Earnings Call: Q2 2019

Jul 31, 2019

Ladies and gentlemen, thank you for standing by, and welcome to today's Melexis Quarter Two 2019 Results Conference Call. At this time, all participants are in a listen-only mode. There will be a presentation followed by a question and answer session, at which time, if you wish to ask a question, please press star and one on your telephone and wait for your name to be announced. I must advise you that this conference is being recorded today, Wednesday, July 31st, 2019. Right now, I would now like to hand the conference over to your first speaker today, Ms. Françoise Chombar. Please go ahead, ma'am. Thank you. Dear audience, welcome to the Melexis earnings call for the second quarter of 2019. As usual, I will comment on the business environment and, in the absence of our CFO today, who is out for a planned medical treatment, Geert Reynders, who is our investor relations, will then shed some light over the financial perspective. Of course, we will be happy to answer your questions afterwards. Melexis sales for the second quarter of 2019 came out in the middle of the guidance provided in April and a shade better than in the first quarter. The percentage split per region is now more in line with historical numbers. Asia has recovered a bit from the drop in Q1. Europe is weaker in line with car sales. We estimate worldwide car production year-to-date to have fallen 7.7% on the back of sales year-to-date, which have declined 6.3%. The worst figures came in from China with 12.4% less vehicles sold year-to-date. Despite, one, the VAT cutback and two, the destocking of China V vehicles ahead of the China VI emissions introduction start in July. The country's auto industry is suffering from the China-U.S. trade tensions, the recent electric car subsidy reductions, and the continued absence of government incentives. Year-to-date car sales in Europe remains negative versus the previous year, though only by an estimated 1.2%. Amidst legislation uncertainties, people continue to postpone decisions on which car type to buy. Also, U.S. car sales slowed with an estimated 1.9% shavings year-to-date. All this is leading to a slowdown in the global auto industry and a buildup of pent-up replacement demand that will be unleashed at some point in time. Although we now estimate inventories at customers to be below the level in the beginning of the year, inventory corrections are happening more slowly than anticipated. With all the aforementioned adverse macro conditions rippling across our industry, it remains uncertain at which moment a change in order behavior will occur. Visibility does remain low. That is why we guide for Q3 sales to be around the same level as Q2. This being said, I'd like to highlight the solid performance of two product lines in the second quarter linked to automotive semiconductor content growth, namely Embedded Drivers and Pressure Sensors. Indeed, growth of smart Embedded Drivers is expected to remain steady in the next years. Smart and small motor peripherals give vehicle manufacturers and our direct tier 1 customers an easy solution to add motor functions and diagnostics in a flexible way while winding down wiring and weight. Market drivers for this product line in the past included LIN flaps to mix warm and cold air in the HVAC system, as used by European OEMs. There were 10-20 flaps per car. This market is now growing even faster, thanks to the LIN flap adoption by North American and Asian car manufacturers. Additionally, we see new motor applications being produced in higher volume, such as active grille shutters at the front of the car to reduce air friction and energy consumption, or more efficient cooling fans to cool the radiator, or small water pumps for optimal thermal management of electric car batteries to guarantee longest driving range. One interesting example where the synergy between the Melexis sense and drive technology capabilities is being capitalized on is the fuel vapor pump, which removes excess fuel vapor and where both our embedded motor drivers and pressure sensors enable lower emissions. Which brings me to the second product line, pressure sensors. The recent legislations in China, called the China VI Norm, and in India, called the Bharat VI, call, among other things, for reducing the pollution generated by gasoline fuel vapor escaping in the atmosphere. Handling fuel vapor is especially critical with hybrids, where the fuel vapor pressure built up in the tank keeps increasing while in electric driving mode. That's where Melexis pressure sensors come in. They're also ideal for motorcycles that are space-constrained by nature, and in which Melexis solutions also help to reduce emissions, especially in India, making the planet a better place to live for all. Another Q2 highlight is that Melexis was named a 2019 Best of Sensors award winner at Sensors Expo in San Jose, California, end of June. Our medical-grade temperature sensor was recognized as the winner of the Excellence in Sensors Innovation category. It is indeed an ultra-small complete solution in a single three by three by one millimeter package, including the sensor elements, signal processing, digital interface, and optics. It is the world's smallest medical-grade far-infrared sensor. Its high thermal stability and optimization for human body temperature makes it ideal for a new class of medical applications that are currently out of reach for other far-infrared sensors. This includes, for example, wearable health monitoring devices, hearables, medical-grade contact sensors, smart glasses, point-of-care applications, as well as classic medical devices such as forehead and ear thermometers. In view of the long-term trends towards more electrified, more autonomous, and more personalized vehicles on the one hand, and new opportunities in adjacent markets such as industrial, consumer, and medical markets on the other, Melexis sees continued new opportunities for its sensor and driver components. My conclusion today is the same as at the previous two quarters. We are realistic and not satisfied about the current situation, but we remain positive and confident about our future. Geert, please go ahead with commenting on the financials. Thank you, Françoise. Ladies and gentlemen, Melexis sales for the second quarter of 2019 were EUR 120.0 million, a decrease of 15% compared to the same quarter of the previous year, and an increase of 3% compared to the previous quarter. The euro-dollar exchange rate evolution had a positive impact on sales of 3% compared to the same quarter of last year, and no impact compared to the previous quarter. The gross result was EUR 49.8 million or 41.4% of sales, a decrease of 24% compared to the same quarter of last year, and an increase of 6% compared to the previous quarter. R&D expenses were 16.3% of sales. G&A was at 6.5% of sales, and selling was at 3.4% of sales in the quarter. The operating result was EUR 18.4 million or 15.4% of sales, a decrease of 48% compared to the same quarter of last year, an increase of 17% compared to the previous quarter. The net result was EUR 15.6 million or EUR 0.39 per share, a decrease of 45% compared to EUR 28.1 million or EUR 0.70 per share in the second quarter of 2018, an increase of 12% compared to the previous quarter. If we look to the first half year of 2019, sales were EUR 236.5 million, a decrease of 16% compared to the first half year of 2018. The euro-dollar exchange rate evolution had also here a positive impact of 3% compared to the first half year of 2018. The gross result was EUR 96.5 million or 40.8% of sales, a decrease of 25% compared to the same period last year. R&D expenses were 16.6% of sales, G&A was at 6.5% of sales, and selling was at 3.3% of sales. The operating result was EUR 34.2 million or 14.4% of sales, a decrease of 51% compared to EUR 69.7 million in the same half year of 2018. The net result was EUR 29.5 million or EUR 0.73 per share, a decrease of 48% compared to EUR 56.9 million or EUR 1.41 per share in the first half year of 2018. The board of directors decided to pay out an interim dividend of EUR 1.3 gross per share. The Melexis shares will start trading ex-coupon on October the 22nd, 2019, and the dividend will be payable as from October the 24th. Melexis expects sales in the third quarter of 2019 to be in the range of EUR 117 million-EUR 123 million, with a gross profit margin of around 41% and an operating margin around 15% at the midpoint of the sales guidance. Melexis expects its full year 2019 sales level to remain below the previous year. Gross profit margin is expected to be around 41%, taking into account a euro-US dollar exchange rate of 1.13. We are now available to answer your questions. Operator, please go ahead with opening the Q&A session. Thank you. Okay. Ladies and gentlemen, we will now begin the question and answer session. As a reminder, if you wish to ask a question, please press star one on your telephone and wait for your name to be announced. Right now, we have two questions coming. Our first question comes from the line of François-Xavier Bouvignies. Your line is now open. Hello. Thank you very much for taking my questions. The first one I have is on the comment you made on the outlook and the visibility that remains low. Sorry. Given the discussion that you have with your customers, I was wondering what is the probability for you that the uncertainty remains for early 2020, given the discussion with your customers? Yeah. It is, of course, a bit early to already discuss 2020. The usual lead time for our products is rather around 16 on average, sometimes a bit more, sometimes a bit less. It is a bit early, but a lot, of course, depends on how car sales will evolve. Because as long as car sales are in the negative, customers, in general, are not very keen on starting up or on ordering new material, as they still have quite some material in the pipe. Even though the discussions are centered around, well, the bullwhip effect is there, et cetera, I think it's, for the moment, still much too early to say anything about 2020. Even in the discussions with our customers. Yeah. No, I understand. If we look at the inventory in the supply chain, you said that it's lower than in the beginning of the year. Obviously, early in the year, it was very high. It looks like the inventories are not going down as fast as you said. How long do you think it's going to take, really, to completely clean the inventories in the supply chain? Your best guess. Oh, well, your crystal ball is as good as mine. I don't know. I think it would not be a good idea to speculate over this. Even when you discuss the inventory situation at your customers, they don't tell you at all where they are, when they think it's going to be done, et cetera? Well, for them, it's also a question of what their customers' needs are. Of course, as long as the car manufacturers do not increase their requests, the same will happen to our customers. They will not increase their requests to us. Okay. Yeah. You know the future is just a tweet away these days. Unpredictability is everywhere. That's true. My second question was with regard to your own inventories. Still fairly high, and previously you were saying that you are happy with the current levels. Just wanted to check with you, are you still happy with this level, or do you plan to reduce it in the next few quarters? No, that remains unchanged. As we communicated earlier, we see the level of inventory where we were, let's say, one quarter ago and where we are more or less still today as strategic. We see no reason to change that view. We are happy with the levels of today. That being said, we also expect going forward that it will not change that much in absolute numbers. Okay, that's clear. Maybe if you can comment on the geographic perspective. If you look at the outlook for each region, you talked about China being challenging. How do you see Q3 and Q4 trending for each region would be very helpful. Yeah. Q3 per region, that is also difficult to say, but I think our geographic sales distribution is now more in line with historic figures. Somehow things have already stabilized as such. Of course, the Chinese drop in car sales is still pretty big. I do not exclude that maybe if the car sales keep dropping, that the sales in the APAC region might follow that trend. This being said, we have also a little decline in Europe and North America. I presume that from now onwards, the trending of the distribution in sales will be more or less what we see in car sales. This being said, sometimes production that we deliver into Europe goes to China. Parts, modules or systems, they go to China, and it could also be vice versa. Things that are going to China or to Asia Pacific end up in cars that are being sold in Europe or the U.S. As you know, the automotive industry is extremely global industry with a very long cycle, with many intermediaries, many subcontractors, and it's extremely hard to predict. Especially since also these tariffs have come on board. What we see is our customers are reshuffling their supply chains where they can. Sometimes they can't, but sometimes they can, and then you see changes in distribution over the world. That's, again, extremely hard to follow or to predict. We did see some shifts from here and there. Our customers are trying to be as local as they possibly can in their supply chain. Okay. Thank you. Maybe the last one from me. If we look at the production of cars, most of industry players are talking about mid-single digit down in production of cars. If we look at your performance this year, it looks like the sales are going to be more towards -15+, given the year-to-date performance. If I look even back, your revenue growth has been more than 3 times outperforming or underperforming the production of cars. I'm wondering, how can you explain such big gap between the production on the way up and down for Melexis? It's also the case versus your competitors. Well, the explanation has been given, I think, already in the past as well. That is what we call the bullwhip effect. The further upstream you are, the bigger the variance is. That is what explains the high drop or the higher drop in Melexis in sales than you would see in car production. This is a very typical effect that you see in this bullwhip concept. It's not unusual. Okay. No, I was just surprised. Versus your competitors which are on the same stream- Well, that depends a bit. It depends on which ones you compare us with. There are some that are, let's say, more digital than us, with large GPUs, for example, for assisted drive. These are very expensive parts. In as far as our mixed signal devices or digital analog devices is concerned, the USP is a little lower. Sorry, the ASP is a little lower. It depends a bit on which segments the competitors address. If it's more mixed signal, then they will see the same drop. If it's more pure digital, and especially when it is directed at assisted drive or more autonomous driving, then they compensate. It is because of, for example, semiconductor segments that we do not play in, like the MOSFETs, silicon carbide, and areas like that, which are also high ASP products. Okay. Thank you very much. You're welcome. Okay. Our next question comes from the line of Dhimir Dhimen. Your line is now open. Yeah. Hi, good evening. Yeah, quite a lot of my questions have been asked. I just want to narrow down on the inventory side. You've said that it's below the level of the beginning of the year, but obviously not yet at the level that it should be. Can you give us an idea of how far we are in terms of, not in terms of time that it'll take to bring it to a normal level, Just where is the desirable level versus where it is now? How far have we come? Halfway down or quarter way down or something like that. Any kind of qualitative comment there? Also, when you say inventories, are you talking about absolute inventories levels or are you talking in terms of inventory days? Well, all is in the end relative to what the needs downstream are. What is certain is that the levels have somewhat come down, but not far enough, apparently, for our customers to change their ordering behavior. This is both in terms of number of days and also the area. Number of days is relative to the demand and as well as in the value. It's very, very difficult to put a number on this, on how far are we there. I was talking about inventory downstream. Understood. Just another word on our previous question. The difference between the revenue decline that you're seeing in sort of the mid-teens kind of range versus the production. I'm just wondering where content growth, because the bullwhip effect that you're talking about is predominantly to deal with inventories at different stages of the supply chain, et cetera. I'm just wondering, where does content growth figure in that whole equation? Maybe to put the question another way, are there areas of very high content growth, where you are seeing positive trends right now? Some of your competitors have sort of broken this down into a legacy automotive and sort of the high growth automotive part. Are there sort of high growth areas within your portfolio which are showing year-on-year growth rates right now? It's just that what can be categorized as legacy, where there isn't that much of content growth, are dragging it down quite significantly at this point in time. Yeah. Yes. Well, that's very well said, I must say. The point is that what others might call legacy, is primarily in the mixed signal area, but also in those legacy products, there is innovation going on, and there are new applications coming on board gradually. The ones that I was talking about in my introduction, the embedded drivers, for example, and also the pressure sensors, those are exactly examples where content growth really is already showing. Of course, once car sales will pick up again, you will see this more and more coming on board. Legislation is driving this, but equally, the willingness of car manufacturers to be differentiating their cars in terms of emissions, in terms of energy consumption, in terms of safety, and in terms of personalization. We see a large opportunity in all those, what you called or what other of our peers might call legacy products, where we see still a lot of innovation. That goes back to what we explained also at our Analyst Day in December. Nothing has changed in that respect, and the long-term story and the opportunities that underpin it remains fully intact. Understood. I guess my last question is on the non-automotive side. Your revenue declines there are still very, very significant, 35% to 40%. Some of your competitors or other companies selling into the distribution channel in China have said that they're seeing some kind of a bottoming out there, even as the automotive business is still quite weak. Is that something that you are seeing, that there is the inventory situation on the non-automotive side and the distribution channel, especially in Asia, is bottoming out and could see some improvement into the second half, even if the same cannot be said about the automotive side? Yeah, we have seen indeed inventories in the distribution channel coming down. That is correct. I would say I don't exclude that there is a bottoming out. Time will tell. Today, I think it's too early to say that. Yes, inventories have come down. It could be indeed that for those applications, in adjacent markets, we might be at the bottom. Understood I cannot confirm it neither. Understood. Thank you very much. You're welcome. Okay. Our next question comes from the line of Matthias Menhorn. Your line is now open. Yes. Hi. Good afternoon, Matthias Menhorn, Kepler Cheuvreux. First question is actually maybe a follow-up on one of the previous questions. If I understood well, there are no customers that are currently giving the indication that despite all those challenges and all the strains the automotive supply chain is undergoing at this point in time, that they are slowing down the pace of innovation in what others call those so-called legacy business. You do not see any slowing down there of innovation that could potentially, in the short or midterm, impact content growth going forward. That is correct. The only area where it might be a bit less sometimes is in maybe the comfort functions, but even there, or you could imagine that this would be less, but then you would see it in the very complex areas, maybe, which are still very small in terms of market potential. In the larger areas, like the ones I've highlighted in embedded drivers or pressure sensors, we see the pace of innovation is steadily going. There is no reduction of attention or of speed. That's why also for us, it's important to keep developing, to keep our development. Even if we keep our costs well under control, it is still important to keep our development community going ahead with all of the developments that we have. No development has been stopped or slowed down, and new business cases come on board at the same level as we’ve seen in the past. Does that answer your question, Matthias? Yes, it does. Thank you. The second question that I had was actually on the free cash flow generation. We already discussed inventory, but there were some other investments in working capital. I think total working capital investment is now standing at roughly EUR 40 million for the first half. How should we think about that going forward? Are you still going to invest in working capital or some of those elements are going to reverse? Can you give a little bit more color on working capital? Yes, Matthias. Indeed, correct. The first half in year of 2019, we have seen a significant, let's say, cash outs going into working capital. To summarize on that, the most important elements are, on the one hand, inventory, on the other hand, tax cash outs or cash outs in income taxes. Going forward for the second half of the year, we expect that this will not be the case anymore for income taxes. We have basically had the cash outs were done in the first half, except for inventory and also for working capital in general. We think we are at the highest point today, so it will not further require cash. That being said, cash flow will improve in the next quarters. Do you think that the working capital investments will reverse so that it will be lower at EUR 40 million for the full year, or it will probably remain around EUR 40 million for the full year? For inventory, it will probably stay around the same levels. The same is true for receivables. There were some other current assets which mainly are linked to receivables on VAT and deferred charges, which might reverse in the second half. There we expect an improvement. The cash tax out on that will probably remain stable for the full year? That will more or less remain where it is at this point. Yes. No substantial increases there to be expected. Yep. All right. Thank you. Okay. Our next question comes from the line of Marc Hesselink. Your line is now open. Yes, thanks for taking the question. First, coming back on those innovation cycle and also related to your R&D cost. If I remember correct from previous calls, then you see that you continue to invest, you said that you continue to invest on the R&D side. However, now it seems that it's slowing down a bit. Could you relate that to your earlier comments on that innovation cycle still continue? Second question is-- Maybe first one, this one. Yes, thanks. Okay. Yeah. We continue on the developments, but we are very spartan, let's say, on what we spend. For example, we do not allow our people to travel too much. If it is needed for customers, we do, because there is no restriction on traveling to customers. On other travels, we do have a restriction also on external services. We're extremely frugal everywhere. Without sacrificing the long term. Anything that is business critical, anything that would, if not done, impact negatively our long term, we do not do. We choose really what we do. That is being a bit more frugal than otherwise. Okay, clear. Would it then imply that this smaller growth level that we see now in this quarter is likely to continue in the coming quarters? Well, we guide operating costs to remain around the levels where we are today also for the next quarters. Okay, thanks. The other question is on what you discussed earlier on the bullwhip effect. Clearly, 2010, you really saw that V-shaped recovery. Given now maybe that also declines a little bit, not as steep as it was at those times. What kind of recovery then likely in the industry if we see that the volumes are picking up again, instead given that things are today, would it then also imply to see a very steep recovery, or do you think it will be more gradual? Well, in comparison to what we saw in the crisis years, 2008, 2009, of course we had on top of that a serious financial crisis, which triggered an economic crisis. We had a perfect storm. Even though overall over the year, we only had a couple of percentages down in car sales. The drop was much steeper for Melexis, but also the ramp up again afterwards, the recovery was much steeper. What we see now is that the total car sales is a bit more down but over a longer period of time. The drop is somehow not so big as it was back then. Therefore, the recovery might also take a bit longer. Usually in the cycle, it takes between four and six quarters to recover. Again, every crisis is a bit different, so it's very hard to predict, but that's where I think we should be looking at. Okay. Again, the future is unpredictable. Sure. If that happens in the four to six quarters, would that also be the time that you need to recover your margins to the level that you had before the slowdown? That will depend of course on how fast the recovery ramp will look like. I think it's really too soon to tell anything about 2020. We will do that when we get there, meaning in February. Thank you. Okay. Our next question comes from the line of Jeff Osborne. Your line is now open. Hey, good afternoon. Most of the questions have been answered, but I had a few. Any sense on what we should be thinking about for capital expenditures for the year in light of the elongated automotive slowdown? Are you considering slowing down the rate of any expansions in Sofia or any of the other locations that you had in mind? Well, we have the CapEx for the first half was EUR 15 million. We guided for a level of EUR 45 million in the beginning of the year. With all the information we have now on the table, we expect that it will be a bit less, so rather around EUR 40 million. Still for the second half, the investments that we planned in our test facility in Sofia, they continue as before. The lower expectation is on behalf of a bit lower investment in equipment, which is as a result of the top line, which is what it is today. EUR 40 million for the year, rather than EUR 45 million. Got it. That's helpful. Just more broadly in terms of cash and capital allocation, can you just talk about, I think you added about EUR 28 million of debt in the quarter, long-term debt, if I'm reading it right, and then you've got the dividend payment, which you confirmed in the release this morning. I'm just curious why the dividend wouldn't go down or you would preserve some of the cash, especially given the working capital challenges you had in the first half, the elevated CapEx in the second half, and not a lot of visibility. Can you just talk about your broader capital allocation strategy as a whole? Well, the board has decided to keep the interim dividend stable versus last year. Main reason for that is that we continue to believe that we will see at a certain moment in time, a recovery. We continue to be a very profitable company having strong cash flows. Let's say in the last quarter, the last year, we have seen a couple of one-offs. Like I explained earlier, we have seen an increase in working capital. We have had cash outs related to income taxes, these elements going forward look different in terms of cash outs, which means actually that we expect the link between, on the one hand, profit and cash flow. Well, the cash flow which comes out of the profit will be better than it was in the last quarters. That's an important element to take with you. On capital allocation, we continue to distribute a substantial part of our profits to shareholders. That being said, I think we will have to see going forward next year where we are at that moment and take again, a new decision, but it's far too early. We feel very confident with the dividend distribution as it has been decided. We think the cash outs with respect to working capital are, let's say, much lower going forward. That's helpful. I had two other quick ones, if you don't mind. One is on the guidance. Can you just remind us of your typical visibility, as you provide guidance? I think you mentioned that the typical lead times are 16 weeks, if I heard you right. Does that mean you're fully booked for the guidance or how should we think about that? Yeah, I think like we said in the press release, visibility remains low. We give guidance for one quarter and we cannot see much further than that at this moment. That's also the reason why we refer to later statements with respect to Q4 and the beginning of next year. From that perspective, I think, visibility is a different situation than, let's say, one year ago. Got it. Then the last one I had is just can you talk about the sort of cadence of product cycles? Where I'm going with this is there a risk to inventory obsolescence in some of your better selling magnetic sensors, hall sensors, pressure sensors, et cetera? As you come out with new products and your inventory is a bit high here for the past 3 to 4 quarters, if the auto market remains in a subdued state for another 6 months or so, is there risk to a material write-down of the inventory as we enter 2020? As you come out with new product cycles that replace older ones or no? If you make a comparison to the same period of last year, it's not that our today's inventories are too high, but rather that the previous year's inventories were too low. In Q2 last year, we were still at, in some cases, in allocation. Now, the inventories we build up are strategic, but they are also only done in those areas where we are sure that they remain sellable. Any risk of obsolescence is not more than usual. When the recovery will take place, those excess inventories, from today's point of view, excess, will no longer be excess because they will be a blessing. If everybody has been in a waiting mode to order and then suddenly and that happens because there is not only a delay when you go upstream, but there is also a delay in information. When customers will suddenly find out that they have too less inventory, and they find out too late, then Melexis will be able to deliver and take advantage of that. Very good. I appreciate all the detail. Thank you. You're welcome. Okay. Our next question comes from the line of Michael Roeg. Your line is now open. Yes. Good afternoon, Michael Roeg from the Degroof Petercam. If I look at the guidance for Q3, it seems as if your business is stabilizing in the first three quarters of the year, both in terms of sales and in gross margin. I don't know whether it's a coincidence or not, but if I look at the gross margin, it's about 500 basis points lower than your previous peak, and this is roughly the same what happened in the previous downturn. Could you tell me whether you have the impression that your gross margin is currently bottoming out, or are there any other mechanisms that could perhaps push it even lower than it is today? The difference in gross margin is for a big portion related to the underutilization of capacity. That's a mechanism which simply plays and which has an impact depending on the top-line level we see at this moment. That taking into account our current equipment or depreciation, the people we have on the floor, we are or we end around that 41% with a top line of EUR 120 million. That can still deviate quarterly, let's say, because of other influences like product mix, like yield losses of products, and so on. That is basically how it works. If top line increases, we will see an improved gross profit margin. Okay, that's very helpful. Utilization is the main game changer. A follow-up question on that. Inventory build-up or hopefully release in due time, is that something that can have a meaningful impact on your gross profit or not? At this moment, it's not really playing. I think the impact of the inventory moving a couple of EUR millions up or down is negligible. The main driver in the GPM difference in Q2 versus Q1 is the different product mix. Okay. Good. That's very helpful. Thank you. Okay. Once again, if you wish to ask a question, please press star and one on your telephone and wait for your name to be announced. Okay, ma'am, there are no further questions at this time. Please continue. Okay. Thank you. Dear audience, we thank you for your attention and hope to have your attendance again at our next conference on October 23rd. Goodbye, and have a lovely summer. Okay. That does conclude our conference for today. Thank you for participating and you may all disconnect. Speakers, please stand by.