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Blount International, Inc. (NYSE:BLT)

Q1 2013 Earnings Call

May, 07, 2013, 01:00 pm ET

Executives

Josh Collins - Chairman & CEO

Calvin Jenness - SVP & CFO

David Dugan - Director, Corporate Communications & IR

Analysts

Robert Kosowski - Sidoti & Company

Steve Barger - KeyBanc Capital Markets

Larry De Maria - William Blair

Robert Kosowsky - Sidoti & Company

Operator

Good morning, or afternoon, as the case may be for each of you, and welcome to the Blount International, Inc., teleconference with Mr. Josh Collins, Chairman and Chief Executive Officer; Mr. David Willmott, President and Chief Operating Officer; Mr. Calvin Jenness, Senior Vice President and Chief Financial Officer and Mr. David Dugan, Director of Corporate Communications and Investor Relations.

My name is Emily and I will be your facilitator today. The conference will begin with a brief overview of the first quarter 2013 results and the company's outlook for 2013, followed by a question-and-answer session. All lines have been placed on-mute to prevent any background noise. (Operator Instructions)

At this time, I would like to turn the call over to Mr. Dugan. Mr. Dugan, you may begin.

David Dugan

Thank you, Emily, and good day, everyone. Before we summarize the company's performance, I would like to remind everyone that the statements made in the course of this conference call regarding the company’s or management’s intentions, hopes, beliefs, guidance ranges or other expectations for the future are forward-looking statements. Those statements involve risk and uncertainties that could cause actual results to differ materially.

Please refer to the cautionary statements detailed in this morning's press release and our Form 8-K and SEC filings. Additionally, we have supplemented our first quarter news release with a presentation that can be found along with the news release on our website at www.blount.com.

At this time, Josh and Cal will give us an overview of the first quarter of 2013.

Josh Collins

Thanks, David, and thank you all for joining us on today’s call. The first quarter 2013 results were in line with our overall expectations reflecting the continued challenges of European and economic conditions and slower demand in South America which we believe is partially timing of order patterns versus last year.

Our sales for the first quarter were up 3% compared to the first quarter of 2012 with our FLAG segment sales increasing about 2% and FRAG segment sales improving by 4.5% on a year-over-year basis. Overall, we saw some strengthening in North America and Asia with sales improving 6% in North America and nearly 18% in Asia. However, demand in Europe and Russia continues to be soft with sales in the region down approximately 4% on a year-over-year basis.

Our onward position continues to reflect mostly stable demand. The total onward position of $180 million compares to nearly $200 million at December 31, 2012. Our FLAG order board of about $163 million represents approximately 90% of the total and was down about 3% from December 31, 2012. FLAG order board declined by about 20% compared to the March 31, 2012 position as we improved our delivery of back ordered items and demand in Europe continue to be weak as we expected. FRAG orders in hand are down about $15 million February December 31, 2012 reflecting typical seasonal fluctuations as well as the late strength in North America.

EBITDA and operating income results were in line with our expectations for the quarter. However, we do not currently see a change in marketing conditions that will cause us to adjust our outlook for the balance of the year. Our operating income for the quarter increased by $5.6 million compared to the first quarter of 2012. Our profit improvement was mostly driven by improved volumes in both the FLAG and FRAG businesses as well as lower comparable first quarter 2012 results which were impacted by the consolidation of our warehouse and assembly operations in SpeeCo in Kansas City, Missouri. We held SG&A spending lower in the first quarter of 2013 as well which also added to profit in the quarter compared to last year.

I will now turn the call over to Cal to cover some specifics related to the financial performance of the company including more detail on our overall cost structure and its impact on our first quarter profitability. After that I will wrap up with our 2013 outlook.

Calvin Jenness

Thanks Josh. As a reminder, we posted a presentation to our website this morning in addition to our press release that outlines profit and cash flow drivers for the first quarter of 2013 compared to the first quarter of 2012 along with other operating metrics.

FLAG sales were up 2.2% versus a year ago although profit in the FLAG business declined. Sales volumes increased driven by the strength in Asia and North America as Josh mentioned a minute ago. Compared to first quarter of 2012, Asia sales for this segment were up 16.6% and sales in North America were up 12%. Partially offsetting this strength segment sales in Europe and Asia were down 5.5% and South America saw an 18% decline. Additionally, sales experienced a currency exchange rate headwind of about $1.2 million. Finally, average pricing declined mostly as a result of channel mix with the higher proportion of OEM sales versus replacement product sales.

Sequentially, segment sales in Europe and Russia improved by 5% and down slightly in South America compared to the fourth quarter of 2012. From a profit perspective first quarter 2013 FLAG segment contribution to operating income declined by $3.2 million compared to the first quarter of 2012. The benefits of $2.2 million in higher volumes, $1.3 million of lower steel cost and $400,000 of reduced administrative spending were more than offset by foreign currency fluctuations, product and channel mix shifts and a lower capacity utilization rate.

Specifically, foreign exchange negatively year-over-year profit by $900,000. A heavier mix of lawn and garden sales as well as proportionately more sales to OEMs resulted in a negative impact of approximately $2.9 million, lower FLAG and plant utilization and higher logistics cost yielded a negative variance of about $2.8 million.

Turning to the FRAG business, reported 2013 sales lines were also improved versus a year ago period as sales of SpeeCo products and agricultural blades improved compared to last year. Our delivery performance was also better compared to first quarter of 2012 while our performance was impacted by a move over of the SpeeCo operation to Kansas City. Normal annual pricing actions improved average pricing mostly in the Woods/TISCO businesses.

The FRAG businesses EBITDA was $3.3 million in the first quarter of 2013 compared to $800,000 in first quarter of 2012. After non-cash charge depreciation and acquisition accounting FRAG contributed to operating income was a $1.1 million loss in 2013 first quarter. Excluding the non-cash amortization intangibles for acquisition accounting, FRAG’s contribution to operating income was a positive $2.1 million. These results are after allocated shared services expense of $2.1 million.

The profit improvement was driven by a variety of factors including the impact of the $900,000 price increase. Additionally, steel and product costs were down a combined $1.1 million and improved sales volumes at an another $400,000 profit.

Total company adjusted EBITDA for the first quarter of 2013 was $32.1 million compared to $30.9 million in the year ago period as a result of the improved FRAG segment profit along with an improvement in SG&A spending in the corporate and other category; mostly as a result of reduced integration spending.

Our effective tax rate was about [40%] for the first quarter. Net debt was $480 million at the end of the first quarter, which is an increase of $13.5 million from December 31, 2012. Our total leverage ratio of debt to proforma adjusted EBITDA was 3.6 times and the ratio of net debt to proforma adjusted EBITDA was 3.5 times at the end of first quarter. Our leverage ratios are essentially consistent within 2012.

Net debt increased in the first quarter as we had net use of free cash at $12.2 million and currency rates reduce cash another $1 million. This compares to a free cash use of $1.6 million from first quarter 2012. Cash from the first quarter of 2013 operations was lower than a year ago by $4.0 million as a result in working capital move more than offset the profit improvement. Working capital was driven mostly by increased receivables in the quarter.

Net capital spending declined $3.4 million and partially offset the increase in working capital. The reduction in capital spending was a result of lower spending on the Fuzhou, China plant expansion, reduced capital spending and reduced in response to recent market conditions and result in reduced cash from operations.

In our 8-K filing this morning we announced that we recently amended the terms of senior credit facility, which included the relaxing of leverage and fixed charged coverage limits, increased interest rates at borrowing above four times leverage and a modification of certain other covenants. There were no changes in size or maturity of the facility. We thought it was prudent to amend the terms of the senior credit facility to take advantage of the current debt market conditions and provide increased flexibility to navigate and through on a continuation of slower demand in key markets in resulting borrowing levels.

The combination of cash on hand and available capacity and the senior credit facility are expected to provide adequate liquidity to execute our operating plan for 2013 and for the life of the facility inclusive of our current outlook.

That covers the specifics related to 2013 Q1 operations. So at this time, I would like to turn the call back to Josh.

Josh Collins

I wrap up today’s call by touching on our outlook for 2013, we will then open the line for questions. We remain cautious in our outlook for 2013. As I mentioned at the top of the call, our first quarter was generally in line with our expectations. However, we continue to see the economic uncertainty in Europe with orders in the region.

The late spring is moderating FRAG sales in attachments and parts. Our forward order book and order and take rates remain subdued and do not yet indicate any significant improvement in market conditions. Our outlook for 2013 remains consistent with what we have discussed earlier this year.

We expect sales to range between $930 million and $980 million and for operating income to range between $88 million and $98 million. Our sales projection assumes growth and FLAG segment sales of 0% to 4% and growth in FRAG segment sales of 1% to 6%, both versus 2012 levels.

At these sales levels, overall adjusted EBITDA should fall within the $140 million to $150 million range. Even at the low end of our sales growth guidance, we expect improved profitability due to the cost related to last year’s integration of SpeeCo into our new Kansas City distribution and assembly center as well as the write-off of the discontinued log splitter line both of which will not recur in 2013.

However, FX impact and wage rate inflation will likely offset some of this gain. We continue to expect free cash flow in 2013 to be between $40 million and $50 million after approximately $40 million to $50 million with capital expenditures. Net interest expense is expected to be between $18 million and $19 million in 2013 and the effective income tax rate is expected to be between 35% and 38%.

With that, we would like to open the line for questions.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question will come from Robert Kosowski of Sidoti. Please go ahead.

Robert Kosowski - Sidoti & Company

I was wondering if you could give us some operational metrics on how the new KC plan is working for SpeeCo and also just commentary on where we stand with the China expansion in FLAG?

Josh Collins

Let me give you some general response to that. We are operating pretty well in Kansas City, meaning our service levels are greatly improved. And in terms of service levels we are feeling pretty good about our service levels right now and how we are operating in Kansas City. Nonetheless, we are not where we want to be and we are spending more money, it’s more expenses than we would like to be in KC right now on the distribution center side. That's a result of really two things, one the warehouse is still really full -- inventory levels, that's not all the inventory is obviously but we do have a lot of inventory there and it is much fuller than we would like what to be.

On the SpeeCo side, we've already taken out several, not several but $3 million or $4 million, some of that is the one time around loss for the line, but multiple million dollars worth of inventory has been reduced due to good shipments there and we've really starting to give a reduction line around supply chain as well. So we are starting to feel good about that. It’s going to take about a year to get that back to where we want to be at least through the end of the year, maybe full year from now. But we anticipate that we will continue to be able to operate well in terms of servicing our customers. And after the course of the year, over the next nine to 12 months the cost levels will come down where we need them to be.

In terms of the China facility, we have slowed our CapEx schedule a little bit. We really can't put a lot, we sold a little bit, just little bit of timing there for two reasons, one the market and two we want to make sure that we are not getting ahead of ourselves and certain in terms of our learning curve. We are having the normal sort of growing pain you have whenever you are doing a major expansion and that is the major expansion. We are worried about 40 million feet of finished capacity and we are fairly well vertically integrated there. I would call it sort of 80% vertically integrated on that 40 million feet, that will continue over the next 18 months to get us to 60 million feet pretty much vertically integrated.

Robert Kosowski - Sidoti & Company

So I guess to go back to the KC side, so basically SpeeCo I guess your assembly product pretty well but this is going to take a year to kind of climb the learning curve, your employees need to do it.

Josh Collins

On the assembly side we are -- the operations are extremely good because the quality has improved, the cost is good on the assembly side. On the warehousing side, we've got a really full warehouse and we are handling twice as much inventory, meaning both the SpeeCo side of the house. (Inaudible) a lot of parts, lot of little parts and then of course the Lawn and Garden side of the house where we combination those two warehouses exactly in Kansas City. So you've got a lot more -- a larger workforce. You've got to train people, get people up to speed.

There is a real learning curve there in addition to having move and the issues that we had last year. We have a lot of excess inventory on the shelves and that excess inventory will come down over the course of the year. At the same time that our learning curve will continue to improve. So while we are operating well in terms of metrics around service levels for a customers’ on-time delivery etcetera, our costs are still too high. We're carrying too many people. We've done a good job bringing that down and bringing people up to speed, but it's going to take a while to get it to where we really wanted.

Robert Kosowski - Sidoti & Company

Okay, that’s helpful. And as far as inventory position on the balance sheet, it seems like it's been flat over the past three or four quarters. And I am just wondering what this seasonal built might have been in FRAG that might have clouded any draw down you might have had on the FLAG side?

Josh Collins

No, really on the FRAG side, on SpeeCo, we come down a little bit from the end of the year and we're doing a good job there.

Calvin Jenness

On the FRAG side, we are about flat. So FRAG overall is down a little bit. The growth has been around the FLAG side and while sales were up modestly year-over-year in certain categories, especially, we talked about mix in there and on the chain side, we're not getting the sales, the orders and the sales that we would anticipate.

So we brought down production rates a bit. We're trying to bring them to a level that’s going to allow us to reduce our inventory levels call it 10 million or more by year-end on the FLAG side. On then on the FRAG side, we continue with this rate. We will be able to bring those inventory levels down to another, more than $5 million from here and kind of 5 million to 10 million from here. So overall up to $20 million reduction in inventory by year-end if our projected sales then it will continue to adjust through the course of year. Does that answer your question?

Robert Kosowski - Sidoti & Company

Yeah, that's fine. And so just to clarify, so product mix went against in those categories you have elevated inventory that you need to draw down, is that kind of accurate?

Calvin Jenness

Yeah. On the FRAG side, we have actually brought inventory levels down.

Operator

Our next question is from Steve Barger of KeyBanc. Please go ahead.

Steve Barger - KeyBanc Capital Markets

I know you just talked about this a little bit Josh and I know you don't break out specific product lines, but just directionally, can you give any more color on what happened in the chain business year-over-year. Just given how important it is to the total EBIT contribution?

Josh Collins

Yeah. I mean the mix is moved away from chain a little bit and so we are down a small amount a few million feet versus last year. And you can see it really regionally, you got you drive so crazy looking country by country, etcetera. But somebody pull it bring up Latin America, if you remember last year first quarter was just a really hot quarter for Latin America and Brazil and South America, chain sort of bad copy over year.

It's a little bad quarter for South America and Brazil, but it wasn’t as bad as, as it looks if you just look at 18% off, it's a terrible call. But in that region as well as Europe, Russia, so we think it's a -- we have been able to offset some of that with US new product is out there in Lawn and Garden and in forestry etcetera to show the modest growth but you are right that is obviously very important piece of business for us.

Steve Barger - KeyBanc Capital Markets

This doesn't seem like it’s a market share issue that you are really concerned about but more of just comps and timing?

Josh Collins

Yeah, I think so we keep our eyes on it obviously it is difficult to get the data and with a lot of word of mouth from the fields and dealers and distributors all around the world and there are certainly areas that are more challenging and where it feels like we are doing better, doing worst, but overall we don't see it.

Steve Barger - KeyBanc Capital Markets

In terms of $2.9 million impact of negative mix from lawn and garden is that really related to new products at a lower margin and do you expect that those products climb the margin curve or any more color around that?

Josh Collins

No, I mean lawn and garden to shift toward lawn and garden and some other force of accessories etcetera and we do have quite a few new products out there. We are always new products. We are not trying to buy share with them as we introduce them, so they don't typically climb margin curve like that, its just overall a shift in mix and the relative margins is given a set that sort of $2.9 million decrease.

Steve Barger - KeyBanc Capital Markets

Right, and I hear you on the KCVC warehouse takes a little time to get you where you wanted, but can you run profitably this if you average in the low $60 million per quarter on the FRAG side this year, can you have positive operating income or is this just a kind of a breakeven function right now at this levels?

Josh Collins

We definitely will, the contribution on operating income number looks worse than it is. I mean we are making money. We are making good cash money on that business right now. There's obviously seasonality in the overall FRAG business and the late summer and fall is better part of the year overall for us. But we are making money there. We’ve got about 3.2 million of non-cash amortization of intangibles that are coming out of purchase accounting, so I mean you adjust with that whatever that is 2.1 million of positive cash flow if you will, contribution of operating income. We are going to make money in that business, there's no doubt about it. Yeah we do have a share services allocation and that's there's a real number and some of it is a little bit of peanut butter spread but we try to be scientific about it. So we are showing obviously the fully loaded numbers there, but that's a real $3.3 million of EBITDA, on an [EBDA] basis if you will its $2.1 million or something like that for the quarter. And it should improve as - you are right I mean the only piece of FRAG that's impacted by the KCVC warehousing expenses and you know with the SpeeCo piece of it which is an important piece of it, but less than half the overall profitability and that has improved greatly I think you know obviously you see that year-over-year and we continue to improve and now its better this week and last week was better than last month and we are going to continue to drive that improvement.

Calvin Jenness

Okay Steve from a seasonality standpoint first quarter is a generally low quarter for the FRAG business on a revenue basis. Anymore revenue we can add offset these amortization costs.

Steve Barger - KeyBanc Capital Markets

And I think this is a related point. I'm sorry if you mentioned it and I missed it but the step up in accounts receivables is that just related to build and timing of sales.

Josh Collins

Yeah, that's literally just timing.

Steve Barger - KeyBanc Capital Markets

Okay, so is it fair to think that you should have positive free cash flow in 2Q.

Josh Collins

Yeah, we should. The real question and this is what we are watching closely. Production rates versus order intake and shipments and the accounts receivables were big at the end of Q1, so we don't see that piece of it growing but where is the rest working capital going to be meaning really inventory and had we found that balance those were stable or reducing overall inventory instead of growing it. That's the thing that's we are keeping our eye on pretty much everyday.

Steve Barger - KeyBanc Capital Markets

Right and based on current demand levels or however you see the rest of the year progressing is there anything else you need to do from a restructuring standpoint in the facilities beyond kind of the fine tuning that you were talking about in KC or is this just a function of controlling costs now until you get the volume kind of rolling through the system.

Josh Collins

Yeah, I mean look there's a, it'd be really easy to just annualize Q1 and say that's the low end of the sales level, obviously there are a lot of moving parts in there including we've got decent order board right now but it doesn't go out that far obviously and it can move around a lot. We are going to need orders come in and, it's pretty early in the year right now. We just don’t know, we’ll know more in the quarter but it's got to be a good FRAG season and we got to get a pretty good [poultry], Lawn and Garden season through the summer and in to the fall but that’s where we got a pretty big range out there.

Steve Barger - KeyBanc Capital Markets

Okay, and kind of stepping back, I'll ask a philosophical question. You’ve had a lot of individual issues over the past year with SpeeCo and various end markets and whatever has happened. It's been a lot to manage through. So, first question; has any of this made you change the way you think about the fundamental of your strategic goals and your ability to generate EBITDA and cash going forward; and number two, do you feel like the momentum is turning it all to where you can kind of get back on offense or do you feel like you are still putting out fires?

Josh Collins

Good question. Appreciate the question. We feel that our investment thesis around the end markets, the end users, the FLAG products and FRAG products and around the dealer networks of each are being validated and you are right. The challenge is specifically around the SpeeCo transition if you will and SAP move and warehouse move and some of the operation. The result are tough and coming at a time when you had a drought, that delayed some stuff but we feel quite better about that overall investment thesis today than we did when we made the bet. We also feel that we have got a good team that we have put them place on a FRAG senior leadership team if you will that pull together from really several new companies SpeeCo, it's Woods, TISCO, while TISCO is part of Woods, it was really run completely separately. And we really added to that team overall and get a small seed business, then we don't talk about it much but how the agriculture side, it's PDL, it's not sort of the business, it's in and it’s in a little bit now, but we are just taking a lot of time around, how that’s going to fit in, in the years to come. As we begin making more and more agricultural replacement blades and OE blades for that matter and that bringing a team together, when you bring a group of people together from two different organizations that’s complex enough when you are talking three or four different organizations that are moulding into the way that we go about our business and P4 it's a lot of work Paul and his team has done just a great job setting that up for us and with us.

So we do think that we have an enormous amount of opportunity. We are going to see a lot of improvement this year and there is a lot more to come. And that FRAG team along with David and me and Cal and others also been spending time looking forward around two graphic expansion, I know you keep talking about we feel we are getting some traction there. So overall I mean we feel better about the pieces today, we are not satisfied at all with obviously 2012 and we are up to previous start, we are operating pretty well right now, and there is lot of room for improvement and it is going to take time, but yeah, we feel good about it.

Operator

Our next question is from the (inaudible) of William Blair. Please go ahead.

Larry De Maria - William Blair

Hi, guys, it’s Larry De Maria. You guys just related to your comment about the outlook, I guys you are still cautious on, but you are off to decent start, I mean at this point, are you thinking about further larger restructuring actions and what can you do on the cost side to mitigate I guess down side should things not develop as we hope that you does? I guess I am just surprised that there is not another announcement on maybe restructuring plan at this point given that you said you got the characterized the outlook is cautious?

Calvin Jenness

Yeah, as I said, we made a decision to reduce some production rates in order to adjust for the sales levels that we see coming in, so we are not continuing to increase inventory levels and we are literally watching that day by day. Today we have been able to do that through attrition not hiring in some temporary workforce as well. And if we deemed then on retro cost side through tighten belt through an SG&A and we've very recently taken another hard look around that on the SG&A side and we literally will continue to look on a day-by-day basis. If we make the decision that we need to reduce production rate further, then we would probably see some form of an announcement around that, but at this point I haven't needed to do it, we've been able to handle it in a different fashion.

Larry De Maria - William Blair

Okay. And have things progressed -- just going through the quarter was it relatively even progression and then following the conclusion of the quarter, obviously how was April, are there any notable change in tone or demand following the end of the quarter?

Josh Collins

It’s been -- I would say -- I will put it this way Larry it’s been sort of volatile. It’s been interesting, it’s been one month great, one month bad, one month great, one month bad in terms of order intake and demand for the month and with any break it down by region and by country and it’s in starts. There are some areas where it feels like or maybe that's a start of a recovery and you can feel for a few weeks and then it sort of goes away. So I don't know how to characterize it other than that and we continue to see that same characteristic into Q2 as we are starting out Q2 here.

Calvin Jenness

Yeah there's no real apparent trend, it’s good one day, not so good the next day, and that maybe adds up certainly a part of it, that's trying to get a beat on.

Larry De Maria - William Blair

And thank you. How about Europe which is obviously still soft which is obviously I was surprised what's going on, but at some point when do we start to see some restocking, maybe how do you think about the inventory, do they channel over in Europe and when would they actually see some restocking, are we closer yet?

Josh Collins

You know it’s interesting. We don't have perfect information around stocking levels but we have a lot of information and it’s once again all over the place. There are some areas where we would expect to have seen some restocking start. And I will tell you that our direct end user business stock is felt pretty good. So you would to start there and then go to dealers and then go to distributors and we haven't really seen it yet in the general trend other than at the direct consumer level.

Larry De Maria - William Blair

Okay.

Josh Collins

So that's not an answer for you other than we haven't seen it yet. We would expect -- you know once again we got this distributor stocking levels and there are some that are still have ways to go and some that feel like they are getting close to you know if the demand comes they are going to need to purchase.

Larry De Maria - William Blair

Okay. And then just finally anything new on the (inaudible) front in terms of obviously their announcement from two months ago, how were the discussion going on with them and anything new to report there?

Josh Collins

There really is nothing new to report. We continue to have our ongoing conversations with how far our largest customer at many levels throughout the organization and they continue to be a valid customer. We continue to talk to them about their plans and all plans. We want to make sure we got the right capacity in place for them and we continue to work on our own innovation processes in order to be continuing to build the most innovative products where end users we can. Really no material change and enough that we can certainly talk about.

Larry De Maria - William Blair

Okay, thanks and did you guys ever give any utilization numbers. I didn’t hear any but.

Calvin Jenness

Yeah, I think we have some in the press release. I think it was 82, 85.

Operator

Our next question is a follow up from Robert Kosowsky of Sidoti. Please go ahead.

Robert Kosowsky - Sidoti & Company

Two actual questions; the first one is can you quantify what the weather impact might have been on the FRAG?

Josh Collins

I don't know.

Robert Kosowsky - Sidoti & Company

Maybe just qualitatively talk, was it for you pretty remarkably late start to the selling season and kind of how the dealers handle it.

Josh Collins

It is just started and we can’t really call that yet. I am going to say $5 million.

Robert Kosowsky - Sidoti & Company

Okay, then otherwise on the saw chain side. Can you just go about major region and just say whether or not you think there are still de-stocking or re-stocking or it looks like consumption might be pretty equal with inventory or to marry your production rates?

Josh Collins

I would tell you, North America is good. The reason Latin America was so slow, I think is they had too much inventory and they probably still continue to but we do think a good amount of that is actually timing, and we should the rest of you should be able to feel a little bit better. In Europe, that’s really what I was just addressing on the last answer. On an (inaudible) it’s mixed bag, we spent quite a bit of time with our agent, distributors around the grand opening at Fuzhou, (inaudible) and it's a mixed bag some are in good shape and meaning their level, and some still feel they have too much inventory in particularly chain types largely a function of there is no, there is very little Europe market and you get a rattle through effect here in Asia.

Operator

This concludes our question-and-answer session. I would like to turn the conference over back to Josh Collins for any closing remarks.

Joshua Collins

I don't have any closing remarks. Thank you all for taking the time and we will talk to you next (inaudible) call.

Operator

The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect.

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