Earnings Call: H1 2018

Aug 28, 2018

Good morning, everyone, and welcome to Bunzl's 2018 Half Year Results Presentation. After a short introduction from me, Brian May will take you through the financial results, and I will then review the business. Bansal has again produced another good set of results with an increase of 14% in adjusted earnings per share at constant exchange rates and a 9% increase in the interim dividend. I'm particularly pleased to report a further increase in the level of organic revenue growth to 5.2%. Acquisition activity, which is a key part of our growth strategy, has continued. Including the acquisition announced today, we have acquired 4 businesses so far this year with a total committed spend of £132,000,000 Looking forward to the remainder of the year, we expect that the group will continue to develop positively through a combination of further organic growth and acquisitions. I will now hand over to Brian, who will take you through the financial results. Thank you, Frank, and good morning, ladies and gentlemen. As in previous presentations, in the following slides, we have presented both actual and constant exchange growth percentages. In 2018, there has been a circa 6% negative impact of exchange translation. And in reviewing the income statement, as always, I will refer to growth at constant exchange rates. Now starting with revenue. In the first half of twenty eighteen, revenue grew by 11.6% to more than £4,300,000,000 Of this growth, 5.2% was organic, with strong growth across all business areas. Acquisitions added 7.1 percent, and the disposals of 2 non core businesses reduced growth by 0.7%. Turning to the income statement. Adjusted operating profit grew by 10% to £285,000,000 with the operating margin unchanged at 6.6%. Adjusted profit before tax also increased by 10% to £257,900,000 due to the increase in adjusted operating profit, partly offset by an increase in net finance expense. The increase in net finance expense was as a result of a higher level of average net debt, mainly from the funding of acquisitions made during the last 12 months. In the first half of twenty eighteen, we disposed of 2 non core businesses: OPM in France and our Marketing Services business in the U. K, realizing a profit on disposal of £13,600,000 This profit has been excluded in calculating the adjusted profit measures. Continuing down the income statement. The effective tax rate for the period of 23.8 percent is 3.1% lower than the rate at June 2017, largely due to the reduction in the U. S. Federal tax rate from the 1st January 2018. Adjusted earnings per share increased by 14% to 59.4p and we have declared an interim dividend of 15.2p per share, an increase of 9%, continuing our long term track record of dividend growth. Our consistent dividend growth over many years reflects our focus on long term value creation. Looking back over the past 25 years, we are one of only a handful of FTSE 100 companies whose dividends have increased each year. As you can see from the chart, our dividends have increased consistently every year since 1992, broadly in line with our growth in earnings. This has been possible due to the resilient nature of our business model, which has resulted in sustained growth in earnings and strong cash generation. Now turning to the balance sheet. Intangible assets increased by £14,000,000 due to £101,000,000 of additions from acquisitions, largely offset by amortization, disposal of businesses and exchange. Including the acquisition of Enor in Norway that we have announced today, our spend on acquisitions so far this year is £132,000,000 Working capital has increased by £42,000,000 due to acquisitions and a small underlying increase, partly offset by disposals and exchange. Net debt ended the period at just under £1,500,000,000 £46,000,000 lower than December 2017. This decrease is principally due to a net cash inflow in the period of £60,000,000 with net debt to EBITDA reducing to 2.2 times. The return on average operating capital remains high at 52%, although down on the prior year due to lower returns from the underlying business. Now turning to the cash flow statement. The first half of twenty eighteen was another strong period of cash generation for the group, with free cash flow of £182,000,000 and cash conversion at 94%. During the period, we paid dividends of £46,000,000 and invested £151,000,000 in acquisitions, whilst realizing £55,000,000 from the disposal of businesses. The next slide highlights the consistently high level of cash conversion of the group over many years. The average rate of cash conversion, which is stated after capital expenditure, has been 97%. So broadly, each pound of operating profit has been converted into a pound of cash. The ability to consistently deliver a high rate of cash conversion on earnings which have compounded at over 10% per annum since 2004 is at the heart of the Bunzl business model. During this period, it has enabled us to grow dividends strongly and consistently, paying out a total of £1,200,000,000 while at the same time, we have been able to invest £3,200,000,000 in self funded acquisitions, which have compounded over multiple years to generate substantial growth. In summarizing our performance in the first half of twenty eighteen, I would like to focus on a few areas of note. Revenue grew by 12% with the rate of organic growth at 5.2%, strong across all business areas. Cash conversion remained robust at 94%. Adjusted earnings per share was up 14% at constant exchange rates and the dividend has been increased by 9%. This continues our track record of unbroken dividend growth, stretching back over 25 years. At this point, I would like to hand over to Frank, who will take you through the business review. Thank you, Brian. As part of my presentation today, I would like to talk about the following three topics. Firstly, a review of our operations during the first half of the year. Secondly, I will talk about our consistent and proven strategy to grow and develop our business and we'll focus in particular on our unique service offering. And finally, I will look forward and consider the prospects for the rest of the year. As a group, we are well diversified by customer markets with strong positions in a number of different customer sectors, including the more resilient sectors of food service, grocery, cleaning and hygiene and healthcare. Together, these sectors account for some 3 quarters of our total revenue. As an international business with a global footprint, we are organized by geographic business area. Our broad portfolio of businesses across a number of geographies and markets helps to mitigate against the risk of the group's results being significantly affected by an economic downturn in any particular country, region or sector. In North America, revenue increased by 10% to £2,500,000,000 due to strong organic growth of 5% as well as the impact of recent acquisitions with operating profit increasing by 3% to £140,100,000 Organic growth was achieved across all businesses. The largest contribution was from the additional grocery business won towards the end of 2016, albeit at a below average operating margin. As anticipated, this additional business, combined with pressure on our operating cost against the backdrop of historically low unemployment rates, contributed to a reduction in the operating margin, which declined 40 basis points to 5.7%. We are in the process of implementing a more focused and streamlined organization structure across our 2 largest businesses, grocery and redistribution, in order to enhance our customer proposition and improve our operational efficiency. Our retail supplies business has benefited from the purchase last year of DDS, which when fully integrated and combined with our existing value added service offering will provide a more holistic offering for our customers and a reduced operating cost base as we achieve significant synergies from the acquisition. Our agriculture sector businesses made good progress with improved organic revenue growth and also benefited substantially from the recent acquisition of Monti, which has added a new product range and given us access to customers in new regions. Against the backdrop of improving market conditions in the oil and gas sector, the performance of our Safety business improved significantly through a combination of organic revenue growth and the impact of acquisitions. The purchase of Revco has complemented our existing range of safety products and enabled us to benefit from our expanding scale in the safety sector. Revenue in Continental Europe rose by 15% to £890,000,000 Organic revenue growth remained strong at 5%, and this was complemented by the incremental impact of recent acquisitions, partly offset by the disposal of OPM in France in February. Operating profit was up 22% to £88,600,000 with the operating margin increasing 60 basis points at constant exchange rates to 10% as a result of the recent acquisitions earning above average operating margins. In France, there was significant overall growth due to the recently acquired Headers business and strong performances in our Safety and Foodservice operations, partly offset by a weaker performance in our existing cleaning and hygiene business and the disposal of OPM. Hettas is integrating well and has already delivered considerable synergy benefits. In the Netherlands, revenue has increased in all businesses with particularly good growth in Healthcare following the gain of a major customer in the middle of 2017, and operating profit has increased substantially. Our business in Spain has continued to perform strongly. Sales grew well across all sectors, and margins increased, particularly in the safety businesses. As a result, operating profit increased significantly. In Turkey, revenue has increased substantially from new customer wins, extending the product range and price rises with operating profit increasing strongly. Finally, our safety business in Italy has continued to trade well In U. K. And Ireland, revenue increased by 11% to £626,000,000 as a result of 6% organic growth and the impact of acquisitions, partly offset by the disposal of the marketing services business in June. Operating profit was up 5% to £39,700,000 with the operating margin declining 40 basis points to 6.3% as the UK market continues to be challenging due to political and economic uncertainty. Both sales and operating profit in our Safety business were held back as market conditions remained variable. However, in the cleaning and hygiene sector, we have seen good revenue growth with several new customer wins. Our grocery and retail businesses have shown strong sales growth as a result of new customer wins and product range extensions with existing customers. Despite the challenges currently faced by the traditional bricks and mortar retailers, we have managed to grow strongly, providing additional product categories as we consolidate supply through our digital and service based capabilities. Sales have continued to grow within our hospitality business due to the continued rollout of a major customer win last year. Our latest acquisition, Agora, which was purchased in January, has further enhanced our service proposition. In rest of the world, revenue increased 14% to £368,000,000 with operating profit up 23 percent to £28,200,000 as the operating margin increased 60 basis points to 7.7%. Of the total increase in revenue, more than 4% was from organic growth with acquisitions accounting for the balance. Overall, our business in Latin America has performed strongly, the results of which have been boosted by Talge, our new foodservice business in Brazil. In Australasia, our business significantly improved its performance with renewed confidence in the resources sector, government investment in infrastructure projects and the region's growth in tourism. Now turning to strategy. Our consistent and proven compounding strategy to grow and develop the business remains unchanged and is based on the 3 key areas of profitable organic growth, improving our operating model and growing by acquisition. The best way to demonstrate the power of Bunzl's compounding strategy is to look at the long term financial track record. Our resilient business model, high cash generation and the ability to take advantage of market consolidation opportunities has enabled us to deliver consistent year on year increases in revenue, adjusted operating profit, adjusted earnings per share and dividends. Turning to the acquisition part of our strategy. Here you can see the track record of how we have grown the group through acquisitions since 2004. So far this year, we have acquired 4 businesses with a total committed spend of £132,000,000 You will have seen that we have today announced the acquisition of Ener in Norway, which was purchased in July. The business is engaged in the supply of a broad range of catering equipment. Enel represents our first step into the Norwegian market and means that we now have businesses in 31 countries globally. We currently operate across 6 different market sectors with most of the markets where we compete being very fragmented. As a result, even in those countries where we already have a presence in some sectors, there continues to be many opportunities for us to develop through acquisition in sectors where we do not yet operate. You can see these by the blue dots on the slide. However, our greatest opportunities to develop in any particular country are in the sectors where we already have a presence, represented here by the white spaces. And in addition, provided they meet our acquisition parameters, we would not rule out the possibility of expanding into new sectors in our existing countries as we have done in the past. When we look at growth opportunities in both our existing markets and potential new markets, they are significant. For example, taking our level of penetration in the U. K. And Ireland as a benchmark, if our existing geographic footprint in Continental Europe was the same relative size, our annual revenue would be about £6,000,000,000 compared with £1,600,000,000 in Continental Europe in 2017. With respect to potential markets, we see clear opportunities to build businesses in new countries, for example, in Poland, Sweden and Finland. So whether it's through expanding in existing or new sectors or by entering new countries, it is encouraging to know that we still have many opportunities to go for. You will no doubt recall that in February this year, I spent a little time talking about our ability to offer customized solutions as part of our competitive positioning within the marketplace. I won't talk today about all of the elements of our service offerings shown on this slide as that would simply take too long. However, I would like to spend some time highlighting 3 specific areas being our expert knowledge and advice, our value added services and our customized digital solutions. Without doubt, one of the most important aspects of our offering is our comprehensive range of innovative product and service solutions that we are able to provide to our customers. I'm particularly proud of our 3,000 expert salespeople across the group who are supported by 2,600 locally based customer service specialists. Together, they use their deep and detailed knowledge to work closely with our customers to ensure that they receive the best possible advice on a variety of product and service related matters, including range rationalization, sustainable product solutions and product innovation. As an example of how we assist customers with product innovation, in our U. K. Catering equipment business, our sales teams know from our type and quality of is directly affected by the type and quality of the tableware it is served on. Our research shows that for many dishes, a price uplift of up to 25% can be achieved if exactly the same food and drink is served on a more innovative and stylish stableware. We therefore offer an innovation service to customers, whereby we dine in their restaurants, taking photos of how their meals are currently presented. Back at BASE, we use our extensive product range to revamp their existing crockery, cutlery and glassware, so that we can suggest how the food and drink can be better presented in future, thereby enhancing our customers' profitability. When I became Chief Executive in 2016, one of my key priorities was to develop and enhance further our customers' experience when interacting with our businesses through the use of customized digital solutions. This has continued to be a key focus for us. Over recent years, we've rolled out state of the art digital platforms across many of our businesses, which give our customers the tools that they need to transact with us more easily. By improving the efficiency of their order processing, whether through specific dedicated web platforms or the availability of data analytics and budgetary controls, we built strong and long lasting relationships with our customers who recognize that we are a specialist in our categories, offering highly customized solutions. One example of this is the ability to integrate our e commerce solutions into our customers' own IT systems. We dynamically integrate our own catalog of products and related stock and pricing information directly into our clients' procurement systems using a protocol known as Punch Out. By doing so, our customers only need to access one system to place orders, thereby making the whole procurement process simple, efficient and seamless. We are also constantly looking at enhancing our service offering through the provision of new and innovative operational technologies such as sensor technologies for the management of washrooms in large buildings and asset tagging capabilities to assist our catering equipment customers in managing their assets in the most efficient way. Agora, which is a leading supplier of catering equipment in the U. K. That we acquired in January, is an interesting example of how an operational technology can provide a value added service to our customers. By using custom built software, Agora offers an asset tagging service through a database which provides their customers with invaluable management information relating to their catering equipment assets, such as warranty information, maintenance activity and replacement values. The database, which currently has more than 200,000 tech assets, can also provide senior decision makers with information for annual budget cycles and inform local site managers on whether it's more cost effective to replace or repair any registered assets. This value added service has undoubtedly enhanced our existing hospitality business in the UK, and we have already extended the service to a number of our customers. As you can see, this is a clear and concrete example of how we are continuing to strengthen our core product offering with specialist service solutions in order to increase the intimacy with and the stickiness of our customers even further. Before taking you through the prospects for the rest of the year, in summarizing what has been achieved in the first half, I'm particularly pleased that we have seen organic revenue growth increase to 5.2% and that the group has delivered a 14% increase in adjusted earnings per share. And now turning to the prospects. Although we continue to face mixed macroeconomic and market conditions, our strong competitive position, diversified and resilient business and ability to consolidate our fragmented markets further are expected to lead to continued growth. In North America, the combination of organic revenue growth, which has recently returned to more normal levels and the impact of acquisitions, should lead to good overall growth for the year. In Continental Europe, we expect to see a strong performance due to the benefit of organic growth and acquisitions net of the disposal of OPM. Despite a challenging market in the U. K. And the sale of the marketing services business in June, we expect U. K. And Ireland to develop further. And in Rest of the World, we expect to see strong growth for the year. The pipeline for acquisitions remains active, and with ongoing discussions taking place, we expect to complete further transactions during the remainder of the year. The board is confident that the prospects for the group are positive and that the company will continue to develop the business and build shareholder value through a combination of organic growth and acquisitions. Thank you for your attention. We are now happy to take your questions. Morning. It's Paul Checketts from Barclays Capital. I've got 3, please. The first is on there's a lot of attention at the minute on North American cost inflation. Can you break out for us some of the key pockets of that for you and where and how much you're seeing and the steps you're taking to offset that? The second one is on could you give us the proportion of sales that are coming from e commerce, that bracket now, whatever you included in that EDI and apps, etcetera, and the sense of the growth you're seeing? And then the last one is, you talked about the extension of the product range in grocery in the UK. Could you elaborate a bit on what additional products you're offering and what the connotations are for returns, please? Okay. Let me take the first two. Maybe you can do the last one. North America cost inflation. Yes, obviously, we've seen the current administration take certain measures on stimulating the economy. Economy in the U. S. Is strong. I think this has led to a tight labor market. So you see that mostly in the areas of sort of warehouse drivers, although our drivers are not long term sort of drive. They're not away for a number of days. They go in and out for the day. I think this element has probably had a bit more impact on us than normal of temps right now. Also our overtime is higher than normal. So we are in the process of looking at how we can bring the number of temps back. What we know from the business is the productivity of our own staff in the warehouse is higher than from temps. And so we're working hard to reverse that situation, but you need to put it in the context of a tight labor market. And I would say the tight labor market is a consequence of the stimulus implemented by the current administration. On the other hand, we shouldn't forget that the of our 14% EPS growth at constant exchange rate, about 4% is the tax reform in the U. S. So yes, you see a bit of upside on the operating cost, especially from the additional volume. But we've seen a significant impact on a net positive impact from taxes coming through. Having said that, obviously, we're working to improve that situation in the future. On your second point, we are very busy in terms of rolling out and implementing e commerce platforms around the world. So we've continued to do that also this year. And our overall percentage EDI, web, digital orders is above 50%, and is tracking certainly in the right direction. More talent coming in, more younger sort of e commerce managers, tools. We've spoken about hybrid, we've spoken about Inter Shop. So a lot of focus in the business, and the percentage of orders is moving up. In that context, I think it's important to realize that don't think of Bansal as passing people on the Internet ordering a box here and there. Given the average size of our customers, and you remember from the full year presentation, only 5% of the business is with what we call slightly smaller customers. Given that it's bigger customers, the agreement we make with customers is well done before the order stage. So we do with business facility management companies or large retail grocery accounts. We sign an agreement. We agree on the prices. And then the web shops are much more transactional following their decision. So somebody in a large grocery supermarket chain in the U. K. Or in the U. S, they are not able to order wherever they want. It's a compliance thing. That's the whole reason for doing business with Bansal also, that they make sure that they capture all their transaction with 1 suppliers and try to get the best possible deal. Do you want to say something about the retail? Yes. On the point, your question on product range extension in the U. K, particularly in the grocery and retail area, we're referring there again to e commerce related products. So if you remember, we bought Woodway packaging just over a year ago. We bought Lightning packaging in the last 12 months. And they provide an offering to our traditional customers in their e commerce channels. So it's things like packaging you would receive from 1 of the large retailers, grocers of an item that you acquire online, gets delivered to you at home. But you're not looking at just basic corrugate. You're looking at more of an experience, more high end packaging to make that sort of online experience a wow experience. So it's those types of products that are allowing us to expand our range. Thank you. It's Alex Mees from JPMorgan, CASNOV. 3, please. 2 again on costs and 1 on tax. Firstly, you referred to an organizational restructure and streamlining in North America. I'm wondering if we should expect a material uplift in operating margins from that and if so, over what time frame? Secondly, you mentioned that the margins in Continental Europe, which shows some improvement, have been driven by the acquisition of higher margin businesses. I'm wondering what the underlying trend is, please, for operating margins. And finally, on the outlook for cash tax, I'm just wondering if we should expect to see any benefits from the recent change in U. S. Federal tax rates flow through future periods of cash tax? Thanks. Let me answer the first two, and Brian can deal with the tax. Restructuring in the U. S, basically this is not the kind of significant amount of people will be affected. It's a smaller management group where we used to have managers by location. There's a kind of clustering happening and integrating 2 businesses together. So no significant uplift from that on the margins. There will be some one off costs in the second half, but that will be offset by the reduction in help going forward, but there's no significant change in the operating costs. It's really about focusing our businesses on the segments of last couple of years, It's a bit of an adjustment to where our customers are going. So think of 1 guy running a location that's now going to be more like a market manager taking care of a number of branches instead of 1. Continental Europe, we normally don't sort of comment on underlying margins by business. But certainly, the Headies business was an acquisition that was above the average, and that's also why the business has moved towards a 10% operating margin business. In terms of the cash tax, certainly, we expect there to be a positive effect of the lower federal tax rate in North America. That won't flow through immediately because you pay your taxes based on a prepayment system based on the taxes paid in the prior year. But as we move through 2018 into 2019, cash tax will come down from the level it was in the first half this year. Rory, next question? It's Rory McKenzie from UBS. Firstly, again, maybe on the U. K. Product range. I wonder if you talk about actually plastics, given the public pressure to reduce use there. Are any of your customers yet increasing discussions about new products? What can you offer them to help? And would you expect any impact on your business from any shift in that area? 1 on the working capital, Brian. Can you talk about what's behind the outflow from receivables in H1? And then just lastly, sorry, back again on North American costs. Does this restructuring at all suggest that the new contract was struggling to reach the margin targets or why you felt the need to change the business structure now? Thank you. Okay. Well, obviously, there's a lively debate on plastics, especially in the U. K. And this is certainly an area where our management and the large sales force we have is taking a very proactive role with our customers. This is where you can really add value as a specialist distributor. We were already focusing a lot on the topic. If you think of, let's say, plastic stirrers in coffee cups, almost everything has already moved to wooden stirrers already. So the a lot of things have already happened. What we do see is that the more sort of obvious products, you look at how things are moving, you do see that because we are not a manufacturer, we are a distributor and we are a one stop shop supplier, we always supply also the alternative. And the alternative is often more expensive. This is why in the first place people were using these products because it was a good product, it was often capable of dealing with food items very well, and it was very well priced in terms of cost. So we do see that sort of moving. Overall, whether it's going to end up longer term is very difficult to say. But certainly, if we do detailed analysis now on the recent movements, we don't see any negative impact. It's a bit like the plastic carrier bags a couple of years ago. Almost 90% of these carrier bags, single use carrier bags were reduced. But we are selling the bags for life. And you all know you have a couple of them in the back of your car and at home, you keep on buying them because you forget the overall sales in the product group is still the same. So we are a distributor. Our sales team, they are specialized. They know what they're doing. We, as Bonzel, also take part in active discussions because certainly in the U. K, the issue is more collection and segregation because a vast majority of the products are also are already recyclable. So this is where we deal with the the collection is and the recycling capacity is increasing. Maybe you can take the second one, Brian. Yes. The question on working capital. I guess, Rory, you're looking at the balance sheet and working trade and other receivables are up £40,000,000 Actually, it's not very much at all because if you strip out acquisitions and exchange, right at the back of the press release on the working capital movement on Page 36, you can look at it later, there's actually only a £7,900,000 outflow, which is actually remarkably low given the organic growth in the business. Your question on based on the profitability on the additional business, very good question. And there's a number of ways of looking at that. And it really comes down to how do you allocate your costs. If you would say, okay, we've taken a lot of cost on and we are also running on a too high level of temporary label right now. If you would allocate just the temporary cost to the new contract, you got a different picture than if you do that based on averages. I think it's fair to say that, let's say, the profitability on the account today is below where we thought it would be when we took it on. But 18 months further, I think we've seen also a much tighter labor market. And the teams in the U. S. Are really focused on trying to lean out the situation by reducing the number of temps, reducing the overtime. But in the context of a tight labor market, that is a challenge. But there is a lot of focus on the topic, and we are hoping to improve the situation. 3, if I may. Rajesh Kumar from HSBC. Could you give us some color on the split of growth between price and volume in the key geographies? Second is, when you talk about cost pressures in the U. S, can you describe how that cost pressure looks at the end of your customers and the suppliers? And when do you see that cost pressure When do you see yourself in a position that you can pass through such cost increases in the selling prices effectively? And finally, when you talked about basically the productivity of temp staff in the contract versus productivity of the in house staff. You said in house staff has got higher productivity. When you're doing these productivity calculations, are you thinking about volume delivered per staff or gross profit per staff? What is the metric or what is the thinking behind such a calculation? If you could give us some color around that, it will help us understand. Thank you. Okay. Well, price volume, you've seen we've reported a 5.2% organic growth level. About 4% is volume growth. The rest is price in the first half of the year. The let's say the cost pressures, you may remember us talk about a couple of years ago about deflation having impact on the business. Certainly in North America, a large part of our business is operating on the basis of cost plus to the grocery accounts, the retail accounts. We've seen in the first half some inflation just above probably above 1%. And we expect that to continue also in the second half. So where we see tight labor conditions, where the vast majority of what we buy in the U. S. Is coming from the U. S, you would think that the factories and our suppliers are also being impacted by cost pressures, but also by raw material movements. So we have seen some inflation on the product cost and that automatically almost feeds through to the sales and we expect that to continue in the second half. So we've seen some inflation, which is good. In terms of productivity and temps, yes, we really look at some sort of warehouse statistics, the number of boxes picked, the number of errors made, and then you see that obviously somebody who's been with Bonzo for 15 or 20 years knows exactly where to go, how the procedures work, that it's more efficient. And that's why it's so important to try to replace the temps with fixed employees. Thank you. Could you talk a little bit about the UK, please? 6% organic growth margins down 40 bps. Could you maybe break it down a little bit, the margin composition for the first half? Thank you. Yes. Well, first of all, I'd like to step back a little bit when we talk about the U. K. If we look at the let's say the context of the U. K. Of, let's say, political issues and there's a lot going on in the U. K. Seeing growth of 6% in the U. K. Is actually quite strong. Now we've seen the margins come down by 40 basis points. Is mainly in our larger business, largest business in the safety sector. And that really comes down to sort of variable market conditions in their business, safety industry. You've seen the London market not particularly strong in terms of construction and other areas. So it's really around the safety business. The rest is pretty good. Could you remind us how big private label is in the U. K? And that's very high for safety, right? So it's a currency impact? No, no, no. As you bring dollar denominated product from China into the U. K, that is difficult to recover the currency impact? That's not what we're seeing in the first half of the year. It's more a volume effect into the sales to those end markets that Frank highlighted. With regards we import about 20 percent well, own label and imports in total are about 20%. I think imports are about 14%, something like that, of the 20%. As the year progresses, obviously, we have a hedging strategy in place. So we haven't been impacted by the weaker pound as yet. But obviously, an ongoing focus for us is always to adjust prices. So as the year progresses, we'll have to keep an eye on that given the relative weakness of sterling in recent times, but that's more to the back end of the year. And remember, we had an even more dramatic impact or a dramatic hill to sort of climb when post June 2016. We did pretty well at doing it then. So I would think that's just day to day business for us. But the first half margin reduction is not to do with that. And what would have been the growth rate if you strip out the catering win, please? What's the underlying? Haven't got that to hand, Mark. Kat Hor from Veritas. Thinking very long term about your more mature businesses, so things like grocery in the U. S, when you're thinking about taking on a new piece of business and you're looking at how much organic growth you can get against what margin you can make on that business, is there a floor that you have in terms of margin? Or how can you can you tell me how you think about that offset, please? Well, obviously, you know our average returns are well above 50% in terms of return on capital. When you deal with a large account and you've got the ability to take on additional business and your trucks are often going there already and you've got also the opportunity to sign the largest supermarket chain in the world for 5 years, you know you sometimes take a view. And certainly, we make the calculation, we look at the incremental business, we cost it well. And if we feel we can make returns well in excess of our WACC, obviously that is something that we would do in specific cases. Almost look at this as an acquisition. It's a large piece of business. And if we buy a business and we pay, let's say, 8 times for it, our return on invested capital is about 13% initially. Now our return on capital is like 50%. We'd like to do as much as we can in 50%. This was an isolated case of taking a view on extending a contract for a period, making sure that not somebody else would sort of come in and make returns. But we need to work hard to get to the returns that we are where we were planning for. It's Andy Grobler from Credit Suisse. Just one for me, if I may. Margins in Rest of the World were very strong, up 60 basis points. Could you just disaggregate some of the moving parts that led to that improvement, please? Yes. I think the biggest contributor were basically Australia. We've seen our BOSS business just delivering good progress, but especially the business that was suffering a couple of years ago, we saw the safety business that was really depending on the resources sector. We've seen the positive impact from a restructuring that we implemented last year. And we are hoping to rebuild volumes going forward so that can contribute further. Also positive impact was the acquisition of Talje, the foodservice business in South America. And our sort of Latin, sort of Chile, sort of non Brazil businesses have shown very strong progress where Brazil was a little bit weaker. But overall, strong progress, Safety Business Australia strong contributor and also the acquisition of Talje and good performance in Chile and surrounding countries. Okay. So it was mainly underlying in country underlying improvement rather than It was a combination of underlying and acquisitions. Okay, great. Thank you.