Brady Corporation (BRC) Q2 2012 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Second Quarter 2012 Brady Corporation Earnings Conference Call. My name is Chequana, and I will be your coordinator for today. [Operator Instructions] I would now like to turn the presentation over to your host for today's call, Mr. Aaron Pearce, Vice President, Treasurer and Director of Investor Relations. Please proceed, sir.

Thanks, Chequana. A good morning, and welcome to our fiscal 2012 second quarter conference call. During the call this morning, you'll hear from Frank Jaehnert, Brady's CEO; and Tom Felmer, Brady's CFO; as well as our 3 regional Presidents, Matt Williamson, President of the Americas; Peter Sephton, EMEA President; and Stephen Millar, President of the Asia Pacific region. As usual, after the prepared remarks by the team, we'll open up the call to questions. The slides for this morning's call are located on our website at www.bradycorp.com and then click on the Investor tab. Please note that during this call, we may make comments about forward-looking information, words such as expect, believe, forecast and anticipate are a few examples of words identifying a forward-looking statement. It's important to note that forward-looking information is subject to various risk factors and uncertainties, which could significantly impact expected results. Risk factors were noted in our news release this morning, and in Brady's latest Form 10-K which was filed with the SEC in September 2011. Also, please note that is teleconference is copyrighted by Brady Corporation and there may be no rebroadcasting of this call without the consent of Brady. We will be recording this call and broadcasting it on the Internet. Your participation in the Q&A session will constitute your consent to being recorded. Thanks, and now I'd like to turn the call over to Frank Jaehnert. Frank?

Thanks, Aaron, and good morning, and thank you for joining us. During the second quarter, the comparability of our financial statements to last year was impacted by certain events, including the noncash Asian goodwill impairment, outlined in our press release this morning. This impairment charges is a direct result of the challenges stemming from reduced sales volumes to one of our major mobile handset customers due to shift in end market shares and increased competition, primarily the mobile handset industry comprising gross profit margins. This impairment charge was noncash, and the impairment will not impact our future financial results. Also in last year's second quarter, we sold our Teklynx software business at a gain. This onetime gain, combined unusually strong winter-related product sales in Europe last year, contributed to last year's second quarter representing a tough comparable. The second quarter revenues decreased by 2.6% and we recorded a loss of $90 million this quarter, due to the noncash goodwill impairment charge of $115 million -- $115.7 million. If you exclude the impairment charge and the restructuring charges incurred in this last year's second quarter, diluted EPS increased 2.1%, given with a very tough comparable from the prior year. We experienced organic revenue growth of 2.9% in the Americas, while organic revenues were down 5.7% in Europe and 4.4% in the Asia Pacific region. Going forward, we are focused on improving operating results in Asia and we are in the process of splitting our Asia business into 2 dedicated teams, 1 team focused on our die-cut business and the focused on our MRO and identification businesses. This change will help increase our focus on both businesses as we work to accelerate the growth and profitability of both our businesses. While we are cautiously optimistic with U.S. economy, we remain concerned about the European economy. That in mind, we believe we have to create our growth story independent from the overall sluggishness of the world economy. We will be focusing our MSU on several growth initiatives. First, expanding our business in emerging geographies. Second, expanding globally in certain focus markets. Third, new product development. Fourth, customer conversion. And five, Digital business. On Digital business, I've asked our Chief Information Officer, Bentley Curran, to coordinate the transition of Brady into a digital business. Bentley Curran will assume the role of Vice President, Digital business, in addition to his current role of CIO. In this role, Bentley will oversee our global digital strategy to drive further growth in this critical area. I believe that growth strategy we are pursuing in combination with acquisitions and disciplined cost control is a recipe for our success. Lastly, we will continue to return funds to our shareholders through dividends, which have increased for the last 26 years, a streak that we have no intention to break. Now I'd like to turn the call over Tom Felmer for our second quarter financial review. Tom?

Thank you, Frank, and good morning, everyone. As Frank mentioned, there are few notable items that impacted our financial results in the second quarter of fiscal 2012, which I've summarized for you on Slide #3. First, we recorded a $115.7 million, or $2.21 per diluted share, noncash impairment charge this quarter related to our Asian business. This impairment charge does not impact our future operating results and does not change the outlook for our outlook for Asia, as we continue to focus on improving all aspects of this business and are in the process of the strategic realignment that Frank just mentioned. This noncash impairment charge is a direct result of the gross margin compression, primarily due to the sales decline of one of our largest customers, combined with the impacts from the highly competitive landscape in our Asian mobile handset die-cut business. Second, revenues were down at our Thai facility due the recent floods, decreasing diluted earnings per share by approximately $0.04. Lastly, in this page, our second quarter financial results benefited from a reduction in variable compensation due primarily to the decrease of net income caused by the impact of the noncash goodwill impairment charge and a reduction in our full year -- full fiscal 2012 forecast. Moving on to Slide 4, is the summary of our second quarter financial results. As Frank just mentioned, sales were down 2.6% in the quarter with organic sales declining 1.8%. Our second quarter gross profit margins finished at 47.8%. The main driver for our decline in gross profit margin relates to our Asian segment, where we took on lower margin sales opportunities in an effort to offset volume declines at one of our largest mobile handset customers in order to keep our factories fully utilize. Margins throughout the rest of the…

Thank you, Tom, and good morning, everyone. Please refer to Slide #12. Sales in the Americas in the second quarter were $138.4 million, up 1.8% compared to the second quarter of fiscal 2011. Organic sales grew 2.9%, currency reduced sales by 0.7%, and the sales of our Teklynx software business reduced sales by 0.4%. Brady Brand business in the U.S. was our stronger -- strongest performer as it grew nicely in the quarter. Our relentless pursuit of improving our customers' buying experience, combined with a continual loss of proprietary new products and an excellent sales and distribution, enable us to take market share. In the November, we launched the BMP53 printing system, portable printer for electrical and data communications applications. This product offers customers a hassle-free experience and the ability to make labels directly from their mobile phone, a first in our industry. We also launched the BMP51 printer last week to a very positive reviews from our North American sales team. Additionally, we launched several new materials in the quarter. One example, ToughJet, is a unique to the market, high-performance material that can be run through any inkjet printer for a variety of safety facility on labeling applications. And as Tom mentioned, we also launched a new Specimen Identification Label further expanding our lab and healthcare material offerings. Our Brady Brand business in Brazil grew nicely in the quarter as well. This was driven by strong demand for our custom OEM products, as well as several operational activities undergone to increase production capacity. Our Direct Marketing businesses are now also showing growth in the U.S., and our commitment to multichannel sales strategies have begun to yield results. In addition to our direct mail campaigns, we are focusing our -- are focused on increasing traffic and sales over the Internet…

Thank you, Matt, and good morning, everyone. I'll refer you now to Slide 13. Sales in EMEA were down 8.1% to $95.6 million. Organic sales were down 5.7% after last quarter's 3.7% organic growth. The majority of this decline is a direct result of the milder winter throughout Europe this year. If winter product sales had been a level consistent with fiscal 2011, our organic sales decline would've been 0.8% in the second quarter of fiscal '12. This small decline in our base business is a direct result of the depressed macroeconomic conditions we're seeing throughout the region as a slowdown was noticeable in all countries of the E.U. 27. But it does confirms some resilience in our core and ongoing businesses. While several organic sales declined, we noted important differences in organic sales rate changes between our various business stream. For instance, if we exclude the impact of the lack of winter product sales, our direct market businesses actually showed positive mid-single organic growth in Southern Europe and Germany, our 2 biggest units. Our Brady business also showed mix results, finishing the quarter with a modest decline in organic sales. Southern Europe and our Swedish die-cut business continue to struggle, while the rest of the Scandinavian and emerging markets of Central Europe and Turkey are showing solid growth. Our Brady business in the U.K. and France showed modest growth despite those accounts of both those countries declining in terms of manufacturing output. Paradoxically, our business in Germany, Europe's strongest economy, declined as our customers scaled back with the impending uncertainty. To mitigate these macroeconomic risks, we are deploying our resources and expertise in emerging geographies where we see good opportunities for growth and are already gaining some traction in winning business in defined vertical markets such as oil and…

Thanks, Peter. Continuing on Slide 14. Sales in the Asia-Pacific region in the second quarter were $86.6 million, down 2.7% from the prior year. Organic sales were down 4.4%, and currency had a positive impact of 1.7%. Our focus on the Asia-Pacific region continues to be two-fold. Firstly, we are intent on improving profitability in our die-cut business. And secondly, we seek to expand our presence in our other portfolios of workplace safety and compliance, wire and cable identification and product identification. Let me take a moment to explain some of the changes we are in the process of making in our Asian business to drive this focus. We are in the process of splitting our North and South Asian businesses into 2 main teams. First, we will have a dedicated die-cut team in the region focusing exclusively on driving die-cut sales and increasing profitability, which has been our biggest soft spot in Asia. Our die-cut business represents just over half of our total Asia-Pacific sales, but a much smaller piece of our overall segment profit. Second, we will have a team dedicated to our MRO and Identification businesses. Our MRO business is largely our portfolio of products which help customers with workplace safety and compliance and our identification businesses, which would include our traditional label and wire identification product lines. All in, our identification and MRO businesses in North and South Asia represent about 1/4 of their overall apex sales. We've talked about the significant growth opportunities for our MRO products, and this realignment is a natural next step in our maturity as we dedicated a team to accelerate our growth in this area. This business has now achieved a critical mass necessary for us to split it out and run it as a separate unit. Key markets such…

Thanks, Stephen. Before turning the call over to questions, let me just share my concluding thoughts. Even though our second quarter was challenged by a number of headwinds, including the impairment charge, the ongoing margin challenges in our Asian business and the flooding in Thailand, we are still able to increase our earnings per share. We are working on right items to drive growth, including accelerating our e-business initiatives, including the appointment of Bentley to lead our global digital strategy. We have also be launching some the best products in the history of our company as our investment in R&D are starting to pay dividends. Of course, we cannot count on the macro economy to drive our sales growth and we are executing our own growth strategy by investing in these organic growth opportunities. Additionally, we have a strong pipeline of acquisition candidates that we are actively pursuing. As Peter, Stephen and Matt articulated, we continue to aggressively focus on organic growth and we believe these opportunities, combined with holding expenses in check, will be a catalyst for net income improvements for the remainder of fiscal 2012 and beyond. We thank you for your interest in Brady, and now start that Q&A. Chequana, can you please provide instructions for our listeners?

[Operator Instructions] Your first question comes of the line of Charlie Brady representing BMO Capital Markets.

According to them, on the handset sales, can you give us a sense of how much of Brady's total sales come from Nokia today? And then what are your expectations for sales into them for the remainder of the year? As far as continuing to decline, give me a firm number, but expecting to decline, expecting to level out at the current levels?

Okay, Charlie, great. Thanks for the question. And obviously, I can't tell the details of their absolute sales are, but we have been seeing sequential increase with them and we expect to see that. Obviously, we're coming out now the tough comparable period so we expect to see that. But that sequentially, the big question still with within is really how well their Windows phones bite and what demand is. But at this stage, I'm comfortable saying we expect to see some sequential continued growth. That's best part I put it.

Okay. And then, can you guys talk about your expectations for gross margin in the second half of this year in terms of relative to where it was in the first half? Do you expect it to be flat up, down?

Charlie, this is Tom. We would expect, I guess, a modest increase in gross margin, however -- although I don't know if it'll be material. We've been running a pretty good, pretty consistent rate for the last year. And I think what you will see though is maybe improvement over the last and we should see some improvement in the Asian margins.

Typically, in our second quarter of the year -- second half of the year, doesn't have so many holidays. Second quarter is typically a lot of more challenged across the margin because sales is lower due to Thanksgiving, New Year in this year, and also Chinese New Year.

And one more on the EMEA, what was the price increase that went through? And then can you give us a sense of how much emerging markets are of EMEA today?

Yes. The price increase that run-throughs is between 2% and 3%. So part of that, we want to sustain all of that because it's spread across product lines. But I don't expect to sustain them to see some results may be just 1%. But our gross margin has been holding up pretty well so it might mitigate any cost increases that we've got coming through. So it depends on how that plays out in terms of cost versus margin. In terms of emerging markets, most of the emerging market business we have is against the Brady business, Charlie. It's -- we are already accessed in mature economies in our Direct Marketing business. A little bit of business in Scandinavia, we really can't define that as emerging, but most of our businesses in Turkey, Central Europe and in Africa is down to Brady. And that's been increasing really quite nicely. It accounts for about -- let me defer that. As Frank, do you want to disclose that number? I got the number on hand.

Yes, if you have the number, I have no problems with disclosing it.

Yes. 16%.

16%?

16%.

Your next question comes of the line of Anthony Kure representing KeyBanc.

I guess this question is for you Frank. That the 2 teams in Asia now, is this segmentation intended to be the maybe first step in the shift in the strategy as it relates to future growth of our die-cut business?

As you know, our first priority is to improve profitability, sales growth and profitability of our die-cut business because that were we have had some problems and in the past, we, of course, our die-cut business is by far the largest portion, and we always had strategy to grow the MRO and identification business over time. But we were leveraging the infrastructure of our die-cut management and in factories, and so forth, to support the smaller business MRO and identification systems. And they have now reached a critical mass, and I think we've talked about this earlier, about 25% of our business is now in Asia, excluding Australia, is now in these MRO and identification systems that we think they can stand on their own -- on their own leadership. And I think even more importantly, we want to make sure that die-cut has 1 leader, has everything they need to operate independently and focused under 1 leader. So we're going to have a dedicated plants for die-cut. We're going to have phase marketing, manufacturing, purchasing, everything you need, very focused under 1 leader. I think it will really help us to focus and streamline this business and help us grow sales and profit.

Okay. So you mentioned the sort of the different departments now assigned just to the die-cut. I think you said manufacturing, does that mean there is going to be separate manufacturing facilities now?

Yes, right now, we have shared facilities. But we think here because the business is so different from our other businesses. Because we have now critical mass in the other businesses, we think we can all have dedicated plants.

Okay, could you guys maybe comment on trends by region for the January, demand trends?

Of January?

Yes, please.

Let me take -- let me try to answer this. First of all, we had our Chinese New Year -- I'll talk about Asia first. We had Chinese New Year in January and this year, and last year, was in the third quarter. So what we are seeing naturally is our Asia business doing relatively well compared to prior year because of Chinese New Year effect. So that's pretty encouraging, but we don't know how much of this is timing, but it's certainly encouraging. We see continued good business in the Americas which is an indication to us that the American economy, especially the U.S. economy, is improving moderately. Europe is more challenging. However, we are just in the beginning of the quarters, so it's too early to tell what we're going to see here. I would say no change so far in Europe. But this is only based in 2 weeks in February.

And your next question comes the line of Jason Ursaner representing CJS Securities.

Just another question on the Asia segment. I understand the concerted effort to take a low margin business, but even when you look through the customer use currently, is the long-term strategy to move up the value chain there still viable or are markets just being commoditized too quickly?

The answer is yes to both of those. We are still investing in new product development to move up the value chain. So I referred to as -- we had the hard disk drive industry and the mobile handset industry I referred to some products which are actively in our development process for hard disk drive, we were obviously disappointed we couldn't qualify them as quickly as we'd like because of the situation we having to relocate our Thai facility. Outside of that, in the mobile handset there are certain areas we're we are still focusing on new proprietary products. We think, we have some technologies and capabilities that can continue to move us up the value chain. At the same time do their part of that industry which appear to be more and more commoditized. So, we are balancing the 2 here. The moving up the value chain has been an important part of our strategy and continues to be part of our strategy, but at the same time, we don't want to walk away from mass-market so try to manage that side of things as well to keep in the game.

And the timeline to achieve some of it, I mean is it really getting to the next design cycle or are there products in -- I understand the hard disk drive market you can qualify them, but in the mobile side other products already in where you just need to gain traction on the actual device?

So the areas of development we're doing are more technology application platform rather than product specific. So we're developing a capability that we would be able to apply materials across multiple products as they come in. The product life cycles are relatively short here, so we don't look at mobile handset and say we will develop something as unique and specific for the next X, Y, Z that's going to come. We develop a capability that we can apply across multiple models.

Multiple industries. Not just mobile handsets...

Multiple industries. No, it's a platform development basis is what we trying to achieve.

Just a quick question for Peter. What type of trends did you see month-to-month? I'm trying to understand why the commentary is pretty downbeat. I understand the macro concerns in Europe, but excluding the winter bundles, core growth was almost flat. Germany has showed expectations growing in January, so I'm just wondering what you're seeing maybe underlying there?

Yes, I mean, it's very much my sentiment and I'll give you a little bit of my spin on it. In fact, towards the end of the quarter in January, direct marketing sales were already quite strong so you saw some pick up there, but Germany continue to be a struggle for us. We haven't mentioned this, but we had a blistering quarter in our Brady offices in Germany last year in fiscal '11 in quarter 2, and that was the Brady offer in Europe but that was driven by Germany it a bit of tough comparable. And I do think your sentiment is right, I do think they could be some pick up in Germany. My concern would be what happens then the rest of Europe, and particularly in France, I guess that's where my caution comes from. France has been relatively, relative to many of the other Euro 27, really quite reasonable, but I wonder if we will see some slowing. And there's been some early signs that we have seen a little bit of slowdown there must where my caution comes from. I think we seen the worst of it in that U.K.

And I think the other caution there, Peter, in general, in that we read everyday in the news about Europe, Europe is slowing down and the uncertainty about the financial situation in Greece and so forth. There's always in our sentiments, we'll see how this plays out, but there's certainly nervousness in Europe. And Peter said earlier, that Germany might have maybe not as strong as we hope. And typically, in Germany, they're reacting very fast to perceptions or to feelings about the economy. This could turnaround, of course, tomorrow. But we just want to be cautious because this is in contrast to Americas where I would characterize as being cautious cautiously optimistic because everything we have seen, also in our Direct Marketing business, to be lax, is going the right direction. So I would say we are cautiously optimistic about the Americas and we are just cautious about Europe.

Next question comes from the line of Joe Mondillo representing Sidoti & Company.

First question, do you guys mentioned, I think both in the Americas and in Europe, how Internet sales have been. You guys have been benefiting from the higher profitability of Internet sales increasing. Could you talk about that a little more and if you could quantify how much that is benefiting your profitability and as a percent of COGS, where is that and where do you see that in a couple of years?

I don't remember that we have made ever made a comment that our Internet sales is less or more profitable than our other businesses. So I'm not sure where you heard this, maybe somebody, an analysts speculated about this. Because we have not made this statement on this call.

I thought you mentioned it in your prepared remarks?

Okay, maybe you're misunderstanding. Okay.

Okay, let me ask you this, are your Internet sales more profitable than your direct sales?

We do not comment on this.

Maybe, what we can do -- we can ask Bentley, in his new role which is effective today, to maybe give a quick overview of what we're going to do and why we are so excited about transforming Brady into Digital business. I think it only gives you some idea -- I don't look at the digital, not so much as a cost reduction move, but as a means to differentiate ourselves from competition to provide the ultimate customer experience, make it easier to do business with us, and hopefully, support our organic growth, but I like I'd let Bentley speak.

Yes thanks for the question. This is Bentley. If you look at our direct marketing business, we've seen some pretty good growth within our Internet sales. And we've also seen our traffic, not only just for the Internet websites, but also our mobile traffic is increasing. So we see this as an opportunity to better align our resources and actually take these capabilities and apply these other businesses so we can get that traction in our Direct Marketing business as well. So going forward, we're going to be focusing our energies on making sure we can accelerate the adoption and the capabilities that we have within our company that we're seeing some good results with to the other businesses to get this company growing in the areas that we want to. So right now, we're seeing some great opportunities.

Okay, great. Second question, this has to do with the Asian segment. Gross margin, I think you mentioned that you expect that to improve or what is your outlook for the second half. I assume that it is looking to improve, and is that more of a volume-driven improvement or is there pricing associated with that as well?

So Joe, there's 3 things are going to drive this. We do expect to see sequential improvement from Q2 to Q3. We normally get this coming out of, as Frank had mentioned, more holidays and not so much in China, but for the rest of Asia. And then of course this year we had Chinese New Year at the end of Q2. And there's quite a volume, a fixed cost absorption business from there. So February, quarter 3 will be strong as more sales picking up on that. And then, as you would expect, we continue to have initiatives aimed at improving gross margin from the perspective of pricing initiatives, but also operational efficiencies. And we're working on all of those think, so we expect to see those sequential increase in Q2, Q3 and the second half and a bit in the first half.

And another point is we had mentioned before that our mobile handset business is probably the most challenged from a competitive point of view and from margin pressure point of view. And of course, our hard disk drive business has been depressed because of the flood in Thailand. But as Stephen said earlier, this is improving every month now. So as this business comes back online, this should also help our gross margins for Asian in totality. And he also mentioned that our largest customer, sequentially has been improving. And this should also help.

Okay, great. Two more questions, just in terms of capacity utilization, what do you guys sort of seeing yourselves running at in terms of utilization? And then lastly, if you could talk about your use of cash and what they're primarily uses of cash is?

I can try the first part of the question, capacity utilization and Tom can take the second part our should I say, utilization of cash. We have capacity and it's not so much because of reduced sales, it's because of all the lean initiatives we have taken. We have -- we do not see our capital expenditure go up materially over the next 1 or 2 years, of course, it all depends on how fast business is going to come back. But we have found ways to utilize our machinery equipment much better so if the economy continues to improve, even if it goes up 10%, 15%, we should have no problems across the company much, there'll be bottlenecks in one or another area, but we shouldn't have any problems as we continue to grow our lean across the whole organization. There has been a major improvement, and we have commented about this, we don't think there's going to be major capital expenditure for expansion. If we have capital expenditure then it is for improvement in quality, productivity and efficiency, tolerance and so forth, but not to improve capacity. And in the Asia-Pacific, specifically Asia, we are pretty full in Asia on a seasonal sales basis because we have been able to replace some of the businesses we lost with some other businesses, which typically, are lower-priced and higher volume. So our volume actually in Asia is up, whereas our sales is about flat. So good utilization in Asia.

What about specifically in Europe?

Peter, do you want to talk about this in Europe? Furthermore, we don't manufacture in Europe as much as we manufacture in Asia.

I think I got lost in that and what was the question again?

Peter, I started answering the question, but the question was, how about capacity utilization in Europe. And I started by saying that in Europe we don't manufacture as much as we manufacture in the Americas or in Asia. We source much more from third parties and also from Americas and from Asia to Europe. So capacity utilization in Europe is not such a big issue. But if anything else you want to add, Peter?.

It’s not. But that's actually in our 2 major manufacturing plants, 1 in Germany and 1 in Belgium, our capacity utilization is very high. We have some small manufacturing in Italy which is a result of a downturn in volumes a little bit of capacity there. But you're right, I mean it's not such a significant issue for us in Europe.

Two biggest theaters of manufacturing is Asia and the Americas. Americas, of course is growing, which is good. That helps capacity, and Asia, we are pretty well utilized.

And then Tom, if you could address use of cash, and that would be my last question.

Obviously, the best returns we get are when we invest in organic growth and keeping capital expenditures, investing CapEx. But we typically generate cash flow in excess of that. So the next number of items would be dividends, and as we've mentioned early in the call, we've increased our dividend 26 years in a row, and we expect to see that trend continue. And then the remaining options would be share repurchase, debt paydowns and acquisitions. We have made some repurchases of shares opportunistically as stock prices down. We've made a little bit in the first quarter, but nothing since then so it's not a major use. Debt reduction is something we've not had, most of our debt is private placement and its fixed term debt and we've not been paying that down at all. I guess that leaves acquisition I would say the primary focus for the available cash that we have on hand. Acquisitions remains an important part of our strategy. We continue to work hard to identify new opportunities, and we certainly hope to use that cash in acquisitions in the future.

[Operator Instructions] And your next question comes the line of Benjamin Wong representing Bank of America Merrill Lynch.

Going back to Europe, when we consider the regions probably already been in a small recession for a couple of months already. I mean, this might suggest that we're seeing the early stages of this show up in your European business. So my question is, a, do you agree with this? And then B, how comfortable are you with your extradition of flat organic sales for the rest of the year in that segment?

We are seeing it. I don't know if it's so much the early stage, depends on how long it goes on, but we're definitely seeing that. And the biggest, greatest we have for that is Germany. Such in the previous answer, there was a possibility that Germany might start to recover but I think there's start to move into other areas of the Euro 27. Now, in terms of coming into quarter 3 and the rest of the year, a lot these comparables go away, a lot of the really hard comparables, not just in terms of winter but the growth that we saw last year across all of our business streams, in fact, and again driven to some extent by Germany. This comparable is a little bit easier. So you know, as much foresight as we have, and that's pretty limited, it's a very uncertain outlook in Europe, that feel as Frank said, somewhat cautious about our forecast. And that's why we should work as we do. And it's going to be approximately flat with last year. More than that I can't say, and just repeat what I said before. I think there might be some upside for us in Germany. I think we've gone through the worst of it in the U.K., and the U.K. has been really struggling for the past couple of years. In fact, some of our business in the U.K., we have seen a return to growth from some heavy comparables and seen a return to growth. And it's what happened in France. France, if you saw the figures on the economy, more recently, it showed surprisingly robust growth. Will that continue? Let's see what happens in Greece.

Okay thanks Peter. It’s helpful. Second question is on Asia, can you elaborate more on the increasing competition in die-cut over there? Are your competitors doing anything differently or is there any change in behavior?

I think Benjamin, it's just more of the entry of a lower-tier players who aren't significant, but they're nipping at the heels. It's like any industry I think where people see large volumes, it becomes attractive. And certainly, the mobile handset industry, I mean there's still 1.4 billion phones or whatever being made every year, and so it's very attractive to people who want to be in there. We've seen the competition we're seeing, there are some established players who we have known for a while and there's some who have been around but have made a concerted conservative effort to buy their way into some business. So I think it's the normal hurly-burly you see in the market but it's becoming a bit more aggressive because of the attractiveness of the market.

At this time, there are further audio questions. I would now like to turn the call back to Mr. Aaron Pearce for closing remarks.

We thank you for your participation today. And as a reminder, the audio and slides from this morning's call are available on our website at www.bradycorp.com. And the replay of this conference call will be available via the phone, beginning at 12:30 Central Time today. The phone number to access the call is 1 (888) 286-8010, or international callers can dial (617) 801-6888. And the passcode is 81678765, and a phone replay will be available until February 23. As always, if you have any questions, please contact us. Thank you, and have a great day. Operator, can you please disconnect the call?

Yes, sir. Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect, and have a great day.