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Edited Transcript of LEO.DE earnings conference call or presentation 14-Aug-19 8:00am GMT

Half Year 2019 Leoni AG Earnings Call

Nürnberg Aug 20, 2019 (Thomson StreetEvents) -- Edited Transcript of Leoni AG earnings conference call or presentation Wednesday, August 14, 2019 at 8:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Aldo Kamper

LEONI AG - Chairman of the Board, President, CEO & Head of Wiring Systems Division

* Ingrid Jägering

LEONI AG - Member of the Board of Directors & CFO

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Conference Call Participants

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* Akshat Kacker

JP Morgan Chase & Co, Research Division - Analyst

* Christoph Laskawi

Deutsche Bank AG, Research Division - Research Analyst

* Harald Eggeling

ODDO BHF Corporate & Markets, Research Division - Analyst

* Marc-René Tonn

Warburg Research GmbH - Senior Analyst

* Michael Punzet

DZ Bank AG, Research Division - Analyst

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Presentation

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Operator [1]

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Dear, ladies and gentlemen, welcome to the Conference Call of LEONI AG. At our customers request, this conference will be recorded. (Operator Instructions) May I now hand you over to Aldo Kamper, who will lead you through this conference? Please go ahead.

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Aldo Kamper, LEONI AG - Chairman of the Board, President, CEO & Head of Wiring Systems Division [2]

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Thank you, and good morning, ladies and gentlemen. This is Aldo Kamper speaking. Thank you for joining us today. I'm pleased to be joined today by Ingrid Jägering, our new CFO who started on August 1. Ingrid's experience in turnaround situations and in the automotive sector will be highly valuable as we move forward. But for start, our management team is now complete.

Before I take you through the figures, let me turn it to Ingrid for a few words.

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Ingrid Jägering, LEONI AG - Member of the Board of Directors & CFO [3]

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Yes, thanks, Aldo. Good morning, ladies and gentlemen. I'm very pleased to be here with you today and to have jointly (inaudible) at the moment. I've only been with the company for just under 2 weeks, but I'm already impressed by the people here and the potential within the organization. It is clear that there's a lot of work to do. I'm very much looking forward to bringing my expertise to help LEONI become a much stronger, more competitive and more profitable company. From my previous experience, I know the challenges of this industry faces and what it takes to successfully turn the business around in a challenging environment. I'm now focused on getting up to speed as swiftly as possible to support the existing teams as we deliver on the VALUE 21 program. I also look forward to meeting you that is very important to me, our investors and analysts and hearing your views. For me, it is still early days at LEONI so thank you for your understanding that I won't be able to answer any questions on the company's development yet.

Today is about our financial performance in the second quarter. So let me turn it back over to Aldo.

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Aldo Kamper, LEONI AG - Chairman of the Board, President, CEO & Head of Wiring Systems Division [4]

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Thank you, Ingrid. And let me start as usual with an overview of our performance and key developments in the second quarter. The industry trends we saw at the end of 2018 and Q1 2019 continued also in the second quarter, falling to under pressure in Q2 with softening demand, particularly from China. Despite these trends, however, we have made good progress on a number of key focus areas. One, we've stabilized situation in Mérida. Production is back on track, the burden related to this ramp-up had now largely ceased. Two, on VALUE 21, we are progressing well with implementation. Our EUR 500 million gross savings target has been detailed now with bottom up measures. At the end of Q2, we've already implemented approximately 20% of these initiatives. Three, free cash flow has improved significantly as expected compared to Q1. And four, we are progressing as planned to create 2 stand-alone businesses.

We're driving the carve-out WCS in order for both divisions at the optimal set up going forward to deliver their full potential. I'm pleased with the progress we have made, and we are on the right path. At the same time, there's clearly much still to be done. The whole organization is focused on delivering. Looking at the markets, I don't want to spend too much time on it. We have all seen the announcement of the automotive industry in recent weeks and months. It's a result of the mainly weaker demand from the automotive sector, we saw a decline in sales in Q2 to EUR 1.25 billion compared to just over EUR 1.3 billion for the same period last year. The decline in organic sales growth continued in Q2, down 5.6% now. Both divisions were impacted, particularly by the situation in China.

Let me now turn to the operating income development, and walk you through the key items. Q2 resulted in EBIT of negative EUR 30 million compared to a positive EUR 62 million in Q2 '18. Excluding VALUE 21 cost, EBIT was negative EUR 14 million. We are making good progress on VALUE 21 and have a clear plan with defined initiatives to deliver the planned savings. We've already implemented a number of key initiatives in the second quarter. As such, we are also already booking first cost related of VALUE 21 in Q2, which amounted to approximately EUR 17 million. I would say more about VALUE 21 in a minute.

As expected, we booked EUR 22 million related to the ramp-up of our plant in Mérida, Mexico. And as I mentioned before, we've addressed the issues now in Mérida and are back on track with normalized production. The burden related to this project have now almost completely ceased. Ramp-up cost increased by EUR 6 million compared to 2018 as a result of the order intake in 2017 and 2018. Lower volumes, product mix and planned price reductions accounted for a further negative EUR 23 million year-over-year. And approximately EUR 30 million negative were related to a number of operational items. The largest impact came from wage inflation for WSD and negative corporate valuation effects for WCS.

We also had a reversal of a provision in Q2 '18, which we did not have this year. Additionally, we had a positive impact of approximately EUR 5 million from a sale of a building in China.

If you look at WSD from a divisional perspective, WSD continues to be burdened by the weaker demand, directly impacting our contribution margin as well as the financial impact from Mérida in Q2. Organic sales were down 5.8% year-over-year and stood at EUR 778 million.

Reported EBIT for the period was negative EUR 41 million, adjusted for VALUE 21, EBIT in Q2 was negative EUR 30 million. This includes the EUR 22 million burden from Mérida booked in Q2, down from the EUR 37 million in Q1. Order intake remained largely flat quarter-on-quarter. While this is far from satisfactory, the sequential improvement is encouraging. We are making good progress with VALUE 21, but still need to address the operational issues to counteract the market development that we are experiencing.

Let me turn to Mérida. I'm pleased to say that we have now stabilized the situation in Mérida and are delivering on plan. The task force we have on-site to address the ramp-up issues has been recalled as of the end of June, all employees of more than 1,000 of them in peak times from other production sites that have supported this ramp-up are now back home with their families, and we really appreciate their support to manage the situation. With customer orders now being fulfilled locally, manufacturing costs are coming down. Furthermore, as the supply chain to the customers is now full and stable, freight costs have normalized.

The EBIT impact from the ramp-up in Mérida in Q2 was EUR 22 million. This was in line with our communicated expectations. While the situation in Mérida was extremely challenging, but now on a stable basis and the burden has largely ceased.

On the WCS side, we also saw organic sales down by 5.4% year-over-year. WCS sales in Q2 amounted to EUR 469 million compared to EUR 498 million in the previous year. Reported EBIT in Q2 was EUR 10 million.

Compared to the previous year, EBIT of WCS was significantly impacted by inventory valuation effects due to lower copper prices as well as the decline in sales and currency fluctuations. The product mix has certain one-off items had a positive impact, including the sale of a building in China that I just mentioned.

Second quarter, EUR 6 million of cost related to VALUE 21 were booked in the WCS division. Excluding these costs, EBIT was EUR 16 million and thereby at previous year's level. Free cash flow developed in line with expectations, which significantly improved compared to Q1 and continue to manage cash flows.

Free cash flow was negative EUR 72 million in Q2. Improvements versus Q1 was driven primarily by 2 factors. One, further reductions of burden related to Mérida; and two, strict working capital management, especially on the receivables and inventory side. This is a positive development, and we expect to continue this progress in the coming quarters.

Turning to our balance sheet, we saw a decline in our equity ratio of 24%. This was driven by a negative reported result in Q2 as well as the increase in total assets related to IFRS 16 of EUR 172 million. Our net debt-to-EBITDA ratio increased to 7.3x. Excluding Mérida, as a one-off, this will be around 5x. Our gearing ratio stood at 136% at the end of June 2019. To improve our performance throughout the year, this ratio should improve.

As stated before, cash usage continues to be a key focus across the organization. As a result of a negative cash flow in Q2 our net debt increased to just over EUR 1.1 billion.

To improve our cash flow quarter-over-quarter, the increase in our debt position is slowing down. The outflow of funds was already significantly reduced in the second quarter. The company reported a solid available liquidity of almost EUR 650 million. Around 3/4 of the undrawn credit facilities are firmly committed. Let me also reiterate that all our financing is without covenants. One point of clarification related to our short-term liabilities. The majority of the change in short-term liabilities related to drawn funds from our revolving credit facility, which are treated as short-term debt. We will only need to renew our revolving credit facility at the earliest in 2023.

We now turn to VALUE 21. As we previously communicated, we are committed to providing you a regular update on the progress. Already in Q2, we have taken significant steps forward in the implementation of VALUE 21. Steps that will bring substantial savings in the coming years. Today, we have a clear roadmap with defined measures and responsible teams. These measures have now been built bottom up, which was a major push in Q2 and are already starting to be executed. As of the end of June, we have implemented approximately 20% of all initiatives. July, obviously this number continues to grow. From a gross savings perspective, this equates to approximately 10% out of EUR 500 million target. We expect to see the benefit of this full run rate savings in 2022. As a result of its rapid implementation, we booked first cost for VALUE 21 of EUR 17 million in Q2. At the end of the year, we intent to have implemented more than half of the planned initiatives and with that, are ahead of plan. In addition to the cost-saving initiatives, we have also made good progress on the other pillars of VALUE 21. Our focus within WSD is clearly on our most strategic customers. It is about managing growth and targeting the most attractive business.

WCS, we are focusing on addressing our underperforming units. This includes the steps we've already taken to reduce cost in LEONI Kerpen and Kitzingen as well as steps working in other units. The organizational sites, we are in discussions with employee representatives. We expect these discussions to conclude late September early October and the new organizational structure will then be in place in Q4. As stated earlier, cash usage remains a key focus. We're focusing on strategic customers and projects in WSD and are in line with our targets to manage order intake to be between EUR 2.5 billion and EUR 3 billion. Good news is that beyond finishing the factories that we are currently building to deal with the ramp-up of the 2016-2018 order intake, we see no need for further factories beyond 2021. Thus we are managing our growth and CapEx to improve our performance as planned.

Let me now provide you with an outlook for 2019. As we previously stated, the market environment remains volatile. We have significant uncertainties with regards to macro topics that directly impact our customer industries, and therefore LEONI as well. In this context, we expect group sales for the full year to be moderately below the level of last year. As we continue to drive operational improvements across the organization, we expect EBIT to improve throughout the second half of the year. In order to provide you with a comparable figure to our reported results for 2018, we're providing EBIT guidance prior to exceptional items, especially once in Q1 as well as VALUE 21 cost. For the full year 2019, we expect group EBIT to be up to a negative double-digit million euro figure. So for cash flow, we expect a continuation of the positive trends seen between Q1 and Q2 in the second half of 2019. As such, we expect free cash flow at the end of the year to be in the range of plus or minus or low double-digit million number compared with the level at the end of the first half year. So hopefully, you can see that while the environment remains challenging, we are on the right path. Our underlying performance is stabilizing, and we are addressing our operational issues. The implementation of VALUE 21 is going well. We're driving cost savings and strategic decisions through the organization to the best position for LEONI for the future. This includes the carve-out of WCS, to create a stand-alone business that can fully achieve its potential. The trends in Mérida have been addressed. Ramp-ups at other sites have gone smoothly, and with this improvement our free cash flow has improved sequentially, and we expect further improvement throughout the rest of the year.

And last but not least, our management team is complete with Ingrid. So there's clearly still a lot to do, and the environment remains challenging. But I continue to see tremendous amount of potential in LEONI, I'm confident that we will deliver on this potential. Thank you for your attention, and we'll now be happy to take your questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) First question comes from the line of Marc Tonn with Warburg Research.

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Marc-René Tonn, Warburg Research GmbH - Senior Analyst [2]

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Just a couple of questions from my side. First would be on the available liquidity. I think you said there are no covenants and that about 75% of the credit lines are committed. So can you really confirm that there is no instance in which you would have not access to that liquidity. There's really 100% sure. So it's like comparable that you're having the money already on your accounts because I think, given the latest reductions in that liquidity that's very important, whether there's any risk considered with that. And perhaps related to that, I think you were quoted as saying that the pressure to do capital hikes was reduced in the first half year. If I recall it right, I think the full year outlook for free cash flow is perhaps a bit more negative than what we had thought at the beginning of the year with say more a balanced figure now for H2, which we should expect that? Perhaps you could elaborate on that? Also perhaps giving your first outlook on what we should expect in terms of free cash flow for next year, including and excluding the cash out for VALUE 21, which is presumably mostly related to next year? Third question would be if you could give us some more granularity on the EUR 30 million, let's say, other cost changes, where you mentioned that wage increases played a big role there, particularly at WSD? And how we should think about that topic going forward? Fourth question would be on ramp-ups. We've seen a EUR 6 million incremental negative for Q2. That's a phasing for the remainder of the year and what you're expecting next year, whether this would be then more stable or whether you already see relief from that? That would be my questions.

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Aldo Kamper, LEONI AG - Chairman of the Board, President, CEO & Head of Wiring Systems Division [3]

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Okay. Thank you, Mr. Tonn for your questions. On liquidity, I can confirm that at the moment, we continue to have full access of all our lines globally. And all the facilities are available to us. Obviously, on lines and cash in foreign countries, you not always can immediately access those, but with some preparation, you can, and accordingly, we consider all of our liquidity is accessible. In terms of the ramp ups, perhaps to start with that one. This comparison, EUR 6 million is to the last -- the same quarter of last year in the bridge, obviously throughout last year the ramp-up number increased over the quarters. And compared to the quarter 2 last year, that was still relatively low. This EUR 6 million increase is now shown in the bridge, the ramp-up cost for the full year and this EUR 6 million is in line with our expectations. So it's nothing surprisingly, surprising to us. And the ramp-up costs will remain high this year and next year as we still have a large number of significant launches ahead of us but these are planned ramp-up costs, like we always have them and to prepare for these launches and not unplanned cost like we had last year in Mérida situations like this. We have not seen in this quarter and also don't expect for the coming quarters. On VALUE 21, I didn't fully get your question, so perhaps you can repeat that.

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Marc-René Tonn, Warburg Research GmbH - Senior Analyst [4]

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It is about basically the cash flow outlook for, I think, the second half it's more or less just say plus to minus double digit figure of what you are expecting? I think there is no negative impact on our cash out from VALUE 21 included there. But perhaps if you could give us some indication when you are expecting the cash out from that and what we should and how we should think about the free cash flow going into next year? And also putting that perhaps a bit into perspective, which you, as I say, at least when looking at the news agencies you've decided as saying that the pressure to do a capital hike has decreased? And perhaps you could give us some insight on what is the key driver behind that assessment?

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Aldo Kamper, LEONI AG - Chairman of the Board, President, CEO & Head of Wiring Systems Division [5]

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On the cash flow, the cash flow guidance that we've given does include the cash out also for VALUE 21. So the EBIT is adjusted for the VALUE 21 cost, but the cash flow includes these. Obviously, with programs like this, it is a front-loaded program in terms of the cost and the backward loaded program in terms of the benefits. So already this year, we will see an impact in cash by the VALUE 21 program. And as I also mentioned before, we are progressing well also in negotiation with our Workers Council, have also taken additional steps in Kerpen for example. So we also will see restructuring, already some cash impact this year, not only in Q1, Q2 next year. But EBIT-wise, I would expect that the majority of the restructuring they'll be booked in 2019. Cash flow wise, there will be some portion in 2018 and some portion in 2019. In terms of the capital increase, I think it comes back to the EUR 650 million of preaccessible liquidity that we see the reduced cash usage of Q2 in this guidance for the second half year of more or less balanced cash profile in the second half year, basically gives us the confidence that we see that we have sufficient liquidity available. If you also deal with the full China in early next year, in that sense, we are still looking at the best way to finance the full time replacements, but it does not necessarily have to be a capital increase. Like we also mentioned before, we are looking at all options. Still a lot around the table, but I think given the liquidity situation, the pressure to do a capital increase is not super high.

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Marc-René Tonn, Warburg Research GmbH - Senior Analyst [6]

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One follow-up, if I may, you -- there is a bit of a rumor in the market. And I think you have done a lot already in the first quarter with impairments and also by doing some provisions for potential losses from some contracts. Could you give us some kind of, let's say, update on how you see the profitability of those orders, you are now ramping up and those, which are still in the order book? And from your experience or having looked through these contracts now in the last few months, whether you still think that you can do, let's say, decent margin with these contracts or whether there have been any negative surprises coming from those?

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Aldo Kamper, LEONI AG - Chairman of the Board, President, CEO & Head of Wiring Systems Division [7]

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We continue to believe that with the execution of the VALUE 21 program, around 2% improvement in EBIT and around 4% improvement in cash flow by 2022 was feasible. And obviously, the statement is only possible if the profitability of this contract is reasonable as well. So that gives I think some context to your question.

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Operator [8]

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The next question comes from the line of Christoph Laskawi with Deutsche Bank.

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Christoph Laskawi, Deutsche Bank AG, Research Division - Research Analyst [9]

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I'd like to go one by one, if okay with you. The first question would be, again, on your debt. The syndicated loan that you highlighted. Just want to make sure, again, basically following up on Marc's question. Is there any scenario in which the banks could pull their ICF and you would not have access to it? Even though you currently still have just to be on the safe side, is there any scenario? And also relating to that on your reverse factoring lines. As this is basically credit risk. Someone else is taking directly to you and the exposure that they have. Are there risks that someone pulls the opportunity to do reverse factoring into debt, which you have to pay quicker than you think? And could you give us some detail around the reverse factoring set up? Are there any cost to it? Is there any risk relating to that? That's the first question, basically.

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Aldo Kamper, LEONI AG - Chairman of the Board, President, CEO & Head of Wiring Systems Division [10]

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As the syndicated loan has no covenants, I don't see how, at the moment, the syndicated loan could be changed. So in that context, to your question, I don't see a scenario where this could happen to us. On reverse factoring, it is -- we continue to have availability to all the reverse factoring facilities that we had before. So also here, I don't see an immediate threat.

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Christoph Laskawi, Deutsche Bank AG, Research Division - Research Analyst [11]

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Very clear. And there are no discussions currently on the second one, the reverse factoring. So all that remains in place because you have a working capital outflow for payables. So we shouldn't read that in a way that conditions around that have changed?

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Aldo Kamper, LEONI AG - Chairman of the Board, President, CEO & Head of Wiring Systems Division [12]

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No, on the contrary, I think if you think back to what we discussed in Q1, we mentioned that we have pushed our suppliers quite a bit in Q4 and that we basically we are reversing that in Q1 and in Q2. So the impact that you see in Q2 is still the reversal of that. And in that sense, is more a positive than negative in my mind that even though we have reversed that effect up to Q4 now completely, we still had a positive working capital movement because inventory and receivables management actually improved. So I would overall see that as a positive, not as a negative.

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Christoph Laskawi, Deutsche Bank AG, Research Division - Research Analyst [13]

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Okay. And thinking about the guidance and where it points to in terms of underlying profitability. I get that the market currently is a headwind, the wage inflation is a problem. Essentially, this is all what other suppliers say as well. Thinking about going into next year. Most assume a rather stable market or slightly down. And the headwind is not really changing. Do you expect them turning towards profitability or improving EBIT more or less because you ramp up project, and hence, you can utilize your plans to a more efficient degree than others because of the high volatility? Or do you expect an underlying loss on EBIT also going into next year, at least, early next?

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Aldo Kamper, LEONI AG - Chairman of the Board, President, CEO & Head of Wiring Systems Division [14]

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No, I think you hit it right on the head. Obviously, the overall macro environment also impacts us. So we are also cautious on revenue projections for next year. However, with all the order intake that we have and we have now built our factories for and that are now are a burden, they will increasingly at the end of this year and then especially next year turn into revenue. So we will see meaningful growth next year for LEONI, just based on our order book and the order book effect, and that obviously will help us in terms of our profitability. Secondly, obviously, the burden out of Mérida won't repeat itself. So year-on-year that will be a big plus and as we outlined, I think we are well on track with VALUE 21, all the cost-saving measures that we are implementing here should also help us to deal with the headwinds better next year. So overall that should support our development for next year for all divisions.

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Christoph Laskawi, Deutsche Bank AG, Research Division - Research Analyst [15]

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And on the ramp ups that you're having, do you see lower call offs or initial discussions with OEMs that the ramp-up curve might be not as steep as you initially discussed? Or is everything in that regard, basically on track?

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Aldo Kamper, LEONI AG - Chairman of the Board, President, CEO & Head of Wiring Systems Division [16]

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It's pretty much on track. And I think we will honestly speaking only know relatively shortly before the ramp with the OEMs, I think are also hoping that this is not a continued downturn, but a shorter-term downturn. And with that in mind, I don't think that they will be willing to reduce the projected volumes as of today. If the things remain difficult when the launch happens, then we might see an impact, but we won't get heads up very early. I think they will want to have the capacity available for them to be able to launch. And also, a number of these launches are, we're talking quite a little bit of vehicles. So even in a difficult environment, these launches, I think, should still go well for our customers.

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Operator [17]

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Our next question comes from the line of Michael Punzet, DZ Bank.

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Michael Punzet, DZ Bank AG, Research Division - Analyst [18]

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Yes, I have some questions for clarification. First one, on your outlook. You mentioned exceptional items. Should we think only about the EUR 102 million booked in Q1? Or should we also include the extra costs for Mérida? That would be my first question. Second one on VALUE 21. Can you give us an update on the cost side, what will be booked in 2019, what will we see in 2020? And maybe you can also give us an update on the divisional split between WSD and the other divisions?

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Aldo Kamper, LEONI AG - Chairman of the Board, President, CEO & Head of Wiring Systems Division [19]

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Okay. Yes. So the exceptional items are the ones out of the first quarter. Mérida is still in as an operational topic. So it's only the specialties, like the ones in Q1 that we have excluded here. On VALUE 21, it remains a front loaded program. We, as I said before, are expecting to finalize the negotiations with our Workers' Council here in Germany, in September, October, and that will then on EBIT side probably leads to an EBIT impact also in the other countries, high cost countries where we are now in negotiation or in execution, people see that in the third and fourth quarter. And cash flow wise, it will then be somewhat in 2020, but also somewhat in 2019. So probably on the cash flow side, more balanced; on the EBIT side, much more front-loaded in the distribution. I think also, it's more or less along the lines that I think you've also showed in your models at the moment. In terms of the divisional split of VALUE 21, about 3/4 of the benefits at the moment are seen for the HANA division, about 25% for the Cable division. Majority of that difference coming out of the fact that obviously cable division has a lot of purchasing that is copper where you can't really gain anything if there is lower market price. To take that out, actually the benefit out of the program are pretty equally spread among 2 divisions.

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Michael Punzet, DZ Bank AG, Research Division - Analyst [20]

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Okay. Maybe a follow-up. It seems that you made some adjustments for restructuring, but not for VALUE 21 cost. So that is not included in the adjustment line between -- on the EBIT level? Or will we see it in future as an adjustment?

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Aldo Kamper, LEONI AG - Chairman of the Board, President, CEO & Head of Wiring Systems Division [21]

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All the restructuring costs will be part of VALUE 21 cost and the VALUE 21 costs overall, the EUR 120 million you still see as a feasible number.

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Michael Punzet, DZ Bank AG, Research Division - Analyst [22]

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No, I mean, when I look at your quarterly reporting, you made some adjustment versus restructuring. But that have not mentioned values related to VALUE 21. So it seems that VALUE 21 costs are not included in the adjustments you made in Q1 also in the first half on the EBIT line?

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Aldo Kamper, LEONI AG - Chairman of the Board, President, CEO & Head of Wiring Systems Division [23]

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Yes. I'm a little lost where you are. So perhaps it's a question that we can afterwards address, then we can go through the specifics.

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Michael Punzet, DZ Bank AG, Research Division - Analyst [24]

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Okay, we can do.

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Aldo Kamper, LEONI AG - Chairman of the Board, President, CEO & Head of Wiring Systems Division [25]

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I mean, the way we look at it in terms of our guidance and so on, VALUE 21 costs include all the restructuring expenses. And the exceptional items are the ones that we felt in Q1 in terms of the kind of items that we are showing there. It might be that in the English version, word adjustment is meant or used in different context, but you have to retain the whole as we specifically guided for VALUE 21 and special effects.

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Michael Punzet, DZ Bank AG, Research Division - Analyst [26]

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No, the outlook statement is clear, but only on the product figures, but okay, we can discuss that later.

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Aldo Kamper, LEONI AG - Chairman of the Board, President, CEO & Head of Wiring Systems Division [27]

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I think on Page 10, there's a little table that shows you the special effects in VALUE 21, all costs in more detail, perhaps that helps to answer your question.

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Operator [28]

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The next question comes from the line of Akshat Kacker, JPMorgan.

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Akshat Kacker, JP Morgan Chase & Co, Research Division - Analyst [29]

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The first question, again, on your EBIT guidance, confirming that. I think there's some confusion there. EBIT before restructuring and VALUE 21 was at minus EUR 35 million in the first half, and you are talking about a double-digit million euro number, negative for the full year. Just trying to understand how that works? So Mérida cost mostly falling away ramp-up costs. And you're still getting some adjusted EBIT from WCS. So can I understand if I'm getting that correctly or if I'm missing something there? The second question is you obviously mentioned that you don't need any additional production capacity from 2021. Can you broadly talk about your CapEx guidance from 2019 to 2021, is it still between EUR 275 million and EUR 300 million of CapEx? And the third question, just confirming your discussions with Work Counsels and can we expect if those discussions are positive? Can we expect workers coming off the lines as soon as Q4 2019?

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Aldo Kamper, LEONI AG - Chairman of the Board, President, CEO & Head of Wiring Systems Division [30]

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Let's start with the last question. It depends a bit on the country and our negotiation that we have. But yes, in a number of countries that already will start to happen in Q4. And in a German context, we will see some of it in Q4 and then probably the bigger portion of it in Q1 of actual people leaving the company. In terms of CapEx guidance, the number that you quoted for this year are roughly in line. As we said, for the years to come, we expect it to decrease. As we are not building any new factories anymore. I mean, we're wrapping up the final factories this year next year. And then, as I said before, we don't see any need for further factories in the years thereafter. So that helps to bring down the CapEx number. And the other thing to keep in mind for the Cable division, we also have a special CapEx impact there. This factory of the future they're building is a major burden last year, this year, and that will fall away as we're now moving into this factory as we speak. So the CapEx on that is also behind us and with that, you should see CapEx coming down quite meaningfully over the next few years.

Basically coming back to levels that we have before this frenzy of building activity that we have seen in the last 2 years.

On the EBIT guidance, again, the guidance is before VALUE 21 costs, which include restructuring and before the special items that we have had in Q1, the impairments and the onwards contracts mainly.

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Operator [31]

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Our next question comes from the line of Harald Eggeling, ODDO BHF.

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Harald Eggeling, ODDO BHF Corporate & Markets, Research Division - Analyst [32]

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Also one follow-up question to the guidance, please. Could you elaborate on the further real estate sales planned for H2, 2019. Obviously, you booked some gain in Q2?

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Aldo Kamper, LEONI AG - Chairman of the Board, President, CEO & Head of Wiring Systems Division [33]

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I mean, it is something that is on the one hand, like the one in China, where we are moving out of facilities where we sell it because of that reason. So operationally, these things happen once in a while, at the same time, also some sale and leaseback activity as a financing measure, might also be appropriate. So I won't exclude that.

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Harald Eggeling, ODDO BHF Corporate & Markets, Research Division - Analyst [34]

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Okay. And so is there a rough indication, should we expect EUR 10 million for H2 or rather EUR 20 million?

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Aldo Kamper, LEONI AG - Chairman of the Board, President, CEO & Head of Wiring Systems Division [35]

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I would not comment on that at the moment.

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Operator [36]

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We received one follow-up question from the line of Mr. Michael Punzet, DZ Bank.

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Michael Punzet, DZ Bank AG, Research Division - Analyst [37]

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I guess, Michael Punzet here. Follow-up on your order intake. Can you provide us with some figures for the order intake for the Wiring System Division? And also, could you explain the order books declined by roughly EUR 0.5 billion. Is that related to a new value -- new assumptions on existing orders due to the market weakness? Or what is the reason for that decline?

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Aldo Kamper, LEONI AG - Chairman of the Board, President, CEO & Head of Wiring Systems Division [38]

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We had an order intake of roughly EUR 100 million in this quarter, and we have reported EUR 1.4 billion in the first quarter. These programs comes in chunks, so it is not a signal that we have difficulty in gaining orders on the contrary. We have a lot of requests for quotation that we're dealing with. But we also have very clearly stated that we want to be very selective in our order entry. So we are trying and we are on track to get to an order intake this year that is well below our sales run rate, shooting for something like 2.5 next 3 billion order intake, sort of 1.5% that we have now for half year, I think, indicates that we are on track with that and this order intake or the new orders that we booked, this EUR 100 million is lower than the revenue that we had in the second quarter. And obviously, the order book starts to come down because of these effects.

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Operator [39]

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(Operator Instructions) We received one more question from the line of [Manina Hash] Amundi.

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Unidentified Analyst, [40]

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3 quick questions on liquidity and taken one by one, if I may. The first question is regarding your current financial debt at the end of June with the amount of EUR 753 million. Could you give us some more details about this short-term debt? And give us also the amount effectively due on the next 12 months, please?

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Aldo Kamper, LEONI AG - Chairman of the Board, President, CEO & Head of Wiring Systems Division [41]

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The short-term debt that we show includes, obviously, a large portion of the revolving credit facility. So that has no maturity, if you will, the rolling credit facilities in place for the next coming years. The earliest renewal date would be 2023.

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Unidentified Analyst, [42]

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Yes, but the mathematics don't work in the sense that when we see the available liquidity still on your half year it doesn't correspond totally to the EUR 530 million short-term debt -- financial short-term debt, if we exclude the notes, the 20 -- 220 (sis) [2020] notes due in the next 12 months that's why I wondered, if there were some other credits line apart from your syndicated loan.

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Aldo Kamper, LEONI AG - Chairman of the Board, President, CEO & Head of Wiring Systems Division [43]

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Yes. Of course, we have other credit lines beyond the syndicated loans there. There is also bilateral lines that we have with certain banks in a number of countries. So working capital loans and so on. So the syndicated loan is the backbone of our financing instrument, but not the only line that is available. I think in the annual report, you will see more of the split in this respect.

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Unidentified Analyst, [44]

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And no -- any other lines are maturing before the next 12 months?

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Aldo Kamper, LEONI AG - Chairman of the Board, President, CEO & Head of Wiring Systems Division [45]

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Well, in bilateral lines, obviously, there's always a rollover there. So there's some maturities in the next 12 months, but that will be a normal rollover topic.

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Unidentified Analyst, [46]

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Okay. Could you give the precise number of those maturing in the next 12 months? And what is your confidence in your ability to roll it over the next years?

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Aldo Kamper, LEONI AG - Chairman of the Board, President, CEO & Head of Wiring Systems Division [47]

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I don't have a number off the top of my head. At the moment all our credit lines are fully available, and I would assume this continues to be the case, given our current situation.

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Unidentified Analyst, [48]

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Second question is regarding your current contract with banks. In case of a significant asset disposal or IPO like the one may be contemplated for WCS. Does banks benefit from any mandatory prepayments in their loan contracts.

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Aldo Kamper, LEONI AG - Chairman of the Board, President, CEO & Head of Wiring Systems Division [49]

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I mean, in a large transaction like this, we will have to ask our creditors for approval in this. If we sell the whole asset, I think the strategic rationale for this is well understood, and also the financial attractiveness. I think it's a value-creating measure for our shareholders, and also for our banks in terms of deleveraging an important step. So in that sense, we expect full approval of this, when the deal is completely on the table.

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Unidentified Analyst, [50]

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Yes. But is there any mandatory close of prepayments? Or is it a choice from the management?

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Aldo Kamper, LEONI AG - Chairman of the Board, President, CEO & Head of Wiring Systems Division [51]

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I think we have to consider our lenders in this. So in that sense, we will see that, that obviously, the majority of the -- the majority of it will be used for reduction in debt overall. I mean, as a first step that's a logical thing to do with proceeds given our debt levels. Afterwards, obviously, it puts us in a position to invest in our business again, and the leverage has gone down significantly and that opens up other opportunities in the future. As a first step, the liquidity will obviously benefit the lenders as well.

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Unidentified Analyst, [52]

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For reduction in debt on a (inaudible) basis? That's what you say? For all lenders?

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Aldo Kamper, LEONI AG - Chairman of the Board, President, CEO & Head of Wiring Systems Division [53]

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I would assume, yes, for all lenders.

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Unidentified Analyst, [54]

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Okay. Okay. And lastly, 2 quick question also. Could you precise the amount of receivable factored in -- during the H1 compared to the EUR 200 million factored at the end of 2018?

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Aldo Kamper, LEONI AG - Chairman of the Board, President, CEO & Head of Wiring Systems Division [55]

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Yes, one second, we have come down about EUR 25 million versus Q1 that's a number I have on the top of my head. And that's basically, I think, puts us in line with the factoring number that we had for the end of the year.

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Unidentified Analyst, [56]

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Okay. So EUR 200 million at the end of June? That's it.

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Aldo Kamper, LEONI AG - Chairman of the Board, President, CEO & Head of Wiring Systems Division [57]

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One second. We're just looking at the number here, yes, as I said, it has remained quite stable. Factoring volume was at 229 at the 31st of December and at 218 at the end of Q2.

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Unidentified Analyst, [58]

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218, 1-8.

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Aldo Kamper, LEONI AG - Chairman of the Board, President, CEO & Head of Wiring Systems Division [59]

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2-1-8, yes, so it went down slightly from December. Okay.

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Unidentified Analyst, [60]

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Okay. And lastly, could you confirm what minimum cash on hand you need to run your business on a day-to-day basis? I think you gave us some amount last year, but maybe things have changed?

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Aldo Kamper, LEONI AG - Chairman of the Board, President, CEO & Head of Wiring Systems Division [61]

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No, I think the amount that I mentioned last year, around EUR 200 million. I think is still our view.

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Unidentified Analyst, [62]

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EUR 200 million?

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Aldo Kamper, LEONI AG - Chairman of the Board, President, CEO & Head of Wiring Systems Division [63]

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Yes.

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Operator [64]

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There are currently no further questions. I hand back to Mr. Kamper for the closing remarks.

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Aldo Kamper, LEONI AG - Chairman of the Board, President, CEO & Head of Wiring Systems Division [65]

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Okay. Well, thank you very much for joining us today. I think it was an important call for us to show the improvements that we're making. And obviously, we are not out of the woods yet. There is still a marked environment out there that is more headwinds and tailwinds and also still operationally have to continue to improve, but I hope your take away from today's call and from the communication is that there is a clear plan in place, and we are executing on that plan, and we're delivering what we told you that we would deliver on. And so in that sense, we still have a lot of work ahead of us, but I'm quite satisfied with the organization and how they're moving forward. How we're making progress in VALUE 21 and all the different levers, and how we are operationally bringing things under control, like Mérida and bring our cash burn under control. And all this, I think, is important for further stabilization and then improvement into next year. So I hope this came across, and I hope that you continue to engage with us more directly. Also, for me, it's very helpful that Ingrid is now onboard. So that we can share the burden again. And with that, also where the last couple of months I have been very home-based given the fact that I had 2 duties to take care of now going forward, you will see more of me and also Ingrid in the future, as we now have then also again the bandwidth to engage with you more directly in our conversations. I'm looking forward to that, and I'm also looking forward to your participation in next quarter's call again. Thanks so much.

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Operator [66]

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Ladies and gentlemen, thank you for your attendance. This conference has been concluded. You may now disconnect.