Earnings Call: Q1 2019

Apr 26, 2019

Ladies and gentlemen, welcome to the SignifAI Earnings Call Q1 twenty nineteen. The Q And A I would now like to give the floor to Robert Janssen, Head of Investor Relations. Mr. Janssen, please go ahead. Thank you, Edna. Good morning, everyone. Welcome to Formify's permits for the first quarter results 2019. With me are Eric Ron Miller, CEO, SignifAI and Stephane Rugjo, CFO. In a moment, Eric will take you through the first quarter of business and operational performance. Stephane will then tell you more about the financial performance in the first quarter and Eric m today's presentation with our financial outlook and conclusion. After that, we will be happy to answer your questions. Our press release and the related slide deck were published at 7 am CE team this morning. Both documents are now available for download from our Investor Relations website. The full transcript of this conference call will be made available as soon as possible on our Investor Relations website. With that, I will now hand over to Eric. Thank you, Robin. Good morning, everyone, and thank you for joining us today. So let's go immediately to slide 4 with the main elements of our performance in the first quarter. Comparable sales declined by 3.3%. LED based sales increased by 3.6% now accounting for 73% of our revenues. And we continue to make good progress in reducing our cost base, excluding the impact of currency movements, our adjusted indirect cost by 1,000,000 or 170 basis points as a percentage of sales. As a result, LED professional and home improved their margins in the quarter, while Lance was able to sustain its margin above 20%. Overall, I would just say that it's a margin improved by 80 basis points to 7.8% despite 130 basis points of negative impact, from currencies. Our net income, as you can see, more than doubled from 1000000 last year to 1000000. We also pleased with our free cash flow of 1,000,000 for the first quarter, which was 1,000,000 higher than last year when excluding the million positive impact from IFRS 16. I propose that we now move to slide 5 where you can see the usual snapshot of the financial performance of our growing profit engine namely LED professional and home businesses. Overall, our growing profit engine showed positive comparable sales growth of 1.1 percent, which was mainly driven by solid performances in home and LED. The adjusted EBITA margin of our growing profit engines improved by 210 basis points to 6.7% with each a business group contributing to the improvement despite currency headwinds. The growing profit engine substantially improved their free cash flow compared with last year, and we're able to more than compensate for the decline in free cash flow in loans. Let me now, I'll provide you with more details for each of our 3 growing profit engines, starting on slide 6 with the LED. So comparable sales declined by 0.2%. LEDLAN showed a solid performance while growth in LED electronics slowed down in Europe. We continue to see price erosion slowing down on a sequential basis, and the adjusted EBITA margin improved by 2.30 basis points to 11.9% mainly as a result of procurement savings and lower indirect costs. On the next slide, slide 7, you can see some of the business highlights for this quarter for LED. So let me zoom on the launch of Trueforce Urban in Europe, which is a lunch. That we use to replace conventional high intensity discharge ramp, then not only create a platinum safe atmosphere in outdoor environments with LED retrofit, but they're also easy to install, create 80 percent energy savings with a payback period of less than 2 years. Another innovation that I would like to highlight for this quarter is the launch of the world's smartest outdoor LED driver, which enables Connect ready and connected outdoor lighting. So the driver has a low in rush current due to increased stops, a rather integrated feature, which is enabling a maximum number of light poles on a single circuit breaker. This driver also features integrated energy metering with accuracy of 1%. In addition, it allows high search up to 10 kilowatts specifically designed for tough environmental conditions. Let's move on now to Professional on Slide 8. Controllers have declined by 1.5% due to a lower level of market activity in Europe and China. Partly offset by a solid performance in the Americas. The adjusted EBITA margin remained stable at 5.3%. Continued indirect cost savings more than offset the negative impact of currencies and mix. The mix was negative due to lower market activity, level specifically, in Europe. There are a couple of business highlights that I would like to bring to your attention on slide 9. Let's start with, plan delicas. So we enable that customer to grow healthier and safer crops for 711 customers in Japan. Through research, we helped Prime Delecare to develop an optimal light recipe to increase vitamin levels and the nutritional value of lettuce. This ensures the Vertical Farm Facility in Japan a year round supply of high quality lettuce, spinach and coriander, while reducing up to 90% on water consumption. Increased automation also resulted in reducing time from seeding to harvesting from 70 days to 39 days. A second innovation that I would like to highlight is that we let our customers experience slide before they buy it with the your reality app. So guest owners can now step into a virtual world and to visualize how light sync and transform their fashion store. Very accurate, really rendering enabled retailers to emerge themselves in a virtual fashion store and see firsthand how lighting can make short windows more dynamic to attract shoppers attention and grow our footfall in the store. It enables retailers to sample different lighting design and find the right lighting for the store. Let's now turn to Slide 10 and talk about Home. So Home repurchased an increase in comparable sales growth of 24.4%. This was on the back of a low comparison based in the U. S. In the same period last year, while we experienced strong demand for connected offers in Q1 2019. The adjusted EBITDA margin of minus 6.1 percent represents a substantial improvement compared with last year and includes a significant negative impact of currencies. Also for home, we would like to share a couple of business highlights that you see on slide 11. So we're especially proud of huge contribution to the 11 IFDs and awards that we won earlier this year. First of all, we won in the world for the redesigned Phillips you app 3.00, which enables users to control and personalize the lighting. Also, 4 of our connected luminaries also won, IS Design Awards. I also want to highlight that we launched the gentle sleep and wake feature. So this provides users the ability to use voice commands with Google Assistant and to activate sleep and wake light effects using the Phillips new functionality. So it represents the very first integration of the Phillips, you, skip and wake up feature with a digital assistance platform. Let me now move to our cash engine once on Slide 12. Comparable sales decreased by 17 point 9%. We believe that this decline is lower than the market decline resulting in continued market share gains. The adjusted EBITA margin remains solid at 20.5% as a result of ongoing indirect cost reduction. Let me now turn to Slide 14, to briefly talk about the acquisition of WISC Connected, So, as you know, in the past years, we have successfully developed our smart lighting ZigBee based offer, the Phillips tree for the home, It has been market leading from the very beginning till now. Additionally, technology platforms based on WIFI have emerged in the past quarters, And we believe that in the long run, these two platforms, Zigbee based, Wi Fi based, will occupy complementary spaces on the market. We therefore decided to invest to be present in both. Whisk Connected Based In Hong Kong has successfully developed the Wind's WiFi based smart home connected lighting ecosystem, which is currently a third in Europe, but also in the U. S. So, this acquisition enables us to expand our connected lighting offer for the home and reach a larger customer base which will strengthen our leadership position in connected lighting. This is what I wanted to cover, regarding the business and operational performance. I will now hand over to Stephane, who will tell us more about the financial performance for the first quarter 2019. Stephane, to you. Yes. Thank you, Eric. Hello, everyone. And let's now turn to page 15, where you can see the adjusted EBITDA bridge. As you can see here, the adjusted EBITDA gross margin as a percentage of sales decreased by 90 basis points point in the first quarter compared to last year. And as we mentioned in the press release, that includes a negative currency effect of 100 and 40 basis point. You can see also that the impact of price on the gross margin was lower than in the preceding quarters. And is almost fully offset by the ongoing savings that we manage in our cost of goods sold. The indirect cost base has decreased by 1,000,000 compared to the first quarter of 2018, outside of the ForEx effect. And overall, on the profitability, we had a negative ForEx impact, which was mainly caused by the adverse swings in several emerging market currencies, like Indian rupee, Indonesian rupee as well. Chinese renminbi and also the stronger dollar. Based on the spot rate that we have seen at the end of March, we expect that the currency impact, on the adjusted EBITDA margin for the 2nd quarter is going to be much smaller, probably around minus 20 basis points. And we also confirmed that for the full year 2019, at this stage, we see a negative Forex impact of around 50 -50 basis point. Looking at our cost, which as you know, is a very important area of focus for the company. We've taken a lot of initiatives in 2018 and also at the beginning 2019. And as you can see, we're still able to reduce in a meaningful way, our cost, and that has resulted in a million currency comparable indirect cost savings in the first quarter. This is a 8% reduction year on year. The ForEx had a negative impact on our adjusted indirect cost base by 1,000,000. And as you know, we continue to find develop and execute initiatives across the whole company to further decrease the indirect cost base. Let's now take a look at the working capital in the first quarter of 2019, I am on page 17. If you compare to the end of March 2018, the working capital has actually decreased by 1,000,000. Now, amounting 1,000,000, which is 9.3% of sales. That improvement was mainly driven by the level of inventory, which is lower compared to a year ago and also by higher payables. If you exclude the impact of currencies, our working cap as a percentage of sales has actually improved by 20 basis points. Compared to the first quarter of 2018. Finally, let's take a look at our net debt if you exclude the impact of IFLF16, which is 2 $59,000,000 and is now accounted in the net debt. Our net debt without that impact has improved and reduced by 1,000,000 compared to the end of 2018. Of course, we generated a profit during the first quarter. We also benefited from the changes in the working capital that I have just mentioned. And you can see also the item in the bridge that impacted our cash and therefore our debt position. Our CapEx was 1,000,000 in the quarter, lower than a year ago. And the net change in provision was 1,000,000. Next to that, we paid also 1,000,000 for taxes and for interest. As mentioned by Eric, our free cash flow in the first quarter was positive 1000000 And at the end of the quarter, our net debt position, including the addition of due to IFRS 16 amounted to 1,000,000. Let me now handle to Eric for the final part of the presentation. Thank you, Stephan. So let's move to slide 20 to discuss the outlook. So, we are basically confirming our outlook for 2019. We expect our growing profit engine led professional and home combined to deliver a CSG in the range of 2 5%. Our cash engine launch is expected to decline in the range of minus 21% to minus 24% on a comparable basis. For total sent assets at the time of the IPO in May 2016. We continue to expect a restructuring P and L charge of between 1.5% to 2% of annual sales and free cash flow, excluding the positive impact of IFRS 16 is expected to be more than 5% of sales. With that, I would like to open the call for questions, which Stephane, I are happy to session. And we have the first from the line of Daniela Costa from Goldman Sachs. Please go ahead. So my first question and then I'll let follow-up after. Can you update us in terms of your commentary last quarter regarding capital allocation, the likelihood of M and A versus buyback? Yes. Good morning, Daniel. We would make the exact same comment as what we said previously. Our capital allocation policy is looking at different priorities. The first one is to grow the business. The second one is to eventually return money to the shareholders. And the third one is to improve the balance sheet. So, we haven't changed. What we say is we're looking for opportunities for growth. And, if they materialize, you know, in line with our strategy and, you know, that we have very effective strategy when it comes to M and A, we do it. If not, normally, mid of the year, we would announce additional measures looking at the other priorities. So nothing changed from what we've said at the end of, but in Q1 for the full year results. And then my follow-up on home. Can you give us some commentary on sell in, sell out visibility towards the rest of the year in terms of the confidence of maintaining this double digit growth going forward? Thank you. Yes. Thank you, Danielle. So first of all, we are happy, in Q1, and to be able to confirm that, what we experienced, in the back end of 2017 and the beginning of 2018, has been resolved. So we have a much better visibility, especially in the U. S, in our major customers, on selling out an inventory position. You see that the business has grown globally. Now, we are comparing ourselves in Q1 to a lower base, last year, nevertheless. We see that despite that, there is a growth potential for that business, especially in the connected offers and not only lands, but also Luminess, we have developed, you know, full family of products around the HU platform. And, we see a very good traction in Q1. We believe that this is going to continue, during the year. Now the base will change, you know, over time, but we see a good and positive traction for, for that business moving forward. Thank you. Our next question comes from the line of Yvesa Carey at Morgan Stanley. Please go ahead. Your line is now open. Hi, good morning. Thanks for taking my question. The first question I had was around the visibility you have on the professional business. So I was hoping you could comment a little bit on the orders or tendering activity you are seeing there? And maybe specifically on Europe considering that it seems to be quite important for for your mix? And then I'll have a small follow-up. Thank you. Yes. Good morning. You see, you know, when it comes to professional I would say the vast majority of what we invoice during the quarter, we take also the orders during the quarter. So, we don't have a backlog which is significant. Sometimes we have big project and whenever they're really material we announce it. So, the visibility that we have ahead in terms of backlog is not, that's important. Nevertheless, if we go back to Europe, yes, we had, the slowdown in Europe in Q1, but we already had experienced it in Q4. It is also illustrated by the fact that our LED electronics business in Europe has also slowed down. So we see that there's a whole market contraction there. Look, we hear as much as you do what economists are saying and they see a potential rebound in H2, we will see when it comes to professionals, the way we also look at the business, Q1 and Q3 are high compare and Q2 and Q4 are more modest compared. So, when we look at the business quarter after quarter, it's also how we need to look at it to understand and be able to assess roughly the performance. Thank you. And my second question is you are, helpful. You're giving us sort of the details around the adjustment for IFRS 16. You are saying you're expecting a positive impact of $10,000,000 on adjusted EBITDA for the full year. I was just wondering how much it was in the first quarter 'nineteen, if any? Yes, please. This is Stefan. So, yeah, there was some impact approximately 1 fourth at the 10,000,000 is relatively evenly spread. And the impact on EBITDA is, on EBITDA is because part of the lease now is accounted as financial index, and that's why it's moving below the adjusted EBITDA line. Overall, the month of the year 1,000,000. So you can assume a bit more than 1,000,000 for the first quarter. Thank you. Our next question comes from the line of Joseph C from Ripland. Please go ahead. Your line is now open. Hello, Eric, and it's Stephan. Thank you for taking my questions. I have 2. First, it's encouraging to see price pressure has eased again this quarter. Could you perhaps elaborate to what extent this is U. S. Trade tariffs driven and to what extent this is what you see more structurally perhaps with LED approaching price parity with traditional products and ongoing industry consolidation? Good morning, Judith. Important question, I don't think it is linked to, the U. S. Trade situation at this point in time. We see a worldwide trend of a lot of aggressivity on price. It's on, LNG lamps. It's also on, LED Luminess. Is it structural? I am not too sure, you know, I think that at this point, time, there's much less that we can extract, from the cost because, you know, we've been bringing, the industry has been bringing the bit of material quite down, you know, in the past quarters and years. So we see effectively, you know, aggressivity there. On our side, what we're doing is that we are segmenting our offers, meaning that we go from lower to higher functionalities, segmenting clearly the offers with different prices and trying to also specify at the end users in order to make sure that the right offer are selected for the right application. And so we are fairly confident on our strategy but it's true that there is still price pressure. Now, the price pressure has declined in the past quarters. As we have said, but it is still there. So, you know, we're still growing in volume in unit of products, especially on LED lamps. But it's true that there is, that there is price pressure. But we, we're fighting against it, and I think we have the right weapons. Okay. Thank you. And second, we have seen a good level of COGS savings in the last three quarters compared to the first half of twenty eighteen. And to what extent has days been driven by higher procurement savings versus footprint optimization savings And also do you expect the same level of productivity going forward as well, which I calculate is about 3.5% of sales? Yes. So you're right. Q1 has been a good quarter. And when you look at the bridge and you compare the impact of price and the impact of cost of goods sold savings. As I said, it's almost neutralized. Of course, we've taken actions since now several quarters or even more than that our footprint and we'll continue to do so, on the Lambs business, but also on the core of business and to a lesser extent electronics. So, it's partly related to that. Now, procurement is also core to what we deliver in terms of profitability improvement. And it's a mix of negotiation and price and our teams are spending a lot of time with suppliers to make sure we extract as much as we can. But it's also the innovation concept design. Everything that we do in order to reduce the cost of goods sold and the bill of material and the teams are really, actually developed on that front. Gonna continue to do that. So, I cannot give you specific indications, but yes, there is still more that we can extract in the way we design our products and in the way we sheet and get savings from our suppliers. Our next question comes from the line of Martin Wilke from Citi. Please go ahead, Martin. Your line is now open. Thank you. Good morning. This is Martin from Citi. The first question is on your indirect cost savings. You're still above 31%. You're targeting to get to below 29% for the year. Just if you could give us some idea sort of pathway to how you get there? Is it going to be quite, second half weighted? But also, I mean, it seems that some of these savings so far have been in LED and Professional, should we expect some of the benefits later in the year come in the other divisions? Just a little bit more color on how we should see those savings? Yes, Martin. So, yes, on the percentage, of course, Q1 being a lower quarter in terms of top line and absolute value, the percentage is always higher in Q1 compared to later quarters, especially in the second half of the year. You can totally expect that especially in Q3 and Q4, this is where the percentage is going to go substantially below the 30%. And that's why overall for the year, we expect a reduction compared to 2018. So, that's one element. Looking at it by division, yeah, every division in every organization is looking at how to optimize cost how to, generate savings, how to bring efficiencies. It's the case in the LED, it's the case also improved, but people in Lambs also in home are doing that. Now, we do that while at the same time making sure we still invest because we have a lot of growth opportunities and we need to invest for those growth, both in terms of innovation, but also in terms of marketing, in terms of sales. And we do that in home. We do that also in professional, and to some example, so in NED. So you'll continue to see the benefits and they generally flow across most of the business group, even though it's not even, as you mentioned. So, we love to from here and many actions that we've been taking also in the first quarter and that will continue to take in Q2 and later. Thank you. I think I have a follow-up just specifically on home. I appreciate the home margin is is very seasonal, obviously, lower in Q1. It sounds like there was a very big currency impact in Q1 as well. But is it Q1 performance consistent with your 5% to 8% target for the year? So, let me answering the following way, Martin. So we still, believe that we're going to be in the 5% to 8% range, at the end of the year, despite, that negative performance in Q1. So, that's one part, one answer to the question. The other one is that the performance in Q1 was a bit lower than what we expected. And we've mentioned, significant currency impact that is impacting the bottom line at this point in time. So for a business, which is generating $115,000,000, on a given quarter, we shouldn't expect in the longer run or in the mid term run, that business to generate better than what we've done in Q1. Okay. Thank you very much. Thank you. Our next question comes from the line of Mark Essening from ING. Yes. Thank you. Your the guidance to get to 2.2% to 5% organic growth for the growth efficiency. If you were at 1% in the first quarter, I understand that the currency impact that kind of matters, but not impacting this part, but So, how do you make that move from the 1% to go into the range of 2% to 5%. Is that, that predominantly in Perth, or maybe on some of the other locations as well? The detracting element, I would say, in Q1 was more proff and proff in Europe, you know, as we have mentioned previously. Now, if you move along the year, you will see, easier, based off comparison, you know, across the quarters. So the more we go, the easier the base is going to be, Now, when, before this earnings call, of course, we have our reforecast, for the whole company. And when we look at the plans that we have on the end of the year in all divisions we believe that, the guidance that we have given is, is totally achievable. So maybe to clarify it. So it's more easily compelling open days or it's also that you expect to get some extra traction in the market? It's both. In the markets, you know, we don't know, I mean, you know, let me be clear. When you look at the global world estimates, I mean, they have been brought down in terms of growth. We see that in all the regions, we've seen clear headwinds in China starting from the 2nd semester last year. Europe, it has started in Q4 and all that continues in Q1. So we think that, the level of traction that we have on the end markets today is not, is not fabulous. We'll see things are changing during the year, but we have initiatives, in order to find, you know, what we call the new growth platforms. It's in systems, it's in LED trade products, where we have clear actions that we are implementing at this point in time, also in specific activities like horticulture, like solar, like Wi Fi, or 3 d printing. So, we are also lining up different type of actions in order to gain on growth. And all that I've been mentioning previously is really touching the growth engines. And, and we believe that we have the, we have the tools to achieve more growth during the year. Great. Thanks. And then the follow-up is actually on the adjusted EBITDA in the auto division, quite a step up in the quarter. Could you explain what it is and what we should expect for the coming quarters? Yes, sure, Martin. Let me take that one. So, yeah, Q1 was minus 27%. We usually run -25%. Now, of course, every quarter can be a little bit different. You can have a few of elements. So, I don't think you should read any structural evolution or structural increase of the costs there. As you probably know, in the BG order, we have a mix of corporate plus but also central R And D And Innovation. And as we have mentioned, we are continuing to invest also in those growth platforms. So, that is also reflected here. But looking at, you should not expect that the number in which the order is going to increase. Okay. So the 25 is a good run rate? Yes, on average, but in every quarter, it can be a little bit different, but, yes, we'll talk this is the right order of magnitude. Okay. Thank you. Thank you. And our next question comes from the line of Leo Carrington from Credit Suisse. Please go ahead. Your line is now open. Thank you, Steve, for the question. In the Land division, the decline, our patch headliner was lower than I expect and lower versus your full year guidance. What do you attribute this to? Well, we are declining less than the market decline. That's a fact that we continue to, to gain market share. Now, you would maybe remember that in 2018, that business only declined by 11% in Q3 on the basis of the halogen ban. And so we are going to face, a very strong compare in Q3, and we believe that this is when the 17 to 18% decline that you see now will probably get closer to what we have given in terms of guidance. Okay. Thank you. And in terms of the margin, were there any mix effects that you would point to that contributed to the margins or as usual a footprint effect helping maintain maintain margins well out. Leo, you're talking about trends? That's a land specifically, yes. Yeah, you're quarter after quarter, you can have some, mix elements because depending on, you know, the activities that we sell more or less within, within Lymes, you can have, we can have some sheets, but nothing major in which still, is still an adjusted EBITA margin above 20% pretty much in line with, what has happened in the past quarters, nothing really specific in Q1. Yes, thank you. Thank you. Our next question comes from the line of William Hille from RBC And Ambroke. Please go ahead. Your line is now open. Yes, good morning, Green Taylor. If we look at, as a past couple of quarters, we basically see that the cost savings that you are reporting are materially above the restructuring charges that you are facing. So how should we look at that? Is that that you book on more efficient? Or should we be seeing that kind of the current cost savings are also kind of the effects of previous restructuring charges, I. E, but with a decline in in restructuring charges in your P and L that we should also see the cost savings coming down gradually over time. Yes. So, Vin, the, what are the restructuring charge that we take in our books? Every quarter, as you say, is disconnected in terms of timing from when the savings are coming And number 2, it's not just related to the cost, below the gross margin after that restructuring charge is also for the restructuring that we do on our manufacturing footprint, which is above the gross margin. So it's hard to really connect the 2. Now, when we reduce cost, and I'm talking here about non manufacturing costs, below the gross margin, after that can be people related because we are becoming more productive, more efficient, or because we let people grow in one region and higher in lower region. And in that case, there is a restructuring attached to it, but also a number of the actions that we have taken to reach scores are not necessarily leading or requiring restructuring. And it can be, for example, reducing the real estate footprint and therefore, the amount of leads that we pay. And so you cannot really track from the restructuring charge that we take, what is the savings that we generate. So yes, a lot of the savings are actually non restructuring related and are about just being able to spend less money, and he can touch many type of cost lines. And would you say that you have enough of this kind of low hanging fruit left, for you to continue let's say, trends and cost reductions for the coming, let's say, 2 years? Well, I'm not sure I would call them low hanging because some point after several years, I'm not sure, I'm not sure exactly where they hang, but what is for sure is that when you look at the cost structure of the company, and where we are right now, which is 31% on a full year basis, around 30%. We are still above the benchmark and we're still above where we believe we should be as a company. It's related to the amount of cost that we have. It's also related to the amount of revenue that we generate And we have indicated that our goal is to bring that further down. So we believe there are further opportunities we've put in place many actions, programs in order to tackle that and bring more productivity, more efficiency take out cost and we've done that in 2018 and we continue to do that in 2019. So, again, difficult to clarify how easy it is to do, but that's what we have to do and what the whole company is also focused on. Thank you. Our next question comes from the line of Alek Katra from Societe Generale. Please go ahead. Your line is now open. Hi, thanks. Thanks for taking my questions. First one is just on professional. So flagged strong growth in the U. S, which is kind of a positive commentary after some time. We're just wondering why is the still not reflecting in the margins and profits at professional in a way. Is it just the cost structure in the U. S, which challenged or is it the product specs and the mix in the U. S. Which is not sort of as favorable or just simply a case of the volume leverage in Europe more than outweighing what you get in the U. S. So that was what I was trying to understand in the context of important professional days in a way to get to the targets. So that was my main question and then I'll do the follow-up. Yes. So, I look on profit overall. And in terms of profitability, yes, the improvement trend that we have seen on the top line has translated into an improvement on the profit side in the U. S. So we totally see that. Now overall for the business group, because of the, lower performance in Europe, which is a higher profitability, region for us. The overall mix was negative, and we could not benefit fully from the improvement that we saw coming from the So that's part of the reason. Now, also remember that in the margin evolution year on year of of 10 basis point improvement, there is a negative ForEx effect that is also quite substantial so that also contributes to the fact that the margin didn't really improve as much as it should have given everything that we are doing, but it did improve in the U. S. Sure. And if you have a still challenge, so just wondering in a way how the mix needs to evolve in a way to get to those those targets? I mean, obviously, Europe's probably still a tough market environment, right? Yes, Europe is still a tough market environment. Once again, I said that in PROS, the compares are high in Q1 and Q3. They're a bit more favorable in Q2 and Q4. Once again, I would come back to the question to the answer I've given previously. We have plans in trade in systems, architecture, solar, to find new growth opportunities in all territories. That's also the case in Europe. Now, it's true that in Europe, we are also, since there was strong leadership position in that geography, we have also to see how the, how the economy, how the economies evolve. The follow-up that I had was a bit on the non manufacturing costs. Clearly, thanks for the explanations on the SG and A side of things. I was trying to sort of look at the R and D spending as well as the adjusted R and D and that's come down quite substantially over the last several quarters now. I was just trying to reconcile that with the new growth avenues you've talked about, which then would suggest you need a bit more of investments. What's the confidence you can extend to us that the investment in the future pipeline is not being, it's a deferred even if temporarily because the R and D costs going down is a bit surprising in a way. Not as a percentage of sales, but in absolute terms of your numbers as well. Yes. A question understood. This is part of something that we had described in the past. We had a very, very strong plan and in order to improve the efficiency of our R and D. In order that, for a given and all the announcements, we would be delivering more. And this is something that has taken place in the past 3 years. And we still have to be very concrete plans in order to push that further. Which basically helps us to continue to be extremely innovative, which helps us to continue to, video IDs and patterns which also helps us to bring to the market very innovative offers and also new offers and adapt existing offers while spending less. This is a totally conscious move that we are doing. It's not hampering our innovation capability at all. We are capable to do today. The same, if not in some cases, more with less. Don't remember having heard that? We haven't given any specific guidance on that. You've seen it declining over the past years, but we have not so far given a target on this. The line of Alexander Vogo from Bank of America Merrill Lynch. Please go ahead. Your line is open. Thanks very much. Good morning, Eric. Good morning, Stephan. Just a quick tariff on what's actually driving the growth you've given me if I missed that earlier on. But, a couple of peers, I think, have talked about the U. S. Being weaker and projects being deferred. And obviously, it's been a fairly mixed environment for the last 12 to 18 months So I wondered if you could just elaborate a little bit more on what you're seeing in the various components of your U. S. Business and why that gives you the confidence as you look forward over the next, 9 months, I suppose. Thank you. Yes. Alexander, good morning. We're seeing the same we think the early signs of, the cooling of the construction market, which has been quite dynamic in the past quarters. But we're extracting today also a lot of growth in the U. S. On the distribution and stock and flow parts of the business. Which was not an area where we were strong previously. So we have built up the adequate offers and connected to the right customers in the right fashion in order to get a fairly good level of traction on that side. On the project side of the business and big project, it's true that it's, quieter than it used to be, but track also our growth from the other parts of the business. Thank you very much. Thank you. And we are now approaching the end of our call and we'll take our last question from the line of Jade De Sue from Wedbush. Please go ahead. Your line is open. Yes. Thank you for taking my follow-up question. Just on professional And you talked about U. S. Margin being better led by growth. What's about the other regions, Europe and the rest of the world? How have the margin progression been year on year? Josette, the margin has been said, progression has been satisfactory in all the region. We were specifically mentioning U. S, because America, as you know, when we grow, as we said previously, our P and L is very leveraged. So, immediately, when we grow, it, it brings and positive impact on the bottom line. And that's what we've experienced in Q1, in Q1 again. But the other regions are doing fine now. We now also have mention margin when the volume are lower than expected. We've done that over the past year, then we still can do that now. Okay. Thank you. Thank you very much. And I would now like to return the conference back to our speakers. Yes, thank you operator, ladies and gentlemen. Thank you very much for attending today's earnings call and for taking part in the discussion about our results. If you have any additional questions, please don't hesitate to contact the IR team. We're happy to answer your questions. And again, thank you very much and enjoy the rest of your day. Ladies and gentlemen, this concludes today's conference call. Thank you very much for attending and you may now disconnect your lines.