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Edited Transcript of TESB.BR earnings conference call or presentation 26-Aug-19 1:00pm GMT

Half Year 2019 Tessenderlo Group NV Earnings Call

Brussels Sep 6, 2019 (Thomson StreetEvents) -- Edited Transcript of Tessenderlo Group NV earnings conference call or presentation Monday, August 26, 2019 at 1:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Kurt Dejonckheere

Tessenderlo Group NV - Group Controlling & Consolidation Director

* Stefaan Haspeslagh

Tessenderlo Group NV - Executive Chairman, CFO & COO

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Conference Call Participants

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* Christophe Beghin

Kempen & Co. N.V., Research Division - Analyst

* Mutlu Gundogan

ABN AMRO Bank N.V., Research Division - Analyst

* Nathalie Debruyne

Banque Degroof Petercam S.A., Research Division - Analyst

* Wim Hoste

KBC Securities NV, Research Division - Executive Director Research

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Presentation

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Operator [1]

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Ladies and gentlemen, welcome to the Tessenderlo's presentation. I am pleased to present Mr. Stefaan Haspeslagh, COO and CFO; and Kurt Dejonckheere, Group Controlling & Consolidation Director IR. (Operator Instructions)

I will now give the floor to Mr. Stefaan Haspeslagh. Sir, please go ahead.

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Stefaan Haspeslagh, Tessenderlo Group NV - Executive Chairman, CFO & COO [2]

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Thank you. Welcome to all of you in our update for the half year '19 results. Let us take us first through some key events. One, in respect of T-Power, we have acquired NAES Belgium from the American group NAES Corporation, subsidiary of Itochu Corporation. NAES Belgium is specialized in operating our T-Power plant since the start-up. So by acquiring NAES, we have acquired the know-how, how to run this type of operation.

In the meantime, we have also restructured our T-Power finance, which has resulted in the reduction of financial costs.

Next one is the DYKA Group. We continue opening new branches. This time, we have open branches in Anderlecht, Belgium, and Trebon in the Czech Republic in the first half of 2019. So we are opening in the markets where we are present new branches in order to cover our markets better and to be able to improve to service to the -- our local customers.

In the same time, we also have success with the recently launched products, and the improved distribution network has helped in that respect.

In respect of our Claro business of our -- sorry, of our Gelatin business, we have launched Claro in the first half of '19. This is a revolutionary product for tissue engineering, and it helps in the 3D application. This -- the launching of this product for the group is very important. This helps to understand better the opportunities of the Gelatin business and its qualities of the product and helps us looking for new applications.

In respect of the collagen peptides, we have been successful launching the product over the last couple of years. And in the meantime, we are upgrading our facilities in Nienburg and Davenport to improve the quality of our collagen peptides. And next to that, we are increasing substantially our production capacity in Santa Fe in Argentina for collagen peptides.

We held a -- in Brussels on July 10, an Extraordinary General Meeting, and we approved again a number of amendments to the articles of association. And on top of this, we introduced the loyalty voting rights. Loyalty voting rights, which give double votes for it per share for shareholders who have been holding their shares for 3 years, consecutive years, and who have entered their shareholding into the registers of the company, thus supporting the long-term project, how we look at Tessenderlo Group.

We continue the journey of 100 years of Tessenderlo Group, which is a very impressive milestone of our group. So we are continuing to develop the 100 most remarkable facts relating to your group. And I can now suggest you all to visit our website, 100yearstessenderlo.com, where you can see a very interesting evolution of the group, of its expansion, of its new activities, of saying goodbye to some of activities, and we will end up with the current group as it is today with all its opportunities.

So Kurt, please, can you update us on the half year '19 results? Thank you.

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Kurt Dejonckheere, Tessenderlo Group NV - Group Controlling & Consolidation Director [3]

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Thank you, Stefaan. So if we first have a look at the operational key figures of the group and we compare the first half of 2019 with the figures of the first half of 2018, we see that revenue has increased to EUR 925 million. It's an increase by 9.5%. However, of course, T-Power only contributed for the first time in the half year of 2019, it did not yet contribute in the first half of 2018 as it was only fully acquired at the end of 2018. So we exclude T-Power revenue in order to make the figures more comparable, and then we see that revenue has increased to EUR 890 million. It's an increase by 5.4%, or 2.7% when excluding the foreign exchange effect.

The adjusted EBITDA of the group increased to just below EUR 145 million. Again, when excluding T-Power, we see that the adjusted EBITDA increased to EUR 120 million. It's an increase by almost 24%. However, we should also exclude the foreign exchange impact around EUR 6 million and also the first time impact of IFRS 16, EUR 12.6 million, and then we see that, in fact, the adjusted EBITDA increased by 4.9% in the first half of 2019.

The profit and loss for the periods, EUR 47 million this year compared to EUR 55 million last year. As was already mentioned in previous reportings, it also includes exchange gains and losses mainly on intra-group loans, which are not hedged. So if we would exclude these exchange gains, we would arrive at a net profit of EUR 45 million this year compared to EUR 46 million last year.

The capital expenditure increased to almost EUR 44 million, a lot of investments are being made, such as, for example, in the segment of Bio-valorization where we upgrade factories in order also to better valorize our products. And also, we invest in further growth of the collagen peptides.

Industrial Solutions, another segment where we invest a lot through new branches, also through new production lines. Also, another example -- for example, some lease contracts are reaching their maturity date, and instead of renewing those lease contracts, we choose to acquire those assets instead, which also impacts the capital expenditure of the group.

The cash flow from operating activities, EUR 131 million compared to EUR 56 million last year. And this increase of this cash flow could be realized thanks to the better operational results, the first time contribution of T-Power, also the impact of IFRS 16 leases, the EUR 13 million. And on top of that, also, the working capital remained stable compared to the end of 2018, while last year, there was, in fact, a cash outflow in the first half of 2018 because if we compare it with the -- because we ended the year 2017 with a rather low working capital. And the variance between the cash flow this year and last year related to working capital amounts to EUR 34 million. However, if you would compare the working capital in June 2019 with the working capital in June 2018, you would see, in fact, that working capital remains rather stable, even increased a little bit. But those were the factors who meant that the cash flow from operating activities could increase to EUR 131 million.

If we look at the contribution of the different segments to the group revenue, we see that Agro contributes 38% to the group revenue; and then we have Bio-valorization and Industrial Solutions, both contributing 29%; and also for the first time, the contribution of T-Power, 4%.

If we look at the contribution of each segment to the adjusted EBITDA of the group, so the adjusted EBITDA, EUR 145 million, Agro contributes almost EUR 71 million. And then you have Bio-valorization, Industrial Solutions and T-Power, the other 3 segments, all 3 contributing around EUR 24 million, EUR 25 million to the group adjusted EBITDA.

And importantly, markets, perhaps if you look at the weight of Agro last year, in the half year '18 adjusted EBITDA, the weight of Agro was about 70% of the total adjusted EBITDA. This year, you see that the Agro EBITDA remains more or less stable but, in fact, the weight decreased to just below 50% of the total group adjusted EBITDA.

If you look at the different segments one by one, the Agro segment, the revenue slightly increased 1.3%. The Crop Vitality revenue remained stable. NovaSource revenue slightly decreased, impacted by unfavorable weather conditions. The Tessenderlo Kerley International revenue increased, on the one hand, thanks to higher liquid fertilizer volumes, on the other hand, we saw also an increase of the price of sulfates, which was able to offset the decline of the volume of sulfates.

The adjusted EBITDA decreased by 9.5% when excluding foreign exchange effect and also the impact of IFRS 16. And we see that the slight improvement of the adjusted EBITDA of Tessenderlo Kerley International could, in fact, not offset the lower adjusted EBITDA of NovaSource and also not the lower adjusted EBITDA of Crop Vitality. Crop Vitality, which was being impacted by lower margins.

For the Bio-valorization segment, revenue increased almost 5%. The higher PB Leiner volumes, these were only partially offset by a decrease of volumes within Akiolis. For the adjusted EBITDA, we saw an increase of almost 50% when excluding IFRS 16, when excluding FX impact. And while Akiolis was, in fact, impacted by lower volumes, the PB Leiner results, those were positively impacted, those were able to increase thanks to the higher volumes, but also combined with an improved product mix and also lower raw material prices.

For the segment Industrial Solutions, we noted an increase of the revenue by 2.4% mainly thanks to DYKA Group who benefited from favorable market circumstances. The adjusted EBITDA increased by 1/3, first of all, thanks to DYKA Group because of the increase of the volumes, but also because of an increase of production efficiency based on investments made in the last few years.

Performance Chemicals adjusted EBITDA also increased within the segment. Half year adjusted EBITDA of 2018 was indeed negatively impacted by further start-up expenses for the caustic soda in Loos. However, we have to mention that a further increase of this adjusted EBITDA in the second half of 2019 compared to 2018 is not expected because of third quarter unforeseen technical issues at this plant in Loos, which is currently negatively influencing the production volumes.

The fourth and final segment, T-Power, it contributed EUR 35 million to the revenue of the group, about EUR 24 million to the adjusted EBITDA. These were results in line with the group's expectations as T-Power fulfilled all tolling agreement requirements. As Stefaan already mentioned, in the first half of 2019, we have reviewed the financing structure of T-Power, on top of that also, the group has acquired NAES Belgium.

If we look at the reconciliation between the half year adjusted EBIT to the net profit, the adjusted EBIT, EUR 79 million; EBIT adjusting items, minus almost EUR 6 million, EBIT adjusting items previously the nonrecurring items as we called them. Two important items are included. First of all, the recycling of currency translation reserves following the completion of the liquidation process of PB Gelation's Wenzhou. It was a liquidation which was finalized in the first half of this year. So we were able to recycle the translation reserves. It has an impact of plus EUR 3 million.

The second important element is, in fact, the impact of the decrease of the discount rate applied to the environmental provisions, environmental provisions within the group, which amount to more than EUR 100 million due to the decrease of the interest rates. We also recalculated the discounted provisions, and this led, in fact, to an increase of the provisions by almost EUR 5 million.

And those were the 2 most important items impacting the EBIT adjusting items. So this brings us to an EBIT of EUR 73 million. Net finance costs, minus EUR 10.6 million. When excluding foreign exchange gains, it would have been minus EUR 13 million, but we consider to be the regular finance costs. Why this increase in finance costs? Of course, we have the contribution of the interest expenses of the T-Power loan. On top of that, there were also some one-off refinancing expenses this year around EUR 2 million.

Income tax expense, minus EUR 16 million. Mainly this relates to the operations in the United States as well in the Agro segment as in the Bio-valorization segment. And in total, this brings us to the net profit of EUR 47.5 million. When excluding exchange gains, it would have been around EUR 45 million compared to EUR 46 million last year.

The outlook for the full year 2019. The group confirms the previous forecast that in addition to the full year contribution of T-Power, which is expected to amount to approximately EUR 50 million, and the implementation of IFRS 16 leases, which will lead to an additional adjusted EBITDA of around EUR 25 million, the group anticipates that the 2019 adjusted EBITDA will be higher compared to 2018. However, the group would like to emphasize that it currently operates in a volatile political, economic and financial environment.

The financial calendar, the full year 2019 results, they will be published on March 26, 2020.

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Stefaan Haspeslagh, Tessenderlo Group NV - Executive Chairman, CFO & COO [4]

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Thank you, Kurt, for the clear update. So as a summary, we keep operating in our Ag business in a difficult market, which this year has been USD 8 million by adverse weather conditions, resulting in a very stressed season. And we are glad to have had the support of our customer, and we've been glad to be able to support them also in these difficult circumstances.

We continue to emphasize the production of reliable products. We continue to turn our products all over the country in U.S. to have them readily available, and we continue to give education to our distributors and farmers so that they understand very well the value of our products.

In respect of our Bio-valorization unit, we continue to move away from commodities into value-added products. And if you look at the Gelatin business, we continue improving there by investing in the collagen peptides and developing this business. In Akiolis, we keep on investing in upgrading all factories in order to be able to produce higher-value products. In Industrial Solutions, we continue to expand our footprint in the markets where we are present, complete the range of products we present and also support the launching over the last 3 years of the products we have put in the market.

In respect of Loos, we are training our teams much better even to be able to support the ramp-up of the factory, which has proven not to be easy. And in respect of mining, we've continued to develop our customer relations and understanding of products.

So let's say we are glad that our shareholders support us in this long-term project in Tessenderlo where we are gradually moving forward, creating a sustainable future.

Thank you all, and we can move into the Q&A session. Thank you.

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Questions and Answers

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Operator [1]

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(Operator Instructions) We already have a question from Wim Hoste from KBC Securities.

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Wim Hoste, KBC Securities NV, Research Division - Executive Director Research [2]

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I have a couple of questions actually. The first one is on Akiolis. Volumes are lower, but I was wondering, can you talk us a little bit to what is causing that volume drop? Is it because of weather conditions in winter periods? Is it because lower meat consumptions impacting your business and slaughterhouses in general? Is it because of exports to slaughterhouses abroad? Can you talk just a little bit to what is happening in that segment and how you see the outlook? And that is the first question.

And the second question is on Performance Chemicals. Can you maybe quantify the impacts of the technical issues you've encountered there? And also, yes, is it fully solved and will only be visible in the summer months, or is it continuing? And how long will it continue? Can you elaborate on that one as well? Those are my questions.

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Stefaan Haspeslagh, Tessenderlo Group NV - Executive Chairman, CFO & COO [3]

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Okay. Thank you for your questions. To start with -- in respect of Akiolis, we see the volume indeed going down because of exports out of Europe. So there is less availability of material when carcasses are exported. And also, we had very favorable weather conditions at the start of the year during the first quarter.

In respect of the Performance Chemicals, we estimate that we will have some impact between EUR 2 million and EUR 3 million, and we believe that the promise will continue for another 2 months, we estimate.

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Wim Hoste, KBC Securities NV, Research Division - Executive Director Research [4]

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Okay. And then maybe one other follow-up question. The margin pressure of the ATS/KTS business, is that because of the Koch plants becoming operational? Is it because of other competitors? Is it just because of a disturbed season? Can you maybe elaborate on that one?

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Stefaan Haspeslagh, Tessenderlo Group NV - Executive Chairman, CFO & COO [5]

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This is the same reasons as we always have been quoting, there's been no changes recently in the reasons.

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Wim Hoste, KBC Securities NV, Research Division - Executive Director Research [6]

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And do you know when Koch will be in the market?

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Stefaan Haspeslagh, Tessenderlo Group NV - Executive Chairman, CFO & COO [7]

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Well, I'm pretty sure if -- you need to contact them. I'm sure they will know much better than we do. It's, for us, difficult to estimate.

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Operator [8]

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Next question comes from Mutlu Gundogan from ABN AMRO.

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Mutlu Gundogan, ABN AMRO Bank N.V., Research Division - Analyst [9]

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First question is on -- I'll ask them one by one, Stefaan. So the first question is on Crop Vitality. You say that your revenues were stable in constant currencies. Can you split them in volumes and price mix? That's the first part of the question.

And secondly, EBITDA was down here due to lower margins. Can you tell us which products were behind this? That's the first question.

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Stefaan Haspeslagh, Tessenderlo Group NV - Executive Chairman, CFO & COO [10]

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The first one is, it's basically the currency impact has offset the -- the currency conversion into euro has offset the pressure on the result. And the second one is -- just a moment.

Can you repeat the second question, Mutlu, please?

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Mutlu Gundogan, ABN AMRO Bank N.V., Research Division - Analyst [11]

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Yes. So the first question is you're saying revenues are stable in constant currency. So my question is what did volumes do? What did price to? And the second part of the question was, you say that EBITDA was down due to lower margins. Can you talk a little bit about the various products? In which products do you see margin pressure?

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Stefaan Haspeslagh, Tessenderlo Group NV - Executive Chairman, CFO & COO [12]

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We see overall some pressure, Mutlu. This is part of the general problem into the ag market that we have to inform you there. And on the -- it is mainly -- we were mainly helped by U.S. dollar conversion to euro in order to maintain the EBITDA as it is.

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Mutlu Gundogan, ABN AMRO Bank N.V., Research Division - Analyst [13]

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Yes. No, but my first part of the question was on revenues. How you say revenues are stable...

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Stefaan Haspeslagh, Tessenderlo Group NV - Executive Chairman, CFO & COO [14]

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Yes. We believe so.

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Mutlu Gundogan, ABN AMRO Bank N.V., Research Division - Analyst [15]

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In constant currency, so excluding the dollar impact. So just wondering were volumes and prices both flat? Or was the one up and the other one down?

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Stefaan Haspeslagh, Tessenderlo Group NV - Executive Chairman, CFO & COO [16]

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Volumes were okay, and prices were acceptable to us. But I tell you, it's mainly because of conversion into euro that we had a stable situation.

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Mutlu Gundogan, ABN AMRO Bank N.V., Research Division - Analyst [17]

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Okay. The second question on NovaSource. We usually don't hear much about that business. You said that the revenue decreased due to weather conditions. What do you mean by that? I mean is that just because the season was shorter, you sold less? Or did you have certain weather conditions that make the sale of crop protection agents less attractive? A bit more detail here would be appreciated.

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Stefaan Haspeslagh, Tessenderlo Group NV - Executive Chairman, CFO & COO [18]

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Well, as you know, it has been a long winter in U.S. And then after winter, it has been raining a lot, which make that some of the products are being applied later into the cycle, in the growing cycle. So we still have to wait because the season is extremely late this year. So we have to wait till the end of the third quarter to see all the impact.

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Mutlu Gundogan, ABN AMRO Bank N.V., Research Division - Analyst [19]

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Okay. And then I'm sticking to Agro on Tessenderlo Kerley International because that includes both your liquid fertilizer volumes outside the U.S. as well as the SOP business. So on the first, you say that volumes were higher. So is that -- I'm just asking for this as a clarification. Is that mainly your ATS plant in Rouen in France, did you report higher volumes there?

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Stefaan Haspeslagh, Tessenderlo Group NV - Executive Chairman, CFO & COO [20]

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Yes. That plant is running -- ramping up to expectation. And so far, that -- we are now looking and studying if we have to make a debottlenecking and increase the capacity even. So we're looking -- it is already in the plans to see for the next future, how to move in that respect.

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Mutlu Gundogan, ABN AMRO Bank N.V., Research Division - Analyst [21]

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Okay. Interesting. And then -- and SOP reported a decline in volumes. Just wondering, did you lose share or it was the loss of certain contracts or certain countries that were affected? A bit more color will be appreciated.

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Stefaan Haspeslagh, Tessenderlo Group NV - Executive Chairman, CFO & COO [22]

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What is happening in SOP market is that the Chinese government, they abolished some export taxes so that the export of Chinese SOP has been increasing rapidly over the first half of the year.

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Mutlu Gundogan, ABN AMRO Bank N.V., Research Division - Analyst [23]

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Right. Okay. And then final question and then I'll get back into the queue. On Bio-valorization, you report, so what is it? 4.9% revenue growth in volumes and price mix. Can you split that, please? So what was volumes? What was price mix?

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Stefaan Haspeslagh, Tessenderlo Group NV - Executive Chairman, CFO & COO [24]

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As I mentioned before, Mutlu, we had been debottlenecking factories. So because of this, the volume is increasing. But on the other hand, we have been investing in collagen peptides. And because of the 2 together, we come up to increase of the revenue.

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Operator [25]

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We have another question from Nathalie Debruyne with Degroof Petercam.

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Nathalie Debruyne, Banque Degroof Petercam S.A., Research Division - Analyst [26]

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The first one would be a follow-up on Mutlu's question in Ag. So I understand you mentioned that Rouen contributed apparently very positively and surprisingly positively, happy about it. But I was wondering, could you perhaps elaborate a bit on what happened in the U.S. because we have seen, like, storms and very difficult weather conditions, which has led to a very late planting season. Has the season started yet? Is it much shorter than you're used to? And would you said that you have some kind of a competitive advantage? You guys have decided to expand your footprint and are probably better able to answer the need of your customers on a very short time frame. So that's the first question.

And the second one would be, I'm curious to hear about mining because you do not mention it explicitly in the press release. So we know that Barrick Gold actually lowered the volumes they were using from -- of your product. It's been coming down throughout 2018, and then it showed some signs of stabilization towards year-end. So I'm wondering where are we today. Do you see these volumes flat as compared to, I would say, Q4? Or does it keep on coming down? And what can we expect for that business? Have you been able to get new customers or get new contracts?

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Stefaan Haspeslagh, Tessenderlo Group NV - Executive Chairman, CFO & COO [27]

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Okay. In respect of Ag, as you know, we are -- in our policy, we are making sure that we have storage of our product around the country so that if it is a low or a short season, we can focus on just-in-time delivery to the market to our customers. And this is what we consider very important, and this is what we keep on emphasizing that we can supply our customer with the product when he needs it even in a very short season. This has been really something very important in the development over the last couple of years.

In respect of mining, we can say that the volumes of Barrick Gold are stable but keep on the low side.

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Nathalie Debruyne, Banque Degroof Petercam S.A., Research Division - Analyst [28]

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Okay. If I just can come back on Agro, could you perhaps give us a bit of an idea of how volumes developed in the first half of the year and how you see the planting season going so far? Because I'm assuming it started around May or something, the moment the conditions improved. So I understand Rouen was the contributor in H1. What about the U.S.? Were volumes, like, materially down? Or was the planting season very short and you managed to benefit from that?

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Stefaan Haspeslagh, Tessenderlo Group NV - Executive Chairman, CFO & COO [29]

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I did not mention that the volumes in U.S. are bad, we are happy about the evolution of what the volume is in U.S., plus we have a good distribution network in order to make sure that our products are getting to the customers in the right moment. So we are not dissatisfied about the volume evolution in the U.S.

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Nathalie Debruyne, Banque Degroof Petercam S.A., Research Division - Analyst [30]

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Okay. But that was my question, were volumes down or still satisfactory? Okay, good. And is the Ag season continuing into Q3? You mentioned that now we should see the NovaSource volumes coming, but should we also expect the positive trading conditions for Tessenderlo Kerley?

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Stefaan Haspeslagh, Tessenderlo Group NV - Executive Chairman, CFO & COO [31]

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This could have some benefits to the -- our fertilizer -- liquid fertilizer business in the months of July and August. They keep on applying product, which is normally quite late. But at this time of the year, they are continuing to do so.

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Operator [32]

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Our next question comes from Christophe Beghin from Kempen.

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Stefaan Haspeslagh, Tessenderlo Group NV - Executive Chairman, CFO & COO [33]

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It's probably a problem with the line. Maybe we go to the next question?

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Operator [34]

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Yes. Our next question comes from Mutlu Gundogan again.

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Mutlu Gundogan, ABN AMRO Bank N.V., Research Division - Analyst [35]

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Again, I'll ask the questions one by one, please. So on Agro, your EBITDA was down 10% year-on-year if I -- if we exclude FX and IFRS 16. Just wondering, do you still expect EBITDA growth for the full year for this segment?

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Stefaan Haspeslagh, Tessenderlo Group NV - Executive Chairman, CFO & COO [36]

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We expect to be -- to end up a little bit lower in the Ag EBITDA, taking out the ForEx and the IFRS 16.

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Mutlu Gundogan, ABN AMRO Bank N.V., Research Division - Analyst [37]

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Right. So just that will mean slightly better than -- maybe then on H2 then, would you still expect negative organic growth in the second half?

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Stefaan Haspeslagh, Tessenderlo Group NV - Executive Chairman, CFO & COO [38]

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This will really depend on the -- what is happening in the end of the year, in the months of November, December. Remember, last year, we reported a strong month of December, but at that moment, there was a tendency for increase in the liquid fertilizers' cost -- sorry, prices. So it's difficult to say the full development right now. It really depends on the evolution over the last 2 months.

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Mutlu Gundogan, ABN AMRO Bank N.V., Research Division - Analyst [39]

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Yes. All right. The next question is on Bio-valorization. Your EBITDA was up almost EUR 8 million, driven by Gelatin due to, I think, 3 things: higher volumes, higher price mix and also lower input prices. Can you tell us how important each of these 3 drivers was?

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Stefaan Haspeslagh, Tessenderlo Group NV - Executive Chairman, CFO & COO [40]

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It's hard to say, in this complex business, there are so many variables, what is exact input of each one.

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Mutlu Gundogan, ABN AMRO Bank N.V., Research Division - Analyst [41]

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Yes. But I mean accounting wise, do you know what the volume impact was? I mean my question is basically, can you tell us the -- can you give us a quantification of the financial impact of these 3 items?

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Stefaan Haspeslagh, Tessenderlo Group NV - Executive Chairman, CFO & COO [42]

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I would say to you it's mainly combination of the 3. And where I would emphasize that the collagen peptides contribute to the growth but on a relative basis, though the biggest volume remains Gelatin business. It's hard to split it up right now, Mutlu, which one of the 3 helps most.

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Mutlu Gundogan, ABN AMRO Bank N.V., Research Division - Analyst [43]

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Yes. No, I mean, obviously, the reason why I'm asking is that 1 day, lower input price will end. So if that's the majority that makes the quality of the build less, but if it's higher price mix and it's due to more quality and peptides, then, obviously, that makes me more optimistic on the performance.

Maybe another question on Bio-valorization then. Recently, palm oil prices have moved higher. How is your outlook for the second half, especially that Akiolis was still lagging in H1? Should we expect an even better performance in H2 of the Bio-valorization segment?

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Stefaan Haspeslagh, Tessenderlo Group NV - Executive Chairman, CFO & COO [44]

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Mutlu, I would like to sell to you at the price of the beginning of the year because in the meantime, prices of palm oil have come down again. So the prices of palm oil continue to be in the bad corner in respect of the evolution of the prices. There's been a spike, it's been going up, but now it's been going down again.

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Mutlu Gundogan, ABN AMRO Bank N.V., Research Division - Analyst [45]

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So if we leave out palm oil prices, I mean, what is your outlook for Bio-valorization for the second half? Should we expect a similar performance as in H1?

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Stefaan Haspeslagh, Tessenderlo Group NV - Executive Chairman, CFO & COO [46]

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Similar performance, yes, depending on the evolution of palm oil and depending on the openness of international markets in respect of proteins.

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Mutlu Gundogan, ABN AMRO Bank N.V., Research Division - Analyst [47]

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All right. And then moving to Industrial Solutions. You talk a lot about DYKA Group, there's also a little bit about Performance Chemicals, less about Mining & Industrial. I mean you say that revenues were higher driven by DYKA. So were revenues -- does that mean that revenues were flat or down at Performance Chemicals and Mining & Industrial?

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Stefaan Haspeslagh, Tessenderlo Group NV - Executive Chairman, CFO & COO [48]

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Yes. They were rather flat.

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Mutlu Gundogan, ABN AMRO Bank N.V., Research Division - Analyst [49]

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Flat?

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Stefaan Haspeslagh, Tessenderlo Group NV - Executive Chairman, CFO & COO [50]

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Yes.

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Mutlu Gundogan, ABN AMRO Bank N.V., Research Division - Analyst [51]

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Okay. I have -- given your commentary on Barrick, I can understand that, that is flat, although they did have maintenance shut down, if I recall correctly. So -- but the fact that in Performance Chemicals, you were not able to increase revenues while one would expect that you would have ramped up, is that a correct assessment?

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Stefaan Haspeslagh, Tessenderlo Group NV - Executive Chairman, CFO & COO [52]

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Can you please repeat your question?

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Mutlu Gundogan, ABN AMRO Bank N.V., Research Division - Analyst [53]

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Yes. So in Performance Chemicals, you -- obviously, the Loos plant has been ramping up, so I would've expected a higher volume impact on a year-on-year basis. Was that not the case?

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Stefaan Haspeslagh, Tessenderlo Group NV - Executive Chairman, CFO & COO [54]

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No. Because the production problems in Loos resulted in pressure on the volumes we had available for the market.

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Mutlu Gundogan, ABN AMRO Bank N.V., Research Division - Analyst [55]

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Right. Okay. And then maybe -- apologies for the long list of questions. There's not so much disclosure in the press release, so that's why we ask so many questions here. Industrial solutions, your EBITDA was up EUR 5 million, if I leave out IFRS and FX, driven by DYKA and Performance Chemicals. Can you tell us what was the most important driver behind this? Was this DYKA or Performance Chemicals?

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Stefaan Haspeslagh, Tessenderlo Group NV - Executive Chairman, CFO & COO [56]

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That's -- most of it is DYKA. That's been the major -- the main contributor. But we are not unhappy about the performance of the others also.

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Mutlu Gundogan, ABN AMRO Bank N.V., Research Division - Analyst [57]

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Yes. Because -- can you remind us what were the -- what was the start-up cost last year for Performance Chemicals? I think it was something like at least EUR 2 million or so, wasn't it?

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Stefaan Haspeslagh, Tessenderlo Group NV - Executive Chairman, CFO & COO [58]

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Yes.

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Mutlu Gundogan, ABN AMRO Bank N.V., Research Division - Analyst [59]

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So even if you don't have the start-up costs of EUR 2 million, still DYKA is the biggest driver. So why is the underlying performance of Performance Chemicals still so poor?

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Stefaan Haspeslagh, Tessenderlo Group NV - Executive Chairman, CFO & COO [60]

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Well, because Performance Chemicals is mainly based on new factories, and new factories take some time to ramp up and become stable. These are new chemical plants, and it's taking some time.

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Operator [61]

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We have a question from Christophe Beghin from Kempen.

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Christophe Beghin, Kempen & Co. N.V., Research Division - Analyst [62]

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I have a follow-up question on the Agro division. Do you see actually corn farmers having -- applying a second fertilizer application given the difficult weather conditions in July and August as the yield behind its normal level in corn?

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Stefaan Haspeslagh, Tessenderlo Group NV - Executive Chairman, CFO & COO [63]

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That's an option the farmers have, but that's not necessarily what is being done in the market. But that's an option they have.

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Christophe Beghin, Kempen & Co. N.V., Research Division - Analyst [64]

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So you don't see farmers coming back for a second application or second purchasing of liquid fertilizers?

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Stefaan Haspeslagh, Tessenderlo Group NV - Executive Chairman, CFO & COO [65]

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Some do and some don't. It really depends on the area, depends what is the state of the land, how much delay they have. It's -- I cannot give a clear message there that is everyone does it or everyone doesn't. It's difficult. And as you know, we're only half of August, and the season is continuing in the meantime. But some have the opportunity to do, and apparently, some don't.

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Christophe Beghin, Kempen & Co. N.V., Research Division - Analyst [66]

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Okay. Then I have also a follow-up question on the Bio-valorization segments, specifically on PB Leiner. You are stating that you're ramping up capacity at the Santa Fe production facility of collagen peptides. Can you a bit quantify how much you're expanding capacity?

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Stefaan Haspeslagh, Tessenderlo Group NV - Executive Chairman, CFO & COO [67]

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For competitive reasons, we don't give an idea of exact quantities, but we can tell you it's a substantial increase.

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Christophe Beghin, Kempen & Co. N.V., Research Division - Analyst [68]

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Okay. And if you read the transcripts Darling Ingredients, which is also a company operating in this segment, they stated they are generating significant high margins in this business, 15% to 20%. Is it similar for Tessenderlo? Or can you a bit give an idea what could we expect? Is it in line with peers? Is it -- can you a bit quantify or give an idea what we should expect here?

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Stefaan Haspeslagh, Tessenderlo Group NV - Executive Chairman, CFO & COO [69]

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As I -- we mentioned before, we are developing this business, and the 2 leaders in the market are quite a bit ahead of us.

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Christophe Beghin, Kempen & Co. N.V., Research Division - Analyst [70]

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And Darling Ingredients is one of them. Who is the other one? Is it Gelita?

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Stefaan Haspeslagh, Tessenderlo Group NV - Executive Chairman, CFO & COO [71]

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Correct. You are well informed.

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Christophe Beghin, Kempen & Co. N.V., Research Division - Analyst [72]

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Okay. And then last question regarding -- we've seen that S8 Engineering included in Industrial Solutions segment, but can you please quantify what the EBITDA results for H1 2019 was?

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Stefaan Haspeslagh, Tessenderlo Group NV - Executive Chairman, CFO & COO [73]

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It's about -- it's better than last year. So we hope over couple of years to have it in breakeven. But that's become not -- it's not significant anymore in this overall picture.

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Operator [74]

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We have another question from Wim Hoste from KBC Securities.

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Wim Hoste, KBC Securities NV, Research Division - Executive Director Research [75]

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A couple of additional questions. Can you give us the CapEx budget for 2019? That's the first question. And the second one is on T-Power. There was also a notion in the press release, at some point, their controlling agreements that you are -- you have right now can be -- when it runs until the middle of next decade, it can be extended for another 5 years. Can you maybe talk about the modalities of that extension? Is it at the same conditions? Is it purely RWE who can decide on that? Can you talk us on the modalities of that extension opportunity? That's the question.

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Stefaan Haspeslagh, Tessenderlo Group NV - Executive Chairman, CFO & COO [76]

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Okay. To start with the first one, our investment budget might end up a bit higher than estimated. It could vary between EUR 70 million and EUR 90 million. So that's a bit higher than what we estimated at the beginning of the year.

In respect of T-Power, we have a current agreement till 2026. And in 2023, they have an option, indeed, to extend the contract 5 years, but that's at the discretion of RWE to do that extension. And the conditions will be more favorable than the current ones.

All right. Thank you all for your questions. I hope you have now a better understanding of our performance and of our evolution. And we'll talk to you at our next conference call, which is beginning next year in the month of March.

So thank you all for your confidence in our long-term project. Thank you for supporting us, and talk to you next year March. Bye-bye.

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Operator [77]

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Ladies and gentlemen, this concludes today's conference call. A replay of the webcast will be available on the website. Thank you all for attending, and you may now disconnect your lines.