Earnings Call: Q2 2018

Aug 8, 2018

Dear ladies and gentlemen, welcome to the Brentauk AG Q2 2018 Call. At our customer's request, this conference will be recorded. There will be an operator assistance. I may now hand you over to Stephen Holland, who will lead you through this conference. Please go ahead, sir. Thank you very much and welcome ladies and gentlemen. Thanks for dialing into our review of results for the same quarter. Now it's usual. I'm here with you on CFO and as always, we're happy to answer your questions after the presentation. Let me start with the highlights of the quarter. We are pleased to look as a result, which confirms the positive trend of the company, but operating gross profit and operating EBITDA showed healthy growth rates of 8.4% 10.7 percent, respectively, which reported operating gross profit of 6,000,000 and operating EBITDA of 1,000,000. But again, the growth is broad based and in March March have been organically. The organic growth of operating EBITDA was almost 8% and that was similar to the Q1. Our 3 largest regions contributed to these results across all main industry groups, Latin America showed stable results in a difficult environment. The quarter, our acquisitions continue to meet our expectations. And as per share amounted to $0.76 compared to $0.69 a year ago, up about 10%. Back into the operator in the Gigawatt Bridge, In Q2, we had a strong headwind from the U. S. Dollar euro translation of around about 1,000,000 due to U. S. Dollar almost clearly weaker than in Q2. 2017. Acquisitions contributed 1,000,000 in the reporting period and also include the contribution online new acquisitions of Raj in India, King Technical Report to go, which is which we closed during the quarter. The European segment showed the healthy organic growth of 7% and again, we're particularly pleased with the region of Asia Pacific and North America, which contributed to show a strong organic growth of 8% 10% respectively. And last of my remarks, I shared solid performance with state results in what is still quite a volatile environment. I completed individual segments themselves, first to come into Europe. In EMEA, we have a continuing efficiency measures, which we announced last year, and I think we'll continue to have a positive effect during the course of 2018. And then we can show you a good operating gross profit of 6.4% This growth was manageable organically and results in an increase of 10.6% in operating EBITDA. Moving to North America and in places as well as North America region continues positive trend. Reported operating gross profit of 5% in operating EBITDA growth of 9.8 percent, both FX adjusted. Almost double digit operating EBITDA growth is entirely organic. Transport costs in North America continue to increase. We haven't introduced the number of searches to help compensate for these increased costs. Just going on to Latin America, we continue to see an overall challenging business environment. Against this background, Latin America achieved stable results in terms of operating gross profit. And operating EBITDA on a constant currency basis. Other countries are just making sure our next picture, we're convinced that we're well positioned in the region capture future growth opportunities for the overall situation improves. Welcome to Asia Pacific. Again, Asia Pacific Bickland's performance in Asia Pacific that we can show the double digit growth of our operating gross profit and operating star in the reporting period. In addition to very good organic performance and acquisitions that are also contributed to the positive picture and our own plan. I'll come on now on to, based on the recent acquisitions. Most recent, we have signed on agreements required Canada, color and chemicals. Location in very strategically important locations in Canada. This acquisition is a significant step by business in the country. Of the color has generated sales of around about 1,000,000 in the year 2000. The acquisition is expected to close in the forthcoming weeks. For the sake of completeness, I would like to note again that we've closed Quintanica in Portugal and we've also purchased 65% on Raj in India during the quarter for the few of y'all. Yes. Thank you, Steve. Good afternoon, everybody. I would like to speak about our detailed financials for the second quarter and then start with the upper part of our income statement on page 11. Sales increased by more than 12% on an FX adjusted basis as in previous quarters, the growth in sales was influenced by increasing pension prices. Operating profit grew by 8.4% analytics adjusted basis with a particularly strong performance in North America. Operating EBITDA for the group grew even stronger than operating gross profit, we show a double digit growth of 10.7 percent to 1,000,000. As in the first quarter 2018, we again managed to improve our conversion ratio. Conversion ratio stood at 34.2 compared to 33.6% in the second quarter of 2017. I move on to page 12, that part of the income statement below operating EBITDA. There are no major changes depreciation and amortization compared to previous year. Depreciation for the 2nd quarter amounted to 1,000,000 and amortization to 12 1,000,000. The financial results amounted to a net expense of 1,000,000 from last year's level. In the second quarter, we recorded a tax rate of 28 percent. This is almost 4 percentage points lower than in second quarter of 2017, and it is mainly attributable to the changes in the U. S. Ex regime. So earnings per share are at $0.76, and the encouraging increased by 10% compared to previous year's quarter Digital statement on page 13. In the quarter, we reported an upper writing cash inflow of 1,000,000 compared to 1,000,000 a year ago. This improvement is attributable to the good business development. While working capital is still a factor, mainly due to widening chemical prices, the impact was lower than last year. The bigger improvement can also be seen in the life income tax payment, which is due to the changes in the U. S. Tax regime. All other lines of the operating cash flow are basically unchanged compared to previous year. The further part of the cash flow statement on page, our team, investment and financing cash flow in line with our expectations, CapEx a sum of higher in the second quarter in acquisitions. We spent 1,000,000 that payout mainly relates to Russia in India and Kimi Technica in Portugal. The dividend of 1,000,000 which we paid out in June is the main item in financing cash flow. I go directly to the information on net debt and leverage on Page 15, Net debt amounted to about 1,000,000,000. The leverage of net debt to operating EBITDA stood at two point three times the last quarter. In June, we typically have the highest leverage of the year because of the dividend payment we foresee double reduction towards year end. Paid working capital amounted to around 1 8 yielding euros at the end of the second quarter. So working capital turnover was again at 7.5 times in the second quarter result of improving working capital returns in further course of the year. The free cash flow on Page 17, the 6 quarter 2018 delivered a free cash flow of 1,000,000, an encouraging increase of almost 20%. We already spoke about the different components of the free cash flow, so therefore, I hand it back to Steve for the outlook. Thank you, York. So I'd like to start with the current trading and then address the outlook for the year going forward. I'll talk you through the gross profit for working day. I think we'll probably start in May. The growth was 9.3% of which 6.9% organically, and June, the growth was 8.2% 5.6 percent organically in July at a group of 4.8% and 2.9% on an organic basis. Coming to the outlook. After a good start, you can get to the year Q1 twenty eighteen, positive developments continued into the 2nd quarter. Overall, the global economy is expected to grow in 2018. The forecast for our regions are positive. Unchanged materially, we expect our operating EBITDA to be between 1000000 and 1,000,000 for the full year. And if I half of twenty eighteen, we saw some headwind from a U. S. Dollar euro translation based on current rates and we expect this to be clearly less in the second half of the year. In terms of the M and A, we have a number of transactions undergoing due diligence, which are expected to close during the course of this year. And we're now happy to answer any questions. Ladies and gentlemen we will now begin our question and answer session. You. You. The first question is from Rory McKenzie of UBS. Your line is now open. Please go ahead. I've had 2 on Europe that were maybe first, actually just on those monthly trends you just called out. Obviously, the organic slowed May to June to July. Anything to kind of explain that and just give us some comfort around the trends? And then the two questions on europe, firstly on growth, it does look as we quite well above market, I guess, maybe reflecting some of the payback of the reinvestment you've been doing in the region. So can you talk about any notable business wins, any new outsourcing contracts you've signed, anything you'd call out that's been helping that European growth And then secondly on the margins in Europe, obviously the drop through rates were even better in Q2 after a strong Q1. But I think you'll start to annualize some of your cost savings into HD. So do you think that that pace of margin expansion in Europe will now start to slow? Thank you. Well, just on the sequence, I actually thought you might ask that question. Should subside your own to giving you the number in April as well, if I may. And in terms of the April, the growth rate was speed.8% and 2.7% organic. And as you get these longer months, and I don't want to get drawn into an annual explanation because I think it confused everyone last time. We've never left them longer trading months. So these numbers tend to be smaller. So In fact, to keep you that against April was 3.8% and 2%, 2.8% organic loan on demand in July was 4.82.9. So I don't really see any significant difference in the, in perceived growth rates within the business on margins. Yes, I think, Mauricio, hi. I think you had a question on the phasing of you in savings and impact on conversion ratio. We started implementing the efficiency improvement program in Europe, what the end of Q3 beginning of Q4 last year. So it's not immediate that these impacts will phase out in conversion ratio that would only be towards the end a year, not now, not in Q3. Yes, and in terms of the, aim to keep it between, I think it's probably too detailed and certainly lots of them probably would like to give specific details on with the on the open call, but certainly we are winning business in Europe and particularly in the Air Life Sciences and businesses is doing pretty well, across all the European territory. Okay. And I mean, again, give too much capacity here, but is this kind of expansion within accounts, is it new account wins, or how should we think about the nature of that growth? I would just say it's expansion within new accounts in particular, but also with the new business in new product groups is the, is also a key for us. You'd be aware that we've been working pretty hard and trying to, put up a similar competitive advantage we have in both sourcing. And give you better information and visibility within the group. And I think that's paying off. The next question is from Mutlu Gundogan of ABN AMRO. Your line is now open. Please go ahead. On everyone. A few questions. The first one is on North America. That region added some 10,000,000 of organic growth to EBITDA both in Q1 half. The second question is on the guidance. Now if I take the midpoint of your full year guidance, you get to an increase of some 8% year on year for the second half. If we take out M and A currency, such will be very limited. I think you're guiding for some 4% organic that would mean a slowdown versus the 8% that you did in H1. So just wondering why we should expect such a slowdown. Is that mainly difficult comps or more difficult comps for the second half? Or do you see weakening of demands as we look further? And then thirdly, It's maybe a clarification on the guidance. So you say that the performance will be supported by all regions. Now Latin America However, it's down 11% year to date. So just wondering, do you really believe that you will make up for that in the second half? Those are the questions. We want to quickly come to Latin America. Western America actually does not normally have a stronger performance in the second half of the year. And we're ready to believe that they're in a good position. You'd be aware, maybe aware that there was quite a few devaluation in Argentina during the course of the second quarter. And you may also be aware that Brazil was on strike basically in terms of transport strike in Brazil about 2 weeks during the second quarter. So it's just leading to believe that Latin America will do better in the second half. To the guidance, it's relatively difficult to comment actually, but it's almost slightly a nice thing. I think we have a, I mean, it comes as usual around about the 88889 in 'nineteen. We're basically agreeing with consensus at this stage I'm a bit too detailed to start going into more detail. Okay. And then maybe the question on North America. North America, has now on EBITDA level delivered 2 quarters this year already of double digit growth. At this stage, we don't see a change in trend. To Ollison of Kepler Cheuvreux. Your line is now open. Please go ahead. Yes, thank you. Maybe first on volumes. With regards to North America in the report, you mentioned a slight increase in volumes. I'm not sure what you exactly mean with slides, but considering the growth that we have seen in industrial production, I maybe would have expected them a little bit more than just slight increase. So Could you maybe comment on what you're seeing in terms of volumes in North America? And then in Asia Pacific, growth seems to have been particularly strong this quarter. Are there any geographical or specific end markets that you could highlight where you have seen an acceleration in volume growth. And then I have 2 follow ups, please. Well, just on North America, we must be very careful about volumes because volumes are a little bit misleading, for example, you know, you get, you can get very high volume because it's North America where you make no money and therefore volumes per stay in North America and at the moment there's quite a number of shortages in North America and of the higher volume commodity style industrial products which are not really that interesting in terms of overall profitability. So, that's without my explain why you're seeing deviation. And on the Asia Pacific side? Board based development basically across all countries, across all customer industries. It's not the one topic in Asia, which is growing. It's real broad based. Okay. Then maybe on working capital, the numbers that you show on the Slide 16, we can see there has been somewhat weaker capital turnover as of 5 this year compared to what we saw last year. Any specific explanations for that? And what are you doing to address this? A couple of things which happened, which are, and to some extent, syntactical in Savara's we have seen a number of shortages in the marketplace, which has actually created a rate, manufactured staff that is carrying slightly heavier stocks and some product groups She maintains service. So we have a number of areas where probably stock is higher than we would normally expect at this time of the year. I'm pleased that those will unwind as as the product flows improve, as part of that. I think also the growth of specialty chemicals is really an effect on the business in terms that are much slower turnover in terms of overall velocity through the system. And you'll see that particularly as our Asia Pacific business grows. Okay. And then my final question, related to transport costs. So you mentioned that you have been implementing some surcharges in North America were these sufficient to fully cover for the increase in transport costs in Q2? And to what extent are you planning additional surcharges later this year? Well, it's fair that we do have do have surcharges in place in North America. Unfortunately, we can't apply from every single customer, we want to accept them. So we have some mitigation and transport costs, but not fully. Okay. Thank you. The next question is from Rajesh Kumar of HSBC. Hi, good afternoon gents. 3, if I may. First is, could you give us some color on the difference between various categories, bulk versus specialty organic versus inorganic where are you seeing, growth momentum? Do you think Specialty will come pick up with a lag? That sort of color on where the demand is? 2nd, on the demand side, if you can give us by end customers industry, where you're seeing a pickup in momentum or a slowdown in momentum, any specific ones to call out And finally, you referred to a point about the advantage of being Brent tag as a skilled player. In terms of the cost price, can you explain to us how that cost advantage translates into your ability to pass through cost increases or put surcharge surcharges to customers when you can. Obviously, on-site, I think it's about elements which obviously we benefit from in terms of, we we are leveraging our knowledge across the complete supply chain relative to procurement costs and this is something which the group has improving its own performance and how some particular the last year or so and where we are able to effectively acquire products. Improved purchase prices and which may not necessarily be available to other parties. So I think that's scaling a scale for us. Obviously cost is cost litigation is, matters related to volume in so far as with our infrastructure in our current logistics setup, the more volume it goes through, the logistics, the lower cost per unit in terms of volume cost the cost per unit. And therefore, we we feel that the conversion of that GP through to EBITDA it could occur at a higher rate due to lower cost, lower cost of service. So that's really the sort of scale items we help rent and competitive small players. Understood. Thank you. And on the bulk versus specialty split? Yes. The management of the company is a segmentation of the company is regional. So we the most detail available by region, not by other access, but to give you a sense, we typically say midterm to long term, our experience is that specialties grow 1%, 1.5% stronger than industrials. And there's no deviation from that general observation. When it comes to customer industry, it's Almost all customer industries are currently growing. That's not the one progress, which is extremely poor. Super relevant for the group. It's pretty broad based. So it would be unfair to assume that oil and gas or resources are growing faster than others? I didn't say that. As I said, there's not the one at all customer in the 3, which is dominating the growth for the group. And that also holds true for oil and gas. Oil and gas, it's an above average growing, currently. Principally not the Maraca. We have a follow-up question from of ABN AMRO. Steven, I want to get back to what you said on the working cap question. And you mentioned shortages. Just wondering how does that affect your business? I mean, because the shortage and you have this, you have inventory on a product that is, that is in high demand because of the shortage. Does it also mean that you make higher margins on it? So that's the first question. And maybe you you mentioned a few products that you, where you had that benefit and whether that's continuing into the second half. And then secondly, getting back back to or the effects tax rate, that's 28% in the last two quarters. Is that a sustainable level? To be honest with me, I was thinking more about 30% going forward. And then finally, is on trade wars? I think you probably had this question several times, but how is that and how could that affect your business if it would worsen? Okay. I just want to push out the chemicals. The bottom line is simply better, but if It promises if it products it in short supply, the manufacturers put the price up. Let me go sit down. You know, gathering extra margins, per se ourselves. We are, we are just carrying higher safety stock, if you like, I can call it that, and it doesn't mean to implement any service. Than perhaps we would do on a completely normalized situation. But I don't want to exaggerate this, this, aspects of the lobby. It's it is an element. It is a dynamic in the marketplace, but it's not a dominant feature of our business, but we are going to take out a little bit more stock than we normally do next step, I don't know why. I wouldn't say there's any major margin advantage for us, at this stage. Can I can I maybe follow-up follow-up on that? Because your global, would you have a better insight of when to expect a a a, let's say, either a plan or an unplanned maintenance shutdown? And therefore could it be that you win market share in a certain product? I think we're going to be a bit careful. Being global is one thing, but most of the industrial chemicals are are sold on a regional basis. So let's just again, it was generally out of a lower price, lower price items and and therefore they don't travel so far. So you are talking about local markets. We may rather a global approach to the region where for example, every country in Europe would know what price a product costs across Europe, but I don't think it's relevant to compare from traffic to say Asia Pacific as well as a few products that would actually travel the world to give you a competitive advantage. What we do have though is it's clearly a benchmark reference point across the metro regions in which we can so we can make sure that we're not out of stepping in one particular region So in terms of the trade war thing, I mean, I'm always reluctant to talk about trade war because I'm not sure what's broken out yet. I think as far as products movements, at this stage, if there's a significant movement in any tariffs, which increases prices, our experience so far has been that, tariff increases, tariffs apply to overseas manufacturers results in the domestic produce increase in their prices. So, that's been the experience that we've seen so far. So it really, it's not such feature for us and as you know, we have a solid price pass through model for our business. And therefore whilst it may be some turbulence at this stage, I don't see a pension emphasis in a significant way. But there was, I think, another question on tax rate indicated 30 or a little bit below 30% before. We are now at 28%. It's mainly mix effect. Obviously, currently in North America, has some low global average tax rate. And with the particular strength of our business in North America, that lower than average X-ray in North America has an even more important growth. So short to mid term, the 28% is probably a good number using forward. And other regions like BUWOG start to grow smaller, we might be working back to service. Understood. Understood. Okay. The next question is from Tom Sykes of Deutsche Bank. Your line is now open. Please go ahead. Yes, thanks. Afternoon, everybody. Sorry if this was asked before, you mentioned it before. Just whether you could make any comments on your your SME mix versus some of the larger accounts. Obviously, you referenced being able to pass on prices or surcharges a little bit more to some customers, but would it be fair to say that you've probably been pushing smaller customers a little bit more in that respect, it sounds like. And therefore, if you look at sort of customers thinking particularly in the U. S. Of a similar size. Is the conversion rates that you're seeing in SMEs now comparable to where you were in sort of 7, 8, and is there a benefit to come through that those customers may be going up as a proportion of the mix of the business at the moment? We there isn't a differentiation between SME and module customers. It will take to the so challenging and transport. In fact, if anything, the larger customers are even more aware of the other compression and transport costs. So, if there is, you can like a competent and knowledgeable understanding of what's happening in logistics would be larger customers, which may not always be available to smaller customers. So we I wouldn't differentiate between SMEs and our larger accounts. In any case as far as the transport is concerned and I don't see a change in the ratio all between ourselves and between our larger customers and our smaller customers. It would be, it would be a fact. It would be sad to say that on the longer term, and our expense in the last 2 or 3 years is that we see more global accounts developing the brand tag where there are more and more accounts buying from us on a multi continent basis. So in that respect, we are selling more to the larger accounts Okay. And then just in terms of the U. S. Growth outside of oil and gas, Are there any particular industries that you'd say you'd sort of pick out where you can see there's a proper reinstallation of the client base a lot more investment going in jobs coming back that you feel more comfortable about that breadth or industries in U. S. Industrial at all? I don't think I can really give you a very direct steering is because we have a very broad base for the offering here and broad based customer base. So, I wouldn't say there's any one particular industry that I would highlight as being remarkably strong compared to any other. I think we have a across the board improvement in book value. Okay, fine. Thank you very much. The next question is from Christian Koort of Wabock Research. Your line is now open. Please go ahead. Yes. Good afternoon. Thanks for taking my questions. Maybe first on your interest expense. You arrive. It is, approximately on the previous year's level. However, looking sequentially quarter on quarter, interest expense has gone up. And, I'm, yeah, I wonder why. Maybe you can shed some color on it and maybe, you could you confirm that you have repaid, your high coupon bond and that we should expense as of Q3 onwards? Secondly, with regards to your restructuring in the EMEA region, you guided for 1,000,000 savings on an annualized basis. In Q after Q1, you said the contribution was rather lumpy. Where do you stand now after Q2? And can you maybe also shed some light on the global sourcing initiative? What are the benefits which benefits have you realized in the 1st And Second Quarter? And maybe you can also provide a split among the North American and the European region. And lastly, cash flow, nice operating cash flow performance in Q2, partially making up for the poor performance Q1. Do you expect, especially since you mentioned a higher focus on working capital in H2? Can we expect that you will be able to make up for the shortfall in Q1 that you can make up further, in Q3 and Q4 so that full year operating cash flow will approach level? Thank you very much. But let me touch on that. You start with the interest expand the question. It's always a little challenging to comment sequentially. But the 2 epay that predominantly play a role when thinking interest expenses sequentially Q1 and then Q2 is on the one hand U. S. Dollar a fair share of our interest expenses U. S. Dollar. Sequentially, the U. S. Dollar strengthened. So there is a little bit translation effect, which increases interest expense and also the U. S. Dollar base rate increases, to some extent. And second effect is we closed our acquisition in India. We closed ranch, beginning of May. And so we financed Indian working capital in India on the ground and India is a high interest rate environment. So these are the explanation on the interest expenses. We did indeed in July, we paid the 5.5 percent bond. That was the interest savings from repaying that one as do kick in, starting Q3, which about looking at Thomas to be sure of $5,000,000 a quarter? I think in terms of the savings during the course of the year, we are we completed the whole process for Europe in Q2. We're a little little delay insofar as there's quite a lot reorganization within France, which is just take a bit more time. So I would say that we're still on target to remain the same, enjoy the course of the full course of the year. I would get that at this stage it's about 3 achieving Q on Q2 and but we still committed to that $8,000,000 of total year into the global the global sourcing initiative and we had about 20,000,000 identified within the resourcing. That's on plan. And if obviously spread between the main regions of North America and Europe. I would say it would be fair to say that North America is slightly ahead of the game. In terms of their winning of that particular that income. But I would say that the software and the, the big data analysis that we've done in a bit support, which is now across the whole of North America and Europe and their floor ethics ex, but we fully expect to get a target of $20,000,000 into the full year numbers. Steven, thanks for commenting on the cash flow improvement. We would expect a good cash flow development also in the further course of the year, although it's a little bit difficult to forecast the cash flow because it's heavily impacted by, working capital and that in turn is heavily impacted by chemical prices. It seems that on average, the chemical price increases are slowing down to some extent, and that should have a positive impact on cash flow on a full year basis, we do expect the free cash flow that is better than last year's cash flow from a service perspective. Okay. Thank you very much. Maybe just one follow-up for clarification with regard to the global sourcing and the EMEA restructuring. So you confirm the EUR 8,000,000 and EUR 20,000,000 target. So there will be no spillover effect, running into 2019. That's not the plan we're expecting to deliver that in 2018. And these are also fully anticipated in the full year guidance, the full amount of 8 plus 20 It is. The next question is from Matthew Loyd of HSBC. Your line is now open. Please go ahead. Good morning. I just wonder if you could give us some color on what happened to inventory turn rather than sort of working capital, just how return is, is developing and whether it's different in any particular regions? Yes, let me I need to convince you to look at detail up here. In, the inventory term this year over last year is a little bit lower, not materially so, maybe a quarter of a churn lower or a little more than a quarter of a churn lower. And it predominantly through the effects that you've mentioned about products, scarcity, partly in specialties, and our desire for high service level and therefore bringing additional stock warehouses to ensure strong service level to our customers. Regionally, and this is more about levels, not about trend. But North America does have the highest inventory turn. It's the most then, concentrated business. North Europe has good inventory turns. Latin America and Asia are somewhat slower in inventory turns. That's not unusually an emerging market partly particularly for Latin America because we take the product on in the mature economies that actually ships the product there under your own ownership. And then just one, thank you for that, by the way. And just one sort of quick follow-up. I'm just trying to relate 2 things. If you have to have slightly better inventory, to maintain service level when there's sort of patches of scarcity, which strikes me as entirely commercial. If you get dislocations because of a sort of trade war or tariffs faded here and taken off there. And you get dislocations because of a trade war. Is there a potential that you'd have to carry slightly higher inventory in order to maintain service levels and client relationships. If this turns into something more than a bit of sort of favor rattling and tit for tat? No, I mean, that's a very speculative sort of question really. I think the difficult question was be if there's a dominant local indigenous producer who effectively becomes overloaded by virtue of tariffs being applied on overseas manufacturers, and not able to service local demand. Not the scenario. I wish to, you know, be the new one wants to see and I'm trying to talk in really out of out of control, in which will certainly not be supportive of tariffs in any respect. So I think what we have to make sure that we do keep our we keep a cool head in this. And so far as we are supplying small small customer, not the very large customers here. And I was thinking the real focus for that type of problem would be for some of us consuming very large quantities as opposed to as buying a wide range of products and supplying small loss to multiple customers. So whilst it's mean, which we watch the more the greater threats or the greater risk is to the large consumers, mainly manufacturers rather than distributors. Okay. Thank you very much. The next question is from Carl Green Credit Suisse. Your line is now open. Please go ahead. Thank you very much. I've just got two questions, please. Firstly, in terms of the strong performance in Middle East and Africa, I think you also referenced Eastern Europe as well. Can you indicate what's going on there? Is that you taking market share? Is it the demand environment Is it the benefits of your initiatives that you've mentioned? Just a bit more color there. And also for context, how big Middle East and Africa and East in Europar as a percentage of regional gross profits? And my second question is really just to get an update if possible on digib in terms of the supplier usage and reception to how that's going, please. Sure. I mean, I mean, the European pieces is across the board improvements. I think we've been working pretty hard in Europe in terms of the, both systems and consolidation of best working practices might have you for quite some time. I'm sure you appreciate So I don't think there's any one particular highlight, because you, which would say there's some barriers to the reason for a good performance. It's right across the board and also different product groups and customer industries. I think as far as the concerns. Maybe we can We said Africa just to remind you, we had a series of in Middle East Africa over the years in Tulsa, Africa. In Dubai also in Turkey, which is Middle East and Africa. And our network in these countries now comes together in a very professional way and permits us to deliver strong organic growth in this region. Southwest, Middle East And Africa in what profit is about 5% of Europe costs and Central And Eastern Europe is about 10% of Europe costs. Okay, great. Thank you very much. And just your question on the on digital, Brent Thierconay which is now basically our digital channel is currently being trialed and actually in the cosmetic sector in one of our in one of our countries in terms of proving and it's doing very well. Our digital big data services but North American Europe are performing well. And I've referred to it already in terms of our coaches and visibility. And we'd expect to just sort of roll out into not particularly in certain due to the course of this year. The reality is that no one is particularly ahead in the digital marketplace. The traction for customers outside of China is relatively slow. A lot of people ask some questions. A lot of people are bombarded by requests from manufacturers to come visit our digital warehouse in Europe. To understand how it all goes. And so at this stage, it's still very much in the evolution stage although it's clearly accelerating. Okay, great. And just a follow-up question, if I can. There's reports that one of your biggest competitors in Asia, Connell Brothers is going down the vertical integration route. Is there anything you'd observe there in terms of their rationale for that? Any sort of changes in the market dynamic you think might be forcing that decision? I'm not totally clear when you said you said going over to India explain what you mean exactly by that. That's a necklace to open plants. Like manufacturing? Yes. Well, to be honest, that's pretty much news to me. I've not heard of that's not been a feature in Asia Pacific that I'm that I know of. I think it's, you have to make sure that you keep it in context canal, but there's early on company, it's actually acquired in the United States. It's a family business. They are a strong player in the 8 Asia Pacific, but by no means what I expect them to be regarded as a manufacturer. The next question is a follow-up from Peter Olofsen, Kepler Cheuvreux. Your line is now open. Please go ahead. It's about CapEx. I think in the recent past, you have been guiding for annual CapEx of 1,000,000. Now it seems that for this year, the figure will be closer to 1,000,000. Is that a kind of temporary increase or is this a number that we should also look for for the coming years? Yes. I think you may well recall that we have a couple of measure plant expansions in China, which are scheduled to be the vessels are on our way now in terms of the science that's selecting in what have you. It is a complicated scenario as far as these investments are capitalized. But in reality, there will be a quid pro quo in terms of who are being supported by the authorities in China. And as an opportunity entry in terms of cash in. So going forward, I think we probably maybe $160,000,000 is probably more in the top area that we've indicated has been a likely capital expenditure requirement for for the business in the future. So the 190 is a bit of a one off. There are currently no further questions Okay. Well, anything, no more further questions. Thank you very much. And if everybody could call me in, and we can the call there. Thank you very much indeed. Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect.