EnerSys Inc. F3Q10 (Qtr End 12/27/09) Earnings Call Transcript

Feb. 4.10 | About: EnerSys (ENS)

EnerSys, Inc. (NYSE:ENS)

F3Q10 (Qtr End 12/27/09) Earnings Call

February 04, 2010 9:00 am ET

Executives

John D. Craig – Chairman, President & Chief Executive Officer

Michael J. Schmidtlein – Interim Chief Financial Officer

Analysts

Corey Tobin – William Blair & Co.

Steve Sanders – Stephens Inc.

Elaine Kwei – Piper Jaffray & Co.

Shawn Lockman – Ardour Capital Investments

Michael Gallo - CL King & Associates

William Bremer – Maxim Group

John Franzreb – Sidoti & Co.

Dana Walker – Kalmar Investments

David Pack – Jefferies & Co.

Operator

Good day, ladies and gentlemen, and welcome to the third quarter 2010 EnerSys earnings conference call. My name is Yvette and I'll be your operator for today. At this time, all participants are in a listen-only mode. We will conduct a question-and-answer session towards the end of the conference. (Operator Instructions). I would now like to turn the call over to Mr. John Craig, Chairman, President, and Chief Executive Officer. Please proceed sir.

John D. Craig

Thank you, Yvette. Good morning and thank you for joining us for our conference call this morning. During this call, we will be discussing our third quarter of fiscal 2010 results and will comment on the general state of our business. Joining me on the call this morning is Mike Schmidtlein, our Interim Chief Financial Officer. And before we get started here, I'd like to ask Mike to cover information regarding forward-looking statements.

Mike?

Michael J. Schmidtlein

Thank you, John, and good morning to everyone. As a reminder, we will be presenting certain forward-looking statements on this call that are based on management's current expectations and are subject to uncertainties and changes in circumstances.

Our actual results may differ materially from the forward-looking statements for a number of reasons. Our forward-looking statements are based on management's current views regarding future events and operating performance and are applicable only as of the dates of such statements.

For a list of the factors, which could affect our future results, including our earnings estimates, see forward-looking statements included in Item 2, Managements' Discussion and Analysis of Financial Condition and Results of Operations, set forth in our quarterly report on Form 10-Q for the quarter ended December 27, 2009, which was filed with the U.S. Securities and Exchange Commission.

In addition, we will also be presenting certain non-GAAP financial measures. For an explanation of the differences between the comparable GAAP financial information and the non-GAAP information, please see our company's Form 8-K, which includes our press release dated February 3, 2010, which is located on our website at www.EnerSys.com.

Now let me turn it back to you, John.

John D. Craig

Thanks, Mike. As we reported last night, our sales for the third quarter were $421 million with adjusted diluted earnings per share of $0.44. Both our sales and earnings were up significantly on a sequential basis from this year's second quarter, and the earnings exceeded the $0.37 midpoint guidance we gave during our last conference call.

During our October conference call, I said we firmly believe, we have turned the corner on the recession, and with another good quarter reported, we believe we will continue to see improvements in our worldwide markets.

In the quarter, revenue increased 15% sequentially over the second quarter, while adjusted diluted earnings per share increased 38%. That revenue increase was due primarily to higher organic volume, and the earnings increase was due primarily to the higher volume and the good results in our continuing cost savings programs.

Although, earnings improved significantly, we are not able to maintain the 24.1% gross profit margin reported in the second quarter. The timing of pricing continues to lag increase in commodity costs, and this temporary lag was a contributor to the gross margin reduction to 23.3% in the third quarter.

In addition, even if 100% price recovery were achieved, mathematically, the margins would decrease, although the net impact on gross profit dollars would remain unchanged. We are maintaining our strong focus on achieving our target of a minimum of 25% gross profit.

However, as I just discussed, this is more difficult in an environment of increasing commodity costs, such as we've experienced over the last few quarters. We are not and will not take our eye off the target. Stabilization of commodity costs along with higher volume and cost savings will help us to achieve the 25% gross margin target.

We believe, we are in good position to take advantage of the projected growth in the worldwide economy. Our strong competitive and financial positions are largely the result of our strategies we began to implement in the summer of 2008, when we saw the beginning of the economic downturn.

We invested capital to substantially reduce our costs, while continuing to expand or the expansion of our thin plate pure lead capacity, conserve cash, and increase our focus on acquisitions.

As you know, the downturn in Europe was substantially worse than the rest of the world. However, we remain confident that our reduced cost base in Europe will pay off in higher future earnings as their economy recovers. Revenue in the Americas, in Asia have also been down significantly this year.

However, we have been able to improve operating earnings in both regions. We remain very active in pursuing acquisitions, and have completed investments in Oerlikon, Altergy, and Douglas Battery, since our last conference call. These investments will result in combined revenue in fiscal 2011, in excess of $100 million, and will be accretive to our earnings this next year.

We had over $200 million of cash and short-term investments at the end of December. So we remain confident in our ability to finance additional acquisitions and organic growth.

Order trends have continued to build, and as a result, we are anticipating higher sequential sales for the fourth quarter. Recent data from the Industrial Truck Association show increased orders for four trucks. And on the reserve product side, in addition to improved orders, we continue to experience increased quote activity.

Despite of the revenue increase, we are expecting, as reported last night, that adjusted diluted earnings per share in the fourth quarter will be in the range of $0.39 to $0.43. Our commodity costs will increase sequentially by approximately $20 million in the fourth quarter. That is equivalent to a $0.29 per share of headwind. And we may not be able to offset all this increase in the fourth quarter, but we fully expect to offset them in the next quarter or two.

Going forward, we will remain highly focused on our customers and provide them with the best overall value with our products and services. We are always exploring new cost savings opportunities while also maintaining our focus on growing the business, both organically and through acquisitions. Our employees have been very successful in endeavors in the past. I believe that we will continue on that path.

Now I would like to turn the discussion over to Mike Schmidtlein for further information on the results and on our earnings guidance.

Mike?

Michael J. Schmidtlein

Thank you again, John. Our third quarter net sales decreased 9% over the prior year to $421 million. On a regional basis, Europe's third quarter net sales declined 5% to $210 million compared to the prior year.

Our sales in the Americas declined 10% to $179 million, while our Asian business third quarter sales experienced a decline of 18% to $33 million. The consolidated third quarter decrease includes approximately 11% due to lower volume, and 4% from lower selling prices, partially offset by 5% due to stronger foreign currencies and 1% due to acquisitions.

On a product line basis, net sales for Reserve Power decreased 6% to $213 million, while Motive Power decreased 11% to $208 million. On a sequential quarterly basis, third quarter net sales increased 15% over the second quarter, primarily due to improved volume. This is the second straight sequential quarterly increase and is a good sign for the future.

Both Europe and the Americas posted solid gains in organic volume of 20% and 6% respectively, over the prior quarter. The Asia region declined 12%, primarily due to delays in the bid tendering process by certain Chinese telecom companies.

Net sales for the first nine months of fiscal 2010 decreased 29% over the prior year to $1.1 billion. On a regional basis, our European operations net sales declined 34% to $534 million in fiscal 2010. The Americas declined 24% to $494 million, in Asia 16% to $101 million. The 29% decrease for 2010 includes a reduction of 22% in base volume, 2% from weaker foreign currency translation, and 5% due to pricing.

On a product line basis, net sales and Reserve Power decreased 19% to $594 million, while Motive Power decreased 37% to $535 million. Now a few comments about our adjusted consolidated earnings performance. As you know, we utilize certain non-GAAP measures in analyzing our company's operating performance, specifically excluding highlighted items.

Accordingly, my following comments concerning operating earnings, and my later comments concerning diluted earnings per share exclude all highlighted items. Please refer to our company's Form 8-K, which includes our press release dated February 3, 2010 for details concerning these highlighted items.

Our third quarter adjusted consolidated operating earnings were $38 million or a decrease of 3% in comparison to the prior year, but the operating margin increasing 50 basis points to 8.9%. This credible third quarter margin was achieved in spite of lower sales of approximately $40 million in the quarter, as the positive margin impacts from cost reduction initiatives and lower commodity costs net of pricing were evident.

Excluded from our adjusted operating earnings for the third quarter was a $2.9 million non-taxable bargain purchase gain arising from our recent acquisition of Oerlikon. We believe this gain will be consumed in subsequent periods by restructuring charges for that business.

On a sequential quarterly basis, adjusted consolidated operating earnings increased 29%, with the operating margin increasing 100 basis points, primarily due to the increase in volume and our ongoing cost savings programs.

Our first nine months of fiscal 2010 adjusted consolidated operating earnings were $90 million or a decrease of 29% in comparison to the prior year, with the operating margin flat at 8%. The decrease in the first nine months earnings was due to similar factors, as discussed above for the third quarter.

As some of you may have noticed in our press release and Form 10-Q, we have revised our reporting of segments. The accounting guidance prescribes reporting on a single basis of segmentation, based upon the manner in which management runs operations. Therefore, we will only be reflecting operating earnings on a regional basis in the future. However, we will continue to provide net sales by product line.

Now several comments concerning our diluted earnings per share, adjusted diluted net earnings per share were $0.44 in the third quarter versus $0.61 in the prior year, or a decrease of 28%. The main driver to the decrease in earnings was the lower volume and foreign currency transaction gains from the prior year, which did not reoccur.

For the first nine months of fiscal 2010, adjusted diluted net earnings per share were $0.99 versus $1.58 in the prior year, or a decrease of 37%. The key influences on our earnings for the first nine months of 2010 were the reduction in net sales and foreign currency transaction gains, partially offset by cost savings and lower commodity costs, net of pricing.

Now some brief comments about our financial position and cash flow results. In short, our performance continues to be very strong, with substantial liquidity, secure, and favorable debt facilities, and a strong capital position, as illustrated by the following four points.

First, cash flow from operations for the first nine months of fiscal 2010 was $110 million. Second, nearly $211 million is on hand in cash and short-term investments as of December 27, 2009, compared to $163 million at the beginning of fiscal 2010.

Third, over $200 million remains undrawn from our credit lines around the world. And fourth, the leverage ratio as calculated in our U.S. credit agreement was 1.9 times and our net debt to total capitalization ratio was 22% as of December 27, 2009.

Capital expenditures were $31 million for the first nine months of fiscal 2010 and are expected to be $45 million for the full year. Our capital spending for the fiscal 2010 is focused on productivity improvements, cost savings projects, completing the expansion of our thin plate pure lead capacity and the introduction of new products.

Our book effective tax rate, excluding the non-taxable bargain purchase gain, was approximately 30% in the first nine months of fiscal 2010, and is expected to be slightly below 30% for the full fiscal year.

As John mentioned, we remained very active in evaluating and pursuing potential acquisitions around the globe. We remain patient, and have not changed our disciplined approach and strategy in seeking acquisitions. We have a strong capital position and significant liquidity, and this give us confidence in our ability to finance the transactions we are pursuing. As noted earlier, we recently completed the acquisitions of Douglas and Oerlikon Battery businesses, and the investment in Altergy Systems.

As we look ahead, we expect to generate adjusted diluted net earnings per share of between $0.39 and $0.43 in our fourth quarter of fiscal 2010, which excludes an expected $0.09 per share from our restructuring programs and acquisition activity expenses. Our recent acquisitions in investments are expected to be neutral in earnings for the fourth quarter, and accretive a minimum of $0.10 per share next fiscal year.

Our anticipated fourth quarter earnings will be driven by three factors. First, $20 million or $0.29 per share of higher sequential quarterly commodity costs, along with related incremental pricing. Second, a sequential quarterly increase in fourth quarter revenue and third, the ongoing benefits from cost reduction activities.

In summary, we believe our ability to mitigate the higher lead costs in the fourth quarter with pricing and cost savings reflects the strength of our business. Now, let me turn the call back to John.

John D. Craig

Thank you, Mike. And with that, I'd like to open the lines for questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from the line of Corey Tobin with William Blair. Please proceed.

Corey Tobin – William Blair & Co.

Hi, good morning.

John D. Craig

Hi, Corey.

Corey Tobin – William Blair & Co.

A couple of very quick ones here. John, I appreciate how hard it is to achieve the 25 – well, I should say I appreciate how hard you guys have worked to achieve the margins that you have, and I'm happy to hear that you're sticking with the 25% margin target, despite the move in lead prices. Can you just walk us through how you see the 25% target as still being attainable? I guess what I'm referring to is, were there new pockets of cost savings that have come up that you've been able to identify? Or is it just higher volume on the fixed cost base? What exactly – what factors are at play here that should allow you to still obtain that 25% target, despite the move in lead?

John D. Craig

Good question, Corey. First off, before I answer that, I want to go back and talk about fiscal year 2004 where we were over 25%. We’ve been there before and I fully believe that we can get there again. Now specifically to your question. If you go back to our call of August of 2008, we started to see a downturn take place. We said at that point in time that what we’re going to do is consolidate our operations. We are going to invest money to pull cost out since then, we’ve closed plants down, we’ve consolidated operations, we put additional automation in place. We are poised to come out of this recession a much stronger company that we entered it. What it really gets back to us, two factors. If the volume comes back, it is my belief that we’ll go blow through the 25%. If we control or manage the price versus the cost of commodities. So, as long as we stay in a market that is rational with pricing relative to commodities and the market comes back, we will exceed that 25%.

Corey Tobin – William Blair & Co.

Got it. Great. And then a final one, just on the top line. We've talked in the past about how you typically see accelerated growth rates for the – I think it was three to five quarters coming out of a recession. And I'm just curious, do you still – as you see the current environment shaping up, do you believe that will be the case?

John D. Craig

I do believe that will be the case. But this is a different situation than I think that we’ve seen in a long time. If you take a look, let‘s break it down by segment. If you look at Europe, Europe has really hurt the worst. We're down over 33% in our revenue compared to last year in Europe.

It‘s been a tough situation in Europe and I don’t see it coming back on a V-shaped or even a U-shaped. I think it‘s going to take sometime for Europe to really turnaround. The U.S. I think it's going to be a little different, it‘s going to be – it's going to comeback, it‘s going to be slower than the past but it is starting to comeback and we are seeing it in the order take.

Asia is strong for us right now, even though the volumes are down, there is a reason for that and basically is limited capacity that we have in the China market today. But I think what we're going to see is going to be the – when the economy returns, this things will pop backup.

Now specifically to the large growth that you see after recession, if you take a look at our Motive Power business this year, it’s down something like 35% compared to last year and the Reserve power is down 19%. Historically, our Motive Power business is larger than our Reserve power business that’s not the case this year because of the major, major regression that we‘ve seen in the Motive Power numbers.

That is starting to comeback ITA data that we’ve recently looked at, indicates that it‘s coming back stronger than the Americas, though, than in Europe but it is coming back. And what we‘ve seen historically is that Motive Power tends to go down worse in a recession and it tends to come back stronger than the recovery. And I have no reason to believe that will not repeat itself this time around.

Corey Tobin – William Blair & Co.

Okay, great. And then one final one just following up on what you said, there's capacity constraints in Asia? Did I hear that correctly?

John D. Craig

That’s correct.

Corey Tobin – William Blair & Co.

And do you see that persisting for sometime? Or is it something that should free up here in the next couple of quarters?

John D. Craig

There is a couple of things on the China market specifically and I said Asia, let me qualify that. China is still going along strong, the rest of Asia is the recession is there, it‘s real, it‘s down. The rest of the countries we do business within Asia, it‘s soft. But China itself is still very strong for us. So when we take a look at that particular market, being that we have limited capacity, what we're doing is we're holding pricing. In fact, our pricing is probably higher than most of, if not all, our competitors over there. Limited capacity, we are not going to give it away. You look at our earnings in Asia they are outstanding this year.

Now what we are studying currently is this that we are looking at increasing capacity in the China market. In fact we are looking at possibly even building a new factory over there. We are studying it right now. We will not make that decision until our models indicate that we can make a real good return on our investment, but it is a study that we have going on currently. If we do that we will also put in different product types that will be lower in cost. So the idea, the concept is lower cost production in a lower cost region, increased capacity for China and really to attack that market in a much stronger basis.

Corey Tobin – William Blair & Co.

Great. Thanks for the time and congrats on a great quarter.

John D. Craig

Thank you.

Operator

Your next question comes from the line of Steve Sanders with Stephens Incorporated. Please proceed.

Steve Sanders – Stephens Inc.

Hey good morning everyone. Nice quarter.

Michael J. Schmidtlein

Good morning.

John D. Craig

Thank you, Steve.

Steve Sanders – Stephens Inc.

Thank you Steve and John. On the – I think you indicated that sequentially, the volume trends continued to look good. Can you quantify that a little bit? Or at least kind of directionally talk about what you're seeing in Europe versus North America, kind of Motive versus Reserve?

John D. Craig

Well as I said earlier that, the ITA data is showing significant improvement over last year, in fact if you take a look at the month of January and I realize that‘s just a one month period that the ITA data in the United States was up about 60% over prior year for that one month. But if you look at the last couple of months, it‘s been up in the mid 20's or 30's. So, we are seeing a trend that’s starting to come up in U.S., a little slower in Europe as I mentioned earlier. So we think that we‘ve hit the bottom and I said that the last conference call we felt we hit the bottom. This quarter we're up 15% over last quarter, and I'm not going to give a percent what we think fourth quarter is going to be up, we don't give top line guidance on it, but I think we're going to continue to see increases in our fourth quarter on revenue over third quarter.

Steve Sanders – Stephens Inc.

Okay. And then back to the potential China expansion. Can you just talk a little bit more about what you need to see to make the go-ahead decision? And then how we should think about the investment there when you – when and if you do make that decision?

John D. Craig

It's a real simple equation. And that equation is, does that make good money for our shareholders? If it's a good return in our five-year models and that we're looking at, then we will go ahead and push the button and do it. And what we've got to really test are a couple of different metrics on that. Do we really believe the top line growth will be what we thing it is? Initial indications are yes.

Secondly is, if the place that we're looking at, if the cost structure is that low, or much lower than we have today, we can consolidate operations, get our overall cost in China down. Then, if it generates good returns, we're going to do it. I said before and if you know, we're kind of a roll-up vehicle in the industrial battery space. We've acquired 25 different companies since the mid to late 1990's. We've tried to use that approach in the Asia market. The valuations on the companies, we looked at are just too high. We're not going to paying multiples of 12, 15, 18 of EBITDA. So we're looking at another approach. We will stronger in that market. We will be stronger in it. It's just how do we get there? Our approach that we've used in the Americas and Western Europe has not worked in Asia because the multiples have been high. So we're looking at the good returns. And I said it‘s a study going on right now and we will finalize that study hopefully in the next 6 to 8 weeks.

Steve Sanders – Stephens Inc.

Okay. And then two quick ones and then I'll get out of the way. First, just kind of a general comment on the market pricing, is it fairly rational in different regions of the world and different end markets? And then second – and this is really very much a hypothetical – if lead sort of stayed in this $0.95 to $1.05 range, you guys got some decent sequential volume increases and you know sort of got at least a piece of your pricing, is it reasonable to think you could get close to neutralizing lead by the June quarter? I thought you sort of implied that in your remarks, but I know there are a lot of variables that go into that.

John D. Craig

Well, the answer is it depends on what lead does going forward and let's talk specifically about that and try to give you a little bit more insight what happens with lead I'm going to talk about lead in the last two quarters and the forward quarter and I'm going to talk about it based on – on the LME price not EnerSys price but LME price. And the difference being, I don’t want to give out our actual price because we do some hedging, we do tolling, and do some other things. But the LME will give you an indication what's going on. Keep in mind that we fight for our inventory. So in theory, what happens is the lead cost for our fourth quarter, we already know what it is because the actual value or price that we paid in third quarter rolls to fourth quarter.

Steve Sanders – Stephens Inc.

Right.

John D. Craig

So we're FIFO-ing the inventory. If you look at quarter two on a P&L standpoint, the LME cost of lead was $0.68. If you look at it, in the third quarter, it's $0.87. If you look at it in the fourth quarter, it's a $1.04. Now the price is already set, we've already spent the money for the lead. It's at a $1.04 average LME. Lead dropped down to $0.91 this week. So when you take a look, what is your ability to get pricing when lead drops down? It's obviously tougher.

Steve Sanders – Stephens Inc.

Right.

John D. Craig

So when you take a look at the headwind that we have in fourth quarter over Q3, it's a $0.29 per share headwind. And we are offsetting most of that. Most of it's coming through to cost savings, increased volume, and a little bit on pricing. But we're not going to capture all of it on pricing in the fourth quarter. But it will level out and neutralize itself in the first quarter or second quarter, if the LME price stays flat, it stays where it is. If it goes up or down obviously those metrics are going to change.

Steve Sanders – Stephens Inc.

Okay. And I think you – didn't you put through some price increases kind of late third quarter – or late calendar third quarter, early calendar fourth quarter?

John D. Craig

Yes, we have one. There was an 8% price increase that's going through right now. And again, it's what is your ability to capture that 8% increase was based on lead going to a high of a $1.18 a pound. And as I mentioned earlier down to $0.91 a pound. So, it really comes back is how confident are we that we can get the full pricing, the 8% going through when lead dropped down.

Steve Sanders – Stephens Inc.

Right.

John D. Craig

And that’s reflective in the reduction that we did in our fourth quarter guidance. It's a timing situation of price of our product that we can get versus what's happened with the LME. If the LME…

Steve Sanders – Stephens Inc.

Okay. And then when I speak to pricing environment rational, any pockets that are more challenging than others?

John D. Craig

The challenging one right now, the Americas is in very good shape. I mean, there's one that is very rational, generally speaking in the Americas. Europe is tougher, and it’s rational, and I'm going to put it on the scale of one to 10. I'm going to say the Americas is let’s just arbitrarily say seven or eight, Europe would be a five or six. Okay, irrational would be a two. All our markets are rational, but some are just better than others.

Steve Sanders – Stephens Inc.

Okay. Thank you very much.

John D. Craig

Okay.

Operator

Your next question comes from the line of Elaine Kwei from Piper Jaffray. Please proceed.

Elaine Kwei – Piper Jaffray & Co.

Hi, John, great quarter.

John D. Craig

Hi Elaine.

Elaine Kwei – Piper Jaffray & Co.

Thanks for taking my question. Quick question on the China Telecom, you mentioned that there was some delay there. And I was wondering if you have any insight into whether that was an industry or a company-specific issue? Or if this is sort of a broader macro issue with China potentially tamping down a little bit on lending and the economy there? And would that change your outlook?

John D. Craig

I don’t think it’s the latter. I think what it is and this is not untypical that you see a tender that are goes out and they're taking some time to do it. They had some excess inventory in certain locations, they are using up. This is not uncommon. We see this virtually every year that we anticipate that the tender is going to go out. It’s going to be completed internally with this one particular customer and it is basically one customer. We don’t know the whole reasons they haven‘t divulged that. But we fully expect that that's going to – the tender is going to be satisfied and it's going to be moving forward.

Elaine Kwei – Piper Jaffray & Co.

Great. And in terms of your current capacity there in Asia, is that currently sufficient to meet demand? Or you're really feeling the pressure in terms of needing to either make a decision on acquisitions or potential new construction?

John D. Craig

We can keep running the business as we're today and we are making very good money over there. Let's face it though; it's a smaller operation. It‘s something like $33 million of our total revenue in a quarter. It needs to be bigger. If I had to pick one disappointment I've had over the last 10 years is that we've not been able to find a big acquisition in the Asia market. We need to grow there. We need to grow faster. It's a high priority for us. And we haven’t been able to do it through the acquisitions model, so we're looking at different things. We will not give up on growing our business in Europe. And as I reminded our President of our Asian operations that $300 million to $500 million is what I expect that to get to some day.

Elaine Kwei – Piper Jaffray & Co.

Okay, great. And just lastly, how significant is the Motive Power segment there currently? And do you see that coming up with that same growth at the same rate?

John D. Craig

Yeah, I think, you’re going to see growth there that’s going to be relatively strong. I think there's a couple of things that's unique about that market, in that many of the Chinese manufacturers are buying very inexpensive batteries. One thing, we will not do is build products that are – that will not perform to our standards, because if you build one in Asia that has EnerSys brand on it, that can spread to the rest of world, so we're going to keep with top quality products. I think we're going to continue to see growth over there. You've got number of the OEMs that have put their manufacturing in China today, we are selling to those OEMs, and I think we will continue to see growth in that market also.

Elaine Kwei – Piper Jaffray & Co.

Great. Thank you so much.

John D. Craig

Yeah.

Operator

Your next question comes from the line of Walter Nasdeo with Ardour Capital. Please proceed.

Shawn Lockman – Ardour Capital Investments

Good morning gentlemen. This is Shawn Lockman for Walter. Just wanted to get – the way I look at it here, just doing a quick calculation, it looks like we're going to finish the year with about $12 million in restructuring charges. You talked a little bit about restructuring, and as far as the acquisitions go, is there a level we should be looking at for next year on that?

John D. Craig

Well. The program itself, which John has referenced and it was approximately a $50 million program over four years of which about 30 plus $35 million was cash, the rest was non-cash write-off. It's still that those already announced programs have – will largely have we will have incurred most of the cost by the end of this fiscal year. And we will see some additional incremental benefits call it about $9 million, we believe in fiscal ’11. So for the programs to-date, we think we will have executed them in terms of incurring the cost this year and then, we will enjoy some additional benefits next year, call it another $0.10 to $0.12.

Shawn Lockman – Ardour Capital Investments

So as we look ahead then to, say, the operating expense line, should we be looking for improvements there, just in terms of margins, or just steady as where it is right now?

Michael J. Schmidtlein

You will see because of the cost are not all -- you would have to look both in operating expenses and up above the gross profit line because they would be directed throughout our P&L. Yes, we would expect all other things been equal that that would be up lifting effect.

John D. Craig

We talk a lot about the 25% and Mike brings up a very good point there. Internally that‘s something that‘s a daily conversation about 25%. We drive the organization. And I constantly get reminded by employees there’s that area called SG&A that we’re attacking also. And we are attacking that. When you take a look at consolidation of customers specifically in Europe, we have taken out a number of people in the sale side because it’s redundant. We are matching the – our sales force to our customers. So there’s improvements that’s being made there constantly. But Mike is right the savings that we are looking at are both above the gross profit line or cost of production and in the SG&A area.

Michael J. Schmidtlein

One final thought on that John is that’s just one leg of our cost savings stool, if you will. A lot of the costs that we generate every year are what we describe as grassroots. Every facility comes up with as part of their annual budgeting process, they come up with a list of cost improvement programs that we track through our Internet and they deliver in and of themselves significant savings. And often times, they are coming from the people on the line who have found a better way to do the process that they are participating in and that’s a very important part of our ongoing savings.

Shawn Lockman – Ardour Capital Investments

Great, thank you. And just one finally, if I could just get – just a little bit more color. We talked a little bit about volumes in both, I guess, Motive and Reserve increasing sequentially. It seems that, are you guys seeing a little more momentum there building in Europe as opposed to Americas, on those two sides? I mean, on a sequential basis? Or I mean, how should – what's a good way of looking at that, just in terms of the momentum that might be building as far as economic recovery?

John D. Craig

Well, I think you’re seeing more recovery take place in the U.S. and Europe. It is going to be faster. But that being said if you take a look at our third quarter, Europe on a percentage basis has performed better than at the top line than what the Americas did. So but I still believe and what we’re planning on, hope I'm wrong but we’re hoping, I think we are going to see a slow recovery in Europe.

Shawn Lockman – Ardour Capital Investments

Great. That's it for me. Thanks, gentlemen.

John D. Craig

Thanks.

Operator

Your next question comes from the line of Michael Gallo from CL King. Please proceed.

Michael Gallo – CL King & Associates

Hey, good morning.

John D. Craig

Good morning.

Michael Gallo – CL King & Associates

Congratulations on a good quarter. My question, just one follow-up as it relates to Asia. Any – give us a little bit more color on what you the size of a potential capital investment might be, just in terms of general range? And then if you have any concerns about some of the recent efforts to try to slow things down over there and whether you think that can have an impact over the next couple quarters?

John D. Craig

Well. It’s a fair question. Let me just start up by saying we haven’t finalized numbers on it as of yet. But if we were to build a plant, a new plant in China the size we‘re talking is going to be more or likely under $130 million. So it‘s not going to really disrupt our $200 million cash and our $200 million credit facilities that we have open right now. It’s going to have some impact but not that major. Your second point of your question on the slow up, I don’t believe, we’re going to see a major slow-up take place in telecommunications over there. The cellphones are still a big part of the economy there. The government is as we mentioned earlier opened up licenses anticipated a $41 billion investment. Even if it‘s cutback to 35 billion, which I don’t anticipate that happening, it's still going to be big for us.

Michael Gallo – CL King & Associates

Great. And then just can you give – maybe I missed it earlier. Could you just give us an update I think there was $33 million of run rate of cost savings you had been targeting for the fiscal year. Where are you on that? And there's some additional cost takeouts or areas that you are looking at as you head into fiscal '11? Thank you.

John D. Craig

We‘re about 19 million right now, we got about another $14 million to go in fourth quarter actual savings.

Michael Gallo – CL King & Associates

You should get the full benefit of that starting first quarter of fiscal '11?

John D. Craig

That's correct. Mike I think there is an additional go ahead

Michael J. Schmidtlein

Well. John referenced we would expect on the year-over-year basis an additional $14 million of saving, which would take us somewhere in the $30 million range for the full year being both restructuring programs we've referenced and that the grassroots cost savings initiatives that I described in a previous answer. So those items will be there, when there should be some additional incremental savings next year that will arrive from some of the actions that we took late in this year that would not have given as any benefit to speak of in the first three quarters. So that carry-on effect is, call at $9 million next year.

John D. Craig

I think the other thing to take into account, when you look at Oerlikon and Douglas, the two battery companies, we just acquired. Both those companies were not performing to the level that we think we can get onto and the way we‘ll get into those levels is basically put their production in – we’ll consolidate facilities. And basically, what we're going to see on those, the cost structure is really going to be an increase in variable cost only to us. Our fixed cost is already there in these factories. We have the capacity to build those products today in existing factories. So I expect that we will see some restructuring take place there but I also believe that will see major pick up next year in earnings relative to those acquisitions. On those acquisitions, I think the way to view them this year there will be a break-even we maybe mildly dilutive, it will be less than a $0.01 for the fourth quarter, and going forward next year, it will be an excess of $0.10 per share accretive.

Michael Gallo – CL King & Associates

Great, thank you.

Operator

Your next question comes from the line of William Bremer with Maxim Group. Please proceed.

William Bremer – Maxim Group

Good morning gentlemen. Hi, John

John D. Craig

Good morning, how are you doing?

William Bremer – Maxim Group

Excellent, thank you. Can you give us some color on your higher margin products? Thin plate pure lead, how that's performing? The capacity there, if there's any issues? And then, I know renewables is a small portion of your business. Can you just give us a little update on what you're seeing there? And then finally, I guess this is really a housekeeping question – just a run rate on SG&A going forward embedding the two acquisitions.

John D. Craig

Okay. Well I start with thin plate pure lead, as you are aware we invested about $50 million in the process of investing that. We have capacity in place to support the current demand going forward, which is a good thing. The demand for that product continues to be strong and we are finding new customers, we have a couple in fact, we‘ve signed one this week so I can‘t divulge on that yet or talk about it yet. But I see nothing but upside on that particular product. Everyone that‘s tested that product, they all agree that it is superior to anything else out there in the lead-acid battery business. As you are aware that we built this year's a diehard, platinum battery it was rated number one by consumer reports by far and away. And our telecom customers and other starting application customers are seeing this similar results and it’s a premium price product, it is one that and it is going to cost the customer more. But they are going to get best value with it too. So and again, we do have the capacity support with the investment. Even during the recession – during the downturn, where people were cutting back, we did not cut back on that investment, because we believe that strongly in that product line. The second part of your question?

William Bremer – Maxim Group

Just on renewables and an update there?

John D. Craig

We do about $30 million that’s relative to – our eco-batteries. It‘s around $30 million. It’s not a big business for us at this stage and as I’ve described in the past. We are just waiting for that industry to takeoff whether it‘s wind or solar, we have the products today, we can ship at any time.

William Bremer – Maxim Group

Wanted to see if there was any type of uptick since the last quarter and it doesn't sound as if there is?

John D. Craig

Not really in modest.

William Bremer – Maxim Group

Right. Okay. And then just a housekeeping question on the SG&A going forward?

Michael J. Schmidtlein

Yeah, Bill, your question on the SG&A and whether the – what the impact of the expansions might or the additions might have on that. We wouldn’t expect a lot of incremental SG&A per se, some selling expenses related to some of the additional products most of the back-office shop work, we would not expect to incur that on an incremental basis. So that should itself have a dilutive effect, we would expect to see if this quarter, we saw operating expenses at 14, call it 14.5% of sales. All things being equal, we would expect that to go down. But as you know operating expenses as a percentage of sales is far more susceptible to just your overall volume range because the G&A portion doesn’t flex very well and selling in my model that I use, I kind of use about a 50% flexing ratio. But so, we would expect those two acquisitions should have a mildly dilutive effect on that percentage of sales for SG&A.

William Bremer – Maxim Group

And then one final, how many additional employees are we taking on with those two acquisitions?

John D. Craig

Do you remember the numbers? It‘s a relatively small number. Let‘s talk the Douglas side first, I believe its 14 people. Their factory, we did not take on lead at all and it‘s very similar in Europe, it‘s a relatively small number. Basically what we are doing is acquiring the distribution and sales customer list and we are taking their product designs and putting in our factories. Mike, do you want to add to that?

Michael J. Schmidtlein

Just in the short term there is a transition period at least in Oerlikon where we would be picking up additional incremental employees. So in the shorter-term, yes, there is an addition but in a longer-term six months to a year it would not be.

William Bremer – Maxim Group

Okay. Excellent. Gentlemen, thank you.

Operator

Your next question comes from the line of John Franzreb with Sidoti & Company. Please proceed.

John Franzreb – Sidoti & Co.

Good morning guys.

John D. Craig

Hi John.

John Franzreb – Sidoti & Co.

Hi, my first question is in the Motive business. I'm kind of wondering here, if you're seeing different buying patterns from distributors versus OEMs?

John D. Craig

Different buying patterns, could you go a little bit further on it, John.

John Franzreb – Sidoti & Co.

I'm just wondering if your OEM customers are more aggressive on buyings? Or is it your distributors restocking? What's going on in the Motive side?

John D. Craig

Well, first off, the distributors won‘t stock. They earn and turn. They were going to take and buy that battery in, match that fork truck and get it out the door as quickly as possible. There are not going to want to sit on the inventory at all. I don’t see any change taking place there and remember in the U.S. market as predominately few distributors, fork truck distributors that we sell the product. So that market I don’t see much taking place with it. The OEM business in Europe though, which is the primary way to go to market there. That is a tougher market they have higher volumes that they buy and what the business being office as far as it is – it’s a tough and very competitive market from a pricing standpoint.

John Franzreb – Sidoti & Co.

That's exactly what I was wondering, John, given that you said that your pricing pressures was tougher in Europe versus US, that it might a restocking of distributors here in the US versus more aggressive pricing on the OEM side in Europe. I wondered if that was the scenario that was kind of playing out?

John D. Craig

But there is really no inventory, our Motive Power batteries and the distributors, I mean they’re going to keep very, very little there. Yeah, they will have some but these are big items that take up a lot of space and they are not going to be – for these guys to make money they are going to have to earn in turn and they have got to get that battery in match that fork truck get it out of the door.

John Franzreb – Sidoti & Co.

Okay.

John D. Craig

They rely on us. We carry the inventory.

John Franzreb – Sidoti & Co.

That's too bad. And can you talk a little bit about the UPS market? I mean, certainly, some bellwethers are kind of pointing to a better spending environment in that market in the year ahead and certainly they're talking about a rising tide in today's Journal. Can you talk a little bit about what you're seeing in the UPS market?

John D. Craig

Yeah, my source on this thing you’re just talking with customers and talking with our sales guys, and are talking to customers, and the simplest way of putting it is that it was a good market, the banking industry crashed. Banks stop buying, the data centers has – it’s slowed up and what we are seeing now and what we are hearing from our customers, the OEMs for the UPS industry that our order take is up.

John Franzreb – Sidoti & Co.

It is – but what kind of magnitude or is this a gradual?

John D. Craig

It’s a gradual and I don’t have the percentage off the top of my head but it is one that is improving quite nicely.

John Franzreb – Sidoti & Co.

Excellent.

John D. Craig

Remember though that – and the reason - I don’t have that number. When you look at the UPS total on our business it's something like 7% or 8% of total revenue.

John Franzreb – Sidoti & Co.

Right. Now going back to a previous question, you mentioned that pricing is going to be tougher as leads come down. What percentage of your business currently has automatic lead price adjustments? Because I would think that people would be more willing to keep pricing up as aggressively as they can in the near-term?

John D. Craig

Good question. And that one depends on the mix of customers in any given quarter. So you’re going to look between 30 to 40% globally. We use the norm at 35%, if you look at it over history. But in a given quarter, that can switch up or down because of mix of customers.

John Franzreb – Sidoti & Co.

And what’s the buys that drives that higher?

John D. Craig

What’s the buys that drives the mix higher?

John Franzreb – Sidoti & Co.

Yes, the customer buys?

John D. Craig

Well, it’s just – certain customers buy on an automatic pass-through and others do not. And if one month that let’s say that you buy an automatic pass-through and the other person doesn’t. Then in one month you order a lot of batteries, the other person doesn’t, we’re going to have a higher percentage. So it’s just a mix of customers. The second point to it is Reserve Power tends to be a little bit higher than Motive Power. However, that being said, the Motive Power in Europe is high because it’s with OEMs. But where the real pass-through kick in is really is in Europe. They are much higher in Europe than they are in the Americas.

John Franzreb – Sidoti & Co.

Okay. And just one last clarification. You talked about the ITA data earlier. Is that for your class of forklifts or is that for all forklifts?

John D. Craig

That’s good question. There’s five classes of fork trucks. One through three is the electrics and that is to the electrics.

John Franzreb – Sidoti & Co.

All right, that’s to the electrics. Okay. Thanks a lot, John.

John D. Craig

You’re welcome.

Operator

The next question comes from the line of Dana Walker with Kalmar Investments. Please proceed.

Dana Walker – Kalmar Investments

Good morning.

John D. Craig

Hi, Dana.

Michael J. Schmidtlein

Hi, Dana.

Dana Walker – Kalmar Investments

Could you make a comment about distinctions you’re seeing in new lift-truck demand versus aftermarket demand?

John D. Craig

Well, as I said earlier the new market – you look specifically at the ITA data and it was absolutely lousy earlier this year I mean, down 40% plus and it is starting to come back. As I mentioned in January, when look at it to January a year ago, again it’s only a one-month period. It was up 60%. So we believe if you take and look at the data from a macro standpoint of Class 1 through 3 it’s, bottomed out and it’s coming back. But it’s coming back slow right now.

Dana Walker – Kalmar Investments

ITA, though, would only capture new lift-truck demand?

John D. Craig

That is correct.

Dana Walker – Kalmar Investments

What observations – what type of change in the rate of change do you see, if any, in aftermarket demand for the Xtant’s group of trucks that are…?

John D. Craig

To be frank about it, I haven’t looked at it in about six weeks. But I will tell you what I saw six weeks ago and I doubt the trend has changed that we were down about 50% of what ITA was down.

Dana Walker – Kalmar Investments

Okay.

John D. Craig

Meaning that we were seeing strong aftermarket, but really bad OEM. Now that data is about six weeks order old. To be honest with you, I have not looked at it in a few weeks. Four to six weeks ago was last I looked at it.

Dana Walker – Kalmar Investments

If taking the thought away from the data for the moment and thinking about it at a higher level, how did the aftermarket behave compared to how you expected it to behave during this downturn? Was it consistent or was it odd?

John D. Craig

I can’t say that it was inconsistent. I think it was – we expected it to be down and it was down.

Dana Walker – Kalmar Investments

Okay. Mike, when you…

John D. Craig

It wasn’t down as much as the new truck orders, but it was down.

Dana Walker – Kalmar Investments

Mike, you used the phrase flexing, which I presume you meant by, meaning operating leverage or relationship between how an expense category might work versus revenue. Is that correct? Is that how you’d used that phase?

Michael J. Schmidtlein

Yeah, I mean within any expense category in our selling expenses, we have fixed cost element and then we have elements that are variable to sales commission components and things that are driven, that are variably driven. And that’s kind of how I would say – another way to put it often times, another way to do it would be to say, take your incremental volume and add or subtract it at 6% for the drop through impact on that particular line item.

John D. Craig

Yeah. The way to look at this thing from the selling side of it, most of our – we go to market in most of our businesses by company employees. And we have not made a major cutback in the sales organization. We have in some, where we reorganize things to match customers as I referred to earlier. But you got a fixed cost there with the internal sales people. Whether you saw $1 million or you saw $50 million that fixed cost is not going to change. But what will change is the incentive of bonus that they can make. And so the point of it is as volume goes up on a percentage basis, our total SG&A will go down on a percentage basis.

Dana Walker – Kalmar Investments

How would you say you treated your sales group versus the way other – your competition treated their sales group? And what implications does that have for market share?

John D. Craig

Okay. I won’t comment on other competitors because I don’t know what they do. I’m not an expert on them, but I will say this and I’ve made this statement many times. During the recession we will not take away from customer support – supporting our customers. When you look at our pricing, we believe we probably are at the high end of pricing, but we also believe very strongly we provide the best value. And you don’t provide best value by cutting out good people and good service. If anything – we’ve improved our service, our delivery to customers. The best value, we continue to stay focused on that and we will always stay focused on that. That’s why we talk a lot more about the 25% target and a lot less about cutting the SG&A. I don’t want cut backs in our sales force. In fact, when you take a look at the China market, and when the question was asked earlier about what’s going happen in the sales end, I’m pushing very hard in the Asia market to add sales people. We need to expand in that area. So the customer service is the way to look at it. It’s the best value to our customers.

Dana Walker – Kalmar Investments

If you build in Asia, are you likely to build where you presently have a facility?

John D. Craig

No.

Dana Walker – Kalmar Investments

Okay. John, thinking about Reserve Power for a moment, as you assess the several year outlook, how does it look in the type of recovery scenario that you perceive?

John D. Craig

Well, I think you’re going to see growth in Reserve Power because I do believe that the telecommunications industry is going to continue to come out with new devices and inventions. So it’s going to require batteries. Every time you see – as I said before I love the Verizon AT&T commercial where they keep talking about who has the most 3G. They’re going keep expanding. I guess well, that will become obsolete when 4G comes out. And every time that happens there are batteries required. I don’t think anyone of these companies are going to slow up and develop and deployment of new technologies. As I’ve said in the past, if they do, I think they will cease to exist.

Dana Walker – Kalmar Investments

I suppose if they need to add cell sites, that helps, but isn’t most of what enables 4G a software and a hardware fix at the existing cell site?

John D. Craig

In some cases that’s true. I’m not expert in that area by any stretch but we have found though as when they go on making investments in the equipment that they normally pull out batteries because the batteries are usually – are relatively low percentage of the total investment that’s put into. In another words if you take a battery life it’s 10 years. What we’ve seen historically in the telecom industry, in the cell business they’ll pull them out long before the 10 year period and the reason for that is some new technology will come along. They’re not going to put new – used batteries in with a new technology.

Dana Walker – Kalmar Investments

I think I can answer this question, but given that there was a change made, you have reported your segments on a market basis rather than on a geography basis traditionally, and have provided EBITs on a market rather than – as well as geography. You’ve changed that this time.

John D. Craig

Yeah, Dana. In the past what we try to do is to do both. And looking at the accounting guidance we recognize that that guidance only allows your one way to look at your business and that has to be based upon the way management looks out its business and our management truly looks at our business on a regional basis. And therefore we drop the product line look and we understood that many analysts appreciated that, but we also have to comply with the accounting guidance and that’s why we made the change.

Dana Walker – Kalmar Investments

All right. One last question. When you restructure and elect to take volumes from one place and put them in another place, and when you acquire and you do the same, you’re making some assumptions about not only your capture rate on acquired revenue, but as well what your cost profile will be on incremental volume in a new location, when you shut down an old location. Can you assess the types of assumptions you’ve made and how they’re playing out thus far?

John D. Craig

Well let me start out by saying that’s been 25 acquisitions in all, but two of them had been very successful. And the two are ones that we did in the early or mid 90’s, relatively small. So we have a formula that works quite well for us and we go through a lot of details on a five-year model and look at it, we challenge the top line. Our engineers go in and look at the product costs of the competitor's product. In many cases, we can take those products and reduce the cost out by running them on our equipment. There will be higher automation in some cases. But we've been very successful. I have very high confidence in our ability to take and integrate and buy a company like Oerlikon Company or Douglas Battery, and integrate those in and get the savings we project. And as I said, the savings on those two acquisitions plus Altergy and fuel cells are break-even right now. And it will be accretive a minimum of $0.10 next year.

Dana Walker – Kalmar Investments

How would you and using the same kind of thought on the restructuring that you've largely focused on Europe, how would you appraise, what you presume might take the pro forma's versus the early experience on the results?

John D. Craig

I'm not happy with the final results, not at all. I thought, we would do a lot better than we did. And if I go back and I get in the details and look why, we executed as planned, right on the mark. But what we didn't factor in was the volume regression being as strong as it was. So what I'm saying to you is this – I'm absolutely astounded that we're actually making money in Europe with as bad as that market has been, down 34% year-to-date. And we're still making money. That 34% will come back. And when it comes back, we're in a much stronger position from a cost standpoint than we were prior to entering the recession.

Dana Walker – Kalmar Investments

Continued good luck. Thank you.

John D. Craig

Thank you.

Michael J. Schmidtlein

Thanks Dana

Operator

(Operator Instructions) Your next question comes from the line of David Pack with Jefferies. Please proceed.

David Pack – Jefferies & Co.

Good morning, gentlemen, and congratulations on a terrific quarter.

John D. Craig

Thank you.

David Pack – Jefferies & Co.

Most of my questions have been answered. I just have a housekeeping question. Your tax rate went down significantly sequentially, down at 26.4% or so. I was just wondering, just for modeling purposes for 4Q, is that something that we should be thinking about for 4Q and possibly for fiscal '11, just in terms of a lower tax assumption?

Michael J. Schmidtlein

Well, what occurred in this quarter, David, was the inclusion of the bargain purchase gain that arose from our acquisition of Oerlikon. And that was about $2.9 million with no tax. And the reason there was no tax was that the bargain purchase gain is something that came out of the recent FAS 141(NYSE:R) pronouncement, where the concept of a bargain purchase gain is now arises. And in past, if you had bought a company and you anticipated you would incur future liabilities in a restructuring, you establish those liabilities in purchase accounting. Well, now you do not do that. You wait until you actually make those decisions and you incur those costs. So you end up with net assets greater than the consideration paid; therefore, you have a gain. But there are no tax authorities around the world that have that same concept. That's really U.S. GAAP concept. So that non-taxable income had the effect of dropping down our tax rate in the third quarter, on an as-adjusted basis. I can tell you that our as-adjusted earnings for the third quarter, we taxed at a rate just over 29%. Now, I would expect in the fourth quarter that we could see 29% or less percent. And that's why we said for the year-to-date on our as-adjusted earnings, we have a 30% tax rate and we think by the time we finish the year, we will be below 30%.

David Pack – Jefferies & Co.

Wonderful. Thank you. Congratulations again

John D. Craig

Thank you.

Operator

With no further questions in the queue. I will now like to turn the call back over to Mr. Craig for closing remarks. You may proceed.

John D. Craig

Thank you very much. Let me just try to summarize quickly here where we see things going. Our focus has been and will continue to remain on customers providing best values to our customers on a global basis. We work very hard to try to reduce our customers cost with a total system design and give them the best quality and service.

And for that, I believe that we're getting a premium for our products. But overall cost to our customers, we look at total systems; we try to do everything we can to bring it down. The second point is, our orders, we are seeing the improvement; we have hit bottom. We've seen a 15% growth sequentially, as we mentioned earlier. I think we're going to continue to see things turnaround and I think there's a lot of upside in the volume that's coming at us right now.

The downside that we see and the one thing that is rather disturbing right now is this fourth quarter. I really was hoping that we would see our fourth quarter be higher earnings guidance than the third quarter. But when you take into account a headwind of $0.29 on lead and the timing on this thing and how we can get it. It's just one that, it works out the timing of this call, the timing end of the quarter, and what happened with the LME markets, that there's going to be a delay there. And we won't get it in the fourth quarter as much as we want. But think about it at this way, if we did $0.44 in third quarter and we didn't have that headwind, $0.29 on top of it would put us at $0.73. Plus we have higher volume coming in, in the fourth quarter. Now I mean, you can’t, I'm not suggesting we would get totally to $0.73, but I'm saying that if it wasn't for this darn lead timing situation, we would have been much better in fourth quarter.

The other point on it is 25 acquisitions we've completed. We’re going to continue on that track. We're going to continue to look for acquisitions. We're going to continue to look for expansions. I mentioned about China this morning. We are looking at other areas of the world that we're going to be expanding in, and hopefully, we'll announce something in the next few months on that. Having $200 million in cash and $200 million of credit facilities that are open right now, we have the balance sheet to do the type of things that we're talking about here.

As I said about a year and a half ago when we started to enter this recession, our objective is to exit this recession as stronger company than when we entered this recession. And I'm very pleased, with roughly 8,000 employees within EnerSys. We're on target to do that and I know that we're going to accomplish that when it's all said and done.

So with that, thank you very much and have a great day.

Operator

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a great day.

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