Earnings Call: H1 2020

Mar 4, 2020

Good afternoon, ladies and gentlemen. Welcome to our today's presentation on our half year results. I will start the presentation with some overall comments on the half year results, followed by our CFO, Bernd Brinker, who will talk about the financials in more detail. Afterwards, we'll be available for your questions. Our first half of financial year in brief. We generated sales of CHF1.385 billion. Currency translation had an impact of minus 2.1 percent and the effect from acquisitions and divestments were at +0.5%. We achieved organic sales growth of 0.8%. EBITDA declined to CHF 214,100,000 and was affected by some extraordinary nonrecurring costs. These extraordinary one off costs make up around 0.5 percentage points. This leads to an EBITDA margin of 15.5%. This is slightly below the level of the second half of financial year 2019, which was 15.8%. Our net profit stood at CHF119.4 million. Now I'd like to give you more insight into the performance of our five segments. Let me start with the segment, Access Solutions Americas. After 2 consecutive financial years without organic growth, the segment returned to organic growth of plus 1.4%. EBITDA margin was at 20.9%, which is still on a high level. Growth was driven by door hardware, mainly door closers, Safe Locks, interior glass systems and the lodging systems business in North America. Latin America contributed to growth as well, driven by an improvement in Mexico. The challenges with the technical systems and infrastructure at Meske, our business with hollow metal doors, continued to affect both the top line and profitability in the first half of the financial year twenty nineteen-twenty twenty. While the technical issues have since been resolved, performance will be affected until the end of this financial year as our business continues to regain customer trust. The segment benefited from the acquisition of Alvarado Manufacturing, which was acquired last July and has been accretive to EBITDA margin and earnings per share from day 1. Over the past 4 years, AS Americas has been working on the optimization of its production footprint by consolidating various smaller locations into major production hubs. Since 2016, the segment has closed 8 production sites and will continue to optimize, which will lead to a higher efficiency. The segment expects further organic growth in the second half of financial year 'nineteen-twenty 20. Door hardware, Safe Locks and interior glass systems continue to benefit from their momentum, and the lodging systems sees increased new construction and retrofit demand. In addition, Mesker is expected to further improve. Our next segment is Axis Solution, APAC Asia Pacific. Organic sales growth was slightly below prior year with minus 0.3%, which is better than the relevant competition. The EBITDA margin is at 15.2%, which is 0.4 percentage points lower, but due to effective cost management still on a good level. We saw continued strong growth in China with double digit organic growth rates in the first half year. This is despite a significant slowdown in Hong Kong due to political tensions. Growth was reported mainly in the product clusters Safelux, electronic access and data, services and particularly for entrance systems, so the walling doors and automatic sliding doors. Huawei's OEM business for the U. S. Market was impacted by the ongoing trade conflict between China and U. S. The business has initiated countermeasures such as starting to shift capacity to Chinese domestic customers and in sourcing of production. While we saw sales increase in the Pacific region, Southeast Asia still felt the effects of a weaker construction market. In India, growth was impacted by delays in project business. However, we expect strong growth during our second half year when these projects are going to be executed. In principle, the business will be well positioned for further improvement of performance in our second half year. However, we expect COVID-nineteen to have a negative impact, which cannot be quantified as of today. We already experienced a negative impact on the China domestic business and probably also on our supply chain. Mitigation of that situation has our full management attention. We are continuously assessing the situation and its overall impacts and taking the necessary measures. I'm going to the next slide with Axis Solutions DACH, Germany, Austria, Switzerland. The segment reports organic sales growth of 0.7%. It experienced good growth in Austria and particularly in Switzerland. Despite stable demand and a good order book, sales growth in Germany was slightly negative, mainly due to delays in the project business. The EBITDA margin was at 16.9%, which is below previous year's level. We had positive effects from higher sales prices, post merger integration synergies and cost efficiencies, but negative effects of labor cost inflation and lower volume outflated and therefore impacted the profitability in some of the German and Asian production plants. We have already started to address the profitability issue as part of a new program. This program covers in particular a major German site in EMEA Petal. Measures have been initiated, which include: 1st, strengthening of management 2nd, improvement of the entire supply chain, including further automatization and third, flexibilization of production. Beside the final measures, which we currently implement as part of the post merger integration by end of June 2020, we agreed with the work council on a further reduction of around 100 jobs, which is to be implemented in the next financial year starting July 1, 2020. By realizing the remaining post merger synergies in Germany, we expect some support of the EBITDA margin for the second half of financial year 2019 2020. Now some details on Axis Solutions EMEA, Europe, Middle East and Africa. AS EMEA achieved organic sales growth of 1.4% and improved profitability with an EBITDA margin of 8.1%. Please be aware that dormakaba's margins are allocated mainly in the plants, and AS EMEA bears responsibility for only a few plans. From a product cluster perspective, engine systems, services and mechanical key systems, cylinders, contributed the most to growth. They had strong sales to retail chains in Russia and airports, including Heathrow and Chipol. Sales growth was driven by high single digit growth rates in Central and Eastern Europe, where the business gained several new projects and market demand was strong. UK and Benelux as well as Southern Europe contributed to organic growth and also sales in France were above previous year. Sales in Scandinavia were below previous year, particularly due to the weak performance in Norway. We restructured the business, which includes centralization of key functions such as finance, procurement and customer care, and the sales organization and the leadership have been reorganized too. On to the last segment, Key and Wall Solutions, on Slide 9. Key and Wall Solutions reports an organic sales growth of 2.8% and an increased EBITDA margin of 15.0%. The performance was driven by movable walls, which overcompensated the negative deviation of the Key Systems business unit. Key systems experienced lower sales in all regions due to lower demand for key cutting machines and a weaker OEM automotive keys business globally. Fewer key replacements and a weaker automotive in U. S. Contributed to this decrease. C Systems has initiated measures for its U. S. Business to protect its margins. Movable Walls delivered very good results. The business unit had a strong double digit sales growth, particularly in North America. We also see a continuous positive contribution from increased automatization at the production site in Ohold, Germany. Key objective of this ongoing program is a sustainable improvement of the cost base and an increase in efficiency in the European mover walls business. Now to the changes in the executive committee, which we announced in the period under review and today. As announced last November, Steve Week has taken over as COO for the segment AS EMEA as of January 1. Today, we announced that both Michael Kinkade, COO AS Americas and Jurgen Lichtenberg, Chief Manufacturing Officer, will step down from their respective positions and as members of the Executive Committee as of 30 at the latest. As new COO AS Americas, the Board of Directors has appointed Alex Houston. He will be joining dormakaba as of April 1. After an onboarding period, Alex will assume responsibility as COOAS Americas and joining the Executive Committee on July 1 at the latest. With Alex Houston, we were able to attract a senior industrial executive with outstanding track record at United Technologies, UTC. Under the leadership of Alex, we expect AS Americas to accelerate profitable growth. With Jorg Lichtenberg intending to leave the company, it was decided to discontinue the CMO role. Over 4 years after the merger, the company's new operating model is well established, which allows management to reassign the CMO's respective responsibility within the organization. The above changes enabled dormakaba to take the next step in corporate development and organization setup, thereby further improving its efficiency and effectiveness. At the same time, the executive committee will be renewed and streamlined further. Since the merger, the number of EC members was reduced from 11 to 8. As you all know, we invest considerably in innovation. So to close my session, I would like to present an example from our innovation pipeline, the best switch core. This product brings the advantages of mobile access to a standard mechanical lock as it installs in minutes by just replacing the mechanical with a digitally controlled core or cylinder. Using the lock is easy. A user activates the system by simply touching it and using the mobile phone to unlock the door. Despite advantages on the user side, there are also benefits administration side. Mobile credentials reduce the risk of key or core replacement, and our device is not only opened but also administrated by the mobile phone. With this product, we are offering an easy to install budget solution for upgrade to digital with good potential in the U. S. Retrofit market. We also provide a 2 minutes long video, which will give you an idea how the product works. You can find it in the download section of this webcast or via the link we implemented in the presentation file. With this, I close my part of the session and hand over to our CFO, Bernd Brinker, for more insights in our financials. Bernd, please. Thank you very much, Rohit. A warm welcome and good afternoon to all participants in the call and in the web session. We achieved organic sales growth of 0.8% in the first half of the twenty nineteen-twenty twenty financial year. Overall, however, sales were down by 0.8%. Currency translation effects caused by the increasingly strong franc push the headline figure down by 2.1%, while the positive net effect of M and A was 0.5%. EBITDA went down by 4% to reach CHF 214,100,000, giving an EBITDA margin of CHF119,400,000. This reflects lower operating profit, higher expenses from the financial result and an improved income tax rate. Let's move to the next slide, which is about sales development. The upper right part of the slide shows the drivers behind the change in sales compared with the previous year. The greater strength of the Swiss franc against some of our key currencies led to a negative currency translation effect of CHF 28,400,000. You can see the main currencies and the way they changed against the Swiss franc in the box at bottom right. You will notice that the Swiss franc became stronger, in some cases significantly so, against all our important currencies apart from the Indian rupee. This appreciation took a toll on our figures. We achieved a CHF 10,500,000 organic increase in sales. The AS Americas, AS EMEA and Key and World Solutions segments deserve particular mention here as they accounted for most of this rise. Overall, our organic growth came to 0.8%. M and A transactions accounted for a net CHF 7,100,000 increase in sales. This includes 2 transactions in the U. S, the acquisition of Alvarado in July 2019 and the divestment of part of our DAW hardware service business in December 2018. Our sales performance was negatively affected by both internal and external factors. Let's start with internal factors. Internally, our U. S. Manual door business, which is Mezger, continued to suffer from the late consequences of the problematic migration to new ERP platform from the associated delivery issues and, as a result, from customer dissatisfaction. Our Scandinavian business also underperformed the previous year, owing to internal difficulties and lower market share, especially in Norway. Externally, the main issues were the continued trade dispute between the U. S. And China, the weak economic environment in Southeast Asia and Australia and the economic impact of political tensions in Hong Kong. All of these factors just mentioned did influence our financial performance already in H2 of last financial year and were part of our guidance. Only the Hong Kong impact has started in the current financial year and was not known at the time of our guidance at the beginning of the current financial year. Overall, sales for the first half of twenty nineteen-twenty twenty financial year came to just under CHF 1,400,000,000. Next slide is about EBITDA development. The internal and external factors just mentioned as influences on sales undermined profitability, too. ASDAX result was also affected in particular by lower volume. Outside of operating business, there were extraordinary and nonrecurring costs of CHF 7,000,000 during the period under review, which took 50 basis points off the EBITDA margin. This was more than enough to offset efficiency gains and remaining cost synergies from the merger. Currency translations effects reduced EBITDA by CHF 3,900,000 while acquisitions and disposals resulted in a net increase of CHF 5 500,000. The acquisition of Alvarado in the U. S. Deserves particular mention here as it had a very positive impact on earnings has performed very well so far. Let's turn now to the income statement. The gross margin, to start with, is more or less stable at 42.5%. The 3% rise in sales and marketing costs reflects our investments in market development. At the same time, we were able to trim our general admin costs by more than 4%, thanks to our rigid cost management measures. Spending on R and D appears at first sight to have gone down slightly. However, it should be noted that we capitalized some R and D projects. If we adjust for the expenditure involved, the R and D ratio rises to 4.0%, which is slightly higher than the previous year and in line with our guidance of 4% to 5% of sales. The net financial result was affected by 3 factors in particular. 1st, the acquisition of Alvarado in the U. S. Generated interest expenses during the period under review for the first time. 2nd, majority of our financial debt is in the U. S, the decline in interest rates in the reduced our interest expenses. 3rd, the previous year included a book gain from the sale of the minority stake in Izeo. The income tax rate improved slightly from the previous year, 25.5 percent down to 24%. Overall, net profit fell by CHF 7,300,000 or 5.8 percent to CHF 119,400,000. Now let's move to the next page, which is about cash flow. There was a pleasing increase in operating cash flow during the period under review. In particular, we improved significantly in terms of net working capital management. And how did we use this cash? First of all, we invested around EUR140,000,000 in expanding our business portfolio, which means in acquisitions. As announced, we also invested heavily in our existing business again. This included consolidating and developing our worldwide locations at an investment of more than CHF 50,000,000 during the period under review. This CapEx is equivalent to 3.6% of sales compared with 3.2% in the previous year. The very low prior year figure for cash flow from investment activities of only minus CHF 4,800,000 looks rather low and needs explanation. It was compensated or influenced to a large extent by the proceeds from the sale of our minority stake in IZEAO. We improved our overall operating cash flow margin significantly from 7.5% in the previous year to 10% during the period under review. Next slide is about net debt. Our net debt increased by around CHF 70,000,000 during the period under revenue. This rise was due to the payment of dividends for the full financial year 20 eighteentwenty 19, totaling CHF 125 point 5,000,000 and to the acquisition of Alvarado, which taken together exceeded the operating cash flow in the first half of the current financial year. This increased our leverage, I. E, ratio of net debt to EBITDA from 1.7 times in the previous year to now 2.0 times. The core of our funding rests on the 2 bonds issued totaling €680,000,000 that we placed in October 2017 that put our financing on a very solid long term footing. With regards to the impact of our financing on interest expense, it should be noted that we use most of the debt to finance our U. S. Acquisitions and activities. So we have to swap funds denominated in low interest environment Swiss francs to the U. S. Dollar, which is more expensive in terms of interest rates. We have scope to increase our debt still further if we want to make any additional investments in acquisitions and growth in order to play an active part in consolidation of our industry. We have further financial room for maneuver up to a leverage of 2.5 times. We could even push the ratio higher on a temporary basis. With that, my final page is about guidance and business outlook for the current financial year 20 nineteen-twenty. The market environment in the major regions of North America, Europe and Asia has become even more demanding and challenging than at the start of the financial year. We believe there will be a good market environment in North America and a challenging one in Latin America, a mainly moderate market environment in Europe and a moderate market environment in Asia. However, this assessment is overlaid by the implications of COVID-nineteen. There are already clear strains in domestic China in February. The effects in other parts of the world are still unclear, but are a matter of concern. We also regard current political conditions and growth indicators as volatile and uncertain. This uncertainty will continue into the second half of our financial year. We expect COVID-nineteen to have no visible negative impact on our markets and our earnings performance in the second half of our financial year. It is impossible to predict the extent of this negative influence on globally networked supply chains and economic growth. Under these conditions, we no longer expect to see higher organic sales growth and a higher EBITDA margin for the 20 nineteen-twenty twenty financial year as a whole. We now believe that both figures, organic growth rate and EBITDA margin, will be somewhat lower than in the previous year. Given the challenging nature of the environment, we will be reviewing our medium term goals in the coming months. We will continue to invest substantial amounts in innovation and in our digital transformation because we believe this is vital for our long term competitiveness and for sustained profitable growth. Thank you very much for your attention so far. And with that, I hand back to the moderator. The first question is from the line of Martin Flueckiger, Kepler Cheuvreux. Please go ahead. Good afternoon, gentlemen. Thanks for taking my question. First question I have and I guess the follow-up would be the second. The first question I have is on your massacre business. What is it exactly that gives you confidence that you will regain trust of those customers that it appears you have temporarily lost? So what are the measures there with regards that was my first question with regards to Maerskirk? And possibly also if you could talk a little bit about those higher freight costs that are mentioned in the report. Are these fuel driven? Are these driven by the lack of transport or the lack of drivers. What is causing that? And what's your expectation going forward? That would be my first question. And then the second one is on AES stock. What was the main reason for the lower sales volumes in H1? Was it just volatility in large projects? And if it was, when do you expect to catch these volumes up again? Thank you very much. So thank you, Martin. This is Riel speaking. Let me start with the we have allocated more sales resources to the Nescar business, number 1. Number 2, we have defined special promotion activities in order to regain customers' trust. Underlying, of course, is we regained our supply readiness, and I can confirm that we have achieved that. So therefore, for the remaining months of the fiscal year, it's really about the 2 activities that I mentioned, reallocation of sales resources and special promotion activities. With regard to freight, I hand over to Bernd. Martin, freight is closely correlated with the issues which we have with the production and with our relation to customers. So it's not about higher fuel costs. It's much more about we usually, we have quick ship projects and we have product available quite quick as well. Now we have we had issues and continue to have issues in delivering products to customers, and we had to overcome this by introducing much quicker transportation, which we did not do in the past. So therefore, we now have much higher freight costs compared to the past. Those freight costs are expected to normalize once we have, let's say, basically fixed all the issues, especially now with our customers who are still concerned about our ability to deliver according to their needs. But technically, and that's what we had mentioned earlier, technically, we have resolved all those issues. So now it's much more addressing customer needs in the markets. With regard to AS DACH or better the German topic when it comes to sales growth. So underlying demand and order book for Germany are still good. As I said, sales growth in Germany was slightly negative, mainly due to delays in the project business. Project business is normally electronic access and data business in there. So volumes in Germany have already improved at the end of the first half year, so we have seen improvement in November December. And the business expects that Germany returns to organic growth for the financial year 'nineteen, 'twenty. And in addition to the low growth in Germany, the segment had to digest low internal demand for door hardware product in its plans in Singapore and China. That's the entire picture when it comes to Germany and the corresponding decline. Perfect. Thank you very much. The next question comes from the line of Bernd Pomrehn from Vontobel. Please go ahead. Yes, good afternoon, gentlemen. My first question is regarding the net profit attributable to minority interest. It seems that this net profit has slightly increased historically, always 47.8 percent of the net profit was attributable to minority interest. Now this ratio has increased 48.7%. So was there any change in the ownership structure of the Domakaba Holding, GmbH and Kockage Okay, Bernd here. No, there has been no change at all. The let's say, the ownership structure in the CAGR is one driver of minority interest, but not the only one. We have other smaller here and there joint ventures with other third parties, and this is the driver for this small deviation. So it's obviously developing over time according to also the profits of those minority shareholdings, for example, IZEA, which is not part anymore of our groups. But to reconfirm, the KGaA structure is unchanged. Okay. Okay. Good. And then the second question, please. You disclosed the acquisition price for Eldorado, and we see that you paid slightly more than 4 times sales for this bolt on acquisition. Is this an acquisition multiple we should expect also going forward because it seems somewhat higher than the historic acquisition prices you paid? Fariets speaking, Alvorado has a very attractive financial profile, which justified the investment. Alvarado has also strong growth rates, strong access to an attractive vertical and innovative technology, which we can leverage. The acquisition multiple is in line with what is currently paid in the market for a company with such a profile. And up to today, we are very happy with the acquisition. Okay. Thank you. The next question is from the line of Andreas Muller from Zurcher Kantonalbank. Please go ahead. Yes, hello, everybody. Thanks for taking my question. One is, can you give a status of the order intake by the end of February? I think you mentioned something in China that it was worse, of course. But how do you see there the organic growth or the organic decline in China, in particularly, and also in the rest of the world? Have you seen already something in the order intake from airports, from stadiums and so forth, which is worth to mention? That's the first question. And the second question will be, can you dissect a bit the extraordinary cost, the 50 basis points into that individual items, please? Thank you. I'm going to start with incoming orders status February. We indicated and continue to say that we have very good backlogs in Germany as well as in India, driven by project business. So that continues to be strong. What is clearly weaker is China domestic, okay? I mean, January was China's Chinese New Year. February was weak, driven by coronavirus, and we expect March also to be weak, China domestic. Okay. Andreas, with regard to your second question, extraordinary nonrecurring costs. In the first half, we disclosed an amount of €7,000,000 which translates into roughly 50 basis points on EBITDA margin. The main drivers for those nonrecurring extraordinary costs are certain projects, especially some M and A projects and smaller restructuring here and there, which is not expected to be non to be recurring. What it should indicate you at the same time is that we continue to work on M and A projects. Not always we are successful in executing those projects. And those costs, which you have seen now, are part of non successful transactions. But we, at the same time, continue to work deliberately on potential M and A transactions in our pipeline in order to grow our business not only organically, but also inorganically. As I mentioned earlier, our industry is quite attractive for M and A transactions. And so therefore, we also continue to work on M and A transactions. Okay. Thanks. And coming back to the first question, I mean, the rest of the world, the U. S. And so forth, in terms of order intake, large projects from, say, transport infrastructure or leisure infrastructure that you see there? Anything, I mean, you mentioned in the hotel business that you've got a project which you're working on, but say for the rest, do you have you seen already some hesitance to order? We don't see hesitance with regards to orders expect China domestic. So it remains within that guidance of the last page shown by Bernd Brinker, where we clearly said that Americas, we expect good growth, except Latin America EMEA, largely moderate growth and Asia Pacific, moderate growth. So that is still what we see. Again, when it comes to coronavirus, domestically, China, we see the negative impact driven by February, and we expect also a weak March. While we don't see yet the coronavirus chain and therefore also our growth. Okay, thanks. The next question is from Fabienne Eki from UBS. Please go ahead. Mr. Aki, your line is open. Can you hear me? Yes. Okay, good. I got a question on your midterm 2021 targets that you're currently reviewing. Is that something structurally you find out is not achievable post merger? Or is it more a timing matter? Is it more a market matter? It seems that COVID and other operational issues are rather temporary. So can you elaborate a bit why you are in the process of reviewing this target? So we always said that we need a good macroeconomic environment to achieve our midterm target, which is currently definitely not the case. And therefore, we will review, as we said, our midterm targets carefully in the forthcoming months. And despite that, we will continue to invest significantly in innovation and digital transformation, which we consider as crucial for our future competitiveness and for a sustainable profitable growth. Now nothing fundamental has changed. I mean, let's just again recall. Dormakaba today is a global one stop shop. 2nd, dormakaba made the technology leap from electronic to cloud based and third, dormakaba became a strong number 3 in the most attractive market in our industry, which is the United States. So strategically, we are well kind of designed. Nevertheless, given the economical environment, we will, as we said, review our medium term targets driven by the Executive Committee and then also being discussed and challenged with the Board of Directors. So you can expect us to say more when we are going to present our full year results in September. Okay. Then I got one follow-up or one other question on I think at Key Systems, you have plenty in Northern Italy, right? Is there any interruptions or other changes to be expected from COVID? I confirm that we have a sizable factory in Vittoria Veneto. And so far, we don't have a business impact there. Of course, we have taken all the measures that are necessary because we have always two goals when it comes to coronavirus: 1st, to protect our employees and their families and second, to keep up our supply chain. And that's what we did in China with our 3 factors in China and have also to continue to do so in Vittorio Veneto. But so far, no impact. By the way, so far, none of our 16,000 employees has been really affected in the sense that somebody has the virus as of today. Okay. Thank you very much. The next question is a follow-up from Martin Flueckiger. Please go ahead. Yes, thanks for taking my follow-up. And I've got 2 again, if I may. Just coming back to those restructurings and efficiency improvement programs in AS Americas and AS DACH, actually Germany, as you were mentioning earlier on, could you give us an idea of what kind of total additional cost savings we're talking about here from these new initiatives? And what is the phasing of those over the next 2 years? That will be my first question. And then the second one is on Key and Wall Solutions. My understanding is that Key Systems was hit unsurprisingly, I guess, by a weaker OEM automotive key business, but also other factors. So what are the mitigation measures here that you're taking to protect the unit's margins? Okay. Let me start with Germany. So as we announced, in addition and I'm talking now about Germany. In addition to our final activities driven by the post merger integration program, we agreed with the work councils for a new program, and we are going to cut another 100 jobs, mainly in NEPETAL in Germany. So just to make it very clear, this financial year till end of June, finalization of the PMI. As of next year, starting July 1, this additional measure with that further reduction of 100 jobs will be executed. That is important to understand. We do so in order to achieve the goals that we have defined when we merged. That is a measure to catch up in order to achieve what we promised at the time. That is with regard to Germany. With regard to key system, it was mainly driven by automotive. So automotive is not really a surprise from that perspective, but happened. And there, we respond with efficiency program that with which we target our activities in United States. That includes the factory in Rocky Mount. Okay. And can you just provide an idea of how many millions of additional cost savings you're hoping to gain? Also here, of course, we have, of course, per segment defined what has to be achieved in order to deliver what we once promised. So with these measures, we would like to come back on track with regard to Key Systems margin. Okay. Thanks. So just margin, just to give you an indication for Key Systems, former profitability level. Thanks a lot. The last question comes from the line of Bernd Poortenbrand, Von Tobel. Please go ahead. Yes. Thank you. One add on question, please. In the last financial year, you already increased the share of the R and D expenditures, which you capitalized? You mentioned in today's call that you again increased the share of R and D expenditures, which you are capitalizing. What is the reason for that? Are these more long term nature projects? Or what's the reason behind? Thank you. Yes, you're right. And indeed, we increased the number of projects, which we intend to capitalize or which we are in the process to capitalize. We have clear criteria defined in order to qualify for capitalization. But at the same time, when we compare what has been gone what has been expensed by the P and L, it's not a significant amount. But at the same time, we have if there is an R and D project in a new environment with a clear business plan and with a clear and separate addressable market, then we consider it to be qualified for R and D. But it's not our expectation that this part will significantly increase compared to the expensed R and D costs. It's only one element, which is also closely linked to the new digitization projects, which we consider. Okay. So mainly digitization really, really long term development projects. Yes, I'll keep that. Okay. Thank you, Bert. Very helpful. The next question is a follow-up from Mr. Flukiger. Please go ahead. Yes, thanks. I thought I'd take the opportunity if many questions are being asked. Just a final one from me on pricing. I was just wondering what your pricing component was in organic growth, if you could give us an indication there? And also in this respect, what has been the development of material prices in H1? And what your best guess is, I presume, for H2? Okay. Martin, the with regard to pricing, in the period of last financial year, we had roughly a price increase element in the magnitude of 1.5%. This has gone down in the first half of the current financial year to roughly 1%. If you compare that 1% with the organic growth rate of 0.8%, you can also see that we lost some volume. So that is one indicator which we discussed earlier. 2nd element on raw materials, we have seen, let's say, lower raw material costs over the last month. Current expectation or the expectation before COVID-nineteen was that we might see a slight increase for the one or the other raw material. Whether this will now be the case, this needs to be seen. But our expectation is that the that we will not benefit any further from lower raw material costs. Thanks. That was the last question. Therefore, thank you very much to everybody. Thank you for your interest. And of course, we are available for further questions via Sigi Switzer. Again, have a great afternoon. Thank you, and goodbye.