Graco Inc. (GGG) Q1 2008 Earnings Report, Transcript and Summary

Good morning and welcome to the First Quarter 2008 Conference Call for Graco Inc. If you wish to access the replay for this call, you may do so by dialing 1-800-405-2236 within the United States or Canada. The dial in numbers for international callers is 303-590-3000. The conference ID number is 11112172. The replay will be available through April 28 of 2008. At the request of the company, we will open the conference up for questions and answers after the opening remarks from management. During this call, various remarks may be made by management about their expectations, plans and prospects for the future. These remarks constitute forward-looking statements for the purposes of Safe Harbor provisions of the Private Securities Litigation Reform Act. Actual results may differ materially from those indicated as a result of various risk factors including those identified in Item 1A of, and Exhibit 99 to, the company's 2007 annual report on Form 10-K. This report is available on the company's website at www.graco.com and the SEC's website at www.sec.gov. Forward-looking statements reflect the management's current views and speak only as of the time they are made. The company undertakes no obligation to update these statements in light of new information or future events. [Operator Instructions]. I will now turn the conference over to Caroline Chambers, Vice President and Controller. Please go ahead Ma'am.

Good morning and welcome to everyone. I am Caroline Chambers, the Vice President and Controller for Graco. I'm here today with Patrick McHale and Jim Graner and we will discuss the highlights of the first quarter 2008. After some brief opening comments, we will open up the call for your questions. We experienced 3% sales growth in the first quarter with sales of $204 million. In Europe, sales were up 21% or 9% with consistent translation rate. Asia was up 4% or 2% with consistent translation rate. Incoming orders are 15% higher than last year. Industrial sales were up 9% or 4% with consistent translation rates. Industrial increased by 6% in the Americas and 11% in Europe at consistent exchange rates with growth in Western Europe as well as the developing areas. We completed the acquisition of GlasCraft at the end of February 2008 and $1.5 million of sales were included in the Industrial segment this quarter. The business will not be accretive to earnings in 2008, which is expected to be in 2009. In the quarter, Contractor Equipment sales in Americas declined by 16%. Despite glass sales in January, we saw weakening sales month-by-month for the rest of the quarter. We expect that conditions will remain challenging for the rest of the year. The new product rollout in the home centers began in January. As anticipated, operating earnings in Contractor were affected by approximately $2.5 million for product returns, product development and marketing charges and other costs related to the Home Depot launch. The total impact through the end of the launch is expected to be approximately $5 million. This is in line with our earlier estimates. There was an impact of $1 million at the end of 2007 and we expect that the remaining $1.5 million will impact the second quarter. Net earnings increased by 5% this quarter compared to last year. Both sales and earnings were favorably affected by currency translation rates. The operating earnings in the Lubrication segment improved to 18% of sales this quarter compared to 14% last year. Integration of the Lubriquip business and consolidation of lubrication operations in Anoka is complete now and we began to see the benefits. We expect to return to a run rate in operating earnings for the lubrication segment in the low 20s by the end of the year. Profitability in the industrial segment continues to be strong with sales increases driving the earnings increase. In the first quarter, material cost increases for metals and other commodities have been largely offset by other purchasing activity. However, we expect to see continued cost pressures going forward. The effective tax rate for the first quarter was 30%, down from 35% for the first quarter last year. The decrease resulted from the completion of an examination of the company's income tax return. The tax rate will vary by quarter and we expect to that the effective tax rate for the year will be approximately 34%. Concerning share repurchases, we had approximately 1.5 million shares or about $60 million worth of shares repurchased in the first quarter. In the current authorization they remained 4.3 million shares and we expect to continue the share repurchases throughout the year. A brief comment on inventory, we believe that the increased inventory at the end of the first quarter is normal and expected. I would also like to add that the GlasCraft acquisition included about $3.5 million worth of inventory. In summary, we are encouraged by gains in our Industrial and Lubrication segments in North America and by continued strength in both Europe and Asia Pacific. And we continue to be concerned by weakness in the U.S. housing market and will manage divisions accordingly throughout the year. This concludes our opening comments, and we will now open up the call for your questions. Question and Answer

Thank you. [Operator Instruction]. One moment please for the first question. The first question comes from the line of Terry Darling with Goldman Sachs. Please go ahead Sir.

Thanks. Good morning.

Good morning, Terry.

Good morning.

I'm wondering if you could talk a little bit about the outlook for the lubrication margins now that you have got that process fairly complete, I know you just said low 20s by the end of the year, but where do you see that in terms of upside potential beyond that on a longer-term basis and do you see that ramp up in margins as we progress 2Q, 3Q sort of smoothing the way up to the low 20s or do you still expect some bumps along the way?

Yeah. I am not sure it's going to be completely smooth. But, I think that we are in pretty good shape to get there. We expect it to be in the mid-teen here in Q1 and we were at 18, so we thought like we were on track to hit that 20s. What is happening up in the factory right now is productivity is coming up to speed, efficiency coming up to speed. We are taking a look at the actual equipment that was used to produce the product out there and we are making cost reductions and bringing new capital into that factory. So, to some extent, those projects will deliver some lumpy results but I think that you should expect to see a reasonable trend of improvement through to the end of the year. If you remember the strategy on the Industrial Lub business, that's a really big market and it's close to what Graco does in a lot of other businesses that we didn't play. And really that's the long-term vision on Industrial Lub is to make that a significant segment of Graco's business. And so really focusing on that on developing new products and working on distribution channels, try to make that a big business.

Acquisition in that area also a potential area to draw that growth.

Yes, absolutely. They likely would be small. There is a fair number of fragmented smaller players in that marketplace and have some interesting product lines that we'll be looking at. So that could happen as well.

Yes. Then on the industrial side, the top line performance was better than we had thought there and a bit of a pickup from recent trends. Can you talk about that and other sort of margin performance is very good there as well. And was that really related to the stronger volumes or is there something going out... there is something else going on in there in terms of mix that may not be recurring?

No. This is Jim Graner.

Hi Jim.

Really the margins there are, what we've been running historically we continue to make some improvement in our product cost area and in our pricing as well. So I think the margins will continue. The volume I think will even perform a little bit better. We ended the quarter with a 15% increase in orders in Asia Pacific but only a 4% were realized through billings. So most of that will be in the Industrial segment as well. So the volume should... should have some tailwind here going into the second quarter.

Great. It sounds like, I mean your organic growth here I think has picked up a little bit, it sounds like you think that is sustainable through the year?

Well, certainly in Europe and Asia, we expect to have strength in Industrial throughout the year. We're still planning to have growth in Industrial in North America. You see the same things that we see on the news, that economic conditions look pretty precarious out there. But right now we're still seeing some growth.

Right. So little less visibility on North America side. And then on the margins, just finally on the Industrial side, the year-over-year improvements tend to be a little weaker in the first quarter and then accelerate as you move into 2Q, 3Q. Is that a similar pattern that you expect to occur or is something else going on there?

Well, I think it's... again subject to some future events around the world we put price increases in place during the first quarter. They were put in place towards the end in February in Asia-Pacific. So that should give our margin some improvement going forward. As Caroline mentioned, while we haven't yet seen any impact from significant increases in metals, we expect to have some headwind from that going forward. So, hopefully the equation will balance and give us our historical annual trend with a little bit of pickup as the year goes on.

It'll also have some impact on our Industrial numbers of course in the acquisition of GlasCraft that we recently completed. And although we don't expect that to be accretive this year we do think we picked up some interesting product lines. Right now we are in the process of trying to sort out what we should do with that... those products strategically, but I think it would be a fair assumption to consider that we may have some integration cost as we go through the year in 2008.

Can you remind us the revenue contribution that that business will make?

When we acquired that business it had $18 million in revenue. It has historic growth, it did grow in 2007 as well. So we would expect $18 million plus.

And you probably got a amortization step-up there for a couple of quarters?

Yes, some purchase accounting impact at the first month as well as second quarter, but again as Caroline mentioned, we don't expected it to be accretive for the year, so a little negative first two quarters, slight positive second two quarters but fully accretive in 2008.

Can you help us at all with the order of magnitude that amortization step-up, is that in a $0.5 million, $1 million range, or be higher than that?

The purchase accounting is about 700,000.

Okay.

The amortization step-up for all the intangibles on an annual basis will be an additional $2 million.

What is the difference between the two pieces, I'm sorry $2 million is...

The purchase accounting of course is your inventory and backlog valuations, the amortization relates to how we assign the intangibles.

Okay. So that’s --

Other than good will.

So that’s 700,000 for the full year?

Correct. Again most of that will be incurred in the first four months.

So mainly a 2Q impact. Got it. Thank you very much.

Sure.

Thank you sir. Your next question comes from the line of Matt Summerville with KeyBanc. Please go ahead.

I want to go over the raw material thing again. I think it was mentioned that, you offset the inflation you saw on the first quarter with purchasing related activity first. Can you go into a little more detail about that? And then the price increase you put into place in Industrial, is that enough to cover the inflation that we've seen out there in metals, post the close of the first quarter?

Yes on the purchasing side, our strategy in purchasing is really consistent year-to-year and we go into every year with a host of cost reduction projects. And every buyer has got them and sometimes there are resourcing, sometimes they are working with engineering or manufacturing. But... so we worked at cost reduction list hard and we were able to, at least in the first quarter offset some of the price pressure we saw with cost reductions. The numbers that we are looking at out there in terms of metal price increases are substantial. And I know our purchasing group is working hard. The whole of those increases [inaudible] minimize them where they can and offset them where they can. I would expect that that's going to be a challenge over the course of the next nine months. From a pricing standpoint, in terms of the overall impact on Graco, I think our price increase is more than enough to offset the dollars that we will get on material cost. But we will have to see how that plays out.

Okay. And then you mentioned in the Contractor business how revenue performance or order tempo progressed throughout the quarter and I guess as we are sitting here in April, have you seen that sequential degradation like you saw in Q1. Does it appear, that that's bottomed at obviously a lower level and then can you do a similar walk in the Industrial business with what you saw as the quarter progressed?

Yes. On the Contractor side, we started out January looking fairly flat and January is typically a slow month for us, obviously in most of the countries are not into painting season. But certainly as we went into February and March, which March is really beginning of that... the painting season in earnest really around the country, we saw that business continue to weaken. And I think our view on how we intend to manage the business going forward is that, the kind of weakness that we saw in the first quarter, you could expect to see that here in the next couple of quarters if not for the full year. So we are not managing the businesses as if we expect a significant rebounding Contractor this year.

Our percentage decline for the quarter pretty much models what the outdoor sales that have been reported to us by our distributors, our channel.

Are you speaking industrial or contractor?

Contractor.

Okay. And then can you talk about how order or sales tempo in the Industrial segment, progress or looked like as we move throughout the first quarter, similar to how you just spoke about Contractor?

On the industrial side it was a different story, the tempo really remained pretty consistent month-to-month, we did have to pick up in orders from Asia.

The 15% increase you spoke off early on in the prepared remarks, was that 15% relegated to Asia Pacific? I just wanted to double check on that.

Just Asia-Pacific.

Okay. Great. Thanks a lot.

Thank you Sir. The next question comes from the line of Charles Brady with BMO Capital Markets. Please go ahead Sir.

Hi, thanks. Good morning. With respect to the home center channel and… and the paint and retail channel, can you give us a sense of just what those declines were?

The declines in both segments were double-digit, with home center being a little bit steeper.

And, as you roll that new product out into the deeper stores, can you compare that product [inaudible] I know it's hard because the market is obviously different than it was, but sort of what kind of product market acceptance you are seeing with that or not seeing?

I'm going to take a stab at it, trying not to confuse you. But when we did the test last year, the results of the test were that the new units sold significantly better than the old units and our early results here from the stores we started resetting in mid to late January is the new units are selling at about 11% pace better than the old units. However, our business is still down. So it's not enough to offset the negatives that we're seeing in the overall market. But if you just do a comparison before after out the door sales [inaudible] kind of holding it in that range that we expected based upon the results of the test.

Okay. Thanks a lot.

Thank you.

The next question comes from the line of Ned Armstrong with FBR Capital Markets. Please go ahead.

Hi, it's actually Chris Wayle [ph] filling in for Ned. Just had a question on the break out of the industrial sales. If you could just go into little more color on the product lines, finishing, adhesives, coatings, things of that nature?

In terms of directional, really all the segments performed well in Europe. So that was our strength across all of our industrial segments. Here in North America, we saw a good strength on the finishing side. We saw some decent strength on the high performance coatings and foam side, which include our insulating foam business and our 2K business as well as some growth in our sealant business. So there wasn't… that we had some real specific product families where we saw some big differences. But in general, we were seeing positive territory across most of the product segments.

Okay, great. And just a quick follow-up. What are you guys seeing in the commercial construction arena? Are you continuing to see that to slow down or have you seen anything different?

It’s okay for us right now. We think that it is going to hold up okay from a Graco perspective through the year. But I think we see where everybody else is start to seeing out there is that we expect there to be a softening on the construction market and probably you have some impact on us going into 2009.

Okay, great. Thank you.

Thank you sir. The next question comes from line of Mike Schneider with Robert W. Baird. Please go ahead.

Thank you and good morning guys.

Hi.

Maybe first, you mentioned that orders in Asia were up 15%. Was that for the total company or just Industrial?

That was for the total company.

Okay. What were orders up in the U.S or I'm sorry in the Americas and in Europe?

I think... hang on a second, I'll... it's the right page with the detail. In the Americas including the Contractor business they were down 3.5 and in Europe they were up about 8%.

And in Europe, Jim that would be about half currency?

These are both 15% and the numbers, here I am giving you for Europe are at constant rates. Neither of them have any currency.

Okay. And... can you... just some more color on the industrial space. The Industrial group by my calculations if you back out GlasCraft was up about 3%, but that includes the Asia growth. Could you give us a sense though if you back... if you kind of back into the U.S. and look at the easy comp and also exclude price, it looks like U.S. Industrial was probably flat to down in units and that somewhat conflicts Pat with your comments about good growth and sounds like all four segments of Industrial in the U.S. I'm wondering if you could just give us some more color?

I think the GlasCraft business is more global than you are estimating. In the first month it was pretty much evenly split the sales between the three regions.

Okay.

So we are talking a fine line here of percentages so in - -

Our growth in the segment that I talked about finishing HPCF and SAE also includes price.

Okay. So in units, Pat, it looks like... maybe aside from process, these businesses at least in U.S. Industrial were roughly flat.

And maybe slightly positive.

Okay. And with the backdrop of the U.S. economy are you surprised that for example, sealants and protective coatings are actually flat to up and is there some new products rolling through there or new customer programs?

Actually, we are more optimistic about our Industrial business than the people are about the general industrial economy. We have got a lot of stuff going in the new product front, we're doing some things on distribution front. So we think some of that positive opportunities that we have are things that are really within our control versus just sitting here waiting for orders to come in. So we got the GlasCraft business, it is going to be very interesting for us. We are really excited about that, there is some new market opportunities there, we are launching products in finishing, we are launching products in process, heavily weighted towards the second half by the way in both finishing and in process and we’ve got a [inaudible], coming out in our high performance coatings and foam and SAE businesses this year. So, there are some things that we think that are within our control that are going to help us offset some of the softness we see.

Okay. And process specifically, I presume is the strongest of the four subdivisions?

No, I don't think, that is not a safe assumption.

No, it's not.

That business is no longer growing double-digits.

For the first quarter, I mean again our business is lumpy and we had strong double-digit growth in that business in Asia in the first-quarter. We had some delivery issues with a particular product family here in North America. So our North America actual billings number is significantly less than our bookings numbers in that business that should [inaudible] in the second quarter, we have a substantial backlog in that business right now.

Okay. And Jim just specific to GlasCraft, $1 million I have in sales and you mentioned in the releases there is a $1 million from GlasCraft operations expenses, by that phrase do you mean that that is a specific inventory write up or additional amortization and such that it's a one-time in nature or is that actually the cost of goods sold and SG&A for GlasCraft in the quarter?

Yes, Mike, it’s really just all the operating expenses for the month and well some of them are not recurring I would not say they are extraordinary. I mean, it's what was booked as expenses for the month and none had to do anything with purchase accounting. It does include the amortization that we talked about before the $2 million on an annual basis, one month's worth [ph].

And I'm sorry, it does include an inventory step up at least one-month worth?

When inventory step up is in cost of goods sold.

Okay.

So therefore it is not in expense line that we are referring to on the $1 million.

Oh, I see. So the operating expense you are talking about is just SG&A, not cost of goods sold as well?

Correct.

Got it. Okay. I believe that's it. Thanks.

Thank you, sir. Next question comes from the line of Ned Borland with Next Generation Equity Research. Please go ahead.

Hi, guys. Just one of your comments on the sell-through in the professional paint channel for Contractor in North America?

Our measure is again are reported to us show that the sell-through from the distributors was down about 15%. It varied by account, but overall about 15%.

Okay. And then I guess could you comment a little bit about your international expansion for distributors?

Yes, in terms of distributor count, on a rolling 12-month basis we’ve put about another 165 distributors in, between Europe and Asia and that continues to be a key growth strategy for us. We've also really then continuing to ramp up the headcount in both sales and marketing in those geographies and as those sales people come on board we will be continuing to build out the channel. Primarily those channel ads are in developing countries, eastern part of Europe, Middle East and then India, China and some parts of Southeast Asia.

Okay. And then I guess the percentage of revenue you got from new products, I guess products launched in the last three years?

Last year, our number was at 21%, I haven't seen a quarterly number at this point.

Okay.

About 28% at this point in time for the first quarter.

Okay. Great. Thanks. That's all I have.

Thank you, sir. [Operator Instructions]. The next question comes from the line of Kevin Mysler with BFT Capital Markets [ph]. Please go ahead.

Good morning.

Good morning, Kevin.

Just a question on the SG&A step up. That was up much more than I expected in the quarter and even when I back out some of the unusual items that you cited in the release, it looked like it was still a much higher run rate than it's been. Can you just give some more color on what that was from?

In addition to what we called out in the press release and the MD&A, there is increasing expenses in Asia and Europe. I think we've mentioned before that we feel that scenario that we can really grow. So we funded lots of salespeople in both regions and really what you're seeing in that part that we didn't cover is the step up in spending to support those people to add the distributors that Pat just mentioned.

Okay. So that should be more of an ongoing expense because those people obviously are going to ramp up and be productive in sales going forward?

Yes, and we of course feel that their sales, they are generating more than pay for those incremental expenses.

Sure, okay. And then Asia, it looks like in terms of revenue growth ex-currency, that was up just slightly, it had been running much higher than that in previous quarters. Is that just a... a more lumpy business than maybe I thought it was, or is there something else going on there, short-term?

I think that if you look back to 2007, a percentage increase over 2006 was close to 30%. So, one is the comparison add some big percentage increases before, but it does tend to be lumpiness with respect to orders and the margin. There are some significant industrial plants being built both in India and China. And if you get an order for a 500,000 or 1 million and you'd lump two or three of those together, swinging from one quarter to another, that will cause the kinds of fluctuations you are seeing.

Okay. Just one more if I could... in terms of channel inventory, you talked a little bit about your own inventory situation, but in terms of channel inventory, it looks like orders were up in Europe and Asia, but down in the Americas. Has that sort of… the moving parts in terms of the channel inventory kind of work themselves out now?

No, I think our big issues with channel inventory were on the Contractor side through really out 2006 and 2007. When you take a look at sell-through versus sell-in to the Contractor channel here in North America over the course of the year, it looks like that started to balance out. We still have some accounts that are reducing inventory. We had a couple of accounts that put in a little bit more inventory. So overall I think that, we are starting to see a much better alignment with our sell-through and our sell-out than we have seen in 2007 and prior.

Okay.

On the Industrial side... our distributors don't carry a lot of inventory in excess of what they need to serve the repairs in the local market we ship quick and that is typically not an issue for us in the Industrial channel.

Got it. Thanks for the time.

Thank you sir. Next question is a follow-up question from the line of Charlie... excuse me Charles Brady. Please go ahead sir.

Thanks. With regard to Contractor segment and given, I guess what sounds like maybe an acceleration, some slowdown towards the... in March. Any additional promotional activity or you haven't really started ramping that up, that could impact some of the margins mainly more than normal?

I think you should not expect that going into the end of the year. We really started the year out with a desire to try to do what we could do in the Contractor channel and we really did all of our normal programs in Q1. We allowed our salespeople to travel as normal, we used our normal sales buster promotions and in our channel promotions and our end-user pull [ph] promotions. And we want to let that play out in the first quarter and see if we really did everything we could do and how that would turn out. And you can see how it turned out, didn't turn out too good. So going into second and third and fourth quarter, I think we will be taking a look at how to manage the expenses of that business more appropriately for the market conditions that we have. And you should not expect that we are going to go out there and get into some promotional price war with the competition at this point. We do have some things that hopefully over the course of the year are going to help us when the Home Depot roll out launch is complete. That should help the Contractor division. We've also been working hard on trying to get it tested at Lowe’s [ph] and although we don't have a deal at this point, we are close enough to having a deal with Lowe’s that I think that you could plan it in the second quarter. Graco is going to launch a test program with Lowe’s. That will probably be earnings neutral over the test period. But we think that that has some potential upside for us, if we are successful in that endeavor.

Thanks very much.

Thank you. Next question is a follow-up from the line of Matt Summerville, KeyBanc Capital. Please go ahead.

With respect to your last comment, Pat, how long it would... one of these test periods last with the customer of Lowe’s size.

We would expect that it would run through the painting season. So, again I don't have a schedule at this point. But I would anticipate that that would be a test that would be on a six-month plus type basis.

They'll pretty much carry you through the end of the year, is that fair?

Yeah, I think, is for sure to carry us through the third quarter.

So if you were going to see any type of ramp in selling to Lowe’s on a more broad basis. It would be more of an '09 event?

I think that's a good estimate.

Okay. And then a couple other questions, I guess how are you guys thinking about the tempo of share repurchase going-forward? Should we anticipate similar things to what we saw here in Q1 and then if you could just give me the quarter end fully diluted share count as opposed to the average lives [ph] reported in the press release?

Yes. We have the open authorization remaining from the Board at about 4.3 million shares. So we will continue to buy shares and I would expect to be close to the run rate of the last two quarters. Caroline is checking the share count.

Okay, I will just ask my next question then. With respect to Europe, can you provide a little bit of color on the tempo business I guess between I think you spoke about seeing strength in both Western Europe and developing markets within that geography. Pat, can you just give a little more granularity there?

Sure. We have seen in Western Europe here for the beginning of the year is that growth rate... it's kind of a net two times GDP type range which would be I think a normal kind of Graco expected growth rate over the long term for that geography. And then we've seen very strong double-digit growth in Eastern part of Europe and in the Middle East and in Africa. We think that that is likely to be a sustainable trend. Jim and I were just in a meeting here with all of our top European salespeople and we go to spend some significant time talking about some of those markets over there. And it really looks like and really... my own observations while traveling in those geographies is that the business activity in places like Russia and the Middle East and even parts of Africa now look to be very favorable for Graco and sustainable. So I think that mix of... mid digit growth in Western Europe and then high double-digit growth in the other part of the geography is something that we would expect to continue to drive.

Okay, and then just one final question. You provided order activity for the quarter by geography, I believe for all of Graco, do you have that for just the Industrial business?

We don't drill down into orders by segment. Incoming orders --

Okay.

No, we do not.

Okay.

I just wanted to get back to you on the share count, it is about 61 million.

At the end of the quarter, thank you.

Yes.

Thank you. There are no further questions. I will turn the conference back over to Pat McHale. Please go ahead.

All right, thanks. Just in terms of a couple of comments about how we plan to manage the business going-forward. Really Graco's profit per sales dollar is high and I'm really committed to making sure that we are making the incremental investments that we need both in new product development and in our geographic expansion initiatives to drive revenue into the organization. And we're really focused on making sure that even in light of some tough conditions here in North America right now, that we are not going to start our growth opportunities for 2009 and beyond. From a cost standpoint, we have put a lot of emphasis on our factory operations. We are having detailed cost reduction meetings with every manufacturing cell about every six weeks. And going through the details of their cost reduction programs. We are really focusing on productivity. And fortunately from a Graco standpoint with our factories located the way they are we are able to flex both people and jobs from factory to factory and we think we've done a pretty good job of managing the workload despite some lumpiness in how the orders are coming in. We are really laser focused on cost reduction in a purchasing organization. As we talked about earlier today that commodities pricing situation out there looks extremely tough and we need to make sure that we are doing everything that we can to have offsets. We've been successful for the first few months. I want to continue to work hard and focus on that. We are also focusing on product development resources on cost reduction projects in conjunction with manufacturing and purchasing initiatives or in conjunction with actual new product launches. We are going to work to manage discretionary expenditures in our North American Contractor division. We do expect tough conditions to remain there throughout the year. We're currently not in a situation where we are looking at doing a wholesale headcount reduction in that particular division. But we are looking at how we can reallocate some of our resources to make sure that we are generating growth opportunities, where they exist. We appreciate your time today and thank you very much.

Thank you. Ladies and gentlemen this concludes our conference for today. Thank you for participating and have a nice day. All parties may now disconnect.