Earnings Call: Q2 2019

Jul 19, 2019

All right. Very warm and sunny welcome to Kemira's Second Quarter twenty nineteen Results Presentation. My name is Oleg Trune, and I'm Head of Investor Relations at Kemira. Kemira published strong results again this quarter. And today, now we'll have a deep dive into the numbers presented by our President and CEO, Tari Ruzendal and our CFO, Petrik Krastren. After both presentations, you have a chance to ask questions here in the room and also, of course, over the webcast either by typing through the poll or calling over the phone. Let's begin. Tarek, please go ahead. Tarek, thank you, Olli. Welcome, everyone. Good afternoon. And as the title said, strong earnings improvement continued in Q2. Some key points on top of daily day in, day out operations. So focus on value over volume and active sales price management continued successfully during the quarter. And this price management starting from the turn of the raw material cycle has obviously been the wrong road, but we've been doing systematic work the last four, five quarters on it, and you can see the progress we've achieved. Markets, I would call generally good. We are seeing some softness in some areas of the market compared to earlier really good markets. Now we call it good, but we didn't see that much direct implication to us but some. And our strategic event investment projects, we have continued those obviously and then they are on track. Let's look then the Q2 numbers. Revenue, $664,000,000. Organic growth was flat mostly by our own design by driving the volume over sorry, the value of a volume and then really actively managing our product portfolio on going forward. We continue to see strong year on year organic growth in our oil and gas business. Successful sales price management and the same kind of softening raw materials in some areas helped on some input costs. Operative EBITDA grew to €106,000,000 and the margin was 16% of revenue. Actually, the improvement on our profitability came from all of our regions for both segments. Every unit was able to contribute to the improvement. Also, EBIT grew nicely by 32% and was €60,000,000 EPS €0.22 versus €0.14 last year. Then looking at the segments. Pulp and paper revenue, $373,000,000. Organic growth came down slightly due to many of our own planned actions in product mix optimization. As you might remember, we closed down what we call an FX production last year, and that took down volumes and revenue quite a bit freeing up the peroxide to the market. One thing that Petri will elaborate also more, we trade a lot of caustic soda, so buy in and trade it forward to The Nordics. And as the caustic soda prices have come down significantly from last year, it's mainly a top line effect, not so much bottom line effect. Q2 also in Pulp and Paper is a shutdown season, and shutdowns were slightly longer than last year. This time, we also had some unexpected shutdowns from customers. Still the operative EBITDA margin improved 14.4% and also the objective EBIT in Pulp and Paper grew by 17%, which is nice to see. If I look at the longer term market outlook, customers continue to invest into board machines, into tissue machines. And so that indicates that customers order long term believe in demand growth. A lot of capacity additions also are in planning as we have all heard. Moving on to Industry and Water, a very strong quarter. Solid water treatment market yield continues to reduce water treatment regulation. Oil and gas performance really good. Like I said, 30% year on year organic growth and revenue to €77,000,000 in the quarter. We have and expected to see some moderation of demand in the oil and gas application areas, but that hasn't directly hit us at the fall basically in Q2. Polymer raw material prices have eased us off in North America. Let's see how sustainable that is if we think of longer run. Copper and raw materials are gradually coming up and we expect them also to come up during the second half of the year, but we're in a better position now to meet that challenge. In Q2 and Q3, we are delivering to the oil sands in Canada for the tailings pond treatment campaign during the summer seasons and this will increase our top line, dilute somewhat of the margin, but we will be accretive to our bottom line and delivery weight will be on Q3 during this year. I and W had an exceptionally good quarter with operational EBIT margin of 18.1%. Then moving on to something that I don't talk quite often, but I think it's relevant to also understand. We work hard on on keeping people safe and and our operations safe. We have about 5,000 people working directly from Kemira and about average 100 or thousand people as contractors on our sites and laboratories, sometimes even in our offices. We produce roughly 5,300,000 tons of product to the customers from 64 sites, and we have over 1,000 shipments going out from our sites every day, and you can imagine how many shipments are coming in every day. So a lot of complexity in our operations, and we need to stay safe every day. So with systematic work year to date, our total recordable injury frequency per million working hours is 2.5. Naturally, the target needs to be zero, but we start to reach the industry best class sort of performance impact. We still have work to do in in number of areas, so we need to stay safe every day, every hour, every minute. Why I'm bringing this up is that it has also a link to financial performance. If there is an injury, typically, a line or a full plant is stopped. Obviously, the injured person needs to be taken care of, hopefully, not a bad injury, and then investigations start and so on. So management staff, operators are involved in nonproduction type of things, nonbusiness things. And obviously, that then is away from the business performance. So that's the link that we have to also keep in mind. But people safety, operational safety continues to be on top of our mind every every day and, and, getting people home after two days of work, important and has a business link. Then sort of stepping away from the quarterly focus also and reminding of our longer term strategy focus. We continue to focus on pulp and paper, oil and gas and water treatment. We don't intend to wander away from these areas. There's enough market opportunity in these for us. We aim to be a market leader or among leaders in the market in these segments. On average for Kemera, these markets provide roughly 2% to 3% annual growth opportunity. We see fiber based, renewable, recyclable trend increasing. And in oil and gas, the production is moving more and more to the unconventional side of producing oil and gas, and that's where we are active. Our product portfolio needs to include great products. Therefore, we are working on our product portfolio constantly. We invest roughly €30,000,000 a year into r and d and and application improvements. We are pruning our product portfolio constantly. We have four major product groups that bring 80% of our revenue. That's bleaching, that's coagulants, that's polymers and that's sizing chemistries for board and paper making. And these are the strategic product areas that we also have been and are investing in when we think of increasing capacity. Great and experienced people with deep application knowledge, operational knowledge, and technical capabilities is a key on top of the products and excellent end to end operations. We drive value through carefully planned investments and continuously improving our operations and these will then drive our top line and especially bottom line. Our mid to long term financial targets remain unchanged. So our productivity target in the range of 15% to 17% from revenue and gearing below 75%. Returning back on to a bit more short term and the next six months plus and our key focus is, so active price management. Notice I'm not saying value over volume anymore, but now we start to be there where we want to want to really start to be conscious on what's happening in the marketplace, balancing also our utilization rates. They are high still, but we lose volume for the wrong reasons, especially when prices are right. We continue to work on our product portfolio and our service offering and rightsizing our services so that we don't under serve the customer and the customer is unhappy. But we also don't over serve where we don't get the value and we hurt in our bottom line. We need to right size the offering. We continuously continue to work on our operational excellence. As I explained, operations are quite complex so there are always opportunities to improve. We'll complete the Rotterdam polymer capacity and the MPD sizing capacity in China and get them up and running by the end of the year. They will not contribute to the bottom line or top line too much this year, but we expect to have a full contribution next year. And as there are, again, uncertainties out there, we read the trade wars and so on and so on, it's really important we continue prudent cost control in all areas. That concludes my summary for Q2 situation. Next, I'll ask Patrick to come and give some more details on the numbers, please. All right. Thank you, Yarim. So as you see, profitability improvement continued from strong Q1 and even actually accelerated its pace during Q2. So let's look at some of the drivers that were behind the strong performance. So as Jari mentioned, growth moderated to 3% as the focus was more on value over volume and again some of the softness in the markets that left to about 4% decline in volumes delivered. I would say that we have been very successful with our pricing management. And we've combined that with clearly stabilizing raw material environment, which led to this excellent quarterly results. Perhaps some of the highlights in terms of where the pricing management has been really successful are North American shale. We've both seen the growth on that one, but it also has come at a very good profitability. And then we also have differentiated products. So it certainly helps in the pricing management. Another area where we have done excellent job in terms of the pricing management is the North American water business. That in the past has been quite challenging for us at times. And even now as it is facing higher raw material costs continuously, it has actually been very successful in passing those costs to our customer base. Regarding variable costs, two areas are perhaps worth mentioning. One is the decline in caustic soda that Gary mentioned. And it is a mostly traded product, which means that we are selling at a fixed margin. So really the price of the product does not matter all that much. And then the other area where we have seen declines in the quarter is the cost of electricity. And our cost of electricity is a portfolio of long term hedges. So we hedge up to five years in terms of electricity prices. Also, we source some of the electricity from the from services and boiler and boiler PVO with where we actually get electricity at production costs. And then some of it is is sourced at spot rates. So the mix of that is actually was quite favorable during the quarter. Favorable currency development is something is another factor 20 to €6,000,000 year on year EBITDA improvement. Some of you may remember that we were struggling with the explain the negative currency situation a year ago. First half twenty eighteen was really, really difficult for us or caused negative EBITDA variance. This time, we are pretty much recovering what we saw negative on that line a year ago. And now if I'm sort of looking at what's the remainder for the year, if currencies stay at the roughly current levels, we'll see some much smaller numbers from the currency valuation, perhaps a slight positive though. On the cost side, if one adds up the fixed cost line and the right of use leases, you'll see that the costs are up about 8,000,000 year on year. That's actually for a very good reason because with the good performance, we have actually had the chance or had to increase our some of our incentive accruals. So most of that increase that you see in those combined combined lines is actually coming from the increased incentive accruals due to the good performance. So again, other than that, we have been quite successful in terms of offsetting the inflation by managing our costs. EBITDA improvement adjusted for the IFRS 16 improvement, that comes to EUR 17,600,000.0, and that's sort of apples to apples comparison and over 20% year on year improvement. And finally, repeat my comments here from Q1 relating to the IFRS accounting change, make sure that it's understood correctly. IFRS impact on year on year comparison was about EUR 8,000,000, 8,300,000.0 precisely. And that's in line with the guidance that we gave early in the year, about 1% positive EBITDA impact from the IFRS change, maybe slightly higher now, around 1.2 points. Moving on to the raw material picture. Key points, I think, were already covered from this chart. On the right, the favorable net impact continued and actually even grew in Q2. Perhaps sort of a I know that people will be asking of what do we see in terms of the raw materials going forward. So the declines in electricity costs and caustic soda, those are sort of aberrations. And if one looks at other raw material costs for the rest of the year, we basically see flat to very modestly increase in raw material environment. So the active price management of Gareto Stockton still remains a valid strategy. One area where we have benefited and which obviously has contributed to the industry and water peak result is that the propylene costs have been at low levels in recent months compared to the longer term recent history and has clearly had a positive impact to our polymer product profitability. And oil and gas and Industry and Water has a higher share of commerce compared to the sector segment Pulp and Paper. Cash flow, improved profitability obviously helps cash flow in Q2 and also obviously for the first half. Also remind that in Q1, we received a €15,000,000 excess capital return. That is sort of a one time and is not will not be repeated at least in the near term. Another comment on the seasonality of cash flow. So last year, we generated less than 30% of operating cash flow during the first half, and it is indeed a seasonal pattern that we expect to repeat itself this year caused by some of the seasonality in our business. It is caused by or amplified by the expected capital expenditure rhythm that we have and it's also further amplified by the sort of the networking capital rhythm that we have in the business. That takes me to our CapEx. While the CapEx year to date is roughly at last year's level, We do expect that the CapEx rates will accelerate towards the end of the year. Much of it is actually invested into strategic projects that Yari mentioned. And so that we are expecting to land within our 180,000,000 to $220,000,000 CapEx guidance. Operating return, ROCE or return on capital employed now improved to 10.8%, driven obviously by Industry and Water profit improvement. Comments on debt, IFRS 16 impact on net debt and reported debt is an increase of 135,000,000 The net debt ratio, as we report, has increased to 3.5 turns. And this change and how we report this, it exaggerates the ratio as we take the last three debt level, which is higher because of the IFRS 16 change, but only two quarters with an EBITDA with a positive IFRS 16 impact and then still two quarters with pre IFRS 16 numbers that do not have that. So if one adjusts to that and really takes best way to adjust it is to take pre IFRS 16 numbers, the net leverage would have been 3.2 times, slightly higher than what it was in Q1, but again, clearly lower than what it was this time of last year. And the year on year I'm sorry, increase from March to June is really caused by our dividend payment, which took place in Q2. Well, it was declared in Q1, but it was paid out in Q2. Our year to date operating EBITDA is now ahead of last year by some EUR36 million on a comparable basis, excluding the impact of the IFRS 16 accounting change. So we are quite well on our way to meet our guidance, which is that our projected EBITDA will increase from the prior level on a comparable basis. Still, for the record, we repeat that guidance in our half year report. Finally, I'd like to conclude my slide or my turn with the reminder of the key points in our equity story, why people should and would invest in Kemira. First of all, we are targeting profitable growth, and we're demonstrating that we are actually improving the profitability with this 35% increase in year to date in our EBITDA and even higher 40% increase in EBIT year to date. And further, we have now reached our mid- to long term target of 15% to 17% EBITDA margin both for the quarter and year to date. We do provide an attractive and stable dividend yield to our shareholders. Dividend yield in today's share price is roughly or is still over 4%, which makes it quite attractive in today's low interest environment. Sustainability. Jari talked about one aspect of sustainability, by the way, which is safety. So there are multiple aspects of sustainability. It has always been important to us, but now it has become much more relevant as an investment trend. EcoBody is a highly regarded independent third party and the gold rating that we is the highest rating. And the gold rating that they have given to us is really an indication of our broad sustainability focus. And they actually give that gold rating only to top 5% of the companies that they rate. So indeed, it's a good validation of our sustainability focus. With that, I'll stop my remarks, and Jari and I are ready to take your questions. Thank you. Very good. First, take questions here in the room and then over the webcast. Do we have questions here? Please state your name and something, by the way. One question about the pricing and the delta was €23,000,000 if one compares to a year ago. Would it be possible to think about, like, how much of that is, say, pricing on a like for like basis? And how much would be roughly attributed to the mix and and your efforts to, you know, you know, value overgrowth? Yeah. It is $23,000,000 roughly. Good question. We haven't actually gone that way of analyzing where it comes from. We rather work on where we can gain it. So some of it is just taking prices up to the raw material environment that there is. A lot comes from working on the product mix. So best yielding products to the capacity, working sometimes even with the customer mix. So part of the volume that we have intentionally also lost is walking away from deals that are not worth taking. So there are many components in this equation, and we really haven't bottom up looked at how much comes from where. And that also differs from quarter to quarter. So it really doesn't give that much information as long as that number is there and we can see it come. The other thing is also that a lot of these things have been negotiated months and months ago, but they kick in. So typically, you can negotiate a new contract and a new pricing three, four months before it kicks in. So we also know what has been coming going forward. Same goes on the raw material side. Sometimes we have fixed deliveries there and we know what's coming in from the raw material side. Okay. Maybe another question. You talked about the CapEx projects earlier, but now that the start up is getting closer, would you mind I mean, Thomas, can you sort of give a feel of, say, the top line impact combining just on a very rough basis and the schedule of the startup curve or how long it's going to roughly take for the main parts of the CapEx growth. The special polymer line in Holland in Rotterdam, we start the ramp up somewhere in September or something like that, but it will be ramped up by end of the year. That will not have directly so much of a top line effect, more of a bottom line effect next year because we are already delivering those volumes, but we are pulling them out at higher cost. So we are total manufacturing them with a partner. So we're taking cost down. Then the customers that we are serving, they will have gradual growth of demand. So that's sort of more organic type of growth, not a step change. The AKB Wax site will basically double our AKB capacity and that we then deliver all over the world from China and will be a clear number one player in that. We also will be which is the most important strategic move also is we will be backward integrated to fatty acid chlorination and we'll be self sufficient to our existing capacities and our new capacities. So self sufficiency means that we have security of supply, which has been a struggle. And second, the price point will go to a different price point for us because we're not buying that from outside. We don't give out the numbers and so on, but I can say that both have a nice effect to our numbers above our 15% to 17% EBITDA percentage target rate. And the first question comes from the line of Martin Rudiger from Kepler Cheuvreux. Please go ahead. Your line is now open. Afternoon, Gary, Petrie, Ollie. I would like to ask three questions, if I may. The first questions are for Petrie on financials. In the segment Pulp and Paper, you reported minus 3% organic sales growth in Q2. Do I understand correctly that you enjoyed some price increases of, let's say, plus 3%, but the volume decrease was, let's say, minus 6%, and therefore, clearly more pronounced? The second question is on your statements about raw material prices. Other raw material prices will be flat or modestly increasing, you said. But I did not understand the message on the electricity prices and caustic soda, which declined in Q2. How is your view on these items going forward? And the third question is a strategic question, more for Yari. It relates to Industry and Water segment. Your exposure to Asia Pacific in that segment is rather small, only 2%. Thus, the impact from this 36% collapse in sales in Asia in Q2 is also very small. You say that you focus on profitable customers, which is fine. But what I do not understand, the Asian water treatment market has a huge catch up potential compared to the Western Hemisphere. So theoretically, this could be a huge business opportunity for Plimera. What does you hold back? Is that the tough competition or anything else? Okay. The volume and pricing, I don't think we give by statements, but I'll give you some direction on the minus 3%. Yari talked about the ECOX, which is the sodium bicarbonate business, which we closed in Sweden. That was more than half of that 3%. And then the decline in caustic price, not caustic delivered volumes, that probably explains about one point of negative organic growth. So I would say that if you exclude if you were to exclude those impacts, we would have roughly flat volume growth. That would be on Pulp and Paper explaining the 3%. And EPOXX and and the caustic trading, EPOXX going out was actually a profitability improvement action. Yeah. So so it's well, revenue down, but profits up. I'll continue with the second question as well, your question about caustic and energy. Caustic is a huge commodity that is traded globally, and we're not really a caustic player. So we don't have a view much of a view on caustic. And we can afford not to have the view on it because we really primarily trade that, and we trade that with fixed fee, fixed margin. So whether the cost is $500 or $600 or $700 a tonne, doesn't really impact our profitability. So that's why the caustic we're not the caustic even as caustic volumes are quite high, they're actually more than €100,000,000 euros 100,000,000 of revenues for us. We're not really a caustic we don't have a caustic exposure of all that much. So I really don't offer much of a view on future caustic prices. On energy, energy prices obviously are much more significant to our business because it's a significant cost in sodium chloride manufacturing process. And there, I would say, long term trend in energy is up. I mean, there's no denying about that. So we have the CO2 emissions and the carbon trading rights. So all are pointing out that the long term trend is up. Just on the short term, we saw a decline in energy prices that was bad. So two main contributors to that were hydro balance in Nordics. Now it's sunny because of the springtime. It's been raining quite a bit here in Nordics, but the hydro balance has improved and then actually does impact spot electricity prices in Nordics. And the second is, sort of alluded to that, we actually buy some of our electricity on five year contracts. And if you look at the five year ago, electricity prices, which are now rolling off, they were at the higher level than what we are currently buying. And so the mix of our basket is sort of was quite favorable in Q2. But long term, certainly see that the interest in costs will be going up. And I'll follow a bit on the cost because there's been a sort of a technology shift happening beginning of last year. The average prices on caustic in Europe, sort of market price has been roughly €250 a ton before the shift in early twenty eighteen. EU banned mercury based technology as of 01/01/2018. So not a lot of players invested into the membrane based technology. So we had a sort of a spike going up that caustic went from $4.50 to 700 and above 700. And now it's coming down again. So that's sort of settling off that technology shift. And then that's why I've been talking about this because as Petri said, we trade over €100,000,000 normally. Then if the price goes up 30%, 40%, obviously, the trading revenue goes up. But now it's coming down. So it's nothing to be alarmed about in a sense, but it's good to understand when we do these bridges. About APAC and the water treatment, also there we have been applying value of the volume. So we have discontinued some of our not so profitable or even zero profit contract with our customers unless we get the prices through. We do not manufacture inorganic coagulants in APAC. That's too low entry barrier. So we only focus on the specialties which are polymers. At the moment, we also bring the polymers in mainly from Europe. So we have the time delay on delivery and we have then the additional cost. You might remember that we have a minority on a South Korean polymer JV, and that JV is building a polymer line into South Korea and we'll be off taking all of that capacity. Once that line is up and running in 2021, then we have for the first time also local supply, and then we can start working more on the water opportunities. But we'll be always a niche player and not going to the big mass players in Asia Pacific, but staying on the high end side of things. We supply two of the Shanghai four water treatment plants, for instance, in China with polymers. We've supplied Singapore and these type of things. So that's our main focus and some industrial players. And so it is a growing market, so we'll play along with it, but only specialty because we can't complete our deliveries from here in Europe. Thank you. Thank you. Our next question comes from the line of Ansi Kiviniemi from SEB. It's Ansi from SEB. First question, I have a couple of questions, so I will take them one by one. First question is basically a follow-up on question. You highlighted the ramp up in gently enhanced oil recovery plant in Netherlands and some AKD capacity in China. Could you elaborate a little bit on the cost effect during second half of twenty nineteen? Kind of what kind of increase we should expect in your terms in fixed cost and kind of what will be the effects on EBITDA? That would be really helpful if you could provide that. Okay. Yes. The last one, I'll say, it will be nice and it will be not just 1 or 2,000,000, but bit bit more on the bottom line next year. The cost base actually is in our cost already. So so at the moment, in in China, we have staff there. We are preparing for a start up. We are training the staff. It's actually roughly 250 people that are who run that plan to twenty four seven. So five shifts and and 50 people roughly a shift. So so we are carrying that cost already and not getting any revenue or margin for it. So cost won't go up more, but then we'll start covering that cost when we get it up and running. The same is for Rakuten or or our Bottlek site, but cost is mostly in. There might be some ramp up cost. Few first batches might be that they're off spec and so on and so on, but those are not significant in in in that sense. So so we talk about maybe if there are quality issues with the first batches, we talk about 300,000 or those type of ranges. So we don't move the needle. So the question is really that how fast, how reliably can we get it up and running those both sides. Just may maybe to to sort of clarify and give a bit more detail on the China side. So because the site already can manufacture ATG, although it's chlorination facility is not yet completed. We have decided to start start amortization and depreciation of the assets already. So that that and that is an impact that actually dilutes Pulp and Paper EBIT margin and net EBIT because we take something like EUR 1,000,000 a month, 2,000,000 a quarter of depreciation and amortization on that side, while it's not really delivering any margin. So that is one explanation. And because we have already started it, that will not sort of sometimes, often, you typically start depreciating when the site is in commercial use, we actually technically, it's in commercial use, but it's not delivering yet. So that's why the the depreciation is already in the books. That's clear. Thanks. Then the second question relates to pulp market and perhaps in wider terms pulp and paper division and your demand there. Kind of have you seen an impact on slowing production, especially in the forms of extended maintenance breaks from your customers because we have seen a couple of announcements that directly impacted you. But how do you see your deliveries going forward? Will we see a negative volume development on that side in pulp and paper? And if you would give us something on that, that would be helpful. Yes. So we all read from the media on what the development has on pulp development. If you go to South America and hardwood pulp, those companies that have higher inventories, they're not our customers. So if they are curtailing, as they say they are curtailing production, has no impact on us. So we're looking at the number of customers that we are serving. And in South America, no meaningful things beyond a few shutdowns. So nothing that has really moved the needle. The surprise shutdowns the mechanical problem and so on have been more more of an impact than the shutdowns. But as I said, across the board, our customers have had longer shutdowns this season than last year as last year, they were running pipes hot, red hot, and this year, not so much. But not a big impact yet, so we are obviously following the situation. Okay. Thanks. Then continue with Pulp and Paper. It's a typical seasonality that Q3 is the strongest quarter of the year. Are there any factors why this should not be the case in 2019? Last couple of years, the profitability development has been tail weighted to the second half. And this year, the profile won't be that way so much because of we had last year the currency issues and the raw material swings, which we've then started to catch up and so on. So not as much tail weight. Yes, historically, Q3 has strongest delivery. Let's see how what happens now this Okay. Thanks. Then the last question is about Industry and Water. To what extent the earnings growth has been driven by Oil and Gas, not to which extent by the Water Treatment business that you have. If you could give some kind of split or indication, that would be really helpful. Well, we always, in our quarterly report, give the revenue of oil and gas, and now it was EUR 77,000,000, and that was up organically by 30%. And I believe before, it was up 36%. So you can do the math from there. Our water business is more steady business with low single percentage growth. And now we have also been optimizing value over volume. So we've been giving up also contracts that keep our volume that give us no bottom line. So if we haven't taken, for instance, in polymers, the pricing through, we might have walked away from some of the volume. Quite a bit of that comes from oil and gas. Thank you. Our next question comes from the line of Tanu Laitamaki from Deutsche Bank. Please go ahead. Your line is now open. Thank you. Firstly, I'd like to ask about this margin expansion driven by higher pricing. Q2 was a rare quarter when you had higher pricing but lower variable costs and sounds like you are expecting lower inflation going forward than before. The question is that how did you see this impacting your pricing? Are you seeing that it would get a bit more difficult to increase or keep the pricing, for example, in the oil and gas credit cost given the kind of decline in the propylene price? And overall, how did you kind of can you comment how do you see the margin expansion proceeding in the second half compared to the first half? And maybe finally, on this topic, you mentioned that the profitability in Industrial Motor was exceptional. What you mean by that is does it mean that Q2 was the peak or 2019 overall will be kind of higher than what's achievable longer term? Thanks, Panu. Well, like I said, price management. So we need to be sensitive now what's happening in the marketplace. And when we're talking about the whole basket of products, not so easy But on polymers, of course, price increases, unless we have contracts totally out of date, in general, price increases are pretty much here. And let's see where the raw material goes. So we'll be sensitive about that. As I said, in Coagulants, for instance, there continues to be a pre tap on acids and ferrous and aluminum hydride. So there, we need to continue that. So it really keep is dependent on which product, which market are we talking about. So not a clear answer. Well, exceptional is the best ever. So you could sort of say that, that's exceptional. Then obviously, I've asked to keep it as it's going, but let's see how the market goes. We've guided that both segments need to be in the 15% to 17 Well, I'm not going to ask Antti to drop it to 17%, but let's see how competitive environment goes forward. So we are over the range at the moment. If you want me to elaborate a little bit on the cost side. I tried to sort of talk about the electricity and caustic just for the reason of sort of give you back background to your question, meaning that the 5,000,000 raw material decrease that we saw was primarily caused by these. And those are sort of temporary or not benefiting us. So overall, we see that we still are at flat to modestly growing environment. So the decline on that, Pedro, may well change. It may still be the same next quarter, but it may as well change. But I think the general direction continues to be fairly favorable for the short term. Okay. And secondly, on Pulp and Paper, you mentioned kind of short term demand softness in the market. What do you mean by that? Do you refer to these longer maintenance shutdowns that you saw? Or is this something that you kind of expect to happen? And maybe also on Pulp and Paper, last year, you kind of said that the longer contracts in that business were postponing price hikes, and then you would kind of catch up this year. If you kind of imagine expansion in that division going according to your plans that you had when the year started? Actually, is going pretty much to our plans. Obviously, last year when we started price hikes, the raw materials continued even after the price hikes to increase. So we needed to go for a second round, but we are there. And then the other side is the product mix and optimizing the volumes and what we manufacture and where we deliver On the pulp side, I'd like to also point out that when our customers have shutdowns, we can sell that product and take it. So so sodium chloride travels quite well. And from a number of sites, we we produce dry products. So so if a customer is down, we can we can also think of taking some spot business from Asia or somewhere else because it can be shipped around the world. From our Uruguay site, for instance, shipped to Asia Pacific. We shipped to South America to India. So it doesn't really mean that we are not delivering when someone is having a maintenance shutdown. We take the opportunity to deliver it somewhere else. Thank you. And can I just ask about the comment on the softness demand softness? So were you referring to what you saw in Q2 or kind of what do you expect in the second half? More what we saw in Q2 and mainly through the shutdowns and then maybe more of the market noise. So softness in the market that didn't necessarily hit us. For instance, the huge inventories in the hardwood pulp in South America doesn't hit us in a sense, but it's something that impacts the infrastructure the ecosystem, and that was more of a comment that way. So that's why I said that there was softness in the market. Pulp prices have come down, but it really, really didn't hit us on on our demand. So without giving any numbers, would you expect the organic growth to be better in the second half than the kind of flat excluding the issues that you mentioned seen in Q2? Well, looks so complex, so and on. That's what we're pushing for, but it's a complex thing. But the underlying growth there is still okay. Okay. Thank you. Thank you. Our next question comes from the line of Ben Gorman from UBS. Just a quick two for me. One, we'll be on the dividend. Obviously, a long time since you've seen growth in that. And this year, looking towards, you know, if we annualize things, then closer to some two times coverage. So just wondering at what point you'd be comfortable to see growth in the dividend then. And then in terms of the market in particular, it's sort of related to some of the questions earlier. But what are you seeing from competitors in terms of pricing? Is it particularly tight market and and that's why you're able to have such a big differential versus variable costs at the moment? Or really, we should we just start to see this normalizing as others try to take share in this sort of environment? First one on the dividend, so I don't start to speculate what the Board of Directors will discuss on that. But if you look at our outlook, our payout ratio has been really high by the previous years compared to our net profit. So even if we are improving and would keep it on this level, which I'm not speculating, still we have CapEx ongoing. So maybe that gives you the environment that we talked about 180,000,000 to $220,000,000 CapEx sort of range for this year. So maybe we can get some net debt down even then, but I'm not speculating on the dividend. And then market on the prices and so on. So as I said, we need to look at case by case competitiveness and situation. So it's not a general market situation. But then it's also what your other competitive advantages are for. It's still in the shale side. We do have differentiated products. And so even if we see some general softness in that market, we haven't felt it yet because our products are in nice demand. Okay. Thanks very much. Thank you. Then then there is a question here over the webcast from Andrew Nile. He's asking two questions. Could you please comment on some of the technology and market caps you see in your portfolio that you would like to fill either organically or inorganically? And then the second question is what sort of growth rates are you getting in food and beverage as Ecolab has made very positive commentary about this market recently? Okay. Food and beverage is really not our target market. So we are not present there except through our customers from food and beverage packaging that goes into that market. But that's a bit it's far away from us in the value chain. So no presence in that area, maybe some adjacent spot business, but we don't even know the value going there. We have ongoing R and D projects and joint projects with customers and partners where we are filling some gaps, for instance, in barriers. We're at the moment launching some new carrier products that are non plastic barriers and that sort of thing. We can strengthen ourselves in some areas. It's not that we're present there, but maybe our mix could be higher, for instance. That's why we are investing into these core categories of bleaching, progolants, not so much progolants, but then polymers and sizing. So there we are adding and developing things. Don't see sort of huge gaps at the moment, but some some small ones are always there. That would be nice. Thank you. Okay. There are no further questions. So this concludes the Q2 result presentation. Thank you very much for your participation, and have a very sunny weekend. Thank you. Thank you.