the quarter.

All right.

So don’t -- we haven’t released that for the quarter.

But I guess like order of magnitude was, you know, price up of a few percent and a currency up a few percent, is that the way to think about it or is that the way to think about it?

I think what we talked about is for the full fiscal year, we did cover the impact of price and gross margin and I'll just kind of refer back to that.

We had a one-half of a percentage point increase in gross margin which is partially related to the U.S. price increase and other supply chain savings.

So a portion of that was price and a portion of that was some other supply chain savings that came out.

With respect to the impact of currency, you know, we have related that to the geographical sales and, I'd say, we have been [there] for the year.

If I recall, you said 6.4 million for Europe, you said 1 million for Canada, you said 900,000 for Australia.

Is that all the currency impact or is there more?

No, that’s it because what -- in other parts of world, Jeff, which is Asia and Latin America and even portions of our European block, we sell in U.S. dollars, so we don’t see the impact of currency with the exception of areas where we sell in foreign currencies and those place would include Australia, Canada and a portion of the European business.

Okay.

Were your raw material costs up this year and if they were sort of by what order of magnitude?

We have seen higher costs in things like steel and we've seen higher costs in oil and other components.

We haven’t split those out specifically.

And as we have stated in the past, the impact on oil affects us not just in the cost of goods, but affects us in freight which we classify as part of SG&A.

Are you concerned about raw material costs for next year or have things stabilized for?

We are concerned.

Part of our operation really revolves around looking for ways to continue to become more efficient and to continue to help our suppliers become more efficient, but costs are always a concern for us and are today.

I guess let me just try one question, last time.

Did volumes in lubricants grow in the quarter on a global basis?

Yes.

Right.

Thank you very much.

Next, we move to Liam Burke with Ferris, Baker Watts.

Garry, how are you?

Hi, fine are you doing?

I had a question on your guidance or a couple of questions on your ’05 guidance, if you are looking at 25% growth in households and I would back out -- back of envelop, your recent acquisition that would be included in there, are you still looking at organic growth in the 12-13% range in the household space?

I don’t know.

If you did the number, Liam, I am sure it’s great.

Okay.

Well, anyway that is -- could you give some background as to what would -- what are some of the drivers here, I know, Mike, you talked in detail about new channels, new products, but what gives you there is got to be some [umps] behind there that you're seeing –

Let me give you the details.

Let's share it a little more, if you -- I don’t know if you had a chance, Liam, to slip on to our website that in there there are three or four initiatives in the household products area that will drive our price.

The first one will be the full year sales of the new X-14 Orange, which is a wide-area spray, unique bathroom cleaner.

We launched that -- started to launch it in the last half of the last quarter and so far we're encouraged and feel that it will be a significant contribution to the to the X-14 brand.

The second one in that area, next page is the X-14 Oxy Citrus [operators] bathroom cleaner and that's an upgrade from our X-14 Soap Scum cleaner.

And this is a product that is unique, it has oxy d-Limonine and citric acid and that will roll out.

Both of the -- particularly, the orange product, they are confident of distribution in -- wide distribution in the United States.

In the next area, that automatic toilet bowl cleaners, the In-Bowl product, you are going to see now the first full year's contribution of both of those items, both the bleach product and just the detergent product.

We've already secured distribution widely and you are going to see more prices in the U.S.

Third thing is you are going to see growth in the Carpet Fresh brand, particularly the contribution of our launch of Carpet Fresh in Japan and the continued growth of Carpet Fresh No Vac in Australia.

We've also gained new distribution for Carpet Fresh Pet in the major U.S hardware chain.

And we've put a lot of emphasis in the last quarter on not only innovation of new products, but now that we do have new innovating products getting that distribution in to the ultimate right channels where we can take away some of the volatility and uncertainty of the consumer who shops in the grocery trade channel.

Terrific.

And I just --

One last thing --

Oh, sure

And a 10% growth in our Spot Shot business.

If I did [back] your envelop, yours ales are way up, but the EPS at 16.7 million shares outstanding -- I mean where is the expense [built] here.

You anticipating lower gross margins, even if factor in a high-end advertising and promotion dollar of 10.5% of revenues, SG&A expected to step up again, I know you get a little bit additional taxes or higher tax rate, but where else would I see additional expenses?

Couple areas that you mentioned some of them.

The A&P investments -- show that began two areas, Liam, and one areas is in that category on the income statement where it's clear what's been spent on brand building activities.

The other part of the A&P investments is not as clear because it shows up as a reduction in sales and as we have a scaled up rollout of new items, we expect you incur higher A&P investment which kind of occurs above the sales line and therefore nets out as a reduction in sales.

Wouldn’t that have been netted out on your guidance on the product line now?

Yeah.

The other part of it is that we expect to see higher costs -- continued higher costs in SG&A

Okay.

The costs are being public, again, continues there.

We also expect to see some impact of higher component cost materials and freight.

Okay.

And there’s also a portion in that too that we are helpful that we are going to reach our goals this year, so we will pay bonuses to our employees in the U.S. if we do achieve our goals, something that we didn’t do this year.

Great.

Thanks Gerry.

Thanks Mike.

Thank you.

And a reminder, if you have a ,question press "*" "1" now.

We’ll move next to Mimi Sokolowski with Sidoti & Company.

I will just say hello guys, those two questions were actually mine, so I'm well taking care of.

Thanks Mimi.

Although now that I think about it, I am having a hard time finding a presentation on line, can you tell me where exactly on your website.

If you go to wd40.com, investor relations and click on the reference to the conference call, it's in Adobe PDF file right there.

It is working, I checked it a few months ago.

Okay.

Thank you very much

Thank you.

Next we will move to Frank Magdlen with The Robins Group.

Good afternoon, gentlemen

Good afternoon

On your longer term goals of 7-9% sales growth, compound growth and net income of 9-11, how much of it you think is going to be from your existing brands, how much of it you are going to have to come from acquisitions, if any?

There are no acquisitions factored into that at all.

Okay, no acquisitions --

You learn lessons in life and we learnt a lesson last year in giving out guidance we gave guidance and we included in that guidance the plans of new product launches during the year.

What happened was those moved around and unfortunately we had to reduce.

What we've come with this year is a solid base plan that reflects everything that we have now that we will there for full year.

The base plan does not include the launch of any other new products later in the year and it does not include any new acquisitions.

We are still inquisitive on the acquisition front and certainly would be looking for what we would call tracking acquisitions, would use fixed overhead structure of that business and we will certainly have new products come into market from our brands during the year; as we know the impact of that, we are going to, then be able to more accurately, I hope, give guidance on how they will deliver value to our shareholders.

Seasonally then, when will you normally or when would we expect the new product launches that might occur?

In the second quarter, you just wouldn’t do it at all?

No, it's at all about product development pipeline, certainly I think you know, over the period of the year, it will depend on when we have them ready and how successfully we can bring them up to launch.

All right, and then one other question on the national hardware retailer, did you -- you said there was a pet product in there along with several X-14 products.

We had Carpet Fresh No Vac pet, we will have 2000 Flushes Blue plus Bleach.

We also already have Spot Shop.

So we are starting to build our product portfolio within those trade channels.

And they are in the hardware retail store now or will be?

Spot Shot is and the other two will be.

Thank you.

You are welcome.

And the next we will have follow-up from Jeffrey Zekauskas.

Hi, just a question of clarification, first, can you remind me what you paid for the 1001 brand and what is the pro forma sales?

About $11 million.

And I am sorry, what was the other question?

Net pro forma sales?

We didn’t release the pro forma sales.

Sales in the last quarter were -- we did talk about -- about $2 million.

Sales in the quarter were about 2 million.

I think was that right, Mike?

Yes.

Yeah.

And second thing is it is normal for there to be a little bit of volatility in WD for quarterly earnings and in 2004 you started off relatively slowly and then earnings increased through the course of the year.

Do you expect to see a similar pattern in 2005 or a different pattern?

We haven't given any guidance on quarterly earning, so we can comment one way or the other.

Well, let me ask you this, which are the quarter do you expect your promotion to be most successful?

Now that we have a number of brands, Jeff, it’s a little different, because not all brands are on promotion in what quarters when , and I think that the important thing is the WD-40 business as we knew it in the past kind of continues to react similarly to before.

We see the other side of the business, the half of our product business that is a little more volatile.

Having said that, we did share that we have launched and are getting new distribution of these new product in this first quarter.

So I think from that, you can see where we see we are.

All right.

So -- I mean, the sort of the largest sales gain for next year, all things being equal is coming from household products, and so if we exclude benefits of the acquisition, can you rank what are the importance of the product launches?

That is, sort of which are really the key ones in order to hit the numbers and which are the ones that are a little bit less important unless they are all --

They are all very important, Jeff.

The important thing there is in that number for next year, let me point it out, it reflects a whole full year sales of all of the products we have launched, it does not reflect any sales of any product we may yet launch in the year.

So the big plus for our household products this year is a full year of 2000 Flashes product, a full year of two of the new X-14 products, new distribution for X-14 and Carpet Fresh in new trade channels, full year of the 1001 brand plus a 10% growth in Spot Shot.

And then just the last question, all things being equal, will you expect your gross margins to be up or down next year?

Our goal would be to maintain them, as we always had.

And I think you know, Jeff, we've got a pretty good track record of being able to maintain our gross margins, certainly we are very conscious of some of the cost pressures that are around and we will need, if those move, to make decisions during the year on ways that we would offset those.

So that could be something to watch, but the thing is that is very-very-very sharp on our radar and we are paying a lot of attention to it and we are talking with a lot of that people.

Our first goal would not be to tax the consumer by having to raise our prices.

Our goal is to look at various costs in the systems that are not adding value, be better at the process of outsourcing, but we are very conscious of it and we watch it like a hook.

Are there any key raw material supply contracts that are either coming up or need to be renewed or all things being equal, do you raw material supply contracts sort of take you through fiscal 2005 relatively uneventfully?

Yeah, they kind of roll on, Jeff, but they, you know, you get things like surcharges.

So, you have a contract, and you need to get a surcharge.

Those are the things we need keep our eyes on.

So surcharges would be plastics mainly?

We see them in freight.

Freight and steel.

Surcharges in steel.

Okay Thank you very much

Thank you

We have another follow-up from Mimi Sokolowski

As part of another one, I might have missed it, where is the 10% growth in Spot Shot coming from?

Increased distribution, the roll out of Spot Shot in countries like Australia, basic growth of the market share within the brand, so, really it’s a [cross hole] of those areas.

How has the performance of the brand been in the Untied States?

This year?

Yeah.

We didn’t -- we haven’t been specific about it, but I would say that the year was a little more challenging than we would have liked, but certainly the brand today is stronger than it was a year ago.

Okay and what sort of challenges are you talking about?

Mainly promotional challenges, we had one customer that did not run a significant promotion that they would have normally run, but we did get in the year Home Depot distribution that we didn’t have before, you see advanced activity of promotion for the brand in ultimate trade channels, like the hardware trade channel, you are seeing an increased distribution of the brand in other areas of the business that is not obvious to the consumer, particularly in the industrial segments as we take it into the professional line in to janitorial supply.

So, we are working on a number of fronts to increase the usage of the product.

Okay.

Thank you.

Thank you.

And we have no further questions.

I will turn the conference back over to Mr. Rich for additional or closing remarks.

Okay.

Thank you very much and we look forward to having a chat with you again on January 6, 2005, and I have got that year right.

All the best and have a nice holiday season.

Good afternoon.

And does conclude today's conference.

We thank you for your participation, you may now disconnect.