Good afternoon and welcome to Sonae's first nine months 2017 Results Conference call. During the introduction, hosted by Mr. Luís Reis, Sonae's Chief Corporate Center Officer, all participants will be on a listen-only mode. After the introduction, there will be an opportunity to ask questions. If any participant has difficulty in hearing the conference at any time, please press the star followed by the zero on your telephone for operator assistance. I will now hand the conference over to Mr. Luís Reis. Please go ahead, sir.
Hi, hello everybody. Thank you for attending our nine months, 2017 Results Conference call. As usual, I have our CFO with us, Rui Almeida from Sonae MC, Miguel Aguas from Worten and Sports & Fashion, Edmund o Figueiredo from Sonae Sierra, Carlos Silva from Sonae Investment Management, and we also have together with us João Dolores from our Central Planning and Management Control, as well as all our investor relations team.
Since we are attracting the attention of new investors and new markets, I will just start by briefly showing what we've achieved from a strategical standpoint during the first nine months, and then as usual, I will briefly cover our nine months results at the holding level, and then we'll enter into a little bit more detail on a per-business basis.
Regarding our strategy, that, some of you know, is basically based on three main pillars, which are to defend and leverage our key assets and competencies, mainly in our core markets. The second one is to continue to thrive in international expansion, and the third one is to diversify business models and investment approaches.
On these three arenas, I think we have achieved quite a lot during the last couple of months, and I'd like to start stressing that on the first pillar. I believe that Sonae MC had a particularly good quarter. The value proposal of Sonae MC is proved to be very resilient. Once again, we were able to defend our price leadership in the market that was humbly recognized in the Portuguese market, and also humbly recognized by the Portuguese consumers.
On top of that, we've continued to expand our proximity store network. We've opened 10 Bom Dia stores since the beginning of the year, and all of those stores are performing either according or above our initial expectations. Another area where we are developing adjacencies to our core business is the health and wellness segment, where we are keep pushing on everything that has to do with biological foods.
Our supermarkets on that area are developing well. We've also launched an experimental concept in the light health segment with two Dr. Well’s clinics that are also working quite well. A third area where we've achieved some significant development in terms of leveraging our key assets and competencies is Sonae Financial Services, where our universal credit card is continues to grow at a very steady pace and continuing to produce quite interesting results.
On our second pillar, international expansion, I think that Sonae Sierra is continuing to post very interesting results, not only in its new activities related with the management of funds. They continue to invest, together with Bank inter and also together with AXA, two funds that have invested during the nine months, and they still have a very interesting and robust pipeline of new developments, both in Europe and outside Europe.
I'll be back into that when I mention, when I will mention Sonae Sierra. A third area is Sonae Sports & Fashion. Currently, our stores, either directly or indirectly, or our brands directly and indirectly, are present in more than 90 countries. Hence, some of our formats are posting quite significant growth.
I would like to give some emphasis on Salsa, which is performing particularly well in the Spanish markets. On the third pillar, which is aligned with the diversification of business models and investment approaches, I think that we are very close to conclude the JIV agreement with Sports Zone.
That deal is now only pending the approval of the Brussels Competition Authority. Everything is on track with our initial calendar. Jumping now into our consolidated results, we are quite proud of our results. Turnover for the nine months has grown 6.9%, with a positive contribution from all our main businesses.
Sonae underlying EBITDA has grown more than 6.9, actually 9.6 percentage points. And Sonae recurrent EBITDA also increased by 11.5%.
We are showing not only a growth and a significant growth in terms of turnover, but also, an increased profitability, so an increase in our overall productivity at the holding level. Sonae EBITDA decreased when compared to the nine months, but that is totally due to non-recurrent items that we had last year.
In the first half of 2016, we had significant sell-and-buy back operations that we did not repeat during 2017, with the same dimension. That is the only reason why EBITDA is not performing with the same level as all the other lines I have already mentioned. Indirect results stood at EUR 47 million, more EUR 16 million when compared with last year, and that was driven by two effects, already reported on the first half of 2017.
First, the positive contribution of the valuation of Sierra assets, and second, a capital gain that came from the de-consolidation of our brokerage business, MBS. Net income has reached EUR 133 million, and the capital structure has been reinforced, once again. It is also important to notice that the average maturity of our debt is steady at four years, and the average cost of debt has slightly reduced from 1.4 percentage points to 1.3 percentage points.
Obviously, our team continues to be very active. We're negotiating all our debt facilities because we are still finding some interesting opportunities. This raised more in terms of extension of the maturity than really in terms of pricing, which is quite reasonable already.
Going now into a slightly deeper analysis in each one of our businesses, I'd like to start by Sonae MC that, as I said, we believe has posted a very, very positive Q3 set of results that came to start with from sales. Sales posted quite an impressive growth, 0.5 in the nine months, but most important, 0.1+ like-for-like in the Q1.
In that respect, I think that it's important to highlight the fact that we have very, very tough comparables. Last year, we had posted a growth of more than 4% in the Q3, and also this is particularly significant in the context of a deflationary market in fruits and vegetables. This is particularly remarkable in terms of sales, and obviously because of our expansion that continues to perform very well.
The increased turnover in MC is 4.8% in the nine months and 4.4% in the Q3 of 2017. By all indicators that we have, including the economic, the National Institute of Statistics, but also all the agencies that measure market share, we can be totally positive about the fact that we've won market share once again, and this is the eighth consecutive quarter where we've been able to gain market share in the Portuguese market.
We are not only reinforcing our leadership position, but actually gaining space between us and the other players in the market.
The underlying EBITDA margin stood at 5.2 percentage points, 30 basis points less than last year, totally in line with all the messages I've been giving during these con calls, and in all my interactions with the market.
As I've been saying, we are facing still a relentless competitive environment, and because of that, and also, and mostly because of our expansion, we are witnessing a slight decrease of our margin that is approaching a level of stabilization, as I've been mentioning during all these calls. We've always thought about a decline between 20 to 40 basis points in our EBITDA margin for the year, and we are pretty much in line with that.
And eventually, anticipating some of your questions, we are not witnessing any kind of significant degradation of the promotional investment in Portugal.
Actually, some of our main competitors are already showing some signs of rational behaviors, and I think that those rational behaviors can be very important for the quarters to come. Worten, jumping now into Worten, I think it's a stellar performance in our portfolio. The results of turnover growth, the results of improvement in terms of EBITDA are quite significant. I think that some of you are following these con calls for a long time.
Some of you have very good and fundamental reasons to mistrust our judgment regarding all the movements we did in Worten, but I think that we are now quite confident that our Iberian approach, coupled with a very strong omnichannel bet, is showing its results.
We've written in the earnings announcement the impressive growth of our e-commerce operations, both in Portugal and Spain. Worten is growing much, much faster than the market, both in Portugal and in Spain, and our Iberian operation is really becoming stronger, and we are right on track to meet, which is not silence. It's an overall ambition of getting to close to EUR 1 billion in sales and 3% EBITDA margin, which I think is the beginning of a very sustainable operator in Iberia.
Regarding Sonae Sports & Fashion, this is the Q1 where we are presenting fully comparable results with the inclusion of Salsa, already totally comparable in last year's Q3. All our businesses, all our main businesses, have presented very good turnover growth.
All of those businesses have also posted positive like-for-like, with the exception of Sports Zone. Sports Zone played more in, towards the profitability game than towards the sales game. Actually, Sports Zone has presented quite interesting growth in terms of profitability, not so in terms of growth in sales. Overall, in this division, turnover has grown 16.8%, and as I said, it's fully comparable.
The underlying EBITDA stood at EUR 12 million, improving almost EUR 40 million, and it's quite interesting, and I would note particularly the good performance of Salsa, which is, in all the markets that are key for Salsa, namely the European markets and particularly in Spain, the results of Salsa are particularly good.
Moving now into Sonae RP, not a lot of news there. You are aware of the fact that we've closed a small sell-and-buy back transaction, four food retail assets, an amount of EUR 35 million, but a significant capital gain for that size of operation of EUR 10 million. That shows that the market is very interesting at this stage for this particular type of asset. We are already aligned with our stated strategic preold , around 50%.
We are still being offered some interesting opportunities, but if we will announce anything in this area, it will obviously be very, very small. Regarding Sonae Sierra, the operational performance is really good. I have to say that the occupancy rate in all our shop or the average occupancy rate in Europe stood at 97.2%, which is a benchmark number for all operators of shopping malls across the world.
In Brazil, where the economic situation is improving but is still recovering from a difficult period, it stood above 90%. Our shopping malls are performing quite well. In another different area regarding the development activity, as I said, we have now six projects in pipeline: Nuremberg in Germany, a designer outlet in Málaga in Spain, Zenata in Morocco, Cucuta in Colombia, and North Shopping and Colombo expansions in Portugal.
They are all evolving according to plan, and both the MacArthur Glen designer outlet in Málaga and the North Shopping expansion are already under construction, and we have those two expansions scheduled for 2018.
Obviously, this very good performance in operational terms has translated into a very positive evolution of that direct results. In indirect results, there is a decrease, but please be aware of the fact that our indirect results cannot be compared with last year because last year we registered during this quarter the indirect positive result of the opening at Park Lake in Romania that we did when we opened the shopping mall.
A brief note on NorteSh. We are, as I've been saying, a very happy shareholder of NorteSh. We are very proud of the work the team is doing there, continuing to grow in all key operating metrics and showing again a growth in turnover of 3.4%, significantly improving EBITDA, significantly improving net results.
Also very important to note is the fact that free cash flow has grown from EUR 48 million to EUR 136 million in the nine months, and I would like to stress the fact that NorteSh has paid dividends in the amount of EUR 103 million during the Q2.
That shows the commitment of NorteS h towards significant remuneration to its shareholders. On Sonae Investment Management, just a very important note to stress the fact that, in our key investment, the key investment that we did last year in the ones, Espirito Santo Ventures Fund, now Armilar, we entered into those funds mostly because of two tech companies, that we think are quite good: OutSystems and Feedzai.
Because of the performance of those two companies and because of the round of financing that those two companies managed to raise during the last quarter, we've already registered a positive indirect result of EUR 4 million coming from the good performance of those two key investments in Armilar funds.
Regarding Sonae Financial Services, as I said at the beginning, we are really on a very positive trend there, 23.6% growth on production, 40% growth on turnover, positive EBITDA of EUR 2.1 million. This is a very young operation, less than two years of operation, but already very positive figures. We've clearly surpassed the half million customers in the Portuguese market.
We are above our 10% market share in credit production, really very positive early indicators on this area. All in all, we are very pleased with the nine-month result, particularly pleased with the results of this last quarter in Sonae MC, in Sonae, in Worten, in Sonae Financial Services, in Sonae Sierra and NorteSh.
Almost all over our different participation, we are seeing quite positive results, and we believe that we are right on track to continue to produce a very strong and solid operational performance going further, whilst we continue to strengthen our capital structure. I will open now for Q&A, and not only myself but all my colleagues here will be more than glad to answer your questions. Thank you very much.
Thank you. If you wish to ask a question, please press Star one on your telephone. Once again, that's Star one to ask a question. Your first question comes from the line of José Rito from CaixaBank. Please go ahead.
Yes. Good afternoon to all. My first question on the food retail and margin evolution. You have pointed that the expansion and competition has been the main reasons for the margin compression. We also know that 2018 should be the last year of your four-year program in terms of store expansion towards the proximity formats, and you also mentioned that competition is stabilizing.
Do you think it is possible to assume some improvements at the margin level in the near future? That will be my first question. Also related with food retail, in terms of OpEx costs, other players have been flagging some pressure on costs for Q4. Do you also expect to increase wages by the year-end? How do you see this evolving for 2018? Finally, a question on the working capital evolution.
It has improved by EUR 30 million year-on-year, in the nine months. Do you expect to maintain this trend and this gain, in Q4? Thank you.
José, I have just a note on your statement regarding our expansion plan. It's not yet finished. Obviously, for competition reasons, I'm not going to completely reveal it, but we do see more opportunities to open new stores, and currently, we don't foresee any slowdown in our expansion plan, at least for the next two years. The expansion plan will continue.
Obviously, the impact of the expansion plan in our bottom line will become diluted over time because we will also benefit from a number of stores that we've opened in the previous years that will reach maturity during the next couple of years. There's no slowdown, at least for the next two years, in our expansion plan.
As I stated today, and I wanted to have that particularly clear, I've been mentioning this once and once again, we are very careful selecting each one of our stores. We carefully measure the return on invested capital on each one of our new stores, computing on that return on invested capital.
They can evaluate the impacts in our other stores, but as far as we can say, we are today very, very confident that, especially Continente Bom Dia, our proximity format store, is a very, very performant format. It's clearly a winning format, vis-à-vis the eyes of our consumers. Every time we open one of those stores in areas where we were not present and our competitors have stores, the impact in the market is very significant in terms of our market share gain.
We are very happy and proud with the work of the team, and there is no plan to slow down there. Regarding wages, let's try and split things. First of all, regarding 2017, we have already had, since the beginning of the year, fully accommodated the impact of the wage increases that were expected for the year. Actually, Sonae has always had a policy of paying above the minimum wage, so we were not impacted by the change in minimum wages.
Going forward into 2018, we will continue to apply the same policy. The only minor factor that can play a role in that particular area has to do with unemployment. As you are all aware, unemployment is reducing, and in a situation where you have a reduced offer of employment, it is natural that the cost of employment might rise slightly.
That is, is, is in a way, also positive because if there is a diminishing unemployment, usually you have a significant link between that reduction in unemployment and the increase in consumption, and particularly an increase in food consumption. Regarding working capital, this is a little bit more technical. I think we are doing quite well, but I will ask Rui to guide you through that line in our balance sheet.
Good afternoon, everyone. This is Rui Almeida speaking. Regarding the working capital evolution, I need to stress that the working capital evolution is based on two evolutions: the evolution from the stock evolution and also from the suppliers, the debt to suppliers evolution.
The suppliers' debt evolution is basically increasing and will benefit in terms of working capital from that due to the fact that we are growing. Our activity is growing, and we benefit from that. In terms of stock evolutions, we launched several projects to optimize the stock evolution in the past. Now we are, you know, gathering all the results from that.
We launched several projects since the from the warehouses to the stores, and now we are seeing the stock evolution going properly in the last year, in the last month, and we are expecting to continue in the coming months. Okay?
Okay. Thank you. Just yes, just to follow up on the expansion plan, you mentioned two years, so it is, should it be 2018 and 2019? So additional 25 new stores in 2019, is this correct? Also, in terms of wages, just to clarify one thing, if the minimum wage is set at 600 already in 2018, the entry salary for the food retail is already above this threshold? Just to confirm that.
Yeah. Starting with the second one, the impact of that will be minimal. I think that where we could place some impact, and it is not across the entire company, particularly in some areas and some zones, comes mostly from the lack of employees.
The fact that unemployment is reducing makes it sometimes more difficult to find people, and obviously, we will have to adjust salaries to become more competitive. Sonae has never been complaining about minimum wages, and we will not. We think that paying properly to our employees is a key part of our value proposition.
Also, regarding our employees, we did not have any problems with employees during 2017. We do not expect to have that kind of problem in 2018. We have a very clear HR policy, so we are quite comfortable on that.
Regarding the expansion plan, you talked about 25. It's, that's a number. It's not our number. It's your number. This year, we will close the year slightly below that, around 20 to 21 stores. It's something around that, and yes, we will open around those numbers in 2018.
In 2019, for sure. For 2020, it is still very early to say, but what I want you to be very well aware of is that for us, each store, we are not in a rush for square meters. We are in a rush for finding the right spots. We only invest in a store when we do find a spot that can guarantee us the adequate returns on invested capital.
Up until now, I think with one exception out of 70 stores, all our stores are either at or above the initial levels of projection. I think that it's actually someone in Rui Almeida's team that does that, and we are becoming more and more professional at selecting the right spots to place our stores, and we are quite confident with that plan. Actually, for 2018 and 2019, the vast majority of the spots where we want to open our stores is already identified.
Okay. Thank you.
Thank you. Next question comes from the line of Filipe Rosa from Haitong Bank. Please go ahead.
Good afternoon, everyone. Just to follow up firstly on Sonae MC, looking into 2018, we have discussed a lot of moving parts, but in the end, it was not clear for me what, at this stage, could be your expectations in terms of margin evolution, okay? I know that you still have some dilution from new stores, but you said that it should be lower and lower.
You have some signs of stabilization of the competitive backdrop. You are the price leader already, so you should not need to do any further gross margin investments. Can we expect the margin to be, at this stage, would it be wise to expect a stable margin next year? That is my first question.
My second question on Worten, very, very good performance this year, and it has been quite impressive evolution of the sales per square meter and of the profitability. My question is, what's next, okay? You finally have a positive, you are close to have a positive EBIT margin. Can you give us some visibility like you gave for Sonae MC, in terms of growth? Can you give us some visibility for Worten as well?
My third question, regarding the real estate. We have seen in Portugal, which is still the most important market for Sierra, we have seen a tightening of the government bond yields. Could you just.
Perspective on the outlook for this year and perhaps looking to 2018, what could be the evolution of rental yields in the portfolio of Sierra? Thank you very much.
Okay, Philippe. I think you can note in my voice that I'm smiling because all your questions are very difficult to answer because they are all regarding 2018 and beyond, and we are just presenting the results of the nine months of 2017. It is quite difficult and in some cases even impossible for us to answer.
2018 is obviously, as you said, it will depend on a number of factors. We are very clear regarding our strategy. Sonae MC will continue to be the price leader in Portugal. Sonae MC will continue to have the best stores, the best food stores in Portugal.
Sonae MC will continue to have the best promotions in the Portuguese market, and Sonae MC will continue to protect, defend, and eventually even expand its market leadership in the Portuguese market.
Those are our key drivers. We think that we have the right value proposition. We are showing that that value proposition is a winning one. We know that we might adjust or we might have to live with some marginal impacts in our EBITDA margin, which continues to be very high, but we are prepared to live with those impacts in our EBITDA margin as long as our key strategic priorities that I've mentioned right now for Sonae MC will continue to be delivered.
I will now hand it over to Worten, to Miguel Aguas, and then to Edmund Figueiredo to answer you regarding the two other questions.
Hello, Filipe. This is Miguel Algos. Thank you for your, for your question. What's next for, for Worten? First, the Q4 is next, and up until now, the first six weeks, trading has been, has been positive, more or less in line with the first nine months of the year.
This being said, obviously, as you know, the last five weeks of the year will be absolutely crucial because we have Christmas and Black Friday, and it will have a huge impact on, on the final outcome of sales and, and trading in, in the last quarter. Going further, into the future, we are still, we maintain the strategy that has been proven correct up until now of investing strongly in the development of an omnichannel proposition.
We have been posting very strong growth in our digital sales, leveraging not only our e-commerce and improvements in customer service player, but also the network of typical stores that can offer a stronger value proposition vis-à-vis peer players, for example.
We have been posting very, very strong growth both in Portugal and Spain. For the future, that's clearly an area where we'll continue to invest and grow, hopefully above the market as we have been doing so far. Regarding further organic growth, we believe that obviously, in Portugal, we want to maintain the pace of capturing market share from competition.
That will not entail significant expansion efforts. We will continue to optimize our STEMEX product work in Portugal and tapping into the small pockets of market where we are not present yet, but it will not be significant.
Whereas in Spain, we believe that we have conditions now to skew a steady growth, obviously maintaining the pace of economic recovery as we have been doing so up until now. We believe that there is room for growth in Spain, both on digital front and on physical stores, and we will invest somehow on that growth as we have been doing up until now. Probably in Spain, we are not going to have such a strong effort as we had in the past with store closures or other restructuring.
The natural pace in Spain would be to continue now leveraging the growth of the part where we have installed and some openings we will build, and leveraging also the much better economic performance of that format that we have been implementing for the last two years, helping us to improve the economics of the Spanish operation.
Thank you, Miguel.
Hi, Filipe. This is Edmundo speaking. Thanks for your question. On yields, Sierra does not expect any material compressions on yields for the last quarter this year, and it's too soon to make any kind of prediction on 2018.
In any case, just to make an observation on the comment you've made about the government bond yields, it's decreased. Much more important than that in the Portuguese real estate market, especially in the retail real estate market, are the comparable transactions.
There is a big one, which was announced to take place and hasn't yet taken place. There is no evidence of price. That could be one major factor that would shift yields. That has not yet occurred, and therefore we do not anticipate any movements in yields for the rest of the year. Thank you.
Thank you.
Your next question comes from the line of Tim Attenborough from Santander. Please go ahead.
Hi. Good afternoon, Luís, and team. I'm gonna have one more stab at the EBITDA margin in food retail, if I may. You talk about stability, increasing stability there at minus 20 to minus 40 basis points. If I think I heard you correctly, you were saying that the market is becoming more rational, and if you could tell us what deflation or inflation rate was, you know, where are we with like-for-like volumes in the Q3, and where inflation is looking like in the Q4.
That might be helpful in us trying to get a clearer picture of the sort of the entry rate and angle of trajectory going into 2018 on those MC EBITDA margins. Just one other side question. On Sierra, you talk about regular tenancy rotation.
Forgive me for not following that. Is this a sort of cyclical, seasonal thing? I mean, can we expect levels to go back up to 94% to 95% level reasonably soon? Thanks.
some of the costs of.
Tim, thank you for the questions. I'm not completely sure I've understood your last question on Sierra. What I've stated are our occupancy rate, which means that out of each 100 stores we have to let in our European shopping malls, 97.3%.
Yeah.
Of those stores are let, and when those stores are let, they are usually let for a significant period of time. It is quite unusual for shopping malls to have such a high occupancy rate. You will usually find a very good shopping mall working at 91, 92, 93 percentage points of occupancy rate.
That is more the standard occupation rate for a shopping mall. We are presenting quite high occupancy rate, which is obviously very good, you know, for the customer experience, but also for, obviously, the performance, the economic performance of the shopping mall.
Sonae Sierra shopping malls are usually quite good and first tier in the countries where we are operating, in Europe mostly, and that is why we are achieving such, such high occupancy rates.
Okay. I was sorry. I was referring specifically to Brazil, where there was a.
In Brazil.
Yeah.
In Brazil, there was a dip of occupancy rate during the crisis. We've already recovered from that dip, and actually, we are now at 90, but, as you're saying, we are probably going up because we had one store that was closed and will reopen, a big store that was closed and will reopen quite soon. It is, indeed, you can expect a recovery on the occupancy rate in Brazil going forward.
Okay. Thanks.
Regarding foods, I will just hand it over to Luís that will guide you through the deflation and also give you some color on what we expect for the Q4 of the year. Regarding the rationalization that I've mentioned in the market, what we are seeing is a little bit the following.
Our competitors have flied over the last couple of quarters, and actually, as I've mentioned, we are gaining market share for the last eight quarters. During those eight quarters, our competitors have tried almost everything they could think of, from very irrational promotions to completely irrational promotions to even more than complete irrational promotions.
There is a point where the market starts to understand that it's better to behave more rationally than continue to waste money in promotions that are obviously totally inefficient for them.
We monitor that both for us and for them. What we have witnessed during the Q3 is that that level of irrationality, if I may say so, has clearly diminished. Entering into the Q4, we see a much more, I would say, regular promotional activity.
I'm not saying that the promotional activity has decreased significantly. What I'm saying is that the environment is still tough, but we don't see any signs of it becoming more tough, and we are seeing some rationalization of the overall promotional environment.
These things are quite difficult to predict, and sometimes people can become irrational for reasons that we can't control. I think that what we've always said is that we have a very clear strategy.
We know what we should be doing in order to defend, protect, and eventually expand our clear market leadership in the Portuguese market, and we will continue to do it quite calmly, quite rationally, quite efficiently. We are not going to be the ones to push for an even further deterioration of the promotional intensiveness in the market. Please, Rui, go ahead.
Yes. Good afternoon. I thank you for your questions. Regarding the Q3, yes, in fact, during the Q3, we slightly decreased the volumes in terms of like-for-like basis in our operation. That is tremendously impacted by the growth of the offer in the Portuguese industry, Portuguese market. In fact, the offer measured by the number of square meters installed in the Portuguese market is growing above 3% in the market. It is, in fact, obviously our operation.
The like-for-like were affected by that, also considering that the number of stores that we are having are cannibalizing slightly our operation, but they are continuing to grow in our operation.
Going forward, for Q4, we are expecting, and according to the last days of the Q4, we are expecting to end up the quarter or the year with a positive like-for-like, or slightly above the level of like-for-like that we presented in a year-to-date basis in the Q3.
Thank you. Once again, if you wish to ask a question, please press star one.
Okay. Since there are no further questions, I'd like, again, to thank you all for being in this call. As always, the team is available to take any further, very specific questions if you wish to do so. Thank you very much, and I hope to have you all back again in our yearly con call in around three and a half months' time. Thank you very much. By the way, Merry Christmas to all of you.
Thank you. That does conclude the conference for today. Thank you all for participating. You may now disconnect.