Earnings Call: Q2 2020

Aug 6, 2020

Hello, ladies and gentlemen. Welcome to the Q2 2020 Results Call of Boente AG. At our customer's request, this conference will be recorded. As a reminder, all participants will be in a listen only mode. After the presentation, there was an opportunity to ask questions. If any participants have difficulties during the conference, May I now hand you over to Kristian Coppein, CEO, who will lead you through this conference. Please go ahead, sir. Well, thank you very much. Welcome to ladies and gentlemen to the results call for the second quarter 2020 of Stentech AG. I am Christian Holtner, and I'm here together with our CFO, Dion Miller. Together, we will walk you through our business development I will start with a high level summary, and GEA will provide further details on the financials for the past 3 months. Afterwards, I will talk about the progress we have made on Project Brandtak and where we currently stand. As always, GEOK and I are both happy to answer any questions you might have after our presentation. Now let me provide an overview of Even though the global macroeconomic has still been impacted by the effects of the COVID-nineteen pandemic, Branchise managed to report very solid results in the second quarter of 2020. Despite the challenging market environment, we are overall satisfied with our Q2 performance and the company again demonstrated the resilient nature of its business model. The group generated an operating gross profit of 1000000 which is on previous year's level on an FX adjusted basis. Operating EBITDA grew by 4% on constant currency amounting to around 1,000,000. The free cash flow of 1,000,000 was again high and clearly above the level we achieved a year ago. Finally, our EPS amounted to in the second quarter. Further, Ooma, we not only kept the originally planned date of our channel shareholders meeting on June 10th, but we also kept our dividend proposal in order to let our investors participate in the positive development of our company. Therefore, the General Shareholders Meeting approved the dividend of per share meet of and the dividend was paid out accordingly shortly after. The impacts of the COVID-nineteen pandemic were felt every year also in the second quarter of this year. At Brantac, we continued our global crisis management successfully also into the second quarter and the health and the safety of our employees and business partners continue to have the highest priority We managed to handle this crisis very well so far. Our global site network remained basically fully operational. The only difficulties could be felt in areas which has very strict lockdown policies in place, such as India. So far, COVID-nineteen still only had a limited impact on our business activities and our financial performance. Let me give you some details on the development of specific industries, regions and also costs within our group. So far in 2020, we saw particularly strong performance in our food and nutrition business, which reported well above the group's average growth rates, both in operating gross profit and in EBITDA. Also, we again saw positive results in Personal Care and cleaning, driven by a high demand and solid margin development for ingredients applied in disinfectants and other care products. In Asia Pacific, we acquired last year in May Kihei, a strategic market leader in providing supply chain solutions for materials, chemicals, and services for the life sciences, electronics and diagnostics sectors in Singapore and Southeast Asia. This acquisition has been fully consolidated by now. We see Tea High, which is headquartered in Singapore as an important cornerstone to foster our future growth in the attractive life sciences segment in this region. China plays an increasingly important role within Asia and our Granta group. It is already the country with the highest operating gross profit contribution in the region. While in the first quarter 2020, our Asia Pacific region, and particularly China, was hit hardest by the impacts of the COVID-nineteen pandemic, our business in this country recovers well. And has shown a strong operating EBITDA generation over the past months. Let me also emphasize that amongst other measures, in response to the COVID-nineteen pandemic, we also implemented a stringent cost management. Also addressing non variable costs like personal expenses, where we have reduced our headcount already noticeable. Diaz will talk about this in more detail later on. However, as indicated previously and coming back the financial performance on group level, our top line development showed clear signs of weakening. Demanding most of our end markets as we went from Q1 to Q2. We need to monitor this very closely going forward. As demand and thus volumes have not been recovering so far. Nevertheless, we do see the positive performance in the first half of twenty twenty as a solid foundation for a continuing difficult market environment during the rest of this year. Looking into the near term future, we continue to see a high level of uncertainty. And we expect the conditions to become even more challenging, particularly with regards to the soft demand going forward. Clearly, this crisis is not over yet, and we have to monitor the situation very carefully in the months to come. Nevertheless, we feel well positioned to deal with this unique environment. With a short introduction, I want to hand over to Gia now, who will lead you through our results in more detail. Thank you, Christian, and good afternoon to everybody. I will speak about the key financial figures for the second quarter 2020, Starting with the development of operating EBITDA illustrated in our bridge from the second quarter 2019 to 2nd quarter 2020. Operating EBITDA amounted to EUR 266,000,000 in the second quarter 2019. The translational foreign exchange effect was negligible at -1000000 and our acquisitions contributed EUR 4,000,000 to the EBITDA growth in the quarter. The trends we saw in Q1 twenty twenty mainly continued into the second quarter. Particularly EMEA and Latin America showed a very positive organic earnings development in Q2 both with strong double digit organic operating EBITDA growth of 20% 28% respectively. North America declined by 10% organically, mainly driven by the ongoing weakness in the oil and gas industry, as well as increasingly negative impacts of the COVID 19 pandemic on the overall North American economy. Asia Pacific reported organic earnings of minus 11 percent, mainly driven by strict shutdowns in some countries of CVC. And moving to the next slide to provide some more details on the business development in our regions. I would like to emphasize that also in Q2, we managed to keep our global site network fully operational, even though we faced difficulties in some countries that had particular strict lockdowns. I'm starting my comments with EMEA. Our Q2 performance was again very positive. The performance was driven by a good business development in some countries like the Dutch region, Nordic, and the UK, and many customer industries like cleaning, pharma, and personal care. We were able to grow operating gross profit by 8.6 percent on a constant currency basis, even though we did see signs of slowing volume demand across our end markets. The growth is therefore mainly related higher operating gross profit per unit. So operating EBITDA increased by 21.5% This growth is almost entirely related to our organic business development. We are very satisfied with results in EMEA and our Q2 performance again underline the strengths of our business. But we are also well aware of such challenging market environment that is to be expected in the second half of the year. Let me come to North America. There were several headwinds in North America that led to overall weak and unsatisfying results. Cost profit declined organically in Q2 by about 10% and also EBITDA declined by about 10%. So first headwind I want to point to is a very soft demand from customers in the oil and gas industry and that accounts for around 7 percentage points out of the 10 percentage points cost profit decline. Also, the lubricants customer industry was weak. This accounted for about 3 percentage points of operating gross profit decline. Additionally, we saw an increasing impact of the COVID-nineteen pandemic on the overall North American economy. On the other hand, we applied a very stringent cost management and decreased operating expenses in North America by more than 8%. In the region, therefore, operating EBITDA decreased by 10% organically. Latin America, again, reported very good results in the still volatile environment with an increasing impact from the COVID 19 pandemic on the Latin American economy, we were clearly able to demonstrate the resiliency of our business model. In the quarter, we managed to grow operating gross profit by more than 8%. Operating EBITDA increased significantly by 26%. Asia Pacific showed a mixed picture in Q2, while China was able to fully recover from the COVID-nineteen effect of first quarter, other areas were negatively impacted by very strict lockdowns in the number of countries. In particular, our business in India was hit hardest by the pandemic due to the comprehensive lockdown measures. The developments are still very dynamic in Asia Pacific and therefore future development are particularly difficult to predict. Operating gross profit decreased by 7.1% on a constant currency basis, operating EBITDA decreased by 4.3% and organically this represents a decrease of 11%. Let me summarize. We were again able to report very solid results in a challenging market environment. However, we do see clear signs COVID-nineteen around the globe, we are expecting even more difficult conditions in the second half of the year. Nevertheless, we are prepared well for the coming quarters. As Christian mentioned, our cost management is very tight. The number of full time equivalent employees by the end of June is about 600 FTEs below the number 1 year ago. And out of the 600 FTE reduction over the recent 12 months, more than half has been affected during 2020. At skipSlide 8, where we show the full set of figures for our segments for your reference. On page 9, in our income statement, I particularly focus on the lines below operating EBITDA. We do report special items amounting to an expense of 1,000,000, which are mainly related to project blendtec and smaller efficiency measures. Depreciation amounted to EUR 64,000,000, slightly higher than in Q2 2019. The financial result amounted to a net expense of 1,000,000, earnings per share stood at 0.80 dollars compared to in the second quarter 2019. So free cash flow amounted to EUR 214,000,000 and was clearly higher compared to the same period last year. The increase in free cash flow is mainly related to higher operating EBITDA as well as a small inflow from working capital reductions. CapEx stood at 44,000,000. Since January 2019, we applied the IFRS 16 standard for rent and leasing. In the interest of consistent presentation, we do deduct payments for rent and lease payments from the free cash flow. Our net financial liabilities amount to EUR 2,000,000,000. This includes the capitalized lease liabilities under IFRS 16. Leverage stands at 1.9x. I would once again like to highlight Rantac's strong funding profile. We have a very balanced and long term oriented maturity profile. So 1st May maturity comes up only towards the end of 2022. In addition, we have more than 500,000,000 cash on our balance sheet and further 1,000,000 committed credit facilities which are almost undrawn. Our syndicated loan is the only instrument containing a financial covenant. The covenant requires the leverage to stay below 3.46 times. As you can see, we have plenty of headwinds. The dividend payment was a straightforward decision for us. I'm moving to Page 12. Working capital amounted to EUR 1,700,000,000 at the end of the first quarter. Apologies at the end of the second quarter. Return to working capital 6.9 times in the first half of the year, a slight decrease compared to what we have demonstrated a quarter ago. Free cash flow was strong, as demonstrated two pages earlier, free cash flow of EUR 214,000,000 is the highest number for any Q2 since public listing. Nevertheless, we are not satisfied with working capital turn. This is predominantly from the inventory part of working capital. On the one hand, demand dropped in course of the quarter. On the other hand, considering all the supply chain challenges, we decided not to run inventory too tight. This is an area of focus for the current quarter and beyond. Despite the point I raised on working capital, in summary, we are very satisfied with the financial results of the quarter. Especially when considering the difficult economic environment. We delivered earnings growth and a high and stable cash flow. Nevertheless, we also continue to see a high level of uncertainty and volatility for the rest of the year. So COVID 19 crisis, despite no means over, and we do expect even more challenging conditions in the months to come. And let me hand the presentation back to Christian. Well, thank you, Glenock. As you all know, we have started a holistic analysis at the beginning of the year, in order to return Brentech to organic earnings growth. With the publication of our Q1 results in May, I talked about the progress I also mentioned the 4 different work streams, which the project is focusing on. For the time being, these remain 1st, our operating model 2nd, our go to market approach 3rd, our site network optimization and 4thly people and change. In the second quarter, despite COVID-nineteen, we have finished our holistic analysis. And currently, the work on project rental carries on unaltered in scope and speed. We are closely following our agenda and our objectives have not changed. In recent months, we detailed out our conclusions, defined distinctive initiatives and created an overarching plan for the implementation. The project teams and work streams are fully operational and keep driving project banker. Originally, our intention was to provide a detailed update on Project Rentals to the capital markets shortly before the summer break. However, against the background of the overall circumstances, and continuing restrictions around the COVID 19 pandemic, a sound and solid alignment process has been launched. Currently, the work stream people and change management is in focus of our project work. As mentioned many times, we see our people as our most valuable asset. Chemical distribution is a people's business, and we strive to keep and have the best experts of our industry. He successfully finished the 1st phase of project Brent up and are now entering into the validation phase. Therefore, We currently involve a broader group of our management team into the details of project Brentac and the current status of our plans. We want to achieve a common understanding of the target picture and gain additional perspectives on concepts and initiatives from a broader number of members of our leadership group in order to strengthen our sound decision making. The joint reflection and alignment will ensure an accelerated and smooth implementation process and we will safeguard the impact of measures once finally decided and rolled out. Project Brentact is a comprehensive churn and also includes a change in future leadership culture and values. This will also be addressed in the validation phase as we and the top leaders will be responsible for driving the change in the future. Of course, we are keen to inform you about as many details of project Brent up as possible. And also, we would like to get the attention of as many people as possible. We are going to hold now our capital market update together with the publication of our Q3 results in early November. Depending on the COVID-nineteen restrictions the meeting will be held either as a physical meeting or as a virtual event. Now let's come to the outlook for 2020. 2020 is an extraordinary year, with unique developments and circumstances. Nevertheless, our mid to long term goal is to bring the company back to sustainable organic earnings growth and to position Planetag well for future growth opportunities. In June, we already got a new composition of our supervisory board after the General Shareholders Meeting approved the elections of the members of the Supervisory Board. In addition, mid of July, we announced changes in the Management Board of Fintech AG. Stephen Kervin, who has been Chief Operating Officer in North America, joined the board and has taken over responsibility for our regions in North America and Latin America as of August 1st. We warmly welcome Stephen in the management board. He has a longstanding experience in the chemical distribution industry, and knows our company well. With this strong leadership, he will further expand our competitive positions in North America and Latin America. Rodrigo Nejaz, who is heading our Asia Pacific region for many years, will take additional responsibility for EMEA for an interim period. Orie knows both regions very well and we are delighted that he's now taking care of our EMEA region as well. I would like to thank both leading board members, Carsten Heckman and Marcus Clam, on behalf of the Management Board for the strong leadership and full dedication to our business and for the successful development of our EMEA and North America regions. Irish Carsten and Marcus all the best for their future endeavors. With regards to the short term development of our company in early April, We suspended the forecast for the financial year 2020 due to the considerable uncertainty over the future effects of the COVID-nineteen pandemic. Until today, the further spread of the coronavirus is impossible to predict and while some countries have contained the pandemic quite well, other countries around the globe are reporting increasing numbers of cases day by day again. Even though we reported very solid results for the last 2 consecutive quarters, and thereby confirmed the resilience of our business model, the degree of uncertainty on the global economy remains high. This uncertainty is limiting our ability to make precise predictions Since our Q2 results already showed significant signs of weakening demand, We expect the second half of twenty twenty to be even more challenging and depending on how the spread of the virus continues we cannot rule out a greater impact on our business development. Of course, Our top priority is still to maintain the health and the safety of our employees, while at the same time securing supply for our customers. Additionally, we will further focus We will publish an updated forecast for operating EBITDA once the effects of the COVID-nineteen pandemic can be better estimated. The same goes for other our other performance indicators, which likewise cannot be forecasted due to the current situation. And now, Girok, and I am more than happy to answer your questions. Thank you very much. Now we will begin the question and answer session. You. The first question is from Rory McKenzie of UBS. Your line is now open. Hey, Ravi. We can hear you. Are we maybe on mute? Okay. Then we go to the next one. Can you hear me? Yeah. Now we can hear you. Ah, there we go. Sorry about that. Yeah. Sorry. Firstly, to clarify your comment that you see, clear signs of weakening demand. We understand that Q2 on average is, of course, worse than Q1. And again, H2 on average will also likely be more challenging. Thank you, or on average. But to be really clear, did you mean that your monthly trends weakened through the quarter, I. E. Are exit rates worsening? As I said previously, we are not talking about the current trading conditions and how we are going into the Q3. I think we need to be fully alert that the demand is not recovering as quickly as we were expecting or hoping for. And this is what we need to take into our considerations while moving into the third quarter now. Oh, okay. I I then wanted to ask about the 2 drivers of gross profit. So volumes and then gross profit per unit could you quantify the volume fall that you saw in q 2 and whether you think you're outperforming that the wider market And then secondly, how sustainable is the significant expansion in gross profit per unit? If conditions normalize in terms of volatility, chemical prices, supply chains, would you expect your gross profit per unit to normalize in fallback levels you saw previously? Thank you. And it is a standard element of chemical distribution that on the one hand, price volatility is is helpful to distributors, but it's also an element of chemical distribution that if volumes fall to a degree, and service level becomes more important. So smaller volume deliveries, reliable to customers are better paid and that to a degree goes away their volumes pick up again. So it's always a scale that at the end of the day, nets out reasonably. We did have in the 2nd quarter volume reductions against previous year of high single digit or low double digit, I can't make a statement if if how that relates relative to market. I have no data from other market participants. We deemed that a pretty solid and strong volume performance, also considering what macroeconomic data are floating around. Extra gross profit for the quarter is virtually stable. You can figure out what on average the gross profit per unit benefit is. Great. That's very helpful. Thank you. And just to follow-up I I appreciate the obviously smaller volumes you'd make a higher profit per unit given that that kind of mechanism. There hasn't been anything like, you know, more profitable products or more profitable customers where you've seen a greater mix or or anything that, you know, obviously given the disruption, maybe new people have come into the distribution channel. And in our, in our presentation at the beginning of this call, we did point to number of customer industries. And these are not necessarily surprising customer industries like, like cleaning, personal care, or pharma, and this strong performance in these customer industries is partly good volume performance because these industries did have demand. But it's also that these customer industries valued, quality, reliability of the supply chain with the COVID 19 times by paying adequate prices for prompt deliveries. Sure. The next question is from Laurent Pfeffer of Exane BNP Paribas. Your line is now open. Talk about current trading. But I do appreciate all the comments around, I guess, granularity on the stronger markets versus the weaker end markets. I was wondering when you talk about fierce signs of worsening, are we talking about I guess the reversal to the norm of those end markets that received positive impact from COVID, such as cleaning and pharma, are you alluding to further weakness on the rest? So I guess that's the first question. And the second question, from an end market standpoint, endpoints. I think for Q2, you mentioned coatings in particular, for, for the EMEA strength. I mean, coatings overall from a producer standpoint has been quite weak. So are you purely referring to, decorative pains? I guess, is my question. And is there any reason why you didn't see that strength in the U. S, given that decorative paint in the U. S. Was also very strong in Q2? Yes, let me take the question. When we are referring to a weakening of demand, foremost, we are referring to volume demand Q2 sequentially after a strong volume in Q1. So that's the first observation. We are commenting on Q2 volumes relative to Q1 in the dynamic the market has. And we are referencing the fact that the world is kind of expecting some volume recovery, but we don't see it yet. At least not in any material shape or form. So the comment is more relative to an expectation of recovery which is not really visible so far. And I need to check something on the coating. So if I can come back to that a little, a little later. Think I think I have it already. Maybe it's just a sound problem. The strong customer industries we were referring for EMEA, it's that is what you asked. We're cleaning, pharma, and personal care. So maybe cleaning came across as coatings. That was not what it was what it was meant to be. It's cleaning from our own personal care. Okay. And then maybe if I can follow-up on the U. S. Weakness, Excluding oil and gas and, and lubricants, it sounds like, the OGP was flat year on year. When you look at the difference between the U. S. And Europe, is it mostly a mix impact or do you think that the U. S. Market is weaker than the European market? Or is it just the setup of your business and exposure to pharma and cleaning in Europe that is different in the U. S? Yes, I mean, as you say, oil and gas and lubricants are the most dominant negative, influence in North America. And if you extract those, then the rest of the business has been slightly positive, in terms of gross profit. In our perception. It very much has to do with the fact that we feel the overall state of economy in North America is speaker than most of you are currently. The next question is from Rajesh Kumar of HSBC. Hi. Good afternoon. Thanks for taking the questions. First, can you unpack for us how despite the revenue decline, your gross profit was so resilient, and then the mechanism behind how the commodities price versus volume paid between those two numbers. That would be very helpful to understand the second question is, in terms of the outlook, do you see any meaningful differences between the specialty chemical segments, and the bulk chemical segments, obviously, oil and gas, we all appreciate, and some will be appreciated, but I'm talking about, you know, a lot of other segments that you have within those, units. When you're thinking about 2020, How do you see this here? Do do do you see this here as a temporary disruption? So not not to take long term structural decisions based on what is happening because it's locked down. And focus on the medium term, story in terms of how you are you know, doing a capital allocation and immediate term planning, or at least this year, you need to navigate through with some resilience. And then as we land into a bit of clearer, hopefully, 2021, then then think about the medium term? Let me give it a try on your question about volume and, and cost profit dynamic. And I, I'm not sure if I got the core of the question, but let me give it a try or I'll be following up. In the second quarter, we saw a weak volume demand and we do have volume declines relative to previous year of high single digit or low double digit. Gross profit was, I'm using rounded figures virtually flat. So how did we manage to achieve the gross profit per unit increases. It's partly a mix effect in these times and times with weakening demand It's typical that the low margin bulk food truckload business goes away first. But the small quantity, less than truckload, repeat order business remains. The latter is the by far higher margin business. So there is a mix effect. But, beyond the mix effect, No, no doubt in times of supply chain challenges as we as we have in late Q1 and throughout Q2, when you are a highly professional market leading player like us, when you still have access to suppliers, still have sense to transport capacity. If you manage to keep all your warehouse network operational, then you have a differentiating factor against some other players and you can deliver customers and customers are valuing that service and, and, and, to pay at a spot prices particularly in these times. Well, I'll pass it to Christian, but I think you're ready on the specialty, outlook question. I will take a question 2 and question 3. Question too on commodity versus specialty, I think it's not so simple. Actually, I would rather debate about industry segments because those industry segments show different momentum and show different growth profiles. Of course, in your segments, which were associated with, let's say, Automotive Industry like RAPA, of course suffered. And here we see gradual improvements as we move forward. Oil and gas and lubricants, we already talked about So some industry segments actually showed even if you would consider them partly as specialty areas, in this first half year whereas other industry segments by far outpaced demand and do you have outpaced the normal growth rates we typically see. And, and there are even some commodity products in there. So I think it is not really simple to say this is specialty and it's good and this is commodity, which is not good. I think it's a very dynamic and a very fluctuating picture industry segment industry segment, what we have observed and what we currently observe. On the long term or medium term effect, you were asking, you were asking for, I believe that the debate about local supply and regional supply chains and strengthening them, will, will continue. And here, I believe Brandtech is well positioned with know, 77 countries, which we are represented. I think, the proximity gear has mentioned to customers in these times of crisis is important and has, of course, also helped our performance. And from that perspective, I believe this local presence is something which we, which we need to strengthen also in the way we are, are we investing and where we want to put our capital behind it? Also, some industry segments, of course, could change from the demand pattern, if you need for a medium term period of time, volume wise significantly, and we talk about disinfectants. All the additional efforts which are necessary to clean all the trains, clean all the airplanes. You see all those measures which are in place. Could also medium term impact, of course, such an industry segment, not only temporarily, but, but constantly. I think it is a very mixed bag of things, where there will be medium term impacts, default. And I'm not talking yet of digitalization, other topics, which are, of course, also have been driven by this pandemic and strengthening that piece of our business. Perfect. Thank you very much. Appreciate that. Just on the first question, you did cover most of the points how is the negotiation with the suppliers or discussion with the suppliers so correctly? When you you know, when we think, of course, pass through, etcetera. So that that is the big I'm trying to get to the Baltimore. So if I understand it correctly, your question is because you are a little bit hard to understand. So I think your question is around, how the negotiations with supplier are running in this kind of, of times. Correct? Exactly. Yes. Okay. Now I think, 1st of all, I have to say it's a very, very trust tool, way of going through this crisis. Is, I think we have excellent, excellent discussions with our large suppliers, which are basically sitting in the same boat like we are. Also, they are looking for, you know, can they place volumes? Can they place, material in the markets? Can we offer them some stability in revenues and other things. And so I would say it's a multidimensional commercial discussion, which typically is done with those suppliers, but, as I've said before in a very trust tool and even sometimes respectful manner. So I think it is was clear to everybody that sometimes supply is, is more important than anything else and maintaining also supply to customers is for our suppliers extremely important because it's continuing flow of their products. So I would say it has been a rather constructive environment in which we have navigated with our suppliers through that crisis so far. Thank you, David. Next question is from Markus Mayer of Baader Helvea. Your line is now open. Yeah, good afternoon. Krista and Dirk. I've had a question from my side. Coming back to gross profit and also conversion margin improvement in India. A similar question that I also now asked before Is this improvement due to the smaller lots in particular at the more commoditized product or was it also true for specialty and has more to do with the end market segments. That will be my first question. Marcosides here. The you see it across the portfolio, But the more relevant gross profit per unit effect and therefore also conversion ratio effect is on the industrial business because these are generally speaking more price volatile businesses where with more margin opportunities And obviously, in terms of conversion ratio, the quarter was a quarter of achievement or also a quarter where different things fell in place at the same moment in time. So strong margins and some cost decreases partly structural, partly through a lower level of variable cost is obviously a helpful situation for the conversion ratio. Okay. And that's been a good point also for my second question. And your beginning in March you stated also that you had headcount production. Could you elaborate more on the headcount reduction has to be mainly and in the OLED function in Germany or any kind of information this year? It's a broad mix throughout the globe. It's to a degree taking out headcount, which is kind of I wouldn't call it variable cost but volume related. So out of the roughly 600 FTE decrease I mentioned over the last 12 months. I don't have the exact number at my hand, but a fair share, for example, comes from the oil and gas business, which is particularly weak. So We are basically addressing, areas where we have underutilized capacity and bring out headcount out of these areas. Okay, understood. And then another question on the special items you had in the second quarter. And can you guide on kind of special items effect for the full year and also could you speed it up, how much of the special items have been restructuring costs and other effects to sell? Yes, out of the 11 or 12,000,000 special items, roughly $6,000,000 project costs related to project RentAC and $5,500,000 are restructuring costs. Difficult to guide to a full year number. I, if you are a little patient with us, then I would say together with the Q3 results, we will have a much better view on project cost and related items. Okay, great. And then my last question would have been, on what you talked about before on your ability to serve customers in different terms. I guess, several of your smaller competitors might have problems in this situation. Do you think that you have gaining market share? At least for what kind of markets or in particular regions do you think you outperformed I think it's hard to distinguish and hard to distill it out. Security of supply was an unnecessarily decisive topic, clearly in particular in the pandemic hit in March April very strong. And then later, it became a little bit more normalized as 30 months overall were much lower. So, sorry, it was in the beginning of it. There, there could have been effects, maybe in Europe, there could have been effects here in the end of America. But I would not say now that we have went or did go for a large market share gain. What is important is the long term perception about suppliers and customers working with globally leading number 1 in the distribution space together. I think this is much more worth than a short term gain, which we have here and there. I think we need to understand what a global network and our global representation in 77 countries can offer to them when it comes to critical situations like we have experienced over the last for 5 months. Next question is from Steven Walden of Deutsche Bank. So just firstly, on the, on on the FTE reduction, sorry, could you just tell tell me what was the what was the base of FTEs? I'm just trying to get a feel for the magnitude of that as a proportion of the overall company employees. And guess sort of following on from that and the other questions that you can add on, more structural cost removal. As this kind of gives you, in line with what you've done already on Project Brands Home, have you got any sense for I guess, what the potential is to sort of reset the cost base down on a more structural level. And within that, where the kind of low hanging fruit is on cost and if there really is that much. And I appreciate that it's still a kind of, work in progress and you probably wanna keep the, the the major announcements for for Q3, but any kind of indications you could give us on that would be really helpful. Thanks. Yes. Let me grab the easy ones, given its before I need to answer the complicated stuff. The, the 600 FTE reduction, is on the organic business development between June 2019 June 2020. And the starting point of that calculation is 16,700. Okay, great. Thanks. You're absolutely right. We would like to, you know, keep that debate, open until we can show the clear plan forward, for project Brentech. In terms of working on it. As I said, we are in the validation phase right now and pleasing out with us. And once we are ready to to tell you in detail about what structural cost reduction, structural changes we can foresee medium to long term. Okay. Thanks a lot. The next question is from Isha Sharma of MainFirst Bank. Your line is now open. Hi, good afternoon, gentlemen. Thank you for taking my questions. The first one would be related to costs. So in terms of costs, you have called out your 1st in North America. Could you also give us some flavor on the group level and other regions? Should we expect some more to come, in the second half? Secondly, more of a strategy question, you have mentioned the changes in management board. Is that a step in project management and what are your expectations for these changes? Maybe I'd take the cost management question, isha, not surprisingly, we manage costs most tightly, and we have the ability to manage costs most tightly we have the business as softest. Currently, the business is softest in North America. So no surprise here, you have the most significant cost reduction there. But also in the other regions, we do have expense decreases in each and every region in Q2. We had expense decreases. So we will keep the, the belt as tight as possible in these times of uncertainty. And on top of that, through our project work, we will revisit, revisit a structural cost reduction opportunities, but we And, on the, on the management board, now you have seen, seen the announcements, I think, 3 weeks ago. And, again, you know, we're building, complimentary boards, with complimentary skill levels and to competencies, which we need to have in place to drive the change and move project Brentact forward. So this is just a consequence, a step of creating a board which will be in a position to execute what we are defining in project printer to the best possible extent. Perfect. Thanks. Just maybe I can squeeze 1 more. When you say H2 might be more challenging, is that versus H1 or year over year? So is it fair to assume that it simply means normalizing for a profit per unit and not potentially further declining volumes? I understand that you earlier have mentioned that you don't recovery and you are and there's a lot of uncertainty. But, is it a fair way to look at it based on what you've mentioned before? No, it's a real challenge to normalize our H1 because nobody really knows what the normal role is or will be going forward. When we speak about more challenging. My the way I would raise it is it's predominantly against H1. H1 was really strong first half of the year. I'm not sure if it will also be weaker than second half of last year, but the comment predominantly refers to the strong H1. Thank you. Sure. The next question is from chetan Udeshi of JP Morgan. Your line is now open. Yeah. Hi. Thanks. Just following on on the previous question, actually. Just to confirm, when you say, okay, volumes are not improving, at the same time, are you seeing any deterioration so far in the third quarter? Was the 2nd quarter sequentially, especially in terms of the businesses of segments where you saw strength in 2nd quarter, that would be the 1st question and just follow-up to that. Have you already actually seen a normalization in gross profit per unit? So far in third quarter, is that, or is that something that you think is possible? But maybe you haven't seen it yet, necessarily. Pierre, thanks for the question. I don't really want to go too much into the current trading, but but trying to be helpful And nevertheless, I referenced a little bit earlier that a very typical mechanic in chemistry evolution is that that was public for units and volumes breathe against each other. So one, when one is particularly weak, the other is typically particularly strong. In that sense, going forward, I would always expect the the scale to balance out between the two items to could it be, I believe. I cannot say that we have seen a super material change in dynamic in course of the quarter or after. So every movement we have seen is still in the noise or in the ballpark of, obviously, high level of uncertainty that the world currently has. Thank you. Sure. The next question is from Daniel Hopton of Credit Suisse. Your line is now open. Oh, cheers. I'm asking you guys. Just one left for me, please. It's around it's around the M and A. We could expect sort of a continued hiatus, until, until post project rent tag is finished and and all of that communicated, or or is M and A still firmly on the agenda? And and how does that that pipeline look, sort of this year and possibly into next year? Well, thanks for the question. As I have said, also in previous communications, currently, the market is a little bit quiet. And, and so, I I must say, not very active for the time being. We will not deviate from our original thinking of what we have been doing in the past serving about $2,000,000 to $250,000,000 on M and A. We have done this historically, but the opportunities need to be there and they need to be sent and need to make sense. The pipeline is, I must say still well filled and also with, attractive targets, one must say, But again, currently, it's not something which is easy to do also from a seller's perspective as well. It always takes 2 to tango. So an unchanged basically on what we typically have been doing. We are seeking for the opportunities. And once interesting things come up, we will certainly take action. Maybe one more if I could. And just looking at the EBITDA line and and trying to understand, and are there any any tailwinds coming through from Project Brand Tag sort of straight away in terms of sort of conversion margin benefits that have been felt, is is any of that sort of this structural change that that otherwise you either quantify, as a project Brent type win, or are all of those initiatives and benefits or waiting to come through in the future? Thank you. I think the impact is very limited at this point of time. Again, we are working on initiatives. We are working on detailing everything out. Do we take you in there some quick wins? Yes, of course. But again, don't over estimate it. Not a couple of 1,000,000 here and there, but not really substantially yet. So the next question is a follow-up from Chitin Udeshi. She's on your line. Yes. Hi, sorry. Just a follow-up question on working capital. I think York, you mentioned previously that So if you guys were trying to manage inventory during first half to secure enough stock and that is where focus will be on 2nd half in terms of reduction. I mean, can you maybe give us any more clarity in terms of how to think about the working capital evolution overall through second half, is it going to be similar to what we saw in second half of last year, or could it be materially different from second half of last year in terms of evaluation? Topic, obviously, cash flow this year so far and then cash flow in Q2 was, a pretty strong cash flow. So evidencing that, that working capital is under control. But yes, given the amount of sales reductions, we would expect an even stronger benefit from working capital management. The levels we have to expect this, for the second half of this year, build to a degree, depend on the sales activities. So I can make a statement, but it has a fair level of uncertainty. In a steady state business, as we have currently, I would clearly see working capital falling from, from here forward. So the second half of the year should clearly be below June, 2020. As there are no further questions, I hand back to the speakers for the conclusion. Well, thanks again for dialing in and having that dialogue. We are very much looking forward to engage further with you in the third quarter and also for our Capital Market update early in November. Whether this will be a virtual physical, nobody knows yet. Let's hope the best, but it would be great to see you at least or hear you then on the line on the virtual S-one if you cannot do it physically. So thanks a lot and I wish you all the best. Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect now.