Earnings Call: H1 2020

Aug 24, 2020

Morning, everyone, and welcome to Bantou's 2020 Half Year Results Presentation. In these very unusual circumstances, I'm glad that we have been able to connect virtually to discuss Panzo's performance over the first half of the year. After a short introduction from me, Richard Huys will present the financial results. I will then review our operations in more detail before providing some further insight into how the group has successfully navigated this challenging period. Firstly, I want to start by saying how proud I am of all our colleagues in the Bonzo family. The teams have worked tirelessly over the last few months. They have been on the front line during the pandemic, supplying essential products to key workers and ensuring crucial businesses could continue to operate. In order to support customers throughout this period, our distribution centers have remained open and our sourcing teams have gone above and beyond to source quality products despite the challenges that the pandemic has presented. I want to thank each Panzo colleague around the world for their outstanding effort. Before we go to the first half performance, let me reiterate that the safety and well-being of people, including our colleagues, customers and suppliers are and remain priorities for us. Whilst operating through the pandemic, we have taken all appropriate measures you would expect to keep our colleagues safe. Together in this very challenging context, our businesses have delivered a very strong set of results. As we've said in the past, there is a real resilience to the bundled business model and diversification is a key component of this. Over the period, significant weakness in the foodservice and retail sectors was more than offset by strong growth elsewhere. Another driver of our strong performance has been our position as a reliable and robust supply chain partner. Through the last few months, Bansal has demonstrated its entrepreneurial flair, resilience and focus on customer service. Our capabilities in sourcing have enabled us to deliver quickly large quantities of quality assured and in demand COVID-nineteen related products. Given the essential products that we source, we have been designated a critical supplier. As a result, we have seen adjusted operating profit grow 13% at constant exchange rates with operating margin supported by the greater level of sales in higher margin sectors and through the penetration of home brand products. Our balance sheet remains robust with strong cash generation resulting in net debt to EBITDA of 1.6 times, down from 1.9 times at the year end. Pleasingly, this overall performance has allowed us to announce both the 2020 interim dividend of €15.8 but also an additional interim dividend of €35.8 This additional dividend is equivalent to the 2019 final dividend, which we prudently decided to withdraw at the start of the pandemic when visibility was particularly low. In addition, our good overall performance has further enabled the repayment of government assistance, and we have also increased our charity donations. Whilst we continue to focus on short term dynamics, we remain committed to our long term strategy, which includes continued growth through acquisitions. Today, I'm pleased to announce the proposed acquisition of MCR Safety, a well established, high quality and own brand focused PPE business in the U. S. That further strengthens our highly successful business in the region. It is a large business and generates $250,000,000 of annual sales. The second is a smaller but also complementary business called APCO COVAC, which is a distributor of flexible packaging products in the UK and Ireland. These are unique circumstances, but I'm also very proud that Bunzl once again demonstrated the strength, resilience and reliability of our consistent and successful strategy and business model. I will now hand you over to Richard to take you through the financial results. Thank you, Frank, and good morning, ladies and gentlemen. As Frank has mentioned, these have been unique circumstances and I've been incredibly impressed with how our businesses have reacted. This is reflected in the strength of our financial results, including the cash generation of the business. As in previous years, in the following slides, we have presented both actual and constant exchange growth rate. Over the 6 months to June, foreign exchange was 0.3% benefit to reported revenue. In reviewing the income statement, I will refer to growth at constant exchange rates. Starting with revenue. Revenue grew by 6.7 percent to GBP 4,800,000,000 Underlying growth, which is organic growth excluding trading days, contributed 2.8% to this growth with an extra 0.8% relating to the additional leap year related trading day. Underlying growth was driven by the level of COVID-nineteen related products that we've been able to procure and sell. The top COVID related products contributed around £630,000,000 of additional sales or 13.6 percent underlying growth. These sales included some very large orders placed by customers looking to build up inventory of these products. On the other hand, we have seen businesses serving sectors such as retail and food service being very significantly impacted by the pandemic in Q2. Even businesses selling into Safety and Clean and Hygiene have seen parts of their business affected. For example, we have sold considerably less paper products to contract cleaners servicing offices around the world. Given most of the pandemic effect was felt in Q2, the positive and negative trends were more accentuated during the last quarter of the period. Acquisitions, which largely relate to our U. S. Business contributed 3.1% revenue growth. Now turning to the income statement. Adjusted operating profit grew by 13% to GBP 340,800,000. At constant exchange rates, our operating margin grew from 6.6% to 7%. This largely reflects the mix effect of selling considerably more in the higher margin healthcare, safety and cleaning and hygiene sectors and fewer sales to the retail and food service end markets, which tend to have lower margins. It also reflects the increased mix of own brand products, which tend to have higher margins. Operating profit includes a net charge relating to provisions for expected credit losses on trade receivables and customer specific inventory, predominantly relating to retail and food service. During the first half of twenty twenty, the group was seeing trade receivables more than 60 days overdue almost double to £60,000,000 The group has also seen a number of customers either entering insolvency processes or illustrating specific credit stress indicators. This has resulted in a net charge of approximately £10,000,000 being taken during the period to reflect the risks around recoverability. In addition, the group is concerned that going forward there is a heightened risk of further recoverability issues with customers predominantly in the foodservice and retail sectors as government support is withdrawn and the trading uncertainty continues. Consequently, the group has taken an additional net charge of approximately £20,000,000 in the period for those customers identified as high or medium credit risk. The resultant level of receivables and inventory provisions relative to total balances at the end of June are marginally below the level seen in the global financial crisis in 2,008 and 2,009. Net finance expense decreased by £4,500,000 as a result of a lower level of average debt as well as lower average interest rates. Adjusted profit before tax or income tax increased by 16.6 percent to GBP 306,800,000 Continuing down the income statement. The effective tax rate for the period of 23.8% is unchanged from the prior year. The effective tax rate for 2020 is expected to remain around 24%. Adjusted earnings per share increased by 16.4 percent to 70.1p and as Frank mentioned, we'll be paying both a 2020 interim dividend of 15.8p which is 1.9% higher than the prior year, but also an additional dividend of 35.8p. This additional dividend, which is equivalent to the 2019 final dividend will be paid on the 16th November 2020, whilst the 2020 interim dividend will be paid in early January 2021 as usual. Now turning to the balance sheet. Working capital has increased by £33,700,000 since the year end, primarily from acquisitions and currency translation, partly offset by a net reduction in underlying working capital as higher inventory levels were more than offset by higher payables driven by approximately £68,000,000 of advanced payments from customers net of advanced payments to suppliers for large orders of COVID related products. An important aspect of the current environment has been the need to prepay suppliers for COVID related products. As an established and financially strong business partner, our customers have been comfortable in making corresponding prepayments to us. Net debt excluding lease liabilities ended the half year at £1,200,000,000 £70,000,000 lower than the position in December 2019. Net debt to EBITDA on a covenant basis was 1 point 6 times, which is down on the 2019 year end leverage of 1.9 times and below our target range of 2 to 2.5 times. This gives us substantial capacity to self fund acquisitions such as the ones we are announcing today. The return on average operating capital, which is now stated on an IFRS 16 basis is up 280 basis points from December 2019 to 39.7%. This high level of return reflects strength of the business model and the trading performance in the 1st 6 months of 2020. On to cash flow. It was a strong period for cash generation with cash conversion of 112% and free cash flow of 2 168.3 £1,000,000 up 44% on the prior year. Cash conversion benefited from the net GBP 68,000,000 of favorable advance payments that I mentioned previously. During the period, we paid dividends of £51,700,000 and invested £75,200,000 in 3 acquisitions. The £2,000,000 inflow on the employee share schemes reflects the income on exercised share options. Given the uncertain outlook, no market share purchases to fund future employee share schemes were undertaken in the first half. As you know, Bunzl has consistently achieved a high level of cash conversion over many years. The average rate of cash conversion since 2004 has been 98%. This half year has been exceptional, but even excluding the net advance payments I mentioned earlier, cash conversion for the period remained above target at 91% despite the challenges we have faced with the aging of receivables in the foodservice and retail sectors in particular. This strong cash flow continues to support our consistent dividend growth over many years and reflects our focus on long term value creation. Looking back over the past 27 years, we've been able to increase our dividend consistently every year, broadly in line with our growth in earnings. We are pleased that by deciding to declare an additional dividend that is equivalent to the 2019 final dividend and by paying it in 2020, we've been able to maintain the track record over this long period. The compound annual growth rate of dividends since 1992 is 10%. So let me summarize the key highlights of our performance in the first half of twenty twenty. Adjusted operating profit increased 13% with operating margin up 40 basis points at constant exchange. This strong performance was driven by the high demand of COVID related products and bundled end market sector mix and diversification. Cash conversion has been strong at 112%. Our interim dividend per share has increased by 1.9% and we will be paying the equivalent of the 2019 final dividend as an additional interim dividend in 2020. And lastly, we ended the period in a strong position with funding headroom that provides substantial capacity for self funded acquisitions. At this point, I would like to hand over to Frank, who will take you through the business review. Thank you, Richard. During my presentation today, I will focus on the following topics: an overview of performance over the last 6 months, I will look forward and consider the prospects for the remainder of the year, I will provide detail on how the Bonzo model has demonstrated resilience through the COVID-nineteen pandemic so far. And finally, I will remind you of a few key elements we continue to focus on for the longer term. An important theme to understand over the period is how we have really been able to work hard to help customers source in demand COVID-nineteen related products. BUNTEL was able to source and fulfill this exceptional level of demand partly through own brand products imported from Asia. These top 8 COVID related product categories, which you can see pictured on this slide, including masks, gloves and sanitizers, contributed 22% of first half revenue. The revenue achieved on these 8 product categories is 2.5x higher than in the first half of twenty nineteen, and we have sold them into all the sectors we serve. As we have mentioned previously, diversification has been key to Bansal's success over the first half. To help you better understand an unusual year, I will give you a bit more information on this specific area. Here you will see the revenue performance broken down across our market sectors. Healthcare, Safety and Cleaning and Hygiene have seen the strongest growth. Combined, they grew by 29% and rose from a group revenue mix of 32% last year to 37% this year. These sector trends are then reflected in our regional performance. Rest of the world, where around 70% of revenue is generated through these sectors, benefited strongly, whilst North America has more limited exposure. Grocery was relatively more stable and grew 5%. This growth was supported by the Jossian acquisition in January, but if excluded, was still slightly positive. North America has the greatest weighting to the grocery sector. And the most challenged sectors were foodservice and retail. Revenue declined by 9% and the contribution to the group mix declined from 39% to 34% this year. Large exposures, particularly in UK and Ireland and North America, materially impacted our business area performance. The combination of the change in revenue mix between these sectors and the associated increase in own brand products have contributed to the margin increase over the period. Turning now to the business areas. In North America, revenue at constant exchange was up slightly to GBP 2,700,000,000 although underlying revenue declined 3.9 percent due to the adverse impact from the business areas waiting to retail and foodservice. While sales into the food processor sector benefited from COVID related products, this was more than offset by the meaningful decline to other foodservice customers. Sales into the convenience store sector were also negatively impacted by the shutdowns. Whilst our grocery business benefited from some product mix shift to PPE and hygiene products, Bunzl was impacted by the closure of deli and meat counters. In addition, we continue to see sales impacted by price and product specification changes with our largest grocery customer. However, this change has now fully annualized. And so, as if I've just mentioned, it is certain sectors that have really supported the business over the period. Cleaning and Hygiene, which is the larger largely serviced by our redistribution business, saw very strong growth in North America. Safety also contributed meaningfully despite the unfavorable impact of declines in the industrial and oil and gas sectors. Overall, operating profit was GBP 154,200,000 down 3.7% with the operating margin down 30 basis points to 5.7%. Supported by the favorable COVID-nineteen related mix and cost savings initiatives, these were more than offset by the negative operational leverage effect of lower revenue in Retail and Foodservice and an increase in provisions relating to our credit exposure from customers in these sectors. Revenue in Continental Europe rose by 20 percent to GBP 1,100,000,000 due to underlying growth of 18.9 percent with some continued benefit from the Coolpac acquisition in April 2019. Adjusted operating profit was GBP 123,900,000 up 36.3 percent with the operating margin up 130 basis points at 11.4%, a result of the shift towards higher margin products. As I mentioned earlier, Continental Europe benefited the most from COVID related large orders with substantial growth in Healthcare from procurement of PPE items into government and healthcare provider. The Netherlands business supported 1 such large government order, but I will talk more about this later. We saw a good performance in France despite the slowdown in food service, and Turkey was up strongly due to the increased sales of PPE, particularly gloved into hospitals, food processors and grocery stores. The safety sector was particularly strong across the whole business area. Revenue in the UK and Ireland rose by 3.8 percent to GBP626,000,000 with underlying growth of 2.5 percent and benefited from the Bodyguard Workwear acquisition made in February 2020. As in North America, the weighting towards the Foodservice and Retail sectors impacted UK and Ireland's performance over the period. Weakness in foodservice adversely affected Ireland's performance. Grocery sales were very strong, in part driven by 1 large supermarket customer we won back in the second half of twenty nineteen. The UK saw particular strength in Healthcare through supplying hospitals and care homes with a variety of PPE products. Safety and Cleaning and Hygiene similarly benefited from COVID related product growth, although the underlying Cleaning and Hygiene business was impacted by the closure of offices and other service sites. Overall, despite the strength of Healthcare and as a result of the COVID-nineteen related shutdowns in foodservice and non food retail and after additional provisions for increased customer credit risk exposure, adjusted operating profit declined 21% and operating margin declined 150 basis points to 4.7%. Revenue in Rest of the World rose by 17.6% to GBP 403,000,000 with underlying growth of 13.2%. Adjusted operating profit rose 90 percent and operating margin increased 4 20 basis points to 11.7%. This was a very strong performance and relates to the large weighting to Safety and Healthcare sectors in the business area. The safety businesses in Brazil, Mexico and Chile performed strongly as they managed to satisfy the substantial demand for COVID related products. In addition, currency devaluation has driven price increases and therefore supported the revenue increase. It should also be noted that the first half of twenty nineteen saw a relatively weak performance in the business area, which partly explains the exceptional increase in adjusted operating profit in the first half of 2020. Before I turn to the prospects for 2020, it is important to remember that the balance of future dynamics remains very uncertain. Although difficult to assess with any certainty, overall excluding the impact of the acquisitions announced today, we expect group revenue to grow slightly over 2020. We believe that the high volume of large and smaller COVID related orders seen in Q2 will not be repeated during the remainder of the year. Given the need of customers to build inventory in these products, there was an element of pull forward in our Q2 sales. As a result, the sectors and business areas that benefited the most from this in the first half will see some meaningful softening in the second half. We expect growth to be limited in the second half of the year in Continental Europe and Rest of the World in particular. Foodservice and Retail being those sectors that have been significantly impacted by COVID-nineteen during the Q2 are expected to recover partially, but we expect revenue in these sectors to remain below historic levels. However, it is also important to understand that excluding the substantial COVID-nineteen related sales, trading conditions were difficult across most sectors in Q2 given the challenging macroeconomic backdrop. This includes weakness in sectors that otherwise appear to have performed well, such as safety. We expect these underlying challenges to persist. Whilst we have seen margins up strongly in the first half, we expect significant year on year margin decline in the second half with lower COVID related sales, reduced own brand sales, which tend to be higher margin and continued macroeconomic challenges globally. And as we look beyond these next 6 months, it is also important to remember that the strength of our performance in the first half will present a challenging comparative for next year in addition to the underlying market weakness. That said, the fundamental aspects of the business looking forward remain attractive. Our customer proposition and strength of our supply chain have been reinforced during these challenging times, and our business model has proven its resilience in the most difficult of circumstances. The group's strong cash generation has allowed us to maintain our long track record of dividend growth And with a promising pipeline, we expect to complete further acquisitions during the remainder of the year in line with our consistent and proven compounding strategy. Let me now turn to how we have achieved this strong set of results. As I've mentioned earlier, there is an inherent resilience to the business and we have benefited from the diversified sector and geographic exposure of our businesses. In addition, we have dedicated and hardworking colleagues that on a daily basis go above and beyond for customers. But really what the last few months have allowed us to demonstrate even more than normal is that we really do much more than just move boxes from A to B. We provide a compelling value added service to our customers, and this has been highlighted by our ability to meet their needs for essential products and services during this very challenging period. There are a few key factors that have driven our ability to respond to customers' needs so effectively. Firstly, the strength of our global supply chain has allowed us to urgently source products despite the challenges of doing so. Not only has our Shanghai sourcing office been a key asset over this period, but all our supplier relationships across the world have contributed to this strength. Secondly, our decentralized nature and entrepreneurial DNA has supported local responsiveness and agility. This has enabled the business to navigate through these very unusual times and drives our ability to present quick solutions to customer challenges. And lastly, given the essential nature of the products we supply and the sectors that we serve, we have been designated a critical supplier. As I've said at the start, our colleagues in the distribution centers and sourcing offices globally have played a key role in supporting the frontline heroes fighting the pandemic. The strength of our response has been further enabled by our overall financial strength and good financial controls. Similarly, with a clear shift to digital ordering over the period, we have benefited from the digital infrastructure investments we've made. 67% of orders were made digitally in June 2020 compared to 61% in June last year. After being tested in extreme circumstances, my confidence in the bundled business model is even greater than before. We will talk more about our focus on the long term shortly, but before I do that, I want to spend a bit more time on the box in the bottom left corner. Let me start by talking a little more about our Shanghai Sourcing Office. Firstly, it is important to understand that the high demand for COVID related products over the last few months could not be met by branded goods alone. It was therefore the strength, quality and reliability of our supplier relationships that allowed us to meet this demand with home brand imported products. Normally, just over 10% of supplies are sourced through Asia, but this period saw a COVID products related stronger increase in supplies from the region. Our office in Shanghai has about 50 people with some employees in India and Vietnam. This team has created a network of 1300 audited suppliers in the Asian area. The Shanghai team are not just responsible for sourcing products, but are also heavily focused on quality insurance and quality control. In fact, the team responsible for quality assurance and control is larger than the sourcing team. Each supplier we work with estimates strict product quality control thresholds. And as you would expect, we have a 0 tolerance policy to unethical trading practices such as modern slavery. We conduct more than 700 supplier audits a year. It was this team that not only ensured Bunzl was a preferred supplier for many of our customers, but also ensured we could source large quantities of quality products despite the unprecedented demand. We provided customers with assurance around their orders, which was especially important given the need to prepay for many of these items. Our team has always tested products prior to placing orders and inspected the actual orders prior to shipment. We even sent Bonzo representatives to factories to inspect products as they were coming off the production line to ensure quality and speed of delivery. Over the period March to June, the team sourced around SEK 450,000,000 mostly medical masks and conducted SEK 220 pre shipment inspections. We have included this slide to demonstrate some of the products that we are currently sourcing for customers beyond our top 8 products, although not all through Shanghai. We are helping customers with everything from social distance time to return to work employee hygiene packs. This is effectively what Bansal does at its core. It works with customers to source reliably and deliver the essential products when and where they need them. Being designated a critical preferred supplier across our business areas has been important. We supported customers to ensure continued deliveries of essential products, which enables them to continue to operate. In addition, we sourced new COVID related products for them. We also supported government in various regions. For example, we were part of a group of supply chain operators that the U. S. Government contacted to discuss how to ensure the continued running of essential businesses. Overall, we have aimed to provide our customers peace of mind throughout this period. We ensure that they receive their orders on time and direct to site where required that the products were of the appropriate quality that we could be counted on to troubleshoot challenges with them and we ensured that prepayments, which were often large, were placed through a trusted channel. I think a couple of examples might help to bring to life how the teams have reacted recently. Firstly, 2 of our Dutch businesses, King and Majestic, seconded employees to the Dutch government to their PPE special task force. As a result of our supply chain capabilities, including quality assurance, the government sourced significant levels of surgical mask and nitrile gloves to us. We met the order demand through 3 factories in China, 2 of which we had previously audited and a 3rd that we're able to audit prior to placing our order. Given this was an urgent and large order, we also placed tons of representatives in the relative in the relevant factories. This gave the Dutch government the extra level of reassurance that they needed. We pride ourselves in being a reliable partner to our customers and this second case study is a prime example of that. Our UK catering business was contacted by a key contract catering client to help equip a conference center that was being converted into an isolation unit for repatriated citizens. The team received a call at 7 p. M. On a Friday and by 5 p. M. On the Saturday, has delivered and installed a large order of heavy catering equipment products. These are not the easiest products to deliver and install in a short space of time, but the team managed it. 24 hours later, the quarantine unit was ready, the plane landed and the people entered a safe and secure unit with appropriate catering facilities. These are just 2 select examples of the countless ways our business have navigated the pandemic. But perhaps one other interesting thing for you to appreciate is that whilst we often talk about the decentralized nature of the bundle business, we actively work together as one team bundle. This period, I've seen a huge level of collaboration between the teams. We have had employees move between businesses and we have had a lot of businesses working together to deliver on our large projects. It's been absolutely fantastic to see. This is a slide you will have seen before. And as I've said, it is important that we remain focused on developing Bunzl's unique business model for the future. So let me take a moment to talk about sustainability in particular. We believe that sustainability will remain front and center of our customers' mind post COVID-nineteen and we intend to be a proactive part of the solution, working with our customers to help them achieve their ambitions whilst improving our own operations. As a non manufacturer with extensive sourcing capabilities, we hold a unique position in the supply chain as a trusted and material agnostic partner. We can lead the industry towards a more sustainable approach to consumption and help our customers transition towards more sustainable alternatives. In order to do so, we continue to invest in a growing central and regional sustainability team. Over the last year, we've added the further 7 regional sustainability leaders and have hired a Group Head of Sustainability. In addition to our former sustainability teams, we are also appointing sustainability ambassadors across our businesses, who will work closely with our regional customers to help them achieve the targets they are setting. Together, these teams are responsible for helping to find alternative materials from consumable products, increasing our range of sustainable solutions, strengthening our own label ranges and introducing tools to assess the environmental and legislative impact of products. Ultimately, they are a trusted expert advisor in sustainability for our customers. Within our sustainability ambition, we recognize our responsibility to help the world transition to a circular economy. We have recently introduced a number of initiatives that support this thinking and have 2 of these pictured here. 1 of our safety businesses, Allshoes in the Netherlands has created a closed loop system whereby used work shoes are collected and dismantled before the materials are sorted, crushed and recycled or reused in new products. We are also funding the development of new waste management infrastructure and improved social services for marginalized waste picker communities in India. This project will prevent 200 tons of plastic reaching the coast, and we are working to see if we can use this collected plastic in new products. Another key priority for the longer term is making further acquisitions. Consolidating our highly fragmented markets remains a key component of our strategy. Since 2004, we have made 163 acquisitions for a total investment of GBP 3,500,000,000 without the need to raise any equity. Today, we've announced the proposed acquisition of MCR Safety, another leading PPE business with strong home brands whose customers are redistributors. The business generates approximately $250,000,000 of annualized revenue and is predominantly a North America business. This is a high quality business that has been on our radar for some time and is a strong strategic fit with Bantou's existing safety business in North America, and their strong brands are a good addition to our portfolio. We have also entered into an agreement to acquire APCO COVAX, a distributor of flexible packaging products in UK and Ireland. The business generates an annual revenue of €23,000,000 and it services end users across a number of market sectors. It will enhance our product offering and present cross selling opportunities. Including the acquisitions announced today, we have acquired or agreed to acquire 5 businesses so far this year with a total committed spend of GBP 335,000,000 thereby adding annualized revenue of GBP 483,000,000 To conclude, we have delivered a strong first half performance with good cash conversion and a strong balance sheet that has supported today's dividend decision. The resilience of the business model has been driven by our diversification and our value proposition to customers has been reinforced over the period. Once we are pleased with the first half performance, we are cautious on the second half given the uncertain outlook and do not expect to see the same level of COVID related orders. So we continue to act prudently for the near term, but also focus on a consistent and successful longer term strategy, which includes maintaining momentum in our digital and sustainability development and driving growth through acquisitions. After having spent more than 20 years with Brantor, I'm now even more confident in the quality and resilience of the business and believe we are executing our strategy successfully. We have delivered for our customers. We have repaid government assistance. We have reinstated our dividend, and we have announced 2 acquisitions, one of which is particularly large. Despite more challenging short term expectations for our business, looking forward, I'm even more excited about the opportunities ahead for Banco. So thank you for your attention. We are now very happy to take any questions. Thank you, Mr. We have a question from Will Kirkness of Jefferies. I had two questions, please. Firstly, just on your ability to source and supply customers through this pandemic, Do you think that over the medium term, that puts you in a much stronger position to retain existing customers and win new customers? You've spoken to that, but it feels like you should have potentially better visibility now and arguably protected yourself against the lower value add peers. And the second question is just around M and A conversion over the next 6 to 12 months. It sounds like the pipeline is pretty good. Just wondered if we should expect any more to get over the line? Thanks very much. Yes. Okay. Let me take these questions. Well, you would think actually that the added value we deliver to our customers has been obviously significant. And certainly, Bonzo in a way is in a good position because of our diversified portfolio. So if you look longer term and you look for instance at our businesses active in the retail space and the foodservice space, they are sometimes competing with businesses that are 100% focused on these sectors. So think them up of an easy yet that is focused on airlines only. Now if we have foodservice businesses and that have been significantly impacting the Q2, they obviously had the benefit of being part of a very strong bundled business. So I'm hoping to be able to come out of this crisis by managing these business in such a way that we will be able longer term to benefit from that going forward. But obviously that remains to be seen. Certainly, I think the value we've provided to our customers, the sourcing we've done has been, I think, a real competitive advantage. In terms of the pipeline of acquisitions, I would say, we've always been very disciplined around acquisitions. I have questions about acquisition activity last year, why you're not spending more, your net debt to EBITDA is relatively low. Now reflecting on this, we've been very pleased to go into this period, this pandemic period with a very, very strong balance sheet. We at the end of the first half, we were at the 1.6 times. Now that was pre dividends and pre acquisitions. And we are starting the or restarting discussions with acquisitions. And when we feel we have the right opportunity there, we will execute it. And certainly, MCR is a good example of that. Now if I look ahead maybe 3, 4, 5 years from now, firstly, and you probably all know that I sold my business 25 years to Bonso, so I know some of the emotions that are involved in terms of selling your business. Firstly, I think that a lot of our owners of businesses have experienced in the Q2 something very new where they may have thought that their financial future was fully secure and are suddenly this pandemic hits and everything becomes fluid. So I expect maybe in 2, 3, 4, 5 years from now, a lot of people very interested to become part of Bansal. So from that sense, our strong cash flow and future M and A should put us into a very good position. But having said that, the Q2 is still very uncertain and it's very difficult to look ahead in the crisis. Sure. Thanks very much. Thank you. Well, we have a question from Sylvia Barker of JPMorgan. Your line is now open. Please go ahead. Thank you. Hi, good morning, everyone. A couple of questions on growth. Maybe firstly, could you give us an idea of the pricing impact on revenue in H1 and maybe how that developed in Q1, Q2, presumably with the short supply and your ability to store some of these products, maybe you did have a pricing benefit to some extent in Q2. To what extent is that maybe tailing off now? And then just on the incremental EUR 600,000,000 of revenue relating to the top 8 products, Could you maybe just split it a little bit more or give us an idea? I mean, firstly, how much of that was from products which, I guess, people buy once, like signs, barriers, the disinfectant kind of stamp that you've shown on the slide? Then secondly, if you can talk about the large orders versus small orders within that. And then finally, could you maybe just comment how that's split roughly between the customer segments? Obviously, we appreciate that Walmart would have been buying a lot of masks, but likewise, you would have made a lot of sales to your traditional safety clients as well. Thank you. Okay. In terms of pricing, it's very hard to give a very precise answer on the prices in the first half. I would say the items that are more COVID related like masks, they were extremely high demand, where demand was much higher than supply in the Q2. Obviously, there has been inflation in these categories. And we expect that sort of price levels to be slightly lower in the second half given the supply side has been beefed up. So there's more supply right now. I think on the other items, it's probably a slightly deflationary picture there in terms of plastics and paper, but it's very hard to say because it's such a price period and it's more an art than a science in that context. But certainly, I think on the COVID related items, we would expect pricing to be slightly higher than in the second half and in the second half of last year, but I think prices will be lower than in the first half. I think on the SEK 600,000,000 a couple of things. I would say, let's say the category masks, sanitizers and gloves, these are the biggest items, probably represent 3 quarter of the total amount. And I think the mask and the sanitizers, certainly the refill and the gloves are tend to be more consumable items. So it's not like capital goods or something like that. Maybe Richard, you want to comment on the small versus the large orders in sectors? Yes, sure. Silvi, I think the way to think of the split, I mean, roughly half an fifty-fifty split between large and small orders. And as we said, those large orders, there was an element of panic buying of these products in Q2 for sure, which means that into the second half, we don't expect to see the same level of large orders that we've seen in the Q2. The smaller products, we do expect to continue to some degree, but again, perhaps not to the same level we saw in the first half. As the customer segments, look, we've actually managed to sell these products into all of our end markets. We have been and into markets that we would never normally sell these products to. So we sold masks and sanitizing to the grocery sector, for example. So we're finding ways to sell, in some cases, which have been medical products into all sorts of end markets. So I wouldn't say that there's any particular customer segments, which are more prevalent other than healthcare, of course. But just think of it as a more widespread across the board level of these products into different end markets. Thank you both. And maybe if I just follow-up, obviously, you've not made any comment around exit rates or what you're seeing into July August. But Yes, I guess you have a much stronger end of June than you expected at the pre close. So could you just comment at all in terms of was that driven by the large customer orders, small orders or the rest of the business maybe being a little bit better and how that potentially carried on into the next couple of months? Yes. I would say sort of exit rates, you've seen our prospect section and our prospect section includes all the available information until last night effectively. I think it's difficult to comment on July because especially in an area where you see big ups and downs with smaller orders, bigger orders. So there's a lot of uncertainty going forward. So we wouldn't sort of add a lot of additional let me just build a little build on that. I mean, would you But still, let me just build a little build on that. I mean, June was a month where economies were opening up and people were not locked in their homes any longer. Things are starting to move. We're an activity driven business. We saw activity increase in June. In our pre close in early June, we did see more activity in the last few weeks than we initially expected. I think part of that was set up. So I think part of this is businesses getting themselves set up for reopening their businesses. But I think there's also an element of higher level of activity as well. So I know that has continued a bit into the second half. But as Frank said, the prospect statement holds. Okay. Thanks very much. Thank you, Sylvia. We have a question from Annalise Vermeulen of Morgan Stanley. Your line is now open. Please go ahead. Hi, good morning. Annalise from Morgan Stanley. Just a couple of questions from me. Just a follow-up to that question about the additional €630,000,000 of COVID product sales for H1. How much of this was own brand products? I'm trying to get a sense of how much of the margin improvement that you reported year on year was related to the sales of the higher margin cleaning, hygiene, PPE products and how much was due to own brand products? I'm guessing it's very closely related, but any color you can give on that would be helpful. And then I guess a similar question to the exit rate of the 13.6% and minus 10.6% that you reported for the H1 for those two segments. Can you give us the same numbers, but just for the Q2? And then lastly, you've obviously talked about continuing to be active on the M and A side in the second half and beyond. Should we expect more deals in sort of safety product businesses given the current environment? Or are you continuing to look all across the board across all sectors? Thank you. Yes. Okay. Well, in terms of the COVID related items, I would say a very large part of that is own brand imported items, So very large. I think in terms of the growth and the decline, I think the obviously, the half year results represent 2 quarters. So and then I think we've seen the main impact in terms of pluses and minuses in the second quarter. So I think the biggest swings you can probably refer back to or calculate back towards 1 quarter. And in terms of M and A, we have an active pipeline. Are we planning to go very big in terms of the retail and foodservice sector? Probably not, although it is a challenging period. And if we can find real opportunities that are very good additions to our current businesses and we can buy it at the right price with attractive paybacks, we won't hesitate to do it. But certainly, I think the strategic direction is going to be more towards sort of the certainly the non retail areas. Okay. Thank you. Thank you, Annalise. We have a question from Chirag Bhatia of HSBC. Your line is now open. Please go ahead. Hi there. Thanks for taking my question. Just one, and that is what is the nature of your discussions with suppliers for the second half of the year? And does it differ meaningfully in terms of own brands versus other suppliers? Sorry, I missed the first part of your question. Could you repeat that? Sure. I was just wondering what the nature of the discussions are ongoing with suppliers for the second half? In terms of COVID orders? Yes. Well, what we can say is that, obviously, you still see around the world local flare ups. You also see people talking about social distancing and your need to use masks. Having said that, you also see more reusable masks. But I think the big difference between thinking about the future in terms of these COVID items and the second quarter is the fact that we have areas where some significant stocks have been built. I saw an article in the UK where there's stock build certainly I know in the Netherlands and France and other areas where we have been very active supplying large amounts of products, we know that there's quite a bit of stock available in the system. So in that sense, we just know that although we will sell masks and other items going forward as long as the crisis goes. It will be at different price levels and it will be significantly different volumes as we see today. But it can be different tomorrow or next week. It's very difficult currently to forecast anything and that's why we've withdrawn guidance also. Great. Thank you. Thank you, Gerard. We now have a question from James Rose of Barclays. Your line is now open. Please go ahead. Hi, good morning. Firstly, could you comment on gross margin trends year on year in the first half? And my second question is some particular areas you flagged with sectors which have underlying weakness, I think that was healthcare and safety. Could you talk a bit more about what you're seeing there? Any color you can give us for the second half? And then lastly, on training in FY 2021, which you mentioned it has a tough comp, but for the retail and food service sector in 2021, do you have an idea of what its trading could be versus FY 2019 value, so it's like a 2 year like for like? Any thoughts you have there would be appreciated. Thank you. Yes. Let me take the first two and Richard take the last question. On gross margin trends, although we don't really comment on gross margins given the situation we're in, I'll give you a bigger picture answer on this. We've seen gross margins a little bit higher than last year, but it was mostly related to the fact that our margin in Rest of the World improved. We've seen soft week a weaker comp last year, so the performance in business wasn't great compared to 2018. So we took some sort of measures to improve profitability, which was good. And also they are strongly linked, as I said in my speech also, to the health care and the safety sector. So they've seen the benefit from that going on. So it's really a mix impact on why the gross margins were lower or were slightly higher. On the underlying business, well, actually, if you look at sort of the additional business we've done in the COVID area and we've shown it in the bridge basically where you see the growth in terms of COVID and the weakness underlying. I think in most sectors, it was still quite tough underlying because of lockdown, because of less activity. And obviously, that was more than compensated by COVID products. So that's why we're all staying on the second half if there's going to be less favorable picture on big orders, smaller orders in the COVID side. And you will have basically the continuation of the underlying weakness in different sectors that we've seen in Q2. We will also potentially see that weakness in Q3, Q4, which is 2 quarters. Having said, we'll see we expect a bit of a recovery in the hospitality sector and into the retail sector. But obviously, we still have the impact of having 2 quarters of underlying weakness versus 1 quarter of underlying weakness is given. So just the macroeconomic picture is expected to be still challenging. Richard, can you take the last one? Sure. James, look, on return, it's been very difficult and badly hit in the Q2 in particular. In many respects, we see this as an acceleration of the trends or some of the trends that were already in place, particularly in retail. And we're seeing some customers have real credit issues, some going through Chapter 11 or branch fee processes. We think they will come out those that come out, we think will come out with many fewer stores and some may not come out at all. I think that tends to make us feel that even though there will be an improvement into the second half as the activity starts to pick up, our sense is that we won't be back at 2019 levels for some time. Now as to when that is, it is too hard to say. But I think certainly won't be there in the second half of twenty twenty. I don't expect us to be there back to 2019 2021. Thereafter, let's see. But I mean, these are our end markets, which have been impacted most. Okay. Thanks very much. Thank you, James. Before our next question, I will reiterate that Our next question is from George Gregory of Exane BNP Paribas. Your line is now open. Please go ahead. Good morning. Most of my questions have been answered. I have just one outstanding, please. Just focusing in on the growth in Foodservice and Retail, which was down 9% in the first half. Just wondered if you could perhaps unpick that between COVID related and other items. That down 9% was a bit less bad than I had expected, but obviously mindful of the COVID effect across the divisions, which are difficult to model? Richard, do you want to take this one? I didn't hear it very loudly, so maybe you can ask for it. Yes. Sure. George, look, it's obviously, it's a it is the first half. It is also therefore the second quarter is much worse than that. I think if you there are underpinning elements to both Foodservice and Retail. So in our Foodservice business, we have sold more takeaway packaging into those sectors than we had anticipated. That activity level has increased quite significantly. I think particularly in the U. S. Where the sort of delivery or indeed collect services were actually quite a decent amount the foodservice business in the end. I think you have to then say that on top of that, we've clearly sold a lot of COVID product into both end markets. That could be sanitized, it could be masks. So you should certainly think about when you strip those effects out and some of the mitigants that the underlying effect in both Foodservice and Retail is material in Q2. And look, we expect to be better going into the second half, but still quite an impact in the second quarter in particular. Thanks. Thank you, George. Our next question is from Kate Somerville of UBS. Your line is now open. Please go ahead. Thanks. Yes, a lot of my questions have also been answered. But one final one. You mentioned that you're slightly concerned about the financial health of some of your customers. Is this predominantly smaller customers? Or is it more related to the end markets that we operate in? Thanks. I think it's more related to the end markets. I think we saw certainly when we talk about the slightly bigger customers, we see more risk in the retail space. We've seen some bankruptcies already and we see risk in the food service. But also wider, I think, with smaller customers, risks tend to go up as well because if you think about it, I think a lot of businesses have been a little bit on the government support oxygen. And I do expect these support factors at some point to tail off. And then obviously people need to stand on their own feet. But we try to make a proper judgment around that for the half year and also going forward. And yes, it's a tough place, but the pressures are going to be the highest in the foodservice and the retail sector. I don't know, Richard, you want to add anything on this? No, I think you've captured it. It's as I said earlier, we've had these are trends we've been seeing for some time. I think plenty of retailers could come into the crisis in a quite weak position. And as a consequence, this is going to this process could we think will accelerate probably what was inevitable anyway. We saw that in parts of Foodservice as well with the casual dining sector, which is probably oversaturated, quite leveraged in the way it was owned. We've seen a bit of a shakeout in that over the last 12 to 18 months. So I think you've got a mixture of the bricks and mortar trends, some weakened customers coming into a very difficult crisis. And then taking the opportunity, I think, to probably make sure that those that do come out in a fewer stores, lower footprint, but hopefully in a perhaps a better position than they entered the process. Yes. Okay. And just one quick follow-up. Are you considering expanding into any other end market kind of offset this weaker end market? Yes. I think we always stay open minded on doing acquisitions in new sectors. Although, let's say, the sectors we are operating in are very large. A good example is the U. S. Acquisition today. We've bought many, many businesses there already. And there's still another $250,000,000 opportunity out there in terms of sales. So we like the markets we're in, but we keep open minded. I'm particularly excited about some of these digital businesses as well. It's a high priority for us. We're moving these orders up and making their relationships more sticky. And if we can do more deals in that kind of space to support our strategy, we won't hesitate. But it's very hard to plan these things. I've said it before, we're not going to say we're going to buy a business in Germany next year or we're going to buy a business in cleaning and hygiene. The way it works is we're building these funnels, all our local managers are building the pipeline. And then every time, every executive committee meeting we have, there's opportunities there and we look at them and we weigh them and we know these sectors very well. So we try to focus on what are the strong strategic additions to the group like an MCR for instance and what do we believe is going to be a healthy payback for the business. But if we go we can go into new sectors with similar dynamics of our current businesses that drive the success, we're certainly not hesitate. We've got the capacity to do it. Great. Thanks very much. Thank you, Kate. Our next question is from Andy Grobler of Credit Suisse. Your line is now open. Please go ahead. Hi, good morning. Just 3 from me, but first two very quick. Just to check on the provisions, the bad debt provision, did they amount to around €30,000,000 that you took against EBITDA in the first half? I think you said that, but just to clarify. Secondly, on the prepayment, the $68,000,000 would you expect that to reverse into the second half? And then thirdly, on a slightly broader perspective, you've talked about the benefits you've seen of diversification of financial strength and digital selling. Given that and the likely challenges of some of your competitors, how does that make you feel about kind of longer term growth? Historically, organic has been around 2% over the last 15 years or so. Given those advantages and assuming the world is goes back to some kind of normality, do you think it could be more than that as you take share over the next several years? Okay. I think your first and second question, provisions first half and prepayment, I think the answer is yes. If I'm not wrong, Richard, please confirm. Yes. I mean, yes to both of those. And the last question on diversification and digital. Yes, the distribution businesses, they have relatively light assets and low CapEx levels. And what you tend to see is this in a downturn is that or when business is struggling or not growing is that they are reducing their working capital a bit, which gives them a bit of cash to survive as well. And then the question is, if things start to pick up again, can they fund that kind of growth? So it's going to be we will have to see if people really get into trouble. We've certainly in 2,009, we've taken the opportunity to pick up some very good businesses and at attractive prices. But I think it's a bit early because we only want to buy good businesses. And often, good businesses don't get into trouble very easily. But if it happens, we'll do that. In terms of growth going forward, I would say organically, are we going to pick up market share? We may, but I think it's going to be around the edges probably because we are focused on making good returns. And winning volume just for the sake of growing the business is certainly not something that I'm a great fan of. So if we can build it based on our value proposition, I think that's great. And but I don't think there will be a massive change. I think maybe longer term where I see maybe more of an opportunity, but this then we may be talking 2, 3, 4, 5 years from now is the point I made earlier is that I think there's been a lot of people who had a bit of a shock during the Q2 because they thought they were financially independent and then they realized that all their acts in 1 basket. So I think we will see activity in the future. And that may be a bit more of an opportunity for us, maybe not this year, but maybe the years after to buy high quality businesses. And the great thing is because our cash flow grows, our capacity to acquire businesses is growing every year. So I'm in that sense more excited about the M and A opportunity. But certainly, it won't work against us supply if other competitors struggle and we are in a strong position. Okay. Thank you very much. Thank you, Andy. Our final question is from Sanddendal of Stifel. Your line is now open. Please go ahead. Morning, guys. A couple of quick questions from me. Firstly, on digital, I think you said it was up 6% year on year 6%, 10%. Do you think that is a permanent change? Or do you truly think bicarbonate? I'd be interested to get your views on that. And then secondly, on own brand, I think it's typically about 20% of the products you sell. Are you able to give the 2Q figure? And whether, again, you think that's a potential not a permanent change, but a sort of step up that can be potentially partially maintained going forward? Thanks. Yes. Well, on the digital, yes, we were up the last 12 months with about 6%, 61% to 67%. I would say that is significant shift and I think that has been boosted by the coronavirus, a little bit like what the supermarket chains have seen. So is it going to be staying at this level? It may fall back a little bit and then it will continue to go up because it's the strategic priority for us. But certainly, we've seen it go up quite a bit in terms of the number of orders. In terms of the own brand, yes, we were slightly above the 20%. I think in the first half, it was more towards sort of the 24%, which was exceptional increase given the COVID also. So I expect that part if COVID comes down, I think the own brand will probably come down a bit again. But the way to think about it is, if I look at the last 10 to 12 years, we've been growing the growth the own brand percentage with about 1% a year. So and I can't see any reason given our mix of business, given the priorities we set for the business that we will continue to grow that on brand percentage, but we are also very keen to drive relationship with our branded suppliers. So may come down a bit, but will start to come up again. Thanks. Okay. Well, thank you very much for attending this half year results call, and I hope you all have a nice day. Thank you very much for joining.