Earnings Call: Q2 2016

Aug 10, 2016

Dear ladies and gentlemen, welcome to the PrensaX HD Results Call for the Q2 2016. At our customers' request, this conference will be recorded. As a reminder, all participants will be in a listen only mode. After the presentation, there will be an opportunity to ask questions. I would like to ask Steve E. Holland now to open the call. Thank you. Welcome, ladies and gentlemen, and thank you very much for dialing in to our review of the Q2 2016 results. As always, I'm on the phone Today with Jorg Muller, our CFO, and we'll be very pleased to answer your questions after the presentation. So let me Begin with some words on the macroeconomic environment. Overall, the global economy remains weak. North America continued to show negative industrial production growth year over year. Also, Latin American Industrial Production was showing negative numbers during the period where we were covering. In contrast, we see moderate growth in the EMEA region, Whilst Asia Pacific is clearly the region which is performing the rest of the regions we cover, in Q2, our saw very strong organic growth in Europe and Asia Pacific. Additionally, the gas acquisitions contributed to the earnings growth at the same time. We faced headwinds in North America due to the sustained wins in the oil and gas industry as well as a difficult macroeconomic economy overall. As expected, the results in Latin America were heavily affected by the loss of earnings in Venezuela. Overall, we managed to increase our gross profit and operating EBITDA For the group on a constant FX basis, gross profit grew by 6.3% and EBITDA grew by 3.3%, respectively. The earnings per share in the Q2 amounted to €0.66 slightly below last year's Q2. I might just now address acquisitions. In Q2 of 2016, we signed the Warranchem acquisition. The company is a distributor of specialty chemicals in South Africa, and perfectly complements our existing product portfolio. With this acquisition, we further expand our local presence in South Africa, where we've executed a number of transactions over recent years. In addition, we purchased as planned the remaining shares of our Chinese business, Zhongjiang. We acquired the first tranche of 51% in 2011. Telecom performed very well since then. Zhongyang provides an excellent basis for strong future growth and is a perfect platform for further acquisitions The fastest spending Chinese tech chemical distribution market. The total investment amount in 2016 now stands at €130,000,000 The average multiple of acquisitions signed in 2016 is around 6.2x enterprise volume to EBITDA. Can I pass across the queue? Good afternoon, everybody. I'll walk you through the income statement for the group, and I'll Start on this slide with the upper part of our income statement. We reported gross profit for the quarter of €603,600,000 This represents a growth of 6.3% on an FX adjusted basis. We acquired quite heavily last And the growth is driven by acquisitions. Operating EBITDA amounted to €215,800,000 And was about on previous year's level on an as reported basis. On constant FX basis, operating EBITDA exceeded prior year By 3.3%. I will provide more details on the EBITDA development on the following slide, And I'm moving to Page 7. The financials in this year are impacted by a number of specific challenges like in Q1. I would like to provide you with an update on the different effects to allow for a more meaningful analysis. The bridge on the page shows the development of operating EBITDA for the group from Q2 'fifteen to Q2 'sixteen. The starting point is the Q2 'fifteen where we recorded an operating EBITDA of €215,000,000 Partly due to the weakening of the pound sterling and also the weakening of a number of other currencies, We had a negative FX translation effect amounting to around €6,000,000 As expected, as discussed at length already, our operations in Venezuela are no longer contributing meaningful EBITDA. 2nd quarter last year, operating EBITDA from Venezuela amounted to €3,000,000 The acquisitions contributed an operating EBITDA of about €14,000,000 in the Q2 this year. As expected, the demand in the oil and gas sector was lower in the Q2 'fifteen lower than in the Q2 'fifteen Based on a gross profit that was lower by €9,000,000 we estimate that this resulted in an EBITDA decline of around €6,000,000 Our business in North America outside the oil and gas sector continues to be impacted by the economic slowdown With the declining industrial production. While our diversification helped to mitigate headwinds, We do record an EBITDA decline of about €6,000,000 Our businesses in Europe and Asia Pacific have seen Encouraging gross profit growth in the 2nd quarter. In both regions, that was translated into an even higher EBITDA growth. All in all, this resulted in an EBITDA that is higher by about €7,000,000 or 7% on an organic basis. It is clearly a stronger growth than what we recorded in the Q1. All the effects combined resulted in an EBITDA of 2 €16,000,000 for the Q2 2016. With respect to the 2nd half, the lower half of the income statement, the lines below EBITDA. Depreciation for the 2nd quarter amounted to €28,400,000 and amortization to €12,000,000 The financial result amounted to a net expense of €19,400,000 We recorded a tax rate of 34.5%, which is in the range of 34% to 35% we typically indicate. Earnings per share is at €0.66 or €0.71 excluding the amortization. I'm moving on to the cash flow page cash flow statement on Page 9. In Q2, the operating cash flow amounted to €115,000,000 after €106,600,000 in Q2 20 The respective line items do not contain any significant movements compared to last year, and I would therefore like to move directly To see further parts of the cash flow statement on the next page. This is about investment and financing cash flow. Cash out for CapEx in the quarter totaled €25,000,000 Purchases of consolidated subsidiaries mainly reflect The payment for the acquisition in Morne, which we signed earlier this year and which we closed and therefore paid in the Q2 of 2016. We've quite some movements in the financing cash flow. The line purchases of companies already consolidated into financing cash flow We present a payment for the remaining shares in Seong Joon. In June, we also paid the dividend of €154,500,000 our shareholders, and that is obviously a higher dividend than the dividend we paid a year ago. The line repayment and proceeds is lower than last year as we repaid our securitization program in the Q2 of 2015. I would skip the balance sheet page and move on to the leverage Page 12. On the page, you see the information on net debt and leverage. Net debt amounted to 1,000,000,000 €767,000,000 at the end of the second quarter. The increase compared to the end of the first quarter is mainly attributable to the payment of the dividend in the amount of €154,500,000 The group's leverage stands at 2.2x and the increase compared to Q1 is once again attributable to the dividend payment. I'll move directly to the working capital Page 14. Trade working capital amounted to 1,003,000,003 €26,000,000 at the end of the second quarter. On a year to date basis, we turned to working capital 8.1x, which is about the same level we achieved at the end of the first quarter. Q2 2016 delivered a free cash flow of €164,700,000 It's about on the very strong level we achieved in All elements of the free cash flow, EBITDA, CapEx, change in working capital are pretty similar to the levels recorded in previous year. I'll hand it back to Steve for a discussion of the segments. Thanks, Georg. Now let me take you through the developments of the segments for the Q2. We're very pleased with the performance in the region of Europe, Middle East and Africa. Operating gross profit increased by 8.3%. EBITDA grew strongly by 11.2%, both on an FX adjusted basis. More than 3 quarters of this growth is organic growth with the rest from small acquisitions executed. We are particularly pleased to see the increased operating leverage, excluded the gross profit growth in the region. The business in North America was again heavily impacted by ongoing weak demand in the oil and gas sector and a challenging economic environment which continues below 2015 levels. On the other hand, the acquisitions from 2015 contributed positively and help to limit the adverse effects. Gross profit in North America increased by 3.5% on an FX adjusted basis. Was clearly driven by the contribution from acquisitions. The operating EBITDA in North America decreased by 3.1%. Reduction of the gross profit in the oil and gas sector could not fully be compensated by cost reductions. As you will know, we have taken measures reduced capacity in the oil and gas businesses beginning of 2015 and reduced cat count by more than 15% in this sector. The growth rates in North America region are to be seen in the context of a strong Q2 2015. The sequential trends do not indicate a further weakening of the balance for our business. We are monitoring the situation closely And when we would initiate countermeasures where appropriate. Coming to Latin America, as you can see the slide the effect On the slide, the effect from Venezuela is significant for our business in Latin America. However, excluding Venezuela, We reported an increased gross profit of 1.4 percent, but the operating EBITDA declined slightly by 2.6%. Coming to Asia Pacific. Asia Pacific had a very strong increase in earnings in the Q2 due to both a strong double digit growth in the existing business And a pleasing performance from our acquisition TNT. The region grew its gross profit by 31.2% This operating EBITDA by 33.1 percent, both on an FX adjusted basis, which results in a strong quarter for Asia Pacific. I'll just come to the next chart, which gives an update on North America, slightly gross profit and industrial production. You can see the oil and gas gross profit in Q2 amounted to US55 $1,000,000 which is slightly above the level in Q1 But a US10 $1,000,000 shortfall on prior year. At year to date, we're down anticipated GP turns by about US26 $1,000,000 in oil and gas Our North American business so far. On the chart on the right, you'll see the industrial production in North America remains weak and is clearly a negative growth rate For the 3rd consecutive quarter. Hi, Matt. I can see outlook. I'd like to start with the current trading and provide you with the outlook for full year 2016. And we will walk you through the gross profit per working day Growth on a monthly basis. Please mind just to calibrate these numbers, the weakness in oil and gas has a negative impact of around 3% of the gross profit generated by the group in the first half of twenty sixteen. In April, gross profit per day increased by 4% and decreased by 1.9% on an organic basis. In May, the growth was 2.5% as reported and And a minus 3.3 percent decrease organically. In June, the growth was 4.9% A slight decline of 1.3% on an organic basis. In July, the growth was 7.2% And a positive 0.8 percent on an organic basis. As for our experience last year, The Q3 is a difficult quarter to estimate. And as the global economic environment is clearly more volatile, we have extended our guidance range. On a full year basis, we expect our operating EBITDA in 2016 to be between €800,000,000 €840,000,000 The guidance is based on the trends that we observed in the first half of twenty sixteen. We clearly recognize this is a more cautious approach. We fully expect to narrow the guidance after Q3. I think we're now ready to take your questions. The first question is from Josh Puddle of Berenberg. Please go ahead. Yes. Hi, good afternoon. So my first question is on the U. S. Business. You've seen a deterioration in the second quarter With gross profit excluding the acquisitions and excluding oil and gas down around 4%, that's Actually slightly worse than industrial production, which you showed down 1.2%. I just wondered why do you think you are underperforming Industrial production, presumably it suggests you're either losing share or perhaps it's a sign that producers are In sourcing. And then my second question is on the margins in the EMEA region. So an encouraging performance in the 2nd quarter, up 80 basis points. But if I look on a half year basis, you're still down. And I'm aware that there is volatility quarter on quarter. But I just wondered on a full year basis, if you assume that the gross profit momentum continues, what source of operating leverage would you be expecting? Just in terms of North America, I appreciate what you're saying as far as the overall North American numbers are a little weaker Sequentially, we're not concerned at this stage at all. Clearly, the macroeconomic The situation is relatively weak in North America, but we've taken steps and our position is to address that weakness. We certainly don't believe that we're losing market share. And that is probably more a reflection of the current mix that we have in North America in terms of which production Pushing the issue you're targeting in terms of markets. So for example, in terms of car sector, we don't have a great presence in the car sectors. So maybe some of the distributors thought that would affect us in some way. So I think it's a small variation, but I wouldn't see it as significant. Josh, hi. It's Georg. On the conversion ratios for Europe, yes, you are right. We were in conversion ratio terms We would also expect for the subsequent quarters, so the Q3 and Q4, that the conversion ratio this year in Europe We'll exceed previous year's conversion ratio. On a full year basis, we still have the Q1 drag to cover this. So on a full year basis, difficult to estimate, but maybe 50 basis points up against previous year. Okay. Thanks very much. Just Follow-up on the U. S. Question. Does that mean that you're not seeing any signs of insourcing from the producers? No. In actual fact, I would say that it will be the reverse situation because as we see a number of manufacturers As you are clearly somewhat challenged in some of their own customer base, they're seeking to reduce operating costs. And we see A strong pull towards outsourcing smaller customers, less strategic customers towards the distribution sector. So no, I think it's more of an opportunity than a threat in that respect. Okay. Thank you very much. The next question is from Rob Glend of JPMorgan. Please go ahead. Good morning, Stephen. Good morning, Stephen. Going back to the U. S, Just two extra points here. First of all, with oil and gas, it looks as though it may have blossomed for you In Q2, which is what you were saying was probably going to happen in Q1, do you feel that is a sustainable trend? And secondly, Steve, you sounded quite bearish on the non oil and gas North American outlook. Q1, you were talking about General signs indicating recession. Do you feel a bit better about North America outside of oil and gas today? First, in terms of the outlook on oil and gas, the performance of oil and gas, I feel I may shot myself in the foot about I think maybe in the Q1 or something, saying that I think oil and gas had stopped declining. And I think the sequential numbers, as I recall now, are certainly like 65, 61, 50, 54, 55 into the quarters. So it would suggest that certainly the mix Of our customer portfolio and the services that you provide would appear to be relatively stable. So I'm not wishing to cut my Chickens before they hatch, but it would seem that we have a degree of facility in the oil and gas business. And we've also had the obviously a fair range of oil prices In the context of those numbers, we do see an increase in some parts of our business such as cleaning Pipeline cleaning and what have you as some of the units come off of production. So there are other services we are providing, which I think Mr. Simba, weakness in oil and gas. As far as the North American economy overall is concerned, I think it's been a bit of a strange Environment for now for nearly 12 months or so in terms of underlying industrial production. I think if you look at the graph, you can see that there is a Slight uptick in terms of sequentially. Industrial production is down, but not quite as far down as it was in the previous quarters. And again, I it's maybe a little pinch and salt, but the PMI index is looking a little bit more confident. So Sequentially, with a little bit of maybe some more confidence of the purchase management index, it would seem that the North American Economy seems to be bottomed out and maybe at a point where we might see some stability or return to some modest growth. But I wouldn't say more than that. Okay. Thanks, Steve. The next question is from Andy Chu of Deutsche Bank. Please go ahead. Good afternoon. A few questions for me, please. Just in terms of that July organic exit rate of 0.8%, Should we still adjust 3% for oil and gas? That's my first question. Secondly, on M and A, I think the guidance or some indications were for M and A to add €60,000,000 to this year. You've delivered €27,000,000 at the half year. I don't think there's a lot of sort of change for the second half in terms of Acquisition contribution from companies falling in and out. So is that still the correct Expectation, please, for €60,000,000 of M and A contribution at the EBITDA level. And then the last question is just looking at The business for the first half and giving you the benefit of the doubts of basically stripping out oil and gas and Venezuela, The business has basically been flat in terms of EBITDA growth. So how does that square, please, with your Sort of 2 to 3 year guidance of 4% to 6% organic growth at the EBITDA level. And is that achievable? And if so, how is that achievable with the current run rates of growth, please? Thank you. Andy, hi, it's Georg. Let me start maybe with the oil and gas impact On the gross profit per working day, so the oil and gas impact is 3% year to date, year to date June. The effect will somewhat wash out in course of the year because we had a decline in the oil and gas business Second half of last year. So the July impact was about 2 percentage points, a little bit less than 2 percentage points on the oil and gas. M and A on a full year basis, I would still include €60,000,000 maybe marginally less €60,000,000 To be fair, one of the Loop's acquisitions in North America is a little bit lacking behind plan. So that we Keep up the 60% number basically comes from the acquisitions which we have undertaken early this year. Yes. And I think thank you. And as far as the longer term prospects are concerned, I think maybe not wishing to make a I'm out of one course, but I think the European performance this quarter is a good example of where when things are going as they showed that we can deliver The 6% plus performance on a quarterly basis. I think it's also fair to say that the economic environment At the moment, it's in positive numbers. It's not exactly stellar. So once we get A little bit of it. A plot turnaround in North America can be in our way and a continued performance in both Asia Pacific and Europe. I have expectation the group can deliver the 4% to 6% that we've indicated. Could I just follow-up on Just on the M and A, is that I mean, are there any other sort of material acquisitions apart from the U. S. Ones as a TAT? So is the outperformance coming from TAT? T or is it coming across the board? And my final question is just in terms of CapEx. Why is that CapEx number continuing to sort of creep up, please? I think you're now forecasting €150,000,000 versus €100 and €30,000,000 And where is that CapEx going to, please? Thank you. Yes. I mean, the acquisitions all of the acquisitions with exception on the LoopPark At or even above plan, PAT is particularly high above plan. Just in terms of CapEx, you're quite right, Andy. We have the number of CapEx has moved up a little bit. But clearly, as the business Growth will require more companies. They do come with some capital expenditure requirements themselves. We have Perhaps a little bit in terms of out of step with norms. We have actually refurbished a number of facilities in North America over the last 2 or 3 years actually, which have been significant upgrades. And those are pretty much coming to completion now. So I think we're probably looking at 2017 without trying to Too much, but say 2017 would look to be a similar level to 2016 in terms of capital expenditure budgeting for the group. Thanks very much. Welcome back to Deutsche Bank, by the way. Thank you. The next question is from William Mackenzie of UBS. Please go ahead. Yes, morning, all. Rory Mackenzie here, still UBS, Rory, so two questions on Europe, please, and then one on LatAm. So firstly, on Europe, as you said, the good growth is good there. It's clear the momentum keeps building. Can you pick out countries in particular or products areas that keep driving growth? I think before you referenced Some kind of good specialty growth portfolio. And then secondly, on the margin side, so following up on Josh's question on the leverage. It looks like the kind of constant currency drop through rate has returned to 50%, and that's kind of where you are In the past. So what was it about the cost base that really dragged that down in Q1? And why does it bounce back So quickly, so a bit more about how you control the cost base in Europe. Let's just do those 2 first, please. I think you're very astute in terms of the increased cost base in Q1 in Europe. In fact, Q1 was an interesting one because there was probably quite a number of one off items in Q1, which we don't for the purpose This call, our general shareholder communication split everything else, but there was a number of expenses like double cost Leasing of certain offices and new care, some closures, all sorts of things which occurred in the Q1, Particularly in Europe, which are not repeating in the Q2. And you can see sequentially the European cost base improving accordingly. And we have no plans and nothing under that horizon that suggests that our cost base is going to be adversely affected for the rest of the year. What was the other question, wasn't it? Just on the growth drivers in Europe and the areas in particular that are going better. Well, I think what is In Europe, it's clear to us that we actually have an organization that's flying in full motion, to be honest. It's taken quite a while to do it. But Brenntag In Europe, and one Brent in Europe is a theme we've had for quite some time. We do now have a very coordinated approach across Europe. I see far more levels of convergence in terms of operating practice, operating standards, Quality of operations on the cost base and the performance in terms of pricing. We are particularly pleased with the improvement in the southern parts of Europe. Italy looks stronger. Spain is stable. But we've seen a better performance from even Germany, for example, which is performing Ahead of where it was in previous years. So I think it's actually small round improvements in the European performance. So then when you look at that In a 1 Europe, 1 Brenttec Europe working well, is that all that being catching up with the U. S. Structure? Or do you think the U. S. Structure It needs to be improved as well given that you're maybe underperforming a bit, dynamics aside, but there still seems to be the sense that you need to push a bit harder on the U. S. Business at the moment. Well, I'm pretty sure that I thought that one of your colleagues listening to this phone call, so I'm not even very careful about what I say here. I would say that on balance The Europeans are slightly ahead of North America in terms of overall coordination. And in our North American business, we still have some by terms of geography, we have some very large regions. And so I think there's some best practice which is going to be shared or is being shared, is being shared between North America And Europe. And I'm sure that both sides of Atlantic will benefit as a result. Okay, great. And then just one quick one, if I can, on LatAm. Obviously, ex Venezuela, it looks like organic growth slowed in Q2 versus Q1. Is that just I mean, What's the outlook for that region? I know it's very volatile, but what's your current thinking? Well, I think we've just been a little bit careful as far as Latin America is concerned because frankly, I only have a very clear sign on what's going on to Brazil. Everyone knows the problems in Brazil and clearly the issues Around the country and the current recession in the country. I frankly have no idea what the effects will happen from the Olympics The next 2, 3 months, it may be positive, it may not be positive. So I think my there's a little question mark in my own mind as to what the Overall effect, Latin America Brazil will present at the end of the Q3 is and I think it's a little bit difficult to call that one. Sure. Okay. Thank you very much. The next question is from Mila Bank of Goldman Sachs. Please go ahead. Hi, good afternoon, gentlemen. A question from Matt and as a follow-up from an earlier asked question. On North America, you said that you've taken To address the weakness, what particularly have you done? Is it on the cost side? Is it on the sales side? And then also, it wasn't entirely clear to me if do you think that Most of the underperformance versus the broader macro is due to the mix effect. So I'm speaking about, obviously, North America ex oil and gas. Or is there anything else? Yes. Thanks. In terms of operating costs in North America outside of oil and gas, we have taken steps to reduce our operating costs in North America. And we see the effect of the cost per warehouse ton delivered coming down nicely over the last 2 or 3 months. And also we have sequentially we see gross profit per working day in North America improving sequentially. So the cost base is coming down and the GP is starting to head in the right direction sequentially. So we are in a much better position. I think in terms of the underperformance relative to industrial the Industrial Production Index, I think it is a A mix issue. I don't believe that we have any one part of our business that is losing market share significantly to competition In a marked way. And I think one of the other issues, which I think perhaps maybe we underestimated and maybe even other companies about underestimated. It's the ripple effect from oil and gas into other industries. And clearly, oil and gas been on the front edge of the curve for quite some time now. And we think we see the end of that. And therefore, the more positive Look, for North America, it's probably around the corner. Okay. Understood. So small follow-up. On the July exit You said that you've seen sequential improvement in North America. So that July exit rate is predominantly caused by North America or other regions picking up as well? I think it's too difficult to call it in a month, to be honest. Okay. And I think July versus a 2 extra day a month compared to previous year, It's just too difficult to give us some to this stage. Understood. Thank you. The next The question is from Mutlu Gundogan of ABN AMRO. I have 4. The first is on competition. Your biggest competitor has been restructuring their European activities, and they indicate that they also might be restructuring their U. S. So my question is, in what way has that already impacted your European business? I see that your volume numbers are very strong. And also how does that influence your strategic thinking or your actions that you will be taking in the U. S? It will be helpful if you would share your thoughts on that. Then secondly, on Oil and Gas North America. I remember that you gave the split of midstream being 60% of the business and then Upstream, downstream around 20% each. Could you update us where we stand today, especially given the declines in midstream that you talk about? The third question is on the recent acquisition that you did in the U. S. In the press release, you talk about competitive pressure in the marine fuel business. I was wondering if you could provide some color related to that. And then finally, on the dividends, I note that the net income is down year on year in the first half. Your guidance seems to indicate a flat earnings in the second half. So just wondering what you're thinking about the dividend since most likely net income will be down for the year. Thank you. Right. Okay. We'll try and pick up all those. In terms of yes, I'm clear I'm pretty sure I know who you're talking about in terms of Europe. I tend not to comment on other companies in terms of their strategy and development of their strategy. I think what is clear to us is that In Europe, we have a very well developed network, which we continue to optimize In terms of overall efficiency and what have you. And at this stage, we don't envision any site closures, Which perhaps is something we've seen from other competitors. And therefore, we still regard this as very much a local business and therefore Cyclo should Not an Argento as far as our European business is concerned at this stage. As far as the Marine Field business is concerned, Yes, and there is we have one acquisition which we made last year, which does have an element of marine fuel in it. And marine fuel really is down As a result of the straightforward competitive pressure within the oil and gas sector, when a number of assets have been redeployed into the marine fuel market from Which were ex oil and gas. So I think it's just an increased level of competition. I think this is a transition stage, and we certainly see That has been something we would cover in the medium term. As far as upstream, downstream Yes. The current split On upstream, midstream, downstream is around 10, 75, 15. So 10% upstream, 75% midstream, 15% downstream. So you see that upstream has reduced. The upstream part has reduced As expected on these oil prices, significantly in course of the last one, one and a half years. With respect to dividend, Very early, too early to comment on a firm dividend expectation for this year. Let's wait how the year goes and what The earnings per share at the end of the year ultimately are. I would make the very general comment that dividend reductions, dividend cuts are Relatively rare in the German publicly listed equity market. So it's difficult to foresee that we would go down that route. Can I just follow-up with 2 questions? I mean, first on the competition, has your market share increased in Europe? Is that something that you Can confirm. And then the second question on the dividends. I mean, the range is clearly 30% to 45 And as you indicate, it's rather rare that this will happen at the dividend cut. Would you be willing to go above the 45% payout? I'll just come on to market share. I mean, we are striving continuously to develop new products and services throughout our company. And it is a continuous endeavor. And I would say that an improving performance in Europe Ahead of the economic performance in the region generally, which suggests that we are being successful in increasing our market share, Perhaps in products and services which are in addition to our existing portfolio, and that is very much part of our strategy and indeed Stas Gjibar, customers and our suppliers. Yes, Georg again. On the dividend, if I remember correctly, I would have to go back to my files, but if I remember correctly, Given this year, we dividended out 42% of net income. So the stated range of 30% to 45% still would leave some room To increase the payout ratio without opening up the question of an extended or broadened payout range. Again, I'm sorry that I can't be more precise at this stage. Let's wait how the year goes. I seems hard to me to envision a dividend cut. Okay. Thank you very much for the answers. The next question is from Joe Spunstein of Merrill Lynch. Please go ahead. Yes. Good afternoon, gents. I've just got 2. The first question, Georg, I think on the Q1 call, you mentioned that there was some work, I think, in North America that had maybe been deferred out Of Q1 that fell into Q2. I was just wondering whether or not you felt that had any meaningful impact on the performance Of the business, I mean, obviously, I know it's at a very low level. But was there any sort of one off elements of the performance in North America that we should be aware of as a result of that? And my second question is a more general question about the North America conversion margin. If you go back, obviously, a few years ago, it was comfortably above 40%. And I know there was a lot of speculation at the time of the IPO about whether or not that margin was sustainable. And obviously, it's come down quite a bit And then I guess as you look at it now, was there a reason that you were over earning in the North American business sort of back in 20 Yes, 10% through sort of 12%, 13% or is it still plausible that the North American margin over the medium term We are acquiring businesses in North America. We don't necessarily buy every business we buy is converting at the same levels Of our core business in North America. And if I were to look at our North American business today, I would say our core business outside of acquisitions has been delivering numbers of around about the 40% conversion ratio Today, these are somewhat diluted by lower conversion ratios on some of the businesses that we've acquired. That doesn't mean that the business that we acquired are performing more poorly. It's just a question that the business model in that particular business It's different to the historical performance of our North American business overall. So I would watch the space on this one. It's certainly Not our intention to see that the North American conversion ratio decrease on a long term basis. And indeed, the overall Distribution business is starting to push those numbers up to the 40% mark already. On the Joel Bjorg, on the cost base, North America, not sure we may have a misunderstanding. The We try to stay away from the exercise to classify each and every type of expense as restructuring or nonrecurring. So You rarely hear us talking about 1 offs and if so, only for very significant items. No, no, just I didn't mean with regards to 1 I just seem to remember that you made a reference to maybe some work, some customer orders or work that maybe had You'd expect it to fall into Q1 that had been deferred. I'm making this really I know what this is. I know what this I think this may have been the was it oil and gas with the pipeline being it? Yes, I know. Yes, that's right. Yes. We actually I think I'm not sure this is Georg or myself, but we did in terms of the oil and gas performance, There was a number of contracts which include pipeline cleaning within our oil and gas business that We're fully expected to be delivered in Q1, which were delayed by virtue of the plants concerned, just didn't close down. So that rolled into Q2. And in fact, to be fair, I would say that that's been a feature of this year for our pipeline cleaning business It's that many of the customers are rolling their requirements as far forward as they possibly can and indeed Probably reducing the amount of cleaning where they possibly can do and to keep costs as low as possible. So that's where I think probably the comment came, But we are picking those orders up nevertheless. Okay. So it's not had a material sort of benefit? No. Okay. Thank you. The next question is a follow-up of Andy Chu from Deutsche Bank. Please go ahead. Sorry, just a couple more for me. Just in terms of the M and A pipeline, obviously, you've Exercised your option over Zhongjiang, which I guess is a big chunk of the M and A spend so far this year. So you haven't really done that Much in absolute terms, I think, well under €100,000,000 So could you just lay out what the pipeline looks like for M and A? And then secondly, without trying to be too micro, but in terms of the July number and your comments on oil and gas impact, does That basically imply the number you gave us for oil and gas that actually that just confirms that the run rate of $50 odd million of $50,000,000 of gross profit has sort of continued into July, if I could if you could confirm. It's a little bit micro, Andy. Yes. But we should Yes. On the track July is on the track of the To the €54,000,000 €55,000,000 quarterly oil and gas unit. Which part of the micro management did I misunderstand? In terms of acquisitions, we fully expect to deliver euros €200,000,000 to €250,000,000 of acquisitions, which is in addition to the Zhongjiang acquisition of the 50% of the shareholding. So we have enterprises and negotiations in a way which would fulfill our normal quota Plus the Zhongyang, Akka shares. And Steve, do you think that's going to be sort of a Fairly large one on the back of JN and Berlin Windward? Or do you think it's going to be comprised of smaller and medium sized acquisitions? What are the parts of the business? Yes. You said It's not likely to be large acquisitions as we made last year in terms of 1 or 2. There are 3 or 4 acquisitions which Could come to the table in terms of completion before the end of the year. Great. Thanks so much. Okay. Okay. I think that's no more further questions. So ladies and gentlemen, thank you very much indeed for joining our call, and we'll finish the call there. Thank you very much. Bye bye now. Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect now.